United States District Court, W.D. Pennsylvania
August 29, 2005.
DANIEL R. FINNEY, Plaintiff,
ROYAL SUN ALLIANCE INSURANCE COMPANY, a/k/a ROYAL INSURANCE COMPANY OF AMERICA, and PATRICK J. LOUGHNEY, Defendants.
The opinion of the court was delivered by: ARTHUR SCHWAB, District Judge
MEMORANDUM OPINION ON SUMMARY JUDGMENT
Factual Background and Procedure
Before the Court are separate motions for summary judgment
filed by defendants Royal Sun Alliance Insurance Company
("Royal") and Patrick J. Loughney, Esquire. After careful
consideration of the motions for summary judgment and plaintiff
Daniel R. Finney's responses, the memoranda of law in support and
in opposition, and the voluminous materials produced by the
parties in support and in opposition, the Court will grant
summary judgment for defendants.
This Court withdrew the automatic reference to Bankruptcy Court
on October 21, 2004 of Plaintiff/debtor's amended adversary
complaint stating claims under Pennsylvania's Dragonetti Act, 42
Pa.C.S. § 8351, "Wrongful use of civil proceedings" against Royal
(Count I) and Loughney (Count II), and for common law abuse of
process against both defendants (Count III). The Second Amended
Complaint sets forth the following.
On June 1, 2000, a fire destroyed Daniel Finney's house and
barn in Elizabeth Pennsylvania. Finney had a policy of
homeowner's insurance with Royal for over one million dollars, including personal property coverage, and he made a
claim immediately after the fire. Mr. Finney, a general
contractor by trade, had a $410,000 mortgage on the property,
which he had taken out in March 2000 to pay for his home
remodeling project, which he had just completed.
On advice of counsel, Dennis Spyra, Esquire, plaintiff did not
make his mortgage payments while the claim was being
investigated, and declared bankruptcy given the impending
mortgage foreclosure on September 13, 2000. Eventually, on March
23, 2001, Royal paid off the mortgage, but refused to pay
anything else on plaintiff's claim. Royal's investigation
indicated the June 1st fire had been intentional, and that
plaintiff had made a claim against another insurance company in
November 1996 for a fire at his previous residence that Royal
learned had been caused by arson. Plaintiff did not disclose that
previous claim on his application for insurance with Royal, and
defendants deemed that to be fraud in the application.
Attorney Spyra filed an adversary action in the bankruptcy
proceeding against Royal for breach of contract and bad faith
under Pennsylvania's insurance bad faith statute, 42 Pa.C.S. §
8371, and another member of this Court granted Royal's motion to
withdraw the automatic reference on January 17, 2001. Finney v.
Royal Sun Alliance Insurance Company, Civil Action No. 01-120.
Defendant Loughney drafted and filed a counterclaim on Royal's
behalf, asserting that plaintiff had committed fraud in his
application for insurance and had caused the fire intentionally,
and seeking costs and expenses, including refund of the payments
it already had made.
A jury in a trial before Chief Judge Donetta Ambrose of this
Court found on April 12, 2002 that defendant had breached its
contractual obligations to plaintiff by refusing to pay additional amounts on the claim, and awarded damages in the
amount of $147,225.54 (as modified by the Court which added
prejudgment interest in the amount of $38,584.08). The jury
returned a verdict for Royal on the bad faith claim, however, and
for plaintiff on Royal's counterclaim.
Plaintiff alleges in his Second Amended Complaint that Royal
and attorney Loughney acted without probable cause and for an
improper motive in filing and prosecuting the counterclaim
alleging he committed arson and fraud, primarily for the purpose
of "coercing, intimidating and dissuading Mr. Finney from
pursuing his claim against Royal thereby saving a substantial
amount of money by not paying the claim." Second Amended
Complaint at ¶ 38. Both defendants filed motions for summary
judgment asserting that the record evidence shows as a matter of
law that there was probable cause to file their ultimately
unsuccessful counterclaim and that they acted for legitimate
business and strategic reasons, and that plaintiff has not
produced sufficient contradictory evidence to support his claims.
The Court agrees and will grant summary judgment for defendants.
Summary Judgment Standards
Summary judgment under Fed.R.Civ.P. 56(c) is appropriate "`if
the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of
law."Woodside v. School Dist. of Philadelphia Bd. of Educ.,
248 F.3d 129, 130 (3d Cir. 2001), quoting Foehl v. United States,
238 F.3d 474, 477 (3d Cir. 2001) (citations omitted). An issue of
material fact is genuine only if the evidence is such that a reasonable jury could return a verdict for the non-moving
party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). "A factual dispute is material if it `bear[s] on an
essential element of the plaintiff's claim,' and is genuine if `a
reasonable jury could find in favor of the nonmoving party.'"
Cloverland-Green Spring Dairies, Inc. v. Pa. Milk Mktg. Bd.,
298 F.3d 201, 210 (3d Cir. 2002) (quoting Abraham v. Raso,
183 F.3d 279, 287 (3d Cir. 1999)) (alteration in original). "The
substantive law governing the dispute will determine which facts
are material, and only disputes over those facts `that might
affect the outcome of the suit under the governing law will
properly preclude the entry of summary judgment.'" DeHart v.
Horn, 390 F.3d 262, 267-68 (3d Cir. 2004), quoting Anderson,
477 U.S. at 248.
When the non-moving party will bear the burden of proof at
trial, the moving party's burden can be "discharged by `showing'
that is, pointing out to the District Court that there is an
absence of evidence to support the non-moving party's case."
Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). If the
moving party has carried this burden, the burden shifts to the
non-moving party who cannot rest on the allegations of the
pleadings and must "do more than simply show that there is some
metaphysical doubt as to the material facts." Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986);
Petruzzi's IGA Supermarkets, Inc. v. Darling-Delaware Co.,
998 F.2d 1224, 1230 (3d Cir. 1993).
In deciding a summary judgment motion, a court must take the
facts in the light most favorable to the nonmoving party, and
must draw all reasonable inferences and resolve all doubts in
their favor. Doe v. County of Centre, PA, 242 F.3d 437, 446 (3d
Cir. 2001); Woodside, 248 F.3d at 130; Heller v. Shaw Indus.,
Inc., 167 F.3d 146, 151 (3d Cir. 1999). Moreover, a district
court may not make credibility determinations or engage in any
weighing of the evidence at the summary judgment stage; instead, the non-moving party's evidence
"is to be believed and all justifiable inferences are to be drawn
in his favor." Marino v. Industrial Crating Co., 358 F.3d 241,
247 (3d Cir. 2004), quoting Liberty Lobby, Inc.,
477 U.S. at 255; Josey v. Hollingsworth Corp., 996 F.2d 632 (3d Cir. 1993).
Wrongful Use of Civil Proceedings Counts I and II
Wrongful use of civil proceedings is a tort which arises when a
party institutes a lawsuit with a malicious motive and lacking
probable cause. Hart v. O'Malley, 781 A.2d 1211, 1219
(Pa.Super. 2001). In Pennsylvania, this tort is embodied in the
Dragonetti Act, which provides in part:
(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:
(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.
The Dragonetti Act abandoned the element of the common law tort
of wrongful use of civil proceedings or malicious prosecution
which required the arrest or seizure of the person or property of
the plaintiff as a necessary element. It also defined "probable
cause" and proscribed the burdens of proof. Section 8352 states
that probable cause exists for initiating or continuing civil proceedings if the person 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
(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.
The elements specified in the statute which the plaintiff must
prove by a preponderance of the evidence are: (1) defendant
"procured, initiated or continued" the civil proceedings; (2) the
proceedings terminated in plaintiff's favor; (3) defendant did
not have probable cause for procuring, initiating or continuing
the 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"; and (5) damages. 42 Pa.C.S. § 8353.
