Sands, M. v. Stoudt, D.

• Court: Superior Court of Pennsylvania
• Decided: July 13, 2016
• Docket: 1218 EDA 2015
• Status: Unpublished

Opinion

J-A11039-16

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

MICHELLE SANDS, INDIVIDUALLY AND IN THE SUPERIOR COURT OF AS EXECUTRIX OF THE ESTATE OF PENNSYLVANIA SCOTT C. SANDS, DECEASED

Appellant

v.

DANIEL K. STOUDT AND CYNTHIA G. STOUDT No. 1218 EDA 2015

Appeal from the Judgment Entered June 17, 2015 in the Court of Common Pleas of Chester County Civil Division at No(s): 2011-08478

BEFORE: SHOGAN, MUNDY, and FITZGERALD,* JJ.

MEMORANDUM BY FITZGERALD, J.: FILED JULY 13, 2016

Appellant, Michelle Sands, individually and as executrix of the Estate of

Scott C. Sands (“Decedent”), appeals from the judgment entered in the

Chester County Court of Common Pleas following the denial of Appellant’s

post-trial motions. Appellant contends that the trial court erred by declining

to impose a constructive trust on two specific parcels of real property, by

refusing to admit relevant evidence, and by failing to award Appellant

monetary damages. We affirm.

The facts underlying this case are well-known to the parties. For

purposes of this appeal, we note the following pertinent background. In

* Former Justice specially assigned to the Superior Court. J-A11039-16

2001, Decedent and Appellee, Daniel K. Stoudt (“D. Stoudt”), became equal

business partners in an incorporated business, QuarryCut, Inc., which

supplied sawn veneer building stone for various uses. Trial Ct. Op.,

9/25/15, at 2. Prior to becoming partners with D. Stoudt, Decedent was an

equal partner with Daniel Brackbill in a similar business, Run Gap Building

Stone (“Run Gap”). N.T., 7/3/14, at 706. Run Gap used stone from a parcel

of land (“the Quarry”) owned by Brackbill. Id. Brackbill also owned three

parcels of land contiguous to the Quarry (“the Buffer Lots”). In 2001,

Brackbill decided to sell his interests in Run Gap, the Quarry, and the Buffer

Lots to D. Stoudt. Id. at 745-46. D. Stoudt and Decedent formed a new

corporation named Spring Hollow Building and Landscape Stone, Inc., and

ultimately changed the name to the current QuarryCut. Id.

D. Stoudt acquired the Quarry in a Section 1031 like-kind exchange

under the U.S. Internal Revenue Code, and his name is the sole name on the

deed. Trial Ct. Op. at 5. Conversely, the Buffer Lots were purchased in the

names of both D. Stoudt and Decedent. Id. at 5. Appellees, D. Stoudt and

Cynthia Stoudt (“Appellees”) provided the funds for the purchase and

personally paid the mortgage on the Quarry for five years, after which time

QuarryCut made the payments. N.T., 7/3/14, at 745-48. Appellees never

paid the mortgage on the Buffer Lots.

Likewise, in 2003, Appellees agreed to buy a parcel of property, 77

Wells Road, Parker Ford, Pa. (“Wells Road”) for QuarryCut’s use. Id. at 759-

-2- J-A11039-16

60. Appellees also acquired Wells Road in a Section 1031 tax exchange and

for the first year paid the mortgage, after which QuarryCut assumed the

payments. Id. at 760-63.

Initially, Decedent was primarily responsible for the day to day

operations of QuarryCut, while Appellant was employed as the bookkeeper

for the company. N.T., 6/30/14 at 21. After Decedent died suddenly in

2010, D. Stoudt discharged Appellant from her bookkeeping duties. Id. at

22. On July 29, 2011, Appellant filed a complaint seeking equitable relief

and monetary damages and a motion for a preliminary injunction against

Appellees.

Although the parties entered into an agreement regarding operation of

QuarryCut on September 22, 2011, Appellant filed a petition for appointment

of a custodian on September 24, 2012. On July 1, 2013, the trial court

granted Appellant’s petition and on July 16, 2013, appointed William J.

Brennan, Esq., as custodian. Appellant filed a second amended complaint

and Appellees filed a counterclaim. Appellees also engaged counsel to file a

separate suit on behalf of QuarryCut against Appellant (“QuarryCut’s suit”).

The trial court denied Appellant’s motion to consolidate the two cases via an

order dated September 19, 2012, and we note that QuarryCut’s suit is not

here at issue.

A trial was conducted regarding Appellant’s second amended

complaint and Appellees’ counterclaims between June 30, 2014, and July 11,

-3- J-A11039-16

2014. At trial, one of Appellant’s main contentions was that the Quarry and

Wells Road were meant to be the property of QuarryCut or owned equally

between Decedent and D. Stoudt. Appellant testified that she was privy to

conversations between D. Stoudt and Decedent in which both parties

expressed the intention for joint ownership of the disputed properties even

though only Appellees’ names would appear on the deed. N.T., 6/30/14, at

170-73;187-88. To that end, Appellant presented evidence that QuarryCut’s

website represented that QuarryCut “owns or has exclusive rights to our

quarries.” Id. at 108. Further, Appellant emphasized that D. Stoudt listed

the Quarry as owned fifty-fifty between himself and Decedent on loan

applications. Id. at 110-13. Regarding Wells Road, Appellant highlighted

that Appellees withdrew equity from the property during refinancing in 2008,

even though QuarryCut was making the mortgage payments at that time.

N.T., 7/11/14, at 135. The trial court declined to admit evidence of two

magazine advertisements that purported to represent that the Quarry and

Wells Road were joint property or QuarryCut’s property.

Conversely, D. Stoudt testified that he and Decedent never intended

for the Quarry or Wells Road to be their joint property or QuarryCut’s

property. N.T., 7/3/14, at 757-63. Instead, D. Stoudt provided evidence of

numerous documents listing himself as the sole owner of the Quarry

including the deed, his checking account records, and the HUD-1 for the

Quarry. D. Stoudt stated that QuarryCut’s payment of the mortgage on both

-4- J-A11039-16

the Quarry and Wells Road represented “rent” and that Decedent never

provided any out-of-pocket funds toward either property, while Appellees

paid the down payments and the mortgages on both properties until

QuarryCut could take over its “rent” responsibilities. N.T., 7/3/14, at 747-

65. Appellees also pointed out that Decedent’s 2007 personal financial

statement does not list either the Quarry or Wells Road and that Appellant’s

petition for the grant of letters testamentary for Decedent’s estate (“Estate”)

does not list either property as property of the Estate. N.T., 7/1/14, at 239-

44.

At trial, Appellant also claimed that D. Stoudt breached his fiduciary

duty to her as executrix of the Estate and a 50% shareholder of QuarryCut,

by (1) excluding her from shareholder meetings and (2) using QuarryCut

funds to pay for legal counsel adverse to her interests. N.T., 6/30/14, at 27-

31. Appellant also generally claimed that D. Stoudt misappropriated

QuarryCut funds for his own personal use. Id. at 39-78. Likewise,

Appellees claimed that Appellant and Decedent misappropriated large

amounts of QuarryCut funds as “loans” for their own personal use. N.T.,

7/1/14, at 335-41.

The trial court entered a decision on November 25, 2014, and an

amended decision on December 9, 2014, wherein the court found in favor of

Appellant by ruling that William Brennan, Esq., was to remain as a custodian

of QuarryCut and also by enjoining D. Stoudt from not recognizing Appellant

-5- J-A11039-16

in her capacity as executrix of the Estate, a 50% shareholder of QuarryCut.

As to all other claims, the trial court found in favor of Appellees. Appellees’

cross-claims were denied.

Appellant filed a timely post-trial motion, which the trial court denied

in an order dated March 26, 2015. The instant timely appeal followed 1 and

Appellant filed a court-ordered Pa.R.A.P. 1925(b) statement. The trial court

filed a responsive Pa.R.A.P. 1925(a) opinion dated September 25, 2015.2

Appellant sets forth the following issues for review:

1. Whether the trial judge erred when he applied an incorrect legal standard in denying claims for constructive ownership of two real estate properties since the trial court imposed an overly restrictive standard by requiring an express agreement to convey title to a particular person/individual whereas the doctrine of constructive ownership does not require such an express agreement?

2. Whether the trial judge erred when he ruled inadmissible Plaintiff Exhibits 156 and 157 (two magazine articles relevant to ownership of the two properties in question), since Daniel Stoudt admitted he received and reviewed them, and admitted he did not object to statements made therein about ownership of the two properties, and said statements supported constructive ownership of the properties in favor of either the Estate or QuarryCut?

1 The specific judgment at issue was ultimately entered on June 17, 2015, following a praecipe for entry of judgment filed by Appellant. 2 In its Rule 1925(a) opinion, the trial court specifically noted that a motion for compulsory nonsuit had been granted against Appellant in her individual capacity because “at most [Appellant] was an employee of QuarryCut” and thus not entitled to individual relief. Trial Ct. Op. at 2-3. However, Appellant’s claims in her capacity as the executrix of the Estate survived. Id. at 3.

