IN THE COMMONWEALTH COURT OF PENNSYLVANIA

City of Lebanon, Jonestown Borough, :

North Cornwall Township, North :

Lebanon Township, North Londonderry :

Township, Northern Lebanon School :

District, Palmyra Area School District, :

South Lebanon Township, South :

Londonderry Township, Swatara :

Township, Union Township, and West :

Lebanon Township :

:

v. :

:

Cornwall Borough, Heidelberg :

Township, North Annville Township, :

West Cornwall Township, and :

Bethel Township :

:

v. :

:

Lebanon County Earned Income Tax :

Bureau :

:

Appeal of: Cornwall Borough, :

Heidelberg Township, West Cornwall : No. 2419 C.D. 2015

Township, and Bethel Township : Argued: September 13, 2016

BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge

HONORABLE P. KEVIN BROBSON, Judge (P.)

HONORABLE ANNE E. COVEY, Judge

OPINION NOT REPORTED

MEMORANDUM OPINION BY 

JUDGE COVEY FILED: October 6, 2016

Cornwall Borough, Heidelberg Township, West Cornwall Township and 

Bethel Township (collectively, Appellant Municipalities)1appeal from the judgment

 

1 North Annville Township did not participate in this appeal.
2

entered on November 9, 2015 in favor of Appellees City of Lebanon, Jonestown 

Borough, North Cornwall Township, North Lebanon Township, North Londonderry 

Township, Northern Lebanon School District, Palmyra Area School District, South 

Lebanon Township, South Londonderry Township, Swatara Township, Union 

Township, and West Lebanon Township (collectively, Appellee Municipalities) and 

the judgment entered on November 19, 2015 in favor of Appellant Municipalities 

against the Lebanon County Earned Income Tax Bureau (Bureau),

2

following the 

Lebanon County Common Pleas Court’s (trial court) October 30, 2015 order denying 

Appellant Municipalities’ Motion for Post Trial Relief.

3

There are four issues before 

this Court: (1) whether the trial court improperly relieved Appellee Municipalities of 

their burden of proof and erroneously relied upon flawed data and imprecise 

estimates; (2) whether the trial court erred by awarding pre-judgment interest to 

Appellee Municipalities at a 6% interest rate; (3) whether the trial court erred by

failing to award Appellant Municipalities recovery against the Bureau for the costs 

Appellant Municipalities will be required to pay back to Appellee Municipalities; 

and, (4) whether the trial court failed to properly apply general equitable principles. 

After review, we affirm.

In 1967, the six Lebanon County School Districts created the Bureau 

pursuant to the Local Tax Enabling Act4(LTEA) to collect and distribute earned 

income tax payments for its six member school districts. Thereafter, all twenty–six 

Lebanon County municipalities that levied an earned income tax used the Bureau for 

such services. The Bureau was governed by a six-person Executive Committee 

 

2 Appellant Municipalities appeal from the judgment entered in their favor because they 

contend that the damages awarded against the Bureau were inadequate.

3

“[A]n appeal properly lies from the entry of judgment, not from the denial of post-trial 

motions.” Gold v. Rosen, 135 A.3d 1039, 1040 n.1 (Pa. Super. 2016).

4 Act of December 31, 1965, P.L. 1257, as amended, 53 P.S. §§ 6924.101–6924.901.
3

(Executive Committee), comprised of one representative from each of the six school 

districts. 

The Bureau’s Executive Director Donald Foltz, Jr. (Foltz) managed the 

Bureau’s banking activities and possessed the authority to write checks on the 

Bureau’s behalf. Additionally, at Foltz’s direction, the Bureau implemented a system 

to distribute earned income tax revenues to member school districts and 

municipalities. 

In 2006, the Bureau’s Executive Committee investigated the Bureau’s 

operations, and retained the Boyer & Ritter accounting firm to review the Bureau’s 

accounting procedures and internal controls. Based upon deficiencies identified by 

Boyer & Ritter in a report issued on March 7, 2007, Foltz was placed on 

administrative leave that day. On March 14, 2007, Foltz’s employment was 

terminated.

Shortly thereafter, the Bureau discovered that, between 2002 and 2006, 

Foltz deposited $895,676.15 of tax revenues into an account for his personal use, and 

wrote checks from that account to himself in an amount totaling $811,000.00. The 

Bureau recovered $80,409.30 in remaining funds from the account. On March 30, 

2007, Foltz committed suicide. The Bureau’s insurer reimbursed the Bureau for the 

$811,000.00 theft by Foltz, less a $10,000.00 deductible. 

In March 2007, the Bureau engaged certified public accountant Nancy 

Moran (Moran) to serve as the Bureau’s Interim Executive Director. Moran found 

the Bureau’s operations in complete disarray. She observed that some employees 

were using Xerox boxes as work space, and discovered that the Bureau’s computer 

system was an antiquated DOS-based system. She further learned that Foltz had paid 

some employees extra-payroll compensation. In addition, she uncovered that Foltz 

had not paid distributions to out-of-county tax bureaus for non-resident tax income 
4

that the Bureau had collected on their behalf. Thus, the Bureau owed $1.95 million to 

out-of-county governmental entities as of November 2007.

