Bernback v. Greco , 69 F. App'x 98 ( 2003 )

Opinions of the United
2003 Decisions States Court of Appeals
for the Third Circuit
7-11-2003
Bernback v. Greco
Precedential or Non-Precedential: Non-Precedential
Docket No. 02-2742
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No: 02-2742
MICHAEL L. BERNBACK
v.
* THOMAS GRECO, individually and
as President of Harvey's Lake
Amphitheater, Inc.;
Thomas Greco,
Appellant
* (Amended as per the Clerk's 9/5/02 Order)
_________________
On Appeal From the United States District Court
for the Middle District of Pennsylvania
District Court Judge: The Honorable A. Richard Caputo
(D.C. Civ. No. 98-cv-00230)
__________________
Submitted Under Third Circuit L.A.R. 34.1(a)
July 10, 2003
Before: NYGAARD, SMITH, Circuit Judges,
and IRENAS,** District Judge.
(Opinion Filed: July 11, 2003)
_________________
**Honorable Joseph E. Irenas, Senior United States District Judge for the District
of New Jersey, sitting by designation.
________________________
OPINION OF THE COURT
________________________
SMITH, Circuit Judge:
I. FACTS AND PROCEDURAL HISTORY
A. History of the Litigation
Michael Leslie Bernback and Thomas Greco have a long and complicated history
of business dealings, primarily in the concert promotion business. Their relationship
deteriorated over time into a tangle of litigation in the state and federal courts. In April
1996, Bernback filed a demand for arbitration against Greco, “Individually and as
President of Harvey’s Lake Amphitheater,” pursuant to a “Stock Purchase Agreement”
that contained an arbitration clause. The nature of the dispute was characterized as
“Breach of Contract and Fiduciary Duty”:
Claimant [Bernback] and Respondent [Greco] entered into a Stock Purchase
Agreement, wherein each became equal shareholders in a corporation, and
Respondent, in violation of the agreement, and in breach of fiduciary duties,
usurped the powers granted him by the agreement, effectively shutting
Claimant out of the corporation to the financial detriment of claimant.
Greco responded to the demand for arbitration by filing an equity action in state
court seeking return of certain “share certificates.” In his original complaint, Greco
asserted that both he and Bernback were officers, directors, and shareholders in Harvey’s
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Lake Amphitheater, Inc., a Pennsylvania Corporation. Greco claimed that, in May 1995,
Bernback had forfeited his shares to Greco, but had refused to turn them over to Greco.
Greco sued to obtain physical possession of the shares and sought a declaration that
Greco “is the owner of all of the stock in the Harvey’s Lake Amphitheater, Inc., that was
previously owned by” Bernback.
Greco then filed an amended complaint in equity, alleging that he and Bernback
had entered into a “Shareholder’s Agreement” with Harvey’s Lake Amphitheater on May
21, 1993, in which Bernback pledged his stock in Harvey’s to Greco, “and agreed that if
[Bernback] was in breach of the provisions of the Agreement, [Greco] is entitled to
immediate possession and ownership of all of the stock of Harvey’s Lake Amphitheater,
Inc., then owned by [Bernback].” In Greco’s view, Bernback breached Paragraph 14 of
the Agreement, entitling Greco to immediate possession of the stock certificates.
Bernback contends that Greco’s action in equity was merely an attempt to derail
the arbitration proceedings. As part of his equity action, Greco moved to stay the
arbitration proceeding, on the ground that “the dispute among the parties does not arise
under th[e] Stock Purchase Agreement,” as alleged by Bernback in the demand for
arbitration. Rather, Greco argued, the dispute arose over whether Bernback forfeited his
shares under the Shareholders’ Agreement, and therefore could not be arbitrated under the
Stock Purchase Agreement. The Court of Common Pleas granted a preliminary
injunction to enjoin the arbitration proceedings. The Court reasoned that the only parties
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to the Stock Purchase Agreement were “Harvey’s Lake Amphitheater, Inc.” and Michael
Leslie Bernback. Because Greco was not a party to the Stock Purchase Agreement, there
was no agreement to arbitrate between Bernback and Greco.
