Judd Burstein, P.C. V Raymond A. Long
Filing
129
OPINION AND ORDER. Defendants' motion to dismiss is GRANTED in part and DENIED in part. Burstein is hereby directed to file an Answer to the TAAC by October 19, 2018. In addition, both parties are to submit a joint letter to the Court on or b efore October 19, 2018, addressing the issue of what, if any, additional discovery is required in light of the Court's Opinion. The Clerk of Court is directed to terminate the motion at Docket Entry 93. SO ORDERED., (Judd Burstein answer due 10/19/2018; Judd Burstein, P.C. answer due 10/19/2018.) (Signed by Judge Katherine Polk Failla on 9/20/18) (yv)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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JUDD BURSTEIN, P.C.,
:
Plaintiff,
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v.
:
:
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RAYMOND A. LONG, M.D.,
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Defendant. :
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RAYMOND A. LONG, M.D.,
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Counterclaimant, :
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v.
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JUDD BURSTEIN, P.C., and JUDD
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BURSTEIN, individually,
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Counter-Defendants. :
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15 Civ. 5295 (KPF)
OPINION AND ORDER
KATHERINE POLK FAILLA, District Judge:
The instant matter addresses the latest pleading in a longstanding fee
dispute between, on one side, Raymond A. Long (“Long”), and, on the other
side, his former counsel, Judd Burstein, P.C., and its principal, Judd Burstein
(collectively, “Burstein”). Since the breakdown of this attorney-client
relationship, each side has filed claims alleging the other’s breach of their
obligations under a Retainer Agreement entered into on May 14, 2013.
Burstein drew blood first, initiating this action to recover attorneys’ fees from
Long. Long then responded by counterclaiming for breach of contract,
professional malpractice, and breach of fiduciary duty.
In an Opinion and Order dated August 16, 2017, the Court granted
Burstein’s motion to dismiss Long’s counterclaims, while permitting Long to file
an amended pleading. See Burstein v. Long, No. 15 Civ. 5295 (KPF), 2017 WL
3535004 (S.D.N.Y. Aug. 16, 2017) (“Burstein II”).1 Long filed a Third Amended
Answer and Counterclaims (“TAAC”) on October 17, 2017, and Burstein moved
to dismiss it on January 6, 2018. For the reasons that follow, Burstein’s
motion is granted in part and denied in part.
BACKGROUND2
A.
Factual Background
The Court assumes familiarity with its prior Opinion in this matter, see
generally Burstein II, and only briefly recites the facts relevant to the instant
motion. Long practiced as an orthopedic surgeon at Northwestern Medical
1
An earlier decision in the case had issued on April 18, 2016. See Judd Burstein, P.C. v.
Long, 180 F. Supp. 3d 308 (S.D.N.Y. 2016) (“Burstein I”).
2
This Opinion draws on facts from the Third Amended Answer and Counterclaims
(“TAAC” (Dkt. #83)), the well-pleaded facts of which are taken as true for purposes of
this motion. See Natural Res. Def. Council v. Johnson, 461 F.3d 164, 171 (2d Cir.
2006); see also Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). The Court also draws on
facts pled in the Complaint (“Compl.” (Dkt. #1)), and the Agreement attached thereto as
Exhibit A. The Court may consider the Complaint and Agreement because the TAAC
incorporates them by reference. See, e.g., Goel v. Bunge, Ltd., 820 F.3d 554, 559 (2d
Cir. 2016) (finding that district courts may consider “documents appended to the
complaint or incorporated in the complaint by reference” when assessing the sufficiency
of a pleading); Chambers v. Time Warner, Inc., 282 F.3d 147, 152-53 (2d Cir. 2002)
(holding that documents that may be considered in determining a motion to dismiss are
those that are “integral” to the claims alleged even if not incorporated in the complaint
by reference). For ease of reference, Burstein’s moving brief is referred to as “Pl. Br.”
(Dkt. #93); Long’s brief in opposition as “Def. Opp.” (Dkt. #102); and Burstein’s reply as
“Pl. Reply” (Dkt. #108).
2
Center (“NMC”), from September 2001 until April 2004. (TAAC ¶ 34). In 2003,
five of Long’s patients developed infections. (Id. at ¶ 35). Long alleges that
these infections were caused by hospital personnel who “intentionally
contaminated [operating room supplies] with life threatening bacteria[.]” (Id.).
NMC did not immediately investigate the cause of the infections, instead
demanding that Long undergo psychiatric evaluation. (Id. at ¶ 43). Long
resigned, following which NMC “filed an Adverse Action Report” stating that
“Long resigned under an investigation into his medical competence.” (Id. at
¶ 44). NMC did not implement any new procedures to prevent hospital
personnel from intentionally contaminating operating room supplies in the
future. (Id. at ¶ 131). Subsequent investigations identified Long’s own use of
antiseptic techniques during surgery, and a broken air hose in the sterilization
system, as possible sources of the infections. (Id. at ¶¶ 133, 143).
