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Federal Trade Commission v. Hope Now Modifications

July 27, 2010

FEDERAL TRADE COMMISSION, PLAINTIFF,
v.
HOPE NOW MODIFICATIONS, LLC, ET AL., DEFENDANTS, AND HOPE NOW MODIFICATIONS, LLC, ET AL., THIRD-PARTY PLAINTIFFS,
v.
MICHAEL W. KWASNIK AND KWASNIK, RODIO, KANOWITZ AND BUCKLEY, P.C., THIRD-PARTY DEFENDANTS.



The opinion of the court was delivered by: Simandle, District Judge

OPINION

I. INTRODUCTION

Third-Party Plaintiffs, Hope Now Modifications, LLC, Hope Now Financial Services Corp., Nick Puglia, and Salvatore Puglia, (collectively hereinafter referred to as "Hope Now" or as "Hope Now parties"), who are also Defendants in this action brought by the Federal Trade Commission ("FTC"), filed a Third-Party Complaint against Third-Party Defendants Michael W. Kwasnik, Esquire and Kwasnik, Rodio, Kanowitz & Buckley, P.C., (collectively hereinafter referred to as "Kwasnik" or as "Kwasnik parties"), for legal malpractice, which they allege led to the FTC suit against them. Subsequently, the FTC filed an Amended Complaint asserting direct claims against the Kwasnik parties for the first time. The Hope Now parties answered the Amended Complaint and several Cross-Claims against the Kwasnik parties, which supersede their Third-Party Complaint.

The matter before the Court is a motion by Kwasnik for summary judgment as to Hope Now's Third-Party Complaint*fn1 [Docket Item 94] which Hope Now has not opposed. Kwasnik argues that the Hope Now parties' failure to serve a proper affidavit of merit in support of their legal malpractice claim, as required by New Jersey law pursuant to N.J. Stat. Ann. § 2A:53A-26 to -29 (West 2010), should result in the Court's dismissal of Hope Now's legal malpractice claim and the related claim for contribution and indemnification with prejudice. For the following reasons, the Court will grant the Kwasnik parties' unopposed motion for summary judgment and the Third-Party Complaint and the Cross-Claims of Hope Now parties against the Kwasnik parties will be dismissed with prejudice.

II. BACKGROUND

Hope Now's troubles began in March 2009, when the New Jersey Attorney General's Office, and subsequently the FTC, brought civil actions accusing them of participating in unfair and deceptive practices through their mortgage loan modification business. According to the Hope Now parties' Cross-Claims [Docket Item 68], in August 2008 Salvatore Puglia formed Hope Now Modifications LLC and later formed Hope Now Financial Services Corporation. (Cross-cl. ¶ 11.) Puglia formed the Financial Services Corporation to provide loan modification services to consumers, which he began providing in October 2008. (Id.) The New Jersey Department of Banking and Insurance sent Puglia a letter notifying him that in order for him to perform mortgage modifications he would need to acquire a debt adjuster's license because he was not an attorney. (Id. ¶ 12.) Puglia contacted the Kwasnik Firm, and spoke to Howard Kanowitz, one of the partners, to learn what he would need to do to lawfully maintain a loan modification business. (Id. ¶ 13.)

Puglia met with both Kanowitz and another partner Michael Kwasnik. (Id. ¶ 13.) Puglia presented his business model to both partners and retained their services as legal counsel for his loan modification business. (Id. ¶ 14.) He paid them $33,000 for legal services. (Id.) In December 2008, when all three gentlemen met again, Kwasnik explained that he was interested in helping Puglia and his Corporation, and provided Puglia with a flow-chart illustrating how Puglia would be able to operate the business without acquiring a debt adjuster license. (Id. ¶ 15.) Before the close of this meeting, all three gentlemen forged a partnership, which Kwasnik claimed was essential for Puglia's business to be in full compliance with all state and federal regulations. (Id. ¶ 16.) As part of this partnership, Kwasnik sub-leased office space from Hope Now at its office in Cherry Hill, New Jersey. (Id. ¶ 18.)