On December 18, 2007, Moran issued a public report containing 

preliminary concerns she and the Bureau staff identified regarding quarterly earned 

income tax revenue distributions to school districts and municipalities between 2004 

and 2007. Specifically, Moran was worried that the Bureau’s computer system was 

“hard-wired” with incorrect percentages that were used to calculate distribution 

reports. In addition, Moran believed that Foltz had made “round number” 

adjustments to distributions. Finally, Moran suspected that the Bureau’s computer 

system did not correctly calculate shared income tax revenue in instances where 

particular municipalities and school districts did not equally split that tax revenue. 

Moran emphasized that these concerns were based upon preliminary information 

then-available, and that further investigation would be required.

In response to Moran’s public report, the Lebanon County school 

districts and municipalities all agreed that a more detailed investigation should be

conducted to determine the extent of the alleged overpayments and underpayments 

from 2004 through 2007. In July 2008, at the behest of the Lebanon County school 

districts and municipalities, including all parties to the instant litigation, the Bureau 

engaged the accounting firm of McKonly & Asbury, LLP (M&A) to investigate and 

report on the Bureau’s overpayments and underpayments from 2004 through 2007.

Because the Bureau did not possess adequate and accurate records of

individual taxpayer tax payments for the relevant years, M&A was unable to recreate 

the necessary tax data using Bureau records alone. Information relating to income tax 

returns - including the returns themselves and supporting detail, such as W-2 forms or 

employer reconciliations - did not exist in the Bureau’s records; and, employer 

submissions were incomplete, lacking the individual-level data that was supposed to 
5

accompany quarterly and/or end-of-the-year tax payments.5 While it was standard 

protocol for the Bureau’s clerks to send deficiency letters to employers, deficiencies 

were frequently not cured because employee-level detail was not provided and, thus,

never entered into the Bureau’s computer system.

6

M&A obtained the Department of Revenue PA-40 (PA-40) data for each 

of the Lebanon County school districts, which identified taxpayers by name and 

social security numbers, and also identified their annual compensation as reported to 

the Commonwealth. However, the PA-40 data included income reported to the

Commonwealth that is not taxable for earned income tax purposes.

Beginning in the third quarter of 2008, all Lebanon County school 

districts and municipalities agreed that the Bureau should contract Keystone 

Collections Group (Keystone) to take over the collection and disbursement of 

Lebanon County earned income taxes. Pursuant to its contract with the Bureau, 

Keystone collected taxes for the Lebanon County school districts and municipalities 

through the end of 2009.7 

 

5 Under Foltz’s direction, files and documents were untidy, disorganized and sometimes 

missing. Bureau employee Lynn Ratcliffe (Ratcliffe) observed what she believed was the shredding 

of 2006 earned income tax records. On Moran’s March 2007 visit to the Bureau’s office, she 

observed multiple black trash bags containing shredded documents, and trays, copier paper boxes

and trash bags containing tax returns and census mailings from prior years addressed to Lebanon 

County residents that the Bureau had never sent. On occasion, Bureau employees encountered 

situations where the Bureau’s records showed that earned income tax payments had not been made, 

but the taxpayers reported making payments and their checks had cleared. Further, Ratcliffe 

recalled that, at times during Foltz’s tenure, the Bureau did not enter into the computer employeelevel detail employers submitted, or it was entered and later deleted and the hard copies were 

destroyed.

6

The Bureau’s computer maintained a Lebanon County taxpayer roll by tax year that 

identified taxpayers by their social security numbers and municipalities. Bureau employees 

regularly updated the taxpayer roll based on information taxpayers submitted with their earned 

income tax returns. The taxpayer roll was also updated regularly based on information taxpayers 

submitted with their per capita taxes and real estate taxes.

7 As a result of Act 32 of 2008, effective January 1, 2010, the collection of earned income 

taxes within Lebanon County became the responsibility of the Lebanon County Tax Collection 

Committee (the TCC), and the Bureau no longer was responsible for such collection. Keystone 
6

M&A provided its initial report on January 22, 2009; however, the initial 

report did not include any data for 2007. In October 2009, all Lebanon County 

school districts and municipalities, including the parties to this litigation, directed the 

Bureau to engage M&A to provide an updated analysis of the payments made by the 

Bureau from 2004 through 2006, as well as 2007. M&A issued an updated report on 

March 17, 2010 (M&A Report). The M&A Report relied on the Bureau’s taxpayer 

roll, and the PA-40 data M&A had obtained.

According to the M&A Report, the following school districts and 

municipalities were underpaid from 2004 through 2007: Annville Township 

$11,996.40; City of Lebanon $1,447,958.54; Jonestown Borough $166,503.09; North 

Cornwall Township $315,164.25; North Lebanon Township $822,264.07; North 

Londonderry Township $587,268.05; Northern Lebanon School District $107,236.24; 

Palmyra Area School District $859,018.57; South Lebanon Township $459,635.34; 

South Londonderry Township $529,205.07; Swatara Township $166,457.74; Union 

Township $159,455.69; and West Lebanon Township $62,135.66. 

The M&A Report also found that other school districts and 

municipalities had been overpaid from 2004 through 2007, as follows: AnnvilleCleona School District $500,523.00; Bethel Township $70,571.51; Cleona Borough

$43,806.82; Cornwall Borough $1,056,677.45; Cornwall-Lebanon School District 

$384,926.28; East Hanover Township $186,941.80; Eastern Lebanon County School 

District $1,171,005.50; Heidelberg Township $766,830.89; Jackson Township 

$47,838.69; Lebanon School District $326,089.11; Millcreek Township $941.76; Mt. 

Gretna Borough $219,053.91; Myerstown Borough $44,387.37; North Annville 

Township $275,413.94; Palmyra Borough $129,669.20; Richland Borough 

 

continued collecting earned income taxes for the Lebanon County political subdivision after 

January 1, 2010, pursuant to an appointment by the TCC.
7

$26,312.78; South Annville Township $313,720.28; and West Cornwall Township 

$129,588.44.

Thirteen of the 18 overpaid political subdivisions agreed to return the

overpayments, and were permitted to make repayments over time without interest 

pursuant to a voluntary settlement known as the “Grumbine Plan.” Appellant 

Municipalities refused to return the overpayments identified in the M&A Report.

On June 20, 2012, Appellee Municipalities filed an action against

Appellant Municipalities alleging violations of the LTEA, unjust enrichment, 

constructive trust and conversion. The Honorable Bradford H. Charles held a fourday bench trial. The parties stipulated to many of the facts, and the trial focused 

primarily on the M&A Report’s reliability and accuracy. Both Appellant 

Municipalities and Appellee Municipalities presented expert testimony and reports,

and limited factual testimony. The trial court appointed a forensic accountant to 

conduct an independent analysis and critique the methodology applied in the M&A 

Report.

On July 15, 2015, the trial court issued a thorough, well-reasoned and 

well-written 75-page Adjudication and Opinion (July 15, 2015 Opinion), clearly 

laying out the complex factual history and fully explaining the trial court’s legal 

reasoning. The trial court ruled in favor of Appellee Municipalities on their unjust 

enrichment, constructive trust and LTEA claims, and in Appellant Municipalities’ 

favor on their claims against the Bureau. The trial court directed Appellant 

Municipalities to return the Bureau’s overpayments as calculated in the M&A Report,

and, on September 25, 2015, after a subsequent hearing, awarded Appellant 

Municipalities pre-litigation fees and expenses as against the Bureau. 

On October 5, 2015, Appellant Municipalities filed a motion for posttrial relief which the trial court denied by October 30, 2015 opinion and order
8

(October 30, 2015 Opinion).

8

 Appellee Municipalities and Appellant Municipalities

filed praecipes for entry of judgment. On November 9, 2015 and November 19, 

2015, the trial court entered the judgments. Appellant Municipalities appealed to this 

Court.9

Appellant Municipalities first argue that Appellee Municipalities failed 

to meet their burden of proof in establishing their damages, and that the trial court 

improperly shifted the burden of proof. We disagree.

Appellee Municipalities presented significant expert testimony to 

establish their right to recovery. In a 12-page discussion in its July 15, 2015 Opinion, 

the trial court addressed the evidence and its consideration thereof, described its

rationale for accepting the M&A Report’s analysis, and referenced the testimony of 

M&A’s principal Samuel Bowercraft (Bowercraft).

10

 

“As the finder of fact, the trial court has exclusive authority to weigh the 

evidence, make credibility determinations and draw reasonable inferences from the 

evidence presented.” Barylak v. Montgomery Cnty. Tax Claim Bureau, 74 A.3d 414, 

417 (Pa. Cmwlth. 2013). This Court “may not reweigh the evidence and substitute 

our judgment for that of the fact-finder.” Swift v. Dep’t of Transp., 937 A.2d 1162, 

1167 n.5 (Pa. Cmwlth. 2007). 

 

8 Notably, the trial court’s October 30, 2015 Opinion individually addressed the same issues 

currently before this Court. It discussed and dismissed each argument by referencing specific 

portions of its July 15, 2015 Opinion.

9

This Court has explained: 

Our standard of review of a non-jury trial is to determine whether the 

findings of the trial court are supported by competent evidence, and 

whether an error of law was committed. In reviewing this matter, our 

court may not reweigh the evidence and substitute our judgment for 

that of the fact-finder. A challenge to the sufficiency of the evidence 

is a question of law requiring a plenary scope of review.

Swift v. Dep’t of Transp., 937 A.2d 1162, 1167 n.5 (Pa. Cmwlth. 2007) (citations omitted).

10 Bowercraft was primarily responsible for developing the M&A Report.
9

Here, relative to Bowercraft, the trial court specifically stated:

For nearly one full day, we listened to Bowercraft testify 

about his methodology. In the process, we watched 

Bowercraft respond to the criticisms hurled by [Appellant 

Municipalities]. The more we listened to Bowercraft’s 

testimony, the more we were impressed by his grasp of data 

analytics and the application of his expertise to the difficult 

assignment of reconstructing how taxes should have been 

distributed in Lebanon County between 2004 and 2007. 

The bottom line is that we found Bowercraft’s testimony 

to be credible.

July 15, 2015 Op. at 35 (emphasis added). The trial court further explained:

Perhaps more important than any other factor, we have been 

given information that would enable us to ‘test’ the M&A 

analysis by comparing it with what everyone has agreed is 

accurate data created by Keystone. Specifically, we have 

been given Keystone’s actual distribution figures for the 

years 2009 through 2012. Because no one has questioned 

the accuracy of Keystone’s data analytics, we view the 

Keystone distributions between 2009 and 2012 to be the 

‘gold standard’ by which earned income tax should be 

distributed in Lebanon County. This conclusion is 

bolstered by the fact that [both parties’ experts, and the 

court appointed forensic accountant] all relied upon the 

Keystone data in one way or another[.]

Id. at 38 (emphasis added). We will not disturb these findings. With respect to the 

certainty of damages, we find that the trial court’s legal analysis is sound. As this 

Court held in Merrell v. Chartiers Valley School District, 51 A.3d 286 (Pa. Cmwlth. 

2012):

[M]ere uncertainty as to the amount of 

damages will not bar recovery where it is clear 

that damages were the certain result of the 

defendant’s conduct. . . . The basis for this 

rule is that the breaching party should not be 

allowed to shift the loss to the injured party 

when, damages, even if uncertain in amount, 
10

were certainly the responsibility of the party in 

breach.

Spang & Co. [v. United States Steel, Co.], . . . 545 A.2d

[861,] 866 ([Pa.] 1988) [(quoting Pugh v. Holmes, . . . 405 

A.2d 897, 910 ([Pa.] 1979))]. If the evidence provides a 

reasonably fair basis for calculating damages, it is legally 

sufficient to support an award of damages. 

Merrell, 51 A.3d at 299.11

Because the Court agrees with the trial court’s in-depth discussion and 

analysis of the evidence, we adopt the trial court’s opinion as it pertains to the 

sufficiency of Appellee Municipalities’ evidence in meeting their burden of proof and 

establishing their damages. Accordingly, we conclude that Appellant Municipalities’ 

argument is without merit.

With respect to Appellant Municipalities’ argument that the trial court 

improperly shifted the burden of proof, the trial court explained in its October 30, 

2015 Opinion:

 

11 This Court previously explained:

The question of the sufficiency of evidence to establish damages has 

been considered in various contexts and almost without exception it 

has been held that although ‘guesses’ and ‘mere speculations’ are not 

permitted, ‘estimates’ which have a basis in reason are legally 

sufficient. See Smail v. Flock, . . . 180 A. 2d 59 ([Pa.] 1962); 

Weinglass v. Gibson, . . . 155 A. 439 ([Pa.] 1931); Osterling v. Frick, . 

. . 131 A. 250 ([Pa.] 1925). In the Osterling case, . . . it was stated 

that ‘. . . while damages . . . cannot be based on a mere guess or 

speculation, yet, where the amount may be fairly estimated from the 

evidence, a recovery will be sustained even though such amount 

cannot be determined with entire accuracy.’ [Id. at] 251. In the 

Weinglass case, . . . the court stated ‘. . . where there is a basis in the 

evidence for a reasonable computation of the damages suffered 

considering the nature of the transaction, a verdict may be based 

thereon, though there may be involved some uncertainty about it. . . .’ 

[Id. at ] 440.

Burly Constr. Corp. v. Commonwealth, 284 A.2d 841, 844-45 (Pa. Cmwlth. 1971) (emphasis 

added).
11

[Appellant Municipalities] argue that we abused our 

discretion by shifting the burden of proof to them. Nothing 

could be further from the truth. . . . [W]e spent 12 full 

pages addressing why we determined the M&A analysis to 

be credible. We specifically concluded that [Appellee 

Municipalities] proved all of the elements of unjust

enrichment, constructive trust, and the LTEA (see pages 46, 

48 and 50 [of the trial court’s opinion]). While we did 

factually note that [Appellant Municipalities] failed to 

proffer any credible alternative to the M&A analysis, we 

never overtly or implicitly shifted [Appellee 

Municipalities’] burden of proof to [Appellant 

Municipalities].

October 30, 2015 Op. at 2-3. The trial court’s October 30, 2015 Opinion accurately

described the trial court’s analysis and confirms that it did not improperly shift the 

burden of proof. Accordingly, we reject Appellant Municipalities’ argument and 

adopt the trial court’s opinion as it pertains thereto.

Next, Appellant Municipalities assert that the trial court erred “as a 

matter of law and abused its discretion” by awarding pre-judgment interest at a 6% 

interest rate.

12 Appellant Municipalities’ Br. at 34. We disagree.

[Our Superior Court] has approved [] the award of pre[-

]judgment interest in particular cases:

While the general rule is that a successful 

litigant is entitled to interest beginning only on 

the date of the verdict, it is nonetheless clear 

that pre-judgment interest may be awarded 

‘when a defendant holds money or property 

which belongs in good conscience to the 

plaintiff, and the objective of the court is to 

force disgorgement of his unjust enrichment.’

Kaiser v. Old Republic Ins. Co., 741 A.2d 748, 755 (Pa. 

Super. 1999) (quoting Dasher v. Dasher, . . . 542 A.2d 164, 

164-65 ([Pa. Super.] 1988)). Pre-judgment interest ‘in such 

 

12 Notably, Appellant Municipalities’ brief does not contain any legal argument supporting 

its contention that the trial court erred as a matter of law by awarding 6% interest.
12

cases is a part of the restitution necessary to avoid 

injustice.’ [Dasher, 542 A.2d at 165].

In re Estate of Alexander, 758 A.2d 182, 190 (Pa. Super. 2000). Further:

The determination of whether to award pre-judgment 

interest and the rate of such interest is left to the sound 

discretion of the trial court in equity. A court of equity is 

not limited to awarding merely the statutory rate of 

interest,[13]but may award interest above the statutory rate. 

‘The fairest way for a court [to make such determination] is 

to decide questions pertaining to interest according to a 

plain and simple consideration of justice and fair dealing.’

Murray Hill Estates, Inc. v. Bastin, . . . 276 A.2d 542, 545 

([Pa.] 1971) (quoting McDermott v. McDermott, . . . 196 A. 

889[, 890] ([Pa. Super.] 1938)).

Gurenlian v. Gurenlian, 595 A.2d 145, 148 (Pa. Super. 1991) (emphasis added;

citations omitted). 

“A trial court abuses its discretion when it misapplies the law, or when 

its decision is ‘manifestly unreasonable’ and not a mere error in judgment.” Prince 

George Ctr. v. U.S. Gypsum Co., 704 A.2d 141, 146 (Pa. Super. 1997). Specifically, 

‘. . . an abuse of discretion exists if the trial court renders a 

judgment that is [plainly] unreasonable, arbitrary or 

capricious, fails to apply the law, or was motivated by 

partiality, prejudice, bias or ill will.’ [Commonwealth v. 

Snyder, 977 A.2d 28, 41 (Pa. Cmwlth. 2009).] ‘If the 

 

13 Section 8101 of the Judicial Code states: “Except as otherwise provided by another 

statute, a judgment for a specific sum of money shall bear interest at the lawful rate from the date of 

the verdict or award, or from the date of the judgment, if the judgment is not entered upon a verdict 

or award.” 42 Pa.C.S. § 8101. As set forth in Section 202 of the Act of January 30, 1974, P.L. 13, 

as amended;

Reference in any law or document enacted or executed heretofore or 

hereafter to ‘legal rate of interest’ and reference in any document to 

an obligation to pay a sum of money ‘with interest’ without 

specification of the applicable rate shall be construed to refer to the 

rate of interest of six per cent per annum.

41 P.S. § 202.
13

record supports the trial court’s reasons and factual basis, 

the court did not abuse its discretion.’ Id.

Grine v. Cnty. of Centre, 138 A.3d 88, 93 (Pa. Cmwlth. 2016).

In the instant matter, the trial court correctly recognized that 

[s]ince 2007, [Appellee Municipalities] have been deprived 

of money they could have used or invested. The corollary

is that [Appellant Municipalities] enjoyed the benefit of 

monies that they either used to earn interest/investment 

income or provide municipal services for which they 

otherwise would have had to tax their citizens. 

July 15, 2015 Op. at 57. The trial court further explained that it considered different 

ways of calculating the pre-judgment interest, identifying three potential methods of 

such calculations: (1) the legal rate of interest at 6% per annum; (2) a 2.6% blended 

investment income average as measured by Forbes Magazine between 2005 and 

2015; and, (3) “the percentage increase [in] the Standard and Poor’s Fortune 500 

index between January 1, 2008 [] and June 30, 2015 [] which, on average, generated a 

8.9% return on investment per annum.” July 15, 2015 Op. at 58. The trial court 

fashioned three comparison charts depicting the differences between the three 

approaches, and based its decision to apply a 6% interest rate on the following:

(1) The statutory rate of interest in this Commonwealth is 

set at 6%. [See] 41 P.S. § 202.

