Weston v.rthampton Personal Care (published)

Annotate this Case

Download PDF

J-A27013-12 2013 PA Super 14 IN THE SUPERIOR COURT OF PENNSYLVANIA RANDALL WESTON AND JAMES STRECANSKY, v. NORTHAMPTON PERSONAL CARE, INC. AND JAMES KUSKO, INDIVIDUALLY, APPEAL OF: RANDALL WESTON No. 2473 EDA 2011 Appeal from the Judgment Entered August 12, 2011 In the Court of Common Pleas of Northampton County Civil Division at No(s): C-48-CV-2005-5306 BEFORE: STEVENS, P.J., FORD ELLIOTT, P.J.E., and ALLEN, J. OPINION BY STEVENS, P.J. Filed: January 25, 2013 Appellant, Randall Weston, challenges an August 12, 2011 entry of judgment in the Court of Common Pleas of Northampton County.1 This matter stems from a Complaint filed by Weston and James Strecansky against Appellees James Kusko and Northampton Personal Care, Inc. ( Northampton, Inc. ).2 The Complaint alleged that Weston and ____________________________________________ 1 Appellant s brief mistakenly indicates that he appeals from an order of November 9, 2010. As his September 8, 2011 Notice of Appeal indicates, however, final judgment on the verdict was entered on August 12, 2011, thus the appeal properly lies from that entry of judgment. 2 At the time the Complaint was filed Plaintiffs were represented by Attorney Dennis DeEsch. J-A27013-12 Strecansky are two of five limited partners in Northampton Personal Care Associates, LP ( Northampton, LP ), that Northampton, Inc. is the general partner of Northampton, Northampton, Inc. LP., and that Kusko Complaint filed 8/5/05 at 2-3. is the President of The first count of the Complaint asserted that Appellees breached the fiduciary relationship to the Partnership by engaging in various acts of self-dealing. Id. at 3. Although Count I claimed breaches of fiduciary duty to the Partnership, it demanded compensatory damages for Weston and Strecansky only, not for the other limited partners. Id. at 4. The second count of the Complaint alleged that the breaches of fiduciary duty were intended to defraud plaintiffs, and demanded all profits obtained by the Defendants through the fraudulent conduct. Id. at 4.3 The Honorable Edward G. Smith has authored an extensive Pa.R.A.P. 1925(a) Opinion which contains a comprehensive explanation of the factual and procedural background of this case, making it unnecessary to set forth that history in greater detail here. Pa.R.A.P. 1925(a) Opinion filed 3/19/12 at 1-73. On December 4, 2008, Defendant/Appellees filed a Motion for Summary Judgment, which was denied, and a non-jury trial before Judge ____________________________________________ 3 The Complaint contained one additional count demanding an accounting of the business and financial condition of Northampton, LP., but that count was later withdrawn. Complaint filed 8/5/05 at 5; N.T. 3/23/10 at 86. -2- J-A27013-12 Smith was eventually conducted in March of 2010.4 During the proceedings, it was clarified that Weston and Strecansky were bringing a direct action on their individual behalves, not a derivative action on behalf of the limited partnership. N.T. 3/15/10 at 5; 8, 10, 48. In their Proposed Conclusions of Law submitted to Judge Smith at the conclusion of trial, Defendant/Appellees argued as follows with regard to the issue of Plaintiffs standing: 4. ¦ Pennsylvania law has provided a mechanism for a limited partner to pursue an action on behalf of the limited partnership: A limited partner may bring an action in the right of a limited partnership to recover a judgment in its favor if general partners with authority to do so have refused to bring the action or if an effort to cause those general partners to bring the action is not likely to succeed. The derivative action may not be maintained if it appears that the plaintiff cannot fairly and adequately represent the interests of the limited partners in enforcing the rights of the partnership. 15 Pa.C.S.A. §8591. 5. Plaintiffs Weston and Strecansky have brought claims for harm allegedly done to the Limited Partnership, but have done so in their individual capacities and not on behalf of the Limited Partnership or even on behalf of all of the limited partners. 6 Because the claims asserted may only be brought on behalf of the Limited Partnership, Plaintiffs' claims must be dismissed. Kenworthy v. Hargrove. 855 F.Supp. 101, 104 (E.D.Pa. 1994). ____________________________________________ 4 Weston and Strecansky were represented during trial by Attorney DeEsch, and Lowel F. Raeder, Esq., who had entered his appearance as co-counsel on December 18, 2009. -3- J-A27013-12 7. Because Plaintiffs Weston and Strecansky do not have standing to pursue the claims set forth in their Complaint in their individual capacities, this action must be dismissed with prejudice. Kenworthy v. Hargrove, 855 F.Supp. 101, 104 (E.D.Pa. 1994). 8. The Plaintiffs do not have standing to bring the within action in their individual capacities as direct claims against Defendants Northampton Personal. Care, Inc., and James Kusko, since the claims asserted may only be properly brought on behalf of the Limited Partnership as a derivative claim pursuant to 15 Pa.C.S.A. § 8591. 9. Any harm that has been alleged on behalf of Plaintiffs is an indirect harm to Plaintiffs, not a direct harm. Defendant/Appellees Proposed Conclusions of Law filed 5/28/10 at 2-3. Asserting that the Pennsylvania Supreme Court had not yet provided binding authority on the issue of an individual limited partner s standing to pursue indirect claims against a general partner of a limited partnership for alleged wrongs to the limited partnership, Defendant/Appellees suggested the applicability of the decision of the Federal District Court for the Eastern District of Pennsylvania in Kenworthy, supra, as well several decisions from other states, and urged that whether an individual limited partner has the right to pursue a claim in his or her individual capacity depends on whether the injury alleged is to that individual, or to the partnership itself. Id. Weston and Strecansky s Proposed Findings of Fact, Conclusions of Law and Discussion countered that: [t]he claims of Weston and Strecansky in the present case can are [sic] easily distinguished from the facts of Kenworthy because there is no separate action