Delahanty v. First Pennsylvania Bank, N.A.

Decision Date26 September 1983
Citation318 Pa.Super. 90,464 A.2d 1243
PartiesEdmund J. DELAHANTY, Margaret A. Delahanty and Cascade Car Corporation, Appellees v. FIRST PENNSYLVANIA BANK, N.A., Appellant.
CourtPennsylvania Superior Court

Henry Ruth, Philadelphia, for appellant.

Leonard Schaeffer, Philadelphia, for appellees.

Before SPAETH, ROWLEY and CIRILLO, JJ.

CIRILLO, Judge:

This is an appeal from a judgment entered on a verdict for $70,000 compensatory damages and $750,000 punitive damages in favor of plaintiff/appellees and against defendant/appellant. The appellees involved in this suit are Edmund J. Delahanty (hereinafter "Delahanty"), his wife Margaret A. Delahanty, and Cascade Car Corporation (hereinafter "Cascade"). Cascade is a closely held Pennsylvania corporation formed by Delahanty and seven other shareholders in April 1973 to conduct an auto leasing business. Appellant is First Pennsylvania Bank (hereinafter "Bank"), a state chartered bank, which is a member of the Federal Reserve and a nationally chartered banking association. The Bank had financed appellee's used car business, Delahanty Auto Sales (hereinafter "Auto Sales"), and new leasing business, Cascade. Appellees alleged and, in the view of the trial judge, proved that fraudulent misrepresentations by Bank officials had caused the destruction of their existing used car business and new leasing business.

In August 1976, appellees commenced an action in trespass alleging fraud against the Bank. Appellees alleged that the Bank had fraudulently induced them to enter into the auto leasing business and subsequently caused the destruction of that business and its used car business by refusing to extend further financing, calling the loans previously extended, repossessing the cars in inventory and commencing its own competing automobile leasing business, "LEASEIT". The Bank denied liability to appellees and filed a counter-claim for debts due on promissory and demand notes made and guaranteed by appellees.

Appellant asserts on appeal that 1) the trial court erred as a matter of law in finding that the Bank engaged in fraudulent conduct; 2) the trial court erred in awarding Delahanty "anticipated lost profits" as part of compensatory damages; 3) the award of punitive damages was both improper and excessive and must be stricken; and 4) the trial court erred in entering judgment against the Bank on its counterclaims. For the reasons which follow, we reduce the amount of compensatory damages from $70,000 to $40,000 and the punitive damages from $750,000 to $440,000. We affirm the lower court's finding of fraud but partially reverse the judgment against the Bank on its counterclaims.

A narration of the factual background of this appeal begins with Delahanty, in September 1972, investigating the prospect of automobile leasing directed at blue and white collar individual consumers, that portion of the general public who normally purchase automobiles. Delahanty, with twenty-five years of experience in the automobile business, including ownership of Auto Sales for the past six years, noticed several changes in the retail and leasing business which spurred his interest in this marketing concept. Delahanty's extensive research supported the conclusion that there was a market in the blue and white collar worker which had never been tapped by the leasing industry. Up to this time, leasing had primarily been offered to two distinct markets, Commercial and Professional. Commercial leasing consisted mainly of large fleets of cars available to corporations. Professional leasing was directed at the higher income bracket professionals who could use the leasing of a luxury car as a tax deduction.

Delahanty's unique and novel method of leasing automobiles included the tapping of a new market, an on-site inventory to choose from and an immediate profit to the automobile dealer. Under prior leasing business practice, the dealer would finance the lease and would not realize a profit until the end of the lease when the automobile would be sold. Additionally, the dealer was responsible for the collection of the monthly payments on the lease. Delahanty's plan called for the bank, or financial institution supplying the loan for the floor plan, to purchase and receive an assignment of the lease at the outset, thus producing an immediate profit for the automobile dealer. Furthermore, the bank would be responsible for the collection of the monthly payments, which it was in a much better position to handle considering its structure and access to credit personnel.

