J-A04031-20
2020 PA Super 67
GARY SNYDER IN HIS OWN NAME : IN THE SUPERIOR COURT OF AND DERIVATIVELY ON BEHALF OF : PENNSYLVANIA CRUSADER SERVICING : CORPORATION : : : v. : : : CRUSADER SERVICING : CORPORATION; ROBERT STEIN; : ROYAL BANK AMERICA, JAMES : MCSWIGGAN; JOSEPH CAMPBELL; : AND MURRAY STEMPEL : : : APPEAL OF: CRUSADER SERVICING : CORPORATION AND ROYAL BANK : No. 1898 EDA 2019 AMERICA :
Appeal from the Judgment Entered June 19, 2019 In the Court of Common Pleas of Montgomery County Civil Division at No(s): No. 2007-01027
BEFORE: PANELLA, P.J., STRASSBURGER, J.*, and COLINS, J.*
OPINION BY COLINS, J.: Filed: March 18, 2020
This is an appeal filed by defendant Crusader Servicing Corporation
(CSC) and its majority shareholder Royal Bank America (Royal Bank)
(collectively, Appellants) from a judgment following a nonjury trial in the Court
of Common Pleas of Montgomery County (trial court) in an action brought by
Gary Snyder (Plaintiff) against CSC, Royal Bank, CSC director Robert Stein,
and three other CSC directors, arising out of the termination of Plaintiff’s
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* Retired Senior Judge assigned to the Superior Court. J-A04031-20
relationship with CSC. The trial court awarded Plaintiff $2.19 million in
damages against CSC for the value of Plaintiff’s shares in CSC and
prejudgment interest on that amount from December 1, 2006, and ruled in
Plaintiff’s favor on Appellants’ counterclaims. For the reasons set forth below,
we vacate the damages judgment in favor of Plaintiff and the trial court’s
denial of CSC’s counterclaim for specific performance and affirm the trial
court’s judgment in favor of Plaintiff on Appellants’ other counterclaims.
The relevant facts found by the trial court are as follows. CSC is a
Pennsylvania corporation that was incorporated in July 1996 by Crusader Bank
and defendant Stein. Trial Court Decision, 5/1/19, at 2 Findings of Fact (F.F.)
¶¶4, 6. CSC’s business is the purchasing and servicing of delinquent property
tax liens for profit. Id., at 2-8 F.F. ¶¶6, 8, 11-14, 20, 24; N.T., 11/26/18, at
5, 9-11. Initially, Crusader Bank was a 60% shareholder of CSC and Stein
was a 40% shareholder. Trial Court Decision, 5/1/19, at 2 F.F. ¶6.
In October 1996, Plaintiff became a shareholder and director of CSC and
the ownership of CSC became 60% Crusader Bank, 20% Stein and 20%
Plaintiff. Trial Court Decision, 5/1/19, at 3 F.F. ¶7; CSC Shareholders’
Agreement ¶1; N.T., 11/26/18, at 7-9. The Shareholders’ Agreement signed
by Plaintiff, Crusader Bank, and Stein provides:
Notwithstanding anything herein to the contrary, in the event of Stein or Snyder’s death or total and permanent disability (as defined for Social Security purposes) or the termination of Stein's or Snyder’s employment by CSC for cause, CSC shall be required to purchase such party’s shares of CSC and such party shall be
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required to sell his shares of CSC to CSC in accordance with the price and terms set forth in Paragraph 8 hereunder.
Trial Court Decision, 5/1/19, at 3-4 F.F. ¶9; CSC Shareholders’ Agreement
¶7(d). Paragraph 8 of the Shareholders’ Agreement provides the following
appraisal procedure for determining the value of those shares:
The purchase price per Share shall be equal to the fair market value thereof. The fair market value shall be determined jointly by the parties. In the event the parties are unable to agree on the fair market value, it shall be determined by an independent appraiser experienced in the valuation of financial service entities and the valuation of delinquent property tax certificates. Such appraiser shall be mutually agreed upon by and between all Shareholders of CSC, or failing in agreement, the Selling Shareholder and the purchaser will each choose its own appraiser who will then select the appraiser to determine fair market value.
Trial Court Decision, 5/1/19, at 3-4 F.F. ¶9; CSC Shareholders’ Agreement
¶8(c).
Initially, both Stein and Plaintiff attended tax lien sales, but as the
business grew, Stein became responsible for more of the operational activity
of monitoring the liens after they were acquired and collecting on the liens
and Plaintiff assumed responsibility for hiring and supervising the bidders that
performed due diligence and bid on the liens. Trial Court Decision, 5/1/19, at
5, F.F. ¶¶12-14. In 2001, Royal Bank acquired assets of Crusader Bank,
including Crusader Bank’s 60% interest in CSC, and a new board of directors
of CSC was established, consisting of Plaintiff, Stein, and three Royal Bank
officers. Id. at 6 F.F. ¶¶17-19. Royal Bank also established a lending
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relationship in 2002 under which it would loan CSC up to $75 million. Id. at
7-8 F.F. ¶21.
