Opinion
DOCKET NO. A-4491-13T4
11-10-2015
VINCENT SURACE, Plaintiff-Respondent, v. AHMAD SALHUT, Defendant-Appellant.
Darren C. Barreiro argued the cause for appellant (Greenbaum Rowe Smith & Davis LLP, attorneys; Mr. Barreiro, Richard L. Hertzberg and Christine F. Marks, on the briefs). Evelyn R. Storch argued the cause for respondent (Harwood Lloyd, LLC, attorneys; Ms. Storch, of counsel and on the brief; Corey S. Zymet, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Alvarez, Ostrer, and Haas. On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-1683-12. Darren C. Barreiro argued the cause for appellant (Greenbaum Rowe Smith & Davis LLP, attorneys; Mr. Barreiro, Richard L. Hertzberg and Christine F. Marks, on the briefs). Evelyn R. Storch argued the cause for respondent (Harwood Lloyd, LLC, attorneys; Ms. Storch, of counsel and on the brief; Corey S. Zymet, on the brief). PER CURIAM
Defendant Ahmad Salhut appeals a March 5, 2014 jury verdict awarding plaintiff Vincent Surace $146,105.96. Among several claims of trial error, Salhut asserts that the trial judge improperly admitted into evidence reconstructed ledgers and building material invoices in violation of the hearsay rules. We agree and reverse, concluding that the trial judge should have granted Salhut's motion for a new trial.
I
Surace and Salhut and their families became close friends over several years. During this time, Surace acted as a project manager overseeing Salhut's residential building projects. At trial, Surace testified that he was paid ten percent of construction costs as a fee, or $45,000 for the first structure and $50,000 for each of three duplexes. Salhut testified to the contrary, that Surace charged and was paid a flat fee of $35,000 per job.
Early in 2008, Surace, acting as Salhut's project manager for the construction of a new home, began to order building materials and retain contractors. He maintained a ledger book in which he recorded payments for these charges. Surace claims the parties agreed that he would be paid ten percent of construction costs for his project as well; Salhut claims the parties agreed that Surace would be paid his normal fee of $35,000 for the completed project.
At some point after construction began, Salhut gave Surace over $600,000 in cash to be held in a safe in Surace's home. The parties do not agree on the facts surrounding the cash.
Surace testified that Salhut asked him to hold $650,000 in cash at the beginning of construction on the project, in April or May of 2008. According to Surace, Salhut wanted to store the money in his safe because he feared that if he left it in his home, his wife would spend it. Surace testified that after counting the money, he informed Salhut that there was only $630,000. Surace also said that Salhut periodically gave him permission to use the money for construction costs for the house.
Salhut testified that on August 4, 2009, he gave Surace his life savings, $650,000 in cash, to be held for safekeeping while he travelled to Israel. He specifically informed Surace that the money was not to be used for construction costs for his new home. When Surace informed him that $20,000 was missing, Salhut became "nervous" and asked Surace for $200,000 of the money. When Salhut returned from his Israel trip in November 2009, Surace informed him that only $22,400 remained in the safe, as the balance had been used to pay construction costs. Salhut testified that there was only $22,140 remaining.
Salhut then demanded that Surace produce invoices for the work on the house and account for the money taken from the safe. Salhut claimed he requested the documentation in November 2009 upon returning from Israel, but that Surace did not provide him with invoices and ledgers until after the house was finished in April 2011.
Surace testified that Salhut did not request an accounting until April 2011 when he was formally terminated by a letter from Salhut's attorney. In response to Salhut's request, Surace said he and his wife rewrote the original ledger book more legibly. He continued to update the new ledger and created additional ledgers as he received more invoices that had been missing. At some unspecified date, Surace discarded the original ledger book, which he described as "ripped" and "sloppy."
