Court Opinion

ID: 5132895
Source: CourtListenerOpinion
Date Created: 2021-12-08 18:13:24.871125+00
Date Added: 2024-06-11T08:23:32.765777
License: Public Domain

J-A17004-21

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

 ZELNICK, MANN AND WINIKUR, P.C., :       IN THE SUPERIOR COURT OF
                                  :            PENNSYLVANIA
                Appellant         :
                                  :
                                  :
            v.                    :
                                  :
                                  :
 DAVID WARNER, ALAN STEINBERG,    :       No. 1789 EDA 2020
 RICHARD SCHEINOFF, AND SWS       :
 GROUP,P.C.                       :

           Appeal from the Judgment Entered September 2, 2020
   In the Court of Common Pleas of Montgomery County Civil Division at
                         No(s): No. 2017-04312

 ZELNICK, MANN AND WINIKUR, P.C., :       IN THE SUPERIOR COURT OF
                                  :            PENNSYLVANIA
                Appellant         :
                                  :
                                  :
            v.                    :
                                  :
                                  :
 DAVID WARNER, ALAN STEINBERG,    :       No. 1790 EDA 2020
 RICHARD SCHEINOFF, AND SWS       :
 GROUP,P.C.                       :

          Appeal from the Judgment Entered September 10, 2020
   In the Court of Common Pleas of Montgomery County Civil Division at
                         No(s): No. 2017-04312

 ZELNICK, MANN AND WINIKUR, P.C., :       IN THE SUPERIOR COURT OF
                                  :            PENNSYLVANIA
                Appellant         :
                                  :
                                  :
            v.                    :
                                  :
                                  :
 DAVID WARNER, ALAN STEINBERG,    :       No. 1791 EDA 2020
 RICHARD SCHEINOFF, AND SWS       :
 GROUP,P.C.                       :
J-A17004-21

             Appeal from the Judgment Entered September 10, 2020
      In the Court of Common Pleas of Montgomery County Civil Division at
                            No(s): No. 2017-04312

    ZELNICK, MANN AND WINIKUR, P.C., :           IN THE SUPERIOR COURT OF
                                     :                PENNSYLVANIA
                   Appellant         :
                                     :
                                     :
               v.                    :
                                     :
                                     :
    DAVID WARNER, ALAN STEINBERG,    :           No. 1792 EDA 2020
    RICHARD SCHEINOFF, AND SWS       :
    GROUP,P.C.                       :

             Appeal from the Judgment Entered September 10, 2020
      In the Court of Common Pleas of Montgomery County Civil Division at
                            No(s): No. 2017-04312

BEFORE:      McLAUGHLIN, J., KING, J., and PELLEGRINI, J.*

MEMORANDUM BY McLAUGHLIN, J.:                        FILED DECEMBER 8, 2021

        Appellant Zelnick, Mann and Winikur, P.C. (“ZMW”), an accounting firm,

brought this civil lawsuit against three accountants formerly employed by

ZMW – Appellees David Warner, Alan Steinberg, and Richard Scheinoff

(collectively, “Individual Appellees”) – who left ZMW and formed their own

accounting firm, SWS Group, P.C. (“SWS”). After a seven-day bench trial, the

court ruled in favor of Individual Appellees and SWS, finding that ZMW failed

to prove damages. We affirm.

        The following factual recitation is from the trial court’s findings of fact.

ZMW is an accounting firm that has been in business for over 20 years. Michael

____________________________________________

*   Retired Senior Judge assigned to the Superior Court.

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Mann and Alan Winikur, both certified public accountants, formed ZMW

following the death of the founder of a prior firm, Zelnick & Associates, in

1995. Warner began working at Zelnick & Associates in 1990 and became an

employee of ZMW after its founding.

