Court Opinion

ID: 4126279
Source: CourtListenerOpinion
Date Created: 2017-02-15 18:12:57.139219+00
Date Added: 2024-06-11T14:29:51.200096
License: Public Domain

J-S86013-16

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

J.W. HALL, INC., A CORPORATION           :   IN THE SUPERIOR COURT OF
                                         :        PENNSYLVANIA
                   Appellant             :
                                         :
                                         :
             v.                          :
                                         :
                                         :
MICHAEL W. NALLI, ESQUIRE AND            :   No. 771 WDA 2016
MICHAEL W. NALLI, P.C.                   :

              Appeal from the Judgment Entered April 25, 2016
               In the Court of Common Pleas of Beaver County
                     Civil Division at No(s): 11132-2013

BEFORE: GANTMAN, P.J., MOULTON, J., STEVENS*, P.J.E.

MEMORANDUM BY STEVENS, P.J.E.:                   FILED FEBRUARY 15, 2017

      J.W. Hall, Inc. appeals from the order entered by the Court of Common

Pleas of Beaver County granting summary judgment in favor of Michael W.

Nalli, Esq. and Michael W. Nalli, P.C., Defendants/Appellees in a legal

malpractice action brought by Appellant. We affirm.

      In its Opinion, the trial court set forth the relevant factual and

procedural history as follows:

      The [present] action arises as the result of a sale of a restaurant
      and liquor license for an establishment located in Hopewell
      Township, Beaver County, Pennsylvania, in 2011. Defendant
      Michael W. Nalli drafted the purchase agreement, and the claims
      arise from that transaction. Plaintiff [J.W. Hall, Inc.,] asserts
      that it was represented by Nalli in that transaction and, further,
      that as a result of that representation, negligence occurred that
      caused plaintiff [J.W. Hall, Inc.,] to incur losses after the
      purchasing entity, J.B. Culinary Enterprises, Inc., defaulted on its
      obligations under the purchase agreement and went into
      bankruptcy.

*Former Justice specially assigned to the Superior Court.
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     ****
     The pleadings and discovery . . . give rise to the facts that are
     discussed herein.       Commencing in the spring of 2011, an
     individual by the name of Jeffrey Belsky (hereinafter “Belsky”)
     entered into negotiations with Joseph Hall (hereinafter “Hall”),
     president of plaintiff, J.W. Hall, Inc.,[] in an attempt to purchase
     J.W. Hall’s Steak and Seafood Inn located in Hopewell Township,
     Beaver County, Pennsylvania. The parties initially haggled over
     the price and ultimately agreed on $800,000 as the purchase
     price.

     Belsky thereafter contacted attorney Michael Nalli, whose office
     was, and is, located in Center Township, Beaver County, for the
     purpose of incorporating J.B. Culinary Enterprises, Inc.
     (hereinafter “J.B. Culinary”) to operate the restaurant after sale
     and to draft the purchase agreement. Attorney Nalli provided
     Belsky with an engagement letter, which Belsky signed.

     Shortly thereafter, Belsky and Hall met at Attorney Nalli’s office
     to discuss a draft of the purchase agreement on June 23, 2011.
     At that meeting, Attorney Nalli asked Hall if he had an attorney,
     to which Hall responded “No, Mike, I don’t. You can take care of
     this, can’t you?” There is a reference in the record that Nalli
     responded “Sure, Joe, no problem.” It should also be noted that
     there are several references in the record to confirm that Hall
     and Belsky shared the expense of Attorney Nalli’s legal fees for
     preparing the documents.

     Following this meeting, Attorney Nalli made revisions to the
     purchase agreement, and sent an email to Belsky regarding
     what would happen in the event of a default on the agreement.
     The email stated that the purchase agreement would include a
     provision for an unsecured note so that [J.W. Hall, Inc.] could
     not simply take back the collateral in the event of a default.

     Hall contacted his son, a tenured professor at Harvard Business
     School, regarding the proposed agreement. His son reviewed
     the agreement and raised questions regarding re-purchasing the
     property in the event of default and potential tax implications.
     In July of 2011, Belsky and Hall finalized the agreement on
     behalf of their respective companies for the purchase price of
     $800,000. The sum of $225,000 was to be paid up-front and
     the remaining $575,000 was to be paid in monthly increments of

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      $5,761.05. After execution of the agreement, the liquor license
      was transferred and J.B. Culinary began to operate the
      establishment.

