Sunlight Electrical v. Turchi, J.

J-A06043-15
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
SUNLIGHT ELECTRICAL CONTRACTING IN THE SUPERIOR COURT OF
CO., INC. PENNSYLVANIA
Appellant
v.
JOHN J. TURCHI, JR., TURCHI, INC.,
23S23 CONSTRUCTION, INC. AND
CARRIAGE HOUSE CONDOMINIUMS, G.P.
Appellees No. 1877 EDA 2014
Appeal from the Order Entered May 16, 2014
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): 130201418
BEFORE: PANELLA, J., OTT, J., and JENKINS, J.
MEMORANDUM BY JENKINS, J.: FILED MARCH 30, 2015
Sunlight Electrical Contracting Co., Inc. (“Sunlight”) appeals from an
order granting summary judgment to John J. Turchi, Jr. (“Turchi”), Turchi,
Inc., 23S23 Construction, Inc. (“23S23”) and Carriage House
Condominiums, G.P. (“CHC GP”) (collectively “Appellees”) and dismissing all
of Sunlight’s claims “without prejudice to reassert them if permitted by the
bankruptcy court.” The trial court determined that (1) the bankruptcy
estates of 23S23 and CHC GP (or the trustees of these estates) were
indispensable parties, and (2) because the bankruptcy estates were closed,
Sunlight had to ask the bankruptcy court for permission to re-open the
estates and join them as defendants.
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In this appeal, Sunlight argues persuasively that the bankruptcy
estates are not indispensable parties. Appellees do not vigorously contest
the indispensable party issue; instead, Appellees insist that Sunlight lacks
standing to bring this action.
We reverse and remand for further proceedings. We disagree with the
trial court’s conclusion that the bankruptcy estates are indispensable parties.
Moreover, Appellees waived their argument that Sunlight lacked standing to
pursue claims against Appellees in the trial court. Even if Appellees
preserved this issue for appeal, we hold that Sunlight has standing to
prosecute this action. We leave all remaining issues for the trial court to
resolve on remand.
A detailed procedural history will lay the foundation for our decision.
Sunlight was a subcontractor at a real estate development project at 23
South 23rd Street in Philadelphia known as the Carriage House
Condominium (“the Condominium”). The owner of the Condominium was
Carriage House Condominiums L.P. (“CHC LP”), whose general partner was
CHC GP. Turchi was the principal owner and officer of both CHC LP and CHC
GP. Turchi was also the sole owner and officer of Turchi, Inc. and 23S23.
The same attorneys represent all Appellees.
In February 2005, Sunlight entered into a written agreement with
23S23 to perform the electrical construction on the project. The agreement
designated 23S23 as the “Construction Manager” and CHC LP as the “owner”
of the project. Sunlight alleges that 23S23 paid some, but not all, of the
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money due under the subcontract and also failed to pay for additional work
that 23S23 requested Sunlight to perform, notwithstanding Turchi’s repeated
promises to make payment. 23S23 and CHC LP allegedly funneled monies
to Turchi, Inc. and Turchi that were due and owing to Sunlight.
In December 2008, Sunlight filed a complaint in the Court of Common
Pleas of Philadelphia County (“trial court”) against Turchi and twelve other
defendants, including 23S23 and Turchi, Inc. Sunlight asserted a federal
RICO claim against Turchi under 18 U.S.C. § 1962 based on his alleged
fraudulent schemes and unlawful use of 23S23, CHC LP and other entities in
orchestrating these schemes. In addition, Sunlight alleged state law claims
against Turchi for fraud and alter ego/veil piercing claims against 23S23 and
CHC LP in an attempt to target Turchi’s assets. On December 16, 2008,
based on the federal RICO claim, Turchi filed a notice of removal in the
United States District Court for the Eastern District of Pennsylvania (“district
court”).
In April 2009, 23S23 and CHC LP both filed for bankruptcy under
Chapter 11 in the United States Bankruptcy Court for the Eastern District of
Pennsylvania. The district court placed Sunlight’s case in civil suspense due
to the automatic stay arising from these bankruptcies.
In December 2009, Sunlight moved for relief from the automatic stay
in order to pursue its claims against Turchi and the other appellees.
Appellees filed a response in opposition to Sunlight’s motion for relief, but
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shortly thereafter, Appellees withdrew their opposition to Sunlight’s motion.
