P.F. Jurgs and Co. v. O'Brien

PF_JURGS_AND_CO_V_OBRIEN.91-497; 160 Vt. 294; 629 A.2d 325


 NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
 as well as formal revision before publication in the Vermont Reports.
 Readers are requested to notify the Reporter of Decisions, Vermont Supreme
 Court, 109 State Street, Montpelier, Vermont 05609-0801 of any errors in
 order that corrections may be made before this opinion goes to press.


                                 No. 91-497


 P.F. Jurgs & Company and David               Supreme Court
 R. Coates, Ronald R. Plante,
 Glen A. Wright and William M.
 Nicoll, Individually
                                              On Appeal from
      v.                                      Chittenden Superior Court

 Thomas O'Brien, Thomas Shortle,              October Term, 1992
 O'Brien-Shortle Associates, P.C.


 Frank G. Mahady, J.

 Thomas Z. Carlson of Langrock Sperry & Wool, Burlington, for plaintiff-
    appellants

 Nancy Corsones and Cortland Corsones of Corsones & Corsones, Rutland, for
    defendants-appellees O'Brien and O'Brien-Shortle Assocs.

 Edward R. Seager, P.C., Rutland, for defendant-appellee Shortle




 PRESENT:   Gibson, Dooley, Morse and Johnson, JJ.



