North East Educational v. Killer Interactive

J. A11005/15
NON-PRECEDENTIAL DECISION – SEE SUPERIOR COURT I.O.P. 65.37
NORTH EAST EDUCATIONAL : IN THE SUPERIOR COURT OF
ASSOCIATES, INC., D/B/A : PENNSYLVANIA
BRIDGEWAY ACADEMY, :
:
Appellant :
:
v. :
: No. 1182 EDA 2014
KILLER INTERACTIVE, LLC, AND :
JASON PIJUT :
Appeal from the Judgment Entered June 18, 2014,
in the Court of Common Pleas of Northhampton County
Civil Division at No. C48-CV2013-3583
BEFORE: FORD ELLIOTT, P.J.E., OLSON AND WECHT, JJ.
MEMORANDUM BY FORD ELLIOTT, P.J.E.: FILED JUNE 03, 2015
Appellant brings this appeal from the judgment entered June 18, 2014,
which found in favor of appellees regarding appellant’s lawsuit against
appellees which sounded in breach of contract, fraud, unjust enrichment,
and which sought to pierce the corporate veil. Appellees were also partially
victorious on a counterclaim. Finding no error below, we affirm.
Appellant, North East Educational Associates, Inc., doing business as
Bridgeway Academy (“Bridgeway”), is a company that markets programs
and support to parents who wish to home school their children.
Jessica Parnell (“Parnell”) is the president of North East Educational
Associates, Inc. Killer Interactive, LLC (“Killer”), is a company that creates
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custom software and internet websites. Jason Pijut (“Pijut”) is the chief
operating officer of Killer.
On November 8, 2011, Bridgeway and Killer entered into a written
contract for Killer to design a custom internet website for Bridgeway. The
work was to be completed in six phases with the following completion dates:
Phase 1 -- January 1, 2012; Phase 2 -- April 2, 2012;1 Phase 3 -- April 20,
2012; Phase 4 -- April 20, 2012; Phase 5 -- August 1, 2012; and Phase 6 --
September 21, 2012. Moreover, the parties viewed the completion of
Phase 2, the customer relationship management software, as the most
crucial piece of the new system.
The written contract also contained the following termination terms:
Termination can occur at any point during the
project. The CLIENT reserves the right to terminate
this Agreement upon thirty (30) days written notice
to Killer for any cause. Killer shall, at its option,
have the right to terminate this agreement with
retention of all fees paid as of the date of
termination, in the event that CLIENT breaches any
of its obligations under this agreement.
In the event of any termination or cancellation of this
agreement by CLIENT, CLIENT shall be liable to Killer
for only the pro rata portion of the fee, at the
discretion of Killer up to a $1,000.00 cancellation fee
and expenses set forth in this Agreement.
Agreement, Termination Clause.
1
Appellant’s brief states April 20, 2012, as the completion date for Phase 2.
(Appellant’s brief at 12.) However, the agreement itself bears the date we
use.
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Finally, the contract obligated Bridgeway to make an initial payment of
$8,600 to Killer, followed by nine additional monthly payments of $8,600,
for a total payment of $86,000. (Agreement, Payment Schedule and
Timeline Clause.)
At trial, the parties were in dispute as to Killer’s performance under
the contract. According to Pijut, the website was live but had simply not
been activated, while Parnell testified that none of the six phases had been
completed. (Notes of testimony, 3/11/14 at 26-27, 72-74, 79; 130-131.)2
What the parties apparently did agree upon is the misrepresentation of Killer
employee Jonathan Koray Girton (“Girton”) to Bridgeway.
Girton was Killer’s primary project developer for the Bridgeway
project. (Id. at 36, 248.) Indeed, it was Girton who initially “sold” Parnell
on hiring Killer, because Girton had “the vision.” (Id. at 125.) Ultimately,
Pijut discovered that Girton had fallen badly behind in the development of
the Bridgeway project, especially in regard to the critical Phase 2. (Id. at
79-80.) Pijut also discovered that Girton had actually created a sham search
engine program as part of Phase 2 in order to deceive Parnell and Bridgeway
as to his progress. (Id. at 227-228, 236, 261-262.) As a result, Pijut fired
Girton on June 19, 2012. (Id. at 250.)
