Upsilon Chapter. Inc. v. Greek Housing Svcs

J-A10038-22
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
UPSILON CHAPTER, INC. : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
GREEK HOUSING SERVICES, INC. :
AND MARK MALONEY :
:
Appellants : No. 388 MDA 2021
Appeal from the Judgment Entered March 23, 2021
In the Court of Common Pleas of Centre County
Civil Division at No(s): 2016-4487
UPSILON CHAPTER, INC. AND 328 : IN THE SUPERIOR COURT OF
FAIRMOUNT, LP : PENNSYLVANIA
:
Appellants :
:
:
v. :
:
:
GREEK HOUSING SERVICES, INC. :
AND MARK MALONEY : No. 464 MDA 2021
Appeal from the Judgment Entered March 23, 2021
In the Court of Common Pleas of Centre County
Civil Division at No(s): 2016-4487
BEFORE: PANELLA, P.J., KUNSELMAN, J., and KING, J.
MEMORANDUM BY KING, J.: FILED: MARCH 27, 2023
Appellants/Cross-Appellees, Greek Housing Services, Inc. (“GHS”) and
Mark Maloney (“Maloney”) (collectively, “Appellants”), appeal from the
judgment entered in the Centre County Court of Common Pleas, in favor of
J-A10038-22
Appellee/Cross-Appellant, Upsilon Chapter, Inc. (“Upsilon”).1 We affirm.
The relevant facts and procedural history of these appeals are as follows.
Appellee Upsilon is a group of Alpha Sigma Phi alumni. Appellant GHS is a
property management company. In 2004, Upsilon and GHS formed the
Partnership to jointly purchase property at 328 Fairmount Avenue in State
College, Pennsylvania. The property has historically been used as a fraternity
house for Alpha Sigma Phi members, and the purpose of the Partnership was
to manage the property, including student leases. GHS is the general partner
and holds a 1% interest in the Partnership. Upsilon is a limited partner and
holds a 19% interest in the Partnership. Appellant Maloney is a limited partner
and holds an 80% interest in the Partnership. Maloney is also an owner of
GHS.
Upsilon filed the relevant amended complaint against Appellants in
December 2017,2 alleging breach of fiduciary duty/duty of finest loyalty;
breach of partnership agreement; fraudulent transfers in violation of the
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1Upsilon filed its cross-appeal in its own right and, derivatively, on behalf of
328 Fairmount LP (“the Partnership”), as its minority partner.
2 Upsilon originally filed two separate underlying lawsuits. Upsilon filed the
first suit on July 19, 2016 against GHS only, at docket No. 2016-2699, alleging
breach of fiduciary duty, breach of contract (Partnership Agreement), and
breach of contract (Leases). Upsilon filed the second suit on December 6,
2016 against both Appellants, at docket No. 2016-4487, alleging breach of
fiduciary duty, breach of contract (Partnership Agreement), conversion, and
fraud. On July 11, 2017, Upsilon filed an unopposed motion to consolidate
the two actions, which the court granted on July 17, 2017.
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Pennsylvania Uniform Fraudulent Transfer Act at 12 Pa.C.S.A. §§ 5101, et
seq.; common law fraud; conversion; and seeking an action for accounting.
Upsilon alleged, inter alila, that Appellants fraudulently transferred
Partnership funds to Maloney through “sham” promissory notes, issued by
third-party entities that Maloney owns and controls. According to Upsilon,
Appellants refused to provide accounting information regarding the
Partnership. Upsilon claimed Appellants mismanaged the property, forged
leases, and failed to pay necessary taxes. Upsilon further averred that
Appellants have not paid out any Partnership profits to Upsilon since the
beginning of the Partnership.
Upsilon made its first request for production of documents from
Appellants in the form of accounting records. Upsilon sought, inter alia, all
accounting records from 2004 through the present pertaining to (a) Maloney;
(b) GHS; (c) Half Moon Land Co.; (d) Maloney & Associates; and (e) MCM
Property Management Group. The entities listed in (c) through (e) had
borrowed money from the Partnership by way of promissory notes, which
Upsilon alleged were fraudulent transfers to Maloney’s “alter-egos.”
On December 15, 2017, Upsilon filed a motion to compel, alleging that
Appellants had failed to respond fully and completely to its interrogatories and
request for production of documents. The court entered an order on February
7, 2018, granting in part and denying in part, Upsilon’s motion to compel.
Specifically, the court directed Appellants’ full and complete production of the
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requested documents in their native QuickBooks format within 45 days. The
order stated that Appellants were not compelled to produce information or
documents concerning nonparties except 328 Fairmount LP (the Partnership).
(See Order, filed 2/7/18, at 1-2; R.R. at 510a-511a).
On April 10, 2018, Appellants filed a motion to join Alpha Sigma Phi as
an indispensable party. Appellants claimed that Upsilon raised numerous
allegations relating to the fraternity, including claims that Appellants took
artifacts belonging to the fraternity and that Appellants damaged the
fraternity’s reputation. Appellants asserted that the fraternity’s interests were
so intertwined with the facts of this case and the relief sought such that it
should be joined as a party to the action. Upsilon filed a response in opposition
to Appellants’ motion on May 14, 2018. On June 8, 2018, the court denied
Appellants’ motion to join.
On September 28, 2018, Upsilon filed a second motion to compel. In it,
Upsilon sought the production of the complete contents of a binder relating to
the Partnership as testified to by Appellants’ accountant during his deposition.
Additionally, Upsilon sought the accounting records for GHS, which the court
had previously ordered Appellants to disclose in their native QuickBooks
format. Upsilon alleged that the only accounting records that Appellants had
produced so far related to the Partnership and not GHS. As GHS is a named
party to the action, Upsilon claimed that Appellants were required to disclose
GHS’ accounting records consistent with the court’s February 7, 2018 order.
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Thus, Upsilon sought to enforce the prior court order.
On November 1, 2018, the parties entered a stipulated order, signed by
the court, stating: “[Appellants] shall, within 14 days, produce the
Quick[B]ooks files for [GHS], in their native format[,]” directing Appellants to
produce the entire contents of the binder relating to the Partnership, and
further indicating the appropriateness of discovery sanctions if Appellants
again failed to comply. (See Stipulated Order, filed 11/1/18, at 1; R.R. at
761a).
On November 30, 2018, Upsilon filed a motion for discovery sanctions,
claiming Appellants had not complied with the stipulated order. Upsilon
argued that defense counsel produced a file, but the file was merely an
updated version of the previously produced records, and it did not include the
GHS QuickBooks file as directed in the stipulated order.
Appellants then filed a motion seeking to amend the stipulated order,
claiming a dispute arose among the parties regarding the scope of the
QuickBooks files to be disclosed. Appellants asked the court to clarify that
they were not ordered to produce information concerning nonparties.
Essentially, Appellants had not disclosed the GHS QuickBooks file because
Appellants claimed that file showed financial transactions between GHS and
nonparties, which Appellants insisted were confidential and irrelevant to the
current action.
Upsilon filed a response in opposition, clarifying that it was seeking only
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GHS’ accounting records in their native QuickBooks format, and not
accounting records of nonparties. Because GHS is a party to the action,
Upsilon claimed its accounting records were discoverable and highly relevant.
The court held a hearing on Upsilon’s motion for sanctions on January
22, 2019. Appellants insisted that the only portions of the QuickBooks files
they had not turned over related to other fraternities that were nonparties to
the action, and were “proprietary” and irrelevant to the case. Appellants
maintained they interpreted the stipulated order as Upsilon seeking only
updated QuickBooks information and not any information related to unrelated
entities.
