Waldman v. Pitcher, s. C–150462

• Decision Date: 31 August 2016
• Docket Number: C–150501.,Nos. C–150462,s. C–150462
• Citation: 2016 Ohio 5909,70 N.E.3d 1025
• Parties: Lawrence WALDMAN, and Waldman & Company, P.S.C., Plaintiffs–Counterclaim–Defendants–Appellants, v. Kenneth B. PITCHER, and Michael Enders, Defendants–Counterclaim–Plaintiffs–Appellees.
• Court: Ohio Court of Appeals

70 N.E.3d 1025

2016 Ohio 5909

Lawrence WALDMAN, and Waldman & Company, P.S.C., Plaintiffs–Counterclaim–Defendants–Appellants,

v.Kenneth B. PITCHER, and Michael Enders, Defendants–Counterclaim–Plaintiffs–Appellees.

Nos. C–150462

C–150501.

Court of Appeals of Ohio, First District, Hamilton County.

Aug. 31, 2016.

Denlinger Rosenthal & Greenberg Co. LPA and Gary L. Greenberg, Cincinnati, for Plaintiffs–Counterclaim–Defendants–Appellants.

Bingham Greenebaum Doll LLP and V. Brandon McGrath, Cincinnati, for Defendants–Counterclaim–Plaintiffs–Appellees.

OPINION

CUNNINGHAM, Presiding Judge.

{¶ 1} In these consolidated appeals, plaintiffs-counterclaim-defendants-appellants Lawrence Waldman and Waldman & Company, P.S.C. (collectively "Waldman"), appeal from the trial court's dismissal of their declaratory-judgment action against defendants-counterclaim-plaintiffs-appellees Kenneth B. Pitcher and Michael Enders on grounds that there was no justiciable issue to resolve. Waldman intended to report Pitcher and Enders, tax specialist accountants and his former associates, to the Internal Revenue Service's Office of Professional Responsibility (the "OPR"). Waldman sought a declaration that the nondisparagement provision of a settlement agreement between Waldman, Pitcher, and Enders was unenforceable in light of public policy protecting the reporting of disreputable activities by tax practitioners. Because Waldman has asserted facts in their complaint which, when accepted as true for purposes of resolving a Civ.R. 12(C) motion, demonstrated that Waldman's ability to make a statement to the OPR was actively contested by Pitcher and Enders, an actual controversy of the requisite immediacy existed between the parties. We reverse.

The Nondisparagement Provision

{¶ 2} As we explained in Pitcher v. Waldman, 1st Dist. Hamilton No. C–160245, 2016-Ohio-5491, 2016 WL 4451436, ¶ 2 :

The parties are the former owners of * * * an accounting firm. In 2009, Pitcher and Enders filed a lawsuit seeking a judicial dissolution of the firm. In October 2009, the parties entered into a settlement agreement in which Pitcher and Enders relinquished their ownership [in the firm]. The settlement agreement also contained a non-disparagement provision, which stated that ‘Pitcher, Enders, Waldman * * * agree * * * not to make or publish any negative or disparaging statements or comments about one another[.]’

{¶ 3} The parties' irreconcilable differences continued despite the 2009 settlement agreement. To settle subsequent litigation, the parties entered into a second settlement agreement in 2012, which provided that the nondisparagement terms of the 2009 agreement would remain in effect unless modified by a later agreement.

{¶ 4} The differences between the former co-owners continued in both state-and federal-court litigation. For example, in March 2014, a federal district court held that Waldman had violated federal law by willfully issuing fraudulent tax documents to Pitcher and Enders. Both state and federal courts had entered protective orders restricting and limiting the use of tax information produced during the lawsuits. None of the protective orders had disturbed the nondisparagement provision of the 2009 agreement.

OPR Circular 230 and Waldman's Proposed Letters

{¶ 5} Pursuant to rule-making authority, the Secretary of the Treasury has published regulations governing tax practitioners' behavior in matters before the IRS. These regulations are published in pamphlet form as IRS Circular 230. See 69 Fed.Reg. 75839 and 75840. Circular 230 requires tax practitioners to be reputable and competent. They may be sanctioned for giving false and misleading information, willfully evading any assessment or payment of federal tax, or making false statements in practice before the IRS. See 31 C.F.R. 10.51(a). Circular 230 also provides that any person "may make an oral or written report of the alleged violation" of the provisions of the circular to the OPR. But there is no provision in the circular mandating the reporting of contumacious behavior by a tax practitioner.

{¶ 6} On September 5, 2014, Waldman sent Pitcher and Enders a draft of a letter that they proposed to send to the OPR. In the detailed, nine-page letter, Waldman accused Pitcher and Enders of tax fraud and requested an IRS investigation into their conduct. They claimed that

Pitcher & Enders [had] engaged in tax avoidance on their personal tax returns and their closely held corporation [returns] * * * for various tax years between 2009 [and 2012]. * * * Pitcher & Enders [had also given] false and misleading information to representatives of the Department of the Treasury, [to the OPR, and to the IRS auditors reviewing their related tax returns.] Also, they have made false complaints against me * * * in an attempt to intimidate me to withdraw my information tax report * * * and not make accurate reports to the IRS.

