source: Caselaw Access Project

author: BAYLEY, J.,

license: Public Domain

text:
    Capozzi v. Latsha & Capozzi P.C.

      C.P. of Cumberland County,
    nos. 99-3981, 99-3542, 97-5584.

      John McNaight Cramer, for plaintiff.

      Richard H. Wix, for defendants
    February 27, 2001
   BAYLEY, J.,

Louis J. Capozzi Jr., is a shareholder in the law firm of Latsha & Capozzi P.C. His employment as an attorney with the firm ended on June 6, 1997. He instituted suit against the professional corporation and its other shareholders, Kimber L. Latsha, Glenn R. Davis and Douglas C. Yohe, to recover the actual value of his stock in Latsha & Capozzi P.C. as of June 6, 1997. He further sought to recover principal and interest on a demand promissory note that defendants gave to him. Defendants countered with a claim against Capozzi for his proportional share of legal fees the law firm returned to Capozzi’s clients that defendants maintained were overbilled by him, plus the firm’s costs to identify and determine the amount of the overbillings. On Capozzi’s claim for the actual value of his stock in Latsha & Capozzi PC., as of June 6,1997, defendants maintained that all of the shareholders had an oral agreement that if any shareholder left his employment with the firm, and then competed with the firm, that shareholder would receive for his stock the amount of his capital contribution, not the actual value on the date of termination. The capital contribution of each shareholder in the firm was $5,000.

The parties agreed to a bifurcation of the liability and damage phases of the trial, with a jury determining any liability and the trial judge determining any damages. On November 1, 2000, a jury returned a verdict on liability answering “Yes” to the following three questions:

“Question 1:

“Are Latsha & Capozzi P.C., Kimber L. Latsha, Glenn R. Davis and Douglas C. Yohe liable to Louis J. Capozzi Jr., for payment of the demand note the law firm gave to Capozzi?

“Question 2:

“Is Louis J. Capozzi Jr. liable to Latsha & Capozzi PC., Kimber L. Latsha, Glenn R. Davis and Douglas C. Yohe, as a shareholder for his proportional share of the money the law firm returned to clients who were over-billed by him, and for the cost of identifying the clients and determining the amounts of the overbillings?

“Question 3:

“Did the shareholders of Latsha & Capozzi PC., have an oral agreement with Louis J. Capozzi Jr., that if a shareholder left the law firm, and competed with the firm, that shareholder’s stock would be valued at his capital contribution?”

On December 18, 2000, this trial judge, after taking additional evidence on damages, entered the following verdict:

“(1) Louis J. Capozzi Jr. is awarded principal in the amount of $38,071.50 plus interest totaling $8,668.48 through December 18, 2000, for a total of $46,683.98, against Latsha & Capozzi P.C., Kimber L. Latsha, Glenn R. Davis and Douglas C. Yohe, on the demand note as found by the jury in question number l.

“(2) Latsha and Capozzi PC., Kimber L. Latsha, Glenn R. Davis and Douglas C. Yohe are awarded damages, and as a setoff, from Louis J. Capozzi Jr., of $14,140.78 for client refunds representing his proportional share of the money the law firm returned to clients who were overbilled by him, and auditing expenses of $5,679.02 representing the total cost of identifying the clients and determining the amounts of the overbillings, for a total of $19,819.80 as found by the jury in question number 2.

“(3) Louis J. Capozzi Jr., is awarded $5,000 against Latsha and Capozzi P.C., Kimber L. Latsha, Glenn R. Davis and Douglas C. Yohe, with legal interest from June 6, 1997, for the value of his stock at his capital contribution as found by the jury in question number 3.”

Plaintiff and defendants filed motions for post-trial relief which were briefed and argued on February 7, 2001. Plaintiff claims that he is entitled to judgment n.o.v. on liability for the actual value of his stock in Latsha & Capozzi P.C., as of June 6, 1997, “because an agreement forfeiting an attorney’s right to compensation in the event he competes with his former law firm is unenforceable.” On this issue, defendants were the verdict winners. The evidence in a light most favorable to defendants is as follows.

In 1994, Louis Capozzi and Kimber Latsha worked as attorneys for the Cumberland County law firm of Shumaker & Williams. They left Shumaker & Williams, and on May 23,1994, incorporated Latsha & Capozzi, a professional corporation for the practice of law. Capozzi and Latsha took a number of Shumaker & Williams’ clients with them. In July 1994, Douglas Yohe left Shumaker & Williams to become a shareholder in Latsha & Capozzi. He brought some of Shumaker & Williams’ clients with him. In 1994, Latsha & Capozzi P.C., had gross revenues of approximately $300,000. In March 1995, Glenn Davis left Shumaker & Williams to become a shareholder in Latsha & Capozzi. He also brought some of Shumaker & Williams’ clients with him. Once Davis became a shareholder, Latsha and Capozzi each owned 37 1/2 percent of the stock in Latsha & Capozzi PC., with Yohe owning 15 percent and Davis owning 10 percent. By the end of 1996, Latsha & Capozzi P.C. had 15 attorneys and gross revenue for the year of $2.6 million.

In January 1997, Latsha, Yohe, and Davis became concerned about the conduct of Capozzi, which they felt was injurious to the reputation of the law firm. They attributed Capozzi’s conduct to the abuse of alcohol. On May 2, 1997, the three shareholders of the firm and others conducted an intervention in an effort to have Capozzi enter the Caron Foundation for treatment. On the same date, the board of directors reduced Capozzi’s $175,000 annual salary to $100,000 a year. On May 5, Capozzi undertook inpatient treatment at the Caron Foundation. He completed that treatment on May 19. On June 2, the board of directors suspended Capozzi’s employment without pay. On June 6, Capozzi was notified in writing that he could return to employment with the firm for an open probationary period subject to 13 conditions. Capozzi did not accept the conditions and his employment with the firm terminated. On June 11, Capozzi started his own law firm, Capozzi Associates, in Harrisburg, Dauphin County.

Capozzi’s legal specialty is representing medical care providers, who seek higher reimbursements than have been paid by government and other entities to the providers for services rendered to patients. Latsha & Capozzi P.C. billed clients based on written fee agreements of hourly rates for the shareholders and associates in the firm. In 1996, having become more adept at representing the firm’s medical providers, Capozzi sought to switch to value billing. The board of directors rejected the proposal. Notwithstanding, Capozzi arbitrarily increased the time billed to 66 clients from the actual time that associates had worked on behalf of those clients. The law firm discovered these overbillings, which were in violation of the firm’s written fee agreement with those clients, shortly before Capozzi’s employment ended on June 6, 1997. The firm had an audit conducted and determined that the 66 clients had been overbilled by Capozzi. In July and August, 1997, Latsha & Capozzi P.C., returned to each of the 66 clients the amount of money that Capozzi had overbilled that client. When the money was returned, the firm informed each client that it had determined that there was an over-billing, but it did not advise the clients of the reason why.

In May 1997, Capozzi generated a complete client list from the firm’s computer base. When he started Capozzi Associates on June 11, 1997, he took many of the clients of Latsha & Capozzi P.C., with him, some of which were among the 66 clients the firm returned money to because of his overbillings. Capozzi solicited some of these clients before his employment ended on June 6, 1997, and sent them release forms. Capozzi Associates now has nine attorneys.

When Latsha and Capozzi incorporated their law firm, they had an oral agreement that if either of them left the firm, and competed with the firm, that shareholder would receive for his stock the amount of his capital contribution in the professional corporation. When Yohe became a shareholder, he entered into a similar oral agreement with Latsha and Capozzi. When Davis became a shareholder, he too entered into a similar oral agreement with Latsha, Capozzi, and Yohe. Latsha & Capozzi P.C. never had a written shareholders’ agreement. The shareholders at times talked about entering into a written agreement, and numerous drafts were circulated, but they were never acted upon.

Plaintiff maintains that the oral agreement that the jury found existed between the shareholders of Latsha & Capozzi P.C., that if a shareholder left the law firm, and competed with the firm, that shareholder’s stock would be valued at his capital contribution, restricts his right as a lawyer to practice law after his termination as an employee of Latsha & Capozzi PC., and therefore is unenforceable as a violation of public policy. In support of that argument, plaintiff cites Rule 5.6 of the Rules of Professional Conduct adopted by the Supreme Court of Pennsylvania. The rules are derived from, although not in their entirety, the Model Rules of Professional Conduct adopted by the American Bar Association. Rule 5.6 provides:

“A lawyer shall not participate in offering or making:

“(a) a partnership, shareholders, operating, employment or other similar type of agreement that restricts the rights of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement. . . .” (emphasis added)

The comment to the rule provides:

“An agreement restricting the right of partners or associates to practice after leaving a firm not only limits their professional autonomy but also limits the freedom of clients to choose a lawyer. Paragraph (a) prohibits such agreement except for restrictions incident to provisions concerning retirement benefits for service with the firm.”

Besides denying that the oral agreement between the shareholders restricted plaintiff’s right to practice law, defendants maintain that plaintiff derives no substantive rights from Rule 5.6 even if the rule was violated. The note on the scope of the rules states:

“Failure to comply with an obligation or prohibition imposed by a rule is a basis for invoking the disciplinary process. ...

“Violation of a rule should not give rise to a cause of action nor should it create any presumption that a legal duty has been breached. The rules are designed to provide guidance to lawyers and to provide a structure for regulating conduct through disciplinary agencies. They are not designed to be a basis for civil liability. Furthermore, the purpose of the rules can be subverted when they are invoked by opposing parties as procedural weapons. The fact that a rule is a just basis for a lawyer’s self-assessment, or for sanctioning a lawyer under the administration of a disciplinary authority, does not imply that an antagonist in a collateral proceeding or transaction has standing to seek enforcement of the rule. Accordingly, nothing in the rules should be deemed to augment any substantive legal duty of lawyers or the extra-disciplinary consequences of violating such a duty.” (emphasis added)

Notwithstanding, plaintiff cites Maritrans GP Inc. v. Pepper, Hamilton & Scheetz, 529 Pa. 241, 602 A.2d 1277 (1992). In Maritrans, the plaintiff brought an action for preliminary and permanent injunctive relief, and damages, against a law firm that had represented him for more than 10 years. The case arose out of the law firm’s representation of plaintiff’s competitors, entities whose interest were found to be adverse to the interest of plaintiff, in matters substantially related to matters in which the firm had represented plaintiff. The Supreme Court of Pennsylvania reversed an order of the Superior Court of Pennsylvania that had reversed a preliminary injunction issued by a trial court. The court stated:

“While we agree that violations of the Code [of Professional Responsibility] do not per se give rise to legal actions that may be brought by clients or other private parties, we, nevertheless, conclude that the record supports a finding that appellees’ conduct here constituted a breach of common-law fiduciary duty owed to appellant-clients and that, contrary to appellees’ argument that they cannot be prevented from representing a former client’s competitors, the injunction issued by the trial court against appellees should have been sustained by the Superior Court. . ..

“Long before the Code of Professional Responsibility was adopted, and before the Rules of Professional Conduct were adopted, the common law recognized that a lawyer could not undertake a representation adverse to a former client in a matter ‘substantially related’ to that in which the lawyer previously had served [a] client. ...

“The Superior Court seems to have the idea that because conduct is not a tort simply because it is a disciplinary violation, then conduct ceases to be a tort when it is at the same time [of] a disciplinary violation. This is an [invasion] of logic and legal policy and misunderstands the history of the disciplinary rules.” Id. at 245, 256, 257, 602 A.2d at 1279, 1284, 1285.

Citing Bilec v. Auburn & Associates Inc., Pension Trust, 403 Pa. Super. 176, 588 A.2d 538 (1991), plaintiff maintains that the oral agreement found by the jury that prevalued a shareholder’s stock at the capital contribution of $5,000 in the event the shareholder left the firm, and competed with the firm, violates the common-law policy against forfeitures. The issue in Bilec, was whether a noncompete clause in an insurance pension plan contract, which provided for a forfeiture of vested pension benefits of an employee who undertook subsequent employment that competed with an employer, was contrary to public policy of the Commonwealth, and therefore unenforceable. The Superior Court noted:

“While we are not in agreement with the appellants’ blanket contention that all pre-ERISA forfeiture clauses are violative: of the public policy of this Commonwealth, we do find that this particular forfeiture clause violates public policy of Pennsylvania in regards to the enforcement of covenants not to compete.” Id. at 182, 588 A.2d at 540.

The Superior Court stated:

“The standard by which the validity of a restrictive covenant in an employment cont[r]act is judged in Pennsylvania is set forth in Piercing Pagoda Inc. v. Hoffner, 465 Pa. 500, 351 A.2d 207 (1976). These three requirements are: (1) the covenant must relate to a contract for employment; (2) the covenant must be supported by adequate consideration; (3) the application of the covenant must be reasonably limited in both time and territory.” Id. at 183, 588 A.2d at 541.

In Bilec, the court concluded that the forfeiture of an employee’s vested pension benefit upon the employee’s leaving employment and competing with the employer, was unenforceable because (1) it was not part of a contract between the employer and employee; rather it was part-of the employer’s contract with the employer’s insurer, (2) the record did not reflect that the employer granted its employees any additional consideration in exchange for the imposition of the forfeiture clause, and (3) the forfeiture clause did not include any time or geographical restrictions, rather it was a blanket prohibition against any former employee from working in any capacity for any company deemed by the employer to be a competitor.

In Cohen v. Lord, Day & Lord, 550 N.E.2d 410 (New York 1989), the law firm of Lord, Day & Lord had a written partnership agreement providing that a partner leaving the firm would receive a departure payment over a three-year period. Appellant Cohen withdrew from the firm. He then practiced law in competition with the firm. The firm refused to pay Cohen any departure compensation pursuant to the following clause in the partnership agreement:

“Notwithstanding anything in this article to the contrary, if a partner withdraws from the partnership and without the prior written consent of the executive committee continues to practice law in any state or other jurisdiction in which the partnership maintains an office or any contiguous jurisdiction, either as a lawyer in private practice or as a counsel employed by a business firm, he shall have no further interest in and there shall be paid to him no proportion of the net profits of the partnership collected thereafter, whether for services rendered before or after his withdrawal. There shall be paid to him only his withdrawable credit balance on the books of the partnership at the date of his withdrawal, together with the amount of his capital account, and the partnership shall have no further obligation to him.”

Cohen sued the firm seeking departure compensation. New York’s Disciplinary Rule 2-108(A) is substantially the same as Rule 5.6 of the Pennsylvania Rules of Professional Conduct. Relying on the rule, the Court of Appeals of New York held: “[wjhile the provision in question does not expressly or completely prohibit a withdrawing partner from engaging in the practice of law, the significant monetary penalty it exacts, if the withdrawing partner practices competitively with the former firm, constitutes an impermissible restriction on the practice of law. The forfeiture-for-competition provision would functionally and realistically discourage and foreclose a withdrawing partner from serving clients who might wish to continue to be represented by the withdrawing lawyer and would thus interfere with the client’s choice of counsel.”

The court rejected the firm’s policy argument that the forfeiture of departure compensation was justified because of the economic hardship suffered by a firm when a partner leaves and competes with the firm, stating:

“While a law firm has a legitimate interest in its own survival and economic well-being and in maintaining its clients, it cannot protect those interests by contracting for the forfeiture of earned revenues during the withdrawing partner’s active tenure and participation and by, in effect, restricting the choices of the clients to retain and continue the withdrawing member as counsel.” (citations omitted)

In contrast, the Supreme Court of California stated in Howard v. Babcock, 863 P.2d 150 (California 1994):

“We granted review to decide whether an agreement between law partners is enforceable if it requires the withdrawing partners to forego certain contractual withdrawal benefits if they compete with their former law firm. We conclude that an agreement among law partners imposing a reasonable toll on departing partners who compete with the firm is enforceable.”

The partners of Parker, Stanbury, McGee, Babcock & Combs entered into a partnership agreement which contained the following:

“Article X of the agreement provided in pertinent part that: ‘Should more than one partner, associate or individual withdraw from the firm prior to age 65 and thereafter within a period of one year practice law ... together or in combination with others, including former partners or associates of this firm, in a practice engaged in the handling of liability insurance defense work as aforesaid within the Los Angeles or Orange County court system, said partner or partners shall be subject, at the sole discretion of the remaining non-withdrawing partners to forfeiture of all their rights to withdrawal benefits other than capital as provided for in article V herein.’

“FN1. Article X also provided that if only one partner withdraws, he or she is subject to forfeiture of 75 percent of withdrawal benefits for competition in Orange County or Los Angeles County, and 25 percent of withdrawal benefits if her [sic] or she competes in specified other counties.

“Article V provided that a general partner who withdraws from the partnership shall be paid his or her capital interest, and a sum ‘equal to the share in the net profit of the firm that the withdrawn . . . partner would have received during the first 12 month period.’ ”

Plaintiffs left the firm and took about 200 cases with them. Defendants tendered payment to plaintiffs for their share of the capital of the firm, but refused to compensate them for the accounts receivable or to acknowledge that they had any interest in the work in progress or unfinished business of the firm. A Rule of Professional Conduct in California is substantially the same as Rule 5.6 of the Pennsylvania Rules of Professional Conduct. The Supreme Court of California concluded:

“We are not persuaded that this rule was intended to or should prohibit the type of agreement that is at issue here. An agreement that assesses a reasonable cost against a partner who chooses to compete with his or her former partners does not restrict the practice of law. Rather, it attaches an economic consequence to a departing partner’s unrestricted choice to pursue a particular kind of practice. . . .

“[o]ur interpretation of the rule must be illuminated by our recognition that a revolution in the practice of law has occurred requiring economic interests of the law firm to be protected as they are in other business enterprises. We are confident that our recognition of a new reality in the practice of law will have no deleterious effect on the current ability of clients to retain loyal, competent counsel of their choice.

“ ‘The traditional view of the law firm as a stable institution with an assured future is now challenged by an awareness that even the largest and most prestigious firms are fragile economic units. . . .’ (Hillman, Law Firm Breakups (1990) §1.1, at p. 1.) Not the least of the changes rocking the legal profession is the propensity to withdrawing partners in law firms to ‘grab’ clients from the firm and set up a competing practice. (Penasack, Abandoning the Per Se Rule Against Law Firm Agreements Anticipating Competition: Comment on Haight, Brown & Bonesteel v. Superior Court of Los Angeles County (1992) 5 Geo. J. Legal Ethics 889, 890 [hereafter Abandoning the Per Se Rule]; see also, Terry, Ethical Pitfalls and Malpractice Consequences of Law Firm Breakups (1988) 61 Temple L.Rev. 1055, 1056-1060 [hereafter Ethical Pitfalls].) In response, many firms have inserted noncompetition clauses into their partnership agreements. (Abandoning the Per Se Rule, supra, 5 Geo. J. Legal Ethics at p. 890.) These noncompetition clauses have grown and flourished, despite, or in defiance of the consistent holding of many courts across the nation that a noncompetition clause violates the rules of professional conduct of the legal profession. It is evident that these agreements address important business interests of law firms that can no longer be ignored.

“The firm has a financial interest in the continued patronage of its clientele. (See Kalish, Covenants Not to Compete and the Legal Profession (1985) 29 St. Louis U.LJ. 423, 438.) The firm’s capital finances the development of a clientele and the support services and training necessary to satisfactorily represent the clientele. (Id.) In earlier times, this investment was fairly secure, because the continued loyalty of partners and associates to the firm was assumed. (Abandoning the Per Se Rule, supra, 5 Geo. J. Legal Ethics, at p. 889; Ethical Pitfalls, supra, 61 Temple L.Rev. at p. 1059.) But more recently, lateral hiring of associates and partners, and the secession of partners from their firms has undermined this assumption. (Abandoning the Per Se Rule, supra, 5 Geo. J. Legal Ethics, supra, at p. 890.) Withdrawing partners are able to announce their departure to clients of the firm, and many clients defect along with the attorneys with whom they have developed good working relationship. The practical fact is that when partners with a lucrative practice leave a law firm along with their clients, their departure from and competition with the firm can place a tremendous financial strain on the firm. (See Kalish, Covenants Not to Compete, supra, 29 St. Louis U.LJ. at p. 438.)....

“We are aware that many courts have interpreted the rules of professional conduct of their states, often stated in identical or very similar terms with the language of our rule 1-500, as prohibiting all agreements restricting competition among lawyers, including those that merely assess a cost for competition, (citing cases)

“However, we disagree with the analysis proffered by these courts to justify such an interpretation. Some courts, including the court of appeal in this case, reason that an attorney should have freedom to choose when, where and for whom to practice law; an anti-competitive covenant restricts that freedom. (See e.g., Cohen v. Lord, Day & Lord, supra, 551 N.Y.S.2d at p. 158, 550 N.E.2d at p. 411.) Second, many courts reiterate that the practice of law is not a business, and clients are not commodities. These courts assert as an absolute rule that clients must have free choice of attorneys; to the extent that a restriction or toll on competition between lawyers is effective, it limits the ability of clients to have access to the attorney of their choice and is therefore improper. (See e.g., Jacob v. Norris, McLaughlin & Marcus, supra, 607 A.2d at p. 147.)

