Unruh Turner Burke and Frees v. Tattersall Devlp. ( 2022 )

J-A21017-22
2022 PA Super 168UNRUH TURNER BURKE AND FREES, : IN THE SUPERIOR COURT OF
PC : PENNSYLVANIA
:
:
v. :
:
:
TATTERSALL DEVELOPMENT :
COMPANY T/A TATTERSALL : No. 555 EDA 2022
PROPERTIES LP KENNETH C. :
HELLINGS AND JOYCE M. HELLINGS :
:
:
APPEAL OF: KENNETH C. HELLINGS :
AND JOYCE M. HELLINGS :
Appeal from the Order Entered January 11, 2022
In the Court of Common Pleas of Chester County
Civil Division at 2012-04079-CT
BEFORE: LAZARUS, J., MURRAY, J., and McCAFFERY, J.
OPINION BY MURRAY, J.: FILED SEPTEMBER 30, 2022
Kenneth C. Hellings (Mr. Hellings) and Joyce M. Hellings (collectively,
Appellants) appeal from order denying their motion to dissolve the preliminary
injunction granted at the request of Appellee Unruh Turner Burke & Frees,
P.C. (UTBF). UTBF had obtained a judgment against Appellants, and the trial
court’s preliminary injunction enjoined Appellants from transferring funds
through four entities: Capstone5 LP (Capstone); Embreeville Redevelopment
GP, LLC (Embreeville GP); Embreeville Redevelopment, LP (Embreeville LP);
and KCH, LLC (KCH) (collectively, the Embreeville Entities)) to avoid payment
of the judgment. We affirm.
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The trial court summarized the procedural history as follows:
This collection case was initiated in 2012. In 2015, [the trial
court] entered judgment against the [Appellants] and the
Tattersall Development Company (“Judgment Debtors”)[,] and in
favor of UTBF in the amount of $131,494.74, plus interest …
(“Judgment”).[FN1]
The Judgment increased to $241,950.32 as of December 1,
[FN1]
2021 due to interest and continues to grow by $43.23 daily.
On June 22, 2018, UTBF petitioned for a charging order
alleging that Judgment Debtors had avoided enforcement of the
Judgment by refusing to appear for depositions, refusing to
disclose assets, refusing to disclose the location of the
[Appellants’] residence, and using various shell entities to hold
legal title to property for their personal benefit to shield those
assets from the Judgment. The Judgment Debtors failed to
answer the petition. On August 6, 2018, UTBF was granted relief
and a charging order [(Charging Order)] was entered directed to
various [of Appellants’] controlled entities, including KCH. The full
list of entities subject to the Charging Order were described over
two pages of the Charging Order and are referenced herein as the
“2018 Charging Order Entities.” Pursuant to the Charging Order,
the 2018 Charging Order Entities were to pay UTBF all sums due
from any of the 2018 Charging Order Entities to any of the
Judgment Debtors.
More recently, on October 12, 2021, UTBF filed an
Emergency Petition for Special Injunction (“Emergency Petition”)
seeking relief under Pa.R.C.P. No. 3118(a)(6). UTBF had become
of aware of a purported scheme to shield $22,500,000 in proceeds
from the sale of a real property in West Bradford Township from
UTBF’s efforts to collect its Judgment. (Emergency Petition, ¶ 6)
[The trial court] granted ex parte relief in the form of an Order
that:
1.) amended the Charging Order to include Capstone in the
list of entities subject to the Charging Order, and
2.) directed Embreeville GP and Embreeville LP to pay into
court all sums due[,] from either[,] to any of the following:
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the Judgment Debtors, KCH, Capstone, any assignee of KCH’s
interest in Embreeville GP or Capstone, any assignee of
Capstone’s interest in Embreeville LP, and any other entity
owned by the Judgment Debtors, KCH or Capstone.
In addition, the October 12, 2021 Order set the matter for a
hearing on October 15, 2021. The Judgment Debtors have not
answered the petition.
