Jewelcor Inc., et al. v. Michael Karfunkel, et al.

Appellants Michael and George Karfunkel, individually
and as partners trading as M & G Equities (collectively referred
to herein as "M & G"), appeal orders of the District Court
denying M & G's motion to dismiss a breach-of-lease claim
brought by appellees, Jewelcor Incorporated et. al. ("Jewelcor"),
awarding judgment in favor of Jewelcor, and granting Jewelcor
attorneys' fees. The District Court had diversity jurisdiction
over this action under 28 U.S.C. § 1332 and this court holds
jurisdiction pursuant to 28 U.S.C. § 1291. Appellants argue that
the District Court erred in denying its motion to dismiss the
breach-of-lease claim as time-barred by the Pennsylvania statute
of limitations. For reasons explained herein, we find in
appellants' favor and will reverse the District Court's orders.

I.

The case arises out of a sale-leaseback contract for a
commercial property. Jewelcor entered into the contract in 1979
as the lessee. In 1989, M & G purchased the original lessor's
interest in the property, assuming the conditions of the 1976
lease.

In October 1990, Jewelcor filed for Chapter 11
bankruptcy. In August 1991, M & G changed the locks on the
property. Jewelcor initiated a suit against M & G seeking
damages for breach of lease and unjust enrichment owing, in
part, to this changing of locks. The complaint for that suit was
filed in federal bankruptcy court in November 1994 and
amended in October 1996. On February 9, 1999, the
Bankruptcy Court dismissed Jewelcor's claims for lack of
jurisdiction.

On July 15, 1999, Jewelcor initiated the instant action by
filing, in the District Court, a complaint the District Court found
to be "substantially similar" to the amended complaint it filed
with the Bankruptcy Court in October 1996. On February 22,
2000, the District Court, considering a motion to dismiss filed
by M & G, dismissed some, but not all, of Jewelcor's claims.
Jewelcor pursued one of the remaining breach-of-lease claims,
Count I of its complaint, based on the August 1991 change of
locks. The District Court entered judgment in Jewelcor's favor
on March 22, 2005, and, on August 24, 2006, awarded Jewelcor
attorneys' fees.1 M & G now appeals, contending that the
District Court erred in denying M & G's motion to dismiss
Count I because the breach-of-lease claim was time-barred by
M & G also 2 raises seven other issues on appeal, which
this court need not reach.

II.

The action underlying Jewelcor's breach-of-lease claim
occurred in August 1991. Jewelcor argues that the limitations
period for its claim is four years, as provided by 42 Pa. Cons.
Stat. § 5525(8). Four years had elapsed by the time Jewelcor
initiated the instant suit in July 1999. However, the District
Court concluded that Pennsylvania's "savings statute," 42 Pa.
Const. Stat. § 5535(a),3 preserves the claim in a federal forum.

(i) An action to recover damages
for injury to the person or for the
death of an individual caused by the
wrongful act or neglect or unlawful
violence or negligence of another.

(ii) An action or proceeding
terminated by a voluntary nonsuit,
a discontinuance, a dismissal for
neglect to prosecute the action or
proceeding, or a final judgment
upon the merits.

42 Pa. Const. Stat. § 5535(a).

As the District Court recognized, § 5535(a) does not
preserve time-barred claims in a Pennsylvania state court if they
were first commenced in a federal court. The statute provides
that "[i]f a civil action or proceeding is timely commenced and
is terminated, a party . . . may," regardless of whether the statute
of limitations has run, "commence a new action or proceeding
upon the same cause of action within one year after the
termination." 42 Pa. Const. Stat. § 5535(a). Though this
language is general in scope, Pennsylvania appellate courts
interpret the provision to apply only when a civil action is
commenced in and terminated by a Pennsylvania state court.

A year before the enactment of § 5535(a), the Superior
Court of Pennsylvania opined:

An action in state court does not toll the running
of the statute of limitations against subsequent
action in federal court. . . . And, similarly, an
action in one state does not toll the running of the
statute in another state. Therefore it would be
inconsistent and unreasonable to toll the running
of the statute of limitations against a cause of
action in state court on the basis of an action in
federal court.

Royal-Globe Insurance Co. v. Hauck Manufacturing Co., 335
A.2d 460, 462 (Pa. Super. Ct. 1975). The Commonwealth Court
makes clear that this holding trumps § 5535(a). See Maxwell
Downs v. City of Philadelphia, 638 A.2d 473 (Pa. Commonw.
Ct. 1994).

In Maxwell Downs, plaintiff filed a § 1983 action in
federal court within the applicable statute of limitations period.
The federal suit was dismissed on non-merits grounds. Fewer
than two months later, after the statute of limitations on the
claim had run, plaintiff re-filed its § 1983 action in the Court of
Common Pleas. That court dismissed the suit as time-barred.
Affirming this decision, the Commonwealth Court rejected the
argument that § 5535(a) superceded Royal Globe. The court in
Maxwell Downs wrote that, after § 5535(a) went into effect, the
Commonwealth Court "decided Skehan v. Bloomsburg State
College . . . . Skehan, relying on . . . language from Royal-Globe,
held that ‘federal actions did not toll the running of the statute
of limitations on actions subsequently brought in a state court.'"

Maxwell Downs, 638 A.2d at 486 (quoting Skehan v.
Bloomsburg State College, 503 A.2d 1000, 1005 (Pa.
Commonw. Ct. 1986).

Appellant argues that, in a diversity action, a federal
court does not have authority to afford a recovery that would be
unavailable in state court. The District Court rejected this
argument, stating that, "[w]hile [M & G's] recitation of
Pennsylvania State law is correct, it does not follow that in
diversity actions this court must be viewed as a State Court and,
in effect, a separate jurisdiction from U.S. Bankruptcy Court."
The District Court then held that, while Pennsylvania case law
would preclude Jewelcor from raising its time-barred claim in
a state court, § 5535(a) nonetheless preserves the claim in a
federal court.

III.

We agree with the District Court's conclusion that, under
Pennsylvania case law, § 5535(a) does not preserve Jewelcor's
claim in a state court.4 But we cannot accept its determination
that the claim is nonetheless preserved in a federal court. In
denying M & G's motion to dismiss, the District Court expressly
rejected the principle that, when sitting in diversity, a federal
court treats itself, for jurisdictional purposes, as a state court.
However, Erie v. Tompkins, 304 U.S. 64 (1938), requires
uniformity of results between state courts and federal courts
sitting in diversity. Interpreting Erie, the Supreme Court stated
that:

In essence, the intent of that decision was to
insure that, in all cases where a federal court is
exercising jurisdiction solely because of the
diversity of citizenship of the parties, the outcome
of the litigation in the federal court should be
substantially the same, so far as legal rules
determine the outcome of a litigation, as it would
be if tried in a State court.

Guaranty Trust Co. v. York, 326 U.S. 99, 109 (1944). The
District Court's conclusion is thus in tension with Erie's
mandate that "[w]e cannot give [the cause of action] longer life
in the federal court than it would have had in the state court
without adding something to the cause of action." Ragan v.
Merchants Transfer & Warehouse Co., 337 U.S. 530, 533-34
(1949). Accordingly, we hold that, since the Pennsylvania
savings statute would not permit Jewelcor to pursue its timebarred
claim in a state court, the statute cannot preserve the
claim in a federal court.

* * *

http://www.ca3.uscourts.gov/opinarch/052244p.pdf

For the foregoing reasons, we reverse in part the District
Court’s order of February 22, 2000 denying appellants’ motion
to dismiss Count I of Jewelcor’s claims, vacate the District
Court’s subsequent orders, and remand with instructions to enter
judgment in favor of Michael Karfunkel and George Karfunkel,
individually, and as partners trading as M & G Equities, Inc.

Unknown

Unknown

None