Court Opinion

ID: 2769980
Source: CourtListenerOpinion
Date Created: 2015-01-14 20:09:48.626421+00
Date Added: 2024-06-11T11:34:33.849349
License: Public Domain

J-A21021-14

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

BATTAGLINI & CO., P.C.                           IN THE SUPERIOR COURT OF
                                                       PENNSYLVANIA
                       v.

ISADORE BRODSKY INSTITUTE FOR
BLOOD DISEASES AND CANCER
                          Appellant
----------------------------------------------
ISADORE BRODSKY INSTITUTE FOR
BLOOD DISEASES AND CANCER
                          Appellant

                       v.

BATTAGLINI & CO., P.C.

                                                      No. 185 EDA 2014

             Appeal from the Judgment Entered February 20, 2014
               In the Court of Common Pleas of Chester County
                       Civil Division at No(s): 12-07244
                                    12-07399

BEFORE: BOWES, J., OTT, J., and STRASSBURGER, J.*

MEMORANDUM BY OTT, J.:                            FILED JANUARY 14, 2015

        Isadore Brodsky Institute for Blood Diseases and Cancer (“Institute”)

appeals from the judgment of the Court of Common Pleas of Chester County,

entered February 20, 2014, in favor of Battaglini & Co., P.C. (“Battaglini”),

and against the Institute in the aggregate amount of $4,356.00.          The

underlying matter was a consolidated action, involving an accounting firm,
____________________________________________

*
    Retired Senior Judge assigned to the Superior Court.
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Battaglini, and its client, the Institute, concerning disputes over a bill and

whether Battaglini’s services were rendered in conformity with a contractual

agreement between the parties. On appeal, the Institute raises the following

three issues, which concern the trial court’s determination that the Institute

was   required   to   present   expert   testimony:     (1)   where   Battaglini

acknowledges that auditing standards and its contractual agreement

obligated it to confirm bank balances and accounts payable to a major

vendor, such acknowledgments eliminate the need to present an expert

witness to testify that such obligations exist; (2) where Battaglini’s audit

reflects changes from its client’s books and records as to critically important

items, and it offers no explanation for the changes and has destroyed the

work papers, there is no analysis function which can be provided by an

expert witness, and therefore, no need to present such an expert witness;

and (3) where the trial court explained in making an award to Battaglini that

it would not have done so had the accountant been found to have breached

the agreement to perform an audit, and therefore, a new trial is necessary in

order to prove such a breach. See Institute’s Brief at 4.

      The trial court set forth the facts and procedural history as follows:

      Battaglini filed first, followed a few days later by a separate
      complaint filed by the Institute in lieu of filing a counterclaim.
      Subsequently, both matters were consolidated.

             In the matter of I. Brodsky Institute for Blood Disease and
      Cancer v. Battaglini & Co., P.C., [Docket Number 2012-07399,]
      the second action, docketed at 2012-07399, paragraph 17 of the
      Institute’s complaint alleges that Battaglini breached its

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     contractual undertaking by presenting financial statements in its
     audit report which materially misstated the opening and closing
     cash balances for the 2007 fiscal year. Additionally, it was
     alleged that as of the beginning of the 2007 fiscal year,
     Battaglini failed to report an account payable of some $229,800,
     thereby materially misrepresenting the Institute’s financial
     position. In paragraph 18, the Institute claimed that it suffered
     “damage by virtue of such breach.” It sought the return of the
     $5,500 it paid to Battaglini for its work, as well as an additional
     $10,000 which it claimed was the value of the services
     contributed to it in an attempt to reconcile the disputed matters.
     The Institute requested the total amount of $15,500 accordingly.

           Battaglini filed an Answer, as well as New Matter, raising a
     number of affirmative defenses, to which the Institute made
     Reply. Battaglini asserted that it followed generally accepted
     audit standards (GAAS).

            Turning to the action filed a few days earlier, Battaglini &
     Co., P.C. v. Isadore Brodsky Institute for Blood Disease and
     Cancer, [Docket Number 2012-07244,] claim was made for the
     unpaid balance of the bill for professional services rendered by
     Battaglini when preparing the audit for the fiscal year ending
     2007 and the tax return which accompanied same. The Institute
     allegedly demanded that Battaglini redraft the tax return to show
     reversals of certain transfers set forth therein between the
     “restricted” and the “unrestricted” operating funds. Battaglini
     claimed that such reversals were not proper, but did what the
     client requested and billed $3,305 for its additional services.
     That is the amount of damages claimed to be done.