On October 15, 2021, the parties agreed to continue the
hearing and stipulated to entry of an order maintaining the
injunction until such time as a final hearing could be held. Despite
agreeing to maintain the injunction until a final hearing, on
November 24, 2021, [Appellants] filed a motion to dissolve the
preliminary injunction.[FN2] UTBF answered and briefed the
motion.[FN3] The motion was denied on January 11, 2022.
[Appellants] thereafter timely filed this appeal and, in response to
an order so directing, timely filed a statement of matters
complained of on appeal.
[FN2]Pa.R.C.P. No. 1531 (c) provides “[a]ny party may move at
any time to dissolve an injunction.”
Judgment Debtors failed to brief their motion as required by
[FN3]
Local Rule 208.3(b).
Trial Court Opinion, 4/4/22, at 1-3 (footnotes in original).
In this appeal, Appellants present the following claims for our review:
1. Did the trial court err in denying [Appellants’] Motion to
Dissolve the Preliminary Injunction as to [the Embreeville
Entities] … as the entities were never served with the
Emergency Petition for Special Injunction (hereinafter
“Underlying Petition”) thus depriving the trial court of
jurisdiction?
2. Did the trial court err in denying Appellants’ Motion to dissolve
the preliminary injunction as [UTBF] … failed to name the
Embreeville Entities, who are indispensable parties to the
Underlying Litigation, depriving the trial court of jurisdiction?
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3. Did the trial court err in failing to dissolve the preliminary
injunction[] as the property at issue does not belong to
Appellants, but rather, it belongs to the Embreeville Entities,
which are not parties to this proceeding, and a [c]ourt cannot
make determinations as to the conflicting rights to property
held by third parties based on the limited purposes of
Pennsylvania Rule of civil Procedure 3118?
4. Did the trial court err in failing to dissolve the preliminary
injunction as “reverse piercing of the corporate veil” related to
a non-debtor third party, not a party to the litigation, is
improper relief under Pennsylvania Civil Procedure 3118?
Appellants’ Brief at 5 (some capitalization omitted).
In reviewing the grant of a preliminary injunction,
we do not inquire into the merits of the controversy, but only
examine the record to determine if there were any apparently
reasonable grounds for the action of the court below. Only if it is
plain that no grounds exist to support the decree or that the rule
of law relied upon was palpably erroneous or misapplied will we
interfere with the decision of the [court].
Allegheny Anesthesiology Associates, Inc. v. Allegheny General Hosp.,
826 A.2d 886, 891 (Pa. Super. 2003).
To obtain a preliminary injunction, a petitioner must establish that:
(1) relief is necessary to prevent immediate and irreparable harm
that cannot be adequately compensated by money damages; (2)
greater injury will occur from refusing to grant the injunction than
from granting it; (3) the injunction will restore the parties to their
status quo as it existed before the alleged wrongful conduct; (4)
the petitioner is likely to prevail on the merits; (5) the injunction
is reasonably suited to abate the offending activity; and (6) the
public interest will not be harmed if the injunction is granted.
Shepherd v. Pittsburgh Glass Works, LLC, 25 A.3d 1233, 1241 (Pa. Super.
2011).
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A mandatory preliminary injunction, such as the one imposed here, is
designed to restore the status quo to the “last actual, peaceable [and]
noncontested status which preceded the pending controversy.”
Commonwealth v. Coward, 414 A.2d 91, 99 (Pa. 1980) (citation omitted).
It “should be issued only in rare cases and certainly more sparingly than one
which is merely prohibitory.” Roberts v. School Board of the City of
Scranton, 341 A.2d 475, 478 (Pa. 1975).
In their first issue, Appellants challenge the trial court’s jurisdiction to
enter a preliminary injunction involving the Embreeville Entities, as UTBF
never served the Embreeville Entities with its preliminary injunction petition.
