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HomeMy WebLinkAbout99-2765 EQUITYROBERT M. MUMMA, II, Plaintiff PENNSY SUPPLY, INC., Defendant OLER, J., May 17, 2002. IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA CIVIL ACTION - EQUITY NO. 99-2765 EQUITY TERM IN RE: ADJUDICATION BEFORE OLER~ J. OPINION and DECREE NISI In this equity action, Plaintiff Robert M. Mumma, II, claims an ownership interest in a corporation known as Pennsy Supply Inc. (with no comma), which, according to Plaintiff, has survived for over fifty years as an entity separate and distinct from Pennsy Supply, Inc. (with a comma). Plaintiff argues that, although he sold his interests in the latter, he retained an ownership interest in the former, as evidenced by a share certificate, dating to 1963, which facially represented 314 shares of stock in "Pennsy Supply Inc." (with no comma).~ Thus, essentially, Plaintiff's claims are predicated on the legal significance of a comma or lack thereof. The ownership interest claimed by Plaintiff represents shares in a corporation that was built up by Plaintiff's father, Robert M. Mumma, whose death in 1986 initiated a "long line" of seemingly "unending litigation''2 involving Plaintiff, other members of the Mumma family, and various corporations involved in subsequent transactions involving the "Pennsy Supply Businesses.''3 The latest in this series of cases involve the sale of the ~ Hereinafter, all references to "Pennsy Supply, Inc." should be construed as references to Permsy Supply, Inc. (with a comma), and all references to "Permsy Supply Inc." should be construed as references to Permsy Supply Inc. (with no comma). ~ In re Estate of Mumma, Orphans' Ct. No. 21-86-398, slip op. at 1 (Ct. Com. Pl. Cumberland Nov. 5, 1992). 3 See, e.g., Mumma v. CRH, Inc., 99-1546 Civil Term (Ct. Com. Pl. Cumberland 1999); Mumma v. G-A-T Distribution Corp., 94-0423 Civil Term (Ct. Com. Pl. Cumberland 1994); Mumma v. Nine Ninety-Nine, Inc., 14 Equity 1990 (Ct. Com. Pl. Cumberland "Pennsy Supply Businesses" to another corporation, CRH plc. Plaintiff consented to this sale and released his ownership interest in the "Pennsy Supply Businesses" for consideration of approximately $3 million) Soon after executing this release, Plaintiff initiated lawsuits against various corporations involved in the transaction, including G-A- T Distribution Corporations and CRH plc.6 On May 7, 1999, Plaintiff filed this declaratory judgment action against another such corporation, Defendant Pennsy Supply, inc. In this action, Plaintiff requested that the court declare that he "is a lawful owner of 314 shares of stock in Pennsy Supply inc.''7 Plaintiff also requested a declaration that previous transfers of shares in Pennsy Supply inc., including Plaintiff's shares, were void under the terms of an agreement executed by the shareholders of Pennsy Supply Inc. in 1961 and that, pursuant to that agreement, Plaintiff has the option to purchase a significant ownership interest in that corporation at book value.8 As with Plaintiff's prior claims in other cases, resolution of the present claims in Plaintiff's favor would effectively require the unraveling of the sale of the "Pennsy Supply Business" and would allow Plaintiff to reacquire control of assets that were transferred to CRH plc by Plaintiff for consideration of $3 million. A nonjury trial was held over the course of five days. Based upon the evidence in the record, and for the reasons stated in this opinion, the court will find for Defendant. 1990); Mumma v. Nine Ninety-Nine, Inc., 15 Equity 1990 (Ct. Com. Pl. Cumberland 1990); Mumma v. Mumma, 84 Equity 1990 (Ct. Com. Pl. Cumberland 1990); Mumma v. Mumma, 66 Equity 1988 (Ct. Com. Pl. Cumberland 1988); In re Estate of Mumma, Orphans' Ct. No. 21-86-398 (Ct. Com. Pl. Cumberland 1986). 4 See infra notes 18-34 and accompanying text. 5 See Mumma v. G-A-T Distribution Corp., 94-0423 Civil Term (Ct. Com. Pl. Cumberland 1994). 6 SeeMumma v. CRH, Inc., 99-1546 Civil Term (Ct. Com. Pl. Cumberland 1999). 7 P1.'s Action for a Declaratory J., filed May 7, 1999, at 5. 