In 2005, CSC acquired approximately $6 million in liens held by
Strategic Municipal Investments (SMI), a group from which CSC had
previously acquired liens in 2003, through a $4.9 million increase in its line of
credit to SMI (the SMI transaction). Trial Court Decision, 5/1/19, at 8-11 F.F.
¶¶24-32. Plaintiff was required to perform due diligence for the SMI
transaction, but did not do any investigation or evaluation of the liens or the
properties which were subject to the liens. Id. at 11, F.F. ¶¶33-34, 36, at 34
Conclusions of Law (C.L.) ¶¶51-53; N.T., 11/26/18, at 118-20.
At the end of August 2006, Plaintiff agreed to resign from CSC and a
tentative agreement was reached that he would be paid $400,000 for his CSC
shares. Trial Court Decision, 5/1/19, at 13 F.F. ¶44; N.T.,11/26/18, at 44-
48. The proposed settlement agreement sent by Royal Bank, however,
contained additional terms that Plaintiff rejected, and no agreement was
reached. Trial Court Decision, 5/1/19, at 13 F.F. ¶¶ 46-47. Plaintiff did not
receive any payment for his CSC shares. Id. at 25 C.L. ¶14; N.T., 11/26/18,
at 57. Plaintiff filed for disability benefits and was declared totally disabled as
of December 1, 2006. Trial Court Decision, 5/1/19, at 13 F.F. ¶45, at 24 C.L.
¶9; N.T., 11/26/18, at 105.
Following Plaintiff’s rejection of the settlement, the remaining CSC board
members decided to gradually liquidate CSC and formed a new entity, Royal
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Tax Lien Services (RTLS), that was owned 60% by Royal Bank and 40% by
Stein and used CSC’s offices and employees. Trial Court Decision, 5/1/19, at
13-15 F.F. ¶¶48, 54-57. Before the decision was made to liquidate CSC, an
attempt was made to sell its $45 million portfolio of liens, but the offers
received were less than CSC’s $38 million outstanding debt to Royal Bank.
Id. at 14 F.F. ¶¶50-51. CSC, however, was not in any financial distress at
the time. Id. at 14 F.F. ¶52. RTLS serviced CSC’s existing liens for a 2% fee
and charged CSC a total of over $2.29 million between 2007 and June 2011
for servicing the liens. Id. at 13, 15 F.F. ¶¶48, 58-59, 61-62.
Stein and CSC each pled guilty in 2012 to a criminal anti-trust charge
arising out of bid-rigging by CSC and other tax lien auction bidders. Trial
Court Decision, 5/1/19, at 17-18 F.F. ¶¶69-72; N.T., 11/28/18, at 150; N.T.,
11/29/18, at 100. CSC’s participation in bid-rigging occurred from at least
1998 through 2006 and involved bidders flipping a coin to determine who
would bid on a lien where more than one bidder was interested in the lien,
thus eliminating competitive bidding for the liens. Trial Court Decision,
5/1/19, at 16-17 F.F. ¶¶64-66; CSC Plea Agreement ¶1. CSC’s plea
agreement required it to pay a $2 million fine under a 5-year installment plan.
Trial Court Decision, 5/1/19, at 17-18 F.F. ¶¶70-71; CSC Plea Agreement ¶8.
CSC made the initial $400,000 payment and RTLS made the remaining
payments because CSC did not have the ability to make those payments. Trial
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Court Decision, 5/1/19, at 18 F.F. ¶71. Stein’s relationship with CSC and RTLS
was terminated as a result of the bid-rigging. Id. at 18 F.F. ¶¶74-75.
On January 17, 2007, Plaintiff filed this action against CSC, Royal Bank,
the three Royal Bank officers who were CSC directors (the Royal Bank
affiliated directors), and Stein (collectively, Defendants). In his complaint,
Plaintiff alleged that he remained a shareholder and director of CSC, that he
was being frozen out of CSC, and that he was wrongfully discharged from his
employment with CSC. Complaint ¶¶1, 8-9, 18-19, 63. Plaintiff asserted six
causes of action: two claims for inspection of CSC’s books and records, one
pursuant to his rights as a shareholder and the other in his capacity as a
director (Counts I and II); a claim for nonpayment of wages under the Wage
Payment and Collection Law, 43 P.S. §§ 260.1-260.12 (Count III); a breach
of contract claim that asserted that non-payment of his salary was a breach
of his employment contract with CSC (Count IV); a breach of fiduciary duty
claim based on the alleged freeze out, seeking as damages his proportional
share of CSC losses and reduced profits caused by Defendants and his share
of distributions (Count V); and a shareholder’s derivative claim (Count VI).
Complaint ¶¶27-68. Plaintiff did not allege in the Complaint that he had been
declared disabled or assert any claim for the value of his CSC shares or that
Defendants were liable for breach of contract for failure to buy back his shares.
