BEGELMAN & ORLOW, P.C. v. FERARA

Filing 95

OPINION. Signed by Judge Joseph H. Rodriguez on 12/8/2016. (tf, )

UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF NEW JERSEY
BEGELMAN & ORLOW, P.C.

:
:

v.
KRISTY L. FERARA
Defendant.

Civil Action No. 12-329

:
:

Plaintiff,

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.
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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 of

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money. 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 had

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written. 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 denied

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Plaintiff’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 there

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is 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 25657. 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 sufficient to establish the existence of an element essential to that party’s case,
and on which that party will bear the burden of proof at trial. Celotex, 477 U.S. at 322.

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In deciding the merits of a party’s motion for summary judgment, the court’s role
is not to evaluate the evidence and decide the truth of the matter, but to determine
whether there is a genuine issue for trial. Anderson, 477 U.S. at 249. Credibility
determinations are the province of the finder of fact. Big Apple BMW, Inc. v. BMW of
N. Am., Inc., 974 F.2d 1358, 1363 (3d Cir. 1992).
V.

Analysis

Both Defendant Ferara and Plaintiff Begelman & Orlow move for summary
judgment as to each count of the Amended Complaint. For the reasons that follow,
Summary judgment is granted in favor of Defendant Ferara as to Counts I, II, and III.
Summary judgment is denied as to Counts IV and V.
A. [72] Defendant Kristy Ferara’s Motion for Summary Judgment and
[76] Plaintiff Begelman and Orlow’s Motion for Partial Summary
Judgment and Declaratory Judgment
Defendant Ferara moves for summary judgment as to each of Plaintiff’s claims in the
Amended Complaint. Ferara contends that summary judgment is warranted as to the
breach of contract claim and claim for quantum meruit because Plaintiff cannot prove
that Ferara has received an award. In addition, Ferara claims that there is no valid
contingency agreement between herself and Begelman & Orlow, therefore the firm cannot
recover under breach of contract. Ferara also claims that New Jersey law does not permit
attorneys to recover from their clients under a breach of contract theory where a client
discharges the attorney prior to the contingency’s occurrence.
Ferara argues that summary judgment is warranted as to the claims for conversion,
unjust enrichment, and constructive trust because these claims fail as a matter of law

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where an attorney-client fee contract is in dispute. Counsel claims that there is no
authority to support recovery under these theories and that the only possible avenue is
quantum meruit. In the alternative, Ferara claims that in the absence of an award, there
so there is no property at issue to convert. Likewise, the unjust enrichment claim fails
because there is no award. Finally, there is no wrongful act to warrant the imposition of
a constructive trust.
1. Plaintiff’s Claims for Breach of Contract (Count I) and Quantum Meruit
(Count IV)
Summary judgment is granted as to Count I in favor of Defendant and denied as to
Count IV.
As an initial matter, the Court finds that the contingency fee agreement is valid. Under
New Jersey law, a contingency fee agreement is not valid unless it complies with RPC Rule
1.5(c), which requires that the agreement be in writing. Here, the initial agreement was
entered into on October 29, 2007. It is undisputed that a second written contingency fee
agreement was entered into on November 7, 2007 which concerned the same legal
services. Begelman and & Orlow cannot produce this agreement and, as a result, Ferara
claims that it is unenforceable pursuant to RPC 1.5(c). However, during oral argument,
counsel for Ferara did not dispute that the written agreement of October 29, 2007
governs.
Given the existence of a contract, the issue here is whether a breach occurred. In
the context of this highly unusual case, there is no evidence in the record that a breach
occurred. Ferara claims that she has never received an award from the IRS, a claim she
again echoed during a conference call on February 8, 2016. In addition, counsel for her
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former employer Novartis (against whom she blew the whistle) testified in an affidavit
that there has been no award. However, given the confidentiality mandated by the
Internal Revenue Service’s Whistleblower Statute, § 7623, only Ferara and the IRS will
ever really know whether and/or when Ferara receives her award. See Internal Revenue
Service Manual 25.2.2. As a result, Plaintiff may never have the evidence it needs to
collect the fees incurred in the course of its representation of Ferara. Nonetheless, on
this record, given the absence of any proof of an award and, hence, a breach, summary
judgment must be granted as to the breach of contract claim.
During oral argument, Ferara seemed to agree that Plaintiff’s claims for quantum
meruit survive summary judgment even though Ferara discharged Plaintiff prior to the
receipt of an award. The Court agrees.
A “contract for legal services is not like other contracts... ordinary contract
principles... must give way to the higher ethical and professional standards enunciated
by our Supreme Court.” Cohen v. Radio-Electronics Officers Union, 146 N.J. 140, 163164 (1996) (quoting Cohen v. Radio-Electronics Officers Union, 275 N.J. Super. 241, 259
(1994). “Under ordinary circumstances, a client may discharge an unwanted attorney
with or without cause.” Glick v. Barclays De Zoete Wedd, Inc., 300 N.J. Super. 299, 30910, 692 A.2d 1004, 1009-10 (App. Div. 1997). “The client's right to terminate at will is
not a breach of contract but a contract term implied at law based upon the special
relationship of trust and confidence between attorney and client.” Cohen, 275 N.J.Super.
241, at 261.
The New Jersey Supreme Court directs that a breach of contract claim is not the

