Hennessey, C. v. Rom, W. v. Outercurve ( 2015 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
CHRISTOPHER P. HENNESSEY, DINO R. IN THE SUPERIOR COURT OF
RIZZA AND BRIAN L. SULLIVAN, PENNSYLVANIA
Appellees
v.
WILLIAM B. ROM,
Appellant
v.
OUTERCURVE TECHNOLOGIES, INC.,
OUTERCURVE INTERNATIONAL FZ, LLC
AND DEREK G. ROGA,
Appellees No. 389 WDA 2014
Appeal from the Judgment Entered February 10, 2014
In the Court of Common Pleas of Allegheny County
Civil Division at No(s): GD 10-013259
BEFORE: BENDER, P.J.E., BOWES, and ALLEN, JJ.
MEMORANDUM BY BOWES, J.: FILED MARCH 20, 2015
William Rom appeals from the February 10, 2014 judgment entered on
a verdict after the trial court’s February 5, 2014 denial of Rom’s post-trial
motion. The jury entered a verdict in favor of Plaintiffs/Appellees,
Christopher P. Hennessey, Dino R. Rizza and Brian L. Sullivan, who were
members of an investment group that we will refer to as Hennessey Group,
in the amount of $2,000,000. We affirm.
The evidence viewed in light most favorable to the verdict winner
follows. Hennessey Group, Rom, and Rom’s business associate, Derek Roga,
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participated in business transactions whereby members of Hennessey Group
loaned $240,000 to two affiliated companies, Outercurve Technologies, Inc.
and Outercurve International FA, LLC (“Outercurve”). Outercurve was to
conduct computer hardware and software business in the Middle East. The
funds were advanced by Hennessey Group by means of convertible
promissory notes. In 2004, Outercurve received a loan from Hennessey
Group of $200,000. Outercurve borrowed an additional $40,000 from
Hennessey Group in 2006. Rom was an employee or consultant,
shareholder, and officer of Outercurve and personally benefitted from the
loans.
During 2006, the members of Hennessey Group were unwilling to
provide the additional $40,000 in funding requested by Rom and Roga
unless Rom and Roga personally guaranteed both the 2004 loan, which was
in default, and the 2006 loan made to Outercurve. During the negotiations
for the additional funding in 2006, Rom and Roga therefore agreed to
personally guarantee the $240,000 funds advanced by Hennessey Group to
Outercurve. Under the guarantees, in the event of default by Outercurve,
Rom and Roga pledged four percent of their personal equity in Outercurve or
any company formed to conduct the proposed business of Outercurve.
Members of Hennessey Group testified at trial that the 2006 personal
guarantees were integral to the second loan transaction and that Hennessey
Group would not have made the 2006 loan absent them. The assent of Rom
and Roga to personally guarantee both loans was memorialized in an email
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that pre-dated the funding of the 2006 loan by Hennessey Group, but the
guarantees were not actually executed until after disbursement of the loan
funds.
Shortly after the funding of the 2006 loan, Rom and Roga abandoned
their operation of Outercurve and conducted the business that Outercurve
was designed to perform under another company, Emitac Mobile Solutions
(“EMS”). Rom and Mr. Roga were both employees or consultants of EMS,
and each man owned eleven percent of EMS. Hennessey Group presented
proof demonstrating that EMS was formed to conduct the proposed business
of Rom and Roga in the Middle East that Outercurve was supposed to
perform.
In 2007, Outercurve/EMS defaulted on the loans, and the personal
guarantees were activated under the loan default provisions. At that point,
Hennessey Group thus became entitled to receive the value of four percent
of Rom and Roga’s equity interest in EMS. After Hennessey Group
demanded performance under the loan guarantees, Rom sold his eleven
percent interest in EMS for $302,500.
