Sands, M. v. Stoudt, D. ( 2016 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
MICHELLE SANDS, INDIVIDUALLY AND IN THE SUPERIOR COURT OF
AS EXECUTRIX OF THE ESTATE OF PENNSYLVANIA
SCOTT C. SANDS, DECEASED
Appellant
v.
DANIEL K. STOUDT AND CYNTHIA G.
STOUDT
No. 1218 EDA 2015
Appeal from the Judgment Entered June 17, 2015
in the Court of Common Pleas of Chester County Civil Division
at No(s): 2011-08478
BEFORE: SHOGAN, MUNDY, and FITZGERALD,* JJ.
MEMORANDUM BY FITZGERALD, J.: FILED JULY 13, 2016
Appellant, Michelle Sands, individually and as executrix of the Estate of
Scott C. Sands (“Decedent”), appeals from the judgment entered in the
Chester County Court of Common Pleas following the denial of Appellant’s
post-trial motions. Appellant contends that the trial court erred by declining
to impose a constructive trust on two specific parcels of real property, by
refusing to admit relevant evidence, and by failing to award Appellant
monetary damages. We affirm.
The facts underlying this case are well-known to the parties. For
purposes of this appeal, we note the following pertinent background. In
*
Former Justice specially assigned to the Superior Court.
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2001, Decedent and Appellee, Daniel K. Stoudt (“D. Stoudt”), became equal
business partners in an incorporated business, QuarryCut, Inc., which
supplied sawn veneer building stone for various uses. Trial Ct. Op.,
9/25/15, at 2. Prior to becoming partners with D. Stoudt, Decedent was an
equal partner with Daniel Brackbill in a similar business, Run Gap Building
Stone (“Run Gap”). N.T., 7/3/14, at 706. Run Gap used stone from a parcel
of land (“the Quarry”) owned by Brackbill. Id. Brackbill also owned three
parcels of land contiguous to the Quarry (“the Buffer Lots”). In 2001,
Brackbill decided to sell his interests in Run Gap, the Quarry, and the Buffer
Lots to D. Stoudt. Id. at 745-46. D. Stoudt and Decedent formed a new
corporation named Spring Hollow Building and Landscape Stone, Inc., and
ultimately changed the name to the current QuarryCut. Id.
D. Stoudt acquired the Quarry in a Section 1031 like-kind exchange
under the U.S. Internal Revenue Code, and his name is the sole name on the
deed. Trial Ct. Op. at 5. Conversely, the Buffer Lots were purchased in the
names of both D. Stoudt and Decedent. Id. at 5. Appellees, D. Stoudt and
Cynthia Stoudt (“Appellees”) provided the funds for the purchase and
personally paid the mortgage on the Quarry for five years, after which time
QuarryCut made the payments. N.T., 7/3/14, at 745-48. Appellees never
paid the mortgage on the Buffer Lots.
Likewise, in 2003, Appellees agreed to buy a parcel of property, 77
Wells Road, Parker Ford, Pa. (“Wells Road”) for QuarryCut’s use. Id. at 759-
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60. Appellees also acquired Wells Road in a Section 1031 tax exchange and
for the first year paid the mortgage, after which QuarryCut assumed the
payments. Id. at 760-63.
Initially, Decedent was primarily responsible for the day to day
operations of QuarryCut, while Appellant was employed as the bookkeeper
for the company. N.T., 6/30/14 at 21. After Decedent died suddenly in
2010, D. Stoudt discharged Appellant from her bookkeeping duties. Id. at
22. On July 29, 2011, Appellant filed a complaint seeking equitable relief
and monetary damages and a motion for a preliminary injunction against
Appellees.
Although the parties entered into an agreement regarding operation of
QuarryCut on September 22, 2011, Appellant filed a petition for appointment
of a custodian on September 24, 2012. On July 1, 2013, the trial court
granted Appellant’s petition and on July 16, 2013, appointed William J.
Brennan, Esq., as custodian. Appellant filed a second amended complaint
and Appellees filed a counterclaim. Appellees also engaged counsel to file a
separate suit on behalf of QuarryCut against Appellant (“QuarryCut’s suit”).
The trial court denied Appellant’s motion to consolidate the two cases via an
order dated September 19, 2012, and we note that QuarryCut’s suit is not
here at issue.
A trial was conducted regarding Appellant’s second amended
complaint and Appellees’ counterclaims between June 30, 2014, and July 11,
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2014. At trial, one of Appellant’s main contentions was that the Quarry and
Wells Road were meant to be the property of QuarryCut or owned equally
between Decedent and D. Stoudt. Appellant testified that she was privy to
conversations between D. Stoudt and Decedent in which both parties
expressed the intention for joint ownership of the disputed properties even
though only Appellees’ names would appear on the deed. N.T., 6/30/14, at
170-73;187-88. To that end, Appellant presented evidence that QuarryCut’s
website represented that QuarryCut “owns or has exclusive rights to our
quarries.” Id. at 108. Further, Appellant emphasized that D. Stoudt listed
the Quarry as owned fifty-fifty between himself and Decedent on loan
applications. Id. at 110-13. Regarding Wells Road, Appellant highlighted
that Appellees withdrew equity from the property during refinancing in 2008,
even though QuarryCut was making the mortgage payments at that time.
N.T., 7/11/14, at 135. The trial court declined to admit evidence of two
magazine advertisements that purported to represent that the Quarry and
Wells Road were joint property or QuarryCut’s property.
Conversely, D. Stoudt testified that he and Decedent never intended
for the Quarry or Wells Road to be their joint property or QuarryCut’s
property. N.T., 7/3/14, at 757-63. Instead, D. Stoudt provided evidence of
numerous documents listing himself as the sole owner of the Quarry
including the deed, his checking account records, and the HUD-1 for the
Quarry. D. Stoudt stated that QuarryCut’s payment of the mortgage on both
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the Quarry and Wells Road represented “rent” and that Decedent never
provided any out-of-pocket funds toward either property, while Appellees
paid the down payments and the mortgages on both properties until
QuarryCut could take over its “rent” responsibilities. N.T., 7/3/14, at 747-
65. Appellees also pointed out that Decedent’s 2007 personal financial
statement does not list either the Quarry or Wells Road and that Appellant’s
petition for the grant of letters testamentary for Decedent’s estate (“Estate”)
does not list either property as property of the Estate. N.T., 7/1/14, at 239-
44.
At trial, Appellant also claimed that D. Stoudt breached his fiduciary
duty to her as executrix of the Estate and a 50% shareholder of QuarryCut,
by (1) excluding her from shareholder meetings and (2) using QuarryCut
funds to pay for legal counsel adverse to her interests. N.T., 6/30/14, at 27-
31. Appellant also generally claimed that D. Stoudt misappropriated
QuarryCut funds for his own personal use. Id. at 39-78. Likewise,
Appellees claimed that Appellant and Decedent misappropriated large
amounts of QuarryCut funds as “loans” for their own personal use. N.T.,
7/1/14, at 335-41.
The trial court entered a decision on November 25, 2014, and an
amended decision on December 9, 2014, wherein the court found in favor of
Appellant by ruling that William Brennan, Esq., was to remain as a custodian
of QuarryCut and also by enjoining D. Stoudt from not recognizing Appellant
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in her capacity as executrix of the Estate, a 50% shareholder of QuarryCut.
As to all other claims, the trial court found in favor of Appellees. Appellees’
cross-claims were denied.
Appellant filed a timely post-trial motion, which the trial court denied
in an order dated March 26, 2015. The instant timely appeal followed 1 and
Appellant filed a court-ordered Pa.R.A.P. 1925(b) statement. The trial court
filed a responsive Pa.R.A.P. 1925(a) opinion dated September 25, 2015.2
Appellant sets forth the following issues for review:
1. Whether the trial judge erred when he applied an
incorrect legal standard in denying claims for constructive
ownership of two real estate properties since the trial court
imposed an overly restrictive standard by requiring an
express agreement to convey title to a particular
person/individual whereas the doctrine of constructive
ownership does not require such an express agreement?
2. Whether the trial judge erred when he ruled
inadmissible Plaintiff Exhibits 156 and 157 (two magazine
articles relevant to ownership of the two properties in
question), since Daniel Stoudt admitted he received and
reviewed them, and admitted he did not object to
statements made therein about ownership of the two
properties, and said statements supported constructive
ownership of the properties in favor of either the Estate or
QuarryCut?
1
The specific judgment at issue was ultimately entered on June 17, 2015,
following a praecipe for entry of judgment filed by Appellant.
2
In its Rule 1925(a) opinion, the trial court specifically noted that a motion
for compulsory nonsuit had been granted against Appellant in her individual
capacity because “at most [Appellant] was an employee of QuarryCut” and
thus not entitled to individual relief. Trial Ct. Op. at 2-3. However,
Appellant’s claims in her capacity as the executrix of the Estate survived.
