author: WETTICK, J.,

text:
    Continental Ins. Co. v. Schneider Inc.

      C.P. of Allegheny County,
    no. GD92-9392.

      Joseph S.D. Christoff II, for plaintiff.

      Anthony M. Mariani, for defendants Schneider.

      Manning J. O’Connor II, for defendants Vanadium.
    April 15, 1999
   WETTICK, J.,

The subject of this opinion and order of court is a motion for summary judgment filed on behalf of defendants Vanadium Enterprises Corporation, S.E. Technologies Inc., S.S.I. Services Inc., Jones Krall Inc. and Construction Rental and Supply Inc. (collectively referred to as Vanadium). The issue raised through Vanadium’s motion is whether a general creditor of a defunct entity may pursue its claim based on successor liability against a new entity that purchased the ongoing business of the defunct entity from a secured creditor of the defunct entity.

From 1984 through 1990, Continental Insurance Company was the insurance carrier which provided general liability, automobile and workers’ compensation insurance for as many as 40 companies or divisions which were owned and controlled by Frank S. Schneider (Schneider Companies). Continental continues to pay claims and defend suits for occurrences which took place during the period of the insurance coverage. Under the agreements between the Schneider Companies and Continental, the Schneider Companies are obligated to pay additional premiums, adjusted retrospectively, based on losses incurred and claims paid. Continental contends that it is currently owed more than $12 million in retrospective premiums.

During the middle and latter part of the 1980s, the Schneider Companies began to suffer serious financial losses. As of December 31, 1987, a significant number of the 40 Schneider Companies had concluded all business activities except for the completion of existing projects. As of early 1989, the Schneider Companies owed more than $35 million to the three major Pittsburgh banks: Pittsburgh National Bank (now PNC Bank), Mellon Bank, and Equitable Bank (now National City). The banks held blanket security interests in virtually all of the assets of the Schneider Companies. They also had mortgages in various parcels of real estate.

Even though the banks had the right to immediately dispose of collateral of the Schneider Companies, on April 3, 1989, the banks and Schneider Companies executed a standstill agreement. The agreement maintained the banks’ lien positions while permitting the Schneider Companies to operate until an overall strategy was developed for an appropriate disposition of the collateral. During this period, some of the Schneider Companies’ entities continued to do business under the controls imposed by the banks; some ceased operations; and others were sold.

Under the facts most favorable to Continental, as of April 1990, Schneider Consulting Engineers, S.S.I. Services Inc., Jones Krall Inc., and Construction Rental and Supply Inc. were the only Schneider Companies which were conducting any business and making any money for the Schneider Companies. After May 1990, none of the remaining Schneider Companies was anything other than an empty shell.

In early 1990, Schneider voluntarily delivered the non-real estate assets of these remaining Schneider Companies to the banks. The banks then sold these assets to a corporation (Vanadium) owned and operated by the persons who had been managing the ongoing Schneider businesses.

The purchase price for the assets was less than $15 million. The banks were owed approximately $35 million. Vanadium did not assume any of the Schneider Companies’ obligations to the banks. Thus, the banks will never recover most of the debt.

The purchase agreements between the banks and Vanadium provides that Vanadium is not assuming any obligations or liabilities except those which it agreed to assume. The Continental debt is not a liability that it agreed to assume.

This was a prearranged transaction. There was not any interruption in the business operations of the ongoing businesses. They were ongoing businesses operated by the Schneider Companies prior to the banks’ sale of the assets of the Schneider Companies to Vanadium. Immediately following their sale, Vanadium operated the same businesses at the same locations with the same employees. These ongoing businesses provide services. Consequently, these businesses would have had limited value without a continuity of management, employees, locations and customers.

There is a factual dispute as to whether there is continuity of ownership and control. Prior to the consensual foreclosure and sale, Frank S. Schneider was the sole shareholder and chief operating officer of the Schneider Companies. Frank S. Schneider is not a shareholder of the corporation (Vanadium) that acquired the assets from the banks.

Continental contends that it can establish that Frank S. Schneider has continued to participate in the operations of the businesses. Furthermore, he should be characterized as an owner because of the role that he and his son played in the management group’s acquisition of the assets of the ongoing businesses.

It is Continental’s position that Frank S. Schneider and his wife loaned approximately $2 million to their son (a straw party) that was transferred to Capital Diverse Venture Corporation, a corporation nominally owned by the son. Capital furnished the $2 million to Vanadium in order for Vanadium to purchase the assets from the banks. Through this investment, the son acquired preferred stock in Vanadium that could be converted into common stock. When converted, the son would own 70 percent of the Vanadium stock. Furthermore, the $2 million loan from Mr. and Mrs. Schneider to their son is secured by the common stock of Capital. This evidence, according to Continental, will support a finding that the new entity was owned and controlled by the same person who owned and controlled the old entity.

Continental contends that it may pursue a claim for successor liability under established Pennsylvania case law governing the liability of a successor company for the commercial debts of a company that previously operated the same business. The Pennsylvania case law upon which Continental relies refers to the situation in which one company sells or transfers all of its assets to another company. In that situation, the purchasing company is not responsible for the debts and liabilities of the selling company simply because it acquired the seller’s property. In order to hold the acquiring company responsible for the seller’s liabilities, one of the following must be established: “(1) the purchaser expressly or impliedly agreed to assume the obligations; (2) the transaction amounted to a consolidation or merger; (3) the purchasing corporation was merely a continuation of the selling corporation; (4) the transaction was fraudulently entered into to escape liability; and (5) the transfer was without adequate consideration and no provisions were made for the creditors of the selling corporation.” See Hill v. Trailmobile Inc., 412 Pa. Super. 320, 326, 603 A.2d 602, 605 (1992); Simmers v. American Cyanamid Corp., 394 Pa. Super. 464, 482, 576 A.2d 376, 386 (1990).

Continental contends that it is entitled to pursue a claim for successor liability under several of these exceptions to the general rule against successor liability. It contends that Vanadium is merely a continuation of Schneider (exception 3), that the transaction was fraudulently entered into so that Vanadium could escape liability for debts of the debtor corporation (exception 4), and that the transfer was without adequate consideration with no provisions made for creditors of the selling corporation (exception 5).

Exception 5 — transfers for inadequate consideration without provision being made for creditors of the selling corporation — is inapplicable. The purpose of this exception is to prevent parties from entering into transactions that would deprive the general creditors of assets that may otherwise have been available to these general creditors. In this case, the money which the Schneider Companies owed to its secured creditors was far in excess of the value of the assets of the Schneider Companies. The law does not impose upon a secured creditor the obligation to make assets subject to a security interest available to the general creditors where the secured creditor’s debt cannot be satisfied.

Also, Continental cannot establish that the transfer was without adequate consideration. Under the Uniform Commercial Code (13 Pa.C.S. §9503(a)), the banks were entitled to take possession of the collateral without judicial process. Under the Uniform Commercial Code (13 Pa.C.S. §9504), a secured party is required only to dispose of the collateral in a commercially reasonable manner; it may dispose of the collateral by public or private sale. Continental does not cite evidence that would support a finding that the banks failed to proceed in a commercially reasonable manner. In this case in which the banks’ obligations would never be satisfied, the banks had every incentive to obtain the best price for the Schneider assets.

Continental may not pursue a successor liability claim under the fourth exception — the transaction was fraudulently entered into to escape liability. Continental correctly states that the banks and Vanadium structured the transaction in a fashion that was designed to prevent general creditors of the Schneider Companies from bringing claims against Vanadium. The claims of these general creditors exceeded the amount that the banks could obtain from the sale of the assets of the Schneider Companies. Consequently, unless the transaction was structured to prevent general creditors of the Schneider Companies from bringing claims against Vanadium by virtue of its acquisition of the assets of the Schneider Companies, Vanadium would not have purchased the assets.

This fourth exception covers only a transaction that was “fraudulently entered into.” Under established Pennsylvania creditor law, a secured creditor is entitled to structure the sale of the assets in which it holds a security interest in a manner that will maximize the sales price in the situation in which the value of the assets is significantly less than the amount of the debt which the assets secure. Fraud cannot be established without a showing that the secured party has structured the transaction to provide protections against claims of general creditors that may not be necessary to protect the secured party’s interests.