“Upon reflection, we have determined that these courts’ steadfast concern to assure the theoretical freedom of each lawyer to choose whom to represent and what kind of work to undertake, and the theoretical freedom of any client to select his or her attorney of choice is inconsistent with the reality that both freedoms are actually circumscribed. Putting aside lofty assertions about the uniqueness of the legal profession, the reality is that the attorney, like any other professional, has no right to enter into employment or partnership in any particular firm, and sometimes may be discharged or forced out by his or her partners even if the client wishes otherwise. Nor does the attorney have the duty to take any client who proffers employment, and there are many grounds justifying an attorney’s decision to terminate the attorney-client relationship over the client’s objection. (See R.P.C. 3-700; 1 Witkin Cal. Procedure, supra, Attorneys, §§73-80, pp. 94-100.) Further, an attorney may be required to decline a potential client’s offer of employment despite the client’s desire to employ the attorney. For example, the attorney may have a technical conflict of interest because another attorney in the firm previously represented an adverse party. (R.P.C. 3-300, 3-310.) Finally, the client in the civil context, of course, ordinarily has no ‘right’ to any attorney’s services, and only receives those services he or she can afford.

“Moreover, the contemporary changes in the legal profession to which we have already alluded make the assertion that the practice of law is not comparable to a business unpersuasive and unreflective of reality. Commercial concerns are now openly recognized as important in the practice of law. Indeed, we question whether any but the wealthy could enter the profession if it were to be practiced without attention to commercial success. In any event, no longer can it be said that law is a profession apart, untouched by the marketplace. Not only has law firm culture changed but, as in other businesses, lawyers now may advertise their services and may even communicate by letter with persons unknown to them, suggesting the possibility of employment. (Shapero v. Kentucky Bar Assn., 486 U.S. 466, 108 S.Ct. 1916, 100 L.Ed. 2d 475 (1988); Bates v. State Bar of Arizona, 433 U.S. 350, 97 S.Ct. 2691, 53 L.Ed. 2d 810 (1977).) Thus the general rules and habits of commerce have permeated the legal profession. . . .

“Further, we question the premise that an agreement such as is at issue here would necessarily discourage withdrawing partners from continuing to represent clients who choose to employ them. Unless the penalty were unreasonable, it is more likely that the agreement would operate in the nature of a tax on taking the former firm’s clients — a tax that is not unreasonable, considering the financial burden the partners’ competitive departure may impose on the former firm. The sum to be forfeited by the withdrawing partners may be seen as comparable with a liquidated damage clause, an accepted fixture in other commercial contexts. ...”

In Howard, the Supreme Court of California reversed an order of an intermediate appellate court that had ruled in favor of the remaining partners in the law firm, and remanded the case to the trial court for a determination of whether the terms of article X were reasonable, and for any further award on the accounting causes of action made necessary by its determination.

We have quoted extensively from Howard because we agree with the reasoning of the Supreme Court of California. We disagree with the reasoning of the Court of Appeals of New York in Cohen v. Lord, Day & Lord, supra. In Cohen, the court of appeals relied on a disciplinary rule in holding that the departing attorney was entitled to departure compensation. In the present case, it does not appear that plaintiff can rely on Rule 5.6 of the Pennsylvania Rules of Professional Conduct for substantive relief. Maritrans GP Inc. v. Pepper, Hamilton & Scheetz, supra. Notwithstanding, we conclude as a matter of public policy that in Pennsylvania, attorneys who are shareholders of a professional corporation may enter into an enforceable agreement that reasonably prevalues the stock of a departing shareholder who then competes with the law firm. This is a form of a restrictive noncompete covenant. Therefore, to be enforceable such an agreement must meet the standards set forth by the Supreme Court of Pennsylvania in Piercing Pagoda Inc. v. Hoffner, 465 Pa. 500, 351 A.2d 207 (1976), which are, (1) the agreement must relate to a contract for employment, (2) it must be supported by adequate consideration, and (3) the application of the agreement must be reasonably limited in both time and territory.

In the case sub judice, the oral agreement of all of the shareholders of Latsha & Capozzi PC., upon each of them undertaking employment as an attorney with the professional corporation, was that if any shareholder left the firm, and competed with the firm, that shareholder would receive for his stock the amount of his capital contribution. Implicit in the agreement was that if a shareholder left the firm he would be paid for his stock. While the first two prongs of Piercing Pagoda have been met, the third is not. The application of the oral agreement of each shareholder not only was not reasonably limited in both time and territory, it was not limited at all. Accordingly, the oral agreement between the shareholders is unenforceable to the extent that it limits plaintiff to receiving $5,000 for the value of his stock in Latsha & Capozzi P.C.

Notwithstanding, defendants maintain that even if the oral agreement limiting the value of plaintiff’s stock at $5,000 is unenforceable, plaintiff still is not entitled to a judgment n.o.v. on liability for the actual value of his stock because (!) he is not precluded from continuing to own his stock in Latsha & Capozzi P.C., and (2) the corporation is not required to repurchase his shares under the provisions in the Associations Code, 15 Pa.C.S. §101 et seq., that are applicable to professional corporations. 15 Pa.C.S. §§2901-2925. To be entitled to a judgment notwithstanding the verdict, plaintiff must be entitled to a judgment as a matter of law even with all factual inferences decided adverse to him. Moure v. Raeuchle, 529 Pa. 394, 604 A.2d 1003 (1992). Defendants argue that the Association Code affords only two statutory remedies analogous to the relief sought by plaintiff: first, the reacquisition and valuation of shares of a disqualified shareholder (defined at 15 Pa.C.S. §2902), and second, the valuation of shares of a deceased shareholder (15 Pa.C.S. §2907(a)). Defendants maintain that plaintiff is not disqualified as the word is defined, nor is he deceased; therefore, he simply continues to own his stock in the professional corporation. See Berrett v. Purser & Edwards, 876 P.2d 367 (Utah 1994). Given the facts of the present case, we need not analyze whether defendants’ interpretation of these statutory provisions is correct. Implicit in the oral agreement of all of the shareholders of Latsha & Capozzi P.C., was that if a shareholder left the law firm, he would be paid for his stock. The issue is what that shareholder would be paid, not whether he would be paid. The jury found that there was an oral agreement. It is that part of the oral agreement that would limit the value of the stock to $5,000, that is unenforceable.

Defendants further maintain that even if the oral agreement limiting the value of plaintiff’s stock at $5,000 is unenforceable, the remedy should be a new trial on the issue of liability, and not a judgment n.o.v. Defendants maintain that the value of plaintiff’s stock would be less than the actual value if a jury determined that his employment with Latsha & Capozzi P.C. terminated because of his wrongful conduct. Stated another way, defendants maintain that they imposed reasonable conditions upon plaintiff for his continued employment at Latsha & Capozzi P.C. and that the jury should have been allowed to consider whether, under those circumstances, plaintiff’s termination of employment was voluntary. The shareholders of Latsha & Capozzi P.C. never had an agreement that wrongful conduct by a shareholder would result in a reduction in the value of his stock. The agreement the shareholders had was that if an attorney left the law firm and competed with the firm, that shareholder would receive for his stock the amount of his capital contribution in the professional corporation. That provision is unenforceable. Plaintiff’s conduct is not determinative as to the value of his stock. Therefore, defendants are not entitled to a new trial on liability, and plaintiff is entitled to a judgment n.o.v. on liability. This will, however, require a new trial on the issue of plaintiff’s damages.

In the interest of judicial economy we will address plaintiff’s alternative post-trial motion for a new trial. Plaintiff maintains that a draft of a proposed shareholder agreement that was never executed by the shareholders warranted submitting to the jury a question of whether the $5,000 limitation on the value of the departing shareholder’s stock applied only to a shareholder who voluntarily terminated his employment with Latsha & Capozzi P.C. The unexecuted draft set forth that, “in the event a shareholder terminates his employment with the corporation and continues in the private practice of law in jurisdictions where the corporation has attorneys licensed to practice, the price for the selling shareholder’s stock shall be his capital contribution.” Latsha, Davis and Yohe each testified that this proposal essentially corresponded to their oral agreement that if any of them left the firm, and competed with the firm, that shareholder would receive for his stock the amount of his capital contribution in the professional corporation. Plaintiff denied that there was any agreement to prevalue stock. No shareholder testified that the prevaluation of a departing shareholder’s stock at $5,000 was dependent on whether a shareholder voluntarily left the firm. The unexecuted draft cannot change the actual agreement of the shareholders.

POST-TRIAL MOTION OF DEFENDANTS

Defendants filed a motion for post-trial relief claiming the court erred in failing to award them damages for their individual hourly rate as lawyers for the time each of them spent working on the overbilling issue, and for the fee they incurred from an attorney, who specialized in legal ethics, who they hired to advise them on the issues involving plaintiff. Defendants have cited no authority in support of their position. Their position is no different than a plumber wanting to charge his hourly rate for the time taken to resolve an issue involving a dishonest employee, and to recover attorney fees incurred in such a matter. There is no statutory, contractual or other basis to support defendants’ claim. In Merlino v. Delaware County, 556 Pa. 422, 425, 728 A.2d 949, 951 (1999), the Supreme Court of Pennsylvania stated that, “This court has consistently followed the general, American rule that there can be no recovery of attorneys’ fees from an adverse party, absent an express statutory authorization, a clear agreement by the parties or some other established exception.”

Defendants further maintain that the court erred in charging the jury that the individual defendants, in addition to Latsha & Capozzi PC., could be held liable on the demand promissory note given to plaintiff. Defendants objected to the charge, claiming that the note dated December 31, 1996, bound only the corporation to pay plaintiff $38,017.50 with interest at a rate of 5.75 percent. Defendants again raised this issue in their post-trial motion. They are correct. The note requires “Latsha & Capozzi P.C.” to pay on demand the $38,017.50 with interest. It is signed by Kimber L. Latsha, as president of Latsha & Capozzi P.C., and attested to by Douglas C. Yohe, the secretary of the corporation. We will grant defendants’ relief by limiting plaintiff to a recovery on the note against Latsha & Capozzi PC., and not the individual defendants.

