United States District Court, E.D. Pennsylvania
February 4, 2004.
CARY W. TONER
TESSA R. MILLER, et al
The opinion of the court was delivered by: JOHN PADOVA, District Judge
Plaintiff Cary W. Toner brought this diversity action against
Defendants Tessa R. Miller and William M. Kettler for damages resulting
from Defendants' alleged breach of a contract between the parties.
Defendants have filed an Amended Motion for Summary Judgment pursuant to
Federal Rule of Civil Procedure 56, and the matter has been fully briefed
by the parties. For the reasons that follow, the Court denies Defendants'
Amended Motion for Summary Judgment in its entirety.
The following facts are essentially undisputed. Plaintiff is the former
President, Chief Executive Officer and sole shareholder of a Pennsylvania
corporation known as the Toner Organization. (Toner Dep., Def. Ex. A at
27-28.) Although the Toner Organization operated primarily as an
insurance agency, the company also provided loans to start-up businesses
to fund their initial operating costs. (Id. at 50-51.) In early 1999,
Jack Kettler, who was then serving as the President of the Toner
Organization, advised Plaintiff that his son, Defendant William Kettler,
wanted to form a title insurance company in Ohio, but lacked the
start-up capital. (Id. at 37-38, 42-43.) Jack Kettler asked Plaintiff to
consider loaning his son the start-up capital for this new venture. (Id.)
Plaintiff agreed to meet with Defendant Kettler and his business
partner, Defendant Tessa Miller, to discuss the matter. (Id. at 50.)
During this initial meeting in June 1999, Defendants presented
Plaintiff with a business plan for their new company, Expedient.
(Business Plan, Def. Ex. A-1.) The business plan sought $145,000 in
start-up capital, which Defendants promised to repay "by the end of
fiscal year 2001," and forecast "net profits of over $750,000 by the end
of fiscal year 2002 from an investment of under $150,000." (Id.) The
business plan also offered an equity stake in Expedient to whomever would
agree to provide the start-up capital. (Id.)
On behalf of the Toner Organization, Plaintiff agreed to loan all of
the start-up capital needed to fund Expedient's initial operations.
(Toner Dep., Def. Ex. A at 73.) Plaintiff declined, however, to take an
equity position in Expedient. (Id. at 103-104.) Instead, Plaintiff asked
for an interest in Expedient's profits, if any, as well as sufficient
management rights to be able to monitor and protect his investment.
The parties then drafted a Management Contract to formalize their
agreement. (Id. at 77.) Defendant Kettler's father, Jack Kettler, drafted
the Management Contract. (Id.) The Management Contract provides, in its
entirety, as follows:
This contract, made this 7th day of October, 1999,
between Tessa R. Miller and William M. Kettler
(principals) and Cary Toner (manager), defines the
certain terms the above parties agree to adhere to
with regard to the operation of Expedient Title, LLC
1. This contract will be in effect until one of
the following occurs:
manager terminates said contract.
principals pay manager $1,000,000.00 to
terminate said contract.
ten years elapse, terminating said contract.
2. Manager will have the authority to override
any operating decisions made by principals.
3. Manager will make final decisions on salary
and staffing level increases based on proposals
presented by principals.
4. Initial investment made by manager will be
paid back at an annual percentage rate of 15%.
5. Manager will have the right to 40% of net profit
until the initial investment is repaid at which
time the manager's right to profit will drop to
6. Net profit distribution to principals will
not occur until the initial investment is repaid
except for funds necessary to pay tax liability
incurred as a result of LLC tax laws.
(Management Contract, Def. Ex. B.) After the Management Contract was
signed by the parties, the document was modified by Plaintiff's
accountant, Michael Stewart, who inserted a handwritten amendment noting
that Plaintiff had signed the Management Contract "for Toner
Organization." (Toner Dep., Def. Ex. A at 110-11).
From September 1999 through March 2000, the Toner Organization loaned
Defendants approximately $79,126.55 in start-up capital, pursuant to a
series of funding requests that Defendants submitted to Steven Rickel,
Chief Financial Officer of the Toner Organization. (See Pl. Ex. 1-3.)
