J-A24038-16
2016 PA Super 263
JAMES HELDRING, INDIVIDUALLY AND IN THE SUPERIOR COURT OF
ON BEHALF OF PENCOYD IRON WORKS, PENNSYLVANIA
INC.
Appellants
v.
LUNDY BELDECOS & MILBY, P.C. AND
ERIC C. MILBY, ESQ.
Appellees No. 397 EDA 2016
Appeal from the Order Entered January 13, 2016
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): 150502532
BEFORE: BOWES, J., OTT, J., and SOLANO, J.
OPINION BY SOLANO, J.: FILED NOVEMBER 28, 2016
Plaintiffs-Appellants Pencoyd Iron Works, Inc. and James Heldring,
Pencoyd’s owner and founder, appeal from the trial court’s January 13, 2016
order dismissing their complaint for legal malpractice and unjust enrichment.
We affirm the dismissal of all claims brought by Mr. Heldring individually and
the dismissal of Pencoyd’s unjust enrichment claim, reverse the dismissal of
Pencoyd’s claim for legal malpractice, and remand for further proceedings
consistent with this opinion.
The Underlying Case
This case arises from litigation pertaining to a construction dispute. In
September 2005, Pencoyd won a bid to supply steel to be used in the
conversion of a building at 1101 Washington Avenue in Philadelphia into
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condominiums. The building was owned by 1101 Washington Associates,
L.P. (“Washington Associates”). Am. Compl., at ¶ 5.1 Washington
Associates hired Axis Construction Services, LLC,2 to serve as its general
contractor, and Axis contracted with Pencoyd to perform structural steel
fabrication and to install rails, stairs, and lintels. Id. at ¶ 6.
When Axis failed to make timely payments for the steel, Pencoyd
stopped work. Am. Compl., at ¶ 11. Pencoyd resumed work only after
David Grasso, who is identified in the amended complaint as “President of
Grasso Holdings Acquisitions, LLC doing business as Grasso Holdings,
principal of GH Property Services, Inc. and a partner of [Washington
Associates],” promised to pay Pencoyd and the other subcontractors and
arranged for additional project financing. Id. at ¶ 12. GH Property
Services, Inc. (“GH Property”) took over day-to-day management of the
project, but, when the project was completed, Pencoyd claimed it still was
owed a balance of $130,953.50 for its work. Am. Compl., at ¶¶ 14-17, 19.
To collect that outstanding balance, Pencoyd retained Eric Milby,
Esquire, of the law firm now known as Lundy, Beldecos & Milby, P.C. Am.
Compl., ¶¶ 3, 20-37. The retention is reflected in a letter agreement dated
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1
As this action was dismissed by the trial court on preliminary objections,
we base the facts on the amended complaint, including its exhibits. See
Albert v. Erie Ins. Exch., 65 A.3d 923, 928 (Pa. Super. 2013).
2
Axis Construction Services, LLC is also known as Axis Construction
Management.
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August 21, 2009. Id., Ex. “A,” at 1, 3. That letter was from Attorney Milby
and addressed to “Pencoyd Iron Works, Inc., Attn: James Heldring,
President,” and it stated that Attorney Milby would engage in “proceedings
to collect monies owed to Pencoyd.” Id., Ex. “A,” at 1. The letter
agreement was signed by Attorney Milby and by Mr. Heldring as Pencoyd’s
president. Id., Ex. “A,” at 3.
Attorney Milby filed a collection action on behalf of Pencoyd in the
Court of Common Pleas of Philadelphia County. Am. Compl., ¶ 30, Ex. “B.”3
The named defendants included Axis and an entity identified in the caption
of the complaint as “Grasso Holdings” and in the body of the complaint as
“Grasso Holdings Acquisitions, LLC.” The complaint did not name as
defendants David Grasso, GH Property, or any other entity owned or
operated by David Grasso.
During the course of the proceedings, summary judgment was entered
in favor of Axis. Am. Compl., ¶ 45, Ex. “C.” Following a bench trial, the trial
court found in favor of Pencoyd and against Grasso Holdings in the amount
of $130,950.00. Id., Ex. “C” & “D” (Findings of Fact and Conclusions of
Law, at 11 ¶ 72). Relevant to this appeal, in Findings of Fact and
Conclusions of Law dated September 11, 2012, the trial court stated the
following:
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3
The action was captioned, Pencoyd Iron Works v. Axis Construction
Services, LLC, et al., March Term, 2010, No. 00814 (C.P. Phila.).