Id. at 3.
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3. When the overwhelming evidence, and Daniel Stoudt’s
admissions, demonstrated Daniel Stoudt’s abuse of the
corporation (QuarryCut) and actions adverse to the other
fifty percent shareholder (the Estate of Scott Sands),
whether the trial judge erred by failing to: award Michelle
Sands compensatory and punitive damages for Daniel
Stoudt’s breach of fiduciary duty; remove Daniel Stoudt
from any control over QuarryCut; and reinstate Michelle
Sands’ employment with QuarryCut?
4. Whether the trial judge erred when he failed to award
Michelle Sands damages for Daniel Stoudt’s improper
direction to QuarryCut corporate attorneys and corporate
accountant to work solely in favor of Daniel Stoudt and
against Michelle Sands’ interests, and when the trial judge
directed Daniel Stoudt’s personal counsel to represent
QuarryCut in its action against Michelle Sands and to be
paid by QuarryCut?
Appellant’s Brief at 2-3.
In her first issue, Appellant argues that the trial court erred by
declining to find that the Quarry and the Wells Road properties should be
deemed the property of either D. Stoudt and Decedent jointly or the
property of QuarryCut. Specifically, Appellant contends that these properties
should be subject to a constructive trust because equity demands that the
Estate should share in the ownership of these properties. The crux of
Appellant’s argument lies in her contention that the evidence presented was
sufficient to show that the parties intended to share in ownership of these
properties and that the properties were placed in Appellees’ names alone
only for tax purposes. Appellant avers that the trial court did not apply the
correct legal standard when considering the constructive trust doctrine by
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failing to consider the inequity that would result by allowing Appellees to
maintain sole ownership of the Quarry and Wells Road. We decline to agree.
As a preliminary matter, we note that a constructive trust is an
equitable remedy. Stauffer v. Stauffer, 351 A.2d 236, 241 (Pa. 1976).
Our standard of review regarding an equity proceeding is beyond cavil:
Our review of this case is guided by the principles that the
scope of appellate review of a decree in equity is
particularly limited, and that the findings of the [trial
court] will not be reversed unless it appears that the
[court] clearly committed an abuse of discretion or an
error of law. Where credibility of witnesses is important to
a determination, the findings of the [trial court] are
entitled to particular weight because the [court] has the
opportunity to observe their demeanor . . . .
DiMaio v. Musso, 762 A.2d 363, 365 (Pa. Super. 2000).
Further, “our standard of review makes clear that with regard to issues
of credibility and weight of the evidence, we must defer to the presiding trial
judge who viewed and assessed the witnesses first-hand.” D.K. v. S.P.K.,
102 A.3d 467, 478 (Pa. Super. 2014) (citation and internal quotation marks
omitted). In addition, we note the following legal precepts regarding
constructive trusts:
[A] constructive trust arises when a person holding title to
property is subject to an equitable duty to convey it to
another on the ground he would be unjustly enriched if he
were permitted to retain it. The necessity for such a trust
may arise from circumstances evidencing fraud, duress,
undue influence or mistake. The controlling factor in
determining whether a constructive trust should be
imposed is whether it is necessary to prevent unjust
enrichment.
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DeMarchis v. D’Amico, 637 A.2d 1029, 1036 (Pa. Super. 1994) (citation
omitted).
In this case, the trial court specifically found that Appellant’s testimony
was not credible regarding the intended ownership of the Quarry and Wells
Road. Most significantly, the court determined that the credible evidence
presented was not sufficient to establish that the parties intended that the
properties in question would ultimately be owned jointly by Decedent and
Appellees, either individually or through QuarryCut. We conclude that the
trial court was well within its purview when finding that Appellant’s
testimony regarding the intended joint ownership of the property was not
credible and we see no reason to disturb this determination. See DiMaio,
762 A.2d at 365.
Appellant relies on DeMarchis for the proposition that equity requires
that the Quarry and Wells Road be held in a constructive trust for the benefit
of the Estate or QuarryCut. In DeMarchis, this Court held that a
constructive trust was to be applied to certain parcels of real property for the
benefit of all parties to a partnership. DeMarchis, 637 A.2d at 1036.
However, DeMarchis is instantly distinguishable. In this case, the trial
court’s finding that the properties at issue were not intended to be jointly
owned stands in stark contrast to the factual findings in DeMarchis, where
the parties were deemed to have intended that the real property at issue be
considered business assets from the time of their initial acquisition. See id.
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at 1036. Appellant points out that in DeMarchis, our Court determined that
inequity would result where properties were held in the names of only some
of the participants in a partnership, when the attendant business had made
the mortgage payments on the properties at issue. See id. at 1035-36.
However, in the instant case, Appellees provided the initial purchase money
for the properties at issue, made the initial mortgage payments, and
considered the mortgage payments made by QuarryCut thereafter to be rent
payments. Accordingly, because we conclude that both the Quarry and
Wells Road are not subject to a constructive trust for the benefit of the
Estate or QuarryCut, we hold that the trial court did not abuse its discretion
by declining to impose this equitable remedy. See DiMaio, 762 A.2d at
365; DeMarchis, 637 A.2d at 1036. Therefore, Appellant’s first issue lacks
merit.
In her second thinly developed issue on appeal, Appellant argues that
the trial court erred by declining to admit evidence of two magazine
advertisements that she alleges were relevant to show that D. Stoudt and
Decedent intended for the properties at issue to be owned by QuarryCut.
The trial court declined to admit these advertisements, finding that the
proposed exhibits constituted impermissible hearsay and had no evidentiary
value. Trial Ct. Op. at 5-6. No relief is due.
As a prefatory matter, we note:
When we review a trial court ruling on admission of
evidence, we must acknowledge that decisions on
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admissibility are within the sound discretion of the trial
court and will not be overturned absent an abuse of
discretion or misapplication of law. An abuse of discretion
is not merely an error of judgment, but if in reaching a
conclusion the law is overridden or misapplied, or the
judgment exercised is manifestly unreasonable, or the
result of partiality, prejudice, bias or ill-will, as shown by
the evidence or the record, discretion is abused.
Commonwealth Fin. Sys., Inc. v. Smith, 15 A.3d 492, 496 (Pa. Super.
2011) (citations and internal quotation marks omitted).
Most significantly, Pennsylvania Rule of Evidence 402 provides that
generally, “[a]ll relevant evidence is admissible” and “[e]vidence that is not
relevant is not admissible.” Pa.R.E. 402. Relevant evidence is that which
has “any tendency to make a fact more or less probable than it would be
without the evidence[,] and the fact is of consequence in determining the
action.” Pa.R.E. 401(a), (b). The Comment to Rule 401 indicates that
“[w]hether evidence has a tendency to make a given fact more or less
probable is to be determined by the court in light of the reason, experience,
scientific principles and the other testimony offered in the case.” Pa.R.E.
401 cmt.
In this case, the trial court properly determined that the evidence in
question had no evidentiary value and was therefore inadmissible. 3 Trial Ct.
Op. at 5-6. See Pa.R.E. 401(a), (b); Pa.R.E. 402. As noted by the trial
3
We note that because we deem the disputed advertisements as properly
excluded for lack of evidentiary value pursuant to Pa.R.E. 401(a), (b) and
Pa.R.E. 402, we need not address Appellant’s contention that such evidence
was admissible pursuant to a hearsay exception.
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court, the magazine articles constituted paid advertisements and as such
one “would not expect a business owner to explain exact ownership details
to a public audience.” Trial Ct. Op. at 6. Accordingly, we conclude that the
trial court’s decision to exclude evidence of the advertisements at issue due
to their lack of evidentiary value was not manifestly unreasonable pursuant
to the Pennsylvania Rules of Evidence and did not therefore constitute an
abuse of discretion. Commonwealth Fin. Sys., Inc. v. Smith, 15 A.3d at
496. Appellant’s second issue merits no relief.
In her brief, Appellant presents a combined argument section in
support of her final two issues. The essence of her arguments center around
the contention that D. Stoudt committed malfeasance while conducting
QuarryCut business after Decedent’s death and that the trial court failed to
issue monetary damages to Appellant in relief thereof. Specifically,
Appellant avers that D. Stoudt improperly “froze” her out of corporate
meetings and decisions, improperly terminated her employment, and
misappropriated corporate funds by, inter alia, using such funds to employ
legal counsel against Appellant’s interests.
Appellants final two issues concern questions of fact. However, the
trial court specifically found Appellant’s averments to be lacking in credible
evidentiary support. See Trial Ct. Op. at 6. As the trier of fact, the trial
court was well within its purview to determine that the evidence presented
by Appellant was not credible. See D.K., 102 A.3d at 478. Therefore, we
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decline to conclude that the trial court’s denial of Appellant’s claims
constituted an abuse of discretion. See id. Accordingly, Appellant’s final
two issues also must fail and we affirm the judgment below.
Judgment affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 7/13/2016
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