Mariner Chestnut Partners v. Lenfest, B.

J-A24041-16
2016 PA Super 277MARINER CHESTNUT PARTNERS, L.P. IN THE SUPERIOR COURT OF
BY ITS COURT APPOINTED RECEIVER, PENNSYLVANIA
DAVIN S. LAMM
Appellant
v.
BROOK LENFEST, MARINER CHESTNUT
HOLDINGS, LLC., CHESTNUT PROPERTY
GP, LLC., CHESTLEN DEVELOPMENT, LP.,
CHESTLEN DEVELOPMENT GP, LLC.,
JOHN E. ROYER, JR., ESQUIRE, AND
ROYER & ASSOCIATES, LLC.
Appellees No. 3620 EDA 2015
Appeal from the Order Dated October 15, 2015
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): December Term, 2012, No. 02900
BEFORE: BOWES, J., OTT, J., and SOLANO, J.
OPINION BY SOLANO, J.: FILED DECEMBER 07, 2016
Appellant, Mariner Chestnut Partners, L.P. (“the Partnership”), by its
court-appointed Receiver, Davin S. Lamm, appeals from an order dated
October 15, 2015, that dismissed the Receiver’s Amended Complaint. By an
order dated September 24, 2013, the trial court sustained Appellees’
preliminary objections to Counts II, IV, V, and VI of the Amended Complaint,
and the October 15, 2015, order granted Appellees’ motion for summary
judgment on the remaining Counts, I and III. For the reasons that follow, we
affirm.
J-A24041-16
The facts giving rise to this case date to May 19, 2000, when the
Partnership was created as a Pennsylvania limited partnership. The original
partners included Davin Lamm, Mark Wiser, Brook Lenfest, Timothy
Mahoney, II, and Mariner Chestnut Holdings, LLC. Mariner Chestnut
Holdings, LLC, which was owned in equal shares by Lenfest and Mahoney,
was named General Partner. Lamm, Wiser, Lenfest, and Mahoney were
limited partners. The Partnership Agreement, as amended in 2003, defined
the rights and responsibilities of the partners and gave the General Partner
exclusive authority to manage the Partnership’s business and affairs, with no
duty to consult with the limited partners. Trial Court Opinion, 7/22/11, at 6-
8.
The purpose of the Partnership was to acquire the real property
located at the northeast corner of 15th and Chestnut Streets in Philadelphia,
rent it, and ultimately sell it. The Partnership successfully purchased the
property on October 16, 2000, for $11,150,000. In 2007, the Partnership
entered into a letter of intent with Gatehouse Partners and subsequent
agreements with Hilton Worldwide to develop the property as a mixed-use
luxury hotel and condominium high-rise building bearing the name Waldorf-
Astoria. Trial Court Opinion, 7/22/11, at 6-7, 11.
On March 12, 2009, following disagreements among the partners
regarding the project, Mariner Chestnut Holdings, LLC, was removed as
General Partner, and Chestnut Property GP, LLC (“Chestnut Property”) a
company owned wholly by Lenfest, was appointed as the new General
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Partner. According to the Partnership Agreement, this change constituted a
“liquidating event” that required the General Partner, now Chestnut
Property, to liquidate the Partnership within a reasonable time. Shortly
thereafter, Mahoney sold all of his interests and rights in the Partnership to
Lenfest. Later that year, Hilton terminated the Waldorf-Astoria agreements
and the Partnership ceased development of the property. Trial Court
Opinion, 7/22/11, at 11-15, 29.
In May 2009, Lamm and Wiser brought suit against the Partnership
and the other current and former partners (Lenfest, Mahoney, Mariner
Chestnut Holdings, LLC, and Chestnut Property) and their attorneys in an
action captioned Lamm v. Lenfest, May Term 2009, No. 2232 (C.P. Phila.)
(“the Lamm litigation”). The fourth and final amended complaint in that
action, filed January 26, 2010, contained six interrelated causes of action,
including breach of fiduciary duty and breach of the Partnership Agreement,
and sought an accounting of the financial affairs of the Partnership and
court-supervised dissolution. Trial Court Opinion, 7/22/11, at 5-6. The
Lamm litigation was placed in the Philadelphia Court of Common Pleas’
Commerce Program, where it was assigned to the Honorable Mark I.
Bernstein.
Meanwhile, the General Partner, Chestnut Property, via its sole owner,
Lenfest, secretly made new plans to develop the property. In April 2010,
while the Lamm litigation was pending against it, Chestnut Property
executed a letter of intent (“LOI”) with Starwood Hotels & Resorts Worldwide
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for a proposed “W” Hotel and Condominiums. The LOI contained a provision
requiring that it be kept confidential, and Chestnut Property and Lenfest did
not tell Mariner Chestnut’s limited partners about it or about the new
development plans. Trial Court Opinion, 7/22/11, at 5-6.
In July 2010, while the limited partners were still in the dark about the
Starwood development plans, the Partnership contracted with CB Richard
Ellis, Inc. (“CBRE”) to sell the property at an absolute auction. Trial Court
Opinion, 7/22/11, at 16. Lenfest made plans to buy the property at that
action through another entity that he owned. Trial Court Opinion, 10/15/15,
at 4-5.
On August 4, 2010, Lenfest was deposed in the Lamm litigation by
counsel representing Lamm and Wiser. During the deposition, Lenfest
disclosed that he had signed a letter of intent and term sheet for
development of the property into a project similar to the earlier Waldorf-
Astoria project. Because of the confidentiality clause, he did not divulge that
the agreement was with Starwood. Lenfest’s deposition was the first time
that the other Mariner Chestnut partners learned of the new development
plans. Trial Court Opinion, 7/22/11, at 5-6.
On October 5, 2010, CBRE auctioned the property. Both Lamm and
Wiser were present at the auction. The property was sold for $12,000,000 to
Chestlen Development, LP, an entity owned by Lenfest. Trial Court Opinion,
7/22/11, at 6; Lamm Revised Trial Court Opinion, 11/5/12, at 2 n.3.
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On October 11, 2010, Lenfest provided a copy of the Starwood LOI to
Lamm and Wiser. On October 18, 2010, Chestnut Property sent the limited
partners a letter officially notifying them of the results of the auction sale
and explaining that, as General Partner, it would be taking actions to
dissolve, wind up, and liquidate the Partnership. Trial Court Opinion,
7/22/11, at 6.
In July 2011, Judge Bernstein granted summary judgment to the
defendants on most counts in the Lamm litigation. With respect to a count
alleging that Lenfest and the General Partners had breached their fiduciary
duties by wrongly abandoning the Waldorf-Astoria Project for their personal
gain and benefit, the court held that the plaintiffs failed to prove that the
defendants received a personal benefit or that the plaintiffs were harmed.
