Petroci, J. v. Dumond Chemicals ( 2023 )

J-A28032-22
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT O.P. 65.37
JOHN J. PETROCI, III, INDIVIDUALLY : IN THE SUPERIOR COURT OF
AND AS A SHAREHOLDER OF : PENNSYLVANIA
DUMOND CHEMICALS, INC. :
:
:
v. :
:
:
NORMAN CHANES, DUMOND : No. 348 EDA 2022
CHEMICALS, INC., DUMOND, LLC :
AND SUNRISE INVESTMENT :
CAPITAL, LLC :
************* :
DUMOND CHEMICALS, INC. :
:
:
v. :
:
:
JOHN J. PETROCI, III :
:
:
APPEAL OF: NORMAN CHANES, :
DUMOND CHEMICALS, INC., :
DUMOND, LLC AND SUNRISE :
INVESTMENT CAPITAL, LLC :
Appeal from the Order Entered December 17, 2021
In the Court of Common Pleas of Chester County
Civil Division at No(s): 2017-08865-CT,
2017-09954-MJ
JOHN J. PETROCI, III, INDIVIDUALLY : IN THE SUPERIOR COURT OF
AND AS A SHAREHOLDER OF : PENNSYLVANIA
DUMOND CHEMICALS, INC. :
:
:
v. :
:
:
NORMAN CHANES, DUMOND : No. 349 EDA 2022
CHEMICALS, INC., DUMOND, LLC :
J-A28032-22
AND SUNRISE INVESTMENT :
CAPITAL, LLC :
************* :
DUMOND CHEMICALS, INC. :
:
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v. :
:
:
JOHN J. PETROCI, III :
:
:
APPEAL OF: NORMAN CHANES, :
DUMOND CHEMICALS, INC., :
DUMOND, LLC AND SUNRISE :
INVESTMENT CAPITAL, LLC :
Appeal from the Order Entered December 17, 2021
In the Court of Common Pleas of Chester County
Civil Division at No(s): 2017-08865-CT,
2017-09954-MJ
BEFORE: PANELLA, P.J., LAZARUS, J., and SULLIVAN, J.
MEMORANDUM BY SULLIVAN, J.: FILED AUGUST 8, 2023
Norman Chanes (“Chanes”), Dumond Chemicals, Inc., Dumond, LLC,
and Sunrise Investment Capital, LLC (collectively “the Dumond Parties”),
appeal from the order denying their motion to dissolve the purported
settlement agreement reached with John J. Petroci, III (“Petroci”), individually
and as shareholder of Dumond Chemicals, Inc. We affirm.
This appeal arises from two actions filed in 2017 in the Chester County
Court of Common Pleas following Petroci’s termination from his position as
president and chief executive officer of Dumond, Chemicals Inc., a New York
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corporation headquartered in Chester County.1 The first action, filed at Docket
No. 2017-08865, was initiated by Petroci against the Dumond Parties,2 and
asserted claims for breach of fiduciary duty, corporate opportunity, breach of
contract, unjust enrichment, misappropriation, and conversion.3 The second
action, filed at Docket No. 2017-09954, was initiated by the Dumond Parties
against Petroci, and asserted claims for breach of contract, fraudulent
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1 Dumond Chemicals, Inc. has since changed its name to Dumond, Inc.
However, to avoid confusion, we will refer to the entity as Dumond Chemicals,
Inc., which is the name it was called throughout the relevant time period.
2 Chanes has owned Dumond Chemicals, Inc., either in whole or in part since
he founded it in 1981. Dumond, LLC is a Delaware limited liability company.
Sunrise Investment Capital, LLC is a Delaware limited liability company and
the eighty percent owner of Dumond, LLC. Chanes and his companion, Ronnie
D. Shapiro, each own fifty percent of Sunrise Investment Capital, LLC.
3 Petroci sought to recover unreimbursed business expenses and unpaid loans
he made to Dumond Chemicals, Inc, which he claimed totaled $370,000.
Petroci also sought damages based on the value of his twenty percent of the
stock in Dumond Chemicals, Inc., which he valued in excess of $2,200,000.
Petroci asserted a derivative shareholder claim for business losses allegedly
caused by Chanes’s breach of fiduciary duty, usurpation of corporate
opportunities, and self-dealing in the amount of $1,280,000. According to
Petroci’s averments, Chanes engaged in various schemes to diminish the value
and profitability of Dumond Chemicals, Inc. by: improperly forcing the
company to pay him royalties for the sale of company products for which he
did not acquire a license; improperly forcing the company to pay unearned
marketing fees to a company owned by Shapiro—which payments were
funneled directly to Chanes; and using his other companies to sell Dumond
Chemical, Inc.’s products at below-market rates, without making any payment
for the products, and requiring Dumond Chemicals, Inc. to write off those
sales as bad debt or for marketing purposes while Chanes retained the sale
profits. Petroci claimed that he confronted Chanes regarding these improper
practices and that Chanes terminated him in a transparent effort to confiscate
his stocks.
