Finney v. Royal SunAlliance , 184 F. App'x 285 ( 2006 )

Opinions of the United
2006 Decisions States Court of Appeals
for the Third Circuit
6-28-2006
Finney v. Royal SunAlliance
Precedential or Non-Precedential: Non-Precedential
Docket No. 05-4426
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 05-4426
IN RE: DANIEL R. FINNEY,
Debtor
ESTATE OF DANIEL FINNEY
d/b/a Finney Construction,
Appellant
v.
ROYAL SUNALLIANCE INSURANCE COMPANY
a/k/a ROYAL INSURANCE COMPANY OF AMERICA;
PATRICK J. LOUGHNEY
Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil No. 04-cv-01086)
District Judge: Honorable Arthur J. Schwab
Submitted Under Third Circuit LAR 34.1(a)
May 18, 2006
Before: RENDELL and VAN ANTWERPEN, Circuit Judges,
and ACKERMAN*, District Judge.
(Filed June 28, 2006)
* Honorable Harold A. Ackerman, Senior District Judge for the District of New Jersey,
sitting by designation.
OPINION OF THE COURT
RENDELL, Circuit Judge.
The Estate of Daniel Finney (“Finney”) appeals the District Court’s grant of
summary judgment in favor of defendants Royal SunAlliance Insurance Company
(“Royal”) and Patrick Loughney (“Loughney”) on Finney’s claims of wrongful use of
civil proceedings and abuse of the legal process. We agree with the District Court’s
analysis that Finney failed to offer evidence of various required elements of each of his
claims, and we accordingly will affirm.
I.
Fire destroyed Finney’s newly-remodeled house and barn in Elizabeth,
Pennsylvania in June 2000. The house was sparsely furnished, rarely occupied, and had
been on the market prior to the fire. At the time, Finney, a general contractor by trade,
was experiencing financial difficulties: he was behind on mortgage payments for the
Elizabeth home and for another rental property, and he owed taxes to the IRS. After the
fire, Finney made a claim to Royal based on the homeowner’s insurance policy he held
with them. During its subsequent investigation, Royal discovered that 1) the June 2000
fire was caused by arson and that Finney was (temporarily) a suspect in the criminal
investigation, 2) Finney had made a previous claim to another insurer based on a
November 1996 fire, later determined to be arson, that destroyed one of his rental
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properties, and 3) Finney failed to disclose the 1996 fire and subsequent payment of his
claim on his insurance application to Royal. Considering these facts to be “red flags,”
Royal denied Finney’s claim.
Finney filed for bankruptcy and commenced an adversary action against Royal in
Bankruptcy Court1 for breach of contract and alleged violation of 42 Pa.C.S. § 8371,
which prohibited bad faith denial of insurance benefits. Loughney, who served as
Royal’s attorney for the majority of the bankruptcy proceeding, filed a counterclaim on
behalf of Royal, asserting that Finney had committed fraud in his application and
intentionally caused the June 2001 fire. The claims went to trial, and in April 2002, a
jury found that: 1) Royal was liable for breach of contract; 2) Royal had not acted in bad
faith; and 3) Finney had not committed fraud in his application nor had he committed
arson. The jury awarded damages to Finney in the amount of $147,225.54 on his breach
of contract claim, and the Court added prejudgment interest in the amount of $38,584.08.
In April 2004, Finney filed a second adversary action in Bankruptcy Court. This
second action was also withdrawn to the District Court, whose ruling is the subject of
this appeal. Finney’s second amended complaint claimed: 1) wrongful use of civil
proceedings against both Loughney and Royal under Pennsylvania’s Dragonetti Act, 42.
Pa.C.S. § 8351 et seq., and 2) common law abuse of process against both defendants.
1
The action was later withdrawn to Federal District Court for the Western District of
Pennsylvania, having jurisdiction pursuant to 28 U.S.C. §157(d).
3
Both Royal and Loughney filed motions for summary judgment that were granted by the
District Court. Finney appeals.
II.
