NuNet, Inc.

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UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF PENNSYLVANIA
IN RE: 	: 	Chapter 11
:
NuNET, INC. 	:
d/b/a/ NuNet FIBER TECHNOLOGIES 	: 	Bky. No. 05-21633ELF
:
Debtor 	:
:
OPINION
BY: 	ERIC L. FRANK, 	U.S. BANKRUPTCY JUDGE
I. 	INTRODUCTION
Before the court are the objections filed by NuNet, Inc. (the “Debtor” or “NuNet”) to five
proofs of claim filed by Rudolph Geist, Edward Geist, Edward J. Geist, Jr., Stacey Geist and
Josephine Geist (the “Geist Claimants”). All five claims relate back to a purchase agreement
signed in March 1999, whereby NuNet purchased all of the existing shares of U.S. Netway, Inc.
(“U.S. Netway”) in exchange for, inter alia, the assumption of certain liabilities of U.S. Netway.
II. 	PROCEDURAL HISTORY
On March 24, 2005, the Debtor commenced its bankruptcy case by filing a voluntary
petition for relief under Chapter 11 of the Bankruptcy Code. The case was assigned to Judge
Thomas M. Twardowski in this court’s Reading division. On July 15, 2005, the Geist Claimants
filed the following ten (10) separate proofs of claim (the “Claims”) against the Debtor:
(a) 	Claim Nos. 46 and 59 filed by Rudolph J. Geist;
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The Geist Claimants filed individual claims against the Debtor because they were each1
individual guarantors of one of the underlying debts in the Claims. The Geist Claimants
encountered difficulty when attaching all of the exhibits to support the Claims originally filed on
July 15, 2006. In an abundance of caution, the Geist Claimants re-filed each proof of claim that
same day.
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(b) 	Claims Nos. 47 and 58 filed by Edward J. Geist, Jr.;
(c) 	Claim Nos. 48 and 57 filed by Edward J. Geist, Sr.;
(d) 	Claim Nos. 49 and 55 filed by Stacey Geist; and
(e) 	Claim Nos. 50 and 54 filed by Josephine Geist.
Although the docket entries reflect that each of the Geist Claimants filed two separate proofs of
claim, each Claimant intended to file only one proof of claim. Consequently, five of these proofs
of claim are actually duplicative due to a clerical error.1
On September 14, 2005, the Debtor filed its Amended Plan of Reorganization. On
October 18, 2005, the Debtor filed objections to the Claims. A hearing was held on November
17, 2005. Neither the Geist Claimants nor their attorney attended the hearing. An Order was
entered sustaining the objections and awarding the Geist Claimants a collective general
unsecured claim in the amount of $100,000. By Order dated December 1, 2005, the Court
confirmed the Debtor’s Amended Plan of Reorganization.
On December 5, 2005, the Geist Claimants filed a Motion to Reconsider the November
17, 2005 Order. The Debtor filed a response on December 21, 2005. A hearing was held on the
Motion to Reconsider on December 22, 2005. On January 27, 2006, the court entered an order
granting the Geist Claimants’s Motion to Reconsider, which stated that a hearing would be held
“on the merits of the Debtor’s Objections to the various Geist Claims.” Subsequently, on
February 3, 2006, Judge Twardowski retired. 	Judge Richard E. Fehling replaced Judge
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The court has jurisdiction over the Debtor’s objections pursuant to 28 U.S.C. § 1334.2
This matter is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A) and (B).
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Twardowski after being sworn as a United States Bankruptcy Judge on February 14, 2006. Judge
Fehling recused himself from the Debtor’s chapter 11 case on February 21, 2006. Consequently,
the chapter 11 case was reassigned to me.
On March 15, 2006, I held a hearing on the claims objection pursuant to the January 27,
2006 order. 	During the hearing, the parties agreed that the ultimate disposition should result in a2
single amount to be allowed collectively for all five Geist Claimants and that neither the Debtor,
nor the court, need consider how that figure will be divided up among the Geist Claimants. At
the close of the hearing, I requested the parties to submit proposed findings of fact and
conclusions of law.
III. 	FINDINGS OF FACT
A. 	The Agreement of Sale
1. 	In or around January 1999, Rudolph Geist contacted John Keown, Chief
Executive Officer of NuNet, about purchasing U.S. Netway. (N.T. at 15).
2. 	U.S. Netway was motivated to close a prompt purchase transaction because it was
in serious financial distress in or around January 1999. (N.T. at 16).
3. 	In a letter dated January 28, 1999 (the “January 1999 Letter of Intent”), NuNet,
and U.S. Netway outlined the basic terms and conditions pursuant to which NuNet would
purchase 100% of the issued and outstanding stock of U.S. Netway. (Exhibit D-9).
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4. 	Among several conditions, the January 1999 Letter of Intent specifically stated
that NuNet would:
(a) 	pay in full any outstanding balance of the U.S. Netway Small Business
Administration Loan (the “SBA Loan”) through PNC Bank; and
(b) 	engage in a successful negotiation with the IRS to create an installment
agreement to pay the outstanding federal taxes of U.S. Netway, which
were estimated to be approximately $65,000 plus interest and penalties.