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inducement, conversion, fraud, breach of fiduciary duty, unjust enrichment;
alternative claims of replevin and conversion; and sought an accounting and
injunctive relief.4
The trial court consolidated the actions and the matter proceeded to a
jury trial before the Honorable William P. Mahon in April 2021. During a recess
on the third day of trial, the parties engaged in settlement negotiations and
reached a verbal settlement agreement. The trial court requested that the
parties place the terms of the agreement on the record. Counsel for Petroci
indicated that, pursuant to the agreed-upon settlement terms, Dumond
Chemicals, Inc. would pay Petroci a total of $3,600,000, which payment would
be personally guaranteed by Chanes. See N.T., 4/8/21, at 2. The parties
agreed that the total settlement payment to Petroci would be made in
installments over the course of four years: $750,000 payable by July 1, 2021;
$250,000 payable by December 31, 2021; and the remaining $2,600,000 to
be paid in four installments (of $650,000), each due on December 31 of the
year, with the first payment due on December 31, 2022, the second payment
due on December 31, 2023, the third payment due on December 31, 2024,
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4 The Dumond Parties claimed that Petroci used a company-issued credit card
to make $150,000 in personal purchases, and additionally charged Dumond
Chemicals, Inc. for, among other purchases, precious stones, and sports
memorabilia. The parties jointly valued the disputed items at $161,168.91.
Ultimately, the trial court issued a preliminary injunction, and the disputed
items were placed in a storage unit jointly controlled by the parties pending
resolution of the litigation.
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and the final payment due on December 31, 2025. Id. at 2-3. Any
outstanding balance on these payments would be subject to a simple interest
of four percent. Id. at 3. In exchange, Petroci would relinquish any right,
claim, title, or interest in any stock or ownership of Dumond Chemicals, Inc.,
and Dumond, LLC. Id. Further, the precious stones, sports memorabilia, and
other disputed items placed in the storage unit would become the sole
property of Petroci. Id. Regarding the manner in which the payments would
be treated for tax purposes, the parties indicated that tax experts would need
to be consulted; however, they represented to the trial court that the “parties
would work together “in good faith” “to determine the best lawful tax
treatment of the settlement.” Id. The parties also represented to the trial
court that they would draft a formal written settlement agreement that would
include: (1) a release of all claims of the litigants and their affiliates; (2) a
confidentiality provision; (3) a no disparagement provision; (4) a no admission
of liability provision; and (5) “other items that are frequently in cases involving
business divorce, termination issues.” Id. at 4. The parties further agreed
that Chanes would give a reference for Petroci to future prospective
employers. Id. The parties agreed that there would be a provision in the
settlement agreement regarding remedies in the event of a breach of the
agreement by either party. Id. at 8. Finally, Dumond Chemicals, Inc. would
take out a life insurance policy on Chanes in an amount sufficient to cover the
full balance of the settlement payment to Petroci, with the amount of the
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policy to decline over time as settlement payments are made to Petroci. Id.
at 13. Dumond Chemicals, Inc. would be the owner of the policy, and the
beneficiary, in the event of Chanes’s death, would be Petroci. Id. The parties
agreed that the cost of the insurance policy would be born equally by the
parties. Id. at 14. Both Chanes and Petroci agreed to the terms of the
settlement on the record and thanked Judge Mahon for his time and
assistance. Id. at 8-9, 14-15. After these on-the-record representations, the
trial court dismissed the jury. Petroci then took possession of the disputed
items in the storage unit.
The parties thereafter attempted to agree on a written settlement
agreement and submitted competing drafts of a settlement agreement.
Ultimately, they reached an impasse regarding several terms that were not
stated on the court record, but which the Dumond Parties insisted be included
in the settlement agreement. Specifically, the Dumond Parties insisted that
the $3,600,000 in settlement payments be treated as “wages” to Mr. Petroci
for tax purposes. The Dumond Parties also insisted that the written settlement
agreement include a provision which rendered Dumond Chemicals, Inc.’s
obligation to pay the settlement amount voidable if any of its lenders objected
to the settlement payment for any reason. The Dumond Parties further
insisted that the settlement agreement include a three-year non-compete
provision. The Dumond parties additionally insisted on a provision which
permitted Dumond Chemicals, Inc. to reduce its payment obligations to
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Petroci by $1,100,000 by making an early payment. The Dumond Parties also
sought to include terms regarding requested representations, assurances to
lenders, trade secrets, proprietary information, and dispute resolution. Mr.