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mechanism for recovery where “[a]n attorney [is] hired on a contingent fee basis and
[is] later discharged before completion of the services[.]” Id. Instead, Begelman & Orlow
“may be entitled to recover on a quantum meruit basis for the reasonable value of the
services rendered.” Id. (citing Cohen, 146 N.J. 140, 679 A.2d 1188 (1996); In re Estate of
Poli, 134 N.J. Super. 222, 227, 338 A.2d 888 (Mercer County Ct. 1975)).
“Quantum meruit is a quasi-contractual remedy in which a contract is implied-inlaw under a theory of unjust enrichment; the contract is one that is implied in law, and
not an actual contract at all.” Allegheny Gen. Hosp. v. Phillip Morris, 228 F.3d 429, 447
(3d Cir. 2000) (internal quotations omitted). “To state a claim for recovery based on
quantum meruit, a plaintiff must establish four elements: (1) the performance of
services in good faith; (2) the acceptance of the services by the person to whom they are
rendered; (3) an expectation of compensation therefore; and (4) the reasonable value of
the services.” TBI Unlimited, LLC v. Clearcut Lawn Decisions, LLC, 2013 WL 1223643,
*5 (D.N.J. Mar. 25, 2013) (citing Starkey, Kelly, Blaney, & White v. Estate of Nicolaysen,
172 N.J. 60, 68, 796 A.2d 238 (2002)).
Here, there is a factual dispute related to the nature and quality of the services
rendered by Plaintiff on behalf of Ferara. The parties’ debate about the facts
underscoring the elements of quantum meruit leave no room for summary judgment.
Summary judgment is denied as Count IV, a claim for quantum meruit.

