Keddie, A. v. Gregory, J. ( 2019 )

J-A26017-18
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
ALEX M. KEDDIE IV, IN HIS : IN THE SUPERIOR COURT OF
INDIVIDUAL CAPACITY AND : PENNSYLVANIA
DERIVATIVELY ON BEHALF OF :
CROSSETT INC., A PENNSYLVANIA :
BUSINESS CORPORATION :
:
Appellant :
:
: No. 104 WDA 2018
v. :
:
:
JANET M. GREGORY, IN HER :
INDIVIDUAL CAPACITY AND AS :
PRESIDENT AND CHAIRMAN OF THE :
BOARD OF DIRECTORS OF :
CROSSETT, INC., AND DOUGLAS C. :
SMITH, IN HIS INDIVIDUAL :
CAPACITY AND AS VICE PRESIDENT :
OF CROSSETT, INC. :
Appeal from the Order December 1, 2017
In the Court of Common Pleas of Warren County Civil Division at No(s):
No. A.D. 450 of 2012
BEFORE: BENDER, P.J.E., SHOGAN, J., and MURRAY, J.
MEMORANDUM BY SHOGAN, J.: FILED FEBRUARY 8, 2019
Alex M. Keddie IV (“Keddie”), in his individual capacity and derivatively
on behalf of Crossett, Inc. (“Crossett”), a Pennsylvania Business Corporation
engaged in trucking services, appeals from the order entered on December 1,
2017, by the Court of Common Pleas of Warren County finalizing this matter.
We affirm.
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The parties, Keddie, Janet M. Gregory (“Gregory”), and Douglas Smith
(“Smith”), were employees and shareholders of Crossett. Trial Court Opinion,
12/23/13, at 5-6. At the time of litigation, Keddie served as Chief Executive
Officer of Crossett. Gregory was the former President and Chairman of the
Board of Directors of Crossett. Id. Smith was the former Vice President of
Crossett. Id.
Initially, Keddie and Gregory owned the company jointly. Trial Court
Opinion, 12/23/13, at 4. After prolonged conflict between the two, Gregory
orchestrated a takeover of the company with Smith’s help and fired Keddie
during a July 23, 2012 shareholders’ and Board of Directors meeting. Id. at
7-13. Keddie filed a Complaint for Declaratory Judgment on August 9, 2012,
against Gregory and Smith, collectively (“Appellees”). Id. at 1-2. In Count I
of the complaint, Keddie sought a preliminary and permanent injunction
seeking, inter alia, invalidation of the actions taken at the July 23, 2012
meeting and reinstatement of Keddie to the Board of Directors. Id. at 2.
By order entered October 23, 2012, the trial court granted Keddie’s
motion for a preliminary injunction. Order, 10/23/12, at 1-2. The preliminary
injunction granted Keddie the following relief: 1) reinstating Keddie as CEO
of Crossett, retroactively to July 23, 2012; 2) reinstating Keddie to the Board
of Directors of Crossett; 3) setting aside as invalid all actions taken at the July
23, 2012 stockholders’ meeting, including the election of a new Board of
Directors; 4) setting aside as invalid all actions taken at the July 23, 2012
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Board of Directors’ meeting; 5) reinstating the Board of Directors as it was
constituted prior to the July 23, 2012 shareholders’ meeting; 6) reinstating
the officers of Crossett as they existed prior to the July 23, 2012 shareholders’
meeting; and 7) delineating the right to vote the Employee Stock Ownership
Plan (“ESOP”) shares by restricting that right to the full Board of Directors
only. Order, 10/23/12, at 1-2.
On January 22, 2013, Keddie filed a motion for summary judgment,
seeking 1) an order making permanent the preliminary injunction, 2) damages
by virtue of Keddie’s position as a shareholder of Crossett, and 3) damages
by virtue of Keddie’s individual position with respect to Crossett. By order
entered December 23, 2013, the trial court granted Keddie’s motion for
summary judgment in part and denied it in part as follows: 1) the October
23, 2012 preliminary injunction was made permanent; 2) the motion for
summary judgment was granted as to liability for breach of fiduciary duty by
Gregory but denied as to damages and as to Smith’s breach of fiduciary duty;
and 3) the motion for summary judgment was granted as to liability for breach
of fiduciary duty by Gregory but denied as to damages and as to Smith’s
breach of fiduciary duty. Order, 12/23/13, at 1.
