Opinion
No. 1410 C.D. 2013
12-30-2014
Herman Wooden and Thomas Logan, Appellants v. Highmark, Inc., A Pennsylvania Non-Profit Corporation
BEFORE: HONORABLE DAN PELLEGRINI, President Judge HONORABLE BERNARD L. McGINLEY, Judge HONORABLE ROBERT SIMPSON, Judge HONORABLE PATRICIA A. McCULLOUGH, Judge HONORABLE ANNE E. COVEY, Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY JUDGE COVEY
Herman Wooden (Wooden) and Thomas Logan (collectively, Appellants) appeal from the Philadelphia County Common Pleas Court's (trial court) August 8, 2013 order granting Highmark, Inc.'s (Highmark) summary judgment motion and denying Appellants' partial summary judgment motion. There are essentially four issues before this Court: (1) whether Appellants have standing; (2) whether the trial court is the appropriate forum to decide Appellants' claims; (3) whether the trial court improperly resolved matters which were the subject of conflicting testimony when it granted Highmark's summary judgment motion; and (4) whether the trial court was bound by the Pennsylvania Department of Insurance's (Insurance Department) findings that Highmark did not accumulate excessive capital surplus. After review, we affirm.
Highmark is a Pennsylvania nonprofit corporation which operates both a nonprofit hospital plan (Blue Cross), and a nonprofit professional health service plan (Blue Shield). In addition, Highmark maintains a traditional investment portfolio and has invested in for-profit subsidiaries to generate income to support Highmark's mission as a nonprofit corporation. Appellants are former Highmark corporate members whose fifteen-year membership ended on May 27, 2009 when the members voted to limit corporate membership to Highmark's directors. Reproduced Record (R.R.) at 2246a, ¶ 15. Since that date, Highmark's Bylaws have provided that Highmark's directors are its sole members. R.R. at 1507a. Appellants have never been directors. R.R. at 118a.
Appellants commenced the instant action with the filing of a complaint on September 27, 2011. On January 5, 2012, Appellants filed an amended complaint alleging, inter alia, that Highmark "accumulat[ed] and retain[ed] far more than 'incidental profits[,]'" and failed to properly use the profits in accordance with Section 5545 of the Nonprofit Corporation Law of 1988 (NCL). R.R. at 51a. Appellants did not challenge their membership terminations in this action. On February 6, 2012, Highmark filed preliminary objections to Appellants' amended complaint which included a challenge to Appellants' standing and a demurrer to Appellants' failure to state a claim under Section 5545 of the NCL. On May 22, 2012, the trial court sustained Highmark's preliminary objections in part, limiting Appellants' claim to the "allegedly excessive profits accumulated while [Appellants] were members of [Highmark]." R.R. at 388a. The trial court overruled the remainder of Highmark's preliminary objections.
Appellants have asserted throughout this litigation that a six-year statute of limitations is applicable to the instant litigation. Thus, because the lawsuit was filed on September 27, 2011, the conduct to be considered are those actions that occurred on or after September 27, 2005 through May 27, 2009 when Appellants' membership was terminated.
After discovery was completed, Appellants filed a motion for partial summary judgment as to liability only. Highmark cross-moved for summary judgment arguing that there is no genuine issue of material fact and, as a matter of law, Highmark was entitled to judgment in its favor. Highmark's motion also again challenged Appellants' standing to bring the action. On August 8, 2013, despite noting that it found "[Appellants'] argument [to be] logical and compelling[,]" the trial court, in addressing the case on its merits, denied Appellants' partial summary judgment motion, granted Highmark's summary judgment motion, and entered judgment in Highmark's favor. R.R. at 3381a. Appellants appealed to this Court.
As recently discussed by our Supreme Court:
A motion for summary judgment will only be granted if there is no genuine issue concerning any material fact, and the moving party is entitled to judgment as a matter of law. An appellate court may reverse an order granting summary judgment where there is an error of law or an abuse of discretion. Because the question of whether a genuine issue of material fact exists is one of law, appellate review is de novo. In undertaking such review, the record is viewed in the light most favorable to the non-moving party . . . , and all doubts as to whether a genuine issue exists are resolved against the moving party.
Although Highmark challenged Appellants' standing in its summary judgment motion, the trial court did not address that issue. On appeal, Highmark again argues that Appellants do not have standing under Section 5793(a) of the NCL. Because standing in its accurate legal sense is concerned with the question of who is entitled to make a legal challenge, we shall address that issue first. Pennsylvania Game Comm'n v. Dep't of Envtl. Res., 555 A.2d 812, 815 (Pa. 1989).
"[I]t is well settled that this Court may affirm the trial court's order on any basis appearing in the record." Victoria Gardens Condo. Ass'n v. Kennett Twp., 23 A.3d 1098, 1103 n.10 (Pa. Cmwlth. 2011).
This Court has explained:
Whether a party has standing to sue over corporate decisions is governed by the [NCL]. Under that law, the affairs of the corporation, unless stated otherwise in the corporate by-laws, are under the direction of its board of directors. Section 5721 of the [NCL], 15 Pa.C.S. § 5721. Those able to challenge the 'validity' of corporate action are set forth in Section 5793(a) of the [NCL], which provides:
(a) General rule. Upon petition of any person whose status as, or whose rights or duties as, a member, director, member of an other body, officer or otherwise of a nonprofit corporation are or may be affected by any corporate action, the court may hear and determine the validity of such corporate action.
