Benec, P. v. Armstrong Cement & Supply ( 2016 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
PAUL J. BENEC IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellant
v.
ARMSTRONG CEMENT & SUPPLY CORP.,
DENNIS C. SNYDER AND DAVID SNYDER
No. 139 WDA 2016
Appeal from the Order Entered January 6, 2016
in the Court of Common Pleas of Butler County
Civil Division at No(s): 2014-10943
BEFORE: BENDER, P.J.E., RANSOM, J., and MUSMANNO, J.
MEMORANDUM BY RANSOM, J.: FILED NOVEMBER 22, 2016
Appellant, Paul Benec, appeals from the order entered January 6,
2016, which granted the preliminary objections in the nature of a demurrer
filed by Armstrong Cement & Supply Corp., Dennis C. Snyder, and David
Snyder. We affirm.
The relevant facts and procedural history are as follows. Appellant is
the former executive vice president of marketing at Armstrong Cement &
Supply Corp. (“Armstrong”). Second Am. Compl. ¶¶ 16, 37. 1
In 1983, Russ Haller, then president of Armstrong, approached
Appellant with an offer of employment. Second Am. Compl. ¶¶ 14-15. The
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1
For purposes of this appeal and in light of the procedural posture of the
case, we accept as true the pleadings set forth in Appellant’s Second
Amended Complaint, 9/9/15, at 1-19.
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oral offer included a stock bonus. Second Am. Compl. ¶ 15. The
subsequent written offer of employment, however, included the term “stock
option.” Second Am. Compl. ¶ 16. The relevant provision of the contract
read:
5. Stock Options – will be offered in a non-voting class B stock
that will be warranted at each anniversary date of this contract.
The stock awarded will be equivalent to five percent of the total
outstanding shares of the present class A voting stock and will
be awarded on the basis of one-third of the five percent at the
end of the first year, one-third of the five percent at the end of
the second year, and one-third of the five percent at the end of
the third year.
Second Am. Compl. ¶ 19; Ex. 2.
Mr. Haller informed Appellant, verbally, that the terms “stock options”
and “stock bonuses” were intended synonymously. Second Am. Compl. ¶
17. Prior to signing the contract, Appellant again inquired as to the meaning
of the term “stock option,” and Mr. Haller assured him that the agreement
provided a “stock bonus” rather than a stock option. Second Am. Compl. ¶
21. Appellant signed an employment contract on January 4, 1984. Second
Am. Compl. ¶ 18, Ex. 2. Appellant avers that pursuant to the agreement, he
is thus entitled to 2,213.23 shares of stock in Armstrong. Second Am.
Compl. ¶ 23.
Appellant attached to his complaint a copy of the original offer letter,
the employment contract, and a copy of the offer letter signed in 1987 by
the then-president of Armstrong, Wayne Sell. Second Am. Compl. ¶¶ 24-25,
Ex. 1-3. The offer letter lists the total shares of Armstrong stock
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outstanding. Second Am. Compl. ¶¶ 24-25, Ex. 3. Appellant avers that,
over the thirty years of his employment, various Armstrong entities have
failed to pay him dividends or distribution of income. Second Am. Compl. ¶¶
35-38.
Appellant filed a complaint in civil action on November 3, 2014.
Appellees filed preliminary objections by demurrer to the complaint.
Appellant filed a brief in opposition, and Appellees filed a reply in support of
their objections. On April 2, 2015, by memorandum opinion, the court
sustained Appellees’ objections and dismissed the complaint without
prejudice.
On April 21, 2015, Appellant filed an amended complaint. Appellees
filed preliminary objections by demurrer, Appellant filed an answer in
opposition, and Appellees filed a reply brief in support of their objections.
On August 18, 2015, the court granted Appellees’ preliminary objections and
by memorandum opinion, dismissed the complaint without prejudice.
