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U.S. Claims, Inc. v. Smolar

March 9, 2009


The opinion of the court was delivered by: Brody, J.


I. Introduction

Plaintiff and Defendant entered into a settlement agreement following litigation over an alleged breach of contract. Plaintiff now brings an enforcement action alleging that Defendant has breached the settlement agreement. I find as a matter of law that the Defendant has breached the settlement agreement and has failed to raise any viable defenses to his non-performance. I therefore grant Plaintiff's motion for summary judgment and enter judgment in an amount to be determined following an evidentiary hearing on damages.

II. Background

Plaintiff, U.S. Claims, Inc. ("USC"), is a Delaware corporation engaged in the business of purchasing fee interests in pending litigation claims from attorneys. Defendant, Yehuda Smolar, Esq. ("Smolar"), is an attorney licensed to practice in Georgia. On April 28, 2003 and July 7, 2003, respectively, Smolar and USC entered into purchase agreements (the "Purchase Agreements") pursuant to which Smolar conveyed to USC an interest in his anticipated contingent attorney's fees in specific personal injury cases (the "Fees"), in exchange for a monetary advance from USC. (Pl.'s Mot. for Summ. J. Exs. A, B [hereinafter "Purchase Agr'm"].); (Levine Dep. 13-24, Aug. 26, 2008.) The agreements are identical in all material respects, except that Smolar received $75,000 of the total amount of claims sold to USC upon execution of the April 28, 2003 agreement, and $25,000 upon execution of the July 7, 2003 agreement, and the specific cases in which USC purchased a fee interest are different.*fn1 The cases in which USC purchased fees (the "Named Claims") are enumerated in a "Schedule of Claimants and Defendants" appended to the Purchase Agreements (the "Schedule").*fn2 (Purchase Agr'm 7.)

The Purchase Agreements entitle USC to one hundred percent (100%) of the Fees from the Named Claims, until USC has recouped the amount originally advanced to Smolar, plus interest. (Id. at 1.) The interest is not calculated by a percentage, but is set forth in a timetable whereby the amount to be paid to USC increases based on the date payment is made.*fn3 (Id. at 7.) If any of Smolar's clients hires new counsel, or if any Named Claim fails to generate proceeds, either as a result of an adverse verdict or termination of the case, Smolar must transfer to USC "makeup fees" from other claims in an amount "at least equal" to the estimated Fee for those Named Claims for which no fee was payable. (Id. at 4.) The Purchase Agreements specifically prohibit Smolar from selling or transferring any of USC's interest in the Fees they have purchased. (Id. at 3.)

On January 29, 2004, USC filed suit against Smolar and Yehuda Smolar, P.C. d/b/a Smolar, Sackas & Goodheart ("Smolar P.C." and hereinafter, together with Smolar, "Smolar") in the Court of Common Pleas of Philadelphia County alleging breach of the Purchase Agreements for non-payment. Smolar removed the case to federal court in Febuary 2004. Subsequently, the parties settled their dispute, and on or about May 5, 2004, executed a written settlement agreement (the "Settlement Agreement") (Doc #11).

The Settlement Agreement required Smolar to make certain immediate payments to USC,*fn4 as well as to:

"continue to be obligated to make payments to USC, pursuant to the terms of the Purchase Agreements, and [to] remit 100% of all attorney's fees received from each remaining [Named] Claim until USC's Interest is paid in full."*fn5

(Pl.'s Mot. for Summ. J. Ex. E ¶¶ 4-5 [hereinafter "Settlement Agr'm"].) The parties also agreed that, except as specifically modified by the terms of the Settlement Agreement, the Purchase Agreements would "remain in full force and effect, and all non-modified terms, conditions and warranties shall remain in place." (Settlement Agr'm ¶ 9.) Because the terms of the Settlement Agreement require the parties to continue to perform under the Purchase Agreements, reference to the Purchase Agreements is required to understand the parties' obligations under the Settlement Agreement. On August 27, 2004, this Court entered an order incorporating the Settlement Agreement as an order of the court, and dismissed the case with prejudice (Doc. #10).

