Court Opinion

ID: 9348652
Source: CourtListenerOpinion
Date Created: 2022-12-20 14:10:13.561815+00
Date Added: 2024-06-11T16:43:04.262070
License: Public Domain

IN THE COURT OF APPEALS OF NORTH CAROLINA

                                      2022-NCCOA-493

                                       No. COA21-785

                                      Filed 19 July 2022

     Davidson County, No. 21 CVS 1155

     RH CPAs, PLLC, f/k/a RIVES & ASSOCIATES, LLP, Plaintiff,

                   v.

     SHARPE PATEL PLLC, JAY SHARPE, and AARON PATEL, Defendants.

             Appeal by Defendants from order entered 2 September 2021 by Judge Stanley

     L. Allen in Davidson County Superior Court. Heard in the Court of Appeals 26 April

     2022.

             Tuggle Duggins P.A., by Richard W. Andrews and Jeffrey S. Southerland, for
             Plaintiff-Appellee.

             Marcellino & Tyson, PLLC, by Matthew T. Marcellino and Clay A. Campbell,
             for Defendants-Appellants.

             INMAN, Judge.

¶1           Sharpe Patel PLLC, Jay Sharpe (“Sharpe”), and Aaron Patel (“Patel”)

     (collectively “Defendants”) appeal from the trial court’s order denying their motions

     for relief from judgment pursuant to North Carolina Rules of Civil Procedure 52, 58,

     59, 60, and 68.1 and their appeal. Because the Confession of Judgment was properly

     entered by the clerk and Defendants have failed to demonstrate the trial court abused

     its discretion in denying them relief from judgment, we affirm.
                           RH CPAS, PLLC V. SHARPE PATEL PLLC

                                        2022-NCCOA-493

                                       Opinion of the Court

                   I.   FACTUAL & PROCEDURAL BACKGROUND

¶2         The record below discloses the following:

¶3         RH CPAs, PLLC f/k/a Rives & Associates, LLP (“Plaintiff”) is a public

     accounting firm based in Lexington, North Carolina. Sharpe and Patel are former

     partners of Plaintiff. Sharpe and Patel informed Plaintiff of their intent to dissolve

     their partnership and separate from Plaintiff in January 2020 and invoked the

     mediation provision in their partnership agreement. The parties participated in two

     days of mediation, which resulted in an impasse.

¶4         Shortly after the mediation concluded, Defendants filed suit against Plaintiff

     in Wake County Superior Court on 5 February 2020. In connection with the suit,

     Plaintiff discovered that Sharpe and Patel had been planning to leave Plaintiff for

     months and had contacted Plaintiff’s employees and clients about their planned

     departure, all while they were partners and fiduciaries of Plaintiff.

¶5         On 18 February 2020, the parties entered into a Settlement Agreement

     providing that Defendants would make a series of payments to Plaintiff in exchange

     for their release from their obligations under the partnership agreement. Paragraph

     2a of the Settlement Agreement provided explicit procedures for calculating these

     payments:

                  [Defendants] shall pay to [Plaintiff] twenty-five percent
                  (25%) of all Gross Revenue from Accounting Services
                  provided to Partnership Clients (“Gross Revenue
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                    Opinion of the Court