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1. David Grasso ("Grasso") is the President of the general
partnership entity, Grasso Holdings, L.P. ("Grasso Holdings"),
the CEO of GH Property Services, Inc. ("GH Property Services"),
and a partner in [Washington Associates]. . . .
5. On the Grasso Holdings website, Grasso Holdings purports to
own the [condominium] Project. . . .
22. . . . David Grasso personally guaranteed the debt on the
Project as the President of Grasso Holdings and the partner of
[Washington Associates]. . . .
25. After the subcontractors ceased work, Axis indicated that
they were going to walk away from the Project.
26. In response David Grasso decided to hire GH Property
Services, an affiliate business, to “handle some of the
responsibilities" because people were already living in the
building and buyers were waiting to move in.
27. GH Property Services took over the day to day management
of the Project. . . .
57. On the Grasso Holdings website they state, "Grasso
Holdings, through its affiliates, provides brokerage and property
management services for many of the properties that it
develops."
58. Moreover, the Grasso Holdings website states that David
Grasso is the President, CEO, and primary principal of Grasso
Holdings and that Grasso Holdings is the owner of the
[condominium project].
59. David Grasso personally guaranteed the construction loan to
recommence the project. . . .
61. Thus, there was substantial intermingling of corporate affairs
which makes it apparent that Grasso Holdings was in charge of
the Project and [Washington Associates] was a layering company
in order for Grasso Holdings to avoid liability. . . .
65. Grasso Holdings did not pay Pencoyd for their completed
work and thus Grasso Holdings was unjustly enriched. . . .
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69. Grasso Holdings . . . assured Pencoyd that it would be paid
up to current and in the future be paid 15 days after receipt of
an invoice.
70. Pencoyd returned to work after leaving the job for lack of
payment and completed their work on the project.
71. Grasso Holdings assumed the contract with Pencoyd so that
Grasso Holdings could finish and sell the unsold units, comply
with current residents, and pay off the debts that David Grasso
had personally guaranteed.
72. A finding is entered in favor of the plaintiff, Pencoyd
Ironworks, Inc. and against defendant, Grasso Holdings, in the
amount of $130,950.00.
Am. Compl., Ex. “D” (Findings of Fact and Conclusions of Law, at 2-5, 8-11)
(citations omitted).4 Grasso Holdings Acquisitions, LLC, filed an appeal to
this Court (No. 2874 EDA 2012), which we dismissed on November 20,
2012, because no post-trial motion had been filed.
On May 17, 2013, Attorney Milby, on behalf of Pencoyd, praeciped for
entry of judgment against “Grasso Holdings.” According to Pencoyd, when
Attorney Milby took David Grasso’s deposition, he realized that “Grasso
Holdings” is a mere trade name and not a legal entity. Am. Compl., ¶ 36.
Attorney Milby then tried to amend the judgment by filing a motion for
“clarification” that asked that the judgment apply to the following Grasso
affiliates: GH Property Services; GH Realty Services LLC, GH Realty, LLC,
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4
The court initially entered its finding against “David Grasso Holdings.” It
later amended the finding to be against “Grasso Holdings.” Am. Compl., Ex.
“C.”
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GH Property Management, LLC, GH Management, and Metro Development
Real Estate Fund, L.P. Id. ¶ 53.5 The trial court denied the motion for
clarification, stating:
On June 25, 2012, this court held a bench trial in which
the parties presented evidence and this court made
credibility determinations. Subsequent to the trial, both
parties submitted proposed findings of fact and proposed
conclusions of law. On September 11, 2012, this court
entered judgment in favor of plaintiff, Pencoyd Iron Works,
and issued findings of fact and conclusions of law to
support the judgment. Moreover, on September 18, 2012,
this court issued an amended order to correct the name of
defendant to Grasso Holdings. Neither party filed motions
for reconsideration nor did either party file post-trial
motions. On October 12, 2012, defendant, Grasso
Holdings, appealed to the Superior Court of Pennsylvania
but the appeal was subsequently dismissed as defendant
failed to file post-trial motions. Plaintiff, more than eight
months after the entry of judgment, requests this court to
clarify its judgment by changing its factual determinations
regarding the entities sued by plaintiff and to sanction
David Grasso. Essentially, plaintiff requests the court to
reexamine the evidence and further reconsider the
judgment entered. Obviously, the court cannot do so and
this motion must be denied. See Pa.R.C.P. 227.1. See
also 42 Pa.C.S.A. § 5505.
