author: SHEPPARD JR., J.,

text:
    Resource America Inc. v. Certain Underwriting Members of Lloyd’s Subscribing to Policy No. ***/********

      Steven A. Arbittier, for plaintiffs.

      Jonathan Dryer and Patrick K. Cary, for defendants.
    November 12, 2004
   SHEPPARD JR., J.,

Before the court are cross-motions for summary judgment on the issue of whether defendant, the excess liability insurer of the directors and officers of Resource America Inc. (RAI), must contribute $2,000,000 to a settlement entered into between RAI and a class of plaintiffs that had sued RAI for securities fraud based on alleged improper accounting practices.

The settlement resulted from a mediation between the parties in the underlying class action, which mediation was attended by a representative of Lloyd’s. The mediator, over Lloyd’s objection, recommended that the parties settle the underlying class action for $7,000,000. When Lloyd’s refused to participate in the settlement, RAI and the class plaintiffs entered into an alternative, two-tiered, settlement pursuant to which RAI is obligated to pay the class plaintiffs $7 million if RAI is able to obtain coverage of $2 million from Lloyd’s. But, if this court finds that Lloyd’s does not have to provide coverage to RAI, then RAI is obligated to pay the class plaintiffs a total of only $6 million (the two-tiered settlement). See complaint, exhibit D.

Lloyd’s is RAI’s second excess directors and officers (D&O) insurer. Admiral Insurance Company issued RAI a primary D&O policy with coverage of $3 million (the Admiral policy). Id., exhibit A. National Union Fire Insurance Company issued RAI’s first excess D&O policy with coverage of an additional $3 million. Id., exhibit B. Once those policies are exhausted, the Lloyd’s second excess D&O policy provides an additional $4 million in coverage to RAI (the Lloyd’s excess policy). Thus, RAI had a total of $10 million in D&O coverage. Id., exhibit C.

In the underlying litigation, approximately $1 million of the Admiral policy coverage was used to pay for legal fees. As a result, Admiral and National Union contributed approximately $5 million to the two-tiered settlement. RAI now seeks the remaining $2 million from Lloyd’s. However, Lloyd’s denies that it is liable to pay anything.

I. The Applicable Terms of the Lloyd’s Excess Policy

The Lloyd’s excess policy provides that it is “subject to the same insuring clauses, definitions, terms, conditions, exclusions and other provisions, as those set forth in the [Admiral] policy.” Under the Admiral policy, “Loss” is defined to include “settlements,” but “only those settlements . .. which have been consented to by the insurer shall be recoverable as loss under the terms of this policy.” Defendants’ motion for summary judgment, exhibit C, §§HI.I, VLB. Furthermore, “the insureds shall not. . . enter into any settlement. . . without the prior written consent of the insurer.” Id. at §VI.B.

“The insurer’s consent shall not be unreasonably withheld, provided that the insurer shall be entitled to full information and all particulars it may request in order to reach a decision as to such consent and shall be entitled to effectively associate in the defense and the negotiation of any settlement of any claim.” Id.

RAI claims that Lloyd’s breached the first clause of the quoted sentence which ends prior to the words “provided that” (the consent to settlement provision), by refusing to agree to the mediator’s suggested settlement. Consequently, argues RAI, Lloyd’s is obliged to pay the full $2 million towards the settlement. Lloyd’s contends that RAI breached the second half of the quoted sentence, which begins with the words “provided that” (the duty to cooperate provision), and that Lloyd’s does not have to pay anything. The question for this court is whether it can hold, as a matter of law, that either party breached the Lloyd’s excess policy’s terms.

II. Lloyd’s Has Not Proffered Sufficient Evidence To Sustain Its Burden of Showing That RAI Breached the Duty to Cooperate

Lloyd’s argues that they are entitled to summary judgment because RAI breached the duty to cooperate in four specific ways, by:

“(1) Failing to provide Lloyd’s with a settlement recommendation and a basis for that recommendation three weeks prior to mediation as requested by Lloyd’s;
“(2) Bidding against itself and raising its offer from $1 million to $2 million without receiving any counteroffer from the plaintiff class; and
“(3) Requesting, over Lloyd’s objection, that the mediator make his settlement recommendation public; and
“(4) Entering into a settlement that was different from the settlement that it proposed to Lloyd’s after the mediation.” Defendants’ motion for summary judgment, ¶¶5-18.

In order to show that the insured breached the duty to cooperate, “the insurer must show that the breach is something more than a mere technical departure from the letter of the [policy. Instead, the insurer must show that the breach] is a [material variance] that results in a substantial prejudice and injury to [the insurer’s] position in the matter.” Conroy v. Commercial Casualty Insurance Co., 292 Pa. 219, 224, 140 A. 905, 907 (1928); Paxton National Insurance Co. v. Brickajlik, 513 Pa. 627, 630, 522 A.2d 531, 532 (1987) (same). See Forest City Grant Liberty Associates v. Genro II Inc., 438 Pa. Super. 553, 559, 652 A.2d 948, 951 (1995) (“a failure to cooperate must be substantial and will only serve as a defense where the insurer has suffered prejudice because of the breach.”); Trustees of the Univ. of Pennsylvania v. Lexington Ins. Co., 815 F.2d 890, 902 (3d Cir. 1987) (“[C]ourts have required a showing not only of the loss of substantial defense opportunities, but also of a likelihood of success in defending liability or damages... [which] makes particular sense in cases involving excess coverage because excess carriers generally have no right to control a lawsuit and because notice to the primary carrier generally ensures a competent and intelligent defense.”). See also, Cameron v. Berger, 336 Pa. 229, 7 A.2d 293 (1939) (insured who disappeared and was thereby unavailable as a witness at trial breached its duty to cooperate); Metal Bank of America Inc. v. Insurance Co. of North America, 360 Pa. Super. 350, 520 A.2d 493 (1987) (insured prejudiced its insurers’ interests by defending action for two years to the point of settlement before notifying them of claim). In addition, the insured’s “lack of good faith must be proved” by the insurer. Conroy, 292 Pa. at 226, 140 A. at 908.

“[Wjhere an insurer seeks to avoid liability for lack of cooperation, the question whether there has been a material breach ... is ordinarily for the jury.” Cameron, 336 Pa. at 235, 7 A.2d at 296 (court found for insurer as a matter of law because the evidence of lack of cooperation was conclusive). See also, Donaldson v. Farm Bureau Mutual Automobile Insurance Co., 339 Pa. 106, 108, 14 A.2d 117, 118 (1940) (“[t]he question of lack of cooperation is ordinarily for the jury, especially when, as here, a finding of [the insúred’s] improper intent is necessary in order for the [insurer] to establish such a defense.”); Forest City, 438 Pa. Super, at 559, 652 A.2d at 951 (“[w]hether there has been a material breach of an insured’s duty to cooperate is a question for the finder of fact.”). However, where as here, the insurer has not put forth sufficient evidence to sustain its burden to demonstrate that the insured’s alleged acts of non-cooperation were material and prejudicial to the insurer, the court may grant summary judgment for the insured on the insurer’s defense of non-cooperation.

Lloyd’s has not offered sufficient evidence to substantiate its claim that RAI failed to cooperate with Lloyd’s and thereby prejudiced Lloyd’s. Specifically, while Lloyd’s is technically correct that RAI did not provide Lloyd’s with a settlement recommendation and a basis for that recommendation three weeks prior to mediation (as requested by Lloyd’s), the evidence shows that RAI did on numerous occasions from December 2000 through October 2001, provide Lloyd’s with defense counsel’s analysis of the strength of plaintiffs’ claims and the strength (and weakness) of RAI’s defenses, the amount of damages claimed, the plaintiffs’ current settlement demand, and counsel’s recommendation as to settlement amount. See plaintiffs’ motion for summary judgment, exhibits 14-18,21-22,27. Furthermore, Lloyd’s was invited to, and did, send a representative to attend the mediation that produced the settlement at issue. It is submitted that Lloyd’s cannot seriously claim that RAJ failed to keep Lloyd’s informed on how the underlying class action and the possible settlement of it were progressing. See Ardrey v. Keystone Insurance Co., 29 D.&C.4th 342, 348 (Dauphin Cty. 1995) (“[A]dequate notice includes ‘either a demand for consent or a claim and sufficient information regarding the proposed settlement.’ ”), citing Fisher v. USAA Casualty Insurance Co., 973 F.2d 1103, 1107 (3d Cir. 1992). See also, Archer v. State Farm Insurance Co., 419 Pa. Super. 558, 566, 615 A.2d 779, 784 (1992) (Under the terms of a “no action clause,” “[t]he insured was obligated to notify [the insurer] before settlement with the tort-feasor.”).

The fact that RAI bid against itself and that RAI requested, over Lloyd’s objection, that the mediator make his settlement recommendation public, do not demonstrate lack of cooperation by RAF Instead, they show, at most, a disagreement between RAI and Lloyd’s as to what methodology to employ to settle the case. Since the conduct of settlement negotiations is an art rather than a science, Lloyd’s cannot show that RAI’s choice of alternative tactics resulted in prejudice to Lloyd’s.

Furthermore, Lloyd’s objection that RAI entered into a different settlement after Lloyd’s refused to participate in the settlement proposed by the mediator, is without merit. It is only because of Lloyd’s own recalcitrance that RAI and the class plaintiffs were compelled to agree to the two-tiered settlement. Lloyd’s should not in good faith be permitted to complain about it. See Trustees of the Univ. of Pennsylvania v. Lexington Ins. Co., 815 F.2d 890, 901 (3d Cir. 1987) (“Once the insurer had repudiated its contract of insurance, its insured must be allowed to negotiate a settlement that protected the interests for which it purchased insurance . . . [e.g.] the threat that [the plaintiffs’ claims] would put it out of business.”). Furthermore, since Lloyd’s would have paid the same amount under the mediator’s proposed settlement and under the two-tiered settlement, it cannot claim to have been prejudiced by any change in settlement terms.

