author: FARINA, J.,

text:
    Carruthers v. Messner Enterprises Northgate

      C.P. of Lancaster County,
    No. CI-09-07812

      Timothy J. Woolford, for plaintiffs.

      Robert W. Hallinger, for defendants.
    November 19, 2013
   FARINA, J.,

Presently before the court are the post-trial motions of plaintiffs Ralph and Carol Carruthers (“plaintiffs”) and defendants Messner Enterprises Northgate, LLC (“Northgate”), Steven R. Messner (“Messner”), S.C.C.S., Inc. (“SCCS”), and JR Transportation Group, Inc. (“Group”). Some of the instant motions were prematurely filed, as the parties filed them after the jury verdict but before the court issued its final adjudication and molded the verdict. However, all post-trial motions, including those that were prematurely filed, are now ready for disposition.

This action involved claims for breach of contract against Messner and Northgate, claims under the Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) against Messner and Northgate, conversion against Messner and Northgate, unjust enrichment against Messner, Northgate, SCCS, and Group, constructive trust against SCCS and JR, piercing the corporate veil against SCCS and Group, and accounting against SCCS and Group. This action also involved a counterclaim by Northgate against Plaintiffs.

During the week of June 24, 2013, a jury trial was held on the breach of contract claims, the UTPCPL claims, the conversion claims, and the counterclaim. At trial, the defendants’ motion to dismiss plaintiffs’ conversion claims under the “gist of the action” doctrine was granted, and plaintiffs’ motion to dismiss the UTPCPL claims under the “economic loss” and “gist of the action” doctrines was denied. The jury found Northgate liable for breach of contract, awarding $525,431.19, and a violation of the UTPCPL, awarding $100, and found Messner liable for a violation of the UTPCPL, awarding $100.

On July 1, 2013, plaintiffs filed a post-verdict motion asking the court to determine damages on the UTPCPL claims, or in the alternative, to mold the award on the UTPCPL claims to equal the amount awarded on the breach of contract claim, or in the alternative, for a new trial on damages. On July 8, 2013, plaintiffs filed additional post-verdict motions, incorporating their requests from the July 1, 2013 motion, and asking the court to release the $42,500 held in escrow, for prejudgment and post-judgment interest on the awards, for judgment against Messner on count VI, unjust enrichment, and for judgment against Northgate and Messner on counts III and IV, conversion, which were dismissed at trial. That same day, defendants filed post-verdict motions requesting a new trial on the breach of contract claim against Northgate, claiming that certain evidence of loan difficulties after 2008 should not have been admitted, and asking the court to set aside the jury verdict on the UTPCPL claims and dismiss those claims on the basis of the “gist of the action” and “economic loss” doctrines, a motion that was raised and denied, prior to, and at, trial.

On September 13, 2013, after non-jury trial on the equitable claims, the court filed its adjudication molding the verdict and disposing of the remaining claims. The court found in favor of plaintiffs and against defendant Steven R. Messner on count II, breach of contract, on a theory of piercing the corporate veil, and against plaintiffs on the remaining claims. The adjudication also denied all relief requested by plaintiffs on the issue of damages on the UTPCPL claims.

On October 7, 2013, the court conducted a pre-hearing conference with counsel on the issue of plaintiffs’ request for an award of attorney’s fees and pre and post-judgment interest. The parties were given a pre-hearing briefing schedule, filed their respective briefs, and an evidentiary hearing was held on October 30, 2013.

This opinion will address all post-trial motions filed to date, including those that were filed prematurely.

I. Defendants’ Post-Verdict Motions:

1. Defendants’ Motion for New Trial on the Breach of Contract Claim Against Northgate

Defendants claim that certain evidence of Northgate’s financial difficulties from May of 2009 and of subsequent defaults by Northgate and Messner on the UNCB loans was irrelevant to the breach of contract claims and the UTPCPL claims. As a result, they request a new trial on the breach of contract claims against Northgate.

Defendants claim that the evidence of loan defaults that occurred in January and February of 2010, specifically complaints in confession of judgment against all of the defendants in this case, was “irrelevant to the actual conduct at issue in 2008” because the loan defaults “occurred long after the time period encompassing the alleged breach of contract and deceptive conduct, which all occurred in 2008.” Defendants argue that this evidence “likely tainted the jurors’ view of defendants in a negative fashion on the basis of irrelevant evidence.” They make the same arguments with respect to the evidence of loan defaults by Messner, which occurred in December 2009 through May 2010, specifically the testimony of Philip Balas of UNCB and exhibits P-121 and P-122, which were notices of intention to foreclose against Messner filed by UNCB. They also make these arguments about the evidence of Northgate’s loan difficulties, documented on May 1,2009, specifically the testimony of Patrick Cowan and exhibit P-42.

Contrary to defendants’ assertions, all of this evidence was highly relevant to the conduct at issue in 2008. To be sure, the financial troubles of Northgate and Messner came to a head after the deceptive assurances were made and after the contract was breached. However, that does not render the evidence irrelevant.

The challenged evidence was relevant to the UTPCPL claims because plaintiffs alleged that Messner obtained the additional monies from plaintiffs because his companies were drowning and on the verge of collapse. The evidence about subsequent loan defaults by defendants is circumstantial evidence of why Messner requested, and Northgate obtained, the additional monies from plaintiffs, i. e., it shows that the true reason the money was needed was to prevent his companies from going under, not to speed up construction. The challenged evidence shows not only what his fears were that prompted the deceptive conduct, but also that those fears were legitimate ones. Thus, the evidence was clearly relevant to show the element of deception needed to sustain a claim under the UTPCPL. See 73 P.S. §201-2(4)(xxi) (requiring proof of “fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding.”).

The challenged evidence was also arguably relevant to lay the foundation for the breach of contract claims. The evidence shows that Messner had legitimate fears about a default on the UNCB loans and that such fears motivated him to sacrifice his contractual obligations to plaintiffs in order to save SCCS.

Even if the evidence was irrelevant to the breach of contract claims, the evidence would have still come in on. the unfair trade claims. See Commonwealth v. Johnson, 327 A.2d 632, 635 (Pa. 1974) (“Evidence admissible for one purpose but not for another may be admitted...”). While defendants would have been entitled to a limiting instruction informing the jury of the purpose for which the evidence could be considered, “[they] failed to request a limiting jury instruction, and, therefore, [they] will not now be heard to complain regarding the jury’s consideration of the evidence.” Commonwealth v. Whitaker, 878 A.2d 914, 923 (Pa. Super. 2005).

2. Defendants’ Motion to Set Aside the Jury Verdict on the UTPCPL Claims

Defendants argue that plaintiffs’ UTPCPL claims are barred by the “economic loss” doctrine and the “gist of the action” doctrine. They claim the court committed an error of law by permitting the UTPCPL claims to go to a jury. I disagree.

The “gist of the action” doctrine, discussed in part (ii), supra, essentially stands for the notion that “a claim should be limited to a contract claim when the parties’ obligations are defined by the terms of the contracts, and not by the larger social policies embodied by the law of torts.” eToll, Inc. v. Elias/Savion Adver., Inc., 811 A.2d 10, 14 (Pa. Super. 2002) (quotation omitted). Defendants cite Hart v. Arnold, 884 A.2d 316, 340 (Pa. Super. 2005) for the proposition that plaintiffs’ UTPCPL claims are barred by the doctrine. However, Hart involved common-law fraud claims, not statutory claims under the UTPCPL, and for the reasons discussed below, I do not believe the “gist of the action” doctrine should be extended to cover such claims.

Although it has been expanded to other areas, the “economic loss” doctrine originated as a bar to products liability claims based solely on economic losses. The justification for the doctrine was that purchasers of products could seek recompense for purely economic harm through a breach of warranty claim. Defendants cite Werwinski v. Ford Motor Company, 286 F.3d 661 (3d Cir. 2002) for the proposition that the “economic loss” doctrine bars plaintiffs’ UTPCPL claims. In Werwinski, the Third Circuit Court of Appeals held that the UTPCPL claims before them, which were based on fraudulent misrepresentations in a car purchase, were barred by the doctrine. The court predicted that the Supreme Court of Pennsylvania would apply the doctrine to the UTPCPL, even though no Pennsylvania court had done so. Since there was a split of authority among federal cases applying Pennsylvania law, the court looked to cases outside the jurisdiction, relying heavily on a federal case from the Western District of Wisconsin applying Wisconsin law. The Werwisnki decision is not binding on this court, and for the reasons discussed below, I do not find it persuasive.