Appellants’ Brief at 11. Appellants argue UTBF failed to comply with
Pennsylvania Rules of Civil Procedure 3118(a) and 440. Id. at 11, 13.
Appellants acknowledge UTBF served their own “undersigned counsel” with a
copy of the petition. Id. However, Appellants claim their counsel does not
represent the Embreeville Entities:
[T]here is no evidence that counsel for Appellants was authorized
to accept service on the Embreeville Entities’ behalf. There is no
provision in either Pa.R.C.P. 3118(a) or 440 that even allows for
service in such a manner.
Id. Appellants dispute the trial court’s finding that:
Because the allegations and supporting documentation that
[Appellants] and Embreeville Entities are one in the same and
[Appellants] have been served and are participating in the
proceedings, there is no issue.
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Id. (citing Trial Court Opinion, 4/4/22, at 10). According to Appellants, there
is no presumption as to the validity of service upon the Embreeville Entities.
Id. at 15. In the absence of valid service, Appellants maintain the trial court
lacked jurisdiction over the Embreeville Entities. Id. Appellants thus claim
the trial court erred in not dissolving the preliminary injunction. Id. at 15-16.
UTBF responds that they served the preliminary injunction petition on
Robert Burke, Esquire (Attorney Burke), counsel for each of the Embreeville
Entities. Appellee’s Brief at 13. UTBF observes the Embreeville Entities
had the right to file a response to the Petition and chose not to.
Moreover, [UTBF] is not seeking to attach property of [the
Embreeville Entities].
Id. (emphasis added).
Notably, Appellants, not the Embreeville Entities, challenge the lack of
service on the Embreeville Entities.1 This Court is unable to discern how
Appellants, in their individual capacities, are prejudiced by the lack of service
upon the Embreeville Entities.
In McCreesh v. City of Philadelphia, 888 A.2d 664, 674 (Pa. 2005),
our Supreme Court stated that when a defendant has actual notice of an
action, dismissal for lack of service will be appropriate “where plaintiffs have
demonstrated an intent to stall the judicial machinery or where plaintiffs’
failure to comply with the Rules of Civil Procedure has prejudiced defendant.”
____________________________________________
1 Appellants make no claim they are acting in a derivative capacity.
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In other words, “a plaintiff will not be punished for technical missteps if he has
satisfied the statute of limitations by supplying a defendant with actual
notice.” Id. at 672.
Here, Appellants offer no basis upon which to conclude UTBF attempted
to “stall the judicial machinery.” See id. More significant, we discern no
prejudice to Appellant’s interests, caused by an alleged lack of service upon
the Embreeville Entities. Any harm caused by lack of service would inure to
the Embreeville Entities, who have not lodged any objection. Because
Appellants failed to establish prejudice caused by the lack of service, they are
owed no relief. See Pa.R.A.P. 501.
In their second issue, Appellants argue the trial court erred when it
determined the Embreeville Entitles need not be joined as indispensable
parties. Appellants’ Brief at 16. Appellants claim the failure to join the
Embreeville Entities deprived the trial court of jurisdiction. Id. at 17.
Additionally, Appellants dispute the trial court’s determination that the
Embreeville Entities and Appellants are one in the same. Id.
Relying on the definition of an indispensable party, Appellants assert
that the Embreeville Entities have interests related to the underlying
judgment, “as it is the Embreeville Entities’ funds which the [c]ourt has
taken control over.” Id. at 18 (emphasis added). According to Appellants,
“Embreeville Entities may be required to pay amounts well in excess of the
judgment amount” into court. Id. at 19. Appellants point out the preliminary
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injunction order requires the cooperation of the Embreeville Entities. Id.
Finally, Appellants assert the trial court violated the Embreeville Entities’ due
process rights by concluding that reverse piercing of the corporate veil is
appropriate. Id. at 20.
