BEGELMAN & ORLOW, P.C. v. FERARA, No. 1:2012cv00329 - Document 95 (D.N.J. 2016)

Court Description: OPINION. Signed by Judge Joseph H. Rodriguez on 12/8/2016. (tf, )
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BEGELMAN & ORLOW, P.C. v. FERARA Doc. 95 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW J ERSEY BEGELMAN & ORLOW, P.C. : : v. KRISTY L. FERARA Defendant. Civil Action No. 12-329 : : Plaintiff, Hon. J oseph H. Rodriguez Op in io n : These m atters com e before the Court on Defendant Kristy Ferara’s Motion for Sum m ary J udgm ent [72], Plaintiff Begelm an & Orlow’s Motion for Sum m ary J udgm ent on the Counterclaim [74], and Plaintiff Begelm an & Orlow’s Motion for Partial Sum m ary J udgm ent and for Issuance of a Constructive Trust [76]. The Court has considered the written subm ission of the parties and the argum ents advanced at the hearing on Septem ber 11, 20 14. For the reasons expressed on the record during the hearing and those that follow, Defendant’s Motion for Sum m ary J udgm ent [72] is denied in part and granted is part, Plaintiff’s Motion for Sum m ary J udgm ent on the Counterclaim [74] is granted in part and denied in part, and Plaintiff’s Motion for Partial Sum m ary J udgm ent and for Issuance of a Constructive Trust [76] is denied. I. Ge n e ral Backgro u n d 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 statem ent. 1 Dockets.Justia.com Plaintiff Begelm an & Orlow, as counsel representing Ferara during the whistleblower process, claim s it is entitled to a set percentage of the award under the term s of its retainer agreem ent with Defendant. Defendant claim s that Begelm an & Orlow is not entitled to a fee and she alleges in her counterclaim s that the firm com m itted legal m alpractice and equitable fraud. II. Factu al Backgro u n d In part, the following background is taken from the Court’s March 15, 20 12 Opinion. The facts according to Plaintiff’s Am ended Com plaint are as follows. Plaintiff and Defendant entered into a contingency fee agreem ent (“the Agreem ent”) on October 29, 20 0 7 for Plaintiff’s representation of Defendant in a claim under the whistleblower award provisions of 26 U.S.C. § 7623 (the “IRS m atter”). Am . Com pl. at ¶¶ 1, 7. Applicants m ay file for whistleblower awards where they report an alleged tax liability which exceeds $ 2 m illion. Id. at ¶ 13. Internal Revenue Manual 25.2.2-25.2.2.13.2 governs the process under which claim ants m ay seek such awards. In accordance with such procedures, Plaintiff filed on Defendant’s behalf IRS Form 211 on Novem ber 5, 20 0 7. Id. at ¶ 14. Part of the subm ission 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 m atter did not involve the filing of a lawsuit, and the subm ission to the IRS is filed in confidence. Id. at ¶ 13. Whistleblowers receive paym ent 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 sum s of 2 m oney. Am . Com pl. at ¶ 16. In August of 20 11, the IRS Office of Whistleblowers notified Plaintiff that the underlying tax case settled. Id. at ¶ 21. The IRS notified Plaintiff on or about Decem ber 10 , 20 11 that the award calculation and issuance of a Prelim inary Recom m endation award letter would occur within the next m onth. Id. at ¶ 22. According to Plaintiff, this Prelim inary Recom m endation would likely include the am ount 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 J anuary 9, 20 12 to discuss the Prelim inary Recom m endation; Defendant was notified that the teleconference would take place and that Plaintiff believed its purpose was to inform Plaintiff of the am ount of the award. Id. at ¶¶ 23, 25. On J anuary 9, 20 12, Defendant sent an em ail to Plaintiff, in which she stated that she had revoked Begelm an & Orlow’s Power of Attorney with the IRS and stated that she was term inating 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 . Com pl., 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 . Com pl., 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 3 written. Id. Plaintiff sent Defendant a letter dated J anuary 11, 20 12 asking Defendant to reconsider her actions and Defendant did not respond. Am . Com pl. at ¶ 28; Ex. 4. As a result of Defendant’s term ination of Plaintiff’s Power of Attorney and revocation of the contract, Plaintiff asserts that, due to the confidential nature of the m atter, it will be blocked from any knowledge of the Prelim inary Recom m endation, or from participating further in the process or having knowledge of any settlem ent or award. Am . Com pl. at ¶ 30 . According to the term s of the Agreem ent, Plaintiff’s fee for representing Defendant in the IRS m atter was to be 33 1/ 3% of the gross am ount of the award m inus costs. Id. at ¶ 36; Ex. 1 & 2. III. Pro ce d u ral H is to ry Plaintiff filed its Original Com plaint in this m atter on J anuary 18, 20 12, alleging claim s for breach of contract (Count I), conversion (Count II), unjust enrichm ent (Count III), and quantum m eruit (Count IV). In the m eantim e, 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 am ended com plaint properly pleading the citizenship of each party, and Plaintiff filed an Am ended Com plaint on February 2, 20 12, adding a claim seeking the form ation of a constructive trust (Count V). On J anuary 19, 20 12, Plaintiff filed a Motion for Prelim inary Injunction, Declaratory J udgm ent, and Attorney’s Fees Lien. [Docket Entry # 3.] Defendant, proceeding pro se at the tim e, filed an Answer to the Original Com plaint [Docket Entry # 10 ] and an Answer to the Am ended Com plaint [Docket Entry # 11] on February 6, 20 12. The Court denied 4 Plaintiff’s m otion for a prelim inary injunction. The present m otions for sum m ary judgm ent followed. The Court held a hearing on the m otions and directed the parties to file supplem ental briefs. In general term s, there is a dispute about whether Defendant has been com pensated by the IRS for her Whistleblower activities and whether she owes Plaintiff com pensation for its efforts on her behalf pursuant to the contingency fee agreem ent. 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 Begelm an entered into a contingency agreem ent in October 20 0 7. They entered into a subsequent contingency fee agreem ent in Novem ber 20 0 7. The Novem ber agreem ent cannot be located and has not been produced for consideration. Plaintiffs claim it is identical to the October agreem ent, although in deposition the exact term s of that agreem ent could not be recalled. Defendant adm its she entered into an agreem ent in Novem ber, but claim s that it is not a valid agreem ent because there is no writing. IV. Su m m ary Ju d gm e n t Stan d ard A court will grant a m otion for sum m ary judgm ent if there is no genuine issue of m aterial fact and if, viewing the facts in the light m ost favorable to the non-m oving party, the m oving party is entitled to judgm ent as a m atter of law. Pearson v. Com ponent Tech. Corp., 247 F.3d 471, 482 n.1 (3d Cir. 20 0 1) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322, 10 6 S. Ct. 2548, 91 L.Ed.2d 265 (1986)); accord Fed. R. Civ. P. 56 (c). Thus, this Court will enter sum m ary judgm ent only when “the pleadings, depositions, answers to interrogatories, and adm issions on file, together with the affidavits, if any, show that there 5 is no genuine issue as to any m aterial fact and that the m oving party is entitled to judgm ent as a m atter 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 nonm oving party’s favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 10 6 S. Ct. 250 5, 91 L.Ed.2d 20 2 (1986). A fact is “m aterial” if, under the governing substantive law, a dispute about the fact m ight affect the outcom e of the suit. Id. In determ ining whether a genuine issue of m aterial fact exists, the court m ust view the facts and all reasonable inferences drawn from those facts in the light m ost favorable to the nonm oving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 10 6 S. Ct. 1348, 89 L.Ed.2d 538 (1986). Initially, the m oving party has the burden of dem onstrating the absence of a genuine issue of m aterial fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 10 6 S. Ct. 2548, 91 L.Ed.2d 265 (1986). Once the m oving party has m et this burden, the nonm oving party m ust 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 m otion for sum m ary judgm ent, the nonm oving party m ust identify specific facts and affirm ative evidence that contradict those offered by the m oving party. Andersen, 477 U.S. at 25657. Indeed, the plain language of Rule 56(c) m andates the entry of sum m ary judgm ent, after adequate tim e for discovery and upon m otion, against a party who fails to m ake a showing sufficient to establish the existence of an elem ent 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. 