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08/20/97 DARIEN CAPITAL MANAGEMENT v. COMMONWEALTH

August 20, 1997

DARIEN CAPITAL MANAGEMENT, INC., APPELLANT,
v.
COMMONWEALTH OF PENNSYLVANIA, PUBLIC SCHOOL EMPLOYES' RETIREMENT SYSTEM, APPELLEE.



Appeal of the Order of the Commonwealth Court at No. 989 C.D. 1995, dated. November 15, 1995, affirming the Order of the Board of Claims, at No. 1624, dated. March 28, 1995. 668 A.2d 210. (Pa. Commw. 1995). JUDGE(S) BELOW: Commonwealth - DOYLE, FRIEDMAN, JJ. AND LORD, SJ.

Before: Flaherty, C.j., And Zappala, Cappy, Castille And Nigro, JJ. Madame Justice Newman did not participate in the consideration or decision of this matter.

The opinion of the court was delivered by: Cappy

JUSTICE CAPPY

DECIDED: August 20, 1997

We granted allocatur limited to the issues of whether the Commonwealth Court erred in concluding that the applicable statute of limitations had expired prior to the filing of Appellant Darien Capital Management, Inc.'s ("Darien") claim, and whether the principle of estoppel is applicable to this case. Because the applicable statute of limitations had not expired prior to the filing of Darien's claim, we reverse the order of the Commonwealth Court and remand to the Board of Claims (the "Board") for further proceedings consistent with this opinion.

Darien manages investments for pension funds. Beginning in July, 1989, Darien provided services for Appellee Pennsylvania Public School Employes' Retirement System ("PSERS"). Darien and PSERS entered into an agreement, executed by Darien on July 20, 1990, pursuant to which Darien would manage an "option over-writing account" for PSERS. This agreement had a term of five years, but could be terminated by either party upon thirty days written notice. The agreement provided that Darien would receive a minimum annual "base management fee" of five basis points, which amounted to $62,500 per quarter, regardless of the results Darien obtained from its investments, and an "incentive fee" equal to 20% of any profits earned by Darien for PSERS, less certain deductions. The profit amount on which the incentive fee was to be based would be calculated on the last day of each calendar year.

The profits shown in Darien's program on December 31, 1990, totalled $23,543,984.00. On or about January 4, 1991, Darien sent an invoice to PSERS for $4,591,297.00, which represented 20% of the profits earned as of December 31, 1990. *fn1 PSERS reviewed the invoiced amount and, after audit, both parties agreed that the actual amount of the incentive fee should be $4,121,297.00.

PSERS had doubts about Darien's investment style and doubts about the whole incentive fee being calculated on only one day of the year. As a result of PSERS's concerns, on March 5, 1991, Darien sent to PSERS a proposed addendum to the agreement providing for a change in the method of calculation of the incentive fee, whereby 25% of net incentive fees owed at the end of each calendar quarter would be payable. *fn2 This addendum was never executed by either party. *fn3

On March 6 or 8, 1991, Darien sent to PSERS a revised invoice for $1,030,324, which was 25% of the incentive fee calculated as of December 31, 1990. PSERS, through the Treasury Department, paid the invoice on March 22, 1991.

Darien continued to provide services to PSERS through 1991. On April 1, 1991, Darien invoiced PSERS for Darien's first quarter base management fee in the amount of $62,500. PSERS paid this invoice. PSERS also paid Darien's quarterly invoices for the base management fees in July, 1991, and October, 1991.

Ultimately, on December 18, 1991, Darien sent an invoice to PSERS for the $3,090,973 unpaid portion of the 1990 incentive fee. *fn4 Following receipt of Darien's invoice, PSERS decided to terminate the agreement. On February 7, 1992, PSERS, by letter, advised Darien that its services were terminated. On or about February 11, 1992, PSERS's chief counsel informed Darien that its invoice for the balance of the 1990 incentive fee would not be paid. On March 24, 1992, Darien filed a claim with the Board for the unpaid balance of the 1990 incentive fee, interest, and attorney's fees.

The Board never reached the merits of Darien's incentive fee claim, but instead dismissed Darien's claim as untimely, based on the applicable six month statute of limitations. The Commonwealth Court affirmed. This court granted Appellant's petition for allowance of appeal, limited to the above-stated issues.

The first issue on which this court granted allocatur is whether the applicable statute of limitations had expired prior to the filing of Darien's claim. *fn5 The applicable statute of limitations for contract claims against the Commonwealth is found at 72 Pa.S.C.A. § 4651-6. *fn6 This statute provides in relevant part:

the board shall have no power and exercise no jurisdiction over a claim asserted against the Commonwealth unless the claim shall have been ...


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