J. W. Hall, Inc. v. Nalli, M.

J-S86013-16
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
J.W. HALL, INC., A CORPORATION : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
Appellant :
:
:
v. :
:
:
MICHAEL W. NALLI, ESQUIRE AND : No. 771 WDA 2016
MICHAEL W. NALLI, P.C. :
Appeal from the Judgment Entered April 25, 2016
In the Court of Common Pleas of Beaver County
Civil Division at No(s): 11132-2013
BEFORE: GANTMAN, P.J., MOULTON, J., STEVENS*, P.J.E.
MEMORANDUM BY STEVENS, P.J.E.: FILED FEBRUARY 15, 2017
J.W. Hall, Inc. appeals from the order entered by the Court of Common
Pleas of Beaver County granting summary judgment in favor of Michael W.
Nalli, Esq. and Michael W. Nalli, P.C., Defendants/Appellees in a legal
malpractice action brought by Appellant. We affirm.
In its Opinion, the trial court set forth the relevant factual and
procedural history as follows:
The [present] action arises as the result of a sale of a restaurant
and liquor license for an establishment located in Hopewell
Township, Beaver County, Pennsylvania, in 2011. Defendant
Michael W. Nalli drafted the purchase agreement, and the claims
arise from that transaction. Plaintiff [J.W. Hall, Inc.,] asserts
that it was represented by Nalli in that transaction and, further,
that as a result of that representation, negligence occurred that
caused plaintiff [J.W. Hall, Inc.,] to incur losses after the
purchasing entity, J.B. Culinary Enterprises, Inc., defaulted on its
obligations under the purchase agreement and went into
bankruptcy.
*Former Justice specially assigned to the Superior Court.
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The pleadings and discovery . . . give rise to the facts that are
discussed herein. Commencing in the spring of 2011, an
individual by the name of Jeffrey Belsky (hereinafter “Belsky”)
entered into negotiations with Joseph Hall (hereinafter “Hall”),
president of plaintiff, J.W. Hall, Inc.,[] in an attempt to purchase
J.W. Hall’s Steak and Seafood Inn located in Hopewell Township,
Beaver County, Pennsylvania. The parties initially haggled over
the price and ultimately agreed on $800,000 as the purchase
price.
Belsky thereafter contacted attorney Michael Nalli, whose office
was, and is, located in Center Township, Beaver County, for the
purpose of incorporating J.B. Culinary Enterprises, Inc.
(hereinafter “J.B. Culinary”) to operate the restaurant after sale
and to draft the purchase agreement. Attorney Nalli provided
Belsky with an engagement letter, which Belsky signed.
Shortly thereafter, Belsky and Hall met at Attorney Nalli’s office
to discuss a draft of the purchase agreement on June 23, 2011.
At that meeting, Attorney Nalli asked Hall if he had an attorney,
to which Hall responded “No, Mike, I don’t. You can take care of
this, can’t you?” There is a reference in the record that Nalli
responded “Sure, Joe, no problem.” It should also be noted that
there are several references in the record to confirm that Hall
and Belsky shared the expense of Attorney Nalli’s legal fees for
preparing the documents.
Following this meeting, Attorney Nalli made revisions to the
purchase agreement, and sent an email to Belsky regarding
what would happen in the event of a default on the agreement.
The email stated that the purchase agreement would include a
provision for an unsecured note so that [J.W. Hall, Inc.] could
not simply take back the collateral in the event of a default.
Hall contacted his son, a tenured professor at Harvard Business
School, regarding the proposed agreement. His son reviewed
the agreement and raised questions regarding re-purchasing the
property in the event of default and potential tax implications.
In July of 2011, Belsky and Hall finalized the agreement on
behalf of their respective companies for the purchase price of
$800,000. The sum of $225,000 was to be paid up-front and
the remaining $575,000 was to be paid in monthly increments of
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$5,761.05. After execution of the agreement, the liquor license
was transferred and J.B. Culinary began to operate the
establishment.
After J.B. Culinary assumed operation of the restaurant, it made
some improvements. J.B. Culinary operated the restaurant and
made approximately 14 monthly installment payments, but the
payments stopped in December of 2012. J.B. Culinary sought to
renegotiate the monthly payments, but Hall declined that offer.
Both parties to this action agree that Hall contacted defendant
Nalli about the situation, and Nalli stated he could not do
anything for Hall because he was representing Belsky.
J.B. Culinary filed for bankruptcy, and Hall created a new entity,
JoeWillRoger, LLC, which purchased the restaurant [out of
bankruptcy] for $178,000. Hall also claims to have spent
$75,000 in legal fees for counsel to represent him in the re-
purchase, but only $56,394.24 in fees can actually be
documented and accounted for, all of which were paid by
personal checks of Hall and his wife or by the account of
JoeWillRoger, LLC. Hall also, either personally or through the
new entity, JoeWillRoger, LLC, expended approximately $50,000
to $60,000 for renovations to the restaurant in connection with
reopening it [].
Trial Court Opinion, 4/25/16, at 1-4.
On September 30, 2013, J.W. Hall, Inc., commenced a legal
malpractice and breach of fiduciary duty action against Attorney Nalli and his
professional corporation. Among the averments in the complaint were that
Defendants/Appellees knew J.W. Hall, Inc., relied solely on them to facilitate
the closing with J.B. Culinary, failed to discuss or include in the purchase
agreement the personal guaranty of Belsky as guarantor for the loan in the
event of default, and failed to prepare and file a UCC-1 financing statement
in order to perfect J.W. Hall, Inc.’s, security interest in the
restaurant/business as collateral. With respect to the last averment, J.W.
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Hall, Inc., computed its losses with reference to what its financial position
would have been had such a security clause existed.
On February 4, 2016, after discovery was complete,
Defendants/Appellees filed a motion for summary judgment asserting J.W.
Hall, Inc., failed to present sufficient evidence to establish a question of
material as to whether: (1) an attorney-client relationship between the
parties existed; (2) J.B. Culinary would have agreed to a security clause in
the purchase agreement; and (3) J.W. Hall, Inc., incurred actual damages.
Viewing the record in a light most favorable to non-movant J.W. Hall, Inc.,
the court perceived a dispute of material fact in each of
Defendants/Appellees’ first two issues and, thus, declined to grant summary
judgment thereon.
With respect to the final issue, however, the trial court first
determined that J.W. Hall, Inc., failed to establish a dispute of material fact
over whether it incurred actual losses. Undisputed evidence shows J.W.
Hall, Inc., has both its restaurant and an amount of funds—from receipt of
J.B. Culinary’s down-payment and subsequent installment payments—
greater than or at least equal to those funds it expended to reacquire the
restaurant from bankruptcy. The court concluded, therefore, that J.W. Hall,
Inc., cannot show it suffered actual losses when it was essentially in the
same position in which it would have been had it never entered into the
agreement drafted by Attorney Nalli. Accordingly, in its Order of April 25,
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2016, the court granted Defendants/Appellees’ motion for summary
judgment and entered judgment in their favor. This timely appeal followed.
Appellant J.W. Hall, Inc., presents the following questions for our
review:
I. DID THE TRIAL COURT ERR IN FAILING TO FIND
THAT THE PLAINTIFF SUFFERED PECUNIARY HARM
BY THE DEFENDANTS’ ESTABLISHED FAILURE TO
INCLUDE A SECURITY AGREEMENT IN THE SALES
AGREEMENT?
II. DID THE TRIAL COURT ERR IN REFUSING TO TREAT
AS IDENTICAL THE CORPORATION AND THE
INDIVIDUALS OWNING ALL ITS STOCK AND ASSETS
AND THAT THE COSTS WERE PAID BY A ‘MULTITUDE
OF SOURCES’ OTHER THAN PLAINTIFF WHERE
JUSTICE AND PUBLIC POLICY DEMANDED DOING SO
AND WHEN THE RIGHTS OF INNOCENT PARTIES
WERE NOT PREJUDICED THEREBY NOR THE THEORY
OF CORPORATE ENTITY MADE USELESS?
III. DID THE TRIAL COURT ERR IN FINDING THAT
PLAINTIFF WOULD RECEIVE A WINDFALL WHERE
PLAINTIFF, VIS A VIS JOSEPH HALL, INCURRED
OVER $313,000 IN DAMAGES?
Appellant’s brief at 4.