6 In deciding the m erits of a party’s m otion for sum m ary judgm ent, the court’s role is not to evaluate the evidence and decide the truth of the m atter, but to determ ine whether there is a genuine issue for trial. Anderson, 477 U.S. at 249. Credibility determ inations 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. An alys is Both Defendant Ferara and Plaintiff Begelman & Orlow m ove for sum m ary judgm ent as to each count of the Am ended Com plaint. For the reasons that follow, Sum m ary judgm ent is granted in favor of Defendant Ferara as to Counts I, II, and III. Sum m ary judgm ent is denied as to Counts IV and V. A. [ 72 ] D e fe n d an t Kris ty Fe rara’s Mo tio n fo r Su m m ary Ju d gm e n t an d [ 76 ] Plain tiff Be ge lm an an d Orlo w ’s Mo tio n fo r Partial Su m m ary Ju d gm e n t an d D e clarato ry Ju d gm e n t Defendant Ferara m oves for sum m ary judgm ent as to each of Plaintiff’s claim s in the Am ended Com plaint. Ferara contends that sum m ary judgm ent is warranted as to the breach of contract claim and claim for quantum m eruit because Plaintiff cannot prove that Ferara has received an award. In addition, Ferara claim s that there is no valid contingency agreem ent between herself and Begelm an & Orlow, therefore the firm cannot recover under breach of contract. Ferara also claim s that New J ersey law does not perm it 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 sum m ary judgm ent is warranted as to the claim s for conversion, unjust enrichm ent, and constructive trust because these claim s fail as a m atter of law 7 where an attorney-client fee contract is in dispute. Counsel claim s that there is no authority to support recovery under these theories and that the only possible avenue is quantum m eruit. In the alternative, Ferara claim s that in the absence of an award, there so there is no property at issue to convert. Likewise, the unjust enrichm ent claim fails because there is no award. Finally, there is no wrongful act to warrant the im position of a constructive trust. 1. Plaintiff’s Claim s for Breach of Contract (Count I) and Quantum Meruit (Count IV) Sum m ary judgm ent is granted as to Count I in favor of Defendant and denied as to Count IV. As an initial m atter, the Court finds that the contingency fee agreem ent is valid. Under New J ersey law, a contingency fee agreem ent is not valid unless it com plies with RPC Rule 1.5(c), which requires that the agreem ent be in writing. Here, the initial agreem ent was entered into on October 29, 20 0 7. It is undisputed that a second written contingency fee agreem ent was entered into on Novem ber 7, 20 0 7 which concerned the sam e legal services. Begelm an and & Orlow cannot produce this agreem ent and, as a result, Ferara claim s that it is unenforceable pursuant to RPC 1.5(c). However, during oral argum ent, counsel for Ferara did not dispute that the written agreem ent of October 29, 20 0 7 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, 20 16. In addition, counsel for her 8 form er em ployer Novartis (against whom she blew the whistle) testified in an affidavit that there has been no award. However, given the confidentiality m andated 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 m ay 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, sum m ary judgm ent m ust be granted as to the breach of contract claim . During oral argum ent, Ferara seem ed to agree that Plaintiff’s claim s for quantum m eruit survive sum m ary judgm ent 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... m ust give way to the higher ethical and professional standards enunciated by our Suprem e 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 circum stances, a client m ay discharge an unwanted attorney with or without cause.” Glick v. Barclays De Zoete Wedd, Inc., 30 0 N.J . Super. 