Court Opinion

ID: 3157684
Source: CourtListenerOpinion
Date Created: 2015-11-24 20:09:27.178161+00
Date Added: 2024-06-11T12:02:57.887642
License: Public Domain

J-A20019-15

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

MCKESSON CORPORATION,                          IN THE SUPERIOR COURT OF
                                                     PENNSYLVANIA
                        Appellee

                   v.

GREGORY S. CAMPBELL, WAYFARER
AVIATION, INC. F/K/A JDA ACQUISITION
COMPANY, INC., ARCADIA AVIATION,
ARCADIA AVIATION, LLC, ARCADIA
AVIATION, LTD., ARCADIA AVIATION
INVESTORS, LLC, ARCADIA AVIATION
MANAGERS, LLC, ARCADIA AVIATION
IAD, LLC, ARCADIA AVIATION MSV, LLC,
ARCADIA AVIATION PHF, LLC ARCADIA
AVIATION WEY, LLC,

APPEAL OF: GREGORY S. CAMPBELL,

                        Appellant                   No. 2579 EDA 2014

          Appeal from the Judgment Entered November 6, 2014
          In the Court of Common Pleas of Philadelphia County
         Civil Division at No(s): October Term, 2010 No. 001732

BEFORE: DONOHUE, SHOGAN, and WECHT, JJ.

MEMORANDUM BY SHOGAN, J.:                      FILED NOVEMBER 24, 2015

     Appellant, Gregory S. Campbell, appeals from the judgment entered

on November 6, 2014, in favor of McKesson Corporation (“McKesson”) and

against Appellant in the amount of $1,476,584.00.       For the reasons that

follow, we reverse and remand.

     The trial court summarized the factual history of this case as follows:

          McKesson Corporation [“McKesson”] is a large company,
     operating primarily in pharmaceuticals. [McKesson] owned three
J-A20019-15

     corporate jets, and on February 24, 2006 it entered into a
     contract with TAG Aviation USA, Inc. [(“TAG”)], an aircraft
     management company, to provide services designed to keep the
     corporate jets operating safely and efficiently.

            Pursuant to the written contract, [McKesson] deposited
     $1.8 million dollars, described as an operating fund, with TAG.
     This amount was estimated to cover about two months[’] worth
     of the funds needed to maintain [McKesson’s] planes. The
     agreement specified that it did not create a principal/agent
     relationship, but did specify that upon termination of the
     relationship, TAG was to return any unspent balance of the
     operating [fund] to [McKesson], whose property it remained.

           The contract authorized TAG to pay bills from the
     operating fund for charges such as fuel expenses and pilot, flight
     crew and mechanics[’] salaries. [TAG] would notify [McKesson]
     of the expenditures which [McKesson] would review and then
     reimburse the operating fund in that amount. The operating
     fund was never segregated into a separate bank account. The
     contract provided that upon termination or expiration of the
     contract, TAG was responsible for returning to [McKesson] the
     remaining operating fund balance less a retention amount which
     TAG was to apply to cover outstanding aircraft expenses. The
     arrangement operated satisfactorily to all concerned.

           Sentient Flight Group, LLC [(“Sentient”)] acquired TAG’s
     assets in late 2007 and [McKesson] assigned the TAG aircraft
     management contract to Sentient on January 22, 2008. [At the
     time of acquisition, Appellant was the non-executive chairman of
     Sentient Jet Holdings, LLC, the parent company of Sentient.] By
     the spring of 2008, the private jet charter business began to feel
     the adverse effects of the recession. Sentient’s board asked
     [Appellant] to take over as [CEO] which he did, joining the
     company in September 2008.

            [Appellant] has made a career out of buying, reorganizing
     and reselling businesses. He and his son devised a business
     model to operate a private jet charter business on a national
     scale.    This was apparently an innovative concept because
     charter services had traditionally been local, independently-
     operated businesses.

                                   -2-
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             [Appellant] planned to operate eight aircraft management
     facilities across the country. In order to effectuate this plan and
     to save what remained of Sentient, [Appellant] undertook a
     corporate reorganization. Sentient had defaulted on a loan to its
     senior lender, Sovereign Bank. Under [Appellant’s] direction,
     Sentient sold off some of its assets, repaid the loan and started
     a campaign to attract new investors. Sentient changed its name
     to JetDirect and assumed TAG/Sentient’s liabilities (i.e. its
     contractual obligations).     JetDirect did not receive the $1.8
     million dollars that [McKesson] had paid TAG to deposit in its
     bank account; rather, it booked that amount as a liability.

