author: SHEPPARD JR., J.,

text:
    Consumers Education & Protective Association v. City of Philadelphia

      Samuel C. Stretton, for plaintiffs.

      David Smith, for defendant Paid.

      William R. Whompson, for defendant City of Philadelphia.
    April 30, 2001
   SHEPPARD JR., J.,

The plaintiffs oppose the building of two stadiums for Philadelphia sports teams. The defendants are the City of Philadelphia and the Philadelphia Authority for Industrial Development, the public authority that will own the stadiums. The plaintiffs seek a permanent injunction against building the stadiums and declaratory relief.

On February 16, 2001, the court conducted a trial on the merits. At the conclusion of the trial, the court granted the defendants’ oral motion for a nonsuit. Pa. Rules C.P. 230.1 and 1512. On March 9, 2001, following oral argument, the court denied plaintiffs’ motion for post-trial relief. Pa.R.C.P. 227.1. Plaintiffs now appeal. This opinion is submitted in support of these orders.

For the reasons set forth this court respectfully submits that its orders should be affirmed.

FACTS

The relevant facts may be briefly summarized. Philadelphia City Council enacted a set of ordinances authorizing the construction of two stadiums: a football stadium for the Philadelphia Eagles and a baseball stadium for the Philadelphia Phillies. City council held several days of public hearings and passed the ordinances on December 20, 2000 by a vote of 15 to 2.

I. The $53 Million Shortage in Funding For the Stadiums

The stadiums will cost more than a billion dollars. The city will provide $394 million of this amount. (2/16/01; N.T. 28-29.) The teams and the Commonwealth will provide most of the remaining funds. When city council passed the stadium ordinances, there was a $53 million shortage in funding for the stadiums and no record of the source of funds to make up the shortfall. (2/16/01; N.T. 31-32.) However, by ordinance, the $53 million must come from a source other than the city. (2/16/01; N.T. 31-32.) Plaintiffs Lance Haver and Robert Sklaroff assert that had they known how the defendants planned to pay the additional $53 million, they would have presented testimony about that issue at the public hearings on the stadium bills. (2/16/01; N.T. 32-33, 35-36.)

II. City Council’s Approval of Four Leases For Each Stadium

The city will provide most of its share of the stadium funding through a complex leasing arrangement. Ordinance no. 721-A authorizes the city to enter into a set of four leases for the Eagles stadium. Ordinance no. 722-A authorizes the, city to enter into a set of four leases for the Phillies stadium. For each stadium, there is a ground lease, a prime lease, a leaseback and a team sublease. For purposes of plaintiffs’ arguments, the terms of each of the four Eagle’s leases are the same as the terms of the corresponding Phillies’ leases. The parties to the leases are the city, PAID and the teams.

City council approved copies of the ground lease, prime lease and leaseback agreements for each stadium and attached them to the ordinances. City council did not approve copies of the actual team sublease agreements as part of the ordinances. Instead, city council approved two documents titled “Eagles lease and development agreement terms and conditions” and “Phillies lease and development agreement terms and conditions” (together, team sublease terms and conditions). Ordinance 721-A, exhibit D; ordinance no. 722-A, exhibit D. The ordinances authorized the city to approve team subleases “conforming] in all material respects” to those terms and conditions. Ordinance 721-A, §8(a); ordinance 722-B, §8(a). The ordinances required the parties to file copies of the team subleases with city council, and required city council to act on the subleases within 30 days. Ordinance 721-A, §8(b); ordinance 722-B, §8(b). The ordinances authorized the city solicitor to insert additional terms in the team subleases consistent with the approved team sublease terms and conditions. Ordinance no. 721-A, §§6,8; ordinance no. 722-A, §§6,8. On February 1,2001, city council approved the team subleases by resolution. (2/16/01; N.T. 20-21.)

III. The Terms of the Leases

Under the ground leases, the city leases the land for the stadiums to PAID for 30 years. Ground lease §3.1. PAID’s rent is a one-time payment equal to the amount necessary to reimburse the city’s cost to acquire the land on which the teams will build the stadiums. Ground lease §4.1.

Under the prime leases, PAID leases the land back to the city for 30 years. Prime lease §3.1; team sublease terms & conditions at 7. PAID obtains financing for the stadiums by issuing bonds and the city pays rent equal to an amount sufficient to enable PAID to meet its obligations under the bonds and to pay off other indebtedness. Prime lease §4.1. At the end of the term of the leases, the city’s leasehold interest reverts to PAID. Prime lease §5.1.

Under the leasebacks, the city leases the land back to PAID for a one-time rent payment of a dollar. Leaseback §4.1.

Under the team subleases, PAID leases the stadiums to the teams. Team sublease terms & conditions.

IV. The City’s Rights and Obligations Under the Prime Lease

The prime lease provides as follows:

“The rent shall be payable only out of the current revenues of the city and the city agrees to provide for payment of the rent and include the same in the city’s annual operating budget for each fiscal year of the city. If the current revenues of the city are insufficient to pay the rent in any fiscal year as the same becomes due and payable, the city shall include amounts not so paid in the city’s operating budget for the ensuing fiscal year and shall produce sufficient current revenues to pay in the ensuing fiscal year such balance due for the preceding fiscal year in addition to the amount of rent due for the ensuing fiscal year.” Prime lease §4.2(a).

The city’s obligation to pay rent is unconditional. Prime lease §4.5. The city’s failure to pay rent under the prime lease constitutes a default. Prime lease §4.2(c).

PAID may assign its right to receive rent under the prime lease to a trustee for the bondholders, who may then exercise all rights granted to PAID under the prime lease. Prime lease §4.3. In no circumstance may PAID accelerate the city’s obligation to pay any or all of the rent under the prime lease or terminate the prime lease. Prime lease §§4.1(d) and 15.2(c).

V. PAID’s Bonds

All bonds that PAID issues to finance the stadiums are subject to the city’s approval, and the city may grant or withhold that approval at its sole discretion, prime lease §4.6. The city has authorized PAID to issue $304 minion in bonds for the stadiums. (2/16/01; N.T. 28-29.) The city will pay an additional $90 million for a total contribution of $394 million toward the stadiums. (2/16/01; N.T. 28-29.)

The 10-year average annual assessed value of taxable realty in the city as of June 30, 2000 was approximately $9 billion. (2/16/01; N.T. 29-30.)

DISCUSSION

The plaintiffs’ main arguments are: (1) the city’s obligation under the stadium leases create debt in excess of Philadelphia’s constitutional debt restriction, Pa.Const. Art. IX, §12, (2) PAID has pledged the city’s credit or taxing power in violation of the Economic Development Financing Law, 73 PS. §376(c), and (3) the procedure by which city council approved the ordinances violated Philadelphia’s Home Rule Charter, 351 Pa.Code §§2.2-200, 2.2-201, 2.2-309 and 8.8-200(3). The court entered a compulsory nonsuit because, at the close of the plaintiffs’ case, it was clear that the plaintiffs had failed to establish a right to relief. Pa.R.C.P. 230.1 (standard for nonsuit), Pa.R.C.P. 2232(d) (non-suit in favor of multiple defendants); Pa.R.C.P. 1512 (standard for entering a nonsuit is the same at equity as at law) Atlantic Richfield Company v. Razumic, 480 Pa. 366, 378, 390 A.2d 736, 744 (1978).

I. The Prime Lease Does Not Create a Debt Under Article IX of the Pennsylvania Constitution

The plaintiffs argue that the city’s obligations under section 4.2(a) of the prime leases violate the Philadelphia debt restriction provision of the Pennsylvania Constitution. Our Constitution provides that “the debt of the City of Philadelphia may be increased in such amount that the total debt of said city shall not exceed 13.5 percent of the average of the annual assessed valuations of the taxable realty therein, during the 10 years immediately preceding the year in which such increase is made, but said city shall not increase its indebtedness to an amount exceeding 3 percent upon such average assessed valuation of realty, without the consent of the electors thereof at a public election held in such manner as shall be provided by law. ” Pa.Const. Art. IX, §12. (emphasis added)

The 10 year average annual assessed value of taxable realty is about $9 billion. Three percent of that value is $270 million. Here, the city’s rental payments must be sufficient to retire $304 million in PAID’s debt. Therefore, if the city’s rental payments are deemed indebtedness under Article IX, the city’s contribution will exceed the constitutional 3 percent maximum. (2/16/01; N.T. 29-30.)

Instead of submitting the leases to the voters for approval, the city approved the leases by city council ordinance. The plaintiffs contend that the city’s obligations are a debt. Calling the scheme a lease is a sham, say the plaintiffs, for the city is acquiring a capital asset and the rents are really debt service. The plaintiffs would have this court apply the duck test—a test of which this court is quite fond. (2/16/01; N.T. 86.) Unfortunately for the plaintiffs, however, 60 years of case law on this issue have divorced legal and biological taxonomy. In the law of authority-financed public works, there are no more ducks. The city’s obligations under the stadium leases are not a debt as the Pennsylvania Constitution defines that term. Conrad v. Pittsburgh, 421 Pa. 492, 500, 218 A.2d 906, 910-12 (1966).

A. A Brief History of Constitutional Debt Restrictions and the Establishment of Public Authorities to Circumvent Those Restrictions

After certain financial embarrassments of the 19th century, most states adopted constitutional restrictions on government debt. G. Robert Morris, Jr., Evading Debt Limitations With Public Building Authorities: The Costly Subversion of State Constitutions, 68 Yale L.J., 234 (1958). These restrictions had the laudable goal of curbing fiscal irresponsibility. Id.

In the 20th century, however, publicly-financed public works became a matter of public policy for governments at all levels. Id. at 235. Constitutional debt restrictions got in the way of the equally laudable goal of publicly financing schools, utilities, mass transit systems and roads. Id. at 234. To support public works projects without violating state constitutions, governments enacted legislation enabling the creation of public authorities. Id. A public authority is typically a separate corporation that finances public works by borrowing from private lenders. Id. at 236. The authority earns revenue to pay off the debt by charging fees to the individual users of the authority’s project, by charging rent or service fees to the state or local government that sponsors the project, or by doing both. Id. at 239-40. After paying off the debt, an authority often conveys the project to the sponsoring government. An example of legislation enabling the creation of public authorities is the Economic Development Financing Law, 73 P.S. §371 et seq., under which the city established PAID.