(Exhibit D-9 at 2).
5. 	The January 1999 Letter of Intent was signed by John Keown for NuNet and by
Edward J. Geist, Jr. and Rudolph Geist for U.S. Netway. (Exhibit D-9 at 4).
6. 	Mr. Keown relied on the January 1999 Letter of Intent in determining how much
NuNet was willing to pay for the stock of U.S. Netway. (N.T. at 27).
7. 	There were approximately five and one-half weeks of negotiation during which
time there were approximately three revisions made to a document called an “Agreement of
Sale” (the “Agreement”). (N.T. at 121).
8. 	Rudolph Geist was the primary negotiator and Edward J. Geist, Jr. was a
secondary negotiator for U.S. Netway. (N.T. at 94, 112).
9. 	Edward J. Geist, Jr. assisted in drafting the Agreement. (N.T. at 94).
10. 	On March 8, 1999, Mr. Keown received a fax copy of the Agreement,
which contained the March 8, 1999 Balance Sheet of U.S. Netway as part of Exhibit B. (the
“Balance Sheet”) (N.T. at 28). A prior draft of the Agreement did not contain a balance sheet of
U.S. Netway. (Exhibit D-2).
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11. 	Mr. Keown never saw the Balance Sheet prior to March 8, 1999. (N.T. at 31).
12. 	The Balance Sheet listed three loans from Rudolph Geist (the “Rudolph Geist
Loans) as “Long Term Liabilities” of U.S. Netway. (Exhibit D-1).
13. 	On March 8, 1999, Mr. Keown and Rudolph Geist had a phone discussion
wherein Mr. Keown pointed out that the Rudolph Geist Loans were not intended to be part of the
agreement of NuNet to assume the liabilities of U.S. Netway. During this phone discussion, Mr.
Keown advised Rudolph Geist that he would strike out the Rudolph Geist Loans on the Balance
Sheet. (N.T. at 30-31, 54-55).
14. 	On March 8, 1999, the Agreement was executed. The Agreement was signed by
Edward J. Geist Jr., President, CEO, Vice Chairman, Treasurer, for U.S. Netway, by John Keown
for NuNet, and by a witness, Susan Payne, U.S. Notary. (Exhibit D-1; N.T. at 14).
15. 	The signatories faxed their signed copies of the Agreement to one another because
they were not all in the same place when it was executed. (N.T. at 53, 76)
16. 	A prior draft of the Agreement included signature lines for the shareholders of
U.S. Netway. (Exhibit D-2; N.T. at 15).
17. 	On or about March 20, 1999, Mr. Keown and Edward J. Geist, Jr. met to
exchange duplicates of the Agreement that they executed on March 8, 1999. (N.T. at 53).
18. 	As set forth in Paragraph 3 of the Agreement, the consideration paid by NuNet to
acquire the 200,000 authorized and issued shares of capital stock of U.S. Netway consisted of
three (3) components:
(a) 	NuNet’s assumption of the “outstanding debts and liabilities . . . of the
Corporation and the SELLERS at the time of closing . . . ;”
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(b) 	Issuing 200,000 shares of Class B common stock of NuNet to the
respective shareholders of U.S. Netway on a one for one basis; and
(c) 	Automatic conversion of the Class B common stock into NuNets’ Class A
common stock two (2) years after the execution of the Agreement.
19. 	The Agreement also contains two (2) indemnification provisions:
Paragraph 7(f) provides in pertinent part:
PURCHASER specifically agrees to indemnify and hold harmless [the Geist
Claimants] from and against any and all liability, claims, loss, judgments, damage
or expense, including all related attorneys fees incurred or required to be paid by
[the Geist Claimants], by reason of any breach or failure of observance or
performance with respect to the obligations of PURCHASER as set forth in this
paragraph.
(emphasis added).
Paragraph 10 provides:
Indemnification. Each party hereto shall indemnify and hold the other parties
harmless and against all liability, claim, loss, damage or expense, including
reasonable attorneys fees, incurred or required to be paid by such other parties by
reason of any breach or failure of observance or performance of any
representation, warranty or covenant or other provision of this Agreement
by such party.
(Exhibit D-1 at ¶¶ 7(f) and 10) (emphasis added) .
20. 	The Agreement provides that Pennsylvania law is the governing law of the
Agreement. (Exhibit D-1 at ¶18).
21. 	Exhibit B to the Agreement consists of two parts, (a) a list of U.S. Netway’s
“Existing Indebtedness,” which includes the accounts payable of U.S. Netway and; (b) the
Balance Sheet of U.S. Netway as of March 8, 1999. (Exhibit D-1; N.T. at 110).
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See supra, n. 1.3
The parties stipulated that the Collective Proof of Claim consists of only four (4)4
components because the Geist Claimants waived any possible claim for monetary damages
resulting from NuNet’s failure to convert the stock. (N.T. at 35-37). The parties also stipulated
that the Collective Proof of Claim is approximately $304,000, which differs from the total value
of the original proofs of claim filed on July 15, 2005 . (N.T. at 10). In light of this, I find that the
proofs of claims filed on July 15, 2005 were amended at the March 15, 2006 hearing. As set forth
above, I adopted the break down of the Collective Proof of Claim the Geist Claimants presented
in their Proposed Findings of Fact. (See Geist Claimant’s Proposed Findings of Fact at 2).
