Opinion
Civil Action No. 2003-11466-NG.
June 13, 2005
REPORT AND RECOMMENDATION ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AGAINST THE PLAINTIFF ON ALL COUNTS OF THE COMPLAINT (#12)
I. Introduction
In July of 2003, plaintiff Bransford Petz, P.C. in its own behalf and as assignee f/k/a Bransford, Kalperis Petz, P.C., f/k/a Bransford, McGlone Petz, P.C. (hereinafter "BP") filed a four-count complaint against defendant Banc of America Commercial Corporation a/k/a Bank of America Commercial Finance Corporation (hereinafter "Banc") in the trial court in the Commonwealth of Massachusetts. The quartet of claims included breach of contract (Count I), quantum meruit (Count II), violation of Massachusetts General Laws chapter 93A (Count II) and fraud (Count IV). On August 7, 2004, the Banc removed the case to the federal court and shortly thereafter filed an answer to the complaint.
Discovery was undertaken in the normal course and has been completed. On September 24, 2004 the defendant filed a motion for summary judgment (including a statement of undisputed material facts) (#12) together with a memorandum in support (#13) and an affidavit with exhibits (#14). Following an extension of time, BP filed an opposition (#21) to the summary judgment motion on November 12, 2004. The dispositive motion has been referred to the undersigned for the issuance of a report and recommendation as to disposition. (#15)
II. The Facts
The facts as recited hereinafter are culled, sometimes verbatim, primarily from the defendant's statement of undisputed facts which is incorporated in the actual motion for summary judgment document. (#12) BP, a law firm specializing in debt collection for financial institutions and other such businesses, is a Massachusetts professional corporation with a usual place of business on Canal Street in Boston, Massachusetts. (#12 ¶¶ 1, 3) BP has filed suit in its own name and as assignee in writing from A.G. Adjustments Ltd. (hereinafter "A.G."). (#12 ¶ 2) Banc, a Delaware corporation with a usual place of business in Atlanta, Georgia, "is an account receivable factoring company that . . . purchased a company's accounts receivable functions and also credit protection, collections and bookkeeping services." (#12 ¶¶ 4, 5)
The plaintiff disputes six of the numbered paragraphs in the statement of undisputed facts, specifically paragraphs 11, 15, 20, 24, 29 and 30. See #21 at 3.
Reference is made to the statement of undisputed facts itself rather than the supporting materials cited after each paragraph.
Banc ceased operations in December of 2000. (#12 ¶ 5).
Banc opened an account with U.S. Fresh Corporation ("U.S. Fresh") of New Bedford, Massachusetts in late November, 1996. (#12 ¶ 6) Over two years later, on or about March 4, 1999, Banc purchased an insolvency risk insurance policy, No. 649-8505 (hereinafter "Insolvency Policy"), from AIG Global Trade and Political Risk Insurance Company (hereinafter "AIG") to cover, inter alia, the credit risk with respect to U.S. Fresh. (#12 ¶ 7) On November 19, 1999, Banc sent a letter to U.S. Fresh regarding U.S. Fresh's obligation to pay $403,584.50 under its loan agreement. (#12 ¶ 8) Five days later Banc retained A.G., a commercial collection agency, to collect the U.S. Fresh loan. (#12 ¶ 9) Collection on the U.S. Fresh loan was to be undertaken pursuant to a "special contingency rate", meaning
a fee based upon the following formula: (i) 10% of the amount collected in the first 30 days from U.S. Fresh if the amount was collected in full, and (ii) 15% of the amount collected from U.S. Fresh if partial payments were to be made ("A.G. Agreement"). The A.G. Agreement stated the rate would change to "the normal rate" if placed for collection with an outside attorney.
Defendant's Motion #12 ¶ 10.
Banc takes the position that there was no provision in the A.G. Agreement that A.G. would be compensated from any source other than the funds that A.G. collected from U.S. Fresh (#12 ¶ 11) while BP contends that it is entitled to be compensated because Banc collected money from its insurance policy. (#21 at 3)
Within weeks of being engaged by Banc, A.G. became aware that U.S. Fresh had serious financial problems and was attempting to negotiate with its secured lender. (#12 ¶ 13) According to a December 9, 1999 letter from A.G. to Banc, A.G. had been advised by U.S. Fresh's attorney Andrew Troop that he, Troop, "'was not optimistic that debtor would dig out of its financial difficulties and bluntly indicated that we ["A.G."] should take whatever action necessary.'" (#12 ¶ 13) In mid-December, 1999, A.G. hired BP to assist A.G. in collecting the U.S. Fresh loan. (#12 ¶ 15) On December 29, 1999, Banc filed a claim with respect to the U.S. Fresh loan under the Insolvency Policy with AIG. (#12 ¶ 31)
A.G. and BP had done business in the past and, as of April 30, 2004, BP was handling more than one hundred fifty cases for A.G. (#12 ¶ 17).
In the defendant's view,
The agreement between BP and A.G. ("BP Contingency Agreement") was created in (i) the engagement letter of A.G. dated December 17, 1999 to BP; (ii) BP's "suit requirements letter" to A.G. dated January 24, 2000; and (iii) Banc's acceptance letter dated April 13, 2000.
Defendant's Motion #12 ¶ 15.