299, 30 910 , 692 A.2d 10 0 4, 10 0 9-10 (App. Div. 1997). “The client's right to term inate at will is not a breach of contract but a contract term im plied 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 J ersey Suprem e Court directs that a breach of contract claim is not the 9 m echanism for recovery where “[a]n attorney [is] hired on a contingent fee basis and [is] later discharged before com pletion of the services[.]” Id. Instead, Begelman & Orlow “m ay be entitled to recover on a quantum m eruit 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 m eruit is a quasi-contractual rem edy in which a contract is im plied-inlaw under a theory of unjust enrichm ent; the contract is one that is im plied in law, and not an actual contract at all.” Allegheny Gen. Hosp. v. Phillip Morris, 228 F.3d 429, 447 (3d Cir. 20 0 0 ) (internal quotations om itted). “To state a claim for recovery based on quantum m eruit, a plaintiff m ust establish four elem ents: (1) the perform ance of services in good faith; (2) the acceptance of the services by the person to whom they are rendered; (3) an expectation of com pensation therefore; and (4) the reasonable value of the services.” TBI Unlim ited, LLC v. Clearcut Lawn Decisions, LLC, 20 13 WL 1223643, *5 (D.N.J . Mar. 25, 20 13) (citing Starkey, Kelly, Blaney, & White v. Estate of Nicolaysen, 172 N.J . 60 , 68, 796 A.2d 238 (20 0 2)). 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 elem ents of quantum m eruit leave no room for sum m ary judgm ent. Sum m ary judgm ent is denied as Count IV, a claim for quantum m eruit. 2. Plaintiff’s Claim s for Conversion (Count II) and Unjust Enrichm ent (Count III) 10 Ferara m oves for sum m ary judgm ent as to Counts II and III on the grounds that New J ersey law does not recognize claim s for conversion, unjust enrichm ent, 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 sam e reason, the unjust enrichm ent claim fails because there is no evidence of an award. Ferara claim s that she is perm itted to end the attorney client relationship at any tim e and, again, argues that she has not received an award from the IRS. In New J ersey, there are two elem ents necessary to establish a claim of unjust enrichm ent: “(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 10 28, 10 34 (D.N.J . 20 11). For the sam e reasons supporting sum m ary judgm ent as to the breach of contract claim , sum m ary judgm ent is warranted as to the claim for unjust enrichm ent. Sim ply 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 determ ination. 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. Sum m ary judgm ent is granted as to Count III in favor of Defendant. Sum m ary judgm ent is granted in favor of defendant as to Plaintiff’s claim for 11 conversion, as plead in Count II. Under New J ersey law, the tort of conversion is defined as the “‘intentional exercise of dom inion or control over a chattel which so seriously interferes with the right of another to control it that the actor m ay justly be required to pay the other the full value of the chattel.’” Chicago Title Ins. Co. v. Ellis, 40 9 N.J . Super. 444, 454, 978 A.2d 281 (App. Div.) (quoting Restatem ent (Second) of Torts § 222A (1) (1965)). A successful claim of conversion requires a plaintiff establish “(1) the existence of property, (2) the right to im m ediate possession thereof belonging to plaintiff, and (3) the wrongful interference with that right by defendant.” Corestar Int'l Pte, Ltd. v. LPB Com m c'n, 513 F.Supp 2d 10 7, 127 (D.N.J . 20 0 7). 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 J ersey “a tort rem edy does not arise from a contractual relationship unless the breaching party owes an independent duty im posed by law.” Saltiel v. GSI Consultants, Inc., 170 N.J . 