Divyajit Mehta v. Emanuel Hedvat

NOT FOR PUBLICATION WITHOUT THE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 NO. A-0385-22

A-0386-22

DIVYAJIT MEHTA and DGNS CORP.,

Plaintiffs-Respondents/Cross-

Appellants,

v.

EMANUEL HEDVAT, AMERICAN

ANALYTICAL ASSOCIATION, INC.,

NJ CUBIC 29, LLC, 29 COTTAGE

STREET, LLC, CHEMTECH GROUP,

LLC, and EFJ REALTY LLC,

Defendants-Respondents,

and

FARIBA HEDVAT,

Defendant-Appellant/Cross-

Respondent,

and

CHEMTECH CONSULTING GROUP,

INC., MOUNTAINSIDE REALTY, LLC,

and VIRTUAL INSTITUTE

PERSONNEL, LLC,

Defendants/Third-Party Plaintiffs-

Respondents,

v.

ARECON LTD. and GAYATRI MEHTA,

Third-Party Defendants-

Respondents/Cross-Appellants.

__________________________________

DIVYAJIT MEHTA and DGNS CORP.,

Plaintiffs-Respondents/Cross-

Appellants,

v.

EMANUEL HEDVAT, AMERICAN

ANALYTICAL ASSOCIATION, INC.,

NJ CUBIC 29, LLC, 29 COTTAGE

STREET, LLC, CHEMTECH GROUP,

LLC, and EFJ REALTY LLC,

Defendants-Appellants/Cross-

Respondents,

and

FARIBA HEDVAT,

Defendant-Respondent,

and

CHEMTECH CONSULTING GROUP,

INC., MOUNTAINSIDE REALTY, LLC,

A-0385-22

2

and VIRTUAL INSTITUTE

PERSONNEL, LLC,

Defendants/Third-Party Plaintiffs-

Appellants/Cross-Respondents,

v.

ARECON LTD. and GAYATRI MEHTA,

Third-Party Defendants.

__________________________________

Argued March 25, 2025 – Decided September 4, 2025

Before Judges Smith and Vanek.

On appeal from the Superior Court of New Jersey,

Chancery Division, Bergen County, Docket No.

C-000135-20.

Eric D. Reiser argued the cause for appellant/cross-

respondent in A-0385-22 (Shapiro Croland Reiser

Apfel & Di Iorio, LLP, attorneys; Eric D. Reiser, of

counsel and on the briefs).

Rubin M. Sinins argued the cause for appellants/cross-

respondents in A-0386-22 (Javerbaum Wurgaft Hicks

Kahn Wikstrom & Sinins, attorneys; Rubin M. Sinins,

of counsel and on the briefs).

Michael J. Cohen argued the cause for

respondents/cross-appellants Divyajit Mehta and

DGNS Corp. (Winne, Banta, Basralian & Kahn, PC,

and Harlan M. Lazarus (Lazarus & Lazarus, PC) of the

New York Bar, admitted pro hac vice, attorneys;

Michael J. Cohen and Harlan M. Lazarus, of counsel

and on the briefs).

A-0385-22

3

PER CURIAM

These appeals, calendared back-to-back and consolidated for purposes of

issuing a single opinion, stem from a contentious dispute between business

partners. After a bench trial, both parties appeal the order of the Chancery

Division finding that defendants Emanuel Hedvat and Fariba Hedvat, along with

numerous companies that they controlled, diverted over $2.8 million from

businesses shared with plaintiffs Divyajit Mehta and DGNS Corp (DGNS). The

trial court found that defendants were liable for breach of contract, breach of the

covenant of good faith and fair dealing, conversion, and unjust enrichment.

Fariba appealed separately under docket A-385-22, and the remaining

parties appealed under docket A-386-22. On appeal, Fariba argues that the trial

court should have dismissed her from the action either on summary judgment or

at trial. All defendants, including Fariba, argue that the court erred when : it

found them liable; included a transaction outside the statute of limitations;

admitted certain expert testimony; determined that joint and several liability

applied; and awarded attorney's fees and costs. In cross-appeals under both

dockets, Mehta and DGNS allege that the court erred when it declined to award

prejudgment interest for each transaction linked to a misappropriation.

We affirm for the reasons which follow.

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4

I.

A.

Background

We gather the relevant facts from the record, including evidence adduced

during the twenty-two-day bench trial. In 1984, Mehta, a chemical engineer

from India, began working for Chemtech Consulting Group, Inc. (Chemtech), a

company that analyzed samples from contaminated environmental sites.

Emanuel, then Chemtech's laboratory manager, hired him, and over the ensuing

years, the two developed a friendship and business relationship. Mehta rose

through the ranks at Chemtech to become the laboratory manager, while

Emanuel ascended to become Chemtech's sales and marketing manager. In

1990, Mehta and Emanuel, along with other investors, purchased Chemtech. By

2007, all other investors had sold their interests to Mehta and Emanuel, leaving

them sole shareholders and co-owners of Chemtech.

During this period, Emanuel and Mehta each formed and operated other

businesses, both individually and together. Emanuel created A3I, an

environmental data analysis company. His wife, Fariba, was the sole

shareholder of A3I. Mehta's wife, Gayatri, formed DGNS, a company which

validated environmental laboratory data and was still in business at the time of

A-0385-22

5

trial. Mehta was DGNS's authorized agent. Neither A3I nor DGNS were

connected to Chemtech. In fact, the two businesses jointly owned a company

called Chemtech LLC, an environmental laboratory business, with Minority

Business Enterprise status. A3I and DGNS also formed Mountainside Realty,

LLC (MRL). MRL acquired, operated and managed real estate, including

properties that served as headquarters, office, and lab space for Chemtech. MRL

also owned other business entities related to the parties, including Cubic, 29

Cottage, and VIP. VIP was a business entity that processed payroll for Emanuel

and Mehta's virtual employment company in India. EFJ Realty was an entity

that Emanuel created with Fariba which owned various real estate exclusively

for A3I.1

B.

The Agreements and Transactions at the Heart of the Dispute

There were multiple shareholder and employment agreements between the

parties which defined the parties' obligations to each other concerning their

1

There were several companies with names similar to EFJ which were owned

by Mountainside Realty. For example, Mountainside was the owner of EFJ 240

Prospect LLC; EFJ 70 East Passaic, LLC; and EFJ 275 Grand, LLC. EFJ 240

Prospect LLC owned a property located at 240 Prospect Street in Maywood.

EFJ 70 East Passaic, LLC, owned the building located at 70 East Passaic Street

in Maywood. EFJ 275 Grand, LLC, owned the property at 275 Grand Avenue,

Leonia.

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6

business affairs. In 2000, Fariba, on behalf of A3I, and Gayatri, on behalf of

DGNS, executed the Mountainside Realty Operating Agreement (MRL

agreement). In the MRL agreement, DGNS and A3I agreed to share all capital

contributions, profits, and surplus related to MRL. Concerning profits, the MRL

agreement stated that all profits were to be shared according to the percentage

of interest each member owned. It also specified that "[n]o member shall make

any withdrawals from capital without prior approval of [MRL]". Concerning

the maintenance of the financial books and records, "[e]ach of the parties . . .

covenants and agrees to cause all known business transactions pertaining to the

purpose of [MRL], to be entered properly and completely into [the MRL

company] book". The MRL agreement also contained an indemnification

provision which stated that members "shall also indemnify the other members

from any and all claims, demands and actions of every kind and nature

whatsoever which may arise out of or by reason of such violation of any terms

and conditions of [the agreement]."

On January 1, 2007, Mehta signed an employment agreement with

Chemtech to serve as Chemtech's Chief Operating Officer (COO) at an annual

salary of $300,000. Emanuel countersigned the agreement on behalf of

Chemtech as the President. Also on January 1, 2007, Emanuel signed an

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7

employment agreement with Chemtech to serve as company president for

$300,000 annually. Mehta countersigned the agreement on behalf of Chemtech

as the COO.

Seven months later, on July 1, Mehta and Emanuel signed the 2007

Chemtech Shareholder Agreement (CSA), effective July 16. As per the CSA,

Mehta held a fifty-one percent interest in Chemtech and Emanuel held a forty-

nine percent interest. The CSA stated that "[a]ll decisions regarding the

operation of the business of [Chemtech] and the expenditure of the funds thereof

shall be made by majority vote of the Stockholders." The CSA further stated

that Emanuel and Mehta, as shareholders, were directors of Chemtech. The CSA

also stated that each officer of Chemtech "shall also be a Shareholder of

[Chemtech], and that the offices of Chairman of the Board, President, Secretary,

and Treasurer shall only be filled by Stockholders." Emanuel held the title of

President of Chemtech, while Mehta held the title of Secretary.

During this period, Mehta handled lab operations and technical as well as

Minority Business Enterprise compliance at Chemtech, while Emanuel handled

business, marketing, and accounting operations. Emanuel also controlled

Chemtech's major financial records, checkbooks, and QuickBooks accounts.

Chemtech's business and finance affairs were informally managed by Emanuel,

A-0385-22

8

with Mehta involved in certain approvals. Both parties used the same

accountant, Sandy Meyers, who also provided accounting services to the related

business entities.

During 2013 and early 2014, Emanuel proposed a buyout to Mehta,

suggesting that one partner buy out the other's interest in Chemtech,

Mountainside, and related assets. Emanuel presented Mehta with financial

spreadsheets and documents purporting to show valuations for the various

business and real estate assets. The documents showed that Chemtech's value

was $1,192,363.52. By applying a multiplier of three, Emanuel reached a final

valuation of approximately $3.6 million. Mountainside, along with its

subsidiary Cubic, had a total value of about $8.4 million, leading to a total asset

value of $12.1 million dollars. Thus, according to the presented documents,

Metha's total interest in MRL, Chemtech, and Cubic was approximately $5.9

million. During the summer of 2014, Emanuel proposed to buy out Mehta for a

total of $5.6 million, then increased his proposal to $5.7 million. Ultimately,

the offer rose to approximately $6.3 million. The parties did not reach

agreement at that time.

On November 4, 2014, Mehta executed a second employment agreement

with Emanuel, who countersigned the document as the President of Chemtech.

A-0385-22

9

Mehta agreed to work for Chemtech as COO for an additional three years at an

annual salary of $120,000, ending on October 31, 2017.

On December 5, 2014, Gayatri and Emanuel executed a Membership

Interest Purchase Agreement (MIPA) through which DGNS sold its interest in

MRL to A3I for $4,960,000, effective January 1, 2015. Gayatri signed as the

President of DGNS and Emanuel signed as the President of A3I. The MIPA

noted that DGNS and A3I each owned fifty percent of Mountainside, and listed

MRL's subsidiary companies, including Cubic; 29 Cottage; EFJ 240 Prospect,

LLC; EFJ 70 E Passaic LLC; and EFJ 275 Grand, LLC. The sales agreement

listed Mountainside's primary assets as the real estate at 29 Cottage Street, 240

Prospect Avenue, 70 East Passaic Street, 275 Grand Avenue, 724 Undercliff

Avenue in Edgewater, 1151 Glen Avenue in Fort Lee, and 284 Sheffield Street

in Mountainside.

Section 5.5 of the MIPA was entitled "Personal Guaranties." It specified

that A3I, as buyer, "shall indemnify and hold [DGNS] harmless from any claims

made by any of [MRL's] Lenders with respect to such personal guaranties as set

forth in the Indemnification Agreement." In the MIPA, there were

indemnification clauses for both the buyer and the seller. As to indemnification

of DGNS, A3I agreed to:

A-0385-22

10

indemnify and hold harmless [DGNS], and will pay to

[DGNS] the amount of any Damages, arising out of,

resulting from, or relating to: (a) any material

inaccuracy or breach of any representation or warranty

of [A3I] contained in this Agreement or in any other

document delivered by [A3I] as required by this

Agreement; (b) any material breach or violation of the

covenants or agreements of [A3I] contained in this

Agreement or in any other document delivered by [A3I]

as required by this Agreement; (c) one-half of any taxes

of [MRL] (but not any personal taxes of [DGNS]) with

respect to any tax paid prior to the Effective Date; and

(d) one-half of any costs and expense of [MRL] through

the Effective Date.

Further, attached to the MIPA was a personal indemnification agreement

signed by Emanuel, President of A3I, as the indemnitor. The purpose of this

Exhibit was to indemnify Mehta and Gayatri in connection with certain monies

A3I planned to borrow from TD Bank and Bank of America to purchase DGNS's

interest in MRL. As to indemnification, Exhibit C stated:

Indemnitors shall jointly and severally defend,

indemnify, and hold Indemnitees harmless from and

against, and shall pay to Indemnitees the amount of, or

reimburse Indemnitees for, any and all obligations,

costs, fines, claims, actions, injuries, demands, suits,

judgments, settlements, amounts paid, proceedings,

investigations, arbitrations and reasonable expenses,

including reasonable attorney's fees and expenses, that

Indemnitees may suffer, sustain, or become subject to,

as a result of, in connection with, or relating to (a) any

default or breach on or after the date of this Agreement

of the loan documents with [MRL's] lenders or (b) the

A-0385-22

11

personal guarantees of the Indemnitees to [MRL's]

lenders.

The indemnification agreement also permitted a claim for reasonable attorney's

fees for the prevailing party in a lawsuit to enforce or interpret the agreement in

addition to other relief that may be awarded by a court. In the assignment of

membership interest, another document attached to the MIPA, Emanuel signed

as the Secretary of A3I. This document appointed Emanuel as the attorney-in-

fact to transfer the membership interest from DGNS to A3I, and it noted that

A3I would then own one hundred percent of Mountainside.

Additionally, on December 5, Emanuel and Mehta signed the 2014 Stock

Purchase Agreement (2014 SPA) through which Mehta sold his interest in

Chemtech to Emanuel. The 2014 SPA assigned fifty-one percent of ownership

to Mehta and forty-nine percent ownership to Emanuel. The purchase price of

Mehta's shares was $740,000. The terms of the agreement called for Mehta to

receive a payment of $400,000 upon signing the SPA, then $300,000 on July 1,

2017, and $40,000 at closing on December 31, 2017. The 2014 SPA stated that

"[a]ll representations and warranties contained in Sections 3.1 [Mehta's

representations and warranties], 3.2 [Emanuel's representations and warranties]

and 4.1 [capitalization] through 4.2 [non-contravention] shall survive the

closing and continue indefinitely".

A-0385-22

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Further, Section 8.3, entitled "Personal Guarantees," stated:

[Chemtech] and [Emanuel] shall use commercially

reasonable efforts to cause all creditors to release

[Mehta], on the Closing Date, from any and all personal

guaranties of any loans, credit lines or other credit

extended to [Chemtech]. Until [Chemtech] and

[Emanuel] cause such creditors to release [Mehta] from

any such personal guaranties, [Chemtech] and

[Emanuel] shall jointly and severally indemnify and

hold harmless [Mehta] from and against any and all

losses, costs, damages (including incidental and

consequential damages), liabilities or expenses

(including court costs, reasonable attorney's fees,

interest expenses and amounts paid in compromise or

settlement), suits, actions, claims, obligations, fines,

penalties or assessments (collectively, "Losses")

arising out of any such personal guaranties.

The 2014 SPA also contained a personal indemnification from Emanuel

to Mehta. It stated:

[Emanuel] agrees to indemnify and hold harmless

[Mehta] from and against any and all Losses incurred

by [Mehta] after the date of this Agreement and arising

out of, resulting from, or relating to (i) any material

inaccuracy or breach of any representation or warranty

of [Emanuel] contained in this Agreement, (ii) any

material breach or violation of the covenants or

agreements of [Emanuel] contained in this Agreement

and (iii) any material inaccuracy in any certificate,

instrument or other document delivered by [Emanuel]

as required by this Agreement.

During the period from 2014 to December 2017, Mehta continued to run

the laboratory side and Emanuel continued to run the financial side of Chemtech.

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Before December 31, 2017, the parties changed the terms of the 2014 SPA.

Fariba was substituted for Emanuel as the buyer so that the business could

qualify as a woman-owned business enterprise. This substitution resulted in a

modified SPA (the 2017 SPA), identical in all terms except for the buyer

substitution. Mehta received the payments agreed upon in the SPA and ended

his employment with Chemtech in December 2017 as agreed upon.

In April 2019, Mehta and his wife received a tax deficiency notice, stating

they owed roughly $100,000 to the State of New Jersey (the State) in connection

with DGNS's 2014 sale of its interest in MRL. Mehta retained an accountant,

Hemant Prajapati, to investigate the matter. Prajapati discovered an irregularity

in the 2014 transaction and requested more records. Myers and Emanuel

suggested to Mehta that the delinquent tax notice was a result of an error on the

tax return. They proposed that Mehta recharacterize certain MRL transactions

originally classified as membership interest to asset sales. After Prajapati heard

Myers' and Emanuel's proposal, he became concerned that such a change would

constitute tax fraud. Although Myers sent a letter to the State claiming that a

distribution allocated to DGNS and A3I should have been made solely to A3I,

thereby negating the tax issue, the State did not refund any money to Mehta.

