OLEG SHTUTMAN VS. BRIAN PATRICK CARR Â (L-0638-12, BURLINGTON COUNTY AND STATEWIDE)(CONSOLIDATED)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R.1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NOS. A-1064-15T1
A-1093-15T1
OLEG SHTUTMAN,
Plaintiff-Appellant,
v.
BRIAN PATRICK CARR, Individually
and as a Member of Capital
Markets Advisory Limited
Liability Company f/k/a Carr
Miller Capital Investments, LLC,
Defendant-Respondent,
and
EVERETT CHARLES FORD MILLER,
Individually and as President
of Carr Miller Capital, LLC,
and as Chief Operating Officer
and Member of Board of Directors
for INDIGO-ENERGY INC.; RYAN
JUDE CARR, Individually and as
a Member of Capital Markets
Advisory Limited Liability
Company f/k/a Carr Miller
Capital Investments, LLC;
HERCULES PAPPAS, Individually and
as an agent of Carr Miller
Capital, LLC, and as Member of
Board of Directors for
INDIGO-ENERGY INC., and as a
principal in ICA Investment
Advisors, LLC; PAPPAS &
RICHARDSON, LLC, a New Jersey
limited liability company;
PAPPAS & WOLF, LLC, a New Jersey
limited liability company; CAPITAL
MARKETS ADVISORY LIMITED LIABILITY
COMPANY, f/k/a CARR MILLER
CAPITAL INVESTMENTS, LLC, a New
Jersey limited liability company;
INDIGO-ENERGY INC.; STEVE DURBIN;
STANLEY L. TEEPLE; BRAD HOFFMAN; and
JOHN FISH,
Defendants.
_____________________________________
OLEG SHTUTMAN,
Plaintiff-Respondent,
v.
BRIAN PATRICK CARR, Individually
and as a Member of Capital
Markets Advisory Limited
Liability Company f/k/a Carr
Miller Capital Investments, LLC;
Defendant-Appellant,
and
EVERETT CHARLES FORD MILLER,
Individually and as President
of Carr Miller Capital, LLC,
and as Chief Operating Officer
and Member of Board of Directors
for INDIGO-ENERGY INC.; RYAN
JUDE CARR, Individually and as
a Member of Capital Markets
Advisory Limited Liability
Company f/k/a Carr Miller
Capital Investments, LLC;
HERCULES PAPPAS, Individually and
as an agent of Carr Miller
Capital, LLC, and as Member of
2 A-1064-15T1
Board of Directors for
INDIGO-ENERGY INC., and as a
principal in ICA Investment
Advisors, LLC; PAPPAS &
RICHARDSON, LLC, a New Jersey
limited liability company;
PAPPAS & WOLF, LLC, a New Jersey
limited liability company; CAPITAL
MARKETS ADVISORY LIMITED LIABILITY
COMPANY, f/k/a CARR MILLER
CAPITAL INVESTMENTS, LLC, a New
Jersey limited liability company;
INDIGO-ENERGY INC.; STEVE DURBIN;
STANLEY L. TEEPLE; BRAD HOFFMAN; and
JOHN FISH,
Defendants.
________________________________________________________________
Submitted May 23, 2017 – Decided October 4, 2017
Before Judges Leone and Vernoia.
On appeal from Superior Court of New Jersey,
Law Division, Burlington County, Docket No.
L-0638-12.
Law Offices of Thomas T. Booth, Jr., LLC
attorneys for Oleg Shtutman, appellant in
Docket No. A-1064-15 and respondent in Docket
No. A-1093-15 (Matthew J. Gindele, of counsel
and on the briefs).
Brian Patrick Carr, respondent pro se in
Docket No. A-1064-15 and appellant pro se in
A-1093-15 (Ernest Edward Badway and Lauren J.
Talan, on the briefs).
PER CURIAM
3 A-1064-15T1
These appeals arise from a Ponzi scheme involving defendant
Everett Charles Ford Miller.1 Plaintiff Oleg Shtutman claimed he
invested over a million dollars in promissory notes (CM notes)
issued by Carr Miller Capital, LLC (CMC) based on representations
about one of CMC's investments, defendant Indigo-Energy, Inc.
Plaintiff sued numerous defendants, claiming common law fraud,
aiding and abetting fraud, negligence, negligent
misrepresentation, and unjust enrichment.
Prior to trial, all defendants were dismissed except
defendant Brian Patrick Carr.2 On summary judgment, the motion
court dismissed plaintiff's claims of common law fraud, aiding and
abetting fraud, and unjust enrichment but did not dismiss the
negligence and negligent misrepresentation claims.3 The jury found
defendant was negligent and awarded damages.
Plaintiff and defendant appealed. We listed the appeals
back-to-back and now consolidate them for the purpose of this
opinion. In plaintiff's appeal, Docket No. A-1064-15, we affirm
the motion court's grant of summary judgment on his fraud claim
1
See United States v. Miller, 833 F.3d 274, 277 (3d Cir. 2016).
2
Because Brian Patrick Carr was the only defendant remaining
during the trial and on appeal, we will refer to him as
"defendant."
3
Plaintiff does not challenge the dismissal of the unjust
enrichment claim.
4 A-1064-15T1
and its imposition of sanctions against him. We reverse the
court's grant of summary judgment on his aiding and abetting fraud
claim. In defendant's appeal, Docket No. A-1093-15, we vacate the
court's denial of summary judgment on plaintiff's negligent
misrepresentation claim, and reverse the denial of summary
judgment on his negligence claim. We reject defendant's challenges
to the trial court's evidentiary rulings except the ruling allowing
testimony regarding a consent order, which was prejudicial error.
We remand for further proceedings on plaintiff's aiding and
abetting fraud claim and his negligent misrepresentation claim
regarding an alleged non-disclosure by defendant.
I.
We summarize the facts set forth in the trial testimony.
Plaintiff testified as follows.
Plaintiff and his wife met Miller when they moved next door
to him in 2006. Miller invited plaintiff and his wife to the CMC
holiday party in 2006. Then and later, plaintiff was told
defendant was "Miller's partner." Defendant told plaintiff "he
was a certified advisor, he was fully licensed in securities."
Plaintiff was impressed with defendant's abilities regarding
"investing and consulting and understanding these investments."
Plaintiff again met defendant at the 2007 CMC holiday party
at Miller's house. Defendant told plaintiff "how great" Indigo-
5 A-1064-15T1
Energy was, "how they invested a lot of their own money," and how
"they were going to make the value of it go up, but they needed
initial capital." Defendant "said there was zero risk."
Miller invited plaintiff to a CMC event at the 2007 Heisman
Trophy dinner. Plaintiff drove there with Miller and defendant,
who discussed how he and Miller were partners. Plaintiff was told
Indigo-Energy was "guaranteed, it's risk free" and "it's ready to
take off." Around eight weeks later, plaintiff made an initial
investment of $100,000 with CMC, and received CM notes as a client
of Miller.
