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HomeMy WebLinkAbout2012-2838 PENN PRODUCTS CORPORATION, : IN THE COURT OF COMMON DAVID J. HORICK, DOUGLAS C. : PLEAS OF CUMBERLAND HORICK, MARILYN SNYDER : COUNTY, PENNSYLVANIA BUDZYNSKI, Executrix-DBN of the : Estate of Maybelle Asper, Deceased, : DANIEL A. KUHN, DONNA LEE GOFF, : LEWIS G. KUHN, CAROLYN WAGNER,: DORIS I. ERNST, AND JEAN M. : HORICK, : PLAINTIFFS : : V. : : SANDRA L. McCORKEL, GREGORY : R. SWOPE, MEGAN SWOPE, AND : JOHN D. SWOPE, : DEFENDANTS : 12-2838 CIVIL TERM IN RE: OPINION PURSUANT TO PA.R.A.P. 1925 Masland, J., August 24, 2012:-- I. Background In this fiercely fought equity case, involving the struggle for control of a closely held corporation, Plaintiffs filed a complaint on May 7, 2012 seeking both a preliminary or special injunction and a permanent injunction. Although Defendants have raised a panoply of errors, the crux of their appeal is that the court erred in granting permanent relief without convening a new hearing. Therefore, we begin by setting forth at length Plaintiffs’ requested relief: WHEREFORE, Plaintiffs request this Honorable Court to enter a Special or Preliminary Injunction that does the following until further order of this Court: 1. Enjoins the purported “Resumption of Annual Meeting of Stockholders” that has been noticed for May 10, 2012; 2. Prohibits Defendants from acting on behalf of the Corporation; 3. Prohibits Defendants from accessing any and all financial accounts of the Corporation, including, 12-2838 CIVIL TERM but not limited to checking accounts at M&T Bank, checking accounts at Adams County National Bank, and investment accounts at Charles Schwab & Co., Inc.; 4. Recognizes the Directors and Officers who were duly elected on April 25, 2012; and, 5. Directs Defendants immediately to deliver to the New Directors all keys to Corporate property, all Corporate checkbooks and other financial accounts, all corporate records, and the Corporate Seal. WHEREFORE, Plaintiffs further request this Honorable Court to enter a Permanent Injunction, following requisite hearing, that does the following until further order of this Court: 1. Enjoins the purported “Resumption of Annual Meeting of Stockholders” that has been noticed for May 10, 2012; 2. Prohibits Defendants from acting on behalf of the Corporation; 3. Prohibits Defendants from accessing any and all financial accounts of the Corporation, including, but not limited to checking accounts at M&T Bank, and investment accounts at Charles Schwab & Co., Inc. 4. Validates the results of the election held on April 25, 2012; and 5. Places management of the Corporation in the hands of the Directors and Officers elected on April 25, 2012, i.e., David J. Horick, Douglas C. Horick, Daniel A. Kuhn, Marilyn Snyder Budzynski, Donna Lee Goff, Sandra K. Kreider, and Richard Magee, until the next election of Directors; and, 6. Grant such other and further relief as the Court 1 may deem just and proper. On May 8, 2012 this court issued an order which granted the requested preliminary or special injunction and set a hearing on the matter for Friday, May 18, 2012, at 1:30 p.m. Upon realizing the court had erred in failing to set bond and in failing to schedule a timely hearing pursuant to Pa.R.C.P. No. 1531, we 1 Plaintiffs’ complaint filed May 7, 2012, at 16-17. As is evident, the difference between the preliminary and permanent relief sought is inconsequential. -2- 12-2838 CIVIL TERM entered an order on May 9, 2012, that vacated the order of May 8, 2012 and, in effect, reissued the same order with two exceptions – bond was set at $1.00 and the hearing was scheduled for May 14, 2012, at 9:00 a.m. On May 14, 2012, the court heard approximately six hours of testimony from nine witnesses, admitted 18 exhibits into evidence and heard argument from counsel, all of which was every bit as feisty as the shareholders’ meeting that gave rise to this action. Our May 15, 2012 order began with the finding “that the Annual Shareholders Meeting on April 25, 2012, was properly noticed and convened and that the ensuing election of Directors and Officers comported with both the by-laws of the corporation and the laws of this Commonwealth.” Consequently, we deemed it appropriate to issue a permanent injunction that authorized the Directors and Officers elected on April 25, 2012, to undertake the management of the corporation; prohibited the Defendants from acting on behalf of the corporation; declared the actions of the Defendants subsequent to the April 25, 2012 annual meeting to be null and void unless ratified by the newly constituted board; and directed the Defendants to deliver all of the corporate records to the new Directors of the corporations. Defendants have appealed to the Superior Court and, in their statement of matters complained of, have expressed the grounds for the appeal as follows: 1. The Complaint in this action was filed on May 7, 2012. 