Civil Action – Non-Joinder of Necessary party – Subject Matter Jurisdiction – Demurrer – Counsel Fees – Unjust Enrichment – Conversion – Preliminary Objections.

 

1. Pa. R.C.P. 1028 permits the filing of Preliminary Objections in order to raise non-joinder of a necessary party.
2. In the absence of an indispensable party, a court lacks jurisdiction over matters before it.  A party is considered to be indispensable when its rights are so connected with the claims of the litigants that no decree can be made without impairing its rights.  As a general rule, if no redress is sought against a party, it cannot be deemed indispensable to the litigation.
3. Our appellate courts have declared that an inquiry into whether a party is indispensable is to be conducted from the perspective of protecting the rights of the absent party and not based upon the question of whether joinder or non-joinder would make the matter more difficult to litigate.
4. Pennsylvania’s highest court has set forth an analytical paradigm for determining whether a party must be considered indispensable.  That test is as follows:  (1) Do the absent parties have a right or interest related to the claim?; (2) If so, what is the nature of that right or interest?; (3) Is that right or interest essential to the merits of the issue?; and (4) Can justice be afforded without violating the due process rights of absent parties?
5. Failure to join an indispensable party does not necessarily have to be raised via preliminary objections.  Because failure to join an indispensable party deprives the court of subject matter jurisdiction, it can be raised at any time during litigation.
6. In the event that a court determines that an indispensable party has not been joined, it is not required to dismiss the lawsuit; leave may be granted for the Plaintiff to join the missing party.
7. The standard that the Court must employ in assessing a demurrer is well-established.  First, it must accept as true all facts that are properly averred in the Complaint.  In addition, the Court must also afford the Plaintiffs with all inferences that are fairly deducible from the averments of the Complaint.  The Court can only sustain a demurrer if the Complaint clearly fails to set forth a cause of action.  Stated differently, a demurrer can be sustained only when a case is so free from doubt that a trial would be a fruitless exercise.
8. The Defendants’ request to join the overpaid settling entities was emphatically rejected by the Court because none of the four areas of inquiry articulated in Mechanicsburg School District could be weighed in this case in favor of joining the overpaid settling entities.  The Court further stated that to require each of the thirteen overpaid settling entities to engage counsel and participate in what promises to be expensive and time-consuming litigation would be an enormous waste of taxpayer resources and would display a profound disrespect for the laudable efforts the parties have made to resolve their own differences.
9. A party is indispensable when his or her rights are so connected with the claims of the litigants that no decree can be made without impairing those rights.  A corollary of this principle is that a party against whom no redress is sought need not be joined.  It is not enough that a potential party could be deemed to have some interest in the outcome of the case.
10. The Court also denied Defendants’  request to join the Earned Income Tax Bureau as an indispensable party.
11. The Court granted the Defendants’ preliminary objections and struck Plaintiffs’ request for counsel fees.
12. Whether the doctrine of unjust enrichment can be applied depends on the unique factual circumstances of each case.  A claim for unjust enrichment has been described as one that involves a quasi-contract.  A quasi-contract imposes a duty, not as a result of any agreement, whether express or implied, but in spite of the absence of an agreement when one party receives unjust enrichment at the expense of another.
13. The polestar of an unjust enrichment inquiry is whether the defendant has been unjustly enriched; the intent of the parties is irrelevant.  The elements of unjust enrichment in Pennsylvania are as follows:  (1) Benefits conferred on a defendant by a plaintiff; (2) appreciation of such benefits by the defendant; and (3) acceptance and retention of the benefits under such circumstances that it would be inequitable for the defendant to retain the benefit.
14. Where property is diverted from its proper use, the third person into whose hands the property falls without consideration, even though he be innocent of knowledge of any wrongdoing, has the obligation to restore to its rightful owner the property so wrongfully appropriated.
15. Where one has in his hands money which in equity and good conscience belongs and ought to be paid to another, an action for money had and received will lie for the recovery thereof.  No privity of contract is necessary to sustain this action, for the law, under these circumstances, implies a promise to pay.
16. After review of the law of unjust enrichment and of the Plaintiffs’ factual allegations, the Court was compelled to deny the Defendants’ preliminary objection to Plaintiffs’ unjust enrichment claim.
17. Pennsylvania law defines conversion as the deprivation of another’s right of property without the owner’s consent and without lawful justification.  To most laypersons, theft and conversion are synonymous.  They are not.  Generally speaking, theft requires that a culprit must have a present intent to deprive the owner of property when it comes into his possession.  Conversion does not require such an intent.
18. Although the exercise of control over the chattel must be intentional, the tort of conversion does not rest on proof of specific intent to commit a wrong.
19. When a party comes into possession of property belonging to another who has not forfeited a right to possess the same, the law requires that the property be returned to its rightful owner.  In other words, a defendant need not demonstrate a conscious intent of wrongdoing to be guilty of conversion; he or she only has to exercise wrongful control of the property.
20. Since Plaintiffs’ allegations were sufficient to establish a cause of action for conversion, the Defendants’ preliminary objection to Plaintiffs’ conversion count was denied.

Opinion.  C.P. of Lebanon County, Civil Action-Law, No. 2012-01222.

