Opinion
No. 2126 C.D. 2012
06-12-2013
In Re: Amendment of the Charter of the Perkiomen School, a Non-Profit Corporation Appeal of: The Perkiomen School and The Board of Trustees of the Perkiomen School
BEFORE: HONORABLE DAN PELLEGRINI, President Judge HONORABLE RENÉE COHN JUBELIRER, Judge HONORABLE ROBERT SIMPSON, Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY JUDGE SIMPSON
The Perkiomen School and the Board of Trustees of the Perkiomen School (collectively, the School) appeal an order entered by the Court of Common Pleas of Montgomery County, Orphans' Court Division (trial court). In the order, the trial court denied the School's Motion for Partial Summary Judgment, denied the School's Petition for Declaratory Relief, granted Schwenkfelder Church's (Church) Motion for Partial Summary Judgment, and voided the School's 2010 Articles of Incorporation (2010 Articles) and, by extension, the amendments to the Bylaws (2010 Bylaws) for failure to obtain court approval.
The Honorable Lois Murphy presided.
The Church was formerly known as the Schwenkfelder Society.
In this appeal, the School contends the trial court erred in granting summary judgment to the Church because the 2010 Articles do not affect a change in the School's mission or purpose or a diversion of property, which would require court approval, and the Church did not properly raise this ground for relief. Additionally, the School claims the trial court erred in concluding the School's Petition for Declaratory Relief was not ripe. Discerning no error, we affirm.
I. Background
In 1892, members of the Church founded the School, then known as the Perkiomen Seminary. The Original Charter defined the School's purpose as "the establishment and maintenance of an institution of learning for the education of youth in the various branches of Science, Literature, the useful and literary arts, and the learned and foreign languages, the instruction and training shall be Christian, but non-sectarian." Reproduced Record (R.R.) at 26a (emphasis added).
The Original Charter also provided for a 13-member Board of Trustees of the School, with eight of the trustees to be selected by the Church, and required the trustees to annually report on the affairs of the School to the Church. The Original Charter authorized the trustees to make all needful bylaws, subject to approval and ratification by the Church. Significantly, Paragraph 6 of the Original Charter provided:
If, however, at any subsequent time, either the trustees of said Perkiomen Seminary, or the General Conference of said Schwenkfelder Society should decide that it was advisable to discontinue the work of said Perkiomen Seminary and to dispose of its property, then, and in that event, all property remaining belonging to said Perkiomen Seminary, after the payment of all debts and liabilities, shall be paid to, and vested in the said the [sic] Managers of the Literary and Charitable Fund of the Society of Schwenkfelders, or such other society of said denomination as shall at that time have charge of its the
[sic] literary and charitable funds, and may be used and applied as the said Schwenkfelder Society may decide.Id. at 27a.
Over the years, the School amended the Original Charter and each time sought court approval, with the exception of the 2010 Articles. These amendments included changing the name of the school and increasing the number of trustees to 25, with 16 of the trustees to be appointed by the Church. The Original Charter's provisions pertaining to the purpose of the School and the disposition of property upon dissolution of the School remained in effect.
On August 13, 2010, the trustees amended and restated the Articles of Incorporation. The 2010 Articles made four significant changes. Namely, the 2010 Articles: removed Paragraph 6, relating to dissolution of the School and its property; provided the Board of Trustees shall consist of up to 25 members (no longer requiring 25 members) and eliminated the requirement that any trustee be selected by the Church; removed the provision requiring Church approval for any amendment to the Bylaws; and, removed the word "Christian" from the purpose. The purpose, as amended, provides: "The establishment and maintenance of an institution of learning for the education of youth in the various branches of Science, Literature, the useful and literary arts, and the learned and foreign languages. The instruction and training shall be non-sectarian." R.R. at 81a. On November 5, 2010, the Board of Trustees of the School adopted the 2010 Bylaws and, consistent with the 2010 Articles, did not seek Church approval.
