Court Opinion

ID: 3205799
Source: CourtListenerOpinion
Date Created: 2016-05-23 15:15:23.449188+00
Date Added: 2024-06-11T12:39:11.385356
License: Public Domain

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Brian Robbins and Jennifer Merves       :
Robbins, and Larry Scott Auerbach,      :
Executor of the Estate of Shirley       :
Braverman, Deceased                     :
                                        : No. 979 C.D. 2015
            v.                          : Argued: February 9, 2016
                                        :
Penn Center House, Inc.,                :
                                        :
                   Appellant            :

BEFORE:     HONORABLE PATRICIA A. McCULLOUGH, Judge
            HONORABLE ANNE E. COVEY, Judge
            HONORABLE JAMES GARDNER COLINS, Senior Judge

OPINION BY
SENIOR JUDGE COLINS                                      FILED: May 23, 2016

             This is an appeal from a ruling of the Philadelphia County Court of
Common Pleas (trial court) granting partial summary judgment in favor of
plaintiffs Brian Robbins and Jennifer Merves Robbins (the Robbinses) and Larry
Scott Auerbach, Executor of the Estate of Shirley Braverman (Estate)
(collectively, Plaintiffs), and against defendant Penn Center House, Inc. (PCH) in
an action for declaratory relief and damages. This action arises out of a policy
enacted by PCH’s board of directors (Board) limiting the number of dwelling
units that a member may own in its building and PCH’s rejection of the
Robbinses’ purchase of an additional unit from the Estate based on that policy.
The trial court held that limitation on the number of units that a member may own
can be imposed only by amendment of PCH’s bylaws, and therefore granted a
declaratory judgment that the Board’s policy was void. For the reasons set forth
below, we affirm that declaratory judgment.
             PCH is a nonprofit cooperative housing corporation incorporated
under Maryland law. (PCH Articles of Incorporation, Reproduced Record (R.R.)
at 26a.) PCH owns and operates Penn Center House, a residential, cooperative
housing building with over 420 dwelling units, located in Center City
Philadelphia. PCH is owned by its members, who are individuals who own a
cooperative interest in a unit under a membership certificate and have signed an
occupancy agreement for their unit. (Id. Art. V, R.R. at 27a; PCH Bylaws Art. III
§§ 1, 4, R.R. at 33a-34a.) All individuals with a membership certificate for the
same unit constitute a single member. (PCH Bylaws Art. III § 4, R.R. at 34a.)
             PCH’s articles of incorporation do not define who may become a
member or acquire an interest in a unit and do not set forth any rights or
restrictions concerning sale or transfer of memberships or units, but provide that
“[t]o the extent not addressed in these Articles of Incorporation, Members shall
have such qualifications, rights and privileges as set forth in the by-laws.” (PCH
Articles of Incorporation Art. V § 1, R.R. at 27a.) PCH’s bylaws provide with
respect to membership:

             Eligibility. Any natural person approved by the Board of
             Directors shall be eligible for membership, provided that he
             or she executes a Subscription Agreement and an Occupancy
             Agreement in the usual form employed by the Corporation
             covering a specific unit in the cooperative (each, a “Unit”).
(PCH Bylaws Art. III § 1, R.R. at 33a) (italics in original). PCH’s bylaws can be
amended only by a two-thirds vote of the members, not by a vote of the Board.
(Id. Art. VIII, R.R. at 43a-44a.)

                                    2
             PCH’s bylaws restrict transfer of units and provide that PCH has an
option to purchase a member’s membership and right of occupancy before he or
she may sell it to a third party. (PCH Bylaws Art. III § 5, R.R. at 34a-35a.) The
bylaws also provide that if PCH does not exercise that option,

             the member may sell his/her membership to any person who
             (i) fulfills the Corporation’s membership eligibility
             requirements, (ii) is duly approved by the Corporation as a
             member, (iii) executes a Subscription Agreement and an
             Occupancy Agreement with the Corporation, and (iv) pays
             the Administrative Transfer Fee and such other charges as
             may be established from time to time by the Board.
(Id. Art. III § 5(c), R.R. at 34a-35a) (emphasis added).         PCH’s occupancy
agreements in effect at the time of these events provided that if PCH did not
exercise its option to purchase the unit,