      After J.B. Culinary assumed operation of the restaurant, it made
      some improvements. J.B. Culinary operated the restaurant and
      made approximately 14 monthly installment payments, but the
      payments stopped in December of 2012. J.B. Culinary sought to
      renegotiate the monthly payments, but Hall declined that offer.
      Both parties to this action agree that Hall contacted defendant
      Nalli about the situation, and Nalli stated he could not do
      anything for Hall because he was representing Belsky.

      J.B. Culinary filed for bankruptcy, and Hall created a new entity,
      JoeWillRoger, LLC, which purchased the restaurant [out of
      bankruptcy] for $178,000.       Hall also claims to have spent
      $75,000 in legal fees for counsel to represent him in the re-
      purchase, but only $56,394.24 in fees can actually be
      documented and accounted for, all of which were paid by
      personal checks of Hall and his wife or by the account of
      JoeWillRoger, LLC. Hall also, either personally or through the
      new entity, JoeWillRoger, LLC, expended approximately $50,000
      to $60,000 for renovations to the restaurant in connection with
      reopening it [].

Trial Court Opinion, 4/25/16, at 1-4.

      On September 30, 2013, J.W. Hall, Inc., commenced a legal

malpractice and breach of fiduciary duty action against Attorney Nalli and his

professional corporation. Among the averments in the complaint were that

Defendants/Appellees knew J.W. Hall, Inc., relied solely on them to facilitate

the closing with J.B. Culinary, failed to discuss or include in the purchase

agreement the personal guaranty of Belsky as guarantor for the loan in the

event of default, and failed to prepare and file a UCC-1 financing statement

in   order   to   perfect   J.W.   Hall,   Inc.’s,   security   interest   in   the

restaurant/business as collateral.   With respect to the last averment, J.W.

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Hall, Inc., computed its losses with reference to what its financial position

would have been had such a security clause existed.

      On      February     4,       2016,     after    discovery    was      complete,

Defendants/Appellees filed a motion for summary judgment asserting J.W.

Hall, Inc., failed to present sufficient evidence to establish a question of

material as to whether: (1) an attorney-client relationship between the

parties existed; (2) J.B. Culinary would have agreed to a security clause in

the purchase agreement; and (3) J.W. Hall, Inc., incurred actual damages.

Viewing the record in a light most favorable to non-movant J.W. Hall, Inc.,

the   court    perceived        a   dispute    of     material   fact   in   each   of

Defendants/Appellees’ first two issues and, thus, declined to grant summary

judgment thereon.

      With respect to the final issue, however, the trial court first

determined that J.W. Hall, Inc., failed to establish a dispute of material fact

over whether it incurred actual losses.             Undisputed evidence shows J.W.

Hall, Inc., has both its restaurant and an amount of funds—from receipt of

J.B. Culinary’s down-payment and subsequent installment payments—

greater than or at least equal to those funds it expended to reacquire the

restaurant from bankruptcy. The court concluded, therefore, that J.W. Hall,

Inc., cannot show it suffered actual losses when it was essentially in the

same position in which it would have been had it never entered into the

agreement drafted by Attorney Nalli. Accordingly, in its Order of April 25,

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2016,        the   court   granted   Defendants/Appellees’   motion   for   summary

judgment and entered judgment in their favor. This timely appeal followed.

        Appellant J.W. Hall, Inc., presents the following questions for our

review:

        I.         DID THE TRIAL COURT ERR IN FAILING TO FIND
                   THAT THE PLAINTIFF SUFFERED PECUNIARY HARM
                   BY THE DEFENDANTS’ ESTABLISHED FAILURE TO
                   INCLUDE A SECURITY AGREEMENT IN THE SALES
                   AGREEMENT?

        II.        DID THE TRIAL COURT ERR IN REFUSING TO TREAT
                   AS IDENTICAL THE CORPORATION AND THE
                   INDIVIDUALS OWNING ALL ITS STOCK AND ASSETS
                   AND THAT THE COSTS WERE PAID BY A ‘MULTITUDE
                   OF SOURCES’ OTHER THAN PLAINTIFF WHERE
                   JUSTICE AND PUBLIC POLICY DEMANDED DOING SO
                   AND WHEN THE RIGHTS OF INNOCENT PARTIES
                   WERE NOT PREJUDICED THEREBY NOR THE THEORY
                   OF CORPORATE ENTITY MADE USELESS?

        III. DID THE TRIAL COURT ERR IN FINDING THAT
             PLAINTIFF WOULD RECEIVE A WINDFALL WHERE
             PLAINTIFF, VIS A VIS JOSEPH HALL, INCURRED
             OVER $313,000 IN DAMAGES?

