In re Paolino

• Decision Date: 10 July 1987
• Docket Number: Adv. No. 86-0063G.,Bankruptcy No. 85-00759G
• Citation: 75 BR 641
• Parties: In re Richard G. PAOLINO and Elaine M. Paolino, Debtors. John F. FLUEHR, Jr., Richard J. Fluehr and Mary Lou Fluehr, his wife, and Theodore Fluehr and Joyce M. Fluehr, his wife, Plaintiffs, v. Richard G. PAOLINO and Elaine M. Paolino, Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

75 B.R. 641 (1987)

In re Richard G. PAOLINO and Elaine M. Paolino, Debtors John F. FLUEHR, Jr., Richard J. Fluehr and Mary Lou Fluehr, his wife, and Theodore Fluehr and Joyce M. Fluehr, his wife, Plaintiffs, v. Richard G. PAOLINO and Elaine M. Paolino, Defendants.

Bankruptcy No. 85-00759G, Adv. No. 86-0063G.

United States Bankruptcy Court, E.D. Pennsylvania.

July 2, 1987.

Opinion filed July 10, 1987.

William M. Shields, Monteverde, Hemphill, Maschmeyer & Obert, Philadelphia, Pa., for plaintiffs, John F. Fluehr, Jr., Richard J. Fluehr and Mary Lou Fluehr, his wife, and Theodore Fluehr and Joyce M. Fluehr, his wife.

Jonathan H. Ganz, Pincus, Verlin, Hahn & Reich, P.C., Philadelphia, Pa., for the debtor/defendant, Richard G. Paolino.

Jeffrey Meyers, Charleston & Fenerty, Philadelphia, Pa., for wife/debtor/defendant, Elaine M. Paolino.

Michael H. Reed, Pepper, Hamilton & Scheetz, Philadelphia, Pa., for the trustee, Herbert Brener.

ORDER

AND NOW, this 2 day of July, 1987, upon consideration of Elaine M. Paolino's motion for summary judgment, the response thereto and the parties' memoranda of law, it is ORDERED that the motion is DENIED. Opinion to follow.

OPINION

BRUCE FOX, Bankruptcy Judge:

This motion for summary judgment arises in an action to determine the dischargeability of a debt. The plaintiffs are John F. Fluehr, Jr., Richard J. Fluehr, Mary Lou Fluehr, Theodore Fluehr and Joyce M. Fluehr; the defendants are the debtors, Dr. Richard G. Paolino and his wife, Elaine M. Paolino ("Mrs. Paolino"). This adversary proceeding is an unfortunate byproduct of the debtors' acquisition of a property in Bucks County, PA, known as the William Tennent Middle School ("the school property") and the plaintiffs' participation in the transaction as guarantors.¹

Trial of this matter is scheduled for July 15, 1987. On July 2, 1987, I entered an order denying Mrs. Paolino's motion for summary judgment. In this opinion, I explain the basis for the denial of the motion.²

I.

In their complaint, the plaintiffs make the following allegations.

The plaintiffs are the owners and operators of two funeral homes, one located in Philadelphia, and the other located in Bucks County. In the latter part of 1981, Dr. Paolino advised one of the plaintiffs that he was planning on purchasing the school property for the purpose of developing a life care facility that would be known as Brookhaven Estates. Over the next eight or nine months, there were several meetings between Dr. Paolino and one or more of the plaintiffs. Various other persons also attended these meetings.

As a result of these meetings, the plaintiffs provided Dr. Paolino with financial assistance in the Brookhaven endeavor. They executed a note and guarantees in favor of Univest Mortgage Co. ("Univest") in the amount of $1,750,000.00 in connection with the transaction; that indebtedness was secured by mortgages on more than twenty parcels of real estate owned by the plaintiffs. They also pledged certificates of deposit in the amount of $130,000.00 as collateral for a loan issued by Continental Bank ("Continental"). In return for this assistance, the plaintiffs were to receive certain payments to be made on a monthly basis over a ten year period. The terms of the Fluehr-Paolino relationship were memorialized in a written agreement dated September 13, 1982.

The plaintiffs further allege that Dr. Paolino made various misrepresentations which induced them to provide financial backing to the project. They assert that Dr. Paolino represented that: (1) he already owned the school property at the time the plaintiffs executed the guarantee and mortgage documents; (2) the financing guarantees were needed for construction of the project; (3) he had a commitment for a construction loan and permanent financing for the project; and (4) that in the event of a default on the Univest obligation, the plaintiffs' funeral home would not be subject to Univest's claims and only the real property would be exposed to liability. In fact, according to the plaintiffs, the Paolinos were not the owners of the subject property; the loans were needed to purchase the property, not for construction of the project; the Paolinos had no permanent financing commitments; and all of the plaintiffs' property is subject to Univest's claim. The plaintiffs claim that after the Paolinos defaulted on their obligations to Continental and Univest, Continental proceeded against the certificates of deposit and Univest confessed judgment against the plaintiffs on notes totalling almost $2,000,000.00. As a result, the plaintiffs allege that their credit has been impaired, all of their real estate holdings, including their funeral homes, have been encumbered by the Univest mortgage and they have expended $50,000.00 in legal fees in resisting Univest's collection efforts.