Lamm Trial Court Opinion, 7/22/11, at 32. With respect to a breach of
contract count alleging that Lenfest and Chestnut Property breached the
Partnership Agreement by continuing operations of the Partnership beyond
December 31, 2005, the court held that the Agreement did not mandate
liquidation until March 12, 2009, when Mariner Chestnut Holdings, LLC, was
removed as General Partner. Id. at 28. The court held further that although
Chestnut Property breached the Partnership Agreement by not beginning
liquidation for another fifteen months, the plaintiffs proved no damages to
them as a result of that breach. Id. at 27-30.
Judge Bernstein granted the Lamm plaintiffs’ request for an order
requiring dissolution of the Partnership because, “after adamantly insisting
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dissolution should not occur . . . Defendants sold the property [at the
October 5, 2010, auction sale] and passed resolutions that retroactively
ended the Partnership without informing either the Court or the plaintiffs.”
Lamm Trial Court Opinion, 7/22/11, at 33-34. Judge Bernstein removed
Chestnut Property as General Partner and appointed a Liquidating Trustee to
“review the sale, accumulate all assets, dissolve the Partnership and wind up
its affairs.” Id. at 36. Judge Bernstein’s order stated that the Liquidating
Trustee had the power “to continue to prosecute or to institute in the name
of [the Partnership] any and all suits and other legal proceedings, in this
Commonwealth or elsewhere, and to abandon the prosecution of claims he
deems unprofitable to pursue.” Lamm Order, 4/5/11, at ¶ 6(j). Judge
Bernstein denied plaintiffs’ request for an accounting, however, explaining:
“Plaintiffs had the opportunity to discover all Partnership books and records
through discovery. The court-appointed liquidator must necessarily
determine the propriety of all activities by the [G]eneral [P]artner and the
propriety of the ‘absolute auction’ sale in order to compile all assets for
dissolution.” Lamm Trial Court Opinion, 7/22/11, at 38.1
The plaintiffs appealed the parts of the judgment adverse to them on
May 3, 2011, and the defendants filed a cross-appeal on May 16, 2011, that
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1
Judge Bernstein’s dispositions of the other Lamm causes of action and
requests for relief are not relevant to issues presented by this appeal and
therefore are not discussed here.
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contested the court’s findings in support of its decision to appoint a
Liquidating Trustee.2 This Court affirmed the judgment of the trial court in
an unpublished memorandum dated October 16, 2012, that held that the
plaintiffs either abandoned or waived most of their issues. We also held that
the defendants’ cross-appeal did not merit relief, as the issues raised by the
defendants challenged only specific findings of the trial court, but not the
actual appointment of the Liquidating Trustee. See Lamm Superior Court
Opinion at 16, 21-22, 25, 27, 32, 34-36.
In March 2012, while awaiting the results of the appeal, Judge
Bernstein ordered the Liquidating Trustee to submit a report stating the
value of any potential lawsuits that could be brought on behalf of the
Partnership. The Liquidating Trustee filed that report on July 31, 2012.
The Report disclosed that between April and September 2010, the
Partnership paid over $1.1 million to develop the Starwood project prior to
the auction, including payments totaling $712,993 to an architectural firm,
Cope Linder. See Liquidating Trustee’s Final Report of Findings with Regard
to General Partner Activities and Auction Sale of Assets (“Report”), 7/31/12,
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2
The appeal was docketed in this Court as Lamm v. Lenfest, Nos. 1203
EDA 2011, 1394 EDA 2011. The defendants disagreed with the trial court’s
statements that the property was sold without the knowledge of the limited
partners, that Lenfest concealed his intent to sell the property from the
limited partners, and that Lenfest “blurred or ignored the lines between his
individual interests and those of the general and limited partnerships.” See
Lamm Superior Court Opinion at 34.
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at 11. The Liquidating Trustee stated that Chestnut Property, as General
Partner, had concealed these payments and plans from the limited partners
through creative ledger entries and the use of third parties, and, when asked
by the Liquidating Trustee, would acknowledge only that project
expenditures amounted to $225,000 in Partnership funds. Id. 11-13, 17-19.
The Report said that the last time the plaintiffs reviewed the Partnership’s
books was in 2009, although discovery in the case extended until October
2010. Id. at 10, 12.
The Report stated that employees of CBRE, the auction company, told
the Liquidating Trustee that they had had no knowledge of the Partnership’s
LOI with Starwood and that had they known of it, they would have disclosed
this information to potential buyers at the auction. Report at 20, 22.
However, CBRE could not state with certainty whether or how the Starwood
development plans would have affected the auction sale price. Id.
The Report identified several potential causes of action against
Chestnut Property and against Lenfest individually. First, it said a claim for
breach of fiduciary duty could be based on concealment of the Starwood LOI
from the limited partners and Chestnut Property’s use of Partnership funds
to develop the Starwood project. The Report stated:
Lenfest was the control[ling] limited partner of the Subsequent
General Partner, and in that capacity he owed a fiduciary duty to
the Partnership, as well as to its limited partners, Lamm and
Wiser. Pursuant to the Amended and Restated Partnership
Agreement, his fiduciary duties precluded him from having any
concealed or hidden earnings from the Partnership.
Notwithstanding those duties, Lenfest appears to have
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intentionally concealed from the Partnership and his limited
partners the existence of the Starwood LOI and the potential
upside to them if the Project succeeded. Lenfest also concealed
from his partners the fact that Partnership funds were being
used to pay Cope Linder, Starwood, and his advisors for their
work on the Project. Without disclosure of these facts, Lenfest
caused the Partnership to act in his own self-interest, by selling
its principal asset to his wholly-owned company at what may
have been less than fair market value. The acts described in this
Report clearly constitute breaches of fiduciary duty owed to the
Partnership by the Subsequent General Partner under
Pennsylvania law.
Report at 27 (footnote omitted). However, the Report also stated that for a
variety of reasons — not the least of which was Lenfest’s contractual
entitlement to payments based on his capital investment in the Partnership
(the “Lenfest Priority Return”)3 — it would be difficult to prove damages for
the claim:
Based on Lenfest’s conduct, the Liquidating Trustee believes that
Lenfest breached his fiduciary duties to the Partnership.
However, it is speculative and beyond the scope of the
Liquidating Trustee’s investigation to conclude that the
Partnership, and derivatively, Lamm and Wiser, suffered a loss
under a possible scenario where either the Property at auction
would have generated sufficient funds to fully satisfy the Lenfest
Priority Return[,] leaving funds for distribution to the Limited
Partners, or that if Lenfest had disclosed the Starwood LOI to
Lamm and Wiser, they would have been able to access funds to
contribute to the Partnership, thereby reducing Lenfest’s Priority
Return and increasing their interest. Even if that were true, the
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3
The Report explained: “Because Lenfest contributed the capital to fund the
Partnership, he was entitled to receive a 7.5% priority (investment) return
on his capital contributions, together with the capital contributions
themselves (collectively the ‘Lenfest Priority Return’), payable upon the
Partnership’s winding up and termination, prior to distributions to Lenfest,
Mahoney, Lamm, or Wiser in their status as Partners.” Report at 6.