-6- J-A11039-16

3. When the overwhelming evidence, and Daniel Stoudt’s admissions, demonstrated Daniel Stoudt’s abuse of the corporation (QuarryCut) and actions adverse to the other fifty percent shareholder (the Estate of Scott Sands), whether the trial judge erred by failing to: award Michelle Sands compensatory and punitive damages for Daniel Stoudt’s breach of fiduciary duty; remove Daniel Stoudt from any control over QuarryCut; and reinstate Michelle Sands’ employment with QuarryCut?

4. Whether the trial judge erred when he failed to award Michelle Sands damages for Daniel Stoudt’s improper direction to QuarryCut corporate attorneys and corporate accountant to work solely in favor of Daniel Stoudt and against Michelle Sands’ interests, and when the trial judge directed Daniel Stoudt’s personal counsel to represent QuarryCut in its action against Michelle Sands and to be paid by QuarryCut?

Appellant’s Brief at 2-3.

In her first issue, Appellant argues that the trial court erred by

declining to find that the Quarry and the Wells Road properties should be

deemed the property of either D. Stoudt and Decedent jointly or the

property of QuarryCut. Specifically, Appellant contends that these properties

should be subject to a constructive trust because equity demands that the

Estate should share in the ownership of these properties. The crux of

Appellant’s argument lies in her contention that the evidence presented was

sufficient to show that the parties intended to share in ownership of these

properties and that the properties were placed in Appellees’ names alone

only for tax purposes. Appellant avers that the trial court did not apply the

correct legal standard when considering the constructive trust doctrine by

-7- J-A11039-16

failing to consider the inequity that would result by allowing Appellees to

maintain sole ownership of the Quarry and Wells Road. We decline to agree.

As a preliminary matter, we note that a constructive trust is an

equitable remedy. Stauffer v. Stauffer, 351 A.2d 236, 241 (Pa. 1976).

Our standard of review regarding an equity proceeding is beyond cavil:

Our review of this case is guided by the principles that the scope of appellate review of a decree in equity is particularly limited, and that the findings of the [trial court] will not be reversed unless it appears that the [court] clearly committed an abuse of discretion or an error of law. Where credibility of witnesses is important to a determination, the findings of the [trial court] are entitled to particular weight because the [court] has the opportunity to observe their demeanor . . . .

DiMaio v. Musso, 762 A.2d 363, 365 (Pa. Super. 2000).

Further, “our standard of review makes clear that with regard to issues

of credibility and weight of the evidence, we must defer to the presiding trial

judge who viewed and assessed the witnesses first-hand.” D.K. v. S.P.K.,

102 A.3d 467, 478 (Pa. Super. 2014) (citation and internal quotation marks

omitted). In addition, we note the following legal precepts regarding

constructive trusts:

[A] constructive trust arises when a person holding title to property is subject to an equitable duty to convey it to another on the ground he would be unjustly enriched if he were permitted to retain it. The necessity for such a trust may arise from circumstances evidencing fraud, duress, undue influence or mistake. The controlling factor in determining whether a constructive trust should be imposed is whether it is necessary to prevent unjust enrichment.

-8- J-A11039-16

DeMarchis v. D’Amico, 637 A.2d 1029, 1036 (Pa. Super. 1994) (citation

omitted).

In this case, the trial court specifically found that Appellant’s testimony

was not credible regarding the intended ownership of the Quarry and Wells

Road. Most significantly, the court determined that the credible evidence

presented was not sufficient to establish that the parties intended that the

properties in question would ultimately be owned jointly by Decedent and

Appellees, either individually or through QuarryCut. We conclude that the

trial court was well within its purview when finding that Appellant’s

testimony regarding the intended joint ownership of the property was not

credible and we see no reason to disturb this determination. See DiMaio,

762 A.2d at 365.

Appellant relies on DeMarchis for the proposition that equity requires

that the Quarry and Wells Road be held in a constructive trust for the benefit

of the Estate or QuarryCut. In DeMarchis, this Court held that a

constructive trust was to be applied to certain parcels of real property for the

benefit of all parties to a partnership. DeMarchis, 637 A.2d at 1036.

However, DeMarchis is instantly distinguishable. In this case, the trial

court’s finding that the properties at issue were not intended to be jointly

owned stands in stark contrast to the factual findings in DeMarchis, where

the parties were deemed to have intended that the real property at issue be

considered business assets from the time of their initial acquisition. See id.

-9- J-A11039-16

at 1036. Appellant points out that in DeMarchis, our Court determined that

inequity would result where properties were held in the names of only some

of the participants in a partnership, when the attendant business had made

the mortgage payments on the properties at issue. See id. at 1035-36.

