Eigen v. TEXTRON LYCOMING RECIPROCATING

• Decision Date: 20 April 2005
• Citation: 2005 Pa. Super. 141,874 A.2d 1179
• Parties: Albert D. EIGEN, Executor of the Estate of Martin Eigen and Joan Eigen, Deceased, and Albert D. Eigen, Administrator of the Estate of Mollie H. Eigen, Deceased v. TEXTRON LYCOMING RECIPROCATING ENGINE DIVISION, a Division of Avco Corporation, Textron, Inc., Avco Corporation, Flightways of Long Island, Inc. d/b/a Million Air Farmingdale, Aircraft Rentals, Inc., Executive Air Support, Inc. d/b/a Texas Air Support, Inc., Precision Airmotive Corporation, Zenith Fuel Systems, Inc. Precision Aerospace Corporation, Purolator Products Company (Formerly Facet Enterprises, Inc.), Facet Aerospace Products Company, Facet Fuel Systems, Inc., Facet Enterprises, Inc., Marvel Schebler, a Division of Borgwarner Corporation, Eaton Corporation Appeal of: PRECISION AIRMOTIVE CORPORATION
• Court: Pennsylvania Superior Court

874 A.2d 1179

2005 Pa. Super. 141

Albert D. EIGEN, Executor of the Estate of Martin Eigen and Joan Eigen, Deceased, and Albert D. Eigen, Administrator of the Estate of Mollie H. Eigen, Deceased v. TEXTRON LYCOMING RECIPROCATING ENGINE DIVISION, a Division of Avco Corporation, Textron, Inc., Avco Corporation, Flightways of Long Island, Inc. d/b/a Million Air Farmingdale, Aircraft Rentals, Inc., Executive Air Support, Inc. d/b/a Texas Air Support, Inc., Precision Airmotive Corporation, Zenith Fuel Systems, Inc. Precision Aerospace Corporation, Purolator Products Company (Formerly Facet Enterprises, Inc.), Facet Aerospace Products Company, Facet Fuel Systems, Inc., Facet Enterprises, Inc., Marvel Schebler, a Division of Borgwarner Corporation, Eaton Corporation

Appeal of: PRECISION AIRMOTIVE CORPORATION

Superior Court of Pennsylvania.

Argued January 11, 2005.

Filed April 20, 2005.

Reargument Denied June 16, 2005.

Patrick Matusky, Philadelphia, for appellant.

Bradley J. Stoll, Philadelphia, for Eigen, appellee.

Before: LALLY-GREEN, BOWES, and KELLY, JJ.

LALLY-GREEN, J.:

¶ 1 Appellant, Precision Airmotive Corporation ("Precision"), appeals from the order entered on May 5, 2004. This order granted a Petition to Enforce Settlement filed by plaintiff/appellee Albert D. Eigen ("Eigen"). The order also denied Precision's Petition for Relief. We affirm the order insofar as it grants the Petition to Enforce Settlement, and reverse the order insofar as it denies the Petition for Relief. We also remand for an evidentiary hearing.

¶ 2 The factual and procedural history of the case is somewhat complex. The case arises from an airplane crash on May 28, 1999. The pilot was Martin Eigen ("Martin"). The plane had two passengers: Martin's wife, Joan, and Martin's mother, Mollie. All three occupants died in the crash. Martin was flying a rented Piper aircraft at the time.

¶ 3 Eigen, Martin's brother, is the executor of Martin's and Joan's estates. He is also the administrator of Mollie's estate. Eigen filed suit against a number of parties, including: (1) Textron Lycoming ("Textron"), the manufacturer of the plane; (2) Flightways of Long Island ("Flightways"), the organization that maintained and rented the plane; and (3) Precision, the manufacturer/overhauler/installer of the carburetor on the plane. Precision filed a counterclaim against Martin's estate. Precision argued that it was entitled to contribution or indemnity insofar as Martin's own negligence contributed to Mollie's and Joan's deaths. In response to this counterclaim, Eigen specifically denied that Martin was negligent.

¶ 4 Trial began on January 5, 2004. On January 26, 2004, before the trial was complete, all parties entered into a settlement agreement. Eigen contends that the total settlement figure was $4,333,333.00. Precision contends that the total settlement figure was between $4,000,000.00 and $4,333,333.00. Both parties agreed that Precision settled for $1,333,333.00.¹ Precision did not actually tender this settlement amount to Eigen. Precision claims that it learned, mere hours after settlement, that Eigen had induced the settlement by fraud.

¶ 5 On February 27, 2004, Eigen filed a Petition to Enforce Settlement. Essentially, Eigen argued that Precision should tender payment because the parties had entered into an enforceable settlement. On March 18, 2004, Precision filed an answer to the petition.

¶ 6 On the same day, Precision filed a Petition for Relief. In this Petition, Precision alleged the following. After the settlement, Precision learned for the first time that Martin had an insurance policy on his own aircraft (the "Beech Duke").² This policy may provide $2 million in coverage to Martin's passengers, regardless of which plane Martin was flying. Precision claimed that it had asked for this type of insurance coverage in discovery. Eigen allegedly acted in bad faith by failing to produce the policy, and by falsely stating during discovery that no coverage existed.³ ¶ 7 Precision also argued that it recently learned that Eigen was preparing to pursue a claim against the Beech Duke policy. Specifically, Eigen was preparing to claim that Martin's negligence resulted in the death of Joan and Mollie. As noted above, Eigen had previously denied that Martin was negligent in any way. Precision argued that if it had known about the Beech Duke coverage, "the settlement amounts Precision would have been willing to contribute for the claims of the Joan and Mollie Eigen estates would have been substantially less. Furthermore, Precision would not have agreed to a joint tortfeasor release and would have insisted on a substantial contribution by the insurer for Martin Eigen's estates to the overall settlement." Petition for Relief, pp. 11-12, ¶ 29.

