Opinion
Civil Action No. 04-CV-1270.
September 14, 2004
MEMORANDUM
Pasquale Scaramuzza ("Scaramuzza") brings one count of legal malpractice against Anthony J. Sciolla, Jr., Esquire ("Sciolla") and two counts (legal malpractice and respondeat superior) against the law firm of Jaffe, Friedman, Schuman, Sciolla Applebaum, P.C. ("Jaffe Friedman"). Sciolla and Jaffe Friedman have joined Personal Surplus Line, Inc. ("Personal Surplus") to this action as a third-party defendant.
Presently before the Court is Personal Surplus's Motion to Dismiss. (Docket No. 8.) For the reasons which follow, that Motion will be granted.
I. Factual Background
A. Contractual Relationship Among Scaramuzza, Personal Surplus, and Lincoln General
Scaramuzza retained Sciolla and Jaffe Friedman to represent him in the case of Lincoln General Insurance Company v. Personal Surplus Lines, Inc. and Pasquale Scaramuzza ("Lincoln General Litigation") in the Court of Common Pleas of Montgomery County, Pennsylvania. (Scaramuzza Compl. ¶ 5.)
The plaintiff, Lincoln General Insurance Company ("Lincoln General"), alleged that it entered into a brokerage agreement with Personal Surplus, whereby Personal Surplus agreed to solicit business and bind risks for Lincoln General's private passenger automobile physical damage line of business in all states where Lincoln General was licensed to write such insurance. (Id. ¶ 6.) Personal Surplus was responsible for collecting, accounting for, and paying all premiums on the insurance business that it wrote for Lincoln General, even if it did not collect the premium from the policy holder. (Id.) Premiums collected by Personal Surplus were the property of Lincoln General, and Personal Surplus held such premiums as a trustee for Lincoln General. (Id.) Personal Surplus could only be relieved of its responsibility to pay premiums to Lincoln General if Personal Surplus notified Lincoln General within thirty days of the premium billing that it was unable to collect such premiums. (Id.) As an inducement to Lincoln General to enter into the brokerage agreement, Personal Surplus agreed to guarantee the full performance by Scaramuzza of all terms and conditions of the brokerage agreement. (Id.)
B. Lincoln General Litigation
1. Claims Against Scaramuzza
When the professional relationship soured among the parties, Lincoln General initiated the Lincoln General Litigation, which contained two counts alleging Scaramuzza's personal liability (Breach of Fiduciary Duty and Unjust Enrichment). (Scaramuzza Compl. ¶ 17.) Regarding the Breach of Fiduciary Duty Count, Lincoln General claimed that Scaramuzza owed a fiduciary duty to Lincoln General with respect to the premiums for the business that he obtained for Lincoln General. (Id. ¶ 18.) In breach of this fiduciary duty, Scaramuzza allegedly failed or refused to hold unearned premiums in trust or to return unearned premiums to insurance premium finance companies. (Id.) Lincoln General alleged that Scaramuzza failed to return unearned premiums in order to receive interest on the retained money. (Id.) Regarding the Unjust Enrichment Count, Lincoln General claimed that Personal Surplus and Scaramuzza, acting jointly and severally, had been unjustly enriched by wrongfully withholding gross unearned insurance premiums which belonged to insurance premium companies. (Id. ¶ 19.)
2. Happenings at Trial
The Lincoln General Litigation was tried before the Court of Common Pleas of Montgomery County, Pennsylvania in February 2003. (Id. ¶ 20.) Scaramuzza alleges that Lincoln General failed to introduce any evidence against Scaramuzza to sustain its allegations of Breach of Fiduciary Duty or Unjust Enrichment. (Id. ¶¶ 25-26.) Although there are no specifics alleged in the present Complaint, it appears that the verdict was adverse to Scaramuzza.
Sciolla filed a post-trial motion and an amended post-trial motion, but allegedly failed to assert in either motion that Lincoln General had failed to introduce any substantive evidence to sustain the allegations of Breach of Fiduciary Duty or Unjust Enrichment against Scaramuzza. (Id. ¶¶ 28-31.) Sciolla filed a "Brief in Support of [the defendants'] Motion for New Trial," in which he had written: "The relationship between [Lincoln General and Personal Surplus] was based on a contract that has been accepted [into evidence], along with a Guaranty by [Scaramuzza]." (Id. ¶ 32.) The Guaranty to which Sciolla referred states:
Whereas to induce [Lincoln General] to enter said Brokerage Agreement (hereinafter referred to as the `Agreement') Personal Surplus Lines, Inc. (hereinafter referred to as `Guarantor') has agreed to guarantee the faithful performance of all the terms and conditions of the Brokerage Agreement.
(Id. ¶ 33.) Scaramuzza argues that according to the explicit terms of the Guaranty, Personal Surplus — and not Scaramuzza — was the guarantor (Id. ¶ 34), a fact that Sciolla allegedly failed to understand or comprehend (Id. ¶ 35).
By Order dated May 7, 2003, the Court of Common Pleas of Montgomery County entered a revised judgment against Scaramuzza (and Personal Surplus) in the amount of $477,556.12. (Id. ¶ 37.)
II. Legal Standard
When deciding a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court may look only to the facts alleged in the complaint and its attachments. Jordan v. Fox, Rothschild, O'Brien Frankel, 20 F.3d 1251, 1261 (3d Cir. 1994). The Court must accept as true all well-pleaded allegations in the complaint and view them in the light most favorable to the plaintiff. Angelastro v. Prudential-Bache Sec., Inc., 764 F.2d 939, 944 (3d Cir. 1985). A Rule 12(b)(6) motion will be granted only when it is certain that no relief could be granted under any set of facts that could be proved by the plaintiff. Ransom v. Marrazzo, 848 F.2d 398, 401 (3d Cir. 1988).
III. Jurisdiction
The Court has jurisdiction over Scaramuzza's complaint pursuant to 28 U.S.C. § 1332(a)(1). Scaramuzza is a resident of Florida. (Scaramuzza Compl. ¶ 1.) Sciolla and Jaffe Friedman are residents of Pennsylvania. (Id. at 1.) The amount in controversy exceeds $75,000. (Id.) Venue is appropriate under 28 U.S.C. § 1391(a). The Court has jurisdiction over the third-party plaintiffs' complaint under 28 U.S.C. § 1367(a).
This diversity action is governed by substantive Pennsylvania state law. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78-80, 58 S. Ct. 817, 82 L. Ed. 1188 (1938). When ascertaining Pennsylvania law, the decisions of the Pennsylvania Supreme Court are the authoritative source. See State Farm Mut. Auto. Ins. Co. v. Coviello, 233 F.3d 710, 713 (3d Cir. 2000). If the Pennsylvania Supreme Court has not yet passed on an issue, then this court will consider the pronouncements of the lower state courts. See id.
IV. Discussion
As stated above, Scaramuzza instituted his cause of action against Sciolla and Jaffe Friedman for legal malpractice in connection with the Lincoln General Litigation. Scaramuzza seeks to recover from Sciolla and Jaffe Friedman the amount for which Scaramuzza is liable pursuant to the Lincoln General Litigation.
Sciolla and Jaffe Friedman have joined Personal Surplus to this action as a third-party defendant. Sciolla and Jaffe Friedman allege that Personal Surplus will receive the benefit of any payment made to Scaramuzza for or on account of the judgment for which Personal Surplus is also liable. (3d Party Compl. ¶ 9.) If Sciolla and Jaffe Friedman pay damages to Scaramuzza, then Personal Surplus will avoid the judgment or have its liability under the judgment reduced by the payment of damages. (Id. ¶ 10.)
Sciolla and Jaffe Friedman bring one count of indemnification and one count of unjust enrichment against Personal Surplus in their third-party complaint. The third-party plaintiffs allege as follows in pertinent part:
COUNT ONE: INDEMNIFICATION
11. Defendants/third-party plaintiffs incorporate by reference the allegations of all preceding paragraphs.
12. Personal Surplus is primarily liable on the judgment.
13. Personal Surplus owes indemnity to defendants/third-party plaintiffs to the extent they are liable to [Scaramuzza] for any amount because of the judgment against [Scaramuzza] in favor of Lincoln General Insurance Company.
