Court Opinion

ID: 4080350
Source: CourtListenerOpinion
Date Created: 2016-10-06 16:10:35.601785+00
Date Added: 2024-06-11T14:32:44.326514
License: Public Domain

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

City of Lebanon, Jonestown Borough,             :
North Cornwall Township, North                  :
Lebanon Township, North Londonderry             :
Township, Northern Lebanon School               :
District, Palmyra Area School District,         :
South Lebanon Township, South                   :
Londonderry Township, Swatara                   :
Township, Union Township, and West              :
Lebanon Township                                :
                                                :
                       v.                       :
                                                :
Cornwall Borough, Heidelberg                    :
Township, North Annville Township,              :
West Cornwall Township, and                     :
Bethel Township                                 :
                                                :
                       v.                       :
                                                :
Lebanon County Earned Income Tax                :
Bureau                                          :
                                                :
Appeal of: Cornwall Borough,                    :
Heidelberg Township, West Cornwall              :    No. 2419 C.D. 2015
Township, and Bethel Township                   :    Argued: September 13, 2016

BEFORE:         HONORABLE MARY HANNAH LEAVITT, President Judge
                HONORABLE P. KEVIN BROBSON, Judge (P.)
                HONORABLE ANNE E. COVEY, Judge

OPINION NOT REPORTED

MEMORANDUM OPINION BY
JUDGE COVEY                                          FILED: October 6, 2016

                Cornwall Borough, Heidelberg Township, West Cornwall Township and
Bethel Township (collectively, Appellant Municipalities)1 appeal from the judgment

      1
          North Annville Township did not participate in this appeal.
entered on November 9, 2015 in favor of Appellees City of Lebanon, Jonestown
Borough, North Cornwall Township, North Lebanon Township, North Londonderry
Township, Northern Lebanon School District, Palmyra Area School District, South
Lebanon Township, South Londonderry Township, Swatara Township, Union
Township, and West Lebanon Township (collectively, Appellee Municipalities) and
the judgment entered on November 19, 2015 in favor of Appellant Municipalities
against the Lebanon County Earned Income Tax Bureau (Bureau),2 following the
Lebanon County Common Pleas Court’s (trial court) October 30, 2015 order denying
Appellant Municipalities’ Motion for Post Trial Relief.3 There are four issues before
this Court: (1) whether the trial court improperly relieved Appellee Municipalities of
their burden of proof and erroneously relied upon flawed data and imprecise
estimates; (2) whether the trial court erred by awarding pre-judgment interest to
Appellee Municipalities at a 6% interest rate; (3) whether the trial court erred by
failing to award Appellant Municipalities recovery against the Bureau for the costs
Appellant Municipalities will be required to pay back to Appellee Municipalities;
and, (4) whether the trial court failed to properly apply general equitable principles.
After review, we affirm.
              In 1967, the six Lebanon County School Districts created the Bureau
pursuant to the Local Tax Enabling Act4 (LTEA) to collect and distribute earned
income tax payments for its six member school districts. Thereafter, all twenty–six
Lebanon County municipalities that levied an earned income tax used the Bureau for
such services. The Bureau was governed by a six-person Executive Committee

       2
         Appellant Municipalities appeal from the judgment entered in their favor because they
contend that the damages awarded against the Bureau were inadequate.
       3
         “[A]n appeal properly lies from the entry of judgment, not from the denial of post-trial
motions.” Gold v. Rosen, 135 A.3d 1039, 1040 n.1 (Pa. Super. 2016).
       4
         Act of December 31, 1965, P.L. 1257, as amended, 53 P.S. §§ 6924.101–6924.901.
                                               2
(Executive Committee), comprised of one representative from each of the six school
districts.
              The Bureau’s Executive Director Donald Foltz, Jr. (Foltz) managed the
Bureau’s banking activities and possessed the authority to write checks on the
Bureau’s behalf. Additionally, at Foltz’s direction, the Bureau implemented a system
to distribute earned income tax revenues to member school districts and
municipalities.
              In 2006, the Bureau’s Executive Committee investigated the Bureau’s
operations, and retained the Boyer & Ritter accounting firm to review the Bureau’s
accounting procedures and internal controls. Based upon deficiencies identified by
Boyer & Ritter in a report issued on March 7, 2007, Foltz was placed on
administrative leave that day.     On March 14, 2007, Foltz’s employment was
terminated.
              Shortly thereafter, the Bureau discovered that, between 2002 and 2006,
Foltz deposited $895,676.15 of tax revenues into an account for his personal use, and
wrote checks from that account to himself in an amount totaling $811,000.00. The
Bureau recovered $80,409.30 in remaining funds from the account. On March 30,
2007, Foltz committed suicide. The Bureau’s insurer reimbursed the Bureau for the
$811,000.00 theft by Foltz, less a $10,000.00 deductible.
              In March 2007, the Bureau engaged certified public accountant Nancy
Moran (Moran) to serve as the Bureau’s Interim Executive Director. Moran found
the Bureau’s operations in complete disarray. She observed that some employees
were using Xerox boxes as work space, and discovered that the Bureau’s computer
system was an antiquated DOS-based system. She further learned that Foltz had paid
some employees extra-payroll compensation. In addition, she uncovered that Foltz
had not paid distributions to out-of-county tax bureaus for non-resident tax income

