Akator Construction v. Lagom, LLC

J-A26011-16
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
AKATOR CONSTRUCTION, LLC, IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellee
v.
LAGOM, LLC,
Appellant No. 1548 WDA 2015
Appeal from the Order Entered September 10, 2015
In the Court of Common Pleas of Allegheny County
Civil Division at No(s): GD-15-012694
BEFORE: BENDER, P.J.E., RANSOM, J., and MUSMANNO, J.
MEMORANDUM BY BENDER, P.J.E.: FILED JANUARY 04, 2017
Appellant, Lagom, LLC (“Lagom”), appeals from the trial court’s
September 10, 2015 order granting Appellee’s, Akator Construction, LLC
(“Akator”), petition for preliminary injunction.1 For the reasons stated
herein, we vacate the trial court’s order and remand the case for further
proceedings.
The trial court has summarized the factual background and procedural
history of this case as follows:
Akator and Lagom are parties to a Joint Venture
Agreement dated August 5, 2011, pursuant to which the parties
agreed to acquire, rehabilitate and resell properties located in
the City of Pittsburgh and surrounding areas. The parties each
hold a fifty (50%) percent interest in the Joint Venture[,] and
____________________________________________
1
The trial court’s order granting Akator’s petition for preliminary injunction
was dated September 9, 2015, and filed on September 10, 2015.
J-A26011-16
profits and losses are distributed in accordance with those
percentage interests.
A dispute arose between the parties in early 2015 when
alleged financial discrepancies were discovered within the
financial records of the Joint Venture maintained by Akator and
its accountants. In April[] 2015, Lagom entered into an
agreement to sell one of the Joint Venture properties. Since the
property was titled in Lagom’s name only, the proceeds from the
sale of the property were paid to Lagom. Despite requests by
Akator, Lagom refused to pay Akator its share of the proceeds
from the sale or to demonstrate [that] the funds were held in a
bank account.
On or about July 23, 2015, Akator filed a Petition for Rule
to Show Cause as to its Petition for Preliminary Injunction.
Akator’s petition seeks to have its share of the profits from the
sale of the property (i.e., $185,000) placed into an escrow
account not reachable by either party pending resolution of the
disputes between Akator and Lagom in arbitration.
Lagom filed preliminary objections in opposition to Akator’s
Petition for Preliminary Injunction. The primary argument
offered by Lagom was that this [c]ourt did not have the ability to
grant the relief requested by Akator because the Joint Venture
Agreement contained an arbitration provision.
During a hearing on Lagom’s preliminary objections, the
parties argued the issue of whether a set fund of money could be
subject to injunctive relief in the form of an escrow given the
parties’ arbitration agreement. This [c]ourt, after hearing
argument, denied Lagom’s preliminary objections and ordered
Lagom to pay $185,000 into an escrow account in the name of
the Joint Venture requiring joint signatures for disbursement.
This [c]ourt’s Order was intended to preserve the status quo and
to ensure the funds would not be dissipated while the parties go
through the arbitration process.
Trial Court Opinion (TCO), 12/16/2015, at 1-2 (unnumbered pages).
Following the trial court’s order granting Akator’s petition for
preliminary injunction, Lagom timely appealed. On appeal, Lagom raises
four issues for our review:
-2-
J-A26011-16
1. In granting the preliminary injunction, did the trial court
err in that the preliminary injunction was issued without
notice when the status conference and the hearing on the
injunction was scheduled for September 24, 2015 before a
different judge?
2. Did the trial court err when it impropery [sic] issued a
preliminary injunction without a hearing as required by
Pa.R.C.P. 1531(d)?
3. Did the trial court err when it failed to require Akator to
post a bond in accordance with Pa.R.C.P. 1531(b) when it
granted the prepiminary [sic] injunction?
4. Was there a showing that immediate and irreparable injury
would result to Akator if the injunction was not granted
without a hearing?
Lagom’s Brief at 4 (unnecessary capitalization and emphasis omitted).
In reviewing whether a preliminary injunction was properly granted,
this Court has explained:
A trial court has broad discretion to grant or deny a
preliminary injunction. When reviewing a trial court's grant or
refusal of a preliminary injunction, an appellate court does not
inquire into the merits of the controversy, but rather examines
only the record to ascertain whether any apparently reasonable
grounds existed for the action of the court below. We may
reverse if the trial court's ruling amounted to an abuse of
discretion or a misapplication of law.
A trial court may grant an injunction only if the plaintiff
seeking that extraordinary remedy establishes a clear right to
the requested relief. Furthermore, the moving party must
satisfy the following essential prerequisites: (1) that relief is
necessary to thwart immediate and irreparable harm which could
not be remedied by damages; (2) that greater injury will result
by refusing the injunction than by granting it; (3) that the
injunction will restore the parties to their status as existing prior
to alleged wrongful conduct; and (4) that the injunction is
reasonably suited to abate such activity.
-3-
J-A26011-16
WPNT Inc. v. Secret Communication Inc., 661 A.2d 409, 410 (Pa.
Super. 1995) (internal citations omitted; emphasis added).
First, Lagom asserts that the trial court erred by issuing the
preliminary injunction without providing it with written notice and a hearing.2
Specifically, it contends that the trial court “improperly ruled on the
preliminary injunction contrary to the order of court scheduling the matter
for September 24, 2015[,] and failed to satisfy the procedural requirements
and safeguards set forth in Pa.R.C.P. 1531[.]” Lagom’s Brief at 18. We
agree.
Pennsylvania Rule of Civil Procedure 1531 sets forth the following, in
pertinent part:
(a) A court shall issue a preliminary or special injunction only
after written notice and hearing unless it appears to the
satisfaction of the court that immediate and irreparable
injury will be sustained before notice can be given or a
hearing held, in which case the court may issue a
preliminary or special injunction without a hearing or
without notice. In determining whether a preliminary or
special injunction should be granted and whether notice or
a hearing should be required, the court may act on the
basis of the averments of the pleadings or petition and
may consider affidavits of parties or third persons or any
other proof which the court may require.
(b) Except when the plaintiff is the Commonwealth of
Pennsylvania, a political subdivision or a department,
board, commission, instrumentality or officer of the
____________________________________________
2
For ease of disposition, we address Lagom’s first and second issues, stated
supra, together. These issues pertain to the notice and hearing required by
our Rules of Civil Procedure before a preliminary injunction can be issued
and continued.
-4-
J-A26011-16
Commonwealth or of a political subdivision, a preliminary
or special injunction shall be granted only if
(1) the plaintiff files a bond in an amount fixed and with
security approved by the court, naming the
Commonwealth as obligee, conditioned that if the
injunction is dissolved because improperly granted or
for failure to hold a hearing, the plaintiff shall pay to
any person injured all damages sustained by reason
of granting the injunction and all legally taxable
costs and fees, or
(2) the plaintiff deposits with the prothonotary legal
tender of the United States in an amount fixed by
the court to be held by the prothonotary upon the
same condition as provided for the injunction bond.
***
(d) An injunction granted without notice to the defendant shall
be deemed dissolved unless a hearing on the continuance
of the injunction is held within five days after the granting
of the injunction or within such other time as the parties
may agree or as the court upon cause shown shall direct.
Pa.R.C.P. 1531 (internal notes omitted).
Based on this Rule, our Court has explained:
[A] court will ordinarily issue a preliminary injunction only after
written notice and hearing. A preliminary injunction may be
granted without notice and a hearing only when there exists a
need for unusual haste so that a clear right may be protected
from immediate and irreparable injury. In that event, the court
must make a finding that relief is necessary and must be
awarded before the defendant can be notified. If the court then
fails to conduct a hearing within five days, the injunction is
deemed dissolved.
WPNT Inc., 661 A.2d at 410-11 (citations omitted; emphasis added).
In WPNT Inc., the trial court “granted [the] appellee’s request for a
preliminary injunction solely on the basis of the pleadings and arguments of
counsel. The issuing court refused to conduct a hearing either before or
-5-
J-A26011-16
after entering the decree.” Id. at 411. On appeal, this Court explained
that, although there is “no absolute right” to a hearing, “our rules and our
case law clearly indicate that a hearing is the preferred procedure. It is the
rare preliminary injunction that can correctly be denied without a hearing
and no preliminary injunction can be granted and continued without
a hearing, whether before or after the initial grant.” Id. (citations,
quotations, and footnote omitted; emphasis in original). Our review of
relevant case law reveals that the weight of authority supports the position
that a hearing should take place in order to establish the factual basis for the
preliminary injunction.3
____________________________________________
3
See, e.g., Pubusky v. D.M.F. Inc., 239 A.2d 335, 336-37 (Pa. 1968)
(“We frequently have said that a preliminary injunction should not issue at
least until the rights of the plaintiff are clearly established. It also is
fundamental that all of the parties are entitled to a hearing before such an
injunction should issue.”) (citations and footnote omitted); Bell Fuel
Corporation v. Cattolico, 544 A.2d 450, 455 (Pa. Super. 1988) (“There are
numerous cases where the trial court has utilized a procedure …, cutting
short a previously scheduled hearing on a preliminary injunction and
refusing the injunction as a matter of law, where our appellate courts have
found the decision to be premature and have reversed and remanded for a
full evidentiary hearing.”); Beck Computing Services Inc. v. Anderson,
524 A.2d 990, 992 (Pa. Super. 1987) (determining that the trial court “erred
in failing to hold a hearing on the [a]ppellant’s request for a preliminary
injunction” and that it “lacked a sufficient factual basis for determining
whether or not the other prerequisites for injunctive relief were present”);
Boyd v. Cooper, 410 A.2d 860, 862 (Pa. Super. 1979) (“Thus we conclude
that the trial judge erred in not completing its scheduled hearing on [the]
appellants’ request for the purpose of developing a factual basis for the
requested relief.”). But see Walter v. Stacy, 837 A.2d 1205, 1210 (Pa.