First, if either of these doctrines were held to apply to the UTPCPL, it would run contrary to the clear intent of the legislature in enacting the UTPCPL and significantly lessen, if not eviscerate, the utility of the law and its ability to fulfill its intended purpose. Defendants would have this court hold that the UTPCPL is unavailable to plaintiffs who suffer only an economic loss and/or plaintiffs who have a contract dealing with the subject matter of the UTPCPL claim. However, the UTPCPL is a remedial statute designed to discourage and remedy fraudulent and deceptive trade practices. In writing a statute dealing with fraudulent and deceptive business practices, the obvious intent of the legislature was to protect those engaged in trade, many of whom will contract with their defrauder, and provide a remedy for people who suffer from the ordinary incidents of deceptive trade practices, i.e., monetaiy losses. Applying either the “economic loss” doctrine or the “gist of the action” doctrine to the UTPCPL would limit claims under the act to a very narrow class of potential plaintiffs, which was obviously not intended by the legislature.

It is clear that the UTPCPL was intended to be interpreted broadly. Our own Supreme Court has noted that some of the Act’s “expansive provisions reflect the legislative judgment that unfairness and deception in all consumer transactions must be halted” and that “[tjhese sections of the consumer protection law, in accordance with the legislative intent, are to be liberally construed to effectuate that intent.” Id., at 817. If the law is to be liberally construed to effectuate the legislature’s intent, then interpreting it in a way that bars the majority of potential claimants from utilizing it undoubtedly runs counter to that legislative intent.

Moreover, I am hesitant to use a purely judicial doctrine to limit the will of the legislature. In refusing to follow Werwinski, Judge Antwerpen, then a federal district court judge, correctly noted that “Pennsylvania’s statutory construction statute clearly bars applying common law doctrine to overturn legislative acts enacted after September 1,1931 ” O’Keefe v. Mercedes-Benz USA, LLC, 214 F.R.D. 266, 275 (E.D. Pa. 2003). As he observed, 1 P.S. §1921 provides “[wjhen the words of a statute are clear and free from all ambiguity, the letter of it is not to be disregarded under the pretext of pursuing the spirit” and § 1928(a) states that “[tjhe rule that statutes in derogation of the common law are to be strictly construed, shall have no application to the statutes of this Commonwealth enacted finally after September 1, 1937.” Id. Judge Antwerpen also pointed to 1 P.S. §1922(2), which states that “[i]n ascertaining the intention of the general assembly in the enactment of a statute the following presumptions, among others, may be used.... (2) That the general assembly intends the entire statute to be effective and certain.” Id. Limiting the clearly-articulated remedy adopted in the UTPCPL based solely on judicially-created doctrines would run afoul of these codified principles of statutory construction and, in my judgment, would constitute an unnecessary encroachment into the authority of the legislature.

Defendants cite no binding precedent applying either the “economic loss” doctrine or the “gist of the action” doctrine to claims under the UTPCPL. In enacting the UTPCPL, the legislature’s intent was “to benefit the public at large by eradicating, among other things, ‘unfair or deceptive’ business practices.” Monumental Properties, at 815-16. The statute represents a belief on the part of the legislature that “unfairness and deception in all consumer transactions must be halted.” Id., at 17 (emphasis added). I will not dilute and derogate the remedy the legislature designed to achieve that noble goal in the absence of clear and persuasive authority mandating such a result.

3. Defendants’ Request to Strike Entry of Judgment on the Jury Verdict

Defendants contend that the court committed an error of law by entering judgment on the claims tried by the jury. However, the court did not intend to enter judgment on those claims. What defendants complain of is the phrasing of the court’s “final verdict.” There is language suggesting that judgment was entered by the court’s final verdict. However, the final verdict was not intended to enter a final judgment, but instead enters a final verdict, and the language defendants cite, “and judgment is entered,” will be stricken to avoid confusion.

4. Defendants’ Challenges to the Court’s Findings re Piercing the Corporate Veil

Defendants make numerous challenges to the court’s factual and legal findings in this case. They also claim that the court abused its discretion by drawing various “unwarranted and unsupported inferences and deductions from its factual findings.” They ask the court to set aside the portion of the adjudication that found Messner liable for breach of contract on a theory of piercing the corporate veil. For the following reasons, I decline to do so.

First, defendants argue that the court abused its discretion by drawing certain inferences regarding the shareholder loans Messner took from SCCS in years prior to 2007. However, defendants do not point to a single instance where the court drew such an “unsupported inference.” Instead, they allege generally that the court inferred that the loans were responsible for SCCS’s financial difficulties in 2007 and 2008. The court drew no such inference. It merely pointed out the fact that Messner had transferred Northgate funds to SCCS in an amount similar to the amount he owed SCCS and commented on the obvious, that the transfers would not have been necessary but for his shareholder loans. That is not to say the shareholder loans caused SCCS’s financial decline, but only that they would have had an amount of funds close to the amount Messner transferred from Northgate had he not taken his shareholder loans. That taking hundreds of thousands of dollars from a company would negatively impact the company’s capital is beyond dispute. Contrary to defendants’ assertions, the court expressly acknowledged that, while the shareholder loans obviously contributed to SCCS’s financial position, other factors contributed as well. Adjudication, at 24. Thus, the court made no finding and drew no inference that SCCS was failing solely because of Messner’s shareholder loans.

Moreover, the nature of an “inference” is that it is drawn or deduced from other facts. The court was free to draw inferences onMessner’suse of the corporate form from facts regarding substantial shareholder loans he made in years prior, especially since his main defense to these actions was that he was not benefitting himself by transferring Northgate funds to SCCS, a company defendants claimed needed funds due solely to unpredictable economic forces. Perhaps more important, defendants did nothing to dispel the “inference” they claim was drawn even though they possessed, or at least had access to, the information to do so, i.e., they cannot now complain that inferences were drawn based on incomplete information when they possessed the ability to complete it.

Next, defendants claim the court abused its discretion in making its factual findings regarding Messner’s knowledge that he would be transferring significant sums of Northgate funds to SCCS and that the additional monies from plaintiffs would not speed up construction. The former finding is supported by the temporal proximity between plaintiffs’ payments and the transfers, and the appropriateness of that finding is not diminished by the fact that the amount of funds transferred to SCCS did not equal the amount plaintiffs paid, as the finding states Messner “knew that he would be transferring significant amounts of money to SCCS,” not “he knew he would be transferring all of Plaintiffs ’funds to SCCS.” Adjudication, at 9. As to the latter, defendants cite evidence that, at first blush, can be seen as contradicting the court’s finding that Messner knew additional funds would not speed up construction. However, the court’s finding was based on the totality of the evidence, not just that evidence cherry-picked by defendants to support their position, including, inter alia, the overwhelming evidence of Northgate’s indebtedness and declining financial position, as well as the status of SCCS and the Northgate funds that had been used to keep it afloat. See, e.g., D-46 (Northgate checking account statements) and P-34 (K&D statements of account for Northgate). Defendants appear to conflate two distinct concepts: knowledge that additional monies would not be used for any Northgate expenses and knowledge that additional monies would not be used to “speed up” construction. The court found the latter, which has ample support in the record, as the evidence shows that Messner knew the project was significantly over budget, that the general contractor was owed a substantial sum of money and had already stopped certain work due to nonpayment once before, and that the project was maxed out on its loans from Susquehanna Bank and could be foreclosed in the very near future.

Defendants also dispute the court’s finding that Northgate was not entitled to the additional payments from plaintiffs under the contract. This issue is dealt with in the court’s adjudication. Defendants point out that the agreement states that the money for “customizing work costs and costs for optional upgrades” will be due “upon the signing of a customizing amendment.” P-1 (agreement of sale). However, as noted in the adjudication, there must be something to amend that is already in existence in order to have an amendment. Also, the agreement clearly states that the “[a]mount set forth in item 3B of the schedule [is] earnest money,” and the “[purchaser agrees to pay the balance due at settlement.” N.J.T., day 1, 53; P-1. Moreover, the first page of the agreement lists the price of the unit as $1,150,342, and the attachment to the contract, which includes all the work defendants claim was done pursuant to “customizing amendments,” was not labeled or otherwise referred to as a “customizing amendment” and shows a $1,150,342 “base” price for the unit. Id. Therefore, under the contract, $1, 150,342 is the “base price” of the unit, regardless what Mrs. Carruthers may have thought.

