Daniels, C. v. Atlantic Comm Bank

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
CHARLES P. DANIELS AND IMRAN : IN THE SUPERIOR COURT OF
DALVI : PENNSYLVANIA
:
Appellants :
:
:
v. :
:
: No. 552 MDA 2018
ATLANTIC COMMUNITY BANKERS :
BANK AND JON EVANS :
Appeal from the Judgment Entered May 24, 2018
In the Court of Common Pleas of Cumberland County Civil Division at
No(s): 14-2240
BEFORE: LAZARUS, J., OTT, J., and FORD ELLIOTT, P.J.E.
MEMORANDUM BY LAZARUS, J.: FILED SEPTEMBER 10, 2019
Charles P. Daniels and Imran Dalvi (collectively “the Plaintiffs”) appeal
from the judgment, entered in the Court of Common Pleas of Cumberland
County, following the court’s partial grant of summary judgment dismissing
the Plaintiffs’ unjust enrichment claim, and a jury verdict finding Plaintiffs were
not due relief under the New Jersey Conscientious Employee Protection Act
(“CEPA”), N.J. Stat. § 34:19-1, et seq. After careful review, we affirm.
Since 2001, Jon Evans has served as president and chief executive
officer of Atlantic Community Bankers Bank (“ACBB”) (collectively “the
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Defendants”), a bankers’ bank1 with client institutions across the Mid-Atlantic
and Northeastern United States. In 2004, Evans approached the Plaintiffs
with a business plan under which they would spearhead the establishment of
a telecommunications subsidiary, wholly owned by ACBB, allowing ACBB to
provide technology services directly to client banks. The Plaintiffs presented
their business plan to ACBB’s board of directors, who approved the plan to
form a subsidiary under the name ACBB-BITS, LLC (“BITS”), with ACBB as the
majority owner.
To receive regulatory approval for BITS, Evans and Daniels sought a
Letter of Non-Objection (“LONO”)2 from the Federal Reserve Bank and the
Pennsylvania Department of Banking. The organizations rendered a LONO
after Evans and Daniels submitted, among other materials, the BITS’
____________________________________________
1 A bankers’ bank is “a bank that deals only with other banks.” Merriam-
Webster, https://www.merriam-webster.com/dictionary/banker's%20bank
(last visited August 20, 2018)
2 The Defendants’ expert witness on banking regulations defined a LONO as
follows:
The primary regulator issues a [LONO] to inform the financial
institution the proposed activity has been reviewed and is in
conformance with relevant laws, rules, and regulations, the
activity does not present an unsafe or unsound banking practice
to the institution as presented, and the Board and management
of the financial institution have the capacity, competence and
expertise to manage the activity.
Nowe Expert Report, at 3.
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operating agreement, which outlined the following features: 1) a shared
ownership structure; 2) a provision for annual cash distributions totaling 90%
of BITS’ net income; 3) a prohibition against BITS borrowing in excess of 5%
of ACBB’s shareholder equity; and 4) a requirement for ACBB to sell 2.5 million
out of 10 million of BITS membership units to ACBB’s client banks.3 After
receiving the LONO, ACBB incorporated BITS as a limited liability company in
Pennsylvania, with business operations based in New Jersey.
In 2005, BITS hired Daniels as its chief executive officer and Dalvi as its
chief financial officer. In return for accepting positions at below-market-rate
salaries, the Plaintiffs received BITS membership units that entitled them to
distributions of BITS’ net income, but not to voting rights on decisions
requiring a majority or supermajority of members.4 Their employment
agreements allowed the Plaintiffs to invoke a constructive termination clause
in the event management interfered with certain provisions of the operating
agreement, including the provision concerning the distribution of net income.
If properly invoked, the constructive termination clause entitled the Plaintiffs
____________________________________________
3 BITS membership units, effectively shares of stock, were divided separate
classes. See BITS Operating Agreement, 3/1/05, at 4. The original operating
agreement called for the above-mentioned 2.5 million membership units to be
sold from the Class A tranche. Id.
4Only Class A and D membership units entitled members to voting rights.
See BITS Operating Agreement, 10/16/06, at 8.
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to severance, but required them to sell back their membership units within
four years.
Pursuant to the operating agreement, Evans served as BITS’ managing
member, a role which granted him considerable control over regular business
operations. The Plaintiffs allege, beginning in 2006, ACBB and Evans began
undermining the terms under which the Plaintiffs joined BITS, specifically
highlighting the following: 1) ACBB’s 2006 resolution decreasing the target
for sales of membership units to financial institutions from 2.5 million to 1
million; 2) ACBB holding BITS debt in excess of 5% of ACBB’s shareholder
equity; and 3) ACBB’s 2010 resolution amending the BITS operating
agreement such that the distribution of 90% of net income became a goal,
not a requirement, with the exact distribution figure to be set by Evans.
Daniels and Dalvi believed these changes delayed BITS from becoming
profitable, contravened the LONO under which ACBB obtained permission to
form BITS, and defrauded the shareholders who purchased shares under the
premise that 90% of BITS’ net income would be distributed annually.
In 2011, the Plaintiffs informed Evans if the terms of the original
operating agreement were not restored, they would exercise their respective
constructive termination clauses and inform regulators of the changes to the
operating agreement. These threats were repeated to Evans and board
members periodically over the next two years. Evans viewed these threats as
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empty, as changes to the operating agreement were disclosed to regulators
via routine submissions.
Over the next two years, the Plaintiffs signed several amendments to
their employment agreements extending the time frame in which they could
exercise their constructive termination clauses. On February 19, 2013, the
Plaintiffs signed their final extensions. On March 1, 2013, Daniels met with
board member James Deutsch, and Daniels informed Deutsch that the
Plaintiffs intended to inform regulators of ACBB’s refusal to adhere to the
terms of the operating agreement and the LONO. On March 13, 2013, Daniels
sent an email to Evans so that Evans could relay the Plaintiffs’ grievances to
the board in person. In that email, Daniels explained that he, Dalvi and other
BITS executives intended to resign if the board allowed Mitch Wienick to retain
his seat on the board, expressing a particular concern that Wienick intended
to sell BITS. Evans circulated the email to the entire board.
