J-A06019-23
J-A06020-23
2023 PA Super 145
MICHAEL 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, :
MARIE TOTH, AND LEARNING : No. 846 WDA 2022
SCIENCES INTERNATIONAL, LLC :
:
:
APPEAL OF: BRYAN 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.*
OPINION BY NICHOLS, J.: FILED: August 1, 2023
____________________________________________
* Retired Senior Judge assigned to the Superior Court.
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Appellants Bryan E. Toth, Eugene W. Toth, and Marie Toth appeal from
four separate orders: the February 15, 2022 order granting partial summary
judgment in favor of Appellees Michael D. Toth and Linawati Toth (266 WDA
2022); the February 15, 2022 order denying Appellants’ motion for summary
judgment against Appellees (267 WDA 2022); the April 5, 2022 order granting
Appellees’ petition to dissolve Learning Sciences International, LLC, (LSI) (403
WDA 2022); and the July 21, 2022 order appointing a custodian for LSI (846
WDA 2022).1 Appellants contend that the trial court erred in granting
summary judgment in favor of Appellees, ordering the dissolution of LSI, and
in appointing a custodian. After review, we affirm the order on appeal at 266
WDA 2022, affirm the order on appeal at 267 WDA 2022, vacate the order on
appeal at 403 WDA 2022 and remand for further proceedings consistent with
this opinion, and vacate the order on appeal at 846 WDA 2022.
The trial court summarized the relevant facts and procedural history of
this matter as follows:
I. THE PARTIES & BACKGROUND.
Plaintiff Michael Toth (“Michael”) is the founder, President, Chief
Executive Officer, and owner of 50% voting interest and 25%
equity interest of [LSI,] a Pennsylvania educational training LLC
operating in and servicing multiple states. Linawati Toth (“Lina”),
Michael’s wife, is an LSI manager and employee. Bryan Toth
____________________________________________
1 The appeals at 266 WDA 2022, 267 WDA 2022, and 403 WDA 2022 were
consolidated sua sponte at Superior Court Journal No. J-A06019-23. See
Order, 6/28/22. The related appeal at 846 WDA 2022 was assigned Superior
Court Journal No. J-A06020-23, and it was consolidated with the appeals at
266 WDA 2022, 267 WDA 2022, and 403 WDA 2022, in an order filed on
August 1, 2022.
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(“Bryan”), Michael’s brother, owns 50% voting interest and 25%
equity interest of LSI. Eugene Toth (“Eugene”), Michael’s father,
and Marie Toth (“Marie”), Michael’s mother, are each 25% owners
in equity interest of LSI.
After founding LSI in 2002, Michael gifted Marie, Eugene, and
Bryan their respective interests. Around the Thanksgiving holiday
in 2020, relations between the parties began to deteriorate. On
January 8, 2021, Bryan, Eugene, and Marie met with Florida legal
counsel and executed three legal agreements: a “Written Consent
to Actions Taken Without a Meeting by the Members of Learning
Sciences International, LLC” (“First Written Consent”) an
“Amended and Restated Operating Agreement of Learning
Sciences International, LLC” (“2021 [Operating] Agreement”),
and an additional “Written Consent to Actions Taken Without a
Meeting by the Members of Learning Sciences, International, LLC”
(“Second Written Consent”).
The First Written Consent, signed only by [Appellants],
acknowledged that LSI was a Pennsylvania LLC governed by a
2012 Operating Agreement (“2012 [Operating] Agreement”) and
allegedly allowed [Appellants] “ratify, approve, and adopt” the
2021 [Operating] Agreement in Michael’s absence pursuant to
Section 13.5 of the 2012 [Operating] Agreement, which provides
that the 2012 [Operating] Agreement “may not be amended
except by the written agreement of Members holding Two-Thirds
Interest of the Company.” By “adopting” the 2021 [Operating]
Agreement in light of the First Written Consent, [Appellants]
aimed to “approve LSI’s change of its headquarters and subject
laws to Florida.”
The Second Written Consent, signed only by [Appellants],
acknowledged Michael and Lina’s then-current status as LSI
“officers and/or management personnel,” yet allegedly allowed
[Appellants] to terminate Michael and Lina, having determined
that “it was in the best interests of LSI to change some of its
current officers and management personnel.”
Despite executing the First Written Consent, the 2021 [Operating]
Agreement, and the Second Written Consent under the guise of
having met the Two-Thirds Interest requirement of Section 13.5
of the 2012 [Operating] Agreement, [Appellants] overlook Section
1.37 of the 2012 [Operating] Agreement which states “Two-thirds
Interest shall mean one or more Voting Interests of Members
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which taken together exceed 66.67% of the aggregate of all
Voting Interests.” Section 1.39 of the 2012 [Operating]
Agreement further provides that Bryan and Michael each have
50% Voting Interest.
II. PROCEDURAL HISTORY
On December 12, 2021, [Appellees] filed a Complaint seeking
injunctive relief and damages against Marie, Eugene, Bryan, and
LSI (collectively referred to herein as “ Defendants”) including the
following counts: Temporary Restraining Order, Preliminary
Injunction, and Permanent Injunction (Count I), Breach of
Contract (2012 Operating Agreement) (Count II), Breach of
Fiduciary Duty and Common Law Duty of Loyalty (Count III),
Conversion, fraud and Defamation (Count IV, V, & VI),
Declaratory Judgment (Count VII), and Constructive Trust and
Accounting (Count VIII).
With respect to Count VII, [Appellees] sought judgment declaring
that:
(a) The 2012 . . . Operating Agreement remains in full force
and Effect, and that the purported Written Consents and
2021 Operating Agreement are null and void and therefore
without lawful import, authority or legitimacy;
(b) Mr. Michael Toth remains the President, Chief Executive
Officer and employee of LSI, with all of the right, title and
privileges of those positions;
(c) Ms. Linawati Toth remains a manager and employee of
LSI, with all of the right, title and privileges of these
positions;
(d) Defendant LSI is Pennsylvania corporation and must
remain so, and any action taken to changes that must be
undone as without authorization or legal justification.
In response to [Appellees’] request for injunctive relief, on
January 19, 2021, [the trial c]ourt granted [Appellees’]
Emergency Motion for Temporary Restraining Order pending
resolution of the preliminary injunction, which was scheduled for
argument on February 5, 2021. On February 2, 2021, [the trial
c]ourt entered an order staying all case activity pending the
parties’ engagement in alternative dispute resolution [(ADR)] —
later deemed to be unsuccessful. While the case was stayed in
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[the trial c]ourt, [Appellants] brought an additional lawsuit against
[Appellees] in Florida state court.
On May 3, 2021, [Appellants’] Preliminary Objections were
overruled and [the trial c]ourt ultimately appointed Mr. John
McGinley, Jr. as the Interim Custodian Pendente Lite (“[Interim]
Custodian”) on August 4, 2021.[2] More specifically, [the trial
c]ourt tasked the [Interim] Custodian with the purpose of
providing interim findings of fact and conclusions of law as to
whether the Members were deadlocked in the management of
LSI’s affairs and whether it would be reasonably practicable for
LSI’s Members to carry on the business . . ., as well as other
recommendations regarding LSI’s management, direction, and
ownership. In accordance with the [c]ourt’s August 4th order, the
[Interim] Custodian filed Interim Finding of Fact and Conclusions
of Law (“[Interim] Custodian’s Report”) on October 22, 2021.
Amongst other things, the [Interim] Custodian found that, in light
of [Appellants’] failed attempt to adopt the 2021 [Operating]
Agreement without Michael’s consent, the 2012 Operating
Agreement continues to govern LSI and the rights of its Members.
After determining that the dispute as to LSI’s governing document
was a legal issue capable of resolution via summary judgment,
[the trial c]ourt ordered the parties to file cross-motions for
summary judgment. On January 12, 2022, [Appellees] filed a
Motion for Partial Summary Judgment and [Appellants] filed a
Cross-Motion for Summary Judgment, both which are the focus of
this appeal. Following argument on the motions, [the trial c]ourt
entered two orders — one denying [Appellants’] Cross-Motion for
Summary Judgment [(the order at 267 WDA 2022)] and another
granting [Appellees’] Motion for Partial Summary Judgment [(the
order at 266 WDA 2022)].
Trial Ct. Op., 6/24/22, at 1-5 (some formatting altered and footnotes
omitted).