297, 316 (20 0 2). The only duty Defendant owes to Plaintiff relates to the contingency fee agreem ent; evidence of an independent duty is lacking. For these reasons, sum m ary judgm ent is granted in favor of Defendant as to the claim of conversion plead in Count II. 3. Plaintiff’s claim for Declaratory J udgm ent and the im position of a Constructive Trust (Count V) Plaintiff seeks the im position of a constructive trust to ensure that Defendant, who holds a Germ an passport, does not abscond with the IRS award once it is conferred. Ferara argues that because there is no wrongful act to warrant the im position of a 12 constructive trust, sum m ary judgm ent m ust be granted as to Count V. Plaintiff also m oves for partial sum m ary judgm ent as to Count V, arguing that because the contingency fee agreem ent is a valid contract and because Ferara has threatened not to pay Plaintiff, Ferara’s wrongful conduct validates im position of a constructive trust. The Declaratory J udgm ent Act, 28 U.S.C. § 220 1, em powers federal courts to grant declaratory relief, and the Court’s exercise of this declaratory relief power is discretionary. Unionam erica Ins. Co., Ltd. v. Nufab Corp., 30 Fed. Appx. 30 , 33 (3d Cir. 20 0 2) (citing State Auto Ins. Co. v. Sum m y, 234 F.3d 131, 133 (3d Cir. 20 0 0 )). Plaintiff asks that the Court enter a declaratory judgm ent “ordering that plaintiffs Begelm an 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 m inus costs, with full cost reim bursem ent).” Pl.’s Br. at 11. In its breach of contract cause of action, Plaintiff alleges in its Am ended Com plaint that “[a]ccording to the contract, defendant Ferara is legally obligated to pay Begelm an Orlow a fee of thirty-three and one third percent (33 1/ 3%) of the gross am ount of the award, m inus costs, for their perform ance of services under the contract.” Am . Com pl. at ¶ 36. A declaratory judgm ent is justified if Plaintiff can prove the existence of a contract and that Ferara breached that contract. “A constructive trust is the form ula through which the conscience of equity finds expression. When property has been acquired in such circum stances that the holder of the legal title m ay 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, 13 386 (1919) (Cardozo, J .). Here, Plaintiff m ust m eet a high burden to establish the im position of a constructive trust is warranted as “the suitability of im posing a constructive trust m ust be established by the m ovant by clear, definite, unequivocal and satisfactory evidence.” J urista v. Am erinox Processing, Inc., 492 B.R. 70 7, 772 (D.N.J . 20 13) (internal citations om itted). New J ersey em ploys a two-prong test to determ ine whether a constructive trust is warranted. First, a court m ust find that a party has com m itted “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 m ere m istake is sufficient for these purposes. Dobbs, supra, § 4.3, at 243 (observing that “constructive trust m ay be used as a rem edy for innocent m isstatem ents, or even sim ple m istakes, as well as a rem edy for fraud”). Second, the wrongful act m ust 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 m ay arise “where the retention of the property would result in the unjust enrichm ent of the person retaining it.”); Flanigan v. Munson, 175 N.J . 597, 60 8, 818 A.2d 1275, 1281 (20 0 3). Here, Plaintiff fails to sufficiently establish the elem ents necessary for the im position of a constructive trust. Prim arily, evidence of wrongdoing by Ferara is lacking and there are credibility determ inations 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 paym ent 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? 14 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 Begelm an Orlow. See Deposition of Kristy L. Ferara, Ex. F., Aff. of J ohn J . Slim m 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 com pensate Begelm an & Orlow. Rather, as evidenced by the claim s in her Counterclaim and in her deposition, Ferara projects a basis for disqualifying Plaintiff from paym ent for the services rendered for failure to perform satisfactory work. Q. Okay. Do you agree that the law firm is entitled to be com pensated for its work on our behalf in this case? A. Not at this tim e. Q. Why not? A. I believe that the docum entation presentation is so poor that it has to be reworked. Exposing m e as a whistleblower, dam aging m y reputation, m y ability to earn a norm al salary as an executive or anything else has been com pletely ruined. Q. Anything else? A. And that outweighs paying them anything at this point in tim e. . . . 