On January 24, 2019, the court ordered Appellants to produce all GHS
accounting records from 2016 and 2017 in their entirety and in their native
QuickBooks format within 20 days. (See Order, filed 1/24/19, at 1; R.R. at
858a). Appellants subsequently filed a notice of appeal, to which Upsilon filed
a cross-appeal.3 Thereafter, this Court quashed both appeals as interlocutory.
In quashing Appellants’ appeal as interlocutory, this Court rejected Appellants’
claim that the January 24, 2019 order was immediately appealable under the
collateral order doctrine. This Court stated that Appellants’ attempt to label
the accounting information sought as something distinct from the merits of
the case was disingenuous given Upsilon’s claims alleging the fraudulent
____________________________________________
3In response to a rule to show cause, Upsilon conceded that its cross-appeal
was interlocutory and should be quashed.
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transfer of funds to the Maloney-controlled nonparties. See Upsilon
Chapter, Inc. v. Greek Housing Services, Inc., No. 564 MDA 2019
(Pa.Super. filed Nov. 19, 2019) (unpublished memorandum). Moreover, this
Court held that Appellants failed to demonstrate that the Court could consider
the propriety of the discovery ordered without consideration of Upsilon’s
underlying claims. See id.
On November 27, 2019, Upsilon filed a motion for reconsideration of the
two-year time limitation set forth in the January 24, 2019 order, where the
court had only compelled discovery of records for 2016 and 2017. The court
granted Upsilon’s motion the next day, directing Appellants to fully and
completely produce the GHS accounting records from 2004 to 2017 in their
entirety and in their native QuickBooks format within 20 days. The order
made clear that Appellants were not required to produce information or
documents concerning nonparties other than 328 Fairmount LP (the
Partnership). (See Order, filed 11/28/19, at 1).4
On March 10, 2020, Upsilon filed a renewed motion for discovery
sanctions, insisting that Appellants still had not complied with the court’s
discovery orders. The court held a status conference on March 18, 2020.5
____________________________________________
4 This order is in the certified record but was not included in the reproduced
record.
5 According to Upsilon, the court expressly rejected Appellants’
characterization of the discovery orders at the status conference and
(Footnote Continued Next Page)
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Upsilon filed an additional motion for discovery sanctions on May 15, 2020.
The court held a hearing on the motions for sanctions on June 17, 2020. At
the hearing, Upsilon introduced testimony from Joel Valentine, a certified
public accountant (“CPA”), to discuss the discrepancies and omissions in the
documents produced by Appellants.
By order dated June 25, 2020, and filed the next day, the court granted
Upsilon’s motion and entered a default judgment against Appellants based on
their failure to comply with the relevant discovery orders. Following a hearing
on October 15, 2020, the court awarded damages in favor of Upsilon in the
amount of $846,555.00. The court denied Upsilon’s request for punitive
damages. Both parties subsequently filed post-trial motions.
Upsilon filed a petition for counsel fees on March 11, 2021, seeking
$119,746.00. The court scheduled a hearing on the fee petition for March 22,
2021. On March 17, 2021, Appellants filed a motion to continue the hearing,
seeking a 30-day continuance to review the reasonableness of the fees alleged
in the petition. The court denied Appellants’ continuance request and held the
____________________________________________
reiterated Appellants’ obligation to produce the entire GHS accounting file in
its native QuickBooks format. The court directed the parties to attempt to
resolve the issue following the status conference, but Appellants still refused
to produce the requested discovery. There are no notes of testimony from
the status conference, but the record supports Upsilon’s version of events.
Specifically, the trial court opinion states: “A hearing was held on March 18,
2020, during which [Upsilon] and the [c]ourt emphasized the discoverability
regarding [GHS’] accounting records, stating any limitation regarding a ‘non-
party’ disclosure certainly did not make [GHS’] own accounting records
undiscoverable.” (Opinion and Order, filed 6/26/20, at 2; R.R. at 1555a).
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hearing as scheduled on March 22, 2021. The court also heard argument on
the parties’ respective post-trial motions. Following the hearing, the court
denied both parties’ post-trial motions and granted Upsilon’s fee petition for
the amount sought. The next day, Appellants filed a praecipe to enter
judgment, and judgment was entered in favor of Upsilon in the amount of
$966,301.00, plus applicable interest and costs.
Appellants timely filed a notice of appeal on March 24, 2021. On April
7, 2021, Upsilon timely filed a cross-appeal. Thereafter, the court ordered the
parties to file concise statements of errors complained of on appeal pursuant
to Pa.R.A.P. 1925(b). Appellants complied on April 20, 2021, and Upsilon
complied on April 29, 2021.
Appellants raise the following five issues for our review:
Whether, under Pennsylvania Rule of Civil Procedure 4019,
the trial court properly entered default judgment against
Appellants for failing to disclose accounting information
relating to nonparties, when the trial court’s discovery
orders repeatedly stated that Appellants were not required
to disclose that information; Appellants, therefore, did not
violate any discovery orders or demonstrate bad faith;
Appellants, in any event, disclosed all of the relevant
financial records; and, as a result, [Upsilon] was able to
comprehensively calculate its alleged damages at the
resulting damages trial, without any need for additional
discovery responses.
Whether the trial court properly entered a default judgment
award for $846,555, when that award violates established
legal tenets like statutory limitations periods, the award
exceeds what [Upsilon] sought and presented at trial, and
the award indisputably contradicts the weight of the
evidence.
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Whether the trial court properly denied a motion to continue
the hearing date for reviewing an attorneys’ fees and costs
petition, when the petition disclosed more than 1,500 time
entries, the trial court scheduled the hearing just six days
after the date of the petition’s filing and six days before the
hearing, and the opposing counsel filed a timely and justified
motion to continue the hearing.
Whether the trial court properly entered an attorneys’ fees
and costs award for $119,746, when that award grants, in
toto, the moving party’s requested relief without reviewing
the attorney time and costs entries, and the opposing party
has highlighted unjustifiable line entries like spending more
than ten times the length of trial on the drafting of proposed
findings of fact and conclusions of law.
Whether the trial court properly refused to join as an
indispensable party a fraternity group [Alpha Sigma Phi],
when [Upsilon], an alumni group affiliated with the
fraternity, was seeking relief on behalf of the fraternity
group, including conversion for certain of the fraternity
group’s assets, in its pleadings.
(Appellants’ Brief at 8-10).6
In its cross-appeal, Upsilon raises a single issue for our review:
When the Honorable Trial Court entered default judgment
against Appellants, the allegations of Upsilon’s Complaint
were conclusively deemed admitted. Those deemed
admissions established that Appellants defrauded Upsilon—
their partner—and the Partnership and converted their
assets. Did the Trial Court abuse its discretion by refusing
to award Upsilon punitive damages to punish and deter such
conduct?
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6 We have reordered some of Appellants’ issues to more closely track how
they are argued in Appellants’ brief. We note that Appellants’ third and fourth
issues as phrased in the statement of questions presented are combined under
section (C) in Appellants’ argument section. Although our Rules of Appellate
Procedure mandate that an argument section be divided into as many parts
as there are questions to be argued (see Pa.R.A.P. 2119(a)), this defect does
not impede our review.
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(Upsilon’s Brief at 10).
In their first issue, Appellants argue that they did not commit a
discovery violation. Appellants insist they did not disclose non-party
information, consistent with the court’s discovery orders. Appellants claim
they could not have acted in bad faith where they complied with the trial
court’s directives. Appellants stress that they only withheld financial
information relating to tenants of other fraternity houses and their guarantors,
having no relevancy to this case. Even if they committed a discovery violation,
Appellants maintain that Upsilon did not suffer any prejudice resulting from
such a violation. Appellants contend that Upsilon’s expert at the damages
hearing fully testified on relevant issues concerning whether Appellants took
money from the Partnership and Upsilon, and how much. Appellants submit
that how the money was used by Appellants or other third-parties has no
bearing on Upsilon’s claims, and Upsilon was not prejudiced by not knowing
those facts. Appellants conclude the trial court erred by entering a default
judgment in this case, and this Court must grant relief.7 We disagree.
