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[U] Kudrich v. Skydyne Co.

Superior Court of Pennsylvania

June 27, 2013



Appeal from the Order Entered April 5, 2012 In the Court of Common Pleas of Chester County Civil Division at No(s): 2010-05363




This matter involves an appeal and cross-appeal. Eric Kudrich, Joseph Curtis, Richard McKeeby, NEC, LLC a/k/a NEC Holdings, LLC, (the "plaintiffs") instituted this action after The Skydyne Company ("Skydyne") ceased making payments to them under four promissory notes that Skydyne issued to them in connection with the March 27, 2009 sale of Hornet Group, Inc. ("Hornet") pursuant to an asset purchase agreement. The plaintiffs, Hornet's former shareholders, sought the entire amount due under the promissory notes, approximately $350, 000, plus interest. Skydyne countered that plaintiffs had misrepresented the value of Hornet's inventory in the asset purchase agreement by $630, 553.50 so that it no longer owed the plaintiffs any money under the promissory notes.

After a nonjury trial, the court concluded that Hornet's inventory value as of the date of the sale was not misstated to any extent in the asset purchase agreement, and found in favor of the plaintiffs. It ruled that the plaintiffs were entitled to past-due and future interest payments under the four promissory notes, but it refused to allow the plaintiffs to accelerate the principal. This latter ruling was premised upon the fact that, under the promissory notes in question, the plaintiffs' debt was subordinated to debt that Skydyne owed to PNC Bank, except with respect to certain, scheduled payments. Skydyne filed an appeal from the trial court's determination, and the plaintiffs filed a cross-appeal.

Based on the plaintiffs' answer to one of Skydyne's requests for admissions, we conclude that plaintiffs conceded that they misrepresented the amount of the inventory by $87, 373 and that the verdict must be reduced to reflect that concession. With that exception, we reject Skydyne's challenges to the award in favor of plaintiffs. We therefore reverse and remand for re-calculation of the amount owed by Skydyne to the plaintiffs. In the cross-appeal, we affirm.

On November 12, 2009, the plaintiffs instituted this breach of contract action in Lackawanna County. After Skydyne filed preliminary objections, the lawsuit was transferred to Chester County, and Skydyne then filed a counterclaim. The matter proceeded to a nonjury trial and, on December 1, 2011, the trial court entered a verdict in favor of plaintiffs in the aggregate amount of $40, 833.32, the amount of interest past due under the notes. This appeal and cross-appeal followed the filing and denial of countervailing post-verdict motions. Skydyne raises these questions for our review:

A. Whether the trial court erred in failing to construe and enforce the terms, conditions and provisions of the Asset Purchase Agreement, as written, in accordance with their plain meaning, particularly sections 5.2, 5.20, 5.26, 9.1, 9.3, 9.4, 9.5, 12.1, 12.2 and 12.8 of the Agreement.
B. Whether the trial court erred in the application of law to fact by failing to find and conclude that plaintiffs breached their representations and warranties as to the quantity, quality and value of the Inventory as of March 27, 2009.
C. Whether the trial court erred in failing to find and conclude that the fair preponderance of the credible, competent evidence introduced at trial established that plaintiffs breached their representations and warranties as to the quantity, quality and value of the Inventory as of March 27, 2009.

Appellant's brief at 4.

We observe that issue B is not advanced to any extent in the argument portion of Skydyne's brief. See Appellant's brief at 13-17 (setting forth the merits of issue A); Id. at 18-26 (arguing its position on issue C). Therefore, we confine our review to the first and third issues set forth in Skydyne's statement of questions involved.

On March 27, 2009, Skydyne purchased the assets of Hornet from plaintiffs pursuant to an asset purchase agreement for total consideration of $4, 830, 465.29. The assets conveyed by the plaintiffs included a manufacturing facility located in Port Jervis, New York. The agreement contained various representations and warranties, and, of significance herein, the plaintiffs' representation and warranty about the value of Hornet's inventory, which the plaintiffs stated had a fair market value of $1, 032, 486.01 as of March 27, 2009. As part of the purchase, the plaintiffs received four subordinated promissory notes dated March 27, 2009, and issued in the principal amount of $350, 000.

