author: TERESHKO, J.,

text:
    In re Asbestos Litigation

      Lawrence R. Cohan, Robert E. Paul, Benjamin P. Shein, Mark G. Strauss, George W. Howard III, Edward V. Reeves and Stephen J. Cooperstein, for plaintiffs.

      Joel D. Caney, Michael J. Stack Jr., Thomas A. Leonard, Paul S. Diamond and Mathieu J. Shapiro, for defendant.
    June 11, 2002
   TERESHKO, J.,

This matter comes before the court on defendant Crown, Cork & Seal’s global motion for summary judgment in all of the cases in which it is an original defendant or additional defendant, that are pending in the Philadelphia Court of Common Pleas.

The specific captions are identified in appendix “A” to this opinion. The total number of cases is 376. The number of defendants sued is 12,809. They are identified by plaintiff’s law firms:

Firm Number of Cases
Anapol, Schwartz, Weiss, 92 Cohan, Feldman & Smalley P.C.
Brookman, Rosenberg, 201 Brown & Sandler
Early & Strauss 1
Paul, Reich & Myers P.C. 60
Shein Law Center 17
Howard, Brenner & Nass P.C. 6

Each of the plaintiff law firms filed an answer in opposition or joined an answer in opposition to the motion for summary judgment except for the Early & Strauss firm, which did not respond.

The court has jurisdiction to hear the consolidated motion under the Mass Tort Procedural Rules by which these asbestos cases are consolidated for pretrial pur-, poses, which includes all dispositive motions.

Briefs and reply briefs were submitted and oral argument was held on April 3,2002. In addition, supplemental briefs were submitted following oral argument.

This motion seeks to dismiss all of the asbestos actions now pending against defendant, Crown, Cork & Seal.

In order to place this action into a proper context, a review of the history of “Asbestos Litigation” is appropriate.

THE LITIGATION

Asbestos litigation is now the longest-running mass tort litigation in the United States.

In the “early stages” of the litigation, the defendants were primarily asbestos mining companies, manufacturers and distributors of asbestos insulation products, or installers of asbestos insulation products. Shipbuilders are a prime example of installers of asbestos insulation products. These defendants are often referred to as “traditional defendants.”

It is generally accepted that the full magnitude and scope of the asbestos issue was not fully appreciated in its initial stages. This was the case in both the number of cases being filed and the dollar amounts required to defend and resolve the matters. From the initial list of 300 or so defendant companies, the list is now up to about 1,000. The size of the companies range from billions of dollars in revenue, to a few million dollars in revenue. The number of claims, originally estimated to be in the hundreds of thousands, grew into the many millions.

The enorminity of the litigation forced the early defendants into bankruptcy or reorganization under bankruptcy laws. An early victim of the litigation was the Johns-Manville Corporation, which initially filed for bankruptcy protection in the early-1980s and emerged in the mid-1980s under a plan of reorganization that created the Johns-Manville Trust for resolution of asbestos claims.

The “trust,” as it was originally established, had as its objective the satisfaction of all asbestos claims that “would ever appear.” Each claim would be paid at its fully liquidated value or, to use a common phrase, on a “dollar for dollar” basis.

By 1991, the number of claims against the “trust” had risen to 171,000 and the fund was depleted after about six years. The period from late 2000 to early 2001 saw the claims against the trust soar. The estimate is now that 1,500,000 to 2,500,000 additional claims will be received. This has forced the “trust” to set a payout rate of “five cents on the dollar” of the fully liquidated value of the individual claims.

The high number of claims against the Johns-Manville Trust is not a unique experience. It has been identified that of the other asbestos defendants in bankruptcy, two had over 300,000 claims, another two had over 400,000 claims and one had over 500,000 claims.

As stated previously, the initial group of traditional defendants in the early 1980s is estimated to be around 300 and the list is currently over 1,000 with the expectation that many more will be brought into the litigation, increasing this number. The reason for this increase in the number of defendants, despite the fact that asbestos has been banned by the Environmental Protection Agency since the mid 1970s, can in part be found in the changing identity of the asbestos defendant. The list now includes “construction contractors, automotive parts manufacturers, refineries and textile mills, retailers and insurers.”

With the increase in the number of companies being brought into the asbestos litigation, the number of bankruptcies has also grown. It is estimated that 41 asbestos defendants have declared bankruptcy, with a surge since January of 2000, as reflected below:

Company Bankruptcy Petition Date
Babcock & Wilcox February 2000
Pittsburgh Coming April 2000
Owens Coming October 2000
Armstrong World December 2000 Industries
G-I Holdings January 2001
W.R. Grace April 2001
U.S. Gypsum June 2001
United States July 2001 Mineral Products

Within these bankruptcies, certain financial information is available through the companies’ filings. This information provides a partial picture of the cost of the litigation. The tme cost can only be the subject of speculation because there is no data repository for this information. The cost is also not fully revealed because defendants in many cases retain this information confidentially and there is little or no sharing with other defendants.

What information that is available allows certain inferences to be drawn about the cost of the litigation to the recent past.

Based upon public information from U.S. insurers, the amount spent on asbestos litigation was about $21.6 billion as of mid-2001. It is estimated that this amount represents 30 percent of the amount spent, with foreign insurers paying 31 percent and defendant corporations paying the remaining 39 percent from corporate assets. Converting these percentages into dollars, based upon the U.S. insurer dollar payment of $21.6 billion would result in a total cost as of mid 2001 as follows:

U.S. insurers 30 % = $21.6 billion
Foreign insurers 31%= 22.3 billion
Corporate assets 39 % = 28.1 billion
$72.0 billion

It has been estimated that the amount of money required to resolve the remaining claims will push the cost to all insurers and corporations to $200 billion dollars.

THE DEFENDANT

Crown, Cork & Seal, is a defendant in this asbestos litigation, not as a result of any direct liability from manufacturing, selling, installing, etc., of any asbestos product, but only from its acquisition of another company that did. See affidavit of Richard L. Krzyzanowski attached as exhibit “C” to defendant’s, motion for summary judgment. This fact is not contradicted.

In 1963, Crown purchased Mundet Cork, a company that manufactured bottle caps, just as Crown did. See id. As part of this purchase, Crown also acquired the other part of Mundet Cork’s business which was the “insulation” division that manufactured, sold and installed asbestos products. Id. Crown’s only interest was in the “closure” part as evidenced by the fact that Mundet “shut down” the insulation division prior to Crown acquiring the Mundet stock and within 90 days after the acquisition, Mundet sold the insulation division to another company. Id.

As a result of this brief passive ownership, Crown incurred successor liability to Mundet Cork’s tortious activity in operating its insulation division. See appendix “B” attached hereto, [not published herein]

THE LEGISLATION

Generally identified as Senate bill 216, the legislation’s relevant part here is the amendment of title 15 of the Pennsylvania Consolidated Statutes. Section 1929.1 is titled, “Limitations on asbestos-related liabilities relating to certain mergers or consolidations.” 15 Pa.C.S. §1929.1.

The operational aspect of the bill is found in paragraph (a)(1):

“(1) Except as further limited in paragraph (2), the cumulative successor asbestos-related liabilities of a domestic business corporation that was incorporated in this Commonwealth prior to May 1, 2001, shall be limited to the fair market value of the total assets of the transferror determined as of the time of the merger or consolidation, and such corporation shall have no responsibility for successor asbestos-related liabilities in excess of such limitation.” Id.

Another section of the bill further defines the term “fair market value.” In essence, it adjusts the value of the assets of the merged company at the time of merger, with an enhancement provision that would increase the value of the assets at the published prime rate plus 1 percent per year, without compounding the increase each year. 15 Pa.C.S. §1929.1(c).

The purpose of the bill was succinctly stated by Senator Stack, one of the 16 sponsors of the bill.

“Senator Stack: Madam President, I also rise in support of Senate bill no. 216.1 rise today to discuss legislation that will have an important impact on Pennsylvania public policy. It should be a basic governmental interest to make sure our corporate merger laws do not unfairly expose innocent companies to ruin solely because of a merger.

“It is now evident that as an unforeseen consequence of mergers that happened in the past, Pennsylvania corporations that never themselves produced, sold, or installed asbestos products may become subject to asbestos-related liabilities. Similarly, the amount of assets fairly available to satisfy those asbestos-related liabilities may have become unfairly and unjustly enlarged. There is an unprecedented avalanche of asbestos-related claims made in the United States today. What has been described by the U.S. Supreme Court as an elephantine mess that the court has called out for legislative solutions. In view of this historically unprecedented situation, it is an essential governmental interest and matter of public policy that the amount of assets available to satisfy asbestos-related claims be fairly limited to the value of assets of the person or company that actually caused the damage through the production, sale, or installation of asbestos.

“What this all boils down to is really an issue of fairness. That is the goal of this legislation, to achieve some measure of fairness for Pennsylvania companies like Crown, Cork & Seal.” Pa. Legis. Journal — Senate (December 11, 2001), 1231.

THE CONTROVERSY

Defendant Crown argues that it is now entitled to relief under the legislation as the maximum damages it might pay under successor liability to Mundet Cork has been exceeded and it is no longer liable for additional damages.

Answering, plaintiffs raise arguments that the legislation violates various provisions of the Pennsylvania Constitution and the United States Constitution and other arguments regarding the motion’s defects. These arguments are organized as follows:

I. Federal constitutional arguments

(A) The statute violates the federal “Commerce clause” and “Equal protection.”

(B) Defendant’s counterargument that the plaintiffs lack standing to raise these constitutional claims.

II. State constitutional arguments

(A) Retroactive application of the statute to these plaintiffs violates the Pennsylvania Constitution

(B) The statute sets an unconstitutional limit on personal injury damages which is prohibited by Article 3, Section 18 of the Pennsylvania Constitution.

(C) The statute is an unconstitutional “Special law” prohibited by Article 3, Section 32.

(D) The statute was constitutionally flawed in the manner of its enactment, violating Article 3, Section 1 and Section 3.