Petty v. Hosp. Serv. Ass'n of Ne. Pa., 967 A.2d 439, 444-45 (Pa. Cmwlth. 2009) (Petty I) (emphasis added; original emphasis omitted), aff'd, 23 A.3d 1004 (Pa. 2011). "Certainly, in listing all these titles, [Section] 5793(a) [of the NCL] clearly calls for a person of 'status' with 'duties.'" Petty v. Hosp. Serv. Ass'n of Ne. Pa., 23 A.3d 1004, 1010 (Pa. 2011) (Petty II). It is evident that "the legislature sought to give standing only to those select individuals vested with power and influence over the company . . . ." Id. at 1012 (emphasis added).
15 Pa.C.S. § 5793(a).
"[T]he term 'otherwise' in Section 5793(a) [of the NCL] . . . refer[s] to classes of persons of the same general nature as an officer, director or member, but not limited to persons in those groups." White v. Assocs. in Counseling & Child Guidance, Inc., 767 A.2d 638, 642 (Pa. Cmwlth. 2001). "[I]t must be concluded the 'or otherwise' clause does not call for the inclusion of a layperson with no vested interest or authority in the corporation[']s inner workings." Petty v. Hosp. Serv. Ass'n of Ne. Pa., 23 A.3d 1004, 1010 (Pa. 2011).
Section 5793(a) of the NCL was amended effective September 7, 2013. Section 1926 of the Statutory Construction Act of 1972, 1 Pa. C.S. § 1926, states that "[n]o statute shall be construed to be retroactive unless clearly and manifestly so intended by the General Assembly." There is no indication that the General Assembly intended the amendment to Section 5793(a) of the NCL be retroactively applied. Thus, because the conduct at issue occurred before the amendment and the amendment became effective after the trial court dismissed this case, we apply the statutory language as it was prior to the amendment.
As Highmark members, Appellants had certain rights and duties until their membership terminated on May 27, 2009. Section 3.2 of Highmark's Bylaws (Amended December 7, 2005) (2005 Bylaws), which was in effect during Appellants' membership, provided that:
The Members of the Corporation shall have the following powers and duties:
R.R. at 1484a. It is clear that until May 27, 2009, Appellants were part of the group of individuals identified in Section 5793(a) of the NCL whose rights and duties were affected by corporate action. However, Appellants' complaint was filed on September 27, 2011, more than two years after their memberships were terminated. Thus, this Court must decide whether Appellants' membership termination also resulted in the termination of their standing under Section 5793(a) of the NCL.3.2.1 to elect or remove Members as provided in this Article;
3.2.2 to elect Directors of the Corporation as provided in Article IV of these Bylaws;
3.2.3 to determine the requisites for persons of low income eligible for benefits under the Corporation's health care plans provided, however, that such determination shall be approved by the Insurance Commissioner of the Commonwealth of Pennsylvania; and
3.2.4 to adopt amendments to these Bylaws as provided in Article XIII below.
This Court has recognized that:
The words 'corporate action' include the 'taking of any action on any matter which is required under this article or under any other provision of law to be, or which under the bylaws may be, submitted for action to the members, directors, members of an other body or officers of a nonprofit corporation.' Section 5791(2) of the [NCL], 15 Pa.C.S. § 5791(2). . . .
The application of incidental profits is a matter that is required to be submitted for action to the directors or other body of a nonprofit corporation. Indeed, the business and affairs of every nonprofit corporation must be managed under the direction of the board of directors or other body.
Section 1921(b) of the Statutory Construction Act of 1972 states: "When the words of a statute are clear and free from all ambiguity, the letter of it is not to be disregarded under the pretext of pursuing its spirit." 1 Pa.C.S. § 1921(b). Section 5793(a) of the NCL unambiguously provides that a person may seek redress when the person's status, rights or duties as a member "are or may be affected by any corporate action . . . ." 15 Pa.C.S. § 5793(a) (emphasis added). Thus, it provides standing to persons to address corporate action that causes current and potentially future harm to their status, rights and duties as members. This Court has previously rejected litigants' efforts to expand standing under the NCL to challenge corporate action as an "attempt to circumvent the Legislature's express limitation in Section 5793(a) of the [NCL] that the only parties who are capable of challenging the validity of non-profit corporate action are 'a member, director, member of an other body, officer or otherwise of a non-profit corporation.'" Petty I, 967 A.2d at 448 (emphasis added) (quoting 15 Pa.C.S. § 5793(a)). Our Supreme Court agreed, holding: "We cannot subvert the plain language of the statute[.]" Petty II, 23 A.3d at 1012. The Court recognized that to let those without such a vested interest or authority "challenge the inner workings of a corporation would effectually hamstring the corporation and render the specific language in the statute superfluous." Id. Thus, it is clear that the list of individuals identified in Section 5793(a) of the NCL as having standing to challenge corporate action must be strictly construed.
The Dissent states that "[t]he present tense of 'are' is obviously used to denote the relationship between a member's duty of oversight and the corporate action for a specific moment only, when the two interact[.]" Dissenting op. at 2 (emphasis added). The Dissent in concluding that its statutory interpretation of the word "are" is "obviously" correct, fails to apply the present tense of the word "are" to the statutory requirement of "upon petition" and, thus, misinterprets Section 5793(a) of the NCL. Contrary to the Dissent's contention, the Majority does not engage in statutory construction, but merely applies the plain meaning of the complete statutory provision. The entirety of the applicable statutory section states:
(a) General rule. Upon petition of any person whose status as, or whose rights or duties as, a member, director, member of an other body, officer or otherwise[ ] of a nonprofit corporation are or may be affected by any corporate action, the court may hear and determine the validity of such corporate action.15 Pa.C.S. § 5793(a) (emphasis added).
