Court Opinion

ID: 2790044
Source: CourtListenerOpinion
Date Created: 2015-03-30 20:10:19.546833+00
Date Added: 2024-06-11T11:28:52.955824
License: Public Domain

J-A06043-15

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

SUNLIGHT ELECTRICAL CONTRACTING                         IN THE SUPERIOR COURT OF
CO., INC.                                                     PENNSYLVANIA

                           Appellant

                     v.

JOHN J. TURCHI, JR., TURCHI, INC.,
23S23 CONSTRUCTION, INC. AND
CARRIAGE HOUSE CONDOMINIUMS, G.P.

                           Appellees                          No. 1877 EDA 2014

                 Appeal from the Order Entered May 16, 2014
             In the Court of Common Pleas of Philadelphia County
                      Civil Division at No(s): 130201418

BEFORE: PANELLA, J., OTT, J., and JENKINS, J.

MEMORANDUM BY JENKINS, J.:                                    FILED MARCH 30, 2015

        Sunlight Electrical Contracting Co., Inc. (“Sunlight”) appeals from an

order granting summary judgment to John J. Turchi, Jr. (“Turchi”), Turchi,

Inc.,    23S23    Construction,        Inc.       (“23S23”)    and   Carriage   House

Condominiums, G.P. (“CHC GP”) (collectively “Appellees”) and dismissing all

of Sunlight’s claims “without prejudice to reassert them if permitted by the

bankruptcy court.”        The trial court determined that (1) the bankruptcy

estates of 23S23 and CHC GP (or the trustees of these estates) were

indispensable parties, and (2) because the bankruptcy estates were closed,

Sunlight had to ask the bankruptcy court for permission to re-open the

estates and join them as defendants.

                                              1
J-A06043-15

        In this appeal, Sunlight argues persuasively that the bankruptcy

estates are not indispensable parties.          Appellees do not vigorously contest

the indispensable party issue; instead, Appellees insist that Sunlight lacks

standing to bring this action.

        We reverse and remand for further proceedings. We disagree with the

trial court’s conclusion that the bankruptcy estates are indispensable parties.

Moreover, Appellees waived their argument that Sunlight lacked standing to

pursue claims against Appellees in the trial court.                 Even if Appellees

preserved this issue for appeal, we hold that Sunlight has standing to

prosecute this action.     We leave all remaining issues for the trial court to

resolve on remand.

        A detailed procedural history will lay the foundation for our decision.

Sunlight was a subcontractor at a real estate development project at 23

South     23rd    Street   in   Philadelphia    known    as   the    Carriage   House

Condominium (“the Condominium”).               The owner of the Condominium was

Carriage House Condominiums L.P. (“CHC LP”), whose general partner was

CHC GP. Turchi was the principal owner and officer of both CHC LP and CHC

GP. Turchi was also the sole owner and officer of Turchi, Inc. and 23S23.

The same attorneys represent all Appellees.

        In February 2005, Sunlight entered into a written agreement with

23S23 to perform the electrical construction on the project. The agreement

designated 23S23 as the “Construction Manager” and CHC LP as the “owner”

of the project.    Sunlight alleges that 23S23 paid some, but not all, of the

                                         -2-
J-A06043-15

money due under the subcontract and also failed to pay for additional work

that 23S23 requested Sunlight to perform, notwithstanding Turchi’s repeated

promises to make payment. 23S23 and CHC LP allegedly funneled monies

to Turchi, Inc. and Turchi that were due and owing to Sunlight.

      In December 2008, Sunlight filed a complaint in the Court of Common

Pleas of Philadelphia County (“trial court”) against Turchi and twelve other

defendants, including 23S23 and Turchi, Inc.      Sunlight asserted a federal

RICO claim against Turchi under 18 U.S.C. § 1962 based on his alleged

fraudulent schemes and unlawful use of 23S23, CHC LP and other entities in

orchestrating these schemes. In addition, Sunlight alleged state law claims

against Turchi for fraud and alter ego/veil piercing claims against 23S23 and

CHC LP in an attempt to target Turchi’s assets.      On December 16, 2008,

based on the federal RICO claim, Turchi filed a notice of removal in the

United States District Court for the Eastern District of Pennsylvania (“district

court”).