LEGAL DISCUSSION

I. Federal Constitutional Arguments

A. Plaintiffs Argue That the Statute Violates the Federal Commerce Clause and Equal Protection

Before proceeding to the merits of the motion before the court, it is necessary to set forth the standard by which the court has reviewed this motion. The principles governing a motion for summary judgment are well-settled. Summary judgment may be granted when the pleadings, depositions, interrogatory answers, admissions, affidavits, and expert reports, if any, show that there is no genuine issue as to any material fact and that the record entitles the moving party to judgment as a matter of law. Pa.R.C.P. 1035.1 and 1035.2. All doubts as to the existence of a genuine issue as to a material fact must be resolved against the moving party. Breslin by Breslin v. Ridarelli, 308 Pa. Super. 179, 454 A.2d 80 (1982). The moving party bears the burden of demonstrating that no genuine issue of material fact exists and that he is entitled to judgment as a matter of law. Thompson Coal, Company v. Pike Coal Company, 488 Pa. 198, 412 A.2d 466 (1979). In determining whether the moving party has met this burden, the court must examine the record in the light most favorable to the non-moving party, giving that party the benefit of all reasonable inferences. Elder v. Nationwide Insurance Co., 410 Pa. Super. 290, 599 A.2d 996 (1991). Once a motion for summary judgment is made and is properly supported, the non-moving party may not simply rest upon the mere allegations or denials in her pleadings. Pa.R.C.P. 1035.3. The non-moving party must set forth specific facts showing that there is a genuine issue for trial. Curran v. Children’s Service Center of Wyoming County Inc., 396 Pa. Super. 29, 578 A.2d 8 (1990). The purpose of Pa.R.C.P. 1035 is “to assure that the motion for summary judgment may ‘pierce the pleading’ and to require the opposing party to disclose the facts of his claim.” Roland v. Kravco Inc., 355 Pa. Super. 493, 501, 513 A.2d 1029, 1034 (1986).

In opposition to the motion for summary judgment, plaintiffs maintain that the enactment of the Pennsylvania Legislature violates the commerce clause of the United States Constitution. See Brookman’s response to motion for summary judgment, pp. 6-9; Paul’s response brief, section V.

Plaintiffs lay out their argument by stating that, “It is well established that the federal commerce clause denies states the power to burden the interstate flow of articles of commerce.” See Brookman’s response, supra. (citations omitted) Then, in a “quantum leap of logic,” plaintiffs conclude that, “[tjhis constitutes a prohibition against treating a domestic corporation differently from a foreign corporation.” See id.

Plaintiffs further conclude that the legislation “on its face” violates this clause by “burdening] the interstate flow of articles of commerce.” (emphasis added)

Upon examination, this argument shows that it has two components: the “on its face” component, and the “articles of commerce” component.

The “on its face” component relies upon the claim that the legislation only regulates the liability of Pennsylvania domestic corporations as compared to non-Pennsylvania corporations. By its very nature, a corporation is a creation of the sovereign state which created it. As the United States Supreme Court stated in CTS Corp. v. Dynamics Corp. of America, 481 U.S. 69, 89, 107 S.Ct. 1637, 1649 (1987), “State regulation of corporate governance is regulation of entities whose very existence and attributes are a product of state law.” This principle has been firmly established in the law from the beginning of constitutional jurisprudence.

“A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly, or as incidental to its very existence. These are such as are supposed best calculated to effect the object for which it was created.” Id., citing Trustees of Dartmouth College v. Woodward, 4 Wheat. 518, 636, 4 L.Ed. 518 (1819).

Accepting this as a fundamental precept that the sovereign state can do no more than regulate its own creation, plaintiffs’ attempt to avoid more than superficial scrutiny, by the “on its face” argument, fails. Plaintiffs’ corollary argument that the interstate flow of commerce is impacted, upon investigation, also suffers a similar fate.

Plaintiffs argue, without explaining why, that a tort action is an article of commerce. A tort action is the state-created right of a citizen to redress a wrong or a harm suffered by the mechanism of compensatory damages. Moyer v. Phillips, 462 Pa. 395, 341 A.2d 441 (1975). Although the term “article of commerce” has been defined in a broad fashion so as to incorporate many diverse aspects of our economy, plaintiffs fail to present any cases, and this court’s search fails to uncover any support for the proposition that a tort is an article of commerce. See e.g., City of Philadelphia v. New Jersey, 437 U.S. 617, 98 S.Ct. 2531 (1978) (where “garbage waste” was found to be an article of commerce); see Wyoming v. Oklahoma, 502 U.S. 437, 112 S.Ct. 789 (1992) (where coal-fueled power production was found to be an article of commerce). As a consequence, plaintiffs’ argument must fail on this point.

Plaintiffs next attempt to implicate the commerce clause by arguing that the silent or negative aspect of the clause is applicable here.

This facet of the commerce clause, known as the “dormant” commerce clause, “prohibits economic protectionism — that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors.” New Energy Co. of Indiana v. Limbach, 486 U.S. 269, 273-74, 108 S.Ct. 1803, 1807 (1988).

Though not specifically stated within the constitutional clause granting the power to regulate commerce to Congress, it has nonetheless long been accepted that the power exists to prevent the individual states from regulating commerce. See CTS Corp., 481 U.S. at 87, 107 S.Ct. at 1650; Wabash, St. L. & P. Ry. Co. v. Illinois, 118 U.S. 557, 577, 7 S.Ct. 4 (1886). The test for determining if a challenged regulation affects interstate commerce is by no means clear. United Waste Systems of Iowa Inc. v. Wilson, 189 F.3d 762 (8th Cir. 1999). One of the indicia of whether a state regulation more than incidentally impacts interstate commerce, is a protectionist discrimination against foreign companies see e.g., Wyoming v. Oklahoma, 502 U.S. 437, 112 S.Ct. 789 (1992), or where the cumulative effect of individual discrimination would burden interstate commerce. See Katzenbach v. McClung, 379 U.S. 294, 85 S.Ct. 377 (1964); Heart of Atlanta Motel Inc. v. United States, 379 U.S. 241, 85 S.Ct. 348 (1964). When analyzed in its full context, it is clear that the instant legislation does none of the above.

With respect to any individual discrimination, the cast of plaintiffs immediately affected by the legislation include both Pennsylvania residents and non-Pennsylvania residents. In fact, analysis on a case-by-case basis shows that there are 254 Pennsylvania resident plaintiffs which represents 67 percent of the plaintiffs’ group and 122 non-Pennsylvania residents, which represents 33 percent of the plaintiffs’ group. See appendix “A.” Thus, it is clear that both Pennsylvania and non-Pennsylvania residents are both affected without any attempt at distinction.

Plaintiffs’ local protectionist argument fares no better when it comes to the companies affected by the legislation. As identified in appendix “A,” the galaxy of defendants is extensive. Beginning with the “traditional defendants” and proceeding through to the next level of defendants, it is quite clear that the vast majority of asbestos defendants are not affected by this legislation. This is because their respective liabilities arise from some form of direct culpability as compared to the successor liability alleged here. The challenged legislation makes no distinction between Pennsylvania companies and foreign companies, whose respective liabilities arise out of direct culpability, and this group represents the most significant defendant group. Therefore, the local protectionist argument is unconvincing.

Upon further review of the legislation, it becomes evident that the challenged legislation does not include any protectionist scheme to distinguish between Pennsylvania companies and foreign companies for purposes of exposing the successor assets to liability. Under the legislation, all Pennsylvania companies would have liability up to the level established under the legislation. This is far from erecting the proscribed protectionist barrier. This is the Pennsylvania Legislature’s attempt to rationally relate the liability under the successor liability theory to some set of values which are determined by the value of the assets acquired.

This stated purpose, of limiting the liability of some Pennsylvania companies, may have the effect of burdening other asbestos defendants with an increased share of the asbestos liability but this burden would be shared by both Pennsylvania companies and foreign companies whose liabilities arise from direct manufacturing, distributing or other non-successor acquired liability. This fact again fails on its face to erect any local protectionist barriers.

Plaintiffs rely upon Annenberg v. Commonwealth of Pennsylvania, 562 Pa. 570, 757 A.2d 333 (1998), and City of Philadelphia v. New Jersey, 437 U.S. 617, 98 S.Ct. 2531 (1978), to implicate the “dormant commerce clause.”

The Annenberg case, decided by our Supreme Court, had before it the question whether a tax on stock of foreign corporations, which did not do business in, or have taxable nexus with Pennsylvania, but exempted stock of corporations which did business in, or otherwise had taxable nexus with Pennsylvania, violated the “commerce clause.”

The court seemed to make “short work” of the tax law as being facially discriminatory because of how the tax burden was imposed to favor Pennsylvania companies as opposed to foreign companies.

“In examining whether a state law violates the negative commerce clause, we must first determine whether the provision at issue is facially discriminatory. The term ‘discrimination’ simply means differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter.” Annenberg, 562 Pa. at 575, 757 A.2d at 335. (citations omitted)

Applying the court’s test here, the opposite conclusion is easily reached since it is clear that only a small subset of the universe of asbestos defendants is affected, and any resulting increased burden would be shared by Pennsylvania and non-Pennsylvania companies alike. Since the instant legislation is not facially discriminatory, no further analysis is necessary.

Plaintiffs also rely upon City of Philadelphia v. New Jersey, 437 U.S. 617, 98 S.Ct. 2531 (1978), in which the United States Supreme Court struck down New Jersey legislation that prohibited non-New Jersey waste from being dumped in New Jersey. In its opinion, the court expressed the broad purpose of the commerce clause:

“This principle that our economic unit is the nation, which alone has the gamut of powers necessary to control of the economy, including the vital power of erecting customs, barriers against foreign competition, has as its corollary that the states are not separable economic units.” Id. at 623, 98 S.Ct. at 2535 (quoting H.P. Hood & Sons Inc. v. Du Mond, 336 U.S. 525, 537-38, 69 S.Ct. 657, 665). (internal citations omitted)

The court further expressed the notion of its alertness to the evils of economic isolation and protectionism, while at the same time recognizing that incidental burdens on interstate commerce may be unavoidable when a state legislates. Id. at 623-24. When this legislation is viewed in the larger context, of all the asbestos defendants (see appendix “A” which shows a total of 376 defendants), both domestic and out-of-state, it is clear that this is not the economic isolator the commerce clause was intended to prohibit, but more the incidental effect resulting from the state legislature’s attempt to reasonably control successor liability of a sovereign corporation to the value of the asset acquired.

Neither is this the case that was found to exist by the Third Circuit in Juzwin v. Asbestos Corporation Ltd., 900 F.2d 686 (3d Cir. 1990), cert denied, 498 U.S. 896, 111 S.Ct. 246 (1990). There, the court invalidated a New Jersey tolling statute that applied to foreign corporations but not to New Jersey corporations.

No such facial discrimination exists here. Any Pennsylvania company whose liability arose from any other action, other than a successor corporation transaction, is not affected. Neither is any foreign company’s liability affected differently than any similarly situated Pennsylvania company.