Next, defendants contest the court’s findings nos. 8 and 9 regarding Messner’s conversation with Mrs. Carruthers during which he stated he had funds to finish the unit “at any time,” which the court found as a fact, and the court’s finding that Messner knew the statement was misleading when he made it. This issue was fully dealt with in the adjudication. The financial records, and even Messner’s own admissions, clearly demonstrate that Northgate was not in a financial position to complete plaintiffs’ unit “at any time.” D-46. Thus, there is ample evidence to support the court’s finding that Messner knew that statement was misleading when he made it. As to the finding that the conversation took place, that finding was supported by the persuasive testimony of Mrs. Carruthers. Notes of Jury Trial Testimony (“N.J.T.”), day 2, 35.

Defendants next challenge the court’s findings regarding Messner’s use of the Northgate funds, specifically the findings that he did not use the funds to benefit Northgate and that the transfers to SCCS were made to protect Messner’s personal interests by satisfying the debts of the secured creditors at the expense of the unsecured creditors. The transfer of Northgate funds to SCCS protected Messner’s personal interests by keeping SCCS alive as a viable business, thereby avoiding, or at least postponing, a default on the secured loans, and since the unit was never completed, and the parties never settled, the increased property value from the work on the unit went to the bank, partially relieving Messner of his obligations as guarantor of the project. Therefore, the transfers did benefit the secured creditors, and this was done at the expense of the unsecured creditors because that money was obviously no longer available to satisfy plaintiffs’ claims.

Defendants’ next claim is that the court abused its discretion by drawing the inference that Messner obtained $325,000 from plaintiffs “by making false and deceptive assurances.” Adjudication, Sept. 13, 2013, at 14. Defendants claim that this “inference,” which was written as a mere summation and simplification for purposes of introducing the analysis that follows, is unwarranted and an abuse of discretion because the $ 150,000 was prompted by a letter from Northgate’s counsel and because that $150,000 was used “primarily for plaintiffs’ unit.” First, the letter may have preceded plaintiffs’ payment, but the court was free to weigh the totality of the evidence to determine why plaintiffs ultimately felt comfortable making that payment. Second, the fact that Northgate used $100,000 from its account to pay K&D after the $150,000 payment from plaintiffs does not render Messner’s statements truthful and accurate. He still made false and deceptive assurances about the effect the money would have and the financial position of the Northgate project. Finally, contrary to defendants’ assertions, this inference is not incompatible with the fact that the sum of money obtained from plaintiffs was less than the sum transferred to SCCS. Plaintiffs gave Messner funds for the unit, and Messner misled them about the effect those monies would have. The statements are not any less misleading merely because he did not transfer the exact dollar amount plaintiffs gave him for their unit.

Defendants argue that the court abused its discretion and made an error of law by finding that Messner intermingled his corporate and personal affairs. They claim that the evidence was insufficient to support that finding because there was no evidence that Messner intermingled his personal assets with those of Northgate or diverted funds to pay for his personal expenses. This is an oversimplification of the “intermingling” factor for piercing the corporate veil. For the reasons discussed fully in the court’s adjudication, Messner did substantially intermingle his personal affairs with the corporate affairs of Northgate by, inter alia, giving away Northgate funds, without any terms for repayment or security of any kind, solely to benefit another failing company he owned, a company Northgate had no contractual relationship with or duty to. The substantial intermingling is even more obvious when one considers Messner’s massive outstanding shareholder loan from the company he gave Northgate funds to. P-179 (SCCS corporate tax return for 2007). UNCB held a mortgage on Messner’s personal residence as security for the loans to SCCS. P-117 (UNCB forbearance agreement); P-101-103 (UNCB loan agreements). Thus, the ability to stave off an SCCS default was much more than the “attenuated” personal benefit defendants suggest it was.

Defendants next challenge the court’s finding that Northgate was undercapitalized. They argue that the court interpreted undercapitalization too broadly under the case law. However, like they do in other parts of their post-trial motions, they make this claim without citing the case law they are referring to. Regardless, the court cited various authorities to demonstrate the relevance of subsequent undercapitalization occurring as a result of the self-interested conduct of the owner.

Next, defendants argue the court abused its discretion in considering Northgate’s failure to follow proper, but not required, corporate formalities. The language “proper” comes straight from Lumax Indus., Inc. v. Aultman, 669 A.2d 893 (Pa. 1995), and in any event, the Lumax inquiry is essentially a look into whether the owner has abused the corporate form. In making such a determination, one must consider whether the owner observed proper formalities, even if those formalities are not required by law, especially in the case of an LLC where there are very few legal requirements. Defendants also argue that the failure to observe proper corporate formalities did not lead to the loss in this case. First, Northgate’s corporate veil was not pierced solely because of Messner’s failure to observe proper corporate formalities. Regardless, had Messner observed such proper formalities as creating a loan agreement with security for the loans Northgate made to SCCS, it is possible that plaintiffs would have been able to recover their losses from Northgate. In that sense, the failure to follow proper formalities did lead to the harm they suffered.

Defendants next challenge the court’s finding that Messner engaged in fraud when he made representations to Mrs. Carruthers about his ability to complete the unit. Plaintiffs first claim that Messner’s statement could not have been relied upon because no payments were made after the statement until September, and that payment, defendants claim, was the result of Northgate’s counsel’s letter on August 21, 2008. First, the adjudication fully addressed these issues, explaining that plaintiffs relied on Messner’s misrepresentations in more ways than giving the extra funds, to wit, making various purchases specifically for the unit, and the fact that the September payment was preceded by counsel’s August 21, 2008 letter does not mean that Messner did not solicit the payment, nor does it mean that plaintiffs did not rely on Messner’s prior assurances in deciding that it was a wise use of $150,000.

Defendants further dispute the court’s finding of fraud by arguing that the court ignored the actual work and efforts of Northgate to complete the unit and the bona fides of the Northgate project, that the court did not base its finding on clearly-established facts meeting the clear and convincing standard, and that there was no proof of scienter. However, the evidence shows that Messner made statements about the viability of the Northgate project and the effect plaintiffs’ payments would have on the project, knowing that the Northgate project was maxed out on its loans and substantially behind on its payments to the general contractor, in order to obtain money to help support another business he owned. Thus, there is ample evidence from which to conclude that he made knowing misrepresentations with the intent to defraud plaintiffs. Regardless, in requesting judgment on this basis, defendants overlook the fact that piercing the corporate veil does not require proof of fraud.

Defendants challenge the court’s analysis of considerations beyond those articulated in Lumax. Defendants suggest that this approach, taken directly from the Superior Court’s analysis in Fletcher-Harlee Corp. v. Szymanski, 936 A.2d 87 (Pa. Super. 2007), is somehow incompatible with Lumax. I disagree.

First, piercing the corporate veil is an amorphous equitable remedy that is not susceptible to the kind of cookie-cutter, checklist analysis defendants argue should have been used in this case. Equitable remedies are inherently amorphous, but piercing the corporate veil is much more so than the average equitable remedy. It is a doctrine that has produced a list of two dozen different considerations by courts attempting to address the same essential question. Thus, limiting the analysis to the four considerations our Supreme Court chose to make explicit in one decision misconceives the nature of the inquiry.

Moreover, nowhere in the Lumax decision did our Supreme Court limit the analysis for piercing the corporate veil to the four factors articulated therein. To the contrary, after listing the four factors that are now referred to as the “Lumax factors,” the court cited Watercolor Group v. Newbauer, 360 A.2d 200, 207 (Pa. 1976), noting its holding that the “corporate veil may be pierced whenever one in control of a corporation uses that control or corporate assets to further his personal interests.” Lumax, supra, at 895. Thus, the court appears to have acknowledged, at least implicitly, the amorphous nature of the veil-piercing remedy.

Finally, the court used binding precedent in its analysis of considerations beyond the Lumax factors; these inquiries were not chosen at random. The Lumax factors are admittedly designed to assist the court in focusing its inquiry. However, there appeared to be no intent on the part of the Lumax court to dispose with the prior case law elaborating on the doctrine.

II. Plaintiffs’ Post-Verdict Motions:

1. Plaintiffs’ Request for Judgment on Conversion Claims Dismissed at Trial

Plaintiffs claim that they are entitled to judgment on the conversion claims against Messner and Northgate. On motion by defendants, the court dismissed these claims at trial based on the “gist of the action” doctrine. That decision stands.

The “gist of the action” doctrine precludes a plaintiff from bringing a suit in tort for duties that arise from a contract. As the Superior Court has explained:

[Ajlthough mere non-performance of a contract does not constitute a fraud, it is possible that a breach of contract also gives rise to an actionable tort. To be construed as in tort, however, the wrong ascribed to defendant must be the gist of the action, the contract being collateral. The important difference between contract and tort actions is that the latter lie from the breach of duties imposed as a matter of social policy while the former lie for the breach of duties imposed by mutual consensus. In other words, a claim should be limited to a contract claim when the parties’ obligations are defined by the terms of the contracts, and not by the larger social policies embodied by the law of torts.

eToll, Inc. v. Elias/Savion Adver., Inc., 811 A.2d 10, 14 (Pa. Super. 2002).

