TFB Midatlantic 4, LLC v. The Local Car Wash, Inc.

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TFB MIDATLANTIC 4 LLC, et al., Plaintiffs, v. THE LOCAL CAR WASH, INC.,^[1] et al., Defendants.

CIVIL No. 1:21-CV-299

United States District Court, M.D. Pennsylvania

August 21, 2024

MEMORANDUM OPINION

DARYL F. BLOOM, UNITED STATES MAGISTRATE JUDGE.

I. Introduction

This case comes before the court for consideration of the amount of damages that should be awarded to the defendants, The Local Car Wash, Inc., Treanor Properties, LLC, and John Treanor (“Treanor”) (collectively, “the defendants”), on their counterclaims. The plaintiffs TFB Midatlantic 4, LLC and TFB Midatlantic 4 RE, LLC (collectively, “the plaintiffs” or “TFB entities”), filed this action against the defendants for breach of contract and other related claims. (Doc. 1). The plaintiffs' claims arose out of the purchase of a car wash in Chambersburg, Pennsylvania, in which the plaintiffs alleged that Treanor, the owner of the car wash, inflated revenue numbers to induce them to purchase the car wash. (Doc. 48). In response, the defendants asserted two counterclaims against the TFB entities-one for breach of the parties' promissory note, and one for breach of the parties' escrow agreement. (Doc. 49).

The court granted summary judgment in favor of the defendants on the plaintiffs' claims, finding that the defendants had not breached the contract or engaged in any fraudulent conduct related to the sale of the car wash. (Doc. 99). The court further granted summary judgment in favor of the defendants on their counterclaims. (Id.). The court then directed the parties to consult and confer regarding the issue of damages and held a telephone conference with the parties, at which time the court ordered the parties to submit briefing on the issue of damages. (Doc. 132). The parties have since submitted their briefing regarding the amount of damages owed to the defendants. (Docs. 133-35, 137-38, 141-42).

Upon consideration of this matter, and as discussed more fully below, the court finds that the defendants are entitled to the following on their counterclaims: on Counterclaim I, breach of the promissory note, the defendants are entitled to an award of damages in the amount of $105,252.88; and on Counterclaim II, breach of the escrow agreement, the defendants are entitled to the release of the full $150,000 in escrowed funds-with the funds being used to pay The Local Car Wash, Inc.'s preexisting tax liability in the amount of $81,215.45, as well as the additional penalties and interest incurred on that amount, and the remainder of the funds being released to the defendants-plus an award of damages in the exact amount that The Local Car Wash, Inc. incurred in additional penalties and interest on the pre-existing tax liability.

II. Background^[2]

This matter arose out of the sale of a car wash in Chambersburg, Pennsylvania. The TFB entities agreed to purchase The Local Car Wash, Inc. from Treanor and his entities for a purchase price of $1.2 million in January of 2020. (Doc. 133-2, Ex. A at 2-29 (containing the purchase and sale agreement)). This agreement, which underwent a series of amendments (see id., Ex. B and C), ultimately included a promissory note that was used to pay a portion of the $1.2 million purchase price (id., Ex. B, at 31, 34; id., Ex. C, at 40, 61).

The promissory note provides for a principal amount of $100,000 with a three percent interest rate to be paid over a period of eight years. (Id., Ex. C, at 40, 61). In addition, the promissory note requires: equal monthly payments of principal and interest in the amount of $1,072.92, with the first payment due on February 1, 2021; the same monthly payment due on the last day of each succeeding month; and all principal interest due and payable in full on February 1, 2029. (Id. at 61). If “any payment” due under the note is not received within 30 days of the due date, then late charges equal to five percent of “such payment” are due upon demand. (Id.). Further, if any event of default occurs, the promissory note “become[s immediately due and payable” at the option of Treanor Properties, LLC. (Id. at 61-62). For purposes of the promissory note, an event of default includes, inter alia, the failure of TFB Midatlantic 4, LLC to make “any payment of principal or interest when due and continues in such failure for a period of at least [15] days following” the delivery of written notice. (Id.).

In addition, during an extensive due diligence period for the purchase of the car wash, the TFB entities learned that The Local Car Wash, Inc. had not paid sales and use taxes to the Commonwealth of Pennsylvania, relating to the operation of the car wash business, from 2017 to 2020. Because, however, the full amount of the unpaid taxes was unknown at that time, the parties entered into an escrow agreement to ensure that the TFB entities would not ultimately be liable for, or incur costs related to, The Local Car Wash, Inc.'s unpaid tax liability. (Id., Ex. D, at 67).

The parties' escrow agreement provided for $150,000 of the $1.2 million purchase price to be placed with an escrow agent “to pay any [u]npaid [t]ax [l]iability not paid at [s]ettlement to the appropriate government agencies.” (Id., Ex. D, at 68); (see also id. at 67 (defining unpaid tax liability as “[s]ales and [u]se [t]ax, related late penalties and charges, related interest, and any other expenses or fees in connection with unpaid [s]ales and [u]se [t]ax” related to the operation of The Local Car Wash, Inc.)). The escrow agreement further provided that the escrowed funds would be released by the TFB entities, and the unpaid tax liability paid by the escrow agent, after-inter alia-receiving documentation from the tax authorities showing the amount of taxes owed. (Id.).

Ultimately, the parties closed on the sale of the car wash on December 18, 2020, and the TFB entities commenced this action in state court less than one week later on December 23, 2020. (Doc. 1 (containing the notice of removal to this court, filed on January 21, 2021)). As a result, the TFB entities never made the first monthly payment under the promissory note, which was due on February 1, 2021, or any subsequent monthly payment, which was due on the last day of each succeeding month.

Approximately six months later, in June 2021, the defendants requested release of the escrowed funds to pay The Local Car Wash, Inc.'s unpaid tax liability. (Doc. 133-2, Ex. F, at 79). On July 2, 2021, however, the TFB entities refused to release those funds based upon, inter alia, their contention that they had not been provided with the appropriate documentation from the tax authority as required by the parties' escrow agreement, and based upon their contention that the escrowed funds were subject to rescission. (Id. at 79-80). The defendants assert that, because the TFB entities refused to release the escrowed funds on July 2, 2021, they have incurred additional penalties and interest on the sales and use taxes owed by The Local Car Wash, Inc., which-they argue- they would not have incurred but for the TFB entities' refusal to release the escrowed funds. (Docs. 133 (representing that they have incurred $5,952.67 in additional penalties and interest); 137 (explaining that the additional penalties and interest continue to accrue); 141 (representing that, as of July 29, 2024, the additional penalties and interest have accrued to a total amount of $8,065.40)).

While it is unclear when, exactly, the plaintiffs received documentation from the taxing authority,^[3] the defendants have submitted a “Certified Copy of Lien” from the Pennsylvania Department of Revenue, which is dated July 6, 2021, and stamped August 4, 2021. (Doc. 133-2, Ex. G, at 86). This document reflects that, for the relevant period (i.e., 2017 to 2020), The Local Car Wash, Inc. owed $81,215.45 for unpaid taxes, interest, and penalties. (Id.). In addition to this lien, the defendants have also submitted a copy of a notice of entry of judgment wherein The Local Car Wash, Inc. was “notified that a judgment in the amount of $81,215.45 [had] been entered against [it] on August 4th, 2021[,] in the Court of Common Pleas of Franklin County Prothonotary's Office[.]” (Id., Ex. G, at 85 (naming the plaintiff as the Pennsylvania Department of Revenue, and the defendants as The Local Car Wash, Inc. and Sharpe J. McDowell)).

After litigating these issues for over a year, the parties filed summary judgment motions. (Docs. 77, 78). The court determined that the defendants were entitled to summary judgment on the plaintiffs' claims as well as on their counterclaims against the plaintiffs. (Docs. 99, 100). Following the court's denial of the plaintiffs' motion for reconsideration (Doc. 105), the court ordered the parties to consult and confer on the issue of damages. The defendants then moved to amend their counterclaims to include a claim for attorney fees, which the court denied. (Doc. 127). The parties were again directed to consult and confer on the issue of damages and subsequently submitted a joint status report to the court. (Doc. 130). After a conference with the parties, during which the court ordered briefing on the issue of damages, the parties submitted their respective briefs. (Docs. 133-35). They have since submitted supplemental briefs. (Docs. 137-38, 141-42).

In essence, the defendants contend that they are entitled to the following damages: a total of $108,000 for breach of the promissory note, which includes $100,000 in principal, $3,000 in interest, and $5,000 in late charges; release of the full $150,000 in escrowed funds for breach of the escrow agreement; and damages for the additional penalties and interest incurred on the sales and use taxes owed by The Local Car Wash, Inc., which-they argue-they would not have...