Thomas B. Schmidt, III, Esquire, David J. Tshudy, Esquire, Justin G. Weber, Esquire, and Frederick Alcaro, Esquire, for Plaintiffs

Scott T. Wyland, Esquire, for Defendants

 

 

 

IN THE COURT OF COMMON PLEAS OF

LEBANON COUNTY, PENNSYLVANIA

 

CIVIL ACTION – LAW

 

CITY OF LEBANON, JONESTOWN          :

BOROUGH, NORTH CORNWALL             :

TOWNSHIP, NORTH LEBANON               :

TOWNSHIP, NORTH LONDONDERRY    :

TOWNSHIP, NORTH LEBANON               :

SCHOOL DISTRICT, PALMYRA AREA    :

SCHOOL DISTRICT, SOUTH LEBANON:

TOWNSHIP, SOUTH LONDONDERRY     :

TOWNSHIP, SWATARA TOWNSHIP,       :

UNION TOWNSHIP, and WEST                :

LEBANON TOWNSHIP,                             :

                             Plaintiffs                       :

                                                                   :

                   v.                                             :  No. 2012-01222

                                                                   :

CORNWALL BOROUGH, HEIDELBERG :

TOWNSHIP, NORTH ANNVILLE              :

TOWNSHIP, WEST CORNWALL              :

TOWNSHIP, and BETHEL TOWNSHIP,   :

                             Defendants                   :

 

 

APPEARANCES:

 

Thomas B. Schmidt, III, Esquire              For Plaintiffs

David J. Tshudy, Esquire

Justin G. Weber, Esquire

Frederick Alcaro, Esquire

PEPPER HAMILTON, LLP

 

Scott T. Wyland, Esquire                         For Defendants

SALZMANN HUGHES, P.C.

 

OPINION BY CHARLES, J.,  February 19, 2013

 

Plaintiffs have alleged that the Lebanon County Earned Income Tax Bureau (EIT) underpaid tax revenue to them between 2004 and 2007.  During the same period of time, they claim that Defendants were overpaid.  Relying upon various legal theories, Plaintiffs seek to collectively recover from Defendants roughly 2.3 million dollars in alleged overpayments.  Before us today are Preliminary Objections by which the Defendants ask us to dismiss and/or limit the Plaintiffs’ claims.  For reasons that we will articulate in more detail below, we refuse to summarily reject Plaintiffs’ claims while the above-referenced litigation remains in its infancy.

 

I.        FACTS

According to Plaintiffs’ Complaint, EIT was created in 1967 by an agreement entered into by six Lebanon County School Districts and twenty-six local municipalities.  (¶ 21).  The Complaint alleges that in 1987 EIT hired Donald Foltz, Jr. (hereafter “FOLTZ”) to serve as its Executive Director.  (¶ 23).  As Executive Director, FOLTZ was given “exclusive authority” to write checks on behalf of the Bureau.  (¶ 24).  Unfortunately, FOLTZ embezzled almost $900,000.00 of tax revenues for his own use between 2002 and 2006.  (¶ 31).

As a result of FOLTZ’ criminal behavior, EIT’s Board of Directors commenced an investigation.  (¶ 33).  As part of the investigation, EIT retained an accounting firm to perform an audit.  (¶ 34).   Among other irregularities, the investigation revealed that taxpayer records were missing and had been shredded.  (¶ 37).  Fortunately, computer records existed that enabled EIT to discern how much tax revenue was paid to each of the agencies[1] who utilized its services.  (¶ 48-51).  According to Plaintiffs’ Complaint, reports were issued in 2009 by the accounting firm of McKonly & Asbury (hereafter “M&A”).  According to these reports, some agencies were overpaid between 2004 and 2007 and others were underpaid.  The following charts were included in Plaintiffs’ Complaint to summarize these alleged mispayments:

UNDERPAID AMOUNTS FOR YEARS 2004-2007

Annville Township	$11,996.40
City of Lebanon	$1,447,958.54
Jonestown Borough	$166,503.09
North Cornwall Township	$315,164.25
North Lebanon Township	$822,264.07
North Londonderry Township	$587,268.05
North Lebanon School District	$107,236.24
Palmyra Area School District	$859,018.57
South Lebanon Township	$459,635.34
South Londonderry Township	$529,205.07
Swatara Township	$166,457.74
Union Township	$159,455.69
West Lebanon Township	$62,135.66
TOTAL	$5,694,298.71

 

OVERPAYMENT AMOUNTS FOR YEARS 2004-2007

 

Annville-Cleona School   District	$500,523.00
Bethel Township	$70,571.51
Cleona Borough	$43,806.82
Cornwall Borough	$1,056,677.45
Cornwall-Lebanon School   District	$384,926.28
East Hanover Township	$186,941.80
Eastern Lebanon County   School District	$1,171,005.50
Heidelberg Township	$766,830.89
Jackson Township	$47,838.69
Lebanon School District	$326,089.11
Millcreek Township	$941.76
Mt. Gretna Borough	$219,053.91
Myerstown Borough	$44,387.37
North Annville Township	$275,413.94
Palmyra Borough	$129,669.20
Richland Borough	$26,312.78
South Annville Township	$313,720.28
West Cornwall Township	$129,588.44
TOTAL	$5,694,298.73

 