2. Plaintiff’s Claims for Conversion (Count II) and Unjust Enrichment (Count
III)
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Ferara moves for summary judgment as to Counts II and III on the grounds that
New Jersey law does not recognize claims for conversion, unjust enrichment, and
constructive trust when an attorney-client fee contract is in dispute. In the alternative,
Ferara argues that no duty exists to support the conversion claim and, again, alleges that
because there is no evidence of an award, there is no property to support a conversion
claim. For the same reason, the unjust enrichment claim fails because there is no
evidence of an award. Ferara claims that she is permitted to end the attorney client
relationship at any time and, again, argues that she has not received an award from the
IRS.
In New Jersey, there are two elements necessary to establish a claim of unjust
enrichment: “(1) that the defendant has received a benefit from the plaintiff, and (2) that
the retention of the benefit by the defendant is inequitable.” Wanaque Borough
Sewerage Auth. v. West Milford, 144 N.J. 564, 575, 677 A.2d 747 (1996); see also
Canadian Nat. Ry. v. Vertis, Inc., 811 F. Supp. 2d 1028, 1034 (D.N.J. 2011). For the same
reasons supporting summary judgment as to the breach of contract claim, summary
judgment is warranted as to the claim for unjust enrichment. Simply put, there is
nothing in the record to support the conclusion that Ferara has received an award and
there is no genuine issue of fact related to this determination. Therefore, there is no
evidence that she has been unjustly enriched by the retention of the benefits bestowed
by Plaintiffs’ efforts. Wanaque Borough Sewerage Auth., 144 N.J. at 575. Summary
judgment is granted as to Count III in favor of Defendant.
Summary judgment is granted in favor of defendant as to Plaintiff’s claim for
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conversion, as plead in Count II. Under New Jersey law, the tort of conversion is
defined as the “‘intentional exercise of dominion or control over a chattel which so
seriously interferes with the right of another to control it that the actor may justly be
required to pay the other the full value of the chattel.’” Chicago Title Ins. Co. v. Ellis, 409
N.J. Super. 444, 454, 978 A.2d 281 (App. Div.) (quoting Restatement (Second) of Torts §
222A (1) (1965)). A successful claim of conversion requires a plaintiff establish “(1) the
existence of property, (2) the right to immediate possession thereof belonging to
plaintiff, and (3) the wrongful interference with that right by defendant.” Corestar Int'l
Pte, Ltd. v. LPB Commc'n, 513 F.Supp 2d 107, 127 (D.N.J. 2007).
There is no evidence that Defendant has or will receive an award from the IRS, that
Plaintiff Ferara has realized any benefit from Plaintiff’s representation, that the award
exists, and/or that Ferara is interfering with Plaintiff’s rights to the award.
Additionally, in New Jersey “a tort remedy does not arise from a contractual
relationship unless the breaching party owes an independent duty imposed by law.”
Saltiel v. GSI Consultants, Inc., 170 N.J. 297, 316 (2002). The only duty Defendant owes
to Plaintiff relates to the contingency fee agreement; evidence of an independent duty is
lacking. For these reasons, summary judgment is granted in favor of Defendant as to
the claim of conversion plead in Count II.
3. Plaintiff’s claim for Declaratory Judgment and the imposition of a
Constructive Trust (Count V)
Plaintiff seeks the imposition of a constructive trust to ensure that Defendant,
who holds a German passport, does not abscond with the IRS award once it is conferred.
Ferara argues that because there is no wrongful act to warrant the imposition of a
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constructive trust, summary judgment must be granted as to Count V. Plaintiff also
moves for partial summary judgment as to Count V, arguing that because the
contingency fee agreement is a valid contract and because Ferara has threatened not to
pay Plaintiff, Ferara’s wrongful conduct validates imposition of a constructive trust.
The Declaratory Judgment Act, 28 U.S.C. § 2201, empowers federal courts to
grant declaratory relief, and the Court’s exercise of this declaratory relief power is
discretionary. Unionamerica Ins. Co., Ltd. v. Nufab Corp., 30 Fed. Appx. 30, 33 (3d
Cir. 2002) (citing State Auto Ins. Co. v. Summy, 234 F.3d 131, 133 (3d Cir. 2000)).
Plaintiff asks that the Court enter a declaratory judgment “ordering that plaintiffs
Begelman Orlow are entitled to a thirty three and one third percent (33 1/3%) share of
any and all funds received by defendant Ferara from the IRS Office of Whistleblower
Rewards (net of gross fee minus costs, with full cost reimbursement).” Pl.’s Br. at 11.
In its breach of contract cause of action, Plaintiff alleges in its Amended
Complaint that “[a]ccording to the contract, defendant Ferara is legally obligated to pay
Begelman Orlow a fee of thirty-three and one third percent (33 1/3%) of the gross
amount of the award, minus costs, for their performance of services under the contract.”
Am. Compl. at ¶ 36. A declaratory judgment is justified if Plaintiff can prove the
existence of a contract and that Ferara breached that contract.
“A constructive trust is the formula through which the conscience of equity finds
expression. When property has been acquired in such circumstances that the holder of
the legal title may not in good conscience retain the beneficial interest equity converts
him into a trustee.” Beatty v. Guggenheim Exploration Co., 225 N.Y. 380, 122 N.E. 378,

