Official Comm. of Unsecured Creditors v. Baldwin, 10cv800

OFFICIAL COMMITTEE OF UNSECURED CREDITORS,on behalf of the estate of LEMINGTON HOME FOR THE AGED, Plaintiff,

v. ARTHUR BALDWIN; JEROME BULLOCK; ANGELA FORD; JOANNE ANDIORIO; J.W. WALLACE;TWYLA JOHNSON; NICOLE GAINES; WILLIAM THOMPKINS; ROY PENNER; MEL CAUSEY;JAMES SHEALEY; RENEE FRAZIER; CLAUDIA ALLEN; EUGENE DOWNING; GEORGE CALLOWAY;B.J. LEBER; and REVEREND RONALD PETERS, Defendants.

10cv800

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA

Dated: May 17, 2013

ELECTONICALLY FILED

MEMORANDUM OPINION RE: DEFENDANTS' MOTION FOR JUDGMENT

AS A MATTER OF LAW, NEW TRIAL, OR A REMITTITUR (DOC. NO. 646)

I. Introduction

This prolonged litigation began on May 26, 2006, with the filing of an adversary proceeding in the United States Bankruptcy Court for the Western District of Pennsylvania by the Official Committee of Unsecured Creditors, on behalf of Lemington Home for the Aged ("Plaintiff") against former Officers and Directors of Lemington Home for the Aged ("Defendants"¹). Doc. No. 1. On August 26, 2006, this Court denied Defendants' Motion to Withdraw the Reference. Official Comm. of Unsecured Creditors ex rel. Lemington Home forthe Aged v. Baldwin (In re Lemington Home for the Aged), 06cv931, (W.D. Pa. Aug. 26, 2006). On June 10, 2010, the United States Bankruptcy Court for the Western District of Pennsylvania transferred the case to this Court. Doc. No. 279.

On October 25, 2010, this Court granted summary judgment to Defendants on all of Plaintiff's claims. Official Comm. of Unsecured Creditors ex rel. Lemington Home for the Aged v. Baldwin (In re Lemington Home for the Aged) ("Lemington I"), 2010 WL 4275252 (W.D. Pa. Oct. 25, 2010). The United States Court of Appeals for the Third Circuit reversed, holding that there was sufficient evidence to support Plaintiff's claims and that the case had to proceed to a jury trial. Official Comm. of Unsecured Creditors ex rel. Lemington Home for the Aged v. Baldwin (In re Lemington Home for the Aged) ("Lemington II"), 659 F.3d 282 (3d Cir. 2011).

On October 31, 2011, the Court set the case for trial. After an extended and deliberative pre-trial process, and on the eve of trial, Defendants filed a Petition for Leave to File an Interlocutory Appeal and a Petition for Writ of Mandamus on the basis of time limits for trial set by this Court. On March 23, 2012, the United States Court of Appeals for the Third Circuit dismissed Defendants' Petition for Leave to File an Interlocutory Appeal for lack of jurisdiction. Official Comm. of Unsecured Creditors ex rel. Lemington Home for the Aged v. Baldwin (In re Lemington Home for the Aged), 11-8098 (3d Cir. Mar. 23, 2012). On November 26, 2012, the United States Court of Appeals for the Third Circuit denied Defendants' Petition for Writ of Mandamus. In re Baldwin, 700 F.3d 122 (3d Cir. 2012).²

The case proceeded to a jury trial on February 19, 2013, and lasted six days. At the close of Plaintiff's case-in-chief, this Court granted Director Defendants' Motion for Judgment as a Matter of Law as to Count I- Duty of Loyalty, denied Officer Defendants' Motion for Judgment as a Matter of Law as to Count I, and denied all Defendants' Motion for Judgment as a Matter of Law as to Count II- Duty of Care and Count III- Deepening Insolvency. Doc. No. 585. Following the close of Defendants' case-in-chief, the Court granted Plaintiff's unopposed Motion for Judgment as a Matter of Law as to the defense of in pari delicto. Doc. No. 599. The Court denied all other Motions for Judgment as a Matter of Law made during the trial. Doc. No. 599.

After three days of deliberation, the jury returned a verdict against 15 of the 17 Defendants (all but Defendants Frazier and Allen), jointly and severally, in the amount of $2,250,000. The jury also awarded punitive damages in the amount of $350,000, individually, against Director Defendants Baldwin, Bullock, Andiorio, Johnson, and Thompkins. The jury awarded punitive damages in the amount of $1 million against Officer Defendant Shealey and $750,000 against Officer Defendant Causey. In total, the jury awarded $5,750,000 in damages to Plaintiff. Doc. No. 606.

Currently before the Court is Defendants' Motion for Judgment as a Matter of Law, New Trial, or a Remittitur (Doc. No. 646) which will be DENIED for the reasons set forth below.

II. Judgment as a Matter of Law - All Counts

A. Standard of Review

Defendants are entitled to judgment as a matter of law pursuant to Federal Rule of Civil Procedure 50(b), if after the close of evidence, "there is no legally sufficient evidentiary basis for a reasonable jury to find for" Plaintiff. Rhone Poulenc Rorer Pharms. Inc. v. Newman Glass Works, 112 F.3d 695, 697 (3d Cir. 1997). If the record contains even "the minimum quantum of evidence upon which a jury might reasonably afford relief," the verdict must be sustained. Buczek v. Continental Cas. Ins. Co., 378 F.3d 284, 288 (3d Cir. 2004) (quoting Glenn Distribs. Corp. v. Carlisle Plastics, Inc., 297 F.3d 294, 299 (3d Cir. 2002)); see also Marion v. TDI Inc., 591 F.3d 137, 146 (3d Cir. 2010); Eshelman v. Agere Sys., Inc., 554 F.3d 426, 433 (3d Cir. 2009).

A motion for judgment as a matter of law may be granted only if, viewing the evidence in the light most favorable to the non-movant and giving it the advantage of every fair and reasonable inference, there is insufficient evidence from which a jury reasonably could find liability. Wittekamp v. Gulf & W. Inc., 991 F.2d 1137, 1141 (3d Cir. 1993).

As set forth by the United States Court of Appeals for the Third Circuit:

In determining whether the evidence is sufficient to sustain liability, the court may not weigh the evidence, determine the credibility of witnesses, or substitute its version of the facts for the jury's version. Although judgment as a matter of law should be granted sparingly, a scintilla of evidence is not enough to sustain a verdict of liability. The question is not whether there is literally no evidence supporting the party against whom the motion is directed but whether there is evidence upon which the jury could properly find a verdict for that party.

Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1166 (3d Cir. 1993) (citations and internal quotation marks omitted); see also Williamson v. Consol. Rail Corp., 926 F.2d 1344, 1348 (3d Cir. 1991); Perkin-Elmer Corp. v. Computervision Crop., 732 F.2d 888, 893 (3d Cir. 1984).

B. Discussion

1. Deepening Insolvency - Count III³

Defendants first contend that they are entitled to judgment as a matter of law with respect to Count III, deepening insolvency. As raised in pre-trial motions, Defendants again argue that a claim for deepening insolvency has not been recognized in Pennsylvania. This Court is bound by the precedential prediction of the United States Court of Appeals for the Third Circuit that the Pennsylvania Supreme Court would adopt such a cause of action. Cohen v. Sikirica, 487 B.R. 615, 629 n.9 (W.D. Pa. 2013) (citing Konold v. Superior Int'l Indus. Inc., — F.Supp.2d —, 2012 WL 5381700, *10 (W.D. Pa. Oct. 31, 2012)). Furthermore, "[i]t is axiomatic that on remand for further proceedings after [a] decision by an appellate court, the trial court must proceed in accordance with the mandate and the law of the case as established on appeal." EEOC v. Kronos Inc., 694 F.3d 351, 361 (3d Cir. 2012) (second alteration in original) (quoting Bankers Trust Co. v. Bethlehem Steel Corp., 761 F.2d 943, 949 (3d Cir. 1985)). The United States Court of Appeals for the Third Circuit has held that a claim for deepening insolvency may be advanced against the directors and officers of a non-profit such as the Home. Lemington II, 659 F.3d at 294 & n.6. Thus, the law of the case doctrine requires this Court to recognize a claim for deepening insolvency as a viable cause of action.

Next, the Court will address Defendants' other arguments in support of their Motion for Judgment as a Matter of Law as to Count III.

a. Amount of Insolvency as of January 6, 2005

The United States Court of Appeals for the Third Circuit has stated that in order to recover on a claim for deepening insolvency, Plaintiff must show "that the directors' actions caused the deepening of insolvency." Lemington II, 659 F.3d at 294 (citing In re CitX Corp., 448 F.3d 672 (3d Cir. 2006)). Defendants argue that Plaintiff's claim for deepening insolvency fails as a matter of law because Plaintiff failed to prove the change in the debt, or amount of the insolvency, from January 6, 2005, (the date upon which Plaintiff argued that Defendants should have declared bankruptcy) as required. Defendants do not cite any authority in support of this argument.⁴

First, the Court finds that Plaintiff was not required to prove the amount of increased debt caused by Defendants' actions in order to succeed on its claim for deepening insolvency. While proof of such increased debt would certainly assist in proving causation, it is not necessary. The jury heard evidence that the Home continued to accrue increased indebtedness from January 6, 2005. The jury also heard evidence that potential buyers were concerned about the mountingdebt. Doc. No. 654, 196. Thus, it was reasonable for the jury to conclude that, but for the increase in debt, a potential buyer may have been found, and the Home could have avoided liquidation. This constitutes sufficient evidence for the jury to reasonably conclude that the increased debt caused a definite harm, thereby satisfying the standard as articulated by the United States Court of Appeals for the Third Circuit.

Second, the Court finds there was ample evidence of the increased debt presented at trial. Indeed, the narrative that Defendants presented during trial was that the Home had been taking on additional debt, above and beyond the point of insolvency, for decades. It is inconsistent for Defendants to present evidence that the Home continued to accrue debt as a defense against liability and then argue in this post-trial Motion that...