Axilbund, G. v. Forman, S.

J-A17023-21
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
GEORGE M. AXILBUND TRUST, : IN THE SUPERIOR COURT OF
GRUBMAN HOLDING LLC, PAULA : PENNSYLVANIA
SUSSMAN ABRAMS TRUST, FRANCIS :
T. RODDY (KEYSTONE BUSINESS :
CENTER II), AND DOUGLAS R. :
SAYER :
:
Appellees :
:
v. :
:
SHELLY FORMAN, PHYLLIS FORMAN, :
ANDREA AZOFF, WENDY ABRAMS, :
AND DONNA BALABAN :
:
Appellants : No. 214 EDA 2021
Appeal from the Judgment Entered December 10, 2020
In the Court of Common Pleas of Bucks County
Civil Division at No(s): No. 2018-00999
BEFORE: McLAUGHLIN, J., KING, J., and PELLEGRINI, J.*
MEMORANDUM BY KING, J.: Filed: November 18, 2021
Appellants, Shelly Forman, Phyllis Forman, Andrea Azoff, Wendy
Abrams, and Donna Balaban, appeal from the judgment entered in the Bucks
County Court of Common Pleas in favor of Appellees, George M. Axilbund
Trust, Grubman Holding LLC, Paula Sussman Abrams Trust, Francis T. Roddy
(Keystone Business Center II), and Douglas R. Sayer. The underlying action
concerns fraudulent transfers made in violation of the Pennsylvania Uniform
____________________________________________
* Retired Senior Judge assigned to the Superior Court.
J-A17023-21
Voidable Transactions Act (“PUVTA”), 12 Pa.C.S.A. §§ 5101-5114.1 We affirm.
In its opinion, the trial court set forth the relevant facts of this case as
follows:
[Appellees] and Tenant Shelly’s Medication Services, Inc.
(“SMS”) entered into a commercial lease agreement on July
30, 2012 for a five-year term commencing on September 1,
2012 and expiring on August 31, 2017.
[Appellant] Shelly Forman was the President and sole
stockholder of SMS.
The Board of Directors of SMS, at all relevant times,
consisted of [Appellants].
On June 22, 2015, almost three years after the execution of
the lease, SMS sold substantially all of its assets to an
unrelated entity, Contract Pharmacy Services (“CPS”) for
the amount of $1,396,990.88.
Prior to the sale, SMS’s Directors had discussed selling the
business on an ongoing basis, beginning as early as 2013.
In June of 2015, once SMS was sold to CPS, [Appellants]
knew that the business would have no further income.
When SMS sold its assets to CPS, the company had a
sufficient amount of money to pay its debts and properly
terminate the … lease.
The directors of SMS knew they had a continuing obligation
to pay rent to [Appellees], unless they complied with
Section 48 of the lease.
Section 48 of the Lease between [Appellees] and SMS
allowed SMS to terminate the lease….
____________________________________________
1 Prior to an amendment, PUVTA was known as the Pennsylvania Uniform
Fraudulent Transfer Act (“PUFTA”). See 12 Pa.C.S.A. § 5101(a). References
to both PUVTA and PUFTA appear throughout the record and the parties’
briefs.
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* * *
On September 10, 2015, SMS sent written notice to
[Appellees’] representatives of its termination of the lease.
In this letter, SMS states that it has wound up its business
and ceased operations.
By waiting until September 2015 to send written notice to
[Appellees], SMS failed to comply with Section 48.
[Appellees] filed suit against SMS on November 12, 2015,
alleging that SMS breached the lease at docket number
2015-07786 (the “underlying action”).
Trial of the underlying action was held on February 26, 2017
before the [trial judge] without a jury. The primary issue
was whether Section 48 of the lease permitted SMS to
terminate the lease prior to its scheduled end date of August
31, 2017.
On June 12, 2017, [the] court issued its decision after the
submission of proposed findings of fact and conclusions of
law and found in favor of [Appellees] against SMS on its
breach of contract action. Specifically, [the] court held that
SMS was in violation of the lease as soon as it stopped
paying rent.
Also on June 12, 2017, [the] court entered a verdict in the
amount of $270,636.41 in favor of [Appellees and] against
… SMS.