2
Pijut specifically testified that the critical Phase 2 customer relationship
management software had been installed, but had not yet been made
available to Bridgeway. (Id. at 79.)
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Pijut claimed that he informed Parnell of Girton’s deception during a
telephone conversation at that time. (Id. at 77.) Pijut also stated that he
had a sit-down meeting with Parnell and Bridgeway on June 20, 2012, where
he again informed them about Girton’s deception including his fabrication of
the fake search engine. (Id. at 82, 226-228, 236.) At the time, Pijut
informed Parnell and Bridgeway that he believed that Killer could still meet
its obligations, stating that they “should be on target or very close on the
rest of the phases.” (Id. at 81.) However, when Pijut and his other
employees subsequently reviewed Girton’s computer code, they discovered
that it was going to take more time and effort to fix than they had first
thought. (Id. at 82, 237.)
For her part, Parnell denied that she was informed in June as to
Girton’s deception. (Id. at 128.) Rather, she claimed that the deception did
not come to her knowledge until November 2012. (Id. at 128-129.) On or
about November 30, 2012, Bridgeway informed Killer that they were done
making payments on the contract. (Id. at 130.) Bridgeway had, in fact, not
made a payment to Killer since May 2012. (Id. at 146.) Sometime in
mid-December of 2012, Bridgeway told Killer that they were no longer to
work on the project. (Id. at 66.) Finally, Parnell admitted that after Girton
was fired from Killer, she hired him to create a warehouse management
system that would “talk the same language” as the system Killer was
creating under Phase 2. (Id. at 146-147.)
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Bridgeway filed its Complaint on April 18, 2013. As noted, it sounded
in breach of contract, fraud, unjust enrichment, and sought to pierce the
corporate veil in order to hold Pijut personally liable. Killer and Pijut filed
their Answer, New Matter, and Counterclaim on May 30, 2013. The
Counterclaim sought the $22,650 that was still owing on the contract, plus
compensation for additional work that had been performed, and the $1,000
wrongful cancellation charge described in the termination clause. Both sides
also sought counsel fees.
Following a bench trial on March 11, 2014, the trial court rendered its
decision on March 13, 2014. The court found in favor of Killer on all counts
of both the Complaint and the Counterclaim except that count of the
Counterclaim seeking the $22,650 that Killer claimed was still owing. The
court found that Killer was owed $60,586 for the contract work performed,
$2,000 for additional work, and $1,000 for the wrongful termination charge,
for a total of $63,586. The court further found that Bridgeway had overpaid
this amount, having made payments to Killer totaling $66,500. Therefore,
the court awarded Bridgeway the difference between the sums, $2,914. No
counsel fees were awarded. Following post-trial motions, Bridgeway filed
this timely appeal.
On appeal, Bridgeway raises the following issues:
A. Did the lower court err in asserting that it was
compelled to enforce specific terms of the
written contract against the Plaintiff when, as a
matter of law, Defendants admitted fraudulent
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misrepresentations to Plaintiff voided the terms
of the contract which the lower court construed
against Plaintiff?
B. Did the lower court err in denying the Plaintiffs’
claim for damages arising from Defendants’
material breach of the contract and/or from
Defendants’ unjust enrichment when the lower
court conceded and/or the evidence adduced
at trial demonstrated (a) Plaintiff paid
$66,500.00 to Defendants on a contract for the
installation of a software system, (b) that
Defendants failed to install the software
system pursuant to the contract, and (c) that
Defendants’ failure to install the software
system was the result of Defendants’ wrongful
and intentional conduct?
C. Did the lower court err in failing to pierce the
corporate veil despite (a) Defendants’
admissions that the corporation was severely
undercapitalized, (b) Defendants’ admission
that Jason Pijut comingled his personal funds
and debts with those of the LLC, and (c) The
fact that the Defendants were involved in the
perpetration of a fraud?
Bridgeway brief at 7.