The plaintiff, on the other hand, asserts that "there is a very clear collection industry custom and practice that a collection agent or collections law firm becomes entitled to a contingency fee recovery or resolution by the client, regardless of the source." (#21 at 3) It is undisputed, however, that A.G. notified BP in the December 17, 1999 engagement letter that recovery of a fee was limited with respect to one source, to wit, "Creditor reserves the right to file a proof of claim direct in Bankruptcy with no fee to your [Law Firm's] office." (#12 ¶ 16)
A.G. advised BP on January 10, 2000, that U.S. Fresh was liquidating, that a shortfall to its secured lender (the bank) was "very possible" and that unsecured creditors were unlikely to recover anything. (#12 ¶ 18) Two weeks later BP sent a letter dated January 24, 2000 to A.G. enclosing its "suit requirements" such as the necessity of receiving advance costs in the amount of $285 to cover expenses. (#12 ¶ 19) The text of the letter also stated that BP's "commission fees are contingent upon collection." (#12 ¶ 20) In a February 8, 2000 letter to A.G., BP again recommended that suit be filed against U.S. Fresh in order to "access information through discovery" even though "a judgment may not be ultimately collectible." (#12 ¶ 21; #14, Exh. 11)
The quoted text is taken directly from BP's letter to A.G., the accuracy of which is not challenged. It appears that BP is disputing the second sentence of ¶ 20 of the statement of undisputed facts and the implication that it was not entitled to a fee if Banc collected from its insurance policy.
In a letter dated March 2, 2000, A.G. informed Banc of BP's recommendation that suit be filed against U.S. Fresh. (#12 ¶ 22) The suit requirements detailed in BP's January 24th letter were also forwarded to Banc. (#12 ¶ 22) About a month and a half later on April 13, 2000, Banc requested that A.G. advise BP to file suit and also acknowledged that $285 was due for costs. (#12 ¶ 23) The next day, April 14th, "U.S. Fresh informed BP that it was insolvent, that its assets were insufficient to pay its secured lender, Fleet National Bank, and that repayment to Banc was unlikely." (#12 ¶ 25) BP passed this information on to A.G. on May 4, 2000. (#12 ¶ 25) Shortly thereafter on May 17, 2000, BP instituted litigation in the Massachusetts Superior Court on behalf of Banc against U.S. Fresh. (#12 ¶ 26)
On June 8, 2000, counsel for U.S. Fresh reiterated to BP that its client had no funds available with which to pay its creditors. (#12 ¶ 27) Armed with this knowledge, BP yet continued to pursue the lawsuit to collect the debt for Banc. (#12 ¶ 28)
AIG notified Banc on July 24, 2000 that Banc would receive a payment of $153,584.50 under the Insolvency Policy, that sum representing the principal outstanding balance minus a $250,000 deductible. (#12 ¶ 32)
On October 5, 2000 an execution in the amount of $428,050.75 issued in favor of Banc in its lawsuit after U.S. Fresh was defaulted. (#12 ¶ 33) BP collected no money directly from U.S. Fresh in satisfaction of this execution. (#12 ¶ 33) A.G. submitted an invoice for $121,225.35 for services rendered to Banc despite the fact that no monies were ever collected from U.S. Fresh. (#12 ¶ 34)
In its statement of undisputed facts the defendant asserts that "Banc did not, orally or in writing, ever agree to pay BP any legal fee based upon a collection from any source other than directly from U.S. Fresh" (#12 ¶ 29) and "At no time prior to the engagement of BP, or before execution issued against U.S. Fresh on October 5, 2000, did BP or A.G. discuss with Banc, either orally or in writing, the payment of an additional fee beyond a percentage of what BP collected directly from U.S. Fresh in the [state court] action." (#12 ¶ 30) BP disputes these facts in light of the purported industry custom.
BP does not deny that no client "has ever paid it a contingency fee agreement from the proceeds from an insolvency insurance policy" nor has BP ever "claimed a fee from the proceeds of an insolvency insurance policy against any other client prior to this case." (#12 ¶ 35) Although BP contends that the industry standard for collections is set forth in the Operative Guides for Forwarders and Receivers Adopted By The Commercial Law League of America ("CLLA Operative Guides"), "[t]he CLLA Operative Guides fail to state anywhere as a matter of custom and practice that forwarders such as A.G. and/or receivers such as BP are entitled to a contingent fee from proceeds paid to a client under an insolvency policy." (#12 ¶¶ 36, 37)
III. The Summary Judgment Standard
Summary judgment purports "to pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial." Podiatrist Ass'n, Inc. v. La Cruz Azul De Puerto Rico, Inc., 332 F.3d 6, 12 (1 Cir., 2003) (citing Garside v. Osco Drug, Inc., 895 F.2d 46, 50 (1 Cir., 1990) (quoting Fed.R.Civ.P. 56 Advisory Committee's note)). The party moving for summary judgment bears the initial burden of asserting the absence of a genuine issue of material fact and "support[ing] that assertion by affidavits, admissions, or other materials of evidentiary quality." Mulvihill v. Top-Flite Golf Co., 335 F.3d 15, 19 (1 Cir., 2003). After the moving party has met its burden, "the burden shifts to the summary judgment target [the non-moving party] to demonstrate that a trial-worthy issue exists." Mulvihill, 335 F.3d at 19 (citing Suarez v. Pueblo Int'l, Inc., 229 F.3d 49, 53 (1 Cir., 2000)).
When considering whether to grant summary judgment, the Court must determine whether:
. . . the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.
