Kitty Ward Travel v. Ward, T. ( 2016 )

J-S54033-15
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
KITTY WARD TRAVEL, INC., AND IN THE SUPERIOR COURT OF
MARIANNE VICKERS, PENNSYLVANIA
v.
THOMAS F. AND THERESA WARD,
MAUREEN RENNIE, AILEEN REINER
APPEAL OF: MARIANNE VICKERS
No. 591 EDA 2015
Appeal from the Judgment Entered February 9, 2015
In the Court of Common Pleas of Delaware County
Civil Division at No(s): 10-00556
BEFORE: BOWES, PANELLA, and FITZGERALD * JJ.
CONCURRING AND DISSENTING MEMORANDUM BY BOWES, J.: FILED APRIL 22, 2016
I agree with my learned colleagues that Marianne Vickers’
(“Marianne”) claims at Counts III, VI, and IX are not direct claims. While at
first blush the negligent and fraudulent misrepresentation claims would
appear to be direct claims, the injuries alleged are to Kitty Ward Travel, Inc.
(“KWT”) and only secondarily to the individual shareholders. Under
established Pennsylvania law, a shareholder does not have standing to
institute a direct suit for “a harm peculiar to the corporation” that would
“only be indirectly injurious to a shareholder.” Reifsnyder v. Pgh.
Outdoor Adver. Co., 173 A.2d 319, 321 (Pa. 1961). Rather, such a claim
belongs to, and is an asset of, the corporation. In Hill v. Ofalt, 85 A.3d 540*
Former Justice specially assigned to the Superior Court.
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(Pa.Super. 2014), this Court opined that our Supreme Court would decline to
adopt the substantive provisions of ALI Section 7.01(d), which would permit
a shareholder of a closely-held corporation to sue directly and individually
recover for injuries sustained by the corporation. In that case, although we
dismissed the direct claims, we remanded to permit the shareholder to
amend the complaint to assert a derivative action on behalf of the
corporation.
The facts herein are unusual. Not only did KWT assert its own claims,
but Marianne and Bridget Ward (“Bridget”), as shareholders, also asserted
those same claims on behalf of KWT. Marianne explains that they were
merely taking a “belt and suspenders” approach to pleading in case KWT
would subsequently be unable to assert its own claims. Furthermore, she
maintains that Pa.R.C.P. 1020(c) permits one to plead claims in the
alternative. In opposition to summary judgment in this case, Marianne
argued that KWT was incapable of prosecuting its own claims and sought
permission to assume control of those claims. Nonetheless, the trial court
found that she lacked standing to pursue the derivative action, a holding she
challenges on appeal.
The majority, however, fails to address Marianne’s argument that, as a
shareholder, she had standing to maintain a derivative action on behalf of
KWT when it failed to prosecute its action. Our refusal to adopt ALI Section
701(d) does not foreclose Marianne from pursuing derivative claims on
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behalf of KWT. Furthermore, I believe the record supports her right to
maintain that action. Hence, I dissent from the majority’s affirmance of
summary judgment and I would vacate the order in part and remand to
permit Marianne to prosecute the shareholder derivative action on behalf of
KWT.
The facts, viewed in the light most favorable to Marianne as the non-
moving party, are indispensable to an understanding of this contentious
family dispute. The individual parties are siblings, with the exception of
defendant Theresa Ward who is married to defendant Thomas Ward. KWT
was originally owned by the Ward parents, who conveyed equal shares of
KWT to their six children.1
In early 2009, Thomas was the president of KWT, Maureen Rennie was
an officer, and Thomas’s wife Theresa was an employee. On February 27,
2009, Marianne and Bridget called a special meeting of the shareholders of
KWT and, with the support of their sister Aileen Reiner, took control of the
corporation, reorganized the board of directors, and terminated defendants
Thomas, Maureen and Theresa. In their new position of control of KWT,
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1
Patricia Ward Dunn, the sixth Ward sibling, is not involved herein, even
though she originally received shares in KWT. She offered her shares for
sale to her siblings. Thomas, Maureen, Aileen and Bridget purchased her
shares, but Marianne declined to do so. As a result, Marianne owns only a
16.67% share in KWT while Thomas, Aileen, Bridget, and Maureen each own
20.83% of the corporation.