Percentage Payments”) from the Settlement Date to the
second anniversary of the Settlement Date in 2022 (the
“Second Anniversary Date”). Such payments shall be
calculated, due, and payable on an annual basis. All Gross
Revenue Percentage Payments due for Accounting Services
provided before the first anniversary of the Settlement
Date in 2021 (the “First Anniversary Date”), shall be paid
in full not later than February 28, 2021. All Gross Revenue
Percentage Payments due for Accounting Services
provided after the First Anniversary Date, but before the
Second Anniversary Date, shall be paid in full not later
than February 28, 2022. [Defendants] shall use their
commercially reasonable best efforts to obtain bank
financing if necessary to meet these financial obligations;
provided that, they do not guarantee that they will be able
to obtain such financing. To the extent Gross Revenue
Percentage Payments owed are not paid in full on the
applicable due date, such amounts due for each year shall
accrue interest annually from the date due until the date
such amounts are paid in full at a rate of the prime rate
published in the Wall Street Journal from time to time plus
two percent (2%). Payments of the outstanding amounts
owed plus accrued interest will be due monthly and the
amortization period is twelve months. Within five (5)
business days after the First Anniversary Date and Second
Anniversary Date, as applicable, [Plaintiff] shall be
provided a calculation of the Gross Revenue Percentage
Payments for the applicable year calculated by Rink &
Robinson, PLLC, who shall be engaged to conduct agreed
upon procedures (“AUP”) to calculate the Gross Revenue.
The firm conducting the AUP can be changed if mutually
agreed upon by the parties. The scope of the AUP will be
mutually agreed upon by the parties. Within five (5)
business days after the last day of each quarter,
[Defendants] will provide [Plaintiff] with a list of
Partnership Clients who retained [Defendants] in that
quarter. The costs of the AUP engagement will be paid by
[Defendants].
                               RH CPAS, PLLC V. SHARPE PATEL PLLC

                                          2022-NCCOA-493

                                        Opinion of the Court

     The Settlement Agreement defines “Gross Revenue” as “all fees (whether unbilled,

     billed, or collected).”

¶6           Paragraph 2c of the Settlement Agreement provided that Defendants’ payment

     obligations would also be secured by a Confession of Judgment:

                   As security for the payments provided herein, [Defendants]
                   hereby agree to execute a Confession of Judgment . . . in
                   the amount of $500,000. . . . This Confession of Judgment
                   . . . shall not be filed or surrendered . . . unless and until
                   [Defendants] have been provided at least fifteen (15) days’
                   notice, in writing, of any alleged default in making any
                   payment allegedly due under this Agreement. During this
                   fifteen days, [Defendants] may cure any alleged default by
                   making the payment that is allegedly past due, in which
                   event the Confession of Judgment . . . shall not be filed with
                   any court[.]

     In March 2020, Sharpe and Patel, on behalf of themselves and Sharpe Patel, PLLC,

     executed the Confession of Judgment to secure and enforce their payment obligations

     in an amount up to $500,000.

¶7           In January and February 2021, the parties exchanged several emails about the

     procedures to calculate Defendants’ first gross revenue payment due on 28 February

     2021.    Sharpe objected to several procedures outlined by Plaintiff and informed

     Plaintiff that despite many attempts, Defendants had not been able to retain the

     agreed-upon firm to calculate the gross revenue percentage payments, Rink &

     Robinson, PLLC (“Rink & Robinson”). Sharpe invited Plaintiff to propose alternative

     firms. Plaintiff proposed five potential replacement accounting firms later that same
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                                           Opinion of the Court

       day. The parties continued to correspond via email, but Defendants did not agree to

       any of the accounting firms proposed by Plaintiff and disputed certain accounting

       procedures.

¶8            Over Plaintiff’s objection, in February 2021 Defendants notified Plaintiff they

       had engaged a new accounting firm, Goldberg & Davis, CPAs (“Goldberg & Davis”)

       and instructed the firm to limit its calculations to only fees collected, in direct conflict

       with the definition of gross revenue in the Settlement Agreement. Plaintiff had a

       “material concern” about whether Goldberg & Davis would perform the calculation

       objectively because Patel had a prior relationship with the firm and had even

       contemplated an acquisition.

¶9            On 18 February 2021, Plaintiff’s counsel sent a Notice of Breach of Settlement

       Agreement to Defendants’ counsel. Plaintiff sent additional notices of default to

       Defendants on 10 March 2021 and 10 May 2021. Based upon the calculations from

       Goldberg & Davis, Defendants tendered payments totaling $99,842.75 to Plaintiff,

       which Plaintiff cashed on 29 April 2021.

