C. Lanzisera v. Northslope III Owners Association, Inc. ( 2019 )

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Carl Lanzisera, :
Appellant :
:
v. :
:
Northslope III Owners : No. 728 C.D. 2018
Association, Inc. : Submitted: March 14, 2019
BEFORE: HONORABLE ROBERT SIMPSON, Judge
HONORABLE ANNE E. COVEY, Judge (P.)
HONORABLE ELLEN CEISLER, Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY
JUDGE COVEY FILED: April 2, 2019
Carl Lanzisera (Lanzisera) appeals from the Monroe County Common
Pleas Court’s (trial court) November 21, 2017 order: (1) setting aside the Northslope
III Owners Association, Inc. (Association) board of directors’ (Board) action
reducing the number of directors on the Board from nine to seven; (2) denying
Lanzisera’s request to be reinstated to the Board; (3) finding that the Board’s August
2016 decision to proceed to contract to replace the siding on buildings 37-41 violated
Section 5303(b) of the Uniform Planned Community Act’s (UPCA)1 (Section
5303(b)) notice requirements; and (4) voiding the Board’s decision to encumber the
Association’s reserve account as collateral for a loan. Lanzisera presents three issues
for this Court’s review: (1) whether the trial court erred or abused its discretion by
failing to determine that the Board breached its fiduciary duty to the Association
when it found that the Board violated Sections 5303(b) and 5302(a)(17) of the UPCA
(Section 5302(a)(17)); (2) whether the trial court erred or abused its discretion by
1
68 Pa.C.S. § 5303(b).
failing to determine that the Board breached its fiduciary duty to the Association
when the Board voted to proceed to contract to replace the siding on buildings 37-41;
and (3) whether the trial court erred or abused its discretion by determining the issue
of Lanzisera’s request to be reinstated to the Board was moot.
Facts
Northslope III is a planned residential community located in Smithfield
and Middle Smithfield Townships, comprised of 198 residential townhouse units
contained in 39 wood-framed 2 and 3-story buildings. Lanzisera was appointed to the
Board during the June 2015 annual meeting of the Association’s members. The
Board voted to reduce the number of directors from nine to seven members at the
February 2015 Board meeting, before Lanzisera became a Board member. The
Board’s decision to reduce its complement was due to difficulty in obtaining quorums
and because Board members’ resignations often required the Board to work with
fewer than nine directors.
Before 1993, 14 of the Northslope III buildings were constructed with
exterior cedar clapboard siding. The remaining 25 buildings were built after 1999.
These buildings have wooden T-111, wooden board and batten or vinyl exterior
siding. In 2014, the Board replaced the cedar siding on buildings 37-41 with vinyl
siding that was applied over the cedar siding. However, notwithstanding that no
waterproof barrier was installed in the original buildings under the cedar clapboard,
no new waterproof barrier was installed under the vinyl siding during the 2014 work
on buildings 37-41. Further, the contractor did not finish the vinyl siding on
buildings 40 and 41, and the vinyl siding that was installed on the other buildings was
not installed properly.
The Falcon Group (Falcon), an engineering, architectural and energy-
consulting firm, performed a Reserve Fund Analysis (RFA) for the Board in March
2
2015. It also inspected buildings 37-41 for siding defects (Inspection), leading to a
report dated June 2015. The Board discussed Falcon’s March 2015 RFA and the
June 2015 Inspection at the June 27, 2015 annual Association’s members’ meeting.
In particular, it was noted that Falcon found deficiencies in the siding installation,
lack of weatherproofing under the siding and deteriorating cedar exterior siding
which was left in place under the newly-installed vinyl siding. Falcon concluded that
the buildings needed to have the existing siding completely removed, some support
beams replaced, plywood installed, weatherproofing applied to the plywood and new
exterior siding installed.
The Board held a meeting on July 25, 2015, wherein, the Board voted to
obtain bids to fix and complete the inadequate siding work done on buildings 37-41.
Lanzisera attended the Board meeting. The Board decided under new business that
the Board would need to know by the following Monday which siding the Board will
be selecting for scope of work/specs from Falcon. The Board chose Celect as the
siding material for buildings 37-41 shortly after the July 25, 2015 meeting. Bids were
solicited and reviewed. After the bids were received, the Board considered them too
expensive. Falcon was directed to reduce the scope of the project. At the time this
lawsuit was filed, on February 3, 2016, the Board had not decided whether to contract
for the re-siding of buildings 37-41.
The Board voted to proceed with the project in August 2016 at a closed
Board meeting. The Board did not give notice of its decision to re-side buildings 37-
41 and its cost to the Association members. At the time the re-siding project started,
the capital reserve fund contained $700,000. The total re-siding cost was $592,000.
The Association entered into a loan agreement with Branch Banking and Trust
Company (BBT) on November 8, 2016, in which it agreed to borrow $350,000 to pay
for a portion of the siding project of buildings 37-41. The Board deposited $400,000
of the reserve account with BBT as collateral for the loan as of May 31, 2017. In the
3
event of default, the loan documents authorized BBT to seize the reserve fund. By
May 31, 2017, the Board had spent $235,000 of the reserve fund on the re-siding
project. The Board had not drawn any funds from the BBT loan as of May 31, 2017.
The Association operated at deficits of $65,468 in 2014, $52,997 in 2015
and $89,606 in 2016, totaling $208,071. The Falcon RFA showed that in March 2015
the cedar siding on buildings 69-72 needed to be replaced immediately with vinyl
siding and the cedar siding on buildings 45-47 needed to be replaced with vinyl
siding within one year. Buildings 37-41 were not scheduled for new vinyl siding for
34 years in that study. However, the Falcon Inspection had not yet occurred at that
time. Lanzisera expressed concerns about the siding project at the January 16, 2016
Board meeting. A discussion followed with a full explanation of the siding project
timeline. A motion was then made and passed to remove Lanzisera from the Board.
Procedural background
On February 3, 2016, Lanzisera filed a Petition for Review of Contested
Corporate Action (Petition) in the trial court. On February 16, 2016, the Association
filed preliminary objections to the Petition (Preliminary Objections). Lanzisera filed
an answer thereto and New Matter on March 1, 2016. The Association filed an
answer to the New Matter on March 14, 2016. On April 8, 2016, the trial court
sustained the preliminary objection to Lanzisera’s claim that he was wrongfully
removed as a director on the grounds of lack of specificity as required by
Pennsylvania Rule of Civil Procedure No. 1028(a)(3), and overruled the remaining
objections. On April 28, 2016, Lanzisera filed an Amended Petition for Review of
Contested Corporate Action (Amended Petition). The trial court scheduled a hearing
for September 28, 2016. After many continuances, hearings were held on July 7, and
May 31, 2017. On November 21, 2017, the trial court ordered:
4
1. The Board’s action in reducing the number of directors of
the corporation from nine to seven is set aside.
2. [] Lanzisera’s request to be reinstated to the Board is
denied.
3. The Board’s decision in August, 2016 to proceed to
contract to replace the siding on [b]uildings 37-41 without
notice to the [Association’s] members pursuant to [Section
5303(b)] violated the notice requirements of that statute.
4. The Board’s decision to encumber the [Association’s]
reserve account as collateral for the BBT loan violated
[Section 5302(a)(17)] and was void.
Trial Ct. Op. at 21-22.
Lanzisera filed post-trial motions on November 30, 2017.2 On
December 20, 2017, Lanzisera appealed to the Pennsylvania Superior Court. On
December 26, 2017, the trial court issued an order directing Lanzisera to file a
Pennsylvania Rule of Appellate Procedure 1925(b) statement of matters complained
of on appeal (Rule 1925(b) Statement). Lanzisera filed his Rule 1925(b) Statement
on December 28, 2017. On January 3, 2018, the trial court filed its Statement
pursuant to Pennsylvania Rule of Appellate Procedure 1925(a) (1925(a) Statement)
determining it would rely upon its November 21, 2017 opinion. By February 14,
2018 order, the Superior Court transferred the appeal to this Court.