II
The matter was tried on Surace's claims for breach of contract and unjust enrichment. Before trial began, the judge denied Salhut's motions in limine for spoliation sanctions, including dismissal of the complaint or, in the alternative, suppression of the newly created ledgers. The judge commented: "sloppy bookkeeping, . . . inept bookkeeping, or transposing documents . . . [is] not spoliation of evidence. The fact that there's contradiction; the fact that some things do not make sense; are issues all for credibility." Additionally, the judge indicated that the invoices Surace proposed to introduce as exhibits in evidence did not constitute hearsay, and even if they did, they were admissible under the business records exception.
Accordingly, during the trial, Surace moved into evidence P-1 to P-157, invoices from third-party contractors and vendors, and testified as to how each was paid. According to Surace, some invoices were paid directly by Salhut, while he paid others with the money from the safe. On cross-examination, Surace also testified that some invoices were paid using his wife's credit card, for which Salhut reimbursed him. Many of the invoices bore handwritten notations indicating that they were "paid," which Salhut objected to as inadmissible hearsay. At trial, the judge admitted the invoices into evidence under a new theory, as "action[s] by a party saying I [received] this piece of paper; X amount of dollars; and I paid it."
While testifying, Surace described how he created the new ledgers as he procured missing bills and other information because he did not want "any cross off[s]" or "scribbles" on them. The final two ledgers admitted into evidence, P-158 and P-160, were created "almost at the end" and when the parties "had started the lawsuit," respectively. From these two ledgers, Surace calculated that the house's total construction costs came to $1,406,809.57. Of this sum, Surace asserted that Salhut paid $991,513.26 by cash or checks, and Surace paid $377,296.32 with the money from the safe. This was Surace's basis for his fee of ten percent of the total construction costs. P-158 and P-160 were admitted into evidence as business records over Salhut's hearsay objections.
Salhut testified that he paid Surace directly for construction costs, and that Surace's claim that he had paid contractors with money from the safe was untruthful. Salhut said that he told Surace that the money in the safe "[wa]s not for construction." He acknowledged not having asked for invoices during the course of construction or having kept a personal ledger tracking payments. Salhut explained that he did not question Surace's request for payments because they "ha[d] been very good friends." On at least one occasion, Salhut unknowingly paid Surace for purchases made by Surace's wife at Bloomingdales.
Jerome Eben, a licensed architect and planner, testified on Surace's behalf that the costs were within a suitable range of Surace's final payment ledger in light of the nature of the home.
Salhut presented the owner of a tile company who said one of the invoices Surace offered into evidence was only an estimate, and the company's records did not reflect ever receiving payment in that amount. Salhut's forensic economist, Ervin Shoenblum, stated that having reviewed the invoices of approximately seven vendors, he found numerous discrepancies totaling about $100,000. These discrepancies included purported invoices that were actually estimates or proposals, invoices for items not used on that project, and duplicate invoices.
Salhut's wife, Fatin Salhut, identified a $35,000 check payable to Surace for his work on an earlier project. She explained that Surace had directed her to leave the "memo" portion of the check blank for "tax purposes." She often made payments to Surace without seeing invoices for the work.
Salhut subpoenaed Michael Rossomando, the owner of Grainview Designs, Inc., to testify at the trial. Despite repeatedly phoning him, leaving multiple messages, and forwarding mail demanding that he respond to a subpoena, he did not appear at trial. The judge declined to postpone the trial to wait for compliance with the subpoena, despite Salhut's claim that Rossomando would have testified that Surace called and asked him if he could provide invoices for goods which were not sold.
The jury determined that construction costs totaled $1,461,059.57, and that Surace was entitled to a ten percent fee. They also found that Salhut did not prove by a preponderance of the evidence that Surace overcharged him or committed consumer fraud.
In his motion for a new trial, Salhut argued, among other things, that the verdict was manifestly unjust because of the admission of inadmissible hearsay into evidence. The trial judge denied the motion after argument, opining that the "entire trial with all of the evidence to the jury based upon the testimony and based upon all of the evidence submitted for them to consider dealt with the issue of credibility." He denied the application.