In their amended complaint, Appellants acknowledge that their corporate membership ended "in and around June 2009." R.R. at 45a-46a. More precisely, the record reveals that Appellants' membership ended on May 27, 2009. Section 5766(c) of the NCL states: "Unless otherwise provided in the bylaws, the right of a member of a nonprofit corporation to vote, and his right, title and interest in or to the corporation or its property, shall cease on the termination of his membership." 15 Pa.C.S. § 5766(c) (emphasis added). Thus, as of May 27, 2009, Appellants' "right, title and interest in or to the corporation" also ended. Id. Therefore, assuming that Appellants had standing under Section 5793(a) of the NCL to challenge Highmark's accumulation of profits during the time that they were members, they lost standing to bring these claims when their membership was terminated in May 2009. We reject Appellants' argument that they have standing under Section 5793(a) of the NCL because they were corporate members at the time Highmark engaged in the challenged corporate action and a six year statute of limitations applies to their claim. In essence, they contend that once their right to bring an action accrued during their membership, that right was fixed for the entire limitations period. Statutes of limitations and the doctrine of standing are different. A statute of limitations establishes a time period during which an action must be brought. It does not permanently fix a party's standing during the limitations period. See e.g. Realen Valley Forge Greenes Assoc. v. Upper Merion Twp. Zoning Hearing Bd., 941 A.2d 739 (Pa. Cmwlth. 2008).
Appellants also argue that because Wooden was a member of Highmark's Medical Review Committee Selection Committee (MRCSC) through August 2012, he has a separate basis for standing as "a member of an other body." Appellants' Reply Br. at 21 (quoting 15 Pa.C.S. § 5793(a)). As will be discussed herein, Appellants' argument fails.
15 Pa.C.S. § 5766. Section 5766 of the NCL was renumbered as Section 5769, 15 Pa.C.S. § 5769, effective September 7, 2013.
Appellants' individual rights were not at issue at the time the amended complaint was filed since any individual rights and duties that Appellants might have had arising from their membership were extinguished at termination, and their terminations were unchallenged.
A more accurate description of Appellants' claim is that Appellants' former rights or duties as members were affected by past corporate action. The plain language of the NCL's Section 5793(a) does not provide standing to address former rights or duties affected by past corporate action.
Even if Appellants had been Highmark members at the time they instituted this action, they could not continue to pursue the claims they have asserted once their memberships were terminated. This Court has recognized: "[T]he mootness doctrine requires that 'an actual case or controversy must be extant at all stages of review, not merely at the time the complaint is filed.'" Commonwealth v. Packer Twp., 60 A.3d 189, 192 (Pa. Cmwlth. 2012) (emphasis added) (quoting Pap's A.M. v. City of Erie, 812 A.2d 591, 600 (Pa. 2002) (citation omitted)).
The cases presenting mootness problems involve litigants who clearly had standing to sue at the outset of the litigation. The problems arise from events occurring after the lawsuit has gotten under way — changes in the facts or in the law — which allegedly deprive the litigant of the necessary stake in the outcome.Id. (quoting In re Gross, 382 A.2d 116, 119 (Pa. 1978) (citation omitted)). "An issue can become moot during the pendency of an appeal due to an intervening change in the facts of the case or due to an intervening change in the applicable law." In re Cain, 590 A.2d 291, 292 (Pa. 1991) (emphasis added). When Appellants' memberships were terminated, the "rights or duties" that Appellants held as members were also terminated, and thus, those "rights or duties" could not be affected by the challenged corporate activities. 15 Pa.C.S. § 5793(a). Consequently, Appellants became "layperson[s] with no vested interest or authority in the corporation[']s inner workings." Petty II, 23 A.3d at 1010.
Appellants reference three cases to support their contention that former nonprofit corporation members have been held to have standing to challenge corporate action. These cases are distinguishable. In Capital BlueCross v. Pennsylvania Insurance Department, 937 A.2d 552 (Pa. Cmwlth. 2007), Dr. Sklaroff, a Blue Shield subscriber, Blue Shield physician provider and former Blue Shield corporate member, was determined to have standing in a challenge to an order of the Insurance Commissioner. Because Dr. Sklaroff sought intervention in an administrative agency appeal, his standing was not considered under Section 5793(a) of the NCL. Accordingly, the case is inapposite.
In White v. Associates in Counseling and Child Guidance, Inc., 767 A.2d 638 (Pa. Cmwlth. 2001), this Court held that White, a Director of Administration, who was placed on administrative leave had standing under Section 5793(a) of the NCL to challenge corporate action. The Court determined that the Director of Administration had "a very special relationship with the nonprofit corporation[,]" and thus, came "within the ambit of the phrase 'or otherwise' under Section 5793(a) [of the NCL.] " White, 767 A.2d at 642. White's action was filed six days after she was placed on administrative leave, and sought, inter alia, reinstatement of her status as Director of Administration. Thus, White does not support Appellants' position in this action, where Appellants did not challenge the termination of their Highmark membership, and where Appellants brought action to challenge corporate action more than two years after their memberships were terminated.
Similarly, StoRox Focus on Renewal Neighborhood Corporation v. King, 398 A.2d 241 (Pa. Cmwlth. 1979), involved a petition to set aside an attempted expulsion of corporate members and a petition for inspection of corporate documents. In rejecting the defendant's argument that the case was moot because the plaintiffs were no longer corporate members, the StoRox Court noted:
Plaintiffs were expelled by corporate action, the validity of which is a subject of this proceeding. . . . There is nothing to indicate that plaintiffs cannot or will not be reinstated by court order setting aside the corporate expulsion, and therefore we believe there exists a case and controversy capable of judicial resolution.