In reviewing a trial court's decision to grant summary judgment, our
standard review is as follows:
As has been oft declared by this Court, summary judgment is
appropriate only in those cases where the record clearly
demonstrates that there is no genuine issue of material fact and
that the moving party is entitled to judgment as a matter of law.
When considering a motion for summary judgment, the trial
court must take all facts of record and reasonable inferences
therefrom in a light most favorable to the non-moving party. In
so doing, the trial court must resolve all doubts as to the
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existence of a genuine issue of material fact against the moving
party, and, thus, may only grant summary judgment where the
right to such judgment is clear and free from all doubt.
On appellate review, then, an appellate court may reverse a
grant of summary judgment if there has been an error of law or
an abuse of discretion. But the issue as to whether there are no
genuine issues as to any material fact presents a question of
law, and therefore, on that question our standard of review is de
novo. This means we need not defer to the determinations
made by the lower tribunals. To the extent that this Court must
resolve a question of law, we shall review the grant of summary
judgment in the context of the entire record.
Allen–Myland, Inc. v. Garmin Int'l, Inc., 140 A.3d 677, 682 (Pa.Super.
2016) (quoting Summers v. Certainteed Corp., 606 Pa. 294, 307, 997
A.2d 1152, 1159 (2010) (internal citations and quotation marks omitted)).
We have, recently, discussed the burden borne by a plaintiff in a legal
malpractice action:
The Supreme Court of Pennsylvania has described the unique
nature of a legal malpractice claim:
[A] legal malpractice action is distinctly different
from any other type of lawsuit brought in the
Commonwealth. A legal malpractice action is
different because ... a plaintiff must prove a case
within a case since he must initially establish by a
preponderance of the evidence that he would have
recovered a judgment in the underlying action. ... It
is only after the plaintiff proves he would have
recovered a judgment in the underlying action that
the plaintiff can then proceed with proof that the
attorney he engaged to prosecute or defend the
underlying action was negligent in the handling of
the underlying action and that negligence was the
proximate cause of the plaintiff's loss since it
prevented the plaintiff from being properly
compensated for his loss.
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Kituskie v. Corbman, 552 Pa. 275, 714 A.2d 1027, 1030
(1998) (footnote omitted). Therefore, an important question in
a legal malpractice action is whether the plaintiff “had a viable
cause of action against the party he wished to sue in the
underlying case and that the attorney he hired was negligent in
prosecuting or defending that underlying case (often referred to
as proving a ‘case within a case’).” Poole v. W.C.A.B.
(Warehouse Club, Inc.), 570 Pa. 495, 810 A.2d 1182, 1184
(2002).
Heldring v. Lundy Beldecos & Milby, P.C., ___ A.3d ____, 2016 WL
6946583 (Pa.Super. Nov. 28, 2016).
The case sub judice involves not the would-be recovery of a judgment
in an underlying litigation, but, instead, an analogous would-be recovery of
collateral through the exercise of a security clause in a purchase/sale
agreement. In both instances, the claim states that, but for the negligence
of counsel in an underlying matter involving a third party, the legal
malpractice plaintiff would have recovered its due from such third party.
Accordingly, the trial court properly turned to Kituskie for guidance in the
present matter.
To support its view, the court relied on the Kituskie rationale that the
“collectibility of damages in the underlying action” is part of the analysis of
actual loss compensable in a legal malpractice action. In this regard,
Kituskie explained that “actual losses in a legal malpractice action are
measured by the judgment the plaintiff lost in the underlying action and the
attorney who negligently handled the underlying action is the party held
responsible for the lost judgment.” Kituskie, 552 Pa. at 282, 714 A.3d at
1030. A legal malpractice plaintiff should not obtain a judgment “against an
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attorney which is greater than the judgment the plaintiff could have
collected from the third party; the plaintiff would be receiving a windfall at
the attorney’s expense.” Id. at 283, 714 A.3d at 1030.
As noted, supra, the trial court purported to apply these principles in
finding that J.W. Hall, Inc., failed to demonstrate an issue of material fact as
to actual losses where it ultimately experienced a “break-even” result. That
is, because the discovery record established that J.W. Hall, Inc., owned
essentially the same restaurant after default as it did before selling to J.B.
Culinary, and the income it earned from the sale offset the expenses
incurred from re-purchasing the restaurant from bankruptcy, it could not
establish losses requisite to a legal malpractice claim.
