White v. Potocska

• Decision Date: 03 December 2008
• Docket Number: Action No. 2:07cv343.
• Citation: 589 F.Supp.2d 631
• Court: U.S. District Court — Eastern District of Virginia
• Parties: Rock E. WHITE, Plaintiff, v. Nicholas L. POTOCSKA, P.C., Nicholas L. Potocska, and Pamela G. Potocska, Defendants, Counter Claimants, v. Rock E. White, Ali E. Gunbeyi, and Evelyn S. Eidem, Counter Defendants.

589 F.Supp.2d 631

Rock E. WHITE, Plaintiff, v. Nicholas L. POTOCSKA, P.C., Nicholas L. Potocska, and Pamela G. Potocska, Defendants, Counter Claimants, v. Rock E. White, Ali E. Gunbeyi, and Evelyn S. Eidem, Counter Defendants.

Action No. 2:07cv343.

United States District Court, E.D. Virginia, Norfolk Division.

December 3, 2008.

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COPYRIGHT MATERIAL OMITTED

Mary Jane Hall, Patrick H. O'Donnell, for Plaintiff.

Thomas B. Kelly, Corrynn J. Peters, for Defendants.

OPINION AND ORDER

MARK S. DAVIS, District Judge.

This matter is before the Court on the Counter Defendants' Motion for Summary Judgment on the Counterclaim, Plaintiff's Motion for Summary Judgment on the Complaint, and Plaintiffs Motion to Bifurcate Trial of Plaintiff's Request for Attorneys' Fees from Case in Chief. The Court heard oral argument on Friday, October 10, 2008, and the motions are now ripe for decision.

This matter stems from the sale of Rock White & Associates to Nicholas L. Potocska. The original Complaint and Amended Complaint seek payment on a $145,000.00 promissory note used as partial payment for the purchase of Rock White & Associates. The Counterclaim alleges actual fraud, constructive fraud, conspiracy to commit fraud, breach of contract, and seeks reformation of contract.

I. Factual and Procedural History

Nicholas L. Potocska ("Potocska") is a certified public accountant ("CPA") and principal shareholder of Nicholas L. Potocska CPA, P.C. ("Potocska P.C."), a Virginia accounting firm. Pamela G. Potocska ("Mrs.Potocska") is the wife of Potocska. Both Potocska and Mrs. Potocska personally guaranteed the promissory note ("Note") which is the subject of the Complaint and Amended Complaint.

Rock White & Associates, Inc. ("RW & A") is the financial services firm that was purchased by Potocska. RW & A operated from an office in Virginia. Rock E. White ("White") was the majority shareholder of RW & A prior to the sale of the firm to Potocska. Ali E. Gunbeyi ("Gunbeyi") was a shareholder of RW & A, Chief Operating Officer, and Vice-President of Consulting for RW & A. Evelyn Eidem ("Eidem") was a shareholder and employee of RW & A. She primarily worked remotely from Texas.

In January, 2005, White moved from Virginia to Hawaii, leaving Gunbeyi and Eidem to run the day-to-day operations of RW & A. In Spring 2006, RW & A came on the market. In mid-June, Potocska expressed an interest in purchasing RW & A. On June 29, 2006, Gunbeyi provided Potocska with a book asset detail, which listed the equipment owned by RW & A, and guided Potocska on a tour of RW & A's offices. On July 13, 2006, Potocska tendered his first letter of intent offering $750,000.00 for RW & A. On July 26, 2006, Gunbeyi and Eidem met with Potocska for lunch. White later negotiated with Potocska,¹ and on August 21, 2006, Potocska signed an amended letter of intent offering $775,000.00. Potocska then undertook a "due diligence" investigation before going forward with the purchase. Potocska was provided with a computer work station in White's old office at RW & A's offices and allowed to examine the firm's records. White advised Potocska that he was not to reveal to clients or staff the purpose of his presence at RW & A. Potocska was introduced as a "possible investor" and "possible client." (Potocska Aff. ¶ 15.) Leon Faris, the business broker ("Broker"), also required Potocska to sign a confidentiality agreement which precluded him from "revealing any aspect of the sale to RWA clients and staff unless the owners specifically gave [him] permission to do so." (Potocska Aff., ¶ 15.)

Potocska spent a little over five hours at RW & A's offices on September 26, 2006 and four and one-half hours there on September 27, 2006. Potocska was given Yelena Laratta's ("Laratta") computer password to access the computer system. Laratta was another accountant at RW & A, who also acted as the liaison with Xcentric, the outside information technology firm that serviced RW & A's computer system. Laratta answered several of Potocska's questions about the computer during his days at RW & A's offices.

