United Brokers Mortg. Co. v. Fidelity Philadelphia Trust Co.

• Decision Date: 09 September 1976
• Citation: 26 Pa.Cmwlth. 260,363 A.2d 817
• Parties: UNITED BROKERS MORTGAGE COMPANY, Plaintiff, v. FIDELITY PHILADELPHIA TRUST COMPANY, as agent, Individually and as agent for the Public School Employes Retirement Board, et al., Defendants.
• Court: Pennsylvania Commonwealth Court

Page 817

363 A.2d 817

26 Pa.Cmwlth. 260

UNITED BROKERS MORTGAGE COMPANY, Plaintiff, v. FIDELITY PHILADELPHIA TRUST COMPANY, as agent, Individually and as agent for the Public School Employes Retirement Board, et al., Defendants.

Commonwealth Court of Pennsylvania.

Argued June 7, 1976.

Decided Sept. 9, 1976.

H. Robert Fiebach, Alan B. Rubenstein, Wolf, Block, Schorr & Solis-Cohen, Philadelphia, for Philadelphia Trust Co.

Allen C. Warshaw, Lawrence Silver, Deputy Attys. Gen., Dept. of Justice, Harrisburg, for Com.

Steven R. Waxman, Bolger & Picker, Philadelphia, Lawrence D. Levin, Bank, Shor, Levin & Weiss, Elkins Park, Charles V. Stoelker, Jr., Philadelphia, for plaintiff.

Before BOWMAN, President Judge, and CRUMLISH, Jr., WILKINSON, MENCER and BLATT, JJ.

BOWMAN, President Judge.

This matter is before us on preliminary objections to a complaint in assumpsit and trespass filed by United Brokers Mortgage Company (plaintiff). The named defendants are Fidelity Philadelphia Trust Company (Fidelity) individually and as agent of the other defendants, the Public School Employees' Retirement Board, and the State Employees' Retirement Board (collectively referred to herein as Funds).

The well pleaded factual averments of the complaint, which we accept as true for present purposes, disclose that by written contracts Fidelity is an agent for the Funds for the limited purpose of selecting and acquiring federally protected mortgages as investments for said Funds. The agency relationship is strictly controlled as the contracts between Fidelity and the Funds set forth detailed criteria for selection of mortgages and require the approval of the Funds for each specific investment. Subsequently, Fidelity as provided by the aforesaid agency contracts with the Funds, entered into several purchasing and servicing agreements (Agreements) with plaintiff, whereby Fidelity in its discretion could purchase mortgages from plaintiff and plaintiff would service said mortgages.

The dispute between the parties culminating in this litigation arose as a result of difficulties plaintiff experienced with the Federal Housing Administration (FHA), and its ultimate loss of certification as an approved FHA mortgagee. In apparent anticipation of its loss of certification, plaintiff endeavored to assign its interests in the Agreements to other certified mortgage lending companies; plaintiff allegedly entered into several contracts to assign its interests conditioned upon Fidelity's approval, however these contracts were never performed due to Fidelity's refusal to approve the assignments. The Agreements provided for such assignments with the Written consent of Fidelity. Fidelity in July 1974 gave notice of its intent to terminate the Agreements unless plaintiff was able to cure its alleged default and obtain reinstatement of its FHA certification. Fidelity terminated the Agreements on September 3, 1974.

The gravamen of the complaint is Fidelity's refusal to approve the aforementioned contracts for assignment of plaintiff's interests in the Agreements--in plaintiff's opinion an unreasonable refusal--and the accompanying termination of the Agreements by Fidelity. Count I of the complaint is in assumpsit and seeks damages for unreasonable refusal to permit assignment and unreasonable termination, and in addition contains averments that said conduct was part of a scheme by Fidelity or Fidelity and the Funds to obtain unjust enrichment. Count II of the complaint sounds in tort and alleges that Fidelity alone or with the direction or acquiesence of the Funds wrongfully and intentionally interfered with plaintiff's business, and further that defendants engaged in a course of harassing tactics to destroy plaintiff's business. Although Count II sounds in tort the material factual averments supporting this theory relate primarily to the contractual relationships between the parties.

Both Fidelity and the Funds filed preliminary objections which question this Court's jurisdiction, and raise demurrers for failure to state a cause of action. Preliminary objections of the Funds also assert sovereign immunity as to Count II of the complaint.

We first turn to the question of this Court's jurisdiction in view of the assertion by the Funds of sovereign immunity as to Count II and the exclusive jurisdiction of the Board of Arbitration of Claims ¹ (Board) as to Count I. Plaintiff would have us declare that the Funds are not the 'Commonwealth' as provided in Article I, Section 11 of the Pennsylvania Constitution and, because its claim does not arise out of a construction contract that said claim is not within the jurisdiction of the Board, thereby giving this Court jurisdiction. After reviewing the statutory provisions creating the Funds and the applicable case law, we hold that the Funds are an integral part of the Commonwealth. Therefore, as to Count I, because of the exclusive jurisdiction of the Board over contractual disputes ² with the Commonwealth, and, as to Count II, because of the constitutional shield of sovereign immunity, this Court is without jurisdiction over the Funds.