In response, the Church filed a Petition for Declaratory Judgment requesting the trial court declare the 2010 Articles and Bylaws null and void. The School filed an Answer and New Matter and a Cross Petition for Declaratory Relief. The School also filed a Motion for Partial Summary Judgment challenging the legality of Paragraph 6 of the Original Charter, which the School contends creates an unlawful reversionary interest in the real property. The Church filed an Answer to New Matter and Cross Petition for Declaratory Relief, a Motion in Limine, and a Motion for Partial Summary Judgment. A hearing before the trial court ensued. The parties presented evidence and argued their respective positions.
Before the trial court, the Office of Attorney General participated in several conferences related to this matter but declined to file any memorandum of law in support of or in opposition to any of the motions and did not appear at oral argument. In the present appeal, the Attorney General declined to participate.
Ultimately, the trial court granted the Church's Motion for Partial Summary Judgment in part and declared the 2010 Articles void based on the School's failure to seek court approval for a fundamental change to the purpose of the nonprofit corporation. The trial court also declared the attendant 2010 Bylaws void because the Board of Trustees ratified the amendments without Church approval. The trial court denied the Church's Motion in all other respects and denied the School's Motion for Partial Summary Judgment without prejudice to seek court approval of the amendment and restatement. This appeal followed.
Our review of the grant of a motion for summary judgment is limited to determining whether the trial court committed an error of law or a manifest abuse of discretion. Jones v. Clearfield Area Sch. Dist., 578 A.2d 612 (Pa. Cmwlth. 1990). Summary judgment is properly granted only where the pleadings, depositions, answers to interrogatories and affidavits establish there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Id.; Pa. R.C.P. No. 1035.
Whether a matter is ripe for review is a question of law. Twp. of Derry v. Pa. Dep't of Labor and Indus., 593 Pa. 480, 932 A.2d 56 (2007). Application of the waiver doctrine also involves a question of law. On questions of law, an appellate court's standard of review is de novo, and scope of review is plenary. Straub v. Cherne Indus., 583 Pa. 608, 880 A.2d 561 (2005).
II. Issues
On appeal, the School contends the trial court erred in concluding the 2010 Articles, and by extension the 2010 Bylaws, are null and void because the School did not seek court approval. According to the School, there is no evidence the 2010 Articles affected a change in the School's mission or purpose or a diversion of the School's property. The School further asserts the trial court erred in granting summary judgment to the Church where the Church did not properly assert court approval as the ground for relief and the School was prejudiced by the lack of notice. Additionally, the School claims the trial court erred in concluding the School's Petition for Declaratory Relief was not ripe.
III. Discussion
A. Court Approval
First, the School contends the trial court erred in declaring the 2010 Articles void because the School adopted the 2010 Articles without court approval as required by Section 5547 of the Nonprofit Corporation Law of 1988 (Nonprofit Law), 15 Pa. C.S. §5547. The School claims Section 5547 is inapplicable here because the 2010 Articles did not change the mission, purpose, or operation of the School or divert any property. The School's mission has been and continues to be to provide a non-sectarian education. The removal of the word "Christian" did not alter this purpose. The School maintains a mere change in the language is insufficient to invoke Section 5547's prohibition against the diversion of property.
Additionally, the School asserts it acquired its property in its own name without any reversionary interest in favor of the Church. None of the deeds conveying land to the School restrict the purposes for which the land may be used. There is no evidence that the School used any of its property for any purpose other than the general operation of a non-sectarian school. According to the School, the only change arguably affecting "property" at all was the deletion of Paragraph 6 of the Original Charter, which gave the Church the power to unilaterally dissolve the School and assume control of its assets. The deletion of this provision did not require court approval because the provision itself is void as a matter of law under Section 5547.
The Church responds the Nonprofit Law requires court approval for any changes affecting the School's purpose. Since inception, the School's mission has been to provide a "Christian, but nonsectarian" education. R.R. at 26a. The amendment stripped away Christianity from the purpose of the School and unilaterally removed all affiliations with the Church. The Church maintains the amendment diverts property away from the original purpose - to provide a Christian-based education. The School cannot make such a change without seeking court approval as required by Section 5547 of the Nonprofit Law. Thus, the 2010 Articles and Bylaws are void.
As for the property, the Church asserts its members chartered the School and purchased or contributed the land and buildings for the School. Notwithstanding the fact that the School's property is titled in the School's name without any use restrictions in the deeds, the Church maintains the property is subject to the terms of its charter and must be used for a Christian but non-sectarian education. Any deviation from this purpose requires court approval.