On May 14, 2013, Burstein and Long executed a Retainer Agreement (the
“Agreement”) in which, in relevant part, Burstein agreed to represent Long in
two legal matters. One was a legal malpractice suit against one of Long’s
former attorneys (the “Parry Action”), which arose from that former attorney’s
representation of Long in a defamation suit against NMC (the “Triad Action”).
(Compl., Ex. A, § A; TAAC ¶¶ 25-29). The other was a potential qui tam suit
against NMC for allegedly filing fraudulent Medicare and Medicaid claims in
violation of the False Claims Act, 31 U.S.C. §§ 3729-3733 (the “Qui Tam
Action”). Pursuant to the Agreement, Long paid Burstein a flat fee of $300,000
for certain litigation services, including “all work required for discovery, pretrial
3
proceedings, trial or appeals” in the Parry Action. (Compl., Ex. A, § B ¶ 1;
TAAC ¶¶ 16, 27). Burstein agreed to represent Long in the Qui Tam Action “in
return for a pure contingency fee[.]” (Compl., Ex. A, § D ¶ 1; TAAC ¶ 28). For
both legal matters, the Agreement included “exculpatory clauses” that
provided:
If [Long] were to discharge [Burstein] as [his] attorneys
before completion of the [action] and after it has started,
or if [Burstein] were to secure a court order permitting
it to withdraw its representation of [Long], a fair and
reasonable fee would be determined in accordance with
legally accepted standards.
(Compl., Ex. A, § B ¶ 3, § D ¶ 2).
B.
Procedural Background
Burstein initiated this action by filing a Complaint on July 8, 2015,
seeking to recover unpaid attorneys’ fees from Long. (Dkt. #1). Long filed an
amended Answer with Counterclaims against Burstein on September 22, 2016,
alleging breach of contract, professional malpractice, and breach of fiduciary
duty (Dkt. #38), and filed a corrected version of the same pleading the next day
(Dkt. #40). Long filed a Second Amended Answer with Counterclaims (“SAAC”)
on December 16, 2016. (Dkt. #52). Burstein moved to dismiss the SAAC
counterclaims on January 30, 2017. (Dkt. #53-55). The Court granted
Burstein’s motion to dismiss and also granted Long leave to file another
amended pleading. See Burstein II, 2017 WL 3535004, at *1.
On October 17, 2017, Long filed his Third Amended Answer and
Counterclaims (“TAAC”). (Dkt. #83). Burstein moved to dismiss the TAAC
counterclaims on January 6, 2018. (Dkt. #93). Long filed his opposition to
4
that motion on March 3, 2018 (Dkt. #100), and filed an amended version of the
same opposition two days later (Dkt. #102). Burstein filed a reply in support of
its motion on March 26, 2018. (Dkt. #108).
On September 20, 2018, the Court filed an unredacted copy of this
Opinion under seal. On that same day, the Court provided the parties with a
copy of the unredacted Opinion and allowed the parties to propose redactions.
Pursuant to the Court’s directions, the parties will file their materials publicly
by October 12, 2018, with certain limited categories of information redacted in
accordance with Lugosch v. Pyramid Co. of Onondaga, 435 F.3d 110 (2d Cir.
2006). On that date, the parties will also file a joint letter suggesting
redactions to the Opinion. Taking the parties’ suggestions into consideration,
the Court will then file the redacted Opinion publicly. The Court now considers
the pending motion to dismiss.
DISCUSSION
A.
Motions to Dismiss Under Federal Rule of Civil Procedure 12(b)(6)
A court evaluates a motion to dismiss a counterclaim under Federal Rule
of Civil Procedure 12(b)(6) using the same standard as a motion to dismiss a
complaint. A.V.E.L.A., Inc. v. Estate of Marilyn Monroe, 131 F. Supp. 3d 196,
203 (S.D.N.Y. 2015) (internal citations omitted). When considering a motion to
dismiss under Rule 12(b)(6), the court must “draw all reasonable inferences in
[the non-movant’s] favor, assume all well-pleaded factual allegations to be true,
and determine whether they plausibly give rise to an entitlement to relief.”
Faber v. Metro. Life Ins. Co., 648 F.3d 98, 104 (2d Cir. 2011) (internal citations
5
and quotation marks omitted). A counterclaimant prevails on a motion to
dismiss if the counterclaim “contain[s] sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)).
B.
Long’s Counterclaims Are Dismissed in Part
1.
