Felix v. Fraternal Order of Police

• Decision Date: 17 July 2000
• Citation: 759 A.2d 34
• Parties: Jonathan J. FELIX v. FRATERNAL ORDER OF POLICE, PHILADELPHIA LODGE NO. 5 v. John Shaw and Michael Borkowski. John Shaw, Appellant. Jonathan J. Felix v. Fraternal Order of Police, Philadelphia Lodge No. 5 v. John Shaw and Michael Borkowski. Fraternal Order of Police, Philadelphia Lodge No. 5, Appellant.
• Court: Pennsylvania Commonwealth Court

759 A.2d 34

Jonathan J. FELIX v. FRATERNAL ORDER OF POLICE, PHILADELPHIA LODGE NO. 5 v. John Shaw and Michael Borkowski.

John Shaw, Appellant.

Jonathan J. Felix v. Fraternal Order of Police, Philadelphia Lodge No. 5 v. John Shaw and Michael Borkowski.

Fraternal Order of Police, Philadelphia Lodge No. 5, Appellant.

Commonwealth Court of Pennsylvania.

Argued May 16, 2000.

Decided July 17, 2000.

Reargument Denied September 29, 2000.

John K. Weston, Philadelphia, for appellant, John Shaw.

Jennifer Liebman, Philadelphia, for appellant, Fraternal Order of Police Lodge No. 5.

Jeffrey Cooper, Philadelphia, for appellees.

Before SMITH, J., PELLEGRINI, J. (P.), and NARICK, Senior Judge.

NARICK, Senior Judge.

The issue presented is whether the Court of Common Pleas of Philadelphia County (trial court) erred in holding that the Fraternal Order of Police, Philadelphia Lodge No. 5 (FOP) is liable for the damages caused to Jonathan J. Felix (Felix) in the amount of $121,000.00 and, that the FOP is entitled to indemnification from John Shaw (Shaw) in the amount of $121,000.00. We hold that there is substantial evidence in the record to support the conclusions that Shaw made a misrepresentation to Felix, that Shaw is liable to Felix for Shaw's fraudulent conduct, that the FOP is vicariously liable for the acts of Shaw while he acted in his capacity as president of the FOP, and the FOP is entitled to indemnification from Shaw. Thus, the order of the trial court is affirmed.

The relevant facts of this case are as follows. The FOP is a non-profit labor organization that represents approximately 14,000 active and retired Philadelphia police officers. (Findings of Fact 2 and 3.) Shaw was the duly elected president of the FOP at all times relevant to this action and was responsible for conducting the business of the FOP. (Finding of Fact 5.) On or about November 1, 1991, Shaw signed a contract with Michael J. Borkowski (Borkowski), a licensed insurance agent, that provided that Borkowski's company, MBI Financial Services, Inc. (MBI) was designated as the exclusive agent authorized to sell insurance to FOP members (the MBI-FOP Agreement). (Findings of Fact 26 and 27.)

In or around July of 1992, Felix entered into a Pre-Incorporation and Shareholders Agreement (Felbor Agreement) with Borkowski to form a jointly-owned entity called the Felbor Corporation (Felbor). (Finding of Fact 35.) Pursuant to the Felbor Agreement, Felix's contribution to Felbor was to be $175,000.00 and Borkowski was to assign all of the rights, interest and benefits of MBI in the MBI-FOP Agreement to Felbor. (Findings of Fact 37 and 38.) On July 14, 1992, Felix obtained the FOP's consent to the assignment and received confirmation that there were no defaults known by the FOP in the MBI-FOP Agreement. The consent was signed by Shaw and Daniel J. McCormick, the duly elected Recording Secretary of the FOP. (Finding of Fact 39.) Felix made his initial investment of $122,000.00 in Felbor in reliance on the representation by the FOP that there were no known defaults in the MBI-FOP Agreement. (Finding of Fact 44.) Prior to signing the consent on July 14, 1992, the FOP knew that rent was outstanding and that Borkowski was in default. (Finding of Fact 48.)

The MBI-FOP Agreement, which was assigned to Felbor, was terminated by the FOP by letter dated October 26, 1992. (Finding of Fact 52.) The termination was a result of Borkowski's failure to pay rent to the Fraternal Order of Police Dental, Optical, and Prescription Trust Fund (DOP) for the space Borkowski used in the DOP's offices. (Finding of Fact 53.) The MBI-FOP Agreement was also terminated for failure to pay postage and for failure to pay the solicitation fee of $5.00 per member. (Finding of Fact 57.) All of the defaults on which the termination was based were known to the FOP prior to signing the consent on July 14, 1992. (Finding of Fact 58.)