Given that the very purpose of the authority device is to evade constitutional debt restrictions, there have been many legal challenges to arrangements between governments and authorities. See Morris, supra. Generally, those challenges argue that the authority’s debt is really the government’s debt, and that the debt exceeds the amount allowed under that government’s constitution. Id. The Pennsylvania Supreme Court has rejected constitutional challenges to authority-financed construction and operation of schools, Greenhalgh v. Woolworth, 361 Pa. 543, 64 A.2d 659 (1949) and Detweiler v. Hatfield Borough School District, 376 Pa. 555, 104 A.2d 110 (1954), utilities, Graham v. Philadelphia, 334 Pa. 513, 6 A.2d 78 (1939), roads, Tranter v. Allegheny County Authority, 316 Pa. 65, 173 A. 289 (1934), housing, Johnson v. Pennsylvania Housing Finance Agency, 453 Pa. 329, 309 A.2d 528 (1973), and sports stadiums, Conrad v. Pittsburgh, 421 Pa. 492, 218 A.2d 906 (1966).

B. The Pennsylvania Supreme Court Has Considered the Meaning of “Debt” for the Purpose of Constitutional Debt Restrictions

Courts in Pennsylvania, and throughout the country for that matter, have struggled to define “debt” for the purposes of constitutional debt restrictions. Essentially, a debt is a promise to make a future payment for a present consideration. Kelley v. Earle, 320 Pa. 449, 456, 182 A. 501, 504 (1936) (Kelley I). A promise to make a present payment for a present consideration—a pay-as-you-go obligation—is not a debt. Kelley v. Earle, 325 Pa. 337, 349 190 A. 140, 146 (1937) (Kelley II). In Tranter v. Allegheny County Auth., 316 Pa. 65, 173 A. 289 (1934), the Pennsylvania Supreme Court held that an act enabling a public authority to build and operate roads did not violate constitutional debt restrictions. Under the act the authority issued bonds to finance the projects, built and operated the projects, charged user fees and pledged the fees to retire the debt. The Tranter plaintiffs argued that the authority’s debt was the county’s debt and that the debt exceed constitutional debt restrictions. The court held that an obligation cannot be a “debt of the county, unless it is a debt which the county has agreed to pay or can be required to pay.” Tranter, at 84, 173 A. at 297. Because the road project was “self-liquidating”—the only source of payment for the authority’s bonds was the revenues from the users of the project—it was not a debt of the county. Id.

The projects in Tranter are admittedly distinguishable from Philadelphia’s stadium project in that the revenue that PAID will use to retire its bonds does not come directly from the stadium users, but instead from the city. In Kelley v. Earle, the Pennsylvania Supreme Court determined that this distinction is not controlling, and held that a leasing arrangement between the Commonwealth and the General State Authority did not violate constitutional debt restrictions. Kelley II, 325 Pa. at 340, 190 A. at 140. Under that arrangement, the Commonwealth conveyed land to the authority for nominal consideration. The authority obtained financing for the projects—which included hospitals—by issuing 30-year bonds, and the authority built the projects. The authority leased the projects to the Commonwealth for a 30-year term with varying rental payments that were calculated to retire the debt. The Commonwealth in turn received payments from individual patients and from counties that sent indigent patients to the hospitals. The evidence showed that the patient payments plus the county referral payments would exceed the Commonwealth’s rent payments.

Unlike the projects in Tranter, the projects in Kelley II did not derive all of their revenues from individual user fees. Instead, some of the revenues came from rent that the Commonwealth paid to the authority. Nevertheless, the court relied on Tranter and held that the obligations were self-liquidating and, therefore, were not debts. “A self-liquidating project may be defined as one wherein the revenues received are sufficient to pay the bonded debt and interest charges over a period of time. The source of the receipt is not important. . . .” Kelley II at 345, 190 A. at 144. (emphasis added) Thus the court effectively expanded the definition of self-liquidating by classifying the Commonwealth as a user. The court added that, “if such obligations are met from current revenues from year to year, they cannot be considered debts in the constitutional sense, even though the aggregate or sum total of all payments should exceed the constitutional limitation.” Kelley II at 347, 190 A. at 145. Because the facts showed that the payments from the patients and the counties would be sufficient to allow the Commonwealth to satisfy the annual rent, the authority’s revenue from the rents would be sufficient to service its debt, and the project would be self-liquidating. Id. at 346, 190 A. at 144-45.

In addition, the court held that the Commonwealth’s obligations were not debt because the Commonwealth did not pledge any property to secure the debt. Id. at 347-48, 190 A. at 146. In the event of a default, the bondholders could assume control of the property, operate it and collect the revenues to satisfy the debt. Id. By stipulation of the parties, however, the bondholders would have no power to execute on the assets of the project. Id. at 341 and n.1, 190 A at 142 and n.1. See also, Tranter, at 86, 173 A. at 298 (“This difference between a pledge of property and a pledge of income merely, has been said to distinguish a transaction which creates a debt within the constitutional limitation from one creating a debt not within it.”), quoted in Kelley II, at 349, 190 A. at 146.

The projects in Kelley II are distinguishable from the city’s stadium project in that the city does not propose to pay the rent out of revenues derived directly from the projects. Instead, the city will pay rent out of its general revenues. In Greenhalgh v. Woolworth, 361 Pa. 543, 64 A.2d 659 (1949), the court implictly held that this distinction too, is not controlling. There, the plaintiffs challenged a lease between a school district and an authority. Under the lease agreement, the authority constructed a school building and leased it to the school district for 30 years. Id. at 548, 551, 64 A.2d at 662, 664. The school district paid annual rent at an amount equal to the principal and interest on the bonds issued to finance the construction of the school plus the authority’s administrative expenses. Id. at 548, 64 A.2d at 662. The lease obligated the school district to pay the rent only out of current revenues. Id. at 553,64 A.2d at 664. If current revenues for a given year were not enough to pay the entire rent, the balance would “be paid out of the current revenues of succeeding years.” Id. at 555, 64 A.2d at 665. The court found that the school district’s reasonably anticipated revenues from all sources were in fact sufficient to meet its rental obligations. Id. at 548, 64 A.2d at 662. The court held that the project was self-liquidating, and therefore not debt. Id. By interpreting the school district’s current revenues to mean the school district’s current revenues from any source, not just from the project, the court again expanded the definition of self-liquidating. See Morris, supra at 254 n.53. The court found additional support that the leases were not debt in that the lease limited the remedies available to the authority on default. Greenhalgh, at 555, 64 A.2d at 665. The authority—or its bondholders—could declare forfeiture of the lease and appoint a receiver to operate and maintain the project. If appointed, the receiver had no power to sell or dispose of the assets. Id.

The court followed this expanded definition of self-liquidating in Conrad v. Pittsburgh, 421 Pa. 492, 218 A.2d 906 (1966). The plaintiff in Conrad challenged a contract between the City of Pittsburgh and the city’s stadium authority. The city gave land to the authority to build Three Rivers Stadium and the authority obtained financing to build it. Id. at 497, 218 A.2d at 908. Though the authority received income from the stadium by leasing it to the teams, the agreement provided that the city would make an annual grant to the authority equal to any deficiency between the authority’s income and the amount required to service its debt and maintain the stadium. Id. at 498, 218 A.2d at 909. The city would pay the grant out of current revenues. Id. If current revenues were not sufficient to pay that deficiency, the city was required to pay the deficiency “out of the current revenues of the city in the subsequent year or years.” Id. In addition, the bondholders remedies on default were limited to the operation and maintenance of the project. Id. at 503, 218 A.2d at 912. As in Greenhalgh, the bondholders could not circumvent the limitation restricting the school district’s or city’s obligation to its current revenues by subjecting the assets of the projects to sale or execution. Id. at 503, 218 A.2d at 912. The court held that the city’s obligations were not debt. Id.

C. The City’s Obligations Under the Prime Leases Are Not Debt

The plaintiffs urge that the city’s obligation under the stadium deal constitutes debt. In determining whether the prime leases impose a debt on the city, however, this court is bound by the evolving meaning of debt set forth in Tranter, Kelley II, Greenhalgh and Conrad. Those cases define debt to exclude a government obligation under a long term lease agreement with a public authority if (1) the obligation is specifically limited to the government’s available current revenues, and (2) the authority and its bondholders cannot circumvent this limitation by subjecting the city’s assets to sale or execution on default. Tranter at 84, 173 A. at 297; Kelley II at 349, 190 A. at 147; Conrad at 503, 218 A.2d at 911-12; Greenhalgh at 555, 64 A.2d at 665. See also, Weiner v. City of Philadelphia, 22 Phila. 267 (1991), aff’d w/o op., 528 Pa. 353, 598 A.2d 30 (1991) (per curiam). The current revenues need not come from the project itself. Conrad at 503, 218 A.2d at 911-12; Greenhalgh at 548, 64 A.2d at 662.

Because the city’s obligations under the prime leases satisfy this test, they are not debt.

1. The prime leases restrict the city’s rental obligations to current revenues

As with the agreements in Greenhalgh and Conrad, the prime leases expressly provide that the city’s obligations are limited to current revenues. Prime lease §4.2(a). But the language of the prime leases is not quite the same as that in the Greenhalgh and Conrad agree-merits. In those agreements, the school district and city, respectively, were required to pay this year’s shortfall out of current revenue in the “succeeding years” and “the subsequent year or years.” Greenhalgh at 555, 64 A.2d at 665; Conrad at 503, 218 A.2d at 911. The prime leases, however, say that in the event of a shortfall in current revenues this year, the city “shall produce sufficient current revenues to pay in the ensuing fiscal year such balance due for the preceding fiscal year in addition to the amount of rent due for the ensuing fiscal year.” While the Greenhalgh and Conrad agreements seemed to allow the school district and city to roll over shortfalls year after year, the prime leases seem to allow the city to roll over a shortfall only to the successive year, when the city must pay the shortfall. The plaintiffs argue that this distinction makes the obligation a debt.

