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UNITED NATIONAL INSURANCE CO. AND AMHERST INSURANCE COMPANY AND NORTHEASTERN FIRE INSURANCE CO. v. M. LONDON (01/09/85)

filed: January 9, 1985.

UNITED NATIONAL INSURANCE CO. AND AMHERST INSURANCE COMPANY AND NORTHEASTERN FIRE INSURANCE CO.
v.
M. LONDON, INC., LEWIS FELDMAN AND JENNIE FELDMAN, HIS WIFE AND PAUL LONDON, EXECUTOR OF THE ESTATE OF LOUIS LONDON AND CELIA LONDON V. FRED LOWENSCHUSS AND FRED LOWENSCHUSS ASSOCIATES, APPELLANTS V. COZEN, BEGIER & O'CONNOR



No. 1625 Philadelphia 1983, Appeal from the Order of the Court of Common Pleas of Philadelphia County, Civil Division at No. 4999 June Term 1979.

COUNSEL

William D. Parry, Philadelphia, for appellants.

Ronald B. Hamilton, Philadelphia, for United Nat., appellees.

Gary A. Rochestie, Philadelphia, for London, appellees.

McEwen, Del Sole and Popovich, JJ.

Author: Popovich

[ 337 Pa. Super. Page 530]

This is an appeal from the orders of the Court of Common Pleas of Philadelphia County granting the preliminary objections of the plaintiffs (United National Insurance Co., Amherst Insurance Co. and Northeastern Fire Insurance Co.), the defendants (M. London, Inc., Lewis Feldman and Jennie Feldman, his wife, and Paul London, Executor of the Estate of Louis London and Celia London) and the defendant on the counterclaim (Cozen, Begier & O'Connor) and dismissing with prejudice the counterclaim of the additional defendant (Fred Lowenschuss) and Fred Lowenschuss Associates. We affirm and modify.

The facts, which are not without their legal and procedural complexities, are that the defendants' business was damaged by fire and the plaintiffs paid for 1/3 of the cost of the damage incurred. Consequently, the defendants retained additional defendant as counsel to sue the manufacturer of the appliance which allegedly caused the fire. The action proceeded to trial and a jury returned a verdict in favor of the manufacturer. Following this, the plaintiffs, represented by the defendant on the counterclaim, filed a complaint averring that the defendants' institution of a lawsuit, without the plaintiffs' knowledge or consent, against the manufacturer constituted a breach of the insurance contracts which worked an irrevocable prejudice to the rights and interests of the plaintiffs pursuant to their subrogation

[ 337 Pa. Super. Page 531]

    entitlement. (Paragraphs 19, 22 & 23) Thus, the plaintiffs sought to recoup the amount of insurance paid (plus interest) to the defendants under the policies.

Thereafter, the court extended, pursuant to a stipulation between counsel for the plaintiffs and defendants, the time within which the defendants could join Fred Lowenschuss as an additional defendant. What followed was the filing of a complaint accusing the additional defendant of being incompetent, grossly negligent and acting in total disregard of the defendants' instructions in not advising them of and contesting the plaintiffs' petition to intervene at trial. They sought in excess of $10,000 in damages and averred that the additional defendant was solely liable to the plaintiffs, jointly liable with or liable over to the defendants.

In February or March of 1980, the additional defendant filed preliminary objections to the defendants' complaint, which were sustained by the court by order dated February 5, 1982. Additionally, in the same order, defendants were granted leave again to join Fred Lowenschuss as an additional defendant, with the further requirement that they allege with particularity their contract with the additional defendant and his negligent conduct in connection therewith.

It warrants mentioning that in the 2-year span between the filing of the additional defendant's preliminary objections and the issuance of an order thereon, numerous documents appear of record which reveal a continuing dialogue solely among the plaintiffs, defendants and additional defendant, Fred Lowenschuss.

