GlassRatner Management & Realty Advisors, LLC v. General Assembly of the Church of the Lord Jesus Christ of the Apostolic Faith, Inc., et al. - 1144 & (Majority Opinion)
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IN THE COMMONWEALTH COURT OF PENNSYLVANIA GlassRatner Management & Realty Advisors, LLC v. General Assembly of the Church of the Lord Jesus Christ of the Apostolic Faith, Inc., and Trustees of the General Assembly of the Church of the Lord Jesus Christ of the Apostolic Faith, Inc., Appellants Church of the Lord Jesus Christ of the Apostolic Faith, Inc., and Trustees of the General Assembly of the Church of the Lord Jesus Christ of the Apostolic Faith, Inc., Appellants v. Anthoneé Patterson and GlassRatner Management & Realty Advisors, LLC BEFORE: : : : : : : : : : : : : : : : : : : : : : : : : No. 1144 C.D. 2006 No. 1568 C.D. 2006 Argued: December 10, 2007 HONORABLE BERNARD L. McGINLEY, Judge HONORABLE DAN PELLEGRINI, Judge HONORABLE JAMES R. KELLEY, Senior Judge OPINION NOT REPORTED MEMORANDUM OPINION BY SENIOR JUDGE KELLEY FILED: January 31, 2008 In these consolidated appeals, The General Assembly of the Church of the Lord Jesus Christ of the Apostolic Faith, Inc., (Church) and the Trustees of the General Assembly of the Church of the Lord Jesus Christ of the Apostolic Faith, Inc. (Corporation) appeal from the June 8, 2006 order of the Court of Common Pleas of Philadelphia County (trial court) granting the motion of GlassRatner Management & Realty Advisors, LLC (GlassRatner) for a special injunction ordering the Church and the Corporation: (1) to surrender all financial and accounting records requested by GlassRatner; (2) to allow GlassRatner immediate access to and possession of real and personal property owned by the Church and the Corporation; and (3) to take all actions necessary to transfer all real and personal property owned by the Church and the Corporation to GlassRatner. The order also barred the Church and the Corporation from removing, conveying, or altering any Church property of any kind. The Church and the Corporation also appeal from the July 20, 2006 order of the trial court sustaining Anthoneé Patterson s (Patterson) preliminary objections and dismissing with prejudice the complaint filed by the Church and the Corporation against Patterson and GlassRatner seeking a declaratory judgment that they were not parties to the private arbitration between Patterson and Kenneth Shelton in the matter of Anthoneé J. Patterson v. Kenneth Shelton, July Term 1995, No. 2945, and alleging intentional interference with contractual relations and conversion. In these appeals, the Church and the Corporation raise the following issues: 1. Whether the trial court erred in sustaining Patterson s preliminary objections and dismissing the Church and the Corporation s complaint, in which they sought, inter alia, a declaratory judgment that they were not parties to the 2. private arbitration between Patterson and Kenneth Shelton in the matter of Anthoneé J. Patterson v. Kenneth Shelton, July Term 1995, No. 2945. 2. Whether the trial court erred when it issued a mandatory preliminary injunction against the Church and the Corporation that violated their due process rights by enforcing against them the adjudication and orders of a private arbitrator in a common law arbitration proceeding to which they were not parties. 3. Whether the trial court erred when it issued a mandatory preliminary injunction against the Church and the Corporation without requiring a bond to be posted pursuant to Pennsylvania Rule of Civil Procedure 1531(b) and was the injunction therefore a nullity as a matter of law. The action that precipitated the matters underlying the instant appeals is the action filed with the trial court by Patterson in July 1995 and docketed in the trial court as Anthoneé J. Patterson v. Kenneth Shelton, July Term 1995, No. 2945. The Church and the Corporation are not named parties to that action. In the matter of Anthoneé J. Patterson v. Kenneth Shelton, July Term 1995, No. 2945, Patterson, as a member of the Church, filed a complaint with the trial court on July 24, 1995 against Kenneth Shelton.1 Therein, Patterson alleged that on May 28, 1994, after due notice and upon a quorum of the General Assembly, Patterson was duly confirmed as General Overseer and President of the Corporation. Patterson alleged further that despite the election of Patterson as General Overseer and President of the Corporation, Kenneth Shelton had refused to relinquish control of the various accounts, trusts and properties of the 1 Patterson also named Erik Shelton as a defendant; however, he was later dismissed from the action by agreement of the parties. 