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Kenneth Segal; Adam Segal, As Trustee For v. Strausser Enterprises

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA


August 12, 2011

KENNETH SEGAL; ADAM SEGAL, AS TRUSTEE FOR
AND ON BEHALF OF THE KAREN
AND KENNETH SEGAL DESCENDANTS
TRUST; AND SEGAL AND MOREL, INC., PLAINTIFFS
v.
STRAUSSER ENTERPRISES, INC.; GARY STRAUSSER; AND
LEONARD MELLON, DEFENDANTS

The opinion of the court was delivered by: James Knoll Gardner, United States District Judge

OPINION

This matter is before the court on Defendant Leonard Mellon, Esquire's Motion for Reconsideration of the Court's Opinion and Order on Motion to Dismiss or Stay, which motion for reconsideration was filed together with a memorandum in support on November 30, 2009. Plaintiffs' Opposition to the Motion of Defendant Leonard Mellon, Esquire for Reconsideration of the Court's Opinion and Order on Motion to Dismiss or Stay was filed December 11, 2009.

For the following reasons, I deny the motion for reconsideration.

JURISDICTION

This action is properly before this court based on diversity jurisdiction pursuant to 28 U.S.C. § 1332. All plaintiffs are citizens of the State of New Jersey, and all defendants are citizens of the Commonwealth of Pennsylvania. *fn1

VENUE

Venue is proper pursuant to 28 U.S.C. § 1391(a)(2) because the events giving rise to plaintiffs' claims allegedly occurred in Northampton County, Pennsylvania, which is within this judicial district.

PROCEDURAL HISTORY

Plaintiffs initiated this action on November 5, 2007 by filing a four-count civil Complaint against Strausser Enterprises, Inc. ("SEI"), Gary Strausser (collectively, "Strausser defendants"), and SEI's former attorney, Leonard Mellon. The Complaint alleges four Pennsylvania state-law claims: tortious interference with contract (Count I), tortious interference with prospective contractual relations (Count II), malicious prosecution under the Dragonetti Act, 42 Pa.C.S.A. §§ 8351-8354 (Count III), and abuse of process (Count IV). The action arises from purchase agreements whereby plaintiff Segal and Morel, Inc. ("S&M") contracted to purchase several parcels of land in Northampton County, Pennsylvania from defendant SEI.

On January 4, 2008, defendants filed a Joint Motion to Dismiss or Stay Litigation and Compel Arbitration ("motion to dismiss"), which sought to dismiss the Complaint in its entirety. According to the motion to dismiss, the lawsuit arises from a contract which contains a mandatory arbitration clause, and therefore the Complaint should be dismissed and the case remanded for arbitration.

By letter dated August 29, 2008, the Strausser defendants withdrew their support for the motion to dismiss. Therefore, the motion to dismiss remained operative on behalf of defendant Mellon only.

The matter was fully briefed. On September 2, 2008, I heard oral argument on the motion to dismiss and took the matter under advisement.

By Order dated September 26, 2008, pursuant to Rule 12(d) of the Federal Rules of Civil Procedure, I converted the motion to dismiss to a motion for summary judgment on the issue of arbitrability because evaluation of the motion to dismiss requires consideration of materials outside the pleadings. *fn2

Accordingly, although I continue to refer to the motion as a "motion to dismiss", the applicable standard of review for purposes of that motion is the summary judgment standard set forth in Rule 56 of the Federal Rules of Civil Procedure.

On November 19, 2009, I filed an Order and Opinion denying the motion to dismiss. In that Opinion, I concluded that defendant Mellon was equitably estopped from arguing that the arbitration clause required dismissal of plaintiffs' Complaint, because his client SEI had taken the opposite position in an earlier proceeding.

Specifically, I concluded that SEI, through its former counsel, had represented to Northampton County Court of Common Pleas Judge Paula A. Roscioli that it believed S&M's claim for attorneys' fees *fn3 could not be submitted to arbitration, but rather should be heard in court. SEI's attorneys also represented in an arbitration hearing, at which Attorney Mellon was present, that issues arising from the lis pendens, including plaintiffs' claim for attorneys' fees, should be heard in court and not in the arbitration proceeding.

In my November 19, 2009 Opinion, I concluded that although Attorney Mellon was not a party to the Northampton County action or the arbitration proceedings in his individual capacity, he is the same party as SEI for purposes of his motion to dismiss because he represented SEI at the time of those proceedings. *fn4 Moreover, I concluded that by withdrawing Count XIII from the arbitration complaint, plaintiffs had detrimentally relied on defendants' statements that defendants agreed that the issues raised in Count XIII of the arbitration complaint should be addressed in court, rather than arbitration.