On June 22, 2017, … SMS filed a motion for post-trial relief
pursuant to Pa.R.C.P. 227.1 and Bucks County Local Rule
227.1(a), requesting that [the] court vacate its verdict and
order a new trial, or, in the alternative, to modify its verdict
of June 12, 2017 to determine that SMS properly exercised
its rights under Section 48 of the lease and is liable for the
sum of $10,338.22. In this motion, SMS also respectfully
submitted that [the] court erred in entering a verdict in the
amount of $270,636.41 when, in its conclusions of law,
[the] court concluded that the total amount due to
[Appellees] was $219,456.77. [Appellees] responded to
[SMS’s] post-trial motion on June 27, 2017.
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On October 19, 2017, after consideration of [SMS’s] post-
trial motion and [Appellees’] response thereto, [the] court
issued an order and supplemental decision, vacating the
previous June 12, 2017 order and directing the Prothonotary
to enter a verdict in the amount of $219,456.77.
Additionally, [the] court denied all other post-trial relief and
directed the Prothonotary to issue judgment on the verdict
in the amount of $219,456.77 on behalf of [Appellees]
against SMS.
The verdict amount of $219,456.77 included the rent for the
entire unexpired term of the lease, as well as the other
charges, payments, costs and expenses due under the lease
pursuant to Paragraph 14(d)(i). The court awarded no
damages to [Appellees] for any repairs, legal fees, costs,
late fees or interest.
On December 8, 2017, [Appellees] filed a motion to mold
verdict to include pre and post judgment interest and costs,
requesting [the] court to add pre-judgment interest in the
amount of $26,334.81, costs in the amount of $1,327.99,
and post-judgment interest in the amount of $36.07 per day
from October 19, 2017 to the date the judgment is paid and
satisfied.
[SMS] responded to [Appellees’] motion to mold verdict on
January 24, 2018.
[Appellees’] motion was never praeciped forward for
disposition, pursuant to Bucks County Local Rule 208.3(b),
and therefore the court never ruled on same.
The judgment and verdict were not appealed, but there is
no record that any amount of the verdict has been paid to
[Appellees].
In 2018, [Appellees] filed two lawsuits against [Appellants]
that were consolidated … (docket number 2018-00999).
[Appellees’] three claims against [Appellants] include: (1)
breach of fiduciary duty; (2) fraudulent transfers in violation
of Section 5104(a)(2) and Section 5105 of [PUVTA]; and (3)
fraudulent transfers in violation of Section 5104(a)(1) of
PUVTA.
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(Trial Court Opinion, filed February 16, 2021, at 2-5) (quoting Trial Court
Opinion, filed April 21, 2020, at 2-5) (some internal capitalization, footnotes,
numbering, quotation marks, and record citations omitted).
Appellees’ amended complaint asserted that SMS had advised Appellees
that it had no funds to pay the prior judgment in favor of Appellees. (See
Second Amended Complaint, filed 8/1/18, at 2). However, after SMS had sold
its assets and was “winding down,” SMS diverted certain funds to Appellants.
(Id.) Appellees insisted that these funds should have been used to satisfy the
prior judgment, and Appellants transferred the funds “with the actual intent
to hinder, delay or defraud creditors, including [Appellees].” (Id. at 3).
A bench trial commenced on October 1, 2019. By order filed on April
22, 2020, the court entered its verdict in favor of Appellees against Appellants,
jointly and severely, in the amount of $219,456.77. The court also awarded
interest “to be calculated at the lawful rate of 6% per year from the date that
[SMS] stopped paying rent to [Appellees] in this case, which was October 1,
2015.” (Verdict and Order, filed 4/22/20, at 1). In light of judicial emergency
orders related to the COVID-19 pandemic, the court provided that the
effective date of the verdict would be May 18, 2020.
Both parties timely filed post-trial motions. On June 18, 2020, the court
denied all post-trial motions except for Appellees’ motion regarding attorney’s
fees, which the court opted to address at a future hearing. On July 28, 2020,
the court conducted its hearing on the issue of attorney’s fees. Thereafter,
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the parties filed briefs on the matter. On September 4, 2020, the court
awarded attorney’s fees to Appellees in the amount of $113,678.60.
Appellants filed another post-trial motion to challenge the attorney’s fees on
September 11, 2020. On December 3, 2020, the court denied Appellants’
motion.
On December 10, 2020, Appellants filed a praecipe to enter judgment
in favor of Appellees and against Appellants. Appellants timely filed a notice
of appeal on December 18, 2020. On December 22, 2020, the court ordered
Appellants to file a Pa.R.A.P. 1925(b) concise statement of errors complained
of on appeal. Appellants timely filed their Rule 1925(b) statement on
December 28, 2020.