After partial summary judgment was granted, further discovery was
conducted, pretrial motions were filed, and the parties reached a settlement
agreement that was entered as an order of court on June 30, 2014. The June
30, 2014 order stated the case was to be marked “‘settled and discontinued
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with prejudice.’ This court shall retain jurisdiction to enforce the settlement
agreement and to take any action with respect to other pending matters.”
Order, 6/30/14, at 1. Smith and Gregory entered into substantially identical
settlement agreements (“Settlement Agreements”).1 The purpose of the
Settlement Agreements was to set forth the terms and conditions by which
Keddie would purchase both Gregory’s and Smith’s stock ownerships in
Crossett. Article II, Paragraph 2.2 of the Settlement Agreements set forth the
Formula for “Determination of Purchase Price, Down Payment, Original Note
Principal, Interest Rate, etc.” Smith/Gregory Settlement Agreements, 5/1/14,
at Article II, Paragraph 2.2.
Paragraph 2.3 of the Settlement Agreements provided for a one-time
adjustment of the per-share purchase price and set forth the means by which
the one-time adjustment of the per-share purchase price would be
determined. Smith/Gregory Settlement Agreements, 5/1/14, Article II,
Paragraph 2.3. The Settlement Agreements state that the adjustment would
be based on the final per-share valuation for the calendar year ended
December 31, 2013, of the shares of the common stock of Crossett held by
the Company’s ESOP. Id. Paragraph 2.3 further provides that the Vineyard
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1 The purchase price as identified in Article II, Paragraph 2.1 of the respective
agreements, differs. The purchase price for Smith was $239,154.00, and for
Gregory it was $1,618,960.00. Smith/Gregory Settlement Agreements,
5/1/14, Article II, Paragraph 2.1. Furthermore, the Formulas included in
Article II, Paragraph 2.2 of the respective Settlement Agreements differ, each
reflecting the shares held by the individual. Id. at Paragraph 2.2.
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Group, LLC (“Vineyard”), a valuation company that had been used by Crossett
in 2011 and 2012 to conduct Crossett ESOP share valuations, would conduct
the 2013 ESOP valuation. Id. In calculating the 2013 ESOP valuation shares,
Vineyard was to use substantially the same procedures, methods, and
reasoning in calculation that it had used for its 2011 and 2012 ESOP share
valuations. Smith/Gregory Settlement Agreements, 5/1/14, Article II,
Paragraph 2.3.
In November 2014, Vineyard issued its report on the 2013 valuation at
$174.00 per share. Keddie disagreed with the valuation as performed by
Vineyard. Despite his challenges to that valuation, however, Keddie filed the
ESOP Form 55002 valuation. In his letter accompanying the filing of Form
5500, which Keddie signed as CEO and President of Crossett, he stated that
the valuation was to be used by the trustee (Northwest Savings Bank) for
purposes of ESOP distributions in 2014 only and for no other purpose. Trial
Court Opinion, 9/2/16, at 3-4. Because Keddie was dissatisfied with the
Vineyard valuation, he hired LitCon Group, LLC (“LitCon”) to examine the
Vineyard report to determine if it met the requirements of Paragraph 2.3 of
the Settlement Agreements. Id. LitCon’s report took exception to the
____________________________________________
2Testimony at the February 29, 2016 hearing established that Form 5500 is
an annual report filed by the ESOP which is a public disclosure of plan assets.
N.T., 2/29/16, at 178.
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$174.00 per share set by Vineyard and set a value per share of $127.00. Id.
at 4.
On March 26, 2015, Keddie filed a “motion to enforce settlement
agreement”. On April 15, 2015, Appellees filed a “motion to enforce the
settlement agreement”. A hearing on these motions was held on February
16, 17, and 29, 2016.
On September 2, 2016, the trial court granted Gregory’s and Smith’s
motion to enforce the settlement agreement, and denied Keddie’s motion.
Keddie filed a notice of appeal on September 14, 2016, which was docketed
with this Court at 1372 WDA 2016.
Because in previous court management orders the trial court had
directed that “[a]ttorneys’ fees and expenses shall be considered only after
the pending motions are resolved,” Gregory and Smith filed a motion to quash
the appeal as interlocutory, because the motion for attorneys’ fees and costs
was still outstanding. Order, 5/12/15, at 1. Due to the issue of attorneys’
fees and costs having been expressly reserved by the trial court, the appeal
was deemed interlocutory, and this Court quashed the appeal. Order,
11/15/16, at 1; see Joseph F. Cappelli & Sons v. Keystone Custom
Homes, 815 A.2d 643, 648 (Pa. Super. 2003) (Because the trial court
specifically reserved the issue and because the right to attorneys’ fees arose
as a function of the rights determined in the underlying litigation, the trial
court order was not final absent resolution of the attorneys’ fees issue.).
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On December 1, 2017, the trial court issued an order directing Keddie
to pay Gregory’s and Smith’s attorneys’ fees and costs in the amount of
$255,009.96. On December 28, 2017, Keddie filed the instant appeal from
the September 2, 2016, and December 1, 2016, orders. Keddie and the trial
court complied with Pa.R.A.P. 1925.
Keddie presents the following issues for our review:
I. Whether the trial court committed an error of law by accepting the
Company’s [Employee Stock Ownership Plan (“ESOP”)] 2013
valuation to calculate the buyout amounts under the Settlement
Agreements even though the author of the 2013 valuation
admitted that his valuation did not comply with the [Conforming
Valuation Requirement(“CVR”)] – i.e., it was not performed
“substantially in accordance with the procedures, methods and
reasoning used by the Company for its 2011 and 2012 ESOP
valuations”?
II. Whether the trial court committed another error of law by not only
ignoring the plain language of the CVR, but also the undisputed
evidence that the valuation company promised that its 2013
valuation would “use the same approach for 2013 and future years
that was used for 2012”?
III. Whether the trial court committed an error of law by using the
2013 valuation to value the Company to calculate the buy out
amounts even though the valuation itself warned that it “should
not be used for any purpose other than for ESOP purposes.”
IV. Whether the trial court committed an error of law by finding that
any remedy for the 2013 valuation’s failure to comply with the
CVR was “impossible” because that valuation had been accepted
for ESOP purposes?
V. Whether the trial court erred by awarding attorney’s fees and
costs to [Appellees] when they are not the “prevailing party” as
required by Article 14.1 of the Settlement Agreements, and
further erred by not applying the lodestar analysis when
determining the reasonableness of [Appellees’] request for
attorney’s fees and expenses?
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Keddie’s Brief at 4-5.
We first note that despite presenting five issues in his statement of
questions involved as “I-V”, in the argument section of his appellate brief
Keddie presents a single issue identified as “I”, and seven sub-issues identified
as “A-G”. Keddie’s Brief at 31-43. Although he failed to file a brief compliant
with Pa.R.A.P. 2119,3 we will not find Appellant’s issues waived. Keddie’s
inconsistent presentation of argument, however, hampers somewhat our
ability to concisely address separately each issue as presented in his
statement of questions. Thus, we will address together the first four issues
Keddie proffers in his statement of questions involved.
In his first four issues on appeal, Keddie maintains that the trial court
erred when it accepted the 2013 ESOP valuation to calculate the buyout
amounts under the Settlement Agreements. Keddie’s Brief at 31-41.
Specifically, Keddie contends that the trial court erred in interpreting the CVR
to allow the 2013 valuation to utilize procedures, methods, and reasoning not
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3 In relevant part, Pa.R.A.P. 2119(a) provides: “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.” Appellate briefs must conform
materially to the requirements of the Pennsylvania Rules of Appellate
Procedure, and this Court may quash or dismiss an appeal if the defect in the
brief is substantial. In re Ullman, 995 A.2d 1207, 1211 (Pa. Super. 2010);
Pa.R.A.P. 2101.
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substantially the same as those used in the valuations for years 2011 and
2012. Keddie’s Brief at 31. Keddie asserts that:
[a]s a matter of law, the trial court erred by disregarding the CVR’s
unambiguous requirement that the final 2013 valuation use the
same procedures, methods, and reasoning in the 2011 and 2012
valuations. Instead, the trial court mistakenly read the CVR to
permit the use of any professionally-prepared valuation to
calculate the PPA even if the procedures, methods and reasoning
used were indisputably changed from the prior years. The
Settlement Agreements, however, unambiguously condition the
acceptance of the final 2013 valuation needed to calculate the PPA
on the CVR, which requires the valuation to be performed
essentially and materially in conformity with the procedures,
methods and reasoning used in the 2011 and 2012 valuations.
Contrary to the CVR’s plain language, the trial court’s
interpretation effectively wrote that essential protective covenant
out of the Settlement Agreement.
Id. at 28. Keddie further argues that if the valuation company, Vineyard, had
used valuation methods and reasoning consistent with those used in the 2011
and 2012 valuations as required by the CVR, Crossett’s stock value in 2013
would have been $134 per share rather than the $174 per share as designated
in the 2013 valuation. Id. at 29.
In reviewing a trial court’s determination regarding a motion to enforce
settlement agreements, this Court has held:
[t]he enforceability of settlement agreements is determined
according to principles of contract law. Because contract
interpretation is a question of law, this Court is not bound by the
trial court’s interpretation. Our standard of review over questions
of law is de novo and to the extent necessary, the scope of our
review is plenary as the appellate court may review the entire
record in making its decision. With respect to factual conclusions,
we may reverse the trial court only if its findings of fact are
predicated on an error of law or are unsupported by competent
evidence in the record.
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Step Plan Serv.’s, Inc. v. Koresko, 12 A.3d 401, 408 (Pa. Super. 2010)
(internal quotations and citations omitted). “Where a settlement agreement
contains all of the requisites for a valid contract, a court must enforce the
terms of the agreement.” Id. at 409.
This Court has explained the following with regard to interpretation of
contracts:
When interpreting the language of a contract, the intention
of the parties is a paramount consideration. In determining the
intent of the parties to a written agreement, the court looks to
what they have clearly expressed, for the law does not assume
that the language of the contract was chosen carelessly.
When interpreting agreements containing clear and
unambiguous terms, we need only examine the writing itself to
give effect to the parties’ intent. The language of a contract is
unambiguous if we can determine its meaning without any guide
other than a knowledge of the simple facts on which, from the
nature of the language in general, its meaning depends. When
terms in a contract are not defined, we must construe the words
in accordance with their natural, plain, and ordinary meaning. As
the parties have the right to make their own contract, we will not
modify the plain meaning of the words under the guise of
interpretation or give the language a construction in conflict with
the accepted meaning of the language used.
On the contrary, the terms of a contract are ambiguous if
the terms are reasonably or fairly susceptible of different
constructions and are capable of being understood in more than
one sense. Additionally, we will determine that the language is
ambiguous if the language is obscure in meaning through
indefiniteness of expression or has a double meaning. Where the
language of the contract is ambiguous, the provision is to be
construed against the drafter.
In re Jerome Markowitz Trust, 71 A.3d 289, 301 (Pa. Super. 2013)
(citation omitted).
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Here, the language in the substantially identical Settlement Agreements
provides, in relevant part, as follows:
Article II
Purchase Price
2.1 Purchase Price. As consideration for the Purchased
Shares, Keddie shall: (a) at or before the Closing (as defined in
Section 3.1) on the terms and subject to the conditions set forth
in this Agreement, execute and deliver this Agreement and
thereby become obligated to pay to [Smith/Gregory] the total
purchase price (the “Purchase Price”) of [Smith: Two Hundred
Thirty-nine Thousand One Hundred Fifty-four Dollars
($239,154.00); Gregory: One Million Six Hundred Eighteen
Thousand Nine Hundred Sixty Dollars ($1,618,960.00)];
determined as provided in Section 2.2 below and subject to
subsequent adjustment as provided in Section 2.3 below; and (b)
execute and deliver the agreements and instruments hereinafter
specified in Section 2.4. The Purchase Price shall be paid in
accordance with Sections 2.4 and 2.3 below.
2.2 Determination of Purchase Price, Down Payment,
Original Note Principal, Interest Rate, etc.
(a) The Parties acknowledge and agree: (i) that the Purchase
Price recited in Section 2.1 above has been determined to equal
the “[Net] Unadjusted Price” . . .of the following formula (the
“Formula”), (ii) the Down Payment recited in Section 2.4(a) below
has been determined to equal the “5% Down Payment” set forth
[in] the Formula, (iii) the Original Principal Amount of the
[Smith/Gregory] Secured Promissory Note has been determined
to equal the “balance of the Purchase Price” set forth [in] the
Formula, and (iv) the regular monthly installments of principal due
under the [Smith/Gregory] Secured Promissory Note have been
determined to equal said balance of the Purchase Price divided by
thirty-six (36) as set forth [in] the Formula.
***
2.3 Adjustment of the Purchase Price, Down Payment etc.
The Parties acknowledge and agree that the Purchase Price, Down
Payment, Original Principal Amount of the [Smith/Gregory]
Secured Promissory Note and the regular monthly installments of
principal due under that Note are subject once to adjustment,
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upward or downward, based upon the final per-share valuation,
for the calendar year ended December 31, 2013, of the shares of
common stock of the Company held by the Company’s ESOP.
More particularly, Vineyard Group, LLC has been and shall
be engaged by Crossett to perform, substantially in
accordance with the procedures, methods and reasoning
used by Vineyard for its 2011 and 2012 ESOP share
valuations, a valuation of the outstanding shares of
common stock of Crossett on a per-share, minority, non-
marketable basis for ESOP purposes (the “2013 Per-Share
Value”) and to render a written “Report” setting forth
Vineyard’s analysis and conclusion, inter alia, as to the
2013 Per-Share Value. Notwithstanding any purported
limitation set forth in the Report on the use of the conclusion as
to the 2013 Per-Share Valued, the Parties agree that if the 2013
Per-Share Value concluded by Vineyard varies from the $138.00
per-share value used in Line 1 of the Formula set forth in Section
2.2(a) above, then for purposes of this Agreement:
(1) The Purchase Price, Down Payment, Original
Principal Amount of the [Smith/Gregory] Secured
Promissory Note and regular monthly principal
installments will all be recalculated by Keddie (who
shall give written notice of such recalculation . . . to
the other Parties and provide the replacement
instruments described below): substituting the 2013
Per-Share Value into Line 1 of the Formula and
calculating the new amounts of the entries on [the
related Lines.]
Smith/Gregory Settlement Agreements, Article 2, Paragraph 2.1-2.3
(emphases added).
In its September 2, 2016 memorandum opinion, the trial court
comprehensively summarizes the substantial testimony regarding the process
used to determine the 2013 valuation as well as evidence presented by Keddie
challenging that process. Trial Court Opinion, 9/2/16, at 1-10. Our review
reflects that the trial court adequately and thoroughly addressed Keddie’s four
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issues and that it did not err in accepting the 2013 ESOP valuation conducted
by Vineyard, as being consistent with what was required by Article Two,
Paragraph 2.3 of the Settlement Agreements. Although we adopt the detailed
trial court’s opinion on these issues as our own, we find the following
statements by the trial court to be particularly relevant in disposing of Keddie’s
claims:
It is significant that Paragraph 2.3 of the Settlement
Agreements is clear that it is the ESOP valuation which is to be
the base for any possible price adjustment for the purchase of
shares by Keddie. There is no reference to market value nor
purchase value. The testimony was uncontradicted that an ESOP
share value calculation has to be conducted in accordance with
certain professional standards set by the [American Institute of
Certified Public Accountants (“AICPA”)] for valuation
engagements. Litcon, in its analysis, did not adhere to the
valuation engagement standards set by the AICPA but instead
determined the value through the reasonable buyer and willing
seller approach. The Vineyard calculation was accepted by the
independent accounting firm, BDO USA, LLP which found it to be
in compliance with standards necessary for the filing of the IRS
5500 notice. The Trustee, Northwest Savings Bank, also accepted
the Vineyard valuation and paid plan participants the share value
set forth in the valuation for the 2013 distributions.
In his argument that Vineyard did not perform its valuation
“substantially in accordance with the procedures, methods and
reasoning used by Vineyard for its 2011 and 2012 ESOP share
valuations”, Keddie points out that five valuation methods and
weightings were used in the draft report of Vineyard and four were
used in the final report from Vineyard but that in the 2012 report,
all five methods were used. However, in the 2011 valuation only
one of the five methods was used. Testimony was clear that the
evaluation is not a figure that can be calculated by pure
mathematics. Instead, it necessarily involves a judgment call as
to the relative weight to be given to various factors and as to the
methods that will be compatible with the situation in which the
company finds itself as of a particular date. It appears clear that
Keddie would have known this because he had examined both the
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2011 report and the 2012 report and realized that the former had
utilized only one valuation method, Net Asset Value, while the
latter used five and yet he signed the Settlement Agreement which
clearly paired the two valuations as being substantially in accord.
From year to year Vineyard had to analyze the methods which
would be applicable under the situation existing at the time. This
was done in the 2013 valuation and, in fact, when Keddie disputed
the valuation in the draft report which included all five methods,
Vineyard then issued the final report omitting the discounted cash
flow method. Yet, it did not result in any change in the final
conclusion, i.e. that the shares were worth each $174.00. Keddie
interprets this as being an evasive move by Vineyard to avoid
using the Corporation’s projections and the delayed capital
expenditures. Vineyard counters that it omitted the discounted
cash flow method because of the unreliability of the projections.
***
There was no dispute among experts that the determination of
what methods to use in any given year on any given corporation
is a matter of judgment and that an evaluator may select one or
more or all of five methods and his decision could not be rejected
on the basis of that election alone so long as he would abide by
the AIPCA standards for determining value of ESOP shares. The
valuation cannot be compared to an evaluation of market value or
what Dowd referred to as what a “reasonable investor” would use
in deciding upon a prospective investment. Keddie, with his
business background and education would know when signing the
Settlement Agreements that there is a subjectivity to ESOP
valuations and, in fact, any valuations, and that reasonable,
competent, experienced evaluators could disagree. Keddie’s
experts also testified as to the individual professional judgment
and reasoning that goes into a valuation. Clearly, it is not a
mathematical computation.
***
[T]he [c]ourt finds that the language of Paragraph 2.3 was chosen
carefully by [Keddie], that, to a knowledgeable person such as
Keddie, the language was clear and unambiguous and that the
agreement has to be enforced in accordance with the terms used.
Under those terms understood by Keddie, the valuation was to be
determined by Vineyard with whom both parties were familiar,
who knew the Corporation and its history and the parties involved
and about whom there is no evidence that its evaluators would
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have a reason to favor one party over the other. The valuation
was performed substantially in accord with the 2011 and 2012
valuations.
Whether the valuation correct[l]y reflects market value,
what a willing buyer would pay to a willing seller, is not the issue.
This [c]ourt cannot compare Vineyard and Litcon reports and
decide which is more likely to reflect the true value of the Crossett
shares. The [c]ourt cannot insert into the Settlement Agreements
a clause which would provide for either a market value valuation
or an alternate arbiter of value nor can the [c]ourt modify the
contract to provide that the ESOP valuation is not the
determinative factor. In fact, if the [c]ourt ruled that the ESOP
value set by Vineyard, reported as accurate to the IRS by the
Corporation and Keddie, accepted by BDO and acted upon by the
Trustee, Northwest Savings Bank in its issuance of payment for
shares, would be invalid, the consequences would be disastrous
and any remedy impossible. The [c]ourt cannot rule on the
valuation of Crossett shares with no resultant effect on the ESOP
shares because the figure to be established for the Crossett shares
being sold from Gregory to Keddie is intrinsically tied into the
ESOP share valuation. An ESOP evaluation is one that is required
for a very specific purpose and has to abide by certain set
standards set by regulations. It was never meant to be used for
a market valuation but only to determine what ESOP shareholders
were to receive for shares to be turned in. Despite it not ever
having been intended to be used to determine the price of shares
on the market, Paragraph 2.3 of the Settlement Agreements at
issue provides that it is to be the standard for the purposes of the
meeting of the minds between Keddie and Gregory and Smith in
their unique transaction. That was the explicit, unambiguous
decision of the parties to the agreement. It is not ambiguous, just
ill-conceived in that it would necessarily expose the parties to a
risk that they chose to accept.
Trial Court Opinion, 9/2/16, at 6-10.
Thus, the parties unambiguously agreed in the Settlement Agreements
that the 2013 ESOP valuation would determine the price per share. Moreover,
the 2013 valuation prepared by Vineyard was conducted “substantially in
accordance with the procedures, methods and reasoning used by Vineyard for
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its 2011 and 2012 ESOP share valuations.” Smith/Gregory Settlement
Agreements, 5/1/14, Article II, Paragraph 2.3. As noted by the trial court,
testimony established that an ESOP share valuation must be conducted in
accordance with certain professional standards and may vary from year to
year, requiring utilization of professional judgment. The 2011 and 2012
valuations were not determined utilizing identical methods and reasoning, but
were made based on professional standards by individuals utilizing
professional judgment. By agreeing to the language in Paragraph 2.3 of the
Settlement Agreements that the 2013 ESOP valuation would be calculated in
the same manner as previous years, Keddie indicated his acknowledgment of
and acquiescence to this process. Furthermore, the LitCon analysis did not
adhere to the valuation standards; instead it improperly determined the value
through a reasonable-buyer and willing-seller approach.
Thus, the trial court did not err in concluding that, pursuant to the
language of Paragraph 2.3, the parties unambiguously agreed to use the 2013
ESOP valuation prepared by Vineyard in determining price per share for
purposes of the buyout. Further, the trial court did not err in concluding that
the 2013 ESOP valuation as prepared by Vineyard was consistent with the
language provided in Paragraph 2.3 of the Settlement Agreements. Therefore,
Keddie is entitled to no relief on his first four issues.
Keddie next argues that the trial court erred when it awarded attorneys’
fees and costs to Smith and Gregory. Keddie’s Brief at 41. Keddie again
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asserts that the trial court erred in finding that the 2013 valuation met the
requirements of the CVR, and thus, it was error to award attorneys’ fees and
costs to Appellees on this basis. Id. Keddie further contends that the trial
court erred by not performing the required lodestar calculation to determine
the reasonableness of the fees and costs claimed by Appellees. Id. at 42.
Specifically, Keddie maintains that the trial court erred in conducting the
lodestar analysis and
failed to address the most important questions: was [Appellees’]
request for payment of over 652 hours of attorney time, at
hourly rates that significantly exceeded the applicable local rates,
reasonable for a motion to enforce a settlement agreement that
involved very limited discovery (only one deposition) and limited
hearing time?
Id. at 42-43 (emphasis in original). Keddie asserts that had the trial court
properly applied the lodestar analysis it would have reached the conclusion
that Appellees’ attorneys’ fees and expenses are grossly excessive and
unreasonable, even at the slightly reduced total amount of $255,009.96. Id.
at 43. Thus, Keddie maintains that even if the trial court’s finding that the
final 2013 valuation met the CVR is upheld, the court’s award of attorneys’
fees should be reversed and the trial court directed to apply the lodestar
analysis to determine reasonable attorneys’ fees and costs. Id.
We previously determined that the trial court did not err in concluding
that the final 2013 ESOP valuation met the criteria set forth in the CVR. Thus,
Keddie’s claim that Smith and Gregory are not entitled to attorneys’ fees and
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costs because the trial court erred in concluding that the 2013 valuation met
the language outlined in the Settlement Agreements is without merit.