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7 We note that Appellants cite Mancini v. Concorde Grp., No. 2233 EDA 2013
(Pa.Super. filed Sept. 25, 2014) (unpublished memorandum), regarding the
trial court’s alleged failure to consider certain factors relevant to entry of a
default judgment as a discovery sanction. (See Appellants’ Brief at 53 n.17).
Nevertheless, a party may only cite to unpublished decisions of this Court filed
after May 1, 2019 for their persuasive value. See Pa.R.A.P. 126(b).
Consequently, we will not consider Appellants’ reliance on Mancini, decided
in 2014, when conducting our review.
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Pennsylvania Rule of Civil Procedure 4019 permits the trial court to enter
a default judgment against a defendant who fails to comply with discovery
orders. See Pa.R.C.P. 4019(c)(3). This Court has explained:
Generally, imposition of sanctions for a party’s failure to
comply with discovery is subject to the discretion of the trial
court, as is the severity of the sanctions imposed.
Nevertheless, the court’s discretion is not unfettered:
because dismissal is the most severe sanction, it should be
imposed only in extreme circumstances, and a trial court is
required to balance the equities carefully and dismiss only
where the violation of the discovery rules is willful and
the opposing party has been prejudiced. Consequently,
where a discovery sanction either terminates the action
directly or would result in its termination by operation of
law, the court must consider multiple factors balanced
against the necessity of the sanction.
Rohm and Haas Co. v. Lin, 992 A.2d 132, 142 (Pa.Super. 2010), cert.
denied, 565 U.S. 1093, 132 S.Ct. 852, 181 L.Ed.2d 550 (2011) (internal
citations and quotation marks omitted) (emphasis in original). “Absent a
finding that the trial court abused its discretion, this Court will not reverse an
order sanctioning a party which the trial court found necessary and proper.”
Croydon Plastics Co., Inc. v. Lower Bucks Cooling & Heating, 698 A.2d
625, 629 (Pa.Super. 1997), appeal denied, 553 Pa. 689, 717 A.2d 1028(1998).
In determining whether default judgment as a discovery sanction is
appropriate, the following factors are to be considered: “(1) the nature and
severity of the discovery violation; (2) the defaulting party’s willfulness or bad
faith; (3) prejudice to the opposing party; (4) the ability to cure the prejudice;
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and (5) the importance of the precluded evidence in light of the failure to
comply.” Rohm and Haas Co., supra. Importantly, “each factor represents
a necessary consideration, not a necessary prerequisite.” Id.
Instantly, the trial court discussed Mr. Valentine’s testimony at the June
17, 2020 hearing on Upsilon’s motion for sanctions as follows:
[Joel] Valentine testified to primarily dealing in issues of
fraudulent reporting and misappropriation, which he stated
often go hand in hand. He then detailed the contents of
each QuickBooks…file provided to [Upsilon] by [Appellants],
which all contained only general ledgers from [the
Partnership], and explained the impossibility of determining
what happened to certain funds transferred to GHS. In
total, Valentine reviewed [QuickBooks] files spanning from
September of 2018 to the most recent, which was submitted
on June 16, 2020, one day before the hearing on [Upsilon’s
motion for sanctions]. According to the testimony, each
subsequent [QuickBooks] file briefly expounded upon the
last, but only to the extent of certain journal entries
regarding tax returns and other irrelevant transactions,
which are indisputably of no significance to the present
matter. Valentine then testified to each file being the same
“base file” and simply a regurgitation of the same data
specific to [the Partnership], which does not provide a
complete picture or even detail how or where GHS used the
funds. Specifically, Valentine stated, “It is clear the money
was diverted from 328 to [GHS],” but the “why or what” is
not.
Valentine also emphasized on cross-examination the GHS
accounting records in their entirety are what is required to
complete the picture. He stated this does not necessarily
have to include social security numbers, contrary to the
argument continually advanced by defense counsel despite
numerous explanations and resolutions provided by
opposing counsel and this [c]ourt.
(Opinion and Order, filed 6/26/20, at 3; R.R. at 1556a).
Against this backdrop, the trial court explained why entry of default
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judgment as a discovery sanction was necessary:
First, it is clear from the record [Upsilon] has been severely
prejudiced by [Appellants’] failure to comply with the
discovery requests, not only by suffering extreme delay and
costs in attorney’s fees, but also in withholding information
which is of the utmost importance to the merits of their
underlying claim. The first request for production for the
accounting records served upon GHS was in 2017, nearly
three years ago. The first motion to compel production was
granted in part by this [c]ourt on February 7, 2018, directing
GHS to “fully and completely respond to the Request for
Production of Documents Nos. 3, 4, 5, 6, and 12…” subject
only to [Appellants] not being compelled “to produce
information or documentation concerning nonparties except
[the Partnership].” Over two years later, in contradiction to
this [c]ourt’s orders and necessitating copious amounts of
attorney’s fees to be incurred by [Upsilon], [Appellants] still
have not produced the accounting records on the idea that
they are [confused by the orders].
Next, and as to whether such prejudice suffered by [Upsilon]
can be cured, the [c]ourt finds to be of great significance
[Appellants’] expression at the most recent hearing on the
motion of no intention of future compliance. Quite the
opposite, [Appellants] continue to maintain the information
being sought is not discoverable, which has already been
ruled on by this [c]ourt and re-emphasized at the most
recent status conference on March 18, 2020. Alternatively,
[Appellants] claim ignorance regarding this [c]ourt’s Orders
directing production of [GHS’] accounting records in large
part due to the [c]ourt’s use of the term “non-party” in the
most recent order. As explained by this [c]ourt to defense
counsel at the status conference, and which will be
explained in greater detail to follow, use of the phrase “non-
party” does not preclude discovery of [GHS’] own
accounting records. While the [c]ourt certainly understands
the potential privacy interest at hand, the relevancy of the
materials sought cannot be disputed. Further, Valentine re-
emphasized little to no risk in securing any confidential or
private information regarding non-parties, and of particular
importance, detailed the engagement letter between
[Upsilon] and himself, which precluded the possibility of
divulging any such information, even if somehow acquired.
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The [c]ourt notes it has never before witnessed a case of
such extreme delay and belabored arguments of confusion
in response to a basic discovery order. This is particularly
so given the undisputed relevancy of the information, the
lack of any proprietary nature continually explained, and its
necessity in resolving the merits of the underlying action. …
As [Upsilon] correctly points out in its brief in support of the
motion for sanctions, “the evidence concealed by the Alter
Ego Defendants is relevant to a fraudulent transfer analysis,
may ultimately result in the avoidance of certain transfers
in collecting any judgment against Defendants, and goes
directly to [GHS’] asserted defense that they had
legitimate reasons for taking over one million
($1,000,000.00) of the partnership’s money.”
… [Appellants] cannot claim repeated confusion by an
unequivocal directive, which has been explained at length
by both [Upsilon] and this [c]ourt, in an attempt to mask
what can only be ascertained to mean willful noncompliance.