Accordingly, I concluded that, for purposes of equitable estoppel, the elements of privity and detrimental reliance had been met. Montrose Medical Group Participting Savings Plan v. Bulger, 243 F.3d 773, 779 n.3 (3d Cir. 2001). *fn5

Therefore, I held that defendant Mellon was equitably estopped in this action from invoking any arbitration clause in the underlying purchase agreements. *fn6

On November 30, 2009, defendant Mellon filed a motion for reconsideration of my November 19, 2009 Order and Opinion. Plaintiffs responded in opposition on December 11, 2009.

I conducted oral argument on the motion for reconsideration on January 13, 2010 and took the motion under advisement. Hence this Opinion.

STANDARD OF REVIEW

Rule 7.1(g) of the Rules of Civil Procedure for the United States District Court for the Eastern District of Pennsylvania permits a party to file a motion for reconsideration. The purpose of such motion is to correct manifest errors of law or fact or to present newly discovered evidence....Courts will reconsider an issue only when there has been an intervening change in the controlling law, when new evidence has become available, or when there is a need to correct a clear error or prevent manifest injustice. Mere dissatisfaction with the Court's ruling is not a proper basis for reconsideration.

Burger King Corporation v. New England Hood and Duct Cleaning Company, 2000 U.S.Dist. LEXIS 1022, at *4-5 (E.D.Pa. Feb. 4, 2000)(Bechtle, S.J.) (internal quotations omitted).

The party seeking reconsideration bears the burden of showing at least one of those grounds. Max's Seafood Cafe ex rel. Lou-Ann, Inc. v. Quinteros, 176 F.3d 669, 677 (3d Cir. 1999).

Where the grounds for the motion for reconsideration are to correct a manifest injustice, "the party must persuade the court that not only was the prior decision wrong, 'but that it was clearly wrong and that adherence to the decision would create a manifest injustice.'" Payne v. DeLuca, 2006 U.S.Dist. LEXIS 89251, at *5-6 (W.D.Pa. Dec. 11, 2006) (Hardiman, J.) (quoting In re City of Philadelphia Litigation, 158 F.3d 711, 718, 720-721 (3d Cir. 1998)).

CONTENTIONS OF THE PARTIES

Contentions of Defendant Mellon Defendant Mellon contends that reconsideration is warranted for three reasons. First, he argues that there was no detrimental reliance and that plaintiffs are actually pursuing remedies in arbitration. In support of this contention, he relies on a letter to me dated July 23, 2009 from James R. Kahn, Esquire, counsel for defendant Mellon ("Kahn letter"). In that letter, which was presented while the motion to dismiss was under advisement, Attorney Kahn asserted that arbitration proceedings between plaintiffs and SEI remained ongoing.

Attached to the Kahn letter is a letter dated July 16, 2009 from L. Stephen Pastor, Esquire, former counsel for S&M, to the three arbitrators who were hearing the disputes ("Pastor letter"). *fn7 The Pastor letter states, in relevant part, that plaintiffs "have plead and preserved [S&M's] right to seek legal fees from Strausser on this and several other causes of action. We will be pursuing such claims." *fn8

In the Kahn letter, Attorney Mellon, through his counsel, concedes that the precise nature of the claims referred to in the Pastor letter is unclear. However, he asserts that they could include the same claims asserted in this federal action, or are at least closely related to the federal claims. Moreover, the Kahn letter argues that, in any event, the Pastor letter demonstrates that arbitration between the parties remains ongoing and is not, as characterized by plaintiffs, effectively complete.

Accordingly, Attorney Mellon contends that I erred in concluding that plaintiffs relied to their detriment on defendants' statements that the issue of legal fees should be brought in court. He also contends that the issue can still be raised in arbitration.

Moreover, defendant Mellon contends that plaintiffs have moved to dismiss certain counterclaims raised by defendant SEI partly on the basis that those counterclaims are subject to arbitration. He avers that plaintiffs' attempt to arbitrate some issues shows that they have not detrimentally relied, because they could pursue all of their claims in arbitration.

Second, defendant Mellon contends that he never personally stated a position with regard to whether plaintiffs claims originally could be heard in arbitration. He avers that, therefore, he has not changed position at all, and therefore there is no bad faith.