This Court has jurisdiction pursuant to 28 U.S.C. 1291. We review a grant of
summary judgment de novo, applying the same test as the District Court. MBIA Ins.
Corp. v. Royal Indem. Co., 426 F.3d 204, 209 (3d Cir. 2005). Summary judgment is
proper when “the pleadings, depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a matter of law.”
Fed.R.Civ.P. 56(c). An issue of material fact is genuine only when such evidence could
cause a reasonable jury to return a verdict for the non-moving party. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). When the non-moving party bears the burden of
proof at trial, the moving party’s burden may be discharged by showing an absence of
evidence to support the non-moving party’s case. Celotex Corp. v. Catrett, 477 U.S. 317
(1986). The burden then shifts to the non-moving party, who “may not rest on the mere
allegations or denials of the adverse party’s pleadings . . . but must set forth specific facts
showing that there is a genuine issue for trial.” Fed.R.Civ.P 56(e). If the adverse party
does not so respond, summary judgment shall be entered against the adverse party. Id.
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III.
A. Wrongful Use of Civil Proceedings
In Pennsylvania, the Dragonetti Act codifies the tort of wrongful use of civil
proceedings. 42 Pa.C.S. § 8351 et seq. A person who engages in “the procurement,
initiation or continuation of civil proceedings against another” may be held liable if: 1)
he or she acts in a grossly negligent manner or without probable cause; and 2) he or she
acts primarily for a purpose other than that of securing proper discovery, joinder of
parties or adjudication of the claim in which the proceedings are based, and 3) the
proceedings are terminated in favor of the person against whom they were brought. Id.
This third element is easily met, since defendants’ counterclaim was resolved in
plaintiff’s favor.2 We therefore turn to the first two elements to consider whether there is
any genuine issue of material fact, or whether defendants were entitled to judgment as a
matter of law.
Having included a “probable cause” element, the Dragonetti Act goes further to
define its contours. Probable cause exists if:
2
Loughney argues that because Finney’s claims are merely an attempt to re-litigate the
issue of whether Royal acted in bad faith, his claim is barred by collateral estoppel.
Appellee Loughney’s Br. at 30; App. 340a. We do not agree. In order for a claim to be
barred under collateral estoppel, Pennsylvania law requires, inter alia, that the issue
decided in the prior action be identical to the one now presented. Rue v. K-Mart Corp.,
713 A.2d 82, 84 (Pa. 1998). Here, Finney does not attempt to re-argue that Royal acted in
bad faith when it denied his insurance claim; rather, Finney claims that Royal and
Loughney acted for an improper purpose and without probable cause when it filed its
counterclaim. These issues are distinct.
5
[A] person reasonably believes in the existence of the facts upon
which the claim is based, and either:
1) Reasonably believes that under those facts the claim may be valid
under the existing or developing law;
2) Believes to this effect in reliance upon the advice of counsel,
sought in good faith and given after full disclosure of all relevant facts
within his knowledge and information; [or]
3) Believes as an attorney of record, in good faith that his
procurement, initiation or continuation of a civil cause is not intended
to merely harass or maliciously injure the opposite party.
42 Pa.C.S. § 8352. As the District Court properly held, a reasonable jury could not
conclude that Royal and Loughney lacked probable cause to file and pursue their
counterclaim. Not only did the defendants reasonably believe that the facts could support
their claim, but so did Finney’s own attorney and his own expert. Furthermore, there is no
question that defendants (as well as Finney’s attorney) believed the counterclaim would
be valid under existing law. Although Royal ultimately lost on the counterclaim, its
propriety was never in question. Finney has failed to offer any specific facts to support
his position that Royal and Loughney lacked a reasonable belief in the validity of the
claim and the underlying facts, and therefore defendants need not satisfy either of the
remaining two elements.
We now examine the second prong, improper purpose. Although a counterclaim
may constitute the “continuation” of a civil proceeding and could be filed for improper
purposes, we examine such claims closely, “lest a defendant be punished for nothing more
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than defending himself or herself against a claim made by another.” Mi-Lor, Inc. v.