Super. 2003) (“A hearing simply is not required under the law. We are
satisfied that the trial court's reliance on the pleadings and the arguments of
counsel was sufficient to support its determination in this case.”).
-6-
J-A26011-16
Further, our Supreme Court has clarified what constitutes a sufficient
preliminary injunction hearing: “While the testimony at a hearing for a
preliminary injunction which seeks only to preserve the status of the parties
until the issue is finally determined need not always be as extensive as that
at a final hearing, the litigants should not be deprived of their right to
fully cross-examine all adverse witnesses, nor of the opportunity to
present testimony which is relevant to the question of whether or
not the injunction should issue.” Pubusky, 239 A.2d at 337 (emphasis
added). See also Ogontz Controls Company v. Pirkle, 477 A.2d 876,
879 (Pa. Super. 1984) (acknowledging that “the hearing on the preliminary
injunction motion must be one at which both parties are given the
opportunity to fully cross-examine witnesses and present relevant
testimony”) (emphasis in original). We have also stated that “[t]he question
to be determined at this hearing is whether there is an urgent necessity for
interim relief before the case can be heard on the merits.” Soja v.
Factoryville Sportsmen’s Club, 522 A.2d 1129, 1131 (Pa. Super. 1987)
(citation omitted).
Here, Lagom argues that it was not afforded written notice and a
hearing, as required by Pa.R.C.P. 1531. In short, Lagom avers that “[t]he
parties walked in for a preliminary objections argument and – unbeknownst
to them – walked out with a preliminary injunction.” Lagom’s Brief at 21. It
states:
[] Akator filed its Petition for Rule to Show Cause and its
Petition for a Preliminary Injunction on July 23, 2015. It also
-7-
J-A26011-16
gave notice indicating that it would appear in Motions Court on
August 3, 2015, to seek the Rule to Show Cause why the
preliminary injunction should not be issued. On August 3rd, the
parties entered into a consent order of court, whereby it
scheduled deadlines for pleadings and briefs, a date for
argument on the preliminary objections, in addition to scheduling
a status-conference before the preliminary injunction [], and
then ultimately, the hearing date on the preliminary injunction
request itself.
September 9th was the scheduled day for argument on the
preliminary objections. Both parties appeared and presented
their positions solely on the preliminary objections. The record
does not support any finding that arguments were made and
evidence [was] presented on the issue of the preliminary
injunction. Judge Marmo did not issue a ruling from the
bench[;] thus[,] the parties had to wait to receive a court order
in the mail. In spite of the court order scheduling a status
conference and then the hearing on the preliminary injunction,
Judge Marmo – on the same day – entered the equivalent to an
ex parte preliminary injunction against Lagom. This order
neither required Akator to post a bond nor scheduled a date for a
hearing on the continuance of the injunction.
Lagom submits that the arguments on the preliminary
objections did not meet any criteria for that of a “hearing” ….
Id. at 18-19 (emphasis in original).4
Indeed, the consent order of court, entered on August 3, 2015, sets
forth the following schedule:
AND NOW, to-wit, this 3rd day of August, 2015, it appearing
that a hearing has been set in the captioned matter regarding a
Petition for Injunctive Relief on 9-24-15 at 1:45 p.m., in order to
wisely use the scarce time available, it is hereby ORDERED as
follows:
- Preliminary Objections to be filed by August 14, 2015[;]
____________________________________________
4
We cannot present Akator’s recitation of these events as it did not file a
brief.
-8-
J-A26011-16
- Response to Preliminary Objections to be filed by
August 19, 2015[;]
- Hearing on Preliminary Objections to be held on
September 9, 2015 at 10:45 [a.m.].
- Petitioner’s brief on the applicable law must be filed
with the Motions Clerk within one week of the date
hereof, i.e., 9-14-2015.