I next consider the third exception — the purchasing corporation was merely a continuation of the selling corporation.

If Vanadium had obtained the assets directly from the Schneider Companies, this exception would apply (assuming that Continental can establish continuity of ownership and control). However, in this case, the banks— rather than Schneider — were the selling entities. Obviously, the purchasing corporation is not a continuation of the selling banks. Consequently, if I literally read this exception, it is inapplicable.

However, the successor liability rule evolved in response to successor liability claims raised on behalf of a creditor of a selling corporation. The parties have not cited and I am not aware of any Pennsylvania appellate court cases in which the entity challenging a successor corporation claim acquired the assets from a secured creditor. Consequently, the Pennsylvania appellate courts have never considered whether the continuation exception should apply where the buying corporation acquired the assets from a secured creditor of the selling corporation rather than from the selling corporation.

If the Schneider Companies had transferred their assets to another corporation which Mr. Schneider owned and controlled, successor liability would attach because the law will not permit a business entity to unilaterally discharge its debts by forming a new corporation. Different considerations come into play where the new corporate entity acquired the assets from a secured creditor of the defunct entity. The law creates a sequence of priorities that entitles lienholders to reimbursement from a debtor’s assets before general creditors may be paid. If the assets subject to security interests or other liens are insufficient to satisfy the debtor’s obligations to its lienholders, the law places the interests of the lienholders ahead of the interests of the general creditors of a defunct corporation. Exceptions to the general rule against successor liability that would protect the interests of general creditors at the expense of a secured creditor would be inconsistent with the principles of creditor law which protect lienholders vis-a-vis general creditors.

I recognize that Continental is not claiming that it is entitled to liens on the assets which Vanadium acquired through its purchase agreements with the banks. I also recognize that the Uniform Commercial Code does not contain any language discussing the impact of a secured creditor’s sale of the debtor’s assets on the ability of a general creditor of the debtor to pursue successor liability claims against the purchaser. However, any case law based on the common law that permits successor liability where there is a good faith sale is inconsistent with the statutory scheme of the Uniform Commercial Code for the regulation of security interests in personal property which protects a secured party vis-a-vis other creditors.

Creditors with security interests or other liens covering the assets of ongoing businesses that cannot pay their debts have three options: (1) they can sell the assets to entities that do not intend to continue to operate the ongoing businesses; (2) they can sell the assets to an entity with different ownership and management that will continue to operate the ongoing businesses; or (3) they can sell the assets to a new entity created for the purpose of continuing the business operations of the debtor entity that is composed of the persons who owned and operated the debtor entity. Where, as in the present case, the ongoing business is a service provider, the first option will seldom permit the secured creditor to obtain the best price for the assets. In many instances, the managers and owners of an existing business are the most optimistic about the business’s future. Furthermore, although the corporate entity is insolvent, these individuals may have the ability to raise capital. Consequently, in many instances a sale to a new corporation created by management of the debtor corporation will produce the best price for the assets. In the absence of any competing public policies, the case law governing successor liability should not interfere with the interests of a secured creditor in selling the secured assets to the buyer who will pay the most.

In deciding Vanadium’s motion for summary judgment, I will assume that Continental can establish the following: (1) the transaction resulted in a continuation of the viable Schneider enterprises — there was continuity of management, personnel, physical location, assets and general business operations; (2) although this is disputed, I assume that there was a continuity of ownership; (3) the Schneider Companies ceased business operations as of the date that the assets were transferred to the bank; (4) the Vanadium defendants assumed only those obligations of the Schneider Companies necessary for the uninterrupted continuation of the normal business operations of the Schneider Companies.

Also, I accept Continental’s characterization of the transaction:

“The true intent of the transaction between the Vanadium defendants, the Schneider group and the banks was to insure that the banks received the maximum payment on the debts owed to them... and allow the only viable Schneider entities to start anew with a clean slate under the Vanadium enterprise. This restructuring was to be done so as to avoid the debts of other creditors, including Continental. As the report of Professor Warren makes clear, the nature of the transaction between the Schneider Companies, the banks and the Vanadium defendants ‘accomplish, in substance, the continuation of the Schneider enterprise for a new corporate group under modified corporate names and controlled by Schneider and his affiliates.’ (Warren report p. 4, exhibit 10.)” Brief in opposition to the Vanadium defendants’ motion for summary judgment at 26-27. (citation omitted)

Continental contends that its position that the continuation exception applies where the new company purchases the assets from a secured creditor is supported by Bostick v. Schall’s Brakes and Repairs Inc., 1999 Pa. Super. 23, 1999 WL 38978 (Pa. Super. Feb. 1, 1999). In Bostick, the plaintiffs filed wrongful death and survival actions against Schall’s Sales and Services Inc. (Schall 1). While post-trial motions that Schall 1 filed following a jury verdict in the plaintiffs’ favor were pending, Schall 1 filed for Chapter 7 bankruptcy and the bankruptcy court issued an order discharging Schall l’s debt. On the basis of this order, the trial court discontinued plaintiffs’ lawsuits against Schall 1.

After the Schall 1 verdict and prior to the court’s discontinuance of the Schall 1 actions, the plaintiffs filed a lawsuit against Schall Brakes and Repairs Inc. (Schall 2). In their complaint, they alleged that Schall 1 fraudulently transferred its assets to Schall 2 prior to its declaration of bankruptcy and that Schall 2 was the alter ego/ successor corporation of Schall 1 and, thus, liable for its debts.

The trial court granted Schall 2’s motion for summary judgment in the Schall 2 lawsuit on the ground that the plaintiffs failed to appeal the order discontinuing the Schall 1 cases and a court cannot revive a claim that has been discharged in bankruptcy. The Superior Court reversed. It cited the exceptions to the successor liability rule (1) where the purchasing corporation is merely a continuation of the selling corporation and (2) where the transaction is entered into to escape the selling corporation’s liability.

Bostick can be readily distinguished from the present case because in Bostick, the plaintiffs alleged that Schall 1 fraudulently transferred its assets to Schall 2 prior to its declaration of bankruptcy. Thus, this is not a case in which Schall 2 purchased the assets from the trustee in bankruptcy. Consequently, this case is governed by the case law involving a transfer directly from the “selling corporation” to the “buying corporation.”

The Bostick opinion is broadly written. The opinion relies on Chicago Truck Drivers, Helpers and Warehouse Workers Union Pension Fund v. Tasemkin Inc., 59 F.3d 48 (7th Cir. 1995), which involved the following fact situation: Old Tasemkin was insolvent; it owed more than $300,000 to a pension fund. The fund was unable to recover in Chapter 7 liquidation proceedings because Old Tasemkin had entered into a debt compromise agreement with its secured lender; the secured lender turned the interest over to New Tasemkin; and New Tasemkin foreclosed on the collateral.

New Tasemkin operated the same business, employed the same staff, relied on the same suppliers, and was owned by members of the same family that owned Old Tasemkin. The pension fund sued New Tasemkin under the theory of successor liability.

The district judge dismissed the lawsuit on the ground that a ruling allowing the fund which lost out in bankruptcy court to proceed against New Tasemkin on a successor liability theory would frustrate the primacy of the Bankruptcy Code. The court of appeals rejected this argument, stating that it is not clear why an intervening bankruptcy proceeding should have a per se preclusive effect on a creditor’s claim based on successor liability.

In this case, however, the Seventh Circuit did not apply the standard exceptions to the general rule against successor liability. Instead, it applied a broader successor liability standard developed to protect federal rights or to effectuate federal policy which allows lawsuits against “even a genuinely distinct purchaser of a business” if (1) the successor had notice of the claim before the acquisition, and (2) there was substantial continuity in the operation of the business before and after the sale. Id. at 49.

Even assuming that the Chicago Truck Drivers opinion is part of Pennsylvania case law as a result of the Bostick opinion’s reliance on this Seventh Circuit ruling, this opinion does not offer any guidance for the present case. The present case does not involve any federal or state public policies which compete with the lien priority scheme of state law. Consequently, the Seventh Circuit’s use of broad successor liability standards to protect federal rights and to effect federal policy has no applicability to the present case.

