Opinion
No. 40 EAP 2014
11-22-2016
Frank ZAMPOGNA, Appellee v. LAW ENFORCEMENT HEALTH BENEFITS, INC., Appellant
Marc Lawrence Gelman, Thomas W. Jennings, Jennings Sigmond, P.C., Jennings Sigmond, P.C., 1835 Market St. Ste 2800, Philadelphia, PA 19103, for Law Enforcement Health Benefits, Inc., Appellant. Samuel C. Stretton, Law Office of Samuel C. Stretton, 301 S High St. PO Box 3231, West Chester, PA 19381-3231, for Frank Zampogna, Appellee. Patricia Timmerman Wiedt, Pennsylvania Public Utility Commission, PA Public Utility Comm Law Bur, CW Keystone Bldg. PO Box 3265, Harrisburg, PA 17105, for Pa. Public Utility Commission, Law Bureau, Keystone Building, Amicus Curiae.
Marc Lawrence Gelman, Thomas W. Jennings, Jennings Sigmond, P.C., Jennings Sigmond, P.C., 1835 Market St. Ste 2800, Philadelphia, PA 19103, for Law Enforcement Health Benefits, Inc., Appellant.
Samuel C. Stretton, Law Office of Samuel C. Stretton, 301 S High St. PO Box 3231, West Chester, PA 19381-3231, for Frank Zampogna, Appellee.
Patricia Timmerman Wiedt, Pennsylvania Public Utility Commission, PA Public Utility Comm Law Bur, CW Keystone Bldg. PO Box 3265, Harrisburg, PA 17105, for Pa. Public Utility Commission, Law Bureau, Keystone Building, Amicus Curiae.
SAYLOR, C.J., BAER, TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, JJ.
OPINION
JUSTICE BAER
In this discretionary appeal, we are asked to determine the narrow issue of whether Law Enforcement Health Benefits, Inc. ("LEHB"), a nonprofit corporation that administers health and welfare benefits to Philadelphia police officers as part of the union's collective bargaining agreement, is authorized under the Pennsylvania Nonprofit Corporation Law ("NCL"), 15 Pa.C.S. §§ 5101 –6162, as well as its Articles of Incorporation, to expend its corporate funds to pay for a postcard sent to its members endorsing a candidate in a union election. For the reasons that follow, we find that nothing in the NCL nor the corporation's Articles prohibited the action at issue and that LEHB's action was sufficiently related to its corporate purpose to be permissible. Accordingly, we reverse the decision of the Commonwealth Court and reinstate the trial court's order dismissing the declaratory judgment action against LEHB.
The facts of this case are not in dispute. The Fraternal Order of Police, Lodge No. 5 ("FOP") is a union which represents the interests of Philadelphia police officers in negotiating the terms and conditions of the officers' employment with the City of Philadelphia ("City"). Relevant to the instant matter, the FOP secured a collective bargaining agreement with the City, which provides health and welfare benefits to active and retired FOP members and their families. The agreement, inter alia , created a Joint Trust and established a Joint Trust Board, which is comprised of five individuals—four appointed by the FOP president and one appointed by the City—who supervise and manage the delivery of the FOP's benefits. As a result of the negotiations between the FOP and the City, the City is required to pay a specified amount per police officer per year to the Joint Trust for benefits, and the Joint Trust Board selects the entity to administer such benefits. At all relevant times, the Joint Trust Board selected LEHB to administer the benefits. LEHB is a nonprofit corporation specifically incorporated for the purpose of administering the benefits for the City's police officers and is controlled by a Board of Directors ("the Board").
As LEHB is a nonprofit corporation, it is governed by the NCL. The NCL requires nonprofit corporations to be incorporated for a purpose, specified in its articles, "including, but not limited to, any one or more of the following or similar purposes" listed in Section 5301(a). 15 Pa.C.S. § 5301(a) ; see also id.§ 5306(a)(3) (providing that a nonprofit corporation's articles of incorporation must contain "[a] brief statement of the purpose or purposes for which the corporation is incorporated"). Consistent with that mandate, LEHB's Articles of Incorporation provide, in pertinent part, as follows:
Specifically, Section 5301(a) provides:
Except as provided in subsection (b) [pertaining to insurance], corporations may be incorporated under this article for any lawful purpose or purposes, including, but not limited to, any one or more of the following or similar purposes: athletic; any lawful business purpose to be conducted on a not-for-profit basis; beneficial; benevolent; cemetery; charitable; civic; control of fire; cultural; educational; encouragement of agriculture or horticulture; fraternal; health; literary; missionary; musical; mutual improvement; patriotic; political; prevention of cruelty to persons or animals; professional, commercial, industrial, trade, service or business associations; promotion of the arts; protection of natural resources; religious; research; scientific and social.
15 Pa.C.S. § 5301(a).
4. The purpose of the Corporation is:
(a) to receive, hold, invest, administer, and distribute funds to provide health and welfare benefits for, and on behalf of, the Corporation's members (and such members' eligible spouses and dependents), who are the members of the Fraternal Order of Police, Lodge No. 5 (a Pennsylvania nonprofit corporation) who are eligible to participate in the Blue Cross/Blue Shield health insurance plan (or such other health insurance plan) that is to be maintained by the Corporation for the benefit of such members;
(b) to engage in such other proper purposes incidental to the foregoing;
(c) to engage in all other proper operations for which corporations may be formed and operated under the Pennsylvania Not-for-Profit Code.
Addendum to Articles of Incorporation at 1 (Reproduced Record "R.R." at 232a) ("Articles").
In 2010, Appellee Frank Zampogna, a Philadelphia police officer, campaigned for FOP President, running against the incumbent FOP President, John McNesby. Leading up to the election, McNesby informed LEHB that Zampogna had been making pronouncements to FOP members regarding their medical benefits and the City's monthly contributions. These pronouncements were viewed by LEHB as misrepresentations designed to gain political advantage in the FOP election. Given this concern, a few weeks before the election, the Board unanimously voted to "respond appropriately" if "any candidate misstates, misrepresents, or publishes misleading or false information regarding LEHB or demeans its officers." Active Directors Meeting Minutes, 9/7/2010, at 1 (R.R. at 227a).
The record does not establish the specific content of these statements.
The truthfulness and accuracy of the statements are beyond the scope of this Opinion.
