Weston v. Northampton Pers. Care, Inc.

• Decision Date: 25 January 2013
• Citation: 2013 PA Super 14,62 A.3d 947
• Parties: Randall WESTON and James Strecansky, v. NORTHAMPTON PERSONAL CARE, INC. and James Kusko, Individually, Appeal of Randall Weston.
• Court: Pennsylvania Superior Court

62 A.3d 947
2013 PA Super 14

Randall WESTON and James Strecansky,
v.
NORTHAMPTON PERSONAL CARE, INC. and James Kusko, Individually,
Appeal of Randall Weston.

Superior Court of Pennsylvania.

Argued Oct. 2, 2012.
Filed Jan. 25, 2013.

[62 A.3d 948]

Douglas M. Marinos, Allentown, for appellant.

Charles E. Shoemaker, Jr., Allentown, for Northampton, appellee.

BEFORE: STEVENS, P.J., FORD ELLIOTT, P.J.E., and ALLEN, J.

[62 A.3d 949]

OPINION BY STEVENS, P.J.

Appellant, Randall Weston, challenges an August 12, 2011 entry of judgment in the Court of Common Pleas of Northampton County.¹

This matter stems from a Complaint filed by Weston and James Strecansky against Appellees James Kusko and Northampton Personal Care, Inc. (“Northampton, Inc.”).² The Complaint alleged that Weston and Strecansky are two of five limited partners in Northampton Personal Care Associates, LP (“Northampton, LP”), that Northampton, Inc. is the general partner of Northampton, LP., and that Kusko is the President of Northampton, Inc. Complaint filed 8/5/05 at 2–3. The first count of the Complaint asserted that Appellees “breached the fiduciary relationship to the Partnership” by engaging in various acts of self-dealing. Id. at 3. Although Count I claimed breaches of fiduciary duty to the Partnership, it demanded compensatory damages for Weston and Strecansky only, not for the other limited partners. Id. at 4. The second count of the Complaint alleged that the breaches of fiduciary duty were “intended to defraud plaintiffs,” and demanded “all profits obtained by the Defendants through the fraudulent conduct.” Id. at 4. ³ The Honorable Edward G. Smith has authored an extensive Pa.R.A.P. 1925(a) Opinion which contains a comprehensive explanation of the factual and procedural background of this case, making it unnecessary to set forth that history in greater detail here. Pa.R.A.P. 1925(a) Opinion filed 3/19/12 at 1–73.

On December 4, 2008, Defendant/Appellees filed a Motion for Summary Judgment, which was denied, and a non-jury trial before Judge Smith was eventually conducted in March of 2010.⁴ During the proceedings, it was clarified that Weston and Strecansky were bringing a direct action on their individual behalves, not a derivative action on behalf of the limited partnership. N.T. 3/15/10 at 5; 8, 10, 48.

In their Proposed Conclusions of Law submitted to Judge Smith at the conclusion of trial, Defendant/Appellees argued as follows with regard to the issue of Plaintiffs' standing:

4. ... Pennsylvania law has provided a mechanism for a limited partner to pursue an action on behalf of the limited partnership:

A limited partner may bring an action in the right of a limited partnership to recover a judgment in its favor if general partners with authority to do so have refused to bring the action or if an effort to cause those general partners to bring the action is not likely to succeed. The derivative action may not be maintained if it appears that the plaintiff cannot fairly and adequately represent the interests of the limited partners in enforcing the rights of the partnership.

[62 A.3d 950]

15 Pa.C.S.A. § 8591.

5. Plaintiffs Weston and Strecansky have brought claims for harm allegedly done to the Limited Partnership, but have done so in their individual capacities and not on behalf of the Limited Partnership or even on behalf of all of the limited partners.

6. Because the claims asserted may only be brought on behalf of the Limited Partnership, Plaintiffs' claims must be dismissed. Kenworthy v. Hargrove, 855 F.Supp. 101, 104 (E.D.Pa.1994).

7. Because Plaintiffs Weston and Strecansky do not have standing to pursue the claims set forth in their Complaint in their individual capacities, this action must be dismissed with prejudice. Kenworthy v. Hargrove, 855 F.Supp. 101, 104 (E.D.Pa.1994).

8. The Plaintiffs do not have standing to bring the within action in their individual capacities as direct claims against Defendants Northampton Personal. Care, Inc., and James Kusko, since the claims asserted may only be properly brought on behalf of the Limited Partnership as a derivative claim pursuant to 15 Pa.C.S.A. § 8591.

9. Any harm that has been alleged on behalf of Plaintiffs is an indirect harm to Plaintiffs, not a direct harm.

Defendant/Appellees Proposed Conclusions of Law filed 5/28/10 at 2–3. Asserting that the Pennsylvania Supreme Court had not yet provided binding authority on the issue of an individual limited partner's standing to pursue indirect claims against a general partner of a limited partnership for alleged wrongs to the limited partnership, Defendant/Appellees suggested the applicability of the decision of the Federal District Court for the Eastern District of Pennsylvania in Kenworthy, supra, as well several decisions from other states, and urged that whether an individual limited partner has the right to pursue a claim in his or her individual capacity depends on whether the injury alleged is to that individual, or to the partnership itself. Id. Weston and Strecansky's Proposed Findings of Fact, Conclusions of Law and Discussion countered that:

[t]he claims of Weston and Strecansky in the present case can are [sic] easily distinguished from the facts of Kenworthy because there is no separate action by the partnership for the same wrongdoing, and thus no risk of double recovery. Plaintiffs have direct claims against Kusko in his dual capacity as Chair of the Management Committee and President of the General Partner that this Court can rule on.

Proposed Findings of Fact, Conclusions of Law and Discussion filed 6/1/10 at 31.

After reviewing the parties' submissions, Judge Smith entered a verdict in favor of Defendant/Appellees as follows:

AND NOW, this 9th day of November, 2010, after a seven-day non-jury trial in this matter, and after reviewing the applicable record and the parties' submissions; ¹ and

IT APPEARING THAT the plaintiffs, Randall Weston (“Weston”) and James Strecansky (“Strecansky”), are two of the limited partners of the Pennsylvania limited partnership known as Northampton Personal Care Associates, L.P., and it appearing that the defendant, Northampton Personal Care, Inc., is the general partner of Northampton Personal Care Associates, L.P., and it appearing that the defendant, James Kusko, is the president of Northampton Personal Care, Inc.,² and it appearing that Northampton Personal Care Associates, L.P. is one of two general partners of Sacred Heart Assisted Living Partnerships (“SHALP I”), a Pennsylvania general partnership that owns and operates

[62 A.3d 951]

the Sacred Heart Assisted Living Faculty (“SHALF”) located in Northampton, Pennsylvania,³ and

IT APPEARING THAT the plaintiffs brought claims against the defendants for breach of fiduciary duty and fraud,⁴ and it appearing that these claims are direct claims brought in the plaintiffs' individual capacities and not derivative claims on behalf of the partnership, Northampton Personal Care Associates, L.P.; and

IT APPEARING THAT the defendants challenge the plaintiffs' standing to bring their claims in this action insofar as the defendants argue that as limited partners, the plaintiffs cannot bring direct claims against the defendants for breach of fiduciary duty and fraud; and it appearing that the plaintiffs do not have standing to bring their claims in this action as, inter alia, almost all of the particular breaches or harms complained of were not suffered directly by the individual limited partners; rather, the claims essentially allege injury to SHALP I; and it further appearing that regardless of whether the plaintiffs have standing to bring the aforementioned direct claims against the defendants, the plaintiffs have failed to establish an entitlement to relief on their claims for breach of fiduciary duty or fraud; and

IT APPEARING THAT as to the plaintiffs' causes of action for breach of fiduciary duty, the plaintiffs have not demonstrated by a preponderance of evidence that Kusko breached any fiduciary duty to the plaintiffs insofar as they did not show that Kusko abused his positions of trust or used the various resources of SHALP I to unjustly enrich himself to the plaintiffs' detriment; and it further appearing in this regard that the plaintiffs failed to prove by a preponderance of the evidence that (1) Kusko acted improperly or breached his fiduciary duty to the plaintiffs regarding the management agreement between SHALP I and Weston's management company, Northampton Village, insofar as (a) SHALP I ceased using Northampton Village as manager; (b) SHALP I replaced Northampton Village and substituted Kusko as manager of SHALF, (c.) SHALP I paid Kusko a higher fee for his managing services then [sic] it paid Weston or Northampton Village, and (d) SHALP I paid for employees that Weston had previously provided (and paid for) out of his own pocket, (2) Kusko acted improperly or breached his fiduciary duty to the plaintiffs when SHALP I entered into a twenty-year lease for the second floor of the medical office building, which he owned,⁵ (3) Kusko used partnership assets for his own benefit when SHALP I loaned $664,385 to Sacred Heart so Sacred Heart could submit a capital contribution to Sacred Heart Assisted Living Partnership II (“SHALP II”) in return for a partnership interest in SHALP II,⁶ (4) Kusko inappropriately or improperly directed or breached his fiduciary duty to the plaintiffs insofar as he required SHALP I employees assist with business activities at SHALP II or vice versa, or otherwise directed the sharing of said employees, or (5) improperly ran, operated, or chaired the management committee meetings for SHALP I, particularly insofar as the plaintiffs allege Kusko failed to notify each management committee of the membership of SHALP I and SHALP II to determine potential conflicts of interest; ⁷ and

IT APPEARING THAT the plaintiffs failed to prove by clear and convincing evidence that Kusko defrauded them; and it appearing further in...