Court Opinion

ID: 3190491
Source: CourtListenerOpinion
Date Created: 2016-03-31 17:08:39.869745+00
Date Added: 2024-06-11T12:24:13.635972
License: Public Domain

J-A35030-15

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

DR. JERJIS ALAJAJI, AN ADULT                           IN THE SUPERIOR COURT OF
INDIVIDUAL,                                                  PENNSYLVANIA

                             Appellant

                       v.

DUBOIS RADIOLOGISTS, INC., A DULY
FORMED AND EXISTING PENNSYLVANIA
CORPORATION; GHAZANFAR A. SHAH,
M.D., AN ADULT INDIVIDUAL; AND
GEORGE M. KOSKO, M.D. AN ADULT
INDIVIDUAL,

                             Appellees                         No. 326 WDA 2015

              Appeal from the Judgment Entered February 25, 2015
               In the Court of Common Pleas of Clearfield County
                       Civil Division at No(s): 06-1018-CD

BEFORE: BENDER, P.J.E., SHOGAN, and MUSMANNO, JJ.

MEMORANDUM BY SHOGAN, J.:                                  FILED MARCH 31, 2016

       Dr. Jerjis Alajaji (“Appellant”) appeals from the judgment entered after

the   trial   court   denied      his    exceptions   to   a    master’s   report   and

recommendation.1            Specifically, Appellant challenges the denial of his

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1
  Appellant purports to appeal from the February 12, 2015 order denying his
post-trial motion. This position is flawed for two reasons. First, “[a] motion
for post-trial relief may not be filed to . . . motions relating to discovery or
other proceedings which do not constitute a trial.” Pa.R.C.P. 227.1(c) at
Note (emphasis supplied) (citing U. S. National Bank in Johnstown v.
Johnson, 487 A.2d 809 (Pa. 1985)). Here, following a proceeding that did
not constitute a trial, Appellant filed a motion for post-trial relief. This was a
nullity.   Second, the trial court entered an order denying Appellant’s
(Footnote Continued Next Page)
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requests for a pro-rated share of profits, prejudgment interest, and punitive

damages. For the reasons that follow, we affirm.

      Appellant and Dr. George M. Kosko (“Dr. Kosko”) were minority

shareholders    of     DuBois     Radiologists,    Inc.    (“DRI”),    a   subchapter     S

corporation that provided radiology services to DuBois Regional Medical

Center (“Hospital”). Hospital was the controlling partner of DuBois Magnetic

Imaging Center (“DMIC”), the MRI (magnetic resonance imaging) unit that

performs studies within Hospital.            Dr. Ghazanfar Shah (“Dr. Shah”) was

Director of Radiology at Hospital, the majority shareholder of DRI, and the

sole shareholder of Raintree MRI, Inc. (“Raintree”), a company under

contract with DMIC to handle DMIC’s patient billing.                  In providing billing

services to DMIC, Raintree utilized DRI’s equipment and personnel, including

DRI’s office manager, Rhonda Heffner (“Ms. Heffner”).

      Following the termination of his privileges at Hospital and his position

with DRI, Appellant filed a petition for injunctive relief and, subsequently, an

amended     complaint       for   preliminary     and     permanent     injunctive   relief,

declaratory judgment, breach of contract, and appointment of a corporate
                       _______________________
(Footnote Continued)

exceptions on January 28, 2014, thereby affirming the master’s
recommendation. At our direction, Appellant praeciped the court of common
pleas prothonotary to enter judgment. Judgment was entered on February
25, 2016. See Johnston the Florist, Inc. v. TEDCO Constr. Corp., 657
A.2d 511 (Pa. Super. 1995) (“[E]ven though the appeal was filed prior to the
entry of judgment, it is clear that jurisdiction in appellate courts may be
perfected after an appeal notice has been filed upon the docketing of a final
judgment.”). We have amended the caption accordingly.

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custodian.     Amended Complaint, 8/23/06, at Counts I–V.        By stipulated

orders, the trial court set forth a mediation procedure for resolution of the

parties’ dispute and appointed Certified Public Accountant Robert Grossman

of Grossman, Ford and Yanek, an accounting firm with specialized knowledge

in the medical industry, to serve as a master. Stipulated Orders, 3/29/12

and 4/25/12.2      Mr. Grossman (“the Master”) was charged with addressing

narrowly tailored financial issues that the parties had not been able to

resolve after six years of litigation. Stipulated Order, 3/29/12, at ¶¶ 9, 11.

       Over the course of two years, the Master investigated and calculated

(1) the value of Appellant’s sixteen percent stock holdings in DRI; (2) the

value of Appellant’s share of DRI’s profits; (3) Appellant’s share, if any, of

profits or losses generated by Raintree; and (4) Appellant’s share, if any, of

the director’s fee paid to DRI by Hospital. Master’s Report Summary Letter,

2/24/14, at 1–2.        The Master valued Appellant’s DRI stock holdings at

$72,700 and his share of DRI profits at $111,518.             Master’s Report,

2/13/14, at 3–4. Having determined that the profits generated by Raintree

were de minimus, the Master concluded that Appellant’s share of Raintree

profits was $0.00. Id. at 5. The Master also determined that the director’s

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2
   The first stipulated order was issued on March 22, 2012, and filed on
March 29, 2012. The second stipulated order was issued on April 23, 2012,
and filed on April 25, 2012.

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fee was payable to Dr. Shah for his services and, therefore, did not pass

through to DRI for distribution to its shareholders, i.e., Appellant. Id. at 8.

      Appellant filed seven exceptions, labeled “objections,” to the Master’s

report, and Dr. Kosko, Dr. Shah, and DRI (collectively “Defendants”) filed a

motion to strike some of the objections.       Objections to Master’s Report,

3/24/14; Motion to Strike, 5/5/14. Agreeing with Defendants, the trial court

granted the motion to strike, thereby dismissing Appellant’s claims for

interest on his share of DRI profits, use of a “fair value” standard with

regard to his DRI shares, and punitive damages.            Order and Opinion,

7/29/14, at 2, 5.     The trial court conducted a two-day hearing on the

remaining objections in November of 2014 and permitted briefing.          Order,

11/26/14.    Thereafter, the trial court denied Appellant’s objections and

wholly adopted the Master’s report and recommendation, awarding Appellant

$184,218. Order, 1/28/15. Appellant filed a document entitled, “Motion for

Post-Trial Relief,” which the trial court dismissed.      Motion for Post-Trial

Relief, 2/9/15; Order, 2/12/15. This appeal followed.

      On appeal, Appellant presents the following questions for our review:

      1.  WHETHER PROFIT SOLELY GENERATED THROUGH USE OF
      A DOMINATED CORPORATION’S ASSETS BELONGS TO THAT
      CORPORATION?

      2.  WHETHER    FUNDS    DEPRIVED   TO               A    MINORITY
      SHAREHOLDER ARE ENTITLED TO INTEREST?

      3.  WHETHER PUNITIVE DAMAGES ARE APPROPRIATE WHEN A
      CORPORATION THROUGH ITS MAJORITY SHAREHOLDERS ACTS
      OPPRESSIVELY AGAINST A MINORITY SHAREHOLDER?

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Appellant’s Brief at 4.3

       Appellant first claims that the trial court erred in concluding that he is

not entitled to a pro-rated share of Raintree’s profits from 1999 through

2010. Appellant’s Brief at 13, 22. Appellant contends that, “Raintree, the

entity solely owned by defendant DRI’s majority shareholder, defendant Dr.

Shah, received profit each and every year by using the employees,

equipment, cash and other assets of DRI, as [Dr. Shah’s] own property.”