                                          3
that the Bureau had collected on their behalf. Thus, the Bureau owed $1.95 million to
out-of-county governmental entities as of November 2007.
             On December 18, 2007, Moran issued a public report containing
preliminary concerns she and the Bureau staff identified regarding quarterly earned
income tax revenue distributions to school districts and municipalities between 2004
and 2007. Specifically, Moran was worried that the Bureau’s computer system was
“hard-wired” with incorrect percentages that were used to calculate distribution
reports.   In addition, Moran believed that Foltz had made “round number”
adjustments to distributions. Finally, Moran suspected that the Bureau’s computer
system did not correctly calculate shared income tax revenue in instances where
particular municipalities and school districts did not equally split that tax revenue.
Moran emphasized that these concerns were based upon preliminary information
then-available, and that further investigation would be required.
             In response to Moran’s public report, the Lebanon County school
districts and municipalities all agreed that a more detailed investigation should be
conducted to determine the extent of the alleged overpayments and underpayments
from 2004 through 2007. In July 2008, at the behest of the Lebanon County school
districts and municipalities, including all parties to the instant litigation, the Bureau
engaged the accounting firm of McKonly & Asbury, LLP (M&A) to investigate and
report on the Bureau’s overpayments and underpayments from 2004 through 2007.
             Because the Bureau did not possess adequate and accurate records of
individual taxpayer tax payments for the relevant years, M&A was unable to recreate
the necessary tax data using Bureau records alone. Information relating to income tax
returns - including the returns themselves and supporting detail, such as W-2 forms or
employer reconciliations - did not exist in the Bureau’s records; and, employer
submissions were incomplete, lacking the individual-level data that was supposed to

                                           4
accompany quarterly and/or end-of-the-year tax payments.5 While it was standard
protocol for the Bureau’s clerks to send deficiency letters to employers, deficiencies
were frequently not cured because employee-level detail was not provided and, thus,
never entered into the Bureau’s computer system.6
              M&A obtained the Department of Revenue PA-40 (PA-40) data for each
of the Lebanon County school districts, which identified taxpayers by name and
social security numbers, and also identified their annual compensation as reported to
the Commonwealth. However, the PA-40 data included income reported to the
Commonwealth that is not taxable for earned income tax purposes.
              Beginning in the third quarter of 2008, all Lebanon County school
districts and municipalities agreed that the Bureau should contract Keystone
Collections Group (Keystone) to take over the collection and disbursement of
Lebanon County earned income taxes. Pursuant to its contract with the Bureau,
Keystone collected taxes for the Lebanon County school districts and municipalities
through the end of 2009.7

       5
          Under Foltz’s direction, files and documents were untidy, disorganized and sometimes
missing. Bureau employee Lynn Ratcliffe (Ratcliffe) observed what she believed was the shredding
of 2006 earned income tax records. On Moran’s March 2007 visit to the Bureau’s office, she
observed multiple black trash bags containing shredded documents, and trays, copier paper boxes
and trash bags containing tax returns and census mailings from prior years addressed to Lebanon
County residents that the Bureau had never sent. On occasion, Bureau employees encountered
situations where the Bureau’s records showed that earned income tax payments had not been made,
but the taxpayers reported making payments and their checks had cleared. Further, Ratcliffe
recalled that, at times during Foltz’s tenure, the Bureau did not enter into the computer employee-
level detail employers submitted, or it was entered and later deleted and the hard copies were
destroyed.
        6
          The Bureau’s computer maintained a Lebanon County taxpayer roll by tax year that
identified taxpayers by their social security numbers and municipalities. Bureau employees
regularly updated the taxpayer roll based on information taxpayers submitted with their earned
income tax returns. The taxpayer roll was also updated regularly based on information taxpayers
submitted with their per capita taxes and real estate taxes.
        7
          As a result of Act 32 of 2008, effective January 1, 2010, the collection of earned income
taxes within Lebanon County became the responsibility of the Lebanon County Tax Collection
Committee (the TCC), and the Bureau no longer was responsible for such collection. Keystone
                                                5
             M&A provided its initial report on January 22, 2009; however, the initial
report did not include any data for 2007. In October 2009, all Lebanon County
school districts and municipalities, including the parties to this litigation, directed the
Bureau to engage M&A to provide an updated analysis of the payments made by the
Bureau from 2004 through 2006, as well as 2007. M&A issued an updated report on
March 17, 2010 (M&A Report). The M&A Report relied on the Bureau’s taxpayer
roll, and the PA-40 data M&A had obtained.
             According to the M&A Report, the following school districts and
municipalities were underpaid from 2004 through 2007: Annville Township
$11,996.40; City of Lebanon $1,447,958.54; Jonestown Borough $166,503.09; North
Cornwall Township $315,164.25; North Lebanon Township $822,264.07; North
Londonderry Township $587,268.05; Northern Lebanon School District $107,236.24;
Palmyra Area School District $859,018.57; South Lebanon Township $459,635.34;
South Londonderry Township $529,205.07; Swatara Township $166,457.74; Union
Township $159,455.69; and West Lebanon Township $62,135.66.
             The M&A Report also found that other school districts and
municipalities had been overpaid from 2004 through 2007, as follows: 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 subdivision after
January 1, 2010, pursuant to an appointment by the TCC.
                                            6
$26,312.78; South Annville Township $313,720.28; and West Cornwall Township
$129,588.44.
            Thirteen of the 18 overpaid political subdivisions agreed to return the
overpayments, and were permitted to make repayments over time without interest
pursuant to a voluntary settlement known as the “Grumbine Plan.”              Appellant
Municipalities refused to return the overpayments identified in the M&A Report.
            On June 20, 2012, Appellee Municipalities filed an action against
Appellant Municipalities alleging violations of the LTEA, unjust enrichment,
constructive trust and conversion. The Honorable Bradford H. Charles held a four-
day bench trial. The parties stipulated to many of the facts, and the trial focused
primarily on the M&A Report’s reliability and accuracy.                  Both Appellant
Municipalities and Appellee Municipalities presented expert testimony and reports,
and limited factual testimony. The trial court appointed a forensic accountant to
conduct an independent analysis and critique the methodology applied in the M&A
Report.
            On July 15, 2015, the trial court issued a thorough, well-reasoned and
well-written 75-page Adjudication and Opinion (July 15, 2015 Opinion), clearly
laying out the complex factual history and fully explaining the trial court’s legal
reasoning. The trial court ruled in favor of Appellee Municipalities on their unjust
enrichment, constructive trust and LTEA claims, and in Appellant Municipalities’
favor on their claims against the Bureau.        The trial court directed Appellant
Municipalities to return the Bureau’s overpayments as calculated in the M&A Report,
and, on September 25, 2015, after a subsequent hearing, awarded Appellant
Municipalities pre-litigation fees and expenses as against the Bureau.
            On October 5, 2015, Appellant Municipalities filed a motion for post-
trial relief which the trial court denied by October 30, 2015 opinion and order

                                          7
(October 30, 2015 Opinion).8 Appellee Municipalities and Appellant Municipalities
filed praecipes for entry of judgment. On November 9, 2015 and November 19,
2015, the trial court entered the judgments. Appellant Municipalities appealed to this
Court.9
              Appellant Municipalities first argue that Appellee Municipalities failed
to meet their burden of proof in establishing their damages, and that the trial court
improperly shifted the burden of proof. We disagree.
              Appellee Municipalities presented significant expert testimony to
establish their right to recovery. In a 12-page discussion in its July 15, 2015 Opinion,
the trial court addressed the evidence and its consideration thereof, described its
rationale for accepting the M&A Report’s analysis, and referenced the testimony of
M&A’s principal Samuel Bowercraft (Bowercraft).10
              “As the finder of fact, the trial court has exclusive authority to weigh the
evidence, make credibility determinations and draw reasonable inferences from the
evidence presented.” Barylak v. Montgomery Cnty. Tax Claim Bureau, 74 A.3d 414,
417 (Pa. Cmwlth. 2013). This Court “may not reweigh the evidence and substitute
our judgment for that of the fact-finder.” Swift v. Dep’t of Transp., 937 A.2d 1162,
1167 n.5 (Pa. Cmwlth. 2007).

       8
          Notably, the trial court’s October 30, 2015 Opinion individually addressed the same issues
currently before this Court. It discussed and dismissed each argument by referencing specific
portions of its July 15, 2015 Opinion.
        9
          This Court has explained:

              Our standard of review of a non-jury trial is to determine whether the
              findings of the trial court are supported by competent evidence, and
              whether an error of law was committed. In reviewing this matter, our
              court may not reweigh the evidence and substitute our judgment for
              that of the fact-finder. A challenge to the sufficiency of the evidence
              is a question of law requiring a plenary scope of review.
Swift v. Dep’t of Transp., 937 A.2d 1162, 1167 n.5 (Pa. Cmwlth. 2007) (citations omitted).
        10
           Bowercraft was primarily responsible for developing the M&A Report.
                                                 8
            Here, relative to Bowercraft, the trial court specifically stated:

            For nearly one full day, we listened to Bowercraft testify
            about his methodology. In the process, we watched
            Bowercraft respond to the criticisms hurled by [Appellant
            Municipalities]. The more we listened to Bowercraft’s
            testimony, the more we were impressed by his grasp of data
            analytics and the application of his expertise to the difficult
            assignment of reconstructing how taxes should have been
            distributed in Lebanon County between 2004 and 2007.
            The bottom line is that we found Bowercraft’s testimony
            to be credible.