However, in the instant case, Appellees provided the initial purchase money

for the properties at issue, made the initial mortgage payments, and

considered the mortgage payments made by QuarryCut thereafter to be rent

payments. Accordingly, because we conclude that both the Quarry and

Wells Road are not subject to a constructive trust for the benefit of the

Estate or QuarryCut, we hold that the trial court did not abuse its discretion

by declining to impose this equitable remedy. See DiMaio, 762 A.2d at

365; DeMarchis, 637 A.2d at 1036. Therefore, Appellant’s first issue lacks

merit.

In her second thinly developed issue on appeal, Appellant argues that

the trial court erred by declining to admit evidence of two magazine

advertisements that she alleges were relevant to show that D. Stoudt and

Decedent intended for the properties at issue to be owned by QuarryCut.

The trial court declined to admit these advertisements, finding that the

proposed exhibits constituted impermissible hearsay and had no evidentiary

value. Trial Ct. Op. at 5-6. No relief is due.

As a prefatory matter, we note:

When we review a trial court ruling on admission of evidence, we must acknowledge that decisions on

- 10 - J-A11039-16

admissibility are within the sound discretion of the trial court and will not be overturned absent an abuse of discretion or misapplication of law. An abuse of discretion is not merely an error of judgment, but if in reaching a conclusion the law is overridden or misapplied, or the judgment exercised is manifestly unreasonable, or the result of partiality, prejudice, bias or ill-will, as shown by the evidence or the record, discretion is abused.

Commonwealth Fin. Sys., Inc. v. Smith, 15 A.3d 492, 496 (Pa. Super.

2011) (citations and internal quotation marks omitted).

Most significantly, Pennsylvania Rule of Evidence 402 provides that

generally, “[a]ll relevant evidence is admissible” and “[e]vidence that is not

relevant is not admissible.” Pa.R.E. 402. Relevant evidence is that which

has “any tendency to make a fact more or less probable than it would be

without the evidence[,] and the fact is of consequence in determining the

action.” Pa.R.E. 401(a), (b). The Comment to Rule 401 indicates that

“[w]hether evidence has a tendency to make a given fact more or less

probable is to be determined by the court in light of the reason, experience,

scientific principles and the other testimony offered in the case.” Pa.R.E.

401 cmt.

In this case, the trial court properly determined that the evidence in

question had no evidentiary value and was therefore inadmissible. 3 Trial Ct.

Op. at 5-6. See Pa.R.E. 401(a), (b); Pa.R.E. 402. As noted by the trial

3 We note that because we deem the disputed advertisements as properly excluded for lack of evidentiary value pursuant to Pa.R.E. 401(a), (b) and Pa.R.E. 402, we need not address Appellant’s contention that such evidence was admissible pursuant to a hearsay exception.

- 11 - J-A11039-16

court, the magazine articles constituted paid advertisements and as such

one “would not expect a business owner to explain exact ownership details

to a public audience.” Trial Ct. Op. at 6. Accordingly, we conclude that the

trial court’s decision to exclude evidence of the advertisements at issue due

to their lack of evidentiary value was not manifestly unreasonable pursuant

to the Pennsylvania Rules of Evidence and did not therefore constitute an

abuse of discretion. Commonwealth Fin. Sys., Inc. v. Smith, 15 A.3d at

496. Appellant’s second issue merits no relief.

In her brief, Appellant presents a combined argument section in

support of her final two issues. The essence of her arguments center around

the contention that D. Stoudt committed malfeasance while conducting

QuarryCut business after Decedent’s death and that the trial court failed to

issue monetary damages to Appellant in relief thereof. Specifically,

Appellant avers that D. Stoudt improperly “froze” her out of corporate

meetings and decisions, improperly terminated her employment, and

misappropriated corporate funds by, inter alia, using such funds to employ

legal counsel against Appellant’s interests.

Appellants final two issues concern questions of fact. However, the

trial court specifically found Appellant’s averments to be lacking in credible

evidentiary support. See Trial Ct. Op. at 6. As the trier of fact, the trial

court was well within its purview to determine that the evidence presented

by Appellant was not credible. See D.K., 102 A.3d at 478. Therefore, we

- 12 - J-A11039-16

decline to conclude that the trial court’s denial of Appellant’s claims

constituted an abuse of discretion. See id. Accordingly, Appellant’s final

two issues also must fail and we affirm the judgment below.

Judgment affirmed.

Judgment Entered.

Joseph D. Seletyn, Esq. Prothonotary

Date: 7/13/2016

- 13 - J-A11039-16

- 14 -