City of Farrell v. Wesex Corp. ( 2016 )

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
City of Farrell, :
Appellant :
:
v. : No. 840 C.D. 2015
: Submitted: January 29, 2016
Wesex Corporation :
BEFORE: HONORABLE P. KEVIN BROBSON, Judge
HONORABLE PATRICIA A. McCULLOUGH, Judge
HONORABLE DAN PELLEGRINI, Senior Judge
OPINION NOT REPORTED
MEMORANDUM OPINION
BY JUDGE BROBSON FILED: March 15, 2016
Appellant City of Farrell (City) appeals from a final order of the Court
of Common Pleas of Mercer County (trial court), dated February 18, 2015,
directing the entry of a judgment of non pros against the City, relating to the City’s
three-count Complaint concerning the alleged failure of appellee Wesex
Corporation (Wesex) to pay its alleged mortgage obligations to the City. The City
challenges the entry of a judgment of non pros and the trial court’s earlier order,
dated February 16, 2007, sustaining a preliminary objection Wesex filed to
Count II of the Complaint, which claimed that Wesex acted fraudulently with
regard to the mortgage payments it allegedly owed the City. We vacate the trial
court’s February 18, 2015 final order and remand the matter to the trial court for
further proceedings.
On or about August 9, 2006, the City filed a Complaint against
Wesex. The Complaint included the following factual averments. In 1991, Sharon
Steel Corporation (Sharon Steel) constructed and/or completed a three-story office
building in the City. The City, a non-profit development corporation, and the City
of Sharon provided public loans for the project. Of a total of $1,370,000 in loans,
the City lent Sharon Steel $800,000. All of the loans were secured through
mortgages. Wesex was the construction contractor that erected the building.
Wesex claimed that in order to complete the building, it needed additional funds,
and Sharon Steel entered into a mortgage arrangement with Wesex, which created
an $84,000 subordinate lien interest in favor of Wesex. Sharon Steel later filed a
voluntary bankruptcy petition in the United States Bankruptcy Court for the
Western District of Pennsylvania. At that time, Sharon Steel was in default of the
terms of the three public-body mortgages, but the bankruptcy proceedings stayed
foreclosure proceedings. When the building was released from the jurisdiction of
the bankruptcy court, Wesex and the three public lenders entered into a novation,
whereby the lenders would forego foreclosure proceedings and Wesex would
acquire title to the building and satisfy the loans, including past-due interest
amounts and late charges.
In 2004, Wesex advised the City that it intended to convey the
property and requested confirmation of the amount still owed to the City. The
City, however, could not locate documentation that would reveal that amount. At
the time that Wesex contacted the City for confirmation of the amount due, Wesex
had possession of a 1996 communication directed to Wesex’s Certified Public
Accountant, describing the amount it owed on the loan. Wesex “feigned ignorance
of its Proposal intending to mislead [the City] to accept a sum substantially less
than what [Wesex] knew or should have known was due [the City].” (Reproduced
Record (R.R.) at 12a.) On October 11, 2005, Wesex sent a letter to the City
2
Council “again fraudulently” representing that the parties had to agree to a final
payoff amount because no documentation was available to determine the actual
payoff amount. (R.R. at 13a.)1 Based upon these factual allegations, the City
sought damages based upon three causes of action: (1) breach of contract
(Count I); (2) fraud (Count II); and (3) unjust enrichment (Count III).
Wesex filed preliminary objections to the Complaint, and the trial
court, by the order dated February 16, 2007, sustained the objection to Count II.
Thereafter, Wesex filed an answer to the Complaint, new matter, and a
counterclaim. In the counterclaim, Wesex asserted that the agreement it had with
the City regarding the building limited the City’s recourse to foreclosure
proceedings, and that the City, by initiating the claims in the Complaint, breached
the agreement. Wesex asserted that it has and will incur litigation costs as a result
of the alleged breach. The City filed preliminary objections to the counterclaim,
which the trial court sustained.
1
In its opinion addressing the preliminary objections, the trial court summarized the key
factual allegations as follows:
[The City] avers . . . that city employees were unable to find any
paperwork on this transaction (though they did know that [Wesex]
paid $4,660.94 every month on the mortgage). [The City] also
contends that it elected to rely upon [Wesex]’s alleged
representations that the $800,000 mortgage, which was only in its
tenth year of repayment, had a current balance of approximately
$84,000. [Wesex] paid this amount and [the City] satisfied the
mortgage. [The City] apparently learned of the financial
discrepancies in 2006, and demanded payment for the deficiencies
now alleged to be $519,207.30, plus interest. [The City] initiated
the present suit when [Wesex] refused to pay more on a mortgage
already satisfied.