- Respondent’s brief on the applicable law must be filed
with the Motions Clerk no later than one week before
the hearing date indicated above, i.e. 9-22-15.
- Petitioner must draft proposed stipulations of those
material facts or evidentiary matters which Movant
believes are not disputed by Respondent and deliver
them to Respondent no later than one week before the
aforesaid hearing date. The proposed stipulations are
not to be filed with the [c]ourt.
- The Respondent may submit additional proposed
stipulations, if any, to the Petitioner no later than three
working days before the hearing date. Again, these
proposed stipulations are not to be filed with the
[c]ourt.
The attorneys for the parties shall meet with the Motions
Judge then sitting, on 9-24-15 at 11:15 [a.m.], for a brief Status
Conference to discuss possibilities of settlement, evidentiary
stipulations, scope of the hearing, allocation of available hearing
time among the parties, and other such matters. Clients need
not be present. No testimony will be taken on the day of the
Status Conference.
Trial Court Order, 8/3/2015.5 Accordingly, our review of the record does not
uncover written notice that the hearing on the preliminary injunction would
____________________________________________
5
The trial judge that presided over the September 9, 2015 hearing on the
preliminary objections also entered this scheduling order.
-9-
J-A26011-16
occur on September 9, 2015; instead, that hearing was explicitly scheduled
to take place on September 24, 2015.6
Moreover, we are compelled to also conclude that Lagom was similarly
deprived of a proper hearing on the preliminary injunction. By granting
Akator’s petition for preliminary injunction during the September 9, 2015
argument, the trial court explained that “it was readily apparent [that] the
only real issue in dispute was whether this [c]ourt could issue a preliminary
injunction to preserve the status quo considering the arbitration provisions
of the Joint Venture Agreement.” TCO at 3. It reasoned that “[s]ince this
[c]ourt concluded it was within its powers to issue the injunction, and the
parties were afforded ample opportunity to argue their positions, which they
willingly did at the September 9, 2015 hearing, there was no need for an
additional hearing on the matter.” Id. at 4.
Lagom, on the other hand, insists that “[n]o testimony was taken nor
was any evidence presented. There was no argument on the preliminary
____________________________________________
6
In response to Lagom’s claim that it did not have notice, the trial court
explains that “it was clear to both parties that a hearing would be held on
September 9, 2015[,] and both parties appeared with counsel on such date.
Also, Lagom had long known that an injunction hearing would occur since
Akator filed its preliminary injunction petition on July 23, 2015.” TCO at 3.
We note that such circumstances have not established sufficient notice in
other cases. See Rosenzweig v. Factor, 327 A.2d 36, 37 (Pa. 1974)
(determining that preliminary injunction was issued without notice even
though a complaint had been filed seeking injunction months earlier); In re
D.G., Jr., 894 A.2d 1290, 1291 (Pa. Super. 2006) (vacating provision that
was added to an order during a post-hearing discussion without a party and
his counsel present).
- 10 -
J-A26011-16
injunction. Lagom was arguing preliminary objections challenging the
sufficiency of Akator’s pleadings.” Lagom’s Brief at 13. It further contends
that “[a]rguments on preliminary objections cannot be treated as a hearing
for a preliminary injunction[,]” and “[t]he practical effect of this would
require that any party should be prepared to bring witnesses and any other
evidence to any court proceeding on the chance that the [j]udge might
decide the ‘real issue in dispute.’”7 Id. at 16-17.
Usually in cases where there are such discrepancies about what
transpired at a hearing, we would look to the relevant transcript to ascertain
exactly what occurred. However, no transcript of the September 9, 2015
____________________________________________
7
Lagom does not specifically identify the evidence or testimony it planned to
proffer at the preliminary injunction hearing, but instead argues that
Akator’s petition for a preliminary injunction — on which the trial court relied
in granting the requested relief — “did not indicate how it calculated the
$185,000 which it believed it was entitled. This petition did not include any
discussion of the expenditures of the [Joint Venture], which are required
under the [Joint Venture] for determining whether there were profits or
losses. Lastly, this petition did not plead that Lagom was going to be
insolvent or judgment proof.” Lagom’s Brief at 7; see also TCO at 4.
Lagom further asserts that Akator did not file its Rule to Show Cause and
Petition for Preliminary Injunction until “approximately eleven (11) months
after the complained of conduct occurred[,]” which suggests that Akator
would not have faced immediate and irreparable injury if the preliminary
injunction had not been granted. See Lagom’s Brief at 9. Presumably,
these factual issues would have been addressed and determined at the
preliminary injunction hearing. We also note, pursuant to the scheduling
order cited supra, that the parties had not yet submitted briefs on the
applicable law surrounding preliminary injunctions. See Trial Court Order,
8/3/2015.