The following day, the board voted unanimously to part ways with
Daniels, and authorized Evans to determine whether Dalvi supported Daniels’
insubordination. On March 26, 2013, Evans handed Daniels notice of the
board’s decision to terminate his employment. When Dalvi affirmed his
support for Daniels, Evans handed Dalvi his termination letter. Evans cited
Daniels’ ultimatum regarding Wienick as the sole reason behind the decision
to fire both Plaintiffs. Daniels and Dalvi exercised their constructive
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termination clauses, pursuant to which they were compensated in accordance
with the terms of their employment agreement.5
On December 6, 2013, the Plaintiffs filed a demand for arbitration. In
response, the Defendants filed a petition to stay arbitration. The court granted
the Defendants’ petition, stating the arbitration clauses in the Plaintiffs’
employment agreements—between the Plaintiffs and BITS—did not cover
action against the named Defendants. On March 18, 2015, this Court affirmed
the lower court’s decision. See Atlantic Community Bankers Bank, Inc.
v. Daniels, 635 MDA 2014 (Pa. Super. March 18, 2015) (unpublished
memorandum). Our Supreme Court denied review. See Atlantic
Community Bankers Bank, Inc. v. Daniels, 125 A.3d 775 (Pa. 2015)
(Table).
On April 14, 2014, during the pendency of the above-mentioned appeal,
the Plaintiffs initiated the instant suit, asserting two claims under CEPA6—one
alleging ACBB fired the Plaintiffs in retaliation for attempting to reveal what
they reasonably believed to be a violation of a law, rule or regulation, and
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5 Daniels received $504,572.23. Dalvi received $477,774.03.
6 CEPA, the New Jersey whistleblower statute, was enacted to “protect and
encourage employees to report illegal or unethical workplace activities and to
discourage public and private sector employers from engaging in such
conduct.” Abbamont v. Piscataway Tp. Bd. of Educ., 650 A.2d 958, 971
(N.J. 1994).
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another asserting they were fired in retaliation for what they reasonably
believed to be fraud—as well as a third claim for unjust enrichment.
On March 18, 2016, the Defendants filed a motion for summary
judgment. On June 7, 2017, the Honorable Christylee L. Peck denied the
Defendants’ motion for summary judgment with regard to the Plaintiffs’ CEPA
claims, but granted the motion with regard to their unjust enrichment claim.
Specifically, Judge Peck made the following findings: (1) the factual
circumstances of the case gave rise to a false conflict between CEPA and
Pennsylvania’s whistleblower statute,7 rendering the Plaintiffs’ whistleblower
claims judiciable in Cumberland County under New Jersey law; (2) the
Plaintiffs established prima facie CEPA claims; and (3) the defendants were
entitled to summary judgment on the unjust enrichment claim because of the
existence of a contract between the Plaintiffs and BITS, and because the
Plaintiffs’ injury resulted indirectly from the Defendants’ conduct.
Before trial, the Plaintiffs moved to prevent the Defendants from offering
James E. Nowe, a retired federal regulator from the Office of the Comptroller
of Currency (“OCC”), 8 as an expert witness. The Honorable Judge Edward E.
____________________________________________
7 See 43 P.S. § 1421, et seq. Plaintiffs, as employees of a private
organization, would have been unable to seek relief under Pennsylvania’s
whistleblower statute, which prohibits public bodies or certain entities
receiving money from a public body from discharging employees for reporting
or threatening to report wrongdoing. 43 P.S. § 1422.
8 The OCC defines its mission as follows:
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Guido denied Plaintiffs’ motion in limine in part, permitting Nowe to testify
“[o]nly to the extent that the Plaintiffs’ belief was reasonable, and so in that
regard Defendants are going to have to lay some type of foundation as to the
Plaintiffs’ knowledge or awareness of the applicable rules and regulations.”
N.T. Trial, 2/26/18, at 7–8.
During the Plaintiffs’ case-in-chief, Daniels testified to the process
surrounding the adoption of the 2010 resolution9 amending the BITS operating
agreement. He agreed the operating agreement, by its own terms, could be
amended, and confirmed that in December 2010, a supermajority of voting
shareholders lawfully amended the operating agreement. Daniels himself
communicated the amendments to the operating agreement to regulators.10
Daniels, nonetheless, asserted his belief that it had been unlawful for ACBB
____________________________________________
The OCC charters, regulates, and supervises all national banks
and federal savings associations as well as federal branches and
agencies of foreign banks. The OCC is an independent bureau of
the U.S. Department of the Treasury.
Office of the Comptroller of the Currency, What We Do,
https://www.occ.treas.gov/about/what-we-do/mission/index-about.html
(last visited Aug. 16, 2019).
9Daniels claimed the above-mentioned changes were enforced in 2009, but
only formally adopted by the board in 2010. N.T. Trial, 2/27/18, at 85.
10 The following exchange took place on cross-examination, “[Q:] And some
of the information you communicated to the regulators were changes, for
example, . . . in the operating agreement, right? [A:] . . . yes, the operating
agreement.” N.T. Trial, 2/27/18, at 211.
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and BITS to amend the operating agreement in a manner that constructively
terminated himself and Dalvi and interfered with their rights as shareholders.
During the Defendants’ case-in-chief, Judge Guido revisited his decision
regarding the permissible scope of Nowe’s testimony. The court found that
the Defendants failed to lay a foundation as to the Plaintiffs’ knowledge of
banking regulations; therefore, Nowe could not testify as to whether the
Plaintiffs’ held reasonable beliefs. Judge Guido, however, found the
Defendants had laid a foundation for Nowe to testify as to whether the
Defendants’ behavior was retaliatory, specifically highlighting testimony
describing the Plaintiffs’ threats as “nonsensical.” N.T. Trial, 3/1/18, at 529;
see also id. at 530 (“He can legitimately testify that no one with knowledge
of banking regulations would be concerned about the [Plaintiffs’] report, and
that goes to the issue of whether or not the [Defendants’] actions were
retaliatory.”). Both the original and revised rulings confined the scope of
Nowe’s testimony to the same, two-paragraph section of his expert report.11
Prior to Nowe testifying, both parties stipulated that ACBB “had the
authority to amend [the operating agreement], it was done legally, and there
were proper tax purposes behind the amendment.” N.T. Trial, 2/28/18, at
520. Consequently, during the Plaintiffs’ cross-examination of Nowe, Judge
____________________________________________
11Nowe’s expert report is divided into four sections, with the third section,
addressing the 2010 amendment to the BITS operating agreement, being the
only one at issue. See James Nowe’s Expert Report, at 3.