The parties agree the School is a nonprofit corporation and is governed by the Nonprofit Law. The Nonprofit Law provides broad powers to the trustees of a nonprofit corporation to amend its articles of incorporation. See 15 Pa. C.S. §5911. However, these powers are not without limitations.
Section 5916 of the Nonprofit Law, 15 Pa. C.S. §5916, provides the articles of amendment "shall not ... divert any property subject to [Section 5547] from the purpose or purposes to which it was committed." Section 5547(a) authorizes the nonprofit corporation to "take, receive and hold such real and personal property as may be given, devised to, or otherwise vested in such corporation, in trust, for the purpose or purposes set forth in its articles." 15 Pa. C.S. §5547(a). Section 5547(b) provides:
Property committed to charitable purposes shall not, by any proceeding under Chapter 59 (relating to fundamental changes) or otherwise, be diverted from the objects to which it was donated, granted or devised, unless and until the board of directors or other body obtains from the court an order under 20 Pa. C.S. Ch. 61 (relating to estates) specifying the disposition of the property.15 Pa. C.S. §5547(b) (emphasis added).
The trial court cited the current language of Section 5547(b), which was amended by the Act of October 27, 2010, P.L. 837, and took effect December 27, 2010, after the adoption of the 2010 Articles. The amendment substituted "20 Pa.C.S. Ch. 77 Subch. D (relating to creation, validity, modification and termination of trust)" for "20 Pa.C.S. Ch. 61 (relating to estates)."
In turn, 20 Pa. C.S. Ch. 61 refers to the application of the cy-pres doctrine, which is now codified at 20 Pa. C.S. §7740.3. Pursuant to the cy-pres doctrine, if a particular charitable purpose becomes unlawful, impracticable or wasteful, the court must exercise its discretion in such a manner as to direct the application of the property to some charitable purpose which most resembles the one the conveyor intended to benefit. 20 Pa. C.S. §7740.3.
The relevant provisions of Chapter 61, namely Sections 6102 and 6110 of the Probate, Estates and Fiduciaries Code, were deleted by the Act of July 7, 2006, P.L. 625. These deletions coincided with the adoption of Chapter 77 of the Probate, Estates and Fiduciaries Code. The Nonprofit Law should have been amended at that time to reflect the change in the law. Nevertheless, under either provision of the Probate, Estates and Fiduciaries Code (former Sections 6102 and 6110 or current Section 7740.3), cy-pres requires court-approval for any changes to the purpose of the property.
In In re Church of St. James the Less, 833 A.2d 319 (Pa. Cmwlth. 2003), rev'd in part on other grounds, 585 Pa. 428, 888 A.2d 795 (2005), this Court held certain fundamental changes to a nonprofit corporation constituted a diversion of property under Section 5547. In St. James, an Episcopal church separated from the diocese and merged into a new nonprofit corporation with no ties to the diocese or the National Episcopal Church. The diocese brought an action to declare the church's separation and merger invalid. This Court determined the church intended to place its property in trust for the diocese and the National Episcopal Church. The separation and merger transferred the church's property to another entity, which "was established for a purpose completely different than that of the Church, namely, to take the property claimed by the Church out of the Diocese." Id. at 326. This Court concluded the movement of church property to the nonprofit corporation constituted a change of purpose requiring Orphan's Court approval pursuant to Section 5547 of the Nonprofit Law.
Similarly, in First Church of the Brethren of Lewistown v. Snider, 367 Pa. 78, 79 A.2d 422 (1951), the property of the First Church of the Brethren of Lewistown was subject to a trust that it shall be used for the purpose of worship according to the faith, doctrine, discipline and usages commonly accepted by the Church of the Brethren of the United States of America. A dispute arose when the pastor and a group of parishioners attempted to take the church out of the denomination and establish it as an independent church, thereby using the property for a purpose foreign to the trust. The trial court determined it was unlawful for the congregation to divert church property from the purposes for which it was acquired and to which it was dedicated. The Supreme Court affirmed. Although First Church involved an ecclesiastical dispute and did not involve the application of Section 5547, its analysis regarding diversion of church property for another use is nevertheless persuasive.
