Lomas v. Kravitz

• Decision Date: 21 December 2015
• Docket Number: No. 2391 EDA 2011,2391 EDA 2011
• Parties: Roy H. LOMAS, Sr., d/b/a/ Roy Lomas Carpet Contractor, Appellee v. James B. KRAVITZ, Andorra Springs Development, Inc., Cherrydale Construction Co., Eastern Development Enterprises Inc., and Kravmar, Inc., Appellants.
• Court: Pennsylvania Superior Court

130 A.3d 107

Roy H. LOMAS, Sr., d/b/a/ Roy Lomas Carpet Contractor, Appellee

v.James B. KRAVITZ, Andorra Springs Development, Inc., Cherrydale Construction Co., Eastern Development Enterprises Inc., and Kravmar, Inc., Appellants.

No. 2391 EDA 2011

Superior Court of Pennsylvania.

Argued Oct. 15, 2014.

Filed Dec. 21, 2015.

Thomas A. Leonard, Philadelphia, for appellants.

Paul R. Rosen, Philadelphia, for appellee.

BEFORE: BENDER, P.J.E., BOWES, J., PANELLA, J., DONOHUE, J., SHOGAN, J., ALLEN, J., LAZARUS, J., WECHT, J., and STABILE, J.

OPINION BY PANELLA, J.

This appeal concerns two phases of the underlying trial: the liability verdict and the damages assessment. As detailed below, the entire Court affirms the liability verdict entered by the Honorable Thomas P. Rogers of the Court of Common Pleas of Montgomery County. Accordingly, our holding and reasoning in that regard is binding and precedential. See Commonwealth v. Brown, 23 A.3d 544, 556 (Pa.Super.2011) (en banc ). The reasoning for our affirmance of the liability verdict follows these introductory words.

The damages verdict is affirmed by an equally divided Court. Our holding and reasoning with respect to damages is, therefore, non-precedential and binding only on the parties. See id.

In relation to the damages verdict, the issue on appeal was whether Judge Rogers, as well as the entire Montgomery County bench, should have recused. The Majority holds that Appellants' recusal motion was patently untimely and, therefore, waived. We further conclude that the recusal motion was a baseless attack on the trial court following an unfavorable verdict on liability, made at the expense of the integrity of the Montgomery County trial bench. This is a waiver case, not an "appearance" case. Judge Rogers, as the trial judge, made every disclosure that was required of him. Appellants concede that there is no evidence that Judge Rogers showed bias, unfairness, or prejudice.

Additionally, under the facts of this case, we cannot agree with the Dissent that a conflict, which affects but a single judge, leads to the recusal of the entire trial bench of over twenty trial judges.¹

Finally, any result other than an affirmance would absolve Kravitz for his campaign of incessant use and abuse of our civil litigation processes.

The Parties on Appeal

Appellants, James B. Kravitz, Andorra Springs Development, Inc. ("Andorra Springs"), Cherrydale Construction Company ("Cherrydale"), and Kravmar, Inc., formerly known as Eastern Development Enterprises, Inc. ("Eastern"), collectively known as the "Kravitz Entities," appeal from the judgment entered on August 16, 2011, in favor of Appellee Roy H. Lomas, Sr., d/b/a/ Roy Lomas Carpet contractor ("Lomas"), in the amount of $1,688,379.10.

Summary

In 1994, Appellant Cherrydale and Appellee Lomas entered into a contract in which Appellee agreed to supply and install floor coverings in new construction homes being built by Cherrydale. Appellee began work immediately, but shortly thereafter Cherrydale breached the contract and Appellee stopped work. At that point, Cherrydale owed Appellee $30,913.00. The matter went to arbitration and a panel of arbitrators unanimously concluded that Cherrydale had breached the contract. After the entry of an interim award of $30,913.00 in Appellee's favor, Cherrydale petitioned to vacate the interim award.

In September 1998, the arbitration panel entered a final award totaling $200,601.61, in accordance with the Contractor and Subcontractor Payment Act ("CASPA"), 73 P.S. §§ 501 –516, which included the $30,913 balance due for work performed plus compensatory damages, attorney's fees, costs, and interest calculated in accordance with CASPA. Cherrydale filed a petition to strike the final award which was ultimately denied on October 31, 2001. While the petition was pending, Appellant Kravitz transferred all assets out of Cherrydale, Andorra Springs, and Eastern to himself and other entities under his control.

In March 2000, Appellee initiated the instant action seeking to pierce the corporate veil of the Kravitz Entities and alleging fraud and fraudulent transfers. Several years of legal proceedings and discovery ensued before a bench trial commenced in January 2007. The parties agreed to bifurcate the trial, and after the court entered a liability verdict and order in favor of Appellee and against Appellants in July 2007, the damages phase commenced in September 2007.