      JOHNSON, J.   The principal issue before the Court is whether
 defendants may be held liable for the tort of conversion, if defendants
 acted in good faith and without specific intent to deprive plaintiffs of
 property.  We hold that they may, and affirm the judgment against defendant
 Thomas O'Brien, reverse the judgment in favor of defendants Thomas Shortle
 and O'Brien-Shortle Associates, and remand for entry and determination of
 damages.
      The present controversy arose out of the dissolution of an accounting
 firm.  The plaintiffs are P. F. Jurgs & Co., an accounting firm head-
 quartered in Burlington, and certain named individuals who were partners of
 the firm.  The defendants are Thomas O'Brien and Thomas Shortle, Rutland
 accountants, and the firm they formed after separating from Jurgs, known as
 O'Brien-Shortle Associates, P.C.   O'Brien joined Jurgs in 1983 by merging
 his own Rutland accounting firm with Jurgs.  Following this merger, the
 office that previously had been O'Brien's became the Rutland office of
 Jurgs.
      In the summer of 1987, Jurgs decided to merge with Peat Marwick, a
 national accounting firm.  O'Brien chose not to become associated with Peat
 Marwick, but to re-establish his own accounting business in Rutland.  In
 view of O'Brien's decision, Jurgs voted to terminate O'Brien without cause
 as a shareholder of Jurgs, a procedure authorized by the Jurgs shareholders'
 agreement.  O'Brien began operating his office independently as of August 1,
 1987.  Thomas Shortle, who had been an employee in Jurgs' Rutland office
 for many years, became his partner.
      At termination, O'Brien's financial interest in Jurgs was determined
 according to the shareholders' agreement and the addendum to that agree-
 ment, which he had signed in 1983 when his Rutland firm merged with Jurgs.
 It provided that a retiring shareholder would be paid a pro rata share of
 book value, plus the "earnings left to accumulate" account maintained on the
 books of the corporation for the shareholder.  The addendum stated that
 references to book value and earnings left to accumulate, as defined in the
 agreement, "shall refer to those amounts as shown on the balance sheet for
 each respective office."
      Jurgs took the position that O'Brien's share of the business depended
 on the book value of the Rutland office, and not on the book value of Jurgs
 as a whole.  At termination on July 31, 1987, the Rutland office had a
 negative book value of $22,651.81.  On this view, the value of O'Brien's
 stock was zero.
      O'Brien contended that he was entitled to a share of the corporation as
 a whole, and that the meaning of the addendum to the shareholder's agreement
 was simply to set up "managerial accounting," an accounting system that
 would track the net profits of each office separately for internal purposes.
 He also claimed that the negative book value of the Rutland office was the
 result of overcharges by Jurgs for administrative expenses, such as payroll
 and other expenses of operation, and unfair charges for interest on advances
 made to keep the Rutland office afloat.
      In 1988, Jurgs sued O'Brien for conversion and unjust enrichment,
 alleging that he unlawfully retained the assets of the Rutland office after
 the date of his termination, July 31, 1987.  Jurgs later filed an amended
 complaint, naming Shortle and O'Brien-Shortle as defendants.  O'Brien
 counterclaimed for the value of his twenty-five shares of stock, and for
 damages for breach of fiduciary duty by his former partners.
      The trial court rejected all of O'Brien's theories and denied the
 counterclaim.  It also found him personally liable on Jurgs' complaint for
 conversion and unjust enrichment for retention of the assets of the Rutland
 office.  The judgment figure of $123,318 included the value, as of July 31,
 1987, of the assets, including accounts receivable of $79,000 and work in
 progress worth $23,000, minus a small amount of accounts payable assumed by
 the Rutland office.  The trial court awarded prejudgment interest of 12%
 from July 31, 1987 to the date of judgment and costs.
      The trial court declined to hold Shortle liable, concluding that he had
 a good faith belief that any funds generated by the Rutland office prior to
 July 31, 1987, and subsequently deposited in the account of O'Brien-Shortle
 were the property of the Rutland office.  The court found that Shortle was
 not a party to any of the agreements between Jurgs and O'Brien, and that
 Jurgs had not demanded that he forward any funds received by O'Brien-
 Shortle.  The court also declined to hold O'Brien-Shortle liable because it
 was unable to determine what amounts actually received by the firm after
 July 31, 1987 were generated by Jurgs.
      O'Brien appeals the court's purported failure to make findings
 sufficient to support conversion or unjust enrichment, (FN1) and the denial of