Although the initial checks issued by the Toner Organization were made
payable to Defendants personally, Defendants subsequently requested that
the Toner Organization make checks payable to Expedient. (See Pl. Ex. 2;
Toner Dep., Def. Ex. A at 148.) Defendants, who are the sole members and
owners of Expedient and control all of its day-to-day operations, used
this money to pay their own salaries, for office furniture and supplies,
and for other related expenses. (See Pl. Ex. 3.) While monthly status
reports and projections were transmitted to the Toner Organization by
Expedient for some period of time following the signing of the Management
Contract, Plaintiff never reviewed the personal financial information of
either Defendant. (Toner Dep., Ex. A at 94-95.)
On April 17, 2001, Defendants began repaying the initial loan by making
out a $5,000 check payable to the Toner Organization. (See Pl. Ex. 4.) On
May 17, 2001 and June 6, 2001, Defendants submitted loan repayment
checks, made payable to the Toner Organization, in the respective amounts
of $2,500 and $10,000. (Id.) On June 27, 2001, the Toner Organization
sold most of its assets to BISYS Insurance Services, Inc. ("BISYS")
pursuant to a
Stock Purchase Agreement between BISYS, the Toner Organization, and
Plaintiff. (See Stock Purchase Agreement, Pl. Ex. 6.) Pursuant to Section
4.14(a) of the Stock Purchase Agreement, Plaintiff personally purchased
the Toner Organization's rights under the Management Contract from the
Toner Organization for $79,126.55. (See id.) Defendants thereafter made
their loan repayment checks payable to Plaintiff, rather than the Toner
Organization. (See Pl. Ex. 4.)
By March 2002, Defendants had fully satisfied their obligation under
the Management Contract to pay off the initial loan amount, thus reducing
Plaintiff's profit interest to 30 percent. (See Pl. Ex. 7.) On August
27, 2002, Defendants issued a check to Plaintiff in the amount of
$40,589.20, representing his 40 percent share of Expedient's profits for
2001. (Pl. Ex. 8.) All of the loan repayment and profit-share checks
written to the Toner Organization and Toner during this period were
signed by either Defendant Kettler or Defendant Miller or both, and paid
out of Expedient's accounts. (See Pl. Ex. 3.) Plaintiff made no
complaints with respect to the payments by Defendants being drawn from
Expedient's accounts. (Toner Dep., Def. Ex. A. at 148-49.)
By August 2002, Defendants had become interested in buying out
Plaintiff's profit interest and management rights in Expedient under the
Management Contract. (See Pl. Ex. 8.) On or about February 4, 2003,
Plaintiff and Expedient executed a
Confidentiality Agreement, which was signed by Plaintiff and, on behalf
of Expedient, by Defendants. (See Confidentiality Agreement, Def. Ex.
A-2.) The Confidentiality Agreement facilitated the exchange between
Plaintiff and Expedient of "certain confidential knowledge and
information about Expedient" so that the parties could "examine the
feasibility of the termination of the document entitled `Management
Contract' dated October 7, 1999. . . ." (Id.)
The financial data that Expedient subsequently disclosed to Plaintiff
pursuant to the Confidentiality Agreement raised concerns to him about how
Defendants had been running Expedient, and whether they had satisfied
their obligations to pay a percentage of the company's profits to him.
Plaintiff's accountant, Mr. Stewart, sent a spreadsheet of allegedly
questionable "business" expenses totaling $15,360.41 to Defendants'
accountant, Brian Long, for explanation. (See Pl. Ex. 9; Long Dep., Pl.
Ex. 10 at 105-06.) Mr. Long shared the spreadsheet with Defendant
Kettler, who denied that any of these expenses were for his or Defendant
Miller's personal use. (See Long Dep., Pl. Ex. 10 at 105-06.)