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Guido sustained the Defendants’ objection when Plaintiffs asked whether
regulators would have been concerned if they received a report alleging that
ACBB defrauded shareholders by changing BITS’ operating agreement.
Before submitting the case to the jury, Judge Guido determined the
Plaintiffs’ fraud-related CEPA claim rested solely upon the impact of the board
amending the operating agreement’s provisions concerning distributions. He
further found that no reasonable person could conclude BITS shareholders had
been defrauded, as the changes to the operating agreement were properly
implemented by supermajority vote, and because the Plaintiffs’ employment
agreements contemplated the fact that the board could take such action.
Finding no reasonable person could deem the Defendants’ conduct fraudulent,
Judge Guido refused to instruct the jury on the Plaintiffs’ fraud-related CEPA
claim.
The case moved to the jury solely on the issue of whether the
Defendants’ violated CEPA by firing the Plaintiffs in retaliation for attempting
to reveal what they reasonably believed to be a violation of a law, rule or
regulation. The verdict slip asked the following special questions:
1) Did [the Plaintiffs] believe that the failure to inform the
regulators of the change in the operating agreement in 2010 was
a violation of the Letter of Non-Objection[;]” 2) “Was [the
Plaintiffs’] belief reasonable[;]” and 3) “Was the discharge of [the
Plaintiffs] on March 26, 2014 done in retaliation for [their] threat
to report the change in the operating agreement to regulators?
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Daniels Verdict Slip, 3/2/18, at 1; Dalvi Verdict Slip, 3/2/18, at 1. A majority
of the jury answered the first two questions in the affirmative. The jury,
however, answered the third question in the negative, denying the Plaintiffs
relief.12
The Plaintiffs filed a motion for post-trial relief on March 7, 2018, which
the court denied on March 9, 2018. On April 2, 2018, the Plaintiffs timely filed
a notice of appeal.13 Both the Plaintiffs and the court below complied with
Pa.R.A.P. 1925.
The Plaintiffs present the following issues for our review:
1. Whether [Nowe’s testimony] was relevant to the claims and
defenses arising under CEPA.
2. Whether the probative value of . . . Nowe’s expert opinion
was outweighed by its tendency to prejudice the jury.
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12 The jury voted for the special questions regarding Daniels as follows:
question 1) 10 yes, 2 no; question 2) 10 yes, 2 no; and question 3) 2 yes, 10
no. Daniels Verdict Slip, 3/2/18, at 1. The jury voted for the special questions
regarding Dalvi as follows: question 1) 11 yes, 1 no; question 2) 11 yes, 1
no; and question 3) 0 yes, 12 no. Dalvi Verdict Slip, 3/2/18, at 1.
13On April 26, 2018, this Court issued an order directing the Plaintiffs to show
cause why the appeal should not be dismissed, as post-trial motions remained
pending. Order, 4/26/18, at 1. The Plaintiffs filed a response on April 27,
2018. Appellants’ Reply to Order to Show Cause, 4/27/18, at 1–6. On July
13, 2018, this Court, per curiam, discharged the show cause order. Order,
7/13/18, at 1. The Plaintiffs’ response, including both the docket and the
stamped order, makes clear that Judge Guido ruled on Plaintiffs’ post-trial
motion on March 9, 2018, and the prothonotary entered Judge Guido’s order
on March 13, 2018. Appellants’ Reply to Order to Show Cause, 4/27/18, at
5–6. Judgment on the verdict was entered on April 24, 2018. Consequently,
the instant appeal is properly before us. Pa.R.A.P. 301(a)(1) .
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3. Whether Plaintiffs were entitled to present evidence and
testimony pertaining to their belief that Defendants had
engaged in a course of conduct that may have defrauded
shareholders.
4. Whether the jury should have been charged with deciding
whether Plaintiffs had a reasonable belief that shareholders
were being defrauded.
5. Whether Plaintiffs’ claim for unjust enrichment was
susceptible to dismissal on summary judgment.
Brief of Appellants, at 6–7.
Plaintiffs first three claims concern the admission or exclusion of
evidence, decisions which rest “within the sound discretion of the trial court[.]”
B.K. v. J.K., 823 A.2d 987, 991–92 (Pa. Super. 2003). In reviewing these
claims, “we will only reverse a ruling by the trial court upon a showing that it
abused its discretion or committed an error of law.” Id. “An abuse of
discretion is not merely an error of judgment, but if in reaching a conclusion
the law is overridden or misapplied, or the judgment exercised is manifestly
unreasonable, or the result of partiality, prejudice, bias or ill-will, as shown by
the evidence or the record, discretion is abused.” Sutherland v.
Monongahela Valley Hosp., 856 A.2d 55, 59 (Pa. Super. 2004). Moreover,
“[t]o constitute reversible error, an evidentiary ruling must not only be
erroneous, but also harmful or prejudicial to the complaining party.” Hawkey
v. Peirsel, 869 A.2d 983, 989 (Pa. Super. 2005).
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First, the Plaintiffs claim Nowe’s testimony14 was irrelevant to the
purpose for which it was admitted before trial—namely, whether the Plaintiffs
reasonably believed a regulatory violation occurred. Brief of Appellant, at 19–
27.
Evidence is relevant if it has “any tendency to make a fact [of
consequence] more or less probable than it would be without the evidence.”
Pa.R.E. 401. The threshold for relevance is low given the liberal “any tendency
prerequisite. Id. (emphasis added). “Relevant evidence is admissible, except
as otherwise provided by law.” Mitchell v. Shikora, 209 A.3d 307, 314 (Pa.
Super. 2019) (quoting Pa.R.E. 402).
The Plaintiffs challenge the relevance of Nowe’s testimony in the context
of a CEPA claim. See Brief of Appellant, 24 (“[T]he [c]ourt’s decision to allow
the testimony of an expert for which there was no foundation and which did
not relate to any element of CEPA was a clear abuse of discretion.”). CEPA,
in relevant part, reads as follows:
An employer shall not take any retaliatory action against an
employee because the employee does any of the following:
a. Discloses, or threatens to disclose to a supervisor or to a
public body an activity, policy or practice of the employer,
or another employer, with whom there is a business
relationship, that the employee reasonably believes:
____________________________________________
14 Neither party disputes Nowe’s status as an expert or the bases upon which
his expert opinion rests. See N.T. Trial, 2/28/18, at 533 (following Nowe’s
credentials, parties stated, “[Defendants’ attorney:] At this time I would like
to offer Mr. Nowe as an expert as a bank examiner[. Plaintiffs’ attorney:] No
objection, Your Honor.”).
