                                                                                                                           Opinions of the United
2002 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


11-12-2002

Benenson Assoc Inc v. Orthopedic Network
Precedential or Non-Precedential: Non-Precedential

Docket No. 01-3746




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                                                                 NOT PRECEDENTIAL

                        UNITED STATES COURT OF APPEALS
                             FOR THE THIRD CIRCUIT
                                  ___________


                                Nos. 01-3746 and 02-1206
                                      ___________


                     MICHAEL J. BENENSON ASSOCIATES, INC.
                         d/b/a BENENSON & ASSOCIATES,
                                          Appellant,
                                             v.


                      ORTHOPEDIC NETWORK OF NEW JERSEY
                   d/b/a GARDEN STATE ORTHOPEDIC NETWORK,
                              JAMES W. DWYER, M.D.,
                  and SOMERSET ORTHOPEDIC ASSOCIATES, P.A.,
                                            Appellees.
                                   ___________


                      On Appeal from the United States District Court
                                 for the District of New Jersey
                                  (Civil Action No. 98-3332)
                     District Judge: The Honorable Nicholas H. Politan
                                         ___________


                     Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
                                   September 13, 2002


       Before: ALITO and FUENTES, Circuit Judges and OBERDORFER*, District Judge
                           (Opinion Filed: November 8, 2002)


* The Honorable Louis F. Oberdorfer, United States District Judge for the District of
Columbia, sitting by designation.
                                  ________________________
                                  OPINION OF THE COURT
                                 ________________________

FUENTES, Circuit Judge:

       This civil action was filed in 1998 by plaintiff Michael J. Benenson Associates, Inc.

d/b/a Benenson & Associates, Inc. (BAI) against defendant Orthopedic Network of New Jersey

d/b/a Garden State Orthopedic Network (GSON), a network of physicians, to recover fees of

about $141,000 for consulting work it provided to GSON.1 Following a non jury trial and the

submission of proposed findings of fact and conclusions of law, the District Court determined

that BAI and GSON had made an oral agreement to resolve their fee dispute and that GSON had

breached that agreement.    Accordingly, the court awarded BAI $51,000 with prejudgment

interest. Contending that the court erred in enforcing the oral agreement and that, instead, BAI

should have been permitted to pursue its original underlying claim for $141,000, BAI appeals.

We affirm.

                              I. Facts and Procedural Background

       Plaintiff brought suit against defendants seeking recovery for services rendered under

various theories including book account, quantum meruit, account stated, voidable transfer,

fraudulent conveyance, piercing the corporate veil, and settlement.         The District Court

conducted a bench trial over four days during which the parties presented evidence and the

court had an opportunity to assess the credibility of the witnesses.   At the conclusion of the




       1
        BAI also brought claims against Dr. James W. Dwyer and Somerset Orthopedic Associates,
P.A.

                                              -2-
evidence and after considering the parties’ submissions, the District Court issued a Letter

Opinion in which it made findings of fact and conclusions of law.

        The District Court found that, on March 20, 1995, defendant SOA, a network of

physicians, hired Albert J. Zdenek, a financial planner, to help SOA set up the then-nonexistent

defendant GSON, which was also to be a network of physicians. The individual defendant, Dr.

James Dwyer, then a principal of SOA, entered into a retainer agreement with Zdenek on behalf

of SOA and GSON. Zdenek then hired plaintiff to assist in the creation of defendant GSON.

Pursuant to the terms of the retainer, Zdenek included plaintiff’s bills with the invoices

defendant SOA was to pay. SOA paid these invoices in May of 1995. A month later, GSON

was legally formed. In August of 1995, GSON’s board members became concerned about the

mounting costs of establishing and operating GSON. On or about September 12, 1995, GSON

decided to terminate its relationship with Zdenek and to hire plaintiff to work for it directly.




        The District Court explained that the parties disagreed as to the terms of the agreement

between plaintiff and defendant GSON.           The court stated that, while plaintiff insisted that

defendant promised to pay its bills as they came due, defendant insisted that payment was

contingent on plaintiff successfully obtaining managed care contracts for the defendant.         On

behalf of GSON, Dr. Dwyer asserted at trial that plaintiff was not entitled to payment because

it did not obtain managed care contracts for defendant.

        The District Court found that the parties reached a settlement of plaintiff’s outstanding

bills in April of 1996.     The District Court found that the settlement came about when Dr.