¶ 8 Precision has consistently maintained that it does not want to rescind the underlying settlement. Rather, Precision wants to affirm the settlement and sue for damages arising from Eigen's alleged fraud. See, e.g., N.T., 4/27/2004, at 30; Petition for Relief at 19, ¶¶ 50-51; Precision's Brief at 38.

¶ 9 The trial court held oral argument on April 27, 2004. The court did not hold an evidentiary hearing. On April 29, 2004, the court issued an order granting Eigen's Petition to Enforce Settlement, and denying Precision's Petition for Relief. This order was docketed on May 5, 2004. This appeal followed.⁴

¶ 10 Precision raises seven issues in its Statement of Questions Involved:

1. Is a party entitled to relief when another party misrepresents and conceals material facts in pretrial proceedings, discovery and settlement negotiations?

2. Is the concealment of insurance material as a matter of law?

3. Can the trial court resolve genuine issues of material fact relating to a settlement agreement without allowing discovery and holding an evidentiary hearing?

4. Does the record evidence support the trial court's finding that there is no insurance coverage under the USAU policy for Martin Eigen's liability when flying a substitute aircraft or another aircraft he did not own?

5. Does the record evidence support the trial court's finding that the estates' concealments and misrepresentations were not material, and does it support the factual assumptions the trial court made in support of this finding?

6. Does the record evidence support the trial court's finding that Precision sought to rescind the release?

7. Did the trial court err in failing to consider factual and legal matters pertinent to Precision's claim for relief and by failing to enter fact findings that the estates concealed the insurance coverage, the claims by the passengers' estates against the pilot's estate, and the tolling agreement?

Precision's Brief at 3.

¶ 11 We will distill Precision's seven claims into two central issues. First, we will determine whether Pennsylvania law provides any relief for fraud in the inducement of a settlement agreement, aside from the remedy of rescission.⁵ Next, we will determine whether Precision presented a sufficient showing of fraud in the inducement to justify holding an evidentiary hearing. Both issues present pure issues of law, for which we employ a de novo standard of review. See, Toy v. Metro. Life Ins. Co., 863 A.2d 1, 6 (Pa.Super.2004)

. After we have disposed of these central issues, we will briefly address miscellaneous issues raised by Eigen and the trial court.

A. Remedies for Fraud in the Inducement

¶ 12 Our Supreme Court and this Court have consistently held that the victim of fraud in the inducement has two options: (1) rescind the contract, or (2) affirm the contract and sue for damages. Scaife Co. v. Rockwell-Standard Corp., 446 Pa. 280, 285 A.2d 451, 456 (1971), cert. denied, 407 U.S. 920, 92 S.Ct. 2459, 32 L.Ed.2d 806 (1972); Skurnowicz v. Lucci, 798 A.2d 788, 795 (Pa.Super.2002); Briggs v. Erie Ins. Group, 406 Pa.Super. 560, 594 A.2d 761, 763 (1991);⁶ see also, Neuman v. Corn Exchange Nat'l Bank & Trust Co., 356 Pa. 442, 51 A.2d 759 (1947) (discussing the proper measure of damages for fraud in the inducement of a contract).

¶ 13 The trial court erroneously relied on federal authority to the contrary. The trial court wrote: "it is well-settled that a settlement will not be overturned on the basis that the opposing party failed to produce an important document that would have been relevant to the success of the plaintiff's case." Trial Court Opinion, 8/3/2004, at 4, citing, Dempsey v. Associated Aviation Underwriters, 141 F.R.D. 248 (E.D.Pa.1992), affirmed without opinion, 977 F.2d 567 (3rd Cir.1992).

¶ 14 Initially, we note that Dempsey does not stand for that proposition. Rather, Dempsey stands for two different propositions. First, Dempsey holds that the victim of the fraud may rescind the settlement, but to do so he must return the consideration he received. Dempsey, 141 F.R.D. at 249-250. This point of law, while accurate, is irrelevant. Again, Precision does not seek to rescind the settlement.

¶ 15 Next, Dempsey held that the victim does not have the option of affirming the contract and seeking consequential damages. Id. We disagree. First, we note that decisions from federal courts, other than the United States Supreme Court, are not binding on this Court. Trach v. Fellin, 817 A.2d 1102, 1115 (Pa.Super.2003) (en banc), appeal denied, 577 Pa. 725, 847 A.2d 1288 (2004).

¶ 16 Moreover, this proposition in Dempsey does not accurately reflect Pennsylvania law. Dempsey relied on Nocito v. Lanuitti, 402 Pa. 288, 167 A.2d 262 (1961). Nocito does suggest that the victim of fraud in the inducement may only rescind, or "affirm the voidable contract and waive the fraud." Nocito, 167 A.2d at 263.⁷ Assuming arguendo that Nocito stands for that proposition, we would not follow it in light of our Supreme Court's holding to the contrary ten years later in Scaife. In Scaife, our Supreme Court held that "the affirmance of a contract induced by fraud of the seller does not extinguish the right of...