             the Member may sell his membership to any person, but such
             sale shall not entitle the purchaser to any right of occupancy
             unless he has been duly approved by the Corporation as an
             occupant.
(2012 Form Occupancy Agreement Art. 7(c), R.R. at 394a; Estate Occupancy
Agreement Art. 8(c), R.R. at 114a; Robbins Occupancy Agreements Art. 8(c),
R.R. at 127a, 139a.)
             PCH’s bylaws neither restrict the number of units that an individual
may own nor do they state that a member has a right to own more than one unit or
purchase an interest in additional units. The bylaws contain language addressing
the situation where an individual owns more than one unit, providing that such
individuals count as a member for each unit that he or she owns in membership
meetings and votes. (PCH Bylaws Art. IV §§ 5, 7, R.R. at 36a.) These provisions
include a reference to possible ownership of three units, stating with respect to

                                      3
annual meetings and special meetings of the members: “For illustrative purposes,
should a member have interest in three Units, such member shall count as three
members for purposes of determining whether a quorum is present.” (Id. § 5, R.R.
at 36a.) Nothing in the occupancy agreements addresses ownership of multiple
units. (2012 Form Occupancy Agreement, R.R. at 390a-400a; Estate Occupancy
Agreement, R.R. at 108a-120a; Robbins Occupancy Agreements, R.R. at 122a-
144a.)
            With respect to the powers of its board of directors, PCH’s bylaws
provide:

            Powers and Duties. The Board shall have the powers and
            duties necessary for the administration of the affairs of the
            Corporation and may do all such acts and things as are not by
            law or these Bylaws directed to be exercised and done by the
            members. The power of the Board shall include but not be
            limited:
            (a) To accept or reject all applications for membership and
            admission to occupancy of a Unit in the cooperative, either
            directly or through an authorized representative;
            (b) To establish monthly carrying charges prescribed in the
            Occupancy Agreement, based on an annual operating budget
            formally adopted by such Board;
            (c) To promulgate such rules and regulations pertaining to use
            and occupancy of the premises as may be deemed proper and
            which are consistent with these Bylaws and the Articles of
            Incorporation.
(PCH Bylaws Art. V § 2, R.R. at 37a) (underline emphasis added, italics in
original). The Board’s policies concerning membership applications in effect at
the time of these events provided that when a unit became available, it was to be
offered first to the members occupying the adjacent units. (PCH Procedural
Guidelines for Applications, Agreements and Transfers, R.R. at 47a.)         The
Board’s policies also required income and financial condition minimums for
                                    4
approval of memberships and transfers, which are based on the sale price of the
unit and the amount of the monthly charges to which the unit is subject, and
provided for criminal background checks. (Id., R.R. at 47a-48a; PCH Financial
Requirements for Purchasing a Unit, R.R. at 414a.)
            The Robbinses own and occupy Penn Center House Units 1001 and
1013, which they have merged internally into a single, combined dwelling. In
December 2012, the Robbinses notified PCH’s general manager that they had
learned that the occupant of Unit 1015, which is adjacent to their Unit 1013, had
passed away and that they wished to purchase it if it became available. The
Robbinses intend to merge Unit 1015 with their combined Units 1001 and 1013.
            In its March 2013 Board meeting, a proposal was made to limit the
number of units that a member could own to two units. (March 2013 Board
Minutes, R.R. at 73a.)     This was initially proposed as a possible bylaw
amendment, but was tabled and referred to the Board’s Building Committee and
Finance Committee for further discussion. (Id.) Following approval of a two-unit
limitation by both the Building Committee and the Finance Committee, the Board
at its April 16, 2013 meeting, by a vote of four to two, enacted the following
policy:

            As a new policy, any one member may not own more than
            two units. Further, the name(s) on the certificate(s) for these
            unit(s) must be identical on both unit’s [sic] certificates.
            Lastly, any name(s) on these certificate(s) may not appear on
            any other Unit certificate. The only exception to this rule
            would be if additional unit(s) are to be purchased by an
            existing Member or Members and their original unit(s) are
            under agreement of intent to vacate and sell. Adjoining Units
            are to be defined as being on the same floor, are physically
            connected internally, and do not breach the floor slabs of
            building fire walls.

