Opinion
No. 1265 C.D. 2011
04-17-2012
Gerald W. Carlson and Dolores E. Carlson, Appellants v. Fawn Ridge Estates Homeowners' Association, Inc., Hope Doria and Fawn Ridge Estates, Inc.
BEFORE: HONORABLE DAN PELLEGRINI, President Judge HONORABLE BERNARD L. McGINLEY, Judge (P.) HONORABLE JAMES GARDNER COLINS, Senior Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY SENIOR JUDGE COLINS
This matter is an action brought by plaintiffs Gerald and Dolores Carlson, a husband and wife, against their homeowners' association, Fawn Ridge Estates Homeowners' Association (HOA), and a director and officer of HOA, the developer's widow, Hope Doria (Doria). Plaintiffs appeal from orders of the Monroe County Court of Common Pleas Orphans' Court Division granting summary judgment in favor of defendants on all of plaintiffs' claims and denying exceptions. We affirm.
Plaintiffs' appeal of the trial court's March 7, 2011 order granting summary judgment, filed on July 7, 2011, was timely. On March 21, 2011, plaintiffs filed exceptions to the March 7, 2011 summary judgment order and the trial court's order denying the exceptions was entered June 10, 2011. See Pa. O.C.R. 7.1(a); In re Wilton, 921 A.2d 509, 512 n.1 (Pa. Super. 2007) (if exceptions to an order are filed within 20 days, 30-day appeal period does not begin to run until disposition of exceptions).
HOA is a non-profit corporation incorporated in 1994 whose members are property owners in the Fawn Ridge Estates residential development. HOA is governed by By-Laws and a Declaration of Restrictions, Covenants and Easements. (Declaration of Restrictions, Covenants and Easements and By-Laws, admitted by Defendants' Admission ¶1, attached to Plaintiffs' Brief and Affidavit in Opposition to Summary Judgment, R.R. at 103a-142a.) Plaintiffs purchased a lot in Fawn Ridge Estates in 2002 and are members of HOA. Before this action was brought, HOA had no board of directors, and at the time the action was brought, it was being run by the defendant Doria and no elections for its board of directors had been held. (Trial Court Opinion of August 25, 2005 on Non-Profit Association Voting Rights at 1, R.R. at 274a.)
Plaintiffs filed this action in April 2005 against HOA, Doria and the developer corporation, Fawn Ridge Estates, Inc. The developer corporation was dismissed on preliminary objections and plaintiffs, on October 31, 2005, filed a three-count Amended Complaint against HOA and Doria. Count I of this Amended Complaint asserted a claim for breach of fiduciary duty, Count II asserted claims for an accounting and inspection of records and Count III asserted a claim for receivership. (Amended Complaint, R.R. at 301a-310a.)
In 2005, the trial court ordered a court-supervised election for HOA's board of directors. (Trial Court Docket Entries at 2-6, R.R. at 9a-13a.) The court-supervised election was held on October 15, 2005, and a three-person HOA board of directors was elected. No challenge was filed to the election within the time period for challenges set by the court. (Trial Court Docket Entries at 6-7, R.R. at 13a-14a.) Between 2005 and March 2010, the parties took discovery and litigated numerous discovery disputes. (Trial Court Docket Entries at 4-6, 8-13, 15-25, R.R. at 11a-13a, 15a-20a, 22a-32a.)
In February 2009, HOA and Doria filed a motion for judgment on the pleadings seeking dismissal of all claims on the grounds that the fiduciary duty claim could be asserted only as a derivative cause of action on behalf of HOA, that the Amended Complaint did not state a legally valid claim for an accounting or for inspection of records and that the statutory provision on which plaintiffs' receivership claim was based did not authorize receivership. (Defendants' Motion for Judgment on the Pleadings and Supporting Memorandum of Law at 3-9.) On May 28, 2009, the trial court denied the motion for judgment on the pleadings. (Trial Court Docket Entries at 23-24, R.R. at 30a-31a; Order of May 28, 2009, R.R. at 333a-334a.) In its Opinion in support of that Order, the trial court held that the Amended Complaint asserted a derivative claim on behalf of HOA that should be allowed to proceed. (Opinion of May 28, 2009 at 11-12, R.R. at 331a-332a.)
On April 26, 2010, HOA and Doria filed a motion for summary judgment arguing both the legal grounds from their prior motion for judgment on the pleadings and that plaintiffs had no evidence supporting their claims of mismanagement and improper conduct. (Defendants' Memorandum of Law in Support of Summary Judgment, Supp. R.R. at 1b-30b.) On March 7, 2011, the trial court granted the motion for summary judgment in its entirety. (Order of March 7, 2011, R.R. at 258a.)
The trial court based its grant of summary judgment on the legal insufficiency of plaintiffs' claims, holding that all three counts of the Amended Complaint failed to meet the statutory requirements of the Nonprofit Corporation Law of 1988 (Nonprofit Corporation Law), 15 Pa. C.S. §§ 5101-6162, for the causes of action they asserted. The court held that plaintiffs' Count I breach of fiduciary duty claim was the corporation HOA's cause of action, which plaintiffs could not assert against HOA and lacked standing to assert on their own behalf. (Opinion of March 7, 2011 at 3-6, R.R. at 261a-264a.) The court granted summary judgment on Count II on the grounds that the right to any accounting to recover mismanaged funds was the corporation's cause of action and that plaintiffs had not pleaded compliance with the requirements for inspection of records. (Opinion of March 7, 2011 at 6-8, R.R. at 264a-266a.) The court granted summary judgment on Count III on the grounds that plaintiffs' claims did not meet the statutory requirements for placing a non-profit corporation in receivership. (Opinion of March 7, 2011 at 9, R.R. at 267a.)
The trial court did not find or rule that plaintiffs had failed to show factual support for their claims, other than stating that the gravamen of their claims had been dealt with by the court-ordered 2005 election and that the evidence they submitted raised claims of post-2005 conduct that was not a subject of the Amended Complaint. (Opinion of March 7, 2011 at 10, R.R. at 268a.)
Plaintiffs argue that summary judgment was premature and that the trial court erred in holding that the claims asserted in their Amended Complaint were legally insufficient. Our standard of review of the trial court's grant of summary judgment is de novo and the scope of review is plenary. Pyeritz v. Commonwealth, ___ Pa. ___, ___, 32 A.3d 687, 692 (2011).
HOA and Doria argue that the trial court's summary judgment should also be affirmed on the alternative ground that plaintiffs had no evidence of improper conduct by HOA or Doria. (Appellees' Brief at 19-25.) Plaintiffs dispute this and argue that there was evidence to support their claims of misconduct by HOA and Doria. (Appellants' Brief at 21-29.) In light of our conclusion that plaintiffs did not assert a legally valid breach of fiduciary duty claim, we do not address these contentions because any disputed facts would not be material. HOA and Doria also request dismissal of the appeal for failure to comply with Pa. R.A.P. 2154 and Pa. R.A.P. 2117(c). We reject these requests to dismiss the appeal. Plaintiffs' failure to file a designation of the Reproduced Record as required by Rule 2154 did not prejudice HOA or Doria or affect the ability of the Court to review the case. In addition, HOA and Doria did not file any application to dismiss and simply raised the issue as a purported "motion" in their brief. Plaintiffs' failure to designate, therefore, cannot be a basis for dismissal of the appeal. Commonwealth v. Sohnleitner, 884 A.2d 307, 312-13 (Pa. Super. 2005) (Rule 2154 dismissal cannot be sought by brief); Downey v. Downey, 582 A.2d 674, 678 (Pa. Super. 1990) (motion to dismiss appeal was without merit because appellee could file supplemental reproduced record and certified record was available to court). While plaintiffs did not comply with Rule 2117(c)'s requirement to state in their brief where issues were raised below, it is readily apparent that all of the arguments plaintiffs assert in their brief in this appeal were raised in their summary judgment response in the trial court. Moreover, HOA and Doria do not contend that any of those issues were not properly raised and preserved in the trial court. While we do not condone plaintiffs' failure to comply with Rule 2117(c), under the circumstances here it does not warrant the severe sanction of dismissal of an appeal. Notably, plaintiffs are not the only party who has disregarded the Rules of Appellate Procedure in this appeal. Appellees' Brief's four-page Counter-Statement of the Questions Involved listing 12 separate issues is in violation of Pa. R.A.P. 2116(a).
Plaintiffs' contention that summary judgment could not be granted because discovery was not complete is without merit. The trial court granted summary judgment solely on issues of law which could not be affected by further discovery. Entry of summary judgment prior to the completion of discovery was therefore proper because further discovery was not material to the issues on which the court ruled. Manzetti v. Mercy Hospital of Pittsburgh, 565 Pa. 471, 491-92, 776 A.2d 938, 950-51 (2001); Bird Hill Farms, Inc. v. United States Cargo & Courier Service, Inc., 845 A.2d 900, 904 n.2 (Pa. Super. 2004); Pa. R.C.P. No. 1035.2(1).
Moreover, plaintiffs, in fact, had ample time to take any discovery necessary to respond to summary judgment. The case had been pending for over five years when the trial court ruled on the summary judgment motion and substantial discovery had occurred over that lengthy period. "The Pennsylvania Rules of Civil Procedure do not give ... an unlimited amount of time to conduct discovery." Fort Cherry School District v. Gedman, 894 A.2d 135, 140 (Pa. Super. 2006) (summary judgment was not premature where the party opposing summary judgment had 15 months to conduct discovery). Plaintiffs made no showing that particular items of further discovery were needed to respond to the summary judgment motion or that they attempted to pursue such discovery in the more than 10 months that the summary judgment motion was pending. Nor is there any evidence that plaintiffs were prevented from doing so. While plaintiffs claim that defendants obstructed discovery, those events occurred and were dealt with by the trial court in 2006 and 2007 (Appellants' Brief at 11-12), years before the summary judgment motion was filed, and therefore were not a basis to deny or delay summary judgment.
With respect to the merits, we conclude that the trial court correctly held that Counts I and III of plaintiffs' Amended Complaint did not set forth any legally valid cause of action against HOA or Doria and that summary judgment was therefore properly granted as to those claims. Summary judgment was proper as to Count II of the Amended Complaint because plaintiffs admitted that the relief sought, inspection of records, had already been obtained in discovery and this claim was therefore moot. We discuss each Count of the Amended Complaint below, in turn.
Count I - Breach of Fiduciary Duty
Under the Nonprofit Corporation Law, claims for director and officer breach of duty may be brought only by the corporation itself or in a derivative action on behalf of the corporation. 15 Pa. C.S. §§ 5717, 5782. Section 5717 the Nonprofit Corporation Law provides in relevant part:
The duty of the board of directors, committees of the board and individual directors under section 5712 (relating to standard of care and justifiable reliance) is solely to the nonprofit corporation and may be enforced directly by the corporation or may be enforced by a member, as such, by an action in the right of the corporation, and may not be enforced directly by a member or by any other person or group.15 Pa. C.S. § 5717 (emphasis added). Section 5782 of the Nonprofit Corporation Law permits members of the nonprofit corporation to bring an action for breach of fiduciary duty only as a derivative action on behalf of the nonprofit corporation. 15 Pa. C.S. § 5782; Pa. R.C.P. No. 1506.
Section 5782 provides in relevant part:
a) General rule.--Except as provided in subsection (b), in any action or proceeding brought to enforce a secondary right on the part of one or more members of a nonprofit corporation against any present or former officer, director or member of an other body of the corporation because the corporation refuses to enforce rights that may properly be asserted by it, each plaintiff must aver and it must be made to appear that each plaintiff was a member of the corporation at the time of the transaction of which he complains. (b) Exception.--Any member who, except for the provisions of subsection (a), would be entitled to maintain the action or proceeding and who does not meet such requirements may, nevertheless in the discretion of the court, be allowed to maintain the action or proceeding on preliminary showing to the court, by application and upon such verified statements and depositions as may be required by the court, that there is a strong prima facie case in favor of the claim asserted on behalf of the corporation and that without the action serious injustice will result.15 Pa. C.S. § 5782 (a),(b).
Plaintiffs did not state a derivative cause of action for breach of fiduciary duty because they sued and sought relief from HOA and asserted their claims against Doria on their own behalf, seeking judgment in their favor and not on behalf of HOA. (Amended Complaint, R.R. at 301a-307a.) The Amended Complaint specifically alleged that "Plaintiffs have been damaged" (Amended Complaint ¶41, R.R. at 307a) (emphasis added) and that plaintiffs were asserting claims for "the effects of the mismanagement as it applied to them." (Amended Complaint ¶38, R.R. at 306a) (emphasis added). In addition, a plaintiff pleading a derivative claim must either allege what efforts were made to have the corporation enforce its rights or allege why such demand efforts were not made. Pa. R.C.P. No. 1506(a)(2). Plaintiffs' Amended Complaint alleged demands concerning elections, meetings, accounting of funds and information (Amended Complaint ¶¶17-18, R.R. at 303a-304a), but no request that HOA bring suit against Doria for breach of fiduciary duty.
Plaintiffs argue that Section 5782(b) of the Nonprofit Corporation Law permits them to assert claims against HOA and on their own behalf and that the earlier denial of judgment on the pleadings barred the trial court from holding that the Amended Complaint did not state a valid derivative cause of action. We reject both of these arguments.
Section 5782(b) of the Nonprofit Corporation Law does not permit a member of a non-profit corporation to assert non-derivative, direct claims or claims against the corporation to avoid injustice. Rather, Section 5782(b) provides that "[a]ny member who, except for the provisions of subsection (a), would be entitled to maintain the action or proceeding and who does not meet such requirements may, nevertheless in the discretion of the court, be allowed to maintain the action or proceeding on preliminary showing to the court ... that there is a strong prima facie case in favor of the claim asserted on behalf of the corporation and that without the action serious injustice will result." 15 Pa. C.S. § 5782(b) (emphasis added). The requirement of subsection (a) to which Section 5782(b) refers is the requirement that "each plaintiff must aver and it must be made to appear that each plaintiff was a member of the corporation at the time of the transaction of which he complains." 15 Pa. C.S. § 5782(a). Section 5782(b) thus only expands the right to bring derivative claims on behalf of the corporation to persons who were not members at the time of the wrongdoing and does not abrogate the requirement that the claim be asserted on behalf of the corporation and not by members on their own behalf or against the corporation. Indeed, Section 5782(b) expressly states that cause of action it permits in order to prevent serious injustice is a "claim asserted on behalf of the corporation." 15 Pa. C.S. § 5782(b).
Plaintiffs are correct that the trial court's summary judgment on this Count was based on the same legal grounds that a prior judge in the case had rejected in deciding defendants' motion for judgment on the pleadings. That fact, however, is not a valid ground for reversal. The rule that one judge should not overrule another on the same court, the coordinate jurisdiction rule, does not apply where the motions are of a different type, and does not bar a judge on summary judgment from overruling another judge's decision on preliminary objections or judgment on the pleadings, even on an identical legal issue. Riccio v. American Republic Insurance Co., 550 Pa. 254, 260-62, 705 A.2d 422, 425-26 (1997); Goldey v. Trustees of University of Pennsylvania, 544 Pa. 150, 155-56, 675 A.2d 264, 267 (1996); Mellon Bank, N.A. v. National Union Insurance Co. of Pittsburgh, 768 A.2d 865, 870-71 (Pa. Super. 2001); D'Errico v. DeFazio, 763 A.2d 424, 435-36 (Pa. Super. 2000).
Plaintiffs also argue that this Court's decisions in Quaker City Yacht Club v. Williams, 429 A.2d 1204 (Pa. Cmwlth. 1981), Hart v. Manning, 828 A.2d 5 (Pa. Cmwlth. 2003) and Kelso Woods Association, Inc. v. Swanson, 692 A.2d 1132, 1134-35 (Pa. Cmwlth. 1997) permit the breach of fiduciary duty claim. (Appellants' Brief at 13-14, 28.) Those cases, however, do not hold that members of a non-profit corporation have standing to bring breach of fiduciary duty or damages causes of action against the corporation or against directors or officers on their own behalf. Quaker City Yacht Club and Kelso Woods dealt with equity and declaratory judgment claims to enforce a non-profit corporation's by-laws and specific requirements of the Nonprofit Corporation Law. Quaker City Yacht Club, 429 A.2d at 1205-06; Kelso Woods, 692 A.2d at 1134-35. In Hart, this Court addressed only the issue of whether the plaintiffs were members of the non-profit corporation, not whether they had any cause of action in their own right for damages. 828 A.2d at 6, 10-13.
Whether plaintiffs could state a narrow, non-damages cause of action against HOA under Quaker City and Kelso or under the Uniform Planned Community Act, 68 Pa. C.S. §§ 5101-5414 is not before us. The question whether plaintiffs could state a derivative breach of fiduciary claim on behalf of HOA against Doria is likewise not before this Court. Plaintiffs did not request that the trial court grant leave to amend to state these substantially different causes of action. Failure to grant leave to amend is not reversible error where no leave to amend is sought. Werner v. Zazyczny, 545 Pa. 570, 584, 681 A.2d 1331, 1338 (1996). Moreover, plaintiffs did not list failure to grant leave to amend anywhere in their Statement of Errors Complained of on Appeal under Pa. R.A.P. 1925(b). (Concise Statement of Issues on Appeal Pursuant to Pa. R.A.P. Rule 1925(b), Supp. R.R. at 458b-461b.)
Count II -Accounting and Inspection of Records
Plaintiffs argue that they pleaded compliance with the requirements of Section 5508(b) of the Nonprofit Corporation Law, 15 Pa. C.S. § 5508(b), for shareholder inspection of records and that their Count II claim for inspection of records stated a valid cause of action. It is unnecessary for us to address this issue because plaintiffs' claim for inspection of records is moot. Whatever the original merit or sufficiency of the claim for inspection of records, plaintiffs admitted both in this Court and in the trial court that after this action was brought, they obtained through court orders in discovery all the documents that they seek in their request for inspection. (Appellants' Brief at 33; Brief in Opposition to Defendants' Motion for Summary Judgment at 22, R.R. at 65a.)
Plaintiffs specifically assert that the argument that Count II did not plead a sufficient claim for inspection of records
is moot as the court has ordered that the Plaintiffs/Appellants receive all records. What the Defendants/Appellees are doing, is asking that the barn door be closed after the court let all the documents out of the barn.(Appellants' Brief at 33; see also Brief in Opposition to Defendants' Motion for Summary Judgment at 22, R.R. at 65a.) To the extent that plaintiffs contend that they have a separate claim for an accounting in Count II for any relief other than inspection of records, such arguments have been waived by their Statement of Errors Complained of on Appeal under Pa. R.A.P. 1925(b) and are not before us. In their Rule 1925(b) Statement, the only error that plaintiffs asserted with respect to the trial court's summary judgment on Count II was its ruling on their claim for inspection of records. (Concise Statement of Issues on Appeal Pursuant to Pa. R.A.P. Rule 1925(b) ¶10, Supp. R.R. at 460b.) --------
Count III - Receivership
A receiver may be appointed for a non-profit corporation only where there is a deadlock in the membership so that directors cannot be elected or where there are grounds for dissolution of the corporation under Section 5981 of the Nonprofit Corporation Law. 15 Pa. C.S. §§ 5764, 5981. The grounds for dissolution under Section 5981 are:
(1) That the objects of the corporation have wholly failed; or are entirely abandoned, or that their accomplishment is impracticable.15 Pa. C.S. § 5981.
(2) That the acts of the directors, or those in control of the corporation, are illegal, oppressive, or fraudulent, and that it is beneficial to the interests of the members that the corporation be wound up and dissolved.
(3) That the corporate assets are being misapplied or wasted, and that it is beneficial to the interest of the members that the corporation be wound up and dissolved.
(4) That the directors or other body are deadlocked in the management of the corporate affairs and the members are unable to break the deadlock, and that irreparable injury to the corporation is being suffered or is threatened by reason thereof.
None of these grounds for receivership is satisfied here. There was no claim by plaintiffs that there is any deadlock in the membership or directors of HOA or that the HOA's purpose has failed, been abandoned or become impractical. While plaintiffs pleaded misconduct in the management of HOA's affairs (Amended Complaint ¶¶13, 17-25, 34-36, 39-40, 42-44, R.R. at 303a-307a), these allegations do not meet the requirements for receivership under Section 5981 (2) or (3). Evidence that by-laws have not been strictly followed and that there has been some sloppiness and self-dealing is not legally sufficient to support receivership and dissolution of a non-profit corporation. Loveless v. Pocono Forest Sportsman Club, Inc., 972 A.2d 572, 574-76 (Pa. Cmwlth. 2009). In addition, there was no showing or claim that it is beneficial to the members that HOA be dissolved and plaintiffs did not seek dissolution of HOA.
Plaintiffs' argument that what they seek is removal of directors under 15 Pa. C.S. §5726(c) cannot support their receivership claim or any request for relief. The only director as to whom plaintiffs alleged misconduct was Doria. Doria had resigned from HOA's board prior to the motion for summary judgment and the trial court decision. (Minutes of HOA Board Meeting of February 19, 2010, attached to Plaintiffs' Brief and Affidavit in Opposition to Summary Judgment, R.R. at 237a-238a.) The only claim that plaintiffs might have for removal of directors is therefore moot.
For the above reasons, we affirm the trial court's orders granting summary judgment on all of plaintiffs' claims in this action and denying plaintiffs' exceptions.
/s/_________
JAMES GARDNER COLINS, Senior Judge ORDER
AND NOW, this 17th day of April, 2012, the orders of March 7, 2011 and June 10, 2011 of the Monroe County Court of Common Pleas Orphans' Court Division in the above-captioned case are AFFIRMED.
/s/_________
JAMES GARDNER COLINS, Senior Judge