Greenville Surgical v. Arreola, R. ( 2015 )

J-A01034-15
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
GREENVILLE SURGICAL ASSOCIATES, IN THE SUPERIOR COURT OF
P.C., PENNSYLVANIA
Appellee
v.
RODOLFO ARREOLA, M.D.,
Appellant No. 678 WDA 2014 AND
Appeal from the Judgment entered April 7, 2014,
in the Court of Common Pleas of Erie County,
Civil Division, at No(s): 14153-2004
GREENVILLE SURGICAL ASSOCIATES, IN THE SUPERIOR COURT OF
P.C., PENNSYLVANIA
Appellee
v.
RODOLFO ARREOLA, M.D.,
Appellant No. 737 WDA 2014
Appeal from the Order dated April 22, 2014,
in the Court of Common Pleas of Erie County,
Civil Division, at No(s): 14153-2004
BEFORE: FORD ELLIOTT, P.J.E., DONOHUE, and ALLEN, JJ.
DISSENTING MEMORANDUM BY ALLEN, J.: FILED JULY 8, 2015
I respectfully dissent from the Majority’s reversal of the judgment
which the trial court had entered in favor of GSA and against Dr. Rodolfo
Arreola, M.D., (“Appellant”). The Majority’s entry of judgment in favor of
J-A01034-15
Appellant has effectively granted Appellant a JNOV. It is well settled that
our “standard of review prescribes the degree of scrutiny we apply to the
trial court’s decision and the manner in which we evaluate its conclusions.”
Egan, et al. v. USI Mid-Atlantic, Inc., et al., 92 A.3d 1, 12 (Pa. Super.
2014). In Egan, we reiterated:
A JNOV can be entered upon two bases: (1) where the movant
is entitled to judgment as a matter of law; and/or, (2) the
evidence was such that no two reasonable minds could disagree
that the verdict should have been rendered for the movant.
When reviewing a trial court's denial of a motion for JNOV, we
must consider all of the evidence admitted to decide if there was
sufficient competent evidence to sustain the verdict. In so
doing, we must also view this evidence in the light most
favorable to the verdict winner, giving the victorious party the
benefit of every reasonable inference arising from the evidence
and rejecting all unfavorable testimony and inference.
Concerning any questions of law, our scope of review is plenary.
Concerning questions of credibility and weight accorded the
evidence at trial, we will not substitute our judgment for that of
the finder of fact. If any basis exists upon which the jury could
have properly made its award, then we must affirm the trial
court's denial of the motion for JNOV. A JNOV should be entered
only in a clear case.
Egan, 92 A.3d at 19-20. I do not find that this stringent standard is met
here.
The trial court detailed its factual findings in pertinent part as follows:
THE PARTIES
[] [Appellant] is currently a general surgeon residing and
practicing in Erie, Pennsylvania at UPMC Hamot. [Appellant]
resigned from GSA in order to obtain employment at Hamot,
now UPMC Hamot.
RECRUITMENT OF [APPELLANT]
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[] UPMC Horizon agreed to make a financial commitment
to expand GSA based upon the commitment of [Appellant] to be
employed by GSA and to provide ongoing services in the UPMC
Horizon, Greenville, Pennsylvania service area on a long-term
basis. On or about July 30, 2001, three agreements were
reached by several parties.
THE RECRUITMENT AGREEMENT
GSA, [Appellant,] and UPMC Horizon entered into a written
Recruitment Agreement. The terms of the Recruitment
Agreement were dictated by UPMC Horizon. GSA attempted to
make minor modifications, however, the substantive terms of
the Recruitment Agreement were "immutable." …
[Under Section 7, the Recruitment Agreement contained] loan
forgiveness provisions [which] conditioned the forgiveness upon
[Appellant] maintaining an active practice in the UPMC Horizon,
Greenville, Pennsylvania service area for at least six years. The
provision did not require [Appellant] to continue employment
with GSA for the entire six-year period only that [Appellant]
practice in or around Greenville, Pennsylvania at UPMC Horizon.
Furthermore, the Employment Contract [see infra] did not
contain a restrictive covenant between GSA and [Appellant]
which would have prevented [Appellant] from practicing in the
UPMC Horizon service area following his resignation from GSA.
The Recruitment Agreement controls the amount of the
excess income reimbursement requirement, but places no
limitation on the indemnity provisions of the Employment
Contract. []
THE PROMISSORY NOTE
GSA and [Appellant] entered into a Promissory Note, the
terms of which were dictated by UPMC Horizon, in conjunction
with the Recruitment Agreement. GSA, through its counsel,
attempted to make [Appellant’s] liability for repayment primary,
however, UPMC Horizon refused to include the changes
requested by GSA.
THE EMPLOYMENT CONTRACT
GSA and [Appellant] entered into a written Employment
Contract. Attorney Ruthanne Beighley ("Attorney Beighley”),
counsel for GSA, prepared the initial draft of the Employment
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Contract, which was strictly a document between GSA and
[Appellant]. When the agreement was negotiated, GSA had only
one physician, Dr. Kolenich, and GSA had significant financial
limitations. All financial risks assumed under the Recruitment
Agreement required mitigation. Therefore, GSA drafted the
Employment Contract to provide for the security and indemnity
of GSA.
Employment Contract Sections 15(b) and (c) place
ultimate responsibility upon [Appellant] for all indebtedness,
liabilities, costs, damages or other losses incurred by GSA as a
result of the Recruitment Agreement. The sections state:
(b) [Appellant] expressly agrees to indemnify and hold
[GSA] harmless from and against any indebtedness,
liabilities, costs, damages or other losses under the
Recruitment Agreement with UPMC Horizon (the
"Recruitment Agreement”) or the Promissory Note
attached to such Recruitment Agreement as Exhibit A
thereto.
(c) The terms of this Section 15 shall survive the
termination of this Agreement.
The indemnity provisions of the Employment Contract are
written in plain English. [Appellant] had the Employment
Contract independently reviewed by an attorney. [Appellant]
and his attorney requested no significant changes to the
Employment Contract, which was then executed by GSA and
[Appellant]. GSA would not have employed or offered
employment to [Appellant] if the indemnity provisions of the
Employment Contract were not effective.
[Appellant] acknowledged that the indemnity provision
included all indebtedness and that the accumulated unpaid
excess reimbursement obligation was an indebtedness. The
Court did not find credible [Appellant’s] understanding that the
obligation imposed on him was only to reimburse any shortfall
should the total income generated by his efforts not exceed the
total budgeted cost, as no provision of the Employment Contract
imposes that limitation on [Appellant’s] indemnity obligation.
[APPELLANT’S] EMPLOYMENT AT [GREENVILLE]
In the summer of 2001, [Appellant] moved to Greenville,
Pennsylvania. He began employment at GSA in mid-September
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2001, after he secured a Pennsylvania license and hospital
credentialing. [Appellant’s] employment at GSA was his first
private practice job. During the time that [Appellant] was
employed at GSA, from mid-September 2001, until September
19, 2003, UPMC Horizon advanced the sum of $184,800.24 to
[GSA] pursuant to the Recruitment Agreement. The
advancements reimbursed GSA for the costs of [Appellant’s]
compensation and certain, but not all, expenses incurred related
to the employment of [Appellant]. GSA did not receive any
income from [Appellant] at GSA until about February 2002.
[Appellant] performed general surgery work and some
vascular surgery. However, both Dr. Kolenich and [Appellant]
began focusing on bariatric surgery patient recruitment. Due to
the concentrated efforts of both Dr. Kolenich and [Appellant],
GSA was awarded the “Center of Excellence” designation by the
American Society for Bariatric Surgery.