                                    5
(April 2013 Board Minutes, R.R. at 1113a) (emphasis added). The Robbinses
were not the only PCH members seeking to purchase a third unit when the Board
enacted the two-unit limit; a Board member who owned two units had also placed
himself on the waiting list to purchase a third unit. (R.R. at 2408a, 2497a.)
             On May 3, 2013, the Estate gave notice to PCH that Unit 1015 was
available. In November 2013, the Plaintiffs entered into an Agreement of Sale to
sell the Estate’s interest in Unit 1015 to the Robbinses, subject to PCH’s approval
of the transfer and issuance of a membership certificate and occupancy agreement
for Unit 1015 to the Robbinses. On December 9, 2013, the Estate submitted to
PCH the Robbinses’ application to purchase Unit 1015 and requested approval of
the transfer of Unit 1015 to the Robbinses. (Estate Letter to PCH, R.R. at 66a.)
On December 16, 2013, PCH rejected the application for transfer of Unit 1015 to
the Robbinses based on the two-unit limitation enacted by the Board. (PCH Letter
to Estate, R.R. at 68a.) Although Plaintiffs submitted financial information and a
release for criminal background check, the Board did not make a determination
whether the Robbinses satisfied the other requirements for approval. (R.R. at 66a,
68a.)
             The Robbinses commenced this action against PCH on September
16, 2013. On February 26, 2014, the Robbinses and the Estate filed an Amended
Complaint asserting claims for tortious interference with contract, breach of
contract and declaratory judgment, contending that a limitation on the number of
units that a member may own can be imposed only by amendment of PCH’s
bylaws, not by Board action. PCH filed a counterclaim, asserting that Plaintiffs’
action was a violation of PCH’s bylaws and the occupancy agreements that the

                                      6
Robbinses and the Estate’s decedent signed.                Following the completion of
discovery, both Plaintiffs and PCH filed motions for summary judgment.
              By orders entered July 30, 2014, August 1, 2014 and September 3,
2014, the trial court dismissed PCH’s counterclaim with prejudice, denied PCH’s
motion for summary judgment in its entirety, and denied reconsideration of the
summary judgment ruling. On September 3, 2014, the trial court, by separate
order, granted Plaintiffs summary judgment on their declaratory judgment claim
and ordered that:

              The Board Policy Passed on April 16, 2013 limiting the
              number of units a member is permitted to own is void.
              Plaintiffs shall be permitted to proceed with the contract for
              purchase of unit 1015.
(Trial Court Order.) The trial court in this September 3, 2014 order also granted
Plaintiffs summary judgment on liability on their contract claims, but denied
summary judgment on the tortious interference with contract claims on the ground
that there were disputes of fact concerning Board members’ knowledge of the
Robbinses’ desire to purchase Unit 1015. PCH timely appealed the trial court’s
September 3, 2014 order granting partial summary judgment in Plaintiffs’ favor.1
PCH also moved for a stay, and on October 8, 2014, the trial court stayed both its
order that Plaintiffs be allowed to proceed with the purchase of Unit 1015 and all
remaining proceedings in this action pending PCH’s appeal. (Trial Court Stay
Order, R.R. at 3243a.)

1
  PCH filed its appeal in the Superior Court and on May 4, 2015, the Superior Court transferred
this appeal to this Court on the ground that this Court has exclusive jurisdiction, under 42 Pa.
C.S. § 762(a)(5), over appeals in actions involving corporate affairs of nonprofit corporations
and their members and directors.