      In April 2009, 23S23 and CHC LP both filed for bankruptcy under

Chapter 11 in the United States Bankruptcy Court for the Eastern District of

Pennsylvania. The district court placed Sunlight’s case in civil suspense due

to the automatic stay arising from these bankruptcies.

      In December 2009, Sunlight moved for relief from the automatic stay

in order to pursue its claims against Turchi and the other appellees.

Appellees filed a response in opposition to Sunlight’s motion for relief, but

                                     -3-
J-A06043-15

shortly thereafter, Appellees withdrew their opposition to Sunlight’s motion.

On January 21, 2010, the Bankruptcy Court granted Sunlight leave to pursue

its claims against 23S23, CHC LP, and all non-debtor defendants, including

Turchi, in the district court.1

       In April 2012, Sunlight filed an amended complaint in the district court

against Appellees which amplified its RICO claim and alter ego/piercing

claims against Turchi. Appellees filed an answer to the amended complaint

and later moved for partial summary judgment. On January 18, 2013, the

district court granted summary judgment to Turchi on the RICO claim and

dismissed the state law claims without prejudice to Sunlight reasserting

them in state court. Sunlight Electrical Contracting Co. v. Turchi, 918

F.Supp.2d 392 (E.D.Pa.2013).

       On February 14, 2013, in accordance with the district court’s order,

Sunlight returned to the trial court and filed a complaint alleging state law

claims against Appellees.           Later in 2013, Sunlight filed an amended
____________________________________________

1
  Both bankruptcy estates later closed. On April 6, 2010, counsel for
Appellees informed the Bankruptcy Court that 23S23 had no assets. On
June 29, 2010, the Bankruptcy Court confirmed CHC LP’s plan of
reorganization and declared its debts discharged.          In July 2011, the
bankruptcy trustee entered a “report of no distribution” concerning 23S23,
stating that he “made a diligent inquiry into the financial affairs of the
debtor(s) and the location of the property belonging to the estate; and that
there is no property available for distribution from the estate over and above
that exempted by law.” In September 2012, the Bankruptcy Court entered
an order closing 23S23’s bankruptcy.

                                           -4-
J-A06043-15

complaint which included four counts: (1) an action against Turchi under the

Contractor and Subcontractor Payment Act, 73 P.S. § 501 et seq.; (2) an

action against Turchi and 23S23 for participating together in a scheme to

defraud Sunlight; (3) an action against Turchi and Turchi, Inc. for

participating together in a scheme to defraud Sunlight; and (4) an action

against Turchi for fraud.          Appellees filed an answer to the amended

complaint with new matter. In November 2013, Appellees filed a motion for

summary judgment contending, inter alia, that Sunlight lacked standing to

prosecute alter ego/veil piercing claims against Turchi -- the first time in the

five years of litigation that Appellees challenged Sunlight’s lack of standing. 2

       On May 16, 2014, the trial court entered summary judgment in favor

of Appellees. The trial court characterized Sunlight’s claims as “veil piercing”

claims and stated that these claims belonged in Bankruptcy Court:

              Such veil piercing claims against Turchi and Turchi,
              Inc. are potential assets of 23S23’s and CHC, LP’s
              bankrupt estates. However, Sunlight ... chose not to
              pursue such claims in the bankruptcy court where
              they belong, nor to do so on behalf of all similarly
              situated creditors.    Instead, [Sunlight] asserted
              individual claims seeking the repayment of the
              allegedly stolen sums directly and only to it.

