J-A21018-19


NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

 ZITO MEDIA, L.P.,                     :    IN THE SUPERIOR COURT OF
                                       :         PENNSYLVANIA
                   Appellant           :
                                       :
                                       :
              v.                       :
                                       :
                                       :
 DELOITTE & TOUCHE, LLP                :    No. 3033 EDA 2018

            Appeal from the Order Entered September 6, 2018
   In the Court of Common Pleas of Philadelphia County Civil Division at
                     No(s): 06280 March Term, 2004


BEFORE: BOWES, J., OLSON, J., and FORD ELLIOTT, P.J.E.

MEMORANDUM BY OLSON, J.:                        March 25, 2020

     Appellant, Zito Media, L.P., appeals from the order entered September

6, 2018, granting Deloitte & Touche, LLP’s (“Deloitte”) motion for summary

judgment. We vacate and remand.


     The factual history has been summarized as follows:

     [I]n 1952, John Rigas purchased a cable television franchise for
     the small town of Coudersport, Pennsylvania. Over the next thirty
     years, John [Rigas] acquired additional cable companies.

     In 1985, John [Rigas] hired Deloitte to provide him and his
     companies with accounting and auditing services. John [Rigas]
     ran the companies with his sons[,] James [Rigas], Timothy
     [Rigas], and Michael [Rigas]. In July 1986, they reorganized five
     of the companies into a single holding company, Adelphia
     [Communications     Corporation    (“Adelphia”)],   which    they
     subsequently took public. Rigas family members (including John
     [Rigas], James [Rigas], Timothy [Rigas], Michael [Rigas], and
     members of their immediate families) retained voting control over
     Adelphia. The family privately owned another set of companies
     (the "Managed Entities") that Adelphia managed for a fee:
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     [including Coudersport Television Cable Company, Inc.
     (“Coudersport”)].     [Coudersport’s] assets eventually were
     transferred to Zito Media.[FN 2] None of the Managed Entities had
     any employees. In addition, the Rigas family held partnerships
     (the "Rigas Family Partnerships" or "RFPs") that owned interests
     in the Managed Entities and in Adelphia securities.

        [FN2] It appears that Zito Media does not own any assets
        other than those transferred by [Coudersport].

Island Partners, Inc., et al. v. Deloitte & Touche, LLP, 2017 WL 4862765,

*11-12 (Pa. Super. October 27, 2017) (unpublished memorandum) (citations

to record omitted).

     Deloitte began providing services to Adelphia and its affiliates in
     the 1980s, but the audit services that form the basis for this
     lawsuit were provided between 1996 and 2002. In 1996, as part
     of its growth plan as a cable TV operator, Adelphia and several
     related entities, including Coudersport, entered into the first of
     several Co-Borrowing debt agreements, which are described by
     one of [Zito Media’s] expert witnesses, [] as follows:

        An element of Adelphia's approach to continually source
        financing involved the use of Co-Borrowing debt agreements
        with various bank syndicates whereby certain Adelphia
        subsidiaries and [RFP’s] would be grouped as the borrowers.
        The first Co-Borrowing group credit facility [involving Zito
        Media’s predecessor Coudersport] was established February
        28, 1996, as amended March 29, 1996, for the amount of
        $200,000,000.     []The banks' Co-Borrowing agreements
        required the submission of audited combined financial
        statements for each of the respective Co-Borrowing groups.
        As a result, Deloitte's scope of audit services expanded as
        the firm was engaged to perform audits of each of the
        separate    Co-Borrowing     groups'    combined    financial
        statements.

     According to [Zito Media's] liability expert []the significant
     Co-Borrowing debt incurred by Adelphia-related entities should
     have been treated differently than was done in the audits Deloitte
     performed for the Adelphia entities for fiscal years 1996-2001:



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       In order to finance business activity, a basic concept is that
       of a single company borrowing funds via a term loan or a
       line of credit facility with a single bank. In a direct and
       straightforward process, the single company records receipt
       of the borrowed funds and thereafter makes payments on
       the outstanding balance pursuant to terms of the loan
       agreement. The balance of the bank debt outstanding is
       then reported as a financial statement element in the
       company's balance sheet at any point in time for a specific
       report date (i.e. - December 31st) with typical reference
       such as note payable or long-term debt.

       The Co-Borrowing bank debt reported as an element of the
       Adelphia and Co-Borrowing group[’s] financial statements
       was not of a nature having the direct one-to-one single
       company to single bank relationship. In each instance, it
       involved several Adelphia subsidiaries and [RFPs] put
       together as a Co-Borrowing group and several banks put
       together as a syndicate to provide the loan or credit facility.
       The arrangement was different and more complex than the
       basic one-to-one scenario. Deloitte audit engagement staff
       however, viewed the Co-Borrowed debt no differently than
       other bank debt of Adelphia and the Co-Borrower groups.
       Deloitte failed to consider or chose to ignore that the
       Co-Borrowing debt was different in substance [than] the
       other bank debt.

       Based upon the expert's review of Deloitte work paper
       documents available in this matter, it is evident that the
       framework for the Adelphia audit work remained generally
       consistent over seven financial statement audit reporting
       dates from 1996 through 2001 particularly with respect to
       Co-Borrowing bank debt.

       Despite the new Co-Borrowing agreement entered into [on]
       March 29, 1996, [which, again, featured multiple
       Adelphia-related borrowers securing funds from multiple
       bank participants in the credit facility,] there is no mention
       of its occurrence in the Audit Planning Memo or the Audit
       Summary Memorandum. There is also no mention of any
       risk regarding off balance sheet debt. The initial 1996 audit
       is what served as the basis for Deloitte's performance on
       each subsequent audit up to March 27, 2002. Deloitte's
       Co-Borrowed debt accounting determination was that the
       joint and several liability provision was a contingent liability

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       akin to a guarantee of the indebtedness of other
       Co-Borrowers. Therefore[,] the contingency was not to be
       recorded on Adelphia's books, but only disclosed in the
       financial statements.

       Deloitte's understanding included a view that the
       Co-Borrowing arrangements allowed "the Co-Borrowers to
       determine" who was the particular borrower with respect to
       the allocation of debt reflected on the respective
       Co-Borrower's financial statements. This view is striking
       considering the nature of the Co-Borrowing debt structure
       and related accounting process maintained and/or
       controlled by Adelphia.     For example, Deloitte admits
       knowledge no later than 2000 that "co-borrowed debt
       originally recorded on one co-borrower's books was moved
       -- or 'reclassified' -- to another co-borrower's books.”
       Deloitte also admits knowledge no later than 2000 that
       Co-Borrowed funds were used to acquire Adelphia stock.
       Such factors should have been red-flags to the Deloitte
       engagement team.

     Fiscal Year 2001 was the second time that [Zito Media's]
     predecessor, Coudersport, was a Co-Borrower, and the amount of
     the 2001 Co-Borrowing credit facility was over $2 billion. When
     Deloitte undertook the [Fiscal Year ]2001 audit in early 2002, it
     apparently proceeded in the same manner as it had in prior years
     until late March[] 2002, when the SEC began to ask questions
     about Deloitte's "audit performance regarding Co–Borrowing
     debt."

       Adelphia issued an earnings press release on March 27,
       2002[,] reporting its "Full Year 2001 Results," which was
       reviewed by Deloitte beforehand. Adelphia was left with the
       understanding that the audit was substantially complete but
       for some miscellaneous closing items. Adelphia also held a
       conference call with investors and analysts the same day.
       We understand the press release included for the first time
       an explicit disclosure of the amount of Co-Borrowing debt
       outstanding[, but] not recorded on Adelphia's balance
       sheet. There appears to be no dispute in this matter that
       after the press release, the stock market reacted negatively
       to the Co-Borrowing debt information and Adelphia's stock
       value dropped.




                                   -4-
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      At that point, Deloitte apparently refused to issue an audit similar
      to the ones it had issued in past years, so "Adelphia and the
      Co-Borrowing groups were left unable to file their financial reports
      by the respective April 1, 2002, and April 30, 2002 deadlines."
      Adelphia and its affiliates sought bankruptcy protection and [John
      Rigas and Timothy Rigas] were convicted of fraud in connection
      with their management of Adelphia and related companies,
      including the incurrence and treatment of the Co-Borrowing debt.

Trial Court Opinion, 9/6/18, at 2-5 (footnotes, original brackets and ellipses

omitted).

      Procedurally, Appellant filed suit in the Court of Common Plea of

Philadelphia County (“trial court”) against Deloitte in 2004, alleging, inter alia,

breach of contract, professional negligence, and negligent misrepresentation.

Deloitte removed the case to the United States Bankruptcy Court for the

Eastern District of Pennsylvania due to the relationship the case had with

Adelphia’s, and its affiliates’, pending bankruptcy. A federal Judicial Panel on

Multidistrict Litigation transferred the case to the United States District Court

for the Southern District of New York (“district court”) as part of the

multidistrict litigation relating to the collapse of Adelphia and its affiliates. In

June 2013, Appellant filed an amended complaint with the district court.

Deloitte filed a motion for summary judgment that the district court granted,

in part, with regard to Appellant’s breach of contract claim and denied, in part,

as to Appellant’s professional negligence and negligent misrepresentation

claims.     In re Adelphia Communications Corp. Sec. and Derivative

Litig., No. 03 MDL 1529 (JMF), 2013 WL 6838899, at *13 (S.D.N.Y. December

27, 2013) (unpublished opinion).


                                       -5-
J-A21018-19



       Upon Appellant’s filing of a second amended complaint with the district

court, Deloitte filed a motion for summary judgment arguing Appellant’s

claims were barred by the doctrine of in pari delicto. Id., 2014 WL 6982140,

at *10 (S.D.N.Y. December 10, 2014) (unpublished opinion).             The district

court denied the motion and transferred the case back to the trial court. Id.

at *11.

       Deloitte, thereafter, successfully moved for summary judgment with the

trial court on the ground that Appellant’s expert failed to provide a reasonable

calculation of damages.         Island Partners, 2017 WL 4862765, at *10.

Appellant appealed the trial court’s decision, and this Court reversed the order

granting summary judgment. Id. at *11. The case was remanded to the trial

court for further proceedings. Id.

       On March 26, 2018, Deloitte filed a motion for summary judgment,

which is the subject of this appeal. In its motion, Deloitte argued, inter alia,

that Appellant’s claims were precluded as a matter of law by the doctrine of

in pari delicto. Deloitte’s Motion for Summary Judgment, 3/6/18, at 38 ¶ 231.

The trial court granted Deloitte’s motion for summary judgment on September

6, 2018.     Trial Court Opinion, 9/6/18.        Appellant filed a timely notice of

appeal.1

____________________________________________


1 The trial court did not direct Appellant to file a concise statement of matters
complained of on appeal pursuant to Pa.R.A.P. 1925(b). On October 29, 2018,
the trial court filed a Rule 1925(a) opinion wherein it relied on its September
6, 2018 opinion and order granting the motion for summary judgment. Trial
Court Opinion, 10/29/18.

                                           -6-
J-A21018-19



      Appellant raises the following issues for our review:

         1. Whether the [trial court] erred by overruling the
            [district court’s] prior rejection of Deloitte's in pari
            delicto    defense    during    multidistrict  litigation
            proceedings?

         2. Whether the [trial court] erred on the merits by
            granting summary judgment to Deloitte based on the
            in pari delicto defense?

         3. Whether the [trial court] erred in concluding that one
            of [Appellant’s] two damages theories could not go to
            a jury?

         4. Whether the [trial court] erred in entertaining [a
            theory] of summary judgment that Deloitte failed to
            raise in the [district court] during the first round of
            summary []judgment proceedings, in the [trial court]
            during the second round of summary []judgment
            proceedings, or during the previous appeal to this
            Court?

         5. Whether the [trial court] erred in granting summary
            judgment to Deloitte?


Appellant’s Brief at 5.

      We begin by addressing Appellant’s claim that the trial court erred in

granting the motion for summary judgment based on the in pari delicto

defense in contravention of the coordinate jurisdiction rule, as this issue is

dispositive of the appeal.

      Our standard of review of an order granting a motion for summary

judgment is well settled.

      [A]n 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

                                      -7-
J-A21018-19


      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 [trial court].

Summers v. Certainteed Corp., 997 A.2d 1152, 1159 (Pa. 2010) (citation

omitted). “To the extent that [an appellate court] must resolve a question of

law, we shall review the grant of summary judgment in the context of the

entire record.” Id.

      Appellant argues the trial court, in determining that the in pari delicto

defense precluded its claims against Deloitte and that Deloitte was entitled to

summary judgment, erred because the coordinate jurisdiction rule prohibited

the trial court, as the transferee court, from overruling the resolution of this

same issue by the transferor district court. Appellant’s Brief at 24-25.

      “[T]he coordinate jurisdiction rule commands that upon transfer of a

matter between trial judges of coordinate jurisdiction, a transferee trial judge

may not alter resolution of a legal question previously decided by a transferor

trial judge.”   Zane v. Friends Hosp., 836 A.2d 25, 29 (Pa. 2003), citing

Commonwealth v. Starr, 664 A.2d 1326, 1331 (Pa. 1995). “Departure from

the rule is allowed in exceptional circumstances when there has been a change

in the controlling law or where there was a substantial change in the facts or

evidence. [A]n exception is permitted where the prior holding was clearly

erroneous and would create a manifest injustice if followed.” Zane, 836 A.2d

at 29 (citation and original quotation marks omitted).

      Here, the trial court determined that the district court’s denial of

Deloitte’s motion for summary judgment was in error because the district

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court “did not take into consideration the fact that Coudersport[, which was

the predecessor-in-interest of Appellant,] participated as a co-borrower in the

fraudulent borrowing scheme for which John Rigas, Coudersport's sole owner,

was convicted” and “did not consider this Commonwealth's ‘public interest in

relieving [its] courts from lending their offices to mediating disputes among

wrongdoers.’” Trial Court Opinion, 9/6/18, at 13 n.43 (brackets in original).

      Appellant contends the district court’s decision was not erroneous.

Appellant’s Brief at 26-29. Appellant argues that Coudersport’s participation

as a co-borrower in the loans was a well-known fact that the district court

properly considered. Id. at 27-28. Appellant also asserts the district court

properly applied Pennsylvania’s law of in pari delicto and took into

consideration the Commonwealth’s interests. Id. at 28-29.

      Deloitte contends that John Rigas’s criminal convictions “focused on the

accounting of co-borrowing at . . . Coudersport” and that John Rigas, and

others, “actively committed fraud on behalf of Coudersport” when he signed

management representation letters stating there was no fraud of any kind

surrounding the co-borrowing agreements. Deloitte’s Brief at 33-34. Deloitte

avers that the district court’s decision not to impute John Rigas’s fraud onto

Coudersport was erroneous.     Id.   Deloitte also argues that the coordinate

jurisdiction rule did not apply because the case before the trial court was at a

different point in the procedural posture than when the case was before the

district court and that additional evidence had been presented to the trial

court. Id. at 28-33.

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      In determining whether the trial court’s order granting summary

judgment contravened the coordinate jurisdiction rule, we must examine

whether the district court’s denial of summary judgment was, in fact,

erroneous.

      Our Supreme Court in Official Comm. of Unsecured Creditors of

Allegheny       Health       Educ.      and       Research       Found.       v.

PriceWaterhouseCoopers, LLP, 989 A.2d 313 (Pa. 2010) (“AHERF”)

explained that in order for the in pari delicto defense to apply, “Pennsylvania

requires the plaintiff be an active, voluntary participant in the wrongful

conduct or transaction(s) for which it seeks redress, and bear substantially

equal or greater responsibility for the underlying illegality as compared to the

defendant.”    AHERF, 989 A.2d at 329, citing Bateman Eichler, Hills

Richards, Inc. v. Berner, 472 U.S. 299, 306-307 (1985) (stating, the

defense “derives from the Latin, in pari delicto potior est conditio defendentis:

‘In a case of equal or mutual fault ... the position of the [defending] party ...

is the better one.’”). The AHERF Court stated, “in pari delicto serves the

public interest by relieving courts from lending their offices to mediating

disputes among wrongdoers, as well as by deterring illegal conduct.” AHERF,

989 A.2d at 329 (citation omitted).       When the plaintiff is a corporation,

applicability of the in pari delicto defense turns on whether the actions of the

corporate principal’s agent, who committed the wrongful acts, may be imputed

to the corporate principal. Id. at 330 n.20, 333. “[W]here an agent acts in

his own interest, and to the corporation's detriment, imputation generally will

                                     - 10 -
J-A21018-19



not apply.” Id. at 333 (explaining, “the imputation doctrine recognizes that

principals generally are responsible for the acts of agents committed within

the scope of their authority.”), citing Todd v. Skelly, 120 A.2d 906, 909 (Pa.

1956). Further, a corporate principal whose agent has acted for the benefit

of the corporation with culpability exceeding that of the defendant will be

denied recovery based upon imputation of fraudulent deeds. AHERF, 989

A.2d at 336.     Absent clear evidence of the agent’s wrongdoing, the

determination of whether the agent acted in his or her own self-interest to the

detriment of the corporate principal or the inquiry into whether the agent’s

actions benefited the corporate principal are “questions steeped in fact and

open to legitimate differences among reasonable minds.” Id. at 337 (citation

omitted).

      Here, a review of the district court’s opinion demonstrates the district

court, recognizing the long history of this case, understood that Appellant,

through its predecessor, Coudersport, was one of the Managed Entities and

Rigas Family Partnerships, collectively known as RFPs, that were frequently

the co-borrowers in the co-borrowing agreements with Adelphia.          In re

Adelphia Communications Corp. Sec. and Derivative Litig., 2014 WL

6982140, at *1-2, *10. The district court further considered that John Rigas,

who wholly owned Appellant’s predecessor, Coudersport, was convicted of

fraud in connection with the co-borrowing agreements, including those

involving Appellant. Id. at *10. The district court then considered whether

John Rigas’s acts of wrongdoing could be imputed to Appellant thereby barring

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Appellant’s cause of action under Pennsylvania’s law of in pari delicto; a

principle recognizing that no court should lend its hand in aiding a party who

grounds its action upon an immoral or illegal act.           Id.   In considering

Pennsylvania’s law surrounding the in pari delicto defense, the district court

stated,

      Deloitte may ultimately be able to make [a showing that John
      Rigas committed the fraud in the course of his employment with
      Coudersport]—after all, John Rigas was convicted of fraud in
      connection with his dealings with the Managed Entitie[s] and RFPs,
      one of which was Coudersport—but, drawing all inferences in
      [Appellant’s] favor, the [district c]ourt cannot say that it has done
      so sufficiently to grant it summary judgment. At bottom, Deloitte
      points to little more than the indictment against John Rigas and
      the jury's verdict in the criminal trial. The indictment, however,
      is hearsay, and thus not evidence upon which the [district c]ourt
      can rely.

      And while the jury necessarily found that John Rigas engaged in
      fraud—making application of the in pari delicto [defense] against
      him an easier call—given the general nature of the jury's verdict,
      it cannot be said that the jury necessarily found that he did
      so in his capacity as an officer or sole shareholder of
      Coudersport as opposed to his capacity as an officer of
      Adelphia or the other entities.

Id. (citations omitted, emphasis added). Having identified a genuine issue of

material fact requiring resolution at trial, the district court determined that

Deloitte was not entitled to summary judgment based upon the in pari delicto

defense. Id.

      Based upon our review of the district court’s analysis as set forth in its

opinion, we find the trial court erred in finding that the district court’s decision

was erroneous. Specifically, the trial court erred in its determination that the


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J-A21018-19



district court failed to consider Appellant was a co-borrower in the

co-borrowing agreements that formed a part of John Rigas’s fraud conviction,

and that the district court was not mindful that the objective of the in pari

delicto defense was to alleviate judicial mediation of disputes between two

wrongdoers. Furthermore, we find no merit to Deloitte’s argument that an

exception to the coordinate jurisdiction rule existed because there were

substantial changes to the facts or in the procedural posture of the case before

the trial court.

       Under the coordinate jurisdiction rule, the trial court was bound by the

decision of the district court that factual issues remained as to whether John

Rigas’s wrongful actions could be imputed to Appellant and, if imputed,

whether John Rigas’s wrongdoing exceeded Deloitte’s alleged wrongdoing

thereby requiring a grant of summary judgment pursuant to the in pari delicto

defense.     Therefore, the coordinate jurisdiction rule precluded entry of

summary judgment in Deloitte’s favor.              Consequently, we vacate the

September 6, 2018 order and remand the case for proceedings consistent with

this memorandum.2
____________________________________________


2 Appellant also claims the trial court erred in concluding that one of
Appellant’s two theories of damages could not be presented to the jury.
Appellant’s Brief at 40-43. Appellant argues this Court previously determined
that both damages theories could be presented to the jury, and the law of the
case doctrine precludes the trial court from altering this Court’s previous
resolution of that legal question. Id. at 41-43; see also Mariner Chestnut
Partners, L.P. v. Lenfest, 152 A.3d 265, 282 (Pa. Super. 2016) (stating, law
of the case doctrine mandates “upon remand for further proceedings, a trial



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J-A21018-19



       Order vacated. Case remanded. Jurisdiction relinquished.



Judgment Entered.




Joseph D. Seletyn, Esq.
Prothonotary



Date: 3/25/20




____________________________________________


court may not alter the resolution of a legal question previously decided by
the appellate court in the matter”).

We find this issue not yet ripe for appellate review. Commonwealth ex rel.
Kane v. UPMC, 129 A.3d 441, 473 (Pa. 2015) (stating, doctrine of ripeness
seeks to avoid appellate court prematurely adjudicating controversy, thereby
becoming entangled in resolving abstract or hypothetical issue, whenever
party has yet to suffer concrete harm that can be alleviated through appellate
review).

Here, the trial court granted Deloitte’s motion for summary judgment on the
basis of the in pari delicto defense. In doing so, the trial court remarked that
Appellant’s first theory of damages (1999 Damages) was the only theory
under which Appellant could recover and that Appellant conceded as such.
Trial Court Opinion, 9/6/18, at 7-8, 8 n.25. Because the September 6, 2018
order does not specifically grant or deny Appellant the right of recovery under
one or more damages theories, we find this issue is not yet ripe for appeal.
Nonetheless, a review of this Court’s previous decision in this matter
demonstrates that this Court held both damages theories are viable means of
potential recovery, and the credibility of those theories and the amount of
damages suffered by Appellant, if any, are issues for the factfinder. Island
Partners, 2017 WL 4862765, at *34-42.

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