Long’s Breach of Contract Counterclaim Is Dismissed in Part
a.
Applicable Law
A plaintiff states a claim for breach of contract under New York law by
alleging “[i] the formation of a contract between the parties; [ii] performance by
the plaintiff; [iii] failure of defendant to perform; and [iv] damages.” Orchard
Hill Master Fund Ltd. v. SBA Commc’ns Corp., 830 F.3d 152, 156 (2d Cir. 2016)
(internal quotation marks omitted) (quoting Orlander v. Staples, Inc., 802 F.3d
289, 294 (2d Cir. 2015)).3 A plaintiff who can satisfy the first three elements
may pursue “two distinct categories of damages: [i] general or market damages;
and [ii] special or consequential damages.” Rensselaer Polytechnic Inst. v.
Varian, Inc., 340 F. App’x 747, 750 (2d Cir. 2009) (summary order) (quoting
Schonfeld v. Hilliard, 218 F.3d 164, 175 (2d Cir. 2000)). General damages
represent “the natural and probable consequences of the breach of contract,”
whereas consequential damages “do not directly flow from the breach[.]”
Biotronik A.G. v. Conor Medsystems Ir., Ltd., 22 N.Y.3d 799, 805 (2014)
3
New York law governs this dispute, per the choice-of-law provision in the Agreement.
(See Compl., Ex. A, § E ¶ 3).
6
(internal quotation marks omitted). Consequential damages are recoverable
only when they are either “reasonably foresee[able]” or “within the
contemplation of the parties as the probable result of a breach at the time of or
prior to contracting.” Kenford Co., Inc. v. Cty. of Erie, 73 N.Y.2d 312, 319, 321
(1989).
b.
Discussion
Burstein has moved to dismiss Long’s breach of contract counterclaim
solely “to the extent it seeks consequential damages for legal services rendered
by successor attorneys,” and not to the extent that it “seeks the return of the
$300,000” retainer fee. (Pl. Br. 1, 4 n.4). As explained in the Court’s prior
Opinion, the SAAC failed to state a claim for breach of contract because: it
sought, as damages, legal fees for successor attorneys in the Parry and Qui
Tam Actions; those fees were “special or consequential damages” that did not
flow directly from Burstein’s alleged breach of the Agreement and were “too
speculative to be foreseeable”; and the SAAC did not allege that the parties
contemplated such fees as a measure of damages at the time of contracting.
Burstein II, 2017 WL 3535004, at *4-6 (quoting Biotronik A.G., 22 N.Y.3d at
805).
Long’s TAAC again seeks, as damages, legal fees for successor attorneys
in the Parry and Qui Tam Actions. (TAAC ¶¶ 104, 108). Burstein contends
that, in doing so, the TAAC once again fails to state a claim for consequential
damages arising from Burstein’s alleged breach of the Agreement. (Pl. Br. 4-6).
The Court agrees. The TAAC alleges no new facts suggesting that such
7
damages were reasonably foreseeable.4 Nor does the TAAC allege any new facts
suggesting that, at the time of contracting, the parties contemplated damages
in the form of such fees for the Parry Action. (TAAC ¶ 104). Regarding the Qui
Tam Action, the TAAC merely adds the conclusory statement that the “parties
contemplated that in the event [of a breach] … Long would be damaged by
having to hire other attorneys to perform the services the Burstein Firm had
agreed to perform with respect to the Qui Tam Action.” (Id. at ¶ 105).
“Threadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice” to defeat a motion to dismiss. Iqbal, 556
U.S. at 678. Accordingly, to the extent that the TAAC seeks recovery of cover
legal fees for successor attorneys in the Parry and Qui Tam Actions, it fails to
correct the inadequacies of Long’s prior pleading and thus fails to state a claim
for breach of contract for substantially the reasons given in the Court’s prior
Opinion. See Burstein II, 2017 WL 3535004, at *4-6.
Long’s arguments in opposition do not persuade. Rather than
supplement the factual allegations in the TAAC, Long’s opposition
memorandum merely repeats a view that Long previously presented to the
Court: namely, that the plain language of the Agreement manifests the parties’
intent to include successor attorneys’ fees as damages. (Def. Opp. 4, 7). In
4
Long’s memorandum in opposition makes the conclusory assertion that he was
compelled to pay such fees “as a direct and foreseeable result,” appearing to imply that
the fees were recoverable, general damages. (Def. Opp. 9). The Court will not consider
allegations made in the memorandum but not in the TAAC. See Burstein v. Long,
No. 15 Civ. 5295 (KPF), 2017 WL 3535004, at *9 n.8 (S.D.N.Y. Aug. 16, 2017). In any
event, conclusory assertions, without more, do not suffice to defeat a motion to dismiss.