B. Defendants Counterargue That the Plaintiffs Lack Standing to Challenge the Statute Under the Commerce Clause

Defendant, in its supplemental brief of April 12,2002, raises the issue of plaintiffs’ standing to challenge the legislation under the dormant commerce clause. See defendant’s supplemental brief, 4/12/02, pp. 3-5.

Plaintiffs answer that all that is necessary to establish standing, is that its interests be “substantial,” “direct” and “immediate.” See plaintiffs’ reply to Crown’s supplemental brief, 5/2/02, pp. 4-5.

To determine if plaintiffs satisfy any of these criteria,' it is helpful to step back and view the action against Crown within the context of the full asbestos litigation.

In each of the complaints in which Crown finds itself a defendant, there are an average of 34 defendants and in some cases, the number of defendants is 116. In the 376 actions here, there are a total of 12,809 defendants. See appendix “A.”

If Crown were to be dismissed from each of these actions, the number of defendants decreases by a solitary one. Under the joint tort-feasor concept, all of plaintiffs’ damages are recoverable against these remaining defendants. See Sealover v. Carey Canada, 791 F. Supp. 1059 (M.D. Pa. 1992), rev’d on other grounds, 996 F.2d 42 (3d Cir. 1993).

Within this framed analysis, plaintiffs’ interest is neither substantial, nor direct, nor immediate.

But assuming plaintiffs can otherwise meet these burdens, they still fail the standing requirement because they cannot meet the prudential requirements:

“Apart from the constitutional requirements for standing, there is also a set of prudential principles that bear on the question of standing. One such prudential principle is that the plaintiff’s complaint must ‘fall within the zone of interests to be protected or regulated by the statute or constitutional guarantee in question.’ The so-called ‘zone of interests’ test ‘denies a right of review if the plaintiff’s interests are ... marginally related to or inconsistent with the purposes implicit in the [relevant constitutional provision].’ ” Individuals for Responsible Government Inc. v. Washoe County Board of County Commissioners, 110 F.3d 699, 702-703 (9th Cir. 1997), cert. denied, 522 U.S. 966, 118 S.Ct. 411 (1997). (internal citations omitted)

Plaintiffs, in their reply brief, speak of the “zone of interest” test and argue that because the legislation will impact them, the standing requirements are met. This simplistic argument fails to recognize the prudential requirement that must be satisfied in order to raise the dormant commerce clause. This requirement is succinctly stated in Individuals for Responsible Government.

“To ascertain whether appellants have standing to raise the dormant commerce clause challenge in the present case, it must be determined whether their interests bear more than a marginal relationship to the purposes underlying the dormant commerce clause. The chief purpose underlying that clause is to limit ‘the power of the states to erect barriers against interstate trade. ’ ” Id. at 703 (citing Dennis v. Higgins, 498 U.S. 439, 446, 111 S.Ct. 865, 970 (1991)). (emphasis added)

Here, the state legislation which attempts to rationally relate state corporations’ successor liability to the value of the assets of the acquired corporations, is not even marginally related to the underlying purpose of the commerce clause.

Thus, plaintiffs fail the test for standing to raise the issue of the commerce clause.

But, assuming that standing is established, plaintiff still fails to prove that the legislation violates the commerce clause. Plaintiffs argue that the statute does not provide a liability defense, and therefore summary judgment is not appropriate. This is a non sequitur. The test for when a motion for summary judgment should be granted is well known. Summary judgment may be granted when the pleadings, depositions, interrogatory answers, admissions, affidavits, and expert reports, if any, show that there is no genuine issue as to any material fact and that the record entitles the moving party to judgment as a matter of law. Pa.R.C.P. 1035.1 and 1035.2. All doubts as to the existence of a genuine issue as to a material fact must be resolved against the moving party. Breslin v. Ridarelli, 308 Pa. Super. 179, 454 A.2d 80 (1982). The moving party bears the burden of demonstrating that no genuine issue of material fact exists and that he is entitled to judgment as a matter of law. Thompson Coal Company v. Pike Coal Company, 488 Pa. 198, 412 A.2d 466 (1979). The non-moving party must set forth specific facts showing that there is a genuine issue for trial. Curran v. Children’s Service Center of Wyoming County Inc., 396 Pa. Super. 29, 578 A.2d 8 (1990). The purpose of Pa.R.C.P. 1035 is “to assure that the motion for summary judgment may ‘pierce the pleading’ and to require the opposing party to disclose the facts of his claim.” Roland v. Kravco Inc., 355 Pa. Super. 493, 501, 513 A.2d 1029, 1034 (1986).

Here, it is uncontested that defendant’s payments or obligations to make payments well exceed the limit established by the instant legislation, such that relief from further liability is an issue of law appropriately before the court. See appendix “B.” [not published herein]

II. The State Constitution Arguments

A. Plaintiffs First Claim That the Statute Is Unconstitutional Because It “Retroactively” Extinguishes Claims That Vested Against Crown Before the Statute Was Enacted

The analysis must begin with the presumption that the statute is constitutional. “The proper starting point is the presumption that the legislature does not intend to violate the constitution, and the corollary that a party asserting the unconstitutionality of a legislative act bears a heavy burden of proof.” Bible v. Commonwealth, Department of Labor and Industry, 548 Pa. 247, 252, 696 A.2d 1149, 1152 (1997) (citing Bethenergy Mines v. W.C.A.B. (Sadvary), 524 Pa. 235, 239, 570 A.2d 84, 86 (1990)). “No statute shall be construed to be retroactive unless clearly and manifestly so intended by the General Assembly.” 1 Pa.C.S. §1926. In examining retroactively applied federal legislation, the United States Supreme Court has stated that, “[e]ven absent specific legislative authorization, application of new statutes passed after the events in suit is unquestionably proper in many situations. When the intervening statute authorizes or affects the propriety of prospective relief, application of the new provision is not retroactive.” Landgraf v. USI Film Products, 511 U.S. 244, 273, 114 S.Ct. 1483, 1501 (1994).

Our state Supreme Court has held in Bible, supra, that the retroactive application of an amendment to the Workers’ Compensation Act, specifically, Act 1 of 1995, the Workers’ Compensation Act, neither imposed an unconstitutional impairment obligation of contracts, nor did its retroactive application violate due process. There, the amendment to the Workers’ Compensation Act actually changed the formula for determining an award of benefits for an injured worker asserting a work-related hearing loss claim.

The amended legislation here reads in part: “business corporation that was incorporated in this Commonwealth prior to May 1, 2001 ____” 15 Pa.C.S. §1929.1 (a)(1), (b)(1). The Pennsylvania Legislature saw fit to fashion the statute with the clear and unambiguous language that courts, in reviewing statutory construction, search for when faced with constitutional challenges. The statute reads, in part:

“(d) Application—
“(1) The limitations set forth in subsections (a) and (b) shall apply to mergers or consolidations effected under the laws of this Commonwealth or another jurisdiction consummated prior to May 1, 2001.”

The language makes clear that the statute is intended to have a retroactive effect in its application, which is to take place immediately upon its passage. Here, the legislature had established a cap for damages to be applied only to those corporations incorporated before May 1, 2001, and which would normally be liable under the laws of successor liability, even though the corporation did not manufacture, install or sell any asbestos or asbestos-related products. The effect is not an extinguishment of plaintiffs’ causes of actions as plaintiffs argue, but rather, a variation of their available remedy. Plaintiffs are not without alternative avenues to pursue their remedies. In fact, the average number of defendants in plaintiffs’ lawsuits is 34, and under the theory of joint tort-feasor liability, all of plaintiffs’ damages are recoverable against the remaining defendants. See Sealover, supra.

Moreover, “Neither the federal constitution nor our state constitution invalidates a non-penal statute merely because it is retroactive, unless such legislation impairs contractual or other vested rights.” Jenkins v. Hospital of Medical College of Pennsylvania, 535 Pa. 252, 262, 634 A.2d 1099, 1104 (1993) (quoting Barasch v. Pennsylvania Public Utility Commission, 516 Pa. 142, 532 A.2d 325 (1987), aff’d, 488 U.S. 299, 109 S.Ct. 609, 102 L.Ed.2d 646 (1989)). Plaintiffs’ potential recovery for damages that are yet to be proved, is not vested.

Plaintiffs rely upon Gibson v. Commonwealth, 490 Pa. 156, 415 A.2d 80 (1980), for the proposition that the legislature cannot “constitutionally extinguish a vested cause of action or an accrued claim.” Our Supreme Court set for the analysis when it held in Gibson that Act 152 could not constitutionally govern claims that accrued before its promulgation.

“It is well-settled that the legislature may not extinguish a right of action which has already accrued to a claimant. This court has consistently held that the legislature’s repeal of a law which created a right of action does not disturb any actions accrued thereunder.

“There is a vested right in an accrued cause of action. ... A law can be repealed by the law giver; but the rights which have been acquired under it, while it was in force, do not thereby cease....” Id. at 161, 415 A.2d at 83.

There is no question that the plaintiffs’ claims accrued prior to the enactment of the statute in December 2001. In Gibson, however, the statute at issue, completely extinguished plaintiffs’ claims, thus barring plaintiffs from any recovery. The court finds this case more analogous to what transpired in Bible, supra, where the Supreme Court upheld an amendment to the Workers’ Compensation Act which merely changed the plaintiffs’ remedy. Here, the asbestos plaintiffs’ claims will continue through the litigation and should plaintiffs succeed in proving the liability portion of their claims, they will then be required to prove the damages aspect of their claims. Plaintiffs will only be entitled to recover damages against the remaining defendants if they are able to prove that the negligence of the defendants was a cause, in fact, of their damages. Retrospective laws are permitted “when they impair no contract and disturb no vested right, but only vary remedies, cure defects in proceedings otherwise fair and do not vary existing obligations contrary to their situation when entered into and prosecuted.” Humphreys v. DeRoss, 567 Pa. 614, 618 n.3, 790 A.2d 281, 284 n.3 (2002) (quoting Brangs v. Brangs, 407 Pa. Super. 43, 49-50, 595 A.2d 115, 119 (1991)).

Finally, defendant, in its motion cites Smith v. Fenner, 399 Pa. 633, 161 A.2d 150 (1960), in which the court upheld the retroactive application of the amendment to the Uniform Contribution Among Tort-feasors Act, which became effective 13 months after the cause of action occurred. Along with Bible, supra, this case provides more persuasion for the retroactive application of the statute being challenged here, and therefore, plaintiffs’ claims that the statute is unconstitutional because it arguably “extinguishes” plaintiffs’ vested claims fails.

