Schmechel, E. v. Gaither, J. ( 2015 )

J-A16004-15
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
ERIC SCHMECHEL, IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellant
v.
JACK GAITHER,
Appellee No. 2971 EDA 2014
Appeal from the Order September 24, 2014
in the Court of Common Pleas of Northampton County
Civil Division at No.: C48-CV-2012-7946
BEFORE: LAZARUS, J., OLSON, J., and PLATT, J.*
MEMORANDUM BY PLATT, J.: FILED JUNE 24, 2015
Appellant, Eric Schmechel, appeals from the trial court’s order granting
the summary judgment motion of Appellee, Jack Gaither, in this action for
contribution and breach of fiduciary duty. After careful review, we affirm the
trial court’s order.
The trial court summarized the factual and procedural history as
follows:
This case finds its genesis in the sale of a business and the
transactions that followed. The facts are relatively undisputed
and are as follows. The parties were each half-owners of a
corporation known as Vinyl Sign Supplies, Inc. (“VSS”). In May
2008, Sign Supply U.S.A., LLC (“SSU”) offered to purchase the
assets of VSS. Eventually, VSS and SSU entered into an Asset
Purchase Agreement (“APA”), pursuant to which SSU agreed to
purchase the assets of VSS for the sum of $3,800,000.00.
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*
Retired Senior Judge assigned to the Superior Court.
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Following the sale, [Appellant] planned to work for SSU, whereas
[Appellee] opted to retire. Accordingly, as part of the overall
transaction, [Appellant] entered into an employment agreement
with SSU, and [Appellee] entered into a non-compete agreement
with SSU.
At the time of the closing, held on August 29, 2008, SSU
placed ten percent of the purchase price into escrow (“the
Holdback”), to be distributed to the parties pursuant to the
terms of an escrow agreement. The Holdback served two
purposes: first, to ensure that [Appellee] complied with his non-
compete agreement; and second, to offset any reduction in the
working capital of VSS between the completion of the due
diligence period and the date of closing. Pursuant to the APA, if
the working capital of VSS was less than $850,000.00, a
corresponding sum would be deducted from the Holdback,
effectively reducing the purchase price paid by SSU.
[Appellant] and [Appellee] entered into a separate
agreement regarding the required Holdback (the “Holdback
Agreement”). Under the Holdback Agreement, [Appellant] and
[Appellee] agreed that the Holdback would come, exclusively,
from [Appellant’s] portion of the sale proceeds. [Appellee]
agreed to indemnify [Appellant] for that portion of the Holdback
not distributed to [Appellant] by SSU if it was determined that
[Appellee] violated his non-compete agreement with SSU.
Otherwise, the entirety of the Holdback, or whatever portion was
eventually released, would be due and owing exclusively to
[Appellant]. The parties reached this agreement because
[Appellee] wished to have his entire share of the sale proceeds
at closing, due to his plan to retire, while [Appellant] intended to
work for SSU.
Eventually, SSU contested the calculation of VSS’ working
capital and refused to release the Holdback. In response, an
action was initiated by [Appellant in the name of] VSS against
SSU seeking the distribution of the Holdback. The litigation was
ultimately settled, with SSU retaining $129,384.64 of the
Holdback and the remainder being released to [Appellant].
Contending that [Appellee] should indemnify him for the
amount of the Holdback retained by SSU, [Appellant] initiated
this action against [Appellee] by filing a [c]omplaint on August 9,
2012. [Appellee] filed an [a]nswer and [n]ew [m]atter on
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September 18, 2012. On October 9, 2012, [Appellant] filed a
[r]eply to [the] [n]ew [m]atter. . . .
The gravamen of [the] [c]omplaint is that, prior to the
closing of the sale of VSS to SSU, the parties, as co-owners of
VSS, made several cash payments to themselves and otherwise
altered their handling of VSS’ cash flow. According to
[Appellant], these activities negatively impacted the working
capital of VSS and triggered SSU’s refusal to release the
Holdback. [Appellant] argues that, while he was solely
responsible for funding the Holdback, it was the actions of both
parties that caused less than the full amount of the Holdback to
be distributed to him. . . .
(Trial Court Opinion, 9/24/14, at 1-4) (record citations and footnotes
omitted).
On September 24, 2014, the court granted Appellee’s motion for
summary judgment. On October 16, 2014, Appellant timely appealed.1
Appellant raises the following questions for our review:
1. Whether the trial court committed an error of law and/or
abused its discretion by granting [Appellee’s] motion for
summary judgment on the determination that the Holdback
Agreement between [Appellant] and [Appellee] required the
entry of summary judgment in favor of [Appellee] despite the
lack of a claim in [Appellant’s] complaint to enforce and/or for
breach of the Holdback Agreement?
2. Whether the trial court committed an error of law and/or
abused its discretion by granting [Appellee’s] motion for
summary judgment in the form of a demurrer to [Appellant’s]
cause of action for common law contribution despite that [sic]
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1
Pursuant to the trial court’s order, Appellant filed a timely Rule 1925(b)
statement on November 6, 2014. The court entered its Rule 1925(a)
opinion on December 1, 2014, relying on its September 24, 2014 opinion.
See Pa.R.A.P. 1925.
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fact [Appellant] pled a possible claim under a cognizable legal
theory?
3. Whether the trial court committed an error of law and/or
abused its discretion by granting [Appellee’s] motion for
summary judgment on [Appellant’s] cause of action for breach of
fiduciary duty without considering the alleged fiduciary duty
[Appellee] owed [Appellant] to pay [Appellant] fifty percent
(50%) of the money paid to SSU from the escrowed funds to
settle its claims against VSS?
(Appellant’s Brief, at 4) (some capitalization omitted).
Initially, we are cognizant of our scope and standard of
review:
Our scope of review of an order granting
summary judgment is plenary. [W]e apply the same
standard as the trial court, reviewing all the evidence
of record to determine whether there exists a
genuine issue of material fact. We view the record in
the light most favorable to the non-moving party,
and all doubts as to the existence of a genuine issue
of material fact must be resolved against the moving
party. Only where there is no genuine issue as to
any material fact and it is clear that the moving
party is entitled to a judgment as a matter of law will
summary judgment be entered.
Motions for summary judgment necessarily and
directly implicate the plaintiff’s proof of the elements
of his cause of action. . . . Thus, a record that
supports summary judgment will either (1) show the
material facts are undisputed or (2) contain
insufficient evidence of facts to make out a prima
facie cause of action or defense and, therefore, there
is no issue to be submitted to the [fact-finder].
Upon appellate review, we are not bound by the trial
court’s conclusions of law, but may reach our own
conclusions. The appellate Court may disturb the
trial court’s order only upon an error of law or an
abuse of discretion.
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Stein v. Magarity, 102 A.3d 1010, 1013 (Pa. Super. 2014) (citation
omitted).
In his first issue, Appellant argues that the court erred in granting
Appellee’s summary judgment motion “based on its interpretation of
paragraph [two] of the Holdback Agreement . . . despite the lack of any
claim in [Appellant’s] [c]omplaint for breach of the Holdback Agreement
and/or to enforce the Holdback Agreement.” (Appellant’s Brief, at 18)
(record citation omitted). Specifically, Appellant states that “[t]he Holdback
[A]greement and whether or not [Appellee] violated his non-compete is
irrelevant . . . .” (Id. at 20). We disagree.2
It is well-settled that:
. . . [W]hen interpreting the language of a contract, this
Court’s goal is to ascertain the intent of the parties and give it
effect. When the words of a contract are clear and
unambiguous, the intent of the parties must be ascertained from
the language employed in the contract, which shall be given its
commonly accepted and plain meaning.
TruServ Corp. v. Morgan’s Tool & Supply Co., Inc., 39 A.3d 253, 260
(Pa. 2012) (citations omitted).
Here, the record reflects that Appellant agreed to fund the entire
Holdback from the sale proceeds he would receive at the time of the closing.
(See Holdback Agreement, 2008, at 1 ¶ 1). Furthermore, the Holdback
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2
We note that the parties agree that Appellee did not violate his non-
compete agreement or the Holdback Agreement. (See Trial Ct. Op., at 2
n.1, 10-11; Appellant’s Brief, at 18-20; Appellee’s Brief, at 6, 9-10).
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Agreement created Appellee’s indemnification duty. (See id. at 1-2 ¶ 2).
The trial court explained that:
It is clear from a plain reading of the entire paragraph that
the parties intended for [Appellee] to indemnify [Appellant] for
the Holdback, without an allocation of fault, if the sole reason
for SSU’s refusal to pay the Holdback was based upon an
allegation that [Appellee] breached his non-compete agreement
with SSU. . . . [The] provision [relied upon by Appellant], read in
context, sets forth [Appellee’s] obligation to indemnify
[Appellant] where SSU’s refusal to release the Holdback is based
upon [Appellee’s] breach of the non-compete agreement and
one other cause. . . . Accordingly, both scenarios triggering
[Appellee’s] obligation to indemnify [Appellant] require an
allegation by SSU that [Appellee] breached his non-compete
agreement. . . .
* * *
. . . [Appellee] was only obligated to indemnify [Appellant]
if SSU alleged that [Appellee] breached his non-compete
agreement with SSU. As no such allegation has been made,
[Appellee] has no obligation to indemnify [Appellant] under the
plain language of the Holdback Agreement. . . .