Defendants filed an answer in which they denied that Plaintiff was still a
shareholder, director, or employee of CSC and alleged that Plaintiff had
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resigned and agreed to a settlement under which he would surrender his CSC
shares in exchange for payment of $400,000 plus the $27,000 proceeds of a
September 2006 sale of a property and a release of claims against him relating
to the SMI transaction. Answer and New Matter Answer ¶¶1, 8-9, 18-20, New
Matter and Counterclaims ¶¶3, 6, 27-28, 36. Defendants asserted a
counterclaim for enforcement of the alleged settlement agreement, an
alternative breach of fiduciary duty counterclaim for damages with respect to
the SMI transaction, if the settlement was not enforced, and a counterclaim
for conversion of property of CSC that Plaintiff allegedly took when he cleaned
out his office. Id. New Matter and Counterclaims ¶¶34-46. In their answer,
Defendants did not request valuation of Plaintiff’s shares pursuant to the CSC
Shareholders’ Agreement.
Defendants raised the argument that the value of Plaintiff’s shares must
be set in accordance with Paragraph 8(c) of the Shareholders’ Agreement in a
motion response filing in February 2010. Docket Entry 92, Answer Motion to
Lift Stay ¶7. On August 14, 2012, Defendants filed a motion for summary
judgment asserting that Plaintiff’s sole remedy was to obtain payment for his
CSC shares pursuant to the valuation procedures in Paragraph 8(c) of the CSC
Shareholders’ Agreement, based on Plaintiff’s testimony in his deposition
taken in June 2011 that he had left CSC because he was totally disabled and
had been declared totally disabled. Docket Entry 126 Defendants’ Motion for
Summary Judgment ¶¶7, 13-16, 18, 22-23 & Ex. C. Plaintiff in response
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asserted that Defendants ignored and refused to follow the valuation
procedure, but also argued that the summary judgment motion was
premature because discovery on Stein’s 2012 bid-rigging plea was necessary,
that there were issues of fact concerning Plaintiff’s departure from CSC, and
that the valuation procedure did not apply to a freeze out or the other claims
asserted by Plaintiff. Docket Entry 127 Answer to Defendants’ Motion for
Summary Judgment ¶¶4-5, 7, 11, 13-14, 16, 19, 22. Plaintiff also moved in
November 2012 for leave to file an amended complaint to add allegations and
claims concerning the bid-rigging. The trial court denied Defendants’ motion
for summary judgment without opinion and on March 8, 2013, granted Plaintiff
leave to file an amended complaint. Trial Court Order, 12/10/12; Trial Court
Order, 3/8/13.
On March 12, 2013, Plaintiff filed his amended complaint. The amended
complaint added averments concerning the bid-rigging, Amended Complaint
¶¶ 27-30, 60, 62, 71, but pled the same six causes of action as his original
complaint. Id. ¶¶31-73. As in his original complaint, Plaintiff alleged that he
was still a shareholder of CSC, id. ¶¶1, 8, 57-58, and did not assert any claim
for the value of his CSC shares or that Defendants were liable for breach of
contract for failure to buy back his shares. The amended complaint sued the
same six defendants as the original complaint; Plaintiff did not join RTLS as a
defendant.
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In their answer to the amended complaint, Appellants and the Royal
Bank affiliated directors pled that Plaintiff was totally disabled and was
therefore required to sell his shares to CSC in accordance with the
Shareholders’ Agreement. CSC & Royal Bank Defendants’ Answer and New
Matter to Amended Complaint, New Matter ¶16, Counterclaims ¶¶2, 39, 67.
Appellants asserted four counterclaims in this answer: the counterclaims for
enforcement of the alleged settlement agreement and for damages for breach
of fiduciary duty with respect to the SMI transaction that they had pled in their
original answer, a claim for breach of fiduciary duty based on Plaintiff’s alleged
involvement in the bid-rigging, and a claim for specific performance seeking
to enforce the procedure under Paragraph 8(c) of the Shareholders’
Agreement for determining the fair value that Plaintiff is to be paid for his CSC
shares. Id., Counterclaims ¶¶48-67.
Between May 22, 2013 and May 9, 2016, the case was at least partially
stayed as a result of Stein’s plea and his cooperation with the U.S. Department
of Justice in the bid-rigging case until after his sentencing in April 2016. On
March 15, 2017, Appellants and the Royal Bank affiliated directors filed a
second summary judgment motion reasserting that Plaintiff’s sole remedy was
to obtain payment for his CSC shares pursuant to the valuation procedures in
Paragraph 8(c) of the CSC Shareholders’ Agreement. Docket Entry 177
Renewed Motion for Summary Judgment. The trial court denied this summary
judgment motion without opinion. Trial Court Order, 5/18/17.
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The trial court held a four-day bench trial of Plaintiffs’ claims against
Defendants and Defendants’ counterclaims from November 26 to 29, 2018.
