Court Opinion

ID: 3155443
Source: CourtListenerOpinion
Date Created: 2015-11-17 20:09:22.580884+00
Date Added: 2024-06-11T12:03:17.462238
License: Public Domain

J-A33008-14

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

CHRISTOPHER GUTTERIDGE AND                       IN THE SUPERIOR COURT OF
APPLIED ENERGY PARTNERS, LLC                           PENNSYLVANIA

                            Appellees

                       v.

J3 ENERGY GROUP, INC., T/D/B/A J3
ENERGY GROUP AND STEPHEN RUSSIAL

                            Appellants               No. 3397 EDA 2013

            Appeal from the Judgment Entered November 25, 2013
               In the Court of Common Pleas of Chester County
                    Civil Division at No(s): 2009-09160-CA

BEFORE: LAZARUS, J., WECHT, J., and STRASSBURGER, J.*

MEMORANDUM BY STRASSBURGER, J.:                            FILED NOVEMBER 17, 2015

        J3 Energy Group, Inc. (J3) and Stephen Russial (Russial) (collectively

Appellants) appeal from the judgment entered in favor of Christopher

Gutteridge (Gutteridge) and Applied Energy Partners, LLC (AEP) (collectively

Appellees), in the amount of $343,887.00.       We vacate the judgment and

remand the matter to the trial court with instructions.

        The background underlying this matter can be summarized as follows.

In 2004, Gutteridge formed AEP, which sold electronic motor controls and

energy saving lighting products to commercial and industrial customers.

AEP conducted its business through approximately fifteen sales agents
____________________________________________

*
    Retired Senior Judge assigned to the Superior Court.
J-A33008-14

known as channel partners. Channel partners who owned businesses would

buy products from AEP at discounted prices and sell them to their customers

at higher prices. Channel partners who did not own a business were paid a

commission by AEP for the sales they generated.

        The case before us arises out of business dealings between AEP and

J3, a corporation founded by Russial in 2002.               J3 provides energy

procurement1 and demand response services2 to commercial and industrial

clients.

____________________________________________

1
    At trial, Gutteridge provided the following definition of “procurement.”

        Procurement is the business of helping the end-user consumer
        buy their electricity or natural gas most advantageously. Ten or
        15 years ago all utilities were fully regulated and you had no
        choice. Over the last ten or 15 years various states have
        become deregulated, so now end[-]user consumers can buy
        their own electricity from ten to 15 different potential suppliers.

N.T., 6/12/2012, at 31.

2
    At trial, Gutteridge provided the following definition of “demand response.”

        Demand response, or curtailment, as it is otherwise known, is
        the business where a utility will pay a large electrical user to
        curtail their usage on days when the electrical grid has a high
        load, which are nearly always summer afternoons. If the load on
        the grid gets too high, they send out a message. And those
        people who have signed up for demand response, and who will
        be paid for doing it, agree to curtail their use during those
        periods.

N.T., 6/12/2012, at 30.

                                           -2-
J-A33008-14

     Gutteridge and Russial met in 2007 and, over time, developed a plan

whereby AEP would use its channel partners to provide J3’s services to its

customers. They discussed forming a joint venture called the Energy Buyers

Group (the Group). The Group’s members would benefit from lower electric

supply costs that the Group would negotiate for them.

     Gutteridge and Russial agreed that the revenue generated by the

Group would be divided as follows: 60% to J3 and 40% to AEP. However,

in the beginning, the revenue would be divided 65% to J3 and 35% to AEP

because J3 would be heavily involved in closing the sales while the AEP

channel partners were learning about energy procurement and demand

response services.   It was further decided that AEP would pay the channel

partners 20% of the total revenue and retain a net commission of 15%.

     At an AEP meeting in January of 2008, Gutteridge introduced the

channel partners to Russial and J3. At training sessions in January and May

of 2008, the Group concept was discussed, and Russial explained how J3’s

services worked and how to sell them.