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(1) is in violation of a law, or a rule or regulation
promulgated pursuant to law, including any violation
involving deception of, or misrepresentation to, any
shareholder, investor, client, patient, customer,
employee, former employee, retiree or pensioner of
the employer or any governmental entity . . . ; or
(2) is fraudulent or criminal, including any activity,
policy or practice of deception or misrepresentation
which the employee reasonably believes may defraud
any shareholder, investor, client, patient, customer,
employee, former employee, retiree or pensioner of
the employer or any governmental entity[.]
N.J. Stat. § 34:19-3(a)(1)–(2).
New Jersey courts have established the following as the elements of a
CEPA claim:
(1) he or she reasonably believed that his or her employer’s
conduct was violating either a law, rule, or regulation promulgated
pursuant to law, or a clear mandate of public policy;
(2) he or she performed a “whistle-blowing” activity described in
N.J.S.A. 34:19–3[(a)];
(3) an adverse employment action was taken against him or her;
and
(4) a causal connection exists between the whistle-blowing
activity and the adverse employment action.
Lippman v. Ethicon, Inc., 119 A.3d 215, 226 (N.J. 2015) (citations
omitted); see also Hitesman v. Bridgeway, 93 A.3d 306, 318–19 (N.J.
2014) (broadening second element to include whistle-blowing activity “as
defined in N.J.S.A. 34:19–3(a) or (c)[.]”).
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The Plaintiffs argue Nowe’s testimony was irrelevant to the first element,
under which a plaintiff “must set forth facts which would support an objectively
reasonable belief that a violation has occurred.” Dzwonar v. McDevitt, 828
A.2d 893, 901 (N.J. 2003). We agree. The Defendants lacked a foundation
to introduce expert testimony related to the first element as they did not elicit
testimony regarding the Plaintiffs’ beliefs. See N.T. Trial, 3/1/19, at 529–30
(“There’s been no foundation laid that [the Plaintiffs] were aware of the
banking regulations[.]”).
Judge Guido, however, permitted Nowe’s testimony for the purpose of
disputing the fourth element—the existence of a causal connection between
the Plaintiffs’ threats to expose ACBB and their firing at the board’s hands.15
____________________________________________
15 The Plaintiffs highlight Judge Guido’s ruling, which revised the permissible
scope of Nowe’s testimony mid-trial. Brief of Appellant, at 22–23. They,
however, do not assert this ruling was error. See id. (discussing Judge
Guido’s “inability to settle on a reason for admitting [] Nowe’s expert opinion”
without alleging error). Though the court’s ruling was unusual, it was not
impermissible. See Morgan v. Petroleum Products Equipment Co., 92
A.3d 823, 827 (Pa. Super. 2014) (holding “[a] trial judge . . . always may
revisit his or her own pre-trial rulings in a case without clashing with the law
of the case doctrine[.]”); see also Key Automotive Equipment
Specialists, Inc. v. Abernethy, 636 A.2d 1126, 1128 (Pa. Super. 1994) (“It
is well[-]settled that a trial court has the inherent power to reconsider its own
rulings.”). Moreover, both the original and revised scope of Nowe’s testimony
drew from the same two-paragraph section of his expert report, thus blunting
any surprise or prejudice which could have undermined the Plaintiffs’ case.
See Brady v. Ballay Thornon, Maloney Medical Associates, Inc., 704
A.2d 1076, 1082 (Pa. Super. 1997) (finding neither prejudice nor unfair
surprise where expert’s testimony exceeded scope of pre-trial report because
the “discrepancy between the expert’s pre-trial report and his trial testimony
was not of a nature that would have prevented [the plaintiffs] from preparing
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See id. at 530 (“[Nowe] can legitimately testify that no one with knowledge
of banking regulations would be concerned about the report, and that goes to
the issue of whether or not the actions were retaliatory.”). Under New Jersey
law, a “causal connection may be demonstrated by evidence of circumstances
that justify an inference of retaliatory motive.” See Romano v. Brown &
Williams, 665 A.2d 1139, 1142–43 (N.J. Super. App. Div. 1995). If an
employer can “produce evidence showing a legitimate, nondiscriminatory
reason for the discharge . . . the employee . . . must show that the employer’s
proffered explanation is incredible.” Fleming v. Correctional Healthcare
Solutions, Inc., 751 A.2d 1035, 1041 (N.J. 2000).
The Defendants assert the Plaintiffs were not fired in connection with
their threats to inform regulators of the changes to the BITS operating
agreement; rather, they assert the board unanimously decided to fire the
Plaintiffs for insubordination after they meddled in the board’s affairs by
demanding the resignation of one of its members. See N.T. Trial, 2/28/19,
at 498 (“[T]his issue of getting rid of Mitch Wienick I thought was totally
inappropriate and so inappropriate that it could potentially be cause for
dismissal to have a senior executive of the company make a request or a
demand like that[.]”). The Defendants offered Nowe’s testimony to prove the
Plaintiffs’ threats were “nonsensical.” N.T. Trial, 3/1/19, at 529; see also id.____________________________________________
a meaningful response, or which would have misled them as to the nature of
the appropriate response.”).
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at 560 (“[Evans] said, Chuck, this isn’t the role of the regulators. This isn’t .
. . in their bailiwick.”).
Nowe testified as follows:
Q[:] Now, do you have an opinion of whether the bank regulators
would have . . . any issue with the amendment or the operating
agreement?
A[:] In my opinion, looking at the operating agreement and the
way it was structured, the operating agreement did not change
the basic premise of what the operating of BITS was or is . . . to
this date, and so it did not in any way change what its fundamental
purpose was.
...
Q[:] Is a regulator concerned about the internal operations or
management of a financial institution like you reviewed with this
amended operating agreement of BITS?
A[:] The regulator[ is] concern[ed] with the internal operations
of a financial institution only to the extent that those operations
create an unsound and unsafe condition to the financial institution
itself.
Q[:] And did the change in the operating agreement that you
reviewed create any unsafe or unsound operation?