¶ 10          Because Defendants had not cured their default despite three notices, Plaintiff

       filed the Confession of Judgment on 27 May 2021. The clerk of court filed the

       judgment decreeing that Plaintiff “have and recover judgment against Defendants

       Sharpe Patel PLLC, Jay Sharpe, and Aaron Patel in the principal amount of

       $307,946.98; plus interest accrued from the date of entry of judgment until paid at
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                                          Opinion of the Court

       the rate of 8% per annum, together with the costs of filing this Confession of

       Judgment.”

¶ 11         Defendants appealed to superior court pursuant to N.C. Gen. Stat. § 1-301

       (2021), sought to stay the clerk’s judgment, and moved for relief from judgment

       pursuant to Rules 52, 58, 59, 60, and 68.1. The trial court denied Defendants’ motions

       and appeal on 2 September 2021. Defendants appeal to this Court.

                                        II.     ANALYSIS

       A. Confession of Judgment

¶ 12         The trial court denied Defendants’ amended motions under North Carolina

       Rules of Civil Procedure 52, 58, 59, 60, and 68.1 along with their appeal pursuant to

       N.C. Gen. Stat. § 1-301.1 because, the trial court concluded, the Confession of

       Judgment was properly entered. We affirm the trial court’s order on this ground.

¶ 13         Rule 68.1 of our Rules of Civil Procedure sets forth the procedure for filing a

       confession of judgment:

                    A prospective defendant desiring to confess judgment shall
                    file with the clerk of the superior court . . . a statement in
                    writing signed and verified or sworn to by such defendant
                    authorizing the entry of judgment for the amount stated.
                    The statement shall contain the name of the prospective
                    plaintiff, his county of residence, the name of the defendant,
                    his county of residence, and shall concisely show why the
                    defendant is or may become liable to the plaintiff.

       N.C. Gen. Stat. § 1A-1, Rule 68.1(b) (2021) (emphasis added). “When a statement in

       conformity with this rule is filed with the clerk of the superior court, the clerk shall
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                                           Opinion of the Court

       enter judgment thereon for the amount confessed, and docket the judgment as in

       other cases, with costs, together with disbursements.” Id., Rule 68.1(d).

¶ 14         Here, the clerk entered judgment on 27 May 2021 based on the Confession of

       Judgment Plaintiff filed. The trial court made the following findings regarding the

       validity of the Confession of Judgment:

                    5. On May 27, 2021, the Firm filed a Confession of
                    Judgment that had been signed by Sharpe Patel, Sharpe,
                    and Patel in March 2020 (the “Confession of Judgment”)
                    with the Clerk of Superior Court of Davidson County.

                    6. The Confession of Judgment, on its face, does not identify
                    any conditions that must be met before filing the
                    Confession of Judgment.

                    7. The Confession of Judgment is verified or sworn to by
                    Sharpe Patel, Sharpe and Patel; authorizes entry of
                    judgment for the amount stated; contains the name of the
                    prospective plaintiff and its county of residence; contains
                    the names of prospective defendants and their respective
                    counties of residence; and concisely shows why Sharpe
                    Patel, Sharpe, and Patel may become liable to the Firm.

       Defendants have not contested these or any other findings of fact in the trial court’s

       order. See Jonna v. Yaramada, 273 N.C. App. 93, 104, 848 S.E.2d 33, 43 (2020) (“It

       was [the appellant’s] duty ‘to challenge findings and conclusions, and make

       corresponding arguments on appeal.’ ” (citation omitted)). As a result, the trial court’s

       findings are binding on this Court. In re Schiphof, 192 N.C. App. 696, 700, 666 S.E.2d

       497, 500 (2008) (“Unchallenged findings of fact are presumed correct and are binding

       on appeal.” (citations omitted)).
                             RH CPAS, PLLC V. SHARPE PATEL PLLC

                                            2022-NCCOA-493

                                           Opinion of the Court

¶ 15         The trial court’s findings of fact support its conclusion that the Confession of

       Judgment meets the requirements set forth in Rule 68.1 and that the clerk properly

       entered the Confession of Judgment in accordance with Rule 68.1 and other

       applicable law. The trial court had no basis to grant Defendants’ appeal from entry

       of the Confession of Judgment. We affirm the trial court’s denial of Defendants’

       motions and appeal on this ground.