From April 2009 until August 2009, Skydyne made four interest payments to the plaintiffs totaling $5, 833.36. It then ceased payment based on its position that the inventory as of March 27, 2009 was not worth $1, 032, 486.01. In August, Skydyne shut down operations and conducted a physical inventory. At trial, Skydyne maintained that the inventory was significantly overstated in the asset purchase agreement and that Hornet's inventory on March 27, 2009, was worth only $401, 932.58, or sixty percent less than that outlined in the contract. Skydyne therefore claimed that it did not owe plaintiffs the outstanding $350, 000 under the promissory notes.

The parties introduced divergent evidence as to the value of the inventory when Skydyne purchased Hornet. The trial court found the plaintiffs' evidence credible, concluded that the inventory value was not overstated, ruled that Skydyne still owed the plaintiffs the amounts outlined in the promissory notes, and entered a verdict against Skydyne and in favor of plaintiffs for the amount of overdue interest.

The controlling issue in this matter is whether the value of the inventory as of March 27, 2009, as set forth in the asset purchase agreement, was misstated. The plaintiffs maintained that Hornet's inventory was worth $1, 032, 486.01 on March 27, 2009, while Skydyne claimed that it was only worth $401, 932.58, and that the plaintiffs therefore breached their warranties and representations in the asset purchase agreement. The trial court refused to credit Skydyne's evidence regarding the value of Hornet's inventory on March 27, 2009.

Since this appeal involves the review of a verdict entered by the trial court following a nonjury trial, the following standard of review applies:

Our review in a nonjury case is limited to whether the findings of the trial court are supported by competent evidence and whether the trial court committed error in the application of law. We must grant the court's findings of fact the same weight and effect as the verdict of a jury and, accordingly, may disturb the nonjury verdict only if the court's findings are unsupported by competent evidence or the court committed legal error that affected the outcome of the trial. It is not the role of an appellate court to pass on the credibility of witnesses; hence we will not substitute our judgment for that of the factfinder. Thus, the test we apply is not whether we would have reached the same result on the evidence presented, but rather, after due consideration of the evidence which the trial court found credible, whether the trial court could have reasonably reached its conclusion.

Greene v. United Services Automobile Ass'n., 936 A.2d 1178, 1181 (Pa.Super. 2007) (citation omitted).

We first review the evidence presented by the plaintiffs, the verdict winners. Jay Benson, a former CEO of Hornet, testified as follows. He earned a Ph.D. in business administration and began his career in 1976 at Kolmar Laboratories ("Kolmar"), which was the largest manufacturer of cosmetics and pharmaceuticals in the world. He eventually assumed the position of corporate vice-president of worldwide manufacturing. In this latter position, he was involved with inventory and inventory control.

When Mr. Benson left Kolmar in 1992, he began to work for AAR Skydyne, which produced cases and containers in Port Jervis, New York for governmental entities. In 1995, Mr. Benson left AAR Skydyne and formed Hornet, a small operation that competed with AAR Skydyne. Hornet eventually branched out to selling its customers human-remains containers and other products. Mr. Benson became President, Chairman, and Chief Executive Officer of Hornet. Sometime in 2001, Mr. Benson was approached to return to AAR Skydyne, and, when he refused, the two entities merged.

As part of the merger, Mr. Benson initiated a new software system for tracking inventory that was certified under the International Organization for Standardization's quality standards, which meant that Hornet was audited annually by an outside specialist. Ken Doe, who was a certified quality engineer at Kolmar, was hired to implement the new inventory tracking system. He purchased a then-state-of-the-art program known as the E2 System at a cost of $250, 000. The E2 System was used continually until the 2009 sale.