Appellant’s brief at 4.

        In reviewing a trial court's decision to grant summary judgment, our

standard review is as follows:

        As has been oft declared by this Court, summary judgment is
        appropriate only in those cases where the record clearly
        demonstrates that there is no genuine issue of material fact and
        that the moving party is entitled to judgment as a matter of law.
        When considering a motion for summary judgment, the trial
        court must take all facts of record and reasonable inferences
        therefrom in a light most favorable to the non-moving party. In
        so doing, the trial court must resolve all doubts as to the

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     existence of a genuine issue of material fact against the moving
     party, and, thus, may only grant summary judgment where the
     right to such judgment is clear and free from all doubt.

     On appellate review, then, an appellate court may reverse a
     grant of summary judgment if there has been an error of law or
     an abuse of discretion. But the issue as to whether there are no
     genuine issues as to any material fact presents a question of
     law, and therefore, on that question our standard of review is de
     novo. This means we need not defer to the determinations
     made by the lower tribunals. To the extent that this Court must
     resolve a question of law, we shall review the grant of summary
     judgment in the context of the entire record.

Allen–Myland, Inc. v. Garmin Int'l, Inc., 140 A.3d 677, 682 (Pa.Super.

2016) (quoting Summers v. Certainteed Corp., 606 Pa. 294, 307, 997
A.2d 1152, 1159 (2010) (internal citations and quotation marks omitted)).

     We have, recently, discussed the burden borne by a plaintiff in a legal

malpractice action:

     The Supreme Court of Pennsylvania has described the unique
     nature of a legal malpractice claim:

           [A] legal malpractice action is distinctly different
           from any other type of lawsuit brought in the
           Commonwealth.       A legal malpractice action is
           different because ... a plaintiff must prove a case
           within a case since he must initially establish by a
           preponderance of the evidence that he would have
           recovered a judgment in the underlying action. ... It
           is only after the plaintiff proves he would have
           recovered a judgment in the underlying action that
           the plaintiff can then proceed with proof that the
           attorney he engaged to prosecute or defend the
           underlying action was negligent in the handling of
           the underlying action and that negligence was the
           proximate cause of the plaintiff's loss since it
           prevented the plaintiff from being properly
           compensated for his loss.

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      Kituskie v. Corbman, 552 Pa. 275, 714 A.2d 1027, 1030
      (1998) (footnote omitted). Therefore, an important question in
      a legal malpractice action is whether the plaintiff “had a viable
      cause of action against the party he wished to sue in the
      underlying case and that the attorney he hired was negligent in
      prosecuting or defending that underlying case (often referred to
      as proving a ‘case within a case’).” Poole v. W.C.A.B.
      (Warehouse Club, Inc.), 570 Pa. 495, 810 A.2d 1182, 1184
      (2002).

Heldring v. Lundy Beldecos & Milby, P.C., ___ A.3d ____, 2016 WL
6946583 (Pa.Super. Nov. 28, 2016).

      The case sub judice involves not the would-be recovery of a judgment

in an underlying litigation, but, instead, an analogous would-be recovery of

collateral through the exercise of a security clause in a purchase/sale

agreement. In both instances, the claim states that, but for the negligence

of counsel in an underlying matter involving a third party, the legal

malpractice plaintiff would have recovered its due from such third party.

Accordingly, the trial court properly turned to Kituskie for guidance in the

present matter.

      To support its view, the court relied on the Kituskie rationale that the

“collectibility of damages in the underlying action” is part of the analysis of

actual loss compensable in a legal malpractice action.        In this regard,

Kituskie explained that “actual losses in a legal malpractice action are

measured by the judgment the plaintiff lost in the underlying action and the

attorney who negligently handled the underlying action is the party held

responsible for the lost judgment.” Kituskie, 552 Pa. at 282, 714 A.3d at

1030. A legal malpractice plaintiff should not obtain a judgment “against an

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attorney which is greater than the judgment the plaintiff could have

collected from the third party; the plaintiff would be receiving a windfall at

the attorney’s expense.” Id. at 283, 714 A.3d at 1030.

       As noted, supra, the trial court purported to apply these principles in

finding that J.W. Hall, Inc., failed to demonstrate an issue of material fact as

to actual losses where it ultimately experienced a “break-even” result. That

is, because the discovery record established that J.W. Hall, Inc., owned

essentially the same restaurant after default as it did before selling to J.B.

