Rigas, J. v. Deloitte & Touche LLP ( 2017 )

J-A13037-17, J-A13038-17, J-A13039-17, J-A13040-17, J-A13041-17,
J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
ISLAND PARTNERS, INC., ROUMALI, IN THE SUPERIOR COURT OF
INC., GRISTMILL PROPERTIES INC., PENNSYLVANIA
SYRACUSE HILTON HEAD HOLDING, LP,
WENDINGCREEK 3656 LLC,HILTON
HEAD COMMUNICATIONS LP, HIGHLAND
VIDEO ASSOCIATESLP, HIGHLAND
PRESTIGE GEORGIA INC., HIGHLAND
COMMUNICATIONS LLP,HIGHLAND
HOLDING II, HIGHLANDPREFERRED
COMMUNICATIONS LLC, HIGHLAND
HOLDINGS, ELENI INTERIORS INC,
ILIAD HOLDINGA,NCAA HOLDINGS,
INC., DORIS HOLDINGSLP
DORELLENIC,DOBAIRE DESIGNS,
COUDERSPORT THEATRE,
COUDERSPORT TELEVISION CABLE CO.,
RIGAS ENTERTAINMENT LTD, TIMOTHY
RIGAS, JOHN J. RIGAS, MICHAEL J.
RIGAS, JAMES P. RIGAS, WENDING
CREEEK FARMS INC., ZITO I,LP AND
ZIITO MEDIA, LP.,
APPEAL OF: JAMES RIGAS
v.
DELOITTE & TOUCHE, LLP Appellant No. 1311 EDA 2016
Appeal from the Order December 10, 2014
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): March Term 2004 No. 040306280
J-A13037-17, J-A13038-17, J-A13039-17, J-A13040-17, J-A13041-17,
J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
ISLAND PARTNERS, INC., ROUMALI, IN THE SUPERIOR COURT OF
INC., GRISTMILL PROPERTIES INC., PENNSYLVANIA
SYRACUSE HILTON HEAD HOLDING, LP,
WENDINGCREEK 3656 LLC,HILTON
HEAD COMMUNICZITO I, LPATIONS LP,
HIGHLAND VIDEO ASSOCIATESLP,
HIGHLAND PRESTIGE GEORGIA INC.,
HIGHLAND COMMUNICATIONS
LLP,HIGHLAND HOLDING II,
HIGHLANDPREFERRED
COMMUNICATIONS LLC, HIGHLAND
HOLDINGS, ELENI INTERIORS INC,
ILIAD HOLDINGA,NCAA HOLDINGS,
INC., DORIS HOLDINGSLP
DORELLENIC,DOBAIRE DESIGNS,
COUDERSPORT THEATRE,
COUDERSPORT TELEVISION CABLE CO.,
RIGAS ENTERTAINMENT LTD, TIMOTHY
RIGAS, JOHN J. RIGAS, MICHAEL J.
RIGAS, JAMES P. RIGAS, WENDING
CREEEK FARMS INC., ZITO I,LP AND
ZIITO MEDIA, LP.,
APPEAL OF: ZITO I, LP
v.
DELOITTE & TOUCHE, LLP No. 1312 EDA 2016
Appeal from the Order December 10, 2014
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): March Term 2004 No. 040306280
-2-
J-A13037-17, J-A13038-17, J-A13039-17, J-A13040-17, J-A13041-17,
J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
ISLAND PARTNERS, INC., ROUMALI, IN THE SUPERIOR COURT OF
INC., GRISTMILL PROPERTIES INC., PENNSYLVANIA
SYRACUSE HILTON HEAD HOLDING, LP,
WENDINGCREEK 3656 LLC,HILTON
HEAD COMMUNICATIONS LP, HIGHLAND
VIDEO ASSOCIATES LP, HIGHLAND
PRESTIGE GEORGIA INC., HIGHLAND
COMMUNICATIONS LLP, HIGHLAND
HOLDING II, HIGHLAND PREFERRED
COMMUNICATIONS LLC, HIGHLAND
HOLDINGS, ELENI INTERIORS INC,
ILIAD HOLDINGS,NCAA HOLDINGS,
INC., DORIS HOLDINGS LP,
DORELLENIC,DOBAIRE DESIGNS,
COUDERSPORT THEATRE,
COUDERSPORT TELEVISION CABLE CO.,
RIGAS ENTERTAINMENT LTD, TIMOTHY
RIGAS, JOHN J. RIGAS, MICHAEL J.
RIGAS, JAMES P. RIGAS, WENDING
CREEK FARMS INC., ZITO I,LP AND
ZITO MEDIA, LP.,
APPEAL OF: ZITO MEDIA, L.P.
v.
DELOITTE & TOUCHE, LLP No. 1313 EDA 2016
Appeal from the Order March 22, 2016
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): March Term 2004 No. 040306280
-3-
J-A13037-17, J-A13038-17, J-A13039-17, J-A13040-17, J-A13041-17,
J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
ISLAND PARTNERS, INC., ROUMALI,
INC., GRISTMILL PROPERTIES INC., IN THE SUPERIOR COURT OF
SYRACUSE HILTON HEAD HOLDING, LP, PENNSYLVANIA
WENDING CREEK 3656 LLC,HILTON
HEAD COMMUNICATIONS LP, HIGHLAND
VIDEO ASSOCIATES LP, HIGHLAND
PRESTIGE GEORGIA INC., HIGHLAND
COMMUNICATIONS LLP,HIGHLAND
HOLDING II, HIGHLAND PREFERRED
COMMUNICATIONS LLC, HIGHLAND
HOLDINGS, ELENI INTERIORS INC,
ILIAD HOLDINGA,NCAA HOLDINGS,
INC., DORIS HOLDINGSLP
DORELLENIC,DOBAIRE DESIGNS,
COUDERSPORT THEATRE,
COUDERSPORT TELEVISION CABLE CO.,
RIGAS ENTERTAINMENT LTD, TIMOTHY
RIGAS, JOHN J. RIGAS, MICHAEL J.
RIGAS, JAMES P. RIGAS, WENDING
CREEEK FARMS INC., ZITO I,LP AND
ZIITO MEDIA, LP.,
APPEAL OF: ZITO MEDIA, L.P.
v.
DELOITTE & TOUCHE, LLP No. 1314 EDA 2016
Appeal from the Order December 27, 2013
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): March Term 2004 No. 040306280
-4-
J-A13037-17, J-A13038-17, J-A13039-17, J-A13040-17, J-A13041-17,
J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
ISLAND PARTNERS, INC., ROUMALI, IN THE SUPERIOR COURT OF
INC., GRISTMILL PROPERTIES INC., PENNSYLVANIA
SYRACUSE HILTON HEAD HOLDING, LP,
WENDING CREEK 3656 LLC,HILTON
HEAD COMMUNICATIONS LP, HIGHLAND
VIDEO ASSOCIATES LP, HIGHLAND
PRESTIGE GEORGIA INC., HIGHLAND
COMMUNICATIONS LLP,HIGHLAND
HOLDING II, HIGHLAND PREFERRED
COMMUNICATIONS LLC, HIGHLAND
HOLDINGS, ELENI INTERIORS INC,
ILIAD HOLDINGS,NCAA HOLDINGS,
INC., DORIS HOLDINGS LP,
DORELLENIC,DOBAIRE DESIGNS,
COUDERSPORT THEATRE,
COUDERSPORT TELEVISION CABLE CO.,
RIGAS ENTERTAINMENT LTD, TIMOTHY
RIGAS, JOHN J. RIGAS, MICHAEL J.
RIGAS, JAMES P. RIGAS, WENDING
CREEK FARMS INC., ZITO I,LP AND
ZITO MEDIA, LP.,
APPEAL OF: ZITO I, L.P.
v.