In February 1998, Bernback filed an action in federal court for fraud, intentional
interference with contractual relations, and intentional interference with business
advantage. While acknowledging that his action sounded in tort, Bernback contended
that it was based “on the contracts between these two men.” Because of Greco’s
successful argument before the state court that he was not a party to the contract,
Bernback contended that he had to sue under an interference with contract theory rather
than a breach of contract theory. Bernback’s complaint referred not only to the Stock
Purchase Agreement, but also to another contract, the “Personal Guarantee, Hold
Harmless and Assignment Agreement,” which was entered on the same day, by Greco
personally, in contemplation of further business dealings between the two men.
Greco counterclaimed, seeking return of his share certificates and attaching a copy
of the May 21, 1993 Shareholders Agreement. In June of 1998, Greco filed an amended
counterclaim, alleging not only counts in equity and fraud, but also breach of contract.
Greco alleged that Bernback breached both the Stock Purchase Agreement and the
Shareholder’s Agreement. The Court ultimately dismissed Greco’s Breach of Contract
claim based on the fact that Greco was not a party to the Stock Purchase Agreement.
Bernback thus contends that
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in the earliest stages of this litigation, all three of the primary contracts
between these two men were on the table for all to see. Couched as it may
have been in the name of a tort, the nature of this action was and always has
been one centered on the agreements that these two men made between
themselves.
Although Greco had contended that he was not a party to the Stock Purchase Agreement,
in August of 2000, he retained new counsel and for the first time argued in a summary
judgment motion that “the Stock Purchase Agreement literally incorporates the
Shareholder[] Agreement, to which Greco is a party, thereby making Greco a party to the
Stock Purchase Agreement, as well.” Bernback thus maintains that, two months before
trial, Greco completely changed his legal strategy. By arguing that he was a party to the
Stock Purchase Agreement, Greco was able to contend that, as a matter of law, he could
not have interfered with that contract. 1
In response to Greco’s shifting litigation strategy, Bernback sought to amend his
complaint, during trial, to include two additional counts: (1) breach of contract as to the
Stock Purchase Agreement; and (2) breach of contract as to the Shareholder Agreement.
The District Court permitted him to add an amendment regarding the Stock Purchase
Agreement, but refused to allow the other proposed cause of action.
Following trial, the jury returned a verdict in favor of Bernback for breach of the
1
By definition, the tort of interference with contract under Pennsylvania law requires
that a defendant interfere with contracts which exist or will exist between the plaintiff and
third parties. A party to the contract itself cannot be the tortfeasor. Daniel Adams Assoc.,
Inc. v. Rimbach Publishing, Inc., 360 Pa. Super. 72, 78-79 (1987).
5
Stock Purchase Agreement in the amount of $225,000. The District Court denied Greco’s
post trial motion for judgment as a matter of law and awarded Bernback attorney fees and
costs in the amount of $162,748.62. Greco then filed the instant appeal.
B. The Relevant Agreements
The Stock Purchase Agreement is dated May 21, 1993 and the parties are Harvey’s
Lake Amphitheater, Inc. and Michael Leslie Bernback. Thomas Greco was the sole
shareholder and owner of Harvey’s Lake Amphitheater. Pursuant to the Stock Purchase
Agreement, Bernback acquired a 50% interest in Harvey’s Lake Amphitheater, subject to
certain conditions. In essence, the Stock Purchase Agreement provided that Bernback
would become Greco’s partner in Harvey’s Lake Amphitheater, Inc., on the condition that
Bernback negotiated and paid off certain items of debt, up to $125,000. The Agreement
was signed by Thomas Greco, in his capacity as President of Harvey’s Lake.
The Personal Guarantee, Hold Harmless and Assignment Agreement was entered
into on May 21, 1993, “by and between THOM AS J. GRECO (“GRECO”) and
MICHAEL LESLIE, also known as MICHAEL LESLIE BERNBACK (“LESLIE”).”
The Guaranty states that “concurrent with the execution of this Agreement, MICHAEL
LESLIE is, in reliance upon GRECO’s execution hereof, entering into a written Stock
Purchase Agreement dated May 21, 1993 . . . with HARVEY’S LAKE
AMPHITHEATER, INC.” Further, it makes execution of the Guaranty a condition
precedent “to the closing of the transaction contemplated by the Stock Purchase
6
Agreement.” True to its name, the Personal Guarantee contains a personal guarantee by
Greco regarding all obligations, promises, and representations in the Stock Purchase
Agreement, and also states that “Greco is therefore personally subject to and liable for all
remedies available to LESLIE” under the Stock Purchase Agreement. The document also
states that
In the event of any default, failure of consideration, misrepresentation,
adverse change in circumstances relating to representations, or breach of
contract or warranty by HLAI [Harvey’s Lake Amphitheater, Inc.] in
connection with the Stock Purchase Agreement, LESLIE may pursue all of
its remedies thereunder directly against HLAI alone, or, against GRECO
and HLAI concurrently.
The Shareholder Agreement was also entered into on May 21, 1993, by Thomas
Greco, Michael Leslie [Bernback], and Harvey’s Lake Amphitheater. Like the Stock
Purchase Agreement, this agreement also contained an arbitration clause.
II. JURISDICTION
The District Court had jurisdiction under 28 U.S.C. §1332(a)(1). This Court has
jurisdiction pursuant to 28 U.S.C. §1291.
III. ANALYSIS
A. Amendment of the complaint
Greco first complains that the District Court erred in permitting Bernback to
amend his complaint during trial to add a breach of contract claim. Bernback argues that
the District Court did not commit reversible error, because: (1) Greco was on notice from
the litigation’s inception that Bernback’s action was based on contract principles; (2)
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Greco’s own legal theories and strategies created the need for the amendment; and (3)
Greco was not prejudiced by the amendment.
We review the District Court’s grant of leave to amend a complaint for abuse of
discretion. Douglas v. Owens, 50 F.3d 1226, 1235 (3d Cir. 1995). Federal Rule of Civil
Procedure 15(b) provides that parties may amend a pleading to conform to the evidence
when issues not raised by the pleadings are tried by express or implied
consent of the parties. . . . Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to raise these issues
may be made upon motion of any party at any time, even after judgment. . . .
If evidence is objected to at the trial on the ground that it is not within the
issues made by the pleadings, the court may allow the pleadings to be
amended and shall do so freely when the presentation of the merits of the
action will be subserved thereby and the objecting party fails to satisfy the
court that the admission of such evidence would prejudice the party in
maintaining the party’s action or defense upon the merits.
Fed. R. Civ. P. 15(b). Whether an issue was tried by “implied consent” of the parties
depends on “whether the parties recognized that the unpleaded issue entered the case at
trial, whether the evidence that supports the unpleaded issue was introduced at trial
without objection, and whether a finding of trial by consent prejudiced the opposing
party’s opportunity to respond.” Douglas, 50 F.3d at 1236. In the instant case, the parties
certainly recognized that the unpleaded issue entered the case at trial, because Bernback
moved to amend the complaint during his case in chief, the District Court heard
argument, and ruled on the motion before Greco presented his case.
We agree with the District Court that Greco was not prejudiced by the amendment.
8
The District Court correctly determined that the breach of contract claim had been raised,
“not only by the evidence, but it’s been fairly raised by the pleadings from both sides
throughout the course of this litigation.”
Greco was clearly on notice regarding the existence of the contracts and the
possibility of an action based on breach of contract. In his opening, Greco’s counsel
discussed both the Stock Purchase Agreement and the Shareholders Agreement, noting
that Greco’s and Bernback’s “relationship is indeed founded in contract, in agreements
that they made between themselves.” He went on to say that Bernback’s wrongful
interference with contract theory “isn’t really supposed to turn contract disputes into tort
damages actions, which is really what’s happening.” During Bernback’s case in chief,
counsel admitted into evidence copies of both the Stock Purchase Agreement and
Personal Guarantee, as well as the Shareholders Agreement.
Furthermore, Greco’s inconsistent positions as to whether he was or was not a
party to the Stock Purchase Agreement created the need for Bernback to move to amend
his complaint to assert a breach of contract claim. In state court, Greco successfully
argued that he was not a party to the contract. In federal court, Greco denied being a
party to the Stock Purchase Agreement in his Amended Answer filed May 7, 1998, but in
his June 1998 Amended Counterclaim, alleged that Bernback “breached the Stock
Purchase Agreement.” On December 10, 1998, the District Court dismissed Greco’s
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counterclaim because Greco was not a party to that agreement. 2 Then, two months
before trial, in August 2000, Greco retained new counsel and argued that he was a party
to the Stock Purchase Agreement.
Greco asserts on appeal that he was prejudiced by the amendment because it
affected his witness selection. We are not persuaded by this argument, given that the
witnesses Greco alleged he would have called in a breach of contract case were listed not
only in his initial disclosures, but also in his pre-trial witness list. Because the Court
decided the motion to amend prior to Greco’s case in chief, he was not precluded from
calling any witness he chose. In conclusion, we are satisfied that the District Court did
not abuse its discretion in permitting Bernback to amend his complaint to include a
breach of contract claim.
B. Sufficiency of the evidence
Greco filed a motion for judgment as a matter of law following the jury verdict in
Bernback’s favor. The District Court denied Greco’s motion. We exercise plenary
2
We agree with Bernback that Judge Caputo’s decision to grant leave to Bernback to
amend his action to include breach of the Stock Purchase Agreement was not inconsistent
with his December 10, 1998 dismissal of Greco’s counterclaim. Under the Personal
Guarantee, Hold Harmless and Assignment Agreement, Greco personally guaranteed
performance of all of the promises, obligations, and terms set forth in the Stock Purchase
Agreement, and pledged to be liable for all remedies available to Bernback under the
Stock Purchase Agreement. Because he undertook this personal guarantee, Greco cannot
now argue that he was not on notice of the possibility that Bernback would file a breach
of contract suit under the Personal Guarantee based on the terms of the Stock Purchase
Agreement.
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review of a district court’s grant or denial of a motion for judgment as a matter of law.
Walter v. Holiday Inns, Inc., 985 F.2d 1232, 1238 (3d Cir. 1993). Reversal of a jury
verdict is only appropriate if, “viewing all the evidence which has been tendered and
should have been admitted in the light most favorable to the party opposing the motion,
no jury could decide in that party’s favor.” Id. at 1238.
Although the parties were not helpful in pointing to the relevant parts of the
record, there is sufficient evidence for a rational juror to find that Greco breached the
Stock Purchase Agreement. With respect to Harvey’s Lake’s loss of the business
opportunity with Metropolitan Entertainment Co., Greco testified that he entered into
discussions with a company called Metropolitan regarding a possible agreement between
Harvey’s Lake and Metropolitan, whereby Harvey’s Lake Amphitheater would close,
shows scheduled to take place there would move to a venue called Montage, and Greco
and Bernback would receive 17% of the profits from those shows. However,
Metropolitan ultimately decided that it did not wish to go through with the Agreement,
based largely on actions by Greco.
Bernback’s counsel read into the record at trial the deposition of James Koplik, the
President of Metropolitan. Koplik testified that the relationship between Metropolitan
and Harvey’s lake dissolved as a result of actions by Greco, including his having gotten
into a fight with a police officer at a concert, accepting advertising money when he was
not actually putting on shows at a venue, and other problems. Koplik testified that
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Metropolitan’s decision to end its relationship with Harvey’s Lake had nothing to do with
Bernback.
Counsel for Bernback introduced correspondence between Greco and Bernback, in
which Greco admitted that he had made misrepresentations to Metropolitan during the
course of negotiations, including indicating to them that he was personally liable on a
lease when he was not. Counsel also introduced testimony by Shirley Hanson that Greco
had intentionally altered a lease agreement. Greco had also, contrary to his promises,
opened Harvey’s Lake during the summer of 1994 and told the media that he intended to
open it during the summer of 1995.
The foregoing evidence was sufficient for a rational juror to find that Greco
breached Section 6.21 of the Stock Purchase Agreement, which requires Greco to refrain
from action that would compromise Harvey’s Lake’s ability to achieve the highest level
of profitability.
