United States District Court, W.D. Pennsylvania
ROBERT C. MITCHELL, Magistrate Judge.
Plaintiff, Huckestein Mechanical Services, Inc. ("Huckestein"), brings this action against Defendants, IC Staffing Solutions, LLC ("IC Staffing") and its owner, Philip M. Sauvageot, alleging claims of professional malpractice, breach of contract and conversion, arising out of accounting services that were provided to it by IC Staffing, Sauvageot and IC Staffing's former employee, Douglas Michael Foster. Plaintiff alleges that Defendants provided grossly and significantly inaccurate financial services, misrepresented that Foster was a certified public accountant and failed to uncover numerous acts of theft committed by Foster until after his death.
Presently pending before the Court for resolution is Defendants' motion for partial summary judgment with respect to Plaintiff's claims for conversion and breach of contract and Plaintiff's requests for punitive damages and select damages allegedly incurred to uncover and remedy theft and negligence. For the reasons that follow, the motion will be denied.
In January 2010, Wendy Staso purchased Huckestein and became its President and Chief Executive Officer ("CEO"). (Staso Dep. at 9:13-16.) Staso purchased Huckestein from her husband, Keith Staso, and his business partner, John Bouloubasis. (Staso Dep. at 9:20-25.)
Mssrs. Staso and Bouloubasis owned Huckestein from approximately 2003 until January 2010. (Staso Dep. at 10:1-7.) When asked what led to her purchasing Huckestein, Wendy Staso testified as follows:
The company started to not have enough money to pay its bills and so our family started to have to put money in the company to pay the bills. In order to have control over that investment, we could no longer live or deal with John [Bouloubasis] running the company.
(Staso Dep. at 10:18-25.)
Accounting Services from ICS, Inc.
From approximately January 2011 to August 2011, Huckestein received accounting services from Independent Controller Services, Inc. ("ICS, Inc.") (Am. Compl. ¶ 4.) A portion of ICS, Inc.'s services were provided by Sauvageot, who was an employee of ICS, Inc. (or a company affiliated with ICS, Inc.) (Sauvageot Dep. at 23, 25, 40.) Defendants indicate that the agreement provided that ICS, Inc. would act as a controller approximately one day per week to oversee the monthly transactional postings and closing procedures, to answer general accounting questions that might arise, and to review financial reports with Huckestein management on a monthly basis. (Sauvageot Dep. at 74.) They have attached the agreement between ICS, Inc. and Huckestein, which contains these terms. The proposal is dated September 22, 2010 and it was signed by Wendy Staso on January 5, 2011. (Defs.' Supp. App. Ex. G.)
Sauvageot Creates IC Staffing
In approximately July, 2011, Sauvageot left ICS, Inc. and became the sole owner of IC Staffing, a company that provides general temporary staffing support, headhunter services, elderly in-home care and business and personal accounting services. (Sauvageot Dep. at 31, 33.)
Huckestein learned that Sauvageot was leaving ICS, Inc., and Staso asked Sauvageot if IC Staffing wanted to keep the Huckestein account and if he could promise that there would be no gaps in service. (Staso Dep. at 21:17-22:11.) Sauvageot indicated that IC Staffing could provide the same accounting services to Huckestein that had been provided by ICS, Inc. (Sauvageot Dep. at 74.) These services included: negotiating payment arrangements with Huckestein's vendors, performing expense analyses, preparing budgets, doing payroll work, preparing cashflow reports, preparing financial information for company meetings, participating in meetings with company consultants, preparing information for company audits, doing accounts receivable and accounts payable reconciliations, preparing work-in-progress reconciliations, performing prepaid account analysis and reviewing financial statements. (Sauvageot Dep. at 44-47, 50, 53, 87-88, 90-92.)
Huckestein states that it accepted IC Staffing's offer to perform accounting services and retained IC Staffing, through a verbal agreement, to perform the functions of a controller at Huckestein, to handle Huckestein's financials and to staff accordingly. (Staso Dep. at 27.) Defendants respond that the agreement provided that IC Staffing would act as a controller approximately one day per week to oversee the monthly transactional postings and closing procedures, to answer general accounting questions that might arise, and to review financial reports with Huckestein management on a monthly basis. (Sauvageot Dep. at 74.) They cite the prior agreement between ICS, Inc. and Huckestein, which contains these terms. (Defs.' Supp. App. Ex. G.)
Huckestein contends that because IC Staffing was functioning as Huckestein's controller, it was the most senior entity maintaining Huckestein's finances, with the responsibility of generating accurate financial information. (Lally Dep. at 31-37.) Moreover, Sauvageot was the single point of accountability for anything financial at Huckestein. (Staso Dep. at 44.)
Defendants note that the agreement between ICS, Inc. and Huckestein explicitly stated that ICS, Inc. "will not audit or review the financial statements, and our engagement cannot be relied upon to disclose errors, fraud, or illegal acts that may exist." (ECF No. 42 Ex. G at 2.) They argue that this same provision applied to the agreement between Huckestein and IC Staffing. They further contend that: Staso was the most senior person responsible for several aspects of Huckestein's financial functions during the relevant time period, including, for example: (1) she approved all payments of invoices and most credit card purchases; (2) on a weekly basis, without Sauvageot, she reviewed billing and collection issues; (3) she held a monthly financial review between management and Sauvageot; (4) she reviewed and signed every check that was issued, unless an emergency arose when she was out of the office; and (5) she drafted and revised the annual budget with the assistance of Mecal McDade (not Sauvageot). (Staso Dep. at 36, 55, 63, 76-7, 80, 111.)