In its brief, Continental also cites several other federal court rulings that, according to Continental, support its position. With one exception, they do not support its position.

Today’s Child Learning Center Inc. v. United States, 1998-1 Stand. Fed. Tax Rep. (CCH) ¶50,252 at 83, 508 (E.D. Pa. 1998), is inapplicable because in that case there was no intervening creditor.

In Kaiser Foundation Health Plan of the Mid-Atlantic States v. Clary & Moore P.C., 123 F.3d 201 (4th Cir. 1997), the plaintiffs sued Clary & Moore (Law Firm 2) to obtain payment of a judgment obtained against Clary, Lawrence (Law Firm 1). The court found successor liability based on a finding that Law Firm 2 was a mere continuation of Law Firm 1. While Law Firm 2 purchased assets of Law Firm 1 at a foreclosure sale, Law Firm 1 also directly transferred other assets to Law Firm 2 and the court found that various transactions between the law firms were not arm’s length transactions for consideration. Furthermore, it was significant to the court that the amount which Law Firm 2 paid was just enough to cover the outstanding debt of the secured creditor while not leaving anything for the plaintiff’s judgment. Consequently, this case comes within the exceptions to the general rule against successor liability governing transactions fraudulently entered into to escape liability, transfers without adequate consideration where no provision is made for creditors of the transferring corporation and transactions directly between the debtor corporation and the new corporation.

In Fiber-Lite v. Molded Acoustical Products of Easton Inc., supra, 186 B.R. 603, the plaintiffs sued Molded Acoustical Products of Easton Inc. to obtain payment of money that Molded Acoustical Products of Indiana Inc. owed the plaintiff. The plaintiff contended that Easton was merely a continuation of Indiana and therefore, liable for its obligations and debts as Indiana’s successor.

Easton had purchased Indiana’s assets from a bank at a foreclosure sale. In its initial ruling, the court entered a judgment in Easton’s favor. It ruled that Easton took Indiana’s assets free and clear of the indebtedness due to the plaintiff:

“We further noted that Fiber-Lite did not offer any proof that Easton did not act in good faith or that the bank colluded with Easton or otherwise acted in a commercially unreasonable manner. In the absence of such proof, we found that we had no choice but to believe that Easton was the most commercially reasonable buyer.” Id. at 609.

Upon reconsideration, the court ruled that Easton could be responsible for Indiana’s debts because the evidence showed that the bank had simply transferred Indiana’s assets to Easton in exchange for Easton’s agreement to pay Indiana’s outstanding obligations to the bank. Consequently, the court concluded, “we find section 9-504 not to be applicable to the facts of this case.” Id. at 610.

In Ross Controls Inc. v. United States Department of the Treasury, 160 B.R. 527 (E.D. Pa. 1993), the owner of the old company closed the old company’s doors and five days later began operating the same business under a different name at a new location. The only involvement of a lienholder occurred months later when the IRS auctioned certain items owned by the old company and “purchased” by the new company for $112,000 of which only $1,000 was actually paid. Consequently, this case is governed by the case law imposing successor liability where a debtor seeks to unilaterally discharge its debts by conducting its business under a different name and the transfer was without adequate consideration.

Glynwed Inc. v. Plastimatic Inc., 869 F. Supp. 265 (D.N.J. 1994), does support Continental’s position. The case involved commercial debt; the new corporation acquired the assets pursuant to a valid foreclosure sale under section 9-504 of the Uniform Commercial Code. The secured creditor apparently obtained the best possible price for the assets. The court framed the issue as follows: Whether a bank’s sale of collateral under a secured agreement pursuant to section 9-504 permits the purchaser not only to take the assets free of any security interest in the collateral but also precludes any claim of successor liability being asserted against the purchasing corporation. The court concluded that:

“Despite Danko/Plastock’s predictions of the gloom and doom that will descend upon the area of commercial law if the court permits Glynwed to proceed on its theory, nothing in the UCC supports Danko/Plastock’s argument that the 9-504 sale provides a safe harbor against successor liability claims. Glynwed is not looking to enforce a lien on the assets that Danko/Plastock purchased at the foreclosure sale, but is asserting a claim of successor liability. Contrary to Danko/Plastock’s assertions, this is a distinction with a difference.” Id. at 273-74.

I do not find this opinion to be persuasive. The court never offers an explanation for its decision to extend principles of successor liability to the situation in which the seller is a secured creditor rather than the party owing the debt.

Unlike the situation before this court, almost all of the case law governing successor liability for the claims of general creditors of the debtor entity involves an entity with new ownership which purchased the assets of the debtor entity from a secured creditor. In cases in which there is only a continuity of the enterprise (as opposed to a continuity of ownership), the courts hold that successor liability will not apply without a showing of inadequate consideration and the absence of good faith. See Ed Peters Jewelry Co. v. C&J Jewelry Co. Inc., 124 F.3d 252 (1st Cir. 1997); Gallenberg Equipment Inc. v. Agromatic International Inc., 10 F. Supp.2d 1050 (E.D. Wise. 1998); Academy of IRM v. LVI Environmental Services Inc., 687 A.2d 669 (Md. 1997); G.P. Publications Inc. v. Quebecor Printing-St. Paul Inc., 481 S.E.2d 674 (N.C. Ct. App. 1997); Welco Industries Inc. v. Applied Companies, 617 N.E.2d 1129 (Ohio 1993); and Uni-Com Northwest Ltd. v. Argus Publishing Co., 737 P.2d 304 (Wash. Ct. App. 1987).

In summary, the case law involves either rulings that do not apply the continuity exception to successor liability where there is only a continuity of the enterprise or rulings applying the continuity exception where an entity seeks to discharge its debts simply by changing the name of the shell in which it conducts its business operations. Neither line of cases answers the question of whether the continuity exception applies where a new entity with common ownership and control purchases the assets of the debtor entity from a secured debtor. In this case of first impression, I am ruling that the continuity exception does not apply because successor liability would be inconsistent with legislative public policy giving preference to the interests of secured creditors over the interests of general creditors.

ORDER

On April 15, 1999, it is hereby ordered that the motion for summary judgment filed on behalf of Vanadium Enterprises Corporation, S.E. Technologies Inc., S.S.I. Services Inc., Jones Krall Inc., and Construction Rental and Supply Inc. is granted, and plaintiff’s complaint is dismissed as to these defendants.

Status conference will be held on April 29, 1999 at 2 p.m. o’clock.

      . In this opinion, I am using the term “general creditor” to refer to any unsecured creditor whose claims are not part of any public policy exception to the general rule against successor liability. See footnote 3 of this opinion; also see discussion at pages 432-33 of this opinion.

      . While Vanadium denies that Mr. Schneider exercises any control over its operations, for purposes of its motion for summary judgment, I must assume that Continental can establish common ownership and control.

      . Pennsylvania also has a product line exception to successor liability which provides that when one corporation acquires all or substantially all of the manufacturing assets of another corporation, and undertakes essentially the same manufacturing operations as the selling corporation, the purchasing corporation is strictly liable for injuries caused by defects in units of the same product line, even if previously manufactured or distributed by the selling corporation or its predecessor. Hill v. Trailmobile Inc., supra, 412 Pa. Super, at 327, 603 A.2d at 606; Simmers v. American Cyanamid Corp., 394 Pa. Super, at 482, 576 A.2d at 386; Dawejko v. Jorgensen Steel Co., 290 Pa. Super. 15, 23, 434 A.2d 106, 110 (1981).

      . The concepts of a de facto merger (exception 2) and continuation are interrelated as discussed by plaintiff in its brief in opposition to the Vanadium defendants’ motion for summary judgment at 27.

      . Under 13 Pa.C.S. §9503(a), a secured party may proceed without judicial process if this can be done without breach of the peace. If the security agreement so provides, the secured party may require the debtor to assemble the collateral and to make it available to the secured party. Consequently, the code provides for a consensual foreclosure.

