In this lawsuit,
Alpine sold undivided ownership interests in a campground that it was developing in Fayette County, Pennsylvania. The agreement between Alpine and its purchasers is titled “Agreement for deed.” The agreement for deed states that the purchaser is not purchasing the right of exclusive use of any specific campsite but only the right to use an available campsite. The agreement for deed further states that the purchaser is generally guaranteed the use of a campsite anytime during the year but on certain holiday weekends the campsites will be allotted on a first-come basis.
Usually, the purchaser made a small down payment and executed a promissory note in which he or she agreed to pay the balance in equal monthly installments over several years. The usual interest rate was 18 percent; this was an above-market interest rate. See exhibit 1 of FirstSouth exhibits in opposition to motions for summary judgment which includes (1) an agreement for deed in which Alpine sold the buyers an undivided l/750th interest in the real estate known as phase I-B of Alpine for $5,740 with a down payment of $550 and (2) the promissory note which the purchasers executed which provided for the balance to be paid in 84 monthly payments (interest rate — 18 percent).
The purchasers also signed a separate real estate maintenance contract (FirstSouth exhibit 2, p. 1) in which they promised to pay an annual maintenance fee covering labor, utilities, taxes, and necessary materials and supplies.
In most instances, the consideration that Alpine received for most of the purchase price was the promissory note which the purchaser executed. Alpine and FirstSouth entered into negotiations for Alpine’s sale of these promissory notes to FirstSouth. On January 5,1988, Alpine and FirstSouth executed an agreement (FirstSouth exhibit 25) under which Alpine agreed to sell its promissory notes to FirstSouth for the face amount of the notes. These were unsecured notes (i.e., not supported by any lien on the real estate). However, Alpine agreed to de
Shortly after the agreement was executed, FirstSouth purchased promissory notes at a face value in excess of $1.8 million. By early fall 1988, Alpine had defaulted on a substantial loan secured by a lien on the campground property, ceased providing services (including utility services and maintenance) to the campground, and was not in a position to develop the campground site. Various campground purchasers whose notes had been assigned to FirstSouth stopped making the monthly installment payments provided for under these notes. FirstSouth exhibit 32 includes five letters (dated between 10/3/88 and 10/15/88) written by counsel and a sixth written by a purchaser on advice of counsel stating in two instances that the purchasers would not make additional payments to FirstSouth until Alpine met its commitments and in four instances that the purchasers were rescinding their contracts. One of these letters written by counsel with Hyatt Legal Services stated that the agreements between Alpine and its purchasers are in violation of the Pennsylvania Goods and Services Installment Sales Act and the Unfair Trade Practices and Consumer Protection Law and demanded a refund of the money received to date and the return of all documents executed by the clients.
On June 20, 1990, a purchaser, on behalf of all other purchasers, filed a class action in the Common Pleas Court of Fayette County. (Exhibit 9 of the Goldberg & Vergotz exhibits is a copy of the complaint.) In the complaint, the purchaser alleged that the transactions between
FirstSouth filed preliminary objections seeking dismissal of the class action complaint in its entirety. In an opinion and order of court dated December 10, 1990 (FirstSouth exhibit 39), the trial court sustained the preliminary objections as to the RICO claim. However, it overruled the preliminary objections seeking dismissal of claims based on the Goods and Services Installment Sales Act and the Unfair Trade Practices and Consumer Protection Law. The court ruled that the transactions between the installment purchasers of undivided interests in the campground and Alpine are governed by the Goods and Services Installment Sales Act because
“Plaintiffs purchased services within the meaning of section 1202 of the GSISA. The sale of memberships in Alpine was not realty; it was a right to use the camp*315 ground facilities. This same conclusion was reached by the court in Com. ex rel. Zimmerman v. Nickel, 26 D.&C.3d 115 (1983).” FirstSouth exhibit 39, p. 3.
The court ruled that under the provisions of this legislation, FirstSouth had stepped into the shoes of Alpine and by virtue of section 1402 is subject to all claims and defenses which the purchasers could assert against Alpine because no right of action shall be cut off by assignment.
On August 25, 1992, FirstSouth settled the class action. Under the settlement agreement (FirstSouth exhibit 45), FirstSouth paid $675,000 to be distributed among the plaintiffs in the class action suit and agreed to forgive the remaining amounts owed by the class members on the promissory notes.
In the present lawsuit, FirstSouth has sued to recover the $675,000 paid pursuant to the settlement agreement, the balance forgiven by FirstSouth on the notes (an amount in excess of $850,000), lost interest on the aggregated principal balance due (an amount in excess of $650,000) and counsel fees and expenses incurred in defending and settling the class action (an amount in excess of $360,000).
In the negotiations leading to the January 5, 1988 agreement between Alpine and FirstSouth, FirstSouth was represented by the Thorpe Reed defendants and Alpine was represented by the Goldberg defendants. In this
FirstSouth’s claims against the Goldberg law firm are based on this law firm’s failure to advise FirstSouth that documents that Alpine used in its transactions with its purchasers violated the Goods and Services Installment Sales Act because the promissory notes failed to state that an assignee of the promissory notes takes the notes subject to claims and defenses that the purchasers could assert against Alpine. FirstSouth’s claims against Goldberg arise out of a January 5, 1988 opinion letter that Goldberg issued (Goldberg exhibit 5) which failed to discuss the possibility that the underlying transactions between Alpine and its purchasers were governed by the Goods and Services Installment Sales Act.
I.
I initially consider the Goldberg law firm’s motion for summary judgment seeking dismissal of claims raised against this law firm.
Paragraph 5(d) of the January 5, 1988 agreement between Alpine and FirstSouth provides that FirstSouth shall not purchase any owner notes until it has received a “favorable opinion of Goldberg & Vergotz P.C., counsel for operator, in form and substance satisfactory to FirstSouth.” Pursuant to Alpine’s direction, the Goldberg law firm issued an opinion letter dated January 5, 1988 addressed to FirstSouth. The letter identified Goldberg & Vergotz as counsel for Alpine and Eastern Resorts
“(b) The execution, delivery and performance by Alpine of the agreement are within Alpine’s corporate powers, have been duly authorized by all necessary corporate action, and do not contravene (i) Alpine’s charter or bylaws, (ii) any law, mle or regulation applicable to Alpine, (iii) any contractual or legal restriction contained in any indenture, mortgage, loan or credit agreement, bond or note of Alpine or any other agreement or instrument by which Alpine is bound, or (iv) any order, writ, judgment, award, injunction of decree applicable to Alpine.”
It is FirstSouth’s position that the above paragraph constitutes an opinion rendered by the Goldberg law firm that the transactions between Alpine and its purchasers complied with Pennsylvania law.
FirstSouth raises three claims against the Goldberg law firm: breach of a contractual agreement between FirstSouth and the law firm; breach of a contract between the Goldberg law firm and Alpine to which FirstSouth was a third party beneficiary; and professional negligence.
There is no evidence to refute the law firm’s testimony that it was never asked by Alpine or FirstSouth to render an opinion as to the applicability of the Goods and Services Installment Sales Act, as to the legality or enforcement of the promissory notes signed by Alpine’s purchasers and assigned to FirstSouth, or as to whether FirstSouth would be a holder in due course.
Goldberg was representing Alpine. FirstSouth was represented by separate counsel (Thorpe Reed). Thorpe Reed was fully aware of the transactions between Alpine and its purchasers and the documents that Alpine utilized. If FirstSouth was concerned with the applicability of any consumer protection laws to the underlying transactions, Goldberg would have anticipated that FirstSouth would be looking to its own lawyer rather than Alpine’s lawyer for legal advice. Consequently, the opinion letter cannot be construed as addressing this issue unless the writer of the opinion letter specifically addressed the issue in the same fashion in which he addressed the applicability of federal and Pennsylvania securities laws.