C. Jury Instructions
Where, as here, the District Court has not misstated the applicable law, we review
its charge to the jury for abuse of discretion. Greenleaf v. Garlock, 174 F.3d 352, 361 (3d
Cir. 1999). Greco challenges the District Court’s instructions regarding breach of
contract. Bernback suggests that most of what Greco submitted as proposed points for
charge was included in the actual instructions. Indeed, the District Court reminded the
jury that Bernback bore the burden of proof, and also gave the jury Greco’s proposed
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instructions regarding trivial non-performance and acquiescence by Bernback.
Greco’s first attack on the jury instructions is that the District Court erred in
instructing the jury that “whether [Bernback] is or is not a shareholder should not be a
basis in whole or in part for any findings you arrive at in your deliberations in this case.”
Bernback argues that this instruction could not have come as a surprise to Greco, because
the District Court had made a pre-trial ruling on Greco’s Motion for Expedited Separate
Trial concerning Bernback’s status as a shareholder. Greco requested that the jury be told
that Bernback was not a shareholder as a matter of law, which would have been improper.
Bernback’s shareholder status was irrelevant to whether or not Greco breached the Stock
Purchase Agreement. Thus, the District Court did not abuse its discretion in denying this
requested instruction.
Greco’s second specific complaint about the jury instructions is that the District
Court prejudiced Greco by directing the jury’s attention to certain provisions of the Stock
Purchase Agreement. At the charge conference, the District Court stated to counsel that
there were two sets of circumstances that might have given rise to a breach of contract:
(1) the loss of the Montage or Metropolitan involvement, and (2) the question of the
operation of HLAI with respect to its funds, and whether funds were misapplied in terms
of being used for purposes other than those of the corporation. The District Court then
directed the jury to consider the specific sections of the contract.
We agree with Bernback that the District Court’s instructions drawing the jury’s
13
attention to particular contractual provisions were not improper, given that it was still
within the province of the jury to determine whether Greco did or did not breach those
provisions. In addition, Greco’s counsel did not object when the Court informed the
parties, prior to charging the jury, that he intended to mention particular contractual
provisions. Even if the District Court’s instructions regarding specific provisions of the
contract were erroneous, we can affirm the jury verdict in Bernback’s favor if those errors
were harmless. Pivirotto v. Innovative Systems, Inc., 191 F.3d 344, 357 (3d Cir. 1999).
Any error here would have been harmless because, “in light of the total record here, we
are satisfied that no jury would have found” for Bernback “solely on the basis of the
[erroneous] instruction.” Id. We conclude that the District Court’s jury instructions were
fully consistent with the sound exercise of judicial discretion.
D. Damages
The jury awarded Bernback $225,000 in damages for Greco’s breach of the Stock
Purchase Agreement. We are satisfied that a rational juror could have concluded that
these damages flowed from Greco’s breach of the Stock Purchase Agreement through the
Personal Guarantee.
E. Attorney Fees and Costs
As the prevailing party, Bernback asserted that he was due $287,050 in attorney’s
fees and $69,470.87 in expenses, pursuant to the Stock Purchase Agreement and the
Personal Guarantee. Bernback argues the contracts between Bernback and Greco clearly
14
contained fee shifting provisions that allowed for an award of attorneys’ fees and costs to
the prevailing party.
The District Court looked to two contract provisions that supported the award of
attorney’s fees. Section 13.13 of the Stock Purchase Agreement provides that “if any
action at law or equity is brought to enforce or interpret this Agreement, the prevailing
party therein shall be entitled to recover from the other party the actual attorney’s fees
incurred, court costs, and other litigation-related expenses. The Personal Guarantee
provided for attorney’s fees and costs in almost identical language.
Nonetheless, Bernback entered into a fee agreement with counsel providing that
Bernback’s attorney’s fees are limited to 40% of the jury verdict. Since the jury verdict
was $225,000, the Court awarded Bernback $90,000 in fees. The District Court did not
err in conforming the fee award to the fee agreement between Bernback and his counsel.
With respect to Bernback’s claimed expenses of $69,470.87, which covered fax,
photocopying, telephone, investigation, and travel expenses, we agree with the District
Court that these were reasonable.
IV. CONCLUSION
For the foregoing reasons, the judgment of the District Court will be affirmed.
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TO THE CLERK:
Please file the foregoing Opinion.
/s/ D. Brooks Smith
Circuit Judge
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