See Iqbal, 556 U.S. at 678.
8
support of this position, Long reads the Agreement’s provision that the
$300,000 fee covers “all work required” for litigation in the Parry Action to
imply that, in the event of Burstein’s breach, Burstein “would bear the sole
responsibility for any fees incurred above $300,000.” Id.5 The Court already
rejected this argument when it held that the Agreement “contains solid
evidence of the parties’ view of appropriate damages at the time the contract
was entered: If Burstein withdrew by court order — which he did — the
contract’s exculpatory clause provides for a ‘fair and reasonable fee … [to] be
determined in accordance with legally accepted standards.’” Burstein II, 2017
WL 3535004, at *5 (quoting Compl., Ex. A, § B ¶ 3).
Long also contends that the Retainer Agreement affirmatively obligated
Burstein to represent him in the Qui Tam Action for a pure contingency fee,
and thus that Burstein’s breach deprived him “of his right to be represented for
no out-of-pocket fees[.]” (Def. Opp. 9). The Court previously addressed this
argument as well, finding it to be a “close call.” Burstein II, 2017 WL 3535004,
at *6. Burstein does not make it less so by arguing now that when Long
retained it for the Qui Tam Action, “the only thing Long gave up in return was
the right to retain a different attorney to bring the action[.]” (Pl. Br. 6). The
Court agrees with Long that this position lacks merit; it would have been an
5
In a footnote to his opposition memorandum, Long promises to “provide evidence in
discovery and at trial … that Burstein assured him that he would not have to pay any
more than $300,000 to prosecute the actions unless he fired Burstein or Burstein
legitimately withdrew as counsel.” (Def. Opp. 6 n.3). The TAAC contains no mention of
this conversation, so the Court will not consider it in evaluating Burstein’s motion to
dismiss. See Burstein II, 2017 WL 3535004, at *9 n.8.
9
odd contract indeed for Long to pay Burstein and, in return, given up Long’s
own right to anything. (See Def. Opp. 8). Ultimately, however, the TAAC is
doomed by Long’s omission of any new factual allegations. Without new
factual allegations, Long cannot alter the Court’s prior determination that
damages in the form of legal fees for successor attorneys in the Parry and Qui
Tam Actions did not flow directly from Burstein’s breach and were too
speculative to be foreseeable, and that Long did “not adequately plead any facts
showing that the parties contemplated” such fees as damages when entering
into the Agreement. Burstein II, 2017 WL 3535004, at *6. Accordingly,
Burstein’s motion to dismiss Long’s counterclaim for breach of contract is
granted insofar as Long seeks damages in the form of legal fees for successor
attorneys in the Parry or Qui Tam Actions.
The Court observes that the TAAC now seeks recovery of “the full amount
of the $300,000 payment made to the Burstein Firm.” (TAAC ¶ 109). As
mentioned above, Burstein has not moved to dismiss this aspect of Long’s
counterclaim. (Pl. Br. 4 n.4; Def. Opp. 9 n.5). Therefore, Long’s counterclaim
for breach of contract survives insofar as it seeks recovery of the $300,000
retainer fee.
2.
Long’s Counterclaims for Legal Malpractice in the Parry and
Qui Tam Actions Are Dismissed
a.
Applicable Law
To prevail on a legal malpractice claim under New York law, a plaintiff
must show “[i] that the attorney was negligent, [ii] that the negligence was a
proximate cause of the injury [iii] and that [the plaintiff] suffered actual and
10
ascertainable damages.” Rubens v. Mason, 527 F.3d 252, 254-55 (2d Cir.
2008) (internal quotation marks and citation omitted). A plaintiff must prove
proximate cause through a “case within a case,” such that “a reasonable factfinder in the present case could conclude that a reasonable fact-finder in the
underlying suit would have arrived at a different result but for the attorney’s
negligence.” Riker v. Premier Cap., LLC, No. 15 Civ. 8293 (ALC), 2016 WL
5334980, at *9 (S.D.N.Y. Sept. 22, 2016) (internal citation and quotation marks
omitted).
b.
Discussion
i.
The Parry Action
Long first alleges legal malpractice by Burstein in the Parry Action.