. . .
COUNT TWO: UNJUST ENRICHMENT
14. Defendants/third-party plaintiffs incorporate by reference the allegations of all preceding paragraphs.
15. Personal Surplus will be unjustly enriched to the extent that it receives the benefit of any amount paid by third-party plaintiffs to [Scaramuzza].
(Id. ¶¶ 11-15.)
A. Whether Third-Party Joinder is Proper
As stated above, in this case, the Court exercises its diversity jurisdiction. In a diversity case, while the nature of the interest sought to be enforced is determined by state substantive law, Erie R.R. Co. v. Tompkins, supra, the issue of joinder is a matter of federal law. Provident Tradesmens Bank Trust Co. v. Patterson, 390 U.S. 102, 125 n. 22, 88 S. Ct. 733, 19 L. Ed. 2d 936 (1968). Thus, the Court applies the federal joinder standard in this action, which provides,
[A]t any time after the commencement of an action, a defending party, as a third-party plaintiff, may cause a summons and complaint to be served upon a person not a party to the action who is or may be liable to the third-party plaintiff for all or part of the plaintiff's claim against the third-party plaintiff.
Rule 14 is procedural and does not, on its own, create any substantive rights. See Tesch v. United States of America, 546 F. Supp. 526, 529 (E.D. Pa. 1982). A third-party claim is only proper if a right to relief exists independently under the applicable substantive law, Foulke v. Dugan, No. 00-CV-5300, 2002 U.S. Dist. LEXIS 21698, at *12 (E.D. Pa. Nov. 6, 2002), which is Pennsylvania law in this case. Joinder is only proper under Rule 14 where a third-party defendant "is or may be liable to the original defendant for all or part of the plaintiff's claim against him." Millard v. Municipal Sewer Auth. of the Township of Lower Makefield, 442 F.2d 539, 541 (3d Cir. 1971). It is not possible to join a party who may be liable only to the original plaintiff. Id.
In this action, Sciolla and Jaffe Friedman claim that Personal Surplus is liable to them for part or all of the possible judgment in this case. The third-party plaintiffs are not alleging that Personal Surplus is liable to Scaramuzza, the original plaintiff. Under Pennsylvania law, an individual has a right to indemnity only when "without active fault on his own part, [he] has been compelled, by reason of some legal obligation to pay damages occasioned by the initial negligence of another, and for which he is only secondarily liable." Builders Supply Co. v. McCabe, 77 A.2d 368, 370 (Pa. 1951); see also Kirschbaum v. WRGSB Assocs., 243 F.3d 145, 156 (3d Cir. 2001);Walker v. Eleby, 842 A.2d. 389, 391 (Pa. 2004). Thus, a defendant is entitled to indemnity only when his liability does not arise as a result of his own conduct, but out of a legal relationship that requires him to pay for the actions of a third party. Willet v. Pa. Med. Catastrophe Loss Fund, 702 A.2d 850, 854-55 (Pa. 1997). Indemnity can not be used as "a tool to equitably distribute or apportion responsibility." Kemper Nat'l P C Cos. V. Smith, 615 A.2d 372, 374-75 (Pa.Super.Ct. 1992).
The third-party complaint does not and could not allege that Personal Surplus is primarily responsible for the alleged legal malpractice and that Sciolla or Jaffe Friedman are only passively responsible. The alleged legal malpractice would involve only the active fault of Sciolla and Jaffe Friedman; their active fault would thus preclude an indemnity claim. The fact that Personal Surplus may have been liable in an earlier action in which the alleged legal malpractice took place is irrelevant to the current action because Sciolla and Jaffe Friedman are seeking indemnity with relation to a possible judgment in the current malpractice claim, not with regard to the Lincoln General judgment. The present legal malpractice claim is entirely separate and distinct from the original litigation involving Lincoln General.
