[J-95-2016]

IN THE SUPREME COURT OF PENNSYLVANIA

EASTERN DISTRICT

SAYLOR, C.J., BAER, TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, JJ.

CITY OF PHILADELPHIA,

Appellee

v.

NATHAN LERNER,

Appellant

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No. 26 EAP 2015

Appeal from the Order of 

Commonwealth Court entered on 

12/11/2014 at No. 1347 C.D. 2013, 

affirming the Order dated 7/9/2013 of 

the Court of Common Pleas, 

Philadelphia County, Civil Division at 

No. 2693 September Term, 2009.

ARGUED: March 8, 2016

RESUBMITTED: August 17, 2016

OPINION

JUSTICE WECHT1 DECIDED: November 22, 2016

Nathan Lerner appeals the Commonwealth Court’s order denying his request for 

relief. We granted allocatur to address the following issue: 

[Whether t]he Commonwealth Court [properly] decided that [it was] 

constrained by its own decision in Krug v. City of Philadelphia, 152 Pa.

Cmwlth. 475, 620 A.2d 46 (1993)[,] to sustain a judgment for a tax 

assessment where the Common Pleas Court found that there was no 

rational basis for the amount allegedly owed by the [p]etitioner and the 

Commonwealth Court stated that the City’s tactics may well lack authority

in law.

City of Philadelphia v. Lerner, 117 A.3d 1278 (Pa. 2015). We affirm. 

In September 2004, an anonymous informant sent the City of Philadelphia a 

letter claiming that Lerner was concealing taxable business income from the City. 

Attached to the letter were photocopies of checks made payable to Lerner. Several of 

 

1

This matter was reassigned to this author. 
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these checks were issued by Lerner’s alleged business partner, Lester Goldstein. 

Notes of Testimony (“N.T.”), 6/26/2013, at 138-42. The City proceeded to investigate 

the anonymous tip. 

In auditing Goldstein, the City discovered that Lerner had business interests in 

two real estate holding companies: Elco Associates (“Elco”) and LeGo Associates 

(“LeGo”). The City also learned that Goldstein and Lerner had entered into a $94,000 

“combined loan agreement” in late 2002 concerning these two entities. N.T. at 98. 

Pursuant to a separate contract, which was attached to the combined loan agreement, 

Lerner transferred to Goldstein an $85,000 partnership interest in LeGo. The audit also 

revealed a 2006 supplemental agreement between Lerner and Goldstein. In that 

agreement, Lerner disclaimed his interests in two properties: 4507 Chester Avenue and 

280 West Walnut Lane.2 N.T. at 99. 

In February 2006, the City sent Lerner a letter alleging that he had failed to pay 

Philadelphia’s net profits tax and/or business income and receipts tax. The letter 

instructed Lerner to submit copies of his federal tax returns from the prior five years, to 

complete an attached worksheet, and to remit payment to the City within thirty days. 

The letter stated that non-compliance would result in the City’s filing of an enforcement 

action. The City never received a response from Lerner.3 Approximately one month 

later, the City sent Lerner a “final notice,” stating that it would institute collection 

 

2

Lerner testified that he resides at 4507 Chester Avenue, but does not pay rent 

either to Goldstein or to LeGo. Instead, Lerner’s monthly rent is “deducted from the 

amount that [Goldstein] pays [Lerner] in interest.” N.T. at 142, 144. 

3 Although Lerner testified that he mailed a response, the City never received it. 

N.T. at 45. Furthermore, the trial court found Lerner’s testimony to be self-serving and

incredible, id. at 244, and the response Lerner allegedly mailed to the City was not 

admitted into evidence. Id. at 221-22. 
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proceedings if Lerner failed to submit copies of his federal tax returns within ten days. 

Lerner ignored the notice. 

In November 2006, the City sent Lerner a delinquent tax bill, which estimated 

that Lerner’s net business income was $150,000.00 per year. N.T. at 29-32. This 

number apparently was not tied to any specific information in the City’s possession

because, without Lerner’s tax records, the City had no idea how much Lerner’s 

businesses earned. The City hoped that, confronted with an exorbitant assessment, 

Lerner would hand over his business records. But this failed to get Lerner’s attention. 

He simply ignored the bill. 

Eventually, the City brought a collection action. When Lerner failed to answer 

the City’s complaint, the City obtained a default judgment. R.R. at 3b. Soon after, 

Lerner discovered that a default judgment had been entered against him. He moved to 

open that judgment, arguing that the City’s service of process had been defective. The 

trial court opened the judgment on December 24, 2009. Six days later, Lerner sent the 

City a letter stating that he had never received the delinquent tax bill that the City had 

mailed to him three years earlier. On January 7, 2010, the City sent Lerner another 

copy of the bill. Lerner admitted that he received this copy. 

On February 2, 2010, the City reinstated and served on Lerner its collection 

action complaint. R.R. at 3b. The City made numerous attempts to meet with Lerner in 

person to resolve his case, but Lerner refused the City’s offers. N.T. at 64-67, 77-78. 

Approximately nine months later, on November 10, 2010, Lerner filed a petition for 

review with the City’s Tax Review Board. The Board held a hearing, concluded that it 

lacked jurisdiction in light of the collection action pending in the trial court, and 

dismissed Lerner’s petition. Lerner appealed the Board’s dismissal to the trial court, 

which consolidated Lerner’s appeal with the City’s collection action. Notably, the trial 
[J-95-2016] - 4

court later quashed Lerner’s appeal after he refused to pay for a transcript of the 

administrative hearing.4 This effectively severed the collection action from Lerner’s 

appeal. The Commonwealth Court affirmed the trial court’s order quashing Lerner’s 

appeal. Lerner’s appeal from the Board’s determination that it lacked jurisdiction over 

Lerner’s petition for review is not presently before us. 

Lerner sought to delay the City’s collection action with onerous discovery 

requests and frivolous filings. He served hundreds of interrogatories, requests for 

admissions, and requests for production of documents. Meanwhile, Lerner 

simultaneously disregarded the City’s discovery requests and refused to disclose 

information about his income, expenses, assets, and business interests. When the trial 

court ordered Lerner to comply, he violated the court’s order. As a result, the court 

precluded Lerner from entering any evidence at trial that he had not disclosed to the 

City. 

Prior to trial, the City filed a motion in limine to preclude Lerner from challenging 

the underlying tax assessment. The City cited Krug v. City of Philadelphia, 620 A.2d 46

(Pa. Cmwlth. 1993) for the straightforward proposition that a taxpayer who has not 

 

4

The trial court directed Lerner to order and to pay for a transcript of the hearing 

before the Board. In a case management order, the trial court cautioned Lerner that 

“[f]ailure to order the transcript will result in the dismissal of the appeal absent good 

cause shown.” See Appeal of Nathan Lerner, 515 C.D. 2013, slip op. at 2 (Pa. Cmwlth. 

April 7, 2014). When Lerner still had not ordered the transcript months later, the trial 

court ordered him to do so within twenty days. Lerner agreed to comply with the court’s 

order. Nonetheless, another three months passed without Lerner ordering the 

transcript. The City eventually filed a motion to quash the appeal. Lerner responded 

with a ninety-four page “Answer” wherein he explained that he decided not to order the 

transcript (in violation of the court’s order) because he unilaterally chose to deem it 

“moot.” The trial court quashed Lerner’s appeal, admonishing him for his “attempts to 

forestall the ultimate conclusion in the underlying tax appeal by ignoring the [c]ourt’s 

[o]rder to pay for the transcript necessary for disposition of this matter.” Appeal of 

Nathan Lerner, 2013 WL 2300897, *4 (C.P. Phila. May 2, 2013). 
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appealed his or her assessment to the Tax Review Board cannot challenge that 

assessment in a later collection action. See id. at 48-49 (“When the City files a civil 

action in a common pleas court to collect delinquent wage taxes, and the taxpayer 

never appealed the assessment for the wage taxes to the Board, all defenses against 

the tax assessment which should have been raised before the Board are waived and, 

thus, may not be interposed against the City’s collection action.”). Lerner did not file a 

response to the City’s motion in limine.

5

 The trial court granted the City’s motion, 

thereby precluding Lerner from challenging the assessment of his tax liability at trial. 