On January 21, 2010, the Bankruptcy Court granted Sunlight leave to pursue
its claims against 23S23, CHC LP, and all non-debtor defendants, including
Turchi, in the district court.1
In April 2012, Sunlight filed an amended complaint in the district court
against Appellees which amplified its RICO claim and alter ego/piercing
claims against Turchi. Appellees filed an answer to the amended complaint
and later moved for partial summary judgment. On January 18, 2013, the
district court granted summary judgment to Turchi on the RICO claim and
dismissed the state law claims without prejudice to Sunlight reasserting
them in state court. Sunlight Electrical Contracting Co. v. Turchi, 918
F.Supp.2d 392 (E.D.Pa.2013).
On February 14, 2013, in accordance with the district court’s order,
Sunlight returned to the trial court and filed a complaint alleging state law
claims against Appellees. Later in 2013, Sunlight filed an amended
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Both bankruptcy estates later closed. On April 6, 2010, counsel for
Appellees informed the Bankruptcy Court that 23S23 had no assets. On
June 29, 2010, the Bankruptcy Court confirmed CHC LP’s plan of
reorganization and declared its debts discharged. In July 2011, the
bankruptcy trustee entered a “report of no distribution” concerning 23S23,
stating that he “made a diligent inquiry into the financial affairs of the
debtor(s) and the location of the property belonging to the estate; and that
there is no property available for distribution from the estate over and above
that exempted by law.” In September 2012, the Bankruptcy Court entered
an order closing 23S23’s bankruptcy.
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complaint which included four counts: (1) an action against Turchi under the
Contractor and Subcontractor Payment Act, 73 P.S. § 501 et seq.; (2) an
action against Turchi and 23S23 for participating together in a scheme to
defraud Sunlight; (3) an action against Turchi and Turchi, Inc. for
participating together in a scheme to defraud Sunlight; and (4) an action
against Turchi for fraud. Appellees filed an answer to the amended
complaint with new matter. In November 2013, Appellees filed a motion for
summary judgment contending, inter alia, that Sunlight lacked standing to
prosecute alter ego/veil piercing claims against Turchi -- the first time in the
five years of litigation that Appellees challenged Sunlight’s lack of standing. 2
On May 16, 2014, the trial court entered summary judgment in favor
of Appellees. The trial court characterized Sunlight’s claims as “veil piercing”
claims and stated that these claims belonged in Bankruptcy Court:
Such veil piercing claims against Turchi and Turchi,
Inc. are potential assets of 23S23’s and CHC, LP’s
bankrupt estates. However, Sunlight ... chose not to
pursue such claims in the bankruptcy court where
they belong, nor to do so on behalf of all similarly
situated creditors. Instead, [Sunlight] asserted
individual claims seeking the repayment of the
allegedly stolen sums directly and only to it.
The point of a bankruptcy proceeding is not to shield
a swindler from the reach of those he duped. It is
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2
Appellees also argue that various affirmative defenses defeated Sunlight’s
claims as a matter of law.
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instead a chance for his victims to help the trustee
locate the debtor’s assets so that they can be
distributed fairly among all his creditors. This court
would undermine the federal bankruptcy scheme if it
were to permit Sunlight’s individual veil piercing
claims to proceed here. Instead, Sunlight’s claims in
this action must be dismissed without prejudice for
them to be re-filed in re-opened bankruptcy
proceedings involving 23S23 and CHC LP.
Opinion filed May 16, 2014, p. 3.
Sunlight filed a timely notice of appeal and a timely Pa.R.A.P. 1925(b)
statement claiming that Appellees waived the defense of Sunlight’s lack of
standing by not raising it until their motion for summary judgment. In
response, the trial court filed a Pa.R.A.P. 1925(a) opinion in which it
asserted, sua sponte, that it was proper to dismiss Sunlight’s action for
failure to join two “indispensable” parties, the bankruptcy estates of 23S23
and CHC LP:
In this case, [Sunlight’s] standing is called into
question because the right it is attempting to enforce
belongs to someone else, namely two, now closed,
federal bankruptcy estates. Those estates, whose
rights are being litigated here, therefore appear to
be indispensable parties to this litigation. Failure to
join an indispensable party is a non-waivable
defense, which goes to the court’s subject matter
jurisdiction, and may be raised at any time, even sua
sponte. . .
