Jewelcor Inc. v. Karfunkel , 515 F.3d 203 ( 2008 )

Opinions of the United
2008 Decisions States Court of Appeals
for the Third Circuit
2-11-2008
Jewelcor Inc v. Karfunkel
Precedential or Non-Precedential: Precedential
Docket No. 05-2244
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS FOR THE
THIRD CIRCUIT
Nos. 05-2244, 05-4121 & 06-4003
JEWELCOR INCORPORATED;
JEWELCOR JEWELERS AND DISTRIBUTORS, INC.;
MARKETING OF JEWEL SERVICES CORP.,
Appellants in No. 05-4121
v.
MICHAEL KARFUNKEL; GEORGE KARFUNKEL;
M & G EQUITIES; THE SALVATION ARMY
MICHAEL KARFUNKEL and GEORGE KARFUNKEL,
individually and as partners trading as
M & G Equities,
Appellants in No. 05-2244 & 06-4003
On Appeal from the United States District Court
for the Middle District of Pennsylvania
(D.C. No. 3:99-cv-1251)
District Judge: Honorable William J. Nealon
Argued June 28, 2007
Before: SMITH and GREENBERG, Circuit Judges, and
POLLAK,* District Judge
(Filed: February 11, 2008)
Robert C. Nowalis, Esquire
Doran, Nowalis & Doran
69 Public Square,
700 Northeastern Bank Building
Wilkes-Barre, PA 18701
Attorney for Michael Karfunkel and George Karfunkel
George A. Reihner, Esquire
Geff Blake, Esquire
Wright & Reihner, P.C.
148 Adams Avenue
Scranton, PA 18503
Attorneys for Jewelcor Inc, Jewelcor Jewelers and
Distributors, Inc. and Marketing Jewel Services Corp
*
Hon. Louis H. Pollak, Senior Judge, United States
District Court for the Eastern District of Pennsylvania, sitting by
designation.
2
OPINION OF THE COURT
____
POLLAK, District Judge
Appellants Michael and George Karfunkel, individually
and as partners trading as M & G Equities (collectively referred
to herein as “M & G”), appeal orders of the District Court
denying M & G’s motion to dismiss a breach-of-lease claim
brought by appellees, Jewelcor Incorporated et. al. (“Jewelcor”),
awarding judgment in favor of Jewelcor, and granting Jewelcor
attorneys’ fees. The District Court had diversity jurisdiction
over this action under 28 U.S.C. § 1332 and this court holds
jurisdiction pursuant to 28 U.S.C. § 1291. Appellants argue that
the District Court erred in denying its motion to dismiss the
breach-of-lease claim as time-barred by the Pennsylvania statute
of limitations. For reasons explained herein, we find in
appellants’ favor and will reverse the District Court’s orders.
I.
The case arises out of a sale-leaseback contract for a
commercial property. Jewelcor entered into the contract in 1979
as the lessee. In 1989, M & G purchased the original lessor’s
interest in the property, assuming the conditions of the 1976
lease.
3
In October 1990, Jewelcor filed for Chapter 11
bankruptcy. In August 1991, M & G changed the locks on the
property. Jewelcor initiated a suit against M & G seeking
damages for breach of lease and unjust enrichment owing, in
part, to this changing of locks. The complaint for that suit was
filed in federal bankruptcy court in November 1994 and
amended in October 1996. On February 9, 1999, the
Bankruptcy Court dismissed Jewelcor’s claims for lack of
jurisdiction.
On July 15, 1999, Jewelcor initiated the instant action by
filing, in the District Court, a complaint the District Court found
to be “substantially similar” to the amended complaint it filed
with the Bankruptcy Court in October 1996. On February 22,
2000, the District Court, considering a motion to dismiss filed
by M & G, dismissed some, but not all, of Jewelcor’s claims.