On June 26, 2013, the parties proceeded to a bench trial. Denise Reynolds, a 

revenue collection manager with the Philadelphia Department of Revenue, testified for 

the City. When asked how the City determines net business income if a taxpayer 

refuses to submit the necessary records, Reynolds candidly replied that her supervisor 

“really just makes [it] up.” N.T. at 43-44. At the conclusion of trial, the court awarded 

the City $280,772.67, which included principal liability of $74,907, $85,828.05 in

interest, and $120,037.62 in penalties. N.T. at 11. Although the City’s tax assessment 

was, as the trial judge characterized it, “basically an amount pulled out of the sky,” the 

trial court concluded that Lerner had waived his right to challenge that assessment 

when he failed to timely petition the Board for review. Id. at 259-60, 265 (“Since the 

failure to strictly pursue the administrative remedy precludes parties from subsequently 

 

5

Lerner responded to an earlier motion in limine that the City filed. In that motion, 

the City argued that Krug precluded Lerner from challenging the underlying tax 

assessment. See Memorandum in Support of the City’s Motion In Limine, 8/8/2012, at 

4-6. In his response to the City’s motion, Lerner argued only that the City’s business tax 

assessment “is grossly and transparently defective,” and that he never received a copy 

of the original assessment. See Lerner’s Response to the City’s Motion In Limine, 

8/24/2012, at 3-7. At no point did Lerner discuss or attempt to distinguish Krug. 
[J-95-2016] - 6

asserting defense[s] to a claim, [Lerner] cannot raise defenses here because he did not 

raise it at the administrative level.”); see Krug, supra. 

Lerner filed a post-trial motion, wherein he argued that the “judgment in this 

matter is not supported by substantial evidence and is against the weight of the 

evidence.” See Lerner’s Post-Trial Motion, 7/8/2013, at ¶10. Lerner chose to focus on

this issue even though the trial court itself agreed that the City’s assessment lacked 

evidentiary support. Lerner never asserted that the trial court erred in granting the 

City’s motion in limine, nor did he take issue with the trial court’s reliance upon Krug. 

After the court denied his post-trial motion, Lerner filed a notice of appeal and a

concise statement of errors complained of on appeal pursuant to Pa.R.A.P. 1925(b). In 

his concise statement, Lerner simply incorporated by reference the issue that he raised 

in his post-trial motion, to wit, whether the City’s tax assessment was supported by 

substantial evidence. In its Rule 1925(a) opinion, the trial court again cited Krug and 

explained that “the validity of the assessment and whether [Lerner] is liable for the 

delinquent taxes are no longer [at] issue because [Lerner] waived his right to challenge 

them.” Trial Court Op., 10/22/2013, at 10. 

On appeal to the Commonwealth Court, Lerner argued for the first time that the 

trial court’s reliance upon Krug was misplaced. Specifically, Lerner now decided to 

assert on appeal that a taxpayer who fails to exhaust his or her administrative remedies 

may nonetheless challenge a tax assessment in a subsequent collection action when 

the taxing authority’s own evidence demonstrates that the assessment has no basis in 

fact. Although Lerner espouses the same argument before this Court, he has not 

preserved it. See Pa.R.A.P. 302(a) (“Issues not raised in the lower court are waived 

and cannot be raised for the first time on appeal.”). In Commonwealth v. Hill, 16 A.3d 

484 (Pa. 2011), we reaffirmed the well-settled, bright-line rule:
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[A]ny issues not raised in a Rule 1925(b) statement will be deemed 

waived; the courts lack the authority to countenance deviations from the 

Rule’s terms; the Rule’s provisions are not subject to ad hoc exceptions or 

selective enforcement; appellants and their counsel are responsible for 

complying with the Rule’s requirements[.] 

Id. at 494.