      Warner entered into a written employment agreement with ZMW in

1996, in which he agreed to keep ZMW’s customers and business affairs

confidential. The agreement also included confidentiality and non-solicitation

provisions lasting two years after termination of his employment. However, it

contained a handwritten provision, that both Mann and Warner initialed,

stating, “It is agreed and understood that any clients directly originated by

David Warner of which full commissions are being paid will be considered

proprietary to David Warner upon his employment termination.” Trial Ex. P-2.

      In 2000, Warner became a shareholder of ZMW when Mann and Winikur

each granted him a 2.5% interest in ZMW. Warner purchased additional

shares in ZMW from Mann and Winikur throughout the years, and as of the

trial court’s decision, he was a 17% shareholder in ZMW. Mann and Winikur

each retained a 41.5% interest.

      Scheinoff started working at ZMW in 2001. When he joined ZMW,

Scheinoff brought with him nearly all of his clients for which he had primary

responsibility for at his former accounting firm. Scheinoff did not have a

written employment agreement with ZMW.

      Steinberg started working at ZMW in 2011. Like Scheinoff, when he

joined ZMW, Steinberg brought with him practically all of his clients for which

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he had primary responsibility at his previous accounting firm. Steinberg had a

written employment agreement with ZMW            that contained the same

confidentiality and non-solicitation provisions as Warner’s employment

agreement, except there was no handwritten addendum in Steinberg’s

employment agreement. None of the Individual Appellees had a non-compete

agreement with ZMW.

      While at ZMW, the five principal accountants – Mann, Winikur, Warner,

Scheinoff, and Steinberg – each had his own set of clients with whom he had

developed close professional and personal relationships over the years. Most

of the clients were long-term clients and had the personal cell phone number

of their respective accountant. Such clients generally had no professional or

personal relationships with the other accountants at ZMW.

      All tax returns, client documents, accountant workpapers, and related

data at ZMW were stored in “cloud” accounting software provided by Thomas

Reuters. All accountants at ZMW were authorized users on ZMW’s Thomas

Reuters account and had access to such data.

      In the summer 2016, Individual Appellees began exploring the

possibility of leaving ZMW and starting their own firm. They thereafter

purchased computer equipment, leased new office space, and filed corporate

documents for the formation of their new firm, SWS. They did so without

informing Mann or Winikur.

      In December 2016, Individual Appellees copied electronic client data

files by backing up the files through ZMW’s Thomson Reuters account onto

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flash drives or disks. These files included client documents, tax returns, and

accountant workpapers prepared by Individual Appellees. The client files were

then put into the new SWS account at Thomson Reuters, which allowed

Individual Appellees to access the client files. The client files backed up by

Individual Appellees were the files of clients for which they had primary

responsibility at ZMW. However, because some of Mann and Winikur’s client

documents were misfiled under Individual Appellees’ client files, the backups

included a small number of files of clients serviced primarily by Mann or

Winikur. Individual Appellees have insisted that any copying of Mann and

Winikur’s client files was inadvertent and in error, and they made no use of

any such information after they left ZMW. The copying of the client files was

done without any advance authorization by the clients.

      On January 11, 2017, Individual Appellees submitted resignation letters

to ZMW, stating that their resignations would be effective that day at 10:00

a.m. After 10:00 a.m., an email “blast” announcing their departure from ZMW

(the “Announcement”) was sent to the clients for which Individual Appellees

had primary responsibility. The Announcement from Warner stated:

         I am pleased to announce that effective January 11, 2017,
         at 10:01AM, I have left Zelnick, Mann and Winikur, P.C. and
         have formed a new accounting firm, SWS Group, P.C. I am
         excited to join my colleagues Richard Scheinoff, CPA and
         Alan Steinberg, CPA, whom I have worked with for many
         years, in this new company. We bring diverse qualifications
         and many years of experience to this venture as Certified
         Public Accountants and Business Advisors. Should you have
         any questions or wish to contact me, I can be reached at
         this email address or at the following address: . . . .

