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

• Decision Date: 16 April 1993
• Docket Number: No. 91-497,91-497
• Citation: 160 Vt. 294,629 A.2d 325
• Court: Vermont Supreme Court
• Parties: P.F. JURGS & COMPANY and David R. Coates, Ronald R. Plante, Glen A. Wright and William M. Nicoll, Individually v. Thomas O'BRIEN, Thomas Shortle, O'Brien-Shortle Associates, P.C.

Page 325

629 A.2d 325

160 Vt. 294

P.F. JURGS & COMPANY and David R. Coates, Ronald R. Plante Glen A. Wright and William M. Nicoll, Individually v. Thomas O'BRIEN, Thomas Shortle, O'Brien-Shortle Associates, P.C.

No. 91-497.

Supreme Court of Vermont.

April 16, 1993.

Motions for Reargument Denied

June 1, 1993.

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

Before GIBSON, DOOLEY, MORSE and JOHNSON, JJ.

JOHNSON, Justice.

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 headquartered 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 agreement, 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 shareholders' 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, ¹ 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 agreement, 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 shareholders' 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 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). Conversion 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...