III
Rule 4:49-1(a) provides that a trial judge shall grant a new trial if, "having given due regard to the opportunity of the jury to pass upon the credibility of the witnesses, it clearly and convincingly appears that there was a miscarriage of justice under the law." Jury verdicts are thus "entitled to considerable deference and 'should not be overthrown except upon the basis of a carefully reasoned and factually supported (and articulated) determination, after canvassing the record and weighing the evidence, that the continued viability of the judgment would constitute a manifest denial of justice.'" Risko v. Thompson Muller Auto. Grp., Inc., 206 N.J. 506, 521 (2011) (quoting Baxter v. Fairmont Food Co., 74 N.J. 588, 597-98 (1977)); see also Boryszewski v. Burke, 380 N.J. Super. 361, 391 (App. Div. 2005) ("Jury verdicts should be set aside in favor of new trials only with great reluctance, and only in cases of clear injustice."), certif. denied, 186 N.J. 242 (2006).
In reviewing a trial judge's decision on a motion for a new trial, we view the evidence in the light most favorable to the opposing party. Caldwell v. Haynes, 136 N.J. 422, 432 (1994). We give substantial deference to the trial judge on those matters related to his or her observations during the trial, and their "feel of the case." Carrino v. Novotny, 78 N.J. 355, 360 n.2 (1979) (citing Pressler, Current N.J. Court Rules, Comment to R. 2:10-1 at 301-02 (1979)). We do not accord deference, however, when the trial court's determination "with respect to which he is no more peculiarly situated to decide than the appellate court." Dolson v. Anastasia, 55 N.J. 2, 7 (1969). We first address the trial court's wholesale erroneous admission of numerous invoices from third-party contractors and vendors, as well as the rewritten ledgers.
Generally, "[e]videntiary decisions are reviewed under the abuse of discretion standard because, from its genesis, the decision to admit or exclude evidence is one firmly entrusted to the trial court's discretion." Estate of Hanges v. Metro. Prop. & Cas. Ins. Co., 202 N.J. 369, 383-84 (2010). A court abuses its discretion when it makes a clear error of judgment. State v. Marrero, 148 N.J. 469, 483-84 (1997). If an evidentiary ruling was erroneous, the appellate court will not reverse the judgment unless the error "'was clearly capable of producing an unjust result.'" Manata v. Pereira, 436 N.J. Super. 330, 343-44 (App. Div. 2014) (quoting Green v. N.J. Mfrs. Ins. Co., 160 N.J. 480, 502 (1999)).
Hearsay is an out of court statement "offered in evidence to prove the truth of the matter asserted." N.J.R.E. 801(c). Hearsay is inadmissible unless it falls within a recognized exception. State v. Buda, 195 N.J. 278, 292-93 (2008). The business records exception authorizes the admission into evidence of:
A statement contained in a writing or other record of acts, events, conditions, and, subject to Rule 808, opinions or diagnoses, made at or near the time of observation by a person with actual knowledge or from information supplied by such a person, if the writing or other record was made in the regular course of business and it was the regular practice of that business to make it, unless the sources of information or the method, purpose or circumstances of preparation indicate that it is not trustworthy.
[N.J.R.E. 803(c)(6).]
"The purpose of the business records exception is to 'broaden the area of admissibility of relevant evidence where there is necessity and sufficient guarantee of trustworthiness.'" Liptak v. Rite Aid, Inc., 289 N.J. Super. 199, 219 (App. Div. 1996) (quoting State v. Hudes, 128 N.J. Super. 589, 599 (Cty. Ct. 1974)). It is "founded upon the theory 'that records which are properly shown to have been kept as required normally possess a circumstantial probability of trustworthiness, and therefore ought to be received in evidence.'" State v. Matulewicz, 101 N.J. 27, 29-30 (1985) (quoting Mahoney v. Minsky, 39 N.J. 208, 218 (1963)). The exception is not only predicated "on the circumstance that the record itself is kept in the usual course of business," but also on the circumstance that the declarant was "under a 'business' duty to supply honest information." State v. Lungsford, 167 N.J. Super. 296, 309 (App. Div. 1979); Monarch Fed. Sav. & Loan Ass'n v. Genser, 156 N.J. Super. 107, 119 (App. Div. 1977) (quoting Sas v. Strelecki, 110 N.J. Super. 14, 20, 22 (App. Div. 1970)).
