author: ZULICK, J.,

text:
    White v. Pocono Psychiatric Association

      Stephen W. Mow rey, for plaintiffs.

      John R. Hill and John W. Stahl, for defendants.
    February 26, 2014
   ZULICK, J.,

— This matter comes before the court on the preliminary objections of defendants Michael Kessler, M.D., Robert Morrow, M.D. and the State Board of Medicine (Board) to plaintiff’s amended complaint. The plaintiff, Michelle White, filed her amended complaint on October 1,2013. White filed the action as the administrator of the estate of Sinead Steele, who is deceased, and also in her personal capacity. White has alleged that Dr. Kessler and Dr. Morrow committed medical malpractice in their treatment of Steele, that Dr. Morrow was negligent when hiring and supervising Dr. Kessler, and that the Board was negligent in granting Dr. Kessler a license to practice medicine in Pennsylvania. All defendants have filed preliminary objections. All parties have filed briefs in support of their positions, and the matter was argued before the court on January 6,2013.

DISCUSSION

In considering preliminary objections, “all well-pleaded allegations and material facts averred in the complaint, as well as all reasonable inferences deductible therefrom, must be accepted as true.” Wurth by Wurth v. City of Philadelphia, 584 A.2d 403, 407 (Pa. Cmwlth. 1990). The “court need not accept as true conclusions of law, unwarranted inferences from facts, argumentative allegations, or expressions of opinion.” Penn Title Insurance Co. v. Deshler, 661 A.2d 481, 483 (Pa. Cmwlth. 1995).

Dr. Kessler’s Objections

Dr. Kessler raises numerous preliminary objections: (1) the complaint is legally insufficient; (2) the complaint seeks damages not authorized by law; (3) the complaint includes scandalous and impertinent allegations; (4) the amended complaint presents new causes of action after the applicable statute of limitations has passed; (5) the complaint fails to comply with Pa.R.C.P. 2204 and 2205; and (6) the complaint fails to comply with 42 Pa.C.S. §§ 8301 and 8302 along with Pa.R.C.P. 2202.

Dr. Kessler’s first obj ection is in the nature of a demurrer. He argues that the plaintiff cannot prove evidence of a breach of the duty of care, and that the allegations in the complaint are mere speculation.

Preliminary objections in the nature of a demurrer test the legal sufficiency of the complaint. When considering preliminary objections, all material facts set forth in the challenged pleadings are admitted as true, as well as all inferences reasonably deducible therefrom. Preliminary objections which seek the dismissal of a cause of action should be sustained only in cases in which it is clear and free from doubt that the pleader will be unable to prove facts legally sufficient to establish the right to relief. If any doubt exists as to whether a demurrer should be sustained, it should be resolved in favor of overruling the preliminary objections.

Albert v. Erie Ins. Exchange, 65 A.3d 923, 927 (Pa. Super. 2013) (citations omitted).

The relevant inquiry when examining preliminary objections is not whether plaintiff will be able to prove her allegations. Instead, the court must assume that the material facts set forth in the complaint are true, along with reasonable inferences that can be drawn from those facts. Examining the complaint, the plaintiff has alleged the following in support of her claim of medical malpractice against Dr. Kessler: on April 4, 2011, Ms. Steele came under the care of Dr. Kessler, Complaint, ¶ 18. During the April 4 visit, Dr. Kessler wrote prescriptions for 180 diazepam 5mg. tablets and 90 oxycodone 30mg tablets, each with 5 refills. Id., ¶ 20. The complaint alleges that from April 4-8, 2011, Ms. Steele ingested an unknown quantity of the pills. Id. ¶ 22. Finally, the complaint alleges that the medications should not have been prescribed together and that Dr. Kessler:

prescribed the medications in excessive amounts;
had no adequate basis to prescribed the medicine,
which was highly dangerous;
failed to warn Ms. Steele of the drugs’ side effects;
failed to properly diagnose at the April 4 visit;
failed to obtain Ms. Steele’s medical records/drug history before prescribing dangerous and highly addictive medication.

The complaint alleges that Ms. Steele died as a result of Dr. Kessler’s negligence on April 8, 2011. Id. ¶¶ 25, 26.

These allegations, taken as true, support a finding of medical malpractice:

To prevail in any negligence action, the plaintiff must establish the following elements: the defendants owed him or her a duty, the defendant breached the duty, the plaintiff suffered actual harm, and a causal relationship existed between the breach of duty and the harm. When the alleged negligence is rooted in professional malpractice, the determination of whether there was a breach of duty comprises two steps: first, a determination of the relevant standard of care, and second, a determination of whether the defendant’s conduct met that standard.

Catlin v. Hamburg, 56 A.3d 914, 920 (Pa. Super. 2012) (quoting Freed v. Geisinger Med. Ctr., 910 A.2d 68, 72-73 (Pa. Super. 2006)). Prescribing medications in excessive amounts that are toxic when taken together violates the standard of care. Plaintiff has additionally alleged that the negligent conduct of Dr. Kessler was the proximate cause of Ms. Steele’s death. Ms. White has made out a prima facie case of medical malpractice. Therefore the demurrer will be denied.

Second, Dr. Kessler objects to the damages requested by the plaintiff. However, Dr. Kessler’s objections are all in the nature of factual disputes. For example, Dr. Kessler asserts that Ms. Steele “never completed High School, never planned to earn a GED, never intended to be gainfully employed and had no short or long term plans for employment or further education.” Dr. Kessler’s brief in support of preliminary objections, at 7. At the preliminary objection stage, all factual disputes must be resolved in favor of the plaintiff. Therefore, the kinds of factual allegations made by Dr. Kessler cannot grant him relief at this stage of the litigation. Dr. Kessler’s objections to damages will be denied.

Next, Dr. Kessler objects to the inclusion of scandalous and impertinent material in the complaint. Among the scandalous and impertinent allegations are: that Dr. Kessler wrote a prescription with 5 refills, which Dr. Kessler alleges is impossible; plaintiff misquotes and alters the autopsy report; it alleges damages that are unrecoverable; and it assigns the powers of psychic precognition to Dr. Kessler. “To be scandalous and impertinent, the allegation must be immaterial and inappropriate to the proof of the cause of action.” Green v. Klein, 16 Pa. D. & C. 5th 144, 152 (Pa. Com. Pl. 2010). “[T]he right of a court to strike impertinent matter should be sparingly exercised and only when a party can affirmatively show prejudice.” Dept. of Environmental Resources v. Hartford Acc. and Indem. Co., 396 A.2d 885, 888 (Pa. Cmwlth. 1979) (emphasis added). “’Prejudice’ is defined as any substantial diminution of a party’s ability to properly present its case at trial.” Keffer v. Bob Nolan’s Auto Service, Inc., 59 A.3d 621, 655 (Pa. Super. 2012) (internal citations and quotation marks omitted). Further, “[prejudice is not presumed to exist and actual harm must be proven before [judicial action] is appropriate.” Id. Whether the disputed allegations may be scandalous and impertinent depends on facts which may be contested in this litigation. Dr. Kessler has not offered any showing of how those allegations prejudice him. Without a showing of prejudice, the court will not use its sparingly exercised powers to strike the allegations from the amended complaint.

Next, Dr. Kessler objects to the inclusion of averments that allegedly create a new cause of action after the expiration of the statute of limitations. Specifically, Dr. Kessler alleges that the amended complaint changes the employment relationship between himself and Dr. Morrow. He states that in the original complaint, he was alleged to be the employee of Dr. Morrow. In the amended complaint, he is referred to instead as a co-employee. Dr. Kessler argues that this change creates a new cause of action.

The legal standard for determining whether an amended complaint states a new cause of action subject to being barred by the statute of limitations is discussed more fully in the section dealing with Dr. Morrow’s preliminary objections, see infra. The important distinction to be made is between when an amended complaint states a new cause of action and when an amended complaint merely amplifies an existing cause of action. Here, the change in the employment relationship between Dr.’s Kessler and Morrow does not create a new cause of action against Dr. Kessler. Plaintiff is still suing Dr. Kessler for medical malpractice, as discussed supra. Nothing in the amended complaint changes the claim against him: that he was negligent in his care of Ms. Steele and that his negligence caused her death. This objection will be denied.

Fifth, Dr. Kessler objects to plaintiff’s failure to comply with Pa.R.C.P. 2204 and 2205, which deal with requirements for instituting a wrongful death action. They provide:

In addition to all other facts required to be pleaded, the initial pleading of the plaintiff in an action for wrongful death shall state the plaintiffs relationship to the decedent, the plaintiff’s right to bring the action, the names and last known residence addresses of all persons entitled by law to recover damages, their relationship to the decedent and that the action was brought in their behalf.
Pa.R.C.P. 2204.
When an action for wrongful death has been instituted, the plaintiff shall give notice, by registered mail or in such other manner as the court shall direct by local rule or special order, to each person entitled by law to recover damages in the action, that an action has been instituted for wrongful death, naming the decedent and stating the court, term and number of the action.
Pa.R.C.P. 2205.

