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PETITION BOARD DIRECTORS STATE POLICE CIVIC ASSOCIATION (02/23/84)

decided: February 23, 1984.

IN RE: PETITION OF THE BOARD OF DIRECTORS OF THE STATE POLICE CIVIC ASSOCIATION, A PENNSYLVANIA CORPORATION. JOHN T. LONG ET AL., APPELLANTS. IN RE: PETITION OF THE BOARD OF DIRECTORS OF THE STATE POLICE CIVIC ASSOCIATION, A PENNSYLVANIA CORPORATION. MARSHALL G. KINBACK ET AL., APPELLANTS. IN RE: PETITION OF THE BOARD OF DIRECTORS OF THE STATE POLICE CIVIC ASSOCIATION, A PENNSYLVANIA CORPORATION. ROBERT J. ZINSKY, APPELLANT


Appeals from the Order of the Court of Common Pleas of Dauphin County in the case of In Re: Petition of the Board of Directors of the State Police Civic Association, a Pennsylvania Corporation, No. 720, Year of 1977.

COUNSEL

Gary M. Lightman, with him Anthony C. Busillo, II, Mancke, Lightman & Wagner, for appellants, Long, Miklic and Smith, and The State Police Conference of State Police Lodges of the Fraternal Order of Police (FOP).

Ronald M. Katzman, Goldberg, Evans & Katzman, P.C., for appellants, Kinback, Tingley, Cronin, Smith and Cahalan, and the Retired State Police Association of Pennsylvania, Inc.

John C. Sullivan, Nauman, Smith, Shissler & Hall, for appellant, Robert J. Zinsky.

G. Thomas Miller, with him Robert D. Stats, McNees, Wallace and Nurick, for appellee.

Judges Williams, Jr., Craig and Doyle, sitting as a panel of three. Opinion by Judge Doyle.

Author: Doyle

[ 80 Pa. Commw. Page 407]

Before this Court are appeals by the Retired State Police Association of Pennsylvania, Inc.*fn1 (RSPAP), the State Conference of State Police Lodges of the Fraternal Order of Police (FOP)*fn2 and Robert J. Zinsky,*fn3 from a decision and order of the Court of Common Pleas of Dauphin County adopting a receiver's report governing the distribution of the assets of the now defunct State Police Civic Association (SPCA). We affirm.

The SPCA, organized in 1917 as a fraternal society and chartered in 1922, was a not-for-profit corporation founded to fill a void in pension and general

[ 80 Pa. Commw. Page 408]

    benefits coverage for the Pennsylvania State Police. Membership in the SPCA was voluntary but, over the years, most members of the State Police joined as a matter of course. Pension benefits, distributed on a non-actuarial basis, were quite liberal. By 1949, however, it became evident that the liberal benefit payments, combined with a high number of members taking early retirement and increased membership, would soon result in a situation where the SPCA's liabilities would exceed its assets. To counteract the advent of such circumstances, the SPCA's Board of Directors (Board) convened and amended the SPCA's By-Laws to create two separate funds for accounting purposes, an "investment" fund and a "current income" account. In conjunction with the establishment of these funds it was also decided to restrict the dollar amount of the pensions paid in a given year to a portion of the income actually earned in the preceding year, with investment funds to be utilized for pensions only if income would not allow for a specified minimum pension payment. These changes were approved by a unanimous vote of the entire membership.

While the amendments adopted in 1949 accomplished their purpose for the time being, by 1961 an ever increasing number of retired members once again created a situation where pension liabilities portended to exceed income. Accordingly, the By-Laws were again amended, this time to eliminate all recourse to the investment fund for the payment of pensions. Also, dues were doubled and a refund policy was put into effect which permitted members resigning from the State Police after three years of service to receive back all dues paid in excess of $120.00 per annum. It was hoped that these steps would both solidify the SPCA's finances and serve as an inducement to young State Police officers to join and remain in the SPCA. The dues refund provision was further liberalized in