Am. Compl., Ex. “E” (Order denying motion for clarification, dated June 13,
2013, at 1 n.1).
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5
According to Appellants’ Brief at 13, the motion also sought sanctions
against David Grasso, but that information is not in the amended complaint.
The motion for clarification itself is not in the certified record.
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The Current Litigation
On May 21, 2015, “James Heldring, individually and on behalf of
Pencoyd Iron Works, Inc.,”6 commenced this action by writ of summons
against Attorney Milby and the Lundy law firm. In an amended complaint,
Mr. Heldring and Pencoyd alleged that Attorney Milby and his firm “were
negligent and careless in their pre-litigation investigation and due diligence
because they did not name the correct Grasso entity or any of the various
legal entities owned or controlled by David Grasso, as ‘Grasso Holdings’ is a
simple trade name used by several entities.” Am. Compl., at ¶ 31. They
averred, “The correct name of the Grasso entity whom the Defendants
should have sued on plaintiff, Pencoyd's behalf was GH Property Services,
Inc.” Id. at ¶ 33. Mr. Heldring and Pencoyd alleged that, by filing the
complaint against “Grasso Holdings,” Attorney Milby impaired their ability to
collect on the judgment secured in the underlying action:
On February 7, 2013, Milby prepared and filed a praecipe for
Judgment against the trade name "Grasso Holdings". Judgment
against a trade name is problematic from a post-crash judgment
and enforcement standpoint, and a Pennsylvania lawyer,
exercising ordinary skill and knowledge, would not expect there
to be any assets titled to the name "Grasso Holdings".
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6
The reason Plaintiffs styled the caption in this way is not explained. The
body of the amended complaint lists Mr. Heldring and Pencoyd as separate
plaintiffs, see Am. Compl. ¶¶ 1-2, and throughout the litigation, the trial
court and the parties treated the case as being brought by Mr. Heldring and
Pencoyd as separate plaintiffs. We address the case with that same
understanding.
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Id. at ¶ 39. They asserted that, as a result, “Pencoyd has been unable to
collect even a single dollar from the worthless judgment obtained.” Id. at ¶
58. The complaint sought damages for legal malpractice (in counts alleging
negligence and breach of contract) and unjust enrichment. Id. at ¶¶ 59-74.
In response to the amended complaint, Attorney Milby and his law firm
filed preliminary objections in the nature of a demurrer. They asserted that,
as “it has already been judicially establish[ed] that [] Defendants sued the
correct party in the Underlying Matter, [] Defendants cannot be deemed to
have breached a duty of care owed to Pencoyd.” Defs.’ Prelim. Objections
To Pls.’ Am. Compl., at 8-9 ¶ 30. They sought dismissal of the unjust
enrichment claim “because [the parties’] relationship arises from an actual
contractual agreement,” id. at 10 ¶ 45, and asserted that Mr. Heldring could
not recover because he was not a party to the contract for retention of their
legal services, id. at 3-4 ¶¶ 7-9, 13.
In an order dated January 13, 2016, the trial court sustained the
preliminary objections and dismissed the amended complaint. The court
explained:
Plaintiffs have filed the instant action, which asserts legal
malpractice and unjust enrichment claims, against defendants
based upon defendant[s’] representation of Pencoyd Iron
Workers, Inc. ("Pencoyd") in the matter of Pencoyd Iron
Workers. Inc. v. Axis Construction Services, LLC et al.,
March Term, 2010, No. 0814. Following a bench trial, the court
held Grasso Holdings to be liable to Pencoyd, and entered
judgment in favor of Pencoyd in the amount of $130,950.00.
Neither party filed motions for reconsideration nor did either
party file post-trial motions. Eight months after the entry of
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judgment, Pencoyd filed a "motion for clarification," which was
denied. Pencoyd claims it has since been unable to recover the
judgment because Grasso Holdings is [] merely a fictitious trade
name that does not own assets.
