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A Philadelphia judge has ruled that a Montgomery County law firm should pay $5.2 million, including $1 million in punitive damages, for attorney fees the judge said the firm unlawfully accumulated during its collection of delinquent municipal and school district real estate taxes. Common Pleas Judge Mark I. Bernstein rendered a verdict Tuesday in the Roethlein v. Portnoff Law Associates Inc. class action against Portnoff Law Associates of Wynnewood. Defendant Michelle R. Portnoff, an attorney, is the president and sole shareholder of the firm, Bernstein said. Bernstein ruled that the plaintiffs triumphed on an unjust enrichment claim and an Act 6 violation claim because the Portnoff law firm ignored appellate court decisions that municipalities could not add attorney fees to owed tax sums in the hopes that the law of Pennsylvania would change and make those attorney fees legal. Act 6 allows for recovery of charges paid in excess. “The appellate courts of Pennsylvania state the law of Pennsylvania and must be obeyed even before the Supreme Court affirms the ruling of an intermediate appellate court,” Bernstein said. “The evidence presented in this case demonstrated an intentional disregard of the rule of law as stated by the appellate courts of Pennsylvania which warrants an award of punitive damages in the amount of $1,000,000.00,” Bernstein wrote. Bernstein ordered that the Portnoff firm pay a $5,213,670.08 award, including: $2,654,972.98 in unlawfully received attorney fees; penalty damages of $500,000; $1 million in punitive damages; and $510,855 in unlawfully collected administrative fees and $18,493.55 in interest unlawfully collected on the administrative fees, which were doubled to an award of $1,058,697.10 because, under Act 6, “all sums unlawfully collected as administrative fees and interest on the attorney’s fees are doubled.” Bernstein also awarded attorney fees to the plaintiffs for the prosecution of the case and gave 30 days for that petition to be filed. James W. Christie, a shareholder at Christie Pabarue Mortensen & Young who represented the Portnoff firm during the trial in September, said in an abbreviated interview that Bernstein made a number of errors in his opinion and will likely either reverse in post-trial motions or will be reversed upon appeal. Those errors include no basis for the punitive damages claim, Christie said, because the only basis “for the decision are two counts – one under Act 6 and the second under unjust enrichment. The law in the commonwealth is clear. Punitive damages are not recoverable on an unjust enrichment act claim, and Act 6 has its own punitive element . . . and we believe it’s an error to even [consider] Act 6. It’s a usury statute and the case had nothing to do with usury.” Courts “had held the law did not permit them to tack their attorney fees onto their tax claims but they ignored that case law and proceeded to do it anyway,” said David A. Searles of Donovan Searles and plaintiffs’ counsel in the case. Bernard S. Rubb, of Sewickley, Pa., plaintiffs’ co-counsel who represents class representatives Jerry and Theodora Konidaris after intervening in the case in January 2007, said the additional fees impacted people who already are struggling with debt. Rubb said, “Most people who don’t pay their real estate taxes . . . can’t pay their taxes because of one of three critical reasons: they’ve lost their job; due to an illness, death or a primary wage earner is no longer there; and a divorce.” Bernstein concluded in his memorandum opinion that the Portnoff law firm – which has represented municipal entities and school districts in the collection of delinquent property taxes and other delinquent municipal accounts since 1997 – initially believed that the fees were authorized by Pennsylvania statute and asked their governmental clients to enact enabling municipal legislation to allow them to require delinquent taxpayers to pay attorney fees in addition to other amounts owed in lieu of compensation from the localities. But in Bernstein’s findings of law, the judge said that the firm continued to include attorney fees in the collection of delinquent tax claims and request localities pass ordinances allowing the firm to do so, despite a number of court decisions that indicated that practice was not legal. A 1994 decision by the Pennsylvania Commonwealth Court in Township of Springfield v. Thomas concluded that attorney fees could not be included in collection services for municipal liens under Section 7106 of the Municipal Claims and Tax Liens Act, Bernstein said. However, MCTLA was amended in 1996 by the General Assembly, the judge said. “The amendment was drafted by and lobbied for by Alan Portnoff, the father of Defendant Michelle Portnoff,” Bernstein wrote. The Commonwealth Court then ruled during the 2001 Pentlong Corp. v. GLS Capital Inc. case that Section 7106 of the MCTLA permitted the addition of attorney fees to municipal claims but did not allow attorney fees to be added to tax claims, which was affirmed by the Supreme Court, Bernstein said. Bernstein also noted the Pennsylvania Legislature amended the MCTLA in August 2003 to allow the inclusion of attorney fees in tax claims, and made the amendment retroactive to Jan. 1, 1996. The Commonwealth Court, however, in Konidaris v. Portnoff Law Associates ruled in 2005 that the retroactivity element of the law was unconstitutional. The case was appealed to the Supreme Court and argued last year. A decision is still pending. Rubb is representing the Konidarises in that case. The rest of that case, involving claims from 1999 to 2003 against the Portnoff law firm, is still pending in Allegheny Common Pleas Court and has been stayed until the Supreme Court makes its decision, Rubb said. The instant case involves claims from Nov. 27, 2000, to Nov. 26, 2002. Bernstein said that the defendants unsuccessfully argued that the municipal ordinances authorized them to assess the fees, that their collection activities were distinguishable from the Commonwealth Court decision in Pentlong Corp. v. GLS, and that the appeal to the Supreme Court automatically acted as a stay. Bernstein also said the firm failed to inform its governmental clients of the appellate decisions that changed the legal landscape. He also said the firm did not put funds that should not have been collected into escrow and instead “paid executive salaries and bonuses between $500,000 and $1,000,000 to individuals who performed minimal or no work.” Each standardized agreement between municipal entities and the law firm said that taxpayers would be charged $150 for a file being opened and the issuance of a demand letter; $150 for a lien being filed and the issuance of a second demand letter; and $150 for the preparation and filing of a writ of scire facias, as well as other collection fees, Bernstein said. The Portnoff firm added a $35 fee to the base delinquent real estate tax and penalty, listed the new total as principal and charged interest at the rate of 10 percent on the new principal, Bernstein said. Attorney fees were not itemized and were included in the amounts claimed in liens, writs of scire facias, default judgments and writs of execution. Class representatives Jerry and Theodora Konidaris paid $17,729.03 in attorney fees and in the $35 fees, plus interest, Bernstein said. When the Portnoff law firm proceeded to sheriff sales against delinquent class members in Allegheny County, the firm would obtain duplicate payment on costs by including costs in the amount of the judgment and allowing the sheriff to add in costs on top of the judgment, Bernstein said. The firm also directed the sheriff to remit all proceeds of the sheriff sales, excluding the sheriff’s distribution fees and poundage, to the firm as reimbursement of costs; this payment agreement gave the firm an undetermined amount of excess payments that the firm was not entitled to, the judge said. At trial, the defense argued that the firm’s chief financial officer had been asked to conduct an accounting of improper retained funds, but no testimony was presented to demonstrate that this accounting occurred, Bernstein said. “This cavalier attitude toward keeping the money of citizens whose homes have been sold and are entitled by law to the proceeds of the sale cannot possibly be considered mistake, misunderstanding of appellate decision or vain hope of reversal,” Bernstein said. “This can only be considered a knowing and intentional decision to unlawfully retain improperly obtained funds.” (Copies of the 35-page opinion in Roethlein v. Portnoff Law Associates Inc., PICS No. 08-0411, are available from The Legal Intelligencer. Please refer to page 11 for ordering information.)

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