Culinary, and the income it earned from the sale offset the expenses

incurred from re-purchasing the restaurant from bankruptcy, it could not

establish losses requisite to a legal malpractice claim.

       We discern error with the court’s assessment of losses, however, as it

reflects a comparison of J.W. Hall, Inc.’s,1 pre-transaction and post-

transaction economic realities, when the proper computation of actual losses

should instead reflect what, if any, rightful benefits eluded J.W. Hall, Inc.,

due to its attorney’s alleged malpractice.       Just as a judgment lost due to

courtroom malpractice defines a litigant’s actual loss, so, too, would

collateral lost due to transactional malpractice define a contracting party’s

____________________________________________

1
  It is only for ease of discussion regarding the issue of actual losses that we
identify J.W. Hall, Inc., as both the seller and re-purchaser of the restaurant
in question. By doing so, we do not mean to suggest a disposition of the
subsequent issue premised on the charge that a different entity bought the
restaurant out of bankruptcy.

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loss.   While we do not dispute the trial court’s observation that J.W. Hall,

Inc., appeared no worse off after repurchasing the restaurant than it was

before transacting with J.B. Culinary, the Kituskie inquiry concerns itself

with a different assessment of damages flowing from alleged malpractice.

        Here, J.W. Hall, Inc., framed the inquiry properly when it effectively

claimed that its loss was the rightful benefit it was denied when Attorney

Nalli negligently failed to incorporate in the purchase/sale agreement an

industry-standard security clause authorizing J.W. Hall, Inc., to retake

ownership of the collateralized restaurant in the event of buyer’s default.

This loss, moreover, was not speculative, incalculable, or illusory; it was the

total of all requisite expenses made to buy the collateral out of bankruptcy,

and J.W. Hall, Inc., identified them during discovery. We, therefore, reject

the court’s grant of summary judgment for want of evidence of actual losses.

        The   trial   court’s   determination   that   J.W.   Hall,   Inc.,   failed   to

demonstrate actual losses had a second component, however, that proves

more problematic to the Appellant company’s cause. The record establishes

that it was not actually J.W. Hall, Inc., that paid $178,000 to purchase the

restaurant out of bankruptcy and $56,394.24 in legal fees to effectuate such

purchase, but was, instead, the separate entities of JoeWillRoger, LLC, and

Mr. and Mrs. J.W. Hall in their individual capacities. As such, the trial court

entertained the question of whether damages claimed by Plaintiff/Appellant

J.W. Hall, Inc., were, in fact, incurred by separate and distinct entities even

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though it is undisputed that Mr. Hall and his wife are the sole owners of the

two corporations in question.

      In addressing this issue, the trial court turned to, inter alia, Sams v.

Redevelopment Authority of New Kensington, 431 Pa. 240, 244 A.2d
779 (Pa. 1968). The court aptly summarized Sams as follows:

      In Sams, the New Kensington Redevelopment Authority adopted
      a resolution condemning a plot of land owned individually by Mr.
      Sams and Mr. Mannarino. That plot of land was used as a scrap
      yard for the receipt of shipping of scrap metal.

      At the time of the condemnation, Sams and Mannarino also
      owned, through a corporation, another plot of land located on
      the opposite side of the street, which was being operated as a
      foundry.

      When awarding damages, the Board of Viewers awarded
      damages to Sams and Mannarino individually, [and] as
      copartners, trading and doing business as the corporation. The
      Redevelopment Authority appealed on the basis that evidence
      should not have been admitted regarding the corporate property
      in that it did not have the same owner and was not used for the
      same purpose.

Trial Court Opinion, at 11.

      The Pennsylvania Supreme Court noted at the outset of its decision

that, under the then-governing Eminent Domain Code, damages may be

assessed as if two or more non-contiguous tracts of land were one parcel

only upon a demonstration that the tracts are owned by one owner and are

used together for a unified purpose.   The corporate shareholders, Messers

Sams and Mannarino, argued that the Court should pierce the corporate veil

of their corporation to find an identity of ownership between the two lots, as

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the two men were the sole shareholders of the corporation and doing so

would further the practical application of the intent of the law. Id. at 781.

The Court refused to do so.

