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HomeMy WebLinkAbout2003-4005 CivilS.H. BLACK & SONS, INC. Plaintiff ALLIED RESTORATION AND CONSTRUCTION SERVICES, INC., THOMAS M. GREEN, JAMES J. GREEN, JR., TRIANGLE G. INDUSTRIES, INC., Defendants IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA NO. 2003-4005 CIVIL TERM CIVIL ACTION - LAW IN RE: DEFENDANTS' PETITION TO OPEN CONFESSED JUDGMENT BEFORE GUIDO, J. OPINION AND ORDER OF COURT Before us is a "Petition to Open Confessed Judgment". The petition was promptly filed by defendants in response to plaintiff' s Confession of Judgment and Complaint for Confession of Judgment. As required by Pa. R.C.P. 2959 we issued a rule to show cause why the confessed judgment should not be opened. Plaintiff filed a response. The parties have since conducted depositions, filed briefs and argued their respective positions. The matter is now ready for disposition. Standard of Review. "A judgment taken by confession will be opened in a limited number of circumstances, and only when the person seeking to have it opened acts promptly, alleges a meritorious defense and presents sufficient evidence of that defense to require submission of the issues to a jury." First Seneca Bank v. Laurel Mt. Development NO. 2003-4005 CIVIL TERM Corporation, 506 Pa. 439, 443,485 A.2d 1086, 1088 (1984). In the instant case we are satisfied that the defendants acted promptly. We are equally satisfied that they have not presented evidence of a meritorious defense which would justify the opening of the judgment. Factual Background. Defendant Allied Restoration and Construction Services, Inc. (hereinafter "Allied") is a Pennsylvania business corporation which owns and operates a construction, property restoration, and maintenance business. Plaintiff is also a Pennsylvania business Prior to the transaction giving rise to this action it had been a competitor of corporation. Allied. In the summer of 2001 Allied approached plaintiff regarding a possible buyout. Over the next year the parties conducted extensive negotiations culminating in the agreement between plaintiff and Allied dated July 18, 2002.~ The agreement provided for Allied to pay $290,000 for the "Assets of the Business" operated by plaintiff.2 Allied paid $100,000 on the date of the agreement. The balance of $190,000 was to be paid in accordance with the terms of a promissory note which was executed on the same date.3 It is that promissory note, executed by Allied and guaranteed by the other defendants, that has given rise to the action before us. 1 See Exhibit B to Defendant's Petition to Open Confessed Judgment. 2 See Exhibit B to Defendant's Petition to Open Confessed Judgment, para. 2 and 3. 3 See Exhibit A to Defendants' Petition to Open Confessed Judgment. NO. 2003-4005 CIVIL TERM The promissory note at issue called for three annual installments of $66,333.33 to be paid beginning July 18, 2003. When the first installment became due, Allied expressed concerns regarding the extensive repairs that it had been required to make to some of the vehicles and equipment it had received. Allied requested a meeting with plaintiff' s president Samuel Black. It requested an adjustment to the amount owed and tendered a payment of $52,768.4 When it became clear that the parties could not agree on an adjustment, Black accepted the tendered payment and the parties executed a document which provided. ! Sam Black, am accepting two checks totaling $52,768.00 on behalf of S.H. Black and Son, Inc. based on the conversation that took place between Sam Black. Tom Green, James Green Jr. and James Green Sr. on July 25, 2003. This amount may or may not represent the total amount due on the installment payment of the note payable, executed on July 18, 2002. Said final amount of the first installment payment to be determined by both parties no later than August 8, 2003.5 Shortly thereafter plaintiff demanded the remaining balance of the first annual installment.6 When the payment was not made plaintiff confessed judgment pursuant to the terms of the note. DISCUSSION Defendants' petition to open alleged numerous defenses. However, at oral argument its counsel abandoned all but two. Defendants contend that 1) plaintiff breached the agreement of July 18, 2002; and 2) plaintiff breached the agreement of July 25, 2003. We will discuss each defense separately. 4 Allied umlaterally determined this amount by subtracting a pro-rated portion of the repair invoices from the installment due. s Exhibit C to Defendants' Petition to Open Confessed Judgment. 