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

            Perhaps more important than any other factor, we have been
            given information that would enable us to ‘test’ the M&A
            analysis by comparing it with what everyone has agreed is
            accurate data created by Keystone. Specifically, we have
            been given Keystone’s actual distribution figures for the
            years 2009 through 2012. Because no one has questioned
            the accuracy of Keystone’s data analytics, we view the
            Keystone distributions between 2009 and 2012 to be the
            ‘gold standard’ by which earned income tax should be
            distributed in Lebanon County. This conclusion is
            bolstered by the fact that [both parties’ experts, and the
            court appointed forensic accountant] all relied upon the
            Keystone data in one way or another[.]

Id. at 38 (emphasis added). We will not disturb these findings. With respect to the
certainty of damages, we find that the trial court’s legal analysis is sound. As this
Court held in Merrell v. Chartiers Valley School District, 51 A.3d 286 (Pa. Cmwlth.
2012):

                   [M]ere uncertainty as to the amount of
                   damages will not bar recovery where it is clear
                   that damages were the certain result of the
                   defendant’s conduct. . . . The basis for this
                   rule is that the breaching party should not be
                   allowed to shift the loss to the injured party
                   when, damages, even if uncertain in amount,

                                           9
                       were certainly the responsibility of the party in
                       breach.
                Spang & Co. [v. United States Steel, Co.], . . . 545 A.2d
                [861,] 866 ([Pa.] 1988) [(quoting Pugh v. Holmes, . . . 405
A.2d 897, 910 ([Pa.] 1979))]. If the evidence provides a
                reasonably fair basis for calculating damages, it is legally
                sufficient to support an award of damages.

Merrell, 51 A.3d at 299.11
                Because the Court agrees with the trial court’s in-depth discussion and
analysis of the evidence, we adopt the trial court’s opinion as it pertains to the
sufficiency of Appellee Municipalities’ evidence in meeting their burden of proof and
establishing their damages. Accordingly, we conclude that Appellant Municipalities’
argument is without merit.
                With respect to Appellant Municipalities’ argument that the trial court
improperly shifted the burden of proof, the trial court explained in its October 30,
2015 Opinion:

      11
           This Court previously explained:

                The question of the sufficiency of evidence to establish damages has
                been considered in various contexts and almost without exception it
                has been held that although ‘guesses’ and ‘mere speculations’ are not
                permitted, ‘estimates’ which have a basis in reason are legally
                sufficient. See Smail v. Flock, . . . 180 A.2d 59 ([Pa.] 1962);
                Weinglass v. Gibson, . . . 155 A. 439 ([Pa.] 1931); Osterling v. Frick, .
                . . 131 A. 250 ([Pa.] 1925). In the Osterling case, . . . it was stated
                that ‘. . . while damages . . . cannot be based on a mere guess or
                speculation, yet, where the amount may be fairly estimated from the
                evidence, a recovery will be sustained even though such amount
                cannot be determined with entire accuracy.’ [Id. at] 251. In the
                Weinglass case, . . . the court stated ‘. . . where there is a basis in the
                evidence for a reasonable computation of the damages suffered
                considering the nature of the transaction, a verdict may be based
                thereon, though there may be involved some uncertainty about it. . . .’
                [Id. at ] 440.
Burly Constr. Corp. v. Commonwealth, 284 A.2d 841, 844-45 (Pa. Cmwlth. 1971) (emphasis
added).
                                                   10
              [Appellant Municipalities] argue that we abused our
              discretion by shifting the burden of proof to them. Nothing
              could be further from the truth. . . . [W]e spent 12 full
              pages addressing why we determined the M&A analysis to
              be credible. We specifically concluded that [Appellee
              Municipalities] proved all of the elements of unjust
              enrichment, constructive trust, and the LTEA (see pages 46,
              48 and 50 [of the trial court’s opinion]). While we did
              factually note that [Appellant Municipalities] failed to
              proffer any credible alternative to the M&A analysis, we
              never     overtly    or    implicitly   shifted    [Appellee
              Municipalities’] burden of proof to [Appellant
              Municipalities].

October 30, 2015 Op. at 2-3. The trial court’s October 30, 2015 Opinion accurately
described the trial court’s analysis and confirms that it did not improperly shift the
burden of proof. Accordingly, we reject Appellant Municipalities’ argument and
adopt the trial court’s opinion as it pertains thereto.
              Next, Appellant Municipalities assert that the trial court erred “as a
matter of law and abused its discretion” by awarding pre-judgment interest at a 6%
interest rate.12 Appellant Municipalities’ Br. at 34. We disagree.