Following the Board meeting, and in response to Zampogna's allegedly false statements, LEHB mailed postcards to FOP members which, inter alia , endorsed McNesby in the election, accused "[o]ne of the FOP Presidential candidates" of making "grossly misleading and deceptive statements" regarding LEHB, and opined that that candidate "is not competent enough and too inexperienced to lead the FOP and its 14,000 members." Postcard (R.R. at 222a). The cost to mail and print the postcards totaled $3,840 and was paid out of LEHB's general funds. LEHB's administrator, Thomas Lamb, stated that McNesby was not involved in the decision to mail the postcard, and Zampogna did not present any evidence to the contrary. See N. T., 1/10/2012, at 57.
LEHB also included the same message in its newsletter, at no additional cost.
Six days before the election, in response to the mailing, Zampogna filed an action seeking declaratory relief barring LEHB from further expending its funds to endorse a candidate in an FOP election. In support of his position, Zampogna argued that LEHB's expenditure was in "direct violation" of LEHB's Bylaws, Articles, and the NCL. Zampogna's Amended Complaint at 7–8 (R.R. at 214–15a). Additionally, Zampogna claimed that LEHB's actions were "unfair" and "an unlawful expenditure of public funds given solely for medical benefit purposes." Id. at 5, 8 (R.R. at 212a, 215a).
Zampogna also sought injunctive relief. However, the election occurred while the case was pending, rendering such relief moot.
While the case was pending, Zampogna lost the election. The case subsequently proceeded to a nonjury trial, and, ultimately, the trial court denied Zampogna's request for declaratory relief. The trial court began its review with LEHB's Bylaws, which provided the Board with the power to take any action so long as it was not inconsistent with the Bylaws, the Articles, or the law. The trial court concluded that neither LEHB's Bylaws, nor its Articles, prohibited LEHB from making endorsements in FOP elections. Moreover, the trial court examined Section 5502 of the NCL, which enumerates the general powers of nonprofit corporations, and determined that "[n]owhere in [the] statute does it state that corporations are prohibited from engaging in political activity." Tr. Ct. Op., 5/22/2012, at 2 (citing 15 Pa.C.S. § 5502 ). Zampogna filed post-trial motions, which the court denied, and he appealed, asserting, inter alia , that the trial court erred in finding that LEHB's actions in endorsing a candidate in the FOP election did not violate LEHB's Articles, Bylaws, or the NCL.
Initially, Zampogna appealed to the Superior Court. However, as LEHB is a nonprofit corporation subject to the NCL, the Superior Court transferred this matter to the Commonwealth Court because the case fell within that court's jurisdiction pursuant to 42 Pa.C.S. § 762(a)(5) (granting the Commonwealth Court exclusive jurisdiction over appeals involving a nonprofit corporation subject to the NCL).
On appeal, a split en banc panel of the Commonwealth Court reversed. Zampogna v. Law Enforcement Health Benefits, Inc., 81 A.3d 1043 (Pa. Cmwlth. 2013). The majority acknowledged that the NCL grants a nonprofit corporation the power to take several actions, including making "contributions and donations," albeit "subject to the limitations and restrictions contained in its articles." Zampogna, 81 A.3d at 1047 (quoting 15 Pa.C.S. § 5502(a) ). However, the majority disagreed with the trial court that the action at issue was not restricted by LEHB's Articles. Instead, the majority viewed LEHB's purpose statement as a restriction on its powers, reasoning that any action taken by the corporation must be sufficiently related to its purpose "to receive, hold, invest, administer, and distribute funds to provide health and welfare benefits for, and on behalf of, the corporation's members (and such members' eligible spouses and dependents)." Id. at 1048 (quoting Articles at 4(a)). In the majority's view, endorsing McNesby was not a direct administration of benefits. To the contrary, the majority concluded, McNesby was "an individual unrelated to [LEHB's] purpose," and, therefore, mailing the postcard "f[ell] outside of both the Law, and [LEHB's] Articles of Incorporation." Id. at 1049.
Notably, Section 5502(a) speaks only in terms of limitations and/or restrictions contained in the law or a corporation's articles. See15 Pa.C.S. § 5502(a) (providing that a nonprofit corporation has broad powers "[s]ubject to the limitations and restrictions imposed by statute ... [or] contained in its articles"). However, 15 Pa.C.S. § 5503, the section immediately following Section 5502, refers to a "limitation upon the business, purposes or powers of a nonprofit corporation, expressed or implied in its articles or bylaws or implied by law," indicating that a restriction on the corporation could be contained in either the articles or the bylaws. Because there is no purported restriction in LEHB's Bylaws on the action taken here, and as our analysis revolves around Section 5502 and not Section 5503, we will not discuss LEHB's Bylaws any further.
The majority went on to address LEHB's argument that the endorsement, while not a direct administration of benefits, was nonetheless authorized pursuant to the company's incidental power. See Articles at 4(b) (providing LEHB with the power "to engage in such other proper purposes incidental to the [administration of benefits]."). In rejecting this argument, the majority relied on a case from 1916 which stated that a corporation's incidental power must be "directly and immediately appropriate to the execution of the specific power granted, ... not one that has merely some slight or remote relation to it." Id.(quoting Citizens' Elec. Illuminating Co. v. Lackawanna & W.V.R. Co., 255 Pa. 176, 99 A. 465, 467 (1916) ). Here, the majority reasoned, "campaigning for a union presidential candidate is not directly and immediately appropriate to providing healthcare benefits to the corporation's Members," and, thus, it concluded that such activity cannot fall within the scope of LEHB's incidental power. Id. at 1049–50.
Seemingly in contradiction to its finding that McNesby's election had nothing to do with LEHB's corporate functions, the majority noted its belief that the action here was "suspect" and "egregious" because of the relationship between the FOP president and LEHB, as the president appoints the members of the Joint Trust Board, which ultimately selects the company to administer benefits. Id. at 1050. The majority viewed this construct as creating a conflict of interest for the Board and opined that approving the endorsement constituted self-dealing, despite the fact that Zampogna's complaint and brief to the Commonwealth Court made no allegation of any conflict of interest.
Finally, the majority summarily concluded that LEHB "would be irreparably harmed if the Board's approval of expenditures of public money for partisan activity was allowed to continue unabated." Id. at 1051–52. However, the majority did not cite any authority to support its proposition that LEHB's funds were public nor did it explain how the public character of the funds factored into the court's analysis. Moreover, the majority did not develop how an action taken in the context of a private, union election constituted prohibited "partisan activity." Nonetheless, the majority held that the trial court erred in finding the endorsement was within the scope of the Board's authority. The Commonwealth Court thus vacated the trial court's order and remanded for entry of an order "declaring that the Board's expenditure of public funds on partisan activity violates the [NCL], and [LEHB's] Articles of Incorporation." Id. at 1052.
Judge Leavitt filed a dissent, joined by Judge Simpson, contending that the action taken fell within the broad powers granted to LEHB by the NCL and its Articles. Zampogna, 81 A.3d at 1052 (Leavitt, J., dissenting). The dissent opined that, contrary to the majority's position, "it is a restriction that must be stated in the corporation's charter, not the authorization to conduct a specific activity," and observed that, here, LEHB's Articles do not limit LEHB's ability to endorse candidates in a union election. Id. at 1055. Rather, the dissent concluded that, because the management of the FOP and the outcome of the election would directly impact LEHB, endorsing a candidate whom it determined would best manage the FOP was a permissible use of its incidental power under its Articles.
Additionally, the dissent differed with both the majority's conclusion that the Board engaged in self-dealing, and its characterization of the funds spent by LEHB as public funds. With respect to the former, the dissent emphasized that "any act as the board of directors ... shall be presumed to be in the best interests of the corporation," id. at 1059 (quoting 15 Pa.C.S. § 5715(d) ), and noted that Zampogna failed to provide clear and convincing evidence to rebut the presumption. The dissent also opined that a board's action which it deems "will serve the continued existence of the corporation" does not create a conflict of interest, and that the NCL specifically provides that a director's action to retain his position does not constitute self-dealing. Id. at 1060–61 (citing 15 Pa.C.S. § 5715(e)(2)(iv) ). As to the funds paid by LEHB, the dissent suggested the funds were corporate funds rather than public funds because they had been paid to LEHB for services rendered, became part of LEHB's corporate account, and, thus, had lost their public character.
Following the Commonwealth Court's decision, LEHB filed a petition for allowance of appeal with this Court, which we granted to review whether the Commonwealth Court erred in determining that LEHB's action of endorsing McNesby was not authorized. LEHB begins by contending that the Commonwealth Court invalidated a corporate action simply because the court disagreed with the action. In LEHB's view, the NCL grants nonprofit corporations broad powers, including: 1) the ability to make donations and contributions; 2) "[t]o have and exercise all of the powers and means appropriate to effect the purpose or purposes for which the corporation is incorporated;" and 3) to exercise all other powers vested in the corporation by law. 15 Pa.C.S. § 5502(a)(9), (18), (19). Notwithstanding these provisions, LEHB acknowledges that a nonprofit corporation's powers are subject to any limitation or restriction imposed by statute or the corporation's articles. 15 Pa.C.S. § 5502(a). Accordingly, LEHB argues that a nonprofit corporation's action is authorized unless it is prohibited or restricted.
Specifically, we granted to review the following issues:
(a) Whether Courts may disregard the vital function of corporate self-governance by second-guessing the decisions of corporate directors and failing to provide the required deference to their decision simply because the court may not agree with the decision?
(b) Whether a court may simply usurp the role of corporate directors by negating the presumption of good-faith to the decisions of directors required by law by simply asserting, without requiring any proof thereof, a conflict of interest by the directors?
(c) Whether funds, whose original source was a public entity, retain their public character once the public entity distributes those funds to a private corporation in satisfaction of an obligation, and after the private corporation had retained those funds as corporate assets, and after that corporation utilized the corporate assets for a corporate purpose?
Zampogna v. Law Enforcement Health Benefits, Inc., 627 Pa. 252, 99 A.3d 531 (2014) (order).
However, LEHB's argument does not end with searching for an explicit statement within the corporation's Articles or the law prohibiting the action at issue, which was the view taken by the trial court here. Instead, like the Commonwealth Court majority, LEHB views its corporate purpose as a restriction contained within its Articles that limits its powers, conceding that any action it takes must be related to providing benefits for its members. Notwithstanding its agreement on the relevance of its corporate purpose, LEHB parts from the Commonwealth Court's ultimate conclusion, contending that the court failed to consider the entire context of LEHB's action when it determined the conduct was not related to LEHB's corporate purpose.
To that end, LEHB argues that endorsing McNesby was related to enhancing benefits for its members in two ways. First, LEHB asserts, the FOP President appoints four of the five members of the Joint Trust Board, which has the capability of removing LEHB as the selected vendor to administer benefits. Thus, when Zampogna made what were perceived to be "intentional, material misrepresentations to members" concerning LEHB's administration of their benefits, LEHB directors became concerned that Zampogna would negatively impact the organization if he were elected. LEHB's Brief at 19. Second, and more importantly, LEHB directors believed that McNesby would be more efficient than Zampogna in negotiating with the City, which in turn could improve LEHB's revenue stream and its ability to provide inexpensive benefits. For these reasons, LEHB believes the FOP President is "a matter of direct concern" to LEHB and concludes that its action in endorsing McNesby was "at the very least, incidental to the function of [LEHB]," if not directly related. Id. at 20–22. Accordingly, LEHB asserts its action was sufficiently related to its corporate purpose so as to satisfy the limitation contained within its Articles.
Turning to the Commonwealth Court's discussion regarding the alleged conflict of interest, LEHB asserts the Commonwealth Court majority erred because it "simply averr[ed] a conflict of interest" existed "absent any evidence whatsoever" to support such an averment. Id. at 26. LEHB contends that, pursuant to the NCL, the acts of a director are "presumed to be in the best interests of the corporation," and a challenge to such requires clear and convincing evidence to rebut the presumption. Id. at 27 (quoting 15 Pa.C.S. § 5715(d) ). LEHB contends that Zampogna "presented no evidence ..., let alone clear and convincing evidence" that a conflict of interest existed. Id. at 27 (quoting Zampogna, 81 A.3d at 1059 (Leavitt, J., dissenting)). Indeed, as noted previously, Zampogna did not assert a conflict of interest in his pleadings.Lastly, LEHB argues the Commonwealth Court majority erred by labeling the assets used to print and mail the postcards at issue as "public funds." While LEHB acknowledges that the funds paid by the City to LEHB originally were public in nature, it suggests that the funds lost their public character once the City transferred them to the Joint Trust pursuant to the collective bargaining agreement. Specifically, LEHB opines that, once the funds leave the City's possession, the City has met its contractual obligation of contributing a specified amount of money per FOP member. LEHB notes that, thereafter, the funds are either received by the Joint Trust, which forwards the money to LEHB to administer benefits, or the City may pay LEHB directly to reimburse it for expenses which have already been incurred on behalf of an eligible member. LEHB emphasizes that, once the funds are placed in the Joint Trust or forwarded directly to LEHB, they become the private assets of the corporation and, thus, cease to retain their public character.