In summary, then, this court will deny that aspect of Lloyd’s motion for summary judgment which claims that RAI breached its duty to cooperate.

III. Lloyd’s Has Failed To Show That the Settlement Was Unreasonable

RAI seeks summary judgment on the ground that Lloyd’s unreasonably refused to consent to the settlement proposed by the mediator. Even if the policy does not expressly so state, an insurer that withholds its consent to settle must show that it did so in good faith, fairly, and reasonably. See e.g., Daley-Sand v. West American Insurance Co., 387 Pa. Super. 630, 564 A.2d 965 (1989) (underinsured motorist coverage); Alfiero v. Berks Mutual Leasing Co., 347 Pa. Super. 86, 500 A.2d 169 (1985) (excess liability insurance). Where an insurer “unreasonably refus[es] to settle a claim, it breaches its contractual duty to act in good faith and its fiduciary duty to its insured.” Birth Center v. St. Paul Companies Inc., 567 Pa. 386, 408, 787 A.2d 376, 389 (2001).

In order to show that its consent was reasonably withheld, Lloyd’s must show that the proffered settlement was prejudicial to it. See Nationwide Mutual Insurance Co. v. Lehman, 743 A.2d 933, 941 (Pa. Super. 1999) (“Where the insured settles with a tort-feasor without the insurer’s consent and does not prejudice the insurer’s interests, the purpose of the consent-to-settle clause is lacking.”), relying upon, Brakeman v. Potomac Insurance Co., 472 Pa. 66, 371 A.2d 193 (1977).

“[T]he purpose of the prejudice requirement is to allow an insurer to refuse payment only if its procedural handicap has led to disadvantageous, substantive results ... [Cjourts have required a showing not only of the loss of substantial defense opportunities but also of a likelihood of success in defending liability or damages if those opportunities had been available.” Trustees of the Univ. of Pennsylvania v. Lexington Ins. Co., 815 F.2d 890, 899 (3d Cir. 1987).

Where the insurer has failed to show that the proposed settlement was prejudicial to it, the court may grant summary judgment in the insured’s favor. See Nationwide, 743 A.2d at 942.

In this case, Lloyd’s urges that the $7 million settlement is prejudicial because it requires Lloyd’s to pay too much. In support, Lloyd’s cites the two-tiered settlement as proof that the class plaintiffs were willing to take $6 million as opposed to $7 million. However, the class plaintiffs presumably did so only because Lloyd’s refused to agree to the mediator’s suggested settlement. In other words, in the absence of Lloyd’s participation, class plaintiffs decided to accept what they could get from RAI and opted not to try to get blood from a stone.

Furthermore, the record contains evidence of the following facts that contradict Lloyd’s unsubstantiated claim that the settlement was unreasonably high:

“(1) Class plaintiffs claimed more than $100 million in damages in the underlying class action;
“(2) RAI’s expert opined that a verdict of at least $100 million was possible and suggested $13.5 million as a reasonable settlement amount;
“(3) The court in the underlying class action denied RAI’s motion to dismiss and certified the plaintiff class;
“(4) The impartial mediator recommended $7 million as a reasonable settlement amount; and
“(5) RAI’s other insurers agreed to pay their policy limits towards the settlement.” See plaintiffs’ motion for summary judgment, exhibits 6, 9,15,19, 24-25, 29.

Since Lloyd’s has not offered persuasive evidence to show that the two-tiered settlement is unreasonable, prejudicial, and not entered into in good faith, it has no valid ground on which to object to participating in it.

“Notwithstanding the insurer’s contractual duty to its insured, the interests of insurers and their insureds are not always consistent and are frequently in conflict with one another. Indeed, an insured’s interests are particularly at risk when a plaintiff expresses a willingness to settle for the policy limits. When it becomes clear that an insurer could settle a third-party claim against its insured for the limits of the policy, and thereby release its insured from any worry about an excess verdict, the insurer must be vigilant to ensure that it has a reasonable basis to try the case and that it is not breaching its fiduciary duty to its insured, based upon a small chance of a defense verdict.”[] Birth Center v. St. Paul Companies Inc., 567 Pa. 386, 407 n.17, 787 A.2d 376, 389 n.17 (2001). See also, Trustees of the Univ. of Pennsylvania v. Lexington Ins. Co., 815 F.2d 890, 901 (3d Cir. 1987) (“Insurance policies are risk-spreading devices. They exist primarily because the stakes of liability to an insured are greater than they are to an insurer, which can spread the loss across all its customers.”).

In summary, then, this court finds that Lloyd’s was contractually obligated to contribute to the settlement.

IV. Lloyd’s Did Not Act in Bad Faith in Refusing To Consent to the Settlement

RAI also seeks summary judgment on its claim that Lloyd’s acted in bad faith in refusing to consent to the settlement.

“In an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may take all of the following actions:

“(1) Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3 percent.
“(2) Award punitive damages against the insurer.
“(3) Assess court costs and attorney fees against the insurer.” 42 Pa.C.S. §8371.

In this case, the court does not find that Lloyd’s acted in bad faith in defending this action because it put forth legitimate, albeit not winning, arguments to justify its refusal to consent to the settlement RAI entered into with the plaintiff class.

CONCLUSION

For the reasons discussed, both Lloyd’s motion for summary judgment and RAI’s cross-motion for summary judgment are granted, in part, and denied, in part, as set forth in the order filed simultaneously with this opinion.

ORDER

And now, November 12,2004, upon consideration of defendants’ motion for summary judgment, and plaintiffs’ cross-motion for summary judgment, the respective responses, the briefs in support and opposition, oral argument of September 20, 2004, all other matters of record, and in accord with the opinion being filed simultaneously, it is ordered that:

(1) Plaintiffs’ cross-motion for summary judgment is granted, in part;

(a) Judgment is entered for plaintiffs on Count I (breach of contract);

(b) If the parties are unable to agree on the amount of damages, plaintiffs shall, within 30 days of the date of entry of this order, file a motion, with supporting documents, requesting the amount sought from defendants;

(2) The remainder of plaintiffs’ cross-motion for summary judgment is denied;

(3) Defendants’ motion for summary judgment is granted, in part;

(a) Plaintiffs’ claim for reimbursement for the fees and costs incurred in the underlying class action is dismissed;

(b) Plaintiffs’ claim for bad faith in Count III of the complaint is dismissed.

(4) The remainder of defendants’ motion for summary judgment is denied.

      . The defendant is properly known as David Preston Mann, individually and as representative of Those Underwriters at Lloyd’s, London, Subscribing to Directors and Officers Liability and Company Reimbursement Policy no. ***/********t which the court will refer to as “Lloyd’s.”

        The individual plaintiffs are all officers and/or directors of the corporate plaintiff, Resource America Inc., all of whom were defendants in the underlying class action litigation brought in the United States District Court for the Eastern District of Pennsylvania, no. 98-CV-5446 (the underlying class action). The court will refer to all the plaintiffs, collectively, as “RAI” throughout this opinion.

      . The Admiral policy also contains a “No action clause” which provides that:
      “No action shall lie against the insurer unless, as a condition precedent thereto, there shall have been full compliance with all the terms of the policy; nor until the amount of the insureds’ obligation to pay shall have been finally determined either by judgment against the insureds after actual trial or by written agreement of the insureds, the claimant and the insurer.” Id. at §VIII.B.

      . In this case, the policy says that consent to the settlement “shall not be unreasonably withheld,” which Lloyd’s argues is a different standard from the common-law standard requiring the insurer to prove that the settlement to which it did not consent was unreasonable.
      This court does not understand the distinction that Lloyd’s is trying to draw, but, even if there were a difference between the policy’s requirements and those of the common law, when read together the two requirements impose a greater, not a lesser, burden on Lloyd’s to be reasonable in its dealings with its insureds.

      . Lloyd’s also argues that it was prejudiced by having to pay its defense costs in this litigation. But, that allegedly prejudicial situation was caused by Lloyd’s own failure to consent to the settlement. Since the court finds the settlement reasonable, it necessarily finds that Lloyd’s did not reasonably disclaim coverage and defend this suit.

      . Lloyd’s apparently also objects to two-tiered settlements in general. However, the Third Circuit has held, on several occasions, that Pennsylvania courts would enforce a two-tiered conditional settlement, such as RAI entered into here, provided that the settlement is reasonable and entered into in good faith. See Greater New York Mut. Ins. Co. v. The North River Ins. Co., 85 F.3d 1088 (3d Cir. 1996); Trustees of the Univ. of Pennsylvania v. Lexington Ins. Co., 815 F.2d 890, 902 (3d Cir. 1987). This court sees no reason to hold differently, particularly since such a holding appears to be a logical extension of the Superior Court’s views expressed in Alfiero v. Berks Mutual Leasing Co. 347 Pa. Super. 86, 500 A.2d 169 (1985) (settlement, which permitted injured party to satisfy judgment by asserting insured’s claims against its insurer, but which did not permit injured party to attach any other assets of insured, was fair and reasonable).