          Following the report by M&A, Cheri Grumbine, Manager of North Lebanon Township, developed a plan to resolve the overpayment and underpayment problem.  (¶ 59).  This plan became known as the “Grumbine Plan.”  Between 2009 and 2012, many local agencies voluntarily agreed to follow the template created by the Ms. Grumbine.  (¶ 62-64).  Thirteen of these agencies were deemed to have been overpaid (These entities will hereafter be collectively referred to as “OVERPAID SETTLEMENT ENTITIES”).  However, the Defendants refused to agree to the Grumbine Plan.  (¶ 65).  According to the Complaint, the Defendants were overpaid the following amounts between 2004 and 2007:

Cornwall Borough	$1,056,677.45
Heidelberg Township	$766,830.89
North Annville Township	$275,413.94
West Cornwall Township	$129,588.44
Bethel Township	$70,571.51
TOTAL	$2,299,082.23

 

          On June 20, 2012, Plaintiffs initiated suit against Defendants.  The Complaint contained the following counts:

Count  1 –	Claim under Pennsylvania   Local Tax Enabling Act
Count 2  –	Claim for Unjust Enrichment
Count 3  –	Request for a Constructive   Trust
Count 4  –	Claim of Conversion

On August 29, 2012, the Defendants filed Preliminary Objections.  These Preliminary Objections set forth five arguments:

(1)     Plaintiffs’ Complaint should be dismissed for failure to join “indispensable parties.”

(2)     Plaintiffs’ claim for attorney’s fees should be stricken.

(3)     Plaintiffs do not possess any claim under the Local Tax Enabling Act.

(4)     Plaintiffs cannot recover under a theory of unjust enrichment.

(5)     Plaintiffs cannot recover under a theory of conversion.

After multiple postponements, the parties finally filed their respective briefs by November of 2012 and we presided over oral argument on November 30, 2012.  The issues raised by the Defendants are now before us for disposition.

 

II.       STANDARD FOR ADJUDICATING PRELIMINARY OBJECTIONS

From a procedural standpoint, the Defendants’ Preliminary Objections are of two types:[2]

(1)     Failure to join an indispensable party under Pa.R.C.P. 1028(a)(5); and

(2)     A demurrer under Pa.R.C.P. 1028(a)(4).

The general standards by which each of the Defendants’ Preliminary Objections must be analyzed will be summarized below as follows:

A.      Failure To Join Indispensable Party Under     Pa.R.C.P. 1028(a)(5)

 

Pa.R.C.P. 1028 permits the filing of Preliminary Objections in order to raise “non-joinder of a necessary party.”  Pa.R.C.P. 1028(a)(5).  “In the absence of an indispensable party, a court lacks jurisdiction over matters before it.”  Grimme Combustion, Inc. v. Mergentime, 595 A.2d 77, 78 (Pa.Super. 1991).  A party is considered to be indispensable when its rights are so connected with the claims of the litigants that no decree can be made without impairing its rights.  Sprague v. Casey, 550 A.2d 184, 189 (Pa. 1988).

As a general rule, if no redress is sought against a party, it cannot be deemed “indispensable” to the litigation.  Grimme Combustion, supra; Sprague, supra.  Our appellate courts have declared that an inquiry into whether a party is indispensable is to be conducted from the perspective of protecting the rights of the absent party and not based upon the question of whether joinder or non-joinder would make the matter more difficult to litigate.  E-Z Parks, Inc. v. Philadelphia Parking Authority, 521 A.2d 71, 75 (Pa.Cmwlth. 1987).  In Mechanicsburg Area School District v. Kline, 431 A.2d 953 (Pa. 1981), Pennsylvania’s highest court set forth an analytical paradigm for determining whether a party must be considered indispensable.  That test is as follows:

(1)     Do the absent parties have a right or interest related to the claim?

(2)     If so, what is the nature of that right or interest?

(3)     Is that right or interest essential to the merits of the issue?

(4)     Can justice be afforded without violating the due process rights of absent parties?

Id. at 956.

Failure to join an indispensable party does not necessarily have to be raised via preliminary objections.  Because failure to join an indispensable party deprives the court of subject matter jurisdiction, it can be raised at any time during litigation.  Reifsnyder v. Pittsburgh Outdoor Advertising, 152 A.2d 894 (Pa. 1959).  In the event that a court determines that an indispensable party has not been joined, it is not required to dismiss the lawsuit; leave may be granted for the Plaintiff to join the missing party.  See Zurenda v. Commonwealth, 405 A.2d 1124 (Pa.Cmwlth. 1979).

B.      Demurrer Under Pa.R.C.P. 1028(a)(4)

The standard that we must employ in assessing a demurrer is well-established.  First, we must accept as true all facts that are properly averred in the Complaint.  Yocca v. Pittsburgh Steelers Sports, Inc., 854 A.2d 425, 436 (Pa. 2004)(internal citations omitted).  In addition, we must also afford the Plaintiffs with all inferences that are “fairly deducible” from the averments of the Complaint.  Id.  We can only sustain a demurrer if the Complaint “clearly” fails to set forth a cause of action.  Eckell v. Wilson, 597 A.2d 696, 698 (Pa.Super. 1991).  Stated differently, a demurrer can be sustained only when a case is so free from doubt that a trial would be a fruitless exercise.  Clark v. Beard, 918 A.2d 155 n.4 (Pa.Cmwlth. 2007).