              The point of a bankruptcy proceeding is not to shield
              a swindler from the reach of those he duped. It is
____________________________________________

2
  Appellees also argue that various affirmative defenses defeated Sunlight’s
claims as a matter of law.

                                           -5-
J-A06043-15

           instead a chance for his victims to help the trustee
           locate the debtor’s assets so that they can be
           distributed fairly among all his creditors. This court
           would undermine the federal bankruptcy scheme if it
           were to permit Sunlight’s individual veil piercing
           claims to proceed here. Instead, Sunlight’s claims in
           this action must be dismissed without prejudice for
           them to be re-filed in re-opened bankruptcy
           proceedings involving 23S23 and CHC LP.

Opinion filed May 16, 2014, p. 3.

     Sunlight filed a timely notice of appeal and a timely Pa.R.A.P. 1925(b)

statement claiming that Appellees waived the defense of Sunlight’s lack of

standing by not raising it until their motion for summary judgment.      In

response, the trial court filed a Pa.R.A.P. 1925(a) opinion in which it

asserted, sua sponte, that it was proper to dismiss Sunlight’s action for

failure to join two “indispensable” parties, the bankruptcy estates of 23S23

and CHC LP:

           In this case, [Sunlight’s] standing is called into
           question because the right it is attempting to enforce
           belongs to someone else, namely two, now closed,
           federal bankruptcy estates. Those estates, whose
           rights are being litigated here, therefore appear to
           be indispensable parties to this litigation. Failure to
           join an indispensable party is a non-waivable
           defense, which goes to the court’s subject matter
           jurisdiction, and may be raised at any time, even sua
           sponte. . .

           An award to [Sunlight] on the veil piercing claims it
           asserted in this action would necessarily deprive the
           bankruptcy estates and the bankrupt entities’
           creditors of assets that could be distributed in accord
           with federal bankruptcy law. In other words, the
           estates’ rights to those assets could be impaired by a
           ruling on [Sunlight’s] claims, which makes the

                                    -6-
J-A06043-15

            estates indispensable parties to this litigation. As
            indispensable parties, the bankruptcy estates, or
            their trustees, must be joined as plaintiffs, or the
            court lacks jurisdiction to hear the matter. Since the
            estates are closed, the court directed [Sunlight] to
            attempt to re-open them, so the trustees may bring
            the claims for piercing the corporate veil that were
            asserted by [Sunlight] here.

Pa.R.A.P. 1925(a) Opinion filed September 15, 2014, pp. 2-3.

      On August 13, 2014, after filing its notice of appeal, Sunlight filed a

motion in Bankruptcy Court to re-open bankruptcy proceedings in the closed

23S23 and CHC GP estates.       Sunlight argued that the Bankruptcy Court

closed 23S23’s estate because 23S23 misled the court into believing that

23S23 had no assets to distribute.         According to Sunlight, (1) Turchi

siphoned $660,000, first to 23S23 and then to Turchi, Inc. (or himself), (2)

counsel for 23S23 misrepresented to the Bankruptcy Court that 23S23 had

no assets and failed to advise the court of these siphoning activities, (3) the

monies that flowed through 23S23 in this fashion constituted assets of

23S23 that the Bankruptcy Court did not administer or distribute due to

counsel’s misrepresentation, and (4) these funds remain unabandoned

property of the bankruptcy estate to this day because they have not formally

been administered or distributed.

      On September 3, 2014, following a hearing on Sunlight’s motion to re-

open bankruptcy proceedings, the Bankruptcy Court denied Sunlight’s

motion. Sunlight did not appeal the Bankruptcy Court’s order.

                                     -7-
J-A06043-15

     Sunlight raises four issues in this appeal, which we re-order for

purposes of disposition:

           1. Whether the trial court erred in concluding that ‘as
           indispensable parties, the bankruptcy estates, or
           their trustees, must be joined as plaintiffs, or the
           court lacks jurisdiction to hear the matter,’ where
           the trial court failed to consider the Order entered by
           the bankruptcy court on January 21, 2010, a copy of
           which was Exhibit 7 to defendants’ ‘Motion of
           Summary Judgment’, which Order granted plaintiff
           leave to resume the prosecution of its alter ego and
           piercing claims against John J. Turchi, Jr. and to
           litigate those claims to final judgment[?]