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386 (1919) (Cardozo, J.). Here, Plaintiff must meet a high burden to establish the
imposition of a constructive trust is warranted as “the suitability of imposing a
constructive trust must be established by the movant by clear, definite, unequivocal and
satisfactory evidence.” Jurista v. Amerinox Processing, Inc., 492 B.R. 707, 772 (D.N.J.
2013) (internal citations omitted). New Jersey employs a two-prong test to determine
whether a constructive trust is warranted. First, a court must find that a party has
committed “a wrongful act.” D'Ippolito v. Castoro, 51 N.J. 584, 589, 242 A.2d 617
(1968). The act, however, need not be fraudulent to result in a constructive trust; a mere
mistake is sufficient for these purposes. Dobbs, supra, § 4.3, at 243 (observing that
“constructive trust may be used as a remedy for innocent misstatements, or even simple
mistakes, as well as a remedy for fraud”). Second, the wrongful act must result in a
transfer or diversion of property that unjustly enriches the recipient. Castoro, supra, 51
N.J. at 589, 242 A.2d 617; D'Ippolito, 51 N.J. 584, 242 A.2d at 619 (A constructive trust
may arise “where the retention of the property would result in the unjust enrichment of
the person retaining it.”); Flanigan v. Munson, 175 N.J. 597, 608, 818 A.2d 1275, 1281
(2003).
Here, Plaintiff fails to sufficiently establish the elements necessary for the
imposition of a constructive trust. Primarily, evidence of wrongdoing by Ferara is
lacking and there are credibility determinations associated with the calculus. At best,
Ferara disputes that Plaintiff is entitled to fees for its work on her behalf.
Q. Are you still adverse to holding funds in escrow for the payment
of a legal fee if you obtain a successful result with the IRS?
A. Yes.
Q. And what is the basis for you refusing to keep funds in escrow?
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MR. PATE: I'll object to the form of the question. You can answer it
if you can.
A. I don't see the need to pay Begelman Orlow.
See Deposition of Kristy L. Ferara, Ex. F., Aff. of John J. Slimm at 163:4-17, 190:4-15.
The Court disagrees with Plaintiff that this is evidence of refusal to pay and does not
indicate an intention never to compensate Begelman & Orlow. Rather, as evidenced by
the claims in her Counterclaim and in her deposition, Ferara projects a basis for
disqualifying Plaintiff from payment for the services rendered for failure to perform
satisfactory work.
Q. Okay. Do you agree that the law firm is entitled to be compensated for its
work on our behalf in this case?
A. Not at this time.
Q. Why not?
A. I believe that the documentation presentation is so poor that it has to be
reworked. Exposing me as a whistleblower, damaging my reputation, my
ability to earn a normal salary as an executive or anything else has been
completely ruined.
Q. Anything else?
A. And that outweighs paying them anything at this point in time.
.
.
.
Q. Do you agree that the law firm is entitled to be paid for the years of work
that it did on your behalf?
A. No.
Q. Okay. Why not?
A. Because they did poor work.
Id. at 163:4-17; 164:18-23.
Plaintiff fails to establish the burden necessary or the imposition of a constructive
trust as questions of fact and credibility loom over Defendant’s intention to live up to
her obligations under the contingency fee agreement. The Court’ rejects Plaintiff’s
characterization of Ms. Ferara’s testimony as indicative of an intention to withhold
payment from Begelman Orlow, even in the event the Court determines payment is
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merited. As a result, Begelman and Orlow has failed to put forth “clear, definite,
unequivocal and satisfactory evidence” of wrongdoing sufficient for the imposition of a
constructive trust and summary judgment is denied as to Count V. Jurista, 492 B.R. at
772; Thompson v. City of Atlantic City, 386 N.J. Super. 359, 375-76, 901 A.2d 428, 438
(2006) (Under New Jersey law, a constructive trust may be created where property has
been wrongfully or inequitably transferred.); D'Ippolito, 51 N.J. at 589, 242 A.2d 617
(The imposition of a constructive trust necessitates a finding of a “breach of a
confidential relationship which has resulted in the transfer of property.”).
B. Defendant Ferara’s Counterclaim; Ferara’s Motion for
Partial Summary Judgment [72] and Begelman and Orlow’s
Motion for Summary Judgment [74]
The Counterclaim alleges as follows: Count I, Equitable Fraud as to Begelman
Orlow’s Failure to Disclose Prior Ethical Violations; Count II, Count Equitable Fraud as
to Begelman Orlow’s Failure to Comply with the Terms of Mr. Orlow’s Suspension,
Count III, Equitable fraud as to Begelman Orlow’s misrepresentation regarding
conversations with the IRS; Count IV Breach of Fiduciary Duty; and Count V, Legal
Malpractice.
The underlying allegations in the Counterclaim relate to attorney Orlow’s
suspension from the practice of law due to numerous prior ethical violations and the
firm’s failure to disclose the same to Ferara. In general terms, Ferara claims that the
firm failed to inform her of Mr. Orlow’s suspension and allowed Mr. Orlow to represent
her while he was suspended from practice. In addition, Plaintiff failed to present
Ferara’s claim to its best advantage, failed to forward Ferara’s eighth supplemental