{¶ 7} Waldman stated that they were performing a public service in informing the OPR of facts that it could learn of in no other way. Waldman asserted that any term of the nondisparagement provision that would preclude the reporting of incompetent, disreputable, or dishonest activities by tax practitioners to the OPR was in violation of the public policy underlying Circular 230, and thus was invalid and unenforceable. The letter concluded by inquiring whether Pitcher and Enders agreed with this position.

{¶ 8} They did not agree. In a September 9, 2014 letter, Pitcher and Enders' counsel asserted that if Waldman's action in sending the proposed letter violated "any of the various agreements," they would "take appropriate action as necessary to protect their rights." Nonetheless, Waldman filed, under seal, a complaint, and then a first amended complaint, seeking a declaration that sending the proposed OPR letter would not violate the nondisparagement provision of the 2009 settlement agreement and the subsequent protective orders.

{¶ 9} Six months later, in March 2015, Waldman filed a second amended complaint and attached a second version of the letter they proposed to send to the OPR. In the second letter, Waldman again requested an investigation of Pitcher and Enders under Circular 230. But Waldman had withdrawn allegations that Pitcher and Enders had made false and misleading statements to the IRS and had attempted to intimidate him. Nonetheless, Waldman continued to allege that "Pitcher & Enders [had] engaged in tax avoidance" on their personal tax returns and their closely held corporation tax returns between 2009 and 2012. Waldman did not send either letter to the OPR.

{¶ 10} Pitcher and Enders answered the amended complaint, asserting that Waldman was barred by the express terms of the nondisparagement provision from making the proposed statements to the OPR. They also asserted a counterclaim seeking to enjoin Waldman from sending the proposed OPR letter.

{¶ 11} Waldman then moved for judgment on the pleadings, under Civ.R. 12(C), again arguing that enforcement of the nondisparagement provision was in violation of public policy. Pitcher and Enders also moved for judgment on the pleadings, asserting that Waldman had failed to raise a justiciable controversy ripe for judicial review. They argued that Waldman was merely seeking an advisory opinion from the trial court conferring permission to breach the nondisparagement agreement. Pitcher and Enders contended that Waldman was seeking "absolution" for the hypothetical, contingent act of making a disparaging statement in a letter to the OPR. Pitcher and Enders also argued, in the alternative, that if Waldman had alleged sufficient facts to invoke the court's jurisdiction, they be granted a permanent injunction preventing Waldman from sending the proposed OPR letter.

The Trial Court's Ruling: No Case in Controversy

{¶ 12} The trial court granted Pitcher and Enders' motion for judgment on the pleadings and dismissed "this matter * * * in its entirety," granting no other relief to either party. In its July 8, 2015 opinion letter, the trial court explained that:

[Waldman] is seeking this Court's blessing to send a letter to the Internal Revenue Service. [Pitcher and Enders dispute] the accuracy of the * * * proposed letter [and] believe that [Waldman] is asking for an advisory opinion.

* * *[Pitcher and Enders'] Motion for Judgment on the Pleadings is granted. There is simply no case in controversy here. I have no idea as to the accuracy of the proposed letter. I do not know why it needs to be sent over three years after the settlement agreement was executed.

* * *

[Waldman] is free to send [the] proposed letter or not. I take no position as to whether this action would be appropriate or not. If a case arises, then that case will be litigated and decided either in State or Federal Court.

{¶ 13} Waldman brought these consolidated appeals challenging the trial court's order dismissing their complaint. See R.C. 2505.02(B)(2) ; see also Gen. Accident Ins. Co. v. Ins. Co. of N. Am., 44 Ohio St.3d 17, 540 N.E.2d 266 (1989), paragraph two of the syllabus.

{¶ 14} In their first assignment of error, Waldman argues that the trial court erred in concluding that there was no justiciable case in controversy between the parties. Because their legal right to send the proposed OPR letter was actively contested by Pitcher and Enders, Waldman argues that an actual controversy existed. Therefore, Waldman was not required to send the letter prior to seeking a declaration of their contested rights from the court. Pitcher and Enders maintain that Waldman was seeking an advisory opinion based on the hypothetical, future action of sending a letter to the OPR.

An Abuse–of–Discretion Standard of Review

{¶ 15} A trial court ruling on a Civ.R. 12(C) motion for judgment on the pleadings must accept all material allegations in the nonmoving party's complaint as true, must construe all reasonable inferences in that party's favor, and can only grant a dismissal if it appears beyond doubt that the...