Strayer v. Bare et al

Filing 283

MEMORANDUM re 278 MOTION for Summary Judgment filed by Steven Stambaugh Signed by Honorable A. Richard Caputo on 4/4/12. (jam, )

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
BRIAN STRAYER, et al.,
CIVIL ACTION NO. 1:06-CV-2068
Plaintiffs,
(JUDGE CAPUTO)

v.
DOUGLAS BARE, et al.,
Defendants.

MEMORANDUM
Presently before the Court is Third-Party Defendants Steven Stambaugh and Anita
Livaditis’ Motion for Summary Judgment as to Defendant / Third-Party Plaintiff Darryl
Cunningham’s Third-Party Claims. (Doc. 278.) The Third-Party Defendants argue that the
claims made against them by Defendant / Third-Party Plaintiff Cunningham were never
successfully assigned to the Plaintiffs, and that these claims were extinguished with the
release of Cunningham from the original action. The Court finds that Plaintiffs’ release of
their claims against Defendant Cunningham did not extinguish Cunningham’s potential
claims as against the Third Party Defendants, and that Cunningham effectively assigned
these claims in his later Assignment of Claims. Therefore, the Third-Party Defendants’
Motion for Summary Judgment will be denied.

BACKGROUND1
At issue in this lawsuit are client settlement funds unpaid by the former law firm
Frankel & Associates P.C. (“the Firm”). It is undisputed that from September 2000 through
October 2004, then-attorney Mark David Frankel perpetuated a fraud through the Firm's
escrow account, whereby in excess of $1 million was converted from a number of clients to
pay the Firm's tax obligations. Plaintiffs Brian Strayer, one of the Firm’s former clients
injured through this fraud, and the Pennsylvania Lawyers Fund for Client Security,2 initiated
this action on October 20, 2006 contending, in pertinent part, that “Defendants Cunningham
and Bare were aware of and failed to take steps to prevent the Ponzi Scheme involving
clients’ funds.” (Second Am. Compl. at ¶ 97, Doc. 60.) Claims were asserted against the
Defendants for fraud, breach of fiduciary duty, bad faith, a violation of Pennsylvania’s Unfair
Trade Practice and Consumer Protection Law, 73 P.S. § 201-1, et seq., and a civil claim
under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§
1962(c)-(d). Wachovia bank, the operator of the Firm’s client trust account, was also named
as a party. Following Judge Munley’s January 6, 2010 Memorandum and Order, Strayer v.

1

This matter has an elaborate history, and the events outlined in this section have
been simplified for the purposes of the present Motion. However, for a more detailed
history of this case, see Judge Munley’s January 6, 2010 Memorandum. Strayer v. Bare,
No. 3:06cv2068, 2010 WL 95123 (M.D. Pa. Jan. 06, 2010).
2

Plaintiff Pennsylvania Lawyers Fund for Client Security is a nonprofit
entity that was established by Order of the Pennsylvania Supreme Court dated April 30,
1992, to reimburse clients who have suffered losses as a result of misappropriation of
funds by their Pennsylvania attorney with its principal place of business located at 4909
Louise Drive, Suite 101, Mechanicsburg, PA 17055.” (Second Am. Compl. at ¶ 2, Doc.
60.) The Fund brings this action against Defendant Bare on behalf of twenty-six (26)
former firm clients (“claimants”) who also claimed missing settlement funds as a result of
alleged misappropriation of client funds.
2

