Nicholas Malfitano Jan. 19, 2016, 4:12pm


PHILADELPHIA – A married couple who felt their accountant was negligent for not informing them of improper accounting practices conducted by relatives and business associates has had their case dismissed by a federal appeals court.

Plaintiffs and spouses Ilhami (a.k.a. John) Tekman and Mehtap Tekman alleged tax accountant Herb Berkowitz violated contractual and professional obligations by failing to disclose evidence of financial misconduct by the Tekmans’ family members and colleagues.

In the 1990s, John Tekman participated with his brother Nick and father Ali in several real estate investments involving the development and operation of motels and hotels in Delaware. In 1999, John took a 25 percent share in one of those endeavors, Tekman & Company (T&C), which was co-owned by Nick, Ali, and Ali’s wife, Nuriye.

The suit says in September 2008, without John’s knowledge, his parents and siblings authorized the use of T&C’s assets as a guarantee for an $11 million loan for the construction of a separate hotel project to which he was not a listed party – and allegedly forging John’s signature in the process. 

A subsequent case between John and his family members in a Delaware court resulted in a settlement where John sold his 25 percent share of T&C. Berkowitz testified he learned about the forgery of John’s signature in June 2010 but did not tell John about it, and added “being aware as early as 2005 that T&C was not operating in accordance with standard accounting practices.” 

In December 2011, John and Mehtap filed the instant lawsuit against Berkowitz and his employer, William E. Howe & Co., in the Philadelphia County Court of Common Pleas. The Tekmans sued Berkowitz and his employer, William E. Howe & Co., for professional negligence, breach of contract, breach of fiduciary duty, and loss of consortium.

In April 2014, the District Court granted the defense’s motion to dismiss the complaint with prejudice. On appeal to the Third Circuit, the Tekmans challenged the District Court’s dismissal of their claims on “substantive grounds, as well as the Court’s denial of leave to file a second amended complaint.”

Judge Thomas I. Vanaskie authored an opinion for the Third Circuit and on behalf of fellow judges Richard L. Nygaard and Marjorie O. Rendell, choosing to uphold the trial court’s dismissal. 

“Like the District Court, we conclude the amended complaint fails to state a viable negligence claim,” Vanaskie said. “The scope of Berkowitz’s contractual duties – whether to T&C as a business entity or to John personally – is largely a matter of guesswork.”

Vanaskie added Berkowitz was obligated to disclose to T&C itself that the company was not following standard accounting practices, not to John personally. 

“The Tekmans have not alleged, nor can we infer, that Berkowitz’s failure to disclose the forgery to them during this time caused them any actual harm,” Vanaskie said.

Vanaskie added the “amorphous” allegations did not cause one to infer Berkowitz specifically breached a contractual duty.

“The amended complaint does not allege which accounting services Berkowitz performed for any particular client, when he performed them, or what the oral or written contract might have provided,” Vanaskie stated. “We are left only with the claim that Berkowitz performed a vague assortment of accounting duties for T&C and the Tekmans over an indeterminate span.” 

Referring to the subject of an accountant’s fiduciary duty as “fact-intensive”, the Third Circuit concurred with the District Court that no facts were presented to infer the plaintiffs employed Berkowitz in a confidential manner. 

“The Tekmans do not allege that they relied on Berkowitz to any unusual extent in their personal dealings, or that they surrendered any degree of control over T&C to Berkowitz,” Vanaskie said.

Finally, the Third Circuit further felt permitting the Tekmans to amend their complaint would be unnecessary at this juncture, ruling in line with the District Court.

“The record supports the District Court’s implicit conclusion that granting leave to amend would be futile,” Vanaskie said.

The plaintiffs are represented by Matthew B. Weisberg of Weisberg Law, in Morton.

The defendants are represented by Maureen P. Fitzgerald of Marshall Dennehey Warner Coleman & Goggin, in King of Prussia.

U.S. Court of Appeals for the Third Circuit case 14-2804

U.S. District Court for the Eastern District of Pennsylvania case 2:12-cv-02932

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com

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