DELOITTE & TOUCHE, LLP No. 1315 EDA 2016
Appeal from the Order December 27, 2013
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): March Term 2004 No. 040306280
-5-
J-A13037-17, J-A13038-17, J-A13039-17, J-A13040-17, J-A13041-17,
J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
ISLAND PARTNERS, INC., ROUMALI, IN THE SUPERIOR COURT OF
INC., GRISTMILL PROPERTIES INC., PENNSYLVANIA
SYRACUSE HILTON HEAD HOLDING, LP,
WENDING CREEK 3656 LLC,HILTON
HEAD COMMUNICATIONS LP, HIGHLAND
VIDEO ASSOCIATES LP, HIGHLAND
PRESTIGE GEORGIA INC., HIGHLAND
COMMUNICATIONS LLP,HIGHLAND
HOLDING II, HIGHLAND PREFERRED
COMMUNICATIONS LLC, HIGHLAND
HOLDINGS, ELENI INTERIORS INC,
ILIAD HOLDINGS,NCAA HOLDINGS,
INC., DORIS HOLDINGS LP,
DORELLENIC,DOBAIRE DESIGNS,
COUDERSPORT THEATRE,
COUDERSPORT TELEVISION CABLE CO.,
RIGAS ENTERTAINMENT LTD, TIMOTHY
RIGAS, JOHN J. RIGAS, MICHAEL J.
RIGAS, JAMES P. RIGAS, WENDING
CREEK FARMS INC., ZITO I,LP AND
ZITO MEDIA, LP.,
APPEAL OF: JAMES RIGAS
v.
DELOITTE & TOUCHE, LLP No. 1316 EDA 2016
Appeal from the Order December 27, 2013
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): March Term 2004 No. 040306280
-6-
J-A13037-17, J-A13038-17, J-A13039-17, J-A13040-17, J-A13041-17,
J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
ISLAND PARTNERS, INC., ROUMALI, IN THE SUPERIOR COURT OF
INC., GRISTMILL PROPERTIES INC., PENNSYLVANIA
SYRACUSE HILTON HEAD HOLDING, LP,
WENDING CREEK 3656 LLC,HILTON
HEAD COMMUNICATIONS LP, HIGHLAND
VIDEO ASSOCIATES LP, HIGHLAND
PRESTIGE GEORGIA INC., HIGHLAND
COMMUNICATIONS LLP,HIGHLAND
HOLDING II, HIGHLAND PREFERRED
COMMUNICATIONS LLC, HIGHLAND
HOLDINGS, ELENI INTERIORS INC,
ILIAD HOLDINGS,NCAA HOLDINGS,
INC., DORIS HOLDINGS LP,
DORELLENIC,DOBAIRE DESIGNS,
COUDERSPORT THEATRE,
COUDERSPORT TELEVISION CABLE CO.,
RIGAS ENTERTAINMENT LTD, TIMOTHY
RIGAS, JOHN J. RIGAS, MICHAEL J.
RIGAS, JAMES P. RIGAS, WENDING
CREEK FARMS INC., ZITO I,LP AND
ZITO MEDIA, LP.,
APPEAL OF: JOHN RIGAS
v.
DELOITTE & TOUCHE, LLP No. 1317 EDA 2016
Appeal from the Order December 27, 2013
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): March Term 2004 No. 040306280
-7-
J-A13037-17, J-A13038-17, J-A13039-17, J-A13040-17, J-A13041-17,
J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
ISLAND PARTNERS, INC., ROUMALI, IN THE SUPERIOR COURT OF
INC., GRISTMILL PROPERTIES INC., PENNSYLVANIA
SYRACUSE HILTON HEAD HOLDING, LP,
WENDING CREEK 3656 LLC,HILTON
HEAD COMMUNICATIONS LP, HIGHLAND
VIDEO ASSOCIATES LP, HIGHLAND
PRESTIGE GEORGIA INC., HIGHLAND
COMMUNICATIONS LLP,HIGHLAND
HOLDING II, HIGHLAND PREFERRED
COMMUNICATIONS LLC, HIGHLAND
HOLDINGS, ELENI INTERIORS INC,
ILIAD HOLDINGS,NCAA HOLDINGS,
INC., DORIS HOLDINGS LP,
DORELLENIC,DOBAIRE DESIGNS,
COUDERSPORT THEATRE,
COUDERSPORT TELEVISION CABLE CO.,
RIGAS ENTERTAINMENT LTD, TIMOTHY
RIGAS, JOHN J. RIGAS, MICHAEL J.
RIGAS, JAMES P. RIGAS, WENDING
CREEK FARMS INC., ZITO I,LP AND
ZITO MEDIA, LP.,
APPEAL OF: JAMES RIGAS
v.
DELOITTE & TOUCHE, LLP No. 1318 EDA 2016
Appeal from the Order January 21, 2015
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): March Term 2004 No. 040306280
-8-
J-A13037-17, J-A13038-17, J-A13039-17, J-A13040-17, J-A13041-17,
J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
ISLAND PARTNERS, INC., ROUMALI, IN THE SUPERIOR COURT OF
INC., GRISTMILL PROPERTIES INC., PENNSYLVANIA
SYRACUSE HILTON HEAD HOLDING, LP,
WENDING CREEK 3656 LLC,HILTON
HEAD COMMUNICATIONS LP, HIGHLAND
VIDEO ASSOCIATES LP, HIGHLAND
PRESTIGE GEORGIA INC., HIGHLAND
COMMUNICATIONS LLP,HIGHLAND
HOLDING II, HIGHLAND PREFERRED
COMMUNICATIONS LLC, HIGHLAND
HOLDINGS, ELENI INTERIORS INC,
ILIAD HOLDINGS,NCAA HOLDINGS,
INC., DORIS HOLDINGS LP,
DORELLENIC,DOBAIRE DESIGNS,
COUDERSPORT THEATRE,
COUDERSPORT TELEVISION CABLE CO.,
RIGAS ENTERTAINMENT LTD, TIMOTHY
RIGAS, JOHN J. RIGAS, MICHAEL J.
RIGAS, JAMES P. RIGAS, WENDING
CREEK FARMS INC., ZITO I,LP AND
ZITO MEDIA, LP.,
APPEAL OF: ZITO I, L.P.
v.
DELOITTE & TOUCHE, LLP No. 1319 EDA 2016
Appeal from the Order January 21, 2015
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): March Term 2004 No. 040306280
BEFORE: LAZARUS, OTT, and FITZGERALD,* JJ.
MEMORANDUM BY FITZGERALD, J.: FILED OCTOBER 27, 2017
This action arises from the 2002 failure of Adelphia Communications
Corporation (“Adelphia”) and ensuing civil and criminal investigations. In
* Former Justice specially assigned to the Superior Court.
-9-
J-A13037-17, J-A13038-17, J-A13039-17, J-A13040-17, J-A13041-17,
J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
2004, Appellants John Rigas, James Rigas, Zito I, L.P. (“Zito I”) and Zito
Media, L.P. (“Zito Media”) (collectively “Appellants”) and other plaintiffs filed
a civil complaint in the Philadelphia Court of Common Pleas against Deloitte
& Touche LLP (“Deloitte”), the former accountant and auditor for Adelphia
and other entities managed by Adelphia, for Deloitte’s alleged role in
Adelphia’s failure. In essence, the complaint alleged that Deloitte directed
the accounting decisions that ultimately ruined Adelphia but then refused to
stand behind these decisions once the federal government began to
investigate Adelphia.
In 2005, Deloitte removed the case to the United States Bankruptcy
Court for the Eastern District of Pennsylvania. The federal Judicial Panel on
Multidistrict Litigation (“JPML”) then transferred the case to the United
States District Court for the Southern District of New York (“District Court”)
as part of multidistrict litigation (“MDL”) relating to Adelphia’s collapse. The
District Court entered two orders dismissing most of Appellants’ claims 1 and
remanded the remaining claims (three claims by Zito Media) to the
Philadelphia Court of Common Pleas. Subsequently, the Court of Common
Pleas granted summary judgment to Deloitte on Zito Media’s remaining
claims on the ground that Zito Media’s expert report failed to provide a
1 The first order granted, in part, Deloitte’s motion to dismiss Appellants’
amended complaint, while the second granted, in part, Deloitte’s motion for
summary judgment on Appellants’ second amended complaint. For
convenience, we refer to both orders collectively as the “dismissal orders.”
- 10 -
J-A13037-17, J-A13038-17, J-A13039-17, J-A13040-17, J-A13041-17,
J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
reasonable calculation of its damages. These nine appeals followed, which
we have consolidated for purposes of disposition.
In the appeals at 1311, 1312, and 1314-1319 EDA 2016, Appellants
ask us to review the dismissal orders that the District Court entered during
MDL proceedings. Under City of Waco v. United States Fidelity &
Guaranty Co., 293 U.S. 140 (1934), and its progeny, the only court that
had jurisdiction to review these rulings was the United States Court of
Appeals for the Second Circuit. Because we lack jurisdiction to review the
District Court’s dismissal orders, we quash these appeals.
In the only remaining appeal at 1313 EDA 2016, we reverse the
court’s order granting summary judgment against Zito Media because Zito
Media’s expert provides a reasonable calculation of damages that should go
to the jury.
APPELLANTS’ ALLEGATIONS AGAINST DELOITTE
Appellants allege the following: in 1952, John Rigas purchased a cable
television franchise for the small town of Coudersport, Pennsylvania.
Appellants’ Am. Compl., ¶ 10. Over the next thirty years, John acquired
additional cable companies. Id. ¶ 10, n.2.
In 1985, John hired Deloitte to provide him and his companies with
accounting and auditing services. Id. ¶¶ 15-17. John ran the companies
with his sons James, Timothy, and Michael. In July 1986, they reorganized
five of the companies into a single holding company, Adelphia, which they
- 11 -
J-A13037-17, J-A13038-17, J-A13039-17, J-A13040-17, J-A13041-17,
J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
subsequently took public. Id. ¶¶ 14, 19, 22. Rigas family members
(including John, James, Timothy, Michael, and members of their immediate
families) retained voting control over Adelphia. Id. ¶ 22. The family
privately owned another set of companies (the “Managed Entities”) that
Adelphia managed for a fee: Highland Preferred, Highland Prestige, Highland
Video, Hilton Head, and Coudersport TV. Id. ¶¶ 10-13 & n.3, 27.
Coudersport TV’s assets eventually were transferred to Zito Media. 2 None of
the Managed Entities had any employees. In addition, the Rigas family held
partnerships (the “Rigas Family Partnerships” or “RFP’s”) that owned
interests in the Managed Entities and in Adelphia securities. One of the
RFP’s was Highland Holdings.3 Id. ¶¶ 30-31.
Between 1985 and 2002, Deloitte provided advice to Adelphia and the
RFP’s with respect to documentation and disclosure of certain transactions
between and among these entities known as “related party transactions.”
Specifically, Deloitte advised that disclosure of receivables and payables
among the RFP’s, on the one hand, and Adelphia, on the other, should be on
a net basis rather than showing each balance individually. Id. ¶ 61.
2 It appears that Zito Media does not own any assets other than those
transferred by Coudersport TV.
3We refer to Rigas family members, Adelphia, the Managed Entities and the
RFP’s collectively as “the Rigas family.”
- 12 -
J-A13037-17, J-A13038-17, J-A13039-17, J-A13040-17, J-A13041-17,
J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
Adelphia needed substantial capital to implement its business strategy
of acquiring new cable systems and increasing its subscriber base by
upgrading systems and providing new services. Adelphia raised this new
capital mainly through public offerings of securities, private sales of
securities to the RFP’s, and credit facilities. Id. ¶ 67. Deloitte advised on
the proper accounting treatment for transactions in which Adelphia acquired
capital necessary to purchase new cable systems, upgrade older systems,
and provide new services. Id. ¶¶ 67-73. These transactions, known as “co-
borrowing agreements,” turned previously existing RFP credit facilities into
“co-borrowing” facilities, with both an RFP and an Adelphia subsidiary named
as borrowers. Id. ¶ 75. Deloitte advised that funds drawn on co-borrowing
agreements did not need to be reflected on Adelphia’s balance sheet so long
as the RFP had the ability to repay the debt. Id. ¶¶ 82, 91.
Deloitte provided advice with regard to Adelphia’s financial statements
and its filings with the Securities and Exchange Commission (“SEC”). Id. ¶¶
38-39, 53-54. Deloitte provided similar services to the Managed Entities and
audited every credit facility into which the Managed Entities entered. Id. ¶¶
41, 43. Relying on Deloitte’s advice, the Rigases and their companies
incurred hundreds of millions of dollars in debt to invest in Adelphia.
In 1996, an Adelphia entity and one of the Managed Entities entered
into a joint “co-borrowing” agreement, the purpose of which was to lend
funds to the Rigas family for the purchase of Adelphia securities. Id. ¶ 75.
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J-A13037-17, J-A13038-17, J-A13039-17, J-A13040-17, J-A13041-17,
J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
Deloitte’s team of accountants reviewed this agreement and learned that it
was joint and several, that all borrowers would be responsible for all
borrowings made pursuant to the agreement, and that the banks could look
to any borrower for repayment. Id. ¶¶ 77-81. Deloitte instructed that
Adelphia could treat the co-borrowed debt of the Managed Entity as a
contingent liability on Adelphia’s books. According to Deloitte, so long as the
Managed Entity had the ability to repay the debt, no need existed to reflect
this debt on Adelphia’s balance sheet. Id. ¶ 82. Deloitte also concluded
that the 1996 co-borrowing agreement did not present any new risk. Id. ¶
84.
Between 1999 and 2001, Adelphia subsidiaries and several RFP’s
entered into three additional co-borrowing agreements, the last of which
included Zito Media as a co-borrower. Id. ¶¶ 85-86. The structure of each
co-borrowing agreement was similar to the 1996 agreement. Id. ¶ 89.
Deloitte’s advice with respect to each agreement was the same: (1) the
Managed Entity debt was a contingent liability of Adelphia that Adelphia
need not report on its balance sheet provided that the Rigases had the
ability to repay their portion of the co-borrowed debt; and (2) regardless of
which co-borrower drew down on the facility, the co-borrower who used the
funds should record the debt on its books. Id. ¶ 91. Deloitte also advised
that Adelphia did not need to include footnotes on its financial statements
- 14 -
J-A13037-17, J-A13038-17, J-A13039-17, J-A13040-17, J-A13041-17,
J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
describing the total amount of debt borrowed by Managed Entity co-
borrowers. Id. ¶ 92.
In early 2002, following the Enron debacle, the SEC announced new
guidance regarding disclosures of off-balance sheet debt. Deloitte
interpreted that guidance as now requiring that Adelphia disclose (1) the
existence of co-borrowing facilities, (2) the key terms of co-borrowing
agreements, including either party’s right to draw the entire amount and
joint and several liability, and (3) the off-balance sheet debt, or the amount
borrowed under these facilities by the Managed Entities, including Zito
Media, that was not reflected on Adelphia’s balance sheet. Id. ¶ 112.
During a February 28, 2002 audit committee meeting, Deloitte
confirmed that the prior co-borrowing disclosure had not been insufficient,
but that a different disclosure was necessary due to the SEC’s new guidance.
Id. ¶ 117. Deloitte’s presentation included a review of their 2001 audit,
which they lauded as one of the best ever for Adelphia. Their presentation
also reflected significant direct placements to the Rigases in 2001, several of
which correspond directly to draws from co-borrowing facilities by RFP’s. Id.