Petroci refused to accept these additional terms.
In October 2021, the Dumond Parties filed a motion to dissolve the
purported settlement.5 On December 17, 2021, the trial court entered an
order denying the motion and directing the prothonotary to mark the matter
as settled on both dockets. On December 23, 2021, the trial court entered a
praecipe to enter judgment in favor of Petroci and against the Dumond Parties
at both dockets. The Dumond Parties filed timely notices of appeal,6 and both
they and the trial court complied with Pa.R.A.P. 1925.
The Dumond Parties raise the following issues for our review:
1. Was a purported settlement enforceable when the parties
agreed to certain terms of the settlement while expressly
leaving material terms open, and, in one case, represented that
outside expertise was necessary?
2. May a trial court summarily deny a motion to revisit a
purported settlement agreement when there are material
disputes of fact and a party has requested limited discovery or
an evidentiary hearing?
Dumond Parties’ Brief at 4.
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5 The Dumond parties also filed a motion for recusal of Judge Mahon, which
the trial court denied.
6 The Dumond Parties separately appealed from the order denying their
motion for recusal and the praecipe entering judgment against them. Those
appeals were dismissed as duplicative of the instant appeal.
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The first issue raised by the Dumond Parties pertains to the
enforceability of the settlement agreement reached between the parties. The
enforceability of settlement agreements is determined according to principles
of contract law. See Mazella v. Koken, 739 A.2d 531, 536-37 (Pa. 1999).
Because contract interpretation is a question of law, this Court is not bound
by the trial court’s interpretation. See Ragnar Benson, Inc. v. Hempfield
Township Mun. Auth., 916 A.2d 1183, 1188 (Pa. Super. 2007). Our
standard of review over questions of law is de novo and to the extent
necessary, the scope of our review is plenary, as this court may review the
entire record in making its decision. Id.With respect to factual conclusions, the intent of the parties is a question
of fact which must be determined by the factfinder. See Johnston v.
Johnston, 499 A.2d 1074, 1076 (Pa. Super. 1985). A reviewing court must
defer to the findings of the trier of the facts if they are supported by the
evidence. Id. 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. See Skurnowicz v. Lucci, 798 A.2d 788, 793 (Pa. Super. 2002).
As this Court has explained:
The law of this Commonwealth establishes that an
agreement to settle legal disputes between parties is favored.
There is a strong judicial policy in favor of voluntarily settling
lawsuits because it reduces the burden on the courts and
expedites the transfer of money into the hands of a complainant.
If courts were called on to re-evaluate settlement agreements, the
judicial policies favoring settlements would be deemed useless.
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Mastroni-Mucker v. Allstate Ins. Co., 976 A.2d 510, 518 (Pa. Super. 2007)
(internal citations and quotation marks omitted).
Where a settlement agreement contains all of the requisites for a valid
contract, a court must enforce the terms of the agreement even if the terms
of the agreement are not yet formalized in writing. See id.; see also
Johnston, 499 A.2d at 1076 (holding that, if the parties agree upon essential
terms and intend them to be binding, a contract is formed even though they
intend to adopt a formal document with additional terms at a later date); Wolf
v. CONRAIL, 840 A.2d 1004, 1006 (Pa. Super. 2003) (holding that a
settlement agreement, entered verbally before the trial judge, that expresses
the intention of the parties to settle the case for an agreed amount of money
is valid and binding despite the absence of any writing or formality); Mazella,
739 A.2d at 536 (holding that “[e]ven the inability of the parties to an oral
agreement to reduce such agreement to writing after several attempts does
not necessarily preclude a finding that the oral agreement was enforceable”).
“A settlement will not be set aside absent a clear showing of fraud, duress or
mutual mistake.” Rago v. Nace, 460 A.2d 337, 339 (Pa. Super. 1983).
The Dumond Parties claim that the settlement reached in open court is
not enforceable because there was no meeting of the minds on numerous
essential terms. The Dumond Parties claim that the tax treatment for the
settlement payments was an essential term and, because they indicated to
the trial court on the record that they would need to consult with tax experts,
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there was no meeting of the minds on this unresolved material term. The
Dumond Parties also point out that Petroci was given the stock at the inception
of his tenure with the company in exchange for his faithful service to the
company. They claim that, since Petroci did not pay for the stock, it makes
sense that the stock be characterized as “wages” for his services.