In 2005, Mr. Benson suffered health problems, and Don Paris became CEO. At that time, Hornet began to use audited financial statements, which entailed the use of an outside auditor. Eric Kudrich, one of the plaintiffs herein, testified that a physical inventory was taken in December 2008. He stated that Hornet's inventory was tagged and counted by hand. The conduct of the inventory was reviewed and approved by a certified public accounting firm. N.T. Non-Jury Trial, 6/20/11, at 131. The results of the physical inventory were then downloaded into the E2 software program, which was used until the sale to track inventory value. Id.

Robert Finch worked for Hornet and conducted the physical inventory at the end of 2008. He extensively outlined how the hand-counted, tagged inventory verification was performed, and he stated that an outside auditor reviewed the conducted inventory and verified it:

Q. . . . What was the process by which the year end inventory was done for the year end 2008?
A. To the best of my recollection we did it the way we did it every other year, we did the tag inventory, where the pieces were counted, tags were put on them, and those tags were reconciled, any changes were given to the accountants, and then they gave us what we should put into the computer.
Q. Now, there was a change in accountants, accounting firms for that 2008 year end, correct?
A. Yes, that's correct.
Q. And why was that change - - do you know why the change was made?
A. Well, I can't say exactly why the change was made. We brought in a firm to do a forensic audit when the president Mr. Paris left. They then discussed the cost of having UHY, the people who had done it in 2007, what their cost would be versus doing a reviewed audit by Vanacore DeBenedictus, and I believe after discussions with the potential buyers, they opted to do the reviewed because of the cost difference.
Q. Tell the Court how the 2007 inventory was done with the accounting firm versus how it was done in 2008.
A. Well, with the 2007 inventory we used tags, but the accountants came in and verified the tags before the tags were removed or any changes were made to the counts on the computer. We used tags in 2008, but the company basically asked us how we did it. . . . . [T]hey then signed off on the way we did the audit for 2008, the inventory.
Q. What was your role in the 2008 year end inventory?
A. I coordinated it. . . .
Q. Was there anyone else, for instance anyone who inputted information regarding the inventory?
A. I believe that most of the inputting was done by Mr. Fahnestock and Mr. Dansen. I'm sure there might have been other people in the office that helped, but I can't say that with any certainty who else would have helped.
Q. Now, as part of taking the inventory, the year end 2008, you used what you described as inventory tags?
A. Yes.
Q. What are those?
A. That's correct. It's a three-piece tag that has a white sheet, a yellow, a pink sheet, and then a hard cardboard sheet, you go out and attach it to the piece of equipment you counted, you write on the white sheet, the white sheets come back, and that's what you do your tag control with.
Q. And so what happens to the tags that are not left with the particular inventory?
A. Tags that aren't used or accounted for are stored.
Q. And that happened in 2008?
A. Yes, it did, to the best of my knowledge and recollection.
Q. What types of schedules did you prepare with regard to the year end 2008 inventory?
A. Well, you sit down and you make up a map of the plan and each one gets assigned an area and you start on a certain day and they go out and do that.
Q. Did you, yourself, meaning you, keep track of the - - how did you keep track of the inventory tags?
A. I created an Excel spread sheet, and when I handed the tags out to someone I put down what tags they took and who took them.

Id. at 206-209.

Skydyne countered this evidence with the testimony of Peter Keay, who acknowledged using the same E2 System to track inventory after Skydyne purchased Hornet. Mr. Keay stated that after he entered the facilities following closing, he felt that there might be a discrepancy in the value of the inventory set forth in the asset purchase agreement. After using the E2 system for five months, Skydyne performed a physical tagged inventory, just as had been done at the end of December 2008, and Mr. Keay stated that, based on Skydyne's inventory count, the value of Hornet's inventory as of March 27, 2009, was only $401, 932.58. Hornet's March 27, 2009 inventory purportedly was overstated in the following respects:

a) $135, 405.80 of materials/items recorded as Inventory were either obsolete food service related materials/items, or were otherwise not of merchantable or useable quality;
b) $99, 029.39 of materials/items recorded as Inventory as of March, 2009 simply did not exist;
c) in January, 2009 Inventory was falsely inflated as the result of a transaction whereby Hornet Group, Inc. ("HGI") purchased 130 packing cartons for which it was invoiced and paid $388.70, but recorded the 130 packing cartons as Inventory with a value of $87, 761.70;
d) Inventory was falsely inflated in an amount not less than $79, 586.98 as the result of depletable goods (such as chemicals, gloves, drill bits, garnet abrasive, cartons) being purchased and recorded with incorrect costs and units of measure, or improper general ledger code assignment, and thereafter not reduced or removed from recorded Inventory as and when the goods were used and depleted, but not replaced;
e) HGI scrap and process losses totaling $73, 247.36 were not accounted for on bills of materials, or otherwise recorded on HGI's books;
f) food service cabinets recorded as Inventory having a value of $46, 858.35 had been placed by HGI with several food service dealers on a consignment basis. The cabinets continued to be recorded as Inventory at a value of $46, 858.35 even though the cabinets had not been retrieved by or returned to HGI, and even after HGI ceased its food service business;
g) $32, 005.65 of HGI finished goods were recorded as Inventory, which finished goods were either obsolete or did not exist;
h) $26, 490.00 of Jones Zylon cabinets were carried on HGI's books as accounts receivable, but were also recorded as Inventory after the sales/receivables were realized;
i) HGI scrap items/materials were recorded as Inventory having a value of $25, 153.14;
j) certain items/materials recorded as Inventory as of March, 2009, and which subsequently were subjected to no activity by way of usage or otherwise, were overstated in quantity by at least $13, 440.65;
k) $8, 022.83 of bulk molding compound was recorded as finished goods Inventory, despite HGI having rejected the material as defective and having received a credit for the defective material; and
l) $3, 940.27 of HGI items were recorded as having been shipped to purchaser(s), but thereafter were recorded as Inventory.

Appellant's brief at 9-10 (emphases omitted).

The plaintiffs conducted a hand-counted tagged inventory on December 31, 2008, downloaded the results into the E2 system, which it used until March 27, 2009, and used the figure in that system to arrive at inventory value as of March 27, 2009, of about $1, 000, 000. Conversely, Skydyne used the E2 system from March 27, 2009, until its August 2009 physical, tagged inventory. According to Skydyne, the inventory as of March 27, 2009, was only worth about $400, 000.

We now address the arguments raised by Skydyne in this appeal. As noted, it first charges the trial court with failing to enforce the clear and unambiguous language of the asset purchase agreement. Its argument in this respect is two-fold.

Skydyne first suggests that the trial court did not apply clear and unambiguous contract terms when it viewed Skydyne's evidence skeptically because Skydyne did not conduct its hand-counted inventory until five months after the sale, despite being immediately aware of a possible discrepancy. According to Skydyne, the difference in value was quite significant, more than one-half less than that represented by the plaintiffs. The trial court stated that it could not "help but be swayed by the time which passed from the date of closing until [Skydyne] was moved to act to 'discover' what it now claims was a [sixty percent] discrepancy in the value of the inventory as warranted and the actual value as of March 27, 2009." Trial Court Opinion, 6/25/12, at 7. The trial court refused to credit Skydyne's evidence, in part, due to the fact that there was "simply no reasonable and credible explanation [for] this delay [in conducting the physical inventory]." Id.

Skydyne maintains that the quoted language indicates that the trial court ignored the following language in the parties' contract, which accorded Skydyne twenty-four months to enforce the representations and warranties made in the agreement, including the warranty as to the value of Hornet's inventory:

12.2. Survival of Representations. All covenants, agreements, representations and warranties made herein shall survive the Closing Date; provided, however, that representations and warranties made herein shall only continue for a period of twenty-four (24) months after the Closing Date and no indemnification claim may be brought under Section 9 with respect to such representations and warranties after the expiration of such period (unless notice of such claim is provided prior to the expiration of such period)[.].

Asset Purchase Agreement, 3/27/09, at § 12.2.