3. Corporation and that Kenneth Shelton has assumed for himself the office of General Overseer and President. Patterson alleged further that Kenneth Shelton had taken de facto control of the Corporation and its property and have operated the same in total disregard of the interests of the members and requirements of law. Patterson alleged that Kenneth Shelton had failed to present an annual report of financial affairs and activities as required by Section 5553 of the Nonprofit Corporation Law of 1988,2 for the years 1991 through 1994. Patterson alleged that Kenneth Shelton had systematically looted the Corporation s accounts and trusts as well as the regular Church collections. Therefore, Patterson requested the following relief pursuant to Section 5793(b) of the Nonprofit Corporation Law:3 (1) the appointment of a receiver to 2 15 Pa.C.S. §5553. Section 5553 provides that the board of directors shall present annually to the members a report for the fiscal year immediately preceding the date of the report detailing: (1) the assets and liabilities of the corporation; (2) the principal changes in assets and liabilities of the corporation; (3) the revenue or receipts of the corporation; (4) the expenses or disbursements of the corporation; and (4) the number of the members of the corporation as of the date of the report. 3 15 Pa.C.S. §5793(b). Section 5793 governs review of contested corporate action and provides as follows: (a) GENERAL RULE.-- Upon petition of any person whose status as, or whose rights or duties as, a member, director, member of an other body, officer or otherwise of a nonprofit corporation are or may be affected by any corporate action, the court may hear and determine the validity of such corporate action. (b) POWERS AND PROCEDURES.-- The court may make such orders in any such case as may be just and proper, with power to enforce the production of any books, papers and records of the corporation and other relevant evidence which may relate to the issue. The court shall provide for notice of the pendency of the proceedings under this section to all persons affected thereby. If it is determined that no valid corporate action has been taken, the (Continued....) 4. take control of the property, accounts and records of the Corporation; (2) an order requiring Kenneth Shelton, or alternatively the receiver, to issue annual financial reports for the years 1991, 1992, 1993 and 1994; (3) an accounting of all funds removed from corporate or Church accounts or trusts by Kenneth Shelton and any persons acting in combination with them; (4) an order confirming Patterson as General Overseer; and (5) an order commanding that elections be held for such offices as the court finds to be vacant. After the filing of preliminary objections, answers, and new matters, the matter was stricken by the calendar judge on February 22, 1996.4 On December 7, 2004, Patterson filed a motion to reinstate his action with the trial court and Kenneth Shelton filed an answer to the motion on December 27, 2004. Thereafter, an order was entered on February 12, 2005 reinstating the action and removing the notation from the docket that the matter had been stricken on February 22, 1996. On November 30, 2005, Patterson and Kenneth Shelton agreed to proceed to binding arbitration with no right of appeal and the same was memorialized in a written order dated January 10, 2006. The January 10, 2006 order also stated that the case was dismissed from the trial court by agreement of both parties. As such, the matter proceeded to arbitration. The arbitrator rendered his initial decision in this matter on April 26, 2006. Therein, the arbitrator determined that Kenneth Shelton held de facto control over the Corporation and its property between October 13, 1991 until September court may order a meeting to be held in accordance with section 5792 (relating to proceedings prior to corporate action). 4 It is unclear from the record why the matter was stricken. 5. 1992 when he was elected General Overseer and President. The arbitrator determined that throughout the period of de facto control, Kenneth Shelton violated the bylaws and articles of the Corporation by accumulating pecuniary gain and profit by systematically reducing the Corporation s accounts and trusts as well as the regular Church collections, without making any regular reports regarding the misappropriation of funds. The arbitrator found further that no accounting has ever been given to the General Assembly since 1973. Accordingly, the arbitrator determined that title to the Corporation s property rested with the faction who acted in harmony with the laws, usages and customs accepted by the body before the dispute and dissension arose. The arbitrator found that Patterson was the one who acted in harmony with the laws, usages and customs accepted by the General Assembly before the dispute and dissension arose but that before any property could vest in Patterson s faction, an accounting of all funds removed from the Corporate Church s accounts or trusts by Kenneth Shelton and any persons acting in combination with him had to be undertaken within thirty days with full discovery to determine the amounts of misappropriations. The arbitrator further ordered counsel for both parties to undertake action to find a person or persons mutually satisfactory to act as receiver