J-A27021-15
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
IN RE: ESTATE OF DAVID ROY BITTNER, IN THE SUPERIOR COURT OF A/K/A DAVID R. BITTNER, DECEASED PENNSYLVANIA
APPEAL OF: CHASITY L. BITTNER, INDIVIDUALLY AND AS THE SURVIVING PARENT AND NATURAL GUARDIAN OF PRESTON MARSHALL BITTNER No. 1847 WDA 2014
Appeal from the Order Entered September 17, 2014 In the Court of Common Pleas of Bedford County Orphans’ Division at No(s): 74 for 2013
BEFORE: BOWES, OLSON & STABILE, JJ.
MEMORANDUM BY OLSON, J.: FILED: January 21, 2016
Appellant, Chasity Bittner, individually and as the surviving parent and
natural guardian of Preston Marshall Bittner, appeals from the order entered
on September 17, 2014, as made final by the denial of Appellant’s
exceptions on October 8, 2014. We affirm.
The Orphans’ Court ably explained the underlying facts of this case. David Bittner died testate on December 31, 2011. Under his will, [Appellant (and her son)] were each beneficiaries of 25% of the residual estate. David Bittner’s residual estate includes 12 shares of stock in Snyder’s Gateway and 14 shares of stock in Breezewood Enterprises, both of which [constitute minority interests in] closely-held family entities. The valuation of this stock is the sole issue in the matter. . . .
Co-executors M&T Bank and Robert Bittner (hereinafter “Executors”) applied discounts for lack of marketability and minority interests to the stock, listing their combined value at $719,059[.00] in the First and Final Account. [Appellant] filed objections to the First and Final Account, specifically to the valuation of the stock. [Appellant] argue[d] that the J-A27021-15
plain language of [the Amended and Restated Stock Restriction, Transfer and Purchase Agreement (hereinafter “the Shareholder Agreement”) for both companies mandates that no discounts should have been applied, that the value should have been calculated on a pro rata basis[,] and that, as a result, the Executors breached their fiduciary duty. . . .
Orphans’ Court Opinion, 9/17/14, at 1-2.
The relevant portions of the Shareholder Agreement declare:
§ 2.05 Death of a Shareholder. Upon the death of a Shareholder, each Issuing Company shall have the option to purchase all, but not less than all, of such deceased Shareholder’s Common Stock at a price equal to the Fair Market Value of such Common Stock as determined under § 2.11. Likewise, upon the death of a Shareholder, the personal representative of such deceased Shareholder’s estate shall have the right to require each Issuing Company to purchase all of the deceased Shareholder’s Common Stock at a price equal to the Fair Market Value of such Common Stock as determined under § 2.11. Either such option shall be exercised, if at all, within nine (9) months of the date of such deceased Shareholder’s death, in writing delivered, in the case of the exercise of the Issuing Company’s option, to the personal representative, to the Issuing Company. Notwithstanding the foregoing provisions of this § 2.05, upon the death of David R. Bittner, the Issuing Company shall redeem all, but not less than all, of the Common Stock held by David R. Bittner at the time of his death as soon as such redemption is lawful and not in violation of any agreement by which the Issuing Company is bound.
...
§ 2.11 Fair Market Value. As used herein, the term “Fair Market Value” of the Common Stock being transferred hereunder shall mean that amount determined by the Shareholders to be the per share fair market value of the Company issuing such Common Stock (the “Issuing Company”) for the calendar year of the transfer, multiplied by the number of shares of Common Stock being
-2- J-A27021-15
transferred. In the absence of a determination by the Shareholders of the per share fair market value of an Issuing Company for the calendar year of any transfer, the “Fair Market Value” of the Common Stock being transferred during such calendar year shall be the per share fair market value of such Company, as determined by the certified public accountant employed by the Company for the preparation of its immediately preceding annual financial statements and income tax returns, multiplied by the number of shares being transferred.
The Shareholder Agreement, dated 8/16/10, at §§ 2.05 and 2.11.
On June 4, 2014, the parties appeared for a hearing on Appellant’s
objections to the First and Final Account. At the beginning of the hearing,
Appellant claimed that a hearing was unnecessary in this case because the
Shareholder Agreement was unambiguous. N.T. Hearing, 6/4/14, at 7. As
the Orphans’ Court explained, Appellant claimed that the plain language of
the above provisions declared that, in calculating the fair market value of the
stock, “no discounts should have been applied, [] the value should have
been calculated on a pro rata basis[,] and [], as a result, the Executors
breached their fiduciary duty.” Orphans’ Court Opinion, 9/17/14, at 2; see
also N.T. Hearing, 6/4/14, at 7-29.
The Executors, on the other hand, claimed that a hearing was
necessary because Section 2.11 of the Shareholder Agreement was
ambiguous. N.T. Hearing, 6/4/14, at 14-15. Therefore, the Executors
claimed, parol evidence was needed to determine how the shares were to be
valued under the agreement. Id.
-3- J-A27021-15
The Orphans’ Court deferred ruling on the issue of whether the
Shareholder Agreement was ambiguous. Id. at 25-26. The Orphans’ Court
then heard testimony on the case.
During the hearing, Appellant produced no evidence and instead relied
upon her claim that the Shareholder Agreement was unambiguous. The
Executors produced both lay and expert witnesses at the hearing, and their
evidence included the following:
• John Campbell, the “Administrative Vice President and Regional
Manager for the Fiduciary team for Central Western and Northern PA
for Wilmington Trust which is an M&T Company,” testified that
“discounts for lack of marketability and lack of control when there’s a
calculation of fair market value” of minority shares in a closely-held
corporation are “always” a “component of developing the fair market
value” of the shares. N.T. Hearing, 6/4/14, at 71-72;
• Joshua Lefcowitz, a certified public accountant who was “hired by
Snyder’s [] Gateway and Breezewood Enterprises to perform valuation
in connection with this estate” testified that: “[t]he term used in
Section 2.11 is fair market value[,] which is a well-defined term within
the business valuation community” and “[w]hen you’re valuing a
minority interest in a closely-held business as [here, the term
includes] adjustments for the lack of control and lack of marketability
that exists with that non-controlling ownership interest;” “the term
‘per share fair market value’ equates to the fair market value of the
-4- J-A27021-15
equity interest being valued;” “discounts for lack of control and lack of
marketability are inherent in the fair market value concept” for
minority interests in closely-held corporations; the business valuation
company that was hired to perform the valuation in this case also
performed a prior valuation for both Snyder’s Gateway and
Breezewood Enterprises – and, during the prior valuation, the
company adjusted the value for lack of control and lack of
marketability, and none of the shareholders objected to the manner of
valuation; and, it would be nonsensical if “fair market value” did not
include the discounts for lack of control and lack of marketability
because, if the discounts were not included in the definition, the
corporations would be forced to buy the shares back at a price that
was higher than fair market value; id. at 92, 103, 104, and 109; and,
• John Bittner, who was another signatory to the Shareholder
Agreement, testified that it was not “[his] intent in using the term ‘fair
market value’ . . . that [he] would just take the total company’s value
and then just distribute the pro rata portion of it;” id. at 229.
Within the Orphans’ Court’s later filed opinion, the Orphans’ Court
concluded that the term “Fair Market Value” in the Shareholder Agreement
was ambiguous. Orphans’ Court Opinion, 9/17/14, at 3. Specifically,
Section 2.11 mandated that the value of the shares be determined by the
“per share fair market value of such Company . . . multiplied by the number
of shares being transferred.” The Shareholder Agreement, dated 8/16/10,
-5- J-A27021-15
at § 2.11. Yet, as the Orphans’ Court explained, this language supported
two reasonable interpretations:
one reasonable interpretation would be to calculate the total fair market value of the entire company first and then simply divide by the number of shares. Of course, this interpretation assumes that “fair market value” specifically refers to the “Company,” which is [the interpretation] advanced by [Appellant]. However, . . . an equally reasonable interpretation would be to assess the fair market value of the shares themselves – including an analysis of the specific shares to be transferred – and computing the value of the number of shares transferred. In contrast to the former, this interpretation assumes that “fair market value” refers to the shares themselves rather than the company as a whole, which is [] the approach applied by the Executors.
Id. at 4.
Given the above ambiguity, the Orphans’ Court concluded that parol
evidence was necessary to interpret the agreement. Id. The Orphans’
Court then determined that, under the agreement, the parties intended for
the calculation of the subject shares to include discounts for lack of
marketability and lack of control. Id. at 6-7. Thus, the Orphans’ Court
denied Appellant’s objections to the First and Final Account, confirmed the
accounting, and ordered that distribution occur in accordance with the
Executors’ petition. Orphans’ Court Order, 9/17/14, at 1.