8 See id 2 FINDINGS OF FACT 1. According to the records of the Commonwealth for Nine Ninety-Nine, Inc.,9 on May 3, 1961, a corporation known as Pennsy Supply, INc., which had been incorporated on March 20, 1958, merged into a corporation known as Fiala Crushed Stone Corporation, which had been incorporated on November 5, 1958.~° 2. As a result of the merger, on May 3, 1961, Pennsy Supply, INc., ceased to exist as the name of a corporation recognized in the records of the Commonwealth. ~ 3. According to the records of the Commonwealth for Nine Ninety-Nine, INc., immediately after the merger, on May 3, 1961, Fiala Crushed Stone Corporation changed its name to Pennsy Supply INc. ~2 4. On December 29, 1961, the two shareholders of Pennsy Supply INc., Kim Company and Jerry T. Simpson, entered into a shareholders' agreement, which limited the ability of current shareholders to transfer shares without first offering the shares for sale to the corporation.~3 5. Share certificates issued after this agreement bear a restrictive legend, which identified the applicability of the restrictions imposed by the shareholders' agreement of December 29, 1961.~4 6. On August 1, 1963, the two shareholders, Kim Company and Jerry T. Simpson, entered into a termination agreement, which provided, in pertinent part: "[S]aid 9 Specifically, these records are the articles of incorporation and amendments for Nine Ninety-Nine, Inc, filed with the Commonwealth of Pennsylvania Department of State. See Def.'s Ex. 48, Trial, Dec. 13-15, 2000, May 30-31, 2001 (hereinafter Pl.'s / Def.'s Ex. ~. l0 Def.'s Ex. 48, 49. ~ ld. ~2 Id. ~3 P1.'s Ex. 5. ~4 E.g., P1.'s Ex. 3. 3 parties hereto agree that said shareholder's Agreement of December 29, 1961 between Kim [Company] and [Jerry T.] Simpson is hereby cancelled, annulled and terminated."~5 7. The termination agreement further provided that "upon transfer of all of the shares of stock of [Jerry T.] Simpson to [Robert M.] Mumma, [Plaintiff's father,] all rights, obligations and conditions of said Agreement shall cease.''~6 8. On August 1, 1963, Jerry T. Simpson transferred a total of 1,250 shares in Pennsy Supply Inc. to Robert M. Mumma. ~7 9. On August 5, 1963, Robert M. Mumma transferred 314 shares in Pennsy Supply Inc. to Plaintiff and Plaintiff was issued a share certificate representing those share s. ~ 8 10. Plaintiff's share certificate does not bear the restrictive legend that appeared on share certificates issued prior to August 1, 1963, and after the execution of the 19 shareholders' agreement. 11. According to the records of the Commonwealth for Nine Ninety-Nine, inc., on May 31, 1979, a corporation known as Tri-Ms. Inc. merged into Pennsy Supply inc.2° 12. According to the records of the Commonwealth for Nine Ninety-Nine, inc., on August 31, 1981, a corporation known as Four Forty One Corporation merged into Pennsy Supply, inc.2~ 13. Although the merger of May 31, 1979, refers to Pennsy Supply inc., and the merger of August 31, 1981, refers to Pennsy Supply, inc., both mergers involved the ~5 Def.'s Ex. 8. ~6 ld ~7 Pl.'s Ex. 5. la Pl.'s Ex. 1. The shares were actually transferred to Robert M. Mumma as custodian for Plaintiff, who was a minor at the time of the initial transfer. Plaintiff came into possession of the shares in 1971. N.T. 34-38, 114, 150, Trial, Dec. 13-15, 2000, May 30- 31, 2001 (hereinafter N.T. ~; see also Pl.'s Ex. 1. 19 See PI.'s Ex. 1. 20 Def.'s Ex. 48. 2~ Id. 4 same corporation, the corporation which had been originally known as Fiala Crushed Stone Corporation and which had been incorporated on November 5, 1958. 14. Thereafter, although the records of the Commonwealth for Nine Ninety- Nine, inc., refer solely to Pennsy Supply, inc., those references are to the same corporation previously identified as Pennsy Supply Inc., the corporation which had been originally known as Fiala Crushed Stone Corporation and which had been incorporated on November 5, 1958.22 15. On October 9, 1981, Ten-O-One, Inc., was incorporated as a wholly-owned subsidiary of Pennsy Supply, inc.23 16. According to the records of the Commonwealth for Nine Ninety-Nine, Inc., on January 4, 1982, Pennsy Supply, Inc., changed its name to Nine Ninety-Nine, inc.