We disagree with Skydyne's construction of the import of the quoted language from the trial court. The trial court was not characterizing as untimely Skydyne's claim that the inventory was overstated. It was merely assessing the credibility of Skydyne's evidence in the context of the delay in Skydyne's conduct of its inventory, when the inventory was allegedly worth sixty percent less in value than the amount the plaintiffs had warranted.

The trial court was tasked with deciding which evidence was credible. In assessing which proof to credit, the trial court merely considered the fact that Skydyne did not conduct its inventory for five months despite the fact that the inventory was purportedly sixty percent less than the amount represented in the asset purchase agreement. The trial court did not state that Skydyne lost its right to challenge the inventory's valuation due to the five-month delay; it merely used that delay in deciding which evidence was credible. Hence, we reject this allegation of error.

However, we agree with Skydyne's position that the trial court disregarded plain contract language in §§ 9.1 and 12.1 of the asset purchase agreement when it refused to properly assess the effect of the plaintiffs' admission that inventory was overstated in the amount of $87, 373. Appellant's brief at 15. These facts are relevant. Skydyne promulgated requests for admission as to each of its itemized positions as to overstated inventory. At Request for Admission three, the plaintiffs were asked to acknowledge, "That in January, 2009, the Inventory of Hornet Group, Inc. ("HCI") was falsely inflated as the result of a transaction whereby HCI purchased 130 packing cartons for which it was invoiced and paid $388.70, but recorded the 130 packing cartons as Inventory with a value of $87, 761.70." Defendant's Trial Exhibit D-5, at 2. The plaintiffs responded: "Denied. The inventory was not 'falsely inflated'. Upon information and belief, a mistake was made by Nicole Flood, purchasing agent. [Skydyne] knew about the mistake before the asset purchase was finalized." Trial Exhibit D-6, at 1 (emphasis added).

Thus, plaintiffs admitted that in January 2009, after the tagged inventory was conducted, there was an input error in the inventory software program. Specifically, cartons containing inventoried items worth $388.70 were listed as having a value of $87, 761.70. The plaintiffs denied that the error was intentional, but they nonetheless admitted that it was made. Hence, they acknowledged that the inventory was overstated by $87, 373 as of the closing date of the transaction.

Both the plaintiffs and the trial court took the position that, before the March 27, 2009 closing, Skydyne knew about the stated mistake in the value of the contents of the packing cartons and that Skydyne therefore cannot seek redress for the plaintiffs' misrepresentation that the inventory was worth $87, 373 more than it actually was. We agree with Skydyne that the fact that it knew about this inventory error does not mean that it cannot recover under the agreement for the plaintiffs' warranty as to the inventory value.

Section 9.1 of the accord provides:
[The Plaintiffs] . . . shall indemnify . . . [Skydyne] from and against any and all . . . losses, liabilities, damages or penalties . . . incurred by [Skydyne] that arise out of or result from (i) a misrepresentation, breach of warranty, or breach or nonfulfillment of any covenant of [the plaintiffs] contained herein or in the Schedules annexed hereto or in any other Statements furnished or to be furnished . . . pursuant hereto or in connection with the transactions contemplated hereby or thereby, whether asserted by [Skydyne] in its own right or asserted against [Skydyne] by any third-party, unless [Skydyne] had written notice of such misrepresentation or breach and agreed, in writing, to waive same[.]

Asset Purchase Agreement, 3/27/09, at § 9.1. It is uncontested that Skydyne did not agree, in writing, to waive the plaintiffs' $87, 373 misrepresentation as to the value of the inventory. Additionally, under the applicable contractual provisions, Skydyne's knowledge of the error prior to closing does not prevent it from seeking redress. Section 12.1 of the accord states:

[A]ll parties hereto are executing and carrying out the provisions of this Agreement in reliance on the representations, warranties, covenants and agreements contained in this Agreement or at the Closing of the transactions herein provided for, and any investigation that they might have made or any other representations, warranties, covenants, agreements, promises or information, written or oral, made by the other party or parties or any other person shall not be deemed a waiver of any breach of any such representation, warranty, covenant or agreement.

Asset Purchase Agreement, 3/27/09, at § 12.1. Additionally, § 12.3 contains the contract's integration clause: "This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. It supersedes all prior negotiations, letters and understandings relating to the subject matter hereof[.]" Id. at § 12.3

Thus, Skydyne did not waive its right to seek redress due to the plaintiffs' admitted $87, 373 overstatement of the value of the inventory by failing to investigate it or by being orally informed of the mistake before the closing. Accordingly, we concur with Skydyne's position that, in light of the plaintiffs' admission and the relevant contract provisions, the trial court committed an error of law in failing to award it an $87, 373 offset against its monetary obligation to the plaintiffs.

Skydyne's final question pertains to the trial court's refusal to credit Mr. Keay's testimony. Skydyne asserts that Mr. Keay "gave reasonable, credible, common sense testimony, " and that his "testimony was not impeached or shown to be not credible in any way on cross-examination." Appellant's brief at 14. It then characterizes the "plaintiffs' evidence on the central issue of whether they had breached their warranties [as] irrelevant, incompetent, demonstrably false, and overtly asinine." Appellant's brief at 20. Skydyne devotes numerous pages of its brief and reply brief to a dissection of the plaintiffs' proof. It continues to reiterate why its proof was credible and why the plaintiffs' evidence cannot be accepted. As a remedy, Skydyne does not seek a new trial; rather, it asks us to direct the trial court to render a verdict in its favor, absolving it from responsibility for paying the plaintiffs any further amount under the promissory notes. E.g. Appellant's brief at 27 ("when all of the competent, credible evidence presented at trial is fairly reviewed . . . the Decision of the trial court must be reversed with instructions that judgment shall be entered in favor of Skydyne in the amount of $355, 833.36, " which is the amount that Skydyne owed the plaintiffs under the notes as of trial).

We first note that Skydyne implies that Mr. Keay's evidence was uncontested, but it cannot overcome the fact that the plaintiffs presented contrary proof at trial that the value of the inventory as set forth in the asset purchase agreement, with the exception of $87, 373, was correct. Mr. Finch outlined how he oversaw a tagged, hand-counted inventory conducted on December 31, 2008. He said that an outside auditor reviewed and approved that inventory count. After that point, the E-2 software inventory-tracking program was used. Other than the admitted input error as to the value of packing cartons containing goods worth only $388.70 listed at a value of $87, 761.70, the trial court was free to accept the plaintiffs' evidence, which, contrary to Skydyne's position, refuted that proffered by Mr. Keay.

As we have clearly explained on numerous occasions, "the remedy of entry of judgment in a party's favor is proper only when a party successfully challenges the sufficiency of the evidence. On the other hand, the remedy of a new trial is proper when the verdict rendered by the trial court indicates that the trial court abused its discretion when weighing the evidence. This distinction is crucial and is repeated ad nauseam by the appellate courts of this Commonwealth in both civil and criminal cases." Morin v. Brassington, 871 A.2d 844, 851 (Pa.Super. 2005) (citation omitted, emphases in original).

When we conduct an examination of the sufficiency of the evidence supporting a nonjury verdict, we "must begin by accepting the credibility and reliability of all evidence, viewed in the light most favorable to the verdict winner regardless of whether the appellant thinks that the evidence was believable." Imperial Excavating and Paving, LLC v. Rizzetto Construction Management, Inc., 935 A.2d 557, 560 (Pa.Super. 2007) (citation omitted). While Skydyne herein maintains that its evidence was believable and requires the grant of judgment notwithstanding the verdict, it is not our function to re-weigh the evidence in determining whether a verdict can be sustained. The plaintiffs' evidence, which was credited by the trial court, was sufficient to support the trial court's verdict.