           [Appellant] was not able to attract enough investors to
     give JetDirect sufficient cash to weather its difficulties. The
     charter and corporate jet service businesses were heavily
     damaged by the recession and the industry was rife with rumors
     about JetDirect’s financial woes caused by the company from
     [sic] expanding too quickly and adopting a new accounting
     system that disastrously slowed its ability to bill clients.

           [McKesson] was aware of at least some of JetDirect’s
     business difficulties and decided to reevaluate their airplane
     services contract.     [McKesson] hire[d] [a] consultant who
     reviewed JetDirect’s finances and issued a report dated
     September 10, 2008 in which he concluded that JetDirect was
     indeed in fragile financial shape and highly leveraged, but the
     consultant did not think [McKesson’s] operating funds were at
     risk.

           JetDirect’s position continued to deteriorate, however and
     it began delaying [payment] to various creditors. In early
     February [2009], JetDirect’s fuel supplier refused to extend it
     credit for refueling at local airports around the country and
     JetDirect informed its customers, including [McKesson] that
     henceforth they would have to purchase their own fuel. This
     news alarmed [McKesson] employee Robert Pocica who was in
     charge of administering the aircraft management contract with
     JetDirect. He contacted [McKesson’s] legal department to begin
     arrangements to terminate [McKesson’s] relationship with
     JetDirect. Pocica tried in vain to get information about the state
     of [McKesson’s] operating fund but every JetDirect employee he
     spoke to told him he had to speak to [Appellant,] and
     [Appellant] was never available to talk with him.1

                                    -3-
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            1
              Pocica testified that he tried to reach [Appellant]
            several times by phone and email but that
            [Appellant] never returned the messages.

            ln the meantime, [Appellant] decided to use [McKesson’s]
      operating fund to meet its payroll expenses. He claimed that he
      discussed this matter with the [sic] JetDirect’s Board, but he was
      not able to identify anyone who remained on the board at this
      point in time [February 2009] except for a Mr. Rosenheim.
      JetDirect’s financial condition did not improve and by mid
      January, [Appellant] knew that JetDirect would have to be sold
      and closed down. [Appellant] attempted to sell the aircraft
      management charter portion of JetDirect, but the investors
      backed out in February 2009 after examining JetDirect’s
      finances.

              On February 25, 2009, Sovereign Bank notified JetDirect
      that it intended to sell off or transfer JetDirect’s assets at a
      foreclosure sale.2 [Appellant] and Sovereign Bank negotiated
      foreclosure proceedings and agreed to a plan in which Sovereign
      foreclosed on JetDirect’s loan and sold its assets, but not its
      liabilities at a private sale to JetDirect Aviation [JDA] which had
      been formed to acquire the assets of JetDirect.            Wayfarer
      Aviation acquired JDA and Arcadia Aviation acquired Wayfarer.
      Wayfarer and Arcadia failed and went out of business. Jet Direct
      filed for bankruptcy on May 1, 2009.
            2
              On February 27, [Appellant] informed Mr. Pocica in
            a phone conversation that Sovereign Bank had
            seized JetDirect’s assets.

            [Appellant] testified that he did not discuss this matter
      with Rosenheim, “[m]ore likely I informed him of my decision. It
      wouldn’t have been his decision to make.” [Appellant] admitted
      that there was a point after [McKesson] requested the return of
      its money where he would have been able to return it without
      the approval of Sovereign Bank, but that he chose not to.3
            3
               [Appellant’s] testimony supported [McKesson’s]
            claim for personal liability under a participation
            theory of liability.

Trial Court Opinion, 11/17/14, at 1-4 (internal citations omitted).

                                     -4-
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        The trial court summarized the procedural history of this case as

follows:

                [McKesson] filed a lawsuit against [Appellant] on October
        14, 2010,4 claiming fraudulent and negligent misrepresentation,
        conversion, aiding and abetting conversion[,] aiding and abetting
        breach of fiduciary duty, breach of contract.[1][2] By the time of
        trial, the only claim remaining [was] one for conversion against
        [Appellant].5 On January 16, 2014, a jury returned a verdict in
        favor of [McKesson] and against [Appellant] in the amount of
        $1,476,584.00.
              4
               [McKesson] also sued Wayfarer Aviation D/B/A JDA
              Acquisition Company and several incarnations of
              Arcadia Aviation. These businesses are defunct and
              are no longer parties to the case.
              5
                 The Honorable Jack Snite granted [Appellant’s]
              motion for summary judgment on [t]he claims for
              fraudulent and negligent misrepresentation.    The
              remaining claims were withdrawn by [McKesson].