Miller invited plaintiff and his wife to the 2008 U.S. Open,
where plaintiff next saw defendant. "[A]gain they were just really
high on this Indigo Energy. [Defendant] just couldn't stop talking
about it." Defendant told plaintiff not to "worry about [investing
in] it, we have our own money in it. We have $8 million of Carr
Miller's money into it. . . . [W]e're so well diversified that
you'll never have to worry about losing your investment here."
Plaintiff subsequently invested another $10,000 with CMC.
Plaintiff next met defendant at the Indigo-Energy
shareholders meeting, at which Miller was chosen as CEO. That
night, at the 2008 Heisman Trophy dinner, Miller and defendant
were talking about "how great this [Indigo-Energy] is going to be,
how the stock is going to skyrocket." Defendant told plaintiff
6 A-1064-15T1
"there was absolutely no risk." In April 2009, plaintiff made
another investment of $1,000,000 with CMC.
Plaintiff again saw defendant when he attended the 2009 U.S.
Open at Miller's invitation. "[T]hey always had a reason why the
stock wasn't doing what they said it would be doing" but said
"everything was still going great." Later, plaintiff invested
another $274,900 with CMC.
Plaintiff testified defendant influenced him the most in
investing with CMC, because defendant "was the brains. He got the
license. He had the education. He had the experience. He had
the look, he had the talk, he had everything you could possibly
ask for." He said he relied "[a] hundred percent" on defendant's
advice in investing.
Defendant testified as follows. He was licensed as a
certified financial planner until 2010, allowing him "to do
financial planning for individuals, businesses, [and]
organizations." He also had a Series 65 license, allowing him "to
give advice with respect to individual securities."
Defendant was Chairman of CMC from 2008 to the summer of
2009. There, he served mostly as a figurehead and was not involved
in the day-to-day operations. Defendant never represented to
anyone that he was an owner of CMC. In April 2008, Miller created
a registered investment advisory business, defendant Capital
7 A-1064-15T1
Markets Advisory Limited Liability Company, originally known as
Carr Miller Capital Investments, LLC (collectively "CMA"). After
the fact, defendant was informed he was given ninety-five percent
ownership of CMA.4
Defendant has no recollection of meeting plaintiff at the CMC
holiday parties. Defendant did not recall any business being
discussed at the 2007 and 2008 Heisman Trophy Dinner. He only
recalled simply meeting plaintiff at the 2008 Heisman Trophy
dinner. Defendant did not recall seeing plaintiff at the 2008
U.S. Open, remembered plaintiff being present at the 2009 U.S.
Open, but did not recall discussing investments at either event.
Defendant denied any knowledge of plaintiff's investments with
CMC, discussing Indigo-Energy with plaintiff, or selling CMC notes
to plaintiff.
Miller's deposition testimony was read at trial. In it, he
testified as follows. Miller was the sole owner of CMC; defendant
was never a member. CMC was a separate and distinct entity from
CMA. There was no discussion at the sporting events of plaintiff
investing with CMC. Miller did not believe he ever talked about
investments with plaintiff in defendant's presence, and was
4
Plaintiff testified no one explained that there was a distinction
between CMC and CMA, and that he believed the entities to be "[o]ne
in the same."
8 A-1064-15T1
unclear about whether he recalled defendant soliciting plaintiff
to invest with CMC.
The jury found defendant negligently gave investment advice
to plaintiff, causing him $591,492.00 in damages. On September
30, 2015, the trial court entered a total judgment against
defendant in the amount of $639,814.40, including interest.
II.
We first address plaintiff's claims in his appeal (Docket No.
A-1064-15). Plaintiff argues the motion court erred in imposing
sanctions against him and in granting summary judgment on his
common law fraud claim and aiding and abetting fraud claim.
A.
The following facts concerning sanctions are taken from the
certification of defendant's counsel, Lauren J. Talan, which the
motion court credited. Defense counsel served a notice to take
plaintiff's deposition on April 15, 2014. Before the deposition
could take place, plaintiff's first counsel withdrew. The motion
court ordered plaintiff to serve his responses to requests for
admissions and his answers to interrogatories by September 22,
2014, and to be deposed by October 31, 2014. However, plaintiff
served his written discovery late.
As a result, defense counsel initially attempted to schedule
plaintiff's deposition for the beginning of November. Plaintiff's
9 A-1064-15T1
second counsel responded he was unavailable during the beginning
of November and suggested a December deposition. On October 8,
2014, defense counsel offered to take the deposition on October
29, 30, or 31, 2014. Plaintiff's second counsel did not respond.
Defendant filed a motion for sanctions against plaintiff. After
plaintiff's second counsel filed a response, he was disqualified
and replaced by a third counsel. On March 20, 2015, the motion
court announced it would award a reasonable fee to defendant. On
July 30, 2015, the trial court ordered plaintiff to pay defendant
$5070 in counsel fees plus $89.20 in costs.
Rule 4:23-2(b) permits various sanctions if "a party fails
to obey an order to provide or permit discovery." In addition,
"the court shall require the party failing to obey the order to
pay the reasonable expenses, including attorney's fees, caused by
the failure," "unless the court finds that the failure was
substantially justified or that other circumstances make an award
of expenses unjust." Ibid.; see Kolczycki v. City of East Orange,
317 N.J. Super. 505, 520 (App. Div. 1999). Plaintiff did not
advance a substantial justification for failing to obey the order
that he submit to deposition before October 31, or failing to
respond to defense counsel's October 8 letter or to make other
arrangements.
10 A-1064-15T1
We reject plaintiff's arguments that the sanctions were
unjust. First, he alleges defense counsel made oral
representations which contradicted her certification, but the
court did not appear to rely on those oral representations.
Second, plaintiff notes the sanctions motion was heard four months
after briefing, but he fails to show harm from this delay, caused
by the disqualification of his second counsel. Third, plaintiff
complains his second counsel was not present at the motion hearing
due to his disqualification, but plaintiff's third counsel
reiterated the points made in his second counsel's written
opposition. Fourth, plaintiff claims the court failed to consider
that written opposition, but the record shows the court was aware
of it.
Plaintiff argues the fees were improperly imposed against
plaintiff directly, not his counsel. However, Rule 4:23-2(b)
authorizes requiring "the party" to pay the fees. We cannot say
the motion court abused its discretion in sanctioning plaintiff.
Thus, the imposition of counsel fees was appropriate under Rule
4:23-2(b).
B.
Plaintiff appeals the motion court's August 10, 2015 order
granting summary judgment on the common law fraud claim and the
aiding and abetting fraud claim against defendant.
11 A-1064-15T1
Summary judgment must be granted if the court determines
"that there is no genuine issue as to any material fact challenged
and that the moving party is entitled to a judgment or order as a
matter of law." R. 4:46-2(c). The court must "consider whether
the competent evidential materials presented, when viewed in the
light most favorable to the non-moving party in consideration of
the applicable evidentiary standard, are sufficient to permit a
rational factfinder to resolve the alleged disputed issue in favor
of the non-moving party." Brill v. Guardian Life Ins. Co. of Am.,
142 N.J. 520, 540 (1995). An appellate court "review[s] the trial
court's grant of summary judgment de novo under the same standard
as the trial court." Templo Fuente De Vida Corp. v. Nat'l Union
Fire Ins. Co., 224 N.J. 189, 199 (2016). We must hew to that
standard of review, and must "confine ourselves to the original
summary judgment record." Lombardi v. Masso, 207 N.J. 517, 542
(2011).