Judge Della Porta of this court rejected this same argument in Weiner v. City of Philadelphia, 22 Phila. 267 (1991), aff’d w/o op., 528 Pa. 353, 598 A.2d 30 (1991) (per curiam). In Weiner, the plaintiffs challenged a lease and service agreement between the City of Philadelphia and the Pennsylvania Convention Center Authority. Under the agreement the authority built and operated the convention center and financed part of the cost by issuing bonds. By a provision substantially identical to section 4.2(a) of the prime leases, the agreement bound the city to pay a service fee equal to the authority’s annual debt service on the bonds. The service fee was limited to current revenues. As with the prime lease, if the current revenues of a given year were insufficient to pay the service fee, the city was required to “produce sufficient current revenues to pay in the ensuing fiscal year such balance due for the preceding fiscal year in addition to the amount of service fee for the ensuing fiscal year.” Citing Greenhalgh and Conrad, Judge Della Porta held that the obligation was not debt. The Pennsylvania Supreme Court affirmed per curiam without opinion. Weiner 528 Pa. 353, 598 A.2d 30.

Because Judge Della Porta held in Weiner that language substantially identical to paragraph 4.2(a) of the prime leases do not create a debt, this court holds that the city’s obligation under the prime leases are not a debt. See Yudacufski v. PennDOT, 499 Pa. 605, 612, 454 A.2d 923, 926 (1982) (“It is well-settled that, absent the most compelling circumstances, a judge should follow the decision of a colleague on the same court when based on the same set of facts.”).

2. There is sufficient evidence in the record pertinent to the ordinances that the city’s revenues will allow the city to satisfy its rent obligations

In Kelley II the court based its holding, in part, on a finding that the Commonwealth’s projected revenues would be sufficient to allow it to satisfy its rent obligations. Kelley II at 347, 190 A. at 145. The record pertinent to the passage of the stadium ordinances contains sufficient evidence that the city’s revenues during the term of the stadium leases will allow the city to satisfy its rent obligations. See “Review of Impact of City Funding of New Stadium Costs on City General Fund” (Dec. 1,2000); Testimony of William P. Hankowsky; and “Stadium Tax Revenue Model” (Nov. 27, 2000). The plaintiffs have produced no evidence to the contrary.

3. The prime leases limit PAID’s remedies on default such that PAID and its bondholders cannot circumvent the current revenues limitation

The prime leases bar acceleration of rent or termination of the leases by the authority. Prime leases, § 15.2(c). This limitation provides additional support for the finding that the prime lease does not create a debt. The city has not pledged its assets in the projects—the leasehold interests—as security for the deal. It has pledged only current revenues. The bondholders cannot circumvent the current revenues limitation by accelerating the city’s obligations under the lease or terminating its leasehold interest. See State ex rel, Thomson v. Giessel, 72 N.W.2d 577, 592 (Wis. 1955) (holding that building corporation’s lease to state was not a debt when, among other reasons, the building corporation had no right of re-entry and no right of foreclosure). Compare with 73 P.S. 377(d) (permitting an authority to pledge its own assets as security for an indenture). In addition, similar to a pay-as-you-go obligation, the city’s right to receive consideration in any given year is independent of its payments in previous years. And, unlike a borrower’s interest in a capital asset acquired on credit, the city’s leasehold interest in the stadiums reverts to PAID when the lease expires.

In summary, then, it may seem at first glance that the city has committed itself to a $394 million debt. But, the city’s obligations under the agreement are limited to current revenues and are not subject to acceleration. The city’s rights are not subject to termination. Our Supreme Court has said that, whatever such an agreement between a city and a public authority is, it is not debt.

The plaintiffs’ prayer for relief on the constitutional claim must fail.

II. PAID Has Not Pledged the City’s General Credit and Taxing Power in Violation of the Enabling Act

The plaintiffs maintain that the defendants have violated the Economic Development Financing Law (Enabling Act) by pledging the city’s credit. 73 P.S. §371 et seq. This court disagrees. The Enabling Act provides that:

“An authority created hereunder shall have no power at any time or in any manner to pledge the general credit or taxing power of the Commonwealth nor shall any authority created hereunder have the power at any time to pledge the general credit or taxing power of any political subdivision . . . .” 73 P.S. §376(c). See also, 73 P.S. §377(c).

Therefore, when PAID issues bonds, it must place a disclaimer on the bonds disclosing to the bondholders that PAID is obligated to pay principal and interest only from available funds as authorized under the Enabling Act and that the city’s credit is not pledged. 73 P.S. §§376.3(c) and 377(a) (contents of disclaimer). The terms of the bonds are subject to the city’s approval, such that the city will be able to ensure that the required disclaimer is present.

There is no evidence that PAID has issued bonds pledging the city’s general credit or taxing power or bonds failing to include the required disclaimer. There is no evidence that the city has approved illegal bonds. In fact, plaintiffs have not produced evidence that PAID has issued bonds at all. Because there has been no conduct violating 73 PS. §376(c), this claim must fail.

The plaintiffs have no right to relief on their Enabling Act claim.

III. The Process by Which City Council Approved the Leases and the Stadium Funding Did Not Violate the Home Rule Charter

The Home Rule Charter requires that city council take every legislative action, including actions authorizing leases for more than one year, by ordinance. 351 Pa.Code §§2.2-200, 2.2-309, 8.8-200(3). Every proposed ordinance must be introduced as a bill, 351 Pa.Code §2.2-201(1). Before city council considers a bill, the bill must be “referred to a committee, considered at a public hearing, reported by the committee, printed as reported, and distributed to the members of the council and made available to the public.” 351 Pa.Code §2.2-201(2).

The plaintiffs argue that city council violated the Home Rule Charter because key data was missing from the stadium ordinances, namely, the team subleases and the anticipated source of the $53 million shortfall in funding for the stadium.

A. The Process By Which City Council Approved the Team Subleases Did Not Violate the Home Rule Charter

The bills that city council considered and passed on December 20, 2000 included copies of the ground leases, prime leases and leasebacks. See ordinance nos. 721-A and 722-A. City council did not consider and pass the actual team subleases as part of the ordinances. Instead, city council approved by ordinance the team sublease terms and conditions. See ordinance 721-A, exhibit D; ordinance no. 722-A, exhibit D. City council approved the actual team subleases by resolution more than one month later.

The plaintiffs argue that, since the actual team subleases were not part of the bill that city council passed by ordinance, the team subleases were never “referred to a committee, considered at a public hearing, reported by the committee, printed as reported, and distributed to the members of the council and made available to the public...” and are therefore invalid. This court disagrees. City council properly approved the substance of the team subleases by passing these team sublease terms and conditions in accordance with the Home Rule Charter. The resolution process—by which city council reviewed the team subleases for conformance with the ordinances—was not required by the Home Rule Charter and, therefore, not subject to the procedural requirements of the Home Rule Charter. If city council had approved by resolution final team subleases that differed materially from the approved team sublease terms and conditions, the team subleases might not be legal. However the plaintiffs have not cited any term in the team subleases, let alone any material term, that conflicts with the terms and conditions approved by ordinance. Therefore, the court must conclude that the team subleases do not violate the Home Rule Charter because they conform in all material respects to the terms and conditions that city council passed by ordinance.

B. City Council Did Not Violate the Home Rule Charter by Approving the Stadiums’ Ordinances Knowing That $53 Million of the Stadium Deal Was As Yet Unfunded

When city council held hearings on the stadiums, $53 million in funding for the stadiums was as yet unsecured. There was no explanation of how the parties would get the additional $53 million, except that the money would not come from the city. (2/16/01; N.T. 31.) The parties stipulated that had plaintiffs Lance Haver and Richard Sklaroff known the sources for the $53 million, they would have testified as to that issue. (2/16/01; N.T. 32-33, 35-36.) The plaintiffs argue that city council violated the Home Rule Charter because the source of the $53 million was not part of the ordinance. The court disagrees.

The ordinance provided that there was to be a $53 million gap in funding, but made clear that that $53 million is not the city’s obligation. This information was sufficient to provide for meaningful consideration of the terms of the deal.

The plaintiffs’ claim that there was a violation of the Home Rule Charter is without merit.

CONCLUSION

In sum, the plaintiffs have no right to relief on any of their claims. Accordingly, this court granted the defendants’ motion for a nonsuit and denied the plaintiffs’ post-trial motion to remove the nonsuit. For the reasons discussed, this court’s orders should be affirmed.

      . This restriction applies only to Philadelphia. The Constitution also imposes debt restrictions on the Commonwealth, Pa.Const. Art. VII, §7, and requires the legislature to impose debt limits on local governments other than Philadelphia, Pa.Const. Art. IX, § 10.

      . “[I]f it looks like a duck, walks like a duck, and sounds like a duck, it is a duck,” People ex rel. Lokyer v. Pacific Gaming Technologies, 98 Cal.Rptr.2d 400,401 and n.1 (Ct. App. 2000).

      . The prime lease obligates the city to indemnify PAID in certain situations to the extent “permitted by applicable laws____” prime lease § 18.8(a). Applicable laws would include the constitutional current revenue and no execution restrictions, Conrad at 498-503, 218 A.2d at 909-12, and the statutory prohibition against city guaranties of authority debts, see73 P.S. §§376.3(c), 377(a) and 377(c).