            To this, the Institute filed an Answer, but no New Matter
     and no Counterclaim. Within the Answer it is fair to say that the
     Institute denied that it has any contractual duty to pay Battaglini
     for the claimed additional services, and further denied that the
     Institute “breached any agreement or contractual undertaking to
     pay Battaglini.”

          A jury trial was demanded. [The two day jury trial began
     on August 27, 2013.]

                                     …

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     The claim by the Institute against Battaglini was tried first. The
     Institute called its treasurer, Mark Fishman, who told the jury
     that the purpose of the Institute was to raise money to assist Dr.
     Brodsky in doing research into blood diseases, cancer and
     related illnesses. Dr. Brodsky was a driving force behind the
     Institute and most of the contributors were grateful patients of
     his. Before he became ill and died, the Institute was the
     recipient of substantial donations every year, including from the
     Flyers’ Wives Carnival. However, that source of funds dried up
     and the death of Dr. Brodsky was a devastating blow to the
     Institute. Fishman conceded that with respect to the audit in
     question for the year 2006-2007, in which Battaglini raised a
     serious concern with whether the Institute was going to be a
     going concern, was no surprise to him.

           The Institute next called Henry Whitlark, employed in a
     senior administrative capacity at the Institute. It was Whitlark
     who brought the Battaglini firm to the Institute as an
     independent auditor back in 2001.        Whitlark testified that
     Battaglini’s work was “perfect.”

           On the second day of trial, the defense started its case and
     called Joseph D. Battaglini, CPA and President of Battaglini &
     Company, P.C. as a witness. Battaglini testified that under his
     engagement letter, his services are to be rendered in accordance
     with General Accepted Audit Standards (GAAS). The purpose of
     an independent audit he said is to take the accounting
     documents from the client and express an opinion as to whether
     they are a fair representation of the company. In that manner,
     the public receives an honest opinion from an independent third
     party regarding the suitability and sustainability of a company.
     Furthermore, although the Institute pays his bill, he has duties
     to the Commonwealth of Pennsylvania Bureau of Charitable
     Organizations, which requires that charities of this size have an
     audit done, and he sends a copy directly to the Bureau.

           Battaglini changed certain numbers to reflect the true
     balances in the restricted and unrestricted fund accounts in his
     opinion. The restricted funds had been raided in order to put
     money in the unrestricted funds account so that the Institute
     could pay bills. As an independent auditor, he reversed those
     transactions. It is part of his duty as an independent auditor to
     evaluate whether a company is a going concern and he was
     performing not only that duty, but a requirement of the audit

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     process to evaluate the company’s ability to continue. He wrote
     to Mr. Whitlark in 2008 identifying and outlining his opinions and
     concerns. He was not going to change his numbers in the audit
     to correspond to the Institute’s numbers.

            On cross examination, there was much wrangling between
     [the Institute]’s counsel and Mr. Battaglini. Counsel for the
     Institute, Mr. [Philip P.] Kolodner, repeatedly challenged the
     witness that his figures differed from the bank’s figures. Time
     and again Mr. Battaglini explained his numbers could differ from
     the stated amounts on bank balance sheets because the
     Institute’s books and records are kept on a cash basis whereas
     under the accrual basis of accounting[,] expenses may be
     recognized in the year incurred. For an accrual basis taxpayer,
     the money gets added back to the bank account as if those
     checks were never written, because they do not record the
     expense until the following year.      The accountant variously
     responded “As I explained to you before, the bank balance does
     not always equal the correct balance as reported on the books.”
     “I mean, you’re asking me to compare apples and oranges…”
     “But you remember what I said about the accrual basis, you
     have to reverse the prior year accruals.” When asked if the
     witness could account for certain differences, the witness said
     once again “No, because I explained to you that the difference
     between a cash balance per your records, cash balance per the
     bank records and the confirm bank balance through the account
     auditing records are different.” “Mr. Kolodner, I’ve said this
     before, [a vendor,] Drexel University[,] confirmed to me that
     nothing was owed as of the end of June 30 of ’06. Even though
     payments appear to have been made in July of 2006 Drexel
     confirmed that there were no outstanding balances as of June
     30, 2006 so even though those checks may have been written in
     July of 2006 they were not allocable to the fiscal year 2005-2006
     as confirmed by Drexel University.”

           Battaglini summed up as follows “So again I stand by the
     audit, I stand by the restricted fund balance as the proper
     accounting of that – independent of what the bank shows.”