              [Our Superior Court] has approved [] the award of pre[-
              ]judgment interest in particular cases:
                     While the general rule is that a successful
                     litigant is entitled to interest beginning only on
                     the date of the verdict, it is nonetheless clear
                     that pre-judgment interest may be awarded
                     ‘when a defendant holds money or property
                     which belongs in good conscience to the
                     plaintiff, and the objective of the court is to
                     force disgorgement of his unjust enrichment.’
              Kaiser v. Old Republic Ins. Co., 741 A.2d 748, 755 (Pa.
              Super. 1999) (quoting Dasher v. Dasher, . . . 542 A.2d 164,
              164-65 ([Pa. Super.] 1988)). Pre-judgment interest ‘in such

       12
           Notably, Appellant Municipalities’ brief does not contain any legal argument supporting
its contention that the trial court erred as a matter of law by awarding 6% interest.
                                               11
                 cases is a part of the restitution necessary to avoid
                 injustice.’ [Dasher, 542 A.2d at 165].

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

                 The determination of whether to award pre-judgment
                 interest and the rate of such interest is left to the sound
                 discretion of the trial court in equity. A court of equity is
                 not limited to awarding merely the statutory rate of
                 interest,[13] but may award interest above the statutory rate.
                 ‘The fairest way for a court [to make such determination] is
                 to decide questions pertaining to interest according to a
                 plain and simple consideration of justice and fair dealing.’
                 Murray Hill Estates, Inc. v. Bastin, . . . 276 A.2d 542, 545
                 ([Pa.] 1971) (quoting McDermott v. McDermott, . . . 196 A.
889[, 890] ([Pa. Super.] 1938)).

Gurenlian v. Gurenlian, 595 A.2d 145, 148 (Pa. Super. 1991) (emphasis added;
citations omitted).
                 “A trial court abuses its discretion when it misapplies the law, or when
its decision is ‘manifestly unreasonable’ and not a mere error in judgment.” Prince
George Ctr. v. U.S. Gypsum Co., 704 A.2d 141, 146 (Pa. Super. 1997). Specifically,

                 ‘. . . an abuse of discretion exists if the trial court renders a
                 judgment that is [plainly] unreasonable, arbitrary or
                 capricious, fails to apply the law, or was motivated by
                 partiality, prejudice, bias or ill will.’ [Commonwealth v.
                 Snyder, 977 A.2d 28, 41 (Pa. Cmwlth. 2009).] ‘If the

       13
            Section 8101 of the Judicial Code states: “Except as otherwise provided by another
statute, a judgment for a specific sum of money shall bear interest at the lawful rate from the date of
the verdict or award, or from the date of the judgment, if the judgment is not entered upon a verdict
or award.” 42 Pa.C.S. § 8101. As set forth in Section 202 of the Act of January 30, 1974, P.L. 13,
as amended;

                 Reference in any law or document enacted or executed heretofore or
                 hereafter to ‘legal rate of interest’ and reference in any document to
                 an obligation to pay a sum of money ‘with interest’ without
                 specification of the applicable rate shall be construed to refer to the
                 rate of interest of six per cent per annum.
41 P.S. § 202.

                                                   12
             record supports the trial court’s reasons and factual basis,
             the court did not abuse its discretion.’ Id.

Grine v. Cnty. of Centre, 138 A.3d 88, 93 (Pa. Cmwlth. 2016).
             In the instant matter, the trial court correctly recognized that

             [s]ince 2007, [Appellee Municipalities] have been deprived
             of money they could have used or invested. The corollary
             is that [Appellant Municipalities] enjoyed the benefit of
             monies that they either used to earn interest/investment
             income or provide municipal services for which they
             otherwise would have had to tax their citizens.

July 15, 2015 Op. at 57. The trial court further explained that it considered different
ways of calculating the pre-judgment interest, identifying three potential methods of
such calculations: (1) the legal rate of interest at 6% per annum; (2) a 2.6% blended
investment income average as measured by Forbes Magazine between 2005 and
2015; and, (3) “the percentage increase [in] the Standard and Poor’s Fortune 500
index between January 1, 2008 [] and June 30, 2015 [] which, on average, generated a
8.9% return on investment per annum.” July 15, 2015 Op. at 58. The trial court
fashioned three comparison charts depicting the differences between the three
approaches, and based its decision to apply a 6% interest rate on the following:

             (1) The statutory rate of interest in this Commonwealth is
             set at 6%. [See] 41 P.S. § 202.
             (2) While our appellate courts have not established any hard
             and fast rules for pre[-]judgment interest, there is at least
             some precedent for an award of 6% legal interest.
             Pittsburgh Const[r]. Co. v. Griffith, 834 A.2d 572 (Pa.
             Super. 2003); Daset Mining Corp. v. Indus[.] Fuels Corp.,
             473 A.2d 584, 595 (Pa. Super. 1984). In fact, our Superior
             Court specifically approved a 6% rate of pre[-]judgment
             interest in a constructive trust context. See [Gurenlian].
             (3) Investment markets have been extremely volatile since
             January 1, 2008. For the first several years following
             [Foltz’ employment] termination, the stock market, the
             bond market and the real estate market all plummeted.