By contrast, Zampogna contends LEHB was not authorized to endorse a candidate in the FOP election. Zampogna argues LEHB's Articles do not authorize it to endorse a candidate as they make clear that LEHB's sole purpose is to administer benefits for FOP members and their families. While the Articles also give LEHB incidental power, Zampogna maintains that endorsing a candidate in the FOP presidential election is not incidental to effectuating the payment of benefits.
For the first time before this Court, Zampogna claims that LEHB's action was a conflict of interest because the candidate it endorsed was the then-current FOP president, who appointed four members of the Joint Trust Board, and, thus, in his view, the individual in control of the monies going to LEHB which ultimately funded the mailing endorsing him. Notably, Zampogna does not cite to any evidence of record to support the assertion that LEHB's board acted under a conflict of interest, such as testimony suggesting that McNesby requested LEHB to endorse him. Instead, taking his lead from the Commonwealth Court's majority opinion, Zampogna infers a conflict of interest based on the FOP President's ability to appoint members of the Joint Trust Board. To Zampogna, the conflict of interest "is obvious," and thus he dispenses with the need to support it. Id. at 36.
Lastly, Zampogna repeatedly notes his belief that LEHB's action was a misuse of public funds. In this vein, Zampogna argues LEHB's funds have a "publicly designated purpose"—namely, the payment of benefits for FOP members and their families. Id. at 40. Consistent with his argument that LEHB's actions here did not relate to its corporate purpose, Zampogna also contends that LEHB improperly used public funds for a non-public purpose. Again, however, Zampogna cites to no relevant corporate law to support his position that the use of originally "public" funds somehow alters or heightens our review of whether a nonprofit corporation's action is authorized. In this case, we are asked to determine whether a nonprofit corporation's action was permitted under the NCL, which is a question of law, for which our standard of review is de novo and our scope of review is plenary. A.S. v. I.S., 130 A.3d 763, 768 (Pa. 2015). Before analyzing the specific action in question, it is worth reviewing a brief history of Pennsylvania corporate law. In the early years of our Commonwealth, corporations were required to be incorporated for a specific purpose and were limited to take only those actions that furthered the corporation's purpose. Malone v. Lancaster Gas Light & Fuel Co., 182 Pa. 309, 37 A. 932, 933 (1897). Because of this narrow limitation on early corporations' powers, if a corporation's action was not "fairly considered incidental or auxiliary to" its corporate purpose, a court could deem the action unauthorized as beyond the scope of the corporation's authority (i.e. , ultra vires ). Id.
The Pennsylvania Public Utilities Commission filed an amicus curiae brief in this matter, without indicating support for either party. Therein, it described that it is involved in monitoring ratepayer funds which it deems to be "public funds" and which have been deposited into four sustainable energy funds in order to ensure that such funds are being used to promote: "(1) the development and use of renewable energy and clean energy technologies; (2) energy conservation and efficiency; and (3) renewable business initiatives and projects that improve the environment in the companies' electric service territories." Amicus brief at 5–6. Amicus urges this Court not to issue a decision which would adversely affect its continued audit authority over the funds and its ability to compel compliance with the foregoing public purposes.
Ma lo ne involved the Lancaster Gas Company, chartered for the specific purpose of "manufacturing and supplying illuminating and heating gas." Id. When the company sought to sell gas-consuming appliances, one of the company's stockholders challenged the action as outside the company's authority. This Court determined that the action was authorized, holding that a corporation may take any action that is not within the literal terms of the corporate grant so long as it is "at least very convenient" to the corporation's purpose. Id. at 933. Because selling gas-consuming appliances would increase the demand for Lancaster's gas supply, this Court concluded that the action was sufficiently related to the corporation's chartered purpose of selling gas. Compare with Citizens' Electric Illuminating Co. v. Lackawanna & W.V.R. Co., 255 Pa. 176, 99 A. 465, 467 (1916) (holding that a railroad company was unauthorized to sell excess electricity the company generated because such action was not "directly and immediately appropriate" to functioning as a railroad).
However, around the end of the 19thcentury and the beginning of the 20thcentury, states began to "replace the restrictive set-pattern acts of the 1880s with the liberal and flexible ‘enabling’ corporation statutes that characterized the twentieth century." Harwell Wells, The Modernization of Corporation Law, 1920–1940, 11 U. Pa. J. Bus. L. 573, 585 (2009). As part of this movement, Pennsylvania enacted its more liberal Business Corporation Law in 1933. See Act of May 5, 1933 (P.L. 364, No. 106) (known as the Business Corporation Law of 1933). The current language of the BCL, as amended in 1988, provides that a "business corporation shall have the legal capacity of natural persons to act," 15 Pa.C.S. § 1501, and sets forth a broad, non-exhaustive list of permissible corporate powers. 15 Pa.C.S. § 1502(a) (granting a business corporation broad corporate powers "[s]ubject to the limitations and restrictions imposed by statute or contained in its articles"); 15 Pa.C.S. § 1502 Committee Comment—1988 ("The provisions of subsection (a) are intended to be broad enabling provisions.").
Our overview begins with the BCL, which in its current form governs only for-profit corporations. However, at the time of its original enactment in 1933, there was no separate statute governing nonprofit corporations. It was not until 1972 that Pennsylvania enacted the NCL, which provides specific provisions for nonprofit corporations. Accordingly, we find the history underlying the BCL is relevant to framing our discussion of the NCL. More importantly, the section of the NCL governing nonprofit corporate powers indicates it was patterned after the BCL, as discussed in more detail infra. See15 Pa.C.S. § 5502, Source Note—1990 ("Patterned after 15 Pa.C.S. § 1502," which grants statutory powers to for-profit corporations).