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 im position 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 agreem ent. The Court’ rejects Plaintiff’s characterization of Ms. Ferara’s testim ony as indicative of an intention to withhold paym ent from Begelm an Orlow, even in the event the Court determ ines paym ent is 15 m erited. As a result, Begelm an and Orlow has failed to put forth “clear, definite, unequivocal and satisfactory evidence” of wrongdoing sufficient for the im position of a constructive trust and sum m ary judgm ent is denied as to Count V. J urista, 492 B.R. at 772; Thom pson v. City of Atlantic City, 386 N.J . Super. 359, 375-76, 90 1 A.2d 428, 438 (20 0 6) (Under New J ersey law, a constructive trust m ay be created where property has been wrongfully or inequitably transferred.); D'Ippolito, 51 N.J . at 589, 242 A.2d 617 (The im position of a constructive trust necessitates a finding of a “breach of a confidential relationship which has resulted in the transfer of property.”). B. D e fe n d an t Fe rara’s Co u n te rclaim ; Fe rara’s Mo tio n fo r Partial Su m m ary Ju d gm e n t [ 72 ] an d Be ge lm an an d Orlo w ’s Mo tio n fo r Su m m ary Ju d gm e n t [ 74 ] The Counterclaim alleges as follows: Count I, Equitable Fraud as to Begelm an Orlow’s Failure to Disclose Prior Ethical Violations; Count II, Count Equitable Fraud as to Begelm an Orlow’s Failure to Com ply with the Term s of Mr. Orlow’s Suspension, Count III, Equitable fraud as to Begelm an Orlow’s m isrepresentation 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 num erous prior ethical violations and the firm ’s failure to disclose the sam e to Ferara. In general term s, Ferara claim s 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 supplem ental 16 subm ission to the IRS, failed to prevent Ferara from term inating the attorney-client relationship by pressuring and threatening her, disclosed Ferara’s privileged and confidential inform ation public, em barrassed her and portrayed her in a negative light, knowingly filed claim s against her that lacked m erit and were legally barred, and attem pted to com prom ise her claim by taking an adversarial position against the IRS. Ferara m oves for Sum m ary J udgm ent on the Counterclaim , only as to Count II, which alleges Equitable Fraud as to Begelm an Orlow’s Failure to Com ply with the Term s of Mr. Orlow’s Suspension. Ferara claim s that because attorney Orlow, who is the signatory on alm ost every docum ent relating to Ferara’s case, was suspended from the practice of law in 20 0 9 (during his representation of her) and failed to disclose this fact, Plaintiff has violated RPC 1:20 -20 (b). As a result, Plaintiff claim s that she is not responsible for quantum m eruit because Orlow failed to inform her of his suspension. Begelm an & Orlow also m ove for sum m ary judgm ent on every count plead in the Counterclaim , prim arily advancing the theory that Ferara’s claim s 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 sum m ary judgm ent as to all claim s. In addition, Plaintiff claim s that Ferara’s expert fails to establish a deviation from the standard of care and, therefore, sum m ary judgm ent m ust be granted as to the claim s of m alpractice. McGrogan v. Till, 167 N.J . 414, 425 (20 0 1); Carney v. Finn, 145 N.J . Super. 234, 236 (App. Div. 1976). See, Rosenberg v. Cahill, 99 N.J . 318, 325 (1985); Som m ers v. McKinney, 287 N.J . Super. 1, 10 -11 (App. Div. 1996); Aldridge v. Hawrylo, 281 N.J . 17 Super. 20 1, 214 (App. Div. 1995); Brizak v. Needle, 239 N.J . Super. 415, 431-32 (App. Div. 1990 ); Brach, Eichler, Rosenberg, Silver, Bernstein, Ham m er & Gladstone, P.C. v. Ezekwo, 345 N.J . Super. 1 (App. Div. 20 0 1). Plaintiff also argues that Ferara fails to establish that the firm ’s negligence proxim ately caused her dam ages. Davin, LLC v. Daham , 329, N.J . Super. 54, 72 (App. Div. 20 0 0 ). Plaintiff contends that Ferara has not proven through com petent 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 dism issal of the Counterclaim in its entirety. Finally, Plaintiff argues that Ferara has not established that she suffered dam ages as a result of the filing of the present collection case and the Counterclaim should be dism issed 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 Som m ers 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 presum ption that a legal duty has been breached.” Baxt v. Liloia, 155 N.J . 