Toth, M. v. Toth, B. ( 2023 )

J-A06019-23
J-A06020-23
2023 PA Super 145MICHAEL D. TOTH AND LINAWATI : IN THE SUPERIOR COURT OF
TOTH : PENNSYLVANIA
:
:
v. :
:
:
BRYAN E. TOTH, EUGENE W. TOTH, :
MARIE TOTH, AND LEARNING : No. 266 WDA 2022
SCIENCES INTERNATIONAL, LLC :
:
:
APPEAL OF: BRYAN E. TOTH, :
EUGENE W. TOTH, AND MARIE TOTH :
Appeal from the Order Entered February 15, 2022
In the Court of Common Pleas of Allegheny County Civil Division at
No(s): GD-21-000372
MICHAEL D. TOTH AND LINAWATI : IN THE SUPERIOR COURT OF
TOTH : PENNSYLVANIA
:
:
v. :
:
:
BRYAN E. TOTH, EUGENE W. TOTH, :
MARIE TOTH, AND LEARNING : No. 267 WDA 2022
SCIENCES INTERNATIONAL, LLC :
:
:
APPEAL OF: BRYAN E. TOTH, :
EUGENE W. TOTH, AND MARIE TOTH :
Appeal from the Order Entered February 15, 2022
In the Court of Common Pleas of Allegheny County Civil Division at
No(s): GD-21-000372
MICHAEL D. TOTH AND LINAWATI : IN THE SUPERIOR COURT OF
TOTH : PENNSYLVANIA
:
:
v. :
:
J-A06019-23
J-A06020-23
:
BRYAN E. TOTH, EUGENE W. TOTH, :
MARIE TOTH, AND LEARNING : No. 403 WDA 2022
SCIENCES INTERNATIONAL, LLC :
:
:
APPEAL OF: BRYAN E. TOTH, :
EUGENE W. TOTH, AND MARIE TOTH :
Appeal from the Order Entered April 5, 2022
In the Court of Common Pleas of Allegheny County Civil Division at
No(s): G.D. 21-000372
MICHAEL D. TOTH AND LINAWATI : IN THE SUPERIOR COURT OF
TOTH : PENNSYLVANIA
:
:
v. :
:
BRYAN E. TOTH, EUGENE W. TOTH : No. 846 WDA 2022
MARIE TOTH, AND LEARNING :
SCIENCES INTERNATIONAL, LLC :
:
:
APPEAL OF: BRYN E. TOTH, :
EUGENE W. TOTH, AND MARIE TOTH :
Appeal from the Order Entered July 21, 2022
In the Court of Common Pleas of Allegheny County Civil Division at
No.(s): GD-21-000372
BEFORE: OLSON, J., NICHOLS, J., and PELLEGRINI, J.*
CONCURRING/DISSENTING OPINION BY OLSON, J.:
FILED: August 1, 2023
____________________________________________
* Retired Senior Judge assigned to the Superior Court.
-2-
J-A06019-23
J-A06020-23
I agree with the learned Majority that the trial court did not err in
granting partial summary judgment relief in the form of a declaratory
judgment in favor of Appellees Michael D. Toth (“Michael”) and Linawati Toth.
Thus, I am in agreement with the Majority’s decision to affirm the trial court’s
orders of February 15, 2022 that granted partial summary judgment in favor
of Appellees (266 WDA 2022) and denied the motion for summary judgment
filed by Appellants Bryan E. Toth (“Bryan”), Eugene W. Toth (“Eugene”), and
Marie Toth (“Marie”) (267 WDA 2022). I part company with my learned
colleagues as to the appeals filed by Appellants at 403 WDA 2022 (April 5,
2022 order granting Appellees’ petition to dissolve Learning Sciences
International, LLC (“LSI”)) and 846 WDA 2022 (July 21, 2022 order appointing
a custodian for LSI). I do not agree that this case should be remanded for
the parties to engage in further mediation. Moreover, I believe that the trial
court did not abuse its discretion in ordering the dissolution of LSI and
appointing a custodian. Therefore, I would affirm the trial court’s orders of
April 5, 2022 and July 21, 2022.