The failure to join an indispensable party to a lawsuit deprives the court
of subject matter jurisdiction. Orman v. Mortgage I.T., 118 A.3d 403, 406
(Pa. Super. 2015). “Unless all indispensable parties are made parties to an
action, a court is powerless to grant relief.” City of Phila. v. Phila. Parking
Auth., 798 A.2d 161, 166 (Pa. 2002) (quoting Sprague v. Casey, 550 A.2d
184, 189 (Pa. 1988)).
An indispensable party is one whose “rights are so connected with the
claims of the litigants that no decree can be made without impairing or
infringing upon those rights.” Sprague, 550 A.2d at 189. As this Court has
explained: “If no redress is sought against a party, and its rights would not be
prejudiced by any decision in the case, it is not indispensable with respect to
the litigation.” Orman, 118 A.3d at 406.
Here, the trial court found that UTBF joined all indispensable parties:
To demonstrate [Appellants’] use of shell corporations to shield
income and assets from the Judgment, UTBF came forward in the
Emergency Petition with evidence to support claims that
[Appellants] have failed to appear for depositions, have refused
to disclose their residences, have failed to disclose their assets,
and have used shell entities in the past to avoid UTBF’s collection
efforts. (Emergency Petition, ¶¶ 3, 5) UTBF also came forward
with evidence to demonstrate [Appellants’] control of the
Embreeville Entities. Specifically, that the partners in
Embreeville LP include Embreeville GP and Capstone, that
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Embreeville GP is the general partner of Embreeville LP[,]
and Capstone is a limited partner in Embreeville LP, that
the members of Embreeville GP include KCH, that KCH is
owned by Mr. Hellings, that KCH is the general partner of
Capstone, and that the [Appellants] are limited partners in
Capstone. (Emergency Petition, ¶¶ 6-10, 13) Further, UTBF
provided Mr. Hellings’ financial statement to Centric Bank in
connection with a loan application that shows he expects to
receive at least $2,700,000 in distributions from Embreeville LP in
the third quarter of 2021. (Emergency Petition, 11 12)
….
The issue here is whether a purported sham corporation utilized
by a judgment debtor to fraudulently shield income and assets
must be separately joined where the judgment debtor, who
controls the corporations, is a party to the litigation and has notice
of the proceedings. [The court] found that because the
allegations and supporting documentation that the
Judgment Debtors and the Embreeville Entities are one in
the same and the Judgment Debtors have been served and
are participating in the proceedings, there is no issue. The
Embreeville Entities have the opportunity to be heard at the
final hearing.
Trial Court Opinion, 4/4/22, at 10 (emphasis added). We agree with and
adopt the trial court’s analysis and affirm on this basis with regard to
Appellants’ second issue.
Appellants argue their third and fourth issues together. In their third
issue, Appellants claim the trial court improperly failed to dissolve the
preliminary injunction, because the relief awarded is prohibited by Pa.R.C.P.
3118. Appellants’ Brief at 22. Appellants again cite the lack of service to the
Embreeville Entities. Id. Additionally, Appellants claim the preliminary
injunction order “provides relief outside the scope of that which is permitted
under Pa.R.C.P. 3118.” Id.
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Appellants assert that the hearing envisioned by Rule 3118 was
designed to be summary, and not plenary in nature. Id. Appellants argue
that to seek injunctive relief under Rule 3118, the plaintiff must establish “(1)
the existence of an underlying judgment; and (2) property of the debtor
subject to execution.” Id. at 24 (citation omitted). Regarding the second
element, Appellants claim the trial court may not determine the legal title to
property “based on principles of estoppel, fairness, or fraud[.]” Id. at 25.
Appellants contend that Rule 3118 allows summary proceedings in aid of
execution only to maintain the status quo. Id. According to Appellants, the
trial court violated Rule 3118 because its injunction impacts the property of
the Embreeville Entities, a third party. Id. at 27-28. Our review, however,
discloses the preliminary injunction merely maintained the status quo imposed
by the trial court’s 2018 Charging Order.