                                           7
              As a threshold matter, we must determine whether and what parts of
the trial court’s orders in this matter are properly before us. Because the trial
court’s orders did not resolve all claims in this action, its grant of partial summary
judgment on Plaintiffs’ contract claims, its dismissal of PCH’s counterclaim, and
its denial of PCH’s motion for summary judgment are not final orders and are not
appealable.    Pa. R.A.P. 341(b)(1).      However, the trial court’s grant of a
declaratory judgment voiding the Board’s limitation on the number of units that a
member may own resolved Plaintiffs’ claim for declaratory relief and is therefore
appealable as an order “expressly defined as a final order by statute” under Pa.
R.A.P. 341(b)(2). 42 Pa. C.S. § 7532 (declaratory judgment order “shall have the
force and effect of a final judgment or decree”); Swords v. Harleysville Insurance
Co., 883 A.2d 562, 565 n.4 (Pa. 2005); Nationwide Mutual Insurance Co. v.
Wickett, 763 A.2d 813, 817 (Pa. 2000); Pennsylvania Services Corp. v. Texas
Eastern Transmission, LP, 98 A.3d 624, 626 n.1 (Pa. Super. 2014); Titeflex Corp.
v. National Union Fire Insurance Co. of Pittsburgh, Pa., 88 A.3d 970, 974-76 (Pa.
Super. 2014). In addition, the trial court’s order that “Plaintiffs shall be permitted
to proceed with the contract for purchase of unit 1015” is an appealable
interlocutory order under Pa. R.A.P. 311(a)(4) as an “order that grants … an
injunction,” because it enjoins PCH with respect to its approval or rejection of the
Robbinses’ purchase. (See Trial Court Stay Order, R.R. at 3243a (characterizing
that portion of its September 3, 2014 order as “enjoining Defendant from
preventing the sale of Unit 1015”).) This Court therefore has jurisdiction to
review the trial court’s rulings that PCH’s Board lacked the power to impose a
two-unit ownership limitation by policy and that “Plaintiffs shall be permitted to
proceed with the contract for purchase of unit 1015.”

                                      8
              PCH argues that its Board has the power under PCH’s governing
documents to impose a restriction on the number of units that a member may own
by policy without a vote of the members to amend the bylaws. We do not agree.2
              As the parties correctly assert and the trial court held, Maryland law
applies to the issues in this appeal. Although the events here all occurred in
Pennsylvania, the property is located in Pennsylvania and Plaintiffs are
Pennsylvania citizens, the issues in this action concern the corporate governance
of PCH and rights of PCH members under its articles of incorporation and bylaws.
Because PCH is a Maryland nonprofit corporation, but the housing cooperative
that it operates is in Pennsylvania and its members as residents of that building are
Pennsylvanians, PCH is a “foreign domiciliary corporation” under the Nonprofit
Corporation Law of 1988 (Nonprofit Corporation Law). 15 Pa. C.S. § 6102. The
governance of a foreign domiciliary corporation is subject to the requirements of
the Pennsylvania statutes listed in the Section 6145(c) of the Nonprofit
Corporation Law, but unless a statute listed in Section 6145(c) governs the issue
before the court, the court in an action brought by a member against such a
corporation that “relates to the internal affairs” of the corporation “shall apply the
law of the jurisdiction under which the foreign domiciliary corporation was

2
  Because this is an appeal from a grant of summary judgment, our standard of review of the
trial court’s decision is de novo and the scope of review is plenary. Pyeritz v. Commonwealth,
32 A.3d 687, 692 (Pa. 2011); Summers v. Certainteed Corp., 997 A.2d 1152, 1159-60 (Pa.
2010). Although Plaintiffs have repeatedly asserted that this Court may reverse the trial court
only for abuse of discretion, those contentions misstate the law. See Summers, 997 A.2d at
1159-60 (appellate court’s use of abuse discretion standard in upholding grant of summary
judgment is reversible error because proper standard of review on appeal from summary
judgment is de novo). We affirm the trial court’s holding that the Board’s policy is void
because the trial court’s legal conclusion was correct, not because our review is limited.

                                          9
incorporated.” 15 Pa. C.S. § 6145(b). None of the statutes listed in Section
6145(c) applies here.3 Accordingly, this action is governed by the law of the
jurisdiction under which PCH was incorporated, Maryland.
              PCH is a “cooperative housing corporation” subject to the
requirements of the Maryland Cooperative Housing Corporation Act (Cooperative
Housing Act). Md. Code, Corporations & Associations, §§ 5-6B-1(g), 5-6B-33.
Under the Cooperative Housing Act, a member’s ownership interest is personal
property and the member’s possessory rights with respect to his or her unit are
under a proprietary lease from the cooperative housing corporation. Md. Code,
Corporations and Associations, § 5-6B-16; Village Green Mutual Homes, Inc. v.
Randolph, 760 A.2d 716, 718-20 (Md. 2000).                The Cooperative Housing Act
contains no provisions concerning what actions must be done by bylaw and what
powers the board of directors has.            The Cooperative Housing Act, however,
provides that Maryland statutes “applicable to stock and nonstock corporations
shall apply to all cooperative housing corporations,” unless they conflict with a
provision of the Cooperative Housing Act.                  Md. Code, Corporations &
Associations, § 5-6B-15.
              Maryland’s corporations laws provide that “[a]ll powers of the
corporation may be exercised by or under authority of the board of directors