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Liquidating Trustee has been denied the ability to confirm the
status of the Project and Lenfest’s relationship with Starwood as
of this date. Notwithstanding what the Liquidating Trustee
concludes is egregious conduct by Lenfest, it could be that the
Project does not offer much prospect of return on investment
and the Partnership, if it had retained the Property, would only
be deeper in debt.
Id. at 26.
Similarly, the Liquidating Trustee found that a cause of action for
breach of the Partnership Agreement could be based on Chestnut Property’s
concealment and mischaracterization of expenses. Report at 29. Again,
however, the Liquidating Trustee determined that it would be difficult to
prove damages sustained by the Partnership from this breach. Id. at 30.
The Report concluded that because damages could not be proven,
there was no concrete basis for a suit against Lenfest or Chestnut Property:
[D]ue to the fact that the Project with Starwood has not been
built, and in recognition of the Lenfest Priority Return, it appears
that Lenfest’s conduct, however reprehensible, has resulted in no
quantifiable damages to the partnership itself. Unless a court or
jury were to determine that the conduct described in this Report
supports the subordination or wiping out of the Lenfest Priority
Return and Lenfest’s capital contribution, the Liquidating Trustee
sees no basis for initiating any legal action on behalf of the
Partnership against Lenfest.
Report at 31. However, the report also stated that it did not have access to
all of the information necessary to reach a definitive conclusion. Id. at 25
n.34.
On September 20, 2012, Judge Bernstein entered an order accepting
the Liquidating Trustee’s Report and appointing Lamm as Receiver for the
Partnership. As Receiver, Lamm was allowed “to pursue litigation on behalf
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of the Partnership based on the claims identified in the Trustee’s Report.”
Lamm Order, 9/20/12. Judge Bernstein explained the basis for appointing
the Receiver as follows:
The Liquidating Trustee determined that at the same time the
general partner represented to the limited partners and the
public that the property located at 1441 Chestnut Street, the
only partnership asset, was to be auctioned for use as a parking
lot, the general partner had in fact secured an agreement or
agreement in principle to develop that property as a luxury
Starwood Hotel. Accordingly, the partnership has the potential
claim that the general partner in breach of his duties arranged to
transfer the only partnership asset for inadequate consideration
to a different entity he controlled, for the exact purposes for
which Mariner Chestnut Partners, L.P. had been created.
Lamm Trial Court Revised Opinion, 11/5/12, at 2. The order clarified that
“The Report was not the result or subject of any adversary proceeding. The
court makes no factual findings based on the Report.” Lamm Order,
9/20/12, at n.1.
Judge Bernstein required Lamm, as Receiver, to dissolve the
Partnership if no litigation was filed within ninety days. Lamm Order,
9/20/12, ¶¶ 3-4. He gave this explanation for why he set that time limit:
So that this matter, which has already been in litigation for three
and one half years, not remain interminably dormant, the Court
ordered that litigation based on the potential claims identified in
the Liquidating Trustee’s final report must be filed within 90 days
or the partnership shall be immediately dissolved and all
remaining assets distributed in accord with the partnership
agreement.
Trial Court Revised Opinion, 11/5/12, at 3.
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Lamm, as Receiver, then brought this new action (Mariner Chestnut
Partners, L.P. ex rel. Lamm v. Lenfest, Dec. Term 2012, No. 2900 (C.P.
Phila.)) against defendants Brook Lenfest, Mariner Chestnut Holdings,
Chestnut Property, Chestlen Development, LP, Chestlen Development GP,
LLC,4 John E. Royer, Esquire, and Royer and Associates, LLC,5 on December
20, 2012 — just ninety days after the date of Judge Bernstein’s order. The
case was placed in the Philadelphia Court of Common Pleas’ Commerce
Program and assigned to the Honorable Gary S. Glazer. The Receiver’s First
Amended Complaint, filed April 9, 2013, set forth six claims: breach of
fiduciary duty (I), fraud (II), usurpation of a corporate opportunity (III),
conversion (IV), violation of the Pennsylvania Uniform Fraudulent Transfer
Act (V), and equitable subordination (VI). The claims were based largely on
the findings in the Liquidating Trustee’s Report. See First Amended
Complaint, 4/9/13, at 5-10.
On September 24, 2013, Judge Glazer sustained Defendants’
preliminary objections to Counts II (fraud), IV (conversion), V (violation of
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4
Chestlen Development GP, LLC, a company owned by Lenfest, is the
general partner of Chestlen Development, LP, the company that bought the
Chestnut Street property at the 2010 auction sale. See Plaintiff’s
Memorandum of Law in Opposition to Defendant’s Preliminary Objections to
Plaintiff’s Amended Complaint at 6.
5
John E. Royer and Royer and Associates were Lenfest’s attorneys at the
time of the alleged wrongdoing described in the Liquidating Trustee’s Report.
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the Fraudulent Transfer Act), and VI (equitable subordination). The court
explained:
Under Pennsylvania law, the specific elements of fraud are:
(1) a representation; (2) which is material to the transaction at
hand; (3) made falsely, with knowledge of its falsity or
recklessness as to whether it is true or false; (4) with the intent
of misleading another into relying on it; (5) justifiable reliance
on the misrepresentation at hand; and (6) the resulting injury
was proximately caused by the reliance. Gibbs v. Ernst, 538 Pa.
193, 647 A.2d 882, 889 (1994). Defendant, Brook Lenfest
(hereinafter “Lenfest”), was the sole owner of the corporate
general partner of plaintiff. Defendants did not make
representations or omit representations to the partnership as
Lenfest was the general partner and Lenfest allegedly knew of
the opportunity.
Further, “a plaintiff has a cause of action in conversion if
he or she had actual or constructive possession of a chattel at
the time of alleged conversion.” Chrysler Credit Corporation v.
Smith, 434 Pa. Super. 429, 643 A.2d 1098, 1100 (Pa. Super.
1994), appeal denied, 539 Pa. 664, 652 A.2d (1994). Plaintiff did
not have constructive possession over future profits as they are
still unascertainable at this point. Additionally, under the
Pennsylvania Uniform Fraudulent Transfer Act, “[a] transfer
made . . . by a debtor is fraudulent as to a creditor, whether the
creditor’s claims arose before or after the transfer was made . . .
if the debtor made the transfer . . . with actual intent to hinder,
delay or defraud any creditor of the debtor.” 12 Pa. C.S.A. §§
5104, 5105. In the instant case, plaintiff made the transfer.
Plaintiff cannot allege that it is the creditor and the debtor.
Therefore, Count V is dismissed.
Order, 9/24/13, at n.1.
On October 15, 2015, Judge Glazer granted Defendants’ motion for
summary judgment on remaining Counts I (breach of fiduciary duty) and III
(usurpation of a corporate opportunity), and dismissed the amended
complaint in its entirety. In an opinion, Judge Glazer explained that those
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tort claims were barred by the applicable two-year statute of limitations.