The proponent of the evidence must satisfy three requirements for admissibility under the exception:
First, the writing must be made in the regular course of business. Second, it must be prepared within a short time of the act, condition or event being described. Finally, the source of the information and the method and circumstances of the preparation of the writing must justify allowing it into evidence.
[State v. Sweet, 195 N.J. 357, 370 (2008) (quoting Matulewicz, supra, 101 N.J. at 29).]These three criteria "must be met before the trial judge is free to exercise his discretion in admitting or excluding the business entry based upon his ultimate evaluation of its reliability." Lungsford, supra, 167 N.J. Super. at 310.
The testifying witness "generally is not required to have personal knowledge of the facts contained in the record." Hahnemann Univ. Hosp. v. Dudnick, 292 N.J. Super. 11, 17-18 (App. Div. 1996). In Hahnemann, this court noted that N.J.R.E. 803(c)(6) follows its federal counterpart, Fed. R. Evid. 803(6), such that "documents may properly be admitted 'as business records even though they are the records of a business entity other than one of the parties, and even though the foundation for their receipt is laid by a witness who is not an employee of the entity that owns and prepared them.'" Id. at 17 (quoting Saks Int'l, Inc. v. M/V "Export Champion", 817 F.2d 1011, 1013 (2d Cir. 1987)). Indeed, the "rule does not require the testifying witness to have personally participated in the creation of the document or to know who actually recorded the information." Id. at 17 (citing United States v. Keplinger, 776 F.2d 678, 693 (7th Cir. 1985), cert. denied, 476 U.S. 1183 (1986)).
The trial court, instead of addressing Salhut's hearsay objections to the invoices, and requiring testimony that would meet the criteria for their admission as business records, admitted them as "verbal acts." Verbal acts, however, are statements to which the law attaches duties and liabilities that are "not offered to prove truthful content thereof." Ringwood Assocs., Ltd. v. Jack's of Route 23, Inc., 166 N.J. Super. 36, 42-43 (App. Div. 1979). Those statements "are not hearsay because [they] [are] not offered to prove the truth of the matter stated." State v. McKiver, 199 N.J. Super. 542, 547 (App. Div. 1985). See, e.g., State v. Kaufman, 118 N.J. Super. 472, 474 (App. Div.) (defendant's oral threat admissible as verbal act to prove offense of threatening the life of another), certif. denied, 60 N.J. 467 (1972); Robinson v. Branch Brook Manor Apts., 101 N.J. Super. 117, 122 (App. Div.) (discriminatory statement by a landlord's agent to a prospective tenant admissible in a civil rights hearing as verbal conduct evidencing a pattern of discriminatory activity), certif. denied, 52 N.J. 487 (1968); Hagopian v. Fuchs, 66 N.J. Super. 374, 383 (App. Div. 1961) (citing "an oral promise which is part of an alleged contract" as an example of a verbal act).
Surace offered the invoices to prove the truth of the matter asserted, not as verbal acts. Since he claimed a ten percent of construction cost fee was owed, he proffered them in order to establish the gross figure for the calculation. He also introduced the invoices to establish which charges he allegedly paid with the money from the safe. Surace expected the jury to rely on the information contained in the invoices in reaching their verdict, both as to the cost of construction and his manner of payment. His purpose in their admission was not to establish verbal acts.
Surace contends that the invoices were correctly admitted by the trial court as verbal acts because they were documents to which the law attached legal significance and about which he was thoroughly cross-examined. Neither point makes these clearly hearsay documents admissible. The law certainly attaches legal significance to them, but the point lacks merit because the legal significance was "the truth of the matter asserted," in other words, the amount of the invoice and in some cases the indication that it was paid. That Surace was thoroughly cross-examined on the topic does not create an independent basis for admission of evidence. These invoices were presented by Surace in support of his claim that the construction costs totaled $1,406,809.57 and for no other reason. They were out-of-court statements being used to prove the truth of the matters asserted therein.