                                    -5-
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      The Announcements from Scheinoff and Steinberg were the same,

except for the individual names. The Announcement was the first contact that

Individual Appellees had with any clients about leaving ZMW and starting

SWS. Subsequently, nearly all of Individual Appellees’ clients notified them

that they wanted to continue their professional relationships with them and

followed them to SWS. Whenever clients notified one of the Individual

Appellees that they wanted them to remain their accountant, the Individual

Appellees would send the client an Authorization to Release Information form,

addressed to ZMW, to be signed and returned to SWS. Nearly all such clients

signed and returned the authorization form to SWS. ZMW did not contact any

such clients at any point to request them to stay at ZMW. After Individual

Appellees’ departure from ZMW, five other ZMW employees left ZMW and

began working for SWS.

      ZMW commenced this action in March 2017 and filed a 12-count

complaint asserting, among other things, claims of breach of contract,

conversion, breach of fiduciary duties, misappropriation of trade secrets, and

tortious interference. It also sought indemnification and a permanent

injunction.

      Following a bench trial in November 2019, the court rendered a decision

in favor of Individual Appellees and SWS. It found that ZMW “failed to prove

any quantifiable measure of damages to support a recovery on any of its

causes of action.” Trial Court Decision, 6/1/20, Conclusions of Law at ¶ 1.

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Following the denial of post-trial motions and the entry of judgment, this

timely appeal followed.

     ZMW raises two questions for our review:

        1. . . . Did the trial court err in finding, without applying the
           correct legal standards of causation, that Individual
           Appellees’ conduct was not a cause of any of ZMW’s
           claimed damages?

        2. Relatedly, did the trial court err by rejecting all of ZMW’s
           causes of action based upon its conclusion that ZMW
           failed “to prove any quantifiable measure of damages,”
           despite substantial lay, expert and documentary
           evidence from Individual Appellees’ own files that
           established a reasonable basis for assessing ZMW’s
           claimed damages with at least a fair degree of
           probability? Stated alternatively, did the trial court use
           the wrong legal standard in evaluating ZMW’s proof of
           damages?

ZMW’s Br. at 5.

     Our standard of review in a non-jury trial is well established:

        We must determine whether the findings of the trial court
        are supported by competent evidence and whether the trial
        judge committed error in the application of law. Additionally,
        findings of the trial judge in a non-jury case must be given
        the same weight and effect on appeal as a verdict of a jury
        and will not be disturbed absent error of law or abuse of
        discretion.

Davis ex rel. Davis v. Gov’t Employees Ins. Co., 775 A.2d 871, 873

(Pa.Super. 2001) (citations omitted). Our scope of review of questions of law

is plenary. Century Indem. Co. v. OneBeacon Ins. Co., 173 A.3d 784, 802

(Pa.Super. 2017) (citations omitted).

                                      -7-
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       ZMW argues that the court erred by failing to recognize any causal

connection between Individual Appellees’ conduct and ZMW’s damages.

ZMW’s Br. at 36. ZMW contends that if Individual Appellees did not secretly

copy the client files, they “would have been unable to service the ZMW clients

they expected to constitute SWS’s clientele upon opening their doors for

business on January 11, 2017 – i.e., at the beginning of SWS’s first, and

critically important, ‘tax season.’” Id. ZMW maintains that had Individual

Appellees “gone through proper channels, it would have taken SWS months

to obtain the clients’ files (assuming those clients with outstanding [accounts

receivable] balances paid them) and input all of the information into SWS’s

computer system in usable form.” Id. ZMW also argues that it was deprived

of leverage to collect payment of outstanding accounts receivable balances

because Individual Appellees took client workpapers without those clients

paying their balances.1 Id. at 37.

       ZMW further contends that it “presented more than sufficient evidence

that it [was] more likely than not ZMW would have retained a significant

percentage, if not all, of the clients’ business for at least that first tax season”

after Individual Appellees left had they not engaged in misconduct. Id. at 48.