      . In addition, the judge in the underlying class action approved the two-tiered settlement. See plaintiffs’ motion for summary judgment, exhibit 33. However, this court acknowledges that the judge’s opinion that the settlement was fair and reasonable is not conclusive or admissible against Lloyd’s, which was not a party to that action. See Trustees of the Univ. of Pennsylvania v. Lexington Ins. Co., 815 F.2d 890, 905-906 (3d Cir. 1987) (“the transcripts of the [settlement] hearings were admissible to indicate the terms of the settlement, but insofar as the district court permitted the jury to conclude that the settlement was reasonable on the basis of [the settlement] judge’s statements ... it erred.”).

      . Lloyd’s claims that, if the underlying class action had gone to trial and if the jury had found that RAI intentionally committed the alleged securities fraud, then there would be no coverage under the Lloyd’s excess policy (or the Admiral and National Union policies either). However, since such a verdict was never rendered, and since the policies do cover settlements, Lloyd’s point is moot and not helpful.


source: Caselaw Access Project

author: LACHMAN, J.,

license: Public Domain

text:
    Warner v. Lawrence

      Lawrence Solomon, for plaintiff.

      Mark DiGiovanni and Margaret E. Wenke, for defendant school.
    December 9, 2004
   LACHMAN, J.,

PROCEDURAL HISTORY

This personal injury action arises out of an incident that occurred on the premises of defendant World Communications Charter School (WCCS). WCCS is a charter school created pursuant to the Charter School Law, 24 P.S. § 17-1701-A et seq. The minor plaintiff, a student at WCCS, alleges that while he was retrieving items from his locker, he was injured by another student, co-defendant Daniel Lawrence. Plaintiff further alleges that, given a history of student “horseplay and rough hous[ing]” in the hallways, the defendant school was negligent for failing to post monitors in the hallways at the time of plaintiff’s injury.

On January 5, 2004, defendant WCCS filed a motion for summary judgment on the basis that section 17-1714-A(a)(2) of the Charter School Law, 24 P.S. §17-1701-A et seq., provides that a charter school may sue or be sued, “but only to the same extent and upon the same condition that political subdivisions and local agencies can be sued.” Therefore, defendant WCCS claimed immunity pursuant to the Political Subdivision Tort Claims Act, 42 Pa.C.S. §8541 et seq. The court found that none of the exceptions set forth in 42 Pa.C.S. §8542, Exceptions to governmental immunity, were applicable to plaintiff’s theory of negligence against the defendant school. See also, Usher v. Upper Saint Clair School District, 87 Pa. Commw. 461, 487 A.2d 1022 (1985) (school subject to immunity for its alleged negligent failure to provide proper supervision during a science experiment). Therefore, by order dated March 26, 2004, the court granted said motion.

On April 12, 2004, claiming that the defendant charter school was not a political subdivision or local agency, plaintiff filed a motion requesting certification of the trial court’s order, pursuant to Pa.R.A.P. 341(c). Plaintiff contended that any legislative attempt to restrict the plaintiff’s right to sue and to grant charter schools immunity found in 24 P.S. §17-1714-A(a)(2), is unconstitutional. On April 26, 2004, the court issued an order granting plaintiff’s motion for certification. Subsequently, plaintiff filed a timely appeal and 1925(b) statement.

DISCUSSION

The Pennsylvania Supreme Court has held:

“A statute will be found unconstitutional only if ‘it clearly, palpably and plainly’ violates constitutional rights____Under well-settled principles of law, there is a strong presumption that legislative enactments do not violate the constitution____Further, there is a heavy burden of persuasion upon one who questions the constitutionality of an Act.” Commonwealth v. MacPherson, 561 Pa. 571, 580, 752 A.2d 384, 388 (2000). (citations omitted)

Plaintiff has not met that burden.

In Carroll v. County of York, 496 Pa. 363, 369-70, 437 A.2d 394, 397-98 (1981), the Pennsylvania Supreme Court held that the Political Subdivision Tort Claims Act is constitutional, and that it has frequently recognized that the legislature may limit liability on the basis of a defendant’s status.

“The report of the Joint State Government Commission on sovereign immunity, which formed the basis for the Political Subdivision Tort Claims Act, explains that partial immunity will assure

“ ‘that the Commonwealth will not be required to process and defend various litigation brought against it in areas where risk management is totally uncertain at this time...’

“May 1978 report at 10. Manifestly, it is within the province of the legislature to determine that certain bars to suit are, in its judgment, needed for the operation of local government....”

In 24 P.S. §17-1703-A, the legislature described a “charter school” as “an independent public school established and operated under a charter from the local board of school directors and in which students are enrolled or attend. A charter school must be organized as a public, non-profit corporation.”

Charter schools are “not exempt from statutes applicable to public schools other than [the Charter School Law].” 24 P.S. §17-1715-A(1). A charter school is held accountable to the parents, public and Commonwealth, and it is funded by the school district of residence of the students. 24 P.S. §§17-1715-A(2) and 17-1725-A.

The intent of the legislature set forth in 24 P.S. §17-1702-A provides for the opportunity to establish schools operating independently from the existing school district structure as a method to accomplish the following:

“(3) Improve pupil learning.
“(2) Increase learning opportunities for all pupils.
“(3) Encourage the use of different and innovative teaching methods.
“(4) Create new professional opportunities for teachers, including the opportunity to be responsible for the learning program at the school site.
“(5) Provide parents and pupils with expanded choices in the types of educational opportunities that are available within the public school system.
“(6) Hold the schools established under this Act accountable for meeting measurable academic standards and provide the school with a method to establish accountability systems.”

Given the fact that charter schools are the creation of the legislature, and the importance of the above enumerated functions of charter schools in fulfilling the government’s responsibility for providing public education, the court finds that legislative immunity referred to in 24 P.S. §17-1714-A(a)(2) is constitutional. Accordingly, the trial court’s order granting defendant World Communication Charter School’s motion for summary judgment should be affirmed.


author: BERNSTEIN, J.,

text:
    Wong v. First Union National Bank

      Daniel Levin, for plaintiff.

      Joseph Derespino, William Cagney and Rodman Honecker, for defendant.

      November 24, 2004
   BERNSTEIN, J.,

— On May 12, 2003, plaintiff, Bruce Wong, filed this class action lawsuit for breach of contract against defendant First Union National Bank alleging that defendant was charging ATM fees that were in direct violation of their agreement. On September 29,2003, defendant filed preliminary objections claiming that the plaintiff cannot bring his claim in court because he is bound by an arbitration clause which was contained in a large mailer concerning the effects on account holders of a corporate restructuring. Defendant has separated its preliminary objections into several distinct objections, all of which exclusively arise out of the arbitration clause the defendant claims is binding on plaintiff and his class. On October 20,2003, plaintiff answered the defendant’s preliminary objections claiming the arbitration clause was not binding, unconscionable and against public policy. By order dated April 14, 2004, this court denied the defendant’s preliminary objections. This timely appeal followed.

The issues raised on appeal are whether plaintiff’s class action lawsuit is subject to a mandatory agreement for arbitration, whether plaintiff can maintain a class action suit at all in the light of the arbitration clause, and whether the court has subject matter jurisdiction in light of the mandatory arbitration clause. Not raised on appeal, but essential to resolution of this issue, is the question of whether the class certification decision itself is proper for arbitration or must be decided by the court. Plaintiff contends an additional issue presented is whether the arbitration clause is enforceable under these circumstances.

Evidence taken on January 29, 2004, reveals the following. The plaintiff, Bruce Wong, maintained a checking account with First Union Bank. The applicable First Union schedule of fees states there is “No charge” for a “First Union ATM transaction.” Despite this clear language, the plaintiff was in fact charged $3.50 per transaction by First Union when he used First Union ATM machines not publicly identified as the property of First Union. Consequently, plaintiff claims that the $3.50 charged him for using unidentified but actually owned and operated First Union ATMs is unlawful.

First Union claims a document entitled “Account disclosures: Deposit agreements, disclosures, schedule of fees and funds availability” was sent to all Corestates account holders as part of the mailing package following the merger of First Union and Corestates banks. Plaintiff claims he did not receive this large mailer. Contained at page 13 in the 32 pages First Union claims to have sent to all Corestates customers is a five-sentence arbitration provision. The clause reads:

“Arbitration of disputes regarding accounts. If either you or we have an unresolvable dispute or claim concerning your account it will be decided by binding arbitration under the expedited procedures of the Commercial Financial Disputes Arbitration Rules of the American Arbitration Association (AAA) and Title 9 of the U.S. Code. Arbitration hearings will be held in the city where the dispute occurred or where mutually agreed to. A single arbitrator will be appointed by the AAA and will be a retired judge or attorney with experience or knowledge in banking transactions. The arbitrator will award the filing and arbitrator fees to the prevailing party. A judgment on the award may be entered by a court.”

Plaintiff asserts that this arbitration clause is unconscionable and unenforceable because he represents a class of consumers who would not have read the clause buried in a detailed mass mailing and could not comprehend its meaning even if read.

Business regularly turns toward binding arbitration as a mechanism for alternate dispute resolution. This is demonstrated in the number of arbitrations annually conducted, in the many excellent firms doing arbitration and other forms of ADR and in the proliferation of mandatory binding arbitration clauses in consumer and business contracts. In virtually every jurisdiction in the United States, the judiciary encourages arbitration as an alternative to the potential delay, costs and unpredictability of litigation.

Arbitration usually provides a quicker, less expensive, and always a more private alternative to traditional litigation. Usually arbitration involves simplified procedures, a less formal setting and more technically experienced and knowledgeable decision-makers. Although similar to traditional litigation in requiring the presentation of proofs, arguments and neutral decision-making, disputants can often tailor their process to suit the specific issues. The lesser formality of arbitration proceedings can minimize hostility between parties and thereby facilitate ongoing and future business relationships.