[ 80 Pa. Commw. Page 4091969]

to provide that all dues, less $120.00, would be refunded to any member who left his employment with the State Police and who was not yet eligible to receive a pension. It was also decided at that time to base dues payments on a percentage of the salary received by a first year graduate of the State Police Academy rather than a fixed figure. This created a hedge against inflation as dues increased when compensation increased. Unfortunately for the SPCA, the overall effect of the efforts to achieve fiscal solidity was decreased benefits at increased cost. It soon became evident to many of the newer members that, for the same price, they could obtain benefits from sources, such as commercially available deferred annuities, roughly twice that which could be received from the SPCA. Thus it was that in 1974, 450 members of the SPCA resigned, despite continuing to be employed by the Pennsylvania State Police.

Concerned with the situation confronting them, the Board appointed an outside consultant to conduct a study of the SPCA's future prospects. The consultant, comparing an estimate of the SPCA's liabilities with current assets, concluded that the SPCA's retirement plan was underfunded, that pension benefits would continue to diminish and that, all in all, there was little reason for younger members of the State Police to join the SPCA. The consultant further concluded that, to make the SPCA a sound and attractive investment, it would be necessary to amend the pension policy by decreasing benefits to retired members and increasing benefits for members who would be qualifying for pensions in the future. The theory behind the recommended changes was to make the pension program reflect the actuarial value of the contributions made by members to the fund. A report which contained the consultant's recommendations was distributed to the entire membership of the SPCA for its

[ 80 Pa. Commw. Page 410]

    consideration. A majority of the membership, however, refused to grant the approval necessary for the proposed changes to go into effect.

On August 29, 1974, a special meeting of the Board was convened to discuss the high resignation rate and the membership's refusal to adopt the consultant's recommendations. At that time the Board imposed a moratorium on the collection of dues*fn4 while it considered alternatives for the SPCA other than those presented by the consultant and complete dissolution. Several months thereafter a survey ballot was circulated to all SPCA members. The ballot contained five options for the SPCA's future including, inter alia, maintaining the status quo and dissolution. Based primarily on the response to the survey ballot, it was these two options which were presented at the SPCA's annual membership meeting held in May, 1975 and which were later distributed to the entire membership for a final vote. By a margin of almost three to one, the membership voted in favor of dissolving the SPCA.

Based on the adverse interests of the different classes of SPCA members, the Board, on June 26, 1975, filed a petition with the common pleas court sitting in equity requesting it to take judicial supervision of the SPCA's voluntary dissolution. The RSPAP filed an answer in opposition on the grounds that it had filed its own petition with the court seeking to have the SPCA placed in involuntary dissolution, that the vote of the membership to dissolve the SPCA was invalid and that the petition of the Board for judicial

[ 80 Pa. Commw. Page 411]

    supervision was procedurally defective. Prior to the court in equity issuing a ruling on the petition and answer, however, the Board filed a motion requesting a transfer of the matter to the orphans' court division based on the Board's assertion that the SPCA was a not-for-profit corporation holding property committed to a charitable purpose and that jurisdiction was therefore vested only in the orphans' court. Despite opposition to the propriety of such a transfer by the RSPAP, the motion was granted and the entire matter was transferred to orphans' court on February 13, 1976. An amended petition and the answer thereto were filed and on March 17, 1978, the RSPAP filed a motion to withdraw its opposition to a judicially supervised proceeding while reserving its right to raise its objections during the dissolution proceedings. This motion was granted on February 5, 1979*fn5 and, concomitant therewith, the court granted the petition of the Board and assumed judicial supervision of the dissolution process. The court then appointed a liquidating receiver who was charged with (1) collecting and consolidating all SPCA assets and satisfying proper obligations of the SPCA from the resulting fund; (2) developing a factual record upon which decisions concerning dissolution could be based and (3) preparing a report to the court containing findings of fact and a proposed schedule for distributing the SPCA's remaining assets.

On November 24, 1980, after hearings, the receiver filed with the court of common pleas a lengthy and detailed report containing findings of fact and recommendations concerning the distribution of the ...


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