Hennessey Group then instituted this action against Rom, Roga and
Outercurve seeking to recover, in accordance with the personal guarantees,
an amount equal to the 2007 value of four percent of EMS. Hennessey
Group presented proof that four percent of EMS was worth between
$532,000 and $2,532,000 in 2007. This proof was in the form of expert
testimony as well as an exhibit, which was introduced without objection,
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outlining that EMS was worth fifty million dollars in 2007. The jury awarded
Hennessey Group $2,000,000. Rom appealed and raises these contentions
for our disposition:
A. Whether the testimony of Appellee's expert appraisal witness
should have been excluded pursuant to Rule 702 or the
Pennsylvania Rules of Evidence and the Frye standard.
B. Whether Appellant was entitled to judgment notwithstanding
the verdict because the "letters" upon which the Appellees claims
were based lacked consideration.
C. Whether the lower Court erred by failing to instruct the jury
on the principle of "gratuitous promises."
D. Whether the lower Court erred by failing to instruct the jury
on the principle of "successor entity."
E. Whether the lower Court erred by failing to mold or remit the
verdict to conform to the evidence.
Appellant’s brief at 6.
Appellant first suggests that Hennessey Group’s expert witness, Mark
Gleason, was improperly permitted to testify about the value of EMS stock.
Our standard of review is settled in this area:
Admissibility of expert testimony is left to the sound
discretion of the trial court, and as such, this Court will not
reverse the trial court's decision absent an abuse of discretion.
An abuse of discretion may not be found merely because an
appellate court might have reached a different conclusion, but
requires a result of manifest unreasonableness, or partiality,
prejudice, bias, or ill-will, or such lack of support so as to be
clearly erroneous.
Snizavich v. Rohm and Haas Company,. 83 A.3d 191, 194 (Pa.Super.
2013) (citations and quotation marks omitted). Additionally, “To constitute
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reversible error, an evidentiary ruling must not only be erroneous, but also
harmful or prejudicial to the complaining party.” McEwing v. Lititz Mut.
Ins. Co., 77 A.3d 639, 651 (Pa.Super. 2013).
Rom maintains that that there is a Frye issue involved herein. See Frye
v. United States, 293 F. 1013 (D.C.Cir. 1923).
As we held in Trach v. Fellin, 817 A.2d 1102 (Pa.Super.
2003) (en banc), appeal denied, 577 Pa. 725, 847 A.2d 1288
(2004), the Frye test sets forth an exclusionary rule of evidence
that applies only when a party wishes to introduce novel
scientific evidence obtained from the conclusions of an expert
scientific witness. Trach, 817 A.2d at 1108–1109. Under Frye, a
party wishing to introduce such evidence must demonstrate to
the trial court that the relevant scientific community has reached
general acceptance of the principles and methodology employed
by the expert witness before the trial court will allow the expert
witness to testify regarding his conclusions. Id., 817 A.2d at
1108–1109, 1112.
Commonwealth v. Harrell, 65 A.3d 420, 430 (Pa.Super. 2013); see also
Pa.R.E. 702 (adopting the Frye standard in subsection (c) and stating “A
witness who is qualified as an expert by knowledge, skill, experience,
training, or education may testify in the form of an opinion or otherwise if ...
the expert's methodology is generally accepted in the relevant field.”).
Mr. Gleason, a certified public accountant with more than forty years
of experience, was hired to place a 2007 value on EMS. He had testified
over 100 times as an expert witness performing forensic accounting, which
places a value on economic damages. Mr. Gleason testified that, when he
was first approached by Hennessey Group, he was unable to perform an
evaluation of EMS due to a lack of financial data. N.T. Trial, 11/4-8/13 Vol.
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II, at 347. After discovery was conducted herein, he performed another
analysis and arrived at a valuation based upon pleadings, documents
produced in discovery, and independent research from websites and other
professional sources.
Mr. Gleason proffered his opinion on EMS’s value based upon a
number of factors. The first one was the amount gained by Rom from the
sale of his stock in 2007. Secondly, Mr. Gleason relied upon offers made by
“Mr. Roga on behalf of Mr. Roga and Mr. Rom to buy 60 percent of EMS that
was owned by” Emitac Technology Company (“Emitac”), which was the
majority shareholder in EMS. Id. at 350. In documents produced during
discovery, it was established that two offers were made in the fall of 2006 by
Mr. Roga to purchase Emitac’s sixty percent interest in EMS.