Appellant filed timely exceptions to the final order, and these
exceptions were denied. Appellant then filed a timely notice of appeal. Now
on appeal, Appellant raises the following claims:
-6- J-A27021-15
1. Did the [Orphans’] Court err in admitting testimony regarding the interpretation of the stock purchase agreement?
2. Did the [Orphans’] Court err in determining that M&T Bank, the corporate fiduciary, was held to the “prudent man standard” when in fact corporate fiduciaries are held to the “greater skill standard” as set forth in In re Estate of Killey, 326 A.2d 372 (Pa. 1974)?
3. Did the [Orphans’] Court err in failing to properly construe the plain meaning of “fair market value” defined in Section 2.11 Fair Market Value of the Stock Purchase Agreement?
4. Did the [Orphans’] Court err in failing to use $1,082,434.00 [pro rata] valuations for the 12 shares of Snyders and the 14 shares of Breezewood?
5. Assuming for purposes of argument that discounts are applied to the decedent’s common stock to be transferred pursuant to § 2.11, the [Orphans’] Court erred in failing to hold that the provisions of the last sentence of the first paragraph of § 2.05 render moot the first three sentences of that paragraph.
Appellants’ Brief at 4 (some internal capitalization, italics, and underlining
omitted).
We reviewed the briefs of the parties, the relevant law, the certified
record, and the well-written and thorough opinion from the able Orphans’
Court judge, the Honorable Travis W. Livengood. We conclude that the
claims raised in Appellant’s brief fail and that Judge Livengood’s opinion,
filed on September 17, 2014, meticulously and accurately explains why
Appellant’s claims fail. Therefore, we adopt the Orphans’ Court’s opinion as
our own. In any future filings with this or any other court addressing this
ruling, the filing party shall attach a copy of the Orphans’ Court’s opinion.
-7- J-A27021-15
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq. Prothonotary
Date: 1/21/2016
-8- Circulated 12/23/2015 01:22 PM
IN THE COURT OF COMMON PLEAS OF BEDFORD COUNTY, PENNSYLVANIA
IN RE: ESTATE O:F DAV1D R. Brt'I'NEP. Nb: 74 FOR 2013
ORPHANS DMSION
MEMORANDUM OPINION
.i. SUMMARY OF .CASB
David Bittner diedtestate on December 31, 2011. Under his will, hls widow
Chasity Bittner and his son Preston Bittner, were each beneficlaries of is% of the
residual estate. David sltener's.restdcel estate includes 12 shares of stock in Snyder's
Gateway and 14 shares of stock in Breezewood Enterprises, both of which are closely-
held family entl ties. The valuation of this stock is the sole issue in the matter. Co-
executors M & T Bank and Robert Bittner (hereinafter "Bxecutors") applied discounts
for lack of marketability and minority interests to the stock, listing their combined
value at $719,059 in the First and Pinal Ae< ount. Chasity Bittner and Preston Bittner
(hereinafter "Objectors") filed objections to the First and Fiwµ Accpunt, specifically to the
valuation of the stock. The Objectors argue that the plain language of the Shareholder
Agreement for both companies mandates that no discounts should have been applied,
that the value should have been calculated on a pro rata basis and that, as a result, the
, ~· - \ 'i - ·. ,. 1· i: ';: ., ;. r I L ":
4/ Executors breached their flduclary duty, We disagree with Objectors and overrule their
objections entirely. t
U. i~(;J\L STANDARD "[The] standard of care imposed upon the executor has been repeatedly
expressed as 'that Which a man of ordinary prudence would practice in the care of his
own estate." "Parties seeking surcharge bear the burden pf proving the executor failed
to meet the duty of care owed to the estate." In re Dobson's Estate, 417 A.2d 138, 142
(Pa. 1980) dtihg Estate of McCrea, 380 A.2d 773, 775-.76 (Pa. 197'7) and Estate of Lux,
3$9 A.2d 1053 (Pa. 1978).
Ill. DISCUSSION
lll(A,). IN'rRODUCTION
Given the applicable standard, the burden is upon the Objectors to show by a preponderance of the evidence that the Executors breached their fiduciary duty. We
first note that Objectors chose not to present any witnesses during the evidentlary
hearing. Rather, Objectors argue that the plain language of the David Bittner's will and
the Shareholder's Agreement=without more-are enough to flip the burden of proof
onto the Executors. We disagree.
1 We find significant merit to the Executors' Motion for Directed Verdict given Objectors' failure to produce any testimony or evidence, relying solely upon the language in the Shareholder Agreement. We did not specifically grant said motion only because we believed it necessary to discuss the merits of the testimony produced by Executors in order to rule upon the objections.
2 Ill(B). INTEGRATION CLAUSE
We first address Objectors argument regarding the integration clause of the
sharebolder Agreement. "Onge .a. writin~ is determined to be the parties' entire
contract, the parol evidence rule applies and evidence of any previous oral or written
negotiations or agreements involving the same subject matter as the contract is almost
always inadmissible to explain or vary the terms of the contract." Yucca v. Pitfsburgh
Steelers Sports, Inc., 854 A.2d 425, 436~3 7 (Pa. 2004). However; " ... where a term in
the parties' contract is ambiguous, 'parol 'evidence is admissible to explain or clarify Qr
resolve the ambiguity, irrespective of whether the ambiguity is created by the language
of the instrument or by extrinsic or collateral circumstances." Id. quotlng Estate of Herr, 161 A.2d 32, 34 (Pa. i960). Upon careful review of the Shareholder Agreement,
we find the language=particularly Section 2; 11.....-:to be inherently ambiguous. Section
2.11 reads, in relevant part:
"In the absence of a determination by the Shareholders of the per share fair market value of an Issuing Company for the calendar year of.any transfer, the "Fair MarketValue" of the Common Stock being transferred during such calendar year shall be theper sharefair market value of such Company, as determined by the certified public accountant employed by the Company for the preparation of its immediately preceding annual financial statements and income tax returns, multiplied by the number of shares being transferred."
Exhibit 3 (emphasis added). There is no dispute that Breezewood Enterprises and
Snyder's Gateway are closely-held, private, family companies. There is also no dispute
that the stock transferred upon David Bittner's death were minority interests in both
3 companies. It is for these very facts that we find the above language in Section 2.1 l
ambiguous, subject to different intetpr.etations. That ls, .one reasonable Interpretation
would be to calculate the total fair market value of the entire company first and then
simply divide py the number ofshares. Or course, this interpretation assumes that
"fair market value" specifically refers to the "Company," which is essentially advanced
by Objectors.' However, we believe an equally reasonable [nterpretation would be to
assess the fair market value of the shares rhemselves=includlng an analysis of the specific shares to be ttansferre(l.....,.;and computing the value of the number of shares
transferred. in contrast to the former, this interpretation assumes th~.t "fair market
value" refers to the shares themselves rather than the company as a whole, which is
essentially the approach -applled by the Executors. Inasmuch as we find that at least
two reasonable interpretations to the language of the Shareholder Agreement exist, we
find an inherent ambiguity exists. Accordingly, we shall consider the parol evidence
offered by Executors regarding the Shareholder Agreement.
IIl(C). PAROi EViDBNCE AND FINQJNGS OF FACT
2 W~ do note that, while Objectors' interpretation may be "reasonable" in theory, we do not find itfe~ible given the circumstances of the companies Involved, Since both companies are private companies, closely-held by family members, we find it would be impossible to assess a true fair market value of the entire companies without evaluating the rt umber of shares transferred and the makeup of the remaining shareholders. Therefore, while we find some basis in the language for Objectors' interpretation of Section 2.11 for the purposes of thi~ particular discussion on parol evidence, we find Executors' interpretation to be substantially better grounded in the foundation of the language of the Shareholder Agreement and exponentially more practical in execution. 4
44 John Bjttner, David Bitmer's brother, is a shareholder in both Snyder's Gateway
and Breezewood Ehterprise·s and a signatory party to the Shareholder Agreement. John
Bittner testified that ii was never his intention for Section 2.11 to require a pro rata
valuation of shares. Rather, he testified that the purpose of the shareholder Agreement
was for family shareholders to retain the value of the company should a shareholder
leave the companies or predecease the other shareholders. According to John Bittner,
additions to the Shareholder Agreement Weremade $pedfka:tly to provide for David
Blrmer's young children shortly after David was diagnosed with a terminal health
c:ondition. We find John Bittner to be a credible witness and accept the above
testimony as fact in our discussion. The Executors also called John Dibert, a former
.Chiefof the Pennsylvania Department of Revenue. Mr, Dlbert testified that, in his
opinion; Section 2..11 should be interpreted to value the shares .of David Bittner as if
the shares would be transferred between a willing seller and willing buyer. Mr. Dibert
testified that, in such an evaluation, he would expect to see a discount for lack of
control and. lack of marketability since David Bittner's shares were a non-controlling
amount. We find Mr-. Dibert's testimony credible and his opinion persuasive.
