Opinion
No. 25 C.D. 2014
09-24-2014
Bernice Jala and Virginia Grieco v. Wild Acre Lakes & Property Homeowners Association, Inc., Appellant
BEFORE: HONORABLE DAN PELLEGRINI, President Judge HONORABLE BONNIE BRIGANCE LEADBETTER, Judge HONORABLE ROBERT SIMPSON, Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY PRESIDENT JUDGE PELLEGRINI
Wild Acre Lakes & Property Homeowners Association, Inc. (Association) appeals the order of the Court of Common Pleas of Pike County (trial court) granting the petition for review of contested corporate action filed by Bernice Jala (Jala) and Virginia Grieco (Grieco) challenging the Association's assessment of $958.15 against each of them and denying Jala's and Grieco's request for the award of attorney fees in the instant proceeding. We affirm.
Section 5793(a) of the Nonprofit Corporation Law of 1988 (Nonprofit Law), 15 Pa. C.S. §5793(a) states, "Upon application of any person aggrieved by any corporate action, the court may hear and determine the validity of the corporate action." See also Section 104 of the Associations Code, 15 Pa. C.S. §104 ("Except to the extent otherwise provided in this title in cases where a statutory remedy is provided by the title. The court shall have the powers of a court of equity or chancery insofar as those powers relate to the supervision and control of corporations and other associations.").
Jala and Grieco were members of the Association's Board of Directors (Board) from July 2007 to June 2010 and were also two members of the Association's three-member Executive Committee. In March of 2010, Jala and Grieco called an Executive Committee meeting with Felix Rey (Rey), the third member. At the meeting, Grieco made two motions to file a lawsuit to remove two other Board members, Myron Cowher (Cowher) and Bob Tracy, for purported acts of misconduct. Jala seconded the motions and both Grieco and Jala voted in favor of the motions while Rey voted against both motions. Jala and Grieco also hired a private detective to follow Cowher.
Section 5712(a) of the Nonprofit Law states, in pertinent part:
(a) Directors.—A director of a nonprofit corporation shall stand in a fiduciary relationship to the corporation and shall perform his duties as a director, including his duties as a member of any committee of the board upon which he may serve, in good faith, in a manner he reasonably believes to be in the best interests of the corporation and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances....15 Pa. C.S. §5712(a). See also Section 5303(a) of the Pennsylvania Uniform Planned Community Act (Planned Community Act), 68 Pa. C.S. §5303(a) ("In the performance of their duties, the officers and members of the executive board shall stand in a fiduciary relation to the association and shall perform their duties, including duties as members of any committee of the board upon which they may serve, in good faith; in a manner they reasonably believe to be in the best interests of the association; and with care, including reasonable inquiry, skill and diligence as a person of ordinary prudence would use under similar circumstances....").
In addition, Section 3.15 of the Association's by-laws states, in relevant part:
(A) Each member of the [Board] shall stand in a fiduciary relationship to the corporation.(Reproduced Record (R.R.) at 143a, 144a).
(B) Each Director of the Association shall perform the duties as such Director ... in good faith, and with such care, including reasonable inquiry, skill and diligence as a person of prudence would use under similar circumstances except as provided for in Section 3.6(A) and (E) [(relating to conflicts of interest)] and in a manner reasonably believed to be in the Association's best interest.
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(H) In relation to workers, Board Members are not to give directives to employees of [the Association].
Based on the Executive Committee vote, the Association's counsel filed a complaint in the Pike County Court of Common Pleas (trial court) against Cowher alleging that Cowher should be removed from the Board and the Association awarded damages based on a number of violations of the Nonprofit Law, the Association's by- laws, and the Planned Community Act. Cowher preliminarily objected to the complaint because Jala and Grieco as Executive Committee members lacked the capacity to sue in the Association's name. In June 2010, the trial court granted the preliminary objection and dismissed the complaint with prejudice because the Association's Board did not authorize the lawsuit and there was no allegation that it delegated the authority to file suit to the Executive Committee.
Section 5712(a)(2) of the Nonprofit Law states, in pertinent part:
In performing his duties, a director shall be entitled to rely in good faith on information, opinions, reports or statements ... in each case prepared or presented by any of the following:15 Pa. C.S. §5712(a)(2).
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(2) Counsel ... or other persons as to matters which the director reasonably believes to be reliable and competent in the matters presented.
Likewise, Section 5303(a) of the Planned Community act states, in relevant part:
In performing any duties, an officer or executive board member shall be entitled to rely in good faith on information, opinions, reports or statements ... in each case prepared or presented by any of the following:68 Pa. C.S. §5303(a)(2).
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(2) Counsel ... or other persons as to matters which the officer or executive board member reasonably believes to be within the professional or expert competence of that person.
Finally, Section 3.15 of the Association's by-laws provides:
(C) In determining whether or not a Director acted ... in good faith, that Director shall be entitled to rely on information, reports, statements, and the like, ... as prepared by corporate employees/officers who the Director reasonably believes to be competent in the matter presented. Also, a Director may rely upon information, reports, data, accounts, and fail to act in the absence of good faith when that Director has knowledge regarding the matter in question that could cause such Director's reliance on the information, data, reports and the like provided by others as set out above to be unwarranted.(R.R. at 143a-144a).
(D) In determining what is or is not in the Corporation's best interests, a Director may consider the following factors, including but not limited by way of specification, to the effect of any action or failure to act: upon corporate employees ... as well as all other pertinent factors.
Specifically, the complaint alleged that Cowher violated the Association's by-laws by: providing direction to members of the security staff and maintenance staff without Board approval; obstructing proper payments to Association employees, vendors, and professionals by misrepresenting his check signing authority to Dime Bank, executing signature cards, and signing and refusing to sign disbursements; misrepresenting facts to advance a personal cause; taking unilateral action; breaching the chain of command; circumventing actions the Board has approved; acting unprofessionally at meetings; personally attacking other Board members, employees, and management; using profanity in an official setting; disseminating confidential Association information to third parties; defaming and harassing Board members, Association employees and management; interfering with management; and violating his duties as Board Secretary by failing to keep accurate records, keeping Association records at his personal residence, and distributing unapproved minutes to third parties. (R.R. at 118a-120a). The complaint also alleged that Cowher violated Sections 5113 and 5303 of the Planned Community Act, 68 Pa. C.S. §§5113 and 5303, by taking unauthorized actions in bad faith and in violation of his fiduciary duty to the Association. (Id. at 122a-123a). Finally, the complaint alleged that the foregoing actions constitute a gross abuse of authority or discretion and/or is proper cause for his removal under the Nonprofit Law, and that he had previously engaged in similar conduct and was removed from the Board in 2009 as a result. (Id. at 124a-125a).
Section 3.16 of the Association's by-laws states:
The Board may delegate its authority to an Executive Committee consisting of a maximum of four (4) of its members, two (2) of whom shall be the Chairperson and the President, and two (2) of whom shall not be officers of [the Association]. Such delegation of authority shall only be effective upon the consent of not less than eight (8) Directors. No order, draft, voucher or check for the payment of any expenses authorized by the Executive Committee shall be signed by more than [one] (1) member of the Executive Committee.(R.R. at 144a).
In September 2010, the Board passed Cowher's motion to have Jala and Grieco reimburse the Association the costs of the private detective and the $1,960.00 in court costs that the Association had reimbursed Cowher. In January 2011, the Board passed Rey's motion, seconded by Cowher, that the Association's counsel write a letter to assess the financial responsibility and costs incurred for hiring the private detective and filing the lawsuit against Cowher. However, in May 2011, the Board passed Bob Tracy's motion, seconded by Rey, "to not pursue claim against former board members." (R.R. at 160a). In July 2013, the Board passed Cowher's motion to have Jala and Grieco reimburse the Association for the legal fees that were reimbursed to Cowher for the unauthorized lawsuit that they filed against Cowher. (Id. at 163a). The Association then sent Jala and Grieco a letter assessing $958.15 each for the legal fees that had been reimbursed to Cowher and stating that they had ten business days to reimburse and if not, they would be considered members in bad standing. (Id. at 130a, 157a). The letters also stated that they should contact the Administrative Office and make arrangements to appear at the Board's next closed session if they would like to appeal this decision. (Id.).
Section 5713(a) of the Nonprofit Law states:
(a) General rule.—If a bylaw adopted by the members of a non-profit corporation so provides, a director shall not be personally liable, as such, for monetary damages for any action taken unless:15 Pa. C.S. §5713(a).
(1) the director has breached or failed to perform the duties of his office under this subchapter; and
(2) the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness.
In turn, Section 3.15 of the Association's by-laws provides:
(E) When a breach of fiduciary duty, lack of good faith and self-dealing are absent, it shall be presumed that a Director's actions ... shall be in the Corporation's best interest.(R.R. at 144a).
(G)[sic] A Director shall not be liable for monetary damages as such for action or actions taken ... unless:
(1) The Director has breached or failed to perform the duties as Director under the standard of care described hereinabove; and
(2) The breach [or] failure to perform constitutes self-dealing, willful misconduct or recklessness.
Jala and Grieco were considered to be members in bad standing because they did not pay the assessment for Cowher's reimbursed legal fees. Members in bad standing cannot use the residents' entrance gate and must use the guest entrance gate; cannot use Association facilities such as the clubhouse, park and pools; and cannot attend meetings. Jala and Grieco were each issued a citation when they refused to leave the Board's August 2013 meeting at the Association's clubhouse. Jala requested that the hearing be continued.
In October 2013, Jala and Grieco filed a petition in the trial court to review the Board's corporate action asking the court to reverse the $958.15 assessments and to award attorney fees. The Association filed an answer and, following a hearing, the trial court granted the petition in part and reversed the $958.15 assessments, but refused to award Jala and Grieco attorney fees in the instant action. The trial court determined that the assessments were "made without any proper basis or foundation pursuant to [the Association's] covenants, by-laws, rules or regulations." The Association then filed this appeal.
This Court's scope of review is limited to determining whether the trial court abused its discretion, committed an error of law, or reached a decision that lacks substantial evidentiary support. Assalita v. Chestnut Ridge Homeowners Association, 866 A.2d 1214, 1217 n.12 (Pa. Cmwlth. 2005).
The Association argues that the trial court erred in reversing its assessment because Jala and Grieco are liable for monetary damages under Section 3.15(G) of its by-laws and their breach constitutes self-dealing, willful misconduct or recklessness. The Association contends that the trial court did not dispute that they breached this standard of care; rather, in the opinion filed in support of its order, the trial court erroneously imposed a due process requirement that is not applicable in this case because there is no governmental action. Moreover, the Association submits that it is specifically empowered to discipline its Directors or members and to levy assessments for violation of its by-laws under Sections 3.1(D) and (J) and Section 3.10(H)(ii) of those by-laws. (R.R. at 136a, 137a, 144a).
However, as outlined above, in order to impose the instant assessments against Jala and Grieco based on their actions as Executive Committee members, the Association was required to demonstrate that their actions constituted "self-dealing, willful misconduct or recklessness" under Section 5713(a) of the Nonprofit Law and Section 3.15(G) of the Association's by-laws. While Jala verified the complaint in the prior action against Cowher in which the assessed attorney fees were generated, the complaint was, in fact, prepared, signed and filed by prior Association counsel. (R.R. at 114a-125a). Under 5712(a)(2) of the Nonprofit Law, Section 5303(a) of the Planned Community Act, and Section 3.15(C) of the Association's by-laws, Jala and Grieco were permitted to rely in good faith upon counsel's judgment that it was proper to file the complaint against Cowher regardless of whether or not it was ultimately dismissed by the trial court upon preliminary objection.
As Pa. R.C.P. No. 1023.1(c) states, in pertinent part:
(c) The signature of an attorney ... constitutes a certificate that the signatory has read the pleading.... By signing, filing, submitting, or later advocating such a document, the attorney ... certifies that, to the best of that person's knowledge, information and belief, formed after an inquiry reasonable under the circumstances,See Eiser v. Brown & Williamson Tobacco Corporation, 938 A.2d 417, 428 (Pa. 2007) (Baldwin, J., plurality) ("There is a presumption that an attorney licensed to practice law in this Commonwealth, who acts as an officer of the court system, has acted in good faith upon signing a document filed with the court.") (footnotes omitted); Commonwealth v. Grant, 992 A.2d 152, 161 (Pa. Super. 2010) ("Although we indicated in [Commonwealth v. Bretz, 830 A.2d 1273, 1278 (Pa. Super. 2003),] that an attorney's admission to the bar allows us to presume that he has the 'training, knowledge, and ability to represent a client,' we also held that this presumption may be rebutted where 'additional factors' demonstrate that the attorney is not competent to practice law in this Commonwealth."); Janicik v. Prudential Insurance Company of America, 451 A.2d 451, 458 (Pa. Super. 1982) ("Generally, '[u]ntil the contrary is demonstrated, courts will assume that members of the bar are skilled in their profession.'") (citation omitted).
(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation,
(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification or reversal of existing law or the establishment of new law, [and]
(3) the factual allegations have evidentiary support....
See also Rule of Professional Conduct 3.1 ("A lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis in law and fact for doing so that is not frivolous, which includes a good faith argument for an extension, modification or reversal of existing law."); Rule of Professional Conduct 3.3(a)(1), (b) ("(a) A lawyer shall not knowingly: (1) make a false statement of material fact or law to a tribunal...; (b) A lawyer who represents a client in an adjudicative proceeding and who knows that a person intends to engage, is engaging or has engaged in ... fraudulent conduct related to the proceeding shall take reasonable remedial measures, including, if necessary, disclosure to the tribunal."). --------
Because the instant assessment for attorney fees is based upon a presumably properly filed complaint against Cowher, the "self-dealing, willful misconduct or recklessness" that Section 5713(a) of the Nonprofit Law and Section 3.15(G) of the Association's by-laws require in order to impose personal liability upon Jala and Grieco is not present in this case. See, e.g., Loveless v. Pocono Forest Sportsman Club, Inc., 972 A.2d 572, 575 (Pa. Cmwlth.), appeal denied, 983 A.2d 730 (Pa. 2009) ("With respect to the conduct of the board, Plaintiff alleges that holding meetings without a quorum, self-dealing by officers and using mail-in ballots constitutes fraud and/or illegal conduct. However, after careful review of the witnesses' testimony, we agree with the trial court that the record does not indicate any conduct that rises to the level of fraud or dishonesty."); Mulrine v. Pocono Highland Community Association, 616 A.2d 188, 190 (Pa. Cmwlth. 1992) ("It is a well-established legal principle that courts should not substitute their judgment for that of the directors of a corporation and will not interfere with the internal management of the corporation unless the acts complained of constitute fraud, bad faith or gross mismanagement or are unlawful or ultra vires.") (citation omitted). As a result, the trial court did not err or abuse its discretion in granting Jala's and Grieco's petition to review the Board's corporate action because the assessments were "made without any proper basis or foundation pursuant to [the Association's] covenants, by-laws, rules or regulations."
Accordingly, the trial court's order is affirmed.
/s/_________
DAN PELLEGRINI, President Judge ORDER
AND NOW, this 24th day of September, 2014, the order of the Pike County Court of Common Pleas dated December 12, 2013, at No. 1716-2013-Civil, is affirmed.
/s/_________
DAN PELLEGRINI, President Judge