Linde, E. v. Linde, S.

J-A01044-19
2019 PA Super 160ERIC R. LINDE : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
SCOTT F. LINDE, :
:
Appellant : No. 451 EDA 2018
Appeal from the Judgment Entered April 2, 2018, 2018
In the Court of Common Pleas of Wayne County Civil Division at No(s):
167-CIVIL-2016
BEFORE: OTT, J., STABILE, J., and McLAUGHLIN, J.
OPINION BY McLAUGHLIN, J.: FILED MAY 21, 2019
Scott F. Linde appeals from the judgment entered in favor of Eric R.
Linde and against Scott following a non-jury trial in this action to enforce a
settlement agreement. We affirm.
Eric filed a Complaint in March 2016 alleging a breach of contract claim
based on a June 2014 Settlement Agreement between Eric and Scott. Eric
sought specific performance of the Settlement Agreement. Scott filed an
Answer, with new matter and counterclaims. His counterclaims included a
breach of contract claim alleging that Eric breached the Settlement
Agreement. The trial court conducted a non-jury trial.
Eric and Scott are brothers. They have a sister, Barbara, who is not a
party to this litigation. Their father started a construction company known as
Linde Enterprises, Inc. (“LEI”), and gave his children shares of LEI common
stock. Initially, Eric and Scott each owned 300 shares of stock and Barbara
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owned 100 shares. Eric still owns 300 shares of stock. Scott placed his shares
into the Scott F. Linde Family S Corporation Trust (“Scott Trust”). Scott is not
only the settlor of the Scott Trust, but also the sole trustee and the sole
beneficiary during his lifetime. Barbara placed her shares into the Barbara J.
Linde Family S Corporation Trust (“Barbara Trust”).
From 1999 until the present, the siblings have been involved in multiple
lawsuits, including a 1999 shareholder derivative action filed by Eric against
Scott and Barbara. A trial in the action was scheduled to begin June 9, 2014.
However, on the morning of trial, Scott and Eric informed the court that they
had reached a settlement agreement for that action and all other disputes.1
They executed the Settlement Agreement. The parties appeared in court and
acknowledged that they understood and accepted the settlement terms. The
Settlement Agreement provided, in part, that, in exchange for Eric’s stock in
two companies, Scott would pay an initial payment of $1,000,000 and five
installment payments of $200,000 and would transfer to Eric his partnership
interests in Cloverleaf Partners, Golf Hill Partners, CWERSF Partnership, and
his interest as a tenant in common in land in Texas Township. Specifically, it
provided:
Eric Linde sells his 300 shares of Linde Enterprises, Inc.,
(LEI) (the “Stock”) and all his shares of stock in Lackawanna
Land and Energy, Inc. (LLE stock) to Scott F. Linde for the
consideration of Two Million ($2,000,000.00) Dollars plus
____________________________________________
1 Barbara filed a counterclaim in the Equity Action. She was given an
opportunity to present evidence as to this claim, and chose not to. Her
counterclaim was dismissed with prejudice.
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the conveyance of Scott’s Partnership Interest in three (3)
partnerships and his 50% interest as a tenant in common of
land in Texas Township, Wayne County as follows:
A. One Million ($1,000,000.00) Dollars 31 days after
the requirements for the sale of Eric’s stock is
completed in accordance with Article [3] of the
LEI Shareholders Agreement (the “Settlement
Date”).
B. One Million ($1,000,000.00) Dollars without interest
(0%) in five (5) equal installments of $200,000.00 each
with the first payment being due and payable one (1)
year after the Settlement Date (First Payment Date) and
each yearly payment thereafter in the amount of
$200,000.00 being due and payable on the second,
third, fourth and fifth payment dates.
C. Scott will convey his partnership interest in the following
Partnerships to Eric on the Settlement Date:
1. His one third (1/3) Partnership Interest in Cloverleaf
Partners
2. His full Partnership Interest in Golf Hill Partners being
42.859%
3. His full Partnership Interest in CWERSF Partnership
being 42.859%
4. His 50% interest as a tenant in common of 17 acres
of land in Texas Township
D. On the Settlement Date, as a condition of Settlement Eric
and Gary Linde shall resign as Officers and Directors of
LEI (effective at the time of Settlement).