1.
To prove common law fraud, five elements must be satisfied:
"(1) a material misrepresentation of a presently existing or past
fact; (2) knowledge or belief by the defendant of its falsity; (3)
an intention that the other person rely on it; (4) reasonable
reliance thereon by the other person; and (5) resulting damages."
Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610 (1997).
12 A-1064-15T1
Plaintiff did not present evidence that there was "a material
misrepresentation of a presently existing or past fact." See
ibid. The "plaintiff must show the misrepresentation of a fact
that exists at or before the time the representation is made."
Suarez v. E. Int'l Coll., 428 N.J. Super. 10, 29 (App. Div. 2012).
Fraud claims "cannot ordinarily be predicated on representations
which involve things to be done in the future." Anderson v.
Modica, 4 N.J. 383, 391-92 (1950). "Statements as to future or
contingent events, to expectations or probabilities, or as to what
will or will not be done in the future, do not constitute
misrepresentations, even though they may turn out to be wrong."
Alexander v. CIGNA Corp. 991 F. Supp. 427, 435 (D.N.J. 1997),
aff’d, 172 F.3d 859 (3d Cir. 1998); accord Middlesex Cty. Sewer
Auth. v. Borough of Middlesex, 74 N.J. Super. 591, 605 (Law. Div.
1962), aff'd o.b., 79 N.J. Super. 24-25 (App. Div.), certif.
denied, 40 N.J. 501 (1963)).
Further, "neither expressions of opinion, nor 'puffery,' will
satisfy this element of fraud." Suarez, supra, 428 N.J. Super.
at 29 (citations omitted). A statement is a matter of fact if it
is "'susceptible of exact knowledge when the statement was made'";
it is a matter of opinion if "'it is unsusceptible of proof'" at
that time. Joseph J. Murphy Realty, Inc. v. Shervan, 159 N.J.
Super. 546, 551 (App. Div. 1978) (citation omitted). "However
13 A-1064-15T1
persuasive," an opinion that the customer is "in good hands' . . .
is nothing more than puffery," "is not a statement of fact, and
therefore cannot rise to the level of common law fraud." Rodio
v. Smith, 123 N.J. 345, 352 (1991)(citing Joseph J. Murphy Realty,
supra, 159 N.J. Super. at 551). Saying a product is "'the best'
. . . is only a statement of the seller's opinion." Jakubowski
v. Minn. Mining & Mfg., 80 N.J. Super. 184, 195 (App. Div. 1963).
Statements that a house is "'very saleable'" were merely "opinions"
rather than "a material representation of a presently existing or
past fact." Joseph J. Murphy Realty, supra, 159 N.J. Super. at
550-51. Similarly, "fraud cannot be predicated on representations
as to value." Daibo v. Kirsch, 316 N.J. Super. 580, 589 (App.
Div. 1998)(finding the defendan'ts grossly inflated equity
estimate . . . . was not an expression of fact based on [his]
assessment of value").
Defendant's alleged statements to plaintiff did not speak to
a present or past fact. Plaintiff testified at his deposition
defendant told him the Indigo-Energy "stock is going to increase,"
it was "going to rise," and "it's going to go huge," and how
"terrific everything was going to be." Plaintiff also said he was
told the stocks "c[ould]n't do anything but go up." These
statements all constituted predictions about the future.
Defendant also stated "how great [Indigo-Energy] is currently and
14 A-1064-15T1
how much greater it's going to be moving forward," and that it was
"undervalued." Those were not statements of fact but related
defendant's opinions, and thus were not actionable. See, e.g.,
Argabright v. Rheem Mfg. Co., 201 F. Supp. 3d 578, 608 (D.N.J.
2016) (Simandle, J.) (finding such statements, including that
products have "'great warranties," are "opinion rather than fact,"
"are neither measurable nor concrete, and are simply too imprecise
to be considered material" under New Jersey law); Amorim Holding
Financeria v. C.P. Baker & Co., 53 F. Supp. 3d 279, 305 (D. Mass.
2014) (finding an assurance that a company is a "'great investment'
. . . is not the type of statement relied upon by reasonable
investors"); Longo v. Butler Equities II, L.P., 718 N.Y.S.2d 30,
31 (App. Div. 2000) (ruling that "the alleged misrepresentations
that the target company was seriously undervalued . . . can only
be understood as nonactionable expressions of opinion, mere
puffing").5
In his complaint, plaintiff alleged Miller said it was a
"zero risk" investment. In his deposition, he did not claim either
Miller or defendant said it was without risk. However, after
5
Plaintiff alleged defendant knew Indigo-Energy was not profitable
at the time defendant supposedly encouraged him to invest in it.
However, defendant never told him it was profitable. Rather,
plaintiff testified at his deposition defendant said "that the
stock price is going to increase, and that's where the real profit
and wealth is going to come from."
15 A-1064-15T1
defendant moved for summary judgment, plaintiff filed a
supplemental certification claiming "I was told by Brian Carr that
investing in CMC was risk free." The motion court discounted
plaintiff's belated "epiphany" in a certification prepared by
counsel.
Under "the sham affidavit doctrine," trial courts may
"disregard[] an offsetting affidavit that is submitted in
opposition to a motion for summary judgment when the affidavit
contradicts the affiant's prior deposition testimony." Shelcusky
v. Garjulio, 172 N.J. 185, 193-94 (2002). "[A] trial court may
reject an affidavit as a sham when it 'contradict[s] patently and
sharply' earlier deposition testimony, there is no reasonable
explanation offered for the contradiction, and at the time the
deposition testimony was elicited, there was no confusion or lack
of clarity evident from the record." Hinton v. Meyers, 416 N.J.
Super. 141, 150 (App. Div. 2010) (quoting Shelcusky, supra, 172
N.J. at 201-02).
We need not decide whether plaintiff's "risk free" statement
in his supplemental certification could be disregarded as a sham
affidavit, because the claimed statement was not actionable.
Generally, asserting that an investment has low or no risk is "a
non-actionable vague expression of corporate optimism and puffery
upon which no reasonable investor would rely." Kelly v. Elec.