Mr. Roga was EMS’s chief operating officer and thus was acquainted
with its financial status. The first offer was “for $8 million for the 60 percent
interest that Emitac owned” and that offer “was rejected.” Id. “Then there
was an offer of $38 million for the 60 percent interest in Emitac, which was
also rejected.” Id. at 350-51. The initial offer indicated that the overall
value of the company was approximately thirteen million dollars with four
percent being worth $520,00, while the second offer valued EMS at sixty-
three million with four percent having a value of $2,520,00.
In addition to considering these offers, Mr. Gleason reviewed a
business plan that EMS management developed in 2006. Mr. Gleason
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reported that it was a “fairly extensive business plan where they indicated
what their business was, who they dealt with, and included in that they had
projections for the future.” Id. at 351. The plan anticipated revenue for
EMS for years 2006 through 2008. Id. Finally, Mr. Gleason read news
articles about EMS wherein it reported contracts that it obtained in the
Middle East.
Rom’s specific argument is that Mr. Gleason’s testimony was
speculative since that witness admitted that he did not have some financial
information about EMS needed to value EMS in accordance with normal
business practices. As the trial court observed, while Mr. Gleason may have
been unable to obtain certain financial data about EMS, he had a solid
foundation for his valuation of its stock. The most important data consisted
of the two offers that Mr. Roga made to purchase Emitac’s interest in EMS
not long prior to the occurrence of default herein. 1 Mr. Gleason’s testimony
herein was amply supported and cannot be considered to contain a valuation
methodology that was novel. We therefore reject Rom’s first contention on
appeal.
____________________________________________
1
The Hennessey Group also introduced Exhibit 44, which showed that EMS
had a fifty million dollar value in 2007 so that four percent of that company
was worth two million dollars, which was the amount of the verdict. That
exhibit was submitted into evidence without objection. While Hennessey
Group thus suggests that the introduction of Mr. Gleason’s testimony was
harmless error, it is impossible to ascertain with certainty the basis for the
jury’s decision, which may have been influenced by Mr. Gleason’s opinion.
Hence, we decline to employ a harmless error analysis.
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Rom next maintains that judgment notwithstanding the verdict should
be entered in his favor in that the personal guarantee that he executed
lacked consideration. He asserts that he did not receive anything of value in
exchange for his guarantee. Appellant’s brief at 25.
A JNOV can be entered upon two bases: (1) where the
movant is entitled to judgment as a matter of law; and/or, (2)
the evidence was such that no two reasonable minds could
disagree that the verdict should have been rendered for the
movant. Davis v. Berwind Corp., 547 Pa. 260, 690 A.2d 186
(1997) (citing Moure v. Raeuchle, 529 Pa. 394, 604 A.2d
1003 (1992)). When reviewing a trial court's denial of a motion
for JNOV, we must consider all of the evidence admitted to
decide if there was sufficient competent evidence to sustain the
verdict. Korn v. Epstein, 727 A.2d 1130 (Pa.Super. 1999),
appeal denied, 743 A.2d 921 (Pa. 1999). In so doing, we must
also view this evidence in the light most favorable to the verdict
winner, giving the victorious party the benefit of every
reasonable inference arising from the evidence and rejecting all
unfavorable testimony and inference. Id. Concerning any
questions of law, our scope of review is plenary. Davis, supra;
Boutte v. Seitchik, 719 A.2d 319 (Pa.Super. 1998).
Concerning questions of credibility and weight accorded the
evidence at trial, we will not substitute our judgment for that of
the finder of fact. Sewak v. Lockhart, 699 A.2d 755
(Pa.Super. 1997). If any basis exists upon which the jury could
have properly made its award, then we must affirm the trial
court's denial of the motion for JNOV. Id. A JNOV should be
entered only in a clear case. Nogowski v. Alemo-Hammad,
456 Pa.Super. 750, 691 A.2d 950 (1997) (en banc), appeal
denied, 550 Pa. 684, 704 A.2d 638 (1997) (citing Moure,
supra).