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submission to the IRS, failed to prevent Ferara from terminating the attorney-client
relationship by pressuring and threatening her, disclosed Ferara’s privileged and
confidential information public, embarrassed her and portrayed her in a negative light,
knowingly filed claims against her that lacked merit and were legally barred, and
attempted to compromise her claim by taking an adversarial position against the IRS.
Ferara moves for Summary Judgment on the Counterclaim, only as to Count II,
which alleges Equitable Fraud as to Begelman Orlow’s Failure to Comply with the Terms
of Mr. Orlow’s Suspension. Ferara claims that because attorney Orlow, who is the
signatory on almost every document relating to Ferara’s case, was suspended from the
practice of law in 2009 (during his representation of her) and failed to disclose this fact,
Plaintiff has violated RPC 1:20-20(b). As a result, Plaintiff claims that she is not
responsible for quantum meruit because Orlow failed to inform her of his suspension.
Begelman & Orlow also move for summary judgment on every count plead in the
Counterclaim, primarily advancing the theory that Ferara’s claims allege ethical
violations which are not actionable in a court of law. In support, Plaintiff argues that
because Ferara’s expert has not established that the underlying IRS whistleblower claim
was viable, the Court should grant summary judgment as to all claims. In addition,
Plaintiff claims that Ferara’s expert fails to establish a deviation from the standard of
care and, therefore, summary judgment must be granted as to the claims of malpractice.
McGrogan v. Till, 167 N.J. 414, 425 (2001); Carney v. Finn, 145 N.J. Super. 234, 236
(App. Div. 1976). See, Rosenberg v. Cahill, 99 N.J. 318, 325 (1985); Sommers v.
McKinney, 287 N.J. Super. 1, 10 -11 (App. Div. 1996); Aldridge v. Hawrylo, 281 N.J.