16 A-1064-15T1
Arts, Inc., 71 F. Supp. 3d 1061, 1070 (N.D. Cal. 2014); see First
Presbyterian Church v. John G. Kinnard & Co., 881 F. Supp. 441,
444 (D. Minn. 1995); Hasso v. Hapke, 173 Cal. Rptr. 3d 356, 382-
83 (Ct. App. 2014); Paull v. Capital Res. Mgmt., Inc., 987 S.W.2d
214, 218-19 (Tex. App. 1999); Loula v. Snap-On Tools Corp., 498
N.W.2d 866, 868-69 (Wis. Ct. App. 1993).6
Here, even drawing all inferences in favor of plaintiff,
defendant's alleged statement that the investment was risk free
was not actionable. According to plaintiff, defendant was urging
him to invest because Indigo-Energy, a gas-drilling company which
had not yet struck gas, would be successful in the future. In
that context, if defendant claimed the investment was risk free,
"no rational person would accept such a claim." See Suarez, supra,
428 N.J. Super. at 35 (quoting Trs. of Columbia Univ. v. Jacobsen,
53 N.J. Super. 574, 579 (App. Div.), appeal dismissed, 31 N.J.
221-22 (1959), cert. denied, 363 U.S. 808, 80 S. Ct. 1243, 4 L.
Ed. 2d 1150 (1960)). Such opinions about the risk of future loss
6
Cf. Cohen v. Prudential-Bache Secur., Inc., 713 F. Supp. 653,
658 (S.D.N.Y. 1989) (finding a statement an investment was "without
risk" "approaches the puffery line" but finding it actionable when
combined with an assurance of a precise rate of return); Webb v.
First of Mich. Corp., 491 N.W.2d 851, 853-54 (Mich. Ct. App. 1992)
(finding a statement that an investment was "risk-free" "has the
appearance of a mere expression of professional opinion or of
'puffing,' neither of which would be actionable," but denying
summary judgment by "[g]iving the benefit of doubt to plaintiffs").
17 A-1064-15T1
"are merely expressions in the nature of puffery and thus are not
actionable." See N.J. Citizen Action v. Schering-Plough Corp.,
367 N.J. Super. 8, 13-14 (App. Div.)(finding non-actionable a
statement that a customer "'can lead a normal nearly symptom-free
life again'"), certif. denied, 178 N.J. 249 (2003).
Plaintiff also argues defendant committed a negligent
misrepresentation by failing to tell him that the CMC notes he was
purchasing were unregistered, non-exempt securities, which he
claims could not be sold under New Jersey law. See N.J.S.A. 49:3-
60. This claim requires different treatment.
In his complaint, plaintiff's negligent misrepresentation
count alleged that "[d]efendants . . . omitted material facts to
Plaintiff in connection with the offer and sale of securities,"
but did not list among the omitted facts that the securities were
unregistered and non-exempt.7 When asked at his deposition if he
had "any communications with Brian Carr or anyone at CMA regarding
your [CMC] notes," plaintiff answered that defendant "was aware"
that plaintiff "had an investment there," and that they discussed
7
Plaintiff's complaint did not allege that defendant committed
fraud by non-disclosure. However, "our rules demand [fraud] be
pleaded with specificity." Nostrame v. Santiago, 213 N.J. 109,
129 (2013) (citing R. 4:5-8(a)); see Miller v. Bank of America
Home Loan Servicing, L.P., 439 N.J. Super. 540, 552 (App. Div.
2015) (a plaintiff must plead that the defendant knowingly
concealed a material fact). Therefore, we decline to read such
an allegation into plaintiff's fraud count.
18 A-1064-15T1
"how it was doing and how it was progressing and how it was to
progress moving forward." Plaintiff gave no deposition testimony
that he was deceived concerning the unregistered and non-exempt
nature of the securities.
However, in his supplemental certification filed in
opposition to summary judgment, plaintiff averred:
I was never advised by Brian Carr that the CMC
Notes were considered non-exempt unregistered
securities and violated . . . New Jersey law.
Brian Carr never advised me that he was not
authorized to sell those securities. I would
not have invested in CMC had I known that the
Notes were essential[ly] illegal securities.
Although the court found plaintiff's supplemental certification
was a sham affidavit insofar as it asserted defendant said
investing in CMC was "risk free," the court did not rule on whether
it was a sham regarding the non-disclosure averment.
Plaintiff argued to the motion court this non-disclosure was
a misrepresentation. The court correctly noted it was not
defendant but CMC which sold the CMC notes to plaintiff. But the
court did not address the averment defendant failed to disclose
the CMC notes were unregistered and non-exempt.
The sham affidavit issue should be resolved by the trial
court in the first instance, applying the standards set forth in
Shelcusky and Hinton. If the court finds plaintiff's non-
disclosure averment was a sham, the court shall dismiss the
19 A-1064-15T1
negligent misrepresentation claim. Otherwise, the court should
address whether summary judgment is otherwise appropriate on the
non-disclosure averment. We vacate the denial of summary judgment
on the non-disclosure issue, and remand for further proceedings.
Because plaintiff failed to advance sufficient evidence of a
"material misrepresentation of a presently existing or past fact,"
Gennari, supra, 148 N.J. at 610, we affirm the dismissal of the
fraud claim against defendant.8
2.
Plaintiff also appeals the dismissal of his claim for aiding
and abetting fraud. To prove such a claim,
a plaintiff must show that "(1) the party whom
the defendant aids must perform a wrongful act
that causes an injury; (2) the defendant must
be generally aware of his role as part of an
overall illegal or tortious activity at the
time that he provides the assistance; (3) the
defendant must knowingly and substantially
assist the principal violation."
[State, Dep't of Treasury ex rel. McCormac v.
Qwest Commc'ns Int'l, Inc., 387 N.J. Super.
469, 484-85 (App. Div. 2006) (quoting Tarr v.
Ciasulli, 181 N.J. 70, 84 (2004)).]
"A claim for aiding and abetting fraud [thus] requires proof
of the underlying tort, that is, the fraud committed by [the
8
Accordingly, we need not consider whether the evidence supported
a reasonable inference defendant knew his statements were false.
20 A-1064-15T1
principal]." Id. at 485. Accordingly, plaintiff had to present
proof Miller defrauded plaintiff.
The motion court granted summary judgment on the sole ground
that Miller was no longer a party to the case.9 The court viewed
Miller's dismissal as meaning "the issue of Mr. Miller's fraud is
never going to go to the jury in this case." The court ruled that
"without the finding of Miller's fraud," a jury could not find
defendant aided and abetted Miller's fraud.
However, the jury could have been instructed to determine if
Miller defrauded plaintiff even if Miller was longer a party. Even
in a criminal case, a defendant can be convicted of aiding and
abetting a principal even if the principal was not prosecuted or
was acquitted. N.J.S.A. 2C:2-6(f); State v. Parris, 175 N.J.
Super. 603, 606-08 (App. Div. 1980) (applying the common law). We
see no reason why the same could not occur in this civil case
where the principal was not sued, has settled, or was dismissed.
If the jury found Miller defrauded plaintiff, and that defendant
aided and abetted Miller it would be appropriate to hold defendant
liable for his aiding and abetting even if the case could not be
pursued against Miller.
9
A stipulation of dismissal had been filed as to Miller and CMC,
allegedly because a receiver had been appointed.
21 A-1064-15T1
As the only ground offered by the motion court was invalid,
we reverse its order granting summary judgment on the aiding and
abetting claim, and remand for further proceedings on that claim.