Judgment was entered on April 12, 2018. Lanzisera appealed to this
Court on May 1, 2018.3 On May 2, 2018, the trial court entered another order
2
The trial court did not rule on the post-trial motions within 120 days, thus they were denied
by operation of law. See Pa.R.C.P. No. 227.4(1)(b).
3
This Court’s review of the trial court’s decision is limited to
determining whether the trial court committed an error of law or
abused its discretion and whether its findings of fact are supported by
the evidence. The interpretation of [a statute] is a question of law,
subject to de novo, plenary review.
5
directing Lanzisera to file a Rule 1925(b) Statement. Lanzisera filed his Rule
1925(b) Statement on May 18, 2018. The trial court filed another 1925(a) Statement
on June 7, 2018, stating it would rely upon its November 21, 2017 opinion.
Discussion
Lanzisera first argues that the trial court erred or abused its discretion by
failing to determine that the Board breached its fiduciary duty to the Association
when it found that the Board violated Sections 5303(b) and 5302(a)(17). Lanzisera
relies upon New Hope Academy Charter School v. School District of City of York, 89
A.3d 731 (Pa. Cmwlth. 2014) (New Hope) to support his position. The Association
rejoins that if the legislature intended for a UPCA violation to amount to an automatic
finding of a breach of fiduciary duty, such a per se finding would have been provided
for within the statute. In addition, the Association contends that the relief Lanzisera
seeks has to be relief afforded under the Pennsylvania Nonprofit Corporation Law of
1988 (NPCL),4 upon which Lanzisera filed his Amended Petition.
Initially, Section 5303(b) provides in relevant part:
The executive board shall deliver to all unit owners . . .
notice of any capital expenditure approved by the
executive board promptly after such approval. . . . [T]he
unit owners, by majority or any larger vote specified in the
declaration, may reject any . . . capital expenditure
approved by the executive board within 30 days after
approval.
68 Pa.C.S. § 5303(b) (emphasis added). Section 5302(a)(17) states, in pertinent part,
that an association may “[a]ssign its right to future income, including the right to
receive common expense assessments[, but r]eserve funds held for future major
A Pocono Country Place Prop. Owners Ass’n, Inc. v. Kowalski, 186 A.3d 537, 541 n.1 (Pa.
Cmwlth. 2018) (citation omitted).
4
15 Pa.C.S. §§ 5101–6160.
6
repairs and replacements of the common elements may not be assigned or
pledged.” 68 Pa.C.S. § 5302(a)(17) (emphasis added).
The relevant facts in New Hope are as follows:
New Hope’s founder, Isiah Anderson, own[ed] three
companies that d[id] substantial business with New Hope:
Three Cord, Inc. (Three Cord), Three Cord Youth Services,
LLC (TCYS), and I. Anderson Real Estate. Three Cord
[was] a for-profit company solely owned by Anderson that
was incorporated by him in February 2007. Three Cord
manage[d] New Hope under written management
agreements that require[d] New Hope to pay Three Cord
15% of its gross revenues and entitle[d] Three Cord to 50%
of any unrestricted net income after expenses. TCYS
operate[d] Challenge Academy, an Alternative Education
for Disruptive Youth (AEDY) program in which New Hope
place[d] disruptive students. Anderson Real Estate own[ed]
the school building that New Hope use[ed] and lease[ed] it
to New Hope.
Anderson [was] not a member of New Hope’s board of
trustees and [was] not a salaried employee of New Hope.
New Hope’s charter, however, provided that [] Anderson
[would] administer the school during the first few years of
startup [sic]. New Hope listed Anderson as its principal
officer and managing director in its 2008 and 2009 tax
filings and listed Anderson as its Managing Officer on its
letterhead as late as November 2010, and Anderson in 2011
and 2012 filed statements of financial interests stating that
he was the Managing Officer of New Hope in 2010 and
2011.