The defendant, State Employees' Retirement Board was created by the State Employees' Retirement Code, 71 Pa.C.S. § 5101 et seq. The legislation characterizes it as an independent administrative board of the Commonwealth with seven members including the State Treasurer and six appointees of the Governor. 71 Pa.C.S. § 5901(a). The Retirement Board possesses the powers and privileges of a corporation and the Attorney General is specifically designated as legal advisor. 71 Pa.C.S. § 5901(e). Most germane in this case, the financial obligations of the Retirement Board are designated to be obligations of the Commonwealth, 71 Pa.C.S. § 5951, and the legislation has also provided for appropriations for operating expenses of the Retirement Board from the General Fund. 71 Pa.C.S. § 5902(c).

The statute establishing the Public School Employees' Retirement Board is analogous in relevant parts, Public School Employees' Retirement Code, 24 Pa.C.S. § 8101 et seq., so as to make further discussion superfluous. ³ In summary, while both Funds possess certain attributes of independence they, nevertheless, retain an intimate relationship with the Commonwealth.

With this statutory background, prior to our Supreme Court's decision in Specter v. Commonwealth, 462 Pa. 474, 341 A.2d 481 (1975), any argument that the Funds were not the 'Commonwealth' would have undoubtedly been summarily rejected. See, e.g., Biello v. Pennsylvania Liquor Control Board, 454 Pa. 179, 301 A.2d 849 (1973); Brown v. Commonwealth, 453 Pa. 566, 305 A.2d 868 (1973). However, in Specter the Supreme Court stripped the Turnpike Commission of its sovereignty in concluding 'that the Commission is separate and apart from the Commonwealth and therefore may be treated differently'. 462 Pa. at 493, 341 A.2d at 490. (Footnote omitted.)

In construing the Specter decision, this Court has concluded that the Financial independence of the Turnpike Commission from the Commonwealth was the Primary factor which led the Supreme Court to conclude that the Turnpike Commission is not the 'Commonwealth'. ⁴ Kennedy v. Delaware River Joint Toll Bridge Commission --- Pa.Cmwlth. ---, 354 A.2d 52 (1976); Poklemba v. Shamokin State General Hospital, 21 Pa.Cmwlth. 301, 344 A.2d 732 (1975). In this vein, it is important to note that the Turnpike Commission, unlike the Funds, is statutorily forbidden to create any debt which obligates the Commonwealth. Section 2 of the Act on May 21, 1937, P.L. 774, As amended, 36 P.S. § 652b. Nor does the Turnpike Commission receive appropriations from the General Fund, and its financial independence is further emphasized by the requirement that the Commission reimburse the Department of Highways (now PennDOT) for expenditures made on behalf of the Commission. Sections 3(d) and 12 of the Act of 1937, 36 P.S. §§ 652c(d), 652l.

The Funds possess no such financial independence, and in fact, their economic ties with the Commonwealth are of such a conjugal nature as to render Specter inapposite.

In summary, the doctrine of sovereign immunity demands the dismissal of Count II of the complaint as against the Funds. Likewise Count I as it pertains to the Funds is not within our original jurisdiction because claims against the Commonwealth arising from contracts are exclusively within the jurisdiction of the Board of Arbitration of Claims to the extent the Legislature has waived sovereign immunity in creating said Board. See supra, note 2.

The question of the proper forum for plaintiff's complaint against Fidelity poses problems of a more vexing character. Clearly, in the absence of the Funds, this Court does not enjoy original jurisdiction over this complaint against Fidelity as it is not the 'Commonwealth' as defined in the Appellate Court Jurisdiction Act of 1970. ⁵

After careful deliberation, it appears that Count I as to Fidelity should also be heard by the Board. Fidelity, in part, is being sued as agent of the Funds, and the Funds have acted through Fidelity in most relevant instances, inextricably entwining all the defendants as to the acts which produced this law suit. In addition, Count I further links the defendants because of allegations of a scheme between Fidelity and the Funds to terminate the Agreements and obtain unjust enrichment.

Fidelity has also quite properly pointed out the sound policy in having the contractual claim heard by the Board as to all parties--to prevent the inconsistent results possible by splitting Count I between different forums. Such an anomalous situation could have the effect of nullifying the Board's exclusive jurisdiction in a case where the Board found in favor of the Funds and another forum found in favor of the plaintiff, for financial responsibility could ultimately be visited upon the Funds by concepts of respondeat superior or other theories notwithstanding a...