Trial Court Opinion, 2/25/2014, at 2-3, 8-11 (record citations and emphasis

omitted).

     After both parties presented their evidence, the court stated:

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            For some years now, whenever there is a suit alleging
     professional misconduct, malpractice, or breach of contract, as
     I’ll mention in a moment, against a licensed professional in the
     state, there must be a certificate of merit, in the first instance,
     that is filed. These are the requirements that I refer to of
     [Pa.R.C.P.] 1042.     And there was none filed in this case.
     Ordinarily, the absence of a certificate of merit is the end of any
     such case as this early on, but [the issue] was not [made] by the
     opposing party[.]

            Nonetheless, under current case law, the standard for
     analyzing the duty of an accountant is, of course, determined in
     the first instance by regard to the accountant’s engagement,
     what the contract says. There is an engagement letter that
     indicates that this accountant will perform certain services
     according to certain standards. One is the GAAP standard the
     other is the GAAS standard. Likewise, his opinion in his audit
     letter states that opinion [i]s consistent with those standards.

            This is not a case of breach of contract where a specific
     instruction of the client was ignored; for example, file my 1041
     for three years by X date and no returns are filed. This is
     something different, but not unusual with all professionals, be
     they accountants, attorneys, doctors, and any of the other that
     are listed in Rule 1042, because the case law, first starting with
     doctors and attorneys and now extending out to other
     professionals, indicates that a contract claim really is a claim
     that is based on an implicit agreement, that is, that the
     professional agrees to provide his or her best efforts and provide
     services and, by implication, the professional agrees to provide
     his or her client with professional services consistent with those
     expected of the profession at large.

           Invariably, what happens is, as here, the judgment, the
     professional judgment of the individual has been called into
     question. And where a claim, be it contract or tort, implicates a
     professional duty, that is, where it arises within the course of a
     professional relationship, and necessarily raises questions of
     professional judgment, not only will a certificate of merit almost
     always be necessary, but expert testimony must be adduced so
     that the jury has some reference as to which standards they are
     to apply to gauge whether in fact the conduct has been within or
     below those accepted standards.

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            I wanted to give the Institute every allowance, but we
     have not had any expert testimony. And it is clear from certain
     comments made in opening statements and otherwise that, yes,
     while this is a breach of contract to provide a proper audit -- and
     I’m quoting from [counsel for the Institute’s] opening remarks
     that the audit was improper, that the tax return was improper --
     [counsel for Battaglini] at one point stopped to say what is an
     audit and gave us some information about what an auditor does
     and what they’re supposed to do, and there was a wrangle over
     whether it was proper or improper to transfer funds from a
     restricted account to an unrestricted account in the fashion that
     occurred here. [Battaglini] stood by his opinion. And the issue
     was whether that was correct or not. No one comes in to say,
     notwithstanding the Institute’s sincere … position, but no one
     comes into court to say that the audit was done incorrectly, or
     that the tax return, the initial tax return was done incorrectly.

           And I went through here and highlighted a number of
     references merely to this same point: What is an audit process,
     whether it’s proper to use the cash versus the accrual basis,
     whether there was something wrong that was done. The jury
     has absolutely nothing from an expert witness, qualified as such
     in this courtroom, to gauge what to do with regard to the
     parties’ quite evident differences of view. I cannot send this
     case to the jury without expert testimony of the kind that the
     law tells me should have been provided early on, and certainly
     by this time.

           The jury must have evidence as to what the professional
     services consistent with those expected of accountants or
     auditors at large are. The concepts of GAAS and GAAP are
     beyond the ken of most laymen, and certainly this Court.

           And we must lastly remember that it is the substance of
     the complaint, not necessarily its wording, that controls these
     issues.

           So, I’m going to direct a verdict in favor of Battaglini and
     Company and against the Institute in these related cases
     consistent with this problem.

N.T., 8/28/2013, at 199-203. The court then asked both parties to agree to

it determining the verdict rather than having the jury do so.     Id. at 203.

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After speaking with his client, counsel for Battaglini consented.       The court

then asked:       “So, [counsel for the Institute], it’s entirely within your

prerogative to play the matter out in front of the jury, but I offer to

adjudicate that claim. And if you would like me to step off and let you -- or,

if you want some time to pace the hall, you may have that.”            Id. at 204.

Counsel for the Institute replied, “No, no, I’m satisfied to have the Court

decide that claim, and obviously there will be an appeal.” Id.