                                                   -3-
Dwyer wrote to plaintiff on January 16, 1996, asking for a 50% reduction in fees.                Michael

Benenson, the plaintiff’s president, needed an infusion of cash and, therefore, agreed          in April

of 1996 to accept a reduced fee in exchange for immediate payment. The agreement provided

that, of the approximately $141,000 in fees outstanding, Benenson would accept $71,000, with

$51,000 to be paid immediately.        Advanced Health Care, a company that purchased plaintiff,

was to pay the remaining $20,000. The District Court found that defendant GSON never paid

plaintiff the settlement amount agreed to between the parties.

        Based on these findings, the District Court ruled that plaintiff was entitled to recover

$51,000, together with prejudgment interest, by virtue of the enforceable oral settlement

agreement between plaintiff and GSON.          In its Letter Opinion, the court also dismissed the

remainder of plaintiff’s claims as well as defendant’s counterclaims.          Thereafter, plaintiff filed

a motion for reconsideration contending that the court erred because it did not make findings

of fact and conclusions of law as to plaintiff’s alternate theories of recovery concerning the

underlying debt. The District Court rejected this contention, reasoning as follows:

                [s]imply put, BAI asserted numerous alternative theories of
                recovery in its Second Amended Complaint, and the Court
                concluded it was entitled to recover on the settlement agreement,
                to the exclusion of all other claims. As such, no additional
                findings were necessary.

App. at 19-20.     The District Court also rejected plaintiff’s assertion that it misapprehended the

law and the facts with respect to plaintiff’s fraudulent conveyance claim.            See App. at 17.

Subsequently, the District Court denied plaintiff taxation of certain costs because plaintiff’s

motion failed to comport with Local Civil Rule 54.1.             Plaintiff timely appealed the District

                                                   -4-
Court’s final order of judgment and the order on plaintiff’s motion with respect to costs.

                                 II. Jurisdiction and Standard of Review

        The District Court exercised jurisdiction over this matter under 28 U.S.C. § 1332. We

have appellate jurisdiction under 28 U.S.C. § 1291.

        We accept the trial court’s findings of fact unless clearly erroneous and exercise

plenary review of the court’s interpretation of legal precepts and its application of those

precepts to the historical facts. See Mellon Bank, N.A. v. Metro Communications, Inc., 945

F.2d 635, 642 (3d Cir. 1991) (citing Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d

98, 101-02 (3d Cir. 1981)). Taxation of costs under Federal Rule of Civil Procedure 54(d)(1)

is reviewed only for abuse of discretion.        See In re Paoli Railroad Yard PCB Litigation, 221

F.3d 449, 458 (3d Cir. 2000).

                                             III. Discussion

        On appeal, plaintiff asserts that the parties’ settlement agreement constitutes an

executory accord and that, because defendant did not satisfy the accord, plaintiff is entitled to

sue on the original claims. Defendant, on the other hand, asserts that the settlement agreement

is a substitute contract.     Defendant asserts that the District Court correctly decided that,

notwithstanding the breach by plaintiff, “the substitute agreement is what             must be enforced

now, not [plaintiff’s] claims regarding former invoices.” Appellee’s Br. at 8.

        Both the doctrines of substitute contract and accord and satisfaction come into play

when contracting parties agree to alter the terms of their original agreement by entering into

a new agreement.       Whether the parties resolve their differences by entering into a substitute

                                                   -5-
contract or through an accord and satisfaction is significant because the remedy for a breach

of the new agreement depends on its nature.

        “An accord and satisfaction is a substitute contract for settlement of a debt by some

alternative other than full payment . . . [in which t]he consideration is the resolution of a

disputed claim.” Paramount Aviation Corp. v. Agusta, 178 F.3d 132, 147-48 (3d Cir. 1999).

When an accord is breached, the nonbreaching party may elect to enforce the underlying

agreement or the accord.        See id. at 148.      A substitute contract, on the other hand, is an

exchange of promises which extinguishes the underlying debt.              See Pan American World

Airlines, Inc. v. Midlantic National Bank/ North, Civ. A. No. 87-3404, 1990 WL 61784, at *4

(D.N.J. May 7, 1990).          The exchange of promises itself, rather than performance of the

substituted obligation, is what extinguishes liability on the underlying debt.       See id.    We have

previously held that a novation works the same way.

