Commonwealth Court Orders Tax Collection Firm to Return Fees

Commonwealth Court Orders Tax

Collection Firm to Return Fees

Gina Passarella

2011-07-18 12:00:00 AM

An en banc Commonwealth Court panel upheld nearly $2.35 million in damages and attorney fees a tax collection law firm was ordered to pay to a class of taxpayers who sued over the administrative costs they had to pay the firm for collecting delinquent real estate taxes.

Attorney Michelle Portnoff and her firm, Portnoff Law Associates of Norristown, Pa., appealed Philadelphia Common Pleas Court Judge Mark I. Bernstein's orders in Roethlein v. Portnoff Law Associates ruling $1.06 million in administrative fees be repaid to the 16,000-member class along with $1.27 million in attorney fees and nearly $21,000 in costs.

The initial March 2008 award against Portnoff and her firm was for more than $5.2 million because it included the attorney fees that were also charged to the taxpayer for her work as well as punitive damages for the firm's "intentional disregard of the rule of law" by charging taxpayers attorney fees. But a state Supreme Court decision five months later found an amendment to the Municipal Claims and Tax Liens Act could retroactively apply to allow for municipalities to charge taxpayers attorney fees incurred in the collection of delinquent taxes.

That caused Bernstein to reduce the damages award by the attorney fees and leave in only the $35 administrative fee Portnoff charged each time she opened a file. That fee across the class, when doubled under the Pennsylvania Loan Interest and Protection Law, or Act 6, came to about $1.06 million. The trial court also granted all of the taxpayers' legal fees for the seven years of litigation, totaling more than $1.27 million.

On appeal, Portnoff argued, among other things, that the full amount of attorney fees should not be awarded when the bulk of that number was generated by fighting to have to pay the underlying attorney fees generated through the tax collection — an issue the taxpayers ultimately lost.

She also argued that Act 6 does not apply to this case and that the municipalities for which she collected the taxes were the ones that received the fees and needed to be named as defendants.

The plaintiffs in the Supreme Court case, Konidaris v. Portnoff Law Associates , joined with the plaintiffs in Roethlein — Beverly Roethlein, Robert Albanese and all other similarly situated — to support the upholding of Bernstein's orders.

"We conclude that Portnoff was not permitted to collect administrative fees or interest thereon, that the administrative fees and interest were excess charges not allowed by law, and that said charges were, therefore, recoverable under Act 6," Judge Johnny J. Butler said for the four-judge majority in Roethlein . Judge Mary Hannah Leavitt dissented.

Butler also disagreed that Portnoff could not be held accountable under an unjust enrichment claim when the fees at issue were remitted to the municipalities. He said that although Portnoff testified the administrative fees were given to the cities, "the trial court clearly did not find her credible." Butler said the fees went directly to Portnoff."Here, the taxes owed to the municipalities are separate and distinct from the administrative fees paid by taxpayers to Portnoff over and above said taxes," Butler said. "Thus, the municipalities have no right or interest in Portnoff's collected fees, and the municipalities were not indispensable parties to this action."

Portnoff also challenged her individually being held liable for the damages without any evidence to support piercing the corporate veil. She said there was no evidence that she worked in her individual capacity to collect the taxes or fees. But Butler said she "actively participated" in the tax collection by supervising, developing and approving the tax collection policies of the firm. She also had personal involvement with the taxpayers, Butler said, by sending them correspondence and preparing filings and pleadings against them.

Portnoff argued further that the taxpayers recovered only about 20 percent of the initial amount of damages sought and are recovering attorney fees that are 240 percent of the damages award. Under Act 6, Butler said, attorney fees are mandatory.

"Counsel spent seven years, and thousands of hours, litigating this class action suit," Butler said. "That stated, the award of attorneys fees was appropriate under the law."

In her dissent, Leavitt said Act 6 shouldn't even apply to this case because it deals with mortgage loans and, in part, regulates the interest a lender can charge a borrower on a loan. It also regulates settlement and finance charges.

"Act 6 does not make any reference to the administrative 'charges' a municipality can pay a tax collector and then recover from a delinquent taxpayer," Leavitt said. "Act 6 is simply irrelevant to delinquent taxpayers' quest for justice."Nothing in Act 6 makes it unlawful to over-charge a taxpayer for costs of collecting delinquent taxes, she said. The treble damages portion of Section 502 of Act 6 is "'for the loan or use of money.'" Treble damages, Leavitt said, are only available to people who have paid interest or charges for the loan or use of money in excess of that allowed by the act.

"Act 6 creates rights for borrowers and debtors," Leavitt said. "A delinquent taxpayer is not a 'borrower' or a 'debtor' as assumed by the trial court."

Even if Section 502 could be construed to establish a cause of action to recover excess fees under any Pennsylvania statute, Leavitt said the administrative fees at issue in Roethlein are expressly authorized by the Municipal Claims and Tax Lien Act.

Even if Portnoff retained the administrative fee rather than giving it to the municipalities, that doesn't mean the fee should go to the taxpayer, Leavitt said. By contract, those fees are owed to the cities and there is nothing just about giving it to the taxpayers, she said.

"The law does not correct one wrong by creating a second wrong," Leavitt said, adding that all underscores why the municipalities had to be parties to the case.

Bernard S. Rubb of Bernard S. Rubb & Associates in Sewickley, Pa., represented the taxpayer class. He said he was happy with the court's decision, which he said seems to accept his clients' arguments and affirm the orders in toto.

Rubb said he hoped it would send the message to collectors that, just because they have the right to collect delinquent taxes, "that doesn't give you the right to overcharge."

Helen L. Gemmill of McNees Wallace & Nurick in Harrisburg represented Portnoff and her law firm. She said she was still reviewing the decision with her client. She pointed out the "strong" dissent from Leavitt, which Gemmill said would play into their decision of whether to seek redress with the Supreme Court.

"When you have a split Commonwealth Court, you need to take a close look at it," she said, in terms of the decision to appeal.

The Konidaris plaintiffs intervened in the Roethlein case. After the 2008 Supreme Court ruling, Konidaris is back at the Allegheny County Common Pleas court on remand, Gemmill said.