B. Plaintiffs Argue That the Statute Sets an Unconstitutional Limit on Personal Injury Damages Which Plaintiffs May Recover

Plaintiffs invoke Article 3 Section 18 of the Pennsylvania Constitution in seeking to have the Act declared unconstitutional because it limits the amount of damages recoverable in personal injury action. See Brook-man’s response brief, supra, p. 10.

Article 3, Section 18 states that: “The General Assembly may enact laws requiring the payment.. . but in no other cases shall the General Assembly limit the amount to be recovered for injuries resulting in death, or for injuries to persons or property, and in case of death from such injuries, the right of action shall survive, and the General Assembly shall prescribe for whose benefit such actions shall be prosecuted....” Pennsylvania Constitution, Article 3, Section 18. However, this section does not confer a right of recovery where none otherwise exists. Jackman v. Rosenbaum Co., 263 Pa. 158, 106 A. 238 (1919).

On its face, the Act says nothing about any such individual limitations. Further, there can be no logical inference that plaintiffs’ recovery will be diminished in any way. In the 376 cases included in this motion, there are over 7,000 defendants being sued, all of whom are subject to joint tort liability. See Sealover, 791 F. Supp. 1059 (M.D. Pa. 1992).

The plaintiffs argue that the statute constitutes a denial of equal protection because it “discriminates against out-of-state corporations.” See Brookman’s response brief, supra, p. 9.

As has been often repeated in this opinion, only Pennsylvania companies with successor liability are directly impacted by this legislation. The incidental effects of removing Crown as a defendant are shared by Pennsylvania companies and foreign companies alike. Because of this factual distinction, the argument fails.

In considering the legal aspect of this argument, the test to be applied was best stated by our Supreme Court in a case where it struck down a Pennsylvania statute that extinguished defamation torts upon the death of a plaintiff.

“The Equal Protection Clause of both constitutions does not deny the state the power to treat different classes of persons in different ways, but does deny the right to legislate that different treatment be accorded to persons placed by a statute into different classes on the basis of criteria wholly unrelated to the objective of the particular statute. The classification must be reasonable, not arbitrary, and must rest upon some ground of difference having a fair and substantial relation to the object of the legislation so that all persons similarly circumstanced shall be treated alike.” Moyer, 462 Pa. 395, 400-401, 341 A.2d 441, 443 (1975).

In Moyer, the Supreme Court focused on the wholly arbitrary distinction between types of torts which were allowed to survive plaintiff’s death and those that were not. Here, in direct contrast to the situation in Moyer, is the circumstance of a legislatively enacted statute that rationally relates the financial liability of a successor corporation to the value of acquired assets. Clearly, the classification of a successor Pennsylvania corporation which exists under the authority of the sovereign state, as against all other defendant corporations, is the objective of the statute and the classification is not arbitrary, but rather, necessary.

C. Plaintiffs Argue That the Statute Is Unconstitutional Under Article 3, Section 32 Prohibiting Enactments of “Special Laws”

Plaintiffs claim that the statute is unconstitutional on the grounds that it violates Article 3, Section 32 of the Pennsylvania Constitution which prohibits the passage of “special laws.” Section 32 reads: “The General Assembly shall pass no local or special law in any case which has been or can be provided for by general law and specifically the General Assembly shall not pass any local or special laws...” Pennsylvania Constitution, Article 3, Section 32.

Both the Brookman and Paul briefs make this argument for plaintiffs.

In discussing these issues, the court will follow in the footsteps of Justice Zappala in Pennsylvania Liquor Control Board v. Spa Athletic Club, 506 Pa. 364, 369, 485 A.2d 732, 734 (1984).

“We have held that the equal protection clause and the prohibition of special legislation are substantially similar, Baltimore & Ohio Railroad Co. v. Commonwealth, Department of Labor and Industry, 461 Pa. 68, 334 A.2d 636 (1975), and therefore will treat them together in our discussion of the constitutional issue.”

Although the factual context of this legislation has been previously set forth, it bears repeating for this argument.

It is uncontested that only a class of Pennsylvania corporations with successor liability is the subject of this legislation. The incidental effects of removing Crown as a defendant are shared by Pennsylvania companies and foreign companies alike. The factual distinction standing alone is sufficient to refute plaintiffs’ “denial of equal protection” argument based upon alleged “discrimination against foreign corporations,” since it is clear that no such discrimination factually exists.

Plaintiffs point to five distinctions or classifications of business entities inherent in this legislation. They say that such distinctions serve to make a class so unique as to qualify as a special law.

Upon review of appendix “A,” there are 7,293 Pennsylvania corporations. Plaintiffs fail to demonstrate any evidence that out of these Pennsylvania defendants, other defendants do not now belong to the class or may someday enter the class.

The operative principle has long been the law in Pennsylvania. In 1874, when the Pennsylvania Legislature implemented the classification of cities, it was then argued that the classification of the City of Philadelphia, as the only city of the first class, was “local and special.” See Wheeler v. Philadelphia, 77 Pa. 338 (1875 WL 12964). In upholding the constitutionality of the classification, the Supreme Court found that since the legislature created a class which others might join, it could not be considered local or special.

Moreover, in Seabolt v. Commissioners, 187 Pa. 318, 323, 41 A. 22, 23 (1898), the court stated:

“Legislation for a class distinguished from a general subject is not special but general, and classification is a legislative question, subject to judicial revision only so far as to see that it is founded on real distinctions in the subjects classified, and not on artificial or irrelevant ones, used for the purpose of evading the constitutional prohibition. If the distinctions are genuine, the courts cannot declare the classification void, though they may not consider it to be on a sound basis. The test is, not wisdom, but good faith in the classification.”

In reviewing this challenge to the legislation, it is important to review the standard by which this court proceeds.

“The strong presumption of constitutionality enjoyed by acts of the General Assembly and the heavy burden of persuasion on the party challenging an Act have been so often stated as to now be axiomatic. Legislation will not be invalidated unless it clearly, palpably, and plainly violates the constitution, and any doubts are to be resolved in favor of a finding of constitutionality.... It is not necessary that the rational basis for a classification be set forth in the statute or in the legislative history. Nor is it necessarily incumbent upon the government agency to advance the reasons for the Act in defending the classification. The burden must remain upon the person challenging the constitutionality of the legislation to demonstrate that it does not have a rational basis. Should the reviewing court detect such a basis, from whatever source, the legislation must be upheld.” Pennsylvania Liquor Control Board, 506 Pa. at 370-71, 485 A.2d at 735.

“Classifications in the area of commercial regulation are normally tested against the rational basis principle.” Id. at 369, 485 A.2d at 734, citing City of New Orleans v. Dukes; Allied Stores of Ohio Inc. v. Bowers; Williamson v. Lee Optical of Oklahoma.(internal citations omitted)

“Likewise, our interpretations of the special legislation provision of the Pennsylvania Constitution have given wide latitude to commercial regulation.” Id. at 370, 485 A.2d at 734-35.

Here, given the actual number of Pennsylvania defendants who may qualify and the lack of contrary evidence, and the clearly expressed basis for the legislation, that is, the limiting of liability of an asbestos defendant under a successor liability theory to the acquired assets, the legislation fails the test for a special law and passes the rational basis test.

D. Plaintiffs Claim That the Statute Is Unconstitutional As It Violates Article 3, Section 1 and Section 3 in That the Legislation Was Improperly Enacted

Plaintiffs’ final argument is that the statute is unconstitutional in that it violates Article 3, Section 1 and Section 3. Section 1 reads: “Passage of laws. No law shall be passed except by bill, and no bill shall be so altered or amended, on its passage through either house, as to change its original purpose.” Pennsylvania Constitution, Article 3, Section 1. Section 3 reads: “Form of bills. No bill shall be passed containing more than one subject, which shall be clearly expressed in its title, except a general appropriation bill or a bill codifying or compiling the law or a part thereof. Amended May 17,1967.” Pennsylvania Constitution, Article 3, Section 3.

“[Wjhen a law has been passed and approved and certified in due form, it is no part of the duty of the judiciary to go behind the law as duty certified to inquire into the observance of form in its passage.. . . The presumption in favor of regularity is essential to the peace and order of the state.” Common Cause/Pennsylvania v. Commonwealth, 710 A.2d 108, 116-17 (Pa. Commw. 1998), affirmed, 563 Pa. 108, 757 A.2d 917 (2000). (citation omitted)

However, the Supreme Court went on to say in Consumer Party of Pennsylvania v. Commonwealth, 510 Pa. 158, 178, 507 A.2d 323, 333 (1986), that, “While it is appropriate to give due deference to a co-equal branch of government as long as it is functioning within constitutional constraints, it would be a serious dereliction on our part to deliberately ignore a clear constitutional violation.”

The purpose of Article 3, Section 1 is to “put the members of the [General] Assembly and others interested on notice so that they [may act] with circumspection.” Common Cause/Pennsylvania v. Commonwealth, 710 A.2d 108, 119 (Pa. Commw. 1998), affirmed, 563 Pa. 108, 757 A.2d 917 (2000) (quoting Consumer Party of Pennsylvania v. Commonwealth, 510 Pa. 158, 179-80, 507 A.2d 323, 335 (1986)).

Plaintiffs argue that the enactment of the bill was constitutionally flawed as a result of amendment after its original Senate approval. See Brookman’s response brief, supra, p. 11.

The history of the passage of the bill is adequately set forth in Brookman’s response brief, and is not reiterated here.

In order to prevail in the argument, plaintiffs must overcome significant obstacles to invalidate an Act of the legislative branch of government on constitutional grounds. See Pennsylvania Liquor Control Board. These obstacles begin with title 1, section 1922(3) of the Pennsylvania Consolidated Statutes:

“Section 1922 — Presumptions in ascertaining legislative intent
“(3) That the General Assembly does not intend to violate the Constitution of the United States or of this Commonwealth.” 1 Pa.C.S. §1922(3).

The heavy burden of persuasion which is imposed upon the challenging party is given form by requiring such party to clearly demonstrate that the violation is plain and palpable, and any doubts shall be resolved in favor of a finding of constitutionality. See Pennsylvania Liquor Control Board at 370, 485 A.2d at 735.

Plaintiffs’ argument implicates Sections 1 and 3 of Article 3 of the Pennsylvania Constitution which requires that no bill “shall be altered or amended, on its passage through either house, as to change its original purpose” (Section 1), and that “no bill shall be passed containing more than one subject, which shall be clearly expressed in its title” (Section 3).