to take control of the property, accounts and records. The arbitrator further ordered any elections for offices of General Overseer and President shall await the final results of the receiver s report and accounting. Finally, the arbitrator ordered that any award requiring payment of funds to be paid by Kenneth Shelton and the members of the Board of Trustees under his administration shall await the results of the accounting of all funds described. On May 8, 2006, the arbitrator issued a supplemental adjudication wherein he accepted Patterson s recommendation of GlassRatner to act as receiver 6. commencing immediately. Therein, the arbitrator rejected Kenneth Shelton s attack on his April 26, 2006 decision on the basis that the Church was not named as a party in the initial complaint filed by Patterson and hence there is a 14th Amendment violation of taking property without due process. The arbitrator determined that the attack was collateral and in violation of the parties arbitration agreement. The arbitrator stated that all procedural arguments including standing and failure to join an indispensable party were expressly waived prior to the commencement of the hearings before the arbitrator. The arbitrator stated further that in any event even if the Corporation were added as a party defendant, the result would inevitably be the same as the corporate veil would be pierced since the arbitrator has found that failure to adhere to corporate formalities is a factor to be considered in determining to pierce the corporate veil as well as evidence of intermingling of corporate and personal affairs. Thereafter, the arbitrator issued an order on May 8, 2006 appointing GlassRatner as receiver for the purpose of taking control of the assets of the Church which are held by the Trustees of the Corporation and setting forth the receiver s powers. On May 26, 2006, Kenneth Shelton filed a petition to vacate the April 26, 2006 arbitration award. On June 5, 2006, Kenneth Shelton filed a supplemental petition to vacate the arbitrator s May 8, 2006 supplemental adjudication. On June 6, 2006, Patterson filed an emergency petition to confirm the arbitration award. Answers to the various petitions/motions were filed. By order dated July 10, 2006, the trial court denied Kenneth Shelton s petitions to vacate and confirmed the arbitration award pursuant to Section 7341 of the Judicial Code, 42 Pa.C.S. §7341, on the basis that the arbitration was binding with no right of appeal. On July 20, 2006, judgment was entered in favor of Patterson and against Kenneth Shelton. 7. On July 26, 2006, Kenneth Shelton appealed the trial court s July 10, 2006 order to the Superior Court which transferred the matter to this Court on September 22, 2006.5 Meanwhile, in response to the arbitrator s decision appointing GlassRatner as receiver, GlassRatner attempted to take, inter alia, custody and control of the Church s and Corporation s assets and accounts, but of course the Church and the Corporation allegedly interfered with GlassRatner s efforts to exercise the powers the arbitrator granted to it. As a result, GlassRatner filed a three count equity action on June 1, 2006 with the trial court alleging: (1) dissipation of assets by the Church and the Corporation that GlassRatner was directed to, and attempted to preserve and protect; and (2) conversion of assets. GlassRatner sought a declaratory judgment: (1) directing the Church and the Corporation to abide by the arbitral adjudication; (2) directing the Church and the Corporation to permit, allow and facilitate GlassRatner s access and position of assets, accounts, property and records in accordance with its appointment as receiver; and (3) declaring that the Church and the Corporation have a duty to comply with GlassRatner s requests to review financial data and such other records and assets as may be required in the performance of its fiduciary obligations. In conjunction with the complaint in equity, GlassRatner filed an emergency petition for special injunction alleging that the same was necessary to 5 On October 12, 2006, a praceipe to enter judgment in favor of Patterson and against the Trustees of the Corporation and the Church headed by Kenneth Shelton was filed with the trial court in the matter of Anthoneé J. Patterson v. Kenneth Shelton, July Term 1995, No. 2945. As a result, on November 2, 2006, a motion to intervene in the matter of Anthoneé J. Patterson v. Kenneth Shelton, July Term 1995, No. 2945, was filed with the trial court by the Trustees. The motion to intervene was denied by order of November 17, 2006 and entered November 21, 2006. The trial court determined that the Trustees waited too long to request intervention. The Trustees appealed to this Court from that order on December 15, 2006, which is docketed in this Court at 2338 C.D. 2006. 