Jewelcor pursued one of the remaining breach-of-lease claims,
Count I of its complaint, based on the August 1991 change of
locks. The District Court entered judgment in Jewelcor’s favor
on March 22, 2005, and, on August 24, 2006, awarded Jewelcor
attorneys’ fees. 1 M & G now appeals, contending that the
District Court erred in denying M & G’s motion to dismiss
Count I because the breach-of-lease claim was time-barred by
1
In the same order, the District Court denied Jewelcor’s
motion for prejudgment interest. Jewelcor’s cross-appeal of this
issue, because we find in appellant’s favor, is moot.
4
the statute of limitations.2
II.
The action underlying Jewelcor’s breach-of-lease claim
occurred in August 1991. Jewelcor argues that the limitations
period for its claim is four years, as provided by 42 Pa. Cons.
Stat. § 5525(8). Four years had elapsed by the time Jewelcor
initiated the instant suit in July 1999. However, the District
Court concluded that Pennsylvania’s “savings statute,” 42 Pa.
Const. Stat. § 5535(a),3 preserves the claim in a federal forum.
2
M & G also raises seven other issues on appeal, which
this court need not reach.
3
The statute provides that:
(1) If a civil action or proceeding is timely
commenced and is terminated, a party, or his
successor in interest, may, notwithstanding any
other provision of this subchapter, commence a
new action or proceeding upon the same cause of
action within one year after the termination and
any other party may interpose any defense or
claim which might have been interposed in the
original action or proceeding.
(2) Paragraph (1) does not apply to:
5
As the District Court recognized, § 5535(a) does not
preserve time-barred claims in a Pennsylvania state court if they
were first commenced in a federal court. The statute provides
that “[i]f a civil action or proceeding is timely commenced and
is terminated, a party . . . may,” regardless of whether the statute
of limitations has run, “commence a new action or proceeding
upon the same cause of action within one year after the
termination.” 42 Pa. Const. Stat. § 5535(a). Though this
language is general in scope, Pennsylvania appellate courts
interpret the provision to apply only when a civil action is
commenced in and terminated by a Pennsylvania state court.
A year before the enactment of § 5535(a), the Superior
Court of Pennsylvania opined:
(i) An action to recover damages
for injury to the person or for the
death of an individual caused by the
wrongful act or neglect or unlawful
violence or negligence of another.
(ii) An action or proceeding
terminated by a voluntary nonsuit,
a discontinuance, a dismissal for
neglect to prosecute the action or
proceeding, or a final judgment
upon the merits.
42 Pa. Const. Stat. § 5535(a).
6
An action in state court does not toll the running
of the statute of limitations against subsequent
action in federal court. . . . And, similarly, an
action in one state does not toll the running of the
statute in another state. Therefore it would be
inconsistent and unreasonable to toll the running
of the statute of limitations against a cause of
action in state court on the basis of an action in
federal court.
Royal-Globe Insurance Co. v. Hauck Manufacturing Co., 335
A.2d 460, 462 (Pa. Super. Ct. 1975). The Commonwealth Court
makes clear that this holding trumps § 5535(a). See Maxwell
Downs v. City of Philadelphia, 638 A.2d 473 (Pa. Commonw.
Ct. 1994).
In Maxwell Downs, plaintiff filed a § 1983 action in
federal court within the applicable statute of limitations period.
The federal suit was dismissed on non-merits grounds. Fewer
than two months later, after the statute of limitations on the
claim had run, plaintiff re-filed its § 1983 action in the Court of
Common Pleas. That court dismissed the suit as time-barred.
Affirming this decision, the Commonwealth Court rejected the
argument that § 5535(a) superceded Royal Globe. The court in
Maxwell Downs wrote that, after § 5535(a) went into effect, the
Commonwealth Court “decided Skehan v. Bloomsburg State
College . . . . Skehan, relying on . . . language from Royal-Globe,
held that ‘federal actions did not toll the running of the statute
of limitations on actions subsequently brought in a state court.’”
7
Maxwell Downs, 638 A.2d at 486 (quoting Skehan v.
Bloomsburg State College, 503 A.2d 1000, 1005 (Pa.