Plaintiff’s Trial Exh. 3 (emphasis added). During the negotiations, the parties
did not discuss the Scott Trust purchasing any of Eric’s stock shares and did
not discuss purchase of the stock by Scott at terms other than those set forth
in the Settlement Agreement. Trial Court Opinion, filed Apr. 20, 2018, at ¶¶
21, 29.
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Under the terms of the Settlement Agreement, Eric was required to
comply with Article 3 of the LEI Shareholders Agreement, which required that
he provide notice to LEI and the remaining stockholders before he could sell
his 300 shares of LEI stock to Scott. Specifically, Article 3(a) of the LEI Stock
Purchase Agreement, which was executed on March 7, 1990, provides:
If any Stockholders desire to dispose of any of their voting
common stock of the Corporation during his or her lifetime,
whether by sale, gift, pledge, transfer voluntarily or by
operation of law, except for gifts which may be made to the
children of the Stockholder, or by any other means, he or
she shall first give written notice to that effect to the
Corporation and to the other remaining Stockholders. The
Corporation shall have ninety (90) days after receipt of such
notice to purchase all of such stock at the price established
in paragraph 2[2] of this Agreement provided that reference
in that paragraph to date of death shall here refer to the
date written notice is received by Corporation. If all of such
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2 Paragraph 2 provides:
2. Purchase Price
(a) Upon the death of any Stockholder, the purchase price
of his stock of the Corporation shall be its book value as of
December 31, of the last calendar year prior to the death of
the Stockholder, according to the books and accounts of the
Corporation as of that date prepared by the Corporation’s
accountant, unless a value for purposes of this Agreement,
and specifically referred thereto, shall have been
established between December 31, of the last calendar year
prior to the death of the Stockholder and the date of death
of the Stockholder. The purchase price to be paid for the
purchase and sale pursuant to this Agreement of each share
of stock owned by the deceased Stockholder, shall be the
book value of the Corporation as here before determined
divided by the number of issued and outstanding shares.
Defendant’s Trial Exh. 1, Stock Purchase Agreement, at ¶ 2(a).
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shares are not purchased within the above period by the
Corporation, all of the shares not purchased by the
corporation shall be offered to the other remaining
Stockholders at the price established in paragraph 2 of this
Agreement, each of whom shall have the right within thirty
(30) days from their notification to purchase such portion of
the stock to be disposed of as the numbers of shares owned
by him at such time shall bear to the total number of shares
owned by all of the other remaining Stockholders; provided,
however, that if any Stockholder does not purchase his full
proportionate allotment of the stock, the unaccepted stock
may be purchased by the other remaining Stockholders. If
all of the stock to be disposed of is not purchased by the
Corporation or the Stockholders before the expiration of the
second period above, Stockholder may dispose of any
remaining unsold shares in, any lawful manner; provided
that no disposition may occur to any person or entity who
would not qualify as a shareholder of a Corporation electing
Subchapter S treatment under the Internal Revenue Code.
Defendant’s Trial Exh. 1, Stock Purchase Agreement, at ¶ 3(a).
In a letter dated August 20, 2014, Eric provided LEI, the Scott Trust,
and the Barbara Trust written notice of his intent to dispose of his three
hundred shares of common stock of LEI. Plaintiff’s Trial Exh. 4. That same
day, LEI elected not to purchase any of the stock. Eric then sent written notice
to the Scott Trust and Barbara Trust of LEI’s decision to not purchase the stock
and of his intent to sell the shares. Plaintiff’s Trial Exh. 5. 3 The Barbara Trust
elected not to purchase the stock.
The Scott Trust sent a letter to Eric on September 10, 2014, notifying
Eric that it intended to purchase its pro rata share of Eric’s LEI stock pursuant
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3The letters were addressed to “Scott F. Linde[,] [Scott Trust],” at a James
Street address and “Barbara Linde[,] [Barbara Trust],” at a Golf Hill Road
address.