Dr. Kessler alleges that plaintiff has not included the address of Joseph Steele, who is named in the complaint as the decedent’s father, as required by Pa.R.C.P. 2204. Further, Dr. Kessler alleges that plaintiff has not given Mr. Steele notice as required by Pa.R.C.P.2205. These are valid objections. Ms. White will be directed to amend her complaint in accordance with the dictates of Pa.R.C.P. 2204 and provide written notice to Mr. Steele as required by Pa.R.C.P. 2205.

Finally, Dr. Kessler objects to Ms. White proceeding as a plaintiff in her individual capacity. Dr. Kessler states “[n] either a claim for wrongful death pursuant to 42 Pa.C.S.A. § 8301 nor a survival claim pursuant to 42 Pa.C.S.A. § 8302 may be brought by the biological mother, individually of an adult child.” Dr. Kessler’s brief in support of preliminary objections, at 11-12. However, § 8301 (the wrongful death statute) specifically provides for suit in an individual capacity by a parent. It states:

Except as provided in subsection (d), the right of action created by this section shall exist only for the benefit of the spouse, children or parents of the deceased, whether or not citizens or residents of this Commonwealth or elsewhere. The damages recovered shall be distributed to the beneficiaries in the proportion they would take the personal estate of the decedent in the case of intestacy and without liability to creditors of the deceased person under the statutes of this Commonwealth.
42 Pa.C.S.A. §8301(b).

Parents are allowed to bring claims in their individual capacity for the wrongful death of their children. Accordingly this objection will be denied.

Dr. Morrow’s Objections

Dr. Morrow has objected to what he contends are new causes of action counts included in the amended complaint after the relevant statute of limitations has expired. Counts I and II of the original complaint were for direct medical malpractice liability against Dr. Kessler and claimed liability on a vicarious theory against Pocono Psychiatric Associates (PPA). The amended complaint adds a claim for direct medical malpractice against Dr. Morrow in counts I and II. It also alleges vicarious responsibility against Dr. Morrow in ¶ 11 of the amended complaint, although no claim for vicarious liability is specifically mentioned in any count of the complaint.

The Pennsylvania Rules of Civil Procedure provide in Rule 1033 for the amendment of a complaint to include new causes of action, but the rule does not change the well-established principle that a new cause of action which is barred by the statute of limitations will not be allowed:

This principle is based on the broad proposition that the courts, while disposed to be liberal in the allowance of amendments, and to construe the amendment rules liberally so as to prevent the defeat of justice through mere mistake, do not allow amendments which will prejudice the defendant by depriving him of some substantial right. The criterion for determining whether or not an amendment may be made after the statute of limitations has run is whether the defendant will be prejudiced by the amendment or whether the cause of action is changed thereby. The general principle that amendments which will deprive the opposite party of any valuable right. Thus, after the statute of limitations has run, the plaintiff cannot, by an amendment, shift the ground of complaint set forth originally, or enlarge its surface by introducing a new and different cause of action, or cure a material, vital, or fatal defect in his complaint; an amendment to a complaint in an action instituted within the statutory period is not permissible after the expiration of that period where, in reality, the purpose is to introduce a new cause of action.

Hodgen v. Summers, 555 A.2d 214, 215 (Pa. Super. 1989) (citing 5 Std.Pa.Prac. § 24:41). Therefore “an amendment introducing a new cause of action will not be permitted after the statute of limitations has run in favor of a defendant. However, if the proposed amendment does not change the cause of action but merely amplifies that which has already been averred, it should be allowed even though the statute of limitations has already run.” Id. (citations omitted).

The statute of limitations for wrongful death or survival actions is two years. 42 Pa.C.S.A. § 5524(2). Ms. Steele passed away on April 8, 2011. The statute of limitations therefore expired on April 8, 2013, the same day that this action was commenced by writ of summons. The amended complaint was filed on October 3, 2013. If the amended complaint states a new cause of action, the claim must be stricken as untimely.

Defendant Morrow argues that Counts I and II of the amended complaint now state a claim for direct malpractice against him. The amended complaint does refer to direct negligence by Dr. Morrow in ¶¶ 25 and 35- “the careless and negligent acts of defendants which deviated from the accepted standards of care” with detailed acts of malpractice. There is no mention of vicarious liability in Counts I and II, nor were there allegations of direct liability against Dr. Morrow for medical malpractice in the original complaint. The original complaint does not suggest that Dr. Morrow ever treated Ms. Steele at all. Instead, the original complaint only accused Dr. Morrow of negligently hiring and failing to adequately supervise Dr. Kessler. See original complaint, Counts III-IV. Actual medical malpractice is not the same theory as supervisory liability. As the amended complaint states a new cause of action, Counts I and II of the amended complaint will be stricken as to Dr. Morrow.

Dr. Morrow also complains that the amended complaint asserts a claim of vicarious liability against him for the first time. Plaintiff alleges in ¶8 that PPA is a fictitious name for Dr. Morrow and in ¶ 11 that Dr. Morrow is vicariously liable for the actions of Dr. Kessler. The original complaint asserted that both Drs. Morrow and Kessler were “employees or other duly authorized agent, actual, ostensible, or otherwise of defendant Pocono Psychiatric Associates.” Complaint ¶ 8. The original complaint then specifically alleged that defendant Pocono Psychiatric Associates was vicariously liable for the acts of Drs. Kessler and Morrow. Complaint, ¶ 10. The original complaint did not make an allegation that Dr. Kessler was an employee of Dr. Morrow, or that plaintiff was asserting a claim based upon the doctrine of respondeat superior against Dr. Morrow. The original complaint did however allege that Dr. Morrow hired Kessler. See Complaint, ¶ ¶ 39, 46. The complaint accused Dr. Morrow of negligently hiring and failing to adequately supervise Dr. Kessler. See original complaint, Counts III-IV.

Counts III and IV of the amended complaint do not state a new cause of action against Dr. Morrow. Plaintiff alleged in Counts III and IV of the original complaint that Dr. Morrow (and PPA) hired Dr. Kessler despite the fact that he was not fit for the position and failed to supervise him once was hired. The amended complaint now states in ¶ 7 that Dr. Morrow hired and employed Dr. Kessler (in the initial complaint both Dr. Morrow and Dr. Kessler were alleged to be employees of PPA) See Complaint ¶ 8.

Pennsylvania appellate courts have not applied a comprehensive definition of what constitutes a new cause of action. The case of Kuisis v. Baldwin-Lima-Hamilton, 319 A.2d 914 (Pa. 1974) is instructive. There, the plaintiff filed a complaint for injuries sustained due to the negligent operation of a crane. The plaintiff later sought to amend the complaint after the statute of limitations had run to assert a claim of strict liability under Restatement Section 402(A). The Pennsylvania Supreme Court allowed the amendment, reasoning:

Appellant’s claim under is 402A was clearly implicit in his allegations of negligence in the design and manufacture of the crane. The principle of strict liability in tort adds nothing to Kuisis’ theory of how the accident occurred; it operates merely to simplify his proof problem by eliminating the issue of negligence from the case. If in negligence actions ‘we have defined ‘cause of action’ as ‘the negligent act or acts which occasioned the injury,” Saracina v. Cotoia, 417 Pa. 80, 85, 208 A.2d 764, 767 (1965), under Section 402A, it is The defect *326 itself which constitutes the cause of action. Thus, it is of no moment that the theories of negligence and strict liability may be subject to different defenses and require different measures of proof. Assuming arguendo that two different causes of action are involved here, for purposes of the statute of limitations, Both were stated in the original complaint.

Id. at 918.

The original complaint in this case stated that Dr. Morrow hired and supervised Dr. Kessler. See ¶¶ 39 and 46. This was enough of a factual basis for the plaintiff to amplify in the amended complaint that there was an employer-employee relationship between the two. As the supreme court stated in Kuisis:

Given the averment in the original complaint that the brake locking mechanism was defective, the new allegations of the amended complaint fall within the familiar rule that a complaint may be amended after the expiration of the statute of limitations to amplify or clarify a cause of action already stated.

Id. at 919.

Plaintiff will be permitted to pursue her claim of vicarious liability of Dr. Morrow through Counts III and IV of the amended complaint.

State Board of Medicine’s Objections

The state board of medicine raises two objections to the amended complaint: (1) the action is barred by sovereign immunity; and (2) the actions must be brought only in a representative capacity.

The state board of medicine is a Commonwealth entity, established by the medical practice act of 1985, 63 P.S. § 422.1 et seq. That act states:

The state board of medicine shall consist of the commissioner or his designee, the secretary of health or his designee, two members appointed by the governor who shall be persons representing the public at large and seven members appointed by the governor, six of whom shall be medical doctors with unrestricted licenses to practice medicine and surgery in this Commonwealth for five years immediately preceding their appointment and one who shall be a nurse midwife, physician assistant, certified registered nurse practitioner, respiratory therapist, licensed athletic trainer or perfusionist licensed or certified under the laws of this Commonwealth. All professional and public members of the board shall be appointed by the governor, with the advice and consent of a majority of the members elected to the senate.

