HomeMy WebLinkAbout2006-3096 Civil
KIRK NAUGLE, RAY : IN THE COURT OF COMMON PLEAS OF
CULLEN, and SHETRON : CUMBERLAND COUNTY, PENNSYLVANIA
WELDING & :
FABRICATION, INC., :
Plaintiffs : CIVIL ACTION—LAW
:
v. :
:
TERRY SHETRON, :
Defendant : No. 06-3096 CIVIL TERM
IN RE: ADJUDICATION
BEFORE OLER, J.
OPINION and ORDER OF COURT
Oler, J., May 5, 2010
In this difficult civil case arising out of the sale of a business, the seller has been
sued for breach of contract, fraud, and unjust enrichment, inter alia, and he has
counterclaimed for breach of contract. A bench trial was held over the course of nine
days.
For the reasons stated in this opinion, an adjustment in the transaction will be
made in Plaintiffs’ favor in the amount of $499,130.12.
FINDINGS OF FACT
1. Plaintiff Kirk Naugle is an adult individual residing in Shippensburg,
1
Cumberland County, Pennsylvania.
2. Plaintiff Ray Cullen is an adult individual residing in Shippensburg,
2
Cumberland County, Pennsylvania.
3. Plaintiff Shetron Welding & Fabrication, Inc. (the company), is a Pennsylvania
business corporation having its principal office at 85 Kutz Road, Carlisle, Cumberland
1
Plaintiffs’ Amended Complaint, ¶1, filed July 10, 2006 (hereinafter Pls.’ Am. Compl.); Defendant’s
Answer to Amen ded Complaint with New Matter/Counterclaim, ¶1, filed December 1, 2006 (hereinafter
Def.’s Answer to Am. Compl. with New Matter/Countercl.).
2
Pls.’ Am. Compl., ¶2; Def.’s Answer to Am. Compl. with New Matter/Countercl. ¶2; Notes of
Testimony, 5, Trial, November 5, 2008 (hereinafter N.T. ___, Trial, Nov. 5 2008).
1
3
County, Pennsylvania and being in the business of fabricating, installing and erecting
4
stairs, railing and structural steel; neither of the individual plaintiffs had prior experience
5
in operating this type of business.
4. Defendant Terry Shetron is an adult individual residing in Newville,
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Cumberland County, Pennsylvania.
5. A letter of intent dated August 27, 2003, was executed by Plaintiffs and
Defendant, whereby it was indicated that Plaintiffs intended to purchase, and Defendant
7
intended to sell, Defendant’s stock in the company, subject to certain terms.
6. In the letter of intent, Defendant agreed that he would continue to “operate his
8
businesses in the ordinary course of business consistent with past practices.”
7. At all times pertinent hereto, Defendant did continue to operate the business,
and to maintain its financial records, in the ordinary course consistent with his past
9
practices.
8. On January 12, 2004, Defendant Terry Shetron as sole Shareholder, and
Plaintiffs Shetron Welding & Fabrication, Inc., Kirk Naugle and Ray Cullen as Buyers
entered into a Stock Purchase Agreement (the agreement), whereby Defendant agreed to
sell to Plaintiffs his shares in Shetron Welding & Fabrication, Inc., in return for $500,000
in cash and a promissory note in the amount of $1,445,000, the latter figure, however,
being subject to a “dollar-for-dollar” adjustment as follows:
(a) At Closing, if the Net Worth of [the company] on the Closing date is less
than the “Target Net Worth”. For purposes of this Agreement, the “Target Net
Worth” shall equal the Net Worth set forth on the December 31, 2002 Financial
Statements attached hereto as Schedule 3.7; and
3
Plaintiffs’ Am. Compl., ¶4; Def.’s Answer to Am. Compl. with New Matter/Countercl., ¶4; Notes of
Testimony 42, Trial, March 16, 2009 (hereinafter N.T. ___, Trial, Mar. 15, 2009).
4
Notes of Testimony 52, Trial, August 28, 2008 (hereinafter N.T. ___, Trial, Aug. 28, 2008).