A-0385-22

14

Meanwhile, Emanuel failed to disclose the full financial records for MRL,

Cubic, and VIP despite Mehta's requests. After reviewing limited records for

MRL, Cubic, and VIP, Prajapati determined that there were $2.1 million in

accounting errors. Additionally, Emanuel provided Mehta with limited

Chemtech tax returns. Mehta's review of the Chemtech tax returns showed that

Emanuel never distributed certain retained earnings to him, even though Mehta

paid taxes on them. By fall 2019, Emanuel had not turned over the requested

documentation to Mehta and Prajapati, despite repeated written demands.

On January 17, 2020, having not received all the requested records from

Emanuel, Mehta and DGNS filed a complaint against Emanuel, Fariba,

Chemtech, MRL, and A3I in the Chancery Division. The initial complaint

demanded an accounting, sought damages and restitution, requested a

constructive trust, and alleged conversion, breach of contract, fraud in the

inducement, and breach of the covenant of good faith and fair dealing. After the

complaint was amended, defendants answered, counterclaimed, and filed a

third-party complaint against: Pharmachem Laboratories and Arecon Ltd.,

companies owned by Mehta; Gayatri; and Myers, the accountant.2 On

2

Myers and Pharmachem Laboratories both settled before trial, but neither

settlement is included in the record.

A-0385-22

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September 16, 2021, plaintiffs again amended their complaint to include Cubic,

29 Cottage, VIP, Chemtech LLC, and EFJ Realty as additional defendants.

Plaintiffs alleged that Cubic, 29 Cottage, VIP, Chemtech LLC, and EFJ were

entities owned or controlled by Fariba and Emanuel. Discovery was

contentious, with significant disputes between the parties over access to and

production of financial records.

Prior to trial, the court denied defendants' motion to bar or limit plaintiffs'

expert's testimony. The court granted in part and denied in part defendant's

motion for summary judgment. The trial court granted summary judgment on

the question of whether Mehta was entitled to what he alleged was unpaid

compensation. The court denied summary judgment on other issues, finding

there were genuine issues of material fact on plaintiffs' other claims, including

the fraud claims. The court also denied summary judgment on defendants'

argument that plaintiffs' claims should have been brought derivatively.

C.

The Trial

The bench trial commenced on January 18, 2022, and took place over

twenty-two non-consecutive days, concluding on March 17, 2022. During trial,

the court denied defendants' motion for a directed verdict pursuant to Rule 4:40-

A-0385-22

16

1 and denied plaintiffs' motion to dismiss defendants' counterclaim and third -

party complaint. On June 30, 2022, the court found in favor of plaintiffs.

The court reviewed the record, including witness testimony and exhibits,

and made findings. Among other things, the court found: Emanuel's corporate

role was to run Chemtech and manage the books, while Mehta's corporate role

was as a scientist; that Emanuel engaged in fraudulent activity, which he

attempted to cover up; and that Emanuel did not turn over all the financial data

Mehta requested. The court found plaintiffs' expert Prajapati credible, having

examined potentially thousands of transactions. The court, however , did not

agree with his conclusion that plaintiffs' damages were $10 million. The court

accepted defense expert Henry Fuentes's testimony that it was not proper to sum

all of the problematic transactions up and add them to the purchase price of the

buyout to calculate damages. However, the court rejected Fuentes's remaining

analysis, finding it "cursory." The court found that Fuentes could not explain

how monies ended up in accounts that were controlled by defendants. Rather,

the court found credible and accepted Prajapati's explanation that there were

conduit accounts, commingling, and step transactions that were used to divert

money to defendants without plaintiffs' knowledge.

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The court also found instances where Emanuel stated that Mehta was

given money, such as cash from rents associated with MRL, but there was no

documentation supporting that Emanuel had actually paid the money to Mehta.

Also, evidence showed there were conduit accounts which diverted money from

MRL's books, and unauthorized management fees processed through EFJ

Realty. Duplicate payroll expenses were run through Chemtech LLC and other

artificial losses also were attributed to Chemtech LLC. Further, evidence

showed that defendants had diverted money from Chemtech to Chemtech LLC.

The court found many of these transactions troubling and without sound

explanation.

The court identified transactions which the evidence showed represented

diverted income: Chemtech funds diverted to a third-party entity controlled by

Emanuel, followed by a transfer from that same third-party entity to A3I in the

amount of $629,217.85; $2 million diverted from MRL on December 26, 2008,

by Emanuel to his personal account; $500,000 diverted from MRL's account in

November 2013 to a personal account belonging to Emanuel; $75,000 on August

22, 2014, from MRL to A3I; $2.3 million on November 26, 2014, from MRL to

A3I, where Emanuel used MRL funds to buy DGNS's interest in MRL as set

forth on schedule twenty-one of Prajapati's expert report; $50,000 on December

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5, 2014, diverted into an account for A3I from Chemtech's line of credit; $50,000

on September 8, 2015 from MRL to an account maintained by Emanuel and

Fariba; $90,000 on October 7, 2015 to an account belonging to Emanuel and

Fariba; $50,000 on October 28, 2015 from Chemtech's account to A3I; and

$106,490 in unauthorized management fees.

For the above transactions the record shows the court found no evidence

that similar distributions went to plaintiffs. The court tallied the diverted

amounts and divided the sum by two, awarding compensatory damages to

plaintiffs in the amount of $2,882,244.85. The court rejected plaintiffs' punitive

damages claim. The court further declined to order an accounting of all entities

in the lawsuit, dismissing counts one and two. The court also declined to place

all of Emanuel's assets into a constructive trust, dismissing counts three and

four. The court dismissed counts nine and ten, because the damages calculation

plaintiffs sought was for the court to add the diverted funds to the purchase price.

The court next found defendants liable under plaintiffs' conversion theory,

determining that defendants engaged in the unauthorized assumption and

exercise of the right of ownership of monies belonging to plaintiffs . The court

rejected defendants' derivative suit argument, finding the facts represented an

exception to the rule that a derivative suit was required, because of the special

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relationship between Mehta and Emanuel as corporate officers of a closely held

corporation. The court found that Mehta should have received whatever

Emanuel received from Chemtech, but that did not happen.

The court next found A3I and Fariba breached their obligations under the

MRL Operating Agreement, because Emanuel, as A3I President, made capital

withdrawals from MRL without approval and authorization from plaintiffs.

Plaintiffs received no distribution from funds funneled to A3I and various

accounts shared between Fariba and Emanuel. Concerning the 2017 SPA, the

court found Emanuel used company funds without authorization and failed to

distribute profits. The court also found that plaintiffs proved by a preponderance

of the credible evidence that defendants' actions violated the covenant of good

faith and fair dealing in both contracts.

The court also found plaintiffs met their burden of proof on their unjust

enrichment claim, noting that "Mehta was shortchanged on certain monies." The

court did not award all the damages plaintiffs requested, stating that it

discounted much of the relief plaintiffs requested based on lack of proof. It also

explained that the diverted funds led to an unjust enrichment, plaintiffs had

proven that defendants received a benefit, and the retention of those benefits

was unjust.

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The court found the counterclaim and third-party complaint meritless,

finding those actions were brought as retaliation for plaintiffs' lawsuit. The

court also denied defendants' post-trial motion to modify the judgment, again

finding Mehta and Prajapati credible.

The court next found defendants were jointly and severally liable in the

amount of $2,882,244.25 on the theories of conversion, breach of contract,

breach of the covenant of good faith and fair dealing, and unjust enrichment.

However, the court rejected plaintiffs' fraud claim and their demand for an

accounting, constructive trust, and punitive damages. The court also dismissed

defendants' counterclaim and third-party complaint. 3

On September 14, the court entered judgment in the amount of

$4,258,878.69 against defendants. On September 19, the court granted in part

and denied in part defendants' motions for reconsideration and a stay. The court

modified plaintiffs' damages award to $2,872,358.93 and stayed execution of

the final judgment pending appeal.

The Chemtech defendants and Fariba appealed, and plaintiffs cross-

appealed.

3

Defendants did not appeal the dismissal of the counterclaim and third-party

complaint.

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II.

When reviewing an order granting summary judgment, we use the same

standard as the trial court. Sackman Enters., Inc. v. Mayor & Council of Belmar,

478 N.J. Super. 68, 75 (App. Div. 2024). Pursuant to Rule 4:46-2(c), summary

judgment should be granted if "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." A court views the evidence in the light most favorable to the

non-moving party to determine whether a genuine issue of material fact exists.