      . The court notes that the prime leases make the city’s obligation to pay rent unconditional, prime lease §4.5, and it allows PAID to obtain an injunction ordering the city to pay rent. Prime lease § 15.2. The right to an injunction flows to the bondholders as assignees of PAID’s rental interests. Prime lease §§4.3,19.3,19.4. Since the city’s obligations are legally enforceable by the bondholders, the prime leases arguably run afoul of Greenhalgh. In discussing the creditor’s limited remedies against the city, the court in Greenhalgh said:
      “[Ajlthough the authority may declare the lease forfeited and reenter the premises for a default of six months or more in the payment of a rent installment, etc., and may have a receiver for the property appointed, manifestly there is no legally enforceable liability for either the principal or interest attaching to the school district. The power of such a receiver is even ‘limited to the operation and maintenance of the project;’ and he is without power to ‘sell or dispose of any assets of the authority [or] the land upon which the project is erected. ’ ” Greenhalgh at 555, 64 A.2d at 665. (emphasis added)
      The city’s obligations under the prime leases constitute a “legally enforceable liability for either the rent or principal attaching to the [city],” which would arguably conflict with Greenhalgh. Id.; see also,
        Graham v. Philadelphia, 334 Pa. 513, 518, 6 A.2d 78, 81 (1939). Courts considering constitutional debt restrictions in other states have held that a government incurs a debt by paying rent to an authority if the government’s obligations to the authority are legally enforceable by the bondholders. See e.g., New Liberty Med. and Hosp. Corp. v. E.F. Hutton & Co., 474 S.W.2d 1, 6 (Mo. 1971); Dykes v. Northern Va. Transp. Dist. Comm’n, 411 S.E.2d 1, 10 (Va. 1992) (on reh’g); State ex rel. Thomson v. Giessel, 72 N.W.2d 577, 592 (Wis. 1955). See also, Johnson v. Pennsylvania Housing Financial Agency, 453 Pa. 329, 344, 309 A.2d 528, 536 (1973) (describing the Commonwealth’s obligation to pay an authority’s debts as a “moral make-up clause” where the agreement makes the obligation unenforceable). But our Supreme Court implicitly foreclosed such an argument in Conrad. In Conrad, the court approved the lease even though the bondholders could compel payments from the city, because the bondholders could only compel the city to make payments from current revenues. Conrad at 503, 218 A.2d at 911. Like bondholders in Conrad, the holders of PAID’s bonds may compel rent payments from the city, but only from current revenues. See also, Kelley II at 349, 190 A. at 147 (there is one outstanding factor [in this case]—the immunity of state property and the inability of creditors to compel payments beyond the sums available from current revenues). The bondholders cannot take city property.
      This court concludes, too, that the terms of the prime leases here are more favorable than in Greenhalgh because unlike the authority in Greenhalgh, PAID cannot declare the lease forfeited or reenter the premises.

      . Philadelphia sports fans are likely familiar with a large green animal that appears at Veterans Stadium during baseball games. He tries to instill hope and a sense of well-being in loyal fans jaded by millionaire players, millionaire owners who field substandard teams in one of the nation’s biggest media markets, and governments that subsidize private sports enterprises. That animal has feathers, a tail and an oversized proboscis. He waddles. Nonetheless, fans would agree that— whatever he is—he is not a duck. And so it is with Philadelphia’s stadium deal. It is not a debt.

      . Defendants also argue that the Home Rule Charter did not require city counsel to approve the team subleases at all because the city was not a party to the team subleases. This court does not see a need to address this issue.


source: Caselaw Access Project

author: FORNELLI, P.J.,

license: Public Domain

text:
    Riethmiller v. Bedford County Grange Mutual Insurance Co.

      C.P. of Mercer County,
    no. 1999-1014.

      P. Raymond Bartholomew, for plaintiffs.

      Charles W. Garbett, for defendant.
    May 30, 2001
   FORNELLI, P.J.,

The matter for disposition is defendant’s motion for summary judgment. For the reasons set forth hereafter, defendant’s motion will be denied.

This matter arises out of a fire that occurred on April 10, 1997 in the home of plaintiffs Harry F. Riethmiller and Judith Ann Riethmiller. The fire caused the total loss of the structure and its contents. At the time of the fire, plaintiffs’ home was insured under a fire insurance policy issued by defendant Bedford County Grange Mutual Insurance Company. The policy provided coverage for fire loss up to the following limits: $50,000 for real property; $35,000 for unscheduled personal property; $10,000 for additional living expenses; and $2,500 for debris removal. (See policy at section I coverages.) Defendant eventually paid the policy limits for plaintiffs’ loss of real property, unscheduled personal property and debris removal.

A dispute arose as to plaintiffs’ claim for additional living expenses. On April 11,1997, defendant advanced plaintiffs $1,000 on the additional living expenses claim. In November 1997, plaintiffs submitted a listing of additional living expenses of $6,147.02. Defendant has calculated plaintiffs’ additional living expense to be $2,700, and has paid this amount to plaintiffs.

Plaintiffs contend that defendant made its determination and evaluation of the additional living expenses claim without waiting to determine the expenses plaintiffs would actually incur and without waiting to ascertain the time reasonably required to establish plaintiffs in their new home. Specifically, plaintiffs aver that defendants arbitrarily calculated plaintiffs’ additional living expenses to be $2,200 and later $2,700, without considering that plaintiffs were paying rent of $625 per month for living quarters for themselves, their three children and the family dog. On April 8, 1999, plaintiffs filed their complaint against defendant, alleging both breach of contract and bad faith. Material to this motion are plaintiffs’ allegations of bad faith contained in Count II of the complaint.

Defendant contends that it calculated plaintiffs’ additional living expenses based upon the time necessary to rebuild a home of the same size and kind as that insured under the subject insurance policy. Defendant views the instant matter as a dispute over the amount of benefits to which plaintiffs are entitled. Thus, defendant has filed the instant motion for summary judgment, averring that this matter does not rise to the level of bad faith under section 8371 of the Judicial Code, 42 Pa.C.S. §8371.

A.

The standard to be utilized in addressing defendant’s motion for summary judgment is set forth by Pennsylvania Rule of Civil Procedure 1035.2, which provides:

“After the relevant pleadings are closed, but within such time as not to unreasonably delay trial, any party may move for summary judgment in whole or in part as a matter of law
“(1) whenever there is no genuine issue of any material fact as to a necessary element of the cause of action or defense which could be established by additional discovery or expert report, or
“(2) if, after the completion of discovery relevant to the motion, including the production of expert reports, an adverse party who will bear the burden of proof at trial has failed to produce evidence of facts essential to the cause of action or defense which in a jury trial would require the issues to be submitted to a jury.
“The moving party has the burden of proving the nonexistence of any genuine issue of material fact based upon the pleadings, depositions, answers to interrogatories, admissions on file, affidavits, and reports signed by an expert that would, if filed, comply with Rule 4003.5(a)(1).” Pa.R.C.R 1035.1

The “non-moving party must 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. Failure to adduce this evidence establishes that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.” Ertel v. Patriot-News Company, 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). The 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.” Merriweather v. Philadelphia Newspapers Inc., 453 Pa. Super. 464, 470-71, 684 A.2d 137, 140 (1996), allocatur denied, 548 Pa. 628, 693 A.2d 967 (1997) (citing Accu-Weather Inc. v. Prospect Communications, 435 Pa. Super. 93, 98-99, 644 A.2d 1251, 1254 (1994)).

B.

“The Pennsylvania Supreme Court has held that an insurer must act with the ‘utmost good faith’ toward its insured. Fedas v. Insurance Company of Pennsylvania, 300 Pa. 555, 558, 151 A. 285, 286 (1930),” quoted in, Romano v. Nationwide Mutual Fire Insurance Co., 435 Pa. Super. 545, 550, 646 A.2d 1228, 1231 (1994); see also, Dercoli v. Pennsylvania National Mutual Insurance Co., 520 Pa. 471, 554 A.2d 906 (1989); Cowden v. Aetna Casualty and Surety Co., 389 Pa. 459, 134 A.2d 223 (1957). The heightened duty of good faith is necessitated by the special relationship between an insurer and its insured and by the nature of the insurance contract. Romano, 435 Pa. Super. at 550-51, 646 A.2d at 1231. Implied in a policy of fire insurance is a promise by the insurer that it will exercise reasonable care in investigating an insured’s claim, and that the claim will not be rejected except for good cause. Diamon v. Penn Mutual Fire Insurance Co., 247 Pa. Super. 534, 550, 372 A.2d 1218, 1226 (1977); see also, Parasco v. Pacific Indem. Co., 920 F. Supp. 647, 656 (E.D. Pa. 1996) (“The duty of fair dealing under Pennsylvania law requires the insurer to conduct its investigation in a fair and objective manner and to deny insured’s claim only if good cause exists to do so.”).

In Pennsylvania there is no common-law remedy for bad faith on the part of an insurer. Rather, the remedy is purely statutory, D’Ambrosio v. Pennsylvania National Mutual Insurance Co., 494 Pa. 501, 507, 431 A.2d 966, 970 (1981); Terletsky v. Prudential Property and Casualty Insurance Co., 437 Pa. Super. 108, 124, 649 A.2d 680, 688 (1994), appeal denied, 540 Pa. 641, 659 A.2d 560 (1995); Romano, 435 Pa. Super. at 552, 646 A.2d at 1232. Section 8371 of the Judicial Code provides:

“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. There is, however, no statutory definition of bad faith, and the concept has not been addressed by the Supreme Court.

The Superior Court has defined “bad faith” as “any frivolous or unfounded refusal to pay proceeds of a policy; it is not necessary that such refusal be fraudulent. For purposes of an action against an insurer for failure to pay a claim, such conduct imports a dishonest purpose and means a breach of a known duty {i.e., good faith and fair dealing), through some motive of self-interest or ill will; mere negligence or bad judgment is not bad faith.” Romano, 435 Pa. Super. at 553, 646 A.2d at 1232 (quoting Black’s Law Dictionary 139 (6th ed. 1990)) (citations omitted); O’Donnell ex rel. Mitro v. Allstate Insurance Co., 734 A.2d 901, 904 (Pa. Super. 1999); MGA Insurance Co. v. Bakos, 699 A.2d 751, 754 (Pa. Super. 1997); Terletsky, 437 Pa. Super. at 124-25, 649 A.2d at 688.

Generally, recovery on a bad faith claim requires clear and convincing evidence that the insurer had no reasonable basis for denying benefits under the policy and that the insurer knew of or recklessly disregarded said lack of reasonable basis for denying benefits. O’Donnell, 734 A.2d at 906; Bakos, 699 A.2d at 754; Terletsky, 437 Pa. Super. at 125, 649 A.2d at 688. In evaluating the conduct of an insurer under section 8371, this court may look to: (1) other cases construing the statute and the law of “bad faith” generally; (2) the plain meaning of the terms used in the statute; and (3) other statutes addressing the same or similar subjects. O’Donnell, 734 A.2d at 906; Bakos, 699 A.2d at 754; Romano, 435 Pa. Super. at 555, 646 A.2d at 1233. Further, conduct that violates the Unfair Insurance Practices Act (UPIA) may also be considered when determining whether an insurer acted in bad faith under section 8371. O’Donnell, 734 A.2d at 906; Romano, 435 Pa. Super. at 554, 646 A.2d at 1233; see also, 40 P.S. §1171.5. Additionally, the conduct of an insurer during the pendency of litigation may be considered as evidence of bad faith under section 8371. O’Donnell, 734 A.2d at 907, citing Rottmund v. Continental Assurance Co., 813 F. Supp. 1104, 1109-10 (E.D. Pa. 1992). Moreover, an action for bad faith may extend to the insurer’s investigative process if the insurer acted in bad faith therein. Id.; see also, Diamon, 247 Pa. Super. at 550, 372 A.2d at 1226.