An award to [Sunlight] on the veil piercing claims it
asserted in this action would necessarily deprive the
bankruptcy estates and the bankrupt entities’
creditors of assets that could be distributed in accord
with federal bankruptcy law. In other words, the
estates’ rights to those assets could be impaired by a
ruling on [Sunlight’s] claims, which makes the
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estates indispensable parties to this litigation. As
indispensable parties, the bankruptcy estates, or
their trustees, must be joined as plaintiffs, or the
court lacks jurisdiction to hear the matter. Since the
estates are closed, the court directed [Sunlight] to
attempt to re-open them, so the trustees may bring
the claims for piercing the corporate veil that were
asserted by [Sunlight] here.
Pa.R.A.P. 1925(a) Opinion filed September 15, 2014, pp. 2-3.
On August 13, 2014, after filing its notice of appeal, Sunlight filed a
motion in Bankruptcy Court to re-open bankruptcy proceedings in the closed
23S23 and CHC GP estates. Sunlight argued that the Bankruptcy Court
closed 23S23’s estate because 23S23 misled the court into believing that
23S23 had no assets to distribute. According to Sunlight, (1) Turchi
siphoned $660,000, first to 23S23 and then to Turchi, Inc. (or himself), (2)
counsel for 23S23 misrepresented to the Bankruptcy Court that 23S23 had
no assets and failed to advise the court of these siphoning activities, (3) the
monies that flowed through 23S23 in this fashion constituted assets of
23S23 that the Bankruptcy Court did not administer or distribute due to
counsel’s misrepresentation, and (4) these funds remain unabandoned
property of the bankruptcy estate to this day because they have not formally
been administered or distributed.
On September 3, 2014, following a hearing on Sunlight’s motion to re-
open bankruptcy proceedings, the Bankruptcy Court denied Sunlight’s
motion. Sunlight did not appeal the Bankruptcy Court’s order.
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Sunlight raises four issues in this appeal, which we re-order for
purposes of disposition:
1. Whether the trial court erred in concluding that ‘as
indispensable parties, the bankruptcy estates, or
their trustees, must be joined as plaintiffs, or the
court lacks jurisdiction to hear the matter,’ where
the trial court failed to consider the Order entered by
the bankruptcy court on January 21, 2010, a copy of
which was Exhibit 7 to defendants’ ‘Motion of
Summary Judgment’, which Order granted plaintiff
leave to resume the prosecution of its alter ego and
piercing claims against John J. Turchi, Jr. and to
litigate those claims to final judgment[?]
2. Whether the trial court erred in dismissing all of
[Sunlight’s] claims on the grounds that it lacked
standing to assert the claims stated in its amended
complaint, where defendants did not raise, plead or
otherwise assert lack of standing in their preliminary
objections, in their answer to the amended
complaint, or as new matter[?]
3. Whether the trial court erred in dismissing all of
[Sunlight’s] claims on the grounds that it ‘would
undermine the federal bankruptcy scheme by
allowing Sunlight’s individual veil piercing claims to
proceed here,’ where a) defendants admitted by
their answer to paragraph 64 of the amended
complaint that plaintiff had satisfied all conditions
precedent to its right to assert and pursue its claims;
b) defendants, and particularly defendant John J.
Turchi, Jr. (‘Turchi’), are judicially and equitably
estopped from asserting [Sunlight’s] lack of standing
on the basis of the pleadings and motions they filed
in the federal court litigation docketed at No. 2:08-
cv-05834-SD, none of which asserted Sunlight’s lack
of standing to assert and pursue the identical claims;
c) neither Turchi nor Turchi, Inc. has filed a petition
in bankruptcy, and the common law claims stated in
the four counts of the amended complaint are not
only ‘veil piercing claims’ and are not within the
scope of jurisdiction of the bankruptcy court; d)
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there is no controlling authority in any case decision
of any state court of Pennsylvania or Delaware, or in
either state’s ‘corporation law’, for the proposition
that a debtor-in-possession or a trustee has
exclusive standing to pursue a principal of a debtor
on a veil piercing claim[?]
4. Whether the trial court erred in dismissing all of
[Sunlight’s] claims, as stated in its amended
complaint, ‘without prejudice to reassert them if
permitted by the bankruptcy court’, where the trial
court should have exercised its discretion and
authority to stay all proceedings in this civil action
pending the further order of the court, rather than
dismissing all of [Sunlight’s] claims[?]
Brief For Appellant, pp. 4-6 (statement of questions involved in appeal).
These four questions boil down to whether Sunlight’s action is
defective due to failure to join an indispensable party and/or lack of
standing.
