Kent v. Skoda Minotti & Co. (In re Kent)
| Decision Date | 05 May 2020 |
| Docket Number | Adversary No. 19-01022-TA,Case No. 18-10620-TA |
| Parties | IN RE: John H. KENT, Debtor John H. Kent, Plaintiff v. Skoda Minotti & Co., Certified Public Accountants, and Laura J. Page, Defendants |
| Court | U.S. Bankruptcy Court — Western District of Pennsylvania |
Appearances: Brian C. Thompson, Esq., for the Plaintiff
Matthew Pomy, Esq., for the Defendants
Debtor, John J. Kent, filed a 4-count Complaint against the Defendants related to a pre-petition contract to provide him with certain accounting services.1 For the reasons that follow, the Court will find in favor of the Defendants on the merits with respect to the breach of contract count. Two other related counts for unjust enrichment and conversion will be dismissed on the basis that they cannot be maintained because they have the same factual basis as the breach of contract claim. As to the final count, for turnover under 11 U.S.C. § 542(e), the Court will find in favor of the Debtor and order the turnover of work product that was created as part of the contract.
The Debtor filed this Chapter 13 case on June 21, 2018, and he then filed this adversary proceeding on May 15, 2019. Debtor is the sole proprietor owner and operator of a business known as KB Directional that provides directional drilling services on a contract basis for utility companies. This would include such things as underground gas, water, and cable system projects. Debtor has been engaged in this business for almost 20 years.
The Debtor was formerly married to Katie Kent ("Wife"). For a long time, Wife acted as the secretary and bookkeeper for the Debtor's business. She would do this from the couples' home while Debtor spent most of his time on the road traveling to and working on various jobs. Beginning around the fall of 2016, the Debtor began thinking about the possibility of separating from Wife and seeking a divorce. The Debtor contacted Paul Etzler ("Etzler"), a partner at the Skoda Minotti & Co. ("Skoda") accounting firm from Ohio, whom he had met a number of years earlier in connection with an accounting issue involving KB Directional. Debtor considered Etzler somewhat of a friend and wanted to discuss various issues with him related to the potential divorce and how it might affect the business and its assets. The Skoda billing records indicate that this initial discussion took place on October 25, 2016, and lasted one hour. No fee agreement was signed at the time and Etzler did not then bill the Debtor for his time.
The Debtor actually separated from Wife in March 2017 and had the mail delivery for the business re-routed to come directly to him rather than to Wife. Wife's involvement with the business ceased at that point and the Debtor's mother, Karen Kent ("Mrs. Kent"), stepped in to take over the same role in the business that Wife had formerly performed.
Once the Debtor began to receive the mail for the business he testified that he discovered that Wife may not have been paying taxes or filing tax returns for a number of years prior to the separation, and he realized he was facing a problem. The Debtor therefore contacted Etzler again sometime in March 2017. According to the Skoda billing records the next communication between the Debtor and Etzler was on March 31, 2017, on which date they had a 2.5 hour discussion2 according to the Skoda billing records. The Debtor informed Etzler that a divorce action had been filed, and asked Etzler for advice about how that might affect his business operation and taxes, and what he should be doing to protect his assets. Etzler gave him some general advice in a number of discussions.
Etzler, who described his accounting practice as being equivalent to what a low-level CFO would do, originally thought that the accounting work that Debtor needed would be something that he (Etzler) could handle himself. However, as his discussions with Debtor continued, Etzler realized that the Debtor would need assistance in completely recreating financial records from 2011 forward, and preparing and filing tax returns for that same time period - areas beyond Etzler's expertise. The Debtor also indicated that he had a pressing need at the time to obtain the financial records for the business quickly so that he could use them in connection with an upcoming alimony hearing in which he hoped to get the previously-ordered monthly alimony amount he was paying to Wife reduced. Based on the additional information he was learning, Etzler concluded that he needed to bring another professional into the matter. He asked another Skoda partner, Frank Suponcic ("Suponcic"), to become involved because of his expertise in forensic accounting and litigation support. The Skoda billing records show that Suponcic's first involvement in the matter was on April 3, 2017, when he participated in a telephone conference call with the Debtor and Etzler.