If the claim proceeds to trial, the court shall instruct the jury
to make findings about whether Miller defrauded plaintiff, and the
other elements of aiding and abetting against defendant.
III.
We now address defendant's claims in his appeal (Docket No.
A-1093-15). He appeals the motion court's August 10, 2015 order
denying summary judgment on plaintiff's negligence claim and
negligent misrepresentation claim. He also claims the trial court
made several erroneous evidentiary rulings.
A.
Regarding the negligence-based claims, defendant first argues
the motion court erred in finding he had a duty to plaintiff. "A
prerequisite to recovery on a negligence theory is a duty owed by
defendant to plaintiff. . . . [T]he question of whether a duty
exists is a matter of law properly decided by the court, not the
jury." Strachan v. John F. Kennedy Memorial Hosp., 109 N.J. 523,
529 (1988) (citations omitted).
"In New Jersey, professionals are held to the standards of
their industry," and "investment advisors are professionals who
hold themselves out to the public as having special knowledge,
22 A-1064-15T1
labor or skill." Lucier v. Williams, 366 N.J. Super. 485, 496
(App. Div. 2004) (citing Erlich v. First Nat'l Bank, 208 N.J.
Super. 264, 287-88 (Law Div. 1984)). A professional investment
advisor has a duty "to give prudent advice." Erlich, supra, 208
N.J. at 291; see also Harvey E. Bines & Steve Thel, Investment
Management Law and Regulation § 6.01 at 289 (2004) ("Investment
managers owe their clients professional competence in the handling
of client affairs.").
As the account representative for plaintiff at CMC, Miller
had a duty to act as a reasonable investment advisor. Defendant,
an investment advisor himself, served as Chairman of CMC from 2008
to the summer of 2009. Plaintiff certified he was "always
introduced to Brian Carr as Everett Miller's partner and . . .
heard Brian Carr introduced to others in that capacity." Thus,
as the motion court found, there was sufficient evidence, viewed
in the light most favorable to plaintiff, for a jury to find
defendant held himself out as a representative of CMC.
Under those circumstances, the motion court properly ruled
that Miller had an obligation "not to provide erroneous, misleading
information," and that if defendant was acting "on behalf of CMC
then he had the same obligation to [plaintiff]."
Whether a person owes a duty of reasonable
care toward another turns on whether the
imposition of such a duty satisfies an abiding
23 A-1064-15T1
sense of basic fairness under all of the
circumstances in light of considerations of
public policy. That inquiry involves
identifying, weighing, and balancing several
factors – the relationship of the parties, the
nature of the attendant risk, the opportunity
and ability to exercise care, and the public
interest in the proposed solution.
[Hopkins v. Fox & Lazo Realtors, 132 N.J. 426,
439 (1993).]
Our Supreme Court has applied those principles to analogous
situations. See, e.g., Carter Lincoln-Mercury, Inc., Leasing Div.
v. EMAR Grp., Inc., 135 N.J. 182, 194 (1994); see also Banco
Popular N. Am. v. Gandi, 184 N.J. 161, 179 (2005) (discussing
Petrillo v. Bachenberg, 139 N.J. 472 (1995)). "One who holds
himself out to the public as [a professional] is required to have
the degree of skill and knowledge requisite to the calling," and
to exercise it. Carter Lincoln-Mercury, supra, 135 N.J. at 189
(quoting Rider v. Lynch, 42 N.J. 465, 476 (1964)) (both holding
an insurance broker is liable to a non-client). The professional's
"duty is defined not by the contractual relationship between the
parties but by considerations of foreseeability and fairness."
Id. at 196.
Moreover, our Supreme Court has relied on the Restatement's
negligent misrepresentation section, Restatement (Second) of
Torts, §522 (1977). Banco Popular, supra, 184 N.J. at 180;
Petrillo, supra, 139 N.J. at 484. Section 552 imposes on
24 A-1064-15T1
professionals and other business people a duty to avoid negligently
providing false information, including to non-clients:
(1) One who, in the course of his business,
profession or employment, or in any other
transaction in which he has a pecuniary
interest, supplies false information for the
guidance of others in their business
transactions, is subject to liability for
pecuniary loss caused to them by their
justifiable reliance upon the information, if
he fails to exercise reasonable care or
competence in obtaining or communicating the
information.
(2) . . . [T]he liability stated in Subsection
(1) is limited to loss suffered
(a) by the person or one of a
limited group of persons for whose
benefit and guidance he intends to
supply the information or knows that
the recipient intends to supply it;
and
(b) through reliance upon it in a
transaction that he intends the
information to influence or knows
that the recipient so intends or in
a substantially similar
transaction.
[Restatement, supra, § 552.]
Applying § 552, our Supreme Court in H. Rosenblum, Inc. v.
Adler, 93 N.J. 324 (1983), determined that non-client investors
"could maintain a negligence action against a certified public
accountant who negligently had prepared financial statements" on
which "investors foreseeably may rely." Petrillo, supra, 139 N.J.
25 A-1064-15T1
at 484; see H. Rosenblum, supra, 93 N.J. at 352.10 In Petrillo,
supra, the Court ruled that, "like certified public accountants
or other professionals involved in commercial transactions, a
lawyer's duty may run to [non-client] third parties who foreseeably
rely on the lawyer's opinion[.]" 139 N.J. at 484.
We see no reason why the same duty could not be imposed on
defendant, an investment advisor, if he was holding himself out
to plaintiff as a representative of CMC. See Singer v. Beach
Trading Co., 379 N.J. Super. 63, 76-77 (App. Div. 2005) (applying
§ 552 to a company responding to an employment inquiry). If
defendant was holding himself out to plaintiff as a representative
of CMC, he was holding himself out as acting "in the course of his
business, profession or employment, or in any other transaction
in which he has a pecuniary interest." Restatement, supra, §
552(1); see id. § 552 cmt. d ("[O]fficers of a corporation,
although they receive no personal consideration for giving
information concerning its affairs, may have a pecuniary interest
10
Subsequent legislation modified the standard for accountants,
N.J.S.A. 2A:53A-25, but did "not affect the application of section
552 to other professionals." Petrillo, supra, 139 N.J. at 485.
26 A-1064-15T1
in its transactions, since they stand to profit indirectly from
them").11
If a jury found that defendant held himself out to plaintiff
as a representative of CMC, imposing a duty on defendant toward
plaintiff "satisfies an abiding sense of basic fairness." Hopkins,
supra, 132 N.J. at 439. It also conforms to the interpretation
of § 552 in H. Rosenblum, Petrillo, and Singer. Therefore, the
motion court did not err in finding there was evidence supporting
plaintiff's claim that defendant owed him a duty sufficient to
support his negligence claims.12
Second, defendant argues that even if the motion court
properly found a duty, it erred in denying summary judgment on
plaintiff's negligence and negligent misrepresentation claims. We
are constrained to agree concerning the alleged
11
By contrast, if defendant was not holding himself out to
plaintiff as a representative of CMC, he would not have a duty to
plaintiff, as there is no claim plaintiff otherwise engaged him
as an investment advisor. If a professional or business person
"gives a casual and offhand opinion . . . to a friend whom he
meets on the street, or what is commonly called a 'curbstone
opinion,' it is not to be regarded as given in the course of his
business or profession." Restatement, supra, § 552 cmt. d.