Appellants filed timely and separate notices of appeal from the February
15, 2022 orders. See Docket No. 266 WDA 2022 (appeal from the order
granting partial summary judgment relief in the form of declaratory judgment
____________________________________________
2 On May 25, 2021, Appellees filed a motion to dissolve and wind-up LSI.
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in favor of Appellees that the 2012 Operating Agreement controls); Docket
No. 267 WDA 2022 (appeal from the order denying Appellants’ motion for
summary judgment). Both the trial court and Appellants complied with
Pa.R.A.P. 1925.
On March 11, 2022 and March 16, 2022, the trial court held hearings on
Appellees’ motion to dissolve and wind-up LSI. The trial court subsequently
entered an order stating:
AND NOW, this 5th day of April, 2022, having considered
[Appellees’] Amended Petition to Dissolve and Wind-Up Learning
Sciences International, LLC, [Appellants’] response thereto, and
following a hearing thereupon, the court makes the following
factual findings and legal conclusions:
A. Michael D. Toth (“Michael”), Bryan E. Toth (“Bryan”),
Eugene W. Toth (“Eugene”) and Marie Toth (“Marie”) are
each owners of 25% of the issued and outstanding units
of Learning Sciences International, LLC (“LSI”).
B. Michael and Bryan each control 50% of the voting rights
of LSI.
C. Michael, Bryan, Eugene and Marie are collectively
referred to as the “Members.” LSI and the Members are
parties to [the 2012 Operating Agreement].
D. The Members are and have been engaged in a series of
disputes concerning the management, operation and
future direction of LSI, which disputes are the subject of
litigation with this court in the above captioned case.
E. The Members have been unable to resolve their
differences despite efforts to do so at the request of the
court through multiple formal mediations and informal
settlement discussions.
F. The court has determined that the disputes, divisiveness
and litigation among the Members of LSI that currently
exist are and will continue to have a lasting and
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significant adverse consequence upon the viability of LSI
to operate as an ongoing concern.
G. LSI is not currently profitable in the current year but for
one-time Government assistance, and was barely above
break-even for 2020.
H. The court has determined that the Members are
irrevocably deadlocked in the management of [LSI’s]
affairs, and that it is not otherwise reasonably practicable
to carry on the business in conformity with LSI’s
Certificate of Incorporation and Operating Agreement.
I. The Court has determined that [LSI] should begin a
process of dissolution under Pennsylvania law applicable
to LSI, including, without limitation, the provisions of 15
Pa.C.S. § 8872.
J. The court, having found good cause, hereby exercises its
discretion to appoint a liquidating trustee for LSI
pursuant to 15 Pa.C.S. § 8872(e) to accomplish such
dissolution.
K. The court hereby appoints James Chiafullo, Esq., of
Dentons, Cohen & Grisby (the “Liquidating Trustee”) to
serve as Liquidating Trustee of LSI, with all power,
authority, protection and duty of a Liquidating Trustee
appointed under . . . 15 Pa.C.S. § 8872(e) for the
purpose, inter alia, of consummating such dissolution,
and to carry out such dissolution with all possible
deliberation and speed.
Order, 4/5/22, at 1-2. Appellant filed a timely appeal from the trial court’s
order, which was docketed at 403 WDA 2022. Thereafter, Appellants moved
for a stay pending appeal, and this Court granted the motion for stay on June
16, 2022.
Thereafter, the trial court explained:
During the pendency of the appeal, Michael Toth initially continued
to manage the company as CEO. However, the uncertainty
surrounding this litigation and the future existence of LSI have
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created roadblocks to maintaining business as usual. Employees,
some of whom are key personnel, have been leaving LSI and it
has become understandably difficult to recruit and retain new
employees. Due to LSI’s primary clients being school districts, its
contracts typically begin in August and last for the entire school
year. The uncertainty and low retention of employees has made
it impossible to anticipate whether LSI is able to enter into and
perform new contracts for the school year or whether such
contracts would create greater liability for the company. As such,
LSI formed no new contracts and currently has no new income.
The litigation and deadlock has gone so far as to cause hesitancy
among LSI’s existing clients about its ability to perform. Also
contributing to this de facto slowing down and winding up of LSI
is Michael’s stepping down as CEO. Despite the stay of [the trial
c]ourt’s dissolution order, Michael has allegedly taken steps to
form a new company in anticipation of LSI’s eventual dissolution,
such as creating a website and hiring former LSI employees.
As a result of these developments, on June 28, 2022[, Appellees]
sought temporary relief from the Superior Court’s stay order so as
to petition [the trial c]ourt to appoint a receiver to manage the
company’s remaining affairs and pay its debts as they come due
pending the resolution of [Appellants’] appeal. By order dated
June 29, 2022, the Superior Court granted the relief and
temporarily lifted the stay order for the limited purpose of having
[the trial c]ourt rule on [Appellees’] petition to appoint a receiver.
On July 15, 2022[, the trial c]ourt heard argument on the petition
to appoint the receiver. Despite the numerous allegations of
Michael’s apparent conflict of interest in running LSI and winding
up its affairs, [Appellants] astonishingly opposed the appointment
of an impartial receiver to run the company. By order dated July
21, 2022, [the trial c]ourt granted the petition and appointed a
receiver.
Trial Ct. Op., 9/2/22, at 1-2. Appellants subsequently filed a timely appeal
from the July 21, 2022 order appointing the custodian which was docketed at
846 WDA 2022.
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In sum, the instant matter involves four separate docket numbers: 266
WDA 2022, 267 WDA 2022, 403 WDA 2022, and 846 WDA 2022. Appellants
and the trial court have complied with Pa.R.A.P. 1925 in all four matters.
In these consolidated and related appeals, Appellants raise the following
issues:
1. [Appeals at 266 WDA 2022 and 267 WDA 2022:] Whether the
trial court committed reversible error by granting, on a motion
for summary judgment, a declaratory judgment in [Appellees’]
favor insofar as: (1) as a matter of law, [Appellants] were
entitled to judgment in their favor on [Appellees’] declaratory
judgment claim; and (ii) alternatively, at a minimum, genuine
issues of material fact remained as to [Appellees’] declaratory
judgment claim and [Appellants’] defenses thereto?
2. [Appeal at 403 WDA 2022:] Whether the trial court committed
reversible error by ordering the dissolution of LSI, insofar as:
(i) the decision was inextricably linked to the trial court’s
erroneous declaratory judgment; and (ii) alternatively, even if
the declaratory judgment was proper, myriad other
independent factual and legal deficiencies precluded the trial
court’s order as a matter of law?
3. [Appeal at 846 WDA 2022:] Whether the trial court committed
reversible error by appointing James Chiafullo as custodian of
LSI insofar as: (i) the decision was directly at odds with this
Court’s Orders staying the Plan of Dissolution ordered
previously by the trial court; and (ii) independent of this Court’s
Stay Order, the factual and legal predicates for said
appointment were unsatisfied as a matter of law?
Appellants’ Brief at 6-7.
Appealability of Orders - 266 WDA 2022 & 267 WDA 2022
As an initial matter, we first address whether the appeals at 266 WDA
2022 and 267 WDA 2022 are properly before this Court. It is well settled that
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the appealability of an order directly implicates the jurisdiction of
the court asked to review the order. Knopick v. Boyle, 189 A.3d
432, 436 (Pa. Super. 2018) (internal citation omitted). As a
general rule, appellate courts have jurisdiction only over appeals
taken from a final order. In re Bridgeport Fire Litigation, 51
A.3d 224, 229 (Pa. Super. 2012). A final order is one that
disposes of all the parties and all the claims; or is entered as a
final order pursuant to the trial court’s determination under Rule
341(c). Pa.R.A.P. 341(b)(1), (3). An appeal may also be taken
from an order that is made final or appealable by statute or
general rule, even though the order does not dispose of all claims
and of all parties. Pa.R.A.P. 311(a)(8).
Schmitt v. State Farm Mutual Auto. Ins. Co., 245 A.3d 678, 681 (Pa.
Super. 2021) (quotation marks omitted).
Additionally, 42 Pa.C.S. § 7532 provides:
Courts of record, within their respective jurisdictions, shall have
power to declare rights, status, and other legal relations whether
or not further relief is or could be claimed. No action or proceeding
shall be open to objection on the ground that a declaratory
judgment or decree is prayed for. The declaration may be either
affirmative or negative in form and effect, and such declarations
shall have the force and effect of a final judgment or decree.