It is uncontested that this Act qualifies under the Enrolled Bill Doctrine. Once this has been established, “it is no part of the duty of the judiciary to go behind the law as duly certified to inquire into the observance of form in its passage____The presumption... of regularity is essential to the peace and order of the state.” Common Cause/Pennsylvania, 710 A.2d at 116-17. (citations omitted)

In arriving at its conclusion, Judge Kelley, writing on behalf of the Commonwealth Court of Pennsylvania, set forth in an excellent opinion, what should be the operative tests for invalidating legislation under Sections 1 and 3 of Article III of our Constitution.

“Petitioners allege that the General Assembly violated Article III, Section 1 of the Pennsylvania Constitution by so amending HB 67 on its passage through the General Assembly as to change its original purpose. We disagree.

“Article III, Section 1 of the Pennsylvania Constitution provides that no bill shall be so altered on its passage through either house as to change its original purpose. In discussing Article III, Section 1 of the Pennsylvania Constitution, our Supreme Court has stated that the purpose of the constitutional requirements relating to the enactment of laws ‘was to put the members of the Assembly and others interested on notice so they might vote on it with circumspection.’ ” Id. at 119 (quoting Consumer Party of Pennsylvania v. Commonwealth, 510 Pa. 158, 179-80, 507 A.2d 323, 335 (1986)).

“Article III, Section 3 of the Pennsylvania Constitution provides that no bill shall contain more than one subject, which shall be clearly expressed in the title of the bill. Our Supreme Court has stated that, pursuant to Article III, Section 3, a title is constitutional if it puts a reasonable person on notice of the general subject matter of the Act. In re Department of Transportation, 511 Pa. 620, 626, 515 A.2d 899, 902 (1986). Article III, Section 3 of the Pennsylvania Constitution does not require a title to be an index or synopsis of an Act’s contents. Id. at 627, 515 A.2d at 902. One who seeks to declare a title unconstitutional under Article III, Section 3 must demonstrate either that: (1) the legislators and the public were actually deceived as to the Act’s contents at the time of passage; or (2) the title on its face was such that no reasonable person would have been on notice as to the Act’s contents. Id.” Id. at 120.

Here, plaintiffs have failed to offer any evidence that these requirements were satisfied.

Plaintiffs rely upon another “Common Cause” captioned case as support for its position. In Common Cause of Pennsylvania v. Commonwealth, 668 A.2d 190 (Pa. Commw. 1995), affirmed, 544 Pa. 512, 677 A.2d 1206 (1996), the Commonwealth Court had before it a constitutional challenge under various provisions of the Pennsylvania Constitution under Article 3, Sections 1, 2, 3, 4, 11, 29 and 30.

In beginning its analysis in Common Cause (1995), the Commonwealth Court, per then President Judge Colins, cites at length from the same Consumer Party case cited above regarding the test to be followed in these type challenges. Id. at 196. The obvious purpose for this is to explain the standard for analysis for non-appropriation bills. The court then goes on to explain why the appropriation bill is fatally flawed in its implementation. Part of the explanation involves the role of Article 3, Section 11:

“Therefore, unlike non-appropriation bills, we have held that Article III, Section 11 imposes certain unique strictures on the legislature when enacting a general appropriation Act. In fact, our Supreme Court has recognized that the ‘evils attendant’ in excluding general appropriation bills from the single subject requirement of Article III, Section 3 are minimized by the restrictions imposed by Article III, Section 11 upon the content of such bills.” Id. at 197. (emphasis added) (citation omitted)

Because the bill under challenge in Common Cause (1995) began as a bill, originally containing only an appropriation from a restricted account in the general fund to the PUC into the GAA (General Appropriations Act), the Act was determined to have violated the Pennsylvania Constitution, Article III, Section 1. Id.

Common Cause (1995) is sufficiently distinguished on this basis. Considering this, plaintiffs have failed to carry the “burden of persuasion” that the non-appropriations Act of the legislature is unconstitutional.

Therefore, upon consideration of defendant Crown’s motion for summary judgment, and all responses thereto, as well as the parties’ supplemental briefs, it is hereby ordered that summary judgment in favor of defendant is granted.

ORDER

And now, to wit, June 11, 2002, it is hereby ordered and decreed that the motion for summary judgement filed by defendant Crown, Cork and Seal, is granted. Defendant Crown, Cork and Seal only is dismissed from the 376 captioned cases found in appendix “A” to these findings and order.

APPENDIX “A” SUMMARY

Number of plaintiffs — Pennsylvania residents 254

Number of plaintiffs — Non-Pennsylvania residents 122

Total plaintiffs 376

Number of defendants — Pennsylvania residents 7347

Number of defendants — Non-Pennsylvania residents 5462

Total defendants 12,809

Average number of defendants = 33.65

Note:

Total defendants — This number includes a duplication of defendants since many of the same defendants are sued in each case.

      . This number includes a duplication of defendants since many of the same defendants are sued in each case.

      . Unless otherwise noted, the source for this “history” is the study done by the Institute for Civil Justice at RAND, entitled “Asbestos Litigation In the U.S.: A New Look at an Old Issue,” August 2001, by Deborah Hensler, Stephen Carroll, Michelle White, and Jennifer Gross.

      . Id. at 5.

      . Id. at 2.

      . Id. at 5.

      . Id. at 20, appendix A.

      . The plaintiffs implicitly acknowledge the numerical insignificance of the “successor liability” defendants in their argument that this legislation is a “special law.” Brookman’s response brief, 3/27/ 2002, p. 11.

      . This number was arrived at by adding the number of defendants in each of the 376 cases, recognizing that the same defendants may be named repeatedly in the civil actions listed in appendix “A.”

      . Because the two cases cited herein are similarly captioned, for reference purposes, they will be referred to as Common Cause (1995) and Common Cause (1998).


source: Caselaw Access Project

author: CHESLOCK, J.,

license: Public Domain

text:
    Mikowski v. Poalillo

      C.P. of Monroe County,
    nos. 9725 Civil 1997, 1255 Civil 1998, and 4377 Civil 1998 (consolidated case).

      Richard J. Orloski, for plaintiff.

      Sean R McDonough and Jude Quinn, for Stroud Township.

      Joseph Van Jura, for Sheeley Insurance Agency.

      John Clary, for Ocasco Budget Inc.

      David Williamson, for Poalillo.
    January 15, 2002
   CHESLOCK, J.,

These proceedings involve three consolidated actions in declaratory judgment. An automobile accident occurred on June 29, 1995, between Charles Poalillo and Michael Mikowski. Poalillo and Pocono Modem Paving & Excavating purchased a comprehensive commercial insurance package from Ohio Casualty Group Insurance Company, through an independent agent of Ohio Casualty, namely Sheeley Insurance Agency.

Although this package policy included other lines of insurance, the only one we are presently concerned with is the automobile liability insurance coverage for the period of time from April 10,1995 through April 9,1996.

There were collateral issues addressed at the hearing concerning this matter, however, the only real controversy is whether or not Poalillo/Pocono Modem had automobile insurance for the accident that occurred on June 29, 1995. The hearing was held on November 28, 2001 and all the parties have submitted briefs and proposed findings of fact and conclusions of law. We are now prepared to enter the adjudication.

FINDINGS OF FACT

(1) Poalillo/Pocono Modem negotiated with Sheeley to obtain a commercial insurance policy for a premium of $70,238, which was paid in full on April 10,1995, by a series of payments as follows: (1) $14,000 paid by Poalillo/Pocono Modem to Sheeley; (2) $48 reduction in broker’s commission and (3) $56,190 by a credit voucher for Ocasco Budget Inc. to Ohio Casualty.

(2) Ocasco is a wholly owned subsidiary of Ohio Casualty, both doing business at the same address in Hamilton, Ohio.

(3) Ocasco provided the premium financing in connection with this matter and as security for payment obtained a power of attorney from Poalillo to effect the cancellation of the policy if the premiums were not paid in a timely fashion.

(4) After the original payment of $14,000 by Poalillo to Sheeley, Poalillo was then to make monthly installments of $5,108.19 to Ocasco.

(5) The first installment due from Poalillo to Ocasco was due May 2, 1995, which was not made in a timely fashion. Ocasco sent out installment due notices to Poalillo on May 9, 1995 and May 18, 1995.

(6) A check in the amount of $5,108.04 was sent by Poalillo to Ocasco on or about May 23, 1995, but was eventually returned for insufficient funds.

(7) On June 7,1995, a notice of cancellation was sent to Poalillo/Pocono Modem, indicating that Ocasco would request cancellation within three days (June 10, 1995) pursuant to their power of attorney.

(8) On or about June 15,1995, Poalillo sent a certified check in the amount of $5,000 to Ocasco, which was received and credited to the Poalillo/Pocono Modern account by Sara Wilson, a supervisor at Ocasco.

(9) On or about June 19, 1995, a cancellation status notice was sent by Ocasco to Poalillo stating that the policy of insurance had been cancelled.

(10) The motor vehicle accident between Poalillo and Mikowski occurred on June 29, 1995.

(11) Subsequent to the accident, Poalillo sent checks to Ocasco that were either not cleared by the bank or not cashed by Ocasco.

(12) On July 24, 1995, Ohio Casualty processed the cancellation of the policy effective June 10, 1995.

(13) If insurance coverage was provided on a pro-rata basis for actual payments to Ocasco, the insurance contract would have been in force until July 3,1995. On or about November 2, 1995, Ohio Casualty sent Poalillo/ Pocono Modem a refund of $4,379.96.

DISCUSSION

The key question in this controversy is the affect of the $5,000 payment made by Poalillo/Pocono Modem on or about June 16,1995. Equitable estoppel arises when someone by their actions, representations, admissions or by silence, induces another to believe certain facts and the person relies on the beliefs formed by those acts. Tallarico Estate, 425 Pa. 280, 228 A.2d 736 (1967). Poalillo/Pocono Modern relied upon representations made by Sheeley to continue making payments even after the June 10,1995 termination date. Even though the said payment did not pay the policy current, clearly the $5,000 payment which was accepted by Ocasco was to pay for something. After that payment Poalillo relied upon the silence of Ocasco in not obtaining new insurance.

The initial $14,048 payment, plus the $5,000 payment on June 16, 1995, represent more than 25 percent of the total insurance cost for one year. On a pro-rata basis Poalillo/Pocono Modem would be covered until July 3, 1995. According to Sheeley, an insurance underwriter would normally reinstate a policy with late payments. Once the accident of June 29,1995, became known, neither Ohio Casualty nor Ocasco would honor any reinstatement.