Being unfamiliar with the Creative Solutions and Practice Solutions software used by RW & A and not knowing the passwords to access certain subdirectories, Potocska found examining the computerized records to be difficult.² Therefore, he began to ask Gunbeyi to also manually provide him with information that he wished to examine. During his due diligence, Potocska found a number of accounts where clients had prepaid for services that were not yet complete (referred to as WIPs for "work in progress"). The parties agreed that the value of these accounts would not change the purchase price, but would rather be used as setoffs or payments toward the purchase price. On October 6, 2006, Potocska revised his letter of intent wherein he offered $715,000.00 for the purchase of RW & A. On October 18, 2006, Gunbeyi sent Potocska a client list that Potocska requested. In light of Potocska's changes to the letter of intent and disparaging comments about the state of RW & A, White put the firm back on the market. On October 20, 2006, White wrote Potocska a lengthy email, explaining why he felt Potocska's offer was too low. White also stated that RW & A did not "need" to sell to Potocska. White stated that it appeared that Potocska was looking for a perfect firm. White admitted his firm was not perfect. However, White advised Potocska that Potocska might regret missing out on the opportunity to expand his business if he failed to go through with the purchase of RW & A. After October 23, 2006, Potocska and White did not have any further dealings directly; all dealings were transacted through the Broker and attorneys.

On October 30, 2006, Gunbeyi was advised that Carpe Diem, RW & A's biggest account, was considering putting the business up for sale, which was not unusual because Carpe Diem had been in various sales discussions for the past five years. Carpe Diem appears to have been in tentative talks with Brookline. Gunbeyi had a discussion with Brookline, on October 30, 2006, and his notes from that discussion indicate that Brookline wanted to move "back office" functions to the Daytona, Florida area. However, this information was not communicated to Potocska. In mid-November, Elliot Faircloth ("E.Faircloth"), the Executive Director of Carpe Die m, advised Gunbeyi by email that Carpe Diem had decided not to sell. (Gunbeyi Aff. ¶ 37.)

On October 31, 2006, Potocska submitted his final letter of intent. Potocska used the data regarding clients, provided by Gunbeyi on October 18, 2006, to produce what would become Exhibit C to the Accounting Practice Asset Purchase Agreement ("APA").³ Exhibit C is a list of clients and the billings associated with each client. Potocska added information and notations to this document over the course of his due diligence. The parties, by email, exchanged this document in Excel format, which could be changed by any party. Throughout the negotiations, Gunbeyi also made changes to the document, adding material and highlighting his additions to differentiate them from Potocska's work.

In Exhibit C, Potocska had placed asterisks by the names of certain clients and notations such as "I have confirmed that the annual fees are correct and [the client] intends to continue using the services listed until 12/31/07—signed MOS attached."⁴ Exhibit C also contained an initial block in the lower right corner of each page as follows: "Initial to confirm ___". White received the last "I have confirmed" version of Exhibit C on December 1, 2006. For the first time, Exhibit C was in PDF format and could not be changed by White or Gunbeyi. In a return email, White did question who was "I." However, Potocska never specifically responded to this email. On Tuesday, December 5, 2006, White received an email from the Broker with Exhibit C as an attachment. In the email, Potocska stated that he had "cleaned up the formatting" for Exhibit C "with no numeric changes whatsoever." However, Potocska had changed all of the "I have confirmed" notations to "RW & A has confirmed." The White Defendants assert that the "Initial to confirm ___" spaces on Exhibit C were also removed in this revised version of Exhibit C. However, the Exhibit C attached to the Potocska Claimants' Answer and Counterclaim, and represented to be the attachment to the final signed APA, does in fact reflect the presence of the "Initial to confirm ___" blocks, though the blanks contain no writing whatsoever.⁵

On December 3, 2006, White, by email, asked Eidem to read the APA. After reading the APA, Eidem emailed White asking why Section 4.6 of the APA⁶ included the Texas clients,⁷ which she asserted were clients solely because of their personal relationship with her. These clients were close friends of Eidem's. Eidem threatened to not sign the APA if these clients were not exempted. In his email response, White reminded Eidem that the Texas clients were the clients of RW & A and not her personal clients. White also advised Eidem that if these clients were excluded from the non-compete section, it would result in a dollar for dollar reduction in the price. White also counseled her regarding the alternatives if she refused to sign the agreement.⁸ Eidem replied by email that she only asked because if she ever left RW & A, she would like "to be able to work with these clients if the opportunity arises." (Counter Claimants' Ex. 6.)

Potocska requested information and reports regarding RW & A up through December 6, 2006 (the day before closing), and RW & A provided information. On December 7, 2006, Potocska's attorney sent White the final version of the contract portion of the APA in an email, explaining that he would later attach the schedules and exhibits that White "had already seen and agreed upon." The attorney stated that he had "messed up" and did not save a black-lined version which would show the changes...