Pennsylvania Rule of Civil Procedure 3118 allows for the trial court to
enjoin property of a defendant subject to execution:
(a) On petition of the plaintiff, after notice and hearing, the court
in which a judgment has been entered may, before or after the
issuance of a writ of execution, enter an order against any party
or person
(1) enjoining the negotiation, transfer, assignment or other
disposition of any security, document of title, pawn ticket,
instrument, mortgage, or document representing any property
interest of the defendant subject to execution;
(2) enjoining the transfer, removal, conveyance, assignment or
other disposition of property of the defendant subject to
execution;
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(3) directing the defendant or any other party or person to take
such action as the court may direct to preserve collateral security
for property of the defendant levied upon or attached, or any
security interest levied upon or attached;
….
(6) granting such other relief as may be deemed necessary and
appropriate.
Pa.R.C.P. 3118(a)(1), (2), (3), (6) (emphasis added).
On August 6, 2018, in accordance with Pa.R.C.P. 3118(a), the trial court
entered a Charging Order directing the Embreeville Entities, among others,
“to Pay over to UTBF all sums of whatever kind and purpose, now due or
which may be in the future become due to [Appellants] in the above
entities individually or in combination.” Charging Order, 8/6/18, at 2
(unnumbered) (emphasis added). The Embreeville Entities lodged no
objection to the Charging Order, nor did they file an appeal. Instantly,
Appellants do not challenge the 2018 Charging Order as invalid.
On October 12, 2021, the trial court entered the instant preliminary
injunction order requiring the Embreeville Entities
to pay into Court all amounts now or hereafter paid by and/or
due from Embreeville Redevelopment GP, LLC and/or Embreeville
Redevelopment, LP to any one or more of the Payees (as
hereafter defined) for later distribution to said Payees and the
Plaintiff as set forth in a subsequent order of this Court to be
entered after hearing on Plaintiff’s Emergency Petition for Special
Injunction….
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Preliminary Injunction Order, 10/12/21, ¶ B (emphasis added). The
preliminary injunction further amended the Charging Order to add Capstone
to the list of entities subject to its provisions. See id. ¶ A.
Thus, the preliminary injunction did not compel the Embreeville Entities
to make payments not otherwise owed, or determine the Embreeville Entities’
legal title to property “based on principles of estoppel, fairness, or fraud[.]”
See Appellants’ Brief at 24. The preliminary injunction instead maintained the
status quo, as established by the 2018 Charging Order, until a final preliminary
injunction hearing. See Preliminary Injunction, 10/12/21, ¶¶ A-B; see also
Joint Stipulation, 2/22/22 (all parties, including Appellants, stipulated “that
the injunction … remain in effect until such time as this Court enters a
subsequent order regarding the aforesaid injunction”). Appellant’s claim of a
Rule 3118 violation therefore warrants no relief.
Appellants’ additional claim, regarding “reverse piercing” of the
corporate veil, is premature. Under Pennsylvania law, there is a “strong
presumption” against piercing the corporate veil. Mortimer v. McCool, 255
A.3d 261, 268 (Pa. 2021). Thus, “[a]ny court must start from the general
rule that the corporate entity should be recognized and upheld, unless
specific, unusual circumstances call for an exception.” Id. (quoting Wedner
v. Unemployment Bd. of Rev., 296 A.2d 792, 794 (Pa. 1972)).
The Pennsylvania Supreme Court has held that the “corporate form may
be disregarded ‘whenever one in control of a corporation uses that control, or
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uses the corporate assets, to further his or her own personal
interests.’” Mortimer, 255 A.3d at 268 (quoting Ashley v. Ashley, 393 A.2d
637, 641 (Pa. 1978)). The Supreme Court directs our courts to consider the
following factors for a piercing inquiry: “undercapitalization, failure to adhere
to corporate formalities, substantial intermingling of corporate and personal
affairs[,] and use of the corporate form to perpetuate a fraud.” Id. (citation
omitted).