~4 17. On January 4, 1982, all outstanding share certificates bearing the name Pennsy Supply, Inc., or any derivation thereof, were replaced with new share certificates bearing the name Nine Ninety-Nine, inc.~5 18. Plaintiff was issued a new share certificate bearing the name Nine Ninety- Nine, Inc., to replace his share certificate bearing the name Pennsy Supply, inc.26 19. Plaintiff retained possession of the share certificate, which bore the name Pennsy Supply Inc. and which had represented 314 shares in Pennsy Supply, inc.~7 20. On January 4, 1982, Ten-O-One, Inc., a wholly-owned subsidiary of Nine- Ninety-Nine, Inc., changed its name to Pennsy Supply, inc)8 21. Pennsy Supply, inc., formerly known as Ten-O-One, inc., continued to operate as a wholly-owned subsidiary corporation of Nine Ninety-Nine, inc.29 22 See DeE's Ex. 48; N.T. 171-75. 23 DeE's Ex. 50; see a/so, e.g., N.T. 516. 24 Def.'s Ex. 48. 25 See N.T. 476-78; see a/so Def.'s Ex. i5-C. 26 Def.'s Ex. i5-C, 17, 26; see a/so N.T. 160, 27 See Pl.'s Ex. i. 2a Def.'s Ex. 50. 316-17. 5 22. In July 1993, pursuant to a majority vote of shareholders, all shares of Nine Ninety-Nine, Inc., along with other corporate assets denominated collectively as the "Pennsy Supply Businesses," were sold to another corporation, CRH plc.3° 23. On March 17, 1995, Plaintiff joined the sale of the "Pennsy Supply Businesses" through the execution of an "irrevocable" consent and joinderfl 24. On March 17, 1995, Plaintiff sold his outstanding shares in Nine Ninety- Nine, Inc., to CRH plc and received approximately $3 million in proceeds from the sale.32 25. On March 17, 1995, Plaintiff transferred the shares and surrendered the share certificate representing his shares in Nine Ninety-Nine, Inc.33 26. As of March 17, Ninety-Nine, Inc.34 Declaratory Judgments. 1995, Plaintiff retained no ownership interest in Nine DISCUSSION Declaratory judgments are available for parties "to obtain a declaration of the existing legal rights, duties, or status of the parties where the declaration will aid in the determination of a genuine, justiciable controversy." Redevelopment Auth. v. Iht'! Ins. Co., 454 Pa. Super. 374, 383, 685 A.2d 581, 585 (1996). Generally, the party asserting ownership of property currently possessed and operated by another bears the burden of establishing his or her legal right to that property, particularly when documentary evidence exists to support the possessor's right to ownership. See In re Estate of Kleiner, 405 Pa. 540, 543, 176 A.2d 410, 412 (1962); see also Montgomery v. Keystone Say. & Loan Ass 'n, 150 Pa. Super. 577, 581, 29 A.2d 203, 205 (1942). 29 Def.'s Ex. 50; see a/so, e.g., N.T. 516. 30 See Def.'s Ex. 17, 18, 47. 3~ Def.'s Ex. 7; see a/so N.T. 161, 171-75, 254, 261; Def.'s Ex. 47. 32 See N.T. 159, 171-75; see a/so Def.'s Ex. 47. 33 See N.T. 159, 171-75; Def.'s Ex. 26. 34 Def.'s Ex. 7; see a/so N.T. 161, 171-75, 254, 261; Def.'s Ex. 47. 6 Ownership Interest in Pennsy Supply Inc. The court is of the opinion that Plaintiff has failed to offer persuasive evidence to support his claim of an ownership interest, represented by the share certificate bearing the name Pennsy Supply Inc. Instead, the evidence presented in this case established that Plaintiff, through the execution of the consent and joinder agreement in 1995, sold the ownership interest that had been represented by the share certificate. Possession of a share certificate is not dispositive evidence of an ownership interest in the corporation named on the certificate, but functions only as supporting evidence that the possessor has a valid ownership claim. See Act of Dec. 21, 1988, P.L. 1444, No. 177, § 103, as amended, 15 Pa. C.S.A. § 1103 (West 1998 & Supp. 2001) (defining a "share certificate" as "Ia] written instrument signed on behalf of the corporation evidencing the fact that the person therein named is the record owner of the shares therein described"); see also 15 Pa. C.S.A. § 1528(a) (stating that shares of a business are "represented" by share certificates). In other words, a distinction is made between the share certificate and the underlying ownership interest, the shares, represented by the certificate. When an issuing corporation,35 because of a change in name or similar event, cancels outstanding share certificates and issues new certificates under the new corporate name, the underlying ownership interests represented by all certificates -- both the cancelled and the new -- do not change and remain in the issuing corporation. See In re Estate of Rider, 711 A.2d 1018, 1023 (Pa. Super. Ct. 1998) (finding that cancellation of an old certificate and issuance of a new certificate has "no legal effect" on the individual's "entitlement to the underlying asset"). The possession of share certificates, or lack thereof, does not affect whether the shareholders retain an ownership interest in the issuing corporation, even though it now operates under a 36 different name. 35 The issuing corporation may be defined as the corporation that originally issued the shares and share certificates. 36 It seems an odd rule of law that would allow the possessor of cancelled certificates in a now-defunct corporation to reap a windfall and acquire an ownership interest in a newly- 7 Conclusive evidence of an ownership interest can be found only by examining the records pertaining to the structure and development of the issuing corporation. See 15 Pa. C.S.A. § 1916 (stating that amendments to the articles of incorporation become effective only upon filing with the Commonwealth); see a/so 15 Pa. C.S.A. § 1309 (stating the corporate records kept by the Commonwealth serve as "conclusive evidence" of the status of that corporation))? A corporation is required to file with the Commonwealth all information pertaining to corporate charter amendments, mergers and name changes. 15 Pa. C.S.A. § 1911. Because the existence of the corporation is dependent on state recognition, these records serve as "conclusive proof' of alterations in corporate structure and identity. 15 Pa. C.S.A. § 1309. Thus, by tracking the changes in the structure of the issuing corporation, as evidenced by the records of the Commonwealth, the current identity of the issuing corporation, in which the ownership interest remains, can be determined. In filing both articles of incorporation and amendments thereto, entities must abide by several statutory filing requirements in order to secure official recognition of the proposed incorporation or amendment. One such requirement limits the ability of an entity to incorporate under a name that is not "distinguishable" from the name of another corporation already recognized in the records of the Commonwealth. 15 Pa. C.S.A. formed corporation merely because, by happenstance, the new corporation chose to use the same name as the old corporation. 37 Even if the court may in some circumstances infer the existence of a de facto corporation from testimonial evidence of the assumption of corporate identity, but see Act of Dec. 21, 1988, P.L. 1444, No. 177, § 103, 15 Pa. C.S.A. § 1904 (West 1998 & Supp. 2001) ("The doctrine of de facto mergers, consolidations, and other fundamental transactions is abolished .... "), Plaintiff has not presented facts to support such a claim. Here, Plaintiff presented, as alleged corporate officers of a second "Pennsy Supply" corporation, two individuals, who were both over eighty years of age. These individuals could not testify clearly to the existence of two "Pennsy Supply" corporations but could only, in response to Plaintiff's leading questions, agree that two such corporations may have existed at some time. As such, in the court's view, no credible evidence was presented of any "attempt to organize" or an "assumption and exercise of corporate power," to support Plaintiff's claim of a de facto corporation. See In re Riviera Country Club, 196 Pa. Super. 636, 640-41, 176 A.2d 704, 707 (1961). § 1303(b). Section 135 of Title 15 establishes the requirements for a "distinguishable" name and provides, in pertinent part, as follows: (e) Distinguishable names.--A name shall not be considered distinguishable.., from another name for purposes of this title ... solely because the names differ from each other in any or all of the following respects: (1) Use of punctuation marks. 