Both the Kwasnik Firm and Hope Now had important roles in this partnership. Hope Now alleges that Kwasnik hired a Hope Now employee to collect all customer payments for mortgage modifications and deposited them into the Kwasnik Firm account, and fees were shared by Hope Now and Kwasnik from this account in accordance with Kwasnik's business plan. (Id. ¶¶ 19, 21.) Hope Now employees continued to negotiate with lenders, recruit more customers and perform other office services. (Id.) Hope Now also had its independent contractors send information to customers, which Hope Now alleges included a retainer letter for the Kwasnik Firm that customers were required to sign and remit payment in order to receive assistance with mortgage modifications. (Id. ¶ 20.)

After Puglia first notified Kwasnik of the New Jersey Attorney General's action against Hope Now, Kwasnik allegedly assured Puglia that the injunction action was only minor, and that the matter would be resolved for the better without business interruption. (Id. ¶ 26.) However, shortly thereafter, Hope Now contends that Kwasnik informed Puglia that the firm was withdrawing from the partnership with Hope Now because of the pending actions against the business. (Id. ¶ 26.) After the FTC filed its action against Hope Now, Hope Now brought the action against Kwasnik arguing that their legal advice and business propositions led to the FTC and New Jersey Attorney General actions. (Id. ¶¶ 1, 22.)

Hope Now filed a Third-Party Complaint against Kwasnik on May 13, 2009 [Docket Item 30]. Kwasnik subsequently filed an Answer to the Third-Party Complaint on June 4, 2009 [Docket Item 42]. On July 1, 2009 Hope Now filed a timely affidavit of merit subscribed by attorney Walter Weir, Jr.*fn2 [Docket Item 47]. The applicable portion of Hope parties' affidavit of merit is found in Paragraph 2, which reads:

2. Based upon my review of the Complaint of Plaintiff, Federal Trade Commission, and assuming that all the allegations ser forth therein are true, I hereby state, pursuant to N.J.S.A. 2A:53A-27, that there exists a reasonable probability that the care, skill or knowledge exercised or exhibited in the practice or work that is the subject of Plaintiff's Complaint fell outside acceptable professional standards of practice. [Docket Item 47]. At the time the affidavit was prepared and submitted, the FTC's Complaint did not include any allegations against Kwasnik. The "practice or work that is the subject of [FTC's] Complaint" is the work of the Hope Now parties themselves, since the Kwasnik Firm was not even named by the FTC at that time. Subsequently, Kwasnik filed the instant motion for summary judgment on May 10, 2010, arguing that Hope Now failed to submit a proper affidavit of merit under N.J. Stat. Ann. § 2A:53A-27 [Docket Item 94]. Hope Now does not oppose the Kwasnik parties' motion for summary judgment.

After the FTC filed its "First Amended Complaint for Permanent Injunction and other Equitable Relief" on September 14, 2009 [Docket Item 61], naming the Hope Now parties and the Kwasnik parties as direct defendants, the Hope Now Defendants filed their Answer and Cross-Claims against Kwasnik and the Kwasnik Firm on October 7, 2009 [Docket Item 68]. These Cross-Claims repeat the same allegations of legal malpractice as were previously alleged in the Hope Now's Third-Party Complaint.*fn3

Count I of the Cross-Claims thus again alleges legal malpractice and Count II seeks contribution and indemnification based upon the legal malpractice of Kwasnik and the Kwasnik Firm.

The present motion, while referring to the Third-Party Complaint, is actually seeking the dismissal of the Cross-Claims asserted in Hope Now's Answer to the FTC's First Amended Complaint. The allegations of professional malpractice made by Hope Now against Kwasnik are identical in both documents, and the Cross-Claims supersede the Third-Party Complaint and Amended Third-Party Complaint as the operative pleading. The moving parties' Memorandum of Law likewise references the Third-Party Complaint and the Cross-Claims interchangeably. Therefore, the Court construes the present motion of the Kwasnik ...


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