IlI(D). APPi.ICATION OP PAROL EVIDENCJ3 TO SECTION 2.11
According to Section 2.05 of the Shareholder Agreement, the remaining
shareholders reserved the option to purchase all of David Bittner's stock in the two
companies upon his death, which they did. The valuation of the stock in this re-
~5 purchase was to be determined by Section 2.11 of the Shareholder Agreement, which is
the key language a_t issue. Objectors argue that a "patent error" was committed by the
Executers in applying, discounts into the valuation of the stock. Specifically, Objectors
argue that Section 2. i 1 requires a pro rata valuatlon, by srmply dividing the total worth
of the company and dlvldlng that value by the number of shares.
In supportofthis argument, Objectors cite to various case precedent.'
Unfortunately for Objectors, we find that the guidance in said precedent.is actually
detrimental to Objector's position, given our consideration of the Shareholder
Agreement and the above-referenced testimony.
First, we find that the Executors' interpretation of Section 2.11 is the only one
which affords reasonable consideration and gives effect to the Shareholder Agreement
as ~ whole. objectcrs' argumenrtha; a strict pro rat~ value is required under Section
2. l 1, defined as ,; ... the total value of each Company divided by the total number of
shares," completelyignores the multiple references to "fair market value" in the
Shareholder Agreement. Objectors' interpretation of the Shareholder Agreement
would essentially nuHify every reference to "fair market value" contained in Sections
3 Objectors cite to Ha"rrity v. Co11tineµtal-Equita~le Title & lrust Co., 124 A. 493, 494 (Pa. 1924) for the proposition that" .. .in construing a contract each and every part of it must be taken into consideration and given effect if possible, and that the intention of the parties must be ascertained from the entire instrument." Objectors also cite to Lesko v~ Frankford Hospital-Bucks County, 15 A.3d 337, 342 (Pa. 2011) for the legal premise that " ... [t]he fundamental rule in contract interpretation is to ascertain the intent of the contracting parties."
6 4Li · 2.05 and 2.11. While we do recognize that Executers' interpretation of Section 2.1 r
renders the method of calculation" as surplusage, it does not gut the cleat and essential
mandate that the stock be assessed at "falr market value;' as does Objectors'
Second, in assesslng the intention of the parties, the only testimony presented
overwhelmingly supports the Executors' posltion. The credible testimony of John
Bittner, a contracting party to the Shareholder Agreement, Which is bolstered by the
oilier witnesses and evidence presented, dearly demonstrates th~t the intent of the
parties was to evaluate the transferred stock at fair market value-s-including applicable
discounts. We therefore find that the interpretation of Section 2.11 empfoyed by the
Executors gives the most effect to the intention of the contracting parties to the
Shareholder.Agreement.
We disagree with Objectors' [nterpretation of the Shareholder Agreement and,
having not produced any other evidence in support of their position, Objectors have
failed to meet their burden in demonstrating a breach of fiduciary duty by Executors.
Inasmuch as we have found that Executors' interpretation ·of the Shareholder
4That is, the language of Section 2.11 that the per share value be calculated, then multiplied by the number of shares being transferred. 5 Objectors also secondarily argue that the transfer under Section 2.05 is a "mandated" sale due to David Bittner's death and that fair market value analysis cannot be applied to a forced transaction. A~ with Objectors' primary argument, such an interpretation of the Shareholder Agreement would render multiple references to "fair market value" as useless, and is directly contradicted by the plain language of the document.
7 4(} A~.reement to ~ive the most effect to the entire contract as the contracting parties!
intended, we therefore find that the valuation of David Blttner's shares of stock In the
two companies in the First and Ffrial Account to be reasonable and ·proper.
We therefore enter the following
IV. ORDER.OF COURT
AND NOW, ·this 17th day of September, ZOl4, the Order b{ Court is as follows:
I. Executors' Mo'tionfor Directed Verdict is denied.
2. Objectors' objections to the First and.Pinal Account are denied in their entirety.
;3. Bxecutors' First qnd.Final Accou.nt is confirmed and distrlbution is Ordered in
accordance with the terms of Bxecutors' Peti_tionfor Adjl;ldicat-ion.
L~~OOP,J,
·Counse]: For- the Executors: R. Michael Daniel, Esquire Kevin Harkins, Esquire Mario Santilll, Ir., Esquire For the Objectors: Robert Rea, Esqulre For Additional Parties: Brand! Hershey, Bsqulre Michael Sahlanej, Esquire