Borough of Honesdale v. M.C. Morris & S.G. Smith

Citation: Not availableDocket: 795 & 896 C.D. 2018

Court: Commonwealth Court of Pennsylvania; October 11, 2019; Pennsylvania; State Appellate Court

Original Court Document: View Document

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The Borough of Honesdale appeals decisions from the Court of Common Pleas of Wayne County regarding the partial granting of amended petitions to open confessed judgments against developers Michael C. Morris and Stephen G. Smith, which included a dismissal of the Borough's complaints for confession of judgment. The developers cross-appealed the striking of their counterclaims. The court affirmed the lower court's orders.

In 2011, the developers formed Smith Morris Holdings, LLC (SMH) and began renovating the Old Sullums Building, intending to use part of it as a technical center and the rest for office space. They financed the project with a $255,076 grant from the Department of Community and Economic Development (DCED), a bridge loan from Dime Bank, and a construction loan agreement with the Borough. The Borough created a committee to oversee the grant process, requiring SMH to submit invoices for reimbursement requests after the committee's approval.

In May 2013, a construction loan agreement stipulated that the Borough would make progress payments to SMH's contractors upon receiving authorized payment requests and satisfactory inspections. However, the agreement did not specify a timeline for these payments. Additionally, the developers signed personal guaranty agreements to secure SMH's obligations. Following issues with the grant account and the submission of invoices, the Borough filed two complaints for confession of judgment against the developers in August 2016, resulting in judgments totaling $304,176.31.

Developers, representing themselves, filed answers with affirmative defenses, counterclaims, and petitions to open confessed judgments, which the trial court initially struck but allowed them to file amended petitions. The total amount at issue was $304,176.31, comprising an original debt of $250,076.00, interest, late fees, and attorney’s fees. In February 2017, amended petitions were submitted, omitting counterclaims. The trial court granted these petitions in June 2017, finding that Developers had a meritorious defense of breach of contract and that the primary issue was whether the Borough was contractually obliged to make timely disbursements to SMH as per the Agreement. In September 2017, the cases were consolidated, and Developers filed further responses and counterclaims, which led to the Borough filing preliminary objections. Both parties subsequently filed motions for summary judgment. In January 2018, the trial court struck Developers' filings and denied the motions for summary judgment, citing a disputed material fact regarding the timing of the Borough's disbursements. The court noted that the Agreement lacked a specific disbursement schedule, necessitating performance within a reasonable time. A jury trial in May 2018 resulted in a verdict for Developers, confirming the Borough's contractual obligation for timely disbursements, which they breached, causing project failure. The trial court then granted Developers' motion to strike the confessed judgments and dismiss the complaints with prejudice. Both parties filed post-trial motions, which were denied, leading to timely appeals.

The Borough's appeal raises several issues: 1) whether the trial court erred in allowing two individual guarantors to raise a defense from their limited liability company (LLC); 2) whether the court incorrectly partially granted the Developers’ amended petitions to open judgment despite alleged lack of evidence for a meritorious defense; 3) whether it erred in admitting graphs summarizing extensive financial records without witness authentication; 4) whether it permitted hearsay testimony from Developers about contractors leaving the project; and 5) whether the court wrongly denied the Borough’s motion for judgment notwithstanding the verdict or for a new trial due to the verdict being against the evidence's weight. 

Additionally, the Borough questions the admissibility of lay witness opinions and the trial court’s handling of an objection during closing arguments. However, these claims were inadequately developed in the Borough's brief, leading to their dismissal. The trial court has discretion regarding the admissibility of evidence, particularly regarding lay testimony, and the standard for reversing evidentiary rulings is high, requiring a showing of manifest unreasonableness or bias.

Regarding the Developers' cross-appeal, it questions the trial court's decision to strike the Developers’ counterclaims in a confession of judgment action. The Borough contends that the Developers could not assert a defense held by their LLC, but the court found otherwise, noting that the jury determined the LLC was not in default. Thus, the Borough's argument lacks merit. Furthermore, while the Borough asserts that the Developers failed to provide evidence of a meritorious defense, this issue was waived as the Borough did not raise it adequately in response to the petitions or in its concise statement of errors.

Developers successfully established a defense at trial, leading to the striking of the confessed judgments and dismissal of the Borough’s complaints with prejudice. The trial court faced a question of whether it erred by excluding graphs summarizing financial records due to the unavailability of the preparer for cross-examination. The Borough aimed to introduce these graphs, created by a law firm associate, to illustrate SMH's monthly liabilities to Dime Bank, expenditures on vendors and labor, and fund usage from a bridge loan between April 2013 and January 2014. The court ruled that the exclusion was justified since the preparer could not be cross-examined, despite the Borough providing the summaries to Developers before the trial.

The Borough cited Rule 1006 of the Pennsylvania Rules of Evidence, which allows for summaries of voluminous documents to aid jury understanding. However, this rule necessitates that original documents be available for examination and is complemented by Rule 901, requiring evidence authentication by an informed witness. The court asserted that the Borough needed to present a witness with knowledge to authenticate the summaries and clarify their content, as the charts alone would be difficult for a jury to interpret without such explanation. The court emphasized that allowing the attorney to explain the charts without supporting testimony would have been a significant error.

The trial court acted within its discretion by refusing to admit charts lacking authentication. The court also did not err in allowing hearsay testimony from Developers regarding the contractors leaving the job, as Developer Morris's testimony stemmed from his personal knowledge. The Borough's objections to hearsay were minimal and did not affect the overall testimony presented. The court found the Borough's arguments against the jury's verdict, which held Developers responsible for the project's failure, unpersuasive, emphasizing that credibility assessments are the jury's purview. The Borough's claim that the verdict contradicted the evidence was rejected, as the jury had adequate time to consider extensive evidence. 

In Developers' cross-appeal, they argued that the trial court incorrectly struck their counterclaims in a confession of judgment action. They cited Pennsylvania Rules of Civil Procedure, specifically Rules 2959 and 2960, explaining that a party must include all grounds for relief in a single petition, and failure to do so results in a waiver of defenses. Developers contended that the court's actions hindered their ability to raise additional defenses and counterclaims in the confession of judgment proceeding.

Developers' claim that their August 2016 pro se counterclaims were preserved is rejected. Upon obtaining legal counsel and being given a chance to file amended petitions to open judgments, Developers waived the right to present counterclaims by not including them in the amended petitions. As a result, the trial court acted correctly in striking Developers’ November 2017 counterclaims, which were deemed further pleadings prohibited by Rule 2960. Consequently, the orders from the Court of Common Pleas of Wayne County regarding the appeals of the Borough of Honesdale and the cross-appeals of Michael C. Morris and Stephen G. Smith are affirmed.