Alloco v. Ocean Beach & Bay Club, 456 N.J. Super. 124, 134 (App. Div. 2018)

(citing Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 535, 540 (1995)).

The inquiry posed by the court is "whether the evidence presents a sufficient

disagreement to require submission to a jury or whether it is so one-sided that

one party must prevail as a matter of law." Funtown Pier Amusements, Inc. v.

Biscayne Ice Cream, 477 N.J. Super. 499, 511 (App. Div. 2024) (quoting Brill,

142 N.J. at 536). If the court determines that no genuine issue of material fact

exists, then the reviewing court's inquiry is whether the trial court correctly

interpreted the law. Dickson v. Cmty. Bus Lines, 458 N.J. Super. 522, 530 (App.

Div. 2019). The trial court's legal conclusions are reviewed by the reviewing

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court pursuant to a de novo standard. Est. of Hanges v. Metro. Prop. & Cas. Ins.

Co., 202 N.J. 369, 385 (2010).

We apply an abuse of discretion standard when we consider whether a trial

court properly determined if a plaintiff could pursue a lawsuit as a direct action

instead of a derivative action. Brown v. Brown, 323 N.J. Super. 30, 36 (App.

Div. 1999). A trial court's decision should be affirmed when it makes a

reasonable determination based on the record below. Wadlow v. Wadlow, 200

N.J. Super. 372, 382 (App. Div. 1985).

What's more, in a non-jury case, we should not disturb the findings of the

trial judge unless they are "so wholly insupportable as to result in a denial of

justice." Jecker v. Hidden Valley, Inc., 422 N.J. Super. 155, 163 (App. Div.

2011) (quoting Rova Farms Resort, Inc. v. Invs. Ins. Co. of Am., 65 N.J. 474,

483-84 (1974)). Specifically, factual conclusions should not be overturned

unless "'they are so manifestly unsupported by or inconsistent with the

competent, relevant and reasonably credible evidence as to offend the interests

of justice[.]'" Ibid. (quoting Seidman v. Clifton Sav. Bank, S.L.A., 205 N.J.

150, 169 (2011)).

At the appellate level, "[i]nterpretation and construction of a contract is a

matter of law for the court subject to de novo review." Steele v. Steele, 467 N.J.

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Super. 414, 440 (App. Div. 2021) (quoting Fastenberg v. Prudential Ins. Co.,

309 N.J. Super. 415, 420 (App. Div. 1998)). We decide such purely legal

questions without deferring to a lower court's "interpretation of the law and the

legal consequences that flow from established facts." Camden City Bd. of Educ.

v. McGreevey, 369 N.J. Super. 592, 604 (App. Div. 2004) (quoting Manalapan

Realty, LP v. Twp. Comm., 140 N.J. 366, 378 (1995)); see also Zaman v. Felton,

219 N.J. 199, 216 (2014).

Finally, we note, "[a] Chancery judge has broad discretion 'to adapt

equitable remedies to the particular circumstances of a given case.'" Tarta Luna

Props., LLC v. Harvest Rest. Grp., LLC, 466 N.J. Super. 137, 153 (App. Div.

2021) (quoting Marioni v. Roxy Garments Delivery Co., 417 N.J. Super. 269,

275 (App. Div. 2010)).

III.

A.

In A-386-22, Fariba argues that the court erred because plaintiffs could

not establish that they suffered a special injury in relation to their conversion

claims and, thus, those claims should have been dismissed for a lack of

derivative standing, either on summary judgment or at trial. We are

unpersuaded.

A-0385-22

24

When a shareholder sues to remedy corporate injuries, the action is in the

form of a shareholder derivative action. Strasenburgh v. Straubmuller, 146 N.J.

527, 548-49 (1996).

A shareholder derivative action is a unique and

anomalous legal remedy. "The purpose of the

derivative action was to place in the hands of the

individual shareholder a means to protect the interests

of the corporation from the misfeasance and

malfeasance of 'faithless directors and managers.'"

Kamen v. Kemper Financial Svcs., Inc., 500 U.S. 90,

95 (1991) (quoting Cohen v. Beneficial Loan Corp.,

337 U.S. 541, 548 (1949)). The action functions as both

a sword and a shield to directors. It is a sword in the

hands of shareholders, yet it shields directors from

direct shareholder actions for certain injuries.

[Ibid.]

Shareholders can use a derivative action if they suspect that the

corporation's management is behaving improperly or against the corporation's

interests. Ibid. However, a shareholder may bring a direct action when claiming

a special injury—a wrong not shared by other shareholders or that affects the

plaintiffs' contractual rights. Tully v. Mirz, 457 N.J. Super. 114, 124 (App. Div.

2018). It is easier for shareholders of closely held companies to demonstrate a

special injury and file a direct claim. See Mullenberg v. Bikon Corp., 143 N.J.

168, 181 (1996) (explaining that shareholders of closely held companies owe

fiduciary duties to both the company and other shareholders).

A-0385-22

25

The record supports the court's conclusion that plaintiffs were permitted

to bring a direct action instead of a shareholder derivative action. The evidence

adduced demonstrated that Emanuel, on behalf of Chemtech, A3I, and Fariba,

misappropriated funds, altered financial records, provided plaintiffs with

business records that inaccurately portrayed company value, inflated corporate

liabilities, and diverted money to entities that only he and Fariba controlled.

Fariba executed the 2017 SPA through which she purchased Mehta's shares at a

lower value than they were worth. Further, A3I, a company where Fariba was

the sole shareholder, contracted with DGNS to purchase DGNS's share of MRL.

Because plaintiffs met their burden to show that defendants violated their

fiduciary duties, it follows that the court did not abuse its discretion when it

concluded that plaintiffs suffered a special injury and had standing to pursue a

direct claim.

When a corporation is closely held, our courts have the discretion to

characterize a derivative cause of action as a direct claim if such action will not

expose the defendants to several actions, materially prejudice the interests of

creditors of the corporation, or interfere with the distribution of recovery. Tully,

457 N.J. Super. at 125. The record shows this was the case here, as the direct

action limited the number of suits that could have been pursued. Importantly,

A-0385-22

26

all the parties included in the direct suit included every interested individual and

entity, allowing recovery to be efficient.

Finally, we note that in closely held corporations, it is permissible to

depart from the standard derivative suit norms and focus on the actual

relationships of the principal shareholders. We have applied this reasoning in

Brown, where this court waived the usual derivative standing rules in a situation

involving a closely held corporation. 323 N.J. Super. at 35. In Brown, we stated

that when a cause of action presents a claim of corporate injury, the policy

behind requiring a derivative action is less applicable if a closely held entity is

involved. Id. at 37. In a derivative action, the corporation is under the control

of the individuals who would have been defendants in the direct action. Id. at

37-38. This rationale applies here, as Chemtech was controlled only by Mehta

and Emanuel, while A3I was solely controlled by Fariba.

We defer4 to the trial court’s supported factual findings and conclude it

correctly found that plaintiffs suffered a special injury, enabling the direct claim

exception to the derivative suit requirement.

4

"Deference is especially appropriate when the evidence is largely testimonial

and involves questions of credibility" because of the "trial court's opportunity to

hear and see the witnesses who testified on the stand." Balducci v. Cige, 240

N.J. 574, 594-95 (2020) (first quoting Cesare v. Cesare, 154 N.J. 394, 412

(1998); and then citing State v. Elders, 192 N.J. 224, 244 (2007)).

A-0385-22

27

B.

Fariba and the Chemtech defendants contend that the court erred when it

determined that they were liable for conversion. Fariba alleges that plaintiffs'

failure to demand the return of the property was fatal to their claim and, also,

that the court's finding of liability was unsupported by the evidence. The

Chemtech defendants state that: plaintiffs failed to prove that the money

belonged to them and was identifiable; plaintiffs failed to demand the return of

the property; and the economic loss doctrine prohibited plaintiffs' recovery. We

are unconvinced.

The court determined that Fariba and the Chemtech defendants were liable

to plaintiffs on the conversion claims. It analyzed the questionable transactions

step-by-step and examined the diversions, finding a maze of records that made

it difficult for anyone to track the missing funds. It found that Emanuel

controlled the money, created multiple accounts to divert funds, and then altered

the financial records to prevent detection. The court recognized that defendants

were comingling money and placing it into conduit accounts, including the

personal accounts of Emanuel and Fariba. The court cited several transactions

which tended to prove that conversion occurred. Finally, the court noted that

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28

Fariba and Emanuel had a special relationship with plaintiffs because they were

officers.