Even though, under the discovery rule, the statute of limitations is tolled
until the plaintiff discovers (or reasonably should discover) the injury and its
cause, Judge Glazer concluded that the Partnership knew about the
Starwood LOI and the sale of the property in October 2010, over two years
before the suit was initiated, when Chestnut Property sent the limited
partners a formal letter notifying them of the sale:
While more evidence surrounding the evolution of the W
Hotel/Condo project involving Lenfest and Starwood was
subsequently unearthed, plaintiff was aware of the general facts
giving rise to the alleged injuries no later than October 18, 2010.
Since these dates are inscribed on the documents themselves,
issues of credibility do not come into play. No reasonable mind
could hold that plaintiff did not know — or should not have
known — of its injury until after October 18, 2010. Therefore,
the two year statute of limitations period expired on October 18,
2012, two months prior to plaintiff filing its writ of summons on
December 19, 2012.
Trial Court Opinion, 10/15/15, at 7-10. The court added that although, at
the time of the discovery, the Partnership had been under the control of
Lenfest, “Lamm could have filed a derivative action pursuant to 15 Pa.C.S.A.
§ 8591. He chose not to do so.” Id. at 10 (footnote omitted).
Judge Glazer held that the September 20, 2012, order entered by
Judge Bernstein that gave the Receiver 90 days to file claims did not extend
the statute of limitations. He explained:
The [September 20, 2012] order permitted the receiver to file
litigation on behalf of the partnership within ninety days, or else
the partnership would have been dissolved immediately. The
order did not authorize plaintiff to assert claims that fail as a
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matter of law. Any claim filed within the ninety day time period
was still required to conform to the rules of civil procedure; this
includes the statute of limitations.
Trial Court Opinion, 10/15/15, at 10. In a footnote, Judge Glazer added:
Assuming arguendo that plaintiffs’ claims were not barred by the
statute of limitations, defendants’ motion still would have been
granted due to collateral estoppel and res judicata. Based upon
J. Bernstein’s and the Superior Court’s holdings in the related
underlying litigation, the fundamental issues raised by plaintiff
have already been litigated, decided and affirmed on appeal.
Id. at 10 n.10.
Lamm, as Receiver, filed a timely notice of appeal on November 12,
2015. In his brief, he raises the following issues:
1. Where: (i) Appellant’s claims for breach of fiduciary duty
and usurpation of a partnership opportunity had been timely
raised originally in a predecessor action, Lamm, et al v. Brook
Lenfest, et al, May Term 2012, No. 2232 (“Original Action”); (ii)
Judge Bernstein in the Original Action appointed a Liquidating
Trustee; (iii) Upon receipt of the Liquidating Trustee’s Report
that found multiple acts of wrongdoing by Appellee (“Lenfest”),
Judge Bernstein appointed Appellant as Receiver to sue for
damages in a new case, which became the instant action; and
(iv) The instant action is based on the wrongdoing found by the
Liquidating Trustee, and was filed timely in accordance with
Judge Bernstein’s Order, did the trial court err and abuse its
discretion in granting summary judgment based on the statute
of limitations and res judicata?
2. Where the Statute of Limitations was tolled when Judge
Bernstein accepted the Liquidating Trustee’s Report in the
Original Action, and instead of adjudicating the damages in that
Original Action, Judge Bernstein elected to appoint the Receiver
with instructions to institute the instant action to recover
damages, did the trial court err and abuse its discretion in
granting summary judgment based on the statute of limitations
and res judicata?
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3. Where Judge Bernstein, in the Original Action, considered
the pleadings filed there to put before the Court the issues of
wrongdoing by the General Partner and Lenfest, as well as the
potential remedies of appointing a receiver and dissolution of the
partnership, did Judge Glazer err in the instant case when he
ruled that Appellant should have filed a separate derivative
action in addition to the actions that had already been filed?
4. Did the Trial Court err by holding that the discovery rule
did not apply and extend the Statute of Limitations until after
the Report was issued where the Report expressly found that
Lenfest and his counsel misled Judge Bernstein and Appellant by
duplicitous and intentional conduct calculated to deceive
Appellant about what Lenfest was doing?
5. Where new instances of violations by Lenfest that had
occurred during the litigation in the Original Action, but were
kept secret by Lenfest until discovered by the Liquidating
Trustee, and where Judge Bernstein expressly included these
violations in his Order requiring the Receiver to start a new suit,
and where the new violations occurred after the original Order
and affirmance were entered, did the trial court err when it ruled
the claims on the new violations were barred by collateral
estoppel and res judicata?
6. Did the trial court err and abuse its discretion in granting
Appellees’ Preliminary Objections for Appellant’s claims for fraud,
conversion, and equitable subordination where the wrongdoing
and acts supporting these claims were described in the Report of
the Liquidating Trustee and validated and accepted by Judge
Bernstein in the Original Action?
7. Where Judge Bernstein ruled Appellant was appointed “to
pursue litigation on behalf of the Partnership based on the claims
identified in the Trustee’s Report,” and where Appellant alleged
in the Amended Complaint that Appellees deprived Appellant of
rights, profit and caused damages that grew out of the
wrongdoing described in the Liquidating Trustee’s Report, did the
trial court err, and abuse its discretion in granting Appellees’
Preliminary Objections for Appellants’ claims?
Appellant’s Brief at 5-6.
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The Receiver does not organize his brief according to the above
questions.6 Therefore, we will address the issues as they are presented in
the Receiver’s brief: (1) whether the discovery rule tolled the statute of
limitations, (2) whether the Law of the Case doctrine extended the statute of
limitations, and (3) whether the statute of limitations does not apply
because this case is a continuation of the former timely action and is not
barred by res judicata or collateral estoppel.
We affirm the trial court’s entry of summary judgment on Counts I
(breach of fiduciary duty) and III (usurpation of a corporate opportunity) on
the ground that those counts are barred by the two-year statute of
limitations.7 Because the statute of limitations applicable to Counts II (fraud)
and IV (conversion) also is two years, see 42 Pa.C.S §§ 5524(7) (two-year
statute of limitations for an action in fraud), 5524(3) (same for conversion),
and because the discovery, tolling, and other timeliness issues regarding
those counts are the same as those for Counts I and III, we affirm the
dismissal of those counts for that same reason. See Sw. Energy Prod. Co.
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6
See Pa.R.A.P. 2119(a) (“The argument shall be divided into as many parts
as there are questions to be argued, and shall have at the head of each part
. . . the particular point treated therein . . . .”).
7
Appellant mistakenly argues against the trial court’s grant of “preliminary
objections” on count III (usurpation of a corporate opportunity). See
Appellant’s Brief at 42-44. In fact, the trial court denied Defendants’
preliminary objections on this count and then later entered summary
judgment.
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v. Forest Res., LLC, 83 A.3d 177, 184 (Pa. Super. 2013) (an appellate
court is “not bound by the rationale of the trial court and may affirm on any
basis”). The Receiver presents no argument regarding the trial court’s
disposition of Counts V (violation of the Fraudulent Transfer Act) and VI
(equitable subordination), and any issues relating to those dismissals
therefore are waived. See Commonwealth v. Furrer, 48 A.3d 1279, 1281
n.3 (Pa. Super. 2012) (issues not developed in an appellate brief with
pertinent authority are waived, citing Pa.R.A.P. 2119(a)).