by the partnership for the same wrongdoing, and thus no risk of double recovery. Plaintiffs have direct claims against Kusko in his dual capacity as Chair of -4- J-A27013-12 the Management Committee and President of the General Partner that this Court can rule on. Proposed Findings of Fact, Conclusions of Law and Discussion filed 6/1/10 at 31. After reviewing the parties submissions, Judge Smith entered a verdict in favor of Defendant/Appellees as follows: AND NOW, this 9th day of November, 2010, after a seven-day non-jury trial in this matter, and after reviewing the applicable record and the parties' submissions;1 and IT APPEARING THAT the plaintiffs, Randall Weston ("Weston") and James Strecansky ("Strecansky"), are two of the limited partners of the Pennsylvania limited partnership known as Northampton Personal Care Associates, L.P., and it appearing that the defendant, Northampton Personal Care, Inc., is the general partner of Northampton Personal Care Associates, L.P., and it appearing that the defendant, James Kusko, is the president of Northampton Personal Care, Inc.,2 and it appearing that Northampton Personal Care Associates, L.P. is one of two general partners of Sacred Heart Assisted Living Partnerships ("SHALP I"), a Pennsylvania general partnership that owns and operates the Sacred Heart Assisted Living Faculty ("SHALF") located in Northampton, Pennsylvania,3 and IT APPEARING THAT the plaintiffs brought claims against the defendants for breach of fiduciary duty and fraud,4 and it appearing that these claims are direct claims brought in the plaintiffs' individual capacities and not derivative claims on behalf of the partnership, Northampton Personal Care Associates, L.P.; and IT APPEARING THAT the defendants challenge the plaintiffs' standing to bring their claims in this action insofar as the defendants argue that as limited partners, the plaintiffs cannot bring direct claims against the defendants for breach of fiduciary duty and fraud; and it appearing that the plaintiffs do not have standing to bring their claims in this action as, inter alia, almost all of the particular breaches or harms complained of were not suffered directly by the individual limited partners; rather, the claims essentially allege injury to SHALP I; and it further appearing that regardless of whether the plaintiffs have standing to bring the aforementioned direct claims against the -5- J-A27013-12 defendants, the plaintiffs have failed to establish an entitlement to relief on their claims for breach of fiduciary duty or fraud; and IT APPEARING THAT as to the plaintiffs' causes of action for breach of fiduciary duty, the plaintiffs have not demonstrated by a preponderance of evidence that Kusko breached any fiduciary duty to the plaintiffs insofar as they did not show that Kusko abused his positions of trust or used the various resources of SHALP I to unjustly enrich himself to the plaintiffs' detriment; and it further appearing in this regard that the plaintiffs failed to prove by a preponderance of the evidence that (1) Kusko acted improperly or breached his fiduciary duty to the plaintiffs regarding the management agreement between SHALP I and Weston's management company, Northampton Village, insofar as (a) SHALP I ceased using Northampton Village as manager; (b) SHALP I replaced Northampton Village and substituted Kusko as manager of SHALF, (c.) SHALP I paid Kusko a higher fee for his managing services then [sic] it paid Weston or Northampton Village, and (d) SHALP I paid for employees that Weston had previously provided (and paid for) out of his own pocket, (2) Kusko acted improperly or breached his fiduciary duty to the plaintiffs when SHALP I entered into a twenty-year lease for the second floor of the medical office building, which he owned,5 (3) Kusko used partnership assets for his own benefit when SHALP I loaned $664,385 to Sacred Heart so Sacred Heart could submit a capital contribution to Sacred Heart Assisted Living Partnership II ("SHALP II") in return for a partnership interest in SHALP II,6 (4) Kusko inappropriately or improperly directed or breached his fiduciary duty to the plaintiffs insofar as he required SHALP I employees assist with business activities at SHALP II or vice versa, or otherwise directed the sharing of said employees, or (5) improperly ran, operated, or chaired the management committee meetings for SHALP I, particularly insofar as the plaintiffs allege Kusko failed to notify each management committee of the membership of SHALP I and SHALP II to determine potential conflicts of interest;7 and IT APPEARING THAT the plaintiffs failed to prove by clear and convincing evidence that Kusko defrauded them; and it appearing further in this regard that the plaintiffs failed to show that Kusko defrauded them with respect to the aforementioned conduct complained of with respect to their breach of fiduciary duty claims; and it appearing that the plaintiffs have failed to show that Kusko defrauded them insofar as to (1) any issue related to the management contract of Northampton Village, SHALP I hiring Kusko as manager for higher management fees, -6- J-A27013-12 or Kusko's use or Carol Blazo after SHALP I replaced Northampton Village as manager of SHALF, (2) any alleged representations by Kusko to Strecansky regarding a possible ownership interest in the medical office building, (3) SHALP I entering into a twenty-year lease for the second floor of the medical office building, (4) Kusko's alleged failure to develop a succession plan in return for his annual management fee, (5) any alleged failures to disclose the $664,385 loan to Sacred Heart, the sharing of employees between SHALP I and SHALP II, and the identities of the partners of SHALP 1 and SHALP II so the management committee could evaluate potential conflicts of interest; and IT APPEARING THAT the plaintiffs have not shown that they are entitled to punitive damages as they have not shown any outrageous acts performed by the defendants;8 and, accordingly, for good cause shown, IT IS HEREBY ORDERED that the verdict is entered in favor of the defendants, Northampton Personal Care, Inc., and James Kusko, on the plaintiffs' causes of action for breach of fiduciary duty and fraud. The parties shall have a period of ten (10) days to file post-trial motions. Judgment shall be entered by the prothonotary upon praecipe of either party filed in accordance with Pennsylvania Rule of Civil Procedure 227.4. -----------------------------------------------------------------------1 We commend counsel for both the outstanding presentation of the evidence at trial as well as their exhaustive and well-written post-trial submissions. 