We begin our analysis with our standard of review:
Our review in a non-jury case is limited to whether
the findings of the trial court are supported by
competent evidence and whether the trial court
committed error in the application of law. We must
grant the court’s findings of fact the same weight
and effect as the verdict of a jury and, accordingly,
may disturb the non-jury verdict only if the court’s
findings are unsupported by competent evidence or
the court committed legal error that affected the
outcome of the trial. It is not the role of an
appellate court to pass on the credibility of
witnesses; hence we will not substitute our judgment
for that of the fact[-]finder. Thus, the test we apply
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is not whether we would have reached the same
result on the evidence presented, but rather, after
due consideration of the evidence which the trial
court found credible, whether the trial court could
have reasonably reached its conclusion.
Agostinelli v. Edwards, 98 A.3d 695, 704 (Pa.Super. 2014), appeal
denied, A.3d , (Pa. Apr 01, 2015) (NO. 698 MAL 2014), quoting
Lynn v. Pleasant Valley Country Club, 54 A.3d 915, 919 (Pa.Super.
2012).
Bridgeway first complains that the trial court erred in enforcing the
obligations of the contract because the contract was rendered void by
Girton’s misrepresentation.
In order to void a contract due to a fraudulent
misrepresentation, the party alleging fraud must
prove, by clear and convincing evidence: (1) a
representation; (2) which is material to the
transaction at hand; (3) made falsely, with
knowledge of its falsity or recklessness as to whether
it is true or false; (4) with the intent of misleading
another into relying on it; (5) justifiable reliance on
the misrepresentation; and (6) resulting injury
proximately caused by the reliance. Bortz v. Noon,
556 Pa. 489, 499, 729 A.2d 555, 560 (1999); Gibbs
v. Ernst, 538 Pa. 193, 207, 647 A.2d 882, 889
(1994). All of these elements must be present to
warrant the extreme sanction of voiding the
contract.
Porreco v. Porreco, 811 A.2d 566, 570-571 (Pa. 2002).
Bridgeway cannot void the contract because no injury was caused by
reliance on Girton’s misrepresentation. The trial court specifically found the
testimony of Pijut to be credible as to alerting Bridgeway to Girton’s
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misrepresentation in June of 2012. (Pa.R.A.P. 1925(a) STATEMENT,
11/10/14 at 4-5.) Thereafter, Bridgeway did not immediately give 30 days’
notice that it desired to terminate the contract; rather, Bridgeway apparently
acceded to Killer’s entreaties to allow their relationship to continue and that
Killer would attempt to meet its contractual obligations. Thus, Bridgeway
did not rely on Girton’s misrepresentation, but chose to proceed with full
knowledge of it. Moreover, the injury here is a delay in completion of the
contract on schedule. By going forward after it had been advised of Girton’s
misrepresentation, Bridgeway accepted the delay caused by Girton. In sum,
the contract here is not voidable because of any reliance on Girton’s
misrepresentation.
In its next issue, Bridgeway argues that the trial court’s decision is
absurd, because it “paid [Killer] $66,500, but received nothing of any value
as a result of fraudulent conduct of Mr. Girton,” 3 that “[t]here is no doubt
that none of the six proposed phases of the System are accessible and
operational,”4 and that it is egregiously absurd that Bridgeway is being
forced to pay Killer for any work done by Girton. This argument is
essentially that the verdict is against the weight of the evidence.
[a]ppellate review of a weight
claim is a review of the [trial court’s]
exercise of discretion, not of the
underlying question of whether the
3
Bridgeway brief at 36.
4
Bridgeway brief at 37.
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verdict is against the weight of the
evidence. Because the trial judge has
had the opportunity to hear and see the
evidence presented, an appellate court
will give the gravest consideration to the
findings and reasons advanced by the
trial judge when reviewing a trial court’s
determination that the verdict is against
the weight of the evidence. One of the
least assailable reasons for granting or
denying a new trial is the lower court’s
conviction that the verdict was or was
not against the weight of the evidence
and that a new trial should be granted in
the interest of justice.