(TAAC ¶¶ 113-17). The Court’s prior Opinion held that the SAAC failed to
provide notice of, and failed plausibly to allege facts supporting, any non-FCA
malpractice claims. See Burstein II, 2017 WL 3535004, at *8. In response, the
TAAC adds new allegations that: (i) Burstein “complete[ly] disregard[ed] [] the
Parry Action for over two years,” thereby causing Parry’s counsel to conclude
that Long “had lost the will or the financial ability to proceed” and that Long’s
attorney Burstein “did not believe in the merits of the case”; (ii) several months
prior to Burstein’s engagement, Parry’s counsel had “indicated that [Parry]
would consider a mediation,” which mediation did not ultimately occur; and
(iii) Parry had failed to develop “smoking gun” evidence. (TAAC ¶¶ 113-15). In
short, Long contends that Burstein’s “complete neglect of, lack of any advocacy
11
in, and pretextual withdrawal from, [the Parry Action] … destroyed the concrete
opportunity of Dr. Long to settle the case for $2 million.” (Def. Opp. 10).
These additional allegations do not repair the defects in Long’s prior
pleading. To start, the TAAC still does not plead sufficient facts to show that
Burstein’s legal representation of Long in the Parry Action was negligent. Long
has not plausibly alleged that Burstein completely disregarded the Parry Action
for more than two years; according to the TAAC itself, after being retained to
work on the matter in May 2013, Burstein filed an amended complaint,
successfully litigated a motion to dismiss, and began work on discovery, all
before obtaining court permission to withdraw from representation in July
2015. (TAAC ¶¶ 50-57). The TAAC’s remaining new allegations address
deficient conduct by Parry, not by Burstein. (Id. at ¶¶ 115-17 (alleging that
Parry had failed to develop “available smoking gun evidence” in the earlier
defamation suit against NMC, and that “Parry would have been willing to settle
the Parry Action”)).
It is more difficult to determine whether the TAAC adequately pleads that
Burstein’s conduct proximately injured Long in the Parry Action, which here
means that a reasonable fact-finder “could conclude that a reasonable factfinder in the [Parry Action] would have arrived at a different result but for
[Burstein’s] negligence.” Riker, 2016 WL 5334980, at *9. Following Burstein’s
withdrawal, Long retained new counsel and then lost the suit on summary
judgment. Long v. Parry, 679 F. App’x 60, 63 (2d Cir. 2017) (summary order);
see also Long v. Parry, No. 12 Civ. 81 (WKS), 2016 WL 814861 (D. Vt. Feb. 29,
12
2016). The parties dispute here whether the grant of summary judgment
evinces that the Parry Action suffered from Burstein’s conduct or that the
action was nonviable from the get-go. (Pl. Br. 8-9; Def. Opp. 12-13). The
parties also dispute whether the substitution of new counsel broke the causal
chain between Burstein’s conduct and any lost settlement value. (Id.). The
Court need not resolve these disputes because even if the Parry Action were
once viable, and even if the chain of causation survived the substitution of
counsel, these determinations would not save the TAAC: The TAAC fails
adequately to plead that the Parry Action would have differed “but for
[Burstein’s] negligence” because, as stated above, the TAAC fails to allege that
any of Burstein’s conduct was negligent. Riker, 2016 WL 5334980, at *9
(emphasis added).
As a separate deficiency, Long pleads damages that are purely
speculative, in the form of the wished-for settlement award. Cf. Burstein II,
2017 WL 3535004, at *5. The TAAC’s allegations that counsel for Parry at one
point indicated that Parry would consider mediation, and that the mediation
never occurred, are not enough to make the leap from speculative damages to
actual and ascertainable damages. (TAAC ¶ 114; Def. Opp. 13-14).6 As a
result, the Court agrees with Burstein that the TAAC fails to allege damages in
the Parry Action that are either actual or ascertainable. (See Pl. Br. 7-8).
6
The Court agrees with Burstein that the “wrongdoer” rule, which shifts the burden of
establishing the amount of damages in cases where the existence of at least some
damages is certain, does not apply here because the TAAC fails to plead the existence of
certain damages. (Pl. Br. 9; TAAC ¶ 117). See also Schonfeld v. Hilliard, 218 F.3d 164,
175 (2d Cir. 2000).
13
ii.
The Qui Tam Action
Long also alleges legal malpractice by Burstein in the Qui Tam Action,
which, as mentioned, was a potential FCA claim against NMC for allegedly
filing fraudulent certifications for Medicare and Medicaid enrollment.
According to the TAAC, Burstein committed to filing the Qui Tam Action, told
Long not to retain a different attorney for that purpose, and then sat on the
case doing next to nothing until the claims were rendered untimely. (TAAC
¶¶ 62-69; Def. Opp. 10-11). Based on this conduct, the Court finds, and the
parties do not dispute, that Long has plausibly alleged the first element of a
legal malpractice claim: that Burstein’s legal representation in the Qui Tam
Action was negligent. However, this determination does not end the Court’s
inquiry.
