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[U] Lustig v. Seffer

Superior Court of Pennsylvania

November 6, 2013

GERALD A. LUSTIG, INDIVIDUALLY AND AS A SHAREHOLDER OF CAMP WEEQUAHIC, A PENNSYLVANIA CORPORATION, Appellant
v.
BERNARD SEFFER, AS ADMINISTRATOR OF THE ESTATE OF JOAN (LUSTIG) SEFFER, BERNARD SEFFER, GAYLE LUSTIG, INDIVIDUALLY AND AS DIRECTORS OF CAMP WEEQUAHIC, INC., THE BOARD OF DIRECTORS OF CAMP WEEQUAHIC, INC. AND CAMP WEEQUAHIC, INC., AS A NOMINAL DEFENDANT Appellees GERALD A. LUSTIG, INDIVIDUALLY AND AS A SHAREHOLDER OF CAMP WEEQUAHIC, A PENNSYLVANIA CORPORATION, Appellant
v.
BERNARD SEFFER, AS ADMINISTRATOR OF THE ESTATE OF JOAN (LUSTIG) SEFFER, BERNARD SEFFER, GAYLE LUSTIG, INDIVIDUALLY AND AS DIRECTORS OF CAMP WEEQUAHIC, INC., THE BOARD OF DIRECTORS OF CAMP WEEQUAHIC, INC. AND CAMPWEEQUAHIC, INC., AS A NOMINAL DEFENDANT Appellees

NON-PRECEDENTIAL DECISION

Appeal from the Order Entered July 17, 2012 In the Court of Common Pleas of Wayne County Civil Division at No(s): 242 Civil 2008

Appeal from the Judgment Entered December 12, 2012 In the Court of Common Pleas of Wayne County Civil Division at No(s): 242 Civil 2008

BEFORE: BENDER, P.J., DONOHUE, J., and MUSMANNO, J.

MEMORANDUM

BENDER, P.J.

Appellant, Gerald A. Lustig, individually and as a shareholder of Camp Weequahic, Inc., appeals from the order entered July 17, 2012, granting a renewed motion for summary judgment and granting a motion for compulsory nonsuit, both filed by Appellees, the board of directors of Camp Weequahic, Inc., et al. Additionally, Appellant appeals from the judgment entered December 12, 2012, following post-trial motions.[1] After review, we affirm.

The trial court provided the following factual history:

The case at hand revolves around Camp Weequahic, Inc. (hereinafter "camp"). At trial, Plaintiff testified that he assumed the Vice President position of the corporation in the early 1960's. Plaintiff testified that he was voted out of the Vice President position and off the Board of Directors by the majority shareholders in 1993. Plaintiff still retained his twenty-three percent ownership in the corporation's stock, [and] Gail Lustig and Joan Seffer, Plaintiff's sisters, equally shared the remaining seventy-seven percent of the company's stock.
The camp's full capacity was three hundred and sixty campers; enrollment declined steadily since 1993, and by 2008 only one hundred and thirty campers were enrolled. In 2006 to 2007, the corporation's financial condition showed that the camp was operating at a loss.
Plaintiff received a Notice of Shareholder's Meeting dated March 6, 2008; the Notice indicated that the purpose of the meeting was to discuss a proposed sale of the camp and have the shareholders vote on the sale. The Notice contained a proposed plan of asset transfer, letter of intent, and dissenter's rights. The terms of the sale indicated a purchase price of five million dollars, total financing of six million two-hundred thousand dollars, the seller takes a note of eight-hundred thousand dollars, and the purchaser's identity was confidential.
The shareholder's meeting took place on March 17, 2008. Plaintiff could not attend the meeting and had a proxy submit his vote dissenting to the sale. Plaintiff testified that he was not opposed to selling the camp, however he did not like the specific terms of the proposed sale. In fact, after receiving notice of the meeting and proposed sale, Plaintiff made an offer to buy the camp himself for five-million dollars. However, Plaintiff's offer was denied, and the proposed sale was affirmed after a shareholder vote at the meeting. Thereafter, the terms of the sale were amended to match those of Plaintiff's offer, specifically no seller financing and no contingencies for financing. After approval of the sale, Plaintiff Gerald Lusitg made an offer to buy the camp for six million dollars, which was declined. Plaintiff received his pro rata share of the sale.