Accordingly, there is a general rule barring appellate
review of weight claims in the first instance. As
such, where an appellant fails to raise a weight claim
before the trial court, thus preventing it from
addressing the claim from the vantage point of
having presided over the trial, the claim is
unreviewable on appeal.
Phillips v. Lock, 86 A.3d 906, 919 (Pa.Super. 2014), quoting In re Estate
of Smaling, 80 A.3d 485, 490-491 (Pa.Super. 2013) (en banc) (citations
omitted).
Bridgeway did not raise a weight of the evidence claim in its motion for
post-trial relief but only addressed the issue of fraud and the voidability of
the contract. The trial court did not review the weight of the evidence and
there is nothing for us to review. The failure to include a weight of the
evidence claim in a post-trial motion waives the claim. Bensinger v.
University of Pittsburgh Medical Center, 98 A.3d 672, 685 (Pa.Super.
2014).
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We note that the trial court regarded this issue not as a weight of the
evidence claim, but as a challenge to its determination of damages
(Pa.R.A.P. 1925(a) STATEMENT, 11/10/14 at 5.) To the extent that
Bridgeway’s argument presents a question of whether the evidence supports
the damages awarded, we reiterate the following standard of review:
If a verdict bears a reasonable resemblance to
the proven damages, this Court will not substitute its
assessment for that of the trier of fact. Reimer v.
Tien, 356 Pa.Super. 192, 514 A.2d 566 (1986). Our
standard of review is extremely narrow. Taylor v.
Celotex, 393 Pa.Super. 566, 593, 574 A.2d 1084,
1098 (1990). An order for remittitur is only justified
if the verdict is unsupported by the evidence or was
the product of “partiality, prejudice, mistake or
corruption.” [Rafter v. Raymark Industries, Inc.,
429 Pa.Super. 360, 371, 632 A.2d 897, 902 (1993)].
Barrack v. Kolea, 651 A.2d 149, 156 (Pa.Super. 1994), appeal denied,
668 A.2d 1134 (Pa. 1995).
Bridgeway’s claims that it paid Killer $66,500, but received nothing of
any value and that none of the six proposed phases were accessible and
operational relies wholly on Bridgeway testimony. The testimony presented
on behalf of Killer readily supports that it had implemented much of the
necessary computer code, but that the code had simply not been activated
yet:
Q. Do you recall your testimony earlier?
A. Yes.
Q. Do you recall your testimony about the
website?
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A. Yes.
Q. And you conceded, did you not, that the
website is not accessible from the World Wide
Web at this point, correct?
A. I know it was accessible is what I said. I said
it wasn’t -- it wasn’t accessible through a dot
com. It was accessible through an IP address.
Q. All right. But you can’t type in Bridgeway
Academy into Google and get that website,
correct?
A. No. The main -- like I said, I can explain it if
--
Q. Is that correct? Is that correct? You can’t -- if
you type in Bridgeway Academy --
A. Sure. You -- the main -- the dot com was
never appointed to that IP address.
Q. Okay. So just for everyone’s understanding, if
you type in Google like I do, Bridgeway
Academy, a website comes up, but it’s not the
website -- it’s not this website?
A. No. They opted never to put it live.
Q. All right. For reasons that were discussed at a
previous exhibit where they said there were
problems?
A. For his -- yeah. For his breakdown of the
search issues that he believed he was going to
have.
Q. So -- and certainly [Phase 2] was never
complete, correct?
A. The Family File Section of [Phase 2] was
completed where family files can be corrected
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and indexed and cross-referenced and
searched and all those pieces. All that was
completed.
Q. [Phase 2] as outlined in the proposal is not
complete, correct?
A. The full phase of it, no, was not completed.
Notes of testimony, 3/11/14 at 73-75 (cross-examination of Pijut).
This testimony clearly indicates that Killer completed parts of the
computer code, including parts of Phase 2, albeit not all of the project. The
trial court credited Killer’s efforts with a value of $60,586.25 on a contract
bearing a total value of $86,000. (Pa.R.A.P. 1925(a) STATEMENT, 11/10/14
at 5.)5 Killer was plainly not accorded the value of the completed project.
