Upsilon Chapter v. Greek Housing

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
UPSILON CHAPTER, INC. : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
GREEK HOUSING SERVICES, INC. :
AND MARK MALONEY :
: No. 564 MDA 2019
Appellants :
Appeal from the Order Entered March 29, 2019
In the Court of Common Pleas of Centre County Civil Division at No(s):
2016-4487
BEFORE: DUBOW, J., NICHOLS, J., and COLINS, J.*
MEMORANDUM BY DUBOW, J.: FILED: NOVEMBER 19, 2019
Appellants, Greek Housing Services, Inc. (“Greek Housing”) and Mark
Maloney,1 appeal from the March 29, 2019 Order denying reconsideration of
its January 25, 2019 Order compelling the production Appellants’ 2016 and
2017 accounting records, in their entirety, in their native QuickBooks format.
We quash this appeal as interlocutory.
In 2004, Appellant and Appellee, Upsilon Chapter, Inc., entered into a
limited partnership agreement, forming 328 Fairmount, L.P. (“Fairmount”).
Appellee holds a 19 percent ownership interest in Fairmount, Maloney holds
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* Retired Senior Judge assigned to the Superior Court.
1 Maloney is the sole owner of Greek Housing Services, Inc. Relevantly,
Maloney has interests in other real estate-related businesses also located in
the State College area including Half Moon Land Company, Maloney &
Associates, and MCM Property Group.
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an 80 percent ownership interest, and Greek Housing, which Maloney controls
entirely, holds a 1 percent interest. Greek Housing acts as the general partner
of Fairmount. The parties intended that Fairmount own and manage the
fraternity house occupied by Appellee, a fraternity, specifically including
leasing the house to fraternity members.
Appellee discovered, inter alia, that Appellant Greek Housing improperly
handled the finances of Fairmount, including by making an inappropriate loan
to another entity belonging to Maloney, and that Greek Housing and Maloney
took tangible property belonging to Appellee and its members.
Thus, on December 22, 2017, Appellee filed an Amended Complaint
raising claims of Breach of Fiduciary Duty, Breach of Contract, Violation of the
Uniform Fraudulent Transfer Act (“UFTA”),2 Fraud, Conversion, and an Action
for Accounting.3 Appellee alleged that Greek Housing is an alter-ego of
Maloney and that Appellants engaged in self-dealing by funneling hundreds of
thousands of dollars from Fairmount to third-party entities owned by Maloney,
through the use of promissory notes. Amended Complaint, 12/22/17, ¶ 41.
Appellee alleged that “[t]he [p]romissory [n]otes were issued on behalf of
[Greek Housing] and other third[-]party entities controlled by Maloney,
reflecting purported indebtedness to [Fairmount] for hundreds of thousands
of dollars . . . with Maloney signing as both lender and borrower.” Id. at ¶¶
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2 See 12 Pa.C.S. § 5101, et seq.
3 Upsilon Chapter, Inc. filed the Amended Complaint in its own right as
Fairmount’s minority partner and derivatively on Fairmount’s behalf.
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42-45, 47. Appellee asserts that it has never identified any legitimate
business purpose relating to Fairmount’s real estate leasing business for
“lending” money to third-parties, Greek Housing, “Maloney + Associates,” and
“Half Moon Land Co,” all of which Maloney owns, controls, and personally
benefits from. See id. at 48-49.
During the course of litigation, Appellee has sought discovery of
Appellants’ financial information, particularly as it pertains to Greek Housing’s
operations and the operations of Fairmount. In particular, Appellee sought:
All accounting records from 2004 through the present in your
custody or control pertaining to:
a. Mark Maloney;
b. Greek Housing Services;
c. Half Moon Land Co.;
d. Maloney & Associates;
e. MCM Property Management Group.
Document Request, 1/27/17, ¶ 5.
On March 31, 2017, Appellants produced responses to Appellee’s written
discovery requests, which included some of Greek Housing’s records.
Appellants did not include information that Appellants regarded as proprietary
or financial information of the Maloney-controlled non-parties named in the
Amended Complaint.
On December 15, 2017, Appellee filed a Motion to Compel discovery. On
February 7, 2018, the court ordered, inter alia, that Appellants “are not
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compelled to produce information or documentation concerning non[-]parties
except [Fairmount.]” Order, 2/7/18, ¶ 3.
On September 28, 2018, Appellee filed a Motion to Compel Discovery
and Enforce Prior Order. On November 1, 2018, the trial court entered a
Stipulated Order disposing of Appellee’s Motion. A dispute arose, however,
between the parties as to the meaning of the Stipulated Order, resulting in
Appellee filing, on November 20, 2018, a Motion for Discovery Sanctions. On
January 25, 2019, the trial court entered an Order directing Appellants to
produce the entirety of Greek Housing’s financial records. The January 25,
2019 Order did not contain the exception the court included in its earlier
Order, which excluded production of the financial records of the Maloney-
controlled non-parties.
On February 12, 2019, Appellants filed a Motion for Reconsideration of
the January 25, 2019 Order, which the trial court expressly granted on
February 26, 2019. On March 29, 2019, the trial court affirmed its January
25, 2019 Order. This timely appeal followed.
Appellants raise the following issues on appeal:
1. Whether[] the financial and accounting records for [Greek
Housing] contain proprietary information, trade secrets, and
other materials that fall outside the scope of lawful discovery[?]
2. Whether Appellee may properly obtain, for specified years, all
financial and accounting records for Appellants[?]