     Only two of the channel partners, Lori Porreca (owner of A1

Restoration, Inc. and A1 Energy, Inc.) and Herb Keaton (owner of Plastic

Machinery Sales) sold the Group’s services because they were the sole

                                   -3-
J-A33008-14

partners with customers in the PPL utility area, which was scheduled to

become deregulated in January of 2010.3

       At the initial meetings in 2008, Russial told the channel partners that it

was important for the Group to reach 50 megawatts of purchasing volume

because that was the amount needed to secure optimum pricing from

energy suppliers. On February 25, 2009, Russial sent an email confirming

that the Group had reached this threshold.

       Although Gutteridge maintained that he and AEP made significant

efforts to market the Group, Russial became dissatisfied with AEP’s

performance. On March 9, 2009, Russial sent Gutteridge an email setting

forth a proposal that J3 compensate directly A1 Restoration, Plastic

Machinery Sales, and AEP channel partner Mark Burton for any sales they

close. Under the new proposal, J3 would pay AEP a 10% or 20% referral fee

for any sales generated by channel partners other than Porreca, Keaton, or

Burton, depending on the extent of Appellants’ involvement.         This referral

fee was less than the share being paid to AEP under the existing

arrangement.      The proposal also included a requirement that AEP sign a

non-compete agreement for any existing or new clients of the Group.

       On April 21, 2009, Russial sent an email to Gutteridge informing him

that he would not make any payments to AEP from J3 unless Appellees
____________________________________________

3
  The other large utilities in Pennsylvania, PECO and MetEd, were scheduled
to deregulate in January 2011.

                                           -4-
J-A33008-14

agreed to sign a document prepared by Russial that would include a non-

compete clause for any customers secured by Porreca, Keaton, or Burton.

AEP never signed a new agreement with J3, and J3 never paid AEP for any of

the revenues generated from the Group joint venture.

      Appellants voluntarily paid channel partners Porreca and Keaton

directly for their services, rather than Appellees. They also had Porreca and

Keaton sign non-compete agreements, which caused Appellees to lose two

key channel partners and resulted in the customers Porreca and Keaton had

obtained for the Group becoming direct customers of J3.

      Appellees commenced this action by filing a writ of summons on

August 14, 2009. They filed a complaint on May 10, 2010, raising several

counts against Appellants, including promissory estoppel, breach of contract,

unjust enrichment, breach of implied duty of good faith, and tortious

interference with contractual rights.   A four-day non-jury trial before the

Honorable William P. Mahon began on June 12, 2013 and concluded on June

15, 2013. On June 30, 2013, the court issued a verdict in favor of Appellees

in the amount $343,887.00 on the counts of unjust enrichment and

promissory estoppel.   The verdict was not filed until July 3, 2013, and is

date-stamped as “sent” on July 8, 2013.

      On July 12, 2013, Appellants filed motions for post-trial relief, and

Appellees did the same on July 15, 2013.      Because the trial court did not

rule on the post-trial motions within 120 days, Appellants filed a praecipe for

                                     -5-
J-A33008-14

entry of judgment on November 25, 2013. Pa.R.C.P. 227(1)(b). Judgment

was entered the same day. Appellants timely filed a notice of appeal.

        Appellants present the following questions for our consideration:

        1. Did the trial court abuse its discretion and/or commit an error
        of law in holding ... Russial, who was the shareholder and
        corporate officer of [J3], personally liable for any amount under
        the theories of unjust enrichment/promissory estoppel or any
        other basis?

        2. Did the trial court abuse its discretion and/or commit an error
        of law in finding liability against both or either of [] Appellants
        under the theory of promissory estoppel?

        3. In the event that either or both of [] Appellants did in fact
        have liability under the legal theory of promissory estoppel, did
        the trial court abuse its discretion and/or commit error of law
        and apply the wrong measure of damages?

        4. Did the trial court abuse its discretion and/or commit an error
        of law in finding liability against either or both of [] Appellants
        under the theory of unjust enrichment?

        5. In the event that either or both of [] Appellants did in fact
        have liability under the legal theory of unjust enrichment, did the
        trial court abuse its discretion and/or commit error of law and
        apply the wrong measure of damages?

        6. In the event [this] Court affirms liability on either or both []
        Appellants under unjust enrichment and/or promissory estoppel
        and affirms that [] Appellees were entitled to damages based on
        lost commissions as opposed to reliance damages, was the
        amount of the trial court’s verdict excessive and an abuse of
        discretion and/or an error of law?

Appellants’ Brief at 4-6.4

        Our standard of review in nonjury cases is limited to:
____________________________________________

4
    We have reordered Appellants’ issues for ease of discussion.

                                           -6-
J-A33008-14

      a determination of whether the findings of the trial court are
      supported by competent evidence and whether the trial court
      committed error in the application of law. Findings of the trial
      judge in a non-jury case must be given the same weight and
      effect on appeal as a verdict of a jury and will not be disturbed
      on appeal absent error of law or abuse of discretion. When this
      Court reviews the findings of the trial judge, the evidence is
      viewed in the light most favorable to the victorious party below
      and all evidence and proper inferences favorable to that party
      must be taken as true and all unfavorable inferences rejected.

Company Image Knitwear, Ltd. v. Mothers Work, Inc., 909 A.2d 324,

330 (Pa. Super. 2006) (citation omitted).

      Appellants assert that the trial court abused its discretion and

committed an error of law by holding Russial personally liable for AEP’s

damages. Appellants essentially contend that the verdict against Russial is

not supported by sufficient evidence. We agree with Appellants.

      AEP is a limited liability company, and J3 is a corporation.     Yet, the

trial court’s verdict holds Russial, the stockholder and officer of J3,

personally liable for the damages sustained by AEP. In its opinion, the trial

court isolates portions of Gutteridge’s testimony in support of that decision.

      The following exchange between Appellants’ counsel and Gutteridge

was central to the court’s decision.

      Q:    At your deposition I remember asking you when you met
      Steve Russial were you aware of his company, J3 Energy Group,
      Inc., were you aware of that company?

      A:    Yes.

      Q:    And were you aware that the company was a corporation?

      A:    No, not specifically, but I assumed so.

                                       -7-
J-A33008-14

                                    ***
       Q:   Mr. Gutteridge, I’m handing you your deposition on
       January 6, 2012 of this year. I’m bringing your attention to
       page 26, lines 14 through 21. Would you read those and let me
       know when you’re finished?

       A:    “Let’s talk about that. One of my clients is J3 Energy
             Group Inc. Were you aware of J3 Energy Group, Inc. when
             you started dealing with Mr. Russial?”
             “Yes.”
             “Were you aware that that was a corporation?”
             “Yes.”
                                      ***
       Q:    I also asked you if, when you were dealing with Mr.
       Russial, were you dealing with him in his capacity as president of
       this corporation – of his corporation. You don’t remember what
       your answer was?

       A:    I don’t remember what my answer was, but when I first
       met Mr. Russial, I was dealing with him personally. At the point
       that we started setting up the Energy Buyers Group, it was
       Applied Energy Partners J3 venture.

       Q:    I’m going to approach you one more time.
             If I show you, again, page 26, the last three lines, and
             then your answer on the top of your deposition testimony?

       A:   Yes. You asked me in my dealings with Mr. Russial was he
       always dealing as president of J3 and I said I assumed so.

       Q:    Thank you.

N.T., 6/13/2012, at 8-10.

       The trial court credited Gutteridge’s testimony that, when he first met

Russial, Gutteridge believed that he was dealing with Russial personally.

The court basically concluded that, because the J3 and AEP were unable to

work out a contract, Russial is personally liable for the damages caused to

AEP.

                                     -8-
J-A33008-14

      Only extraordinary cases allow for corporate liability to be passed

along to owners or officers of corporations.     See Villiage at Camelback

Prop. Owners Assn. Inc. v. Carr, 538 A.2d 528, 533 (Pa. Super. 1988)

(“Piercing    the   corporate   veil is admittedly an   extraordinary remedy

preserved for cases involving exceptional circumstances.        As some courts

have phrased it, liability for the acts of a corporation may be assessed

against the owners thereof wherever equity requires that such be done

either to prevent fraud, illegality or injustice or when recognition of the

corporate entity would defeat public policy or shield someone from public

liability for crime.”). Here, in concluding that Russial is personally liable for

damages caused by J3, the trial court relied on Gutteridge’s testimony that,

when Gutteridge first met Russial, Gutteridge was dealing with Russial

personally.     Yet, immediately after making this statement, Gutteridge

testified, “At the point that we started setting up the Energy Buyers Group,

it was Applied Energy Partners J3 venture.” N.T., 6/13/2012, at 10.

      Stated simply, regardless of Gutteridge’s purported belief that he was

dealing with Russial when they first met, the evidence admitted at trial

clearly demonstrates that, at all times relevant to this appeal, AEP and J3

were the parties to the failed business deal.     Thus, the trial court had no

grounds upon which to hold Russial personally liable for the damages J3

caused to AEP. The judgment, therefore, must be adjusted accordingly.

                                       -9-
J-A33008-14

      Appellants next assert that the trial court abused its discretion or

committed an error of law by finding liability under the theory of promissory

estoppel.   Our Supreme Court has explained the doctrine of promissory

estoppel as follows:

      Where there is no enforceable agreement between the parties
      because the agreement is not supported by consideration, the
      doctrine of promissory estoppel is invoked to avoid injustice by
      making enforceable a promise made by one party to the other
      when the promisee relies on the promise and therefore changes
      his position to his own detriment. In order to maintain an action
      in promissory estoppel, the aggrieved party must show that 1)
      the promisor made a promise that he should have reasonably
      expected to induce action or forbearance on the part of the
      promisee; 2) the promisee actually took action or refrained from
      taking action in reliance on the promise; and 3) injustice can be
      avoided only by enforcing the promise. As promissory estoppel
      is invoked in order to avoid injustice, it permits an equitable
      remedy to a contract dispute.

Crouse v. Cyclops Industries, 745 A.2d 606, 610 (Pa. 2000) (citations

omitted).

      Appellants argue that “[t]here was no evidence presented by []

Appellees and the trial court made no findings in its [v]erdict or [o]pinion

finding any of the three elements of promissory estoppel against either or

both of [] Appellants.” Appellants’ Brief at 43. We disagree.

      Here, the court found evidence that Appellants made promises to

Appellees that were expected to induce action by Appellees.               More

specifically, the court credited Gutteridge’s testimony. Gutteridge testified,

inter alia, that Russial personally promised a revenue sharing arrangement

                                    - 10 -
J-A33008-14

whereby J3 would pay AEP a percentage of the revenues generated from

AEP’s sales efforts. See, e.g., N.T., 6/12/2012, at 167-69;

        There also was evidence that Appellants’ promises induced Appellees

to take various actions.        For instance, as a result of Russial’s promises,

Gutteridge introduced Russial and J3 to the AEP channel partners, who made

several    sales   calls   to   potential   customers   to   market   the   Group.

Furthermore, Gutteridge testified that AEP sought only to become involved in

the demand response and procurement market based on Appellants’

promises to enter into the shared revenue arrangement. N.T., 6/12/2012,

at 187.

        Lastly, the court concluded that “[e]quity demands that [Appellees]

recover on the theory of promissory estoppel to the extent that [Appellants]

are unjustly enriched by 35% of the revenues that would otherwise be paid

to [Appellees].”     Trial Court Opinion, 6/11/2014, at 4.       In other words,

permitting recovery on the promise is the only way to avoid injustice. See

Crouse, 745 A.2d at 610.           This conclusion is supported by the credible

testimony that, once the Group met its target of 50 megawatts of

purchasing volume, Appellants decided they were unhappy with Appellees’

work.

        Appellants then refused to pay Appellees unless they signed an

agreement that would cut them out of the Group and allow Appellants to use

the AEP sales force for their exclusive gain.      Appellees rejected this offer,

                                        - 11 -
J-A33008-14

and Appellants refused to pay them the agreed upon 35% of the revenues

generated by the channel partners, which amounted to $343,887.

       Appellants then began paying directly AEP’s two most productive

channel partners, Porreca and Keaton, for their services and had them sign

non-compete agreements.          Appellees thus lost the ability to sell to the

clients of Porreca and Keaton, including the ability to sell them the services

of their new vendor for energy procurement services, World Energy.

