Allegheny County Court of Common Pleas Senior Judge R. Stanton Wettick Jr., who is presiding over the legal malpractice lawsuit stemming from the Philadelphia family courthouse deal, has ruled that an attorney’s corporate entity cannot recover $1.79 million from the First Judicial District for alleged unjust enrichment.
But, Wettick ruled, the entity could refile the second of its counterclaims under a breach of contract theory if it can show it incurred costs for which it has not yet been paid.
Before the original structure of the family courthouse deal ended in the wake of negative publicity over attorney Jeffrey B. Rotwitt’s alleged dual role as the First Judicial District’s tenant representative and as a co-developer, the FJD had contracted with Donald W. Pulver’s Northwest 15th Street Associates for the court to become a tenant at a new family courthouse to be built by Northwest in Center City.
After Rotwitt entered a deal to co-develop the project with Pulver, Rotwitt formed Deilwydd Property Group to receive his half of the proceeds from $5.23 million in developer fees, as well as general and administrative fees.
Rotwitt’s Deilwydd said it had received $825,000 of its share and was still owed $1.79 million before the FJD terminated its letter agreement May 25, 2010.
On the other hand, the FJD argued that the $825,000 is “illicit profit” that must be disgorged.
For its part, Deilwydd argued that the monthly payments were undertaken on behalf of the FJD so it could pay costs over time, rather than as they were incurred, and the “monthly payments did not fully compensate the developers for their services.”
The letter agreement allowed any party to terminate the development deal with three days’ notice, but Deilwydd said that the obligation to pay for costs incurred prior to the agreement’s termination survived the end of the contract.
Wettick ruled in an order Wednesday that Deilwydd cannot argue in a breach of contract claim that the FJD should not have terminated the letter agreement if officials of the court system had been acting in bad faith.
Deilwydd argued that the FJD did not terminate the contract because of Rotwitt’s allegedly conflicted role but to avoid making payment in full to the developers, including because the architectural plans were protected under a copyright held by Northwest.
“Deilwydd cites no case law in support of its position,” Wettick said in dismissing the breach of contract claim. But he said he would allow Deilwydd to file an amended counterclaim for any costs incurred for which payment was not yet made when the FJD pulled out of the agreement, even though the FJD contends the parties “understood that the costs incurred would not exceed the amount of the monthly payments.” The letter itself does not say that, the judge said.
The FJD is correct that a breach of contract claim can’t be “based on the full amount that the First Judicial District would owe if the construction had been completed,” Wettick said.
The FJD argued in court papers that “in essence, Deilwydd’s breach of contract claim is premised on the theory that whenever the FJD exercised its contractual right to terminate the agreement, the FJD remained liable to Northwest for the full amount of the developer and G&A fees identified in the agreement, which totaled $5.23 million. The theory is contrary to the agreement’s plain terms.”
Wettick said he would not allow Deilwydd to amend its counterclaim on a theory of unjust enrichment because Deilwydd did not dispute the FJD’s allegations that the contract governed the situation even though Deilwydd was a third party to the development agreement between the FJD and Northwest.
The FJD originally entered into a letter agreement with Northwest on October 6, 2008, the opinion said.
The FJD terminated that agreement in order to avoid the acceleration of the tenant representative fee paid to Rotwitt’s former firm, Obermayer Rebmann Maxwell & Hippel, the land costs to Northwest and the general and administrative fees to Northwest, Wettick said. The agreement was reinstated July 1, 2009, but it extended the FJD’s obligations to pay monthly the developer fee and the general and administrative fees until June 30, 2010.
In another order from Wettick last week, the judge denied the FJD’s motion for judgment on the pleadings. Rotwitt’s factual allegations in his amended answer are sufficient denials of the FJD’s claim that no one knew of Rotwitt’s role as a co-developer, Wettick said.
One of the lawyers for the FJD, Joseph R. Podraza Jr. of Sprague & Sprague, declined comment.
A lawyer for Deilwydd and a lawyer for Rotwitt did not respond to emailed requests for comment before deadline.
(Copies of the 15-page opinion in First Judicial District v. Rotwitt, PICS No. 12-1967, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •