McShea v. City of Philadelphia

• Decision Date: 27 May 2010
• Docket Number: No. 24 EAP 2007,No. 26 EAP 2007.,No. 25 EAP 2007,24 EAP 2007,25 EAP 2007,26 EAP 2007.
• Parties: Gerard McSHEA, Charles A. Gaskins, and Emroyal Jones, Individually and on Behalf of All others Similarly Situated, Appellants v. The CITY OF PHILADELPHIA, Appellee. Gerard McShea, Charles A. Gaskins, and Emroyal Jones, Individually and on Behalf of All others Similarly Situated, Appellants v. The City of Philadelphia, Appellee. Gerard McShea, Charles A. Gaskins, and Emroyal Jones, Individually and on Behalf of All others Similarly Situated, Appellants v. The City of Philadelphia, Appellee.
• Court: Pennsylvania Supreme Court

995 A.2d 334

Gerard McSHEA, Charles A. Gaskins, and Emroyal Jones, Individually and on Behalf of All others Similarly Situated, Appellants
v.
The CITY OF PHILADELPHIA, Appellee.
Gerard McShea, Charles A. Gaskins, and Emroyal Jones, Individually and on Behalf of All others Similarly Situated, Appellants
v.
The City of Philadelphia, Appellee.
Gerard McShea, Charles A. Gaskins, and Emroyal Jones, Individually and on Behalf of All others Similarly Situated, Appellants
v.
The City of Philadelphia, Appellee.

No. 24 EAP 2007, No. 25 EAP 2007, No. 26 EAP 2007.

Supreme Court of Pennsylvania.

Argued April 14, 2008.

Resubmitted August 21, 2009.

Decided May 27, 2010.

995 A.2d 335

COPYRIGHT MATERIAL OMITTED

995 A.2d 336

Paul N. Bonavita, Steven E. Angstreich, Levy Angstreich Finney Baldante Rubenstein & Coren, P.C., Philadelphia, Michael Coren, for Gerard McShea, Charles A. Gaskins and Emroyal Jones, et al.

Eleanor N. Ewing, Philadelphia, Donald C. Marino, City of Philadelphia Law Department, for the City of Philadelphia in No. 24 EAP 2007.

Eleanor N. Ewing, Philadelphia, Michael F. Eichert, City of Philadelphia Law Department, for the City of Philadelphia in Nos. 25 EAP 2007 and 26 EAP 2007.

BEFORE: CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, ORIE MELVIN, JJ.

OPINION

Justice EAKIN.

From 1987 to 1994, appellants, a class of 12,000 current and former City of Philadelphia employees, participated in a voluntary Deferred Compensation Plan, deferring receipt of certain compensation which was deposited in various investments. The City's Director of Finance administered the Plan and had authority to designate a third party to handle routine management. From 1984 to 1992, the Public Employees Benefit Services Corporation (PEBSCO) contracted with the City to serve as the Plan's third party administrator.

PEBSCO charged an annual fee for its services, which included selecting and promoting investment products, and providing investment guidance to Plan participants. In 1989, the contract was modified to include a surrender fee, equal to 5% of the Plan's assets, payable to PEBSCO if the City terminated or failed to renew the contract without cause. In 1992, the City wanted to terminate its contract with PEBSCO without having to pay the surrender fee. Without the Director of Finance's approval, the City used Plan funds to hire outside counsel to accomplish this. The City terminated the contract "for cause," and sued PEBSCO in federal court for breach of contract;¹ PEBSCO counterclaimed. The parties settled; the City agreed to pay PEBSCO $200,000 in exchange for waiver of the surrender fee balance.

Meanwhile, the City redirected 85% of Plan funds, which had been invested with

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Lincoln National at 7.3% interest through 1994, to an account offered by Constitution Life Company paying 4.88% interest. When Constitution's bond rating was downgraded, Constitution returned these funds to the City. For eight days, the City held these funds in a non-interest bearing account, later reinvesting them in an account paying 3.85%. Consequently, the Plan earned $3.5 million less through 1994 than it would have, had it remained with Lincoln

Appellants filed this class action against the City in August, 1994. They alleged three counts in their amended complaint filed one month later. Count I alleged breach of fiduciary duty, and Count II requested an equitable accounting and audit of the Plan's assets based on the alleged fiduciary duty violation set forth in Count I. Only Count III is relevant here, incorporating the previously alleged counts and averring:

48. In taking the actions and/or failing to take actions alleged above, the Defendants acted in a grossly negligent and reckless fashion in wanton disregard of the Plan and it's sic participants' rights and to the safety and productivity of the assets of the Plan.

49. As a result of the defendant's gross negligence and/or recklessness as aforesaid, the Plan and its participants have suffered injuries that are compensable in damages in an amount in excess of $50,000.00.

WHEREFORE, Plaintiffs individually and on behalf of all Plan participants and the class sought to be certified herein demands judgment against the City in an amount in excess of $50,000.00, to-gether with punitive damages, attorney's fees, interest, costs and such further relief as the Court deems appropriate.

Amended Class Action Complaint, 9/9/94, at 20-21. Appellants attached the Plan document to their amended complaint.

The City filed preliminary objections, averring appellants failed to plead with sufficient specificity in Count III the acts the City allegedly committed in a grossly negligent fashion. See Pa.R.C.P. 1028(a)(3) (preliminary objection for insufficient specificity in pleading). Appellants countered that Count III explained the City's actions were grossly negligent considering the City's duties under the Plan. The City filed a memorandum supplementing its preliminary objections, arguing the Tort Claims Act's governmental immunity provision barred Count III.² Citing City of Philadelphia v. Gray, 534 Pa. 467, 633 A.2d 1090 (1993), the City claimed it could not waive its governmental immunity despite any Plan language suggesting otherwise. See id., at 1093-94 (holding ordinance did not abrogate immunity afforded City by Tort Claims Act).

The trial court dismissed the City's preliminary objections. Following extensive discovery, both parties filed cross-motions for summary judgment. The trial court granted the City's summary judgment motion on Counts I and II because they sounded in tort and were thus barred by the Tort Claims Act. Interpreting Count III as a contract claim, the trial court denied summary judgment in the City's favor because Tort Claims Act immunity does not attach to contract claims. Following a bench trial, the trial court held the City was "grossly negligent, in breach

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of its contract with appellants," in managing the Plan. See Trial Court Opinion, 5/12/05, at 2. The trial court awarded appellants $3.7 million in compensatory damages. Trial Court Molded Verdict, 5/17/05, at 1-2

The Commonwealth Court affirmed the trial court's summary judgment rulings on Counts I and II, but reversed the trial court's summary judgment order on Count III. The Commonwealth Court reasoned:

Review of the complaint's averments reveals no explicit assertion of contract breach and no specific identification of any breached term of the Plan.... In concluding that the cause of action in Count III, which is clearly premised on allegations of carelessness in overseeing the administration of the Plan, survives immunity as a contract action, we must reluctantly conclude that common pleas erred. While we must admit to finding common pleas' result appealing from the standpoint of equity and justice, we simply cannot read the above language as stating even an implied claim for breach of contract; it plainly states a cause of action for negligence.

City of Philadelphia v. McShea, Nos. 1252, 1333, and 1334 C.D.2005, unpublished memorandum at 14-15, 907 A.2d 682 (Pa. Cmwlth. filed September 13, 2006). Because Count III stated a tort claim, it fell within the Tort Claims Act's grant of governmental immunity. The court determined the Plan's language, specifically § 7.04,³ did not waive the City's immunity. Id., at 15-16, 907 A.2d 682. Furthermore, the court concluded appellants' claim did not fall within any of § 8542's exceptions to governmental immunity. Id., at 16, 907 A.2d 682; see 42 Pa.C.S. § 8542 (enumerating various exceptions to governmental immunity).

We granted allocatur to determine "whether the Commonwealth Court misapplied the pleading requirements of Pa.R.C.P. 1019 in interpreting Count III of appellants' amended complaint as asserting a tort claim rather than a contract claim," and "whether the Commonwealth Court misapplied Pennsylvania law when it held that the City was immune from liability under the Tort Claims Act." McShea v. City of Philadelphia, 593 Pa. 361, 930 A.2d 1252 (2007) (table). Our standard of review is "limited to determining whether the trial court's findings are supported by competent evidence, whether errors of law have been committed, or whether the trial court's determinations demonstrate a manifest abuse of discretion." Commonwealth, Department of Transportation, Bureau of Driver Licensing v. Tarnopolski, 533 Pa. 549, 626 A.2d 138, 140 (1993).

When this Court entertains an appeal originating from a non-jury trial, we are bound by the trial court's findings of fact, unless those findings are not based on competent evidence. The trial court's conclusions of law, however, are not binding on an appellate court because it is the appellate court's duty to determine if the trial court correctly applied the law to the facts.

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Triffin v. Dillabough, 552 Pa. 550, 716 A.2d 605, 607 (1998) (citations omitted).

Appellants assert Count III was properly pled as a contract claim pursuant to Rule 1019(a). See Pa.R.C.P. 1019(a) ("The material facts on which a cause of action or defense is based shall be stated in a concise and summary form."). They contend they pled sufficient facts to demonstrate Count III was a contract claim based on § 7.04 of the Plan, which the trial court discerned to be a contract between the City and Plan participants, under which the City agreed to be liable for losses caused by its gross negligence. Appellants claim their omission of the words "contract" or "breach of contract" was irrelevant because they pled the requisite facts on which a contract cause of action is based. They rely on Kuisis v. Baldwin-Lima-Hamilton Corporation, 457 Pa. 321, 319 A.2d 914 (1974), which held a party's failure to allege a specific cause of action will not prove fatal to its claims. They argue a contract claim lies where a contracting party negligently performed its contractual undertaking in general, relying on Bailey v. Tucker, ...