- 11 -
J-A26011-16
hearing exists.8 Given the rules and case law cited supra, the differing
accounts of the arguments made at the September 9, 2015 hearing, and the
lack of transcript from that proceeding, we are constrained to vacate the
trial court’s order and remand this matter for the trial court to conduct a
hearing regarding the preliminary injunction.
Second, Lagom argues that “the trial court erred when it failed to
require Akator to post a bond in accordance with Pa.R.C.P. 1531(b) when it
granted the preliminary injunction.” Lagom’s Brief at 22 (unnecessary
emphasis and capitalization omitted). Again, we agree. The trial court
must require the posting of a bond. This Court has determined that
“[before a preliminary injunction may be granted, the plaintiff must file a
bond with the prothonotary. This requirement is mandatory and an
appellate court must invalidate a preliminary injunction if a bond is
not filed by the plaintiff.” Soja, 522 A.2d at 1131 (citations omitted;
emphasis added). To be sure, “even if the trial court’s order was otherwise
proper, its failure to require the posting of a bond would mandate our
reversal of its decision.” Id. See also Mamula v. United Steelworkers
____________________________________________
8
Lagom asserts that it “ordered a transcript pursuant to Pa.R.A.P. 1922(a)
together with the deposit, but was informed by the Court Reporter that she
was not present for the preliminary objections argument, so the proceeding
was not recorded and obviously there is nothing to be transcribed.” Lagom’s
Brief at 15 n.1. In an abundance of caution, our Court’s Prothonotary’s
office contacted the Allegheny County Court of Clerks and verified that there
was no record made of the September 9, 2015 argument.
- 12 -
J-A26011-16
of America, 185 A.2d 595, 597 (Pa. Super. 1962) (“The injunction … was
issued without the filing of a bond and hence was a nullity. No power
resided in the court below to issue an injunction where the party applying for
it had not filed an appropriate bond.”).
In the case sub judice, the trial court reasoned that no bond was
necessary because “[t]he funds will be held in escrow pending resolution of
the dispute and then released to the appropriate party and, thus, the bond
would serve no purpose in this case. With the Order restricting the release
of the escrow, Lagom has a similar security that a bond would provide.” 9
TCO at 6. This Court, however, has previously rejected this rationale.10
____________________________________________
9
We have explained that “[t]he requirement of a bond exists for the specific
purpose of protecting a defendant by supplying a fund to pay damages if this
relief is granted erroneously.” Goodies Olde Fashion Fudge Co. v.
Kuiros, 597 A.2d 141, 144 (Pa. Super. 1991). It is unclear to this Court
how Lagom is afforded protection by being required to deposit $185,000
into an escrow account.
10
In Walter, after a plaintiff filed a civil action against the defendants, she
sought a preliminary injunction against them, requesting that “any
proceedings from the sale of [the defendants’] property were to be
deposited into an escrow account from which the [defendants] could not
make a withdrawal without a court order.” Walter, 837 A.2d at 1207.
Upon granting the requested preliminary injunction, the trial court chose not
to require a bond, but instead added a provision to its order granting the
injunction that stated “IF the defendants prevail …, the [p]laintiff is
ORDERED to pay to the [d]efendants the court filing fee and reasonable
attorney fee associated with the [d]efendants’ request for a [c]ourt [o]rder
authorizing release of the house proceeds.... Otherwise, [the d]efendant[s’]
request for [the p]laintiff to post a bond … is hereby DENIED.” Id. at 1208.
On appeal, this Court determined that it had “no choice but to vacate the
order of the trial court due to its failure to require a bond.” Id. In doing so,
it noted that “[a]lthough the trial court attempted to fashion an alternative
(Footnote Continued Next Page)
- 13 -
J-A26011-16
Accordingly, we must vacate the trial court’s order on this basis as well.11
Order vacated. Remanded for further proceedings consistent with this
memorandum. Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 1/4/2017
_______________________
(Footnote Continued)
to [Pa.R.C.P.] 1531(b), the law does not allow the trial court to act in this
manner.” Id. See also Rosenzweig, 327 A.2d at 38 (concluding that
injunction ordering the defendant to place disputed funds into an escrow
account was “defective and subject to being vacated” because it was issued
without the requisite bond being filed by the plaintiff) (citation omitted).
11
Because we dispose of this matter on the above-stated grounds, we need
not determine the remaining issue raised by Lagom in its brief.
- 14 -