The trial court based its finding, in part, on trial exhibit number 27, which
was a report of Killer’s billable hours to date. Id. We find that the evidence
supported the ultimate award to Bridgeway, and we find no error in the trial
court’s assessment.
In its final issue, Bridgeway contends that the trial court erred in
failing to pierce the corporate veil in order to hold Pijut personally liable.
[T]here is a strong presumption in
Pennsylvania against piercing the
corporate veil. Wedner v.
Unemployment Board, 449 Pa. 460,
464, 296 A.2d 792, 794 (1972) (“[A]ny
court must start from the general rule
that the corporate entity should be
recognized and upheld, unless specific,
unusual circumstances call for an
5
The final award ignored the extra 25 cents accorded to Killer.
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exception. . . . Care should be taken on
all occasions to avoid making the entire
theory of corporate entity * * * useless.
Zubik v. Zubik, 384 F.2d 267, 273 (3d
Cir.1967)”). Also the general rule is that
a corporation shall be regarded as an
independent entity even if its stock is
owned entirely by one person. College
Watercolor Group, Inc. v. William H.
Newbauer, Inc., 468 Pa. 103, 117, 360
A.2d 200, 207 (1976).
Commonwealth Court has set out
the factors to be considered in
disregarding the corporate form as
follows:
undercapitalization, failure to
adhere to corporate
formalities, substantial
intermingling of corporate and
personal affairs and use of the
corporate form to perpetuate a
fraud. Department of
Environmental Resources v.
Peggs Run Coal Co[.], [423
A.2d 765 (Pa.Cmwlth.1980)].
Kaites v. Dept. of Environmental
Resources, [529 A.2d 1148, 1151
(Pa.Cmwlth.1987)]. See also
Watercolor Group v. Newbauer, 468
Pa. at 117, 360 A.2d at 207, (corporate
veil may be pierced whenever one in
control of a corporation uses that control
or corporate assets to further his
personal interests).
Lumax Industries, Inc. v. Aultman, 543 Pa. 38,
41-42, 669 A.2d 893, 895 (1995). “Nevertheless, ‘a
court will not hesitate to treat as identical the
corporation and the individuals owning all its stocks
and assets whenever justice and public policy
demand and when the rights of innocent parties are
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not prejudiced thereby nor the theory of corporate
entity made useless.’” Good v. Holstein, 787 A.2d
426, 430 (Pa.Super.2001) (quoting Kellytown Co.
v. Williams, 284 Pa.Super. 613, 426 A.2d 663, 668
(1981)). Stated differently, “‘[T]he corporate form
will be disregarded only when the entity is used to
defeat public convenience, justify wrong, protect
fraud or defend crime.’” Good, 787 A.2d at 430
(quoting First Realvest, Inc. v. Avery Builders,
Inc., 410 Pa.Super. 572, 600 A.2d 601, 604
(1991)).
Advanced Telephone Systems, Inc. v. Com-Net Professional Mobile
Radio, LLC, 846 A.2d 1264, 1277-1278 (Pa.Super. 2004) (footnote
omitted), appeal denied, 859 A.2d 767 (Pa. 2004).
We find no basis for piercing the corporate veil. Bridgeway did adduce
testimony that Pijut made personal withdrawals on the Killer corporate bank
account, but as Killer and Pijut indicate, the amounts were not significant
enough, compared to Killer’s gross receipts, to merit piercing the corporate
veil. Bridgeway also argues that Killer was undercapitalized because there
were no funds to pay a subcontractor Killer hired to work on the Bridgeway
project.6 However, Pijut testified that he was relying on future payments
from Bridgeway as well as other incoming funds to pay the subcontractor.
(Notes of testimony, 3/11/14 at 113.) Finally, the use of the corporate form
here was not instrumental to the fraud that was alleged. Simply stated, this
is not an example of the grievous misuse of the corporate form required to
pierce the corporate veil. Given the strong presumption in Pennsylvania
6
Reenhanced, LLC.
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against piercing the corporate veil, we must affirm the trial court’s decision
not to do so.
Accordingly, having found no merit in the issues on appeal, we will
affirm the judgment entered below.
Judgment affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 6/3/2015
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