              Both sides filed post trial motions6 and oral argument was
        held on June 5, 2014. On July 29, 2014 the court denied
        [Appellant’s] motion for judgment notwithstanding the verdict or
        in the alternative for a new trial and directed the Prothonotary to
        enter judgment in favor of [McKesson] in the [amount] of
        1,476,584.00. This appeal followed.
              6
                  [McKesson] withdrew its motion on March 5, 2014.

              The court issued a 1925(b) order and [Appellant] filed a
        [Pa.R.A.P. 1925(b)] statement.

____________________________________________

1
  The Complaint set forth the following claims against Appellant Campbell:
conversion, fraudulent misrepresentation, negligent misrepresentation,
breach of fiduciary duty, negligence, aiding and abetting conversion, and
aiding and abetting breach of fiduciary duty. Complaint, 10/14/10, at 1-28.
2
    Appellant filed a motion for summary judgment on July 17, 2012.

                                           -5-
J-A20019-15

Trial Court Opinion, 11/17/14, at 5.

      Appellant presents the following issues for our review:

      A. Whether the Trial Court Committed Prejudicial Error in Failing
      to Instruct the Jury in the Requested Manner on the Relationship
      between Conversion and Breach of Contract, on the Economic
      Loss Doctrine and on the Gist of the Action Doctrine?

      B. Whether the Trial Court Erred in Ruling in Response to
      [Appellant’s] Post-Trial Motion that the Claim for Conversion is
      Distinct from the Contract between TAG and McKesson?

      C. Whether the Trial Court Erred in Denying [Appellant’s] Motion
      for JNOV or, in the alternative, a New Trial, by Failing to Apply
      Correctly the Gist of the Action Doctrine to the Claim for
      Conversion?

      D. Whether the Trial Court Erred in Denying [Appellant’s] Motion
      for JNOV or, in the alternative, a New Trial, by Failing to Discuss
      or Apply the Economic Loss Doctrine to the Claim for
      Conversion?

      E. Whether the Trial Court Erred in Denying [Appellant’s] Motion
      for JNOV or, in the alternative, a New Trial, by Failing to
      Consider the Relevant Case Law Demarcating the Boundary
      Between Breach of Contract and Conversion?

      F. Whether the Trial Court Erred in Denying [Appellant’s] Motion
      for JNOV or, in the alternative, a New Trial, by Failing to
      Recognize or to Discuss the Impact of the Non-Existent and/or
      the Erroneous Charges to the Jury with Regard to the Gist of the
      Action Doctrine, the Economic Loss Doctrine and the Impact of
      the Contractual Nature of McKesson’s Loss on a Claim for
      Conversion?

      G. Whether the Trial Court Committed Prejudicial Error When It
      Declined to Instruct the Jury on the Gist of the Action doctrine,
      the Economic Loss doctrine or the Impact of the Contractual
      Nature of McKesson’s Loss on a Claim for Conversion?

Appellant’s Brief at 6-7.

                                       -6-
J-A20019-15

      The thrust of Appellant’s argument is that the conversion claim should

have been dismissed because the claim arose directly from the contract

between the parties. Appellant’s Brief at 18. Thus, Appellant argues, the

trial court erred in failing to grant its motion for judgment notwithstanding

the verdict (“JNOV”) on the conversion claim. Appellant’s Brief at 19, 49. In

support of its position, Appellant presents the following argument:

            McKesson’s conversion claim was closely linked to the
      aviation services contract entered into by McKesson with TAG.
      The contract alone dictated the obligation of JetDirect to pay
      funds to McKesson upon termination, dictated the terms under
      which money would be paid to McKesson, and determined the
      amount, if any, that would be due to McKesson. Absent the
      contractual obligation imposing a duty on JetDirect (and before
      that TAG) to pay to McKesson certain of the operating funds
      attributable to McKesson’s jets upon termination of the contract,
      JetDirect would have had no obligation to make any payment to
      McKesson.

Appellant’s Brief at 18.    Appellant contends that conversion claims are

barred, as part of the law of conversion itself, when the alleged conversion is

based solely on contractual liability and failure to pay money owed under

that contract. Id. Appellant also maintains that the legal doctrines of the

gist of the action and economic loss bar recovery for conversion under these

circumstances. Id.

      There are two bases on which the court can grant judgment n.o.v.:

            [O]ne, the movant is entitled to judgment as a
            matter of law and/or two, the evidence is such that
            no two reasonable minds could disagree that the
            outcome should have been rendered in favor of the
            movant. With the first, the court reviews the record
            and concludes that even with all factual inferences

                                     -7-
J-A20019-15

              decided adverse to the movant the law nonetheless
              requires a verdict in his favor, whereas with the
              second, the court reviews the evidentiary record and
              concludes that the evidence was such that a verdict
              for the movant was beyond peradventure.

       In an appeal from the trial court’s decision to deny judgment
       n.o.v.,

              we must consider the evidence, together with all
              favorable inferences drawn therefrom, in a light most
              favorable to the verdict winner. Our standard of
              review when considering motions for a directed
              verdict and judgment notwithstanding the verdict are
              identical. We will reverse a trial court’s grant or
              denial of a judgment notwithstanding the verdict
              only when we find an abuse of discretion or an error
              of law that controlled the outcome of the case.
              Further, the standard of review for an appellate court
              is the same as that for a trial court.

Drake Mfg. Co. v. Polyflow, Inc., 109 A.3d 250, 258-259 (Pa. Super.

2015) (internal citation omitted).

       Additionally, we have defined conversion3 as follows:

____________________________________________

3
  A choice of law question as to whether California or Pennsylvania law
applies in this case has been raised. As the trial court stated in its opinion
disposing of Appellant’s motion for summary judgment: “a false conflict
exists since the laws of Pennsylvania and California are the same with
respect to [conversion] claims.” Trial court opinion, 1/9/13, at 6 n.4. See
Rutherford Holdings, LLC v. Plaza Del Rey, 223 Cal. App. 4th 221, 233,
166 Cal. Rptr. 3d 864, 874 (2014) (“[A] mere contractual right of payment,
without more, will not suffice” to support a claim for conversion.). Appellant
maintains that Pennsylvania law applies in this matter. Appellant’s Reply
Brief at 6. McKesson concedes that there are no apparent conflicts with
Pennsylvania and California law with respect to the elements of conversion.
McKesson’s Brief at 28.

(Footnote Continued Next Page)

                                           -8-
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             Conversion is a tort by which the defendant deprives the
      plaintiff of his right to a chattel or interferes with the plaintiff’s
      use or possession of a chattel without the plaintiff’s consent and
      without lawful justification. Chrysler Credit Corporation v.
      Smith, 434 Pa.Super. 429, 643 A.2d 1098, 1100 (1994), appeal
      denied, 539 Pa. 664, 652 A.2d 834 (1994). “A plaintiff has a
      cause of action in conversion if he or she had actual or
      constructive possession of a chattel at the time of the alleged
      conversion.” Id. Money may be the subject of conversion.
      Francis J. Bernhardt, III, P.C. v. Needleman, 705 A.2d 875,
      878 (Pa.Super.1997) (quoting Shonberger v. Oswell, 365
      Pa.Super. 481, 530 A.2d 112, 114 (1987)). However, the failure
      to pay a debt is not conversion.

            In general, courts are cautious about permitting tort
      recovery based on contractual breaches.      See Glazer v.
      Chandler, 414 Pa. 304, 308, 200 A.2d 416, 418 (1964); Bash
      v. Bell Telephone Company of Pennsylvania, 411 Pa.Super.
      347, 601 A.2d 825 (1992). [. . . .] The conceptual distinction
      between a breach of contract claim and a tort claim has been
      explained as follows:

             Although they derive from a common origin, distinct
             differences between civil actions for tort and
             contractual breach have been developed at common
             law. Tort actions lie for breaches of duties imposed
             by law as a matter of social policy, while contract
             actions lie only for breaches of duties imposed by
             mutual consensus agreements between particular
             individuals.... To permit a promisee to sue his
                       _______________________
(Footnote Continued)