The improper admission of the invoices alone requires reversal of the verdict because the jury calculated the award based upon them. Surace may be able to establish a proper foundation for their admission at a new trial, but that was not done in this trial. Additionally, the judge will have to assess whether unidentified handwritten statements found on some of the invoices constitute embedded hearsay. See N.J.R.E. 805; see also Estate of Hanges, supra, 202 N.J. at 375 n.1 (observing that admissibility of hearsay within hearsay requires that each level of hearsay have "a separate basis for admission into evidence").
The trial court also erred in the manner in which it admitted Surace's reconstructed ledgers, P-158 and P-160, over Salhut's hearsay objections. The ledgers satisfy neither the first or second prong of the business records exception. They were neither made in the regular course of business, nor prepared within a short time of the act. See Sweet, supra, 195 N.J. at 370.
Records created a year or more after the described act, condition, or event do not qualify. See A.J. Tenwood Assocs. v. Orange Senior Citizens Hous. Co., 200 N.J. Super. 515, 528 (App. Div.), certif. denied, 101 N.J. 325 (1985); Adams v. N.J. State Fair, 71 N.J. Super. 528, 531 (App. Div. 1962).
In this case, the parties agreed that construction spanned from early 2008 to early 2011. Surace was terminated in April 2011 and filed his complaint in February 2012. The ledgers contained entries dating from July 2008 to November 2010, yet Surace testified that P-160 was created after the lawsuit began, while P-158 "came almost at the end."
Surace contends the ledgers were admissible under N.J.R.E. 1006 as summaries of voluminous materials in evidence. As has been said, an "important feature of a Rule 1006 summary is that it must fairly condense the underlying material. The summary cannot embellish with information not contained in the originals." Heinzerling v. Goldfarb, 359 N.J Super. 1, 11 (Law Div. 2002) (internal quotations and citations omitted). The ledgers, however, were far more than summaries. P-158 contains the following sets of information: "Vendor," "Total Amount of Bill," "Extras," "Actual Payment," "Salhut Payments," and "Surace Payments." P-160 includes the following: "Date," "Invoice Number," "Actual Amount," "Paid Amount," "Salhut Payment," and "Surace."
Obviously, the only information that would have been contained within an original invoice ledger book recording costs and payments for construction would have been the name of the vendor, payment date, and the amount. The additional information would not have been found there.
Surace testified that most of the information in the new ledgers was taken, not from the invoices, but rather was supplied by the original ledger which he subsequently destroyed:
Q: And what did you use to prepare this document?
A: All the invoices and my ledger coor —
Q: And what — I'm sorry.
A: Coordinated all three of them, yeah.
Q: What information did you get from your early ledger?
A: Oh, I got — most of it was in my earlier ledger, until the end when we asked for the invoices to see if there was anything else missing.
Again, the erroneous admission of P-158 and P-160 based on the business records exception also warrants reversal. The jurors determined that the total cost of construction was $1,461,059.57, close to P-158's "actual payment" total of $1,406,809.57. This raises the specter that the admission of P-158 alone caused a miscarriage of justice under the law. To allow the verdict to stand would indeed result in a "manifest denial of justice." See R. 4:49-1(a); see also Risko, supra, 206 N.J. at 521.
IV
Which brings us to a related issue, the judge's failure to engage in the appropriate analysis with regard to Salhut's spoliation charge request. "'Spoliation of evidence in a prospective civil action occurs when evidence pertinent to the action is destroyed, thereby interfering with the action's proper administration and disposition.'" Manorcare Health Servs., Inc. v. Osmose Wood Pres., Inc., 336 N.J. Super. 218, 226 (App. Div. 2001) (quoting Aetna Life & Cas. Co. v. Imet Mason Contractors, 309 N.J. Super. 358, 364 (App. Div. 1998)). The duty to preserve such evidence "is a question of law to be determined by the court." Cockerline v. Menendez, 411 N.J. Super. 596, 620 (App. Div.) (citing Manorcare, supra, 336 N.J. Super. at 226), certif. denied, 201 N.J. 499 (2010).