At or before trial, Plaintiff discontinued his Count I and II claims for inspection
of CSC’s books and records and his Count III Wage Payment and Collection
Law claim. 11/28/18, at 9. Eight witnesses testified at trial: Plaintiff, Stein,
one of the Royal Bank affiliated directors, two former CSC employees with
knowledge of the bid-rigging, a Royal Bank financial officer, Plaintiff’s
valuation expert, and Defendants’ valuation expert. At the close of Plaintiff’s
case, Plaintiff, with the consent of all parties, discontinued his claims against
the Royal Bank affiliated directors, leaving CSC, Royal Bank, and Stein as the
only defendants. Id. 9-10.
On May 1, 2019, the trial court issued its verdict. The trial court found
in favor of Plaintiff and against CSC on one claim, a claim for breach of contract
against CSC alone, based on CSC’s failure to buy back Plaintiff’s shares on
December 1, 2006. Trial Court Decision, 5/1/19, at 22-27 C.L. ¶¶2-32. The
trial court concluded that CSC breached the Shareholders’ Agreement because
it was required to purchase Plaintiff’s CSC shares for fair market value when
Plaintiff was declared permanently disabled, and held that the court was not
bound by the Shareholders’ Agreement valuation procedure because CSC had
breached the Shareholders’ Agreement. Id. at 24-27 C.L. ¶¶7, 12, 14, 22-
26. The trial court found Plaintiff’s expert’s valuation of Plaintiff’s CSC shares
at $2.19 million credible, rejected Defendants’ expert’s opinion that the CSC
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shares had no value as not credible, and awarded Plaintiff damages of $2.19
million. Id. at 25, 27, 36 C.L. ¶¶15, 27 & Order. The trial court also concluded
that Plaintiff was entitled to pre-judgment interest on this amount at the
statutory interest rate of 6% from December 1, 2006. Id. at 27, 36 C.L. ¶¶28-
32 & Order. The trial court rejected Plaintiff’s breach of contract claim with
respect to his employment on the ground that Plaintiff’s employment
terminated when he became disabled and buyout was required, and rejected
Plaintiff’s breach of fiduciary duty and derivative claims on the ground that
Plaintiff was no longer a shareholder after his disability. Id. at 24, 31-33 C.L.
¶¶8-11, 42-44, 46.
The trial court rejected all of Defendants’ counterclaims. The trial court
held that Defendants failed to prove that there was a settlement and that they
were not entitled to specific performance of the Shareholders’ Agreement
valuation procedure because CSC had breached the Shareholders’ Agreement
and damages for breach of contract provided an adequate remedy. Trial Court
Decision, 5/1/19, at 26-27, 33, 35-36 C.L. ¶¶22-26, 47, 62-65. With respect
to the breach of fiduciary duty counterclaims concerning the SMI transaction
and bid-rigging, the trial court found that Plaintiff failed to perform due
diligence in the SMI transaction and that this constituted a breach of fiduciary
duty. Id. at 34 C.L. ¶¶51-53. The trial court concluded, however, that
Defendants failed to prove that CSC suffered any damages from this breach
of fiduciary duty because they did not prove what the value of the SMI lien
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portfolio was. Id. at 34-35 C.L. ¶¶55-58, 61. On the bid-rigging
counterclaim, the trial court found that the evidence did not show that Plaintiff
engaged in or condoned illegal bid-rigging and did not show that the fine was
caused by Plaintiff’s conduct. Id. at 35 C.L. ¶¶59-61.
Both CSC and Plaintiff filed post-trial motions. In its post-trial motion,
CSC sought entry of judgment in its favor and raised all of the issues that it
argues in this appeal. Plaintiff in his post-trial motion argued that he remained
a shareholder and that the trial court erred in rejecting his breach of fiduciary
duty claim and derivative action claim. The trial court denied both post-trial
motions. Trial Court Order, 5/29/19; Trial Court Order, 6/4/19. Judgment
was entered in Plaintiff’s favor and against CSC on May 30, 2019 in the amount
of $2,190,000.00 in damages and $1,653,021.00 in interest through May 30,
2019. On June 19, 2019, judgment was entered on all remaining claims, in
favor of Defendants and against Plaintiff on Plaintiff’s claims other than Count
IV of his amended complaint and in favor of Plaintiff and against Appellants
on their counterclaims. Appellants filed a timely notice of appeal from this
judgment.1
1 Appellants filed a timely concise statement of errors complained of on appeal that included all issues that they argue in this Court. Plaintiff also filed a timely appeal that was consolidated with this appeal, but he failed to comply with the trial court’s Pa.R.A.P. 1925(b) order and discontinued his appeal on September 5, 2019.