       That day, the court entered the two orders, reflecting the following:

(1) at Docket Number 2012-07399, a directed verdict in favor of Battaglini

and against the Institute in no amount; (2) at Docket Number 2012-07244,

a directed verdict in favor of Battaglini and against the Institute in the

amount of $3,305.00, plus interest at the legal rate, in the amount of

$1,051.00, totaling $4,356.00, plus costs and further interest until paid.

The Institute filed post-trial motions, which were denied following oral

argument on December 16, 2013.                 On February 20, 2014, judgment was

entered, reflecting the directed verdict. The Institute filed this appeal. 1

       As a prefatory matter, we must address an issue raised in the

argument section of Institute’s brief, and also raised in its post-trial motions.

____________________________________________

1
   The trial court ordered the Institute to file a concise statement of errors
complained of on appeal pursuant to Pa.R.A.P. 1925(b). The Institute
complied with the trial court’s directive and filed a concise statement. The
trial court issued an opinion pursuant to Pa.R.A.P. 1925(a) on February 25,
2014.

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The Institute claims the court erred in entering a directed verdict sua

sponte, which was in violation of Pa.R.C.P. 226(b). See Institute’s Brief at

17. Specifically, the Institute contends it was a “procedural defect” because

“a directed verdict in a jury trial cannot be entered in the absence of a

motion for such and without allowing argument by the party against whom a

verdict was to be directed.” Id.

     Rule 226 provides, in relevant part: “At the close of all the evidence,

the trial judge may direct a verdict upon the oral or written motion of any

party.” Pa.R.C.P. 226(b).

     While our research has failed to uncover any case law or statutory

authority which permits a court to declare a directed verdict sua sponte, we

find the Institute has waived this procedural contention.   As noted above,

the court informed the parties that it found there were serious evidentiary

issues at trial and proposed a directed verdict, but only if both parties

agreed.   N.T., 8/28/2013, at 203.    After Battaglini’s counsel agreed, the

court turned to the Institute’s counsel and inquired as to whether he agreed

to the court’s action. The court even offered counsel time to deliberate the

procedure.    Counsel for the Institute replied, “No, no, I’m satisfied to

have the Court decide that claim, and obviously there will be an appeal.”

Id. at 204 (emphasis added).       The record demonstrates the Institute’s

counsel did not object, demand the matter go to the jury, or even ask for

time for argument before the court.        Rather, counsel acquiesced to the

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court’s action. As such, the Institute has waived this argument on appeal.

“It is axiomatic that [i]n order to preserve an issue for appellate review, a

party must make a timely and specific objection at the appropriate stage of

the proceedings before the trial court. Failure to timely object to a basic and

fundamental error will result in waiver of that issue.”          Lockley v. CSX

Transp., Inc., 66 A.3d 322, 325 (Pa. Super. 2013) (citation and internal

quotation marks omitted); see also Pa.R.A.P. 302(a) (“Issues not raised in

the lower court are waived and cannot be raised for the first time on

appeal.”). Accordingly, the Institute’s first claim is waived.

       Turning to the Institute’s substantive claims, we will address them

together due to their nature.         As stated above, the Institute contends an

expert witness was not necessary in this matter because (1) Battaglini

acknowledged that the auditing standards and its contractual agreement

obligated it to confirm bank balances and accounts payable to a major

vendor, and failure to do so was a breach of his contract;2 and (2) Battaglini

____________________________________________

2
    See Institute’s Brief at 21-28. Put another way, the Institute also states:

       [A]s was the case with the closing balance, the issue is whether
       Battaglini is correct or whether the books of [] Institute are
       correct. If the trier of fact determines that [] Institute’s books
       and bank statements are correct then, the inevitable inference is
       that Battaglini did not discharge his acknowledged obligation to
       confirm the opening balance and to confirm whether there was
       an account payable to Drexel University.

Id. at 27.