In order to establish a legal malpractice claim in either contract
or tort, the plaintiff must establish actual loss. See Rizzo v.
Haines, 555 A.2d 58, 68 (Pa. 1989). "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 v. Corbman, 714 A.2d 1027,
1030 (Pa. 1998). Here, defendants successfully obtained a
judgment in favor of its client, Pencoyd, in the underlying action.
The underlying action did not result in a loss to plaintiffs. The
court has already concluded that Grasso Holdings is liable to
Pencoyd, and as a result, Pencoyd is not entitled to re-litigate
the matter in order to recover from a more solvent party.
Furthermore, defendants represented the company Pencoyd;
there was no contractual relationship between defendants and
Heldring individually. Therefore, Heldring's claims against
defendants for legal malpractice and unjust enrichment fail as a
matter of law. Defendants' demurrers are sustained
1/13/16 Order, at 1-2 n.1 (citations to pleadings omitted). Mr. Heldring and
Pencoyd then timely filed this appeal.
Issues and Standard of Review
Appellants raise the following issues:
1. Is a legal malpractice action against an attorney who
recovered a judgment against an impecunious fictitious
name barred
a. by the doctrine of collateral estoppel? or
b. by the proposition that so long as an attorney
secures a judgment—no matter how worthless—then he
has done his duty, and no malpractice action can lie
against him?
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2. Did the company president, as an individual, have with the
attorney defendants a contractual relationship that would
permit him to file a legal malpractice action against them?
Appellants’ Brief at 5 ¶¶ 1-2.
In considering an appeal from an order granting preliminary objections
in the nature of a demurrer, which is a question of law, our standard of
review is de novo and our scope of review is plenary. Mazur v. Trinity
Area Sch. Dist., 961 A.2d 96, 101 (Pa. 2008).
The court may sustain preliminary objections only when, based
on the facts pleaded, it is clear and free from doubt that the
complainant will be unable to prove facts legally sufficient to
establish a right to relief. For the purpose of evaluating the legal
sufficiency of the challenged pleading, the court must accept as
true all well-pleaded, material, and relevant facts alleged in the
complaint and every inference that is fairly deducible from those
facts.
Id. Accord Frank v. TeWinkle, 45 A.3d 434, 438 (Pa. Super. 2012).
Dismissal of Claims by Mr. Heldring
We begin with the second question presented, which addresses the
trial court’s dismissal of the claims made individually by Mr. Heldring.
As noted above, the trial court dismissed Mr. Heldring’s malpractice
claim because “defendants represented the company Pencoyd; there was no
contractual relationship between defendants and Heldring individually.”
1/13/16 Order, at 2 n.1. We agree. The threshold element of any legal
malpractice claim, whether brought in contract or tort, is the existence of an
attorney-client relationship. McHugh v. Litvin, Blumberg, Matusow &
Young, 574 A.2d 1040, 1042 (Pa. 1990). The letter of retention from
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Attorney Milby and his firm, dated August 21, 2009, is addressed to
Pencoyd, with “Attn:” to Mr. Heldring as Pencoyd’s president. Nowhere does
the letter state that the firm would represent Mr. Heldring personally, and, in
accordance with the instructions set forth in the letter, the letter was
executed (and consequently transformed into an agreement) by Mr. Heldring
only as president of Pencoyd, and not in an individual capacity. Additionally,
when suit was filed by Attorney Milby, only Pencoyd was named as the
plaintiff. We thereby agree with the trial court that Mr. Heldring failed to
establish an attorney-client or other contractual relationship between himself
and Attorney Milby that would enable him to recover for malpractice.
Similarly, nowhere does Mr. Heldring set forth a relationship between
himself and the Defendants or allege any personal payment by him to
Defendants that would give rise to a claim for unjust enrichment.
Accordingly, we affirm the dismissal of all claims asserted by Mr. Heldring.
Dismissal of Pencoyd’s Legal Malpractice Claim
The elements of a claim for legal malpractice are:
1. The employment of the attorney or other basis for duty;
2. The failure of the attorney to exercise ordinary skill and
knowledge; and
3. That such negligence was the proximate cause of
damage to the plaintiff.
