J-A06008-20


NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

    HARRY SCHMIDT AND GARY SCHMIDT                 IN THE SUPERIOR COURT
                                                      OF PENNSYLVANIA
                             Appellants

                        v.

    ROBERT ROSIN, INDIVIDUALLY AND AS
    ROBERT ROSIN, ESQ.

                             Appellee                 No. 1310 EDA 2019


                   Appeal from the Order Entered April 2, 2019
              In the Court of Common Pleas of Philadelphia County
                        Civil Division at No: 2017-28489

BEFORE: STABILE, J., KING, J., and STEVENS, P.J.E.*

MEMORANDUM BY STABILE, J.:                              FILED JULY 08, 2020

        Appellants, Harry Schmidt (“Harry”) and Gary Schmidt (“Gary”), appeal

from an order granting the preliminary objections of Appellee, Robert Rosin,

Esquire, to Appellants’ second amended complaint (“SAC”) and dismissing the

SAC with prejudice in this legal malpractice action. We affirm in part, vacate

in part, and remand for further proceedings.

        The SAC alleges Harry and Gary Schmidt are father and son who live at

the same address in Jamison, Pennsylvania. SAC, ¶¶ 1-2. From 1965 until

2017, Appellee represented Harry for various legal matters. From 1967 until

2015, Harry had a business, H&R Industries, Inc. (“H&R”), and Appellee

handled H&R’s legal matters. Id. at ¶¶ 7-8.


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*   Former Justice specially assigned to the Superior Court.
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       The SAC claims that Appellee was negligent in two respects.        First,

Appellee allegedly provided negligent representation in an action brought by

Bollard & Associates against Harry and H&R for past due sales commissions

(“Bollard I”). The SAC states that in 2011, Appellee entered his appearance

on behalf of Harry and H&R (but not Gary) in Bollard I. On October 29, 2015,

a verdict was entered in favor of Bollard and against Harry and H&R in the

amount of $402,815.73.          On February 9, 2016, the trial court molded the

verdict and entered judgment against Harry and H&R in the amount of

$405,984.07.1 The SAC asserts that Appellee “negligently handled” Bollard I

by “failing to challenge the claimed damages and causing and resulting in an

excessive judgment.” SAC, ¶ 27(b).

       Second, the SAC alleges that in 2003, as Harry approached age 65, he

requested Appellee to transfer all of his assets to Gary for estate planning

purposes. Id. at ¶ 15. In April 2010, following Harry’s hospitalization for

illnesses, Harry “continued to make his estate planning requests to

[Appellee],” and Appellee “agreed and promised” to handle these requests.

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1 The SAC does not mention that Harry (but not H&R) appealed the judgment
to this Court at No. 1038 EDA 2016. Nevertheless, we take judicial notice of
this prior appeal under the precept that a court may take judicial notice of
other proceedings involving the same parties. Hvizdak v. Linn, 190 A.3d
1213, 1218 n.1 (Pa. Super. 2018). In a memorandum decision entered on
October 24, 2017, this Court affirmed the judgment against Harry. We held
that the evidence was sufficient to establish that Harry promised to pay a debt
that H&R owed to Bollard, notwithstanding Harry’s testimony denying that he
made any personal guarantee.



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Id. at ¶ 16.       In 2016, while Bollard I was pending, Appellee prepared

documents transferring Harry’s real estate and business interests in a

partnership, PA Associates, to Gary. Id. at ¶¶ 23-24. In December 2017,

Bollard filed an action against Appellants and Appellee alleging fraudulent

transfer of Harry’s assets in violation of Pennsylvania’s Uniform Fraudulent

Transfer Act2 (“Bollard II”). Id. at ¶ 25. As a result of Bollard II, Appellants

entered into an agreement to satisfy the judgment in Bollard I in the amount

of approximately $400,000.00. Id. at ¶ 26. Appellants allege that Appellee

was negligent for “failing to transfer the assets from [Harry] to [Gary] when

requested.” Id. at ¶ 27(a).

        Appellants commenced this action via writ of summons and then filed a

complaint on September 7, 2018. Appellee filed preliminary objections to the

complaint asserting, inter alia, that Appellants failed to state a cause of action.

Appellants filed an amended complaint.           In response, Appellee again filed

preliminary objections. On January 8, 2019, Appellants filed the SAC. Once

again, Appellee filed preliminary objections. On April 2, 2019, the trial court

sustained Appellee’s preliminary objections and dismissed the SAC for failing

to state a cause of action. Appellants filed a timely appeal, and the trial court

issued a Pa.R.A.P. 1925 opinion without ordering Appellants to file a statement

of matters complained of on appeal.

        Appellants raise three issues in this appeal:

____________________________________________


2   12 Pa.C.S.A. §§ 5101-5114 (referred to herein as “the PUFTA”).

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      1. Whether the Trial Court committed an error of law when it
      sustained the preliminary objections and dismissed [the SAC] on
      the grounds of demurrer [by] incorrectly stating that [Appellants]
      failed to allege sufficient facts to support a viable cause of action
      or on which [Appellee] could prepare a defense?

      2. Where [the SAC] alleges at paragraphs 5, 27, 27(b) and 28 that
      [Appellee] failed to defend, contest and challenge the damages
      claimed by Bollard & Associates in the underlying trial caused and
      resulted in an improper and excessive verdict causing financial
      losses in excess of $400,000, the trial court committed an error
      of law in ruling that [Appellants] failed to allege a viable legal
      malpractice cause of action?

      3. Where [the SAC] alleges at paragraphs 5, 9, 15, 16, 20, 22,
      23, 27, 27(a) and 28 that [Appellee] also failed to timely transfer
      Harry Schmidt’s assets to his son, Gary Schmidt prior to the
      Bollard Judgment, causing him to suffer financial losses in excess
      of $400,000, the trial court committed an error of law in ruling
      that [Appellants] failed to allege a viable legal malpractice cause
      of action?

Appellants’ Brief at 4.

      Our standard of review from the order granting Appellee’s preliminary

objections in the nature of a demurrer and dismissing the SAC is well-settled.

We must

      determine whether the trial court committed an error of law.
      When considering the appropriateness of a ruling on preliminary
      objections, the appellate court must apply the same standard as
      the trial court.

      Preliminary objections in the nature of a demurrer test the legal
      sufficiency of the complaint.       When considering preliminary
      objections, all material facts set forth in the challenged pleadings
      are admitted as true, as well as all inferences reasonably
      deducible therefrom.       Preliminary objections which seek the
      dismissal of a cause of action should be sustained only in cases in
      which it is clear and free from doubt that the pleader will be unable
      to prove facts legally sufficient to establish the right to relief. If
      any doubt exists as to whether a demurrer should be sustained, it

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      should be resolved in favor of overruling the preliminary
      objections.

Estate of Denmark ex rel. Hurst v. Williams, 117 A.3d 300, 305 (Pa.

Super. 2015).

      In their first two arguments, which we will address together, Appellants

contend the trial court erred by concluding that Appellants failed to state a

cause of action for legal malpractice against Appellee due to his negligence in

Bollard I. We conclude that the SAC states a valid cause of action as to Harry

but not as to Gary.

      To establish a claim of legal malpractice, the plaintiff must demonstrate

three elements: (1) employment of the attorney or other basis for a duty; (2)

the failure of the attorney to exercise ordinary skill and knowledge; and (3)

such negligence was the proximate cause of the damage to the plaintiff.

Kituskie v. Corbman, 714 A.2d 1027, 1029 (Pa. Super. 1998). Gary has no

cause of action against Appellee with regard to Bollard I, because the SAC

does not allege that Gary was a party in this action or that he retained Appellee

to represent him therein. Id.

      With regard to Harry, the SAC avers that Appellee “negligently handled”

Bollard I by “failing to challenge the claimed damages and causing and

resulting in an excessive judgment.”        SAC, ¶ 27(b).     In reviewing this

allegation, we must remember that even when a complaint is “less than a

model pleading,” it “may not be dismissed unless [we are] convinced that, as

a matter of law, no recovery is possible under the facts as pled.” McClellan

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v. Health Maintenance Organization of Pennsylvania, 604 A.2d 1053,

1056 (Pa. Super. 1992).    Although the SAC could have been clearer, we

construe it to allege that Appellee failed to challenge some or all of the

damages claimed by Bollard in Bollard I, and that such a challenge would have

reduced or eliminated the award against Harry. Moreover, a lower verdict

might have reduced the amount of Harry’s participation in the Bollard II

settlement. Thus, we cannot conclude that “as a matter of law, no recovery

is possible” for Harry under the SAC. Id.

     In their third argument, Appellants contend that Appellee was negligent

for failing to effectuate the timely transfer of Harry’s assets to Gary, thus

exposing those assets to execution in Bollard II. The trial court determined

that Appellants failed to allege that Appellee’s conduct caused damage to

Appellants. We disagree.

     Construing all averments in the SAC and all reasonable inferences

arising therefrom as true, we understand the SAC to allege the following:

     (1)   In 2003 and 2010, Harry asked Appellee to transfer Harry’s real

           and personal assets to Gary.

     (2)   In 2010, almost one year before Bollard filed suit in Bollard I,

           Appellee agreed to effectuate the transfers from Harry to Gary.

     (3)   Appellee did not prepare documents effectuating the asset

           transfers until 2016.




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      (4)   In 2016, Bollard I was being litigated.      As a result, the asset

            transfers could be deemed fraudulent conveyances, leaving the

            assets vulnerable to execution under PUFTA.

      (5)   Appellants were forced to settle Bollard II by paying $400,000.00

            to Bollard.

In our view, these allegations state a cause of action against Appellee for

failing to protect assets by effectuating their transfer to Gary at a time when

the transfer would not have been considered a fraudulent transfer and thus,

subject to execution to satisfy the judgment.

      The trial court asserts that another legal malpractice action, 412 North

Front Street Associates, L.P. v. Spector Gadon & Rosen, P.C., 151 A.3d

646 (Pa. Super. 2016), is similar to the present case.       Trial Ct. Op. at 3.

According to the trial court,

      the complaint [in 412 North Front Street] failed to offer
      essential facts explaining why plaintiff believed his lawyer had
      negligently handled promissory note litigation, leading to loss of
      plaintiffs’ real property at a sheriff’s sale. Also, as to causation,
      the 412 North Front Street complaint was devoid of facts
      showing how alleged malpractice led to the sheriff’s sale—or what
      the attorney should have done to achieve a different and better
      result.

Id. We see a distinction between 412 North Front Street and the present

case. In 412 North Front Street, this Court held that the trial court properly

sustained a demurrer to the plaintiffs’ complaint because the plaintiffs failed

to allege what the defendant law firm could have done to protect the plaintiffs’

property. We reasoned:

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      Most problematic for [the plaintiffs] was that no allegation
      provided a causal connection between either the alleged breach of
      contract or professional duty, respectively, and [the plaintiffs]’
      proclaimed losses.      Specifically, the complaint alleged that
      Abington Bank confessed judgment against all [the plaintiffs] after
      it declined [the plaintiffs]’ request, presented through the
      advocacy of [the law firm], to restructure or modify the terms of
      the loan agreement between the lender bank and [plaintiff] 412
      North Front Street. [The plaintiffs] failed to allege how, but for
      [the law firm]’s conduct, they would have avoided what, by every
      indication in the pleading, was Abington Bank’s inevitable
      collection of a defaulted loan through sheriff’s sale of property
      owned by 412 North Front Street. Allegations of fact essential to
      establishing that [the law firm]’s conduct caused [the plaintiffs]’
      losses were, therefore, absent from the complaint.

Id., 151 A.3d at 657.   Unlike the complaint in 412 North Front Street, the

SAC herein, accepted as true for present purposes, establishes what Appellee

should have done to protect Appellants’ interests. Had Appellee transferred

the assets when first requested in 2003 and then again in 2010, almost one

year before Bollard I, the assets would have been beyond Bollard’s reach

under PUFTA and Appellants would have been judgment proof. By failing to

transfer the assets until 2016, years after Bollard I began, Appellee left the

assets subject to execution under PUFTA, thus forcing Appellants to enter into

the settlement in Bollard II.

      Appellee argues that Harry fails to state a cause of action because “Harry

was not harmed by the non-transference of his assets. The result of Harry’s

assets not being transferred was that Harry had more assets tha[n] he

otherwise would have had if the transfers occurred.” Appellee’s Brief at 15.

Even assuming Harry “had more assets tha[n] he otherwise would have had,”


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the SAC alleges that he was forced to participate in the settlement at the level

he did in Bollard II as a result of having greater assets subject to execution.

Thus, the SAC satisfactorily alleges that Harry suffered financial harm and may

seek recovery from Appellee.

      Next, Appellee argues that Gary has no right of action because there is

no contractual privity between Gary and Appellee. Appellee emphasizes that

Harry alone, not Gary, employed Appellee to transfer the assets. In our view,

the SAC satisfactorily alleges that Gary has a right of action against Appellee

for breach of contract as a third party beneficiary of the agreement between

Appellee and Harry.

      A review of our Supreme Court’s jurisprudence on third party beneficiary

law places this issue in context. In Spires v. Hanover Fire Insurance Co.,

70 A.2d 828 (1950) (plurality), our Supreme Court held that in order for a

third party beneficiary to have standing to recover on a contract, both

contracting parties must express an intention that the third party be a

beneficiary, and this intention must affirmatively appear in the contract itself.

Id. at 830–31. However, in Guy v. Liederbach, 459 A.2d 744 (Pa. 1983),

the Court “overrule[d] Spires to the extent that it states the exclusive test

for third party beneficiaries.” Id. at 751.

      Guy allowed the beneficiary of a will to recover for legal malpractice

against an attorney, despite the fact that the beneficiary did not have privity

of contract with the attorney and was not named specifically as an intended


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beneficiary of the contract. Id. The plaintiff was expressly named as an heir

in an executed will, but the will was held invalid because the plaintiff herself

witnessed the testator’s signature, at the lawyer’s direction, and in violation

of then-applicable New Jersey law.

      Guy adopted Restatement (Second) of Contracts § 302 in determining

that the plaintiff had standing to make a claim as an intended third-party

beneficiary of the contract for legal services between the testator and his

lawyer. Id. The Court utilized the Section 302 analysis to devise the following

two-part test for determining whether a person is an intended third-party

beneficiary of a contract between others, such that the third party may enforce

the contract: (1) the recognition of the beneficiary’s right must be

“appropriate to effectuate the intention of the parties,” and (2) the

performance must “satisfy an obligation of the promisee to pay money to the

beneficiary” or “the circumstances indicate that the promisee intends to give

the beneficiary the benefit of the promised performance.” Id. at 751. The

Court stated the first part of the test sets forth a standing requirement, which

restricts application of the second part of the test, which in turn “defines the

intended beneficiary as either a creditor beneficiary (§ 302(1)(a)) or a donee

beneficiary (§ 302(1)(b)).” Id. The Court applied this test to hold that a third

party to a legal services contract has standing to bring an action against the

testator’s lawyer to enforce a failed legacy where “the intent to benefit [the




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third party] is clear and the promisee (testator) is unable to enforce the

contract.” Id. at 747.

       Nine years after Guy, the Court held in Scarpitti v. Weborg, 609 A.2d

147 (Pa. 1992), that purchasers of lots in a residential subdivision, who were

required by subdivision restrictions recorded of public record to have their

house construction plans reviewed and approved by an architect retained by

the subdivision developer, were intended beneficiaries of an implied contract

between the developer and the architect. Consequently, the purchasers had

a cause of action against the architect for any breach of said contract for his

alleged failure to properly review and approve the plans of other lot purchasers

in the subdivision. Blending the Spires and Guy rules, Scarpitti instructed

that a party becomes a third party beneficiary

       only where both parties to the contract express an intention to
       benefit the third party in the contract itself, Spires [], unless the
       circumstances are so compelling that recognition of the
       beneficiary’s right is appropriate to effectuate the intention
       of the parties, and the performance satisfies an obligation of the
       promisee to pay money to the beneficiary or the circumstances
       indicate that the promisee intends to give the beneficiary
       the benefit of the promised performance. Guy [].

Id., 609 A.2d at 150-51 (emphasis added).3

       In view of this jurisprudence, we conclude that the SAC asserts a right

of action by Gary against Appellee as a third party beneficiary.        The SAC


____________________________________________


3 The Supreme Court recently revisited the third party beneficiary doctrine in
Estate of Agnew v. Ross, 152 A.3d 247 (Pa. 2017). We address Agnew
infra and conclude it is distinguishable from the present case.

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alleges that Harry requested Appellee to transfer his assets to Gary, his son,

in 2003 and 2010, and Appellee “agreed and promised” in 2010 to carry out

the transfer. Id. at ¶¶ 15-16. Furthermore, Harry’s intentions never changed,

since Appellee ultimately prepared the transfers in 2016, and Harry executed

them at that time.    Id., ¶¶ 23-24.     Thus, recognition of Gary’s rights as

beneficiary is appropriate to effectuate Harry’s intention to transfer his assets

to Gary and Appellee’s intention to effectuate Harry’s request. Furthermore,

the circumstances indicate that Harry intended to give Gary the benefit of the

promised asset transfer. Scarpitti, 609 A.2d at 151.

      We recognize that in Agnew, the Supreme Court’s most recent decision

on third party beneficiary law, the Court held that beneficiaries who were

named in an unexecuted trust document could not claim status as third-party

beneficiaries of the legal contract between the testator and his attorney. Id.

at 264. The Court reasoned that unexecuted estate documents did not reliably

reflect the testator’s intent because “[a] testator may change an estate plan

at any time, adding and subtracting legatees, increasing and decreasing

bequests.” Id. at 263. Here, however, the SAC adequately alleges that Harry

intended to benefit Gary. Not only did Harry instruct Appellee twice to transfer

his assets to Gary, but in contrast to the testator in Agnew, Harry actually

executed documents in 2016 that transferred his assets to Gary. Thus, we do

not believe Agnew to apply to the third party beneficiary issue in this case.




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       Finally, Appellee asks us to affirm on the ground that Appellants’ action

is time-barred because eight years have elapsed between Harry’s second

request for transfer documents (2010) and the commencement of this case

(2018). Although we have the authority to affirm on any ground, Wilson v.

Plumstead Tp. Zoning Hearing Bd., 936 A.2d 1061, 1065 n.3 (Pa. 2007),

we decline to do so here. The statute of limitations is an affirmative defense

that should be raised in new matter.4 Pa.R.C.P. 1030. No new matter has

been filed in this case because the trial court dismissed this action at the

preliminary objection stage. Thus, it would be inappropriate to address the

statute of limitations at this juncture.

       For these reasons, we affirm the trial court’s order to the extent that it

dismissed Gary’s claim that Appellee provided negligent representation in

Bollard I. We vacate the trial court’s order to the extent that it dismissed (1)

Harry’s claim that Appellee provided negligent representation in Bollard I and

(2) the claim of both Appellants that Appellee failed to transfer Harry’s assets

to Gary in a timely manner that would have protected these assets from

Bollard’s reach.


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4 There is one exception to this principle. “Where a party erroneously asserts
substantive defenses in preliminary objections rather than to raise these
defenses by answer or in new matter, the failure of the opposing party to file
preliminary objections to the defective preliminary objections, raising the
erroneous defenses, waives the procedural defect and allows the trial court to
rule on the preliminary objections.” Richmond v. McHale, 35 A.3d 779, 782
(Pa. Super. 2012). This exception does not apply here, because Appellee did
not raise the statute of limitations in his preliminary objections to the SAC.

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     Order affirmed in part and vacated in part. Case remanded for further

proceedings in accordance with this memorandum. Jurisdiction relinquished.



Judgment Entered.




Joseph D. Seletyn, Esq.
Prothonotary



Date: 7/8/2020




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