Commonw. Ct. 1986).
Appellant argues that, in a diversity action, a federal
court does not have authority to afford a recovery that would be
unavailable in state court. The District Court rejected this
argument, stating that, “[w]hile [M & G’s] recitation of
Pennsylvania State law is correct, it does not follow that in
diversity actions this court must be viewed as a State Court and,
in effect, a separate jurisdiction from U.S. Bankruptcy Court.”
The District Court then held that, while Pennsylvania case law
would preclude Jewelcor from raising its time-barred claim in
a state court, § 5535(a) nonetheless preserves the claim in a
federal court.
III.
We agree with the District Court’s conclusion that, under
Pennsylvania case law, § 5535(a) does not preserve Jewelcor’s
claim in a state court.4 But we cannot accept its determination
4
The Supreme Court of Pennsylvania — which has not
yet interpreted the scope of the Pennsylvania savings statute —
could arguably conclude that the court in Maxwell Downs
developed an overdrawn view of the statute’s scope. However,
while the Supreme Court may ultimately reject the
Commonwealth Court’s holding in Maxwell Downs, we do not
8
that the claim is nonetheless preserved in a federal court. In
denying M & G’s motion to dismiss, the District Court expressly
rejected the principle that, when sitting in diversity, a federal
court treats itself, for jurisdictional purposes, as a state court.
However, Erie v. Tompkins, 304 U.S. 64 (1938), requires
feel that we are in a position to do so on its behalf. In diversity
cases, “where the applicable rule of decision is the state law, it
is the duty of the federal court to ascertain and apply that law,
even though it has not been expounded by the highest court of
the state.” Commonwealth of Pennsylvania v. Brown, 373 F.2d
771, 777 (3d Cir. 1967). Accordingly, “we must forecast the
position the supreme court of the forum would take on the
issue.” Clark v. Modern Group Ltd., 9 F.3d 321, 326
(3d Cir. 1993). In developing this forecast, “[a]lthough not
dispositive, decisions of state intermediate appellate courts
should be accorded significant weight in the absence of an
indication that the highest state court would rule otherwise.”
City of Philadelphia v. Lead Industries Ass'n, Inc., 994 F.2d
112, 123 (3d Cir. 1993). This standard places a significant
constraint on us: “Although we are not bound in a diversity case
to follow decisions of a state intermediate appellate court,
. . . such decisions are not to be disregarded by a federal court
unless it is convinced by other persuasive data that the highest
court of the state would decide otherwise.” Northern Insurance
Co. of New York v. Aardvark Associates, Inc., 942 F.2d 189, 193
(3d Cir. 1991). We believe that we lack such “persuasive data,”
and consequently hold that Maxwell Downs provides our best
guidance on how the Supreme Court of Pennsylvania would
interpret the savings statute.
9
uniformity of results between state courts and federal courts
sitting in diversity. Interpreting Erie, the Supreme Court stated
that:
In essence, the intent of that decision was to
insure that, in all cases where a federal court is
exercising jurisdiction solely because of the
diversity of citizenship of the parties, the outcome
of the litigation in the federal court should be
substantially the same, so far as legal rules
determine the outcome of a litigation, as it would
be if tried in a State court.
Guaranty Trust Co. v. York, 326 U.S. 99, 109 (1944). The
District Court’s conclusion is thus in tension with Erie’s
mandate that “[w]e cannot give [the cause of action] longer life
in the federal court than it would have had in the state court
without adding something to the cause of action.” Ragan v.
Merchants Transfer & Warehouse Co., 337 U.S. 530, 533-34
(1949). Accordingly, we hold that, since the Pennsylvania
savings statute would not permit Jewelcor to pursue its time-
barred claim in a state court, the statute cannot preserve the
claim in a federal court.
IV.
For the foregoing reasons, we reverse in part the District
Court’s order of February 22, 2000 denying appellants’ motion
to dismiss Count I of Jewelcor’s claims, vacate the District
10
Court’s subsequent orders, and remand with instructions to enter
judgment in favor of Michael Karfunkel and George Karfunkel,
individually, and as partners trading as M & G Equities, Inc.