17

Super. 201, 214 (App. Div. 1995); Brizak v. Needle, 239 N.J. Super. 415, 431-32 (App.
Div. 1990); Brach, Eichler, Rosenberg, Silver, Bernstein, Hammer & Gladstone, P.C. v.
Ezekwo, 345 N.J. Super. 1 (App. Div. 2001).
Plaintiff also argues that Ferara fails to establish that the firm’s negligence
proximately caused her damages. Davin, LLC v. Daham, 329, N.J. Super. 54, 72 (App.
Div. 2000). Plaintiff contends that Ferara has not proven through competent expert
opinion that she would have won a favorable award from the IRS on her whistleblower
claim. Plaintiff also challenges as insufficient, Ferara’s expert report because it at best
a violation of RPC 1.16(d) and not a cognizable claim. According to Stephen M.
Orlofsky, Plaintiff’s expert, the Rules of Professional Conduct do not provide an
independent basis for a cause of action and a violation of the RPCs do not, standing
alone, create a duty. Orlofsky contends that the absence of an RPC violation warrants
dismissal of the Counterclaim in its entirety.
Finally, Plaintiff argues that Ferara has not established that she suffered damages as
a result of the filing of the present collection case and the Counterclaim should be
dismissed on this alternative basis.
It is well established that a violation of a Rule of Professional Conduct does not
give rise to a cause of action. See Sommers v. McKinney, 287 N.J.Super. 1, 13, 670 A.2d
99 (App. Div. 1996) (“Violation of the rules of professional conduct do[es] not per se
give rise to a cause of action in tort.”). Likewise, a violation of a Rule does not in and of
itself “create any presumption that a legal duty has been breached.” Baxt v. Liloia, 155
N.J. 190, 197, 714 A.2d 271, 274–75 (1998).

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By this language, the ABA “intended to make clear that the purpose of the
Model Rules was to regulate lawyer conduct through the disciplinary
process, not to serve as a basis for civil liability.” See The Legislative
History of the Model Rules of Professional Conduct: Their Development in
the ABA House of Delegates 20 (1987).
See Model Rules of Professional Conduct, Scope (1992).
Here, Ferara does not argue that the firm’s negligence or malpractice was the
proximate cause of the failure to realize an award from the IRS. Ferara need not prove
“the case within the case” to the extent that her “malpractice” arguments are defenses to
Plaintiff’s claim for fees. The Court finds that the only potential malpractice claim here
relates to the disclosure of Defendant’s personal information when the Plaintiff filed suit
and exposed Ferara as a whistleblower. To the extent that other violations are plead, the
Court holds that consistent with New Jersey law, such claims are not independently
actionable in this Court, but may be advanced as a defense to quantum meruit.
Ferara also argues that Plaintiff committed procedural default by notifying her of
its intent to sue her for fees, and in that notice providing her with 30 days to request
arbitration, but then filing the present matter only nine days later. See Am. Compl., Ex.
4. New Jersey Court Rule 1:20A–6 provides:
No lawsuit to recover a fee may be filed until the expiration of the 30 day
period herein giving Pre–Action Notice to a client.... The attorney's
complaint shall allege the giving of the notice required by this rule or it
shall be dismissed.