190 , 197, 714 A.2d 271, 274– 75 (1998). 18 By this language, the ABA “intended to m ake 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 Developm ent 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 m alpractice was the proxim ate 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 “m alpractice” argum ents are defenses to Plaintiff’s claim for fees. The Court finds that the only potential m alpractice claim here relates to the disclosure of Defendant’s personal inform ation 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 J ersey law, such claim s are not independently actionable in this Court, but m ay be advanced as a defense to quantum m eruit. Ferara also argues that Plaintiff com m itted 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 m atter only nine days later. See Am . Com pl., Ex. 4. New J ersey Court Rule 1:20 A– 6 provides: No lawsuit to recover a fee m ay be filed until the expiration of the 30 day period herein giving Pre– Action Notice to a client.... The attorney's com plaint shall allege the giving of the notice required by this rule or it shall be dism issed. 19 In Mateo v. Mateo, 281 N.J . Super. 73, 80 , 656 A.2d 846, 850 (App. Div. 1995), the New J ersey Appellate Division held that failure to com ply with Rule 1:20 A-6 m ust result in dism issal of the claim for fees. “Dism issal is now an express requirem ent of R. 1:20 A-6, but it has always been a requirem ent 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 m ay be avoided by bringing the m atter before the Fee Com m ittee, yet binding the client to a judgm ent 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 com pliance with the Rule has been upheld and cases that fail to provide the Pre-Action Notice have been sum m arily dism issed. See e.g., Cole, Schotz, Bernstein, Meisel & Form an, 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 dism issal of the m otion”); Schepisi & McLaughlin, P.A. v. LoFaro, 430 N.J . Super. 347, 357, 64 A.3d 592, 598 (App. Div. 20 13) (“The Pre– Action Notice requirem ent applies to a petition to establish an attorney's lien as well as to a com plaint for attorney's fees. New J ersey law is clear that in the absence of com pliance with the Rule, such a petition m ust be dism issed.) (citations om itted). Plaintiff argues that it com plied with the Rule by filing the Pre-Action Notice and that it did not im pede 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 argum ent, while predicated upon speculation regarding Ferara’s intent to pay, is not without m erit. The Court finds that Ferara’s rights were not im peded by the prem ature filing of 20 the present m atter. Ferara was properly notified of Plaintiff’s intent to collect fees and was free to invoke arbitration under the Pre-Action Notice, despite the prem ature filing of this action. Sum m ary judgm ent is denied as to the claim of procedural default. Sum m ary judgm ent is also denied as to Ferara’s claim s of dam ages. There are questions of fact related to the dam ages associated with Ferara’s claim of m alpractice, dam age to reputation, expenses in prosecuting her counterclaim s, and defam ation. Under New J ersey law, “the right to recover dam ages in an action prem ised upon libel without proof of harm rem ains the law in this jurisdiction.” W.J .A. v. D.A., 416 N.J . Super. 