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HomeMy WebLinkAbout88-11 equityPAUL C. HASSLER and T.M. PARTS and MANUFACTURING, INC., PLAINTIFFS Vo RICHARD P. VALK, JOHN HIPPENSTEEL, VALK MANUFACTURING COMPANY, V&H RUBBER COMPANY, DEFENDANTS IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA 11 EQUITY 1988 IN RE: DISCOVERY OPINION AND ORDER OF COURT BAYLEY, J., February 18, 1999:-- On August 8, 1996, we entered the following Decree Nisi: (1) V & H Rubber Company shall account to plaintiff, Paul C. Hassler, for his share of the distributions paid to Richard Valk and John Hippensteel. (2) Richard Valk shall pay Paul Hassler compensatory damages of $54,266 plus pre-judgment legal interest. The interest through July 26, 1996, is $25,273. (3) Paul Hassler's claim for punitive damages, IS DENIED. (4) Paul Hassler's complaint against Valk Manufacturing Company, IS DISMISSED.1 Exceptions to the Decree were denied by an order of October 14, 1996. On November 20, 1997, the Superior Court of Pennsylvania affirmed the award of $54,266 in compensatory damages against Richard Valk. It reversed the denial of the claim of Paul Hassler for punitive damages with a remand "[f]or a determination of punitive 1. Plaintiff settled with defendant John Hippensteel. 11 EQUITY 1988 damages.''2 On June 19, 1998, the Supreme Court of Pennsylvania denied review.3 Plaintiff then sought discovery against Richard Valk on his claim for punitive damages.4 Pa. Rule of Civil Procedure 4003.7 provides: A party may obtain information concerning the wealth of a defendant in a claim for punitive damages only upon order of the court setting forth appropriate restrictions as to the time of the discovery, the scope of the discovery, and the dissemination of the material discovered. (Emphasis added.) The parties could not agree to the scope and the dissemination of the discovery under this Rule. The following order was entered on October 13, 1998: (1) On or before December 1, 1998, defendant Richard Valk shall submit to Robert L. O'Brien, Esquire, counsel for Paul C. Hassler, a pro forma balance sheet setting forth his net worth. (2) Robert L. O'Brien, Esquire shall not disclose to anyone, even Paul C. Hassler, the contents of the pro forma balance sheet. If counsel is satisfied that this discovery is complete in order to proceed to trial on the issue of punitive damages, he shall schedule a hearing. At trial, the court will entertain a motion by defendant to protect the confidentiality of his financial information. (3) If counsel deems the discovery incomplete, he shall schedule another conference with counsel before this court. It has been represented by counsel for plaintiff and defendant that Richard Valk complied with paragraph 1 of the order by submitting a pro forma balance sheet to plaintiff's counsel disclosing his net worth at approximately [ ] dollars. Counsel for plaintiff deemed the discovery incomplete. Plaintiff seeks further 2. 706 A.2d 1262 (1997). 3. 1998 Pa. LEXIS 1245 (1998). 4. Richard Valk paid the compensatory damages of $54,266, plus interest, to Paul Hassler. -2- 11 EQUITY 1988 discovery of Valk's income tax returns for 1985 through 1991, or in the alternative a disclosure of his gross, taxable, and net income for those years,s Additionally, noting that under Pa. Rule of Civil Procedure 4003.1 (a) it is "a party" who may obtain discovery, plaintiff seeks an amendment to the protective order of October 13, 1998, that he personally as well as his counsel may see Richard Valk's pro forma balance sheet and any other discovery that may now be ordered. Defendant objects to the request for the discovery of his tax returns and income between 1985 and 1991, arguing under Pa. Rule of Civil Procedure 4003.1, that such information is not relevant to plaintiff's claim for punitive damages. Defendant further objects to the disclosure of any discovery ordered under Rule 4003.7 to the plaintiff personally on the basis that there is an animosity between them whereby he fears that plaintiff will disclose such personal information to his detriment. Goodrich Amran 2d 4003.7 states: New Rule 4003.7 places under the control of the court the discovery of information concerning the wealth of a defendant when there is a claim for punitive damages... The term 'wealth' found in the rule is used by the Supreme Court of Pennsylvania in Kirkbride v. [Lisbon] Contractors Inc., 521 Pa. 97, 555 A.2d 800 (1989) and by the Restatement of Torts Second, § 908(2), 5. The years 1985 through May 31, 1991 constituted the period that Richard P. Valk and John Hippensteel operated defendant, V & H Rubber Company, while improperly availing themselves of a corporate opportunity by freezing out plaintiff Paul C. Hassler. The compensatory damages awarded to plaintiff from Richard Vaik of $54,266 was one-third of $162,799 that was distributed by V & H Rubber Company to Richard Valk through May 31, 1991, before V & H Rubber Company was dissolved. -3- 11 EQUITY 1988 cited in Kirkbride. However, many cases, both appellate and common pleas court, and texts use the term 'net worth' alone or in addition to 'wealth.' In Kirkbride, the Supreme Court of Pennsylvania cited Section 908(2) of the Restatement (Second) of Torts, that provides: Punitive damages may be awarded for conduct that is outrageous, because of the defendant's evil motive or his reckless indifference to the rights of others. In assessing punitive damages, the trier of fact can properly consider the character of the defendant's act, the nature and extent of the harm to the plaintiff that the defendant caused or intended to cause and the wealth of the defendant. (Emphasis added.) Pa. Rule of Civil Procedure 4011(b) limits discovery that would cause unreasonable embarrassment to a party. As noted by the Court of Common Pleas of Allegheny County in Faherty v. Schreiber, 129 P.L.J. (1981): [b]ecause a party seeking punitive damages has limited need for detailed information as to the opposing party's financial status and because the disclosure of such information will constitute a more substantial invasion of a party's privacy, we hold that Pa.R.C.P. 4011 bars disclosure of such information in the absence of a showing after general information as to a party's financial status has been disclosed that more detailed information is needed in order to evaluate and prepare the punitive damage claim or because there is cause to question to the accuracy of the general information which has been disclosed. In the case sub iudice, the net worth of defendant disclosed pursuant to the order of October 13, 1998, limiting the scope of discovery pursuant to Pa. Rule of Civil Procedure 4003.7, provides plaintiff with sufficient information to evaluate, prepare and present his claim for punitive damages. From 1985 to 1991 when defendant was usurping the corporate opportunity of plaintiff by freezing plaintiff out -4- 11 EQUITY 1988 of the operation of V & H Rubber Company, defendant ultimately earned $108,533 from V & H Rubber Company ($162,799 less the one-third $54,266 he paid to plaintiff in compensatory damages). Neither defendant's tax returns nor his gross and net earnings during that period that included income from his other extensive business interests are relevant on the issue of punitive damages. The character of defendant's acts has been established. The nature and extent of the harm to plaintiff has been established, i.e., freezing him out of V & H Rubber Company and withholding his one- third share of distributions totalling $54,266.6 Defendant has disclosed his substantial net worth and because the acts and the circumstances involving the motive of the wrongdoer and the relations between the parties has been established the request for discovery of the more detailed financial information concerning defendant in the years that the wrongful conduct occurred will be denied. See Kirkbride v. Lisbon Contractors, Inc., supra. We belatedly agree with plaintiff that the limitation in the order of October 13, 1998, as to the dissemination of the information as to the wealth of the defendant that has been discovered is too restrictive pursuant to Rule 4003.7. Plaintiff, Paul C. Hassler, as a party pursuant to Rule 4003.1(a), has a right to know the information discovered in order to properly evaluate his claim for punitive damages. We will allow 6. V & H Rubber Company was the successor corporation of T.M. Parts and Manufacturing, Inc. The three shareholders of T.M. Parts were Paul Hassler, Richard Valk and John Hippensteel. In prior litigation in this court at 800 Civil 1986, Hassler recovered $44,059.50 plus interest from each defendant after they froze him out of that corporation. -5- 11 EQUITY 1988 plaintiff's counsel to share the information discovered with plaintiff subject to the restriction that plaintiff shall not disclose to anyone the contents of defendant's pro forma balance sheet. Should plaintiff violate the restriction, sanctions will be swift and meaningful. Lastly, plaintiff seeks to reopen the record to produce testimony as to how the harm he suffered as a result of defendant's wrongful conduct affected him. Not only did the Superior Court in remanding the case "[flor a determination of punitive damages," not direct the opening of the record, for that purpose, the proposed testimony is not relevant. Plaintiff's complaint in equity sought an accounting by V & H Rubber Company, compensatory damages of one-third share of the distributions of the company to its shareholders, and punitive damages. The extent of the harm to plaintiff that defendant intended to cause and caused was to freeze plaintiff out of the company and deny him his one-third share of the distributions. That conduct and the harm to plaintiff is what the Superior Court held was "sufficiently outrageous to warrant the imposition of punitive damages." The record is complete except for the introduction of the evidence of the wealth of defendant. For the foregoing reasons, the following order is entered. ORDER OF COURT AND NOW, this ~,'~%ay of February, 1999, IT IS ORDERED: (1) The motion of plaintiff for additional discovery under Pa. Rule of Civil Procedure 4003.7, IS DENIED. -6- 11 EQUITY 1988 (2) The motion of plaintiff to amend the restrictions in the order of October 13, 1998, as to the dissemination of the information discovered pursuant to Pa. Rule of Civil Procedure 4003.7, IS GRANTED. (3) The order of October 13, 1998, IS AMENDED as follows. The pro forma balance sheet submitted by Richard Valk to Robert L. O'Brien, Esquire, may be disclosed by counsel to plaintiff, Paul C. Hassler. Paul C. Hassler shall not disclose the contents to anyone. (4) The motion of plaintiff to reopen the record to present additional evidence as to punitive damages, except for the admission of the pro forma balance sheet, IS DENIED. Robert L. O'Brien, Esquire For Paul C. Hassler Thomas A. French, Esquire For Richard P. Valk B. Bayley~J/ :saa -7-