Court Opinion

ID: 2811410
Source: CourtListenerOpinion
Date Created: 2015-06-24 20:12:48.201317+00
Date Added: 2024-06-11T12:26:22.997125
License: Public Domain

J-A16004-15

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

ERIC SCHMECHEL,                                   IN THE SUPERIOR COURT OF
                                                        PENNSYLVANIA
                            Appellant

                       v.

JACK GAITHER,

                            Appellee                   No. 2971 EDA 2014

                   Appeal from the Order September 24, 2014
             in the Court of Common Pleas of Northampton County
                    Civil Division at No.: C48-CV-2012-7946

BEFORE: LAZARUS, J., OLSON, J., and PLATT, J.*

MEMORANDUM BY PLATT, J.:                                FILED JUNE 24, 2015

        Appellant, Eric Schmechel, appeals from the trial court’s order granting

the summary judgment motion of Appellee, Jack Gaither, in this action for

contribution and breach of fiduciary duty. After careful review, we affirm the

trial court’s order.

        The trial court summarized the factual and procedural history as

follows:

              This case finds its genesis in the sale of a business and the
        transactions that followed. The facts are relatively undisputed
        and are as follows. The parties were each half-owners of a
        corporation known as Vinyl Sign Supplies, Inc. (“VSS”). In May
        2008, Sign Supply U.S.A., LLC (“SSU”) offered to purchase the
        assets of VSS. Eventually, VSS and SSU entered into an Asset
        Purchase Agreement (“APA”), pursuant to which SSU agreed to
        purchase the assets of VSS for the sum of $3,800,000.00.
____________________________________________

*
    Retired Senior Judge assigned to the Superior Court.
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     Following the sale, [Appellant] planned to work for SSU, whereas
     [Appellee] opted to retire. Accordingly, as part of the overall
     transaction, [Appellant] entered into an employment agreement
     with SSU, and [Appellee] entered into a non-compete agreement
     with SSU.

            At the time of the closing, held on August 29, 2008, SSU
     placed ten percent of the purchase price into escrow (“the
     Holdback”), to be distributed to the parties pursuant to the
     terms of an escrow agreement.          The Holdback served two
     purposes: first, to ensure that [Appellee] complied with his non-
     compete agreement; and second, to offset any reduction in the
     working capital of VSS between the completion of the due
     diligence period and the date of closing. Pursuant to the APA, if
     the working capital of VSS was less than $850,000.00, a
     corresponding sum would be deducted from the Holdback,
     effectively reducing the purchase price paid by SSU.

           [Appellant] and [Appellee] entered into a separate
     agreement regarding the required Holdback (the “Holdback
     Agreement”). Under the Holdback Agreement, [Appellant] and
     [Appellee] agreed that the Holdback would come, exclusively,
     from [Appellant’s] portion of the sale proceeds.          [Appellee]
     agreed to indemnify [Appellant] for that portion of the Holdback
     not distributed to [Appellant] by SSU if it was determined that
     [Appellee] violated his non-compete agreement with SSU.
     Otherwise, the entirety of the Holdback, or whatever portion was
     eventually released, would be due and owing exclusively to
     [Appellant].    The parties reached this agreement because
     [Appellee] wished to have his entire share of the sale proceeds
     at closing, due to his plan to retire, while [Appellant] intended to
     work for SSU.

           Eventually, SSU contested the calculation of VSS’ working
     capital and refused to release the Holdback. In response, an
     action was initiated by [Appellant in the name of] VSS against
     SSU seeking the distribution of the Holdback. The litigation was
     ultimately settled, with SSU retaining $129,384.64 of the
     Holdback and the remainder being released to [Appellant].

           Contending that [Appellee] should indemnify him for the
     amount of the Holdback retained by SSU, [Appellant] initiated
     this action against [Appellee] by filing a [c]omplaint on August 9,
     2012. [Appellee] filed an [a]nswer and [n]ew [m]atter on

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       September 18, 2012. On October 9, 2012, [Appellant] filed a
       [r]eply to [the] [n]ew [m]atter. . . .

             The gravamen of [the] [c]omplaint is that, prior to the
       closing of the sale of VSS to SSU, the parties, as co-owners of
       VSS, made several cash payments to themselves and otherwise
       altered their handling of VSS’ cash flow.          According to
       [Appellant], these activities negatively impacted the working
       capital of VSS and triggered SSU’s refusal to release the
       Holdback.     [Appellant] argues that, while he was solely
       responsible for funding the Holdback, it was the actions of both
       parties that caused less than the full amount of the Holdback to
       be distributed to him. . . .

(Trial Court Opinion, 9/24/14, at 1-4) (record citations and footnotes

omitted).

       On September 24, 2014, the court granted Appellee’s motion for

summary judgment. On October 16, 2014, Appellant timely appealed.1

       Appellant raises the following questions for our review:

       1.    Whether the trial court committed an error of law and/or
       abused its discretion by granting [Appellee’s] motion for
       summary judgment on the determination that the Holdback
       Agreement between [Appellant] and [Appellee] required the
       entry of summary judgment in favor of [Appellee] despite the
       lack of a claim in [Appellant’s] complaint to enforce and/or for
       breach of the Holdback Agreement?