Trial Court Opinion (T.C.O.), 2/25/13, at 2-3 (citations to record omitted).[2]

Prior to trial, on May 21, 2012, Appellees filed a motion for summary judgment, which the court subsequently denied. The case proceeded to a jury trial. At the conclusion of testimony, Appellees filed a renewed motion for summary judgment and a motion for compulsory nonsuit. By order entered July 17, 2012, the trial court granted both motions. On December 12, 2012, the trial court entered judgment in favor of Appellees.

The instant appeal arrives before this Court through two procedural avenues. Specifically, Appellant began his pursuit of appellate review following the trial court's July 2012 order, which both granted Appellees' renewed motion for summary judgment and granted Appellees' motion of compulsory nonsuit. In his brief, Appellant remarks that these seemingly compatible dispositions require incompatible appellate procedures. He asserts that the Rules of Civil Procedure preclude post-trial relief following a grant of summary judgment. Appellant's Brief at 6 n.1 (citing Pa.R.C.P. 227.1(c)). On the other hand, he acknowledges that an appeal from a grant of nonsuit properly lies after the entry of judgment, following a denial of a motion to remove nonsuit. See Billig v. Skvarla, 853 A.2d 1042, 1048 (Pa.Super. 2004). Notably, our Supreme Court has held that an appeal from an order denying post-trial motions can encompass a prior order entering summary judgment. K.H. v. J.R., 826 A.2d 863, 871-72 (Pa. 2003). Given the confusion created by the trial court's grant of both motions, Appellant felt compelled to file multiple notices of appeal. Both notices of appeal were timely filed following their respective order and judgment. Appellees do not contest the propriety of our review of the issues addressed in Appellant's brief and at argument. Because Appellant ultimately appealed from the entry of judgment, we conclude that the issues he seeks to appeal are properly before us.

On appeal, Appellant presents eight questions for our review:

A. Did the trial court err in granting summary judgment and entering a compulsory nonsuit with regard to Lustig's participation claim where Lustig presented sufficient evidence that the Seffers concealed negotiating their sale of the Camp and withheld information necessary for Lustig's consideration of the proposed sale?
B. Did the trial court err in finding that the business judgment rule barred Lustig's decision-to-sell claim where Lustig presented evidence that the Seffers sold the Camp based upon an irrelevant appraisal, because of their personal animosity toward Lustig, and because they gained personal side benefits from the sale not made available nor offered to the minority shareholders?
C. Did the trial court err in granting summary judgment and nonsuit with regard to Lustig's duty of care claim where Lustig presented sufficient evidence that the Seffers, in selling the Camp, failed to consider other purchasers, failed to subject the Camp to market forces, and knowingly relied on an irrelevant appraisal?
D. Did the trial court err in granting summary judgment and nonsuit with regard to Lustig's duty of loyalty claim where Lustig presented sufficient evidence that the Seffers refused to consider other offers to buy the Camp due to their personal animosity toward Lustig and because they gained personal side benefits from the sale of the Camp that were not made available nor offered to the minority shareholders?
E. Did the trial court err in holding that Lustig's claims were limited to dissenters' rights under the Business Corporation Law where Lustig's claims were not subject to the limitation and where Lustig presented ample evidence that the Seffers had acted in bad faith, engaged in self-dealing, and acted unreasonably?
F. Did the trial court err in granting summary judgment and nonsuit on the basis that Lustig allegedly failed to establish damages where he presented sufficient evidence that he and the Company suffered some harm and that the Company suffered harm in the amount of at least $1, 000, 000?
G. Did the trial court err in granting summary judgment under Pennsylvania's Rules of Civil Procedure where trial had already commenced and Lustig had presented his case-in-chief?
H. Did the trial court err in considering irrelevant and unfairly prejudicial evidence when granting the Seffers' motions after permitting the Seffers to make references about Lustig's prior lawsuits and his decision not to call an expert witness at trial?

Appellant's Brief at 3-4.

In reviewing an order granting summary judgment, we apply the following standard of review:

A reviewing court may disturb the order of the trial court only where it is established that the court committed an error of law or abused its discretion. As with all questions of law, our review is plenary.
In evaluating the trial court's decision to enter summary judgment, we focus on the legal standard articulated in the summary judgment rule. Pa.R.C.P. 1035.2. The rule states that where there is no genuine issue of material fact and the moving party is entitled to relief as a matter of law, summary judgment may be entered. Where the non-moving party bears the burden of proof on an issue, he may not merely rely on his pleadings or answers in order to survive summary judgment. Failure of a non-moving party to adduce sufficient evidence on an issue essential to his case and on which it bears the burden of proof . . . establishes the entitlement of the moving party to judgment as a matter of law. Lastly, we will view the record in the light most favorable to the non-moving party, and all doubts as to the existence of a genuine issue of material fact must be resolved against the moving party.

Rock v. Rangos, 61 A.3d 239, 250 (Pa.Super. 2013) (citations omitted).

Likewise, our standard of review following the entry of compulsory nonsuit is as follows:

[I]t is proper only if the fact finder, viewing all of the evidence in favor of the plaintiff, could not reasonably conclude that the essential elements of a cause of action have been established. When a nonsuit is entered, the lack of evidence to sustain the action must be so clear that it admits no room for fair and reasonable disagreement. A compulsory nonsuit can only be granted in cases where it is clear that a cause of action has not been established and the plaintiff must be given the benefit of all favorable evidence along with all reasonable inferences of fact arising from that evidence, resolving any conflict in favor of the plaintiff. The fact finder, however, cannot be permitted to reach a decision on the basis of speculation or conjecture.

Matthews v. Unisource Worldwide, Inc., 748 A.2d 219, 221 (Pa.Super. 2000).

In Appellant's first issue, he argues that Appellees engaged in oppressive behavior, such that Appellant was excluded from meaningful participation in the governance of the corporation. He asserts that shareholders in a close corporation have an unassailable right to participate in corporate governance, and that, in light of that right, Appellees' failure to include him in the board's deliberations and negotiations surrounding the sale of the camp was impermissible.

Unlike in large corporations, shareholders in close corporations typically expect to participate in management of the business.[3] See generally Muellenberg v. Bikon Corp., 669 A.2d 1382 (N.J. 1996) (discussing propensities of close corporations). As a general principle, minority shareholders in a close corporation may pursue a legal remedy when they are the subject of "oppressive conduct" by majority shareholders. Oppressive conduct may arise in a close corporation when a minority shareholder is "frozen out" of the management and/or benefits accruing from that corporation. The Amended Comment to Section 1767 of the Business Corporation Law of 1988, 15 Pa.C.S. § 1101 et seq., describes this type of occurrence: "In the case of a closely held corporation, oppressive conduct often takes the form of freezing-out a minority shareholder by removing him from his various offices or by substantially diminishing his power or compensation." 15 Pa.C.S. § 1767, Comment.

The Commonwealth Court has added nuance to the definition of oppressive conduct. "Oppressive actions refer to conduct that substantially defeats the 'reasonable expectations' held by minority shareholders in committing their capital to the particular enterprise." Gee v. Blue Stone Heights Hunting Club, Inc., 604 A.2d 1141, 1145 (Pa. Cmwlth. 1992) (adopting rationale of New York state appellate courts). More recently, this Court announced our adoption of the "reasonable expectations" approach to determining oppressive conduct. See Ford v. Ford, 878 A.2d 894, 900 (Pa.Super. 2005). Thus, oppressive conduct is measured in light of the effect on a minority shareholder's reasonable expectations. Those expectations may include things such as their employment in the corporation, a role in management, or a share of the profits of the enterprise. See, e.g., Viener v. Jacobs, 834 A.2d 546, 557 (Pa.Super. 2003).

In this case, Appellant's role in the corporation was clarified during litigation that ensued between 1994 and 2001. Therein, it was determined that Appellant resigned his role in the governance of the corporation in 1993, approximately twenty years ago. See Lustig v. Lustig, 1433 EDA 2000 (Pa.Super. April 3, 2001) (unpublished memorandum). Consequently, Appellant had no reasonable expectation of direct participation in the business decisions of the board of directors or the negotiations for the sale of the camp. As a minority shareholder he was, of course, entitled to vote against approval of the sale, but nothing more. Separately, as to an expectation of proceeds stemming from the enterprise, there is no dispute that Appellant received a pro rata distribution of the proceeds from the sale of the camp. T.C.O. at 3. Accordingly, there was no evidence that Appellees acted to defeat Appellant's reasonable expectations. Appellant's first issue is without merit.[4]

Appellant's second, third, and fourth issues concern whether the trial court properly concluded that the business judgment rule insulated the actions of the directors of the corporation, where Appellees failed to investigate the summer camp market and neglected to inquire about alternative purchasers for the camp. He also argues that Appellees engaged in self-dealing.

The business judgment rule presumes that a corporation's directors comply with their fiduciary duties of care and loyalty. The operation of this "rule" is well established:

The business judgment rule insulates an officer or director of a corporation from liability for a business decision made in good faith if he is not interested in the subject of the business judgment, is informed with respect to the subject of the business judgment to the extent he reasonably believes to be appropriate under the circumstances, and rationally believes that the business judgment is in the best interests of the corporation.
In summary, the business judgment rule reflects a policy of judicial noninterference with business decisions of corporate managers, presuming that they pursue the best interests of their corporations, insulating such managers from second-guessing or liability for their business decisions in the absence of fraud or self-dealing or other misconduct or malfeasance.

Cuker v. Mikalauskas, 692 A.2d 1042, 1045-46 (Pa. 1997). Thus, directors must act in good faith, be disinterested, be appropriately informed, and rationally believe that the decision is in the corporation's best interests.

In order to proceed beyond this threshold issue, a litigant must establish facts that call into doubt a director's compliance with the fiduciary duties of care and loyalty. The fiduciary duty of care requires a director to perform his or her duties "in a manner he reasonably believes to be in the best interests of the corporation and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances." 15 Pa.C.S. § 1715. "The duty of loyalty requires that there be no self-dealing." Warehime v. Warehime, 777 A.2d 469, 482 (Pa.Super. 2001), rev’d on other grounds, 860 A.2d 41 (Pa. 2004).

Here, Appellant failed to offer any evidence that impeaches the presumption in favor of Appellees that is mandated by the business judgment rule. Primarily, Appellant asserts that the directors did not appropriately inform themselves because they did not place the camp for sale on the open market. The record demonstrates that the directors received numerous offers in the sale of the camp, investigated their merits, and chose to decline all but one of them. See, e.g., N.T., 7/10/12, at 155- 58. Additionally, the board was informed by an appraisal of the camp, which occurred only a year before the sale, and which valued the camp at $4, 025, 000. Id . at 165. Contrary to Appellant’s assertions, these events illustrate a board that received and considered information as to the value of their primary asset. Appellant, in fact, undermines his own argument by admitting that Appellees were aware of the camp’s marketability and aware of the offers presented by potential purchasers. See Appellant’s Brief at 21. All told, there is no genuine suggestion that, for example, the directors’ “investigation has been so restricted in scope, so shallow in execution, or otherwise so [p]ro forma or halfhearted as to constitute a pretext or sham.” Lemenestrel v. Warden, 964 A.2d 902, 914 (Pa.Super. 2008) (quoting Auerbach v. Bennett, 393 N.E.2d 994, 1003 (N.Y. 1979)). The fact that Appellees did not solicit offers in a public way, does not suggest that Appellees were uninformed.

Additionally, Appellant argues that the record shows that Appellees acted in bad faith because they declined Appellant's offer to purchase the camp for $5, 000, 000, based on their acrimonious prior dealings with him. The record demonstrates, however, that the camp was sold for $5, 000, 000. Choosing between identical offers is well within a board's purview.[5]Appellant argues, however, that this decision implicates self-dealing and tends to show a violation of the directors' duty of loyalty.

The duty of loyalty is well-established: "[Directors and officers] must devote themselves to the corporate affairs with a view to promote the common interests and not their own, and they cannot, either directly or indirectly, utilize their position to obtain any personal profit or advantage other than that enjoyed also by their fellow shareholders." InfoSAGE, Inc. v. Mellon Ventures, L.P., 896 A.2d 616, 636 (Pa.Super. 2006) (citation omitted).

The basis of Appellant's assertion of a breach of the duty of loyalty is the fact that the purchasers of the camp went on to employ the Seffers and Gail Lustig as camp directors (not corporate directors) and continued to pay a portion of Gail Lustig's apartment rent (i.e. her home office), parking, cell phone, and insurance, just as the corporation had done prior to the sale. N.T., 7/10/12, at 163-64. The purchasers of the camp, however, testified that this agreement was not a condition on the sale of the camp, but instead, was at their insistence, and was a request for help in transitioning the operation of the camp. N.T., 7/10/12, at 112-13. Moreover, the Seffers and Gail Lustig obtained these temporary jobs in their capacity as camp directors, not in their capacity as directors of the corporation. In sum, even if continued employment could be called "unjust enrichment, " there is no evidence to suggest that the directors of the corporation used their position to obtain these jobs.

In Appellant's fifth issue, he argues that the trial court erred in concluding that his claims were limited to dissenters' rights because he presented evidence of fraud and fundamental unfairness. As we have already concluded that Appellant produced no evidence that would overcome the presumption of the business judgment rule, we need not address Appellant's renewed assertions of fraud. To the extent that Appellant argues that he was not sufficiently involved in the making of the deal, we see no unfairness. As addressed by this Court more than a decade ago, Appellant renounced his participation in the management of the corporation in 1993.[6]

In Appellant's sixth issue, he argues that the trial court erred in granting summary judgment and nonsuit on the basis that he failed to establish damages, because he presented evidence that the corporation was harmed in the amount of $1, 000, 000. In light of our conclusion that the business judgment rule insulated Appellees, we need not address this issue. Appellant's argument in this regard seeks to make an end-run around the business judgment rule. Whether a business decision is ultimately a bad one or good one has no bearing upon whether a director is liable for the violation of a fiduciary duty, and, in fact, the preclusion of this type of second-guessing of a director's business decisions is the very purpose of the business judgment rule.

In Appellant's seventh issue, he asserts that a trial court is not permitted to enter summary judgment following the presentation of trial testimony. Appellant failed to raise this issue in his concise statement of errors complained of on appeal, pursuant to Pa.R.A.P. 1925(b). "Any issues not raised in a 1925(b) statement will be deemed waived." Commonwealth v. Lord, 719 A.2d 306, 309 (Pa. 1998).

Finally, in his eighth issue, Appellant argues that the trial court erred in permitting Appellees to make references to Appellant's prior lawsuits and to his decision not to call an expert witness at trial. As to the prior lawsuits, Appellant provides no legal argument; instead, his claim consists solely of assertions of fact, which we need not address. With respect to his decision not to call an expert witness, Appellant argues that Appellees "sought to use the expert's absence as an adverse inference, notably as evidence that the expert's testimony would have been detrimental to [Appellant's] case." Appellant's Brief at 40.

Our Rules of Civil Procedure provide that, in general, a party may not discover the facts known by or opinions held by another party's expert, prepared in anticipation of litigation or trial, and who is not expected to be called as a witness. See Pa.R.C.P. 4003.5(a)(3). Appellant asserts that, "It follows from this rule that an opposing party is not permitted to present evidence at trial that an opponent consulted an expert who is not being called as a witness." Appellant's Brief at 40 (citing Siegal v. Stefanyszyn, 718 A.2d 1274, 1276-77 (Pa.Super. 1998)).

Appellant's conclusion is incorrect. First, the rule cited by Appellant concerns the discoverability of "facts known or opinions held" by a missing expert. It has no bearing on whether a jury may be made aware of the expert's absence. Second, we have held:

The general rule in Pennsylvania is that "[i]f a party fails to call a witness or other evidence within his or her control, the fact finder may be permitted to draw an adverse inference." Leonard Packel and Anne Poulin, Pennsylvania Evidence § 419 at 248, note 1 (West's Pennsylvania Practice 1987, pocket part 1997, 1998 New Rules Supplement).

Kovach v. Solomon, 732 A.2d 1, 8 (Pa.Super. 1999). Thus, there is no impropriety in noting a witness's absence to the jury.

Additionally, the case that Appellant cites, Siegal, did not hold that an opposing party is precluded from noting a witness's absence. In fact, that case concerned trial counsel who communicated to the jury that the missing expert's opinion was unfavorable to his opponent's case—a fact that counsel knew to be false. Siegal, 718 A.2d at 1277. Here, there was no statement by counsel characterizing the implications of Appellant's decision not to call his witness. That determination was left for the jury. Moreover, the fact that this case was never submitted to a jury renders Appellant's argument moot. Accordingly, Appellant's final issue is meritless.

Judgment affirmed.

Judgment Entered.


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