                                           13
               Since 2010, the stock and bond markets have rebounded,
               and have even reached unprecedented levels. Not so with
               the real estate market. Because of the volatility of the
               investment markets over the past seven and one-half years,
               selecting any accurate gauge of investment income would
               be difficult[.]
               (4) lf we were to select some sort of investment-driven
               measure of interest, powerful arguments would be available
               to contravene our selected measure. In our research to
               identify ten year investment averages, we identified
               numerous options. . . . Some were no doubt driven by
               ‘puffing’ designed to motivate sales and were as high as
               25%. Others, like the Forbes Magazine estimate, were
               much lower. A few closely approximated the 6% legal rate
               that we have chosen. Given the lack of any 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 options to reach a decision on a fair interest rate given
the particular circumstances before it.               Nothing in the trial court’s opinion
demonstrates an abuse of that discretion, and we will not intrude on the trial court’s
exercise thereof absent such abuse.                Accordingly, Appellant Municipalities’
arguments cannot stand.14
               Appellant Municipalities next contend that the trial court erred when it
denied them recovery against the Bureau for the costs Appellant Municipalities will
be required to pay back to Appellee Municipalities. We disagree.

       14
          We note that Appellee Municipalities briefed the pre-judgment interest issue in their trial
brief and requested judgment at the legal rate in their proposed and revised verdict slips. However,
Appellant Municipalities did not address the interest rate issue until they filed their post-trial
motion. Thus, there is no record evidence supporting Appellant Municipalities’ argument that the
6% interest rate is excessive.
                                                 14
The trial court explained:

[Appellant Municipalities] are not entitled to be
‘compensated’ for the money that was wrongfully
distributed to them by the Bureau because [Appellant
Municipalities] were never entitled to possess and retain
those funds in the first place. Stated differently, [Appellant
Municipalities] are not entitled to be ‘compensated’ by the
Bureau for monies that actually belonged to [Appellee
Municipalities]. In fact, if we were to require that the
Bureau pay [Appellant Municipalities] for the amount of the
overpayments that were retained, the net result would create
a windfall for [Appellant Municipalities]. Equity would not
sanction such a result.
Several Pennsylvania cases have recognized that when a
defendant is required to repay funds to which he had no
right, title or interest, the mere fact of repayment does not
‘harm’ that defendant. In Donner v. Sacket, 97 A. 89 (Pa.
1916), the Pennsylvania Supreme Court stated that ‘the
[d]efendant will sustain no damage if he is compelled to
repay [money mistakenly received]. In all good conscience
[the plaintiffs] are entitled to it; with no good conscience
can [the defendant] hold onto it, and the law requires him to
return it.’ Id. at 90. Similarly, in Greenwich Bank v.
Commercial Banking Corp., 85 Pa. Super. 159 [] ([]1924), a
defendant was required to return a mistaken double
payment. In that context, the court noted:
      Negligence in making a mistake does not
      deprive a party of his remedy on account
      thereof [for the return of a mistaken double
      payment]; it is the fact that one by mistake
      unintentionally pays money to another to
      which the latter is not entitled from the former,
      that gives the right of action. Especially so, in
      view [of] the fact that the [d]efendant will
      sustain no damage if compelled to repay the
      money; nor be placed in a worse condition than
      if the money had not been paid.
[Id. at 163], citations omitted.[] More recently, the
Pennsylvania Superior Court declared in an insurance
dispute that the requirement to repay funds mistakenly
received will not be characterized as a ‘loss.’ In South
                             15
              Central Employment Corp. v. Birmingham Fire Ins[urance]
              Co., 926 A.2d 977 (Pa. Super. 2007), the Court stated that
              ‘even where inadvertently acquired, money or property that
              has to be returned does not belong to the [party possessing
              it] and therefore the [party] has not suffered a loss.’ Id. at
              982.
              In this case we do not believe that [Appellant
              Municipalities] have suffered ‘harm,’ ‘loss’ or ‘damage’ by
              being required to repay the overpaid funds that never should
              have been received in the first place. Because it would not
              be legally correct or equitably justifiable to award
              ‘compensatory’ damages to [Appellant Municipalities] for
              the amount of overpayments, we will reject [Appellant
              Municipalities’] request to recover all such overpayments
              from the Bureau.
July 15, 2015 Op. at 70-72.

