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George Barcia v. Robert Fenlon

IN THE COMMONWEALTH COURT OF PENNSYLVANIA


February 2, 2012

GEORGE BARCIA, APPELLANT
v.
ROBERT FENLON, JAMES RITTER, STEPHANIE PRZEBIEGLEC, OSCAR WOERLEIN AND DIANE DECKER, INDIVIDUALLY AND T/D/B/A WINONA LAKES PROPERTY OWNERS ASSOCIATION, INC. AND WINONA LAKES PROPERTY OWNERS ASSOCIATION, INC.

The opinion of the court was delivered by: Renee Cohn Jubelirer, Judge

Argued: October 20, 2011

BEFORE: HONORABLE RENEE COHN JUBELIRER, Judge HONORABLE ROBERT SIMPSON, Judge (P.) HONORABLE MARY HANNAH LEAVITT, Judge

OPINION BY JUDGE COHN JUBELIRER

George Barcia (Barcia), a member of the Winona Lakes Property Owners Association (Association), appeals the Order of the Court of Common Pleas of Monroe County (trial court) denying Barcia's Motion for Post-Trial Relief (Motion), thereby in effect denying Barcia's Complaint which sought to enjoin Robert Fenlon, Stephanie Przebieglec, James Ritter, Anthony Valentino,*fn1 Oscar Woerlein and Diane Decker (collectively, Defendants) from acting as members of the Board of Directors of the Association (Board), and dismissing Barcia's Complaint, which sought similar permanent injunctive relief. Barcia chiefly contends that the trial court erred in not granting his Motion to remove the Defendants from the Board because the majority of the members who attended the special meeting voted to remove the Defendants. The Association's by-laws (By-laws) do not provide for the use of proxy votes, and Barcia argues that the proxy votes can, therefore, not be counted.

The following are the facts of the case as stipulated by the parties and found by the trial court on the basis of joint exhibits.*fn2 The Association was founded prior to the enactment of the Uniform Planned Community Act (the Act), 68 Pa. C.S. §§ 5101 -- 5414. Pursuant to the Act, certain of its provisions apply to homeowners' associations founded before the enactment of the Act; other provisions of the Act do not apply to homeowners' associations unless adopted as part of an association's by-laws. Section 5102(b)-(b.1) of the Act, 68 Pa. C.S. § 5102(b)-(b.1). Barcia is a member of the Association.*fn3

At the time this suit was initiated, and during the events discussed, the Defendants composed a majority of the Board. The Association has a geographically diverse membership, with many members having primary addresses in other states. Thus, the Association traditionally has conducted voting by mail-in ballot, and is specifically required to do so in certain circumstances by the Association's By-laws. Sometime prior to May 16, 2010, more than 15% of the members of the Association submitted a Request for Special Meeting of the Owner-Members in Good Standing (Meeting Request), circulated by Barcia, pursuant to the By-laws. The purpose of the May 16, 2010 meeting (Meeting), according to the Meeting Request, was to "remove Members of the Board of Directors in accordance with [Section 5303(f) of the Act,] 68 Pa. C.S[] § 5303(f)[*fn4 ] Removal of members." (Meeting Request at 1, R.R. at 66a.) Prior to the Meeting, the Board sent out a solicitation for proxies, asking members to sign a letter giving their proxies to Stephen Foster (Foster), a member of the Association. This solicitation stated that members had to be present to vote at the Meeting. However, the letter also stated that members could vote by proxy. Approximately 219 members gave their proxies to Foster. Barcia and others who wished to remove the Defendants from the Board also solicited proxy votes.

The Meeting of the Association was held on May 16, 2010 and a quorum of the Association's members was present. Immediately before the Meeting opened, counsel for Barcia objected to the Board that proxy votes should not be allowed because there was no provision in the By-laws for proxy voting. The Board rejected the argument that proxy votes were not permissible and conducted the vote to remove Defendants from the Board. With the proxy votes being counted, the motions to remove the Defendants failed.*fn5 The parties stipulate that if the proxy votes had not been counted, the motions to remove the Defendants would have succeeded. It is notable that Barcia also cast proxy votes during the Meeting. The Defendants continued to serve on the Board following the Meeting.

Barcia filed his Complaint on June 2, 2010. In the Complaint, Barcia alleged that, because the Association's By-laws do not allow proxy voting, the proxy votes cast at the Meeting were invalid and the motions to remove the Defendants passed. Therefore, Barcia requested that the actions taken by the Defendants, as members of the Board, after the Meeting be declared void and that the trial court declare that the Defendants are not members of the Board. Barcia also sought preliminary injunctive relief of a similar nature. After stipulation of the facts and exhibits by the parties, the trial court denied Barcia's Motion for Preliminary Injunction and dismissed his Complaint. Barcia filed his Motion, which the trial court also denied, and Barcia appealed to this Court.*fn6 Regarding the merits of the appeal, the trial court noted that it was not determining that proxy voting was permitted by statute or under the By-laws. Rather, because Barcia was seeking equitable relief the trial court determined that, under equitable principles, after requesting a Meeting to remove the Defendants pursuant to a section of the Act that the Association had not adopted (Section 5303(f)), soliciting proxy votes himself, and only objecting to proxy votes at the last minute, Barcia was equitably estopped from arguing that the proxy votes could not be counted. Alternately, the trial court held that, even if proxy votes could not be allowed, the proper equitable remedy would not be to remove the Defendants from the Board but to nullify all the votes taken at the Meeting. We now address Barcia's appeal to this Court.*fn7

Before this Court Barcia argues that pursuant to Section 5759(a) of the Nonprofit Corporation Law of 1988 (Nonprofit Law), 15 Pa. C.S. § 5759(a), and the By-laws, proxy voting is not permitted and, therefore, the Defendants were, in fact, removed as a result of the votes at the Meeting. Defendants, for their part, raise the additional argument that the matter is now moot because "[t]here have been subsequent elections for the Board of Directors since the filing of this action." (Defendants' Br. at 7 n.1.)

We first address Defendants' argument that this matter is moot. Barcia's Complaint seeks not only the removal of Defendants from the Board, but also seeks a declaration that acts taken by the Board following the Meeting be declared void. (Complaint, Wherefore Clause subsection (b), R.R. at 11a; Barcia's Post-Argument Status Report at 2, November 7, 2011.) In addition, one of the Defendants, Diane Decker, is still serving the term from which she would have been removed by the vote at the Meeting. (Defendants' Post-Argument Status Report, November 7, 2011.) Therefore, we hold that Barcia's appeal to this Court is not moot.

We next address the issue of whether any of the Defendants were removed from the Board as a result of the votes taken at the Meeting. Barcia's argument is as follows. Section 5759(a) of the Nonprofit Law states that proxy voting by members of a non-profit corporation is only allowed if permitted by the corporation's by-laws. Because the Association never adopted Section 5310 of the Act,*fn8 68 Pa. C.S. § 5310, and the By-laws do not provide for proxy voting, the issue of proxy voting by the Association is governed by the more general rule of Section 5759(a) of the Nonprofit Law, which is applicable to all non-profit corporations and prohibits proxy voting. Therefore, the proxy votes cast at the Meeting may not be counted. While the Defendants argued before the trial court, and the trial court agreed, that it would be inequitable not to count the proxy votes because the Meeting Request stated that the Meeting was being held pursuant to Section 5303(f) of the Act,*fn9 and both sides solicited proxy votes, Barcia argues that equity may not override the provisions of statutory law that govern non-profit corporations and homeowners' associations.

Barcia is correct that proxy votes could not properly be counted at the Meeting as a matter of law. Section 5759(a) of the Nonprofit Law permits proxy voting by a non-profit corporation only if proxy voting is allowed by the corporation's by-laws. The By-laws do not provide for proxy voting, and the Association has never adopted the more specific provision of Section 5310 of the Act. Therefore, per the Act and the Nonprofit Law, proxy voting could not be used at the Meeting. "All corporations, whether for profit or non[-]profit, are creatures of statute." Sherman v. Yiddisher Kultur Farband, 375 Pa. 108, 111, 99 A.2d 868, 869 (1953). Under corporate law, "a by-law acts as a contract among the members." Weona Camp, Inc. v. Gladis, 457 A.2d 153, 154 (Pa. Cmwlth. 1983). This Court cannot disregard the Act and the By-laws and hold that proxy votes could permissibly be cast at the Meeting.