…[T]he [c]ourt finds [Appellants] did act willfully and
severely in violation of discovery rules and this [c]ourt’s
prior Orders, making default judgment the only appropriate
remedy. To be sure, where the discovery sanction imposed
is tantamount to dismissal of the underlying action, such as
default judgment, the violation must have been willful, or in
bad faith. …
As previously stated, [Appellants], by and through their
counsel of record, would like the [c]ourt to accept their
continued insistence of “profound confusion” despite four
Court Orders, followed by numerous instances of
clarification provided by the [c]ourt. It cannot. While the
apparent need for such clarification was likely insincere from
the start, any remaining alleged mystification can only
logically be rooted in bad faith and for the sole purpose of
delaying [Upsilon’s] ability to be compensated in any way or
amount. Given [Appellants’] continued and blatant
disregard for several of this [c]ourt’s previous Orders
directing production of [GHS’] accounting records, the
[c]ourt finds default judgment should appropriately be
entered against [Appellants], and is in fact the only
remaining course of action to be taken. …
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[H]ere, [Appellants] were given more than ample
opportunity to comply with the discovery requests and this
[c]ourt’s numerous Orders directing production. In what
can only be labeled as an attempt to delay [Upsilon’s] ability
to proceed to trial on the merits of their claim, [Appellants]
chose to ignore this [c]ourt’s directives and maintain a
façade of puzzlement. This is certainly not to say genuine
confusion by a court order will necessarily lead to discovery
sanctions in the form of default judgment. Rather,
importantly, this [c]ourt emphasizes its repeated
clarification of an Order to which any reasonable person
would interpret as directing the production of the accounting
records of [GHS]. As [Upsilon] correctly noted at the
hearing on this matter, it is illogical to stand by the notion
that simply because [GHS] engaged in transactions with
certain non-parties, such as some of Mark Maloney’s other
unrelated business entities, such transactions become
undiscoverable. Again, assuming [Appellants] stood in a
position of genuine confusion by the wording of these prior
Orders, such confusion was laid to rest by this [c]ourt clearly
and unequivocally long ago. Thus, any future attempt to
evade the same could only have been motivated by the
desire to delay the proceedings and foreclose [Upsilon’s]
ability to be compensated. …
Lastly, and significantly, the [c]ourt notes the lengthy
history of [Appellants’] noncompliance. Even affording a
benefit to [Appellants] by accepting their initial alleged
perplexity as honest and genuine, the failure to comply
following this [c]ourt’s clarification is inexcusable.
[Appellants] should not be permitted to escape sanction by
continuing to blindly allege bewilderment with this [c]ourt’s
extremely straight-forward Orders, reinforced by [Upsilon’s]
correct assertions in motions, status conferences and during
oral argument. [Appellants have] refused to provide the
relevant discovery materials throughout the entire history
of this case, and showed no intention of complying in the
future at the hearing on the instant motion. The [c]ourt,
therefore, believes it [had] no choice but to impose the
requested sanction in the form of default judgment.
(Id. at 3-8; R.R. at 1557a-1561a) (emphasis in original) (internal citations
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omitted). The record supports the court’s analysis.
Although Appellants contend that they did not violate any of the court’s
discovery orders because they did not turn over “non-party” information, the
record confirms the court directed Appellants on multiple occasions to produce
GHS’ accounting records, as GHS is a party to the litigation. The court
rejected Appellants’ “misinterpretation” of the court orders and made clear at
the March 18, 2020 status conference that any limitation regarding a “non-
party” disclosure did not make GHS’ own accounting records undiscoverable.
Appellants explained the crux of their argument at the June 17, 2020 hearing,
stating: “Let’s assume for the sake of this argument that [GHS] took too much
money from the partnership. Why would it ever be admissible at a trial what
they then did with it, whether they bought groceries or anything else? It just
doesn’t matter.” (N.T. Hearing, 6/17/20, at 33; R.R. at 3050a).8
Nevertheless, Appellants’ belief that the discovery orders wrongly permitted
discovery of “proprietary” or “irrelevant” non-party information does not
excuse their non-compliance. See, e.g., Luszcznski v. Bradley, 729 A.2d
83, 87 (Pa.Super. 1999) (stating party’s belief that discovery orders are wrong
does not justify or excuse its violation of those orders; rather, such defiance
____________________________________________
8 Upsilon responded to this argument explaining that it needs to know where
the money goes after GHS transfers it from the Partnership account because:
(1) part of it is Upsilon’s money and Upsilon needs to know where that money
goes when they try to collect it; and (2) to rebut GHS’ defense that the loans
at issue were for legitimate business expenses. (See id. at 38; R.R. at
3055a).
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is direct affront to authority of trial court and to integrity of judicial system
and rule of law). This Court quashed Appellants’ appeal challenging the
discovery order as interlocutory. Appellants could have disclosed the allegedly
proprietary and irrelevant information and challenged the court’s order
following a final judgment on the merits in this case. Instead, Appellants stood
firm in their position not to turn over GHS’ accounting records.
As the trial court correctly noted, Appellants have failed to comply with
four discovery orders (filed February 7, 2018, November 1, 2018, January 24,
2019, and November 28, 2019, respectively). The orders compelled
Appellants to produce GHS’ accounting records in their native QuickBooks
format time and time again; Appellants refused to comply. The court’s
analysis as set forth above makes clear the court considered each of the
factors relevant to entry of default judgment prior to imposing that discovery
sanction. See Rohm and Haas Co., supra. On this record, we see no abuse
of discretion in the court’s entry of default judgment as a discovery sanction.
See Croydon, supra. Thus, Appellants’ first issue merits no relief.
In their second issue, Appellants assert that Upsilon’s expert, Mr.
Valentine, testified to the amount of damages. In his calculations, Mr.
Valentine opined that Appellants owed $2,775,980.00 to the Partnership, and
that Upsilon was entitled to 19% of that amount, which is $527,436.00.
Appellants contend that the $527,436.00 figure included $375,865.00 of
“rental income not deposited.” Appellants claim the court accepted Mr.
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Valentine’s testimony and awarded the “rental income not deposited” amount
as compensatory damages. Appellants submit that, even if valid, that amount
should have constituted derivative damages (as the money was owed to the
Partnership), not direct compensatory damages to Upsilon. Further,
Appellants insist the trial court double counted the “rental income not
deposited” amount, because the court had already factored that amount into
the derivative damages calculation—the court could not award the same
amount as both compensatory and derivative damages.
Appellants further argue that Mr. Valentine’s calculations were not
credible. Regarding the “rental income not deposited” analysis, Appellants
assert that Mr. Valentine made assumptions about how many individuals could
have occupied the Partnership property and how much those individuals would
have paid. Appellants contend Mr. Valentine then suggested that Appellants
were responsible for the difference between what was deposited into the
Partnership account as rental income and what Mr. Valentine speculated could
have been deposited. Appellants submit Mr. Valentine’s calculations were
arbitrary and unsupported by evidence. Appellants emphasize that Mr.
Valentine was not even reasonably certain about some of his calculations.
Additionally, Appellants aver that Mr. Valentine improperly considered
all withdrawals by Appellants from the Partnership account as
misappropriations even though many of the withdrawals were legitimate
expenses such as management and maintenance fees. Appellants complain
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Mr. Valentine is not a forensic accountant and was qualified only as a business
valuation expert. Appellants contend that Mr. Valentine did not follow forensic
accounting standards.
Appellants also allege the trial court inappropriately awarded damages
dating back to 2004. Appellants maintain the court improperly rejected their
statute of limitations defense, where Upsilon “opened the door” to this issue.
Appellants claim Upsilon had accounting concerns back in 2010 but waited six
years to file suit such that the discovery rule is inapplicable here. Appellants
conclude the trial court’s acceptance of Mr. Valentine’s expert testimony and
calculation of damages was erroneous, and this Court must grant relief. We
disagree.
“The admission of expert testimony is a matter committed to the
discretion of the trial court and will not be disturbed absent an abuse of that
discretion.” Nobles v. Staples, Inc., 150 A.3d 110, 113 (Pa.Super. 2016).
“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.” Id. (internal
citation and quotation marks omitted).
Pennsylvania Rule of Evidence 702 permits expert testimony on subjects
concerning knowledge beyond that possessed by a layperson. See Pa.R.E.