 

III.      DISCUSSION

A.      Indispensable Parties

Before analyzing the parties’ arguments, it is important to understand the interrelationship between each entity.  EIT was a tax collection bureau that served as a conduit for tax monies paid by taxpayers to local agencies.   According to the Complaint, taxpayers collectively paid their correct assessments to EIT.  EIT then overpaid some agencies and underpaid others.  Many of the overpaid and underpaid agencies have accepted the so-called “Grumbine Plan,” but the Defendants have not.  The following flow chart illustrates this interrelationship:

 

 

OVERPAID SETTLING ENTITIES

TAXPAYERS

EIT

OVERPAID DEFENDANTS   De

 

 

 

 

 

 

 

 

 

 

 

 

 

UNDERPAID     PLAINTIFFS

 

 

 

 

 

 

 

 

What Plaintiffs seek through this litigation is to create another arrow between the Defendants and themselves so that the flow chart would then look like this:

 

 

OVERPAID DEFENDANTS   De

EIT

OVERPAID SETTLING ENTITIES

TAXPAYERS

 

 

 

 

 

 

 

 

 

 

 

 

 

UNDERPAID     PLAINTIFFS

 

 

 

 

 

The Defendants now seek to classify both EIT and the OVERPAID SETTLING ENTITIES as “indispensable parties” to this litigation. As is patently obvious from the above flow charts, there is a huge difference in status between EIT and the OVERPAID SETTLING ENTITIES.  Because of this, we will separately address the Defendants’ theories pertaining to each.

(1)     Joinder of OVERPAID SETTLING ENTITIES

As illustrated by the above flow chart, there is no direct connection that either exists or is sought between the Defendants and the OVERPAID SETTLING ENTITIES.   Likewise, there is no existing dispute between Plaintiffs and the OVERPAID SETTLING ENTITIES.  For all practical purposes, the OVERPAID SETTLING ENTITIES have agreed that they were overpaid and have made their peace with Plaintiffs by entering into a long-term repayment plan.  Under these circumstances, we are hard pressed to perceive how or why the OVERPAID SETTLING ENTITIES should be forced to become a part of the above-referenced litigation.

The case of Mechanicsburg School District v. Kline, 431 A.2d 953 (Pa. 1981), is instructive.  Kline involved an equity suit seeking to enjoin the Pennsylvania Secretary of Revenue from disbursing school subsidy payments.  The Mechanicsburg School District claimed that the Secretary of Revenue and/or the Secretary of Education erroneously determined the number of taxpayers living in the Mechanicsburg School District and that this adversely affected state subsidies.  During the litigation, the Secretary of Revenue admitted that it was “entirely possible that many districts were either under or over valuated.”  Id. at 956.  Because of this statement, the Defendant argued that all other Commonwealth school districts should be considered “indispensable parties” because their “right” to subsidies was “related.”

In its decision, the Pennsylvania Supreme Court focused upon the question of whether the rights of other school districts were “essential” to the issue presented by the Mechanicsburg Area School District.  In answering this question in the negative, the Court stated:

 

Appellant’s right to a correct determination of the amount of subsidy to be granted is not interlocked with the similar right possessed by other school districts.  If recalculation does cause additional payment to Mechanicsburg, such payment would not necessarily require appellees to recalculate the total subsidy…

 

Since the right of a correct computation possessed by the other school districts is not interlocked with appellant’s right to a correct computation, and a recalculation with possible additional payment to appellant, in itself, does not require a recalculation of the total school subsidy, the rights of the other school districts are not essential to a decision on the merits of the issues…

 

It has been held for more than 175 years that if the merits of a case can be determined without prejudice to the rights of necessary parties, absent and beyond the jurisdiction of the court, the court will proceed without them…We see no reason why the cause cannot be litigated and decided without impairing the lawful rights of the other school districts.  To sustain the preliminary objection of failure to join an indispensable party would be inequitable and unjust.

 

Id. at 958-59.

It is true that Mechanicsburg School District involved state subsidies and not tax revenues.  Still the analysis of the Supreme Court is compelling.  Like this case, Mechanicsburg School District involved a municipal entity that claimed to have been underpaid.  Like this case, the alleged underpayment in Mechanicsburg School District was a result of an error made by someone responsible for making correct calculations.  Like this case, other municipal entities beyond the Plaintiffs were affected by the erroneous calculation.  Also like this case, the request in Mechanicsburg School District was to join a multitude of other governmental entities who would have been tangentially affected by the issue before the Court.  In Mechanicsburg School District, the Pennsylvania Supreme Court soundly rejected the claim that other tangentially involved governmental entities should be considered “indispensable parties.”  Logic compels us to rule in an identical fashion with respect to the OVERPAID SETTLING ENTITIES.

There would be absolutely nothing to be gained by joining thirteen overpaid entities who have acknowledged their responsibility to systematically repay the Plaintiffs.[3]  To require each of the thirteen OVERPAID SETTLING ENTITIES to engage counsel and participate in what promises to be expensive and time-consuming litigation would be an enormous waste of taxpayer resources and would display a profound disrespect for the laudable efforts the parties have made to resolve their own differences.[4]  As we see it, none of the four areas of inquiry articulated by the Court in Mechanicsburg School District can be weighed in this case in favor of joining the OVERPAID SETTLING ENTITIES.  In fact, we view the OVERPAID SETTLING ENTITIES as the very antithesis of “indispensable parties.”  Accordingly, the Defendants’ request to join the OVERPAID SETTLING ENTITIES will be emphatically rejected.

