author: BRADLEY, J.,

text:
    Sanders v. State Farm
    C.P. of Delaware County,
    nos. 95-4815, 97-16355.

      Elizabeth A. McHugh, for plaintiff.

      Wayne A. Schaible and Patrick Shea, for defendant.
    July 27, 2000
   BRADLEY, J.,

Plaintiff, Jerome Sanders, appeals from the entries of summary judgment in this consolidated action.

Plaintiff-insured filed a bad faith and breach of contract action against defendant-insurer, State Farm Insurance Company, civil action no. 95-4815, alleging bad faith by defendant in the handling of plaintiff’s claim. Thereafter, plaintiff filed a second action for defamation, slander, and ongoing bad faith against defendant, civil action no. 97-16355, allegedly as the result of defendant’s actions throughout the litigation in the underlying action. These two cases were then consolidated.

On March 24,1999, defendant’s motion for summary judgment in civil action no. 97-16355 was granted. The Pennsylvania Superior Court by order dated August 25, 1999 quashed plaintiff’s notice of appeal of this order granting summary judgment reasoning that it was not a final order. On January 19,2000, defendant’s motion for summary judgment in civil action no. 95-4815 was granted as to Count II (bad faith) and Count III (punitive damages), leaving Count I (contract) the sole issue to be determined in civil action no. 95-4815. On May 12,2000, by order and stipulation, this remaining issue, Count I (contract) was severed from the consolidated case. Plaintiff’s appeal from the entries of summary judgment in both actions follows.

In civil action no. 95-4815 as well as its companion case, 97-16355, the court was inundated with what can only be described as a blitzkrieg of paper. To explain our decisions granting defendant’s motions for summary judgment in both actions, it is helpful to list chronologically the relevant and undisputed facts.

FACTS

(1) On January 11, 1994, plaintiff’s vehicle, a 1975 Chevrolet Corvette, was stolen from his home’s locked garage.

(2) The Corvette was insured under a State Farm policy no. 385-1408-F31-381A.

(3) On January 11, 1994, Sanders contacted his State Farm agent, William Coleman, to report the theft of the Corvette and make a claim for the loss.

(4) On January 19, 1994, the Corvette was recovered by police in Newport News, Virginia.

(5) On January 19,1994, an affidavit was prepared by Sanders permitting Mullen’s T & A, (a repair shop chosen by Sanders) to tow the Corvette from Virginia to Pennsylvania.

(6) On January 24, 1994, State Farm informed Sanders that they intended to pay $500 for the vehicle to be towed from Virginia. Plaintiff’s response to summary judgment motion, no. 95-4815, para. 19.

(7) On February 1, 1994, a State Farm representative in Virginia took photographs of the vehicle and concluded there was no damage to it. State Farm claim activity log.

(8) On February 3,1994, Mr. Mullen from Mullen’s T & A agreed to accept State Farm’s offer of $500 to tow the vehicle from Virginia. Plaintiff’s response to summary judgment motion, no. 95-4815, para. 21.

(9) On February 5,1994, the Corvette was returned to Mullen’s T & A garage in Pennsylvania.

(10) The bill for towing in the amount of $682 was received by State Farm on March 14, 1994.

(11) State Farm issued a check on March 15, 1994 to Mullen’s T & A in the amount of $682 for the cost of towing the Corvette.

(12) On March 15,1994, Sanders notified State Farm that there were scratches to the exterior body of the Corvette.

(13) A State Farm representative inspected the Corvette on March 22, 1994 at Mullen’s T & A in Pennsylvania.

(14) The claim log indicates that on March 29, 1994, State Farm was in the process of writing an estimate to repair the exterior damage, i.e., scratches to the hood. Claim log, entry no. 0035.

(15) On April 6,1994, before State Farm notified Sanders of the status of his claim for exterior damage, Sanders informed State Farm for the first time that there were engine noises and that Mullen’s T & A was seeking permission to tear down the engine to discover the nature of engine damage before the exterior scratches were repaired.

(16) On April 14, 1994, State Farm sent Sanders a letter giving him permission to have his mechanic, Mullen, tear down the engine to locate the damage, if any.

(17) Sanders agreed to accept State Farm’s proviso that if the engine damage was not directly related to the theft, then he would be responsible for the cost of the teardown and repairs.

(18) On April 14, 1994, State Farm sent Sanders an affidavit of theft requesting information surrounding the theft of the Corvette.

(19) Sanders had previously completed and forwarded to State Farm an initial questionnaire in February 1994.

(20) The affidavit of theft was signed by Sanders on April 18, 1994.

(21) On April 29, 1994, Mullen’s T & A contacted State Farm and reported that the engine was tom down and ready for inspection.

(22) The engine was inspected by State Farm on May 2, 1994.

(23) On May 24, 1994, Sanders provided a phone-recorded statement to State Farm claims specialist, Stephanie Mulhem, concerning the theft of the Corvette.

(24) On May 25, 1994, State Farm requested a detailed estimate of repairs from Mullen’s T & A.

(25) On June 13, 1994, State Farm offered to pay for the engine repair less 75 percent betterment, to take into account depreciation on the 19-year-old engine that had over 113,000 miles on it.

(26) After State Farm’s June 13 offer, plaintiff informed State Farm specifically for the first time that the engine was rebuilt. Plaintiff’s deposition, pp. 141-42.

(27) In the affidavit of theft dated April 18,1994, plaintiff indicated that the Corvette was a “rebuilt wreck” and the name of the rebuilder was L & D Automotive.

(28) Plaintiff informed his independent State Farm agent in August 1994 that the engine was being rebuilt and requested reduced coverages as the vehicle was off the road.

(29) At the State Farm inspection on May 2,1994, the estimator noted that the engine had some new parts and looked like it had work done to it before.

(30) On June 18, 1994, plaintiff sent State Farm an original receipt from L & D Automotive (the repair shop that rebuilt the engine in August 1993) as evidence that the engine was rebuilt.

(31) The business name and address on the L & D Automotive invoice was handwritten and the town of Claymont was misspelled. The invoice indicated that Sanders paid $2,669.71 in cash for the repair.

(32) When a State Farm employee, Ms. Stephanie Mulhem, attempted to locate L & D Automotive, she discovered that the repair shop was not located at the address on the invoice. Ultimately, defendant did locate the mechanic who rebuilt the engine.

(33) State Farm forwarded the claim file to Jill B. Clarke, Esquire of McKissock & Hoffman, who on July 1,1994, forwarded a letter to plaintiff requesting certain information and scheduling an examination under oath to take place on July 14,1994. This “reservation of rights” letter also explained that questions regarding the “accidental” nature of the loss had arisen.

(34) Due to scheduling concerns, on July 14, 1994, the examination under oath was rescheduled to August 3, 1994.

(35) On August 3, 1994, the examination under oath took place at which time Sanders supplied an initial and incomplete estimate for property damage repair and engine repair.

(36) On August 10, 1994, Ms. Clarke received additional documents from Sanders and forwarded them to Ms. Mulhern, the State Farm employee who was handling the claim.

(37) On August 17, 1994, Ms. Clarke sent the transcript of the examination under oath to plaintiff for his review and/or to make any revisions.

(38) Sanders never signed a copy of the examination under oath.

(39) The policy language regarding the duties of an insured in a comprehensive theft loss, included the following:

“When there is a loss, you or the owner of the property also shall:

“(c) Show us the damage, when we ask;

“(d) Provide all records, receipts, or invoices, or certified copies of them. We make copies.

“(e) Answer questions under oath when asked by anyone we name, as often as we reasonably ask, and sign copies of the answers.”

(40) State Farm obtained Mullen’s revised estimate of engine repair on September 7, 1994.

(41) On September 16,1994, State Farm issued a check in the amount of $6,575.68 in payment for the scratches to the exterior body and engine damage to the Corvette.

(42) In three letters dated October 3, 1994, October 17,1994 and October 26,1994, Sanders requested reimbursement for the rental replacement coverage while the Corvette was unavailable. The amount requested totaled $3,840.

(43) On November 2, 1994, State Farm responded to Sanders request informing him that he did not have RI (car rental coverage) on his vehicle at the time of the theft and that if he was seeking reimbursement under the comprehensive coverage transportation costs clause of the policy, he needed to provide State Farm with proof that he incurred such costs.

(44) On November 9, 1994, State Farm sent a second letter to Sanders reminding him to send any proof regarding transportation costs.

(45) Plaintiff admits rental reimbursement is not a coverage he had under the policy and he never forwarded any proof to support his claim for transportation costs under any other clause in the policy.

(46) Mullen completed the repairs on the Corvette in the fall of 1994 and plaintiff had the vehicle back by November, 1994.

(47) On January 25, 1995, Mullen reported to State Farm that there was transmission damage to the Corvette.

(48) On January 26,1995, State Farm employee, Diane Keri, inspected the Corvette at Mullen’s T & A repair shop to determine if the transmission damage was a result of the theft.

(49) On February 3, 1995, State Farm employee, Jim Siegal, and plaintiff’s mechanic, Mullen, test drove and inspected the Corvette. It was the conclusion of State Farm that the transmission problem was related to the clutch which Sanders provided to Mullen’s T & A when the engine was rebuilt previous to the January 11, 1994 theft. Mullen believed the transmission problem was related to the theft.

(50) On February 23, 1995, Ms. Keri inspected the Corvette again and again advised Mullen that State Farm believed the transmission problem was unrelated to the theft.