A[:] No, the changes, as I reviewed them and as I understood
them, to be really within the normal operations and how day-to-
day operations would be occurring, and the regulator is typically
not involved in the day-to-day operations of the financial
institution and regulating that. That’s the responsibility of the
board and management.
N.T. Trial, 3/1/18, at 535–36 (emphasis added).
Nowe’s testimony speaks directly to the lack of seriousness with which
a regulator would view the Plaintiffs’ oft-threatened report. See N.T. Trial,
3/1/18, at 536 (stating matters concerning amendment to BITS operating
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agreement would not concern regulators). It also gives context to the
Defendants, as individuals with knowledge of regulatory practices, having a
nonplussed reaction to the Plaintiffs’ threats, thus, bearing on whether “a
causal connection exist[ed] between the whistle-blowing activity and the
adverse employment claim.” Lippman, supra at 226. Nowe’s testimony
plainly exceeds the requirement for evidence to possess “any tendency to
make a fact of consequence more or less probable[.]” Mitchell, supra at
314. Consequently, we cannot say that the lower court manifestly abused its
discretion or committed an error of law. B.K. v. J.K., supra, at 991–92.
In their second claim, the Plaintiffs contend Nowe’s testimony was
confusing, misleading, and prejudicial. Brief of Appellants, at 24. They do
not cite a single case in support of this proposition, other than to define “unfair
prejudice”. See id., at 25 (citing Commonwealth v. Kane, 138 A.3d 1217,
1288 (Pa. Super. 2018)). We, therefore, consider the Plaintiffs’ second claim
waived. See Lackner v. Glosser, 892 A.2d 21, 29 (Pa. Super. 2006)
(“[Arguments which are not appropriately developed are waived. Arguments
not appropriately developed include those where the party has failed to cite
any authority in support of a contention.”) (citations omitted); see also In
re Child M. 681 A.2d 793, 799 (Pa. Super. 1996) (“[T]he ‘argument’ section
of an appellate brief must contain a full discussion of the points raised
accompanied by citation to pertinent authority.”) (citing Pa.R.A.P. 2119(a)).
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The Plaintiffs’ third claim contends the trial court erred by precluding
evidence of the Defendants’ fraudulent conduct. See Brief of Appellants, at
6, 28–30. In this poorly-articulated claim, the Plaintiffs assert the court
broadly hampered their ability to present evidence pertinent to the
Defendants’ ostensibly fraudulent conduct. Id. at 30. They, however, only
reference a single sustained objection from Nowe’s cross-examination. Id.
Consequently, we limit our review to the court’s decision to sustain that
objection. See Keller v. Mey, 67 A.3d 1, 7 (Pa. Super. 2013) (“This Court
will not develop arguments on the behalf of an appellant or comb the record
for factual underpinnings to support an appellant’s position.”).
The Plaintiffs reference the following exchange:
Q. And would the regulators have been interested if it was
reported to them that a change in the operating agreement
constituted a fraud on the employees?
Mr. Crocenzi:[16] Objection, Your Honor.
The Court: Sustained.
Id. at 30 (citing N.T. Trial, 3/1/18, at 537).
Any argument regarding the court’s preclusion of fraud-related evidence
vis-à-vis the above-referenced sustained objection is fatally undermined by
the fact that Daniels and Dalvi stipulated to the legality of the December 29,
2010 amendment to the operating agreement. See N.T. Trial, 2/28/18, at
____________________________________________
16 Michael J. Crocenzi, Esquire, served as trial counsel for the Plaintiffs. N.T.
Trial, 2/26/18, at 1.
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519 (“The Court: [T]he parties have agreed that . . . the operating agreement
was legally amended for proper tax purposes.”); see also Mader v.
Duquesne Light Company, 199 A.3d 1258, 1264 (Pa. Super. 2018)
(“[S]tipulations are binding upon the court as well as on parties agreeing to
them.”). Consequently, the Plaintiffs’ question can only be interpreted as
either an impermissible inference regarding a fraudulent purpose behind the
2010 amendment, or as speculative inquiry into whether a hypothetical,
fraudulent change to the operating agreement would draw regulatory interest.
See Gillingham v. Consol Energy, Inc., 51 A.3d 841, 850 (Pa. Super. 2012)
(“[E]xpert testimony is incompetent if it lacks an adequate basis in fact. . . .
This means that expert testimony cannot be based solely upon conjecture or
surmise.”). Therefore, the court did not abuse its discretion or commit an
error of law in sustaining the Defendants’ objection. B.K. v. J.K., supra at
991–92.
The Plaintiffs’ fourth claim asserts the trial court erred by refusing to
charge the jury with deciding whether, under CEPA, the Plaintiffs held a
reasonable belief that the Defendants were defrauding BITS members. Brief
of Appellant, at 6.
We apply the following standard to the Plaintiffs’ claim:
In reviewing a challenge to the trial court’s refusal to give a
specific jury instruction, it is the function of this Court to
determine whether the record supports the trial court’s decision.
In examining the propriety of the instructions a trial court presents
to a jury, our scope of review is to determine whether the trial
court committed a clear abuse of discretion or an error of law
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which controlled the outcome of the case. A jury charge will be
deemed erroneous only if the charge as a whole is inadequate, not
clear or has a tendency to mislead or confuse, rather than clarify,
a material issue. A charge is considered adequate unless the jury
was palpably misled by what the trial judge said or there is an
omission which is tantamount to fundamental error.
Consequently, the trial court has wide discretion in fashioning jury
instructions. The trial court is not required to give every charge
that is requested by the parties and its refusal to give a requested
charge does not require reversal unless the Appellant was
prejudiced by that refusal.
Commonwealth v. Sandusky, 77 A.3d 663, 667 (Pa. Super. 2013) (citation
omitted).
Preliminarily, we first examine the court’s responsibilities under CEPA.
CEPA, inter alia, prohibits an employer from taking retaliatory action against
an employee for threatening to disclose conduct “the employee reasonably
believes . . . is fraudulent . . . including any activity . . . which the employee
reasonably believes may defraud any shareholder, investor, client, patient,
customer, employee, former employee, retiree or pensioner of the employer
or any governmental entity[.]” N.J. Stat. § 34:19-3(a)(2). CEPA claims under
section 34:19-3(a)(2), such as the instant claim, require the fact-finder to
evaluate “whether the employee making the complaint reasonably believed
that the activity was occurring and that it amounted to fraud.” Battaglia v.