In January 1973, pursuant to his exhaustive research, Delahanty prepared a document entitled "Financial Aspects of the Personal Leasing Industry". Delahanty had several preliminary discussions with various officers of the Bank, including John Kearney (hereinafter "Kearney"), Vice-President in charge of the Bank's Installment Loan Department, John Plumley (hereinafter "Plumley"), Administrator of the Installment Loan Department, and Mr. Tulskie (hereinafter "Tulskie"), Dealer Representative of the Installment Loan Department, to see if the Bank would be interested in financing his plan through capital and operating loans. Delahanty's relationship with the Bank began in 1971 when it provided financing for Auto Sales through a capital loan and floor plan line of credit. Delahanty had previously dealt with Kearney and Plumley, who was under Kearney's supervision. When Delahanty explained his proposal, Kearney expressed an interest in the concept and felt that it was a unique method for leasing automobiles. Accordingly, a number of meetings followed between Delahanty and various members of the Bank to discuss the venture.

In February 1973, an initial meeting was held at the Bank's offices at 30th and Market Streets. Delahanty presented the financial pamphlet to the Bank officials in attendance--Plumley, Tulskie, Len Becci (hereinafter "Becci"), Credit Supervisor of the Installment Loan Department, and Mr. Hennion, Sales Manager of Auto Sales for the Installment Loan Department. All of these officials were under Kearney's supervision and reported to him.

Later in February 1973, a second meeting was scheduled with Delahanty, Plumley and Tulskie, which was held at a restaurant in Delaware. Delahanty presented a second publication, "Marketing," in which he elaborated on the implementation and marketing of his leasing proposal. The Bank officials were impressed and expressed the belief that the marketing department of the Bank would most certainly be interested in his ideas.

In late February/early March 1973, a third meeting was held at the Bank's offices at 30th and Market Streets. It was attended by Delahanty, Plumley and Becci. In addition, Frank Dynan (hereinafter "Dynan"), Assistant of the Bank's Marketing and Services Department, was present. At this meeting, a third pamphlet, "Philosophy," was presented and Delahanty made his pitch to secure financing from the Bank for the leasing corporation. At the end of the meeting, Plumley told Delahanty that the Bank was interested in "backing your company" and not interested "in being in the leasing business" itself.

In March 1973, Delahanty met with Plumley and Kearney to obtain additional capital for Auto Sales. An additional $27,000 was granted bringing Auto Sales capital loan to $50,000.

A final meeting was held in April 1973, and Delahanty and his accountant, Mr. Rosenberg, presented a Pro Forma Report, to Kearney, Plumley and Becci, which set forth the final details of the new leasing business. No documents were signed at this meeting, but it was agreed that Delahanty would sign personally for a $50,000 loan for base capitalization, obtain credit from the Bank for the individual lease financing and obtain $300,000 for a floor plan line of credit. The original proposal, submitted by Delahanty, required a $150,000 line of credit.

At this final meeting, Kearney insisted that Delahanty commence business in the spring of 1973. Delahanty objected and stated that he wanted to start in the Fall of 1973 because he would benefit from the new car announcements and less inventory would be needed due to the 4-6 weeks availability on new car orders. Delahanty felt that starting in the Spring presented problems because it was the end of the 1973 model year which meant that by the end of the summer there might be an inadequate supply of cars and to prevent that problem he would be forced to begin with a larger inventory. Relying on Kearney's representations of the Bank's support, "What are you worred about? Look at the money we are putting behind it" Delahanty reluctantly agreed to commence business in the spring, fearing he would lose the opportunity if he did not follow Kearney's suggestion. In late April/early May 1973, Cascade was formed and entered a lease agreement for property in the Drexeline Shopping Center. On May 17, 1973, Cascade opened its doors for business.

On June 6, 1973, Plumley and Ed Bove (hereinafter "Bove"), Operations Officer of the Installment Loan Department, invited Delahanty to play golf and informed him, at that time, that the Bank had decided to enter the leasing business itself. Delahanty expressed deep concern, but Plumley told him not to worry that the Bank "was not going to do anything to hurt him." The following day, June 7th, Delahanty signed the master contracts with the Bank for the lease financing. All of the loans extended were personally guaranteed by Delahanty and his wife.

Though Cascade had ordered 300 cars in April 1973, it only received 135. Of those cars received, Cascade leased a total of 42 between May and December 1973 (breakdown of the number of leases signed: June--9, July--13, August--5, September--3, October--8, and November--4). In July/August 1973, Delahanty sent a letter to Kearney requesting additional operating capital for Cascade. Delahanty's payments on all of...

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