Jewelcor Inc. v. Karfunkel, Nos. 05-2244, 05-4121, 06-4003
SMITH, Circuit Judge, dissenting.
As the majority recognizes, we are bound by Erie R. Co.
v. Tompkins to apply Pennsylvania’s law regarding its statutes
of limitations so that the outcome here will be the same as if the
action had proceeded in a state court. Guaranty Trust Co. v.
York, 326 U.S. 99, 109 (1944) (discussing Erie, 304 U.S. 64
(1938)). Because Pennsylvania’s Supreme Court has yet to
interpret the scope of its savings statute, 42 Pa.Cons.Stat.
§ 5535(a), we must predict how that Court would apply the
statute in this case. The majority concludes that the
Pennsylvania Supreme Court would hold that § 5535(a) does not
preserve Jewelcor’s subsequent untimely federal claim because
one of Pennsylvania’s intermediate appellate courts “makes
clear” that a time-bar “trumps § 5535(a).” Maj. op. at 7
(discussing Maxwell Downs, Inc. v. City of Philadelphia, 638
A.2d 473 (Pa. Commw. Ct. 1994)). I cannot agree. I believe
11
that the majority’s prediction of how the Pennsylvania Supreme
Court would interpret 42 Pa.Cons.Stat. § 5535(a) in this case
mistakenly relies on authority from an intermediate appellate
court that never applied § 5535(a) as a savings provision. In the
absence of a decision by a Pennsylvania appellate court
addressing the scope of § 5535(a), I read the plain text of the
statute to require its application here, thereby preserving
Jewelcor’s breach-of-lease claim.
There is a difference between the tolling of a statute of
limitations and the operation of a savings provision. Tolling
involves the suspension of the statute of limitations, thereby
extending or lengthening the period of time in which an action
may be commenced. As we recognized in Stinson v. Kaiser
Gypsum Co., 972 F.2d 59 (3d Cir. 1992), however, a savings
provision like § 5535 allows a “timely filed action dismissed
after the limitations period” to be refiled if the dismissal was
based on certain grounds. Id. at 62.
As the majority points out, Royal-Globe Ins. Co. v.
Hauck Mfg. Co., 335 A.2d 460 (Pa. Super. Ct. 1975), held that
the commencement of a federal court action did not toll the
statute of limitations for a subsequent state court action. Id. at
462. Inasmuch as Royal-Globe predated the enactment of §
5535, that decision concerned only the issue of tolling and had
no occasion to apply the savings provision. Royal-Globe
acknowledged, however, that there was a distinction between
the tolling of the statute of limitations and the operation of a
12
savings provision. It explained that the principle behind its
holding had been accepted by the federal courts since the turn of
the century, and quoted Willard v. Wood, 164 U.S. 502, 523
(1896), which instructed:
The general rule in respect of limitations must
also be borne in mind, that if a plaintiff mistakes
his remedy, in the absence of any statutory
provision saving his right, or where, from any
cause, a plaintiff becomes nonsuit, or the action
abates or is dismissed, and, during the pendency
of the action, the limitation runs, the remedy is
barred.
Royal Globe, 335 A.2d at 462 (quoting Willard, 164 U.S. at
523) (omitting internal quotation marks and citations) (emphasis
added); see also Stinson, 972 F.2d at 62 (noting that “if a timely
filed action is dismissed after the limitations period . . . has run,
a new action on the same claim is time barred unless a
limitations savings statute provides otherwise”) (emphasis
added).