42 Pa.C.S. § 7532.
“Although the [Declaratory Judgments] Act provides that the declaration
shall have the ‘force and effect of a final judgment or decree,’ . . . . It is the
nature of the order at issue that dictates whether it is final and appealable.”
Schmitt, 245 A.3d at 682 (citation omitted). This Court has summarized the
case law regarding declaratory judgment actions that do not dispose of all
claims and all parties as follows:
In Bolmgren v. State Farm Fire and Cas. Co., 758 A.2d 689
(Pa. Super. 2000), the appellee brought an action against State
Farm for a declaration of coverage under a homeowner’s policy
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and for damages. Specifically, Counts I-III of the appellee’s
amended complaint sought relief in the form of declaratory
judgment, and Count IV sought damages, attorney’s fees, interest
and costs. Following competing motions for summary judgment,
the court granted summary judgment in favor of the appellee on
Counts I-III. State Farm appealed. As a prefatory matter, this
Court considered whether the appeal was properly before us,
where the damages claim in Count IV of the amended complaint
remained outstanding.
In addressing whether the appeal was proper under Rule
311(a)(8) by way of the Declaratory Judgments Act, this Court
explained:
Although the Act provides that the declaration shall have the
“force and effect of a final judgment or decree,” this partial
adjudication does not become appealable merely because it
is cast in the form of a declaratory judgment. Appellee’s
complaint in this matter, although captioned a declaratory
judgment, sought ordinary civil relief and remedies in the
form of a declaration of coverage and damages.[FN1] Her
request for further relief, in the form of damages, has yet to
be determined. Because an appeal will not lie from an
interlocutory order, the present appeal must be quashed.
[FN1] It is the nature of the order at issue that dictates
whether it is final and appealable. In this case, the
order is not final since it does not dispose of the claim
of damages raised in the complaint, in addition to the
request for declaratory judgment. This case is
different than that in Redevelopment Authority of
Cambria County v. International Insurance Co.,
[685 A.2d 581 (Pa. Super. 1996), appeal denied,
695
A.2d 787 (Pa. 1997)]. In that case the complaint
sought relief in the form of declaratory judgment that
Erie [Insurance Group] and International [Insurance
Co.] owed a duty to defend and to indemnify the
Authority in an action filed by a third party. In that
case, the order was final because the trial court’s
determination that Erie [Insurance Group] had a duty
to defend the third-party claim effectively ended the
litigation. Here, in addition to the declaration of
rights, the trial [c]ourt was asked to award damages
under the policy. Under these circumstances, the
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[trial] court is required to address this request.
Without doing so, the order is not final.
Id. at 691. . . .
This Court has repeatedly applied Bolmgren when discussing the
appealability of orders that resolve declaratory judgment claims
but leave other claims outstanding. See, e.g., Bombar v. West
American Ins. Co., 932 A.2d 78, 85-86 (Pa. Super. 2007)
(holding that trial court’s initial January 19, 2005 order granting
summary judgment on declaratory judgment count of complaint
was not final and appealable, where that order did not determine
amount of damages for remaining bad faith claim; appeal from
later December 30, 2005 order resolving outstanding bad faith
claim was proper); Cresswell v. Pennsylvania Nat. Mut. Cas.
Ins. Co., 820 A.2d 172, 176 n.2 (Pa. Super. 2003) (determining
trial court’s initial December 20, 2001 order granting partial
summary judgment in favor of appellee on declaratory judgment
claim was interlocutory and unappealable, where court’s order left
unresolved additional bad faith claim; trial court’s later order of
May 28, 2002, which disposed of sole remaining bad faith claim,
was final and appealable); Moore Motors, Inc. v. Beaudry, 775
A.2d 869, 870 (Pa. Super. 2001) (per curiam) (quashing appeal
from order granting appellees’ motion for partial summary
judgment as interlocutory and unappealable; although court
granted summary judgment in favor of appellees on all nine
counts of appellants’ amended complaints, and on count I of
appellees’ counterclaim seeking declaratory judgment, court’s
order left unresolved counts II and III of appellees’ counterclaim;
holding “absent an express determination of finality under Rule
341(c), the dismissal of a complaint with the concomitant
dismissal of only one count of a multi-count counterclaim is
interlocutory and unappealable. . . . To hold otherwise would
permit the kind of piecemeal litigation that the Supreme Court
specifically tried to eliminate when it enacted Rule 341”).
Simultaneous to this Court’s continued application of Bolmgren,
our Supreme Court has issued a line of cases also dealing with the
appealability of orders resolving declaratory judgment claims,
beginning with Nationwide Mut. Ins. Co. v. Wickett, 763 A.2d
813 (Pa. 2000). In Wickett, our Supreme Court explained that
under Section 7532, “an order in a declaratory judgment action
that either affirmatively or negatively declares the rights and
duties of the parties constitutes a final order.” Id.,763 A.2d at
818. Consequently, the Court held that an order sustaining the
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preliminary objections in the nature of a demurrer of some
defendants in a declaratory judgment action, and dismissing those
defendants from the case, was a final, appealable order, even
though claims against other defendants remained outstanding.
In Pennsylvania Bankers Ass’n v. Pennsylvania Dep’t of
Banking, 948 A.2d 790 (Pa. 2008), the Court limited the breadth
of Wickett. In that case, certain banks filed a complaint against
the Pennsylvania Department of Banking asserting different
theories for declaratory relief, including several constitutional
claims. The Commonwealth Court, which had original jurisdiction
in the case, sustained the Department of Banking’s preliminary
objections in the nature of a demurrer regarding some of the
banks’ claims. Our Supreme Court quashed the appeal as
interlocutory, distinguishing Wickett as follows:
The Banks . . . argue that the Commonwealth Court’s order
constitutes a final, appealable order pursuant to Wickett.
We find Wickett distinguishable, however, for the following
reasons. In Wickett, the trial court’s order put certain
defendants out of court by dismissing all of the plaintiff’s
claims against them. In so doing, the order prevented the
plaintiffs from obtaining any relief against these parties. It
would therefore be appropriate in this context to
characterize the trial court’s order as a final order under 42
Pa.C.S. § 7532 because it, in essence, declared that the
plaintiffs did not have any viable theory of recovery against
such defendants.
In contrast . . . , the Commonwealth Court’s order in this
case did not dismiss any party, but merely narrowed the
scope of the Banks’ declaratory judgment action, which
raised alternative theories of relief. Because the Banks
might still obtain the relief they are seeking based on one of
the remaining constitutional theories, the Commonwealth
Court’s order sustaining the [Department of Banking’s]
preliminary objections has no certain effect upon the
ultimate relief to which the Banks may be entitled. Thus,
we find that the Commonwealth Court’s order in this case
did not declare the parties’ rights within the meaning of 42
Pa.C.S. § 7532, and therefore, it is not a final order under
Wickett.[FN16]
[FN16] Notably, the intermediate appellate courts have
limited Wickett to contexts where at least one party
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has been dismissed from the case. See Wimer v. Pa.
Employees Benefit Trust Fund, 868 A.2d 8, 13 (Pa.
Super. 2005), aff’d, 939 A.2d 843 (Pa. 2007) (finding
Wickett applies when a complaint is dismissed and
the plaintiffs are put out of courts); Consolidation
Coal Co. v. White, 875 A.2d 318, 325 (Pa. Super.
2005) (holding an order is only final under Wickett
when there is “no conceivable legal theory under
which Appellants could prevail”); Creswell, [820 A.2d
at 176 n.2] (granting partial summary judgment was
not a final order under Wickett because one claim
remained); Independ. Oil & Gas Ass’n of Pa. v. Pa.
Pub. Util. Comm’n, 804 A.2d 693, 701 (Pa. Cmwlth.
2002) (determining that Wickett does not apply
unless the plaintiffs are put out of court).
…
For the reasons outlined above, we conclude that the
Commonwealth Court’s order in this case, which sustained
the [Department of Banking’s] preliminary objections in the
nature of a demurrer with respect to some, but not all, of
the Banks’ constitutional claims, is not a final, appealable
order. Our conclusion today is not only informed by our
well-established policy of avoiding piecemeal litigation, it
also recognizes that such an order does not represent an
affirmative or negative declaration of the parties’ rights
within the meaning of 42 Pa.C.S. § 7532 because alternate
avenues of relief can still be pursued against the same
parties in the courts below.
Accordingly, we quash the instant appeal as interlocutory.
Pennsylvania Bankers Ass’n, 948 A.2d at 799-800 (some
internal footnotes omitted). See also United States
Organizations for Bankruptcy Alternatives, Inv. v.
Department of Banking (“USOBA”), 26 A.3d 474 (Pa. 2011)
(quashing appeal from Commonwealth Court’s order striking two
provisions of Debt Management Services Act (“Act 117”) as
unconstitutional; Commonwealth Court did not address several of
USOBA’s arguments and did not ultimately decide whether USOBA
was entitled to full relief originally requested, which remains
available via USOBA’s alternate arguments; essentially,
Commonwealth Court simply narrowed scope of USOBA’s
declaratory judgment action, without ultimately deciding case;
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Department of Banking appealed order which, in light of USOBA’s
original challenge to Act 117, granted USOBA only partial
declaration of parties’ rights, status, or legal relations).
Most recently in the Wickett line of cases, our Supreme Court
summarized these holdings in Pennsylvania Manufacturers’
Assoc. Ins. Co. v. Johnson Matthey, Inc., 188 A.3d 396 (Pa.
2018), stating:
This Court last expounded upon the appealability of an order
declaring the rights of parties in [USOBA]. In that decision,
the Court provided a rather straightforward two-part test for
appellate courts to apply when considering whether an order
declaring the rights of parties is final and appealable: (1)
what is the effect of the lower court’s decision on the scope
of the litigation; and (2) what practical effect does the
court’s decision have on the ultimate outcome of the case. .
. . If the order in question merely narrows the scope of the
litigation and does not resolve the entirety of the parties’
eligibility for declaratory relief, then the order is
interlocutory and not immediately appealable.
Pennsylvania Manufacturers’, 188 A.3d at 399-400 (quashing
appeal as interlocutory where Commonwealth Court entered order
that effectively denied appellant’s claim for declaratory relief but
left unresolved appellee’s related but broader counterclaim for
declaratory relief; as order on appeal does not resolve parties’
competing claims for declaratory relief but merely narrowed
dispute, order is not appealable at this time). See also Titeflex
Corp. v. National Union Fire Ins. Co. of Pittsburgh, PA, 88
A.3d 970 (Pa. Super. 2014) (holding order declaring that
appellant-insurer had duty to defend appellee-corporation in
underlying actions was appealable because order resolved
declaratory judgment action for all practical purposes; only
conclusion left for trial court to reach was amount of
indemnification, which could not be made until underlying actions
were completed; once trial court determined that insurer had duty
to defend, underlying actions could continue; thus, this case is
analogous to Redevelopment Authority, and not subject to
limitation on Wickett announced in Pennsylvania Bankers
Ass’n).
Schmitt, 245 A.3d at 682-85 (some formatting altered).
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In sum, applying the two-part test from Pennsylvania
Manufacturers’ requires this Court to determine (1) the effect of the trial
court’s decision on the scope of the litigation; and (2) the practical effect the
trial court’s decision has on the outcome of the case. Pennsylvania
Manufacturers’, 188 A.3d at 400. As noted, if an order “merely narrows the
scope of the litigation and does not resolve the entirety of the parties’ eligibility
for declaratory relief, then the order is interlocutory and not immediately
appealable.”
Id. (citation omitted).
In the instant case, Appellants appealed from the trial court’s February
15, 2022 orders granting declaratory judgment in favor of Appellees at 266
WDA 2022 and denying Appellants’ cross-motion for summary judgment at
267 WDA 2022. In its June 24, 2022 opinion, the trial court concluded that
neither order was appealable. See Trial Ct. Op., 6/24/22, at 9.
While the instant appeals were pending, this Court issued a rule
directing Appellants to show cause why the appeals at 266 WDA 2022 and 267
WDA 2022 should not be quashed as interlocutory. See Order, 3/23/22.
Appellants filed a response asserting that the February 15, 2022 orders are
appealable pursuant to Rule 311(a)(8), and asserting that Schmitt is
distinguishable. Resp. to Rule, 4/1/22, at 1-2. On June 28, 2022, this Court
discharged the rule to show cause and informed the parties that the issue
would be decided by the merits panel. Order, 6/28/22.
As noted previously, with respect to the appeal at 266 WDA 2022,
Appellees sought partial summary judgment in the form of declaratory relief
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concerning which operating agreement was LSI’s governing document and
whether Michael Toth would continue to remain president and CEO of LSI.
See Trial Ct. Op., 6/24/22, at 4; Appellees’ Mot. for Partial Sum. Jud.,
1/12/22, at 3, 14.
In granting Appellees’ motion, the trial court issued an order stating:
AND NOW, to wit, this 15th day of February, 2022, upon due
consideration of [Appellees’] Motion for Partial Summary
Judgment, all filings relevant thereto, and after hearing oral
argument on the same, it is hereby ORDERED, ADJUDGED, and
DECREED that said motion is GRANTED. Accordingly, the Court
enters a declaratory judgment as follows:
(1) The 2012 [Operating Agreement for LSI] remains in full force
and effect; and
(2) The purported 2021 [Operating Agreement for LSI] was, from
its inception, null and void, without lawful import, authority, or
legitimacy.
Order on Appeal at 266 WDA 2022, 2/15/22.
Following our review, we conclude that the trial court’s order at 266
WDA 2022 meets the two-part test for an appealable order. See
Pennsylvania Manufacturers,’ 188 A.3d at 400. We recognize that the trial
court’s order did not address whether Michael Toth should continue as LSI’s
president. However, because the trial court found that the 2012 Operating
Agreement was controlling, the order effectively resolved Appellees’
declaratory judgment claims for all practical purposes. Therefore, the trial
court’s interlocutory order was appealable as of right. See id.; see also
Titeflex Corp.,
88 A.3d at 976; Pa.R.A.P. 311(a)(8); 42 Pa.C.S. § 7532.
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Accordingly, we are constrained to disagree with the trial court’s conclusion
that the appeal at 266 WDA 2022 should be quashed.
With respect to the order on appeal at 267 WDA 2022, Appellants filed
a cross-motion for summary judgment requesting that the trial court dismiss
Appellees’ petition to dissolve and wind-up LSI and asking the court to make
a determination that the 2021 Operating Agreement should control. See
Appellants’ Cross-Mot. for Sum. Jud., 1/12/22 at 12-44, 45. Unlike Appellees,
Appellants did not request summary judgment in the form of declaratory relief.
In denying Appellants’ motion, the trial court issued an order stating:
AND NOW, to wit, this 15th day of February, 2022, upon due
consideration of [Appellants’] Cross-Motion for Summary
Judgment, all filings relevant thereto, and after hearing oral
argument on the same, it is hereby ORDERED, ADJUDGED, and
DECREED that said motion is DENIED.
Order on Appeal at 267 WDA 2022, 2/15/22.
We recognize that the trial court’s order at 267 WDA 2022 did not
explicitly resolve Appellants’ dispute concerning Appellees’ motion to
involuntarily dissolve LSI and that Appellants did not seek declaratory relief.
However, because the trial court denied Appellants’ motion in its entirety, the
order had the practical effect of denying declaratory relief concerning the 2021
Operating Agreement and the dissolution of LSI, see, e.g., Coticchia v.
Malcovery Security, LLC, 143 WDA 2021, 2021 WL 5827318, at *4 (Pa.
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Super. 2021),3 both of which were critical issues at the center of this litigation
and the outcome of this case. See Schmitt, 245 A.3d at 683; Pennsylvania
Manufacturers’,
188 A.3d at 400; Titeflex Corp.,
88 A.3d at 976.
Therefore, we conclude that the trial court’s order had the effect of doing more
than narrowing the scope of the litigation. See Schmitt,
245 A.3d at 683;
Pennsylvania Manufacturers’,
188 A.3d at 400; Titeflex Corp.,
88 A.3d at
976.
For these reasons, we conclude that the order denying Appellants’ cross-
motion for summary judgment at 267 WDA 2022 is an interlocutory
appealable order as of right pursuant to Pa.R.A.P. 311(a)(8).4 Accordingly,
we are constrained to disagree with the trial court’s conclusion that the appeal
at 267 WDA 2022 should be quashed. See Pennsylvania Manufacturers’,
188 A.3d at 400; see also Titeflex Corp.,
88 A.3d at 976; Pa.R.A.P.
311(a)(8); 42 Pa.C.S. § 7532.
In sum, because we conclude that the appeals at both 266 WDA 2022
and 267 WDA 2022 are properly before this Court, we will address the merits
of Appellants’ claims.
____________________________________________
3 See Pa.R.A.P. 126(b) (non-precedential Superior Court decisions filed after
May 1, 2019, may be cited for their persuasive value).
4 We note that the order on appeal at 403 WDA 2022, which orders the
dissolution of LSI, and the order on appeal at 846 WDA 2022, which appoints
a custodian, both affect the possession or control of property, therefore these
orders are interlocutory appeals as of right. See Pa.R.A.P. 311(a)(2).
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Appeal at 266 WDA 2022
On the merits, Appellants contend that the trial court erred in concluding
that the 2012 Operating Agreement controlled and that the 2021 Operating
Agreement was a nullity. Specifically, Appellants argue that the 2012
Operating Agreement’s provision regarding voting rights permitted Appellants
to amend LSI’s governing documents, and therefore the 2021 Operating
Agreement is valid. Appellants’ Brief at 31-37. Alternatively, Appellants claim
that the language concerning voting rights in the 2012 Operating Agreement
is ambiguous and subject to different but reasonable interpretations, and
therefore presents a genuine issue of fact, accordingly summary judgment
was entered in error. See id. at 38-39.
When reviewing a trial court’s decision granting or denying a motion for
summary judgment, we adhere to the following standard and scope of review:
We view the record in the light most favorable to the nonmoving
party, and all doubts as to the existence of a genuine issue of
material fact must be resolved against the moving party. Only
where there is no genuine issue as to any material fact and it is
clear that the moving party is entitled to a judgment as a matter
of law will summary judgment be entered. Our scope of review of
a trial court’s order granting or denying summary judgment is
plenary, and our standard of review is clear: the trial court’s order
will be reversed only where it is established that the court
committed an error of law or abused its discretion.
Siciliano v. Mueller, 149 A.3d 863, 864 (Pa. Super. 2016); see also Jones
v. Unitrin Auto and Home Insurance Co.,
40 A.3d 125, 127 (Pa. Super.
2012) (noting that “ordinary summary judgment procedures are applicable to
declaratory judgment actions”).
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This Court has explained that where an agreement contains definitions
for the words contained therein, the court will apply those definitions in
interpreting the agreement. See Monti v. Rockwood Ins. Co., 450 A.2d 24,
25 (Pa. Super. 1982). Moreover,
[i]f the contractual terms are clear and unambiguous on their face,
then such terms are deemed to be the best reflection of the intent
of the parties. If, however, the contractual terms are ambiguous,
then resort to extrinsic evidence to ascertain their meaning is
proper. A contract’s terms are considered ambiguous if they are
subject to more than one reasonable interpretation when applied
to a particular set of facts.
Commonwealth ex rel. Kane v. UPMC, 129 A.3d 441, 463 (Pa. 2015)
(formatting altered and citations omitted). Further,
our review is guided by certain principles, or canons, of contract
interpretation. . . . First, the entire contract should be read as a
whole . . . to give effect to its true purpose. Second, a contract
must be interpreted to give effect to all of its provisions. Thus,
our Court will not interpret one provision of a contract in a manner
which results in another portion being annulled. Third, a word
used by the parties in one sense is to be interpreted as employed
in the same sense throughout the writing in the absence of
countervailing reasons, such as thwarting the intent of the
agreement. And, finally, a party’s performance under the terms
of a contract is evidence of the meaning of those terms.
Id. at 463-64 (formatting altered and citations omitted).
Finally, when reviewing an LLC’s operating agreement, we note that
“[a]n operating agreement may specify that its amendment requires the
approval of a person that is not a party to the agreement or the satisfaction
of a condition. An amendment is ineffective if its adoption does not include
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the required approval or satisfy the specified condition.” 15 Pa.C.S. § 8817(a)
(citations omitted).
Instantly, in Appellants’ appeal at 266 WDA 2022, they argue that the
language from the 2012 Operating Agreement permitted Appellants to amend
the agreement and create the 2021 Operating Agreement. Appellants assert
that “Section 13.5 of the 2012 Operating Agreement provided that the
agreement ‘may not be amended except by the written agreement of Members
holding Two-Thirds Interest of the Company.’” Appellants’ Brief at 32 (quoting
2012 Operating Agreement at Section 13.5). Appellants claim that the 2012
Operating Agreement establishes the following:
• Section 1.22: Membership Interest means “A Member[‘]s entire
interest in the Company, including such Member’s Economic
Interest and such other rights and privileges that the Member may
enjoy . . . .”
• Section 1.24: Ownership Interest means: “in the case of a
Member, the Member’s Membership Interest . . . .”
• Section 1.39: Voting Interests are held by Michael Toth and
Bryan Toth, each said interest carrying 50% weight, i.e., each
individual holds an equal Voting Interest.
• Section 1.37: Two-Thirds Interest means: “one or more Voting
Interests of Members which taken together exceed 66.67% of the
aggregate of all Voting Interests.”
• Section 1.20: Majority Interest means “one or more Voting
Interests of Members which taken together exceed fifty percent
(50%) of the aggregate of all Voting Interests.”
Appellants’ Brief at 32 (formatting altered and citations omitted).
Appellants claim that this language supports the conclusion that
Appellants were members holding a combined interest in 75% of LSI, and
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therefore, Appellants’ total votes constituted more than 66.67% allowing
Appellants to vote to amend the 2012 Operating Agreement. Appellants’ Brief
at 32-35. Appellants assert that “it was absolutely the parties’ intent that a
decision as fundamental as amending the [2012 O]perating [A]greement
would be reserved for all of the company’s owners.” Appellants’ Brief at 34
(emphasis omitted).
Appellants allege that the language from Section 13.5, which sets forth
the requirements to amend the 2012 Operating Agreement, states that the
agreement “may not be amended except by the written agreement of
Members holding Two-Thirds Interest of the Company.” Id. at 37-38.
Appellants assert that the inclusion of the words “of the company” modifies
and expands the definition of “Two-Thirds Interest” from Sections 1.37 and
1.39, and it allows for the conclusion that “Voting Interest” includes Eugene
and Marie, in addition to Bryan and Michael. Id. at 33-38; Appellants’ Reply
Brief at 5-6.
In resolving Appellants’ claims, the trial court concluded that (1)
Appellants did not satisfy the voting requirements necessary to amend the
2012 Operating Agreement; and (2) the terms of the 2012 Operating
Agreement were unambiguous. See Trial Ct. Op., 6/24/22, at 11-12.
As noted previously, Section 13.5 of the 2012 Operating Agreement
states: “This Agreement may not be amended except by the written
agreement of Members holding Two-Thirds Interest of the Company.” 2012
Operating Agreement at Section 13.5. The 2012 Operating Agreement defines
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a “Two-Thirds Interest” as follows: “Two-thirds Interest shall mean one or
more Voting Interests of Members which taken together exceed 66.67% of
the aggregate of all Voting Interests.” Id. at Section 1.37. The 2012
Operating Agreement specifically and exclusively limited “Voting Interest” to
Bryan and Michael. See id. at 1.39. Indeed, Michael has 50% Voting Interest,
and Bryan has 50% Voting Interest. See id. Further, Section 1.39 expressly
states that Eugene and Marie have “0%” Voting Interest. Id. at Section 1.39.
Accordingly, Appellants’ voting rights claims are belied by the record
and are meritless. Although the 2012 Operating Agreement provides that
Bryan, Eugene, and Marie each have a 25% sharing ratio pursuant to Section
1.33, the 2012 Operating Agreement does not provide Eugene nor Marie with
voting interests. The 2012 Operating Agreement unambiguously and
expressly states that only Bryan and Michael have voting interests to amend
the 2012 Operating Agreement. See id. at Sections 1.20, 1.37, 1.39, and
13.5. Contrary to Appellants’ assertions, there is no support in the record for
their claim that Bryan, Eugene, and Marie’s aggregate 75% economic interest
and sharing ratio pursuant to Sections 1.14, 1.15, 1.16, 1.175 and 1.33, could
____________________________________________
5 Pursuant to Sections 1.14, 1.15, 1.16, and 1.17, Eugene and Marie have
limited interests in LSI, and they are Equity Owners with an Economic Interest.
