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 Townsh ip, 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 a nd
Bethel Township (collectively, Appellant Municipalities) 1 appeal 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, Norther n 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 i n 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 Ther e 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

- jud g men t interest to
Appellee Municipalities at a 6% interest rate; (3) whether the trial court erred by

fail ing to award Appellant Municipalities recovery against the Bureau for the costs
Appellant Municipalities will be required to pay back to Appellee Municipa lities ; 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 Act 4 (LTEA) to collect and dis tribute earned
income tax payments for its six member school districts. Thereafter , all twenty

– six

Lebanon County municipalities that levied an earned income tax us ed the Bureau for
such services. The Bureau was governed by a six

- person Executive Committ ee

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

conte nd 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 investigat ed the Bureau’s
operations

, and re tained the Boyer & Ritter accounting firm t o 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 there after, t he Bureau discovered that

, b etween 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 w ork 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 income4

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

pr eliminary 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

- wi red” 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 ca lculate 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 inves tigation 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 underpaymen ts

f rom 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

rep ort on the Bureau’s overpayments and underpayments f rom 2004 through 2007.

B ecause 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 us ing Bureau records alone. I nformation 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 to5

accompany quarterly and/or end

- of

- the

- y ear tax payments. 5 While it was standard
protocol for the Bureau ’ s clerks to send deficiency letters to employers, deficiencies

were frequently not cured becau se 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

socia l 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 th e Bureau,
Keystone collect ed taxes for the Lebanon County school districts and municipalities
through the end of 2009. 7

5 U nder 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 Le banon 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 ha d cleared. Further, Ratcliffe recall ed that

, at times during Foltz ’ s tenure
, the Bureau did not enter into the computer employee

level detail employers submitted, or it was entered and later deleted and the hard copies were destroyed.

6 The Bureau ’ s compu ter maintain ed 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. Keystone6 M&A provided its initial report on January 22, 2009 ; however, the initial
report did not include any data for 2007. In October 2009, a ll 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 taxp a yer
roll, and the PA

- 40 data M&A had obtained.

According to the M &A Report, the following school districts and
municipalities were underpaid f rom 2004 through 200 7: A nnville 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 ;

Pa lmyra 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

.

T he M&A Report also found that other scho ol districts and
municipalities had been overpaid f rom 2004 through 2007

, as follows : Annville

Cleona 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 subdivisio n 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 ag reed 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.

O n 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 four

day bench trial. The parties st ipulated 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

. T he 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 Mun icipalities ’

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
Municip alities pre

- litigation fees and expenses as against the Bureau

.

On October 5, 2015, Appellant Municipalities filed a motion for post

trial relief which the trial court denied by October 30 , 2015 opinion and order8

(October 30 , 2015 Opinion)

. 8 Appellee M unicipalities and Appellant Municipalities
filed praecipes for entry of judgment. On November 9, 2015 and November 1 9

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

Court. 9

Appellant Municipalities first argue th at Appellee Municipalities failed

to meet their burden of proof in establish ing their damages , and that the trial court
improperly shifted the burden of proof. We disagree.

Appell ee Municipalities presented significant expert testimony to

establish the ir right to recover y

. 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 referenc ed the testimony of
M&A’s princi pal Samuel Bowercraft (Bowercraft)

. 10

“As t he 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 Cla im 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 O pinion individually addressed the same issues currently before this Court. I t discussed and dismissed each argument by referencing specific port ions 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 reviewin g 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 116 2 , 1167 n.5 (Pa. Cmwlth. 2007) (citations omitted).

10 Bowercraft was primarily responsible for developing the M&A Report.9 Here, r elative to Bowercraft, t he trial court specifically stat ed :
For nearly one full day, we listened to Bowercraft testify about his methodology. I n the process, we watched Bow ercraft 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 c omparing 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 analyti cs, 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 forens ic accountant] all relied upon the Keystone data in one way or another[.]

Id

. at 38 (emphasis added)

. We will not disturb these findings. W ith respect to the
certainty of damages , w e find that the trial court’s legal analysis is sound. As this

Court held in Merrell v. Chartiers Valley Sch ool Dis trict , 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 th is 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

Beca use the Court agree s 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

establish ing 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:

T he question of the sufficiency of evidence to establish damages has been considered in various con texts 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. Gibso n , . . . 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 f rom 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 t he 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) (empha sis 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 spe cifically 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 ] fail ed to proffer any credible alternative to the M&A analysis, we

never o vertly or implicitly shifted [Appellee Municipalities’] burden of proof to [Appellant Municipalities].