2. The Complaint was not verified. 3. The Complaint contained false and scandalous accusations in Paragraphs 19, 21, 22, 23, 45, 48, 50, 52, and 53. 4. The Complaint requested the granting of a special or preliminary injunction and a permanent injunction. -3- 12-2838 CIVIL TERM 5. A Petition for a Preliminary or Special Injunction was never filed with the Court. 6. A proposed Order granting a special injunction was attached to the Complaint. 7. On May 8, 2012, the Honorable Albert H. Masland Judge of the court of Common Pleas of Cumberland County, acting ex parte, signed the Order attached to the Complaint, granting all injunctive relief requested by Defendants, and scheduling a hearing on May 18, 2012, 10 days after the date of the order. 8. No bond or other security was ordered by the Court, or posted by the Plaintiffs. 9. On May 9, 2012, Judge Masland entered another ex parte, order, vacating his Order of May 8. The Order of May 9 granted the Plaintiffs most of the special injunctive relief they had requested against Defendants, ordered that Plaintiffs post a bond of $1.00 (one dollar), and scheduled a hearing on May 14, 2012. 10. After the hearing on May 14, 2012, Judge Masland entered an Order dated May 15, 2012, which contained a final adjudication of the factual and legal issues in dispute between the parties, and entered a permanent injunction in favor of the Plaintiffs and against the Defendants. 11. The actions of Judge Masland have violated virtually every provision of the Pennsylvania Rules of Civil Procedure relating to the procedure in a civil action, the procedure in an action in equity, the granting of special or preliminary injunctive relief, and the granting of permanent injunctive relief. 12. The actions of Judge Masland have deprived the Defendants of their rights to due process and equal protection of the laws under the United States Constitution. Having been reproached for running roughshod over the constitution and rules of civil procedure, we have endeavored to not react defensively in this opinion. And, to the extent we erred, we will further endeavor to correct the same. Nevertheless, a fair hearing of the evidence produced drew us inevitably -4- 12-2838 CIVIL TERM to our conclusion. And, we submit that a fair reading of the numerous matters complained of boils down to one issue -- were the Defendants denied due process when we granted the requested relief? In keeping with this assessment, we have narrowed our findings to what we found to be credible, true and salient. II. Findings of Facts 1. Proper notice was given to the Shareholders of the April 25, 2012 2 Annual Shareholders Meeting of Penn Products Corporation. 2. The largest shareholder in attendance (holding 5,195 shares or 20.78% of all outstanding shares) was Marilyn Budzynski, who was the duly 3 appointed personal representative of the Estate of Maybelle Asper. 3. The Plaintiffs submitted legitimate proxies to the Defendants prior 4 to the meeting being convened. 4. Then President, Sandra L. McCorkel (hereafter McCorkel), called the meeting to order in the living room because there were too many attendees 5 to meet in the kitchen as planned. 5. McCorkel declared the first order of business to be the election of the Board of Directors and began to pass out preprinted ballots that only 6 contained the names of the Defendants. 2 See Plaintiffs’ Exhibit 1, hearing May 14, 2012 (hereinafter Pl.’s Ex. ); Notes of Testimony 10 and 57, hearing May 14, 2012 (hereinafter N.T. ). 3 Pl.’s Ex. 9A and 9B; N.T. 6-9, 12, 47. Although much ado was made at the hearing regarding the appointment of Ms. Budzynski and, consequently, her ability to vote the Estate’s shares, that argument was not raised in the statement of matters complained of. Perhaps, this was out of recognition that we may have gotten one thing right, or, it may have been an oversight. Regardless, the Probate, Estates and Fiduciaries Code is clearly on the side of the Plaintiffs. 4 N.T. 16 and Court Exhibit 1. 5 N.T. 15. 