The Dissent misconstrues the Majority opinion when it states:
To conclude that the corporate action must affect a member's duty perpetually, as the Majority suggests, ignores the fact that a member's duty has indeed been affected even after the alleged violation of the NCL has taken place, the allegedly improper corporate transaction completed, and the end result of the corporate action fully realized.Dissenting op. at 3 (emphasis added). The Majority does not hold that challenged corporate action "must affect a member's duty perpetually[.]" Id. The Majority ruled that the Appellants lost standing to challenge corporate action upon the termination of their memberships.
Appellants refer to this Court's decision in Ciamaichelo v. Independence Blue Cross, 928 A.2d 407 (Pa. Cmwlth. 2007), as "particularly dispositive" on the issue of Appellants' standing. Appellants' Reply Br. at 20. While acknowledging some similarities between the instant matter and Ciamaichelo, we disagree. In Ciamaichelo, subscribers, policy holders and members alleged that the insurer had violated the NCL by accumulating excessive surplus funds, and further alleged insurer had done so because it planned to convert to a for-profit corporation. The Ciamaichelo Court applied the provisions of Section 5793(a) of the NCL to determine whether the subscribers had standing. The Ciamaichelo Court first considered whether the challenged actions constituted corporate action as referenced in Section 5793(a) of the NCL, concluding that an "alleged failure to act in accordance with [S]ection 5545 of the [NCL] with respect to the application of its incidental profits constitutes a 'corporate action.'" Ciamaichelo, 928 A.2d at 410-11.
The Ciamaichelo Court next examined whether subscribers constituted a class "of persons of the same general nature as a member, director, member of an other body or officer." Id. at 411. In finding "that [the insurer's] Articles of Incorporation place[d] subscribers in the same class as members, directors, other body members and officers[,]" the Court concluded that subscribers were included in the group of "persons" identified in Section 5793(a) of the NCL. Ciamaichelo, 928 A.2d at 411.
Finally, the Ciamaichelo Court considered whether the corporate action had an effect on the subscribers' status, rights and duties. The Court found that:
Subscribers have standing to challenge a corporate action under [S]ection 5793(a) [of the NCL] if their status, rights or duties as subscribers are or may be affected by that corporate action. Plaintiffs allege that [insurer] is failing to apply all incidental profits to the management and operation of [the insurer's] lawful activities, i.e., [the insurer] is accumulating a surplus of reserves, because [the insurer] has plans for conversion to a for-profit corporation or for a merger. If [the insurer] were to complete a conversion or merger, subscribers may lose the powers that they enjoy through the Articles of Incorporation. Because subscribers' status, rights and duties may be affected by [the insurer's] failure to apply incidental profits pursuant to [S]ection 5545 of the [NCL], subscribers have standing to challenge a corporate action under [S]ection 5793 of the [NCL].Ciamaichelo, 928 A.2d at 413 (citations and quotation marks omitted). Importantly, in a footnote the Court also stated, "[the insurer's] failure to comply with [S]ection 5545 of the [NCL] gives rise to the oversight power of subscribers. Because subscribers have an implied duty to oversee the corporate action, or inaction, of directors, any possible violation of the [NCL] would affect that duty." Id. at 413 n.3. Accordingly, this Court ruled that the subscribers had standing under Section 5793(a) of the NCL.
Appellants contend that the circumstances are no different in the instant action because Highmark's members also have "an implied duty to oversee corporate action, [and] any possible violation of the [NCL] would affect that duty." Ciamaichelo, 928 A.2d at 413 n.3. We agree that members have such a duty. However, it does not follow that former corporate members have any ongoing implied duty to oversee prior, current or future corporate action after membership termination, and Appellants have not cited any case law to support such a broad extension of the principle. As our Supreme Court stated, "[Section] 5793(a)'s plain language affords standing only to those in influential positions." Petty II, 23 A.3d at 1011 (emphasis added). Appellants are no longer in influential positions with Highmark.
Unlike the facts in Ciamaichelo, Appellants' amended complaint does not include allegations that the insurer plans to change its corporate form.
We also reject Appellants' argument that the language of Section 5782(a) of the NCL supports their position. That section states:
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.15 Pa.C.S. § 5782 (emphasis added). Section 5782 of the NCL applies to derivative actions - actions filed on behalf of the corporation. It does not apply to actions brought under Section 5793(a) of the NCL, pertaining to individual rights and duties which cease when membership is terminated. Notably, there is no similar language in Section 5793(a) of the NCL.