As the Majority correctly notes, the 2012 Operating Agreement which
controls the operation of LSI provides in pertinent part:
12.1 Dissolution
(a) The Company shall be dissolved only upon the
occurrence of any of the following events:
****
-3-
J-A06019-23
J-A06020-23
(2) by an order of a court of competent jurisdiction
in any action commenced by any Member in which the Member
can show that:
(i) Except as set forth in Section 7.11 of this
Agreement, the Members are deadlocked in the management of
the Company’s affairs, and irreparable injury to the corporation is
threatened or being suffered, or the business and affairs of the
corporation can no longer be conducted, because of the deadlock;
(ii) The Officers or other Members in control
of the Company have acted, are acting, or will act in a manner
that is illegal, oppressive, or fraudulent;
(iii) There have been repeated, material
breaches of the Agreement by the Company or by other Members
or Officers; or
(iv) It is otherwise not reasonably practicable
to carry on the business in conformity with the Operating
Agreement.
2012 Operating Agreement, Section 12.1 (emphasis in original).
Section 7.11 of the 2012 Operating Agreement provides:
7.11 Dispute Resolution for Members. In the event that the
Members are deadlocked and cannot come to an agreement with
respect to any decision of the Company (including any items
referred to the Members pursuant to Section 5.15 of this
Agreement [involving dispute resolution for officers]), the
Members hereby agree to submit any and all such disputes
between them to binding mediation. . . . Any decision reached by
the mediator shall be final and binding upon the Members.
Id. at Section 7.11.
The Majority concludes that the terms of the 2012 Operating Agreement
are clear and unambiguous and expressly provide that binding mediation is
required to resolve the dispute between the parties; thus, “the trial court’s
-4-
J-A06019-23
J-A06020-23
decision to dissolve LSI was premature because the 2012 Operating
Agreement unambiguously mandates binding mediation, which has not yet
occurred.” Majority Opinion at 38. I agree that the terms of an agreement,
if clear and unambiguous, are the best reflection of the parties’ intent.
Commonwealth ex rel. Kane v. UPMC, 129 A.3d 441, 463 (Pa. 2015). I
also agree that the 2012 Operating Agreement provides that binding
mediation is required in the event of a deadlock between members with
respect to “any decision of the Company”. 2012 Operating Agreement,
Section 7.11. However, the disputes between the parties involve more than
“decisions of the Company” as required by section 7.11 of the 2012 Operating
Agreement. On the contrary, the disputes go to the actual corporate structure
that LSI will follow going forward, the manner in which LSI will be governed
and the identity of the persons who will serve as LSI’s officers, including
president and chief executive officer. Additionally, under the unique facts and
circumstances of this case and its lengthy history, I believe that further
mediation will do nothing but cause additional expense, delay and acrimony
resulting in continuing injury to LSI. Thus, I do not believe that additional
efforts to mediate is appropriate in this case.
On August 4, 2021, after months of extensive litigation between the
parties in both Pennsylvania and Florida, the trial court entered an order
-5-
J-A06019-23
J-A06020-23
appointing John R. McGinley, Jr., Esquire1 as an interim custodian of LSI.
Attorney McGinley was tasked, in part, with making findings of fact and
conclusions of law “as to whether the Members [of LSI] are deadlocked in the
management of [LSI’s] affairs and/or whether it is reasonably practicable for
the Members of LSI to carry on the business of LSI in conformity with the
provisions of LSI’s 2012 Operating Agreement”. Trial Court Order, 8/4/21, at
¶ 2. After an extensive review of relevant documents, deposition transcripts,
and controlling law, interviews of key individuals and employees, and
conversations with counsel for the parties, Attorney McGinley submitted
findings of facts and conclusions of law to the trial court on October 15, 2021.