The organized bar officially recognized the alternative dispute resolution movement in 1976 when the American Bar Association established a Special Committee on Minor Disputes which has now become the Special Committee on Dispute Resolution. Most state and federal bar associations now have ADR committees.

The United States Supreme Court has favorably viewed arbitration as a viable alternative to traditional litigation. In Moses H. Cone Memorial Hospital v. Mercury Construction Corp., the United States Supreme Court held that “questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration.” Furthermore, the Supreme Court has “confirmed that the law of substantive arbitrability and concomitant determinations as to the scope and enforcement of contractual agreements to arbitrate are to be decided on the public policy articulated in the FAA, with a strong presumption in favor of arbitrability.”

As early as 1968, The Pennsylvania Supreme Court in Mendelson v. Shrager stated that “[Pennsylvania] statutes encourage arbitration and with our dockets crowded and in some jurisdictions congested arbitration is favored by the courts.” In Commonwealth, Office of Administration v. Pennsylvania Labor Relations Board, the court stated, “The inherent differences between an arbitration panel on the one hand, and courts and administrative agencies on the other, well explain the logic behind the distinction. An arbitration panel is a temporary ‘one shot’ institution, convened to respond to a specific conflict. Once it reaches a decision it is disbanded and its members disperse. Its resolution of the dispute must be sure and swift, and much of its effectiveness would be lost if the mandate of its decision could be delayed indefinitely through protracted litigation.” Arbitration is looked upon as a favorable means of resolving disputes because it is a “necessary tool for relieving crowded dockets and ensuring the swift and orderly settlement of disputes.”

In this case, plaintiff claims that even if there is a valid and binding arbitration agreement, Pennsylvania law permits plaintiff to maintain this matter as a class action and to do so in court. Indeed, the United States Supreme Court recently confirmed that when parties validly agree to arbitrate, an arbitration clause does not necessarily forbid class action treatment of the arbitration. In Greentree Financial Corp. v. Bazzle, the United States Supreme Court held that whether or not an arbitration clause precluded class actions must be determined by the specific terms of the agreement and state law. In Pennsylvania, it is not necessary to decide whether any arbitration agreement specifically provides the right to bring a class action because our Supreme Court has held that class action arbitration may proceed unless specifically precluded by the arbitration agreement. Clearly no prohibition to class arbitration exists in the alleged arbitration agreement herein and accordingly there is no bar to class action arbitration based upon the agreement if enforceable.

Whereas First Union’s arbitration agreement clearly does not prohibit a class action, the matter must proceed to a determination of whether class action litigation is appropriate. The decision in this case, having been filed in Pennsylvania, must be made in accordance with Pennsylvania procedural law embodied in our Rules of Civil Procedure 1701 to 1716. Having been filed in Pennsylvania, the decision-maker cannot employ federal standards or those employed by different states. Since class action litigation involves the rights of citizens who do not know the litigation exists there are public policy implications to the class certification decision. That is why in Pennsylvania, the procedural decision of how the case should be litigated, as a class or as an individual claim, is to be decided in a public court room, by an elected or appointed judge.

In Dickler v. Shearson Lehman Hutton Inc., plaintiffs filed a securities action against a brokerage firm for breach of fiduciary duty, breach of contract, and tortious conversion. Despite a written agreement to arbitrate all disputes between broker and client, plaintiffs brought a class action in court. The Superior Court clearly held that when an arbitration agreement for individual claims is silent as to whether class action arbitrations are permissible, they are allowed. The Superior Court reasoned that allowing class actions to proceed in arbitration is an equitable and reasonable result because:

“Compelling individual arbitration would force individuals already straitjacket by an industry-wide practice of arbitration agreements to fight alleged improprieties at an exorbitant economic cost. Individual arbitration would be small deterrent to companies certain that few proceedings will be instituted against them. Because the principles of res judicata and collateral estoppel are not applicable to arbitration proceedings, each plaintiff would be forced to fully litigate his complaint.”

Nonetheless, the Dickler court did not compel arbitration!

The Dickler court specifically required the trial court to retain jurisdiction over class certification proceedings and to determine the class certification issue. In remanding the case to the trial court, the Superior Court gave the following instruction:

“Arbiters because of their limited subpoena power and their lack of reviewability until final order are probably not equipped nor appropriate for the task of class certification.[]
“The trial court in making its determination regarding class certification must take into account the factors normally relevant to class certification, but also the special nature of arbitration proceedings, including the impact that court intrusion into the proceedings will have.” Dickler v. Shearson Lehman Hutton, 408 Pa. Super, at 299, 596 A.2d at 866.

After the trial court determines if a class should be certified and after there has been the constitutionally required notice and a court supervised opt-out procedure, the court must compel arbitration for the class. Should certification be denied, the case must be arbitrated individually. In either case, the certification decision is for judicial determination.

Because class actions involve the rights of non-represented citizens, citizens who have never chosen the lawyer “representing” them and citizens who may not even know the lawsuit exists, a trial court, not an arbitrator, must make class certification decisions and retain ultimate jurisdiction over settlement and other post-decision proceedings. In explaining the decision that class certification is to be decided by a judge before the court compels arbitration, the Superior Court said: “Class-wide arbitration is a different animal than individual arbitration. In addition to the need for a trial court to initially certify the class and to insure that notice is provided for, the trial court will probably have to have final review in order to insure that class representatives adequately provide for absent class members.” Dickler v. Shearson Lehman Hutton, 408 Pa. Super, at 298, 596 A.2d at 866. (footnotes omitted)

The due process safeguards on class litigation are well established. In 1940, the Supreme Court of the United States in Hansberry v. Lee reviewed the seminal concept of justice: “It is a principal of general application in Anglo-American Jurisprudence that one is not bound by a judgment in personam in a litigation in which he is not designated as a party or to which he has not been made a party by service of process . . . and judicial action enforcing it against the person or property of the absent party is not that due process which the Fifth and Fourteenth Amendments require.” For important reasons, class actions are exempt from the general rule on which judicial authority is grounded. Because the rights of an absent plaintiff can be determined by a class action judgment, public policy and basic due process embodied in the United States Constitution and the Pennsylvania Constitution require that a court ensure that adequate notice be given to all class members who will be affected by the outcome of the proceeding.

The Supreme Court of the United States in Phillips Petroleum Co. v. Shutts set forth the absolute minimum procedural due process protections which must be afforded absent plaintiffs in a class action lawsuit. The court held that, at a minimum, the absent plaintiffs must receive adequate notice, an opportunity to “opt out,” and the court must insure that both the named plaintiff and the appointed counsel do adequately represent the interests of all the absent class members.

“If the forum state wishes to bind an absent plaintiff concerning a claim for money damages or similar relief at law, it must provide minimal procedural due process protection. The plaintiff must receive notice plus an opportunity to be heard and participate in the litigation, whether in person or through counsel. The notice must be the best practicable, reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections. The notice should describe the action and the plaintiffs’ rights in it. Additionally, we hold that due process requires at a minimum that an absent plaintiff be provided with an opportunity to remove himself from the class by executing and returning an ‘opt out’ or ‘request for exclusion’ form to the court. Finally, the due process clause of course requires that the named plaintiff at all times adequately represent the interests of the absent class members.”

Without these minimal safeguards the lawsuit does not have class action effect.

NOTICE

The notice requirement of due process is the American concept of fairness. Binding an individual to a judgment he knew nothing about nor had any opportunity to oppose offends the most basic notions of fairness. The Supreme Court of the United States held in Mullane v. Central Hanover Bank & Trust Co. that: “The fundamental requisite of due process of law is the opportunity to be heard. This right to be heard has little reality or worth unless one is informed that the matter is pending and can choose for himself whether to appear or default, acquiesce or contest.” The Pennsylvania Supreme Court calls notice: “the most basic requirement of due process.” Both the Federal Rules of Civil Procedure, Rule 23(c)(2) and the Pennsylvania Rules of Civil Procedure, Rule 1712 require trial judges to approve class notification to ensure that absent plaintiffs receive notice of pending class actions. It is the publicly elected judiciary which must protect absent plaintiffs by controlling class action notice.

OPT OUT

The United States Supreme Court in Phillips Petroleum Co. v. Shutts described the opt out provision needed in class notification to satisfy due process. The court in Shutts held that: “the procedure . . . where a fully descriptive notice is sent first class mail to each class member, with an explanation of the right to ‘opt out,’ satisfies due process.” Shutts, 472 U.S. at 812, 105 S.Ct. at 2975, 86 L.Ed.2d at 642. Both the Federal and Pennsylvania Rules of Procedure have been enacted solely to protect plaintiffs who wish to opt out of the class. Federal Rule 23(c)(2) and Pennsylvania Rule 1711 allow individuals to opt out of the class. It is the publicly elected judiciary which must protect absent plaintiffs by allowing them to opt out of the proceeding.

