Appel v. Kaufman

• Decision Date: 29 July 2010
• Docket Number: Civil Action No. 08-392
• Citation: 728 F.Supp.2d 684
• Parties: Ronald M. APPEL, Rita Appel, and Nanette Appel-Bloom, Individually and on Behalf of all Others Similarly Situated v. Gerald S. KAUFMAN, et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

728 F.Supp.2d 684

Ronald M. APPEL, Rita Appel, and Nanette Appel-Bloom, Individually and on Behalf of all Others Similarly Situated

v.Gerald S. KAUFMAN, et al.

Civil Action No. 08-392.

United States District Court,

E.D. Pennsylvania.

July 29, 2010.

Brian M. Dratch, Franzblau Dratch, Cyrus J. Bloom, S.M. Chris Franzblau, Patrick T. Collins, Livingston, NJ, Daniel J. Dugan, Spector Gadon Rosen PC, for Ronald M. Appel, Rita Appel, and Nanette Appel-Bloom.

Bruce Robins, Feder Kaszovitz LLP, New York, NY, Thomas S. McNamara, Indik & McNamara, Charles Mitchell Goldman, Duane Morris LLP, Edward J. Hayes, Fox Rothschild LLP, Lauren P. McKenna, Philadelphia, PA, Robert J.E. Edwards, Michael F. Ruggio, Polsinelli Shalton Welle & Suelthaus, Kansas City, MO, Justin Edelson, Polsinelli Shughart PC, Wilmington, DE, for Gerald S. Kaufman, et al.

MEMORANDUM AND ORDER

McLAUGHLIN, District Judge.

This action is brought by three tenants-in-common of a piece of property located at 401 North Broad Street, Philadelphia. In 1959, the property was purchased by a group of promoters, referred to as "Nominees," who leased the land and the building located on the land to the Terminal Commerce Building of Philadelphia, Inc. for a term of 99 years. The Nominees sold interests in the property to approximately 600 tenants-in-common and then took title and administered the business of the property as nominees for the tenants-in-common.

The plaintiffs challenge the right of the defendant George Kaufman, who has been managing the property since 1969 and acting as a "Nominee" of the property since 1977, to manage the property and act as Nominee. They accuse him of committing several acts of fraud and of breaching his fiduciary duty to the tenants-in-common. They present their claims in four counts. The first count alleges claims of fraud and breach of fiduciary duty against Mr. Kaufman;his deceased wife, Carol F. Kaufman; and the Gerald S. Kaufman Corporation (the "Kaufman defendants").¹ The second count seeks an accounting and the appointment of a receiver to compel Mr. Kaufman and his corporation to account for their financial activities with respect to the property. The third count requests a declaratory judgment invalidating the deeds granting Mr. Kaufman and his corporation title to the property as Nominee, as well as declaring null and void a mortgage on the property between Kaufman and defendant Norwest Bank Minnesota, now known as Wells Fargo Bank, N.A. (in the past, the Court and the parties have referred to this defendant as "Norwest;" for the purposes of this motion, however, the defendant will be referred to as "Wells Fargo"). Finally, the fourth count requests a partition of the property, in which the property will be sold and the proceeds of that sale will be paid out to the tenants-in-common.

The Kaufman defendants move for summary judgment on all counts. Wells Fargo moves for summary judgment on count III. Their motions are limited to whether the plaintiffs' claims are barred by the applicable statutes of limitations or by the equitable doctrines of laches, waiver, estoppel or ratification, with the exception of the Kaufman defendants' request for summary judgment on the plaintiffs' partition claims.

The Court grants summary judgment for the defendants on all counts. The plaintiffs' claims under counts one, three, and four are barred by Pennsylvania's two-year statute of limitations for fraud. The plaintiffs' claims under count two are barred either by the six-year statute of limitations for an action at law for an accounting or by the equitable doctrine of laches.

I. The Summary Judgment Record

The defendants' motions turn on whether certain correspondence exchanged between the parties and their associates gave the plaintiffs sufficient notice of their claims to begin the running of the applicable limitations periods. The facts of the correspondence are not in dispute. The Court will first describe the history of the parties' relationship with the Terminal Commerce Building as background. The Court then will provide the details of the parties' previous correspondence.

A. Background

On September 1, 1959, Benjamin Kaufman, Nathan P. Jacobs, Samuel A. Seaver, Philip Kessler, and Arthur S. Mandelbaum (collectively the "original Nominees") formed an agreement (the "Agreement") between approximately 600 tenants-in-common (the "tenants-in-common") concerning the Terminal Commerce Building of Philadelphia, a property located at 401 North Broad Street, in Philadelphia, Pennsylvania (the "property"). Ex. C.² Under the terms of the Agreement, the original Nominees sold tenancy-in-common interests to the tenants-in-common for $5,000 each and took title to the property as nominees for the tenants-in-common.