Lastly, defendants maintain that we should mold the verdict by awarding legal interest on the verdict against plaintiff for $19,819.80 for his proportional share of the money the law firm returned to clients who were overbilled by him, and the auditing expenses of $5,679.02 representing the total cost of identifying the clients and determining the amounts of the overbillings. We agree and will mold the verdict to award legal interest from August 1, 1997, which represents the middle of the period in which the refunds were paid to the clients.

For the foregoing reasons, the following order is entered.

ORDER

And now, February 27, 2001, it is ordered:

(1) The motion of plaintiff for a judgment n.o.v. the verdict on liability as to the value of his stock in Latsha & Capozzi P.C., is granted. Plaintiff is awarded a new trial on damages.

(2) The motion of the defendants, Kimber L. Latsha, Glenn R. Davis and Douglas C. Yohe, for a judgment notwithstanding the verdict on their individual liability on a demand promissory note, is granted.

(3) The verdict in favor of defendants against plaintiff in the amount of $19,819.80, is molded to add legal interest at the rate of 6 percent per annum from August 1, 1997.

      . Multiple lawsuits were filed at the three captions to this opinion in which these claims were interdisbursed.

      . The figures used in the verdict are as set forth in plaintiff’s exhibit number 1 at the hearing on damages. Two are incorrect. The principal amount of the note as shown on plaintiff’s exhibit number 2, in the jury trial, was $38,017.50. When this figure is added to the interest of $8,668.48, it totals $46,685.98.

      . Wilkinson v. Reitnauer, 421 Pa. Super. 345, 617 A.2d 1326 (1992).

      . Each attorney drew an annual salary. At the end of each year, any money that was left over after the payment of expenses was distributed to the shareholders, one-half of it in proportion to their ownership interest in the firm, and the other half in proportion to the amount of each shareholder’s individual billings during that year.

      . Louis Capozzi testified that there were never any oral agreements among the shareholders to govern dissolution.

      . A note on the scope of the Rules of Professional Conduct states that “The comment accompanying each rule explains and illustrates the meaning and purpose of the rule.” When it accepted the rules, the Supreme Court stated, “Any comments or comparisons to the Code of Professional Responsibility shall not be part of the Rules of Professional Conduct.”

      . The Associations Code of Pennsylvania at 15 Pa.C.S. §2925(e), provides:

        “Disciplinary jurisdiction unaffected. — A professional corporation shall be subject to the applicable rales and regulations adopted by, and all the disciplinary powers of, the court, department, board, commission or other government unit regulating the profession in which the corporation is engaged.”

      . At trial, defendants sought a charge to this effect which was rejected.

      . Defendants are recovering $19,819.80 from plaintiff based on his proportional share of client refunds, and the total auditing expenses of identifying the clients and determining the amount of the overbillings that resulted in the refunds, based on plaintiff’s wrongful conduct.

      . Plaintiff alleges that the value of his stock at the time his employment terminated with Latsha & Capozzi P.C., constituting the firm’s cash, accounts receivable, unbilled time and tangible assets, net of associated liabilities, is approximately $411,000.


author: STRASSBURGER,

text:
    Werner v. Werner

      C.P. of Allegheny County,
    no. GD98-4020.

      Richard W. Gladstone II, for plaintiffs.

      Larry K. Elliot, for defendants.
    November 8, 2000
   STRASSBURGER,

On April 18, 2000, plaintiffs filed a complaint in Allegheny County alleging, inter alia, that defendants wrongfully induced Leo L. Wemer, now deceased, to transfer to them approximately $26,698,750 of Wemer Company stock. Plaintiffs further alleged that defendants wrongfully diluted plaintiffs’ stock in the Wemer Company by causing the company to issue stock to the defendants for less than fair value.

On April 28, 2000, defendants filed preliminary objections including an objection to venue in Allegheny County. After completion of discovery and submission of briefs, I entered an order sustaining defendants’ preliminary objection to venue and transferred this action to Mercer County. Plaintiffs have appealed.

As one basis for asserting that venue lay in Allegheny County, plaintiffs contended that defendants consented to venue here and waived any objection thereto. Plaintiffs claim that this waiver occurred when defendants consented to the order of February 24, 2000, filed by the Honorable Thomas R. Dobson in Mercer County. This argument is specious. Nothing has been presented to indicate that such a waiver arose from the events surrounding Judge Dobson’s order. Judge Dobson’s order did not mention venue, nor did it eliminate any preliminary objections to venue that defendants could raise in this action. It simply postponed litigation in Mercer County Orphans’ Court until this litigation, then pending in Allegheny County, was concluded.

Pa.R.C.P. 1006(a) provides:

“(a) Except as otherwise provided by subdivisions (b) and (c) of this rule, an action against an individual may be brought in and only in

“(1) a county in which the individual may be served or

“(2) in which the cause of action arose or

“(3) where a transaction or occurrence took place out of which the cause of action arose or

“(4) in any other county authorized by law.”

Defendants asserted and I agreed that none of the Rule 1006(a) criteria supported venue for plaintiffs’ cause of action in Allegheny County.

Plaintiffs defended their choice of venue in Allegheny County by contending that venue was proper under Rule 1006(a) based on Count 2 of their complaint alleging civil conspiracy. Plaintiffs claimed that venue was proper here because overt acts in furtherance of the alleged conspiracy occurred in Allegheny County and that these acts constitute transactions or occurrences giving rise to their conspiracy cause of action. The overt acts that plaintiffs alleged gave rise to a conspiracy include meetings in Pittsburgh on February 2, 1989 and February 18, 1992, and the preparation of gift documents in Pittsburgh by Leo Werner’s attorney, Tim Burke.

Plaintiffs’ first basis for asserting venue here was a February 2, 1989 meeting in Pittsburgh. According to plaintiffs, this meeting was the “first and necessary step” in furtherance of defendants’ alleged conspiracy to fraudulently induce Leo Werner into gifting his Wemer Company stock. (Plaintiffs’ brief on venue at 6.) This meeting is not sufficient to support plaintiffs’ claim that venue properly lies in Allegheny County. Specifically, the meeting is simply too tenuous a connection between this county and the cause of action at issue. In order for such a meeting to confer venue in this case, the meeting must satisfy Rule 1006(a). In the instant case, plaintiffs aver that the meeting satisfies Rule 1006(a) only because, according to plaintiffs, it constitutes a transaction or occurrence out of which the cause of action arose.

In Craig v. W. J. Thiele & Sons Inc., 395 Pa. 129, 149 A.2d 35 (1959), the court interpreted the meaning of “transaction or occurrence” in the context of Rule 2179 which deals with venue in actions against a corporation. For purposes of the instant venue analysis, however, no significant distinction between the two rales exists. See Goodrich-Amram 2d §1006(a):l Amram Commentary. In Craig, the court determined that in order for venue to be maintained in a county where a transaction or occurrence took place out of which the cause of action arose, a complete transaction and not merely some part of the transaction, must take place in the county where venue is to be laid. Craig, 395 Pa. at 134, 149 A.2d at 37. In Craig, the court reasoned as follows:

“The framers of our rule must have intended to require that a transaction (in this case the making of a contract) and not merely some part of the transaction, take place in the county where venue is laid. It would lead only to confusion and a practice which we have heretofore referred to as ‘forum shopping’ if the law were to permit suit to be commenced against a corporation in any county where any facet of a complex transaction occurred.” Craig, 395 Pa. at 134, 149 A.2d at 37.

In light of Craig, the February 1989 meeting in Pittsburgh simply does not rise beyond a mere minor part of a transaction giving rise to plaintiffs’ conspiracy cause of action and is insufficient to support venue in Allegheny County. Craig, 395 Pa. 129, 149 A.2d 35 (1959).

Plaintiffs’ argument that Craig is distinguishable because it involved a contract cause of action is not convincing. In Craig, the court, although specifically dealing with a contract cause of action, certainly did not limit its holding. In reaching its decision, the court directly addressed the same language presently at issue as it appears in Rules 1006(a) and 2179. The court’s reasoning in Craig is directly applicable to the present cause of action. Because that decision clearly addresses the same language of Rule 1006(a) at issue here, it must be followed. Plaintiffs’ argument in support of venue in Allegheny County relied solely upon cases discussing venue for criminal conspiracy. These cases are clearly inapposite as the instant case involves a civil conspiracy count to which the Pennsylvania Rules of Civil Procedure, as interpreted by our appellate courts, are controlling. See Rule 1006(a) Pa.R.C.R; Craig, 395 Pa. 129, 149 A.2d 35 (1959).

The same analysis applies to plaintiffs’ argument alleging that venue is proper in Allegheny County because the subject Wemer Company stock plan was drafted by Cohen and Grigsby PC., a Pittsburgh-based law firm, and was reviewed by defendant, Eric Werner at a February 18, 1992 meeting in Pittsburgh, Allegheny County. Both of these events are insufficient to support venue in this county. The stock plan at issue was adopted in Mercer County and all shares under the plan were executed in Mercer County from the residence of the plaintiff, Leo Wemer. The fact that the plan was reviewed by a defendant at corporate counsel’s offices which happened to be in Allegheny County, is nothing more than a mere facet of a transaction giving rise to the alleged conspiracy and cannot support venue in this county. See Craig, 395 Pa. 129, 149 A.2d 35 (1959). For the same reason, the alleged preparation of certain gift documents also fails to establish venue here. Moreover, if the mere drafting of documents by counsel in a particular county is held to support venue, a client could conceivably be subjected to defend a suit in an otherwise unrelated court based solely on the residence of counsel. Such a result certainly does not comport with the purpose of our venue rales.

The purpose of the Pennsylvania Rules of Civil Procedure relating to venue is to “permit a plaintiff to institute suit against the defendant in the county most convenient for him and his witnesses and to assure that the county selected [has] a substantial relationship to the controversy between the parties.” See County Construction Company v. Livengood Construction Corporation, 393 Pa. 39, 44, 142 A.2d 9, 13 (1958). Here, neither the Count 2 plaintiff, Elizabeth Werner suing on behalf of the Leo Wemer estate, nor any of the defendants to that count bears a substantial relationship to plaintiffs’ chosen forum. Aside from the parties’ choice of local counsel in this action, none is connected to Allegheny County with the requisite substance to sustain venue here. In light of the court’s holding in Craig, plaintiffs have failed to show that anything beyond a mere part of a transaction or occurrence giving rise to their conspiracy claim occurred in this county.