Terletsky held that an insurer’s low settlement offers to the insureds prior to uninsured motorist arbitration were not indicative of bad faith, so as to support a claim of bad faith refusal to settle, given doubts as to the extent of the insureds’ injuries, lack of reference to the injuries in the police report, and lack of serious damage to insureds’ vehicle, coupled with insurer’s estimate that each driver involved was 50 percent liable for the accident. Terletsky, 437 Pa. Super. at 126-27, 649 A.2d at 689. Bakos held that, where the insured did not allege that insurer had no reasonable basis for denying benefits under the policy or that insured knowingly or recklessly disregarded its lack of reasonable basis for such denial, the insurer did not act in bad faith by appealing the award of an arbitration panel. Bakos, 699 A.2d at 755. Similarly, O’Donnell determined that insured’s bald assertions that the insurer acted in bad faith by: (1) propounding allegedly frivolous interrogatories; (2) failing to accept or deny the claim after the insured “submitted to a lengthy deposition;” and (3) requesting additional information during the pendency of trial were insufficient to show that the insurer acted in bad faith. O’Donnell, 734 A.2d at 907.

C.

In the instant matter, plaintiffs contend that, without determining the additional living expenses actually incurred by plaintiffs during the time period reasonably required to make the insured premises fit for use or to settle plaintiffs’ family into new quarters, defendant adopted a position 20 days after the fire, on April 30, 1997, that defendant would pay only $2,200 on plaintiffs’ additional living expenses claim. This amount was increased by $500 after plaintiffs submitted their total additional living expenses incurred between the date of the fire and the date plaintiffs moved into their new home. Plaintiffs aver that defendant has not provided any verification concerning the availability and cost of suitable rental units available at the necessary time and in plaintiffs’ school district. Plaintiffs point to the deposition testimony of defendant’s claims adjuster, Keith Leppert in support to their contention that defendant did not conduct an independent investigation of the availability of suitable rental units at the time it became necessary for plaintiffs to relocate. (See deposition of Keith Leppert at 78-79.) Plaintiff Judith Riethmiller’s affidavit indicates that by April 28, 1997, she had located five rental properties, which ranged from $474 to $1,200 in monthly rent. (Affidavit of Judith Riethmiller at ¶¶3-4.) All of the rentals required a 12-month lease and excluded pets; making said rental units unsuitable for plaintiffs’ needs. Id. Moreover, only one of the rentals was located in the West Middlesex School District. Id. Plaintiffs eventually rented living space from plaintiff Judith Riethmiller’s parents for $625 per month with an addition $4 per day charge for boarding plaintiffs’ dog. Plaintiffs aver that defendant ignored this actual rental expense in calculating plaintiffs’ additional living expenses.

As further evidence of defendant’s bad faith, plaintiffs point to defendant’s alleged efforts to limit the period of plaintiffs’ additional living expenses to a four-month period immediately following the fire. The policy provides for the payment of additional living costs incurred within “the period of time reasonably required to make the insured premises fit for use or to settle your household in new quarters, whichever is less.” (See policy at coverage D—Additional living costs and loss of rent coverage.) Plaintiffs aver that they could not reasonably replace the residence lost in this period based upon: (1) the one month needed to arrange for bank financing; (2) the one month needed for the contractor to acquire materials and subcontractors; and (3) the four months necessary for actual construction. (Affidavit of Judith Riethmiller at ¶9.) Plaintiffs aver that defendant was aware of these factors and circumstances and chose to disregard them.

Defendant argues that the instant matter is merely a dispute over the value of plaintiffs’ additional living expenses claim and does not rise to the level of bad faith. Defendant contends that it attempted in good faith to arrive at a fair valuation of plaintiffs’ additional living expenses and that plaintiffs frustrated such attempts. Further, defendant contends that plaintiffs refused to allow the claims adjuster to work with plaintiffs in their attempt to arrive at such a fair valuation. (Deposition of Gary Miller at 12-19.) Defendant also argues that plaintiffs did not work with the adjuster is attempting to find temporary living quarters, and that plaintiffs negotiated the aforesaid lease agreement with plaintiff Judith Riethmiller’s parents without giving defendant the opportunity to negotiate the agreement or to find an alternative. Finally, defendant contends that plaintiffs did not make it aware of the terms of the lease agreement until several months after plaintiffs had begun residing in the leased premises. (Id. at 23.) Defendant submits that the foregoing indicates that, as a matter of law, it did not act in bad faith with respect to plaintiffs’ additional living expenses claim.

Initially, it must be noted that despite defendant’s argument, a dispute over the value of an additional living expense claim may implicate bad faith. Indeed, the majority of bad faith claims involve disputes over the valuation insurance claims, a fact reflected in the very definition of “bad faith” quoted above. Romano, 435 Pa. Super. at 553-54, 646 A.2d at 1232. Plaintiffs contend that the facts they have set forth are indicative of an unfounded refusal, by defendant, to pay additional living expenses to which plaintiffs are entitled under the policy. As such, there is no merit to defendant’s contention that the instant matter cannot implicate bad faith because it is a dispute over the value of plaintiffs’ claim.

Further, plaintiffs have alleged specific conduct on the part of the defendant that may constitute bad faith, to wit: (1) adopting a position 20 days after the fire that it would pay only $2,200 on plaintiffs’ additional living expenses claim; (2) not investigating the availability and cost of suitable rental units available at the necessary time and in plaintiffs’ school district; (3) ignoring plaintiffs’ actual rental expenses in calculating the additional living expenses; and (4) limiting plaintiffs’ additional living expenses to a four-month period despite knowledge that it would take at least six months to complete construction of plaintiffs’ new home. The above-quoted requirements for bad faith require factual determinations of defendant’s state of mind. Reading Tube Corp. v. Employers Insurance of Wausau, 944 F. Supp. 398, 403 (E.D. Pa. 1996). Plaintiffs have alleged more than the insinuations and bald assertions of bad faith deemed insufficient by Bakos and O’Donnell. See Bakos, 699 A.2d at 755; O’Donnell, 734 A.2d at 907. Rather, plaintiffs’ evidence may be considered conduct that imports a dishonest purpose and indicates a breach of a known duty through some motive of self-interest or ill will. See Romano, 435 Pa. Super. at 553-54, 646 A.2d at 1232. Thus, a jury could find that defendant acted in bad faith in investigating and settling plaintiffs’ additional living expenses claim. See e.g., Reading Tube, 944 F. Supp. at 403; see also, Diamon, 247 Pa. Super. at 550, 372 A.2d at 1226; 40 P.S. §1171.5(a)(10)(iv).

Defendant’s assertions that the dispute in the valuation of plaintiffs’ additional living expenses claim resulted from plaintiffs’ frustration of defendant’s investigation may prove to be correct. However, defendant’s assertions are not uncontroverted and this court must, for purposes of summary judgment, view the facts in a light most favorable to plaintiffs, as the nonmoving parties herein. Marks v. Tasman, 527 Pa. 132, 135, 589 A.2d 205, 206 (1991). Viewing the facts here in such a light shows the existence of a genuine issue of material fact regarding defendant’s actions and motivations in assessing and valuing plaintiffs’ additional living expenses claim. Because 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, Merriweather, 453 Pa. Super. at 470-71, 684 A.2d at 140, and because plaintiffs have adduced such material facts to indicate the existence of a genuine issue as to whether defendant acted in bad faith in investigating and settling plaintiffs’ additional living expenses claim, defendant’s motion will be denied.

Hence, this order:

ORDER

And now, May 30, 2001, it is hereby ordered that defendant’s motion for summary judgment is denied.

      . Plaintiffs elected to build a new home to replace the one destroyed in the fire.

      . The policy provides that the insurer will “pay the necessary and reasonable increase in living costs you incur to maintain the normal standard of living of your household if a part of the insured premises is made unfit by an insured loss. We pay only for the period of time reasonably required to make the insured premises fit for use or to settle your household in new quarters, whichever is less. This period is not limited by the policy period.” (See policy at coverage D—additional living costs and loss of rent coverage.)

      . Bad faith must be proven by clear and convincing evidence and not merely insinuated. Terletsky, 437 Pa. Super. at 125, 649 A.2d at 688, citing Cowden, 389 Pa. at 472, 134 A.2d at 229; see also, Hall v. Brown, 363 Pa. Super. 415, 420, 526 A.2d 413, 416 (1987), appeal denied, 522 Pa. 624, 564 A.2d 916 (1989).

      . The UPIA provides, inter alia, that:
      “Any of the following acts if committed or performed with such frequency as to indicate a business practice shall constitute unfair claim settlement or compromise practices.
      “(i) Misrepresenting pertinent facts or policy or contract provisions relating to coverages at issue ...
      “(iii) Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies.
      “(iv) Refusing to pay claims without conducting a reasonable investigation based upon all available information...
      “(vi) Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which the company’s liability under the policy has become reasonably clear.
      “(vii) Compelling persons to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts due and ultimately recovered in actions brought by such persons... .”40 P.S. §1171.5(a)(10)(i), (iii-iv), (vi-viii).


author: LAVELLE, S.J.,

text:
    Turcmanovich v. Borough of Lansford
    C.P. of Carbon County,
    no. 00-2145.

      Sean T. Welby, for petitioner.

      Joseph J. Matika, for respondent.

      June 5, 2001
   LAVELLE, S.J.,

John Turcmanovich seeks review of a decision by the Borough of Lansford which denied him benefits under the Heart and Lung Act.

