154 F. Supp. 3d 157
E.D. Pa.2016Background
- Tax Matrix (consultant) and Wegmans (retailer) had a 2009 written Letter Agreement: Tax Matrix would provide audit-related services and receive 25% of “all refunds,” defined to include “reductions of sales and use taxes paid” and “assessment reductions.”
- In Oct 2011–July 2013 Wegmans underwent a Maryland sales & use tax audit; Tax Matrix was engaged early and performed hands-on audit-defense work while the audit was still open.
- Maryland issued several sets of workpapers that reduced the alleged deficiency from ~$4.6M (Dec 2012) to ~$255K (final July 2013); Wegmans signed acknowledgements as the process progressed and the final Notice of Assessment was issued July 2013.
- Tax Matrix invoiced $1,370,079.25 (25% of the reduction it attributed to its work between the first workpapers and the final assessment); Wegmans refused, arguing the Letter Agreement covers only post-assessment reductions or actual refunds.
- Both parties moved for summary judgment on Tax Matrix’s breach-of-contract claim; Wegmans counterclaimed for breach of implied covenant of good faith, breach of fiduciary duty, and breach of confidentiality. The court denied summary judgment to both parties on the breach claim and granted summary judgment to Tax Matrix dismissing all Wegmans’ counterclaims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the Letter Agreement’s contingency fee (25% of "all refunds") cover Tax Matrix’s pre-assessment work that reduced audit workpapers before a formal notice of assessment or refund? | Tax Matrix: “Refunds” and the “refund claim process” are broad; interim reductions and assessment reductions during the audit are covered, so 25% applies. | Wegmans: “Recovered” and “paid” require an actual recovered amount or final assessment; the December 2012 workpapers were not a formal assessment, so the contingency fee does not apply to pre-assessment reductions. | Denied summary judgment to both sides. The contract is reasonably susceptible to different interpretations (ambiguous); factual issues remain for trial. |
| Is the phrase “assessment reductions” unambiguous (i.e., limited to final, appealable notices of assessment)? | Tax Matrix: parties and Wegmans’ own communications used “assessment” broadly to describe interim workpapers; the contingency term reasonably covers such reductions. | Wegmans: technical/tax-law meaning of “assessment” is limited to formal notices after audit closure; Maryland auditors said the early workpapers were not assessments. | Ambiguous. The court found there were two reasonable meanings (technical vs. colloquial) and extrinsic evidence did not resolve the issue on summary judgment. |
| Can Wegmans recover attorneys’ fees / pursue counterclaims (breach of implied covenant; breach of fiduciary duty) based on Tax Matrix’s litigation conduct and billing? | Wegmans: Tax Matrix acted in bad faith and dishonestly to collect commissions; fees are recoverable as damages from that misconduct. | Tax Matrix: The American Rule bars fees absent statute, agreement, or established exception; Wegmans’ allegations rest on pre-litigation conduct or disputes about contract meaning and thus fail. | Granted summary judgment for Tax Matrix on both counterclaims. The alleged misconduct concerned fee collection (not performance under the contract or agency subject), and Wegmans did not show a basis to recover attorneys’ fees. |
| Did Tax Matrix breach the Letter Agreement’s confidentiality provision (press release or filing of complaint)? | Wegmans: Tax Matrix disclosed confidential audit information via press release and public complaint, harming Wegmans. | Tax Matrix: Wegmans produced no evidence of damages and did not press the claim in opposition. | Granted summary judgment for Tax Matrix; Wegmans produced no evidence of damages or a press release in the record. |
Key Cases Cited
- American Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d 575 (3d Cir.) (framework for determining contract ambiguity and when extrinsic evidence may be considered)
- Kirleis v. Dickie, McCamey & Chilcote, P.C., 560 F.3d 156 (3d Cir.) (elements of contract formation under Pennsylvania law)
- McShea v. City of Philadelphia, 995 A.2d 334 (Pa. 2010) (elements of breach of contract under Pennsylvania law)
- Duquesne Light Co. v. Westinghouse Elec. Corp., 66 F.3d 604 (3d Cir.) (paradigm on clear vs. ambiguous contract terms and use of extrinsic evidence)
- Allegheny Int’l, Inc. v. Allegheny Ludlum Steel Corp., 40 F.3d 1416 (3d Cir.) (when interpretation is for the court versus jury on ambiguous contracts)