Thus, to succeed on claim for wrongful use of civil
proceedings, plaintiff must show that defendants lacked a
reasonable belief in the facts on which their counterclaim was
based and in the validity of the claim under existing or
developing law. Broadwater v. Sentner, 725 A.2d 779 (Pa.Super.
1999), appeal denied, 562 Pa. 664, 753 A.2d 814 (2000). See
also Keim v. County of Bucks, 275 F.Supp.2d 628 (E.D.Pa. 2003)
(to establish claim for abuse of process in Pennsylvania,
plaintiff must show that defendant (1) used a legal process
against the plaintiff, (2) primarily to accomplish a purpose for
which the process was not designed, and (3) that harm was caused
to the plaintiff as a result). The filing of a counterclaim may constitute the "continuation"
of civil proceedings under the Dragonetti Act; however, "an
action for the wrongful use of a counterclaim demands that courts
examine such claims closely, lest a defendant be punished for
nothing more than defending himself or herself against a claim
made by another." Mi-Lor, Inc. v. DiPentino, 439 Pa.Super. 636,
654 A.2d 1156, 1158 (Pa.Super. 1995). An attorney who knowingly
prosecutes a groundless action to accomplish a malicious purpose
may be held accountable under the Dragonetti Act. Electronic
Laboratory Supply Co. v. Cullen, 712 A.2d 304, 310 (Pa.Super.
The Court finds that a reasonable jury could not disagree, on
the record before the Court, that defendants had probable cause
to pursue the counterclaim, and that there is no evidence other
than plaintiff's sheer speculation that defendants acted with an
On advice of attorney Loughney, Royal filed and prosecuted the
counterclaim in plaintiff's adversary proceeding. Loughney and
employees of Royal who decided to file the counterclaim testified
in their depositions that they believed plaintiff committed both
fraud and arson as a result of Royal's thorough investigation.
That investigation showed, inter alia, that plaintiff had been
undergoing financial distress and that he had made a claim for an
arson fire in 1996 which had not been disclosed on his
application with Royal.
Defendants' proffered testimony would not be sufficient to
conclude, as a matter of law, that there was probable cause or
that defendants did not have improper motives, but in this case,
there are five "second opinions" that support defendants, and no
significant countervailing evidence.
First, attorney Spyra did not make a motion to dismiss or a
motion for summary judgment on the counterclaim to the adversary complaint in the
Finney v. Royal Sun Alliance Insurance Company proceeding
before Chief Judge Ambrose. His strategic decision not to pursue
a motion to have the counterclaim dismissed prior to trial
suggests an implicit "second opinion" by plaintiff's own attorney
that the counterclaim had arguable merit, and indeed, attorney
Spyra indicated in his deposition that he believed the
counterclaim was proper and was supported. Royal's Exhibit J,
Spyra dep. at 63-64. Moreover, the proof offered in support of
its affirmative defense to plaintiff's claim was identical to the
proof in support of the counterclaim. Fed.R.Civ.P. 13(a) requires
compulsory counterclaims be filed along with answers and
affirmative defenses, and it would be inappropriate, in the
opinion of an insurance defense practitioner of long experience
in the community, not to include a counterclaim presented by the
same facts as the affirmative defense. Expert Report of Richard
DiBella, Esquire, Royal Exhibit E (the second "second opinion").
The third "second opinion" was that of attorney Carey Valyo,
who took over Royal's defense at trial. Mr. Valyo assessed the
counterclaim when he took over the case, and determined that it
should go forward, and he still believes, based upon his review
of the evidence, that plaintiff had something to do with the
fire. Royal's Exhibit H, Valyo Dep. at 14-15.
Fourth, plaintiff's own expert witness, Mr. James E. DePaquale,
Esquire, authored an expert report concluding that the
counterclaim lacked probable cause and may have been influenced
by a desire to "bluff' plaintiff into giving up his claim with
Royal. However, Mr. DePaquale's ultimate opinion is inconsistent
with much of his testimony in deposition and internally
inconsistent with other important items expressed in the report.