Rizzo v. Haines, 555 A.2d 58, 65 (Pa. 1989). The Supreme Court of
Pennsylvania has described the unique nature of a legal malpractice claim:
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[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.
Kituskie v. Corbman, 714 A.2d 1027, 1030 (Pa. 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.), 810
A.2d 1182, 1184 (Pa. 2002) (emphasis added).
Here, Pencoyd alleges that the underlying lawsuit, if properly framed
by Attorney Milby and his firm, would have been filed on Pencoyd’s behalf
against GH Property, rather than against “Grasso Holdings.” Although the
issue does not seem to arise frequently, we conclude that, upon proper
proof, failure to sue the correct party may be a viable basis for a legal
malpractice cause of action and that Pencoyd should have been permitted to
proceed on that theory.
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Initially, the Supreme Court’s decision in Poole provides some limited
guidance. Poole received worker’s compensation benefits from his employer
for a slip-and-fall injury that occurred during the course of his employment.
He also attempted to sue the owner of the property where his fall occurred,
but his lawyer sued the wrong party and that suit was dismissed. Because
the statute of limitations had run, Poole was unable to file a new action
against the correct party. 810 A.2d at 1182. Poole then “filed a civil
complaint against his former legal counsel alleging that former counsel had
been negligent in his representation” by suing the wrong party. Id. Poole
and his former lawyer settled that case, and Poole’s employer then sought
reimbursement of its worker’s compensation payments from those
settlement proceeds. Id. at 1182-83.
The direct question before the Supreme Court in Poole was whether
proceeds from a legal malpractice action are subject to subrogation under
the Workers’ Compensation Act, an issue that the Court ultimately answered
affirmatively. See 810 A.2d at 1182-83, 1185. Although the Court was not
asked to decide whether a viable legal malpractice action may be brought
against an attorney who sued the wrong party in an underlying case — the
issue before us here — the Supreme Court never questioned the viability of
such a malpractice claim. See id. at 1182, 1184-85. In fact, the Court
implicitly recognized the validity of such a claim by the penultimate sentence
in its opinion: “while the underlying tortfeasor may have escaped liability
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due to the statute of limitations and the actions of employee’s previous
counsel, the legal malpractice action places this liability on the proper
party.” Id. at 1185.
Courts in other jurisdictions have more directly held that a viable
malpractice action may be brought against a lawyer who sued the incorrect
party. See, e.g., Cosgrove v. Grimes, 774 S.W.2d 662, 663-65 (Tex.
1989) (client was entitled to recover against attorney for malpractice in
pursuing personal injury action, where the attorney filed suit against the
wrong defendant); Bricker v. Kay, 446 So.2d 1151, 1152 (Fla. App. 1984)
(allegation that attorney named wrong defendant in client's action, resulting
in dismissal of complaint with prejudice after expiration of time within which
suit could commence, was sufficient to state claim for malpractice, and the
complaint should not have been dismissed); Young v. Jones, 256 S.E.2d 58
(Ga. App. 1979) (attorney held liable to former clients for malpractice in
negligently handling personal injury case against a railroad, because she
sued the wrong railroad company and did not amend the complaint before
the statute of limitations had run). We recognize that “we are not bound by
these cases; however, we may use them for guidance to the degree we find
them useful and not incompatible with Pennsylvania law.” Trach v. Fellin,
817 A.2d 1102, 1115 (Pa. Super. 2003) (en banc) (citations omitted).
Pencoyd alleges that it retained Attorney Milby and his firm to collect
the money it was owed for its steel fabrication work. See Am. Compl., ¶¶
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20-37. It alleges further that Attorney Milby and his firm were negligent in
failing to sue David Grasso and companies owed or affiliated with him that
were liable on that debt — particularly, GH Property — and that they were
negligent when they instead sued only Grasso Holdings, which is merely a
trade name against which they cannot recover on a judgment. Id. ¶¶ 30-
31, 33, 39, 58 & Ex. “B.” Finally, Pencoyd alleges that this negligence
caused it damage because it has been unable to collect the amount owed to
it, even though it now has a judgment against Grasso Holdings. Id. ¶ 58.
These allegations are sufficient to state a claim for legal malpractice.