¶118. Deloitte representatives stated they “had a very good audit, that they
were comfortable with this, and they were fine.” Id. ¶ 119. As of March 27,
2002, Deloitte had verbally approved substantially the entire draft of the
2001 Adelphia 10-K for filing with the SEC in the next few days and signed
off on an earnings press release to be issued by Adelphia. Deloitte’s practice
- 15 -
J-A13037-17, J-A13038-17, J-A13039-17, J-A13040-17, J-A13041-17,
J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
was not to sign off on such a press release until it was confident that the
audit was substantially complete. Id. ¶ 125.
After extensive review by Deloitte and its outside counsel and
concurrence as to the substance of the release, Adelphia issued an earnings
report and held a conference call with analysts to discuss the earnings
results. Among other things, the earnings release disclosed the amount that
the Rigas co-borrowers had borrowed pursuant to the co-borrowing
agreements. Id. ¶ 126. Following the conference call, issues arose in the
marketplace regarding the amount of Managed Entity debt. Id. ¶ 128.
Within days, the SEC began investigating Adelphia’s accounting
treatment and disclosure of the co-borrowing agreements. Id. ¶ 129. The
Rigases and Adelphia turned to Deloitte for assistance with responding to the
SEC, because only Deloitte had the information necessary to defend its
accounting determinations. Id. ¶ 130. After it became clear that the SEC
disagreed over how to account for the co-borrowing agreements, Deloitte
decided not to stand by its past accounting decisions and the advice that it
consistently had rendered to the Rigases, Adelphia, and the Managed
Entities. Id. ¶ 131. Instead, Deloitte took steps to distance itself from the
controversy surrounding the disclosure regarding the co-borrowing debt.
Id.
Deloitte substituted its national office for the engagement team that
previously had provided advice to Adelphia and Plaintiffs and requested
- 16 -
J-A13037-17, J-A13038-17, J-A13039-17, J-A13040-17, J-A13041-17,
J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
documentation that the engagement team had already reviewed. Id. ¶¶
132-33. Ultimately, Deloitte refused to sign the audit opinion unless the
SEC concurred with its accounting decisions, a step Deloitte had never taken
before. Id. ¶ 134. According to Appellants, Deloitte placed its own interests
above the best interests of its clients. Id. ¶ 137.
As a result of Deloitte’s refusal to sign the 2001 audit opinion, Adelphia
was unable to issue its 2001 10-K, which ultimately led to, inter alia,
defaults under various agreements, a severe diminution of the value of
Adelphia’s shares, and Adelphia’s shares being delisted by NASDAQ in June
of 2002. Id. ¶ 138. The harm to Adelphia in turn damaged the Managed
Entities, which were co-borrowers with Adelphia and, in some cases, had
lent funds to the other entities to purchase Adelphia securities which were
severely devalued as a result of Deloitte’s actions. Id. ¶ 139. The RFP’s,
whose value was tied to Adelphia’s in various ways, lost value as well. Id.
¶¶ 139-40.
Following Adelphia’s failure, the federal government brought civil and
criminal charges against Adelphia and members of the Rigas family. The
SEC filed an action against Adelphia and John, James, Timothy, and Michael,
and the Department of Justice indicted John and Timothy on criminal
charges relating to the practices discussed above, including Adelphia’s
treatment of netting, co-borrowing arrangements, purchases of Adelphia
securities, and marketing support agreements. Id. ¶¶ 145-47. John and
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Timothy were eventually convicted of conspiracy, securities fraud, and bank
fraud. Id. ¶ 157.
After their convictions, the Rigas family entered into a global
settlement with the government. John Rigas forfeited or transferred to other
family members substantially all of his assets, including all of his interests in
Adelphia, the Managed Entities and other RFP’s, and his non-business
assets. Id. ¶ 158. James Rigas gave up all of his interests in Adelphia and
most of his interests in the Managed Entities and other RFP’s. Id. ¶ 159.
Most of the RFP’s were forfeited to the government. Id. ¶ 160. Prior to the
forfeiture of Highland Holdings, Highland Preferred, Highland Prestige,
Highland Video and Hilton Head to the United States, these entities assigned
all of their assets that they did not retain in order to comply with the
Government-Rigas settlement agreement to John Rigas, Michael Rigas,
Timothy Rigas, James Rigas, and Ellen Rigas Venetis, including the entities’
interests in claims against Deloitte. Id. ¶ 161. In turn, John Rigas, Michael
Rigas, Timothy Rigas, James Rigas, and Ellen Rigas Venetis transferred and
assigned the assets and rights received from the entities to Zito I. Id. ¶
162. According to the amended complaint, the United States consented to
the transfer of assets, including the entities’ litigation rights against Deloitte,
during the course of negotiations leading to the Government-Rigas
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Settlement Agreement. Id. ¶ 163. Coudersport TV was not forfeited to the
government; its assets were transferred to Zito Media. Id. ¶ 164.4
PROCEDURAL HISTORY
On March 26, 2004, Appellants filed a civil complaint against Deloitte
in the Court of Common Pleas. Deloitte removed this action to Bankruptcy
Court on the ground that it was related to Adelphia’s pending bankruptcy
proceedings. The JPML thereupon transferred the case to the District Court
as part of MDL proceedings involving Adelphia. After transfer, the District
Court stayed the case while other cases in the MDL moved forward, including
a securities class action against Deloitte. On May 7, 2013, the District Court
ordered this case to proceed.
On June 6, 2013, Appellants filed a single amended complaint against
Deloitte alleging breach of contract, breach of professional duty, negligent
misrepresentation, tortious interference, breach of fiduciary duty,
contribution and indemnity. Zito I alleged that it had standing as successor-
in-interest to Highland Holdings, Highland Preferred, Highland Prestige,
Highland Video and Hilton Head. Zito Media asserted that it had standing as
successor-in-interest to Coudersport TV.
Deloitte filed a motion to dismiss the amended complaint. In an order
and opinion dated December 27, 2013, the District Court dismissed (1) all
4 We will discuss further evidence below on pages 36-39 in connection with
Zito Media’s appeal at 1313 EDA 2016.
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claims by John Rigas under the doctrine of in pari delicto and (2) all claims
by James Rigas, Zito I and Zito Media except these plaintiffs’ tort actions for
professional negligence and negligent misrepresentation.
The District Court granted the motion of James Rigas, Zito I and Zito
Media for leave to file a second amended complaint (“SAC”) repleading its
claim for breach of contract. Subsequently, Deloitte moved for summary
judgment on all clams in the SAC. In an opinion and order on December 10,
2014, the District Court held that (1) Zito I lacked standing to bring any
negligence or contract claims against Deloitte, (2) James Rigas failed to
state a cause of action on his remaining contract and negligence claims, and
(3) Deloitte failed to demonstrate that it was entitled to judgment as a
matter of law against Zito Media on its contract and negligence claims.
Accordingly, the District Court entered summary judgment in favor of
Deloitte except for Zito Media’s claims of breach of contract, professional
negligence and negligent misrepresentation.
Zito I and James Rigas moved for reconsideration, but on January 21,
2015, the District Court denied reconsideration and ordered the Clerk to
remand Zito Media’s case to Philadelphia County. Because Appellants’ action
against Deloitte was the last matter in the MDL proceedings, the District
Court directed the Clerk to close MDL proceedings and notify the JPML of this
closure.
- 20 -
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J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
Following remand, Deloitte moved for summary judgment on Zito
Media’s remaining contract and tort claims on the ground that Zito Media
failed to prove damages. On March 22, 2016, the Court of Common Pleas
granted summary judgment in favor of Deloitte. These appeals followed.
