Moore, R. v. Mulligan Mining ( 2019 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
RICHARD L. MOORE AND BONNIE B. : IN THE SUPERIOR COURT OF
MOORE, CO-TRUSTEES OF THE : PENNSYLVANIA
RICHARD L. MOORE LIVING TRUST :
:
:
v. :
:
:
MULLIGAN MINING, INC., AND S&K : No. 1497 WDA 2018
ENERGY, INC. AND SEAN D. TAYLOR :
:
:
APPEAL OF: S&K ENERGY, INC. AND :
SEAN D. TAYLOR :
Appeal from the Judgment Entered, September 20, 2018,
in the Court of Common Pleas of Washington County,
Civil Division at No(s): 2016-1152.
BEFORE: OTT, J., KUNSELMAN, J., and MUSMANNO, J.
MEMORANDUM BY KUNSELMAN, J.: FILED OCTOBER 16, 2019
Appellants, Sean D. Taylor and S&K Energy, Inc., appeal from the
judgment entered against them, jointly and severally, in the amount of
$34,882.99 following a bench trial. This breach of contract action arose from
Appellants’ failure to pay “roll-back taxes” assessed pursuant to the Clean and
Green Act1 as allegedly promised under a Lease of property for strip mining.
After careful and thorough review, because neither of the Appellants is
contractually or legally obligated to pay the taxes, we reverse.
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1 The Pennsylvania Farmland and Forest Land Assessment Act of 1974, 72
P.S. § 5490.1 et seq. commonly known as the Clean and Green Act.
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Richard L. Moore and Bonnie B. Moore were the owners of certain
property in Smith Township, Washington County, Pennsylvania. In 1980, Mr.
Moore enrolled the property in the Clean and Green program.2 The property
enjoyed preferential tax status since that time.
In 2005, the Moores agreed to a three-year strip mining lease,
commencing May 12, 2005, and ending May 12, 2008, with Mulligan Mining,
Inc. The MMI Lease was executed by the Moores and Sean D. Taylor,
president and sole shareholder of MMI. The MMI Lease contained several
provisions of particular relevance. Paragraph 8 of the Lease provided:
Operator agrees to pay any and all ad valorem taxes assessed
against the entire Premises on account of the surface estate
thereon, all taxes on all improvements, equipment and other
property installed on the Premises for any year during the
continuance of this Agreement. Operator also agrees to pay
when due all taxes except income taxes of Owners, which may
arise or come dues as a result of this Agreement . . . . This
paragraph does not obligate Operator to pay real estate taxes
which would be levied and due whether or not surface mining
operations were taking place except that Operator shall be
responsible to pay any "rollback" taxes which may be
assessed should the mining operation cause Owners to lose
their preferential tax treatment under the Agricultural Tax
Assessment Act commonly referred to as the Clean and
Green Law.
Additionally, Paragraph 11 of the Lease provided:
Operator shall not convey, assign, license, grant any contract
rights in, or by any other method or means alienate or effect its
exclusive rights in this Agreement whether voluntary or
involuntary without the express written consent of Owners, which
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2The Clean and Green Act affords certain property preferential tax treatment
so long as it is maintained in accordance with the requirements of the Act.
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consent may be conditioned, restricted or withheld in the sole and
arbitrary discretion of Owners. This prohibition or restraint
reserved to Owners shall be broadly construed so as to reserve to
Owners the privilege of selection and approval of any person
partnership, corporation or other entity to whom rights and
privileges granted to Operator herein might become alienated, to
any interest in this Agreement, and as to any portion of the lands
described, which approval will not be unreasonably withheld . . .
Operator may assign this Agreement to a corporation, partnership
or entity in which the Operator maintains a controlling interest in
which event Operator shall nevertheless remain personally
responsible for all performance hereunder.
Paragraph 13 of the Lease provided:
This Agreement and all of its covenant terms and conditions shall
be binding upon and shall inure to the benefit of the parties hereto
and their respective heirs, legal representatives, successors and
assigns.
Between 2005 and 2008, MMI conducted strip mining activities on the
Moores’ property. The Moores never informed Washington County that this
activity was being conducted on their property and that its use had changed,
contrary to the requirements of the Clean and Green Act.3
After mining operations ceased in late 2008, the Moores complained to
DEP about the condition of their property. In 2009, MMI began reclamation
activities on the property. During this period, Taylor sought to address the
Moores’ concerns, and told her that she did not need to contact DEP. Taylor
further stated that he would “take care of it” and that he “guaranteed the
contract”.
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3 72 P.S. § 5490.4(c.1).
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On July 15, 2010, Taylor entered into a Stock Purchase Agreement with
Mulligan Mining Holdings, Inc., a Delaware corporation (the Holding
Company). Pursuant to this Agreement, Taylor, as the sole shareholder of
MMI, sold MMI to the Holding Company. Certain equipment, permits, leases,
contracts and other assets and responsibilities of MMI’s transferred with the
stock. Several provisions of that agreement are pertinent to the disposition
of this matter.
Paragraph 4.15 listed the environmental permits held by MMI, including
one for the Moores’ property.