Appellants’ Brief at 4.
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Before we address the merits of Appellants’ claims, we must determine
whether the trial court’s order is appealable. In re Miscin, 885 A.2d 558,
560-61 (Pa. Super. 2005). “The question of the appealability of an order goes
directly to the jurisdiction of the Court asked to review the order.” Moyer v.
Gresh, 904 A.2d 958, 963 (Pa. Super. 2006) (citation omitted).
Generally, “unless otherwise permitted by statute, only appeals from
final orders are subject to appellate review.” Commonwealth v. Sartin, 708
A.2d 121, 122 (Pa. Super. 1998) (citation omitted). In relevant part,
Pennsylvania Rule of Appellate Procedure 341 defines a “final order” as any
order that “disposes of all claims and of all parties.” Pa.R.A.P. 341(b)(1).4
The discovery Order at issue here is not a final order as it does not
dispose of all claims and of all parties, nor is it appealable as of right pursuant
to Pa.R.A.P. 311.5 Appellants did not ask for or receive permission to appeal
the Order pursuant to Pa.R.A.P. 312.6 Thus, the question before this Court is
whether the Order in this case is appealable under the collateral order
doctrine. See Pa.R.A.P. 313.
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4Rule 341 also defines a “final order” as any order “entered as a final order
pursuant to [Pa.R.A.P. 341(c)].” Pa.R.A.P. 341(b)(3).
5 Pa.R.A.P. 311 enumerates those kinds of orders that are, despite being
interlocutory, appealable as of right. Pa.R.A.P. 311. Discovery orders are not
included in the enumeration of orders recognized as interlocutory but
appealable as of right.
6 Pa.R.A.P. 312 provides for appeals from interlocutory orders by permission.
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Pennsylvania Rule of Appellate Procedure 313 defines a collateral order
as one that: “1) is separable from and collateral to the main cause of action;
2) involves a right too important to be denied review; and 3) presents a
question that, if review is postponed until final judgment in the case, the claim
will be irreparably lost.” In re Bridgeport Fire Litigation, 51 A.3d 224, 230
n.8 (Pa. Super. 2012) (citation omitted); Pa.R.A.P. 313(b). Our Supreme
Court has emphasized that:
the collateral order doctrine is a specialized, practical application
of the general rule that only final orders are appealable as of right.
Thus, Rule 313 must be interpreted narrowly, and the
requirements for an appealable collateral order remain stringent
in order to prevent undue corrosion of the final order rule. To that
end, each prong of the collateral order doctrine must be clearly
present before an order may be considered collateral.
Melvin v. Doe, 836 A.2d 42, 46-47 (Pa. 2003) (internal citations omitted).
“A discovery order is collateral only when it is separate and distinct from
the underlying cause of action.” T.M. v. Elwyn, Inc., 950 A.2d 1050, 1056
(Pa. Super. 2008) (citing Feldman v. Ide, 915 A.2d 1208, 1211 (Pa. Super.
2007)). An order is “separable” from the main cause of action if it is capable
of review without considering the underlying merits of the case. See Ben v.
Schwartz, 729 A.2d 547, 551-52 (Pa. 1999) (concluding that the Bureau of
Professional and Occupational Affairs’ claims of privilege with respect to its
investigative file were analytically separate from the underlying claim of dental
malpractice). Our Supreme Court has explained that, “although [the Supreme
Court will] tolerate a degree of interrelatedness between merits issues and
the question sought to be raised in the interlocutory appeal, the claim must
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nevertheless be conceptually distinct from the merits of plaintiff’s claim.”
Commonwealth v. Blystone, 119 A.3d 306, 312 (Pa. 2015) (internal
quotations and citations omitted).
As noted above, Appellee has claimed that Maloney, acting as an alter-
ego, fraudulently transferred money from Fairmount to entities controlled by
him, including the non-party entities named in Appellee’s Amended Complaint,
to the detriment of Appellee, a minority partner in Fairmount. The trial court’s
January 25, 2019 Order compelled Appellants to produce the financial
information of the non-party entities to which it alleges Maloney fraudulently
transferred money.
Appellants baldly assert that this Order compels production of
confidential, proprietary, and trade secret information, and is, therefore, a
collateral order. Appellants’ Brief at 19-20. They also aver that the question
of whether the documents are “outside the scope of legal discovery” is
separable from the merits of the claims raised in Appellee’s Amended
Complaint because “[w]hether Greek Housing and [] Maloney’s accounting
information contains confidential and proprietary information has no bearing
on [Appellee’s] allegations.” Id. at 18, 22.
Appellants have not cited to any case law to support their bald claim
that the financial information of the non-parties that the court ordered
Appellants to produce is proprietary or contains trade secrets. Their attempt
to label financial information as something “conceptually distinct from the
merits” of Appellee’s claim is disingenuous as Appellee’s claims allege, inter
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alia, the fraudulent transfer of funds to the Maloney-controlled non-parties.
Moreover, Appellants have failed to demonstrate that this Court could consider
the propriety of the discovery ordered here without consideration of Appellee’s
underlying claims.
Our review indicates that an analysis of the propriety of the court’s
discovery Order would require an analysis of the merits of the underlying
dispute. Thus, we cannot conclude that the January 25, 2019 Order is
separable from and collateral to the main cause of action.
Because Appellants have failed to meet the first and second elements of
the collateral order doctrine, we quash this appeal as interlocutory.
Appeal quashed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/19/2019
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