ZMW argues damages need not be proved by mathematical certainty and its

expert sufficiently quantified ZMW’s damages of (1) lost profits, (2) loss of
____________________________________________

1  The Association of International Certified Professional Accountants Code of
Conduct permits an accountant whose client requests to transfer to another
firm to withhold that client’s workpapers until the client pays its outstanding
fees owed to that firm.

                                           -8-
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accounts receivable, and (3) extra expenses it incurred as a result of

Individual Appellees’ actions. Id. at 35, 54. According to ZMW, the trial court

erroneously held it “to an incorrect standard of proof that it could not possibly

satisfy – essentially, to identify which clients would have stayed with ZMW and

for how long they would have stayed absent [Individual Appellees’] data heist

and solicitation.” Id. at 59. ZMW contends that it was only required to provide

the court with sufficient information to fairly estimate its damages. Id.

      The trial court found no causal nexus was shown between the copying

of the client files and the loss of any client by ZMW. Trial Ct. Decision, Finding

of Fact at ¶ 63. The court asserted that the clients who followed Individual

Appellees did so because of their close professional and personal relationships

with them. Id. at ¶ 62. The court observed that there was no evidence that

such clients were aware at the time of their decision to leave ZMW that SWS

already had copies of their files from ZMW. Id. at ¶ 63.

      The court further found that ZMW failed to sufficiently prove damages

that it incurred as a result of Individual Appellees’ actions. As to lost profits,

the court concluded that ZMW’s expert on damages, James Stavros, based his

calculations on an assumption that was wholly unsupported by the evidence

presented at trial – namely, that but for Individual Appellees’ conduct in

copying clients’ files and allegedly soliciting clients’ business, all of the clients

would have stayed with ZMW instead of following their accountants to SWS.

Id. at ¶ 72. To the contrary, the court found that there was overwhelming

evidence presented that virtually all of the Individual Appellees’ clients would

                                        -9-
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have moved their business to SWS even in the absence of Individual Appellees’

copying of files or sending out the Announcement. Pa.R.A.P. 1925(a) Opinion,

11/16/20, at 5-6. Indeed, the court found that the clients’ decisions to move

to SWS were driven by their ongoing personal relationships with Individual

Appellees and not with the ZMW firm. Id. at 7. The court opined that “[e]ven

if the copying of files and the sending of the Announcement could have had

some impact on the decisions of the clients to continue with Individual

[Appellees], ZMW failed to present any persuasive evidence of the quantity of

business or profits lost as a result of such conduct.” Id. at 9 (emphasis in

original). The court emphasized that the problem with Stavros’ calculations

was not a lack of precision, but rather a lack of any evidentiary basis for his

primary assumption that but for Individual Appellees’ actions, 100% of the

clients would have stayed with ZMW instead of following their personal

accountants to SWS. Id. at 10-11 n.8.

      As to accounts receivable loss, the court recognized that ZMW likely

incurred some loss in the collection of outstanding accounts receivable as a

result of Individual Appellees’ conduct because by copying the clients’

workpapers, ZMW could not exercise its right to withhold such papers to collect

the unpaid fees. Id. at 11. However, once again, the court found that ZMW

failed to present any persuasive estimate of the amount of the loss. Id. The

court observed that Stavros’ calculation was based on an unsupportable

assumption — that all of ZMW’s outstanding receivables due from clients

serviced by Individual Appellees were uncollectable because of Individual

                                    - 10 -
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Appellees’ copying of the client files. Id. at 11-12. The court stated that

“[w]hile ZMW’s loss of leverage may have resulted in its ability to collect some

of the receivables, Mr. Stavros’ assumption that all of the receivables were

uncollectable because of the copying of files lack[ed] any evidentiary basis.”

Id. at 12 (emphasis in original). It noted that Stavros presented a list of 60

clients who had failed to fully pay fees owed to ZMW after Individual Appellees’

departure. Id. Of those clients, one client was serviced by Warner, 15 clients

were serviced by Scheinoff, and 44 clients were serviced by Steinberg. Id.