NOTICE OF SETTLEMENT

In addition to notice of pending litigation, due process requires notice of settlement as well. This year the Pennsylvania Superior Court in Wilkes v. Phoenix Home Life Mutual Insurance Co., held that: “Adequate notice of a class action settlement is required by the constitutional mandate of due process.... To satisfy due process, notice of a class action settlement must be ‘reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.’ Mullane, 339 U.S. at 314, 70 S.Ct. 652. Although the notice need not be entirely comprehensive, the notice must not be misleading or materially incomplete. Weinberger v. Kendrick, 698 F.2d 61, 70 (2d Cir. 1982). The notice must contain an adequate description of the proceedings written in objective, neutral terms that may be understood by the average absentee class member. In Re Nissan Motor Corp. Antitrust Litig., 552 F.2d 1088, 1104 (5th Cir. 1977). The notice also must ‘contain information that a reasonable person would consider to be material in making an informed, intelligent decision of whether to opt out or remain a member of the class and be bound by the final judgment.’ Id. at 1105.” Settlement must be approved by the court to prevent collusion between defendants and the named representative plaintiff. Federal Rule of Civil Procedure 23(e) and Pennsylvania Rule of Civil Procedure 1714 require the court to approve any settlement and to make sure that absent plaintiffs are adequately notified. It is the publicly elected judiciary which must protect absent plaintiffs by controlling class action settlement notice.

ADEQUACY OF REPRESENTATION

The Supreme Court of the United States in Hansberry v. Lee held that due process allows an absent plaintiff to be bound by a judgment only if he has been adequately represented.

“It is familiar doctrine of the federal courts that members of a class not present as parties to the litigation may be bound by the judgment where they are in fact adequately represented by parties who are present, or where they actually participate in the conduct of the litigation in which members of the class are present as parties, or where the interest of the members of the class, some of whom are present as parties, is joint, or where for any other reason the relationship between the parties present and those who are absent is such as legally to entitle the former to stand in judgment for the latter. In all such cases, so far as it can be said that the members of the class who are present are, by generally recognized rules of law, entitled to stand in judgment for those who are not, we may assume for present purposes that such procedure affords a protection to the parties who are represented, though absent, which would satisfy the requirements of due process and full faith and credit.”

Likewise, the Pennsylvania Superior Court requires that for the named plaintiff to adequately represent the class: “[A] litigant must be a member of the class which he or she seeks to represent at the time the class is certified by the ... court.”

Adequate representation of absent plaintiffs is ensured by both the Federal and Pennsylvania Rules of Civil Procedure in two ways. Federal Rule 23(a) and Pennsylvania Rule 1702 require that “there are questions of law or fact common to the class” and that “the claims and defenses of the representative party are typical of the claims and defenses of the class.” These two provisions mandate that “the relationship between the parties present and those who are absent is such as legally to entitle the former to stand in judgment for the latter.” Secondly, federal and the Pennsylvania rules require the judge to make sure that the attorneys representing the class are competent to handle complex class action litigation. Federal Rule of Civil Procedure 23(g) requires the judge to look at experience, knowledge of the law and the resources counsel will commit to representing the class. Pennsylvania Rule of Civil Procedure 1709 sets forth the factors to consider when considering fair and adequate representation such as conflicts of interest and attorney resources. It is the publicly elected judiciary which must protect absent plaintiffs by ensuring adequate representation.

JUDGE v. ARBITRATOR

The above rules are in place to protect the due process rights of absent class members. These rules ensure that the court be an advocate for those who will be affected by the outcome of a class action proceeding. The Supreme Court in Phillips v. Shutts required a system where courts as well as the named plaintiffs and appointed counsel protect the interests of the absent class members. Judges are public officials who are publicly charged with the duty to ensure that the rights of the individuals before them and the public at large are not compromised. In contrast, arbitrators are private individuals paid by the parties before them and controlled by the rules of different various arbitration organizations. An arbitration does not demand a public hearing nor is it necessarily controlled by public rules of civil procedure. Arbitrators have no duty to the public at large. Arbitration does not necessarily serve the public interest, it is only designed as an expeditious economic process for the parties who have paid and selected the arbitrator. An arbitrator may not afford the same guarantee that absent plaintiffs will be provided the procedural safeguards demanded by the Constitution of the United States and the Pennsylvania Constitution, codified in Federal Rule of Civil Procedure 23 and Pennsylvania Rules of Civil Procedure 1701-1706. These rules insure that absent class members receive their constitutionally required, adequate notice, be given an opportunity to opt out and receive fair and adequate representation.

Public policy mandates that the due process rights of the absent plaintiffs be protected by a public official and not a private arbitrator. The Pennsylvania Superior Court clearly held in Dickler v. Shear son Lehman Hutton that it is the trial court, not an arbitrator, who must preside over the class certification process and must publicly ensure that absent plaintiff receive adequate notice.

The Dickler decision compels denial of defendant’s preliminary objections at this stage in the proceedings. Although the arbitration agreement herein is no obstacle to class action, the court must determine class certification. Accordingly, defendant’s preliminary objections are denied and this court, not an arbitrator, shall proceed to determine whether this class should be certified.

Since this court must rule on class certification issues, a full and complete record can be developed before ruling upon the competing factual and public policy issues presented herein concerning the alleged “unconscionability” of the agreement. These factual issues are therefore deferred for development of a full record as part of discovery.

For the reasons set forth above, the decision of the court should be affirmed.

      . Murray S. Levin, The Role of Substantive Law in Business Arbitration and Importance of Volition, 35 Am. Bus. L.J. 105, 105 (Fall 1997).

      . Jean R. Sternlight, Is Binding Arbitration a Form of ADR?, 2000 J. Disp. Resol. 97 (2000).

      . Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983).

      . Mendelson v. Shrager, 432 Pa. 383, 385, 248 A.2d 234, 235 (1968).

      . Commonwealth, Office of Administration v. Pennsylvania Labor Relations Board, 528 Pa. 472, 480-81, 598 A.2d 1274, 1278 (1991). (citation omitted)

      . Langston v. National Media Corp., 420 Pa. Super. 611, 616, 617 A.2d 354, 356 (1992).

      . Greentree Financial Corp. v. Bazzle, 539 U.S. 444, 447, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003).

        .Id.

      . See Dickler v. Shearson Lehman Hutton Inc., 408 Pa. Super. 286, 296, 596 A.2d 860, 865 (1991); Stevenson v. Commonwealth, Department of Revenue, 489 Pa. 1, 5, 413 A.2d 667, 669 (1980).

      . Dickler v. Shearson Lehman Hutton Inc., 408 Pa. Super. 286, 300, 596 A.2d 860, 867 (1991).

        .Id. at 298 n.5, 596 A.2d at 866 n.5.

      . Hansberry v. Lee, 311 U.S. 32, 40, 61 S.Ct. 115, 85 L.Ed. 22 (1940).

      . Id.

      . Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 811-12, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985).

      . Picard v. Connor, 404 U.S. 270, 279, 92 S.Ct. 509, 30 L.Ed.2d 438 (1971).

      . Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 94 L.Ed. 865 (1950).

      . Pennsylvania Coal Mining Association v. Insurance Department, 471 Pa. 437, 452, 370 A.2d 685, 692 (1977).

      . Wilkes v. Phoenix Home Life Mutual Insurance Co., 851 A.2d 204, 210-11 (Pa. Super. 2004). (footnote omitted)

      . Hansberry v. Lee, 311 U.S. 32, 40, 61 S.Ct. 115, 85 L.Ed. 22 (1940).

      . Janicik v. Prudential Insurance Co. of America, 305 Pa. Super. 120, 135, 451 A.2d 451, 458 (1982).

      . Id.

      . Dickler, 408 Pa. Super, at 298-99, 596 A.2d at 866.


author: ST. JOHN, J.,

text:
    Moffatt v. Baird Funeral Home Inc.

      C.P. of Mercer County,
    no. 2004-1136.

      Melissa B. Catello, for plaintiffs.

      James A. DeFrank, for defendants.
    November 10, 2004
   ST. JOHN, J.,

This unique case concerning mistreatment of a corpse is before the court on defendants’ preliminary objections to the amended complaint in the nature of a demurrer and motion to strike, which will be sustained in part and denied in part. The additional defendants are not involved in these preliminary objections.

The plaintiffs in this action are the five children of Eleanor M. Billig, deceased, the estate and the personal representative of the estate. Eleanor Billig died of natural causes on April 22, 2002, at her residence in Mercer County, and her body was eventually transported by ambulance to the Baird Funeral Home at the request of plaintiffs. Interment and service arrangements were made with this defendant funeral home and/or its representatives or affiliates.

Plaintiffs allege that their late mother’s body was to be prepared for viewing, services, and interment by the Baird Funeral Home. Plaintiffs further allege that they suffered mentally and emotionally when they viewed their mother’s body at the funeral home and observed “severe burns, bruises, and/or discoloration on and around the decedent’s eyes, nose, cheeks, mouth, neck and/or other areas of die decedent’s body, as well as puncture wounds to the throat and/or chest of the decedent.” Amended complaint at(f|13-14. The plaintiffs allege that the defendants “wantonly mistreated the body of the decedent,” id., and failed to “properly embalm the decedent.” Id. at^9a.

The plaintiffs then demanded possession and/or transport of their mother’s remains to the additional defendants’ funeral home for the completion of funeral services. Plaintiffs claim that the defendants thereafter refused this request (for an unspecified amount of time), and thereby “intentionally withheld the body of the decedent without privilege.” Amended complaint at ¶12.

Based on the above averred facts, the plaintiffs’ amended complaint sets forth two causes of action divided into seven counts. In Count I, plaintiffs collectively accuse defendants of “interference with a dead body”; a scarcely used intentional tort from the original Restatement of Torts (1939), which was adopted by the Pennsylvania Supreme Court in Papieves v. Kelly) (Lawrence), 437 Pa. 373, 263 A.2d 118 (1970). In Counts II through VI, the plaintiffs individually allege that defendants, through the same actions, have committed the more commonly utilized tort of “intentional infliction of emotional distress.” Count VII is a claim for punitive damages. Plaintiffs claim that the defendants’ intentional mishandling of their mother’s body and the plaintiffs’ subsequent discovery of the same, coupled with the defendants’ refusal to turn over her body upon demand has caused them a myriad of health problems, wage losses, suicidal tendencies, and alcoholism, etc. Plaintiffs therefore seek both compensatory and punitive damages because of the allegedly “outrageous” and intentional conduct involved.

