Specifically, Defendants contend that Plaintiff cannot assert a claim for breach of fiduciary duty in a private action against Defendants. The crux of this argument is that a shareholder cannot maintain a private action against directors of a corporation when the injury has been suffered by the corporation rather than by the shareholder individually. They assert that only a derivative action may be maintained when Plaintiff has suffered no direct injury.
A shareholder may however, bring an action against a corporation and others when the injury is one to the plaintiff as a shareholder in his individual capacity, and not to the corporation. Fishkin v. Hi-Acres, Inc., 462 Pa. 309, 341, 341 A.2d 95 (1975). The Defendants contention is based on the supposition that Simms has suffered no direct injury. Plaintiff's Complaint however, sets forth in detail the concerted efforts of the Flacks to harm him financially, to prevent and inhibit Plaintiff's ability to sell or transfer his stock, to relegate his share holdings to practically worthless stock, to oust Plaintiff from the presidential office, to interfere with the U.S. Postal Service, and to eliminate Plaintiff's access to corporate records. We believe Simms has sufficiently demonstrated how he has been injured in his individual capacity as an employee, shareholder, director and investor in the closely held corporation Exeter Architectural Products, Inc. With regard to his assertions that the Defendants are in engaged in a full blown scheme to squeeze him out, we must afford him the benefit of the doubt. As we have stated, we must liberally construe Plaintiff Simms' allegations and all inferences drawn therefrom. This Middle District has held, in the not so distant past, that it is permissible for a shareholder to assert, in his own right, a cause of action against a corporation and majority shareholder. In Willis v. Dillsburg Grain & Milling Co., 490 F. Supp. 46 (M.D.Pa. 1980), the Court held that such an action for relief from oppressive corporate conduct directed specifically towards Plaintiff was not only permissible but sufficient to survive summary judgment. In that case, the wronged minority shareholder set forth four counts in his complaint. The second count, dealing with the production of corporate books, need not be discussed here for in the present case, we have already addressed that issue in an earlier opinion. However, the remaining counts have direct bearing on the matter before us. In count I of the Willis complaint, the plaintiff alleged that the defendant engaged in "a course of conduct calculated to oppress and harass the plaintiff and to render his shares in stock in the defendant corporation worthless..." 490 F. Supp. at 48.
In count IV, the plaintiff alleged that "the defendants have taken on a course of conduct to squeeze out the plaintiff from all participation in the defendant corporation, have denied the plaintiff a fair return on his investment and therefore have breached fiduciary duties owed the plaintiff." Id. at 50. As to both of these counts, the court denied defendant's motion for summary judgment, thereby recognizing plaintiff's standing and the adequacy of his claims.
Count III of the complaint alleged that defendant, as majority shareholder and director of the defendant corporation owed fiduciary duties to the plaintiff, as minority shareholder, which included the duty to act fairly toward the plaintiff and to provide the plaintiff with a fair return on his investment. To substantiate his allegations, the plaintiff proffered seven specific instances in which the defendant allegedly breached these fiduciary duties to the plaintiff. The court however, stated that "these alleged acts would properly be raised in a derivative action by the plaintiff, brought on behalf of the defendant corporation, but not in a private action by the plaintiff." Id. 490 F. Supp. at 49. The court dismissed count III for lack of standing.
In the present case, Plaintiff Simms has proffered specific acts indicative of abuse of discretion among majority shareholders in a closely held corporation sufficient to give rise to an inference of personal injury. We must accept as true plaintiff's assertions and in doing so must recognize that, if true, there is enough information to support a claim which would permit recovery.
Although Plaintiff Simms improperly characterizes his own Count II as a breach of fiduciary duty owed to a minority shareholder, almost to his detriment, the substance of his claim adequately depicts Plaintiff's injuries in an individual capacity. It is clear that Plaintiff cannot simply aver that injury to the corporation is injury to him by virtue of his shareholder status. However, it is equally clear that not every shareholder is an officer or employee of the corporation in which they own stock. It is also eminently clear that while some shareholders receive a return on their investment purely from the increased value of their shares, others recoup their original investment and return on their investment in the form of salaries and benefits.