New Hope’s board of trustees agreed to the management
agreements, leases and contract with TCYS without
discussion or consideration of their terms.
Id. at 734-35 (record citations and quotation marks omitted). The Charter School
Appeal Board determined that New Hope violated Section 1103 of the Public Official
7
and Employee Ethics Act (Ethics Act),5 and the NPCL in it contracts with its founder
Anderson’s businesses. New Hope appealed, inter alia, that determination.
This Court held that New Hope’s “trustees failed to fulfill their duties to
exercise reasonable skill and diligence in approving the[] contracts[]” because New
Hope’s board of trustees did not discuss or consider the terms of the
management agreements, leases, and contract with Anderson’s businesses before
approving them. Id. at 741. Lanzisera asserts that the Board’s Section 5303(b)
notice requirement violation is analogous to New Hope’s trustees’ failure to discuss
the terms of the management agreements, leases, and contract with Anderson’s
businesses before approving them.
However, the New Hope Court based its holding on Section 1103(f) of
the Ethics Act, which mandates:
No public official or public employee . . . or any business in
which the person . . . is associated shall enter into any
contract valued at $500 or more with the governmental
body with which the public official or public employee is
associated or any subcontract valued at $500 or more with
any person who has been awarded a contract with the
governmental body with which the public official or public
employee is associated, unless the contract has been
awarded through an open and public process, including
prior public notice and subsequent public disclosure of
all proposals considered and contracts awarded. In such
a case, the public official or public employee shall not have
any supervisory or overall responsibility for the
implementation or administration of the contract. Any
contract or subcontract made in violation of this
subsection shall be voidable by a court of competent
jurisdiction if the suit is commenced within 90 days of
the making of the contract or subcontract.
65 Pa.C.S. § 1103(f) (emphasis added). Under the circumstances, there is no doubt
that the trustees in New Hope violated the express terms of the Ethics Act and the
5
65 Pa.C.S. § 1103.
8
consequences stated therein applied. Accordingly, the Court held there was a
fiduciary duty breach.
In contrast to the above facts and applicable law, the UPCA does not set
forth a remedy much less mandate a conclusion that a violation is a per se fiduciary
duty breach. This Court recognizes that Section 5412 of the UPCA provides that “[i]f
a declarant or any other person subject to this subpart violates any provision of this
subpart or any provisions of the declaration or bylaws, any person or class of persons
adversely affected by the violation has a claim for appropriate relief.” 68 Pa.C.S. §
5412. Here, while Lanzisera specifically requested relief under Section 5793 of the
NPCL,6 in this Commonwealth, Section 5303 of the UPCA governs the standard by
which courts review an association’s actions. Burgoyne v. Pinecrest Cmty. Ass’n,
924 A.2d 675, 683 (Pa. Super. 2007). Section 5303 of the UPCA provides, in
relevant part:
Executive board members and officers
(a) Powers and fiduciary status.--Except as provided in
the declaration, in the bylaws, in subsection (b) or in
other provisions of this subpart, the executive board
may act in all instances on behalf of the association. In
the performance of their duties, the officers and
members of the executive board shall stand in a
fiduciary relation to the association and shall perform
their duties, including duties as members of any
committee of the board upon which they may serve, in
good faith; in a manner they reasonably believe to be in
the best interests of the association; and with care,
including reasonable inquiry, skill and diligence as a
person of ordinary prudence would use under similar
circumstances.
6
Section 5793 of the NPCL states: “Upon application of any person aggrieved by any
corporate action, the court may hear and determine the validity of the corporate action.” 15 Pa.C.S.
§ 5793.
9
68 Pa.C.S. § 5303. Therefore, the issue before the trial court herein was whether the
Board acted in good faith. Burgoyne.
Relative to the Section 5303(b) notice provision, the trial court declared:
[T]he Board decided to proceed with the $592,000[.00]
exterior siding contract, using or pledging almost its entire
capital reserve account for the re-siding of [u]nits 37-41 at a
[B]oard meeting closed to the members in August, 2016.