       Appellants argue there was no injustice in this case because “Appellees

did not perform as they represented they could and would[.]”           Appellants’

Brief at 44.   Relying heavily on Russial’s testimony, Appellants claim that

Appellees failed to identify 12 to 14 sales agents, as they represented they

could. Appellants also claim that Appellees purported to have a network of

agents who could sell J3’s services without J3’s being involved in training or

operating the network or closing sales. However, in light of the trial court’s

statement that it “finds credible the testimony of … Gutteridge when

considered against that of … Russial,” Trial Court Opinion, 6/11/2014, at 1,

Appellants’ contention that no injustice occurred evanesces.

       Instead, the court had before it the credible testimony of Gutteridge

that it was only when the 50 megawatt goal was reached, and the Group

was    about   to    realize   revenues,    that   Appellants   communicated    any

dissatisfaction with Appellees’ efforts, and then engaged in conduct to lure

away    Appellees’     most    successful    channel    partners.    Under     these

                                       - 12 -
J-A33008-14

circumstances, the trial court did not err in concluding that the doctrine of

promissory estoppel applied in this matter.

      Appellants next argue that, even if the trial court correctly found

liability under the theory of promissory estoppel, it should have awarded

only reliance damages to Appellees.

      RESTATEMENT (SECOND)   OF   CONTRACTS, §90(1), Comment d, provides, in

relevant part:

      A promise binding under this section is a contract, and full-scale
      enforcement by normal remedies is often appropriate. But the
      same factors which bear on whether any relief should be granted
      also bear on the character and extent of the remedy.            In
      particular, relief may sometimes be limited to restitution or to
      damages or specific relief measured by the extent of the
      promisee’s reliance rather than by the terms of the promise.

      Accordingly, the general rule is that a plaintiff should be awarded the

value of the defendant’s promises          unless equity dictates otherwise.

Although Appellants cite Banas v. Matthews Int’l Corp., 502 A.2d 637

(Pa. Super. 1985), for the general proposition that “any recovery under

promissory estoppel would be for reliance damages,” Appellants’ Brief at 46,

they paint with too broad a brush. Rather, as our Supreme Court noted, a

promissory estoppel remedy may be limited as justice requires. Lobolito,

Inc. v. North Pocono Sch. Dist., 755 A.2d 1287, 1292 n.10 (Pa. 2000).

Therefore, the issue is whether the trial court correctly found that the instant

case does not involve equitable considerations that would justify a deviation

from contract damages based on the value of the Appellants’ promises.

                                      - 13 -
J-A33008-14

      Here, the trial court heard evidence regarding the sales and marketing

activities that Appellees performed in reliance on Appellants’ promises.     It

also heard testimony regarding the losses that Appellees sustained as a

result of relying on those promises. Under these circumstances, an award of

contract damages that gave Appellees the benefit of their bargain was

appropriate, and Appellants have not demonstrated any equitable concerns

that would justify a lesser calculation of damages.

      Appellants also contend that the trial court abused its discretion and/or

committed an error of law by finding in favor of Appellees on their claim of

unjust enrichment. This Court held that

      [a] claim for unjust enrichment arises from a quasi-contract. A
      quasi-contract imposes a duty, not as a result of any agreement,
      whether express or implied, but in spite of the absence of an
      agreement, when one party receives unjust enrichment at the
      expense of another.

         The elements of unjust enrichment are benefits conferred
         on defendant by plaintiff, appreciation of such benefits by
         defendant, and acceptance and retention of such benefits
         under such circumstances that it would be inequitable for
         defendant to retain the benefit without payment of value.
         Whether the doctrine applies depends on the unique
         factual circumstances of each case. In determining if the
         doctrine applies, we focus not on the intention of the
         parties, but rather on whether the defendant has been
         unjustly enriched.

         Moreover, the most significant element of the doctrine is
         whether the enrichment of the defendant is unjust. The
         doctrine does not apply simply because the defendant may
         have benefited as a result of the actions of the plaintiff.

                                    - 14 -
J-A33008-14

Stoeckinger v. Presidential Financial Corp. of Delaware Valley, 948

A.2d 828, 922 (Pa. Super. 2008) (citations and quotation marks omitted).

