HomeMy WebLinkAbout2009-8336 Civil
TAM SYSTEMS, INC., : IN THE COURT OF COMMON PLEAS OF
Plaintiff : CUMBERLAND COUNTY, PENNSYLVANIA
:
v. :
: CIVIL ACTION
L CUBED CORPORATION, d/b/a :
TAM SYSTEMS, LEONARD L. :
LOBAUGH, JR. and MARTIN :
M. SACKS & ASSOCIATES, :
Defendants : NO. 09-8336 CIVIL TERM
IN RE: DEFENDANTS’ PRELIMINARY OBJECTIONS
TO PLAINTIFF’S COMPLAINT
BEFORE OLER and EBERT, JJ.
ORDER OF COURT
OLER, J., April 30, 2010.
In this civil action, Plaintiff, TAM Systems, Inc., has brought suit against L Cubed
Corporation, d/b/a TAM Systems, Leonard L. Lobaugh Jr., individually, and Martin M.
Sacks & Associates, arising out of a contract entered into between Plaintiff and
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Defendant L Cubed Corporation. For disposition at this time are preliminary objections
2
filed on behalf of Defendants L Cubed Corporation and Leonard L. Lobaugh, Jr., and
preliminary objections filed on behalf of Defendant Martin M. Sacks & Associates to
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Plaintiff’s complaint.
For the reasons stated in this opinion, the preliminary objections of Defendants L
Cubed Corporation and Leonard L. Lobaugh will be granted in part and denied in part,
and the preliminary objections of Defendant Martin M. Sacks & Associates will be
denied.
STATEMENT OF FACTS
1
Plaintiff’s Complaint, filed December 2, 2009.
2
Defendants L Cubed Corporation and Leonard L. Lobaugh, Jr.’s Preliminary Objections to Plaintiff’s
Complaint, filed January 19, 2010.
3
Preliminary Objections of Defendant Martin M. Sacks & Associates in Response to Complaint, filed
January 15, 2010.
The allegations of Plaintiff’s complaint may be summarized as follows:
Plaintiff TAM Systems, Inc. (hereinafter “TAM Systems”) is a Pennsylvania
corporation with its principal place of business at 1250 South Mountain Road, Dillsburg,
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York County, Pennsylvania. Defendant L Cubed Corporation d/b/a TAM Systems
(hereinafter “L Cubed”) is a Pennsylvania corporation with its principal place of business
5
at 1248 South Mountain Road, Dillsburg, York County, Pennsylvania. Defendant
Leonard L. Lobaugh, Jr. (hereinafter “Lobaugh”) is an adult individual who at all times
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relevant to the action has been the President of L Cubed. Defendant Martin M. Sacks &
Associates (hereinafter “Sacks”) is a Pennsylvania accounting firm with its principal
place of business at 4775 Linglestown Road, Harrisburg, Dauphin County,
7
Pennsylvania.
On March 1, 2006, TAM Systems entered into a contract for the sale of part of its
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business to L Cubed. The transaction was in the form of an asset sale in which L Cubed
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purchased the assets, goodwill and right to operate under the name of TAM Systems.
Paragraph 8(c) of the Asset Purchase Agreement read:
Buyer [L Cubed] shall pay to Seller [TAM Systems] ten percent (10%) of
Buyer’s Gross Profits derived from the business sold hereunder for a period
of six (6) years after the closing date. Buyer shall pay said Gross Profits to
seller within thirty (30) days of each anniversary of the Closing Date during
the said (6) year period. For the purposes of this Agreement, Gross Profits
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shall mean the gross profits as shown on Buyer’s tax return.
As of the closing date, all financial records were being maintained using a
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standard cost accounting system. In 2006, for the first year of the contract, a tax return
4
Plaintiff’s Complaint, ¶1, filed December 2, 2009.
5
Plaintiff’s Complaint, ¶2, filed December 2, 2009.
6
Plaintiff’s Complaint, ¶3, filed December 2, 2009.
7
Plaintiff’s Complaint, ¶4, filed December 2, 2009.
8
Plaintiff’s Complaint, ¶6, filed December 2, 2009.
9
Plaintiff’s Complaint, ¶7, filed December 2, 2009.
10
Plaintiff’s Complaint, ¶11, filed December 2, 2009.
11
Plaintiff’s Complaint, ¶17, filed December 2, 2009.
2
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was filed using the standard cost accounting system. Based upon a gross profit of
$1,362,375.00, L Cubed owed TAM Systems $136,237.50 under the terms of the Asset
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Purchase Agreement. L Cubed refused to pay any money due under the Asset Purchase
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Agreement, and instead filed an amended tax return utilizing the full absorption
1516
accounting method. This decreased L Cubed’s gross profit to $546,898. L Cubed
maintained this accounting practice through subsequent years; however, at no time has L
Cubed paid any money to TAM Systems due under the Asset Purchase Agreement, even
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as due under its altered accounting practices.
Defendant Lobaugh, while acting in his capacity as President of Defendant L
Cubed, conspired with Defendant Sacks to artificially lower the revenue earned by
Defendant L Cubed by using the full absorption accounting method instead of the
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standard accounting method. Defendant Sacks, at all times relevant, provided
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accounting services to Defendant L Cubed. Defendant Sacks provided, advised and
assisted Defendant L Cubed in changing its accounting methods for the purpose of
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reducing the amount owed to Plaintiff under the sales agreement.
Plaintiff brought suit in five counts against Defendants individually and
collectively, including (1) Breach of Contract against Defendants L Cubed and Lobaugh
(Count I), (2) Unjust Enrichment against Defendants L Cubed and Lobaugh (Count II),
(3) Quantum Meruit against Defendants L Cubed and Lobaugh (Count III), (4) Tortious
Interference with Existing Contractual Relationship against Defendant Sacks (Count IV),
12
Plaintiff’s Complaint, ¶25, filed December 2, 2009.
13
Plaintiff’s Complaint, ¶25, filed December 2, 2009.
14
Plaintiff’s Complaint, ¶28, filed December 2, 2009.
15
Plaintiff’s Complaint, ¶31, filed December 2, 2009.
16
Plaintiff’s Complaint, ¶33, filed December 2, 2009.
17
Plaintiff’s Complaint, ¶39-46, filed December 2, 2009.
18
Plaintiff’s Complaint, ¶31-38, 100-103, filed December 2, 2009.
19
Plaintiff’s Complaint, ¶99, filed December 2, 2009.
20
Plaintiff’s Complaint, ¶100-102, filed December 2, 2009.
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and (5) Civil Conspiracy against all Defendants (Count V). Plaintiff also is seeking a
declaratory judgment against Defendant L Cubed that “Gross Profits” must be calculated
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for tax years 2009-2012 using standard accounting practices (Count VI).
For disposition at this time are various preliminary objections of Defendants to
Plaintiff’s complaint. Defendants L Cubed and Lobaugh have filed four preliminary
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objections which may be summarized as follows. Their first preliminary objection, in
the nature of a demurrer, asserts that Plaintiff, in Counts I, II, III and V of its complaint,
has failed to allege facts necessary to support a conclusion that Leonard L. Lobaugh, Jr.,
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is individually liable on those claims. Defendants’ second preliminary objection, in the
nature of a demurrer, asserts that Plaintiff, in Count I of its complaint, has failed to allege
facts necessary to support a conclusion that L Cubed breached the Asset Sales Agreement
25
in its utilization of a full absorption accounting method. Defendants’ third preliminary
objection, in the nature of a demurrer, asserts that Plaintiff, in Counts II and III of its
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complaint, has failed to state a cause of action for unjust enrichment or quantum meruit.
Defendants’ fourth preliminary objection, in the nature of a demurrer, asserts that
Plaintiff, in Count V of its complaint, is foreclosed from bringing a cause of action for
civil conspiracy, as the gist of the action doctrine precludes a contract claim from being
27
raised as a tort claim.
21
Plaintiff’s Complaint, filed December 2, 2009.
22
Plaintiff’s Complaint, filed December 2, 2009.
23
Defendants L Cubed Corporation and Leonard L. Lobaugh, Jr.’s Preliminary Objections to Plaintiff’s
Complaint, filed January 19, 201.
24
Defendants L Cubed Corporation and Leonard L. Lobaugh, Jr.’s Preliminary Objections to Plaintiff’s
Complaint, filed January 19, 2010
25
Defendants L Cubed Corporation and Leonard L. Lobaugh, Jr.’s Preliminary Objections to Plaintiff’s
Complaint, filed January 19, 2010
26
Defendants L Cubed Corporation and Leonard L. Lobaugh, Jr.’s Preliminary Objections to Plaintiff’s
Complaint, filed January 19, 2010
27
Defendants L Cubed Corporation and Leonard L. Lobaugh, Jr.’s Preliminary Objections to Plaintiff’s
Complaint, filed January 19, 2010
4
Defendant Sacks has filed two preliminary objections, which may be summarized
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as follows. Defendant’s first preliminary objection, in the nature of a demurrer, asserts
that Plaintiff, in Count IV of its complaint, has failed to state a cause of action for tortious
interference, because Sacks was justified in recommending that its client utilize the full
absorption accounting method, a technique that was not prohibited under the Asset Sales
29
Agreement. Defendant’s second preliminary objection, in the nature of a demurrer,
asserts that Plaintiff, in Count V of its complaint, has failed to state a cause of action for
30
civil conspiracy.
Argument was held on February 17, 2010, relating to Defendants’
preliminary objections.
DISCUSSION
A preliminary objection to a complaint in the nature of a demurrer is appropriate
where the complaint is legally insufficient to sustain a cause of action recognized by law.
Pa. R.C.P. 1028(a)(4). Preliminary objections in the nature of a demurrer require the
court to resolve the issues solely on the basis of the challenged pleading; in general, no
testimony or other evidence outside of the pleading may be considered to dispose of the
legal issues presented by the demurrer. Cooper v. Church of St. Benedict, 2008 PA Super
171, ¶2, 954 A.2d 1216, 1218 (2008), citing Hess v. Fox Rothschild, LLP, 2007 PA Super
133, ¶18, 925 A.2d 798, 805, appeal denied, 596 Pa. 733, 945 A.2d 771 (2008).
When considering a demurrer to a complaint, the court must accept all material
facts set forth in the complaint, as well as all inferences reasonably deducible therefrom,
as admitted and true and decide whether, based on the facts averred, recovery is
impossible as a matter of law. Wagner v. Waitlevertch, 2001 PA Super 100, ¶6, 774 A.2d
1247, 1250, citing Wiernik v. PHH U.S. Mortg. Corp., 1999 PA Super 193, 736 A.2d
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Preliminary Objections of Defendant Martin M. Sacks & Associates in Response to Complaint, filed
January 15, 2010.
29
Preliminary Objections of Defendant Martin M. Sacks & Associates in Response to Complaint, filed
January 15, 2010.
30
Preliminary Objections of Defendant Martin M. Sacks & Associates in Response to Complaint, filed
January 15, 2010.
5
616, appeal denied, 561 Pa. 700, 751 A.2d 193 (2000). “A demurrer admits every well-
pleaded material fact set forth in the pleadings to which it is addressed as well as all
inferences reasonably deducible therefrom, but not conclusions of law.” Wicks v.
Milzoco Builders, Inc., 503 Pa. 614, 623, 470 A.2d 86, 91 (1983).
A demurrer should be sustained only if, after the averments of the complaint are
assumed to be true, the plaintiff has failed to assert a legally cognizable cause of action
and, therefore, cannot prevail. Lerner v. Lerner, 2008 PA Super 183, ¶11, 954 A.2d 1229,
1234, citing Kramer v. Dunn, 2000 PA Super 101, ¶18, 749 A.2d 984, 990.
The general rule in Pennsylvania is that “whenever a corporation makes a contract,
it is the contract of the legal entity of the artificial being created by the charter, and not
the contract of the individual members.” Wicks v. Milzoco Builders, Inc., 503 Pa. 614,
620, 470 A.2d 86, 89 (1983).
Pennsylvania recognizes two means by which individuals may be held liable for
actions of a corporation: by way of a piercing of the corporate veil and pursuant to the
participation theory. Nordi v. Keystone Health Plan West Inc., 2010 PA Super 11, ¶20, -
989 A.2d 376, 384.
Where the court pierces the corporate veil, the owner is liable
because the corporation is not a bona fide independent entity;
therefore, its acts are truly his. Under the participation theory, the
court imposes liability on the individual as an actor rather than as an
owner. Such liability is not predicated on a finding that the
corporation is a sham and a mere alter ego of the individual
corporate officer. Instead, liability attaches where the record
establishes the individual's participation in the tortious activity.
* * * *
The general, if not universal, rule is that an officer of a corporation
who takes part in the commission of a tort by the corporation is
personally liable therefore; but that an officer of a corporation who
takes no part in the commission of the tort committed by the
corporation is not personally liable to third persons for such a tort,
nor for the acts of other agents, officers or employees of the
corporation in committing it, unless he specifically directed the
particular act to be done or participated, or cooperated therein.
Id. (citations omitted).
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The prevailing view in Pennsylvania case law is that the participation theory is
applicable to claims sounding in tort, and not contract. See Nordi v. Keystone Health Plan
West Inc., 2010 PA Super 11, 989 A.2d 326; Parker Oil Co. v. Mico Petrol and Heating
Oil, LLC., 2009 PA Super 105, 979 A.2d 854; Com. ex rel. Corbett v. Manson, 903 A.2d
69 (Pa. Cmwlth 2006). A minority view suggests that the participation theory can be
applied in contract cases. See First Realvest, Inc. v. Avery Builders, Inc., 410 Pa. Super
572, 600 A.2d 601 (1991) (stating that “[s]hareholders, officers and directors are not held
liable for the corporation’s breach of contract, absent an establishment of the
participation theory . . . .” This view has been utilized in cases where the individual actor
has incurred personal obligations under the disputed contract. See In Re Eastern
Continuous Forms, Inc., 302 B.R. 320 (Bkrtcy. E.D. Pa. 2003).
In the present case, Plaintiff’s complaint fails to allege any specific promises made
under the contract by Defendant Lobaugh. Further, the complaint is silent with respect to
specific acts alleged to have been performed by Lobaugh other than to aver that “[a]ll
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actions taken by L Cubed . . . were taken at the direction of Lobaugh.” The demurrer of
Defendants L Cubed and Lobaugh to Counts I, II, and III of Plaintiff’s complaint as they
relate to Defendant Lobaugh will be granted.
To properly bring a claim for breach of contract, a plaintiff must allege, in the
complaint: “1) the existence of a contract, including its essential terms; 2) a breach of a
duty imposed by the contract; and 3) resultant damages.” Pittsburgh Construction Co. v.
Griffith, 2003 PA Super 374, ¶13, 834 A.2d 572, 580 (citations omitted). In the present
case, for the purposes of preliminary objections, Plaintiff’s complaint has satisfied this
requirement. Therefore, the second preliminary objection of Defendants L Cubed and
Lobaugh will be denied.
The Pennsylvania Rules of Civil Procedure permit causes of action and defenses to
be pled in the alternative. Pa. R.C.P. 1020(c); see Rollinson v. Clarke-DeMarco, 83 Pa.
D. & C.4th 467, 478 (Pa.Com.Pl., Mercer County 2007). Unjust enrichment and
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Plaintiff’s Complaint, ¶66, 80, 87, filed December 2, 2009.
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quantum meruit can be properly pleaded in the alternative to a breach of contract claim.
Id., citing, Birchwood Lakes Community Association Inc. v. Comis, 296 Pa. Super. 77, 86,
442 A.2d 304, 308 (1980); see also Lugo v. Farmers Pride, Inc., 2009 PA Super, 5, 967
A.2d 963. “Moreover, causes of action that are inconsistent are permitted so long as they
are pleaded at separate counts. . . . [T]heories of breach of contract and unjust
must
enrichment be pleaded alternatively in order to allow recovery under the latter
theory where an express contract cannot be proven . . . .” Lugo v. Farmers Pride, Inc.,
2009 PA Super, 5, ¶16, 967 A.2d 963, 970 (emphasis in original). At this stage of the
proceedings, it has not yet been determined whether the alleged express contract is valid,
and, as such, alternative pleadings of unjust enrichment and quantum meruit are proper.
Therefore, Defendant L Cubed and Lobaugh’s third preliminary objection will be denied.
An action for civil conspiracy must allege “(1) a combination of two or more
persons acting with a common purpose to do an unlawful act or to do a lawful act by
unlawful means or for an unlawful purpose, (2) an overt act done in pursuance of the
common purpose, and (3) actual legal damage.” Phillips v. Selig, 2008 PA Super 244,
¶46, 959 A.2d 420, 437. For purposes of a demurrer, Plaintiff has properly pleaded an
action for civil conspiracy. As pleaded, the alleged conspiracy involved the lawful act of
filing a tax return with the unlawful purpose of defrauding Plaintiff. The action is one
premised in tort, and, therefore, the gist of the action doctrine is inapplicable. Therefore,
the fourth preliminary objection of Defendants L Cubed and Lobaugh will be denied. For
these same reasons, Defendant Sacks’ second preliminary objection will also be denied
A pleading of tortious interference with contractual relations must allege the
following elements: “(1) the existence of a contractual relationship between the plaintiff
and a third party; (2) purposeful action on the part of the defendant intended to harm the
relationship; (3) the absence of privilege or justification on the part of the defendant; and
(4) actual damages resulting from the defendant's conduct.” Hillis Adjustment Agency,
Inc. v. Graham Co., 2006 PA Super 330, ¶12, 911 A.2d 1008, 1012.
The Pennsylvania Superior Court has recently adopted comment b of the
Restatement (Second) of Torts §772(a), which states:
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There is of course no liability for interference with a contract or with
a prospective contractual relation on the part of one who merely
gives truthful information to another. The interference in this
instance is clearly not improper. This is true even though the facts
are marshaled in such a way that they speak for themselves and the
person to whom the information is given immediately recognizes
them as a reason for breaking his contract or refusing to deal with
another. It is also true whether or not the information is requested.
Walnut Street Associates, Inc. v. Brokerage Concepts, Inc., 2009 PA Super 191, ¶10, 982
A.2d 94, 99 (quoting Restatement (Second) of Torts §772(a), comment b). The
Restatement (Second) of Torts § 772 (1979) states that “[o]ne who intentionally causes a
third person not to perform a contract or not to enter into a prospective contractual
relation with another does not interfere improperly with the other's contractual relation,
by giving the third person (a) truthful information, or (b) honest advice within the scope
of a request for the advice.” Id.
At this stage of the proceedings, it would be premature for the court to declare that
the alleged accounting advice of Defendant Sacks was made in good faith or was not
intended to deprive Plaintiff of the benefit of its contractual bargain. For this reason,
Defendant Sacks’ first preliminary objection must also be denied.
For the foregoing reasons, the following order will be entered:
ORDER OF COURT
th
AND NOW, this 30 day of April, 2010, upon consideration of the preliminary
objections filed on behalf of Defendants, following oral argument held on February 17,
2010, and for the reasons stated in the accompanying opinion, it is ordered and directed
as follows:
1.Defendants L Cubed Corporation and Leonard L. Lobaugh, Jr.’s
Preliminary Objections to Plaintiff’s Complaint, are granted in part and
denied in part. The demurrers relating to Plaintiffs’ claims against Leonard
L. Lobaugh, Jr., at Count I for breach of contract, at Count II for Unjust
Enrichment, and at Count III for Quantum Meruit are granted, these Counts
9
are dismissed as to Defendant Lobaugh, and the preliminary objections are
otherwise denied.
2.The Preliminary Objections of Defendant Martin M. Sacks & Associates in
Response to Complaint are denied; and
3.Defendants are afforded a period of 20 days from the date of this order to
file an answer to the surviving claims of Plaintiff.
BY THE COURT,
s/ J. Wesley Oler, Jr.
J. Wesley Oler, Jr., J.
David H. Martineau, Esquire
Salzmann Hughes P.C.
354 Alexander Spring Road
Suite 1
Carlisle, PA 17015
Attorney for Plaintiff
Arthur W. Lefco, Esquire
Christopher J. Conrad, Esquire
Marshall, Dennehey, Warner, Coleman & Goggin
1845 Walnut Street
Philadelphia, PA 19103
Attorney for Defendant Martin M. Sacks & Associates
Theodore A. Adler, Esquire
John H. Pietrzak, Esquire
Reager & Adler P.C.
2331 Market Street
Camp Hill, PA 17011
Attorneys for Defendants L Cubed Corporation
and Leonard L. Lobaugh Jr.
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TAM SYSTEMS, INC., : IN THE COURT OF COMMON PLEAS OF
Plaintiff : CUMBERLAND COUNTY, PENNSYLVANIA
:
v. :
: CIVIL ACTION
L CUBED CORPORATION, d/b/a :
TAM SYSTEMS, LEONARD L. :
LOBAUGH, JR. and MARTIN :
M. SACKS & ASSOCIATES :
Defendants : NO. 09-8336 CIVIL TERM
IN RE: DEFENDANTS’ PRELIMINARY OBJECTIONS TO PLAINTIFF’S
COMPLAINT
BEFORE OLER and EBERT, JJ.
ORDER OF COURT
th
AND NOW, this 30 day of April, 2010, upon consideration of the preliminary
objections filed on behalf of Defendants, following oral argument held on February 17,
2010, and for the reasons stated in the accompanying opinion, it is ordered and directed
as follows:
1.Defendants L Cubed Corporation and Leonard L. Lobaugh, Jr.’s
Preliminary Objections to Plaintiff’s Complaint, are granted in part and
denied in part. The demurrers relating to Plaintiffs’ claims against Leonard
L. Lobaugh, Jr., at Count I for breach of contract, at Count II for Unjust
Enrichment, and at Count III for Quantum Meruit are granted, these Counts
are dismissed as to Defendant Lobaugh, and the preliminary objections are
otherwise denied.
2.The Preliminary Objections of Defendant Martin M. Sacks & Associates in
Response to Complaint are denied; and
3.Defendants are afforded a period of 20 days from the date of this order to
file an answer to the surviving claims of Plaintiff.
BY THE COURT,
__________________
J. Wesley Oler, Jr., J.
David H. Martineau, Esquire
Salzmann Hughes P.C.
354 Alexander Spring Road
Suite 1
Carlisle, PA 17015
Attorney for Plaintiff
Arthur W. Lefco, Esquire
Christopher J. Conrad, Esquire
Marshall, Dennehey, Warner, Coleman & Goggin
1845 Walnut Street
Philadelphia, PA 19103
Attorney for Defendant Martin M. Sacks & Associates
Theodore A. Adler, Esquire
John H. Pietrzak, Esquire
Reager & Adler P.C.
2331 Market Street
Camp Hill, PA 17011
Attorneys for Defendants L Cubed Corporation
and Leonard L. Lobaugh Jr.