An insurer’s acceptance of some, but less than all of the premiums which are delinquent, will not of itself operate as a waiver of the company’s right of forfeiture for lapse of premiums. Panizzi v. State Farm Mutual Auto Insurance Company, 386 F.2d 600, cert. denied, 88 S.Ct. 2308 (1967). However, an insurer’s acceptance of a late premium payment implies a waiver of its right to declare a forfeiture from the date of that acceptance. Schifalacqua v. CAN Insurance, 567 F.2d 1255 (1977). If Ocasco’s notice of termination as of June 10, 1995 was to remain in effect, it should have returned the $5,000 cashier’s check to Poalillo/Pocono Modem even though the amount was not sufficient to pay the policy up to date.

CONCLUSIONS OF LAW

(1) There was a commercial insurance package in force and effect between Poalillo/Pocono Modem and Ohio Casualty from April 10, 1995 through July 3, 1995.

(2) Poalillo/Pocono Modem paid a total of $19,048 for the aforesaid coverage.

(3) The cancellation of Ocasco on July 24, 1995, was effective on that day rather than being retroactive to June 10, 1995.

(4) Ohio Casualty/Ocasco is estopped from seeking declaratory judgment canceling the Poalillo/Pocono Modem insurance coverage.

ORDER

And now, January 15, 2002, Poalillo/Pocono Modem is entitled to declaratory judgment that it is due coverage and a defense by Ohio Casualty of all claims arising out of the accident that occurred on June 29, 1995.


author: SHEPPARD JR., J.,

text:
    Resource Properties XLIV Inc. v. Philadelphia Authority for Industrial Development

      Kevin F. Berry, for plaintiff.

      Kenneth E. Aaron and Jami Nimerojf, for defendants.
    June 5, 2001
   SHEPPARD JR., J.,

Defendants, LLOT Inc. and Growth Properties Ltd.-LLOT General Partnership (G-L) (collectively, LLOT defendants), have filed a motion for summary judgment requesting that the claims of Resource Properties XLiy Inc. be dismissed. Resource asserts claims both in its own name and as successor in interest to CoreStates Bank’s name in the action number C.C.P. November term 1999, no. 1265 (confession action), and as successor in interest to Radnor Financial Group Inc. in the action number C.C.P. March Term 2000, no. 3750 (subrogation action).

This court concludes that the LLOT defendants are not entitled to summary judgment and has denied their motion.

BACKGROUND

This case centers on documents executed in connection with three events: a 1984 industrial development loan transaction; a 1991 resolution of disputes arising between certain parties to the transaction; and a transfer of certain transaction rights to Resource in 1998.

On October 11,1994, CoreStates, then known as The Philadelphia National Bank, entered into the transaction with the LLOT defendants, among others, through PAID. The ultimate result of the transaction was that the LLOT defendants, Growth and Sheridan (subrogation action defendants) incurred an obligation of $6 million to CoreStates, with CoreStates holding a mortgage on property owned by the subrogation action defendants as a security interest. In the event of a default, Radnor was to purchase the notes evidencing the subrogation action defendants’ obligation from CoreStates.

To effect the transaction, the parties entered into several agreements, including the following:

• A “construction loan agreement” outlining certain construction improvements to be made to the property and summarizing the terms of the transaction (exhibit i);
• Three notes, totaling $6 million, and three mortgages issued by PAID in favor of CoreStates. The principal under the “first note” was $3 million, the principal under the “second note” (exhibit 2) was $2 million, and the principal under the “third note” (exhibit 3) was $1 million. The mortgages were secured by property located at 125-37 South Ninth Street. Exhibit 1 at ¶2;
• An “installment sale agreement” (exhibit 4), under which PAID transferred the property to the subrogation action defendants in exchange for a promise of future payments. The payment obligations of the borrowers under the installment sale agreement were co-extensive with the obligations of PAID under the notes and mortgages;
• Three “ISA assignments” (exhibit 5), pursuant to which PAID assigned its rights under the installment sales agreement and its remaining interest in the property to CoreStates; and
• A “permanent commitment” from Radnor to Core-States. (Exhibit 6.) Under the permanent commitment, Radnor agreed to purchase CoreStates’ interest in the second and third notes and mortgages upon default by the borrowers. Exhibit 6 at ¶1. The purchase price for these notes and mortgages was the amount owed on the notes, including principal, accrued interest and other sums, at the time Radnor purchased the notes. Id. at ¶4.

At some point in 1991, CoreStates, Radnor and the subrogation action defendants became embroiled in a dispute related to the property and payments under the notes and installment sale agreement. In several documents dated as of December 31, 1991, these entities agreed to the resolution of this dispute:

• A “resolution agreement” (exhibit 8), whereby Radnor released G-L and Growth from claims connected to the property and the relationships between Radnor and Growth or G-L; and
• A “modification agreement” (exhibit 7), under which Radnor agreed to secure its obligation to purchase the notes, as provided in the permanent commitment, with a $2.2 million cash collateral. Exhibit 7 at^3(c). The modification agreement permitted CoreStates to liquidate the collateral in the event of a default and apply to the outstanding balance on third and second notes, in that order. Id. at ¶4. The modification agreement also provided that Radnor was to have no interest in the “second loan” until the entire purchase price was paid. Id. Shortly after the resolution, Radnor posted the collateral. Resource’s memorandum at 5.

In December 1994, the subrogation action defendants and PAID defaulted on their obligations under the installment sale agreement and the notes. Resource’s memorandum at 6; LLOT defendants’ memorandum at 6. CoreStates sent a letter to Radnor demanding that it purchase the notes on December 22, 1994. (Exhibit 9.) On January 5, 1995, CoreStates notified PAID and the borrowers of their default and informed Radnor that it had liquidated the collateral, which totaled $2,206,244.19, and applied the proceeds to the purchase price. (Exhibit 11.) While this eliminated the principal outstanding balance on the third note, it left a balance of $1,127,747 on the second note. Exhibit 15 at ¶8.

When Radnor failed to pay the outstanding balance of the purchase price, CoreStates brought suit against Radnor seeking to enforce its purchase obligations under the permanent commitment and the modification agreement (guarantee action). Radnor, in turn, filed a counterclaim alleging that CoreStates had improperly liquidated the collateral. Exhibit 30. CoreStates also filed a second action against 10 defendants, including PAID and the LLOT defendants, on February 27,1995, to foreclose on the first and second mortgages. Resource’s memorandum at 6; LLOT defendants’ memorandum at 11.

On April 24,1998, CoreStates transferred certain rights to Resource and agreed to settle the guarantee action. Resource’s memorandum at 7; LLOT defendants’ memorandum at 9. In connection with this settlement and transfer, CoreStates, Radnor, Resource and Sheridan entered into the following “settlement and transfer documents”:

• An “agreement of sale,” a “CoreStates absolute assignment” and an “assignment and allonge” (exhibits 17, 19,20), under which CoreStates assigned all of its interest in the notes, mortgages, the foreclosure action and the guarantee action to Resource for $3.6 million. This amount represented the approximate balance due to CoreStates under the notes and mortgages. Exhibit 17 at ¶2(&);
• A “Radnor absolute assignment” (exhibit 22), whereby Radnor assigned its rights to the second and third mortgages and notes, including all subrogation rights, to Resource; and
• A “side letter.” (Exhibit 21.) In the side letter, CoreStates agreed to limit Radnor’s and Sheridan’s liability to their interests in the property, settling the guarantee action as to the two of them. Exhibit 21 at ¶8. In addition, CoreStates, on the one hand, and Radnor and Sheridan, on the other, released each other from all claims arising in connection with the notes, and CoreStates paid Radnor $325,000. Id. at ¶¶ 1(a), 8, 9. Resource then proceeded to trial as CoreStates’ successor-in-interest in the foreclosure action.

Resource confessed judgment against LLOT, L-G, Growth and PAID for amounts owed on the third note in the confession action on November 9,1999. In addition, Resource subsequently initiated an action for equitable subrogation and unjust enrichment/quantum meruit in the subrogation action against the LLOT defendants, Growth and Sheridan. These two actions were consolidated on October 12, 2000, and the LLOT defendants filed the instant motion for summary judgment in both actions.

DISCUSSION

Pennsylvania Rule of Civil Procedure 1035.2 allows a court to enter summary judgment “whenever there is no genuine issue of any material fact as to a necessary element of the cause of action.” A court must grant a motion for summary judgment when a non-moving party fails to “adduce sufficient evidence on an issue essential to his case and on which he bears the burden of proof such that a jury could return a verdict in his favor.” Ertel v. Patriot-News Co., 544 Pa. 93, 101-102, 674 A.2d 1038, 1042 (1996), cert. denied, 519 U.S. 1008, 117 S.Ct. 512, 136 L.Ed.2d 401 (1996). Where there are material issues of fact, however, summary judgment may not be granted.

I. The Release Does Not Bar Resource’s Claims in the Subrogation Action

The LLOT defendants first argue that the release in the 1991 resolution agreement precludes Resource from pursuing the subrogation action. Generally, a release is to be given effect according to the ordinary meaning of its language. Seasor v. Covington, 447 Pa. Super. 543, 547, 670 A.2d 157, 159 (1996). It must also be construed narrowly and in light of the circumstances at the time of its execution:

“The courts of Pennsylvania have traditionally ... interpreted the release as covering only such matters as can fairly be said to have been within the contemplation of the parties when the release was given____Moreover, releases are strictly construed so as not to bar the enforcement of a claim which had not accrued at the date of the execution of the release.
“[A] release covers only those matters within the parties’ contemplation. In construing this general release, a court cannot merely read the instrument.... [I]t is crucial that a court interpret a release so as to discharge only those rights intended to be relinquished. The intent of the parties must be sought from a reading of the entire instrument, as well as from the surrounding conditions and circumstances.” Vaughn v. Didizian, 436 Pa. Super. 436, 439, 648 A.2d 38, 40 (1994). (citations and quotation marks omitted) See also, Harrity v. Medical College of Pennsylvania Hospital, 439 Pa. Super. 10, 22-23, 653 A.2d 5, 11-12 (1994) (focusing on limiting language in release and declining to apply release).

In the release, executed in 1991, Radnor released the “Growth group” from the following:

“[A]ny and all actions, causes of actions, proceedings, claims, demands, counterclaims, offsets, deductions, damages, costs, liabilities, agreements, and obligations of any nature whatsoever, whether contingent or matured, known or unknown, in law or equity, asserted or which might have been asserted, directly or indirectly sustained by any of them arising out of or connected with any one or more of the following:...
“(d) the purchase, financing, construction, operation or ownership of the [property], and
“(e) any other relationship between the Radnor group, or any of them or their affiliates, and the Growth group, or any of them or their affiliates.” Exhibit 8 at 5.