In compliance with the court's February 5, 1982 order, the defendants filed an amended complaint joining additional defendant. It stated, in pertinent part, that the attorney-client relationship was the product of a contingent fee agreement which provided that:

     b) [Fred] Lowenschuss would be responsible for all costs involved in instituting, maintaining, trying and, if necessary, appealing the Fedders [A]ction[-- the manufacturer against whom suit had been filed for the damages incurred

[ 337 Pa. Super. Page 532]

    at the defendants' business], including but not limited to filing costs, costs of depositions, costs of lay and expert witnesses, and costs of reproducing the record on appeal.

     c) in the event there was a recovery in the Fedders Action, Lowenschuss would be reimbursed for all sums expended by him for costs out of proceeds recovered, with the balance of the recovery being divided between Lowenschuss and London [-defendants] as set forth in the Contingent Fee Agreement; and

     d) in the event that there was not a recovery in the Fedders Action, Lowenschuss would not be reimbursed for the costs expended by him or the services rendered by him pertaining to the Fedders Action.

In the remaining portion of the amended complaint, the defendants recited those factors which it believed pointed to the additional defendant's reckless and negligent handling of their lawsuit, and their entitlement to both judgment (in excess of $20,000) and indemnification from suit by the plaintiffs.

However, prior to the presentment of the aforementioned complaint, the additional defendant filed the "Counterclaim of Fred Lowenschuss and Fred Lowenschuss Associates Against Plaintiffs and Defendants". Therein it was alleged that the law firm of Fred Lowenschuss Associates, which employed the additional defendant and other attorneys and law clerks, "performed legal services on behalf of the plaintiffs and defendants . . . at various times" with regard to the handling of the Fedders Action. (Paragraph 2)

In particular, it was alleged that the plaintiffs agreed in writing to pursue "no longer . . . their attempt to intervene in the lawsuit, and that all out-of-pocket expenses and costs of said suit would be shared equally between the plaintiffs and defendants . . . ." (Paragraph 5) Further, the additional defendant itemized the cost incurred by both he and his law firm in prosecuting the Fedders Action and the appeal therefrom, as well as the legal fees generated by having to defend against the plaintiffs attempt to intervene. Conduct

[ 337 Pa. Super. Page 533]

    which, the additional defendant argued, violated the plaintiffs' agreement not to do so. (Paragraph 6)

Moreover, recovery by the additional defendant and Fred Lowenschuss Associates in the assumpsit counts (I, II & III) of the counterclaim was premised upon theories of implied contract, express contract and quantum merit. In the trespass count (IV), however, it was only the additional defendant who alleged injury by the plaintiffs and defendants for malicious use of process in instituting suit in bad faith and for purposes of harassment, seeking in excess of $20,000 as compensatory damages and an equal sum as punitive or exemplary damages for the time expended by he and his law firm in defending against the suit.

Shortly thereafter, the plaintiffs and defendants each filed preliminary objections similar in form and content, i.e., 1) in the nature of a motion to strike off pleading because of lack of conformity to law or rule of court; 2) raising the defense of lack of capacity to sue; 3) in the nature of a more specific pleading; 4) in the nature of a demurrer; and 5) attacking the form of service. The singular most relevant statement made in each document related to the claim that Pa.R.Civ.P. 1031 only permitted the filing of a counterclaim by a party of record. Since Fred Lowenschuss Associates was brought into the suit by the additional defendant by way of the counterclaim, it was a non-party to the litigation and, therefore, lacked the capacity to sue the plaintiffs or the defendants. (Paragraphs 16 & 18, respectively)

What followed was the filing of the additional defendant's preliminary objections to the defendants' amended complaint and the counterclaimants' (additional defendant's and Fred Lowenschuss Associates') answer to each of the preliminary objections submitted by the plaintiffs and defendants to the counterclaim, wherein it was denied that Fred Lowenschuss Associates lacked the capacity to sue and that joinder was "proper in order to bring all proper parties before the Court and to avoid a multiplicity of suits."

[ 337 Pa. Super. Page 534]

Thereafter, because no answer had ever been filed to the defendants' amended complaint, the court granted the plaintiffs' preliminary objections bringing this to the court's attention, and, as a consequence, the additional defendant's and Fred Lowenschuss Associates' counterclaim was "dismissed without prejudice to their right to assert the counterclaim upon filing a timely answer to the defendants' amended complaint." See Pa.R.Civ.P. 1031(a) ("The defendant may set forth in the answer under the heading "Counterclaim" any cause of action . . . against the plaintiff at the time of filing the answer."); see also Pa.R.Civ.P. 1017(a). On the same date, the court entered a second order denying the additional defendant's preliminary objections to the defendants' amended complaint and granted the defendants' preliminary objections in the nature of ...


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