Case Title: P.F. Jurgs and Co. v. O'Brien

Citation: 160 Vt. 294, 629 A.2d 325

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 1992-10-01T00:00:00Z

Document:
PF_JURGS_AND_CO_V_OBRIEN.91-497; 160 Vt. 294; 629 A.2d 325


 NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
 as well as formal revision before publication in the Vermont Reports.
 Readers are requested to notify the Reporter of Decisions, Vermont Supreme
 Court, 109 State Street, Montpelier, Vermont 05609-0801 of any errors in
 order that corrections may be made before this opinion goes to press.


                                 No. 91-497


 P.F. Jurgs & Company and David               Supreme Court
 R. Coates, Ronald R. Plante,
 Glen A. Wright and William M.
 Nicoll, Individually
                                              On Appeal from
      v.                                      Chittenden Superior Court

 Thomas O'Brien, Thomas Shortle,              October Term, 1992
 O'Brien-Shortle Associates, P.C.


 Frank G. Mahady, J.

 Thomas Z. Carlson of Langrock Sperry & Wool, Burlington, for plaintiff-
    appellants

 Nancy Corsones and Cortland Corsones of Corsones & Corsones, Rutland, for
    defendants-appellees O'Brien and O'Brien-Shortle Assocs.

 Edward R. Seager, P.C., Rutland, for defendant-appellee Shortle




 PRESENT:   Gibson, Dooley, Morse and Johnson, JJ.