(2)     Joinder of EIT

The question of whether EIT is an indispensable party is much closer than the one presented above.  As reflected by the flow charts contained in III.A. of this Opinion, EIT is at the very center of this controversy.  It was EIT to whom taxpayers paid the taxes that they intended to pay to their own municipality.  It was EIT that decided how the tax revenues were to be divided among all of its local agency clients.  To use a colloquial expression, it was EIT that “screwed up.”  In a very real sense, the above-referenced case would not be pending today had EIT done its job appropriately.

On the other hand, the Complaint alleges that EIT no longer possesses any of the funds now sought by the underpaid Plaintiffs.  Probably for this reason, the Plaintiffs have not chosen to set forth a monetary claim against EIT.  Instead, Plaintiffs have focused their collection efforts on the Defendants who allegedly now possess the funds that should rightfully belong to the Plaintiffs.  Essentially, Plaintiffs view EIT as a sort of water collection tank into which revenues were poured and out of which they flowed.  Because Plaintiffs view the EIT tank as now being empty, Plaintiffs do not consider EIT as an indispensable party.

In attempting to decide the admittedly difficult question of whether EIT should be considered an indispensable party to this litigation, we have considered the four-prong test articulated by our Supreme Court in Mechanicsburg School District.  We have also read dozens of Pennsylvania appellate decisions written on the topic of an “indispensable party.”  The following legal principles are consistently referenced by our appellate courts and will form the template that will govern the decision we must now render:

(1)     The question of whether a party is indispensable must be viewed from the perspective of the party alleged to be indispensable and not from the perspective of whether litigation would be rendered easier by the joinder.  See, E-Z Parks, Inc. v. Philadelphia Parking Authority, 521 A.2d 71, 75 (Pa.Cmwlth. 1987).

(2)     We must evaluate the extent to which the absent party has a “right or interest” in the pending claim.  We must then discern whether that right or interest is “essential to the merits” of the case now before us.  See Mechanicsburg School District v. Kline, supra.

(3)     A critical question that is asked in almost every case is whether a plaintiff enjoys a right of redress against the allegedly indispensable party.  In Sprague v. Casey, 550 A.2d 184 (Pa. 1988), the Court stated:   “A party is indispensable when his or her rights are so connected with the claims of the litigants that no decree can be made without impairing those rights.  A corollary of this principle is that a party against whom no redress is sought need not be joined.”  Id. at 189 (citations omitted)(emphasis added).  See also, Campanaro v. Pa. Electric Company, 656 A.2d 491 (Pa.Super. 1995); Gaynor v. Gyuris, 707 A.2d 534 (Pa.Super. 1998).

(4)     It is not enough that a potential party could be deemed to have some interest in the outcome of the factor.  In Campanaro, supra, the Superior Court rejected the Trial Court’s decision to declare a party to be indispensable because its absence prevented the Court from fashioning “complete relief.”  The Superior Court stated:  “A party is indispensable when his or her rights are so connected with the claims of the litigants that no decree can be made without impairing those rights…Here, there is no indication appropriate relief could not be fashioned, if necessary.”  Id. at 493, citing Sprague, supra at pg. 189.  See also, Mechanicsburg School District, supra.

(5)     By including a somewhat nebulous and always flexible notion of innate “justice” as an important factor, the Supreme Court in Mechanicsburg School District has required that we examine the practical effect of our decision of whether or not to declare an entity an “indispensable party.”[5]

We have evaluated the information presented about this case.  As we apply the legal principles outlined above, we reach the following conclusions:

(1)     EIT is at the very center of the dispute that is now before us.  It will not be possible to litigate the above-referenced case without free and unfettered access to EIT’s records and existing personnel.  Joinder of EIT as a party would facilitate that access and would certainly render the above-referenced case easier to litigate.[6]

(2)     EIT has no discernible “right or interest” in the above-referenced case.  If Plaintiffs ultimately prevail, their remedy will be against the Defendants who they allege were overpaid.  On the other hand, if the Defendants prevail, we cannot discern how EIT would either suffer harm or gain reward as a result of such a verdict.   In essence, the four factors set forth in Mechanicsburg School District must be weighed against declaring EIT to be “indispensable.”

(3)     It is not necessary that EIT be a party to this litigation in order for Plaintiffs to prevail on their theories against Defendants.  As stated in Campanaro and Sprague, joinder as an indispensable party should not be mandated when a case could fairly proceed without joinder.