Fariba and the Chemtech defendants both argue that plaintiffs' conversion

claim fails because they did not make a pre-suit demand for the return of the

property, but the argument fails. These arguments were not raised below, and

we need not consider the argument that a party failed to prove an element of a

cause of action for the first time on appeal. See Liebling v. Garden State

Indemnity, 337 N.J. Super. 447, 465 (App. Div. 2001); see also Nieder v. Royal

Indem. Ins. Co., 62 N.J. 229, 234 (1973); Pressler & Verniero, Current N.J.

Court Rules, cmt. 3 on R. 2:6-2 (2025). While we are not required to consider

these arguments, for completeness' sake, we comment briefly. The record shows

Emanuel resisted requests from plaintiffs to turn over the relevant financial

books and records during discovery and prior to trial. Given the evidence

adduced at trial, we conclude plaintiffs' pre-suit demand requirement would

have been futile. As to the Chemtech defendants' argument that plaintiffs failed

to demand a return of the property, the record shows defendants designed an

elaborate scheme to conceal their conversion of money from plaintiffs,

continuing their efforts even after plaintiff received the tax delinquency notice.

A-0385-22

29

Ultimately, Emanuel only turned over limited records. It follows that any

demand from plaintiffs would have been futile.

Defendants also argue that plaintiffs failed to prove that the money

belonged to them and was identifiable. We disagree, as the court found

Prajapati's testimony credible. At trial, Emanuel could not explain where certain

money went or, concerning traceable money, why it was deposited into his

personal accounts. The record shows that the nine transactions the court relied

upon when calculating damages were identifiable, the money was deposited into

accounts controlled by Emanuel and Fariba, and plaintiffs did not receive similar

amounts in the form of distributions. Moreover, the court repeatedly found that

the web of transactions was so complex that it prevented the money from being

accurately tracked. In instances where the money could not be traced to

Emanuel's and Fariba's accounts, the court did not include those transactions in

the damage calculation. Concerning the ultimate location of the money, in

Charles Bloom & Co. v. Echo Jewelers, we recognized that a party which

accepts responsibility for property should have the burden of producing

evidence as to the fate of those goods because "[t]o hold otherwise would place

an impossible burden on plaintiff." 279 N.J. Super. 372, 381 (App. Div. 1995).

A-0385-22

30

Finally, we are not persuaded that the economic loss doctrine precludes

plaintiffs' recovery under a conversion theory. In Saltiel v. GSI Consultants,

Inc., the Court held that the economic loss doctrine precludes the tort liability

of parties when the relationship between them is based on a contract, "unless the

breaching party owes an independent duty imposed by law." 170 N.J. 297, 316-

17 (2002). Here, Emanuel was the President of Chemtech, and he owed duties

to Mehta outside of the Chemtech Shareholders Agreement. Emanuel was also

the President of A3I. Similarly, Fariba owned A3I, and she owed shareholder

duties to DGNS as a fifty percent owner of MRL, outside of duties owed by A3I

to MRL. Moreover, the court heard testimony that Emanuel controlled the other

entities, namely Chemtech LLC, Cubic, EFJ Realty, 29 Cottage, and VIP, to his

own advantage to divert money into accounts that he shared with Fariba. Thus,

a special relationship existed to allow plaintiffs to obtain relief greater than what

was allowed under the terms of the various contracts including the MRL

Operating Agreement, the Chemtech Shareholder Agreement, and the MIPA. 5

The court correctly found that DGNS's claim for conversion against MRL, A3I,

Emanuel, Fariba, Chemtech LLC, Cubic, EFJ Realty, and VIP was successful.

5

Explained in more detail below, the court did not allow for a double recovery

on the disputed transactions.

A-0385-22

31

Likewise, Mehta's claim for conversion against Emanuel, Chemtech, Chemtech

LLC, Cubic, EFJ Realty, and VIP succeeded.

We conclude that there is more than adequate support in the record to

support the court's determination that defendants were liable for conversion.

There is no indication that the holding was manifestly unsupported by adequate,

competent evidence. Plaintiffs proved that the money belonged to them and

defendants exercised dominion over it. Any alleged failure of plaintiffs to

demand the return of the property could not have precluded liability, because

such a demand would have been futile. We discern no error by the trial court

on the conversion issue.

C.

Fariba and the Chemtech defendants argue that the court erred when it

determined that they were liable for breach of contract. Fariba and the Chemtech

defendants contend that Fariba was not a party to the contracts cited by the court

and that the court's holding was unsupported by the evidence. As to Emanuel,

the Chemtech defendants claim that he was not a party to the MRL Operating

Agreement. The Chemtech defendants also contend that the record only

supports finding that Emanuel engaged in "sloppy bookkeeping." We disagree.

A-0385-22

32

A basic principle of contract construction is to determine the intent of the

parties based on the language in the instrument. Karl's Sales & Serv., Inc. v.

Gimbel Bros., 249 N.J. Super. 487, 492 (App. Div. 1991). When the provisions

of a contract are unambiguous, they should be enforced by the court as they are

written. Id. at 493. "The plain language of the contract is the cornerstone of the

interpretive inquiry; 'when the intent of the parties is plain and the language is

clear and unambiguous, a court must enforce the agreement as written, unless

doing so would lead to an absurd result.'" Barila v. Bd. of Educ. of Cliffside

Park, 241 N.J. 595, 616 (2020) (quoting Quinn v. Quinn, 225 N.J. 34, 45 (2016)).

"In a word, the judicial interpretive function is to consider what was written in

the context of the circumstances under which it was written, and [then] accord

to the language a rational meaning in keeping with the express general purpose."

Ibid. (quoting Owens v. Press Pub. Co., 20 N.J. 537, 543 (1956)).

A breach of contract claim requires a plaintiff to prove four elements by

a preponderance of the evidence:

first, that "[t]he parties entered into a contract

containing certain terms"; second, that "plaintiff[s] did

what the contract required [them] to do"; third, that

"defendant[s] did not do what the contract required

[them] to do[,]" defined as a "breach of the contract";

and fourth, that "defendant[s'] breach, or failure to do

what the contract required, caused a loss to the

plaintiff[s]."

A-0385-22

33

[Globe Motor Co. v. Igdalev, 225 N.J. 469, 482 (2016)

(citing Model Jury Charge (Civil), 4.10A "The Contract

Claim—Generally" (approved May 1998)).]

Regarding damages, "[a] breaching party is 'liable for all of the natural

and probable consequences of the breach of [the] contract.'" Woytas v.

Greenwood Tree Experts, Inc., 237 N.J. 501, 512 (2019) (quoting Pickett v.

Lloyd's, 131 N.J. 457, 474 (1993)). Compensatory damages for breach of

contract are designed to place the injured party in as good a monetary position

as the injured party would have been if the contract had been performed as

promised. Totaro, Duffy, Cannova & Co. v. Lane, Middleton & Co., 191 N.J.

1, 12-13 (2007). The monetary position in question depends on what the parties

reasonably expected at the time they made the contract. Id. at 14. While the

loss must be reasonably certain, the exact amount of the loss need not be certain.

Ibid. (quoting Donovan v. Bachstadt, 91 N.J. 434, 445 (1982)).

The determination as to whether a contract was breached concerns

questions of fact, which are reviewed pursuant to a deferential standard. Magnet

Res., Inc. v. Summit MRI, Inc., 318 N.J. Super. 275, 285-86 (App. Div. 1998).

Whether a contract was breached and whether the breach was material are

ordinarily questions of fact for the jury. Id. at 286. A "material breach" of a

contract is defined as "a single occurrence or consistent recurrences which tend

A-0385-22

34

to defeat the purpose of the contract." Ibid. (quoting Medivox Productions, Inc.

v. Hoffmann-La Roche, Inc., 107 N.J. Super. 47, 59 (Law Div.1969)) (internal

quotation marks omitted).

The trial court found that defendants breached the MRL Operating

Agreement and the Chemtech Stockholders Agreement. Concerning the MRL

Operating Agreement, the court determined that Fariba, A3I, and Emanuel, as

the President of A3I, breached their contractual obligations. The court stated

that plaintiffs did not approve of withdrawals of capital from MRL by Emanuel,

were not able to share in the profits, and did not get distributions . The court

explained Fariba became part of the case when MRL became a minority-owned

business in 2017. It found there was a special relationship between Mehta and

Emanuel because there was a contractual duty between them created by the

Chemtech Stockholders Agreement. Additionally, the 2007 Chemtech

Stockholders Agreement stated that a shareholder vote was required to execute

an expenditure of funds.