Our standard of review of an appeal from an order granting summary
judgment is well settled: “Summary [j]udgment may be granted only in
those cases where the record clearly shows that there are no genuine issues
of material fact and that the moving party is entitled to judgment as a
matter of law.” P.J.S. v. Pa. State Ethics Comm’n, 723 A.2d 174, 176 (Pa.
1999) (citation omitted). Whether there is a genuine issue of material fact is
a question of law, and therefore our standard of review is de novo and our
scope of review is plenary. Chanceford Aviation Props, L.L.P. v.
Chanceford Twp. Bd. of Supervisors, 923 A.2d 1099, 1103 (Pa. 2007).
When reviewing a grant of summary judgment, we must examine the record
in a light most favorable to the non-moving party. Id.- 18 -
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The Statute of Limitations
The Discovery Rule and Tolling
The Receiver’s primary argument is that the trial court erred by
dismissing the complaint on statute of limitations grounds because the two-
year period was tolled by the discovery rule. See Appellant’s Brief at 27-40.
The Receiver claims that he exercised due diligence in bringing the original
action in 2009, but could not have recognized the nature and severity of the
later acts of Defendants that occurred during the pendency of that action
until the release of the Liquidating Trustee’s Report. Id. at 34. He asserts
that this is due in large part to efforts taken by Lenfest to conceal these very
same actions from the limited partners. See, e.g., id. at 20. The Receiver
states:
As the Trustee’s Report found, Defendants hid the truth about
the auction, and Appellant had no reasonable means of
discovering the wrongdoing until the Trustee’s Report was
published. The injuries that Defendants caused to the
Partnership were not known (i.e., discovered) until, at the very
earliest, the Liquidating Trustee’s issuance of his Final Report on
July 31, 2012. This is less than six months before the
Partnership commenced this lawsuit.
Id. at 28.
To support this argument, the Receiver invokes the doctrine of adverse
domination. Appellant’s Brief at 31-35. He explains that under that doctrine,
“a statute of limitations is tolled against director/officer misconduct so long
as a majority of the board is controlled by the alleged wrongdoers.” Id. at
33 (citing Clark v. Milam, 847 F. Supp. 409, 421 (S.D. W. Va. 1994),
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quoting Fed. Deposit Ins. Corp. v. Cocke, 7 F.3d 396, 402 (4th Cir.
1993)). The Receiver also relies on In re CitX Corp., No. 01-19604, 2004
WL 2850046, *4 (E.D. Pa., Dec. 8, 2004), in which a federal court held that
applying a strict statute of limitations against an appointed bankruptcy
trustee would be inequitable because the trustee was not in a position prior
to the filing of the bankruptcy to be fully aware of all potential claims to be
made.8
Here, according to the Receiver, because Lenfest controlled Chestnut
Property, the General Partner, “it is reasonable that litigation could not be
filed by Appellant until he was appointed Receiver. Otherwise, Appellant had
no standing.” Appellant’s Brief at 34. Moreover, the Receiver asserts that
Lamm, as a limited partner, could not have filed a new derivative action in
or around October 2010 based on his preliminary knowledge of the Starwood
LOI and the auction sale for two reasons. First, dissolution following the
original action was still pending. Second, the new action “would have
multiplied the proceedings seeking a remedy for the identical wrongdoing by
____________________________________________
8
The case actually cited in the Receiver’s brief, In re CitX Corp., No. 03-
727, 2005 WL 1388963 (E.D. Pa., June 7, 2005), aff’d sub nom In re CitX
Corp., 448 F.3d 672 (3d Cir. 2006), does not address a statute of limitations
issue, but we understand that the Receiver intended to cite the decision set
forth in the text of this opinion. We find CitX unpersuasive for the reasons
explained by the court in In re National Forge Co., 344 B.R. 340, 373-75
(W.D. Pa. 2006) (explaining that the interaction of the statute of limitations
and the filing of a bankruptcy petition is governed by special provisions of
the Bankruptcy Code, 11 U.S.C. § 108(a), and not by a common law tolling
doctrine).
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defendants to three separate lawsuits, presumably before three Judges; and
all of this would be an outgrowth of an original action brought in equity —
where all the issues should have been decided.” Appellant’s Brief at 37; see
also id. at 35 n.4. Finally, the Reciever contends that the question whether
there was an exercise of due diligence in discovering the wrongdoing is a
factual inquiry appropriate for a jury, and therefore the court erred in
granting summary judgment on that issue. Appellant’s Brief at 29-31.
We are unpersuaded by the Receiver’s arguments. First, we observe
that the fact that this action is brought on behalf of the Partnership by a
court-appointed Receiver does not excuse the plaintiff from compliance with
the applicable statute of limitations. The Revised Uniform Limited
Partnership Act, 15 Pa.C.S. § 8575(b), gives “a receiver appointed by the
court” the authority “to prosecute actions in the name of the limited
partnership.” The Act provides that even after a partnership is dissolved,
remedies “against the limited partnership or its partners” may still be
pursued “if an action . . . is brought on behalf of . . . the limited partnership
within the time otherwise limited by law.” Id. § 8575(a) (emphasis
added). It follows that where, as here, an action is brought on behalf of the
Partnership prior to dissolution, the case also must be brought within the
applicable statute of limitations (“the time otherwise limited by law”). The
Receiver provides no reason to distinguish between pre- and post-dissolution
actions in this respect, and we know of none.
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Generally, actions for torts must be brought within two years of when
an injury is inflicted and the right to institute a suit arises. See 42 Pa.C.S.
§ 5524; Gleason v. Borough of Moosic, 15 A.3d 479, 483 n.1 (Pa. 2011).
However, “where the complaining party is reasonably unaware that his or
her injury has been caused by another party’s conduct, the discovery rule
suspends, or tolls, the running of the statute of limitations.” Id. To
successfully invoke the discovery rule, a party must show “the inability of
the injured, despite the exercise of due diligence, to know of the injury or its
cause.” Pocono Int’l Raceway, Inc. v. Pocono Produce, Inc., 468 A.2d
468, 471 (Pa. 1983) (emphasis omitted). A party fails to exercise reasonable
diligence when it fails to make an inquiry when the information regarding the
injury becomes available. Fine v. Checcio, 870 A.2d 850, 858 (Pa. 2005).
“Mistake, misunderstanding, or lack of knowledge in themselves do not toll
the running of the statute.” Id. at 857 (citation omitted).
Whether the statute of limitations has run on a claim is a question of
law for the trial court to determine; however, application of the discovery
rule involves a factual determination as to whether a party was able, in the
exercise of reasonable diligence, to know of his injury and its cause. Fine,
870 A.2d at 859. Therefore, application of the rule ordinarily must be
decided by a jury. Id. “Where, however, reasonable minds would not differ
in finding that a party knew or should have known on the exercise of
reasonable diligence of his injury and its cause, the court determines that
the discovery rule does not apply as a matter of law.” Id. at 858-59 (citation
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omitted). The standard of reasonable diligence is an objective one. Morgan
v. Petroleum Products Equip. Co., 92 A.3d 823, 829 (Pa. Super. 2014).