To determine whether the TAAC satisfies the “case within a case”
requirement, the Court must evaluate whether the underlying allegations in the
potential Qui Tam Action would have been sufficient to state a claim under the
FCA. The FCA permits a qui tam relator to bring a claim against an entity that
“‘knowingly presents … a false or fraudulent claim for payment or approval to
the Federal Government.’” State Farm Fire & Cas. Co. v. U.S. ex rel. Rigsby, 137
S. Ct. 436, 440 (2016) (quoting 31 U.S.C. § 3729). In addition to the standard
pleading requirements set forth in Iqbal, 556 U.S. at 678, and Twombly, 550
U.S. at 570, Federal Rule of Civil Procedure 9(b) imposes a further, heightened
pleading standard on qui tam relators that generally requires the party alleging
fraud to “[i] specify the statements that the plaintiff contends were fraudulent,
14
[ii] identify the speaker, [iii] state where and when the statements were made,
and [iv] explain why the statements were fraudulent.” United States ex rel.
Chorches for Bankr. Estate of Fabula v. Am. Med. Response, Inc., 865 F.3d 71,
81 (2d Cir. 2017) (internal citations and quotation marks omitted). “Where
pleading is permitted on information and belief in a complaint that alleges
fraud (and is therefore subject to Rule 9(b)), [the Second Circuit requires] that
the complaint adduce specific facts supporting a strong inference of fraud.” Id.
at 82 (internal citation and quotation marks omitted) (emphasis added). This
added requirement “serves to ‘provide a defendant with fair notice of a
plaintiff’s claim, to safeguard a defendant’s reputation from improvident
charges of wrongdoing, and to protect a defendant against the institution of a
strike suit.’” Rombach v. Chang, 355 F.3d 164, 171 (2d Cir. 2004) (quoting
O’Brien v. Nat’l Prop. Analysts Partners, 936 F.2d 674, 676 (2d Cir. 1991)).
The Court previously determined that the SAAC did “not plead sufficient
facts to show that [Long] could have prevailed in the Qui Tam Action had
Burstein upheld his contractual duty to prepare and litigate the claim.”
Burstein II, 2017 WL 3535004, at *8. The SAAC’s allegations that NMC was
filing “fraudulent Medicare and Medicaid claims” failed to meet the heightened
pleading standard under Rule 9(b) because Long offered no explanation for how
he arrived at his belief about NMC’s conduct, no explanation for how that belief
related to the alleged infections of his patients, and no additional facts to
bolster his claim. Id. at *6-7.
15
16
The public disclosure provision of the FCA was amended in 2010 to read
in relevant part:
The court shall dismiss an action or claim under this
section, unless opposed by the Government, if
substantially the same allegations or transactions as
alleged in the action or claim were publicly disclosed
[i] in a Federal criminal, civil, or administrative hearing
in which the Government or its agent is a party[.]
31 U.S.C. § 3730(e)(4)(A) (2010).7 Accordingly, at the time Burstein was
retained in May 2013, the public disclosure provision applied only if
7
Relying in part on the parties’ submissions, the Court’s prior Opinion mistakenly cited
U.S. ex rel. Kreindler & Kreindler v. United Techs. Corp., 985 F.2d 1148, 1157-58 (2d Cir.
1993), which construed a pre-2010 version of the FCA, without discussing the 2010
amendment. See Burstein II, 2017 WL 3535004, at *7 n.6. (See also Dkt. #55 at 20-21
n.8; Dkt. #58 at 20-21). Any errors caused by reliance on that citation are remedied in
this Opinion. The Court observes that Burstein’s opening memorandum in support of
its current motion presents an extended discussion of the pre-amendment version of
the FCA, along with pre-amendment case law, again without mentioning the 2010
amendment. (Pl. Br. 14-17). Not until Long’s opposition memorandum called the
amendment to the Court’s attention did Burstein acknowledge it in a footnote. (Def.
Opp. 21-23; Pl. Reply 7 n.8).
17
substantially the same allegations “were publicly disclosed through one of the
sources listed in the statute.” Ping Chen ex rel. U.S. v. EMSL Analytical, Inc.,
966 F. Supp. 2d 282, 296 (S.D.N.Y. 2013) (emphasis added) (internal citation
and quotation marks omitted) (emphasis added). Long asserts that he based
his post-2007 allegations in part on litigation documents from the Triad and
Parry Actions. (TAAC ¶ 132). As neither the Government nor its agent was a
party to the Triad or Parry Actions, the public disclosure provision of the FCA
would not have barred a qui tam claim based on discovery and filings in those
actions, at least as to Long’s allegation that NMC submitted a fraudulent
certification in September 2013.8
8
The 2010 amendment of the FCA withdrew “from triggering the public disclosure bar
allegations disclosed in state court lawsuits, or federal lawsuits in which the federal
government is not a party.” United States ex rel. JDJ & Assoc. LLP v. Natixis, No. 15 Civ.