(51) State Farm denied payment for the transmission problems on the basis they were not causally related to the theft.

(52) Sanders admits that before his deposition, he never met State Farm employees, Stephanie Mulhern, Ron Costagliola, or Michelle Morris, or any of the other individuals that may have handled his claim.

(53) Michael Murphy, Esquire is outside independent counsel for State Farm in civil action no. 95-4815.

(54) Murphy hired Egis International Inc., an independent investigation firm to question listed witnesses in civil action no. 95-4815.

(55) The investigator, Thomas McGlinn, did speak to Ronald Paden, Bobby Paden and John Mullen, the mechanic about the theft.

(56) Martin E. Lauginiger, the chief of police of Lower Chichester, stated that on January 11, 1994, Sergeant Hanes of the Newport News Police Department in Virginia informed him that the operator of the stolen Corvette identified himself as Hector Martinez, the brother-in-law of the owner of the car, Jerome Sanders. Affidavit of Martin E. Lauginiger.

DISCUSSION

Plaintiff’s bad faith claims arise under 42 Pa.C.S. §8371 which 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 plus 3 percent.

“(2) Award punitive damages against the insurer.

“(3) Assess court costs and attorneys fees against the insurer.”

The standard for bad faith claims under section 8371 is set forth in Terletsky v. Prudential Property & Casualty Insurance Company, 437 Pa. Super. 108, 649 A.2d 680, 688 (1994), appeal denied, 540 Pa. 641, 659 A.2d 560 (1995). The Pennsylvania Superior Court applied a two-part test, both elements of which must be supported with clear and convincing evidence: (1) that the insurer lacked a reasonable basis for denying benefits; and (2) that the insurer knew or recklessly disregarded a lack of a reasonable basis. In opposing a motion for summary judgment in a bad faith case, a plaintiff must show by clear and convincing evidence that the insurer lacked a reasonable basis for the denial of the claim and that it knew, or recklessly disregarded, the lack of a reasonable basis. Polselli v. Nationwide Mutual Fund Insurance Company, 23 F.3d 747, 750 (3d Cir. 1994); Quarciari v. Allstate Insurance Company, 998 F. Supp. 578,581 (E.D. Pa. 1998); McCabe v. State Farm, 36 F. Supp. 2d 666 (E.D. 1999). Defendant’s motions for summary judgment are properly supported and reveal that State Farm had a reasonable basis for its actions in handling and investigating plaintiff’s insurance claim. Further, it is the opinion of this court that plaintiff has failed to meet his burden of coming forward with clear and convincing evidence that State Farm lacked a reasonable basis for its handling of plaintiff’s claim.

CIVIL ACTION NO. 95-4815

In this action, plaintiff alleges he has proven numerous instances of State Farm’s conduct which would allow a jury to conclude that State Farm acted in bad faith in its handling of plaintiff’s claim. First, he alleges that State Farm acted in bad faith when they failed to pay promptly his insurance claim for towing and body and engine damage. The undisputed facts reveal, however, that two months after his Corvette was stolen, his mechanic received a check in the amount of $682 for the cost of towing, and eight months after his Corvette was stolen, he received a check for $6,575.68 in payment for exterior and engine damage resulting from the theft. The towing bill was paid one day after it was submitted to State Farm and the damage bill was paid nine days after State Farm received the final estimate of engine repair from plaintiff’s mechanic.

Furthermore, the delay in payment was mainly occasioned by plaintiff and his agents in first reporting damage ad seriatim over an extended period and second, in failing to provide in a timely fashion the proper documentation of expenses. State Farm did request that Sanders prepare an affidavit of theft, give a phone recorded statement, testify at an examination under oath and provide documentation to support a claim for a rebuilt engine. As all of these are consistent with the terms and conditions of the policy, they cannot be viewed as indicia of bad faith.

Numerous bad faith cases involving issues of investigation and delay in payment have been resolved by granting insurers’ motions for summary judgment. See Kosierowski v. Allstate Insurance Company, 51 F. Supp.2d 583 (E.D. Pa. 1999); Quarciari v. Allstate Insurance Company, 998 F. Supp. 578 (E.D. 1998); Leo v. State Farm Mutual Automobile Insurance Company, 939 F. Supp. 1186 (E.D. Pa. 1996), aff’d without opinion, 116 F.3d 468 (3d Cir. 1997). In these cases, the delay in payment was longer than the delay in payment in plaintiff’s case. Assuming for purposes of this motion only that all delay in this matter is attributable to State Farm, the eight months delay alone is not clear and convincing evidence of bad faith.

As defendant avers, numerous red flags developed soon after plaintiff’s initial claim of property damages. These red flags included:

(1) An original set of car keys was in possession of the occupant of the car at the time of recovery in Virginia.

(2) This was an older model 1975 car with more than 113,000 miles on it.

(3) The car was purportedly stolen from a closed and locked home garage.

(4) There was no forced entry into that locked garage.

(5) There was no sign of forced entry into the vehicle.

(6) The tow yard in Virginia, as well as the Virginia claim representative, reported no apparent damage when the car was inspected in Virginia.

(7) Sanders did not report any damage to State Farm until 38 days after the car was returned to Pennsylvania by his mechanic.

(8) The insured did not report any mechanical damage to the engine to State Farm until 60 days after the car was returned to Pennsylvania by Sanders’ mechanic.

(9) In answers to the questionnaire on January 19, Sanders claimed that he had all sets of the keys to the car in his possession, although it was later determined that that could not be true since the perpetrator who was discovered in the car in Virginia had one of the three sets of keys in his possession at that time.

(10) Sanders had suspended all coverage on the car prior to the theft claiming that it would not be in use, but nevertheless reinstated the comprehensive or theft coverage only in June 1993 — several months before the theft.

After State Farm obtained an affidavit of theft, a recorded statement, and received additional engine claims and documentation from Sanders, additional red flags arose. They include:

(1) Sanders claimed that the engine had been rebuilt in the recent past for the first time more than four months after recovery of the car (despite opportunities to do so in an earlier questionnaire, affidavit of theft, and recorded statement).

(2) Sanders provided a receipt for the rebuilt engine that contained no printed letterhead; but a handwritten letterhead called “L & D Automotive.”

(3) That receipt indicated payment in cash.

(4) The town of Claymont was spelled wrong on that receipt.

(5) It was noticed that the mileage of 113,694 miles, noted on the L & D August 3,1993 receipt, was actually lower than the mileage on an earlier inspection sticker on that vehicle.

(6) State Farm claims representative, Ms. Mulhern, could not locate the L & D shop on her visit to the purported address in Claymont, Delaware.

(7) In the recorded statement and at the examination under oath, Sanders denied that the car was previously for sale, but he later admitted at his deposition that it was previously for sale for a month.

(8) Sanders had recently purchased a new vehicle.

(9) The stolen car had a burglar alarm which was deactivated by the operator without damage, and which required knowledge of the location for the key for that alarm in order to enter the car.

(10) In the examination under oath Sanders said he did not know the vehicle was recovered with the occupant in it, yet at the deposition he admitted that the police told him about an occupant.

According to State Farm, it was the existence of the above red flags which necessitated a more thorough investigation of the theft claim.

In O ’Donnell v. Allstate Insurance Company, 734 A.2d 901 (Pa. Super. 1999), the Superior Court affirmed the jury verdict finding in favor of defendant Allstate on plaintiff’s claim of bad faith. The suit arose out of an alleged burglary of the insured’s home. Numerous red flags arose during the investigation of the claim including incorrect receipts for items claimed to have been stolen and refusal to cooperate in the investigation so Allstate could confirm alleged losses. The Superior Court acknowledged that the existence of these red flags prompted a more thorough and protracted investigation by the insurance provider. O’Donnell, 734 A.2d at 907. Likewise in the instant case, the numerous aforementioned red flags provided State Farm with a reasonable basis to conduct a more thorough, albeit lengthier, investigation. It is important to note that the claim was paid in its entirety on September 16, 1994 which was less than 30 days after the examination under oath was transcribed and within nine days of State Farm receiving plaintiff’s mechanic’s revised estimate of engine repair.

An insurance company has a right under its policy to conduct a thorough investigation of a claim. Any reasonable delay caused by such an investigation does not give rise to a claim for bad faith. In the instant case, State Farm had a reasonable basis to conduct a thorough investigation. No reasonable jury could conclude that the delay attributable to that investigation rises to the level of bad faith proven by clear and convincing evidence.

Plaintiff also argues that State Farm’s denial of his transmission claim constitutes bad faith. The transmission damage complained of was not discovered until a year after recovery of the Corvette and several months after the engine rebuild, while Sanders was driving it. State Farm’s experts inspected the Corvette three times after the report of transmission damage and concluded each time the transmission damage was unrelated to the theft.

Plaintiff has the burden of proving the transmission problem, the cause of the problem and its causal relationship to the theft. Other than indicating that their mechanic, Mullen, would testify at trial that the theft caused the transmission problem, plaintiff has provided no evidence to contradict or countervail the two expert reports of Ms. Keri and Mr. Siegal of State Farm. Moreover, plaintiff has not established by clear and convincing evidence that State Farm acted in bad faith when it relied on its experts in denying plaintiff’s transmission claim.