       B. Rule 60(b)(3)

¶ 16         Our dissenting colleague would reverse and remand the trial court’s denial of

       Defendants’ Rule 60(b)(3) motion.

¶ 17         “[T]he standard of review of a trial court’s denial of a Rule 60(b) motion is abuse

       of discretion.” Davis v. Davis, 360 N.C. 518, 523, 631 S.E.2d 114, 118 (2006) (citation

       omitted). Under this deferential standard, we may reverse the trial court “only upon

       a showing that its actions are manifestly unsupported by reason.” Id. (quotation

       marks and citations omitted). On this record, we cannot reach that conclusion.

¶ 18         Rule 60(b)(3) provides that a trial court may relieve a party from judgment

       where there is “[f]raud (whether heretofore denominated intrinsic or extrinsic),

       misrepresentation, or other misconduct of an adverse party[.]” § 1A-1, Rule 60(b)(3).

       “To obtain relief under Rule 60(b)(3), the moving party must 1) have a meritorious

       defense, 2) that he was prevented from presenting prior to judgment, 3) because of

       fraud, misrepresentation or misconduct by the adverse party.” Milton v. Hedrick, 188
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                                        Opinion of the Court

       N.C. App. 262, 268, 654 S.E.2d 716, 721 (2008) (quotation marks and citation

       omitted).

¶ 19         We are satisfied that the Settlement Agreement, despite the dissenting

       opinion’s characterization, sufficiently defined what Defendants were required to pay

       Plaintiff, how Defendants’ payments would be calculated, and what would happen if

       Defendants defaulted. Defendants were required to pay Plaintiff “twenty-five percent

       (25%) of all Gross Revenue from Accounting Services provided to Partnership Clients

       (‘Gross Revenue Percentage Payments’) from the Settlement Date to the second

       anniversary of the Settlement Date in 2022 (the ‘Second Anniversary Date’).” The

       Settlement Agreement expressly defined “Gross Revenue” as “all fees (whether

       unbilled, billed, or collected)[.]” (Emphasis added). The Settlement Agreement also

       provided that Defendants would submit records for calculation by the firm Rink &

       Robinson.

¶ 20         Contrary to the Settlement Agreement, Defendants instructed a different

       accounting firm––without Plaintiff’s permission and in lieu of several other firms

       proposed by Plaintiff––to calculate only those fees which had been collected by

       Defendants omitting at least $10,937.50 in the calculation of the Gross Revenue

       Percentage Payment due 28 February 2021.

¶ 21         After learning that Defendants proceeded contrary to the terms of the

       Settlement Agreement, Plaintiff sent Defendants three separate notices, one for
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                                            Opinion of the Court

       breach of the Settlement Agreement and two for default, on 18 February 2021, 10

       March 2021, and 10 May 2021. The Settlement Agreement provided that Defendants

       had fifteen days to cure the alleged default before Plaintiff could file the Confession

       of Judgment.    When Defendants had not cured their default after two months,

       Plaintiff filed the Confession of Judgment with the clerk of court.

¶ 22         We disagree with our dissenting colleague’s characterization of Plaintiff’s filing

       of the Consent Judgment as “fraud, misrepresentation, or misconduct requiring the

       trial court to set aside the Consent Judgment.” Nor do we agree that Defendants’

       alleged defense precluded Plaintiff from filing the Confession of Judgment.          Cf.

       Milton, 188 N.C. App. at 270, 654 S.E.2d at 722 (“When a Rule 60(b) movant has

       failed to satisfy his or her burden of demonstrating the existence of a reason justifying

       relief from a judgment, see N.C. Gen. Stat. § 1A-1, Rule 60(b)(1)-(6) (2005), “ ‘the

       question of meritorious defense becomes immaterial.’ ” (quotation marks and

       citations omitted)). We hold the trial court did not abuse its discretion in denying

       Defendants’ Rule 60 motion.