Reviewing the expert's report and testimony as a whole, the Court finds that
plaintiff's expert actually supports defendants' decision to file
and prosecute the counterclaim in critical respects, and that the
reasons he ultimately concluded that there was no probable cause
to pursue a counterclaim and there may have been improper motive
are not supported by sufficient evidence and are not persuasive.
Expert Report Mr. DePasquale's report of July 11, 2005,
Royal's Exhibit K, sets forth the following: On June 1, 2000,
plaintiff was in financial straits, had missed his last mortgage
payment and owed taxes to the IRS; in November, 1996, plaintiff
owned rental property in Westmoreland County Pennsylvania that
was destroyed by arson, and he made a claim to State Farm
Insurance which paid him $70,000 on the claim; the arson fire and
insurance claim was not disclosed to Royal on plaintiff's
application for insurance, although subsequently plaintiff's
agent, who filled out the application after getting the
information from plaintiff, took responsibility for that
omission; plaintiff was at his residence on May 31, 2000 until
about 10:00 pm, at which point he spent the night at his
girlfriend's apartment; a criminal investigation was immediately
opened and "Mr. Finney was a suspect in the arson, as he had
motive ownership of the property and financial difficulties
and he had owned property that also was destroyed by arson fire";
plaintiff was not, however, charged criminally for the arson
because, "[a]lthough there was ample reason to suspect Mr. Finney
in the arson," there was insufficient proof to either arrest him
or deny his insurance claim; plaintiff was "the focus of a
criminal investigation, and Royal . . . did perform a thorough
investigation. There was ample reason to suspect Mr. Finney's
involvement in the arson, but there was no proof." In Mr.
DePasquale's opinion, the lack of any admissions or physical
evidence should have convinced defendants to drop the counterclaim, namely: plaintiff "never admitted to anyone his
involvement, and in fact always denied any involvement";
plaintiff was "not at the scene when the fire erupted, he was
never linked to the purchase or transport of accelerant, and he
was never linked to a third party who might have set the fire."
The expert's ultimate conclusion was, to a reasonable degree of
professional certainty, "there was no probable cause (i.e.,
reliable evidentiary proof) to support the filing and/or
prosecution of counterclaims alleging any fraud whatsoever
against Mr. Finney. Filing the counterclaims was apparently
either the result of misguided evaluation of the evidence or the
result of a bluff to intimidate Mr. Finney into withdrawing his
claims for damages. . . . There was no probable cause to bring
civil fraud claims against [plaintiff]." However, in his
deposition, attorney DePasquale was unable to articulate any
factual basis for ascribing any improper motive to defendants'
actions in filing and prosecuting the counterclaim, nor was he
able to attribute any damages suffered by plaintiff as a result.
In fact, as to defendant Loughney, attorney DePaquale stated he
did not see anything to indicate bad motive; he simply believed
Mr. Loughney was wrong, but did not think Mr. Loughney decided to
make life miserable for the plaintiff. Loughney's Exhibit 5, at
Fifth and most compelling is the "second opinion" implicitly
but quite clearly rendered by Chief Judge Ambrose of this Court.
In charging the jury in Finney v. Royal Sun Alliance, the Court
instructed the jury that the facts supporting the affirmative
defenses and the counterclaim were the same, and that a finding
in favor of the defendant on the counterclaim would preclude
recovery by plaintiff on his claims. Plaintiff's own expert
acknowledged that when the case got past the non-suit stage, and
the Court sent it to the jury on those instructions, that meant
there was "a question of fact as it relates to the matters presented so
as to have the trier of fact decide the case." Royal Exhibit 5,
at 62-63. Attorney DePaquale agreed Judge Ambrose did not direct
a verdict for plaintiff at the conclusion of the case, that there
was a question of fact based on the evidence gathered and
presented, that the Court sent the whole case to the jury, and
"that Judge Ambrose was satisfied that there was enough evidence
to send those counterclaims to the jury." Id. at 63.
To those five "second opinions" this Court adds the sixth.