(R.R. at 278a-79a.)
3
The parties engaged in discovery during 2008 and 2009. On
April 15, 2014, the City filed a notice to complete discovery pursuant to local
practice. On May 9, 2014, Wesex filed a motion for entry of a judgment of
non pros against the City. The City and Wesex filed briefs respectively opposing
and supporting the motion. Those briefs are not part of the record.
Our Supreme Court has held that “[t]he question of granting a
non pros due to the failure of the plaintiff to prosecute his action within a
reasonable time rests within the discretion of the trial court and will not be
disturbed absent an abuse of discretion.” Jacobs v. Halloran, 710 A.2d 1098, 1101
(Pa. 1998). In Jacobs, our Supreme Court re-affirmed the non pros standard
developed in James Brothers Lumber Company v. Union Banking and Trust
Company of DuBois, 247 A.2d 587 (Pa. 1968):
The effect of our decision today is to return to the
three part test of James Brothers. To dismiss a case for
inactivity pursuant to a defendant’s motion for non pros
there must first be a lack of due diligence on the part of
the plaintiff in failing to proceed with reasonable
promptitude. Second, the plaintiff must have no
compelling reason for the delay. Finally, the delay must
cause actual prejudice to the defendant. As always, this
determination is to be made by the trial court, whose
decision will not be disturbed absent an abuse of
discretion.
Jacobs, 710 A.2d at 1103 (footnote omitted; emphasis in original).2
2
The question before the Court in Jacobs was whether the proper standard to be applied
with regard to the prejudice prong of the non pros test permitted the application of a presumption
of prejudice. As indicated by the emphasized text, the Supreme Court concluded that a
defendant must demonstrate actual prejudice as a result in the delay of prosecuting a complaint.
4
In this matter, on July 7, 2014, the trial court issued an order
providing the parties with time to prepare a joint record and/or stipulations of fact
“to address the question of whether the delay caused actual prejudice to [Wesex].
Either party may schedule an evidentiary hearing if necessary.” (R.R. at 94a;
emphasis added.) The order did not mention the first or second prong of the non
pros analysis—i.e., whether the City acted with a lack of due diligence and
whether the City had compelling reasons to delay its prosecution of the Complaint.
On November 3, 2014, in accordance with the trial court’s order, the
parties submitted a joint stipulation of facts, which did not relate to the first or
second non pros prongs. (R.R. at 109a-12a.) On the same date, Wesex filed a
praecipe for evidentiary hearing. (R.R. at 105a.) In the praecipe, Wesex indicated
that although the joint stipulation resolved some issues pertinent to the non pros
motion, a hearing was necessary in order for Wesex to demonstrate that the City’s
delay in prosecuting its Complaint prejudiced Wesex. On January 29, 2015, the
trial court held a hearing on the prejudice prong of the non pros motion.
On February 18, 2015, the trial court issued its order granting
Wesex’s motion for judgment of non pros, providing that the City’s failure to
pursue its claim between September 2009 and April 2014 constituted “a lack of
due diligence to proceed with reasonable promptness which occurred without any
compelling reason” and that the inaction “caused substantial prejudice to the ability
of [Wesex] to defend this matter.” (R.R. at 114a.) Thereafter, the City filed a
notice of appeal, and the trial court directed the City to file a statement of errors
complained of on appeal.
In its statement of errors complained of on appeal, the City asserted
that the trial court erred in entering judgment of non pros, contending that:
5
(1) evidence of record did not support the trial court’s finding of substantial
prejudice to Wesex based on the City’s delay in prosecuting its Complaint; (2) the
City was not provided an opportunity to offer evidence to demonstrate that it had
compelling reasons for its failure to prosecute its Complaint for more than four
years because the trial court’s orders concerning the evidentiary hearing provided
only for the issue of whether the delay prejudiced Wesex; and (3) the trial court
erred in sustaining the preliminary objection Wesex filed to the City’s fraud claim
(Count II).