380 , 387 (20 10 ). In addition, Ferara’s claim s that she is dam aged are subject to credibility determ inations. Sum m ary judgm ent 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 com m unicated with Ferara during his suspension, and whether Plaintiff’s failure to inform Ferara of the suspension constitutes fraudulent concealm ent. Ferara relies on New J ersey Court Rule 1:20 -20 (b) (13) to disqualify Orlow’s entitlem ent 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 perform ed by any other attorney following the disciplined or form er attorney's prohibition from practice, but m ay be com pensated for the reasonable value of services rendered ... prior to the effective date of the prohibition, provided the attorney has fully com plied with the provisions of this rule and has filed the required affidavit of com pliance under subparagraph (b)(15).... If an attorney-trustee has been appointed under R. 1:20 -19, all fees for legal 21 services and other com pensation due the attorney shall be paid solely to the attorney-trustee for disbursem ent as directed by the court in accordance with the provisions of that rule. Com pensation shall include any m onies or other thing of value paid for legal services due or that is related to any agreem ent, sale, assignm ent 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. 20 0 8) (citing R. 1:20 -20 (b)(13)(em phasis 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 disbarm ent. Here, there is a dispute in the record related to whether Attorney Orlow perform ed 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 , sum m ary judgm ent is denied as to Count II of the Counterclaim . Finally, with respect to the entirety of the counterclaim , Plaintiff argues that the litigation privilege imm unizes it from liability. The litigation privilege insures that “[s]tatem ents by attorneys, parties and their representatives m ade in the course of judicial or quasi-judicial proceedings are absolutely privileged and im m une 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 statem ents m ade in the course of litigation but also to statem ents m ade outside of the courtroom . Rickenbach v. Wells Fargo Bank, N.A., 635 F. Supp. 2d 389, 40 1– 0 2 (D.N.J . 20 0 9) 22 (citations om itted). Application of the privilege is a question of law. Peterson, 679 A.2d at 664. To determ ine whether the privilege applies, courts consider: any com m unication (1) m ade 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 som e connection or logical relation to the action. Rickenbach, 635 F. Supp. 2d at 40 1– 0 2 (citing Hawkins v. Harris, 141 N.J . 20 7, 661 A.2d 284, 289 (1995)). The contours of the privilege are not absolute. For exam ple, the privilege m ay apply in tort and defam ation claim s, but becom es less certain in m alpractice actions. See e.g. Loigm an v. Twp. Com m . of Twp. of Middletown, 185 N.J . 566, 583, 889 A.2d 426, 436 (20 0 6) (“In New J ersey, the litigation privilege protects attorneys not only from defam ation actions, but also from a host of other tort-related claim s.”); Rabinowitz v. Wahrenberger, 40 6 N.J . Super. 126, 966 A.2d 10 91 (N.J . Super. Ct. App. Div. 20 0 9) (privilege upheld in case involving intentional and negligent infliction of em otional distress); Com m ercial Ins. Co. of Newark v. Steiger, 395 N.J . Super. 10 9, 928 A.2d 126 (20 0 7) (m aterial m isrepresentation); Ruberton v. Gabage, 280 N.J . Super. 125, 654 A.2d 10 0 2 (1995) (and negligent m isrepresentation, fraud, and m alicious interference with prospective econom ic advantage). In Buchanan v. Leonard, the New J ersey 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 claim s by his client.” Buchanan v. Leonard, 428 N.J . Super. 277, 286, 52 23 A.3d 10 64, 10 69 (App. Div. 20 12). The Appellate Division, drawing on Suprem e Court precedent, held that that the litigation privilege does not protect an attorney from a m alpractice 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 statem ents the attorney m ade 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 . 20 7, 215, 661 A.2d 284 (1995) (Stating that the court is “com m itted to assuring that attorneys com ply with accepted professional standards.”) Given the allegations here, the litigation privilege does not apply. Sum m ary judgm ent is denied. VI. Co n clu s io n For the reasons stated herein, sum m ary judgm ent is granted in favor of Defendant Ferara as to Counts I, II, and III of the Am ended Com plaint and denied as to Count IV. Sum m ary judgm ent is denied as to Plaintiff’s claim for a constructive trust and declaratory judgm ent. Sum m ary judgm ent is denied as to each claim in the counterclaim . An appropriate Order shall issue. Dated: Decem ber 8, 20 16 s/ J oseph H. Rodriguez HON. J OSEPH H. RODRIGUEZ, United States District J udge 24