The plaintiffs concede that Mrs. Paolino did not personally make any representations to them or, in fact, ever communicate with them. They also concede that they cannot establish that Mrs. Paolino discussed with her husband or had any knowledge of any of the representations he made to the plaintiffs. Their legal theory for requesting a determination that her obligation to them is nondischargeable is that Dr. Paolino was acting as Mrs. Paolino's agent in the transaction and that his fraud may be imputed to Mrs. Paolino under 11 U.S.C. § 523(a)(2)(A).

In her motion for summary judgment, Mrs. Paolino makes two arguments. She asserts that the record establishes that Dr. Paolino was not acting as her agent with respect to the Brookhaven project. She also argues that even if he were her agent, as a matter of law, his fraud may not be imputed to her.

II.

Fed.R.Civ.P. 56, which is incorporated by Bankr.Rule 7056, provides that summary judgment shall be granted if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. As the Third Circuit Court of Appeals recently reiterated, the motion "may be granted only if, as a matter of law, viewing all the evidence which has been tendered and should have been admitted in the light most favorable to the party opposing the motion, no jury could decide in that party's favor." Tigg Corp. v. Dow Corning Corp., 822 F.2d 358, 361 (3d Cir.1987); accord, Goodman v. Mead Johnson and Co., 534 F.2d 566 (3d Cir. 1976), cert. denied, 429 U.S. 1038, 97 S.Ct. 732, 50 L.Ed.2d 748 (1977); In re H & H Beverage Distributors, Inc., 65 B.R. 243 (Bankr.E.D.Pa.1986). In passing on a summary judgment motion, the court may consider the pleadings, depositions, answers to interrogatories, admissions and affidavits submitted by or on behalf of the parties. Fed.R.Civ.P. 56.

In this case, Mrs. Paolino contends that the debt cannot be held nondischargeable as to her because her husband was not acting as her agent and, as it is conceded, she had no personal communication with the plaintiffs. In support of her motion, Mrs. Paolino submitted a copy of her pretrial deposition. The plaintiffs submitted no evidentiary material in opposition. See Fed.R.Civ.P. 56(e) (after summary judgment motion is made and supported by competent evidence, opposing party may not rest on his pleadings but must set forth specific facts showing that there is a genuine issue of fact). After considering Mrs. Paolino's deposition testimony, I conclude that there is a disputed issue of fact which precludes a determination on the agency issue.

In an earlier opinion in an unrelated proceeding in this bankruptcy case, I summarized the legal precepts which must be applied to determine whether Dr. Paolino was acting as his wife's agent:

Under Pennsylvania law, there is no automatic, general agency arising from the marital relationship. However, there is a presumption with respect to entireties property that either spouse has the power to act for both without any specific authority, so long as the acting spouse\'s action benefits both. This presumption, with respect to entireties property, does not require knowledge on the part of the other spouse. The presumption can be rebutted by evidence that the acting spouse was not authorized to act for both. See J.R. Christ Construction Co., 426 Pa. 343, 232 A.2d 196 (1967); Bradney v. Sakelson, 325 Pa.Super. 519, 473 A.2d 189 (1984).

In re Paolino, 72 B.R. 323, 328 (Bankr.E. D.Pa.1987), aff'd, ___ B.R. ___, C.A. No. 87-2794 (E.D.Pa., June 25, 1987).³

The plaintiffs, relying on the foregoing presumption under Pennsylvania law, request that I make a finding that Dr. Paolino was acting as Mrs. Paolino's agent in this matter, even though they had no communication with her. Cf. Viger v. Comercial Insurance Co., 707 F.2d 769 (3d Cir.1983) (summary judgment may be rendered in favor of nonmoving party). Certainly, there is evidence in the record which can support such a conclusion. The debtors acquired the school property as tenants by the entireties. They also purchased more than ten other investment properties jointly. Mrs. Paolino stated in her deposition that her husband handled all matters relating to the various investment properties, such as negotiating leases, collecting rents, paying taxes and effecting repairs. With respect to the school property, specifically, she relied on Dr. Paolino to make all of the arrangements for its acquisition. She did not independently review any of the documents at settlement; rather, she signed them because her husband signed them.

In short, if a presumption of agency is applicable in this case, Mrs. Paolino did not rebut the presumption in her deposition testimony. To the contrary, her testimony tended to confirm the existence of an agency relationship. Therefore, at a minimum, Mrs. Paolino has not established that, viewing the evidence most favorably toward the plaintiffs, she is entitled to the conclusion that her husband did not act as her agent, as a matter of law. Thus, her motion on the point must be denied.

Despite the plaintiffs...