Appellants now raise three issues for our review:
Did the trial court err in awarding attorney’s fees to
[Appellees] where [PUVTA] does not provide a statutory
right to attorney’s fees and where there is no evidence in
the record supporting an award of attorney’s fees in the
form of punitive damages or otherwise?
Did the trial court err in awarding attorney’s fees in the
amount of $113,678.60, which constitutes 40% of the total
amount of compensatory damages plus interest awarded by
the trial court?
Did the trial court abuse its discretion by awarding
prejudgment interest dating from when it determined that
[SMS], a third-party to this action, breached a contract with
[Appellees] rather than the date that [Appellees] first filed
suit against the [Appellants] in this action?
(Appellants’ Brief at 9-10) (footnote omitted).
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In their first two issues, Appellants argue that Section 5107(a)(3)(iii) of
PUVTA, a “catch-all” provision that describes remedies available to creditors,
does not provide statutory authority to award punitive damages in the form
of counsel fees. (Id. at 47). Further, Appellants assert that there is no
evidence that they “engaged in acts of malice, vindictiveness or with a wanton
disregard of others,” or that their conduct was “dilatory, obdurate or
vexatious.” (Id. at 47, 50). Appellants also contend that the trial court’s
calculation of $113,678.60 in attorney’s fees was improper because it
constituted forty percent (40%) of the total amount of compensatory damages
plus interest, and the court “did not provide any analysis of the actual charges
sought by [Appellees].” (Id. at 57). Based upon the foregoing, Appellants
conclude that trial court erred by awarding counsel fees. We disagree.
“Appellate review of a trial court’s order awarding attorney’s fees to a
litigant is limited solely to determining whether the trial court palpably abused
its discretion in making a fee award.” Thunberg v. Strause, 545 Pa. 607,
614-15, 682 A.2d 295, 299 (1996). “If the record supports a trial court’s
finding of fact that a litigant violated the conduct provisions of the relevant
statute providing for the award of attorney’s fees, such award should not be
disturbed on appeal.” Id. at 615, 682 A.2d at 299. See also Kraisinger v.
Kraisinger, 34 A.3d 168, 175 (Pa.Super. 2011) (reiterating that this Court’s
review of grant of counsel fees is limited, and we will reverse only upon
showing of plain error).
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Here, the court awarded counsel fees in the form of punitive damages.
(See Trial Court Opinion at 15). A party “may recover punitive damages if
there are aggravating circumstances beyond those that justified the award of
compensatory damages.” Pittsburgh Live, Inc. v. Servov, 615 A.2d 438,
442 (Pa.Super. 1992).
However, when fraud is the basis of compensatory
damages, the same fraudulent conduct is not sufficient to
base an award of punitive damages without more. To justify
the award of punitive damages, there must be acts of
malice, vindictiveness and a wholly wanton disregard of the
rights of others.
Id. (internal citations omitted). See also Nebesho v. Brown, 846 A.2d 721,
728 (Pa.Super. 2004) (concluding award of attorney’s fees might have been
proper in equity action if such fees were in nature of punitive damages; despite
trial court’s denial of punitive damages, court’s opinion provided sufficient
basis for award as attorney’s fees; remand was required to allow court to
determine nature of its award, i.e., to clarify whether attorney’s fee award
was in nature of punitive damages).
Remedies available to a creditor under PUVTA include:
§ 5107. Remedies of creditor
(a) Available remedies.—In an action for relief
against a transfer or obligation under this chapter, a
creditor, subject to the limitations in sections 5108 (relating
to defenses, liability and protection of transferee or obligee)
and 5109 (relating to extinguishment of claim for relief),
may obtain:
* * *
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(3) Subject to applicable principles of equity and
in accordance with applicable rules of civil procedure:
* * *
(iii) any other relief the circumstances may
require.
12 Pa.C.S.A. § 5107(a)(3)(iii).
The Third Circuit of the United States Court of Appeals has noted the
absence of a Pennsylvania appellate court ruling on whether Section
5107(a)(3)(iii) allows for the award of punitive damages. See Klein v.
Weidner, 729 F.3d 280, 286-96 (3d Cir. 2013) (anticipating that
Pennsylvania Supreme Court would conclude that punitive damages are
available under PUVTA). Although this Court has not ruled on this precise
issue, we have confirmed that Section 5107(a) provides a trial court “with the
discretion to award any relief the circumstances required….” Kraisinger,
supra at 175.