63 P.S. §422.3(a).

Actions against the Commonwealth are barred by sovereign immunity, save only for exceptions provided by the legislature. Pa. Const. Art. 1 § 11. The legislature has stated:

Pursuant to section 11 of Article 1 of the Constitution of Pennsylvania, it is hereby declared to be the intent of the general assembly that the Commonwealth, and its officials and employees acting within the scope of their duties, shall continue to enjoy sovereign immunity and official immunity and remain immune from suit except as the general assembly shall specifically waive the immunity. When the general assembly specifically waives sovereign immunity, a claim against the Commonwealth and its officials and employees shall be brought only in such manner and in such courts and in such cases as directed by the provisions of Title 42 (relating to judiciary and judicial procedure) or 62 (relating to procurement) unless otherwise specifically authorized by statute.

1 Pa.C.S. §2310.

The legislature has delineated the circumstances in which sovereign immunity is waived in 42 Pa.C.S. § 8522 (b), which contains nine different exceptions. The plaintiff argues that the exception found in § 8522(b)(2) applies here. That section imposes liability as follows:

Medical-professional liability-acts of health care employees of Commonwealth agency medical facilities or institutions or by a Commonwealth party who is a doctor, dentist, nurse or related health care personnel.” 42 Pa.C.S. § 8522(b)(2).

“Because of the clear intent to insulate government from exposure to tort liability, the exceptions to immunity are to be strictly construed.” Dean v. Pa. Dept. of Transportation, 751 A.2d 1130, 1132 (Pa. 2000). A careful look at the language of §8522(b)(2) distinguishes its applicability from this case. The board is not a “medical facility or institution.” While some of the members are doctors, nurses, or related health care personnel, several members of the SBM are not. Further, [t]he medical-professional waiver is expressly limited to acts of health care employees. Moser v. Hiestand, 681 A.2d 1322, (Pa. Cm with. 1994).

This principle was followed in Dashner v. Hamburg Center, Dept. of Public Welfare, 845 A.2d 935 (Pa. Cm with. 2004). There, a state-employed residential aide abused two residents. Suit was brought against the facility for failure to conduct background checks, failure to adequately investigate qualifications, failure to enact procedures as well as negligent hiring, supervision and retention of the aide. The Commonwealth Court stated:

Whether labeled as “negligence, carelessness, recklessness” (Counts I and II) or “negligent hiring, supervision and retention” (Counts III and IV), the averments of these counts of the complaint are based upon the alleged institutional, administrative negligence of the center. Based upon our Supreme Court’s holding in Moser v. Hiestand, 545 Pa. 554, 681 A.2d 1322 (1996), these allegations do not fall within the medical-professional liability exception to sovereign immunity.

Id. at 939.

The board’s action in licensing Dr. Kessler was an act of the board as an institution, and did not constitute the actual administration of health care to a patient in a Commonwealth medical facility or by a Commonwealth medical caregiver. The board’s actions do not expose it to liability under the exception to sovereign immunity as interpreted by our supreme court in the Moser decision. Sovereign immunity requires the board to be stricken from the complaint.

ORDER

And now, this 26th day of February, 2014, upon consideration of the preliminary objections of Dr. Kessler, Dr. Morrow, and the state board of medicine, and the arguments and briefs of all the parties, it is ordered as follows:

1. The state board of medicine’s preliminary objections are granted and it is stricken from the complaint.
2. Dr. Morrow’s preliminary objections as to Counts I and II of the amended complaint are granted and he is stricken from those counts.
3. Dr. Morrow’s preliminary objections as to Counts III and IV of the amended complaint are denied.
4. Dr. Kessler’s preliminary objection to the amended complaint’s lack of conformity with Pa.R.C.P. 2204 and 2205 is granted. Plaintiff shall include Mr. Steele’s address in the complaint and notify him of this suit in compliance with Pa.R.C.P. 2205. An affidavit of service shall be filed of record.
5. The remainder of Dr. Kessler’s preliminary obj ections are denied.
6. Plaintiff is directed to file a second amended complaint within 20 days of the date of this order.

      . Plaintiffs have not disclosed any other medical malpractice case where the state board of medicine was properly a defendant. This court’s research has likewise not discovered such a case.

      . As the court has found sovereign immunity bars suit against the board, the court need not consider board’s second preliminary objection.


source: Caselaw Access Project

author: WETTICK, J.,

license: Public Domain

text:
    Red Vision Systems, Inc. v. National Real Estate Information Services, L.P.

      Roy E. Leonard, Paul R. Rennie, for plaintiffs.

      Thomas K. Lammert, Jr, for defendants.
    February 26, 2014
   WETTICK, J.,

— Plaintiffs provided reports of title searches and related real estate services to defendants for which they were not paid. Plaintiffs aver that more than $530,000 is owing. In this litigation, plaintiffs have raised claims for breach of contract and unjust enrichment against each of the three defendants.

Thomas K. Lammert, Jr., is the former in-house general counsel to each of the defendants.

After the complaint was filed, plaintiffs learned that defendants are no longer operating entities and/or have been dissolved.

On information and belief, plaintiffs allege that defendants transferred substantial assets to unknown successor entities in order to avoid paying creditors, including plaintiffs. Thus, they seek discovery to obtain information relating to the disposition of defendants’ assets and to identify possible sources of recovery. The information which plaintiffs seek may permit plaintiffs to amend their complaint to raise causes of action based on the law governing fraudulent transfers.

Plaintiffs state that Mr. Lammert is the only person of whom they are aware with information concerning the identity of the persons who were involved in the cessation and transfer of assets.

Plaintiffs seek to depose Mr. Lammert and to have him produce at his deposition documents described in attachment l.

Mr. Lammert has filed a motion to quash subpoena and for protective order that is the subject of this opinion and order of court.

I.

The controlling issue is whether Mr. Lammert may withhold documents on the ground that they are protected by the attorney-client privilege. There is limited case law addressing the issue of whether Mr. Lammert may invoke the attorney-client privilege on behalf of the defendant-corporations that are no longer doing business.

Ordinarily, it is the client or former client, rather than the lawyer, that raises the privilege. In our case, only the lawyer is claiming the privilege on behalf of his former clients.

However, a lawyer is expected to raise the attorney-client privilege on behalf of a former client who is now deceased. The reasoning in support of allowing counsel to raise the privilege where the client is deceased is set forth by the Supreme Court of the United States in Swidler & Berlin v. U.S., 524 U.S. 399 (1998):

Despite the scholarly criticism, we think there are weighty reasons that counsel in favor of posthumous application. Knowing that communications will remain confidential even after death encourages the client to communicate fully and frankly with counsel. While the fear of disclosure, and the consequent withholding of information from counsel, may be reduced if disclosure is limited to posthumous disclosure in a criminal context, it seems unreasonable to assume that it vanishes altogether. Clients may be concerned about reputation, civil liability, or possible harm to friends or family. Posthumous disclosure of such communications may be as feared as disclosure during the client’s lifetime.
The independent counsel assumes, incorrectly we believe, that the privilege is analogous to the fifth amendment’s protection against self-incrimination. But as suggested above, the privilege serves much broader purposes. Clients consult attorneys for a wide variety of reasons, only one of which involves possible criminal liability. Many attorneys act as counselors on personal and family matters, where, in the course of obtaining the desired advice, confidences about family members of financial problems must be revealed in order to assure sound legal advice. The same is true of owners of small businesses who may regularly consult their attorneys about a variety of problems arising in the course of the business. These confidences may not come close to any sort of admission of criminal wrongdoing, but nonetheless be matters which the client would not wish divulged.

Id. at 407-408.

This justification for allowing the attorney-client privilege to survive the death of a client does not apply to a corporate entity that no longer conducts business. In a corporate setting, corporate officers are not going to be reluctant to talk to counsel because of the possibility that the information could be communicated when the corporation is dissolved. This is so because the client’s communications can be disclosed by new management or a trustee in bankruptcy. Thus, a corporate official does not have the same expectations as the client who is an individual.

Furthermore, a corporation that has ceased to exist is not concerned about reputation, civil liability, or harm to friends or family.

Moreover, see Comment k to § 73 of the Restatement (Third) of the Law Governing Lawyers which states: “When a corporation or other organization has ceased to have a legal existence such that no person can act in its behalf, ordinarily the attorney-client privilege terminates....”

Mr. Lammert appears to take the position that he is obligated to protect his former clients. Flowever, they do not exist. Thus, it appears that he is seeking to protect the interests of individuals who were officers and employees of the former corporations. Case law provides that corporate counsel is obligated to protect the interests of the corporation-not the individual interests of its officers and directors. The corporate interests no longer need to be protected.

II.

Mr. Lammert states that plaintiffs’ subpoena reaches thousands of documents that are in his possession, custody, or control. He further states that it would be an extreme hardship for him to produce these documents because he cannot blindly turn over the documents. Instead, he must review each document to determine if it is privileged (attorney-client or work-product) or if it is subject to a confidentiality and non-disclosure agreement.

I disagree. For the reasons I discussed, the attorney-client privilege does not protect documents in Mr. Lammert’s possession, custody, or control. The work product doctrine does not bar production of any of the documents because they were not prepared for use in this litigation. Mr. Lammert does not violate any confidentiality or non-disclosure agreements by turning over documents pursuant to a court order. Thus, Mr. Lammert may blindly turn over the documents.

III.

While I agree with Mr. Lammert that the discovery which plaintiffs seek should be characterized as precomplaint discovery, when I weigh the importance of the discovery request against the burdens imposed on Mr. Lammert, I conclude that the discovery should be permitted. See Pa.R.C.P. No. 4003.8.