We discern error with the court’s assessment of losses, however, as it
reflects a comparison of J.W. Hall, Inc.’s,1 pre-transaction and post-
transaction economic realities, when the proper computation of actual losses
should instead reflect what, if any, rightful benefits eluded J.W. Hall, Inc.,
due to its attorney’s alleged malpractice. Just as a judgment lost due to
courtroom malpractice defines a litigant’s actual loss, so, too, would
collateral lost due to transactional malpractice define a contracting party’s
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1
It is only for ease of discussion regarding the issue of actual losses that we
identify J.W. Hall, Inc., as both the seller and re-purchaser of the restaurant
in question. By doing so, we do not mean to suggest a disposition of the
subsequent issue premised on the charge that a different entity bought the
restaurant out of bankruptcy.
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loss. While we do not dispute the trial court’s observation that J.W. Hall,
Inc., appeared no worse off after repurchasing the restaurant than it was
before transacting with J.B. Culinary, the Kituskie inquiry concerns itself
with a different assessment of damages flowing from alleged malpractice.
Here, J.W. Hall, Inc., framed the inquiry properly when it effectively
claimed that its loss was the rightful benefit it was denied when Attorney
Nalli negligently failed to incorporate in the purchase/sale agreement an
industry-standard security clause authorizing J.W. Hall, Inc., to retake
ownership of the collateralized restaurant in the event of buyer’s default.
This loss, moreover, was not speculative, incalculable, or illusory; it was the
total of all requisite expenses made to buy the collateral out of bankruptcy,
and J.W. Hall, Inc., identified them during discovery. We, therefore, reject
the court’s grant of summary judgment for want of evidence of actual losses.
The trial court’s determination that J.W. Hall, Inc., failed to
demonstrate actual losses had a second component, however, that proves
more problematic to the Appellant company’s cause. The record establishes
that it was not actually J.W. Hall, Inc., that paid $178,000 to purchase the
restaurant out of bankruptcy and $56,394.24 in legal fees to effectuate such
purchase, but was, instead, the separate entities of JoeWillRoger, LLC, and
Mr. and Mrs. J.W. Hall in their individual capacities. As such, the trial court
entertained the question of whether damages claimed by Plaintiff/Appellant
J.W. Hall, Inc., were, in fact, incurred by separate and distinct entities even
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though it is undisputed that Mr. Hall and his wife are the sole owners of the
two corporations in question.
In addressing this issue, the trial court turned to, inter alia, Sams v.
Redevelopment Authority of New Kensington, 431 Pa. 240, 244 A.2d
779 (Pa. 1968). The court aptly summarized Sams as follows:
In Sams, the New Kensington Redevelopment Authority adopted
a resolution condemning a plot of land owned individually by Mr.
Sams and Mr. Mannarino. That plot of land was used as a scrap
yard for the receipt of shipping of scrap metal.
At the time of the condemnation, Sams and Mannarino also
owned, through a corporation, another plot of land located on
the opposite side of the street, which was being operated as a
foundry.
When awarding damages, the Board of Viewers awarded
damages to Sams and Mannarino individually, [and] as
copartners, trading and doing business as the corporation. The
Redevelopment Authority appealed on the basis that evidence
should not have been admitted regarding the corporate property
in that it did not have the same owner and was not used for the
same purpose.
Trial Court Opinion, at 11.
The Pennsylvania Supreme Court noted at the outset of its decision
that, under the then-governing Eminent Domain Code, damages may be
assessed as if two or more non-contiguous tracts of land were one parcel
only upon a demonstration that the tracts are owned by one owner and are
used together for a unified purpose. The corporate shareholders, Messers
Sams and Mannarino, argued that the Court should pierce the corporate veil
of their corporation to find an identity of ownership between the two lots, as
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the two men were the sole shareholders of the corporation and doing so
would further the practical application of the intent of the law. Id. at 781.
The Court refused to do so.