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In this Court, Appellants raise the following four issues for our review:
1) whether the trial court erred in awarding damages rather than enforcing
the Shareholders’ Agreement’s valuation procedure; 2) whether the trial court
erred in its determination that the value of Plaintiff’s CSC shares was $2.19
million; 3) whether the trial court erred in holding that plaintiff’s claim was
not barred by his wrongful conduct; and 4) whether the trial court erred in
entering judgment for Plaintiff on Appellants’ breach of fiduciary duty
counterclaims. Appellants’ Brief at 2-3. We conclude that the trial court erred
in not enforcing the valuation procedure set forth in Paragraph 8(c) of the
Shareholders’ Agreement and in awarding damages to Plaintiff on a basis
outside that procedure. We conclude, however, that the trial court committed
no error in its conclusion that Appellants failed to prove all of the elements of
their breach of fiduciary duty counterclaims.2
2 In light of our conclusion that Plaintiff is limited to the valuation procedure in the Shareholders’ Agreement, we need not and do not address Appellants’ arguments concerning the value of Plaintiff’s CSC shares. It also appears that Appellants’ contention that Plaintiff was barred from recovering damages by his misconduct is rendered moot by our resolution of Appellants’ first issue. In any event, to the extent that Appellants contend in their third issue that Plaintiff’s misconduct also bars him from receiving payment for the value of his shares under the Shareholders’ Agreement, such an argument would be without merit. The defense of in pari delicto bars a plaintiff from recovering damages only where the plaintiff was an active, voluntary participant in wrongful conduct or a wrongful transaction for which he seeks redress and the plaintiff was substantially equally or more responsible for the wrongful conduct than the defendant. Official Committee of Unsecured Creditors of Allegheny Health Education & Research Foundation v. PriceWaterhouseCoopers, LLP, 989 A.2d 313, 317, 328-29 (Pa. 2010)
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This Court’s review of the trial court’s judgment here is limited to
examining whether the trial court’s factual determinations are supported by
competent evidence and whether the trial court committed an error of law.
Hornberger v. Dave Gutelius Excavating, Inc., 176 A.3d 939, 943 (Pa.
Super. 2017); Boehm v. Riversource Life Insurance Co., 117 A.3d 308,
321 (Pa. Super. 2015). The trial court in a nonjury trial is free to believe all,
part, or none of the testimony presented at trial, and this Court may not
reweigh the evidence or substitute its judgment for that of the trial court.
Linde v. Linde, 220 A.3d 1119, 1151 (Pa. Super. 2019). The interpretation
of a contract, however, is an issue of law over which our review is plenary.
Hornberger, 176 A.3d at 944.
Appellants argue that the because the trial court found only a breach of
the Shareholders’ Agreement’s requirement that CSC buy back Plaintiff’s
shares, it was required to enforce the valuation procedure in Paragraph 8(c)
(addressing applicability of in pari delicto to claims against auditors for assisting a corporate officer in falsifying the corporation’s finances); see also Joyce v. Erie Insurance Exchange, 74 A.3d 157, 162-66 (Pa. Super. 2013) (action to recover restitution that plaintiff was ordered to pay in criminal case barred by in pari delicto); Brickman Group, Ltd. v. CGU Insurance Co., 865 A.2d 918, 920, 923-26 (Pa. Super. 2004) (action for breach of illegal agreement to freeze insurance premiums barred by in pari delicto). Plaintiff’s right under the Shareholders’ Agreement to be paid the value of his shares is not a cause of action arising out of any wrongful act. Plaintiff’s wrongful acts relate solely to the SMI transaction and bid-rigging, and payment of the value of Plaintiff’s shares is not redress for the SMI transaction or bid-rigging. The requirement that the plaintiff was an active, voluntary participant in wrongful conduct or a wrongful transaction for which he seeks redress is therefore not met.
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of the Shareholders’ Agreement and could not award damages on a basis
outside that procedure. We agree.
Where a party asserts a claim for the value of his interest in a business
entity that is governed by a shareholders’ agreement, the valuation is subject
to the buy and sell provisions of the agreement creating that interest, if the
agreement provides a valuation method that can be enforced. Hornberger,
176 A.3d at 944-45 (upholding valuation of shares by corporation’s
independent accountant where shareholders’ agreement provided for
purchase price to be set by corporation’s independent accountant and
adjustments made by accountant were consistent with professional valuation
methods and not prohibited by the agreement); Olson v. North American
Industrial Supply, Inc., 658 A.2d 358, 360-63 (Pa. Super. 1995) (buy-back
agreement unenforceable where it required inclusion in purchase price of
current valuation of goodwill set by the corporation and no current valuation
of goodwill had been set by the corporation); Osborne v. Carmichaels
Mining Machine Repair, Inc., 628 A.2d 874, 876-79 (Pa. Super. 1993)
(upholding trial court’s valuation of shares based on language of shareholders’
agreement buy-back provision and court’s interpretation of ambiguous term
in agreement). “In interpreting the value of shares pursuant to a stock
redemption agreement, our only useful authority is the language of the
agreement itself.” Hornberger, 176 A.3d at 944 (bracket omitted and
capitalization adjusted) (quoting Osborne); Osborne, 628 A.2d at 877. See
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also McCabe v. McCabe, 575 A.2d 87, 89 (Pa. 1990) (holding that
partnership agreement determined value of partnership interest in divorce
equitable distribution, stating that “[t]he substantive rights of a partner
consist only of those specified in the partnership agreement, and, in appraising
this bundle of rights, the agreement cannot be disregarded”).
Here, the language of the Shareholders’ Agreement makes clear that
the valuation procedure for CSC’s buy-back of its shares must be followed.
The provision of the Shareholders’ Agreement on which the trial court based
its liability finding, Paragraph 7(d), provided that “CSC shall be required to
purchase such party’s shares of CSC and such party shall be required to
sell his shares of CSC to CSC in accordance with the price and terms set
forth in paragraph 8 hereunder.” CSC Shareholders’ Agreement ¶7(d)
(emphasis added). Paragraph 8(c) sets forth the valuation procedure in
mandatory terms:
The purchase price per Share shall be equal to the fair market value thereof. The fair market value shall be determined jointly by the parties. In the event the parties are unable to agree on the fair market value, it shall be determined by an independent appraiser experienced in the valuation of financial service entities and the valuation of delinquent property tax certificates. Such appraiser shall be mutually agreed upon by and between all Shareholders of CSC, or failing in agreement, the Selling Shareholder and the purchaser will each choose its own appraiser who will then select the appraiser to determine fair market value.
Id. ¶8(c) (emphasis added).
The trial court’s judgment did not comply with the Shareholder’s
Agreement’s mandatory remedy for the buy-back of Plaintiff’s shares that it
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found was required by Plaintiff’s disability. Not only did the trial court deny
CSC’s counterclaim for specific enforcement of the Shareholders’ Agreement’s
valuation procedure and determine the value of the shares itself, but it made
its valuation based on an appraisal that violated the Shareholder Agreement.
Paragraph 8(c) of the Shareholder Agreement requires that fair market value
of CSC shares be determined by an “appraiser experienced in the valuation of
financial service entities and the valuation of delinquent property tax
certificates.” Plaintiff’s expert, whose valuation the trial court adopted, did
not meet these qualifications, as he testified that he was not sure whether he
had ever done any valuations of financial service entities and admitted that
he had no experience in the valuation of delinquent property tax certificates.
Trial Court Opinion at 22; N.T., 11/27/18, at 145.
The sole ground on which the trial court justified its failure to enforce
and limit Plaintiff’s remedy to the Shareholder Agreement’s valuation
procedure was its conclusion that Defendants breached the Shareholders’
Agreement in not buying back Plaintiff’s shares after Plaintiff was declared
permanently disabled in December 2006. Trial Court Opinion at 22; Trial
Court Decision, 5/1/19, at 24-27 C.L. ¶¶12, 14, 22-26. This determination,
however, is not supported by the record.
Paragraph 7(d) of the Shareholders’ Agreement imposes obligations on
both CSC and the shareholder with respect to the repurchase of shares; in the
event of Plaintiff’s total and permanent disability, CSC was required to
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purchase Plaintiff’s shares and Plaintiff was required to sell his shares back to
CSC. There is no evidence that Plaintiff notified CSC that he had been declared
totally disabled before he filed this action or that he offered to sell his shares
back to CSC after he was declared disabled. Plaintiff raised the issue of an
appraisal under the Shareholders’ Agreement on November 13, 2006, in a
response to Defendants’ proposed revisions to the parties’ settlement
agreement, stating that Plaintiff “has determined that the proposed resolution
of this matter … is not acceptable” and that Plaintiff “has determined that a
fair market appraisal of [his] stock in the Company, which is the mechanism
contemplated by the existing and binding Shareholders’ Agreement of the
Company, is the more appropriate and equitable basis for all parties to
determine the purchase price.” Plaintiff’s Counsel’s 11/13/06 Letter. Plaintiff,
however, had not yet been declared disabled in November 2006. After Plaintiff
was declared disabled on December 1, 2006, he did not notify CSC of that fact
and offer to sell back his shares under Paragraphs 7(d) and 8 of the
Shareholders’ Agreement. Instead, new counsel for Plaintiff sent a letter
asserting that Plaintiff had been “discharged” and “locked out” and stating
with respect to purchase and valuation of Plaintiff’s CSC shares only the
following, without disclosing the disability declaration:
If your clients have an interest in purchasing my client’s shares of [CSC], I will require that you so state in writing, including the purchase price which they are willing to pay. If your clients contend that they have a contractual right to purchase my client’s interest, then I require formal written demand for such right,
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which would include the reasons your clients believe this right exists.
Plaintiff’s Counsel’s 12/11/06 Letter.