5429 (PKC), 2017 WL 4357797, at *5 (S.D.N.Y. Sept. 29, 2017). As Long points out,
there is an unresolved issue in the Second Circuit as to which version applies to postamendment actions based on pre-amendment fraud. (Def. Opp. 22). However that
scenario is ultimately resolved, the legal ambiguity pertains solely to NMC’s alleged
September 2009 certification and would not have affected a qui tam action based on
NMC’s alleged certifications in September 2013.
18
Burstein also contends that the TAAC fails to state a claim of fraud by
implied certification because it does not allege any “specific representations
about the services for which [NMC] allegedly sought reimbursement,” or any
“noncompliance with material statutory, regulatory or contractual
requirements.” (Pl. Br. 18-19 (citing United States ex rel. Kolchinsky v. Moody’s
Corp, 238 F. Supp. 3d 550, 558 (S.D.N.Y. 2017))). The Court also disagrees.
And finally, Burstein maintains that the Qui Tam Action was barred by a
2008 release that Long signed as part of the settlement agreement in the Triad
19
Action. (Pl. Br. 11-14). The Court agrees with Long that the release was not
appended to, incorporated by reference, or integral to the TAAC. (Def.
Opp. 18). As such, the Court may not consider it in evaluating Burstein’s
motion to dismiss. See Goel v. Bunge, Ltd., 820 F.3d 554, 559 (2d Cir.
2016) (finding that district courts may consider “documents appended to the
complaint or incorporated in the complaint by reference” when assessing the
sufficiency of a pleading); Chambers v. Time Warner, Inc., 282 F.3d 147, 152-53
(2d Cir. 2002) (holding that documents that may be considered in determining
a motion to dismiss are those that are “integral” to the claims alleged even if
not incorporated in the complaint by reference). The TAAC makes no mention
of the release, and the Court finds nothing to suggest that Long “relied upon [it]
in framing” his counterclaims. Chambers, 282 F.3d at 153. Burstein points
out that district courts may consider documents beyond the pleadings where
the claimant apparently is attempting to omit “matters of which as pleaders
they had notice and which were integral to their claim — and that they
apparently most wanted to avoid[.]” L-7 Designs, Inc. v. Old Navy, LLC, 647
F.3d 419, 422 (2d Cir. 2011). But to fall under this exception, the document in
question must be one on which the pleading party “solely relies and which is
integral to the complaint[.]” Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d
42, 47 (2d Cir. 1991). That is not the case here, as the information included in
the release does not form the basis of any of Long’s counterclaims.
Ultimately, Burstein loses several battles but wins the war on this issue:
The Court finds that the TAAC fails to plead sufficient facts to show that Long
20
could have prevailed in the Qui Tam Action had Burstein prepared and litigated
the claim because, as Burstein correctly notes, it does not adequately plead
scienter. (See Pl. Br. 21). That is, the TAAC does not satisfy Rule 9(b)’s
heightened standard for pleading either promissory fraud or fraud by implied
certification because it fails to detail specific and plausible facts to support a
strong inference that NMC knew that any of its explanations for the infections
was inaccurate, and thus that any of its representations to the Government
was “false or fraudulent.” State Farm Fire & Cas. Co., 137 S. Ct. at 440.
The only
inference that can be drawn from these allegations is that NMC believed these
alternate explanations to be correct. Tellingly, Long has failed to plead any
specific facts to support a strong inference — or indeed an inference of any
kind — that NMC knew these alternate explanations (and hence its own
certifications) were false.
21
And, as a result, the TAAC fails plausibly to allege that “a reasonable
fact-finder in the present case could conclude that a reasonable fact-finder in
the [Qui Tam Action] would have arrived at a different result but for
[Burstein’s] negligence.” Riker, 2016 WL 5334980, at *9 (internal quotation
marks and citation omitted).
For all of these reasons, Burstein’s motion to dismiss Long’s malpractice
counterclaims concerning both the Parry and Qui Tam Actions is granted.
3.
Long’s Breach of Fiduciary Duty Counterclaim Is Dismissed in
Part
To establish a prima facie case for breach of fiduciary duty in New York,
a plaintiff must allege “(i) a duty; (ii) a knowing breach of the duty; and
(iii) damages resulting therefrom.” Johnson v. Nextel Commc'ns, Inc., 660 F.3d
131, 141 (2d Cir. 2011). “A lawyer breaches a fiduciary duty to the client when
the lawyer fails to repay the unearned retainer when the engagement ends.” In
re Dewey & Leboeuf LLP, 493 B.R. 421, 433 (Bankr. S.D.N.Y. 2013). The
Court’s prior Opinion held that the SAAC failed to make out a prima facie case
for breach of fiduciary duty because, while it alleged that Burstein had “act[ed]
in his own self-interest, ma[de] misstatements to the Parry Court, and fail[ed]
to modify” a protective order issued in the Triad Action, Long did not explain
why these actions “caused him to retain new counsel” and thus caused
9
22
damages in the form of cover legal fees for successor attorneys. Burstein II,
2017 WL 3535004, at *9. Nor was it evident from the face of the SAAC that
Long intended to claim that Burstein’s withdrawal from representation in the
Parry Action was itself a breach of fiduciary duty. Id.