              Appellant Municipalities argue that the trial court erred in denying them
compensatory damages and rely on Brubaker v. County of Berks, 112 A.2d 620 (Pa.
1955) for the proposition that where a third party is required to return improperly held
funds, the third party may seek recovery “against an additional defendant that caused
the problem.”       Appellant Municipalities’ Br. at 43.            However, Brubaker is
distinguishable from the instant matter.           There, Berks County Treasurer Moyer
(Moyer) deposited monies he received from Brubaker for the purchase of a property
into his account as County Treasurer.15 When Moyer’s term expired, his accounts
were settled and found to be balanced, but Moyer died without having applied
Brubaker’s payment to the intended transaction. Brubaker sued Berks County for
unjust enrichment seeking return of the monies. Berks County, in turn, sued Moyer’s
estate and was permitted recovery. Unlike the instant case, Moyer’s acts deprived
both Brubaker and Berks County of the funds. Thus, when Berks County was
required to return the funds, it was likewise permitted to recover the equivalent

       15
          “No one questions the fact of Moyer’s embezzlement or breach of trust.” Brubaker, 112
A.2d at 624 (Jones, J., concurring).
                                              16
amount from Moyer since Moyer had subsequently deprived Berks County of those
funds. In the instant action, Appellant Municipalities were not subsequently deprived
of the overpayments they wrongly obtained. They are merely being required to return
funds they were never entitled to receive.        Accordingly, we cannot agree with
Appellant Municipalities that the trial court erred when it denied them recovery
against the Bureau for the costs Appellant Municipalities will be required to pay back
to Appellee Municipalities, and we adopt the trial court’s opinion with respect
thereto.
              Finally, Appellant Municipalities maintain that the trial court
erroneously failed to apply equitable principles, and failed to limit Appellee
Municipalities’ recovery under the doctrine of unclean hands. We disagree.
              The trial court began its July 15, 2015 Opinion:

              Given a choice between rough but imperfect justice and
              gross inequity created in part by corruption, we will choose
              the former every time. . . .
              ....
              [Thus,] we will redistribute over three million dollars in tax
              revenue plus interest from municipalities that were overpaid
              by the corruption-ridden [Bureau] to taxpayers in
              municipalities who were shortchanged for a period of four
              years.

Id. at 2-3.
              Appellant Municipalities allege:

              The application of ‘rough but imperfect justice,’ frankly,
              confirms that . . . Appellee Municipalities did not prove
              their case, forcing the trial court to rely upon shoddy
              calculations in manufacturing an award of damages.
              Moreover, there was no evidence to establish that ‘gross
              inequity’ would have occurred because . . . Appellee

                                           17
                Municipalities failed to prove with any accuracy the actual
                extent of any improper disbursements.

Appellant Municipalities’ Br. at 45.
                To the contrary, the trial court considered the M&A Report and the
testimony supporting the analysis therein. It employed its own independent expert to
evaluate M&A’s methods in determining the amounts of over and underpayments.
Although the trial court acknowledged that the M&A Report’s results were not exact,
the evidence demonstrated that the trial court’s award was not based on “shoddy
calculations,” but was instead grounded on accepted forensic accounting methods.
Appellant Municipalities’ Br. at 45. Such evidence meets the requirements set forth
in Merrell and Burly Construction Corp. v. Commonwealth, 284 A.2d 841 (Pa.
Cmwlth. 1971).          Finally, the trial court thoroughly explained its findings and
rationale in its opinion, and we need not revisit those here. Based thereon, we
conclude that the remedy fashioned by the trial court was fair, reasonable and
appropriate.16

       16
            Our Supreme Court has explained:

                The historic distinction between a court of law and a court of equity is
                the ability of the latter tribunal to fashion a remedy based upon
                considerations of fairness, justness, and right dealing in a particular
                situation as contrasted with the strictly formulated rules of common
                law. The chancellor in equity was expected to consider all
                circumstances and interests of affected parties and was given broad
                discretion to effectuate a remedy reflecting an equitable balancing of
                those considerations. Subrin, How Equity Conquered Common Law,
                135 U.Penn L.Rev. 909, 920 (1985). In the early days of the equity
                courts, bills in equity could be filed to avoid forcing a dispute into
                ‘narrow cubbyholes’ and to protect a petitioner from the alleged
                injustice that would result from ‘a rigorous application of the common
                law.’ Id. at 918.
Armstrong Sch. Dist. v. Armstrong Educ. Ass’n, 595 A.2d 1139, 1141 n.2 (Pa. 1991).

                                                  18
               Appellant Municipalities further assert that the trial court erred because
it did not bar or limit Appellee Municipalities’ recovery based on the unclean hands
doctrine, given Appellee Municipalities’ failure to reconcile their receipts of earned
income tax revenue as statutorily required.

