231 A.3d 20
Pa. Super. Ct.2020Background
- Crusader Servicing Corporation (CSC) was formed with a shareholders’ agreement requiring CSC to buy back a shareholder’s shares at fair market value upon the shareholder’s total and permanent disability, using a valuation procedure in Paragraph 8(c) (appraisal by an appraiser experienced in valuing financial service entities and delinquent tax certificates).
- Gary Snyder became a 20% shareholder and director; he was declared totally disabled effective December 1, 2006, but did not notify CSC or offer to sell his shares under the agreement and continued to plead that he remained a shareholder.
- After 2006 CSC’s board (dominated by Royal Bank) moved to liquidate operations and formed RTLS; CSC later pled guilty to bid‑rigging for conduct through 2006 and paid a fine.
- Snyder sued in 2007 asserting claims including freeze‑out, employment breach, fiduciary breach, and derivative claims; defendants counterclaimed, including seeking specific performance of the shareholders’ valuation procedure.
- At a 2018 bench trial the court found CSC breached the shareholders’ agreement by failing to repurchase Snyder’s shares and, rejecting defendants’ valuation expert, awarded Snyder $2.19 million plus prejudgment interest based on Snyder’s expert valuation and denied specific performance of Paragraph 8(c).
- On appeal CSC and Royal Bank argued the trial court should have enforced the agreement’s mandatory valuation procedure; the Superior Court vacated the damages award and remanded to enforce Paragraph 8(c), but affirmed the trial court’s rejection of defendants’ breach‑of‑fiduciary counterclaims.
Issues
| Issue | Snyder's Argument | CSC/Royal Bank's Argument | Held |
|---|---|---|---|
| 1) Whether the trial court should have enforced the shareholders’ agreement valuation procedure (Paragraph 8(c)) instead of awarding damages directly | Snyder sought damages based on his expert appraisal and argued the court could set value because CSC breached by not buying shares | CSC argued the buy‑back and appraisal procedure is mandatory and must be enforced (specific performance) | Court: Reversed trial court; Paragraph 8(c) is mandatory and must be followed. Damage award vacated; remand to comply with appraisal procedure. |
| 2) Whether the $2.19 million valuation was correct | Snyder relied on his valuation expert (adopted by trial court) | CSC argued trial court erred in valuing shares and its expert showed no value | Court: Did not decide valuation on appeal; remanded for appraisal under Paragraph 8(c), so $2.19M vacated. |
| 3) Whether Snyder is barred from recovery by his misconduct (in pari delicto) | Snyder contended his wrongful conduct did not relate to his buy‑back remedy | CSC argued Snyder’s misconduct (SMI transaction, alleged bid‑rigging involvement) should bar recovery | Court: In pari delicto inapplicable to the buy‑back remedy here; issue largely moot given remand to contract procedure; defense would not bar contractual appraisal. |
| 4) Whether the trial court erred in dismissing CSC/Royal Bank’s breach‑of‑fiduciary counterclaims (SMI transaction and bid‑rigging) | Snyder argued he did not breach duties and appellants failed to prove damages/causation | CSC argued Snyder breached duties (failed due diligence on SMI; involvement in bid‑rigging) and caused losses | Court: Affirmed trial court; appellants failed to prove the necessary elements (notably quantifiable damages and causation; limited proof of Snyder’s participation in bid‑rigging). |
Key Cases Cited
- Hornberger v. Dave Gutelius Excavating, Inc., 176 A.3d 939 (Pa. Super. 2017) (contractual buy‑sell/valuation provisions govern share appraisals)
- Boehm v. Riversource Life Ins. Co., 117 A.3d 308 (Pa. Super. 2015) (standard of appellate review for nonjury trial findings)
- Osborne v. Carmichaels Mining Machine Repair, Inc., 628 A.2d 874 (Pa. Super. 1993) (interpretation of stock redemption language controls valuation)
- Olson v. North American Industrial Supply, Inc., 658 A.2d 358 (Pa. Super. 1995) (unenforceability of buy‑back terms when contract language cannot be performed as written)
- McCabe v. McCabe, 575 A.2d 87 (Pa. 1990) (partnership/contract controls substantive valuation rights)
- Official Committee of Unsecured Creditors v. PriceWaterhouseCoopers, LLP, 989 A.2d 313 (Pa. 2010) (scope of in pari delicto defense)
- Kirschner v. K & L Gates LLP, 46 A.3d 737 (Pa. Super. 2012) (elements of breach of fiduciary duty claim)
- Printed Image of York, Inc. v. Mifflin Press, Ltd., 133 A.3d 55 (Pa. Super. 2016) (insufficient evidence precludes award of damages)