The record shows that Emanuel diverted funds to accounts that he owned

with Fariba and that equal distributions were not made to plaintiffs. Emanuel

and Chemtech were liable to Mehta for breach of contract under the terms of the

Chemtech Shareholder Agreement, which stated that "[a]ll decisions regarding

A-0385-22

35

the operation of the business of [Chemtech] and the expenditure of the funds

thereof shall be made by majority vote of the Stockholders[.]" Credible

evidence shows that Emanuel diverted money through a complex maze of

accounts to prevent detection by Mehta. There was no evidence in the record to

prove these monies were approved by a vote or that Mehta was aware of the

transactions until after he received the tax notice from the State. It follows that

plaintiffs proved that Emanuel was using company funds without authorization

and failed to distribute profits in violation of the Chemtech Stockholder's

Agreement.

Likewise, MRL and A3I, both owned by Fariba and controlled by

Emanuel, were liable for breach of contract to DGNS under the terms of the

MRL Operating Agreement that was signed by Fariba. The MRL Operating

Agreement stated that "[n]o member shall make any withdrawals from capital

without prior approval of [MRL]." In addition, it stated "[e]ach of the parties to

this agreement hereby covenants and agrees to cause all known business

transactions pertaining to the purpose of [MRL], to be entered properly and

completely into [the MRL company] book[.]" The MRL Operating Agreement

was breached because the record demonstrates that Emanuel controlled MRL

and A3I, and then used those entities to divert funds to accounts that he shared

A-0385-22

36

with Fariba. Also, the MRL Operating Agreement allows for DGNS to obtain

damages from Fariba and A3I. Fariba, on behalf of A3I, indemnified DGNS

against "any and all claims, demands and actions of every kind and nature

whatsoever which may arise out of or by reason of such violation of any terms

and conditions of" the MRL Operating Agreement.

In addition to those two contracts, there was additional language in the

MIPA to hold Emanuel liable for breach of contract, as he executed the

document on behalf of A3I as the President of A3I. The terms of the MIPA

stated that A3I agreed to pay DGNS "any" damages stemming from "any

material inaccuracy or breach of any representation or warranty," material

inaccuracies "in any other document delivered by Buyer," and "any material

breach or violation of the covenants or agreements." Again, A3I was owned b y

Fariba and controlled by Emanuel, who signed the MIPA. Thus, there is

evidence in the record that MRL and A3I violated the MIPA and were liable to

DGNS for damages.

The 2017 SPA contains language to hold Fariba liable for breach of

contract. The 2017 SPA signed by Fariba and Mehta stated that Fariba agreed

to indemnify Mehta for "any and all" losses arising out of material inaccuracies

or breaches of any representation or warranty, any material breach or violation

A-0385-22

37

of the covenants or agreements, and any material inaccuracy in any certificate,

instrument or other documents. The record reflects that Emanuel, who

controlled the financial mechanics and documents for Chemtech, diverted funds

to accounts and entities controlled by himself and Fariba. Thus, there was

evidence in the record that Fariba violated the 2017 SPA and is liable to Mehta

for damages. Notably, Emanuel also executed the 2014 SPA, which contained

similar breach and indemnification terms as the 2017 SPA.

In sum, the ample record supports the trial court's findings that MRL, A3I,

Chemtech, Fariba, and Emanuel were liable for breach of contract to Mehta and

DGNS. We discern no reason to contradict those findings.

D.

Fariba and the Chemtech defendants contend that the court erred when it

held they were liable for breaching the covenant of good faith and fair dealing

because there was no support in the record to sustain that finding. We disagree.

"The implied covenant of good faith and fair dealing requires the 'parties

to a contract to refrain from doing "anything which will have the effect of

destroying or injuring the right of the other party to receive" the benefits of the

contract.'" Comprehensive Neurosurgical, P.C. v. Valley Hosp., 257 N.J. 33, 63

(2024) (quoting Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr.

A-0385-22

38

Assocs., 182 N.J. 210, 224 (2005)). "Although proof of bad motive or intention

is vital to the claim, such proof is not enough on its own. Rather, a plaintiff

must demonstrate that the defendant's alleged misdeeds prevented the plaintiff

from enjoying the full benefit of the terms of a particular bargain." Ibid.

(citation omitted) (internal quotation marks omitted). Bad faith is determined

by the trier of fact based upon proofs of the breaching party's state of mind and

the surrounding circumstances. Seidenberg v. Summit Bank, 348 N.J. Super.

243, 263 (App. Div. 2002).

We review the same portion of the record that applies to the breach of

contract analysis. There is evidence that MRL and A3I violated the MRL

Operating Agreement and, also, that Emanuel and Chemtech violated the

Chemtech Shareholders Agreement and both SPAs. Again, the MRL Operating

Agreement contained an indemnification provision that stated that A3I and MRL

were liable to DGNS for any material breaches or violations of any covenants

in the MIPA. Also, the 2014 SPA signed by Emanuel and 2017 SPA signed by

Fariba contained indemnification provisions for any material breaches of

violations of the covenants in each SPA. As to the 2014 SPA, the record shows

that Emanuel breached the covenant of good faith and fair dealing when he

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39

falsified data. Indeed, Emanuel relied on the same falsified documents at the

time Fariba executed the 2017 SPA with Mehta.

The court accepted as credible Prajapati's testimony that Emanuel diverted

money to outside accounts under his and Fariba's control. The court found the

record showed that Emanuel intended those diversions to be kept from plaintiffs

to their detriment. There was evidence in the record that Emanuel moved money

between the various accounts through conduit accounts, commingled monies,

and step-transactions. Emanuel could not explain at trial why the diverted

monies ended up in his personal accounts that he shared with Fariba.

In sum, there is ample credible evidence in the record to support the trial

court's finding that plaintiffs had proven that Emanuel, Fariba, Chemtech, MRL,

and A3I violated the covenant of good faith and fair dealing inherent in the

various contracts that they executed. Its conclusions are not so manifestly

unsupported by the record that affirmance would constitute a denial of justice.

E.

Fariba and the Chemtech defendants argue that the court erred when it

held that they were liable for unjust enrichment because there was no support in

the record to sustain that conclusion. We are unconvinced.

A-0385-22

40

"A cause of action for unjust enrichment requires proof that a defendant

received a benefit and that retention of that benefit without payment would be

unjust." Inv'rs Bank v. Torres, 457 N.J. Super. 53, 62 (App. Div. 2018) (quoting

Cty. of Essex v. First Union Nat'l Bank, 373 N.J. Super. 543, 549-50 (App. Div.

2004)). A party can be unjustly enriched even if there is no contract between

the parties. Insulation Contractor & Supply v. Kravco, Inc., 209 N.J. Super.

367, 376 n.4 (App. Div. 1986) ("Restitution and unjust enrichment are both

quasi-contractual in nature." (italicization omitted)). That said, "[b]ecause

unjust enrichment is an equitable remedy resorted to only when there was no

express contract providing for remuneration, a plaintiff may recover on one or

the other theory, but not both." Caputo v. Nice-Pak Prods., Inc., 300 N.J. Super.

498, 507 (App. Div. 1997).

As a threshold matter, once the trial court found breach of contract,

plaintiffs could not recover again for the same losses on a theory of unjust

enrichment. Caputo, 300 N.J. Super. at 507. However, the court did not award

double damages for the contract claims and the unjust enrichment claims.

Rather, the court discounted millions of dollars of transactions that Prajapati

claimed were improper because the money could not be traced. The final

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41

compensatory damages award was one lump sum based on the tally of monies

that were both diverted and traceable.

There is ample, credible evidence in the record to support the trial court's

conclusion that Fariba and the Chemtech defendants received a benefit by taking

unauthorized monies from Chemtech and MRL and, also, that the retention of

those monies was unjust. The limited bookkeeping obtained by plaintiffs in

discovery led Prajapati to conclude that the monies were inappropriately taken.

The court found that Prajapati's testimony was credible in this regard. It further

reviewed Prajapati's written report and schedules when it isolated only the

transactions where Emanuel clearly diverted money and did not make a similar

disbursement to plaintiffs. Critically, there was a special relationship between

the parties that exceeded their contractual obligations. Emanuel was the

President of Chemtech and A3I. Further, the record showed that Emanuel used

other entities that he controlled to facilitate his diversion of money, including

Chemtech LLC, Cubic, EFJ Realty and VIP. Meanwhile, Fariba was the sole

shareholder of A3I and, after the MIPA was executed, was the sole shareholder

of MRL.