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offered no explanation for the changes it made from the Institute’s records

and it destroyed the work papers.3 Lastly, the Institute argues it is entitled

to a new trial in light of the court’s determination that if Battaglini had

“breached the auditor’s duties,” the accounting firm would not have been

able to recover any part of its award.4

       After a thorough review of the transcripts from the trial, and our

standard of review,5 we conclude the trial court, in its Rule 1925(a) opinion,

____________________________________________

3
   See id. at 28-30. Specifically, the Institute alleges that had Battaglini
attempted to account for certain adjustments, “it would have been
necessary for an expert witness to be presented to analyze the propriety of
such adjustments.” Id. at 29. The Institute states that because Battaglini
did not do so, an expert was not necessary.
4
   See Institute’s Brief at 31. The Institute states that because the court
entered a directed verdict based on the failure to present an expert witness,
it was precluded from obtaining a jury verdict that Battaglini had breached
the parties’ contract. Id.
5

       In reviewing the trial court’s entry of a motion for a directed
       verdict, “our scope of review is limited to determining whether
       the trial court abused its discretion or committed an error of law
       that controlled the outcome of the case.”            Fetherolf v.
       Torosian, 2000 PA Super 260, 759 A.2d 391, 393 (Pa. Super.
       2000). “A directed verdict may be granted only where the facts
       are clear and there is no room for doubt.” Id. (quoting Lear,
       Inc. v. Eddy, 2000 PA Super 97, 749 A.2d 971, 973 (Pa. Super.
       2000)). “In deciding whether to grant a motion for a directed
       verdict, the trial court must consider the facts in the light most
       favorable to the nonmoving party and must accept as true all
       evidence which supports that party's contention and reject all
       adverse testimony.” Id.

Berg v. Nationwide Mut. Ins. Co., 44 A.3d 1164, 1170 (Pa. Super. 2012).

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thoroughly and accurately addressed the Institute’s arguments.        See Trial

Court Opinion, 2/25/2014, at 3-11 (finding a new trial was not warranted

based on the following: (1) in reviewing the substance of the complaint at

issue, the case involved “professional negligence” 6 as the suit “called into

question the accountant’s professional judgment in the preparation of the

audit report and tax returns, and [Battaglini]’s countering that [he] followed

GAAS;”7 (2) under current law, if the plaintiff “demonstrates by a

preponderance of the evidence that the accountant has breached his or her

contractual duty to provide services in a manner consistent with the

profession at large, then the plaintiff has successfully established a breach of

contract claim against the accountant;”8 (3) with respect to this proof, the

jury “must be informed as to what ‘the professional services consistent with

those expected of accountants at large’ means” because “[t]he concepts of

GAAS and GAAP are beyond the ken of most laymen,” 9 and therefore, where

the professional negligence was not obvious and self-evident, expert

____________________________________________

6
    “Pennsylvania Rules of Civil Procedure Nos. 1042.1--1042.8 … govern
professional liability actions. These Rules apply to professional liability
claims asserted against licensed professionals, including accountants. Pa.
R.C.P. No. 1042.1(b)(1)(ii).” Koken v. Lederman, 840 A.2d 446, 448 (Pa.
Commw. 2003).
7
    Trial Court Opinion, 2/25/2014, at 5.
8
    Id. at 7-8.
9
    Id. at 8.

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testimony was necessary to demonstrate the elements of duty, breach, and

causation; (4) the Institute “presented no expert testimony about the

standards the jury should consider in evaluating whether the audit was

properly or improperly done;”10 and (5) because of the Institute’s failure to

recognize that it brought an action of professional negligence against a

licensed professional entity, and presented no expert testimony at trial, the

jury had no standards from a qualified witness by which to measure whether

the audit and tax returns prepared by Battaglini were done properly or not).

We conclude that the trial court’s opinion properly disposes of the issues in

this case.        Accordingly, we affirm on the basis of that opinion while

emphasizing the following.

       Despite the Institute’s attempt to portray its claim against Battaglini as

a mere breach of contract case, the Institute’s claim sounds in professional

liability against an accountant.          Furthermore, the Institute’s arguments

ignore the fact that the matter dealt with complex accounting issues and an

expert witness was necessary to “elucidate complex issues for a jury of

laypersons.” Varner v. Classic Cmtys. Corp., 890 A.2d 1068, 1074 (Pa.

Super. 2006). Likewise, as noted by Battaglini, the Institute’s argument

       ignores Battaglini’s testimony that auditing standards dictated
       the use of the accrual method to arrive at a proper audit instead
       of the cash accounting method used by the Institute internally in
       its records and that such use of the accrual method was proper.
____________________________________________

10
     Id. at 11.

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      Without expert testimony contradicting Battaglini’s testimony
      and providing a different standard for a proper audit to the jury,
      the Institute failed to meets its burden of proof[.].

Battaglini’s Brief at 9.   Accordingly, the court did not err in entering a

directed verdict in favor of Battaglini.

      Judgment affirmed.

      Judge Bowes joins this memorandum.

      Judge Strassburger concurs in the result.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 1/14/2015

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