I therefore sustained defendants’ preliminary objection to venue in Allegheny County and, in accordance with Pa.R.C.P. 1006(e), I transferred the present action to Mercer County, Pennsylvania where venue properly lies.

      . In the Leo Wemer estate proceeding, pending in the Orphan’s Court Division of the Court of Common Pleas of Mercer County, Pennsylvania at register of wills no. 1996-49821, Judge Dobson signed a consent postponing the determination of beneficiaries’ amended objection and the determination of whether the second codicil to Leo Werner’s will should be presumed valid until after this litigation (at G.D. no. 98-4020) had determined the validity of the same second codicil.

      . In the instant case, plaintiffs’ cause of action points directly to Mercer County. The alleged fraudulently induced stock gifts were made and executed by Leo Wemer from his home in Mercer County and were made to defendants who neither reside nor are subject to service in Allegheny County. The subject restricted stock plan was also adopted in Mercer County. Additionally, according to their complaint atf9, the plaintiff in Count 2 (upon which plaintiffs rely for establishing venue in Allegheny County) is the Leo Wemer estate, located in Mercer County on whose behalf Elizabeth Wemer, a resident of Colorado, has been authorized to bring suit by court order entered on February 3,2000, in In re Estate of Leo Werner pending in the Mercer County Court of CommonPleas at register of wills no. 1996-49821.


author: CLARK JR.,

text:
    Pennsylvania Property & Casualty Insurance Guaranty Association v. Angino & Rovner

      C.P. of Dauphin County,
    no. 2133 S 2000.

      Scott T. Wyland, for plaintiffs.

      Richard C. Angino and James DeCinti, for defendants.
    BEFORE: EVANS, LEWIS AND CLARK, JJ.

    January 16, 2001
   CLARK JR.,

The resolution of this dispute hinges on whether a contract was created by the parties. By letter dated March 10, 2000, the Pennsylvania Property & Casualty Insurance Guaranty Association offered to settle the claims of four of the 49 claimants involved in an underlying case. This letter specifically gave the claimants five days to accept the offer through their attorney, Richard C. Angino, Esquire.

Mr. Angino responded by letter dated March 14,2000, and accepted PPCIGA’s offer to settle the four claims for the aggregate sum of $615,044.58, which was the settlement sum offered by PPCIGA.

Mr. Angino also noted the acceptance did not include any attorneys’ fees that were forthcoming. Regarding this issue, Mr. Angino proposed that PPCIGA pay an additional $625,000 to settle the attorneys’ fees relating to the four claims. Furthermore, Mr. Angino also stated that the acceptance of the payment for the four claimants was unaffected by PPCIGA’s decision relating to the attorneys’ fees.

PPCIGA then faxed a letter to Mr. Angino on March 27,2000 which stated that the money for the four settled claims would not be distributed until the four claimants signed releases. Mr. Angino responded on March 28, 2000, and agreed not to release any of the money to the estates of the four claimants until a release was signed by a representative of each estate and forwarded to PPCIGA. The payment was to be sent to Mr. Angino by March 31, 2000, and deposited into his escrow account.

PPCIGA, on March 29, 2000, sent four drafted release documents and four settlement checks in the aggregate amount of $621,470.23 to Mr. Angino via Federal Express. Also in the letter, PPCIGA stated that it was entitled to contest the claims for attorneys’ fees, and also agreed with Mr. Angino’s assertion that the settlement of the four individual claims did not preclude a claim by Mr. Angino for attorneys’ fees.

After the money had been forwarded to Mr. Angino, PPCIGA sent another letter to Mr. Angino via Federal Express on April 19,2000. PPCIGA directed Mr. Angino to refrain from distributing any money to the four estates, and asserted that there was not an agreement to the four claims because the interest had been miscalculated. Specifically, PPCIGA argued the interest was calculated based on compound, rather than simple interest. Furthermore, PPCIGA claimed that an agreement had not been reached concerning the language of the releases, due to proposed changes made by Mr. Angino to the second draft of the releases.

It seems clear from the facts that a contract was formed by the parties. As stated in Biddle v. Johnsonbaugh, 444 Pa. Super. 450, 458, 664 A.2d 159, 163 (1995), “[u]nder ordinary contract law, contracts are enforceable when parties reach mutual agreement, exchange consideration and have set forth terms of their bargain with sufficient clarity____Additionally, an agreement is definite if it indicates that parties intended to make a contract and if there is an appropriate basis upon which a court can fashion a remedy____Moreover, when the language of the contract is clear and unequivocal, courts interpret the meaning by its content.” (Citing First Home Savings Bank v. Nernberg, 436 Pa. Super. 377, 386, 648 A.2d 9, 14 (1994).)

It is obvious from the exchange of letters that the parties intended to form a contract. PPCIGA offered to settle the four claims on March 10, 2000, and Mr. Angino accepted that offer on behalf of his clients on March 14, 2000. Thereafter, the correspondences dealt with attorneys’ fees and releases. In fact, as mentioned earlier, PPCIGA stated in the March 29,2000 letter “that the settlement of the four designated claims are for the principal and interest of those claims only. We also agree that the settlement does not waive your right to assert a claim for (a) attorney fees and costs; (b) amounts reasonably recoverable under the Pennsylvania No Fault Act for the remaining 45 plaintiffs; and (c) any other claims that may be asserted at law.” (See exhibit E, attached to plaintiff’s complaint.) (emphasis in original) This language only reinforces the notion that a contract was created pertaining to the settlement, and the attorneys’ fees and releases were ancillary matters to be dealt with at a later time.

Speaking in terms of the holding set forth in Biddle, supra, the parties reached a mutual agreement concerning the settlement, consideration was exchanged (money in exchange for the settlement agreements), and the terms of the agreement were clear.

To further support the contention that a contract was formed, it should be noted that PPCIGA, in fact, forwarded the money to Mr. Angino. PPCIGA certainly would not have parted with such a large sum of money if it was unsettled as to the terms of the agreement.

In the complaint and brief in opposition to defendants’ prehminary objections filed by PPCIGA, the main argument made by PPCIGA is that Mr. Angino knew, or should have known, that a mistake was made in arriving at the settlement figure. This argument must fail for the following reasons.

First, PPCIGA noted that 40 PS. §1009.106(a)(2) (repealed), did not specify whether compound or simple interest should be used. (See brief of Pennsylvania Property & Casualty Guaranty Association in opposition to defendants’ preliminary objections, filed July 19, 2000, p. 4.) PPCIGA cites to Murray v. Prudential Insurance Company of America, 144 Pa. Super. 178, 184, 18 A.2d 820, 823 (1941), which states that, “the law does not favor compound interest or interest on interest; and the general rule is that in the absence of a contract therefore, express or implied, or of statute authorizing it, compound interest is not allowed to be computed on debt . . . .” While there was no agreement within the contract stating that the interest would be compounded, there was, nonetheless, a contract formed between the parties. In short, even though Pennsylvania law frowns upon the use of compound interest in the absence of a contract, this court finds that a contract was formed in this case. Therefore, the method of computing the interest becomes irrelevant. The holding in Murray, supra, must defer to the amount agreed upon by the parties through the creation of the contract.

Second, PPCIGA indicated that Mr. Angino should have deduced that a mistake was made based on his status as an attorney, and his extensive experience in such cases. (See brief of Pennsylvania Property & Casualty Guaranty Association in opposition to defendants’ preliminary objections, filed July 19, 2000 p. 4.) As noted by Mr. Angino in the reply brief, however, PPCIGA would certainly have a sophisticated legal staff at its disposal, and they were responsible for calculating the sum of money. (See defendants’ reply to plaintiff’s brief in opposition to defendants’ preliminary objections, filed July 28, 2000, p. 3.) Furthermore, without being told that the total was reached using compound interest rates, Mr. Angino had no way of knowing a mistake was made. For all Mr. Angino knew — assuming he thought the figure was higher than necessary — the additional money was offered as an inducement to settle the claims, not because the interest had been compounded inadvertently.

PPCIGA claimed it is entitled to relief based on theories grounded in conversion, unjust enrichment, and replevin. (See plaintiff’s complaint, filed May 19, 2000.) Each one of these should be analyzed briefly.

PPCIGA cited Francis J. Bernhardt III, P.C. v. Needleman, 705 A.2d 875, 878 (Pa. Super. 1997), which defined conversion as “the deprivation of another’s right of property in, or use or possesion of, a chattel, without the owner’s consent and without lawful justification.” Here, there is no doubt PPCIGA consented to Mr. Angino’s possession of the money, because they forwarded the money to him. Furthermore, since this court found that a contract existed between the parties, Mr. Angino’s possession of the money cannot be found unlawful.

The plaintiff relied on Mitchell v. Moore, 729 A.2d 1200, 1203-1204 (Pa. Super. 1999), which listed the elements of unjust enrichment as follows: “(1) benefits conferred on defendant by plaintiff; (2) appreciation of such benefits by defendant; and (3) acceptance and retention of such benefits under such circumstances that it would be inequitable for defendant to retain the benefit without payment of value, (citations omitted) The application of the doctrine depends on the particular factual circumstances of the case at issue. In determining if the doctrine applies, our focus is not on the intention of the parties, but rather on whether the defendant has been unjustly enriched. ” (citations omitted) (emphasis in original)

That case also points out that a claim for unjust enrichment must show that the benefit was either secured wrongfully or received passively. Id.

It does not appear that the defendants have been unjustly enriched. As alluded to previously, this was a settlement agreement. PPCIGA may have intentionally inflated the figures with the hope that a settlement could be reached. It was perfectly logical for Mr. Angino to think that PPCIGA wanted to avoid the possibility of a higher figure at trial. Also, as noted by the defendants, the principles of unjust enrichment are “not applicable to agreements deliberately entered into by the parties however harsh the provisions of such contracts may seem in the light of subsequent happenings.” Third National Bank & Trust Co. of Scranton v. Lehigh Valley Coal Co., 353 Pa. 185, 193, 44 A.2d 571, 574 (1945).

There can be no doubt that the defendants were not in wrongful possession of the money. Again, PPCIGA forwarded it to them based on the contract formed by the letters. Neither can it be concluded that Mr. Angino passively received the benefit. This would necessarily infer that Mr. Angino knew of the mistake, but chose to say nothing about it. The facts simply do not support this position.