      “To sustain a claim of unjust enrichment, a claimant must show that

the party against whom recovery is sought either wrongfully secured or

passively received a benefit that it would be unconscionable for her to

retain.”   Torchia v. Torchia, 499 A.2d 581, 582 (Pa. Super. 1985)

(quotation marks and citation omitted). Here, the trial court found credible

evidence that Appellants committed wrongful acts by breaking their

promises to Appellees after Appellees performed services in reliance on

those promises.   As a result, Appellants kept all of the revenues from the

Group that were obtained through Appellees’ efforts and secured exclusive

relationships with AEP’s most productive channel partners.

      Appellees presented credible evidence that the benefits that Appellants

secured unjustly were equal to the amount of money Appellees would have

received from Appellants had they not broken their promises. See Exhibit P-

64 (showing total revenue received by J3 for both procurement and demand

services through December 21, 2011, totaling $982,537). Accordingly, the

trial court concluded that Appellees were unjustly enriched by retaining

thirty-five percent of that amount, i.e., $343,887.00.        Consequently,

assuming arguendo that Appellees failed to establish the elements of

promissory estoppel, the trial court correctly concluded that Appellees

                                   - 15 -
J-A33008-14

proved that they were entitled to damages pursuant to the doctrine of unjust

enrichment.

      Appellants argue that, even if the court did not err in awarding lost

commissions, the verdict was excessive and improperly calculated.       They

contend that, at the most, Appellees were entitled to a commission of fifteen

percent, which is the net they would have earned after paying commissions

to A1 and/or Plastic Machinery Sales. Additionally, Appellants note that J3

did, in fact, pay commissions of twenty cents on every dollar directly to A1

and Plastic Machinery Sales.      Accordingly, they assert that the verdict

“essentially penalizes Appellants and creates an unwarranted windfall for the

Appellees.” Appellants’ Brief at 51.

      With respect to this issue, the trial court concluded, “[Appellants’]

willingness to pay AEP’s sales commissions to Porreca and Keaton [does] not

entitle them to a ‘credit’ against any claims that [Appellees] have against

[Appellants] nor does it relieve [Appellants] of any sales commission

obligations that [they] may have to Porreca and Keaton.”         Trial Court

Opinion, 6/11/2014, at 5. We disagree.

      J3 paid the commissions due to Porreca and Keaton.             Yet, in

calculating damages, the trial court failed to account for these payments.

No viable legal vehicle exists by which these channel partners could recover

commissions from AEP that J3 already paid to them. Indeed, the law frowns

upon double recovery. Cf. Judge Technical Servs., Inc. v. Clancy, 813

                                       - 16 -
J-A33008-14

A.2d 879, 887 (Pa. Super. 2002) (“[A]n injured party cannot recover twice

for the same injury, based on the theory that double recovery results in

unjust enrichment.”). Thus, the judgment must be reduced to account for

the paid commissions.

     Lastly, Appellants argue that the trial court erred by awarding

Appellees damages on any contracts entered into after March 5, 2009, the

date on which J3 informed AEP that J3 no longer intended that the

companies would work together.      Appellants rely on Exhibit D-20, which

contains a calculation, explained in Russial’s testimony, that only $396,574

of J3’s revenue came from contracts that it obtained through the channel

partners’ efforts before March 5, 2009. Based on this figure, and Appellants’

insistence that Appellees were entitled to only a fifteen percent commission,

they argue that the verdict should be reduced to $59,486.10.

     The trial court did not abuse its discretion in determining there was no

basis to separate revenue from contracts generated by AEP’s channel

partners after March 2009 from revenue generated from contracts generated

by them before that date. Gutteridge testified that, by March 2009, AEP’s

channel partners had brought several customers to the Group and that

“virtually all of the selling work, by then, was done.” N.T., 6/13/2012, at

121. Therefore, the court reasonably awarded Appellees their share of the

revenue generated from contracts by AEP’s channel agents as of the time of

                                   - 17 -
J-A33008-14

trial, regardless of whether the contracts were procured before or after

March 2009.

      For these reasons, we vacate the judgment and remand the matter to

the trial court. Upon remand, the trial court shall adjust the judgment in a

manner consistent with this memorandum.

      Judgment vacated.    Case remanded with instructions.      Jurisdiction

relinquished.

      Judge Wecht joins the majority.

      Judge Lazarus files a concurring and dissenting memorandum.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 11/17/2015

                                   - 18 -