In the fall of 2004, Smolar again sought to borrow funds to finance the cases he was handling. (Def.'s Mem. in Opp. to Pl.'s Mot. for Summ. J. 7 [hereinafter "Def. Mem."].) USC did not enter into another agreement with Smolar. However, through Brian Spira, a former broker at USC, now associated with Oxbridge Group LLC, Smolar was introduced to Stillwater Asset Backed Fund, LP ("Stillwater"), a Delaware limited partnership. (Levine Dep. 64:7-11; Smolar Dep. 122:14-123:18, July 8, 2008.) On November 9, 2004, Smolar entered into written agreements with Stillwater for a term loan in the amount of $500,000.00 and revolving loans for a principal amount not to exceed $1,500,000.00 (the "Smolar-Stillwater Loan Agreement"). As he had done for the Smolar's agreements with USC while employed by USC, Brian Spira acted as Smolar's primary point person for the transactions between Smolar and Stillwater. (Smolar Dep. 81:10-82:6; 119:18-23.) The Smolar-Stillwater Loan Agreement entitles Stillwater to place a lien upon "all personal property and fixtures and interests" of Smolar. (Def. Mem. Ex. E1 121-23.) In "late 2004" Stillwater perfected its lien on Smolar's assets by filing a UCC Financing Statement against Smolar in Fulton County, Georgia, where Smolar practices. (Def. Mem. 8.)

About two years later, in August 2006, Smolar settled the matter of Hightower & Hightower v. Ivey, one of the cases identified in connection with the April 28, 2003 Purchase Agreement with USC. (Smolar Dep. 72:2-17.) Believing Stillwater's lien had priority under the Smolar-Stillwater Loan Agreement, Smolar paid the fees associated with Hightower to Stillwater. (Smolar Dep. 76:11-17; 114:16-18.) Believing it had a right to those fees pursuant to the Settlement Agreement, USC filed in this court a Motion to Enforce the Settlement Agreement (the "Motion to Enforce") (Doc. #11).*fn6 On March 6, 2007, USC filed a UCC Financing Statement against Smolar covering their interest in the Fees. (Def. Mem. Ex. F.) On March 8, 2007, USC filed a second lawsuit in this Court against Yehuda Smolar and Smolar P.C., and also named Stillwater, the Oxbridge Group, LLC, and Brian Spira as defendants (the "Second Action"). On June 29, 2007, after hearing oral argument, I re-opened*fn7 the instant matter and consolidated it with the Second Action. The Second Action was subsequently dismissed for lack of jurisdiction (Doc. #37).*fn8 The instant matter remained. On August 8, 2008, USC moved for summary judgment on the pending enforcement action (Doc. #48).

III. Jurisdiction

Smolar initially removed this case to federal court based on diversity jurisdiction. A court may retain jurisdiction over enforcement of a settlement agreement by incorporating the terms of the agreement into the order of dismissal. See Kokkonen v. Guardian Life Ins. Co. of Amer., 511 U.S. 375, 380-81 (1994); Halderman v. Pennhurst State Sch. and Hosp., 901 F.2d 311, 317 (3d Cir. 1990) (finding that district court had jurisdiction to enforce settlement agreement where the order of dismissal incorporated the terms of the agreement). Because the order of dismissal in this action incorporates the terms of the Settlement Agreement, this Court has jurisdiction over the instant enforcement action.

IV. Summary Judgment Standard

Summary judgment is appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); Kornegay v. Cottingham, 120 F.3d 392, 395 (3d Cir. 1997). A factual dispute is "genuine" if the evidence would permit a reasonable jury to find for the non-moving party. Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248 (1986). The party moving for summary judgment bears the initial burden of demonstrating that there are no facts supporting the nonmoving party's legal position. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party carries this initial burden, the nonmoving party must set forth specific facts showing that there is a genuine issue for trial. Fed. R. Civ. P. 56(e); see also Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). The non-moving party "cannot rely merely upon bare assertions, conclusory allegations or suspicions to support its claim." Fireman's Ins. Co. v. DeFresne, 676 F.2d 965, 969 (3d Cir. 1982). Rather, the party opposing summary ...

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