(4)     The Defendants seek dismissal of the above-referenced case on jurisdictional grounds based upon their “indispensable party” argument.  We view this request as extreme.  We recognize that the Defendants have the right to join EIT as an additional defendant and we perceive of no viable reason why we would deny such a request for joinder if or when it is submitted. Under the circumstances presented, forcing the Plaintiffs to backtrack to square one based upon an “indispensable party” argument viscerally strikes us as unfair.[7]

In our opinion, the primary argument in favor of joinder – facilitating the litigation process – is outweighed by the other factors that were outlined above. While it may appear at first blush to be oxymoronic, the fact that EIT is at the center of this litigation does not necessarily lead to the conclusion that EIT is a legally “indispensable party.”  At this point, we will permit the above-referenced matter to proceed as filed by Plaintiffs.  If EIT is joined as an additional defendant, then all rules governing parties to litigation will apply to it.  If for some reason EIT is not joined as an additional defendant, we are still confident that the substantive rights and responsibilities of all existing parties can be determined in a fair and just manner.  Accordingly, the Defendants’ arguments based upon the indispensable party precept will be denied.

B.      Attorney’s Fees

Subparagraph (c) of Plaintiffs’ ad damnum clause seeks an award of “attorney’s fees, costs and other relief deemed appropriate by the Court.”  In their Preliminary Objections, the Defendants seek to strike this paragraph of the ad damnum clause, claiming that it cannot be legally supported by any viable theory.  The Defendants point out that the Complaint does not allege any agreement that would call for the payment of attorney’s fees, nor does it seek to invoke any statutory provision by which said fees could awarded.

Plaintiffs’ Brief in Opposition to Defendants’ Preliminary Objections mentions their claim for counsel fees within a footnote. That footnotes reads:  “Plaintiffs do not contest the overpaid defendants’ objection to strike the request for attorneys’ fees from the current version of the Complaint.”  (Plaintiffs’ Brief at 6 n.4).  Given that the “current version of the Complaint” is the only one now before us, we will grant the Defendants’ preliminary objections in this respect and will strike Plaintiffs’ request for counsel fees.

C.      Claim Under The Local Tax Enabling Act (LTEA)

Both parties cite 53 P.S. § 6913(V)(h) of the Local Tax Enabling Act (LTEA).  This section addresses the “Powers and Duties of an Officer concerning Earned Income Taxes” and specifically states:

 

The officer shall distribute earned income taxes to the appropriate political subdivisions within sixty days of the deadline for payment by an employer has set forth in Division IV(b).  The political subdivisions shall not be required to request the officer to distribute the funds collected but shall at least annually reconcile their receipts with the records of the officer and return to or credit the officer with any overpayment…If earned income taxes are not distributed to the appropriate political subdivisions within one year of receipt, the political subdivision may make a written demand on a tax officer or political subdivision for tax revenues collected and attributable to residents of the political subdivision making the demand.  If the taxes attributable to residents of the political subdivision making the demand are not paid within thirty days from the date of the demand, the political subdivision, person, public employee, or private agency designated by the political subdivision may…bring an action in an appropriate court of common pleas in the name of the taxing district for the recovery of taxes not distributed in accordance with this subsection.

 

53 P.S. § 6913(V)(h)(emphasis supplied). LTEA includes a “Definitions” section that supplements this provision, but does not include a definition of the term “reconcile” or provide any explanation of what a reconciliation process should involve.  53 P.S. § 6913(I).

The Defendants assert that LTEA “necessarily imposes a reciprocal duty on the political subdivision to reconcile tax revenue receipts and the tax officer to maintain such records.”  (Defendants’ Brief).  The Defendants then conclude that since the Bureau did not maintain records that permit reconciliation (as stipulated by the Plaintiffs in ¶¶25-27 of their Complaint), “a violation of the LTEA could not occur if strict compliance with the terms of the LTEA was made impossible by the Plaintiffs’ own failure to maintain adequate records.”  (Defendants’ Brief).

Plaintiffs argue that in accordance with 53 P.S. § 6913(V)(h), there are three elements that must be demonstrated to establish a violation of LTEA:

(1)     Earned income taxes are not distributed to the appropriate political subdivision with one year of receipt;

(2)     The appropriate political subdivision makes a written demand on a tax officer or political subdivision for tax revenues collected and attributable to the residents of the political subdivision making the demand;

(3)     Failure to remit the taxes attributable to residents of the political subdivision making the demand within thirty (30) days of the demand.

The Plaintiffs argue that they have alleged that taxes were not properly distributed (Complaint ¶¶ 43, 57, 66), that written demand on the Defendants was made for the repayment of the taxes (Complaint ¶ 78), and that the Defendants have failed to remit the taxes attributable to the residents of Plaintiffs (Complaint ¶¶ 65-66, 68, 78-84).

At this point in time, we refuse to dismiss Plaintiffs’ LTEA claim.  We acknowledge that EIT did not “reconcile” its tax receipts during years 2004-2007.  We also acknowledge that annual reconciliation records and receipts do not now exist due to actions of FOLTZ.   Nevertheless, we refuse to accept the paradoxical logic of the Defendants that since no direct annual reconciliation documents exist, the Plaintiffs cannot prove they suffered financial loss.  We have found no authority requiring that “reconciliation” be conducted exclusively by the collection agency contemporaneously with receipt of tax revenue.  Moreover, Plaintiffs have alleged that existing tax records maintained by each municipality in addition to computer stored information maintained by EIT will be sufficient to create a “reconciliation” of what was underpaid, what was overpaid, and by how much.