The Agreement states that a 99-year lease was formed with the Terminal Commerce Building of Philadelphia as lessee (the "lease"). Under the agreement, the Nominees were responsible for the management of the property, including the collecting of rents under the lease and disbursing the proceeds to the tenants-in-common. The Agreement states that the property was purchased subject to a mortgage lien of approximately $4.4 million. The mortgage was refinanced at least two more times by the original Nominees, as reflected in a letter from Benjamin Kaufman to the tenants-in-common dated October 15, 1964, and a letter from Nathan Jacobs to the tenants-in-common dated May 5, 1978, respectively. Ex. Y.

Defendant George S. Kaufman, Benjamin Kaufman's son, took over the management of the property in or around 1969. From that point, the original Nominees paid him certain management fees. Upon his father's death in 1977, Mr. Kaufman assumed the role of Nominee in his father's place. On or about May 2, 1983, the remaining original Nominees and Mr. Kaufman, acting on behalf of his father, deeded title to the property to Mr. Kaufman to hold as sole Nominee for the tenants-in-common, as reflected in a Quitclaim Deed and Nominee Agreement (the "Quitclaim deed") bearing that date. Ex. W. Mr. Kaufman drafted a letter, dated May 24, 1983, informing the tenants-in-common of the action. Ex. Z. The Quitclaim deed, however, was not recorded until August 27, 1992, when it was recorded with the Philadelphia County Department of Records at Deed Book 143, Page 145. In 1999, Mr. Kaufman deeded title to the property to his corporation, the defendant Gerald S. Kaufman Corporation (the "Kaufman Corporation"), which thereafter acted as the sole Nominee for the tenants-in-common. This deed was recorded with the Philadelphia County Department of Records on June 25, 1999, at Deed Book 1073, Page 310.

Also in 1999, Mr. Kaufman refinanced the property. On or about June 17, 1999, the Kaufman Corporation entered into a loan transaction with Aries Capital Incorporated ("Aries"), whereby Aries made a loan to the Kaufman Corporation in the principal amount of $6.7 million; the Kaufman Corporation signed and delivered to Aries a mortgage note in that amount; and the Kaufman Corporation signed and delivered a Mortgage, Security Agreement and Assignment of Leases and Rents to secure the amounts owed under the loan (the "Aries mortgage"). The Aries mortgage was recorded with the Philadelphia County Department of Records on June 25, 1999 at Mortgage Book 2066, Page 597. On July 15, 1999, Aries assigned the Aries mortgage to defendant Wells Fargo as trustee. The mortgage note matured by its terms in June 2009. Ex. AA.

Brothers Jack and Murray Appel were two of the original tenants-in-common. When Murray Appel passed away in 1982, he left his interest in the property to his wife, Sophie Appel. Upon her death in 1986, her children, Lee Appel and plaintiff Ronald Appel, inherited equal shares of her interest. Plaintiff Rita Appel is Lee Appel's widow, who inherited Lee Appel's interest after he passed away in September of 2007. When Jack Appel passed away in 1983, his widow, Emma Appel, inherited his interest. Upon her death in 1995, her children, Leonard Appel and plaintiff Nanette Appel-Bloom, inherited equal shares of her interest. Nanette Appel-Bloom inherited Leonard Appel's interest in the property when he passed away in 1998.

Nanette Appel-Bloom's husband, Cyrus J. Bloom, is counsel for the plaintiffs. Both Ronald Appel and Mr. Bloom are attorneys. Mr. Bloom began representing Ronald and Lee Appel in relation to the property no later than January 18, 2001. Deposition of Cyrus Bloom ("Bloom Dep.") at 10:6-11:4, attached as exhibit E to Wells Fargo's motion for summary judgment. He represented his wife throughout their marriage. Id. at 109:12-14. Leonard Appel also discussed issues related to theproperty with Mr. Bloom sometime in the late 1990s. Id. at 74:23-75:25; 93:21-94:12.

B. The Parties' Correspondence

Plaintiff Ronald Appel, plaintiffs' counsel Mr. Bloom, defendant Mr. Kaufman and Mr. Kaufman's accountant and attorney engaged in a brief correspondence in 1997-1998, followed by a longer period of correspondence in 2000-2001. In a letter dated October 22, 1997, Ronald Appel asked Mr. Kaufman's accountant, Bruce Rosen, about certain management and professional fees listed in a statement of income and expenses of the Terminal Commerce Building for 1996. Ex. D. The letter asked Mr. Rosen to advise Mr. Appel who received the payments and how they were computed. It also requested copies of income and expense statements and federal partnership returns for the preceding three years. Mr. Appel wrote to Mr. Rosen again on January 12, 1998, stating that he never received the requested information and that he was renewing that request. Ex. E.

The next piece of correspondence provided by the parties is a short memorandum, dated June 23, 2000, from Mr. Kaufman to Mr. Bloom. It stated that, per Mr. Bloom's request, Mr. Kaufman supplied "a copy of the net lease with two amendments" and "three years' statements from the tax returns." Ex. F. Mr. Bloom replied on July 27, 2000. In that letter, Mr....