2 Kusko is also a limited partner of Northampton Personal Care Associates, L.P. 3 Sacred Heart Healthcare Systems, Inc. is the other general partner on SHALP I. 4 At trial, the plaintiffs withdrew their claim for an accounting. 5 As the defendants point out, it appears that the plaintiffs did not bring their claim for breach of fiduciary duty relating to the ownership of the medical office building and the twenty-year lease term within two years after they were aware of the ownership and the lease to satisfy the applicable statute of limitations for breach of fiduciary duty claims. 6 SHALP II was created to own and operate another assisted living facility, Sacred Heart Assisted Living at Saucon Creek. 7 The plaintiffs also failed to show that the defendants breached a fiduciary duty owed to them when SHALP I terminated the lease of Northampton Village, Inc. At the medical office building, -7- J-A27013-12 even though Northampton Village, Inc. was not a tenant at the time. 8 The plaintiffs enumerated the alleged outrageous acts on pages 28 and 29 of their Proposed Findings of Fact, Conclusion of Law and Discussion. Order filed 11/9/10. Still represented by Attorneys DeEsch and Raeder, Weston and Strecansky filed a Motion for Judgment Notwithstanding the Verdict or, in the alternative For a New Trial, arguing, among other things, that Judge Smith erred in finding that Plaintiffs lacked standing. Motion for Judgment Notwithstanding the Verdict or, in the alternative For a New Trial filed 11/24/10.5 The Motion was denied on June 30, 2011, and judgment was subsequently entered on August 12, 2011. Although neither Attorney DeEsch nor Attorney Raeder had withdrawn their appearance on behalf of Weston or Strecansky, on September 8, 2011, Attorney Douglas M. Marinos entered his appearance on behalf of Plaintiff, Randall Weston. Entry of Appearance filed 9/8/11. Through Attorney Marinos, Weston then filed a timely Notice of Appeal. Notice of Appeal filed 9/8/11. The Notice of Appeal was served on Attorneys DeEsch and Raeder, ____________________________________________ 5 The Motion was deemed timely by the lower court, as having been filed within ten days of the date of the mailing of the verdict. Pa.R.A.P. 1925(a) Opinion at 4. -8- J-A27013-12 among others. Proof of Service filed 9/8/11.6 No Notice of Appeal was filed on behalf of Strecansky. On September 15, 2011, Judge Smith ordered Weston to file a Pa.R.A.P. 1925(b) Statement. Orders filed 9/1511 and 10/6/11. The statement filed by Attorney Marinos, however, named not only Weston, but also Strecansky, as Appellants/Plaintiffs. Rule 1925(b) Statement filed 10/21/11.7 The addition of Strecansky to the caption did not go unnoticed by Judge Smith, who, in his Rule 1925(a) Opinion, pointed out Strecansky s failure to file an appeal in this matter, and suggested that Weston is the only proper appellant. Rule 1925(a) Opinion filed 3/19/12 at 74-75.8 Therefore, before addressing the issues raised on appeal, we clarify that Strecansky is not an appellant in this matter. It is undisputed that Attorney Marinos entered his appearance on behalf of Weston only, not ____________________________________________ 6 Attorney Raeder subsequently filed a Praecipe for Withdrawal of Appearance asking to withdraw his representation of the Plaintiffs, indicating that their interests are represented by Dennis A. DeEsch, Esq. and Douglas M. Marinos, Esq. Praecipe for Withdrawal of Appearance filed 9/28/11. 7 Because of a service error, Weston was given until October 21, 2011 to file his Rule 1925(b) Statement, thus it was timely filed. 8 Judge Smith bases this conclusion on the contents of the Notice of Appeal filed by Attorney Marinos, which specifically names Weston only, and is signed by Attorney Marino as Attorney for Plaintiff in the singular form (as contrasted to the signature on the Rule 1925(b) Statement, which indicates Attorney for Plaintiffs in the plural form). Rule 1925(a) Opinion filed 3/19/12 at 74. Additionally, Judge Smith noted that Attorney Marino specifically entered his appearance on behalf of Weston only, and that appellate docket sheets in this matter also indicate that Weston in the only appellant in this appeal. Id. at 74-75. -9- J-A27013-12 Weston and Strecansky. Entry of Appearance filed 9/8/11. As a result, the Pennsylvania Appellate Court Management System lists Attorney Marinos as counsel of record for Weston, and Attorney DeEsch as counsel of record for Strecansky.9 On the same day Attorney Marinos entered his appearance for Weston, he also filed the instant appeal on Weston s behalf. Appeal filed 9/8/11. Notice of It is undisputed that the Notice of Appeal names Weston, alone, as Appellant. Further, the Notice of Appeal filed on behalf of Weston simply does not conform to the Rules of Appellant Procedure in such a way as to render Strecansky an appellant in this matter. The form of a notice of appeal is governed by Pa.R.A.P. 904, pertaining to the Content of Notice of Appeal.10 Rule 904 requires that the caption state the parties to the appeal as they stood upon the record of the lower court at the time the appeal was taken. Pa.R.A.P. 904(b). Thus, Strecansky s name properly appears in the caption of the Notice of Appeal, since he was a party to the underlying action, but ____________________________________________ 9 Pursuant to Pa.R.A.P. 120, pertaining to Entry of Appearance, any counsel filing papers required or permitted to be filed in an appellate court must enter his or her appearance with the prothonotary of that court, unless counsel has been previously noted on the docket. Here, as we noted, Attorney Marinos entry of appearance on Weston s behalf was docketed in the lower court, as was the entry of appearance of Attorney DeEsch for Strecansky. Attorney Marinos has never entered his appearance on behalf of Strecansky. 10 In order to perfect an appeal, parties must strictly adhere to the statutory provisions for filing an appeal. Criss v. Wise, 781 A.2d 1156, 1159 (Pa. 2001). - 10 - J-A27013-12 the appearance of his name in that caption is, alone, insufficient to place him in the position of appellant. Rule 904 further sets forth that the body of the Notice of Appeal state Notice is hereby given that [name of party, plaintiff or defendant], hereby appeals ¦. Pa.R.A.P. 904(a). In the Notice of Appeal at issue here, the body does not name Strecansky as an appealing party, it only names Weston. Although the [f]ailure of an appellant to take any step other than the timely filing of a notice of appeal does not affect the validity of the appeal ¦ , the Notice of Appeal filed on behalf of Weston by his counsel of record, Attorney Marinos, does not function as a notice of appeal on behalf of Strecansky, and Strecansky has never taken that vital, initial step of filing a timely notice of appeal. Pa.R.A.P. 902 (emphasis added).11 Further, we agree with Judge Smith that Strecansky is not automatically rendered an appellant by virtue of his position as co-plaintiff in the underlying matter. Any aggrieved party may appeal. Pa.R.A.P. 501. Parties interested jointly in a matter may join as appellants. Pa.R.A.P. 512.12 While it is clear that Strecansky could have appealed in his own right, or joined in Weston s appeal, he simply did not do so. Pa.R.A.P. 902, 904. ____________________________________________ 11 An appeal permitted by law as of right from a lower court to an appellate court shall be taken by filing a notice of appeal with the clerk of the lower court within the time allowed by Rule 903 (time for appeal). Pa.R.A.P. 902. 12 Pursuant to Rule 512: (Footnote Continued Next Page) - 11 - J-A27013-12 Because there has been no Notice of Appeal filed to place Strecansky in the position of appellant, his status in this appeal is governed by Rule 908, pertaining to Parties on Appeal, which directs that: All parties to the matter in the court from whose order the appeal is being taken shall be deemed parties in the appellate court, unless the appellant shall notify the prothonotary of the appellate court of the belief of the appellant that one or more of the parties below have no interest in the outcome of the appeal. A copy of such notice shall be served on all parties to the matter in the lower court, and a party noted as no longer interested may remain a party in the appellate court by filing a notice that he has an interest in the appeal with the prothonotary of the appellate court. All parties in the appellate court other than the appellant shall be appellees, but appellees who support the position of the appellant shall meet the time schedule for filing papers which is provided in these rules for the appellant. Pa.R.A.P. 908. As such, under Rule 908, Strecansky must be considered an appellee. See also Twp. of Concord v. Concord Ranch, Inc., 664 A.2d 640 (Pa. Commw. Ct. 1995).13 (Footnote Continued) _______________________ Parties interested jointly, severally or otherwise in any order in the same matter or in joint matters or in matters consolidated for the purposes of trial or argument, may join as appellants or be joined as appellees in a single appeal where the grounds for appeal are similar, or any one or more of them may appeal separately or any two or more may join in an appeal. Pa.R.A.P. 512. 13 Therein, the Commonwealth Court noted that a party to the underlying action had not appealed, and explained: Pursuant to Pa. R.A.P. 908, [a]ll parties to the matter in the court below shall be deemed parties in the appellate court ... [and a]ll parties in the appellate court other than the appellant shall be appellees.... Commentary to Pa.R.A.P. 908 states that any deemed appellee who supports the position of the appellant would seem to be limited to the issues raised by the (Footnote Continued Next Page) - 12 - J-A27013-12 We thus turn to the allegations of error Weston raises on appeal. Our standard of review in non-jury trials is to assess whether the findings of facts by the trial court are supported by the record and whether the trial court erred in applying the law. Upon appellate review the appellate court must consider the evidence in the light most favorable to the verdict winner and reverse the trial court only where the findings are not supported by the evidence of record or are based on an error of law. Allegheny County Housing Authority v. Johnson, 908 A.2d 336, 340 (Pa. Super. 2006). Our scope of review regarding questions of law is plenary. Skiff re Business, Inc. v. Buckingham Ridgeview, LP, 991 A.2d 956 (Pa. Super. 2010). The court's findings are especially binding on appeal, where they are based upon the credibility of the witnesses, unless it appears that the court abused its discretion or that the court's findings lack evidentiary support or that the court capriciously disbelieved the evidence. Fudula v. Keystone Wire & Iron Works, Inc., 283 Pa.Super. 502, 424 A.2d 921, 927 (1981). Judicial discretion requires action in conformity with law on facts and circumstances before the trial court after hearing and consideration. Consequently, the court abuses its discretion if, in resolving the issue for decision, it misapplies the law or exercises its discretion in a manner lacking reason. Miller v. Sacred Heart Hosp., 753 A.2d 829, 832 (Pa. Super. 2000) (internal citations omitted). To the extent that the trial court's findings are predicated on errors of law, we review the court's findings de novo. John B. Conomos, Inc. v. Sun Co., Inc. (R & M), 831 A.2d 696, 704 (Pa. Super. 2003), appeal denied, 577 Pa. 697, 845 A.2d 818 (2004). (Footnote Continued) _______________________ appellant.... Accordingly, it behooves a party who seeks to challenge a trial court order ... to file a separate appeal or cross appeal, thus becoming an appellant in the appellate court. 1 Pennsylvania Appellate Practice 2d, § 908:3 (1994). Twp. of Concord, 664 A.2d at 650. - 13 - J-A27013-12 Hart v. Arnold, 884 A.2d 316, 331 (Pa. Super. 