On June 5, 2003, Plaintiff filed the instant action against Defendants,
alleging four claims for relief. In Count One, Plaintiff alleges that
Defendants breached the Management Contract by refusing to obtain or
solicit Plaintiff's managerial advice on operating decisions or to permit
Plaintiff to become involved in
the management of Expedient whatsoever; by unilaterally increasing their
salaries and the staffing levels of Expedient; and by failing to pay
Plaintiff the full net profits from Expedient's operations due under the
Management Contract. In Count Two, Plaintiff alleges that Defendants have
been unjustly enriched by retaining the benefit of 100 percent of
Expedient's net profits and using Expedient's company funds owed to
Plaintiff to satisfy their personal expenses. In Count Three, Plaintiff
asserts that he is entitled to an accounting to determine the exact
amount of monies representing the profits or other benefits derived or
received by Defendants as a result of unjust enrichment and/or
Defendants' unlawful acts and conduct. In Count Four, Plaintiff asserts
that he is entitled to the imposition of a constructive trust on such
sums as are currently due to him.
II. LEGAL STANDARD
Summary judgment is appropriate "if the pleadings, depositions, answers
to interrogatories, and admissions on file, together with affidavits, if
any, show that there is no genuine issue as to any material fact and that
the moving party is entitled to judgment as a matter of law."
Fed.R.Civ.P. 56(c). An issue is "genuine" if the evidence is such that a
reasonable jury could return a verdict for the non-moving party. Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A factual dispute is
"material" if it might affect the outcome of the case under
governing law. Id. When considering a motion for summary judgment, the
court must view all evidence in favor of the non-moving party and must
resolve all doubts in favor of the non-moving party. S.E.C. v. Hughes
Capital Corp., 124 F.3d 449, 452 (3d Cir. 1997).
A party seeking summary judgment always bears the initial
responsibility for informing the district court of the basis for its
motion and identifying those portions of the record that it believes
demonstrate the absence of a genuine issue of material fact. Celotex
Corp. v. Catrett, 477 U.S. 317, 322 (1986). Where the non-moving party
bears the burden of proof on a particular issue at trial, the movant's
initial Celotex burden can be met simply by "pointing out to the district
court that there is an absence of evidence to support the non-moving
party's case." Id. at 325. After the moving party has met its initial
burden, "the adverse party's response, by affidavits or otherwise as
provided in this rule, must set forth specific facts showing that there is
a genuine issue for trial." Fed.R.Civ.P. 56(e). That is, summary judgment
is appropriate if the non-moving party fails to rebut by making a factual
showing "sufficient to establish the existence of an element essential to
that party's case, and on which that party will bear the burden of proof
at trial." Celotex, 477 U.S. at 322. "Speculation, conclusory
allegations, and mere denials are insufficient to raise genuine issues of
material fact." Boykins v.
Lucent Technologies, Inc., 78 F. Supp.2d 402, 407 (E.D. Pa. 2000).
Indeed, evidence introduced to defeat or support a motion for summary
judgment must be capable of being admissible at trial. Callahan v. AEV,
Inc., 182 F.3d 237, 252 n.11 (3d Cir. 1999)(citing Petruzzi's IGA
Supermarkets, Inc. v. Darling-Delaware Co., 998 F.2d 1224, 1234 n. 9 (3d
Defendants argue that this Court should enter summary judgment in their
favor because, as a matter of law, they have no personal obligation to
make payments to Plaintiff under the Management Contract.*fn1 Defendants
further argue that they are entitled to judgment as a matter of law
because Plaintiff is estopped from asserting claims against them under
the Management Contract. Defendants finally contend that this Court
should dismiss this action pursuant to Federal Rule of Civil Procedure
19, as Plaintiff has failed to join a necessary and indispensable party.
A. Defendants' Personal Liability Under Management Contract
Defendants first argue that they have no personal obligation to make
payments to Plaintiff under the plain language of the Management
Contract. Specifically, Defendants maintain that the
Management Contract grants the Toner Organization a right to a certain
percentage of Expedient's net profits, and not an allocation of
Defendants' personal funds. Defendants stress the language in the
Management Contract which states that "[t]his contract . . . defines the
certain terms the above parties agree to adhere to with regard to the
operation of Expedient Title, LLC" (emphasis added). Defendants also
emphasize that the Management Contract provides only that the "manager"
was to have the right to a certain percentage of Expedient's profits; it
does not provide for any payments to Plaintiff or to the Toner
Organization by Defendants' own personal funds, nor does it indicate that
Defendants have any obligation to garner funds from sources other than
In essence, Defendants' argument is grounded on the well-established
tenet that "an individual acting as an agent for a disclosed [principal]
is not personally liable on a contract between the [principal] and a
third party unless the agent specifically agrees to assume liability." In
re Estate of Duran, 692 A.2d 176, 179 (Pa. Super. 1997) (citation
omitted). Even if Defendants did, in fact, act as Expedient's agents in
connection with the Management Contract, "a person who is contracting as
an agent may be found to be personally liable where he or she either
executes a contact in his or her name or voluntarily incurs a personal
liability." Id. Viewing the evidence in the light most
favorable to Plaintiff, the Court cannot conclude, as a matter of law,
that Defendants are shielded from personal liability on the Management
Contract under principles of agency. Indeed, the plain language of the
Management Contract identifies Defendants as "principals," rather than as
"agents," and further identifies Expedient as "company," rather than as
"principal." See Kiska v. Rosen, 124 A.2d 468, 509 (Pa. Super. 1956)("A
person known to be acting as an agent in signing a contract may still
incur personal liability if in signing the contract he purports to act as
a principal."). Furthermore, whereas Plaintiff's status as an agent for
the Toner Organization was clarified by the handwritten modification
stating "on behalf of Toner Organization,"*fn2 no such language was
utilized to convey a similar relationship between Defendants and
Expedient. Accordingly, the Court denies Defendants' Motion for Summary
Judgment on this ground.
B. Equitable Estoppel
Defendants next argue that Plaintiff is estopped from asserting that
Defendants are personally liable under the Management Contract. Under
Pennsylvania law, the doctrine of
equitable estoppel "arises when one by his acts, representations, or
admissions, or by his silence when he ought to speak out, intentionally
or through culpable negligence induces another to believe certain facts
to exist and such other rightfully relies and acts on such belief, so
that he will be prejudiced if the former is permitted to deny the
existence of such facts." Liberty Property Trust v. Day-Timers, Inc.,
815 A.2d 1045, 1050 (Pa. Super. 2003)(citation omitted). The essential
elements of equitable estoppel are (1) an inducement; (2) justifiable
reliance on that inducement; and (3) prejudice to the one who relies.
Chemical Bank v. Dippolito, 897 F. Supp. 221, 224 (E.D. Pa. 1995) (citing
Zivari v. Willis, 611 A.2d 293, 295 (Pa. Super. 1992)). "The burden rests
on the party asserting the estoppel to establish such estoppel by clear,
precise and unequivocal evidence." Novelty Knitting Mills, Inc. v.
Siskind, 457 A.2d 502, 504 (Pa. 1983) (citation omitted). Whether an
estoppel results from established facts is ordinarily a question of law.
Starr v. 0-1 Brockway Glass, Inc., 637 A.2d 1371, 1374 (Pa. Super.
1994). However, "if credibility is involved or if more than one inference
may be reasonably drawn, the question is for the jury." Hertz Corp. v.
Hardy, 178 A.2d 833, 836 (Pa. Super. 1962)(citation omitted).
Defendants argue that the doctrine of equitable estoppel applies in
this case because Plaintiff has behaved in a manner
designed to cause Defendants to believe that they would not be personally
liable for any payments to be made to Plaintiff. Specifically, Defendants
note that Plaintiff asked only to review the financial documents
pertaining to Expedient and not to Defendants, historically accepted
payments from Expedient without complaint or objection, and signed the
Confidentiality Agreement with Expedient, not Defendants, in
contemplation of a negotiation to terminate the Management Contract. In
response, Plaintiff fairly argues that he had no need to review
Defendants' financial information since the payment due to him under the
Management Contract were directly related to Expedient's performance.