We review the indispensable party question first. An indispensable
party is one whose rights are so connected with the claims of the litigants
that no decree can be made without impairing its rights. Sabella v.
Appalachian Development Corp., 103 A.3d 83, 90 (Pa.Super.2014). “In
Pennsylvania, an indispensable party is one whose rights are so directly
connected with and affected by litigation that he must be a party of record
to protect such rights, and his absence renders any order or decree of court
null and void for want of jurisdiction.” Cry, Inc. v. Mill Service, Inc., 640
A.2d 372, 375 (Pa.1994). This jurisdiction issue presents a pure question of
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law for which our standard of review is de novo. Mazur v. Trinity Area
School Dist., 961 A.2d 96, 101 (Pa.2008).
The indispensable party calculus involves, at a minimum, the following
factors:
1. Do absent parties have a right or interest related
to the claim?
2. If so, what is the nature of that right or interest?
3. Is that right or interest essential to the merits of
the issue?
4. Can justice be afforded without violating the due
process rights of absent parties?
Id.The 23S23 and CHC GP bankruptcy estates are not indispensable
parties, because it is possible for Sunlight to win a judgment against
Appellees without impairing the rights of the estates. On January 21, 2010,
the bankruptcy court granted relief from the automatic stay to Sunlight so
that it could proceed in federal district court against Appellees. This order
effectively reduced the bankruptcy estates’ rights to a remote and
contingent interest in the outcome of Sunlight’s action against Appellees.
These rights are not “so directly connected with and affected by litigation
that [the bankruptcy estates] must be [parties] of record to protect such
rights.” Cry, Inc., supra, 640 A.2d at 375.
In reaching this conclusion, we find instructive the Eleventh Circuit’s
summary of automatic stay precepts and the rights of bankruptcy estates
following an order granting relief from the automatic stay:
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Upon a debtor’s filing of a bankruptcy petition, his
legal and equitable interests in property become the
property of the bankruptcy estate. 11 U.S.C. §
541(a)(1). The filing of a petition also operates as
an automatic stay, preventing the creation,
perfection, or enforcement of any lien against the
estate’s property. 11 U.S.C. § 362(a)(4). The
bankruptcy court may grant creditors relief from the
stay after notice and a hearing. 11 U.S.C. § 362(d).
A stay-relief order is a final order that is immediately
appealable, Borg–Warner Acceptance Corp. v.
Hall, 685 F.2d 1306, 1309 (11th Cir.1982), and not
subject to collateral attack, F.D.I.C. v. Shearson–
American Exp., Inc., 996 F.2d 493, 498 (1st
Cir.1993). A bankruptcy court’s order lifting the
automatic stay is not equivalent to an abandonment
of the estate’s property. Catalano v. Comm’r, 279
F.3d 682, 686–87 (9th Cir.2002). When a
bankruptcy trustee abandons estate property, the
estate is completely divested of any interest in the
abandoned property. Id. On the other hand, when
a bankruptcy court grants a creditor relief from the
automatic stay for part of the estate’s property, the
bankruptcy estate retains a residual interest in that
property. See id. But, a stay-relief order normally
allows the relieved creditor to realize its interest in
the collateral, Killebrew v. Brewer (In re
Killebrew), 888 F.2d 1516, 1519–20 (5th
Cir.1989), by, for example, pursuing a foreclosure
action. If such a foreclosure sale results in proceeds
in excess of the relieved creditor’s interest, the
surplus proceeds normally belong to the estate. Id.Old West Annuity and Life Ins. Co. v. Apollo Group (“Old West”), 605
F.3d 856, 862-63 (11th Cir. 2010) (emphasis added).
In this case, the Bankruptcy Court’s relief order relegated the
bankruptcy estates’ interests to any “surplus” proceeds arising from
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Sunlight’s litigation against Appellees. Old West, supra. While Sunlight’s
litigation theoretically could yield surplus proceeds,3 the likelihood of this
occurrence is speculative. Therefore, the bankruptcy estates’ interests in
this litigation are too contingent for them to be indispensable parties.
Compare Sabella, supra, 103 A.3d at 90 (party is indispensable only when
no decree can be made without impairing its rights).