Specifically:
(1) At 1311 EDA 2016, James Rigas appealed the District
Court’s dismissal orders;
(2) At 1312 EDA 2016, Zito I appealed the District Court’s
dismissal orders;
(3) At 1313 EDA 2016, Zito Media appealed the Court of
Common Pleas’ order granting summary judgment to
Deloitte on the claims remanded to state court;
(4) At 1314 EDA 2016, Zito Media appealed the District
Court’s dismissal orders;
(5) At 1315 EDA 2016, Zito I joined in Zito Media’s appeal
at 1314 EDA 2016;
(6) At 1316 EDA 2016, James Rigas joined in Zito Media’s
appeal at 1314 EDA 2016;
(7) At 1317 EDA 2016, John Rigas appealed the District
Court’s dismissal orders;
(8) At 1318 EDA 2016, James Rigas appealed the District
Court’s dismissal orders and its order denying
reconsideration; and
(9) At 1319 EDA 2016, Zito I appealed the District Court’s
dismissal orders and its order denying reconsideration.
The Court of Common Pleas did not order Appellants to file statements of
errors complained of on appeal.
- 21 -
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J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
QUESTIONS RAISED ON APPEAL
James Rigas raises the following questions in his appeals at 1311 EDA
2016 and 1318 EDA 2016:
A. Did the [District Court] err in ignoring unrefuted
evidence adduced by [James Rigas] in granting summary
judgment against him?
B. Did the [District Court] err in refusing to apply Section
552 of the Restatement (Second) of Torts with respect to
[James Rigas’] negligent misrepresentation claim against
his accountant?
James Rigas’ Brief, 1311 & 1318 EDA 2016, at 4.
John Rigas raises the following questions in his appeal at 1317 EDA
2016:
A. Did the [District Court] err in relying upon [John Rigas’]
federal convictions in dismissing his claims pursuant to in
pari delicto where the factual conduct giving rise to the
convictions is not apparent from the general jury verdict?
B. Did the [District Court] err in dismissing [John Rigas’]
claim pursuant to in pari delicto without considering policy
considerations in accordance with Official Comm. of
Unsecured Creditors of AHERF v.
PricewaterhouseCoopers, LLP, 989 A.2d 313 (Pa.
2010)?
John Rigas’ Brief, 1317 EDA 2016, at 4.
Zito I raises the following questions in its appeal at 1312 EDA 2016
and 1319 EDA 2016:
A. Did the [District Court] err in dismissing [Zito I’s] claims
for lack of constitutional standing instead of remanding
them to the state court from which they were removed?
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J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
B. Did the [District Court] err in dismissing [Zito I’s] claims
based on a lack of standing when the evidence adduced
demonstrated that [Zito I’s] predecessors in interest had
assigned the claims against [Deloitte] to plaintiff?
C. Did the [District Court] err in applying the parol
evidence rule to bar evidence of an assignment based
upon a contract to which [Deloitte] was not a party?
D. Did the [District Court] err in determining that plaintiff
lacked standing to pursue a claim transferred to it when
the transfer of the claim was not void but only potentially
voidable?
Zito I’s Brief, 1312 & 1319 EDA 2016, at 8.
Zito Media raises the following questions in its appeal at 1313 EDA
2016:
Did the [Philadelphia Court of Common Pleas] err in
rejecting a damages calculation as a matter of law as pure
speculation merely because the expert used combined
projections for all of the plaintiff companies, which were
operated as a group, before separately allocating value to
each particular plaintiff?
Did the [Philadelphia Court of Common Pleas] abuse its
discretion in refusing to permit [Zito Media] to correct a
perceived deficiency in its expert report on damages even
though doing so would not have caused [Deloitte] any
prejudice or delayed the scheduled trial?
Zito Media’s Brief, 1313 EDA 2016, at 2.
Zito Media raises the following questions in its appeal at 1314 EDA
2016:5
5 As noted above, Zito I and James Rigas join in this appeal in their own
appeals at 1315 EDA 2016 and 1316 EDA 2016.
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A. Did the [District Court] err in dismissing a tortious
interference claim for inadequately pleading intent when
plaintiff alleged that [Deloitte] knew that interference was
certain or substantially certain to occur as a result of its
actions consistent with Sections 8A and 766 of the
Restatement (Second) of Torts and the comments thereto?
B. Did the [District Court] err in discounting [Zito Media’s]
factual allegations supporting a fiduciary relationship
between [Zito Media] and [Deloitte] and dismissing [Zito
Media’s] breach of fiduciary duty claim solely because [Zito
Media’s] officers were highly-educated?
Zito Media’s Brief, 1314 EDA 2016, at 2.
LACK OF JURISDICTION OVER APPEALS AT 1311, 1312, and 1314-
1319 EDA 2016
Appellants challenge the District Court’s two dismissal orders in their
appeals at 1311, 1312 and 1314-1319 EDA 2016. Deloitte argues that we
should quash these appeals due to lack of jurisdiction to review the District
Court’s orders. According to Deloitte, these orders, coupled with the remand
order, “effectively end[ed] the life of the matter in federal court” and made
the dismissal orders immediately appealable to the United States Court of
Appeals for the Second Circuit. Deloitte’s Brief at 1312 and 1319 EDA 2016,
at 17-18 (citing Berman v. Tyco Int’l Ltd., 492 Fed. Appx. 152, 154 (2d
Cir. 2012)). Since Appellants failed to appeal to the Second Circuit, Deloitte
contends, the dismissal orders are no longer subject to review “by any court,
either state or federal.” Deloitte’s Brief at 23 (citing Carr v. Am. Red
Cross, 17 F.3d 671, 678 (3d Cir. 1994)). Based on our analysis of City of
Waco, we agree.
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J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
To understand City of Waco’s role, we examine these proceedings
against the backdrop of statutes that govern removal, MDL and remand
proceedings. Deloitte removed Appellants’ action to the Bankruptcy Court
under 28 U.S.C. § 1452(a)6 because it was related to Adelphia’s pending
bankruptcy proceedings. Following removal, the JPML 7 transferred this case
to the District Court to coordinate this case with other MDL proceedings
pending against Adelphia.8 The District Court dismissed all but three claims
6 28 U.S.C. § 1452(a) provides:
A party may remove any claim or cause of action in a civil
action other than a proceeding before the United States
Tax Court or a civil action by a governmental unit to
enforce such governmental unit’s police or regulatory
power, to the district court for the district where such civil
action is pending, if such district court has jurisdiction of
such claim or cause of action under section 1334 of this
title.
28 U.S.C. § 1452(a).
This case was referred to the Bankruptcy Court pursuant to 28 U.S.C. §
157(a) and a standing order of the Eastern District of Pennsylvania. See
Shubert v. Law Offices of Paul J. Winterhalter, 531 B.R. 546, 550
(Bankr.E.D.Pa. 2015) (“Pursuant to 28 U.S.C. § 157(a) and the Standing
Order of Reference for this District, ‘any and all proceedings arising under
Title 11 or arising in or related to a chapter 7, 11, 12, or 13 case under Title
11 are and shall be referred to the Bankruptcy Judges for the district’).
7 The JPML “consist[s] of seven circuit and district judges designated from
time to time by the Chief Justice of the United States . . .” Id. § 1407(d).
8 The MDL statute, 28 U.S.C. § 1407, provides in relevant part: “When civil
actions involving one or more common questions of fact are pending in
different districts, such actions may be transferred to any district for
- 25 -
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by Appellants, denied reconsideration of the second dismissal order and
remanded this action to the Court of Common Pleas pursuant to 28 U.S.C. §
1452(b).9
Remand orders themselves are “not reviewable on appeal or
otherwise by the [federal] courts of appeals.” 28 U.S.C. § 1452(b). Further,
as a state court, we are bound by the District Court’s remand order and
must treat it as valid and enforceable. See Resolution Trust Corp. v.
Warwick Nurseries, Ltd., 675 A.2d 730, 732 (Pa. Super. 1996) (“state
courts are bound by the judgment of federal courts” and must give federal
proceedings full faith and credit (citation omitted)). The questions thus
become: what is the effect of the remand order? Where and when do
Appellants have the right to appeal the dismissal orders that preceded the
coordinated or consolidated pretrial proceedings.” Id. § 1407(a). The
transferee court oversees all pretrial and discovery proceedings, but not
trial. Id. The transfer “shall be made by the [JPML] upon its determination
that transfers for such proceedings will be for the convenience of parties and
witnesses and will promote the just and efficient conduct of such actions.”
