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Demoisey v. Ostermiller

Court of Appeals of Kentucky

June 1, 2018



          BRIEF FOR APPELLANT: J. Fox Demoisey Jonathan E. Breitenstein Louisville, Kentucky

          BRIEF FOR APPELLEE: James P. Grohmann Louisville, Kentucky



          DIXON, JUDGE

         Appellants, attorney J. Fox DeMoisey and the DeMoisey Law Office, PLLC (hereinafter collectively referred to as "DeMoisey"), appeal from an order of the Jefferson Circuit Court dismissing claims for wrongful use of civil proceedings/malicious prosecution and abuse of process against Appellee, attorney Peter L. Ostermiller. Finding no error, we affirm.

         The facts underlying this matter have a long and tortured history. In the early 1990s, DeMoisey began representing Infocon Systems, Inc., a software solutions corporation focused on facilitating business transactions. Infocon is wholly controlled by Deepak Nijhawan, its President, and Robert Keith Hughes, its Vice President. In 1998, Infocon began doing business with Exact Software North America, Inc. ("Exact"). Specifically, Infocon was a reseller of Exact's software. However, sometime around 2002, problems developed between Exact and Infocon, and, in the spring of 2003, Exact sued Infocon in an Ohio Court of Common Pleas. Therein, Exact claimed that Infocon owed it $143, 031.77 in unremitted payments from sales of Exact's software to Infocon's customers. Infocon thereafter removed Exact's suit to the United States District Court, Northern District of Ohio in Toledo, on the basis of diversity jurisdiction. Infocon also counterclaimed for breach of contract, fraud and intentional interference with the contract and asserted several affirmative defenses to the collection action.

         Infocon engaged DeMoisey, along with local Ohio counsel to represent it in connection with the Exact dispute. At the time, Infocon did not have the financial wherewithal to pay its counsel an hourly fee, and thus it was initially agreed that in return for his legal services, DeMoisey would receive a one-third interest in a company called Alocam. As the Exact litigation proceeded, Alocam's net value diminished, causing doubt as to how DeMoisey would be compensated. It is unclear exactly how the relationship evolved from there, but, as stated by the federal district court, at some point it became "firmly set in the minds of Hughes and DeMoisey, at least, an understanding that DeMoisey would receive one-third of the results of the litigation." Exact Software N.A., Inc. v. Infocon, Inc., No. 3:03CV7183, 2012 WL 1142476, at 8 (N. D. Ohio Apr. 4, 2012). Allegedly sometime around late 2004 or early 2005, approximately two years into the Exact litigation, DeMoisey drafted and delivered a fee agreement converting his one-third interest in Alocam to a contingency fee for one-third of any recovery from Exact. Hughes and Nijhawan deny ever signing any fee agreement with DeMoisey, and such has never been produced.

         The Exact litigation dragged on for several years. On February 28, 2007, Infocon and Exact participated in a mediation of their lawsuit at the Seelbach Hotel in Louisville, Kentucky. As recounted by the federal district court presiding over the dispute, this mediation culminated in a tentative settlement being reached between the parties:

On February 28, 2007, Infocon and Exact participated in a mediation of their lawsuit. Mr. Patel, head of Exact's Dutch operations, and Mr. Kent, head of Exact's North American operations, attended, along with their attorney, as did DeMoisey and Infocon's principals, Deepak Nijhawan and Robert Hughes. Patel and Kent had to leave fairly shortly after the mediation started. Just before they did so, Kent and Hughes went to the restroom together. When they came out, Hughes announced that the case had been settled for $4 million. Patel stated that Nijhawan and Kent would have to go to Dallas to finalize the settlement.

Id. at 3.

         A few days later, on March 2, 2007, DeMoisey met with Nijhawan and Hughes to discuss the approach they should take while in Dallas. Hughes and Nijhawan told DeMoisey that they each wanted to net $1 million. Hughes confirmed that they wanted DeMoisey to get the same amount for his fee. This apparently led to a discussion among the three concerning how much each would need to gross before taxes to net a million dollars each. DeMoisey explained his fee would be taxed as ordinary income whereas theirs would be taxed at the capital gains rate. DeMoisey also recommended paying his associate, Jonathan Breitenstein, and local counsel, John Carey, bonuses out of the settlement. In order to accomplish a net of $1 million to each of the three of them and give something to Breitenstein and Carey as bonuses, DeMoisey recommended settling for $5.3 or $5.4 million instead of the $4 million they had discussed at the mediation. Apparently, this conversation did not sit well with Nijhawan and Hughes, who perceived DeMoisey's suggestion as an attempt to get more than a one-third contingency fee. While this may not have been DeMoisey's intent, Nijhawan and Hughes clearly believed DeMoisey was overreaching. What followed next was a breakdown in communication. This litigation is the result of that breakdown and its aftermath.

         The Dallas trip was scheduled for March 12, 2007. On March 7, 2007, Hughes and Nijhawan opened a new checking account in the name of Infocon. At some point, they also contacted Louisville attorney Peter L. Ostermiller about representing them for the purpose of disputing DeMoisey's fee. On March 12, 2007, Hughes and Nijhawan flew to Dallas where they met with the executive officers of Exact's parent Dutch company, Exact Holding NV. At the Dallas conference, Hughes, Nijhawan and Exact agreed to a settlement of $4 million dollars, the same sum they had discussed the prior month at the Seelbach Hotel. Before returning to Louisville, Hughes and Nijhawan called Ostermiller from the airport in Dallas to report that they had settled the Exact matter. On March 15, 2007, Ostermiller sent Infocon an engagement letter. In part, the letter set forth that Ostermiller had been engaged "regarding any potential attorney's fees and expense dispute between Infocon Systems, Inc., and its counsel, Fox DeMoisey, and issues related directly thereto."

