Begelman & Orlow, P.C. v. Ferara, Civil Action No. 12-329

BEGELMAN & ORLOW, P.C. Plaintiff, v. KRISTY L. FERARA Defendant.

Civil Action No. 12-329

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY

December 8, 2016

Hon. Joseph H. Rodriguez

Opinion

These matters come before the Court on Defendant Kristy Ferara's Motion for Summary Judgment [72], Plaintiff Begelman & Orlow's Motion for Summary Judgment on the Counterclaim [74], and Plaintiff Begelman & Orlow's Motion for Partial Summary Judgment and for Issuance of a Constructive Trust [76]. The Court has considered the written submission of the parties and the arguments advanced at the hearing on September 11, 2014. For the reasons expressed on the record during the hearing and those that follow, Defendant's Motion for Summary Judgment [72] is denied in part and granted is part, Plaintiff's Motion for Summary Judgment on the Counterclaim [74] is granted in part and denied in part, and Plaintiff's Motion for Partial Summary Judgment and for Issuance of a Constructive Trust [76] is denied.

I. General Background

Defendant Kristy Ferara (Defendant or Ferara) allegedly earned an Internal Revenue Service ("IRS") Whistleblower award, pursuant to 26 U.S.C. §7623. Ferara denies that she has received the award and, because of the classified nature of the IRS Whistleblower program, there is no evidence that proves or disproves her statement. Plaintiff Begelman & Orlow, as counsel representing Ferara during the whistleblower process, claims it is entitled to a set percentage of the award under the terms of its retainer agreement with Defendant. Defendant claims that Begelman & Orlow is not entitled to a fee and she alleges in her counterclaims that the firm committed legal malpractice and equitable fraud.

II. Factual Background

In part, the following background is taken from the Court's March 15, 2012 Opinion. The facts according to Plaintiff's Amended Complaint are as follows. Plaintiff and Defendant entered into a contingency fee agreement ("the Agreement") on October 29, 2007 for Plaintiff's representation of Defendant in a claim under the whistleblower award provisions of 26 U.S.C. § 7623 (the "IRS matter"). Am. Compl. at ¶¶ 1, 7. Applicants may file for whistleblower awards where they report an alleged tax liability which exceeds $2 million. Id. at ¶ 13. Internal Revenue Manual 25.2.2-25.2.2.13.2 governs the process under which claimants may seek such awards. In accordance with such procedures, Plaintiff filed on Defendant's behalf IRS Form 211 on November 5, 2007. Id. at ¶ 14. Part of the submission included the filing of Form 2848, which granted Plaintiff Power of Attorney and authorized Plaintiff to act as Defendant's representative. Id. at ¶ 17. Plaintiff's representation in this matter did not involve the filing of a lawsuit, and the submission to the IRS is filed in confidence. Id. at ¶ 13. Whistleblowers receive payment from the funds collected from the tax debtor as a result of the IRS's action; awards range from fifteen to thirty percent of the funds collected. Id. at ¶ 18. Both Plaintiff and Defendant believed that Defendant's case could involve substantial sums ofmoney. Am. Compl. at ¶ 16.

In August of 2011, the IRS Office of Whistleblowers notified Plaintiff that the underlying tax case settled. Id. at ¶ 21. The IRS notified Plaintiff on or about December 10, 2011 that the award calculation and issuance of a Preliminary Recommendation award letter would occur within the next month. Id. at ¶ 22. According to Plaintiff, this Preliminary Recommendation would likely include the amount of the whistleblower award that the IRS intended to award Defendant. Id. The IRS requested that Plaintiff participate in a teleconference with the Office of Whistleblowers during the week of January 9, 2012 to discuss the Preliminary Recommendation; Defendant was notified that the teleconference would take place and that Plaintiff believed its purpose was to inform Plaintiff of the amount of the award. Id. at ¶¶ 23, 25.

On January 9, 2012, Defendant sent an email to Plaintiff, in which she stated that she had revoked Begelman & Orlow's Power of Attorney with the IRS and stated that she was terminating the contract with Plaintiff. Id. at ¶ 27. In the letter, Defendant indicated her intent to provide Plaintiff with written feedback at a later date concerning certain issues regarding the representation. Id.; Am. Compl., Ex. 3. Defendant stated that she felt such steps were "necessary to resolve concerns and forge a path going forward" and that she was "striving for an honest and fair dialogue." Am. Compl., Ex. 3. Defendant further stated that this would provide Plaintiff with "an opportunity to consider [her] concerns, provide feedback and consider wether [sic] or not we can continue to work together." Id. Defendant asked that Plaintiff not contact her "via phone or in person in the next weeks, but rather take the opportunity to regroup and reflect" on what she hadwritten. Id.