Even assuming that the opinion letter could be construed as offering an opinion that the documents used in the underlying transactions between Alpine and its purchasers complied with Pennsylvania law, there is no evidence that would support a finding that FirstSouth relied on the letter. The evidence shows that Thorpe Reed was providing legal advice to FirstSouth regarding the legality of the underlying transaction and the risks that
Furthermore, even if this opinion letter had stated that the underlying transaction is not governed by the Goods and Services Installment Sales Act, Goldberg raises other defenses that support the dismissal of plaintiff’s complaint.
FirstSouth’s breach of contract claim fails because there was no contract between Goldberg and FirstSouth. There were no communications between Goldberg and FirstSouth other than the issuance of the opinion letter. FirstSouth did not make any payments to Goldberg. FirstSouth knew that Goldberg was representing the other party to the transaction. The opinion letter was issued pursuant to Goldberg’s representation of Alpine; Goldberg, acting on Alpine’s behalf and for the benefit of Alpine, issued the opinion letter required under 5(d)
FirstSouth’s third party beneficiary claim also fails; under Pennsylvania law, FirstSouth is not a third party beneficiary. Alpine did not intend to create a right for FirstSouth to sue the law firm that was representing Alpine. Goldberg prepared the letter in order to further Alpine’s interests. The case does not involve an opinion rendered to an unsophisticated third party. In this case, the third party (FirstSouth) was represented by a law firm that participated in the drafting of the opinion letter— the January 5, 1988 agreement provided for a favorable opinion “in form and substance” satisfactory to First-South. Consequently, if the parties had intended to permit FirstSouth to bring contract claims against Alpine’s law firm, Thorpe Reed would have required that this be included in the opinion letter. See generally, Guy v. Liederbach, 501 Pa. 47, 459 A.2d 744 (1983).
Plaintiff’s brief discusses Lawall v. Groman, 180 Pa. 532, 37 A. 98 (1897); Pittsburgh Coal and Coke Inc. v. Cuteri, 404 Pa. Super. 298, 590 A.2d 790 (1991), rev’d, 533 Pa. 311, 622 A.2d 284 (1993) (mem.) (remanded to allow plaintiff to amend the complaint); Gregg v. Lindsay, 437 Pa. Super. 206, 649 A.2d 935 (1994); and Cost v. Cost, 450 Pa. Super. 685, 677 A.2d 1250 (1996).
Lawall does not apply because in that case there was evidence that supported a finding that there was an understanding between the plaintiff and the lawyer who kept the plaintiff’s mortgage that the lawyer would promptly record the mortgage — in other words, by keeping the mortgage the lawyer voluntarily assumed the responsibility for promptly recording the mortgage. The
Gregg v. Lindsay, supra, has no precedential value because two of the three judges only concurred in the result. Furthermore, it is a will case in which the court found that there can be no recovery as a matter of law against the lawyer because the evidence did not show that the lawyer breached his duty to the client.
Pittsburgh Coal and Coke Inc. v. Cuteri, supra, does not apply because in that case the court found that the law firm engaged in a specific undertaking to furnish specific professional services to the plaintiff.
In the final case — Cost v. Cost, supra — the plaintiff did not seek a third party beneficiary status. The sole issue that the court addressed was whether an attorney malpractice claim could be pursued.
In order to recover as a third party beneficiary, the third party must show a breach of the agreement between the lawyer and the client. Consequently, plaintiff’s third party beneficiary claim also fails because of the absence of any evidence showing that Alpine intended for its law firm’s opinion letter to address the issue of the applicability of the consumer protection laws to the underlying transactions between Alpine and its purchasers.
The Goldberg law firm, as Alpine’s counsel in this transaction, was obligated to further Alpine’s interests (i.e., the completion of the transaction). Consequently, the Goldberg law firm would look to Alpine to establish the scope of any opinion letter that would be furnished to FirstSouth. Unless directed to do so by its client (Alpine), the Goldberg law firm could not refer to any legal issues that might discourage FirstSouth from purchas
If the evidence would support a finding that the opinion letter incorrectly represented that the underlying transactions between Alpine and its purchasers were not governed by any Pennsylvania consumer legislation, Pennsylvania law may recognize a cause of action under tort law upon a showing of justifiable reliance. See section 552 of the Restatement (Second) of Torts; Greycas Inc. v. Proud, 826 F.2d 1560 (7th Cir. 1987).
Any tort claim is governed by a two-year statute of limitations. FirstSouth instituted this lawsuit against the Goldberg law firm in June 1992. The wrongdoing (false representation) occurred on January 5, 1988.1 will assume that the statute of limitations does not begin to run until FirstSouth suffered appreciable harm as a result of the false representations made in January 1988.
FirstSouth contends that it did not suffer harm until the December 10,1990 Fayette County ruling in the class action lawsuit that the Goods and Services Installment Sales Act applies to the transactions between Alpine and its purchasers. I disagree. FirstSouth began sustaining losses by the fall of 1988 when purchasers were refusing to make the monthly payments provided for in the promissory notes after Alpine had breached obligations it owed the purchasers.
FirstSouth’s reliance on my opinion in Spang & Co. v. Reed Smith Shaw & McClay, 145 P.L.J. 540 (1997), is misplaced. In Spang, the plaintiff did not suffer any appreciable harm until the federal court ruling because until after this ruling, Spang continued to control the pension plan and the surplus funds in the pension plan. The present case is similar to Fiorentino v. Rapoport, 693 A.2d 208 (Pa. Super. 1997). In that case, the court ruled
FirstSouth also relies on the discovery rale. This rule provides that the limitations period does not begin to ran until a plaintiff knew or should have known (1) that he has been injured and (2) that his injury has been caused by another party’s conduct. Bradley v. Ragheb, 429 Pa. Super. 616, 621, 633 A.2d 192, 194-95 (1993). Under the discovery rule, a party asserting a cause of action is under a duty to use all reasonable diligence to be properly informed of the facts and circumstances upon which a potential right of recovery is based. See Bailey v. Tucker, 533 Pa. 237, 252 n.15, 621 A.2d 108, 115 n.15 (1993).
In the present case, FirstSouth should have discovered more than two years before the filing of the lawsuit that the representation in the opinion letter (if made) that the underlying transaction did not violate Pennsylvania consumer laws was false. The October 1988 letter from Hyatt Legal Services stated that the agreements between Alpine and its purchasers were in violation of the Pennsylvania Goods and Services Installment Sales Act; in the letter, counsel demanded a refund of the money received to date and the return of all documents executed by the clients. As of that date, FirstSouth should have questioned the accuracy of any representation of the Goldberg law firm upon which it relied that the underlying transactions between Alpine and its purchasers complied with Pennsylvania law. With the exercise of reasonable diligence, it should have discovered that it should have been advised that there was a substantial likelihood
I recognize that the evidence upon which FirstSouth relies shows that Thorpe Reed withheld the information within the October 24, 1988 memorandum. It is FirstSo.uth’s position that upon receipt of the Hyatt Legal Services letter, it looked to its law firm (Thorpe Reed) which incorrectly advised FirstSouth that the Goods and Services Installment Sales Act does not apply. However, the discovery rule is not tolled because the negligence of a third party prevented plaintiff from discovering the harm and wrongdoing.
FirstSouth’s claim against the Goldberg law firm is that it failed to exercise ordinary skill and knowledge because of its failure to advise FirstSouth of the potential applicability of the Goods and Services Installment Sales Act. It is FirstSouth’s claim, in other words, that an attorney, exercising ordinary care, would have recognized the potential applicability of this legislation. If FirstSouth’s contention is correct, it cannot contend that it was not in a position to discover the potential applicability of this legislation after receipt of the Hyatt Legal Services letter.
For these reasons, I am dismissing all claims raised against the Goldberg law firm.
I next consider the motion for summary judgment of Thorpe Reed. Thorpe Reed contends that FirstSouth’s contract claims are barred by the four-year limitation period and its tort claims are barred by the two-year limitation period.
As to FirstSouth’s claims against the Goldberg law firm, I found that under the discovery rule the statute of limitations began to run when FirstSouth received the Hyatt Legal Services letter for the following reason: Upon receipt of this letter, FirstSouth was under a duty to use all reasonable diligence to become properly informed as to whether there was any merit to the legal positions that Hyatt Legal Services was asserting. Any attorney whom FirstSouth consulted following its receipt of the Hyatt Legal Services letter should have advised FirstSouth that there was a substantial likelihood that any holder of the notes would take subject to the claims and defenses that Alpine’s purchasers could raise against Alpine.
For reasons that I will discuss, as to FirstSouth’s claims against Thorpe Reed, I do not find that the statute of limitations began to run when FirstSouth received the Hyatt Legal Services letter.
Upon receipt of the Hyatt Legal Services letter, FirstSouth looked to Thorpe Reed for legal advice. The evidence most favorable to FirstSouth establishes that over the next two years FirstSouth raised two concerns with Thorpe Reed: (1) if FirstSouth sued the purchasers
After reviewing the Hyatt Legal Services letter, an attorney with Thorpe Reed authored a memorandum dated October 24,1988. (FirstSouth exhibit 34.) The issue that the attorney addressed was whether the transactions involving Alpine and its purchasers were subject to the Goods and Services Installment Sales Act and/or the Unfair Trade Practices and Consumer Protection Law. The writer of the memorandum concluded that this legislation may apply to these transactions; thus, FirstSouth could be precluded from collecting amounts due under the notes and could be liable for damages by virtue of its relationship with Alpine.
According to the testimony most favorable to FirstSouth, Thorpe Reed never furnished to or discussed with FirstSouth this October 24, 1988 memorandum. It was not until the period between April 1989 (FirstSouth exhibit 35) and July 4,1989 (FirstSouth exhibit 51) that Thorpe Reed advised FirstSouth that there were problems with the notes.
This lawsuit was brought within four years after Thorpe Reed advised Alpine that it may not be a holder in due course. Since FirstSouth, upon receipt of the Hyatt Legal Services letter, looked to Thorpe Reed for legal advice, Thorpe Reed cannot take the position that FirstSouth should have discovered that it was not a holder in due course at an earlier date. In addition, since Thorpe Reed allegedly concealed from FirstSouth the conclusions set forth in the October 24, 1988 memorandum, this case is governed by the case law, holding that where through concealment the defendant causes the plaintiff to relax its vigilance or deviate from its right of inquiry, the defendant is estopped from invoking the bar of the statute of limitations. Molineux v. Reed, 516 Pa. 398, 402, 532 A.2d 792, 794 (1987).
Consequently, I am denying Thorpe Reed’s motion for summary judgment seeking dismissal of FirstSouth’s breach of contract action based on the statute of limitations defense.
I next consider the statute of limitations defense to FirstSouth’s professional negligence claim. This claim is governed by a two-year limitation period.
The testimony establishes that more than two years prior to the filing of this lawsuit, FirstSouth’s president knew that FirstSouth was not a holder in due course. (Radcliffe 2/10/99 deposition, pp. 87-91, 172.) Consequently, FirstSouth’s claims raised in its tort action for
FirstSouth’s testimony will support a finding that until after the Fayette County ruling on December 10,1990, Thorpe Reed continued to advise FirstSouth that the damage claims which the purchasers were raising had no merit. (Radcliffe deposition, pp. 95,107-108.) This lawsuit was brought within two years after FirstSouth had reason to question Thorpe Reed’s legal advice. Consequently, FirstSouth may pursue the claims raised in its tort action for the money paid under the settlement agreement. Plaintiffs may also seek the money spent defending and settling the class action litigation because (under the evidence most favorable to FirstSouth) these are damages which flow from an agreement that FirstSouth would have not executed if properly advised that there was a substantial likelihood that the notes that it received would not be free and clear of claims and defenses that could be raised against Alpine.
I next consider Thorpe Reed’s motion for summary judgment based on the ground that the record contains no evidence of proximate cause. According to Thorpe Reed, Mr. Fitterer testified that he was prepared to complete the transaction regardless of any legal opinion that Thorpe Reed may have provided. However, I cannot rule out the possibility that FirstSouth can present expert testimony stating that Thorpe Reed attorneys failed to exercise ordinary skill and care because of their failure to furnish an opinion to the primary decision-makers within FirstSouth (FirstSouth’s chairman of the board of directors, FirstSouth’s president, and FirstSouth’s chief financial officer) that there was a substantial likelihood that the purchasers would be able to assert against FirstSouth
Furthermore, the March 14,1996 deposition testimony of Mr. Fitterer, if construed most favorably to FirstSouth, does not require (1) a finding that Thorpe Reed fully advised Mr. Fitterer of the magnitude of the risk that Alpine’s purchasers may be able to raise against FirstSouth claims and defenses that could be raised against Alpine or, alternatively, that Thorpe Reed failed to fully inform FirstSouth of these risks because First-South had limited the scope of the representation or (2) a finding that FirstSouth would have completed the transaction even if advised that there was a very substantial likelihood that Alpine’s purchasers would be able to raise against FirstSouth any claims and defenses that could be raised against Alpine.
Instead; this deposition testimony can be read as follows: FirstSouth informed Thorpe Reed that it wanted to promptly complete the transaction so Thorpe Reed was to focus on, negotiate over, and discuss with First-South only critical terms in the proposed agreement; FirstSouth advised Thorpe Reed that it was important that the transaction be written in a way that FirstSouth is only a lender of money in order to minimize the risks that FirstSouth would be. subject to any defenses that the purchasers could raise against Alpine; and Mr. Fitterer believed that Thorpe Reed was having the documents
For these reasons, I enter the following order of court:
ORDER
On December 15,1999, upon consideration of defendants’ motions for summary judgment, it is hereby ordered that:
(1) plaintiff’s claims against Goldberg & Vergotz P.C., Lee Goldberg, and James'S. Vergotz are dismissed;
(2) plaintiff’s tort claims against Thorpe, Reed & Armstrong and Douglas E. Gilbert for recovery of amounts owed on the promissory notes that were for
(3) the summary judgment motion of the Thorpe Reed defendants is otherwise denied.
(4) status conference will be held on January 10,2000 at 10:30 a.m. o’clock.
. The husband of my senior law clerk (Catherine Gerhold) works for Thorpe, Reed & Armstrong. Ms. Gerhold has had no involvement in this case.
. Goldberg exhibit 6 includes several additional similar letters written by or on behalf of purchasers in October 1988.
. Shortly after the lawsuit was filed, the office of the attorney general sent a letter (FirstSouth exhibit 36) to FirstSouth stating that Gallitan National Bank’s foreclosure on the Alpine Valley Campground renders it impossible for the persons who purchased an interest in the resort to use and enjoy the resort as promised. The letter stated that FirstSouth holds the installment contracts subject to all claims and defenses which the debtor could assert against the seller and that the initiation of any collection activities against any purchasers who assert a defense against payment will be considered a practice violating the Unfair Trade Practices and Consumer Protection Law.
. Section 1402 reads, in relevant part, as follows:
“No right of action or defense arising out of a retail installment sale which the buyer has against the seller, other than is provided in section 1202, and which would be cut off by assignment, shall be cut off by assignment of the contract to any third party whether or not he acquires the contract in good faith and for value.”
. Exhibit 51 is attached to plaintiff’s supplemental brief in response to reply briefs of the defendants.
. Radcliffe exhibit 1 (Radcliffe deposition) is a January 5, 1988 memorandum from Mr. Gilbert to the file in which he states that Alpine and the guarantor are in poor financial positions and most likely will not be able to support the totality of their obligations as now existing.