“Appellate review of an order of a tribunal awarding counsel fees to a
litigant is limited solely to determining whether the tribunal palpably abused
its discretion in making the fee award.” Braun v. Wal-Mart Stores, Inc.,
24 A.3d 875, 974 (Pa. Super. 2011). In general, “the manner by which
attorneys’ fees are determined in this Commonwealth, under fee-shifting
provisions, is the lodestar approach.” Krishnan v. Cutler Group, Inc., 171
A.3d 856, 903 (Pa. Super. 2017) (citing Krebs v. United Refining Co. of
Pennsylvania, 893 A.2d 776, 792–793 (Pa. Super. 2006)). The lodestar is
the product of “the number of hours reasonably expended on the litigation
times a reasonable hourly rate.” Id. The lodestar is “strongly presumed to
yield a reasonable fee.” Logan v. Marks, 704 A.2d 671, 674 (Pa. Super.
1997). A court has the discretion to adjust the lodestar fee in light of the
degree of success, the potential public benefit achieved, and the potential
inadequacy of the private fee arrangement. Id. Further, the lodestar “should
be reduced in proportion to time spent on distinct claims which do not produce
finding of liability. After finalizing the lodestar, the court may then apply a
multiplier, i.e., enhancement.” Braun, 24 A.3d at 975 (internal citation
omitted).
In its December 1, 2017 opinion, the trial court thoroughly addressed
this issue. As stated by the trial court, it:
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reviewed each and every fee, cost, expense or other sum claimed
by [Appellees] to determine whether it is appropriate for inclusion
in an award. With respect to claims that are supported by
documents in the nature of itemized bills or invoices, the [c]ourt
has reviewed each and every line item and considered the
propriety of each item. In so doing, the [c]ourt’s touchstone was
the law . . . , and the [c]ourt scrutinized the nature of the work,
the amount of billable hours expended, the rates charges, and the
individual performing the work, as well as any other
considerations specific to a particular claim.
Trial Court Opinion, 12/1/17, at 5.
The trial court determined that Appellees’ counsel’s hourly rate was
reasonable. The trial court explained:
[T]he [c]ourt finds that the legal work done by Attorney [Vicki
Kuftic] Horne was complex. This is consistent with not only her
own testimony but also the testimony of Attorney John Quinn, Jr.
who was called as an expert on behalf of [Appellees]. Mr. Quinn
also corroborated Attorney Horne’s testimony that her hourly rate
is relatively low for the sort of complex litigation she performed.
The [c]ourt gives considerable weight to Mr. Quinn’s opinion that
Attorney Horne’s hourly rate is reasonable. Mr. Quinn has been a
litigator for many years in many courts, and he is the chief of the
litigation department at the firm of Quinn, Buseck, Leemhuis,
Toohey, & Kroto, Inc., which has its offices in Erie County.
Litigators from this firm often appear before this [c]ourt.
[Keddie] presented evidence that attorneys with offices in
Warren County typically charge a significantly lower hourly rate
for a given case than that rate charged by Attorney Horne for her
work on the instant case. [Keddie] would have the [c]ourt find
that his simplistic comparison is dispositive. However, the [c]ourt
finds that the nature of the legal work done and the skill and
standing of Attorney Horne, as discussed above,[4] justify the
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4 In addressing the qualifications of Attorney Horne, the trial court, earlier in
its opinion, stated the following: “The instant case involves complex litigation
over corporate share valuation techniques. Attorney Horne is highly qualified
for such work. This is evidenced by her curriculum vitae, including her
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difference. This is especially true in hindsight when one considers
that Attorney Horne achieved a successful result.
Trial Court Opinion, 12/1/17, at 4-5.
Furthermore, the trial court reviewed the number of hours expended on
the litigation to determine whether that number was reasonable. The trial
court identified specific line items for attorneys’ fees that it deemed
unreasonable. Trial Court Opinion, 12/1/17, at 7-12. The total award for
attorneys’ fees was reduced by these findings. Next, the trial court found that
all of the costs and expenses, as distinguished from attorneys’ fees, requested
by Appellees were reasonable and appropriate for inclusion in the overall
award. Thus, we conclude that the trial court’s analysis was consistent with
the lodestar calculation and that it did not abuse its discretion in determining
that award. Keddie’s contention that the trial court erred by not applying the
lodestar analysis when determining the reasonableness of Appellees’ request
for attorneys’ fees and expenses lacks merit.
Order affirmed.
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membership in the Academy of Trial Attorneys of Allegheny County and
service as president of that organization.” Id. at 3.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 2/8/2019
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