        In Agusta, we explained that “[i]n a novation, the new promise itself satisfies the

preexisting claims, whereas in an accord it is the performance of the new promise that does

so.” Agusta, 178 F.3d at 148.         We also explained that the “essential difference between an

accord and a novation is the parties’ intent[,]” and that the “existence of a substituted contract

is essentially for the jury.”2 Id. See also Publicker Indus., Inc. v. Roman Ceramics Corp., 603

F.2d 1065, 1071 (3d Cir. 1979) (“[t]o determine whether a contract acts as a novation or an




        2
          In Agusta, we used the terms “novation” and “substituted contract” interchangeably. This is
consistent with Arthur Corbin’s teaching that “[a]ll novations are substituted contracts; and the converse
is also true that all substituted contracts are novations[.]” Corbin on Contracts § 1293, at 189.

                                                   -6-
accord executory, intent of the parties is the key.”); Corbin on Contracts § 1293, at 199

(“Whether the new agreement or ‘accord’ is itself accepted as an immediate discharge of the

prior claim–as a substituted contract–or is not so accepted, is merely a question of reasonable

interpretation of the expressions of the parties.”).

         In its Findings of Fact and Conclusions of Law, the District Court noted that Dr. Dwyer,

who was acting on behalf of defendant GSON, wrote a letter to plaintiff on January 16, 1996,

requesting a 50% reduction in fees and that, in April of 1996, plaintiff’s president, Michael

Benenson, agreed to accept the reduced fee in exchange for immediate payment.         Dr. Dwyer

testified that the reduced bill was a means of working things out with plaintiff, as Dr. Dwyer

did not believe plaintiff to be entitled to payment of its fees because payment was contingent

on plaintiff obtaining managed care contracts for defendant GSON, and plaintiff had failed to

do so.    See App. at 140:14. Dr. Dwyer also testified that he had met with Benenson on five

or six separate occasions in August of 1995 and asked for more bills to be provided because

he thought that the underlying debt was “not legitimate.” App. at 169:17.

         These findings are consistent with the District Court’s conclusion that the settlement

agreement operated as a substituted contract. Given that the amount owed to plaintiff was in

dispute, there was a basis for the trier of fact, here the District Court, to conclude that the

parties intended to extinguish the underlying debt in order to liquidate the amount owed and,

therefore, that plaintiff’s recourse was limited to enforcement of the amount defendant

promised to pay it in the settlement.

         Based on the foregoing, we conclude that the District Court properly dismissed Counts

                                                       -7-
I through IV of plaintiff’s complaint, specifically, the claims for services rendered, a book

account, quantum meruit and account stated on the basis that recovery on the settlement

agreement necessarily foreclosed recovery on these alternate theories of recovery.                  We also

reject plaintiff’s assertion that the District Court erred in dismissing the remainder of its

claims.

             Furthermore, we cannot say that the District Court’s decision to deny an award of costs

to plaintiff was an abuse of discretion in light of plaintiff’s failure to comply with Local Civil

Rule 54.13 by failing to provide invoice documentation of the items for which it sought

reimbursement.          Accordingly, we affirm the District Court’s denial of the costs sought by

plaintiff.

                                                  IV. Conclusion

             After carefully considering the arguments discussed above and all other arguments


             3
              Local Civil Rule 54.1 provides:

                     (b) [The] Bill of Costs shall precisely set forth each item thereof, so that
                     the nature of the charge can be readily understood, and shall be verified
                     by the attorney for the applicant, stating that (1) the items are correct,
                     (2) the services were actually and necessarily performed, and (3) the
                     disbursements were necessarily incurred in the action or proceeding.
                     Counsel shall append to the verified Bill of Costs copies of all invoices
                     in support of the request for each item.

                     ****

                     (e) Upon failure of the prevailing party to comply with this Rule, all
                     costs shall be waived.

United States District Court for the District of New Jersey Local Civil Rule 54.1 (emphasis added).

                                                         -8-
advanced by the Appellant, we affirm the District Court’s decision in all respects.




____________________________

TO THE CLERK OF THE COURT:




Kindly file the foregoing Opinion.

                                                                 By the Court,

                                                                 /s/ Julio M. Fuentes

                                                                 Circuit Judge




                                                   -9-
