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decided: December 15, 1976.


Appeal from the Judgment entered on Verdict, September 22, 1975, of the Court of Common Pleas, Civil Div., of Allegheny County, at No. 781 April Term, 1972. No. 179 April Term, 1976.


Gilbert J. Helwig, Pittsburgh, for appellant.

Frank J. Kernan, Pittsburgh, for appellees.

Watkins, President Judge, and Jacobs, Hoffman, Cercone, Price, Van der Voort and Spaeth, JJ. Cercone, J., files a dissenting opinion, in which Hoffman, J., joins.

Author: Jacobs

[ 244 Pa. Super. Page 197]

This appeal is taken from the entry of judgment on a jury verdict in the amount of $55,000 in favor of the appellees, Mr. and Mrs. Diesel. After thorough review of the record, we have concluded that a judgment in the amount of $55,000 is not supported by the record. Further, the question of damages, if any, being inextricably intertwined with the question of liability,*fn1 and the record revealing a tortuous and oft confusing presentation of the question of liability, we have concluded that a new trial must be granted the appellant.

The facts, as developed at trial and taken in the light most favorable to the verdict winner, the appellees, are succinctly summarized in the opinion of the lower court:

"The plaintiffs, husband and wife, responded to a classified advertisement in the Pittsburgh Press, calling for, 'two investors -- for an exciting fascinating, very profitable private club,' and were placed in contact with one Samuel 'Sonny' Peters. They were advised that the investment opportunity involved a one-third ownership in a 'private club' to be operated by a non-profit corporation called the 'Argonne Club'.

"The representation continued that one Izzy Weinstein had been located as an investor, and that each, that is to say, Peters, Mr. and Mrs. Diesel and Izzy Weinstein, were to invest Thirty Thousand ($30,000.00) Dollars in the venture. Peters had previously obtained from a Mr. Leon Thorpe a five year lease with an additional five years on premises situate in the Market Square area of downtown Pittsburgh. The plaintiffs then invested Twenty Thousand ($20,000.00) Dollars of their savings into the venture causing this sum to be placed into a bank account under the style, 'Argonne Club' maintained at the South Hills

[ 244 Pa. Super. Page 198]

Village Office of Pittsburgh National Bank. Peters then entered into a contract with a DeRamo Construction Company to have the leased premises converted into a facility suitable for the operation of a 'private club'. While the construction work was in progress, a notice of an application for the transfer of a club liquor license to the premises was posted on the premises and was seen by the plaintiffs. It was signed by the defendant, Charles N. Caputo, as President of the Italian American Professional and Business Men's Association (IAPBA). Upon inquiry to Peters, the plaintiffs were advised that the name of the non-profit corporation was not important, and that he, Peters, had agreed to pay Seven Thousand Five Hundred ($7,500.00) Dollars to the defendant, Mr. Caputo, for his 'services' in causing the liquor license to be transferred to the premises. The defendant, Charles N. Caputo, cashed a check in the amount of Five Thousand ($5,000.00) Dollars drawn against the Argonne Club account in the amount of Five Thousand ($5,000.00) Dollars, which he endorsed. It should be noted that the defendant, Mr. Caputo, testified that he did not receive the Five Thousand ($5,000.00) Dollars, but rather endorsed the check and presented it to the bank merely as an accommodation to Mrs. Peters, a person he hadn't seen for a number of years. The creditability of that testimony was, of course, for the jury's determination.

"Apparently, serious problems were presented which prevented the transfer of the liquor license issued to the Argonne Club, thus, it was necessary to 'find' another club to accomplish the same purpose. This resulted in the use of the Charter issued by the Commonwealth of Pennsylvania to the Italian American Professional and Business Men's Association (IAPBA). A lease of the premises was then signed on behalf of the IAPBA by the defendant, Charles N. Caputo, President.

[ 244 Pa. Super. Page 199]

The name of the operation was to be 'Showboat Supper Club'.

"Prior to the opening of the venture, Peters represented to the plaintiffs that the third investor, Izzy Weinstein, had withdrawn and that the opportunity was now provided for Peters and the plaintiffs to increase their respective equities by the investment of additional sums, whereupon the plaintiffs invested an additional Fifteen Thousand ($15,000.00) Dollars. Still later, and contemporaneous with the opening of the Showboat Supper Club, the plaintiffs invested an additional Nine Thousand Six Hundred Thirty Two and 99/100 ($9,632.99) Dollars. The club opened. Peters supervised the bar and his nephew officiated at the door, while Mrs. Diesel served as cook and Mr. Diesel kept the books of the business.