Thus, while framed as a sufficiency contention, Skydyne's position actually relates to whether the verdict was against the weight of the evidence, which would warrant the grant of a new trial rather than entry of judgment in favor of Skydyne. As we have noted, "a claim that the verdict was against the weight of the evidence concedes that the evidence presented by the verdict winner was sufficient to satisfy the elements of the cause of action but contends that the evidence was unreliable and untrustworthy to such a degree that a verdict based upon it would shock one's sense of justice, and, therefore, a new trial would be necessary to cure the injustice." Morin, supra at 851 (emphasis added). Herein, Skydyne does not request a new trial, only that a verdict in its favor be ordered. This remedy is not obtainable by Skydyne in light of the evidence presented by the plaintiffs and credited by the trial court.

We now address the contention raised in the cross-appeal, which is that plaintiffs are entitled to an award of outstanding principal as well as interest due on their notes. The instruments held by the plaintiffs provide for acceleration of interest and principal upon default notwithstanding any other provision in the note. However, § 11(a) of each note contained this language:

[T]his Note is subject to the terms of a subordination agreement in favor of PNC Bank, National Association. Notwithstanding any contrary statement contained in the within instrument, no payment on account of any obligation arising from or in connection with the within instrument or any related agreement whether of principal, interest or otherwise, shall be made, paid, received or accepted except in accordance with the terms of said subordination agreement.

Under the subordination agreement, the plaintiffs are only entitled to scheduled payments, and no payments on the plaintiff's subordinated debt or the payment of default interest on the debt can be made without PNC Bank's prior written consent.

Plaintiffs' contend that, once default by Skydyne occurred, its accelerated principal and past-due interest became a scheduled payment under the subordination agreement. We conclude that we lack jurisdiction as to this issue due to the plaintiffs' failure to join PNC Bank in this action. Pa.R.C.P. 1032(b) outlines what defenses cannot be waived and states in pertinent part: "Whenever it appears by suggestion of the parties or otherwise that . . . there has been a failure to join an indispensable party, the court shall order . . . that the indispensable party be joined, but if that is not possible, then it shall dismiss the action." We, as an appellate court, lack the power to join a party.

As we noted in Barren v. Dubas, 441 A.2d 1315, 1316 (Pa.Super. 1982) (citations and quotation marks omitted), "Failure to join an indispensable party goes absolutely to the court's jurisdiction and the issue should be raised sua sponte. As we have said many times, if all necessary and indispensable parties are not parties to an action in equity, the court is powerless to grant relief." In Jacob v. Shultz-Jacob, 923 A.2d 473, 480 (Pa.Super. 2007), we outlined the legal definition of an indispensable party:

"An indispensable party is one whose rights or interests are so pervasively connected with the claims of the litigants that no relief can be granted without infringing on those rights or interests." Hubert v. Greenwald, 743 A.2d 977, 979 (Pa.Super. 1999), appeal denied, 563 Pa. 688, 760 A.2d 854 (Pa. 2000). The basic inquiry in determining indispensability concerns whether, in the absence of the person sought to be joined, justice can be done. Id. at 980. Analysis of this claim requires reference to both the nature of the claim and the requested remedy. Id.

In the present case, the plaintiffs' position has a significant impact on an obligation that Skydyne owes to PNC Bank and affects PNC Bank's rights to collect its debt. PNC Bank is the beneficiary of the subordination agreement, which is being construed herein based on an averment by the plaintiffs that is detrimental to its interest. Indeed, if the plaintiffs were to prevail, PNC Bank's debt would essentially become unsubordinated to the debt that Skydyne owes to the plaintiffs. Justice cannot be done herein because PNC Bank has a direct and substantial interest in this matter. Hence, we conclude that it is an indispensable party herein and that the trial court lacked jurisdiction to entertain this claim without its joinder.

In the appeal at docket number 1141 EDA 2012, the order entered in favor of Eric Kudrich, Joseph Curtis, Richard McKeeby, and NEC, LLC a/k/a NEC Holdings, LLC, is reversed and the matter is remanded for recalculation of the amount owed to them by The Skydyne Company, as set forth in this adjudication. In the appeal at docket number 1245 EDA 2012, the order is affirmed. Case remanded. Jurisdiction relinquished.

Judgment Entered.

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