While this language applies broadly to the then-current disputes, there is no indication that the release was intended to cover future defaults, including the LLOT defendants’ default in December 1994. Rather, the release appears to focus on addressing Radnor’s allegations of default in 1991 and the Growth group’s defenses to those allegations. Thus, the release does not bar Resources from pursuing its current claims against the LLOT defendants.

II. The Defendants Are Not Entitled to Summary Judgment on Resource’s Unjust Enrichment Claim

The LLOT defendants present two arguments in support of their motion for summary judgment on Resource’s unjust enrichment claim. First, they assert that Resource’s claim is barred by the statute of limitation. Second, they contend that Resource lacks standing to bring an unjust enrichment claim in Radnor’s name because the scope of Radnor’s assignment to Resource does not include this type of claim. Neither argument has merit.

In Pennsylvania, unjust enrichment/quantum meruit actions are governed by the four-year statute of limitations. Cole v. Lawrence, 701 A.2d 987, 989 (Pa. Super. 1997); Bednar v. Marino, 435 Pa. Super. 417, 427, 646 A.2d 573, 578 (1994). Such actions “begin to accrue as of the date on which the relationship between the parties is terminated.” Cole, 701 A.2d at 989.

Neither Resource nor the LLOT defendants address the termination of the relationship between Radnor and the LLOT defendants. See Resource’s memorandum at 14 (focusing on “the breach of the implied contract or repayment between [Radnor] and the LLOT defendants”); LLOT defendants’ memorandum at 16 (focusing on the “behavior or event alleged by plaintiff to have resulted in the LLOT defendants’ ‘unjust enrichment’ ”). This leaves the court without facts to support a finding that the relationship between the LLOT defendants and Radnor was terminated more than four years before the subrogation action was filed. As a result, the subrogation action cannot, at present be dismissed based on the statute of limitations.

The LLOT defendants also contend that Radnor did not assign its unjust enrichment claim to Resource. An assignment “will ordinarily be construed in accordance with the rules of construction governing contracts and the circumstances surrounding the execution of the assignment document.” Horbal v. Moxham National Bank, 548 Pa. 394, 406, 697 A.2d 577, 583 (1997) (per Castille, J., with two justices concurring) (citing U.S. National Bank v. Campbell, 354 Pa. 483, 47 A.2d 697 (1946)). The assignment provision in the Radnor absolute assignment states that Radnor “absolutely, unconditionally and unequivocally sells, assigns, and transfers to the assignee [Resource], all of its present and future right, title, interest in and to the notes and the mortgages and all payments due or to become due thereunder and all proceeds thereof.” Exhibit 22 at ¶1. Even if this provision does not specifically reference an action in quantum meruit or for unjust enrichment, Resource alleges that Radnor’s conduct implies that it assigned its unjust enrichment claim and that Resource’s prosecution of the claim is proper. Resource’s memorandum at 14-16. At the least, these allegations present an issue of material fact as to the assignment of Radnor’s unjust enrichment cause of action, preventing the court from granting summary judgment on Resource’s claim.

III. The Defendants Have Not Established That Resource Cannot Sustain its Equitable Subrogation Claim

Pennsylvania law recognizes the doctrine of equitable subrogation and defines it as “the substitution of one entity in the place of another with reference to a lawful claim, demand, or right, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies or securities.” Public Service Mutual Insurance Co. v. Kidder-Friedman, 743 A.2d 485, 488 (Pa. Super. 1999) (quoting Molitoris v. Woods, 422 Pa. Super. 1, 9, 618 A.2d 985, 989 (1992)). This doctrine is “a means of placing the ultimate burden of a debt upon the one who in good conscience ought to pay it, and is generally applicable when one pays out of his own funds a debt or obligation that is primarily payable from the funds of another.” High-Tech-Enterprises Inc. v. General Accident Insurance Co., 430 Pa. Super. 605, 609, 635 A.2d 639, 642 (1993). (citation omitted) Equitable subrogation will not be permitted until the creditor is fully paid. Stofflett v. Kress, 342 Pa. 332, 336, 21 A.2d 31, 33 (1941) (“until [the superior creditor] is fully paid subrogation cannot be allowed on any terms whatever”); Hagans v. Constitution State Service Co., 455 Pa. Super, 231, 240, 687 A.2d 1145, 1149 (1997) (“subrogation presupposes an actual payment and satisfaction of a debt or claim by the entity asking to be subrogated”).

The LLOT defendants contend that, under the 1991 resolution agreement, Radnor had “no subrogation rights or interests in the second note or the third note unless [it] satisfied the entire” purchase price. LLOT defendants’ memorandum at 19. Even if this assertion is correct, it appears that Resource, as Radnor’s assignee and in its own right, has satisfied the entire purchase price. In exchange for CoreStates’ rights in the second notes, Resource paid approximately $3.6 million, which represented the total amount of the balance outstanding on the notes. Exhibit 17 at^2(a). More importantly, Resource succeeded to all of Radnor’s subrogation rights in the second and third notes, including any credit for satisfaction through its payment of the collateral. Exhibit 21 at ¶5. Through its inheritance of Radnor’s satisfaction rights and its own payment of the outstanding balance on the notes, Resource could be considered to have satisfied both the second and third notes.

This conclusion is bolstered by language elsewhere in the settlement and transfer documents. These documents indicate that all parties believed that Resource had obtained Radnor’s subrogation rights to the second and third notes, implicitly recognizing that Radnor had satisfied the LLOT defendants’ obligations under the notes. See exhibit 31 at ¶3 (securing Resource’s indemnification obligations to CoreStates with Radnor and its successor’s subrogation rights in the second and third notes); exhibit 33 at ¶0 (recognizing Radnor’s interest in the notes and mortgages); exhibit 20 at ¶0 (same); exhibit 23 at ¶]\ (recognizing that Radnor is the holder of subrogation rights in the second and third notes). As a result, the LLOT defendants are not entitled to summary judgment on Resource’s equitable subrogation claim.

IV. The LLOT Defendants Are Not Entitled to Summary Judgment in the Confession Action

Finally, the LLOT defendants assert that they are entitled to summary judgment in the confession action because the third note, was paid in full and because Radnor had no rights under the third note. These arguments are without merit.

As an initial matter, Resource is pursuing the confession action as a successor in interest to CoreStates, not Radnor. Exhibit 25 at ¶1. Thus, any limitation on Radnor’s third note rights is irrelevant. With regard to the full payment of the third note obligation, the parties appear to disagree as to the factual question of how the collateral has been applied, and neither side cites any case law in support of its legal arguments. Resource’s memorandum at 23 n. 15; LLOT defendants’ memorandum at 23. As a result, the LLOT defendants are not entitled to summary judgment in the confession action.

CONCLUSION

Because genuine issues of material fact remain outstanding, the LLOT defendants are not entitled to summary judgment. The motion will be denied. The court will enter a contemporaneous order consistent with this opinion.

ORDER

And now, June 5, 2001, upon consideration of the motion for summary judgment of defendants LLOT Inc. and Growth Properties Ltd.-LLOT General Partnership, the opposition to it of plaintiff Resource Properties XLIV Inc., in its own right and as successor in interest to Radnor Financial Group Inc. and CoreStates Bank, the respective memoranda, all other matters of record, and in accord with the opinion being filed contemporaneously with this order, it is ordered that the motion for summary judgment is denied.

      . The remaining defendants in the confession action are the Philadelphia Authority for Industrial Development (PAID) and Growth Properties Ltd. The remaining defendants in the subrogation action are Sheridan Associates and Growth.

      . Radnor was the parent corporation of one of the corporate partners of the general partner of Sheridan.

      . The purchase price was limited to the face amount of the notes, plus accrued interest and other sums payable under the notes and the relevant loan documents.

      . This provision found in paragraph 5 of exhibit 8 is referred to as the “release.”

      . CoreStates Bank v. Radnor Fin. Corp., February term 1995, no. 2943 (C.P. Phila.). The complaint filed in the guarantee action has been attached as exhibit 16.

      . As its defense, Radnor asserted that it was relieved of its purchase obligations. Under section 14 of the permanent commitment and section 2(b)(3) of the construction loan agreement, Radnor would not be required to purchase the notes if the net operating income from the property exceeded 1.2 times the debt service on the loans. Radnor contended that this requirement had been met.

      . CoreStates Bank v. Philadelphia Auth. for Indus. Dev., February term 1995, no. 3110 (C.P. Phila.). CoreStates did not seek payment on the third note and mortgage in the foreclosure action.

      . The agreement of sale is dated as of December 31, 1997.

      . Judgment was entered in favor of Resource in the foreclosure action on February 1, 2000 in the amount of $2,211,426.97. Exhibit 24.

      . The court sustained preliminary objections to Resource’s initial complaint in the subrogation action, in response to which Resource filed a satisfactory amended complaint.

      . The “Growth group” is defined as Growth, Growth Services Inc. and G-L. Thus, it is unclear why the release, even if applicable, would bar claims against LLOT.

      . To provide context to the release, the resolution agreement states that “Radnor has asserted that Growth properties is in default under the loan agreement and the notes,” and that the “Growth group has asserted certain defenses and offsets to the defaults asserted by . . . Radnor.” Exhibit 8 at HF, G. The resolution agreement also makes reference to an action brought by Sheridan against Growth Services Inc. Id. at IF.

      . No Pennsylvania case has addressed whether the assignment of contractual rights includes an assignment of causes of action arising from those rights, and there is no consensus among courts in other jurisdictions on this issue. Compare National Reserve Co. of Amer. v. Metropolitan Trust Co. of Cal., 112 P.2d 598, 602 (Cal. 1941) (an unqualified assignment of a contract vests in the assignee the assigned contract and all incidental rights and remedies including “certain ancillary causes of action arising out of the subject of the assignment and accruing before the assignment is made”) and Allianz Life Ins. Co. of N. Amer. v. Riedl, 444 S.E.2d 736, 738 (Ga. 1994) (“[i]n the absence of a contrary intention, an assignment usually passes as incidents all ancillary remedies and rights of action which the assignor had or would have had for the enforcement of the right or chose assigned”) with
        Royal Mort. Corp. v. Federal Deposit Ins. Corp., 20 F. Supp.2d 664, 667-68 (S.D.N.Y. 1998) (“when a party to a loan agreement assigns its contract rights in the agreement, ancillary rights of action that arise out of the agreement are not automatically transferred, but may be assigned as part of the overall agreement”) and Tycon Tower I Inv. Ltd. Partnership v. John Burgee Architects, 651 N.Y.S.2d 637, 639 (N.Y. App. Div. 1996) (assignment of contractual rights did not include assignment of causes of action for fraud or negligent misrepresentation related to those rights). Cf. Phillips v. Bank of Lewiston, 18 Pa. 394 (1852) (assignee is entitled also to all remedies which the assignor had, although they are not specifically mentioned in the assignment).