During the course of [Appellant’s] employment,
expenditures were made to improve GSA. Some of these
expenditures permit a second physician to operate in the facility.
[Appellant] requested and required certain expenses in
order to practice under his terms at GSA. These expenses were
not included in Exhibit C, to include an improved practice
computer system, additional examining room(s) so that both
physicians could have office hours at the same time which
required the facilities to be enlarged, therefore remodeling was
conducted, a new desk, substantial GSA staff overtime to
accommodate [Appellant’s] schedule of office hours, and new
office staff. The renovations were necessary and completed
during [Appellant’s] tenure.
These expenses were in excess of those projected in
Exhibit C and were directly related to accommodate [Appellant]
and the needs of a two physician practice per Robert C.
Sherbondy, CPA, [(“Sherbondy”)] [GSA’s accountant since 1990
and its accounting expert at trial].
In the spring of his second year of employment,
[Appellant] discussed the future of the practice with Dr.
Kolenich. Dr. Kolenich offered [Appellant] equal ownership of
the practice and ownership interest in the real estate. At that
time, [Appellant] was supplied with financial documents for GSA,
including ten years of reports regarding the performance of the
practice.
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On June 6, 2003, Dr. Kolenich confirmed the offer via
letter to [Appellant], but Dr. Kolenich's letter did not address a
firm salary to [Appellant] after September 2003. The letter
required [Appellant] to pass his Boards in 2003, rather than
2004, as stated in the Employment Agreement. [Appellant]
never presented a counterproposal to Dr. Kolenich or requested
a written confirmation of income after September 2003.
[Appellant] then drafted a resignation letter which was delivered
on July 18, 2003, however, the letter was undated. The letter
indicated that [Appellant] intended to terminate his employment
with GSA. On July 29, 2003, Dr. Kolenich, on behalf of GSA,
responded by letter to [Appellant]. In that letter Dr. Kolenich
included the following:
Lastly, I would like to remind you of the financial obligation
you have to UPMC/Horizon per your employment contract
with GSA. Specifically, I would refer you to Item 15B in
your employment contract with GSA. I am presently
asking for an update on that amount from Mr. David
Shulik, Financial Officer of UPMC/Horizon. I will provide
you with that information prior to your departure from this
Practice.
The July 29th letter confirmed the intent of section 15(b)
of the Employment Contract, which placed ultimate responsibility
upon [Appellant] for all sums advanced by UPMC Horizon.
[Appellant] acknowledged that he had advised Michael Downing
("Downing") at UPMC Horizon of his resignation, and that UPMC
Horizon had suggested opportunities for him to remain in the
UPMC Horizon service area and not work for GSA. Those
opportunities were not explored by [Appellant].
[APPELLANT’S] RESIGNATION
On September 19, 2003, [Appellant’s] employment with
GSA terminated and he has not practiced within the UPMC
Horizon service area. [Appellant] was advised by a patient that
Hamot Medical Center (hereinafter “Hamot”) was interested in
developing a program in bariatrics and [Appellant] entered into
negotiations with [Hamot] while still employed by GSA.
[Appellant] signed a contract with Hamot in September of 2003,
the same month he resigned his privileges at UPMC Horizon and
terminated all practice affiliations in the UPMC Horizon service
area.
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[Appellant] showed the Recruitment Agreement and/or the
Employment Contract to Hamot, requested help paying legal fees
associated with this litigation, and received and is currently
receiving help covering the costs of this litigation, including the
costs associated with [Appellant’s] accounting, expert
consultation and testimony, and [Appellant’s] counsel.
CONSEQUENCES OF [APPELLANT’S] RESIGNATION
David D'Urso, Director of Physician Recruitment at UPMC
Horizon, interpreted the Recruitment Agreement and the
Employment Contract. He determined that the monies owed
under the Recruitment Agreement would be forgiven if
[Appellant] continued to work in the UPMC Horizon service area
for the required six years. D'Urso also considered the effect of
the indemnity provisions of the Employment Contract upon the
obligations imposed under the Recruitment Agreement. He
concluded that absent forgiveness, the ultimate responsibility
was [Appellant’s].
[Appellant’s] departure from UPMC Horizon's Greenville
service area resulted in the forfeiture of any loan forgiveness
under the Recruitment Agreement, forgiveness of the loan
repayment obligations. [sic]
GSA was experiencing cash flow problems directly related
to the increased costs arising from [Appellant’s] employment.
REPAYMENT UNDER THE RECRUITMENT AGREEMENT
GSA’s cash flow during the employment of [Appellant] was
a key component of why GSA failed to make the required
payments under the Recruitment Agreement. GSA’s accountant,
[Sherbondy], analyzed GSA’s operating bank account from
October 31, 2001 through September 30, 2003. This analysis
demonstrated that no excess was generated and no
reimbursement was due until July 31, 2002. That excess in the
amount of $5,686.00 was paid on August 22, 2002. The next
month, August 31, 2002, an excess of $482.00 was generated,
which was repaid on September 20, 2002. Thereafter, from
September 2002 through September 30, 2003, there was
insufficient money in the checking account to pay the
reimbursement, and the cumulative total of the overdraft that
would have occurred had those payments been made totaled
$171,931.00. GSA requested that UPMC Horizon forgive the
amounts advanced to GSA, but UPMC Horizon refused. On
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October, 15, 2003, UPMC Horizon sent a demand for payment
addressed to Dr. Kolenich, [Appellant] and GSA, requesting that
GSA and [Appellant] “make arrangements within the next thirty
(30) days to repay [UPMC Horizon] the entire monies owed so
that we can avoid the necessity for further action over this
issue.”
UPMC Horizon's demand was ignored by [Appellant]. On
December 16, 2003, GSA paid UPMC Horizon the sum of
$168,532.01, including interest in the amount of $24,899.52,
which, in conjunction with $41,167.75 previously paid by GSA,
totaled $209,699.76. This amount fully satisfied the obligation
to UPMC Horizon. The payment funds were secured from Dr.
and Mrs. Kolenich personally and provided to GSA.
GSA’s failure to make payment obligations under the
Recruitment Agreement was due to GSA’s cash flow shortages.
If GSA had made the payments as indicated under the
Recruitment Agreement, then GSA would have been required to
acquire debt, which under the terms of the Employment
Agreement, [Appellant] would have been responsible for.
GSA’s delay in payment did not cause the indebtedness at
issue and was not material to the indemnity obligation.
Furthermore, GSA suffered losses all [attributable] to
[Appellant’s] employment.
[GSA’S] LOSSES
[Sherbondy] testified that for the two-year period that
[Appellant] was employed at GSA, GSA sustained a loss of
$182,761.00 [dollars] and that the loss was directly related to
[Appellant’s] employment.
Trial Court Opinion, 4/5/12, at 2-11 (some internal footnotes omitted).
Based on my review of the record and applicable jurisprudence, I find
that Appellant’s first, second and third issues fail. In examining the
foregoing issues, I am mindful that “[c]ontract interpretation is a question of
law regarding which our standard of review is de novo and our scope of
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review is plenary.” McMullen v. Kutz, 985 A.2d 769, 773 (Pa. 2009)
(internal citation omitted). Significantly, I further recognize:
Our appellate role in cases arising from non-jury trial
verdicts is to determine whether the findings of the trial court
are supported by competent evidence and whether the trial court
committed error in any application of the law. The findings of
fact of the trial judge must be given the same weight and effect
on appeal as the verdict of a jury. We consider the evidence in a
light most favorable to the verdict winner. We will reverse the
trial court only if its findings of fact are not supported by
competent evidence in the record or if its findings are premised
on an error of law. However, [where] the issue … concerns a
question of law, our scope of review is plenary.
The trial court’s conclusions of law on appeal originating
from a non-jury trial ‘are not binding on an appellate court
because it is the appellate court’s duty to determine if the trial
court correctly applied the law to the facts’ of the case.
Wyatt v. Citizens Bank of Pennsylvania, 976 A.2d 557, 564 citing
Wilson v. Transp. Ins. Co., 889 A.2d 563, 568 (Pa. Super. 2005) (citations
omitted).
Likewise:
It has been long accepted in contract law that an
ambiguous written instrument presents a question of fact for
resolution by the finder-of-fact, whereas the meaning of an
unambiguous written instrument presents a “question of law” for
resolution by the court. As the authorities in the field of
contracts make clear, however, the latter exercise is also in
actuality a factual, not a legal, decision. For a variety of reasons
the common law has long thought it best to leave to the court
rather than to the jury the essentially factual question of what
the contracting parties intended. This fact finding function
exercised by the court is denominated a “question of law”,
therefore, not because analytically it is a question of law but
rather to indicate that it is the trial judge, not the jury, to whom
the law assigns the responsibility for deciding the matter.
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Community College of Beaver County v. Community College of
Beaver County, Society of the Faculty (PSEA/NEA), 375 A.2d 1267,
1274 (Pa. 1977) (internal citations omitted).
Instantly, Appellant contends that the trial court misinterpreted the
Recruitment Agreement, the Promissory Note, and the Employment
Contract, and that in doing so and relying on GSA’s expert accounting
testimony, the trial court erred in determining that Appellant was liable to
Greenville pursuant to the foregoing contracts. See Appellant’s Brief at 15-
16. I cannot agree.
Appellant summarizes his challenge to the trial court’s interpretation of
the Recruitment Agreement as follows:
The trial court misinterpreted the Recruitment Agreement
by finding that [Appellant’s] resignation had caused the
forfeiture of a loan forgiveness option. The option applies only
when [Appellant’s] receipts had been insufficient to retire the
loan debt. It is undisputed that [Appellant’s] receipts were
sufficient to retire the entire loan debt. Thus, no amounts were
subject to forgiveness. Even if the loans had been subject to
forgiveness, the court erred by finding that [Appellant’s]
resignation breached a requirement that he practice within
[UPMC Horizon’s] service area. [Appellant] had satisfied the
forgiveness provision mandate that he maintain a local practice
for 2 years. Moreover, [GSA’s] own defaults in payment to the
[UPMC Horizon] would have caused a forfeiture of the
forgiveness option. Also, the court misread the forgiveness
option to award [GSA] all of the loans that it had repaid to
[UPMC Horizon], including those that had been repaid before
[Appellant’s] resignation.
Appellant’s Brief at 15-16.
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“[T]he mutual intention of the parties at the time they formed the
contract governs its interpretation. Such intent is to be inferred from the
written provisions of the contract.” Miller v. Poole, 45 A.3d 1143, 1146
(Pa. Super. 2012) (internal citation omitted). Appellant concedes that
“[u]nder paragraph 5 of the Recruitment Agreement, [UPMC] agreed to loan
GSA money to off-set start-up costs arising during the first two years of
[Appellant’s] employment[.]” Appellant’s Brief at 8 (emphasis supplied).
Appellant’s statement reflects that the Recruitment Agreement specifically
required Appellant to work for UPMC Horizon for more than the initial two
year time frame, during which loans were to be furnished to GSA on
Appellant’s behalf by UPMC Horizon.
The Recruitment Agreement expressly indicated that UPMC Horizon
“desires to offer [Appellant] certain initial guarantees in connection
with providing Services in [UPMC Horizon’s] Service Area which will include
participating in [UPMC Horizon’s] Department of Surgery.” Recruitment
Agreement, 7/30/01, at 1. The Recruitment Agreement further indicated
that UPMC Horizon’s “Board of Directors has fully considered the need for
physicians that provide Services in [UPMC Horizon’s] Service Area,
has approved [UPMC Horizon’s] extending an offer of initial income
guarantees to [Appellant] and has determined that said assistance is
reasonable and necessary to maintain and improve health care in [UPMC
Horizon’s] Service Area[.]” Id. at 2. The Recruitment Agreement defined
“Service Area” as “in and around Mercer County, Pennsylvania.” Id. at 1.
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The Recruitment Agreement further provided:
[I]n consideration of the mutual promises and agreements
contained herein, the parties hereto, intending to be legally
bound hereby, agree as follows:
***
2. Commencing on or before the Start Date and continuing
throughout the term of this Agreement, [Appellant] shall
practice medicine on a full-time basis in [UPMC Horizon’s]
Service Area and outlying communities, excluding any other
employment or professional duties, as are usual and customary
in the area of [Appellant’s] specialty.
3. [Appellant] shall become and remain a member of the
active Medical Staff of [UPMC Horizon] throughout the
term of this Agreement.
Id. at 2 (emphasis supplied).
Regarding loans, the Recruitment Agreement stated:
5. During the first two years of this Agreement, [UPMC
Horizon] shall advance [GSA] on behalf of [Appellant] on a
monthly basis, sums of money to guarantee that for the first
two years of [Appellant’s] practice at [UPMC Horizon]
(“Guarantee Period”), [Appellant] receives actual cash receipts
equal to $300,000 in the first year of the Guarantee Period and
$324,000 in the second year of the Guarantee Period.
***
7. Notwithstanding the above, as an alternative means of
repayment, [UPMC Horizon] agrees that the Net Amount
advanced by [UPMC Horizon] under Section 6, subject to
Paybacks and obligated to be repaid to [UPMC Horizon] under
Section 6, shall be forgiven and the Note executed as of such
date shall be canceled if, at all relevant times up until and
throughout the Guarantee End Date, [Appellant] and
[GSA] have met (as applicable) all of the following
requirements:
(a) [Appellant] shall have engaged in the full-time
practice of General Surgery in [UPMC Horizon’s]
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Service Area at [UPMC Horizon] and made services
available to the public in accordance with the
provisions of this Agreement;
(b) [Appellant] shall have worked a normal work
week as is customary for physicians in the area who
practice in [Appellant’s] specialty unless unable to do so
due to disability;
***
(f) [Appellant] shall have assisted [UPMC Horizon] in
its educational programs as may be reasonably
requested by Hospital;
(g) [Appellant] shall have participated in a call
coverage arrangement, irrespective of the patient’s
ability to pay;
(h) Subject to also fulfilling his other duties
hereunder, [Appellant] shall have assisted [UPMC
Horizon] in the development of community services
as may be reasonably requested by [UPMC Horizon],
and
(i) [Appellant] and [GSA] shall have otherwise
satisfied all of his/its obligations under this
Agreement.
Id. at 3-5 (emphasis supplied). It is clear that the emphasis of the
Recruitment Agreement was to secure, promote, and incentivize the
recruitment, employment, and continued services of Appellant for a six year
term.
Appellant contends that GSA materially breached the Recruitment
Agreement by failing to remit timely paybacks to UPMC Horizon during the
guarantee period, and that said breach, rather than Appellant’s resignation,
is the reason for GSA’s indebtedness to UPMC Horizon, the forfeiture of loan
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forgiveness, and GSA’s operating losses, such that Appellant should be
relieved of any liability in connection thereto.