3
  Most of the statutes that apply to foreign domiciliary corporations deal with matters such as
annual reports, records and inspection, indemnification, voting and membership meetings,
appointment of a custodian and fundamental corporate changes. 15 Pa. C.S. § 6145(c). Only
two of the listed statutes, 15 Pa. C.S. §§ 5504(b) and 5769(b), deal with bylaws, powers of the
board of directors or membership rights. Section 5504(b) limits the power of the board of
directors to amend the bylaws on certain subjects even if the bylaws permit amendment by the
board of directors. 15 Pa. C.S. § 5504(b). That is not an issue here because PCH’s bylaws do
not allow the Board to amend the bylaws. Section 5769(b) deals only with due process
procedures for expulsion from membership. 15 Pa. C.S. § 5769(b).

                                         10
except as conferred on or reserved to the stockholders by law or by the charter or
bylaws of the corporation.”     Md. Code, Corporations and Associations, § 2-
401(b). Maryland’s corporations laws further provide that “the charter or bylaws
of a nonstock corporation may … [p]rescribe the rights, privileges, and
qualifications of its members.” Md. Code, Corporations and Associations, § 5-
202(b)(3). A corporation’s articles of incorporation and bylaws are analyzed
under the principles governing contract interpretation. Tackney v. U.S. Naval
Academy Alumni Association, Inc., 971 A.2d 309, 318 (Md. 2009).
             Here, PCH’s articles of incorporation provide that the “qualifications,
rights and privileges” of its members shall be set forth in its bylaws. (PCH
Articles of Incorporation Art. V § 1, R.R. at 27a.) Restrictions on ownership and
on transfer of units involve the rights and privileges of members and therefore
must be set forth in PCH’s bylaws unless the bylaws otherwise provide. Nothing
in PCH’s bylaws limits the number of units that a member may own. Although
PCH’s bylaws do not expressly grant a right to own multiple units or a specific
number of units, they contemplate and do not prohibit ownership of multiple units,
including ownership of three units, as they address the application of voting and
quorum rules to such multi-unit ownership. (PCH Bylaws Art. IV §§ 5, 7, R.R. at
36a.) While the bylaws restrict transfer of units, those restrictions do not bar
transfer to existing members or refer to ownership of other units. (Id. Art. III § 5,
R.R. at 34a-35a.) PCH’s bylaws do not expressly grant its Board any power to
alter the rights or privileges of its members. (Id. Art. V § 2, R.R. at 37a.)
Moreover, PCH’s occupancy agreements, the proprietary leases that govern the
members’ rights in their units, do not restrict the number of units that the member
may own or limit transfer based on the transferee’s ownership of other units.

                                     11
             PCH’s bylaws do provide that both eligibility for membership and
the right to transfer are subject to Board approval of the applicant or transferee.
(PCH Bylaws Art. III §§ 1, 5, R.R. at 33a-35a.) The bylaws also expressly grant
the Board the power “[t]o accept or reject all applications for membership and
admission to occupancy of a Unit” and “[t]o promulgate such rules and
regulations pertaining to use and occupancy of the premises as may be deemed
proper and which are consistent with these Bylaws and the Articles of
Incorporation.” (Id. Art. V § 2, R.R. at 37a.) None of these provisions authorizes
restrictions on the number of units that a member may own. The Board’s power
to approve and reject applicants relates to the approval of the individual seeking to
acquire a unit based on his or her characteristics. In contrast, the policy on
ownership of multiple units adopted by the Board by its terms relates to the rights
of members to own multiple units, not to characteristics of applicants that
reasonably bear on their fitness to own a unit or an additional unit in the building.
Indeed, it is not framed as a criterion for evaluating individuals for membership
and does not refer to applications for membership or transfer at all. Rather it
states that “[a]s a new policy, any one member may not own more than two units.”
(April 2013 Board Minutes, R.R. at 1113a.) The Board’s two-unit limitation
likewise cannot be characterized as a policy on use or occupancy. It does not
address how the unit is used by the member, such as whether it is occupied by the
member, whether it is combined into a single dwelling with another unit or units,
or whether structural changes are made in the unit. Instead it regulates only what
the member can own, not what the member can do with units that he or she owns.
             Contrary to PCH’s contentions, the fact that PCH’s bylaws grant the
Board a general power to “do all such acts and things as are not by law or these