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Marianne and Bridget allegedly learned their predecessors were self-dealing,
diverting corporate opportunities, wasting assets, misappropriating corporate
funds, and transferring substantial corporate assets without shareholder
approval, as required by the bylaws, to the detriment of KWT.
Consequently, on January 19, 2010, Marianne and Bridget, individually
and as agents of the KWT, and KWT itself, filed the within action. Initially,
all three plaintiffs were represented by the same counsel. Marianne and
Bridget pled therein that they were officers and shareholders of KWT and
that they were bringing the action in the right of the corporation pursuant to
15 Pa.C.S. §§ 517, 1782. Complaint, 1/19/10, at ¶81. As to Counts III, VI,
and IX, they purported to bring the claims directly for injuries to them
individually.
The defense filed preliminary objections challenging Marianne and
Bridget’s right to maintain the action as shareholders for indirect injury as a
result of direct injury to KWT and averring that the individual plaintiffs had
no right to sue. The preliminary objections were overruled. Thereafter,
Thomas Ward and Theresa Ward joined Aileen, the new President of KWT, as
an additional defendant.2
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2
Three more lawsuits were commenced involving these individuals, KWT,
and the Ward Family Partnership. The facts of these cases are not relevant
to the disposition of the within appeal. I mention it simply because all four
cases were consolidated for trial.
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It appears from the record that the relationship between Marianne and
Bridget became hostile during the discovery phase of the instant litigation.
Counsel for plaintiffs subsequently praeciped to withdraw from representing
Marianne, and she retained present counsel. Shortly thereafter, counsel was
granted permission to withdraw from its representation of both Bridget and
KWT, based on its representation that it could not make any progress due to
the conduct of Bridget and KWT, a conflict of interest, a balance owing, and
a severed attorney-client relationship. By order of February 1, 2013, the
court gave KWT and Bridget thirty days to obtain new counsel, but none was
retained.
Thereafter, Bridget and KWT did not respond to discovery or otherwise
participate in the ongoing litigation. The defendants filed a motion for
sanctions against KWT and Bridget, and the court issued an order on July
11, 2013, compelling responses to outstanding discovery within twenty days
and awarding attorneys’ fees. Subsequently, sanctions restricting proof
were imposed due to the parties’ noncompliance. Defendants cited the
ongoing discovery delinquency of Bridget and KWT in support of their motion
for entry of a protective order staying their depositions that had been
scheduled by Marianne. Marianne, in her defense to a subsequent motion
for sanctions filed by Defendants against her, maintained that Bridget had
denied her expert witness access to corporate records due to Marianne’s
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allegations, inter alia, that Bridget was diverting assets of KWT and
operating a competing travel agency from KWT’s office.
On February 28, 2014, the defendants filed a motion for summary
judgment against Bridget and Marianne based on their lack of standing to
bring individual direct claims and alleging that all claims were derivative.
The defendants also argued that, since Marianne and Bridget failed to follow
the pleading requirements for a Pa.R.C.P. 1506 derivative action, they had
no standing to bring the claims that were exclusive assets of KWT.
Summary judgment was granted in favor of defendants and against
Marianne and Bridget on all claims. KWT, still without representation,
remained a plaintiff in the action.
On January 12, 2015, the instant case and the three other
consolidated cases were called for trial. No one appeared for KWT.3 Upon
the motion of the Defendants, the Court granted judgment of non pros
and/or a default judgment against KWT and all pending claims were
dismissed with prejudice. Final judgment on all claims in all four
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3
Marianne appeared as she was a counterclaim defendant. Her counsel
reminded the court that Marianne’s claims as a plaintiff had been disposed of
by summary judgment. Summary judgment was entered in favor of
Marianne on the counterclaims filed by Thomas and Theresa Ward. In the
other consolidated lawsuits, judgment was entered in favor of the Ward
Family Partnership against KWT in the amount of $2,000; judgment was
entered in favor of Maureen Rennie against Bridget and KWT in the amount
of $2,400.
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consolidated lawsuits was entered on February 9, 2015, and Marianne filed
this appeal on February 20, 2015.
Appellees acknowledge that a shareholder may enforce a secondary
right against any former officer or director where the corporation refuses to
enforce its rights. 15 Pa.C.S. § 1782. However, they maintain that since
Marianne never made a demand to the KWT board of directors that was
refused, she could not pursue a derivative claim. Moreover, they maintain
that Marianne failed to satisfy the pleading rules governing derivative actions
that would permit her to maintain such an action on behalf of KWT. See
Pa.R.C.P. 1506.
In my view, whether Marianne or Bridget made a formal demand upon
KWT to pursue an action on its own behalf is inconsequential as KWT filed its
own action. Moreover, in Hill, supra at 556, this Court predicted that the
Supreme Court would adopt the procedural aspects of ALI section 7.01(d)
and excuse a demand for derivative actions filed on behalf of a closely-held
corporation. What makes the instant case unique is the fact that although
KWT initially instituted its own claims, it subsequently failed to secure legal
representation, defied discovery orders, and did not actively prosecute those
claims long before judgment of non pros was entered. In a peculiar twist,
Marianne had pled derivative claims on behalf of the corporation. Those
claims were dismissed at summary judgment because KWT, at least on
paper, remained a party with its own claims.
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Marianne defended against summary judgment on her derivative
action by asserting KWT’s de facto abandonment of its claims. In response
to averments that KWT would not relinquish its claims, Marianne pled that,
“KWT is incapable of asserting claims on its own behalf.” Plaintiff Marianne
Vickers’ Response to Defendants’ Motion for Summary Judgment, 3/31/14,
at 6, ¶ 45.4 Additionally, Marianne maintained that even if all of her claims
were derivative, she “must still remain a derivative plaintiff so as to advance
KWT’s claims through trial.” Marianne Vickers’ Brief in Opposition to
Summary Judgment, at 2. She characterized KWT as incapable of protecting
its own interests. Id. at 9. Marianne pointed out that KWT, under Bridget’s
control, refused to obtain counsel in violation of a court order, had failed to
respond to discovery or motions, and suffered sanctions. She argued that if
all of her claims, including the derivative claims were dismissed as
requested, KWT’s claims against the Defendants would “die” and the
Defendants would escape liability for converting in excess of one million
dollars simply because Bridget and KWT refused to secure counsel. Id. at
15.
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4
In her proposed order, Marianne sought permission to maintain the
derivative claims. See Order (“Counts I, II, IV, VII, and X of the Complaint
are derivative and Plaintiff Marianne Vickers may advance said claims on
behalf of Plaintiff Kitty Ward Travel, Inc. . .”).
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A shareholder derivative action is an action to enforce a secondary
right that is brought by one or more shareholders “because the corporation
or entity refuses or fails to enforce rights which could be asserted by it.”
Pa.R.C.P. 1506(a). That rule also provides that “if the plaintiff does not fairly
and adequately represent the interests of the shareholders or members
similarly situated in enforcing the right of the corporation or association, an
appropriate person shall be substituted as plaintiff.” Herein, it was the
corporation that failed to adequately represent its own interests or those of
its shareholders. I believe it was error to grant summary judgment on
Marianne’s derivative claims when KWT was unrepresented and failing to
prosecute its own claims. Moreover, unlike the situation in Hill, supra,
where we remanded to permit the plaintiff to amend the pleadings to assert
a derivative action, the pleadings herein are sufficient to permit a derivative
action to proceed.
For the foregoing reasons, I would vacate the summary judgment and
permit Marianne to prosecute KWT’s abandoned action.5
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5
In their motion for summary judgment, Defendants pled that KWT was a
plaintiff and intended to seek to enforce its rights against the Defendants.
See Motion for Summary Judgment, 2/28/14, at 13 ¶ 45. It cited therein
the February 17, 2014 deposition testimony of Bridget, KWT’s President and
Vice Chairman, that the corporation was not relinquishing its claims. Id.
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