He also avers that my November 19, 2009 Opinion misinterprets the Strausser defendants' position on the motion to dismiss, from which they withdrew for strategic reasons. Attorney Mellon contends that the Strausser defendants' withdrawal from the motion to dismiss does not evidence any change in their position within this lawsuit (that is, they continue to maintain that arbitration is warranted but decided as a tactical matter not to pursue that issue in the motion to dismiss).

Third, defendant Mellon contends that neither the doctrine of judicial estoppel nor the doctrine of equitable estoppel should be applied here. Specifically, Attorney Mellon contends that my ruling "creates a very troublesome rule" by requiring an attorney to challenge his client's position in order to protect his own rights in the event of later litigation asserted against him personally. Therefore, he contends that, to the extent SEI's positions could be construed as inconsistent, the earlier position should not be attributable to him.

Contentions of Plaintiffs

Plaintiffs contend that defendant Mellon's motion for reconsideration is nothing more than an attempt to obtain another "bite at the apple" and that reconsideration is not warranted.

First, plaintiffs assert that there is no new evidence having any bearing on the conclusions reached in the Opinion, and that to the extent arbitration remains ongoing, the claims in such arbitration (including attorneys' fees) have nothing to do with the claims in this case. Rather, plaintiffs aver that the present arbitration is related to a dispute arising from the construction of a recreation center. *fn9

Plaintiffs also contend that their position on whether counterclaims recently asserted by SEI should be pursued in arbitration is unrelated to the question of whether their claims for attorneys' fees arising from the Northampton County action should be pursued in arbitration.

Second, plaintiffs contend that defendant Mellon has identified no clear error of law which would warrant reconsideration. They aver that defendant Mellon's argument (that SEI's original position is not attributable to him) is not a new argument. Rather, it was argued previously and rejected in my Opinion.

Plaintiffs argue that, rather than identifying this as a clear error of law, defendant Mellon is merely attempting to rehash his earlier argument. Moreover, plaintiffs assert that there is nothing controversial about my conclusion that, as SEI's agent, Attorney Mellon is bound by the positions taken by his clients.

Finally, to the extent the Opinion creates a "troublesome rule", as characterized by defendant Mellon, plaintiffs aver that no such effect constitutes any of the narrow grounds upon which a party may prevail on a motion for reconsideration. Therefore, they argue that the motion should be denied.

DISCUSSION

As discussed above, reconsideration is appropriate only when there has been an intervening change in the controlling law, when new evidence has become available, or when there is a need to correct a clear error or prevent manifest injustice.

Burger King, 2000 U.S.Dist. LEXIS 1022, at *4-5.

Although defendant Mellon's motion for reconsideration and brief in support argue that reconsideration is warranted for several reasons, as discussed above, neither the motion nor the brief discusses the applicable legal standard. Indeed, his brief cites case law only in two brief footnotes, neither of which addresses reconsideration. Therefore, the motion could be denied for failure to adequately brief the legal issues identified in the motion, pursuant to Rule 7.1(c) of the Rules of Civil Procedure of the United States District Court for the Eastern District of Pennsylvania ("Local Rules"). *fn10

Although the motion does not contain fully developed legal argument regarding the applicable case law, it does discuss the relevant facts giving rise to the request for reconsideration, and I am able to determine defendant Mellon's legal contentions. Therefore, I will consider the motion on its merits.

Defendant Mellon does not contend that there has been any intervening change in controlling law. Rather, he appears to contend that there is new evidence which was not available at the time of the hearing and oral argument on his motion to dismiss,i.e., the Pastor letter. *fn11 Moreover, he contends that my November 19, 2009 Opinion creates a manifest injustice to the extent it holds that Attorney Mellon is equitably estopped from invoking the arbitration provisions in this case, and to the extent it suggests that the policies underlying the doctrine of judicial estoppel may be implicated in addition to the doctrine of equitable estoppel. I address each contention in turn.

New Evidence

Reconsideration for purposes of considering new evidence is appropriate when the new evidence "differs materially from the evidence of record when the issue was first decided and if it provides less support for that decision." Hamilton v. Leavy, 322 F.3d 776, 787 (3d Cir. 2003). Similarly, a matter overlooked may warrant reconsideration, but only where it has the capacity to change the result of the original decision. See Hudson United Bank v. Berwyn Holdings, Inc., 2000 WL 1595961, at *1 (E.D.Pa. Oct. 25, 2000)(Kelly, James McGirr, S.J.), which notes that "the Court can only disturb its prior ruling if the newly apparent fact would alter the Court's legal conclusions." That is, "if the error of fact has no effect on the Court's decision, reconsideration is inappropriate." Id.