                                     12
Bylaws directed to be exercised and done by the members” (PCH Bylaws Art. V §
2, R.R. at 37a) does not give the Board authority to limit the number of units that
members may own. Such a grant of power authorizes the Board to manage PCH’s
business and act on matters that neither law nor its articles of incorporation
require be addressed in the bylaws. See Werbowsky v. Collomb, 766 A.2d 123,
133 (Md. 2001); Warren v. Fitzgerald, 56 A.2d 827, 832-33 (Md. 1948).
Limiting member ownership rights is not the management of PCH’s business as a
housing cooperative; it is a regulation of the rights and privileges of PCH’s
members, which, under PCH’s articles of incorporation, must be set forth in its
bylaws.
            PCH argues that the nature of housing cooperatives gives its Board
the power to limit the number of units a member may own. PCH is correct that its
members do not hold fee simple title to their units and are in a landlord-tenant
relationship with respect to occupancy of the units. Md. Code, Corporations and
Associations, § 5-6B-16; Village Green Mutual Homes, Inc., 760 A.2d at 718-21;
Green v. Greenbelt Homes, Inc., 194 A.2d 273, 275-77 (Md. 1963). It is also well
established that housing cooperatives may impose transfer restrictions and
approval requirements on their members. See, e.g., Kohler v. Snow Village, Inc.,
475 N.E.2d 1298, 1303-06 (Ohio App. 1984) (upholding prohibition of subleases
and transfer approval requirements); Alexy v. Kennedy House, Inc., 507 F. Supp.
690, 697-701 (E.D. Pa. 1981) (upholding corporation’s right to buy back unit at a
transfer value price based on seller’s original purchase price and restrictions on
subleases); Mowatt v. 1540 Lake Shore Drive Corp., 385 F.2d 135, 137-38 (7th
Cir. 1967) (upholding sublease and transfer approval requirements); Gale v. York
Center Community Cooperative, Inc., 171 N.E.2d 30, 32-34 (Ill. 1960) (upholding

                                    13
corporation’s right to buy back and transfer approval requirements); Weisner v.
791 Park Avenue Corp., 160 N.E.2d 720, 723-24 (N.Y. 1959) (upholding
corporation’s right to reject transfer of proprietary lease).
             The issue here, however, is not whether PCH may limit ownership to
two units, but how it may impose that limitation. None of the cases cited by PCH
suggest that restrictions on the number of units that members own may be
imposed by board of directors’ action rather than by bylaw. To the contrary, the
restrictions on transfer that have been upheld were set forth in housing
cooperative’s bylaws or agreed to by the members in their proprietary leases, and
were not policies unilaterally imposed by board of directors’ action. See Kohler,
475 N.E.2d at 1304-06; Alexy, 507 F. Supp. at 693, 697; Mowatt, 385 F.2d at 135;
Gale, 171 N.E.2d at 31-32; Weisner, 160 N.E.2d at 722; Penthouse Properties v.
1158 Fifth Avenue, Inc., 11 N.Y.S.2d 417 (N.Y. App. 1939). Those cases that
have upheld boards of directors’ policies have involved use of the unit or approval
and rejection of applicants based on the applicants’ characteristics, not limitations
of ownership rights. See Kelley v. Broadmoor Cooperative Apartments, 676 A.2d
453, 455 (D.C. App. 1996) (sublease surcharge); Alexy, 507 F. Supp. at 696
(sublease restrictions); Goldstone v. Constable, 443 N.Y.S.2d 380, 382 (N.Y.
App. 1981) (policy restricting transfer to individuals who will reside in the unit).
In contrast, courts have held that a housing cooperative’s board of directors lacks
authority to impose substantive restrictions on transfer and ownership rights that
are not set forth in the bylaws or the proprietary lease. Wirth v. Chambers-
Greenwich Tenants Corp., 928 N.Y.S.2d 288, 290-92 (N.Y. App. 2011) (board of
directors lacked authority to limit sale of unit to particular type of purchaser where
proprietary lease permitted any residential use); Oakley v. Longview Owners, Inc.,

