Court Opinion

ID: 7801366
Source: CourtListenerOpinion
Date Created: 2022-08-17 16:11:55.314098+00
Date Added: 2024-06-11T16:29:16.422056
License: Public Domain

J-A12005-22

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

    MELVIN W. SMITH BUILDING                   :   IN THE SUPERIOR COURT OF
    SYSTEMS, LLC                               :        PENNSYLVANIA
                                               :
                       Appellant               :
                                               :
                                               :
                v.                             :
                                               :
                                               :   No. 1158 WDA 2021
    BEDFORD COUNTY HUMANE                      :
    SOCIETY

               Appeal from the Order Entered September 3, 2021
                In the Court of Common Pleas of Bedford County
                           Civil Division at 1030-2018

BEFORE:      MURRAY, J., McCAFFERY, J., and COLINS, J.*

MEMORANDUM BY MURRAY, J.:                            FILED: AUGUST 17, 2022

        Melvin W. Smith Building Systems, LLC (Appellant), appeals from the

order granting the motion to compel discovery filed by Bedford County

Humane Society (BCHS), in this action involving an alleged breach of contract.

We affirm in part and reverse in part.

        On October 2, 2018, Appellant filed a complaint against BCHS pleading

breach of contract, unjust enrichment, and conversion. Appellant, a general

contracting company, claimed it had entered into a contract with BCHS in

August 2017, for Appellant to construct a building for BCHS (the project).

____________________________________________

*   Retired Senior Judge assigned to the Superior Court.
J-A12005-22

Appellant alleged BCHS breached the contract prior to Appellant’s completion

of   the   project,1   causing     Appellant     to   incur   monetary   damages   of

approximately $80,000.

       On October 22, 2018, BCHS filed an answer, new matter and

counterclaim. BCHS denied breaching the contract and asserted, “[Appellant]

would have received the sixth and seventh draws according to the draw

schedule based upon [Appellant’s] work completion status. [Appellant] had

not reached the required target levels at the time” and ceased work on the

project. Answer, 10/22/18, at ¶ 17; see also id. at ¶ 19 (claiming Appellant

“had not substantially completed [its] obligations under the contract.”).

       Following proceedings not relevant to this appeal, on March 8, 2021,

BCHS sent Appellant interrogatories and a request for production of

documents.2 BCHS asked Appellant to produce, in pertinent part, “a complete

____________________________________________

1 The parties’ agreement provided that BCHS would pay Appellant in seven
installments (or “draws”) throughout the project. Appellant claimed BCHS’s
breach caused Appellant to incur as damages, (1) the cost of certain
construction materials; and (2) “[l]oss of the sixth and seventh draws in the
amount of … $76,000.00[.]” Complaint, 10/2/18, at ¶ 18(a).

2The document is not in the certified record. However, BCHS attached a copy
of its interrogatories and request for production of documents to an application
BCHS filed with this Court. See Application to Quash Appeal, 11/19/21, Ex.
B; see also N.T. (motion to compel discovery hearing), 8/24/21, at 3 (counsel
submitting the March 8, 2021, document to the court). Additionally, the trial
court explained it was “limited in our discussion of this missing document[.]”
Supplemental Opinion, 7/22/22, at 2.

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copy of all business and personal tax returns,[3] … including federal, state

and local [taxes], you filed for every year in which you worked on this project.”

Interrogatories and Request for Production of Documents, 3/8/21, at 15

(unnumbered) (emphasis and footnote 3 added). BCHS also sought copies of

Appellant’s Internal Revenue Service tax forms 1099 and W-2 (collectively,

IRS forms), pertaining to Appellant’s payments to employees and/or

independent contractors involved in the project. Id.

       Appellant filed an answer and objections to BCHS’s discovery requests

on May 13, 2021 (Discovery Answer).4 Appellant objected to BCHS’s request

for tax documents and IRS forms, asserting:

       This request is not relevant to any claim or defense and therefore
       [is] beyond the scope of permissible discovery. The request also
       seeks information that is protected information (bank account
       numbers, balances, social security numbers).

Discovery Answer, 5/13/21, at ¶ 14 (see Appellant’s Reproduced Record at

56(a)); see also id. at ¶ 15 (providing same).

____________________________________________

3BCHS sought the personal tax returns of Appellant’s owner, Melvin W. Smith
(Mr. Smith). Mr. Smith is not a party to this action.