The Dumond Parties additionally claim that there were numerous other
essential and material terms that they informed the trial court they would
need to discuss and resolve (or within the umbrella of the terms they
identified, such terms commonly included in a business divorce), including
terms regarding requested representations, assurances to lenders, trade
secrets, proprietary information, dispute resolution, and cure period. They
argue that because the parties could not resolve these additional terms, there
was no meeting of the minds and, therefore, no settlement to enforce.
The trial court considered the Dumond parties’ first issue and concluded
that it lacked merit. The court reasoned:
. . . The parties before the undersigned were faced with the
immediate resumption of a jury trial and[,] as such, time was of
the essence in settling the case. Even though the agreement
placed on the record may have been in outline form, the essential
terms of the agreement were consented to by the parties, on the
record, intending themselves to be mutually bound by those
terms. The fact that they could not achieve a written document
that all parties would sign after six plus (6+) months is not
controlling. What is controlling is that [Petroci] agreed to
relinquish his twenty percent (20%) stock ownership in Dumond
[Chemicals, Inc.] and Dumond, LLC in exchange for payment from
Dumond [Chemicals, Inc.] of $3.6 million and return [to Petroci]
of all the esports memorabilia and precious metals in Dumond [
Chemicals, Inc.]’s possession in a storage facility. The obligation
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of Dumond [Chemicals, Inc.] would be personally guaranteed by
. . . Chanes. There would be a $1 million payment by December
31, 2021 ($750,000 by July 31, 2021[,] and $250,000 by
December 31, 2021) with the remaining balance being paid over
the course of four (4) years by December 31 of each year. There
would be a four percent (4%) interest on any outstanding balance.
There would be a confidentiality provision about the agreement
(which has been waived by [the Dumond Parties] by pursuing this
relief) as well as no disparagement among the parties. There
would be no admissions of liability. In addition, the parties would
agree on reference language on any inquiries made by potential
or prospective employers of . . . Petroci and that the settlement
funds would be secured by a life insurance policy on . . . Chanes.
The value of the policy would decrease as payments were made[,]
and the premium for the life insurance policy would be equally
shared by Dumond [Chemicals, Inc.] and Petroci. The parties
assented on the record to these terms.
[The Dumond Parties] now suggest that there was no
meeting of the minds with respect to issues of how the payments
would be treated for tax purposes and “other items that are
frequently in cases involving business divorce, termination
issues.” These issues are not essential to the formation of the
contract to settle this litigation. The parties can deal with the tax
consequences of the payments as they see fit in declaring them
with the Internal Revenue Service. However, the settlement is
clear that the payments to Petroci are for his ownership interests
in Dumond [Chemicals, Inc.], Dumond, LLC[,] and Dumond, Inc.
a successor to Dumond [Chemicals, Inc.]). At the time of the
settlement, Petroci was not an employee of any of these entities.
As to the “other items” frequently addressed in business divorces,
as well as the reference language, those terms are not sufficiently
articulated on the record and are not essential or material terms
to the settlement agreement. This holds true for the tax
implications of the payments as well.
Trial Court Order, 12/17/21, n.1 (page 4) (unnecessary capitalization and
citations to the record omitted).
After careful review of the certified record, we conclude that the trial
court’s determination that a binding and enforceable settlement agreement
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was reached by the parties is amply supported by the record. The parties
manifested their assent to the terms of the settlement agreement and stated
the material terms of that agreement on the record in open court. Specifically,
the parties agreed to: the settlement amount; the dates of payment of the
settlement amount by Dumond Chemicals, Inc. to Petroci; interest to accrue
on any late payments; the surrender of company stock by Petroci; that Petroci
would take possession of the disputed items; a confidentiality provision; a no
disparagement provision; a no admission of liability provision; a reference
from Chanes to prospective employers; and a life insurance policy on Chanes
to secure the settlement payments. Indeed, both Chanes and Petroci stated
their agreement to the terms of the settlement and profusely thanked Judge
Mahon for his time and assistance. See N.T., 4/821, at 8-9, 14-15. Moreover,
based on the parties’ clear manifestation of assent to the terms of this
settlement agreement, the trial was terminated, the jury was discharged, the
litigation was suspended, and Petroci took possession of the disputed items.
Thus, the Dumond parties’ claim that there was no meeting of the minds that
a settlement of the litigation had, in fact, occurred rings hollow.