In his petition for review, Turcmanovich sets forth four assignments of error: (1) that the borough’s adjudication is not supported by substantial evidence in the record and capriciously disregards undisputed evidence; (2) that the borough impermissibly commingled functions in the administrative process; (3) that the adjudication is defective because it failed to include findings of fact, conclusions of law and reasons for the decision; and (4) that the borough committed errors of law.

FACTUAL BACKGROUND

Before addressing the merits of the within appeal, it will be helpful to summarize the factual background of this claim.

Our review of the record reveals that Turcmanovich had been employed for the past 27 years as a police officer by the Borough of Lansford. (NT, 8-9.) Approximately, four years ago, he was diagnosed as having Type II diabetes mellitus, which he controls through the use of orally administered medication. (NT, 9, report of Carmine J. Pellosie D.O.)

Prior to the incident giving rise to the instant claim, Turcmanovich had a long history of foot problems, including ulcers and infections secondary to his diabetic condition, as well as a motor sensory deficit caused by hereditary neuropathy. (NT, 9, 24-25, reports of Drs. Gary S. Greenberg and Carmine J. Pellosie.) He was under the care of Dr. Gary S. Greenberg, a podiatrist, who regularly treated him for his foot problems on a preventive basis. (Id.) Although he had long-standing problems with foot ulcers prior to the instant claim, they always healed with medication within a few days and never resulted in lost time from work. (NT, 24-25.)

On October 19,1999, Turcmanovich was seen by Dr. Greenberg for follow-up for “[a] long history of ulcers, osteomylitis and gross foot deformity,” on which visit a grade 2 ulcer was detected under his first right metatarsal. (NT, 24-25; Dr. Greenberg’s progress notes.) At his next office visit on December 21, 1999, Dr. Greenberg noted that there was no ulcer under the first right metatarsal; in other words, the ulcer detected on October 19 had completely healed. (Id.)

On Saturday, December 25, 1999, Turcmanovich worked the 7 a.m. to 3 p.m. shift, which involved routine traffic and community patrol, a limited amount of foot patrol through the business district, and response to a vandalism report; because it was Christmas day, it was relatively quiet. (NT, 9-10, 15-18.) When he returned home after completing his shift, Turcmanovich removed his shoes and observed that his right sock was soaked with blood and the inside of his shoe was stained with blood or a blood-like fluid. (NT, 11.) This was his first indication that day that there was a problem with his foot. (NT, 28-29.) He cleaned his foot with peroxide and bandaged it. (Id.) When the foot did not heal, he called Dr. Greenberg’s office first thing on Monday morning and was told to come in to see the doctor that same day. (NT, 12.)

On examining Turcmanovich, Dr. Greenberg observed a four centimeter square “elevated bibulous lesion proximal to the first metatarsal head . . . [with] what appears to be a small puncture-like wound,” and further noted that the wound was infected. (Dr. Greenberg’s office notes.) On February 14, 2000, after several weeks of treatment with no apparent improvement, Turcmanovich was admitted to St. Luke’s Hospital for intravenous administration of antibiotics. (Dr. Greenberg’s office notes; report of Dr. Pellosie.) As of the date of the hearing, he had still not returned to work and remained disabled.

At the time of the independent medical examination held on June 21, 2000, Turcmanovich’s ulcer had still not healed and he was scheduled to undergo a skin graft. (Report of Dr. Pellosie.)

Dr. Greenberg, in a progress note entered on April 11, 2000, recounts that Turcmanovich advised him that he had a discussion with an organization representing police officers and discovered that he may be eligible for benefits. The note continues:

“For that reason information related to the onset of his current problem is reviewed and clarified. The patient was on vacation for a time period prior to working a shift on Christmas day .... Upon returning home, removing his shoes he noticed blood in his sock, drainage and swelling on his right foot. One would then presume that some activity at work was the precipitating cause of his current problem. This information was not deemed relevant at his 12/27/99 examination.”

Dr. Pellosie, the borough’s physician, opined that “within a reasonable degree of medical certainty, it is possible that his blister (foot injury) began during his work shift on 12/25/99.” (emphasis added) Dr. Pellosie also noted that there was no clear date of injury set forth in Dr. Greenberg’s office records and that Turcmanovich waited four months before filing his claim. Other than the reports of Drs. Greenberg and Pellosie, no medical testimony was submitted by either party.

DISCUSSION

Because we have a complete record of the hearing conducted by the borough and we have taken no additional testimony in this matter, our scope of review is circumscribed by section 754(b) of the Local Agency Law. We must affirm the adjudication below unless it violates appellant’s constitutional rights, is not in accordance with law, or if any finding of fact made by the agency and necessary to support its adjudication is not supported by substantial evidence. City of Pittsburgh v. Kisner, 746 A.2d 661 (Pa. Commw. 2000); McLaughlin v. Pennsylvania State Police, 742 A.2d 254 (Pa. Commw. 1999).

With this narrow scope of review in mind, we now address Officer Turcmanovich’s assignments of error. His first argument is that the borough’s adjudication is not supported by the record and that it capriciously disregarded undisputed competent evidence in the record.

The sole issue before the borough was whether Turcmanovich’s foot ulcer and resulting disability arose in the course of his duties as a police officer. The only evidence presented on this issue was Turcmanovich himself, Dr. Gary Greenberg, his treating podiatrist, and Dr. Carmine J. Pellosie, an occupational medicine specialist, who conducted an IME on behalf of the borough. The doctors’ evidence was received in the form of records and reports. This evidence produced the following incontrovertible facts:

(1) Turcmanovich, a 27-year veteran of the borough’s police force, had a diabetic condition for some three and one half to four years prior to the injury in question.

(2) Although he had suffered from foot ulcers in the past, they always responded to treatment and never resulted in lost time from work.

(3) Although he experienced an ulcer two months prior to the incident in question, that ulcer had completely healed when he saw Dr. Greenberg for a routine visit on December 21, 1999.

(4) Upon completing his shift on Christmas Day, 1999, Turcmanovich removed his shoe and noticed that his sock was soaked with blood; this was his first indication that day that there was a problem.

(5) When the foot did not heal by Monday, December 27, he consulted with Dr. Greenberg.

(6) Dr. Greenberg diagnosed a four centimeter lesion and a small, infected, puncture-like wound, which the doctor opined was precipitated by work-related activity.

(7) Upon examining Turcmanovich on behalf of the borough, Dr. Pellosie stated that it was “possible that his ... foot injury began during his work shift on 12/25/ 99.”

In its adjudication denying claimant benefits, the borough noted that it was “skeptical with regard to the claimant’s testimony” because:

“(1) claimant delayed filing a claim for benefits until four months after the date of the alleged injury;
“(2) in his progress notes, Dr. Greenberg failed to record any reference to a work-related injury until after Turcmanovich told him that he might be eligible for Heart and Lung benefits; and
“(3) when Turcmanovich presented to Chief Stawiarski a doctor’s note placing him off work, claimant did not indicate to the chief that his foot problem was work-related.”

It is obvious, then, that resolution of Turcmanovich’s claim turns solely on a determination of the credibility of the witnesses, namely that of the claimant himself and the medical testimony (via records) of Drs. Green-berg and Pellosie.

Questions of credibility of witnesses are to be determined solely by the local agency, and as a reviewing court we are not permitted to substitute our own judgment for that of the borough. Richter v. Civil Service Commission of the City of Philadelphia, 35 Pa. Commw. 310, 387 A.2d 131 (1978). Generally, we must affirm the local agency if its findings of fact are supported by substantial evidence.

While Dr. Greenberg did not note in his office chart any causal connection between the foot ulcer and his employment until Turcmanovich advised him, some four months after the onset of disability, that he might be eligible for Heart and Lung benefits, Dr. Greenberg indicated that he did not mention this earlier because he did not believe it was relevant. Nonetheless, the borough chose to discredit Dr. Greenberg’s testimony in its entirety. The opinion of Dr. Pellosie, the borough’s physician, was inconclusive as to the cause of Turcmanovich’s foot ulcer. Dr. Pellosie stated only that it was “possible” that it was related to his work.

The borough, as the trier of fact, was free to credit or discredit any testimony in whole or in part, even though such testimony was uncontroverted and even though it was expert medical testimony. Gwinn v. Pennsylvania State Police, 668 A.2d 611 (Pa. Commw. 1995); Adamo v. W.C.A.B. (Jameson Memorial Hospital), 87 Pa. Commw. 207, 486 A.2d 1065 (1985). However, this does not mean that the borough may capriciously disregard otherwise competent evidence. Where, as here, the party with the burden of proof is the only party to present evidence and he loses, the standard of review to be employed is whether the fact-finder capriciously disregarded competent evidence. Czap v. W.C.A.B. (Gunton Corp.), 137 Pa. Commw. 612, 587 A.2d 49 (1991).

The only testimony presented on the issue of the work-related nature of Turcmanovich’s injury was that of Dr. Greenberg. Dr. Pellosie, the borough’s physician, said only that it was possible that the injury was work-related, so that Dr. Greenberg’s medical opinion stands as unrebutted.

The adjudication filed by the borough does not explain why it chose to discredit Dr. Greenberg’s testimony. The borough observes that “had the injury been sustained in the performance of his [Turcmanovich’s] duties, he would have so noted to the doctor on December 27,1999.” (Adjudication, finding of fact no. 6.) The borough also states, as a finding of fact, that “the agency does not believe that the injury as alleged... could have occurred as a result of the limited amount of foot patrol he provided on the date in question.” (Adjudication, finding of fact no. 5.) There is absolutely no factual basis in the record before us to support these two critical findings. Although Turcmanovich may not have been prompt in filing his Heart and Lung claim, we cannot say that a four-month delay is unreasonable, particularly in the absence of any limitation period in the Act. We do not believe that this had any probative value on the question of Turcmanovich’s credibility.

Likewise, there is absolutely no factual basis in the record to support the borough’s conclusion that Turcmanovich’s injury could not “have occurred as a result of the limited amount of foot patrol he provided on the date in question.” In making this finding, the borough substituted its own medical opinion in place of the unrebutted expert opinion of Dr. Greenberg, and in doing so it capriciously disregarded competent evidence in the record.

Since this appeal has been resolved on the basis of the capricious disregard of evidence test, there is no need to address the remaining issues raised by Turcmanovich.