4 The Discovery Answer is not in the certified record. However, Appellant
included it in the reproduced record.          But see Commonwealth v.
Bracalielly, 658 A.2d 755, 763 (Pa. 1995) (“appellate courts may only
consider facts which have been duly certified in the record on appeal. An item
does not become part of the certified record by simply copying it and including
it in the reproduced record.” (citations omitted)); see also Twp. of N.
Fayette v. Guyaux, 992 A.2d 904, 905 n.2 (Pa. Super. 2010) (“It is the
obligation of the appellant to make sure that the record forwarded to an
appellate court contains those documents necessary to allow a complete and
judicious assessment of the issues raised on appeal.” (citation omitted)).

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      On June 7, 2021, BCHS filed a motion to compel discovery. Regarding

BCHS’s request for documents related to Appellant’s “business and personal

tax returns,” BCHS asserted:

      The documents requested are related to the damages claimed by
      [Appellant] and are therefore relevant. The requests do not ask
      for sensitive information and any such information that exists on
      the documents could be redacted.

Motion to Compel Discovery, 6/7/21, at ¶ 13.

      The trial court held a hearing on BCHS’s motion to compel discovery on

August 24, 2021. By order entered September 3, 2021 (Discovery Order),

the trial court granted the motion to compel. Regarding BCHS’s request for

Appellant’s and Mr. Smith’s tax documents and IRS forms, the court ordered

Appellant to produce the documents within 30 days.

      Appellant timely filed a notice of appeal, followed by a court-ordered

Pa.R.A.P. 1925(b) statement, raising nine claims of trial court error. The court

issued a brief Rule 1925(a) opinion, concluding its Discovery Order “disposed

solely of discovery issues and, as such, was not a final order but rather an

interlocutory one” that is not appealable. Trial Court Opinion, 12/17/21, at 1

(citing Commonwealth v. Nicodemus, 636 A.2d 1118, 1120 (Pa. Super.

1993) (“a final [o]rder is one which ends the litigation or disposes of the entire

case.”)). Accordingly, the trial court suggested this Court quash Appellant’s

appeal as interlocutory. Id. at 2.

      On November 19, 2021, BCHS filed in this Court an application to quash,

arguing the Discovery Order was not appealable because it was neither final

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nor collateral. See generally Application to Quash, 11/19/21; see also In

re Estate of Moskowitz, 115 A.3d 372, 388 (Pa. Super. 2015) (explaining a

party is only permitted to appeal from: “(1) a final order or an order certified

as a final order (Pa.R.A.P. 341); (2) an interlocutory order as of right

(Pa.R.A.P. 311); (3) an interlocutory order by permission (Pa.R.A.P. 312,

1322; 42 Pa.C.S. § 702(b)); or (4) a collateral order (Pa.R.A.P. 313).” (citation

omitted)).5 BCHS asserted:

       Allowing appeals each time a party requests tax returns from the
       opposing party in breach of contract actions would result in the
       corrosion [of] the final order rule. Discovery requests for the tax
       returns of a party during relevant times of an action is common
       because it is often relevant. They are especially relevant when[,
       as in the instant case,] there is a claim for breach of contract in
       which a plaintiff claims a loss of income as a result of the breach.
       If this Court were to take a collateral appeal each time a party
       does not want to turn over tax returns in discovery, it would
       amount to a needless burden on the Court and cause undue delays
       of countless cases at the Common Pleas level.

Brief in Support of Application to Quash, 11/19/21, at 15 (unnumbered).

       Appellant filed an answer to the application to quash on November 29,

2021, claiming the Discovery Order was immediately appealable as a collateral

order. On January 6, 2022, this Court denied BCHS’s application to quash

without prejudice to its right to raise the issue before the merits panel.

____________________________________________

5 It is undisputed that the Discovery Order is not a final order, as it does not
dispose of all claims and all parties. Also, Appellant did not request or receive
permission to appeal the Discovery Order pursuant to Pa.R.A.P. 312.

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      On May 10, 2022, this panel considered oral argument from the parties

with respect to Appellant’s four issues on appeal:

      1. Is a discovery order compelling the disclosure of tax returns
         and tax information of a non-party to a lawsuit a collateral
         order, thus appealable as of right?

      2. Is an order requiring a limited liability company to produce
         personal and business tax returns with related forms irrelevant
         to any claim or defense where they only relate to work that
         was completed and paid for in a claim for breach of contract
         seeking money damages; the work extended for two months
         in one year and three months in the second year; and the
         recoverable damages are the difference between the contract
         price and the reasonable cost of completion of the job?

      3. Are the payroll expenses and documents for work that was
         completed and paid for irrelevant to any claim or defense
         where the recoverable damages are the difference between the
         contract price and the reasonable cost of completion and an
         accounting of the same an unreasonable burden [sic] to impose
         upon the contractor?