When deciding whether a party has a duty to preserve evidence, the trial court must determine whether there was: "(1) pending or probable litigation involving the defendants; (2) knowledge by the plaintiff of the existence or likelihood of litigation; (3) foreseeability of harm to the defendants, or in other words, that discarding the evidence would be prejudicial to defendants; and (4) evidence relevant to the litigation." Aetna, supra, 309 N.J. Super. at 366 (quoting Hirsch v. General Motors Corp., 266 N.J. Super. 222, 250-51 (Law Div. 1993)). Where the duty to preserve evidence is violated, the party is responsible regardless of whether the spoliation occurred because of intentional or merely negligent conduct. Id. at 368.
In making his ruling pre-trial, the trial judge said the following:
Now, sloppy bookkeeping, or inept bookkeeping, or transposing documents; it's not spoliation of evidence. The fact that there's contradictions; the fact that some things do not make sense; are issues all for credibility. Which can be fully explored at the time of trial.
Obviously that is credibility; not spoliation of evidence. I know the four-prong test. . . . [in] Aetna[,] 309 N.J. Super. 358 (App. Div. 1998)[.]
I read over [Surace's] deposition. I fully understand that a case does not have to actually be filed and a party does not have to actually be served with a notice from the other attorney to preserve evidence.
But, in this case, I can't go so far as to say that from the testimony I've read at the depositions that he was actually put on notice, not at the time of the dep[osition] or not at the time that he was doing these revisions, but at some point saying don't do any revisions; I want to see that stuff. To the contrary. It's not clear what these conversations between the parties, at the time they were having disputes, were going through.
Once again, it is a person's credibility in revisions. In saying that this is not legible and I transpose that — that's credibility. It, certainly, is an issue in every single case where there's documents.
But I can't find that all four of these prongs have been met in this case. And I'm
ruling against [Salhut] in the issue of spoliation.Although unclear, the judge did not reach his decision to admit the ledgers after considering the Aetna factors.
However, many times, during the course of a trial, testimony or whatever contradicts deposition testimony, prior answers to interrogatories, et cetera. And if counsel detects that during the trial enough that he wants to make an evidence — wants to make a motion concerning an adverse inf[erence] charge; that is a different — different area. And that can be petitioned to me in regard to a jury charge.
Even after the trial began, the judge made no finding as to whether Surace had a duty to maintain the original ledgers, and whether his destruction of them was an act engaged in innocently or otherwise. After Salhut made a second application for an adverse inference charge as a result of spoliation, before closing arguments, the judge said:
All right. I'm denying the motion for spoliation evidence. This is a convoluted case. Both parties have recreated documents. There is conflicting testimony. This is a different situation where if I could come to a rational conclusion that the party destroying them — destroyed [them] after litigation was started or even prior to when litigation was started, and then we don't have these documents anymore, I threw them away, et cetera. I can't say that it was malicious or intentional for the simple reason that the credibility of the documents that he recreated are an issue, a lot of the documents, even the recreation. The same holds true with some of the testimony and/or documents of the defendant. Therefore your
argument is preserved on the record, but I'm denying it.
On remand, assuming Salhut makes similar applications, the judge must engage in a reasoned analysis of whether Surace had a duty, whether the Aetna factors were met, and whether Surace's destruction of the original ledgers was innocent or otherwise.
V
We conclude that on these legal questions, which require no deference, the judge erred. Given the nature of the material admitted, we can only conclude that a miscarriage of justice occurred. Therefore, to deny Salhut a new trial resulted in a manifest denial of justice. See R. 4:49-1(a); see also Risko, supra, 206 N.J. at 521.
Reversed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION