Perelman, J. v. Perelman, R.

J-A20039-15

2015 PA Super 224

JEFFREY E. PERELMAN, AND JEP IN THE SUPERIOR COURT OF
MANAGEMENT, INC., AS EQUITABLE PENNSYLVANIA
SUBROGEE OF JEFFREY E. PERELMAN

v.

RAYMOND G. PERELMAN; DILWORTH
PAXSON, LLP: JOSEPH JACOVINI;
LAWRENCE MCMICHAEL MARJORIE
OBOD; RONALD PERELMAN; HAINES &
ASSOCIATES; CLIFFORD E. HAINES;
BUCKLEY, BRION, MCGUIRE, MORRIS &
SOMMER LLP; ANDREW C. ECKERT;
SIGMUND FLECK; GUNSTER, YOAKLEY &
STEWART, P.A.; AND GEORGE S.
LEMIEUX

APPEAL OF: DILWORTH PAXSON LLP,
JOSEPH JACOVINI, LAWRENCE No. 61 EDA 2015
MCMICHAEL AND MARJORIE OBOD

Appeal from the Order Entered on October 30, 2014
In the Court of Common Pleas of Montgomery County
Civil Division at No.: 2013-27085

BEFORE: DONOHUE, J., SHOGAN, J., and WECHT, J.

OPINION BY WECHT, J.: FILED OCTOBER 27, 2015

The law firm of Dilworth Paxson, LLP, and Dilworth attorneys Joseph

Jacovini, Lawrence McMichael, and Marjorie Obod (collectively, “Dilworth”)

appeal the trial court’s order denying their preliminary objections to the

complaint of Jeffrey E. Perelman and JEP Management, Inc. (collectively,

“Jeffrey”). Jeffrey has sued numerous parties, including Dilworth, for

wrongful prosecution under the Dragonetti Act, 42 Pa.C.S. §§ 8351-55,

alleging Dragonetti violations associated with claims brought in several other
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matters in state and federal court concerning certain business dealings

between Jeffrey and his father, Raymond G. Perelman (“Raymond”). In a

federal action, Jeffrey filed an unsuccessful motion for sanctions under

Fed.R.Civ.P. 11, based upon the same alleged litigation misconduct that

underlies the instant Dragonetti claim. The federal court denied Jeffrey’s

motion. Dilworth now maintains that the trial court erred in overruling

Dilworth’s preliminary objections to the instant Dragonetti complaint, which

objections were based upon principles of res judicata and/or collateral

estoppel arising from the federal court’s denial of Rule 11 sanctions. The

trial court in this matter ruled that the federal court’s Rule 11 order did not

preclude the instant claims. We affirm.

We begin by summarizing the lawsuit that Raymond initiated in the

Philadelphia Court of Common Pleas (hereinafter, “the State Action”) and its

outcome, because it underlies the Dragonetti claims directly at issue in this

matter. In so doing, we distill from a tremendously complex history of

dealings and litigations between Jeffrey and Raymond the following account

from our 2011 memorandum, in which we affirmed the trial court’s dismissal

of Raymond’s complaint in the State Action:

[Raymond] brought [suit] against [Jeffrey] in October 2009
alleging breach of an oral contract, fraud, conversion, express
trust, resulting trust, and unjust enrichment requiring a
constructive trust. The lawsuit is premised upon the following
allegations by [Raymond]. The parties began to discuss
transferring a portion of [Raymond’s] business interests to
[Jeffrey] in 1989 . . . . At the time, [Raymond] agreed to
convey his interest in several businesses to [Jeffrey] with,
according to [Raymond], certain conditions. Those conditions

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included that [Raymond] would transfer the businesses for the
assumption of certain debt; the transfer would not incur any tax
liability; [Jeffrey] would control and operate the businesses
during his lifetime; ownership of the businesses would be divided
evenly between [Jeffrey] and a trust created for the sole benefit
of [Jeffrey’s] children, and [Jeffrey’s] wife would renounce all of
her marital interest in the transferred businesses.

Corporations controlled by [Raymond] transferred their business
interests to corporations formed by [Jeffrey]. In addition, in at
least one instance, a corporation operated by [Raymond] sold
stock to a trust of which [Jeffrey] was the named beneficiary.
The trust was created for the benefit of [Jeffrey], with [Jeffrey’s]
children as contingent beneficiaries. The trust document was
executed on January 24, 1990. On that same date, [Jeffrey’s]
wife also executed a renunciation agreement whereby she
renounced some, but not all, of her interest in the relevant
businesses. [Raymond] alleges that he only recently learned
that the trust and renunciation documents did not conform to his
instructions . . . .

Perelman v. Perelman, 953 EDA 2010, slip op. at 1-2 (Pa. Super. Sept. 1,

2011).

Jeffrey filed preliminary objections to Raymond’s complaint in the

State Action, which the trial court sustained without explanation by order

entered on March 25, 2010. On or about April 1, 2010, Raymond appealed

the trial court’s ruling. In its opinion pursuant to Pa.R.A.P. 1925(a), the

court explained that it had determined that Raymond’s claims were barred

by the parol evidence rule because the documents governing the twelve

transactions at issue, which contained merger clauses, did not indicate that

any of Raymond’s claimed entitlements were part of the consideration for

the transactions in question. Thus, the merger clauses in the contracts

governing the transactions precluded resort to parol evidence to establish

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the existence of any overarching agreement consistent with Raymond’s

claims. On appeal, this Court affirmed on the same basis. Id. at 7-16.

Mere hours after Raymond commenced the State Action, Jeffrey had

started his own parallel action by filing a complaint concerning the same

subject matter in federal court (hereinafter, “the Federal Action”). In his

answer to Jeffrey’s complaint in the Federal Action, Raymond included

compulsory counterclaims that were substantively identical to the claims he

had raised as plaintiff in the State Action.

While Raymond’s appeal in the State Action was pending, Jeffrey filed

a motion to dismiss Raymond’s counterclaims in the Federal Action, arguing

that the trial court’s ruling in the State Action had preclusive effect over the

parallel counterclaims in the Federal Action. The trial court in the instant

matter has provided a useful summary of the events that followed:

On May 18, 2010, Jeffrey petitioned the [district court] to
impose sanctions against Raymond and [Dilworth] pursuant to
[Rule 11]. [Dilworth] responded to the motion for sanctions on
June 8, 2010. On June 25, 2010, the [district court] denied the
motion for sanctions after reviewing “the Plaintiffs’ and
Counterclaim Defendants’ Motion for Sanctions Pursuant to Rule
11 of the Federal Rules of Civil Procedure, the defendants’
opposition, and the plaintiffs’ reply thereto.” This order was not
appealed. Nevertheless, on May 2, 2013, the [district court]
granted Jeffrey’s motion to dismiss the counterclaims.

On August 30, 2013, after the resolution of all underlying cases
filed by Jeffrey and Raymond, [Jeffrey] filed a Praecipe for
Summons against Raymond, [Dilworth], and numerous other
defendants. On October 7, 2013, [Jeffrey] filed a Complaint.
Subsequently, on December 6, 2013, [Jeffrey] filed an Amended
Complaint. This Amended Complaint sought relief under the
Dragonetti Act with respect to all defendants. In regard to

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[Dilworth] specifically, the Amended Complaint alleged that the
Dilworth Defendants were liable under the Dragonetti Act for
their involvement with Raymond’s [State Action], the Superior
Court appeal of that action’s dismissal, and the pursuit of the
original counterclaims and proposed amended counterclaims in
the Federal Action.

On December 26, 2013, [Dilworth] filed Preliminary Objections.
[The trial court] overruled the Preliminary Objections by its
Order dated September 10, 2014. On September 24, 2014,
[Dilworth] filed an application to amend [the trial court’s]
September 10, 2014 Order to permit an immediate appeal
pursuant to 42 Pa.C.S. § 702(b). [The trial court] denied the
application to amend [its] Order to permit an immediate appeal
by its Order dated October 30, 2014. Subsequently, on
November 8, 2014, [Dilworth] filed a Petition for Review with the
Superior Court at Docket Number 134 EDM 2014. The Superior
Court entered an Order dated January 8, 2015, granting the
Petition for Review and directing that the matter proceed before
the Superior Court as an appeal from the September 10, 2014
Order of [the trial court] overruling [Dilworth’s] Preliminary
Objections.

Trial Court Opinion (“T.C.O.”), 2/19/2015, at 3-4 (citations omitted).1

Before this Court, Dilworth raises the following issue:

Whether, in this case of first impression, the trial court
committed an error of law in denying Dilworth’s preliminary
objections to Jeffrey’s duplicative and retaliatory claim for
wrongful use of civil proceedings, after he already fully
litigated—and lost—his factual allegations and this issue in the
United States District Court, [which] found that the compulsory
counterclaims filed by Dilworth were colorable.

Brief for Dilworth at 4.

____________________________________________

1
The trial court did not direct Dilworth to file a concise statement of the
error complained of on appeal pursuant to Pa.R.A.P. 1925(b).

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We begin by noting our standard of review of a trial court order

sustaining or denying preliminary objections:

“Our standard of review of an order of the trial court overruling
or granting preliminary objections is to determine whether the
trial court committed an error of law. When considering the
appropriateness of a ruling on preliminary objections, the
appellate court must apply the same standard as the trial court.”
De Lage Landen Fin’l Servs., Inc., v. Urban P'ship, LLC,
903 A.2d 586, 589 (Pa. Super. 2006).

“Preliminary objections in the nature of a demurrer test
the legal sufficiency of the complaint.” When considering
preliminary objections, all material facts set forth in the
challenged pleadings are admitted as true, as well as all
inferences reasonably deducible therefrom. Preliminary
objections which seek the dismissal of a cause of action
should be sustained only in cases in which it is clear and
free from doubt that the pleader will be unable to prove
facts legally sufficient to establish the right to relief. If any
doubt exists as to whether a demurrer should be
sustained, it should be resolved in favor of overruling the
preliminary objections.

Hykes v. Hughes, 835 A.2d 382, 383 (Pa. Super. 2003)
(citations omitted).

Haun v. Comm. Health Sys., Inc., 14 A.3d 120, 123 (Pa. Super. 2011)

(citations modified).

There are several additional legal standards that must be related to

frame the analysis to follow. First, to prevail on a claim under the

Dragonetti Act, a plaintiff must establish the following statutory elements:

(a) Elements of action.—A person who takes part in the
procurement, initiation or continuation of civil proceedings
against another is subject to liability to the other for wrongful
use of civil proceedings [if]:

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(1) he acts in a grossly negligent manner or without
probable cause and primarily for a purpose other than that
of securing the proper discovery, joinder of parties or
adjudication of the claim in which the proceedings are
based; and

(2) the proceedings have terminated in favor of the
person against whom they are brought.

42 Pa.C.S. § 8351.

In an action brought pursuant to this subchapter the plaintiff has
the burden of proving . . . that:

(1) The defendant has procured, initiated, or
continued the civil proceedings against him.

(2) The proceedings were terminated in his favor.

(3) The defendant did not have probable cause for his
action.

(4) The primary purpose for which the proceedings
were brought was not that of securing the proper
discovery, joinder of parties or adjudication of the claim on
which the proceedings were based.

(5) The plaintiff has suffered damages as set forth in
section 8353[2] . . . .

42 Pa.C.S. § 8354.

A person who takes part in the procurement, initiation or
continuation of civil proceedings against another has probable

____________________________________________

2
Among the categories of damages that may be awarded for a violation
are “[t]he harm to [the plaintiff’s] reputation by any defamatory matter
alleged as the basis of the proceedings,” “the expense, including any
reasonable attorney fees, that he has reasonably incurred in defending
himself against the proceedings,” [a]ny emotional distress that is caused by
the proceedings,” and “[p]unitive damages according to law in appropriate
cases.” 42 Pa.C.S. § 8353.

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cause for doing so if he reasonably believes in the existence of
the facts upon which the claim is based, and either:

(1) reasonably believes that under those facts the
claim may be valid under the existing or developing law;

(2) believes to this effect in reliance upon the advice
of counsel, sought in good faith and given after full
disclosure of all relevant facts within his knowledge and
information; or

(3) believes as an attorney of record, in good faith
that his procurement, initiation or continuation of a civil
cause is not intended to merely harass or maliciously
injure the opposite party.

42 Pa.C.S. § 8352.

“[A]n action for wrongful use of civil proceedings pursuant to the

Dragonetti Act does not require a prima facie showing of actual malice, but

such action requires proof that the defendant acted in a grossly negligent

manner.” Hart v. O’Malley, 781 A.2d 1211, 1218 (Pa. Super. 2001). The

application of section 8352 to attorneys of record is somewhat more

circumscribed than as to the parties that they represent:

Insofar as attorney liability is concerned, “as long as an attorney
believes that there is a slight chance that his client’s claims will
be successful, it is not the attorney’s duty to prejudge the case.”
Morris v. DiPaolo, 930 A.2d 500, 505 (Pa. Super. 2007).
“Lawyers can safely act upon the facts stated by their clients.”
Meiksin v. Howard Hanna Co., Inc., 590 A.2d 1303, 1307
(Pa. Super. 1991).

Keystone Freight Corp. v. Stricker, 31 A.3d 967, 973 (Pa. Super. 2011)

(citations modified). That being said, “the plaintiff in a wrongful use of civil

proceedings action need not obtain the defendant’s outright ‘confession’ of

improper purpose; an improper purpose may be inferred where the action is

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filed without justification.” Gentzler v. Atlee, 660 A.2d 1378, 1385

(Pa. Super. 1995). Thus, a claim for wrongful use of civil proceedings will lie

“if the trier of fact could reasonably conclude that the defendant initiated the

underlying lawsuit without probable cause.” Id.

At issue in this matter is the preclusive effect under the instant

circumstances, if any, of a federal court’s ruling denying sanctions under

Rule 11. That rule provides, in relevant part, as follows:

(b) Representations to the Court. By presenting to the
court a pleading, written motion, or other paper—whether by
signing, filing, submitting, or later advocating it—an attorney . . .
certifies that to the best of the person’s knowledge, information,
and belief, formed after an inquiry reasonable under the
circumstances:

(1) it is not being presented for any improper
purpose, such as to harass, cause unnecessary delay, or
needlessly increase the cost of litigation;

(2) the claims, defenses, and other legal contentions
are warranted by existing law or by a nonfrivolous
argument for extending, modifying, or reversing existing
law or for establishing new law;

(3) the factual contentions have evidentiary support
or, if specifically so identified, will likely have evidentiary
support after a reasonable opportunity for further
investigation or discovery; and

****

(c) Sanctions.

(1) In general. If, after notice and a reasonable
opportunity to respond, the court determines that Rule
11(b) has been violated, the court may impose an
appropriate sanction on any attorney, law firm, or party
that violated the rule or is responsible for the violation. . . .

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(2) Motion for Sanctions. A motion for sanctions
must . . . describe the specific conduct that allegedly
violates Rule 11(b). The motion must be served under
Rule 5, but it must not be filed or be presented to the
court if the challenged paper, claim, defense, contention,
or denial is withdrawn or appropriately corrected within
21 days after service or within another time the court sets.
If warranted, the court may award to the prevailing party
the reasonable expenses, including attorney’s fees,
incurred for the motion.

Fed.R.Civ.P. 11.

Finally, because this case presents the question whether collateral

estoppel/issue preclusion bars a claim under the Dragonetti Act when it is

based upon the same allegations asserted in a Rule 11 motion that a federal

court has denied, we must review the standard for collateral estoppel:

Collateral estoppel applies if (1) the issue decided in the
prior case is identical to the one presented in the later
case; (2) there was a final judgment on the merits; (3) the
party against whom the plea is asserted was a party or in
privity with a party in the prior case; (4) the party or
person privy to the party against whom the doctrine is
asserted had a full and fair opportunity to litigate the issue
in the prior proceeding and (5) the determination in the
prior proceeding was essential to the judgment.

Collateral estoppel is also referred to as issue preclusion. It is a
broader concept than res judicata and operates to prevent a
question of law or issue of fact which has once been litigated and
fully determined in a court of competent jurisdiction from being
relitigated in a subsequent suit.

Catroppa v. Carlton, 998 A.2d 643, 646 (Pa. Super. 2010) (quoting

Inbollingo v. Maurer, 575 A.2d 939, 940 (Pa. Super. 1990)) (citations

omitted).

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As set forth, supra, in the Federal Action, the district court denied

Jeffrey’s motion for sanctions. In the ruling at issue in the instant appeal,

however, the trial court denied Dilworth’s preliminary objections in the

nature of a demurrer alleging that the district court’s ruling estopped Jeffrey

from bringing a Dragonetti Act claim based upon the same allegations raised

in his unsuccessful Rule 11 motion.3

The trial court explained its reasoning for denying Dilworth’s

preliminary objections as follows:

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3
Jeffrey urges this Court to affirm without addressing the substantive
merits of Dilworth’s preliminary objections upon the basis that Dilworth
should have presented its collateral estoppel defense in a pleading as new
matter under Pa.R.C.P. 1030 rather than as a preliminary objection under
Pa.R.C.P. 1028. Jeffrey argues that Rule 1028 precludes consideration of
documents outside the pleadings, and contends that the trial court therefore
acted improperly when it considered documents pertaining to the prior law
suits underlying Jeffrey’s Dragonetti claims. See Brief for Jeffrey at 18-19
(citing, inter alia, 220 P’ship v. Phila. Elec. Co., 650 A.2d 1094, 1097
(Pa. Super. 1994)). Dilworth responds that the documents in question were
matters of public record, and, inasmuch as those cases were discussed at
length in Jeffrey’s complaint, they could properly be considered by the trial
court in the context of a demurrer. Reply Brief for Dilworth at 6-8 (citing,
inter alia, Del Turco v. Peoples Home Sav. Ass’n., 478 A.2d 456, 461
(Pa. Super. 1984)). We agree with Dilworth. References to the earlier
cases, being necessary to the assertion of a Dragonetti claim in the first
instance, are made repeatedly throughout Jeffrey’s operative complaint.
Consequently, as per Del Turco, Dilworth had the prerogative to raise
collateral estoppel by reference to those cases in its preliminary objections.
See Del Turco, 478 A.2d at 461 (“It is settled . . . that[,] unless the
complaint sets forth in detail, either directly or by reference, the
essential facts and issues pleaded by the prior suit, the affirmative
defense of res judicata must be raised in a responsive pleading under the
heading of new matter and not by preliminary objection.” (emphasis
added)).

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[F]ederal sanctions are not in derogation of state common[-]law
remedies; indeed both may be sought based upon identical
factual and procedural events. Werner v. Plater-Zyberk, 799
A.2d 776, 785 (Pa. Super. 2002). Moreover, “the denial of
sanctions under federal Rule 11 does not foreclose the assertion
of a subsequent suit for malicious prosecution.” Id. (citing
Lightning Lube, Inc., v. Witco Corp., 4 F.3d 1153, 1196
(3d Cir. 1993)). In addition, “the scope of a Rule 11 hearing is
much narrower than a full civil proceeding in state court.”
Amwest Mortg. Corp. v. Grady, 925 F.2d 1162, 1165 (7th Cir.
1991); see Fed.R.Civ.P. 11, Notes of 1983 Advisory Committee
on Rules (“[T]he court must to the extent possible limit the
scope of sanction proceedings to the record. Thus, discovery
should be conducted only by leave of court, and then only in
extraordinary circumstances.”).

T.C.O. at 5 (citations modified).

In the instant case, [Dilworth] argue[s] that the federal court’s
June 25, 2010 Order dispositively addressed the same
arguments in a Rule 11 context that Jeffrey now advances in the
context of his Dragonetti action. After reciting the standard for
Rule 11, the Order outlined Jeffrey’s arguments. After outlining
Jeffrey’s arguments, the [district court], without commenting
specifically on any of Jeffrey’s arguments, stated: “Sanctions,
however, are not warranted in this case. Regardless of [his]
arguments’ ultimate merit, Raymond . . . presents a colorable
argument in support of his counterclaims. Furthermore,
Raymond . . . appealed the state trial court’s order [in the State
Action], and that order could be reversed by the Superior Court
of Pennsylvania.”[4]

The June 25, 2010 Order does not elaborate on its single
statement that [Raymond’s] counterclaims presented a
“colorable argument.” Consequently, the Order does not
address the particular merits of any of Jeffrey’s arguments.
Raymond argues in his Preliminary Objections that because the
federal court identifies the counterclaims as being supported by
colorable arguments, . . . the Order dispositively rejected all of
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4
As noted supra, this Court ultimately affirmed the trial court’s ruling in
the State Action.

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Jeffrey’s arguments in favor of sanctions. Because Jeffrey
advances the same arguments in his instant Dragonetti claims
against [Dilworth], and the federal court declined to impose
sanctions under Rule 11 [in the Federal Action], [Dilworth]
argues that the doctrine of collateral estoppel prohibits Jeffrey
from raising the same arguments in a Dragonetti context. It
bears repeating that “the denial of sanctions under federal Rule
11 does not foreclose the assertion of a subsequent suit for
malicious prosecution.” Werner, 799 A.2d at 785. Both Rule 11
sanctions and state suits for abuse of process may be sought
predicated upon the same underlying factual and procedural
events. Id.

The June 25, 2010 Order [in the Federal Action] merely stated
that Raymond had advanced colorable arguments in support of
his counterclaims; the federal court declined to analyze each
argument individually. Thus, given the facts of this case, and
the legal standard which dictates that all doubts as to whether a
demurrer should be sustained are resolved in favor of overruling
preliminary objections, [the trial court] properly overruled
[Dilworth’s p]reliminary [o]bjections. Cf. Kegerise v.
Susquehanna Twp. Sch. Dist., No. 1:CV-14-0747, 2015 WL
106528, at *15 (M.D. Pa. Jan. 7, 2015).

T.C.O. at 7-8 (record citations omitted).

Against this backdrop, we now turn to Dilworth’s argument. Dilworth

contends that “Jeffrey cannot, as a matter of law, prove these necessary

elements [of a Dragonetti complaint], because the federal court has already

found that the claims at issue are ‘colorable.’” Brief for Dilworth at 14

(emphasis omitted). In a lengthy argument in support of the application of

collateral estoppel, which appears to conflate questions that would arise only

if this case went to trial and the narrower question whether this case should

go to trial in the first instance, Dilworth addresses each of the five elements

necessary to establish collateral estoppel. However, only Dilworth’s

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arguments as to elements one, four, and five are at issue because Jeffrey

does not dispute that the second and third elements, respectively a final

judgment on the merits and a commonality of parties between the federal

and state proceedings, are satisfied in this case. See Brief for Jeffrey at 20.

Furthermore, because the failure to establish any one element precludes the

application of collateral estoppel, and because we find that Dilworth cannot

satisfy at least one element of the test, we focus solely upon that one

element. Specifically, like the trial court, we agree with Jeffrey that he did

not have “a full and fair opportunity to litigate” the substance of his

Dragonetti claims in the Federal Action under Rule 11. See Catroppa, 998

A.2d at 646.5

Dilworth argues that Jeffrey chose the Federal Action as the venue to

challenge Dilworth’s good faith in commencing the State Action, and the

existence of probable cause for doing so. Dilworth correctly notes that

Jeffrey filed “a substantial memorandum of law that articulated the facts to

support his request,” which facts are materially the same as those upon

which Jeffrey bases the instant Dragonetti action. Brief for Dilworth at 22.

Dilworth also would have this Court reject Jeffrey’s claim that the absence of

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5
For purposes of discussion, we assume, but need not decide, that the
substance of the respective claims was materially the same. However,
unless Jeffrey had a full and fair opportunity to litigate those claims in
federal court, the identity of claims is of no moment to the question of issue
preclusion.

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discovery in connection with his Rule 11 motion by itself precludes any

finding that he had a full and fair opportunity to litigate the assertions at

issue in his Dragonetti complaint. Dilworth challenges the proposition that

such discovery is required to establish a full and fair opportunity to litigate,

not least because “the determination of probable cause and gross negligence

can be made as a matter of law on preliminary objection.” Id. at 23.

In response, Jeffrey notes that discovery is available in Rule 11

proceedings only by leave of court upon a showing of extraordinary

circumstances. Brief for Jeffrey at 21 (citing Fed.R.Civ.P. 11 (1983 advisory

committee notes)). Jeffrey submits that it is precisely upon this basis that

federal courts have concluded that Rule 11 proceedings do not preclude a

later malicious prosecution claim. Id. at 22 (citing Lightning Lube, 4 F.3d

at 1196)).

In further support of his alleged inability even to seek leave of court to

conduct relevant discovery, Jeffrey submits the following account of the

condensed procedural chronology pertaining to his Rule 11 motion. First, on

March 25, 2010, ten days after the commencement of discovery in the

Federal Action, the court of common pleas in the State Action sustained

Jeffrey’s preliminary objections and dismissed Raymond’s complaint with

prejudice. However, under Rule 11’s notice requirement, Jeffrey could not

file a motion for sanctions based upon that occurrence until he had furnished

notice to Raymond of his intent to seek sanctions and waited at least

twenty-one days thereafter to file the Rule 11 motion with the district court.

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Furthermore, he could not seek discovery in the interim because the whole

point of the twenty-one-day safe harbor is to allow the non-moving party to

cure whatever action or omission comprises the basis for the Rule 11

motion. See Fed.R.Civ.P. 11(c)(2) (allowing the non-moving party twenty-

one days to withdraw or correct “the challenged paper, claim, defense,

contention, or denial”).

On April 9, 2010, Jeffrey served his motion upon Dilworth. On April

21, 2010, Jeffrey filed a motion to stay discovery in the Federal Action

pending resolution of his motion to dismiss Raymond’s counterclaims in that

action. On May 18, 2010, the Rule 11 safe harbor period having passed

without any curative action being taken by Raymond, Jeffrey filed his Rule

11 motion with the district court. While Raymond had the opportunity to file

his opposition to Jeffrey’s motion, the district court stayed discovery, in part

because an appeal had been filed challenging the common pleas court’s

dismissal with prejudice of Raymond’s complaint in the State Action. Then,

on June 25, 2010, with the discovery stay still in effect and the State Action

appeal still pending, the district court denied Jeffrey’s Rule 11 motion. See

Brief for Jeffrey at 22-23. In light of this sequence of events, Jeffrey asks

“[w]here . . . was there any opportunity for Jeffrey to take discovery?” Id.

at 24.

Dilworth alternatively argues that Jeffrey required no discovery,

because all information necessary to determine whether Dilworth had a

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colorable claim could be gleaned from the face of the 1990 transaction

documents. Jeffrey responds as follows:

That argument . . . conflates the bases for Jeffrey’s Dragonetti
claims with the bases for his defense of Raymond’s original
[c]ounterclaims: Even if the face of the decades-old transaction
documents decisively determined the impact of the parol
evidence rule on Raymond’s claims, the merits of Jeffrey’s
Dragonetti claims go far beyond that. The question here is not
whether Raymond and [Dilworth] presented the [district court]
with a “colorable” justification for concluding that Raymond’s
[Federal Action] pleading, on its face, presented viable claims.
Rather, the question is whether the true factual record—which
was never explored in discovery in any of the underlying suits—
would have supported that facially “colorable” argument
(whatever it was)—and whether [Dilworth] properly investigated
that background.

Brief for Jeffrey at 24 (footnote omitted; emphasis in original). Jeffrey

further notes that one of his stated bases for seeking sanctions under Rule

11 was “the lack of factual support for Raymond’s [c]ounterclaims,” which

the district court did not address in its order denying sanctions. Id. at 24

n.21. Jeffrey adds that the district court could not have evaluated that

argument, given the lack of discovery. Id. Jeffrey also highlights relevant

questions as to which discovery is necessary to fully measure his Dragonetti

claims. For instance, he notes that he has never had the opportunity to

explore whether Dilworth acted with gross negligence, without probable

cause, or with an improper purpose—and specifically whether it had a

reasonable belief in any relevant facts—when it asserted that Raymond had

a factual basis to establish an exception to the parol evidence rule or the

application of the discovery rule. Id. at 25.