Contrary to plaintiffs’ arguments, the duties of Northgate, and Messner as managing member thereof, to use the funds given to it by plaintiffs for the purpose of constructing the condominium have their basis in the contract itself. Plaintiffs agreed to give Northgate a sum of money, and Northgate agreed to construct a condominium for them. Plaintiffs do not seek relief merely because the funds they provided were not used for construction of their home. Had Northgate completed their unit, plaintiffs would have no claim against Northgate based on how Northgate’s funds were disbursed. It is Northgate’s alleged failure to complete their unit, a duty imposed by the contract, that is the basis for their claims. That is not to say that there is no tort here. However, the alleged conversion is “inextricably intertwined” with the contract claim, and as a result, the “gist of the action” doctrine precludes recovery in tort.

Plaintiffs’ argument, if accepted, would have the potential to create separate tort liability in any garden-variety breach of contract case where the defendant used the plaintiff’s funds for anything other than what was contracted for. This is exactly what the “gist of the action” doctrine was designed to prevent. Funds received by a business in a given transaction will rarely be kept isolated from other funds and used solely on the product or service of the individual who provided them. Most businesses, like Northgate, compile the majority of their revenues and pay expenses from that combined source of funds. Doing otherwise would essentially require separate accounts for each customer. Since this would be completely impractical for most businesses, the result of plaintiffs’ position on this issue would be separate tort liability, and an end-run around the “gist of the action” doctrine, for a wide range of cases where the true gist of the action is in contract, not in tort.

2. Plaintiffs’ Request for Judgment on Unjust Enrichment Claim Against Messner and Against SCCS and Group

Plaintiffs claim that the court erred in denying them unjust enrichment against Messner. This issue was fully addressed in the court’s adjudication. To be sure, Messner did benefit from plaintiffs’ additional funds. However, there is no evidence establishing an amount by which plaintiffs enriched defendant Messner.

Plaintiffs claim that the value of the benefit they conferred on Messner was either the $425,000 they gave to Northgate or the amount their monies improved the value of the property, which they claim to be “approximately $500,000.” They argue that the temporal proximity between the delivery of their funds to Messner and Messner’s transfer of Northgate funds to SCCS show that their funds were given to SCCS. In the alternative, they argue that the funds were used to improve the property, partially relieving Messner of personal liability as a guarantor of the loans. Plaintiffs are certainly allowed to argue in the alternative; however, for the reasons set forth in the adjudication, it remains the position of the court that plaintiffs’ ability to argue two opposing scenarios confirms that neither can be established with any certainty.

Plaintiffs contend that the amount they benefitted SCCS and Group can be calculated. However, as discussed above and in the adjudication, the exact amount of their funds that went to SCCS, and benefitted group as a result, cannot be proven with sufficient certainty to be the basis for an award.

3. Plaintiffs’ Request for Successor Liability of Group for the Debts of SCCS

Plaintiffs claim that the court erred in failing to find group liable for the debts of SCCS on the basis of successor liability. However, as discussed herein, the court properly denied plaintiffs relief on their claims against SCCS. Therefore, there was no basis to hold Group liable as a successor of SCCS.

4. Plaintiffs’ Request for Court Determination of Damages for UTPCPL Claims

Plaintiffs claim that the court erred in refusing to override or nullify the verdict rendered by the jury. This issue is fully dealt with in the court’s adjudication, and for the reasons stated therein, there is no error.

5. Plaintiffs’ Request for Liability of SCCS and Group on the Basis of “Reverse Piercing” and the “Enterprise Theory” of Piercing the Corporate Veil

Plaintiffs complain the court erred in refusing to apply the “reverse piercing” and “enterprise” theories of piercing the corporate veil. As discussed in the adjudication, however, these theories have not been adopted in Pennsylvania. Thus, the court did not err in refusing to use them as a basis for liability.

6. Plaintiffs’ Requests for Pre-judgment and Post-Judgment Interest

Subsequent to the adjudication, plaintiffs moved for pre and post judgment interest on the jury’s award of $525,431.19 for breach of contract. A supportive pre-evidentiary hearing brief was filed by plaintiffs and formally responded to in kind by defendants. An evidentiaiy hearing was held October 30, 2013. In their response and at the hearing defendants conceded plaintiffs’ entitlement to prejudgment interest differing with plaintiffs only as to from when interest should begin to run. Plaintiffs seek interest to run from when their various payments to defendants Northgate and Messner were made; defendants concede that interest should run from the date of breach which, for convenience of calculation, they set (without prejudice to contest the judgment) as November 30,2008. Given that concession I need not consider defendants’ position on the issue further. However, I reject plaintiffs’ claim for earlier calculations of interest accepting defendants’ position that prior to that date there was still some work being performed on plaintiffs’ unit. By that date it was clear nothing more was or would be done and a breach and duty to return funds plaintiffs advanced clearly arose. Defendant calculates pre-judgment interest from November 30, 2008 on the breach of contract award of $525,431.19 at the legal rate of 6% for a pre-judgment interest award of $150,564.20. Plaintiffs have no dispute with the calculation other than the start date. The court accepts the calculation and will award pre-judgment interest in that amount.

The parties agree that post-judgment interest follows the judgment and post-judgment interest accrues at the rate of $79,372 per day.

7. Plaintiffs’ Request for Attorney’s Fees

Having obtained a jury award on the UTPCPL claim against defendants Northgate and Steven R. Messner, plaintiffs seek an award for attorney’s fees related to that claim which fees may be awarded pursuant to §201-9.2 of the act.

In considering such an award the court is required to consider several factors, known as “McCauslin Factors” as set forth in McCauslin v. Reliance Finance Co., 751 A.2d 683 (Pa. Super. 2000). In essence these factors include the nature of the work performed, the novelty and difficulty of the issues involved, the time expended, and reasonableness of the fees charged. Plaintiffs’ fee request for UTPCPL work is for $86,993.75 plus $3,712.05 for costs. Defendants oppose the request but not as contrary to the “McCauslin Factors.” Defendants object that the fee request lacks any “sense of proportionality”, is wholly out of proportion to the juiy’s actual UTPCPL damage award of $100 against defendants Northgate and Steven R. Messner, and is not limited to fees attributable only to the UTPCPL claim.

The requirement of a “sense of proportionality” comes from Neal v. Bavarian Motors, Inc., 882 A.2d 1022 (1031-32 Pa. Super. 2005). While Neal points out that a direct proportionality is not required, nor does the damage award cap the fees that may be awarded, Neal does require that there must be a “sense of proportionality” between the two amounts. Id. at 1031. The case law does not define exactly what the requirement means; however, it clearly does link the amount of a fee award to the verdict.

Any analysis must begin with what was the UTPCPL award. The jury’s verdict was $100 as to each defendant. This award was made after instruction by the court in response to a jury question, that they are required by the statute to award at least $100. They chose to award no more. Plaintiffs would not stop at $100 but contend the jury’s intent was to award the same amount as was awarded for breach of contract but as they didn’t want to make a double award they awarded the nominal statutory $100 against each defendant for a total of $200. Plaintiffs’ contention was reviewed in depth and rejected in the adjudication dated September 13,2013. For all the reasons set forth in the adjudication, at pages 45-48 which denied plaintiffs’ motion to mold the jury verdict to increase the UTPCPL damages to the breach of contract amount, plaintiffs’ contention is again rejected here. Thus the UTPCPL award must be viewed as it was rendered in the nominal amount of $100 each for defendants Northgate and Steven R. Messner.

Comparing plaintiffs’ $90,000 attorney’s fees and costs request to the nominal $100 (or $200) UTPCPL award results in a fee award that is 450 times higher than the UTPCPL award ($90,000 200 = 450). No conceivable interpretation of NeaPs “sense of proportionality” requirement can consider a 450 multiple in favor of fees sensible or reasonably proportional to the award. Thus, plaintiffs’ $90,000 fee and cost request must be deemed as so wholly out of proportion as to be not sensibly proportional to the UTPCPL total award of $200. The requested fees must therefore be denied in the amount claimed for that reason alone.