For these reasons, I enter the following order of court:

ORDER OF COURT

On this 26 day of February, 2014, it is hereby ordered that Thomas K. Lammert, Jr., Esquire’s motion to quash subpoena and for protective order is denied.

      . Plaintiffs are not claiming that Mr. Lammert was involved in any scheme to transfer assets in order to avoid payment of creditors.


author: NANOVIC, P.J.,

text:
    Dawson v. Holiday Pocono Civic Association, Inc.

      James Brando, for plaintiffs.

      Raymond A. Swan, for defendants.
    January 21, 2014
   NANOVIC, P.J.,

— Whether property owners in a private residential community hold the basic right to lease their property or whether this right is subject to regulation under the restrictive covenants applicable to the community — to the point of prohibiting any lease for a term of less than one year — is the primary issue at stake in these proceedings. In resolving this issue, the meaning, significance, and enforceability of various deed covenants, bylaws, and rules and regulations in effect for the community, as well as their relationship to the governing municipality’s zoning ordinance and state statutes, are critical.

FACTUAL AND PROCEDURAL BACKGROUND

The plaintiffs, Richard Dawson, John Montagno and John Nelson, own property in Holiday Pocono (“development”), a private residential subdivision in Kidder Township, Carbon County, Pennsylvania. The development consists of approximately fifteen hundred lots on which four hundred thirty-nine homes have been built. (George Dep., pp. 69-71, 5/17/13). Each lot in the development is subject to a common set of restrictive covenants. Covenants 1,12, and 13 are directly at issue in these proceedings. They provide as follows:

1. The premises hereby conveyed, shall be used for residential purposes only. No building shall be erected, altered, placed or permitted to remain on the premises hereby conveyed other than one (1) detached single-family dwelling, not to exceed two (2) and one-half stories in height, and a private garage for not more than two (2) cars.
12. An association of all property owners is to be formed by the grantor and designated by such name as may be deemed appropriate, and when formed, the buyer covenants and agrees that he, his executors, heirs or assigns, shall be bound by the bylaws, rules and regulations as may be duly formulated and adopted by such association and that they shall be subject to the payment of annual dues and assessments of the same.
13. The buyer agrees not to sell, rent, lease or permit the premises hereby conveyed, excepting to persons first approved for membership in the aforementioned association, nor shall signs for advertising purposes be erected or maintained on the premises.

Located on each of plaintiffs’ properties is a single-family residential dwelling which plaintiffs do not use as their primary residence. In the past, plaintiffs have rented their properties to third parties as vacation homes, or otherwise for short periods of time (i.e., monthly, weekly or weekends), and desire to do so in the future. The parties do not dispute that plaintiffs purchased their properties with the intent of renting to others and in which they would reside for only brief periods of time each year.

By letter dated January 15, 2011, Holiday Pocono Civic Association, Inc. (“association”), the property owners’ association for the development, notified two of the plaintiffs, Richard Dawson and John Montagno, that the renting of their properties on a transient or short-term basis was prohibited by the development’s restrictive covenants, the association’s bylaws, and the township’s zoning ordinance. This notice did not cite to any specific provisions of the deed covenants, bylaws, or Kidder Township Zoning Ordinance that plaintiffs were allegedly violating. The letter, bearing the caption “warning notice,” further stated that “ [i] f y ou continue with this type of rental, you will be subject to fines and/or further legal action for the day the violation occurs. Please be advised that the penalty for a second violation of this nature will result in a $300.00 a day fine and a third violation will result in a $400.00 a day fine. All similar subsequent violations will result in a $500.00 a day fine.” Plaintiff, John Montagno, was later advised by letter dated March 21, 2011, that the association would allow him to honor his existing rental agreements through December 31,2011, without incurring any transient rental fines. In consequence, plaintiffs claim they have been prevented from renting their properties on a short-term basis since January 1, 2012.

After several attempts to resolve their differences proved unsuccessful, plaintiffs commenced the present action against the association and Hank George by complaint filed on August 17, 2012. Therein, plaintiffs request a declaratory judgment against the association confirming plaintiffs’ right to lease their properties as they have in the past (Count I), an injunction enjoining defendants from preventing the short-term rental of plaintiffs’ properties (Count II), compensatory and punitive damages on behalf of the plaintiffs, Richard Dawson and John Montagno, for alleged fraudulent misrepresentation in directing these plaintiffs to terminate the short-term leasing of their properties (Count III) and, in the alternative to Count III, compensatory and punitive damages for negligent misrepresentation (Count IV). Both parties have taken discovery and both have filed motions for summary judgment.

DISCUSSION

Covenant 1 — Residential Use

The parties do not dispute that Covenant 1 restricts the use of plaintiffs’ properties to that for residential purposes. Plaintiffs contend that this, in fact, is what the properties have been used for: that both they and their tenants use the properties as a dwelling within which to reside, albeit on a temporary or short-term basis. The association argues that the rental of the properties for short periods transforms what would otherwise be a residential use to a commercial use for generating income, and that the rental of these properties on a short-term basis is incompatible with the residential character of the development sought to be protected by the deed covenants.

Accordingly, the validity and enforceability of Covenant 1 is not in issue, but rather its interpretation. As to the interpretation of Covenant 1, deed covenants are a form of contract and are to be interpreted as such.

The interpretation of any contract is a question of law for the court. Currid v. Meeting House Restaurant, Inc., 869 A.2d 516, 519 (Pa. Super. 2005). As a general rule of contract interpretation, the intention of the parties at the time the contract is entered into governs. Baumgardner v. Stuckey, 735 A.2d 1272, 1274 (Pa. Super. 1999). The same is true in interpreting restrictive covenants. Id. However, there is an important difference in the rule of interpretation as applied to restrictive covenants on the use of land. Id. Restrictive covenants are limitations on a person’s “free and unconstrained use of property.” Richman v. Mosites, 704 A.2d 655, 657 (Pa. Super. 1997). They are not favored by the law, yet they are legally enforceable. Logston v. Penndale, Inc., 394 Pa. Super. 393, 576 A.2d 59, 62 (1990). As such, they are to be strictly construed against persons seeking to enforce them and in favor of the free and unrestricted use of property. Baumgardner, 735 A.2d at 1274.

Pocono Summit Realty, LLC v. Ahmad Amer LLC, 52 A.3d 261, 269 (Pa. Super. 2012). Further, “[i]n the absence of fraud, accident or mistake, parol evidence is inadmissible to very or limit the scope of a deed’s express covenants, and the nature and quantity of the interest conveyed must be ascertained by the instrument itself.” Kimmel v. Svonavec, 85 A.2d 146, 148 (Pa. 1952).

Fifty-eight years ago former Chief Justice Stem succinctly and accurately summarized what is still the law today with respect to restrictions on the use of land:

In order properly to consider and determine the question involved it is important at the outset to have in mind the applicable legal principles that have been enunciated, frequently reiterated, and consistently applied, through a long succession of cases decided by this court. However variously phrased, they are, in substance, that restrictions on the use of land are not favored by the law because they are an interference with an owner’s free and full enjoyment of his property; that nothing will be deemed a violation of a restriction that is not in plain disregard of its express words; that there are no implied rights arising from a restriction which the courts will recognize; that a restriction is not to be extended or enlarged by implication; that every restriction will be construed most strictly against the grantor and every doubt and ambiguity in its language resolved in favor of the owner.

Jones v. Park Lane for Convalescents, Inc., 120 A.2d 535, 537-38 (Pa. 1956).

Under these standards, the residential use of the plaintiffs’ properties is not restricted to owner-occupied residential use; the rental of the properties is not prohibited; and no distinction is made between short-term and long-term rentals. Not only does Covenant 1 not explicitly, or even implicitly, bar the rental of property, that the plaintiffs ’ properties could be rented was expressly contemplated in Covenant 13 to which we now turn. Vernon Township Volunteer Fire Department, Inc. v. Connor, 855 A.2d 873, 879 (Pa. 2004) (“It is a fundamental rule of contract interpretation that the intention of the parties at the time of contract governs and that such intent must be ascertained from the entire instrument.”).

Covenant 13 —Tenant Membership in Association

Covenant 13 conditions the renting or leasing of property within the development only to persons first approved for membership in the association. Defendants claim that none of plaintiffs’ tenants have ever been approved for membership in the association and that plaintiffs are prohibited from renting to non-members. Plaintiffs do not dispute that their tenants have not been members of the association, but counter that this limitation on leasing has been abandoned. According to plaintiffs, since the association’s inception in 1964, and until its letter of January 15, 2011, the association has never enforced this aspect of Covenant 13, has been aware of and knowingly allowed the rental of properties to non-members, and has gone so far as amending its bylaws in 1990 to provide for an additional assessment on property owners who rent for the additional burden on the common property in the development attributable to tenants. (George Dep., pp. 71-77, 5/17/13).

Specifically, article XII of the association’s bylaws, which is captioned “Leasing Rights,” was amended in 1990 to provide:

A. Any member has the right to rent or lease his property to adults of their choice so long as they comply with the provisions of this article and the remainder of the Bylaws.
B. Since the leasing of a property puts an added burden on the association and its facilities, it shall be the responsibility of the member to collect a fee from the lessee and pay this fee to the association to cover their added expenses, all in accordance with a fee schedule established by the board of directors.
C. Any member who leases or rents his property accepts responsibility and liability for the conduct of the lessee.
D. Members shall obtain “Lessee Privilege Cards” from the administrative secretary or such other person designated by the board of directors. The “Lessee Privilege Card” shall be purchased in advance for a specific period of time, and the lessee shall carry the card on his person for identification purposes.
E. The association reserves the right to cancel a “Lessee Privilege Card” in the event the lessee violates the rules and regulations of the association or any of the provisions of these Bylaws. In the event the association cancels a “Lessee Privilege Card”, there will be no refund of the fee and the lessee will be required to move out of Holiday Pocono immediately.

Association Bylaws, revised 1990 (emphasis added) (Complaint and answer, ¶ 12, Exhibit “F”). In addition, Section 2 of the association’s rules and regulations promulgated by the board of directors, as amended on August 17,2007, provided that property owners in leasing their properties should be aware that the provisions of the township zoning ordinance governing an R-2 residential medium-density district are applicable to the development. (Complaint and answer, ¶ 19, Exhibit “H”).

“As a general rule, a restrictive covenant may be discharged if there has been acquiescence in its breach by others, or an abandonment of the restriction.” Vernon Township Volunteer Fire Department, Inc., 855 A.2d at 880. Abandonment is a question of intent, whether expressly stated or inferred by implication from surrounding facts and circumstances. The burden of proving that the holder of a right has knowingly relinquished its enforcement is upon the party asserting abandonment. See Benner v. Tacony Athletic Ass’n, 196 A. 390, 393 (Pa. 1938); Rieck v. Virginia Manor Company, 380 A.2d 375, 378 (Pa. Super. 1977). It is not enough to merely show that the right has not been enforced or that the holder has simply tolerated non-compliance. “It is only when violations are permitted to such an extent as to indicate that the [right] has been abandoned that objection to further violations is barred. Nor will indulgence work a waiver or estoppel against the enforcement of restrictions which are distinct and separate from those previously violated.” Benner, 196 A. at 393.

Whether enforcement of a restriction should be barred by acquiescence or abandonment requires an analysis of the number, extent and character of violations that have occurred, over what time, and the reason why no action was taken. Moore v. Gangemi, 1 Pa.D.&C.2d 58, 65 (Phil. Co. 1952). Here, plaintiffs each purchased their properties with the expectation and intent of renting, and listed and rented their properties through real estate agents for several years prior to 2011. After reviewing the prior rental history and the association’s covenants, bylaws, and rules and regulations, Richard Dawson purchased his property in February of 2007 for the purpose of renting and in fact rented the property between 2007 and 2011 (Dawson Dep., pp. 7-14, 5/25/13); John Montagno, whose property had also been used for rental purposes prior to his purchase, purchased his property in 2005 believing the same could be freely rented (Montagno Dep., pp. 8-9,14-20,5/25/13); John Nelson purchased his property in 1997 and rented the property from that time until the association changed its bylaws in October 2012 to prohibit short-term rentals. (Nelson Dep., pp. 8-10, 5/25/13). Before purchasing his present property, Mr. Nelson had previously built another home in the development in 1986 which he also leased. (Id. at 10).

Moreover, the association has knowingly allowed property owners to rent their properties without requiring tenant membership in the association. As of February 11, 2011, approximately nineteen property owners were renting their properties on weekends and at least thirty-five property owners were renting their properties for other terms. (George Dep., pp. 32-34, 5/17/13). None of these tenants became members in the association. (Id. at 71-72).

At no time has Covenant 13’s requirement that a tenant first be approved for membership been invoked or enforced. This despite members employing realtors for rental purposes, members advertising their property for rental purposes, and buyers relying upon the association’s rules and regulations, as well as its bylaws, as they existed prior to 2011, in their decision to buy and rent properties within the development. The breadth and extent of the association’s acquiescence and abandonment of Covenant 13’s restriction prohibiting rental to tenants other than those approved for membership in the association was expressly recognized and confirmed by the 1990 amendment to article XII of the bylaws, necessarily voted upon by a majority of the members themselves, which allowed property owners to rent or lease their property to adults of their choosing so long as they complied with the provisions of article XII and the remainder of the Bylaws. This amendment was existing and in effect for more than twenty years before the association’s enforcement notices sent to the plaintiffs, Richard Dawson and John Montagno, on January 15,2011.

Given these facts, we conclude that the association and its members have acquiesced in the open and notorious violation of the requirement of tenant membership in the association under circumstances evidencing an unmistakable intent not to enforce this provision such that any objection to further violation at this time is now barred.

Validity of Unconsented to Amendments to the Association’s Bylaws, and Rules and Regulations, which Affect Property Rights

Since the January 15, 2011, enforcement notice sent by the association, the association on February 18, 2011, amended its rules and regulations to prohibit short-term leasing. (Complaint and answer, ¶ 20, Exhibit “I”). Further, the bylaws were amended on October 13, 2012, to prohibit property owners from leasing their property for a term of less than one year in duration. Plaintiffs argue these changes are not binding on them.

Covenant 12 does not allow the association to alter the plaintiffs’ property rights at will. To the contrary, “provisions affecting property or contractual rights cannot be repealed or altered without the consent of the parties whose interests are thereby impaired.” Schaad v. Hotel Easton Co., 87 A.2d 227, 230 (Pa. 1952) (emphasis added). This is particularly true where actual rights of property ownership are affected. In Weona Camp, Inc. v. Gladis, 457 A.2d 153, 154 (Pa. Cmwlth. 1983), the Commonwealth Court expressly held that property rights of the members of a non-profit corporation may not be affected without their unanimous consent. That a prohibition on the short-term leasing of real estate works as a restriction and curtailment of inherent rights of ownership cannot be disputed. Consequently, such limitation is not judicially enforceable unless consented to by the affected owners.

Township Zoning Ordinance

Defendants argue that the short-term rental of a single family residence for use as a temporary residence violates the Kidder Township Zoning Ordinance. Defendants do not argue that the ordinance prohibits property from being rented, but rather that if the tenant is other than a traditional family unit, such as several couples renting a home for a weekend skiing trip, or a group of students for spring break, this usage is not permitted under the zoning ordinance. Specifically, defendants argue that when plaintiffs lease their properties to groups of individuals who are not families, the property is being used as a rooming or boarding house which is prohibited in the zoning district in which the development is located.

The development is located in an R-2 residential medium-density district. Permitted uses in this district include single-family and two-family houses. (Zoning ordinance, § 180-14). A single-family house is defined in the zoning ordinance as “[a] dwelling unit accommodating a single household and having two side yards.” (Zoning ordinance, § 180-6 (Definitions)). A dwelling unit is defined as “[a] building or portion thereof providing complete housekeeping facilities for one family or household.” Id. A family is defined as “[o]ne or more persons who live together in one dwelling unit and maintain a common household. A family may consist of a single person or two or more persons, whether or not related by blood, marriage or adoption. Family may also include domestic servants and gratuitous guests. A family shall not include residents of a group residence, boarding home and/or personal care home.” Id.

From these definitions we conclude that a group of people who reside together in a single-family home which meets the housekeeping needs of that group, including the sharing of common areas (e.g., kitchen, dining room, living room, and bathroom facilities), is a permitted use in an R-2 district, regardless of whether the occupants of the home are related by blood, marriage, or adoption. This reading comports with the standard that a zoning ordinance must be strictly construed and that “a permitted use must be afforded the broadest interpretation so that a landowner may have the benefit of the least restrictive use and enjoyment of his land.” JALC Real Estate Corporation v. Zoning Hearing Board of Lower Salford Township, 522 A.2d 710, 712 (Pa. Cmwlth. 1987).

Tort Liability

Counts 3 and 4 of the complaint assert claims of fraudulent misrepresentation and negligent misrepresentation, respectively, on behalf of the plaintiffs, Richard Dawson and John Montagno. To establish a prima facie case of fraud, a plaintiff must show: (1) a representation; (2) which is material to the transaction at hand; (3) made falsely, with knowledge of its falsity or recklessness as to whether it is true or false; (4) with the intent of misleading another into relying on it; (5) justifiable reliance on the misrepresentation; and (6) the resulting injury was proximately caused by the reliance. Blumenstock v. Gibson, 811 A.2d 1029, 1034 (Pa. Super. 2002), appeal denied, 828 A.2d 349 (Pa. 2003). “Scienter, or the maker’s knowledge of the untrue character of his representation, is a key element in finding fraudulent misrepresentation.” Weston v. Northampton Personal Care, Inc., 62 A.3d 947, 960 (Pa. Super. 2013). Further, the standard of proof is clear, precise and convincing evidence. Yoo Hoo Bottling Co. of Pa., Inc. v. Leibowitz, 247 A.2d 469, 470 (Pa. 1968).