2005). Weston first asks us to determine: 1. Whether the lower court erred as a matter of law by entering verdict in favor of the Defendants on the basis that almost all of the particular breaches or harms complained of by Plaintiffs were not suffered directly and, therefore, Plaintiffs lacked standing to bring their claims against Defendants for breach of fiduciary duty and fraud? Appellant s brief at 7, 71. A review of the argument provided by Weston in support of this issue reveals his first allegation to essentially be that Judge Smith erred in relying on no other authority than Kenworthy v. Hargrove, 855 F. Supp. 101 (E.D. PA. 1994) when finding that Weston did not have standing to bring individual claims for breach of fiduciary duty and fraud. Id. at 71-73.14 ____________________________________________ 14 Kenworthy involved ten limited partners of a Pennsylvania private bank who brought suit to redress the individual losses suffered by each limited partner after the bank s assets and deposits were seized by Pennsylvania s Secretary of Banking and transferred to another institution. Kenworthy, 855 F. Supp. at 103. The defendants filed a motion for partial summary judgment, asserting that the plaintiffs lacked standing to sue in their individual capacity. Id. at 104. The United States District Court for the Eastern District of Pennsylvania evaluated the motion under Pennsylvania Partnership law, noting that: Although the Pennsylvania Supreme Court has not yet offered us guidance for determining whether such claims may be brought derivatively, on behalf of the partnership, or whether they may be brought individually by plaintiffs, we believe we can predict Pennsylvania's law by looking to other state courts' interpretations of similar provisions of the ULPA. In New York, courts have held that the answer to this question depends on whether the primary injury alleged in the complaint is to the partnership or to the individual plaintiffs. ¦ When a limited (Footnote Continued Next Page) - 14 - J-A27013-12 (Footnote Continued) _______________________ partner alleges wrongs to the limited partnership that indirectly damaged a limited partner by rendering his contribution or interest in the limited partnership valueless, the limited partner is required to bring his claim derivatively on behalf of the partnership. ¦ We believe Pennsylvania courts will adopt this approach and, therefore, will apply New York's interpretation of the ULPA to the facts of this case.8 -----------------------------------------------------------------------8 Indeed, the Honorable Forrest G. Schaeffer, President Judge of the Court of Common Pleas of Berks County, Pennsylvania, already has ruled on this precise issue in the Limited Partner Plaintiffs' attempt to assert similar claims in a state court action. See Order of February 4, 1994, Dinnocenti v. Hargrove, Civ. No. 5475 92, AD (P.J. Schaeffer, Court of Common Pleas, Berks County, Pa.) Judge Schaeffer dismissed all claims of the Limited Partners, with the exception of a claim for fraudulent misrepresentation, because the [limited partners] cannot be parties to a proceeding by a partnership and because this is not a proceeding to enforce the limited partners' right against or liability to the partnership. Id. at 4. Kenworthy at 105-106 (some citations omitted). In the process of reviewing Pennsylvania s partnership law, the Kenworthy Court explained: In Pennsylvania, a limited partnership is a creation of the state legislature, through which the state permits a manner of doing business whereby individuals may invest their money free of the fear of unlimited liability and of the responsibilities of management. Freedmand v. Tax Review Board of City of Philadelphia, 212 Pa. Super. 442, 449, 243 A.2d 130, 135 (1968), aff'd , 434 Pa. 282, 258 A.2d 323 (1969). Pennsylvania has adopted the Uniform Limited Partnership Act ( ULPA ), 59 Pa.C.S.A. §§ 501-569, Act of December 19, 1975 (P.L. 524, No. 155),6 which provides in relevant part: § 511. Limited Partnership defined A limited partnership is a partnership formed by two or more persons under the provisions of section 512 (relating to formation), having as members one or more general partners and one or more limited partners. The limited partners as such shall not be bound by the obligations of the partnership. ****** § 545. Parties to actions (Footnote Continued Next Page) - 15 - J-A27013-12 (Footnote Continued) _______________________ A contributor, unless he is general partner, is not a proper party to proceedings by or against a partnership, except where the object is to enforce a limited partner's right against or liability to the partnership. Accordingly, limited partners surrender the right to participate in the conduct of the partnership in exchange for the benefits of limited liability. The Pennsylvania Supreme Court has expressly noted the restricted role of limited partners: In exchange for exposure to only limited liability, and the tax advantages available because of the use of the limited partnership entity [ ], the limited partners must abstain from participation in the conduct of the business. In re Estate of Hall, 517 Pa. 115, 134, 535 A.2d 47, 56 (1987) (emphasis added). Despite these operational restrictions, federal courts have held that a limited partner may bring a derivative action on behalf of the partnership for malfeasance of the general partners, pursuant to Section 545 of the Pennsylvania ULPA. Engl v. Berg, 511 F.Supp. 1146, 1152 53 (E.D.Pa.1981). See Klebanow v. New York Produce Exchange, 344 F.2d 294, 297 98 (2d Cir.1965) (upholding right to bring derivative action under identical provision of ULPA in New York); Riviera Congress Associates v. Yassky, 18 N.Y.2d 540, 547 48, 223 N.E.2d 876, 879 80, 277 N.Y.S.2d 386, 392 (1966) (confirming Klebanow's prediction of New York law).7 -----------------------------------------------------------------------6 In December 1988, the General Assembly of Pennsylvania replaced the ULPA with the Revised Uniform Limited Partnership Act ( RULPA ), 15 Pa.C.S.A. § 8501 8594, Section 302(e)(1) of Act of December 21, 1988 (P.L. 1444, No. 177). However, Section 304(a)(5) of the RULPA states that it: ... shall take effect 90 [ninety] days after the Governor publishes a proclamation in the Pennsylvania Bulletin stating that the Governor has found