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B. 	The Bankruptcy Case and the Claims’ Objection
22. 	On March 24, 2005, NuNet commenced its bankruptcy case by filing a voluntary
petition for relief under Chapter 11 of the Bankruptcy Code.
23. 	On September 14, 2005, the Debtor filed its Amended Plan of Reorganization
dated September 14, 2005.
24. 	On or about July 15, 2005, the Geist Claimants filed ten proofs of claim; five of
which are duplicative.3
25. 	The parties stipulated that the collective amount of the Geist Claimants’ proofs
of claim against the Debtor is $304,325.12 (the “Collective Proof of Claim”) (N.T. at 9-11). The
Collective Proof of Claim is broken into the following four (4) components: 4
• 	Amount paid to D&L in settlement
of confession of judgement proceedings 	$100,000.00
• 	Payment of Federal Tax liabilities by Edward 	$ 27,000.00
J. Geist, Jr.
• 	Outstanding principal and interest owed, as
of 3/1/06, on loans by Rudolph J. Geist 	$ 81,455.98
• 	Attorneys’ fees incurred in pursuit of legal claims
against NuNet and in defense of D&L judgment
proceedings 	$ 95,869.14
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TOTAL 	$304,325.12
The D&L Action Component of the Collective Proof of Claim
26. 	As of the filing of the Debtor’s bankruptcy petition, the Debtor
had not satisfied the SBA Loan nor replaced the Geist Claimants as personal guarantors thereon
pursuant to Paragraph 7(f) of the Agreement. (N.T. 89-90).
27. 	D&L Realty, the Assignee under the SBA Loan, confessed judgement against
each of the Geist Claimants in the Court of Common Pleas, Luzerne County, Pennsylvania (No.
2542-C-2003) (the “D&L Action”). (Exhibit C-11; N.T at 85-87).
28. 	The Geist Claimants settled the D&L Action for payment of $100,000 and are
entitled to recover said $100,000 as part of the Collective Proof of Claim. (N.T. at 9).
The Tax Liability Component of the Collective Proof of Claim
29. 	Prior to executing the Agreement, NuNet engaged in discussion with the IRS to
cure the federal payroll tax liability of U.S. Netway. (N.T. at 23).
30. 	The IRS advised NuNet that the approximate liability for the unpaid federal
payroll taxes was $47,000, excluding interest and penalties. (N.T. at 23).
31. 	After the Agreement was consummated, the IRS recorded a lien against the
Debtor, which was transferred over from U.S. Netway, based on the unpaid taxes of U.S.
Netway. At the time the lien was recorded, the specific amount recorded was a figure above
$47,000. (N.T. at 52).
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Although the original proof of claim filed on July 15, 2005 asserted $85,395.42 in5
attorneys fees, (see Exhibit C-15), Edward J. Geist, Jr. stated that the amount of attorneys fees
owed is $95,869.14. (N.T. at 91). The Debtor raised this discrepancy in its Proposed Findings of
Fact. (See Debtor’s Proposed Findings of Fact at 6, n.1). However, the Debtor stipulated at the
hearing that the total amount of the Collective Proof of Claim was roughly $304,000, which
included the larger figure for attorneys fees. See supra. n. 4.
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32. 	The IRS and NuNet reached a $47,000 settlement for U.S. Netway’s unpaid
federal payroll taxes. The IRS waived the interest and penalties. (N.T. at 48).
33. 	The IRS placed a lien on Edward J. Geist Jr.’s family home for U.S.
Netway’s outstanding federal payroll tax liability. (N.T. at 81). 	.
34. 	Edward J. Geist Jr.’s wages from Network Integration Services have been
garnished by the IRS as a result of unpaid federal payroll tax liability. (N.T. 82-83).
35. 	Edward J. Geist, Jr. has paid approximately $7,000 toward the outstanding
federal payroll tax liability of U.S. Netway. (N.T. at 84).
36. 	There is currently approximately $20,000 still owed to the IRS by Edward J.
Geist, Jr. for the outstanding federal payroll tax liability of U.S Netway. 	(N.T. at 84).
The Attorneys Fees Component of the Collective Proof of Claim
37. 	The Geist Claimants assert in the Collective Proof of Claim that they are owed,
collectively, the sum of $95,869.14 in connection to attorneys fees. 5
38. 	The Debtor agrees that the Geist Claimants are entitled to their attorneys fees in
connection with the D&L Action pursuant Section 7(f) of the Agreement. (N.T. at 38).
39. 	The Debtor suggests that the Geist Claimants are entitled to $30,000 in attorneys’
fees for their defense of the D&L action. (N.T. at 8-11; 37-41, 58-60).