The evidence reveals no notice of this decision, as a budget
item or as a capital expenditure, to the members. This lack
of notice violated this provision of the UPCA, which is a
retroactive provision under [Section 5102(b.1) of the
UPCA,] 68 Pa.C.S.[] § 5102(b.1), and which calls for full
disclosure to members of such a decision.
Trial Ct. Op. at 15 (emphasis added; internal record citations omitted). Because the
trial court ruled that the Section 5303(b) notice provision was violated, there was no
need for the trial court to specifically opine that the Board violated its fiduciary duty
to the Association. Accordingly, the trial court did not err or abuse its discretion by
not finding that the notice violation was a breach of the Board’s fiduciary duty to the
Association.
With respect to the Section 5302(a)(17) violation, the trial court
concluded:
The Board was not permitted by the UPCA to agree to
provide this collateral for the loan and this action will be
declared void. At the time of the last hearing, the Board
had not drawn any money down on the loan and was
attempting to renegotiate its collateral for the loan with
BBT.
Trial Ct. Op. at 16 (emphasis added). Because the trial court voided the action, and
therefore it had no legal effect, there was no need for the trial court to specifically
opine that the Board violated its fiduciary duty to the Association. Accordingly, this
Court does not discern any error or abuse of discretion by the trial court for not
expressly doing so.
10
Lanzisera next argues that the trial court erred or abused its discretion by
failing to determine that the Board breached its fiduciary duty to the Association
when the Board voted to proceed to contract to replace the siding on buildings 37-41.
Specifically, Lanzisera contends that because the Board failed to consider the
financial ramifications of same, and what was in the Association’s best interest, it
breached its duties of loyalty and care to the Association’s members. The
Association rejoins that the decision to proceed with the re-siding was a judgment
call, which the Board had the authority to make. In addition, the Association asserts
that courts are not permitted to substitute their judgment for that of a corporation’s
directors and will not interfere with a corporation’s internal management unless the
acts complained of constitute fraud, bad faith or gross mismanagement, or are
unlawful or ultra vires.
At the outset, the Northslope III Declaration of Protective Covenants,
Restrictions and Easements (Declaration) provides that the Association has an
obligation to maintain the exterior structure of units in the community. Specifically,
Article VII(A) of the Declaration provides in relevant part:
COVENANTS FOR OWNERS ASSOCIATION
ASSESSMENTS
AND RIGHTS RELATING TO COLLECTIONS
Common Expenses. The [] Association is authorized to
contract for any goods and services as it deems necessary,
and to pay expenses and other liabilities, out of the
[c]ommon [f]und or reserves, if applicable, which costs for
goods and services shall, without limiting the generality of
the foregoing, include the following:
....
(7) The cost of maintenance, repair and replacement of the
[u]nit [e]xteriors and improvements in [c]ommon [a]reas as
the . . . Association may deem necessary and proper, as well
as any applicable materials, supplies, labor and services[.]
11
Reproduced Record (R.R.) at 296-297. The Declaration defines “[u]nit [e]xterior” as:
The portions of a [u]nit needed to keep the [u]nit
weathertight and attractive, including, the roof and roof
structure; exterior walls; exterior painting, staining or
siding; exterior windows; exterior doors, including any
screen or storm doors; exterior ramps, steps, porches, decks,
patios, terraces or balconies; parapets and copings; and fire
escapes.
R.R. at 281. Article VIII(A) of the Declaration mandates:
Obligations of the Association. The [] Association shall be
responsible for the management and control of the
[c]ommon [a]reas and shall keep the same in good, clean,
attractive and sanitary condition, order and repair. The []
Association shall also be responsible for the oversight,
administration and enforcement of certain obligations of the
[o]wners relating to the [u]nit [e]xteriors and shall keep
them in good condition. The [] Association shall be
responsible for repairs and replacement of the roof, decks
and steps; exterior painting; replacement of all exterior
windows; repair and replacement of exterior doors and
screen or storm doors.