In short, there was an offer by Dumond Chemicals, Inc. (the settlement
figure), acceptance of the offer by Petroci, and consideration (in exchange for
the parties terminating their lawsuits, Dumond Chemicals, Inc. would pay
Petroci the agreed upon sum of $3,600,000). See Mastroni-Mucker, 976
A.2d at 518 (explaining that, where there is an offer, acceptance, and
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consideration, a settlement agreement will be enforced). That the Dumond
Parties may now regret the agreed-upon terms of the settlement agreement
is of no consequence. See Pennsbury Vill. Assocs., LLC v. McIntyre, 11
A.3d 906, 915 (Pa. 2011) (holding that “[h]owever improvident their
agreement may be or subsequently prove for either party, their agreement,
absent fraud, accident or mutual mistake, is the law of their case”). Therefore,
as the Dumond Parties do not allege fraud, accident or mutual mistake, we
discern no error or abuse of discretion on the part of the trial court in denying
the motion to dissolve the settlement agreement. See id. at 914 (stating that
“[a] settlement agreement will not be set aside absent a clear showing of
fraud, duress, or mutual mistake”). Accordingly, The Dumond Parties’ first
issue warrants no relief.
In their second issue, the Dumond Parties contend that the trial court
was required to conduct an evidentiary hearing prior to ruling on its motion to
dissolve the settlement agreement. In matters of contested settlement
agreements, an evidentiary hearing into the existence and binding effect of a
settlement agreement is the appropriate procedure to be followed. See
Limmer v. Country Belle Cooperative Farmers, 286 A.2d 669, 670 (Pa.
Super. 1971) (remanding for an evidentiary hearing where the record did not
establish the date on which the settlement offer was made to the plaintiff, the
exact content of the offer, the manner in which it was presented to the
plaintiff, and the time, manner and circumstances surrounding the acceptance
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by the plaintiff); see also Christian v. Allstate Ins. Co., 502 A.2d 192, 194
(Pa. Super. 1985) (vacating the trial court’s order granting a petition to
enforce an out-of-court settlement agreement, which one of the parties denied
was ever reached, where the trial court did not hold an evidentiary hearing
and instead made findings of fact, without a record, concerning disputed
issues); Houston-Starr Co. v. Virginia Manor Apts., Inc., 440 A.2d 613,
615 (Pa. Super. 1982) (holding that the trial court erred in entering the order
vacating a disputed settlement agreement without first conducting an
evidentiary hearing and making findings of fact concerning the terms of the
settlement agreement). Furthermore, a party’s failure to request an
evidentiary hearing is not dispositive of the case, as it is for the trial court to
hold a hearing on the existence of the settlement as a matter of judicial
procedure. See Christian, 502 A.2d at 194.
In support of their argument, the Dumond parties rely on Christian,
wherein this Court held:
Where the pleading raises an issue of fact relative to a
purported settlement, the trial court must conduct an evidentiary
hearing; and where the court fails to do so, its failure is not waived
by a party’s failure to object. The court may be required to
determine if an offer to settle was tendered, if it was accepted, if
counsel had authority to act, the terms of the settlement and
possibly other matters.
Id. at 194. The Dumond parties claim that the status and nature of Petroci’s
interest in Dumond Chemicals, Inc. was not resolved by the parties, and the
trial court left this dispute and other material disputes unresolved. See
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Dumond Parties’ Brief at 42. On this basis, the Dumond Parties request a
remand for the trial court to conduct an evidentiary hearing.
Based on our review of the record, we conclude that an evidentiary
hearing was not warranted in this matter. The on-the-record testimony of the
parties and their counsel clearly establish an offer by Dumond Chemicals, Inc.
(the settlement figure), acceptance of the offer by Petroci, and consideration
(in exchange for both parties terminating their lawsuits, Dumond Chemicals,
Inc. would pay Petroci the agreed upon sum of $3,600,000). The Dumond
Parties cite no case, rule, or statute requiring that a trial court conduct an
evidentiary hearing prior to ruling on a motion to dissolve a settlement
agreement where, as here, there is no dispute that an offer to settle was
tendered, it was accepted, and the record contains the material terms of the
settlement and the parties’ acquiescence. Cf. Christian, 502 A.2d at 194
(noting the need for an evidentiary hearing where an insufficient record
exists for appellate review of a settlement agreement); see also Mastroni-
Mucker, 976 A.2d at 518 (explaining that, where there is an offer,
acceptance, and consideration, a settlement agreement will be enforced).
Thus, as the record establishes an enforceable settlement agreement, there
was no issue of fact regarding the agreement which required an evidentiary
hearing. Accordingly, the Dumond Parties’ second issue merits no relief.
Judgments affirmed.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 8/8/2023
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