      JOHNSON, J.   The principal issue before the Court is whether
 defendants may be held liable for the tort of conversion, if defendants
 acted in good faith and without specific intent to deprive plaintiffs of
 property.  We hold that they may, and affirm the judgment against defendant
 Thomas O'Brien, reverse the judgment in favor of defendants Thomas Shortle
 and O'Brien-Shortle Associates, and remand for entry and determination of
 damages.
      The present controversy arose out of the dissolution of an accounting
 firm.  The plaintiffs are P. F. Jurgs & Co., an accounting firm head-
 quartered in Burlington, and certain named individuals who were partners of
 the firm.  The defendants are Thomas O'Brien and Thomas Shortle, Rutland
 accountants, and the firm they formed after separating from Jurgs, known as
 O'Brien-Shortle Associates, P.C.   O'Brien joined Jurgs in 1983 by merging
 his own Rutland accounting firm with Jurgs.  Following this merger, the
 office that previously had been O'Brien's became the Rutland office of
 Jurgs.
      In the summer of 1987, Jurgs decided to merge with Peat Marwick, a
 national accounting firm.  O'Brien chose not to become associated with Peat
 Marwick, but to re-establish his own accounting business in Rutland.  In
 view of O'Brien's decision, Jurgs voted to terminate O'Brien without cause
 as a shareholder of Jurgs, a procedure authorized by the Jurgs shareholders'
 agreement.  O'Brien began operating his office independently as of August 1,
 1987.  Thomas Shortle, who had been an employee in Jurgs' Rutland office
 for many years, became his partner.
      At termination, O'Brien's financial interest in Jurgs was determined
 according to the shareholders' agreement and the addendum to that agree-
 ment, which he had signed in 1983 when his Rutland firm merged with Jurgs.
 It provided that a retiring shareholder would be paid a pro rata share of
 book value, plus the "earnings left to accumulate" account maintained on the
 books of the corporation for the shareholder.  The addendum stated that
 references to book value and earnings left to accumulate, as defined in the
 agreement, "shall refer to those amounts as shown on the balance sheet for
 each respective office."
      Jurgs took the position that O'Brien's share of the business depended
 on the book value of the Rutland office, and not on the book value of Jurgs
 as a whole.  At termination on July 31, 1987, the Rutland office had a
 negative book value of $22,651.81.  On this view, the value of O'Brien's
 stock was zero.
      O'Brien contended that he was entitled to a share of the corporation as
 a whole, and that the meaning of the addendum to the shareholder's agreement
 was simply to set up "managerial accounting," an accounting system that
 would track the net profits of each office separately for internal purposes.
 He also claimed that the negative book value of the Rutland office was the
 result of overcharges by Jurgs for administrative expenses, such as payroll
 and other expenses of operation, and unfair charges for interest on advances
 made to keep the Rutland office afloat.
      In 1988, Jurgs sued O'Brien for conversion and unjust enrichment,
 alleging that he unlawfully retained the assets of the Rutland office after
 the date of his termination, July 31, 1987.  Jurgs later filed an amended
 complaint, naming Shortle and O'Brien-Shortle as defendants.  O'Brien
 counterclaimed for the value of his twenty-five shares of stock, and for
 damages for breach of fiduciary duty by his former partners.
      The trial court rejected all of O'Brien's theories and denied the
 counterclaim.  It also found him personally liable on Jurgs' complaint for
 conversion and unjust enrichment for retention of the assets of the Rutland
 office.  The judgment figure of $123,318 included the value, as of July 31,
 1987, of the assets, including accounts receivable of $79,000 and work in
 progress worth $23,000, minus a small amount of accounts payable assumed by
 the Rutland office.  The trial court awarded prejudgment interest of 12%
 from July 31, 1987 to the date of judgment and costs.
      The trial court declined to hold Shortle liable, concluding that he had
 a good faith belief that any funds generated by the Rutland office prior to
 July 31, 1987, and subsequently deposited in the account of O'Brien-Shortle
 were the property of the Rutland office.  The court found that Shortle was
 not a party to any of the agreements between Jurgs and O'Brien, and that
 Jurgs had not demanded that he forward any funds received by O'Brien-
 Shortle.  The court also declined to hold O'Brien-Shortle liable because it
 was unable to determine what amounts actually received by the firm after
 July 31, 1987 were generated by Jurgs.
      O'Brien appeals the court's purported failure to make findings
 sufficient to support conversion or unjust enrichment, (FN1) and the denial of
 his counterclaim; Jurgs appeals the court's failure to find liability
 against Shortle and O'Brien-Shortle.
                                     I.
                                     A.
      We first consider the question of whether Jurgs was entitled to the
 assets it claims were converted.  O'Brien contends that the trial court's
 findings are insufficient to support a conclusion that he converted assets
 belonging to Jurgs.  He claims that Jurgs' personnel conceded in their
 testimony that he owned the assets of the Rutland office, and that
 conversion is therefore legally impossible.  The evidence does not support
 this argument.
      Jurgs' personnel agreed that O'Brien is entitled to the book value of
 the Rutland office.  They testified that the calculation of book value
 involves a consideration of assets such as accounts receivable and work in
 progress, and with respect to O'Brien's share, the assets of the Rutland
 office are included in the calculation.  O'Brien equates his entitlement to
 book value with ownership of the assets that make up book value, but his
 equation is incorrect.
      When O'Brien merged with Jurgs, he purchased stock in the firm for the
 amount of the then current book value of his old firm.  Thereafter, O'Brien
 no longer owned specific assets in the Rutland office, such as accounts
 receivable or furniture; rather, he owned stock for which the shareholders'
 agreement and addendum defined the method of valuation.  Under that agree-
 ment, he was entitled to payment of the book value, earnings left to
 accumulate and any vested retirement benefits, calculated with respect to
 the Rutland office.  At the time O'Brien was terminated, the Rutland office
 had a negative book value, that is, its liabilities were greater than its
 assets.  O'Brien's equity in the corporation, as defined by the share-
 holders' agreement and addendum, was zero.
      O'Brien did receive the benefit of the value of the assets in the
 calculation of his book value.  But, by retaining actual control over the
 assets of the Rutland office after July 31, 1987, he retained property that
 belonged to Jurgs.  Therefore, the court's findings were entirely consistent
 with conversion, and Jurgs had a right to the assets retained.
                                     B.
      The remaining issue with respect to conversion is whether the trial
 court erred in refusing to find liability against Thomas Shortle and the new
 firm, O'Brien-Shortle.                       
      Jurgs first contends that good faith and lack of knowledge as to the
 true owner of property is irrelevant to the tort of conversion.  Second, it
 points out that the assets retained by O'Brien, and for which he was found
 liable, are the same assets retained by Shortle and O'Brien-Shortle; if the
 trial court found conversion with respect to O'Brien, Jurgs argues, it was
 clearly erroneous not to find conversion as to the other defendants.  We
 agree and reverse as to Shortle and O'Brien-Shortle.
      To establish a claim for conversion, the owner of property must show
 only that another has appropriated the property to that party's own use and
 beneficial enjoyment, has exercised dominion over it in exclusion and
 defiance of the owner's right, or has withheld possession from the owner
 under a claim of title inconsistent with the owner's title.  Economou v.
 Carpenter, 124 Vt. 451, 453-54,