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40. 	The Geist Claimants filed two (2) lawsuits against NuNet in the Court of
Common Pleas, Luzerne County, Pennsylvania (Nos. 2066-CIV-2002 and 98-E-2000), one in
law and the other in equity, to remedy NuNet’s alleged breach of the Agreement (the “Luzerne
County Litigation”). (Exhibits C-13 & C-14 ).
41. 	When the Geist Claimants initiated the Luzerne County Litigation, the SBA Loan
and the federal payroll tax liability had not been satisfied. The NuNet stock also had not been
converted to the Class A series. (N.T. at 89-90).
42. 	The purpose of the Luzerne County Litigation was to collect damages resulting
from NuNet’s alleged breach of the Agreement. (N.T. at 92).
43. 	The Geist Claimants paid the attorneys fees they incurred in connection with the
D&L Action and the Luzerne County Litigation. (Exhibit C-15; N.T. at 91).
The Rudolph Geist Loans Component of the Collective Proof of Claim
44. 	On July 18, 1998, a Loan Agreement was executed between Rudolph Geist and
U.S. Netway, through U.S. Netway’s representative, Edward J. Geist, Jr. (the “Rudolph Geist
Loan Agreement”). (Exhibit C-9).
45. 	Pursuant to the Rudolph Geist Loan Agreement, Rudolph Geist made three (3)
separate loans to U.S. Netway totaling $47,701.14. (Exhibit C-9).
46. 	In a Promissory Note dated July 18, 1998, U.S. Netway promised to repay
the Rudolph Geist Loans in thirty-six (36) equal installments beginning on August 3, 1998.
(Exhibit C-9 at 2).
47. 	The Rudolph Geist Loans were not listed on the first page of Exhibit B of the
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Agreement where the “Existing Indebtedness” and current accounts payable of U.S. Netway were
provided to NuNet.
48. 	Mr. Keown knew that Rudolph Geist gave U.S. Netway money prior to his
receipt of the Balance Sheet on March 8, 1999, but was not aware of any formal loan agreement.
(N.T. at 26).
49. 	Mr. Keown did not see or review the Rudolph Geist Loan Agreement or
Promissory Note until some time in or around April 5, 1999, approximately one (1) month after
the Agreement was executed. (N.T. 27, 61-62).
50. 	Mr. Keown believed during negotiations and upon the execution of the
Agreement, that the Rudolph Geist Loans were not to be paid by NuNet pursuant to the
Agreement. (N.T. at 26, 56).
51. 	Mr. Keown also believed that Rudolph Geist consented to striking out the
Rudolph Geist Loans on the Balance Sheet of the Agreement on March 8, 1999. (N.T. at 55-56).
IV. 	DISCUSSION
A. 	Applicable Legal Principles
Proofs of claim are deemed allowed unless a party in interest objects. 11 U.S.C. § 501. If
an objection is filed to a proof of claim, the burden of proof shifts between the parties. United
States v. Baskin and Sears P.C., 207 B.R. 84, 86 (E.D. Pa.1997).
[A] claim that alleges facts sufficient to support a legal liability to the claimant
satisfies the claimant's initial obligation to go forward. The burden of going
forward then shifts to the objector to produce evidence sufficient to negate the
prima facie validity of the filed claim. It is often said that the objector must
produce evidence equal in force to the prima facie case. In practice, the objector
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The parties stipulated that the Geist Claimants are entitled to $100,000 for the6
settlement of the D&L Action. The Debtor also agrees that the Geist Claimants are entitled to
$30,000 in attorneys fees for their defense of the D&L Action.
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must produce evidence which, if believed, would refute at least one of the
allegations that is essential to the claim's legal sufficiency. If the objector
produces sufficient evidence to negate one or more of the sworn facts in the proof
of claim, the burden reverts to the claimant to prove the validity of the claim by a
preponderance of the evidence.
In Re Allegheny Int'l, Inc., 954 F.2d 167, 173-74 (3d Cir.1992) (citations omitted). As to the
final burden of proof, the claimants have the final burden to prove the claim by a “preponderance
of the evidence.” 	In re Gimelson, 2004 WL 2713059, at* 13 (E.D. Pa. 2004) (citing In re
Galloway, 220 B.R. 236, 244 (Bankr. E.D. Pa. 1998).
The Debtor asserts that it has shifted the burden of production back to the Geist
Claimants and that the Geist Claimants are unable to prove by a preponderance of the evidence
that they are entitled to any collective, general unsecured claim in excess of $130,000.00. 	The6
three components of the Collective Proof of Claim at issue are: (1) the federal payroll tax
liability; (2) the attorneys fees; and (3) the Rudolph Geist Loans. To resolve these disputes, I
must turn to fundamental state law contract principles because Pennsylvania is the governing law
of the Agreement.
In the Commonwealth of Pennsylvania, a contract is created when there is mutual assent
to the contract’s terms by the parties with the capacity to contract. Shovel Transfer and Storage,
Inc. v. Pa. Liquor Control Bd., 559 Pa. 56, 63, 739 A.2d 133, 136 (1999) (citing Taylor v. Stanley
Co. of Am., 305 Pa. 546, 158 A. 157 (1932)). The fundamental rule in construing a contract is to
ascertain and give effect to the intention of the parties. Hart v. Arnold, 2005 Pa. Super 328, 884
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A.2d 316, 332 (2005). In determining the intent of the parties, the court must examine the entire
contract because the intent of the parties is to be regarded as being embodied in the writing itself.