Additionally, the Judicial Code governs the award of attorney’s fees as
follows:
§ 2503. Right of participants to receive counsel fees
The following participants shall be entitled to a
reasonable counsel fee as part of the taxable costs of the
matter:
* * *
(7) Any participant who is awarded counsel fees
as a sanction against another participant for dilatory,
obdurate or vexatious conduct during the pendency of a
matter.
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42 Pa.C.S.A. § 2503(7). See also Miller v. Nelson, 768 A.2d 858, 862
(Pa.Super. 2001) (stating, “The relentless pursuit of a claim which plainly
lacks legal merit warrants an award of counsel fees”).
Instantly, at the hearing on the issue of counsel fees, Appellees
presented Grace M. Deon, Esquire, to testify as an expert in “the valuation of
attorney services.” (N.T. Hearing, 7/28/20, at 19). Attorney Deon testified
regarding multiple instances where Appellants’ attempts at obstruction forced
Appellees’ attorneys to “jump through more hoops than necessary.” (Id. at
30). Appellees submitted a report prepared by Attorney Deon, wherein she
opined that the counsel fees incurred by Appellees “were reasonable and
necessary.” (Appellees’ Hearing Exhibit P1). Attorney Deon’s investigation of
the case files led her to conclude that “the work performed by [Appellees’]
attorneys was necessitated by the actions, inactions and/or conduct of
[Appellants] and their counsel.” (Id.) For example, during the pendency of
the instant case, Attorney Deon noted that “[d]iscovery related matters were
void of professional courtesy.” (Id.) Attorney Deon also observed that
Appellants insisted that the parties attend mediation to resolve all outstanding
claims, but Appellants did not act in good faith once the mediation began.
(See id.; N.T. Hearing, 7/28/20, at 32).
The trial court subsequently determined that Appellants’ conduct
warranted an award of counsel fees:
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[Appellants’] behavior was in complete disregard of the
rights of [Appellees] to continue receiving the rent
payments and [Appellants] wrongfully withheld funds from
[Appellees]. … More shockingly, in this case, after all the
evidence was submitted, [Appellants] again conceded in
their post-trial proposed findings of fact that $70,000.00
was due. Yet, they never paid this $70,000, nor provided
an explanation as to why they never paid it. Not once but
twice [Appellants] have walked into a courtroom, knowing
and conceding that they owed [Appellees] at least a portion
of the money demanded, and they have refused to pay it
until a judge ordered them to do so.
* * *
When the court issued its verdict and ordered discovery to
take place, to locate where the fraudulently transferred
money went, [Appellants] refused to provide that discovery
and instead filed an objection to same.
(Trial Court Opinion at 17, 18). (See also Appellants’ Proposed Findings of
Fact, filed 12/6/19, at ¶137 (conceding that Appellees could recover at least
$70,000.00 “under any theory”); Appellants’ Post-Trial Motion, filed 5/4/20,
at 3 (contesting court’s discovery mandate that Appellants provide location of
funds or assets to pay judgment)).
Regardless of whether PUVTA’s catch-all provision provides a distinct
basis for awarding punitive damages, the court had authority to award counsel
fees under Section 2503. The record supports the court’s finding of some
dilatory, obdurate, or vexatious behavior. See Thunberg, supra; 42
Pa.C.S.A. § 2503(7). Under the unique circumstances of this case, we cannot
say that the court’s reasoning amounts to an abuse of discretion. Id.
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Regarding the amount of counsel fees awarded, Appellees’ post-trial
brief indicated that they had “incurred in excess of $145,000.00 in legal fees
and costs….” (Appellees’ Brief, filed 5/13/20, at 9). Based upon her review
of the relevant case files, Attorney Deon opined that Appellees’ attorneys’
billing rates were appropriate. (N.T. Hearing, 7/28/20, at 23). Consequently,
the court explained its calculation of counsel fees as follows:
[The] court’s September 3, 2020 decision awarding
attorneys’ fees was based on evidence, arguments,
testimony, and exhibits that were presented at a hearing.
[The] court found the testimony of [Appellees’] expert
witness, Grace M. Deon, Esq., was credible, and the fees
were reasonable, appropriate, and earned by counsel.
[Appellees] requested a total of $200,657.42 in legal fees
and costs, plus $32,500.00 in interest. Despite finding that
all of the fees were reasonable, appropriate, and earned,
[the] court limited the award of fees to a sum less than the
full amount earned in the above-captioned case (Docket No.