Here, the Partnership’s limited partners, including Lamm, were aware
of the existence of the LOI and plans for development of the property as
early as Lenfest’s deposition in August 2010. They were aware of the sale of
the property (and that it was purchased by an entity owned by Lenfest) as
early as October 5, 2010; Lamm himself was present at that auction. They
were aware that the other party to the LOI was Starwood no later than
October 11, 2010, when a copy of the LOI was produced by Lenfest. The
General Partner sent a formal letter to the limited partners regarding the
sale on October 18, 2010. The partners therefore should have sued with
respect to these alleged wrongdoings within two years of October 18, 2010,
if not earlier. As stated by the trial court:
At that point, plaintiff was informed that defendants acquired the
property, and the W Hotel/Condo LOI attached with it, which had
been developed by the partnership.
The culmination of this information — then in plaintiff’s
possession — alerted or should have alerted, plaintiff as to the
alleged injury and the party who allegedly caused the injury. As
a matter of law, the statute of limitations period had been
triggered.
Trial Court Opinion, 10/15/15, at 9. We agree with the trial court and hold
that reasonable minds could not differ on these facts. Because the
Partnership, by its Receiver, did not file suit until December 19, 2012, it
missed the mark by two months.
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To the extent the Receiver argues that he did not appreciate the full
magnitude of Defendants’ wrongdoing until the Liquidating Trustee issued its
Report in 2012, the discovery rule does not provide relief. A plaintiff is
required to exercise reasonable diligence. Had the plaintiffs in the original
action conducted an appropriate investigation, they could have uncovered
the same facts that were later exposed by the report of the Liquidating
Trustee. For example, despite having knowledge of the secretive
development plans and the auction sale in 2010, the partners did not take
the opportunity, as was their right, to review the Partnership’s books at any
time after 2009. They had a duty to investigate the dubious actions by
Defendants and commence action in a timely manner, and they failed to do
so.9
The Receiver correctly argues that although no Pennsylvania appellate
court has recognized the adverse domination doctrine, some other courts,
including some federal courts in Pennsylvania, have adopted that doctrine to
ameliorate the adverse effects of the statute of limitations in selected
____________________________________________
9
For this same reason, the Receiver may not rely on the fraudulent
concealment doctrine to escape the statute of limitations. That doctrine
“provides that the defendant may not invoke the statute of limitations, if
through fraud or concealment, he causes the plaintiff to relax his vigilance or
deviate from his right of inquiry into the facts.” Fine, 870 A.2d at 861
(citation omitted). To prevail, however, a plaintiff must show reasonable
diligence; “a statute of limitations that is tolled by virtue of fraudulent
concealment begins to run when the injured party knows or reasonably
should know of his injury and its cause.” Id.
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business situations. See Appellant’s Brief at 31-34; Resolution Trust Corp.
v. Farmer, 865 F. Supp. 1143, 1158-59 (E.D. Pa. 1994) (applying adverse
domination doctrine to claims brought by receiver for a failed financial
institution alleging negligence by former directors). Some federal courts view
“adverse domination” as the corporate equivalent of the discovery rule. See
In re O.E.M./Erie, Inc., 405 B.R. 779, 785–86 (Bankr. W.D. Pa. 2009)
(citing Farmer, 865 F. Supp. at 1154 n.11). Like the discovery rule, adverse
domination is based on the principle of an “inherently unknowable character
of the injury.” See Farmer, 865 F. Supp. at 1155 (internal quotation marks
omitted).
However, insofar as we have been able to determine, all of the federal
decisions that have applied the adverse domination doctrine have relied on
the fact that no non-culpable party could have brought suit before the
receiver or trustee was appointed because of the control the defendants
exerted over the organization and others’ lack of sufficient knowledge of the
wrongdoing. See, e.g., Hecht v. Malvern Preparatory Sch., 716 F. Supp.
2d 395, 399 (E.D. Pa. 2010) (finding receiver’s filing timely where “it would
have been impossible for the defrauded investors to have asserted their
legal rights before the [r]eceiver’s appointment” (citation and brackets
omitted)). As one court explained:
Allowing adverse domination to toll the statute of limitations
makes particular sense in a closely held corporation context . . .
where there may only be a few shareholders who also act as the
corporate entity’s officers and directors. If all the shareholders/
officers and directors in the closely held corporation engaged in
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some activity that harmed the corporate entity, there would be
no one left to protect the interests of the corporation. The
culpable individuals may then be able to continuously engage in
activities that harm not only the corporation, but also the
corporation’s creditors while escaping liability.
In re O.E.M., 405 B.R. at 785–86; see also Farmer, 865 F. Supp. at 1157(predicting that Pennsylvania would employ a “complete domination” test
and require plaintiffs to prove that there was no informed but not culpable
person who could have previously induced the corporation to initiate suit);
In re Petters Co., 495 B.R. 887, 904 (Bankr. D. Minn., July 12, 2013,
revised Aug. 30, 2013) (trustee must plead that his predicate creditor did
not and could not have discovered the injury). These decisions hold that
equity demands in such instances that the limitations period begin anew.
With this understanding of the way courts have applied the adverse
domination doctrine, we conclude that even if the doctrine were adopted in
Pennsylvania, it would not be applicable to this case. The Receiver here,
Lamm, was a limited partner, involved since 2000, and a named plaintiff in
the prior litigation. He knew about the October 2010 actions of Defendants
and could have learned any details regarding their alleged misconduct by
conducting a diligent investigation. It would not be inequitable to apply the
normal statute of limitations rules to these facts.
Lamm does not provide a satisfactory explanation of why he could not
have brought these claims earlier. He learned about the auction sale and the
Starwood project in October 2010, while his original action before Judge
Bernstein was still pending, and he could have sought to add claims based
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on those matters to that case by an amendment of his complaint. See Pa.R.
Civ.P. 1033 (an “amended pleading may aver transactions or occurrences
which have happened before or after the filing of the original pleading, even
though they give rise to a new cause of action or defense”). Or, as Judge
Glazer noted, he could have filed a separate derivative action under the
Revised Uniform Limited Partnership Act, 15 Pa. C.S. § 8591.10 Lamm claims
he would not have had standing to bring such an action, but he cites no legal
authority to support his argument. The Act provides that to bring the action,
a plaintiff “must be a partner at the time of bringing the action and . . . at
the time of the transaction of which he complains,” 15 Pa.C.S. § 8592(a)(1),
and Lamm met those criteria. We note that derivative actions exist as a
practical check against abuse for personal gain by management,11 the type
of misconduct that Lamm and the limited partners claim here.
____________________________________________
10
Section 8591 provides: “A limited partner may bring an action in the right
of a limited partnership to recover a judgment in its favor if general partners
with authority to do so have refused to bring the action or if an effort to
cause those general partners to bring the action is not likely to succeed. The
derivative action may not be maintained if it appears that the plaintiff cannot
fairly and adequately represent the interests of the limited partners in
enforcing the rights of the partnership.”