      4. Is it an unreasonable burden to require a contactor to
         determine and identify what work was done and the cost of
         materials and labor between the payment of past draws that
         are not at issue where the recoverable damages are the
         difference between the remaining contract price and the
         reasonable cost of completion of the job?

Appellant’s Brief at 2-3 (issues renumbered).

      On May 20, 2022, this panel issued a non-precedential memorandum.

With respect to Appellant’s first issue, we agreed with Appellant and held the

Discovery Order was immediately appealable as a collateral order where, inter

alia, BCHS sought discovery of private information from Mr. Smith, a non-

party. Melvin W. Smith Bldg. Sys., LLC v. Bedford Cnty. Humane Soc’y,

No. 1158 WDA 2021, 2022 WL 1594552 (Pa. Super. filed May 20, 2022)

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(unpublished memorandum at *6-10). With respect to Appellant’s remaining

three issues, however, we were constrained to hold that the trial court’s brief

Pa.R.A.P. 1925(a) opinion was inadequate, and thus we were unable to

meaningfully address these issues.      See id. at *10-12.      Accordingly, we

remanded to the trial court, and retained jurisdiction for the preparation of a

supplemental Pa.R.A.P. 1925(a) opinion. Id. at *12.

      The trial court filed its supplemental opinion on July 22, 2022

(Supplemental Opinion). Accordingly, we address Appellant’s second, third

and fourth issues, mindful of our standard of review: “[O]n review of an order

concerning discovery, an appellate court applies an abuse of discretion

standard.” McNeil v. Jordan, 894 A.2d 1260, 1268 (Pa. 2006).

      An abuse of discretion is not merely an error of judgment, but if
      in reaching a conclusion the law is overridden or misapplied, or
      the judgment exercised is manifestly unreasonable, or the
      judgment is the result of partiality, prejudice, bias or ill-will, as
      shown by the evidence of record, discretion is abused.

LSF8 Master Participation Tr. v. Petrosky, 271 A.3d 1288, 1291 (Pa.

Super. 2022) (citation and brackets omitted).

      We further observe,

      [t]he purpose of the discovery rules is to prevent surprise
      and unfairness and to allow a fair trial on the merits. Generally,
      discovery is liberally allowed with respect to any matter,
      not privileged, which is relevant to the cause being tried.

Brandywine v. Brandywine Vill. Assocs., 260 A.3d 179, 195 (Pa. Super.

2021) (emphasis added; citations omitted); see also Pa.R.E. 401 (“Evidence

is relevant if: (a) it has any tendency to make a fact more or less probable

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than it would be without the evidence; and (b) the fact is of consequence in

determining the action.”). It is settled that a “trial court is in the best position

to weigh fairly the competing needs and interests of parties affected by

discovery.” Dougherty v. Heller, 138 A.3d 611, 629 (Pa. 2016) (citation

omitted).

      Pennsylvania Rule of Civil Procedure 4011(b), governing the limitation

and scope of discovery, provides:

      No discovery … shall be permitted which

            (a) is sought in bad faith;

            (b) would     cause       unreasonable   annoyance,
            embarrassment, oppression, burden or expense to the
            deponent or any person or party;

            (c) is beyond the scope of discovery as set forth in Rules
            4003.1 through 4003.6;

            ….

            (e) would require the making of an unreasonable
            investigation by the deponent or any party or witness.

Id.; see also Pa.R.C.P. 4003.1 (scope of discovery generally).

      In its second issue, Appellant claims the trial court erred in entering the

Discovery Order and improperly compelling Appellant’s production of private

information that is not relevant.     See Appellant’s Brief at 12-15. We first

address Appellant’s challenge as it pertains to discovery of Mr. Smith’s

personal tax returns. Appellant emphasizes that Mr. Smith is not a party to

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the action, and his “personal tax returns have no relevance to any claim or

defense in the case.” Id. at 13.

      The trial court, in its Supplemental Opinion, conceded error:

      [I]n regards to the personal tax returns of [Mr.] Smith, we agree
      with Appellant that we erred in ordering their production. Mr.
      Smith is not a named party to the action and we are unaware of
      any showing at this point that his personal tax returns would be
      reasonably calculated to lead to the discovery of admissible
      evidence. Accordingly, it is our opinion that the portion of our
      [Discovery O]rder requiring the production of Mr. Smith’s personal
      tax returns should be reversed.

Supplemental Opinion, 7/22/22, at 2 (footnote omitted).        We agree, and

therefore reverse the Discovery Order, in part, insofar as it implicates

discovery of Mr. Smith’s personal tax returns.