Accordingly to Valley Gypsum Co. v. Pennsylvania State Police, 135 Pa. Commw. 548, 553, 581 A.2d 707, 710 (1990), a claim for replevin “is founded upon the wrongful taking and detention of property and seeks to recover property in the possession of another.” Much like the claim for conversion, the claim for replevin cannot be sustained because there was no wrongful taking. The money was transferred, lawfully, pursuant to a contract.

As this court has determined that a contract was formed through the exchange of letters by the parties, the only conclusion that can be reached is that PPCIGA made a unilateral mistake in its miscalculation of the interest. Succinctly stated, if “the mistake is not mutual but unilateral and is due to the negligence of the party seeking to rescind, relief will not be granted.” Cobaugh v. Klick-Lewis Inc., 385 Pa. Super. 587, 593, 561 A.2d 1248, 1251 (1989). (citations omitted)

The facts of the instant case indicate that PPCIGA made a careless mistake. It was PPCIGA that miscalculated the interest and forwarded the money to Mr. Angino pursuant to the agreement reached by the parties. This settlement agreement was bargained for by each of the parties, and entered into willingly. As a result, this court fails to see any justification for the return of the alleged overpayment due to PPCIGA’s lack of care.

Wherefore, January 16, 2001, the preliminary objections of the defendant’s complaint are hereby granted.

      . All letters referenced herein are attached to plaintiff’s complaint, filed May 19,2000, as exhibits A-F.

      . This sum was subsequently adjusted to $621,470.23 to reflect interest that accrued between the time the settlement offer was made, and when the check was delivered.


author: BALDWIN, J.,

text:
    Bielski v. Brabender

      C.P. of Allegheny County,
    no GD99-14875.

      Barbara Shah, for appellant.

      W. David Slomski, for appellee.
    January 23, 2001
   BALDWIN, J.,

The plaintiff, Kathleen Bielski (appellant), appeals from the orders of this court dated November 27, 2000, which granted the motion in limine and motion for summary judgment filed by the defendant, Richard Brabender (appellee). The appellant’s statement of matters complained of on appeal states that: the trial court committed an error of law and/or an abuse of discretion in one or more of the following particulars: (1) in disqualifying the appellant’s expert, Theresa Barrett Male, Esquire, from testifying at the trial; (2) in refusing to allow the appellant to put on a case in chief, after [sic] Barrett Male had been disqualified; and (3) in granting the appellee’s motion for summary judgment. For the reasons that follow, we find that the arguments raised by the appellant lack any merit whatsoever and that this court neither committed an error of law, nor abused its discretion under the circumstances in this case.

The appellant argues that the court erred or abused its discretion as a matter of law in disqualifying her expert witness, Theresa Barrett Male, Esquire, from testifying at trial. We disagree.

The standard by which a witness qualifies as an expert witness is a liberal one. Joyce v. Boulevard Physical Therapy & Rehabilitation Center P.C., 694 A.2d 648, 654-55 (Pa. Super. 1997); Flanagan v. Labe, 446 Pa. Super. 107, 111, 666 A.2d 333, 335 (1995). In general, Pennsylvania law mandates that for a person to qualify as an “expert witness,” the witness must possess the requisite skill, training, education or other reasonable pretension to specialized knowledge on the subject under investigation. Lira v. Albert Einstein Medical Center, 384 Pa. Super. 503, 509, 559 A.2d 550, 552 (1989). A qualified expert witness may testify at trial as to a certain matter only when the nature of the proffered testimony is clearly beyond the realm of knowledge and understanding for a common layperson, so as to necessitate the expert’s assistance of the trier of fact in its ultimate decision-making process. Blum v. Merrell Dow Pharmaceuticals Inc., 705 A.2d 1314, 1315-17 (Pa. Super. 1997) (before scientifically adduced evidence may be admitted at trial it must satisfy the standards established in Frye).

Thus, it is well established under Pennsylvania law that before an expert can testify as to an opinion, it must be demonstrated that the purported scientific testimony meets the standards established in Frye v. United States, 293 F. 1013 (D.C. Cir. 1923) (opinions of experts are admissible in cases where the matter under inquiry is such that inexperienced persons are unlikely to form correct judgments upon it); Commonwealth v. Topa, 471 Pa. 223, 369 A.2d 1277 (1977) (the admissibility of scientific evidence depends on the general acceptance of its validity by those scientists active in the field to which the evidence belongs). At a minimum, for an alleged expert’s testimony to be admitted at trial, the substance of the expert’s opinion, as well as the methodology underlying the opinion must be generally accepted by the relevant scientific community. Thomas v. West Bend Company Inc., 760 A.2d 1174 (Pa. Super. 2000) (whenever science enters the courtroom it is critical that those persons most qualified to assess the general validity of a scientific method will have a determinative voice). Moreover, the trial court enjoys broad discretion in deciding whether the evidence may be admitted or excluded. Blum, 705 A.2d at 1317-18 (absent a clear abuse of discretion, an appellate court may not disturb the decision of the trial court as the admission or exclusion of expert testimony); see also, Commonwealth v. Zook, 532 Pa. 79, 615 A.2d 1 (1992).

Instantly, the record of testimony adduced at the pretrial evidentiary hearing on the appellee’s motion in limine to exclude the testimony of Theresa B. Male, Esquire, fails to reveal sufficient facts that would enable this court, in the exercise of its sound discretion, to reasonably conclude that the witness in question qualifies as an “expert witness,” under the liberal standards articulated by the Pennsylvania Supreme Court in Topa, supra. The trial court here decided that voir dire of the appellant’s expert was required in the context of this professional negligence claim instituted against a business valuations expert. (Pretrial transcript at p. 2.)

In her voir dire direct examination testimony, the witness, Theresa B. Male, Esquire, established her credentials as a licensed, and practicing family law attorney in Pennsylvania who has attended CLE courses dealing with some business valuation issues and has argued approximately a dozen cases involving business valuation, in the context of equitable distribution proceedings. (PTT at pp. 3-6.) Male, also, testified on direct examination that in each of those cases she retained an expert with either a tax or a forensic accounting background to provide skilled testimony to the court relevant to the subject of business valuations. (PTT at pp. 6-12.) Male further testified that she always relies on these types of experts for their understanding and expertise of the substance and methodologies pertaining to business valuations. (PTT at pp. 8-10.) This testimony, in our opinion, falls far short of establishing the necessary evidentiary foundation to qualify Male as an expert witness and to permit her to testify for the appellant on the subject of business valuations.

Although it appeared from the record of testimony adduced at this point that Male did not possess the necessary skill, training or educational background akin to experts in the area of business valuations, we could not rule out the alternative possibility that Male may possess the type of practical experience, that is, a reasonable pretension to specialized knowledge on the subject under investigation that would enable her to qualify as an expert.

The record of testimony adduced from Male on cross-examination by the appellee’s counsel, however, unequivocally demonstrated that Male could not qualify as an expert in this case since she did not possess a reasonable pretension to specialized knowledge in the area of business valuations. In reaching this conclusion, we specifically cite to the witness’ own admissions that she has never provided testimony as a qualified expert in business valuations in any court of law, nor has she ever been previously retained as an expert in this area. (PTT at p. 13.) We also point to the witness’ candid testimony that she does not have an accounting background, that she has never valued a business for equitable distribution, that she does not know the applicable standard of care or the accepted methodologies relevant to business valuation professionals, and that she lacks the necessary knowledge and expertise to even perform a business valuation. (PTT atpp. 14-16.)

The appellant’s witness further testified that in her experience as a family law attorney and her limited familiarity with the subject of business valuations, she always relies on experts who have been previously qualified by a court of law and who have established to the legal community that they indeed possess the requisite skill and experience as an “expert.” (PTT at pp. 21-22.) Given these circumstances, we correctly determined that Male could not qualify as an expert witness in the area of business valuations and, therefore, she could not provide any opinion testimony to a reasonable degree of certainty that the- appellee was negligent in the performance of the business valuation, which is the subject of this professional negligence lawsuit. Accordingly, the appellant’s first argument must fail.

The appellant also contends that the trial court erred or abused its discretion as a matter of law in refusing to allow her to put on a case in chief after her expert witness was disqualified. We again disagree.

To establish a prima facie case in a professional negligence case, the plaintiff must present qualified, expert testimony that proves by a preponderance of the evidence that the defendant had a recognized duty of care, breached that duty of care by deviating from the accepted standards for that profession, and that the breach of care directly caused the injuries sustained by the party seeking to recover damages. See e.g., Joyce, supra, 694 A.2d at 654-55 (plaintiff must introduce competent expert testimony to show a medical doctor’s conduct varied from accepted medical practice).

In this case, the appellant has the burden of establishing that the appellee, a professional, had a recognized duty of care, that he breached that duty of care by deviating from the accepted standards for business valuators, and that the breach of care directly caused the injuries sustained by her for which she claims damages. Because the subject matter under investigation here is clearly beyond the realm of knowledge and understanding for a common layperson, a qualified expert witness in the field of business valuations is needed to assist the trier of fact in its decision-making process. Moreover, absent the necessary opinion testimony of a qualified business valuations expert, the appellant cannot establish a prima facie case for professional negligence against the appellee.

As stated previously, Theresa B. Male, Esquire, the appellant’s purported expert, could not be qualified as an expert in the field of business valuations. As such, the appellant’s witness could not testify as to any matters beyond the scope of her established expertise. Because the appellant was unable to produce a qualified expert witness to testify at the time of trial, and since she obviously failed to provide any competent expert testimony to show that the appellee’s conduct varied from the accepted standard of care for business valuators, she could not meet her burden of proof, as a matter of law. Therefore, we properly concluded that the decision of the trial court to bar the appellant from presenting a case in chief was appropriate, reasonable, within its discretion and just under the circumstances. Furthermore, we concluded that no genuine issues of material fact existed with respect to any of the requisite elements of the appellant’s claim for professional negligence and that the record was free and clear of any doubt that would have precluded us from entering summary judgment in favor of the appellee in this case. Consequently, the appellant’s second argument must fail.

Finally, the appellant argues, incorrectly we believe, that the trial court erred or abused its discretion as a matter of law in granting the appellee’s motion for summary judgment.

In ruling on a motion for summary judgment, as here, the trial court must view the record in the light most favorable to the non-moving party, and accept as true all well-pleaded facts and all reasonable inferences to be drawn therefrom. First Philson Bank v. Hartford Fire Insurance Co., 727 A.2d 584, 587 (Pa. Super. 1999). All doubt as to the existence of genuine issues of material fact must be resolved in favor of the non-moving party, Lititz Mutual Insurance Co. v. Steely, 746 A.2d 607, 609 (Pa. Super. 1999), and summary judgment is only appropriate in cases that are free and clear from doubt. Baesel v. New Boulevard Baking Co., 410 Pa. Super. 591, 600 A.2d 610, 612 (1991).