Although the counterclaim was unsuccessful, there was sufficient
evidence upon which to file a counterclaim and prosecute it in
Finney v. Royal Sun Alliance, although the jury did not decide
in Royal's favor on the counterclaim or affirmative defense. It
also is significant, but not dispositive, that the jury rejected
plaintiff's claim that Royal acted in bad faith in denying the
claim, for if the jury believed that Royal had no legitimate
evidentiary basis for denying plaintiff's insurance claim, it
would have been logical for it to find bad faith. Thus, rejection
of plaintiff's bad faith claim and rejection of defendant's
counterclaim are consistent with a finding that there was
sufficient evidence to deny the claim and raise arson and fraud
in the counterclaim, but not enough to prove arson and fraud by a
preponderance of the evidence.
In short, the record on summary judgment shows that defendant
Loughney did what effective and professional lawyers are expected
and obliged to do; he vigorously defended his client based upon
his reasonable evaluation of the evidence. That the jury did not
agree with his and Royal's evaluation does not make that
evaluation and legal action taken unreasonable or unsupported by
probable cause, nor does it prove improper motives. The insurance
company and its lawyers had, in plaintiff's expert's words,
"ample evidence" to suspect plaintiff committed fraud and arson, and did not believe Mr. Finney's alibi
and did not find him credible; the Court and the lawyers involved
in the case believed there was sufficient evidence to let the
issues go to the jury; the jury did not agree with defendants'
evaluation of the evidence and apparently found plaintiff to be
credible. That is not the stuff of which "wrongful use of civil
proceedings" actions are made.
Because reasonable persons could not disagree that defendants
had probable cause to initiate and continue their counterclaim,
and that there is no evidence that defendants acted for an
improper purpose, the Court holds, as a matter of law, that
plaintiff has failed to sustain its burden of proof as to
essential elements of his claim under the Dragonetti Act, and
summary judgment must be granted on Counts I and II of the Second
Abuse of Process Count III
Common law abuse of process is defined as "the use of legal
process against another primarily to accomplish a purpose for
which it is not designed." Werner v. Plater-Zyberk,
799 A.2d 776, 785 (Pa.Super. 2002), quoting Shiner v. Moriarty,
706 A.2d 1228, 1236 (Pa.Super. 1998) and Rosen v. American Bank of
Rolla, 627 A.2d 190, 192 (Pa.Super. 1993). Thus, to establish a
claim for abuse of process under the law of Pennsylvania, it must
be shown that the defendant (1) used a legal process against the
plaintiff; (2) primarily to accomplish a purpose for which the
process was not designed, and (3) that harm was caused to the
plaintiff as a result. Id. The torts of malicious prosecution
and abuse of process are separate and distinct, but often
confused. Werner v. J. Plater-Zyberk; Hart v. O'Malley,
781 A.2d 1211, 1219 (Pa.Super. 2001); Al Hamilton Contracting Co. v.
Cowder, 644 A.2d 188, 191 (Pa.Super. 1994). As recently stated by a colleague in the Eastern District of Pennsylvania:
Although often confused, in Pennsylvania, the common
law torts of malicious use of process and malicious
abuse of process are separate and distinct claims. . . .
Abuse of process, on the other hand, involves a
perversion of the legal process to accomplish some
unlawful purpose for which it was not designed. . . .
"The classic example" of abuse of process "is the
initiation of a civil proceeding to coerce the
payment of a claim completely unrelated to the cause
of action sued upon."
United States of America ex rel. Magin v. Wilderman, 2005 WL
469590, *2 (E.D.Pa. 2005). But see U.S. Express Lines Ltd. v.
Higgins, 281 F.3d 383
(3d Cir. 2002) (stating in dictum that
both malicious use of process and abuse of process are subsumed
within the general scope of the Dragonetti Act).
For the reasons set forth in the preceding section, there is no
evidence that defendants perverted the legal process to
accomplish some unrelated purpose for which the legal process was
not designed, and summary judgment will be granted in their favor
on Count III.
For all of the foregoing reasons, the Court will grant summary
judgment in favor of defendants and against plaintiff on all
claims. An appropriate order will be entered.
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