After the close of the record following the second phase of the trial, but before the trial court rendered its final verdict, Appellants sought recusal of the entire Montgomery County Court of Common Pleas. More delays ensued before the trial court denied the motion. On April 29, 2011, the trial court issued extensive findings of fact and conclusions of law determining that Appellant Kravitz had intentionally deprived Cherrydale of assets with which to pay Appellee, and had intentionally and fraudulently disregarded the corporate form, intermingling his and his company's affairs to perpetrate a fraud and injustice. The trial court confirmed the initial arbitration award of $200,601.61 and awarded compensatory and punitive damages, attorney's fees, interest, and penalties for a total award of $1,688,379.10. After the entry of judgment on August 16, 2011, Appellants timely appealed to this Court. A three-judge panel of this Court affirmed after adopting the trial court's Pa.R.A.P.1925(a) opinion as its own. This Court then granted reargument, en banc.

Background

The Kravitz Entities

From 1994 to 1998, Appellant James B. Kravitz was the sole officer, director, and 100% shareholder of a group of companies known collectively as the Andorra Group.² The Andorra Group was comprised of many subchapter S corporations involved in the home building business including, but not limited to, Appellants Andorra Springs, Cherrydale, and Eastern. Kravitz did not hold corporate meetings or otherwise conform to standard practices required of such entities. Appellant Kravitz personally owned The Reserve at Lafayette Hill in Whitemarsh Township (the "Reserve"), a large parcel of land which he divided into six sections for residential development. He contributed Sections I, II, and III, valued at $3.2 million, to Andorra Springs, which had been formed for the sole purpose of owning Sections I, II, and III and developing single-family housing there. Kravitz kept Sections IV, V, and VI for himself. Sometime in 1996, Kravitz entered into an option agreement with Pulte Home Corporation of Delaware Valley ("Pulte") whereby Pulte purchased Sections IV, V, and VI from Kravitz.

Appellant Cherrydale was formed in 1989 but was inactive until 1993 when it contracted with Andorra Springs to build single-family homes. Andorra Springs was Cherrydale's only customer. Cherrydale had no capital, and the contract between Cherrydale and Andorra Springs had no inherent value to Cherrydale such that it could obtain a loan from a bank. Cherrydale was to receive payments directly from Andorra Springs for costs incurred in connection with building the homes.

Appellant Eastern served as the management and payroll company for the Andorra Group. Steven A. Braun was the Chief Financial Officer of Eastern from 1992 to 1996. After leaving his employment with Eastern, Braun was retained by Kravitz to offer accounting advice and prepare the tax returns for the companies within the Andorra Group.

Appellee's Involvement and Subsequent Kravitz Actions

On November 10, 1994, Cherrydale, as the contractor for Andorra Springs, contracted with Appellee to supply and install floor coverings in its new homes. Appellee began work immediately but stopped in December 1994 because Cherrydale had not paid him. At that point, Cherrydale owed Appellee $30,913.00. In January 1995, Appellee demanded that Appellant Cherrydale submit to arbitration in accordance with their contract. Thomas C. Branca, Esq., represented Appellee at the arbitration. On May 24, 1996, the arbitration panel issued an interim partial award, finding that Cherrydale had breached its contract with Appellee and had violated CASPA, 73 P.S. §§ 501 –516. Immediately thereafter, Kravitz filed a petition seeking to have the interim award vacated.

During the pendency of that petition, Appellant Kravitz and his accountant decided that due to allegedly declining financial conditions Cherrydale, Andorra Springs, and Eastern were each insolvent. Accordingly, on December 20, 1996, Kravitz, as sole shareholder, director and secretary of each company, executed a "Combined Unanimous Consent of Shareholders and Directors" for each of the three companies terminating their business activities. He also directed each company to take the necessary steps to wind-up and terminate all residential construction and related business activity and sell any remaining assets associated therewith, and "to pay, to the extent possible, the substantial amounts of intercompany accounts payable or to otherwise cancel those accounts payable." On December 31, 1996, Cherrydale wrote off debts of $2,159,575 owed to it by Andorra Springs. On January 4, 1997, Kravitz authorized Cherrydale to cancel both its accounts payable and accounts receivable.³

Kravitz Entities' Inter–Company Transactions

Funds that were supposed to flow from Andorra Springs, the owner, to Cherrydale, the contractor, were never paid. By the end of 1996, Andorra Springs owed Cherrydale $3.7 million for the homes Cherrydale had built.⁴ In addition, Cherrydale had incurred $714,000 in costs relating to the site improvements to Sections I, II, and III of the Reserve that benefited Sections IV, V, and VI. However, at the same time that Andorra Springs was indebted to Cherrydale for the costs of constructing homes, Andorra Springs loaned Eastern approximately $5.8 million over and above what it owed Eastern for management services related to the Reserve. Eastern used the money from Andorra Springs to fund Kravitz's other interests, including, but...