Bare, No. 3:06cv2068, 2010 WL 95123 (M.D. Pa. Jan. 06, 2010), the only remaining claims
and parties in the primary action were claims for conspiracy, conversion, and civil RICO as
against Defendants Bare and Cunningham.
On August 11, 2008, Defendants Bare and Cunningham filed a Third-Party Complaint
against Steven Stambaugh, the lawyer who represented Mr. Strayer in his original personal
injury case, and Anita Livaditis, the Firm's bookkeeper (“the Third-Party Defendants”).
(Third-Party Compl., Doc. 120.) In their Third-Party Complaint, Bare and Cunningham
denied all liability as neither had actually represented Strayer or any of the Fund claimants,
and sought contribution or indemnification from Stambaugh and Livaditis who, “at all relevant
times, knew or should have known of the existence of the Ponzi scheme and failed to take
steps to prevent the Ponzi scheme.” (Id. at ¶¶ 10-11, 44-45.)
The Plaintiffs entered into a Joint Tortfeasor Release with Defendant Darryl
Cunningham (“the Cunningham Release”) on August 28, 2011. Later, on December 22,
2011, Cunningham signed an “Assignment of Claims” in which he assigned his third-party
claims against Stambaugh and Livaditis to the Plaintiffs as partial consideration for the
earlier Cunningham Release. The Third-Party Defendants dispute this assignment as : (1)
invalid as a matter of contract law; and (2) void since the Cunningham Release immediately
extinguished any of Cunningham’s potential third-party claims. The Third Party Defendants
have therefore moved for summary judgment as to Defendant / Third-Party Plaintiff
Cunningham’s Third-Party Claims against the Third-Party Defendants Stambaugh and
Livaditis. This Motion has been briefed by both sides and is now ripe for disposition.
LEGAL STANDARD
Summary judgment is appropriate “if the pleadings, the discovery and disclosure
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materials on file, and any affidavits show that there is no genuine issue as to any material
fact and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c)(2).
A fact is material if proof of its existence or nonexistence might affect the outcome of the suit
under the applicable substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986).
Where there is no material fact in dispute, the moving party need only establish that
it is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c)(2). Where, however, there
is a disputed issue of material fact, summary judgment is appropriate only if the factual
dispute is not a genuine one. Anderson, 477 U.S. at 248. An issue of material fact is
genuine if “a reasonable jury could return a verdict for the nonmoving party.” Id. Where
there is a material fact in dispute, the moving party has the initial burden of proving that: (1)
there is no genuine issue of material fact; and (2) the moving party is entitled to judgment
as a matter of law. See 2D Charles Alan Wright & Arthur R. Miller, Federal Practice and
Procedure § 2727 (2d ed. 1983). The moving party may present its own evidence or, where
the nonmoving party has the burden of proof, simply point out to the court that “the
nonmoving party has failed to make a sufficient showing on an essential element of her
case.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
“When considering whether there exist genuine issues of material fact, the court is
required to examine the evidence of record in the light most favorable to the party opposing
summary judgment, and resolve all reasonable inferences in that party's favor.” Wishkin v.
Potter, 476 F.3d 180, 184 (3d Cir. 2007). Once the moving party has satisfied its initial
burden, the burden shifts to the non-moving party to either present affirmative evidence

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supporting its version of the material facts or to refute the moving party's contention that the
facts entitle it to judgment as a matter of law. Anderson, 477 U.S. at 256–57. The Court
need not accept mere conclusory allegations, whether they are made in the complaint or a
sworn statement. Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 888 (1990).
“To prevail on a motion for summary judgment, the non-moving party must show
specific facts such that a reasonable jury could find in that party’s favor, thereby establishing
a genuine issue of fact for trial.” Galli v. New Jersey Meadowlands Comm’n, 490 F.3d 265,
270 (3d Cir. 2007) (citing Fed. R. Civ. P. 56(e)). “While the evidence that the non-moving
party presents may be either direct or circumstantial, and need not be as great as a
preponderance, the evidence must be more than a scintilla.” Id. (quoting Hugh v. Butler
County Family YMCA, 418 F.3d 265, 267 (3d Cir. 2005)). In deciding a motion for summary
judgment, “the judge's function is not himself to weigh the evidence and determine the truth
of the matter but to determine whether there is a genuine issue for trial.” Anderson, 477 U.S.
at 249.
DISCUSSION
The Third-Party Defendants first argue that Defendant Cunningham’s third-party
claims were extinguished with the Cunningham Release. The Plaintiffs retort that the claims
survived, and that they were actually assigned to the Plaintiffs as partial consideration for the
Cunningham Release. These arguments will now be addressed below.
1.

Survival of Defendant Cunningham’s Third-Party Claims
The Third-Party Defendants first argue that “Defendant / Third Party Cunningham’s

claims against the Third Party Defendants were extinguished the moment that the

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Cunningham Release was signed.” (Mot. at ¶ 6, Doc. 278.) This argument is not based on
the text of the Cunningham release, but on its purported implications. Specifically, the ThirdParty Defendants argue that “[b]ecause Plaintiffs’ claims against Cunningham would never
be litigated as a result of the Cunningham Release, it became immediately impossible for
there to be a judicial determination of Cunningham’s liability to the Plaintiffs. As such, the
pled prerequisite to Cunningham’s Third Party claims against the Third Party Defendants
could never be met.” (Third-Party Defs.’ Br. at 5, Doc. 279.) This assertion is based on the
substance of Cunningham’s third-party claim, which states:
In the event that it is judicially determined that Plaintiffs are entitled to recover
on their causes of action, then Stambaugh and Livaditis are alone liable to the
Plaintiffs, joint and severally liable, or liable over to Bare and Cunningham by
way of contribution or indemnity, all liability on the part of Bare and
Cunningham being specifically denied.
(Third-Party Compl. at ¶ 51, Doc. 120.)
Contrary to the assertions of the Third-Party Defendants, a settling tortfeasor’s liability
can be judicially determined. See e.g. Charles v. Giant Eagle Markets, 513 Pa. 474 (Pa.
1987) (finding the non-settling tortfeasor was liable for their pro-rata share when their
respective amounts of fault were later judicially determined in a jury trial). Moreover,
Cunningham is specifically entitled to receive potential contribution from anyone who is
ultimately adjudicated to be a co-tortfeasor.3 In Pennsylvania, where the settling tortfeasor
has overpaid in proportion to their pro-rata share, “[t]he released party would then have a
right of contribution against the other party for the amount paid in excess of a pro rata share,