The Dissent contrasts language in Section 5782 of the NCL (pertaining to derivative actions) to support its position that "[S]ection 5793(a) [of the NCL] does not expressly impose the additional requirement of continued membership at the commencement of suit." Dissenting op. at 4. Specifically, it points to Section 5782 of the NCL's inclusion of language referencing actions brought "on the part of one or more members . . . of a nonprofit corporation" and interprets such language to mean that the individual was a "member at time of suit." Dissenting op. at 4 (quoting Overberger v. BT Financial Corp., 106 F.R.D. 438, 441 (W.D. Pa. 1985). It then concludes that since such language is not present in Section 5793(a) of the NCL, an individual need not be a member at the time of suit when commencing an action under Section 5793(a) of the NCL. Notably, there is no such explicit requirement in Section 5782 of the NCL that an action be brought on behalf of an individual who was a "member at time of suit." Dissenting op. at 4. The Overberger Court interpreted the language of Section 5782 as imposing such a requirement. The Dissent notes that Pennsylvania Rule of Civil Procedure (Pa.R.C.P.) No. 1506 (pertaining to derivative actions) was amended to conform to Overberger and argues that the General Assembly has not similarly amended Section 5793(a). However, the change to Pa.R.C.P No. 1506 was authorized by the Pennsylvania Supreme Court, not the General Assembly. Further, Section 5782 of the NCL and Pa. R.C.P. No. 1506 apply to derivative actions. The wording of Section 5793(a) is different, and clearly states that:
Upon petition of any person whose status as, or whose rights or duties as, a member, director, member of an other body, officer or otherwise[ ] of a nonprofit corporation are or may be affected by any corporate action, the court may hear and determine the validity of such corporate action.15 Pa.C.S. § 5793(a) (emphasis added). Contrary to the Dissent's assertion, the Majority does not "insert [an] additional requirement into [S]ection 5793(a) of the NCL." Dissenting op. at 5-6. The language is unambiguous. Section 5793(a) provides standing to selected individuals where corporate action causes current and potentially future harm to their status, rights and duties. It is not for this Court to "second-guess policy choices of the General Assembly." Ins. Fed'n of Pa., Inc. v. Commonwealth, 970 A.2d 1108, 1122 n.15 (Pa. 2009).
There are practical reasons to conclude that former members do not have a continuing corporate oversight duty. They include the possibility that a former nonprofit corporation member who is subsequently affiliated with an entity having adverse or competing interests could institute litigation motivated by a desire to hinder the nonprofit corporation's operations.
The Dissent asserts:
[C]learly, the exposure of members or directors to liability would exist beyond their tenure. There must be a correlation as to the time for a member's exposure to liability for the consequences of his actions as such and a member's ability to enforce his duty of oversight by seeking redress in the courts if necessary. To hold otherwise places members, such as Appellants, in the untenable position of potentially being subject to liability for matters that occurred during their tenure yet not being able to do anything about it.Dissenting op. at 3. Contrary to the Dissent's contention, the Majority's holding does not "place[] members . . . in [an] untenable position of potentially being subject to liability for matters that occurred during their tenure yet not being able to do anything about it." Id. (emphasis added). Members (and others identified in Section 5793 of the NCL) are free while in their position to challenge corporate action in accordance with Section 5793 of the NCL. What members are not at liberty to do is to challenge corporate action years after the corporate action occurred and their membership terminated. Section 5793(a) is not a conduit by which a member may seek damages for past wrongs or limit one's liability should he be sued. It is a tool by which specifically, designated parties may challenge corporate action and force the corporation to alter such action. Thus, "only . . . those select individuals vested with power and influence over the company" who retain such "power and influence" may continue to wield it.
Appellants also argue that Wooden's membership in Highmark's Medical Review Committee Selection Committee (MRCSC) through August 2012 constituted membership in "an other body" at the time the complaint was filed and this position affords him standing under Section 5793(a) of the NCL. However, Section 5103 of the NCL defines "other body" as follows:
'Other body.' A term employed in this subpart to denote a person or group, other than the board of directors or a committee thereof, who pursuant to authority expressly conferred by this subpart may be vested by the bylaws of the corporation with powers which, if not vested by the bylaws in such person or group, would by this subpart be required to be exercised by either:
(1) the membership of a corporation taken as a whole;
(2) a convention or assembly of delegates of members established pursuant to any provision of this subpart; or
(3) the board of directors.
15 Pa.C.S. § 5103.
Except as otherwise provided in this subpart[,] a corporation may establish distinct persons or groups to exercise different powers which this subpart authorizes a corporation to vest in an other body.
Section 8.2.1 of Highmark's Amended and Restated Bylaws (May 27, 2009) (2009 Bylaws) describes the MRCSC's function, stating, "[t]he members of the Medical Review Committee . . . shall be appointed and may be removed as provided in this Article VIII by the [MRCSC]." R.R. at 135a. Thus, the MRCSC's sole function is to select and/or remove Medical Review Committee (MRC) members. There is no evidence that MRCSC members have any oversight duties or governance powers over Highmark. Wooden's status, rights and duties as an MRCSC member to appoint and remove MRC members are not related to or affected by the challenged corporate action. Thus, Wooden's former MRCSC membership does not provide him standing under Section 5793(a) of the NCL to litigate the claims he raises in the instant action.
The Medical Review Committee's duties are described in the 2009 Bylaws as follows:
8.1.1 All matters, disputes or controversies relating to the professional health services (as defined in 40 Pa.C.S.[] § 6302(a)) rendered by Health Service Doctors to subscribers who have coverage under contracts issued by [Highmark], and any questions involving the professional ethics of such persons, shall be considered and determined exclusively by the committee established pursuant to this Article VIII in accordance with the requirements of 40 Pa.C.S.[] § 6324(c) (the 'Medical Review Committee') to provide a fair and impartial forum for resolution of all matters, disputes and controversies relating to professional health services and all questions involving professional ethics.R.R. at 135a.
8.1.2 The Medical Review Committee also shall provide a fair and impartial forum to consider and determine any other matters, disputes or controversies which may be submitted to it as set forth in these Bylaws or as may be provided in any written agreement between the Corporation or any one or more entities controlled by the Corporation and any Health Service Doctor or other provider of health care services (all such persons collectively, 'Providers').
In fact, Section 8.2.3 of the 2009 Bylaws states:
No member of the Selection Committee may be a director, officer or employee of [Highmark] or a member of a Regional Advisory Board, nor may any such person have served on the Medical Review Committee during any part of the two (2) year period immediately prior to his or her appointment to the Selection Committee.R.R. at 136a (emphasis added).
The Dissent contends that Wooden should be found to have standing because he was a member of an "other body" at the time the action was filed. However, even if we found that Wooden had standing as a member of an "other body" under Section 5793(a) of the NCL during his membership in the MRCSC (which we do not), we would hold that Wooden no longer had standing once his membership terminated in August 2012. See Pap's A.M., 812 A.2d at 600 (quoting In re Gross, 382 A.2d 116, 119) ("'an actual case or controversy must be extant at all stages of review, not merely at the time the complaint is filed.'") (emphasis added); see also Packer Twp., 60 A.3d at 192 (quoting In re Gross, 382 A.2d 116, 119 (Pa. 1978)) ("The cases presenting mootness problems involve litigants who clearly had standing to sue at the outset of the litigation. The problems arise from events occurring after the lawsuit has gotten under way — changes in the facts or in the law — which allegedly deprive the litigant of the necessary stake in the outcome.").
We recognize that, currently, Highmark's directors are its only members and, thus, our decision significantly limits those individuals who may challenge Highmark's corporate actions. However, as our Supreme Court explained in Petty II,
at first glance it may appear [the Petty] decision allows only the foxes to guard the henhouse. However, this [is] not quite accurate, for the Attorney General is vested with the power to bring an action alleging legal violations by nonprofit corporations. 15 Pa.C.S. § 5502. The henhouse is protected and the foxes are watched by the Attorney General, sitting like a farmer on the hill, ready to act when the hens are troubled or in danger. Complaints about the foxes may always be directed there.Petty II, 23 A.3d at 1011-12.
Given the legislature's intent "to give standing only to those select individuals vested with power and influence over the company," and "[Section] 5793(a)'s plain language [which] affords standing only to those in influential positions[,]" whose status, rights or duties "are or may be affected by . . . corporate action," we hold that individuals no longer "in influential positions," who are no longer "vested with power and influence" over a nonprofit corporation do not have standing. Petty II, 23 A.3d at 1011, 1012 (emphasis added); 15 Pa.C.S. § 5793(a) (emphasis added).
Because Appellants do not have standing, we affirm the trial court's order.
Having ruled that Appellants do not have standing, we need not address the remaining issues.
/s/_________
ANNE E. COVEY, Judge Judges Cohn Jubelirer, Leavitt and Brobson did not participate in this decision.
ORDER
AND NOW, this 30th day of December, 2014, the Philadelphia County Common Pleas Court's August 8, 2013 order is affirmed.
/s/_________
ANNE E. COVEY, Judge BEFORE: HONORABLE DAN PELLEGRINI, President Judge HONORABLE BERNARD L. McGINLEY, Judge HONORABLE ROBERT SIMPSON, Judge HONORABLE PATRICIA A. McCULLOUGH, Judge HONORABLE ANNE E. COVEY, Judge OPINION NOT REPORTED DISSENTING OPINION BY JUDGE McCULLOUGH
I respectfully dissent from the Majority's conclusion that Herman Wooden and Thomas Logan (together, Appellants) lack standing under section 5793(a) of the Nonprofit Corporation Law of 1988 (NCL), 15 Pa.C.S. §5793(a), to maintain their action against Highmark, Inc. (Highmark).
In this case, Appellants, plaintiffs below, were members of Highmark at the time of the alleged wrongs. As the Majority concedes, Appellants, as members, "have an implied duty to oversee the corporate action, or inaction, of directors" and "any possible violation of the [NCL] would affect that duty." Ciamaichelo v. Independence Blue Cross, 928 A.2d 407, 413 n.3 (Pa. Cmwlth. 2007) (en banc). Appellants ceased to be members prior to commencing suit because their memberships were terminated. For this reason, the Majority, engaging in statutory construction of section 5793(a) of the NCL, finds that Appellants' duty of oversight was no longer "affected by the challenged corporate activities." (Maj. op. at 8.)
Section 5793(a) of the NCL states:
(a) General rule.— Upon petition of any person whose status as, or whose rights or duties as, a member, director, member of an other body, officer or otherwise of a nonprofit corporation are or may be affected by any corporate action, the court may hear and determine the validity of such corporate action.15 Pa.C.S. §5793(a) (emphasis added).
When the statute is clear on its face, statutory construction principles need not be applied. In this instance, it is clear that Appellants need only establish that when they were members, their duties of oversight were affected as a result of corporate action when that corporate action took place and not at any time thereafter. See id. (conferring standing where the duties "are ... affected by any corporate action"). Indeed, an individual merely has to be "any person" at the time the petition is filed in order to have standing, qualified upon the subsequent condition that the person has had duties as a member that "are" affected by corporate activity. It is grammatically significant that a "member" is a noun secondary to "any person" and is modified and defined by the member's "duties." See id. ("any person whose ... duties as[] a member ... are ... affected by any corporate action"). Consequently, the present tense of "are" is obviously used to denote the relationship between a member's duty of oversight and the corporate action for a specific moment only, when the two interact, and Ciamaichelo holds that a "violation of the [NCL] would affect that duty." Ciamaichelo, 928 A.2d at 413 n.3. To conclude that the corporate action must affect a member's duty perpetually, as the Majority suggests, ignores the fact that a member's duty has indeed been affected even after the alleged violation of the NCL has taken place, the allegedly improper corporate transaction completed, and the end result of the corporate action fully realized. Hence, the term "affected" is written in the past tense, presupposing the situation where, as here, corporate action has affected the duties of a person while he was a member but is not a member at the time of suit.
Although Appellants' memberships were terminated prior to suit, this does not alter the fact that their duty of oversight was affected during the complained-of wrongs, and I believe that this is all that is needed to possess standing under section 5793(a) of the NCL. This is underscored by the fact that clearly, the exposure of members or directors to liability would exist beyond their tenure. There must be a correlation as to the time for a member's exposure to liability for the consequences of his actions as such and a member's ability to enforce his duty of oversight by seeking redress in the courts if necessary. To hold otherwise places members, such as Appellants, in the untenable position of potentially being subject to liability for matters that occurred during their tenure, yet not being able to do anything about it. This Court has held that an official placed on administrative leave has standing under section 5793(a) of the NCL to challenge corporate action that occurred before she was placed on leave, White v. Associates in Counseling and Child Guidance, Inc., 767 A.2d 638, 640-43 (Pa. Cmwlth. 2001) (en banc), and that an expelled member can maintain suit to contest corporate action that took place prior to his expulsion. Sto-Rox Focus on Renewal Neighborhood Corp. v. King, 398 A.2d 241, 243 (Pa. Cmwlth. 1979). In both instances, the plaintiffs were former officials/members at the time of suit, yet this Court concluded that they possessed standing or the legal capacity to contest previous corporate action that transpired when they were officials/members. The same conclusion must apply here.
I recognize that in addition to contesting other forms of corporate action, the plaintiffs in White and Sto-Rox challenged the basis for their removal as an official/member while Appellants have not challenged the termination of their membership here. However, this fact is legally insignificant and cannot serve as a basis upon which to distinguish White and Sto-Rox from the instant matter. This is because section 5793(a) of the NCL, besides conferring standing where a member's "status" is affected by corporate action, also grants standing where a member's "duties" are affected by corporate action. Accordingly, the holdings in White and Sto-Rox apply here with full force.
Moreover, in contrast to other laws, section 5793(a) does not expressly impose the additional requirement of continued membership at the commencement of suit. See section 5782(a) of the NCL, 15 Pa.C.S. §5782 ("[I]n any action or proceeding brought . . . on the part of one or more members (i.e., member at time of suit) of a nonprofit corporation . . . each plaintiff must aver . . . that [he] was a member of the corporation at the time of the transaction (i.e., member at the time of transaction) of which he complains.") (emphasis added); Overberger v. BT Financial Corp., 106 F.R.D. 438, 441 (W.D. Pa. 1985) (interpreting language nearly identical to section 5782(a) of the NCL and concluding that it means that the plaintiff must have an ownership interest at the time of suit and at the time of the transaction); Pa.R.C.P. No. 1506(a)(1), (3)(i) & Comment - 1990 (amending civil rule with more express language to conform to Overberger and requiring ownership interest at the time of transaction and commencement of suit with following language: "[I]n any action . . . brought by one or . . . members of a corporation . . . the complaint shall set forth . . . that each plaintiff is [an] owner of an interest in the corporation . . . and . . . at the time of the transaction.") (emphasis added).
Our legislature is presumed to know this law and what language is necessary to impose the requirement that an individual must be a member at the time of suit. See City of Philadelphia v. Clement & Muller, Inc., 715 A.2d 397, 399 (Pa. 1998) ("The legislature is presumed to be aware of the construction placed upon statutes by the courts"). However, the legislature has not amended section 5793(a) of the NCL to incorporate the language in section 5782(a) of the NCL, Pa.R.C.P. No. 1506(a)(1), (3)(i), or some other clear and explicit statement to impose such a requirement. For instance, consistent with the above law, the legislature could have written section 5793(a) of the NCL to state, "Upon petition of any member ...," thus clarifying (or at least strongly implying) that one must be a member when the suit is filed. Ultimately, the absence of such language (or even similar language) from section 5793(a) of the NCL indicates that our legislature never intended a member to have membership status at the time of suit in order to possess standing. See also White Deer Township v. Napp, 985 A.2d 745, 762 (Pa. 2009) (noting that the legislature did not amend a statute in response to a judicial decision and that its failure to do so indicates legislative intent); Commonwealth v. Hoke, 962 A.2d 664, 669 (Pa. 2009) (stating that "omission of a given provision from one of two similar statutes evidences a different legislative intent regarding the two."); Fonner v. Shandon, Inc., 724 A.2d 903, 907 (Pa. 1999) ("[W]here the legislature includes specific language in one section of the statute and excludes it from another, the language should not be implied where excluded."). Quite simply, section 5793(a) of the NCL does not contain a constriction pertaining to when an individual must be a member, aside from the moment of the contested corporate action, and to hold that one must be a member at the time of suit is to infer a proposition that lacks any solid textual basis in the statute. Unlike the Majority, I would decline to insert this additional requirement into section 5793(a) of the NCL when the legislature - although presumptively familiar with what language it takes to include such a requirement - has not done so.
Even if it is necessary for an individual to be within one of the classifications of section 5793(a) of the NCL at the time of suit, I would conclude that it is not clear and free from doubt that Appellant Wooden cannot fulfill this requirement in his role as a "member of an other body." See section 5793(a) of the NCL ("[A]ny person whose status as, or whose rights or duties as, a member, director, member of an other body . . .") (emphasis added).
As explained by the Majority, Appellant Wooden was a member of Highmark's Medical Review Committee Selection Committee (MRCSC) at the time of the alleged wrongs and also at the time of suit, and he asserts that he has a separate basis for standing as "member of an other body." Section 5103 of the NCL defines "other body" to signify a person or group that is vested with statutory and corporate authority to undertake tasks and duties that are initially required to be exercised by members or the board of directors. 15 Pa.C.S. §5103.
"Other body." A term employed in this subpart to denote a person or group, other than the board of directors or a committee thereof, who pursuant to authority expressly conferred by this subpart may be vested by the bylaws of the corporation with powers that, if not vested by the bylaws in the person or group, would by this subpart be required to be exercised by:
(1) the members;
(2) a convention or assembly of delegates of members established pursuant to any provision of this subpart; or
(3) the board of directors.
Except as otherwise provided in this subpart, a corporation may establish distinct persons or groups to
exercise different powers that this subpart authorizes a corporation to vest in an other body.15 Pa.C.S. §5103 (emphasis added).
Pursuant to this plain language, section 5103 of the NCL permits members and/or directors to delegate tasks and duties that belong to them to another corporate body, such as the MRCSC. Accordingly, Appellant Wooden is discharging a function of an other body and has standing on this basis. The MRCSC has assumed a responsibility that would have belonged to the traditional members; it has the power to select and remove members of the Medical Review Committee, which handles and resolves disputes between Highmark's subscribers and physicians and also between Highmark and physicians. (R.R. at 135a-37a; see Maj. op. at 12-13 and accompanying notes). Since the MRCSC stands in the shoes of the members for this purpose, and the members have a duty to oversee corporate action, Ciamaichelo, 928 A.2d at 413 n.3, Appellant Wooden, as a member of the MRCSC, an other body, has standing.
The Majority further notes that even if Appellant Wooden were recognized as having standing, this would have terminated when he was no longer a member of the MRCSC. The lawsuit was filed in 2011, and Appellant Wooden was removed from the committee in 2012. To divest Appellant Wooden of standing under these circumstances would mean that he could only bring a claim at the time an event or incident occurs, even if it had not yet been discovered; it would also permit and encourage a nonprofit corporation to terminate an individual's membership status after the member files suit in order to shield the corporation from liability and end the litigation against it. Because I would conclude that Appellant Wooden possesses standing, I do not share the Majority's view that his removal from the committee during the pendency of this action renders the case moot. Rather, I would conclude that a case or controversy still exists because the trial court can grant equitable relief in the form of a constructive trust or otherwise on the portion of Highmark's profits, if any, that were obtained in violation of sections 5545 and 5306(a)(4) of the NCL, for the time periods in which Appellants or Appellant Wooden have standing. See Johnson v. Martofel, 797 A.2d 943, 946 (Pa. Super. 2002) ("An issue before a court is moot if in ruling upon the issue the court cannot enter an order that has any legal force or effect."), accord Chruby v. Department of Corrections, 4 A.3d 764, 770-71 (Pa. Cmwlth. 2010).
Appellants do not contend that they were terminated for the sole reason of depriving them of standing to sue. Typically, such a showing would evidence an equitable exception to any requirement that one must have an ownership interest in a corporation at the time of suit. See Elgin v. Alfa Corp., 598 So.2d 807, 812-13 (Ala. 1992); Zauber v. Murray Savings Association, 591 S.W.2d 932, 937-38 (Tex. Civ. App. 1979).
Section 5545 of the NPL provides, in pertinent part:
A nonprofit corporation whose lawful activities involve among other things the charging of fees or prices for its services or products, shall have the right to receive such income and, in so doing, may make an incidental profit. All such incidental profits shall be applied to the maintenance and operation of the lawful activities of the corporation, and in no case shall be divided or distributed in any manner whatsoever among the members, directors, or officers of the corporation.15 Pa.C.S. §5545. Section 5306(a)(4) of the NCL mandates that every nonprofit corporation contain in its articles of incorporation "A statement that the corporation is one which does not contemplate pecuniary gain or profit, incidental or otherwise." 15 Pa.C.S. §5306(a)(4). --------
Accordingly, I respectfully dissent.
/s/_________
PATRICIA A. McCULLOUGH, Judge
Karoly v. Mancuso, 65 A.3d 301, 308-09 (Pa. 2013) (citations omitted).
Ciamaichelo v. Independence Blue Cross, 928 A.2d 407, 410 (Pa. Cmwlth. 2007).
Id. at 243 (emphasis added). Appellants have not challenged the termination of their Highmark membership in this action. Accordingly, Sto-Rox is not applicable. Notably, the Dissent relies on Sto-Rox to support its argument that "plaintiffs were former officials/members at the time of suit, yet this Court concluded that they possessed standing or the legal capacity to contest previous corporate action that transpired when they were officials/members." Dissenting op. at 3-4. The Dissent further states that the fact that the former officers challenged their terminations "is legally insignificant and cannot serve as a basis to distinguish White and Sto-Rox from the instant matter." The above-quoted language from Sto-Rox demonstrates just the opposite. The Sto-Rox Court found standing for the former members because "the validity of [the corporate expulsions] is a subject of this proceeding. . . . [and because t]here is nothing to indicate that plaintiffs cannot or will not be reinstated by court order setting aside the corporate expulsion[.]" Sto-Rox, 398 A.2d at 243 (emphasis added).
Petty II, 23 A.3d at 1012 (emphasis added).