      . For example, Continental might be able to establish fraud in the following instances: (1) if the purchase agreement for the assets had provided for Vanadium to make an immediate payment of $5 million to the banks and to make subsequent payments of $30 million in equal monthly installments over the next five years (see e.g., Fiber-Lite Corporation v. Molded Acoustical Products of Easton Inc., 186 B.R. 603 (E.D. Pa. 1994) or (2) if the banks had been paid cash of $33 million for the Schneider assets (see e.g., Kaiser Foundation Health Plan of the Mid-Atlantic States v. Clary and Moore P.C., 23 F.3d 201 (4th Cir. 1997)).

      . Also, public policy favors the continuation of employment and other economic benefits to a community that result from the continuation of a business.

      . The discharge exceeded the scope of the bankruptcy court’s authority. Partnerships and corporations may not discharge their debts in a liquidation proceeding under Chapter 7. See National Labor Relations Board v. Better Building Supply Corp., 837 F.2d 377, 378 (9th Cir. 1988); Bostick, supra, 1999 WL 38980 at *3.

      . In the following cases, the Court of Appeals for the Seventh Circuit has ruled that successor liability may apply against even a genuinely distinct purchaser where the creditor’s claims are based on a violation of federal rights: Equal Employment Opportunity Commission v. G-K-G Inc., 39 F.3d 740 (7th Cir. 1994) (suit brought under the Age Discrimination in Employment Act); Upholsters’ International Union Pension Fund v. Artistic Furniture of Pontiac, 920 F.2d 1323 (7th Cir. 1990) (recovery of delinquent pension fund contributions governed by congressional pension legislation); Wheeler v. Snyder Buick Inc., 794 F.2d 1228 (7th Cir. 1986) (title VII violation); and EEOC v. Vuciteck, 842 F.2d 936 (7th Cir. 1988) (Pregnancy Discrimination Act).


source: Caselaw Access Project

author: SOLOMON, J.,

license: Public Domain

text:
    Commonwealth v. Lilley

      C.P. of Fayette County,
    no. 87 of 1997.

      Jack Heneks, assistant district attorney, for the Commonwealth.

      Kirk Sohonage, for defendant.
    November 9, 1998
   SOLOMON, J.,

Following a bench trial, the appellant, Bruce Allen Lilley, was found guilty of rape, 18 Pa.C.S. §3124; involuntary deviate sexual intercourse, 18 Pa.C.S. §3123; aggravated indecent assault, 18 Pa.C.S.§3126; statutory sexual assault, 18Pa.C.S. §3122.1; and corruption of minors, 18Pa.C.S. §6301. After hearing, at the time of sentence, the court found that the defendant was a sexually violent predator under Megan’s Law, 42 Pa.C.S. §9793, and the defendant was sentenced to serve a period of incarceration of six years to life.

A motion for reconsideration of sentence was filed with this court and was denied. Thereafter, the appellant filed an appeal from the judgment of sentence to the Superior Court of Pennsylvania. This opinion is in support of the appellant’s conviction.

STATEMENT OF THE CASE

On November 16, 1996, Doris Lilley, the wife of the defendant, Bruce Lilley, discovered her 7-year-old daughter, Anita Miller, and the defendant in the bathroom. Anita was lying on her back on the bathroom floor with her pants and underpants down around her ankles, and the defendant, next to her also with his pants down, was masturbating and ejaculating onto the bathroom carpet. (N.T., pp. 26-28.) The defendant admitted to his wife that it had happened several times before. (N.T., p. 29.)

The defendant then admitted himself to the hospital and on November 20,1996, Troopers Jeffrey P. Cermak and Shawn Jones of the Pennsylvania State Police went to Lakewood Psychiatric Hospital to speak with the defendant. (N.T., pp. 40-42.) As Trooper Cermak introduced himself to the defendant, the defendant stated that “what I did was wrong” and claimed that it was “the first time I ever did this.” (N.T., pp. 42-43.) Trooper Cermak then advised the defendant of his Miranda rights, and the defendant knowingly and voluntarily waived his rights. (N.T., pp. 43-45.) The defendant then admitted that he had sexually assaulted the victim “more than 20 times,” and that he had “penetrate[d] her butt more than three times.” (N.T., pp. 49, 66-68.) He also admitted that the penetration was with his penis. (N.T., pp. 67-68.) He also told the troopers that when he had been caught with the victim, he had “rubbed her down” with lotion and he “was going up and down on her leg.” (N.T., p. 47.) The defendant said that sometimes he would use the lotion “to massage the child and to rub it on her and have her rub it on him,” that he would “rub his penis on her butt and on her thigh,” and that sometimes it may have slipped into her anus. (N.T., pp. 47, 65-68.) At a later time, after being Mirandized and again waiving his rights, the defendant repeated his admissions to Cermak.

On December 2,1996, the defendant was interviewed by Janie Garlick Omdorff of Fayette County Children and Youth Services while he was being held in Fayette County Prison. (N.T., p. 82.) Orndorff advised the defendant of the Miranda warnings, which he waived by signing the appropriate form (N.T., pp. 82-85), and she gave him oral notification of the investigation she was conducting which the defendant acknowledged by signing a form. (N.T., pp. 86-87.) The defendant once again admitted that he had touched the victim “in her private area” and that he had put his “pee pee in her butt.” (N.T., p. 89.)

At trial, the victim testified that the defendant “pushed up and down on my private with his,” and that the defendant had put lotion on her privates and her “bottom.” (N.T., pp. 8, 11.) According to the child, these acts had occurred on occasions while she was in kindergarten and in the first grade. (N.T., pp. 9-10.) She further testified that the incidents had taken place in the bathroom and in her bedroom, sometimes while her mother was in the house and other times when she was outside the house. (N.T., pp. 9,19.) The child also confirmed the final incident of abuse when her mother caught him in the bathroom with her. (N.T., pp. 15-16, 19-21.)

Moreover, the testimony of Dr. Mary Carrasco, a defense witness, strongly supported the allegations of sexual abuse. On cross-examination, Dr. Carrasco testified as to the victim’s clear and credible disclosure of anal penetration, vaginal penetration, and of ejaculation. (N.T., p. 106.) Dr. Carrasco also testified that the victim’s affect was consistent with the incident she was describing. (N.T., p. 106.)

Upon this evidence, the court found the defendant guilty of rape, involuntary deviate sexual intercourse, aggravated indecent assault, statutory sexual assault, and corruption of minors. On appeal, the appellant raises a variety of issues, including numerous state and federal constitutional questions concerning Pennsylvania’s Megan’s Law and the assessment process under this law. By virtue of the Pennsylvania Superior Court opinion rendered in Commonwealth v. Hayle, 719 A.2d 763 (Pa. Super. 1998), we will not address the constitutional questions raised by the appellant. We would only comment that after Hayle was decided, the Superior Court handed down an opinion in Commonwealth v. Koller, 719 A.2d 1069 (Pa. Super. 1998) which disagreed with Hayle but was bound by it. Further, at the time of this opinion, the Megan’s Law issue is pending before our Supreme Court. However, we will address the appellant’s contention that the trial court erred in admitting the appellant’s statement since: (a) the Commonwealth failed to establish the body of the crime; (b) the Commonwealth, through children and youth service workers, interviewed the appellant without his attorney present, knowing that he had an attorney and used such information against him; and (c) the Commonwealth used certain statements against the appellant that he had made while on medication.

DISCUSSION

Initially, we will address the appellant’s argument that the Commonwealth failed to prove corpus delicti, or the body of the crime, apparently contending that there was no independent evidence to establish a crime other than his statements. This argument is without merit.

The well-established corpus delicti rule is an eviden-tiary rule of admissibility. It provides that “a criminal conviction may not stand merely on the out-of-court confession of one accused, and thus a case may not go to the fact-finder where independent evidence does not suggest that a crime has occurred. Commonwealth v. Edwards, 521 Pa. 134, 144, 555 A.2d 818, 823 (1989).” Commonwealth v. Buck, 426 Pa. Super. 26, 28-29, 626 A.2d 176, 177 (1993). This rule is rooted in the hesitancy to convict a person of a crime solely on the basis of that person’s statements. Commonwealth v. Turza, 340 Pa. 128, 134, 16 A.2d 401, 404 (1940); Commonwealth v. Forman, 404 Pa. Super. 376, 380, 590 A.2d 1282, 1284 (1991).

