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HomeMy WebLinkAbout2007-2122 Civil PATRICIA A. HELM, : IN THE COURT OF COMMON PLEAS Plaintiff : CUMBERLAND COUNTY, PENNSYLVANIA : : NO. 07-2122 v. : : COMMUNITY FINANCIAL, INC.; : CIVIL ACTION - EQUITY SUSAN A. RUSSELL; LOWELL : R. GATES, : Defendants : IN RE: MOTIONS FOR SUMMARY JUDGMENT BEFORE BAYLEY, J. AND EBERT, J. ORDER OF COURT th AND NOW , this 18 day of August, 2008, upon consideration of Defendants’ Motion for Summary Judgment and Plaintiff’s Cross-Motion for Summary Judgment, IT IS HEREBY ORDERED AND DIRECTED that the Defendants’ Motion for DENIED Summary Judgment is and Plaintiff’s Cross-Motion for Summary Judgment is GRANTED. A hearing shall be scheduled to determine the reasonableness of legal fees incurred by Plaintiff to prosecute this matter. By the Court, M. L. Ebert, Jr., J. Michael A. Farnan Attorney for Plaintiff 100 Fifth Avenue, Suite 504 Pittsburgh, PA 15222 James D. Flower, Jr., Esquire John B. Lampi, Esquire Attorneys for Defendants Saidis, Flower & Lindsay 26 West High Street Carlisle, PA 17103 2 PATRICIA A. HELM, : IN THE COURT OF COMMON PLEAS Plaintiff : CUMBERLAND COUNTY, PENNSYLVANIA : : NO. 07-2122 v. : : COMMUNITY FINANCIAL, INC.; : CIVIL ACTION - EQUITY SUSAN A. RUSSELL; LOWELL : R. GATES, : Defendants : IN RE: MOTIONS FOR SUMMARY JUDGMENT BEFORE BAYLEY, J. AND EBERT, J. OPINION and ORDER OF COURT EBERT, J., August 18, 2008 - STATEMENT OF FACTS Plaintiff, Patricia A. Helm, has been a shareholder of Community Financial, Inc. (“CFI”) since 1998. She had made an investment of $20,000.00 and is listed as the owner of 1000 shares of CFI stock. Plaintiff has brought this civil action in equity against Defendants, CFI, Susan A. Russell, President and Chief Executive Officer of CFI, and Lowell R. Gates, Chairman of the Board of CFI, pursuant to 15 Pa. C.S. §1508, to obtain a list of shareholders, their addresses, and their ownership percentages. Furthermore, Plaintiff seeks to have attorney’s fees, costs, and expenses incurred to litigate this action paid by the Defendants. Pennsylvania law states that a shareholder has a right to inspect and obtain share register information upon a written verified demand setting forth the purpose for the request. 15 Pa. C.S. §1508(b). In order to deny such a request, the burden of proof is on the corporation to establish that the shareholder seeks an inspection of this information for an improper purpose. 15 Pa. C.S. §1508(c). Furthermore, the court may “award such other or further relief as the court deems just and proper.” Id. The current issue in this case stems from the Plaintiff’s efforts to obtain shareholder information that she argues she was entitled to under 15 Pa. C.S. §1508. On February 23, 2007, the Plaintiff sent a letter to Susan Russell, President and Chief Executive Officer of CFI. At the “Verified Demand for very top of this one page letter in bold print, underlined, are the words Inspection of Corporate Records Pursuant to § 1508 of BCL.” She requested to inspect and to make copies of extracts from CFI’s share register, books and records of account. She specifically stated “I hereby state that my reason for making this demand is in order to inform myself of significant information relating to matters of corporate financial conditions and governance so I may properly exercise my rights and protect my interests as a corporate shareholder.” In response to this demand, Susan Russell, President and CEO of CFI responded by letter dated February 28, 2007. She acknowledges in the subject line of her letter that she is “Verified Demand for Inspection of Corporate Records Pursuant to § 1508 responding to a (b) of the Business Corporate Law of 1988.” President Russell did not provide the records requested by Ms. Helm and stated that corporate counsel advised her that the records will not be made available because “specific proper purpose for such information has not been established.” President Russell went on to state that she is “disappointed in the continued methods employed by a certain group of shareholders to which you belong whereby you have continued to request the same information without establishing proper purpose.” But for this declarative statement, President Russell’s letter presents no proof of any improper purpose and certainly the statement cannot be said to meet the corporation’s burden in proving an improper purpose. 2 On March 8, 2007, Plaintiff again wrote President Russell voicing her disappointment with the company’s failure to comply with her request along with the simple question “how threatening can a request for an updated shareholder’s list be?” Ms. Helm received no response to this letter and wrote to President Russell again on March 22, 2007, again demanding that she be allowed to come to CFI within 5 days and “obtain a copy of the shareholder list.” In response to this letter, Ms. Helm received a letter from Attorney John B. Lampi of the firm Saidis, Flower and Lindsay who was corporate and regulatory counsel for CFI. The letter indicated that President Russell had requested that Attorney Lampi reply to Ms. Helm’s most recent request. Mr. Lampi wrote “Ms. Russell requested me to write to you to explain the reason to deny your access to an inspection to any CFI records as delineated in your March 8, 2007, letter to Ms. Russell. Mr. Lampi went on to state “The reason is simply stated: you have not demonstrated to CFI that your request is for a proper purpose. (emphasis added) Over the years, you have repeatedly delivered letters, demands, and harsh statements to CFI management or its advisors impugning the integrity of CFI management, in general, and Mr. Lowell Gates, the CFI Chairman, in particular. It is quite obvious in reading this correspondence that you harbor an animus against Mr. Gates and want to embarrass and, perhaps, injure him financially. That is your purpose in obtaining this information. You want to continue your letter writing campaign against Mr. Gates by correspondence to the CFI stockholders. There is no other conclusion that can be reached by an impartial observer.” Finally, Plaintiff filed a complaint in equity on April 16, 2007, pursuant to 15 Pa. C.S. §1508 asking the court to compel CFI to comply with her shareholder’s request and provide her with the following corporate records: “a list of shareholders, their respective amount of shares, total number of outstanding shares and the shareholder’s addresses.” After ignoring her requests for months, on May 2, 2007, only 16 days after filing the complaint, counsel for CFI provided 3 the shareholder information that Plaintiff had requested. The response consisted of a one sentence transmittal letter and one sheet of paper listing the requested shareholder information. The accompanying letter did not address the issue of attorney’s costs and fees. On May 4, 2007, the Defendants filed a 4 page answer to the Plaintiff’s complaint in which they again averred that the Plaintiff’s request was improper and that it was only made to “continue a mailing campaign of harassment and personal vendetta on behalf of herself and others.” In the final paragraph of their answer, after months of what this Court finds delaying and stubbornly resistant conduct, the Defendants simply state that the requested information has been supplied to the Plaintiff. Accordingly as of May 4, 2007, Defendants only request to the Court was that it deny any award of attorney’s fees or costs to the Plaintiff. At Argument Court and in their respective briefs, both parties basically admit that the only issue to be decided as a matter of law is whether Plaintiff is entitled to attorney’s fees and other costs associated with the litigation. DISCUSSION According to Pa. R.C.P. No. 1035.2, after the proper pleadings have occurred, a party may move for summary judgment in two instances: (1) Whenever there is no genuine issue of any material fact as to a necessary element of the cause of action or defense which could be established by additional discovery or expert report, or (2) If, after the completion of discovery relevant to the motion, including the production of expert reports, an adverse party who will bear the burden of proof at trial has failed to produce evidence of facts essential to the cause of action or defense which in a jury trial would require the issues to be submitted to a jury. Summary judgment is proper where the pleadings, depositions, answers to interrogatories, admissions and affidavits on file demonstrate that there exists no genuine issue of 4 material fact and that the moving party is entitled to judgment as a matter of law. Pa.R.C.P. 1035.2(1), Weiner v. American Honda Motor Co., 718 A.2d 305 (Pa. Super. 1998). The purpose of summary judgment is to avoid unnecessary trials and to eliminate the waste of time and resources of both litigants where a trial would be a useless formality. Curan v. Children’s Service Center, Inc., 578 A.2d 8 (Pa. Super. 1990), appeal denied 585 A.2d 468 (Pa. 1991). Summary judgment is meant to eliminate the waste of time and resources of both litigants and . the courts in cases where a trial would simply be a useless formalityLiles v. Balmer, 567 A.2d 691 (Pa. Super 1989). Both parties admit that the only issue to be decided is a question of law. The question is whether Plaintiff is entitled to attorney’s fees and other costs associated with this litigation. The parties agree on the basic facts: Plaintiff made several requests for shareholder information and Defendants did not provide her with this information until after she filed suit in equity. The Court finds that the Plaintiff properly made her request under 15 Pa. C.S. §1508 in order to “exercise my rights and protect my interest as a corporate shareholder.” (Helm letter dated 2/23/07). Such a request, made by a 76 year old school teacher who had made a $20,000.00 investment to purchase 1,000 shares of CFI, is not unreasonable. It will be noted that in examining the shareholder information provided by the company after the lawsuit was initiated, there are only 68 shareholders in CFI and only 28 have shareholdings greater than Ms. Helm. Once the Defendants were in receipt of Helm’s proper request, the Defendants had the burden of proving that the request was improper. 15 Pa.C.S. §1508(c), 171 A.2d 788 (Pa. 1961). Merely stating or speculating that her request was for an improper purpose does not prove that her request was improper. 5 Indeed, it has been held that a request to obtain stockholder lists for the purposes of contacting and binding together other stockholders to influence action at a stockholders meeting is a proper purpose. Goldman v. Trans-United Industries, Inc., 171 A.2d 788 (Pa. 1961). Plaintiff is not required to like the Chairman of the Board of CFI. If CFI had proof that Plaintiff was impugning the integrity of management or intended to financially injure or embarrass Chairman Gates, their remedy was to accept the burden of proof required of them by the PAC and prove Plaintiff’s improper purpose. While it’s true that Defendants had provided information to the Plaintiff several times in previous years, Defendant Russell admitted that the information had changed since it had been last provided to Plaintiff in 2005. The simple fact that CFI’s vexatious accusations of improper motive evaporated within 16 days of the filing of the suit, shows that they came to realize they could not prove improper purpose. Their response then consisted of a one sentence letter and one sheet of paper listing the shareholders’ information. This minimal effort to supply Ms. Helm with a response can hardly be considered costly or onerous to the corporation. The statute does not explicitly require corporations to pay attorney’s fees associated with court proceedings initiated to obtain an order to compel inspection of corporate records. The statute does give the Court the discretion to award “such other or further relief as the Court deems just and proper.” 15 Pa. C.S. §1508(c). The Defendants make the argument that since §1508 of the Pennsylvania Associations Code (hereinafter PAC) is silent in regard to the awarding of the attorney’s fees, and that attorney’s fees are specifically mentioned in §1580 of the PAC, (Costs and Expenses of Valuation Proceedings) of the PAC, then it must follow that attorney’s fees should not be awarded in litigation involving §1508. It goes without saying that a request for valuation of a corporation under §1580 is a much more time consuming and 6 expensive undertaking than a simple request for a list of shareholder information which consists of one page. The Courts have indicated that there is a distinction between a stockholders’s right to a general inspection of books and records and a request for an inspection or a copy of a shareholder’s list. Courts tend to be more lenient with requests for stockholder lists than general inspections of books and records. Goldman v. Trans-United Industries Inc., 171 A.2d 788 (Pa. 1961). Accordingly, this Court does not accept the argument that the mere failure to specifically mention awarding of the attorney’s fees in §1580 of the PAC prohibits such an award. To do so would render meaningless the words “or award such other or further relief as the Court deems just and proper” 15 Pa.C.S.A. §1508 (c). From a public policy standpoint, the Court finds that Defendants should pay the reasonable attorney’s fees and costs directly incurred by Plaintiff in commencing and litigating a lawsuit to obtain the information that she, as a shareholder, properly had a legislative right to receive, under 15 Pa. C.S. §1508(b). This lawsuit would not have been necessary but for Defendants’ actions in withholding the shareholder information until Plaintiff had incurred personal legal expenses to obtain Court intervention. Shareholders would be deterred from seeking to obtain corporate information to which they are properly entitled if this Court were to allow corporations to protract litigation whenever shareholders sought to obtain shareholder list information. This Court does find that requiring the Defendants in this case to pay the reasonable attorney’s fees and costs incurred by Plaintiff is a just and proper remedy. This Court is allowing Plaintiff to recover attorney’s fees and costs from the Defendants as a sanction for forcing her to litigate to obtain very simple, fundamental information to which she had a clear legal right. 