By Arthur Zamosky, Esq.

In Pennsylvania, ejectment is an action by a party who does not posses certain land but has a right to do so.  The action is brought against a Defendant who has actual possession of the land.  An ejectment action can also be used to determine a question of title to real property. 

Such an action can be distinguished from a quiet title action because an ejectment is used to determine the immediate rights between a Plaintiff and Defendant while a quiet title action is used to determine the relative and respective rights of all potential titleholders.  It should also be noted that an ejectment action is a separate and distinct action from an eviction.  An eviction is used to terminate a leaseholder’s interest before the end of the term for a breach of a lease while an ejectment is used to remove a (former) leaseholder from the property after the lease has expired.

A suit for ejectment should be brought in the county in which the property involved in the dispute is located.  As with most actions in Pennsylvania State Court, the action can be instituted by the filing of a praecipe for writ of summons or a complaint.  The only indispensible party to an ejectment action is the party or parties who possess the land.  An interesting twist to naming parties is that when a person in possession of the property, who is not named as a party to an ejectment action, is served with original process, that person becomes a Defendant in the action.

The Pennsylvania Rules of Civil Procedure requires that the Plaintiff in an ejectment action specifically describe the land and describe an abstract of title upon which the Plaintiff relies.  The Plaintiff must also plead that they have a right to immediate possession of the land.  Some of the possible defenses to an ejectment action can be adverse possession, estoppel, res judicata or by proving that title exists as to a third person.

A judgment in an ejectment action should describe the land to be recovered with reasonable certainty.  This description is necessary so that execution or a writ of possession may be issued upon the judgment.  Judgment can be obtained by default, confession or on the pleadings.  It should be noted that judgment on the pleadings can be requested by either party.  

As with all areas of law, the specific facts of any scenario could change the manner in which to proceed.  The preceding was intended to give a basic outline of an ejectment action in Pennsylvania.  For a more specific analysis of an actual claim or dispute, you should consult an attorney.

by Jennifer L. Tis, Esq.

Many times a matter involving breach of contract will come down to who has the best documentation. You could be completely in the right but if you haven’t kept proper records of all activity with customers you may have no way to prove it. In order to bolster your stance and put yourself in the best position for success in a breach of contract case I recommend the following:

1.  Be certain that you have clear protocol for all orders placed and deliveries made so that all employees understand and are able to articulate the process.

 2.  If you deliver goods, be sure to get a signed delivery slip from every customer, every time.

3.  If possible, require signed purchase orders from customers in order to effectively eliminate any dispute based upon denial of placing an order.

4.  Require a written contract. I know that many businesses operate on a purchase order/invoice basis which is not out of the ordinary, however, if you want to make it easier to also claim interest and attorneys’ fees in a breach of contract matter it’s a good idea to have each customer sign a written contract providing for interest on overdue balances and the recovery of reasonable collection costs, including reasonable attorneys’ fees, prior to beginning a business relationship.

Finally, make sure to provide ALL documentation regarding the business relationship with the Defendant to your attorney. It is not necessary to wait until the Defendant has served discovery requests upon you before you hand over all of those emails that you’ve saved and each individual invoice to your attorney. Don’t worry that you’re providing too much information…there is no such thing. By supplying your attorney with every bit of documentation regarding your claim you will be supplying him/her with the ability to see the big picture right from the start. This will allow your attorney to more efficiently and more effectively litigate your claim.

by Kit F. Pettit, Esq.

As the leases for the Marcellus and Utica shale gases are now aggressively being developed by the exploration and production companies, some of our client inquiries are starting to shift from various leasing questions and concerns to pipeline right of way matters.

As is the case with a natural gas lease, a pipeline right of way agreement is an important legal document that should not be signed without the advice of counsel as it is a transfer of certain rights in the land to the pipeline operator. Once the right of way or easement has been granted, the rights of the landowner in the right of way become limited while the rights of the operator generally become permanent. The landowner is limited in that he or she cannot build or install any structures over the right of way, plant trees or engage in any activity that would obstruct the right of way.

As with most any agreement, proper negotiation of the document is very important as the rights granted to the operator are long-term and run with the land. There are numerous matters that should be considered and negotiated in the negotiation process, some of the which I have listed below.

1.   Payment. As the pipeline operator is going to be occupying your land indefinitely, a landowner should be compensated properly. The payment methods vary depending on the nature of the pipeline and there are also different basis for compensation. In addition to being paid by the foot, rod or square foot, there are often additional payments which can be negotiated into the agreement. An example of other compensation may include the payment for any timber that is cleared or any crops that are lost or disturbed as a result of the pipeline construction.

2.    Location. The old saying “location, location, location” does not only apply to the value of real estate or the success of a business, but it is a key element with respect to pipeline easements. As pipeline right-of-ways are indefinite in time and restrict the landowner as to his or her use of the easement area, the location of the pipeline is very important. The location should be agreed upon by the landowner and pipeline operator in advance and then specifically defined by metes and bounds in a properly prepared and sealed survey. A landowner should not agree to a simple sketch or general references or landmarks as to the location of the easement.           

3.   Construction Guidelines. A pipeline agreement should address and govern numerous matters related to the construction of the pipeline. In addition to the location, the width of the easement during and after construction should be defined. A landowner should know that the width of the construction easement is going to be wider than the width of the permanent easement. Other considerations should include the time for restoration of the surface, depth of the buried pipeline, surface identification and marking of the pipeline and even a list of the names of the contractors and subcontractors that will be working on your property.

4.   The Pipeline. A pipeline agreement should limit the number of pipelines permitted in the easement or require compensation for each and every pipeline to be constructed. The pipeline agreement should govern what is permitted to be transported in the pipeline and the size of the pipeline. It should also govern rights with respect to increasing the diameter of the pipeline at a later date.

5.   Other Facilities. A landowner should be aware that some pipeline agreements provide for the installation of certain facilities within the easement area. A properly negotiated pipeline agreement should identify and limit what above-ground facilities, if any, are permitted to be placed upon the land.

6.   Termination or Abandonment. At some point, the Marcellus and Utica shale gases may be exhausted and the pipeline agreement should address what will happen to the pipeline if gas is no longer being transported through it. The landowner should want the pipeline to be removed and the easement to be terminated and released so this should be negotiated into the pipeline agreement.

In addition to these key issues outlined above, there are many more issues that should be considered when negotiating and drafting additional terms of a pipeline agreement. As with the natural gas lease, the pipeline agreement is a negotiable document and the landowner should not sign the document that has been prepared by the pipeline operator without seeking the assistance of counsel.

by Peter J. Ashcroft

As an attorney at Bernstein Law Firm who often represents secured creditors in consumer bankruptcies, the rules that apply to Chapter 13 plans are of great interest.  One Bankruptcy Code provision that provides a crucial protection to mortgage holders is 11 U.S.C. § 1322(b)(2) which provides that debtors cannot modify the terms of a mortgage relating to the debtor’s primary residence.  This means that the debtor cannot modify the principal balance or interest rate.

This rule applies to first mortgages and also to second or later mortgages so long as there is any equity in the property to support the second or later mortgage.  For example, if the debtor has a first mortgage in the amount of $100,000 and a second mortgage in the amount of $50,000, the debtor will not be able to modify the terms of the second mortgage if the property is worth even $1 more than the $100,000 owed on the first mortgage.

A recent opinion from the Bankruptcy Court for the Western District of Pennsylvania written by the Honorable Judge Jeffery A. Deller, however, details one situation where a debtor may modify the interest rate on even a first mortgage on the debtor’s primary residence.  In the case of Mary Ellen Golash – WD PA 09-27973 – Judge Deller found that a debtor could modify the interest rate on a first mortgage down to 0% in the special circumstance where the mortgage fully matured before the expiration of the Chapter 13 plan term (normally 60 months from the date of the bankruptcy filing).

The Court noted that 11 U.S.C. § 1322(c)(2) provides an exception to 1322(b)(2) where the mortgage term matures before the end of the plan term.  So long as the debtor complies with the rules for modifying a secured claim set forth in Section 1325(a)(5)(B)(ii) which require that the debtor provide for full payment of the claim and propose equal monthly payments to the creditor in the plan, the debtor can reduce the interest rate owed to the mortgage holder to 0%.

I found this case to be interesting because it reminded me of the generally strong protections given to primary residence mortgage holders in bankruptcies, but also pointed out one situation where the creditor’s secured claim could be modified.

To see the In re: Golash memorandum, click here.

By Lara Shipkovitz, Esq.

Recently in Pennsylvania a Westmoreland County Judge ruled that landowner gas leases need not have both parties signatures to be valid in Snyder v. Rex Energy., Case No. 09CI06332.  Local landowners brought suit against Rex alleging the company reneged on a deal to lease their properties for Marcellus Shale drilling.  Rex maintained the leases were unenforceable because they never signed the leases.  Accordingly, the Company argued no contract existed.  The landowners argued that a contract was entered when they signed the leases that were prepared by the company without making any changes to the lease; meaning, this constituted a valid acceptance of the terms offered by Rex.  Judge Caruso agreed stating that the leases, unlike those in other cases, did not contain the express requirement that the company sign them to be valid. The issue was considered early on in the pleadings and later, the parties settled.  Ultimately, Rex agreed to five year leases, including bonus payments and royalties for the landowners.   In light of the increasing rulings and considerations of Marcellus Shale issues, it is more than ever for a landowner to understand  his/her legal rights and obtain experienced counsel for any transaction affecting these rights.

 Check out our Marcellus Shale website and feel free to contact us (news@bernsteinlaw.com) if you have any questions.

by Kit F. Pettit, Esq.

With all of the types of business entities available to choose from when starting a new business, how do you know which business entity is best? There are LLC’s, LP’s, S-Corps and C-Corps, and each type of entity has its own advantages and disadvantages depending on a number of considerations. Some of the advantages and disadvantages are tax matters, asset protection, liability protection and transferability. Some of the considerations include the entity’s size, the type of business activity, desired governance structure and other business investment matters.

Typically, tax treatment is one of the most important factors in choosing the form of business entity. Among other things, one of the basics tax matters an entrepreneur should know when deciding which entity may best suit his or her business plan is that C-corporations are subject to double-taxation while S-corporations are generally not subject to the two layers of taxation. A new business owners should also be aware that limited liability companies and partnerships are flow through entities and the earnings of these types of entities are not subject to federal income tax, however, Pennsylvania treats all limited liability companies as corporations for capital stock taxes. There are numerous tax advantages and disadvantages for each type of entity and a skilled legal practitioner along with advice from an accountant can help an entrepreneur through this maze.

Once the entrepreneur is aware of the tax considerations, personal liability protection is often the next most important factor to consider. The various entities can have different liability shields. Careful planning and consideration should be given and knowledge of the statutory liability limitations is most important. For example, 15 Pa.C.S.A. § 1526 sets forth the statutory rules with respect to the personal liability of shareholders of a business corporation while 15 Pa.C.S.A. § 8922 provides the rules for personal liability of members and managers in partnerships and limited liability companies. Business trusts are governed by a different statute. 15 Pa.C.S.A. § 9506.

The governance structure and standards of conduct of the shareholders, partners or members is also a very important consideration when organizing and forming a new entity. The governance structure of each type of entity differs and there are business, legal and other reasons why an individual or group of individuals may prefer one management structure over another. In Pennsylvania, corporations have established governance principles and structural formalities that are for the most part defined by statute and case law. 15 Pa.C.S.A. § 1701 et al. Partnerships are primarily governed by contract between the partners, i.e., a partnership agreement, however, there are certain rights and duties of partners governed by statute. 15 Pa.C.S.A. §8331 et al. As for limited liability companies, they have significant flexibility with respect to governance of the company. For example, a Pennsylvania limited liability company can be “member-managed” which follows the general partnership rules, or it can be “manager-managed” which governance mechanism is most similar to that of a corporation. 15 Pa.C.S.A. § 8941.

The above matters highlight some basic and important considerations when starting a new business. Corporate formation and organization is more than an online “check-the-box” process. It takes knowledge and careful planning based on information provided by the client. For example, does a majority-member of a limited liability company really want unanimous consent provisions in the company’s operating agreement that would require the consent of a 5% member for certain company actions? Would you incorporate as an S-corporation if you anticipate distributions to some shareholders and not others? After all of the considerations have been discussed and the form of entity selection is made, an entrepreneur should also know that each type of entity has its own formation and organization requirements and respective formalities that should be properly observed and followed once incorporated or organized. Observation and practice of these important formalities such as annual meetings of members and shareholders is a part of the liability protection mechanism and should not be ignored or forgotten once your business is up and operating.

by Shawn P. McClure, Esq.

It is a very common situation for a creditor to be owed a large sum of money from a debtor who continues to operate by paying other creditors or parties. Naturally, this is very frustrating. It can also be very disturbing because at the same time there are rumblings of the debtor’s financial instability. At this point, the creditor must decide on a course of action.

Certainly, the creditor has the option of filing a state court breach of contract action and working toward obtaining a judgment. However, litigating a lawsuit takes time and even more time is spent to execute on the judgment. The passage of time affords the debtor the opportunity to continue paying others and ultimately wind down the business.

There is another option, which is often overlooked. Force the debtor into bankruptcy. This is done by filing an involuntary bankruptcy petition. The reason for an involuntary bankruptcy is to prevent and protect creditors from unfair activities and treatment by debtors. The greatest advantage to an involuntary bankruptcy is that it forces bankruptcy upon the debtor rather than allowing the debtor to ultimately file on its own terms. This is extremely important because of the ability to recover payments or wrongful transfers by the debtor within certain time frames leading up to the filing of the bankruptcy petition. These payments and transfers can be brought back into the bankruptcy estate to be properly distributed by the bankruptcy court.

In sum, bankruptcy is not always a bad thing for unsecured creditors. It just simply depends upon whose terms the bankruptcy is filed.

If you are interested in reading more about involuntary bankruptcy click here

by Shawn P. McClure, Esq.

While I subscribe to the belief that a secured lien holder should always know the location of its collateral, I understand that is essentially impossible to practice. Which is why a secured lien holder may some day find themselves in a position where they find their collateral in the possession of a third party. Often that third party is a garage looking to be paid for repairs, towing or storage with respect to the collateral.

Under Pennsylvania law, the secured lien holder is generally on the hook for repairs and towing charges. The theory being that the secured lien holder receives any benefit bestowed upon the collateral. However, a dispute often arises over storage fees. Particularly, where a garage stores the collateral and then makes no effort to inform the secured lien holder of the collateral’s location.

With typical charges of $25.00-$35.00 per day, these storage fees can quickly accumulate. A garage is entitled to any storage fees incurred after the secured lien holder gave “consent” to storing the collateral. Obviously, if the secured lien holder gave express consent to store the collateral, there is no issue. The problem arises in instances of implied consent. Implied consent will be found when the garage has sent notice to the secured lien holder that they have the collateral and the secured lien holder does not pick up the collateral.

However, most problems arise when express consent is not given and notice is not sent. The secured lien holder after months of contacting the Debtor about delinquent payments finally hears from the Debtor that the collateral has been at the local garage for months. So what does a secured lien holder do?

1. Immediately contact the garage and find out exactly what amount of money they are demanding. Obtain a break down of the charges identifying what is for repairs, towing, storage, etc. Also, find out what they are charging per day to store the collateral.

2. Immediately make a reasonable offer, in writing, to the garage to resolve the matter. Pennsylvania case law provides that if a garage declines a reasonable offer to a secured lien holder, then the garage cannot seek any storage fees if it is later found consent to storage did not exist.

3. It is usually best to settle. However, if the garage is unreasonable, then immediate legal action should be taken by contacting your creditors’ rights attorney.

By Jennifer Tis, Esq.

Undoubtedly, social networking sites such as Facebook will change the face of the legal practice in a number of ways, some foreseeable, some not. Already, Facebook has been used in criminal investigations, used for “cyber-bullying” and has been the subject of privacy disputes due to school administrations’ use of Facebook to suspend students for activities such as underage drinking.
Facebook has also been a sought-after source of information for attorneys involved in active litigation in a variety of areas of the law. Whether it’s a civil or criminal matter, a case can often be expeditiously closed due to a few posts made by either the Plaintiff or Defendant on Facebook or other social networking site. Often times, however, an individual’s public posts may not reveal much in regards to an active litigation matter though the individual’s private posts and messages may disclose much more. The question is, how can an attorney ethically gain access to the private information located within an opposing party’s social network site?
It is tempting to have another individual, such as a friend, secretary or paralegal, send a “friend request” to an opposing party in order to gain access to the information that is not made public on their Facebook page. To do so, however, would violate a number of the Pennsylvania Rules of Professional Conduct, including, but not limited to, Rule 5.3 (Responsibilities Regarding Nonlawyer Assistants) and 8.4 (Misconduct).
Rather, there are a few non-binding cases out there that suggest that private information from an individual’s social network site may be obtained through discovery requests. One case in particular comes from Jefferson County, Pennsylvania and illustrates what may be Pennsylvania’s emerging view toward discovery and social networking sites. In McMillen v. Hummingbird Speedway, the Plaintiff claimed that he was injured when the Defendant rear-ended him during a cool down lap after a stock race.
After the Plaintiff posted information on the public portion of his Facebook and MySpace accounts which indicated that he may not actually be injured, the Defendant requested Plaintiff’s usernames and passwords to his social network accounts in Interrogatories. The Plaintiff objected to this request and the Defendant filed a Motion to Compel. The Court granted Defendant’s Motion and ordered the Plaintiff to produce his usernames and passwords to his Facebook and MySpace accounts to Defendant’s counsel, only (the Defendant, himself, was not permitted access to the accounts). The Court further ordered that the Plaintiff was prohibited from taking steps to alter or delete existing information or posts from his Facebook and MySpace accounts.
The Court stated: “Under Pennsylvania’s broad discovery rules, as long as it is relevant to the litigation, whether directly or peripherally, a party may obtain discovery regarding any unprivileged matter. Pa.R.C.P. 4003.1.” McMillen v. Hummingbird Speedway, 2010 Pa.Dist. & Cnty. Dec. LEXIS 270, 2. “In this case, the Plaintiff asked the Court to recognize communications shared among his private friends on social network computer sites as confidential and privileged and thus protected against disclosure.” Id, at 3.The Court noted that Pennsylvania law does not favor evidentiary privileges “for they are in derogation of the search for the truth.” Id, (quoting) Hutchison v. Luddy, 414 Pa. Super. 138, 606 A.2d 905, 908-09 (Pa. Super. 1992) (quoting) Herbert v. Lando, 441 U.S. 153, 175, 99 S. Ct. 1635, 60 L. Ed. 2d 115 (1979).
The Court also pointed to the terms and privacy policies of both Facebook and MySpace stating that they “clearly express the possibility of disclosure” barring the Plaintiff from successfully maintaining that the element of confidentiality protects his Facebook and MySpace accounts from discovery. Id at 10.
The Court went on to state “whatever relational harm may be realized by social network computer site users is undoubtedly outweighed by the benefit of correctly disposing of litigation.” Id, at 11.
The fact that the Plaintiff first posted public information that was relevant to the matter and, therefore, suggested that additional relevant information may be located in the private sections of his Facebook and MySpace pages was clearly taken into account. Had he not made the public posts, I believe that the Court may have ruled differently.
Although this case is not binding, it may be an indication of what is to come from Pennsylvania Courts with respect to social networking sites and litigation. Will Pennsylvania adopt a narrow interpretation of confidentiality? Only time and additional ill-advised posts from plaintiffs and defendants will tell.

by Scott Schuster, Esq.

Many of you are familiar with preferences actions and the defenses to those actions. You may not be aware of fraudulent transfer actions. With the increasing rise in bankruptcy cases in which the main secured creditor is “under water,” bankrupt debtors and trustees are using preference actions as a primary means for collecting funds to distribute to unsecured creditors. However, since unsecured creditors are increasingly aware of preference defenses and how to properly deal with questionable debtors, preference actions are becoming less profitable for the bankruptcy estate. As a result, we’re seeing an increase in the use of fraudulent transfer actions to recover funds for the estate.

There are two types of fraudulent transfer actions: actual fraud (the Debtor deliberately defrauds creditors) an constructive fraud (discussed below). Since actual fraud is somewhat rare, this article is focused on constructively fraudulent transfers.

A transfer is constructively fraudulent if: (1) the debtor received less than reasonably equivalent value in exchange for the transfer and (2) the debtor was (a) insolvent on the date of the transfer or became insolvent as a result of the transfer, (b) the debtor was engaged or was about to engage in a business or transaction for which any property remaining with the debtor was an unreasonably small capital, or (c) the debtor intended to incur or believed that it would incur debts beyond the debtor’s ability to pay as such debts matured.

Most of the cases relating to fraudulent transfers focus on the “reasonably equivalent value” language of the statute. Generally speaking, the courts look to (1) whether the value transferred by the Debtor is approximately equal to the value of what was received by the Debtor in exchange for the transfer and (2) whether the transaction took place at an arm’s length.

In a typical scenario, a vendor provides goods or services having a certain value and the Debtor makes payment sometime thereafter. In this situation, no fraudulent transfer has occurred because the Debtor received “reasonably equivalent value” for its payment.

However, imagine the following scenario: A construction company is composed of three affiliates. Company A cuts timber and delivers it to Company B. Company B processes the timber and makes plywood and delivers it to Company C. Company C uses the plywood to make kitchen cabinets. While these three companies share some common owners, they conduct business at arms-length, do not have any parent-subsidiary relationships and are, for all intents and purposes, separate and distinct legal entities.

Now imagine the creditor that provides $100,000 worth of monthly shipping services for Company A. This creditor is “bankruptcy savvy” and, therefore, insists on 30 day payment terms and strict adherence to payments made in the “ordinary course of business.” All three companies file for chapter 11 bankruptcy protection. When the creditor receives notice of Company A’s bankruptcy, the creditor is secure in knowing that any potential preference action would top out at $300,000 (three months worth of payments) and knows that it has strong defenses to such an action.

Months later, the creditor receives a complaint from the Trustee in Company C’s Bankruptcy demanding the return of $2.4 million worth of “fraudulent transfers.” The complaint indicates that for many years all three companies were insolvent and had problems balancing cash flow. Due to these problems, Company C would pay some of Company A’s Accounts Payable. Pursuant to this arrangement, Company C paid all of the creditors invoices that were directed to Company A. The trustee claims that when Company C paid the monthly invoices for Company A, Company C received no value whatsoever, since the services were delivered to Company A. The trustee therefore demands the return of 2 years worth of monthly payments paid by Company C. Upon review of its file, the creditor is shocked to notice that the checks it received on its invoices were from Company C and not Company A.

Sounds ridiculous, right? Well, while there are certain fact intensive exceptions, such transactions are generally considered “fraudulent transfers” that are recoverable by a bankruptcy trustee.

A creditor that unknowingly receives such a fraudulent transfer is in a very unfortunate situation. While preferences only occur during the 90 days preceding the preference action, the bankruptcy code’s “look back” period for fraudulent transfers is 2 years (which can actually increase depending on which state’s laws apply). Consequently, creditors are at risk of much larger lawsuits being filed to recover fraudulent transfers than the typical preference actions, making it very hard to limit a creditors’ exposure.

More importantly, preference defenses – i.e. ordinary course of business, new value, contemporaneous exchange – do not apply to fraudulent transfers. The fraudulent transfer defenses – typically that the payor received reasonably equivalent value and/or that the payor was insolvent at the time it made the payment – are heavily fact intensive. In other words, the litigation is time consuming and expensive.

For legal and tax purposes, most large companies are split into multiple affiliates, meaning the risks posted by fraudulent transfer actions to unknowing creditors are quite large. For those “bankruptcy savvy” creditors that I mentioned, the best way to protect against such an action is to demand payment from the debtor to which you supplied services. While accepting payment from an affiliate is often the easiest way to get paid timely, it may ultimately end up costing you substantially down the road.