Id.
9 28 U.S.C. § 1452(b) provides:
The court to which such claim or cause of action is
removed may remand such claim or cause of action on any
equitable ground. An order entered under this subsection
remanding a claim or cause of action, or a decision to not
remand, is not reviewable by appeal or otherwise by the
court of appeals under section 158(d), 1291, or 1292 of
this title or by the Supreme Court of the United States
under section 1254 of this title.
- 26 -
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District Court’s remand order? Appellants maintain that they can wait until
the conclusion of post-remand proceedings in the Court of Common Pleas
and then appeal the dismissal orders to this Court, as they attempt to do in
eight of their nine appeals. Deloitte counters that Appellants had the right
to appeal to the Second Circuit from the District Court, even though the
District Court did not dispose of all claims and all parties, and therefore
Appellants cannot wait until now to appeal.
City of Waco demonstrates that Deloitte is correct: the remand order
triggered Appellants’ right to appeal the dismissal orders to the Second
Circuit. In City of Waco, the plaintiff, a Texas citizen, sued contractors
Combs & Glade, also Texas citizens, and the City of Waco, Texas (“the City”)
in Texas state court alleging state law claims for injuries that the plaintiff
incurred when he ran his car into an obstruction in a public street. City of
Waco, 293 U.S. at 141. The City sued the United States Fidelity & Guaranty
Company (“USF&G”), a citizen of Maryland and surety on the contractors’
bond, alleging, as a matter of state contract law, that USF&G was obligated
as surety to pay any liability created against the City by the contractors’
acts. Id. USF&G removed the entire action to federal court, which
dismissed the City’s action against USF&G on the ground that USF&G was an
improper and unnecessary party. Id. at 141-42. The district court then
remanded the case to Texas state court because no basis for federal
jurisdiction existed once the claim against USF&G was dismissed from the
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case. Id. at 142. The City appealed the order dismissing its claim against
USF&G to the Fifth Circuit, which dismissed the appeal, “holding that, as no
appeal lies from an order of remand, the cause was irrevocably out of the
District Court, the action of that court in dismissing the city’s cross-action
was moot, and its propriety could not be reviewed.” Id. at 142-43. The
United States Supreme Court reversed. The Court held that the district
court’s remand order was not subject to review, but the order dismissing the
claim against USF&G was appealable, because “in logic and in fact the
decree of dismissal preceded that of remand and was made by the District
Court while it had control of the cause. Indisputably this order is the subject
of an appeal; and, if not reversed or set aside, is conclusive upon [the
City].” Id. at 143.
Under City of Waco, federal appellate courts have jurisdiction to
review decisions that are collateral to the remand order when (1) the
decision has a conclusive effect in subsequent proceedings, and (2) the
decision can be “disaggregated” from the remand order. Kircher v.
Putnam Funds Trust, 547 U.S. 633, 644 n.13 (2006). “The holding of
[City of] Waco is that when one case presents two distinct claims for relief,
and the district court finally resolves one while remanding the other, the
claim that was not remanded may be appealed within the federal system.”
Daniels v. Liberty Mut. Ins. Co., 484 F.3d 884, 888 (7th Cir. 2007)
(emphasis in original). The purpose underlying this rule is to provide an
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avenue of federal appellate review to parties who otherwise would have no
recourse if the district court dismisses some, but not all, of their claims and
then orders the case remanded to state court.
Two decisions recognize that City of Waco applies to bankruptcy
cases involving the same remand statute, section 1452(b), that the District
Court applied in the present case. See Good v. Voest-Alpine Indus.,
Inc., 398 F.3d 918, 922-24 (7th Cir. 2005) (citing In re Adams, 809 F.2d
1187, 1188-89 (5th Cir. 1987) (order dismissing party or claim and
preceding remand under section 1452(b) is appealable under City of
Waco)).
Many other decisions provide helpful illustrations of City of Waco in
non-bankruptcy cases.10 See Kircher, 547 U.S. at 644 n.13; see also
Regan v. Starcraft Marine, 524 F.3d 627, 631-32 (5th Cir. 2008) (where
district court dismissed claim against one defendant and remanded state law
claim to state court, appeals court had jurisdiction to review order dismissing
federal law claim under City of Waco, because it was separable in logic and
fact from remand order and would have preclusive effect in subsequent state
court proceedings); Daniels, 484 F.3d at 888; LLC Carlson v. Arrowhead
10 Although non-bankruptcy cases involve a different remand statute, 28
U.S.C. § 1447(d), we find these cases analogous, because section 1447(d)
contains similar (albeit not identical) language to section 1452(b), and the
rationale for applying City of Waco to these cases is the same as in
bankruptcy cases.
- 29 -
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J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
Concrete Works, Inc., 445 F.3d 1046, 1052 (8th Cir. 2006) (City of Waco
requires that reviewed decision be conclusive on parties and logically and
factually precedent to remand order); Morris v. T E Marine Corp., 344
F.3d 439, 445 (5th Cir. 2003) (“it is absurd to suppose that the proper
forum for Morris to appeal a federal district court’s summary judgment order
is the Louisiana state appellate court”) (emphasis in original); Hernandez
v. Seminole Cnty., 334 F.3d 1233, 1241 (11th Cir. 2003); Christopher v.
Stanley–Bostitch, Inc., 240 F.3d 95, 99 (1st Cir. 2001); Beneficial
Consumer Disc. Co. v. Poltonowicz, 47 F.3d 91, 93 (3d Cir. 1995) (in
action involving three parties, where district court dismissed action against
one defendant, the IRS, and remanded two parties’ claims against one
another to state court, order dismissing IRS was appealable under City of
Waco); Carr, 17 F.3d at 678 (order remanding case to state court
transformed prior order dismissing one of several defendants into final,
appealable order). The Second Circuit, which Deloitte contends is the only
court that had jurisdiction to review the District Court’s dismissal decisions,
has issued an unpublished decision applying City of Waco. See Berman,
492 Fed. Appx. at 152. There, the district court granted partial summary
judgment to the defendant on the plaintiff’s federal claim and one state law
claim and remanded the remaining state law claims to New York state court.
Id. at 153. The plaintiff appealed to the Second Circuit, which held that it
had jurisdiction to review the dismissal of the federal and state claims: “In
- 30 -
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J-A13042-17, J-A13043-17, J-A13044-17, J-A13045-17
[remanding the case], the district court effectively ended the life of the
matter in federal court. Thus the district court’s grant of a partial summary
judgment has become a final judgment for our purposes.” Id. at 154.
City of Waco and its progeny instruct that when a federal district
court dismisses claims or parties and remands the remaining claims to state
court, the dismissal order is immediately appealable to the federal court of
appeals. If the aggrieved party fails to timely appeal the resolved claim to
the federal court of appeals, that claim is beyond review by any court, either
state or federal. Because Appellants did not appeal the District Court’s
dismissal orders and order denying reconsideration to the Second Circuit,
they forfeited their right to appeal these orders.
Appellants argue that City of Waco only permits appeals to federal
appellate court when the district court dismisses federal law claims, but not
when the district court only dismisses state law claims, as happened in this
case. Zito I’s Reply Brief, 1312 and 1316 EDA 2016, at 5. City of Waco
itself defeats this argument, because no federal claims were involved in that
case. Instead, (1) two state law claims were removed to federal district
court, (2) the district court dismissed one state law claim and remanded the
second claim to state court, and (3) the Supreme Court held that the district
court’s decision as to the dismissed state law claim was appealable to the
Fifth Circuit. See City of Waco, 293 U.S. at 141-43. Therefore, so long as
the district court’s order is conclusive in later proceedings and can be
- 31 -
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“disaggregated” from the court’s remand order, Kircher, 547 U.S. at 644
n.13, the order is subject to immediate appeal to a federal appeals court,
regardless of whether it resolves federal claims alone, state claims alone or
both federal and state claims.
The test is not the source of the dismissed claims but whether there is
anything left for the district court to do other than remand the remaining
claims to state court. Here, after dismissing the lion’s share of state law
claims, there was nothing left for the District Court to do in this case other
than remand11 the remaining claims to state court. Thus, the remand order
was equivalent to a final, appealable order that triggered Appellants’ right to
appeal to the Second Circuit. Cf. Gelboim v. Bank of Am. Corp., 135
S. Ct. 897 (2015) (during MDL proceedings, order granting motion to dismiss
one discrete case in its entirety was immediately appealable, even though
other cases in MDL docket with unresolved issues remained unappealable).
Appellants also argue that City of Waco does not apply when, as
here, the state court proceedings were originally removed to Bankruptcy
Court under 28 U.S.C. § 1452 due to section 1452(b)’s mandate that “[a]n
order remanding a claim or cause of action . . . “is not reviewable by appeal
or otherwise by the court of appeals . . .” 28 U.S.C. § 1452(b). We
disagree. This statute only prescribes that the remand order itself is not
11Assuming that the District Court had jurisdiction to issue remand orders in
MDL proceedings. See n.12, infra.
- 32 -
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appealable; it does not preclude appeals of decisions collateral to the
remand order, such as the present dismissal orders. See Good, 398 F.3d at
922-24; Adams, 809 F.2d at 1188-89.
Because we lack jurisdiction over Appellants’ appeals at 1311, 1312
and 1314-1319 EDA 2016, we are constrained to quash these appeals.12
12One additional comment is necessary. We stated above that we are
bound by the District Court’s remand order. Our duty is not to determine
whether the order is valid but what effect it had on further proceedings.
Had we possessed the authority to review the validity of the remand order,
we might have concluded that the District Court lacked jurisdiction to enter a
remand order at the conclusion of MDL proceedings. The MDL statute
provides that at the conclusion of pretrial proceedings, the action “shall be
remanded by the [JPML] . . . to the district from which it was transferred
unless it shall have been previously terminated.” 28 U.S.C. § 1407(a).
Under this provision, the district court assigned to supervise MDL
proceedings (the “transferee” court) is not itself authorized to remand the
case; it may only suggest that the JPML remand the case to the transferor
court. See In re Wilson, 451 F.3d 161, 165 n.5 (3d Cir. 2006); U.S. ex
rel. Hockett v. Columbia HCA/Healthcare Corp., 498 F. Supp. 2d 25, 36
(D.D.C. 2007). This rule applies even when just one case remains on the
MDL docket. See Lexecon Inc. v. Milberg Weiss Bershad Hynes &
Lerach, 523 U.S. 26, 34 (1998); Wilson, 451 F.3d at 170.
Thus, although Appellants’ action was the final case in a lengthy series of
MDL cases relating to Adelphia, one might ask whether the District Court
lacked jurisdiction to remand Zito Media’s remaining claims to the Court of
Common Pleas. If it indeed lacked jurisdiction, all proceedings following the
remand order, including the present appeals, are nullities. But because we
cannot overrule the District Court’s remand order, any challenge to its
validity should be addressed to the District Court or the JPML, not us. We
express no view as to whether it is too late for any party to challenge this
order’s validity in federal court.
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APPEAL AT 1313 EDA 2016
With regard to the two claims of Zito Media remaining after remand,
which we review together, the Court of Common Pleas granted summary
judgment to Deloitte on the ground that Zito Media’s damages expert
improperly aggregated the valuations of all the Managed Entities and failed
to provide a reasonable calculation of damages specific to Zito Media. We
conclude that the expert’s methodology was reasonable, and that Zito Media
should have the opportunity to present his valuation to the jury.
Our review is governed by the following principles:
[S]ummary judgment is appropriate only in those cases
where the record clearly demonstrates that there is no
genuine issue of material fact and that the moving party is
entitled to judgment as a matter of law. When considering
a motion for summary judgment, the trial court must take
all facts of record and reasonable inferences therefrom in a
light most favorable to the non-moving party.
* * *
This clearly includes all expert testimony and reports
submitted by the non-moving party or provided during
discovery; and, so long as the conclusions contained within
those reports are sufficiently supported, the trial judge
cannot sua sponte assail them in an order and opinion
granting summary judgment. Contrarily, the trial judge
must defer to those conclusions . . . and should those
conclusions be disputed, resolution of that dispute must be
left to the trier of fact.
Summers v. Certainteed Corp., 997 A.2d 1152, 1159, 1161 (Pa. 2010)
(citations and quotation marks omitted). Further,
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the trial court must resolve all doubts as to the existence
of a genuine issue of material fact against the moving
party, and, thus, may only grant summary judgment
where the right to such judgment is clear and free from all
doubt. On appellate review, then,
an appellate court may reverse a grant of summary
judgment if there has been an error of law or an
abuse of discretion. But the issue as to whether
there are no genuine issues as to any material fact
presents a question of law, and therefore, on that
question our standard of review is de novo. This
means we need not defer to the determinations
made by the lower tribunals.
Id. at 1159 (citations and quotation marks omitted).
To satisfy its burden of proof as to damages, Zito Media had to furnish
“only a reasonable quantity of information from which the fact-finder may
fairly estimate the amount of damages.” Delehanty v. First Pennsylvania
Bank, N.A., 464 A.2d 1243, 1257 (Pa. Super. 1983).
[T]he fact-finder . . . may not render a verdict based on
speculation or guesswork. Yet, the fact-finder may make a
just and reasonable estimate of the damage based on
relevant data, and in such circumstances may act on
probable and inferential, as well as upon direct and
positive proof. Thus, the law does not demand that the
estimation of damages be completely free of all elements
of speculation. While the trier of fact may not use sheer
conjecture as a basis for arriving at a verdict, it may use a
measure of speculation in aiming at a verdict or an award
of damages, and an even greater degree of flexibility is
granted in regard to testimony concerning prospective or
future damages, which are at best, not always easy or
certain of ascertainment and are to a large extent based
on probabilities and uncertainties. So then, mere
uncertainty as to the amount of damages will not bar
recovery where it is clear that the damages were the
certain result of the defendant’s conduct.
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Id. (citations omitted).
In this case, Zito Media is the successor in interest to Coudersport TV,
one of the Managed Entities to whom Deloitte provided accounting services.
Zito Media submitted an expert report that Deloitte failed to exercise
reasonable care in its advice to the Managed Entities concerning the co-
borrowing agreements and its 2001 audit of co-borrowing groups.
Zito Media also retained Jeffrey Brandon of Waller Capital to provide
an expert report concerning the damages that Zito Media incurred due to
Deloitte’s alleged negligence. Brandon has seventeen years of Wall Street
experience in valuing cable and related industries. R.R. at 619a.13
Brandon explained that the cable industry lends itself to modeling, and
that models could form the basis for expert testimony about what the
Managed Entities’ financial condition would be like today but for Deloitte’s
conduct. Brandon identified the common variables and metrics used for
such valuation purposes, including homes passed growth, basic video
subscriber penetration, monthly revenue/basic video subscriber and EBITDA
margin. Id. at 628a-631a.
Michael Mulcahey, a former Adelphia employee in its treasury
department, gathered the historical data and developed models to project
the Managed Entities’ losses. Id. at 794a-802a. Brandon learned that
13 For the parties’ convenience, we cite to the reproduced record in the
course of summarizing the relevant evidence of Zito Media’s damages.
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Mulcahey obtained this information from SEC filings and books and records
kept by Adelphia and the Managed Entities. Id. Brandon also shared his
thoughts with Mulcahey about “what a model might look like . . . and how
one might go about building a model . . . [and] what common practice is in
terms of modeling cable companies.” Id. at 794a.