The corpus delicti rule consists of two elements: the occurrence of a loss or injury, and some person’s criminal conduct as the source of that loss or injury. Commonwealth v. Ware, 459 Pa. 334, 365, 329 A.2d 258, 274 (1974); Commonwealth v. Hogans, 400 Pa. Super. 606, 609, 584 A.2d 347, 349 (1990). The identity of the party responsible for the act is not part of the corpus delicti. Commonwealth v. Tessel, 347 Pa. Super. 37, 43, 500 A.2d 144, 147 (1985).

As the Hogans court stated: “ ‘[pjroof that the accused was the perpetrator of the crime is not required.’ ... The crucial determination in applying the corpus delicti rule is whether, at the close of the case, the proof of the corpus delicti was sufficient to permit the fact-finder to consider defendant’s admission or confession, [citations omitted]” Commonwealth v. Hogans, supra, 400 Pa. Super at 609, 584 A.2d at 349.

“Before introducing an extra-judicial admission, the Commonwealth is not required to prove the existence of a crime beyond a reasonable doubt.” Commonwealth v. Edwards, supra, 521 Pa. Super at 144, 555 A.2d at 823; Commonwealth v. Forman, supra, 404 Pa. Super, at 381, 590 A.2d at 1285. Rather, it is enough for the Commonwealth to prove beyond a reasonable doubt that the injury or loss is consistent with the crime having been committed. Commonwealth v. Hogans, supra, 400 Pa. Super, at 610, 584 A.2d at 350. Furthermore, it is axiomatic that corpus delicti may be proved by circumstantial evidence. Commonwealth v. Forman, supra, 404 Pa. Super, at 382, 590 A.2d at 1285.

In the present case, there was a wealth of independent evidence, other than appellant’s statements, to prove a crime was committed. The Commonwealth presented the testimony of the victim with respect to the various charges of sexual abuse, including evidence of penetration, occurring while she was 6 and 7 years old. The victim provided convincing evidence that the defendant engaged in sexual intercourse with her that was deviate. There was also the testimony of the victim’s mother and Dr. Mary Carrasco which corroborated the child’s testimony, and that the defendant was at least 30 years of age at the time, thereby establishing the crimes of rape, involuntary deviate sexual intercourse, and statutory sexual assault. Further, the victim’s testimony established that the defendant had indecent contact with her when she was well below 13 years of age, and that the defendant had committed a multitude of corrupting acts against her, thus satisfying the elements of both aggravated indecent assault and corruption of minors. Furthermore, the mother’s eyewitness testimony verified the crime of corruption of minors and, at a minimum, provides a strong inference of aggravated indecent assault. Thus, the appellant was not convicted solely on the basis of his statements.

We next turn to the appellant’s claim that the Commonwealth, through children and youth service workers, interviewed the appellant, without his attorney present, knowing that he had an attorney, and used this information against him. Initially, we would note that there is nothing in the record to indicate that, at the time of the interview, the appellant was represented by counsel or had even requested counsel.

In the case of Commonwealth v. Ramos, 367 Pa. Super. 84, 532 A.2d 465 (1987), the Superior Court affirmed the trial court’s order granting the defendant’s motion to suppress statements made to a children and youth services caseworker while he was in custody. The reasoning was that the caseworker failed to administer Miranda warnings to the defendant prior to their discussion, that the defendant had specifically requested counsel on two earlier occasions, and that he also mistakenly believed his conversation with the caseworker would be kept confidential. Id., 367 Pa. Super, at 87, 532 A.2d at 466-67.

Instantly, unlike Ramos, the caseworker carefully explained the appellant’s Miranda rights to him, including his right to have counsel present during the discussion, and he signed a waiver of those rights. At that time, the appellant was not represented by counsel and did not request counsel. Further, the caseworker made it clear to the appellant that the conversation was not confidential and would be used against him, thereby eliminating any misunderstanding in that respect. (N.T., pp. 84-85.) Thus, appellant was properly Mirandized and made a knowing and voluntary waiver. Hence, the Commonwealth was entitled to use the defendant’s statements to the caseworker against him.

The appellant’s last issue is that the Commonwealth used certain statements against him that he had made while under medication. We presume that the appellant’s argument goes to the voluntariness of the statements he made to the police while at Lakewood Psychiatric Hospital. We would also note that there is no evidence in the record that the appellant was under any medication at that time. We also keep in mind that his hospital stay was voluntary.

“The test for determining voluntariness of a confession and whether an accused knowingly waived his or her rights looks to the totality of the circumstances surrounding the giving of the confession.” Commonwealth v. Jones, 546 Pa. 161, 178, 683 A.2d 1181, 1189 (1996), citing Commonwealth v. Edmiston, 535 Pa. 210, 634 A.2d 1078 (1993). With respect to the appellant’s rights, we note that “Miranda warnings are required only where there is custodial interrogation.” Jones, 546 Pa. at 176, 683 A.2d at 1188, citing Commonwealth v. Williams, 539 Pa. 61, 650 A.2d 420 (1994). Although the appellant was not in custody when he was interviewed at Lakewood, nonetheless he was given his Miranda warnings, and made a knowing and voluntary waiver of his rights. Hence, this argument is without merit.

WHEREFORE, for the foregoing reasons, the court urges that the appeal on these matters be denied.


text:
    Platinum Corp. v. Blong
    C.R of Fayette County,
    no. 328 of 1998, G.D.

      Robert V. Campedel, for plaintiffs.

      F. Christopher Spina, for defendants.
    December 10, 1998
   SOLOMON, J.,

The defendants, Shawna B. Blong, Charles S. Blong, the Sabra Group Inc., and the Blong Group Inc., have filed a motion for protective order to prevent discovery by the plaintiffs of various personal and corporate financial statements and personal and corporate income tax returns.

DISCUSSION

The Pennsylvania Rules of Civil Procedure allow for liberal discovery. Under our rules, “a party may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party, including the existence, description, nature, content, custody, condition and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of any discoverable matter.” Pa.R.C.P. 4003.1(a). Furthermore, “[i]t is not ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.” Pa.R.C.P. 4003.1(b).

However, discovery is not permissible when it “would cause unreasonable annoyance, embarrassment, oppression, burden or expense to the deponent or any person or party.” Pa.R.C.P. 4011(b), and a party seeking to limit discovery may move for a protective order under Pa.R.C.P. 4012. Rule 4012 provides that “[ujpon motion by a party or by the person from whom discovery or deposition is sought, and for good cause shown, the court may make any order which justice requires to protect a party or person from unreasonable annoyance embarrassment, oppression, burden or expense. . . Pa.R.C.P. 4012(a).

Instantly, the defendants claim that the plaintiffs’ discovery request is the very sort that Rule 4012 was designed to prevent. They assert that the records sought are of a “highly confidential nature” and are not relevant to the lawsuit between the parties. We would note that it is the moving party who bears the burden of proving the necessity of a protective order. Cipollone v. Liggett Group Inc., 106 F.R.D. 573, 583 (1985).

In order to establish the “good cause” required by Rule 4012, the defendants must produce, “at a minimum, some evidence upon which a court can make a determination that harm will result from disclosure. The law is clear that ‘the determination of whether good cause does nor does not exist must, be based upon appropriate testimony and other factual data, not the unsupported contentions and conclusions of counsel.’ ” Ornsteen v. Bass, 18 Phila. 328, 331 (1988) Lexis 29, 6 (Oct. 12, 1988), quoting Davis v. Romney, 55 F.R.D. 337, 341 (1972); see also, Chrysler v. Zigray, 7 D.&C.4th 408 (Lackawanna 1990).

Here, the defendants have failed to meet their burden of proof. While the records in question may be confidential, from the record in this matter, we cannot conclude that they are not relevant to the plaintiffs’ suit. In this action, the plaintiffs allege securities fraud, common-law fraud, breach of contract, unjust enrichment and promissory estoppel. The financial statements and income tax returns sought appear relevant to the plaintiffs’ various claims, all of which to some extent involve the financial affairs of the defendants. Since there exists a legitimate interest in the discovery being sought, which will enable the plaintiffs to prepare their case for trial, the discovery should go forward. Chrysler v. Zigray, supra, 7 D.&C. 4th at 413. Thus, the defendants’ argument with respect to relevancy is without merit.

Furthermore, the defendants have not furnished any real evidence that disclosure would result in harm to them. They offer little more than “unsupported contentions and conclusions” that fail to show that good cause exists to prevent disclosure. Apparently the defendants believe that their business could be harmed by virtue of the requested information becoming public. However, aside from this speculation, they do not point with any particularity to those documents which might cause such harm or what the harm may be. Moreover, general allegations of competitive harm will not satisfy the good cause needed for a protective order to issue. Id. at 412. Given this lack of proof, the defendants simply have not met their burden.

Despite our conclusion, we understand the defendants’ desire to maintain the confidentiality of personal financial information. The plaintiffs have indicated their willingness to accept a confidentiality order which would limit disclosure of the information to the parties herein, and we are of the opinion that such an order would be appropriate. Accordingly, we will limit disclosure of the discovery requested to the parties to this matter.

Wherefore, we make the following order.

ORDER

And now, December 10, 1998, upon consideration of the defendant’s motion for protective order, it is ordered and directed that the same shall be, and is, hereby denied.

It is further ordered and directed that the information sought through discovery shall be limited to the records of these particular defendants and shall not be disclosed to any person or entity not a party to this action.


author: BAER, J.,

text:
    Crites v. Hoogovens Technical Services Inc.

      C.P. of Allegheny County,
    no. GD 99-12989.

      Jay N. Silberblatt, for plaintiff.

      Joseph A. Vater Jr., for defendants.
    January 7, 2000
   BAER, J.,

The Pennsylvania Wage Payment and Collection Law, 43 P.S. §260.1 et seq. does not define the term “employee(s).” Nevertheless, virtually all of its remedy provisions provide that such remedies shall inure to “employees.” In this matter, we are called upon to decide whether plaintiff, William E. Crites, should be considered an “employee” pursuant to the WPCL. If so, he should be permitted to pursue Count I of his action under the WPCL against defendants, Hoogovens Technical Services Inc. and W. Joseph Mol-lenauer Jr. If not, Count I should be dismissed in accordance with employers’ motion for partial summary judgment which is presently before us. Notwithstanding several federal decisions that at first blush appear to be to the contrary, we conclude that employee is, indeed, an “employee” under the WPCL, and, therefore, can pursue Count I of his action pursuant to that statute.

Defendant Hoogovens is a Delaware corporation with its principal offices in Allegheny County, Pennsylvania. Defendant Mollenauer is one of its high-ranking officers. On May 31, 1996, Hoogovens and employee, an Ohio resident, entered into an employment agreement for a three-year term. Employee’s obligation thereunder was to provide technical expertise to a steel facility located in Monclova, Mexico.

In paragraph 6, the agreement provided that either party could terminate it, with or without cause, upon one month’s written notice. Upon such termination, employee would receive six months of his base salary as severance pay. At paragraph 11, subparagraph G, the agreement provided as follows:

“This agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania and the parties agree that original jurisdiction of any dispute hereunder shall be the Court of Common Pleas of Allegheny County, Pennsylvania.”

As will be discussed, this is both a choice of law and a choice of forum provision.

On April 15, 1999, employee resigned and requested his six months severance pay. Employers paid employee $24,261, contending that this was the amount due him pursuant to the agreement. Employee did his own calculation, and determined that he was entitled to severance pay of $57,792. When the parties were unable to reach agreement, employee filed this action, stating his claims in two counts. The first count seeks the amount employee contends is due him, liquidated damages and counsel fees in accordance with the WPCL. The second count is for breach of contract.

Employers have moved for partial summary judgment, seeking dismissal of Count I which was filed pursuant to the WPCL. It is uncontested that employee is an Ohio resident whose work for employers took place solely in the country of Mexico. Employers contend that under those circumstances, employee is not an “employee” in accordance with precedent interpreting the WPCL, and that, therefore, he cannot make a legally cognizable claim under that statute.

Employers direct us to a line of federal cases predicting what Pennsylvania courts would do when faced with the issue of whether an employee who does not work in Pennsylvania may sue therein pursuant to the WPCL. The seminal case in this line is Killian v. McCulloch, 873 F. Supp. 938 (E.D. Pa. 1995). In Killian, a Pennsylvania employer employed two individuals who did not work within Pennsylvania. The employer allegedly failed to pay the employee’s wages, and the employees brought an action in the federal district court for the Eastern District of Pennsylvania which included a count under the WPCL. The employer moved for summary judgment, raising that the WPCL should not be interpreted to protect an employee who does not work in Pennsylvania.

The Killian court first noted that if the statute was read literally, an employee living and working in Arizona could sue an Oregon-based employer in Pennsylvania so long as that employer had one employee in Pennsylvania. While the Killian court did not refer to the Pennsylvania Statutory Construction Act, it, in essence, held that such a result would be absurd, and that, therefore, could not be correct. See 1 Pa.C.S. §1922(1). We agree with that reasoning.

The Killian court then reviewed several cases and concluded that the principal purpose of the WPCL was to protect the rights of individuals working in Pennsylvania to receive their wages. The court opined that while the statute had the effect of deterring wrongful behavior on behalf of employers, this was only an effect, and not one of its intended purposes. The Killian court then proceeded to combine its extreme, but correct, hypothetical concerning a non-Pennsylvania employer with one employee, in Pennsylvania being sued by a non-Pennsylvania employee with its conclusion that the sole purpose of the WPCL is to protect workers; and, based upon these premises, concluded that an action pursuant to the WPCL should be allowed only when the plaintiff/employee works within Pennsylvania. Accordingly, it dismissed the plaintiff’s claim stated under the WPCL.

In Hides v. Certainteed Corp., 1995 WL 458786 (E.D. Pa.), the United States District Court for the Eastern District of Pennsylvania was confronted with a similar issue six months after Killian. Without any meaningful analysis, the Hides court accepted Killian’s logic and dismissed the plaintiff’s WPCL claim because the plaintiff did not work within Pennsylvania. In deciding a similar issue, Bunnion v. Consolidated Rail Corp., 1998 WL 372664 (E.D. Pa.), citing Killian, found its reasoning “persuasive” and declined to certify a proposed subclass in a class action brought, inter aha, pursuant to the WPCL, because not all of the members of the subclass worked within Pennsylvania. Thus, Hides and Bunnion, in essence, paid blind allegiance to Killian.

All three of these federal decisions are factually distinguishable to some extent. To the degree that these cases cannot be distinguished, we note that we are not bound by them and respectfully decline to follow them. We believe Killian was wrong in concluding that punishing wayward employers was an effect, and not a purpose, of the WPCL. As mentioned in footnote 1, the WPCL defines “employer” to include any entity or agent or officer of an entity employing any person in this Commonwealth. 43 P.S. §260.2(a). This broad definition of “employer” indicates that our General Assembly intended to bring all employers within the scrutiny of the WPCL unless to do so would yield an unreasonable or absurd result. Moreover, sections 260.9(a), 260.10 and 260.11(a) of the WPCL provide various civil and criminal remedies and penalties against employers, including surcharges, liquidated damages, counsel fees and possible criminal liability. The Pennsylvania Statutory Construction Act at 1 Pa.C.S. § 1921(a) and the case law interpreting that section make clear that we should construe the WPCL as a whole. Turner v. May Corporation, 285 Pa. Super. 241, 427 A.2d 203 (1981). Both the broad definition of “employers” and the array of remedies available against them indicate a legislative intent to punish wayward employers and thereby to discourage them from failing to pay wages.