In making this assessment, the Court must "scrutinize the record in the light most flattering to the party opposing the motion, indulging all reasonable inferences in that party's favor." Mulvihill, 335 F.3d at 19 (citing Morris v. Gov't Dev. Bank, 27 F.3d 746, 748 (1 Cir., 1994)); see also Podiatrist Ass'n, Inc., 332 F.3d at 13; Pure Distributors, Inc. v. Baker, 285 F.3d 150, 152 (1 Cir., 2002); New England Regional Council of Carpenters v. Kinton, 284 F.3d 9, 19 (1 Cir., 2002) (citing Dynamic Image Techns., Inc. v. United States, 221 F.3d 34, 39 (1 Cir., 2000)); Kearney v. Town of Wareham, 316 F.3d 18, 22 (1 Cir., 2002).
Despite this "notoriously liberal" standard, Mulvihill, 335 F.3d at 19, summary judgment cannot be construed as "a hollow threat." Kearney, 316 F.3d at 22. A factual dispute which is neither "genuine" nor "material" will not survive a motion for summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Furthermore, a genuine issue of material fact cannot merely rest upon "spongy rhetoric" but rather requires substantive proof. Mulvihill, 335 F.3d at 19 (citing Mesnick v. Gen. Elec. Co., 950 F.2d 816, 822 (1 Cir., 1991), cert. denied, 504 U.S. 985 (1992) (explaining that "[g]enuine issues of material fact are not the stuff of an opposing party's dreams")). Thus, in deciding whether a factual dispute is "genuine," the Court must determine whether the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson, 477 U.S. at 248; Kearney, 316 F.3d at 22 (citing United States v. One Parcel of Real Prop. (Great Harbor Neck, New Shoreham, R.I.), 960 F.2d 200, 204 (1 Cir., 1992) ; Suarez, 229 F.3d at 53 (citing McCarthy v. Northwest Airlines, Inc., 56 F.3d 313, 315 (1 Cir., 1995)). In circumstances where submitting the issue in dispute to the jury amounts to "nothing more than an invitation to speculate," summary judgment is appropriate. Feliciano de la Cruz v. El Conquistador Resort and Country Club, 218 F.3d 1, 9 (1 Cir., 2000) (quoting Lattimore v. Polaroid Corp., 99 F.3d 456, 467-68 (1 Cir., 1996)). In weighing whether a factual dispute is "material," the Court must examine the substantive law of the case, because "only disputes over the facts that might affect the outcome of the suit under governing law will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248; Kearney, 316 F.3d at 22.
The focus at the summary judgment phase "'should be on the ultimate issue: whether, viewing the aggregate package of proof offered by the plaintiff and taking all inferences in the plaintiff's favor, the plaintiff has raised a genuine issue of fact.'" Rivas Rosado v. Radio Shack, Inc., 312 F.3d 532, 535 (1 Cir., 2002) (quoting Dominguez-Cruz v. Suttle Caribe, Inc., 202 F.3d 424, 430-31 (1 Cir., 2000)); see also Leahy v. Raytheon Co., 315 F.3d 11, 16-17 (1 Cir., 2002); Suarez, 229 F.3d at 53. The party objecting to summary judgment may not merely rest upon the statements put forth in its own pleadings. See Gillen v. Fallon Ambulance Service, Inc., 283 F.3d 11, 26 (1 Cir., 2002) (citing Colantuoni v. Alfred Calcagni Sons, Inc., 44 F.3d 1, 4-5 (1 Cir., 1994) (a party objecting to summary judgment fails to put forth a genuine issue of material fact merely by filing an affidavit contradicting unambiguous answers contained in a prior deposition)). Instead, 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 the party's case, and on which the party will bear the burden of proof at trial.Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
IV. Discussion
In seeking summary judgment, Banc has proffered the documents which it considers to constitute the contract between (or among) the parties, to wit, the A.G. agreement, the December 17, 1999 engagement letter between A.G. and BP, the January 24, 2000 "suit requirements" letter from BP to A.G., and the acceptance letter from Banc to A.G. dated April 13, 2000. The contents of each document shall be examined.
When Banc first placed the U.S. Fresh account with A.G., "a special contingency rate" was negotiated in the so-called A.G. agreement:
We [Banc] agreed to place this account with your firm [A.G.] at a rate of 10 percent for the first 30 days only if the amount is collected in full. However if parcel (sic) payments are received the rate would be at 15 percent. The rate would continue at 15 percent unless placed for collection with an outside attorney. At this point it will go to the normal rate.
Affidavit #14, Exh. 4.
Thereafter in December, 1999, when A.G. forwarded the claim to BP the following instructions were included:
We have been authorized by this creditor as its agent to forward this subject claim to you. Please advise us promptly regarding the possibility of this collection. If you believe suit is advisable, indicate papers and what costs are required.
Please do not institute proceedings, incur expenses, make any compromise or grant extensions unless authorized by this creditor. . . .
* * * * *
All partial payments are to be reported and remitted as received. If you fail to acknowledge this claim, answer communications, or follow creditor's instructions, this claim may be recalled by the creditor without payment of commissions due you. Any charges or disbursements due on other claims are not to be deducted from amounts collected on this claim.
Please acknowledge receipt of this claim by return mail within 21 days from the date of this letter. We will expect your initial report and recommendations within 21 days thereafter. State whether the terms and conditions, including your contingent fees as set forth below are satisfactory.
Affidavit #14, Exh. 8.