11
See Daniel P. Dwyer, The Rights of Shareholders, Limited Partners and
Non-Managing Limited Liability Company Members in Corporate Governance
Disputes: Derivative Actions in Pennsylvania, 84 Pa. Bar Ass’n Q. 47, 48 n.1
(2013) (citing Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541,
547-48 (1949)).
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For these reasons, we hold that the Receiver may not use the adverse
domination doctrine to excuse his failure to bring suit within the limitations
period. In light of this holding, we state no view as to whether the adverse
domination doctrine should be adopted as the law of Pennsylvania in an
appropriate case. Because the statute of limitations was not tolled, the trial
court did not err in dismissing Appellant’s claims as filed outside of the time
prescribed by law.
The Law of the Case
The Receiver next argues that because Judge Bernstein ordered him to
file suit within ninety days of September 20, 2012, Judge Glazer was
precluded by the law of the case doctrine from dismissing this action on
statute of limitations grounds. Appellant’s Brief at 35-37. He claims “it was
the height of unfairness for Judge Glazer to punish Appellant for being
obedient to the ruling of Judge Bernstein.” Id. at 35 n.4. We do not agree
with this characterization of Judge Glazer’s decision.
The law of the case doctrine is comprised of three rules:
(1) upon remand for further proceedings, a trial court may not
alter the resolution of a legal question previously decided by the
appellate court in the matter; (2) upon a second appeal, an
appellate court may not alter the resolution of a legal question
previously decided by the same appellate court; and (3) upon
transfer of a matter between trial judges of coordinate
jurisdiction, the transferee trial court may not alter the
resolution of a legal question previously decided by the
transferor trial court.
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Commonwealth v. Starr, 664 A.2d 1326, 1331 (Pa. 1995); accord Zane
v. Friends Hosp., 836 A.2d 25, 29 (Pa. 2003). Within this doctrine lies the
directive that “judges sitting on the same court in the same case should not
overrule each other’s decisions,” otherwise known as the “coordinate
jurisdiction rule.” Commonwealth v. Daniels, 104 A.3d 267, 278 (Pa.
2014).
The purposes behind the law of the case doctrine and the coordinate
jurisdiction rule are “(1) to protect the settled expectations of the parties;
(2) to insure uniformity of decisions; (3) to maintain consistency during the
course of a single case; (4) to effectuate the proper and streamlined
administration of justice; and (5) to bring litigation to an end.” Starr, 664
A.2d at 1331 (citation omitted). Only in exceptional circumstances, such as
“an intervening change in the controlling law, a substantial change in the
facts or evidence giving rise to the dispute in the matter, or where the prior
holding was clearly erroneous and would create a manifest injustice if
followed,” may the doctrine be disregarded. Id. at 1332.
To determine whether the law of the case doctrine applies, a court
must examine the rulings at issue in the context of the procedural posture of
the case. Stein v. Magarity, 102 A.3d 1010, 1017 (Pa. Super. 2014). The
coordinate jurisdiction rule does not apply where the motions ruled upon are
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of a different type. Hunter v. City of Phila., 80 A.3d 533, 536 (Pa. Cmwlth.
2013).12
Judge Glazer did not violate the law of the case doctrine. The order of
September 20, 2012, which was entered by Judge Bernstein during the
original Lamm litigation, reads in relevant part as follows:
1. The Motion to Accept the [Liquidating Trustee’s] Final Report
is GRANTED.1
2. Eric D. Freed is removed as Liquidating Trustee and David S.
Lamm is appointed Receiver for Mariner Chestnut Partners, L.P.
(the “Partnership”) to pursue litigation on behalf of the
Partnership based on the claims identified in the Trustee’s
Report.
3. The Receiver shall file any such litigation on behalf of the
Partnership within ninety (90) days of the date of entry of this
Order
4. If the Receiver fails to timely file such litigation, the
Partnership shall be dissolved immediately by the Receiver and
all assets distributed in accord with the Partnership Agreement.
5. If the Receiver timely files such litigation, upon termination of
the litigation, the Receiver’s attorneys’ fees and costs shall be
paid first out of any damages awarded. The remainder of the
damages, if any, shall be distributed to the partners in accord
with the Partnership Agreement, or as ordered by the court in
which the litigation is filed, and immediately thereafter the
Partnership shall be dissolved by the Receiver.
____________________________________________
12
“Although decisions of the Commonwealth Court are not binding on this
Court, we may rely on them if we are persuaded by their reasoning.”
NASDAQ OMX PHLX, Inc. v. PennMont Secs., 52 A.3d 296, 308 n.7 (Pa.
Super. 2012) (citation omitted).
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_______________
1
The Report was not the result or subject of any adversary
proceeding. The court makes no factual findings based on the
Report. The court notes that certain information was not
voluntarily provided by a non–party corporate entity which
could not be subpoenaed.
Lamm Order, 9/24/12. Judge Bernstein explained that he appointed the
Receiver specifically to allow for litigation based on the claims discussed in
the Report of the Liquidating Trustee. Lamm Revised Opinion, 11/5/12, at
2.13 The pursuit (or abandonment) of all litigation regarding the Partnership
was a necessary step to accumulating all assets of the Partnership prior to
its dissolution. The court stated:
So that this matter, which has already been in litigation for three
and one half years, not remain interminably dormant, the Court
ordered that litigation based on the potential claims identified in
the Liquidating Trustee’s final report must be filed within 90 days
or the partnership shall be immediately dissolved and all
remaining assets distributed in accord with the partnership
agreement.
Id. at 3.
To prevail on his law-of-the-case argument, the Receiver must
interpret Judge Bernstein’s order as setting forth a requirement that the
statute of limitations be extended so that it could not expire until after the
____________________________________________
13
“Based on the report of the liquidating trustee a reasonable basis exists
for litigation to be pursued. The Court reasonably appointed a limited partner
who feels aggrieved and is willing to personally fund and pursue this
litigation on behalf of the partnership.” Lamm Revised Opinion, 11/5/12, at
3.
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end of the 90 days that Judge Bernstein gave the Receiver to file suit. But
Judge Bernstein had no authority to do that. The Judicial Code provides:
(a) General rule.—Except as provided in section 1722(c)
(relating to time limitations) or in subsection (b) of this section,
the time limited by this chapter shall not be extended by
order, rule or otherwise.
(b) Fraud.—The time limited by this chapter may be extended
to relieve fraud or its equivalent, but there shall be no extension
of time as a matter of indulgence or with respect to any criminal
proceeding.
42 Pa.C.S. § 5504 (emphasis added). This section expressly prohibits judicial
extensions of the time to commence an action. Aivazoglou v. Drever
Furnaces, 613 A.2d 595, 598 (Pa. Super. 1992). Although Judge Bernstein
acknowledged that Lenfest and Chestnut Property concealed wrongdoings in
2010, he did not make any finding of fraud under Section 5504(b) that
would allow him to extend the statute of limitations.