Both Etzler and Suponcic continued to work on the matter through April and early May. It became apparent that major work would be needed to assist the Debtor. He had almost no financial records related to the business because Wife had taken the laptop on which she had kept records (whatever they may have been) and was refusing to turn them over. Furthermore, the personal and business transactions of Debtor and Wife had been commingled in a single account. The Debtor also did not know basic information such as the nature of the business entity, whether it had any employees during the relevant time period, and whether payroll-related tax filings had been made by Wife. Time was spent by Etzler and Suponcic getting answers to these types of questions.
Around May 9, 2017, the Debtor supplied Suponcic with all the financial records he had in his possession at the time, consisting of a box full of bank statements. All the information in those statements, comprising thousands of individual transactions that had occurred since 2011, would need to be entered into an electronic database to create a general ledger for the business for the years 2011 through 2016. The creation of such a general ledger was a necessary precursor to preparing tax returns for those years, which had never been filed, and it would involve a massive data entry from the bank statements and other records. The Debtor also reported that his divorce hearing would be coming up in June and that he needed current income information to use at that hearing, which would involve business data from 2017.
Given the time sensitivity, the amount of the work that needed to be done to create the general ledger, and the lack of availability of any Skoda personnel who could devote full attention to such a project, Suponcic decided it would make sense to subcontract this part of the work out to someone else outside the firm who could do the work more quickly. The Skoda billing records indicate that Suponcic contacted Defendant Laura Page ("Page") on May 9, 2017, for that purpose, and an Independent Contractor Agreement between Page and Skoda was signed on May 10th calling for her to "reconstruct general ledgers from bank statements provided for the years (2011 - Present) on behalf of KB Directional and John Kent (Clients)" at a rate of $65 per hour.3 See, Exhibit 2.
Page quickly commenced the project, even going so far as to begin the work while on a pre-planned family vacation. Her task was to enter all of the information from the bank statements into a Quick Books program and categorize each entry. The work was greatly complicated by the fact that business and personal transactions were commingled in the same account. It was not always possible to determine whether a particular transaction was business or personal, and if business what category or "bucket" it fell into. Page did the best she could with the information she had been provided, sometimes taking the initiative of conducting her own internet search to help determine the proper category for a transaction. Those that could still not be determined with any reasonable certainty despite these efforts were put in an "ask my accountant" holding file for later follow-up. As Page completed each year she would send her preliminary results to Suponcic and the two would then discuss any uncertainties and what additional information would be required from the Debtor to resolve them. Page entered information from approximately 22,000 separate transactions during the course of the project, which gives some idea of its scope.
During the course of her work, Page regularly prepared and sent out invoices which itemized the time she had spent on various tasks and stated a "TOTAL DUE FOR SERVICES RENDERED," and a notice to "please remit payment upon receipt." For instance, the first such invoice, Exhibit 3, reflected an amount due of $5,590 for time of 86 hours spent by Page through May 24, 2017 for such tasks as data entry for the years 2011, 2012, and 2013 and a number of telephone discussions with Suponcic. The invoices are undated, but since each one indicates an end date for the time entries in the invoice, it is clear each must have been sent out shortly after its respective end date. Page sent the invoices to Suponcic, who then forwarded them to the Debtor.4 Page completed the large bulk of her work by the end of June 2017, though her work continued thereafter on a much-reduced scale, with a final invoice in early August. The Parties stipulated that the Debtor made the following payments with respect to the Page invoices:
See, Supplemental Consolidated Pretrial Narrative Statement/Stipulation at ¶¶5-6, Doc. No. 33.
After Page was retained, Skoda personnel also continued work on the project. This work was primarily done by Suponcic, though Etzler also performed some tasks and some work of a more clerical nature was done by some other Skoda...
To continue reading
Request your trial