In or around December 1993, Felix sued Borkowski for fraudulent misrepresentation in connection with the failed Felbor venture and obtained a judgment against Borkowski in the amount of $122,000.00. (Findings of Fact 63 and 65.) Felix has made efforts to try to execute on the judgment which he obtained but collected only $1,000.00. (Finding of Fact 66.) Felix then filed the present action against the FOP alleging that the FOP intentionally and fraudulently misrepresented facts, which induced Felix to do business with Borkowski. After a bench trial, the trial court held that Shaw is liable to Felix for Shaw's fraudulent conduct with regard to the Felix-Borkowski transaction. (Conclusion of Law 26.) The trial court also held that the FOP is vicariously liable for the acts of Shaw and thus the FOP is liable for the damages caused to Felix in the amount of $121,000.00. (Conclusions of Law 27 and 28.) Finally, the trial court held that the FOP is entitled to indemnification from Shaw in the amount of $121,000.00. (Conclusion of Law 29.) Both the FOP and Shaw filed timely appeals of the trial court's decision with this Court.

On appeal,¹ both the FOP and Shaw argue that there was not sufficient evidence presented at trial to substantiate Felix's claim of intentional and fraudulent misrepresentation. The FOP also argues in the alternative that it should not be held liable for the acts of its former president. Shaw argues in the alternative that he should not be individually liable to Felix. We shall address each issue seriatim.

The elements necessary to prove an action for fraud are: (1) a misrepresentation; (2) that if the misrepresentation was innocently made related to a matter material to the transaction, or if it was knowingly made, materially is not required; (3) an intention by the maker that the recipient will thereby be induced to act; (4) justifiable reliance by the recipient upon the misrepresentations; and (5) damage to the recipient as the proximate result. Woodward v. Dietrich, 378 Pa.Super. 111, 548 A.2d 301 (1988); Glanski v. Ervine, 269 Pa.Super. 182, 409 A.2d 425 (1979). The FOP and Shaw question the sufficiency of the evidence for each of the above elements.

The relevant part of the consent which is the subject of this case is the following:

In accordance with Paragraph 12 of the FOP Agreement, the FOP hereby consents to and approves the FOP Assignment by MBI to the Corporation and certifies that as of the date hereof, the FOP Agreement attached hereto as Exhibit "A" is a true, correct and complete copy of the FOP Agreement, is in full force and effect in accordance with its terms and that there are no defaults known to the FOP by either of the parties thereto.

(Emphasis added).

This consent was signed by Shaw, as the FOP President, and McCormick, as the FOP Recording Secretary, on July 14, 1992. By letter dated October 26, 1992, again signed by Shaw, the FOP terminated the FOP-MBI Agreement. The relevant language of the termination letter is as follows:

Termination is effective immediately, in accordance with the provisions of Paragraph 10(A) of the agreement by yourself and/or by MBI Financial Services, Inc. These breaches include, inter alia, the failure to pay rent to the FOP and/or its subsidiary organizations, in violation of Paragraph 3(I), 3(J) and 5(C) of the agreement.

The first issue on appeal is whether the consent signed by Shaw on behalf of the FOP was a misrepresentation of known facts. The trial court found that the MBI-FOP Agreement was terminated as a result of Borkowski's failure to pay rent to the DOP for the space Borkowski used in the DOP's offices and for MBI's failure to pay postage and the solicitation fee of $5.00 per member. (Findings of Fact 53 and 57.) The trial court also found that these defaults were known to the FOP prior to signing the consent of July 14, 1992. (Finding of Fact 58.) These findings of fact are supported by the testimony of Felix who testified that Shaw admitted to him in a meeting after Felix received the termination letter that the reasons for the termination was the failure to pay the rent, the postage and the solicitation fee. Felix's testimony regarding this matter was, in relevant part, as follows:

Well, initially, [Shaw] explained immediately that there was a lease, which I never knew about, that there was rent payments due which I never knew about.

He told me the existence of the lease. I don't think I saw it that meeting. He told me about the postage that was due that Borkowski did not pay.

He told me— if— under Paragraph 5b, which was not referred to in the termination letter, but it calls for, you know, M.B.I. in this

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