An additional problem with plaintiffs’ fee request is that plaintiffs acknowledge the work on the UTPCPL claim also was essential to the successful pursuit of their breach of contract claim and piercing the corporate veil remedy. Neal supra, requires that fees may not be awarded for work expended on non-UTPCPL claims. Plaintiffs’ attempt to comply with this requirement for work admittedly necessary to prove and pursue all their claims by assigning a percentage of such work, typically 50%, to just the UTPCPL claim. Any percentage is speculative, but given the my review of the fee submission and seeing how the evidence was marshalled and presented at trial, a 1/3 (33%) allocation to the UTPCPL claim and 2/3 to the breach claim and piercing remedy seems more reasonable. However, even a 1/3 allocation reducing claimed fees and costs to $30,000 lacks sensible proportionality as it results in a fee award 150 times the nominal damages.

Having conducted all pre-trial proceedings and the trial in this case, I have observed plaintiffs’ counsel’s work and find it exemplary. Obtaining the jury award for breach of contract against the corporate defendant Northgate and succeeding before the court non-jury in piercing the corporate veil to hold defendant Steven R. Messner personally liable for that judgment took considerable effort and skill. However, that work cannot be compensated with a fee award because the work was also necessary to be performed and essential to a UTPCPL successful verdict. A fee award must stand on the UTPCPL award alone. Since that award is nominal so must be the fee award if proportionality is to mean anything.

Constrained by the law, but recognizing that counsel earned every penny of their fee request, I can do no more than award counsel fees for the UTPCPL claim, in a sensible proportion of 5 times the UTPCPL award, in the amount of $1,000 each against defendants Northgate and Steven R. Messner which, under the circumstances, I consider nominal.

Accordingly, I enter the following:

ORDER AND JUDGMENT

And now, this 19th day of November, 2013, upon consideration of the post-trial motions of plaintiffs Ralph Carruthers and Carol Carruthers and defendants Messner Enterprises Northgate, LLC, Steven R. Messner, S.C.C.S., Inc., and JR Transportation Group, Inc., it is hereby ordered and decreed that the post-trial motions are disposed of as follows:

I.Defendants’ motions:
1. Defendants’ motion for a new trial on the breach of contract claims against defendant Messner Enterprises Northgate, LLC is denied;
2. Defendants’ motion to set aside the jury verdict on plaintiffs’ claims under the unfair trade practices and consumer protection law is denied;
3. The language “and judgment is entered” at paragraph A of the court’s final verdict dated September 13,2013 is hereby stricken so as to reflect that a verdict, not a judgment, was entered;
4. Defendants’ motions to set aside the court’s verdict on count II, breach of contract holding defendant Steven R. Messner personally liable on the theory of piercing the corporate veil, challenging the basis of the court’s findings, the inferences drawn therefrom, and the analysis it employed are denied;
II. Plaintiffs’ motions:
1. Plaintiffs’ request for judgment on their conversion claims is denied;
2. Plaintiffs’ requests for judgment on their unjust enrichment claims against defendant Steven R. Messner, defendant S.C.C.S., Inc., and defendant JR Transportation Group, Inc. are denied;
3. Plaintiffs’ request for successor liability against JR Transportation Group, Inc. is denied;
4. Plaintiffs’ request for court determination of damages on the unfair trade practices and consumer protection law claims, or in the alternative, molding of the jury verdict to reflect $525,431 in damages on those claims, or in the alternative, a new trial on damages for those claims is denied;
5. Plaintiffs’ request for liability of defendant SCCS Inc. and J.R. Transportation Group, Inc. under the “reverse piercing” and “enterprise” theories of liability is denied;
6. Plaintiffs’ motion for prejudgment interest is granted and pre-judgment interest is awarded in the amount of $150,564.20; and
7. Plaintiffs’ motion for attorney’s fees on the UTPCPL award are awarded in the amount of $ 1,000 each against defendants Northgate and Steven R. Messner.

Accordingly, I enter the following:

JUDGMENT

Judgment on the Final Verdict rendered on September 13, 2013 is entered as follows:

1. On counts I and II of plaintiffs’ amended complaint, breach of contract, in favor of plaintiffs Ralph Carruthers and Carol Carruthers and against defendants Messner Enterprises Northgate, LLC and Steven R. Messner, jointly and severally, in the amount of $525, 431.19, together with prejudgment interest at the legal rate from November 30,2008, in the amount of $150,564.20 for a total award of $675,995.39 plus post-judgment interest at the rate of $79,372 per day, and court costs;
2. On counts VII and VIII of plaintiffs’ amended complaint, violation of the UTPCPL, in favor of plaintiffs and against defendant Messner Enterprises Northgate, LLC in the amount of $100, and against defendant Steven R. Messner in the amount of $100, jointly and severally, together with interest at the legal rate from June 28, 2013, plus attorney’s fees in the amount of $1,000 each against defendants Northgate and Steven R. Messnem plus court costs;
3. On all remaining counts of plaintiffs’ amended complaint in favor of defendants Messner Enterprises Northgate, LLC, Steven R. Messner, S.C.C.S., Inc., and JR Transportation Group, Inc. as to each defendant appropriate to each count and against plaintiffs Ralph Carruthers and Carol Carruthers; and
4. On defendant Messner Enterprises Northgate, LLC’s counterclaim against plaintiffs in favor of plaintiffs Ralph Carruthers and Carol Carruthers and against defendant Messner Enterprises Northgate, LLC.

      . The claim against Messner outlined liability for the debts of Northgate on a theory of piercing the corporate veil.

      . The motion also included a preliminary request for attorney’s fees and costs.

      . These funds were subsequently released.

      . However, the court did not decide the issue of attorney’s fees.

      . Defendants mischaracterize these loan difficulties as bad acts occurring in 2009. While the various documents were created in 2009, the circumstances that led to the defaults developed long before that.

      . Id.

      . Limiting the class of plaintiffs in this way runs afoul of the clear language of the statute, as “[t]here is no indication of an intent to exclude a class or classes of transactions from the ambit of the Consumer Protection Law” because “[w]hen the Legislature deemed it necessary to make an exception from the law’s scope, it did so in clear language.”
        Commonwealth, by Creamer v. Monumental Properties, Inc., 329 A.2d 812, 834 (Pa. 1974). Since there is no language in the statute suggesting that it should be limited to situations involving more than economic losses or plaintiffs who did not have a written contract, applying the doctrines defendants advocate would amount to a massive judicial revision of the statute.

      . I am especially hesitant to do so with a judicial doctrine that originated in a largely unrelated area of the law, as the “economic loss” doctrine did.

      . As he later noted, the UTPCPL was adopted in 1968.

      . They also appear to challenge the court’s inference that plaintiffs relied on this statement. However, this is discussed at length in the adjudication. The September payment was not the only action plaintiffs took relying on the statement. Moreover, as discussed infra, simply because the September payment was solicited through a letter from counsel does not mean plaintiffs did not rely on Messner’s prior statements in making it.

      . Notes of non-jury trial testimony (“N.T.”), 33, 69.

      . The Lumax factors are reviewed in the adjudication in the court’s piercing analysis beginning at page 11.

      . As noted in the adjudication, plaintiffs spent $27,399.27 on two tile purchases in September and November of 2008. P-14; P-15; N.J.T., day 2, 69.

      . Vill. at Camelback Prop. Owners Assn. Inc. v. Carr, 538 A.2d 528, 533 (Pa. Super. 1988) aff’d sub nom. Vill. at Camelback Prop. Owners Ass’n, Inc. v. Carr, 572 A.2d 1 (Pa. 1990).

      . eToll, Inc. v. Elias/Savion Adver., Inc., 811 A.2d 10, 21 (Pa. Super. 2002).

      . See defendants’ post adjudication brief filed October 18, 2013, p. 1 & 2.

      . In October plaintiffs signed off on the cabinet order, the order was placed, floor was installed and stained. Cabinets were ready for delivery early December and defendant Northgate gave notice of termination December 12,2008.

      . See parties post adjudication briefs on the subject of interest at exh A in each brief.

      . Fees and costs are rounded off for ease of calculation.

      . Unfair trade practices and consumer protection law, 73 P.S. §§201-1 etseq.

      . See the adjudication dated September 13,2013 and the foregoing order for more specificity of counts and defendants to which they relate.


source: Caselaw Access Project

author: MOTTO, P.J.,

license: Public Domain

text:
    Brown v. Bank of America (Countrywide Home Loans)

      C.P. of Lawrence County,
    No. 10652 of 2013, C.A.

      Judy Brown, pro se plaintiff.