Buckley v. Exodus Transit & Storage Corp., 744 A.2d 298, 304-05
(Pa.Super. 1999).
Rom’s position ignores the proof submitted by the prevailing party
herein. Hennessey Group established that, even though executed after the
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loan distributions, the guarantees were integral to and negotiated in
connection with the 2006 loan and that Outercurve needed the 2006 loan.
The personal guarantees were supported by consideration flowing to Rom
since he was a consultant or employee and shareholder of Outercurve and
was financially benefited when it received funds to satisfy an urgently
outstanding debt.
Brian Sullivan testified as follows about the circumstances leading to
the execution of the personal guarantees. He, Christopher Hennessey, and
Dino Rizza loaned $200,000 to Outercurve in 2004. In 2006, Rom and Roga
told him that they needed more money. The 2004 loan to the company
“was past due at the time of the second loan[.]” N.T.Trial, 11/4-8/13 Vol I.,
at 86. Mr. Sullivan continued, “[O]bviously we said, if we’re going to loan
[Rom, Roga and Outcurve] more money, we’re going to want, you know
different terms. We want, you know, . . . some sort of collateral on that
loan.” Id. The collateral demanded when Hennessey Group was “structuring
this second loan in 2006, in March of 2006,” was that Hennessey Group
wanted a personal guarantee that Rom and Roga would give Hennessey
Group “stock in this company or any successor entity in the region.” Id. at
87. Mr. Sullivan testified that Rom and Roga agreed to the personal
guarantee. Rom’s guarantee was executed after the loan was distributed
but backdated to reflect that it was part of the March 2006 loan transaction.
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Christopher Hennessey, Mr. Sullivan’s business colleague, testified
consistently. Mr. Hennessey, Mr. Sullivan, and Mr. Rizza agreed to loan
$200,000 to Outercurve in June 2004, and the full amount of the loan was
due one year later. That amount was not repaid, when, in March 2006, Rom
and Roga approached him for another $40,000 loan to Outercurve.
Outercurve needed the funds to satisfy a debt that it owed to Tech Edge,
which had been instrumental in introducing Outercurve to a solid client base
in Saudi Arabia. Mr. Hennessey explained, “There was a lot of urgency to
get [Tech Edge] paid.” Id. at 235.
When Rom and Roga approached Mr. Hennessey for the $40,000 to
pay Tech Edge, he was unwilling to make the loan since Hennessey Group
had not “been paid on the first loan yet.” Id. at 236. Mr. Hennessey
explained, “So we’re not about to make a second loan without some sort of
backing to it, without some sort of guarantee to it, so that if we didn’t get
repaid, we would have some equity ownership in – to cover both loans that
have been made, both the first loan and the second loan.” Id.
Mr. Hennessey communicated to Rom and Roga that his group would
not loan them the $40,000 absent personal guarantees from them. Rom
and Roga agreed to execute the personal guarantees before the loan was
paid. Specifically, Mr. Hennessey delineated that, after Rom and Roga asked
for the $40,000 from Hennessey Group,
we came back to them and said, yes, but first of all, we need to
connect the two notes, the first note, and if we're going to make
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a second loan, the second note, and secondly we need a
guarantee. We need a guarantee that if this doesn't happen, we
don't get repaid on either note, then some conversion -- we're
going to get shares of stock, not a conversion, but we're going to
get your shares of stock as a failsafe guarantee so that we have
some value out of both loan transactions.
All right. And did you mention that to Mr. Rom and Mr.
Roga?
A. We did.
Q. And what was their reaction?
A. They were agreeable to that.
Q. Agreeing to include the --
A. Including -- include language in the guarantee and the
note that would cover successor entities.