Pennsylvania courts have concluded that attorneys sued for legal malpractice have valid claims for contribution against others only where the attorneys' third-party complaint is related in substance to the original complaint and arises from the same factual scenario. See, e.g., Schladensky v. Ellis, 275 A.2d 663 (Pa. 1971) (affirming dismissal where third-party plaintiff-attorney had not asserted that the third-party defendants were responsible for his alleged failure to exercise reasonable care and diligence in the use of his skill as an attorney); see also Gordon v. Sokolow, 642 A.2d 1096 (Pa.Super.Ct. 1994) (reversing dismissal where third-party plaintiff-attorney argued that the third-party defendants' allegedly fraudulent conduct affected their ability to advise their clients properly). The Court concludes that the third-party plaintiffs' indemnity claim would fail under Pennsylvania law, and that joinder is accordingly improper under Rule 14.
B. Whether the Unjust Enrichment Claim is Proper
Third-party plaintiffs also allege that Personal Surplus will be unjustly enriched by a judgment in this case because the liability of Personal Surplus for the Lincoln General judgment will be reduced or avoided by the amount of the judgement in this case. (3rd Party Compl. ¶¶ 3-4). Unjust enrichment is a retroactive equitable remedy, where one party has been unjustly enriched at the expense of another. Mitchell v. Moore, 729 A.2d 1200, 1202 n. 2 (Pa.Super.Ct. 1999). For a plaintiff to sustain an unjust enrichment action, he must prove the following key elements: (1) benefits were conferred on the defendant; (2) the defendant appreciated the benefit; and (3) the acceptance or retention of such benefits would be inequitable or unconscionable. Mitchell, 729 A.2d at 1204. The third-party plaintiff cannot satisfy these elements in this case at this time because no benefit has been conferred as of yet on the third-party defendants.
Sciolla and Jaffe Friedman allege that Personal Surplus "will be unjustly enriched to the extent that it receives the benefit of any amount paid by third-party plaintiffs to [Scaramuzza]." (3rd Party Compl. ¶ 15). It is incumbent upon a plaintiff in an unjust enrichment action to prove that a defendant has in fact been benefitted or enriched. In re Stendardo, 991 F.2d 1089, 1099 (3d Cir. 1993); D.A. Hill Co. v. Clevetrust Realty Investors, 573 A.2d 1005, 1009 (Pa. 1990); Meehan v. Cheltenham Township., 189 A.2d 593, 595 (Pa. 1963). It is well established that an unjust enrichment action will fail based on the allegations of future benefits. See Anderson v. Tuboscope Vetco, Inc., 9 P.3d 1013, 1019 (Alaska 2000) ("[T]he doctrine of unjust enrichment is predicated on the theory of restitution. . . . There is nothing in this doctrine that suggests that a party must pay restitution for the creation of a rather slim possibility that the party may receive some benefit in the future.").
The alleged benefit to Personal Surplus, satisfaction of a previous judgment, has yet to occur and may not occur at all. Courts permit unjust enrichment claims where a defendant "[is in] possession of money or property which in good conscience and justice, he should not retain, but should deliver to another."William A. Meier Glass Co. v. Anchor Hacking Glass Corp., 95 F. Supp. 264, 268 (W.D. Pa. 1951). In fact, the remedy for unjust enrichment is restitution in the form of a payment equal to the benefit conferred. Curly v. Allstate Ins. Co., 289 F. Supp. 2d 614, 619 (E.D. Pa. 2003). It would be impossible to fashion an appropriate remedy in this case, where no benefit has yet been conferred, and, should Scaramuzza fail to prove his case, no benefit ever will be conferred.
V. Conclusion
The Court concludes that the third-party plaintiffs have improperly joined Personal Surplus to this action, as the third-party complaint is not related in substance to the original complaint, nor does the third-party complaint arise from the same factual scenario. Moreover, having accepted the third-party plaintiffs' allegations as true, the Court concludes that no relief could be granted under any set of facts proved. Personal Surplus has not yet been unjustly enriched. Thus, Personal Surplus will be dismissed as a third-party defendant to this action.
An appropriate Order follows.