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to the Stock Purchase Agreement, which was three shares. Plaintiff’s Trial Exh.
6. On September 24, 2014, Eric sent a letter to counsel for Scott informing
him that, as “Scott F. Linde” was the only shareholder who agreed to purchase
the stock, Eric was “now free to convey his stock in any lawful manner” and
therefore, under the Settlement Agreement, Scott’s initial payment of
$1,000,000 was due on October 20, 2014. Plaintiff’s Trial Exh. 7. On
September 26, 2014, more than 30 days after the initial letter from Eric, the
Scott Trust informed Eric it would purchase under the Stock Purchase
Agreement the 209 shares of LEI stock that the Barbara Trust declined to
purchase. Plaintiff’s Trial Exh. 8.
The Scott Trust initiated a civil action in Luzerne County against Eric and
LEI requesting the court order Eric to sell and deliver 212 shares4 of LEI stock
to the Scott Trust (“Trust Action”). The Trust Action claimed the Scott Trust
was able to purchase the Barbara Trust’s shares even though it informed Eric
after the 30-day window. The Action was transferred to Wayne County and,
as of the time of trial in the instant action, was still pending.
Eric then initiated this action seeking specific performance of the
Settlement Agreement.
____________________________________________
4 The 212 shares consisted of the 209 shares that the Scott Trust elected to
purchase after the Barbara Trust declined and the Scott Trust’s pro rata share
of 3 shares that it elected to purchase.
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After the parties had rested in the trial for this action, the trial court
called Scott as a witness. The court questioned Scott, including questions
about the Scott Trust, and required him to produce the trust document, which
he did. N.T., 5/1/17, at 55-63.
The trial court made findings of fact, including that “Scott never intended
to purchase Eric’s LEI or LLE stock as per the terms of the Settlement. Rather,
Scott’s deceptive conduct in that regard was only a pretext to avoid the trial
of Eric’s 1999 [Derivative] Action.” Trial Ct. Op. at ¶ 30. The trial court found
that Eric completed the requirements for the sale of the LEI stock under the
Stock Purchase Agreement on September 19, 2014, 30 days from the date of
the letter Eric sent to the stockholders. Id. at ¶ 32. Therefore, the settlement
date under the Settlement Agreement was October 20, 2014, and Scott owed
Eric $1,000,000 on or before October 20, 2014. Id. at ¶¶ 32-33. Further,
Scott would have owed two of the five $200,000 payments by the time of trial.
Id. at ¶ 34. Scott did not make these payments.
At trial, Scott raised various defenses including claiming that the Stock
Purchase Agreement required a three-step process: offering stock to LEI,
offering stock to remaining shareholders, and offering to the shareholders the
stock declined by other shareholders. He argued Eric breached the Settlement
Agreement by not fulfilling his obligations to Scott and LEI in the Stock
Purchase Agreement. He further claimed that Eric did not obtain Barbara’s
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consent for the transfer of Scott’s interest in three Wayne County real estate
partnerships and the interest in the Texas Township, Wayne County property.
The trial court found Scott’s arguments lacked merit. Specifically, it
concluded that the Stock Purchase Agreement did not have a three-step
process. Trial Ct. Op. at ¶ 36. Rather, it required a two-step process before
an LEI shareholder could sell all or a portion of the stock to a third party. Id.
When Eric offered the stock to LEI, and LEI declined to purchase it, Eric was
required to offer it to the other shareholders, which Eric did. Id. at ¶ 38. The
shareholders had 30 days to purchase the stock. Id. The only shareholder
who timely expressed interest was the Scott Trust, and it expressed interest
in its pro rata share of Eric’s stock, which was three shares. Id. at ¶ 39. The
court concluded Eric could then sell his 300 LEI shares on or after September
19, 2014, in any lawful manner as long as the purchaser was qualified to
receive Subchapter S treatment under the Internal Revenue Code. Id. at 40.
