Opinion
No. 50 WM 2008.
October 22, 2008.
PETITION OF UNITED STATES Court OF Appeals FOR THE THIRD CIRCUIT.
ORDER
AND NOW, this 22 nd day of October, 2008, the Petition for Certification of Question of Law is respectfully DENIED.
The U.S. Court of Appeals for the Third Circuit has submitted the following question of law to this Court:
Whether a corporate shareholder/director may be compelled to arbitrate her claims against the corporation based upon a provision in the corporation's bylaws requiring that all disputes be resolved via arbitration where the shareholder/director accepted benefits provided under the bylaws, but was never given a copy of the bylaws; never informed that the bylaws included an arbitration provision; never signed any agreement into which the bylaws were incorporated; and never otherwise explicitly agreed to arbitrate.
Petition for Certification at 6. In its Certification Petition, the Third Circuit states that its "review of Pennsylvania law reveals a tension between corporate law principles — which generally impute to members of the corporation knowledge and acceptance of corporate bylaws — and arbitration contract principles — which generally require explicit agreement." Petition for Certification at 6. For the corporate law proposition, the Third Circuit cites to Morris v. Metalline Land Co., 30 A. 240 (Pa. 1894). For the arbitration law proposition, the Third Circuit cites Emmaus Mun. Auth. v. Eltz, 204 A.2d 926, 927 (Pa. 1964) and Quiles v. Financial Exchange Co., 879 A.2d 281 (Pa.Super.Ct. 2005). The Third Circuit believes that these separate tracks of case law from this Commonwealth intersect in the matter sub judice, and at that intersection, tension is created.
With regard to the corporate law principle, the Third Circuit quotes a statement in Morris that a member of a corporation "is subject to its constitution, and bound by its bylaws . . . which he is presumed to know and understand[.]" Petition for Certification at 6 (quotingMorris, 30 A. at 241). On its face, that statement could be seen as being in conflict with the arbitration law precept that an agreement to arbitrate cannot arise by implication. See Emmaus Municipal Authority and Quiles, supra. A close review of Morris, however, reveals that the brief passage quoted by the Third Circuit is obiter dicta.Morris did not address the issue of whether a shareholder is bound by bylaws even when that shareholder has no actual knowledge of the bylaws. Rather, the specific relevant question that concerned theMorris Court was whether the company had provided the notice required by the bylaws prior to taking action to the shareholders' detriment. The phrase stating that a shareholder is presumed to know and understand the bylaws is part of a lengthy quote of an 1877 New Jersey Court of Errors and Appeals decision. See Northampton Mut. Live-Stock Ins. Co. v. Stewart, 39 N.J.L. 486, 1877 WL 4902 (N.J. Err. App. 1877) ("Stewart"). The latter half of the extendedStewart quote was indeed relevant to resolving the issue before theMorris Court. The "presumed to know and understand" phrase which concerns the Third Circuit, on the other hand, had no bearing on the resolution of Morris.
That court is now known as the New Jersey Supreme Court.
Furthermore, we note that this is not an instance in which a decision's comment in dicta was transformed into a holding via a subsequent decision relying on that dicta. Morris has been cited by Pennsylvania courts only a handful of times. None of these three cases cited Morris for the proposition that shareholders are presumed to know the contents of the bylaws. Thus, the dicta in Morris has not been converted into binding law by a later decision.
The three Pennsylvania decisions which cited Morris are:Morris v. Metalline Land Co. of Lake Superior, 31 A. 114 (Pa. 1895) (a companion case to the original Morris decision); Pennsylvania Co. for Insurances on Lives and Granting Annuities v. Forrest Hill Bldg. Loan Ass'n, 190 A. 556 (Pa.Super.Ct. 1937); Germantown Trust Co. v. Forrest Hill Bldg. Loan Ass'n, 190 A. 561, 563 (Pa.Super.Ct. 1937).
In conclusion, the statement in Morris on which the Third Circuit focuses is obiter dicta. Accordingly, we perceive no tension betweenMorris and the arbitration law principle found in Emmaus andQuiles. We therefore respectfully decline to accept the Petition for Certification.
Justice SAYLOR files a Dissenting Statement.
DISSENTING STATEMENT
I agree with the majority that there is no express conflict in governing Pennsylvania precedent between the presumption that a shareholder in a corporation has knowledge of and accepts corporate bylaws and the contractual requirement of an explicit agreement to arbitrate. That said, the important question of whether an awareness of and agreement to the bylaws of a corporation should be imputed to its directors and/or shareholders appears to remain unresolved under this Court's jurisprudence. In my view, such question represents a significant issue of first impression, particularly as the presumption reflects the majority rule. See 8 WILLIAM MEADE FLETCHER CYCLOPEDIA OF THE LAW OF CORPORATIONS § 4196 (2004). Similarly, I believe that the matter of an asserted tension between presumed knowledge of the bylaws and the requirement of an explicit agreement to arbitrate is deserving of this Court's attention. Accordingly, I would accept the certification petition pursuant to Section 10(B)(1) of this Court's internal operating procedures.See Supreme Court I.O.P. § 10(B)(1) (contemplating acceptance of certification where the issue "is one of first impression and is of such substantial public importance as to require prompt and definitive resolution by this Court").