We now turn to Appellees’ claim that Sunlight lacks standing, an
argument first raised in Appellees’ motion for summary judgment below. We
agree that Appellees have waived this defense by failing to raise it in their
state court pleadings. Pa.R.Civ.P. 1032(a) (“a party waives all defenses and
objections which are not presented either by preliminary objection, answer
or reply, except a defense which is not required to be pleaded under Rule
1030(b), the defense of failure to state a claim upon which relief can be
granted, the defense of failure to join an indispensable party, the objection
of failure to state a legal defense to a claim, the defenses of failure to
exercise or exhaust a statutory remedy and an adequate remedy at law and
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3
For example, surplus proceeds could arise from a sheriff’s sale on Turchi’s
house during execution of Sunlight’s judgment that generates greater
proceeds than the amount of Sunlight’s judgment. The surplus proceeds
would flow into the two bankruptcy estates for distribution. The estate of
23S23, which has been closed since 2012, presumably would have to be re-
opened to distribute such proceeds. It is unclear from the record whether
CHC LP’s estate remains open. If it has closed, it, too, presumably would
have to be re-opened for distribution purposes.
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any other nonwaivable defense or objection”). Even if Appellees had
preserved this issue for appeal, it is devoid of merit.
The core concept of standing is that a person who is not adversely
affected in any way by the matter he seeks to challenge is not aggrieved
thereby and has no standing to obtain a judicial resolution to his challenge.
Johnson v. American Standard, 8 A.3d 318, 329 (Pa.2010). Standing is a
question of law, so our standard of review is de novo, and our scope of
review is plenary. Id., 8 A.3d at 326.
Appellees’ challenge to Sunlight’s standing is unconvincing. Sunlight
clearly had standing to proceed against Appellees when it originally
commenced suit in 2008. Although this case was diverted to federal court
and later to Bankruptcy Court, the Bankruptcy Court’s January 21, 2010
order granting relief from the automatic stay permitted Sunlight to proceed
on its own in its action against Appellees without any participation by the
bankruptcy estates. Old West, supra, 605 F.3d at 862-63. This order has
never been rescinded. Thus, Sunlight has the unfettered right to seek, and,
if it has a meritorious case, obtain all damages from Appellees to which it is
entitled, and the bankruptcy estates have the right to obtain any “surplus”
proceeds in excess of Sunlight’s right of recovery.
It also bears emphasis that prior to the Bankruptcy Court’s order,
Appellees had ample opportunity to challenge Sunlight’s standing or to argue
that the bankruptcy estates had exclusive standing. Appellees actually filed
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an objection in Bankruptcy Court to Sunlight’s motion for relief from the
automatic stay but then withdrew their objection in advance of the order
granting Sunlight relief. Having withdrawn their objection to Sunlight’s
motion for relief from the stay, Appellees cannot challenge Sunlight’s
standing now. Cf. Reusser v. Wachovia Bank, N.A., 525 F.3d 855, 861-
62 (9th Cir.2008) (during bankruptcy proceedings, appellants/debtors waived
right to appeal order granting bank relief from automatic stay by failing to
object to bank’s standing in Bankruptcy Court).4
Accordingly, we conclude that the bankruptcy estates are not
indispensable parties, and that Sunlight has standing to pursue its claims
against Appellees in the trial court. We remand to the trial court for further
proceedings on all issues not resolved in this memorandum.
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4
On January 26, 2015, Sunlight filed a motion to strike portions of
Appellees’ brief relating to a motion that Sunlight filed in Bankruptcy Court
on August 13, 2014, subsequent to its appeal to this Court. Sunlight
requested in its August 13, 2014 motion that the Bankruptcy Court re-open
bankruptcy proceedings in the closed 23S23 and CHC GP estates. On
September 3, 2014, the Bankruptcy Court denied Sunlight’s motion.
Because Sunlight did not prevail in Bankruptcy Court, its motion to re-open
bankruptcy proceedings has no effect on this appeal. Had Sunlight prevailed
in its motion, principles of judicial estoppel might have precluded Sunlight
from asserting positions in this appeal that were inconsistent with its motion.
In Re Adoption of S.A.J., 838 A.2d 616, 621 (Pa.Super.2003) (judicial
estoppel precludes party from taking a position inconsistent with a position
that it successfully maintains in different court). But since it did not prevail,
its gambit in another court is of no legal consequence in this appeal. We
deny Sunlight’s motion to strike as moot.
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Reversed and remanded for further proceedings. Sunlight’s motion to
strike portions of Appellees’ brief denied as moot. Jurisdiction relinquished.
Judge Ott joins in this memorandum.
Judge Panella concurs in the result.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 3/30/2015
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