Precedent allowed courts to disregard the corporate entity or
personality “only when the entity is used to defeat public convenience,
justify wrong, protect fraud or defend crime,” the Court noted. Because the
partnership in question was not formed for such purpose, the Court refused
to disregard its corporate status and recognize an identity of ownership
between the two lots. The Court reasoned:
The cases on disregarding the corporate entity suggest that in
order for the courts to justify piercing the corporate veil, it must
be determined that the corporate fiction is being used by the
corporation itself to defeat public convenience, justify wrong
either to third parties dealing with the corporation, or internally
between shareholders’ (derivative suits), perpetrate fraud or
other similar reprehensible conduct. Since, in the instant
case, the corporate fiction is not being employed as a
means to shield itself from its ultimate responsibilities
and liabilities, no sound reason exists for piercing the veil
for the benefit of the individual shareholders, who created
the veil in order to procure other business advantages. In
our view, one cannot choose to accept the benefits
incident to a corporate enterprise and at the same time
brush aside the corporate form when it works to their
(shareholders’) detriment. The advantages and
disadvantages of the corporate structure should be
seriously considered and evaluated at the time such
organization is contemplated and after incorporation has
been selected, the shareholders cannot be heard to argue
that the courts should not treat them as a corporation for
some purposes and as a corporation for other purposes,
which suits their present economic interest.
Id. (emphasis added).
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The trial court relied upon Sams to grant Defendants/Appellees’
motion, and as J.W. Hall, Inc., fails to distinguish Sams on the facts,2 we
agree that the rationale expressed therein is directly on point and represents
controlling precedent. To buy back their former restaurant, Mr. and Mrs.
Hall formed a new corporate entity, JoeWillRoger, LLC, that was separate
and distinct from both Appellant/Plaintiff J.W. Hall, Inc., and themselves in
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2
Appellant contends our decision in Kellytown Co. v. Williams, 426 A.2d
663 (Pa.Super. 1981) supports piercing the corporate veil in the present
case. We disagree, as Kellytown approves of treating a corporation and its
owners as identical entities only within the framework announced in Sams.
Kellytown provides:
The established rule in Pennsylvania is that a court will not
hesitate to treat as identical the corporation and the individual or
individuals owning all its stock and assets whenever justice and
public policy demand and when the rights of innocent parties are
not prejudiced thereby nor the theory of corporate entity
made useless. Great Oak B & L, et al. v. Rosenheim,
supra, Pasos v. Ferber, 263 F. Supp. 877, 881-82 (1967);
Gagnon v. Speback, 389 Pa. 17, 131 A.2d 619 (1957);
Wedner Unemployment Compensation Case, 449 Pa. 460,
296 A.2d 792 (1972); Tucker v. Bienstock, 310 Pa. 254, 165
A. 247 (1933). In Sams v. Redevelopment Authority, 431
Pa. 240, 244 A.2d 779 (1968), the Supreme Court of
Pennsylvania held that:
The corporate entity or personality will be
disregarded only when the entity is used to defeat
public convenience, justify wrong, protect fraud or
defend crime.
Kellytown, 426 A.2d at 668 (emphasis added). As explained, infra,
Appellant fails to meet this standard for piercing the corporate veil.
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their individual capacities. There is no reason to doubt that the Halls
discerned some advantage to forming this new entity,3 and Sams
admonishes that the corporate status providing such advantage may not
simply be “brushed aside” whenever consequential disadvantages do not suit
shareholders’ individual interests.
It was the Halls’ election to re-purchase the restaurant with their own
personal monies and the funds of a newly-incorporated JoeWillRoger LLC,
exclusively. Restaurant seller, Appellant/Plaintiff J.W. Hall, Inc., a separate
legal entity, expended no funds in the re-purchase effort, and so it may not
now identify the re-purchase payment as an actual loss it sustained for
purposes of satisfying a necessary element to its legal malpractice claim.
Because the trial court’s finding to this effect was dispositive of the action, it
properly granted Defendants/Appellees’ motion for summary judgment, and
we affirm for this reason.
Order Affirmed.
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3
Appellant’s request to pierce the corporate veil to its benefit is not without
a degree of convolution, as it is asking the courts to pierce both its corporate
veil and that of “JoeWillRoger, LLC” so that the two distinct corporate
entities may effectively be considered the same entity for this discrete
purpose. This would allow the courts to consider the money expended by
JoeWillRoger, LLC as money expended by J.W. Hall, Inc. Of course, this
begs the question of why the Halls elected to form a different corporation to
repurchase the restaurant in the first place, and how requiring it to accept
not only the presumptive advantages of its election but also the
disadvantages would work the kinds of injustice addressed in Sams.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 2/15/2017
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