 his counterclaim; Jurgs appeals the court's failure to find liability
 against Shortle and O'Brien-Shortle.
                                     I.
                                     A.
      We first consider the question of whether Jurgs was entitled to the
 assets it claims were converted.  O'Brien contends that the trial court's
 findings are insufficient to support a conclusion that he converted assets
 belonging to Jurgs.  He claims that Jurgs' personnel conceded in their
 testimony that he owned the assets of the Rutland office, and that
 conversion is therefore legally impossible.  The evidence does not support
 this argument.
      Jurgs' personnel agreed that O'Brien is entitled to the book value of
 the Rutland office.  They testified that the calculation of book value
 involves a consideration of assets such as accounts receivable and work in
 progress, and with respect to O'Brien's share, the assets of the Rutland
 office are included in the calculation.  O'Brien equates his entitlement to
 book value with ownership of the assets that make up book value, but his
 equation is incorrect.
      When O'Brien merged with Jurgs, he purchased stock in the firm for the
 amount of the then current book value of his old firm.  Thereafter, O'Brien
 no longer owned specific assets in the Rutland office, such as accounts
 receivable or furniture; rather, he owned stock for which the shareholders'
 agreement and addendum defined the method of valuation.  Under that agree-
 ment, he was entitled to payment of the book value, earnings left to
 accumulate and any vested retirement benefits, calculated with respect to
 the Rutland office.  At the time O'Brien was terminated, the Rutland office
 had a negative book value, that is, its liabilities were greater than its
 assets.  O'Brien's equity in the corporation, as defined by the share-
 holders' agreement and addendum, was zero.
      O'Brien did receive the benefit of the value of the assets in the
 calculation of his book value.  But, by retaining actual control over the
 assets of the Rutland office after July 31, 1987, he retained property that
 belonged to Jurgs.  Therefore, the court's findings were entirely consistent
 with conversion, and Jurgs had a right to the assets retained.
                                     B.
      The remaining issue with respect to conversion is whether the trial
 court erred in refusing to find liability against Thomas Shortle and the new
 firm, O'Brien-Shortle.                       
      Jurgs first contends that good faith and lack of knowledge as to the
 true owner of property is irrelevant to the tort of conversion.  Second, it
 points out that the assets retained by O'Brien, and for which he was found
 liable, are the same assets retained by Shortle and O'Brien-Shortle; if the
 trial court found conversion with respect to O'Brien, Jurgs argues, it was
 clearly erroneous not to find conversion as to the other defendants.  We
 agree and reverse as to Shortle and O'Brien-Shortle.
      To establish a claim for conversion, the owner of property must show
 only that another has appropriated the property to that party's own use and
 beneficial enjoyment, has exercised dominion over it in exclusion and
 defiance of the owner's right, or has withheld possession from the owner
 under a claim of title inconsistent with the owner's title.  Economou v.
 Carpenter, 124 Vt. 451, 453-54, 207 A.2d 241, 243 (1965).  Conversion may
 also be committed by retention of the property after the owner's rightful
 demand.  Id. at 454, 207 A.2d  at 243.  With the exception of conversion by
 demand and refusal, liability requires that a defendant commit an overt act
 with respect to the subject property. Id.  The key element of conversion,
 therefore, is the wrongful exercise of dominion over property of another.
      The three-part definition stated in Economou does not set forth the
 only ways in which conversion may occur.  It simply gives guidelines for to
 determining whether there was sufficient unauthorized interference with
 plaintiff's property interest to amount to conversion by an overt act of
 dominion. See Restatement (Second) of Torts { 244 comment b (1965).  Con-
 version by demand and refusal is merely another method of demonstrating an
 unlawful act of dominion.  Wetmore v. B.W. Hooker Co., 111 Vt. 519, 524, 18 A.2d 181, 184 (1941); see also O'Bryan Constr. Co. v. Boise Cascade Corp.,
 139 Vt. 81, 88, 424 A.2d 244, 247-48 (1980) (use of property in manner
 beyond scope of consent conferred may form basis of a conversion).
      Specific intent to convert, that is, knowledge that the property is
 owned by another, is not required for liability in tort.  Restatement
 (Second) of Torts { 244.  It follows that the converter's good faith belief
 in ownership of the property, or lack of knowledge as to its true ownership,
 is irrelevant.  Section 244 of the Restatement (Second) reads:

           An actor is not relieved of liability to another
           for trespass to a chattel or for conversion by his
           belief, because of mistake of law or fact not
           induced by the other, that he

               (a) has possession of the chattel or is
               entitled to its immediate possession, or

               (b) has the consent of the other or of one
               with power to consent for him, or

               (c) is otherwise privileged to act.
 To the extent that good faith is a factor to be taken into consideration in
 the elements of conversion, see Restatement (Second) of Torts { 222A, it is
 relevant only to the question of whether the converter intended to exercise
 dominion over the property.  See Wetmore, 111 Vt. at 523, 18 A.2d  at 184
 (loss of property through negligence does not make one liable for
 conversion).
      Here, the assets in question became Jurgs' property when the firms
 merged in 1983.  O'Brien and Shortle, on behalf of themselves and O'Brien-
 Shortle, committed overt unauthorized acts of dominion over the assets.
 Defendants' own testimony showed that they deposited receipts for work done
 prior to O'Brien's termination, that is, for work generated by Jurgs, into
 the account of O'Brien-Shortle.  Shortle agreed that the value of this work
 was approximately $102,000, and that these funds gave O'Brien-Shortle the
 benefit of cash flow that it would otherwise have had to borrow.
      Although the trial court believed Shortle's explanation as to why he
 thought the funds belonged to O'Brien, Shortle's good faith does not entitle
 him, or the partnership, to keep the money.  A "knowing" conversion is not
 required.  The cause of action alleged is not a crime; it is a civil action
 for the return of property that rightfully belongs to another.  Thus,
 Shortle's mistake of fact or law with respect to the assets is irrelevant.
 See Restatement (Second) of Torts { 244.
      Moreover, it was clearly erroneous for the trial court to find that it
 could not determine whether the amounts received by O'Brien-Shortle were
 actually generated by Jurgs.  Findings of fact will be set aside only when
 they are clearly erroneous, with due regard given to the opportunity of the
 trial court to judge the credibility of the witnesses and the weight of the
 evidence.  V.R.C.P. 52(a); Cab-Tek, Inc. v. E.B.M., Inc., 153 Vt. 432, 434,
 571 A.2d 671, 672 (1990).  The court made a number of findings as to the
 damages owed by O'Brien to Jurgs for conversion of the assets.  These
 amounts were submitted to the court through an exhibit prepared by Jurgs,
 which was based on a stipulation, and specifically valued of assets as of
 July 31, 1987.  Except for accounts receivable and work in progress, which
 were not yet paid, all of the other items were cash, prepaid expenses,
 furniture, or other items that were in hand.  Amounts corresponding to the
 accounts receivable and work in progress were includable because O'Brien
 testified that the funds were received and would be deposited to the
 O'Brien-Shortle account after August 1, 1987.  Indeed, it would be
 impossible for the trial court to find O'Brien liable for conversion of
 these funds unless it also believed that O'Brien received the money.  In
 light of O'Brien's testimony that he was aware that funds received after
 August 1, 1987 were generated prior to that date, and Shortle's testimony
 that O'Brien-Shortle had the benefit of them, the trial court's finding to
 the contrary was clearly erroneous.  The court should have concluded that
 Shortle and O'Brien-Shortle committed sufficient acts of unauthorized
 dominion over assets belonging to Jurgs to amount to conversion.
                                     II.
      O'Brien also contends that the court erred in denying his counterclaim,
 and that the findings in support of the court's conclusions are clearly
 erroneous.
      The principal issue on the counterclaim is the valuation of O'Brien's
 stock in Jurgs.  O'Brien claims the calculation of his equity should be
 determined on a firm-wide basis, and not limited to the equity in the
 Rutland office.  He contends the court erred in its interpretation of the
 shareholders' agreement and addendum when it found that the shareholders had
 agreed to value equity separately for each office.  The trial court drew its
 conclusions from a consideration of the agreement and addendum, and
 "credible extrinsic evidence."
      The agreement is clear on its face.  By itself, it supports the trial
 court's conclusion that O'Brien's share was limited to the Rutland office.
 The shareholders' agreement, { 7.2(a) and (b), provided that a retiring
 shareholder would be paid his investment in common stock plus his pro rata
 share of the unappropriated retained earnings at the effective date of
 retirement (book value), and the "earnings left to accumulate" account
 maintained on the books of the corporation for the shareholder.  The
 addendum, executed some months later by all of the shareholders, stated that
 the amounts referred to in { 7.2(a) and (b) of the agreement "shall refer
 to those amounts shown on the balance sheet for each respective office."
 The addendum then set forth a separate book value for each office.
      The "credible extrinsic evidence" was consistent with the court's
 interpretation of the agreement.  The court found that (1) Jurgs had offices
 in Burlington and in three other locations, including Rutland, Newport, and
 Lebanon, New Hampshire; (2) all of the offices kept separate books; and (3)
 when the Newport and Lebanon offices withdrew from Jurgs, they did not share
 in the book value of either the Rutland or the Burlington offices. (FN2)
      The significance of the extrinsic evidence was that it showed a course
 of conduct inconsistent with O'Brien's claimed understanding of the share-
 holders' agreement and addendum, a course of conduct dating from the merger
 in 1983 through the separation in 1987 to which O'Brien had acquiesced since
 1983.  O'Brien contended that he was entitled to share in all of the assets
 of Jurgs, and that the addendum merely provided for separate "managerial"
 accounting, to calculate profit and loss for internal purposes, for each
 office.  The court rejected O'Brien's testimony as not credible, and its
 determination is well supported by the evidence.
      O'Brien argues that the court should not have admitted parol evidence
 because there was no ambiguity in the original agreement, and the court
 erred in labeling the addendum as a "clarification" of it.  He also argues
 the addendum is invalid because it was a substantial modification of the
 agreement without consideration.
      We find no error in the trial court's admission of the parol evidence.
 Initially, it should be noted that although Jurgs was the party that
 offered parol evidence in its case in chief, and O'Brien who objected, Jurgs
 did not argue that the original agreement, with addendum, is ambiguous.  Its
 position was precisely the opposite; it wanted the court to determine the
 issue solely from the documents.  It was O'Brien who contended ultimately
 that the addendum is ambiguous.  Indeed, the focus of O'Brien's testimony,
 and his entire theory of the case, is that the addendum means something
 other than what it appears to state plainly.  As it was O'Brien who claimed
 ambiguity, he can hardly complain because the court admitted extrinsic
 evidence in aid of its construction.  See Isbrandtsen v. North Branch Corp.,
 150 Vt. 575, 579-80, 556 A.2d 81, 84-85 (1988) ("Ambiguity will be found
 where a writing . . . supports a different interpretation", and it is
 appropriate, when inquiring into the existence of ambiguity, to consider the
 circumstances surrounding the making of the agreement).
      Moreover, assuming arguendo that the addendum is not a clarification
 but a modification of the agreement, the modification is valid.  O'Brien
 argues there was no meeting of the minds on the addendum, but the trial
 court rejected O'Brien's testimony on this issue as not credible.  The court
 found O'Brien had long acquiesced in a course of conduct that supported the
 interpretation that book value, for purposes of calculating distributions
 upon termination, was determined separately for each office.
      O'Brien also claims that consideration was lacking for the modification
 because it is not reciprocal.  If the addendum modifies the agreement, how-
 ever, each shareholder gave up a share in all of the branch offices except
 his own, and the consideration was mutual.  See Lloyd's Credit Corp. v.
 Marlin Management Servs., ___ Vt. ___, ___, 614 A.2d 812, 815-16 (1992)
 (detriment to the promisee is sufficient consideration for a contract and,
 once consideration is found, the contract will not be set aside because a
 party made an uneven bargain).  Thus, no grounds exist on which to set aside
 the addendum. (FN3)
      O'Brien's final assignment of error on the counterclaim is the court's
 failure to find that Jurgs' shareholders breached their fiduciary duty to
 him as a shareholder by imposing unfair administrative charges and by
 expelling him from the corporation.  It is true that shareholders in a
 closely held corporation owe one another a fiduciary duty of good faith and
 loyalty, see Solomon v. Atlantis Development, Inc., 147 Vt. 349, 356, 516 A.2d 132, 136 (1986) (interpreting Massachusetts law), but that duty was not
 breached here.   The trial court found, with adequate support in the record,
 that the administrative charges were fair and reasonable and reflected
 services actually provided to the Rutland office by the Burlington office.
 The charges actually made were quite close to estimates given in advance to
 O'Brien to which he did not object.  O'Brien's termination was lawful under
 the terms of the shareholders' agreement, which permitted a majority of the
 shareholders to expel another shareholder without cause.  In short, no
 evidence supported a breach of fiduciary duty.
                                    III.
      O'Brien argues that the trial court erred in awarding Jurgs prejudgment
 interest at 12% from July 31, 1987 to the date of judgment, a sum determined
 by the court to be $61,017.07.  O'Brien contends that Jurgs could be awarded
 prejudgment interest only if Jurgs specifically sued for interest, and that
 because Jurgs made a demand for general relief only, it was not proper for
 the court to award interest from the date of conversion.  O'Brien also
 challenges the rate of interest assessed by the court.  We disagree.
      Prejudgment interest is a matter of right where damages are liquidated
 or readily ascertainable.  Newport Sand & Gravel, Co. v. Miller Concrete
 Constr., Inc., ___ Vt. ___, ___, 614 A.2d 395, 398 (1992); see Reporter's
 Notes to 1981 Amendment, V.R.C.P. 54(a).  The party entitled to such relief
 need not have demanded it in its pleadings.  See V.R.C.P. 54(a).  Prejudg-
 ment interest is to be calculated at the statutory legal rate, set at 12%
 per annum under 9 V.S.A. { 41a(a).  The trial court, in its findings of
 fact, was able to readily ascertain the value of the amounts converted by
 O'Brien as of July 31, 1987, a sum it fixed at $123,318, and properly
 awarded prejudgment interest at the 12% statutory rate.
      Finally, Jurgs conceded in its reply brief that "the rule and statute
 with respect to assessment of costs do not clearly authorize some of the
 costs assessed by the trial court," and relinquished assessment of those
 costs not clearly authorized.  We hold that the costs of the court entry
 fee, of service, and of taking a deposition, an amount totaling $480.08,
 were clearly authorized.  The remaining costs awarded to Jurgs are waived as
 conceded.
      Judgment against defendant Thomas O'Brien affirmed, except that costs
 shall total $480.08; reversed as to defendants Thomas Shortle and O'Brien-
 Shortle Associates, P.C., and remanded for entry and determination of
 damages.


                                                      FOR THE COURT:




                                                      Associate Justice





FN1.    In light of our decision on conversion, it is unnecessary to reach
 plaintiffs' claim that defendants were unjustly enriched.

FN2.    O'Brien is correct that the Lebanon office was subject to additional
 and unique language covering dissolution in its shareholders' agreement.
 Notwithstanding that provision, which provided that Lebanon would keep its
 assets and liabilities upon dissolution, the Lebanon shareholders' interest
 in Jurgs was limited to the book value of the Lebanon office.  At
 termination, the Lebanon shareholders did not receive a share of any profits
 from any other office of Jurgs.

FN3.    O'Brien makes additional attacks on the findings, which we do not
 discuss, as the trial court's decision stands without these additional
 findings.