October 30 , 2015 Op. at 2

- 3. T he trial court’s October 30 , 201 5 Op inion accurately

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

. Accordingly, we reject Appellant Munic i palities’ 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 propert y which belongs in good conscience to the plaintiff, and the objective of the court is to force disgorg ement 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 err ed 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

it s 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 [pl ainly] 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 p rovided 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. A s set forth in Section 202 of the Act of January 30, 1974, P.L. 13, as amended ;

R eference 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 factua l 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 citizen s.
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% r eturn 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 C onst [ r ] . Co. v. Griffith , 834 A.2d 572 (Pa. Sup e r. 2003); Daset Mining Corp. v. Indus [

. ] Fuels Corp.

, 473 A. 2 d 584, 595 (Pa. Super. 1984). I n fact, our Superior Court specifically approved a 6% rate of pre [

- ] judgment interest in a constructive trust conte xt. See [ Gurenlian ]

. (3) I nvestment 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 2 01 0 , 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 inve stment 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 identif ied 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 t he lack of any generally

accepted 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 optio ns 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 w e will not intrude on the trial court’s

exercise thereof absent such abuse . A ccordingly, 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 W e 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 support ing Appella nt Municipalities ’ argument that the 6% interest rate is excessive

.15 The trial court explained:

[Appellant Municipalities] a re not enti t led to be

‘ compensated ’ for the money that was wrongfully distributed to them by the Bureau because [Appellant Municipalities] were never entitled to posses s and retain those funds in the first place. Stated differently, [Appellant Municipalities] are not entitled to be ‘ compensated ’ by the B ureau for monies that actually belonged to [Appellee Municipalities]

. I n 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 resu l t.

S everal Pennsylvania cases have recognized that when a de fendant is required to repay funds to which he had no right, ti t le or interest, the mere fact of repayment does not

‘ harm ’ that defendant

. I n Donner v. Sa c ke t
, 97 A. 89 (Pa. 1916), the Pennsylvania Supreme Court stated that ‘ the [d] efendant will sustain n o damage if he is compelled to repay [money mistakenly received]. In all good conscience [ the p laintiffs] are entitled to it; with no good conscience

can [ the d efendant] hold onto it, and the law requires him to return it. ’ Id . at 90. Similarly, in Gree nwich 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 th at the requirement to repay funds mistakenly received will not be characterized as a ‘ loss. ’ In South16 Central Employment Corp. v. Birmingham Fire Ins [ urance ] Co. , 926 A.2d 977 (Pa. Super. 2007), the Court stated that

‘ even where inadvertently acquired, mo ney 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 M unicipalities] for the amount of overpayme nts, we will reject [Appellant Municipalities’] request to recover all such overpayments from the Bureau.

July 15, 2015 Op. at 70

- 7 2

.

Appellant Municipalities argue that the trial court erred in denying them
compensatory damages and rely on Brubaker v. Co unty 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

esta te 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 62 4 (Jones, J., concurring).17

amount from Moyer sin ce 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

. T hey are merely being required to return
funds they were never entit led 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 ad opt 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 ev ery time.

. . .

. . . . [Thus,] we will redistribute over thr ee 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 appl ication 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 esta blish that ‘gross inequity’ would have occurred because

. . . Appellee18 Municipalities failed to prove with any accuracy the actual extent of any improper disbursements.

Appellant Municipalities’ Br. at 45.

To the contrary, t he trial court considered the M&A R eport 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 w ere not exact, the evidence demonstrated that the trial court’s award was not based on “shoddy
calculations,” but was instead ground ed on accepted forensic accounting methods.
Appellant Municipalities’ Br. at 45. Such evidence meets the requirements set forth

in Merrell and Burly Constr uction Corp. v. Commonwealth , 284 A.2d 841 (Pa.
Cmwlth. 1971)

. Finally, t he trial court thoroughly explained its findings and
rationale in its opinion, and we need not revisit those here. Based thereon , w e

conclude that t he remedy fashioned by the trial court was fair, reasonable and
appropriate. 16

16 Our Supreme Court has explained:

The historic distinction b etween 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 la w. 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 ap plication of the common law.’ Id . at 918.
Armstrong Sch. Dist. v. Armstrong Ed uc . 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 A ppellee 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 ba d 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 , 23 7

- 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

con vinces him that an inequitable result will be reached by applying it. ” Stauffer v.
Stauffer , 351 A.2d 236, 245 (Pa. 1976) (emphasis added)

.

Here, t he trial court explained:

In this case, the Bureau could certainly have been deemed to possess ‘unclean han ds,’ but we will no t 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, Ch eri] 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 quali fied 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 tax20 municipalities are required to conduct periodic reconciliations of tax receipt records, ‘in rea lity, 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 th e 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 al so 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 p olitical 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 cou rt, 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, t he trial court acted well within its
authority when it declined to app ly 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, JudgeIN 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 Towns hip, 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, 201 6

, the Lebanon County

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

affirmed.

___________________________ ANNE E. COVEY, Judge