However, this does not end our inquiry. Barcia came to the trial court seeking equitable relief in the form of preliminary and permanent injunctions. "Injunctive relief, of course, is an equitable remedy available only in actions brought in equity . . . ." Norristown Area School District v. A.V., 495 A.2d 990, 992 (Pa. Cmwlth. 1985). Defendants argue that Barcia is estopped from seeking equitable relief because the Meeting Request stated that the Meeting was to be governed by Section 5303(f) and Barcia also sought proxy votes. Under the doctrine of unclean hands: [a] court may deprive a party of equitable relief where, to the detriment of the other party, the party applying for such relief is guilty of bad conduct relating to the matter at issue. The doctrine of unclean hands requires that one seeking equity act fairly and without fraud or deceit as to the controversy in issue.

Terraciano v. Department of Transportation, Bureau of Driver Licensing, 562 Pa. 60, 69, 753 A.2d 233, 237-38 (2000) (citations omitted). For the reasons aptly summarized by the trial court, Barcia did not come to the trial court seeking equitable relief with clean hands:

[Barcia] circulated a Request for Special Meeting that specifically referenced the Act. While [Barcia] is correct that the Association did not adopt the proxy voting procedures of the Act, the Act nonetheless allows proxy voting. After the special meeting was called, the Board actively and openly solicited proxy votes. The majority directors were not the only persons soliciting proxies. As indicated, [Barcia] presented a certificate of proxy for 37 proxy votes. In addition, [Barcia]'s wife and Mr. D'Arco [a minority director], both of whom were obviously aligned with [Barcia] and the minority faction, solicited and actually submitted proxy votes. In fact, the certificates they submitted specifically referenced the proxy voting provisions of the Act. While proxies were being solicited, neither [Barcia] nor any other member of the Association lodged an objection to the proxy voting procedure. It was not until immediately before or at the beginning of the meeting that [Barcia], through his attorney, objected to the use of proxies. Of course, by that time: a) almost 250 Association members in good standing had given proxies that they reasonably believed would be effective; b) [Barcia] had had the opportunity to see which members were in attendance and had undoubtedly made his own assessment as to the likely outcome of the vote if proxies were disallowed; and c) it was too late for members who had given proxies to attend the meeting in person. . . .

In short, [Barcia]'s call for the meeting referenced a statute that allows proxy voting. While the Association had not formally adopted a proxy voting by-law, proxy voting is routinely used in corporate affairs and is permissible under the [Nonprofit Law] and the Act. Many members of the Association gave proxies which they believed valid. . . . [Barcia] did not lodge a timely, good faith objection to the use of proxies; rather, he waited until commencement of the meeting when asserting an objection would apparently lead to the result that he sought to achieve. Had [Barcia] truly wanted to raise a principled or legal objection to proxy voting, and preserve a legitimate equity-based challenge to the result of the meeting, he should have refrained from prompting and participating in the proxy process and lodged a timely objection. He did not. Instead, he continued the gamesmanship, the corporate and legal maneuvering, and the attempts at manipulation that both factions have unfortunately exhibited throughout their feud. Equity does not and should not countenance this type of gamesmanship.

(Trial Court Op. at 11-13 (emphasis added).) Because Barcia came to the trial court with unclean hands, the trial court was correct to deny equitable relief in the form of preliminary and permanent injunctions.

Although the trial court primarily rested its holding on the basis that equity required the counting of the proxy votes, we believe that, given the legal principles surrounding proxy voting discussed above, the proper equitable remedy is the trial court's alternative holding, that the vote held at the Meeting was a nullity and, as a result, none of the Defendants were removed from the Board. Under the circumstances described, and where the Meeting was advertised as being pursuant to Section 5303(f) of the Act, (Request for Special Meeting of the Owner-Members in Good Standing at 1, R.R. at 66a), which Barcia now argues did not govern the Meeting, (Barcia Br. at 12-13), and where both sides represented by their conduct that proxy voting would be permitted, (Receipt for Proxy Votes from Barcia, R.R. at 142a; Certificates to Appoint Proxy, R.R. at 143a-156a), were this Court to hold that the Meeting was properly held, we would disenfranchise those members who relied on these representations and submitted their votes by proxy. We decline to do so.*fn10

For these reasons, this Court affirms the Order of the trial court.

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

George Barcia, : : Appellant : : v. : : Robert Fenlon, James Ritter, : Stephanie Przebieglec, Oscar : Woerlein and Diane Decker, : individually and t/d/b/a Winona : Lakes Property Owners Association, : Inc. and Winona Lakes Property : Owners Association, Inc. :

No. 2352 C.D. 2010

ORDER

NOW, February 2, 2012 , the Order of the Court of Common Pleas of Monroe County is hereby AFFIRMED.

RENEE COHN JUBELIRER, Judge


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