Here, defendant Mellon seeks reconsideration for the purpose of specifically addressing the Pastor letter, which he contends shows that plaintiffs did not detrimentally rely on defendants' prior position that Count XIII of the arbitration complaint should be addressed in court rather than in arbitration.

At the September 2, 2008 hearing before me, plaintiffs' counsel, Attorney Smith, represented that aside from "an issue dealing with the rec center", the arbitration was "all but over" as of that time. *fn12 Defendant Mellon contends that the Pastor letter refutes this representation and establishes that plaintiffs actually are pursuing the Count XIII claims in arbitration. Therefore, he asserts that there is no detrimental reliance.

As noted above, the Pastor letter advises the arbitration panel that the Superior Court of Pennsylvania had "issued its decision on Strausser's appeal" affirming the panel's decision. It also advises that plaintiffs "have plead and preserved [their] right to seek legal fees from Strausser on this and several other causes of action. We will be pursuing such claims." However, although the Pastor letter indicates that a copy of the Superior Court's decision was attached, the letter itself does not indicate the specific nature of the panel's decision or the issues raised in the appeal.

In response to defendant's motion for reconsideration, plaintiffs attach a copy of the Superior Court's decision in Strausser Enterprises, Inc. v. Segal and Morel, No. 2233 EDA 2008 (Pa.Super. July 8, 2009)(non-precedential). *fn13 A review of that Memorandum confirms that, as plaintiffs contend, the issue before the Superior Court was a contractual dispute regarding construction of a recreation center. It appears generally unrelated to plaintiffs' instant claims that they are entitled to attorneys' fees from litigation involving the Hovnanian agreement.

Defendant Mellon has not established that the Pastor letter specifically refers to the issues presently before this court. Moreover, because the Superior Court decision does not indicate that issues in this case were implicated in its Memorandum, I cannot conclude that the Pastor letter establishes that arbitration of the claims giving rise to this lawsuit are, or were at the time, ongoing. *fn14

Therefore, to the extent the Pastor letter was overlooked in my November 19, 2009 Opinion, it does not contain anything which would change the result of my original determination that plaintiffs relied to their detriment on defendants' earlier position (before Count XIII was withdrawn from arbitration) that the Count XIII claims should be heard in court. See Hudson United Bank, 2000 WL 1595961, at *1. Accordingly, reconsideration is not warranted on this ground.

Defendant Mellon also contends that plaintiffs' motion to dismiss SEI's counterclaims on the basis that those counterclaims are subject to arbitration is "new evidence" that indicates there has been no detrimental reliance. That is, defendant Mellon avers that plaintiffs wish to have certain claims arbitrated, and that therefore the claims at issue in plaintiffs' Complaint can similarly be arbitrated without any detriment.

Plaintiffs respond that their contention that SEI's counterclaims are arbitrable is unrelated to the issue of whether plaintiffs suffered any detriment by withdrawing Count XIII from arbitration and pursuing the issues arising therefrom in federal court, incurring the expense of this litigation. Moreover, plaintiffs aver that they have taken no inconsistent position: that is, they contend that they have always wished to arbitrate issues arising from the purchase agreements, with the exception of Count XIII, which they withdrew from arbitration based on defendants' earlier representation that the claims contained therein were more properly heard in court.

Defendant Mellon cites no legal authority in support of his suggestion that plaintiffs' attempt to invoke the arbitration provision with regard to SEI's counterclaims is new "evidence" for purposes of reconsideration. Moreover, to the extent such a procedural posture could be construed as "evidence", he has not established that plaintiffs' attempt to invoke the arbitration provision for purposes of SEI's counterclaims shows that they suffered no detriment by withdrawing Count XIII from arbitration and pursuing those issues in court.

In other words, although Attorney Mellon suggests that there would be no further detriment to plaintiffs if all of their claims were to be pursued in arbitration, he has not shown (nor does he contend) that remanding plaintiffs' claims to arbitration at this juncture would somehow ameliorate the detriment they have already suffered by expending the time, effort and resources to litigate their claims here, rather than in arbitration.

Therefore, defendant Mellon has not met his burden of persuading me that plaintiffs' position regarding the counterclaims provides less support for my November 19, 2009 decision. Hamilton, 322 F.3d at 787. Accordingly, reconsideration on that basis is not warranted.