           2. Whether the trial court erred in dismissing all of
           [Sunlight’s] claims on the grounds that it lacked
           standing to assert the claims stated in its amended
           complaint, where defendants did not raise, plead or
           otherwise assert lack of standing in their preliminary
           objections, in their answer to the amended
           complaint, or as new matter[?]

           3. Whether the trial court erred in dismissing all of
           [Sunlight’s] claims on the grounds that it ‘would
           undermine the federal bankruptcy scheme by
           allowing Sunlight’s individual veil piercing claims to
           proceed here,’ where a) defendants admitted by
           their answer to paragraph 64 of the amended
           complaint that plaintiff had satisfied all conditions
           precedent to its right to assert and pursue its claims;
           b) defendants, and particularly defendant John J.
           Turchi, Jr. (‘Turchi’), are judicially and equitably
           estopped from asserting [Sunlight’s] lack of standing
           on the basis of the pleadings and motions they filed
           in the federal court litigation docketed at No. 2:08-
           cv-05834-SD, none of which asserted Sunlight’s lack
           of standing to assert and pursue the identical claims;
           c) neither Turchi nor Turchi, Inc. has filed a petition
           in bankruptcy, and the common law claims stated in
           the four counts of the amended complaint are not
           only ‘veil piercing claims’ and are not within the
           scope of jurisdiction of the bankruptcy court; d)

                                    -8-
J-A06043-15

            there is no controlling authority in any case decision
            of any state court of Pennsylvania or Delaware, or in
            either state’s ‘corporation law’, for the proposition
            that a debtor-in-possession or a trustee has
            exclusive standing to pursue a principal of a debtor
            on a veil piercing claim[?]

            4. Whether the trial court erred in dismissing all of
            [Sunlight’s] claims, as stated in its amended
            complaint, ‘without prejudice to reassert them if
            permitted by the bankruptcy court’, where the trial
            court should have exercised its discretion and
            authority to stay all proceedings in this civil action
            pending the further order of the court, rather than
            dismissing all of [Sunlight’s] claims[?]

Brief For Appellant, pp. 4-6 (statement of questions involved in appeal).

      These four questions boil down to whether Sunlight’s action is

defective due to failure to join an indispensable party and/or lack of

standing.

      We review the indispensable party question first.     An indispensable

party is one whose rights are so connected with the claims of the litigants

that no decree can be made without impairing its rights. Sabella v.

Appalachian Development Corp., 103 A.3d 83, 90 (Pa.Super.2014). “In

Pennsylvania, an indispensable party is one whose rights are so directly

connected with and affected by litigation that he must be a party of record

to protect such rights, and his absence renders any order or decree of court

null and void for want of jurisdiction.” Cry, Inc. v. Mill Service, Inc., 640

A.2d 372, 375 (Pa.1994). This jurisdiction issue presents a pure question of

                                    -9-
J-A06043-15

law for which our standard of review is de novo.      Mazur v. Trinity Area

School Dist., 961 A.2d 96, 101 (Pa.2008).

      The indispensable party calculus involves, at a minimum, the following

factors:

            1. Do absent parties have a right or interest related
            to the claim?
            2. If so, what is the nature of that right or interest?
            3. Is that right or interest essential to the merits of
            the issue?
            4. Can justice be afforded without violating the due
            process rights of absent parties?

Id.

      The 23S23 and CHC GP bankruptcy estates are not indispensable

parties, because it is possible for Sunlight to win a judgment against

Appellees without impairing the rights of the estates. On January 21, 2010,

the bankruptcy court granted relief from the automatic stay to Sunlight so

that it could proceed in federal district court against Appellees. This order

effectively reduced the bankruptcy estates’ rights to a remote and

contingent interest in the outcome of Sunlight’s action against Appellees.

These rights are not “so directly connected with and affected by litigation

that [the bankruptcy estates] must be [parties] of record to protect such

rights.” Cry, Inc., supra, 640 A.2d at 375.

      In reaching this conclusion, we find instructive the Eleventh Circuit’s

summary of automatic stay precepts and the rights of bankruptcy estates

following an order granting relief from the automatic stay:

                                    - 10 -
J-A06043-15

           Upon a debtor’s filing of a bankruptcy petition, his
           legal and equitable interests in property become the
           property of the bankruptcy estate. 11 U.S.C. §
           541(a)(1). The filing of a petition also operates as
           an automatic stay, preventing the creation,
           perfection, or enforcement of any lien against the
           estate’s property.     11 U.S.C. § 362(a)(4).       The
           bankruptcy court may grant creditors relief from the
           stay after notice and a hearing. 11 U.S.C. § 362(d).
           A stay-relief order is a final order that is immediately
           appealable, Borg–Warner Acceptance Corp. v.
           Hall, 685 F.2d 1306, 1309 (11th Cir.1982), and not
           subject to collateral attack, F.D.I.C. v. Shearson–
           American Exp., Inc., 996 F.2d 493, 498 (1st
           Cir.1993). A bankruptcy court’s order lifting the
           automatic stay is not equivalent to an abandonment
           of the estate’s property. Catalano v. Comm’r, 279
           F.3d 682, 686–87 (9th Cir.2002). When a
           bankruptcy trustee abandons estate property, the
           estate is completely divested of any interest in the
           abandoned property. Id. On the other hand, when
           a bankruptcy court grants a creditor relief from the
           automatic stay for part of the estate’s property, the
           bankruptcy estate retains a residual interest in that
           property. See id. But, a stay-relief order normally
           allows the relieved creditor to realize its interest in
           the collateral, Killebrew v. Brewer (In re
           Killebrew), 888 F.2d 1516, 1519–20 (5th
           Cir.1989), by, for example, pursuing a foreclosure
           action. If such a foreclosure sale results in proceeds
           in excess of the relieved creditor’s interest, the
           surplus proceeds normally belong to the estate. Id.

Old West Annuity and Life Ins. Co. v. Apollo Group (“Old West”), 605

F.3d 856, 862-63 (11th Cir. 2010) (emphasis added).

     In this case, the Bankruptcy Court’s relief order relegated the

bankruptcy estates’ interests to any “surplus” proceeds arising from

                                    - 11 -
J-A06043-15

Sunlight’s litigation against Appellees. Old West, supra. While Sunlight’s

litigation theoretically could yield surplus proceeds,3 the likelihood of this

occurrence is speculative.        Therefore, the bankruptcy estates’ interests in

this litigation are too contingent for them to be indispensable parties.

Compare Sabella, supra, 103 A.3d at 90 (party is indispensable only when

no decree can be made without impairing its rights).

       We now turn to Appellees’ claim that Sunlight lacks standing, an

argument first raised in Appellees’ motion for summary judgment below. We

agree that Appellees have waived this defense by failing to raise it in their

state court pleadings. Pa.R.Civ.P. 1032(a) (“a party waives all defenses and

objections which are not presented either by preliminary objection, answer

or reply, except a defense which is not required to be pleaded under Rule

1030(b), the defense of failure to state a claim upon which relief can be

granted, the defense of failure to join an indispensable party, the objection

of failure to state a legal defense to a claim, the defenses of failure to

exercise or exhaust a statutory remedy and an adequate remedy at law and

____________________________________________

3
  For example, surplus proceeds could arise from a sheriff’s sale on Turchi’s
house during execution of Sunlight’s judgment that generates greater
proceeds than the amount of Sunlight’s judgment. The surplus proceeds
would flow into the two bankruptcy estates for distribution. The estate of
23S23, which has been closed since 2012, presumably would have to be re-
opened to distribute such proceeds. It is unclear from the record whether
CHC LP’s estate remains open. If it has closed, it, too, presumably would
have to be re-opened for distribution purposes.

                                          - 12 -
J-A06043-15

any other nonwaivable defense or objection”).             Even if Appellees had

preserved this issue for appeal, it is devoid of merit.

      The core concept of standing is that a person who is not adversely

affected in any way by the matter he seeks to challenge is not aggrieved

thereby and has no standing to obtain a judicial resolution to his challenge.

Johnson v. American Standard, 8 A.3d 318, 329 (Pa.2010). Standing is a

question of law, so our standard of review is de novo, and our scope of

review is plenary. Id., 8 A.3d at 326.

      Appellees’ challenge to Sunlight’s standing is unconvincing.     Sunlight

clearly had standing to proceed against Appellees when it originally

commenced suit in 2008. Although this case was diverted to federal court

and later to Bankruptcy Court, the Bankruptcy Court’s January 21, 2010

order granting relief from the automatic stay permitted Sunlight to proceed

on its own in its action against Appellees without any participation by the

bankruptcy estates. Old West, supra, 605 F.3d at 862-63. This order has

never been rescinded. Thus, Sunlight has the unfettered right to seek, and,

if it has a meritorious case, obtain all damages from Appellees to which it is

entitled, and the bankruptcy estates have the right to obtain any “surplus”

proceeds in excess of Sunlight’s right of recovery.

      It also bears emphasis that prior to the Bankruptcy Court’s order,

Appellees had ample opportunity to challenge Sunlight’s standing or to argue

that the bankruptcy estates had exclusive standing. Appellees actually filed

                                     - 13 -
J-A06043-15

an objection in Bankruptcy Court to Sunlight’s motion for relief from the

automatic stay but then withdrew their objection in advance of the order

granting Sunlight relief.       Having withdrawn their objection to Sunlight’s

motion for relief from the stay, Appellees cannot challenge Sunlight’s

standing now. Cf. Reusser v. Wachovia Bank, N.A., 525 F.3d 855, 861-

62 (9th Cir.2008) (during bankruptcy proceedings, appellants/debtors waived

right to appeal order granting bank relief from automatic stay by failing to

object to bank’s standing in Bankruptcy Court).4

       Accordingly, we conclude that the           bankruptcy estates are not

indispensable parties, and that Sunlight has standing to pursue its claims

against Appellees in the trial court. We remand to the trial court for further

proceedings on all issues not resolved in this memorandum.

____________________________________________

4
  On January 26, 2015, Sunlight filed a motion to strike portions of
Appellees’ brief relating to a motion that Sunlight filed in Bankruptcy Court
on August 13, 2014, subsequent to its appeal to this Court. Sunlight
requested in its August 13, 2014 motion that the Bankruptcy Court re-open
bankruptcy proceedings in the closed 23S23 and CHC GP estates. On
September 3, 2014, the Bankruptcy Court denied Sunlight’s motion.

Because Sunlight did not prevail in Bankruptcy Court, its motion to re-open
bankruptcy proceedings has no effect on this appeal. Had Sunlight prevailed
in its motion, principles of judicial estoppel might have precluded Sunlight
from asserting positions in this appeal that were inconsistent with its motion.
In Re Adoption of S.A.J., 838 A.2d 616, 621 (Pa.Super.2003) (judicial
estoppel precludes party from taking a position inconsistent with a position
that it successfully maintains in different court). But since it did not prevail,
its gambit in another court is of no legal consequence in this appeal. We
deny Sunlight’s motion to strike as moot.

                                          - 14 -
J-A06043-15

      Reversed and remanded for further proceedings. Sunlight’s motion to

strike portions of Appellees’ brief denied as moot. Jurisdiction relinquished.

      Judge Ott joins in this memorandum.

      Judge Panella concurs in the result.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 3/30/2015

                                    - 15 -