702. “It is the job of the trial court to assess the expert’s testimony to
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determine whether the expert’s testimony reflects the application of expertise
or strays into matters of common knowledge.” Snizavich v. Rohm and Hass
Company, 83 A.3d 191, 194 (Pa.Super. 2013). “Admissible expert testimony
that reflects the application of expertise requires more than simply having an
expert offer a lay opinion.” Id. at 195. “[E]xpert testimony must be based
on more than mere personal belief, and must be supported by reference to
facts, testimony or empirical data.” Id. (internal citations and quotation
marks omitted).
Additionally, “[t]he duty of assessing damages is within the province of
the [fact-finder] and, thus, as a general matter, a compensatory damage
award should not be interfered with by the court unless it clearly appears that
the amount awarded resulted from caprice, prejudice, partiality, corruption or
some other improper influence.” Paves v. Corson, 569 Pa. 171, 175, 801
A.2d 546, 549 (2002) (internal citation and quotation marks omitted). “This
standard incorporates the well-established requirement that a compensatory
damage award must bear some reasonable relation to the loss suffered by the
plaintiff as demonstrated by uncontroverted evidence at trial.” Id.Instantly, we initially note that when Mr. Valentine testified at the June
17, 2020 hearing on Upsilon’s motion for sanctions, Appellants stipulated to
his credentials. (See N.T., 6/17/20, at 5; R.R. at 3022a). At that hearing,
Mr. Valentine testified that he is a CPA who provides audit and tax services as
well as business valuations, fraud investigations, and a variety of other
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consulting services including forensic accounting services. (See id. at 5-6;
R.R. at 3022a-3023a). Mr. Valentine testified again at the October 15, 2020
damages hearing. At that time, Mr. Valentine explained that about 50% of
his practice is in forensic accounting and valuation services. On cross-
examination, however, Mr. Valentine admitted that he is not a certified
forensic accountant. Consequently, Appellants objected to Mr. Valentine
testifying as an expert in forensic accounting. (See N.T. Hearing, 10/15/20,
at 35-36; R.R. at 2307a-2308a). The court sustained Appellants’ objection
and accepted Mr. Valentine as an expert in accounting and valuation. (Id. at
36; R.R. at 2308a).
Significantly, Appellants do not explain how someone with Mr.
Valentine’s experience and credentials is unable to offer expert testimony
concerning the damages in this case. The fact that Mr. Valentine was not
qualified as a forensic accounting expert did not necessarily render him unable
to give opinions concerning the amount of money Appellants fraudulently took
from the Partnership and the damages Upsilon and the Partnership incurred
as a result, given Mr. Valentine’s expertise in accounting and business
valuation. Other than baldly asserting that this case is about forensic
accounting and Mr. Valentine is not a forensic accountant (see Appellants’
Brief at 67-68), Appellants provide no support for their claim that Mr.
Valentine’s testimony was inappropriate here. The court was free to reject
the testimony of Appellants’ expert that Mr. Valentine was testifying beyond
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the scope of his area of expertise and accept Mr. Valentine’s expert testimony.
See Devon Serv., LLC v. S&T Realty & Saul Barsh, 171 A.3d 287, 292
(Pa.Super. 2017) (stating: “[I]t is the role of the trial court to weigh the
credibility of testimony and evidence concerning valuation, including the
weight to be given to expert testimony”). We see no reason to disrupt the
court’s acceptance of Mr. Valentine’s expert testimony in this case. 9 See
Nobles, supra.Regarding the calculation of damages, the court reasoned:
[Upsilon] is seeking $896,375.00 in direct compensatory
and derivative compensatory damages plus treble punitive
damages in the amount of $2,689,125.00 for a total amount
of damages payable to [Upsilon] in the amount of
$3,585,500.00 which amounts are disputed by [Appellants].
* * *
Joel Valentine a [CPA] and CEO of Wessel and Company
testified at the October 15 hearing on damages. He was
accepted as an expert in the field of accounting and
valuation. Mr. Valentine generated his first expert report on
October 24, 2018. In preparing the October 24, 2018
report, he viewed the documents from the QuickBook[s] file
for [the] Partnership (Exh. E-1), summarized transactions
from related parties, reviewed the balance sheet and income
statements, and the specifics of the account due from [GHS]
____________________________________________
9 The record belies Appellants’ assertions that Mr. Valentine did not render his
opinions to a reasonable degree of professional certainty. (See N.T.,
10/15/20, at 32, 98; R.R. at 2304a, 2370a). Appellants seem to emphasize
one portion of Mr. Valentine’s 2018 report that used ambiguous language and
described Appellants’ “possible” fraud. Nevertheless, Mr. Valentine explained
that as he reviewed discovery turned over after issuance of his 2018 report,
and in light of the default judgment that conclusively established Appellants’
fraud, Mr. Valentine had no doubt regarding the damages as calculated in his
later reports. (See id. at 97-98; R.R. at 2369a-2370a).
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to quantified amounts due to [the] Partnership. The
Quick[B]ooks files spanned October 21, 2004 through
December 31, 2017. Additionally, Mr. Valentine reviewed
the pleadings and discovery materials. After review of the
documents, Mr. Valentine concluded that $1,019,219.00
was transferred out of the partnership by Mr. Maloney and
[GHS]. Interest and late fees calculated at six percent
amount to $407,819. The total with principal, six percent
interest, and late fee[s] was $1,427,038.00. Mr. Valentine
testified that a 10 percent interest rate would be appropriate
in comparing this matter to investments with similar risk
profiles such as credit cards and he provided calculations at
a 10 percent interest rate.
Additionally, Mr. Valentine testified to damages he
calculated for rental revenue shortfall for the rental house
of the Partnership. Mr. Valentine’s revenue projections
begin at page 45 of his October 2018 report and include a
matrix for years 2005 through 2017. Mr. Valentine
concluded the revenue shortfall for rental of the Partnership
house was $375,765.00. Mr. Valentine testified regarding
how he calculated the revenue shortfall; specifically, he
used an occupancy rate of 85 percent and $6,500.00 as the
yearly rental rate while considering collection issues as are
typical. The [c]ourt found Mr. Valentine’s testimony
regarding the rental revenue shortfall credible and
reasonable and based on the historical rental of the house,
and therefore adopts his calculation of $375,000.00 for
revenue shortfall.
Mr. Valentine prepared an addendum dated August 5, 2020
(Exh. J-2) to capture the calculations subsequent to the
original report. For the addendum report, he reviewed an
updated Quick[B]ooks file and a file titled “[GHS] ASP”)
(“ASP” set of books). The name of the file would suggest
there is an entity, [GHS] ASP; however, Mr. Valentine
testified it appeared to be a separate set of accounting
books that some money was passed through, but there was
no such legal entity. He reviewed the profit and loss
comparison in the ASP set of books and there was a
cumulative profit of $433,000.00. The payments over the
time analyzed were $174,017.00 to GHS. Mr. Valentine
testified that his review of the ASP set of books added
further support to his conclusion of the rent shortfall being
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$375,000.00. As of the August 5, 2020 updated report, Mr.
Valentine calculated that [Appellants] owed the Partnership
$2,775,980.00. Based on Upsilon’s 19 percent interest,
[Appellants] would owe to Upsilon $527,436.00. The
calculations were contained in exhibit E attached to Mr.
Valentine’s report which was admitted into evidence as
Exhibit J-2. On September 30, 2020, Mr. Valentine
generated an additional report which solely was in response
to defense expert David Duffus’s report as discussed below.
