J-A26008-17

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

TIMOTHY G. LONG IN THE SUPERIOR COURT OF

PENNSYLVANIA

Appellant

v.

DOUGLAS K. DENLINGER AND DAVID 

ISAAC LUTZ

Appellees No. 416 MDA 2017

Appeal from the Order Entered February 17, 2017

In the Court of Common Pleas of Franklin County

Civil Division at No(s): 2015-01435

BEFORE: BOWES, OLSON, AND RANSOM, JJ.

MEMORANDUM BY BOWES, J.: FILED FEBRUARY 14, 2018

Timothy G. Long appeals from the February 17, 2017 order denying 

his motion to deny recommendations of the receiver, and the January 6, 

2016 order sustaining the preliminary objections in the nature of a demurrer 

of Appellees Douglas K. Denlinger and David Isaac Lutz. We conclude that 

the averments contained in Mr. Long’s amended complaint sufficiently 

alleged a cause of action for breach of contract to survive a demurrer. 

Accordingly, we reverse and remand for further proceedings. 

Based on a review of the record, the pertinent facts can be 

summarized as follows. In 1990, Appellant founded a financial planning 

business, Keystone Financial Associates, LLC (“KFA”). In 2002, Mr. 

Denlinger joined Appellant’s business. In 2007, KFA employed Mr. Lutz, and 
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in 2009, the parties agreed to make Mr. Lutz a part owner of the business 

through a ten-year vested stock program garnering a one percent ownership 

interest per year. In 2013, the parties agreed to divide the business, with 

Appellant establishing a new company, and Mr. Denlinger and Mr. Lutz 

establishing a separate one. The parties negotiated an agreement for 

splitting KFA into distinct entities, which they memorialized in a Statement of 

Understanding (“SOU”) signed by the parties on October 30, 2013. 

The SOU provided the process by which the parties would dissolve KFA 

and create two separate financial planning businesses. The parties agreed 

that Appellant would receive 48.5% of the value of KFA in keeping with his 

ownership interest. Further, this distribution would be effectuated through a 

division of KFA’s client base. Accordingly, the parties agreed to assign a 

value to each client, and allocate those clients to the newly-created entities 

in such a manner as to divide the company as nearly as possible to align 

with the agreed-upon ownership interests. The SOU purported to provide a 

value formula, which delineated base percentages and adjustments by which 

the parties would evaluate client value, without further explicating the 

method by which these values would be ascertained. It provided an

adjustment period during which the parties would determine, adjust, and 

allocate clients in order to fulfill the purposes of the SOU. 

Thereafter, the parties were unable to agree upon a distribution of the 

entire client list. The parties made numerous changes to this list through 
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2015. In February 2015, Appellant initiated an independent valuation of 

KFA’s business. That independent analysis determined that the value of the 

client base allocated to Appellant fell significantly short of the 48.5% agreed 

upon in the SOU. 

Based on the foregoing, Appellant commenced this action by filing a 

complaint on April 14, 2015, alleging breach of contract and calling for the 

dissolution of KFA and the appointment of a receiver to aid in that endeavor. 

Appellees filed preliminary objections, and in response, Appellant filed an 

amended complaint on August 20, 2015. Appellees again filed preliminary 

objections, and after a hearing on the matter, the court sustained Appellees’ 

preliminary objections in the nature of a demurrer to Appellant’s breach of 

contract claim. The trial court overruled the preliminary objections to 

Appellant’s second count seeking dissolution of the partnership, but 

appointed a receiver to oversee that dissolution. 

Subsequently, the receiver filed a memorandum adopting Appellees’

proposed dissolution strategy, declined to provide an independent valuation 

of KFA’s business, and determined that the valuation had been fairly and 

equitably negotiated. Appellant filed a motion to deny recommendations of 

the receiver, which, after a hearing, the trial court rejected. The court 

directed the receiver to proceed with the dissolution as set forth in the 

previously filed memorandum. Appellant filed a timely notice of appeal and 

complied with the court’s order to file a Rule 1925(b) concise statement of 
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errors complained of on appeal. The court authored its Rule 1925(a) 

opinion, and this matter is now ready for our review. 