The defendants’ preliminary objections to the amended complaint are three-fold. First, defendants challenge the legal sufficiency of plaintiffs’ tort claims by demurrer, claiming that at best they have set forth a cause of action for negligently embalming the decedent, which plaintiffs concede is not a viable cause of action in Pennsylvania. Second, defendants challenge the propriety of plaintiffs’ plea for punitive damages and ask that it be stricken from the complaint. Third, defendants seek to have paragraph 19(i) stricken as an improper general allegation which cannot be defended properly.

1. DEMURRER

For purposes of reviewing preliminary objections based upon a demurrer, “all well-pleaded material, factual averments and all inferences fairly deducible therefrom” are presumed to be true. Tucker v. Philadelphia Daily News, 757 A.2d 938, 941-42 (Pa. Super. 2000). When presented with preliminary objections whose end result would be the dismissal of a cause of action, a court should sustain the objections only where “it is clear and free from doubt from all the facts pleaded that the pleader will be unable to prove facts legally sufficient to establish [its] right to relief.” Bourke v. Razaras, 746 A.2d 642, 643 (Pa. Super. 2000). (citations omitted) Furthermore:

“[I]t is essential that the face of the complaint indicate that its claims may not be sustained and that the law will not permit recovery. If there is any doubt, it should be resolved by the overruling of the demurrer....
“Put simply, the question presented by demurrer is whether, on the facts averred, the law says with certainty that no recovery is possible.” Bailey v. Storlazzi, 729 A.2d 1206, 1211 (Pa. Super. 1999).

(A) — Interference With a Dead Body

The intentional tort of “interference with a dead body,” as adopted in Pennsylvania, is defined by the First Restatement of Torts as follows:

“A person who wantonly mistreats the body of a dead person or who without privilege intentionally removes, withholds or operates upon the dead body is liable to the member of the family of such person who is entitled to the disposition of the body.” Restatement of Torts §868 (1939).

Plaintiffs have averred the elements of this intentional tort, word for word, and in two respects. Plaintiffs allege that the defendants “wantonly mistreated the body of the decedent [by] causing severe burns, bruises, . . . puncture wounds,” etc. Amended complaint at^l3. Plaintiffs also allege that the defendants “intentionally withheld the body of the decedent without privilege.” Amended complaint at ¶12. Accordingly, this court cannot state with certainty that these well-pled facts, if proven, would not entitle plaintiffs to relief under section 868 of the Restatement for either withholding their mother’s body and/or for mistreating her remains. See generally, Robert A. Brazener, Annotation, Liability in Damages for Withholding Corpse from Relatives, 48 A.L.R.3d 240 (1973).

(B) — Intentional Infliction of Emotional Distress

“To prove a claim of intentional infliction of emotional distress, the following elements must be established: (1) the conduct must be extreme and outrageous; (2) it must be intentional or reckless; (3) it must cause emotional distress; (4) that distress must be severe.” Hoy v. Angelone, 456 Pa. Super. 596, 610, 691 A.2d 476, 482 (1997), citing Hooten v. Penna. College of Optometry, 601 F. Supp. 1151, 1155 (E.D. Pa. 1984); Restatement (Second) of Torts §46 (1979).

The plaintiffs have averred the elements and facts of this intentional tort as well: “The defendants intentionally and/or recklessly caused severe emotional distress to the [plaintiffs] by extreme and outrageous conduct as set forth above.” See amended complaint at ¶¶22, 26, 30, 34 and 38.

The well-pled averments noted earlier in this opinion make it evident to the court that demurrer is unwarranted. While plaintiffs have not offered any objective proof of these allegations, that is not the test to survive a demurrer. Some of the plaintiffs’ allegations may sound in negligence, which would not be actionable in Pennsylvania. However, the averments viewed in a light most favorable to plaintiffs can be interpreted as a specific reference to the alleged wanton and intentional conduct of defendants.

Obviously, the court is bound by the procedural posture of this action and the standard of review for a demurrer, and cannot dismiss this action even if it appears dubious and perhaps over-inflated. As the Papieves court itself stated, “[t]he only facts before the court are the averments of the complaint, and for present purposes the demurrer admits every well-pleaded material fact set forth in the pleading to which it is addressed and the inferences reasonably deducible therefrom.” Papieves at 374, 263 A.2d at 119. Thus, the plaintiffs must be given the opportunity to come forward with evidence of intentional mishandling and disfigurement, and/or unprivileged withholding, as averred, entitling them to compensation. Defendants’ preliminary objection in the nature of a demurrer will therefore be denied.

2. MOTION TO STRIKE

Defendants’ second preliminary objection challenges the legal sufficiency of plaintiffs’ demand for punitive damages in Count VII of the amended complaint. The court will view this preliminary objection as a motion to strike the plaintiffs’ plea for punitive damages as impertinent and scandalous matter, as the former is inappropriate. In any event, the defendants’ second preliminary objection will also be denied.

Pennsylvania Rule of Civil Procedure 1028(a)(2) (formerly Rule 1017(b)(2)) permits a motion to strike for the purpose of preliminarily objecting to the pleading on the following two grounds: (1) lack of conformity to law or rule of court and (2) the inclusion of scandalous or impertinent matter. Calvert v. New Freedom Borough, 21 D.&C.4th 303 (York Cty. 1993). Facts not material to an issue are impertinent. Berkebile v. Nationwide Insurance Co., 6 D.&C.3d 243 (Somerset Cty. 1977). Furthermore, a preliminary objection in the nature of a motion to strike off a pleading should be overruled unless a party can affirmatively show prejudice. The right to strike impertinent matter should be sparingly exercised; where the matter is impertinent but not injurious, it need not be stricken. Goehring v. Harleyville Mutual Casualty Co., 73 D.&C.2d 784 (Beaver Cty. 1976).

While the presence of a plea for punitive damages in the instant complaint may be injurious to the defendants, it is not impertinent because the facts which would merit their award have been sufficiently pled. Moreover, under Pennsylvania law, punitive damages may only be awarded “for conduct that is outrageous, because of the defendant’s evil motive or [its] reckless indifference to the rights of others.” Feld v. Merriam, 506 Pa. 383, 395, 485 A.2d 742, 747 (1984). Plaintiffs have sufficiently pled a claim for punitive damages. See e.g., amended complaint at][(j[42,43 and 44. Defendants’ argument that there are no “facts that can support a finding of anything more than mere negligence” is misplaced at this stage of the proceedings. Defendants’ second preliminary objection will accordingly be denied.

Finally, defendants also seek to strike paragraph 19(i) of the amended complaint for failure to conform to rule of court. The court agrees that plaintiffs’ averment of “[otherwise mistreating the body of the decedent” is a general averment of the type not permitted by the pleading rules in Pennsylvania. Connor v. Allegheny General Hospital, 501 Pa. 306, 461 A.2d 600 (1983). Defendants’ third preliminary objection will therefore be sustained.

Hénce this order:

ORDER

And now, November 10, 2004, the defendants’ motiojsarc strike paragraph 19(i) of the amended complaint is granted. Defendants’ preliminary objection in the nature of a demurrer to the amended complaint is denied. Defendants’ demurrer and/or motion to strike the claim for punitive damages in Count VII is also denied.

      . At the outset, the court notes that neither the estate nor the personal representative of the estate are real parties in interest pursuant to Pa.R.C.P. 2002(a), and neither has standing to pursue this personal injury action on behalf of the estate in its own right or on behalf of the heirs. The causes of action being advanced by this suit are “tortious interference with a dead body” and “intentional infliction of emotional distress.” The amended complaint seeks no recovery for any injuries sustained by the decedent during her lifetime, nor for any loss incurred by the estate, such as additional funeral expenses, nor does it assert a wrongful death and/or survival action.
      The “interference with a dead body” tort has been used infrequently in Pennsylvania, but seems to have as its foundation for recovery the emotional distress to the loved ones for withholding a decedent’s body or through atrocities inflicted on the corpse. While it is generally true that a cause of action for personal injury will survive a person’s death and may be litigated by that decedent’s estate, 42 Pa.C.S. §8302, such personal injuries must have been inflicted on the decedent herself, during her lifetime. Notably, the instant complaint does not seek damages for any inter vivos personal injuries suffered by Eleanor Billig herself, nor for any injuries which may have caused her death. All of the allegedly tortious actions were inflicted on her corpse after her death. Her children are the alleged victims. Furthermore, section 868 of the Restatement of Torts, which sets forth the elements of the “interference with a dead body” cause of action (as it has been adopted in Pennsylvania), provides that one who commits the tort “is liable to the member of the family of such person who is entitled to the disposition of the body.” Restatement of Torts §868 (1939). (emphasis added) An estate is obviously not “a member of the family” of the deceased. An estate is a legal entity and cannot iteei/suffer from or recover for emotional distress for harm inflicted upon the decedent’s corpse. An estate, in its own right, can only suffer economic damages, if any, in this type of case.
      Likewise, the tort of “intentional infliction of emotional distress,” though liability is not reserved solely for members of the family, is aimed at compensating for inter vivos emotional injury. Were the allegations against these defendants that they caused emotional distress to the decedent herself prior to her death, then the estate would have a claim which survived her death. However, no such allegations were made.
      Despite the fact that the estate and its personal representative are not real parties in interest, the court cannot always dismiss a claim for lack of standing sua sponte. The court may raise the issue of standing of its own accord only when standing is interwoven with subject matter jurisdiction. See In re Adoption of W.C.K., 748 A.2d 223 (Pa. Super. 2000); Grom v. Burgoon, 448 Pa. Super. 616, 672 A.2d 823 (1996). Standing only becomes interwoven with subject matter jurisdiction when a statute creates the cause of action and designates who may sue. Id. Because neither cause of action at issue here was created by a statute that designates who may sue, the question of standing has not been interwoven with subject matter jurisdiction, and the court has no authority to dismiss the estate or its personal representative at this juncture. While the defendants have waived the defense of lack of capacity to sue by failing to raise it in its responsive pleading (see Pa.R.C.P. 1032(a)), they may be able to remove these parties on a motion for judgment on the pleadings or summary judgment.