After beginning to work at Huckestein, IC Staffing's accounting role increased, with IC Staffing assuming additional financial responsibilities, including managing cash and handling accounts payable, accounts receivable and data entry accounting functions at Huckestein. (Sauvageot Dep. at 83; Staso Dep. at 96, 106-07.)
Foster Begins Work at Huckestein
To handle these additional tasks, Sauvageot hired Douglas Michael Foster as an employee of IC Staffing, who reported to Sauvageot. (Sauvageot Dep. at 129-30.) Foster was placed on-site at Huckestein to work on a daily basis. (Lally Dep. at 31-37; Sauvageot Dep. at 129-30.) Defendants state that Foster also received on-site direction from Wendy Staso. (Staso Dep. at 55, 63, 76-77, 80.)
Sauvageot represented to Huckestein management that Foster was a certified public accountant ("CPA") who would be more "accounting savvy" than the prior Huckestein employees that did the work. (Sauvageot Dep. at 131; Staso Dep. at 29-30.) Sauvageot also represented that he was a CPA. (Staso Dep. at 30.)
Huckestein has a board of directors with three members: Wendy Staso, Keith Staso, and Mecal McDade. (Staso Dep. at 36.) Huckestein holds monthly board meetings to review the company's financials. (Staso Dep. at 36.) At its monthly board meetings, the Huckestein board is presented with a balance sheet and a profit and loss statement. (Staso Dep. at 36.)
During IC Staffing's engagement, Sauvageot attended Huckestein's monthly board meetings to present financial information. (Staso Dep. at 39.) In 2011 and 2012, Huckestein held weekly staff meetings with its office personnel. (Staso Dep. at 72-74.) Wendy Staso testified that the purpose of these staff weekly meetings was as follows:
To review our financial situation, AR to AP, billing issues, collection issues, those kinds of things. So we had a financial review. We had an operations review, which is getting the work done. We had a sales review, what our people owe and who they are calling on, those kinds of things. We talked about any issues and then we have open discussion to talk about any issues that were impacting - that people were having that would impact other people in the company, so that we could resolve those issues collectively.
(Staso Dep. at 73.)
After IC Staffing hired Foster, Sauvageot continued performing accounting services at Huckestein and purported to review and supervise Foster's work. (Staso Dep. 27-30, 44, 55, 58; Lally Rpt. at 2, 4.) Defendants deny that they reviewed Foster's work in an audit fashion.
Foster's Alleged Theft
During the time that Foster was providing services to Huckestein, Wendy Staso had two company signature stamps for writing checks. (Staso Dep. at 53:16-17.) She gave Foster access to the signature stamps, one of which he kept in his desk. (Staso Dep. at 54:20-23.) She did so because Foster was working as an accountant and because IC Staffing managed the cash at Huckestein. (Staso Dep. at 96, 106-07.) Defendants deny that IC Staffing manage the cash; rather, it only provided a cash position report.
When asked whether she advised Sauvageot that Foster had a signature stamp, Mrs. Staso testified, "I don't believe I did." (Staso Dep. at 55:7-9.) However, she stated that, as the controller, IC Staffing had responsibility to make sure its employees exercised proper controls. (Staso Dep. at 55:4-6.)
Defendants contend that Foster should not have had access to signature stamps or company credit cards. (Sauvageot Dep. at 98:11-23.) Their expert states that, as part of proper internal controls, only Staso should have had access to the stamps or she should have reviewed all checks written with the stamp. (King Dep. at 110-16; King Rpt. at 11-12.)
Huckestein's current accountant, Wendy Burton, testified she did not think that it would be acceptable internal control for her to have the signature stamp at her desk. (Burton Dep. at 38:1-4.) Burton also testified that Foster should not have had the signature stamp at his desk. (Burton Dep. at 38:5-7.)
Huckestein has identified five checks that Foster issued to himself using Staso's signature stamp. (Burton Dep. at 32.) These five checks issued to/by Foster were written on the following dates and in the following amounts - for a total sum of $3, 664.07:
February 29, 2012: $67.38 March 28, 2012: $1, 742.24 April 9, 2012: $155.17 April 25, 2012: $1, 199.28 May 2, 2012: $500.00
(Pl.'s Expert Rpt. Ex. III.)
Huckestein has identified 11 payments made from Huckestein's bank account to an HSBC credit card allegedly belonging to Foster. (Pl.'s Expert Rpt. Ex. IV.) These 11 payments to the HSBC credit card occurred between March 8, 2012, and June 20, 2012, for a total amount of $5, 084.02. (Id.) When asked what steps Huckestein took to confirm the owner of this HSBC card, Burton testified that she contacted the credit card company, and the individual with whom she spoke stated that the name on the account was Douglas Foster. Huckestein did not receive any written confirmation that Foster was the owner of the card. (Burton Dep. at 39.)
Huckestein has identified six payments that Foster allegedly electronically issued from the Huckestein bank account to pay his personal Verizon Wireless account, for a total amount of $2, 085.07. (Pl.'s Expert Rpt. Ex. IV.) At the time of these payments, Huckestein also had multiple Verizon Wireless accounts. (Staso Dep. at 68.) Huckestein's application systems manager (and former IT administrator), Edward Tworek, ...