Relying on In re Brownsville General Hospital v. Brownsville Property Corporation, Inc., 2008 WL 8746010 (Bkrtcy. W.D. Pa., Dkt. No. 06-20253-MBM, filed Oct. 29, 2008) (memorandum opinion), the School asserts the 2010 Articles do not affect a diversion of property because the School did not dedicate the property to any purpose other than the general operation of the School. In Brownsville, the federal bankruptcy court concluded the hospital realty did not constitute property committed to a charitable purpose within the meaning of Section 5547(b). The Court explained, although such property was granted to the hospital, there was no particular object for which it was so granted. The deed effectuating the grant did not attach any use restriction on the property. The use restriction appeared only within a lease agreement created after the conveyance.
To the extent Brownsville could be of persuasive value, the case is readily distinguishable from the present case. First, Brownsville was a fraudulent conveyance action in a bankruptcy proceeding. Second, the use restriction in the lease could only succeed in bringing the property within the meaning of Section 5547(b) if the realty conveyance, which was the subject of the fraudulent conveyance action, was not voided.
See Stone Crushed Partnership v. Kassab Archbold Jackson & O'Brien, 589 Pa. 296, 908 A.2d 875 (2006) (reaffirming that federal District and Circuit Court decisions may be persuasive but are not binding); see also Mixon v. Commonwealth, 759 A.2d 442 (Pa. Cmwlth. 2000) (unpublished decisions by any court may have limited, if any, precedential value), aff'd 566 Pa. 616, 783 A.2d 763 (2001) (per curiam); Commonwealth Court Internal Operating Procedure §414, 210 Pa. Code §69.414, ("Parties may also cite an unreported panel decision of this court issued after January 15, 2008, for its persuasive value, but not as binding precedent.").
Here, although the deeds themselves do not contain restrictions on the use of the property, the Original Charter establishing the School imposed restrictions. Namely, the property committed to the School is to be used for "the establishment and maintenance of an institution of learning ... [where] the instruction and training shall be Christian, but non-sectarian." R.R. at 26a.
The trial court found the changes made in the 2010 Articles altered the stated purpose and governance of the School and its relationship with the Church. Although the property is not being diverted to a separate entity as in St. James, the underlying mission has changed. As the trial court aptly noted, Section 5547(b) is "not limited to interests in real property. To the contrary, the statute seeks to protect the interests of the public in assuring that assets committed to a charitable purpose are not 'diverted' from that purpose, without appropriate supervision." Tr. Ct., Slip Op., 10/25/12, at 9.
The School insists that removing the word "Christian" from the stated purpose did not alter the actual purpose of the School to provide a nonsectarian education. Citing In re Philadelphia Health Care Trust, 872 A.2d 258 (Pa. Cmwlth. 2005), the School maintains a mere change in the language of a nonprofit's charter is insufficient to invoke Section 5547's prohibition against diversion of property. There, the nonprofit corporation amended its articles to proceed as a private foundation. The trial court determined the operation of the trust as a private foundation did not result in a diversion of property committed to charitable purposes. The mission to make grants to public charities remained the same. Here, however, the mission itself changed from a "Christian, but nonsectarian" education to a "nonsectarian" education. R.R. at 26a, 317a.
The School advances that its instruction is "non-sectarian and not based upon the doctrines of the Schwenkfelder Church or any particular Christian denomination." Appellants' Reply Br. at 6. The School maintains it has "not provided Christian 'instruction and training' for many years." Id. at 10. Nevertheless, the School began as a seminary and was "[f]ounded on Christian principles." R.R. at 317a. The original mission of the School was to provide a "Christian, but nonsectarian" education. R.R. at 26a.
Nonsectarian, as that term is commonly understood, means "not affiliated with or restricted to a particular religious group." MERRIAM-WEBSTER'S COLLEGIATE DICTIONARY 805 (9th ed. 1987). Even though the education is nonsectarian, the inclusion of the word "Christian" meant the intended purpose of the education was Christian-based. By removing the word "Christian" from the stated purpose, the School altered the founding mission. In so doing, the School is attempting to divert property away from the original purpose to which it was committed. The trial court properly determined court approval was required for such a change.
B. Waiver
Next, the School contends the trial court erred by granting summary judgment to the Church on a ground not raised in the Church's Petition for Declaratory Judgment. Specifically, the Church did not assert the 2010 Articles were void because they constituted a diversion of property under Section 5547 of the Nonprofit Law necessitating court approval in its Petition for Declaratory Judgment. The Church only raised this argument in its pretrial memorandum, which it submitted just before the hearing. Consequently, the School argues, the Church waived this ground for relief. Additionally, the School claims the Church's last-minute reliance on a new ground for relief prejudiced the School.
The Church responds it asserted the cy-pres doctrine, which is embodied in Section 5547(b), in its answer to the School's Motion for Partial Summary Judgment. R.R. at 148a. Moreover, the School itself cited to Section 5547 and the cy-pres doctrine in its Motion for Partial Summary Judgment to justify the removal of Paragraph 6. R.R. at 103a. The School cannot now complain it lacked notice of the Church's position.
The practice and procedure governing civil actions apply to actions for declaratory judgment. Pa. R.C.P. No. 1601. Pursuant to Rule 1019(a) of the Pennsylvania Rules of Civil Procedure, a complaint must state the "material facts on which a cause of action or defense is based ... in a concise and summary form." Pa. R.C.P. No. 1019(a). This rule is satisfied if the allegations in a pleading contain averments of all facts the plaintiff must eventually prove in order to recover, and the averments are sufficiently specific to enable the adverse party to prepare a defense. Unified Sportsmen of Pennsylvania v. Pennsylvania Game Comm'n (PGC), 950 A.2d 1120 (Pa. Cmwlth. 2008). A complaint must provide the defendant with notice of what the plaintiff's claim is and the grounds upon which it rests, and formulate the issues by summarizing those facts essential to support the claim. Id.
Citing In re Trust of Bachman, 488 A.2d 27 (Pa. Super. 1985), the School claims any grounds for relief not stated in the petition for declaratory judgment are waived. In Bachman, the trial court dismissed a petition to vacate a decree of a distribution of a trust estate because the petitioner did not set forth her argument in her petition. In her brief and at oral argument, the petitioner claimed she was entitled to have the decree vacated because she did not have prior notice of the proceedings giving rise to the decree. However, she did not raise the notice issue in her petition. As a result, the trial court held she waived the notice issue by failing to include it in the petition. On appeal, the Superior Court agreed. The inclusion of the notice issue in the supporting brief and at oral argument did not preserve the issue.
However, Bachman did not involve a petition for declaratory judgment. Rather, Bachman involved a petition for review of an accounting under Section 3521 of the Probate, Estates and Fiduciaries Code, 20 Pa. C.S. §3521, which permits a court to review an accounting within five years after its adjudication. Pursuant to Section 3521, the petition for review must specifically set forth any alleged errors in the accounting. 20 Pa. C.S. §3521.
Here, pursuant to Pa. R.C.P. No. 1019(a), the Church set forth the material facts on which it based its cause of action in its Petition for Declaratory Judgment. Although the Church did not specifically raise the issue of court approval in its petition, the parties referenced the applicable provisions of the Nonprofit Law in the cross-motions for partial summary judgment. The Church raised the issue of cy-pres, which is embodied in Section 5547(b), in its answer to the School's motion. R.R. at 148a. Significantly, the School itself cited Section 5547(b) in its motion in support of its position regarding the validity of Paragraph 6 of the Original Charter and the necessity of judicial supervision of the disposition of any assets. R.R. at 103a.
By asserting cy-pres in response to the School's motion and in its pretrial memorandum, the Church put the School on notice regarding this ground for relief. Moreover, the School addressed and analyzed the relevant provisions of the Nonprofit Law in support of its position. The School responded to the Church's argument at the hearing on the parties' summary judgment motions. R.R. at 441-59a, 474-78a, 482-84a. Under the circumstances, the trial court did not err in declining to find waiver and granting summary judgment to the Church on this basis.
C. Ripeness
Lastly, the School contends the trial court erred in determining the legality of Paragraph 6 was not ripe for judicial determination. The School asserts Paragraph 6 was void as a matter of law because it does not require judicial supervision over the disposition of the School's assets as contemplated by Section 5547. The trial court's conclusion that the validity of this provision is not ripe ignores the claims made in the Church's pleadings. The Church's asserted rights to the property upon dissolution of the School make it clear that the controversy is ripe under the Declaratory Judgments Act (DJA).
The Church counters Paragraph 6 is not void and does not need to be amended. There is nothing illegal or improper in providing that the assets pass to a subsequent charity if the first charity fails. Further, for over 100 years, the Church has not acted on this provision and has no intention of doing so now. Because there is no pending dissolution, the issue is not ripe for review. Any determination based on the present facts may negatively hinder a future determination in the event of dissolution. After all, the law could change or there could be a change in the status of the School or Church. Thus, the Church argues this Court should not make a determination based upon something which may occur, has not occurred, or will not occur.
Petitions for declaratory judgments are governed by the DJA. The purpose of the DJA is "to settle and to afford relief from uncertainty and insecurity with respect to rights, status, and other legal relations, and is to be liberally construed and administered." Section 7541(a) of the DJA, 42 Pa. C.S. §7541(a). With respect to the construction of documents, Section 7533 of the DJA provides:
Any person interested under a deed, will, written contract, or other writings constituting a contract, or whose rights, status, or other legal relations are affected by a statute, municipal ordinance, contract, or franchise, may have determined any question of construction or validity arising under the instrument, statute, ordinance, contract, or franchise, and obtain a declaration of rights, status, or other legal relations thereunder.42 Pa. C.S. §7533.
Declaratory relief is appropriate only where there is an actual controversy. Ronald H. Clark, Inc. v. Twp. of Hamilton, 562 A.2d 965 (Pa. Cmwlth. 1989). A declaratory judgment is not an appropriate remedy to determine future rights where the alleged breach is merely an anticipated event that may never happen. Id. Although the subject matter of the dispute giving rise to a request for declaratory relief need not have erupted into a full-fledged battle, the petitioner must at least allege facts demonstrating the existence of an active controversy relating to the invasion or threatened invasion of the petitioner's legal rights. Id. Where threatened litigation in the immediate future appears unavoidable, "the ripening seeds of a controversy appear." McCord v. Pa. Gaming Bd., 9 A.3d 1216, 1220 (Pa. Cmwlth. 2010) (quoting Lakeland Joint Sch. Dist. Auth. v. Scott Twp. Sch. Dist., 414 Pa. 451, 456-57, 200 A.2d 748, 751 (1964)).
Here, pursuant to Paragraph 6 of the Original Charter, the Church possesses the power to dissolve the School and take its property. Although the School maintains Paragraph 6 is void as a matter of law because it does not require judicial oversight, the trial court determined the legality of Paragraph 6 is not ripe for review because the School is not facing dissolution. The Church has not acted on this provision since 1892. There is no pending plan or viable threat to discontinue the School.
In the event of dissolution, court approval is required prior to the disposition of any assets. 15 Pa. C.S. §5976(b).
Contrary to the School's assertions, the Church's position is not indicative of immediate, unavoidable litigation on this issue. The Church seeks to maintain the Christian purpose of the School and its affiliation with the School as expressed in the Original Charter; it does not seek the dissolution of the School. The School is attempting to settle future rights where the dissolution is merely an anticipated future event that may never occur. At this juncture, a present controversy does not exist. The trial court did not err in determining the issue of dissolution of the School is not ripe for judicial determination.
Moreover, the issue may ultimately become moot. On December 14, 2012, the School petitioned the trial court for approval of the 2010 Articles. --------
IV. Conclusion
For the above reasons, we discern no error in the trial court's determination that the 2010 Articles and, by extension, the 2010 Bylaws are void because the School did not seek court approval as required by Section 5547 of the Nonprofit Law. Additionally, the trial court did not err in determining the legality of Paragraph 6 was not ripe for judicial determination.
Accordingly, we affirm.
/s/_________
ROBERT SIMPSON, Judge Judge Leadbetter did not participate in the decision in this case. ORDER
AND NOW, this 12th day of June, 2013, the order of the Court of Common Pleas of Montgomery County is AFFIRMED.
/s/_________
ROBERT SIMPSON, Judge