Manifest Injustice

Defendant Mellon also appears to contend that reconsideration is also warranted to avoid a manifest injustice. Specifically, he avers that attributing a client's position to its attorney creates a troublesome rule whereby an attorney could be required to challenge his client's position in order to protect his own rights later on in the event of litigation asserted against him personally. Moreover, defendant Mellon avers that he should not be foreclosed from exercising his own rights (here, he avers that he has the right to invoke the arbitration provision) when he is personally sued because of actions taken earlier by his client. He argues that the effect of my November 19, 2009 is inconsistent with an attorney's need to be able to freely serve his client's interests.

Additionally, defendant Mellon contends that he did not actually change positions, because although he was present at the arbitration hearings, he did not personally assert SEI's earlier position that Count XIII should be heard in court. He avers that that position, which was stated by other counsel for SEI, should not be attributed to him for purposes of estoppel.

Plaintiff responds that it is neither controversial nor unfounded that an attorney is bound, as his client's agent, by his client's positions. Moreover, plaintiff argues that this argument is merely a second "bite at the apple" because Attorney Mellon made exactly the same argument on the motion to dismiss, and that I rejected the argument in my November 19, 2009 Opinion when I determined that for purposes of the motion to dismiss, Attorney Mellon is the same party as SEI because he was present at the arbitration proceedings on the Northampton County action.

Where the grounds for the motion for reconsideration are to correct a manifest injustice, "the party must persuade the court that not only was the prior decision wrong, 'but that it was clearly wrong and that adherence to the decision would create a manifest injustice.'" Payne, 2006 U.S.Dist. LEXIS 89251, at *5-6 (quoting In re City of Philadelphia Litigation, 158 F.3d 711, 718, 720-721 (3d Cir. 1998)). Moreover, the manifest injustice standard is not met merely by rehashing arguments already addressed by the court. See Seidman v. American Mobile Systems, 965 F.Supp. 612, 629 n.2 (E.D.Pa. 1997) (Robreno, J.).

In supplemental briefing in support of his motion to dismiss, Attorney Mellon made an argument similar to the argument he makes here on reconsideration, i.e., he previously argued that he was not a party to any agreement to withdraw Count XIII from arbitration. Moreover, he argued that although he was present when the issue was discussed, "he did not attach any significance to discussions about the issue as he was not involved and not handling that aspect of the litigation. He did not make a determination in his own mind about where Count 13 should be heard. He did not even recall that there were such discussions until Plaintiffs raised it in response to the Motion to Dismiss." *fn15

His contention on reconsideration that SEI's earlier position about Count XIII should not be attributed to him is essentially the same argument that he already made, and which I rejected. Thus, it is not an appropriate ground for reconsideration. See Seidman, 965 F.Supp. at 629 n.2. Moreover, he cites no legal authority suggesting that I erred in concluding that he should be deemed to be the same party as his client when performing his duties as a lawyer within the course and scope of that representation.

Attorney Mellon argues that application of my November 19, 2009 Opinion would work a manifest injustice by creating a situation in which an attorney's ability to represent his client could be hampered by his need to protect his own interests in future litigation. He cites no case law in support of this proposition. Moreover, as discussed above, he has not established that my determination that he is bound by his client's earlier position was clear error. See In re City of Philadelphia Litigation, 158 F.3d at 720-721.

That is, even assuming that my decision could create the effect he describes, defendant Mellon has not persuaded me that my prior decision was "clearly wrong and that adherence to the decision would create a manifest injustice.'" Payne, 2006 U.S.Dist. LEXIS 89251, at *5-6 (quoting In re City of Philadelphia Litigation, 158 F.3d at 720-721) (emphasis added).

Judicial Estoppel

Attorney Mellon contends that my November 19, 2009 Opinion contains inappropriate comments about the applicability of the doctrine of judicial estoppel. Because I determined that the doctrine of equitable estoppel applies in this case, I did not specifically address whether the elements of judicial estoppel had been met. However, I noted that this court would not countenance "fast and loose" litigation tactics, which the doctrine of judicial estoppel seeks to redress.

Although my November 19, 2009 Opinion speaks for itself in this regard, nothing in the discussion should be construed as a determination that judicial estoppel applies in this case. Rather, as the Opinion makes clear, I did not discuss the elements of judicial estoppel as applied to this case. My remarks are simply a reminder to the parties of the importance of general principles of fair play, substantial justice, and due process of law. *fn16

As discussed above, defendant Mellon has not established that my conclusions are clearly wrong and that adherence to the Opinion would create a manifest injustice. Accordingly, I deny the motion for reconsideration.

CONCLUSION

For all the foregoing reasons, I deny Defendant Leonard Mellon, Esquire's Motion for Reconsideration of the Court's Opinion and Order on Motion to Dismiss or Stay.


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