Moreover, Plaintiff in his complaint did not plead that he was disabled
or that he offered to sell his shares back to CSC and did not plead any claim
that CSC breached an obligation to purchase his shares. Instead, Plaintiff
asserted only claims that were inconsistent with complying with his obligations
under Paragraphs 7(d) and 8 of the Shareholders’ Agreement. In both his
2007 original complaint and his 2013 amended complaint, Plaintiff alleged that
he was still a shareholder of CSC and asserted only claims for inspection of
CSC’s books and records, a Wage Payment and Collection Law claim, a breach
of contract claim that asserted that non-payment of his salary was a breach
of an employment contract with CSC, a breach of fiduciary duty claim seeking
as damages amounts to which he claimed to be entitled as a CSC shareholder,
and a shareholder’s derivative claim. Complaint ¶¶1, 8, 18-22, 27-68;
Amended Complaint ¶¶1, 8, 31-73.
The only breach of contract claim that Plaintiff asserted consisted of the
following averment:
Defendant [CSC]’s failure to pay plaintiff’s salary subsequent to his dismissal is a violation of the terms of the Employment Contract in that plaintiff was not dismissed as a result of a For Cause Event.
Complaint ¶51; Amended Complaint ¶55. Breach of the buy-back provision
of the Shareholders’ Agreement was before the trial court only because this
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issue was raised by Defendants in 2013, as a breach by Plaintiff, in
Defendants’ specific performance counterclaim in their answer to Plaintiff’s
amended complaint. CSC & Royal Bank Defendants’ Answer and New Matter
Amended Complaint, Counterclaims ¶¶64-67.
In sum, the record shows that Plaintiff contributed to CSC’s failure to
promptly invoke the Shareholder’s Agreement’s valuation procedure by not
notifying CSC of the disability declaration that triggered CSC’s buy-back
obligation and by not offering to sell back his shares after the disability
declaration. Notwithstanding these facts and Plaintiff’s affirmative allegations
that he was entitled to remain a shareholder, since at least February 2010,
over eight years before the trial in this action, CSC consistently and repeatedly
asserted that the value of Plaintiff’s CSC shares must be determined under
the Shareholders’ Agreement valuation procedures. Docket Entry 92, Answer
Motion to Lift Stay ¶7; Docket Entry 126 Defendants’ Motion for Summary
Judgment ¶¶7, 13-16, 18, 22-23; CSC & Royal Bank Defendants’ Answer and
New Matter Amended Complaint, Counterclaims ¶¶39, 64-67; Docket Entry
177 Renewed Motion for Summary Judgment. Under these circumstances,
CSC’s conduct cannot constitute a waiver of the mandatory procedure set forth
by the Shareholder’s Agreement for the valuation of Plaintiff’s CSC shares.
Because the trial court found CSC liable to Plaintiff only under the
Shareholder’s Agreement provision requiring it to buy back Plaintiff’s shares
once he had been determined to be totally disabled and CSC was not barred
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from seeking enforcement of Shareholder’s Agreement’s requirements, the
trial court erred in awarding damages in contravention of the mandatory
valuation procedure prescribed in Paragraph 8(c) of the Shareholder’s
Agreement.
Moving to the remaining issue in this appeal, Appellants’ contentions
that the trial court erred in rejecting their breach of fiduciary counterclaims
are without merit. To prevail on their breach of fiduciary duty claims,
Appellants were required to prove the following elements: the existence of a
fiduciary relationship between Plaintiff and CSC, that Plaintiff negligently or
intentionally failed to act in good faith and solely for CSC’s benefit, and that
CSC suffered an injury caused by Plaintiff’s breach of his fiduciary duty.
Kirschner v. K & L Gates LLP, 46 A.3d 737, 757-58 (Pa. Super. 2012);
Kaplan v. Cairn Terrier Club of America, 2017 WL 2729667 at *3-*4 (Pa.
Cmwlth. No. 218 C.D. 2017, filed June 26, 2017); Dinger v. Allfirst
Financial, Inc., 82 Fed. Appx. 261, 265 (3d Cir. 2003).3 The trial court’s
3 To the extent that Royal Bank was also a plaintiff on the bid-rigging counterclaim, it was required to prove that Plaintiff had a fiduciary relationship with it, a failure by Plaintiff to act solely for its benefit, and damage to it, Royal Bank, as opposed to CSC. We need not evaluate Royal Bank’s counterclaim, however, because Royal Bank did not file any post-trial motion and therefore has not preserved any issue for appellate review. Chalkey v. Roush, 805 A.2d 491, 494-96 (Pa. 2002); L.B. Foster Co. v. Lane Enterprises, Inc., 710 A.2d 55 (Pa. 1998); Diamond Reo Truck Co. v. Mid–Pacific Industries, Inc., 806 A.2d 423, 428-31 (Pa. Super. 2002).
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findings that Appellants failed to prove all of these elements are supported by
the record.