In Skehan v. Bloomsburg State College, 503 A.2d 1000
(Pa. Commw. Ct. 1986), the Pennsylvania Commonwealth Court
considered whether a federal district court action tolled a
subsequent state court action. The Court applied Royal Globe
and declared that the earlier federal court action, which had been
resolved on the merits, did not toll the limitations period for the
state court action. 503 A.2d at 1005. In deciding the tolling
13
issue, the Court did not address the applicability of
Pennsylvania’s savings provision. Indeed, it could not have
done so because the statute explicitly provides that the savings
provision is inapplicable to an action terminated by “a final
judgment upon the merits.” 42 Pa.Cons.Stat. § 5535(a)(2)(ii).
Subsequently, in Maxwell Downs, Inc. v. City of
Philadelphia, 638 A.2d 473 (Pa. Commw. Ct. 1994), the
Pennsylvania Commonwealth Court merely came close to
addressing the scope of § 5535(a)’s applicability. In that case,
the plaintiff argued that its earlier timely federal action tolled the
statute of limitations for its latter untimely state court action
consistent with § 5535. The plaintiff failed to distinguish
between tolling and the operation of the savings provision,
conflating the two concepts and arguing that Royal Globe was
not controlling because it predated § 5535's “‘tolling’
provision,” which was enacted in 1976. 638 A.2d at 476. The
Court summarily rejected the plaintiff’s argument that his
federal court action had tolled his state court action. It
explained that, despite § 5535's enactment, Royal Globe had
been applied in 1986 in Skehan to render the second state court
action untimely. Whether the second state court action, even
though it was untimely because there had never been any tolling,
could still proceed by virtue of the operation of § 5535(a) as a
savings provision was neither argued by the plaintiff nor
considered by the Maxwell Downs’ Court.
14
Because Maxwell Downs never addressed whether a
subsequent untimely federal action could be preserved and saved
under § 5535(a), instead of tolled, and mindful that the
Pennsylvania Superior Court recognized in Royal Globe the
distinction between the operation of a savings statute and the
tolling of a limitations period, I do not believe that Maxwell
Downs can bear the weight accorded it by the majority. In the
absence, then, of any decision by a Pennsylvania Court
addressing the scope of § 5535(a) in saving a subsequent
untimely action, I would predict how the Pennsylvania Supreme
Court would interpret § 5535's applicability here by recourse to
the plain text of the statute. Walker v. Eleby, 842 A.2d 389, 400
(Pa. 2004) (reiterating that “[t]he clearest indication of
legislative intent is generally the plain language of a statute”);
see also 1 Pa.Cons.Stat. § 1921.
Section 5535(a) specifically states, in relevant part, that
“ [i]f a civil action or proceeding is timely commenced and is
terminated, a party . . . may, notwithstanding any other provision
of this subchapter, commence a new action or proceeding upon
the same cause of action within one year after the termination .
. . .” The subchapter referenced is subchapter B, which
establishes the limitation periods in Pennsylvania for various
civil causes of action. Compare Title 42 Pa.Cons.Stat.
Subchapter A, §§ 5501–5505 (establishing “General
Provisions’), with Title 42 Pa.Cons.Stat., Subchapter B, §§
5521–5538 (pertaining to “Civil Actions and Proceedings”).
Thus, the plain text of the statute contemplates that it may be
15
applied to preserve the vitality of a subsequent action even
though that action may otherwise be time-barred by a limitations
period set forth in subchapter B. The viability of the subsequent
action, however, is not dependent upon the forum in which the
original proceeding was initiated, as the majority concludes.
Indeed, the statutory text is devoid of any limitation based on the
forum of the initial action. Consistent with the plain text of §
5535(a), I submit that § 5535(a) was appropriately applied in
this case, albeit for reasons other than those articulated by the
District Court. Accordingly, in my view the breach-of-lease
claim refiled in the District Court was viable, even though time-
barred.5
I respectfully dissent.
5
Because I have concluded that Jewelcor’s breach-of-
lease action in the District Court was saved by virtue of §
5535(a), I have considered the other arguments pressed by M &
G, but believe them to lack merit. I would also reject Jewelcor’s
contention that the District Court improperly denied its claim for
prejudgment interest as the motion was in fact untimely under
Federal Rule of Civil Procedure 59(e).
16