Piercing the corporate veil is … a matter of equity, allowing a court
to disregard the corporate form and assess one corporation’s
liability against another. The corporate veil will be pierced and
the corporate form disregarded whenever justice or public policy
demand, such as when the corporate form has been used to defeat
public convenience, justify wrong, protect fraud, or defend crime.
[Commonwealth by Shapiro v. Golden Gate Nat’l Senior
Care LLC, 194 A.3d 1010, 1034-35 (Pa. 2018)].
The corporate form thus may be disregarded “where rights of
innocent parties are not prejudiced nor the theory of the corporate
entity rendered useless.” [Village at Camelback Prop. Owners
Ass’n, Inc. v. Carr, 538 A.2d 528, 532-33 (Pa. Super. 1988)
(quoting Ashley v. Ashley, 482 Pa. 228, 393 A.2d 637, 641 (Pa.
1978))]
Id. at 268 (footnoted citations moved to main text).
Further:
In a reverse-piercing scenario, a claimant against the owner
of a corporation must establish misuse of the corporate form to
protect the owner’s personal assets against some debt. As with
enterprise liability, while this Court has never explicitly adopted
reverse-piercing, we have never rejected it either. To rule out
reverse-piercing as a viable doctrine would be tantamount to
saying either that it is not possible for a corporation’s owner to
use that corporation as a shield against personal liability by the
creative movement of assets or liabilities between himself and the
corporation, or that equity cannot reach such an event even when
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it happens. Pennsylvania courts’ equitable powers should not be
so constricted.
….
Unlike some jurisdictions, Pennsylvania has resisted the
temptation to formalize the inquiry with an ever-increasing
number of predefined factors embodying the many considerations
that might aid in determining whether the corporate form has
been abused, and we do not propose to change course now. If
anything, simplicity is to be preferred. … On this account, the
inquiry reduces to a two-pronged test:
First, there must be such unity of interest and ownership that
the separate personalities of the corporation and the
individual no longer exist, and second, adherence to the
corporate fiction under the circumstances would sanction
fraud or promote injustice….
The second element … that there be some fraud, wrong or
injustice—seems to be nothing more than a restatement of
the basic starting point that piercing is an equitable remedy
used to prevent injustice….
… The ‘fraud or injustice’ element tells the court when to pierce,
the control element tells it against whom.” Because fraud or
injustice can be perpetrated by and through corporate combines,
enterprise liability offers one possible answer to the question
“Against whom?”
….
[T]here is no clear reason to preclude per se the application of
enterprise liability in the narrow form described herein. …[I]t
remains for the lower courts in future cases to consider its
application consistently with the approach described above, in
harmony with prior case law, mindful of the salutary public
benefits of limited liability, and with an eye always toward the
interests of justice.
Mortimer, 255 A.3d at 286-88 (emphasis added).
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Consistent with Mortimer, our review discloses that the preliminary
injunction maintained the status quo established by the 2018 Charging Order.
The trial court has not finally determined whether the “unity of interest and
ownership that the separate personalities of the corporation and the individual
no longer exist,” and/or whether “adherence to the corporate fiction under the
circumstances would sanction fraud or promote injustice[.]” Id. at 286-87.
The trial court recognized that such determination may be made only after a
final hearing:
Here, the ex parte preliminary injunction was entered to preserve
the status quo until such time as a hearing could be held to
determine whether reverse piercing is an appropriate remedy.
The ex parte injunction would not have remained in place past
three days but for the parties’ agreement….
If after hearing it is determined that reverse piercing is an
appropriate remedy, then [Rule 3118] will have been used to
obtain payment of a judgment from the Judgment Debtor’s assets,
which is its purpose.
Trial Court Opinion, 4/4/22, at 8. We agree with the trial court’s reasoning,
and its conclusion that Appellants’ “reverse piercing” challenge is premature.
Thus, Appellants’ “reverse piercing” claim fails.
For the above-stated reasons, we affirm the trial court’s order.
Order affirmed.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 9/30/2022
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