For the reasons set forth above, we reverse the adjudication denying John Turcmanovich benefits under the Heart and Lung Act and enter the following order:

ORDER

And now, June 5, 2001, upon consideration of the within petition for review, the record of the proceedings before the Lansford Borough Council, the briefs and other submissions of the parties, and after oral argument, it is hereby ordered and decreed that the petition for review be, and the same hereby is, sustained, and the adjudication of the Borough of Lansford dated October 5, 2000, is reversed. Petitioner’s claim under the Heart and Lung Act, 53 P.S. §637, is hereby granted.

      .53P.S. §637

      .2Pa.C.S. §754(b).


author: HERRON, J.,

text:
    J. Goldstein & Company P.C. v. Goldstein

      Michael J. Kane, for plaintiff.

      Bart Benojf, for defendant.

      June 14, 2001
   HERRON, J.,

This opinion addresses the preliminary objections filed by defendants Joel D. Goldstein, CPA, PC., Joel D. Goldstein as president of Joel D. Goldstein, CPA, P.C. and Joel D. Goldstein, individually, to the complaint of plaintiff J. Goldstein and Company, PC., whose principal is Jerry Goldstein. For the reasons set forth herein, the court has overruled the preliminary objections in part and sustained them in part.

BACKGROUND

As stated in the introduction, this case involves unrelated Goldsteins and Goldstein-related entities. J. Goldstein and Company, the plaintiff in this matter, was formed in August 1981 by Jerry E. Goldstein, CPA as a sole proprietorship. In 1983, J. Goldstein and Company became a professional corporation, with Jerry owning all of its issued and outstanding shares.

On July 1, 1990, the plaintiff hired Joel Goldstein as an associate accountant. Although Joel had little prior accounting experience, Jerry took him under his wing and, by February 1993, Joel had passed the certified public accounting examination. Four months later, Joel was issued one share of the plaintiff’s stock.

Around this time, the plaintiff and Joel allegedly entered into an oral agreement under which Joel would endeavor to solicit clients for the plaintiff. Although the plaintiff would bill and collect fees from such clients, it would pay Joel 50 percent of all gross revenue collected from them. Joel’s payment rights under the agreement were in addition to his base salary.

In November 2000, Joel secretly formed “Joel D. Goldstein CPA, P.C.” (Joel’s firm) and supposedly began luring the plaintiff’s clients. According to the complaint, many of these clients had long-standing relationships with the plaintiff and Jerry, and terminated these relationships due to Joel’s enticements. As part of his efforts, Joel allegedly copied the plaintiff’s files relating to particular clients, as well as the plaintiff’s entire customer list, and used the plaintiff’s tax preparation software in his work at his firm.

On December 13, 2000, Joel informed Jerry that he was terminating his employment with the plaintiff. Joel’s last day of employment with the plaintiff was December 22, 2000. Jerry subsequently discovered Joel’s supposed duplicity and has filed a complaint against him. In the complaint, Jerry asserts causes of action for breach of contract, intentional interference with contractual relations, conversion, trespass to chattel, breach of duty of loyalty, breach of fiduciary duty, unjust enrichment and trade secrets. In response, the defendants have filed preliminary objections asserting legal insufficiency, failure to attach a writing, insufficient specificity and inclusion of scandalous and impertinent matter.

DISCUSSION

The plaintiff’s claims for breach of contract and conversion are legally insufficient, and the objections thereto are sustained. The remaining objections are without merit and are overruled.

I. The Plaintiff’s Claims for Intentional Interference with Contractual Relations, Breach of Fiduciary Duty and Unjust Enrichment Are Legally Sufficient, While its Claims for Breach of Contract and Conversion Are Not

Joel first challenges the legal sufficiency of the plaintiff’s claims for breach of contract, intentional interference with contractual relations, conversion, breach of fiduciary duty and unjust enrichment. When a court is presented with preliminary objections asserting legal insufficiency,

“[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). (citations omitted)

For the purposes of reviewing the legal sufficiency of a complaint, “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, 942 (Pa. Super. 2000).

A. Breach of Contract

To establish a claim for breach of contract, a claimant must show “(1) the existence of a contract, including its essential terms, (2) a breach of a duty imposed by the contract and (3) resultant damages.” CoreStates Bank N.A. v. Cutillo, 723 A.2d 1053, 1058 (Pa. Super. 1999). In the instant matter, the plaintiff’s breach of contract claim arises from Joel’s alleged breach of the agreement.

The plaintiff describes the agreement as follows:

“J. Goldstein and Company entered into a verbal employment agreement with Joel Goldstein whereby, in addition to his full-time employment and base salary, Joel Goldstein would endeavor to bring tax and accounting clients to J. Goldstein and Company. J. Goldstein and Company would bill and collect 100 percent of the gross revenue generated from said clients and the [sic] pay to Joel Goldstein 50 percent of said gross revenue.” Complaint at ¶12.

According to the complaint, Joel breached the agreement in the following ways:

“(a) by personally providing tax and accounting services to clients and receiving revenue therefrom, without the knowledge and permission of J. Goldstein and Company;
“(b) by not providing J. Goldstein and Company with 100 percent of the gross revenue generated from these clients (an[d] then being paid 50 percent); and
“(c) by not working full-time for J. Goldstein and Company.” Complaint at ¶27.

Even assuming the complaint’s allegations are true, the plaintiff does not allege a complete claim for breach of contract. The only action demanded of Joel in the agreement is that he solicit clients for the plaintiff. The language of the agreement does not include a contractual prohibition on him soliciting his own clients, retaining fees paid by such clients or working less than full-time. Because there is no assertion that Joel failed to endeavor to solicit clients for the plaintiff, the court cannot conclude that Joel breached the agreement. Thus, the plaintiff cannot sustain a cause of action for breach of contract.

Attempting to bolster its arguments, the plaintiff asserts that its breach of contract claim is valid because, “[u]nder Pennsylvania law, an employee cannot compete with his [sic] employer.” Plaintiff’s memorandum at 6. See also, SHV Coal Inc. v. Continental Grain Co., 376 Pa. Super. 241, 249, 545 A.2d 917, 920-21 (1988) (concluding that the defendant diverted business from employer to competitor during his term of employment), rev ’d on other grounds, 526 Pa. 489, 587 A.2d 702 (1991). An employee’s competition with his or her employer, however, does not give rise to a breach of contract claim. See Spring Steels Inc. v. Molloy, 400 Pa. 354, 162 A.2d 370 (1960) (weighing employee’s competition as a claim for unfair competition); SHV Coal Inc., 376 Pa. Super. 241, 545 A.2d 917 (treating former employer’s claim as breach of fiduciary duty/ duty of loyalty claim). As a result, the complaint does not allege facts to support a breach of contract claim, and the claim must be dismissed.

B. Intentional Interference with Contractual Relations A successful claim for intentional interference with contractual relations must satisfy four elements:

“(1) the existence of a contractual, or prospective contractual relation between the complainant and a third party;
“(2) purposeful action on the part of the defendant, specifically intended to harm the existing relation, or to prevent a prospective relation from occurring;
“(3) the absence of privilege or justification on the part of the defendant; and
“(4) the occasioning of actual legal damage as a result of the defendant’s conduct.” Strickland v. University of Scranton, 700 A.2d 979, 985 (Pa. Super. 1997).

The definition of “privilege” in the context of a claim for intentional interference has proven elusive: rales as to the existence or non-existence of a privilege to act in the manner stated in [Restatement (Second) of Torts] §§766, 766A or 766B.” Ruffing v. 84 Lumber Co., 410 Pa. Super. 459, 468, 600 A.2d 545, 549 (1991) (quoting Adler, Barish, Daniels, Levin and Creskoff v. Epstein, 482 Pa. 416, 433 n.17, 393 A.2d 1175, 1184 n.17 (1978), and Restatement (Second) of Torts §767 cmt. b).

“Unlike other intentional torts such as intentional injury to person or property or defamation, this branch of tort law has not developed a crystallized set of definite

Because of this, Pennsylvania courts have held that “[t]he absence of privilege or justification on the part of the defendant is merely another way of stating that the defendant’s conduct must be improper.” Cloverleaf Development Inc. v. Horizon Financial F.A., 347 Pa. Super. 75, 83, 500 A.2d 163, 167 (quoting Yaindl v. Ingersoll-Rand Co. Standard Pump-Aldrich Division, 281 Pa. Super. 560, 581 n.11, 422 A.2d 611, 622 n.11 (1980)). (quotation marks omitted) See also, Adler, Barish, Daniels, Levin and Creskoff, 482 Pa. at 433 n.17, 393 A.2d at 1184 n.17 (noting that Restatement (Second) of Torts §767 “focuses upon whether conduct is ‘proper,’ rather than ‘privileged’”).

The defendants correctly contend that it is generally not improper for a former employee to solicit a former employer’s clients. Defendants’ memorandum at 3 (citing Spring Steels Inc. v. Molloy, 400 Pa. 354, 162 A.2d 370 (1960)). This, however, does not excuse an employee’s competition with a current employer, which is the situation alleged in the complaint. Complaint at ¶¶17-18, 21-22. The defendants’ assertions of propriety and privilege thus are without merit, and their objections to the plaintiff’s intentional interference claim is overruled.

C. Conversion

Pennsylvania law defines conversion as “the deprivation of another’s right of property in, or use or possession of, a chattel, without the owner’s consent and without lawful justification.” Paves v. Corson, 765 A.2d 1128, 1134 (Pa. Super. 2000). The plaintiff’s conversion claim is based on Joel’s possession of funds he received from clients outside of his work with the plaintiff, allegedly in violation of the agreement. Because the plaintiff has not pled a breach of the agreement, however, it cannot establish that the plaintiff had any right to the funds in question. Accordingly, the plaintiff’s claim for conversion must be dismissed.

D. Breach of Fiduciary Duty

Under Pennsylvania law, “an agent is subject to a duty not to compete with the principal concerning [the] subject matter of the agency” unless otherwise agreed. East & West Coast Service Corp. v. Papahagis, 344 Pa. 183, 186, 25 A.2d 339, 340 (1942) (quoting Restatement of Agency §393). See also, SHV Coal Inc. v. Continental Grain Co., 376 Pa. Super. 241, 249, 545 A.2d 917, 920-21 (1988) (liability attached to employee who diverted business from employer to competitor during his term of employment), rev’d on other grounds, 526 Pa. 489, 587 A.2d 702 (1991); Levy and Surrick v. Surrick, 362 Pa. Super. 510, 513-14, 524 A.2d 993, 994 (1987) (quoting Restatement (Second) of Agency §393 for the proposition that an agent “is subject to a duty not to compete with the principal concerning the subject matter of his agency”). This relationship between agent and principal has been described as being fiduciary in nature. Onorato v. Wissahickon Park Inc., 430 Pa. 416, 423, 244 A.2d 22, 26 (1968) (“to permit [an agent] to be placed in a position where he inevitably must be subjected to the demands of conflicting duties, is not only harmful to the business in which he is engaged, but also against sound morals and public policy”).

In his memorandum, Joel argues that no fiduciary relationship arises from his ownership of the plaintiff’s stock. Even if this is true, however, his employment and agency relationship with the plaintiff gives rise to a separate and distinct fiduciary duty that he is alleged to have breached. The objections to the plaintiff’s breach of fiduciary duty claim must therefore be overruled.

E. Unjust Enrichment

In Count VII, the plaintiff asserts a claim against Joel for unjust enrichment based on Joel’s alleged use of the plaintiff’s accounting software in his new enterprise. The elements of a claim for unjust enrichment are “benefits conferred on defendant by plaintiff, appreciation of such benefits by defendant, and acceptance and retention of such benefits under such circumstances that it would be inequitable for defendant to retain the benefit without payment of value.” Wiernik v. PHH U.S. Mortgage Corp., 736 A.2d 616, 622 (Pa. Super. 1999), app. denied, 561 Pa. 700, 751 A.2d 193 (2000). (quotation marks omitted) See also, General Casmir Pulaski Bldg. and Loan Association v. Provident Trust Co. of Philadelphia, 338 Pa. 198, 202, 12 A.2d 336, 338 (1940) (“[a] person who has been unjustly enriched at the expense of another is required to make restitution to the other”). A contractual relationship is not required for an unjust enrichment claim. Linnet v. Hitchcock, 324 Pa. Super. 209, 215 n.3, 471 A.2d 537, 540 n.3 (1984). Although Joel does not challenge the allegations supporting the plaintiff’s unjust enrichment claim, he contends that the complaint does not set forth the damages incurred with adequate specificity.

Special damages, such as damages for unjust enrichment, must be specifically stated. Pa.R.C.P. 1019(f). See also, Harkins v. Zamichieli, 266 Pa. Super. 401, 408, 405 A.2d 495, 499 (1979) (implying that a failure to plead damages for an unjust enrichment claim specifically would be grounds for objection). Generally, damages are pled with adequate specificity where they “give the general details of the services rendered, the results accomplished, and the valuation of the total services.” Goodrich-Amram 2d §1019(f):9. A request for a more specific pleading of damages “will be denied where the details of items of special damages, pleaded generally, are readily obtainable by discovery.” Com monwealth ex rel. Milk Marketing Board. v. Sunnybrook Dairies Inc., 29 Pa. Commw. 210, 214, 370 A.2d 765, 768 (1977). See also, Foster v. Health Market Inc., 146 Pa. Commw. 156, 161-62, 604 A.2d 1198, 1201 (1992) (overruling objection asserting insufficient specificity where amount of damages could be obtained through discovery).

While the complaint does not set forth the exact amount of damages incurred as a result of Joel’s alleged misconduct, the plaintiff maintains that “the information required to calculate the damages ... are in the exclusive control of the defendant Joel Goldstein.” Plaintiff’s memorandum at 11. This information, the plaintiff argues further, “cannot be ascertained prior to discovery. . . Id. On this basis, the court must conclude that the request for damages is adequately specific for the time being.

II. The Complaint Is Sufficiently Specific

Pennsylvania is a fact-pleading jurisdiction that requires a plaintiff to “identify the material issues in the case by succinctly summarizing the material facts underlying the claim.” Pontiere v. James Dinert Inc., 426 Pa. Super. 576,580 n.1, 627 A.2d 1204, 1206 n.1 (1993) (citing Sevin v. Kelshaw, 417 Pa. Super. 1, 611 A.2d 1232 (1992)).

To determine if a pleading sets forth facts with adequate specificity, a court must ascertain whether the allegations are “sufficiently specific so as to enable [a] defendant to prepare [its] defense.” Smith v. Wagner, 403 Pa. Super. 316, 319, 588 A.2d 1308, 1310 (1991). See also, In re Barnes Foundation, 443 Pa. Super. 369, 381, 661 A.2d 889, 895 (1995) (“ ‘[a pleading] should ... fully summariz[e] the material facts,’ ... and ‘[a]s a minimum, a pleader must set forth concisely the facts upon which [a] cause of action is based.’ ”).

Joel claims that paragraph nine of the complaint is not sufficiently specific because it does not include details as to “what manner or manners the aforesaid aspects of accounting, as practiced by plaintiff, distinguish them from any other commonly practiced aspects of accounting . . . .” Defendants’ memorandum at 6. The court fails to see how this is relevant to the defendants’ defense preparations. Because allegations in the complaint allow the defendants to prepare a defense to the plaintiff’s claims, the complaint is sufficiently specific, and the objections asserting otherwise are overruled.

TTT. No Part of the Complaint Need Be Stricken for Being Scandalous and Impertinent

Under Pennsylvania Rule of Civil Procedure 1028(a)(2), a party may object to a pleading’s inclusion of “scandalous or impertinent matter.” “Scandalous or impertinent matter” is defined as “allegations . . . immaterial and inappropriate to the proof of the cause of action.” Common Cause/Pennsylvania v. Commonwealth, 710 A.2d 108, 115 (Pa. Commw. 1998) (citing Department of Environmental Resources v. Peggs Run Coal Co., 55 Pa. Commw. 312, 423 A.2d 765 (1980)). Pennsylvania courts have been restrained in striking scandalous and impertinent pleadings, however:

“[Tjhere is some authority for the proposition that, even if the pleading of damages was impertinent matter, that matter need not be stricken but may be treated as ‘mere surplusage’ and ignored____Furthermore, the right of a court to strike impertinent matter should be sparingly exercised and only when a party can affirmatively show prejudice.” Commonwealth, DER v. Hartford Accident and Indemnity Co., 40 Pa. Commw. 133, 137-38, 396 A.2d 885, 888 (1979). (citations omitted)

The defendants argue that the portions of the complaint alleging stock ownership by Joel and Yager are irrelevant and must be stricken. While the court is unsure of Yager’s relevance, there is no evidence that these allegations prejudice the defendants in any way. As a result, the objection is overruled.

CONCLUSION

The plaintiff’s breach of contract and conversion claims are legally insufficient, and the objections thereto have been sustained. The remaining objections are without merit and are overruled.

ORDER

And now, June 14, 2001, upon consideration of the preliminary objections of defendants Joel D. Goldstein CPA, P.C., Joel D. Goldstein as president of Joel D. Goldstein CPA, P.C. and Joel D. Goldstein, individually, to the complaint of J. Goldstein and Company P.C., and the plaintiff’s response thereto, and in accordance with the memorandum opinion being filed contemporaneously with this order, it is hereby ordered and decreed as follows:

(1) The preliminary objections asserting that the plaintiff’s claims for breach of contract and conversion are legally insufficient are sustained;

(2) The remaining preliminary objections are overruled; and

(3) The plaintiff is directed to file an amended complaint within 20 days of the date of entry of this order.

      . The complaint also asserts that the plaintiff issued one share of stock to Thomas Yager CPA, another accounting associate with the plaintiff, on January 1,1995.

      . Jerry’s claims for intentional interference with contractual relations and trade secrets are asserted against all three defendants. The remaining claims are asserted against Joel as an individual only.

      . These sections address intentional interference with performance of contract by a third party, intentional interference with another’s performance with his own contract and intentional interference with prospective contractual relations.

      . To determine whether a defendant’s conduct is improper, a court must weigh the following seven factors:
      “(a) the nature of the actor’s conduct,
      “(b) the actor’s motive,
      “(c) the interests of the other with which the actor’s conduct interferes,
      “(d) the interests sought to be advanced by the actor,
      “(e) the social interests in protecting the freedom of action of the actor and the contractual interests of the other,
      “(f) the proximity or remoteness of the actor’s conduct to the interference and
      “(g) the relations between the parties.” Small v. Juniata College, 452 Pa. Super. 410, 418, 682 A.2d 350, 354 (1996) (quoting Restatement (Second) of Torts §767).

      . Because the plaintiff’s fiduciary duty claim is not based on Joel’s stock ownership, there is no need to attach a copy of the stock certificate to the complaint. See Pa.R.C.P. 1019(f) (“[wjhen any claim or defense is based upon a writing, the pleader shall attach copy of the writing”). Cf. DeGenova v. Ansel, 382 Pa. Super. 213, 220, 555 A.2d 147, 150 (1988) (where plaintiff’s claims were brought in tort, he had no obligation to attach a copy of his insurance agreement to his complaint); PennDOT v. Bethlehem Steel Corp., 33 Pa. Commw. 1, 15, 380 A.2d 1308, 1315 (1977) (“Pennsylvania Rules of Civil Procedure only requires a document to be attached when it forms the basis for the claim”).

      . Special damages are “those which are not the usual and ordinary consequences of the wrong done, but which depend upon special circumstances.” Parsons Trading Co. v. Dohan, 312 Pa. 464, 468, 167 A. 310, 312(1933).

      . Paragraph nine of the complaint states that Jerry taught Joel about his proprietary methods of “bank reconciliation, payroll tax preparation, corporate and personal tax return preparation, organizing and setting up clients’ files, indexing work papers, analyzing of general ledger accounts, preparing financial statements, pension plans, tax planning for year-end cash basis taxpayers, client scheduling and client billing.”

      . To the extent that the defendants are seeking details as to the basis for the plaintiff’s trade secrets claim, the court notes that this claim appears to be based on Joel’s alleged copying of the plaintiff’s customer list. See complaint at ¶¶62-65. Even if this were not the case, however, paragraph nine is sufficiently detailed to allow the defendants to prepare a defense.