Paragraph 4.19, listed the leases held by MMI. Notably, however, it did
not reference the Moores’ Lease.
Under Paragraph 6.3, "Personal Guarantees", the Holding Company
agreed to indemnify Taylor for all amounts he was required to pay to a third
party in connection with specifically listed personal guarantees set forth in 6.3
of the Seller Disclosure Schedule. Included on that schedule was an Indemnity
Agreement with Rockwood Casualty Insurance Company who held the
reclamation bonds, for at least two properties, one being the subject property.
Finally, particularly relevant to the Stock Purchase transaction, the
Holding Company funded Taylor’s buyout and acquisition of MMI with a loan
from Angus Coal and SPE NO. 1 LLC. and Angus Partners. The assets of the
the Holding Company and MMI were pledged as collateral.
On July 21, 2010, shortly after Taylor sold MMI, Taylor established S&K
as a Pennsylvania corporation. Taylor was the sole shareholder and officer of
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the newly incorporated S&K. S&K, like MMI, conducted mining and
reclamation activities.
On December 27, 2012, the Moores, by general warranty deed,
transferred all of their right, title and interest in the property to the Berrisford
Family Partners, LP, a Pennsylvania Limited Partnership. This conveyance did
not except or reserve any rights under the MMI Lease.
In October 2012, the Holding Company ceased operations. On March 5,
2013, S&K purchased the loan that Angus Coal had given to the Holding
Company to purchase Taylor’s stock in MMI and the company. Sometime
thereafter, S&K foreclosed on this loan and acquired certain collateralized
assets from MMI. In particular, this included the environmental permit for the
subject property as well as other permits, two surface leases unrelated to the
subject property, and various pieces of equipment. After the transfer of this
permit to S&K in August 2013, S&K conducted some outstanding reclamation
activities required under those permits.
On June 17, 2013, the Berrisford Family Partners, LP reconveyed the
property to the Moores as Co-Trustees of the Richard L. Moore Trust, the
plaintiff in this action. This conveyance also did not except or reserve any
rights under the MMI Lease.
In 2015, while conducting a “systematic review”, Washington County
discovered that the subject property, now owned by the Moore Trust, had strip
mining activity on it. This activity triggered the imposition of “roll-back taxes”
by the County under the Clean and Green Act. On October 13, 2015,
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Washington County notified the Moore Trust that it was imposing “roll-back
taxes” in the amount of $34,882.99 upon the subject property for violation of
Clean and Green Act. Shortly thereafter, on November 6, 2015, the Moore
Trust demanded that MMI, via correspondence to Taylor, pay these taxes.
However, no payment was made. As a result, the Moore Trust paid the taxes.
The Moore Trust subsequently filed suit on February 29, 2016, against MMI,
Taylor, and S&K for breach of the Lease. MMI never responded to the Moore
Trust’s complaint, and a default judgment was entered against it.
Following a bench trial on the remaining claims against Taylor and S&K,
the trial court entered a decision in favor of the Moore Trust. In sum, the trial
court concluded that Taylor personally guaranteed MMI’s Lease, that S&K was
a successor of MMI, and, therefore, both were liable for MMI’s obligations
under the Lease. Because they refused to pay the “roll-back taxes”
attributable to the strip mining activity, the trial court found that Appellants
breached the terms and conditions of the Lease, and ordered them to pay
damages, totaling $34,882.99, to the Moore Trust.
Appellants filed a motion for post-trial relief seeking JNOV or
alternatively, a new trial, which the trial court denied. Judgment was entered
on September 20, 2018.
Appellants timely appealed. The trial court and Appellants complied with
Pennsylvania Rule of Appellate Procedure 1925.
Appellants raise the following issues on appeal:
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I. The Trial Court erred in determining that The Moore Trust had
standing to state a cause of action because The Moore Trust was
not a party to, an assignee of, or a successor to the Agreement
and therefore lacked standing to enforce the contract.
II. The Trial Court erred in concluding that The Moore Trust's
claims are not barred by the four-year statute of limitations
applicable to claims arising from contractual obligations.
III. The Trial Court erred in concluding that The Moore Trust was
not barred by the doctrine of laches because Bonnie B. Moore and
Richard L. Moore failed to notify the Washington County Tax
Assessor in a timely manner that the property was being used for
commercial purposes, thereby creating an unreasonable delay in
the assessment of roll back taxes, which prejudiced S&K and
Taylor.
IV. The Trial Court erred in concluding that S&K satisfies an
exception required to impose successor liability because The
Moore Trust failed to satisfy the burden of proof to establish that
S&K is a successor of [MMI], or a successor to the agreement
entered into by [MMI] by way of de facto merger.
V. The Trial Court erred in determining that The Moore Trust was
not barred by the Statute of Frauds 33 P.S. §3 with respect to
Taylor since The Moore Trustees admit there is no written
agreement establishing that Taylor assumed the debts and
obligations of [MMI].
VI. The Order entered September 20, 2018, is a final judgment
from which S&K and Taylor appealed to this Honorable Court, and
the Washington County Prothonotary's Office confirmed that the
judgment was entered.[4]
Appellants’ Brief at 5. Appellants ask this Court to enter judgment in their
favor.
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4 Upon receipt of this appeal, the Court issued an Order directing that a
judgment be entered in this matter as it did not appear that the prothonotary
below had done so. Upon further review, it is evident that judgment was
entered on September 20, 2018. This appeal was filed thereafter.
Consequently, we need not address this issue in any detail.
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Our review in a non-jury case is
limited to a determination of whether the findings of the trial court
are supported by competent evidence and whether the trial court
committed error in the application of law. Findings of the trial
judge in a non-jury case must be given the same weight and effect
on appeal as a verdict of a jury and will not be disturbed on appeal
absent error of law or abuse of discretion. When this Court reviews
the findings of the trial judge, the evidence is viewed in the light
most favorable to the victorious party below and all evidence and
proper inferences favorable to that party must be taken as true
and all unfavorable inferences rejected.
Hart v. Arnold, 884 A.2d 316, 330–331 (Pa. Super. 2005), appeal denied,
897 A.2d 458 (2006) (citations omitted). “The [trial] court’s findings are
especially binding on appeal, where they are based upon the credibility of the
witnesses, unless it appears that the court abused its discretion or that the
court’s findings lack evidentiary support or that the court capriciously
disbelieved the evidence.” Id. (citations omitted). “Conclusions of law,
however, are not binding on an appellate court, whose duty it is to determine
whether there was a proper application of law to fact by the lower court.”
Tagliati v. Nationwide Ins. Co., 720 A.2d 1051, 1053 (Pa. Super. 1998),
appeal denied, 740 A.2d 234 (1999). “With regard to such matters, our scope
of review is plenary as it is with any review of questions of law.” Id.We also must consider whether the trial court properly denied
Appellants’ post-trial motion seeking JNOV. The propriety of a JNOV is a
question of law, and therefore, our scope of review is plenary. Foster v.
Maritrans, Inc., 790 A.2d 328, 330 (Pa. Super. 2002).
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There are two bases upon which a JNOV can be entered; one, the
movant is entitled to judgment as a matter of law and/or two, the evidence is
such that no two reasonable minds could disagree that the outcome should
have been rendered in favor of the movant. Reott v. Asia Trend, Inc., 7
A.3d 830, 835 (Pa. Super. 2010), aff’d, 55 A.3d 1088 (Pa. 2012). With the
first, the court reviews the record and concludes that, even with all factual
inferences decided adverse to the movant, the law nonetheless requires a
verdict in his favor. Id. With the second, the court reviews the evidentiary
record and concludes that the evidence was such that a verdict for the movant
was beyond peradventure. Id.Moreover,
[i]n reviewing a trial court’s decision whether [] to grant judgment
in favor of one of the parties, we must consider the evidence,
together with all favorable inferences drawn therefrom, in a light
most favorable to the verdict winner.
Reott, 7 A.3d at 835. Concerning questions of credibility and weight accorded
the evidence at trial, we will not substitute our judgment for that of the finder
of fact. Eichman v. McKeon, 824 A.2d 305, 312 (Pa. Super. 2003). Thus,
when there is a question of fact to be resolved, it is within the purview of the
factfinder. Rohm & Hass Co. v. Continental Cas. Co., 732 A.2d 1236, 1248
(Pa. Super. 1999). JNOV should not be entered where evidence is conflicting
upon a material fact. Id.“Our standard[s] of review when considering motions for a directed
verdict and judgment notwithstanding the verdict are identical.” Reott, 7
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A.3d at 835. “We will reverse a trial court's grant or denial of a [JNOV] only
when we find an abuse of discretion or an error of law that controlled the
outcome of the case.” Id.
In their first issue, Appellants contend that the trial court erred in
concluding that the Moore Trust had standing to pursue its claim for payment
of the “roll-back taxes” under the Lease. Specifically, Appellants argue that
the Moore Trust was not a party to the Lease. Moreover, according to
Appellants, by the time the property was transferred to the Moore Trust, the
Lease had expired, and thus no right existed to transfer to the Moore Trust
even if it was considered a successor. Appellants’ Brief at 15-16. We disagree.
In Pennsylvania, a party who files a claim and seeks a judicial resolution
“must establish as a threshold matter that he has standing to maintain the
action.” Fumo v. City of Philadelphia, 972 A.2d 487, 496 (Pa. 2009). The
core concept of standing “is that a person who is not adversely affected in any
way by the matter he seeks to challenge is not ‘aggrieved’ thereby and has
no standing to obtain a judicial resolution of his challenge.” William Penn
Parking Garage, Inc. v. City of Pittsburgh, 346 A.2d 269, 280–81 (Pa.
1975) (plurality). “In an action based upon a contract, the complainant, to
establish standing, must plead and prove its right to sue under that
instrument.” JP Morgan Chase Bank, N.A. v. Murray, 63 A.3d 1258, 1263
(Pa. Super. 2013). “When suit is brought against the defendant by a stranger
to his contract, he is entitled to proof that the plaintiff is the owner of the
claim against him . . . . Otherwise, the defendant might find himself subjected
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to the same liability to the original owner of the cause of action in the event
that there was no actual assignment.” Produce Factors Corp. v. Brown,
179 A.2d 919, 921 (Pa. Super. 1962). “Before a party is entitled to recover
on a lease or contract, the burden is on him to show that he has an interest
therein.” Fourtees Co. v. Sterling Equip. Corp., , 363 A.2d 1229, 1232
(Pa. Super. 1976). A challenge to the standing of a party to maintain the
action raises a question of law. In re Milton Hershey Sch., 911 A.2d 1258(Pa. 2006).
Under the Lease, MMI agreed to pay “roll-back taxes” to the Moores. As
argued by Appellants, the Moore Trust was not a party to the Lease. This,
however, does not preclude the Moore Trust from having standing to bring the
instant action.
MMI and the Moores clearly set forth their intention as to who could
enforce the terms and conditions of the Lease, including payment of any “roll-
back taxes”. Paragraph 13 of the Lease provided:
This Agreement and all of its covenant terms and conditions shall
be binding upon and shall inure to the benefit of the parties hereto
and their respective heirs, legal representatives, successors and
assigns.
(emphasis added). Based upon this provision, it is evident that MMI and the
Moores agreed that the rights and obligations under this Lease would flow to
their successors; the parties intended that a successor of either party would
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be able to enforce the terms of the Lease.5 Further, as observed by the trial
court, the Lease did not define the meaning of successor, but the common
meaning is “a person or thing that follows.”6
Here, the Moore Trust is a successor-in-interest to the Moores. The
Moores transferred their property, which was the subject of the Lease, to
Berrisford. Thereafter, Berrisford conveyed it to the Moore Trust. The Moore
Trust is the current owner of the property which was the subject of the Lease
and upon which the County assessed and imposed “roll-back taxes”. This
created a lien upon the property, negatively affecting its ownership rights in
the property. Absent an agreement otherwise, the Moore Trust would have
to pay the taxes or incur the lien. Thus, the Moore Trust is a successor under
the Lease.
Moreover, contrary to Appellants’ argument, the right to have the “roll-
back taxes” paid, did not expire with the expiration of the Lease, and was
transferable to the Moores’ successor. The trial court noted that although the
Lease was for a three year period, the Lease did not limit MMI’s obligation to
pay taxes to a particular time period. Trial Court Opinion, 8/31/18, at 10.
Rather, the Lease provided that the Operator “agrees to pay when due all
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5We note, as the trial court observed, that MMI was required to obtain the
Moores consent before assigning/transferring its rights under the Lease.
However, no such limitation was imposed upon the Moores.
6 “successor.” http://www.dictionary.com (last visited 8/29/19).
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taxes except income taxes of Owners which may arise or come due as a
result of this Agreement.” In particular, the Lease stated: “Operator shall be
responsible to pay any ‘rollback taxes’ which may be assessed should the
mining operation cause Owners to lose their preferential tax treatment.” This
language is very broad. Furthermore, the payment of “roll-back taxes” was
not limited to or for a specific period of time, except as provided by the Act.
Unlike the payment of other taxes under this Lease, which were payable only
for the Lease’s term, it did not limit MMI’s obligation to pay “roll-back taxes”
for only the period of 2005 to 2008. This interpretation is consistent with the
treatment of “roll-back taxes” under the Act.
When the use of a property enrolled in the Clean and Green program
changes to a use which is inconsistent with the requirements of the Clean and
Green Act (primarily agricultural and forest) and a violation occurs, the
property loses its preferential tax treatment. The property is then subject to
penalty in the form of “roll-back taxes” plus interest. 72 P.S. 5490.5a. “Roll-
back taxes” is defined as:
The amount equal to the difference between the taxes paid or
payable on the basis of the valuation and the assessment
authorized hereunder and the taxes that would have been paid or
payable had that land been valued, assessed and taxed as other
land in the taxing district in the current tax year, the year of
change, and in six of the previous tax years or the number of
years of preferential assessment up to seven.
72 P.S. § 5490.2. Under the Lease, MMI agreed to pay “roll-back taxes”
imposed as provided for in the Act, when assessed. Thus, the lessor’s right
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to have the “roll-back taxes” paid did not expire with the expiration of the
Lease and was transferable to the Moores’ successor, here the Moore Trust.
Furthermore, the obligation to pay the “roll-back taxes” under the Lease
was not personal to the Moores, as claimed by Appellants. Instead, it was a
covenant that ran with the land.
The usual test for determining whether the covenant under
consideration runs with the land seems to be that if the covenant
in the lease will be of benefit either to the landlord or tenant by
reason of his relation to the particular land then it touches or
concerns the land so as to run.
Youghiogheny-Pittsburgh Coal Co. v. Carlet, 92 Pa. Super. 40 (1927).
As such, pursuant to 21 P.S. § 3, the right and claim asserted in this action,
to have the roll back taxes paid, and given under the Lease to the Moores by
MMI, transferred with the property from the Moores to Berrisfield and finally
to the Moore Trust, the plaintiff in this matter. 21 P.S. § 3 provides:
All deeds or instruments in writing for conveying or releasing land
hereafter executed, granting or conveying lands, unless an
exception or reservation be made therein, shall be construed to
include all the estate, right, title, interest, property, claim, and
demand whatsoever, of the grantor or grantors, in law, equity, or
otherwise howsoever, of, in, and to the same, and every part
thereof, together with all and singular the improvements, ways,
waters, watercourses, rights, liberties, privileges, hereditaments,
and appurtenances whatsoever thereto belonging, or in anywise
appertaining, and the reversions and remainders, rents, issues,
and profits thereof.
21 P.S. § 3. The trial court correctly observed that there was no reservation
of this right or claim in either of the deeds, and therefore transferred with the
deeds.
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Thus, as the entity aggrieved by the imposition of the “roll-back taxes”
upon its property and Appellants’ refusal to pay in accordance with the Lease,
the Moore Trust has standing to bring this action, seeking payment of the
“roll-back taxes”. We conclude that the trial court did not err on the issue of
standing.
In their second issue, Appellants contend that the Moore Trust’s cause
of action was barred by the four-year statute of limitations, and thus, the trial
court erred. Specifically, Appellants argue that because the contract expired
in 2008 and no contract existed in 2015, there could not have been a breach
in 2015 when the Moore Trust demanded payment. Appellants’ Brief at 21.
Appellants further argue that the statute of limitations began to run in 2005
when the strip mining began and the land use changed. Id. at 23. Thus,
according to Appellants, the statute of limitations ran at the earliest in 2009,
or the latest in 2012. We disagree.
Indisputably, this breach of contract action is governed by the four-year
statute of limitations set forth in 42 Pa.C.S.A. § 5525. Generally speaking, in
an action for breach of contract, the statute begins to run on the date the
action accrues—the date of the breach. Packer Soc. Hill Travel Agency,
Inc. v. Presbyterian Univ. of Pa. Med. Ctr., 635 A.2d 649, 652 (Pa. Super.
1993). The breach occurs when payment under the contract is demanded and
not made. Id.Based upon the foregoing principles, it is evident that the determination
of when the statute of limitations begins to run focuses on the point at which
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there is a breach of duty or obligation. This is also true when the “occurrence
rule”, which Appellants rely upon, applies.7 Here, “roll-back taxes” were not
assessed until October 13, 2015. Thereafter, the Moore Trust, who owned the
property upon which the taxes would be imposed, demanded payment from
MMI pursuant to its promise under the Lease. When MMI refused to pay, the
breach occurred, and the Moore Trust’s cause of action accrued.
Consequently, contrary to Appellants’ argument, it was not the change in the
use of the property that triggered the accrual of the breach of contract action,
but rather the failure to pay in accordance with the terms of the Lease upon
demand of the Moore Trust.
Appellants’ argument that the Moores were not reasonably diligent in
learning of the assessment sooner because they failed to report the property’s
change in use as required under the Act, is likewise unpersuasive. First,
argument is usually asserted when a plaintiff argues application of the
discovery rule. Here, however, the Moore Trust did not raise it. Moreover,
again, the inquiry of whether a plaintiff was reasonable in discovering his
injury goes to the reasonableness of discovering the breach itself by the
contracting party, not an event which might have triggered a breach.
Furthermore, we find no authority, and Appellants cite none, for the
proposition that the statute of limitations began to run when the Lease
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7 We note that the “occurrence rule” has typically been applied in legal
malpractice cases. In those cases, under this rule, the cause of action accrues
when the attorney failed to perform as required, i.e., the breach of duty,
rather than when the client incurs an actual loss.
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expired. Had the obligation breached been of a different nature, we might
agree. However, because no taxes became due and owing until the county
assessed the “roll-back taxes”, no breach of contract had yet occurred. Once
the “roll-back taxes” were imposed, and the Moore Trust demanded payment
and was refused, the four-year statute of limitations began to run.
Consequently, we conclude that the trial court did not err when it held that
the Moore Trust’s claim was timely and could proceed.
In their third issue, Appellants contend that the trial court erred in
concluding that the doctrine of laches did not apply. Specifically, they argue
that the Moores failed to notify the Washington County Tax Assessor in a
timely manner that the property was being used in violation of the Clean and
Green Act. By failing to do so, the Moores unreasonably delayed the
imposition of the “roll-back taxes” and prejudiced the Appellants. Thus,
according to Appellants, the Moore Trust’s claim is barred by laches. We
disagree.
Independent of a limitations period, an action may be dismissed on the
basis of laches. Unlike the statute of limitations,
the application of the equitable doctrine of laches does not depend
upon the passage of a definite period of time but whether, under
the circumstances, the complaining party's lack of diligence has
prejudiced another's rights. The doctrine of laches may apply
whenever the position or rights of a party who objects to a review
have been so prejudiced by the length of time and inexcusable
delay, together with attendant facts and circumstances, that it
would be an injustice for the court to grant the relief sought.
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33 Standard Pennsylvania Practice 2d Effect of laches § 158:184 (footnotes
omitted).
In reviewing this issue, we recognize that the Moores were required to
notify the County within 30 days after the change in use of their property.8
They clearly were remiss in not doing so. Nonetheless, laches is an equitable
doctrine which cannot be asserted in an action at law. Leedom v. Spano,
647 A.2d 221, 228 (Pa. Super. 1994); Transbel Inv. Co. v. Scott, 26 A.2d
205, 207 (Pa. 1942). Therefore, the doctrine of laches does not apply in this
case.9
In their fourth issue, Appellants contend that the trial court erred in
concluding that S&K was liable as MMI’s successor. Specifically, they argue
that the evidence did not satisfy the de facto merger exception. There was
no continuity of ownership, management, personnel, physical location, assets
or general business operations. Appellants’ Brief at 34. Consequently,
according to Appellants, S&K cannot be held liable for payment of the “roll-
back taxes” under the Lease. Id. at 35. We agree.
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8 72 P.S. § 5490.4(c.1).
9 Here, the trial court concluded that laches did not apply, but on different
grounds. It based this decision on its factual findings that the action was
promptly brought, six months after refusal to pay, and that Taylor and S&K
were not prejudiced. Trial Court Opinion, 8/31/18, at 18. Although the trial
court should not have considered the doctrine of laches in this case, we
conclude that it was harmless error given that the trial court ultimately did
not find laches.
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Generally, the issue of successor liability arises when one company sells
or transfers all or a substantial portion of its assets to another company.
Under these circumstances, the latter is not liable for the debts and liabilities
of the transferor simply by virtue of its succession to the transferor's property.
Husak v. Berkel, Inc., 341 A.2d 174, 176 (Pa. Super. 1975). In order to
find that this general rule is not applicable and that the transferee does acquire
such liability, one of the following must be shown: (1) the purchaser expressly
or impliedly agrees to assume such obligation; (2) the transaction amounts to
a consolidation or merger; (3) the purchasing corporation is merely a
continuation of the selling corporation; or (4) the transaction is fraudulently
entered into to escape liability. Continental Ins. Co. v. Schneider, Inc.,
873 A.2d 1286, 1291 (Pa. 2005); Husak, 341 A.2d at 176.
Although Appellants address this issue under the de facto merger
exception, the trial court concluded that S&K was liable as a successor of MMI
based upon application of the third exception, continuity. As a result, the trial
court held S&K liable for the obligations of MMI, including payment of the “roll-
back taxes” under the Lease. Because the continuity and the de facto merger
exceptions are often considered interrelated, if not the same, and both have
been raised, we examine both under the circumstances of this case.
Before addressing the specifics of these exceptions, we make several
general observations, which are significant to the outcome of this case. First,
in these types of cases, the analysis typically involves the examination of the
seller corporation’s makeup prior to the sale of its assets compared to the
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makeup of the acquiring company upon acquisition. Here, the parties
presented little evidence for the court to review about MMI in 2013 when S&K
acquired MMI’s collateralized assets. Instead, the trial court focused on MMI
as it existed in 2010, ignoring the impact that the stock purchase had on MMI.
Likewise, there was little examination of S&K in 2013. In analyzing S&K’s
successor liability, the trial court should have looked at MMI prior to S&K’s
acquisition of MMI’s assets and S&K after the acquisition for purposes of
determining continuity.
Moreover, there was no comprehensive review of MMI or S&K at the
time of acquisition in 2013. Instead, the trial court focused on a few facts
that supported application of an exception rather than considering the makeup
and existence of MMI and S&K in their entirety. With that said, we now turn
to the specifics of the continuity and de facto exceptions in this case.
The continuity exception focuses on situations in which the purchaser is
merely a restructured or reorganized form of the seller. “A mere continuation
occurs where ‘a new corporation is formed to acquire the assets of an extant
corporation, which then ceases to exist.’” Continental Ins. Co. v.
Schneider, Inc., 810 A.2d 127, 134–35 (Pa. Super. 2002), aff'd, 873 A.2d
1286 (2005) (quoting Knapp v. North Am. Rockwell Corp., 506 F.2d 361,
365 (3rd Cir. 1974) (citations omitted)). Thus, there exists “one corporation
which merely changes its form and ordinarily ceases to exist upon the creation
of the new corporation which is its successor.” Id. at 134. The primary
elements of the continuation exception are identity of the officers, directors,
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or shareholders, and the existence of a single corporation following the
transfer. Id.; Widerman v. Mayflower Transit, Inc., 1997 WL 539684(E.D.Pa.1997) (citations omitted). “The continuity exception is very limited.
The exception turns on the continuity of the corporate entity, not the
continuity of the business operation.” Savini v. Kent Mach. Works, Inc.,
525 F.Supp. 711, 717 (E.D. Pa. 1981) (citing Travis v. Harris Corp., 565
F.2d 443, 447 (7th Cir. 1977)).
In concluding that the continuity exception applied, the trial court
explained:
S&K has the same officers and shareholders as MMI. S&K does
the same work as MMI, that is mining and reclamation of mined
property. S&K obtained the permits and leases to the Moore
Property that were originally MMI's. The employees that worked
on the Moore property on behalf of MMI and S&K were also the
same. These established facts make it clear that S&K was not a
new or unique company but a mere continuation of MMI with the
same shareholder and principal, Mr. Taylor. Accordingly, S&K is
the appropriate successor to MMI for these claims.
Trial Court Opinion, 8/31/18, at 16.
In reaching its decision, the trial court first concluded that S&K had the
same officers and shareholders as MMI. The trial court, however, compared
MMI in 2010 to S&K in 2013, and did not consider how the acquisition of MMI
by the Holding Company in 2010 affected the makeup and structure of MMI.
Instead, the trial court should have considered MMI’s corporate makeup and
structure in 2013. At that time, Taylor was not a stockholder of MMI. In fact,
he had not been a stockholder in MMI for almost three years. Taylor did not
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acquire any of MMI’s stock upon foreclosure of the loan. There was no
evidence that S&K acquired any of MMI’s stock either.
Additionally, Taylor was not an officer of MMI and had not been an officer
of MMI for almost three years. The evidence regarding the transfer of the
Moore permit indicated that Johnathan Lasko was the president of MMI in
2013. There was no evidence that Lasko became an officer of S&K.
Next, the trial court considered the fact that S&K acquired the Moore
permit from MMI.10 The evidence revealed that S&K acquired two of MMI’s
permits, two of MMI’s leases, and equipment. However, from the evidence, it
is unclear what portion of MMI’s assets this made up. In 2010, the Stock
Purchase Agreement listed more than two leases and permits and almost 2
million dollars in equipment. As referenced above, there was no examination
of MMI in 2013. Generally, the issue of successor liability arises when there
is a significant transfer of one corporation’s assets to another. Here, it is not
evident that that occurred. Again though, even if it did, the acquisition of
assets alone, without satisfaction of one the aforementioned exceptions, is not
enough to trigger successor liability.
The trial court also relied on the fact that two employees from MMI
became employees of S&K. The two employees moved to S&K in late 2012
after the Holding Company ceased operations. They were equipment
operators. Although they worked on the subject property under the Moore
____________________________________________
10The trial court stated that S&K acquired the Lease for the Moore property
but that is not supported by the record.
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permit, there is no evidence that these employees were key employees of MMI
and critical to S&K continuing the business of MMI. Moreover, in 2010 the
Stock Purchase Agreement listed 19 employees of MMI, including the two that
eventually transferred to S&K. The transfer of two employees out of 19 does
not constitute continuity of employees as suggested by the trial court.
Additionally, S&K had other employees, about 7 or 8 other than the two from
MMI, and even more employees before that.
Finally, the trial court failed to make any finding regarding the status of
S&K and MMI after the transfer of the assets. Important to the application of
this exception is that following the transfer, only one entity remains. Here
the trial court made no finding regarding this factor. Moreover, upon our
review there was no evidence demonstrating that S&K was the only remaining
corporation.
Based upon the foregoing, we conclude that the Moore Trust failed to
establish that S&K was a continuation of MMI.
We next consider the applicability of the de facto merger exception.
When determining if a de facto merger has occurred, Pennsylvania courts
examine four factors to determine the existence of a de facto merger:
(1) There is a continuation of the enterprise of the seller
corporation, so that there is continuity of management, personnel,
physical location, assets, and general business operations.
(2) There is a continuity of shareholders which results from the
purchasing corporation paying for the acquired assets with shares
of its own stock, this stock ultimately coming to be held by the
shareholders of the seller corporation so that they become a
constituent part of the purchasing corporation.
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(3) The seller corporation ceases its ordinary business operations,
liquidates, and dissolves as soon as legally and practically
possible.
(4) The purchasing corporation assumes those obligations of the
seller ordinarily necessary for the uninterrupted continuation of
normal business operations of the seller corporation.
Fizzano Bros. Concrete Prod., Inc. v. XLN, Inc., 42 A.3d 951, 956 (Pa.
2012). In making this inquiry, a court must “examine the substance of the
transaction to ascertain its purpose and true intent.” Philadelphia Elec. Co.
v. Hercules, Inc., 762 F.2d 303, 310 (3d Cir. 1985).
In concluding that S&K was a successor of MMI, the trial court focused
on the first factor. We agree that the evidence showed that S&K and MMI had
the same address, S&K acquired some of MMI’s assets, and that S&K were in
the same business. However, as discussed above, S&K and MMI did not have
continuity of the same employees, officers or shareholders. Additionally, the
evidence did not show that S&K continued to carry out MMI’s enterprise as a
whole, or that this was intent behind the transaction at issue.
The second factor has been referred to as continuity of ownership.
Establishment of this factor focuses on the transfer between the shareholders
of the selling and acquiring entities. Here, there was no exchange of stock
between MMI and S&K, or the Holding Company for that matter. Neither S&K
nor Taylor acquired any stock from MMI or the Holding Company. That Taylor
was previously a shareholder in one company’s stock and then a shareholder
in another company, does not constitute continuity ownership.
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Next, we consider whether MMI ceased existence. As previously noted,
the trial court made no such finding, and our review of the record, does not
indicate whether MMI continued to exist as a legal entity after S&K acquired
its assets.
Finally, we consider whether the purchasing corporation assumed those
obligations of the seller ordinarily necessary for the uninterrupted continuation
of normal business operations of the seller corporation. Here, the evidence
disclosed that the only obligation S&K assumed was certain reclamation
activities required on the subject property and another property. However,
the purpose for assuming this responsibility was not for continuing MMI’s
enterprise. Taylor explained that S&K acquired MMI’s permits to complete the
work necessary so that Rockwood would release Taylor from the bonds. The
Holding Company agreed to indemnify Taylor for this under the Stock
Purchase Agreement, but never did so. Moreover, there was no evidence
regarding any of MMI’s other liabilities or responsibilities and whether S&K
had assumed them as well. We note that under the Stock Purchase
Agreement, MMI had had many obligations other than the two addressed
during the hearing.
Based upon the foregoing, we conclude that the Moore Trust failed to
establish that a de facto merger occurred between S&K and MMI.
Because the evidence was insufficient to demonstrate that the
applicability of either the continuity or de facto exception to the circumstances
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of this case, we conclude that the trial court erred in finding that S&K was
liable for the “roll-back taxes” as a successor of MMI.
In their fifth issue, Appellants contend that the trial court erred in
concluding that the Statute of Frauds did not apply. Specifically, Appellants
argue that any promise or agreement to pay the “roll-back taxes” under the
Lease by either Taylor or S&K had to be in writing. According to Appellants,
because there was no such writing, the Moore Trust’s claim is barred.
Appellants’ Brief at 37. We agree.
The Statute of Frauds provides in pertinent part:
No action shall be brought . . . . Whereby you charged the
defendant, upon a special promise, to answer for the debt or
default of another, unless the agreement upon which such action
shall be brought, or some memorandum or note thereof, shall be
in writing, and signed by the party to be charged there with, or
some other person by him authorized.
33 P.S. § 3. However, the Statute of Frauds does not apply if the main object
of the promisor is to serve his own pecuniary or business purpose. Biller v.
Ziegler, 593 A.2d 436, 440 (Pa. Super. 1991); Acme Equip. Co. v.
Allegheny Steel Corp., 217 A.2d 791, 792 (Pa. Super. 1966). This
exception, known as the “leading object” or “main purpose” rule, “applies
whenever a promisor, in order to advance some pecuniary or business purpose
of his own, purports to enter into an oral agreement even though that
agreement may be in the form of a provision to pay the debt of another.”
Biller, 593 A.2d at 440.
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Here, it is undisputed that there was no written agreement from Taylor
agreeing to pay the “roll-back taxes” of the subject property. However, the
trial court found that the exception to the Statute of Frauds, the leading object
rule, applied. Trial Court Opinion, 8/31/18, at 18. The trial court based its
decision on Taylor’s statement to Mrs. Moore that he guaranteed the contract
in an effort to appease Mrs. Moore and to avoid issues with DEP. As the sole
shareholder of MMI, Taylor did so to protect his pecuniary interest and
business interest. Id. Although the determination as to whether a promisor's
main purpose for making a guaranty was to serve his own pecuniary or
business ends is for the trier of fact, we do not agree that Taylor’s statement
constituted an oral promise to pay MMI’s debts under the Lease.
The statement made by Taylor was very general and overbroad. It did
not reference specifically any of MMI’s debts or financial obligations, let alone
the “roll-back taxes”. Moreover, Taylor did not make these statements during
a conversation about moneys owed under the Lease. Instead, Taylor made
the statements during a discussion with Mrs. Moore about her concerns
regarding the condition of the property and environmental compliance. We
therefore conclude that Taylor did not agree to pay MMI’s debts, and, in
particular, did not promise to pay the “roll-back taxes”. Given the cautionary
purpose for which the Statute of Frauds exists,11 as well as the higher standard
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11 We have previously explained the purpose of this rule:
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of proof that our courts have required to establish an alleged oral promise, 12
we must be judicious in applying the leading object rule. Here, there was
insufficient evidence to prove that Taylor promised to pay MMI’s debt under
the Lease, including MMI’s obligation to pay “roll-back taxes”.
In sum, S&K was not obligated to pay the “roll-back taxes” as it was not
a successor to MMI. Furthermore, Taylor was not obligated to pay the taxes,
as he never specifically promised to pay them, and his general promise to take
care of it was not in writing.
Judgment reversed as to S&K and Taylor.
Judge Musmanno joins the memorandum.
Judge Ott concurs in the result.
____________________________________________
Promises to pay the debt of another must be in writing for at least
two reasons. The first is evidentiary. The second, cautionary.
****
In addition to its evidentiary role, the provision serves a
cautionary function. By bringing home to the prospective surety
the significance of his act, it guards against ill-considered action.
Otherwise, he might lightly undertake the engagement, unwisely
assuming that there is only a remote possibility that the principal
will not perform his duty....
E.A. Farnsworth, Contracts § 6.3 (1982).
Thomas A. Armbruster, Inc. v. Barron, 491 A.2d 882, 883–84 (Pa. Super.
1985) (emphasis in original).
12Jefferson-Travis, Inc. v. Giant Eagle Markets, Inc., 393 F.2d 426, 431
(3d Cir. 1968)
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 10/16/2019
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