[Appellants] presented the testimony of David Duffus a
[CPA] employed by HKA. Mr. Duffus opined that the amount
of principal was $995,579.00 which was about $25,000 less
than Mr. Valentine’s opinion. Mr. Duffus applied a 5%
interest rate and did not apply the late fees of $25.00 per
day. Mr. Duffus did not calculate any figure for rental
income not deposited and felt Mr. Valentine based his
figures on faulty assumptions. In sum, Mr. Duffus opined
that [Appellants] owe $1,303,792.00 to the Partnership, of
which $247,720.00 is owed to Upsilon based on its 19
percent interest.
The [c]ourt determines that compensatory damages in the
amount of $846,555.00 are appropriate in this matter. The
[c]ourt found Mr. Valentine’s reports and testimony to be
credible but found Mr. Duffus’s report and testimony to be
less thorough and less credible. Also, the report and
testimony of Mr. Valentine which the [c]ourt found to be
competent and credible establish that [Upsilon] is entitled
to derivative damages. Although the [c]ourt could exceed
the statutory interest rate as noted by [Upsilon] and Mr.
Valentine provided figures for the application of a 10 percent
interest rate, the [c]ourt declines to do so given the
circumstances and evidence and will apply the 6 percent
statutory interest rate.
(Opinion and Order, filed 2/23/21, at 3-6; R.R. at 1979a-1982a) (some record
citations omitted).
The record supports the court’s calculation of damages. Mr. Valentine
testified that $1,019,219.00 was transferred from the Partnership to GHS
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and/or Maloney’s related entities. (See N.T. Hearing, 10/15/20, at 40; R.R.
at 2312a). We agree with Upsilon that “[i]f [Mr.] Valentine was ‘ill-prepared’
to exclude…arguably-legitimate transactions from his calculations, Appellants
have nobody to blame but themselves for withholding GHS’ books.” (Upsilon’s
Brief at 74).
Additionally, when calculating the “rent not deposited,” Mr. Valentine
looked at past leases to determine an “optimal” yearly figure the Partnership
could generate from rental income. Mr. Valentine calculated that with 43
tenants as “achievable” and an 85% occupancy rate, with a $6,500/year rental
rate per student, the Partnership could generate $238,000.00/year.
Assuming an 85% collection rate, that amount reduces to approximately
$200,000.00 of anticipated rental income/year. (See id. at 45-46; R.R. at
2317a-2318a). Mr. Valentine noted that in certain years the Partnership
generated more than that amount. Nevertheless, given the inadequate
property management—as alleged in the amended complaint and established
based on the default judgment—many years generated less than that amount.
Specifically, Upsilon had alleged that Appellants interfered with Partnership
tenants, failed to maintain the property, and allowed it to fall into a state of
disrepair. Thus, the “rent not deposited” shortfall was $375,865.00. (Id. at
45-48; R.R. at 2317a-2320a). Mr. Valentine’s calculations were based on the
facts and evidence of the history of rentals in this case. See Snizavich,
supra. We cannot say that Mr. Valentine’s calculations bore no reasonable
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relation to the loss suffered here. See Paves, supra. Essentially, Appellants
ask us to find their expert’s testimony more credible than Mr. Valentine’s
testimony; we will not do so. See Devon Serv., LLC, supra.
With respect to Appellants’ claim that the court “double counted” the
“rent not deposited” amount, the court awarded $368,939.00 direct
compensatory damages; and $477,616.00 derivative compensatory damages
accounting for Upsilon’s 19% interest in the Partnership, “inclusive of
fraudulent transfers, interest at 6%, late fees, and rent not deposited.” (See
Order, filed 2/23/21; R.R. at 1983a). Appellants contend the court
inappropriately counted the “rent not deposited” amount in both categories of
damages. Upsilon insists the court’s compensatory damages award was to
compensate Upsilon for Appellants’ unauthorized write-offs of Upsilon’s capital
account, based on Appellants’ impermissible allocation of 100% of tenant
obligations to Upsilon who was only a 19% partner.
Although the court did not detail its compensatory damages award, the
record supports Upsilon’s position. In its findings of fact and conclusions of
law, Upsilon expressly sought $368,939.00 in compensatory damages where
GHS eliminated Upsilon’s Partnership capital account for tenant obligations
that Upsilon did not agree to assume. (See Upsilon’s Proposed Findings of
Fact/Conclusions of Law, filed 12/2/20, at 81 ¶293; R.R. at 1646a). This is
the exact amount the court awarded in compensatory damages to Upsilon. By
contrast, the court expressly stated that the derivative damages calculation
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included the “rent not deposited” amount (proportionate to Upsilon’s 19%
interest in the Partnership). Thus, we disagree with Appellants that the court
“double counted” the “rent not deposited” analysis in both the compensatory
and derivative damages categories.10
Regarding Appellants’ statute of limitations claim, Appellants purported
to raise this defense during opening arguments at the damages hearing. (See
N.T., 10/15/20, at 19; R.R. at 2291a). Appellants raised the issue again
during cross-examination of Mr. Valentine. (See id. at 77-78; R.R. at 2349a-
2350a). In response, Upsilon noted that Appellants were trying to “tee up” a
statute of limitations defense and sought to elicit testimony to explain why the
statute of limitations would be tolled, to the extent Appellants were even able
to assert that defense at this juncture. (Id. at 120; R.R. at 2392a). The court
stated that it would let both parties proceed and “course it out at the end.”
(Id. at 124; R.R. at 2396a). On this record, we cannot agree with Appellants
that Upsilon “opened the door” to the statute of limitations issue.
Moreover, our Supreme Court explained that where a default judgment
is entered against a party as a discovery sanction, any defenses to the action
____________________________________________
10To be sure, Mr. Valentine testified that the “rent not deposited” amount was
$375,865.00. The court made clear in its opinion that it was accepting Mr.
Valentine’s “rent not deposited” analysis. As this amount exceeds the
compensatory damages awarded, the compensatory damages award does not
reflect the “rent not deposited” amount. To the extent Appellants claim the
variance is due to the court’s application of a 6% interest rate as opposed to
the 10% interest rate suggested by Mr. Valentine, we note that the
$375,865.00 figure was a pre-interest figure.
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are “effectively abandoned.” Fox v. Gabler, 534 Pa. 185, 626 A.2d 1143(1993) (holding that once default judgment was entered against appellee for
disobedience to discovery orders, appellee effectively abandoned claim that
contract at issue was illegal). As the trial court noted, “the statute of
limitations is a waiveable affirmative defense which [Appellants are]
foreclosed from asserting at this juncture. The statute of limitations
affirmative defense is intended to defeat, in whole or part, [Upsilon’s] asserted
right of recover[y] and under Fox[, supra] the affirmative defense is
foreclosed…at this juncture after the entry of default judgment.” (Opinion and
Order, filed 2/23/21, at 3; R.R. at 1979a). We agree with the trial court’s
reasoning.11 Therefore, Appellants’ second issue merits no relief.
____________________________________________
11 Appellant’s reliance on Williams v. Pepsi-Cola Metropolitan Bottling
Co., Inc., 362 A.2d 314 (Pa.Super. 1976) is misplaced. In that case, a default
judgment was entered against the defendant Pepsi on December 4, 1970.
Thereafter, both parties proceeded with litigation as if no default judgment
had been entered. The case proceeded to trial, and the plaintiff did not object
to the court hearing testimony/evidence on both negligence and damages,
instead of just damages. On appeal, this Court held that even though it was
error for the trial court to consider issues other than the amount of damages
at trial, “we cannot grant a new trial based thereon where no objection was
voiced below at trial or on his motion for a new trial.” Id. at 316.
Here, as explained above, Appellants brought up the statute of limitations
issue several times during the damages hearing. Upsilon made clear
throughout the proceedings that it believed Appellants were foreclosed from
asserting a statute of limitations defense once default judgment was entered,
but purported to elicit testimony to rebut that claim, in the event the court
decided differently. Upsilon did not “waive” its position that Appellants were
foreclosed from raising a statute of limitations defense based on entry of the
default judgment under these circumstances. The facts in Williams are
simply inapposite.
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In their third issue, Appellants argue the court refused to grant their
request for a continuance seeking more time to review Upsilon’s fee petition.
Appellants assert that Upsilon’s fee petition contained over 1,500 entries
spanning more than 50 pages. Appellants complain the court gave them only
five days to review the fee petition prior to the scheduled hearing. Appellants
insist the trial court rushed the hearing based on Upsilon’s mistaken belief that
the court would lose jurisdiction to rule on the fee petition 30 days after entry
of the judgment in this case. Appellants maintain Upsilon’s belief was
erroneous and that the court would not have lost jurisdiction to rule on the
fee petition, so there was no basis for not continuing the hearing to allow
Appellants more time to review Upsilon’s claimed fees. Appellants conclude
the trial court erred by denying their continuance request, and this Court must
grant relief. We disagree.
“The trial court is vested with broad discretion in the determination of
whether a request for a continuance should be granted, and an appellate court
should not disturb such a decision unless an abuse of that discretion is
apparent.” Baysmore v. Brownstein, 771 A.2d 54, 57 (Pa.Super. 2001).
Instantly, Upsilon acknowledges on appeal that it might have
misinterpreted the case law concerning whether the court would have retained
jurisdiction to rule on the fee petition more than 30 days after the damages
judgment in this case. (See Upsilon’s Brief at 80). See also Szwerc v.
Lehigh Valley Health Network, Inc., 235 A.3d 331 (Pa.Super. 2020),
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appeal dismissed as improvidently granted, ___ Pa. ___, 278 A.3d 859 (2022)
(explaining that so long as fee petition is filed within 30 days of final order,
trial court is empowered to act on it even after appeal is taken).
Nevertheless, the record demonstrates that the court did not deny
Appellants’ request for a continuance based on Upsilon’s position regarding
the court’s alleged lack of jurisdiction. At the March 22, 2021 hearing,
Appellants disagreed with Upsilon’s position that the court would lose
jurisdiction to rule on the fee petition after 30 days of the damages judgment,
and counsel suggested the trial court wait to rule on the fee petition until after
anticipated appeals in this case. (See N.T. Hearing, 3/22/21, at 5-6; R.R. at
2467a-2468a). The court indicated that it understood Appellants’ argument,
but that it was denying the continuance motion because the court “[o]bviously
wanted to resolve all issues in this matter.” (Id. at 9; R.R. at 2471a). Thus,
the court did not deny the continuance based on Upsilon’s jurisdictional
analysis. We see no apparent abuse of discretion in the court’s decision to
deny the continuance. See Baysmore, supra.In their fourth issue, Appellants argue Upsilon’s fee petition was highly
excessive and unreasonable. Appellants emphasize that Upsilon redacted
more than 261 hours of time entries, preventing Appellants from meaningfully
challenging these fees. Appellants contend that hundreds of hours listed in
the fee petition were inappropriate and violated notions of responsible and
appropriate client billing. Appellants submit the trial court merely accepted
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Upsilon’s fee petition without any inquiry into the appropriateness of the
charges. Appellants conclude the amounts listed in the fee petition were
excessive, and this Court must grant relief. We disagree.
A party to an action may be awarded counsel fees as a sanction against
another participant for “dilatory, obdurate or vexatious conduct during the
pendency of a matter.” 42 Pa.C.S.A. § 2503(7). “[T]he determination of a
reasonable fee is an inherently case-specific endeavor.” Richards v.
Ameriprise Financial, Inc., 217 A.3d 854, 870 (Pa.Super. 2019). Where
“there is record support for the trial court’s finding that the rates were
reasonable, our standard of review dictates affirmance.” Id. “We will not find
an abuse of discretion in the award of counsel fees merely because we might
have reached a different conclusion.” Id. (citing Hoy v. Angelone, 554 Pa.
134, 148, 720 A.2d 745, 752 (1998)).
Instantly, the court held a hearing on Upsilon’s fee petition on March 22,
2021. At the hearing, Upsilon justified the amount sought in the petition as
follows:
So we have filed a petition for attorneys fees. I do not wish
to revisit the past four years of this litigation, it has been
painful along the way to say the least.
I have been practicing law for 13 years now and I have
frankly never seen anything like this case. It was just
repeated bad faith in the course of discovery, so much so
that this [c]ourt ultimately entered the sanction of
judgment. Along the way, [Upsilon] filed numerous
petitions or motions seeking sanctions for the obfuscation of
discovery. Along the way, we sought attorneys fees several
times.
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Under Section [2]503 Subsection 7, a participant who’s
awarded counsel fees is a sanction against another
participant for dilatory or vexatious conduct during the
pendency of a matter. I think this falls squarely within that
rule. [Appellants’] conduct in this case clearly obfuscated
discovery for years. We frankly spent years litigating over
whether or not they had to give us those accounting records,
went up to the Superior Court, the Superior Court quashed
the appeal as, quote, disingenuous, and we came back down
here I think for a fourth round of motions for sanctions.
So I think an award of attorneys fees here is appropriate.
[Appellants’ counsel] I think wants to question and sort of
cherry pick time entries of how long should we have spent,
you know, drafting briefs in opposition to his Superior Court
appeal. And of course the answer is none, we shouldn’t
have spent any time on it, but we had to. And so, we
tracked that time, we billed it to our clients on a monthly
basis, and now we’re seeking to recover those fees.
[Appellants’ counsel] takes issue with some of the
redactions in the invoices that we provided. He, however,
only provided this [c]ourt with half of the rule. He provided
the [c]ourt with the half that says entries that generically
state that counsel made a phone call for a specific amount
of time to a client is not information protected by the
attorney/client privilege, but again, is subject to disclosure.
We agree with that, and we’ve included that information in
our invoices. It will say, you know, had a phone call with
client or something like that.
But the part that is omitted from his filing is the [c]ourt goes
onto say that the relevant question is whether the content
of the writing will result in disclosure of information
otherwise protected by the attorney/client privilege. For
example, descriptions of legal services that address the
client’s motive for seeking counsel, legal advice, strategy,
or other confidential communications are undeniably
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connected under the attorney/client privilege.[12]
So you may see entries that say things like legal research
and then it’s redacted. Well, because we were researching
issues that disclose our strategy for litigating the case or
responding to questions raised by our client to provide them
with advice. So that’s why those have been redacted.
The one particular entry [Appellants’ counsel] notes is…an
entry for five hours that says something like discussion
[between counsel]. But that entry is also redacted. So
there’s—it’s not a five-hour conversation [between counsel],
it’s a host of other activities that follow under the
attorney/client privilege that have been redacted.
So the reality is that all the time is true and accurate. If
anything, our attorneys fees in this case are low. You will
see that, you know, my rate on this case is $150 per hour.
That’s not my regular rate. My regular rate is $280 an hour,
almost double that. Similarly, [our other attorney] is billing
in this case at a rate of $130, his regular rate is [$]220. So,
you know, if anything, this is a low submission for attorneys
fees. Had we handled this on a contingent fee, I think we’d
be entitled to the standard one-third, which would be nearly
$300,000 in this case. So, you know, essentially there’s a
prolong[ed] course of discovery of obfuscation in this case.
[Upsilon] endured a lot of fees litigating over what I would
frankly summarize as nonsense.
Now I do want to recognize that even without the bad faith
discovery misconduct, [Upsilon] would of course still have
some fees. So I think the egregious nature of the
misconduct in this case, an award of all of our attorneys fees
is reasonable and appropriate. …
____________________________________________
12The case Upsilon’s counsel is referring to in this argument is Levy v. Senate
of Pennsylvania, 619 Pa. 586, 65 A.3d 361 (2013) (explaining that under
Right-to-Know Law, descriptions of legal services that address client’s motive
for seeking counsel, legal advice, strategy, or other confidential
communications are undeniably protected under attorney/client privilege; in
contrast, entry that generically states that counsel made telephone call for
specific amount of time to client is not information protected by attorney/client
privilege).