On September 9, 2015, Appellant filed his second amended complaint,
raising the following counts: contract reformation due to mutual mistake of
fact; reformation of contract by estoppel; minority shareholder oppression
common law cause of action; minority shareholder oppression pursuant to
18 P.S. § 1767; breach of fiduciary duty; breach of contract; detrimental
reliance; unjust enrichment; declaratory judgment pursuant to 42 Pa.C.S. §
7531; and shareholder derivative action.
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Appellees filed preliminary objections by demurrer. Appellant filed an
answer in opposition, and Appellees filed a reply brief in further support of
their objections. On January 6, 2016, the court issued a memorandum
opinion granting Appellees’ preliminary objections and dismissed Appellant’s
second amended complaint with prejudice.
Appellant timely appealed and filed a court-ordered Pa.R.A.P. 1925(b)
statement. The trial court issued a 1925(a) statement incorporating its prior
memorandum opinions.
Herein, Appellant raises the following issues for our review:
1. Did the trial court err in sustaining preliminary objections on
the contract reformation claims based upon a mutual mistake
made by the parties regarding the meaning of the term “stock
option”?
2. Did the trial court err in sustaining preliminary objections on
the contract reformation claims based upon a unilateral mistake
made by Appellant regarding the meaning of the term “stock
option”?
3. Did the trial court err in sustaining preliminary objections on
the breach of contract and declaratory judgment claims, since
the term “stock option” was latently and patently ambiguous?
4. Did the trial court err in sustaining preliminary objections on
the detrimental reliance and unjust enrichment claims, since
these claims were adequately plead?
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5. Did the trial court err in sustaining preliminary objections to
Counts I, II and III, since Appellant had standing as a
shareholder?2
Appellant’s Brief at 2 (unnecessary capitalization omitted).
Our standard of review is settled.
[We must] determine whether the trial court committed an error
of law. When considering the appropriateness of a ruling on
preliminary objections, the appellate court must apply the same
standard as the trial court.
Preliminary objections in the nature of a demurrer test the legal
sufficiency of the complaint. When considering preliminary
objections, all material facts set forth in the challenged pleadings
are admitted as true, as well as all inferences reasonably
deducible therefrom. Preliminary objections which seek the
dismissal of a cause of action should be sustained only in cases
in which it is clear and free from doubt that the pleader will be
unable to prove facts legally sufficient to establish the right to
relief. If any doubt exists as to whether a demurrer should be
sustained, it should be resolved in favor of overruling the
preliminary objections.
Majorsky v. Douglas, 58 A.3d 1250, 1268-69 (Pa. Super. 2013) (quoting
Feingold v. Hendrzak, 15 A.3d 937, 941 (Pa. Super. 2011)).
The instant appeal is essentially a contracts dispute. Contract
interpretation is a question of law and our standard of review is de novo.
Kraisinger v. Kraisinger, 928 A.2d 333, 339 (Pa. Super. 2007). When
interpreting a contract:
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2
Appellant’s original complaint raised, as its first three counts, common law
and statutory claims for minority shareholder oppression, and breach of
fiduciary duty. Compl. at ¶¶ 33-46. In Appellant’s second amended
complaint, these claims appear as Counts III, IV, and V. Second Am.
Compl. at ¶¶ 52-68.
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[t]he fundamental rule . . . is to ascertain and give effect to the
intent of the contracting parties. The intent of the parties to a
written agreement is to be regarded as being embodied in the
writing itself. The whole instrument must be taken together in
arriving at contractual intent. Courts do not assume that a
contract's language was chosen carelessly, nor do they assume
that the parties were ignorant of the meaning of the language
they employed. When a writing is clear and unequivocal, its
meaning must be determined by its contents alone.
Murphy v. Duquesne University Of The Holy Ghost, 777 A.2d 418, 429
(Pa. 2001) (internal citations and quotation marks omitted). “In
ascertaining the intent of the parties to a contract, it is their outward and
objective manifestations of assent, as opposed to their undisclosed and
subjective intentions, that matter.” Espenshade v. Espenshade, 729 A.2d
1239, 1243 (Pa. Super. 1999).