      Gretchen Woodruff Root, for defendant.
    November 22, 2013
   MOTTO, P.J.,

Before the court for disposition are the preliminary objections of the defendant Bank of America to plaintiff’s complaint in the nature of a demurrer pursuant to Pa.R.C.P. 1028(a) (4). Defendant contends that plaintiff’s action is barred by the doctrine of res judicata because it involves the same action and parties as were involved in the foreclosure proceedings at case captioned Bank of New York, as trustee for certificate holders of CWMBS 2003-R4 v. Judy D. Brown, Case No. 11365 of 2007, C.A., Lawrence County, as well as the same action and parties that were involved in magisterial district court proceedings in Lawrence County at no. CV-85-13. Because this court concludes that plaintiff’s complaint constitutes an impermissible collateral attack on the final judgment entered in the foreclosure proceedings at Case No. 11365 of 2007, C.A. and all the necessary elements required for the doctrine of res judicata to apply are present, the court will sustain the defendant’s preliminary objection and dismiss plaintiff’s complaint with prejudice.

In general, plaintiff’s complaint alleges acts of impropriety by defendant Bank of America, relative to a mortgage loan contract with plaintiff as mortgagor which ultimately resulted in foreclosure proceedings at Case No. 11365 of 2007, C.A. Count I of the complaint alleges that defendant engaged in fraud, misrepresentation and deceptive business practices by inflating the value of her property to qualify for a FHA loan; utilizing a notary who notarized documents without the signer of the document being present before the notary; retaining the Phelan, Hallinan and Schmeig law firm to pursue foreclosure using fraudulent loan documents and providing an address in Plano, Texas that is actually a processing center; and further alleging that defendant “pushed loan through direct endorsements system” knowing it didn’t qualify. In count II of the complaint, plaintiff alleges a breach of contract contending that defendant placed a mortgage upon her property even though the property was not titled as real estate and did not qualify for FHA financing and otherwise in failing to follow FHA regulations when foreclosing upon the real estate.

The proceedings at Case No. 11365 of 2007, C.A. constitute a foreclosure action based upon the same mortgage which is the subject of the proceedings in the instant action. In that proceeding the defendant failed to respond to the complaint with the result that a default j udgment was entered against her. Approximately five years after the entry of the default judgment plaintiff engaged in filing a series of motions and petitions seeking to contest, and ultimately, to open or set aside that judgment, which were unsuccessful. Aside from the proceedings filed at the foreclosure action itself, plaintiff filed a complaint against Bank of America in the magistrate district court in Lawrence County at Case Number CV-85-13 alleging similar claims related to her mortgage which action was dismissed by the district court judge.

Initially, the court will examine the propriety of addressing the affirmative defense of res judicata through preliminaiy objections. Pa.R.C.P. 1030 contemplates that all affirmative defenses, including res judicata, shall be pleaded in a responsive pleading under the heading of “new matter”. Ordinarily a court may not take judicial notice in one case of the record in another case even though the case arose in the same court and the contents of those records are known to the court. Callery v. Municipal Authority of Blythe Twp., 432 Pa. 307, 243 A.2d 385 (1968). However, if the circumstances necessary to sustain the plea of res judicata appear on the face of the complaint, the defense may be raised by preliminary objections. Jones v. Costlo, 354 Pa. 245, 47 A.2d 259 (1946) cited in Callery v. Municipal Authority of Blythe Twp., 432 Pa. at 307, 243 A.2d 385. (1968). However, if the circumstances necessary to sustain the plea of res judicata appear on the face of the complaint, the defense may be raised by preliminary objections. Jones v. Costlo, 354 Pa. 245, 47 A.2d 259 (1946) cited in Callery v. Municipal Authority of Blythe Twp., 432 Pa. at 310, 243 A.2d at 387. In Flemming v. Strayer, 367 Pa. 284, 80 A.2d 786 (1951), also cited by the Callery court, the original complaint referred to the prior action. The complaint was then amended to delete any reference to the prior suit. The Supreme Court held that the admission of the existence of the prior judgment still appeared on the face of the record and permitted the defendant to assert a res judicata defense by preliminary objection.

Here, plaintiff has specifically referenced the prior foreclosure proceedings in her complaint. Paragraph 9 of the complaint specifically alleges that “foreclosure proceedings were initiated in September of 2007 and recorded in the office of the prothonotary under civil action 11365-2007.” Additionally, paragraphs 10 through 14 reference procedures that occurred in that action including an order of court entered therein that resulted in a finding that the mobile home located upon her real estate was in fact part of the real estate and subject to the foreclosure proceedings. Here, the defense of res judicata may be raised by preliminary objection because of plaintiff’s reference to the prior judgment in her complaint.

Additionally, if plaintiff wished to challenge the defendant’s method of raising the res judicata claim by preliminary objection, the proper procedure would have been a preliminary objection in the nature of motion to strike because of lack of conformity to law or rule of court, such procedure being required by Pa.R.C.P. 1017(b)(2). Since plaintiff has failed to avail herself of the appropriate procedure to challenge any alleged improper matter contained in defendant’s preliminary objection and has in fact addressed the defendant’s preliminary objections on their merits, acknowledging not only the foreclosure action, but the proceedings before the magisterial district court, the court will therefore address the merits of the res judicata claim. See Rufo v. The Bastian-Blessing Co., 417 Pa. 107, 207 A.2d 823 (1965); Callery v. Municipal Authority of Blythe Township, supra.

The foreclosure action at Case No. 11365 of2007, C.A. relative to plaintiff’s mortgaged property, and brought on the same mortgage identified in this action, was filed on September 12, 2007. The complaint was served by the sheriff of Lawrence County by personal service upon the plaintiff on September 17, 2007. Plaintiff did not file an answer nor otherwise respond to the complaint, nor did she ever retain counsel. A default judgment in rem was entered against the plaintiff on October 31, 2007.

Plaintiff took no action on the record at the mortgage foreclosure action until June 7, 2012 when plaintiff filed a “motion to court” seeking a hearing for the review of evidence in regard to acts of fraudulent misrepresentation, breach of contract, intent to deceive, false statements and negligence “committed against [herself], mortgage and property.” By order dated July 30, 2012, the motion was denied.

The parties acknowledge that on or about May 7,2013, plaintiff filed a complaint against Bank of America before Magisterial District Court Judge Jennifer L. Nicholson at Case Number CV-85-13 alleging breach of contract and misrepresentation of collateral. The complaint was summarily dismissed by Judge Nicholson on or about June 10, 2013 without prejudice.

On June 17, 2013, plaintiff filed at Case No. 11365 of 2007, C.A. a motion to dismiss foreclosure complaint, which was denied by this court on July 1, 2013. On or about July 7, 2013, plaintiff filed a petition to open judgment and an “ammended [sic] petition” the following day. On July 9, 2013, this court issued a rule to show cause as to why the petition to open should not be granted and scheduled the matter for a hearing. After hearing and by opinion dated November 18, 2013, in the foreclosure action, this court denied the petition and “ammended” petition to open default judgment.

Where a final judgment on the merits has been rendered by a court of competent jurisdiction, the doctrine of res judicata, or claim preclusion, will bar any future suit on the same cause of action between the same parties. Chada v. Chada, 756 A.2d 39, 42 (Pa. Super. 2000).

A default judgment qualifies as a judgment on the merits and is entitled to preclusive effect under the doctrine of res judicata. McGill v. Soughtkwark Realty Co., 534 Pa. 185, 828 A.2d 430, 435 (Pa. Commw. 2003); Fox v. Gabler, 626 A.2d 1141, 1143 (Pa. 1993).

In order to support a claim of res judicata, the party asserting the defense must show a concurrence of four conditions: (1) identity of the thing sued upon; (2) identity of the cause of action; (3) identity of persons and parties to the action; and (4) identity of the quality or capacity of the parties suing or sued. Stevenson v. Silverman, 417 Pa. 187, 208 A.2d 786, cert. denied, 382 U.S. 833, 86 S. Ct. 76, 15 L.Ed.2d 76 (1965). The essential inquiry is whether the ultimate and controlling issues have been decided in a prior proceeding in which the present parties had an opportunity to appear and assert their rights. Hochman v. Mortgage Finance Corp., 289 Pa. 260, 137 A. 252 (1927), cited in Callery v. Municipal Authority of Blythe Township, 432 Pa. at 312, 243 A.2d at 388.

The court finds that there exists identity in the thing being sued upon or for in these proceedings and in the foreclosure proceedings. The subject of both actions is the mortgage itself and the propriety of proceeding to foreclosure on the property which is the subject of the mortgage at 217 West Washington Street, New Castle, Lawrence County, Pennsylvania. In essence, in this case plaintiff is alleging that defendant engaged in improper conduct in placing a mortgage upon her property which ultimately resulted in a foreclosure proceeding. The alleged improprieties relating to the creation of the mortgage should have and could have been raised as a defense to the foreclosure itself. The claims here relate to the validity of the mortgage and the extent to which the mortgage should have lawfully been considered to have constituted a mortgage lien upon the structure which she refers to as a mobile home located upon the real estate described in the mortgage. Although plaintiff is seeking money damages in this case and not seeking to set aside the foreclosure proceeding, nevertheless, if the mortgage was in fact valid, which issue has already been determined adversely to plaintiff by the effect of the judgment at no. 11365 of 2007 C.A., then there is no basis for damages. The thing being sued upon is the right to foreclose upon plaintiff’s property pursuant to a valid mortgage because of plaintiff’s default, identical matters being sued upon in both cases.

The court also finds that the element of identity-of-cause-of-action is also satisfied. The question which must be determined relative to this element is whether the two claims, that is, the claim raised in the foreclosure action and the claims raised here in the present action, have such a measure of identity and are so inextricably intertwined that a different judgment in the section action would operate to nullify or substantially impair rights or interests established by the judgment in the first action. Del Turco v. Peoples Home Savings Asn’n., 478 A.2d 456, 463 (Pa. Super. 1984).

In Del Turco, the Superior Court considered the res judicata effect of a mortgage foreclosure judgment upon a subsequent suit brought by the mortgagor against the mortgagee. Del Turco had executed a mortgage in favor of Peoples Home Savings and Loan Association. Subsequently, Peoples Home initiated a mortgage foreclosure action against Del Turco for failing to make monthly payments required by the terms of the mortgage and mortgage note. Del Turco failed to respond, and as a result a default judgment was entered against Del Turco. The subject real estate was sold at sheriff’s sale and a schedule of distribution was made. Del Turco did not take any exception to the issuance of the writ of execution nor petition to set aside the sheriff’s sale. After the completion of the mortgage foreclosure proceedings, Del Turco filed a complaint in trespass and assumpsit against Peoples Home. Peoples Home filed preliminary objections raising the defense of res judicata, which was permitted because of the references in the complaint to the mortgage foreclosure action. In finding that the doctrine of res judicata applied and identity of the causes of action, the court said the following:

In the instant matter, appellants present a restitutionary theory of recovery that, in essence, challenges the amount of debt paid by Peoples Home pursuant to judgment in the mortgage foreclosure action. In counts I, II, recovery of sums allegedly neither paid by Peoples Home to Rawding Electric nor properly credited to appellants’ mortgage loan account is sought. In count III, recoveiy of an amount in excess of what appellants allege to have been the reasonable value of attorney’s services rendered in the mortgage foreclosure action is demanded. Clearly the litigation of these counts, if successful, would operate to undermine the initial judgment of Peoples Home. See Restatement (Second) of Judgments §58, Comment R Illustration 9, 10 (1980); see also, In Re Estate of Banes, 479 Pa. 264, 388 A.2d 319 (1978) (per curiam, equally divided court). Therefore, we conclude that the preservation of the integrity of judgments and the principle of finality underpinning res judicata theory requires preclusion from judicial consideration the averments set forth in counts I-III. Appellants had full opportunity to make these claims in the mortgage foreclosure action but failed to do so. As such, the preliminary objections to counts I-III were properly sustained by the lower court.
Del Turco, 329 Pa. Super, at 272, 478 A.2d at 463.

The same analysis as set forth in Del Turco applies equally here. If plaintiff’s claims were allowed to go forward and if successful, the result would operate to undermine the initial judgment obtained in the mortgage foreclosure action. The in rem judgment in the mortgage foreclosure action necessarily requires a finding as to the validity and propriety of the mortgage itself. The allegations of fraud, misrepresentation, deceptive business practices and breach of contract all go to the validity of the mortgage which has been judicially determined to be in fact valid by virtue of the default judgment entered in that foreclosure action. Relitigation of the validity of the mortgage is precluded by principles of res judicata.

The identity of parties element requires that the parties to both proceedings either be identical or be parties in privity with identical parties. O ’Conner v. O’Conner, 291 Pa. 175, 139 A. 734 (1927); Stevenson v. Silverman, 417 Pa. 187, 208 A.2d 786 (Pa. 1965). The plaintiff in the foreclosure action at no. 11365 of 2000, C.A. is Bank of New York, as trustee for the certificateholders of CWMVS2003-R4. The defendant in this proceeding is Bank of America. Those in privity are those whose relationship to the same right of property is mutual or successive. Privity denotes mutual or successive relationship to the right of property, title or estate. O’Conner v. O’Conner, 291 Pa. at 180, 139 A. at 735-736. Bank of New York as trustee for the certificateholders and as the owner of the subject mortgage filed the foreclosure action. Bank of America is the loan servicer. These parties are in privity with each other as having mutual rights to the property. The interest of both Bank of America and Bank of New York is mutual in that both parties have a legal interest in obtaining satisfaction of the mortgage and mortgage note through payment of the debt in full through payment of the debt in full or the ultimate completion of foreclosure proceedings. Thus, the court finds that the identity of parties element is satisfied.

Lastly, the court finds that the identity of the quality or capacity of the parties suing or being sued. Here the capacity of each of the parties is the same in each case. In each case, the capacity of Judy Brown, as plaintiff in this case and as defendant in the foreclosure, is that of the mortgagor disputing the validity or enforceability of the mortgage document or the property encompassed within it. This is not a case where the prior suit involved the same party acting in a different capacity as in Security Trust Co. v. Feist, 333 Pa. 536, 5 A.2d 119 (1939) holding that where a trust company acted in its capacity as a trustee in a prior proceeding, it was not bound by the judgment when it brought a subsequent proceeding as the same mortgage in its capacity as a mortgagee.

The application of res judicata requires a finding that the present parties actually had an opportunity to appear and assert their rights. Hochman v. Mortgage Finance Corp., 289 Pa. 260, 137 A. 252 (Pa. 1927). Here, the plaintiff had the opportunity to appear as defendant in the mortgage foreclosure action to assert any claim she had as to the validity of the mortgage and the circumstances that lead to its creation and further to dispute the specific property to which it applied, but failed to do so. The record establishes in the foreclosure action that she was served with the mortgage foreclosure complaint by personal service and failed to respond, resulting in a default judgment against her, which she belatedly unsuccessfully attempted to open. Plaintiff failed to take advantage of that opportunity in the mortgage foreclosure action. Having failed to do so, her effort to avoid the effect of that judgment must be found to be barred by principles of res judicata.

The defendant has also asserted a preliminary objection alleging non-joinder of a necessary party. Defendant requests that the court alternatively order plaintiff to amend her complaint by adding Bank of New York, the holder of the mortgage as a necessary party. Since the court has granted the preliminary objection seeking dismissal of the action by application of the doctrine of res judicata, it is not necessary to decide this preliminary objection.

Finally, defendant filed a motion to dismiss plaintiff’s complaint pursuant to Pennsylvania Rule of Civil Procedure 233.1. By the authority of this rule, defendant seeks an order barring plaintiff from pursing additional pro se litigation against defendant or related entities raising the same or related claims without leave of court. Defendant cites what it views to be plaintiff’s “numerous, unsubstantiated and vexatious filings.” Pa.R.C.P. 233.1 provides that a pro se litigant’s complaint is subject to dismissal if the claims in the instant complaint are the same or related to a prior action, the instant claims are brought against the same or related defendant, and these claims are resolved by settlement or court proceeding.

The purpose of this rule is to give the trial court discretion to bar the pro se litigant from filing further litigation against the same or related defendants raising the same or related claims without leave of court. The purpose of the rule is to provide relief to a defendant who has been subjected to repetitive litigation that constitutes an abuse of the legal system.

At this juncture, the court will decline to exercise its discretion to invoke Pa.R.C.P. 233.1 as the court has dismissed plaintiff’s complaint without leave to file any amended complaint and in the case at no. 11365 of 2007, C.A., has denied the petition to open judgment that the plaintiff in this action filed in her capacity as the defendant in the foreclosure action. Since the court cannot conceive of any further action relative to the issues raised by plaintiff, the court will reserve the authority to apply Pa.R.C.P. 233.1 in the event that plaintiff should file any further claim meeting the requirements of Pa.R.C.P. 233.1(a)(l)(2).

ORDER OF COURT

And now, this 20th day of November, 2013, for the reasons set forth in the accompanying opinion of even date herewith, it is ordered, adjudged and decreed that the defendant’s preliminary objection in the nature of a demurrer pursuant to Pa.R.C.P. 1028(a)(4) is granted and the complaint of the plaintiff is dismissed in its entirety, with prejudice.