5
Plaintiffs’ Exhibit 5, admitted Aug. 28, 2008 (hereinafter Pls.’ Ex. 5); N.t. 11-18, Trial, Aug. 28, 2008.
6
Pls.’ Am. Compl. ¶3; Def.’s Answer to Am. Colmpl. with New Matter/Countercl., ¶3.
7
Plaintiffs’ Ex. 5.
8
Plaintiffs’ Ex. 5 at ¶10(d).
9
N.T. 5-7, 139-143, 151-154, Trial, Mar. 16, 2000.
2
(b) Post Closing, for any accounts receivables outstanding on the Closing date
that are not collected within 150 days after the Closing Date (“Uncollected
Receivables”); provided that (A) the Uncollected Receivables are assigned to the
SHAREHOLDER as of 150 days after the Closing date; (B) [the company] will
forward to the SHAREHOLDER any payments received on such Uncollected
Receivables after the assignment set forth above and (C) the SHAREHOLDER
shall have a right to take appropriate action to collect such Uncollected
Receivables.
(c) At Closing, should the Net Worth be determined to be more than the
Target Net Worth, SHAREHOLDER retains all amounts above and beyond the
10
Target New Worth.
9. Incident to the transaction, a promissory note naming the company as borrower
11
and Defendant as creditor, a security agreement naming Defendant as secured party and
12
the company as borrower, and a lease naming the company as lessee and Defendant as
13
lessor were executed.
10. Under the agreement, Defendant promised that the company did not have
outstanding:
3.16.2 Any contract, bid, or offer to sell products or to provide services to
third parties that (1) is, at a price that would result in a net loss on the sale of such
products or providing such services, or (2) that is pursuant to terms or conditions
14
[the company] cannot reasonably expect to satisfy or fulfill in their entirety.
11. With respect to creditors of the company, the agreement provided as follows:
3.11 All Creditors to be Paid. [The company] will supply to BUYERS a list of
all [the company’s] creditors as of the date hereof and the amounts owed thereto.
[The company] and [Defendant] warrant that all liabilities or obligations of [the
company] whatsoever, either accrued prior to Closing, contingent or otherwise,
except for those set forth on the schedule attached hereto as Schedule 3.11 (and in
amounts not greater than as set forth on such schedule), will be paid and satisfied
15
in full on or before Closing.
10
Plaintiffs’ Ex. 7, at ¶1.3.3, admitted Aug. 28, 2008 (hereinafter Pls.’ Ex. 7). In this opinion, some
provisions of the agreement will be set forth more than once forease of reference in different contexts.
11
Plaintiffs’ Ex. 9, admitted Aug. 28, 2008 (hereinafter Pls.’ Ex. 9).
12
Plaintiffs’ Ex. 10, admitted Aug. 28, 2008 (hereinafter Pls.’ Ex. 10).
13
Plaintiffs’ Exhibit 8, admitted Aug. 28, 2008 (hereinafter Pls.’ Ex. 8).
14
Pl. Ex. 7, at ¶3.16.2.
15
Pls.’ Ex. 7, at ¶3.11.
3
12. Under the agreement, Defendant promised to make six monthly payments on a
16
certain equipment lease for a drill press:
6.4 Lease of Ocean Avenger. [Defendant] agrees to make six (6) monthly
payments due on the lease of the Ocean Avenger. Under the lease, the first, last,
October 2003, November 2003, and December 2003 payments have been made by
[Defendant]. The final of the six (6) monthly payments under this term will be
made in January 2004. {Plaintiffs] agree that [the company] will make all
remaining monthly lease payments for the Ocean Avenger after [Defendant] has
17
fulfilled his obligation to pay six (6) lease payments.
13. With express or implicit respect to employee pensions, the agreement provided
as follows:
3.7 Financial Statements. The financial statements of [the company],
appearing as Schedule 3.7, are true, complete, correct, and presents [sic] fairly the
financial position of [the company] as of December 31, 2002 and 2003, and the
results of operations of [the company] for the respective periods indicated, and
does not omit to state or reflect any material fact concerning [the corporation]
required to be stated or reflected therein or necessary to make the statements
18
therein not misleading.