12
We note the trial court's instructions and the jury verdict
sheet did not require the jury to resolve the disputed factual
issue of whether defendant held himself out to plaintiff as a
representative of CMC.
27 A-1064-15T1
misrepresentations, because they are puffery, prediction, or
opinion.
Negligence has four elements: "'(1) [a] duty of care, (2) [a]
breach of [that] duty, (3) proximate cause, and (4) actual
damages[.]'" Polzo v. Cty. of Essex, 196 N.J. 569, 584 (2008)
(citations omitted) (alterations in original). Where the
negligence involves misrepresentation, "[a]n incorrect statement,
negligently made and justifiably relied upon, may be the basis for
recovery of damages for economic loss or injury sustained as a
consequence of that reliance." H. Rosenblum, supra, 93 N.J. at
334; accord Green v. Morgan Props., 215 N.J. 431, 457 (2013); see
Restatement, supra, § 552.
"The element of reliance is the same for fraud and negligent
misrepresentation." Kaufman v. I-Stat Corp., 165 N.J. 94, 109
(2000) (citing H. Rosenblum, supra, 93 N.J. at 334; Gennari, supra,
148 N.J. at 610). Such reliance must be justifiable. Ibid.
Similarly, "[i]ncorrect statement and misstatement of fact are
elements of both common law fraud and negligent
misrepresentation." Union Ink Co. v. AT&T Corp., 352 N.J. Super.
617, 645 (App. Div. 2002). If a defendant cannot be held liable
for a statement made with an intent to defraud that is puffery,
opinion, or prediction, there is no reason he should be liable for
the same statement if made honestly but negligently.
28 A-1064-15T1
Thus, "[i]n order to sustain a cause of action based on
negligent misrepresentation, the plaintiff must establish that the
defendant negligently made an incorrect statement of a past or
existing fact." Masone v. Levine, 382 N.J. Super. 181, 187 (App.
Div. 2005).13 "Reliance is ordinarily not justifiable if the
misrepresentation . . . is mere puffing, or states an opinion or
judgment of one without specialized knowledge and that does not
imply assertions of fact; [or] predicts some future course of
events over which the defendant has little or no control[.]" D.
Dobbs et al., 3 The Law of Torts, § 672 at 669, §676 at 682 (2d
ed. 2011); see W. Keeton et al., Prosser and Keeton on the Law of
Torts, § 109 (5th ed. 1984).
As set forth in our discussion of the fraud claim, plaintiff
presented no evidence that defendant made an incorrect statement
of a past or existing fact. Instead, defendant's alleged
13
Courts have similarly held under § 552 of the Restatement that
"[a] claim for negligent misrepresentation cannot be based on
future promises; it must be premised on statements about past or
present facts." In re Allstate Life Ins. Co. Litig., 971 F. Supp.
2d 930, 945 (D. Ariz. 2013); see Morrow v. Bank of Am., N.A., 324
P.3d 1167, 1180 (Mont. 2014); Wilkinson v. Shoney's, Inc., 4 P.3d
1149, 1165 (Kan. 2000) (rejecting a negligent misrepresentation
claim based on "a personal opinion {rather] than a representation
of past or present fact"); see also Alpine Bank v. Hubbell, 555
F.3d 1097, 1106 (10th Cir. 2009) (finding a statement "cannot
trigger liability because it amounts to mere puffery").
29 A-1064-15T1
statements were mere puffery, predictions, or opinions, which
generally are not actionable. See id. §§ 676-78.
Our Supreme Court has held that in certain circumstances,
"'[t]he statement need not be a factual report, but may consist
of an expert opinion.'" H. Rosenblum, supra, 93 N.J. at 334
(citation omitted). Thus, the Court in H. Rosenblum held
accountants issuing an audit report "should be responsible for
their careless misrepresentations to [third] parties who
justifiably relied upon their expert opinions" that a company's
"financials had been prepared in accordance with generally
accepted accounting principles and fairly presented [its]
financial condition." Id. at 355-56. In Petrillo, supra, the
Court held an attorney could be liable for misrepresentations in
an opinion letter to "third parties who foreseeably rely on the
attorney's opinion." 139 N.J. at 485. "The purpose of a legal
opinion letter is to induce reliance by others." Banco Popular,
supra, 184 N.J. at 183 (quoting Petrillo, supra, 139 N.J. at 482).
Defendant's vague oral opinions offered at sporting and
social events did not fall within the special duties created by
H. Rosenblum and Petrillo for written audit reports and opinion
letters expressing formal expert opinions. See The Law of Torts,
supra, § 667 at 653 & n.7 (distinguishing experts such as lawyers
and accountants retained to provide accurate information); see
30 A-1064-15T1
also id. § 725 at 40 & n.19 (citing Petrillo, supra, 139 N.J. at
655). Instead, they fall within the general rule that "statements
that are merely opinion . . . or predictions of the future, do not
qualify as representations of fact" and are inadequate to justify
reliance. The Law of Torts, supra, § 675 at 682. "The securities
dealer who tells a client that a stock is bound to rise in the
next year is not asserting a fact but predicting the future." Id.
at 683. Such statements about stocks are "a classic case of
puffing by predicting the future, for which, subject to exceptions,
liability should be rejected." The Law of Torts, supra, § 678 at
689. Accordingly, we reverse the motion court's denial of summary
judgment on plaintiff's negligence claim, and on his negligent
misrepresentation claim to the extent it is based on the same
alleged misrepresentations. Because the court should have granted
summary judgment on the only counts on which plaintiff prevailed
at trial, we must reverse the jury's verdict as well.
B.
Defendant argues the trial court committed four evidentiary
errors. "Considerable latitude is afforded a trial court in
determining whether to admit evidence, and that determination will
be reversed only if it constitutes an abuse of discretion." State
v. Feaster, 156 N.J. 1, 82 (1998). "Under that standard, an
appellate court should not substitute its own judgment for that
31 A-1064-15T1
of the trial court, unless 'the trial court's ruling "was so wide
of the mark that a manifest denial of justice resulted."'" State
v. Kuropchak, 221 N.J. 368, 385 (2015) (citations omitted).
1.
First, defendant argues the trial court erred in allowing the
jury to hear evidence regarding the "Consent Order and Final
Judgment" entered against defendant and CMA in a separate civil
action by the Attorney General on behalf of the Chief of the Bureau
of Securities. Chiesa ex rel. Tiger v. Miller, et al., Docket No.
ESX-C-288-10 (May 7, 2012). The Consent Order reported the Chief's
"findings of fact and conclusions of law," and stated defendant
and CMA would "neither admit nor deny" them.
