Is your CPA protecting you from embezzlement? Embezzled dentist sues CPA firm, alleging accounting malpractice. Not successful yet.

New York dentist Ronald Ghiz was embezzled by office manager Carolina Vallario to the tune of $400,000.  in 2013, Dr. Ghiz sued his CPA firm, Shreck and Company CPAs, on the basis that they should have detected the embezzlement. Have questions or concerns about your practice? Call us toll-free at 888-398-2327

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This case was settled in 2019 before going to trial.  The settlement terms are not disclosed.

Decision and Order

EILEEN A. RAKOWER, Judge. It is ordered that this motion is MOTION IS DECIDED IN ACCORDANCE WITH THE ACCOMPANYING MEMORANDUM DECISION. Presently before the Court is defendant Elvira Scarnati's motion for an Order, pursuant to CPLR §§3211(a)(5) and (a)(7), to dismiss Plaintiffs' Complaint. Plaintiffs oppose. The Complaint alleges that between approximately March 2007 until August 2009, defendant Carolina Vallario ("Vallario") was employed by Plaintiffs to run their dental offices. Vallario's tasks included drafting but not signing checks, paying bills, balancing banking accounts and recording various financial transactions in Plaintiffs' books. The Complaint alleges that Vallario was convicted on June 9, 2011 of Grand Larceny of the Third Degree for the theft/embezzlement of over $400,000 from Plaintiffs during the course of her employment. Defendant Elvira Scarnati ("Scarnati") is alleged to be the mother of Vallario and a "knowing recipient of the ill gotten gains stolen from plaintiffs." As against Scarnati, the Complaint asserts two causes of action for civil conspiracy to commit conversion (sixth cause of action) and civil conspiracy to commit fraud (seventh cause of action). CPLR §3211 provides, in relevant part: (a) a party may move for judgment dismissing one or more causes of action asserted against him on the ground that: (5) the cause of action may not be maintained because of . . . statute of limitations . . .; [and] (7) the pleading fails to state a cause of action. In determining whether dismissal is warranted for failure to state a cause of action, the court must "accept the facts alleged as true . . . and determine simply whether the facts alleged fit within any cognizable legal theory." (People ex rel. Spitzer v. Sturm, Ruger & Co., Inc., 309 AD2d 91 [1st Dept. 2003]) (internal citations omitted) (see CPLR §3211[a][7]). The sixth cause of action alleges civil conspiracy to convert funds against Scarnati. The Complaint alleges "at some time between 2007 to date," Scarnati, along with defendant Anthony Vallario, "learned of sufficient facts such that [they] knew or should have known that defendant Carolina Vallario was stealing money from Plaintiffs," received money known to be stolen "between 2007 to date," "participated in a civil conspiracy to steal money from plaintiffs," and based on these allegations, "converted plaintiffs' funds." New York does not recognize an independent cause of action for conspiracy to commit a civil tort (see Romano v. Romano, 2 A.D. 3d 430, 432 [2nd Dept 2003] ("a cause of action sounding in civil conspiracy cannot stand alone, but stands or falls with the underlying tort"). "A conversion takes place when someone, intentionally and without authority, assumes or exercises control over personal property belonging to someone else, interfering with that person's right of possession." Colavito v. New York Organ Donor Network, Inc., 8 N.Y.3d 43, 49-50 (N.Y. 2006). CPLR §214[3] mandates that a cause of action for conversion be commenced within three years of the date that the action accrues. The three year statute of limitations "normally runs from the date the conversion allegedly took place. Where possession is originally lawful, a conversion does not occur until the owner makes a demand for the return of the property and the person in possession of the property refuses to return it." In re Estate of King, 305 A.D. 2d 683, 683 [2nd Dept 2003]. The "Statute of Limitations alleging conversion by a fiduciary only began to run when plaintiffs discovered facts upon which to demand the return of property allegedly converted." Elghanayan v. Victory, 192 A.D. 2d 355, 356 [1st Dept 1993]. Here, neither the Complaint nor the opposing affidavit submitted by plaintiff Ronald Ghiz state when Plaintiffs first discovered facts upon which to demand the return of the funds allegedly converted. The Complaint alleges that Vallario stole money during her employment with Plaintiffs