       Thus, this Court will apply the forum law of Pennsylvania on
conversion which, for the reasons discussed infra, we find dispositive in this
case. See Budtel Associates, LP v. Continental Cas. Co., 915 A.2d 640,
643 (Pa. Super. 2006), (“the first step in a choice of law analysis under
Pennsylvania law is to determine whether [an actual] conflict exists between
the laws of the competing states. If no [actual] conflict exists, further
analysis is unnecessary.”); see also Am. Hearing Aid Associates, Inc. v.
GN Resound N. Am., 309 F. Supp. 2d 694, 704 n. 14 (E.D. Pa. 2004)
(applying Pennsylvania law to conversion claim where there was no apparent
conflict with Pennsylvania law and the law of California).

                                            -9-
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               promisor in tort for breaches of contract inter se
               would erode the usual rules of contractual recovery
               and inject confusion into our well-settled forms of
               actions.

      Id. (quoting Bash, supra at 829) . . . . “The important
      difference between contract and tort claims is that the latter lie
      from the breach of duties imposed as a matter of social policy
      while the former lie from the breach of duties imposed by mutual
      consensus.”       Id. (quoting Redevelopment Auth. v.
      International Ins. Co., 454 Pa.Super. 374, 685 A.2d 581, 590
      (1996) (en banc ), appeal denied, 548 Pa. 649, 695 A.2d 787
      (1997)). “In other words, a claim should be limited to a contract
      claim when the parties’ obligations are defined by the terms of
      the contracts, and not by the larger social policies embodied by
      the law of torts.” Id. (quoting Bohler-Uddeholm Am., Inc. v.
      Ellwood Group, Inc., 247 F.3d 79, 104 (3rd Cir.Pa.2001), cert
      denied, 534 U.S. 1162, 122 S.Ct. 1173, 152 L.Ed.2d 116
      (2002)).

Pittsburgh Const. Co. v. Griffith, 834 A.2d 572, 581-582 (Pa. Super.

2003).

      The record reflects the following evidence.        As outlined above,

McKesson entered into a contract with TAG on February 24, 2006, to provide

services designed to keep McKesson’s corporate jets operating safely and

efficiently.   Trial Exhibit P-1; Appellant’s Motion for Summary Judgment,

7/17/12, “Exhibit B”, Agreement, 2/24/06, at 1-27.       Pursuant to Section

12.3 of the contract, McKesson agreed to deposit with TAG an operating

fund in the amount equal to two times the average monthly aircraft expense

to cover the working capital requirements for McKesson’s three aircraft and

to serve as a security deposit. Id. at 12. Section 12.3(b) of the contract

provided that the operating fund would be “reflected as a credit balance in

                                     - 10 -
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Provider’s [TAG’s] accounting records of McKesson’s accounts.” Id. Section

12.3(b) also provided that any balance reflected in TAG’s accounting records

for McKesson’s account remained the property of McKesson and would be

returned to McKesson following expiration of the agreement. Id. at 12-13.

       David Weil, CFO and Executive Vice President at TAG, executed the

contract on behalf of TAG.4          Appellant’s Motion for Summary Judgment,

7/17/12, “Exhibit D,” Deposition of Dave Weil, 4/23/12, at 10, 16.          He

testified that upon receipt of the $1.8 million operating fund from McKesson,

TAG placed the operating fund into its general business operating bank

account, from which it would then pay all of the aircraft expenses incurred

on behalf of McKesson.         Id. at 19, 75-77.   At no time did TAG place the

operating fund into a separate bank account.           Id. at 19.   Rather, the

operating fund was commingled with the general operating funds available

to TAG to operate its business. Id. at 75-77. When asked how McKesson’s

money was accounted for on the TAG books, Mr. Weil responded that “for

the gross amount of the deposit, there was a customer deposit liability set

up because it was owed.” Id. at 19. Mr. Weil further explained that “[a]

____________________________________________

4
 David Weil’s videotaped deposition was played at trial. N.T., 1/14/14, at 7.
Additionally, the parties filed a stipulation pursuant to Pa.R.A.P. 1926(b),
supplementing the record with the transcript of David Weil’s deposition,
presented to the jury by video-presentation on day two of trial. Stipulation,
2/13/15, at 2.

                                          - 11 -
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short-term liability was set up, and an offsetting asset in the cash account

was created.” Id. at 76.

       Additionally, Mark Dennen, Director of Finance at TAG, testified that

the McKesson operating fund was commingled with TAG’s general operating

funds.5    Appellant’s Motion for Summary Judgment, 7/17/12, “Exhibit E,”

Deposition of Mark Dennen, 4/24/12, at 6, 32-33. Mr. Dennen also testified

that by the fall of 2008, operating funds were being used to pay TAG’s most

urgent bills, namely payroll, and other liabilities were not being met in order

to meet payroll.       Id. at 51-52.           He further explained that there were

operating deposits on TAG’s books, and “we all intuitively knew that these

clients had given us money, and that when we were running out of money,

that we would never be able to repay them their operating deposit.” Id. at

52.

       Becky Nelson started as a controller with TAG and was later promoted

to Director of Finance, and remained with the company through the

transition from TAG, to Sentient, to JetDirect.6              Appellant’s Motion for

____________________________________________

5
  The videotaped deposition of Mark Dennen was played at trial. N.T.,
1/14/14, at 6. Additionally, the parties filed a stipulation pursuant to
Pa.R.A.P. 1926(b), supplementing the record with the transcript of Mark
Dennen’s deposition, presented to the jury by video-presentation on day two
of trial. Stipulation, 2/13/15, at 1.
6
  The videotaped deposition of Becky Nelson was played at trial. N.T.,
1/13/14, at 133. Additionally, the parties filed a stipulation pursuant to
Pa.R.A.P. 1926(b), supplementing the record with the transcript of Becky
(Footnote Continued Next Page)

                                          - 12 -
J-A20019-15

Summary Judgment, 7/17/12, “Exhibit F,” Deposition of Becky Nelson,

4/23/12, at. 7-8. Ms. Nelson also testified that the McKesson operating fund

was never placed into a segregated bank account, but instead was

commingled into TAG’s operating account.            Id. at 48.   When Sentient

purchased TAG, the operating funds were not transferred to separate bank

accounts. Id. During the time Ms. Nelson was employed by JetDirect, she

lost authority to pay McKesson’s invoices directly and testified that accounts

were becoming overdue.            McKesson’s Response to Appellant’s Motion for

Summary Judgment, 8/30/12, “Exhibit K,” Deposition of Becky Nelson,

4/23/12, at 21, 30-31. She testified that at that point, McKesson’s money

was not available in the California account to pay McKesson’s bills.      Id. at

31.     Ms. Nelson stated that she was required to get approval from Mr.

Rosenheim, JetDirect’s Treasurer, before paying McKesson’s vendors, and

she was to report to Rosenheim which bills were the “most desperate to

pay.”    Id. at 30, 47.      Ms. Nelson further testified that by late summer of

2008, invoices from vendors serving McKesson’s planes were not being paid.

Id. at 43, 49.

        Robert Pocica, Senior Vice President, Chief Security Officer at

McKesson, who was responsible for McKesson’s aviation program, testified

that he had no knowledge regarding whether or not the operating fund was
                       _______________________
(Footnote Continued)

Nelson’s deposition, presented to the jury by video-presentation on day one
of trial. Stipulation, 2/13/15, at 2.

                                           - 13 -
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to be held in a segregated account separate from TAG’s own operating

funds. N.T., 1/13/14, at 40-41, 73. It was Mr. Pocica’s understanding that

TAG was using McKesson funds to operate the aircraft and pay expenses on

McKesson’s behalf.    Id. at 73, 85.     Mr. Pocica also testified that when

Sentient was the management company, he had no knowledge as to

whether Sentient was keeping McKesson’s operating fund deposit in its

general cash accounts.     Id. at 87.   From McKesson’s point of view, the

handling of McKesson’s operating fund did not change as the services

provided moved from TAG, to Sentient, to JetDirect. Id. at 87.

     The record further reflects that on December 17, 2007, McKesson

agreed to the assignment of TAG’s rights and responsibilities under the

contract to Sentient. N.T., 1/15/14, at 38-39, Trial Exhibit P-11; Appellant’s

Motion   for   Summary     Judgment,    7/17/12,   “Exhibit   I,”   Assignment

Agreement, 12/17/07. Thus, by January 2008, TAG’s assets, including the

customer contracts, were acquired by Sentient. N.T., 1/14/14, at 76-82.