Whether the Plaintiffs will be able to establish the monetary value of their claim with sufficient specificity will likely be a key focus of extensive discovery and expert forensic analysis by both sides.  Ultimately, the Plaintiffs will be required to substantiate their proffered “reconciliation.”  Whether they will be able to do so should be tested only after discovery has been completed and not now while the above-referenced case remains in its infancy.   Accordingly, Defendants’ preliminary objection to the viability of the LTEA claim will be denied.

D.      Unjust Enrichment

Unjust enrichment “is essentially an equitable doctrine.”  Schenck v. K.E. David, 666 A.2d 327, 328 (Pa.Super. 1995).  Whether the doctrine can be applied “depends on the unique factual circumstances of each case.”  Styer v. Hugo, 619 A.2d 347, 350 (Pa.Super. 1993).  A claim for unjust enrichment has been described as one that involves a “quasi-contract.”  “A quasi-contract imposes a duty, not as a result of any agreement, whether express or implied, but in spite of the absence of an agreement, when one party receives unjust enrichment at the expense of another.”  Stockinger v. Presidential Financial Corp. of Delaware Valley, 948 A.2d 828, 833 (Pa.Super. 2008).

“The polestar of the unjust enrichment inquiry is whether the defendant has been unjustly enriched; the intent of the parties is irrelevant.”  Limbach LLC v. City of Philadelphia, 905 A.2d 567, 577 (Pa.Cmwlth. 2006).   The elements of unjust enrichment in Pennsylvania are as follows:

(1)     Benefits conferred on a defendant by a plaintiff;

(2)     Appreciation of such benefits by the defendant; and

(3)     Acceptance and retention of the benefits under such circumstances that it would be inequitable for the defendant to retain the benefit.

Schenck v. K.E. David, supra; Styer v. Hugo, supra; Braun v. Wal-Mart, 24 A.3d 875 (Pa.Super. 2011).

In this case, the Defendants argue that no benefit was conferred directly upon them by the Plaintiffs.  According to the Defendants, any alleged benefit that they received was conferred by EIT.  Essentially, the Defendants argue that without a privity of contract between themselves and the Plaintiffs, no recovery can occur via the legal doctrine of unjust enrichment.  We disagree.

Pennsylvania jurisprudence has long declared that privity of contract is unnecessary for a claim to be pursued for unjust enrichment.  In First National Bank of Carrol Township, 27 A.2d 527 (Pa.Super. 1942), the Superior Court specifically stated:

Where one has in his hands money which in equity and good conscience belongs and ought to be paid to another, an action for money had and received will lie for the recovery thereof.  No privity of contract is necessary to sustain this action, for the law, under these circumstances, implies a promise to pay.

 

Id. at 530. Furthermore, many cases have applied the above principle within a context similar to the one at bar.

In Caskie v. Philadelphia Rapid Transit Company, 184 A.17 (Pa. 1936), a contractor averred that the defendant transit company conspired with a railroad company to prevent the contractor from being paid for services rendered.  Even though the contractor and the transit company had no direct contract with one another, the Court employed the following analysis:

Has the defendant, in the circumstances stated, received money or property which he is not entitled to keep and which in equity and good conscience should be paid to plaintiff in accordance with principles of natural justice?  If he has, the plaintiff may recover…[I]t is clear that privity of contract has not been deemed necessary; that recovery may be had where the defendant received a payment by mistake…

 

Id. at 19-20.

In Brubaker v. Berks County, 112 A.2d 620 (Pa. 1955), the Plaintiff paid two checks to an individual by the name of Samuel Moyer in order to purchase real estate.  Moyer deposited these checks into an account maintained by the County Treasurer for Berks County.  When Mr. Moyer died, the County retained the deposited checks that had been generated by the Plaintiff.  Under these circumstances, the Supreme Court held that the County was responsible to return the monies to the Plaintiff.  The Court reasoned as follows:

Looking at this entire transaction through the eyes of abstract justice, one can come to no conclusion other than that [the Plaintiff] is entitled to his $7,000.  Moyer had no right to turn the money over to the [Defendant] and the [Defendant] had no ethical or moral right to keep it once it was ascertained that the money in no way belonged to the [Defendant].  Coming to this conclusion of natural justice, it would be shockingly incongruous if the law were to stamp on the money a title of [Defendant] ownership simply because, through some adroit maneuvering on the part of Mr. Moyer, the money had fallen into [the Defendant’s] coffers.

 

Id. at 621.  The Supreme Court went on to state that where property is diverted from its proper use, “the third person into whose hands the property falls without consideration, even though he be innocent of knowledge of any wrongdoing, has the obligation to restore to its rightful owner the property so wrongfully appropriated.”  Id. at 622.

The recently promulgated Restatement (Third) Of Restitution And Unjust Enrichment supports the legal principles outlined in the above-referenced cases.  Section 47 of the new Restatement reads:

Payment To Defendant In Respect Of Claimant’s Property – If a third person makes a payment to the defendant in respect of an asset belonging to the claimant, the claimant is entitled to restitution from the defendant as necessary to prevent unjust enrichment.

 

Restatement (Third) Of Restitution And Unjust Enrichment_, §47 (2011).