While the Consent Order was not admitted into evidence,
plaintiff's counsel questioned defendant about it. Counsel read
aloud before the jury several paragraphs of the consent order,
including that defendant "misrepresented and omitted material
information regarding . . . how investors' funds would be used,
the true nature and risk of investing in the Carr Miller Notes,
the financial condition of Carr Miller Capital, [and] the nature
and outcome of past investments made by Carr Miller Capital";
defendant "presented certain investors with false information
regarding certain purported Carr Miller Capital investments,
including Indigo Energy Inc."; and defendant "told certain
32 A-1064-15T1
investors . . . that their investments were risk-free." Defendant
answered that under the Consent Order, he neither "admitted or
denied" those statements, and that he denied them all as to
plaintiff, who was not a party to the Consent Order. Plaintiff's
counsel stressed to defendant "this was a consent order that your
attorney signed and you entered into."
Defendant moved in limine to bar evidence concerning the
Consent Order as irrelevant and inadmissible under N.J.R.E. 403
and 404(b). The trial court stated it permitted the discussion
of the Consent Order before the jury because "what [defendant]
neither admitted or denied are allegations that are somewhat
consistent with what [plaintiff] said he was told by" defendant,
plaintiff was entitled to admit that "context," and "a jury can
infer that [defendant's] sales technique [was] going to be the
same for every potential customer," including plaintiff. The
court's ruling was an abuse of discretion.
First, the testimony regarding the Consent Order was not
relevant under N.J.R.E. 402. The premise of the Consent Order was
that "Brian Carr and CMA neither admit nor deny" the Chief's
findings and conclusions. Thus, the "findings" in the Consent
Order were simply allegations by the Chief, neither admitted by
defendant nor established in an adversarial judicial or
administrative hearing. Such allegations are not themselves
33 A-1064-15T1
relevant facts. See, e.g., State v. K.S., 220 N.J. 190, 193 (2015)
(holding that, absent an admission or proof of guilt, prior
dismissed charges cannot be used to create "an impermissible
inference of guilt").
Settlements of suits are "'not factually relevant [if] they
do not imply a belief (and, consequently, an admission by
implication) on the part of the offeror that the adversary's claim
is well founded, but rather that the further prosecution of the
claim is preferably avoided by a purchase of the offeror's peace.'"
Wyatt v. Wyatt, 217 N.J. Super. 580, 586 (App. Div. 1987) (citation
omitted); see 4 Wigmore on Evidence § 1061 at 36 (Chadbourn rev.
1972). Indeed, as defendant argues on appeal, settlements are
inadmissible to prove liability, in part because they are
irrelevant. N.J.R.E. 408; see Biunno, Weissbard & Zegas, Current
N.J. Rules of Evidence, comment 1 on N.J.R.E. 408 (2017).
Moreover, the "findings" in defendant's Consent Order with
the State focused on defendant's dealings with the clients of CMA,
and did not purport to address defendant's dealings with plaintiff,
who was unmentioned. "A settlement of compromise made by the
defendant with other parties having similar claims would seem to
be inadmissible [and irrelevant] on the additional ground that the
reasons for admitting another person's claim might not be the same
34 A-1064-15T1
as those affecting the present claim[.]" 4 Wigmore, supra, § 1061
at 47.
Because the Chief's "findings" related to defendant's actions
regarding other persons, they constituted "evidence of other
crimes, wrongs, or acts," which generally "is not admissible to
prove the disposition of a person in order to show that such person
acted in conformity therewith." N.J.R.E. 404(b). Plaintiff argues
N.J.R.E. 404 is irrelevant because the "findings" were
"inextricably related" to his complaint. However, they did not
"'directly prove[] the charged [torts]'" or "'facilitate the
commission of the charged [torts]'" against plaintiff, and so they
"'must be analyzed under Rule 404(b).'" State v. Rose, 206 N.J.
141, 179-81 (2011) (citation omitted).
Under N.J.R.E. 404(b), the evidence had to meet "the standards
for admissibility articulated by our Supreme Court in State v.
Cofield, 127 N.J. 328, 338 (1992), which are also applicable in
civil cases." N.J. Div. of Youth & Family Servs. v. H.B., 375
N.J. Super. 148, 181 (App. Div. 2005).
1. The evidence of the other crime must be
admissible as relevant to a material issue;
2. It must be similar in kind and reasonably
close in time to the offense charged;
3. The evidence of the other crime must be
clear and convincing; and
35 A-1064-15T1
4. The probative value of the evidence must
not be outweighed by its apparent prejudice.
[State v. Skinner, 218 N.J. 496, 514-15 (2014)
(quoting Cofield, supra, 127 N.J. at 338).]
The "findings" in the Consent Order were not supported by
clear and convincing evidence because they were only allegations
defendant did not admit. For the same reason, they were not
relevant to a material issue. They were not shown to be
"admissible to prove something other than an individual's
propensity to commit wrongful acts." State v. Weaver, 219 N.J.
131, 150 (2014).
The trial court stated the "findings" provided "context."
However, a party seeking to admit background evidence generally
must "'identify the specific, non-propensity purpose for which he
seeks to introduce it.'" Rose, supra, 206 N.J. at 181 (citation
omitted). The court stated the "findings" showed defendant's
"sales technique," but neither the court nor plaintiff identified
what non-propensity purpose that served.
In any event, the trial court failed to consider the standards
of Cofield, supra, including its fourth prong that "[t]he probative
value of the evidence must not be outweighed by its apparent
prejudice." 127 N.J. at 338; see N.J.R.E. 403. It was highly
prejudicial to read the "findings" before the jury, with reminders
that defendant entered into and his counsel signed the Consent
36 A-1064-15T1
Order. The "findings" stated defendant misrepresented multiple
facts to numerous other investors about CMC, the CM notes, and
Indigo-Energy. However, the "findings" had no probative value
because they were allegations defendant never admitted. Any
probative value was "'so greatly outweighed by the prejudicial
effect -- namely, the jury's inevitable assumption that defendant
has a propensity to engage in such conduct -- as to render it
inadmissible.'" State v. J.M., 225 N.J. 146, 161 (2016) (citation
omitted).
Such "other-crimes evidence has a 'unique tendency' to
prejudice a jury against the defendant[.]" State v. Gillispie,
208 N.J. 59, 85 (2011) (citation omitted). Further, plaintiff's
closing arguments stressed the Consent Order. Plaintiff detailed
the "findings of fact," which defendant "neither admitted or
denied, whatever that means," and concluded: "He can't run away
from what he admitted to, or what he neither admitted nor denied
in a consent order that he entered in a prior case."
The prejudice "was compounded by the failure of the judge to
issue the careful limiting instruction that Cofield and Rose
require." State v. Jones, 425 N.J. Super. 258, 275 (App. Div.
2012) (citations omitted). "[L]imiting instructions must be
provided to inform the jury of the purposes for which it may, and
for which it may not, consider the evidence of defendant's
37 A-1064-15T1
uncharged misconduct, both when the evidence is first presented
and again as part of the final jury charge." Rose, supra, 206
N.J. at 161. No such instructions were given here. When a juror
said "[t]here was a lot of discussion" about the Consent Order,
and asked its nature and purpose, the court merely told the jurors
that it was a "consent order from a court" which defendant "neither
admitted or denied," and that they could consider the discussion
about the "findings".