3.8 Events Subsequent to Financial Statement. Since the date of the financial
statement appearing as Schedule 3.7, there has been no, and there has been no
threatened or anticipated:
(a) change in the financial condition, assets, liabilities,
19
prospects, or business of [the company] . . . .
3.9 Undisclosed Liabilities. [The company] does not have any liabilities or
obligations whatsoever, whether due or to become due, accrued, absolute,
contingent, or otherwise, including liabilities for or in respect of taxes (including,
without limitation, any interest or penalties relating thereto), and [Defendant]
knows of no basis for any claim against [the company] for any liability, except
(a) to the extent set forth and used in determining the Net
Worth of [the company] in the financial statement,
(b) to the extent specifically set forth in Schedule 3.12.
delivered pursuant hereto, or
(c) liabilities or obligations incurred in the normal and
ordinary course of [the company] since compilation of the
financial statement. Neither [the company] nor [Defendant] knows
or has any reasonable ground to know of any basis for the
assertion against [the company] of any liability of any nature not
16
N.T. 114-115, Trial, Aug. 28, 2008; Pl.s Ex. 7, at ¶6.4.
17
Pls.’ Ex. 7, at ¶6.4.
18
Pls.’ Ex. 7 at ¶3.7.
19
Pls.’ Ex. 7 at ¶3.8(a).
4
included on the financial statement attached hereto or incurred in
20
the ordinary course of business since the date thereof.
3.23.1 Except as set forth on Schedule 3.23 attached hereto, [the company]
does not maintain or contribute to any pension, profit sharing, thrift or retirement
21
plan . . . .
14. With express or implicit respect to employee contracts, the agreement
provided as follows:
3.7 Financial Statements. The financial statements of [the corporation],
appearing as Schedule 3.7, are true, complete, and presents [sic] fairly the financial
position of [the company] as of December 31, 2002 and 2003, and the results of
operations of [the company] for the respective periods indicated, and does not omit
to state or reflect any material fact concerning [the company] required to be stated
22
or reflected therein or necessary to make the statements therein not misleading.
3.11 All Creditors to be Paid. [The company] will supply to [Plaintiffs] a list
of all [the company’s] creditors as of the date hereof and the amounts owed
thereto. [The company] and [Defendant] warrant that all liabilities or obligations of
[the company] whatsoever, either accrued prior to Closing, contingent or
otherwise, except for those set forth on the schedule attached hereto as Schedule
3.11 (and in amounts no greater than as set forth on scuh schedule), will be paid
23
and satisfied in full on or before Closing.
3.23.2 Except as set forth in Schedule 3.23, [the company] is not a party to
any collective bargaining, employment, consulting, or other similar agreement of
any type whatsoever with any person or entity, and is not committed or obligated
to enter into any of the foregoing.
3.27 Absence of Certain Conditions. Since the date of the Financial Statement
in Schedule 3.7 (other than as disclosed in the Adjusted Balance Sheet set forth on
Schedule 3.12), [the company] did not: . . .
3.27.12 Enter into any employment contracts or collective
24
bargaining agreement.
15. With respect to accounts receivable that remained uncollected 150 days after
closing, the agreement provided as follows:
1.3.3 The Purchase Price shall be adjusted by reducing the principal balance
of the promissory note on a dollar for dollar basis: . . .
(b) Post Closing, for any accounts receivables outstanding on
the Closing date that are not collected within 150 days after the
20
Pls.’ Ex. 7, at ¶3.9.
21
Pls.’ Ex. 7, at ¶3.23.1.
22
Pls.’ Ex. 7, at ¶3.7.
23
Pls.’ Ex. 7, at ¶3.11.
24
Pls.’ Ex. 7, at ¶3.27.12.