In fact, Judge Bernstein’s order did not address the statute of
limitations at all. It merely set an outside deadline within which to file viable
new claims. Plaintiffs were still constrained by the rules of law under which it
would be determined whether those claims would be viable, including any
applicable statutes of limitations. Judge Bernstein did say he thought there
was a “reasonable basis” for the Receiver to pursue further litigation, but he
did not make any factual finding based on the Liquidating Trustee’s report, a
legal ruling on the merits of the potential claims, or an assessment of the
timeliness of any claims.
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Judge Bernstein’s actual rulings were limited to the following: the
Lamm plaintiffs’ claims for damages were dismissed, a receiver was
appointed, and dissolution of the Partnership was ordered to occur. Nothing
in Judge Glazer’s later decisions disturbed those rulings. Accordingly, the
Receiver’s argument based on the law of the case doctrine is without merit.
Continued or Separate Case, and Issue or Claim Preclusion
The Receiver’s final argument is that the issues in the instant case
were timely raised in the first Lamm action, and that this case is a
continuation of that earlier one and therefore should not be subject to a new
limitations period. Appellant’s Brief 37-40.
With respect to the instant action, the Receiver points to the footnote
in Judge Glazer’s opinion stating —
Assuming arguendo that plaintiff’s claims were not barred by the
statute of limitations, [D]efendants’ motion still would have been
granted due to collateral estoppel and res judicata. Based on J.
Bernstein’s and the Superior Court’s holdings in the related
underlying litigation, the fundamental issues raised by plaintiff
have already been litigated, decided, and affirmed on appeal.
Trial Court Opinion, 10/15/15, at 10 n.10. The Receiver agrees with the trial
court that “the fundamental issues” of the instant case were raised in the
previous Lamm litigation, and he therefore concludes that they are not
barred by the statute of limitations. But the Receiver disagrees with the trial
court’s statement that the issues in the instant case were decided in the first
Lamm action and that the Receiver’s claims therefore are barred by
collateral estoppel or res judicata. Appellant’s Brief at 37-40.
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At the outset, we note that the Receiver cannot have it both ways. As
discussed above, if this is a new case then the statute of limitations bars the
Receiver’s claims. The mere fact that this new case may somehow be an
outgrowth of litigation that preceded it does not make the statute of
limitations inapplicable. See Daley v. A.W. Chesterton, Inc., 37 A.3d
1175, 1190 (Pa. 2012) (holding plaintiff may file second or subsequent
action for asbestos-related disease, as long as that action “is based on a
separate and distinct [asbestos-related] disease which was not known to
plaintiff at the time of his first action, and is filed within the applicable
statute of limitations period” (emphasis added)); Royal-Globe Ins. Cos.
v. Hauck Mfg. Co., 335 A.2d 460, 462 (Pa. Super. 1975) (“if a plaintiff
mistakes his remedy . . . and, during the pendency of the action, the
limitation runs, the remedy is barred” (citation omitted)); see also
Williams Studio Div. v. Nationwide Mut. Fire Ins. Co., 550 A.2d 1333,
1335-37 (Pa. Super. 1988), appeal denied, 588 A.2d 510 (Pa. 1990).14
This case either presents new claims subject to a new limitations
period, or it does not. In much of his briefing, the Receiver argues that this
case is truly new because he filed it pursuant to Judge Bernstein’s directive.
____________________________________________
14
As discussed in the text, the first Lamm action ended with a judgment on
the merits that was affirmed by this Court. Therefore, the Pennsylvania
savings statute, which removes a limitations defense if an action is refiled
within one year after its termination by a disposition other than “a final
judgment on the merits” has no application here. See 42 Pa. C.S.
§ 5535(a)(1).
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See, e.g., Appellant’s Brief at 28 (claiming plaintiffs did not discover the
wrongdoing that forms the basis of their new suit until the Liquidating
Trustee’s Report was published in July 2012), 34 (referring to a
“requirement that a new action was needed”). That should be the end of the
matter. The Receiver’s concomitant argument that this case is merely a
“bifurcated” continuation of the original Lamm litigation that was litigated to
judgment in 2012 (and, therefore, is not subject to a new limitations
period), see, e.g., id. at 37-40, contradicts the Receiver’s other arguments
that this is a new case.
In our view, the Receiver did indeed file this action as a new case. As
he emphasizes, Judge Bernstein appointed him to pursue litigation based on
the claims identified by the Liquidating Trustee’s Report. The wrongdoing
identified in that Report related to the secret Starwood development plans
and the sale of the Chestnut Street property in 2010, all of which took place
well after the initiation of the original Lamm suit. No one amended the
complaint in that original suit to add claims based on that wrongdoing. Judge
Bernstein did not consider this alleged new wrongdoing as a factual basis for
potential relief on the tort claims in the original Lamm litigation; instead, he
referenced it only when granting the request for dissolution. In his order
appointing the Receiver, Judge Bernstein specified that he was not making a
factual finding based on the Liquidating Trustee’s Report, and therefore was
not resolving the merits of these issues. Thus, to the extent that the facts
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supporting the instant case are new and were not used as the basis for
substantive relief in the original Lamm action, this is a new case and not
part of the old one, and the statute of limitations bars it.
We recognize that there is some overlap between the facts and claims
in the two cases. But this overlap cannot save the Receiver’s claims. Rather,
as Judge Glazer pointed out, to the extent any part of this new litigation may
be considered a reassertion of parts of the earlier Lamm case, it is barred
by the judgment entered in that earlier action.
Under the doctrine of res judicata, or claim preclusion, “a final
judgment on the merits by a court of competent jurisdiction will bar any
future action on the same cause of action between the parties and their
privies.” Hopewell Estates, Inc. v. Kent, 646 A.2d 1192, 1194 (Pa. Super.
1994). The doctrine therefore forbids further litigation on “all matters which
might have been raised and decided in the former suit, as well as those
which were actually raised therein.” Id. (citation and brackets omitted).
Similarly, “The doctrine of collateral estoppel or issue preclusion prevents a
question of law or an issue of fact that has once been litigated and fully
adjudicated in a court of competent jurisdiction from being relitigated in a
subsequent suit.” Meridian Oil & Gas Enters., Inc. v. Penn Cent. Corp.,
614 A.2d 246, 250 (Pa. Super. 1992) (citation omitted).
In the original Lamm action, all claims were litigated to a final
judgment that was affirmed by this Court on appeal. Lenfest and Chestnut
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Property prevailed in that case on the claims brought against them for
breach of fiduciary duties and breach of the Partnership Agreement.
Therefore, to the extent that the Receiver now argues that the instant claims
are the same as those in the original Lamm action or are part of the same
cause of action as what was litigated in that case, the doctrines of claim and
issue preclusion apply and the Receiver can no longer recover on these
claims. See Hopewell Estates, 646 A.2d at 1194.
Accordingly, for all of these reasons, we affirm the trial court’s grant of
summary judgment.
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 12/7/2016
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