The court further found Eric did not breach the Settlement Agreement
by any act or omission either before or after Scott’s October 20, 2014
repudiation. Id. at ¶ 41. The documents that required preparation and
execution at the closing were not prepared or executed because Scott and his
counsel refused to participate in the preparation and execution of the
documents. Id. at ¶ 43. It also found that if anyone had to notify Barbara of
the partnership transfers it was Scott, and he failed to do so. Id. at ¶ 44.
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The trial court therefore found in favor of Eric on his breach of contract
claim. For the same reasons outlined above, the trial court found against Scott
and in favor of Eric as to Scott’s counterclaim.
Scott filed a timely notice of appeal, and raises the following issues:
1. The lower Court committed an abuse of discretion and
erred as a matter of law in entering a non-jury verdict in
favor of Eric and Ordering Specific Performance of the
Settlement Agreement when Eric was in breach of the terms
of the Settlement Agreement.
2. The lower Court committed an abuse of discretion and
erred as a matter of law in entering a non-jury verdict
against Scott on Count II of his Counterclaim against Eric
when the evidence established that Eric was in breach of the
terms of the Settlement Agreement.
3. The lower Court committed an abuse of discretion and
erred as a matter of law:
a) In Ordering that Eric and Scott shall complete all
transactions set forth in the Settlement Agreement and
Scott shall pay Eric $1.4 million in accordance with
Sections 1A and IB of the Settlement Agreement when
Eric never complied with Article 3(a) of the Linde
Enterprises, Inc. Stock Purchase Agreement which was
required by Article IA of the Settlement Agreement
before a Settlement Date could be established; and
b) In awarding Eric simple interest at six (6%) percent
on the payments to be made under the Settlement
Agreement from October 20, 2014 until the date of
payment when no Closing was ever held because Eric was
in breach of the Settlement Agreement.
4. The lower court committed an abuse of discretion and
erred as a matter of law by calling Scott as a witness and
Ordering Scott to produce the Scott F. Linde Family S
Corporation Trust Agreement after both parties had rested
and the record was closed.
Scott’s Br. at 9-10.
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Scott’s first two issues claim the trial court erred in finding that Eric did
not violate the terms of the Settlement Agreement. He claims the court erred
when it ordered specific performance of the Settlement Agreement because
Eric did not complete the required steps set forth in the Stock Purchase
Agreement, which was a condition precedent to Scott’s obligation to pay the
$1,000,000. He maintains Eric did not complete the requirements of the Stock
Purchase Agreement because there was no closing to transfer any of the stock
from Eric to the Scott Trust. He further claims Eric failed to draft any of the
documentation for transfer of the partnerships.
Scott also claims the trial court erred in finding against Scott on his
counterclaim because the Scott Trust purchased the share on the pro rata
basis, not Scott. He argues the trial court ignored the alleged 3-step process
contained in the Stock Purchase Agreement. He further claims that until the
separate action filed by Scott Trust is decided it is unknown whether the Scott
Trust purchased 3 shares or 212 shares. He again claims that a closing with
Scott Trust never occurred and Eric did not draft any of the required
documents.
We apply the following 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 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
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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.
Bank of N.Y. Mellon v. Bach, 159 A.3d 16, 19 (Pa.Super. 2017) (quoting
Stephan v. Waldron Elec. Heating and Cooling LLC, 100 A.3d 660, 664–
65 (Pa.Super. 2014)).
To establish a breach of contract occurred, the party must prove: “(1)
the existence of a contract, including its essential terms; (2) a breach of the
contract; and (3) resultant damages.” Meyer, Darragh, Buckler, Beenek &
Eck, P.L.L.C. v. Law Firm of Malone Middleman, P.C., 137 A.3d 1247,
1258 (Pa. 2016).5 “Specific performance is an equitable remedy that permits
the court ‘to compel performance of a contract when there exists in the
contract an agreement between the parties as to the nature of the
performance.’” Lackner v. Glosser, 892 A.2d 21, 31 (Pa.Super. 2006)
(quoting Geisinger Clinic v. Di Cuccio, 606 A.2d 509, 521 (Pa.Super. 1992))
(emphasis omitted). “Specific performance should only be granted where the
facts clearly establish the plaintiff’s right thereto, where no adequate remedy
at law exists, and where justice requires it.” Id. (quoting Clark v.