(2) While our appellate courts have not established any hard 

and fast rules for pre[-]judgment interest, there is at least 

some precedent for an award of 6% legal interest. 

Pittsburgh Const[r]. Co. v. Griffith, 834 A.2d 572 (Pa.

Super. 2003); Daset Mining Corp. v. Indus[.] Fuels Corp., 

473 A.2d 584, 595 (Pa. Super. 1984). In fact, our Superior

Court specifically approved a 6% rate of pre[-]judgment 

interest in a constructive trust context. See [Gurenlian].

(3) Investment markets have been extremely volatile since 

January 1, 2008. For the first several years following 

[Foltz’ employment] termination, the stock market, the 

bond market and the real estate market all plummeted. 
14

Since 2010, the stock and bond markets have rebounded, 

and have even reached unprecedented levels. Not so with 

the real estate market. Because of the volatility of the 

investment markets over the past seven and one-half years, 

selecting any accurate gauge of investment income would 

be difficult[.]

(4) lf we were to select some sort of investment-driven 

measure of interest, powerful arguments would be available 

to contravene our selected measure. In our research to 

identify ten year investment averages, we identified 

numerous options. . . . Some were no doubt driven by 

‘puffing’ designed to motivate sales and were as high as 

25%. Others, like the Forbes Magazine estimate, were 

much lower. A few closely approximated the 6% legal rate 

that we have chosen. Given the lack of any generallyaccepted data on investment income, we perceive that our 

‘safe’ option is the legal rate of 6%.

July 15, 2015 Op. at 60-61. 

The trial court exercised its discretion as it was permitted to do, 

reasonably considering various options to reach a decision on a fair interest rate given

the particular circumstances before it. Nothing in the trial court’s opinion 

demonstrates an abuse of that discretion, and we will not intrude on the trial court’s 

exercise thereof absent such abuse. Accordingly, Appellant Municipalities’ 

arguments cannot stand.

14

Appellant Municipalities next contend that the trial court erred when it 

denied them recovery against the Bureau for the costs Appellant Municipalities will 

be required to pay back to Appellee Municipalities. We disagree.

 

14 We note that Appellee Municipalities briefed the pre-judgment interest issue in their trial 

brief and requested judgment at the legal rate in their proposed and revised verdict slips. However, 

Appellant Municipalities did not address the interest rate issue until they filed their post-trial 

motion. Thus, there is no record evidence supporting Appellant Municipalities’ argument that the 

6% interest rate is excessive.
15

The trial court explained:

[Appellant Municipalities] are not entitled to be

‘compensated’ for the money that was wrongfully 

distributed to them by the Bureau because [Appellant 

Municipalities] were never entitled to possess and retain 

those funds in the first place. Stated differently, [Appellant 

Municipalities] are not entitled to be ‘compensated’ by the 

Bureau for monies that actually belonged to [Appellee 

Municipalities]. In fact, if we were to require that the

Bureau pay [Appellant Municipalities] for the amount of the 

overpayments that were retained, the net result would create 

a windfall for [Appellant Municipalities]. Equity would not 

sanction such a result.

Several Pennsylvania cases have recognized that when a 

defendant is required to repay funds to which he had no 

right, title or interest, the mere fact of repayment does not 

‘harm’ that defendant. In Donner v. Sacket, 97 A. 89 (Pa. 

1916), the Pennsylvania Supreme Court stated that ‘the

[d]efendant will sustain no damage if he is compelled to 

repay [money mistakenly received]. In all good conscience 

[the plaintiffs] are entitled to it; with no good conscience 

can [the defendant] hold onto it, and the law requires him to 

return it.’ Id. at 90. Similarly, in Greenwich Bank v. 

Commercial Banking Corp., 85 Pa. Super. 159 [] ([]1924), a 

defendant was required to return a mistaken double 

payment. In that context, the court noted:

Negligence in making a mistake does not 

deprive a party of his remedy on account

thereof [for the return of a mistaken double

payment]; it is the fact that one by mistake

unintentionally pays money to another to 

which the latter is not entitled from the former,

that gives the right of action. Especially so, in 

view [of] the fact that the [d]efendant will 

sustain no damage if compelled to repay the 

money; nor be placed in a worse condition than

if the money had not been paid. 

[Id. at 163], citations omitted.[] More recently, the 

Pennsylvania Superior Court declared in an insurance 

dispute that the requirement to repay funds mistakenly 

received will not be characterized as a ‘loss.’ In South 
16

Central Employment Corp. v. Birmingham Fire Ins[urance]

Co., 926 A.2d 977 (Pa. Super. 2007), the Court stated that 

‘even where inadvertently acquired, money or property that 

has to be returned does not belong to the [party possessing 

it] and therefore the [party] has not suffered a loss.’ Id. at 

982.

