November 26, 2013
SALVATORE SCALZO Appellant
ROBERT J. THOMAS, DAVID FUSCO AND JEFFREY THOMAS, ELAINE COOK AND JAMME-K, INC. Appellee SALVATORE SCALZO Appellant
ROBERT J. THOMAS, DAVID FUSCO AND JEFFREY THOMAS, ELAINE COOK AND JAMME-K, INC. Appellees
Appeal from the Order Entered June 4, 2012 In the Court of Common Pleas of Lackawanna County Civil Division at No(s): 10-CV-4323
Appeal from the Order Entered December 14, 2012 In the Court of Common Pleas of Lackawanna County Civil Division at No(s): 10-CV-4323
BEFORE: FORD ELLIOTT, P.J.E., PANELLA, J., and FITZGERALD, J. [*]
In these consolidated appeals, we are asked to review two decisions rendered by the Honorable Harold A. Thomson, Jr., Court of Common Pleas of Lackawanna County, arising from a dispute between shareholders in a close corporation known as Jamme-K, Inc. Initially, Appellants Robert J. Thomas, David Fusco, and Jeffery Thomas challenge Judge Thomson's order granting Salvatore Scalzo's request for the appointment of a custodian for Jamme-K, Inc, entered June 4, 2012. This appeal was docketed at 1263 MDA 2012. In that appeal, we conclude that since a custodian had not been named, Pa.R.A.P., Rule 311(a)(2) does not apply and therefore we do not have jurisdiction to entertain the appeal.
Subsequently, Judge Thomson granted Appellants' request for a stay of the June 4th order pending appeal. In the appeal docketed at 54 MDA 2013, Scalzo appeals from Judge Thomson's December 14, 2012, order enforcing the stay and invalidating actions taken by Jamme-K, Inc. during the pendency of the initial appeal. In that appeal, we conclude that our Rules of Appellate Procedure do not require that a trial court impose a bond when ordering a stay pending appeal, and therefore affirm the trial court's order.
Jamme-K was formed in 2003 with the intent to construct and operate a gentleman's club. The original articles of incorporation for Jamme-K stated that there were 100 authorized shares of the corporation, and declared no special provisions for voting rights. Scalzo was the sole shareholder.
It took over two years from the inception of Jamme-K until the building was renovated and the club was opened for business. During that time, Scalzo sought investors to provide new capital to support the renovation of the building. To this end, Scalzo sold shares of Jamme-K to Fusco, the Thomas brothers, and Elaine Cook, Esquire. As of March 1, 2006, Fusco owned 12 shares of Jamme-K, Robert Thomas owned 14 shares, Jeff Thomas owned 10, and Cook owned six.
Disagreements arose between the shareholders concerning various accounting and financial issues. Fusco and the Thomas brothers alleged that at a shareholder meeting on July 3, 2007, Jamme-K's Board passed a resolution directing that the articles of incorporation would be amended to designate Appellants, Attorney Cook, and Scalzo as "charter" shareholders, and that all new shareholders would hold non-voting stock.
Thereafter, on July 22, 2008, Scalzo called a special meeting of the shareholders of Jamme-K. Scalzo sought to set the number of directors of the corporation at five, nominate and elect new directors, and set the date for Jamme-K's annual shareholder meeting. Robert and Jeff Thomas responded by indicating that Jamme-K operated under a system referred to as "common-law voting, " where each shareholder was entitled to one vote; the number of shares owned was irrelevant in the voting process. The meeting was adjourned with no consensus reach on the issues raised.
On February 10, 2009, the extant voting shareholders, minus Scalzo, met to discuss an invoice submitted to the corporation by a plumbing contractor. The corporate secretary of Jamme-K, Jeff Thomas, did not send written notice or an agenda to the board members prior to the meeting. Furthermore, he did not inform Scalzo a resolution to amend the articles of incorporation for Jamme-K would be discussed at the meeting.
At the February 10, 2009, meeting, Fusco, the Thomas brothers, and Attorney Cook discussed several of the financial and accounting disputes that had arisen from the operation of Jamme-K. The four board members then voted to remove Scalzo from his positions as president and general manager of Jamme-K and replace him with Robert Thomas. They further resolved that Jamme-K had always operated under a regime of common-law voting, but through an oversight, this was not reflected in the articles of incorporation. Accordingly, the four board members directed the officers of Jamme-K to file an amendment to the articles of incorporation clarifying the use of common-law voting. On that same date, an amendment to Jamme-K's articles of incorporation was filed, indicating that Appellants, Attorney Cook, and Scalzo were "Charter Shareholders, " entitled to voting rights, and that each Charter Shareholder was entitled to one vote, regardless of shares owned. Since that date, Scalzo has been denied entry to the premises of the gentleman's club and has not had access to corporate financial information.
Approximately one and one-half years later, Scalzo filed a complaint against Appellants and Attorney Cook. Shortly thereafter, Scalzo filed a motion for the expedited appointment of a custodian for Jamme-K pending resolution of his complaint. After receiving testimony and argument, the trial court granted Scalzo's motion for appointment of a custodian. The parties were unable to agree upon a custodian, and the trial court set a date for a hearing to resolve the dispute. In the meantime, Appellants filed the appeal docketed at 1263 MDA 2012.
Shortly before the hearing, Fusco and the Thomas brothers filed a motion seeking a stay of the order granting the request for an appointment of a custodian. In place of the hearing, the trial court heard argument on Fusco and the Thomas brothers' request for a stay, which it ultimately granted. The trial court did not set a bond for the stay.
Scalzo filed multiple requests for reconsideration and informed the court of his legal position that, since the Appellants had not paid a bond, the stay was not in effect pursuant to Pa.R.A.P., Rule 1733. Pursuant to this belief, Scalzo purported to hold an annual meeting of shareholders on November 6, 2012, replacing the existing board of directors with his own designees. Furthermore, Scalzo changed the locks at the gentlemans' club and attempted to change the signatories on the corporate bank accounts.
Appellants filed a petition for a special injunction, seeking to enforce the stay and invalidate Scalzo's actions at the shareholders' meeting. In response, Scalzo filed another motion for reconsideration of the trial court's order granting the stay pending appeal. The trial court resolved both petitions via an order dated December 14, 2012, denying reconsideration of the stay, and invalidating all actions taken at the November 6 shareholders' meeting. Scalzo appealed from this decision.
We will first address the issues raised by Fusco and the Thomas brothers in their appeal docketed at 1263 MDA 2012. Appellants seek to raise four questions for our review:
1. Did the trial court err in finding that common law voting was inapplicable?
2. Did the trial court err in finding that Appellants acted oppressively towards Scalzo?
3. Did the trial court err in finding that the actions of the Appellants frustrated the reasonable expectations of Scalzo?
4. Did the trial court err in granting Scalzo's Application for Appointment of a Custodian?
Appellants' Brief, at 3.
All of Appellants' issues raise challenges to the trial court's order directing that a custodian of Jamme-K be appointed. Initially, we note that this order did not appoint a custodian. The order directed that a custodian be appointed, and then set forth a procedure for the parties to follow to have a custodian named. The first step in the process was an attempt to determine if the parties could agree on a custodian. Failing that, as in fact the parties did, the procedure calls for a hearing and a decision by the trial court between the custodians nominated by the parties.
Pa.R.A.P., Rule 311(a)(2) provides that a party is entitled to an interlocutory appeal as of right from an "order confirming, modifying or dissolving ... [a] custodianship ...." In the present case, the order appealed from directed the parties to attempt to agree upon a custodian within 20 days. If the parties were able to agree, the name of the custodian was to be submitted to the trial court, presumably for the entry of an order officially naming the custodian.
If the parties were unable to agree, the order provided a procedure whereby Scalzo would nominate one candidate for custodian and Appellants would nominate one candidate. The trial court would then hold a hearing and choose between the proffered candidates.
Unfortunately, the parties were unable to agree upon a custodian for Jamme-K, and the trial court set a date for a hearing. As noted above, the hearing never occurred, as Appellants were granted a stay of the order directing the appointment of a custodian.
As noted previously, Rule 311(a)(2) permits an interlocutory appeal as of right from orders "confirming" a custodianship. We are to utilize the rules of statutory construction in interpreting the Rules of Appellate Procedure. See Pa.R.A.P., Rule 107. As such, if the words of a Rule are clear and unambiguous, we are not to ignore the plain text in a search for hidden intent. See 1 Pa. Cons. Stat. Ann. § 1921(b). "Confirm" is defined, in its most relevant sense, as "to make valid or binding by some formal or legal act; sanction; ratify." Dictionary.com. Dictionary.com Unabridged. Random House, Inc. http://dictionary.reference.com/browse/confirm (accessed: August 06, 2013). Therefore, for a custodianship to be confirmed, it must be made binding.
In the present case, the trial court did not name a custodian. Instead, the order set forth a procedure for selecting a custodian. The order furthermore contemplated further action by the trial court before the custodianship was made binding. In this respect, it is clear that the order appealed from did not "confirm" the custodianship. Furthermore, the subsequent history of this case supports the conclusion that the custodianship was not yet binding as the custodianship has never taken effect. Even if we were to affirm the trial court's order, the custodianship would not take effect immediately, as the trial court would still need to appoint a custodian.
Nor do we believe that policy considerations support a different conclusion. The Supreme Court of Pennsylvania has evinced a strong policy against piece-meal litigation. See Pennsylvania Bankers Ass'n v. Pennsylvania Dept. of Banking, 597 Pa. 1, 14, 948 A.2d 790, 798 (2008). Allowing an interlocutory appeal of an order directing that a custodian be appointed, but not identifying, either explicitly or implicitly, the custodian would contravene this policy. In this case, Appellants would have the ability to appeal from the original order, and then presumably from the subsequent order if they disagreed with the custodian chosen. Such a procedure would serve only to protract litigation and favor parties with greater resources.
By the same reasoning, we conclude that this appeal does not fall under the auspices of the "similar matter affecting the possession or control of property ..." language in Rule 311(a)(2). This language was included in the Rule to provide a catch-all for orders that the same effect as an attachment, custodianship, or receivership. The language was not meant to allow for multiple interlocutory appeals from a custodianship proceeding.
As a result, we conclude that we do not have jurisdiction to entertain the appeal docketed at 1263 MDA 2012. We therefore quash the appeal.
Turning to Scalzo's appeal docketed at 54 MDA 2013, we note that he raises two issues for our review:
1. Did the lower court err in its application of Pa.R.App.P. 1733?
2. Did the lower court err by granting mandatory injunctive relief, without an evidentiary hearing and without requiring an injunction bond to be posted, where the moving parties failed to establish the requisite elements?
Cross-Appellant's Brief, at 5.
In his first issue, Scalzo argues that the stay pending appeal ordered by the trial court was defective, as no bond pursuant to the stay was imposed upon Fusco and the Thomas brothers. In support of this position, Scalzo cites to the language of Pa.R.A.P., Rule 1733(a):
An appeal from an order which is not subject to [an automatic supersedeas pursuant to Rule 1731] shall, unless otherwise prescribed in or ordered pursuant to this chapter, operate as a supersedeas only upon the filing with the clerk of court below of appropriate security as prescribed by this rule. Either court may, upon its own motion or application of any party in interest, impose such terms and conditions as it deems just and will maintain the the res or status quo pending final judgment or will facilitate the performance of the order if sustained.
Once again, we are tasked with interpreting a Rule of Appellate Procedure. As noted above, we use the rules of statutory construction in such an endeavor.
It is clear from reading Rule 1733(a) that it does not explicitly require the imposition of a security bond. Rather, the Rule refers to the filing of "appropriate security as prescribed in this rule." Since subsection (a) does not prescribe what is appropriate security, we must refer to the rest of Rule 1733.
Subsection (b) references orders that determine the ownership or possession of tangible property. In such cases, the Rule states that the court is to impose security "at such sums only as will secure any damages for the use and detention of the property, interest, the costs of the matter and costs on appeal." Pa.R.A.P., Rule 1733(b). Subsection (c), which applies to all other cases, states that the court is to impose security "in such amount as the [court granting the stay] shall deem just and proper." The Comment to the Rule indicates that the court is "granted wide discretion under this rule as to the terms and conditions to be imposed..." Pursuant to these passages, it is clear that the Rules intend for the question of the amount of security imposed to be a fact-based question, with wide discretion residing in the issuing court. In fact, subsection (b), which arguably requires the imposition of security in cases involving tangible property, describes the amount in terms only of an upper limit.
Further guidance can be found in Rule 1737 of the Rules of Appellate Procedure. Rule 1737 addresses the subject of objections to the security imposed. Under this rule, the issuing court may, upon cause shown, "eliminate the amount of any security which has been or is to be filed." Pa.R.A.P., Rule 1737. Therefore, the Rules clearly envision a scenario where no security is required.
This analysis leads us to conclude that the entire question of security is left to the discretion of the issuing court. As such, the decision of whether or not to impose security, as well as its amount, is subject only to review under an abuse of discretion standard. See, e.g., Insilco Corp. v. Rayburn, 543 A.2d 120, 127-128 ("inasmuch as [appellant] failed to establish any value as to the items for which the court could order security ... we conclude that the trial court did not abuse its discretion ...."). Scalzo's first issue on appeal merits no relief.
In his second issue on appeal, Scalzo argues, inter alia, that the trial court erred in entering the December 14, 2012 order. Specifically, Scalzo asserts that this order constituted a preliminary injunction and that the movants did not meet any of the necessary elements for an injunction. We agree with Scalzo that this order constituted a preliminary injunction, as it required the parties to "retain the Board of Directors and Officers that were actively sitting on August 7, 2012." Trial Court Order, 12/14/2012.
Our scope of review of preliminary injunction matters is plenary. See Warehime v. Warehime, 580 Pa. 201, 209, 860 A.2d 41, 46, fn. 7 (2004). Our standard of review of a trial court's order granting or denying a preliminary injunction is "highly deferential". Id. (citation omitted). This "highly deferential" standard of review states that in reviewing the grant or denial of a preliminary injunction, an appellate court is directed to "examine the record to determine if there were any apparently reasonable grounds for the action of the court below." Id. (citation omitted).
A petitioner seeking a preliminary injunction must establish every one of the following prerequisites:
First, a party seeking a preliminary injunction must show that an injunction is necessary to prevent immediate and irreparable harm that cannot be adequately compensated by damages. Second, the party must show that greater injury would result from refusing an injunction than from granting it, and, concomitantly, that issuance of an injunction will not substantially harm other interested parties in the proceedings. Third, the party must show that a preliminary injunction will properly restore the parties to their status as it existed immediately prior to the alleged wrongful conduct. Fourth, the party seeking an injunction must show that the activity it seeks to restrain is actionable, that its right to relief is clear, and that the wrong is manifest, or, in other words, must show that it is likely to prevail on the merits. Fifth, the party must show that the injunction it seeks is reasonably suited to abate the offending activity. Sixth, and finally, the party seeking an injunction must show that a preliminary injunction will not adversely affect the public interest.
Greenmoor, Inc. v. Burchick Const. Co., Inc., 908 A.2d 310, 313- 314 (Pa.Super. 2006).
While we are without the benefit of an opinion from the trial court explicating its reasoning and findings on this issue, we have no difficulty in affirming this limited injunction. The trial court initially determined that a custodianship was appropriate while the parties litigated the underlying corporate governance claims. The trial court's opinion in support of the appointment of a custodian indicated that it believed that the shareholders of Jamme-K were entitled to one vote per share owned, with the result being Scalzo having de facto control of the corporation. For reasons that are not entirely clear from the record before us, the trial court subsequently granted a stay of that order. This stay affected not only the order's conclusion, the decision to appoint a custodian, but also its reasoning.
In this case, the trial court was presented with close corporation whose shareholders could no longer govern the corporation in unison. A conflict between two blocs of shareholders had arisen, with each bloc claiming to possess a controlling interest in the corporation. As such, the trial court was faced with the difficult prospect of balancing the competing interests of the two blocs during the pending litigation. The limited stay imposed by the trial court was an attempt to maintain the status quo and was not an abuse of discretion. Scalzo's final issue on appeal merits no relief.
In summary, we conclude that the appeal of Robert J. Thomas, David Fusco, and Jeffrey Thomas at 1263 MDA 2012 was premature and not subject to the exception contained in Pa.R.A.P., Rule 311(a)(2). As such we quash the appeal due to a lack of jurisdiction. We affirm the trial court in all aspects in the appeal of Salvatore Scalzo, docketed at 54 MDA 2013.
Appeal docketed at 1263 MDA 2012 quashed. Appeal docketed at 54 MDA 2013 affirmed. Jurisdiction relinquished.
Ford Elliott, P.J.E., concurs in the result.