       2.   Whether the trial court committed an error of law and/or
       abused its discretion by granting [Appellee’s] motion for
       summary judgment in the form of a demurrer to [Appellant’s]
       cause of action for common law contribution despite that [sic]

____________________________________________

1
  Pursuant to the trial court’s order, Appellant filed a timely Rule 1925(b)
statement on November 6, 2014. The court entered its Rule 1925(a)
opinion on December 1, 2014, relying on its September 24, 2014 opinion.
See Pa.R.A.P. 1925.

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      fact [Appellant] pled a possible claim under a cognizable legal
      theory?

      3.     Whether the trial court committed an error of law and/or
      abused its discretion by granting [Appellee’s] motion for
      summary judgment on [Appellant’s] cause of action for breach of
      fiduciary duty without considering the alleged fiduciary duty
      [Appellee] owed [Appellant] to pay [Appellant] fifty percent
      (50%) of the money paid to SSU from the escrowed funds to
      settle its claims against VSS?

(Appellant’s Brief, at 4) (some capitalization omitted).

            Initially, we are cognizant of our scope and standard of
      review:

                  Our scope of review of an order granting
            summary judgment is plenary. [W]e apply the same
            standard as the trial court, reviewing all the evidence
            of record to determine whether there exists a
            genuine issue of material fact. We view the record in
            the light most favorable to the non-moving party,
            and all doubts as to the existence of a genuine issue
            of material fact must be resolved against the moving
            party. Only where there is no genuine issue as to
            any material fact and it is clear that the moving
            party is entitled to a judgment as a matter of law will
            summary judgment be entered.

                   Motions for summary judgment necessarily and
            directly implicate the plaintiff’s proof of the elements
            of his cause of action. . . . Thus, a record that
            supports summary judgment will either (1) show the
            material facts are undisputed or (2) contain
            insufficient evidence of facts to make out a prima
            facie cause of action or defense and, therefore, there
            is no issue to be submitted to the [fact-finder].
            Upon appellate review, we are not bound by the trial
            court’s conclusions of law, but may reach our own
            conclusions. The appellate Court may disturb the
            trial court’s order only upon an error of law or an
            abuse of discretion.

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Stein v. Magarity, 102 A.3d 1010, 1013 (Pa. Super. 2014) (citation

omitted).

       In his first issue, Appellant argues that the court erred in granting

Appellee’s summary judgment motion “based on its interpretation of

paragraph [two] of the Holdback Agreement . . . despite the lack of any

claim in [Appellant’s] [c]omplaint for breach of the Holdback Agreement

and/or to enforce the Holdback Agreement.”          (Appellant’s Brief, at 18)

(record citation omitted). Specifically, Appellant states that “[t]he Holdback

[A]greement and whether or not [Appellee] violated his non-compete is

irrelevant . . . .” (Id. at 20). We disagree.2

       It is well-settled that:

              . . . [W]hen interpreting the language of a contract, this
       Court’s goal is to ascertain the intent of the parties and give it
       effect.     When the words of a contract are clear and
       unambiguous, the intent of the parties must be ascertained from
       the language employed in the contract, which shall be given its
       commonly accepted and plain meaning.

TruServ Corp. v. Morgan’s Tool & Supply Co., Inc., 39 A.3d 253, 260

(Pa. 2012) (citations omitted).

       Here, the record reflects that Appellant agreed to fund the entire

Holdback from the sale proceeds he would receive at the time of the closing.

(See Holdback Agreement, 2008, at 1 ¶ 1).         Furthermore, the Holdback
____________________________________________

2
  We note that the parties agree that Appellee did not violate his non-
compete agreement or the Holdback Agreement. (See Trial Ct. Op., at 2
n.1, 10-11; Appellant’s Brief, at 18-20; Appellee’s Brief, at 6, 9-10).

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Agreement created Appellee’s indemnification duty.      (See id. at 1-2 ¶ 2).

The trial court explained that:

            It is clear from a plain reading of the entire paragraph that
      the parties intended for [Appellee] to indemnify [Appellant] for
      the Holdback, without an allocation of fault, if the sole reason
      for SSU’s refusal to pay the Holdback was based upon an
      allegation that [Appellee] breached his non-compete agreement
      with SSU. . . . [The] provision [relied upon by Appellant], read in
      context, sets forth [Appellee’s] obligation to indemnify
      [Appellant] where SSU’s refusal to release the Holdback is based
      upon [Appellee’s] breach of the non-compete agreement and
      one other cause. . . . Accordingly, both scenarios triggering
      [Appellee’s] obligation to indemnify [Appellant] require an
      allegation by SSU that [Appellee] breached his non-compete
      agreement. . . .