We conclude the court did not err when it found Emanuel, Chemtech,

Chemtech LLC, Cubic, EFJ Realty and VIP were liable to Mehta and, also,

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42

MRL, A3I, Emanuel, Fariba, Chemtech LLC, Cubic, EFJ Realty, and VIP were

liable to DGNS for unjust enrichment. The court's factual findings were not so

"clearly mistaken" or "wide of the mark" to require the panel to interfere to

prevent a denial of justice. See N.J. Div. of Youth & Fam. Servs. v. E.P., 196

N.J. 88, 104 (2008).

F.

Fariba and the Chemtech defendants contend that the court's reliance on

transactions that occurred more than six years before the complaint was filed

produced an unjust result. Also, Fariba and the Chemtech defendants argue that

the claims for conversion, breach of the covenant of good faith and fair dealing,

and unjust enrichment were all barred by the six-year statute of limitations. We

are again unpersuaded.

Notably, "[t]he primary purpose of the statute of limitations is to provide

defendants a fair opportunity to defend and to prevent plaintiffs from litigating

stale claims." W.V. Pangborne & Co. v. N.J. Dep't of Transp., 116 N.J. 543,

563 (1989). A statute of limitations promotes those purposes by preventing a

plaintiff from filing those causes of action after the statutory period has expired.

O'Keeffe v. Snyder, 83 N.J. 478, 491 (1980). "However, where defendants are

on notice of the claims, and no significant prejudice results, the policy reasons

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43

for upholding a strict statute of limitations recede." W.V. Pangborne, 116 N.J.

at 563.

Additionally, we have recognized that the statute of limitations is tolled

until the plaintiff discovers or should have discovered by an exercise of

reasonable diligence, that he or she has an actionable claim. Catena v. Raytheon

Co., 447 N.J. Super. 43, 52 (App. Div. 2016). "Under the [discovery] rule, a

claim does not accrue until the plaintiff 'discovers, or by an exercise of

reasonable diligence and intelligence should have discovered that he may have

a basis for an actionable claim.'" Ibid. (quoting Lopez v. Swyer, 62 N.J. 267,

272 (1973)). While this rule does not generally apply for matters involving a

breach of contract, it can apply in cases involving misrepresentation. Cty. of

Morris v. Fauver, 153 N.J. 80, 110 (1998) (citing Gibbons v. Kosuga, 121 N.J.

Super. 252 (Law Div. 1972)). Under the doctrine of fraudulent concealment,

the statute of limitations can be tolled when a defendant engages in unintentional

or intentional fraud or concealment. Trinity Church v. Lawson-Bell, 394 N.J.

Super. 159, 168 (App. Div. 2007).

Review "of a trial judge's decision as to the applicable statute of

limitations is plenary and de novo." Psak, Graziano, Piasecki & Whitelaw v.

Fleet Nat'l Bank, 390 N.J. Super. 199, 203 (App. Div. 2007). Furthermore, a

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44

reviewing court may only reverse on an issue not raised below if the trial court

committed plain error. Johnson v. Benjamin Moore & Co., 347 N.J. Super. 71,

97 (App. Div. 2002).

On December 20, 2021, during oral argument on defendants' motion for

summary judgment, defendants argued that the statute of limitations applied to

bar plaintiffs' claim for unpaid compensation because it stemmed from a 2007

employment agreement. The court dismissed the unpaid compensation claim

due to the expiration of the statute of limitations. On June 30, 2022, when the

court rendered its decision, it recognized that, "[a]s far as any kind of statute of

limitations claim, on the discovery rule, when you find something out,

conversion has a six-year statute of limitation, as do[] the contract claims[.]" At

the time of this statement, neither Fariba nor the Chemtech defendants objected

to the court's conclusion or argued that any of the remaining claims were barred

by the statute of limitations.

Here, Fariba and the Chemtech defendants argue that seven transactions

dated prior to the filing of plaintiffs' initial complaint on January 20, 2020, were

wrongfully included in the court's computation of the judgment. Further, Fariba

and the Chemtech defendants claim that the court was on notice that they

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45

intended to challenge the claims as being untimely because they pled a statute

of limitations affirmative defense in their answer.

However, the record reflects that Fariba and the Chemtech defendants

only raised the statute of limitations argument as to Mehta's unpaid

compensation claim, which was dismissed on summary judgment. There is no

evidence that Fariba and the Chemtech defendants later argued, and proved by

a preponderance of the evidence, that the affirmative statute of limitations

defense applied to the remaining claims. A defendant's failure to assert a statute

of limitations defense during the proceedings waives the defense, even if was

pled in the answer. See Williams v. Bell Tel. Labs. Inc., 132 N.J. 109, 118-20

(1993). As a result, the statute of limitations defense was waived below. Thus,

their failure to assert a statute of limitations defense during the proceedings

waives the defense, even though Fariba and the Chemtech defendants pled it in

their answer.

G.

Fariba and the Chemtech defendants argue that the court erred in

permitting plaintiffs' expert to present net opinion testimony at trial . We

disagree.

A-0385-22

46

Under N.J.R.E. 703, an expert's opinion must be "grounded in 'facts or

data derived from (1) the expert's personal observations, or (2) evidence

admitted at the trial, or (3) data relied upon by the expert, which is not

necessarily admissible in evidence, but which is the type of data normally relied

upon by experts.'" Townsend v. Pierre, 221 N.J. 36, 53 (2015) (quoting Polzo

v. Cnty of Essex, 196 N.J. 569, 583 (2008)).

"The net opinion rule is a 'corollary of [N.J.R.E. 703] . . . which forbids

the admission into evidence of an expert's conclusions that are not supported by

factual evidence or other data.'" Id. at 53-54 (quoting Polzo, 196 N.J. at 583).

The rule "mandates that experts 'be able to identify the factual bases for their

conclusions, explain their methodology, and demonstrate that both the factual

bases and the methodology are reliable.'" Id. at 55 (quoting Landrigan v.

Celotex Corp., 127 N.J. 404, 417 (1992)).

"An expert's conclusion is excluded if it is based merely on unfounded

speculation and unquantified possibilities." Ibid. (quoting Grzanka v. Pfeifer,

301 N.J. Super. 563, 580 (App. Div. 1997)) (internal quotation marks omitted).

Medical-opinion testimony concerning the cause of an injury "'must be couched

in terms of reasonable medical certainty or probability; opinions as to possibility

are inadmissible.'" State v. Freeman, 223 N.J. Super. 92, 116 (App. Div. 1988)

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(quoting Johnesee v. Stop & Shop Cos., Inc., 174 N.J. Super. 426, 431 (App.

Div. 1980)). "[A]n expert offers an inadmissible net opinion if he or she cannot

offer objective support for his or her opinions but testifies only to a view about

a standard that is personal." Davis v. Brickman Landscaping, Ltd., 219 N.J. 395,

410 (2014) (quoting Pomerantz Paper Corp. v. New Cmty. Corp., 207 N.J. 344,

373 (2011)) (internal quotation marks omitted). Expert opinion must be

excluded if it is based merely on unfounded speculation and unquantified

possibilities. Grzanka, 301 N.J. at 580. An expert's opinion that fails to address

facts in the record that directly contradict the expert’s conclusions should be

barred as a net opinion. Smith v. Est. of Kelly, 343 N.J. Super 480, 497 (App.

Div. 2001).

On December 20, 2021, the court denied Fariba's and the Chemtech

defendants' motions to preclude net opinions in relation to Prajapati's upcoming

trial testimony. The court explained that any objections to Prajapati's testimony

could be challenged in voir dire or through objections because it was premature

to exclude the testimony without considering a full record .

At trial, Fariba and the Chemtech defendants questioned Prajapati through

voir dire and challenged his qualifications as a forensic accountant. The court

accepted Prajapati as an expert in forensic accounting, explained that any

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questions as to Prajapati's experience pertained to the weight of the testimony,

and found that the testimony would assist the trier of fact.

The court found Prajapati credible, but did not agree with his conclusion

that the damages totaled $10 million. It recognized that numerous funds could

not be traced, so it was unclear how the value of the companies would have been

affected. Thus, Prajapati's decision to add the questionable transactions to the

purchase price was not a proper valuation of the companies. However, the court

found that Prajapati's testimony was credible as to the existence of conduit

accounts, step transactions, diverted monies, unauthorized management fees,

duplicable expenses, and commingled funds. It identified certain transactions

isolated by Prajapati, where the funds could be traced to Emanuel's and Fariba's

account, when computing damages.

Concerning the challenges to Prajapati's testimony, the court was

measured about what it allowed, sustaining some of Emanuel's counsel's

objections and overruling others. It allowed Prajapati to explain the basis for

his reasoning while also sustaining objections and giving less weight to

Prajapati's claims that were unsupported by evidence. Likewise, the court

rejected Prajapati's statements about the value of the business because Prajapati

did not perform a business valuation.