United Parcel Service, Inc., 70 A.3d 602, 626 (N.J. 2013). “At the same
time, as [the Supreme Court of New Jersey has] cautioned, the court must be
alert to the sufficiency of the factual evidence and to whether the acts
complained of could support the finding that the complaining employee’s belief
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was a reasonable one.” Id. “Vague and conclusory complaints . . . are not
the sort of things that the [New Jersey] legislature intended to be protected
by CEPA.” Id. at 627.
In Dzwonar v. McDevitt, 828 A.2d 893 (N.J. 2014), the New Jersey
Supreme Court explained the interplay between a plaintiff’s burden under
CEPA and the trial court’s gatekeeping role as follows:
[A] Plaintiff must set forth facts that would support an objectively
reasonable belief that a violation has occurred. In other words,
when a defendant requests that the trial court determine as a
matter of law that a plaintiff’s belief was not objectively
reasonable, the trial court must make a threshold determination
that there is a substantial nexus between the complained-of
conduct and a law or public policy identified by the court or the
plaintiff. If the trial court so finds, the jury then must determine
whether the plaintiff actually held such a belief and, if so, whether
that belief was objectively reasonable.
Id. at 901–902 (requiring trial judge make substantial nexus threshold
determination under section 34:19–3(c) of CEPA); see also Hitesman,
supra at 318–19 (N.J. 2014) (extending threshold determination required by
Dzwonar to claims, such as Plaintiffs’, under section 34:19–3(a)).
“The statutory elements and the analytical framework set forth in
Dzwonar distinguish an employee’s objection to, or reporting of, an
employer’s illegal or unethical conduct from a routine dispute in the workplace
regarding the relative merits of internal policies and procedures.” Hitesman,
supra at 319 (citing Dzwonar, supra at 903 (finding plaintiffs, as matter of
law, did not possess objectively reasonable belief that defendant’s conduct
violated law where complaint only alleged inadequate explanation of union’s
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actions to membership) and Maw v. Advanced Clinical Communications,
846 A.2d 604, 608 (N.J. 2004) (rejecting claim as unreasonable where plaintiff
contested terms of non-compete clause on grounds that “plaintiff’s dispute
with her employer is private in nature.”)).
In the instant matter, the court excised any mention of the Plaintiffs’
fraud-related CEPA claim from the verdict slip after the following exchange:
The [c]ourt: [] I had submitted a draft of a verdict slip[.] I
originally in number two had in there whether the Plaintiffs
reasonably believed that the change of the operating agreement
in 2010 perpetrated a fraud upon the employees of BITS.
And based upon the testimony that I heard that the Plaintiffs
were—not only were the Plaintiffs aware of the operating
agreement, but that they felt all of the employees were aware that
the operating agreement would be changed, but it would have to
be reported to the regulators, the issue of fraud is out.
The only issue is whether or not the change—whether they
reasonable believed that the change must legally be reported to
the regulators or be in violation of the letter of non-objection.
Ms. Diulus-Meyers:[17] Your Honor, I believe that the testimony
was that they knew it could be changed, but it couldn’t be changed
in all respects. And . . . it couldn’t just be changed . . . to defraud
the shareholders.
The [c]ourt: There could be no defrauding of the shareholders
unless they had a justifiable reliance on what was in the operating
agreement. The testimony was that they felt the shareholders
knew that the operating agreement could be changed; therefore
there was no possible fraud upon the shareholders.
N.T. Trial, 2/28/18, 521–22 (emphasis added).
____________________________________________
17Patricia Diulus-Meyers, Esquire, served as trial counsel for the Plaintiffs.
N.T. Trial, 2/26/18, at 1.
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The Plaintiffs assert “[w]hether Plaintiffs had a reasonable belief that
shareholders were being defrauded is a question of fact which should have
been submitted to the jury but was instead dismissed by the [c]ourt as a
matter of law.” Brief of Appellants, at 33. This assertion runs contrary to
established New Jersey case law. See Dzwonar, supra at 901 (“the trial
court must make a threshold determination that there is a substantial nexus
between the complained-of conduct and a law or public policy[.]”) (emphasis
added).
Judge Guido did not find a substantial nexus between the complained of
conduct and fraud because the plaintiffs never presented any evidence of
fraudulent conduct. See Pa.R.A.P. 1925(a) Opinion, 11/20/18, at 7 (“The . .
. changes to [the] [o]perating [a]greement . . . were never said to be made
fraudulently. Instead, it was presented that the changes were done by the
book, openly and in accordance with [the] governing terms of the [o]perating
[a]greement. Furthermore, the Plaintiffs’ own employment contracts
anticipated that such changes might be made[.]”).
Upon careful review of the record, we find the trial court’s refusal to
instruct the jury on the Plaintiffs’ fraud-related CEPA claim to be a proper
exercise of its gatekeeping function under Dzwonar and its progeny.
Dzwonar, supra at 901. We acknowledge the Plaintiffs are not required to
prove each element contained within “the legal definition of fraud.”
Battaglia, supra at 626. They, however, must allege conduct which bears
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some resemblance to fraud, which under any definition—even a lay
definition—would require some sort of misrepresentation. Compare Allstate
New Jersey Ins. Co. v. Lajara, 117 A.3d 1221, 1231 (N.J. 2015) (defining
fraud under New Jersey law as “(1) a material misrepresentation of a presently
existing or past fact; (2) knowledge or belief by the defendant of its falsity;
(3) an intention that the other person rely on it; (4) reasonable reliance
thereon by the other person; and (5) resulting damages”) (emphasis added);
with Black’s Law Dictionary (11th ed. 2019) (fraud) (“A knowing
misrepresentation or knowing concealment of a material fact made to induce
another to act to his or her detriment”) (emphasis added) and Merriam-
Webster, https://www.merriam-webster.com/dictionary/fraud (last visited
August 14, 2018) (“Deceit, trickery[;] specifically: intentional perversion of
the truth in order to induce another to part with something of value or to
surrender a legal right.”) (emphasis added).