8. prevent the further dissipation of assets and to compel the Church and the Corporation to provide GlassRatner with access to its buildings, offices and all financial data. Therefore, GlassRatner requested that a special injunction be granted to enjoin the Church s and the Corporation s efforts to frustrate the arbitral appointment of a receiver and to allow the receiver to review and gain access to financial data and assets for the purpose of rendering an accounting and preserving and maintaining Church assets and property. On June 6, 2006, the trial court held a hearing on the emergency petition for special injunction and by order of June 8, 2006, the trial court granted the same. On May 23, 2006, the Church and the Corporation filed a complaint in equity against Patterson and GlassRatner asserting intentional interference with contractual relations and conversion. The Church and the Corporation also sought a declaratory judgment. The basis of their complaint was that they were not parties to the arbitration; therefore, they were not bound by the arbitrator s decision. In addition, they alleged that the trial court lacked subject matter jurisdiction because they were indispensable parties to the action involving Anthoneé J. Patterson v. Kenneth Shelton, July Term 1995, No. 2945, and they were never joined in that action or provided service of the same. The Church and the Corporation requested the following relief: (1) a temporary restraining order enjoining Patterson and GlassRatner from seeking to enforce the arbitrator s decision or any other order entered in the arbitration between Patterson and Kenneth Shelton; (2) preliminary and permanent injunctive relief preventing Patterson and GlassRatner from seeking to enforce the arbitrator s decision or any other order entered in the arbitration between Patterson and Kenneth Shelton; (3) an order that all property previously seized by Patterson and 9. GlassRatner or any others acting on their behalf or acting upon the arbitrator s decisions or any other order issued in the arbitration between Patterson and Kenneth Shelton, including but not limited to any and all bank accounts held by the Corporation, be immediately returned to the control of the Corporation; (4) an order that Patterson and GlassRatner are required to remain at least 500 yards away from all property owned by the Corporation; (5) a declaration that the Church and the Corporation were not made parties to the arbitration or the action involving Anthoneé J. Patterson v. Kenneth Shelton, July Term 1995, No. 2945, and (6) attorney s fees. Patterson and GlassRatner filed preliminary objections to the complaint and the Church and the Corporation filed answers thereto. By order dated July 20, 2006, the trial court sustained Patterson s preliminary objections and dismissed the complaint with prejudice. Therein, the trial court noted that the preliminary objections were sustained based on the reasoning set forth in the court s July 10, 2006 memorandum and order in the matter of Anthoneé J. Patterson v. Kenneth Shelton, July Term 1995, No. 2945 and that the action brought by the Church and the Corporation was but one more disingenuous attempt at collateral attack. By order dated August 16, 2006, the trial court dismissed GlassRatner's preliminary objections as moot. The disposition of the instant appeals in the above captioned matters is controlled by our recent disposition of Kenneth Shelton s appeal from the trial court s July 10, 2006 order denying his petitions to vacate the arbitrator s April 26, 2006 award and the May 8, 2006 supplemental award and confirming the same in the matter of Anthoneé J. Patterson v. Kenneth Shelton, July Term 1995, No. 2945. By memorandum opinion and order dated January 31, 2008, we reversed the trial court s July 10, 2006 order and remanded to the trial court with instructions to 10. vacate the arbitrator s April 26, 2006 decision and any decisions rendered by the arbitrator after that date and for the trial court to conduct the proper proceedings consistent with our opinion to determine whether Anthoneé J. Patterson is entitled to relief pursuant to the Pennsylvania Nonprofit Corporation Law6 as alleged in his complaint filed July 24, 1995. See Anthoneé J. Patterson v. Kenneth Shelton (Pa. Cmwlth., No. 1967 C.D. 2006, filed January 31, 2008). As a result, the June 8, 2006 order of the trial court at issue herein granting the motion of GlassRatner for a special injunction, which was based on the erroneous relief awarded by the arbitrator in the matter of Anthoneé J. Patterson v. Kenneth Shelton, July Term 1995, No. 2945, must be vacated and the equity actions filed by GlassRatner must be dismissed with prejudice as GlassRatner was not entitled to the relief requested therein.7 6 15 Pa.C.S. §§5101-5997. 7 As pointed out by the Church and the Corporation, even if the grant of the special injunction had been otherwise valid, this Court would still be required to vacate the trial court s June 8, 2006 granting the injunction for failure of the trial court to require the posting of a bond pursuant to Rule 1531(b) of the Pennsylvania Rules of Civil Procedure. Rule 1531(b) provides as follows: (b) Except when the plaintiff is the Commonwealth of Pennsylvania, a political subdivision or a department, board, commission, instrumentality or officer of the Commonwealth or of a political subdivision, a preliminary or special injunction shall be granted only if (1) the plaintiff files a bond in an amount fixed and with security approved by the court, naming the Commonwealth as obligee, conditioned that if the injunction is dissolved because improperly granted or for failure to hold a hearing, the plaintiff shall pay to any person injured all damages sustained by reason of granting the injunction and all legally taxable costs and fees, or (2) the plaintiff deposits with the prothonotary legal tender of the United States in an amount fixed by the court to be held by (Continued....) 11. We now turn to the appeal of the trial court s July 20, 2006 order sustaining Patterson s preliminary objections and dismissing with prejudice the complaint filed by the Church and the Corporation against Patterson and GlassRatner. As previously stated herein, the trial court sustained Patterson s preliminary objections and dismissed the complaint filed by the Church and the Corporation on the basis of the trial court s July 10, 2006 order confirming the arbitration award. As we have reversed the trial court s July 10, 2006 order in Anthoneé J. Patterson v. Kenneth Shelton (Pa. Cmwlth., No. 1967 C.D. 2006, filed January 31, 2008), the trial court s sustaining of the preliminary objections and dismissal of the complaint was in error. Moreover, it is clear to this Court that GlassRatner and Patterson were able to secure control of the Corporation s assets through the arbitrator s erroneous awards and orders and possibly through the trial court s June 8, 2006 order. In their complaint, the Church and the Corporation sought an order that all property previously seized by Patterson and GlassRatner or any others acting on their behalf or acting upon the arbitrator s decisions or any other order issued in the arbitration between Patterson and Kenneth Shelton, including but not limited to any and all bank accounts held by the Corporation, be immediately returned to the control of the Corporation. Accordingly, in order to effectuate the return of any and all assets now in the possession of or control of GlassRatner and Patterson as a result of the the prothonotary upon the same condition as provided for the injunction bond. Pa.R.C.P. No. 1531(b). See also Goodies Olde Fashion Fudge Co. v. Kuiros, 597 A.2d 141, 143 (Pa. Super. 1991) (quoting Soja v. Factoryville Sportsmen s Club, 522 A.2d 1129, 1131 (Pa. Super. 1987) ( The failure of the trial court to require the posting of a bond to secure a preliminary injunction as required by Pa.R.C.P. No. 1531(b) is a fatal defect requiring the appellate court to vacate the injunction. ). 12. erroneous relief awarded by the arbitrator, we reverse the trial court s July 20, 2006 order and remand this matter for proceedings on the merits of the Church s and the Corporation s complaint consistent with this Court s disposition in this matter as well as in Anthoneé J. Patterson v. Kenneth Shelton (Pa. Cmwlth., No. 1967 C.D. 2006, filed January 31, 2008). _________________________________ JAMES R. KELLEY, Senior Judge 13. IN THE COMMONWEALTH COURT OF PENNSYLVANIA GlassRatner Management & Realty Advisors, LLC v. General Assembly of the Church of the Lord Jesus Christ of the Apostolic Faith, Inc., and Trustees of the General Assembly of the Church of the Lord Jesus Christ of the Apostolic Faith, Inc., Appellants Church of the Lord Jesus Christ of the Apostolic Faith, Inc., and Trustees of the General Assembly of the Church of the Lord Jesus Christ of the Apostolic Faith, Inc., Appellants v. Anthoneé Patterson and GlassRatner Management & Realty Advisors, LLC : : : : : : : : : : : : : : : : : : : : : : : : No. 1144 C.D. 2006 No. 1568 C.D. 2006 ORDER AND NOW, this 31st day of January, 2008, it is hereby ordered as follows: 1. The order of the Court of Common Pleas entered at June Term, 2006, No. 4266, dated June 8, 2006, is VACATED and this matter is remanded with instructions to dismiss with prejudice the actions at equity filed by GlassRatner Management & Realty, LLC and docketed at June Term, 2006, No. 4266. 2. The order of the Court of Common Pleas of Philadelphia County entered at May Term 2006, No. 3099, and dated July 20, 2006, is VACATED and this matter is remanded with instructions to reinstate the Verified Complaint Civil Action-Equity filed by the Church of the Lord Jesus Christ of the Apostolic Faith, Inc., and Trustees of the General Assembly of the Church of the Lord Jesus Christ of the Apostolic Faith, Inc. for proceedings consistent with the foregoing memorandum opinion and consistent with this Court s memorandum opinion and order in Anthoneé J. Patterson v. Kenneth Shelton (Pa. Cmwlth., No. 1967 C.D. 2006, filed January 31, 2008). 3. Jurisdiction relinquished. _________________________________ JAMES R. KELLEY, Senior Judge
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