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At trial, Prajapati explained his methodology for determining that the data

in certain exhibits was altered. He explained that he reviewed tax returns and

compared those to the data in QuickBooks to determine that the financial books

did not match the tax returns. He explained how he concluded that various

accounts lacked important details, funds were commingled, and that the balances

in the accounts did not match when compared to other records. What is more,

he discovered fake accounts and duplicate expenses that created a web of

transactions that allowed Emanuel to divert funds. While he admitted that he

did not perform a business valuation, he concluded that plaintiffs suffered nearly

$10 million in damages. The trial court accepted Prajapati's conclusion about

transactions where the monies could be traced back to accounts that Emanuel

and Fariba controlled.

In sum, Prajapati did not offer a net opinion at trial and the court's decision

to deny defendants' motion to exclude his testimony was proper. The record

shows no abuse of discretion here.

H.

Fariba and the Chemtech defendants argue that the court erred as a matter

of law and, also, abused its discretion when it awarded plaintiffs' attorney's fees

and costs. We affirm the trial court's order.

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"Trial courts have considerable latitude in resolving fee applications, and

a reviewing court will not set aside an award of attorneys' fees except 'on the

rarest occasions, and then only because of a clear abuse of discretion.'" Grow

Co. v. Chokshi, 424 N.J. Super. 357, 367 (App. Div. 2012) (quoting Rendine v.

Pantzer, 141 N.J. 292, 317 (1995)). "[A] trial court must analyze the Rendine

factors in determining an award of reasonable counsel fees and then must state

its reasons on the record for awarding a particular fee." Furst v. Einstein

Moomjy, Inc., 182 N.J. 1, 21 (2004) (citing R. 1:7-4(a)). We reverse a fee

determination if it was "made without a rational explanation, inexplicably

departed from established policies, or rested on an impermissible basis." C.E.

v. Elizabeth Pub. Sch. Dist., 472 N.J. Super. 253, 262 (App. Div. 2022). To

determine whether a fee award is reasonable, the lawsuit must be causally

related to securing the relief obtained, the prevailing party's efforts must be

necessary, and the prevailing party's efforts must be an important factor in

obtaining the relief. Litton Indus., Inc. v. IMO Indus., Inc., 200 N.J. 372, 386

(2009).

In granting an award of attorneys' fees, "[t]he court's first step . . . is

determining the lodestar, 'which equals "the number of hours reasonably

expended multiplied by a reasonable hourly rate."'" Jacobs v. Mark Lindsay &

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Son Plumbing & Heating, Inc., 458 N.J. Super. 194, 209 (App. Div. 2019)

(quoting Furst v. Einstein Moomjy, Inc., 182 N.J. 1, 21 (2004)). Determination

of the lodestar "is the most significant element in the award of a reasonable fee

because that function requires the trial court to evaluate carefully and critically

the aggregate hours and specific hourly rates advanced by counsel for the

prevailing party to support the fee application." Rendine, 141 N.J. at 335.

There are four considerations in setting the lodestar.

The first is the reasonableness of the attorney's fee,

evaluated under the factors set forth in RPC 1.5(a).

Second, the court considers the reasonableness of the

time billed by the attorney, since a party is not entitled

to counsel fees for excessive and unnecessary hours.

Third, the court determines whether the award should

be decreased because the plaintiff "achieved limited

success in relation to the relief he [or she] had sought."

Fourth, the court must decide whether the attorney is

entitled to a fee enhancement if the attorney worked

under a contingency agreement.

[Heyert v. Taddese, 431 N.J. Super. 388, 443-44 (App.

Div. 2013) (footnote omitted) (citations omitted).]

As a threshold matter, fee-shifting is permissible when expressly

authorized by statute, court rule, and contract. Packard-Bamberger & Co. v.

Collier, 167 N.J. 427, 440 (2001). Here, the court concluded that Fariba and the

Chemtech defendants breached the MRL Operating Agreement, including

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Section XX, which required members to indemnify other members for "any and

all claims . . . of every kind and nature whatsoever" arising from a violation.

We conclude the trial court did not err when it determined that Fariba in

the 2017 SPA and, also, the Chemtech defendants in the 2014 SPA, violated the

contracts, which then triggered the provisions containing fee-shifting language.

That fee-shifting language states that Fariba and the Chemtech defendants

agreed to indemnify and hold harmless plaintiffs "from and against any and all

Losses . . . arising out of, resulting from, or relating to" material inaccuracies,

breaches of representations or warranties, material breaches or violations of

covenants, and material inaccuracies in documents. Further, both SPAs defined

"Losses" as "any and all obligations, . . . claims, actions, injuries, demands, suits,

judgments, proceedings, investigations, arbitrations, and reasonable expenses,

including reasonable accountant's and reasonable attorney's fees and

expenses[.]" Importantly, our Court has already explained that an explicit

reference to an award of attorney's fees as part of a definition of "losses" is

sufficient for the court to award attorney's fees. Litton, 200 N.J. at 385.

We discern no error where the trial court concluded that Emanuel violated

Section 3.2(b) of the 2014 SPA when he stated that the purchase would not result

in the breach of any agreements, contracts, or arrangements that he made.

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Emanuel made a similar representation on behalf of Chemtech and stated that

Chemtech would not violate any provision. Fariba made similar representations

in the 2017 SPA.

The trial court concluded that Emanuel violated the MIPA and, therefore,

triggered the indemnity provision in that document. The MIPA stated that

Emanuel would pay Mehta "any [d]amages, arising out of, resulting from, or

relating to" any material inaccuracies, breaches of any representations, breaches

of warranties, and any material breaches or violations of covenants or

agreements. Section 6.2 of the MIPA defined damages as including attorney's

fees, costs of suit, and costs of investigation. The court's decision to award

attorney's fees was proper.

The fee award was reasonable and comports with our jurisprudence. We

note the court did not award fees without scrutiny, as it reduced the amount

sought by plaintiffs by over $8 million. The trial court carefully reviewed

plaintiffs' submissions and properly applied the law, including Rendine and RPC

1.5(a). It considered Fariba's and the Chemtech defendants' arguments.

Importantly, the court discussed the extensive record developed at trial depicting

defendants' highly complex series of transactions using conduit and commingled

accounts which made tracing the disputed funds extremely difficult.

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"Because the trial court was in the best position to weigh the equities and

arguments of the parties in this lengthy and contentious case," Packard-

Bamberger, 167 N.J. at 447, we see no reason to disturb its award of attorney's

fees and costs.

I.

On their cross-appeals, plaintiffs make a two-step argument that the court

abused its discretion when it declined to award prejudgment interest attributable

to each misappropriation for a total amount of $838,810.40. Plaintiffs first

contend that the court's application of Rule 4:42-11(b) to calculate interest only

from the date of the complaint did not fairly reflect the extent of their losses,

which dated back to when defendants misappropriated the funds. Next,

plaintiffs posit that the court committed error when it did not award prejudgment

interest for each misappropriation on the dates they occurred since Fariba and

the Chemtech defendants had the benefit of the monies to which plaintiffs were

entitled.

Rule 4:42-11(b) states that, specifically in tort actions, prejudgment

interest is calculated using "the date of the institution of the action or from a

date 6 months after the date the cause of action arises, whichever is later." Rule

4:42-11(b) permits a suspension of prejudgment interest in exceptional

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circumstances. McKeand v. Gerhard, 331 N.J. Super. 122, 127-28 (App. Div.

2000); see also Wiese v. Dedhia, 354 N.J. Super. 256, 267 (App. Div. 2002)

(stating that trial court has discretion to deny prejudgment interest, but such

decision should consider "policy, spirit, and intent of rule").

Here, the court correctly applied Rule 4:42-11(b) to determine the date

that the complaint was filed in July 2020 was the date to begin calculating

prejudgment interest. For completeness, we note that "[u]nlike prejudgment

interest in tort actions, which is expressly governed by Rule 4:42-11(b), the

award of prejudgment interest on contract and equitable claims is based on

equitable principles." County of Essex v. First Union Nat'l Bank, 186 N.J. 46,

61 (2006). An award of prejudgment interest on contract and equitable claims

is left entirely to the discretion of the trial court and should not be reversed

unless the award constitutes a manifest denial of justice. Ibid. The trial court

held that it would be unfair and not equitable, akin to "piling on," to award

prejudgment interest back to the date of each misappropriation. We are

unconvinced the trial court's reasoned judgment on this question results in a

manifest denial of justice.

Affirmed.

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