6 N.T. 16. -5- 12-2838 CIVIL TERM 6. McCorkel was advised by counsel for Plaintiffs that there was an alternate slate of candidates consisting of David Horick, Douglas Horick, Marilyn Budzynski, Donna Goff, Sandra Kreider, Richard Magee and Daniel Kuhn all of 7 whom were properly moved, seconded and ultimately added to the ballot. 7. After the ballots were revised, McCorkel attempted to appoint/nominate Defendants Greg Swope, John Swope and/or Megan Swope to serve as judges of election, but was informed by counsel for Plaintiffs that pursuant to the Penn Products by-laws and the statutes of Pennsylvania, a 8 candidate may not serve as a judge of election. 8. After some additional confusion, discussion, and perhaps a few raised voices, Marilyn Budzynski nominated Crady Swisher (hereafter Swisher) who was one of only three individuals present at the meeting who were legally 9 eligible to serve as judge of elections. 9. There was a somewhat begrudged consensus among the Shareholders that Swisher would serve as judge of elections, and McCorkel, the officer empowered to appoint the judges of elections, stated words to the effect of 10 “alright let’s proceed.” 10. Following the resolution of the question as to who would serve as 11 judge of elections, McCorkel passed out the ballots. 11. Shortly after passing out the ballots, and following a phone call with then corporate counsel, without a motion or vote to adjourn, McCorkel 7 N.T. 16, 20 and 166. 8 N.T. 18-19 and 122-123; see Pl.’s Ex. 1 at ¶ 6 and 15 Pa.C.S. § 1765. 9 N.T. 121. 10 N.T. 19, 130-131 and 141. 11 N.T. 141. -6- 12-2838 CIVIL TERM announced “this meeting is over” and within minutes turned out the lights in order 12 to usher the Plaintiffs out of the house. 12. Amidst a flurry of objections to adjournment by the Plaintiffs, McCorkel declared “don’t make me have to call the police” in order to force the 13 Plaintiffs off the premises. 13. Swisher attempted to collect all of the ballots prior to leaving, but 14 the Defendants refused to give him their ballots. 14. After Swisher collected the ballots in the house, the Plaintiffs proceeded to meet outside in the parking lot and continued the election of officers that had commenced inside, with each candidate on the aforesaid alternate slate receiving well over 50% of the votes present, in person or by 15 proxy (14,630 votes of a possible 23,175). 15. Following their attempt to abort the election of directors, the Defendants met on May 1, 2012 and continued to transact business on behalf of the corporation, including the payment of approximately $300,000 in accounts payable, the declaration of a dividend in the amount of $22.00 per share and the mailing of notices to reconvene the Annual Shareholders Meeting on May 10, 16 2012. 12 N.T. 21 and 59. 13 N.T. 21. 14 N.T. 25. 15 Pl.’s Ex. 10, Pl.’s Ex 11 and N.T. 24-26. 16 N.T. 63-65. -7- 12-2838 CIVIL TERM 16. The transactions by Defendants required sizeable transfers of funds between corporate accounts with Charles Schwab and ACNB leaving only 17 $20,000 in the corporate accounts for operation of the corporation. 17. All four Defendants deposited their $62,476.00 dividend checks into their ACNB accounts on May 7, 2012, withdrew $60,000 in cash two days later 18 and deposited the same into accounts with different institutions. 18. On May 3, 2012, the newly elected Directors met at a properly 19 called meeting to authorize the filing of the instant action. III. Legal Principles As noted, Plaintiffs sought a preliminary or special injunction as well as permanent injunctive relief. We will review the standard for each below. A preliminary injunction seeks to maintain the status quo until the rights of the parties can be finally adjudicated. New Castle Orthopedic Associates v. Burns, 392 A.2d 1383 (Pa. 1978). In determining whether to grant a preliminary injunction the court must apply the following standard: [A] court may grant a preliminary injunction only where the moving party establishes the following elements: (1) that relief is necessary to prevent immediate and irreparable harm which cannot be compensated by damages; (2) that greater injury will occur from refusing the injunction than from granting it; (3) that the injunction will restore the parties to the status quo as it existed immediately before the alleged wrongful conduct; (4) that the alleged wrong is manifest and the injunction reasonably suited to abate it; and (5) that the plaintiff’s right to relief is clear … Lewis v. City of Harrisburg, 631 A.2d 807 (Pa. Cmwlth. 1993). 17 N.T. 63, 73. 18 N.T. 69-74. 19 N.T. 29-30. -8- 12-2838 CIVIL TERM Furthermore, our courts have long recognized that the grant of a preliminary injunction is a “harsh and extraordinary remedy.” League of Women Voters of Pennsylvania v. Commonwealth, 683 A.2d 685, 688 (Pa. Cmwlth. each 1986). Therefore, “it is to be granted only when and if criteria has been fully and completely established.” Id. (emphasis in original). The standard for a permanent injunction differs from that of a preliminary injunction. The burden is upon the plaintiff to establish its clear right to relief; however, it “need not establish either irreparable harm or immediately relief” but only “a legal wrong for which there is not adequate redress at law.” Buffalo Twp. v. Jones, 813 A.2d 659, 663 (Pa. 2002). IV. Discussion Before turning to the heart of this case, we will briefly address some of the ancillary issues. First, Defendants raise for the first time on appeal several issues that could have been raised at the hearing or in preliminary objections, 20 such as the failure to attach a verification to the complaint. We find that these items are waived for the purposes of the appeal. General Mills, Inc. v. Snavely, 199 A.2d 540, 543 (Pa. Super. 1964). Similarly, Defendants object to the fact that Plaintiffs did not file a petition for injunctive relief, with the matter proceeding to a hearing on the basis of the complaint. While technically correct, the time to raise that was prior to the hearing. At this stage, after a contentious and lengthy hearing, a complaint over the procedural vehicle that brought the parties to court clearly places form over substance. 20 Defendants filed Preliminary Objections on May 25, 2012, in which they, inter alia, raised the issue of verification. Plaintiffs filed a praecipe on May 31, 2012 requesting the attachment of the verification to the complaint, stating it that was “inadvertently omitted.” -9- 12-2838 CIVIL TERM We do not minimize the importance of our rules. To the contrary, we take quite seriously the admonition to liberally construe the rules “to secure [a] just, speedy and inexpensive determination … [and to] disregard any error or defect of 21 procedure which does not affect the substantial rights of the parties.” Of course Defendants contend the manifold errors of Plaintiffs have been compounded not minimized by the court’s actions, which leads us to the over-arching issue of due process. Due process is defined in Black’s Law Dictionary as “the conduct of legal proceedings according to established rules and principles for the protection and enforcement of private rights, including notice and the right to a fair hearing.” th Black’s Law Dictionary, 538 (8 Ed. 2004). Here, there is no question that Defendants had an opportunity to be heard. The sole question is whether the court had sufficient facts at hand to order the relief requested after hearing extensive testimony about what took place on April 25, 2012. The record demonstrates that all parties received their day in court and ample opportunity to set forth their positions over what occurred at the Shareholders’ Meeting. Defendants may challenge our conclusions, but ultimately we found their contentions to be baseless and their credibility to be lacking. Contrary to Defendants’ claims that they were innocently confused and legally naive, they knew exactly what was happening. In short, Defendants realized that basic addition was not on their side and rather than wait for the votes to be tallied they attempted to use the tried-and-true playground tactic of taking their ball and going home (or, in this case, kicking everyone out of their 21 Pa.R.C.P. No. 126. -10- 12-2838 CIVIL TERM home). Now that the court has cried foul, Defendants claim that we did not let them play. To the contrary, and to the limits of our patience at times, everyone was allowed on the court’s playground. We are satisfied that McCorkel’s statements and actions constituted, in the least, an implicit appointment of a judge of elections and that she, thereafter, passed out the ballots to the shareholders present, the Defendants could not effectively terminate the meeting and nullify the election, when they were displeased with the result. The attempt by McCorkel and the other Defendants to adjourn the meeting without a motion or vote was in direct contravention of not only Pennsylvania’s Business Corporation law, 15 Pa.C.S. § 1755(c) but also the 22 Penn Products By-laws, Article 3, Section 3, both of which require a majority vote of the shareholders present and entitled to vote in order to effect adjournment of a meeting at which directors are to be elected. Therefore, having found as a matter of law that the new slate of directors was properly elected on April 25, 2012, this court had no choice but to grant the relief requested and remove the reigns of power from the Defendants. In 1971, the parties chose the corporate form of governance under the laws of this Commonwealth. With that choice, they were accorded numerous protections as shareholders. Whether a corporation holds its shareholders’ meetings in a modest residence or an ornate convention hall, the officers and directors must abide by the statutes that have been set in place by the state and the by-laws they have adopted. Blatantly disregarding the same to avoid an inevitable change of control is contrary to the letter and spirit of the law. 22 Pl.’s Ex. 1. -11- 12-2838 CIVIL TERM Of course, the question remains whether the relief granted should have been temporary or permanent. In the case at hand, with the nature of relief requested, we submit this is a distinction without a difference. Plaintiffs established their entitlement to relief under the standards for both preliminary and permanent injunctive relief. Once the court confirmed the election of the new directors, the balance of the relief requested was not only logical but was of pure necessity. To be sure, our appellate courts have stated that a trial court errs when it allows a preliminary injunction hearing to morph into a hearing into a permanent injunction. Soja v. Factoryville Sportsmen’s Club, 522 A.2d 1129, 1132 (Pa. Super. 1987). We suggest that the instant case is more similar to Key v. Pennsylvania Turnpike Commission, 743 A.2d 546 (Pa. Cmwlth. 1999), wherein the court noted there was extensive evidence introduced at the preliminary injunction proceeding thereby obviating any need for a duplicative hearing before granting permanent injunctive relief. We can think of no additional evidence that Defendants could proffer regarding the events of April 25, 2012 that would change this result. The only evidence limited by the court amounted to Defendants’ attempts to prove that they had properly managed the corporation for years. Even if that is true, they did not have the votes on April 25, 2012 to continue managing the corporation and our focus, for either preliminary or permanent relief, must be on the future, not the distant past. Therefore, we limited Defendants’ testimony about their “good works” prior th to April 25, 2012. We permitted testimony regarding their actions after the -12- 12-2838 CIVIL TERM meeting because that, along with their actions at the meeting, established the necessity for injunctive relief, no matter the form. Clearly, paying sizeable bills (some to Defendants personally) and substantially depleting the corporate accounts gives rise to irreparable harm that cannot be otherwise compensated. To the extent that some of the Defendants’ actions were arguably proper we left that for the new board to determine. Finally, regarding the standard for permanent relief, the Defendants’ actions were legally wrong and Plaintiffs had a clear right to relief. Furthermore, Defendants transactions revealed that even they knew they were wrong – neither the debts paid nor the dividend declared were urgent business that could not wait for the resolution of the issues arising from the disputed shareholders’ meeting. But, the Defendants knew they were running out of time, and rather than run the risk that the new directors might act differently, they literally took the air out of the ball. Such conduct would not be condoned on the court and was not condoned in the court. Conclusion Like the proverbial trial judge out for a duck hunt, armed with the law as we know it, when we see what looks like a duck, we shoot. If this Honorable Court determines that we shot the wrong fowl (or the right fowl in the wrong season), we will make amends, and pause before taking our next shot. Nevertheless, we strongly suggest that our aim, if not our reasoning, was -13- 12-2838 CIVIL TERM accurate. Therefore, for the foregoing reasons, we believe that the court’s grant of the permanent injunction was proper. By the Court, Albert H. Masland, J. Marvin Beshore, Esquire Luther E. Milspaw, Jr., Esquire 130 State Street, P.O. Box 946 Harrisburg, PA 17108-0946 For Plaintiffs William Andring, Esquire 248 Creek Road Camp Hill, PA 17011 For Defendants :saa -14-