See 2012 Operating Agreement at Sections 1.14, 1.15, and 1.17. The
Agreement specifies that Equity Owners and Economic Interest Owners are
not “Members” such as Bryan and Michael, and expressly lack “the right to
participate in the management or affairs of the Company, including the right
to vote on, consent to or otherwise participate in any decision of the Members
or Officers.” 2012 Operating Agreement at Section 1.14; see also id. at
Sections 1.15, 1.17, and 1.33.
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be combined to satisfy the “Two-Thirds Interest” required to amend the 2012
Operating Agreement. On this record it is clear that the 2012 Operating
Agreement does not provide voting interests to Eugene and Marie such that
they cannot parlay their economic interests into voting interests. See id. at
Section 1.39. In sum, we agree with the trial court that Appellants have not
satisfied the voting requirements necessary to amend the 2012 Operating
Agreement. See Trial Ct. Op., 6/24/22, at 11-12.
Further, we agree with the trial court that the terms of the 2012
Operating Agreement are unambiguous. The trial court explained as follows:
[Appellants] also go on to assert that, in the alternative, [the trial
c]ourt erred in entering a declaratory judgment in [Appellees’]
favor on a motion for summary [judgment and alleged] the
existence of ambiguous language in Section 13.5 of the [2012
Operating Agreement] and the existence of a genuine issue of
material fact concerning what the parties’ intended under
[Section] 13.5 of the 2012 [Operating] Agreement.
When construing agreements involving clear and unambiguous
terms, courts need only examine the writing itself to give effect to
the parties’ understanding. Stephan v. Waldron Elec. Heating
& Cooling LLC, 100 A.3d 660, 665 (Pa. Super. 2014) (“This Court
must construe the contract only as written and may not modify
the plain meaning under the guise of interpretation.”)[.] As
discussed above, [Section] 13.5 of the 2012 [Operating]
Agreement was not ambiguous. In examining [Section] 13.5 of
the Agreement, requiring “Two-Thirds Interest” for a valid
amendment with [Section] 1.37, defining Two-Thirds Interest to
be the excess of 66.67% of all Voting Interest, defined as the
interests belonging only to Michael and Bryan in equal share in
[Section] 1.[3]9, the parties’ understanding is clear under the
2012 [Operating] Agreement’s plain meaning as written. See
Stephan, 100 A.3d at 665. Thus, given the absence of any
genuine issue of material fact, [the trial c]ourt properly entered
a declaratory judgment on [Appellees’] . . . Motion for Partial
Summary Judgment.
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Trial Ct. Op., 6/24/22, at 12 (some formatting altered and footnote omitted).
On this record, we agree with the trial court and conclude that there is
no ambiguity in the language of the 2012 Operating Agreement. The trial
court concluded that “Voting Interest” was defined in the 2012 Operating
Agreement and unambiguously reflected that the only voting interests were
held by Bryan and Michael, each holding a 50% interest. As such, the 2012
Operating Agreement unambiguously precluded the 2021 Operating
Agreement, and the trial court correctly concluded that the 2012 Operating
Agreement is LSI’s governing document.
For these reasons, Appellants lacked sufficient voting interests to amend
the 2012 Operating Agreement. Because Appellants lacked the votes to
amend the 2012 Operating Agreement, we agree with the trial court that the
2021 Operating Agreement is a legal nullity. Accordingly, we discern no error
in the trial court entering partial summary judgment on this issue in favor of
Appellees, finding that the 2021 Operating Agreement was a nullity, and
concluding that the 2012 Operating Agreement remained in force. On this
record, we affirm the order on appeal at 266 WDA 2022 and no relief is due.
Appeal at 267 WDA 2022
Appellants next argue that the trial court erred in denying their cross-
motion for summary judgment and concluding that the 2012 Operating
Agreement controlled and that the 2021 Operating Agreement was a nullity.
Appellants’ Brief at 31-39.
In addressing Appellants’ claim, the trial court explained:
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Although [Appellants] argue that this court erred by failing to
grant . . . summary judgment in [Appellants’] favor, asserting that
this court was required to determine, as a matter of law, that the
2021 Agreement was lawfully adopted, displaced the 2012
Agreement, and now governs LSI’s affairs — this court disagrees.
…
With respect to the 2012 Agreement, Article 13.5 provides in
pertinent part that the agreement may not be amended except by
the written agreement of Members holding two-thirds interest of
the Company. Two-thirds interest is defined as one or more
voting interests of Members which taken together exceed 66.67%
of the aggregate of all voting interests. Voting interest is further
defined as those interests belonging only to Michael and
[Appellant] Bryan Toth in equal share (50% each) under Art. 1.19.
Although Article 1.19 makes clear that Eugene and Marie have 0%
voting interest, [Appellants’] assertion that their collective 75%
economic interest as members meets the requirements of Article
13.5 to allow for amendment in the absence of Michael flies in the
face of the only reasonable interpretation of the 2012 Agreement.
Seeing that there was certainly evidence to allow a factfinder to
render a verdict in favor of [Appellees], this court did not err by
[denying Appellants’ motion for summary judgment].
See id. at 10-11 (formatting altered and internal citations and footnotes
omitted).
Following our review, we agree with the trial court that “Voting Interest”
was defined in the 2012 Operating Agreement and unambiguously reflected
that the only voting interests were held by Bryan and Michael, each holding a
50% interest. See id. at 10-12. The 2012 Operating Agreement
unambiguously precluded the 2021 Operating Agreement, and the trial court
correctly concluded that the 2012 Operating Agreement is LSI’s governing
document. See Kane, 129 A.3d at 463. Therefore, Appellants lacked
sufficient voting interests to amend the 2012 Operating Agreement, and the
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2012 Operating Agreement remains in control. On this record, we discern no
error in the trial court’s order denying Appellants’ motion for summary
judgment, and we affirm the order on appeal at 267 WDA 2022.
Appeal at 403 WDA 2022
In the appeal at 403 WDA 2022, Appellants contend that the trial court
erred in entering the April 5, 2022 order. Appellants first argue that
dissolution was foreclosed by the terms of the 2021 Operating Agreement.
Appellants’ Brief at 39. Appellants also assert that dissolution was not raised
properly in the trial court. Id. at 40. Further, Appellants contend that,
assuming the 2012 Operating Agreement remains in force, the trial court erred
in dissolving LSI because Section 7.11 of the 2012 Operating Agreement
mandated binding mediation.6 Id. at 41-46.
We reiterate here that we agree with the trial court that the 2012
Operating Agreement remains in effect, and that the 2021 Operating
Agreement is a nullity. Therefore, Appellants’ argument that the dissolution
of LSI was foreclosed by the terms of the 2021 Operating Agreement is
meritless and no relief is due.
____________________________________________
6 Binding mediation is a form of ADR. See Armstrong World Indus., Inc.
v. Travelers Indem. Co., 115 A.3d 342, 346 (Pa. Super. 2015) (stating that
ADR is defined as “[a] procedure for settling a dispute by means other than
litigation, such as arbitration or mediation.” (quoting BLACK’S LAW
DICTIONARY (9th ed. 2009))). Moreover, ADR is a matter of contract. See,
e.g., Humphrey v. GlaxoSmithKline PLC,
263 A.3d 8, 14 (Pa. Super.
2021).
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Next, Appellants assert that the issue of LSI’s dissolution was not
properly raised before the trial court. Appellants’ Brief at 40. Appellants argue
that dissolution must be specifically pleaded as a cause of action in a complaint
or in a counterclaim. See id. Appellants contend that the issue of dissolution
was not before the trial court until Appellees raised it in a motion for
dissolution on May 25, 2021. See
id. at 41.
It is well settled that Pennsylvania is a fact pleading jurisdiction. See
Griffin v. Rent-A-Center, Inc., 843 A.2d 393, 395 (Pa. Super. 2004) (per
curiam). Indeed, this Court has explained:
Pennsylvania is a fact pleading rather than a notice pleading
jurisdiction. As a result, courts are presumed to know the law and
plaintiffs need only plead facts constituting the cause of action and
the courts will take judicial notice of the statute involved. The
plaintiff is not required to specify the legal theory . . . underlying
the complaint.
Griffin, 843 A.2d at 395 (formatting altered and citations omitted).