      . Plaintiffs do not allege that the observations occurred or accompanied any scheduled viewing or service.

      . In more recent revisions of the Restatement, the language has changed and expanded in some significant ways. Most notably, it now allows an action for mere negligent mistreatment or withholding:
      “One who intentionally, recklessly or negligently removes, withholds, mutilates or operates upon the body of a dead person or prevents its proper interment or cremation is subject to liability to a member of the family of the deceased who is entitled to the disposition of the body.” Restatement (Second) of Torts §868 (1979). (emphasis added)
      The Pennsylvania Supreme Court has neither adopted, nor even considered, the Second Restatement version. The Superior Court, however, has expressly refused to adopt the new language and refused to allow an action to proceed under this section for solely negligent conduct. See Hackett v. United Airlines, 364 Pa. Super. 612, 528 A.2d 971 (1987). There, the Superior Court found “no indication whatsoever in the opinion that the [Papieves] court intended to blanketly sanction any extension of the provided cause of action in accordance with future revisions of, or additions to, section 868 in later Restatements.” Id. at 616, 528 A.2d at 974. The Superior Court suggested that any change on the parameters of this tort must come from the Supreme Court. Id. at 616-17, 528 A.2d at 974. See also, Kearney v. City of Philadelphia, 150 Pa. Commw. 517, 616 A.2d 72 (1992). Therefore, the controlling elements of tortious “interference with a dead body” remain those set forth in the 1939 version of the Restatement.
      This limiting of the “interference with a dead body” tort to wanton and intentional conduct, makes some sense in light of Pennsylvania’s “impact rule” which is still, to some extent, applied to the tort of “negligent infliction of emotional distress.” The “interference with a dead body” tort is essentially just a more specific type of an “intentional infliction of emotional distress” claim. Historically, this latter tort permitted recovery for injuries which were solely emotional in character, but only because the conduct necessary to impose liability was intentional, and therefore more culpable. Similarly, the “interference with a dead body” tort which also allows recovery for purely emotional injuiy, must likewise require a more culpable type of conduct.
      By comparison, where conduct is merely negligent, our courts have been reluctant to award damages for emotional injuries which are not accompanied by some physical manifestation of those injuries, or where more specific circumstances justify them. The Papieves court addressed the “impact rule” as it applies to section 868 as follows:

        “[T]he impact rule, to the extent that it remains a viable rule of law in Pennsylvania, is inapplicable in the case now before us. As it was applied in this Commonwealth, the rule limited the scope of duty imposed on an actor who by his negligence had imperiled the plaintiff; the rule precluded the recovery of damages for the negligently inflicted consequences of fright, shock or emotional disturbance absent some contemporary physical impact with, or some physical injury to, the plaintiff.
      “At issue in the present case is the right to recover for emotional distress which — so it is alleged — has directly resulted from defendants’ intentional or wanton misconduct. Invocation of the impact rule is no more meaningful in this instance than it would have been in the areas of libel or invasion of privacy where recovery is permitted for mental or emotional distress without regard to the presence of ‘impact.’” Papieves, 437 Pa. at 380, 263 A.2d at 121-22. (citations omitted) (emphasis supplied)
      The “impact rule” is somewhat antiquated and may even be characterized as a misnomer at this point. See Niederman v. Brodsky, 436 Pa. 401, 261 A.2d 84 (1970). The specific circumstances which will justify an award for purely emotional damages today are set forth in Sinn v. Burd, 486 Pa. 146, 404 A.2d 672 (1979), and they do not turn on any so-called “impact.” In Sinn, our Supreme Court held that in order to recover for negligent infliction of emotional distress, a plaintiff must fall into one of three categories: (1) the plaintiff was located near the scene of the accident (i.e., within the “zone of danger”), (2) the shock to the plaintiff resulted from the sensory and contemporaneous observance of the accident in question, or (3) the plaintiff was closely related to the victim. Id. Sinn remains the test applicable to “negligent infliction of emotional distress.”
      It would seem to this court, that the categories of Sinn, particularly category (3), would encompass most if not all “negligent interference with a dead body” factual scenarios. Therefore, despite the assurances of the Hackett court that Pennsylvania does not recognize a cause of action where interference with a dead body was merely negligent, this

        court believes that such a cause of action under the rules of Sinn v. Burd should be permitted, at least where “the plaintiff was closely related to the victim.” The only real difference between a suit for “negligent infliction of emotional distress” where the factual allegations involve interference with the dead body of a close family member, and a suit for “negligent interference with a dead body” is a semantic one. Viewed in this light, it is curious that the Superior Court did not recognize the broadened language of section 868 of the Restatement (Second) of Torts. The Hackett court’s limiting of the “interference with a dead body” tort to wanton and intentional conduct is inconsistent with the parameters set forth in Sinn, which could incorporate negligent conduct into the “interference with a dead body” tort, at least where the plaintiff falls within Sinn’s third category.

      . Essentially, the defendants are attempting to use a demurrer to dispute the alleged facts. Obviously, that is beyond the scope of a demurrer to a complaint.

      . For the most part, the amended complaint sticks to the rigid language it must in order to sound in the intentional torts asserted. For example, nowhere does it mention a standard of care of morticians that was breached. The intentional/wanton character of the alleged actions of the defendants is maintained throughout the amended complaint.

      . “[A] preliminary objection in the nature of a motion to strike off impertinent matter would appear to be the appropriate means through which to challenge an erroneous prayer for damages.” Hudock v. Donegal Mutual Insurance Co., 438 Pa. 272, 277-78 n.2, 264 A.2d 668, 671 n.2 (1970).
      Punitive damages are merely a measure of damages arising out of an initial cause of action. Kirkbride v. Lisbon Contractors Inc., 521 Pa. 97, 101, 555 A.2d 800, 802 (1989). They are not a cause of action in their own right. “To this extent, punitive damages must, by necessity, be related to [an] injury-producing cause of action.” Id. “This does not mean, however, that specific compensatory damages must be awarded to sustain a punitive damage award.” Id. “Even though compensatory damages [may not be] awarded, punitive damages could be appropriate, the critical factor being the establishment of sufficient evidence to sustain the cause of action.” Id. at 102,555 A.2d at 803. In other words, the trier of fact must first find liability on a legitimate cause of action, though compensatory damages need not be awarded.


author: COHEN, G.D., J.,

text:
    Carapico v. Philadelphia Stock Exchange Inc.

      Francis Recchuiti, for plaintiff Carapico.

      Arthur Makadon, Stephen Kastenberg and Paul Lantieri, for defendant.
    October 6, 2004
   COHEN, G.D., J.,

Before the court is the motion for summary judgment of defendants, the Philadelphia Stock Exchange Inc. and a number of its past and present officers and directors (collectively PHLX). PHLX is a national stock exchange located in Philadelphia whose activities fall within the purview of the federal Securities and Exchange Commission (SEC). When this action was filed, PHLX was a non-profit Delaware membership corporation, but as a result of PHLX’s merger with a subsidiary, which was approved by the SEC in January of 2004 (the demutualization), PHLX is now a for-profit Delaware business corporation.

Plaintiff Joseph D. Carapico is a principal of plaintiff PennMont Securities (collectively PennMont), was a member, and is now a shareholder, of PHLX. PennMont originally brought this action in 1998 in an attempt to enjoin a proposed merger of PHLX with the American Stock Exchange (AMEX), which PennMont believed was being pursued improperly. That proposed merger with AMEX never took place, but subsequently, in or about 2003, PHLX’s board decided to pursue a plan of demutualization.

In September 2003, with the court’s permission, PennMont filed an amended complaint in which Penn-Mont requested that this court do the following in light of the proposed demutualization:

“(1) Enjoin defendants from pursuing any form of merger, sale of assets, conversion or other transfer that does not leave a viable securities exchange in the City of Philadelphia, owned and governed by its members who have the full authority to act as members of a not for profit corporation, directing them to provide immediate notice to members of the commencement of any exploratory talks or negotiations that would lead to any other transfer or fundamental change [collectively the requested injunction];
“(2) Determine the validity of any corporate action relating to such activity, pursuant to 15 Pa.C.S. §5793; and
“(3) Appoint a custodian to conduct the business of Philadelphia Stock Exchange Inc.” Amended complaint, pp. 11-12.

In the present motion, PHLX asserts that PennMont has not sustained its burden of proving that it is entitled to, and/or that this court is empowered to grant it, any of the requested relief. This court agrees.