R.R. at 301.
[T]he wisdom or advisability of the [Board’s decision to re-
side buildings 37-41] is not an issue for a court to
determine. In McDonald v. Lake Hauto Club, . . . 428 A.2d
785 ([Pa. Cmwlth.] 1981), [this Court] stated:
[I]t is [a] well[-]established legal principle that
courts should not substitute their judgment for that
of the directors of a corporation and will not
interfere with the internal management of the
corporation unless the acts complained of constitute
fraud, bad faith or gross mismanagement or are
unlawful or ultra vires.
Id. at . . . 786 (citations omitted).
Mulrine v. Pocono Highland Cmty. Ass’n, Inc., 616 A.2d 188, 190 (Pa. Cmwlth.
1992).
12
Here, Lansizera specifically contends that the Board voted to proceed
with the re-siding of buildings 37-41 solely because three of the Board’s members
lived in those buildings, not because it was in the Association’s best interests.7
However, the record belies this contention.
Board member Doreen Dimonte (Dimonte) testified that she owns
several units in Northslope III, but she resides in building 45. See R.R. at 225. When
asked why the Board was looking into re-siding buildings 37-41, she explained:
First, the company that was hired to install the vinyl siding
never finished the project. They basically -- essentially, it
was a combination of them walking off the job, not
finishing, and demanding more money, and the Association,
members of the Board, deciding that we would go no
further with them.[8]
Two buildings were left unfinished, buildings 40 and 41.
They had nothing protecting them, very poor gutter system,
and only partially sided throughout the winter of -- I believe
it was ‘14 to ‘15. Or ‘15 to ‘16. I’m losing track of time. I
think it was ‘14 to ‘15. So it was partly that. It was
unfinished.
We needed to get something done to complete these
buildings. And then people were complaining about water
seepage into their homes. . . .
R.R. at 228-229. Dimonte related that the Board was unable to find a contractor who
could repair the existing siding after the 2013 installation. See R.R. at 229. Dimonte
7
Lanzisera also asserts that the Association’s precarious financial position at the time the
decision was made also evidences the Board’s fiduciary duty breach to the Association. However,
the Association’s poor financial state does not change the fact that the Declaration mandates the
Board to keep the common areas including the unit exteriors in “good, . . . order and repair.” R.R.
at 301. Nor does it require a finding that any decisions made by the Board are a per se fiduciary
duty breach.
8
The Board voted to bring an action against the original contractors. See R.R. at 233.
13
continued:
Q. Did there come a point in time when the Board decided
to engage in a study to determine what needed to be done to
remedy the issues regarding [buildings] 37 through 41?
A. Yes.
Q. And is that the Falcon [Inspection]?
A. That was the Falcon [Inspection]. Falcon . . . had done a
[RFA] for us.[9] We were pleased with their work. We
needed to find out – because we were getting different
opinions from different [c]ontractors, that we decided it
would be much better for the Association to have an
independent company, engineering company, look at
what we were facing and give us an objective opinion,
not an opinion that would result in work provided to that
person providing the opinion.
R.R. at 229 (emphasis added). Falcon visited Northslope III on June 5, 2015, and
conducted a visual and invasive survey of the existing siding systems on buildings 37,
38, 39, 40 and 41. See R.R. at 432 (Falcon Inspection). Falcon concluded:
The installation of the vinyl siding is problematic and has
been installed over the original failing cedar and wood trim,
which is not recommended. The original cedar siding was
never properly installed over a weather resistive barrier or
proper flashings. The installation of the vinyl siding over
the old cedar siding will only hide these deficiencies and
make future repairs more costly. When vinyl siding is
fastened to the exterior of a building, it should be nailed to
the framing members to insure a secure, permanent
attachment that resists withdrawal. We also observed that
the fasteners are nailed tight, which does not allow for the
siding to move freely when it expands or contracts with
changes in the air temperatures. This condition may cause
the siding to bow or warp.
9
Dimonte expounded: “The Falcon [RFA] was simply to look at all the components of the
various buildings in the Association and to come up with a plan basically for maintenance and
going into the future.” R.R. at 230.
14
The lack of water resistive barrier under both the original
cedar siding and the new vinyl siding is also problematic.
This observed deficiency can lead to moisture infiltration
behind the siding, which can then migrate to the wall
sheathing and framing, which may lead to reported water
leaks to the interior of a unit.
In addition, the siding itself has been poorly installed and
deviates from industry standards. Siding should have a
clearing of two (2’’) inches where it meets a roof. Lack of
proper clearance will lend distortion caused by the heat
transferred from the asphalt shingles, and also to premature
deterioration of wood components due to excessive
moisture. Flashing around windows, doors and at dissimilar
materials should be properly installed prior to installing the
siding. Removal and replacement of rotted wood should
have been performed prior to the installation of new vinyl
siding; this is a primary reason why it is not recommended
that vinyl siding is installed over cedar siding as it hides any
wood deterioration or rotting.
All these deficiencies appeared to be consistent
throughout these five (5) buildings. These conditions are
of concern because they can all lead to water infiltration,
and there is a possibility that the vinyl siding will start to
become unfastened over time due to improper fastening
methods.
R.R. at 444 (emphasis added). Falcon recommended
that the Association plan to remove and replace the vinyl
siding. Based on our inspections, we would also
recommend that the cedar siding should be removed in
order to install plywood sheathing and provide proper
flashing and a water resistive barrier between the framing
and sheathing, and the exterior cladding [sic]. Existing
wood rot and related damage should be addressed during
the siding replacement.
R.R. at 444.
Further, Board President John J. Roman (Roman) testified that he owns a
unit in building 38. See R.R. at 67-68. When asked if the Board decided to proceed
with re-siding buildings 37-41 in good faith, Roman responded:
15
I think the Board approached this in a logical, systematic
fashion in order to address a serious problem that was
confronting this Board and the Association. They took it on
the logical step-by-step manner, which took over a year, to
arrive at this decision, which occurred in August of 2016.
That is when the vote was actually taken to proceed.
R.R. at 257. Thus, the record evidences that the reason the Board chose buildings 37-
41 for the re-siding was that all five buildings had improper siding installation and
buildings 40 and 41 had incomplete siding installation. The Board could not find a
contractor who believed the buildings could be repaired without being re-sided.
Based on the record evidence, the trial court concluded:
[T]he Board’s actions were based upon recommendations
from experts on how best to solve the siding issues on these
buildings. The fact that other experts disagree[10] does not
mean that the Board members acted improperly. There was
no evidence of fraud, self-dealing or misuse of corporate
funds. The Board’s decision to re-side the buildings was a
judgment call that the directors had the authority to make.
Trial Ct. Op. at 20. This Court discerns no error in the trial court’s analysis.
Accordingly, the trial court did not err or abuse its discretion by failing to determine
that the Board breached its fiduciary duty to the Association when the Board voted to
proceed to contract to replace the siding on buildings 37-41.
Lastly, Lanzisera argues that the trial court erred or abused its discretion
by resolving that the issue of Lanzisera’s request to be reinstated to the Board was
moot. Specifically, Lanzisera contends that the trial court determined the issue was
moot based on this Court’s decision in Lutz v. Tanglwood Lakes Community Ass’n,
Inc., 866 A.2d 471 (Pa. Cmwlth. 2005), which in fact, ruled that the issue fell within
an exception to the mootness doctrine.
10
Lanzisera presented an expert who testified that he believed the siding on buildings 40 and
41 could be repaired. See R.R. at 156-161.
16
The Association rejoins that the Lutz Court did not hold that any time a
director is removed for cause and the term has expired, the court must review whether
the director’s removal was proper. Rather, the Association maintains, the Lutz Court
ruled that whether a board can remove a director for cause was a matter of great
public importance that was capable of repetition and likely to evade review.