Plaintiff sent Defendant a letter dated January 11, 2012 asking Defendant to reconsider her actions and Defendant did not respond. Am. Compl. at ¶ 28; Ex. 4. As a result of Defendant's termination of Plaintiff's Power of Attorney and revocation of the contract, Plaintiff asserts that, due to the confidential nature of the matter, it will be blocked from any knowledge of the Preliminary Recommendation, or from participating further in the process or having knowledge of any settlement or award. Am. Compl. at ¶ 30. According to the terms of the Agreement, Plaintiff's fee for representing Defendant in the IRS matter was to be 33 1/3% of the gross amount of the award minus costs. Id. at ¶ 36; Ex. 1 & 2.

III. Procedural History

Plaintiff filed its Original Complaint in this matter on January 18, 2012, alleging claims for breach of contract (Count I), conversion (Count II), unjust enrichment (Count III), and quantum meruit (Count IV). In the meantime, a newspaper article published a story on the underlying facts of the case, exposing Ferara as a whistleblower. The Court granted Plaintiff leave to file an amended complaint properly pleading the citizenship of each party, and Plaintiff filed an Amended Complaint on February 2, 2012, adding a claim seeking the formation of a constructive trust (Count V). On January 19, 2012, Plaintiff filed a Motion for Preliminary Injunction, Declaratory Judgment, and Attorney's Fees Lien. [Docket Entry # 3.] Defendant, proceeding pro se at the time, filed an Answer to the Original Complaint [Docket Entry # 10] and an Answer to the Amended Complaint [Docket Entry # 11] on February 6, 2012. The Court deniedPlaintiff's motion for a preliminary injunction. The present motions for summary judgment followed.

The Court held a hearing on the motions and directed the parties to file supplemental briefs. In general terms, there is a dispute about whether Defendant has been compensated by the IRS for her Whistleblower activities and whether she owes Plaintiff compensation for its efforts on her behalf pursuant to the contingency fee agreement. In addition, there appears to be a dispute over whether there is a valid contingency fee contract. Both parties claim that their position is undisputed. Ferara and Begelman entered into a contingency agreement in October 2007. They entered into a subsequent contingency fee agreement in November 2007. The November agreement cannot be located and has not been produced for consideration. Plaintiffs claim it is identical to the October agreement, although in deposition the exact terms of that agreement could not be recalled. Defendant admits she entered into an agreement in November, but claims that it is not a valid agreement because there is no writing.

IV. Summary Judgment Standard

A court will grant a motion for summary judgment if there is no genuine issue of material fact and if, viewing the facts in the light most favorable to the non-moving party, the moving party is entitled to judgment as a matter of law. Pearson v. Component Tech. Corp., 247 F.3d 471, 482 n.1 (3d Cir. 2001) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 91 L.Ed.2d 265 (1986)); accord Fed. R. Civ. P. 56 (c). Thus, this Court will enter summary judgment only when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that thereis no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56 (c).

An issue is "genuine" if supported by evidence such that a reasonable jury could return a verdict in the nonmoving party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L.Ed.2d 202 (1986). A fact is "material" if, under the governing substantive law, a dispute about the fact might affect the outcome of the suit. Id. In determining whether a genuine issue of material fact exists, the court must view the facts and all reasonable inferences drawn from those facts in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 89 L.Ed.2d 538 (1986).

Initially, the moving party has the burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L.Ed.2d 265 (1986). Once the moving party has met this burden, the nonmoving party must identify, by affidavits or otherwise, specific facts showing that there is a genuine issue for trial. Id.; Maidenbaum v. Bally's Park Place, Inc., 870 F. Supp. 1254, 1258 (D.N.J. 1994). Thus, to withstand a properly supported motion for summary judgment, the nonmoving party must identify specific facts and affirmative evidence that contradict those offered by the moving party. Andersen, 477 U.S. at 256-57. Indeed, the plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing...