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Deep Six Inc. v. Abernathy

Plaintiffs were entitled to summary judgment on their trover claim because defendant admittedly took their tax refunds and refused to return them.

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The issues on appeal are i whether undisputed evidence that sellers of a business had title and the right to immediate possession of tax refund checks arising from the business’s pre-sale operations, authorized the court to grant the sellers summary judgment on their trover action, and ii whether the trial court erred in holding that the sellers had not agreed to indemnify the purchaser for all appellate attorney fees connected with a pre-sale tax dispute of the business with the Internal Revenue Service. We hold that the court correctly granted sellers summary judgment on the trover action but that it erred in granting the summary judgment on the indemnity question. Accordingly, we affirm in part and reverse in part.

Elaine Marcus as executrix of an estate, John Scasino, and John Abernathy sold to Deep Six, Inc. a business whose alcoholic beverage licenses were held by an allegedly non-profit corporation known as Post 112 of the Jewish War Veterans. At the time, all parties knew that the IRS was auditing Post 112 and calling into question its non-profit status. The parties executed an indemnity agreement, which they attached as Exhibit I to the simultaneously-executed purchase agreement and which they incorporated into the purchase agreement by reference. The indemnity agreement obligated sellers to indemnify Deep Six for expenses arising out of pre-sale operations of the business, and the purchase agreement specifically obligated sellers to pay expenses and tax payments resulting from the ongoing audit. The sellers deposited money in an escrow account to defray the anticipated expenses.

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