                                  *    *    *

             . . . [Appellee] was only obligated to indemnify [Appellant]
      if SSU alleged that [Appellee] breached his non-compete
      agreement with SSU. As no such allegation has been made,
      [Appellee] has no obligation to indemnify [Appellant] under the
      plain language of the Holdback Agreement. . . .

(Trial Ct. Op., at 10-11) (emphases in original). Upon review, we agree and

conclude that the record supports the court’s determination and that it did

not commit an error of law or abuse its discretion.      See Stein, supra at

1013. Accordingly, Appellant’s first issue does not merit relief.

      In his second issue, Appellant argues that the court erred in “fail[ing]

to consider the equitable cause[] of action of common law contribution . . .

.” (Appellant’s Brief, at 24). Specifically, he asserts that he “paid more than

his fair share, fifty percent (50%), of the settlement consideration to SSU . .

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. [and Appellee] has received more than his fifty percent (50%) of the net

proceeds from the sale of VSS’ assets . . . .” (Id. at 23). We disagree.

      It is well-settled that the equitable obligation of contribution sounds in

contract, however, the underlying claim must sound in tort. See Mattia v.

Sears Roebuck & Co., 531 A.2d 789, 791 (Pa. Super. 1987), appeal

denied, 546 A.2d 622 (Pa. 1988) (“[C]ontribution may be asserted where:

(1) the parties combined to produce the plaintiff’s injury; (2) the parties are

each liable in tort to the plaintiff; and (3) a tortfeasor has discharged the

common liability by paying more than his pro rata share.”).

      Furthermore, Pennsylvania has adopted the Uniform Contribution

Among Tortfeasors Act (UCATA), 42 Pa.C.S.A. §§ 8321-8327, which

recognizes a right of contribution among joint tortfeasors. See 42 Pa.C.S.A.

§ 8324.

      Here, the record reflects that Appellant does not allege that the parties

are joint tortfeasors.   (See Appellant’s Brief, at 22-24).     The trial court

explained that “[t]here are simply no allegations of a tort within this case.

Thus, the parties cannot be joint tort-feasors.       Therefore, [Appellee] is

entitled to judgment on [Appellant’s] claim for contribution, as a matter of

law.” (Trial Ct. Op., at 12-13). Upon review, we agree and conclude that

the record supports the court’s determination and that it did not commit an

error of law or abuse its discretion. See Stein, supra at 1013. Accordingly,

Appellant’s second issue does not merit relief.

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      In his final issue, Appellant argues that the court erred in finding that

“there was no evidence that [Appellee] acted unilaterally, deceitfully,

clandestinely, or . . . without [Appellant’s] approval . . . [and] failed to

consider the fiduciary duty owed by [the parties] to each other to share

equally in the costs of their [joint] actions . . . .” (Appellant’s Brief, at 30).

We disagree.

      Here, the record reflects that “[t]he parties were each half-owners of a

corporation known as [VSS].”       (Trial Ct. Op., at 1).   However, Appellant

claims that “[a]s an equal shareholder with [Appellant] in VSS, [Appellee] is

nothing more than an incorporated partner . . . .” (Appellant’s Brief, at 27)

(suggesting partnership law applies).

      This Court has recently refused to recognize fiduciary duties between

equal shareholders.    See Hill v. Ofalt, 85 A.3d 540, 550-51 (Pa. Super.

2014) (identifying fiduciary duties exist between majority and minority

shareholders).   Furthermore, “our Supreme Court would not simply ignore

the corporate form . . . . Corporations are not partnerships.” Id. at 556

(citations omitted and emphasis in original).      Therefore, Appellee did not

owe a fiduciary duty to Appellant.

      Moreover, the trial court explained that:

           . . . [Appellant] has not offered any evidence that
      [Appellee] took any action regarding VSS, SSU, the APA, the
      Holdback Agreement, or the working capital of VSS without the
      approval and full knowledge of [Appellant].

                                   *    *    *

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              . . .    The fact that these [disbursements and increased
       payables],      which were agreed upon by both parties,
       resulted in    only [Appellant] bearing the consequences is in itself
       insufficient   to trigger a breach of a fiduciary duty claim. . . .

(Trial Ct. Op., at 13-14) (emphasis in original). The court further noted that

“the doctrine of unclean hands would bar recovery in any event.”3 (Id. at

14-15, n.4) (citation omitted). Upon review, we agree and conclude that the

record supports the court’s determination and that it did not commit an error

of law or abuse its discretion.         See Stein, supra at 1013.    Accordingly,

Appellant’s final issue does not merit relief.

     Order affirmed.
Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 6/24/2015

____________________________________________

3
  The doctrine of unclean hands bars equitable relief to a party who acted in
bad faith. See PNC Bank v. Kerr, 802 A.2d 634, 642 (Pa. Super. 2002),
appeal denied, 815 A.2d 634 (Pa. 2002). Here, the record reflects that
Appellant acknowledges that he participated in the disbursement of the
funds. (See Appellant’s Brief, at 9, 11-12, 14, 29). Therefore, Appellant
would be barred from recovery.

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