Thus, while we have no doubt that Killian was correct in determining that one of the purposes of the WPCL is to protect the wages of employees, we believe it self-evident that a co-equal purpose of this statute is to allow for the punishment of recalcitrant employers and thereby to provide a powerful disincentive to any employer’s temptation to fail to pay wages rightfully due an employee.

As referenced above, employee in the instant case was employed pursuant to an employment agreement which contained a choice of forum and choice of law provision. The agreement provided that the Court of Common Pleas of Allegheny County would have exclusive original jurisdiction over any disputes between the parties, and that the laws of Pennsylvania would govern these disputes. Thus, if employee, who is an Ohio resident working in Mexico, sought to bring an action in Ohio, or in Pennsylvania under Ohio’s version of our WPCL, he would be faced with preliminary objections that he had contractually agreed to sue only in Allegheny County and to be governed by Pennsylvania law which, as heretofore construed, would prohibit any suit brought by someone not employed in Pennsylvania.

If employee cannot bring a wage collection action in Ohio, or, indeed, anywhere else, because of the agreement’s choice of forum clause; cannot bring an action in Allegheny County utilizing Ohio’s, or another state’s, equivalent of the WPCL because of the agreement’s choice of law clause; and cannot bring a WPCL action in Allegheny County under Pennsylvania law because he is not employed within Pennsylvania, he is effectively out of court. Correspondingly, if employer can maneuver the situation so that all of its employees throughout the world who do not work in Pennsylvania must, nevertheless, sue here under our law, but none of them can bring a claim under Pennsylvania’s WPCL because they do not work in our state, or under any other state’s version of the WPCL, because of the agreement’s choice of law provision, employer will have managed to make itself immune from these actions.

This result becomes all the more absurd if one considers another scenario. Assume a Pennsylvania employer has its principal offices in Philadelphia and a “suburban” office just across the Ben Franklin Bridge in Camden, New Jersey. Assume also, that some of employer’s staff in both Pennsylvania and New Jersey hail from both states, and that employer has all employees sign the employment agreement employee signed in this case. A holding consistent with Killian and employer’s position herein would yield the following results. The Pennsylvania employees working in Pennsylvania would be permitted to sue pursuant to the WPCL. The Pennsylvania employees working in New Jersey would not be permitted to sue in Pennsylvania because they do not work in Pennsylvania, and would not be permitted to sue in New Jersey because of the employment agreement’s choice of forum provision. The New Jersey residents working in Pennsylvania would be permitted to sue in Pennsylvania because they work here, and, finally, the New Jersey residents working in New Jersey would be precluded from suit in Pennsylvania because they do not work in Pennsylvania, and would be precluded from suit in New Jersey because of the choice of forum provision.

The result would not improve greatly even if we extended the rule in Killian to permit both Pennsylvania employees and residents to bring WPCL actions. Under the above hypothetical, New Jersey residents working in Pennsylvania still would be permitted to sue in Pennsylvania, but New Jersey residents working in New Jersey still would be precluded from suit in both New Jersey and Pennsylvania.

If it is an absurd result that an Arizona employee can sue an Oregon employer in Pennsylvania because one employee works here, the results suggested above are equally absurd. Moreover, it is inconsistent with the purposes of the WPCL and nonsensical to allow a Pennsylvania employer to require that Pennsylvania be the sole forum and choice of law for all employer-employee disputes, but employ no one here, and thereby immunize itself from the various sanctions our General Assembly built into our law to protect employees, to punish recalcitrant employers, and to discourage such employers from inappropriate and illegal conduct.

We hold that where, as here, an employment agreement requires the use of Pennsylvania law and makes Pennsylvania the exclusive forum for employer-employee disputes, an employee of a Pennsylvania corporation who neither lives nor works in Pennsylvania may, nevertheless, sue that corporation in Pennsylvania pursuant to the WPCL. Accordingly, by separate order of even date herewith, we have denied employers’ motion for partial judgment on the pleadings.

ORDER

And now, January 7, 2000, in accordance with the rationale set forth in our opinion of even date herewith, it is hereby ordered, adjudged and decreed that defendants’ motion for partial judgment on the pleadings is denied.

      . The WPCL defines an employer to include any agent or officer of an employer, and case law has clarified that corporate officers, under certain circumstances, can be held personally liable for wages due employees. See 43 P.S. §§260.2(a) and 260.9(a); Faden v. deVitry, 425 Pa. Super. 555, 625 A.2d 1236 (1993), appeal denied, 535 Pa. 658, 634 A.2d 221 (1993). Thus, Mr. Mollenauer was named as a defendant.

      . It is necessary to look at Pennsylvania’s Statutory Construction Act, 1 Pa.C.S. §1901 et seq. and the case law interpreting the WPCL because of the statute’s failure to define the term “employee.”

      . As will be discussed fully below, we disagree with this reasoning.

      . If these cases mean what they say, they would seemingly prohibit a Pennsylvania resident working outside the Commonwealth for a Pennsylvania employer to sue within Pennsylvania under Pennsylvania law. As set forth at footnote 6 at the conclusion of this opinion, if faced with that situation, we would disregard any federal precedent to the contrary, and permit the action.

      . In a supplemental letter in support of its position, employer argues that the clause in the agreement conveying original jurisdiction of any dispute to this court is drawn narrowly, should be read narrowly, and, therefore, should be applied only to actions arising under the contract, rather than this WPCL claim. We find this position wholly unpersuasive, and doubt that employer would adopt it if employee sued under a Wage Agreement and Collection Law in a different jurisdiction.

      . As mentioned in footnote 4, we believe also that, regardless of where in the world a Pennsylvania resident happens to work, he or she should always be able to bring an action in Pennsylvania against a Pennsylvania-based employer pursuant to the WPCL. To the extent Killian and its progeny are inconsistent with this observation, we believe they are incorrect.


author: REIBMAN, J.,

text:
    Salisbury House of Northeast PA Inc. v. City of Allentown Zoning Hearing Board

      C.P. of Lehigh County,
    no. 1998-C-2890.

      Daniel G. Dougherty, for appellant.

      Erich J. Schock, for appellee.
    October 25, 1999
   REIBMAN, J.,

Before the court is the Salisbury House of Northeast Pennsylvania Inc., appellant’s, appeal from the City of Allentown Zoning Hearing Board’s November 11, 1998 decision wherein the board denied appellant’s request to operate a “personal care boarding home.”

The within appeal concerns a three-story structure located at 513-519 Lehigh Street Allentown, Lehigh County. The property is commonly referred to as the Acom Hotel, which has been used as a rooming house and hotel since the 1800s. At some point following its inception, the property was zoned 1-3 or general industrial pursuant to section 1337 of the codified ordinances of the City of Allentown. The operation of a hotel, restaurant, bar or boarding house is not a permitted use in a general industrial zone. See ordinance at section 1337. However, because the Acom Hotel was in operation prior to the adoption of the zoning code, the Acom Hotel was permitted to operate as a nonconforming use.

The first floor of the Acom Hotel contains a bar area, dining room and kitchen area; the second and third floors contain 22 rooming units. Appellant purchased the property in June 1998, with the intent to convert it into what appellant classifies as a “personal care boarding home.” In an effort to modify the Acorn Hotel into a personal care boarding home, appellant proposed to convert the existing 22 rooming units into 12 rooming units and to add two handicap accessible bedrooms on the first floor. In addition, appellant proposed to enclose the existing second floor open porch and to subdivide the lot into two parcels.

Appellant’s proposals were verbally denied by the City of Allentown Planning Department and Zoning Office. Thereafter, appellant filed an appeal before the board. A public hearing was held on October 5,1998. At its meeting on October 19, 1998, the board denied appellant’s request to convert the property into a personal care boarding home and granted appellant’s subdivision request. The board issued a written decision on November 11, 1998. From that decision, appellant filed the within appeal.