In the case sub judice, the appellant was unable to produce a qualified expert to testify at the time of trial and, as a result, she failed to provide any competent expert testimony to show that the appellee’s conduct varied from the accepted standard of care for business valuators. In short, the appellant could not meet her burden of proof as a matter of law. Further, based on the evidence of record, we found that no genuine issues of material fact existed with respect to any of the requisite elements of the appellant’s claim for professional negligence in this case. Therefore, the trial court did not err or abuse its discretion as a matter of law in entering summary judgment in favor of the appellee in this case. Accordingly, the appellant’s last argument must fail.

For all of the foregoing reasons, the orders of this court dated November 27, 2000 should be affirmed.


author: VARDARO, J.,

text:
    Succheralli v. Amberik

      C.P. of Crawford County,
    no. A.D. 2000-826.

      Alexander J. Jamiolkowski, for plaintiffs.

      L.C. TeWinkle, for defendants.
    January 24, 2001
   VARDARO, J.,

The plaintiffs filed a complaint against the defendants in which it was alleged that the wife-plaintiff received certain injuries as a result of a fall in a mobile home owned by the defendant Amberik, for which it is alleged the defendant Dulliver was a leasing agent. Essentially, the plaintiffs allege in that complaint that the defendants were negligent because a certain handrail separated, causing the wife-plaintiff’s fall.

On September 29,2000, the plaintiffs filed a praecipe to enter a default judgment and attached copies of notices addressed to each defendant dated September 13, 2000, substantially in the form set forth in Pa.R.C.P. 237.5.

The praecipe to enter default judgment filed on September 29, 2000 by the plaintiffs merely stated the following:

“To The Prothonotary:

“Kindly enter judgment in favor of the plaintiff and against both defendants in the above captioned case.”

The defendants have now filed a petition to strike or, in the alternative, petition to open default judgment. Without consideration of all of the issues that have been raised by the defendants, we will now strike the judgment.

It has long been the law of this Commonwealth that a default judgment will be stricken where a fatal defect appears on the face of the record on which the judgment was entered. Germantown Savings Bank v. Talacki, 441 Pa. Super. 513, 657 A.2d 1285 (1995).

The default judgment in this case was entered pursuant to Pa.R.C.P. 237.1(a)(2)(h). Those relevant portions of Rule 237.1 state:

“(2) No judgment of non pros for failure to file a complaint or by default for failure to plead shall be filed by the prothonotary unless the praecipe for entry includes a certification that a written notice of intention to file the praecipe was mailed or delivered

“(h) in the case of a judgment by default, after the failure to plead to a complaint in at least 10 days prior to the date of the filing of the praecipe to the party against whom judgment is to be entered and to the party’s attorney of record, if any.”

When the prothonotary entered judgment against both the defendants pursuant to the September 29, 2000 praecipe to enter default judgment filed by the plaintiffs, there was no required certification on the record and, therefore, the prothonotary improperly entered the judgment in favor of the plaintiffs.

Consequently, the judgment must be stricken.

The Commonwealth Court of Pennsylvania addressed a similar circumstance in the case of Feigley v. Suomela, 129 Pa. Commw. 81, 564 A.2d 1032 (1989). In that case, the prothonotary had entered judgment on behalf of the plaintiff without the plaintiff filing the required certification and the lower court struck the default judgment for that procedural defect. The Commonwealth court agreed, indicating that the prothonotary had improperly entered judgment without that certification.

In the case now before us, the plaintiffs have filed a response to petition to strike and/or petition to open default judgment and have attached thereto what would appear to be evidence that, in fact, the notices of September 13, 2000, were sent to each defendant by certified mail with the defendant Amberik receiving the same on September 21, 2000 through an agent and the defendant Dulliver receiving the same on September 25,2000, through an agent.

We do not believe that the plaintiffs’ response, including that information, cures the defect.

The reason for that conclusion is that, in deciding whether or not to strike a judgment as we have indicated, we must examine whether there was a fatal defect on the face of the record, and in this case when the prothonotary entered judgment, there was, in fact a fatal defect on the record. Therefore the prothonotary was without authority to enter the judgment when she did so.

The Court of Common Pleas of Adams County was confronted with a similar factual situation, except that while the required certification was not contained in the praecipe to enter default judgment, counsel for the plaintiffs maintained that oral certification had been given to a deputy prothonotary. In that case, Judge Kuhn concluded that Rule 237.1 contemplates a written and not oral certification, and at the time the judgment was entered there was no such written certification. Therefore, the prothonotary was without authority to enter the judgment. Flickinger v. Spicer, 23 D.&C.4th 308 (1995).

In that case, as in the case before us, it may well have been that the proper notices had been sent to the defendants at least 10 days prior to the praecipe to enter the default judgment was filed, but as is the case in the matter now before this court, the required written certification contemplated by Rule 237.1 was not of record when the prothonotary entered the default judgment, and that is the procedural defect that requires the judgment to be stricken.

Accordingly, we will enter the following order:

ORDER

And now, January 24, 2001, the defendants’ petition to strike a default judgment is granted and the default judgment entered against both defendants by the prothonotary as a result of the September 29,2000, praecipe to enter default judgment is stricken.


author: WALLACH MILLER, J.,

text:
    Jones v. Bhatt

      C.P. of Monroe County,
    no. 2049 Civil 1999.

      Kelly Clifford Rombo, for plaintiffs.

      Shawn P. Phillips, for defendants Bhatt and Pocono Ear, Nose and Throat.

      Bruce L. Coyer, for defendant Pocono Medical Center.
    January 24, 2001
   WALLACH MILLER, J.,

On June 9, 1999, Stephanie Jones and Richard Jones, her husband, filed a medical malpractice complaint against Drupad D. Bhatt M.D., Pocono Ear, Nose and Throat and Pocono Medical Center alleging that plaintiff wife suffered serious and permanent injuries to her nose due to the negligence of defendants.

On November 2, 1999, the plaintiffs filed a second complaint against Monroe Ear, Nose and Throat and Facial Plastic Surgery. On December 1, 1999, we consolidated these cases and set discovery deadlines. A second order based on a stipulation of all parties extended these discovery deadlines and provided (1) all discovery was to be completed by September 30, 2000; (2) plaintiffs’ expert reports were to be provided within 90 days from the completion of discovery or December 30, 2000; and (3) defendants’ expert reports were to be provided within 90 days of receipt of plaintiffs’ expert reports.

On November 17, 2000, plaintiffs’ counsel filed a petition to withdraw from their representation of plaintiffs telling us only that it would be in the best interest of the plaintiffs that they be permitted to withdraw. Plaintiffs filed a pro se answer objecting to the withdrawal and asking the court to deny the withdrawal petition but to extend discovery deadlines for an additional 60 days. Plaintiff husband also appeared at oral argument to oppose this motion.

Defendants do not oppose the motion to withdraw but object to any extensions of time requested by plaintiffs in regard to discovery.

Pennsylvania Rule of Civil Procedure 1012(b) provides:

“An attorney’s appearance for a party may not be withdrawn without leave of court unless another attorney has entered or simultaneously enters an appearance for the party and the change of attorneys does not delay any stage of the litigation.”

Counsel may seek to withdraw from representation for a variety of reasons, from ethical to financial. Commonwealth v. Ford, 715 A.2d 1141 (Pa. Super. 1998). Rules of Professional Conduct 1.16(b) lists numerous instances where a lawyer may withdraw from representing a client if withdrawal can be accomplished without material adverse effect on the interest of the client or other reasons as set forth in the rule are present. The notes to this rule provide that the lawyer’s statement that professional considerations require termination of their representation ordinarily should be accepted as sufficient. The only reason that we had been given by counsel in this case is that it is in the best interest of the plaintiffs that they be permitted to withdraw. The plaintiffs themselves argue that it would not be in their best interest as they have attempted to obtain substitute counsel and thus far have been unsuccessful. Plaintiffs also argue that they do not understand why the law firm is seeking to withdraw and that they would be severely prejudiced and may lose legal rights if the law firm is permitted to withdraw.

In the only appellate case that we could find on this issue, C.E. Williams Co. v. Henry B. Pancoast Co., 412 Pa. 166, 194 A.2d 189 (1963), our Supreme Court held that the question of whether an attorney should be permitted to withdraw his appearance is within the discretion of the trial court and that decision will be reversed only when plain error is committed. The court further held that in the absence of a clear abuse of discretion, matters purely within the discretion of a trial court are not reversible on appeal.

After a careful and extensive review of the pleadings, briefs filed and oral argument, we do not find that plaintiffs ’ attorneys have given us an adequate reason to withdraw at this time particularly in view of the objections of their clients. In light of this finding, we need not address the issue of discovery deadlines. Those deadlines have been set by court order, and the parties may file whenever motions are necessary to move this case to trial.

ORDER

And now, January 24, 2001, the plaintiffs’ counsel’s petition to withdraw is denied.


author: BRADLEY,

text:
    Lytle v. CitiFinancial Services Inc.

      C.P. of Delaware County,
    no. 00-7550.

      Robert M. Firsker, for plaintiffs.

      Marilyn Hejfley, for defendant.
    March 6, 2001
   BRADLEY,

Plaintiffs, Robert E. Lytle and Judith Lytle, appeal from the order sustaining the preliminary objections of defendant, CitiFinancial Services Inc., f/k/a Commercial Credit Plan Consumer Discount Company, and dismissing plaintiffs’ complaint with prejudice.

This is a class action. Plaintiffs’ complaint alleges claims against CitiFinancial for violation of the federal Truth-in-Lending Act (Count I); violation of Pennsylvania Act of January 30, 1974 (Act 6) (Count II); violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (Count III); breach of contract (Count IV); unjust enrichment (Count V); and fraud (Count VI).

Plaintiffs’ complaint stems from a loan arrangement plaintiffs entered into with CitiFinancial on May 28, 1997. Plaintiffs borrowed the principal amount of $123,661.26. This loan was secured by a mortgage on plaintiffs’ residence. Plaintiffs made the installment payments as provided by the loan agreement. On or about August 18, 1998, plaintiffs refinanced and made full prepayment to CitiFinancial. In order to make full payment and to cause the mortgage to be satisfied, CitiFinancial required plaintiffs pay defendant, the total $124,554 comprised of the following charges: principal balance, unearned interest, prepayment penalty, release fee, and unspecified charges.