With respect to dissolution of an LLC, 15 Pa.C.S. § 8871 provides that
an LLC may be dissolved and its activities and affairs wound up when “it is not
reasonably practicable to carry on the company’s activities and affairs in
conformity with the certificate of organization and the operating
agreement[.]” 15 Pa.C.S. § 8871(a)(4)(ii).
Instantly, the trial court correctly observed that Pennsylvania is a fact
pleading state and that “[a]s such, causes of action and legal theories need
not specifically be alleged in a complaint, as long as the legally operative facts
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underlying those causes of action have been pleaded.” Trial Ct. Op., 6/29/22,
at 6 (citation omitted). Further, the trial court explained:
Here, the legally operative facts upon which [Appellees’] Petition
to Dissolve was brought were sufficiently plead in [Appellees’]
Complaint and were sufficient to support a cause of action to
dissolve the company. [Appellees] plead that [Appellants]
attempted to execute [an] agreement[] that would remove
[Appellees] from LSI in violation of the 2012 Operating Agreement
and that the personal relations between the parties are
dissentious. Further[,] facts to support dissolution were
developed and litigated as the case progressed. Even if it was
error for [the trial c]ourt to allow dissolution when that cause of
action was not specifically pleaded in [Appellees’] Complaint, it
was harmless error. [Appellants] were aware of legally operative
facts at issue in this case and had an opportunity to prepare a
defense and be heard in court on the matter of dissolution. As
such, [the trial c]ourt’s Order dissolving the company should not
be reversed for this reason.
Id.
On this record, we conclude that Appellees pled sufficient operative facts
in their complaint to establish a cause of action for dissolution. In their
complaint, Appellees pleaded that the 2012 Operating Agreement controlled
the governance of LSI. Compl., 1/12/21, at ¶¶ 21, 59. Appellees complained
that Appellants were in breach of the 2012 Operating Agreement and asked
the trial court to enjoin Appellants from actions taken that were not in
conformity with the 2012 Operating Agreement, and to take further necessary
action at law and equity. See id. at ¶¶ 36, 46. Appellees alleged that
Appellants were attempting to wrest control over LSI such that it deprived
Appellees of their rights and property interests. See id. at ¶ 57. Appellees
further requested that the trial court impose a constructive trust to protect
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Appellees’ interests. See id. at ¶¶ 60, 61. As the trial court noted, it was
evident that Appellees alleged that the operations of LSI were impracticable,
the facts asserted a claim for winding up and dissolving LSI, and the trial court
was permitted to take judicial notice of the relevant statute involved. See
Trial Ct. Op., 6/29/22, at 6-7; see also 15 Pa.C.S. § 8871(a)(4)(ii). On this
record, we conclude that the trial court did not err in considering the issue of
dissolution and no relief is due.
Next, we address the propriety of the trial court’s order dissolving LSI.
Appellants argue that, even if the trial court was correct in finding that the
2012 Operating Agreement remains controlling and “assum[ing] arguendo
that the 2012 Operating Agreement governs LSI’s affairs,” dissolving LSI was
premature because of the ongoing conflicts among the parties, and that
consistent with Section 7.11 of the 2012 Operating Agreement binding
mediation is mandated, and that binding mediation has not occurred.
Appellants’ Brief at 40, 41-46.7
In addressing Appellants’ mediation claim, the trial court concluded that
the parties were “deadlocked,” and that dissolution was warranted. The trial
court considered that Bryan and Michael, as voting members each had 50%
____________________________________________
7 In their May 3, 2021, preliminary objection, Appellants specifically raised the
mediation provisions. See Prelim. Obj., 5/3/21, at ¶¶ 7-15. Accordingly,
Appellants did not waive their right to proceed through alternative dispute
resolution. See, e.g., O’Donnell v. Hovnanian Enter., Inc., 29 A.3d 1183,
1187 (Pa. Super. 2011).
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Voting Interest, and that the governance and decision-making of LSI was
hopelessly deadlocked because they were engaged in highly contentious
conflict. See Trial Ct. Op., 6/29/22, at 7-9. As such, the decision-making
authority is split equally. See id. at 8; see also Staiger v. Holohan, 100
A.3d 622, 625 (Pa. Super. 2014) (finding the company was deadlocked where
the voting shares were divided equally between two members, and when the
two members disagreed, it resulted in a deadlock).
LSI is a Pennsylvania LLC and governed pursuant to the Pennsylvania
Associations Code and Pennsylvania Uniform LLC Act. See 15 Pa.C.S. §§ 101-
102; see also §§ 8102, 8811-8898 (addressing regulation, formation, and
applicability to partnerships, LLCs, and corporate forms of organization).
Section 8871 addresses dissolution of an LLC and provides as follows:
(a) General rule.—A limited liability company is dissolved, and
its activities and affairs shall be wound up, upon the occurrence
of any of the following:
(1) An event or circumstance that the operating agreement
states causes dissolution.
(2) The consent of all the members.
(3) The passage of 180 consecutive days after the company
ceases to have any members unless before the end of the
period:
(i) consent to admit at least one specified person as a
member is given by transferees owning the rights to receive
a majority of distributions as transferees at the time the
consent is to be effective; and
(ii) at least one person becomes a member in accordance
with the consent.
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(4) On application by a member, the entry by the court of an
order dissolving the company on the grounds that:
(i) the conduct of all or substantially all the company’s
activities and affairs is unlawful;
(ii) it is not reasonably practicable to carry on the company’s
activities and affairs in conformity with the certificate of
organization and the operating agreement; or
(iii) the managers or those members in control of the
company:
(A) have acted, are acting, or will act in a manner that is
illegal or fraudulent; or
(B) have acted or are acting in a manner that is
oppressive and was, is or will be directly harmful to the
applicant.
(b) Other remedies.—In a proceeding brought under subsection
(a)(4)(iii)(B), the court may order a remedy other than
dissolution.
15 Pa.C.S. § 8871(a)-(b). Moreover, “[a] dissolved [LLC] shall wind up its
activities and affairs, and the company continues after dissolution only for the
purpose of winding up.” 15 Pa.C.S. § 8872(a).
In the instant case, we have already concluded that the 2012 Operating
Agreement remains in force, and the parties continue to be bound by its terms.
See 15 Pa.C.S. §§ 8815, 8816(a). With respect to dissolution, the 2012
Operating Agreement states:
(a) The Company shall be dissolved only upon the occurrence of
any of the following events:
(1) by the written agreement of Members holding a Two-Thirds
Interest;
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(2) by an order of a court of competent jurisdiction in an 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.
Notwithstanding anything to the contrary in the Act, the Company
shall not be dissolved upon the death, retirement, resignation,
expulsion, bankruptcy or dissolution of an Equity Owner.
(b) As soon as possible following the occurrence of any of the
events specified in Section 12.1(a) effecting the dissolution
of the Company, the appropriate representative of the
Company shall execute all documents required by the Act at
the time of dissolution and file or record such statements with
the appropriate officials.
2012 Operating Agreement at Section 12.1 (emphases in original).
The above-referenced Section 7.11 of the 2012 Operating Agreement
contemplates a deadlock and provides as follows:
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 in accordance with the
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provisions set forth on Exhibit 7.11 attached hereto and made a
part hereof. Any decision reached by the mediator shall be final
and binding upon the Members.
2012 Operating Agreement at Section 7.11 (some formatting altered). As
stated, Section 7.11 references Exhibit 7.11, which provides as follows:
EXHIBIT 7.11
MEDIATION PROVISIONS
1. The mediator for any and all disputes shall be [___________].
In the event [___________] is unavailable, the mediator shall be
chosen in good faith by mutual agreement between the Members.
2. Each Member shall bear his, her or its own costs of the
mediation, except that they will share equally all fees and
expenses of the mediator. The mediator shall be compensated at
a rate of [amount] per [hour/day].
3. The mediation shall be held at the office of the Company, or as
the Members may otherwise mutually agree.
4. The mediator shall have the authority to impose a binding
settlement on the Members, and will attempt to help them reach
a satisfactory resolution of their disputes. The mediator is
authorized to conduct joint and separate meetings with the
Members and to make oral and written recommendations for
settlement.
5. The information disclosed to the mediator by the Members or
by witnesses during the mediation shall not be divulged by the
mediator. All information, records, reports, or other documents
received by the mediator shall be treated as confidential. The
mediator shall not divulge nor be compelled by the Members to
divulge such information, records, reports, or other documents, or
to testify in regard to the mediation in any adversary proceeding
or judicial forum.