Pennsylvania State Police, 436 A.2d 1383, 1385 (Pa. 1981)).
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5 It is undisputed that the Settlement Agreement is a valid contract.
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The trial court applied the doctrine of necessary implication to find that
the Settlement Agreement included a term precluding the Scott Trust from
purchasing Eric’s LEI stock under the terms of the Stock Purchase Agreement.
The doctrine of necessary implication provides:
[I]n the absence of an express provision, the law will apply
an agreement by the parties to a contract to do and perform
those things that according to reason and justice they
should do in order to carry out the purpose for which the
contract was made and to refrain from doing anything that
would destroy or injure the other party’s right to receive the
fruits of the contract.
Glassmere Fuel Serv., Inc. v. Clear, 900 A.2d 398, 402-03 (Pa.Super.
2006) (quoting Kaplan v. Cablevision of Pa., Inc., 671 A.2d 716, 720
(Pa.Super. 1996)(en banc)). A court should imply a missing term “only when
it is necessary to prevent injustice and it is abundantly clear that the parties
intended to be bound by such term.” Id. at 403 (quoting Solomon v. U.S.
Healthcare Sys. Of Pa., Inc., 797 A.2d 346, 350 (Pa.Super. 2002))
(emphasis omitted). Further, “[a] court should only imply a term into a
contract where it is clear that the parties contemplated it or that it is necessary
to imply it to carry out the parties intentions.” Id. (quoting Slater v. Pearle
Vision Ctr., Inc., 546 A.2d 676, 679 (Pa.Super. 1988))
The trial court found “ample evidence in the Settlement [Agreement]
that these parties may well have contemplated and intended that Scott, as
sole beneficiary of the Scott Trust, would be prohibited from purchasing Eric’s
LEI stock under the terms of the [Stock Purchase Agreement].” 1925(a) Op.
at 12. The court noted that the Settlement Agreement provided that Scott
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would pay Eric $2,000,000 and convey his partnership interest in three
partnerships and his 50% interest as a tenant in common of land in Texas
Township, Wayne County in exchange for Eric’s LEI and LLE stock. In contrast,
under the terms of the Stock Purchase Agreement, “Scott, as sole beneficiary
of the Scott Trust, could purchase Eric’s LEI stock for a price considerably less
than that bargained for in the Settlement [Agreement]. Failure to imply this
missing term would clearly destroy or injure Eric’s right to receive the fruits
of the contract.” Id. at 12-13. It found that “[a]lthough the Settlement
[Agreement] does not specifically prevent Scott from acquiring Eric’s LEI stock
through the Scott Trust, that term is implicit in the Settlement [Agreement].
The implication of this missing term is necessary to prevent injustice and it is
abundantly clear that the parties intended to be bound by such term.” Id. at
13.
We conclude the trial court did not err in applying the doctrine of
necessary implication. As the trial court noted, it is clear the parties intended
that Scott purchase the 300 shares through the Settlement Agreement, not
through the Stock Purchase Agreement, and that implication of the provision
is necessary to prevent injustice.
The court also concluded that Scott breached the agreement. “When
performance of a duty under a contract is due, any nonperformance is a
breach.” McCausland v. Wagner, 78 A.3d 1093, 1101 (Pa.Super. 2013). “If
a breach constitutes a material failure of performance, the non-breaching
party is relieved from any obligation to perform; thus, a party who has
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materially breached a contract may not insist upon performance of the
contract by the non-breaching party.” Id.Here, the court found:
Pursuant to Section I(A) of the Settlement [Agreement],
once Eric completed the requirements under Article 3(a) of
the [Stock Purchase Agreement], Scott had thirty-one (31)
days to pay Eric one million ($1,000,000.00) dollars.