Plaintiff also maintains that his voluntary receipt of Expedient checks
merely constituted his acceptance of Defendants' performance under the
Management Contract. Plaintiff further asserts that he entered the
Confidentiality Agreement with Expedient, as opposed to Defendants, to
facilitate the production of financial information from Expedient that
was relevant to the buy-out negotiations between Plaintiff and
Viewing the facts alleged by Defendants in support of equitable
estoppel in the light most favorable to Plaintiff, Defendants have failed
to establish such estoppel by clear, precise and unequivocal evidence. In
particular, Defendants have not identified any evidence that they
detrimentally changed their positions in reliance on Plaintiff's
representations. See Wilson
v. Southeastern Pennsylvania Transp. Auth., 709 F. Supp. 623, 629-30
(E.D. Pa. 1989)(noting that equitable estoppel claim under Pennsylvania
law requires showing of detrimental change of position). Accordingly, the
Court denies Defendants' Motion for Summary Judgment on this ground.
C. Failure to Join Necessary and Indispensable Party
Defendants' third argument is that this Court should dismiss the
instant action because Plaintiff has failed to join Expedient, a
necessary and indispensable party to this action. Federal Rule of Civil
Procedure 19 provides, in pertinent part:
(a) Persons to be Joined if Feasible. A person who is
subject to service of process and whose joinder will
not deprive the court of jurisdiction over the subject
matter of the action shall be joined as a party in the
action if (1) in the person's absence complete relief
cannot be accorded among those already parties, or (2)
the person claims an interest relating to the subject
of the action and is so situated that the disposition
of the action in the person's absence may (i) as a
practical matter impair or impede the person's ability
to protect that interest or (ii) leave any of the
persons already subject to a substantial risk of
incurring double, multiple, or otherwise inconsistent
obligations by reason of the claim interest.
Fed.R.Civ.P. 19(a). When determining whether a party should be joined
pursuant to Rule 19(a), the Court first examines "whether complete relief
can be accorded to the parties to the action in the absence of the
unjoined party." Drysdale v. Woerth, Civ. A. No. 98-3090, 1998 WL
966020, at *3 (E.D. Pa. Nov. 18, 1998). The
purpose of Rule 19(a)(1) is "to avoid partial or hollow relief" because
"the interests that are being furthered here are not only those of the
parties, but also that of the public in avoiding repeated lawsuits on the
same essential subject matter." Id. (citing Fed.R. Civ. P. 19 Advisory
Committee's Notes). The moving party has the burden of showing why an
absent party should be joined pursuant to Rule 19. Raytheon Co. v.
Continental Cas. Co., 123 F. Supp.2d 22, 33 (D. Mass. 2000).
Defendants note that Plaintiff's Complaint seeks, inter alia, an
accounting and the imposition of a constructive trust upon all of the
profits realized by Expedient from 2001 to date. Defendants maintain that
these prayers for relief relate directly to Expedient and its operations.
As such, Defendants assert that Expedient has an interest in this action
and that complete relief cannot be accorded without joinder of Expedient
as a party to this action.
As this Court stated in its September 8, 2003 Order-Memorandum denying
Defendants' Motion to Dismiss pursuant to Federal Rule of Civil Procedure
12(b)(7), "Plaintiff's lawsuit is predicated on the [Management
Contract], to which Expedient is not a party. Complete relief can be
accorded to Plaintiff by the named Defendants, who alone executed the
[Management Contract] with Plaintiff." Toner v. Miller, Civ. A. No.
03-3498, 2003 WL 22358446, at *3 (E.D. Pa. Sept. 8, 2003). Moreover,
Expedient's absence from this action will not impair or impede its
ability to protect its interests, as
Plaintiff has clarified that he is only seeking relief from Defendants in
their personal capacities. See (PI. Mem. Opp. Summ. J. at 25-26).
Accordingly, the Court declines to dismiss the instant action pursuant to
For the foregoing reasons, Defendants' Amended Motion for Summary
Judgment, and motion to dismiss pursuant to Rule 19, is denied in its
entirety. An appropriate Order follows.
AND NOW, this 4th day of February, 2004, upon consideration of
Defendants' Amended Motion for Summary Judgment (Docket No. 26),[fn1a]
Plaintiff's response thereto (Docket No. 34), and all related
submissions, IT IS HEREBY ORDERED that Defendants' Motion is DENIED in