Murphy v. Duquesne University Of The Holy Ghost, 565 Pa. 571, 591, 777 A.2d 418, 429 (2001)
(“Courts do not assume that a contract’s language was chosen carelessly, nor do they assume that
the parties were ignorant of the meaning of the language they employed.”). It also is proper to
consider the purpose of the agreement and the surrounding circumstances of the transaction.
Lower Frederick Township v. Clemmer, 518 Pa. 313, 329, 543 A.2d 502, 510 (1988)
In my examination of the Agreement, I am mindful of the circumstances surrounding its
creation. Based on the testimony I received, it is clear that U.S. Netway was sinking rapidly and
needed assistance in or around January 1999. NuNet was intended to be U.S. Netway’s savior by
getting it out of its financial crisis. The purpose of the Agreement was to memorialize a deal by
which NuNet would purchase all the existing shares of U.S. Netway in exchange for issuing the
U.S. Netway shareholders Class B stock on a one for one basis and assume certain debts and
liabilities of U.S. Netway. While the negotiation took place over the course of approximately
five weeks between Mr. Keown and Mr. Rudolph Geist, the Agreement appears to have been
executed in a rather rapid fashion with at most, three drafts and, perhaps multiple executed
copies transmitted via facsimile, and later exchanged in person.
With this background in mind, I must ascertain the parties’ intentions as to the scope of
the liabilities assumed by the Debtor insofar as they form the basis of the proofs of claim in issue.
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B. 	Federal Payroll Tax Liability
The first component of the Collective Proof of Claim arises from the Geist Claimants’
contention that the Debtor did not fulfill its obligation under the Agreement to assume the
outstanding federal payroll tax liability of U.S. Netway. The Geist Claimants argue the Debtor
breached the Agreement and, as a result, Edward J. Geist, Jr., as President of U.S. Netway,
suffered damages. Specifically, the IRS garnished Edward J. Geist, Jr.’s wages and imposed a
lien on his personal residence. In the Collective Proof of Claim, the Geist Claimants requested
$24,730.46 in damages. During the March 15, 2006 hearing, Mr. Geist testified that there are
approximately $27,000 in damages: he paid $7,000 to the IRS and there remains approximately
$20,000 in tax liability remaining.
The Debtor objects on the basis that it has already complied with its obligations under the
terms of the Agreement. I agree.
According to the Agreement, NuNet represented and warranted that it was required to
make “arrangements with the Internal Revenue Service to pay and . . . satisfy all past due Federal
Payroll taxes of the Corporation.” (Exhibit D-1 at ¶ 7(I)) (emphasis added). NuNet also agreed
upon as a condition to closing the deal with U.S. Netway that it will have engaged in discussions
with the IRS “regarding the Corporation’s past due Federal Payroll taxes and any related
penalties and interest (the “Taxes”) and is satisfied that the IRS will provide PURCHASER with
an arrangement whereby PURCHASER will be permitted to repay the Taxes pursuant to an
installment repayment arrangement.” (Exhibit D-1 at ¶ 9(d)) (emphasis added).
The Debtor met with the IRS and was advised by the IRS that the approximate liability in
taxes to discharge the lien amounted to $47,000, excluding interest and penalties. At the hearing,
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I admitted the January 1999 Letter of Intent, as well as other parol evidence, because the7
Agreement lacked an integration clause. 	See Yocca v. Pittsburgh Steelers Sports, Inc., 578 Pa.
479, 498, 854 A.2d 425, 436 (2004) (“An integration clause which states that writing is meant to
represent the parties’ entire agreement is also a clear sign that the writing is meant to be just that
and thereby expresses all of the parties’ negotiations, conversations, and agreements made prior
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the Debtor produced exhibits of the $47,000 check it tendered to the IRS, as well as the
conditional commitment letter from the IRS discharging the federal tax lien subject to payment
of said sum.
The Geist Claimants contend that NuNet breached the Agreement, despite its payment of
$47,000, because the entire liability to the IRS was not paid. I do not find merit in this argument.
My reading of the plain language of the Agreement is that the Debtor’s obligation was to resolve
the tax liability of U.S. Netway. The Debtor did precisely that. As I read the provision, the
Debtor’s duty ran to U.S. Netway as an entity, not to other parties who may have been exposed to
liability for the unpaid tax obligation. The Geist Claimants would have me read this provision to
mean that the parties intended that the Debtor’s obligation to resolve the tax liability required full
payment of the tax liability. I find no such duty imposed on the Debtor in the language of the
Agreement and I believe that if the Debtor had undertaken such a duty it would have been
expressly stated in the text of the Agreement. By comparison, Paragraph 7(f) expressly names
the Geist Claimants as entitled to indemnification for, inter alia, liability and damages by reason
of NuNet’s failure to perform its obligation to pay the SBA Loan in full.