The trial court held that Pencoyd’s theory of recovery is not valid
because a viable malpractice action requires proof that the lawyer’s
negligence caused damage to the plaintiff, see Rizzo, 555 A.2d at 65, and,
in the trial court’s view, Pencoyd did not suffer damage. The court
explained: “The underlying action did not result in a loss to [Pencoyd]. The
court has already concluded that Grasso Holdings is liable to Pencoyd, and,
as a result, Pencoyd is not entitled to re-litigate the matter in order to
recover from a more solvent party.” 1/13/16 Order, at 2 n.1. Pencoyd
responds, however, that the judgment it obtained from Grasso Holdings
“was worthless.” Appellants’ Brief at 29. Pencoyd vigorously asserts that
the fact Attorney Milby sued an entity against which a recoverable judgment
could not be obtained cannot be a valid defense against Attorney Milby’s
failure to sue a different liable party that is able to pay a judgment. Pencoyd
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argues that it was Attorney Milby’s responsibility to investigate and to
identify a proper solvent party to sue so that any judgment obtained would
then be collectible, and Pencoyd argues that it should be allowed to pursue
this theory of recovery at trial. Id. at 23. Neither party has presented us
with any authority addressing a fact pattern like this one, but, after careful
consideration, we agree that Pencoyd’s claim based on this theory of
recovery is not dismissible as a matter of law.
In a different context, the Supreme Court held in Kituskie, 714 A.2d
1027, that collectability of damages is an appropriate issue for consideration
in a malpractice trial. The lawyer in Kituskie failed to sue the party
responsible for his client’s personal injuries before the statute of limitations
had run. In the resulting malpractice action, a jury awarded the plaintiff
$2.3 million. On appeal, the lawyer contended that the jury should have
been asked to consider whether the damages should have been reduced,
because it was unlikely that their full amount could have been collected from
the defendant. Answering that question affirmatively, the Supreme Court
held:
[C]ollectibility of damages in an underlying case is a matter
which must be considered in a legal malpractice action and . . .
the defendant/lawyer bears the burden of proving that the
underlying case which formed the basis of the damages award in
a legal malpractice action would not have been fully collectible.
Id. at 1032. The Court added that a plaintiff bringing a legal malpractice
action is “entitled to have a jury determine the issue of collectability if there
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are disputed facts or inferences which can be drawn from the facts.” Id. at
1033 n.9.
Kituskie permits consideration of collectability as a defense to a
malpractice action, rather than as a factor giving rise to liability. However,
the broader point confirmed by Kituskie is that collectability of a judgment
is an important consideration in pursuing litigation — one that lawyers are
obligated to take into account.7 Pencoyd should have the opportunity to
prove that Attorney Milby was negligent in failing to consider whether he
was naming as defendants in the underlying action those parties who were
liable and against which a judgment could be collected. Therefore, we hold
that the trial court erred in holding that Pencoyd’s allegations failed to state
a viable cause of action for legal malpractice as a matter of law.
We also hold that Pencoyd’s legal malpractice action is not barred by
collateral estoppel. Pencoyd interprets the trial court statement that it
would refuse to allow Pencoyd to “re-litigate the matter,” 1/13/16 Order, at
2 n.1, as a holding that collateral estoppel barred its claim. See Appellants’
Brief at 21. The trial court did not expressly say that its conclusion was
based on collateral estoppel principles, however, and we conclude that
collateral estoppel does not bar the present action.
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7
See, e.g., W.L. Douglas Shoe Co. v. Rollwage, 63 S.W.2d 841 (Ark.
1933) (holding that delaying suit until a judgment becomes uncollectible
gives rise to a malpractice action).
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Under the doctrine of collateral estoppel, or “issue preclusion,” “the
second action is upon a different cause of action and the judgment in the
prior suit precludes relitigation of issues actually litigated and necessary to
the outcome of the first action.” In re Stevenson, 40 A.3d 1212, 1222 (Pa.
2012) (quoting Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322, 327
n.5 (1979)).
Collateral estoppel applies if (1) the issue decided in the prior
case is identical to 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.
Selective Way Ins. Co. v. Hospitality Grp. Servs., Inc., 119 A.3d 1035,
1042 (Pa. Super. 2015). For collateral estoppel to apply, all of these
elements must be met. Id.
A legal malpractice action does not litigate the same cause of action as
the underlying case in which the malpractice allegedly occurred.