         Sometime thereafter, Ostermiller referred Hughes and Nijhawan to Scott P. Zoppoth, another Louisville attorney. In early July 2007, Hughes and Nijhawan retained Zoppoth relative to "the preparation, and/or review of the settlement documents regarding the resolution of [the] lawsuit involving Exact Software of North America." Neither Hughes nor Nijhawan informed DeMoisey that they had retained Ostermiller or Zoppoth.

         At the request of the parties, the federal district court had stayed the Exact litigation until August 2007, so that the parties could work on a possible settlement. In late July 2007, with a status report coming due in federal court, DeMoisey contacted Exact and requested a final written confirmation of the settlement agreement. On July 31, 2007, Exact's counsel advised DeMoisey that a settlement agreement was complete and would be forwarded immediately to him. DeMoisey and Exact's counsel then advised the federal district court that their settlement agreement was final. The federal district court entered an order the same day acknowledging the settlement and ordering that any disputes regarding the terms of the settlement were to be submitted to the court for final adjudication. After receiving and reviewing the written settlement agreement, DeMoisey forwarded Exact's counsel the specifics of his office's IOLTA, attorney escrow account and wiring instructions for the settlement payment. However, shortly thereafter, Exact's counsel contacted DeMoisey and said that Exact would need to "push back" the payment until late August. This evidently aroused suspicion with DeMoisey and he asked his associate to do some research into Exact. As a result of that research, DeMoisey's associate discovered Exact NV's T-1 Securities and Exchange Commission Report, dated July 26, 2007, that indicated no settlement had been reached in the Exact litigation.

         On August 7, 2007, Hughes advised DeMoisey that he had edited and revised the settlement agreement. Despite DeMoisey's requests to see the revised settlement, it was not provided to him by either Hughes or Exact. DeMoisey believed that Infocon did not want him to see the settlement agreement because Hughes had revised it to provide that Exact was to deposit the settlement proceeds in the "Infocon Escrow Account at First Capital Bank of Kentucky, 293 Hubbards Lane, Louisville, KY 40207." This was the bank account that Hughes and Nijhawan had opened in March before they flew to Dallas.

         On August 10, 2007, Ostermiller contacted DeMoisey and advised him that Infocon had retained him to address a fee dispute and further told him to anticipate correspondence from Infocon. Even though Infocon and its principals had engaged Ostermiller approximately five months earlier, this was the first time DeMoisey was made aware of any potential dispute regarding either his fee in the Exact matter or Ostermiller's involvement with Infocon. Two days later, on August 12, 2007, DeMoisey received a letter from Hughes advising him of his discharge "for many reasons which I will not outline in the letter, other than to say that we are very dissatisfied with the legal representation you have provided to Infocon." In response to this termination letter, DeMoisey and local counsel, Carey, moved to withdraw and filed respective Charging Liens (for earned yet unpaid attorneys' fees) with the federal district court. While Ostermiller had not been retained by Infocon to represent it in the underlying litigation with Exact, Ostermiller did enter an appearance on behalf of Infocon in the federal district court with respect to DeMoisey's charging lien. Given the charging liens, the federal district court required Exact to pay the entire $4 million settlement into the court's registry.

         The federal district court thereafter held a hearing on September 18, 2007, during which Hughes testified that his understanding of the fee arrangement with DeMoisey for the Exact ligation was that DeMoisey's fee was contingent on the outcome of Infocon's counterclaims. Hughes explained that the fee was to be "one-third of the net" after expenses. Following the hearing, the federal district court made a partial distribution of the settlement funds, ordering that $2.5 million was to be transferred into Infocon's account. Of the remaining $1.5 million in the court registry, $38, 406.86 was to be paid to local counsel Carey's office to satisfy its outstanding invoices to Infocon and another $200, 000 was to be paid to DeMoisey, leaving the balance subject to the further litigation. The federal district court retained jurisdiction over the charging lien as well as the remainder of the settlement monies.

         On February 29, 2008, DeMoisey filed a motion for summary judgment with the federal district court relative to his charging lien. On May 27, 2008, while the parties were still awaiting the federal district court's ruling on the summary judgment motion, Hughes, Nijhawan, and Infocon, with Louisville attorney Ross Turner as their counsel, filed a complaint in the Jefferson Circuit Court, Division Four, against DeMoisey alleging professional malpractice and actionable misconduct related to his representation of Infocon in the Exact federal litigation. DeMoisey assumed that Ostermiller was intrinsically involved in Turner's decision to file the malpractice action. In any event, Ostermiller later entered his appearance as co-counsel[1] on behalf of Hughes, Nijhawan and Infocon. DeMoisey counterclaimed, seeking payment of his fee pursuant to his alleged contingency fee agreement with Infocon. The federal litigation with respect to DeMoisey's charging lien was stayed, pending resolution of the state court action.

         On October 22, 2009, the circuit court found that the malpractice action was time-barred and granted summary judgment in favor of DeMoisey. On August 4, 2010, the circuit court entered a second order ruling that no valid and enforceable fee agreement existed between DeMoisey and Infocon and, therefore, DeMoisey's breach of contract claim was not cognizable. As a result, any fee DeMoisey was entitled to for his representation of Infocon in the ...

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