15 Pa. C.S.A. § 135(e). Thus, it is the policy of the Commonwealth not to recognize proposed articles of incorporation or amendments that would result in two corporations 38 with duplicate names. Based on the records of the Commonwealth presented in this case, as of 1982, the identity of the issuing corporation, in which Plaintiff held an ownership interest, was Nine Ninety-Nine, inc. According to these records, Nine Ninety-Nine, inc., had been incorporated in 1958 under the name Fiala Crushed Stone Corporation. Soon thereafter, it changed its name to Pennsy Supply inc., the name under which it issued Plaintiff's share certificate and shares, in 1982, this corporation (i.e., the issuing corporation) changed its name to Nine Ninety-Nine, inc. Although the name of the corporation changed, its basic structure and identity did not, and Plaintiff's ownership interest remained in that corporation, now known as Nine Ninety-Nine, inc.39 38 Although the current version of the statutory restriction on duplicate names was passed in 1988, similar statutes in effect during all periods in question also limited the ability of corporations to use a name that was not "distinguishable" from corporate names in the records of the Commonwealth. See 15 Pa. C.S.A. § 1303 notes. 39 This conclusion is supported by the fact that, at the time of the name change, Plaintiff received a new share certificate representing new shares in Nine Ninety-Nine, inc. it seems incredible to posit that Nine Ninety-Nine, inc., would simply issue shares of corporate stock to Plaintiff without a demand for compensation. Rather, it seems more likely that the new share certificate was a replacement for Plaintiff's now-cancelled certificate, which bore the name Pennsy Supply inc., a name no longer used by the issuing corporation. Cf Rider, 711 A.2d at 1023 (finding that cancellation of an old certificate and issuance of a new certificate has "no legal effect" on the individual's "entitlement to the underlying asset"). 9 With respect to the identity of the issuing corporation, the fact that the records of the Commonwealth inexplicably insert a comma into the name Pennsy Supply inc. between 1979 and 1981 is immaterial to the analysis for two reasons. First, the insertion occurred wholly within the corporate records for Nine Ninety-Nine, inc., a single corporation, and the records contain no suggestion to rebut the inference that these two names refer to the same corporation, the one that later changed its name to Nine Ninety- Nine, Inc. Second, under statutory filing restrictions, corporate names that differ only in terms of punctuation are not "distinguishable" for purposes of determining corporate identity. Thus, the insertion or deletion of a comma would not effect an officially recognized change in either the corporate name or identity. The basic premise of Plaintiff's argument, that two "Pennsy Supply" corporations, differing only by a comma, existed at the same time, is untenable in light of this statute. According to the records of the Commonwealth, which serve as "conclusive evidence" of incorporation and corporate identity, as of 1995, the identity of the issuing corporation of Plaintiff's shares was Nine Ninety-Nine, Inc. Although Plaintiff retained his share certificate bearing the name Pennsy Supply inc., his ownership interest remained in the issuing corporation, Nine Ninety-Nine, inc. When Plaintiff sold his shares in that corporation to CRH plc in 1995, he sold the ownership interest that had been represented by the share certificate bearing the name Pennsy Supply inc. Thus, Plaintiff's contention that his share certificate represents an existing and valid ownership interest in a corporation known as Pennsy Supply inc. must fail. Effect of the 1961 Shareholders'Agreement. With respect to Plaintiff's claims that the shareholders' agreement of 1961 voided all transfers of his 314 shares of stock, the court is of the opinion that the termination agreement of 1963 negated any such potential effect on subsequent transfers. Cf 15 Pa. C.S.A. § 1529 (stating that shareholders may alter transfer restrictions by agreement). Because Plaintiff's shares were issued after the execution of the termination agreement, and because the share certificate itself does not indicate that the limitations imposed by the shareholders' i0 agreement apply, that agreement had no effect on subsequent transfers of Plaintiff's shares. CONCLUSIONS OF LAW 1) The court has jurisdiction over the parties and of the subject matter involved in this litigation. 2) Plaintiff's share certificate, bearing the name Pennsy Supply inc., does not represent an ownership interest in any corporation in the Commonwealth. 3) Plaintiff's share certificate, bearing the name of Pennsy Supply inc., does not entitle Plaintiff to exercise any shareholders' rights with respect to any corporation in the Commonwealth. 4) The shareholders' agreement, executed by shareholders in Pennsy Supply inc. in 1961 and terminated by the same shareholders in 1963, did not operate to void the August i, 1963, transfer of shares in Pennsy Supply inc. by Jerry T. Simpson to Robert M. Mumma; the August 5, 1963, transfer of shares in Pennsy Supply inc. by Robert M. Mumma to Plaintiff; or the March 17, 1995, sale of those shares by Plaintiff to CRH plc. 5) Plaintiff is not entitled to the exercise of any shareholders' rights with respect to the option to purchase shares in a corporation known as Pennsy Supply inc., or any derivation thereof. For the foregoing reasons, the following decree nisi will be entered.4° DECREE NiSi AND NOW, this i7th day of May, 2002, upon consideration of Plaintiffs complaint for declaratory judgment in the above-captioned case, and following a nonjury trial, it is ordered, adjudged, decreed and declared that Plaintiff does not retain an ownership interest in a corporation known as Pennsy Supply inc., or any derivation thereof, and that the transfers of shares in Pennsy Supply inc., or any derivation thereof, 4o "The practice and procedure [in actions for declaratory relief] shall follow, as nearly as may be, the rules governing the Action in Equity." Pa. R.C.P. 1601(a); see Pa. R.C.P. 1517(a) (describing the contents of adjudication in equity). ii at issue in this action were not voided by operation of the shareholders' agreement executed in 1961. THiS DECREE NiSi shall automatically become a final decree, without further order of court, if no party in interest files a timely motion for post-trial relief in accordance with Pennsylvania Rule of Civil Procedure 227.1. BY THE COURT, /s/J. Wesley Oler, Jr. J. Wesley Oler, Jr., J. Robert M. Mumma, II Box E Bowmansdale, PA 17008 Plaintiff, Pro Se Robert M. Mumma, II 6880 S.E. Harbor Circle Stuart, Florida 34996 Plaintiff, Pro Se Michael A. Finio, Esq. Stephen M. Donweber, Esq. Centre Square West 1500 Market Street, 28th Floor Philadelphia, PA 19102 Attorneys for Defendant Pennsy Supply, inc. 12 13 ROBERT M. MUMMA, II, Plaintiff PENNSY SUPPLY, INC., Defendant AND NOW, this IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA CIVIL ACTION - EQUITY NO. 99-2765 EQUITY TERM IN RE: ADJUDICATION BEFORE OLER~ J. DECREE NISI 17th day of May, 2002, upon consideration of Plaintiffs complaint for declaratory judgment in the above-captioned case, and following a nonjury trial, it is ordered, adjudged, decreed and declared that Plaintiff does not retain an ownership interest in a corporation known as Pennsy Supply Inc., or any derivation thereof, and that the transfers of shares in Pennsy Supply Inc., or any derivation thereof, at issue in this action were not voided by operation of the shareholders' agreement executed in 1961. THIS DECREE NISI shall automatically become a final decree, without further order of court, if no party in interest files a timely motion for post-trial relief in accordance with Pennsylvania Rule of Civil Procedure 227.1. BY THE COURT, Robert M. Mumma, II Box E Bowmansdale, PA 17008 Plaintiff, Pro Se J. Wesley Oler, Jr., J. 15 Robert M. Mumma, II 6880 S.E. Harbor Circle Smart, Florida 34996 Plaintiff, Pro Se Michael A. Finio, Esq. Stephen M. Donweber, Esq. Centre Square West 1500 Market Street, 28th Floor Philadelphia, PA 19102 Attorneys for Defendant Pennsy Supply, Inc.