     Precedent   allowed   courts   to   disregard   the   corporate   entity   or

personality “only when the entity is used to defeat public convenience,

justify wrong, protect fraud or defend crime,” the Court noted. Because the

partnership in question was not formed for such purpose, the Court refused

to disregard its corporate status and recognize an identity of ownership

between the two lots. The Court reasoned:

     The cases on disregarding the corporate entity suggest that in
     order for the courts to justify piercing the corporate veil, it must
     be determined that the corporate fiction is being used by the
     corporation itself to defeat public convenience, justify wrong
     either to third parties dealing with the corporation, or internally
     between shareholders’ (derivative suits), perpetrate fraud or
     other similar reprehensible conduct. Since, in the instant
     case, the corporate fiction is not being employed as a
     means to shield itself from its ultimate responsibilities
     and liabilities, no sound reason exists for piercing the veil
     for the benefit of the individual shareholders, who created
     the veil in order to procure other business advantages. In
     our view, one cannot choose to accept the benefits
     incident to a corporate enterprise and at the same time
     brush aside the corporate form when it works to their
     (shareholders’)       detriment.        The    advantages       and
     disadvantages of the corporate structure should be
     seriously considered and evaluated at the time such
     organization is contemplated and after incorporation has
     been selected, the shareholders cannot be heard to argue
     that the courts should not treat them as a corporation for
     some purposes and as a corporation for other purposes,
     which suits their present economic interest.

Id. (emphasis added).

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       The trial court relied upon Sams to grant Defendants/Appellees’

motion, and as J.W. Hall, Inc., fails to distinguish Sams on the facts,2 we

agree that the rationale expressed therein is directly on point and represents

controlling precedent.      To buy back their former restaurant, Mr. and Mrs.

Hall formed a new corporate entity, JoeWillRoger, LLC, that was separate

and distinct from both Appellant/Plaintiff J.W. Hall, Inc., and themselves in

____________________________________________

2
  Appellant contends our decision in Kellytown Co. v. Williams, 426 A.2d
663 (Pa.Super. 1981) supports piercing the corporate veil in the present
case. We disagree, as Kellytown approves of treating a corporation and its
owners as identical entities only within the framework announced in Sams.
Kellytown provides:

       The established rule in Pennsylvania is that a court will not
       hesitate to treat as identical the corporation and the individual or
       individuals owning all its stock and assets whenever justice and
       public policy demand and when the rights of innocent parties are
       not prejudiced thereby nor the theory of corporate entity
       made useless. Great Oak B & L, et al. v. Rosenheim,
       supra, Pasos v. Ferber, 263 F. Supp. 877, 881-82 (1967);
       Gagnon v. Speback, 389 Pa. 17, 131 A.2d 619 (1957);
       Wedner Unemployment Compensation Case, 449 Pa. 460,
       296 A.2d 792 (1972); Tucker v. Bienstock, 310 Pa. 254, 165
A. 247 (1933). In Sams v. Redevelopment Authority, 431
Pa. 240, 244 A.2d 779 (1968), the Supreme Court of
       Pennsylvania held that:

              The corporate entity or personality will be
              disregarded only when the entity is used to defeat
              public convenience, justify wrong, protect fraud or
              defend crime.

Kellytown, 426 A.2d at 668 (emphasis added).              As explained, infra,
Appellant fails to meet this standard for piercing the corporate veil.

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their individual capacities.       There is no reason to doubt that the Halls

discerned some advantage to forming this new entity,3 and Sams

admonishes that the corporate status providing such advantage may not

simply be “brushed aside” whenever consequential disadvantages do not suit

shareholders’ individual interests.

       It was the Halls’ election to re-purchase the restaurant with their own

personal monies and the funds of a newly-incorporated JoeWillRoger LLC,

exclusively. Restaurant seller, Appellant/Plaintiff J.W. Hall, Inc., a separate

legal entity, expended no funds in the re-purchase effort, and so it may not

now identify the re-purchase payment as an actual loss it sustained for

purposes of satisfying a necessary element to its legal malpractice claim.

Because the trial court’s finding to this effect was dispositive of the action, it

properly granted Defendants/Appellees’ motion for summary judgment, and

we affirm for this reason.

       Order Affirmed.

____________________________________________

3
  Appellant’s request to pierce the corporate veil to its benefit is not without
a degree of convolution, as it is asking the courts to pierce both its corporate
veil and that of “JoeWillRoger, LLC” so that the two distinct corporate
entities may effectively be considered the same entity for this discrete
purpose. This would allow the courts to consider the money expended by
JoeWillRoger, LLC as money expended by J.W. Hall, Inc. Of course, this
begs the question of why the Halls elected to form a different corporation to
repurchase the restaurant in the first place, and how requiring it to accept
not only the presumptive advantages of its election but also the
disadvantages would work the kinds of injustice addressed in Sams.

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Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 2/15/2017

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