"When a trial court fails to employ the Cofield test to
analyze the admissibility of other-crimes evidence, 'no deference
is to be accorded the trial court's decision to admit that
evidence; nor is that decision entitled to be reviewed under an
abuse of discretion standard'"; instead, appellate courts
"undertake a plenary review of whether the other-crimes evidence
was admissible." State v. Reddish, 181 N.J. 553, 609 (2004)
(citation omitted). We conclude that the Consent Order evidence
was inadmissible, and that its admission had the "clear capacity
of producing an unjust result." R. 2:10-2. Therefore, we reverse
the jury's verdict and remand for a new trial.14
14
Plaintiff disclaims reliance on N.J.R.E. 406, so we need not
consider defendant's argument that the evidence was also
inadmissible under that rule.
38 A-1064-15T1
2.
We address the remaining evidentiary issues, which may arise
during the retrial. Defendant argues the trial court erred in
permitting testimony from Michael P. Pompeo, the receiver for
Miller and CMC appointed in the Miller action brought by the
Attorney General. Defendant argues Pompeo's testimony was
inadmissible under N.J.R.E. 602 because Pompeo had no "personal
knowledge" of the events that transpired.15
However, as receiver in the Miller action, Pompeo was charged
with reviewing the books and records of and pertaining to Miller
and CMC. That review also caused Pompeo to learn facts concerning
defendant and CMA.16 Plaintiff called Pompeo to testify concerning
the facts he uncovered.
The trial court allowed Pompeo to testify, "analogiz[ing]
[him] to the Court's expert." However, the court did not permit
Pompeo to testify that he was appointed as a receiver. Pompeo was
15
N.J.R.E. 602 provides:
[A] witness may not testify to a matter unless
evidence is introduced sufficient to support
a finding that the witness has personal
knowledge of the matter. Evidence to prove
personal knowledge, may, but need not, consist
of the testimony of that witness.
16
The receiver entered into a confidential settlement agreement
with defendant and CMA, requiring them to pay restitution,
disgorgement, and a civil monetary penalty.
39 A-1064-15T1
instructed to "talk about what [he] found," but not to speak about
"findings of guilt" or "finding[s] of violations."
Pompeo informed the jury he was retained to investigate CMC.
He testified as follows. CMC "raised money from individual
investors through the sale and issuance of nine-month promissory
notes." The notes were required to be registered with the New
Jersey Bureau of Securities, but were not, and thus were illegally
sold. Indigo-Energy "was never a profitable company." "There was
substantial doubt concerning Indigo Energy's viability" from the
time CMC began investing in it.
Pompeo testified CMC was a Ponzi scheme, "when a company
raises funds from an investor and uses those funds to pay back old
investors." CMC raised $41 million with only $11.7 million
returned to investors. Plaintiff invested $1,584,900 with CMC,
but received only $401,954 from CMC.
Pompeo testified "the principal of Carr Miller Capital,
Everett Miller, used Carr Miller Capital and its funds
indistinguishable from his own." CMC paid commissions to
defendant, and rent to CMA, and defendant received $200,206 more
from CMC than he contributed to CMC.
Pompeo had sufficient personal knowledge of the facts about
which he testified. His investigation into CMC gave him personal
knowledge of its finances and the financial information about the
40 A-1064-15T1
Ponzi scheme. See United States v. Christie, 624 F.3d 558, 568
(3d Cir. 2010) (holding a lead investigator's "responsibilities
gave him sufficient information to testify about various aspects
of the investigation" under Fed. R. Evid. 602, "even if he did not
conduct each step himself"). Because that financial information
was recorded in business records, it was not necessary for Pompeo
to be personally involved during the Ponzi scheme. See United
States v. Weaver, 281 F.3d 228, 231 (D.C. Cir. 2002) (holding an
active participant in an investigation may testify under Fed. R.
Evid. 602 about "personal knowledge he gained during the course
of his examination" of business records); see also 3-602
Weinstein's Federal Evidence § 602.02[3] (2017). The facts he
testified to were relevant to plaintiff's action against
defendant, and were helpful to the jury.
Defendant argues Pompeo's testimony violated the best
evidence rule, as defendant could have provided some of the same
information provided by Pompeo. However, "a witness who has
personal knowledge of the matter about which he is asked to testify
should not be precluded from testifying merely because another
potential witness might be in a better position to testify about
that matter." Biunno, Weissbard & Zegas, N.J. Rules of Evidence,
comment on N.J.R.E. 602 (2017) (citing Gunter v. Fischer Sci. Am.,
41 A-1064-15T1
193 N.J. Super. 688, 693 (App. Div. 1984)). Therefore, it was not
an abuse of discretion to admit Pompeo's testimony.17
Plaintiff also argues the trial court erred in restricting
testimony concerning the value of the millions of restricted
Indigo-Energy shares he received. He testified he "can't do
anything with them, they're worthless." He stated "[t]he value
right now is zero. In fact we're getting sued by the receiver for
these shares." Defense counsel objected, arguing the shares were
now "trading at 49 cents a share."
Both counsel agreed to the trial court striking plaintiff's
answer and instructing the jury "[t]hat the stock that the witness
just spoke about, he cannot sell . . . because a governmental
representative is trying to repossess the stock."
On cross-examination, defense counsel asked plaintiff whether
he had "gone online to determine the price of that stock."
Plaintiff indicated he did not check the price on the shares.
We find no abuse of discretion because both sides agreed to
the court's instruction and because plaintiff apparently had no
knowledge of the value of the shares. We note that both the value
of the shares and the restrictions on selling them are relevant,
and may be proven through appropriate evidence at a new trial.
17
Defendant does not challenge, and we do not address, whether
Pompeo gave expert testimony.
42 A-1064-15T1
Finally, defendant argues the trial court erred in
prohibiting the parties from using the complaint in cross-
examining plaintiff. He cites that the trial court told the
parties "don't talk about the pleadings in either opening."
However, the court never said anything about not using the
pleadings during cross-examination, nor did defense counsel
attempt to do so.
In sum, we affirm the motion court's grant of summary judgment
on plaintiff's fraud claim and its imposition of sanctions against
him. We reverse the court's grant of summary judgment on his
aiding and abetting fraud claim, vacate the court's denial of
summary judgment on his negligent misrepresentation claim, and
reverse the denial of summary judgment on his negligence claim.
For those reasons, and because it was prejudicial error to allow
testimony regarding the Consent Order, we reverse the jury's
verdict. We remand for further proceedings on plaintiff's aiding
and abetting fraud claim and on his averment that the non-
disclosure that CMC securities were unregistered and non-exempt
constituted negligent misrepresentation. Affirmed in part,
reversed in part, and remanded. We do not retain jurisdiction.
43 A-1064-15T1