It is further ordered and decreed that the defendant’s preliminary objection to the plaintiff’s complaint in the nature of non-joinder of a necessary party pursuant to Rule 1028(a)(5) is denied as moot.

It is further ordered and decreed that the defendant’s praecipe and motion to dismiss under the authority of Pa.R.C.P. 233.1 is denied.


author: TUNNELL, J.,

text:
    Oral and Maxillofacial Surgery Associates of Chester County, Ltd. v. Kolimaga

      C.P. of Chester County,
    No. 2012-12505-TT.

      Andrew D. Klein, for plaintiff.

      Joseph P. Green, for defendants.
    November 25, 2013
   TUNNELL, J.,

ORDER

And now, this 25th day of November, 2013, following a hearing, the petition of plaintiff for a preliminary injunction is granted. Defendants are enjoined from using or transferring any funds maintained in any and all accounts in which either or both of them claim an interest, including but not limited to accounts at Citadel FCU, Northern Trust Co., and Scottrade, but excluding from this order the proceeds of the decedent’s 401(k) account, in accordance with the parties’ stipulation filed November 21,2013, until further order of the court;

The bond previously posted by plaintiff in the amount of $50,000 shall continue;

And, the motion of Joseph Kolimaga for partial summaiy judgment and supplemental motion to modify special injunction is denied for reasons set forth below.

      . For a preliminary injunction, the plaintiff must establish:
      1) relief is necessary to prevent immediate and irreparable harm;
      2) a greater injury will occur from refusing the injunction than from . granting it;
      3) the injunction will restore the parties to the status quo;
      4) the alleged wrong is manifest and the injunction is reasonably suited to abate it;
      5) the plaintiff’s right to relief is clear; and
      6) granting the request will not adversely affect the public interest. Kessler v. Broder, 851 A.2d 944, 947 (Pa. Super. 2004).
      The court determines that plaintiff has done so in this case. The court uses as its guide the Superior Court’s decision in Ambrogi v. Reber, 932 A.2d 969 (2007). Plaintiff has demonstrated that there are substantial legal questions that the court must resolve to determine the rights of the parties.
      At the time the case was initiated, the defendants had sold or were in the process of selling two residential properties and, plaintiff feared, liquidating these and perhaps other assets to render themselves execution-proof from any civil liability to plaintiff. A special injunction was entered to preserve the status quo.
      The court took care to balance the rights of both parties, issuing orders granting defendant Joseph Kolimaga access to some of the funds in question, and otherwise modifying its orders when requests were made by him.
      Most recently Joseph Kolimaga filed a motion for partial summary judgment and supplemental motion to modify special injunction on August 9, 2013. Kolimaga asserted that plaintiff’s claims were barred to the extent they arose prior to the running of the four-year statute of limitations, to wit, prior to November 28, 2008, because plaintiff could have discovered his wife’s alleged defalcations had plaintiff used reasonable diligence. Kolimaga also urged that two of the assets were exempt from execution by creditors, namely the proceeds of a $100,000 insurance policy on the life of his late wife, Joan Kolimaga, and his interest as the beneficiary of her 401 (k) plan. He wanted these released to him free of the special injunction in place. This the court scheduled for a hearing, together with the hearing on plaintiff’s request for a preliminary injunction. Testimony was taken on November 14, 2013 and November 21,2013.
      Plaintiff called a forensic accountant, Ricardo J. Zayas, CPA, to explain the results of his investigation into the discrepancies in the books and records of Oral and Maxillofacial Surgery Associates of Chester County, Ltd. (hereafter “OMFSA”). Aided by more than 30 exhibits and reams of bank and credit card statements, Mr. Zayas demonstrated that $1,328,324.28 of plaintiff’s funds had been misappropriated since January 2004. Most if not all of it was diverted into a number of different accounts held by Joan Kolimaga or jointly by Joan and Joseph Kolimaga. While not necessarily free of all doubt, the court was satisfied that the plaintiff’s right to relief is clear.
      The plaintiff did not show that Joseph Kolimaga was a knowing and active participant in his wife’s fraud but, in accord with plaintiff’s claim of unjust enrichment, did show that Joseph Kolimaga at least passively received and benefitted from her extravagant expenditures. Houses were purchased and remodeled. Cars were bought. A huge swimming pool, outdoor fireplace, pond and bridge were installed in the backyard. They took cruises and enjoyed swank vacations. They seemed to have no difficulty writing checks for $40,000 a pop, which approximated Joan’s annual salary; Joe could not find a full-time job for some of this period.
      It appeared to the court that plaintiff could prevail on its theory of unjust enrichment against Joseph Kolimaga, and possibly on other counts as well.
      Turning to his petition, the court believed that Mr. Kolimaga could prevail on his argument that plaintiff was not entitled to invoke the “discovery rule” so as to toll the running of the statute of limitations. If the statute of limitations applies, plaintiff’s claims are reduced from $1,328,324.28 to $551,660.90. The latter is the maximum sum subject to recovery since November 28,2008.
      The plaintiff’s own forensic accountant conceded that Joan Kolimaga’s misconduct could have been detected within a month simply by having another individual do the bank account reconciliation. As it was, the plaintiff did not have the simplest control in place to protect itself. The “discovery rule” operates to balance the rights of diligent, injured plaintiffs against the interests of defendants in being free from state claims. Wilson v. El-Daief, 600 Pa. 161, 964 A.2d 354, 366 n. 12 (2009). The question is not what did the plaintiff know of the injury done to him. The question is what might the plaintiff have known by use of the means of information within his reach, with the vigilance the law requires of him. Fine v. Checcio, 582 Pa. 253, 870 A.2d 850, 858 (2005). The court anticipates that plaintiff will have a hard time at the final hearing should it argue that it used reasonable diligence in not ascertaining its claims between 2004-2008. However, because there are material facts in dispute, the defendants’ motion for partial summary judgment must be denied.
      As to the two assets that Joseph Kolimaga views as exempt from attachment by creditors, the parties were able to enter into a stipulation in respect to one of these, his interest in his wife’s 401(k) plan. They agreed that this was not subject to attachment, execution or restraint in this case. The court approved the stipulation during the hearing. During his summation to the court, plaintiff’s counsel argued that the protections in this agreement were limited to the time prior to any distribution of the funds into the hands of the beneficiary. Resolution of that issue will await the final hearing.
      The other asset claimed to be exempt is the proceeds of a $100,000 policy of insurance on the life of Joan Kolimaga payable to Joseph Kolimaga. Defendant relied on the Pennsylvania exemption statute at 42 Pa. C.S.A. §8124(c) which provides as follows:

        (c) Insurance proceeds. — The following property or other rights of the judgment debtor shall be exempt from attachment or execution on a judgment:
      * * *
      (6) The net amount payable under any annuity contract or policy of life insurance made for the benefit of or assigned to the spouse, children or dependent relative of the insured, whether or not the right to change the named beneficiary is reserved by or permitted to the insured. The preceding sentence shall not be applicable to the extent the judgment debtor is such spouse, child or other relative.
      This legislation is not a model of clarity. What does “The preceding sentence shall not be applicable to the extent the judgment debtor is such spouse, child or other relative” mean?
      It may be made clearer by recalling that at one time in Pennsylvania insurance proceeds were exempt from the claims of creditors in order to effectuate public policy encouraging “the working man” to provide for his wife and children with an assured fund for their maintenance clear of the claims of creditors. Case law extended this protection to creditors of the spouse-beneficiary. See, Consumers Time Credit, Inc. v. Remark Corp., 248 F. Supp. 158 (E.D. Pa. 1965) concerning 40 P.S. §517, the predecessor statute. The court observed:
      We think it would be destructive of the benevolent policy of this statute to permit the creditor of the insured or of the beneficiary or of both, to reach the policies or their cash value.

        Id. at 161.
      The federal court’s decision was followed the next year by the Supreme Court of Pennsylvania in Resolute Ins. Co. v. Pennington, 423 Pa. 472, 224 A.2d 757 (1966) (life insurance proceeds not subject to attachment for spouse beneficiary’s own debts).
      Section 517 was amended and restated and is now 42 Pa. C.S.A. §8124(c)(6). Clearly, with the last sentence in that subsection, the legislature meant to alter the rulings in Consumers Time Credit and Resolute Insurance by providing that in the instance where the beneficiary spouse is a co-judgment debtor, he or she does not enjoy the protection of an exemption. Judgments have yet to be rendered in this case.
      But, should Joseph Kolimaga become a judgment debtor after the final injunction hearing, 42 Pa. C.S.A. §8124(c)(6) will not assist him.