      . The four other elements of a successful equitable subrogation claim are:
      “(1) The claimant paid the creditor to protect his own interests;
      “(2) The claimant did not act as a volunteer;
      “(3) The claimant was not primarily liable for the debt; and
      “(4) Allowing subrogation will not cause injustice to the rights of others. Tudor Development Group Inc. v. United States Fidelity & Guaranty Co., 968 F.2d 357, 362 (3d Cir. 1992) (citing United States Fidelity & Guaranty Co. v. United Penn Bank, 362 Pa. Super. 440, 524 A.2d 958 (1987)).

      . To the extent that the LLOT defendants argue that Resource’s claims are based on contractual subrogation, as opposed to equitable subrogation, the court notes that Pennsylvania law does not impose a distinction between the two. See Mellon Bank N.A. v. National Union Insurance Co. of Pittsburgh, PA, 768 A.2d 865, 871 (Pa. Super. 2001) (“subrogation is equitable in nature regardless of any applicable contractual language”); Cullen v. Pennsylvania Property and Casualty Insurance Guaranty Association, 760 A.2d 1198, 1200 n.7 (Pa. Commw. 2000) (the principles behind equitable and contractual subrogation are the same).

      . Specifically, neither memorandum cites any case, from Pennsylvania or otherwise, on whether an equitable subrogee’s satisfaction of a debt for the purposes of equitable subrogation is the equivalent of satisfying the debt for confession of judgment purposes.


author: LOUGHRAN, P.J.,

text:
    Mrozek v. Eiter

      C.P. of Westmoreland County,
    no. 5914 of 1998.

      Gary E. Wieczorek, for plaintiff.

      John F. Deasy, for defendant.
    May 3, 2001
   LOUGHRAN, P.J.,

Defendant, David T. Eiter, is a former employee of Disaster Specialists, a contracting business, owned by plaintiffs, Jeffrey Mrozek and Brian Mrozek. On October 2, 1998, Mr. Eiter tendered a letter of resignation to Disaster Specialists verbally informing the Mrozeks that he was going to work for Purofirst of Three Rivers. Eiter began working for Purofirst on or about October 12, 1998. Plaintiffs believed Eiter’s acceptance of the position with Purofirst was in violation of an employment agreement that he had signed with plaintiffs in that the agreement contained a covenant not to compete which prohibited Eiter from performing services for any competitor of Disaster Specialists within a 100-mile radius of Disaster Specialists’ offices for two years after the end of his employment.

Disaster Specialists commenced this action by filing a complaint in equity on October 16, 1998 seeking enforcement of the noncompete provisions of the aforesaid employment agreement along with attorney fees pursuant to the agreement. The complaint was brought against Dave Eiter and Purofirst. Additionally, plaintiffs filed a motion for preliminary injunction seeking an order enjoining Dave Eiter from working for Purofirst.

On October 16, 1998, this court issued an order temporarily barring Eiter from working for Purofirst. On December 11 and December 14,1999, a trial was held in this matter. On February 4, 1999, findings of fact, discussion, conclusions of law and an order were issued. The preliminary injunction was dissolved and Eiter was permitted to work for Purofirst. This court found the noncompete provision was not enforceable and revised the restrictive covenant from a noncompetition clause to a nonsolicitation clause, barring Dave Eiter from soliciting former customers for a period of nine months.

Plaintiffs filed a motion for post-trial relief, which was denied on July 2, 1999. Plaintiffs then filed an appeal with the Superior Court asserting the trial court erred in revising the restrictive covenant from a noncompetition clause to a nonsolicitation clause; in restricting the non-solicitation clause to nine months; and in dismissing defendant Purofirst from the lawsuit.

The Superior Court affirmed the trial court’s decision to revise the noncompete clause to a nonsolicitation clause and in dismissing Purofirst from the lawsuit. However, the. period of nonsolicitation was reinstated to the two years rather than nine months.

After the case was remanded to this court, the plaintiffs asserted a claim for attorney fees against Dave Eiter based on the attorney fee provision contained in the noncompete clause of the employment agreement. On December 13, 2000, this court held an evidentiary hearing and then issued a non-jury verdict awarding plaintiffs $30,384.13 in attorney’s fees and costs.

The defendant has filed a post-trial motion requesting that the verdict be set aside or that the court’s decision be reconsidered. The thrust of defendant’s argument is that the defendant, Dave Eiter, did not breach the agreement between the parties as he offered the plaintiffs exactly what the court ordered and that the bringing of the action was unreasonable as the result offered was what was ordered by the court.

On the specific subject of attorney fees provisions, Pennsylvania appellate courts have made it clear that where the parties have entered into an agreement which contains an attorney fees clause, a court should give affect to that provision if the party bringing the action is successful in demonstrating a breach of the agreement and obtaining relief.

See Creeks v. Creeks, 422 Pa. Super. 432, 619 A.2d 754 (1993).

As suggested by the Superior Court in Creeks, the inquiry into the award of attorney fees in circumstances where there is an attorney fee provision in a contract between the parties, the court need look no further than (1) the language of the attorney fees clause and (2) whether the party seeking fees has prevailed in the underlying lawsuit.

The provision concerning attorney fees in the agreement between the parties contains a clear provision which states:

“Employee acknowledges that any breach of any obligation contained in this agreement is not adequately compensable by money damages, and employee agrees that any such breach shall cause the company irreparable injury for which the company shall be entitled to a preliminary injunction and temporary restraining order. In any action concerning an alleged breach by employee of any obligation in this agreement, irrespective of the requested remedy the company shall be entitled to reasonable counsel fees and costs of suit from the employee.” (emphasis supplied)

After hearing testimony and taking in evidence at the final injunction hearing on December 11 and 14, 1998, this court on February 4, 1999, issued an order and decree nisi which modified the breadth of the noncompetition clause to a “nonsolicitation” clause, i.e., a clause that, rather than barring Eiter from employment with a competitor of Disaster Specialists within the radius identified in the agreement, prevented Eiter from contacting or soliciting business from clients or referral sources of Disaster Specialists. The court further modified the length of time that the noncompetition provision would be in place, from two years to nine months.

On appeal, the Superior Court affirmed this court’s decision but found that the evidence presented did not support the modification of the duration of the noncompetition period to nine months. The Superior Court found that the two-year duration of the noncompetition agreement was reasonable, and that this court should have enforced the two-year provision as written.

Eiter argues that Disaster Specialists did not prevail because this court and the Superior Court enforced the agreement only as a nonsolicitation clause, as opposed to a blanket noncompetition clause and as such, there is no breach of the agreement as is required by the attorney fee provision.

In opting to order more narrow relief than that requested by Disaster Specialists, this court was simply tailoring the remedy it was willing to provide. By no means did this court’s order constitute a finding that the underlying claim was in any way infirm. As crafted in the complaint, Disaster Specialists’ claim was for breach of contract, specifically the breach of the noncompetition clause. Clearly, because the court issued relief in some form, Disaster Specialists was successful in proving the elements of a breach of contract. Although the equitable remedy fashioned by this court did not reflect precisely what Disaster Specialists was seeking in the complaint, relief nevertheless was imposed. The nonsolicitation order was based upon Disaster Specialists’ establishment of a valid contract and the breach of that contract by Eiter. Tellingly, Disaster Specialists’ position as the prevailing party in this matter is bolstered by the fact that, on appeal, the Superior Court upheld the time period for the noncompetition provision set forth in the agreement.

The Pennsylvania case law as discussed mandates that the award of attorney fees should be enforced as written if they are clear and unambiguous in an agreement. Here, Disaster Specialists presented a clear and unambiguous clause permitting the award of attorney fees, and was the prevailing party. Accordingly, this court committed no error in granting Disaster Specialists’ motion for recovery of attorney fees and awarding Disaster Specialists fees in the amount of $30,384.13.

The defendant argues that the award of attorney fees is unreasonable in that plaintiffs, attorneys blocked billed and plaintiffs’ counsel could not separate or determine how much time was spent on legal tasks attributable specifically between the two defendants. Defense counsel argues that without sufficient preservation of the actual time spent on particular tasks, there could be no meaningful examination of the total time spent by plaintiffs’ counsel. As such, defendant argues, the evidence is insufficient to support the verdict and an entry of judgment n.o.v. should be entered in favor of the defendant.

In the opinion of this court, the reasonableness of the time spent and the reasonableness of the fees claimed were not in question. There was ample testimony to support the time and fees given by Attorney Wieczorek, who was plaintiff’s trial counsel and oversaw the work of all lawyers and paraprofessionals.

Wieczorek testified that, in a preliminary injunction case such as the action against Eiter, time periods are compressed. Discovery takes place in a very short time period, as does trial preparation. More personnel — lawyers, paraprofessionals — -are therefore needed to accomplish this variety of tasks during this relatively short period of time than might otherwise be used in the typical damages litigation. This will drive the cost of the litigation up.

The fees being claimed by Disaster Specialists were generated by the types of tasks involved in any preliminary injunction: investigating the factual background, drafting and filing the pleadings, discovery, trial preparation, trial, the preparation of briefs and legal memoranda, the filing of proposed findings of fact and conclusions of law, and the drafting and filing of a post-trial motion and briefs, as well as argument on those briefs. Disaster Specialists also filed a successful appeal to the Superior Court.

Wieczorek testified that lawyers and paraprofessionals at Tucker Arensberg P.C. keep their time in tenths of an hour increments; that time sheets are turned in daily to secretaries for processing; and that they review it again before it is finally computed. Wieczorek, as responsible attorney on the file, would review all time, and would, where warranted, reduce the time charged to the client if he believed that a lawyer or paraprofessional took an unreasonable amount of time to perform a certain task. In Wieczorek’s estimation and experience, the time charged and billed was reasonable and necessary.

What troubled this court was the inability to separate the fees generated by the claims against Eiter and those against Purofirst. To reach an equitable result this court reduced the amount of fees claimed by one half to give the benefit of doubt to Eiter. Accordingly, no merit is found in defendant’s argument on this issue and defendant’s post-trial motion will be denied.

ORDER

And now, to wit, May 3, 2001, after review and careful consideration of the within matter, it is hereby ordered, adjudged and decreed that the motion of the defendant, David T. Eiter, for post-trial relief is hereby denied and this court’s verdict and award of December 13,2000 in the amount of $30,384.13 is hereby affirmed.