(Trial Ct. Op., at 10-11) (emphases in original). Upon review, we agree and
conclude that the record supports the court’s determination and that it did
not commit an error of law or abuse its discretion. See Stein, supra at
1013. Accordingly, Appellant’s first issue does not merit relief.
In his second issue, Appellant argues that the court erred in “fail[ing]
to consider the equitable cause[] of action of common law contribution . . .
.” (Appellant’s Brief, at 24). Specifically, he asserts that he “paid more than
his fair share, fifty percent (50%), of the settlement consideration to SSU . .
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. [and Appellee] has received more than his fifty percent (50%) of the net
proceeds from the sale of VSS’ assets . . . .” (Id. at 23). We disagree.
It is well-settled that the equitable obligation of contribution sounds in
contract, however, the underlying claim must sound in tort. See Mattia v.
Sears Roebuck & Co., 531 A.2d 789, 791 (Pa. Super. 1987), appeal
denied, 546 A.2d 622 (Pa. 1988) (“[C]ontribution may be asserted where:
(1) the parties combined to produce the plaintiff’s injury; (2) the parties are
each liable in tort to the plaintiff; and (3) a tortfeasor has discharged the
common liability by paying more than his pro rata share.”).
Furthermore, Pennsylvania has adopted the Uniform Contribution
Among Tortfeasors Act (UCATA), 42 Pa.C.S.A. §§ 8321-8327, which
recognizes a right of contribution among joint tortfeasors. See 42 Pa.C.S.A.
§ 8324.
Here, the record reflects that Appellant does not allege that the parties
are joint tortfeasors. (See Appellant’s Brief, at 22-24). The trial court
explained that “[t]here are simply no allegations of a tort within this case.
Thus, the parties cannot be joint tort-feasors. Therefore, [Appellee] is
entitled to judgment on [Appellant’s] claim for contribution, as a matter of
law.” (Trial Ct. Op., at 12-13). Upon review, we agree and conclude that
the record supports the court’s determination and that it did not commit an
error of law or abuse its discretion. See Stein, supra at 1013. Accordingly,
Appellant’s second issue does not merit relief.
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In his final issue, Appellant argues that the court erred in finding that
“there was no evidence that [Appellee] acted unilaterally, deceitfully,
clandestinely, or . . . without [Appellant’s] approval . . . [and] failed to
consider the fiduciary duty owed by [the parties] to each other to share
equally in the costs of their [joint] actions . . . .” (Appellant’s Brief, at 30).
We disagree.
Here, the record reflects that “[t]he parties were each half-owners of a
corporation known as [VSS].” (Trial Ct. Op., at 1). However, Appellant
claims that “[a]s an equal shareholder with [Appellant] in VSS, [Appellee] is
nothing more than an incorporated partner . . . .” (Appellant’s Brief, at 27)
(suggesting partnership law applies).
This Court has recently refused to recognize fiduciary duties between
equal shareholders. See Hill v. Ofalt, 85 A.3d 540, 550-51 (Pa. Super.
2014) (identifying fiduciary duties exist between majority and minority
shareholders). Furthermore, “our Supreme Court would not simply ignore
the corporate form . . . . Corporations are not partnerships.” Id. at 556(citations omitted and emphasis in original). Therefore, Appellee did not
owe a fiduciary duty to Appellant.
Moreover, the trial court explained that:
. . . [Appellant] has not offered any evidence that
[Appellee] took any action regarding VSS, SSU, the APA, the
Holdback Agreement, or the working capital of VSS without the
approval and full knowledge of [Appellant].
* * *
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. . . The fact that these [disbursements and increased
payables], which were agreed upon by both parties,
resulted in only [Appellant] bearing the consequences is in itself
insufficient to trigger a breach of a fiduciary duty claim. . . .
(Trial Ct. Op., at 13-14) (emphasis in original). The court further noted that
“the doctrine of unclean hands would bar recovery in any event.”3 (Id. at
14-15, n.4) (citation omitted). Upon review, we agree and conclude that the
record supports the court’s determination and that it did not commit an error
of law or abuse its discretion. See Stein, supra at 1013. Accordingly,
Appellant’s final issue does not merit relief.
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 6/24/2015
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3
The doctrine of unclean hands bars equitable relief to a party who acted in
bad faith. See PNC Bank v. Kerr, 802 A.2d 634, 642 (Pa. Super. 2002),
appeal denied, 815 A.2d 634 (Pa. 2002). Here, the record reflects that
Appellant acknowledges that he participated in the disbursement of the
funds. (See Appellant’s Brief, at 9, 11-12, 14, 29). Therefore, Appellant
would be barred from recovery.
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