Id. at 14. According to Appellant, as a shareholder of DRI, he is entitled to

profits received by Raintree through the use of DRI’s assets. In support of

his position, Appellant cites Bailey v. Jacobs, 189 A. 320 (Pa. 1936), and

Rivoli Theatre Company v. Allison, 152 A.2d 449 (Pa. 1949), for the

proposition that “profit made through corporate assets belong to the

corporation.”     Appellant’s Brief at 13–14.    Furthermore, Appellant insists

that, given “Raintree’s just share of the freely provided rent, postage,

insurance, utilities, and postage [sic], the true expense to DRI was in reality
____________________________________________

3
    The trial court allowed Appellant’s post-trial motion to serve as his
Pa.R.A.P. 1925(b) statement of errors complained of on appeal. Order,
2/12/15. Appellant raised the same issues in his post-trial motion and in his
Statement of Questions Presented. Motion for Post-Trial Relief, 2/9/15, at
1–2; Appellant’s Brief at 4. However, in its opinion to this Court, the trial
court addressed Appellant’s objections to the Master’s report, not the claims
raised in his post-trial motion.     Trial Court Opinion, 1/28/15, at 4–9.
Consequently, the trial court did not address Appellant’s second and third
appellate issues. For the trial court’s analysis on those two issues, we shall
rely on its opinion addressing Defendants’ motion to strike. Opinion and
Order, 7/29/14, at 3.

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not de minimis . . . and remains purely immaterial and irrelevant given

Bailey and Rivoli.” Appellant’s Brief at 16.

      Our standard of review in equity is limited.     Viener v. Jacobs, 834

A.2d 546, 554 (Pa. Super. Ct. 2003) (citing Liberty Prop. Trust v. Day–

Timers, Inc., 815 A.2d 1045, 1048 (Pa. Super. 2003)).         We will reverse

only where the trial court was “palpably erroneous, misapplied the law or

committed a manifest abuse of discretion.” Day–Timers, 815 A.2d at 1048

(citing Thermo–Guard, Inc. v. Cochran, 596 A.2d 188, 193 (Pa. Super.

1991)).   Where there are any apparently reasonable grounds for the trial

court’s decision, we must affirm it.    Id. at 1048.   Moreover, “[a]bsent an

abuse of discretion or an error of law, we are bound to accept the findings of

the trial court or master, particularly where the findings are largely

dependent upon the credibility of the witnesses.” Werner v. Werner, 573

A.2d 1119, 1121 (Pa. Super. 1990).

      Here, the Master found that DRI’s costs associated with Raintree’s

billing services to DMIC were “not material.” Master’s Report, 7/19/14, at 5.

Thus, the Master concluded that “no profit or loss generated by Raintree MRI

Services, Inc. should be allocated to [Appellant] as a shareholder of DRI.”

Id. Based on a credibility determination, the trial court agreed:

            The long-time office manager for DRI and the person who
      personally handled the billing related activities for Raintree,
      Rhonda Heffner, testified at the Hearing.          She personally
      prepared the global billing invoices for both the professional and
      technical components of the services provided by use of a
      standardized HCFA form. An HCFA form is “a standard insurance

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     claim form that is accepted by all insurance companies to
     document who the patient was and what the service was they
     had rendered, and also identify who rendered the service.”
     (11/14/14 Hearing Transcript, pg. 101.)         Ms. Heffner also
     testified that the same HCFA standard form would be used
     whether you were billing globally (i.e., both the professional and
     technical components) or whether you were billing only for the
     DRI professional component.

           As Ms. Heffner’s credible testimony indicates, one second
     is the amount of additional time she spent in order to prepare
     global bills as opposed to preparing bills solely for the DRI
     professional component.     Ms. Heffner also testified to the
     amount of time she spent handling the banking related matters
     once payments were received for the global bills issued. As the
     Master concluded, and as Ms. Heffner confirmed in her
     testimony, the time was de minimis.

           In support of [this issue, Appellant] offered no testimony
     or evidence to refute Ms. Heffner’s testimony or the findings and
     conclusions of the Master. Notably, [Appellant’s] expert, Mr.
     Kindler, offered no opinion on the issue of whether the Master
     erred in determining that [Appellant] is not entitled to any
     additional profit or revenue generated by Raintree for use of
     DRI’s employees and equipment to perform billing services.

Trial Court Opinion, 1/28/15, at 6–7.

     Upon review, we discern no basis upon which to disturb the trial

court’s ruling. The trial court accepted Ms. Heffner’s testimony as credible.