Some clients on the list had not made payments to ZMW for years prior to

Individual Appellees’ departure. Id. at 13. The court also observed there was

extensive evidence presented that Steinberg, while at ZMW, was consistently

late in billing his clients and had a backlog of client billing by months or even

years. Id. The court found that Stavros did not explain how receivables that

had gone uncollected for years before Individual Appellees’ departure would

suddenly have become collectable if Individual Appellees had not copied the

workpapers for those clients. Id.

      As to extra legal expenses allegedly incurred by ZMW as a result of

Individual Appellees’ conduct, the court found that, again, ZMW failed to prove

the amount of the extra expenses. Stavros testified that ZMW’s extra

expenses consisted of legal fees from three different lawyers/law firms. First,

Stavros testified that the Schoenberg Law Office (“Schoenberg”) provided

legal services to ZMW dealing with the “data breach” issue. As to the

Schoenberg legal fees, the court concluded:

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         According to Mr. Stavros, someone on behalf of ZMW, either
         a principal or counsel, reviewed Schoenberg’s invoices,
         redacted line items that were purportedly unrelated to the
         data breach issue, and circled the items that were
         purportedly related to the data breach issue. No evidence
         was provided on who performed this task or how he went
         about doing it. Further, Mr. Stavros made no independent
         judgment on which items were redacted and which were
         circled. His role was limited to adding up the dollar amounts
         of the circled items, which totaled $10,535. (Tr. 11/19/19,
         Stavros, at 112-14.) The invoices themselves were not
         presented to the [c]ourt or offered in evidence. This
         evidence was clearly insufficient to support a damage
         award. Mr. Stavros exercised no expertise regarding this
         item but simply added up numbers that were provided to
         him by some unknown redactor. The absence from the
         record of Schoenberg’s invoices merely reinforces the
         inadequacy of ZMW’s evidence.

Id. at 15.

      Second, Stavros testified that Steven G. Sklar, Esq. provided legal

services to ZMW in attempting to collect accounts receivable. The court found

insufficient evidence to grant ZMW recovery of Sklar’s fees:

         Once again, the invoices were not presented to the [c]ourt
         or offered in evidence. Further, as with the absence of proof
         on ZMW’s claim of lost accounts receivable, there was no
         showing that the accounts that Mr. Sklar attempted to
         collect were made uncollectable or difficult to collect as the
         result of the copying of files or other purportedly wrongful
         conduct by Individual [Appellees]. Mr. Stavros confirmed
         that Mr. Sklar’s fees for account collection were included
         “regardless as to whether this was a 2011, ’12, ’13, ’14, ’15,
         or ’16 account receivable.” (Tr. 11/[19]/19, Stavros, at
         111.)

Id. at 16.

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      Third, Stavros included in his list of extra expenses fees in the amount

of $6,926 billed by the Braverman Kaskey law firm. Braverman Kaskey

represented ZMW throughout most of the present lawsuit. The court again

found a lack of adequate proof of these damages, noting that although these

fees were listed in Stavros’ exhibit of extra expenses, he was not asked about

them on direct examination and no invoices were presented to the court. Id.

      “The determination of damages is within the trial court’s exclusive

authority as fact-finder to weigh and assess the credibility of the evidence.”

Snyder v. Crusader Servicing Corp., 231 A.3d 20, 32 (Pa.Super. 2020)

(citing Boehm v. Riversource Life Ins. Co., 117 A.3d 308, 328 (Pa.Super.

2015); Lou Botti Constr. v. Harbulak, 760 A.2d 896, 898 (Pa.Super.

2000)). Damages may not “be awarded where the evidence is insufficient for

the finder of fact to determine what, if any amount, of damages the plaintiff

suffered.” Id. Although we do not require mathematical exactness, the law

“does not permit a damages award to be based on mere guesswork or

speculation, but rather requires a reasonable basis to support such an award.”