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We agree. First, the limited case law that we have found addressing

this matter, none of it binding under the circumstances of this case,6

counsels strongly against finding that Jeffrey has had a full and fair

opportunity to litigate his Dragonetti claim in the context of Rule 11

proceedings, which are abbreviated by design. In Cohen v. Lupo, 927 F.3d

363 (8th Cir. 1991), for example, the United States Court of Appeals for the

Eighth Circuit distinguished Rule 11 sanctions and malicious prosecution

claims as follows:

Federal Rule of Civil Procedure 11 grants a court discretion to
discipline parties and counsel for conducting litigation in bad
faith or in a frivolous or abusive fashion. Rule 11 is a procedural
tool that under the Rules Enabling Act cannot “abridge, enlarge
or modify any substantive right.” 28 U.S.C. § 2072. Rule 11
sanctions must be sought by motion in a pending case; there
can be no independent cause of action instituted for Rule 11
sanctions. Port Drum Co. v. Umphrey, 852 F.2d 148, 151
(5th Cir. 1988).

On the other hand, the common[-]law tort of malicious
prosecution is a claim in its own right under applicable state
law. . . . Rule 11 [cannot] abridge the substantive state law of
malicious prosecution, nor was it adopted to serve as a
surrogate for an action based upon a claim of malicious
prosecution resulting from frivolous, harassing, or vexatious
litigation.

Cohen, 927 F.2d at 365 (citations modified).

____________________________________________

6
Although the decisions of the federal district courts and courts of
appeal do not bind this Court, their interpretations nonetheless may have
persuasive authority on the question presented. See Martin v. Hale
Prods., Inc., 699 A.2d 1283, 1287 (Pa. Super. 1977).

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In Cohen, a district court awarded $100,000 in Rule 11 sanctions for

costs associated with litigation that it found to be conducted “in a manner

that escalated costs unnecessarily and vexatiously.” Id. at 364. Thereafter,

the complaining party filed a separate suit in federal district court for state

common-law malicious prosecution, seeking recoupment of the remaining

costs of defending the earlier suit, which approached $1 million. The district

court dismissed that suit upon the basis that the earlier Rule 11 proceeding

barred by res judicata a subsequent malicious prosecution suit based upon

the same underlying facts. The court of appeals reversed, finding as follows:

[The] malicious prosecution cause of action [did] not raise the
same claim that [the Rule 11 proceeding] resolved. [The
plaintiff’s] malicious prosecution claim was not actually litigated
and could not properly [have] been raised and determined in
[the Rule 11 proceeding]. . . .

The district court did not decide whether the [underlying]
complaint was filed without probable cause, whether [the
malicious prosecution defendant] acted with malice, or the
amount of damages [the plaintiff] suffered as a result of [the
sanctioned] misconduct. Those inquiries are irrelevant under
Rule 11, but are the sum and substance of the tort of malicious
prosecution.

Id. at 365; see Faigin v. Kelly, 184 F.3d 67, 79 (1st Cir. 1999) (“The

scope of a Rule 11 hearing is generally much more circumscribed than that

of a trial or comparable proceeding. Thus, there are legitimate questions as

to whether a Rule 11 sanctions order can provide a satisfactory basis for

issue preclusion under any circumstances in respect to the merits of a

complaint. . . . By their very nature, Rule 11 inquiries are severely

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restricted . . ., and it seems odd to extrapolate from them to the subsequent

litigation of issues on the merits.”); cf. Klayman v. Barmak, 602 F.

Supp.2d 110, 117-18 (D.D.C. 2009) (“It would be unfair to preclude an issue

based on the resolution of a motion for sanctions because sanctions hearings

are procedurally dissimilar to trials. A motion for sanctions does not provide

parties an opportunity to litigate fully—conduct discovery, present and cross-

examine witnesses—as required for application of collateral estoppel.”

(citations and internal quotation marks omitted)).

To similar effect, in Amwest Mortgage, supra, the United States

Court of Appeals for the Ninth Circuit identified the absence of discovery

under Rule 11, as well as other aspects of that abbreviated process, as

determinative against enjoining state malicious prosecution proceedings

based upon a Rule 11 order:

Here, the district court in its denial of Amwest’s [Rule 11] motion
emphasized the limited nature of the Rule 11 proceeding: “It
was a motion, it was done without discovery, without any other
aspects, and it is improper under those limited circumstances for
a federal court to enjoin a state court from [malicious
prosecution] proceedings that are pending there.”

****

[T]he district court stated “[m]otions for sanctions come in here
a dime a dozen, and very often they’re denied for a number of
reasons other than the actual merits. Unless it is a clear-cut
case of egregious behavior, I generally do not impose sanctions.”
Injunctive relief is particular inappropriate if the district court’s
decision may possibly be based on grounds other than
those asserted in the state court action.

