Pasceri, B. v. Karp, M. ( 2019 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
BRUNO J. PASCERI, IN THE SUPERIOR COURT
OF
PENNSYLVANIA
Appellee
v.
MICHAEL A. KARP,
Appellant No. 68 EDA 2018
Appeal from the Order Entered November 28, 2017
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): July Term, 2015 No. 798
MICHAEL A. KARP, IN THE SUPERIOR COURT
OF
PENNSYLVANIA
Appellee
v.
BRUNO J.PASCERI,
Appellant No. 288 EDA 2018
Appeal from the Order Entered November 28, 2017
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): July Term, 2015 No. 798
BRUNO J. PASCERI, IN THE SUPERIOR COURT
OF
PENNSYLVANIA
Appellant
v.
MICHAEL A. KARP,
Appellee No. 651 EDA 2018
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Appeal from the Order Entered January 24, 2018
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): July Term, 2015 No. 0798
BEFORE: BENDER, P.J.E., NICHOLS, J., and STEVENS, P.J.E.*
MEMORANDUM BY BENDER, P.J.E.: FILED FEBRUARY 05, 2019
Appellant/Cross-Appellee, Bruce J. Pasceri, and Appellee/Cross-
Appellant, Michael A. Karp, appeal from the trial court’s November 28, 2017
order entering judgment in favor of Pasceri in the molded amount of
$1,243,194.70. In addition, Pasceri appeals from the trial court’s January 24,
2018 order denying without prejudice his petition for additional counsel fees.1
After careful review, we reverse the trial court’s November 28, 2017
judgment, and dismiss Pasceri’s appeal from the trial court’s January 24, 2018
order as moot.
The trial court summarized the procedural history and factual
background of this case as follows:
[Pasceri] prevailed in an action for breach of contract and for
violation of the Pennsylvania Wage Payment and Collection Law
([“]WPCL[”]), 43 Pa.C.S.[] § 2601 et seq.
Pasceri, the former president of a mortgage bank owned by Karp,
sued to recover money owed to him under a provision of his
employment contract that provided for payment of 10% of the
____________________________________________
* Former Justice specially assigned to the Superior Court.
1We sua sponte consolidate the parties’ appeals as they concern related issues
and parties. See Pa.R.A.P. 513. With respect to the November 28, 2017
order, Karp’s appeal is docketed at 68 EDA 2018, and Pasceri’s appeal at 288
EDA 2018. Pasceri’s appeal from the trial court’s January 24, 2018 order is
docketed at 651 EDA 2018.
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sale price of the business when the business was sold. The locus
of the controversy was the language of said employment contract
that provided for certain deductions to be made prior to making
payment to Pasceri. [Karp] refused to make any payment to
[Pasceri] under the contract, arguing he was entitled to take
several deductions that would reduce the amount owed [to
Pasceri] to zero. [Pasceri] filed suit to recover the money owed
and for additional damages under the WPCL for withholding
wages.
The matter was tried before the [c]ourt sitting without a jury for
three days beginning on June 12, 2017. On August 10, 2017, the
[c]ourt found in favor of [Pasceri] and against [Karp]. Findings of
fact and conclusions of law were issued. In its findings[,] the
[c]ourt awarded [Pasceri] $857,892.60 in compensatory
damages. The [c]ourt also found [Pasceri] was entitled to
damages under the WPCL. Pasceri and Karp each filed post-trial
motions[,] which were denied on November 28, 2017.
Pasceri also filed a motion to mold the verdict to include pre[-
]judgment interest and damages under the WPCL in the form of
attorneys’ fees and liquidated damages. The [c]ourt granted this
motion in part and denied it in part, finding [Pasceri] was entitled
to pre[-]judgment interest as the result of [Karp’s] breach of the
contract and attorneys’ fees under the WPCL, but not liquidated
damages. On November 28, 2017, judgment was entered on the
molded finding in the amount of $1,243,194.70.
…
In short[,] the facts are as follows: In 1994, … Karp formed a
mortgage bank, Gateway Funding Diversified Mortgage Services,
LP (“Gateway”)[,] as a Pennsylvania limited partnership. By
2008[,] Karp was the 99% limited partner in Gateway, with the
remaining 1% general partnership interest owned by Gateway
Funding, Inc.
[] Pasceri became an employee of Gateway in 1998. He was hired
to manage Gateway’s retail sales division and was very successful.
In the spring of 2006[,] Pasceri and Karp began negotiating for
Pasceri to assume the position of president and chief executive
officer of Gateway. Pasceri requested a 10% limited partnership
interest in Gateway, fearing a situation where the company [was]
sold and he [was] terminated. Karp did not agree but negotiations
continued.
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On or shortly before July 21, 2006, Pasceri received a request
from Karp’s office that he provide to Karp a draft of a proposed
employment agreement. On July 21, 2006, Pasceri sent an e-mail
to Kristen Koenigsbauer (“Koenigsbauer”), Karp’s assistant, which
contained his draft of the proposed agreement (“Pasceri Draft
Agreement”). The Pasceri Draft Agreement contained all the
terms of Pasceri’s existing employment arrangement with
Gateway, but added two material terms: (1) a “sale clause” that,
in exchange for Pasceri’s agreement to take on the president and
chief executive officer role at Gateway[,] provided that in the
event that Karp ever sold Gateway, Pasceri would be paid 10% of
the gross sale price of Gateway and (2) a covenant not to
compete, which Karp had requested.
Later that evening, Pasceri received a phone call at his home from
Koenigsbauer and was advised that his employment agreement
with Gateway had to be signed that night. He was directed to
meet … Koenigsbauer in the parking lot of the Holiday Inn in Fort
Washington in order to sign the agreement. Pasceri met
Koenigsbauer as requested.
Pasceri’s original draft agreement had been changed. The sale
clause at Paragraph 6 no longer provided that Pasceri receive 10%
of the gross sale price in the event that Gateway [was] sold.
Pasceri understood Paragraph 6 to provide that he would receive
10% of the net increase in value of the company[,] measured from
the date he began his new role as president and chief executive
officer[,] less any cash contributions that Karp had made to
Gateway and not extracted before the date that Gateway was
sold.
Pasceri was not happy with this change[,] which was made
without his consultation[,] but [he] still signed the agreement
because he believed it provided him protection in the event that
Gateway [was] sold and would reward him for the increase in
value that Gateway might achieve during his tenure. In general,
the contract was signed under hurried circumstances.
Paragraph 6 of the Employment Agreement (“Paragraph 6”) read
as follows:
6. Sale Clause: Upon the sale of Gateway Funding or any of
its related companies, Bruno J. Pasceri will be entitled to
10% of the actual net cash, stock, or equity profits actually
received by the partners after deducting the partners’ equity
in Gateway as of July 31, 2006, and after deducting all
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loans, advances to, or payments or investments for the
benefit of, the partnership, along with interest thereon, and
further deducting all loans, debts, expenses, transaction
fees, taxes, obligations, and liabilities of Gateway.
Pasceri understood the intent of Paragraph 6 to be to provide him
with a financial reward in the event he [was] successful in growing
the value of Gateway from August 1, 2006, until the time Gateway
was sold.
When Pasceri assumed the role as president and chief executive
officer of Gateway, the partners’ equity in the company was
$12,594,554.00. On May 31, 2015, Karp sold Gateway for
$30,607,952.00.
At trial[,] the parties agreed for the purposes of calculating the
10% due Pasceri on the “actual net cash, stock, or equity profits
actually received by the partners[,]” a deduction would first have
to be taken for “partners’ equity in Gateway as of July 31, 2006[,]”
totaling $12,594,554.00. The parties further agreed a deduction
must be taken for Karp’s capital contributions since July 31, 2006,
totaling $5,534,472.
After making these deductions, a balance of $12,478,926.00
remains. Pasceri’s position at trial and in this appeal is that this
is the figure from which his 10% share should have been
calculated.
Karp for his part believed three additional deductions should be
taken: (i) Gateway’s Accumulated Profits[2] of $15,370,488.00
from August 1, 2006 to May 31, 2015; (ii) [l]oss on loans
transferred from Gateway to Karp in 2008 in the amount of
$5,700,000.00 ($3,900,000.00 incurred to date plus
$1,800,000.00 projected at some future time); and (iii) interest
from August 1, 2006 to May 31, 2015 on Karp’s net contributions
to Gateway, in the amount of $4,264,048.00….
____________________________________________
2 According to Pasceri’s expert, David Duffus, “another term for accumulated
profits is retained earnings.” N.T. Trial, 6/14/2017, at 168. Karp’s expert,
Joseph Lesovitz, explained that accumulated profits are “retained earnings
that are held in the partner’s capital account of Mr. Karp. So Mr. Karp’s
partner’s capital account contains the accumulated profits or reinvested
profit.” N.T. Trial, 6/19/2017, at 17.
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The [c]ourt concluded Karp was not entitled to a deduction for
accumulated profits. These profits were [the] property of the
partnership, Gateway, and not Karp. Furthermore[,] it was
necessary for those accumulated profits to remain in the
partnership and not be distributed so Gateway could remain in
compliance with its loan covenants with its warehouse lenders.
Paragraph 6 was ambiguous with respect to Karp’s entitlement to
deduct his accumulated profits, and therefore the language of the
contract must be construed against the drafter, Karp. The [c]ourt
also found that interpreting Paragraph 6 to allow this deduction,
which would inevitably lead to a pay-out under the contract of
zero dollars, would lead to an unfair result.
The [c]ourt also found the contract was ambiguous with respect
to which kinds of interest were deductible by Karp and[,]
construing this ambiguity against him as drafter[,] declined to
allow a deduction for interest on net contributions. According to
the testimony of [Pasceri’s] expert, charging interest on net
contributions is not a typical practice.
The [c]ourt further found [Karp] was entitled to a deduction for
his losses on non-performing loans he repurchased from Gateway
to preserve its solvency. In 2008[,] Karp, on the advice of his
auditors and Pasceri, repurchased $8,400,000.00 in non-
performing loans in order to keep Gateway from sustaining a
major loss that could lead to Gateway’s warehouse lenders to
cease providing loans.
These repurchases by Karp were in essence capital contributions
to the firm. The [c]ourt found Karp ultimately lost $3,900,000.00
on these loans. Claims by Karp of an additional $1,800,000.00 in
future losses were too speculative.
The [c]ourt also found [Pasceri] was an employee of [Karp] within
the meaning of the WPCL, and thus the WPCL applied to
[Pasceri’s] damages. Under the statute[, Pasceri] was entitled to
attorneys’ fees pursuant to 43 P.S. § 260.9a(f)[,] but not
liquidated damages under 43 P.S. §[] 260.10. Liquidated
damages are inappropriate in a case where there is a good faith
dispute over payment.
Trial Court Opinion (TCO), 2/21/2018, at 1-6.
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On December 21, 2017, Karp filed a timely notice of appeal from the
court’s November 28, 2017 judgment. On January 3, 2018, Pasceri filed a
timely cross-appeal. Each party timely complied with the trial court’s
instruction to submit concise statements of errors complained of on appeal
pursuant to Pa.R.A.P. 1925(b). Moreover, on December 11, 2017, Pasceri
filed a petition for a supplemental award of attorneys’ fees, which the trial
court denied without prejudice on January 24, 2018. On February 22, 2018,
Pasceri filed a notice of appeal from the trial court’s January 24, 2018 order.
The docket does not indicate that the trial court directed Pasceri to file a Rule
1925(b) statement for this appeal.
For ease of disposition, we will first address the following issues raised
by Karp in his appeal docketed at 68 EDA 2018:
1. Did the [c]ourt err in finding and concluding that the profits
generated by Gateway from its operations (the “accumulated
profits”) belonged to Gateway and not to Karp[?]
2. Did the [c]ourt err in finding and concluding that Karp could not
deduct the accumulated profits he had invested in Gateway for the
benefit of Gateway pursuant to the Paragraph 6 phrase “after
deducting all loans, advances to, or payments or investments for
the benefit of, the partnership[”?]
3. Did the [c]ourt err in finding and concluding that this Paragraph
6 phrase was ambiguous with respect to Karp’s entitlement to
deduct the accumulated profits he had invested in Gateway for the
benefit of Gateway[?]
4. Did the [c]ourt err in finding and concluding that, if Karp was
entitled to deduct his accumulated profits he had invested in
Gateway for the benefit of Gateway pursuant to Paragraph 6, such
a deduction would lead to an absurd result and would render
Paragraph 6 meaningless[?]
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5. Did the [c]ourt err in finding and concluding that, because
Karp’s interpretation of Paragraph 6 would result in Pasceri[’s] not
receiving a recovery thereunder, such an interpretation would lead
to an absurd result and would render Paragraph 6 meaningless[?]
6. Did the [c]ourt err in finding and concluding that Karp could not
deduct any interest pursuant to the Paragraph 6 phrase “after
deducting all loans, advances to, or payments or investments for
the benefit of, the partnership, along with interest thereon[”?]
7. Did the [c]ourt err in finding and concluding that this Paragraph
6 phrase was ambiguous with respect to Karp’s entitlement to
deduct his interest on the net contributions he had indisputably
invested in Gateway for the benefit of Gateway[?]
8. Did the [c]ourt correctly find and conclude that Karp was
entitled to a loan loss deduction pursuant to Paragraph 6, but
err[ed] in limiting Karp’s deduction to $3,900,000 instead of the
$5,700,000 claimed by Karp[?]
9. Did the [c]ourt err in finding and concluding that the
negotiations of Paragraph 6 and circumstances surrounding the
execution of Paragraph 6 were relevant when the Paragraph 6
phrase “after deducting all loans, advances to, or payments or
investments for the benefit of, the partnership, along with interest
thereon” was not ambiguous[?]
10. Did the [c]ourt err in finding and concluding that Pasceri’s
understanding of Paragraph 6 was relevant when the Paragraph 6
phrase “after deducting all loans, advances to, or payments or
investments for the benefit of, the partnership, along with interest
thereon” was not ambiguous[?]
11. Did the [c]ourt err in finding and concluding that Paragraph 6,
Pasceri and Pasceri’s rights under Paragraph 6 were covered by
the WPCL[?]
12. Did the [c]ourt err in finding and concluding that Pasceri was
entitled to attorneys’ fees pursuant to the WPCL because Pasceri
was not entitled to any recovery under Paragraph 6, because
Pasceri’s request for attorneys’ fees included time and costs
expended for issues Pasceri lost at trial and on his post-trial
motions and because, even if he was entitled to a recovery, his
right thereunder was not covered by the WPCL[?]
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13. Did the Court err in finding and concluding that Pasceri was
entitled to pre[-]judgment interest because Pasceri was not
entitled to any recovery under Paragraph 6, because Pasceri's
counsel never proffered any cause — much less “good cause” —
for his untimely request for pre[-]judgment interest, because
Pasceri’s request for pre[-]judgment interest was untimely and
because the Pennsylvania Supreme Court has never clarified or
decided its split [j]udgment of the Court in Kurtas v. Kurtas, 555
A.2d 804 (Pa. 1989)[?]
Karp’s Brief at 5-8.
At the outset, we point out that Karp raises thirteen issues in his
statement of the questions involved. However, Karp does not divide the
argument section of his brief into thirteen corresponding parts; instead, he
divides it into six, incongruous sections. We admonish Karp for his lack of
compliance with Pa.R.A.P. 2119(a). See Pa.R.A.P. 2119(a) (“The argument
shall be divided into as many parts as there are questions to be argued; and
shall have at the head of each part—in distinctive type or in type distinctively
displayed—the particular point treated therein, followed by such discussion
and citation of authorities as are deemed pertinent.”); Donaldson v.
Davidson Bros., Inc., 144 A.3d 93, 99 n.9 (Pa. Super. 2016) (determining
that the appellant failed to comply with Rule 2119(a) where the appellant’s
brief did not “present and develop eight arguments in support of the eight
questions raised”). Notwithstanding, Karp’s noncompliance does not preclude
our review.
As we address Karp’s issues, we keep in mind our standard of review:
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
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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.
Stephan v. Waldron Elec. Heating and Cooling LLC, 100 A.3d 660, 664-
65 (Pa. Super. 2014) (citation omitted). Further, we recognize:
The interpretation of any contract is a question of law and this
Court’s scope of review is plenary. Moreover, we need not defer
to the conclusions of the trial court and are free to draw our own
inferences. In interpreting a contract, the ultimate goal is to
ascertain and give effect to the intent of the parties as reasonably
manifested by the language of their written agreement. When
construing agreements involving clear and unambiguous terms,
this Court need only examine the writing itself to give effect to the
parties’ understanding. This Court must construe the contract
only as written and may not modify the plain meaning under the
guise of interpretation.
Id. at 665 (citation omitted).
As Karp’s first five issues challenge the trial court’s determination that
Karp had no right to deduct accumulated profits, we examine them together.3
In sum, Karp argues that the trial court erred in concluding that “Karp’s
accumulated profits belonged to Gateway and were not therefore a capital
investment in Gateway.” Karp’s Brief at 49. Karp also contests the trial court’s
assessment that “[t]he contract was ‘ambiguous as to the right of Karp to
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3 Karp also addresses these five issues together in his brief.
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deduct accumulated profits’ because the parties’ two experts ‘disagreed on
whether accumulated profits should be considered an investment.’” Id. at 49-
50 (some internal quotation marks omitted). Finally, Karp challenges the trial
court’s observation that “if Karp were permitted a deduction for his
accumulated profits, it ‘would lead to an unfair result’ for Pasceri, since he
would not receive a ‘payout upon the sale of the company.’” Id. at 50. In
rejecting Karp’s accumulated profit deduction, it appears that the trial court
relied on all of these considerations.
First, in determining that the accumulated profits did not constitute an
investment made by Karp, the trial court reasoned,
Gateway’s profits derived from its business activities were
undoubtedly acquired in the name of the partnership and were
thus partnership property. The reservation of these profits in the
[limited partnership] was in fact necessary to the carrying on of
the business. Had Karp chosen to withdraw[] them[,] Gateway
would not have been able to secure the financing vital to
Gateway’s operation. These profits were not available for
distribution and were therefore not a capital contribution.
TCO at 7. We disagree.
Despite its emphasizing that Gateway existed as a limited partnership
— an entity separate and distinct from Karp — the trial court contradictorily
notes that Karp could have chosen to withdraw the accumulated profits from
Gateway. See id. at 7, supra (“Had Karp chosen to withdraw[] them….”).
Indeed, Pasceri even acknowledged at trial that Karp chose to leave his
accumulated profits in the business:
[Karp’s attorney:] Now, is it your position that Mr. Karp did not
leave his accumulated profits in the business?
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[Pasceri:] They’re the company’s accumulated profits, not Mr.
Karp’s.
[Karp’s attorney:] He’s 100 percent owner; correct?
[Pasceri:] He is 99 -
[Karp’s attorney:] Well, that was as a limited partner. He was
also the general partner; correct?
[Pasceri:] There was a 1 percent general partnership above that
in the holding company, yes.
[Karp’s attorney:] And, so, he owned all 100 percent; correct?
[Pasceri:] Correct.
[Karp’s attorney:] And he left his profits in this business from 2006
to 2015; correct?
[Pasceri:] I would say from 1994 to 2016, if you want to be
accurate.
[Karp’s attorney:] All right. And – but, certainly, he did it from
2006 to 2015; correct?
[Pasceri:] Sure.
[Karp’s attorney:] And he did that to sustain the operations and
for the benefit of the business; correct?
[Pasceri:] To build the business, sure.
N.T. Trial, 6/12/2017, at 120-21.
Neither the trial court nor Pasceri can ignore the reality that, although
structured as a limited partnership, Gateway’s only limited partner and the
sole owner of Gateway’s corporate general partner was Karp. Pasceri argues
that “the decision about whether to make distributions belongs to the
partnership…[,]” but he overlooks that Karp is the sole decision maker in the
partnership. See Pasceri’s Reply Brief at 11. Karp controlled the partnership
and, consequently, its accumulated profits, regardless of whether he actually
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received a distribution. As Karp’s attorney persuasively asserted at trial, as
the 100 percent owner, Mr. Karp “didn’t have to leave the profits in. The
business could have gone down, could have folded. He didn’t have to leave
them in. He chose to leave them in. That was his decision.” N.T. Trial,
6/19/2017, at 142. Thus, we disagree with the trial court that the
accumulated profits did not constitute an investment made by Karp merely
because Gateway did not distribute them to him.
Second, the trial court ascertained that the contract was ambiguous
because the two experts that testified on behalf of the parties “disagreed on
whether accumulated profits should be considered an ‘investment.’” TCO at
7-8. The trial court stated that “[t]he evidence was clear that the phrase
‘investments’ was susceptible of multiple interpretations. Therefore, this
language must be construed against the drafter.” Id. at 8. Again, we
disagree.
Initially, we observe that “[t]he fact that the parties have different
interpretations of a contract does not render the contract ambiguous.” Tuthill
v. Tuthill, 763 A.2d 417, 420 (Pa. Super. 2000) (citation omitted). Instead,
“[a] contract will be found to be ambiguous only if it is fairly susceptible of
different constructions and capable of being understood in more than one
sense. It is the function of the court to decide, as a matter of law, whether
the contract terms are clear or ambiguous.” Id. (citations omitted).
Although Pasceri proffers a different interpretation of the contract than
Karp, we view Pasceri’s interpretation as contrived and unconvincing. At trial,
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Pasceri’s expert, Duffus, gave the following explanation as to why the
accumulated profits were not an ‘investment for the benefit of the partnership’
under Paragraph 6:
[Pasceri’s attorney:] [D]o you disagree with Mr. Lesovitz’s[, Karp’s
expert,] interpretation of [P]aragraph 6, with respect to the
accumulated profits deduction?
[Duffus:] I do. As I mentioned a few moments ago, I think it’s an
attempt to shoehorn accumulated profits into one of the four
terms that are set forth in [P]aragraph [S]ix, and I just don’t
believe that accumulated profits are any of those.
If we look at some of the terms that were set out there for
deductions, loans, advances to, payments or investments, those
are all actions. We look at the concept of an investment in the
context of, let’s say, a shareholder making a contribution to a
company. That’s an action where they contribute an asset, say
it’s cash, and in return get a change or an increase in their equity.
When we look at accumulated profits, first of all, those are profits
that are generated by the company and that are retained in the
company for its use – for its operational use going forward, so
that’s not an action, it’s kind[] of a passive activity if you’re going
to try to fit it into one of those categories.
***
[Pasceri’s attorney:] Let’s move on to the word “investment” then,
that does not appear anywhere as a defined term in this
agreement, either; does it?
[Duffus:] No, it does not.
[Pasceri’s attorney:] Define “investment”?
[Duffus:] Well, I think there can be many ways to use the term
“investment.” So think about the context of where somebody
makes an investment in a stock[,] right? They buy an ownership
interest in a company. That may be considered an investment.
You know, that word is oftentimes used – think about buying a
car, a lot of people will say, well, here’s your investment in your
new car, or here’s your investment in your house. So, generally,
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what it is, is, the outlay of an asset, again, cash in most cases, for
an ownership interest in something.
N.T. Trial, 6/14/2017, at 88-89, 92-93. Later, on cross-examination, Duffus
further testified to distinguish accumulated profits from Karp’s contributions:
[Karp’s attorney:] Did you say in your testimony on direct that the
reason you did not think accumulated profits were an investment
was because it was [sic] left in passively?
[Duffus:] I think I used the word passively in my testimony, if I
recall. But I think, conceptually, what I was discussing is that,
again, distinguishing between the components of book value or
partner’s equity in looking at net contributions as being an action.
And I think I testified that, in my mind, it meets the criteria of an
investment, because there’s a transfer of an asset, cash, for
instance, in return for an increase in equity.
When I talk about accumulated profits, I don’t view that as any
one of those four action words, loans, advances, payments or
investments, and the reason why I don’t is because, first of all,
those are profits – the accumulated profits represent the profits
generated by the company and retained in the company. And, so,
there’s not an action, if you will, taken in this case by Mr. Karp
with respect to those accumulated profits. They are generated by
the company and they’re retained by the company.
[Karp’s attorney:] So is the word “passive” that you use really
irrelevant to this consideration? I’m just trying to understand
where that fits into your opinion.
[Duffus:] Yeah, I don’t know that we necessarily need that word -
I only use the word “passive” because I think it distinguishes an
action from how I characterized accumulated profits.
[Karp’s attorney:] Well, if Mr. Karp took out $2 million in profits
and then put it back in 30 days later, would you regard that as an
investment?
[Duffus:] It may be. I mean, I don’t know if it’s the same funds
that are going in, so on and so forth. But, certainly, if he puts $2
million back into the company, I would consider that an
investment.
Id. at 134-35.
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Relying on Duffus’s testimony, Pasceri argues that “‘investment’
connotes an ‘active effort’ through the ‘outlay of an asset.’” Pasceri’s Reply
Brief at 11 (citations omitted). Pasceri insists that “the profits that Gateway
accumulated required no action from Karp.” Id. at 12. However, based on
our review of the record, leaving the accumulated profits in the partnership
was not a passive or thoughtless matter. To be sure, Pasceri acknowledges
that “Gateway kept profits for the benefit of the partnership instead of
distributing them. The reason Gateway did not make distributions … was to
satisfy the covenant requirements under Gateway’s warehouse loans for
partner’s capital.” Id. (citation omitted); see also N.T. Trial, 6/14/2017, at
89 (setting forth testimony by Duffus that accumulated profits are retained in
the company for “its operational use going forward”). The trial court also
found that “[a]s Gateway’s business grew, Gateway’s lines of credit would
increase, and Gateway’s warehouse lenders would require Gateway to retain
higher levels of accumulated profits.” See Trial Court’s Findings of Fact and
Conclusions of Law, 8/9/2017, at 7. Thus, Karp — who controlled Gateway —
deliberately chose to keep the accumulated profits in Gateway to sustain the
business and keep it growing. We consider these accumulated profits to
constitute, unambiguously, an investment for the benefit of the partnership.
Finally, the trial court determined that “the interpretation urged by Karp
would lead to an unfair result.” TCO at 8. It reasoned that:
[Pasceri] testified credibly that Paragraph 6 resulted from
negotiations between himself and [Karp] over the means of
compensating [Pasceri] for his efforts in growing the company and
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to protect him in the event the company were sold. [Pasceri] in
fact originally sought an ownership stake in Gateway as a means
of accomplishing this purpose. Instead[,] Pasceri accepted
Paragraph 6, which was drafted by Karp and signed at an unusual
place and time and under hurried circumstances, which instead
provided a payout upon the sale of the company.
The [c]ourt found that allowing a deduction for accumulated
profits prior to calculating Pasceri’s 10% would lead to a payout
to him of zero dollars, under all circumstances.[4] This would
render Paragraph 6 in the contract entirely superfluous and
nugatory.
Id. (emphasis in original). Again, we disagree that Pasceri is due relief on
this basis.
This Court has explained:
Contracting parties are normally bound by their
agreements, without regard to whether the terms thereof
were read and fully understood and irrespective of whether
the agreements embodied reasonable or good bargains.
Once a person enters into a written agreement[,] he builds around
himself a stone wall, from which he cannot escape by merely
asserting he had not understood what he was signing. It should
not be assumed that the parties were ignorant of the meaning of
the language employed.
Nicholas v. Hofmann, 158 A.3d 675, 693 (Pa. Super. 2017) (citations and
internal quotation marks omitted; emphasis added); see also Karp’s Brief at
58.
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4 In making this statement, the trial court appears to have found that
“[c]ompanies in the mortgage lending industry sell for book value, which is
equal to accumulated profits and the partners’ net contributions.” Pasceri’s
Brief at 21; see also Karp’s Brief at 56 (“The trial court’s premise was
predicated on trial testimony that mortgage origination companies were
customarily sold for ‘book value’….”) (emphasis in original). Karp, however,
contends that, “before the global financial crisis, both Karp and Pasceri hoped
that they could grow the Gateway business so it could be sold for a multiple
of its book value.” Karp’s Brief at 56-57 (citation omitted).
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Here, Karp observes that “despite the hurried circumstances, [Pasceri]
did not ask for any delay before signing his Employment Agreement to discuss
it with an attorney and, most importantly, no one made him sign it.” Id. at
57 (citations omitted). Moreover, Karp points out that, “to evidence
[Pasceri’s] understanding of what he was signing, he signed his name
immediately below Paragraph 6 as well as at the end of the Employment
Agreement.” Id. Although the contract may not have been a good bargain
for Pasceri or fully understood by him, we decline to override the express
language of the agreement in order to save Pasceri from facing an ‘unfair
result.’ As discussed above, we view the contract as allowing Karp to deduct
his investments — specifically accumulated profits — which would entitle
Pasceri to no recovery under Paragraph 6.5 Accordingly, we reverse the trial
court’s judgment entered in favor of Pasceri.
As a result of our disposition, we need not address the remaining issues
raised by the parties in their appeals docketed at 68 EDA 2018 and 288 EDA
2018.6 Moreover, we deem Karp’s pending application to remand to the trial
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5 As Karp notes, “[s]ince Karp’s accumulated profits deduction [$15,370,488],
… would exceed the agreed upon balance of $12,478,926, Pasceri would not
be entitled to any recovery pursuant to Paragraph 6 on his breach of contract
claim.” Karp’s Reply Brief at 1 (footnote omitted; some brackets added).
6 Namely, we need not address Karp’s issues pertaining to whether the trial
court erred in determining that Karp was not entitled to any interest deduction
and erred by reducing Karp’s loan loss deduction from $5.7 million to $3.9
million. See Karp’s Brief at 5-9. Further, as this Court has reversed the trial
court’s decision in favor of Pasceri, Karp’s issues pertaining to the WPCL and
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court for further proceedings on newly-discovered evidence as irrelevant in
light of our disposition and, thus, we deny it as moot. See Karp’s Application
to Remand, 9/6/2018, at 1.7 Finally, with respect to Pasceri’s appeal docketed
at 651 EDA 2018, we similarly dismiss it as moot.
____________________________________________
prejudgment interest are moot. Id. Likewise, we need not reach the issues
Pasceri raises in his appeal, relating to the loan loss deduction as well as
attorneys’ fees and liquidated damages under the WPCL. See Pasceri’s Brief
at 3.
7 Therein, Karp claims that — after trial in June of 2017 and the parties’ filing
of appeals in December of 2017 and January of 2018 — the purchaser of
Gateway made a claim for indemnification in the amount of $14,500,000. See
Karp’s Application to Remand, 9/6/2018, at ¶ 4. Karp explains that,
“[e]ffective May 30, 2015, Gateway was sold … to UFG Holdings LLC …, which
assigned its rights to Gateway to its member, Finance of America Holdings,
LLC (‘FOAH’)[,]” and “[a]s part of the Purchase Agreement, Karp agreed to
indemnify FOAH for ‘any [l]osses related to the operation of the [c]ompany
prior to the [c]losing’….” Id. at ¶¶ 14, 16 (citations omitted). In short, Karp
avers that — from approximately 2016 through 2018 — FOAH had cooperated
with an investigation by the Department of Housing and Urban Development
(“HUD”) that “focused exclusively on the certification of [Federal Housing
Administration (‘FHA’)] loans originated between 2008-2014 by Gateway —
the exact time period when Pasceri served as President and CEO of Gateway
and was in charge of all of Gateway’s mortgage originations.” See id. at ¶ 22
(citations and internal quotation marks omitted). According to Karp, “FOAH
believed that, as a result of … HUD’s investigation, the United States may
pursue claims under the False Claims Act against [it.]” Id. at ¶ 21 (internal
quotation marks omitted). Ultimately, Karp says, FOAH and the Department
of Justice reached a $14,500,000 settlement of HUD’s claims related to
Gateway’s FHA mortgage origination business prior to its sale. Id. at ¶ 23
(citation and internal quotation marks omitted). Karp has allegedly agreed to
indemnify FOAH in that same amount. Id. at ¶ 24 (citation omitted).
Consequently, Karp requests that we remand this case to the trial court for
further proceedings to consider this newly-discovered evidence, as he asserts
“[t]his indemnity obligation either reduces the funds actually received by Karp
for the sale of Gateway or was an existing liability of Gateway under Paragraph
6.” Id. at ¶ 32.
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Judgment entered on November 28, 2017 reversed. Appeal docketed
at 651 EDA 2018 dismissed as moot. Jurisdiction relinquished.
President Judge Emeritus Stevens joins this memorandum.
Judge Nichols files a concurring and dissenting statement.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 2/5/19
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