The referenced terms and conditions were that "CREDITOR RESERVES THE RIGHT TO FILE A PROOF OF CLAIM DIRECT IN BANKRUPTCY WITH NO FEE TO YOUR OFFICE" and "8.00% of claim". (#14, Exh. 7)
The next document is the January 24, 2000 "suit requirements" letter from BP to A.G. The pertinent portion of that document reads:
In order for us to proceed with a lawsuit, the enclosed Affidavit must be executed and returned to us. We require advance costs of $285.00 which typically cover our expenses to carry a lawsuit through judgment and execution. However, these costs may not cover post-judgment court costs and sheriff's fees. If we prevail, court costs are recoverable from the debtor. The costs we have requested may cover but are not necessarily limited to asset investigation, a search of the Secretary of States's records, Bankruptcy Court records and a credit reporting service (our tax ID# 04-323-5957). Any unused costs will be returned when the file is closed. Our commission fees are contingent upon collection.
If applicable and available (and not previously sent), please provide us with supporting documentation: including, but not limited to, a ledger sheet or statement of account, any personal guarantees, promissory notes, credit application, and any other relevant documentation or information available which would confirm the debt. If debtor is liable for interest, finance charges, collection expenses, or attorney's fees, please furnish the appropriate documents to include in our suit.
If appropriate, we attempt to dispose of contested cases by our initial discovery requests and summary judgment. In the event a counter-claim or cross-claim is filed, we are willing to proceed at an hourly rate with a reasonable retainer. Massachusetts requires a witness at every trial. In case of unusual circumstances, or potential protracted litigation, it may be necessary to request additional fees.
Affidavit #14, Exh. 8 (emphasis in original).
The final document is the April 13, 2000 letter from Banc to A.G., the relevant part of which states:
With respect to the above enclosed, please find the affidavit along with invoices and proof of delivery. Please note that the balance of the claim was placed in error. It appears we placed it with your firm for the amount of $250,000.00. The claim should have been placed for the amount of $403,584.50. Make sure that the attorney is aware of the correct balance before filing suit.
Please instruct the attorney to file suit immediately. Also have him inform us of the date complaint was serviced (sic) on the debtor, and how long it will take to obtain a default judgment should debtor not file an answer. I have submitted your invoice for court cost (sic) in the amount of $285.00 for payment, so please advance cost (sic) on our behalf.
Affidavit #14, Exh. 13.
Banc contends that its understanding of the fee arrangement between the parties is based upon the terms set forth in these documents. Given that there is no mention whatsoever of BP being entitled to a fee if recovery was had from a source other than U.S. Fresh, Banc takes the position that it owes BP nothing. In other words, Banc claims that it is bound by the written terms of the contract to which it agreed, but not to any terms purportedly implied by custom in the industry.
With Banc having properly supported its motion for summary disposition, the burden is on BP "to present clear evidence" that Banc owes the fee alleged. Sears, Roebuck Co. v. Goldstone Sudalter, P.C., 128 F.3d 10, 18 (1 Cir., 1997). Indeed, as in the Sears case,
this case still turns on the rules for the regulation of attorney's fees which Massachusetts has established to protect clients and to preserve the integrity of the bar. Massachusetts has established that a lawyer always bears the burden of proof in any proceeding to resolve a billing dispute, whether the lawyer appears as a plaintiff seeking to recover a fee or as a defendant in a suit for a refund. First National Bank of Boston v. Brink, 372 Mass. 257, 361 N.E.2d 406, 410 (1977) (suit for an accounting and refund of a large fee for tax advice); Smith v. Binder, 20 Mass. App. Ct. 21, 477 N.E.2d 606 (1985) (suit for an accounting and refund of a portion of large retainer fee); see also Restatement (Third) of the Law Governing Lawyers § 56(2) (P.F.D. No. 1, March 29, 1996) (following the Brink rule). As the Restatement notes, "A lawyer . . . will usually have better access than a client to evidence about the lawyer's own services. . . ." Id. at § 56 cmt. c.
* * * * *
To satisfy an attorney's burden of proof under Massachusetts law, he or she must provide more than purely speculative evidence to support a claim that a client owes a particular charge in order to defeat a properly supported motion for summary judgment. See Beatty v. NP Corp., 31 Mass. App. Ct. 606, 581 N.E.2d 1311, 1314-16 (1991) (finding evidence of an agreement by a client to pay a performance bonus too "isolated" to support attorney's claim); accord Davis v. Glenville Haldi, P.C., 148 Ga. App. 842, 253 S.E.2d 207, 208 (1979) (rejecting attorney's claim where he introduced "no evidence indicating the amount of time spent on the case or the amount of work he performed," but only the attorney's own opinion that a prospective contingency fee would be $25,000). Scanty or speculative evidence concerning the value of legal services is insufficient to create a genuine issue for the trier of fact. See Beatty, 581 N.E.2d at 1315-16 (summary judgment appropriate); accord Davis, 253 S.E.2d at 208 (directed verdict appropriate). Placing the burden of proof on the attorney is sensible in light of the difficulty of monitoring the attorney's services.Sears, 128 F.3d at 17-8.
In order to meet its burden, BP has filed the affidavit of Robert Gerstel (hereinafter "Gerstel"), the Chief Executive Officer of A.G. (#21, Exh. B) Gerstel states that:
In the collections industry there is a longstanding custom and practice that a contingency fee is earned whenever a collections agent or an attorney obtains a successful resolution, regardless of the source. Payment is earned and due even if the source is not from the debtor itself but also from a guarantor, surety, insurance carrier, or other source.
Affidavit of Robert Gerstel, #21, Exh. B.
BP has also submitted an affidavit from its office manager, John R. Warner (hereinafter "Warner"), a man with more than thirty years of administrative experience in collections matters. (#21, Exh. A) Warner avers that he is the individual at the firm who determines the terms pursuant to which BP would accept a case from a forwarder such as A.G. (#21, Exh. A) In his view,
Although Warner's statement is unsworn, it may be considered by the Court in deciding the summary judgment motion. See Goldman, Antonetti, Ferraiuoli, Axtmayer Hertell v. Medfit Intern., Inc., 982 F.2d 686, 689-690 (1 Cir., 1993) ("Under federal law, an unsworn statement signed under penalty of perjury may be used, in lieu of a sworn statement or affidavit, to support or oppose a motion for summary judgment. See 28 U.S.C. § 1746; see also Pfeil v. Rogers, 757 F.2d 850, 859 (7th Cir. 1985) (holding that an affidavit failing to satisfy the "technical, non-substantive requirements of execution" may be considered as part of a party's opposition to a motion for summary judgment provided the affidavit complies with 28 U.S.C. § 1746), cert. denied, 475 U.S. 1107, 106 S.Ct. 1513, 89 L.Ed.2d 912 (1986); Davis v. Frapolly, 756 F. Supp. 1065, 1067 (N.D.Ill. 1991) (holding that unsworn statements signed under penalty of perjury may be considered as evidence in support of a motion for summary judgment)") (footnote omitted).
The industry standard is to represent collection cases on a contingency basis, and almost without exception, the fee structure conforms with the guidelines suggested in the Operative Guides for forwarders and receivers adopted by The Commercial Law League of America. This Banc of America case utilized these guidelines.
Affidavit, #21, Exh. A.
At a minium this evidence, according to BP, raises a genuine issue of material fact as to whether Banc is obligated to pay BP a fee on account of its recovery under the insolvency insurance policy. The fundamental problem with BP's position is that the Court cannot consider the "evidence" proffered to support it.
To digress momentarily, Banc has filed a motion to strike (#22) portions of Warner's affidavit on various grounds. BP has filed an opposition to that motion (#24) wherein the plaintiff flatly states that Warner is not being offered as an expert witness. In these circumstances, Warner's opinions are being offered under Federal Rule of Evidence 701 which, as amended in 2000, provides:
If the witness is not testifying as an expert, the witness' testimony in the form of opinions or inferences is limited to those opinions or inferences which are (a) rationally based on the perception of the witness, (b) helpful to a clear understanding of the witness' testimony or the determination of a fact in issue, and (c) not based on scientific, technical, or other specialized knowledge within the scope of Rule 702.
In discussing the recent amendment to this Rule, a leading treatise explains that:
The Advisory Committee's Note to the amendment states, 'the distinction between lay and expert witness testimony results from a process of reasoning familiar in everyday life, while expert testimony results from a process of reasoning which can be mastered only by specialists in the field.' This suggests that opinions based on experience of the sort that can be acquired in everyday life are admissible under Rule 701 while opinions based on experience of a specialized sort can be admitted only under Rule 702.
Wright Gold, Federal Practice and Procedure: Evidence § 6253 (1997) (2005 pocket part).
The Second Circuit has had occasion to address this modified rule, and its opinion in Bank Of China, New York Branch v. NBM LLC, 359 F.3d 171 (2 Cir., 2004), is instructive.
In Bank of China, one Huang Yangxin ("Huang"), a senior Bank of China employee with extensive experience in international banking, had been assigned by his employer to investigate the defendants' alleged scheme to defraud the bank. Bank Of China, 359 F.3d at 181-2. At trial Huang, who had not been identified as an expert, was allowed to testify about the following subjects:
(1) that certain transactions between defendants NBM and GEG did not comport with the business community's understanding of normal, true, trade transactions between a buyer and seller; (2) the concept of a "trust receipt," and how it works in the context of an international commercial transaction; and (3) that it is considered fraud when an importer presents a trust receipt to a bank to obtain a loan knowing that there are no real goods involved.Bank of China, 359 F.3d at 180.
Over the defendants' consistent objections, the trial judge allowed the testimony "based on his [Huang's] many years of experience in international banking and trade." Bank of China, 359 F.3d at 180 (footnote omitted).
On appeal the Second Circuit concluded that admission of the testimony on that ground was an abuse of discretion. Bank of China, 359 F.3d at 181. Specifically the Court held that:
Testimony admitted pursuant to Rule 701 must be "rationally based on the perception of the witness." Fed.R.Evid. 701(a). To some extent, Huang's testimony was based on his perceptions. As a Bank of China employee, Huang was assigned to investigate defendants' activities at the tail-end of their scheme and after Bank of China stopped doing business with them. Huang's senior role at the Bank and his years of experience in international banking made him particularly well-suited to undertake such an investigation and was likely a factor in the Bank's decision to assign the task to him. The fact that Huang has specialized knowledge, or that he carried out the investigation because of that knowledge, does not preclude him from testifying pursuant to Rule 701, so long as the testimony was based on the investigation and reflected his investigatory findings and conclusions, and was not rooted exclusively in his expertise in international banking. "Such opinion testimony is admitted not because of experience, training or specialized knowledge within the realm of an expert, but because of the particularized knowledge that the witness has by virtue of his position in the business." Fed.R.Evid. 701 advisory committee's note. Thus, to the extent Huang's testimony was grounded in the investigation he undertook in his role as a Bank of China employee, it was admissible pursuant to Rule 701 of the Federal Rules of Evidence because it was based on his perceptions.