Ms. Heffner’s and the Master’s testimony confirmed that DRI’s Raintree-

billing costs were de minimus.     N.T., 11/14/14, at 20, 56, 99–103.          The

record also establishes that, as a result of DMIC’s billing agreement with

Raintree,   DRI   received   eighteen    percent   of   the   revenue   for   billed

professional services; Appellant’s share of that revenue was included in his

income. Id. at 18–20, 57, 125, 133; N.T., 11/24/14, at 23. Furthermore,

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Raintree received four percent of the revenue as a fee for Dr. Shah for his

administrative services, to which Appellant was not entitled. Id. at 18, 23–

24, 65–66, 69, 71, 125, 133–134; N.T., 11/24/14, at 33–34.         Moreover,

unlike the Master, who was charged with determining if Appellant was

eligible to share in Raintree’s profits, Appellant’s expert did not offer an

opinion on that topic. N.T., 11/24/14, at 13, 22. Rather, Appellant’s expert

calculated Appellant’s share of Raintree’s profits based on an assumption

that Appellant was entitled to share in Raintree’s profits. N.T., 11/24/14, at

13, 15. Lastly, Appellant’s expert did not have an opinion as to DRI’s costs

or expenses with respect to Raintree’s billing.      Id. at 24.     Based on

Defendants’ uncontroverted evidence of record, we discern no abuse of the

trial court’s discretion or error of law.

      Moreover, we do not consider Bailey or Rivoli dispositive. In Bailey,

the defendant purchased patents, patent rights, and equipment with money

belonging to two companies of which he was president. He transferred the

assets to a Delaware corporation that he organized; in return, he received

the entire capital stock of the new company. Bailey, 189 A. at 323–324. In

an equity action brought by shareholders, the chancellor found the

defendant’s transactions “to be wholly reprehensible, but held that recovery

as to some of them was barred by the statute of limitations. The court [en]

banc held that all were so barred, and dismissed the bill.”       Id. at 323.

However, the Pennsylvania Supreme Court reversed, holding that, because

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the defendant “made profits from his personal use of the corporate funds,

and because the patents and patent rights purchased by him were highly

desirable for the Paper Company’s purposes, he must account accordingly.”

Id. at 325.

       Unlike the Bailey defendant, Dr. Shah did not take assets belonging to

DRI and purchase other assets that were highly desirable for DRI’s purposes.

Rather, DRI already billed the physician component of MRI services.4           In

doing so, DRI paid expenses for rent, utilities, insurance, a post office box,

postage, equipment, and Ms. Heffner’s time.          Consequently, the additional

second Ms. Heffner spent inputting the technical component of MRI services

to send out a global bill “added nothing” to DRI’s costs. Heffner Deposition,

1/5/07, at 101–107.

       Similarly, we dispose of Rivoli.          Therein, three Blair County men

formed a corporation that ran a movie theatre.           The defendant was vice-

president of the corporation and manager of the theatre.          In an effort to
____________________________________________

4
    Specifically, a patient receiving an MRI at DMIC would receive a bill for
technical services (i.e., technician performs an MRI) and a bill for
professional services (i.e., physician interprets MRI). As the physician
group, DRI received eighteen percent of DMIC’s gross receipts. For its
billing services, Raintree received four percent of DMIC’s global billing
amounts. DMIC sent all payments to a post office box paid for by DRI and
shared with Raintree. Heffner Deposition, 1/5/07, at 45; N.T., 11/14/14, at
102. Ms. Heffner deposited all payments into an account dedicated to DMIC
as reimbursements for the professional and technical components.
Separately, Ms. Heffner deposited Raintree’s portion of the global billing into
an account opened by Dr. Shah. Heffner Deposition, 1/5/07, at 45, 50–55;
N.T., 11/14/14, at 102–103.

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increase sales, the defendant introduced candy vending machines and

commercial advertising to the theatre, pocketing the sideline concession

profits for his personal use without “full and frank disclosure” to the

stockholders or officers of the corporation. Rivoli, 152 A.2d at 451. In light

of the defendant’s admissions, the trial court entered a directed verdict and

denied the defendant’s request for a new trial.        Id.   On appeal, the

Pennsylvania Supreme Court stated, “[T]he test of liability is whether [the

corporate officers or directors] have unjustly gained enrichment.”        Id.