According to the Settlement [Agreement], this date would
also be considered the “settlement date.” As discussed
previously, the deadline to purchase Eric’s LEI stock would
have been September 19, 2014, which would also have been
the date the requirements for the sale of Eric’s stock was
completed. Therefore, the settlement date would have been
October 20, 2014. Scott was obligated under section I(B) of
the Settlement to pay two hundred thousand ($200,000.00)
dollars to Eric one (1) year after the settlement date. One
(1) year after the settlement date would have been October
20, 2015. Scott was also obligated under section I(B) of the
Settlement to pay four (4) more yearly installments of two
hundred thousand ($200,000,00) dollars to Eric. The second
installment would have been due October 20, 2016. Scott is
in breach of the Settlement by failing to make payments on
these dates and by failing to convey his partnership
interests on the settlement date, October 20, 2014.
1925(a) Op. at 13. The record supports the trial court’s findings of fact and it
did not err in finding that Scott breached the Settlement Agreement and that
Eric did not breach it.
Scott’s claim that the court could not determine breach until the Trust
litigation has ended lacks merit. The trial court was tasked with interpreting
the Settlement Agreement and found that Scott breached the Agreement and
that Eric did not. Its findings were supported by the record, and its legal
conclusions were not error.
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Scott next claims the trial court erred in ordering the parties to complete
the transactions set forth in the Settlement Agreement and directing Scott to
pay $1,400,000 before a settlement date could be established. He claims that
to order specific performance, the court would have to determine whether Eric
breached Article 3(a) of the Stock Purchase Agreement. He maintains that
interpretation of this provision “is the core issue which must be decided in the
Trust Complaint before it can be determined whether Eric has fully complied
with Article 3(a) of the [Stock Purchase Agreement].” Scott’s Br. at 54. Scott
claims that the Scott Trust purchased, at a minimum, three shares and
“because a closing was never held,” Eric was in breach of the Settlement
Agreement. Id.We conclude the trial court did not err in ordering specific performance.
The court found that the Settlement Agreement had an implied term that the
Scott Trust would not purchase any of the stock under the terms of the Stock
Purchase Agreement. Because, under the terms of the Settlement Agreement,
the Scott Trust could not purchase the stock under the Stock Purchase
Agreement, the court did not err in ordering specific performance of the
Settlement Agreement.
Scott also argues that the trial court erred in awarding six percent
interest. It claims this was error because the court erred in finding Scott
breached the Agreement.
As we concluded the trial court did not err in finding Scott breached the
Settlement Agreement, we find the trial court did not err in awarding six
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percent interest on the definite sum of money. See TruServ Corp. v.
Morgan’s Tool & Supply Co., Inc., 39 A.3d 253, 263 (Pa. 2012) (citing
Restatement (Second) of Contracts § 354) (interest recoverable for definite
sum of money from time for performance); 41 P.S. § 202 (“Reference in any
law or document enacted or executed heretofore or hereafter to ‘legal rate of
interest’ and reference in any document to an obligation to pay a sum of
money ‘with interest’ without specification of the applicable rate shall be
construed to refer to the rate of interest of six per cent per annum.”).
In his last issue, Scott argues that the trial court abused its discretion
and erred as a matter of law when the trial court called Scott as a witness and
ordered him to produce the Scott Trust after both parties had rested.
“[A] trial judge may in the exercise of a sound discretion call and
examine witness of [its] own accord.” Commonwealth v. DiPasquale, 230
A.2d 449, 450 (Pa. 1967); see also Pa.R.E. 614. We have explained:
[A] trial judge has the right if not the duty to interrogate
witnesses in order to clarify a disputed issue or vague
evidence. Unless the complaining party can establish the
judge’s questioning constituted an abuse of discretion,
resulting in discernible prejudice, capricious disbelief, or
prejudgment, a new trial will not be granted.
Jordan v. Jackson, 876 A.2d 443, 453–54 (Pa.Super. 2005) (quoting
Mansour v. Linganna, 787 A.2d 443, 446 (Pa.Super. 2001)).
The court required that Scott produce the Scott Trust and questioned
Scott about the Trust. The trial court determined that it needed to see the
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Scott Trust to confirm that Scott was the sole beneficiary, which would clarify
a disputed issue. We conclude that this was not an abuse of discretion.
Judgment affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 5/21/19
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