City of Lebanon v. Cornwall Borough v. Lebanon County Earned Income Tax Bureau, 2419 C.D. 2015

Lebanon County Earned Income Tax Bureau (Bureau) collected and distributed earned income taxes for 26 municipalities; Executive Director Donald Foltz misappropriated funds (2002–2006), was terminated in 2007, and later committed suicide. Bureau insurer reimbursed theft less deductible.
Interim director discovered serious recordkeeping and system problems; Bureau owed significant out-of-county reimbursements and had unreliable distribution calculations. County entities retained McKonly & Asbury (M&A) to reconstruct distributions 2004–2007 using limited Bureau records and PA-40 data.
M&A reported multi-million-dollar overpayments to some municipalities and underpayments to others; 13 of 18 overpaid entities agreed to repay under a voluntary plan; Appellant Municipalities (Cornwall Borough, Heidelberg Township, West Cornwall Township, Bethel Township) refused.
Appellee Municipalities (claimants) sued Appellant Municipalities for LTEA violations, unjust enrichment, constructive trust, and conversion; bench trial focused on M&A report reliability; trial court appointed a forensic accountant and credited M&A’s methodology.
Trial court ordered Appellant Municipalities to return overpayments (as calculated by M&A), awarded pre-judgment interest at 6%, and ruled for Appellants against the Bureau on separate claims; Appellants appealed; Commonwealth Court affirmed.

Issue	Plaintiff's Argument	Defendant's Argument	Held
1. Sufficiency of proof of damages and burden shifting	Appellees argued M&A report and expert testimony provided reasonable basis to calculate damages	Appellants argued Appellees failed to meet burden and trial court shifted burden to them	Court upheld trial court: evidence and expert testimony sufficient; no improper burden shift
2. Pre-judgment interest rate	Appellees requested interest at legal rate	Appellants argued 6% was excessive (limited briefing)	Court affirmed 6% award as equitable exercise of discretion given alternatives and volatility of markets
3. Appellants’ claim for recovery from the Bureau for restitution costs	Appellants sought compensation from Bureau for amounts they must return	Appellees argued Appellants were not entitled to compensation because funds never belonged to them	Court held Appellants not entitled to recover against Bureau; repayment does not constitute loss when funds were not rightfully theirs
4. Application of equitable principles / unclean hands	Appellants argued trial court should limit or bar relief based on Appellees’ alleged oversight failures and unclean hands	Appellees contended no fraud or bad faith by them; oversight duties were shared across political subdivisions	Court declined to apply unclean hands; trial court reasonably exercised equity given record and shared oversight failures

Barylak v. Montgomery Cnty. Tax Claim Bureau, 74 A.3d 414 (Pa. Cmwlth. 2013) (factfinder authority to weigh evidence and credibility)
Merrell v. Chartiers Valley School Dist., 51 A.3d 286 (Pa. Cmwlth. 2012) (damages may be awarded on reasonable estimates where basis in evidence exists)
Spang & Co. v. United States Steel Co., 545 A.2d 861 (Pa. 1988) (principle that breaching party should not shift loss when amount uncertain but responsibility clear)
Kaiser v. Old Republic Ins. Co., 741 A.2d 748 (Pa. Super. 1999) (pre-judgment interest may be awarded to force disgorgement of unjust enrichment)
Gurenlian v. Gurenlian, 595 A.2d 145 (Pa. Super. 1991) (trial court discretion in awarding and setting rate of pre-judgment interest)
Donner v. Sacket, 97 A. 89 (Pa. 1916) (repayment of mistaken payment causes no compensable loss to payee)
Brubaker v. County of Berks, 112 A.2d 620 (Pa. 1955) (permitting a party that returned funds to seek recovery from the wrongdoer where that wrongdoer deprived the party of funds)
South Central Employment Corp. v. Birmingham Fire Ins. Co., 926 A.2d 977 (Pa. Super. 2007) (money that must be returned does not constitute a loss to the possessor)