The elements of a prima facie case for negligent misrepresentation are “(1) a misrepresentation of a material fact; (2) made under circumstances in which the misrepresenter ought to have known its falsity; (3) with an intent to induce another to act on it; and (4) which results in injury to a party acting in justifiable reliance on the misrepresentation.” Heritage Surveyors & Engineers, Inc. v. National Penn Bank, 801 A.2d 1248, 1252 (Pa. Super. 2002). The differences between a fraudulent misrepresentation and negligent misrepresentation are the state of mind of the person making the misrepresentation and the standard of proof that must be met by the plaintiff. Kerrigan v. Villei, 22 F. Supp. 2d 419, 429 (E.D.Pa. 1998). With a negligent misrepresentation claim, the misrepresentation must concern a material fact and the speaker need only have failed to make a reasonable investigation of the truthfulness of the representation (i.e., failure to exercise reasonable care in supplying the information). Gibbs v. Ernst, 647 A.2d 882, 890 (Pa. 1994). Furthermore, whereas fraudulent misrepresentation must be demonstrated by clear and convincing evidence, negligent misrepresentation may be established by a preponderance of the evidence. Kerrigan, 22 F. Supp. 2d at 429.

Defendants argue that the defendant, Hank George, acted with reasonable skill and due care and, therefore, cannot be said to have intentionally or negligently misled the plaintiffs when he sent the January 15, 2011, enforcement notice threatening to fine the plaintiffs, Richard Dawson and John Montagno, for violating the deed covenants, association’s bylaws, and township zoning ordinance. In making this argument, defendants refer specifically to Mr. George’s deposition testimony in which he testified that prior to sending this warning, he reviewed the development’s deed covenants, association’s bylaws, and township zoning ordinance, as well as the Uniform Planned Communities Act, Municipalities Planning Code, Uniform Construction Act, and Pennsylvania Code Chapters 73 and 109, relating to sewers, septic systems, and drinking water. (George Dep., pp. 88-89, 5/17/13). Additionally, Mr. George testified that he received and relied on advice from two different solicitors for the development and participated in a meeting with the Kidder Township Zoning Board and its solicitor. {Id. at 88-90).

While all of this may be true, whether it is and whether Mr. George reasonably relied upon it is for the factfinder to determine. In ruling on a motion for summary judgment, the credibility and reliability of the oral testimony of a party is as much a fact in issue as is any other fact upon which the parties do not agree. Nanty-Glo v. American Surety Co., 163 A. 523, 524 (Pa. 1932).

The Nanty-Glo rule means the party moving for summary judgment may not rely solely upon its own testimonial affidavits or depositions, or those of its witnesses, to establish the non-existence of genuine issues of material fact. Testimonial affidavits of the moving party or his witnesses, not documentary, even if uncontradicted, will not afford sufficient basis for the entry of summary judgment, since the credibility of the testimony is still a matter for the [factfinder].
If, however, the moving party supports its motion for summary judgment with admissions by the opposing party, Nanty-Glo does not bar entry of summary judgment. To carry the weight of a binding judicial admission, however, the opposing party’s acknowledgment must conclusively establish a material fact and not be subject to rebuttal.

DeArmitt v. New York Life Ins. Co., 73 A.3d 578, 595 (Pa. Super. 2013) (internal quotation, citations, and corrections omitted).

Further standing in opposition to defendants’ motion is that the schedule of fines cited in Mr. George’s January 15, 2011, enforcement notice is not provided for in the association’s bylaws, its rules and regulations, or any other source binding on the property owners, and apparently was designed to coerce plaintiffs into ending their short-term rentals. (George Dep., pp. 36-41, 5/17/13). Added to this is that in Mr. George’s position as a director and officer of the association he stood in a fiduciary relation to the association and its members, and was required to act not only with the care which a person of ordinary prudence would use under similar circumstances, but also to perform his duties in good faith. 68 Pa.C.S.A. § 5303 (a); see also McMahon v. Pleasant Valley West Association, 952 A.2d 731,736 (Pa. Cmwlth. 2008) (quoting Restatement (Third) of Property (Servitudes) § 6.13 (2000) for the proposition that a homeowners’ association owes a duty to treat its members fairly and to act reasonably in the exercise of its discretionary powers, including rulemaking, enforcement, and design control powers). Because the facts are not undisputed, on this issue both parties’ motions for summary judgment will be denied.

CONCLUSION

In general, an owner of property is entitled to use his property in any way he desires, “provided he does not (1) violate any provision of the federal or state constitutions; or (2) create a nuisance; or (3) violate any covenant, restriction or easement; or (4) violate any laws of zoning or police regulations which are constitutional.” Parker v. Hough, 215 A.2d 667, 669 (Pa. 1966) (emphasis in original) (citation omitted). When, however, a restriction or covenant limits the use of real estate, the limitation is narrowly construed in favor of the owner and may, over time, dissipate and be lost.

Holiday Pocono is a private community held together by a common set of restrictive covenants which bind some, but do not nullify all, rights of ownership. The development is located in the Poconos with many of the homes being second homes used as vacation properties by their owners. Common sense dictates that the right to lease these homes, especially on a short-term basis, is important. To relinquish this right by covenant requires an express clear statement that the right does not exist. To do so either in an association’s bylaws or the rules and regulations of its board of directors requires the express consent of all affected owners. To do so by zoning is prohibited as a matter of law since the regulation of the exercise of ownership rights is distinct from the regulation of how property is used. County of Fayette v. Cossell, 430 A.2d 1226, 1228 (Pa. Cmwlth. 1981) (“[I]f a use is permitted, a municipality may not regulate the manner of ownership of the legal estate.”). Because none of these conditions have been met, we find that the plaintiffs are not barred from the short-term rental of their properties in Holiday Pocono to tenants who use the property for residential purposes for their sole and exclusive use.

Civil Law — Private Residential Community — Restrictive Covenants — Interpretation — Abandonment/ Acquiescence ■— Property Owners’ Association — Amendment of Rules and Regulations Affecting Property Rights — Zoning — Ordinance — Strict Construction — Enforcement — Private cause of Action — Motion for Summary Judgment — Issues of Material Fact — Nanty-Glo Rule — Sua Sponte Raising of Issues by Court

1. Restrictive covenants on the use of land are not favored by the law and are to be strictly construed against persons seeking to enforce them and in favor of the free and unrestricted use of property.

2. A restrictive covenant restricting the use of property for residential purposes only does not prevent leasing of the property for residential purposes, notwithstanding this will generate the receipt of income.

3. As a general rule, a restrictive covenant may be discharged if there has been acquiescence in its breach by others, or an abandonment of the restriction. Abandonment is a question of intent, whether expressly stated or inferred by implication from surrounding facts and circumstances.

4. A restrictive covenant which prohibits the renting or leasing of property within a private residential community only to persons first approved for membership in the community’s property owners’ association, which covenant has never been enforced and its violation actively acquiescing in for more than forty years, has been abandoned and its enforcement is barred.

5. Restrictive covenants, bylaws or other provisions affecting property or contractual rights in a private residential community cannot be repealed or altered without the consent of the parties whose interests are thereby impaired.

6. The right to lease real estate is an inherent right of ownership which a property owners’ association cannot prohibit absent the consent of the affected owners.

7. Section 617 of the Municipalities Planning Code authorizes an aggrieved owner of property who demonstrates that his property would be substantially affected by a zoning violation to institute a private action to prevent the violation.

8. A zoning ordinance must be strictly construed and a permitted use therein must be afforded the broadest interpretation so that a landowner may have the benefit of the least restrictive use and enjoyment of his land.

9. A zoning ordinance which allows as a permitted use in an R-2 residential medium density district single family houses in which one family or household may reside, as those terms are defined in the ordinance, does not prohibit a group of unrelated persons from residing together in a single family home which meets the housekeeping needs of that group.

10. In ruling on a motion for summary judgment, the credibility and reliability of the oral testimony of a party is as much a fact in issue as is any other fact upon which the parties do not agree.

11. It is inappropriate for a trial court to sua sponte raise an issue that has not been raised by the parties and then grant summary judgment premised on that issue.

      . Richard Dawson is the owner of Lot No. C-271; John Montagno, the owner of Lot No. D-404; and John Nelson, the owner of Lot No. C-274.

      . Many of the homes in the development are second homes used by the owners as vacation homes. (George Dep., p. 69, 5/17/13). The development also includes a network of roads, two lakes, a clubhouse, pavilions, bath houses, and a garage building, title to which is held by the property owners’ association for the development. (Complaint and answer, ¶ 12, Exhibit “F” (Association Bylaws, article IV, entitled “assets of the association”)).

      . Holiday Pocono Civic Association, Inc. is a non-profit Pennsylvania corporation incorporated on January 10, 1964 under the Pennsylvania Non-Profit Corporation Law of 1933, 15 P.S. §§ 2851-1-207. (originally enacted as the Act of May 5,1933, P.L. 289) (now found at 15 Pa.C.S.A. §§ 5101-5997).

      . Mr. George is a director and the corporate secretary of the Association. The letters of January 15, 2011, and March 21, 2011, were sent under Mr. George’s signature.