The findings of fact and conclusions of law rendered by Attorney McGinley
included the following:
49. The Custodian concludes that each side is intractable in its
belief and in good faith differ on how to manage LSI, conduct its
business and whether Michael should remain the CEO and
President of LSI. The differences have resulted in the litigation
before [the trial court], litigation in Florida and efforts to replace
Michael and reconstitute LSI as a manager-managed, Florida
limited liability company.
50. The holders of the “Voting Interests” of LSI [i.e., Bryan and
Michael] are deadlocked. Their disagreements are not over issues
that arise in the day-to-day operation of a business, but rather go
to the core issues such as the governing law applicable to a limited
liability company, the allocation of voting rights, hence power
among members, and the primary areas of corporate investment.
********
____________________________________________
1 Attorney McGinley is an extremely experienced and highly regarded attorney
who has practiced in the realm of complex commercial litigation for decades.
-6-
J-A06019-23
J-A06020-23
71. The Custodian concludes that Michael and Bryan, the
members of LSI of who have Voting Interests, are deadlocked.
The deadlock manifests itself at two levels. They are deadlocked
on the appropriate business plan for LSI and they are deadlocked
on the election of Officers. Bryan and Michael, the holders of the
Voting Interests, cannot agree on the Officers of LSI or who should
direct its day-to-day business affairs. Bryan, Eugene and Marie’s
attempt to oust Michael as the CEO and President and their
attempt to convert LSI to a manger-managed, Florida limited
liability company and amend the 2012 Operating Agreement,
further evidences this dysfunction and deadlock.
72. Accordingly, the Custodian concludes as follows:
The Members who control Voting Interests decisions
are deadlocked – neither Michael nor Bryan will yield
to the other and comity among the Members has
dissolved.
********
77. Section 7.11 of the 2012 Operating Agreement also
contemplates a dispute resolution mechanism for Members. It
provides:
In the event that the Members are deadlocked and
cannot come to an agreement with respect to any
decision of the Company . . ., the Members hereby
agree to submit any and all such disputes between
them to binding mediation ….
78. The predicate for disagreement among members is limited
to a “decision of the Company.” While some of the disagreements
in this case deal with the direction of [LSI] and thus its business
plans, others are disagreements not with respect to [LSI] but
rather disagreements in their capacity as Members. The
architecture of the dispute resolution may aid in connection with
certain of the disputes among the parties but is of little help with
regard to the core disputes among the Members. For example,
the decision to advocate a change from a member-managed
limited liability company, to a manager-managed limited liability
company is a decision taken as a member. It is a governance
-7-
J-A06019-23
J-A06020-23
decision adopted by the members rather than a “decision of the
Company.” Indeed, that analysis may have been the reason why
in the first instance Bryan, Eugene and Marie attempted to oust
Michael and amend the 2012 Operating Agreement rather than
take their concerns to a mediator pursuant to section 7.11 of the
2012 Operating Agreement.
********
80 Section 7.11 may offer some limited vehicle for deciding
conflicts that arise among members, relating to the decisions of
the Company, but it does not encompass all of the deeper disputes
among the Members. Section 7.11 is inapplicable to differences
on whom to elect as Officers. The selection of Officers is the
prerogative of the owners of the Voting Interests and its deeply
divided between Michael and Bryan.
********
93. The parties have attempted a conventional mediation with
Attorney David White, an accomplished and respected mediator.
That effort failed.
94. Based upon the diverging viewpoints among the holders of
the Voting Interests, the Custodian finds that there is an
irreconcilable deadlock on certain operational issues “with respect
to any decision of the Company” within the meaning of section
7.11 of the 2012 Operating Agreement. If such operational
disputes constituted exclusive issues among the parties, such
issues would be a matter for mediation under the 2012 Operating
Agreement. In this case, day-to-day decisions are not the primary
issues.