Helpin v. Trs. of Univ. of Pa., 10 A.3d 267, 270 (Pa. 2010) (citations

omitted).

      Further, the law provides that

         expert testimony is incompetent if it lacks an adequate basis
         in fact. While an expert’s opinion need not be based on
         absolute certainty, an opinion based on mere possibilities is
         not competent evidence. This means that expert testimony
         cannot be based solely upon conjecture or surmise. Rather,
         an expert’s assumptions must be based upon such facts as
         the jury would be warranted in finding from the evidence.

                                       - 13 -
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Gillingham v. Consol Energy, Inc., 51 A.3d 841, 849 (Pa.Super. 2012)

(citation omitted).

       The trial court’s findings are supported by competent evidence and the

court did not err in its application of the law. Our review shows that ZMW did

not meet its burden in proving damages or showing a causal nexus between

the copying of the client files and the loss of any client by ZMW. The record

supports the trial court’s finding that although the availability of client files to

SWS at the start of its operations may have given SWS a two-month “jump

start” in servicing those clients, there was no evidence that this jump start

was the reason that those clients went to SWS, nor that ZMW suffered any

damages as a result of this jump start.2 To the contrary, the record was replete

with evidence that those clients followed Individual Appellees to SWS because

of their long-standing personal and professional relationships with those

accountants.3
____________________________________________

2 Indeed, on cross-examination, Stavros admitted that he did not calculate
the amount of profit that SWS was able to obtain as a result of a jump start
in getting the client documents, nor was he asked to calculate those alleged
damages. N.T., 11/19/19, at 58.

3 SWS presented the testimony of several former ZMW clients (now current
SWS clients) who testified unequivocally that they went to SWS because of
their personal relationships with their individual accountants and not because
of any alleged solicitation or advanced copying of client files. See N.T.,
11/20/19, at 245-52, 257; N.T., 11/21/19, at 9-12, 17-18, 20-22, 215-18.
They testified that they were unaware that their files were copied, and the
copying of their files did not influence their decision to follow their accountants
to SWS. N.T., 11/20/19, 258-59; N.T., 11/21/19, at 20-22, 217. ZMW takes
issue with the fact that Individual Appellees only had a small number of clients
(Footnote Continued Next Page)

                                          - 14 -
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        Most significantly, the court properly determined that ZMW’s expert’s

primary assumption of his calculation for damages – that but for Individual

Appellees’ actions, all of the clients would have stayed with ZMW and all of

the outstanding accounts receivable from clients serviced by Individual

Appellees would have been collectable – had no evidentiary basis. The court

concluded that this assumption, essential to the expert’s opinions, was not

supported by the record. After review, we find that the expert testimony

proffered by ZMW lacked an adequate factual basis for his conclusions. The

expert repeatedly testified that his damages calculation was based on this

assumption,4 which had no basis in fact. Although an expert may properly rely

on assumptions in forming their opinion, the assumptions “must be based

upon such facts as the jury would be warranted in finding from the evidence.”

Gillingham, 51 A.3d at 849 (citation omitted).

        Lastly, the record reflects that ZMW presented inadequate evidence in

support of its legal expense damages claim. Thus, the court did not err in

finding that ZMW failed to meet its burden of proof.

        Judgment affirmed.

____________________________________________

testify about their close relationships with them. ZMW’s Br. at 58. However,
the court stated that it would not have allowed any more clients to testify, if
SWS offered to do so, because any further testimony would have been
redundant and unnecessarily cumulative. Trial Ct. Op. at 18. We agree. In any
event, ZMW had the burden of proof and did not present any evidence that
even one client would have stayed at ZMW but for Individual Appellees’
actions.

4   See N.T., 11/19/19, at 47, 50-52, 59, 64-65, 127.

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Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 12/08/2021

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