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In Mateo v. Mateo, 281 N.J. Super. 73, 80, 656 A.2d 846, 850 (App. Div. 1995),
the New Jersey Appellate Division held that failure to comply with Rule 1:20A-6 must
result in dismissal of the claim for fees.
“Dismissal is now an express requirement of R. 1:20A-6, but it has always
been a requirement of sound policy in regulating the practice of law. There
is no sense in requiring an attorney to inform a client that litigation over a
fee dispute may be avoided by bringing the matter before the Fee
Committee, yet binding the client to a judgment in such litigation where
the attorney failed to give the required notice.”
Mateo, 281 N.J. Super. at 80, 656 A.2d at 850.
Here, notice was given, but Plaintiff filed the present action before the expiration
of the 30 day period. Since Mateo, strict compliance with the Rule has been upheld and
cases that fail to provide the Pre-Action Notice have been summarily dismissed. See e.g.,
Cole, Schotz, Bernstein, Meisel & Forman, P.A. v. Owens, 292 N.J. Super. 453, 459, 679
A.2d 155, 158 (App. Div. 1996) (“The failure to give the notice requires dismissal of the
motion”); Schepisi & McLaughlin, P.A. v. LoFaro, 430 N.J. Super. 347, 357, 64 A.3d 592,
598 (App. Div. 2013) (“The Pre–Action Notice requirement applies to a petition to
establish an attorney's lien as well as to a complaint for attorney's fees. New Jersey law
is clear that in the absence of compliance with the Rule, such a petition must be
dismissed.) (citations omitted). Plaintiff argues that it complied with the Rule by filing
the Pre-Action Notice and that it did not impede Ferara’s rights by not waiting until
after the expiration of the 30-day period to file the present action because Ferara never
intended to pay the fees. Plaintiff’s argument, while predicated upon speculation
regarding Ferara’s intent to pay, is not without merit.
The Court finds that Ferara’s rights were not impeded by the premature filing of
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the present matter. Ferara was properly notified of Plaintiff’s intent to collect fees and
was free to invoke arbitration under the Pre-Action Notice, despite the premature filing
of this action. Summary judgment is denied as to the claim of procedural default.
Summary judgment is also denied as to Ferara’s claims of damages. There are
questions of fact related to the damages associated with Ferara’s claim of malpractice,
damage to reputation, expenses in prosecuting her counterclaims, and defamation.
Under New Jersey law, “the right to recover damages in an action premised upon libel
without proof of harm remains the law in this jurisdiction.” W.J.A. v. D.A., 416 N.J.
Super. 380, 387 (2010). In addition, Ferara’s claims that she is damaged are subject to
credibility determinations.
Summary judgment is also denied as to Ferara’s claim of Equitable Fraud as
related to attorney Orlow’s suspension because there are questions of fact related to
whether Orlow was lead counsel, whether Orlow ever communicated with Ferara during
his suspension, and whether Plaintiff’s failure to inform Ferara of the suspension
constitutes fraudulent concealment.
Ferara relies on New Jersey Court Rule 1:20-20(b) (13) to disqualify Orlow’s
entitlement to fees in this case. In relevant part, the Rule provides:
(b) Notice to Clients, Adverse Parties and Others. An attorney who is
suspended ... or disbarred ...:
....
shall not share in any fee for legal services performed by any other
attorney following the disciplined or former attorney's prohibition from
practice, but may be compensated for the reasonable value of services
rendered ... prior to the effective date of the prohibition, provided the
attorney has fully complied with the provisions of this rule and has filed
the required affidavit of compliance under subparagraph (b)(15).... If an
attorney-trustee has been appointed under R. 1:20-19, all fees for legal
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services and other compensation due the attorney shall be paid solely to
the attorney-trustee for disbursement as directed by the court in
accordance with the provisions of that rule. Compensation shall include
any monies or other thing of value paid for legal services due or that is
related to any agreement, sale, assignment or transfer of any aspect of the
attorney's share of a law firm[.]
See Eichen, Levinson & Crutchlow, LLP v. Weiner, 397 N.J. Super. 588, 593–94, 938
A.2d 947, 950 (App. Div. 2008) (citing R. 1:20-20(b)(13)(emphasis added)).
Rule 1:20-20(b) (13) prohibits a suspended or disbarred attorney from sharing in
any legal fee earned by any other attorney during the suspension or disbarment. Here,
there is a dispute in the record related to whether Attorney Orlow performed services on
behalf of Ferara during his suspension and whether or not he was the lead attorney on
the case. Given the questions of fact related to the nature of attorney Orlow’s services in
relation to Ferara’s Whistleblower claim, summary judgment is denied as to Count II of
the Counterclaim.
Finally, with respect to the entirety of the counterclaim, Plaintiff argues that the
litigation privilege immunizes it from liability. The litigation privilege insures that
“[s]tatements by attorneys, parties and their representatives made in the course of
judicial or quasi-judicial proceedings are absolutely privileged and immune from
liability.” Peterson v. Ballard, 292 N.J.Super. 575, 679 A.2d 657, 659 (N.J. Super. Ct.
App. Div. 1996) (citing Erickson v. Marsh & McLennan Co., Inc., 117 N.J. 539, 569 A.2d
793 (1990)). Courts broadly construe the privilege, applying it to not only statements
made in the course of litigation but also to statements made outside of the courtroom.
Rickenbach v. Wells Fargo Bank, N.A., 635 F. Supp. 2d 389, 401–02 (D.N.J. 2009)