The TAAC adds new allegations that Burstein breached his fiduciary duty
by: (i) failing to act in the Parry Action; and (ii) withdrawing from the
representation based on pretextual grounds. (TAAC ¶¶ 176-77, 181-85). Long
alleges that these breaches caused damages in the form of legal fees for
successor attorneys and a lost settlement award in the Parry Action. (Id. at
¶¶ 186-87, 189). Long also claims that, “as a faithless fiduciary, [Burstein] has
forfeited any right to any compensation for work performed by [Burstein] under
the Retainer Agreement, and therefore must return the $300,000 flat fee that
the Burstein Firm was paid.” (Id. at ¶ 191).
As explained above, Long has not plausibly alleged that Burstein failed to
act in the Parry Action; the TAAC itself documents that Burstein filed an
amended complaint, successfully litigated a motion to dismiss, and began work
on discovery, before obtaining court permission to withdraw from
representation. (TAAC ¶¶ 50-57). Long has also not plausibly alleged that
Burstein’s withdrawal was a knowing breach of fiduciary duty. United States
District Judge William K. Sessions of the District of Vermont granted Burstein’s
motion to withdraw on the basis that “the relationship between the Burstein
firm and Dr. Long has broken down. … [and] termination of the relationship
would be in the best interest of both.” Long v. Parry, No. 12 Civ. 81 (WKS),
23
2015 WL 13186215, at *1 (D. Vt. July 8, 2015) (internal citation and quotation
marks omitted). That Burstein may have had additional reasons to withdraw
does not rebut either the court’s finding that doing so was in the best interests
of the parties or Burstein’s good faith reliance on that finding. Therefore,
alleging that Burstein had ulterior motives for withdrawal does not state a
claim for breach of fiduciary duty.
However, the Court finds that the TAAC’s allegation that Burstein did not
earn the full $300,000 fee because all “services required to be provided under
the Retainer Agreement” were not fully performed may have merit. (TAAC
¶ 18). The TAAC alleges that Burstein withdrew from representation in the
Parry Action before performing “all work required for discovery, pretrial
proceedings, trial or appeals[.]” (Id., Ex. A, § B1 at ¶¶ 1-2). Obtaining court
permission to withdraw did not eliminate Burstein’s fiduciary duty “to repay
the unearned retainer when the engagement ends.” In re Dewey & Leboeuf
LLP, 493 B.R. at 433.
Burstein asserts that the damages for Long’s breach of fiduciary duty
counterclaim to recoup the unearned retainer are duplicative of those sought
on his breach of contract counterclaim. (Pl. Br. 24 n.7). But the specter of
double recovery, while a concern that may require redress at a later stage of
litigation, does not mean that the claims must be dismissed as duplicative. As
the Court’s prior Opinion explained, “the Retainer Agreement created a
relationship between Burstein and Long that was not only contractual, but also
fiduciary. And where a fiduciary duty exists independent from a contract …
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claims for breach of contract and breach of fiduciary duty that arise from the
same facts can stand together.” Burstein II, 2017 WL 3535004 at *9. At this
stage in the litigation, the TAAC adequately pleads that Burstein breached its
fiduciary duty by failing to return any portion of the $300,000 retainer
following withdrawal.
Burstein’s motion to dismiss Long’s breach of fiduciary duty
counterclaim is thus granted insofar as Long seeks damages in the form of
legal fees for successor attorneys and a lost settlement award in the Parry
Action, and denied insofar as Long seeks recovery of the unearned retainer.
CONCLUSION
For the reasons set forth above, Defendants’ motion to dismiss is
GRANTED in part and DENIED in part. Burstein is hereby directed to file an
Answer to the TAAC by October 19, 2018. In addition, both parties are to
submit a joint letter to the Court on or before October 19, 2018, addressing
the issue of what, if any, additional discovery is required in light of the Court’s
Opinion.
The Clerk of Court is directed to terminate the motion at Docket
Entry 93.
SO ORDERED.
Dated:
September 20, 2018
New York, New York
KATHERINE POLK FAILLA
United States District Judge
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