925 F.2d at 1165 (emphasis added).

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J-A20039-15

Recently, in Kegerise, 2015 WL 106528, the district court declined to

find that collateral estoppel precluded a Dragonetti Act claim when the trial

court in the underlying action denied Rule 11 sanctions. The district court

first acknowledged that the “improper purpose” language found in Rule 11 is

the same as the language used to define an element of a Dragonetti claim,

i.e., “that the defendant had an improper purpose in pursuing the underlying

action.” Id. at *15. In the underlying matter, in denying Rule 11 sanctions,

the trial court had found that the lawsuit in question was not filed for an

improper purpose. Nonetheless, relying upon Cohen, Amwest Mortgage,

and Lightning Lube, the district court determined that collateral estoppel

did not apply. Reviewing the above three cases and noting the absence of

contrary authority cited by the Dragonetti defendant, the court deemed the

defendant’s argument “too sketchy to accept, especially since they have the

burden as the moving party to show that [the Dragonetti plaintiff’s] claim

must fail.” Id. at 15.

While none of the above-cited cases is perfectly on point, they

nonetheless point in only one direction. Moreover, Dilworth, like the

defendant in Kegerise, offers no on-point authority to counter the above-

cited cases, which appear to reflect a consensus, or at least a majority view,

among the courts that have addressed questions similar to those presented

in this matter.

Although none of the above-cited cases binds us, it is worth

emphasizing that this Court in Werner not only favorably cited Lightning

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Lube, Cohen, and Amwest Mortgage, but also issued a decision with

which our analysis in the instant matter harmonizes. At issue in Werner

was a plaintiff’s prerogative to seek damages under the Dragonetti Act for

litigation conduct that occurred in federal court. The Dragonetti defendant

argued that Rule 11 sanctions in federal court were the appropriate remedy

and that the entwinement of the tortious conduct asserted involved

questions best suited to resolution in federal court.

This Court disagreed:

[The Dragonetti defendant] argue[s] that [the plaintiff’s]
interests would be vindicated adequately via sanctions imposed
by the federal district court. However, the damages [the
plaintiff] seeks are distinct from the various types of penalties
that may be imposed by a court as sanctions against a
tortfeasor. Sanctions, including monetary sanctions paid to an
adversary in the form of fees or costs, address the interests of
the court and not those of the individual. A litigant cannot rely
on a sanction motion to seek compensation for every injury that
the sanctionable conduct produces. Rather, an injured party
must request tort damages to protect his personal interest in
being free from unreasonable interference with his person and
property.

****

The main objective of Rule 11 is not to reward parties who are
victimized by litigation; it is to deter baseless filings and curb
abuses. While imposing monetary sanctions under Rule 11 may
confer a financial benefit on a victimized litigant, this is merely
an incidental effect on the substantive rights thereby implicated.
Simply put, Rule 11 sanctions cannot include consequential
damages and thus are not a substitute for tort damages. In light
of the foregoing, we conclude that [the plaintiff’s] right to seek
tort damages for his alleged injuries exists independently of,
and in addition to, any rights he might possess to petition
for sanctions from the federal district court . . . .

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J-A20039-15

799 A.2d at 784-85 (emphasis added; citations and internal quotation marks

omitted). Reinforcing the obvious import of the above language, we added

that “[f]ederal sanctions are not in derogation of state common[-]law

remedies, and both may be sought predicated on the same underlying

factual and procedural events,” citing Lightning Lube, Cohen, and

Amwest Mortgage favorably for the proposition that “the denial of

sanctions under federal Rule 11 does not foreclose the assertion of a

subsequent suit for malicious prosecution.” Id. at 785. The sum of our

reasoning in Werner, like the cases upon which we relied, supports our

reliance upon those same cases in the instant matter, especially given the

lack of contrary Pennsylvania authority.

Our conclusion is buttressed by the constraints of our standard of

review. Like the trial court, in reviewing preliminary objections, we are

obligated to give the non-moving party the benefit of his own averments of

fact and all reasonable inferences that may be derived therefrom. Given the

procedural and evidentiary differences between a Rule 11 proceeding and a

Dragonetti act trial, including the absence of discovery in the former case,

the right to trial by jury that applies in the latter case, and the prospect that

dispositive findings of fact that the district court never had the opportunity

to make might dictate the outcome of a Dragonetti claim, we find no abuse

of discretion or error of law in the trial court’s denial of Dilworth’s

preliminary objections. While we express no opinion whatsoever as to the

relative merit of Jeffrey’s claims, it is neither for us nor the trial court to do

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so now. At this juncture, Jeffrey is entitled to move forward with his case

against Dilworth.

Order affirmed.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 10/27/2015

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