On April 16, 2015, the trial court issued an opinion in accordance with
Pa. R.A.P. 1925. The trial court only addressed the City’s second claim of error—
i.e., that the trial court failed to provide the City with an opportunity to make an
evidentiary record to support its claim that it acted with due diligence and had
compelling reasons why it delayed the prosecution of its Complaint. The trial
court noted that it was not until the City filed its statement of errors complained of
on appeal that it became aware that the City wanted to have an evidentiary hearing
on the issues. (R.R. at 280a-81a.) The trial court, nonetheless, concluded in its
opinion that the City had been denied due process and that, consequently, the trial
court entered its February 18, 2015 order in error with regard to the first and
second prongs of the non pros standard. Specifically, the trial court expressed:3
1. The Court Orders leading up to the January 29, 2015
evidentiary hearing do limit the focus of the hearing to
the actual prejudice prong of the non-pros test.
3
One consideration the City apparently mentioned is its status as a distressed
municipality under the Municipalities Financial Recovery Act, Act of July 10, 1987, P.L. 246, as
amended, 53 P.S. §§ 11701.101-.712, also known and referred to hereafter as Act 47.
6
2. Based upon those Orders, it is reasonable to believe
that the parties would have been prepared to address the
actual prejudice prong only.
3. The comments and discussions between the trial court
and [the City]’s attorney indicate clearly that [the City]
desired to develop the record to establish due diligence
and compelling reasons for the delay, but correctly
believed that the January 29, 2015 hearing had a limited
focus:
THE COURT: So today is an opportunity for
[Wesex] to present any evidence that you might
have in support of your motion [for Judgment of
Non Pros]. Tr. A p.4 . . . .
[AT THE END OF THE HEARING.] THE
COURT: As I understand it here, the issue is the
degree of prejudice, if any, to [Wesex] on that
last prong of the test. Is that what the Court is to
focus on here?
MR. MALLOY: That is my understanding here.
Mr. ACKER: That is my understanding of the
order.
(R.R. at 281a-82a.)
The trial court noted the following discussion in support of its finding
that the City intended to develop the record in the future:
THE COURT: I didn’t hear any testimony about the
consequences of [the City] being in Act 47. Are there
any stipulations of fact that address that . . . ?
MR. MIRIZIO: We didn’t—we didn’t think that was one
of the issues. The couple prior court orders appear to
specifically limit it to actual prejudice, which is a third
prong, not the first two prongs. I mean, I don’t think
there is a debate. The Court can certainly take judicial
notice of Act 47 during the totality of this period.
THE COURT: Well, that wasn’t my problem. It was
more the implications that might have been in Mr.
Mirizio’s brief at one point that because of Act 47 status
they had limited funds, limited control over what they
7
could use their funds for, as an example, the forensic
accountant that they claim they needed to build their
case, I guess, and that the argument was it took us years
to be able to afford that. And I haven’t heard any
evidence on it, and there is no stipulation on it; right?
MR. ACKER: I didn’t think it was part of the scope of
today’s hearing. The two prior orders clearly indicate the
scope is actual prejudice.
THE COURT: Okay.
(R.R. at 246a-47a.) The trial court commented that, at the time it rendered its order
granting judgment of non pros, it did not have the transcript from the hearing and
did not recall the colloquy quoted above when it ruled on the motion and on the
issues of due diligence and compelling reasons for delay. (R.R. at 282a-83a.) The
trial court was persuaded that it had been unfair to decide the matter before
offering the City a hearing opportunity, noting that the colloquy showed that:
(1) the City believed the scope of the hearing was to be limited to prejudice to
Wesex as a result of the delay; and (2) “[the City] intended to develop the record
further after the Court ruled on the actual prejudice prong.” (R.R. at 282a.) Based
upon this reasoning, the trial court recommended that this Court remand the matter
for the development of a record pertaining to the first and second non pros
elements.
On appeal, the City raises the following questions: (1) whether the
trial court abused its discretion in granting the non pros judgment where no hearing
was conducted regarding the first two prongs of the non pros test—elements for
which a plaintiff bears the burden of proof; (2) whether the trial court erred in
concluding that Wesex suffered prejudice from the City’s delay in prosecuting its
Complaint; and (3) whether the trial court erred in sustaining the preliminary
objection to the City’s fraud claim. We begin by addressing the City’s claim that
8
the trial court abused its discretion in granting the non pros judgment without first
offering the City a hearing regarding the first two prongs of the non pros test.