(quoting Bailey, 189 A. at 324).     Citing the defendant’s admissions, the

Supreme Court found it “quite clear that [the defendant] enriched himself at

the corporation’s expense” and affirmed the directed verdict. Id.

      Unlike the Rivoli defendant, Dr. Shah did not enrich himself at DRI’s

expense. DRI incurred no expense on behalf of Raintree. DRI was already

financially supporting the professional billing services and, as previously

stated, the additional second Ms. Heffner spent inputting the technical

component of MRI services to send out a global bill “added nothing” to DRI’s

costs. Heffner Deposition, 1/5/07, at 101–107; N.T., 11/14/14, at 102–103.

      Next, Appellant argues that he is entitled to prejudgment interest on

his share of DRI and Raintree profits from 2007 through 2012, which

amounts to $73,952 and $54,472, respectively. Appellant’s Brief at 22, 25.

Appellant contends that he is entitled to prejudgment interest because, as a

shareholder, he was entitled to distributions that DRI withheld. Id. at 22.

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Moreover, Appellant claims, prejudgment interest could easily be applied to

the amounts the Master calculated that Appellant was entitled to receive

each year.   Id. at 22–23.    Relying on common-law principles of contracts

and liquidated damages, Appellant submits that Pennsylvania’s appellate

courts “have the inherent authority to correct the error of not awarding

prejudgment interest.” Id. at 23–24 (citing Fernandez v. Levin, 548 A.2d

1191 (Pa. 1988)). Furthermore, Appellant asserts that “the right to interest

begins at the time payment is withheld after it has been the duty of the

debtor to make such payment.”         Id. (quoting Palmgreen v. Palmer’s

Garage, Inc., 117 A.2d 721 (Pa. 1955)).

      Alternatively, Appellant contends that this is a breach-of-fiduciary-duty

case that warrants the imposition of prejudgment interest. Appellant’s Brief

at 24.   According to Appellant, Dr. Shah breached a fiduciary duty to

minority shareholder Appellant by failing to pay Appellant’s pro-rated share

of profits; therefore, Appellant claims entitlement to prejudgment interest.

Id. at 24–25 (citing Sack v. Feinman, 413 A.2d 1059 (Pa. 1980), and

Bailey v. Jacobs, 189 A. 320 (Pa. 1936)). By not awarding prejudgment

interest, Appellant asserts, the trial court unjustly enriched Dr. Shah and

denied Appellant full restitution. Id. at 25.

      The trial court rejected Appellant’s arguments in its opinion addressing

Defendants’ motion to strike:

            [Appellant] asserts the Master failed to calculate or award
      interest on [Appellant’s] share of the profits earned from DRI

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      . . . . The [c]ourt would first note that, per the Stipulated Order
      entered by the [c]ourt, the Master was not charged with the task
      of calculating any interest.... This is a fact [that] is
      acknowledged by both [Appellant] and Defendants.

            The [c]ourt contends that it is improper for [Appellant] to
      take issue with the Master on [this] issue because the Master
      was never charged with the task[ Appellant] is now requesting.
      The Master’s duties were carefully delineated in the [c]ourt’s
      Order of March 22, 2012.          This was an Order judiciously
      negotiated between the parties and entered by the [c]ourt at
      counsels’ behest and with their express consent. [Appellant]
      cannot now come before the [c]ourt and demand [a] certain
      responsibilit[y] be placed upon the Master when [it is]
      completely outside the scope of the Stipulated Order. As [this]
      objection[] is beyond the specific boundaries of the matters for
      which the Master was charged to make a determination, the
      [c]ourt believes that [Appellant’s] objection[] in this regard
      should be dismissed as improper. In short, if [Appellant] wanted
      [interest] calculated, [he] should have bargained for, and
      included [it] in, the Stipulated Order.

Trial Court Opinion, 7/29/14, at 3.

      “Our courts have generally regarded the award of prejudgment

interest as not only a legal right, but also as an equitable remedy awarded

to an injured party at the discretion of the trial court.”      Kaiser v. Old

Republic Ins. Co., 741 A.2d 748, 755 (Pa. Super. 1999). “Whether a party

is entitled to prejudgment interest is left to the sound discretion of the trial

court in equity.” Osborne v. Carmichaels Min. Mach. Repair, Inc., 628

A.2d 874, 879 (Pa. Super. 1993) (citing Gurenlian v. Gurenlian, 595 A.2d

145 (1991)). A court of equity is not limited to the statutory rate of interest,

but may make an award above it. Gurenlian, 595 A.2d at 148.

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      Upon review of the record, we agree with the trial court that an award

of prejudgment interest was not within the scope of the Master’s review.

The Master’s review was limited to judiciously negotiated and narrowly

tailored financial issues. See Order, 3/22/12 (defining scope of the Master’s

review).   Appellant acknowledges that “the governing STIPULATED ORDER

was silent as to whether interest should or should not be included.”

Appellant’s Brief at 22 (emphasis in original); see also N.T., 11/14/14, at

43 (stipulation that the Master “did not opine on [interest] or include it in his

report because he was not asked to [do so] as part of the order charging

him with his assignment.”). Therefore, Appellant has no basis for objecting

to the Master’s lack of a recommendation regarding prejudgment interest.

Accordingly, we have no basis on which to disturb the trial court’s decision.

      Lastly, Appellant claims that the trial court erred by dismissing the

issue of punitive damages. Appellant’s Brief at 26. Appellant argues that he

is entitled to punitive damages because the majority shareholders willfully

withheld compensation. Id. at 26–28.

      Again, in ruling on Defendants’ motion to strike, the trial court opined

that a determination of punitive damages was not before the Master:

      [Appellant] argues that the Master should have awarded punitive
      damages in this case due to the conduct of Defendants. The
      [c]ourt would first note that, per the Stipulated Order entered by
      the [c]ourt, the Master was not charged with the task of . . .
      making any determination in regard to punitive damages. This
      is a fact [that] is acknowledged by both [Appellant] and
      Defendants.

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            The [c]ourt contends that it is improper for [Appellant] to
      take issue with the Master on [this] issue because the Master
      was never charged with the task[ Appellant] is now requesting.
      The Master’s duties were carefully delineated in the [c]ourt’s
      Order of March 22, 2012.        This was an Order judiciously
      negotiated between the parties and entered by the [c]ourt at
      counsels’ behest and with their express consent. [Appellant]
      cannot now come before the [c]ourt and demand [a] certain
      responsibilit[y] be placed upon the Master when [it is]
      completely outside the scope of the Stipulated Order. As [this]
      objection[] is beyond the specific boundaries of the matters for
      which the Master was charged to make a determination, the
      [c]ourt believes that [Appellant’s] objection[] in this regard
      should be dismissed as improper. In short, if [Appellant] wanted
      [punitive damages] calculated, [he] should have bargained for,
      and included [them] in, the Stipulated Order.

Trial Court Opinion, 7/29/14, at 3.

      The standard governing the award of punitive damages is well settled

in Pennsylvania:

      Punitive damages may be awarded for conduct that is
      outrageous, because of the defendant’s evil motive or his
      reckless indifference to the rights of others. As the name
      suggests, punitive damages are penal in nature and are proper
      only in cases where the defendant's actions are so outrageous as
      to demonstrate willful, wanton or reckless conduct. The purpose
      of punitive damages is to punish a tortfeasor for outrageous
      conduct and to deter him or others like him from similar conduct.
      Additionally, this Court has stressed that, when assessing the
      propriety of the imposition of punitive damages, the state of
      mind of the actor is vital. The act, or the failure to act, must be
      intentional, reckless or malicious.

Sokolsky v. Eidelman, 93 A.3d 858, 871 (Pa. Super. 2014) (quoting

Hutchison v. Luddy, 870 A.2d 766, 770–771 (Pa. 2005) (citations,

footnote, and internal quotation marks omitted)).

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      Upon review of the record, we agree with the trial court that an award

of punitive damages was not within the scope of the Master’s review.

Therefore,   Appellant    has   no   basis    for   objecting   to   the   Master’s

recommendation, and we have no basis upon which to disturb the trial

court’s decision.

      Judgment affirmed.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 3/31/2016

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