In this case we do not believe that [Appellant 

Municipalities] have suffered ‘harm,’ ‘loss’ or ‘damage’ by

being required to repay the overpaid funds that never should 

have been received in the first place. Because it would not 

be legally correct or equitably justifiable to award 

‘compensatory’ damages to [Appellant Municipalities] for 

the amount of overpayments, we will reject [Appellant 

Municipalities’] request to recover all such overpayments 

from the Bureau.

July 15, 2015 Op. at 70-72.

Appellant Municipalities argue that the trial court erred in denying them 

compensatory damages and rely on Brubaker v. County of Berks, 112 A.2d 620 (Pa. 

1955) for the proposition that where a third party is required to return improperly held 

funds, the third party may seek recovery “against an additional defendant that caused 

the problem.” Appellant Municipalities’ Br. at 43. However, Brubaker is 

distinguishable from the instant matter. There, Berks County Treasurer Moyer 

(Moyer) deposited monies he received from Brubaker for the purchase of a property 

into his account as County Treasurer.15 When Moyer’s term expired, his accounts 

were settled and found to be balanced, but Moyer died without having applied 

Brubaker’s payment to the intended transaction. Brubaker sued Berks County for 

unjust enrichment seeking return of the monies. Berks County, in turn, sued Moyer’s 

estate and was permitted recovery. Unlike the instant case, Moyer’s acts deprived 

both Brubaker and Berks County of the funds. Thus, when Berks County was 

required to return the funds, it was likewise permitted to recover the equivalent 

 

15 “No one questions the fact of Moyer’s embezzlement or breach of trust.” Brubaker, 112 

A.2d at 624 (Jones, J., concurring).
17

amount from Moyer since Moyer had subsequently deprived Berks County of those 

funds. In the instant action, Appellant Municipalities were not subsequently deprived 

of the overpayments they wrongly obtained. They are merely being required to return 

funds they were never entitled to receive. Accordingly, we cannot agree with 

Appellant Municipalities that the trial court erred when it denied them recovery 

against the Bureau for the costs Appellant Municipalities will be required to pay back 

to Appellee Municipalities, and we adopt the trial court’s opinion with respect 

thereto.

Finally, Appellant Municipalities maintain that the trial court 

erroneously failed to apply equitable principles, and failed to limit Appellee 

Municipalities’ recovery under the doctrine of unclean hands. We disagree.

The trial court began its July 15, 2015 Opinion:

Given a choice between rough but imperfect justice and 

gross inequity created in part by corruption, we will choose

the former every time. . . .

. . . .

[Thus,] we will redistribute over three million dollars in tax 

revenue plus interest from municipalities that were overpaid 

by the corruption-ridden [Bureau] to taxpayers in 

municipalities who were shortchanged for a period of four 

years.

Id. at 2-3.

Appellant Municipalities allege:

The application of ‘rough but imperfect justice,’ frankly, 

confirms that . . . Appellee Municipalities did not prove 

their case, forcing the trial court to rely upon shoddy 

calculations in manufacturing an award of damages. 

Moreover, there was no evidence to establish that ‘gross 

inequity’ would have occurred because . . . Appellee 
18

Municipalities failed to prove with any accuracy the actual 

extent of any improper disbursements.

Appellant Municipalities’ Br. at 45. 

To the contrary, the trial court considered the M&A Report and the 

testimony supporting the analysis therein. It employed its own independent expert to 

evaluate M&A’s methods in determining the amounts of over and underpayments. 

Although the trial court acknowledged that the M&A Report’s results were not exact, 

the evidence demonstrated that the trial court’s award was not based on “shoddy 

calculations,” but was instead grounded on accepted forensic accounting methods.

Appellant Municipalities’ Br. at 45. Such evidence meets the requirements set forth 

in Merrell and Burly Construction Corp. v. Commonwealth, 284 A.2d 841 (Pa. 

Cmwlth. 1971). Finally, the trial court thoroughly explained its findings and 

rationale in its opinion, and we need not revisit those here. Based thereon, we 

conclude that the remedy fashioned by the trial court was fair, reasonable and 

appropriate.16

 

16 Our Supreme Court has explained:

The historic distinction between a court of law and a court of equity is 

the ability of the latter tribunal to fashion a remedy based upon 

considerations of fairness, justness, and right dealing in a particular 

situation as contrasted with the strictly formulated rules of common 

law. The chancellor in equity was expected to consider all 

circumstances and interests of affected parties and was given broad 

discretion to effectuate a remedy reflecting an equitable balancing of 

those considerations. Subrin, How Equity Conquered Common Law, 

135 U.Penn L.Rev. 909, 920 (1985). In the early days of the equity 

courts, bills in equity could be filed to avoid forcing a dispute into 

‘narrow cubbyholes’ and to protect a petitioner from the alleged 

injustice that would result from ‘a rigorous application of the common 

law.’ Id. at 918.