I. Standard for Summary Judgment

“Summary judgment is proper when the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits demonstrate that there exists no genuine issue of material fact and the moving party is entitled to judgment as a matter of law____In determining whether to grant summary judgment, a trial court must resolve all doubts against the moving party and examine the record in a light most favorable to the non-moving party. . . . Summary judgment may only be granted in cases where it is clear and free from doubt that the moving party is entitled to judgment as a matter of law.” Horne v. Haladay, 728 A.2d 954, 955 (Pa. Super. 1999). (citations omitted)

When confronted with a motion for summary judgment, “[t]he adverse party may not rest upon the mere allegations or denials of his pleading, but must file a response . . . identifying (1) one or more issues of fact arising from evidence in the record controverting the evidence cited in support of the motion ... or (2) evidence in the record establishing the facts essential to the cause of action or defense which the motion cites as not having been produced.” Pa.R.C.P. 1035.3. A non-moving party is required to “adduce sufficient evidence on an issue essential to his case and on which he bears the burden of proof such that a jury could return a verdict in his favor.” Ertel v. Patriot-News Co., 544 Pa. 93, 101-102, 674 A.2d 1038, 1042 (1996), cert. denied, 519 U.S. 1008, 117 S.Ct. 512, 136 L.Ed.2d 401 (1996). Otherwise, summary judgment should be granted.

II. This Court Cannot Grant the Injunction Requested in the Amended Complaint

PHLX argues that this court is pre-empted by federal law from granting the requested injunction because such a decision is for the SEC to make, and the SEC already approved the plan of demutualization. PHLX is a self-regulatory organization subject to the supervision of the SEC as set forth in the federal Securities Exchange Act of 1934 (the SEA). See 15 U.S.C. §§78f, 78s. Specifically, the SEC must approve any change to the rules of a self-regulatory organization, such as PHLX. Id., section 78s.

On January 16, 2004, PHLX obtained an order from the SEC approving “the proposed rule change ... to implement the plan of demutualization.” SEC release no. 34-49098, exhibit F to motion for summary judgment. If PennMont wished to contest that order, it should have requested, within 60 days of the date of entry, a review of that order by the appropriate federal Circuit Court. 15 U.S.C. §78y(a). There is no provision in the SEA that permits this court to review the SEC’s demutualization order, and this court is clearly precluded from doing so by the explicit review provisions of the SEA.

Instead of asking this court to review and explicitly overturn the SEC’s order approving demutualization, PennMont wants this court to enter an order, based on state corporate law, disapproving the merger and the resultant conversion of PHLX from a non-profit to a business corporation. However, if the court were to do so, its order would directly conflict with that of the SEC approving the demutualization.

Federal law, including agency regulations, pre-empts state law, including common-law causes of action, “where the intention to pre-empt has been expressly declared by Congress[,]” or where that intent is implied by “a federal legislative scheme ... so pervasive that it raises a reasonable inference that Congress left no room for a state to supplement it[, ] ” or where “compliance with both federal and state laws is an impossibility” because they directly conflict. Shulick v. Paine-Webber Inc., 554 Pa. 524, 529, 722 A.2d 148, 150-51 (1998) (emphasis in original) (finding that SEC regulation of broker disclosure requirements was implicitly intended to pre-empt state agency law requirements).

In this case, Congress did not expressly pre-empt all state law in the securities field when it enacted the SEA. See 15 U.S.C. §78bb(a) (“the rights and remedies provided in this chapter shall be in addition to any and all other rights and remedies that may exist at law or in equity.”). However, by giving the SEC the power to approve PHLX’s rule changes including those necessary to implement the plan of demutualization, Congress implicitly pre-empted this court from undermining the SEC’s authority and from entering orders contrary to those of the SEC. See also, Weston v. Reading Co., 445 Pa. 182, 282 A.2d 714 (1971) (in dismissing shareholder suit for corporate mismanagement, the state court deferred to ICC’s primary jurisdiction over activities of railroad corporations).

Furthermore, even if this court had the authority to grant the requested injunction, it would not do so because PennMont has failed to offer any evidence that the demutualization of PHLX will violate (or has violated) any applicable law, the articles of incorporation, or the bylaws of PHLX. Furthermore, this court cannot enjoin speculative harm that is not sure to occur in the near future, such as PennMont’s fear that there may some day be another merger of, or other fundamental change in, PHLX and/or that PHLX may move out of Philadelphia. See Peugeot Motors of America Inc. v. Stout, 310 Pa. Super. 412, 425, 456 A.2d 1002, 1008 (1983) (Requiring that plaintiff show that “[ajctual and substantial injury ha[ve] already occurred and [be] threatened in the future” in order to obtain permanent injunction.). Therefore, Penn-Mont’s request for an injunction must be dismissed.

III. This Court Cannot Grant Plaintiffs the Relief They Request Under Pennsylvania Corporate Law

PennMont requests this court to exercise its authority under section 5793 of the Pennsylvania Corporations Law to determine the validity of PHLX’s corporate activities. However, that section applies to foreign nonprofit corporations only. As a result of the demutualization approved by the SEC, PHLX is now a foreign business corporation, so this court no longer has authority under section 5793 to determine the validity of PHLX’s corporate activities.

Similarly, this court does not have the authority to “appoint a custodian to conduct the business of [PHLX].” Although the statute on which plaintiff relies permits the appointment of a custodian for a foreign non-profit corporation, there is no comparable provision with respect to foreign business corporations. Compare 15 Pa. C.S. §6145(c)(9) (“Applicability of certain safeguards to foreign [non-profit] corporations”) with 15 Pa.C.S. §4146 (“Provisions applicable to all foreign [business] corporations.”). Instead, the applicable statute directs the court to “apply the law of the jurisdiction under which the foreign domiciliary [business] corporation was incorporated.” Id., section 4145(a).

Under Delaware law, the Court of Chancery may appoint a custodian if the shareholders have failed to elect directors, the directors are so divided that they cannot proceed with the management of the corporation, or the corporation has abandoned its business. See 8 Del. C. §226. Since plaintiff has not alleged that any of these situations exist in this case, plaintiff’s request for appointment of a custodian must be dismissed.

IV. This Court Cannot Grant Plaintiffs the Relief They Requested Outside of Their Amended Complaint

In its proposed findings of fact and conclusions of law, PennMont asserts additional claims for relief on behalf of PHLX, in the form of damages, restitution, and the termination of certain officers, as well as $23 million in damages for PennMont itself based on the diminution in the value of its membership interest in PHLX (the new claims). See motion for summary judgment, exhibit B. However, PennMont has not moved to amend its already amended complaint in order to bring these new claims. See Pa.R.C.P. 1033 (leave of court required to amend).

PennMont argues that the court should treat these new requests for damages as included within its catch-all request that the court “grant such other relief as is just and proper under the circumstances.” However, the court cannot do so without PennMont first showing that it has a right to change the nature and direction of this litigation so late in the game.

Although many of the operative facts on which the new claims are based are already set forth in the amended complaint, the court cannot view those claims as having already been included in this action. Many, if not all, of PennMont’s new claims are derivative in nature in that they assert wrongs committed against PHLX. See Fishkin v. Hi-Acres Inc., 462 Pa. 309, 316 n.4, 341 A.2d 95, 98 n.4 (1975) (defining derivative claims); Tooley v. Donaldson, Lufkin & Jenrette Inc., 845 A.2d 1031 (Del. 2004) (same). However, this action was not filed, and has never been prosecuted, as a derivative action. In order for PennMont to have standing to prosecute derivative claims, the court must first find that it has met certain criteria. See 15 Pa.C.S. §1782 (pleading requirements, security for costs); Pa.R.C.P. 1506 (pleading requirements, fair and adequate representation requirements). Since PennMont has never satisfied these criteria, it cannot now assert derivative claims on behalf ofPHLX.

In addition to the question of standing, PennMont’s new claims may also violate the statute of limitations, in that the events upon which they are based occurred as early as 1997. “[A]n amendment introducing anew cause of action will not be permitted after the statute of limitations has run in favor of a defendant! because] the defendant [should] not be required to answer a wholly different legal liability or obligation from that originally stated . . . .” Frey v. Pennsylvania Electric Co., 414 Pa. Super. 535, 538-39, 607 A.2d 796, 797-98 (1992) (prohibiting amendment to add survival action to wrongful death claim).

Furthermore, the court may refuse to allow PennMont to amend its already amended complaint if the proposed amendments are contrary to law or if PHLX will be prejudiced by the proposed amendment. See Werner v. Zazyczny, 545 Pa. 570, 584, 681 A.2d 1331, 1338 (1996). Since the parties have never properly raised and briefed these issues, the court will not permit PennMont to pursue its new claims further.

CONCLUSION

For all the foregoing reasons, defendants’ motion for summary judgment is granted and plaintiffs’ claims are dismissed with prejudice.

ORDER

And now, October 6,2004, upon consideration of defendants’ motion for summary judgment, plaintiffs’ response thereto, the briefs in support and opposition, the oral argument of counsel heard on September 27, 2004, and all other matters of record, and in accord with the memorandum opinion entered simultaneously herewith, it is hereby ordered that said motion is granted, and plaintiffs’ claims are dismissed with prejudice.

      . PennMont submitted the only comment letter to the SEC with respect to PHLX’s proposed rule change, in which he raised objections to the plan of demutualization.

      . That section provides that “upon petition of any person whose status as, or whose rights or duties as, a member, director, member of another body, officer or otherwise of a nonprofit corporation are or may be affected by any corporate action, the court may hear and determine the validity of such corporate action.” 15 Pa.C.S. §5793.