In this case, Plaintiffs have alleged that their tax money was inappropriately diverted into the Defendants’ coffers.  Plaintiffs  posit that it would be unfair to their taxpayer if funds intended for Plaintiffs were permitted to end up in the Defendants’ treasury.  As a necessary corollary to this principle, the Plaintiffs point out that the taxpayers of the Defendant-agencies would receive a financial windfall if they were permitted to retain the tax monies that were paid by Plaintiffs’ taxpayers.

From a legal perspective, we agree with Plaintiffs that privity is not a predicate to an unjust enrichment claim.  From a factual point of view, the Plaintiffs have alleged that money belonging to them was inappropriately diverted to the Defendants, that the Defendants have been apprised of the benefit inappropriately conferred upon them, and have accepted retention of that benefit nevertheless.  Given our legal conclusion and the nature of the Plaintiffs’ factual allegations, we are compelled to deny the Defendants’ preliminary objection to Plaintiffs’ unjust enrichment claim.

E.      Conversion[8]

Pennsylvania law defines conversion as “the deprivation of another’s right of property…without the owner’s consent and without lawful justification.”  Stevenson v. Economy Bank of Ambridge, 197 A.2d 721, 726 (Pa. 1964).  To most laypersons, theft and conversion are synonymous.  They are not.  Generally speaking, theft requires that a culprit must have a present intent to deprive the owner of property when it comes into his possession.  Conversion does not require such an intent.

The Pennsylvania Supreme Court has determined that conversion can be committed in one of four ways:

(1)     Acquiring possession of the goods, with an intent to assert a right to them adverse to that of the owner;

 

(2)     Transferring the goods in a manner which deprives the owner of control;

 

(3)     Unreasonably withholding possession from one who has the right to it; and

 

(4)     Seriously damaging or misusing the chattel in defiance of the owner’s rights.

 

Norriton East Realty Corp. v. Central-Penn National Bank, 254 A.2d 637, 638 (Pa. 1969)(emphasis added).  “Although the exercise of control over the chattel must be intentional, the tort of conversion does not rest on proof of specific intent to commit a wrong.”  Underhill Coal Mining Company v. Hixon, 652 A.2d 343, 345 (Pa.Super. 1994).

In this case, no one could credibly claim that the Defendants intended to commit theft when the overpayments arrived in their bank accounts.  Even Plaintiffs acknowledge that the Defendants did no wrong by receiving and depositing the overpayments that were transferred to them by EIT.  However, the lack of wrongful scienter as of the date on which the overpayments were made does not preclude a claim for conversion.

Plaintiffs have alleged that when M&A completed its audit, the Defendants were aware or should have been aware that they were in possession of overpayments to which they were not entitled.  According to Plaintiffs, demands were made by Plaintiffs for the return of their funds and the Defendants have flatly refused to do so.  Plaintiffs’ theory is that the Defendants’ refusal to return what they knew to be overpayments constitutes conversion.

When a party comes into possession of property belonging to another who has not forfeited a right to possess the same, the law requires that the property be returned to its rightful owner.  In Norriton East Realty Corp., supra, the Court stated:  “In the absence of any circumstances indicating misapplication or an intent to exercise dominion adverse to the owner, a demand and refusal [can support] an action for conversion.”  Id. at 639.  In other words, a defendant need not demonstrate “a conscious intent of wrongdoing” to be guilty of conversion; he or she only has to exercise “wrongful control” of the property.  Prudential Insurance Company of America v. Stella, 994 F.Supp. 318, 323-24 (E.D.Pa. 1998).

At this stage of the proceedings, we are required to accept as true everything set forth in the Complaint.  The Complaint has alleged that the Defendants innocently received overpayments that they later discovered did not belong to them.  The Complaint alleges that despite knowing that the overpayments actually belonged the Plaintiffs, the Defendants retained possession of that money and refused to remit any of it to the Plaintiffs.  (Complaint ¶¶66-70; 109-118).  These allegations are sufficient establish a cause of action for conversion.  Accordingly, the Defendants’ preliminary objection to Plaintiffs’ conversion count will be denied.

 

IV.     CONCLUSION

We see no reason why the OVERPAID SETTLING ENTITIES should be made parties to the above-referenced litigation and we perceive many reasons why doing so would be unfair.  Without any doubt, we declare that the OVERPAID SETTLING ENTITIES are not “indispensable” to the above-referenced case.  The situation involving EIT is more difficult because EIT is admittedly at the very center of the parties’ dispute.  In many ways, we would embrace a decision by the Defendants to join EIT as an additional defendant.  Notwithstanding this observation, we stop short of declaring EIT to be an “indispensable party” as that term has been defined under Pennsylvania law.  Accordingly, we will reject the Defendants’ “indispensable party” preliminary objections.

With respect to the Defendants’ demurrers, we are required at this stage of the proceedings to evaluate the Complaint employing a standard that is very favorable to the Plaintiffs.  Given this standard and based upon the allegations set forth in the Complaint, the Plaintiffs have set forth viable theories of recovery against the Defendants.  It would be inappropriate and unfair to prevent the Plaintiffs from pursuing these claims, at least through the discovery phase of litigation.  Accordingly, the Preliminary Objections via which the Defendants have sought dismissal of Plaintiffs’ causes of action will be denied.  By a Court Order entered simultaneous with this Opinion, we will direct that the Defendants file an Answer to Plaintiffs’ Complaint within 30 days from the date of this Order.