      Appellant further claims in its second issue that the trial court erred in

permitting discovery of its business tax returns. Appellant’s Brief at 14-15;

see also id. at 12 (stating Appellant “was prevented from completing the

contract, and thus earning the last two draws, due to [BCHS’s] repudiation of

the contract.”).   Appellant asserts the “disclosure of tax returns would not

produce any relevant information but only require the unnecessary disclosure

of [Appellant’s] financial information over a two-year period for work that

occurred in two and three months of those years, respectively.” Id. at 14.

      The trial court rejected Appellant’s claim in its Supplemental Opinion,

cogently reasoning:

      Appellant’s tax returns are clearly relevant on the issue of
      damages. In the Complaint, Appellant requests damages in the
      amount of $80,500.00, which is primarily the remaining draws

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       that were unpaid under the contract. Essentially, [Appellant]
       seeks an amount of damages as if the contract[, and the project,]
       had been completed.       However, under basic contract law,
       [Appellant] cannot receive a windfall from a breached contract,
       and should only be placed in as good a position if the contract had
       not been breached.[6] Since it appears that substantial work
       still was uncompleted at the time of the beach (regardless
       of which party was at fault), it follows that Appellant did
       not incur expenses that [it] would have had the [project]
       been completed. Whether it be materials, subcontractors, or
       other expenses, Appellant would not have received the
       remaining draws from BCHS without incurring further
       expenses. And, Appellant’s tax returns would be relevant
       in demonstrating whether Appellant did, or did not, incur
       said expenses.

Supplemental Opinion, 7/22/22, at 2-3 (emphasis and footnote 6 added). Our

review discloses that the court’s reasoning is supported by the record and the

law. Thus, there is no merit to Appellant’s claim that the court abused its

discretion in permitting discovery of Appellant’s business tax returns. See

Brandywine, 260 A.3d at 195, supra (discovery is liberally allowed with

respect to any relevant matter that is not privileged).

       Appellant also argues in connection with its second issue that the trial

court abused its discretion in “order[ing] the production of W-2 and 1099 [IRS]

forms for payment to third parties relating to the project,” where the IRS

forms “do not contain relevant information because what [Appellant] paid its

____________________________________________

6 The Pennsylvania Supreme Court has stated, “[g]enerally speaking, the
measure of damages applicable in a case of breach of contract is that the
aggrieved party should be placed as nearly as possible in the same position
he would have occupied had there been no breach.” Harman v. Chambers,
57 A.2d 842, 845 (Pa. 1948) (citing Purdy v. Massey, 159 A. 545, 547 (Pa.
1932)).

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employees … for work that was completed and paid for is simply not relevant

to any claim or defense in the case.” Appellant’s Brief at 15.

      BCHS counters it

      sought with this [discovery] request to determine whether
      [Appellant] was losing money on the [project] due to underbidding
      or mismanaging the funds. W-2s and 1099s, while perhaps not
      as targeted as BCHS would like because they include full-year
      income for the recipients instead of the income directly
      attributable to the [project], would serve to substantiate the truth
      of any information provided in the answer to BCHS’s request for
      documents related to labor costs[.]

BCHS Brief at 12; see also BCHS’s Answer, 10/22/18, at ¶ 17(b) & (d)

(claiming Appellant misrepresented that it was “an experienced contractor,

familiar with the bidding and building process,” but thereafter “walked off the

job,” potentially due to underbidding).

      In its Supplemental Opinion, the trial court rejected Appellant’s claim,

finding the IRS forms “to be relevant to the issue of damages[.]”

Supplemental Opinion, 7/22/22, at 4; see also id. at 2-3, supra. The court

found,

      [p]erhaps more so than Appellant’s tax returns, this
      information would be highly relevant as to what expenses
      Appellant did and did not incur at the time of the alleged
      breach, and would thereby be necessary for calculation of
      damages.

Id. at 4 (emphasis added). We agree, and discern no abuse of the court’s

discretion in permitting discovery of Appellant’s IRS forms. For the foregoing

reasons, Appellant’s second issue fails.

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         In its third issue, Appellant claims the trial court abused its discretion in

ordering “the production of documents of [Appellant’s] past labor costs and

an accounting of them,” where “such discovery is irrelevant to any claim or

defense and requires an unduly burdensome investigation to be conducted[.]”