However, to the extent Huang's testimony was not a product of his investigation, but rather reflected specialized knowledge he has because of his extensive experience in international banking, its admission pursuant to Rule 701 was error. Thus, Huang's explanations regarding typical international banking transactions or definitions of banking terms, and any conclusions that he made that were not a result of his investigation, were improperly admitted.Bank of China, 359 F.3d at 181-2 (citation omitted).
The analogy to the facts at hand is apparent. While testimony by Warner with respect to his participation in this transaction with Banc may be admissible, any testimony offered by him regarding custom and practice in the collections industry or the provisions of the Commercial Law League of America's Guide, their interpretation and application, is inadmissible under Rule 701. As a consequence, the Court cannot consider that "evidence" when deciding the summary judgment motion. Since BP relies almost exclusively on Warner's affidavit to demonstrate genuine issues of material fact, the inadmissibility of key portions of that document essentially eviscerates the plaintiff's opposition and dooms BP's arguments.
Returning to the substance of the dispositive motion and assuming, arguendo, that Warner's affidavit was admissible in its entirety, it must be remembered that the parties, A.G., BP and Banc, had reached an express contract for services, and, in such circumstances
the Court of Appeals for this Circuit has cautioned that the exercise of non-statutory, supervisory powers over attorney's fees is reserved for exceptional circumstances and must accord great weight to the fact that a prior fee agreement was reached between the parties. Farmington Dowel Products Co. v. Forster Manufacturing Co., 421 F.2d 61, 90 (1st Cir. 1970). Thus, [the attorney's] pleas either for a quantum meruit recovery of the reasonable value of all the services he actually rendered, or that an implied contract existed for his performance, with appropriate remuneration, of any efforts necessary to rebut plaintiff's title claim, falter in the face of the express terms of the retainer agreement calling for prior notice if the $2,000 fee parameter would be exceeded. Tranberg v. Tranberg, 456 F.2d 173, 175 (3d Cir. 1972); Hogan v. Wright, supra at 85. If courts have consistently, and liberally, interpreted attorney-client fee agreements in favor of the client and against the drafting attorney in cases in which mutual intent was murky, e.g., Jersey Land Development Corp. v. United States, supra at 54; 4 S. Williston, Law of Contracts s621 (3d ed. W. Jaeger 1961), then a similar result in situations of unambiguous intention would follow a fortiori.Baumrin v. Cournoyer, 448 F. Supp. 225, 228 (D. Mass., 1978).
BP is trying mightily to engraft a term upon its contract with Banc in order to recoup a fee on the grounds of industry custom and standard. While
[i]t is true that unexpressed terms may be introduced into a contract by virtue of usage and custom, . . . such usage and custom must be universal and uniform. 'It is also as well settled that, to be admissible, the usage not only must be universal, but has become notorious by the long and uniform practice of those engaged in the trade at the place where the contract is made.'Caggiano v. Marchegiano, 327 Mass. 574, 579, 99 N.E.2d 861, 864 (1951) (citations omitted). It is against this legal backdrop that the facts must be reviewed.
First, the so-called "industry standard" which conforms with the guidelines of the Commercial Law League of America (hereinafter "CLLA") is not mentioned in, or incorporated by reference into, the written contract between (or among) the parties. Second, the plaintiff has offered no evidence to demonstrate that Banc was even aware of this "industry standard". Third, even if these CLLA guidelines were part of the contract, there is no provision in the guidelines which suggests that a party such as BP who has agreed to accept a percentage of the amount collected from the debtor as a contingency fee is somehow entitled to payment when the creditor collects for its loss from a third-party source, i.e., an insolvency insurance policy. ( See #14, Exh. 20)
Moreover, Warner's own statements appear to undercut this notion of the "industry standard" as it supposedly applies to this case in that he indicates that BP normally does not collect a contingency fee when its client has insolvency insurance. Indeed, Warner specifically declares that:
Non-disclosure of the insolvency insurance in this case is a key issue. Customarily, a creditor would disclose to the collection agency/law firm that [it] has insolvency insurance coverage on the debts sought to be collected. Then the collection agency/law firm performs services on an hourly rather than contingency basis. This explains why BP has never collected a contingency fee through a client's insolvency insurance.
Affidavit, #21, Exh. A (emphasis added).
The plain implication is that BP normally does not collect a contingency fee from the proceeds of a creditor's insurance policy as it is trying to do here.
Banc argues that BP's answer to an interrogatory stating that it had no cases in which it claimed a fee arising out of a credit insurance payment (#14, Exh. 8, Int. 12) also cuts against finding a "universal and uniform" custom.
BP has collected no funds from U.S. Fresh such that Banc owes the firm a contingency fee under the terms of the written contract. Based on the law and the facts, the plaintiff has not offered sufficient evidence to raise a genuine issue of fact on the question of whether it was entitled to payment from Banc's insolvency policy under the terms of the parties' agreement. Consequently BP's breach of contract claim must fail.
Even assuming for purposes of argument that the plaintiff would be entitled under industry custom or standard to a contingency fee from the insurance policy if its efforts produced a successful result, the plaintiff's breach of claim still falters. Warner contends that "we understood that our client's intent was to pay us a contingent fee if our efforts enabled them to make any recovery, from whatever source." (#21, Exh. A) BP repeatedly argues that Banc used A.G. and BP's services in obtaining a judgment against U.S. Fresh to recover on the insolvency insurance policy. ( See #21 at pp. 2, 3, 8, 9) However, the plaintiff has produced absolutely no evidence to support this argument.
BP did not submit any of the Bates-numbered documents to which it refers in its opposition. At the Court's request, the plaintiff furnished a document, Bates BA000135, referenced in its memorandum of law (#21) at page 2 that purportedly supports the statement "that Banc received the benefit of [A.G. and BP's] services by utilizing them to recover on Banc's insolvency insurance policy." The document, Bates BA000135, is a copy of a check dated 08/11/2000 from National Union Fire Insurance Co. of Pittsburgh to Bank of America Commercial Cor [sic] for claim no. 00000351 in the amount of $153,584.50. Although not authenticated, presumably this check evidences the payment to Banc from the insurance company on the insolvency policy for the U.S. Fresh matter. It shows nothing, however, with respect to Banc's alleged utilization of A.G. and BP's services.
The evidence before the Court shows Banc purchased the insolvency insurance policy in March of 1999 more than eight months prior to the time that Banc hired A.G. to collect the U.S. Fresh loan. (#14, Exh. 2) On December 28, 1999, Banc filed a claim under the insolvency insurance contract including extensive documentation in support of its Proof of Loss Form. (#14, Exh. 17) Temporally, the insurance claim was submitted eleven days after A.G. sent the engagement letter to BP and twenty-seven days before BP's suit requirements letter was mailed. There is no indication on the face of these documents supporting the Proof of Loss that they came into Banc's possession as a result of either A.G.'s or BP's efforts.
Further, AIG informed Banc on July 24, 2000, that it would be receiving payment under the insolvency insurance policy for its U.S. Fresh losses. (#14, Exh. 32) On a time line, this notification came approximately two months after BP had filed suit on behalf of Banc against U.S. Fresh, but twelve days before an execution in favor of Banc against U.S. Fresh in that litigation. (#14, Exh. 19) There is nothing in the timing of these events alone from which a reasonable inference can be drawn that it was the plaintiff's efforts that secured a payment under the insurance policy for Banc.
Because BP has presented no evidence to demonstrate that Banc's recovery on the insolvency insurance policy resulted from BP's successful efforts on Banc's behalf, summary judgment should enter for the defendant on the breach of contract claim.
This same dearth of evidence dooms BP's quantum meruit claim. Under Massachusetts law,
Quantum meruit is a theory of recovery, not a cause of action. It is a claim independent of an assertion for damages under the contract, although both claims have as a common basis the contract itself. Recovery under this theory is derived from the principles of equity and fairness and is allowed where there is substantial performance but not full completion of the contract. See generally, 5 S. Williston, Contracts § 805 (3d ed. 1961). In a case involving an unenforceable contract, we allowed quantum meruit recovery, basing our reasoning on the theory of unjust enrichment. Salamon v. Terra, 394 Mass. 857, 859, 477 N.E.2d 1029 (1985). "A person who has been unjustly enriched at the expense of another is required to make restitution to the other." Id., quoting Restatement of Restitution § 1 (1937).J.A. Sullivan Corp. v. Commonwealth, 397 Mass. 789, 793-4, 494 N.E.2d 374, 377 (1986). In the absence of any proof whatsoever to show that Banc reaped the benefit of the insolvency insurance payment consequent to BP's efforts, the plaintiff cannot establish a genuine issue of material fact on the question of whether the defendant was unjustly enriched at BP's expense. Banc is entitled to the entry of summary judgment in its favor on the quantum meruit claim.
Count III of the complaint is a claim for violation of Massachusetts General Laws chapter 93A. Banc is said to have engaged in unfair and deceptive practices in that it did not advise BP that it had an insolvency insurance policy to cover the U.S. Fresh account, and it then refused to pay BP a contingency fee from the proceeds of that policy. The second aspect of this assertion can be summarily addressed. For the same reasons that BP's contract and quantum meruit claims must fail, so too must its claim that Banc's failure to pay BP a contingency fee based on the payment it received from a third-party source was an unfair and deceptive act.
The plaintiff argues that Banc is liable because it did not tell BP about the insolvency insurance policy. Gerstel attests that Banc did not advise A.G. that it had applicable insolvency insurance coverage at the time either A.G. or BP was engaged to collect the U.S. Fresh account. (#21, Exh. B) Indeed, according to Gerstel, A.G. did not learn about the insolvency insurance until after BP had commenced litigation on behalf of Banc against U.S. Fresh. (#21, Exh. B) Further, Warner opines that Banc "had a duty to tell us they had insurance coverage which they failed to do." (#21, Exh. A)
This statement, too, is inadmissible. What, if any, duty Banc owed, surely is not the proper topic of lay opinion under Rule 701.
A review of the correspondence among the parties reveals that neither A.G. nor BP ever asked Banc about insurance coverage. What BP requested was "supporting documentation: including, but not limited to, a ledger sheet or statement of account, any personal guarantees, promissory notes, credit application, and any other relevant documentation or information available which would confirm the debt. " (#14, Exh. 10) The existence of the insolvency insurance policy simply is not responsive to this request as it has no relevance at all in confirming the debt owed by U.S. Fresh.
In Massachusetts,
In order to prove fraud by deceit, a plaintiff ordinarily must show that the defendant made a false statement of a material fact with knowledge of its falsity in order to induce the plaintiff to act, together with a reliance by the plaintiff on the false statement to the plaintiff's detriment. Danca v. Taunton Sav. Bank, 385 Mass. 1, 8, 429 N.E.2d 1129 (1982). See Wellman v. Carter, 286 Mass. at 253, 190 N.E. 493. Here, there is no evidence that Newberg made a false representation or statement of a material fact which was deceptive. See Swinton v. Whitinsville Sav. Bank, 311 Mass. 677, 678-679, 42 N.E.2d 808 (1942). See also Kannavos v. Annino, 356 Mass. 42, 49, 247 N.E.2d 708 (1969). Instead, it is undisputed that Newberg said nothing at all to Shaffer about her mistaken accusations against Rood.