Furthermore, it appears that the parties contemplated the possibility that the tax liability
might be compromised. The January 1999 Letter of Intent states that “[t]he negotiated
installment agreement will result in the abatement of penalties by the IRS.” (Exhibit D-9 at 2)
(emphasis added). 	Therefore, the Debtor did not breach the Agreement. The objection to this7
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to its execution.”); Green Valley Dry Cleaners, Inc. v. Westmoreland County Indus.
Development Corp., 832 A.2d 1143, 1155 (Pa. Cmmw. 2003) (stating that the absence of an
integration clause serves as persuasive evidence that the parties did not intend the agreement to
“serve as a complete and exclusive statement of the terms of their transaction.”).
Mr. Keown testified that he reviewed the attorneys fees and his “best estimate” was8
approximately $30,000 worth of attorneys fees can be attributed to the D&L Action.
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component of the Collective Proof of Claim is sustained.
C. 	Attorneys Fees
In the second component of this Collective Proof of Claim, the Geist Claimants assert
that they are entitled to the sum of $95,869.14 in attorneys fees pursuant to two different
indemnification provisions of the Agreement. The attorneys fees arose from three lawsuits, but
can be separated into two (2) components for this analysis. The first component relates to the
attorneys fees the Geist Claimants incurred in their defense of the D&L Action. The second
component pertains to fees incurred in the Luzerne County Litigation.
As to the first component of this proof of claim, there is no objection. The Geist
Claimants cite to Paragraph 7(f) of the Agreement for the attorneys fees they incurred in the D&L
Action. The Debtor agrees that the Geist Claimants are entitled to $30,000 in attorneys fees
pursuant to Paragraph 7(f) for their defense. 	The Geist Claimants did not dispute this figure.8
The second component of the objection to this proof of claim is more complicated. I
must determine whether the Geist Claimants are entitled to indemnification for the balance of
their attorneys fees listed in the Collective Proof of Claim. The resolution of this issue hinges on
whether the shareholders may be indemnified as “parties” under Paragraph 10 of the Agreement.
The Debtor contends the shareholders are not parties because their signature lines were removed
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17
from the final draft of the Agreement and because only the two corporations signed the
Agreement. However, while the lack of signatures, as well as the omission of the signature lines
may be significant, such evidence is not dispositive.
As a general rule, signatures to a contract are not required unless such signing is expressly
required by law or by the intent of the parties. Shovel, 559 Pa. at 63. A written contract which
has not been signed by one of the parties will nevertheless create a valid, binding agreement if
both parties manifest their assent to its terms, Daniel Adams Associates, Inc. v. Polony, 360 Pa.
Super. 72, 87, 519 A.2d 997, 1004-1005 (1987) (citations omitted), and the essential terms of the
contract are settled. Novembrino v. International Ass’n of Machinists and Aerospace Workers
Lodge2462, 144, Pa. Cmmw. 458, 465, 601 A.2d 916, 920 (1992). There is a presumption that
the parties intend their contract to be operative absent a signed writing unless one of them
indicates to the contrary. Ingrassia Construction Co. V. Walsh, 337 Pa. Super. 58, 68, 486 A.2d
478, 483 (1984) (citing 1 S. Williston, Williston on Contracts, § 28 (1957)). Indeed, the mere
presence of signature lines does not determine whether the parties intended to be bound only
upon the execution of the document by all signatories; instead, the inquiry is directed to whether
the parties agreed to the terms in question and intended to be bound by the terms of the contract.
Shovel, 559 Pa. at 65.
In construing the Agreement, I conclude that it was intended that the shareholders be
parties. I reach this conclusion after considering several provisions in the body of the
Agreement.
First, the preamble establishes that the Agreement is between the “Sellers” and the
“Purchaser.” The term “Sellers” is a plural term, defined as the Corporation (U.S. Netway) and
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Paragraph 4 of the Agreement entitled “The Closing” provides in relevant part:9
To allow for a reasonable time for the Corporation to obtain authorization
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“the existing shareholders of the Corporation who are listed in Exhibit ‘A.’” I read “Sellers” to be
a collective, inclusive term that includes both the subgroup of the Corporation and the subgroup
of the shareholders.
Next, the Agreement provides in multiple places that the “Sellers” had specific
obligations to the Purchaser. For instance, in Paragraph 1, the Sellers, which included each
shareholder, had to “agree to sell, transfer and deliver to [NuNet] . . . the two hundred shares of
the capital stock of U.S. Netway, Inc. . . .” The shareholders listed in Exhibit A are referenced
with respect to this obligation. 	Likewise, in Paragraph 6, it is the Sellers, not the Corporation,
that made representations and warranties to the Purchaser. Furthermore, there are other places
where the Agreement speaks about a specific responsibility or action of one of the subgroups and
uses that designated term, rather than Sellers (or even the singular term Seller). (See Exhibit D-1
¶¶ 4 and 6)
Finally, I find it compelling that the Agreement did not require each shareholder to sign
the Agreement for its validity and consummation of the transaction. Compare Franklin Interiors
v. Wall of Fame Management Co., 510 Pa. 597, 511 A.2d 761 (1986) (finding unsigned
document invalid due to express warranty requiring signatures for the formation of a valid
contract) with Shovel, 559 Pa. 56, 739 A.2d 133 (finding intent of the parties controlled where
there was no written term of the contract that required the signatures for the formation of a valid
contract). Rather, NuNet was entitled to be released from its obligation under the Agreement if
each shareholder did not sign by April 9, 1999. 	It is significant that NuNet did not exercise this9
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of all SELLERS required to execute this Agreement, PURCHASER shall
be bound by the terms and conditions of this Agreement upon execution of
the Agreement by authorized representatives of PURCHASER and the
Corporation, and shall remain bound to the terms and conditions of the
Agreement until April 9, 1999, at which time the PURCHASER, at the
PURCHASER’s option, shall be released from its obligations under this
Agreement in the event the Corporation has failed to obtain the
separate execution of this Agreement by each SELLER. Upon
execution of this Agreement by all SELLERS and the delivery by the
Corporation’s authorized representative, Edward Geist, Jr. to
PURCHASER of the Closing documents on or before April 9, 1999 the
Agreement will automatically become final and fully binding on
PURCHASER and the SELLERS, and the immediately preceding sentence
shall be superseded. SELLERS agree to deliver all necessary closing
documents to PURCHASER on or before April 9, 1999.
(D-1 at ¶ 4).
Paragraph 5(b) provides that the Sellers would provide at the closing through their10
authorized representative, Edward J. Geist, Jr., “a duly endorsed signature page of this
Agreement by each SELLER which shall become attached hereto.”( D-1 at ¶ 5).
19
option or concern itself with the fact that each seller did not produce a duly endorsed signature
page of the Agreement at the time of the Closing as contemplated in Paragraph 5 of the
Agreement. 	Instead, NuNet appears to have overlooked such formalities and proceeded with10
the transaction. As a result, NuNet received the 200,000 shares from each shareholder as
intended. In practice, the shareholders acted and performed their mutual obligations under the
Agreement just as if they had signed the Agreement. While I cannot fully deduce the logic
behind the omission of the signature line for each shareholder or the absence of an endorsed
signature page from each Seller at the closing, in looking at the Agreement as a whole, I conclude
that the Debtor’s argument exalts “form over substance” and that the individual shareholders
were intended to be parties to the Agreement.
Having found the shareholders were parties to the Agreement, I turn to the specific
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The Debtor grounded its objection to the claim for attorneys fees pursuant to Paragraph11
10 of the Agreement solely in its argument that the Geist Claimants were not parties to the
Agreement.
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provision in issue. Paragraph 10 provides:
Each party hereto shall indemnify and hold the other parties harmless from and
against all liability . . . including reasonable attorneys fees, incurred or required to
be paid by such other parties by reason of any breach or failure of observance or
performance of any of any representation, warranty or covenant or other provision
of this Agreement by such party.
Edward J. Geist, Jr. testified that the purpose for initiating the Luzerne County Litigation
was to collect the damages that he and the other Geist Claimants suffered as a result of NuNet’s
alleged breach of the Agreement. When the Geist Claimants filed the lawsuits, the SBA Loan
and the IRS liability were not satisfied. The NuNet stock also had not been converted to the
Class A series. 	The Geist Claimants paid their attorneys fees for the Luzerne County Litigation,
as well as the fees for the D&L Action. While these attorneys fees appear high, the Debtor did
not present any evidence to call into question the “reasonableness” of these attorneys fees. 	In11
the absence of specific objections to the reasonableness of the fees incurred, I will not penalize
the Geist Claimants for an aggressive pursuit of their entitlements under the Agreement. If
counsel for the Geist Claimants was overzealous in its representation (and in its billing), it was
incumbent upon the Debtor to develop the facts at trial to focus this defense. It did not do so.
The Geist Claimants are entitled to the entire amount of attorneys fees they listed in their
proof of claim, $95,869.14, of which $65,869.14 is attributed to the attorneys fees incurred in the
Luzerne County Litigation. Therefore, the Debtor’s objection to the attorneys fees component of
the Collective Proof of Claim is overruled.
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In their proof of claim, the Geist Claimants list the Rudolph Geist Loans to be12
$75,312.88.
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D. 	The Rudolph Geist Loans
The final component to the Collective Proof of Claim pertains to the Rudolph Geist
Loans. The Geist Claimants assert that as of March 1, 2006, Rudolph Geist is owed $81,455.98
for the outstanding principal and interest due from three loans he made to U.S. Netway. 	The12
basis for this component is the Geist Claimants’ contention that the Rudolph Geist Loans were
among the liabilities of U.S. Netway that NuNet assumed as part of the Agreement. Specifically,
the Geist Claimants point to Page 4 of Balance Sheet, which lists each loan from Rudolph Geist
as a Long Term Liability of U.S. Netway.
The dispute centers on whether the parties intended the Rudolph Geist Loans to made part
of the Agreement as incorporated by the Balance Sheet included in Exhibit B. Based on all the
evidence received, I find that the Rudolph Geist Loans were not intended to be part of the
Agreement.
As a preliminary matter, I do not doubt that Rudolph Geist gave U.S. Netway money in
1998 as an effort to salvage the company. I reviewed the Rudolph Loan Agreement and the
Promissory Note. The documents indicate that U.S. Netway promised to repay the loan in thirty-
six (36) equal installments beginning on August 9, 1998.
However, the transaction lacked formality. David H. Koral, a former U.S. Netway
shareholder/director and current NuNet shareholder, testified that there was no formal board
action to authorize the Rudolph Geist Loans and that the shareholders were notified of it after the
fact. There was no corporate resolution and Mr. Koral believed Rudolph Geist was to receive
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Rudolph Geist, the primary negotiator for U.S. Netway and its shareholders, is the13
obvious source of evidence to contradict Mr. McKeown’s version of the phone conversation.
Rudolph Geist did not testify.
22
stock instead of money as repayment for his loans to U.S. Netway. Further, contrary to the terms
of the Promissory Note, the Rudolph Geist Loans were not in active repayment status at the time
of the Agreement’s execution. They were not listed as an Existing Indebtedness on page 1 of
Exhibit B to the Agreement. Edward J. Geist, Jr.’s rationale for this omission was that the
Rudolph Geist Loans were done as a favor and that Rudolph Geist was not pushing to have
payments made on the loan. Such informality and imprecision suggests that repayment of the
Rudolph Geist Loans was not presented as a material term of the transaction during the parties’
negotiations.
It appears to me that the Rudolph Geist Loans were, perhaps, an after-thought and added
to the Agreement at the eleventh hour. Though Mr. Keown knew that Rudolph Geist gave U.S.
Netway money, he testified that they were not expressly mentioned in the Agreement until March
8 1999, the day of its execution and when the Balance Sheet appeared for the first time. I believe
Mr. Keown’s testimony.
I also find that there was an agreement to strike out the Rudolph Geist Loans on the
Balance Sheet on March 8, 1999. Mr. Keown testified that upon discovering the presence of the
Rudolph Geist Loans on the Balance Sheet, he advised Rudolph Geist over the phone that he was
striking them out. Mr. Keown believed Rudolph Geist consented to this. I did not receive
evidence to refute the content of the March 8, 1999 phone discussion between Mr. Keown and
Rudolph Geist regarding the Rudolph Geist Loans. 	Consideration of the financial distress of13
U.S. Netway at that point in time, and its need to promptly conclude the transaction, provides a
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Mr. Keown suggested that this occurred prior to, or contemporaneously with, the14
execution of the Agreement, although he was not certain because things were happening rather
fast at that point. According to Edward J. Geist, Jr., there was no such agreement because the
Rudolph Geist Loans were not crossed off the Balance Sheet when the Agreement was faxed
back to U.S. Netway from NuNet. 	Apparently, there are as many as eight (8) versions of the
Agreement, executed at different times, some of which include the crossed out version of the
Balance Sheet. I find Mr. Keown’s version of the story more credible.
23
further basis for crediting Mr. Keown’s testimony on this point. 14
In reaching my conclusion, I also am influenced by the January 1999 Letter of Intent.
According to Mr. Keown, the January 1999 Letter of Intent provided the basis for how NuNet
arrived at its purchase price for U.S. Netway’s stock. The January 1999 Letter of Intent did not
list the Rudolph Geist Loans among the liabilities NuNet would assume. I believe that if the
parties subsequently intended to include the Rudolph Geist Loans in the Agreement, the parties
would have expressly memorialized their new understanding; perhaps through a letter, an email
or even an addendum to the January 1999 Letter of Intent. There is no evidence in the record that
such a communication took place.
In summary, what has become abundantly clear to me is that the Agreement was executed
in a hasty fashion, perhaps out of necessity. Mistakes were made and details were overlooked.
In reviewing the evidence together on this final component of the Collective Proof of Claim, I
find that the Geist Claimants have failed to show by a preponderance of the evidence that the
Rudolph Geist Loans was an assumed liability under the Agreement. Consequently, I sustain the
Debtor’s objection to this final component of the Collective Proof of Claim.
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V. 	CONCLUSION
For the reasons set forth above, I conclude that the Debtor’s objection to the Collective
Proof of Claim filed by the Geist Claimants should be sustained in part, and overruled in part. I
am sustaining the Debtor’s objection as to the components of the Collective Proof of Claim
relating to the outstanding federal tax liability and the Rudolph Geist Loans. I am overruling the
Debtor’s objection to the component of the Collective Proof of Claim for the Geist Claimants’
attorneys fees. The Geist Claimants are entitled to $95,869.14 in attorneys fees pursuant
Paragraphs 7(f) and 10 of the Agreement of Sale executed on March 8,1999. The Geist
Claimants also are entitled to $100,000 for the settlement of D&L Action, as per stipulation of
the parties. Therefore, the Geist Claimants’ total allowed claim is $195,869.14.
An appropriate order follows.
Date: 	August 29, 2006
ERIC L. FRANK
U.S. BANKRUPTCY JUDGE
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