Partners Group Financial, LLC

1
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF PENNSYLVANIA
IN RE: 	:
: 	Chapter 7
PARTNERS GROUP FINANCIAL, LLC, 	:
: 	Bky. No. 05-39390ELF
Debtor(s). 	:
:
M E M O R A N D U M 	O P I N I O N
I. INTRODUCTION
In this chapter 7 bankruptcy case, Daniel and Rita Shoemaker (collectively, “the
Claimants”) filed a proof of claim asserting an unsecured claim for $179,290.50 (“the Claim”).
Partners Group Financial, LLC (“the Debtor”) has filed an objection (“the Objection”) to the
Claim.
The Claim arises from the Debtor’s admitted failure to meet its contractual obligation to
find a mortgage lender for the Claimants in connection with the Claimants’ purchase of
residential real estate. The Claimants assert that the Debtor is liable for breach of contract and
for violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 P.S.
§§201-1 et seq. (“the CPL”).
The Debtor does not contest its liability on the breach of contract facet of the Claim. Nor
does it contest a portion of the damages claimed for breach of contract. The Debtor does dispute:
(1) the asserted consequential damages for lost profits and lost income arising from the
contractual breach and (2) the Claimants’ asserted entitlement to treble damages, attorneys’ fees
and costs under the CPL.
For the reasons set forth below, I will sustain the Objection in part and overrule it in part.
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The state court action was titled and docketed as Shoemaker v. Partners Group Financial	1
et al., No. 04-21490 (C.P. Mtgy.).
22
I will not allow the requested damages for lost profits and lost income; I will allow only the
uncontested actual damages. However, I will also allow the uncontested, actual damages to be
trebled under the CPL. Finally, I will allow counsel fees and costs in the requested amount. The
result is that the Claim will be allowed in the amount of $42,699.43.
II. PROCEDURAL HISTORY
The Claimants filed their Claim on September 22, 2006. 	The Claim is supported by the
verified allegations of the Claimants’ prepetition complaint (“the Complaint”) filed against the
Debtor and the Debtor’s agent, Reita Detweiler (“Ms. Detweiler”), a copy of which is attached to
the Claim as Exhibit “B.”1
The allegations of the Complaint may be summarized as follows:
1. 	On July 23, 2002, the Claimants entered into a contract to purchase real estate
at 2524 Old House Point Road, Fishing Creek, Maryland 21634 (“the
Property”), for $450,000.00. That contract was contingent upon the Claimants
obtaining a thirty (30) year mortgage for $400,000.00. See Complaint ¶6.
2. 	On or about July 23, 2002, the Claimants retained the Debtor and/or Ms.
Detweiler to attempt to find a lender for the Claimants who would finance 90%
of the purchase price of the Property. See Complaint ¶¶ 8, 30 (alleging that the
Debtor promised to provide the Claimants with a willing lender in the
amount of $405,000.00 at an interest rate of 8.0% and would receive
1.0% of the amount financed in fees).
3. 	On July 26, 2002, the Debtor’s agent, Ms. Detweiler, sent a fax to a realtor
involved in the real estate acquisition telling the realtor that the Debtor had
sought approval from lending institutions and expected to have a pre-approval
in hand by the end of the day. See Complaint ¶ 9.
4. 	On July 30, 2002, Ms. Detweiler ordered an appraisal of the Property. See
Complaint ¶ 11.
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5. 	On August 2, 2002, the Debtor sent the Claimants a mortgage loan commitment
for a loan in the amount of $405,000.00 with 8.0% interest. See Complaint ¶12.
6. 	On August 5, 2002, Ms. Detweiler requested that the Claimants provide her with
copies of their W-2s for 2000 and 2001 so that she could assist them in
obtaining the best possible interest rate on a mortgage. See Complaint ¶13.
7. 	On August 9, 2002, settlement on the Property was scheduled for August 19 at
3:00 p.m. See Complaint ¶14.
8. 	On August 15, 2002, Ms. Detweiler faxed good faith estimates of fees based on
proposed mortgages with interest rates of 6.5%, 7.25% and 7.99% to the
Claimants. See Complaint ¶15.
9. 	The Debtor and its agents or employees failed to attend the August 19, 2002
settlement despite their knowledge of its time and place. See Complaint ¶ 16.
10. 	The Debtor made no effort to obtain a mortgage for the Claimants after the
August 19, 2002 settlement date and, in fact, ceased all communications with
the Claimants. See Complaint ¶¶ 17-18. The Debtor failed to provide the
Claimants with any willing mortgage lender, regardless of the interest rate
or amount, either before or after the scheduled date for settlement. See
Complaint ¶32.
11. 	The Claimants relied to their detriment on the Debtor’s commitment to
provide them with a willing mortgage lender and the Claimants’ reliance on
the Debtor’s assertions was justifiable and reasonable. See Complaint ¶¶ 35-36.
12. 	Mr. Shoemaker had no choice but to find and secure a lender on his own, which
he eventually did, but on less favorable terms than the ones promised by the
Debtor. See Complaint ¶¶ 22, 23, 33, 37, 43, 53, 58.
13. 	The Debtor’s unexpected breach of its obligation to obtain financing for
the Claimants disrupted the effective operations of Mr. Shoemaker’s
business, Atlantic Circulation, Inc., his sole means of income. See Complaint
¶ 20.
14. 	On September 3, 2002, the Claimants finally closed on the transaction for the
purchase of the Property and obtained possession of the Property. See
Complaint ¶ 21.
The Complaint pleaded causes of action for, inter alia, breach of contract and violation of
the CPL. With respect to the CPL claim, the Complaint alleged that the Debtor’s actions, as
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Following the filing of the Debtor’s Objection, the Claimants filed both a	2
Response to the Debtor’s Objection (“Response”) and a Motion to Strike, Dismiss, Stay or Continue the
4
described above, were deceptive and/or created a likelihood of confusion and/or otherwise
violated the CPL and that the Claimants relied, to their detriment, on the Debtor’s commitment to
provide them with a willing mortgage lender. See Complaint ¶¶ 35-36, 56.
The Complaint asserted that, as a result of the Debtor’s failure to meet its mortgage
commitment, the Claimants and their children were forced to stay in a hotel and rent a house
until settlement could occur on September 3, 2002, that Mr. Shoemaker’s business was disrupted
by his having to scramble to obtain alternate financing and that the Claimants suffered damages
as a consequence of the Debtor’s wrongful actions. See Complaint ¶¶ 19-25.
In the Claim, the Claimants asserted the following damages:
Increased settlement and interest costs 	$ 	7,595.00
Food, lodging and additional moving
and storage fees 	3,612.50
Consequential damages in the form
of lost profits and lost income 	48,556.00
Subtotal 	$ 59,763.50
Treble damages under Pennsylvania's
Unfair Trade Practices Act 	x 	3
Claim Total 	$179,290.50
See Proof of Claim No. 5 (Exhibit B thereto, at ¶¶ 37, 43, 53, 58-59). By virtue of their
incorporation of the Complaint, they also sought attorneys’ fees and costs. See Proof of Claim
No. 5 (Exhibit B, ad damnum clauses).
The Debtor filed its Objection to the Claim on December 13, 2007. A hearing on the
Objection was held and concluded on April 7, 2008. 2
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Debtor’s Objection (“the Motion”). See Docket Entry Nos. 33, 34. In their Motion and under the
category of New Matter and Affirmative Defenses in their Response, the Claimants contended that the
Debtor lacked standing to assert the Objection and that, therefore, the Objection should be dismissed or
stricken. Alternatively, the Claimants contended that, should the court find that the Debtor had standing
to assert the Objection, the hearing on the Debtor’s Objection should be postponed until such time as it
could be determined with certainty that Debtor’s bankruptcy estate would contain assets. Debtor filed a
Response to the Motion on December 31, 2007. See docket entry no. 38.
Before the April 7 hearing began, I heard argument on the Claimant’s Motion discussed
in n.2, supra, and concluded that the Motion should be denied.
First, with respect to the Claimants’ contention that the Debtor lacked standing to assert
the Objection, generally, in a chapter 7 case, only the chapter 7 trustee has standing to object to proofs of
claim. E.g., In re Toms, 229 B.R. 646, 650 (Bankr. E.D. Pa. 1999). A debtor has standing to object if the
bankruptcy estate is solvent, or there is a reasonable possibility that the estate will be solvent. If the
estate is solvent, a reduction of a claim benefits the debtor by increasing the refund to the debtor after the
estate has paid all allowed claims. See 11 U.S.C. §726(a)(6). In such circumstances, the debtor has a
sufficient pecuniary interest in the outcome of a claims objection to give the debtor standing to object to
the claim. See, e.g., Toms, 220 B.R. at 650-51.
During argument on the Motion, I took judicial notice of: (a) the claims register and the
total amount of allowed claims in this bankruptcy case and (b) the amount at issue in a number of
pending adversary proceedings in which the chapter 7 trustee seeks to set aside prepetition monetary
transfers on behalf of the bankruptcy estate. Based on this information, I concluded that there was a
reasonable possibility that the bankruptcy estate would be solvent and that the Debtor had standing to
prosecute the Objection. In light of this conclusion, I saw no reason to postpone determination of the
merits of the Objection and the case proceeded to trial that day.
Although the Complaint that was attached to the Claim sets forth several additional	3
counts, at the hearing, the Claimants pressed only their claim for breach of contract (with the only
dispute between the parties being whether the Claimant was entitled to damage for lost profits) and their
5
During the April 7 	hearing, the Claimants reduced their demand for lost profits andth
income to $41,361.25. See, e.g., Claimants’ Post-Trial Brief at 4. They also produced evidence
of $9,076.93 in legal fees and costs (i.e., $8,206.00 in fees and $870.93 in costs) that they
incurred in connection with the prepetition state court action. See Exhibit S-9 (legal fees/costs);
Proof of Claim No. 5 (Exhibit B).
Daniel Shoemaker (“Mr. Shoemaker”) was the only witness at the April 7 	hearing.th
Each party introduced a number of exhibits into evidence. 3
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CPL claim. Accordingly, I shall treat any remaining claims as abandoned.
At this time, the Claimants were living at 398 Jay Lane, Mountville, Pennsylvania.	4
Mr. Shoemaker had a colleague who had experience finding mortgage financing through	5
the Debtor. This colleague referred Ms. Detweiler and/or the Debtor to the Claimants. Both parties treat
their relationship as contractual, however, I note that neither party produced a copy of the brokerage
agreement that typically attends such arrangements. Nonetheless, I accept the Debtor’s and the
Claimants contractual relationship as an undisputed fact.
6
On May 7, 2008, the parties filed simultaneous post-trial memoranda in support of their
respective positions. This matter is now ready for disposition.
III. 	FACTUAL BACKGROUND
Based on the evidence, I make the following findings of fact.
On July 23, 2002, the Claimants entered into an agreement of sale to purchase residential
real estate in Maryland (previously defined as “the Property”) for $450,000.00 with settlement to
take place on or before August 23, 2002. See Exhibit D-1. 	Soon thereafter, Mr. Shoemaker4
contacted Ms. Detweiler, an employee of the Debtor, and entered into a contractual relationship
with the Debtor pursuant to which the Debtor would find the Claimants a lender who would
finance 100% of the purchase price of the Property. 5
Mr. Shoemaker was in close communication with Ms. Detweiler during this initial time
period. 	During this time, Ms. Detweiler assisted him in addressing blemishes on his credit
report. Additionally, Mr. Shoemaker shared with Ms. Detweiler “how scary” he found the notion
of uprooting his family from Mountville, Pennsylvania (where the family had resided for the past
12 years) to Fishing Creek, Maryland, as well as his concerns regarding the effect such a move
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It appears that this particular sales group was known as Atlantic Periodical.	6
Mr. Shoemaker did not explain the relationship between the other companies and	7
Atlantic in further detail.
Although Mr. Shoemaker’s family moved to Maryland, he testified that Atlantic	8
continued to maintain the Mountville office for several years after the move.
7
might have on his ability effectively to run his business, which had an office in Mountville. Mr.
Shoemaker was particularly concerned about being able to run his business in a “state of flux.”
Mr. Shoemaker was and is the owner and operator of Atlantic Circulation, Inc.
(“Atlantic” or “the business”), a company that processes magazine subscription orders obtained
through door-to-door solicitation. In 2002, Mr. Shoemaker managed a group of no more than 10
salespeople who sold magazine subscriptions in residential communities throughout the United
States. 	He also supervised approximately 20 other companies, each with their own sales forces,6
with whom his business contracted. 	Atlantic maintained a business office in Mountville,7
Pennsylvania, however, Mr. Shoemaker conducted the majority his business from outside that
office, via telephone.
At Ms. Detweiler’s suggestion, Mr. Shoemaker took a number of actions designed to
alleviate his concerns regarding the effect the move might have on his ability to operate his
business effectively and to ensure a seamless transition of Atlantic’s business operations
following his family’s move to Maryland. 	Also relevant to this dispute, Mr. Shoemaker8
scheduled an appointment to have telephone lines installed at the Property on the day of the
scheduled closing, and to have satellite internet service installed the day after the closing.
Having available land line service was important to Mr. Shoemaker in the operation of his
business because he believed cell phone service on Maryland’s Eastern Shore to be sporadic and
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The “matters” (i.e, the conditions) referred to in the Loan Commitment appear to be that	9
evidence of title showing no liens, encumbrances or adverse covenants or conditions be provided from a
source and in a form acceptable to the lender. See Exhibit D-2.
8
unreliable. He used the internet to obtain business reports.
At some point in July 2002, Ms. Detweiler informed the Claimants that she could
obtaining financing for only $405,000.00 or 90% of the purchase price of the Property. She
suggested that the Claimants finance the remaining portion of the purchase price by convincing
the sellers of the Property to take back a second mortgage. She also counseled the Claimants
concerning how they might approach the sellers with this request. The Claimants followed Ms.
Detweiler’s advice and obtained a second mortgage commitment from the sellers.
Subsequently, on August 2, 2002, the Debtor sent the Claimants a document titled
“Mortgage Loan Commitment” (previously identified as “the Loan Commitment”). The Loan
Commitment states: “It is a pleasure to notify you that your application for a mortgage loan has
been approved subject to the matters set forth below.” 	The Loan Commitment states that the9
loan terms include a principal amount of $405,000.00 and a fixed interest rate of 8.0%, with the
commitment expiring on August 31, 2002. See Exhibit D-2; Claimants’ Post-Trial Brief at 2.
Mr. Shoemaker understood the Loan Commitment to represent that the Debtor had secured a
willing lender for the Claimants.
Closing on the Claimants’ acquisition of the Property was scheduled for August 19, 2002.
Mr. Shoemaker worked closely with Ms. Detweiler in setting this date.
Mr. Shoemaker testified that he was in constant communication with Ms. Detweiler in the
days leading up to August 19 . The day before the scheduled closing date (i.e., August 18 ), Mr.th 	th
Shoemaker spoke with Ms. Detweiler and received her assurances that everything was going to
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Mr. Shoemaker complained that his attention to these tasks was paid at the expense of	10
time he would have devoted to Atlantic and getting his children enrolled in a new school.
9
go smoothly, that everything was taken care of and that a Debtor’s representative would “see
[him] tomorrow.”
Relying on the Debtor’s representation and Ms. Detweiler’s assurances, on August 19 ,th
the Claimants vacated their residence in Pennsylvania, placed their food in a cooler and
transported their possessions by moving van to Maryland, accompanied by their three (3)
children, a cat and a dog. They planned to move into the Property immediately following the
closing. The Claimants waited until 6 p.m. for a Debtor’s representative to show up with the
required financing. No one came. Additionally, the Claimants were unsuccessful in their efforts
to reach anyone at the Debtor’s offices by phone because no one was answering the Debtor’s
phones that day. Neither the Debtor nor Ms. Detweiler ever contacted the Claimants subsequent
to August 18 .th
The closing was not completed on August 19 . The Claimants and their family wereth
forced to find temporary housing, staying first in a hotel and eventually renting a house until
September 3 , the date upon which settlement on the Property finally occurred. Mr. Shoemakerrd
testified that he and his family were thrown into a state of total “chaos.”
As a result of the Debtor’s conduct, Mr. Shoemaker was forced to spend the next two
weeks working to salvage the Claimants’ acquisition of the Property by attempting to find
replacement financing. 	Moreover, with no land line phone available in his rental home and10
with poor or no cell phone reception available in the area in which the Claimants were staying,
Mr. Shoemaker needed to drive to Cambridge, Maryland and make cell phone calls from his car
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At one point in his testimony, Mr. Shoemaker testified that his business was virtually	11
“stopped in its tracks” during the relevant time period. This colloquial reference was offset by his
testimony that he was not completely out of communication with Atlantic during the relevant time period
and that he was not completely precluded from doing business. His testimony was that he was not in
10
to accomplish this task. With what he described as “considerable difficulty and effort,” he finally
obtained financing one (1) day before the rescheduled closing date, albeit on less favorable terms.
During the fifteen (15) day delay before they could close on the Property, the Claimants
incurred expenses for temporary housing, food and moving/storage expenses for their
belongings. The Claimants obtained replacement financing in the form of a mortgage loan from
Wall Street Mortgage Corporation with a variable interest rate of 8.0%, two (2) points and a
prepayment penalty.
The Claimants incurred damages in the amount of $7,595.00 as a result of the less
favorable terms of the new mortgage. Additionally, the delay in settlement caused the Claimants
to incur out-of-pocket expenses for food, lodging and storage in the amount of $3,612.50. The
parties agree that these damages total $11,207.50. The Debtor has no objection to the allowance
of an unsecured claim in that amount.
Furthermore, because the Claimants could not close on and take possession of the
Property on August 19 	as planned, the phone lines and internet service could not be installed asth
scheduled. Instead, these services were installed in the latter half of September 2002,
approximately two (2) weeks after the Claimants finally closed on the Property. Mr.
Shoemaker’s ability to maintain telephone contact with his office was impeded, at least to some
degree, between August 19 	and the date upon which the telephone lines were installed.th
Additionally, his lack of internet service hampered his ability to obtain Atlantic’s business
reports.11
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communication with his office as he believed he should have been but that he did the best he could to
keep the business surviving.
This period of approximately thirty (30) days is comprised of the 15-day delay in closing	12
on the Property, during which time the Shoemakers lived in temporary housing, and the two-week delay
post-closing (i.e., the re-scheduled closing date of September 3, 2002), during which time internet and
telephone services had not yet been installed at the Property.
11
The Debtor offered no evidence to explain why it failed to provide the Claimants with a
lender willing to provide the financing described in the Loan Commitment. When Mr.
Shoemaker was asked why he thought Ms. Detweiler reassured him on August 18 , rather thanth
advising him before his family left for Maryland, that the Debtor would not have funding
available in time for the August 19 	closing, he said that Ms. Detweiler had told him that sheth
stood to make a large commission. He theorized from this that on August 18 	Ms. Detweiler wasth
still engaged in last minute efforts to find a willing lender and did not wish to reveal this
information to the Claimants for fear of losing her commission.
IV. DISCUSSION
In support of their claim for lost profits/income, the Claimants assert that Mr.
Shoemaker’s business operations were disrupted as a result of: (1) the delay in closing and
attendant delay in having available land line phone and satellite internet service, (2) the time he
had to devote to obtaining replacement financing, arranging for a new closing date, rescheduling
vendors for installation of phone and internet services and related tasks, and (3) the difficulties he
experienced in communicating with his office and obtaining business reports. Mr. Shoemaker
maintains that his ability to conduct his business was impaired for 30 days. 	He claims that this12
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The Claimants have not addressed why the lost profits of Atlantic, an entity that did not	13
file a proof of claim, are allowable. Presumably, they view Atlantic’s lost profits as translating directly
into lost income for Mr. Shoemaker. Perhaps for this reason, the Claimants have not distinguished
between “lost income” and “lost profits,” implicitly treating the latter as a function of the former.
Because the Debtor has not challenged this approach, I will accept it. For ease of reference, in the
remainder of this Memorandum, I will refer to the Claimants’ asserted entitlement for “lost profits and
lost income” as a claim for “lost profits.”
Also, the Claimants have not differentiated between Mr. and Mrs. Shoemaker in pressing
the claim for lost profits, even though there is nothing in the record to suggest that Mrs. Shoemaker has
any entitlement to such damages. It appears that, as a married couple, the Claimants are treating
themselves as a single entity for purposes of this Claim. Because the Debtor has not objected this
treatment, I will refer to claim for lost profits as that of the Claimants, not just Mr. Shoemaker.
This provision is commonly referred to as the “catch-all” provision of the CPL.	14
12
disruption reduced his business’ income and profits and that the Claimants are entitled to
consequential damages for those lost profits. 13
Further, in support of the CPL claim, the Claimants assert that the Debtor engaged in
“unfair and deceptive” conduct within the meaning of 73 P.S. §201-2(4)(xxi), which defines the
terms “unfair methods of competition” and “unfair or deceptive acts or practices” as including
“any other fraudulent or deceptive conduct which creates a likelihood of confusion or of
misunderstanding.” 	Specifically, the Claimants assert that the Loan Commitment constituted a14
false or misleading representation made by the Debtor that it had obtained a mortgage loan for
the Claimants, when in fact it had not. The Claimants also contend that the assurances that Ms.
Detweiler made to Mr. Shoemaker the day before the Claimants left for Maryland constituted
false and/or misleading representations. The Claimants request that they be allowed treble
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Section 201-9.2(a) creates a private right of action for violations of §201-3:	15
(a) Any person who purchases or leases goods or services primarily for personal,
family or household purposes and thereby suffers any ascertainable loss of
money or property, real or personal, as a result of the use or employment by any
person of a method, act or practice declared unlawful by section 3 of this act,
may bring a private action to recover actual damages or one hundred dollars
($100), whichever is greater. The court may, in its discretion, award up to three
times the actual damages sustained, but not less than one hundred dollars ($100),
and may provide such additional relief as it deems necessary or proper. The court
may award to the plaintiff, in addition to other relief provided in this section,
costs and reasonable attorney fees.
In this case, the Objection is based on 11 U.S.C. §502(b)(1), which provides for the	16
disallowance of a proof of claim to the extent that “such claim is unenforceable against the debtor and
property of the debtor, under any agreement or applicable law for a reason other than because such claim
is contingent or unmatured.” In effect, the Debtor is arguing that portions of the Claim should be
disallowed because it lacks merit under applicable non-bankruptcy law, the law of Pennsylvania.
13
damages, legal fees and costs pursuant to 73 P.S. §201-9.2. 15
The Debtor disputes the asserted entitlement to damages for lost profits and the
Claimants’ asserted entitlement to treble damages and attorney’s fees and costs under the CPL.
For the reasons set forth below, I agree with the Debtor with respect to its Objection to
the claim for lost profits, and with the Claimants with respect to their CPL claim.
A. Burden of Proof
In proof of claim litigation in bankruptcy court, there are burden shifting mechanisms that
come into play. These mechanisms are derived from the interaction of the Bankruptcy Code and
the Federal Rules of Bankruptcy Procedure.
11 U.S.C. §502(a) provides that a proof of claim is deemed allowed unless a party interest
objects. 11 U.S.C. §502(b) provides that if an objection is filed, the claim will be allowed except
to the extent that one of the nine (9) subparagraphs in §502(b) applies. 	Federal Rule of16
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14
Bankruptcy Procedure 3001(f) provides that “[a] proof of claim executed and filed in accordance
with these rules shall constitute prima facie evidence of the validity and amount of the claim.”
Our Court of Appeals has concisely summarized the shifting burdens in claims litigation
in the following frequently-quoted passage:
[A] claim that alleges facts sufficient to support a legal liability to the claimant
satisfies the claimant's initial obligation to go forward. The burden of going forward
then shifts to the objector to produce evidence sufficient to negate the prima facie
validity of the filed claim. It is often said that the objector must produce evidence
equal in force to the prima facie case. In practice, the objector must produce evidence
which, if believed, would refute at least one of the allegations that is essential to the
claim's legal sufficiency. If the objector produces sufficient evidence to negate one or
more of the sworn facts in the proof of claim, the burden reverts to the claimant to
prove the validity of the claim by a preponderance of the evidence.
In re Allegheny Int’l, Inc., 954 F.2d 167, 173-74 (3d Cir. 1992) (citations omitted); see also In re
Gimelson, 2004 WL 2713059, at *13 (E.D. Pa. 2004); In re Galloway, 220 B.R. 236, 244 (Bankr.
E.D. Pa. 1998).
Notably, in the above-quoted passage, the Third Circuit cited the Ninth Circuit’s
discussion in In re Holm, 931 F.2d 620, 623 (9th Cir. 1991) which describes the burdens of proof
this way:
Inasmuch as Rule 3001(f) and section 502(a) provide that a claim or interest as to
which proof is filed is “deemed allowed,” the burden of initially going forward with
the evidence as to the validity and the amount of the claim is that of the objector to
the claim. In short, the allegations of the proof of claim are taken as true. If those
allegations set forth all the necessary facts to establish a claim and are not self-
contradictory, they prima facie establish the claim. Should objection be taken, the
objector is then called upon to produce evidence and show facts tending to defeat the
claim by probative force equal to that of the allegations of the proofs of claims
themselves. But the ultimate burden of persuasion is always on the claimant. Thus, it
may be said that the proof of claim is some evidence as to its validity and amount. It
is strong enough to carry over a mere formal objection without more.
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This assumption appears to be in accord with Pennsylvania law. 	See	17
Co. Image Knitware, Ltd. v. Mothers Work, Inc., 909 A.2d 324, 336 (Pa. Super. Ct. 2006) (“[g]enerally,
lost profits are recoverable in breach of contract actions”); see also In re Eastern Continuous Forms, Inc.,
302 B.R. 320, 341 (Bankr. E.D. Pa. 2003) (“Pennsylvania law allows consequential damages in the form
of lost profits to be recovered”) (quoting AM/PM Franchise Ass’n v. Atlantic Richfield Co., 584 A.2d
915, 920 (Pa. 1990)).
15
Id. (citations and internal emphasis omitted).
B. Consequential Damages for Lost Profits
1.
Both sides have made the following assumptions in presenting their arguments regarding
the issue of lost profits: (1) Pennsylvania law governs this dispute; (2) the Debtor breached its
contractual promise to find a willing lender for the Claimants; and (3) lost profits, if proven, are
recoverable in a breach of contract action as a form of consequential damages. 	I will accept the17
parties’ assumptions for the purposes of analyzing the merits of their dispute.
Pennsylvania law “distinguishes between general damages - those ordinary damages that
flow directly from the breach; and special or consequential damages - those collateral losses,
such as expenses incurred or gains prevented which result from the breach.” LBL Skysystems
(USA), Inc. v. APG-America, Inc., 319 F. Supp. 2d 515, 523 (E.D. Pa. 2004) (quoting
McDermott v. Party City Corp., 11 F. Supp. 2d 612, 624 (E.D. Pa. 1998)); see also Co. Image
Knitware, Ltd., 909 A.2d at 336. Lost profits are a form of consequential damages. To recover
damages for lost profits in a breach of contract action in Pennsylvania, a plaintiff bears the
burden of establishing that such damages:
1. 	are calculable with reasonable certainty;
2. 	were proximately caused by the breach of contract; and
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The Claimants have treated the Loan Commitment simultaneously as a contract between	18
the parties (for purposes of their contract claim) and as a misrepresentation (for purposes of the CPL
claim). In its post-hearing submission, the Debtor chose to treat the Loan Commitment as nothing more
than the governing contract between the parties and not as a representation that financing had been
secured for the Claimants in the terms described therein.
16
3. 	were reasonably foreseeable.
E.g., Co. Image Knitware, Ltd., 909 A.2d at 336.
2.
Under Pennsylvania law, a plaintiff has the burden of proof on all three elements of a
claim for consequential damages for lost profits. See, e.g., Brisbin v. Superior Valve Co., 2005
WL 2545302, at *1 (W.D. Pa. Oct. 11, 2005); see also James Corp. v. N. Allegheny Sch. Dist.,
938 A.2d 474, 495 (Pa. Commw. Ct. 2007) (citing Vrabel v. Commonwealth, 844 A.2d 595, 601
(Pa. Commw. Ct. 2004), appeal denied, 867 A.2d 525 (Pa. 2005) (Table)); LBL SkySystems, 319
F. Supp. 2d at 522. That burden of proof carries over into proof of claim litigation such as this.
See generally Raleigh v. Illinois Dep’t of Revenue, 530 U.S. 15, 20-21, 120 S. Ct. 1951, 1955
(2000) (burden of proof on a claim derived from nonbankruptcy law is a substantive aspect of the
claim).
The Claimants did not meet their burden of proof solely through the filing of their proof
of claim. The Claim is not entitled to prima facie status under Rule 3001(f) because it did not
satisfy the requirements of Fed. R. Bankr. P. 3001(c), which provides that if a claim “is based on
a writing,” the original or duplicate of the writing shall be filed with the proof of claim.
Although the Claimants’ theory appears based on the proposition that the Loan
Commitment constituted a written contract with the Debtor, 	I find it more likely that there was18
another writing (not attached to the proof of claim) that defined the terms of consumer-broker
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I make this finding notwithstanding Mr. Shoemaker’s contrary testimony. It is	19
possible, of course, that the Debtor did not comply with its statutory obligations and that there was no
written agreement prepared prior to the Loan Commitment. However, I find this less likely than the
alternative. Therefore, on this point, I find Mr. Shoemaker’s memory to be faulty.
17
relationship between the Claimants and the Debtor. I make this finding because: (1) the proof of
claim itself made reference to the Debtor’s compensation being 1% of the loan -- a figure that
does not appear in the Loan Commitment; (2) the Debtor’s representative, Ms. Detweiler, started
working on the Debtor’s behalf before August 2 ; and (3) the existence of statutory requirementsnd
in Pennsylvania that loan broker agreements be in writing, see 73 P.S. §2184-86 et seq.19
Of course, the fact that a proof of claim is not prima facie valid on its face does not
necessarily mean that it must be disallowed. See generally In re Kirkland, 379 B.R. 341, 344
(B.A.P. 10 	Cir. 2007) (after collecting cases, adopting the “exclusive view” that a claim mayth
only be disallowed for the reasons set forth in 11 U.S.C. §502(b) and not for failure to comply
with Rule 3001) (2-1 decision). It means only that “the burden of going forward and proving its
claim by the preponderance of the evidence remains on the claimant.” E.g., Kincaid, 388 B.R. at
614; see also In re Campbell, 336 B.R. 430, 432 (B.A.P. 9 	Cir. 2005).th
At the hearing, both parties agreed there was a contract, a breach of contract and certain,
actual damages. With respect to the Claimants’ contract claim, they differed only on the issue of
lost profits. Both sides submitted relevant evidence on that issue, arguably rendering the
potential prima facie effect of Rule 3001(f) a non-issue. See In re Lewis, 80 B.R. 39, 41 (Bankr.
E.D. Pa. 1987). Therefore, I need only determine whether, after weighing the evidence, the
Claimants have satisfied their burden of proving the claimed lost profits.
As explained below, I find the Claimants have failed to meet that burden with respect to
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This conclusion makes it unnecessary for me to consider the other two elements of the	20
claim for lost profits.
Therefore, I find it unnecessary to determine whether the Claimants’s methodology for	21
calculating lost profits was valid or whether the lost profits were reasonably foreseeable. See generally
In re Ginko Assoc., L.P., 2008 WL 3200713, at *15-17 (Bankr. E.D. Pa. Aug. 5, 2008) (discussion of
quantum and quality of proof necessary to establish claim for lost profits under Pennsylvania law).
18
the second of the three (3) elements necessary for the award of damages for lost profits -- i.e. that
Atlantic’s reduction in profits in the period following was proximately caused by the Debtor’s
breach of the parties’ contract.20
3.
To prove their claim for lost profits, the Claimants compared Atlantic’s net income in the
ten (10) month period immediately preceding August 19, 2002 with the net income in the ten
(10) month period after August 19 . Based on this data, they calculate their lost profits to beth
$41,361.25. After evaluating the evidence, I conclude that the Claimants have failed to prove
that the Debtor’s breach was the proximate cause of the lost profits Atlantic allegedly suffered.21
I find the causation evidence unconvincing for the following reasons.
First, the Claimants made no showing linking Mr. Shoemaker’s reduced participation in
company affairs during the thirty (30) day period discussed above to the business’ diminished
revenue. Instead, the Claimants appear to have employed the fallacious logical reasoning known
as post hoc, ergo propter hoc: because Event #2 (a reduction in revenue) occurred after Event #1
(Mr. Shoemaker’s period of reduced participation in managing his business), Event #1 must have
caused Event #2. 	However, because so many factors can influence a business’ financial
performance, something more is required to prove proximate cause.
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19
Here, the Claimants’ proof with respect to the element of causation consisted of nothing
more than the chronological sequence of two facts -- i.e., (1) Mr. Shoemaker’s ability to
communicate with his business being impaired to some degree and (2) Atlantic’s business
revenue decreasing. The Claimants did not describe the nature of Mr. Shoemaker’s managerial
role in the business in such a way as to demonstrate why his reduced presence for a finite period -
- lasting only moderately longer than a common, personal vacation -- translated into lost profits.
I find this absence of evidence particularly troublesome given the inference I draw from the
record that a significant part of Atlantic’s profits may be derived from the services of
independent contractors who sell door to door and who do so presumably without regard to
whether Mr. Shoemaker is in communication with his office.
It is possible that, during the time period in question, Mr. Shoemaker was unable to
address a concern or need of one of Atlantic’s contractors or to help a contractor address a
customer objection and that inability translated into lost profits or that Mr. Shoemaker plays
some role in developing leads for new contracts (e.g., magazines not yet included in Atlantic’s
catalog of offerings) and that this role was impeded, resulting in a lost business opportunity. The
record is completely devoid of such evidence, however. There is no evidence suggesting that Mr.
Shoemaker was unable to make or receive any specific phone call(s) during the thirty (30) day
period that caused him to lose new or existing customers or business opportunities. Nor is there
evidence that any particular issue affecting profitability arose and that Mr. Shoemaker was left
unable to address it adequately. Absent evidence of the nature described above, I am not
prepared to attribute any fall-off in business performance that may have occurred in the ten (10)
month period after August 19, 2002 to the understandable distractions Mr. Shoemaker
experienced in the approximately 30-day period following August 19 .th
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The Debtor also presented a print out of an internet search it conducted by plugging the	22
term “Atlantic Circulation, Inc.” in the search box on google.com. One of the resulting entries on that
print out purported to be from a website titled “complaints.com.” The actual entry on complaint.com’s
website was not provided. The print out of the google search reveals only the beginning words of what
the website text might contain -- e.g.,: “Atlantic Circulation Inc., Mountville, Pa. - in Oct. 2003 paid $60
for 20 issues of Home Magazine - haven’t received any issues.” See Exhibit D-8. The Debtor presented
this evidence in an effort to show that other business factors, unrelated to Mr. Shoemaker’s reduced
participation in Atlantic’s business operations, were at play in the relevant time frame. The Debtor
contended that this print out evidenced customer dissatisfaction with the door-to-door magazine
solicitation industry in general and with Atlantic, specifically, in the relevant time period.
I decline to give any weight to this evidence for two (2) reasons.
First, I can gather very little about the nature of the so-called “complaints” or about the
October 2003 “complaint”, in particular, from this document. As Mr. Shoemaker pointed out, this google
print out does not make clear what the exact nature of the “complaints” are or when the October 2003
customer (assuming the entry or “complaint” truly was made by a customer) ordered the magazine(s).
Mr. Shoemaker testified that many customers go online and/or contact Atlantic’s customer service when
they have not received their subscription a month after placing their order, not realizing or remembering
that the first issue may take up to 120 days to arrive. As Mr. Shoemaker also observed, the nature of the
internet is such that the October 2003 “complaint” could remain on the web indefinitely, even after a
customer has been satisfied by receiving the requested subscription or has received a refund. I credit Mr.
Shoemaker’s observations.
Second, the Debtor did not produce any evidence to suggest that there was an upsurge in
these “complaints” during the relevant time period. Absent such evidence, even assuming arguendo that
this print out constituted evidence of customer complaints, it may well be that such complaints were a
“wash” -- i.e., that they existed before, during and after Mr. Shoemaker’s period of impairment and,
therefore, they would not provide an explanation for a reduction in Atlantic’s profits.
20
Second, as the Debtor has argued, there are other plausible explanations for Atlantic’s
alleged decreased financial performance. 	An examination of Atlantic’s corporate tax returns
shows that returns and allowances (a figure that Mr. Shoemaker described as generally reflecting
subscription cancellations) increased from $282,147.00 in 2001 to $544,236.00 in 2002,
suggesting a possible reason, 	other than Mr. Shoemaker’s impaired ability to communicate with22
his business colleagues, for Atlantic’s reduction in income in 2002. (Exhibit S-2; Exhibit S-3).
In short, after considering the strength of the Claimants’ evidence and the Debtor’s
competing evidence, and employing the preponderance of the evidence standard, I find that the
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21
record does not permit me to distinguish the effect, if any, that the Debtor’s breach had on
Atlantic’s business performance from other factors that may have caused a reduction in
Atlantic’s revenue. See National Controls Corp. v. National Semiconductor Corp., 833 F.2d 491,
496 (3d Cir. 1987) (in applying Pennsylvania law, court found that because proximate cause
requires wrongful conduct to be substantial factor in bringing about harm, entire lost profits
claim may be rejected if losses cannot be “allocated between those caused by the defendant’s
breach and those not”). Therefore, I will disallow the claim for lost profits.
C. Pennsylvania Unfair Trade Practices and Consumer Protection Law
1.
The Claimants request that their actual damages be trebled damages and they be awarded
attorney’s fees and costs under §201-9.2 of the CPL. Under Pennsylvania law, to recover under
the CPL, a private party must establish that:
• 	the defendant’s services were provided “primarily for personal, family or
household purposes,” see 73 P.S. §201-9.2;
• 	the defendant’s conduct was unfair or deceptive under 73 P.S. §201-3
(incorporating by reference, inter alia, id. §201-2(4));
• 	the plaintiff justifiably relied upon the defendant’s wrongful conduct or
misrepresentation, see, e.g., Hunt v. U.S. Tobacco, Co., 2008 WL 2967249, at
*5-6 (3d Cir. Aug. 5, 2008) (citing Pennsylvania appellate cases); and
• 	the defendant’s conduct caused the plaintiff to suffer an “ascertainable loss of
money or property,” see 73 P.S. §201-9.2.
It is an unsettled question of Pennsylvania law whether a plaintiff seeking to establish that
certain conduct was deceptive (as opposed to fraudulent) under 73 P.S. §201-2(4)(xxi) must also
prove the elements of common law fraud (the position the Debtor urges me to adopt) or whether
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The traditional elements for proving common law fraud in Pennsylvania are: “(1)	23
misrepresentation of a material fact; (2) scienter; (3) intention by the declarant to induce action; (4)
justifiable reliance by the party defrauded upon the misrepresentation; and (5) damage to the party
defrauded as a proximate result.” Colaizzi v. Beck, 895 A.2d 36, 39 (Pa. Super. Ct. 2006).
22
“deception” may be established by a less restrictive standard. 	The intermediate appellate courts23
in Pennsylvania are divided on the issue. Compare Colaizzi, 895 A.2d at 39 (to establish
violation of catch-all provision, plaintiff must prove all elements of common law fraud);
Skurnowicz v. Lucci, 798 A.2d 788, 794 (Pa. Super. Ct. 2002)(same); Booze v. Allstate Ins. Co.,
750 A.2d 877, 880 (Pa. Super. Ct. 2000) (same); with Com. ex rel. Corbett v. Manson, 903 A.2d
69, 73-74 (Pa. Commw. Ct. 2006) (standard less restrictive than common law fraud applies).
The Pennsylvania Supreme Court has not yet ruled upon this issue.
When a federal court is confronted with a question of state law as to which the highest
court has not yet spoken, the federal court is obliged to try to predict how the highest court would
rule. See, e.g., Hunt v. U.S. Tobacco, Co., 2008 WL 2967249, at *2. I have carefully reviewed
the relevant case law on this issue. Several federal courts have held that a CPL claim under the
“deception” prong of the “catch-all” provision may be established by proving that the defendant
engaged in deceptive conduct that created a likelihood of confusion or of misunderstanding
without strict proof of all of the traditional elements of common law fraud. See Wilson v. Parisi,
549 F. Supp. 2d 637, 666 (M.D. Pa. 2008); Mertz v. Donzi Marine, Inc., 2007 WL 710263, at
*11 (W.D. Pa. Mar 06, 2007) (same); Flores v. Shapiro & Kreisman, 246 F. Supp. 2d 427, 432
(E.D. Pa. 2002) (same); In re Strong, 356 B.R. 121, 138 (Bankr. E.D. Pa. 2004), aff’d, 2005 WL
1463245 (E.D. Pa. Jun. 20, 2005); In re Patterson, 263 B.R. 82, 92-93 (Bankr. E.D. Pa. 2001)
(same). Other federal courts have held that such a claim requires proof of common law fraud.
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23
See Rock v. Voshell, 397 F. Supp. 2d 616, 622 (E.D. Pa. 2005); Giangreco v. United States Life
Ins. Co., 168 F. Supp. 2d 417, 424 (E.D. Pa. 2001).
I will not engage in an extended discussion of the issue. The arguments have been amply
discussed in the authorities cited above. After reviewing the reported decisions, I am persuaded
by the Pennsylvania Commonwealth Court’s analysis in Manson and Judge Sigmund’s
thoughtful discussion in Patterson. Accordingly, I predict that the Pennsylvania Supreme Court
would adopt the principle that a plaintiff alleging that certain conduct violated the “deception”
prong of the “catch-all” provision of the CPL must prove the existence of conduct that creates a
likelihood of confusion or misunderstanding but need not prove all of the elements of common
law fraud.
Finally, to establish a violation of the CPL, a plaintiff must do more than prove a mere
breach of contract. This is apparent from the plain language of the statute, which speaks in terms
of requiring a showing of “unfair methods of competition” and “unfair or deceptive acts or
practices.” This principle is also reflected in Pennsylvania cases that apply and state the rule
that:
The test used to demonstrate if there exists a cause of action in tort
growing out of a breach of contract is whether there was an improper
performance of a contracted obligation (misfeasance) rather than the
mere failure to perform (nonfeasance).
Gordon v. Pennsylvania Blue Shield, 548 A.2d 600, 604 (Pa. Super. Ct. 1988) (further defining
“nonfeasance” as “omitting to do, or not doing something which ought to be done”) (citation
omitted); see also Horowitz v. Fed. Kemper Life Assurance Co., 57 F.3d 300, 307 (3d Cir. 1995)
(“In Pennsylvania, only malfeasance, the improper performance of a contractual obligation, raises
a cause of action under the Unfair Trade Practices and Consumer Protection Law . . . .”).
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24
Mis-feasance or malfeasance, which does give rise to a CPL violation, has been defined to
require “affirmative conduct, such as an action of misrepresentation or deception, or a reckless
mistake made.” Suggs v. Nationwide Ins. Co., 2007 U.S. Dist. LEXIS 76641 at *10 (E.D. Pa.
Oct. 16, 2007) (citation and internal quotations omitted).
It is against these legal principles that I assess the evidence concerning the Debtor’s
alleged violation of the CPL.
2.
The Claimants base their assertion that the Debtor engaged in deceptive conduct that
violated the “catch-all” provision of the CPL on two representations. First, the Claimants assert
that the Loan Commitment was a false or deceptive representation that the Debtor had already
secured a mortgage loan on the terms set forth therein for the Claimants “when it actually had not
done so.” Claimants’ Post-Trial Brief at 7. Second, Mr. Shoemaker testified that Ms.
Detweiler’s reassurances that everything “was going to go smoothly and everything was taken
care of . . . see you tomorrow,” which were made to Mr. Shoemaker the day before the scheduled
closing (i.e., August 18, 2002), were also deceptive because Ms. Detweiler must have known by
this point that the Debtor could not deliver on what the Claimants characterized as
misrepresentations. The Claimants stress the unfairness of the Debtors having misled them into
believing they had financing in place, thereby precluding them from working with any other
mortgage broker, and then knowingly permitting them to leave for Maryland with all of their
belongings while operating under this misapprehension. The consequence, according to Mr.
Shoemaker, was that he and his family were thrown into a state of total “chaos,” being forced to
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25
find temporary housing, store their belongings, and attempt to salvage their acquisition of the
Property in this state of flux, all while over 150 miles away from their home. From the
Claimants’ perspective, had the Debtor conveyed to them on August 18 	that the loan funds wereth
not available, they would not have traveled to Maryland with all of their worldly possessions and
thereby would have been spared some of the financial expense and personal inconvenience that
they experienced.
The Claimants say that the Loan Commitment and Ms. Detweiler’s statement, considered
both independently and together, conveyed to them the impression that mortgage funds were
already in place to close the loan. They infer from the Debtor’s failure to appear at (or even be
reached by telephone on the day of ) the closing, its subsequent failure to contact the Claimants
after August 19 	to attempt to salvage the contractual relationship by providing financing and itsth
failure to ever provide any explanation for its nonperformance, that the Debtor’s representations
were false -- i.e. that as of the date of the Loan Commitment and as of August 18 	(the date uponth
which Ms. Detweiler reassured Mr. Shoemaker), the Debtor had still not secured a willing lender
for the Claimants.
At the hearing, the Debtor called no witnesses and produced no evidence to rebut Mr.
Shoemaker’s testimony concerning either his relationship and communications with the Debtor
or his theory of why the Debtor never attended the August 19 	closing. Instead, the Debtorth
contended, in post-trial briefing, that the Claimants’ evidence on their CPL claim was
insufficient to meet their evidentiary burden. Specifically, the Debtor contended that the
Claimants’ CPL claim should be denied on the grounds that the Claimants proved nothing more
than that the Debtor had failed to perform on its promise to provide mortgage financing, and
urged that such “nonperformance or nonfeasance, without more, [does] not support an action
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As stated above in Part IV.B.2, the Debtor treats the Loan Commitment as nothing more	24
than the governing contract between the parties and not as a representation that financing had been
secured for the Claimants in the terms described therein, while the Claimants treat the Loan Commitment
as both a contract and as a misrepresentation. I need not reconcile or resolve these competing
conceptualizations of the Loan Commitment because Ms. Detweiler’s statement alone provides the basis
for a potential CPL claim.
26
under the [CPL].” Debtor’s Post-trial Brief at 3. 24
3.
I agree with the Debtor’s assumption that the Claimants bore the burden of proving their
CPL claim, even though the Debtor introduced no evidence to rebut the Claimants’ CPL claim.
After reviewing the facts set forth in the Claim (including the attached Complaint) and accepting
them as true, see In re Holm, 931 F.2d at 623, I am not convinced that the allegations within the
four corners of the Claim “set forth all the necessary facts to establish a claim.” Id. Specifically,
while the Complaint states the legal conclusion that the Debtor’s conduct was deceptive, the
factual allegations describe only a breach of contract.
Due to these shortcomings, the Claimants’ proof of claim, by itself, did not establish a
prima facie case for violation of the CPL. See Fed. R. Bankr. P. 3001(f); In re Kincaid, 388 B.R.
at 614 (where claim does not provide facts sufficient to establish legal liability, it is not entitled
to prima facie validity and burden shifts to claimant to prove claim by preponderance of the
evidence). Instead, the Claimants bore the burden to prove this claim by a preponderance of the
evidence.
At trial, the Claimants supplemented the proof of claim with testimony from Mr.
Shoemaker regarding the Debtor’s alleged deceptive conduct. The issue is whether that trial
testimony was sufficient to meet the Claimants’ burden of proving that the Debtor’s conduct was
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I perceive this question to be the only disputed issue under 73 P.S. §201-9.2. The Debtor	25
has not disputed that the Claimants purchased its services. See Complaint ¶30 (attached to Claim No. 5)
(alleging that Debtor was to receive commission of 1% of amount financed by Claimants). Nor has the
Debtor suggested that its services were not primarily for personal, family or household purposes. See In
re Smith, 866 F.2d 576, 581 (3d Cir. 1989). The Debtor did not attempt to refute Mr. Shoemaker’s
credible testimony that the Claimants’ relied on the Debtor’s representations concerning the existence of
financing when the Claimants packed up their family and belongings, left their home in Pennsylvania and
traveled to Maryland. And, the Debtor has conceded that the Claimants suffered damages as a result of
its conduct.
27
deceptive and created a likelihood of confusion or misunderstanding within the meaning of §201-
2(4)(xxi) of the CPL. 25
4.
Having carefully considered the evidence produced at trial, and applying the
preponderance of the evidence standard, I find that the Debtor’s conduct fell within the statutory
standard for deceptive conduct. As the court stated in Christopher v. First Mut. Corp., 2008 WL ,
“[d]eception, which is very similar to fraud, is defined as ‘intentional misleading by falsehood spoken or
acted.’ . . . An act or practice is deceptive or unfair if it has the capacity or tendency to deceive.” Id. at
*11 (E.D. Pa. Jan. 20, 2006) (citations omitted).
The evidence established that the Debtor represented to the Claimants that it had procured
mortgage financing for them. The August 2, 2002 Loan Commitment informed the Claimants
that a loan had been approved on certain specific terms. Given the purpose of the relationship
between the parties, this communication by the Debtor to the Claimants was sufficient to convey
that the requested loan had been placed with a third party lender -- i.e., that the Debtor has
procured financing for the Claimants. Certainly, this impression, first conveyed by the Loan
Commitment, was reinforced powerfully by Ms. Detweiler’s representations to Mr. Shoemaker
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28
on August 18, 2002, the day before the scheduled closing. Viewing the two (2) incidents
together, I have no difficulty concluding that the Debtor’s conduct communicated, and the
Claimants had a reasonable basis to believe, that the Debtor had obtained a third party lender to
provide the financing at the August 19 	closing.th
The somewhat closer question is whether the Debtor’s representations were inaccurate
when they were made and therefore, deceptive. Had the Debtor procured a financing
commitment with a third party when it made its representations to the Claimants, making the
representations accurate, or were those representations inaccurate when they were made? The
Claimants did not produce any direct proof that the Debtor had not placed the loan with a third
party lender by either August 2 	or August 18 . What they did prove was that the Debtor did notnd 	th
produce any financing on August 19 	or thereafter.th
The Claimants suggest that I infer the absence of a committed third party lender (and
therefore, the falsity of the Debtor’s representations) from the Debtor’s failure to appear at the
loan closing and its failure to provide any explanation for its nonperformance, i.e., that
circumstantial evidence proves the point. The Debtor argues that the lack of direct evidence on
this point defeats the claim.
In the circumstances presented in this case, I conclude that the Claimants have the better
argument. I find that the Debtor never placed the loan and therefore, that its communications to
the Claimants were deceptive. I make this finding for two (2) related reasons.
First, without some other explanation for the Debtor’s nonperformance, I find the
inference suggested by the Claimants to be reasonable. In particular, the representations Ms.
Detweiler made one day before the scheduled closing, implying that everything was set for a
smooth closing, coupled with the Debtor’s still unexplained failure to appear the next day, to
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It is almost certain that Ms. Detweiler is no longer employed by the Debtor (since the	26
Debtor is no longer operating its business) and therefore, she may no longer be a witness under the
Debtor’s “control.” However, I also presume that the Debtor maintained records of its activities when it
acted as the Debtor’s loan broker. The Debtor made no representation that the documentary evidence
(i.e., its loan file) was lost or otherwise unavailable. If the Debtor actually procured financing for the
Claimants, undoubtedly there would be some documentary evidence of that fact in the loan file.
29
contact the Claimants with an explanation on the day of or at any point subsequent to the failed
closing or to attempt to re-schedule the closing with financing that the Debtor secured, is
behavior that is sufficiently out of the ordinary as to cast doubt on the bona fides of the Debtor’s
conduct and representations. The sequence of events is unusual enough to allow me, as the
factfinder, to draw the inference requested by the Claimants. Put another way, as the factfinder
who must develop a coherent factual narrative despite gaps in the evidence, I find it more likely
than not that the Debtor had not placed the loan with a third party lender at the time it represented
to the Claimants that it had.
Second, to the extent that there might be a more benign explanation for the Debtor’s
failure to perform, the evidence relating to that explanation (be it testimonial or documentary)
most likely was within the control of the Debtor and the Debtor has not suggested otherwise.
Yet, the Debtor produced no evidence explaining why it failed to appear at the closing on August
19 . In these circumstances, I will draw an adverse inference that had the Debtor come forwardth
with the relevant evidence, it would have been unfavorable to its case. 	E.g., In re Butts, 35026
B.R. 12, 19 n.8 (Bankr. E.D. Pa. 2006), aff’d, 2007 WL 1722805 (E.D. Pa. Jun 13, 2007);
accord Reno v. Kolcraft Enters., 2002 U.S. Dist. LEXIS 28186 (S.D. Fla. Apr. 16, 2002) (“when
a party has relevant evidence within his control which he fails to produce, that failure gives rise
to an inference that the evidence is unfavorable to him.”) (quoting Callahan v. Schultz, 783 F.2d
1543, 1545 (11th Cir. 1986)).
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In Wilson v. Parisi,, the court suggested that a deceptive act under §201-2(4)(xxi) of the	27
CPL requires that there be “ a false representation made knowingly or recklessly with the intent that
another person . . . detrimentally rely on it.” 549 F.Supp.2d at 666. To decide this case, I need not define
the boundaries of any scienter requirement that may exist under §201-2(4)(xxi) of the CPL.
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Next, to the extent that a scienter requirement exists under §201-2(4)(xxi) of the CPL, 27
in the circumstances presented here, I find that the Debtor knew that its representations were
inaccurate. This actual knowledge satisfies that requirement.
Finally, I address briefly the Debtor’s argument that the record establishes nothing more
than a breach of contract. Were the Claimants’ case dependent solely on the Debtor’s failure to
perform in accordance with the terms of the Loan Commitment, I might agree. However, on
August 18 , when the Debtor reiterated its ability and intention to perform its obligations, at ath
time when it appears it must have known that it could not provide the financing at the scheduled
closing, its conduct deceived the Claimants into believing that financing was in place, thereby
depriving them of the opportunity to avoid or mitigate much of the harm that they have suffered.
I find this conduct sufficient to transform the case from a simple breach of contract into a case
involving unfair and deceptive conduct under §201-2(4)(xxi) of the CPL.
For these reasons, I conclude that the Claimants are entitled to relief under the CPL.
5.
Next, I address the amount of damages to be allowed under the CPL.
Section 201-9.2 of the CPL provides that the court may award treble damages “in its
discretion.” It follows that the award of treble damages is not mandated in every successful
private action. E.g., McClelland v. Hyundai Motor Am., 851 F.Supp. 680, 681 (E.D. Pa. 1994).
But see Skurnowicz, 798 A.2d at 797.
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A number of courts have held that the award of treble damages under §201-9.2 is punitive
in nature, mandating evaluation of the factors considered by courts in awarding punitive
damages. E.g., Johnson v. Hyundai Motor Am., 698 A.2d 631, 639-40 (Pa. Super. Ct. 1997); In
re Patterson, 263 B.R. at 98.
Last year, however, the Pennsylvania Supreme Court held that the award of treble
damages under §201-9.2:
should not be closely constrained by the common-law requirements associated
with the award of punitive damages. . . . Centrally, courts of original jurisdiction
should focus on the presence of intentional or reckless, wrongful conduct, as to
which an award of treble damages would be consistent with, and in furtherance of,
the remedial purposes of the UTPCPL.
Schwartz v. Rocky, 932 A.2d 885, 898 (Pa. 2007).
In this case, I will exercise my discretion to allow treble damages. The Debtor offered no
evidence to suggest that its conduct was not deceptive to rebut its liability under the CPL. Nor
did the Debtor present any evidence to suggest that it would be inequitable to award treble
damages. See, e.g., In re Bryant, 111 B.R. 474, 480 (Bankr. E.D. Pa. 1989) (after finding a CPL
violation, treble damages awarded in absence of any “equities in the defendant’s favor to make
such trebling of damages inappropriate”). Although the record made may not have been ideal, it
was adequate to convince me that the Debtor’s conduct was sufficiently reckless and wrongful to
justify an award of treble damages under the CPL.
The actual damages were $11,207.50. Therefore, I will allow a CPL claim in the amount
of $33,622.50.
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I note that all of the attorney’s fees requested are for services rendered prepetition.	28
Therefore, I am not asked to determine if an unsecured creditor is entitled to the allowance of counsel
fees incurred postpetition. See generally In re SNTL Corp., 380 B.R. 204, 217-23 (B.A.P. 9th Cir. 2007)
(collecting cases and then holding that such fees may be allowed as part of an unsecured claim based
upon a contractual fee-shifting provision).
Additionally, because, at the conclusion of the hearing, the total claim that the Claimants	29
requested be allowed was less than the amount set forth in the Claim as filed, I see no prejudice to the
Debtor in considering the request for allowance of attorney’s fees and costs under the CPL. Although the
Debtor objected to allowance of attorney’s fees and costs, it did not claim surprise or request additional
time to marshal evidence to rebut the evidence submitted by the Claimants on the issue of allowing
attorney’s fees and costs.
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6.
Finally, I will address the Claimants’ request that attorney’s fees and costs be included in
the allowed claim. The Claimants request that $9,076.93 be allowed in attorney’s fees and
costs.28
Section 201-9.2 of the CPL states that the court “may award to the plaintiff, in addition to
other relief provided in this section, costs and reasonable attorney’s fees.” The award of counsel
fees is within the trial court’s discretion. E.g., Sewak v. Lockhart, 699 A.2d 755, 762 (Pa. Super.
Ct. 1997); In re Armstrong, 288 B.R. 404, 428 (Bankr. E.D. Pa. 2003).
The Claim was filed in the amount of $179,290.50. The methodology used for the
calculation of that amount is apparent from the documents attached to Claim. Exhibit “B” to the
Claim is a copy of the state court complaint filed against the Debtor and Ms. Detweiler. The
amount requested in the Claim is the same as that set forth in the request for relief under count V
of the complaint, in which the Claimants asserted a claim under the CPL. In that request for
relief, the Claimants also requested attorney’s fees and costs. Based on the Claim as filed, I
conclude that the Debtor had adequate notice that the Claimants’ CPL claim included a request
for attorney’s fees and costs to be added to the treble damages requested.29
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The Claimants produced evidence that between April 29, 2004 and November 10, 2005,
they incurred $9,076.93 in attorney’s fees and costs, in the form of attorney time records and cost
itemization. See Exhibit S-9. I have reviewed the Exhibit S-9 and I am satisfied that the fees
and costs requested are reasonable. In the exercise of my discretion under §201-9.2 of the CPL, I
will allow the requested fees and costs in their entirety.
V. CONCLUSION
For the reasons set forth above, I will sustain the Debtor’s Objection to the Claimants’
Claim and overrule it in part. The claim will be allowed in part and disallowed in part. The
claim will be allowed as follows:
actual damages 	$11, 207.50
x 	3
$33,622.50
+
attorney’s fees/costs 	$ 	9,076.93
TOTAL 	$ 42,699.43
An Order consistent with this Memorandum will be entered.
Date: September 15, 2008
ERIC L. FRANK
U.S. BANKRUPTCY JUDGE
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