6. There shall be no stenographic or other such record made of
the mediation proceedings.
9. Any party may apply to the Mediator seeking injunctive relief
until the mediation award is rendered or the controversy is
otherwise resolved. Any party also may, without waiving any
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remedy under the Amended and Restated Operating Agreement,
seek from any court having jurisdiction any interim or provisional
relief that is necessary to protect the rights or property of that
party, pending the establishment of the mediation tribunal (or
pending the mediation tribunal’s determination of the merits of
the controversy).
2012 Operating Agreement, Exhibit 7.11 (empty brackets in paragraph 1,
omission of paragraph numbers 7 and 8 in original, and emphases omitted).
We reiterate that when the terms of an agreement are clear and
unambiguous on their face, those terms are the best reflection of the intent
of the parties. See Kane, 129 A.3d at 463. The Company Members, Bryan
and Michael, each have 50% Voting Interest and have been unable to come
to an agreement nor resolution concerning their disputes including the
interests of Bryan, Eugene, and Marie, and Michael’s interests and decisions
in terms of the governance, organization, management, and the decision-
making of LSI.
Further, the parties have filed additional legal actions in Pennsylvania
and Florida and Appellants purported to amend LSI’s operating agreement in
2021 to realign the parties’ voting interests. Indeed, there are numerous
disputes and ongoing contentious litigation in several forums among the
parties. See Trial Ct. Op., 6/24/22, at 4 (citing Toth v. Toth, No. 50-2021-
CA 003506-XXXX-MC (Fla. 15th Circuit Court, filed Mar. 16, 2021)); see also
Trial Ct. Op., 6/29/22, at 2. Nevertheless, the binding mediation language is
unequivocal and states that if “the Members are deadlocked and cannot come
to an agreement with respect to any decision of the Company . . . the Members
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hereby agree to submit any and all such disputes” to binding mediation. 2012
Operating Agreement at Section 7.11.
We recognize that Section 8871 of the Pennsylvania Uniform LLC Act
states that a deadlock may lead to dissolution under certain circumstances.
See 15 Pa.C.S. § 8871(a). However, after careful consideration, we conclude
that at this juncture, the trial court’s decision to dissolve LSI was premature
because the 2012 Operating Agreement unambiguously mandates binding
mediation, which has not yet occurred. See 2012 Operating Agreement at
Sections 7.11, 12.1.
As noted, the parties previously engaged in non-binding mediation.
See Trial Ct. Op., 6/29/22, at 11 n.10; see also N.T., 7/20/21, at 10; N.T.,
2/10/22, at 94-95, 115; N.T., 3/11-16/22, at 92. The trial court concluded
that “these attempts at resolution have proved unfruitful, reinforcing the
determination that the parties are deadlocked.” Trial Ct. Op., 6/29/22, at 11
n.10. However, although engaged in ongoing disputes, Appellants emphasize
that the parties have not yet followed the requirements of Section 7.11 and
participated in “binding” mediation. Appellants’ Brief at 43-46.
On this record, we are constrained to conclude that the trial court erred
in finding that there was a deadlock that could result in the dissolution of LSI.
As discussed previously, the parties remain bound by the 2012 Operating
Agreement which requires them to submit to binding mediation. However,
the record reflects that the parties have not yet participated in binding
mediation. See 15 Pa.C.S. §§ 8815, 8816(a). For these reasons, we vacate
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the trial court’s order on appeal at 403 WDA 2022 and remand the matter for
further proceedings. On remand, the trial court shall direct the parties to
select a mediator and to engage in binding mediation pursuant to the terms
of the 2012 Operating Agreement.8, 9
____________________________________________
8 We are cognizant that Appellees assert potential limitations presented by
binding mediation. See Appellees’ Brief at 42 (citing Interim Custodian’s
Report, 10/22/21). The Interim Custodian opined:
Section 7.11 may offer some limited vehicle for deciding conflicts
that arise among members, relating to 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 is deeply divided between
Michael and Bryan.
Interim Custodian’s Report, 10/22/21, at ¶ 80. However, under the
circumstances, the terms of the 2012 Operating Agreement are not
discretionary and first require binding mediation. See 2012 Operating
Agreement at Section 7.11. At this juncture, it is purely speculative to
conclude what, if any, disputes may remain unresolved at the conclusion of
binding mediation.
9 The concurring and dissenting opinion (CDO) discussed the distinctions
between decisions “of the company” and “about the company” addressed by
the interim custodian, but concluded that Section 7.11 is not applicable to the
instant disputes. Further, our learned colleague opined that even if Section
7.11 was applicable, further mediation is not necessary under the facts of this
case due to the irreconcilable differences between the parties. See CDO at 7,
8 (quoting Interim Custodian’s Findings of Fact and Conclusions of Law,
10/15/21, at ¶78).
Firstly, we understand the highly contentious and acrimonious nature of the
disputes between the parties, and we do not seek to force a fruitless exercise
of futility or a waste of judicial time and resources. On this record, it is
undisputed that the interim custodian’s conclusion that the instant disputes
involve both decisions “of the company” and decisions “about the company.”
(Footnote Continued Next Page)
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Appeal at 846 WDA 2022
In light of our disposition of the appeal at 403 WDA 2022 that dissolution
is premature and that this matter is remanded for binding mediation
consistent with the 2012 Operating Agreement, we vacate the order on appeal
at 846 WDA 2022, appointing a custodian. We vacate the order without
____________________________________________
Accordingly, because the parties are deadlocked over vociferous disputes
involving decisions of the company, the Section 7.11 binding arbitration
mandate of the 2012 Operating Agreement controls in that the parties
explicitly agreed that “any and all” such disputes would be submitted to
binding arbitration. 2012 Operating Agreement at Section 7.11. Therefore,
at this juncture, despite the painful and convoluted procedural history of this
case, it is premature to conclude that it is not feasible to carry out the business
of LSI and speculative to conclude that binding mediation will be unsuccessful
prior to binding mediation, which has not yet occurred. See 2012 Operating
Agreement at Section 7.11; Section 12.1(a).
As noted in the CDO, this matter involves sophisticated parties and
experienced counsel. See CDO at 9. Further, LSI continues to operate in
some form in another state. See Trial Ct. Op., 6/29/22, at 1-2. Given these
circumstances, it strains credulity to conclude that all hope is lost, and that no
resolution can ever be reached among the parties based on their high level of
business acumen and experience. Indeed, should binding mediation fail, the
2012 Operating Agreement provides an avenue for dissolution “[e]xcept as
set forth in Section 7.11 of this Agreement.” 2012 Operating Agreement at
Section 12.1(a)(2)(i). As stated, disputes involving decisions of the company
as contemplated by Section 7.11 remain unresolved. For these reasons, the
finality of the judicial mandate of dissolution is premature because it is
undisputed that the parties are deadlocked over decisions of the company
which are within the purview of Section 7.11. Importantly, the parties
explicitly agreed to submit to binding mediation to resolve these types of
disputes such that they are not being forced to engage in further unanticipated
legal process. Accordingly, time and resources would not be wasted in
carrying out Agreement provisions crafted by the instant business parties with
experienced counsel who no doubt considered the implications of convening
binding mediation in the event of deadlock over disputes of the company. See
2012 Operating Agreement at Section 7.11.
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prejudice for the trial court to revisit the issue of appointing a custodian should
the trial court, following binding mediation, conclude that the parties are
deadlocked and find that dissolution is appropriate. Accordingly, we need not
reach the parties’ arguments raised on the appeal at 846 WDA 2022,
concerning the appointment of the custodian.
Conclusion
For the reasons set forth above, we affirm the orders on appeal at 266
WDA 2022 and 267 WDA 2022; vacate the order at 403 WDA 2022 and
remand for further proceedings consistent with this opinion;10 and vacate the
order at 846 WDA 2022.11 Jurisdiction is relinquished.
Judge Pellegrini joins the opinion.
Judge Olson files a concurring/dissenting opinion.
____________________________________________
10In light of our disposition of the appeal at 403 WDA 2022 vacating and
remanding for binding mediation pursuant to the 2012 Operating Agreement,
Appellants’ Application for Remand, filed on February 24, 2023, is DENIED as
moot.
11 This Court’s June 16, 2022 stay order is hereby LIFTED.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 8/1/2023
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