      . In Murphy v. Duquesne Univ. of the Holy Ghost, 777 A.2d 418 (Pa. 2001), the Pennsylvania Supreme Court set forth the following standard for granting summary judgment:
      [W]here there is no genuine issue of material fact and the moving party is entitled to relief as a matter of law, summary judgment may be entered. Where the non-moving party bears the burden of proof on an issue, he may not merely rely on his pleadings or answers in order to survive summary judgment. Failure of a non-moving party to adduce sufficient evidence on an issue essential to his case and on which it bears the burden of proof...establishes the entitlement of the moving party to judgment as a matter of law. Lastly, we will view the record in the light most favorable to the non-moving party, and all doubts as to the existence of a genuine issue of material fact must be resolved against the moving party.

        Id. at 429 (citing Young v. PennDOT, 744 A.2d 1276, 1277 (Pa. 2000)).

      . Nevertheless, in restricting the type of building to be erected to one detached single-family dwelling, Covenant 1 further limits the residential use to that of a private nature, thereby excluding residential purposes of a public character such as general public boarding or apartment houses. Kauffman v. Dishler, 110 A.2d 389, 392 n. 1 (Pa. 1955).

      . The association has approximately nine hundred members, all of whom are property owners within the development. Each property owner, by virtue of his ownership status, is automatically a member in the association. (George Dep., pp. 71-72, 5/17/13).
      In his deposition, Mr. George testified that the Association has never admitted tenants as members and that although property owners who lease their property register their leases with the Association, they have not been required to seek membership approval for their tenants. (Id. at 71-77).

      . Notwithstanding this amendment, it appears the association has never established a fee schedule for renters. (Complaint and answer, ¶ 14). In allowing members to rent “to adults of their choice,” article XII, paragraph A, at a minimum calls into question the continuing validity of the membership requirement for a tenant contained in Covenant 13. In noting this variance, we are not suggesting that an amendment to the bylaws takes precedence over an inconsistent deed covenant. Wilkins v. Lake Meade Property Owners’ Ass’n, Inc., 60 Pa.D.&C.2d 670, 672 (Adams Co. 1960) (holding that bylaw amendments cannot impair or alter property or contractual rights without the consent of the affected parties). However, as discussed further in the text, this bylaw change is clear evidence of acquiescence to the breach and an abandonment of the membership requirement for tenants contained in Covenant 13.

      . The association’s bylaws are not the same as the association’s rules and regulations. The bylaws are adopted by the property owners and are subject to change only by a majority vote of the property owners. In contrast, the rules and regulations are adopted by the association’s board of directors, and are consequently subject to change by a majority vote of the noard of directors. (Complaint and answer, ¶ 21).

      . In the context of deed restrictions which have become outdated, the Superior Court in Rieck v. Virginia Manor Company, 380 A.2d 375 (Pa. Super. 1977) stated:
      In order to effect a release or discharge of the real covenants the burden of proof is upon the owners of the servient tenements to show that the original purpose and intent of the restrictions have been materially altered or destroyed by changed conditions and that substantial benefit and advantage may not inure to the owners of the dominant tenement by the enforcement of the restrictions.

        Id. at 378. While plaintiffs have not specifically claimed that the membership requirement for a tenant is outdated, the original purpose and intent of this restriction is unclear. To the extent registration or a background check of tenants was sought, this could easily have been accomplished by means other than membership approval, which appears from the face of the deed covenants to place a tenant on equal standing with an owner as a member of the association. (George Dep., p. 69, 5/17/13). Whether this was fully intended and thought through is not apparent from the record.
      We believe it also important to note that even absent a finding of abandonment, to the extent defendants argue that plaintiffs are not entitled to summary judgment because none of plaintiffs’ tenants have been approved for membership in the association, this is disingenuous. {See defendants’ brief in support of their motion for summary judgment, pp. 2, 4-5). The association does not and has never approved tenants as members. See Craig Coal Mining Company v. Romani, 513 A.2d 437, 440 (Pa. Super. 1986) (“[A party] may not...take advantage of an insurmountable obstacle placed, by himself, in the path of the other party’s adherence to an agreement. By preventing performance he also excuses it”).

      . At the outset, we are hesitant to address this issue because defendants appear to be positing hypotheticals rather than concrete examples, stating only that “plaintiffs have no idea who their properties are leased by as they all work through agents” (Defendants’ brief in support of their motion for summary judgment, p. 8), and also on grounds of standing. Neither the association’s bylaws nor its rules and regulations incorporate as its own the township’s zoning ordinance. Instead, the rules and regulations simply advise members and their guests that even though the development is a private community bound by deed covenants and managed by an association of property owners, federal, state, and local laws also apply, including the provisions of the township’s zoning ordinance, which property owners must abide by. Therefore, were the association to take action to enforce the provisions of the township’s zoning ordinance, the authority for such action would likely be premised upon 53 P. S. § 10617, rather than enforcement of a rule or regulation of the association allegedly prohibiting property owners within the development from leasing in violation of the township’s zoning ordinance. See Parker v. Hough, 215 A.2d 667, 670 (Pa. 1966) (noting that the differences between a zoning regulation and a covenant restriction are significant).
      Section 617 of the Municipalities Planning Code authorizes an aggrieved owner of property who demonstrates that his property would be substantially affected by a zoning violation to institute an appropriate action to prevent the violation, provided notice of the action is first “served upon the municipality at least 30 days prior to the time the action is begun by serving a copy of the complaint on the governing body of the municipality.” 53 P.S. § 10617. Failure to serve this notice is fatal to the commencement of a private claim predicated directly on the violation. Karpiak v. Russo, 676 A.2d 270, 275 (Pa. Super. 1996); see also Bowers v. T-Netix, 837 A.2d 608 (Pa. Cmwlth. 2003). In Bowers, the court stated:
      Generally, standing is not an issue of subject matter jurisdiction and, therefore, may not be raised by the court suasponte. However, where, as here, a statute creates a cause of action and designates who may sue, the issue of standing is so interwoven with that of subject matter jurisdiction that it becomes a jurisdictional prerequisite to an action.

        Id. at 613 n. 14 (citation omitted).
      Procedurally, the association is a defendant in these proceedings and has not commenced an action against plaintiffs. Therefore, Section 617 of the Municipalities Planning Code is not technically in play. And while it does not appear from our reading of the association’s rules and regulations that the association has the authority under these rules and regulations alone to enforce the provisions of the township’s zoning ordinance, plaintiffs have not questioned defendants’ standing to do so and have not argued that defendants’ concerns about the type of tenants plaintiffs select is speculative. As to such issues, it is inappropriate for a trial court to sua sponte raise an issue that has not been raised by the parties. See Shamis v. Moon, 2013 WL 6252517 *6 (Pa. Super.) (noting that “a trial court cannot raise an argument in favor of summary judgment sua sponte and grant summary judgment thereon”). We are also cognizant that part of plaintiffs’ claim is for declaratory judgment. Accordingly, we will address the issue.

      . The zoning ordinance defines a rooming and boarding house as follows:
      Any dwelling in which more than three but not more than 20 persons, either individually or as families, are housed or lodged for hire with or without meals. A rooming house or a furnished-room house shall be deemed a boardinghouse.
      (Zoning ordinance, § 180-6 (Definitions)).


author: MARK, J.,

text:
    HSBC Bank v. Mid County Resources

      Brian T. LaManna, for plaintiff.

      Richard Frank and Dan Lyons, for defendants.
    January 22, 2014
   MARK, J.,

— This case is before the Court on Defendant’s Petition to Open Judgment. For the following reasons, we will deny the petition.

Factual and Procedural Background

Plaintiff HSBC Bank USA (“plaintiff’) commenced this action on April 8,2010, filing a complaint in mortgage foreclosure against Mid County Resources, Kim Hawley and Christopher Hawley. On September 6, 2011, the court entered an order granting plaintiff’s motion for summary judgment against Mid County Resources only (“defendant”). An in rem judgment of $171,021.48 was entered against defendant. Plaintiff subsequently filed a writ of execution. The subject property, located at 2717 San Marco Court, East Stroudsburg, Pennsylvania, 18301, was scheduled for sheriff’s sale on July 25, 2013.

On May 16, 2013, defendant filed the instant petition, seeking a stay of the sheriff’s sale and requesting that the judgment be opened and plaintiff’s writ of execution be stricken. Substantively, defendant calls into the question only the validity of the assignment of the mortgage, alleging the assignment was fraudulently executed. Defendant does not allege that the mortgage itself is invalid, that defendant did not, as of September 6, 2011, owe $171,021.48 on the mortgage, that payments were made, or that the mortgage had been satisfied. Similarly, defendant does not allege defect, error, or prejudice in the summary judgment proceedings. We subsequently stayed the sheriff’s sale, and on August 19, 2013, we held a hearing, at which the parties addressed the substantive merits of defendant’s petition. We later held an additional hearing to address the appropriate standard employed by Pennsylvania appellate courts in determining whether to open a final judgment issued after an adversarial proceeding. Having fully considered defendant’s petition, the parties’ respective arguments and briefs, and the applicable case law and Rules of Civil Procedure, we are prepared to rule on defendant’s petition to open judgment.

Discussion

Ordinarily, ajudgment entered in an adverse proceeding, such as one entered on a motion for summary judgment, cannot be disturbed after it has become final. Simpson v. Allstate Ins. Co., 504 A.2d 335, 337 (Pa. Super. 1986). A judgment entered in an adverse proceeding becomes final if no appeal is taken within thirty days, and it normally cannot be modified, rescinded, vacated or opened. Id.

This doctrine, respecting judgments entered [in adverse proceedings], has a very definite function, namely, to establish a point at which litigants, counsel and courts ordinarily may regard contested lawsuits as being at an end. A contested action yields ajudgment in which the value of finality is greatest. There has been a decision following an examination of the critical issues through bilateral participation of the parties.... For all the reasons that finality of judgments is important, such a judgment should be invulnerable except upon a showing of extraordinary miscarriage.

Id. Insurance Co. of North America v. Bishop, 529 A.2d 33, 35 (Pa. Super. 1987) (internal citations omitted). Atrial court’s discretionary power to grant relief from a judgment entered in a contested action once the appeal period has expired is extremely limited. Simpson, 504 A.2d at 337. “Generally, judgment entered in adverse proceedings cannot be opened or vacated after they have become final, unless there has been fraud or some other circumstance so grave or compelling as to constitute extraordinary cause justifying intervention by the court.” Id. (internal citations omitted). Extraordinary cause has been generally defined as “an oversight or action on the part of the court or the judicial process which operates to deny the losing party knowledge of the entry of final judgment.” In re Interest of C.K., 535 A.2d 634, 641 (Pa. Super. 1987). A mistake of fact, for example, is not an extraordinary cause warranting a court’s intervention. Bishop, 529 A.2d at 36.

Rather than extraordinary cause, defendant generally alleges that a fraud was committed upon it by plaintiff. In support of its contention, defendant avers that plaintiff is not the original mortgagee of the subj ect mortgage. Instead, plaintiff obtained title to the mortgage by assignment. This assignment was executed by Theresa Esposito, whose given title was “VP” and Assistant Secretary for Mortgage Electronic Registration Systems, Inc., the previous holder of the mortgage. Defendant further contends that Ms. Esposito is, in fact, an employee of LPS Default Solutions and not Mortgage Electronic Registration Systems. And because Ms. Esposito was not an employee of Mortgage Electronic Registration Systems when she executed the assignment of the subject mortgage, defendant concludes, the assignment is void, “extinguishing any interest purportedly held by plaintiff, HSBC.” (Def.’s Pet. at 3.) Defendant further avers that it only recently learned of this information regarding Ms. Esposito through news articles, and it had no reason to doubt the validity of the assignment at the time judgment was entered.

In response, plaintiff states simply that defendant is out of time. All motions for reconsideration or appeals, plaintiff argues, must be brought within thirty days of entry of judgment and none were brought in this case. Otherwise, and absent any evidence of active fraud or extraordinary cause, the judgment becomes final. (Pl.’s Br. at 4.) And, plaintiff argues, defendant has not “put forth any evidence of fraud or extraordinary cause which would require the court to strike and open” a judgment following an adversarial proceeding. (Pl.’s Br. at 5.) The best defendant can muster, plaintiff continues, is an irrelevant complaint from a federal court in New York and an equally irrelevant article from the Internet that bear little or no connection with Ms. Esposito or this case.

We agree with plaintiff’s position. Defendant having presented no evidence of either fraud or extraordinary cause, we find that opening the adverse judgment in this matter is not warranted.

As previously noted, extraordinary cause exists when an oversight or action on the part of the court or the judicial process denies the losing party knowledge of the entry of the final judgment. Because defendant does not aver that the court or the judicial process has committed any errors, we proceed directly to an analysis of whether a fraud was committed.

The case law does not expressly make clear upon whom the fraud must have been committed. It is unclear whether the fraud referred to is a fraud between the parties or a fraud upon the court. At argument and its brief, though, plaintiff conceded that the fraud required to open an adversarial judgment is a fraud upon the court, but maintained that the averments it has made regarding Ms. Esposito’s involvement in signing the assignment were, in fact, a fraud upon the court, which has been defined as “[i]n a judicial proceeding, a lawyer’s or party’s misconduct so serious that it undermines or is intended to undermine the integrity of the proceeding.” Black’s Law Dictionary (9th ed. 2009). We do agree that the fraud necessary to open this judgment is fraud upon the court, but we do not agree that defendant established that such fraud has been committed in this case.

Actions for fraud upon the court are so rare that, to our knowledge, no Pennsylvania court has articulated a legal definition of the concept. The third circuit has only recently passed upon the topic, noting that “[t]he concept of fraud upon the court challenges the very principle upon which our judicial system is based: the finality of a judgment.” Herring v. United States, 424 F.3d 384, 386-87 (3d Cir. 2005). In Herring, the third circuit, recognizing that it, too, had never articulated a test for determining whether fraud had been committed upon the court, established a demanding standard of proof.

In order to meet the necessarily demanding standard for proof of fraud upon the court we conclude that there must be: (1) an intentional fraud; (2) by an officer of the court; (3) which is directed at the court itself; and (4) in fact deceives the court. We further conclude that a determination of fraud on the court may be justified only by the most egregious misconduct directed to the court itself, and that it must be supported by clear, unequivocal and convincing evidence.

Id. (internal quotations omitted). Defendant is far from meeting this burden. Even if we assume arguendo that Ms. Esposito’s actions constitute intentional fraud under Pennsylvania law, there is no indication that she is an officer of the court. An officer of the court is “[a] person who is charged with upholding the law and administering the judicial system,” specifically judges, clerks, sheriff deputies and attorneys. Black’s Law Dictionary (9th ed. 2009). Ms. Esposito is a vice president and assistant secretary for Mortgage Electronic Registration Systems, which hardly qualifies her as an officer of the court. Further, there is no indication that Ms. Esposito’s alleged actions were directed at this or any other court. It can also hardly be said that this court was deceived by any of Ms. Esposito’s alleged actions. It is not the responsibility of the court to investigate the validity of signatures on assignments of mortgages. That responsibility belongs to the parties.

Further, though the standard for opening a judgment entered in an adverse proceeding does not require the party making the request to demonstrate a facially valid defense, as would be required of a party attempting to open a default judgment, we cannot see how defendant could possibly prevail even if we were to grant its petition. First of all, as the borrower and thus a third party to any assignment, defendant lacks the standing to challenge the validity of the assignment. See JP Morgan Chase Bank, N.A. v. Murray, 63 A.3d 1258, 1264-65 (Pa. Super. 2013) (“If a borrower cannot demonstrate potential injury from the enforcement of the note and mortgage by a party acting under a defective assignment, the borrower lacks standing to raise the issue”). As previously noted, defendant has not alleged the mortgage itself is invalid or that it did not owe the balance remaining on the mortgage. Nor has defendant demonstrated any potential injury from the enforcement of the note or mortgage, despite the alleged but unproven existence of a defective assignment.

As an alternative argument, defendant contends that the judgment should be opened on the basis of after-discovered evidence. A petition to open a judgment on the basis of “after-discovered evidence will only be granted where that evidence: (1) is new; (2) could not have been obtained at trial in the exercise of due diligence; (3) is relevant and non-cumulative; (4) is not for the purposes of impeachment; (5) and must be likely to compel a different result.” In re Cook, 527 A.2d 1115, 1116 (Pa. Cmwlth. 1987). The after-discovered evidence defendant points to consists of an opinion from the United States Bankruptcy Court in the Northern District of New York and a lengthy article entitled “Robo-Signer List for November 1, 2012” found on the Internet at http://takeyourhomeback.com. Within the bankruptcy court opinion, the New York court discussed a similar situation that was outlined by the United States Bankruptcy Court in the Northern District Indiana, in which a woman by the name of Bethany Hood signed mortgage documents using fraudulent job titles. (Def.’s Pet. Ex. B.) While these opinions may provide accounts of the types of fraudulent conduct defendant alleges Ms. Esposito committed and give credence to the argument that these practices occur generally, there is nothing in these opinions that indicates Ms. Esposito engaged in these practices and certainly nothing that indicates Ms. Esposito fraudulently signed mortgage documents in the case at bar. Quite simply, these opinions are irrelevant to the case before us and extremely unlikely to compel a different result.

The internet article does, at least, contain specific references to Ms. Esposito. In the article Ms. Esposito is identified as a “robo signer,” which the article defines as a “variety of practices.”

It can mean a qualified executive in the mortgage industry signs a mortgage affidavit document without verifying the information. It can mean someone forges an executive’s signature, or a lower-level employee signs his or her own name with a fake title. It can mean failing to comply with notary procedures. In all of these cases, robo-signing involves people signing documents and swearing to their accuracy without verifying any of the information.

(Def.’s Pet. Ex. C.) As noted, Ms. Esposito is identified as a robo-signer, and she is described as an employee of Lender Processing Services who often signs mortgage assignments as Assistant Secretary of Mortgage Electronic Registration Systems. (Def.’s Pet. Ex. C.) But, as plaintiff points out, “[a]n internet article can hardly be considered compelling evidence.” (PL’s Br. at 9.) The article does not indicate where it received its information, nor does it prove that Ms. Esposito acted fraudulently when she signed the mortgage assignment at issue here.

For the foregoing reasons, we enter the following:

ORDER

And now, this 22nd day of January, 2014, defendant Mid County Resources’ petition to open judgment in mortgage foreclosure matter is denied.