Armstrong Sch. Dist. v. Armstrong Educ. Ass’n, 595 A.2d 1139, 1141 n.2 (Pa. 1991).
19

Appellant Municipalities further assert that the trial court erred because 

it did not bar or limit Appellee Municipalities’ recovery based on the unclean hands 

doctrine, given Appellee Municipalities’ failure to reconcile their receipts of earned 

income tax revenue as statutorily required.

A court may deprive a party of equitable relief where, to the 

detriment of the other party, the party applying for such 

relief is guilty of bad conduct relating to the matter at issue. 

The doctrine of unclean hands requires that one seeking 

equity act fairly and without fraud or deceit as to the 

controversy in issue. 

Terraciano v. Dep’t of Transp., Bureau of Driver Licensing, 753 A.2d 233, 237-38 

(Pa. 2000) (citation omitted). “[T]he application of the doctrine to deny relief is 

within the discretion of the chancellor, and in exercising his discretion the 

chancellor is free not to apply the doctrine if a consideration of the entire record 

convinces him that an inequitable result will be reached by applying it.” Stauffer v. 

Stauffer, 351 A.2d 236, 245 (Pa. 1976) (emphasis added).

Here, the trial court explained:

In this case, the Bureau could certainly have been deemed 

to possess ‘unclean hands,’ but we will not impugn 

[Appellee Municipalities] with any taint from the Bureau. 

There is absolutely no evidence in this case that [Appellee 

Municipalities] acted fraudulently or even knowingly with 

respect to the distribution of funds by the Bureau.

We specifically reject [Appellant Municipalities’] argument 

that [Appellee Municipalities’] ineffective audit and 

reconciliation process should be equated with fraud, deceit 

or bad faith. In this regard, we clearly recall the testimony 

of [accountant, Cheri] Freeh [(Freeh)], who was the expert 

witness most familiar with auditing and reconciliation of tax 

collection agencies.[17] Freeh testified that while local 

 

17 Freeh was a witness for Appellant Municipalities. She is a principal in an accounting 

firm, but admitted that she is not qualified to conduct a financial reconstruction such as the one at 

issue in this matter. The trial court found that Freeh “has a wealth of experience in auditing of tax 
20

municipalities are required to conduct periodic 

reconciliations of tax receipt records, ‘in reality, most 

school districts and municipalities rely upon the 

reconciliation of the taxing agency and its auditor.’ They 

do this because it would be impossible for political 

subdivisions to conduct a proper reconciliation because the 

tax collector – not the local agencies - possessed the actual 

records.

On multiple occasions and in several contexts, Freeh

emphasized that the type of audit reconciliation completed 

by governmental entities is typically far less strenuous than 

the audits that are required of the tax collection agency. In 

fact, Freeh even testified that while the Bureau’s auditor 

should have discovered problems at the Bureau, she would 

not have expected a governmental agency audit to have 

detected what was going wrong at the Bureau.

We must also recognize that, to the extent [Appellant 

Municipalities] argue that greater oversight should have 

been undertaken by [Appellee Municipalities], they must 

look in a mirror at their own conduct. It is certainly 

arguable that every single Lebanon County political 

subdivision should have more actively participated in 

oversight of the Bureau. This includes [Appellee 

Municipalities]; it also includes [Appellant Municipalities]. 

For us to hold today that [Appellee Municipalities] are 

guilty of ‘unclean hands’ for improper oversight of the 

Bureau would be to punish [Appellee Municipalities] for 

conduct that was identical to that of [Appellant 

Municipalities]. Equity would not sanction such a result.

July 15, 2015 Op. at 54-55.

It is clear that the trial court, in its discretion, carefully considered the 

doctrine of unclean hands and the various parties’ roles in the events leading to the 

instant litigation. Based on the record evidence, the trial court acted well within its 

authority when it declined to apply the doctrine. Thus, Appellant Municipalities’ 

argument fails.

 

collection agencies such as [the] Bureau[, and] has unique experience with respect to local

government taxation.” July 15, 2015 Op. at 21.
21

For all of the above reasons, the judgments are affirmed.

___________________________

ANNE E. COVEY, Judge
IN THE COMMONWEALTH COURT OF PENNSYLVANIA

City of Lebanon, Jonestown Borough, :

North Cornwall Township, North :

Lebanon Township, North Londonderry :

Township, Northern Lebanon School :

District, Palmyra Area School District, :

South Lebanon Township, South :

Londonderry Township, Swatara :

Township, Union Township, and West :

Lebanon Township :

:

v. :

:

Cornwall Borough, Heidelberg :

Township, North Annville Township, :

West Cornwall Township, and :

Bethel Township, :

:

v. :

:

Lebanon County Earned Income Tax :

Bureau :

:

Appeal of: Cornwall Borough, :

Heidelberg Township, West Cornwall : No. 2419 C.D. 2015

Township, and Bethel Township Board :

O R D E R

AND NOW, this 6

th day of October, 2016, the Lebanon County 

Common Pleas Court’s November 9, 2015 and November 19, 2015 judgments are 

affirmed.

___________________________

ANNE E. COVEY, Judge