5
Closing date (“Uncollected Receivables”); provided, however,
that: (A) the Uncollected Receivables are assigned to the
[Defendant] as of 150 days after the Closing date; (B) [the
company] will forward to the [Defendant] any payments received
on such Uncollected Receivables after the assignment set forth
above and (C) the [Defendant] shall have a right to take
25
appropriate action to collect such Uncollected Receivables.
16. With respect to consulting services, the agreement provided for Defendant’s
provision of consulting services to Plaintiffs in connection with the operation of the
business during a 90-day transition period as follows:
6.2 Transition Period Advice. [Defendant] shall make himself
available at no cost to [Plaintiffs], for a period after Closing not to
exceed ninety (90) days, in order to provide advice, information, and
consultation services for the operation of the business that is the
subject of this Agreement. Following the first ninety (90) days after
Closing, [Defendant] and [Plaintiffs] agree that all consultation
services provided by [Defendant] will be billed at Twenty Five
Dollars ($25.00) per hour to [Plaintiffs], at a minimum of One
Hundred Dollars ($100.00) per consultation, for a period not to
26
exceed 5 (five) years.
17. With respect to maintenance of the company’s financial records, the agreement
provided as follows:
5.5 Books, Records, and Financial Statements. [The company] shall maintain
its books and financial records in accordance with generally accepted accounting
principles consistently applied, and on a basis consistent with the past practices of
[the company]. Said books and financial records shall fairly and accurately reflect
27
the operations of [the company].
18. With respect to disclosure of financial information regarding the corporation
by Defendant, the agreement provided as follows:
3.26 Full Disclosure. [The company] and [Defendant] shall provide full and
unrestricted access to all financial records of [the company] to [Plaintiffs]. No
representation or warranty by [the company], or the [Defendant] in this
Agreement, or in any certificate, exhibit, schedule, or other document furnished or
to be furnished by [the company], or the [Defendant] pursuant hereto, contains or
25
Pl. Ex. 7, at ¶1.3.3.
26
Pls.’ Ex. 7, at ¶6.2.
27
Pls.’ Ex. 7, at ¶5.5.
6
will contain any untrue statement of a material fact or omits or will omit to state a
28
material fact necessary to make the statements contained therein not misleading.
19. With respect to indemnification, the agreement provided as follows:
9.2 Indemnification. The [Defendant] hereby covenants and agrees to
indemnify and hold harmless ]Plaintiffs] from and against any and all loss, liability
image, or expense (including, but not limited to, reasonable attorney’s fees incident
thereto) arising out of, or resulting from, any misrepresentation or the breach of
any warranty, representation, or covenant made by [the Company] or [Defendant]
in this Agreement, the schedules hereto, and any and all written statements,
certificates, instruments, and documents delivered to [Plaintiffs] pursuant to the
Agreement on or before the Closing Date. The [Defendant] hereby covenants and
agrees to indemnify [Plaintiffs] against any and all liabilities of [the company] of
any nature, whether accrued, absolute, contingent, or otherwise, to the extent not
reflected in the Financial Statement attached hereto as Schedule 3.7, including all
tax liabilities, for any period prior to the date of Closing or arising out of
transactions entered into, and any stated facts existing, prior to such date. The
[Defendant] hereby covenants and agrees to indemnify and hold harmless
[Plaintiffs] from and against any and all loss, liability, damage, or expense
(including but not limited to, reasonable attorney’s fees incident thereto) arising
out of, or resulting from, the content or operations of the business of [the company]
and all of its business equipment up to the date of closing on the purchase and sale
of stock provided for in this agreement. The [Plaintiffs] hereby covenants[] and
agrees[] to indemnify and hold harmless [Defendant] from and against any and all
loss, liability, damage, or expense (including but not limited to, reasonable
attorney’s fees incident thereto) arising out of, or resulting from the content or
operations of the business of [the company] and all of its business equipment on
and after the date of closing on the purchase and sale of stock provided for in this
29
agreement.
20. With respect to non-competition, incident to the agreement Defendant entered
into a non-competition agreement whereby he agreed not to compete with the company
30
within a certain area for a certain period.
21. With respect to security for Plaintiffs’ obligations on the promissory note, the
agreement included, inter alia, the following provision related to the stock being
transferred to Plaintiffs:
2.5 At Closing, [Plaintiffs] will enter into a pledge and escrow agreement with
[Defendant] where the one hundred (100) shares of common stock will be placed
28
Pls.’ Ex. 7, at ¶3.26.
29
Pls.’ Ex. 7, at ¶9.2.
30
Plaintiffs’ Am. Compl. ¶97; Def.’s Answer to Am. Compl. with New Matter/Countercl, ¶ 97.
7
in escrow to secure [Plaintiffs’] payment obligations stated in the promissory
31
note.
22. Although the agreement provided for the attachment of “schedules” consisting
of “Financial Statements [of the company] of 12/31/02 and 12/31/03,” “Corporation’s
Creditors,” and “Employment Matters,” nothing was attached beyond cover pages for
32
these schedules; however, Defendant had provided, directly or indirectly, to Plaintiffs
prior to the execution of the agreement (a) a document entitled Shetron Welding &
Fabrication Inc. Monthly Balance Sheets & Income Statements (containing sheets and
33
statements relating to a period from January 1, 2000, to June 30, 2003), (b) a document
entitled Shetron Welding & Fabrication, Inc. Compiled Financial Report December 31,
34
2002, containing balance sheets as of December 31, 2002, and December 31, 2001, and
(c) a document entitled Shetron Welding and Fabrication, Inc. Compiled Financial Report
June 30, 2003, containing a balance sheet as of June 30, 2003, and statements of income
35
and retained earnings for the period from January 1, 2003, to June 30, 2003.
23. The agreement contained an integration clause, reading as follows:
This Agreement contains the entire agreement between the parties hereto with
respect to the transactions contemplated herein and shall not be modified or
amended excepted by an instrument in writing signed by or on behalf of the parties
36
hereto.
37
24. Closing was held on January 12, 2004.
25. No adjustments were made in the amount of the promissory note at the
38
closing.
31
Pls.’ Ex. 7, ¶2.5.
32
Plaintiffs’ Ex. 7, at ¶3.7, 3.12, 3.23; see N.T. 45-47, Trial, Mar. 16, 2009.
33
Plaintiffs’ Exhibit 1, admitted August 28, 2008 (hereinafter Pls.’ Ex. 1); N.T. 20-23, Trial, Aug. 28,
2008.
34
Plaintiffs’ Ex. 2, admitted August 28, 2008 (hereinafgter Pls.’ Ex. 2); N.T. 20-23, Trial, Aug. 28, 2008.
35
Plaintiffs’ Ex. 3, admitted August 28, 2008 (hereinafter Pls.’ Ex. 3); N.T. 20-23, Trial, Aug. 28, 2008.
36
Plaintiffs’ Ex. 7, at ¶11.2.
37
See N.T. 43, Trial, Aug. 28, 2008. This was the same date that the agreement was executed.
38
Pls.’ Ex. 9.
8
26. Under the security agreement, the company subjected its equipment and
39
inventory to a security interest in favor of Defendant.
27. Under the lease, the company rented certain real estate in Carlisle, Cumberland
40
County, Pennsylvania, from Defendant for the continued operation of the business.
28. Differences have arisen between the parties to the agreement, resulting in the
filing of an amended complaint by the Plaintiffs on July 10, 2006, and a counterclaim by
the Defendant on December 1, 2006.
29. Plaintiffs’ amended complaint contained counts titled breach of contract,
declaratory judgment, fraud, misrepresentation, fraudulent inducement, unjust
enrichment, promissory estoppel, breach of fiduciary duty, and breach of contract (non-
41
compete agreement); Defendant’s counterclaim was for breach of contract.
30. Plaintiffs’ amended complaint alleged, inter alia, Defendant’s (a) failure to
disclose that workers’ compensation insurance premiums and liability insurance
premiums were being underpaid by the company due to misinformation provided to the
42
insurance carrier, (b) failure to disclose that two forklifts reported as company assets
43
were not in fact owned by the company, (c) failure to disclose certain unpaid expenses
44
related to a preexisting “Emmaus High School Project,” (d) subjection of Plaintiffs to
45
certain preexisting contracts that produced substantial losses, (e) subjection of Plaintiffs
to certain preexisting fees, expenses and taxes in the form of insurance premiums, legal
and accounting fees, accounts payable, payroll obligations, expenses for materials,
pension benefits, subcontractor expenses, sales taxes, and lines of credit (or the post-
39
Pls.’ Ex. 10.
40
Pls.’ Ex. 8.
41
Def.’s Answer to Am. Compl. with New Matter/Countercl. ¶¶113-126.
42
Pls.’ Am. Compl. ¶25(a).
43
Pls.’ Am. Compl. ¶25(e).
44
Pls.’ Am. Compl. ¶25(f).
45
Pls.’ Am. Compl. ¶25(h)-(i).
9
46
closing payment of such an obligation using company funds), (f) failure to personally
47
make the required rental payments under the “Ocean Avenger” equipment lease, (g)
48
failure to disclose the existence of an employee pension fund agreement, (g) failure to
properly register certain vehicles and movable equipment and to obtain a license for
49
certain computer software, (h) subjection of Plaintiffs to an undisclosed employment
50
contract in the form of a debt to a placement agency, failure to disclose the substantially
51
diminished value of a certain livestock lease owned by the company, (i) failure to
ultimately decrease the purchase price in accordance with the amount of accounts
52
receivable remaining uncollected 150 days after closing, (j) failure to properly and
53
faithfully perform his duties as a consultant to Plaintiffs, (k) misrepresentation as to the
maintenance of the company’s financial records in accordance with generally accepted
54
accounting principles, (l) subjection of Plaintiffs to losses related to the company’s
inventory in terms of an undisclosed pre-closing devaluation of certain vehicles (by way
55
of odometer roll-backs) and a post-closing theft of a certain laptop computer, (m)
56
failure to disclose the existence of “advance billings,” (n) failure to indemnify Plaintiffs
57
for contractual breaches on the part of Defendant, and (o) failure to comply with his
5859
obligations related to non-competition. Plaintiffs also requested attorney’s fees.
46
Pls.’ Am. Compl. ¶25(j)-(l).
47
Pls.’ Am. Compl. ¶¶25(o), (o), [sic].
48
Pls.’ Am. Compl. ¶¶25(q)(r).
49
Pls.’ Am. Compl. ¶¶25(t)-(v).
50
Pls.’ Am. Compl. ¶¶25(x), (y).
51
Pls.’ Am. Compl. ¶¶25(aa)-(dd).
52
Pl. Am. Compl. ¶26.
53
Pls.’ Am. Compl. ¶¶32-35.
54
Pls.’ Am. Compl. ¶¶37-38.
55
Pls.’ Am. Compl. ¶¶39-44.
56
Pls.’ Am. Compl. ¶¶45-46.
57
Pls.’ Am. Compl. ¶¶48-54.
58
Pls.’ Am. Compl. ¶¶96-100; Plaintiffs’ claim related to an alleged breach by Defendant of his non
compete obligations was subsequently withdrawn. N.T. 67-68, Trial, Mar. 2, 2009.
10
31. Defendant’s counterclaim alleged that Plaintiffs had (a) improperly
60
recalculated the promissory note, (b) failed to provide Defendant with access to the
6162
company’s records, (c) improperly sold vehicles serving as security for the note, (d)
failed to deliver to Defendant certificates of stock in the company, which were to serve as
63
security for the note, and (e) failed to pay the promissory note in accordance with its
64
terms.
32. Although the company’s revenues increased significantly during the two years
6566
immediately following the sale to Plaintiffs, more recently the enterprise has declined.
67
33. The aforesaid stock certificates were never placed in escrow, and no
68
payments have been received by Defendant on the promissory note since August, 2008.
No rental payments have been received by Defendant under the lease since October,
69
2008.
34. On the other hand, the following amounts are chargeable to Defendant:
a. $20,301.00, representing rental payments for a period of six
months on the aforesaid Ocean Avenger equipment, which Defendant
70
agreed to pay but did not pay;
59
See Pls.’ Am. Compl., ad damnum clauses.
60
Def.’s Answer to Am. Compl. with New Matter/Countercl., ¶¶114-15.
61
Def.’s Answer to Am. Compl. with New Matter/Countercl., ¶116.
62
Def.’s Answer to Am. Compl. with New Matter/Countercl., ¶117.
63
Def.’s Answer to Am. Compl. with New Matter/Countercl., ¶¶118-19.
64
Def.’s Answer to Am. Compl. with New Matter/Countercl., ¶120.
65
N.T. 35-37, 84-86, Trial, Mar. 2, 2009; Pls.’ E x. 4, at 3.
66
N.T. 56-57, Trial, Oct. 19, 2009.
67
See Def.’s Answer to Am. Compl. with New Matter/Countercl., ¶119; Pls.’ Reply to New Matter,
Answer and New Matter to Counterclaim of Shetron, ¶119.
68
N.T. 44, Trial, Mar. 16, 2009.
69
N.T. 43, Trial, Mar. 16, 2009.
70
Plaintiffs’ Exhibit 56, at 18, admitted Nov. 24, 2008 (hereinafter Pls.’ Ex. 56); N.T. 114-15, Trial, Aug.
28, 2008; N.T. 42, Mar. 2, 2009; N.T. 49, Trial, Oct. 15, 2009.
11
b. $52,300.00, representing proceeds wrongfully retained by
Defendant for certain cows owned by Plaintiffs, which Defendant
71
sold;
c. $15,500.00, representing a payment made by the company to
Defendant prior to closing for two forklifts which were understood by
72
the parties to have been the property of the company;
d. $3,215.41, representing a continuing charge of an employment
agency relating to one of the company’s employees and undisclosed
73
by Defendant;
e. $13,000.00, representing the reduced value of certain trucks in
74
the company’s inventory due to undisclosed odometer rollbacks;
f. $30,404.50, representing undisclosed professional fees incurred
75
by Defendant and the company prior to closing;
g. $13,715.00, representing additional insurance premiums due
for the insurance year prior to closing and undisclosed as of the time
76
of closing;
h. $60,679.21, representing accounts payable for utility bills, non-
job related supplies, and overhead, inter alia, incurred prior to closing
77
and undisclosed as of the time of closing;
78
i. $58,646.91, representing uncollectible receivables;
71
N.T. 130, Trial, Aug. 28, 2008; N.T. 117-18, Trial, Nov. 6, 2008. The purchase price for these cattle
was $57,500.00, but Defendant gave only $5,200.00 to Plaintiffs.
72
N.T. 88-90, Trial, Aug. 28, 2008; Pls.’ Ex. 56, at 18; Plaintiffs’ Exhibit 21, admitted Aug. 28, 2008
(hereinafter Pls.’ Ex. 21).
73
N.T. 109-113, Trial, Aug. 28, 2008l Pl’s Ex. 56 at 18.
74
N.T. 21-22, Trial, Nov. 5, 2008.
75
N.T. 117, Trial, Nov. 24, 2008; Pls.’ Ex. 56, at 18.
76
Defendant’s Exhibit 3, at 1l3, admitted Oct. 15, 2009 (hereinafter Def.’s Ex. 3).
77
Defendant’s Ex. 3, at ¶3.
78
Defendant’s Ex. 3, at ¶3; N.T. 33-36, Trial, Nov. 5, 2008; Plaintiffs’ Exhibit 44, admitted Nov. 5, 2008
(hereinafter Pls.’ Ex. 44); Plaintiffs’ Exhibit 45, admitted Nov. 6, 2008 (hereinafter Pls.’ Ex. 45).
12
79
j. $74,375.00, representing inherited contract losses; and
k. $156,993.09, representing attorney’s fees incurred by Plaintiffs
in pursuit of their rights under the agreement.