7 By way of analogy, Pennsylvania discovery practice provides some insight. In many ways the provisions of Section 1508 of the PAC are nothing more than a special “discovery” rule created by the legislature for use by corporate shareholders. In civil litigation a party is required to respond to legitimate discovery requests, which often include a request for production and inspecting of documents. If a party fails to provide discoverable information, a court may sanction the offending party. Pa.R.C.P. 4019 (a) (1) (vii). Interestingly, if a party fails to provide documents, Pa.R.C.P. 409 (c) (5) allows the Court to make “such order with regard to the failure to make discovery as is just.” This language is remarkably similar to that of Section 1508 (c) of the PAC, which states in a proceeding for the enforcement of inspection by a shareholder, the Court may “in its discretion… award such other or further relief as the Court deems just and proper.” In civil discovery cases, counsel fees incurred as a direct result of a discovery violation may be imposed as a sanction. Sun Pipe Line v. Tri-State Telecommunications, 655 A.2d 112 (Pa. Super 1994). A failure to produce documents may be a basis to award attorney’s fees where a party’s failure to produce is the result of intransigent obstinacy. Markey v. Marino, 521 A.2d 942, (Pa. Super 1987). While neither party was able to provide any Pennsylvania case directly on point, the Delaware case of McGowan v. Empress Entertainment, Inc., 791 A.2d 1 (Del. Ch. 2000) is instructive. Section 220 of the Delaware General Corporation Law entitled “Inspection of Books and Records” includes a provision similar to section 1508 (c) of the PAC. The Delaware statute allows for a stockholder to inspect or copy the corporation’s “stockledger, list of its stockholders, and other books and records for any proper purpose. “ Additionally, it specifically states that if the corporation refuses to permit the inspection, a Court of Chancery shall hear the case and shall 8 be permitted to “award such other or further relief as the Court may deem just or proper.” 8 Del. C. §220 (c). In the McGowan case, a Court, sitting in equity, interpreted this section to allow the payment of attorney’s fees against a party who was determined to have acted in bad faith. In that case, McGowan, who was director and 18.76% shareholder of Empress Entertainment Inc., made what the Court described as a relatively simple and straightforward request for documents. The corporation delayed filing a response for 16 months forcing McGowan to file a Section 220 request for inspection of books and records. McGowan filed a motion for summary judgment and the corporation immediately provided the information requested. On these facts where the Court finds that the losing party acted in bad faith in opposing the request for documents, “attorney’s fees may be awarded if it is shown that the Defendant’s conduct forced the Plaintiff to file suit to secure a clearly defined and established right.” McGowan v. Empress Entertainment, Inc., 791 A.2d 1 at 4 (Del. Ch. 2000) In this case, Ms. Helm had a “clearly defined and established right” to the stockholder information list. The Defendants’ actions in failing to comply with the request for a stockholder list forced the Plaintiff to file suit. Accordingly, this Court finds that the Defendants acted in “bad faith” and therefore are subject to the sanction of paying reasonable attorney’s fees. The Court deems such relief in this case as “just and proper.” Accordingly, the following order shall be entered: ORDER OF COURT th AND NOW , this 18 day of August, 2008, upon consideration of Defendants’ Motion for Summary Judgment and Plaintiff’s Cross-Motion for Summary Judgment, 9 IT IS HEREBY ORDERED AND DIRECTED that the Defendants’ Motion for DENIED Summary Judgment is and Plaintiff’s Cross-Motion for Summary Judgment is GRANTED. A hearing shall be scheduled to determine the reasonableness of legal fees incurred by Plaintiff to prosecute this matter. By the Court, M. L. Ebert, Jr., J. Michael A. Farnan Attorney for Plaintiff 100 Fifth Avenue, Suite 504 Pittsburgh, PA 15222 James D. Flower, Jr., Esquire John B. Lampi, Esquire Attorneys for Defendants Saidis, Flower & Lindsay 26 West High Street Carlisle, PA 17103 10