Interim Custodian’s Findings of Fact and Conclusions of Law, 10/15/21
(emphasis in original). As astutely recognized by Attorney McGinley, section
7.11 of the 2012 Operating Agreement that calls for binding mediation applies
when the members are deadlocked over “any decision of the Company” as
opposed to any decision about the Company, such as the corporate
-8-
J-A06019-23
J-A06020-23
governance structure by which LSI will operate in the future. As such, I do
not believe that section 7.11 of the controlling Operating Agreement mandates
binding mediation with respect to the disputes at issue.
Even if section 7.11 is applicable, further mediation is not warranted
under the facts of this case. In its 1925(a) opinion in support of its order
directing the dissolution of LSI, the trial court acknowledged Attorney
McGinley’s finding of “irreconcilable differences that will only cause harm to
[LSI] if continued to exist.” Trial Court Opinion, 6/29/22, at 3. Additionally,
the trial court found:
Article 7.11 of the 2012 Operating Agreement requires that the
members attempt to resolve any deadlock through binding
mediation before seeing a court[-]ordered dissolution. Although
[Appellants] contend otherwise, the parties have sought to resolve
their disputes through formal mediation and informal settlement
discussions throughout this litigation. None of these attempts to
resolve the parties’ differences amicably proved fruitful and have
only highlighted the intractable positions of the parties with
respect to the management and ownership of LSI.
Id. at 4. It is clear from the record that, in this case, further efforts to mediate
to resolve this matter would be a waste of time and resources and will merely
result in further delay and harm to LSI. These are sophisticated parties with
sophisticated and experienced counsel. For almost three years, the parties
have engaged in extensive litigation in two states which has included formal
mediation with an experienced mediator, ongoing settlement discussions, and
exhaustive work with the interim custodian, all for naught. Even if the parties
are forced to again mediate, I predict that the ongoing dispute between
-9-
J-A06019-23
J-A06020-23
Appellants and Appellees will continue with the losing party or parties seeking
further court intervention to disallow the mediator’s binding resolution.
Accordingly, I would not remand this case for further mediation pursuant to
Section 12.1(a)(2)(i) of the 2012 Operating Agreement. Instead, I would
affirm the trial court’s orders directing the dissolution of LSI and the
appointment of a custodian for the reasons set forth in the trial court’s
thorough and well-reasoned opinions of June 29, 2022 and September 2,
2022.2
____________________________________________
2 As additional support for affirming the trial court’s order of dissolution
without further mediation, I note the following. Section 12.1 of the 2012
Operating Agreement does not only provide that LSI shall be dissolved by a
court if there is a deadlock causing irreparable injury to the company (as set
forth in Section 12.1(a)(2)(i)), the Agreement also provides that LSI shall be
dissolved by an order of court if the Members acted oppressively, breached
the 2012 Operating Agreement, or “[i]t is otherwise not reasonably practicable
to carry on the business in conformity with the Operating Agreement.” 2012
Operating Agreement, Section 12.1(a)(2)(ii), (iii), (iv). Nothing in these
subsections mandates that binding mediation be conducted by the parties
before the court may order dissolution. The trial court found that Appellees
(as Members of LSI) breached the 2012 Operating Agreement and breached
their fiduciary duties. Trial Court Opinion, 6/29/22, at 7-11. The court also
found that Appellees “created an atmosphere of hostility from the start” and
engaged in “violative conduct.” Id. at 10, 11. Additionally, the trial court
found that the actions of the parties caused harm to LSI and that any other
form of relief, other than dissolution, would not be in LSI’s best interests. Id.
at 12-17. The court concluded it would be impracticable for LSI to continue
to operate as contemplated by the 2012 Operating Agreement. Id. at 13.
(“LSI is not only at risk of revocable financial loss, but irrevocable loss of
intellectual property, talent, employee satisfaction, and reputation. In such
circumstances, a finding of deadlock or impracticability is appropriate.”) Thus,
under Section 12.1(a)(2)(ii), (iii) and (iv) of the 2012 Operating Agreement,
the trial court could order dissolution without binding mediation.
- 10 -
J-A06019-23
J-A06020-23
- 11 -