One of the effects of Pennsylvania's modernized corporate statute is to remove the requirement that for-profit corporations be incorporated for a specific, limited purpose; in fact, a business corporation today need not include any purpose statement in its articles of incorporation. 15 Pa.C.S. § 1301, Committee Comment—1988 ("Under this section if the articles of a business corporation contain no purpose clause, the corporation has in effect an all-purpose charter."). Instead, corporations are permitted to be incorporated for "any lawful purpose," id. and, accordingly, can take any type of corporate action, regardless of its relationship to a corporation's purpose. 15 Pa.C.S. § 1502, Committee Comment—1988 ("It is intended ... that the corporate purposes of the [for-profit] corporation shall be irrelevant.").
Because for-profit corporations are no longer limited to taking actions related to their corporate purposes, the ultra vires doctrine is, in effect, no longer viable to challenge a for-profit corporate action. See Kent Greenfield, Ultra Vires Lives! A Stakeholder Analysis of Corporate Illegality (with Notes on How Corporate Law Could Reinforce International Law Norms), 87 Va. L. Rev. 1279, 1280 (2001) (explaining that, today, "the doctrine of ‘ultra vires,’ which limited corporations to certain purposes and powers, is dead or at least deathly ill"). Rather, a challenge to a corporate action proceeds in modern jurisprudence under what is known as the business judgment rule, which embodies the "policy of judicial noninterference with business decisions of corporate managers," and insulates corporate directors from "second-guessing or liability for their business decisions in the absence of fraud or self-dealing or other misconduct or malfeasance." Cuker v. Mikalauskas, 547 Pa. 600, 692 A.2d 1042, 1046 (1997) ; see also 15 Pa.C.S. § 1502 Committee Comment—1988 ("Regulation of the exercise of the powers granted is accordingly intended to come through application of the business judgment rule under 15 Pa.C.S. § 1721 rather than through the doctrine of ultra vires. Cf. 15 Pa.C.S. § 1503.")
Whether the business judgment rule would apply in this case is irrelevant to our holding, as we ultimately conclude that the action here was sufficiently related without giving deference to the Board's decision. Thus, we discuss this rule merely to establish generally the level of appropriate court involvement in corporate decisions, which informs our view of how the NCL should be interpreted.
With these principles of corporate law in mind, we turn to the NCL, as LEHB is a nonprofit corporation. Just as the BCL grants to for-profit corporations, the NCL provides nonprofit corporations with "the legal capacity of natural persons to act." 15 Pa.C.S. § 5501. Similarly, the NCL gives nonprofit corporations the same general powers as the BCL gives for-profit corporations, using nearly identical language. See 15 Pa.C.S. § 5502, Source Note—1990 ("Patterned after 15 Pa.C.S. § 1502," which grants statutory powers to for-profit corporations). For example, nonprofit corporations have the authority to "exercise all of the powers and means appropriate to effect the purpose or purposes for which the corporation is incorporated." 15 Pa.C.S. § 5502(a)(18). This language is expansive, not restrictive. Additionally, the NCL gives a nonprofit corporation broad powers, such as the powers "[t]o conduct its business, carry on its operations," and "[t]o have and exercise all other powers" otherwise vested in the corporation by law, "[s]ubject to the limitations and restrictions imposed by statute ... [or] contained in its articles." 15 Pa.C.S. § 5502(a)(15), (19). Accordingly, the NCL authorizes all nonprofit corporate actions that are not prohibited by the NCL or the corporation's articles.
The only difference is that for-profit corporations have an additional power relating to acquisitions and take-overs, which are not relevant to nonprofits.
Although the NCL is similar to the BCL in many ways, notably, nonprofit corporations are required by the NCL and its regulations to be incorporated for a specified purpose, as opposed to for-profit corporations, which may be incorporated for "any lawful purpose." Compare 19 Pa. Code § 41.4(b) (providing that "[t]he stated purposes of a nonprofit corporation may not consist of solely a statement to the effect that its corporate purpose is to engage in all lawful business"), with 15 Pa.C.S. § 1502, Committee Comment—1988 ("It is intended further that the corporate purposes of the [for-profit] corporation shall be irrelevant."). Accordingly, we find that a nonprofit corporation's actions must be related to its corporate purpose. To hold otherwise would render the requirement that a nonprofit corporation state a corporate purpose other than "any lawful purpose" meaningless.
However, the fact that nonprofit corporations have an additional requirement compared to for-profit corporations does not necessarily mean that we must construe this requirement narrowly. In other words, we do not view this requirement as relegating nonprofit corporations back to the early twentieth century, when every corporation was limited to taking actions which were directly in furtherance of its corporate purpose, which, as set forth above, is a limitation that has since been abandoned. Wells, supra at 585. Instead, we find that this limitation should be broadly interpreted considering the legal principles expounded above. Additionally, the NCL itself indicates that this purpose requirement is not meant to be overly restrictive, as it requires nonprofit corporations to include only a "brief" statement of purpose in their articles of incorporation. 15 Pa.C.S. § 5306(a)(3). The applicable statutory and regulatory provisions contain a non-exhaustive list of broad permissible purposes such as "athletic," "charitable," and "educational." See 15 Pa.C.S. § 5301(a) ; 19 Pa. Code § 41.4(a). Moreover, we are guided by the fact that the NCL is patterned after the BCL, and nothing in the NCL or its regulations place an emphasis on the corporate purpose distinction between nonprofit and for-profit corporations. Accordingly, we determine that the purpose statement requirement was not intended to create a marked difference in how nonprofit corporations are to be governed, as opposed to for-profit corporations.
For these reasons, we hold that the interplay between a nonprofit corporation's corporate purpose and that corporation's authority to take corporate action must be construed in the least restrictive way possible, limiting the amount of court interference and second-guessing, which is reflective of both modern for-profit and not-for-profit corporations, and the modern corporate business laws that govern them. Thus, we find that a nonprofit corporation's action is authorized when: 1) the action is not prohibited by the NCL or the corporation's articles; and 2) the action is not clearly unrelated to the corporation's stated purpose. See 15 Pa.C.S. § 5502(a)(18) (providing that a nonprofit corporation may "exercise all of the powers and means appropriate to effect the purpose or purposes for which the corporation is incorporated" unless restricted by statute or its articles); 15 Pa.C.S. § 5306(a)(3) (requiring a nonprofit corporation to list a brief purpose statement in its articles).
Turning to the facts of the instant case, Zampogna has not pointed us to any language in the NCL or LEHB's Articles that prohibited LEHB's action here. As such, LEHB's action is authorized so long as it is not clearly unrelated to its corporate purpose of administering benefits to its members as set forth in its Articles. Ultimately, we agree with LEHB that its action was sufficiently related to administering benefits to its members and, therefore, it was authorized.
The facts of the instant case exemplify why courts should not act as super-boards second guessing decisions of corporate directors, as courts are "ill-equipped" to become "enmeshed in complex corporate decision-making." Cuker, 692 A.2d at 1046. At first blush, endorsing a candidate in a union election seems unrelated to the administration of medical benefits. However, such a simplistic view of the action at issue here ignores the structure of the CBA between the City and the union and the effect the union president has over LEHB's revenue source and its very existence. Because the union president has a direct impact on LEHB's ability to function effectively, endorsing a candidate the corporation believes will better serve its members is not unrelated to its corporate purpose of administering benefits for its members. Accordingly, we conclude that LEHB's action was sufficiently related to the corporate purpose as set forth in its Articles, rendering the action authorized.
As we find that LEHB's action here was authorized, we need not address the Commonwealth Court's discussion of LEHB's alleged conflict of interest, which the court advanced to justify further its decision to reject the LEHB Board's action. Moreover, we recognize that Zampogna did not present any evidence of a conflict of interest nor did he argue one existed before the trial court or the Commonwealth Court. We agree with LEHB that by failing to introduce any evidence of a conflict of interest, Zampogna failed to meet his burden. Accordingly, the record does not support the Commonwealth Court majority's determination that the Board's action here constituted an improper conflict of interest or self-dealing, and we decline to discuss this issue any further.
Turning to the "public funds" issue, we note that Zampogna cites to no authority to support the proposition that the funds at issue here were indeed public funds. To the contrary, we conclude that the originally public funds lost their public character once the City paid them to LEHB in fulfillment of its contractual obligation. Specifically, the City agreed to pay a specific amount of money per police officer to the Joint Trust, not only to pay for the ultimate healthcare benefit that each police officer receives, but also to pay for the administration of those benefits. Once the City paid the specified amount to the Joint Trust pursuant to the collective bargaining agreement, it had fulfilled its healthcare benefit obligation, rendering the funds no longer within the City's control. At that point, the funds were converted from public funds to private moneys in the sole control of LEHB. As such, there was no legal impediment to LEHB's use of its own private moneys under these circumstances.
Because we conclude that the funds at issue were private, we do not speak to whether public funds may be used to endorse candidates in a private, union election.
We note that Zampogna's challenge to LEHB's endorsement focused on the mere fact of endorsement, as he did not present any evidence to suggest that the cost of the endorsement was excessive or resulted in any diminution in benefits to LEHB's members. In other words, Zampogna's complaint is not one asserting corporate waste. Instead, Zampogna simply argued that the endorsement was unauthorized. Accordingly, our inquiry is limited to whether the endorsement itself was authorized and does not take into consideration the cost of such. Thus, we caution that this decision does not stand for the proposition that LEHB could spend on endorsements unabated, as that issue is not before us.
For the reasons set forth above, the order of the Commonwealth Court is reversed, and the matter is remanded for reinstatement of the trial court's order dismissing Zampogna's complaint.
Chief Justice Saylor and Justices Donohue, Dougherty and Mundy join the opinion.
Justices Todd and Wecht file concurring opinions.
JUSTICE TODD, Concurring
I agree with the majority's decision to reverse the order of the Commonwealth Court. However, for reasons similar to those articulated by Justice Wecht in his Concurring Opinion, I cannot endorse the highly permissive test advanced by the majority for determining whether a nonprofit corporation's action is consistent with its stated corporate purpose. Rather, I would utilize the test that has existed for nearly a century: whether a nonprofit corporation's action is incidental to its stated purpose—that is, whether the action is "directly and immediately appropriate to the execution of the specific power granted, and not one that has merely some slight or remote relation to it." Citizens' Elec. Illuminating Co. v. Lackawanna & W.V.R. Co., 255 Pa. 176, 99 A. 465, 467 (1916). My reasoning follows.
Finding that "the interplay between a nonprofit corporation's corporate purpose and that corporation's authority to take corporate action must be construed in the least restrictive way possible," the majority holds that a nonprofit corporation's action is authorized if: "1) the action is not prohibited by the [Nonprofit Corporation Law ("NCL") ] or the corporation's articles; and 2) the action is not clearly unrelated to the corporation's stated purpose." Majority Opinion at 1013. While I agree with the first prong of this test, regarding the second, in my view, the majority's approach—permitting all but "clearly unrelated" action—is not grounded in statute, regulation, or case law. Rather, the highly permissive standard the majority employs is based on the majority's assumption that, because the NCL is largely modeled after the Business Corporation Law ("BCL"), and because the BCL gives modern day business corporations a nearly unlimited scope of power, we should treat nonprofit corporations and for-profit corporations as essentially one and the same, and find nearly all actions taken by a nonprofit corporation to be authorized. I respectfully disagree with this view.
While it is true that the NCL and BCL are similar in many respects, including providing both types of corporations with the legal capacity to act as natural persons, compare 15 Pa.C.S. § 5501, with id.§ 1501, and authorizing both to engage in other enumerated general powers, compare id.§ 5502, with id.§ 1502, these statutes differ fundamentally with regard to the significance of a stated corporate purpose in a corporation's articles. Indeed, as the majority aptly notes, unlike the BCL, which permits a for-profit corporation to be incorporated for "any lawful purpose," id.§ 1301, the NCL requires a nonprofit corporation to be incorporated for a specified purpose, including or similar to those enumerated by statute, which include "athletic," "charitable," and "educational." Id.§§ 5301(a), 5306(a)(3); 19 Pa. Code § 41.4(b). This emphasis on corporate purpose, which was essentially eliminated for for-profit corporations under the BCL, is consistent with the differing goals of business and nonprofit corporations: while business corporations ultimately seek to make money for their owners, nonprofit corporations are organized to provide some focused benefit to society, and, as a result, each must include a statement of purpose apprising the public of its aims. Howard L. Oleck & Martha E. Stewart, Nonprofit Corporations, Organizations, & Associations, 496 (6th ed. 1994) (expressing support for requirement of specific statement of corporate purpose with regard to nonprofit corporations because "the public and the organization's own personnel ought to have clearly stated just what their organization is and does, particularly if it is to receive such legal privileges as tax exemption"); see also Johnny Rex Buckles, How Deep Are the Springs of Obedience Norms that Bind the Overseers of Charities?, 62 Cath. U. L. Rev. 913, 936 n. 116 (2013) ("[U]nlike business corporations, whose ultimate objective is to make money, nonprofit corporations are defined by their specific objectives: perpetuation of particular activities are central to the raison d' être of the organization." (internal quotation marks omitted)).