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(N.T. Hearing, 3/22/21, at 9-12; R.R. at 2471a-2474a).
After reviewing the fee petition and hearing argument from the parties,
the court accepted the amount sought in Upsilon’s fee petition and awarded
reasonable fees under Section 2503(7). (See Order, filed 3/22/21; R.R. at
2187a). Given the lengthy litigation in this case, the record supports the
court’s conclusion that the fees sought were reasonable. See Richards,
supra. On this record, we cannot say the court abused its discretion in
granting the fee petition. See id. Therefore, Appellants’ fourth issue affords
no relief.
In their final issue, Appellants argue the trial court failed to join Alpha
Sigma Phi as a party to this litigation. Appellants claim that Upsilon sought
relief directly on behalf of Alpha Sigma Phi in their original complaints.
Appellants maintain Alpha Sigma Phi was an indispensable party to this action.
Appellants conclude the court erred by denying their request to join Alpha
Sigma Phi to this action, and this Court must grant relief. We disagree.
“The failure to join an indispensable party is a non-waivable defect that
implicates the trial court’s subject matter jurisdiction.” Northern Forests II,
Inc. v. Keta Realty Co., 130 A.3d 19, 28-29 (Pa.Super. 2015), appeal
denied, 638 Pa. 756, 158 A.3d 1237 (2016). A party is indispensable:
[W]hen his or her rights are so connected with the claims of
the litigants that no decree can be made without impairing
those rights. If no redress is sought against a party, and its
rights would not be prejudiced by any decision in the case,
it is not indispensable with respect to the litigation. We have
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consistently held that a trial court must weigh the following
considerations in determining if a party is indispensable to
a particular litigation:
1. Do absent parties have a right or an interest related to
the claim?
2. If so, what is the nature of that right or interest?
3. Is that right or interest essential to the merits of the
issue?
4. Can justice be afforded without violating the due process
rights of absent parties?
Id. at 29 (internal citations and quotation marks omitted). “[T]he guiding
inquiry in any discussion of indispensability is whether justice can be done in
the absence of the parties asserted to be necessary. Such an inquiry entails
an assessment of the particular facts and circumstances presented in each
case.” City of Philadelphia v. Commonwealth of Pennsylvania, 575 Pa.
542, 572, 838 A.2d 566, 584-85 (2003).
Instantly, the court explained its denial of Appellants’ motion to join the
fraternity as an indispensable party as follows:
The Plaintiff and Defendants are partners in 328 Fairmount
LP, with the business of renting out a singular property.
Alpha Sigma Phi fraternity members are the tenants of
aforementioned house. The Plaintiff [Upsilon] is an alumni
organization for that fraternity’s member[s] and obviously
has connections with the fraternity. However, the interests
and rights of the absent parties are the relevant issues in
determining if they are indispensable, not their connections
to the parties to the suit. [Upsilon] has obvious interests
and rights in how the partnership property and the leases
are managed since that is the partnership’s primary
business. Furthermore, it is also obvious that the fraternity
members as tenants have interests in how the property and
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leases are managed. [Upsilon’s] interests may overlap with
the fraternity members’ interests but their rights are vastly
different. A partner can seek to ensure that the partnership
is complying with the partnership’s legal obligations without
violating or prejudicing the contractual rights of absent
parties. The fraternity members’ rights as tenants are not
essential to the merits of the numerous counts in this
matter. Finally, the fraternity members’ rights are not
violated or prejudiced by the proceeding.
(Opinion and Order, filed 6/8/18, at 2; R.R. at 713a).
The record supports the court’s analysis that Alpha Sigma Phi is not an
indispensable party to this litigation. See Northern Forests II, Inc., supra.
Additionally, to the extent Appellants claim that Upsilon’s original complaints
sought relief on behalf of the fraternity directly, the amended complaint
became the operative complaint in this matter and effectively replaced both
original complaints. See Reichert v. TRW, Inc., Cutting Tools Div., 531
Pa. 193, 611 A.2d 1191 (1992) (explaining that filing of amended complaint
is essentially withdrawal of original complaint). Upsilon’s amended complaint
makes clear that it did not seek relief on behalf of Alpha Sigma Phi. (See
Amended Complaint, filed 12/22/17, at ¶¶ 86, 90, 108; R.R. at 277a, 278a,
282a) (alleging Alpha Sigma Phi holds no interest in Partnership and is not
party to action; Upsilon is separate and distinct legal identity; and regarding
conversion of assets, issue relates to undergraduate students, but such assets
are believed to be property of Upsilon, who maintains certain items such as
composites and fraternity plaques as heirlooms). Therefore, Appellants are
not entitled to relief on this claim.
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In their cross-appeal, Upsilon challenges the court’s failure to award
punitive damages in this case. Upsilon contends that it has never seen any
money from the Partnership since the Partnership began. Upsilon argues that
Appellants breached the finest duty of loyalty owed to Upsilon as their partner.
Given Appellants’ fraudulent conduct (which was established by virtue of entry
of the default judgment), Upsilon insists punitive damages were warranted.
Upsilon concludes the court’s failure to award punitive damages was
erroneous, and this Court must grant relief. We disagree.
“[T]he decision of whether to award punitive damages and the amount
to be awarded are within the discretion of the fact finder.” Delahanty v. First
Pennsylvania Bank, N.A., 464 A.2d 1243, 1263 (Pa.Super. 1983). “[T]he
purpose of punitive damages is two-fold, to punish the wrongdoer and to deter
both him and others from engaging in similar conduct in the future.” Id. “As
the name suggests, punitive damages are penal in nature and are proper only
in cases where the defendant’s actions are so outrageous as to demonstrate
willful, wanton or reckless conduct.” Hutchinson ex rel. Hutchinson v.
Luddy, 582 Pa. 114, 121, 870 A.2d 766, 770 (2005). “The determination of
whether a person’s actions arise to outrageous conduct lies within the sound
discretion of the fact-finder and will not be disturbed on review, provided that
discretion has not been abused.” Lomas v. Kravitz, 130 A.3d 107, 129
(Pa.Super. 2015) (en banc), aff’d, 642 Pa. 181, 170 A.3d 380 (2017). In
Lomas, this Court affirmed the imposition of punitive damages based on “a
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steady and persistent campaign to avoid paying [the a]ppellee…that has
continued for nearly 20 years and has involved not only fraudulent transfers
of assets…, but years of incessant use and abuse of our civil litigation
processes.” Id. at 129.
Instantly, the court noted that punitive damages are an extreme remedy
awarded only when a plaintiff establishes that the defendant acted in an
outrageous fashion due to evil motive or reckless indifference to others. (See
Opinion and Order, filed 2/23/21, at 6-7; R.R. at 1982a-1983a). “The [c]ourt
decline[d] to award punitive damages after consideration of the evidence in
this matter.” (Id. at 7; R.R. at 1983a).
Notwithstanding the established fraud in this case (by virtue of the
default judgment), this case did not involve “years of incessant use and abuse
of our civil litigation processes” similar to the fact pattern in Lomas. The fact
that Appellants took one interlocutory appeal which this Court subsequently
quashed does not constitute an “abuse” of the civil litigation process. On this
record, we cannot say that the trial court abused its discretion in denying
Upsilon’s claim for punitive damages. See Delahanty, supra. Therefore,
Upsilon’s sole issue in the cross-appeal merits no relief. Accordingly, we
affirm.
Judgment affirmed.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 03/27/2023
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