In granting the City’s motion in limine, the trial court determined that Lerner had 

waived his right to challenge the underlying tax assessment by failing to exhaust his 

administrative remedies. At the trial court level, Lerner never argued that Krug was 

inapposite or that an exception to the exhaustion requirement applied. Rather, Lerner 

consistently asserted—before, during, and after trial—that the City’s tax assessment 

lacked an evidentiary basis. See, e.g., Lerner’s Post-Trial Motion, 7/8/2013, at ¶3

(arguing that “the assessment that [the City] prepared and forwarded to [Lerner] was a 

figure that they simply made up and had no basis in any evidence”). But now, on 

appeal before this Court, Lerner argues that his failure to exhaust his administrative 

remedies within the Department of Revenue did not prevent him from challenging the 

City’s tax assessment. It could not be more obvious that these are utterly distinct 

contentions. The former is a substantive challenge to the City’s assessment, whereas 

the latter concerns the trial court’s jurisdiction to hear such a challenge in the first place. 

By failing to comply with Rule 1925(b), Lerner waived the issue that he now requests 

this Court to address. 

The trial court correctly precluded Lerner from challenging the City’s assessment 

due to his failure to exhaust administrative remedies. It is well-settled that a party may 

not seek judicial resolution of a dispute until he or she has exhausted available 

administrative remedies. Canonsburg Gen. Hosp. v. Dep’t of Health, 422 A.2d 141, 144 

(Pa. 1980); see 1 Pa.C.S. § 1504 (providing that statutory remedies “shall be strictly 

pursued”); S.E. Penna. Transp. Auth. v. City of Philadelphia, 101 A.3d 79, 90 (Pa. 

2014) (citing Bayada Nurses, Inc. v. Commonwealth, Dep’t of Labor and Indus., 8 A.3d 
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866, 875 (Pa. 2010)). In light of this rule, we have explained that “[a] taxpayer who 

does not exhaust the remedy provided before an administrative board to secure the 

correct assessment of a tax [] cannot thereafter be heard by a judicial tribunal to assert 

its invalidity.” Commonwealth, to Use of Unemployment Compensation Fund v. Lentz, 

44 A.2d 291, 293 (Pa. 1945) (quoting Gorham Mfg. Co. v. State Tax Comm. of New 

York, 266 U.S. 265, 269-70 (1924)); see Commonwealth, Dep’t. of Rev., Bureau of Cty. 

Collections v. Hitzelberger, 214 A.2d 223, 226 (Pa. 1965) (finding taxpayers lost right to 

challenge imposition of tax where they failed to pursue available statutory remedy). 

Essentially, Lerner urges us to craft a special exception for him. Appellant’s Brief 

at 19. We decline to do so. To afford Lerner relief would permit litigants freely to skip 

the administrative process and attempt another bite at the tax apple in our trial courts. 

Given sufficiently troubling factual circumstances, this “Lerner Exception” could 

be invoked to justify a party’s non-compliance with virtually any substantive, procedural, 

or jurisdictional rule. In Krug, for example, a taxpayer alleged that he did not owe 

Philadelphia wage taxes because he neither worked nor lived in the City. Lerner’s 

rationale would seem necessarily to suggest that Krug was wrongly decided. But the 

holding in Krug was correct. And it was correct for the same reason that the lower 

courts in this case were correct: the Philadelphia Tax Review Board has exclusive 

original jurisdiction over challenges to the City’s tax assessments. Cherry v. City of 

Philadelphia, 692 A.2d 1082, 1084 (Pa. 1997) (citing Phila. Code § 19-1702(1)). A 

taxpayer may not choose to forego, flout, or leapfrog that process and instead simply 

opt later to seek judicial resolution of a waived challenge at his leisure. 

Lerner asserts that reversal is necessary to prevent a “fraud” in the legal process.

See Appellant’s Brief at 18-19. But that process consists of rules, and Lerner has 

flouted them at every turn. Throughout this litigation, Lerner has violated court orders, 
[J-95-2016] - 9

abused the discovery process, and overwhelmed the lower courts with frivolous 

pleadings, motions, and interlocutory appeals. Ad hoc and idiosyncratic exceptions to 

legal rules will not promote public confidence or maintain the integrity of the judicial 

process.

Because Lerner has waived the issue that he now requests this Court to review, 

the Order of the Commonwealth Court is affirmed.

Justices Baer, Dougherty and Mundy join the opinion.

Chief Justice Saylor files a dissenting opinion in which Justices Todd and 

Donohue join.

Justice Donohue files a dissenting opinion in which Chief Justice Saylor and 

Justice Todd join.