from March 2007 through August 2009, and there are no other allegations that any theft occurred or any funds were converted after Vallario's employment was terminated. In his opposing affidavit, Ghiz avers that that Vallario was convicted on June 9, 2011 of Grand Larceny of the Third Degree for the theft/embezzlement of over $400,000 from Plaintiffs during the course of her employment. The Certificate of Disposition of Indictment, which is annexed to plaintiff Ronald Ghiz's opposing affidavit, indicates that Vallario was arrested on November 22, 2010. However, nowhere in Ghiz's affidavit does he state when Plaintiffs first discovered facts of the conversion. While Plaintiffs argue that it was not until the date of Vallario's conviction that they understood the "full nature of Vallario's actions," that is not the applicable standard that is applied in determining the accrual date on a conversion claim. Dismissal of Plaintiffs' sixth cause of action as against Scarnati is therefore warranted based on Plaintiffs' failure to plead factual allegations that support the timely commencement of their conversion claim. The seventh cause of action alleges civil conspiracy to commit fraud against Scarnati. It alleges that Scarnati and Anthony Vallario "participated in scheme [sic] to fraudulently enter seemingly legitimate business transactions onto the financial books of plaintiffs to hide and or conceal the true nature of the transactions which were part of said defendants' scheme to convert plaintiffs' funds to their own personal gain and benefit." To establish a claim of civil conspiracy, the plaintiff must "demonstrate the primary tort, plus the following four elements: (1) an agreement between two or more parties; (2) an overt act in furtherance of the agreement; (3) the parties' intentional participation in the furtherance of a plan or purpose; and (4) resulting damage or injury." Abacus Fed. Sav. Bank v. Lim, 75 A.D. 3d 472, 474 [1st Dept 2010]). "The elements of a cause of action for fraud are (1) the false representation or concealment of a material existing fact, (2) scienter, (3) deception, (4) reliance, and (5) injury." House of Spices (India), Inc. v SMJ Servs., Inc., 2011 N.Y. Misc. LEXIS 1922 (N.Y. Misc. 2011). "[E]ach of these essential elements must be supported by factual allegations sufficient to satisfy CPLR 3016(b), which requires, in the case of a cause of action based on fraud, that `the circumstances constituting the wrong shall be stated in detail.'" (Id.)(citations omitted). Here, the Complaint does not allege any allegations to sustain a fraud claim as against Scarnati, or a civil conspiracy to commit fraud. The Complaint states only that Scarnati "participated in scheme [sic] to fraudulently enter seemingly legitimate business transactions onto the financial books of plaintiffs to hide and or conceal the true nature of the transactions which were part of said defendants' scheme to convert plaintiffs' funds to their own personal gain and benefit." The Complaint, however, does not plead any detail to alert Scarnati to the nature of the fraud as alleged against her specifically. In his opposing affidavit, plaintiff Ghiz states that Scarnati negotiated and deposited into her bank account checks dated May 29, 2008, July 17, 2008, July 17, 2008, July 30, 2008, December 2, 2008, that had been written to "Cash" on Plaintiffs' dental practices account. Ghiz states that these checks were not authorized by him to be paid to Scarnati or any one else. Ghiz states that the signature that appears on the checks was forged with an old stamp that no one had authority to use. However, this allegations alone are insufficient to sustain a claim of fraud as against Scarnati, or a claim of civil conspiracy to commit fraud. As for a claim for fraud, these allegations do not demonstrate "a false representation or concealment of material existing fact" by Scarnati, or the other required elements. As for their civil conspiracy to commit fraud claim, Plaintiffs have failed to plead any alleged agreement between Scarnati and Vallario to commit the acts that Vallario allegedly committed which form the basis of Plaintiffs' Complaint. Wherefore, it is hereby, ORDERED that defendant Elvira Scarnati's motion to dismiss is granted, and the Complaint is dismissed as against Eliva Scarnati, and the Clerk is directed to enter judgment accordingly; and it is further ORDERED that the remainder of the action is severed and shall proceed. This constitutes the decision and order of the court. All other relief requested is denied.