Appellant raises two questions for our consideration: 

I. Did the trial court commit reversible error in sustaining a 

demurrer on the grounds that the complaint seeks damages 

based on an independent valuation of the involved company? 

II. Did the trial court err in approving the receiver’s report 

without requiring the receiver to value the partnership assets 

as part of the dissolution process? 

Appellant’s brief at 6. 

Appellant’s first issue challenges the court’s order sustaining Appellees’ 

preliminary objections in the nature of a demurrer to his claim that Appellees

breached the SOU. We are guided by the following principles: 

Preliminary objections in the nature of a demurrer test the legal 

sufficiency of the complaint. When considering preliminary 

objections, all material facts set forth in the challenged pleadings 

are admitted as true, as well as all inferences reasonably 

deducible therefrom. Preliminary objections which seek the 

dismissal of a cause of action should be sustained only in cases 

in which it is clear and free from doubt that the pleader will be 

unable to prove facts legally sufficient to establish the right to 

relief. If any doubt exists as to whether a demurrer should be 

sustained, it should be resolved in favor of overruling the 

preliminary objections. 

Gross v. Nova Chemicals Services, Inc., 161 A.3d 257, 261 (Pa.Super. 

2017) (citation omitted). In order to sufficiently plead a count of breach of 

contract, Appellant must set forth facts that establish: (1) the existence of a 

contract, including its essential terms; (2) a breach of the contract; and, (3) 
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resultant damages. McCabe v. Marywood University, 166 A.3d 1257, 

1262 (Pa.Super. 2017). 

In sustaining Appellees’ preliminary objections in the nature of a 

demurrer, the trial court noted that the only claim at issue was whether 

Appellees had breached the requirements of the SOU. In this vein, the trial 

court determined that, since the terms of the agreement controlled over any 

allegations levied in the complaint, the independent valuation that Appellant 

relied upon to prove that Appellees owed him damages for failing to provide 

him clients with a value equal to a 48.5% share of KFA was irrelevant. 

Rather, the court reasoned, the valuation procedure contained within the 

SOU controlled, and the agreement did not otherwise provide for an outside 

valuation. As such, the court concluded that Appellant could not rely upon 

an independent valuation to prove that Appellees had improperly valued

KFA’s client base. Thus, it dismissed Appellant’s claim for breach of 

contract. 

Appellant assails this reasoning, contending that the trial court erred in 

finding that the outside valuation could not be employed to prove Appellees 

breached the SOU. He maintains that, despite the supposed valuation 

process contained within the SOU, Appellees allotted him a lower percentage 

of business than contemplated by the agreement. Appellant asserts, 

“[w]hile the court may be correct that the contract established a method for 

the parties to attempt a fair division of clients, the contract contains no 
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language which makes that process unassailable by a court.” Appellant’s 

brief at 15. He concludes that, although the process was intended to guide 

the division of the business, where that process “results in an injustice, [he] 

must be allowed to prove that injustice with the help of some outside 

source.” Id. at 16. 

Upon review of the certified record, when considering all the material 

facts set forth in Appellant’s amended complaint as true, we find that 

Appellant averred sufficient allegations to support a claim that Appellees 

breached the SOU. Significantly, Appellant alleged the following: 

19. As determined by an independent firm who valued the book 

of business retained by [Appellees] and the book of business 

given to [Appellant], [Appellant’s] book of business fell far short 

of being 48.5% of the value of the company.

 

20. Pursuant to said valuation, which is attached hereto as 

Exhibit D, [Appellant] is entitled to an adjusted value of 

$1,089,795.00. 

21. According to the valuation, the clients [Appellant] received 

did not provide him with that value. 

22. Despite demand, [Appellees] have failed and refused to 

compensate [Appellant] for the adjusted amount due to him as 

required by the [SOU]. 

Amended Complaint, 8/20/15, at ¶¶ 19-22. With regard to the process of 

dividing the client base, the SOU states, in pertinent part: 

2. Process for dividing the client base between the new 

companies:

 
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a. Develop a list of all accounts and polices and assign a 

value to each. Values and new company assignments 

have been completed effective August 1, 2013. 

. . . . 

c. Adjustments to assignment will be updated to reflect 

client decisions as soon as possible so that the 

partners can monitor how the splits are impacted by 

client decisions. Efforts will be made to make 

adjustments to make the resulting splits to be as close 

as possible to the split targets as possible.

i. Through client assignments

 

ii. Through monetary payment if needed (see 

payment terms)

iii. Value formula for all existing client accounts and 

policies: Note: The below values represent 

“Base” Percentages. 

Advisory Mutual Funds VA Fixed Annuity Direct LTC Life Health Medicare Disability

multiplier 1.76% 0.44% 0.44% 0.22% 0.86% $ 100.00 $ 25.00 $ 125.00 $ 125.00 $ 85.00

[iv.] There are adjustments to the calculations (ie. 

Fee breakpoints, H&M relationship, personal 

accounts, etc.) Client/account specific multiplier 

adjustments are listed in columns AN titled 

“Adjustments for the amount of the fee we get” 

and AO titled “advisor % fee be charged to 

account” See Below: [providing chart with 

further adjustments]. 

Statement of Understanding, 10/30/13, at ¶ 2. 
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Finally, the independent valuation described and relied upon the 

“Market Approach” in arriving at its assessment of the value of Appellant’s 

portion of the KFA business. Valuation Analysis and Estimate, 2/10/15, at 5. 

Although the SOU noted that the client base had been valued as of August 1, 

2013, and outlined some metrics and adjustments upon which this value was 

determined, it did not specifically define the methodology by which that 

valuation was done. In this regard, the trial court made the following 

observation:

This Court is unable to ascertain whether the two valuations (one 

by KFA and one by the independent firm) were obtained using 

the same method. If the Independent Valuation is returning a 

different value than KFA’s own while using the same process, 

then there is [a] potential cause of action for breach of contract 

based on fraud.

Trial Court Opinion, 1/6/16, at 5 n.2. Inexplicably, the court 

continued: 

However, that does not appear to be the case here. There is no 

description, in the [SOU] . . . as to the exact process that is to 

be used to value the clients. However, there is discussion of the

method of valuation within the Independent Valuation[.] 

Id. It is not clear from this footnote what conclusion the trial court invited 

the reader to draw from this line of reasoning. However, on our reading, 

this observation clearly indicates that preliminary objections in the nature of 

a demurrer were improperly sustained in this case. 

It is beyond doubt that Appellant has averred a disparity between the 

valuation promised by the SOU, and that delivered by Appellees. It is 
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irrelevant at this early stage of litigation that this evidence was obtained by 

a process potentially outside the four-corners of the contract, since the SOU 

does not specifically set forth the mechanism for valuing each client. 

Indeed, at this stage, we cannot fathom the means by which a party could 

assail Appellees’ valuation without the aid of an independent source. As 

such, material questions of fact remain that preclude us from concluding 

that, at this juncture, it is clear and free from doubt that Appellant will be 

unable to prove facts legally sufficient to establish that Appellees breached 

the SOU. Thus, we find that, based on the disparity between the values 

arrived at by the parties herein, when considered in light of the questions of 

material fact that cannot be determined on the record before us, the trial 

court erred in sustaining Appellees’ preliminary objections as to Appellant’s 

breach of contract claim. 

Simply, when viewing the allegations contained in the amended 

complaint as true, Appellant has alleged the existence of a contract, the 

SOU, a breach of that contract, i.e., the allocation of clients which do not 

satisfy a 48.5% of Appellant’s ownership interest, and damages induced 

thereby, valued at the difference between the portfolio transferred to 

Appellant’s new business and the outstanding value purportedly owed. 

Hence, we reverse the trial court’s ruling, and remand for further 

proceedings consistent with this disposition. 
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Appellant’s second claimed error challenges the receiver’s failure to 

independently assess the value of KFA’s business before authoring its 

memorandum outlining the procedure to finalize the dissolution of KFA. 

Based on our disposition above, Appellant will have the opportunity to 

gather and introduce evidence of that value in future proceedings. Since 

Appellant presented his second issue as an alternate mechanism by which to 

determine the value of the business transferred to his new company, we 

need not reach it here. 

Order sustaining preliminary objections in the nature of a demurrer 

reversed. Case remanded. Jurisdiction relinquished. 

Judgment Entered.

Joseph D. Seletyn, Esq.

Prothonotary

Date: 2/14/2018