Several of Appellant’s arguments rely on the admission of parol
evidence, namely conversations between Appellant and various Armstrong
board members regarding the term “stock options.” These conversations
are intrinsic to many of Appellant’s claims. To the extent that we may
address these issues together, this Court will do so.
Parol evidence is prior or contemporaneous oral representations or
agreements concerning a subject that is specifically covered by the written
contract, which purports to cover the entire agreement of the parties. See
Bowman v. Meadow Ridge, Inc., 615 A.2d 755, 758 (Pa. Super. 1992).
In the absence of fraud, accident, or mistake, or where the contract is
ambiguous, parole evidence is inadmissible. Yocca v. Pittsburgh Steelers
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Sports, Inc., 854 A.2d 425, 436 (Pa. 2004). In the instant matter, the
contract, by its terms, is the final agreement between the parties. Second
Am. Compl. at Ex. 2. Thus, unless one of the exceptions apply, the
conversations between Appellant and Mr. Haller constitute inadmissible parol
evidence.
A patent ambiguity appears on the face of the instrument and arises
from the defective, obscure, or insensible language used. Z & L Lumber
Co. of Atlasburg v. Nordquist, 502 A.2d 697, 699 (Pa. Super. 1985)
(citation omitted). A latent ambiguity arises from extraneous or collateral
facts rendering the meaning of a written contract uncertain. Id. Such facts
must constitute objective indicia that the terms of the contract are
susceptible to different meanings. Id. at 699; see also Krizovensky v.
Krizovensky, 624 A.2d 638, 643 (Pa. Super. 1993). In either type of
ambiguity, the inquiry focuses on what the agreement manifestly expressed,
not what the parties may have silently intended. Delaware County v.
Delaware County Prison Employees Independent Union, 713 A.2d
1135, 1138 (Pa. 1998).
Appellant argues that the term “stock options” is patently ambiguous.
Appellant’s Brief, at 29-42. According to Appellant, the term “awarded”
suggests a gift and therefore renders the contract patently ambiguous. This
argument is unavailing. Both this Court and Black’s Law Dictionary have
defined the term “stock option” as “an option to buy or sell a specific
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quantity of stock at a designated price for a specified period regardless of
shifts in market value during the period.” MacKinley v. Messerschmidt,
814 A.2d 680, 682 (Pa. Super. 2002) (citing Black’s Law Dictionary 1431
(7th ed. 1999)). Moreover, Pennsylvania courts have indeed used the term
“awarded” when dealing with stock options offered by an employer. See
Fisher v. Fisher, 769 A.2d 1165, 1167 (Pa. 2001) (referring to the
“periodic award of stock options”), Marchlen v. Twp. of Mt. Lebanon, 746
A.2d 566, 567 (Pa. 2000) (referring to stock option awards). Both cases use
the language “award” to refer to the option to purchase stocks at a set price.
See Fisher, 769 A.2d at 1167 (referring to stock options awarded and
noting that husband routinely exercised the options when they vested); see
also Marchlen, 746 A,2d at 567 (referring to employees exercising options
to purchase stocks and that after the award of the option, employees must
remain with the company for one year). Thus, there was no patent
ambiguity in the wording of the contract.
Appellant’s argument that the contract is latently ambiguous is equally
unavailing. According to Appellant, the lack of an option price and term
creates an ambiguity in the terms of the contract. We disagree. The
contract states solely that stock options “will be offered,” which indicates an
offer to purchase and not a gift. As noted by the trial court, this provision
contemplates a future offer of stock options, i.e, at the end of the terms
1985, 1986, and 1987, rather than a present offer. Thus, the lack of a
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specified option price and term does not create a latent ambiguity. As
Appellant has not identified an objective indication of ambiguity, the trial
court properly excluded extrinsic parol evidence. See Krizovensky, 624
A.2d at 643.
Appellant also asserts that the conversations should be admissible
because of a mutual mistake between the parties. Appellant’s Brief at 8-20.
According to Appellant, both parties mistakenly believed that the wording of
the contract provided for the award of a stock bonus. Because this
constituted a mistake of fact, Appellant concludes that he is entitled to
reform the contract. Id. at 8-17.
“Mutual mistake of fact may serve as a defense to the formation of a
contract and occurs when the parties have an erroneous belief as to a basic
assumption of the contract at the time of formation which will have a
material effect on the agreed exchange as to either party.” Voracek v.
Crown Castle USA Inc., 907 A.2d 1105, 1107–08 (Pa. Super. 2006).3 A
mutual mistake occurs when the instrument fails to set forth the true
agreement of the parties. Id. The language of the contract should be
interpreted in the light of the subject matter, apparent purpose of the
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3
In Voracek, for example, the “mistake of fact” was a hiring manager
mistakenly sending the wrong employment agreement to be signed by the
new hire. See Voracek, 907 A.2d at 1108.
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parties, and conditions existing when executed. Voracek, 907 A.2d at
1108.
While a mutual mistake of fact may serve as a defense to the
formation of a contract, a mistake of law does not. See Betta v. Smith, 81
A.2d 538, 539 (Pa. 1951); see also Voracek, 907 A.2d at 1107. A mistake
of law is “a mistake as to the legal consequences of an assumed state of
facts.” Acme Markets, Inc. v. Valley View Shopping Center, Inc., 493
A.2d 736, 737 (Pa. Super. 1985). A mistake of law does not allow for
recovery. Id. at 737. Incorrect interpretations of legal documents are
considered mistakes of law. Id.
In the instant case, Appellant’s attempt to establish a mutual mistake
of fact is without merit. Even accepting as true Appellant’s allegation that
Mr. Haller intended the phrase “stock options” to mean “stock bonuses,” the
issue remains the legal effect of the phrase rather than any concrete, mutual
mistake of fact. Appellant did not plead, as in Voracek, that he reviewed
and accepted a different form of the contract than the contract he eventually
signed. He pleaded only that the parties intended the contract to have a
different effect than it did.
Consequently, Appellant has not established the existence of any
exception that would require the admission of parol evidence, and, thus, the
conversations regarding the parties’ intent will not be considered when
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determining Appellant’s contract claims. With this background in mind, we
now turn to Appellant’s assertions of trial court error.
First, Appellant claims that the trial court erred in sustaining
preliminary objections to his contract reformation claim based upon a mutual
mistake by the parties regarding the meaning of the term “stock options.”
Appellant argues that, because both parties intended to confer a stock bonus
rather than a stock option, this constituted a mistake of fact that should
allow for the reformation of a contract. Appellant’s Brief at 8-20.
However, as discussed above, Appellant has not established a mutual
mistake of fact but, at best, a mutual mistake of law that does not constitute
a defense to the formation of a contract. See Acme Markets, Inc., 493
A.2d at 737. Additionally, Appellant’s cause of action cannot be cured by
further amendment, as his acceptance of employment was based upon his
erroneous interpretation of the contract. Id. at 738. Thus, we find no error
in the trial court’s dismissal of this cause of action. See Majorsky, 58 A.3d
at 1269.
Second, Appellant claims that the trial court erred in sustaining
preliminary objections to his contract reformation claim based upon a
unilateral mistake. Appellant’s Brief at 20-25. However, Appellant did not
raise this issue in his Pa.R.A.P. 1925(b) statement and, consequently, has
waived it for purposes of appeal. See Commonwealth v. Castillo, 888
A.2d 775, 780 (Pa. 2005) (quoting Commonwealth v. Lord, 719 A.2d 306,
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309 (Pa. 1998) (“[a]ny issues not raised in a [Rule] 1925(b) statement will
be deemed waived.”)
Third, Appellant claims that the trial court erred in sustaining
preliminary objections to his breach of contract and declaratory judgment
claims, since the term “stock option” was both latently and patently
ambiguous and parol evidence should have been admitted to determine the
parties’ intent. Appellant’s Brief at 29-42.
The three elements needed to establish a breach of contract action are
the existence of a contract, a breach of duty imposed by the contract, and
damages. Sullivan v. Chartwell Inv. Partners, LP, 873 A.2d 710, 716
(Pa. Super. 2005) (quoting J. F. Walker Co., Inc. v. Excalibur Oil Group,
Inc., 792 A.2d 1269 (Pa. Super. 2002)). As we have noted above,
Appellant has not established a latent or patent ambiguity requiring the
admission of parol evidence to determine the parties’ intent. Thus, we may
look only to the terms of the employment contract itself, which provides that
stock options will be offered at certain intervals during his employment. See
Second Am. Compl. ¶ 19; Ex. 2.
Appellant pleaded the existence of a valid contract of employment
providing for stock options. However, Appellant failed to plead that he was
not offered stock options at the appropriate intervals pursuant to the
employment contract, nor did he plead that he attempted or sought to
exercise said options. Thus, Appellant is unable to establish a breach of
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contract action. See Sullivan, 873 A.2d at 716; see Majorsky, 58 A.3d at
1269.
Similarly, Appellant’s arguments regarding the trial court’s dismissal of
his declaratory judgment count fail. The Declaratory Judgments Act provides
that:
any person interested under a . . . contract, or other writings
constituting a contract . . . may have determined any question of
construction or validity arising under the instrument . . . and
obtain a declaration of rights, status, or other legal relations
thereunder.
42 Pa.C.S. § 7533. In order to establish a right to relief through a
declaratory judgment, a plaintiff must establish a direct, substantial and
present interest. Bromwell v. Michigan Mut. Ins. Co., 716 A.2d 667, 670
(Pa. Super. 1998). Further, a plaintiff must demonstrate that an actual
controversy exists. Id. In the instant case, Appellant has established
standing, in that he has pleaded a valid contract of employment. Appellant
has established an actual controversy, namely, the interpretation of the term
“stock options.” However, based upon our previous discussion, Appellant is
not entitled to relief. Thus, we discern no legal error in the trial court’s
dismissal of the claim. See Majorsky, 58 A.3d at 1269.
Fourth, Appellant argues that the trial court erred in sustaining
preliminary objections to his claims of detrimental reliance and unjust
enrichment, as the claims were adequately pleaded. Appellant’s Brief at 42-
49.
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“A cause of action under detrimental reliance or promissory estoppel
arises when a party relies to his detriment on the intentional or negligent
representations of another party, so that in order to prevent the relying
party from being harmed, the inducing party is estopped from showing that
the facts are not as the relying party understood them to be.” Rinehimer
v. Luzerne Cty. Cmty. Coll., 539 A.2d 1298, 1306 (Pa. Super. 1988).
To establish a claim for promissory estoppel, a claimant must prove 1)
a promise, 2) which the promisor should reasonably expect to induce action
or forebearance of a definite and substantial character on the part of the
promisee, 3) which does induce such action or forbearance is binding, and 4)
injustice can be avoided only by the enforcement of the promise. See
Weavertown Transport Leasing, Inc. v. Moran, 834 A.2d 119, 1174 (Pa.
Super. 2003). The doctrine of promissory estoppel permits a claimant to
enforce a promise in the absence of consideration. Sullivan, 873 A.2d at
717. However, the doctrine cannot be loosely applied, or any promise,
regardless of the complete absence of consideration, would be enforceable.
Id. Thus, where there is a valid contract, the question of a defendant’s
liability may be decided properly and finally on contractual principals of offer
and acceptance, and promissory estoppel does not apply. See, e.g., Lobar
v. Lycoming Masonry, Inc., 876 A.2d 997, 1000-01 (Pa. Super. 2005).
In the instant case, there is a valid contract. It is supported by
consideration. See Greene v. Oliver Realty, Inc., 526 A.2d 1192, 1195
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(Pa. 1987) (noting that in an employment contract consideration may be any
bargained for exchange). Appellee agreed to provide Appellant with a
number of benefits, specifically, a salary, company car, life insurance, bonus
plan, stock options, an expense account, country club membership, and
hospitalization and medical insurance. In return, Appellant agreed to
provide Appellee services as an executive vice-president of marketing, which
he did for thirty years. Thus, although Appellant disagrees with the
interpretation of the terms of the contract, he cannot recover based on a
claim for promissory estoppel. See Sullivan, 873 A.2d at 717.4
Similarly, his claim for unjust enrichment must fail. This Court has
held that where a written or express contract exists, as it does in the instant
matter, we may not make a finding of unjust enrichment. See Mitchell v.
Moore, 729 A.2d 1200, 1203 (Pa. Super. 1999).
Finally, Appellant claims that the trial court erred in concluding that
Appellant lacked standing to pursue claims of minority shareholder
oppression and breach of fiduciary duty. Appellant argues that he is not
required to attach a physical stock certificate to his complaint and that,
because he pleaded he is the owner of Armstrong stock, he has established
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4
Although the trial court used a different analysis, we may affirm if it is
correct on any legal ground or theory, regardless of the reason adopted by
the trial court. Al Hamilton Contracting Co. v. Cowder, 644 A.2d 188,
190 (Pa. Super. 1994).
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a prima facie case of shareholder oppression and fiduciary duty. Appellant’s
Brief at 49.
A trial court’s ruling regarding standing is subject to a de novo
standard of review and our plenary scope of review entitles us to examine
the entire contents of the record. See Rock v. Rangos, 61 A.3d 239, 250
(Pa. Super. 2013). A party seeking judicial resolution of a controversy
“must establish as a threshold matter that he has standing to maintain the
action.” Johnson v. American Standard, 8 A.3d 318, 329 (Pa. 2010). A
party who is not adversely affected in any way by the matter he seeks to
challenge is not aggrieved by the matter and therefore has no standing to
obtain judicial resolution of his challenge. Id. To establish standing,
[a]n individual can demonstrate that he has been aggrieved if he
can establish that he has a substantial, direct and immediate
interest in the outcome of the litigation. A party has a substantial
interest in the outcome of litigation if his interest surpasses that
of all citizens in procuring obedience to the law. The interest is
direct if there is a causal connection between the asserted
violation and the harm complained of; it is immediate if that
causal connection is not remote or speculative.
Fumo v. City of Philadelphia, 972 A.2d 487, 496 (Pa. 2009).
Appellant seeks to establish a cause of action for breach of fiduciary
duty and minority shareholder oppression. Pennsylvania courts have long
held that majority shareholders have a fiduciary duty to protect the interests
of the minority. Hill v. Ofalt, 85 A.3d 540, 550 (Pa. Super. 2014). Where
a majority shareholder acts oppressively towards a minority shareholder, the
majority shareholder breaches that fiduciary duty. Id.; see also Ford v.
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Ford, 875 A.2d 894, 906 (Pa. Super. 2005). The oppressed shareholder
thus has standing to assert a direct breach of fiduciary duty claim or may
pursue other remedies available under the Business Corporation Law. See
Ford, 878 A.2d at 904; see also 15 Pa.C.S. § 1767(a)(2).
Appellant asserts, throughout his complaint, that he is entitled to
stocks. This assertion is premised upon his interpretation of the contract.
However, entitlement is not the same as ownership. Appellant’s contract did
not confer automatic ownership of the stock but, instead, the option to
purchase stock. Appellant has not pleaded, and indeed cannot plead, that
he owns any stocks. Thus, the trial court properly dismissed this count.
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/22/2016
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