In Bostick v. ITT Hartford Group Inc., 56 F. Supp.2d 580 (E.D. 1999), the court granted defendant insurer’s motion for summary judgment on the bad faith claim because the insurance company had relied on an expert report in denying coverage. The court stated:

“Whether or not the defendants’ expert correctly assessed the cause of the damage, the plaintiffs have not presented evidence to substantiate their claim that Hartford acted unreasonably. Bad faith cannot be found where the insurer’s conduct is in accordance with a reasonable but incorrect interpretation of the insurance policy and the law.” Id. at 27.

The exact scenario is presented in the instant case. State Farm relied on its experts in denying coverage on the transmission claim. Plaintiff has not presented clear and convincing evidence that State Farm acted unreasonably in their reliance.

Plaintiff attempts to buttress his claim for bad faith by alleging that he was ill-treated by State Farm because he is an African-American. Yet he has no relevant evidence that any State Farm employee he dealt with was aware he is of African-American descent. He has conceded this lack of evidence in his deposition. Deposition at 179, 191. Accordingly, this allegation of bad faith must fail.

Plaintiff argues further that State Farm violated the Pennsylvania Unfair Insurance Practices Act, 40 Pa.C.S. §1171.1 et seq. by committing and performing unfair claim settlement or compromise practices with such frequency as to constitute a business practice. Plaintiff, however, has offered no evidence to suggest that State Farm’s actions in his case were committed with such frequency as to constitute a business practice. A further obstacle to this bad faith cause of action under the UIPA is that the statute does not create a private cause of action. D’Ambrosio v. Pennsylvania National Mutual Casualty Insurance Company, 494 Pa. 501, 507, 431 A.2d 966, 970 (1981). Thus, while evidence of violations of the UIPA may help a plaintiff meet its evidentiary burden under section 8371 (and note, plaintiff has shown no violations), there is no private cause of action under the UIPA or the Pa. code implementing the UIPA.

Finally, plaintiff asserts that State Farm acted in bad faith when they denied payment for reimbursement of plaintiff’s transportation costs while his Corvette was unavailable. As plaintiff has admitted however, his insurance contract with State Farm did not provide this type of coverage nor did he ever provide any documentation supporting his assertion that he in fact incurred such expenses. Accordingly, State Farm did not act in bad faith in denying plaintiff’s claim for transportation costs.

CIVIL ACTION NO. 97-16355

After the initiation of the 1995 action, plaintiff filed this 1997 action alleging that Michael Murphy, Esquire, independent counsel for State Farm, and investigators at Egis International Inc., an independent investigation firm hired by Murphy, engaged in discovery and litigation abuse amounting to bad faith. Further, plaintiff alleges that State Farm is vicariously liable for such misconduct by Murphy and Egis. Plaintiff’s claims also sound in slander and defamation. For the reasons that follow, summary judgment was granted in favor of defendant in this action.

Sanders alleges that State Farm, through its counsel, filed multiple and duplicative pleadings and motions in civil action no. 95-4815 which amounts to bad faith under section 8371. As a matter of law, the complained of conduct (assuming State Farm can be held vicariously liable for counsel’s conduct) during litigation does not amount to bad faith. Section 8371 is designed to provide “a remedy for bad-faith conduct by an insurer in its capacity as an insurer and not as a legal adversary in a lawsuit filed against it by an insured.” O’Donnell, supra, 734 A.2d at 909, quoting Slater v. Liberty Mutual Insurance Company, 1999 U.S. Dist. Lexis 3753, 1999 WL 178367 (E.D. Pa. filed March 30, 1999). While O’Donnell, supra, established that a plaintiff’s bad faith claim can include evidence of the insurer’s bad faith that occurred after the filing of the complaint, it is equally clear that section 8371 does not contemplate actions for bad faith for discovery violations. Filing of motions and pleadings is akin to discovery practice, therefore we believe plaintiff has no cause of action for bad faith based on defendant’s filing of motions and pleadings in the underlying bad faith action.

Plaintiff also alleges that State Farm committed bad faith when an investigator for Michael Murphy, Esquire, State Farm’s outside independent counsel, questioned witnesses at Murphy’s direction and allegedly insinuated to them that plaintiff was somehow involved in the theft of his own car. Assuming the truth of this allegation, it still does not rise to the level of bad faith. This type of discovery abuse has nothing to do with the parties’ insured-insurer relationship. Indeed, plaintiff’s claim had already been paid. It arises from the adversarial nature of their relationship as litigants. If plaintiff was aggrieved by defendant’s actions during discovery, his remedy was under the Pennsylvania Rules of Civil Procedure not section 8371.

Plaintiff has a more fundamental problem with this 1997 action. Both counsel and his investigator in the 1995 action are independent contractors of State Farm, and therefore, State Farm cannot be held vicariously liable for their actions. An employer will not be held liable for harm caused by acts of independent contractors. Lutz v. Cybularz, 414 Pa. Super. 579, 607 A.2d 1089 (1992). Under Pennsylvania law, an attorney in private practice who is retained to handle particular matters acts on behalf of his client in the capacity of an independent contractor and not an employee. Ingersoll-Rand Equipment Corp. v. Transportation Insurance Co., 963 F. Supp. 452, 454 (M.D. Pa. 1997). An attorney’s negligence therefore cannot be imputed to his client. Id. In the instant case, the connection is further attenuated since the independent counsel retained the independent investigator. Accordingly, State Farm cannot be held vicariously liable for the actions of Murphy and McGlinn in litigating and investigating the 1995 action.

There is a further reason State Farm is not liable for the investigators alleged defamatory statements and innuendoes about plaintiff. Under Pennsylvania law, certain communications by counsel during the course of the litigation are privileged and therefore immune from liability for defamation and slander. Post v. Mendel, 510 Pa. 213, 507 A.2d 351 (1986). Whether a challenged communication is published prior to or during a judicial proceeding, it must bear a certain relationship to the proceeding so as to qualify it as privileged. Id.

In the instant case, the investigator acting as the agent of counsel interviewed people named by Sanders as witnesses in the 1995 action. The interviews were performed in the regular course of judicial proceedings. Even if plaintiff can demonstrate that the investigators alleged statements are defamatory and slanderous, those statements qualify for immunity from claims of slander and defamation.

Accordingly, it is for all the above reasons that defendant’s motion for summary judgment in civil action no. 97-16355 was granted.


source: Caselaw Access Project

author: LEVIN, J.,

license: Public Domain

text:
    XF Enterprises Inc. v. BASF Corp.

      C.P. of Philadelphia County,
    no. 9906-1477.

      Timothy C. Russell, for plaintiff.

      Edward W Madeira Jr., for defendant.
    July 13, 2000
   LEVIN, J.,

Before this court are defendants’ preliminary objections to plaintiff’s class action complaint, plaintiff’s response and all response hereto. For the reasons set forth below this court sustains defendants’ preliminary objections in part and denies them in part.

DISCUSSION

Defendants attempt to have each of the five claims in the plaintiff’s first amended class action complaint dismissed. These claims, which this court will address in order, are as follows: violation of Pennsylvania Antitrust Laws, violation of UTPCPL, civil conspiracy, fraud and negligent misrepresentation.

Claim 1: Violation of Pennsylvania Antitrust Laws

Defendants argue that this, the claim for violation of Pennsylvania antitrust laws, should be dismissed because there is no recognized cause of action for such a violation in Pennsylvania. This court agrees with the position of defendants.

Plaintiff admits that no Pennsylvania case has awarded damages for a violation of antitrust laws. However, plaintiff argues that this is so, not because there is no cause of action, but rather because the right case has not yet presented itself. This argument relies heavily on language found in the minority opinion of the case of Collins v. Main Line Board of Realtors, 452 Pa. 342, 350, 304 A.2d 493, 496 (1973). In Collins the plaintiff brought an action in equity seeking an injunction to keep the defendant from barring the plaintiff from its real estate listings, as well as an injunction to make plaintiffs members of the defendant’s organization and $10,000 compensatory damages and punitive damages. The court ruled in plaintiff’s favor on the issue of the injunctions but not on the issue of damages stating that “[t]he record . . . does not provide any legal basis for an award of damages.” Id. at 352. Plaintiff suggests that this language indicates that the plaintiff had not submitted sufficient evidence to establish damages, rather than that there was no cause of action for these damages available to plaintiff. This court does not agree with this reading of the Collins case. The language in question is from a minority opinion, is dicta and is ambiguous at best.

No court to date has held that a private remedy is available for damages under Pennsylvania’s common law on antitrust violations. The federal Sherman Act, a codification of the common law of antitrust, additionally provides for liability for damages. Pennsylvania has no legislation which provides for these damages. In commenting on the common law of antitmst the Supreme Court of the United States in Apex Hosiery Co. v. Leader, 310 U.S. 469, 497 (1940), stated:

“The common law doctrines relating to contracts and combinations in restraint of trade were well understood long before the enactment of the Sherman Law ... Such contracts were deemed illegal and were unenforceable at common law. But the resulting restraints of trade were not penalized and gave rise to no actionable wrong.”

Without legislation similar to the Sherman Act’s, Pennsylvania common law lacks the damage provision necessary to give Pennsylvanians the cause of action which plaintiff seeks here. The legislators of our state have not passed such an act, however, it is not for a lack of effort. There have been 13 antitrust bills introduced in the General Assembly since 1987. Any one of these bills, if made law, would have provided the private right of action which plaintiff now suggests this court should recognize.

In light of the history of antitrust common law in Pennsylvania, the lack of any precedent recognizing a private cause of action for damages sustained as a result of antitrust activities and the unsuccessful legislative attempts to create such a cause of action, this court feels that it is not the place of a court of common pleas to allow a plaintiff to proceed on the claim at issue.

The preliminary objection to claim one of the plaintiff’s first amended complaint is granted.

Claim 2: Violation of UTPCPL

The court notes that plaintiff filed a praecipe for dismissal of the Count II claims. Accordingly, discussion on this claim is unnecessary and the defendants’ preliminary objections on the matter are granted.

Claim 3: Civil Conspiracy

Defendants preliminarily object to claim three of plaintiff’s first amended complaint arguing that because the underlying claim for damages from an antitrust violation has no cause of action, there can be no cause of action for a civil conspiracy to commit the violation. In support of their position defendants cite Pelagatti v. Cohen, 370 Pa. Super. 422, 432, 536 A.2d 1337, 1342 (1987). This case states “[Ajbsent a civil cause of action for a particular act, there can be no cause of action for civil conspiracy to commit that act.”

Plaintiff counters by suggesting that even if there is not a cause of action for damages there is indisputably a cause of action for an injunction. While this may indeed be true, the injunction is an equitable remedy which should not support any cause of action beyond the equitable relief which it may provide. To allow the plaintiff to use a claim of civil conspiracy as a means of collecting damages which are not allowable by Pennsylvania’s antitrust law, as discussed above, is clearly not a proper use of the conspiracy claim and can only lead to mischief. Accordingly, this court is not persuaded that plaintiffs can use this as a back door means of recovering damages from defendants.

The preliminary objection to claim three of the plaintiff’s first amended complaint is granted.

Preliminary Objections to All Counts

The defendants have entered preliminary objections, which are based on the rules of civil procedure regarding specificity of pleadings, on all of plaintiff’s claims. Specifically, defendants object to claims two and four under Pa.R.C.P. 1028(a)(2) which allows preliminary objections to be filed alleging failure of a pleading to conform to law or rule of court. The rule which defendants allege is not being complied with in these claims is Rule 1019(b) which states that averments of fraud or mistake shall be averred with particularity.

Defendants also assert under Rule 1028(a)(2) that claims one, three and five fail to comply with Rule 1019(a) which requires the material facts on which a cause of action is based to be stated in a concise and summary form. They also challenge these claims under Rule 1028(a)(3) which allows preliminary objections to be filed where there is insufficient specificity in a pleading.

The court does not find plaintiff’s claims to be lacking in particularity or specificity. Plaintiff’s claims are concise and well-pled. Consequently, defendants’ preliminary objections based on Rules 1028(a)(2) and 1028(a)(3) are denied. Unless otherwise barred above, plaintiff’s claims may proceed.

For the foregoing reasons the court enters the following order.

ORDER

And now, July 13, 2000, upon consideration of the preliminary objections, oral arguments and supporting briefs of defendants to plaintiff’s class action complaint and plaintiff’s responses thereto, it is hereby ordered that:,

(1) Defendants’ preliminary objections to plaintiff’s complaint claims I, II and III are sustained. These counts are dismissed with prejudice.

(2) Defendants’ preliminary objections to plaintiff’s complaint claims IV and V are denied.

Defendants shall answer plaintiff’s complaint within 20 days of this order.

      . Preliminary objections are submitted on behalf of the following defendants: BASF Corp., Roche Vitamins Inc., Hoffman-La Roche Inc., Rhone-Poulenc Inc., Rhone-Poulenc Animal Nutrition Inc., Lonza Inc., Degussa Huís Corp., Chinook Group Inc., Ducoa, LP, DCV Inc., Eisai Inc., Takeda Vitamin & Food USA Inc., Daiichi Fine Chemicals Inc., Daiichi Pharmaceutical Corporation, Sumitomo Chemical America Inc., EM Industries Inc., Reilly Industries Inc., Tanabe USA Inc.


author: PANELLA, J. BYER, J.,

text:
    In re Rolf Larsen

      Disciplinary Board Docket no. 4 JD 94.
    BEFORE: SYLVESTER, P.J., MESSA, SWEENEY, PANELLA, B YER, LEADBETTER AND MILLER, JJ.

    December 31, 1999-
   PANELLA, J.

INTRODUCTION

The Judicial Conduct Board filed a complaint with this court on June 6,1994 against former Supreme Court Justice Rolf Larsen. The complaint consisted of 27 counts divided into six separate parts. Part A requested disciplinary action based on respondent’s conviction of two counts of criminal conspiracy, 18 Pa.C.S. §903, which are felonies (Counts 1-5); part B alleged the underlying facts which supported the convictions, i.e., that respondent conspired with others to unlawfully obtain a schedule IV controlled substance (Counts 6-9); part C contained charges that respondent made knowingly false material statements before a grand jury (Counts 10-14); part D requested disciplinary action based on allegations that the respondent filed documents with the Pennsylvania Supreme Court containing averments which were knowingly false or made with reckless disregard for the truth (Counts 15-18); part E charged the respondent with failure to recuse in matters involving potential claims of bias and partiality because of his prior relationship, personal and professional, with an attorney (Counts 19-23); and part F alleged that respondent had ex parte conversations regarding two petitions for allowance of appeal pending before the Supreme Court (Counts 24-27).

On September 18, 1998, the board filed a motion to withdraw, with prejudice, the charges contained in parts B, C, D, E and F, which this court granted on October 2, 1998.

On May 3,1999, the board filed a motion to withdraw Count 5 of part A of the complaint, which this court granted on May 20, 1999.

This case then proceeded to trial solely on the board’s contentions in Counts 1 through 4 contained in the complaint. The relevant portion of the complaint states:

“In the case of Commonwealth v. Rolf Larsen, 93-13844, Court of Common Pleas of Allegheny County, Pennsylvania, Justice Larsen was convicted of Counts 1 and 2, each charging a criminal conspiracy (18 Pa.C.S. §903) to violate the Controlled Substance, Drug, Device, and Cosmetic Act, 35 P.S. §§780-113(a)(12) and (a)(14); said violations being felonies.”

A trial was held on June 30, 1999 at which time testimony was taken. Subsequently, the board and the respondent furnished the court with proposed findings of fact and conclusions of law.

The board has charged (in part A of the complaint) that respondent’s conviction of a felony subjects him to discipline under Article Y, Section 18(d)(1) of the Pennsylvania Constitution because the conviction constitutes:

(1) a violation of Article V, Section 18(d)(1) of the Pennsylvania Constitution (conviction of a felony, Count 1),

(2) a violation of Article V, Section 17(b) of the Pennsylvania Constitution (activity prohibited by law, Count 2),

(3) a violation of Article V, Section 18(d)(1) of the Pennsylvania Constitution (conduct which brings the judicial office into disrepute, Count 3), and

(4) a violation of Article V, Section 18(d)(1) of the Pennsylvania Constitution (conduct in violation of a canon or rule prescribed by the Supreme Court, to wit: Canons 1 and 2 of the Code of Judicial Conduct, Count 4).

FINDINGS OF FACT

Regrettably, the board and the respondent were not able to reach stipulations as to a number of seemingly indisputable matters. Therefore, the evidence presented by the board included, inter alia:

(1) The testimony of the Honorable Terrance O’Brien, the trial judge in Commonwealth v. Larsen, Court of Common Pleas of Allegheny County, criminal docket no. 93-13844 (N.T. 87-89);

(2) The docket entries and verdict slips in Commonwealth v. Larsen, Allegheny County criminal docket no. 93-13844 (board exhibits 7 and 8);

(3) The Superior Court’s decision in Commonwealth v. Larsen, 452 Pa. Super. 508,682 A.2d783 (1996) (board exhibit 3 a);

(4) The Supreme Court’s order of March 19, 1997, Commonwealth v. Larsen, 547 Pa. 752, 692 A.2d 564 (1997) (board exhibit 3b);

(5) Transcript of respondent’s resentencing on May 27, 1997 by the trial court (board exhibit 10); and

(6) The docket entries from Commonwealth v. Larsen, Court of Common Pleas of Allegheny County, criminal docket no. 93-13844. (Board exhibit 7.) ,

This evidence conclusively established that the respondent was found guilty in the Court of Common Pleas of Allegheny County of two counts of criminal conspiracy. Following sentencing, the respondent filed a direct appeal. The Superior Court of Pennsylvania affirmed the conviction; however, it remanded solely for resentencing. The respondent’s petition for allowance of appeal to the Supreme Court of Pennsylvania was denied by way of an order of March 19, 1997. The respondent was re-sentenced by the trial court on May 27,1997 to 24 months of probation on Count 1, 240 hours of community service and the payment of costs. No appeal was taken from the judgment of sentence of May 27, 1997.

DISCUSSION

As aforesaid, the respondent was found guilty in the Court of Common Pleas of Allegheny County, at criminal docket no. 93-13844, of two counts of criminal conspiracy, 18 Pa.C.S. §903. All direct appeals have been exhausted. The basis of the board’s request for disciplinary action is now limited to the respondent’s criminal conviction, although the board argues that four separate constitutional provisions were violated.

In light of respondent’s conviction, there is no question presented as to whether grounds for discipline exist. The Pennsylvania Constitution provides, in pertinent part: “A justice, judge or justice of the peace may be suspended, removed from office or otherwise disciplined for conviction of a felony ....” Pennsylvania Constitution, Article V, Section 18(d)(1). (emphasis added) Thus, although other grounds for discipline may exist, a review of the other constitutional provisions is unnecessary because the criminal conviction provides a per se basis for discipline. Furthermore, since the respondent’s conviction is now considered final, he cannot collaterally attack his conviction in these proceedings. Cf. Office of Disciplinary Counsel v. Costigan, 526 Pa. 16,584 A.2d 296 (1990) (criminal convictions provided per se basis for discipline of attorney).

Therefore, we find that the board has established by clear and convincing evidence that respondent was convicted of a felony.

CONCLUSIONS OF LAW

(1) The respondent was convicted of two counts of criminal conspiracy, 18 Pa.C.S. §903, in the Court of Common Pleas of Allegheny County, Fifth Judicial District, criminal docket no. 93-13844.

(2) This crime is classified as a felony.

(3) The aforesaid conviction subjects the respondent to discipline under Article V, Section 18(d)(1) of the Pennsylvania Constitution.

Byer, J., files a dissenting opinion.

Russo, J., did not participate in the consideration or disposition of this case.

ORDER

And now, December 31, 1999, based on the conclusions of law, it is hereby ordered:

That, pursuant to C J.D.R.P. no. 503, the attached opinion with findings of fact and conclusions of law be and it is hereby filed, and shall be served on the Judicial Conduct Board and upon the respondent,

That either party may file written objections to the court’s conclusions of law within 10 days of this order. Said objections shall include the basis therefor and shall be served on the opposing party,

That, in the event that such objections are filed, the court shall determine whether to entertain oral argument upon the objections, and issue an order setting a date for such oral argument, and

That, in the event objections are not filed, the conclusions of law shall become final, and this court will issue an order setting a date, pursuant to C.J.D.R.P. no. 504, for a hearing on the issues of sanctions.

DISSENTING OPINION

BYER, J.,

December 31,1999 — When we considered respondent’s omnibus pretrial motion, I expressed reservations concerning our jurisdiction to proceed with this case in view of respondent’s having been impeached by the House and convicted by the Senate, with the result that he is removed from judicial office and barred from holding judicial or any other public office in the future. In re Larsen, 111 A.2d 39, 48 (Pa.Ct.Jud.Disc. 1998) (Byer, J., concurring in result). The board’s subsequent actions in limiting the charges against respondent confirm that jurisdiction of this case is vested exclusively in the Disciplinary Board and the Supreme Court. Furthermore, I believe that there is no case or controversy, because respondent has not attempted to reactivate his license to practice law. Therefore, I would not reach the merits and respectfully dissent.

I.

Because the Senate already has removed respondent from judicial office and precluded him from holding such office in the future, the only possible sanction we can impose on respondent is to affect his right to practice law. As discussed in both the majority opinion and my opinion concurring in the result when this case was before us on respondent’s omnibus pretrial motion, our court arguably has jurisdiction to impose a sanction affecting a former judicial officer’s right to practice law. However, I conclude that the Supreme Court has limited our jurisdiction to do so to cases where the discipline relates to judicial acts.

Rule 201 of the Pennsylvania Rules of Disciplinary Enforcement, promulgated by our Supreme Court, provides that the Supreme Court and the Disciplinary Board have exclusive jurisdiction over any former judicial officer who resumes the practice of law where the discipline is “with respect to nonjudicial acts while in office as a justice, judge or district justice.” Here, the board now has limited its charge against respondent to his having been convicted of a criminal charge of conspiracy to obtain controlled substances unlawfully. Although that is a serious crime, the conviction and the underlying offense are nonjudicial acts. Therefore, to the extent there is an actual case or controversy here, I believe that we lack jurisdiction because the discipline relates to nonjudicial acts.

II.

I also conclude that there is no case or controversy here. As I have noted above and in my prior opinion, the only possible sanction which can be imposed on respondent is a sanction affecting his right to practice law now that he no longer is a judicial officer.

When a full-time judicial officer leaves judicial service, he or she does not automatically activate his or her license to practice law. Instead, under Rule 219(m) of the Pennsylvania Rules of Disciplinary Enforcement, a former judicial officer must file a notice with the administrative office of Pennsylvania courts if he or she wishes to resume active status as a Pennsylvania lawyer. Respondent has not filed such a notice, and there is no evidence or allegation that he is engaging in the practice of law without having filed the required notice.

Thus, in my opinion, this case is purely hypothetical and the majority’s opinion is an improper advisory opinion. If respondent never attempts to resume active status as a Pennsylvania lawyer, our judgment is meaningless. As a court, our jurisdiction is limited to actual cases or controversies and does not extend to the realm of the hypothetical.

III.

For the above reasons, I would not reach the merits, but would dismiss the complaint. If respondent ever decides to place his license to practice law in active status, the Disciplinary Board and the Supreme Court would have exclusive jurisdiction to determine at that time if respondent’s nonjudicial conduct which is the subject of the Judicial Conduct Board’s complaint here warrants a sanction which should affect his ability to resume the practice of law. Therefore, I respectfully dissent.

Byer, J., dissents for the jurisdictional reason expressed in his prior opinion filed December 31, 1999.

Russo and Miller, JJ., did not participate in the consideration or disposition of this case.

ORDER

And now, February 4, 2000, the findings of fact and conclusions of law set forth in this court’s opinion dated December 31, 1999, having become final pursuant to C.J.D.R.R no. 503, and after the hearing held by the full court on February 4, 2000 on the issue of sanctions, it is hereby ordered:

(1) Respondent, Rolf Larsen, is removed from office and shall be ineligible to hold judicial office in the future.

(2) Respondent is disbarred from the bar of this Commonwealth.

      . A detailed recitation of the procedural history of this case is contained in our opinion of August 4, 1998 disposing of respondent’s omnibus motion, In re Larsen, 717 A.2d 39, 40-42 (Pa.Ct.Jud.Disc. 1998).

      . Count 5 of part A charged that respondent’s felony conviction constituted violations of certain Rules of Disciplinary Enforcement and Rules of Professional Conduct. The count was withdrawn because of this court’s opinion in In re Cicchetti, 697 A.2d 297 (Pa.Ct Jud.Disc. 1997), which was filed after the board complaint in this case.

      . The constitution requires that the board has the burden of proving the charges by clear and convincing evidence. Pennsylvania Constitution, Article V, Section 18(b)(5).

      . In an accompanying opinion, Judge Byer notes his dissent from the conclusion that this court has jurisdiction in this case (a conclusion with which he earlier concurred, see In re Larsen, 111 A.2d 39 (Pa.Ct Jud.Disc. 1998), Byer, J., concurring), for the stated reason that Rule 201 of the Pennsylvania Rules of Disciplinary Enforcement confers jurisdiction on the Disciplinary Board over a former judicial officer’s right to resume the practice of law where the discipline relates to “nonjudicial acts while in office,” and the fact that the conviction of this respondent was based on nonjudicial acts. This contention was dismissed by the Supreme Court in Office of Disciplinary Counsel v. Anonymous Attorneys, 528 Pa. 83, 93, 595 A.2d 42, 47 (1991), where that court said: “This constitutional scheme empowers only JIRB to bring action against judicial officers for any allegations of misconduct which arise during that officer’s tenure in the judiciary.” (emphasis added) Furthermore, this subject received thorough treatment in this court’s earlier decision when we dismissed respondent’s omnibus motion, see In re Larsen, supra at 43-46.


author: CONWAY, P.J.,

text:
    Beck v. Krell

      C.P. of Wayne County,
    no. 251-1999-Civil

      Alida O’Hara, for plaintiff.

      Thomas R. Daniels, for defendants Ruth A. Krell, Cove Haven and Caesars Pocono Resorts.

      Carmina M. Rinkunas, for defendants Susan C. Zamesnik and Unemployment Tax Advisory Corporation.
    April 18, 2000
   CONWAY, P.J.,

Before the court at this time are preliminary objections filed by Ruth Krell, Cove Haven and Caesar’s Pocono Resorts and Susan C. Zamesnik and Unemployment Tax Advisory Corporation, as well as the plaintiff’s preliminary objections to the preliminary objections of Ruth Krell, Cove Haven and Caesar’s Pocono Resorts. Defendants Ruth A. Krell, Cove Haven and Caesar’s Pocono Resorts raise 10 preliminary objections: (1) Plaintiff failed to abide by an agreement for alternative dispute resolution; (2) Inclusion of scandalous/impertinent matter; (3) Legal insufficiency for punitive damages; (4) Demurrer to Count 1; (5) Demurrer to Count 3; (6) Demurrer to Count 4; (7) Demurrer to Count 5; (8) Lack of personal jurisdiction; (9) Motion to strike; and (10) Motion for more specific pleadings. Defendants Susan C. Zamesnik and Unemployment Tax Advisory Corporation, allege preliminary objections in the form of a demurrer.

This court shall first examine Cove Haven’s claim that there is an agreement for alternative dispute resolution. Cove Haven cites to the mediation policy covering,

“[Cjlaims for wages or other compensation due; claims for breach of a contract or covenant; tort claims; claims for discrimination including, but not limited to, race, color, sex, religion, national origin, disability, sexual orientation, marital status or age (including, but not limited to, the Age Discrimination and Employment Act of 1967, as amended); claims for denial of benefits; claims for violation of any federal, state or other governmental law, statute, regulation or ordinance; and any other claims arising under common law.”

Further, Cove Haven offers an acknowledgment of plaintiff’s acceptance to the mediation policy on August 29, 1997 as exhibit-C to preliminary objections. Cove Haven relies upon the explanation in Messa v. State Farm Insurance Co., 433 Pa. Super. 594, 597-98, 641 A.2d 1167, 1168-69 (1994):

“When one party to an agreement seeks to enjoin the other from proceeding to arbitration, judicial inquiry is limited to the question of ‘(1) whether an agreement to arbitrate was entered into and (2) whether the dispute involved comes within the ambit of the arbitration provision.’ Rocca v. Pennsylvania General Insurance Co., 358 Pa. Super. 67,70,516 A.2d 772,773 (1986), allocatur denied, 517 Pa. 594, 535 A.2d 83 (1987). See also, Wolf v. Baltimore, 250 Pa. Super. 230, 234, 378 A.2d 911, 912 (1977). Once it has been determined that an agreement to arbitrate exists and that the dispute falls within the arbitration provision, the trial court, pursuant to the provisions of the Uniform Arbitration Act, must order the parties to proceed with arbitration. In such cases, the court is not free to examine the merits of the controversy. Thus, it is provided at 42 Pa.C.S. §7304(a) and (e) in pertinent part, as follows:
“(a) Compelling arbitration. — On application to a court to compel arbitration made by a party showing an agreement described in section 7303 (relating to validity of agreement to arbitrate) and a showing that an opposing party refused to arbitrate, the court shall order the parties to proceed with arbitration....
“(e) No examination of merits. — An application for a court order to proceed with arbitration shall not be refused, nor shall an application to stay arbitration be granted, by the court on the ground that the controversy lacks merit or bona fides or on the ground that no fault or basis for the controversy sought to be arbitrated has been shown.
“These provisions are applicable both to statutory and common-law arbitration. See 42 Pa.C.S. §7342(a) (Supp. 1993). Accord Rocca v. Pennsylvania General Insurance, supra, 358 Pa. Super, at 74, 516 A.2d at 776; McGinley v. Allstate Insurance Co., 352 Pa. Super. 139, 142-43, 507 A.2d 420, 422 (1986).” (footnote omitted)

Plaintiff does not dispute the existence of the agreement nor that the agreement covers these circumstances, but claims that the issue is waived because defendants, Susan Zamesnik and Unemployment Tax Advisory Corporation began this matter by praecipe to file complaint. However, as plaintiff fails to cite any cases in support of that assertion and Pa.R.C.P. 1028(6) properly allows preliminary objections on the basis of agreement for alternative dispute resolution, this court finds that the preliminary objection of Cove Haven should be granted. Therefore, this court need not decide any further objections of Cove Haven.

Next, this court shall examine UTAC’s preliminary objections. UTAC demurs to the allegations in Counts 2, libel and 3, abuse of process, of the complaint. Primarily, this court relies upon the standard as is explained in Sinn v. Burd, 486 Pa. 146,149-50,404 A.2d 672,673-74 (1979), as:

“It is axiomatic in the law of pleading that preliminary objections in the nature of a demurrer admit as true all well and clearly pleaded material, factual averments and all inferences fairly deducible therefrom. Yania v. Bigan, 397 Pa. 316,155 A.2d 343 (1959); Byers v. Ward, 368 Pa. 416, 84 A.2d 307 (1951). Conclusions of law and unjustified inferences are not admitted by the pleading. Lerman v. Rudolph, 413 Pa. 555, 198 A.2d 532 (1964). Starting from this point of reference the complaint must be examined to determine whether it sets forth a cause of action which, if proved, would entitle the party to the relief sought. If such is the case, the demurrer may not be sustained. On the other hand, where the complaint fails to set forth a cause of action, a preliminary objection in the nature of a demurrer is properly sustained.”

UTAC relies upon Rolla v. Westmoreland Health System, 438 Pa. Super. 33, 37, 651 A.2d 160, 162 (1994) explaining:

“It is well settled that statements made in the pleadings, trial or argument of a case, when relevant and material to the issues involved, are subject to an absolute privilege:

“When alleged libelous or defamatory matters or statements, or allegations or averments in pleadings or in the trial or argument of a case are pertinent, relevant and material to any issue in a civil suit, there is not civil liability for making any of them. Post v. Mendel, 510 Pa. 213,220,507 A.2d 351, 355 (1986) (quoting Greenberg v. Aetna Insurance Co., 427 Pa. 511, 514, 235 A.2d 576, 577 (1967), cert, denied, 392 U.S. 907, 88 S.Ct. 2063, 20 L.Ed.2d 1366 (1968)).

“One of the justifications for the privilege is to encourage complete and unintimidated testimony:

“The reasons for the absolute privilege are well recognized. A judge must be free to administer the law without fear of consequences. This independence would be impaired were he to be in daily apprehension of defamation suits. The privilege also extends to parties to afford freedom of access to the courts, to witnesses to encourage their complete and unintimidated testimony in court, and to counsel to enable him to best represent his client’s interests. Id. (quoting Binder v. Triangle Publications, Inc., 442 Pa. 319, 323-24, 275 A.2d 53, 56 (1971) (emphasis added)).”

Further, UTAC cites to the dicta in Milliner v. Enck, 709 A.2d 417,419-20 (Pa. Super. 1998), which explains:

“The courts of this Commonwealth have not heretofore held that unemployment compensation proceedings are ‘judicial proceedings’ such that communications directly related thereto are absolutely privileged. However, appellant has conceded that statements made in relation to proceedings before an unemployment compensation referee, the Unemployment Compensation Board of Appeals, or the Commonwealth Court are subject to an absolute privilege. See appellant’s brief, p. 9. Thus, the general issue of whether the absolute privilege for statements made in relation to a judicial proceeding is equally applicable to statements made in an unemployment compensation proceeding is not before this court. Puleo v. Thomas, 425 Pa. Super. 285, 624 A.2d 1075 (1993), (issues not raised before lower court are normally waived for the purpose of appeal).1

“1. We reiterate that our decision today should be [sic] not be interpreted as holding that unemployment com- - pensation proceedings are ‘judicial proceedings’ such that an absolute privilege applies to statements made in conjunction with the determination of benefits, since that issue is not before us. Appellant has conceded that issue, and, consequently, we assume for the purposes of this appeal that unemployment compensation proceedings are ‘judicial proceedings’ such that absolute privilege applies.

“However, we note that the lower court did hold that administrative proceedings similar to unemployment compensation proceedings are judicial in character. Shortz v. Farrell, 327 Pa. 81, 85-87, 193 A. 20, 21-22 (1937) (workers’ compensation proceedings are essentially judicial in character); see also, Urbano v. Meneses, 288 Pa. Super. 103, 431 A.2d 308 (1981) (zoning hearing board is a quasi-judicial tribunal which enjoys absolute judicial immunity). Therefore, the lower court applied the absolute privilege to appellees’ allegedly defamatory statements. The ‘judicial proceeding’ wherein absolute privilege attaches has not been precisely defined in our Commonwealth. However, it has been defined to conclude any hearing before a tribunal which performs a judicial function, including many administrative officers, boards and commissions, so far as they have powers of discretion in applying the law to the facts which are regarded as judicial or ‘quasi-judicial’ in character. Prosser, Torts (4th Ed.), §114, pp. 779-80. In fact, we have previously held that the absolute privilege accorded communications pertinent to a judicial proceeding applied to letters written by counsel, on behalf of his client, to a ‘quasi-judicial’ officer appointed to hear certain divorce issues. Smith [v. Griffiths, 327 Pa. Super. 418], 476 A.2d [22] at 24-25 [(1984)].

“We further note that the majority of jurisdictions apply absolute privilege to defamatory statements which are made in relation to a ‘quasi-judicial’ proceeding. See e.g., LaPlantev. United Parcel Service Inc., 810 F. Supp. 19 (D. Me. 1993) (employer’s response to report of Main Human Rights Commission’s investigator was absolutely privileged); Walker v. Gibson, 633 F. Supp. 88 (N.D. Ill. 1985) (allegedly defamatory statements made before grievance committee were entitled to absolute judicial immunity); Hope v. National Alliance of Postal and Federal Employees, Jacksonville Local No. 320, 649 So.2d 897 (Fla. Dist. Ct. App. 1995) (allegedly defamatory statements made in course of collective bargaining grievance process when made in connection to the quasi-judicial proceeding are absolutely privileged); Stiles v. Chrysler Motors Corp., 89 Ohio App. 3d 256,624 N.E.2d 238 (1993) (allegedly defamatory statements were absolutely privileged where statements were made in relation to National Labor Relations Act grievance proceeding); Story v. Shelter Bay Company, 52 Wash. App. 334, 760 P.2d 368 (1988) (allegedly defamatory statements made in complaint to Department of Housing and Urban Development and state department of licensing were made, in the context of quasi-judicial proceedings and, thus, were absolutely privileged), Julien J. Studley Inc. v. Lefrak, 50 App. Div.2d 162,376 N.Y.S.2d 200 (1975), aff’d on other grounds, 41 N.Y.2d 881, 393 N.Y.S.2d 980, 362 N.E.2d 611 (1977) (absolute privilege applied to defamatory statements made by witness before a licensing board in a proceeding to revoke a real estate license); Ramstead v. Morgan, 219 Or. 383, 388-89, 347 P.2d 594 (1959) (collection of cases recognizing absolutely privileged statements made before various administrative boards and commission acting in a quasi-judicial manner); ‘Defamation Administrative Proceeding’ 45 A.L.R.2d 1296, 1303."

“More significantly, courts of other states have held that defamatory statements made by an employer in response to an employee’s claim for unemployment benefits are absolutely privileged. Magnan v. Anaconda Industries Inc., 37 Conn. Supp. 38, 429 A.2d 492 (1980); Greene v. Hoiriis, 103 So.2d 226 (Fla. App. 1958) (same); Sias v. General Motors Corp., 372 Mich. 542, 127 N.W.2d 357 (1964) (same).”

This court must then determine what would be considered a judicial proceeding for purposes of the privilege. Black’s Law Dictionary identifies a judicial action as one where there is an adjudication of rights where the parties have an opportunity to be heard. (4th ed.) As an unemployment compensation hearing produces findings by a referee, is appealable, and a judicial record is made as well as its similarity to workers’ compensation hearings, this court finds that an unemployment compensation hearing is a judicial proceeding, thus protected by privilege.

Finally, this court finds that as the count for libel must fail, the claim of abuse of process must also be dismissed. Plaintiff’s allegations of abuse of process, are firmly rooted in the allegations of libel and the surrounding circumstances. With the application of the absolute privilege, and no cause of action for libel, Count 3 must also be dismissed.

Accordingly, this court enters the following:

ORDER

And now, to wit, April 18, 2000, it is the order of this court that the defendants’ Ruth A. Krell, Cove Haven and Caesar’s Pocono Resorts, preliminary objection on the basis of an agreement for alternative dispute resolution is sustained.

It is further ordered that the defendants’ Susan C. Zamesnik and Unemployment Tax Advisory Corporation, preliminary objection in the nature of a demurrer is granted and the complaint against Ruth A. Krell, individually, and as an employee of Cove Haven and Caesar’s Pocono Resorts, and John Doe, individually and as an employee of Cove Haven and Caesar’s Pocono Resorts, and Susan C. Zamesnik, employee of Unemployment Tax Advisory Corporation, agent for Cove Haven and Caesar’s Pocono Resorts is hereby dismissed in its entirety.


author: ACKERMAN, J.,

text:
    F&G Associates v. Pomerantz

      P. Stephen Lerario, for plaintiffs.

      William A. Harvey and David Zalesne, for defendant Pomerantz.

      Arthur W. Lefco, for defendant Mesirov, Gelman, Jaffe, Cramer & Jamieson.

      January 18, 2000
   ACKERMAN, J.,

Defendants, Mesirov, Gelman, Jaffe, Cramer and Jamieson, and defendant, Gerald Pomerantz, Esquire, filed a motion for summary judgment in their favor against plaintiffs, F&G Associates L.P., Jeffrey Brown and Michael Grasso. Plaintiffs filed a response thereto and defendants filed a reply thereto.

This is a legal malpractice action in which the plaintiffs assert that they were injured as a result of their former attorneys’ failure to disclose information about certain real property the plaintiffs acquired.

Defendants claim that the plaintiffs’ claims are time barred.

This court, after consideration of defendants’ joint motion for summary judgment, plaintiffs’ response thereto and defendants’ reply thereto, granted the defendants’ joint motion for summary judgment against the plaintiffs.

Plaintiffs filed the instant appeal.

Plaintiffs assert that Gerald Pomerantz, then an employee of Mesirov, Gelman, Jaffe, Cramer & Jamieson, knew in September 1994, when he began to represent plaintiffs in acquiring and developing certain real property, that access to such property was privately controlled by Arnold Galman, that plaintiffs had no such knowledge, and that Pomerantz breached his duties to plaintiffs by not telling them of the access problem. Plaintiffs assert that they were required to expend various sums to acquire an easement over the access road and seek to recover these costs from defendants.

On January 27,1998, three years and two months past the time that plaintiffs learned that Galman asserted control over the road, they filed this lawsuit for legal malpractice on theories of negligence, breach of contract and breach of fiduciary duty. The gravamen of their complaint is that defendants knew that Adams Run Boulevard was a private road, but failed to so advise them. In answering the complaint, defendants each raised the statute of limitations in their new matter. The facts as pled by plaintiffs and the undisputed record evidence establish that the negligence and breach of fiduciary duty claims are time barred. Moreover, the complaint fails to allege facts which, if proved, would entitle plaintiffs to relief for breach of contract.

A. The Complaint and the Undisputed Evidence of Record Establishes That Plaintiffs Had Actual Knowledge of Their Alleged Injury Outside the Two-Year Limitations Period

The statute of limitations on negligence claims and claims for breach of fiduciary duty is two years. 42 Pa.C.S. §5524(7). Because this lawsuit was filed on Janm ary 28, 1998, those claims would had to have arisen after January 27,1996 to be viable. The limitations period for tort actions begins “when the alleged breach of duty occurs.” Garcia v. Community Legal Services Corp., 362 Pa. Super. 484, 497, 524 A.2d 980, 986 (1987).

Here, the plaintiffs allege that the lawyers had a duty to inform them that the road was privately owned. This duty and its breach would have arisen in September 1994, when Pomerantz began representing plaintiffs with respect to the property (complaint, para. 18), and when the lawyers purportedly failed to disclose that Adams Run Boulevard was a private road.

Plaintiffs may seek to toll the statute under the discovery rule by arguing that they had no knowledge of the breach at that time. However, under the discovery rule, the limitations period may be tolled only until the injured party, in the exercise of due diligence, knew or should have known of the injury. Pocono International Raceway Inc. v. Pocono Produce Inc., 503 Pa. 80, 84-85, 468 A.2d 468, 471 (1983). Here, the factual allegations of the complaint itself prove that plaintiffs had actual knowledge of their injury within the limitations period: they admit, in paragraph 27, that they learned of Galman’s right to close the road in late November 1994, two months after defendants began representing them. Thus, the statute for filing this suit expired in November 1996, 14 months before it was commenced.

The record contains a trio of letters that show plaintiffs’ actual knowledge of Galman’s alleged control of the road within the limitations period. In June 1995, Galman’s attorney advised them that Galman would close the road if F&G did not help defray its costs. (June 7, 1995 letter from Meloff to Grasso.) In October 1995, Galman did the same. (October 13, 1995 letter from Galman to Grasso.) Finally, and most telling, is Grasso’s own letter to Galman of October 24, 1995, which expressly accuses the lawyers of failing to disclose their purported knowledge of the status of the road. Even if the statute were tolled until October 1995, however, it would have expired in October 1997, three months prior to the filing of this suit.

It is anticipated that plaintiffs will argue that the statute on their claims did not begin to ran until they suffered a loss when Galman closed the road. However, the Superior Court specifically rejected this proposition in Liberty Bank v. Ruder, 402 Pa. Super. 561,587 A.2d 761 (1991). In that legal malpractice action, the client bank sued its former attorneys for failing to properly document loan transaction. Because the bank had not yet exhausted its remedies against the debtors, the trial court found that it had not sustained an actual loss; as a result, its malpractice claim was premature. The Superior Court reversed. The court held that the claim had accrued where the fact of damages had been established, although the amount of the damages was uncertain.

Recently, in Adamski v. Allstate Insurance Co., 738 A. 2d 1033 (Pa. Super. 1999), the Superior Court reiterated that rule. In that bad faith action, the trial court granted summary judgment in the insurer’s favor on statute of limitations grounds. The appellant argued that the statute on their action did not begin to run until the full extent of the damages and the need for indemnification were determined at the end of the underlying litigation. The appellate court affirmed the lower court, holding again that a claim accrues when a plaintiff is harmed and not when the precise amount or extent of damages is determined. 738 A.2d at 1042.

It is of interest that as recently as December 9, 1999, the Federal District Court for the Eastern District of Penn - sylvania in the case of Mantakounis v. Aetna Casualty & Surety Co., (E.D. Pa. Dec. 9, 1999) Kelly, J., held that a plaintiff’s breach of contract claim was time barred under the discovery rule, because he failed to file his action within four years of the date he first became aware of problems with the loss investigation initiated by the defendant insurer, even though he did not believe at the time that defendant had breached the contract. Judgment as a matter of law was entered for the defendant.

Here, plaintiffs knew in November 1994, that they had been injured. At that time, they had foreclosed on the mortgage and were financially committed to the shopping center. They had agreed to a lease provision that would reduce the rent from Superfresh in the event of a road closing. Under Pennsylvania law, therefore, their claim accrued in November 1994, although the extent of their alleged damages was not yet fixed.

In sum, plaintiffs concede in their sworn complaint that they knew of the lawyers’ alleged breach in November 1994; record evidence conclusively demonstrates that they knew in October 1995, at the latest. No reasonable jury could conclude that the limitations period started any later. Accordingly, defendants are entitled to summary judgment in their favor on the counts for negligence and breach of fiduciary duty.

B. Plaintiffs Fail to State a Claim Upon Which Relief Can be Granted for Breach of Contract

In an attempt to avoid the statute of limitations problem, plaintiffs seek to take advantage of the four-year limitations period governing contract actions in Pennsylvania, 42 Pa.C.S. §5525, by claiming relief on a breach of contract theory. The breach of contract claim against Pomerantz set forth at Count II asserts in pertinent part:

“(36) Plaintiffs hereby incorporate by reference the averments contained in paragraphs 1-35 above, as though fully set forth at length herein.

“(37) Plaintiffs entered into an oral contract with defendants Pomerantz and Mesirov upon defendant Pomerantz’s promise to provide legal services to plaintiffs on behalf of himself and his firm, the defendant Mesirov.

“(38) Plaintiffs relied upon defendant Pomerantz’s promise to provide legal services, and Pomerantz’s failure to provide these services in a reasonable manner, as set forth in paragraph 34 above, is a material breach of his contract with plaintiffs.

“(39) By reason of the breach of contract by defendant Pomerantz, plaintiffs have been severely damaged as set forth in paragraph 25 above in the amount of $229,445.56.”

Paragraph 34 alleges that Pomerantz was negligent for failing to advise plaintiffs that Galman could limit access to Adams Run Boulevard and for violating his ethical obligations. Plaintiffs’ damage claim, set forth in paragraph 35, seeks damages for the amount paid to Galman, finance charges thereon, legal fees incurred in obtaining use of the road, and legal fees for the instant action. Count VI, the contract claim against Mesirov, is substantially similar to Count II.

These claims fail to state claim for breach of contract under Pennsylvania law. The mere performance of legal duties does not suffice to create a viable breach of contract claim. Costello v. Primavera, 35 Phila. 468, 494 (1998). A client who sues his attorney on an assumpsit theory must allege that an attorney breached a contract term or failed to follow a specific instruction of the client. Rogers v. Williams, 420 Pa. Super. 396, 401, 616 A.2d 1031, 1033 (1992); Hoyer v. Frazee, 323 Pa. Super. 421, 425-26, 470 A.2d 990, 992-93 (1984). However, plaintiffs’ complaint does not plead facts that would support a breach of contract claim.

Plaintiffs’ assumpsit claim is based on the bare averments that “plaintiffs entered into an oral contract with defendants Pomerantz and Mesirov upon defendant Pomerantz’s promise to provide legal services to plaintiffs” and “the defendants agreed to provide legal services to the plaintiffs.” (Complaint, paras. 37 and 50.) They nowhere aver what the contract terms were or what specific provision was breached.

Plaintiffs’ assertion that defendants “failed to provide these services in a reasonable manner” does not constitute a contract claim. As the court held in Hoyer v. Frazee, 323 Pa. Super, at 426,470 A.2d at 992-93 (1984), a complaint based on the averment that an attorney failed to exercise the requisite duty of care toward them, and which “did not aver a breach of a specific provision of their contract,” does not state a “true contract cause of action.” See also, Saferstein v. Paul, Mardinly, Durham, James Flandreau & Rodger PC., no. 96-4488,1997 U.S Dist. Lexis 2375 at *14 (Feb. 28, 1997 E.D. Pa.), ajf’d, 127 F.3d 1096 (3d Cir. 1997) (dismissing a legal malpractice breach of contract claim because it was “clearly based upon alleged violations of the standard of care owed by an attorney,” rather than on a breach of a specific client instruction or specific contract provision); Tumanv. Genesis Associates, 894 F. Supp. 183,186 (E.D. Pa. 1995) (where claim is based on defendant’s failure to provide plaintiff with acceptable professional services, plaintiff must allege that defendant breached more than the non-contractually created duty to state a contract claim); Lactaid Inc. v. Youtie, civil no. 85-6751, 1986 WL 3587 (E.D. Pa. Mar. 18, 1986) (plaintiff may not proceed in contract on the theory that an obligation to exercise reasonable care was an express or implied term of the contract).

In Fiorentino v. Rapoport, 693 A.2d 208, 213 (Pa. Super. 1997), the Superior Court reiterated the rule that a viable breach of contract claim requires a breach of a specific contract term or instruction. Accordingly, “the attorney’s liability must be assessed under the terms of the contract.” Id. “[W]ith a legal malpractice claim sounding in assumpsit, the plaintiff must show that the defendant attorney failed to follow the client’s instructions.” 693 A.2d at 214. Here, plaintiffs fail to identify even a single contract provision that defendants breached, or a specific instruction with which defendants failed to comply-

Plaintiffs often assert negligence and breach of contract claims, in the legal malpractice context, based on the same conduct in an attempt to have two bites at the apple. This is impermissible. A contract claim must relate to conduct distinct from a tort claim. Guy v. Liederbach, 501 Pa. 47, 62, 459 A.2d 744, 752 (1983). In the context of legal malpractice, a tort claim and a breach of contract claim are not alternative theories of recovery for the same conduct. See Sherman Indus. Inc. v. Goldhammer, 683 F. Supp. 502, 506 (E.D. Pa. 1988). If they were, “claims in tort and claims in breach of contract, at least within the context of service contracts, would be indistinguishable.” Official Committee of Unsecured Creditors of Corell Steel v. Fishbein and Company P.C., 1992 WL 196768 at *5-6 (E.D. Pa. 1992). Here, plaintiffs simply restate their tort claim as one for breach of contract to avoid the bar of the statute of limitations. The contract claim must, therefore, be dismissed.

In the plaintiffs’ response to the motion for summary judgment, the plaintiffs submit an affidavit of Michael Grasso and have relied on that affidavit in an attempt to defeat summary judgment. Defendants contend that Grasso flatly contradicts allegations he previously made in his complaint, allegations which are deemed judicial admissions and which cannot be contradicted to avoid entry of summary judgment.

Mr. Grasso’s new affidavit states that he was completely unaware that Pomerantz and Mesirov had previously acted as Galman’s “private road attorneys” until sometime after August 1996. (Grasso affidavit, para. 9.) However, this is completely irrelevant to the statute of limitations issue. Mr. Grasso’s letter of October 24,1995 specifically blames the Mesirov firm for F&G’s obligation to pay money to Galman to keep the roadway open, “as it was their errors and their failures to disclose that allowed this private road claim to exist and remain unresolved.” The statute of limitations begins to run when a party is aware that he has suffered harm which was caused by another. Cathcart v. Keene Industrial Insulation, 324 Pa. Super. 123, 471 A.2d 493 (1984) (en banc). He is then on inquiry notice and has two years to discover what parties may have caused him harm, and to commence suit. Here, even if Grasso could assert that he was unaware that Pomerantz had previously represented Galman, it makes no difference. He was aware, he thought, that Mesirov’s errors had caused him harm as of October 24,1995, and he had no more than two years thereafter in which to bring his claims.

In addition, plaintiffs’ complaint must fail because Pomerantz did not represent them when they acquired the mortgage. Rather, he represented the seller, RPT, while Messrs. Grasso and Brown were represented separately. Thus, Pomerantz owed them no duty of disclosure even if he knew that Galman had the right to close the road. To avoid this problem, plaintiffs have, through the affidavit of Mr. Grasso, attempted to recast the facts. Mr. Grasso avers, “Pomerantz and Mesirov were retained by myself, Jeffrey Brown and F&G with regard to the development of the shopping center . . . F&G retained Pomerantz and Mesirov to acquire and foreclose upon a mortgage owned by RPT Penn Equity LP . . . F&G requested disclosure of any conflicts . . . Pomerantz and Mesirov failed to make any disclosure or provide a conflict letter regarding Arnold Galman.” (Affidavit of Michael Grasso, general partner, para. 3.)

These averments flatly contradict the averments of the complaint by which this action was commenced, and which was also verified by Mr. Grasso. In the complaint, plaintiffs averred:

“(12) At the time that Brown and Grasso sought to purchase the mortgage, Pomerantz represented RPT.

“(16) During this time frame, Pomerantz also represented Brown and Grasso in other business ventures.

“(18) In September 1994, Pomerantz began representing Brown and Grasso in business ventures involving the property.

“(21) On November 7,1994, Brown and Grasso foreclosed on the mortgage for the property.”

In other words, the complaint asserts that Pomerantz and Mesirov represented RPT, the seller of the mortgage, and did not begin to represent Brown and Grasso, except in unrelated matters, until September 1994, after Brown and Grasso had already acquired the mortgage. Now, Mr. Grasso avers that plaintiffs retained Pomerantz and Mesirov “to acquire and foreclose upon” the mortgage, and that “F&G requested disclosure of any conflicts.” He further avers, “while Pomerantz and Mesirov provided a conflict letter regarding RPT Penn Equity, Pomerantz and Mesirov failed to make any disclosure or provide a conflict letter regarding Arnold Galman.” (Grasso affidavit, para. 3.)

Plaintiffs have attached a copy of the conflict waiver dated April 19, 1994. It is obvious from that document that the Mesirov firm was not representing Grasso in connection with the purchase of the mortgage; on the contrary, it was representing RPT. This is exactly what plaintiffs averred in their complaint. Those averments are judicial admissions which they may not now contradict. Tops Apparel Manufacturing Co. Inc. v. Rothman, 430 Pa. 583, 244 A.2d 436 (1968). Moreover, where an averment in an opposing party’s affidavit is contradicted by his own prior statements in the record such that the statement in the affidavit cannot reasonably be believed, summary judgment may be granted. 3 Goodrich-Amram 2d, Procedural Rules Service, § 1035(b): 14; Lucera v. Johns-Manville Corp., 354 Pa. Super. 520,512 A.2d 661 (1986). Here, plaintiffs’ verified complaint states that defendants represented RPT and not the plaintiffs in connection with the sale of the mortgage. Thus, the averments in Mr. Grasso’s affidavit which contradict the averments in plaintiffs’ complaint should be disregarded. Plaintiffs’ response does not provide any basis to prevent the dismissal of plaintiffs’ claims for negligence and breach of fiduciary duty based on the expiration of the statute of limitations.

For all the foregoing reasons, the motion for summary judgment was properly granted.