¶ 23         In sum, to the extent Defendants are aggrieved, they simply sought the wrong

       remedy.    The trial court’s denial of their motion for relief does not preclude

       Defendants from suing Plaintiff for money damages resulting from Plaintiff’s alleged

       breach of the Settlement Agreement when it filed the Confession of Judgment.

                                     III.     CONCLUSION
                            RH CPAS, PLLC V. SHARPE PATEL PLLC

                                         2022-NCCOA-493

                                        Opinion of the Court

¶ 24         For the reasons outlined above, we affirm the order of the trial court denying

       Defendants’ appeal and motions for relief from judgment.

             AFFIRMED.

             Judge DIETZ concurs.

             Judge TYSON dissents by separate opinion.
        No. COA21-785 – RH CPAs, PLLC v. Sharpe Patel PLLC

             TYSON, Judge, dissenting.

¶ 25         The majority’s opinion fails to apply the plain language of N.C. Gen. Stat. § 1A-

       1, Rule 60(b)(3) (2021). Their application of an abuse of discretion standard of review

       of the trial court’s order condoning Plaintiff’s actions is contrary to our general

       statutes and precedents.     Defendants have demonstrated “misrepresentation, or

       other misconduct of an adverse party,” and are entitled to relief. Id. I vote to reverse

       the trial court’s order and remand for further proceedings. I respectfully dissent.

                                    I.     Standard of Review

¶ 26         “[T]he standard of review of a trial court’s denial of a Rule 60(b) motion is abuse

       of discretion.” Davis v. Davis, 360 N.C. 518, 523, 631 S.E.2d 114, 118 (2006) (citation

       omitted). “A [trial] court by definition abuses its discretion when it makes an error

       of law.” Koon v. United States, 518 U.S. 81, 100, 135 L.Ed.2d 392, 414 (1996) (citation

       omitted). The trial court’s conclusions of law are reviewed de novo. Judd v. Tilghman

       Med. Assocs., LLC, 272 N.C. App. 520, 530, 847 S.E.2d 45, 52 (2020) (citation omitted).

       The trial court’s denial of Defendants’ Rule 60(b)(3) was an error of law and is

       properly reversed.

                                         II.   Rule 60(b)(3)

¶ 27         The trial court’s denial of Defendants’ Rule 60(b)(3) was an error of law and is

       properly reversed. Defendant’s fraud claims against Plaintiff in their motions are

       supported by: (1) the lack of a “mutually agreed upon” and completed AUP; (2) no

       calculation completed by Rink & Robinson; (3) no agreed-upon substitute, nor a
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                                          2022-NCCOA-493

                                        TYSON, J., dissenting

       determination of a “sum certain” due as prerequisites required to be met; and, (4) no

       mutual agreement being reached and notice prior to Plaintiff filing the Confession of

       Judgment. In the absence of satisfying these precedents, Plaintiff had no right to

       proceed and wrongfully filed the Confession of Judgment. Defendants possessed and

       presented a meritorious defense. Rule 60(b)(3) permits a court to relieve a party from

       an order where there is “Fraud (whether heretofore denominated intrinsic or

       extrinsic), misrepresentation, or other misconduct of an adverse party[.]” N.C. Gen.

       Stat. § 1A-1, Rule 60(b)(3).

¶ 28         In order “[t]o obtain relief under Rule 60(b)(3), the moving party must 1) have

       a meritorious defense, 2) that he was prevented from presenting prior to judgment,

       3) because of fraud, misrepresentation or misconduct by the adverse party.” Milton

       M. Croom Charitable Remainder Unitrust v. Hedrick, 188 N.C. App. 262, 268, 654

       S.E.2d 716, 721 (2008) (emphasis supplied). Defendants clearly asserted and meet

       all elements for relief under N.C. Gen State § 1A-1, Rule 60(b)(3).