The complaint avers that defendant’s actions in collecting a prepayment penalty and unearned finance charges when a mortgage is satisfied early violate state and federal laws as well as Pennsylvania common law. Plaintiffs filed their complaint as a class action alleging that they represented the class of persons who paid CitiFinancial a prepayment penalty and unearned finance charges when a mortgage loan was paid off early. Defendant filed preliminary objections to plaintiffs’ complaint which were sustained. For the reasons that follow, plaintiffs’ complaint was dismissed with prejudice.

ARBITRATION PROVISION

Plaintiffs are precluded from litigating their complaint in this forum because they are bound by an arbitration provision they signed when obtaining the loan (agreement). (See complaint, exhibit A, disclosure statement, note and security, p. 3.)

In bold print and in capital letters, the following is stated: “READ THE FOLLOWING ARBITRATION PROVISION CAREFULLY, IT LIMITS CERTAIN OF YOUR RIGHTS, INCLUDING YOUR RIGHT TO OBTAIN REDRESS THROUGH COURT ACTION.” This is printed at the top and the bottom of the arbitration provision. Both plaintiffs’ signatures appear directly after this statement at the bottom. The scope of the arbitration provision is broad and only excludes any action to effect a foreclosure to transfer title to the property being foreclosed or any matter where all parties seek monetary damages in the aggregate of $15,000 or less in total damages, costs and fees. Neither of these exclusions is implicated here. Therefore, plaintiffs are bound by the arbitration provision which mandates that all claims or disputes be submitted to arbitration.

Lending further support for the above conclusion is the fact that the arbitration provision specifically lists plaintiffs’ claims as those which are governed by the arbitration agreement. The arbitration provision states: “Examples of claims that are governed by this agreement include those involving:

“ • The Truth-in-Lending Act and Regulation Z;

“ • The Equal Credit Opportunity Act and Regulation B;

“ • State insurance, usury, and lending laws; fraud or misrepresentation, including claims for failing to disclose material facts;

“ • Any other federal or state consumer protection statute or regulation;

“ • Any party’s execution of this provision and/or willingness to be bound by its terms and provisions; or

“ • Any dispute about closing, servicing, collecting, or enforcing a credit transaction.”

By its clear and unambiguous terms, the arbitration provision requires plaintiffs to resolve any claim or dispute with CitiFinancial, as defined in the arbitration provision, through binding arbitration. The arbitration provision provides that “any claim ... shall be resolved by binding arbitration in accordance with (i) the Federal Arbitration Act; (ii) expedited procedures of the Commercial Arbitration Rules of the American Arbitration Association (administrator); and (iii) this provision, unless both [parties] agree in writing to forego arbitration.” Plaintiffs have given no cogent reason why the arbitration provision should not be enforced as they agreed.

Not only does the arbitration provision mandate that plaintiffs’ complaint must be submitted to arbitration, but also the application of the Federal Arbitration Act compels the same conclusion. The arbitration provision cites to the FAA as the authority by which claims shall be resolved pursuant to the agreement. In enacting section 2 of the FAA pertaining to the validity, irrevocability and enforcement of agreements to arbitrate, “Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims that the contracting parties agreed to resolve by arbitration.” Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 853, 79 L.Ed.2d 1 (1984). The FAA, based upon Congress’ authority under the Commerce Clause, creates a body of federal substantive law that is applicable in both state and federal courts. Moses H. Cone Memorial Hospital, 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Accordingly, the arbitrability of a dispute is governed by the FAA if the arbitration provision is part of an agreement involving interstate commerce. The court agrees with defendant that this claim is one based on a contract evidencing a transaction involving commerce. Claims arising from a mortgage loan transaction presumptively involve interstate commerce. Wilson v. Par Builders II, Inc., 879 F. Supp. 1187 (M.D. Fla. 1995). Indeed, the special acknowledgments section of the arbitration provision in the instant case states: “(ii) the funding for your credit transaction will come in whole or in part from sources outside this state which will constitute interstate commerce within the meaning of the United States Arbitration Act, 9 U.S.C. §§1-9.” Here, there can be no dispute that the arbitration provision is part of an agreement involving interstate commerce.

Plaintiffs also argue that the arbitration agreement cannot be enforced because it does not allow for the arbitration of cases on behalf of a class. They argue further that to interpret the arbitration agreement as compelling individuals to arbitrate their claims and prohibiting class actions contravenes public policy and amounts to enforcing a contract of adhesion. For the reasons that follow we find these claims to be completely without merit.

The arbitration agreement at issue specifically excludes class actions. In Champ v. Siegel Trading Co. Inc., 55 F.3d 269 (7th Cir. 1995), the Seventh Circuit held that section 4 of the FAA precludes federal district court judges from ordering class arbitration when the parties’ arbitration agreement is silent on the issue. The court held that “[ajbsent an express provision in the parties’ arbitration agreement providing for class arbitration, Fed.R.C.P. 81(a)(3) does not provide a district court with the authority to reform the parties’ agreement and order the arbitration panel to hear these claims on a class basis pursuant to Rule 23.” Although the federal rules do not apply to the instant matter (arguably neither does section 4 of the FAA, see discussion infra), the reasoning in Champ is sound and leads to the inescapable conclusion that absent an express provision allowing class arbitration, the parties are free to contract away their right to pursue a class action. That is exactly what occurred here, the parties consented to the prohibition on class arbitration.

Additional support can be found in the recent case of Johnson v. West Suburban Bank, 225 F.3d 366 (C.A. 3 2000), cert. denied sub. nom., 121 S.Ct. 1081, 2001 WL 137649, 69 U.S.L.W. 3383 (U.S. Feb. 20, 2001) (no. 00-846). In that case, the Third Circuit held that an arbitration agreement which precluded plaintiffs from bringing Truth-in-Lending Act and Electronic Fund Transfer Act claims on behalf of a class was enforceable. If an arbitration provision precluding a class action is otherwise valid, i.e., has been consented to by plaintiff, plaintiff has no legal right to insist upon bringing his or her claim as part of a class. Id.

Furthermore, although plaintiffs have alleged that the arbitration agreement is a contract of adhesion, they have not directed the court to any facts supporting this claim. There is simply no reason to disregard the clear, unambiguous terms of the arbitration agreement which was consented to by both parties.

CLASS ACTION

Not only are plaintiffs prohibited from bringing their claims as a class action pursuant to the arbitration agreement, they are also prohibited from doing so pursuant to Act 6. Act 6, as this Commonwealth’s usury statute is commonly referred to, is codified at 41 P.S. §101-605. Section 504 limits the nature of the action available:

“Section 504. Individual actions permitted

“Any person affected by a violation of the Act shall have the substantive right to bring an action on behalf of himself individually for damages by reason of such conduct or violation together with costs including reasonable attorney’s fees and such other relief which such person may be entitled under law.”

As is readily apparent, the plain language of section 504 unambiguously limits any Act 6 cause of action to individual plaintiffs. The rules of statutory construction mandate that when the language of a statute is clear and free from all ambiguity, “[t]he letter of it is not to be disregarded under the pretext of pursuing its spirit.” 1 Pa.C.S. §1921(b).

Moreover, a review of the legislative history of Act 6 reveals that the Pennsylvania Senate explicitly decided not to permit class actions by striking language from the original draft of section 504 which provided for recovery by a class of persons. See Senate Bill no. 1255, printer’s no. 1508 (October 29, 1973) pp. 12-13, and cf., Senate Bill no. 1255, printer’s no. 1610 (November 27, 1973) pp. 14-15. It is clear that the unambiguous language of Act 6 and its accompanying legislative history show that class actions are simply not permitted.

A further reason that plaintiffs’ allegation of an Act 6 violation must be dismissed is that the Act’s prohibition on prepayment penalties and limitation on interest rates do not apply to the mortgage in question. Act 6 is limited to “residential mortgages,” that is, it applies, by its terms, to only those mortgages for $50,000 or less. 41 P.S. §101. There is no question that the mortgage in question is not a “residential mortgage” as defined by Act 6 because its amount is $123,661.26. See complaint paragraph 15, exhibit “A.” Because the mortgage is not a “residential mortgage” as defined by Act 6, the limitation on interest rates, and prohibition of prepayment penalties do not apply to this transaction.

DISMISSAL OF THE COMPLAINT

Plaintiffs also argue that dismissal of their claims was contrary to the clear terms of section 3 of the FAA. Plaintiffs’ assertion assumes sections 3 and 4 of the FAA are applicable to state court proceedings. This assumption may be unfounded given the language in Southland Corp. v. Keating, supra, 466 U.S. at p. 16, n.10, 104 S.Ct. 852 where the court stated: “in holding that the Arbitration Act pre-empts a state law that withdraws the power to enforce arbitration agreements, we do not hold that sections 3 and 4 of the Arbitration Act apply to proceedings in state courts.” See also, Volt Info. Sciences v. Leland Stanford Jr. U., 489 U.S. 468, 477, 109 S.Ct. 248, 103 L.Ed.2d 488 (1989). Although the United States Supreme Court has reserved the question whether sections 3 and 4 of the FAA apply to state court proceedings, we believe they have indicated that these two sections apply only to federal courts and not to state court proceedings. Assuming, however, the applicability of sections 3 and 4 to state court proceedings, it was still proper under the circumstances to dismiss and not stay this matter: Section 3 provides that when claims are properly referable to arbitration that upon application of one of the parties, a court shall stay the trial of the action pending completion of the arbitration. 9 U.S.C. §3. Although this stay is mandatory, it is equally clear that section 3 was not intended to limit dismissal of a case under the proper circumstances. “The weight of authority clearly supports dismissal of the case when all of the issues raised in the district court must be submitted to arbitration.” Alford v. Dean Witter Reynolds Inc., 975 F.2d 1161, 1164 (5th Cir. 1992).

As discussed previously, all issues raised in this action are arbitrable and must be submitted to arbitration. Therefore, retaining jurisdiction and staying the action will serve no useful purpose as any post-arbitration remedies sought by the litigants would be limited to a judicial review of the arbitrator’s award in the limited manner prescribed by law. See 9 U.S.C. §§9-12. Also, we note parenthetically, that aside from a brief mention in their answer to defendant’s preliminary objections, plaintiffs have not formally moved for a stay of this court action.

It is for all the above reasons that defendant’s preliminary objections were sustained and plaintiffs’ complaint dismissed.