Appellant’s Brief at 15 (capitalization omitted); see also id. at 15-16

(claiming the court improperly “ordered [Appellant] to provide a copy of all

checkbook le[d]gers, bank statements and cancelled checks evidencing any

and all compensation paid to other individuals or entities regarding” the

project). Appellant argues the “cost incurred by [Appellant] for work that was

completed and paid for is not relevant to the computation of damages.” Id.

at 16.

         BCHS    argues   that   “documentation     [of   Appellant’s]    labor   costs

associated with [the project] … to determine whether [Appellant] was losing

money on the job due to underbidding or mismanagement of funds” was

“relevant to which party breached the contract.” BCHS’s Brief at 12. BCHS

claims Appellant seeks as damages the sixth and seventh “draws” for

completion of the project ($76,000), “which are the remaining payments

under the contract, without any adjustment for [Appellant’s] costs to complete

the project.” Id. at 13; see also id. (claiming “BCHS hired Greentree Builders

to complete the majority of the construction after [Appellant] left the jobsite

and [BCHS] paid Greentree Builders alone $65,504.67.”).                  Finally, BCHS

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claims its discovery “request is not overly burdensome because [Appellant’s]

ordinary business records would contain the requested information.” Id.

     The trial court rejected this claim. The court “found this information to

be relevant to the issue of damages,” for the same reasons the court advanced

the above reasoning “regarding Appellant’s tax returns.”          Supplemental

Opinion, 7/22/22, at 4. Mindful of our deferential standard of review, see

McNeil, supra, as well as our evaluation of the record before us, we cannot

discern any abuse of the court’s discretion.      See also In re Estate of

Renwick v. Renwick, 248 A.3d 577, 580 (Pa. Super. 2021) (“[a]n abuse of

discretion is not lightly found, as it requires clear and convincing evidence

that the trial court misapplied the law or failed to follow proper legal

procedures,” and a “reviewing court will not usurp the trial court’s fact

finding function.” (emphasis added; citations and quotations omitted)).

Further, we find BCHS’s argument persuasive, and cannot conclude its

discovery request would be unduly burdensome. See also Pa.R.C.P. 4011(b),

supra.

     In its fourth and final issue, Appellant argues the trial court,

     erred in ordering [Appellant] to determine and identify what work
     was preformed [sic] at specific time periods relating to the third
     through fifth draws[,] where [BCHS] terminated the contract after
     the fifth draw and did not allege any breaches due to the timing
     of the work.

Appellant’s Brief at 17 (capitalization omitted).      Appellant contends the

“requested information is beyond the scope of discovery because it is not

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relevant to any claim or defense and requires an unreasonable forensic

investigation by [Appellant,]” which would be “unduly burdensome.” Id.

     BCHS contends this discovery request is not unduly burdensome and

pertains to relevant information. BCHS’s Brief at 14. BCHS claims “[t]his

information would allow BCHS to … provide relevant evidence of [Appellant’s]

motive to breach the contract,” which, BCHS suggests, could be attributable

to Appellant “losing money” on the project.     Id.   BCHS asserts that the

information could prove Appellant’s “[f]ailure throughout the contract to

complete work on time,” which “will demonstrate … whether [Appellant’s]

failure to complete these items constituted a breach of the contract.” Id.

     The trial court rejected Appellant’s argument, reasoning:

     [Appellant claims] we erred in ordering Appellant to “determine
     and identify what work was completed, the costs of materials, and
     the cost of labor” from between the third and sixth draws.
     Appellant argues that said information is irrelevant until the time
     frame of the sixth and seventh draws. We disagree. In BCHS’s
     Counterclaim, BCHS avers that, at the time of the fourth draw
     payment, Appellant was to have all remaining building materials
     on site. BCHS also avers that Appellant had not provided these
     materials at the time of the fourth draw and subsequently
     removed the materials that were on site. Based upon our reading
     of the pleadings, we believe the work completed by Appellant (as
     well as Appellant’s cost of materials and labor) at the time of the
     third draw onward is directly at issue. Therefore, we found BCHS’s
     request for interrogatories for said information to be relevant and
     subject to discovery.

Supplemental Opinion, 7/22/22, at 4-5 (citations, footnote, and ellipses

omitted). Upon review, we again discern no abuse of discretion in permitting

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this discovery, and find the trial court’s rationale to be supported by the

record. Appellant’s final issue does not merit relief.

      Consistent with the foregoing, we reverse the Discovery Order insofar

as it compels production of Mr. Smith’s personal tax returns.   In all other

respects, we affirm.

      Order affirmed in part and reversed in part. Case remanded for further

proceedings. Jurisdiction relinquished.

      Judge Colins joins the memorandum.

      Judge McCaffery files a concurring/dissenting memorandum statement.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 08/17/2022

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