Mulcahey developed two models. Brandon tested the metrics in each
model and found both models reasonable. Id. at 638a. The first model
assumed that Deloitte’s advice concerning co-borrowing agreements had
never occurred, and that there were no co-borrowing agreements between
1999 and 2001. This model took into account historical financial data as of
December 31, 1998, prior to the 1999-2001 co-borrowing agreements, and
projected the Managed Entities’ losses through 2023. Id. at 627a. The
second model assumed that the Managed Entities entered into the 1999-
2001 co-borrowing agreements but did not default due to Deloitte’s refusal
to issue the audit opinion for the co-borrowing groups’ 2001 financials. This
model took into account historical financial data as of December 31, 2001
and also projected the Managed Entities’ losses through 2023. Id.
For each model, Brandon applied three common analytical processes
to determine a range of values for the Managed Entities: (1) publicly traded
cable company multiples; (2) recent cable company acquisition multiples;
and (3) discounted cash flow. Id. at 640a, 645a-647a, 650a, 652a.
Brandon concluded that but for Deloitte’s negligence, under the first model,
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the Managed Entities’ value ranged between $1.536 to $1.699 billion, and
under the second model, their value ranged between $2.191 to $2.436
billion. Id. at 722a, 724a. Brandon then apportioned these values between
the two plaintiffs in this action, Zito Media, the successor to Coudersport TV,
and Zito I, the successor to all other Managed Entities. In the first model,
based on subscriber data provided by Mulcahey,14 Brandon apportioned
3.21% of the Managed Entities’ value to Zito Media and the other 96.79% to
Zito I, resulting in a damage range for Zito Media between $49 and $55
million. Id. at 723a, 826a. In the second model, again based on subscriber
data provided by Mulcahey,15 Brandon apportioned 1.7% of the Managed
Entities’ value to Zito Media and 98.3% to Zito I, resulting in a damage
range for Zito Media between $37 and $41 million. Id. at 725a, 826a.
Deloitte argued, and the Court of Common Pleas agreed, that Brandon
only provided an aggregate damages figure for the Managed Entities but not
a specific damage figure for Zito Media. We disagree. Brandon first
provided an aggregate range of damages for the Managed Entities under
each model but then calculated a separate damage range for Zito Media—
14 Mulcahey prepared a spreadsheet showing that Coudersport TV owned
3.21% of Managed Entity subscribers for purposes of the first model. R.R.
823a, 826a.
15 Mulcahey prepared a spreadsheet showing that Coudersport TV owned
1.7% of Managed Entity subscribers for purposes of the second model. R.R.
824a, 828a.
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between $49 and $55 million under the first model and between $37 and
$41 million in the second model.
In Reading Radio, Inc. v. Fink, 833 A.2d 199 (Pa. Super. 2003), this
Court approved valuation methodology similar to Brandon’s. The plaintiff’s
expert in Reading Radio valued two radio stations as a package and then
deriving a separate value for the station in question. Id. at 209. The expert
observed that the radio industry would view the stations as a “combination,”
thus giving the station in question a higher value than if it were alone. Id.
Moreover, the expert ultimately provided a separate value for the station in
question. Id. Analogously, in this case, Zito Media asserted that
Coudersport TV was not operated by itself but as part of the Managed
Entities, which benefited collectively from operating efficiencies and group
buying power. R.R. 811a (declaration of James Rigas). Thus, Zito Media
has a reasonable basis for arguing that Brandon could take the Managed
Entities’ aggregate value into account when computing Zito Media’s
damages.
According to Deloitte, two decisions—Stevenson v. Economy Bank
of Ambridge, 197 A.2d 721 (Pa. 1964), and Wujcik v. Yorktowne Dental
Assoc., Inc., 701 A.2d 581 (Pa. Super. 1999)—demonstrate that “purely
amalgamated damages analyses such as that presented by Zito Media are
legally insufficient.” Deloitte’s Brief, 1313 EDA 2016, at 17. Neither
decision supports Deloitte’s argument. The issue in Stevenson was
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whether a bank was liable for improperly restricting the plaintiff’s access to
cash in a safe deposit box. Our Supreme Court held that the plaintiff could
only obtain nominal damages from the bank. Stevenson, 197 A.2d at 727.
The Court reasoned that the plaintiff was litigating her entitlement to the
cash in another court, and the outcome of that case would render the action
against the bank moot; if she was entitled to the cash, she would recover it
in the other action, and if she was not, she suffered no harm from the bank’s
conduct. Id. at 726-27. This decision has no relevance to the propriety of
Brandon’s expert opinion in the present case. In Wujcik, the plaintiff, a
dentist, agreed to work for a dental practice on condition that he receive
thirty-five percent of the fees actually collected by the practice. The plaintiff
did not prove what the practice actually collected but simply showed that
dentists customarily collect between 90-93% of accounts receivable. This
Court held that proof of dentists’ “average collection percentage would be
little more than pure speculation of the actual amount collected by [the
practice] on those accounts generated by [the plaintiff’s] work.” Wujcik,
701 A.2d at 584. In contrast, Brandon identified the range of damages
suffered not by the average cable company but specifically by Zito Media.
Deloitte contends that Brandon’s opinions are unreliable because he
simply accepted financial data provided by Mulcahey, a “disgraced Adelphia
insider” who helped Adelphia commit fraud. Deloitte’s Brief, 1313 EDA
2016, at 19, 20-21. The Rules of Evidence provide:
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An expert may base an opinion on facts or data in the case
that the expert has been made aware of or personally
observed. If experts in the particular field would
reasonably rely on those kinds of facts or data in forming
an opinion on the subject, they need not be admissible for
the opinion to be admitted.
Pa.R.E. 703. Here, Brandon was “made aware of” data that Mulcahey, a
financial officer at Adelphia, gathered for him. Deloitte has not
demonstrated that this data was inaccurate or fabricated, or that it is
unreasonable for a financial expert to rely on this type of data in formulating
his damages assessments. The thrust of Deloitte’s argument is that the data
is unreliable because Mulcahey himself is a fraudster. Deloitte’s Brief, 1313
EDA 2016, at 19-22. While Deloitte points to several examples that indicate
Mulcahey participated in financial wrongdoing at Adelphia, we cannot see
why Mulcahey’s conduct automatically invalidates the data that he gathered
for Brandon. Mulcahey’s credibility, or lack thereof, might be a subject for
the factfinder to weigh during trial,16 but it does not nullify Brandon’s opinion
as a matter of law.
Finally, Deloitte argues that the deposition testimony of Michael and
James Rigas proves that Zito Media suffered no damages. Although these
witnesses might not have pinpointed the exact amount of Zito Media’s
16Zito Media argues that findings of fact from a previous SEC action that
Deloitte raises as evidence of Mulcahey’s fraud are inadmissible in this case
under Pa.R.E. 403, 404(a)(1), 607(b) and 608(b)(1). Zito Media’s Brief at
1313 EDA 2016, at 9-10. We leave it to the Court of Common Pleas to
address these issues, assuming that they arise at all on remand.
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damages, Michael Rigas testified that Coudersport TV lost “all value at least”
and “all of [its] assets . . .” Zito Media’s Reply Brief, 1313 EDA 2016, at 10-
11. Thus, Zito Media did not admit that it suffered no damages whatsoever.
The amount of damages it suffered is a matter for the factfinder.
For these reasons, we quash all appeals except for Zito Media’s appeal
at 1313 EDA 2016. In 1313 EDA 2016, we remand for further proceedings
in accordance with this memorandum.
Appeals quashed at 1311, 1312, 1314, 1315, 1316, 1317, 1318 and
1319 EDA 2016. Order at 1313 EDA 2016 reversed and remanded for
further proceedings in accordance with this memorandum. Applications to
quash dismissed as moot. Application for post-submission communication
denied as moot. Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 10/27/2017
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