Where, as here, no additional evidence was presented subsequent to the board’s decision, the court is limited to determining whether the board committed a manifest abuse of discretion or an error of law. East Torresdale Civic Association v. Zoning Board of Adjustment, 536 Pa. 322, 325, 639 A.2d 446, 448 (1994). An abuse of discretion can be found only if the board’s findings are not supported by substantial evidence. Valley View Civic Association v. Zoning Board of Adjustment, 501 Pa. 550, 555, 462 A.2d 637, 640 (1983). “Substantial evidence is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.” Bailey v. Upper Southhampton Township, 690 A.2d 1324, 1325 n.1 (Pa. Commw. 1997). An error of law is committed if the board erroneously interpreted or misapplied the law to the facts of the case. Highland Park Community Club of Pittsburgh v. Zoning Board of Adjustment, 82 Pa. Commw. 380, 475 A.2d 925 (1984), aff’d, 509 Pa. 605, 506 A.2d 887 (1986).

It is undisputed that appellant’s proposed use is not a permitted use in a general industrial area. Consequently, to prevail, appellant must establish that (1) the prior owners of the property never abandoned the prior nonconforming use of the property as a restaurant/hotel/ boarding house; and (2) the proposed use must be a continuation of the prior nonconforming use. See Latrobe Speedway Inc. v. Zoning Hearing Board of Unity Township, 553 Pa. 583, 720 A.2d 127 (1998); Limley v. Zoning Hearing Board of Port Vue Borough, 533 Pa. 340, 625 A.2d 54 (1993). In the case at bar, the board found the prior nonconforming use had been abandoned and the proposed use was not a continuation of the prior nonconforming use.

Turning first to the issue of whether the prior nonconforming use was abandoned, the Pennsylvania Supreme Court in Latrobe, supra, set forth the following test for determining whether a prior nonconforming use has been abandoned and who has the burden of proof: “[fjailure to use the property for a designated time provided under a discontinuance provision is evidence of the intention to abandon. The burden of persuasion then rests with the party challenging the claim of abandonment. If evidence of a contrary intent is introduced, the presumption is rebutted and the burden of persuasion shifts back to the party claiming abandonment.” Latrobe, 553 Pa. at 592, 720 A.2d at 132.

Here, the ordinance contains a discontinuance provision which specifically provides that failure to use the property for a continuous 24-month period equates to a discontinuance of the nonconforming use and the property shall not be occupied except by a use which conforms to the applicable zoning regulations. See ordinance at section 1359.03(5). Upon review of the record, however, there is no evidence to indicate the prior owners of the property failed to use the property as either a restaurant or boarding house for a “continuous” 24-month period as is required under the ordinance. The record indicates only that there was a lapse in the use of the property for up to six months due to problems with cleaning damage from vandalism and removing various underground tanks. N.T., October 5, 1998 at pp. 33-38.

Even assuming, arguendo, the board established a 24-month lapse under the ordinance, appellant established a contrary intention and thus rebutted the presumption. During the hearing, George Atiyeh testified he leased the property prior to appellant purchasing the property, and that despite the short time periods where he had to clean the vandalism and remove the various underground tanks, he had no intention of abandoning the use of the property as a restaurant and boarding home. N.T., October 5,1998 at p. 34.

In response, the board contends Atiyeh’s testimony is insufficient to establish a contrary intent because appellant failed to introduce tax returns or receipts of an ongoing enterprise which would support a contrary intention. Appellant does not fail to prove a contrary intention simply because it neglected to produce such returns or receipts. These items are not mandatory and are merely considerations to support evidence of a contrary intent. Latrobe, 553 Pa. at 592, 720 A.2d at 132. Moreover, there is no evidence to imply that Atiyeh was not telling the truth or that he had any pecuniary or other interest in the within appeal. Consequently, under Latrobe, the burden then shifted back to the board to establish abandonment. However, the record is devoid of any testimony or evidence introduced by the board to support a finding of abandonment. Accordingly, the board abused its discretion in finding the prior nonconforming use had been abandoned.

Turning to the issue of whether the proposed use is a continuation of the prior nonconforming use of a restaurant/hotel/boarding house, the Pennsylvania Supreme Court in Limley, supra, stated “[t]o qualify as a continuation of an existing nonconforming use, a proposed use must be sufficiently similar to the nonconforming use as not to constitute a new or different use.” Limley, 533 Pa. at 343, 625 A.2d at 55. Appellant contends its proposal to use the property as a personal care home is sufficiently similar because it is “the functional equivalent” of the prior nonconforming use of a boarding house. Section 1301.02(10) of the ordinance defines boarding house as: “a building containing a single-dwelling unit where lodging is provided with or without meals for three or more persons who are not members of the operator’s family, and by prearrangement for definite periods of time and for compensation, whether direct or indirect, but not to include rest homes or homes for aged.”

In response, the board asserts the use is not the functional equivalent to a boarding house, but rather, is similar to a group home and thus is a different use under the ordinance. Section 1301.02(43) defines a group home as: “residential clients and attendant (24 hours or less) staff, living together in a dwelling unit as a single housekeeping unit under a common housekeeping management plan based upon an intentionally structured relationship providing organization and stability. A group home may include but is not limited to children, the mentally or physically handicapped and elderly, but does not include drug and alcohol treatment or rehabilitation facilities, or adult pre-release correctional facilities such as work release, halfway houses or similar uses.”

The evidence established appellant proposes to run a home where individuals who are unable to care for themselves can live in a supervised environment. These individuals will gain access to the home through referrals from the state hospital or through other community referral programs. There is no age limit for the individuals; however, testimony indicated that the proposed age range was from 30 to 50 years of age. There is no set determined length of stay and, in fact, there was testimony that the individuals may be unable to leave due to their inability to care for themselves. Supervision will be provided 24 hours a day. Assistance with laundry and transportation will be provided. Medical and psychological treatment will not be provided at the home; however, the staff will monitor the self-administration of medication by the residents.

Based on the foregoing, sufficient evidence exists to support the board’s determination that appellant’s proposed use is not sufficiently similar to a boarding house and thus not a continuation of the prior nonconforming use. The evidence supports the board’s finding that the proposed use was more similar to a group home. Specifically, the evidence established the proposed use went beyond that of a boarding house because it was a structured environment, staffed 24 hours a day, included individuals suffering from chronic mental illness, such as schizophrenia, and the individuals may stay for an indefinite period of time. Moreover, the court must give great weight and deference to the board’s interpretation of its own ordinance. See Johnston v. Upper Macungie Township, 162 Pa. Commw. 170, 638 A.2d 408 (1994); 1 Pa.C.S. §1921(c)(8); and Borough of Milton v. Densberger, 719 A.2d 829, 832 (Pa. Commw. 1998) (the basis for the judicial deference is the knowledge and expertise that a zoning hearing board possesses to interpret the ordinance that it is charged with administering).

Accordingly, although the board abused its discretion in finding the prior owners abandoned the nonconforming use, appellant still cannot prevail in light of appellant’s failure to establish its proposed use is sufficiently similar and thus a continuation of the prior nonconforming use. Latrobe, supra; Limley, supra. Consequently, appellant’s appeal must be denied.

ORDER

And now, October 25, 1999, upon consideration of the Salisbury House of Northeast Pennsylvania Inc.’s appeal from the City of Allentown Zoning Hearing Board’s November 11,1998 decision, opposition thereto, and after oral argument thereon, and for the reasons set forth in the accompanying opinion, it is ordered that said appeal is denied.

      . “All uses and all structures not conforming to the regulations of the zone in which they are located, prior to April 24, 1948, shall be known and regarded as nonconforming....” See ordinance at section 1359.02 “Applicability.”

      . The board also denied appellant’s proposal on the basis that appellant failed to establish it was entitled to a variance. However, the record clearly indicates appellant did not appear before the board requesting a variance. Rather, the record indicates appellant sought only to prove there was no abandonment and a continuation of the prior nonconforming use. N.T., October 5, 1998 at pp. 5-8. Therefore, it would be unfair to appellant to examine the record based on a variance standard where it is clear appellant was neither prepared to nor established any hardship which is required to obtain a variance. See Tirotta v. Zoning Hearing Board of Yeadon, 110 Pa. Commw. 501, 532 A.2d 937 (1987) (a landowner is entitled to a variance only where he establishes that the zoning regulation uniquely burdens the property so as to create an unnecessary hardship).