"It was then discovered that, notwithstanding the representations made by Mr. Peters, the entire operation was as a result of the investment made by the plaintiffs, Mr. Peters having invested Twenty ($20.00) Dollars. It was further discovered that Peters had appropriated money from the cash register and that he had further appropriated money paid for 'memberships'.

"When the fraud was discovered, plaintiffs requested Leon Thorpe to lease the premises to the plaintiffs, but were advised that Mr. Thorpe could only deal with the defendant, Charles N. Caputo. The plaintiffs then met with the defendant, Charles N. Caputo, and confronted him with the fraud. The plaintiffs requested that Mr. Caputo cause the premises to be turned over to them so that they could salvage their investment. Peters admitted the fraud. Mr. Caputo, however, rather than accede to the plaintiffs' request that he turn over the operation to the plaintiffs, advised the plaintiffs to pay an additional Ten Thousand ($10,000.00) Dollars to Mr. Peters. It was shortly

[ 244 Pa. Super. Page 200]

    after this action on the part of the defendant, Charles N. Caputo, that the plaintiffs sought legal counsel and the instant action was commenced."*fn2 (Emphasis added.) (Footnote added.)

If at this juncture, the unfortunate circumstances in which the plaintiffs found themselves do not arouse the sympathy of even the most casual observer, the procedural posture of the ensuing cause of action is certainly of a most disconcerting nature.

On January 21, 1972, the plaintiffs filed a complaint in equity*fn3 naming as defendants therein, Samuel and Norma Peters, Charles N. Caputo, and the Italian American Professional and Business Men's Association (IAPBA).*fn4 The essence of the complaint, as it related to

[ 244 Pa. Super. Page 201]

Charles N. Caputo, the appellant, was an allegation that Caputo was, from the beginning, a participant in a conspiracy to defraud the plaintiffs.*fn5 On February 11, 1972, defendants, Samuel and Norma Peters and IAPBA filed preliminary objections in which they averred, inter alia: "1. Plaintiffs have a full, complete and adequate remedy at law." Printed Record at 9a. Caputo filed an answer and new matter on February 28, 1972, the essence of which was a denial of any complicity in the scheme to defraud. By order of the court below, dated June 19, 1972, plaintiffs' case was transferred to the law side of the court, and Samuel and Norma Peters and IAPBA*fn6 were ordered to file answers within twenty days.*fn7

At a pre-trial conference on January 3, 1974, Caputo filed a motion with the court to vacate its order of June 19, 1972 (certifying this case as an action at law), and to

[ 244 Pa. Super. Page 202]

    transfer this action to equity. By order dated January 4, 1974, Caputo's motion to transfer this action to equity was denied. Subsequently, Caputo renewed his motion*fn8 to transfer, which motion was again dismissed*fn9 by order dated January 27, 1975. Trial commenced on April 7, 1975.

At the beginning of the trial it immediately became apparent that the nature of the plaintiffs' claim against Caputo had changed. Plaintiffs abandoned their theory that Caputo was a participant in the original scheme to defraud, and proceeded against Caputo on a theory of restitution. The record is replete with evidence of this change in theory. In plaintiffs' counsel's opening address to the jury he stated, inter alia:

"But the principle law says this. When property is fraudulently diverted, when it comes into the hands of a third person, that third person not only has the moral obligation but also the legal obligation when he knows he is in possession of something that has been taken through fraud, he has to give it back to the victim."

N.T. at 20.*fn10

[ 244 Pa. Super. Page 203]

The trial judge in his instructions to the jury stated in pertinent part:

"Now there is another principle that you should know, and that is that where property is fraudulently converted and diverted from its proper use, the third party into whose hands the property falls without consideration, even though he be innocent of the fraud in the inception, that is to say the original fraud, has the obligation to restore to its rightful owner the property wrongfully appropriated where he has knowledge of the fraud. Now it goes without saying I think, but I am going to make sure we understand, we are not here concerned with whether this defendant involved himself in the original fraud, alleged fraud, I should say, ...

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