that the United States Internal Revenue Service has determined that 15 Pa.C.S. ch. 85 (relating to limited partnerships) corresponds to the Uniform Limited Partnership Act for purposes of 26 C.F.R. § 301.7701 2. The Governor shall issue such (Footnote Continued Next Page) - 16 - J-A27013-12 (Footnote Continued) _______________________ a proclamation upon being furnished with a copy of a ruling by the Internal Revenue Service to that effect. Delay in the repeal of 59 Pa.C.S. ch. 5 and enactment of 15 Pa.C.S. § 8502(a) shall not postpone the effective date of 15 Pa.C.S. ch. 85, and pending repeal of 59 Pa.C.S. ch. 5, persons may utilize either statute at their election, which shall be expressed in the partnership agreement, for the government and regulation of the affairs of the limited partnership. A partnership agreement that fails to identify expressly the statute applicable to the partnership shall be deemed to contain an election to be governed by 59 Pa.C.S. ch. 5. On the effective date of the repeal of 59 Pa.C.S. ch. 5, any partnership then governed by that chapter shall thereafter be governed by 15 Pa.C.S. ch. 85. Because no proclamation has yet been issued by the Governor, and since the parties in this case had not expressed their intention to elect to use the RULPA for the regulation of Knoblauch Private Bank, the older statute, the ULPA, 59 Pa.C.S. ch. 5, would govern here. The determination of whether to apply the ULPA or the new RULPA in this matter is not material, however, since the RULPA contains a similar provision to that found in the older ULPA, governing the ability of limited partners to bring an action on behalf of the partnership. See infra note 7, quoting from 15 Pa.C.S.A. § 8591. 7 The right of limited partners to bring a derivative suit on behalf of the partnership has been codified in the RULPA. The relevant provision of that statute, as adopted by the Pennsylvania legislature, states: A limited partner may bring an action in the right of a limited partnership to recover a judgment in its favor if general partners with authority to do so have refused to bring the action or if an effort to cause those general partners to bring the action is not likely to succeed. 15 Pa.C.S.A. § 8591 (emphasis added). Kenworthy, 855 F. Supp. at 104-105. - 17 - J-A27013-12 Judge Smith s Rule 1925(a) Opinion explains his reasoning on this issue as follows: [W]e note that there is a dearth of Pennsylvania appellate case law addressing whether a limited partner may maintain a direct against a general partner in a limited partnership for breach of fiduciary duty or fraud.88 In Kenworthy v. Hargrove, 855 F.Supp. 101 (E.D. Pa. 1994), the court noted this lack of guidance and predicted how the Supreme Court of Pennsylvania would rule when addressed with the issue as to whether limited partners could bring direct claims against a general partner. 855 F.Supp. at 106. The court examined other states' interpretations of the Uniform Limited Partnership Act, and focused particularly on New York jurisprudence on the issue. Id. The court then determined that Pennsylvania courts would adopt the New York approach, which is as follows: [T]he answer to this question depends on whether the primary injury alleged in the complaint is to the partnership or to the individual plaintiffs. When a limited partner alleges wrongs to the limited partnership that indirectly damaged a limited partner by rendering his contribution or interest in the limited partnership valueless, the limited partner is required to bring his claim derivatively on behalf of the partnership. [Further,] [A] limited partner's power to vindicate a wrong done to the limited partnership and to enforce redress for the loss or diminution in value to his interest is no greater than that of a stockholder of a corporation. As a general proposition, where a corporation suffers loss because of the acts of officers, directors, or others which diminish or render valueless the shares of stock of a stockholder, the stockholder does not have a direct cause of action for such damages, but has a derivative cause of action on behalf of the corporation to recover the loss for the benefit of the corporation. Id. (internal citations omitted). - 18 - J-A27013-12 While the court in Kenworthy also noted that since the general partners had also filed suit seeking to enforce the rights of the partnership, the limited partners could not also maintain their causes of action, the defendant had argued that the plaintiffs had brought their claims as derivative actions on behalf of the partnership. Id. at 104. Thus, the court addressed two concerns. The court first determined that the limited partners' argument that they could proceed with a direct action was not sustainable. Then, the court concluded that even if the limited partners were attempting to proceed with a derivative claim, the general partners were already pursuing an action on behalf of the limited partnership and Pennsylvania law would not permit a double recovery. Id. at 107-08 (citations omitted). The same rationale espoused in Kenworthy has been followed by at least a couple unpublished federal court decisions. See generally Weaver v. Mobile Diagnostech, Inc., No. CIV-A 02-1719, 2007 WL 1830712 (W.D. Pa. June 25, 2007) (describing cases and analyzing difference with direct and derivative suits in partnership context). We also note that the test espoused in Kenworthy is similar to that of determining whether a shareholder's action is direct or derivative in the corporate context. See, e.g., Tyler v. O'Neill, 994 F. Supp. 603, 609-10 (E.D. Pa. 1998). As such, we followed the rationale in Kenworthy even though we recognize that as a federal district court decision, it is not binding authority on this court. As we indicated in our decision in November 2010, almost all of the plaintiffs' claims for breach of fiduciary duty and fraud (especially as mentioned in the Complaint) related to alleged injuries to the partnership and not to the individual plaintiffs. More specifically, some of these indirect claims that should have been brought as a derivative action include (1) the claims relating to SHALP I entering into a twenty-year lease with Kusko to rent the second floor of the