With respect to the SMI transaction counterclaim, the trial court found
that CSC proved that Plaintiff owed CSC a fiduciary duty and breached his
fiduciary duty to CSC in the SMI transaction, but that CSC failed to prove the
element of injury because it did not introduce evidence sufficient to show the
value of the liens that it acquired or what, if any loss, it suffered. Trial Court
Decision, 5/1/19, at 34-35 C.L. ¶¶51-53, 55-58, 61; Trial Court Opinion at
29-30. Contrary to Appellants’ assertions in their briefs, the trial court’s
reference to “a significant amount of loss” was not a finding that CSC suffered
a significant net loss on the SMI transaction. Rather, this was a reference to
a significant amount of the SMI portfolio being worthless.4 This fact, without
quantification of the amount of worthless liens, did not show that CSC
sustained a loss, as the evidence showed that CSC believed when it acquired
the SMI portfolio that a significant amount of the liens were worthless and
4The trial court’s statement in context was: Here, this Court was presented with no evidence of an amount or percent of the SMI portfolio that was worthless. The Defendants asked for the full value of the portfolio as damages while the evidence at trial was obvious that the portfolio had at least some value, possibly a significant amount of value. While it is true that there was also a significant amount of loss, this Court would have been forced to speculate as to whether $500,000 of the portfolio was worthless, or whether the amount of the damages was closer to $3.5 million or more. Trial Court Opinion at 30.
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based the amount that it advanced for the portfolio on that belief, and the
evidence also showed that SMI reimbursed CSC with respect to some
additional worthless liens. N.T., 11/26/18, at 122-23; N.T., 11/28/18, at 80-
81, 95.
The determination of damages is within the trial court’s exclusive
authority as fact-finder to weigh and assess the credibility of the evidence.
Boehm, 117 A.3d at 328; Lou Botti Construction v. Harbulak, 760 A.2d
896, 898 (Pa. Super. 2000). No damages may be awarded where the evidence
is insufficient for the finder of fact to determine what, if any amount, of
damages the plaintiff suffered. Printed Image of York, Inc. v. Mifflin
Press, Ltd., 133 A.3d 55, 60-61 (Pa. Super. 2016).
Appellants argue that the trial court was required to find damages
because the burden of uncertainty of damages should fall on the wrongdoer.
This, however, was not a case where damages were difficult to determine.
What value CSC received in the SMI transaction and whether it sustained a
loss were quantifiable and CSC had greater knowledge of its damages than
Plaintiff. CSC’s problem in proving damages is that it failed to introduce
evidence concerning the value of the SMI liens. CSC in fact had an expert
value the SMI portfolio, but did not call him as a witness at trial. N.T.,
11/28/18, at 3, 194-201.
The only evidence that Appellants contend that they introduced of the
amount of CSC’s loss on the SMI transaction consists of the fact that CSC
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recorded charge-offs of over $4 million on the SMI transaction over a period
of 8 years, beginning in 2009. N.T., 11/29/18, at 94; Defendants’ Ex. 66.
That evidence does not show that the losses were due to invalid liens or
inadequate due diligence, as opposed to subsequent adverse changes in the
value of real estate that secured valid liens. Indeed, Plaintiff introduced
evidence that after Defendants claimed they discovered that SMI liens were
defective, Royal Bank in 2008 reported in an SEC statement that “[s]ince the
outstanding balance of the CSC loan to SMI is $6.8 million and is secured by
real property having an approximate fair market value of $17 million, no
provision for lien losses was recorded.” N.T., 11/27/18, at 30-31.
With respect to Appellants’ bid-rigging counterclaim, the trial court
found that the evidence did not show sufficient involvement by Plaintiff to
constitute a breach of fiduciary duty because it showed at most that Plaintiff
had some knowledge that bid-rigging occurred but did not condone it. Trial
Court Decision, 5/1/19, at 18 F.F. ¶76, at 35 C.L. ¶59; Trial Court Opinion at
26, 30. In addition, the trial court concluded that the criminal fine assessed
against CSC and paid by CSC and RTLS was not caused by Plaintiff’s limited
involvement, as opposed to Stein’s conduct, because Plaintiff was never
charged in the bid-rigging investigation. Trial Court Decision, 5/1/19, at 35
C.L. ¶¶60-61; Trial Court Opinion at 30. These findings are supported by the
evidence at trial. Plaintiff testified only that he heard about some bid-rigging
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and advised employees not to do it, and the trial court found Plaintiff’s
testimony credible. N.T., 11/ 26/ 18 at 67; Trial Court Opinion at 26.
Because the trial court erred in disregarding the CSC Shareholders’
Agreement and valuing Plaintiff’s CSC shares itself, we vacate the damages
judgment in favor of Plaintiff and remand this case for the trial court to order
the parties to comply with Paragraph 8(c) of the Shareholders’ Agreement.
Because the trial court’s findings that CSC failed to prove all essential
elements of its breach of fiduciary duty claims against Plaintiff are supported
by the evidence at trial, we affirm the judgment in favor of Plaintiff and against
Appellants on those counterclaims.
Judgment vacated in part and affirmed in part. Case remanded for
further proceedings consistent with this opinion on Plaintiff’s claim against
Crusader Servicing Corporation only. Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq. Prothonotary
Date: 3/18/20
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