     Appellant was Chairman of the Board of Sentient Jet Holdings, LLC, the

parent company of Sentient, when Sentient acquired TAG in early 2008.

N.T., 1/14/14, at 73-76.     Appellant testified that during the acquisition,

customer deposit liabilities were acquired from TAG. Id. at 82. Appellant

provided the following explanation:     “Sentient assumed the liability, so it

showed up as a liability on our books, the customer deposit liability, but

none of the cash from the operating funds actually came over, that was

                                    - 14 -
J-A20019-15

actually retained by T[AG]. So, we never actually possessed the $1.8 million

as part of JetDirect/Sentient.”   Id. at 82.   When asked whether he knew

what TAG did with McKesson’s operating fund, Appellant answered: “They

distributed it to [TAG’s] shareholders, I believe.”     Id.   In any event,

Appellant explained, the operating fund cash did not transfer to Sentient.

Id. at 83; N.T., 1/15/14, at 6.        Appellant explained that while the

assignment indicated that the balance of the operating fund would transfer

from TAG to Sentient, “[t]he cash was never transferred. The liability, the

owners account liability was transferred.” N.T., 1/15/14, at 40.

      As part of Sentient’s continued efforts to restructure and improve its

financial condition, in August of 2008, Sentient sold the Sentient Jet card

business along with the rights to the Sentient name. N.T., 1/14/14, at 89-

93.   As a result, Sentient changed its name to JetDirect Aviation Inc.

(“JetDirect”).   Id. at 93.   Appellant took over as CEO of JetDirect in

September of 2008, after the sale of Sentient. Id. at 91. Appellant’s goal

as CEO was to restructure the JetDirect operation. Id. at 89-92.

      Appellant further testified that any payment made by McKesson on

invoices provided by JetDirect were deposited in “the concentration account”

JetDirect maintained at Sovereign Bank. 1/15/14, at 9. Appellant testified

that Sentient/Jet Direct had only the single “concentration account” at

Sovereign Bank, where all deposits were made.          Id. at 9.   Appellant

                                    - 15 -
J-A20019-15

provided the following explanation regarding the account at Sovereign Bank

after the acquisition:

      I will go back to the acquisition of the assets of T[AG], which
      were basically the client contracts. We had a revolving line of
      credit with Sovereign Bank, and it was what’s known as a zero
      cash balance account. So cash balances would be paid down to
      zero, and the amount of the line of credit would be reduced.
      And that’s not atypical of a fairly large corporation that’s trying
      to maximize its cash utilization when it has that. So, we never
      had material cash balances from one day to the balance, every –
      the end of every day the cash balance was basically wiped down
      to zero. We used the line of credit then to fund whatever capital
      deposits we had during the month, where there w[ere] peeks
      and valleys we used the line of credit.

Id. at 23-24. Appellant confirmed that is how the payments and operating

funds were handled from the time that TAG was acquired. Id. at 24.

      After JetDirect’s financial status began to deteriorate, McKesson

provided a notice of termination to JetDirect in February of 2009, and

demanded return of the remaining balance of the operating fund.             N.T.,

1/1/5/14, at 10-11. On or about February 27, 2009, Appellant informed Mr.

Pocica that Sovereign Bank had seized all of JetDirect’s assets, and that

JetDirect was not in a financial position to return any of McKesson’s

operating fund. Id. at 11-12.

      Frank Morrissey, an expert witness in the area of insolvency,

bankruptcy and credits, also testified for the defense. N.T., 1/15/14, at 112.

The following testimony was elicited regarding the handling of McKesson’s

operating fund:

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       [Appellant’s Counsel]: Now, the jury has heard testimony that
            everything was commingled, everybody’s money went into
            the pot when they came on board and gave an operating
            fund. And the jury also heard Becky Nelson testify that
            McKesson’s operating fund was never placed in a
            segregated account, and was placed in, has a general
            operating account. And we also heard Dave Weil testify
            that McKesson’s money was commingled with the
            operating funds of JetDirect. So, you can’t definitively say
            what money was used for what. I m[e]an it was all
            fungible in this one account.

                    And we have also heard Greg Campbell testify that
              this practice did not change up until the time that
              McKesson terminated the contract with JetDirect. Based
              on this testimony do you have an opinion to a reasonable
              declare of professional certainty as to whether a payment
              from JetDirect Aviation, Inc., a checking account, to
              McKesson in February, 2009 would be a transfer or a
              payment that the trustee in bankruptcy would consider a
              preference[7]?

