                                                                                                                           Opinions of the United
2006 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


6-28-2006

Finney v. Royal SunAlliance
Precedential or Non-Precedential: Non-Precedential

Docket No. 05-4426




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                                                                NOT PRECEDENTIAL

                      UNITED STATES COURT OF APPEALS
                           FOR THE THIRD CIRCUIT


                                     No. 05-4426


                             IN RE: DANIEL R. FINNEY,
                                               Debtor

                           ESTATE OF DANIEL FINNEY
                             d/b/a Finney Construction,
                                             Appellant

                                           v.

                 ROYAL SUNALLIANCE INSURANCE COMPANY
               a/k/a ROYAL INSURANCE COMPANY OF AMERICA;
                            PATRICK J. LOUGHNEY


                      Appeal from the United States District Court
                       for the Western District of Pennsylvania
                             (D.C. Civil No. 04-cv-01086)
                      District Judge: Honorable Arthur J. Schwab


                     Submitted Under Third Circuit LAR 34.1(a)
                                  May 18, 2006
             Before: RENDELL and VAN ANTWERPEN, Circuit Judges,
                        and ACKERMAN*, District Judge.

                                 (Filed June 28, 2006)




* Honorable Harold A. Ackerman, Senior District Judge for the District of New Jersey,
sitting by designation.
                               OPINION OF THE COURT


RENDELL, Circuit Judge.

       The Estate of Daniel Finney (“Finney”) appeals the District Court’s grant of

summary judgment in favor of defendants Royal SunAlliance Insurance Company

(“Royal”) and Patrick Loughney (“Loughney”) on Finney’s claims of wrongful use of

civil proceedings and abuse of the legal process. We agree with the District Court’s

analysis that Finney failed to offer evidence of various required elements of each of his

claims, and we accordingly will affirm.

                                             I.

       Fire destroyed Finney’s newly-remodeled house and barn in Elizabeth,

Pennsylvania in June 2000. The house was sparsely furnished, rarely occupied, and had

been on the market prior to the fire. At the time, Finney, a general contractor by trade,

was experiencing financial difficulties: he was behind on mortgage payments for the

Elizabeth home and for another rental property, and he owed taxes to the IRS. After the

fire, Finney made a claim to Royal based on the homeowner’s insurance policy he held

with them. During its subsequent investigation, Royal discovered that 1) the June 2000

fire was caused by arson and that Finney was (temporarily) a suspect in the criminal

investigation, 2) Finney had made a previous claim to another insurer based on a

November 1996 fire, later determined to be arson, that destroyed one of his rental

                                             2
properties, and 3) Finney failed to disclose the 1996 fire and subsequent payment of his

claim on his insurance application to Royal. Considering these facts to be “red flags,”

Royal denied Finney’s claim.

       Finney filed for bankruptcy and commenced an adversary action against Royal in

Bankruptcy Court1 for breach of contract and alleged violation of 42 Pa.C.S. § 8371,

which prohibited bad faith denial of insurance benefits. Loughney, who served as

Royal’s attorney for the majority of the bankruptcy proceeding, filed a counterclaim on

behalf of Royal, asserting that Finney had committed fraud in his application and

intentionally caused the June 2001 fire. The claims went to trial, and in April 2002, a

jury found that: 1) Royal was liable for breach of contract; 2) Royal had not acted in bad

faith; and 3) Finney had not committed fraud in his application nor had he committed

arson. The jury awarded damages to Finney in the amount of $147,225.54 on his breach

of contract claim, and the Court added prejudgment interest in the amount of $38,584.08.

       In April 2004, Finney filed a second adversary action in Bankruptcy Court. This

second action was also withdrawn to the District Court, whose ruling is the subject of

this appeal. Finney’s second amended complaint claimed: 1) wrongful use of civil

proceedings against both Loughney and Royal under Pennsylvania’s Dragonetti Act, 42.

Pa.C.S. § 8351 et seq., and 2) common law abuse of process against both defendants.



  1
   The action was later withdrawn to Federal District Court for the Western District of
Pennsylvania, having jurisdiction pursuant to 28 U.S.C. §157(d).

                                            3
Both Royal and Loughney filed motions for summary judgment that were granted by the

District Court. Finney appeals.

                                              II.

       This Court has jurisdiction pursuant to 28 U.S.C. 1291. We review a grant of

summary judgment de novo, applying the same test as the District Court. MBIA Ins.

Corp. v. Royal Indem. Co., 426 F.3d 204, 209 (3d Cir. 2005). Summary judgment is

proper when “the pleadings, depositions, answers to interrogatories, and admissions on

file, together with the affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to a judgment as a matter of law.”

Fed.R.Civ.P. 56(c). An issue of material fact is genuine only when such evidence could

cause a reasonable jury to return a verdict for the non-moving party. Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 248 (1986). When the non-moving party bears the burden of

proof at trial, the moving party’s burden may be discharged by showing an absence of

evidence to support the non-moving party’s case. Celotex Corp. v. Catrett, 477 U.S. 317

(1986). The burden then shifts to the non-moving party, who “may not rest on the mere

allegations or denials of the adverse party’s pleadings . . . but must set forth specific facts

showing that there is a genuine issue for trial.” Fed.R.Civ.P 56(e). If the adverse party

does not so respond, summary judgment shall be entered against the adverse party. Id.




                                               4
                                            III.

A. Wrongful Use of Civil Proceedings

       In Pennsylvania, the Dragonetti Act codifies the tort of wrongful use of civil

proceedings. 42 Pa.C.S. § 8351 et seq. A person who engages in “the procurement,

initiation or continuation of civil proceedings against another” may be held liable if: 1)

he or she acts in a grossly negligent manner or without probable cause; and 2) he or she

acts primarily for a purpose other than that of securing proper discovery, joinder of

parties or adjudication of the claim in which the proceedings are based, and 3) the

proceedings are terminated in favor of the person against whom they were brought. Id.

This third element is easily met, since defendants’ counterclaim was resolved in

plaintiff’s favor.2 We therefore turn to the first two elements to consider whether there is

any genuine issue of material fact, or whether defendants were entitled to judgment as a

matter of law.

       Having included a “probable cause” element, the Dragonetti Act goes further to

define its contours. Probable cause exists if:


  2
     Loughney argues that because Finney’s claims are merely an attempt to re-litigate the
issue of whether Royal acted in bad faith, his claim is barred by collateral estoppel.
Appellee Loughney’s Br. at 30; App. 340a. We do not agree. In order for a claim to be
barred under collateral estoppel, Pennsylvania law requires, inter alia, that the issue
decided in the prior action be identical to the one now presented. Rue v. K-Mart Corp.,
713 A.2d 82, 84 (Pa. 1998). Here, Finney does not attempt to re-argue that Royal acted in
bad faith when it denied his insurance claim; rather, Finney claims that Royal and
Loughney acted for an improper purpose and without probable cause when it filed its
counterclaim. These issues are distinct.

                                             5
           [A] person reasonably believes in the existence of the facts upon
           which the claim is based, and either:

           1) Reasonably believes that under those facts the claim may be valid
           under the existing or developing law;

           2) Believes to this effect in reliance upon the advice of counsel,
           sought in good faith and given after full disclosure of all relevant facts
           within his knowledge and information; [or]

           3) Believes as an attorney of record, in good faith that his
           procurement, initiation or continuation of a civil cause is not intended
           to merely harass or maliciously injure the opposite party.


42 Pa.C.S. § 8352. As the District Court properly held, a reasonable jury could not

conclude that Royal and Loughney lacked probable cause to file and pursue their

counterclaim. Not only did the defendants reasonably believe that the facts could support

their claim, but so did Finney’s own attorney and his own expert. Furthermore, there is no

question that defendants (as well as Finney’s attorney) believed the counterclaim would

be valid under existing law. Although Royal ultimately lost on the counterclaim, its

propriety was never in question. Finney has failed to offer any specific facts to support

his position that Royal and Loughney lacked a reasonable belief in the validity of the

claim and the underlying facts, and therefore defendants need not satisfy either of the

remaining two elements.

       We now examine the second prong, improper purpose. Although a counterclaim

may constitute the “continuation” of a civil proceeding and could be filed for improper

purposes, we examine such claims closely, “lest a defendant be punished for nothing more

                                               6
than defending himself or herself against a claim made by another.” Mi-Lor, Inc. v.

DiPentino, 654 A.2d 1156, 1158 (Pa. Super. Ct. 1995). Furthermore, “where an

unsuccessful litigant has acted in consultation with an attorney, the legislature has made it

quite difficult . . . for the successful defendant to prevail on a wrongful use of civil

proceedings claim in Pennsylvania.” Am. Int’l Airways, Inc. v. Am. Int’l Group, Inc., 816

F.Supp. 1058, 1064 (E.D.P.A. 1993). In the end, although Royal and Loughney may have

lacked sufficient proof to convince a jury to decide in their favor on their counterclaim,

that did not automatically make them liable under the Dragonetti Act. Id. Finney offers

only conjecture, no evidence, that the counterclaim was filed for an improper purpose. A

reasonable jury would not disagree that the underlying suit was simply “litigation . . .

unmarked by any of the varieties of outrageousness required to sustain a lawsuit under the

cited statute.” Mi-Lor, 654 A.2d at 1159. We agree with the observation of the District

Court that this “is not the stuff of which ‘wrongful use of civil proceedings’ actions are

made.” Finney v. Royal Sun Alliance Ins. Co., No. 04CV1086, 2005 WL 2106576, at *7

(W.D. Pa. Aug. 29, 2005).

B.     Abuse of Process

       To recover under a theory of abuse of process, plaintiff must show that the

defendant used the legal process against him in a way that constituted a perversion of that

process and caused harm to the plaintiff. Gen. Refractories Co. v. Fireman’s Fund Ins.

Co., 337 F.3d 297, 304 (3d Cir. 2003). The claim refers to the improper use of process


                                               7
during the course of the lawsuit, McGee v. Feege, 535 A.2d 1020, 1023 (Pa. 1987), and

applies whether or not such behavior is related to the underlying litigation, Gen.

Refractories, 337 F.3d at 305. “‘Abuse of process differs from malicious prosecution in

that the gist of the tort is not commencing an action or causing process to issue without

justification, but misusing or misapplying process justified in itself for an end other than

that which it was designed to accomplish.’” Id. (quoting In re Larsen, 616 A.2d 529,

592-93 (Pa. 1992)).

       Although we have recognized that parties who employed the legal process

“primarily intending to increase the burden and expense of litigation to the other side”

might be liable for abuse of process, we have also cautioned that such behavior must

“become so lacking in justification as to lose its legitimate function as a reasonably

justifiable litigation procedure.” Id. at 308. We noted that the purpose of avoiding

payment to the adverse party does not suffice to state an abuse of process claim. If that

were so, any party who defended a lawsuit but eventually lost could be held liable. Id. at

309.

       We have found abuse of process to exist where conduct has been truly abusive. In

General Refractories, we held that an abuse of process claim would be valid where a

party “intentionally withheld critical documents, ignored court orders, permitted false

testimony at depositions and misrepresented facts to opposing counsel and the court.” Id.

at 301. The defendants perverted the legal process by “engag[ing] in an intentional effort


                                              8
to obstruct legitimate discovery by using the claim of privilege” and attempting to hide

critical facts and discoverable documents. Id. at 302. In McGee, the Pennsylvania

Supreme Court upheld an abuse of process claim where a party filed more than ten

different petitions and motions related to a workman’s compensation claim, many in spite

of the Court’s order granting a petition to enforce judgment. 535 A.2d at 1021. Royal

and Loughney’s conduct has fallen far short of the behavior proscribed in these cases.

Royal and its attorney filed a compulsory counterclaim, amended it, and engaged in

discovery. Neither the District Court nor opposing counsel saw any reason to oppose or

dismiss the counterclaim. The case properly proceeded to trial, where Royal was unable

to convince the jury of its claims. We find nothing to constitute an abuse of process under

these facts.3

                                            IV.

       For the foregoing reasons, we will affirm the order of the District Court.




   3
    Contrary to Finney’s assertions, we do not dismiss his claim because Royal’s
counterclaim was related to the underlying litigation; rather, we do so because he failed to
offer any proof of improper purpose or perversion of the legal process.

                                             9