Q. Okay. And as far as the timing of when these
discussions that you just mentioned and Mr. Rom and Mr. Roga
agreeing to those terms, can you tell me what the time frame
was --
A. Sure.
Q. -- when that was happening?
A. This would have all been -- these discussions would
have occurred in March of 2006, leading up [to the loan], and it
was probably the last couple weeks of March, leading up,
because remember there was a sense of urgency here, leading
up to the actual note and the guarantee at the end of March of
2006.
Q. Now, who was creating this sense of urgency? Was it
the Plaintiffs or was it somebody else?
A. No. The sense of urgency was created by Mr. Rom and
Mr. Roga. We need this money because we have to pay off this
agent, Tech Edge.
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Q. All right. And you communicated that to Mr. Rom and
Mr. Roga?
A. We did.
Q. And what was their reaction?
A. Well, their reaction was, yes, we can go ahead with
that. We'll do a guarantee, and we'll get a second note, second
promissory note, which will connect the first note to the second
note, and the second note also would be broader, would not only
be a loan that we're making to Outercurve International, but also
to entities or successor companies, so that we could go after
successor companies or entities.
Q. And why was that important to you? Why did you feel
that that was important?
A. Well, all this period of time that had evolved, the
companies were evolving. I mean, we had started in the United
States with Outercurve Technologies, then it was Outercurve
Delaware, and now there was Outercurve International, and then
there was these other companies such as Emitac and Tech Edge.
So we were concerned that at some point Outercurve
International might evolve into another company, so we wanted
to make sure if that happened we had protection.
N.T. Trial, 11/4-8/13 Vol. II, at 249-250. The $40,000 was loaned to
Outercurve before the personal guarantees were executed in writing, but the
agreement concerning the guarantees was memorialized in emails.
Based upon the above adduced proof from Hennessey Group, which
we are required to accept for purposes of deciding whether Rom is entitled
to judgment as a matter of law, it is abundantly clear that the personal
guarantees were supported by consideration in the form of a second loan
that was urgently needed. Rom assented to the personal guarantee during
negotiations and in order to secure the funds for his company, and he
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benefited from the loan. The fact that the personal guarantee was executed
after the loan disbursement is a red herring and Rom’s position on appeal is
lacking in merit. Hence, we decline to vacate the judgment entered in favor
of the Hennessey Group.
Rom next suggests that the trial court should have instructed the jury
on the concept of a gratuitous promise. Our standard of review of this
contention follows:
Under Pennsylvania law, our standard of review when
considering the adequacy of jury instructions in a civil case is to
determine whether the trial court committed a clear abuse of
discretion or error of law controlling the outcome of the case. It
is only when the charge as a whole is inadequate or not clear or
has a tendency to mislead or confuse rather than clarify a
material issue that error in a charge will be found to be a
sufficient basis for the award of a new trial.
Drew v. Work, 95 A.3d 324, 329 (Pa.Super. 2014) (citation omitted).
Moreover: “As a general rule, refusal to give a requested jury instruction
containing a correct statement of the law relating to the issues raised by the
evidence is grounds for a new trial unless the substance of that point has
been covered in the court's charge as a whole.” McManamon v. Washko,
906 A.2d 1259, 1270 (Pa.Super. 2006) (citation omitted; emphasis added).
Rom maintains that the trial court erred in declining to give Rom’s
proposed point for charge as to the concept of gratuitous promise since the
law relating to gratuitous promise was crucial for the jury’s understanding of
whether the personal guarantee was supported by consideration.
Appellant’s brief at 32. We conclude that the concepts of consideration and
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gratuitous promise were clearly and adequately conveyed by the instructions
disseminated by the trial court, which included the following:
There must be consideration given by each party to a valid
contract. That is, each party must have bargained to exchange
their promise for another. The exchanged promises are either
promises to perform or promises not to perform some act. The
value or adequacy of the consideration given will not usually be
examined, but the circumstances that surround -- that show that
both parties were capable of bargaining will be examined. In that
sense, competent people are free to contract, and even if one
makes a bad deal, they are bound by the agreement.