Necessarily, the parties in the two suits are different: the underlying suit by
Pencoyd was against Grasso Holdings; the malpractice suit is by Pencoyd
against Attorney Milby and his law firm. There also is no identity of issues.
The underlying action was brought by Pencoyd against “Grasso Holdings”
and/or “Grasso Holdings Acquisitions, LLC” to collect on monies unpaid for
construction work performed by Pencoyd. The current action is brought by
Pencoyd against Attorney Milby and his law firm for alleged damages
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resulting from their alleged negligence and breach of contract in connection
with their commencement and litigation of the underlying claim. Pencoyd
had no full or fair opportunity to litigate that malpractice issue in the
underlying action, since it was in the course of that action that the
malpractice allegedly occurred and since Pencoyd’s alleged damages —
resulting from uncollectability of the judgment — were not incurred until the
underlying action ended.
Referring to the findings made by the trial court in the underlying
action, Attorney Milby contends that a controlling issue in the malpractice
case — which party is liable to Pencoyd on the construction debt — was
conclusively determined when the court held Grasso Holdings liable and
entered a judgment against it. Appellees’ Brief at 7, 15. Attorney Milby
asserts that this means that he could not have been negligent in suing
Grasso Holdings. But Pencoyd’s theory of recovery here is that Attorney
Milby was negligent in suing only Grasso Holdings, and in not also suing
David Grasso and his other companies — particularly, GH Property — parties
that allegedly were both liable and able to pay the judgment. The trial court
in the underlying action did not find that David Grasso and GH Property
could not also be held liable to Pencoyd; there would have been no basis for
such a finding, since David Grasso and GH Property were not named
defendants in that case. The judgment in the underlying action therefore
does not conclusively answer the question whether these other potential
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defendants shared liability. Notably, however, the trial court cited evidence
that Grasso Holdings acts “through its affiliates,” and it found that “there
was substantial intermingling of corporate affairs” among the Grasso
companies. Am. Compl., Ex. D, ¶¶ 57, 61.
This matter thus involves different parties and issues from the
underlying action. Without equivalence of issues and parties, collateral
estoppel does not apply, Selective, 119 A.3d at 1042, and, accordingly,
does not bar Pencoyd’s current legal malpractice case.
In light of the foregoing, we conclude that Pencoyd has stated a cause
of action sounding in legal malpractice against Attorney Milby and his firm
and that principles of collateral estoppel do not preclude assertion of that
action. Our holding is narrow. Pencoyd’s theory of recovery is hotly
contested and may be subject to various defenses. The parties have
identified material disputes about several elements of Pencoyd’s malpractice
claim, including whether the judgment against Grasso Holdings in the
underlying action is truly uncollectible. These are genuine issues of material
fact to be determined by a factfinder during the course of the legal
malpractice action, see Kituskie, 714 A.2d at 1033 n.9, but they are not
reasons to hold that no cause of action may be asserted as a matter of law.
The trial court erred in determining otherwise. Therefore, we reverse the
dismissal of Pencoyd’s legal malpractice claim.
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Dismissal of Pencoyd’s Unjust Enrichment Claim
Finally, we affirm the trial court’s dismissal of Pencoyd’s unjust
enrichment claim against Attorney Milby and his firm. A “cause of action for
unjust enrichment arises only when a transaction is not subject to a written
or express contract.” Northeast Fence & Iron Works, Inc. v. Murphy
Quigley Co., 933 A.2d 664, 669 (Pa. Super. 2007). Here, Pencoyd had a
written and express contract with Attorney Milby and his firm — the mutually
signed August 21, 2009 letter agreement solemnizing retention of the firm
to engage in “proceedings to collect monies owed to Pencoyd.” Am. Compl.,
Ex. “A,” at 1. As such, there is no basis for Pencoyd’s claim of unjust
enrichment, and the trial court’s dismissal of that claim will not be disturbed.
1/13/16 Order, at 2 n.1.
In sum, we reverse the dismissal of Pencoyd’s claim for legal
malpractice and affirm the dismissal of the claims brought by Mr. Heldring
individually and of Pencoyd’s claim for unjust enrichment. We remand for
further proceedings consistent with this opinion.
Order affirmed in part, reversed in part, and remanded. Jurisdiction
relinquished.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/28/2016
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