3

A joint tortfeasor is referred to as “two or more persons jointly or severally liable in
tort for the same injury to persons or property, whether or not judgment has been
recovered against all or some of them.” 42 Pa. C.S.A. § 8323.
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since that much of the non-released party's liability would have been extinguished by the
release.” Sochanski v. Sears, Roebuck & Co., 689 F.2d 45, 48 n.2 (3d Cir. 1982); 42 Pa.
C.S.A. § 8324(c). Moreover, the Cunningham Release explicitly considers a weighing of
proportionate fault as it states that claims against any joint tortfeasors will be reduced “by the
full extent of the proportionate share of liability of [Cunningham] adjudicated under a final
unappealable verdict.” (Joint Tortfeasor Release at 1, Third Party Pls.’ Ex. A). Although
Cunningham will not be exposed to further claims by the Plaintiffs, it is likely that
Cunningham’s liability will judicially determined at trial, and it is premature to determine that
Cunningham will have no resultant claim as against the Third-Party Defendants. Therefore,
the Court does not find that the Cunningham Release necessarily disposed of Cunningham’s
Third Party claims.
2.

Assignment of the Third-Party Claims
The Plaintiffs argue that Cunningham’s December 22, 2011 Assignment of Claims

was valid as partial consideration for the Cunningham Release dated August 28, 2011. The
Third-Party Defendants respond that, as there is no mention of such consideration in the
Cunningham Release, the alleged existence of an accompanying oral contract for such is
barred by the parol evidence rule.4 Yet, under the Pennsylvania Uniform Written Obligations

4

The parol evidence rule “provides that when parties to a contract have reduced their
agreement to writing, that writing will be the sole evidence of their agreement, and parol
evidence may not be admitted to vary the terms of the contract in the absence of fraud,
accident or mistake.” Hershey Foods Corp. v. Ralph Chapek, Inc., 828 F.2d 989, 994 (3d
Cir. 1987). “Thus the written contract, if unambiguous, must be held to express all of the
negotiations, conversations, and agreements made prior to its execution, and neither oral
testimony, nor prior written agreements, or other writings, are admissible to explain or vary
the terms of the contract.” Hart v. Arnold, 884 A.2d 316, 341 (Pa. Super 2005) (citation
omitted). Therefore, as a fully-integrated agreement, the Cunningham Release precludes
simultaneous oral agreements made in consideration for the release itself.
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Act (“UWOA”), 33 P.S. §§ 1 et seq., “[a] written release or promise, hereafter made and
signed by the person releasing or promising, shall not be invalid or unenforceable for lack
of consideration, if the writing also contains an additional express statement, in any form of
language, that the signer intends to be legally bound.” Id. at § 6; Kia v. Imaging Sciences
Intern., Inc., 735 F. Supp. 2d 256, 265 (E.D. Pa. 2010) (granting summary judgment and
finding a contract allegedly without consideration enforceable under the UWOA where it
contained language stating that it “shall be binding upon me”). Cunningham’s Assignment
of Claims contains exactly the language required by the UWOA, stating that Cunningham
was “intending to be legally bound.” (Assignment of Claims at 1, Third Party Pls.' Ex. B.)
Therefore, the Court finds that Cunningham successfully assigned his third-party claims to
the Plaintiffs through his December 22, 2011 Assignment of Claims. As such, the ThirdParty Defendants’ Motion for Summary Judgment will be denied.
CONCLUSION
The Court finds that the Cunningham Release did not extinguish Cunningham’s thirdparty claims and that Cunningham successfully assigned these claims to the Plaintiffs on
December 22, 2011 in conformance with the Pennsylvania Uniform Written Obligations Act.
Therefore, the Court will deny the Third-Party Defendant’s Motion for Summary Judgment.
An appropriate order follows.

April 4, 2012
Date

/s/ A. Richard Caputo
A. Richard Caputo
United States District Judge

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