DiPentino, 654 A.2d 1156, 1158 (Pa. Super. Ct. 1995). Furthermore, “where an
unsuccessful litigant has acted in consultation with an attorney, the legislature has made it
quite difficult . . . for the successful defendant to prevail on a wrongful use of civil
proceedings claim in Pennsylvania.” Am. Int’l Airways, Inc. v. Am. Int’l Group, Inc., 816
F. Supp. 1058, 1064 (E.D.P.A. 1993). In the end, although Royal and Loughney may have
lacked sufficient proof to convince a jury to decide in their favor on their counterclaim,
that did not automatically make them liable under the Dragonetti Act. Id. Finney offers
only conjecture, no evidence, that the counterclaim was filed for an improper purpose. A
reasonable jury would not disagree that the underlying suit was simply “litigation . . .
unmarked by any of the varieties of outrageousness required to sustain a lawsuit under the
cited statute.” Mi-Lor, 654 A.2d at 1159. We agree with the observation of the District
Court that this “is not the stuff of which ‘wrongful use of civil proceedings’ actions are
made.” Finney v. Royal Sun Alliance Ins. Co., No. 04CV1086, 2005 WL 2106576, at *7
(W.D. Pa. Aug. 29, 2005).
B. Abuse of Process
To recover under a theory of abuse of process, plaintiff must show that the
defendant used the legal process against him in a way that constituted a perversion of that
process and caused harm to the plaintiff. Gen. Refractories Co. v. Fireman’s Fund Ins.
Co., 337 F.3d 297, 304 (3d Cir. 2003). The claim refers to the improper use of process
7
during the course of the lawsuit, McGee v. Feege, 535 A.2d 1020, 1023 (Pa. 1987), and
applies whether or not such behavior is related to the underlying litigation, Gen.
Refractories, 337 F.3d at 305. “‘Abuse of process differs from malicious prosecution in
that the gist of the tort is not commencing an action or causing process to issue without
justification, but misusing or misapplying process justified in itself for an end other than
that which it was designed to accomplish.’” Id. (quoting In re Larsen, 616 A.2d 529,
592-93 (Pa. 1992)).
Although we have recognized that parties who employed the legal process
“primarily intending to increase the burden and expense of litigation to the other side”
might be liable for abuse of process, we have also cautioned that such behavior must
“become so lacking in justification as to lose its legitimate function as a reasonably
justifiable litigation procedure.” Id. at 308. We noted that the purpose of avoiding
payment to the adverse party does not suffice to state an abuse of process claim. If that
were so, any party who defended a lawsuit but eventually lost could be held liable. Id. at
309.
We have found abuse of process to exist where conduct has been truly abusive. In
General Refractories, we held that an abuse of process claim would be valid where a
party “intentionally withheld critical documents, ignored court orders, permitted false
testimony at depositions and misrepresented facts to opposing counsel and the court.” Id.
at 301. The defendants perverted the legal process by “engag[ing] in an intentional effort
8
to obstruct legitimate discovery by using the claim of privilege” and attempting to hide
critical facts and discoverable documents. Id. at 302. In McGee, the Pennsylvania
Supreme Court upheld an abuse of process claim where a party filed more than ten
different petitions and motions related to a workman’s compensation claim, many in spite
of the Court’s order granting a petition to enforce judgment. 535 A.2d at 1021. Royal
and Loughney’s conduct has fallen far short of the behavior proscribed in these cases.
Royal and its attorney filed a compulsory counterclaim, amended it, and engaged in
discovery. Neither the District Court nor opposing counsel saw any reason to oppose or
dismiss the counterclaim. The case properly proceeded to trial, where Royal was unable
to convince the jury of its claims. We find nothing to constitute an abuse of process under
these facts.3
IV.
For the foregoing reasons, we will affirm the order of the District Court.
3
Contrary to Finney’s assertions, we do not dismiss his claim because Royal’s
counterclaim was related to the underlying litigation; rather, we do so because he failed to
offer any proof of improper purpose or perversion of the legal process.
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