The majority reasons, and I agree, that the legislature's deliberate inclusion of a specified corporate purpose requirement in the NCL—particularly where the BCL contains no such mandate—necessarily signifies that "a nonprofit corporation's actions must be related to its corporate purpose," otherwise, the requirement would be rendered "meaningless." Majority Opinion at 1013. Yet, by holding that a nonprofit corporation's actions are authorized so long as they are not "clearly unrelated" to the purpose set forth in the corporation's charter, the majority has essentially authorized a nonprofit corporation to take almost any action desired by its board of directors. As Justice Wecht so astutely observes, the majority's test is "tantamount to writing nonprofit corporations a blank check that all but entirely confounds the General Assembly's determination that nonprofit corporations must identify a specific corporate purpose." Concurring Opinion (Wecht, J.) at 1019. I do not believe that this is the result the legislature intended when it required nonprofit corporations to include a specified purpose in their charters.
Furthermore, although I agree with Justice Wecht to the degree he would find that a nonprofit corporation's actions must be incidental to its corporate purpose, he would apply a "reasonable person" standard to assess such action. I cannot subscribe to this approach either. While Justice Wecht's reasonable person standard might be a better measure of whether a nonprofit corporation's action is consistent with its corporate purpose than the standard advanced by the majority, as with the majority's standard, it lacks a statutory basis. Moreover, as neither party raises a challenge to the burden of proof applied in this case, unlike Justice Wecht, I would not address that issue.
In contrast to the majority (and Justice Wecht's augmented formulation), I see no need to create a new test given the well established test under the incidental powers doctrine, which both parties have agreed applies in this case. It has been an accepted principle from as early as the late 1800s that, in addition to the specific powers listed in a corporation's charter, a corporation could engage in activities which were incidental to its main purpose. See Malone v. Lancaster Gas Light & Fuel Co., 182 Pa. 309, 37 A. 932, 933 (1987) (holding that purchasing and supplying gas-consuming appliances was incidental to gas company's corporate purpose of manufacturing and supplying illuminating and heating gas); Citizens' Elec., 99 A. at 467 (holding that providing surplus electricity was not incidental to railroad company's corporate purpose of transporting customers and freight). In assessing whether such activities are incidental, this Court has made clear that, while corporations "may transact, in addition to their main undertaking, all ... subordinate and connected matters," such actions must be "if not essential, at least very convenient, to the due prosecution of" the corporation's purpose. Malone, 37 A. at 933. In other words, a corporation could engage in an act "that is directly and immediately appropriate to the execution of the specific power granted, and not one that has merely some slight or remote relation to it." Citizens' Elec., 99 A. at 467.
Indeed, as further support for application of the incidental powers doctrine, LEHB's articles of incorporation specifically provide that LEHB may engage in "other proper purposes incidental to" its corporate purpose. Addendum to Articles of Incorporation at 1 (R.R. at 232a).
I agree with Justice Todd's explication of the two-stage inquiry. SeeJustice Todd's Conc. Op. at 1016–17. My commentary is directed exclusively toward the threshold question of authority, which, as set forth herein, I divide into the two subordinate inquiries that I define as the proscription and practical tests.
Although Justice Wecht views the Citizens' Elec.standard as inconsistent with the NCL's broad grant of authority in 15 Pa.C.S. § 5502(a)(18), SeeConcurring Opinion (Wecht, J.) at 1019 n.2, I respectfully disagree. In my view, Section 5502(a)(18) is consistent with, and indeed similar to, the formulation of the incidental powers standard articulated in Citizens' Elec., as both standards expressly permit nonprofit corporations to engage in activities related to the nonprofit corporation's stated purpose. Compare Citizens' Elec., 99 A. at 467 (authorizing corporate activity "that is directly and immediately appropriate to the execution of the specific power granted"), with15 Pa.C.S. § 5502(a)(18) (authorizing nonprofit corporation to take action "appropriate to effect the purpose or purposes for which the corporation is incorporated").
The majority discusses briefly the Commonwealth Court's determination that the "incidental" power conferred by the Articles enabled the exercise only of powers "directly and immediately appropriate to the execution of the specific power granted, ... not one that has merely some slight or remote relation to it," which is the same Citizens Electricstandard that Justice Todd would apply to determine the scope of incidental authority. SeeMaj. Op. at 1007 (quoting the Commonwealth Court's quotation of Citizens' Elec., supra ); Justice Todd's Conc. Op. at 1017–18. Citizens' Electricestablishes that some degree of "incidental" power may be inferred even absent a specific grant of such authority by the business law or a corporation's articles of incorporation. Contemporarily, the NCL itself supports such an inference in its grant of authority to a corporation "[t]o have and exercise all of the powers and means appropriate to effect the purpose or purposes for which the corporation is incorporated."15 Pa.C.S. § 5502(a)(18). Moreover, especially when incidental authority is expressly granted, I would not interpret it as narrowly as Citizens Electricdoes, because the Citizens Electricstandard confounds Subsection 5502(a)(18)'s more permissive grant of authority. Instead, I would utilize the common definition of incidental, which, in keeping with the NCL, is considerably more expansive. See, e.g., American Heritage College Dictionary 687 (3d ed. 1993) (defining "incidental" as "1. Occurring or likely to occur as an unpredictable or minor accompaniment. 2. Of a minor, casual, or subordinate nature").
While the incidental powers doctrine has been rendered largely immaterial with respect to modern-day business corporations due to the fact that such corporations are not restricted in the scope of their operations to a specific corporate purpose and, therefore, enjoy a nearly unlimited scope of power, in my view, Malone and Citizens' Elec. are still viable for interpreting the charters of today's nonprofit corporations, which contain a corporate purpose similar to that of traditional business corporations commonplace at the time of those decisions. Thus, rather than evaluating LEHB's endorsement in terms of whether it was "clearly unrelated" to providing health benefits to FOP members, or in terms of whether a "reasonable person" would conclude that the endorsement was consistent with providing such benefits—tests offered by the majority and concurrence, respectively, for which neither party has argued—I would apply Malone and Citizens' Elec. and evaluate whether LEHB's endorsement was directly or immediately appropriate to its stated corporate purpose of providing health and welfare benefits to the FOP members and their families.
Applying that standard to the facts of this case, I would conclude that the endorsement was indeed incidental to LEHB's corporate purpose of providing health and welfare benefits to FOP members. As the majority has explained, the collective bargaining agreement between the FOP and the City of Philadelphia, inter alia , created the Joint Trust Board, which is directly responsible for supervising and managing the delivery of the FOP's health and welfare benefits, and is tasked with selecting the entity which will provide health and welfare benefits to active and retired FOP members and their families. Pursuant to the collective bargaining agreement, the FOP president appoints four out of the five individuals who sit on the Joint Trust Board, which, as the majority notes, directly impacts "LEHB's ability to function effectively," and, more specifically, its ability to provide health and welfare benefits to the FOP. Majority Opinion at 1014. Thus, I would find that LEHB's endorsement of a candidate for FOP president was "directly and immediately appropriate" to enabling it to provide health and welfare benefits to FOP members and their families. Citizens' Elec., 99 A. at 467. On this basis, I join in the majority's holding that LEHB's actions were authorized.
JUSTICE WECHT, Concurring
I agree with the result reached by the learned majority, and wholeheartedly endorse its thorough account of the evolution of Pennsylvania's for-profit and nonprofit corporation law in our Commonwealth. Indeed, I join all of the majority's analysis except aspects of its account of the test courts must apply to determine whether a given action by a nonprofit corporation is commensurate with its stated purpose.
The majority would apply the following test:
[W]e find that a nonprofit corporation's action is authorized when: 1) the action is not prohibited by the [Nonprofit Corporation Law of 1988 ("NCL"), 15 Pa.C.S. § 5101 et seq . ] or the corporation's [Articles of Incorporation ("Articles") ]; and 2) the action is not clearly unrelated to the corporation's stated purpose.
Maj. Op. at 1013–14. I agree that the applicable test of the scope of board authority involves two components, which one might call the proscription test and the practical test, respectively.1 The first pertains to express restraints, and I agree with the majority that no provision of the NCL or the Articles expressly precluded Law Enforcement Health Benefits ("LEHB") from endorsing a candidate for president of the Fraternal Order of Police ("FOP"). The second inquiry concerns implicit restrictions upon a nonprofit corporation's authority. It is in the majority's formulation of this, the practical test, that I find fault.
Rather than employ a virtually unbounded "clearly unrelated" test, I would employ a practical test that inquires whether the challenged action would be characterized by a reasonable person as "incidental" to the corporation's statement of purpose. In this case, the Articles expressly confer such "incidental" authority. Moreover, as Justice Todd explains in her Concurring Opinion, such incidental power long has been recognized as inherent in a corporate charter that contains a purpose requirement, because it would be inconsistent with the law's requirement of a "brief" statement of purpose to indulge the fiction that all ancillary actions that such a purpose would entail must be enumerated at length and exhaustively. See Justice Todd's Conc. Op. at 1017–18 (citing Citizens' Elec. Illuminating Co. v. Lackawanna & W.V.R. Co., 255 Pa. 176, 99 A. 465, 467 (1916) ).
LEHB's endorsement of a candidate for union office in this case plainly was incidental to LEHB's corporate purpose, for the reasons set forth by the majority and embraced by Justice Todd. See Maj. Op. at 1014 (observing that, under circumstances of this case, the president of the FOP directly affects "LEHB's revenue source and its very existence," implicating "LEHB's ability to function effectively"); Justice Todd's Conc. Op. at 1017–18.2 Indeed, taking an interest in the FOP election was about as close to a direct function of its stated purpose as something incidental can be without crossing that line.
While I would apply a somewhat more restrictive test than the majority, I would not place the burden upon the corporation of proving that a challenged action is incidental. The burden should lie with the challenger to prove that a given action is not incidental to the stated purpose, employing a reasonable person standard to that assessment. While this standard might be more permissive than Justice Todd's approach, she and I agree that requiring proof that a given action is "clearly unrelated" is tantamount to writing nonprofit corporations a blank check that all but entirely confounds the General Assembly's determination that nonprofit corporations must identify a specific corporate purpose. To fail such a test, a nonprofit corporation would have to undertake something having literally nothing to do with its purpose, undermining the very notion of a defined corporate purpose. Thus, LEHB presumably would be restrained from entering into the garment business, but might be found to act within its authority if it spent considerable sums to oppose enactment of the Patient Protection and Affordable Care Act. It seems to me that any test is too permissive that would leave the door open for LEHB to undertake something as remote as the latter hypothetical action is from managing the procurement and administration of healthcare insurance for its members.
SeePub.L. No. 111–148, 124 Stat. 119 (2010), amended by Health Care and Education Reconciliation Act of 2010, Pub.L. No. 111–152, 124 Stat. 1029, codified at 42 U.S.C. § 18001 et seq.
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The difficulty with formulating a test of incidental authority, and the reason it requires the flexibility that an objective reasonable person test provides, is that, without a more detailed set of parameters to guide the formulation of a brief statement of purpose, a test as rigid as Citizens Electric's undermines the breadth of authority the NCL manifestly seeks to confer. See 15 Pa.C.S. § 5502(a)(18), supra n.2. For these reasons, I would employ a reasonable person standard, pursuant to which a nonprofit corporation acts consistently with its stated purpose and articles of incorporation when a reasonable person would conclude that the challenged action directly or incidentally serves the corporation's stated purpose.
Turning to this case, while my proposal entails a more probing inquiry than the majority applies, Frank Zampogna, as the challenger herein, simply did not prove by a preponderance of the evidence that a reasonable person would not conclude that LEHB's action was squarely incidental to its stated purpose for the very reasons stated by the majority. See Maj. Op. at 1014. Providing health insurance costs money. The FOP presidency bears directly upon negotiations with the City of Philadelphia to seek funding to provide such benefits. Moreover, the FOP president, with power to appoint four of five members of the Joint Trust Board, which in turn has the power to appoint and replace the administrator of benefits, holds LEHB's very existence in the palm of his hand. Consequently, LEHB had every right and every reason to concern itself with the FOP presidential election, regardless of whether Mr. Zampogna impugned LEHB's past performance in its administrative role.
For the foregoing reasons, the Commonwealth Court erred in reversing the trial court's conclusion to this effect. Accordingly, I agree with the majority that the Commonwealth Court's order must be reversed.