               A court may deprive a party of equitable relief where, to the
               detriment of the other party, the party applying for such
               relief is guilty of bad conduct relating to the matter at issue.
               The doctrine of unclean hands requires that one seeking
               equity act fairly and without fraud or deceit as to the
               controversy in issue.

Terraciano v. Dep’t of Transp., Bureau of Driver Licensing, 753 A.2d 233, 237-38
(Pa. 2000) (citation omitted). “[T]he application of the doctrine to deny relief is
within the discretion of the chancellor, and in exercising his discretion the
chancellor is free not to apply the doctrine if a consideration of the entire record
convinces him that an inequitable result will be reached by applying it.” Stauffer v.
Stauffer, 351 A.2d 236, 245 (Pa. 1976) (emphasis added).
               Here, the trial court explained:

               In this case, the Bureau could certainly have been deemed
               to possess ‘unclean hands,’ but we will not impugn
               [Appellee Municipalities] with any taint from the Bureau.
               There is absolutely no evidence in this case that [Appellee
               Municipalities] acted fraudulently or even knowingly with
               respect to the distribution of funds by the Bureau.
               We specifically reject [Appellant Municipalities’] argument
               that [Appellee Municipalities’] ineffective audit and
               reconciliation process should be equated with fraud, deceit
               or bad faith. In this regard, we clearly recall the testimony
               of [accountant, Cheri] Freeh [(Freeh)], who was the expert
               witness most familiar with auditing and reconciliation of tax
               collection agencies.[17] Freeh testified that while local

       17
           Freeh was a witness for Appellant Municipalities. She is a principal in an accounting
firm, but admitted that she is not qualified to conduct a financial reconstruction such as the one at
issue in this matter. The trial court found that Freeh “has a wealth of experience in auditing of tax
                                                 19
             municipalities are required to conduct periodic
             reconciliations of tax receipt records, ‘in reality, most
             school districts and municipalities rely upon the
             reconciliation of the taxing agency and its auditor.’ They
             do this because it would be impossible for political
             subdivisions to conduct a proper reconciliation because the
             tax collector – not the local agencies - possessed the actual
             records.
             On multiple occasions and in several contexts, Freeh
             emphasized that the type of audit reconciliation completed
             by governmental entities is typically far less strenuous than
             the audits that are required of the tax collection agency. In
             fact, Freeh even testified that while the Bureau’s auditor
             should have discovered problems at the Bureau, she would
             not have expected a governmental agency audit to have
             detected what was going wrong at the Bureau.
             We must also recognize that, to the extent [Appellant
             Municipalities] argue that greater oversight should have
             been undertaken by [Appellee Municipalities], they must
             look in a mirror at their own conduct. It is certainly
             arguable that every single Lebanon County political
             subdivision should have more actively participated in
             oversight of the Bureau.          This includes [Appellee
             Municipalities]; it also includes [Appellant Municipalities].
             For us to hold today that [Appellee Municipalities] are
             guilty of ‘unclean hands’ for improper oversight of the
             Bureau would be to punish [Appellee Municipalities] for
             conduct that was identical to that of [Appellant
             Municipalities]. Equity would not sanction such a result.

July 15, 2015 Op. at 54-55.
             It is clear that the trial court, in its discretion, carefully considered the
doctrine of unclean hands and the various parties’ roles in the events leading to the
instant litigation. Based on the record evidence, the trial court acted well within its
authority when it declined to apply the doctrine. Thus, Appellant Municipalities’
argument fails.

collection agencies such as [the] Bureau[, and] has unique experience with respect to local
government taxation.” July 15, 2015 Op. at 21.
                                            20
For all of the above reasons, the judgments are affirmed.

                         ___________________________
                         ANNE E. COVEY, Judge

                             21
            IN THE COMMONWEALTH COURT OF PENNSYLVANIA

City of Lebanon, Jonestown Borough, :
North Cornwall Township, North      :
Lebanon Township, North Londonderry :
Township, Northern Lebanon School   :
District, Palmyra Area School District,
                                    :
South Lebanon Township, South       :
Londonderry Township, Swatara       :
Township, Union Township, and West  :
Lebanon Township                    :
                                    :
                 v.                 :
                                    :
Cornwall Borough, Heidelberg        :
Township, North Annville Township, :
West Cornwall Township, and         :
Bethel Township,                    :
                                    :
                 v.                 :
                                    :
Lebanon County Earned Income Tax    :
Bureau                              :
                                    :
Appeal of: Cornwall Borough,        :
Heidelberg Township, West Cornwall :      No. 2419 C.D. 2015
Township, and Bethel Township Board :

                                    ORDER

            AND NOW, this 6th day of October, 2016, the Lebanon County
Common Pleas Court’s November 9, 2015 and November 19, 2015 judgments are
affirmed.

                                     ___________________________
                                     ANNE E. COVEY, Judge