In Lutz, petitioner argued that the trial court erred in finding that the
issue of whether he was properly removed by the board was moot because
petitioner’s term on the board of directors had expired. The Lutz Court explained:
It is well settled that a court will dismiss an action as moot
unless an actual case or controversy exists at all stages of
the judicial or administrative process. Exceptions have
been made to this principle when conduct complained of is
capable of repetition yet likely to evade judicial review,
when the case involves issues of great public importance or
when one party will suffer a detriment in the absence of a
court decision. We agree with [the petitioner] that the first
two exceptions are applicable here.
First and foremost, this case presents issues of great
importance to the governance of Pennsylvania nonprofit
corporations: Under what circumstances may a board of
directors remove one of its members for proper cause?
Must the bylaws of the organization specify what
constitutes ‘proper cause?’ Such fundamental issues of
nonprofit corporate governance are likely to reoccur.
Second, given the typically short term of a directorship, in
this case three years, a director removed at mid-term or
later, or a director elected to less than a three-year term,
would likely see his term expire before final resolution of
any legal challenge to his removal. Because the issue raised
by [the petitioner] is one of great public importance, which
is capable of repetition yet likely to evade judicial review,
we shall determine the propriety of his removal by the
[b]oard.
17
Lutz, 866 A.2d at 473-74 (citations and footnote omitted). The Court concluded: “As
a matter of law, we hold that Section 5726(b) of the [NPCL],11 15 Pa.C.S. § 5726(b),
permits a board of directors to remove a director for proper cause irrespective of
whether the organization’s bylaws specify what constitutes ‘proper cause.’” Lutz,
866 A.2d at 475.
“It is well settled that a court will dismiss an action as moot unless an
actual case or controversy exists at all stages of the judicial or administrative
process.” Id. at 473. Because Lanzisera does not dispute that his term expired, the
remedy of reinstatement is no longer available, thus, there is no meaningful relief to
be ordered. Consequently, the issue of his removal is moot. Further, since the Lutz
Court resolved the issue of whether a board of directors can remove a director under
the NPCL irrespective of whether the organization’s bylaws specify what constitutes
proper cause, that issue is no longer “capable of repetition yet likely to evade judicial
review[.]” Id. at 474.
Moreover, Lanzisera did not argue that his particular removal fell within
an exception to the mootness doctrine.12 Therefore, this Court cannot conclude that
the issue of whether the Board removed Lanzisera for proper cause is “one of great
11
Section 5726(b) of the NPCL provides:
Unless otherwise provided in a bylaw adopted by the members, the
board of directors may declare vacant the office of a director who
has been judicially declared of unsound mind or who has been
convicted of an offense punishable by imprisonment for a term of
more than one year, or for any other proper cause which the
bylaws may specify, or if, within 60 days, or other time as the bylaws
may specify, after notice of selection, a director does not accept the
office either in writing or by attending a meeting of the board of
directors and fulfill the other requirements of qualification as the
bylaws may specify.
15 Pa.C.S. § 5726 (emphasis added).
12
The only argument relating to mootness that Lanzisera presented herein was since the Lutz
Court determined that the issue therein fell within an exception to the mootness doctrine, the trial
court should have ruled the same in this case. See Lanzisera Br. at 28.
18
public importance, which is capable of repetition yet likely to evade judicial
review[.]” Id. at 474. Accordingly, the trial court properly ruled that the issue of
Lanzisera’s removal was moot.
For all of the above reasons, the trial court’s order is affirmed.
___________________________
ANNE E. COVEY, Judge
19
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Carl Lanzisera, :
Appellant :
:
v. :
:
Northslope III Owners : No. 728 C.D. 2018
Association, Inc. :
ORDER
AND NOW, this 2nd day of April, 2019, the Monroe County Common
Pleas Court’s November 21, 2017 order is affirmed.
___________________________
ANNE E. COVEY, Judge