The evidence offered at trial—in particular, the original BITS operating
agreement, the Plaintiffs’ employment agreements, the Plaintiffs’ own trial
testimony,18 and the stipulation concerning the methods and purposes
____________________________________________
18We find the following testimony, elicited during Dalvi’s cross-examination,
particularly instructive:
Q. Mr. Dalvi, isn’t it true that the operating agreement could be
amended at any time by a supermajority of the membership unit
holders?
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underpinning the amendment to the operating agreement—fails to hint at
conduct which could possibly be viewed as misrepresentative. See Operating
Agreement, 3/1/05, at 6 (requiring supermajority vote for approval of certain
decisions by managing member, including decisions to restructure BITS, incur
indebtedness outside ordinary course, or amend operating agreement); see
also Daniels’ Employment Agreement, 2/23/05, at 3 (allowing Daniels to
invoke constructive termination “as a direct result of . . . an amendment[] to
. . . the [o]perating [a]greement[] that permits the [m]anaging [m]ember to
increase the amount of [BITS’] annual [n]et [i]ncome . . . the [m]anaging
[m]ember may add to [BITS’] reserves in any year to more than ten percent
. . . of [BITS’] annual [n]et income[.]”); and Dalvi’s Employment Agreement,
3/1/05, at 2–3 (containing same constructive termination clause); and N.T.
____________________________________________
A. Yes it could[.]
Q. And so when you entered into this employment [agreement]
with BITS you knew that the operating agreement could be
changed correct?
A. I knew it could be changed[.]
Q. And so if [every owner of B and C membership units] had a
copy [of the operating agreement] and they could read it, they
could see in there that it could be changed at any time, correct?
A. Operating agreement can be changed at any time [sic].
N.T. Trial, 2/28/18, at 453–54.
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Trial, 2/28/18, at 520 (outlining parties’ stipulation to legal and proper
purposes behind amendment to operating agreement).
The trial court’s decision to omit a requested jury instruction is adequate
“unless . . . there is an omission which is tantamount to fundamental error.”
Sandusky, supra at 667. We cannot say, under the instant circumstances,
that Judge Guido committed fundamental error by exercising the gatekeeping
function required of him under New Jersey law. See Dzwonar, supra at
901–02; see also Hitesman, supra at 318–19 (N.J. 2014). As such, we
cannot grant relief. Sandusky, supra at 667.
In their final claim, the Plaintiffs’ assert Judge Peck erred by granting
the Defendants’ motion for summary judgment as to the Plaintiffs’ unjust
enrichment claim. Brief of Appellant, at 7.
We review this claim under the following, well-established principles:
[O]ur scope of review is plenary, and our standard of review is the
same as that applied by the trial court[. A]n appellate court may
reverse the entry of a summary judgment only where it finds that
the lower court erred in concluding that the matter presented no
genuine issue as to any material fact and that it is clear that the
moving party was entitled to a judgment as a matter of law. In
making this assessment, we view the record in the light most
favorable to the non-moving party, and all doubts as to the
existence of a genuine issue of material fact must be resolved
against the moving party. As our inquiry involves solely questions
of law, our review is de novo.
Thus, our responsibility as an appellate court is to determine
whether the record either establishes that the material facts are
undisputed or contains insufficient evidence of facts to make out
a prima facie cause of action, such that there is no issue to be
decided by the fact-finder. If there is evidence that would allow a
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fact-finder to render a verdict in favor of the non-moving party,
then summary judgment should be denied.
Reinoso v. Heritage Warminster SPE LLC, 108 A.3d 80, 84 (Pa. Super.
2015).
The Plaintiffs assert the court below erred in dismissing their claim for
unjust enrichment during summary judgment. Brief of Appellant, at 35.
Unjust enrichment is an action sounding in quasi-contract or contract implied
in law. Sevast v. Kakouras, 915 A.2d 1147, 1153 n.7 (Pa. 2007) (citing
Schott v. Westinghouse Electric Corp., 259 A.2d 443, 449 (Pa. 1969)). “A
quasi-contract imposes a duty, not as a result of any agreement, whether
express or implied, but in spite of the absence of an agreement, when one
party receives unjust enrichment at the expense of another.” Gutteridge v.
J3 Energy Group, Inc., 165 A.3d 908, 917 (Pa. Super. 2017) (en banc). The
doctrine of unjust enrichment is inapplicable when the relationship between
the parties is founded on a written agreement or an express contract. Roman
Mosaic & Tile v. Vollrath, 143 A.3d 421, 428 (Pa. Super. 2017).
The elements of unjust enrichment are: “[(1)] benefits conferred on
defendant by plaintiff[; (2)] appreciation of such benefits by defendant[;] and
[(3)] acceptance and retention of such benefits under such circumstances that
it would be inequitable for defendant to retain the benefit without payment of
value.” WFIC, LLC v. LaBarre, 148 A.3d 812, 819 (Pa. Super. 2016) (citation
omitted). “To sustain a claim of unjust enrichment, a claimant must show
that the party against whom recovery is sought either wrongfully secured or
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passively received a benefit it would be unconscionable . . . to retain.”
Gutteridge, supra at 917. The doctrine’s application depends on the
particular circumstances of each case, with the Court’s focus primarily on
“whether the enrichment of the defendant is unjust. The doctrine does not
apply simply because the defendant may have benefitted as a result of the
actions of the plaintiff.” Id.
In deciding the case below, Judge Peck dismissed the case on the
following grounds: (1) “[t]he plaintiffs were dismissed . . . according to the
terms of their employment agreement[;]” and (2) “[the] Plaintiffs [did] not
adduce evidence that they have been directly injured by defendants unjustly.”
Pa.R.A.P. 1925(a) Opinion, 7/6/17, at 17 (emphasis added). Neither is an
appropriate basis for granting summary judgment.
The first basis for dismissal, the relationship formed by the employment
agreements, failed to account for the fact that the contractual relationship
contained in the Plaintiffs’ respective employment agreements exists between
the Plaintiffs and BITS, not the Plaintiffs and the Defendants. See Daniels’
Employment Agreement, 2/23/05, at 1 (“This [e]mployment [a]greement is
entered into by and between Charles P. Daniels and ACBB-BITS, LLC”); see
also Dalvi’s Employment Agreement, 3/1/05, at 1 (“This [e]mployment
[a]greement is entered into by and between Imran Dalvi and ACBB-BITS,
LLC”). As such, the employment agreements cannot serve as the basis for
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dismissing the Plaintiffs’ unjust enrichment claim.19 See Roman Mosaic &
Tile, supra at 428 (requiring dismissal in presence of “a written agreement
or an express contract”); see also Gutteridge, supra at 917 (imposing a
duty under quasi-contract “in . . . the absence of an agreement”).