Now, one's promise to make a gift to another is not
an enforceable promise since no consideration was given
for that promise and thus no contract was created. There is,
however, consideration where one promises to use his or her
best efforts. Yet no consideration will be found upon which
to base a contract if one party has promised to do
something that they are already obligated to do, such as
repay a preexisting debt.
N.T. Trial, 11/4-8/13 Vol. IV, at 760-61 (emphases added). Since the
concept of gratuitous promise was adequately covered by the instructions,
Rom is not entitled to a new trial based upon the trial court’s refusal to give
Rom the precise instruction that he requested.
Rom also maintains that the court improperly failed to charge the jury
on the definition of successor entity. Rom references the legal definition of
successor entity under case law examining whether corporate successor
liability attaches to a corporation that has merged with or purchased the
assets of another corporation. See Fizzano Bros. Concrete Products,
Inc. v. XLN, Inc., 42 A.3d 951 (Pa. 2012). Rom maintains that the jury
had to find that EMS was a successor entity to Outercurve, as defined by the
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case law on corporate successor liability, in order to find that the personal
guarantee applied to Rom’s stock in EMS.
Rom’s position is untenable. The parties hereto executed a document.
The issue was whether the personal guarantee covered Rom’s equity interest
in EMS under the terms of that writing and not whether EMS was liable for
Outercurve’s debts under the doctrine of corporate successor liability.
Specifically, Rom executed a personal guarantee under which Hennessey
Group was entitled to four percent of Rom’s equity in Outercurve if there
was default under the loan. The guarantee additionally provided, “Pursuant
to your Promissory Note with Outercurve International, FZ-LLC dated March
27, 2006, . . . .we, Derek G. Roga and William B. Rom personally guarantee
you equity participation within Outercurve International, FZ-LLC or any
such entity formed to conduct the proposed business.” Defendant’s
Exhibit 5A (emphasis added). The document also recited, “This guarantee of
equity is provided you in the event the existing promissory note with
Outercurve Technologies, Inc. dated on or about June 16, 2004 is defaulted
on, and we, under no obligation or responsibility for such note, agree to
make this equity allocation to you from our personal equity holdings in
Outercurve International, FZ-LLC or any successor entity.” Id. (emphasis
added).
It is established that, “In the cases of a written contract, the intent of
the parties is the writing itself. If left undefined, the words of a contract are
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to be given their ordinary meaning.” Lenau v. Co-eXprise, Inc., 102 A.3d
423, 429 (Pa.Super. 2014). The document in question was a contract.
Thus, the meaning of “successor entity” as well as “any entity formed to
conduct the proposed business” was to be given their ordinary meaning as
envisioned by the parties. The legal elements that define successor entity
for purposes of corporate successor liability had no application herein.
Hence, the trial court did not err in failing to instruct the jury on that
concept. Drew, supra at 329 (citation omitted) (“The trial court may
charge only on the law applicable to the factual parameters of a particular
case and it may not instruct the jury on inapplicable legal issues.”).
Finally, Rom seeks, based upon the fact that he sold his interest in
EMS for $302,400, to reduce the damages award. “[T]he decision on a
requested remittitur is addressed to the discretion of the trial court.”
Zauflik v. Pennsbury School Dist., 104 A.3d 1096, (Pa. 2014). “A
remittitur or judicial reduction of a jury award is appropriate only when the
award is plainly excessive and exorbitant. The question is whether the
award of damages falls within the uncertain limits of fair and reasonable
compensation or whether the verdict so shocks the sense of justice as to
suggest that the jury was influenced by partiality, prejudice, mistake, or
corruption.” Id. (citation and quotation marks omitted). “The matter is
peculiarly within the discretion of the trial court and will not be reversed
unless an abuse of discretion or an error of law has been committed.” Id.
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(citation and quotation marks omitted). The damages award in this case
was supported by the testimony of an expert witness and Exhibit 44 and
hardly fails to shock this Court’s sense of justice. Hence, we perceive of no
abuse of discretion.
Judgment affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 3/20/2015
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