       [Mr. Morrissey]: I do. The fact that McKesson allowed money
             to advance from the management agreement to be held in
             a commingled account in the name of T[AG], initially, and
             then JetDirect later, and that McKesson allowed JetDirect
____________________________________________

7
   In his previous testimony, Mr. Morrissey explained “a preference” as
follows:

             A preference is a technical cause of action of the banking
       code . . . . One of the key prime policies of the banking code is
       quality distribution to similar situated preference. People, similar
       creditors get treated similarly in bankruptcy.

             Preference law implements this key banking policy by
       acquiring creditors who receive a payment on the eve of
       bankruptcy, to return that payment if the payment allows the
       creditor to receive more than they would receive in a bankruptcy
       case, in a nut shell. That’s what a preference is.

N.T., 1/15/14, at 114.

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J-A20019-15

           and T[AG] to control [disbursements] from that account is
           legally significant. That – those – that fact, that record,
           those facts bring any payment from the commingled
           account within the umbrella of the preference statute. Any
           payment from an account where funds are commingled,
           and it’s in control of a Chapter 7 debtor will make it
           property, for purposes of the preference statute.

                The co-mingling account and the fact that the
           McKesson money was not kept in a segregated, a
           sequestered account in McKesson’s name is very, very
           important, has a lot of significance in this situation.

N.T., 1/15/14, at 128-129.

     The evidence supports Appellant’s claim that Sentient/JetDirect did not

receive the $1.8 million dollar operating fund that McKesson originally had

paid to TAG; rather, through the acquisition, Sentient/JetDirect assumed

that amount as a liability.   The abundant testimony regarding the co-

mingling of McKesson’s operating fund with TAG’s general operating account,

and TAG’s subsequent exhaustion of its funds and inability to repay

customers’ operating deposits is consistent with this claim. The Agreement

between the parties provided that upon termination of the agreement, the

money in McKesson’s operating fund should be returned to McKesson.

Therefore, McKesson’s claim for repayment of its money arises from the

Agreement entered into by the parties.

     Thus, in this action, McKesson is attempting to recover the money it

was owed under the agreement with TAG and later assigned to Sentient/

JetDirect. Appellant’s alleged failure to return the money to McKesson was a

breach of duty imposed by mutual consensus as reflected in the agreement.

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J-A20019-15

Without the agreement, Appellant and Sentient/JetDirect would have no

obligation to pay McKesson any amount of money. Thus, Appellant’s breach

was not of duties imposed by law or social policy, as is required in a

conversion claim.    See Hart v. Arnold, 884 A.2d 316, 339 (Pa. Super.

2005) (The critical conceptual distinction between a breach of contract claim

and a tort claim is that the former arises out of “breaches of duties imposed

by mutual consensus agreements between particular individuals,” while the

latter arises out of “breaches of duties imposed by law as a matter of social

policy.”).

       Instead, a debt was owed by JetDirect to McKesson. JetDirect failed to

pay that debt. As noted, it is well-settled that failure to pay a debt is not

conversion. Francis J. Bernhardt III, P.C. v. Needleman, 705 A.2d 875,

878 (Pa. Super. 1997). Additionally, the claim for conversion rests on the

same facts as would a claim for breach of contract. Claims for conversion

have been consistently disallowed where such claims are based on the same

facts as the contract claim.   Pittsburgh Construction Co., 834 A.2d at

584.

       The evidence of record compels the conclusion that Appellant is

entitled to judgment as a matter of law.     Even with all factual inferences

decided adverse to Appellant, the law nonetheless requires a verdict in his

favor. Drake Mfg. Co., 109 A.3d at 258. McKesson’s claim for repayment

of the operating fund was based on the contract entered into by the parties.

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McKesson sought repayment of funds owed under the contract. Therefore,

the claim for conversion against Appellant cannot succeed. The trial court

erred as a matter of law in failing to grant Appellant’s motion for JNOV on

the conversion claim. Accordingly, we reverse the order denying Appellant’s

motion for JNOV, vacate the judgment, and remand for entry of JNOV in

favor of Appellant.

      Judgment reversed; case remanded for entry of JNOV in favor of

Appellant. Jurisdiction is relinquished.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 11/24/2015

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