My review of the record supports the trial court’s rebuttal of the
foregoing contention. The trial court observed, “GSA’s cash flow during the
employment of [Appellant] was a key component of why GSA failed to make
the required payments under the Recruitment Agreement.” Trial Court
Opinion, 4/5/12, at 10. The trial court reasoned:
GSA did not commit a material breach of its obligations to
[Appellant] resulting from the delay in repayment of the UPMC
Horizon obligation. The Court finds it was not financially feasible
for GSA to make the paybacks to UPMC Horizon during the term
of [Appellant’s] employment through September 30, 2003, and
finds that the excess income reimbursement payments, if made,
would have resulted in an overdraft or cash deficiency of
$171,931.00. Therefore, an infusion of $171,931.00 of
additional cash would have been necessary to make those
payments.
Rather this Court finds that GSA complied with all facets of
the agreement. GSA’s failure to pay the excess monies back
before [Appellant] resigned was not a material breach. The
Recruitment Agreement contained no time is of the essence
clause so GSA’s failure to perform on a certain date was not a
material breach. ‘[A] material failure to perform or to offer to
perform on a stated day does not of itself discharge the other
party's remaining duties unless the circumstances, including the
language of the agreement, indicate that performance or an
offer to perform by that day is important.’ Restatement
(Second) of Contracts, § 242(c).
Trial Court Opinion, 4/5/12, at 14.
Conversely, the trial court determined:
[Appellant], however, willingly breached the contracts to the
detriment of GSA. [Appellant] materially breached the
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obligations imposed upon him by the Recruitment Agreement by
failing to:
a) maintain a medical practice in the UPMC Horizon service
area for six years;
b) maintain a practice presence in the UPMC Horizon service
area after September 2003, causing both GSA and
[Appellant] to lose the loan forgiveness from UPMC
Horizon; and
c) respond and make any effort to satisfy the request for
payment submitted to both [Appellant] and GSA on
October 15, 2003 by UPMC Horizon.
***
It is clear to this Court that all parties understood and
recognized the foreseeable risks inherent in the Recruitment
Agreement. The Court rejects [Appellant’s] explanations and
understanding of the contracts. [Appellant] voluntarily and
knowingly moved to Greenville, entered into the Employment
Contract and Promissory Note and committed to the length of
the Recruitment Agreement, six (6) years. [Appellant] moved
away from the Greenville service area because he and his wife
were dissatisfied with the Greenville area and because he had an
opportunity to practice at a larger medical facility.
[Appellant] acted in bad faith towards GSA. ‘The extent to
which the behavior of the party failing to perform or to offer to
perform comports with the standards of good faith and fair
dealing is a significant circumstance in determining whether the
failure i[s] material. In giving weight to this factor, courts have
often used the term willful.’ Restatement(Second) of Contracts,
§ 241 comment f. [Appellant’s] actions were clearly willful.
Furthermore, ‘a claim for damages for total breach is one for
damages based on all of the injured parties’ remaining rights to
performance.’ Restatement (Second) of Contracts, § 235.
[GSA] is entitled to reimbursement for the entire amount of the
loan repaid to UPMC Horizon under the Recruitment Agreement
as it is undoubtedly an indebtedness considered under Section
15(b) of the Employment Contract.
Trial Court Opinion, 4/5/12, at 14-16.
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My review of the Recruitment Agreement and applicable jurisprudence
supports the trial court’s determinations. Our Court has explained:
When performance of a duty under a contract is due, any
nonperformance is a breach. Widmer Engineering, Inc. v.
Dufalla, 837 A.2d 459, 467–468 (Pa. Super. 2003). If a breach
constitutes a material failure of performance, the non-breaching
party is relieved from any obligation to perform; thus, a party
who has materially breached a contract may not insist upon
performance of the contract by the non-breaching party. LJL
Transp., Inc. v. Pilot Air Freight Corp., 599 Pa. 546, 962 A.2d
639, 648 (2009). Conversely, a party might breach the contract
but still substantially perform its obligations under the
agreement. Cimina v. Bronich, 517 Pa. 378, 537 A.2d 1355,
1358 (1988). In that case, the breach is deemed nonmaterial
and the contract remains in effect. Id. The breaching party
retains the right to enforce the contract and demand
performance; the nonbreaching party has no right to suspend
performance. Widmer Engineering, Inc., 837 A.2d at 468.
McCausland v. Wagner, 78 A.3d 1093, 1101 (Pa. Super. 2013).
Moreover, our Supreme Court has determined:
[I]t is well-established that ‘only material failure of
performance by one party discharges the other party ... an
immaterial failure does not operate as such a discharge.’ Sgarlat
v. Griffith, 349 Pa. 42, 46, 36 A.2d 330, 332 (1944) (citing
Restatement of Contracts § 274 (1932)); See First Mortgage Co.
of Pa. v. Carter, 306 Pa.Super. 498, 452 A.2d 835 (1982);
Greentree Borough v. Tortorete, 205 Pa.Super. 532, 211 A.2d 76(1965).
In this regard it has been said that:
Any material failure of performance by one party to a
contract not justified by the conduct of the other
discharges the latter's duty to give the agreed exchange;
but if the alleged breach was an immaterial failure of
performance, and the contract was substantially
performed, the provisions of the contract are still effective.
P.L.E. Contracts § 367 (footnotes omitted).
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Cimini v. Bronich, 537 A.2d 1355, 1358 (Pa. 1988).
Additionally, our Court has expressed:
In determining materiality for purposes of breaching a
contract, we consider the following factors:
a) the extent to which the injured party will be deprived of
the benefit which he reasonably expected;
b) the extent to which the injured party can be adequately
compensated for that part of the benefit of which he will be
deprived;
c) the extent to which the party failing to perform or to
offer to perform will suffer forfeiture;
d) the likelihood that the party failing to perform or offer
to perform will cure his failure, taking account of all the
circumstances including any reasonable assurances;
e) the extent to which the behavior of the party failing to
perform or offer to perform comports with standards of
good faith and fair dealing.
Restatement (Second) of Contracts § 241 (1981). Accord
Jennings v. League of Civic Organizations of Erie County, 180
Pa.Super. 398, 119 A.2d 608 (1956).
Id. at 471.
Widmer Engineering Inc. v. Dufalla, 837 A.2d 459, 467-468 (Pa. Super.
2003). In affirming the trial court’s finding of no material breach, our Court
reasoned:
[T]he trial court concluded in its well-reasoned opinion that
despite seller's failure to pay monies due and owing under the
contract, ‘[buyer] was not deprived of the benefit [it] reasonably
expected, i.e., the purchase of an engineering firm.’ Thus, the
trial court held that seller's breach was not material and that
buyer was obligated to continue its payments under the non-
compete provision of the agreement.
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In considering the relevant factors outlined above, we find
no error in the court's conclusion that seller's breach was not a
material breach. Simply put, despite seller's failure to pay taxes
and amounts owed as adjustments to purchase price, buyer
retained ownership and operational control of Engelhardt which
generated gross income for buyer in excess of $600,000 during
every year after acquisition. Clearly, buyer was not deprived of
the benefit of ownership of the firm. Further, we conclude that
any benefit of which buyer was deprived as a result of seller's
contractual breach was adequately compensable by the award of
monetary damages.
Moreover, if buyer's non-performance under the remainder
of the contract were to be excused, then seller would forfeit a
substantial portion of the monies due him under the agreement
of sale vis-à-vis its non-compete provision. Weighing these
consequences, we conclude that the degree of seller's breach
was not such that buyer's obligations for payment under the
contract may be suspended. The contract was substantially
performed by seller who delivered all his shares and relinquished
control of Engelhardt. Accordingly, we conclude that the court
properly found buyer's obligations for payment under the
contract's non-compete provisions to be enforceable and we
reject buyer's claim that the court erred in awarding seller
interest at the rate specified in the contract for monies due
under the non-compete clause.
Id. at 468-469 (footnote omitted).
Instantly, even if GSA’s untimely paybacks breached the Recruitment
Agreement, GSA still substantially performed the contract. GSA employed
Appellant, paid Appellant’s salary, submitted various paybacks during the
guarantee period, and ultimately paid the total outstanding amount plus
interest once the monies were demanded by UPMC Horizon. UPMC Horizon
did not lose the benefit of its bargain with GSA and Appellant due to the
untimeliness of any paybacks for which GSA paid interest and satisfied in
full. Appellant did not lose the benefit of his bargain because GSA’s untimely
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paybacks did not deprive Appellant of his recruitment, employment, salary,
and income guarantees which were the emphasis of the Recruitment
Agreement. Further, as the trial court noted infra, the timing of the
paybacks was not cited by UPMC Horizon’s representatives as the cause for
the loss of the loan forgiveness, such that Appellant can claim that GSA’s
breach deprived him of that benefit. Accordingly, GSA’s breach may be
deemed nonmaterial such that GSA can still seek to enforce the Recruitment
Agreement and the related agreements.
Conversely, Appellant is not a non-breaching party who is relieved
from any obligation to perform under the Recruitment Agreement. Appellant
materially breached the Recruitment Agreement upon his resignation from
GSA after two years, followed by his departure from UPMC Horizon’s service
area. Appellant’s resignation and departure deprived GSA and UPMC
Horizon of the benefit of their bargain, which was to employ Appellant as a
second surgeon to help expand GSA’s bariatric surgery services.
Accordingly, I find that the trial court correctly considered the materiality of
the parties’ breaches.
Moreover, the trial court’s determination is consonant with our Court’s
jurisprudence regarding conditions precedent. “A condition precedent may
be defined as a condition which must occur before a duty to perform under a
contract arises.” Acme Markets, Inc. v. Federal Armored Express, Inc.,
648 A.2d 1218, 1221-1223 (Pa. Super. 1994) (internal citation omitted).
Here, Appellant contends that loan forgiveness by UPMC Horizon was
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conditioned on GSA’s timely remittance of paybacks, and that GSA’s failure
to remit the paybacks in a timely fashion caused forfeiture of the debt’s
cancellation. I recognize that “[w]hile the parties to a contract need not
utilize any particular words to create a condition precedent, an act or event
designated in a contract will not be construed as constituting one unless that
clearly appears to have been the parties’ intention.” Id. In Acme, our
Court explained:
Restatement (Second) of Contracts § 229 discusses the
excuse of a condition to avoid unfairness in connection with its
strict enforcement. More specifically, that section relates to the
excuse of a condition leading to a forfeiture[.] [] Section 229
provides, ‘To the extent that the non-occurrence of a condition
would cause disproportionate forfeiture, a court may excuse the
non-occurrence of that condition unless its occurrence was a
material part of the agreed exchange.’ Restatement (Second)
of Contracts § 229. Since Pennsylvania law ‘abhors forfeitures
and penalties and enforces them with the greatest reluctance
when a proper case is presented[,]’ Fogel Refrigerator Co. v.
Oteri, 391 Pa. 188, 195, 137 A.2d 225, 231 (1958), section 229
is consistent with the law of this Commonwealth. See also
Jackson v. Richards, 5 & 10, Inc., 289 Pa. Super. 445, 433 A.2d
888 (1981) (indicating that forfeitures meet with great disfavor
under the law and utilizing a discussion of a tentative
Restatement draft to excuse performance on an express
condition).
In determining whether the forfeiture is ‘disproportionate,’
[the] court must weigh the extent of the forfeiture by the
obligee against the importance to the obligor of the risk
from which he sought to be protected and the degree to
which that protection will be lost if the nonoccurrence of
the condition is excused to the extent required to prevent
forfeiture.
Restatement (Second) of Contracts § 229, comment b.
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Acme Markets, Inc. v. Federal Armored Express, Inc., 648 A.2d at
1221-1223.
Here, it would be “disproportionate” to deem GSA’s late payments as
the cause of the forfeiture of loan forgiveness. While the late payment may
have been a technical breach, and even assuming without deciding that it
was a material breach, the Recruitment Agreement provided for interest on
the outstanding monies, which would protect UPMC Horizon from any
prejudice suffered due to GSA’s late performance of the contractual duty to
remit paybacks. Thus, GSA’s late payments could be excused to avoid
forfeiture. Conversely, forfeiture would not be “disproportionate” to protect
UPMC Horizon from Appellant’s resignation from GSA, and his total
abandonment of the service area.
Appellant further challenges the trial court’s analysis of the Promissory
Note, which referenced contribution principles to conclude that Appellant was
liable to GSA pursuant to the Promissory Note for half of the monies paid to
UPMC by GSA. See Appellant’s Brief at 26-27. However, this challenge fails
because the trial court did not calculate the damages awarded to GSA based
on contribution principles, but rather on the trial court’s finding that
“[Appellant] [was] responsible for the entirety of the indebtedness[.]” See
Trial Court Opinion, 4/5/12, at 13 n.4.
Nevertheless, Appellant mischaracterizes his execution of the
Promissory Note as an “accommodating party,” who “signs the instrument
for the purpose of incurring liability on the instrument without being a direct
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beneficiary of the value given for the instrument[.]” Appellant’s Brief at 27.
Appellant discounts that he directly benefitted from the monies issued to
GSA. As cited above, the Recruitment Agreement provided that the monies
UPMC Horizon furnished to GSA were paid on behalf of Appellant, were to
serve as set-offs for the start-up costs related to Appellant’s employment,
and were guarantees for Appellant’s salary. Therefore, I reject Appellant’s
assertion that he is “an accommodating party” who can avoid the Promissory
Note.
The trial court determined that pursuant to the Promissory Note,
Appellant was liable to GSA. The trial court explained:
[] The promissory note was signed by [Appellant] and
[Greenville]. It requires both parties to be liable to UPMC
Horizon for the amounts payable under the Recruitment
Agreement, $209,699.76. []
***
Since [Appellant] failed to satisfy the requirements of the
Recruitment Agreement to allow forgiveness of the loans made
to GSA from UPMC Horizon, UPMC Horizon was entitled to the
amounts due and payable under the terms of the Recruitment
Agreement. [Appellant’s] actions were detrimental to GSA. GSA
could not seek forgiveness and the loan repayments were
accelerated. GSA paid the entirety of the amount due and
payable, $209,699.76. It was foreseeable to [Appellant], as he
had read and understood the Recruitment Agreement, that if he
failed to remain and provide medical services within the UPMC
Horizon service area for six years that all of the loan monies
would be due and payable immediately and that all forgiveness
opportunities would be lost.
‘A contracting party is generally expected to take account
of these risks that are foreseeable at the time he makes the
contract.’ Restatement (Second) Contracts, § 351 comment a.
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‘A party is liable only for those damages that a reasonable man
would expect to follow the breach of a particular contract . . .
unless it is shown specifically that the defendant had reason to
know of the circumstances responsible for the special damage
and so to foresee the injury.’ Ebasco Services, Inc. v.
Pennsylvania Power and Light Co., 460 F. Supp. 163, 217 (E.D.
Pa. 1978) citing Hadley v. Baxendale, 156 Eng.Rep. 145 (1854).
[Appellant] could clearly foresee the repayment of the loans and,
is responsible … to [Greenville][.]
Trial Court Opinion, 4/5/12, at 12-13. Based on my review of the record
and applicable jurisprudence, I find that the trial court correctly determined
that based on a plain reading of the Promissory Note, Appellant and GSA
clearly intended to be, and therefore were, individually obligated to repay
UPMC Horizon’s loans.
As to the Employment Contract, the trial court found that “[Appellant]
materially breached Section 15(b) of the Employment Contract by his failure
to honor the indemnity obligations.” Trial Court Opinion, 4/5/12, at 13.
Appellant summarizes his challenge to the trial court’s interpretation of the
Employment Contract, and argues that GSA’s “repayment of the loans is not
a loss and, thus, it was not covered by the indemnity provision of the
Employment Contract. Also the indemnity obligation does not cover all of
GSA’s financial losses, or losses that were not caused by [Appellant].”
Appellant’s Brief at 16. Based on my review of the Employment Contract, I
disagree.
The Employment Contract provided in pertinent part:
[Appellant] expressly agrees to indemnify and hold [GSA]
harmless from and against any indebtedness, liabilities,
costs, damages, or other losses under the Recruitment
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Agreement with UPMC Horizon … or the Promissory Note
attached to such Recruitment Agreement as Exhibit A thereto.
Employment Contract, Section 15(b) (emphasis supplied). I cannot ignore
that the Employment Contract specifically referenced the Recruitment
Agreement and the Promissory Note, and that those contracts required the
repayments of the UPMC Loans plus interest. To do so would contravene
contract interpretation principles. Our Court recently observed:
It is a general rule of law in the Commonwealth that
where a contract refers to and incorporates the provisions
of another, both shall be construed together. It is well-
settled that clauses in a contract should not be read as
independent agreements thrown together without
consideration of their combined effects. Terms in one
section of the contract, therefore, should never be
interpreted in a manner which nullifies other terms in the
same agreement. Furthermore, the specific controls the
general when interpreting a contract.
Trombetta v. Raymond James Financial Services, Inc., 907 A.2d
550, 560 (Pa.Super.2006) (citations omitted). ‘It is fundamental
that one part of a contract cannot be so interpreted as to annul
another part and that writings which comprise an agreement
must be interpreted as a whole.’ Shehadi v. Northeastern Nat.
Bank of Pennsylvania, 474 Pa. 232, 378 A.2d 304, 306 (1977).
‘Where several instruments are made as part of one transaction
they will be read together, and each will be construed with
reference to the other; and this is so although the instruments
may have been executed at different times and do not in terms
refer to each other.’ Huegel v. Mifflin Const. Co., Inc., 796 A.2d
350, 354–355 (Pa.Super.2002), quoting Neville v. Scott, 182
Pa.Super. 448, 127 A.2d 755, 757 (1957).
Southwestern Energy Production Co. v. Forest Resources, LLC, 83
A.3d 177, 187 (Pa. Super. 2013).
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Accordingly, I do not agree with Appellant’s interpretation of the terms
“indebtedness” or “other losses” (see Appellant’s Brief at 32), as disallowing
the items of damages raised in this action, and which are borne by a reading
in pare materia of the Employment Contract, the Recruitment Agreement
and the Promissory Note. “[C]ontractual clauses must be construed,
whenever possible, in a manner that effectuates all of the clauses being
considered. It is fundamental that one part of a contract cannot be so
interpreted as to annul another part and that writings which comprise an
agreement must be interpreted as a whole.” Lenau, et al. v. Co-Exprise,
Inc., 102 A.3d 423, 430 (Pa. Super. 2014) (internal citations omitted).
In Lenau, our Court concurred with the trial court’s interpretation of a
contract provision and affirmed the trial court’s order granting preliminary
objections in the nature of a demurrer, and observed that the appellant’s
argument “[b]y focusing solely upon the meaning of [a section of the
disputed contract], … engages in the exact type of limited interpretation
that our governing precedent forbids.” Id. at 431 (internal citation omitted).
Our Court reiterated that “[t]his Court's consideration of contracts must seek
to give full effect to an entire document, if possible, and not only those
portions supporting a specific conclusion. Mere disagreement between the
parties on the meaning of language or the proper construction of contract
terms does not constitute ambiguity.” Id. (internal citation and quotations
omitted). Here, to adopt Appellant’s interpretation of “indebtedness” or
“other losses” under the Employment Agreement as disallowing the damages
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awarded in this action would “engage in the exact type of limited
interpretation that our governing precedent forbids.” Id.
Indeed, as the trial court explained:
[] [Appellant] is responsible to GSA for any other losses
that were sustained by GSA as a result of GSA’s employment of
[Appellant] and [Appellant’s] breach of the employment
contract. GSA established $182,761 [dollars] in losses through
the analysis and testimony of [Sherbondy]. Losses are a distinct
recoverable amount under Section 15(b). ‘Ordinarily, when a
court concludes that there has been a breach of contract, it
enforces the broken promise by protecting the expectation that
the injured party had when he made the contract. It does this
by attempting to put him in as good a position as he would have
been in had the contract been performed, that is, had there been
no breach.’ Restatement (Second) of Contracts, § 344 comment
a.
This Court finds that the losses alleged by GSA as a result
of [Appellant’s] employment were $182,761.00 and are
reasonable and well-supported by the evidence of record. [FN5:
Under the [] analysis [of Appellant’s accounting expert], the
maximum conceivable disputed losses are $73,174.93.
Therefore, even if those losses were deducted from the losses
claimed by GSA, the remaining adjusted loss is $109,586.07,
meaning that GSA sustained a loss as a result of [Appellant’s]
employment, of which [Appellant] is responsible.]
Trial Court Opinion, 4/5/12, at 16.
Appellant admitted that his employment with GSA was his first
employment in private practice. N.T., 3/1/11, at 16. Appellant understood
that there would be “additional costs that the practice would incur because
of [his] presence … and that [he was] going to be responsible to pay them
back[.]” Id. The trial court observed that Appellant “had the Employment
Contract independently reviewed by an attorney. [Appellant] and his
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attorney requested no significant changes to the Employment Contract,
which was then executed by GSA and [Appellant].” Trial Court Opinion,
4/5/12, at 6. Appellant entered into the Employment Contract volitionally,
and has not set forth any grounds which would indicate that he was
defrauded or coerced into the Employment Contract such that he could
disavow it. As noted in Miller v. Ginsberg, 874 A.2d 93 (Pa. Super. 2005):
The fundamental rule in construing a contract is to ascertain and
give effect to the intention of the parties. Thus, we will adopt an
interpretation which, under all circumstances, ascribes the most
reasonable, probable, and natural conduct of the parties, bearing
in mind the objects manifestly to be accomplished. Additionally,
if the language appearing in the written agreement is clear and
unambiguous, the parties’ intent must be discerned solely from
the plain meaning of the words used. Moreover, we may not
ignore otherwise clear language merely because one of
the parties did not anticipate related complications prior
to performance.
Miller, 874 A.2d at 99 (emphasis supplied, internal citations and quotations
omitted).
Moreover:
When persons are negotiating, no matter for what purpose,
there comes a moment of grave determination when minds meet
in complete accord, entire harmony and thorough understanding,
and when that moment is solemnized with ink, handshake or
appropriate words or action, a covenant is formed which cannot
be dissevered with legal approbation.
Di Pompeo v. Preston, 123 A.2d 671, 674 (Pa. 1956). Accordingly, I find
that the trial court correctly interpreted the Employment Contract, and that
Appellant is obligated by the terms to which he agreed.
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Having found that the trial court’s interpretation of the Recruitment
Agreement, Promissory Note, and Employment Contract is supported by
those contracts, I turn to the trial court’s determination of the damages it
awarded to GSA. The trial court credited the expert accounting testimony of
Sherbondy, GSA’s expert, over the testimony of Schaffner, Appellant’s
expert. I recognize that while contract interpretation is a question of law
and we are not bound by the trial court’s legal conclusions, “we are bound
by the trial court’s credibility determinations.” See Calabrese v. Zeager,
976 A.2d 1151, 1154 (Pa. Super. 2009).
Here, the trial court recognized that Appellant’s accounting expert
“disputed the accuracy of Sherbondy’s loss determination, concluding that
you could not make that loss determination or quantify that loss, without
accrual basis adjustments to payables and receivables, [but Schaffner] could
not express the opinion that no loss occurred.” Trial Court Opinion, 4/5/12,
at 11 n.3.
Sherbondy testified that “since 1990” he had completed GSA’s tax
returns, financial statements, as well as “statements for any banking
institutions that may have been involved.” N.T., 2/28/11, at 6-7; 11.
Sherbondy’s expert accounting opinions were summarized as follows: 1)
“the loss [to GSA] for the fiscal years 2002 and 2003, which was the term of
[Appellant’s] employment with GSA, was $182,761 [dollars]”; 2) “the loss
[was] directly related to the employment of [Appellant] under the
recruitment agreement”; and 3) “GSA did not have the ability to pay
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reimbursement of the excess collected over the monthly guarantee amount
during the period of [Appellant’s] employment.” Id. at 7.
In opining that GSA had sustained a loss of $182,761 dollars,
Sherbondy’s expert report “modif[ied] previously submitted accounting
statements” for GSA which had treated “advances by UPMC as income.” Id.
at 8. Sherbondy’s report modified the prior financial statements for GSA for
2002 and 2003 by “deleting all advances [from UPMC] and all payments
back to … UPMC” to reflect GSA’s “profit or loss … without the recruitment
agreement … at least on the income and expense statement.” Id. at 9.
Sherbondy testified that he reviewed an affidavit from Schaffner,
Appellant’s accounting expert, which criticized Sherbondy’s treatment of the
UPMC advances as income. See id. at 7-8. Sherbondy explained that he
“treat[ed] loan proceeds [from UPMC] as income”, based on his prior
“experience with several other doctors’ offices in our area.” Id. at 8. “[I]n
all cases, none of those loans were completely paid … [a]nd there had been
forgiveness in each of the other transactions.” Id. at 8-9. In treating the
advances as income, the “intent was to level out the income over the period
of the loan rather than to see the doctor saddled with a large tax liability at
the end by receiving a 1099 at the end of the term for forgiveness of a
debt[, which would then] be taxable income at the time of forgiveness.” Id.
Schaffner additionally criticized Sherbondy’s “use of income tax
accounting as opposed to … GAAP or Generally Accepted Accounting
Practices[.]” Id. at 9. Sherbondy explained that “income tax basis of
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accounting is based on the income tax filings of the individual or shareholder
of the corporation. Generally Accepted Accounting Pr[inciples] or GAAP is
probably a more detailed method of accounting where you account for other
things like receivables, payables, … that you would not account for on the
income tax basis.” Id. at 10. Sherbondy testified that there are “standards”
of his profession “which apply to the use of income tax accounting”, and are
promulgated by the American Institute of CPAs, which is “the same institute
that promulgates the GAAP procedures.” Id. Sherbondy further explained
that “on all of our doctors’ offices that we do, we do not use an accrual basis
of accounting” because there are “receivables that are booked in a medical
practice and uncollected,” and that the “gross billing figure [is] subject to
adjustment with third party payers[.]” Id. at 16-17. Sherbondy explained,
“[w]e wouldn’t know the actual amounts collected from patients until some
point later on in the year when … the insurance companies actually paid. So
determining … an accurate accounts receivable figure” would prove difficult,
especially “realizing the percentages … vary from pay to pay or insurers”,
and those adjustments “can be” … “significant in relation to gross billing.”
Id.
Sherbondy was asked to respond to Schaffner’s “point that in …
arriv[ing] at the $182,761 loss, [Sherbondy] failed to consider patient
A[ccount] [R]eceivables at the front end of the period and at the back end of
the period of [Appellant’s] employment.” Id. at 14. Sherbondy testified
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that “again, these were financial statements prepared on the income tax
basis of accounting, which does not consider accounts receivable[s].” Id.
By way of further explanation, the following testimony ensued:
GSA’s Counsel: Now, with respect to the ongoing practice of
medicine and in this practice or any other professional practice,
is this an annual occurrence, there are receivables on the date
you close on a cash basis and there are receivables on the date
you open a year on a cash basis?
Sherbondy: Correct.
GSA’s Counsel: What has been your experience with respect to
the effect of those receivables by using a cash basis as opposed
to an accrual that would pick up receivables?
Sherbondy: Well, in Dr. Kolenich’s practice[’s] case,
[Appellant’s] month-to-month income from his revenue from
operations was fairly consistent, so adding receivables in at the
beginning of the year or at the end of the year and then taking
them out at the end of the year would have little to know [sic]
effect on these statements.
Id. at 14-15.
To exemplify this analysis, Sherbondy testified that the “front end” of
Appellant’s employment period was the 2002 fiscal year spanning from
October 1, 2001 through September 30, 2002. Id. at 15. Any “prior
receivables [which] would roll in” at the beginning of the 2002 fiscal year
would be receivables related only to Dr. Kolenich. Id. at 15. At the end of
Appellant’s employment, “there were two physicians … [and] accept[ing] for
the moment that the Kolenich receivables at the beginning and at the end
[of the employment term] would have been approximately the same as”
Sherbondy had indicated in his report, then the “collections on the
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receivables for services generated by [Appellant] subsequent to October 1,
2003”, would have been “$14,474.93.” Id. at 15-16.
Schaffner “also questioned [Sherbondy’s] use of income tax
depreciation as opposed to GAAP or financial depreciation.” Id. at 17. In
explaining the difference between these methods, Sherbondy testified:
Well, GAAP would prescribe us using straight line or double
declining balance, which would extend the depreciation over a
longer period of time. We used income tax basis of accounting
to aid Dr. Kolenich in his personal tax situation to reduce his tax
liability. It’s an accepted method of accounting.
Id. Sherbondy further testified that “we have used income tax basis of
accounting for [GSA]” since 1990. Id. The “importance of consistency” is
“[s]o that all of the statements are … comparable[.]” Id. at 18. Sherbondy
uses the same accounting approach with “all of” the “other firms
[Sherbondy] represent[s.]” Id.
Regarding the “leasehold improvement portion of the depreciation
schedule,” Sherbondy testified that there would be “no difference at all”
between “the two forms of accounting” because “the leasehold
improvements were depreciated over 39 years [and that] should be the
same for GAAP.” Id. at 18.
In considering the expert accounting testimony, the trial court, as the
fact-finder, ultimately determined that it “f[ound] the testimony of GSA’s
accountant, [Sherbondy] to be credible, [and] well-documented[.]” Trial
Court Opinion, 4/5/12, at 11. The trial court accepted Sherbondy’s
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“conclusions as stated in the findings [of fact] as fact and f[ound] that
[Sherbondy’s] cash basis accounting method [wa]s credible and acceptable
for the purposes of this litigation.” Id. I find no basis to disturb the trial
court’s determination regarding the evidence on which it chose to rely and
credit. I recognize:
[I]t is within the province of the [fact finder] to assess the worth
of the testimony, which it may then accept or reject. We agree
that the [fact finder] is free to believe all, some or none of the
testimony presented by a witness. However, this rule is
tempered by the requirement that the verdict must not be a
product of passion, prejudice, partiality, or corruption, or must
bear some reasonable relation to the loss suffered by the
evidence [] as demonstrated by uncontroverted evidence
presented at trial. The synthesis of these conflicting rules is that
a [fact finder] is entitled to reject any and all evidence up until
the point at which the verdict is so disproportionate to the
uncontested evidence as to defy common sense and logic.
Neison v. Heimes, 653 A.2d 634, 636-37 (Pa. 1995) (internal citations
omitted).
Based on my foregoing determinations, I would reach Appellant’s
fourth issue, and note that “(o)ur review of an award of pre-judgment
interest is for abuse of discretion.” Kaiser v. Old Republic Insurance Co.,
741 A.2d 748, 755 (Pa. Super. 1999) (citations omitted). An abuse of
discretion exists where the trial court’s determination overrides or misapplies
the law, its judgment is manifestly unreasonable, or the result of partiality,
prejudice, bias, or ill-will. See Majczyk v. Oesch, 789 A.2d 717, 720 (Pa.
Super. 2001). Appellant recognizes that pre-judgment interest may be
awarded “where the damages are in the nature of consequential losses
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arising from the breach of [a] contract.” Appellant’s Brief at 38. Appellant
asserts that “the damages alleged by GSA are consequential damages.” Id.
at 39. Appellant maintains that “the subject contracts did not permit a
calculation of the consequential damages that have been claimed by GSA of
the specific dollar amount for these losses. Therefore, [Appellant] could not
have ascertained the same by reference to the terms of the contracts and he
could not have proffered any payment. Thus, it was improper to award pre-
judgment interest under these circumstances.” Appellant’s Brief at 39.
Again, I cannot agree.
We have explained:
It is well established that in contract cases, prejudgment
interest is awardable as of right. Somerset Comm. Hospital v.
Allan B. Mitchell & Assocs., 454 Pa.Super. 188, 685 A.2d 141(1996) (citing Thomas H. Ross Inc. v. Seigfreid, 405 Pa.Super.
558, 592 A.2d 1353 (1991)). Our supreme court has held:
For over a century it has been the law of this
Commonwealth that the right to interest upon money
owing upon contract is a legal right. West Republic Mining
Co. v. Jones and Laughlins, 108 Pa. 55 (1884). That right
to interest begins at the time payment is withheld after it
has been the duty of the debtor to make such payment.
Fernandez v. Levin, 519 Pa. 375, 548 A.2d 1191, 1193 (1988).
Moreover, there is no requirement that the damages be
liquidated and no exception to the right to prejudgment interest
has been recognized simply because the amount of damages
must be determined at trial. Spang & Co. v. USX Corp., 599
A.2d at 984. Cf. Daset Mining Corp. v. Industrial Fuels Corp.,
326 Pa.Super. 14, 473 A.2d 584, 595 (1984) (“In claims that
arise out of a contractual right, interest has been allowed at the
legal rate from the date that payment was wrongfully withheld,
where the damages are liquidated and certain, and the interest
is readily ascertainable through computation.”) The basic
premise underlying the award of prejudgment interest to a party
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centers on the fact that the breaching party has deprived the
injured party of using interest accrued on money which was
rightfully due and owing to the injured party. Somerset
Hospital, 685 A.2d at 148.
Widmer, 837 A.2d at 469.
It is undisputed that prior to Appellant leaving GSA’s employ, Dr.
Kolenich sent Appellant a letter to “remind [Appellant] of the financial
obligation [Appellant] ha[d] to UPMC/Horizon per [Appellant’s] employment
contract with [GSA].” Correspondence, 7/29/03, at 1. Dr. Kolenich
specifically referred Appellant to “Item 15B in your employment contract
with [GSA],” and advised Appellant that Dr. Kolenich was “presently asking
for an update on that amount from [UPMC].” Id. Dr. Kolenich asserted that
he would “provide [Appellant] with that information prior to [Appellant’s]
departure from [GSA].” Id. Likewise, it is undisputed that on October 15,
2003, UPMC Horizon issued a demand for payment of an amount certain to
GSA, Dr. Kolenich, and Appellant. Correspondence, 10/15/03, at 1.
Therefore, I cannot agree that some of the damages which GSA incurred
were incalculable by reference to the contracts, such that the trial court
erred in awarding pre-judgment interest. Further, “no exception to the right
to pre-judgment interest has been recognized simply because the amount of
damages must be determined at trial”, such that the fact that further
damages were calculated following the trial in this case does not preclude
GSA’s entitlement to pre-judgment interest. Widmer, supra, at 469.
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Thus, I find that the trial court did not err or abuse its discretion in awarding
pre-judgment interest.
I would likewise reach Appellant’s fifth issue, where he challenges the
trial court’s interpretation of Pa.R.C.P. 227.4(1)(b). Appellant’s fifth issue is
“a question concerning [the] interpretation of [our] Rules [of civil
procedure], … [and] is a question of law [regarding which] our standard of
review is de novo.” LaRue v. McGuire, 885 A.2d 549, 553 (Pa. Super.
2005). Upon review, I find that Appellant is not entitled to relief. Appellant
filed his initial post-trial motion on October 29, 2013. Pursuant to Pa.R.C.P.
227.4(1)(b), GSA was entitled to praecipe for judgment in its favor after
February 26, 2014, after 120 days had elapsed. Crystal Lake Camps v.
Alford, 923 A.2d 482, 486 (Pa. Super. 2007). GSA praeciped for the entry
of judgment on April 7, 2014. The trial court correctly acknowledged that it
lacked the authority to decide Appellant’s post-trial motions after GSA had
praeciped for judgment pursuant to Pa.R.C.P. 227.4(1)(b). See Pentarek
v. Christy, 854 A.2d 970, 972-974 (Pa. Super. 2004) vacated on other
grounds, 974 A.2d 1160 (Pa. 2005) (reversing a trial court’s grant of a new
trial after a judgment was recorded pursuant to Pa.R.C.P. 227.4(1)(b)
because the trial court’s order was “entirely devoid of legal effect”); see
also Pittsburgh Construction Co. v. Griffith, 834 A.2d 572, 592-593 (Pa.
Super. 2004) (reversing a trial court’s order striking the judgment entered
pursuant to Pa.R.C.P. 227.4(1)(b), noting that “[t]here is no list of
exceptions to [the rule]); Conte v. Hahnemann University Hospital, 707
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A.2d 230, 231 (Pa. Super. 1998) (a judgment entered pursuant to Pa.R.C.P.
227.4(1)(b) “is not subject to either reconsideration or any other motion to
strike, open, or vacate”). Therefore, I find that Appellant’s fifth issue is
without merit.
In sum, following my careful scrutiny of Appellant’s issues, the record,
and applicable legal authority, I dissent based on my conclusion that
Appellant’s claims of trial court error lack merit.
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