When Plaintiff Simms claims that he was terminated, restricted from access to records, and prevented from selling shares at their true value, he is alleging violations endured by himself in his individual capacity. That capacity takes him out the realm of the derivative action shareholder who claims that the corporation has suffered injury. The situation here is quite the opposite. The undeniable underlying theme to the whole Simms-Exeter-Flack relationship, as per the Buy-Sell Agreement, is that both the remaining shareholders and the defendant corporation will benefit from the actions taken against Simms. Because it appears that Plaintiff Simms rather than Exeter corporation is injured, we will deny Defendants' Motion to Dismiss Count II of Plaintiff's Complaint.
With regard to Count III of Plaintiff Simms' complaint, the Defendants maintain that there was no such conspiracy and that given the relationship of the parties, a conspiracy is a legal impossibility. Specifically, Defendants aver that the Messrs. Flack are agents of the Exeter corporation and that agents of a single corporation cannot be found to have conspired among themselves.
The Pennsylvania Superior Court, however, has recognized that a conspiracy may occur within a single entity. Gordon v. Lancaster Osteopathic Hospital, 340 Pa.Super. 253, 267, 489 A.2d 1364 (1985). For a cause of action in civil conspiracy to succeed, "it must be shown that two or more persons combined or agreed with intent to do an unlawful act or to do an otherwise lawful act by unlawful means." Rumbaugh v. Beck, 411 Pa.Super. 220, 233, 601 A.2d 319 (1991); Slaybaugh v. Newman, 330 Pa.Super. 216, 221, 479 A.2d 517 (1984); Thompson Coal Co. v. Pike Coal Co., 488 Pa. 198, 211, 412 A.2d 466 (1979). Absent a civil cause of action for a particular act, there can be no cause of action for civil conspiracy to commit that act. Pelagatti v. Cohen, 370 Pa.Super. 422, 433, 536 A.2d 1337 (1987). Our inquiries, at this juncture, are quite simple. First, has the Plaintiff identified two potential conspirators? Second, is there an underlying cause of action that can give rise to a cause of action for civil conspiracy? We hold that both of the aforementioned questions are answered in the affirmative.
Plaintiff Simms has alleged that Charles Flack and Harold Flack, the majority shareholders of the closely held Exeter corporation, eagerly sought the personal financial benefits that would result from the removal of Plaintiff's shareholder interests. Plaintiff has averred that Defendants Charles Flack and Harold Flack conspired to breach fiduciary obligations owed to Plaintiff, to terminate Plaintiff's employment, to restrict Plaintiff's access to books and records of Exeter, and to interfere with Plaintiff's efforts to sell, transfer, or otherwise convey his shares of Exeter stock. The breach of fiduciary duties claim in Count II of Plaintiff's Complaint is a sufficient basis for recovery and is therefore an act or acts that can be accomplished by and through a conspiracy.
In response to Defendants' contention that Plaintiff Simms has not pleaded the necessary element of damages for civil conspiracy, we note that Simms specifically averred that he "demands judgment in his favor and against Defendants Charles Flack and Harold Flack due to their conspiratorial conduct in an amount in excess of $ 50,000.00 ..." (Doc.No. 1, p.18). Although Plaintiff Simms has not stated with particularity how he arrives at this monetary figure, he does adequately describe circumstances that create an inference of a strategic scheme to remove him from Exeter Architectural and at an amount significantly less than previously agreed upon. At this motion to dismiss stage, we believe that "fair notice" of the nature of Plaintiff's claims "is all that is required in light of the applicable pleading and discovery rules, which are liberal in nature." Lessard v. Jersey Shore State Bank, 702 F. Supp. 96, 100 (M.D.Pa. 1988) (citing In re Arthur Treacher's Franchisee Litigation, 92 F.R.D. 398 (E.D.Pa. 1981)).
This Court is required to accept as true all well-pleaded facts in the complaint, as well as all inferences reasonably deducible therefrom. We are to determine whether sufficient facts have been pled which would permit recovery if ultimately proven. On the record before us, we find that Plaintiff Simms has adduced sufficient evidence to withstand a motion to dismiss.
We believe that it is premature at this point to hold that no relief could be granted under any set of facts that could be proved consistent with the breach of fiduciary duties and civil conspiracy allegations. Accordingly, Defendants' Motion to Dismiss Count III of Plaintiff's complaint will be denied.
II. Defendant Exeter's Motion to Dismiss
A. Defendant Exeter contends that Section 1793 of the B.C.L. (15 Pa.C.S.A. § 1793), which provides for review of corporate action, is limited in application. We agree. The only relief available under § 1793 is the reviewing court's grant of a mandatory corporate meeting where there has been inappropriate corporate action. Application of section 1793 would require this Court to make a determination as to the validity of acts taken at three separate Exeter director meetings. We note that such a determination, at this stage in the proceedings, would be inappropriate. But a determination as to the validity of corporate actions need not be addressed on a motion to dismiss. Our inquiry is simply whether there has been enough facts set forth that, if taken as true, would establish corporate wrongdoing and permit some form of recovery.
Plaintiff Simms seeks a declaration that the actions taken by the directors at Exeter's September 24 and December 28 Board of Directors meetings are invalid. Such declaration would be a condition precedent to the directive of a mandatory corporate meeting. At present, we are not inclined to make such a declaration. However, we will not foreclose the opportunity to further offer evidence on the matter as Plaintiff has presented allegations sufficient to give rise to a colorable claim of corporate impropriety. We will therefore refrain from granting Exeter's Motion to Dismiss Count VII of Plaintiff's complaint.
B. Simms maintains that Exeter implicitly threatened to enforce the non-competition clause of the Shareholders Agreement against him and that "Attorney Rosenthal claimed that Plaintiff breached the clause." (Doc.No. 1, p.27 & Doc.No. 38, p.30). This, Plaintiff avers, constitutes an actual controversy between the parties and thereby justifies his request for a declaratory judgment pursuant to 28 U.S.C. §§ 2201-2202. In response, Defendant Exeter asserts that interpretation of the non-competition clause of the Shareholders Agreement, when there is no allegation that Simms acted in contravention to that clause, amounts to an advisory opinion prohibited by Article III of our Constitution.
The Declaratory Judgment Act provides in relevant part that:
In a case of actual controversy within its jurisdiction, . . . any court of the United States, upon filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.
28 U.S.C. § 2201.
The use of the permissive "may" in § 2201 has been interpreted as a grant of discretion to the district court, Bituminous Coal Operators' Assoc. Inc. v. Int'l Union, UMW, 585 F.2d 586, 596 (3rd Cir. 1978), and the Third Circuit has previously held that the Declaratory Judgment Act "should have a liberal interpretation." Exxon Corp. v. Federal Trade Commission, 588 F.2d 895, 900 (3rd Cir. 1978). See U.S. v. Com. of PA., Dept. of Envir. Resources, 923 F.2d 1071, 1074 (3rd Cir. 1991). We therefore note our statutory discretion to decide whether to entertain this action for declaratory judgment contained in Count VIII of Plaintiff's Complaint. Terra Nova Ins. Co. Ltd. v. 900 Bar, Inc., 887 F.2d 1213, 1222 (3rd Cir. 1989); Zimmerman v. HBO Affiliate Group, 834 F.2d 1163, 1170 (3rd Cir. 1987).
Plaintiff argues that the threat of a future lawsuit is enough to satisfy the "actual case or controversy" requirement of section 2201. Although the threat of legal action may present a real controversy, Simmonds Aerocessories v. Elastic Stop Nut Corp., 257 F.2d 485 (3rd Cir. 1958), in the case before us, the threat of suit is far too attenuated. Moreover, Plaintiff Simms has not demonstrated that he has been or is about to be injured as a result of the challenged non-competition clause.
First, the letter in which Plaintiff refers to in paragraphs 106 and 107 of his complaint is the letter of October 15, 1992, terminating his employment. (Doc.No. 1, Exh. "B"). Contained therein and presented in a rather secular manner is the following paragraph:
We take this opportunity to remind you of your covenant against competition during the time that you hold any stock of the Company and for a period of two (2) years thereafter.