35. The court was not persuaded of the correctness of other arguments for
adjustment of the purchase price advanced by either party.
79
Defendant’s Ex. 3, at ¶3.
13
DISCUSSION
This case indicates the difficulties which can arise from the sale of a small
business when (a) the financial affairs of the business are conducted and recorded in a
less orthodox manner than might be expected of a more sophisticated enterprise, (b) the
buyers are not particularly versed in the operation of a business of the type purchased, (c)
the seller is less than scrupulous in certain aspects of his conduct, (d) the closing is held
before all of the parts of the transaction are in place, and (e) ultimately the business
declines in value. Over the course of nine days of trial, a transcript of 1200 pages was
generated and more than five dozen exhibits were admitted. The assessments of the
parties’ expert accountants as to the validity of the parties’ contentions differed by well
80
over a million dollars.
Although the testimony of the experts of both sides was helpful, the court found
the approach of Defendant’s expert, Duane D. Keller, CPA, to be somewhat more
compatible with the informal character of the financial record-keeping of the business
sold, of which Plaintiffs were aware. In this regard, the court regarded several claims of
Plaintiffs to be consequences of Defendant’s continued operation of his business in the
same manner as in the past, which they had bound him to do.
Based upon the foregoing, the following order will entered:
ORDER OF COURT
th
AND NOW, this 5 day of May, 2010, upon consideration of Plaintiffs’ amended
complaint, and Defendant’s counterclaim, and following a bench trial held over the
course of nine days, it is ordered and directed as follows:
1. Plaintiffs are awarded the sum of $499,130.12, which shall be
deducted from the balance due on the promissory note, and payments
to Defendant on the note shall be resumed in accordance with its
terms;
80
Pls.’ Ex. 56; Def.’s Ex. 3.
14
2. Plaintiffs shall immediately place in escrow their stock
certificates as required by the stock purchase agreement;
3. Plaintiffs are awarded costs of suit; and
4. No other relief is granted to either side.
BY THE COURT,
s/ J. Wesley Oler, Jr.
J. Wesley Oler, Jr., J.
Dean F. Piermattei, Esq.
Stephanie E. DiVittore, Esq.
Rhoads & Sinon, LLP
P.O. Box 1146
Harrisburg, PA 17108-1146
Attorneys for Plaintiffs
Glenn R. Davis, Esq.
Latsha Davis Yohe &
McKenna, P.C.
1700 Bent Creek Boulevard
Suite 140
Mechanicsburg, PA 17050
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KIRK NAUGLE, RAY : IN THE COURT OF COMMON PLEAS OF
CULLEN, and SHETRON : CUMBERLAND COUNTY, PENNSYLVANIA
WELDING & :
FABRICATION, INC., :
Plaintiffs : CIVIL ACTION—LAW
:
v. :
:
TERRY SHETRON, :
Defendant : No. 06-3096 CIVIL TERM
IN RE: ADJUDICATION
BEFORE OLER, J.
ORDER OF COURT
th
AND NOW, this 5 day of May, 2010, upon consideration of Plaintiffs’ amended
complaint, and Defendant’s counterclaim, and following a bench trial held over the
course of nine days, it is ordered and directed as follows:
1. Plaintiffs are awarded the sum of $499,130.12, which shall be
deducted from the balance due on the promissory note, and payments
to Defendant on the note shall be resumed in accordance with its
terms;
2. Plaintiffs shall immediately place in escrow their stock
certificates as required by the stock purchase agreement;
3. Plaintiffs are awarded costs of suit; and
4. No other relief is granted to either side.
BY THE COURT,
_________________
J. Wesley Oler, Jr., J.
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Dean F. Piermattei, Esq.
Stephanie E. DiVittore, Esq.
Rhoads & Sinon, LLP
P.O. Box 1146
Harrisburg, PA 17108-1146
Attorneys for Plaintiffs
Glenn R. Davis, Esq.
Latsha Davis Yohe &
McKenna, P.C.
1700 Bent Creek Boulevard
Suite 140
Mechanicsburg, PA 17050
Attorney for Defendant
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