In its brief, the City relies upon the trial court’s rationale regarding the
City’s intention to offer evidence. In response, Wesex presents two arguments:
(1) the City did not raise the question of its right to an evidentiary hearing before
the trial court issued its order, and, thus, the City waived the issue; and (2) even if
the City did not waive the issue, its asserted reasons for not prosecuting its
Complaint in a timely manner—i.e., its status as a distressed municipality under
Act 47 and lack of funds to pay for a forensic expert—do not excuse its lack of due
diligence and do not constitute compelling reasons for the delay.
We first address the City’s argument that the trial court abused its
discretion in failing to provide a hearing opportunity and Wesex’s responsive
argument that the City waived the right to a hearing. As the trial court implicitly
acknowledged, the trial court set the stage for the hearing on the prejudice prong
and the limitation of the hearing to that issue. Under the circumstances, as
reflected in the record, the City could not reasonably anticipate that the trial court
would conduct a hearing limited to the prejudice prong and immediately thereafter
issue an order addressing the other non pros elements and grant the non pros
motion, without also offering the City a similar opportunity to flesh out the issues
of due diligence and compelling reasons for delay.
The City participated in the first hearing, assuming, based upon the
trial court’s earlier orders, that the other prongs would not be addressed at that
time. It was reasonable for the City to believe that the trial court might conduct
subsequent hearings on those other issues, if necessary. If the trial court had
determined that no prejudice occurred, then the inquiry for the trial court would
9
have been over and it could have issued an order denying the motion for non pros.
Although the City appeared somewhat flummoxed during the hearing when
questioned by the trial court regarding evidence concerning due diligence and the
compelling reasons prongs of the non pros analysis, this too may be explained by
the limited focus of the hearing as set forth in the scheduling order. While one
could argue that the City should have proactively requested a hearing once the trial
court indicated a willingness during the hearing to receive evidence from the City
on the other issues, it does not stretch credulity to surmise that the City presumed
that the trial court would issue a supplemental order substantively similar to the
first order, asking for stipulations and/or whether the parties wanted to have a
second hearing on the remaining prongs.
Based upon the foregoing analysis, we conclude that the trial court
abused its discretion in failing to provide a hearing opportunity on the two
remaining non pros prongs, and we commend the trial court for candidly
acknowledging its mistake. It was reasonable to interpret the trial court’s actions
at the time it conducted a hearing as not constituting a completion of the
proceedings, and, thus, it was reasonable for the City, surprised by an unexpected
ruling following only a hearing on the prejudice prong, to raise the issue for the
first time in its appeal.
Wesex also argues that a remand for an evidentiary hearing on the
merits of the City’s claim that it had compelling reasons for the delay would be
futile. Wesex contends that decisions of both the Superior Court and the Supreme
Court provide that a plaintiff’s inability to pay for an expert witness does not
constitute a compelling reason to delay prosecution of a complaint. Further,
Wesex cites decisions holding that a plaintiff’s financial constraints do not
10
constitute compelling reasons for delay. Wesex argues that the only circumstances
that may support a finding that a plaintiff had compelling reasons for a lack of due
diligence in prosecuting a complaint are circumstances that are outside the control
of a plaintiff. While Wesex may be correct in these legal assertions, the problem in
this matter is that the City was not afforded the opportunity to present any
evidence, and we believe that the trial court was correct to note that failing. This
Court is not in a position to pre-judge factors that may yet be established and may
fall outside of the precedents to which Wesex has referred us. Consequently, we
reject this argument.
Because the proper relief in this matter is to vacate the trial court’s
February 18, 2015 final order and remand the matter for further proceedings, we
need not address the City’s claim that the trial court erred in concluding that
Wesex demonstrated actual prejudice as a result of the City’s delay in prosecuting
its Complaint.4
P. KEVIN BROBSON, Judge
4
We need not address the City’s challenge of the trial court’s interlocutory order, dated
February 16, 2007, sustaining the preliminary objection to Count II of the Complaint, because
we are vacating the trial court’s final order entering a judgment of non pros and remanding the
matter to the trial court for further proceedings. In the absence of a final order, no basis remains
to consider at this time the City’s challenge to the interlocutory order sustaining a preliminary
objection.
11
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
City of Farrell, :
Appellant :
:
v. : No. 840 C.D. 2015
:
Wesex Corporation :
ORDER
AND NOW, this 15th day of March, 2016, the order of the Court of
Common Pleas of Mercer County (trial court) is VACATED and the matter is
REMANDED to the trial court for further proceedings consistent with this opinion.
Jurisdiction relinquished.
P. KEVIN BROBSON, Judge