¶ 29         Plaintiff and Defendants both agree they failed to “mutually agree” on the AUP

       and the Rink & Robinson firm failed to respond to both party’s inquiries. No AUP

       was ever agreed to or completed, and calculations under the AUP was computed to

       determine a definitive sum certain. Plaintiff also failed to propose or agree to an

       alternative firm to Rink & Robinson for the AUP after Defendants had proposed

       multiple alternative firms.
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                                          2022-NCCOA-493

                                        TYSON, J., dissenting

¶ 30         Before the trial court, Defendants’ counsel stated: “The conditions precedent,

       Your Honor, are these two things: An AUP must be established as agreed upon by

       the parties, and the CPA firm of Rink & Robinson must perform that AUP process to

       determine the calculations before my clients can determine the 25 percent and make

       a payment.” During the hearing Plaintiff’s counsel did not state Rink & Robinson

       had performed the AUP process at any time prior to the hearing or his client had

       proposed a substitute firm in response to Defendants’ proffers of substitutes as

       provided under the Agreement.

¶ 31         The Settlement Agreement does not contain the terms of the AUP, only these

       procedures would be “mutually agreed upon” by the parties in the future. Neither

       Plaintiff nor Defendants received a response from Rink & Robinson. Yet, despite the

       proffers, tenders. and payments made by Defendants, and without the AUP agreed

       to and sum certain calculated, Plaintiff pre-emptively filed the Confession of

       Judgment with their purported calculation of monies due by Defendants. This self-

       serving assertion was not performed by a “mutually agreed upon” firm. Defendants

       were unable to present or plead the “meritorious defense[s]” before the clerk and to

       address the “misconduct by the adverse party” in prematurely filing the Confession

       of Judgment without authority. Id.

¶ 32         Unlike the focus of the majority opinion, the unlawful action and breach by the

       adverse party, Plaintiff, occurred in the unlawful assertion and untimely filing of the
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                                            2022-NCCOA-493

                                          TYSON, J., dissenting

       Confession of Judgment before the assistant clerk of court. No date and time of notice

       and no right to Defendants was provided to challenge that action until the Rule 60

       motion and hearing. Contrary to the assertions in the majority’s opinion, the action

       by the assistant clerk of court in filing the Confession is not the issue before the trial

       court nor on appeal. The remedies Defendants have pursed are the proper means to

       challenge Plaintiff’s premature and unlawful actions. Id.

¶ 33         At that time of filing, the only agreement between the parties was to mutually

       agree upon the AUP in the future, based on calculations from a firm from which

       neither party ever received a response. Plaintiff’s premature and unlawful action

       forms the basis for the assertion of a Rule 60 motion to be reviewed in the trial court.

       Id.

¶ 34         Defendants have satisfied all elements for relief under Rule 60(b)(3). Plaintiff

       should not benefit for its unlawful action to unilaterally compute and file the

       Confession of Judgment. Id.

¶ 35         The majority’s opinion baldly asserts the Defendants petitioned and pled the

       improper remedy, and Defendants should have sought monetary damages from

       Plaintiff from the alleged breach of the Settlement Agreement. Defendants’ remedies

       and their damages for Plaintiff’s wrongful conduct cannot be made whole or

       accomplished in a judicially inefficient and separate breach of contract action. Such

       action will not extinguish and remove the prematurely and unlawfully filed judgment
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                                         TYSON, J., dissenting

       from the public record nor remove its lingering impacts on Defendants’

       creditworthiness and history of timely payment of its liabilities. This reputational

       damage is particularly relevant to potential clients, credit-reporting agencies, and

       regulators of a CPA firm.

                                      III.     Conclusion

¶ 36         Defendants presented a meritorious Rule 60 motion and are entitled to relief.

       Plaintiff possessed no lawful right to file the Confession of Judgment. Under de novo

       review, the trial court committed an error of law in denying Defendants’ meritorious

       Rule 60 motion. The trial court’s denial of Defendants’ Rule 60(b)(3) motion was an

       error of law and is properly reversed. I respectfully dissent.