The second rationale for dismissing the instant claim states the Plaintiffs
did not “adduce evidence that they have been directly injured by Defendants
unjustly[,]” on the grounds that, “[a]ny indirect injury . . . by the conduct of
the defendants is not sufficient to [mete] out a claim for unjust enrichment.”
Pa.R.A.P. 1925(a) Opinion, 7/6/17, at 17 (citing generally Hill v. Ofalt, 85
____________________________________________
19We previously held the Plaintiffs’ unjust enrichment claim arose under the
BITS operating agreement, not the Plaintiffs’ employment agreements, stating
as follows:
The unjust enrichment claim alleges that ACBB diverted profits to
itself that should have gone to BITS and its executives, under the
operating agreement between ACBB and BITS. While this claim
involves the operating agreement, it clearly does not involve a
dispute or controversy arising out of or related to the employment
agreements or any claimed breach thereof. . . . Nor does this
count implicate Evans since he does not possess any rights or
duties under the employment agreements.
Atlantic Community Bankers Bank, Inc. v. Daniels, 635 MDA 2014 (Pa.
Super. March 18, 2015) (unpublished memorandum) (emphasis in original).
We note neither the operating agreement between BITS and ACBB nor the
Plaintiffs’ employment agreements with BITS serves as a written or express
agreement between the opposing parties; consequently neither agreement
serves as a basis for dismissal. Roman Mosaic & Tile, supra at 428.
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A.3d 540 (Pa. Super. 2013)).20 The direct or indirect cause of a plaintiff’s
injury may be material to an unjust enrichment claim insofar as it bears on
whether enrichment was unjust; however, in and of itself, indirectness is an
insufficient basis for dismissal. Gutteridge, supra at 917 (allowing unjust
enrichment claims where defendant either “wrongfully secured or passively
received a benefit[.]”) (emphasis added).
We, nonetheless, affirm the court’s order granting summary judgment.
See Plasticert, Inc. v. Westfield Ins. Co., 923 A.2d 489, 492 (Pa. Super.
2007) (“[W]e may affirm the trial court’s order on any valid basis.”). Our
review of the record before Judge Peck reveals no genuine issues as to any
material fact.21 Moreover, we find, as a matter of law, that the Plaintiffs failed
to offer evidence supporting the most critical aspect of their claim—that
Defendants’ enrichment was unjust. Gutteridge, supra at 917; see also
____________________________________________
20 Though Hill mentions an unjust enrichment claim, the case itself concerns
the lower court sustaining a demurrer to a complaint, which this Court
subsequently affirmed on the basis that the plaintiff lacked standing to pursue
a shareholder strike suit. See Hill, supra at 548 (evaluating shareholder’s
standing to sue under 15 Pa.C.S.A. § 1717). As such, Hill is of not relevant
to the matter at issue.
21 The Plaintiffs generally allege unjust enrichment claims are dependent on
“the particular factual circumstances . . . [and a]s such [are] not typically
amenable to disposition on summary judgment[,]” but they do not allege any
specific dispute of material fact. See Brief of Appellant, at 37 (citing Grill v.
Aversa, 2014 WL 4672461, at 11 (M.D. Pa. 2014)). Their reliance on non-
binding, unreported case law is unavailing. See, e.g., Lackner v. Glosser,
892 A.2d 21, 34 (Pa. Super. 2006) (“Appellant’s quasi-contract claim was
properly dismissed on summary judment[.]”).
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Stoeckinger v. Presidential Financial Corp. of Delaware Valley, 948
A.2d 828, 834 (Pa. Super. 2008) (affirming grant of summary judgment
dismissing unjust enrichment claim on grounds “that as a matter of law,
[Appellant] failed to show that [Appellee’s actions were] unjust.”).
To prevail on their claim, the Plaintiffs needed to show that the
Defendants “wrongly secured or passively received a benefit that would be
unconscionable to retain.” Babich v. Karsnak, 528 A.2d 649, 652–53 (Pa.
Super. 1987) (finding record supported summary judgment where any benefit
conferred upon corporate defendants was “incidental to [the plaintiff] pursuing
his own.”); see Stoeckinger, supra at 834 (concluding bank acting pursuant
to preexisting loan agreement precluded finding that bank’s actions were
unjust); see also Meyers Plumbing and Heating Supply Co. v. West End
Federal Sav. and Loan Ass’n, 498 A.2d 966, 970 (Pa. Super. 1985) (“A
necessary element of unjust enrichment is that a benefit must have been
conferred for which no compensation was given.”).
It is uncontested that the operating agreement, by its own terms, could
be amended. See Brief of Appellant, at 40 (“Plaintiffs acknowledge that ACBB
and Evans had the authority to amend the [o]perating [a]greement. This
authority is stated in the [o]perating [a]greement itself.”). The Plaintiffs’
original employment agreements accounted for the possibility that the
operating agreement would be altered to decrease the annual distributions of
BITS’ net income below ninety percent. See Daniels’ Employment Agreement,
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2/23/05, at 3 (stating constructive termination contingencies); see also
Dalvi’s Employment Agreement, 3/1/05, at 2–3 (stating same constructive
termination contingencies). When this contingency came to pass, after years
of work to build BITS into a profitable business, the Plaintiffs exercised their
constructive termination clauses—an event which the Plaintiffs knew would
both entitle them to substantial compensation and require them to relinquish
their membership units. See Daniels’ Employment Agreement, 2/23/05, at
12 (requiring: (1) BITS compensate Daniels for six months; and (2) Daniels
sell back all Class B membership units within four years); see also Dalvi’s
Employment Agreement, 2/23/05, at 12 (stating identical requirements).
The relationship described above does not, as a matter of law, allow the
Court to impose quasi-contractual relief, as even construed in the light most
favorable to the Plaintiffs, where there are no facts upon which to find the
Defendants unconscionably retained any benefit from the Plaintiffs’ services.
See Gutteridge, supra at 917; see also Babich, supra at 652–53; and
see Stoeckinger, supra at 834. As such, the Plaintiffs’ final claim fails.
Judgment affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 9/10/2019
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