medical office building, (2) the Management Committee's decision to pay Kusko six percent of the 2-ross revenue of SHALP 1, (3) Kusko's creation and operation of SHALP II, (4) the sharing of employees between SHALP 1 and SHALP II, (5) SHALP I's loan to Sacred Heart, (6) SHALP I entering into the March 13, 2006 cooperative agreement with SHALP II, and (7) Kusko's running of the SHALP I Management Committee meetings. On the other hand, Weston's claim concerning the termination of his management contract would be an injury distinct from those of the other partners, as would Strecansky's claim that he was promised an ownership interest in the medical office building in exchange for - 19 - J-A27013-12 a reduced rate for the construction of the building.89 Therefore, we determined that it appeared that almost all of the plaintiffs' claims were indirect claims asserting damages suffered by the partnership itself at the hands of the appellees and the plaintiffs would not have standing to bring those claims. -----------------------------------------------------------------------88 Contrary to a direct action, the right of a limited partner to bring such claims derivatively is clear. More specifically, section 8951 of the Revised Uniform Limited Partnership Act states as follows: A limited partner may bring an action in the right of a limited partnership to recover a judgment in its favor if general partners with authority to do so have refused to bring the action or if an effort to cause those general partners to bring the action is not likely to succeed. The derivative action may not be maintained if it appears that the plaintiff cannot fairly and adequately represent the interests of the limited partners in enforcing the rights of the partnership. 15 Pa.C.S. § 8951. 89 Arguably, Weston s claim that Kusko told him that all of the partners of SHALP I would receive an ownership interest in the medical office building would not be an injury distinct from those of the other partners as by Weston s own words, all of the partners were supposed to get an interest in the building. Pa.R.A.P. 1925(a) Opinion at 76-78. In faulting Judge Smith for his reliance on Kenworthy, Weston points out that [o]ther states courts have ruled differently and allowed limited partners to commence suit in their name for claims that may be considered of the individual partner. Id. at 73. - 20 - The mere existence of cases from J-A27013-12 other states, however, fails to render Judge Smith s reliance on Kenworthy reversible error.15 Skiff, supra. ____________________________________________ 15 We note that Kenworthy has been cited favorably by other courts, such as the Court of Appeals of Georgia, which, lacking binding authority addressing what rights a limited partner may assert in a claim against the partnership, indicated that it would look to the law of other jurisdictions considering the same question under the ULPA, so as to effect its general purpose to make uniform the law of those states which enact it. Hendry v. Wells, 650 S.E.2d 338, 346-47 (Ga. Ct. App. 2007). Kenworthy has also been relied upon by the Federal District Court for the Western District of Pennsylvania, which explained: To determine whether a complaint states a direct or derivative cause of action, courts look to the nature of the wrongs alleged in the body of the complaint, not the plaintiff's designation or stated intention. Strasenburgh v. Straubmuller, 146 N.J. 527, 683 A.2d 818, 830 (N.J.1996). Generally, the distinction between direct and derivative actions depends upon whether the harm alleged by the plaintiff is independent of the harm suffered by the corporation or partnership. HB Gen. Corp. v. Manchester Partners, L.P., 95 F.3d 1185, 1194 (3d Cir.1996). When a plaintiff alleges harm which she has suffered indirectly, through the partnership, such as a the diminution of the value of her investment, malfeasance by the general partners, waste, or breach of fiduciary, the claim must be brought derivatively on behalf of the partnership. See Strasenburgh, 683 A.2d at 82930 (finding diminution in value, waste, and breach of fiduciary to be classically derivative); Kenworthy v. Hargrove, 855 F.Supp. 101, 106 (E.D.Pa.1994) (noting that malfeasance is the type of derivative action contemplated by Pennsylvania's version of § 1001 of the ULPA). On the other hand, if the plaintiff establishes an injury separate and distinct from that suffered by other limited partners, she may proceed against the partnership directly. Strasenburgh, 683 A.2d at 830 (quoting Moran v. Household Int'l, Inc., 490 A.2d 1059, 1070 (Del.1985)). A classic example of independent harm which should be brought individually is interference with the contractual rights of an investor. Id. U.S. Small Bus. Admin. v. Propper, CIV.A. 03-5982, 2004 WL 2624759 (E.D. Pa. Nov. 17, 2004). Citations to Kenworthy also appear in Standard (Footnote Continued Next Page) - 21 - J-A27013-12 Weston s second appellate issue asks us to determine: 2. Whether the lower court erred as a matter of law by entering verdict in favor of the Defendants on the basis that Plaintiffs lacked standing to bring their claims against Defendants for breach of fiduciary duty and fraud, despite evidence that Defendants, as the general partners, breached their duty not to use their power in such a way to exclude, Plaintiffs, as limited partners, from their proper share of the benefits accruing from the general partnership Northampton Personal Care Associates, L.P. Appellant s brief at 7, 84. Judge Smith s Rule 1925(a) Opinion has exhaustively and correctly addressed Weston s allegations, and, following our review of the record and the applicable case and statutory law, we rely thereon in finding that Weston has failed to show that Judge Smith s determination is either unsupported by the record or legal error. Rule 1925(a) Opinion filed 3/19/12 at 78-92 (finding that even if the plaintiffs had standing, we determined that they did not sustain their burdens of proof on either of their causes of action for breach of fiduciary duty or fraud, and discussing those issues in complete detail). (Footnote Continued) _______________________ Pennsylvania Practice 2d § 112:19. ( Under Pennsylvania law as predicted by the federal district court, when a limited partner alleges wrongs to the limited partnership that indirectly damaged the limited partner by rendering his or her contribution or interest in the limited partnership valueless, the limited partner is required to bring a claim derivatively on behalf of the partnership. ), and Summary of Pa. Jurisprudence. 2d Business Relationships § 18:92 (2d ed.) ( When a limited partner alleges wrongs to a limited partnership that indirectly damaged the limited partner by rendering his or her contribution or interest in the limited partnership valueless, the limited partner is required to bring the claim derivatively on behalf of the partnership. ). - 22 - J-A27013-12 Weston s third issue asks us to determine: 3. Whether the lower court erred as a matter of law by entering verdict in favor of the Defendants on Plaintiffs' cause of action for fraud despite clear and convincing evidence that Defendants committed the acts complained of and defrauded Plaintiffs from their proper share of the benefits accruing from the general partnership. Appellant s brief at 7, 93. The elements of fraudulent misrepresentation are as follows: (1) A representation; (2) which is material to the transaction at hand; (3) made falsely, with knowledge of its falsity or recklessness as to whether it is true or false; (4) with the intent of misleading another into relying on it; (5) justifiable reliance on the misrepresentation; and, (6) the resulting injury was proximately caused by the reliance. Heritage Surveyors & Eng'rs, Inc. v. Nat'l Penn Bank, 801 A.2d 1248, 1250 51 (Pa. Super. 2002). Scienter, or the maker's knowledge of the untrue character of his representation, is a key element in finding fraudulent misrepresentation. See Restatement (Second) of Torts § 526, Comment a. Ira G. Steffy & Son, Inc. v. Citizens Bank of Pennsylvania, 7 A.3d 278, 290 (Pa. Super. 2010), appeal denied, 27 A.3d 1015 (Pa. 2011). Fraud must be proven by clear and convincing evidence. Hart, supra; Goldstein v. Phillip Morris, Inc., 854 A.2d 585, 590 (Pa. Super. 2004). Turning to the matter before us, Judge Smith s Rule 1925(a) Opinion has again thoroughly dealt with Weston s allegation. Therein, the judge has set forth the elements of fraud expressed above, addressed each of the actions alleged by Weston to constitute fraud, and explained why Weston - 23 - J-A27013-12 failed to meet his burden of proving fraud by clear and convincing evidence. Following our review of the record, and the law applicable to this allegation, we find Judge Smith s determination fully supported by the record and free of legal error. Therefore, we decline to grant Weston appellate relief on this issue, and rely on Judge Smith s Rule 1925(a) Opinion. Rule 1925(a) Opinion filed 3/19/12 at 92-97. Weston s final issue for our review asks us to determine [w]hether the lower court erred as a matter of law by disregarding the outrageous, self serving and fraudulent acts of Defendants as set forth at trial and above in determining that Plaintiffs are not entitled to punitive damages. Appellant s brief at 7, 94. A request for punitive damages does not constitute a cause of action in and of itself. Rather, a request for punitive damages is merely incidental to a cause of action. [A] cause of action for misrepresentation can support a claim for punitive damages. McClellan v. Health Maint. Org. of Pennsylvania, 604 A.2d 1053, 1061 (Pa. Super. 1992) (citation omitted). However: Punitive damages will lie only in cases of outrageous behavior, where defendant's egregious conduct shows either an evil motive or reckless indifference to the rights of others. Punitive damages are appropriate when an individual's actions are of such an outrageous nature as to demonstrate intentional, willful, wanton, or reckless conduct. J.J. DeLuca Co., Inc. v. Toll Naval Associates, 306 EDA 2012, 2012 WL 4841441 (Pa. Super. Oct. 12, 2012) (citation omitted). - 24 - J-A27013-12 Outrageous conduct is an act done with a bad motive or with a reckless indifference to the interests of others. Reckless indifference to the interests of others , or as it is sometimes referred to, wanton misconduct , means that the actor has intentionally done an act of an unreasonable character, in disregard of a risk known to him or so obvious that he must be taken to have been aware of it, and so great as to make it highly probable that harm would follow. Smith v. Brown, 423 A.2d 743, 745 (Pa. Super. 1980) (citations omitted). [I]n Pennsylvania, a punitive damages claim must be supported by evidence sufficient to establish that (1) a defendant had a subjective appreciation of the risk of harm to which the plaintiff was exposed and that (2) he acted, or failed to act, as the case may be, in conscious disregard of that risk. Snead v. Soc'y for Prevention of Cruelty to Animals of Pennsylvania, 929 A.2d 1169, 1184-85 (Pa. Super. 2007), aff'd, 985 A.2d 909 (Pa. 2009) (citing Hutchison ex rel. Hutchison v. Luddy, 896 A.2d 1260, 1266 (Pa. Super. 2006)). 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 by an appellate court so long as that discretion has not been abused. J.J. DeLuca Co., supra. Here, Judge Smith found: [T]he appellant failed to prove by a preponderance of the evidence that the appellees breached their fiduciary duty to him. The appellant also failed to prove by clear and convincing, evidence that the appellees committed fraud. We respectfully submit that since the appellees failed to sustain their burdens of proof on their underlying causes of action and since the evidence in the case did not show that the appellees' conduct was so outrageous as to demonstrate willful, wanton or reckless conduct, we did not err in failing to award punitive damages to the appellant in this action. - 25 - J-A27013-12 Rule 1925(a) Opinion filed 3/19/12 at 99. We find that this determination is wholly supported by the record, and that Weston has failed to show that it constitutes an abuse of discretion requiring reversal. For the foregoing reasons, we affirm the August 12, 2011 entry of judgment in favor of Appellees. Entry of Judgment Affirmed; Appellees Application for Relief Denied. - 26 -

Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.