2018-00999), together with the post-trial motions therein,
including [Appellees’] claim for attorneys’ fees.
Not only did [the] court make an assessment of attorneys’
fees based on the testimony presented, but [the] court also
included a proportionality analysis comparing the amount of
legal fees with the verdict in the September 3, 2020
decision. This case has been actively litigated past the
verdict, so [the] court concluded under a normal contingent
fee agreement, [Appellees’] counsel’s efforts would result in
a fee of forty percent. [The] court then limited the
attorneys’ fees to $113,678.60, which the court found was
proportionately reasonable and equitable compared to the
verdict. This award was not made without careful
consideration of the existing law. Under our system of
justice, a litigant is responsible for his own counsel fees
absent an agreement by the parties, or some other
established exception; however, the law does allow for an
award of attorneys’ fees where punitive damages are
warranted and/or the parties’ behavior is dilatory, obdurate
or vexatious.
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(Trial Court Opinion at 20-21) (internal citations and some internal
capitalization omitted). We emphasize that the record, particularly the
testimony and expert report from Attorney Deon, supported the court’s award
of $113,678.60 to Appellees. See Thunberg, supra. Therefore, Appellants
are not entitled to relief on their first two issues.
In their final issue, Appellants argue that the trial court’s award of
prejudgment interest is calculated from the incorrect date. (Appellants’ Brief
at 66). Appellants assert that the accrual date for prejudgment interest should
have started on “the date when the creditor files suit against the transferee,
not the date of the transfer or the date when the initial obligation arose.” (Id.)
Appellants conclude that “[t]here is no basis for awarding prejudgment
interest against [Appellants] in this case prior to any point in time when
[Appellees] had demanded payment from those individuals.” (Id. at 67-68).
We disagree.
“Our review of an award of pre-judgment interest is for abuse of
discretion.” Kaiser v. Old Republic Ins. Co., 741 A.2d 748, 755 (Pa.Super.
1999). Pennsylvania courts have awarded prejudgment interest as of right in
contract cases, “but also as an equitable remedy awarded to an injured party
at the discretion of the trial court.” Somerset Community Hosp. v. Allan
B. Mitchell & Associates, Inc., 685 A.2d 141, 201 (Pa.Super. 1996). “Pre-
judgment interest in such cases is a part of the restitution necessary to avoid
injustice.” Kaiser, supra at 755.
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“[P]re-judgment interest may be awarded ‘when a defendant holds
money or property which belongs in good conscience to the plaintiff, and the
objective of the court is to force disgorgement of his unjust enrichment.’” Id.(quoting Dasher v. Dasher, 542 A.2d 164, 164-65 (Pa.Super. 1988)). “The
fairest way for a court is to decide questions pertaining to interest according
to a plain and simple consideration of justice and fair dealing.” Linde v.
Linde, 220 A.3d 1119, 1150 (Pa.Super. 2019), appeal denied, ___ Pa. ___,
236 A.3d 1048 (2020) (quoting Gurenlian v. Gurenlian, 595 A.2d 145, 148
(Pa.Super. 1991)).
Instantly, the trial court awarded prejudgment interest from the date
that SMS breached its contract to pay rent to Appellees:
[The] court found that it was equitable for [Appellees] to be
compensated by prejudgment interest from the time the
funds were due the [Appellees]. But for [Appellants’]
fraudulent conduct, the judgment would have been paid by
the corporation years ago, and [Appellees’] original request
for pre-judgment interest following the original verdict
would be moot. The corporation had the funds to pay the
original verdict when it diverted the money to the individual
[Appellants]. At that time, [SMS] could have made a very
reasonable argument; one that would have been
successful—that the pre-judgment interest was
unnecessary and unreasonable, in view of the totality of the
award. Instead, there has been systematic fraud and
deceit, delaying payment of the money due. An award of
interest during that delay was inherently reasonable.
(Trial Court Opinion at 15).
In order to avoid injustice, the court awarded prejudgment interest from
October 1, 2015. See Kaiser, supra. See also Linde, supra (affirming trial
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court’s award of prejudgment interest from earlier date than that advanced
by appellants; recognizing that appellee was entitled to interest on value of
her shares that appellants had taken from her, and interest began to run at
time of taking; concluding that court’s decision was in accord with equities of
case and served to fully compensate appellee for her losses). Thus, we cannot
say that the court abused its discretion. See Kaiser, supra. Accordingly, we
affirm the judgment in favor of Appellees.
Judgment affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/18/21
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