6 Plaintiff's demand for payment set a deadline of August 8, 2003. NO. 2003-4005 CIVIL TERM Breach of the July 18, 2002 Agreement. Breach of the underlying contract is a meritorious defense sufficient to justifying the opening of a confessed judgment. Lambakis v. Exar, 340 Pa. Super. 483,490 A.2d 882, (1985). The breach alleged by defendants in this case involved plaintiff s purported fraud in misrepresenting its employees' duties in order to obtain a more favorable worker's compensation insurance premium. However, the allegations and supporting evidence are not sufficient to establish a breach of the contract at issue.? During the negotiations plaintiff provided the defendant with a "confidential profile" indicating, inter alia, that approximately 65% of its employees were involved in the construction business. It also provided defendant with copies of its 1999 and 2000 federal income tax returns which reflected an unusually low premium for worker's compensation insurance. When questioned regarding the low premium, plaintiffs' president responded that it had a good insurance company. Allied now alleges that the low premium was the result of plaintiff providing false information to its insurance carrier i.e. that 70% of its employees were involved in apartment management duties.8 Allied contends that if plaintiff had correctly reported the correct percentage of its employees performing construction duties, its premium would have been significantly higher. 7 Stated another way, Defendants have not produced sufficient believable evidence to require a submission of the issue to a jury, or to withstand a judgment n.o.v. See Pa.R.C.P. 2959(e) and Iron Workers' S&L v. IFFS, Inc. 424 Pa. Super. 255, 622 A.2d 367 (1993). 8 Plaintiff strenuously denies this allegation and has presented evidence that its worker's compensation insurance rate was set as a result of an audit of its payroll records. NO. 2003-4005 CIVIL TERM Even if all of the above allegations were true, neither fraud nor any other breach of the underlying agreement has been established. As our appellate courts have stated: To prove fraud, a [party] must demonstrate by clear and convincing evidence: (1 a representation; (2) which is material to the transaction at hand; (3) made falsely with knowledge of its falsity or recklessness as to whether it is true or false; (4) with the intent of misleading another into relying on it; (5) justifiable reliance on the misrepresentation; and (6) the resulting injury was proximately caused by the reliance. B/umenstock v. Gibson, 811 A.2d 1029, 1034 (Pa. Super. 2002) quoting Gibbs v. Ernst, 538 Pa. 193,207, 647 A.2d 882, 889 (1994). In the instant case, the alleged misrepresentation was not "material to the transaction at hand." If Allied had purchased plaintiff' s business as a going concern, it might have an argument that plaintiff' s alleged misconduct was material. However, Allied did not purchase plaintiff' s stock. It merely purchased specified assets. Those assets did not include any of plaintiff' s rights in connection with either its employment contracts or its worker's compensation insurance policies.9 Therefore, the alleged mispresentation was not fraudulent because it was not material, l0 Defendants also allege that the above misrepresentations violated paragraphs 12 M, N and O of the agreement. Paragraphs 12 M and N provide as follows: 9 The assets purchased are specifically listed in paragraph 3D of the agreement. They include the following: Prepaid Interest Furniture, fixtures and equipment Vehicles Inventory of materials, supplies and equipment Training/consultation Name and telephone listing Non-compete covenant Goodwill l0 Several additional observation should be made. First, Allied has not shown that it had to pay higher premiums because of plaintiff's alleged misconduct. Neither has Allied shown that it would have had reduced premiums if the alleged misconduct had not occurred. Finally, the alleged misrepresentation was never raised by Allied, or any other defendant, until after the commencement of these proceedings, more than one year after the transaction had been consummated. NO. 2003-4005 CIVIL TERM Seller has no knowledge of any default under or in violation of, any applicable statute, law, ordinance, decree, order, rule, regulation of any governmental body, or in default under, or in violation of, any provision of its articles of incorporation, bylaws, any promissory note, indenture or any evidence of indebtedness or security therefor, lease, contract, purchase or other commitment or any other agreement to which Seller is a party or by which Seller is bound which may result in any adverse effect on the business or condition, financial or otherwise, of Seller. There is no suit, claim, action, or proceedings now pending or threatened before any court, administrative or regulatory body, or any governmental agency, nor is Seller aware of any grounds therefore, to which Seller is a party or which may result in any judgment, order, decree, liability or other determination that will, or could have any material adverse effect upon the business or conditions, financial or otherwise, of Seller. No judgment, order or decree has been entered against Seller nor any such liability incurred that has, or could have, such effect. There is no known claim, action, or proceedings now pending or threatened before any court, administrative or regulatory body, or any governmental agency, that will, or could prevent or hamper the consummation of the transactions contemplated by this Agreement. (emphasis added)~ Defendants contend that plaintiff' s misrepresentation of its employees' duties amounted to the crime of insurance fraud which was a violation paragraph 12 M. It further argues that a conviction and sentence for insurance fraud might involve an order of restitution, which would be a "claim" in violation of paragraph 12 N. We are not persuaded by either argument. The assets at issue were transferred in good faith for fair consideration more then a year before the issue of potential insurance fraud was ever raised. We cannot imagine how any potential prosecution against plaintiff would have any adverse impact upon Allied. The possibility of a prosecution for insurance fraud at some future date is far too remote to be of any consequence to the transaction at issue. Paragraph 12 O provides: See Defendants' Brief, pp. 15-17. We also note that no prosecution for insurance fraud has ever been "pending or threatened" at any time. NO. 2003-4005 CIVIL TERM On information and belief, no representation or warranty by Seller, or in any certificate, exhibit, schedule, or other document furnished or to be furnished by Seller pursuant thereto, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained therein not misleading. (emphasis added). Defendants allege that this paragraph was violated by the misrepresentations discussed above. However, as noted previously, none of the allegedly untrue statements was material to this transaction. Breach of July 25, 2003. Allied's only remaining defense is that plaintiff violated the agreement of July 25, 2003. Since we find as a matter of law that there was no agreement on July 25, 2003, this cannot satisfy the meritorious defense requirement needed to justify opening the confessed judgment. The meeting of July 25, 2003 was convened by Defendants Green, acting on behalf of Allied, in an attempt to renegotiate the payments due under the promissory note. The only articulated reason for the attempted renegotiation was the poor condition of the vehicles and equipment delivered pursuant to the underlying agreement. ~3 However, the July 18, 2002 Agreement specifically provided: Purchaser acknowledges that it has inspected the Assets of the Business and agrees to accept the same in its present condition "as is". It is understood and agreed that Purchaser makes no warranties of any kind or nature, express or implied, with respect to the conditions or suitability of the assets being sold and purchase except as to Seller's ownership thereof. 14 ~3 Defendants presented Plaintiff's representative Black with repair invoices totaling more than $31,000 and demanded that they receive credit for that amount against the purchase price. ~4 Exhibit B to Defendants' Petition to Open Confessed Judgment, para. 9. NO. 2003-4005 CIVIL TERM Therefore, defendants had no basis to renegotiate the payments. We agree with plaintiff that the document signed by Mr. Black on July 25, 2003 did not amount to an agreement. Rather, it was merely a receipt for a partial payment and a promise to evaluate the situation in good faith. After consulting legal counsel, plaintiff understandably refused to accept anything less than it was legally entitled to receive under the terms of the original agreement and promissory note. ORDER OF COURT AND NOW, this day of JUNE, 2004, for the reasons contained in the accompanying opinion Defendants' Petition to Open the Confessed Judgment is DENIED. By the Court, /s/Edward E. Guido Edward E. Guido, J. Richard C. Snelbaker, Esquire For the Plaintiff James W. Kollas, Esquire William C. Kollas, Esquire For the Defendants :sld NO. 2003-4005 CIVIL TERM