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(citations omitted).
Application of the privilege is a question of law. Peterson, 679 A.2d at 664. To
determine whether the privilege applies, courts consider:
any communication (1) made in judicial or quasi-judicial proceedings; (2)
by litigants or other participants authorized by law; (3) to achieve the
objects of the litigation; and (4) that have some connection or logical
relation to the action.
Rickenbach, 635 F. Supp. 2d at 401–02 (citing Hawkins v. Harris, 141 N.J. 207, 661
A.2d 284, 289 (1995)).
The contours of the privilege are not absolute. For example, the privilege may
apply in tort and defamation claims, but becomes less certain in malpractice actions.
See e.g. Loigman v. Twp. Comm. of Twp. of Middletown, 185 N.J. 566, 583, 889 A.2d
426, 436 (2006) (“In New Jersey, the litigation privilege protects attorneys not only
from defamation actions, but also from a host of other tort-related claims.”); Rabinowitz
v. Wahrenberger, 406 N.J. Super. 126, 966 A.2d 1091 (N.J. Super. Ct. App. Div. 2009)
(privilege upheld in case involving intentional and negligent infliction of emotional
distress); Commercial Ins. Co. of Newark v. Steiger, 395 N.J. Super. 109, 928 A.2d 126
(2007) (material misrepresentation); Ruberton v. Gabage, 280 N.J. Super. 125, 654
A.2d 1002 (1995) (and negligent misrepresentation, fraud, and malicious interference
with prospective economic advantage).
In Buchanan v. Leonard, the New Jersey Appellate Division noted the absence of
precedent for application of the privilege in malpractice actions. “Our courts have not
specifically addressed the question of whether the litigation privilege protects an
attorney from claims by his client.” Buchanan v. Leonard, 428 N.J. Super. 277, 286, 52

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A.3d 1064, 1069 (App. Div. 2012). The Appellate Division, drawing on Supreme Court
precedent, held that that the litigation privilege does not protect an attorney from a
malpractice claim when, as in this case, there are allegations that an attorney acted in
contrast to the Rules of Professional Conduct. Id. (“It therefore follows that the litigation
privilege does not protect an attorney from a claim by his or her client based upon
statements the attorney made in the course of a judicial proceeding where, as in this
case, it is alleged that the attorney breached his duty to the client by failing to adhere to
accepted standards of legal practice.”) (citing Hawkins v. Harris, 141 N.J. 207, 215, 661
A.2d 284 (1995) (Stating that the court is “committed to assuring that attorneys comply
with accepted professional standards.”)
Given the allegations here, the litigation privilege does not apply. Summary
judgment is denied.
VI.

Conclusion

For the reasons stated herein, summary judgment is granted in favor of
Defendant Ferara as to Counts I, II, and III of the Amended Complaint and denied as to
Count IV. Summary judgment is denied as to Plaintiff’s claim for a constructive trust
and declaratory judgment. Summary judgment is denied as to each claim in the
counterclaim.
An appropriate Order shall issue.
Dated: December 8, 2016
s/ Joseph H. Rodriguez
HON. JOSEPH H. RODRIGUEZ,
United States District Judge
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