Usually, "nondisclosure does not amount to fraud and is not a conventional tort of any kind." Greenery Rehabilitation Group, Inc. v. Antaramian, 36 Mass.App.Ct. 73, 77, 628 N.E.2d 1291 (1994). However, nondisclosure may amount to fraud if a party "is under a duty to the other [party] to exercise reasonable care to disclose the matter in question." Restatement (Second) of Torts § 551(1) (1977). . . . The duty may arise if there is a "fiduciary or other similar relation of trust and confidence between [the parties]." Restatement (Second) of Torts § 551(2)(a). See also Swinton v. Whitinsville Sav. Bank, 311 Mass. at 678, 42 N.E.2d 808. Thus, "[t]he duty of honest advice and full disclosure arises where one party reposes confidence in the integrity of another and the other party in advising voluntarily assumes and accepts the confidence." Reed v. A.E. Little Co., 256 Mass. 442, 448-449, 152 N.E. 918 (1926). "When confidence is reposed and accepted, the person trusted is . . . liable for concealing facts which by reason of the relationship he should disclose." Id. at 449, 152 N.E. 918.Rood v. Newberg, 48 Mass. App. Ct. 185, 192, 718 N.E.2d 886, 892-3 (1999), review denied, 431 Mass. 1006, 733 N.E.2d 126 (2000).
In this case it is the plaintiff law firm, BP, that owed the fiduciary duty to its client, Banc, not vice versa. See, e.g., Beatty v. NP Corp., 31 Mass. App. Ct. 606, 612, 581 N.E.2d 1311, 1315 (1991); Sanguinetti v. Nantucket Const. Co., Inc., 5 Mass. App. Ct. 227, 237, 361 N.E.2d 954, 961 (1977). BP has cited no case law to suggest that Banc, the client, owed a duty to the plaintiff, the law firm, to disclose this information on the facts of this case. Silence alone, in the absence of a duty to disclose, quite simply does not rise to meet the requisite standard: "The objectionable conduct must attain a level of rascality that would raise an eyebrow of someone inured to the rough and tumble of the world of commerce." Levings v. Forbes Wallace, Inc., 8 Mass. App. Ct. 498, 504, 396 N.E.2d 149, 153 (1979); VMark Software, Inc. v. EMC Corp., 37 Mass. App. Ct. 610, 620, 642 N.E.2d 587, 595 (1994). As a matter of law, the chapter 93A claim must fail.
The final claim in the complaint, Count IV, is one for fraud. Under Massachusetts law it is incumbent upon the plaintiff to
' . . . allege and prove that the defendant made a false representation of a material fact with knowledge of its falsity for the purpose of inducing the plaintiff to act thereon, and that the plaintiff relied upon the representation as true and acted upon it to his damage.' Kilroy v. Barron, 326 Mass. 464, 465, 95 N.E.2d 190, 191. Alpine v. Friend Bros. Inc., 244 Mass. 164, 167, 138 N.E. 553.Barrett Associates, Inc. v. Aronson, 346 Mass. 150, 152, 190 N.E.2d 867, 868 (1963); Damon v. Sun Co., Inc., 87 F.3d 1467, 1471 (1 Cir., 1996).
In this case there has been no allegation of a false representation or any half-truths. Rather, the claim is that the Banc failed to disclose the existence of the insurance policy. As has been discussed, given the facts of this case Banc was under no obligation or duty to reveal the existence of the policy. As such, "this failure is mere nondisclosure and fails to reach the watermark of fraud." Nei v. Burley, 388 Mass. 307, 310, 446 N.E.2d 674, 676 (1983) (citations omitted).
Further, the plaintiff has proffered nothing to evidence that it relied upon the existence of this insolvency insurance policy for payment of its contingency fee. Rather, the contract provided that the fee was to be a percentage of the amount collected from the debtor.
In short, summary judgment should enter for Banc on Count IV of the complaint.
V. Conclusion And Recommendation
For all the reasons stated, I RECOMMEND that Defendant's Motion For Summary Judgment Against The Plaintiff On All Counts Of The Complaint (#12) be ALLOWED and that JUDGMENT enter for the defendant.
VI. Review by the District Judge
The parties are hereby advised that pursuant to Rule 72, Fed.R.Civ.P, any party who objects to this recommendations must file a specific written objection thereto with the Clerk of this Court within 10 days of the party's receipt of this Report and Recommendation. The written objections must specifically identify the portion of the recommendation, or report to which objection is made and the basis for such objections. The parties are further advised that the United States Court of Appeals for this Circuit has repeatedly indicated that failure to comply with Rule 72(b), Fed.R.Civ.P., shall preclude further appellate review. See Keating v. Secretary of Health and Human Services, 848 F.2d 271 (1 Cir., 1988); United States v. Emiliano Valencia-Copete, 792 F.2d 4 (1 Cir., 1986); Scott v. Schweiker, 702 F.2d 13, 14 (1 Cir., 1983); United States v. Vega, 678 F.2d 376, 378-379 (1 Cir., 1982); Park Motor Mart, Inc. v. Ford Motor Co., 616 F.2d 603 (1 Cir., 1980); see also Thomas v. Arn, 474 U.S. 140 (1985).