                                      14
628 N.Y.S.2d 468, 470 (N.Y. Sup. 1995) (invalidating board of directors’ policy
barring transfers of units for a sale price below a minimum floor price).
               PCH also argues that the Board’s policy limiting ownership to two
units is protected by the business judgment rule. This argument likewise fails.
Under Maryland law, the business judgment rule protects decisions of a
corporation’s board of directors from judicial review where it is not shown that
the board’s actions were in bad faith, arbitrary, or fraudulent. Tackney, 971 A.2d
at 316-21; Sadler v. Dimensions Healthcare Corp., 836 A.2d 655, 673 (Md.
2003); Schuman v. Greenbelt Homes, Inc., 69 A.3d 512, 519 (Md. App. 2013).
The record here shows disputed facts concerning the Board’s knowledge and
motives that would preclude any finding on summary judgment that the Board’s
decision to impose a two-unit limitation was made in bad faith and there is no
evidence of fraud.4 The business judgment rule, however, cannot validate actions
of the corporation’s board of directors that are beyond its authority. Sadler, 836
A.2d at 673; Warren, 56 A.2d at 834. Because the Board lacked authority to limit
unit ownership by policy, the business judgment rule has no applicability here.

4
  There was evidence before the trial court that the Board’s reasons for the policy were to keep
membership in PCH affordable and prevent creation of large combined units that could be
difficult to resell, and that its action had nothing to do with personal animus or the Robbinses as
purchasers. (See March 2013 Board Minutes, R.R. at 73a; Depositions of Board Members
Mingoia, Holshin, and Martini, and PCH general manager, R.R. at 2062a, 2083a-2085a, 2104a,
2107a-2108a, 2140a, 2155a-2156a, 2348a-2350a, 2419a, 2448a-2451a.) There was also
conflicting evidence as to whether any of the Board members supporting the two-unit limit even
knew of the Robbinses’ interest in a third unit at the time. (Compare Depositions of Board
Members Mingoia, Holshin, Martini and Barry and Plaintiffs, R.R. at 2101a-2103a, 2112a,
2139a-2140a, 2345a, 2553a, 2564a, 2894a, 2938a-2940a, 3043a-3045a (no Board knowledge of
Robbinses’ request) with Depositions of Board Members Holshin and Mateo-Bermudez, R.R. at
2150a, 2523a.)

                                           15
               Because PCH’s articles of incorporation require that the rights and
privileges of members be set forth in its bylaws and PCH’s bylaws do not grant
the Board authority to restrict the number of units that a member may own, PCH’s
Board as a matter of law lacked authority to enact a policy limiting ownership to
two units. The trial court therefore properly granted a declaratory judgment
voiding the Board policy.
               The trial court also ordered that “Plaintiffs shall be permitted to
proceed with the contract for purchase of unit 1015.” It is unclear from this
language whether the trial court ordered PCH to approve the sale or whether it
merely required PCH to proceed with the process of considering whether the
Robbinses satisfied its existing approval requirements without the invalid
ownership limitation.5 While the latter order would clearly be valid and supported
by the record, as the undisputed evidence shows that PCH refused to evaluate the
proposed sale under its other approval requirements, an order compelling PCH to
approve the sale is not. There is no dispute that PCH has other financial and
criminal background check requirements and there was no challenge to the
validity of those requirements. The record does not show that the Board found
that the Robbinses satisfied those other requirements or that it was undisputed that
they satisfied all other requirements for approval. It could, therefore, be ordered
on summary judgment only that PCH must proceed with consideration of the

5
  Although the trial court’s description of its order as “enjoining Defendant from preventing the
sale of Unit 1015” (Trial Court Stay Order, R.R. at 3243a) suggests that it intended to order that
PCH approve the sale, its opinion suggests that the order required only the PCH consider the
application under its other approval requirements. (See Trial Court Opinion at 7 (“The court
notes that this transaction must still comply with any other applicable rules and regulations”).)

                                          16
application for approval, not that PCH must approve the sale of the unit to the
Robbinses.
              For the foregoing reasons, we affirm the trial court’s declaratory
judgment that the Board’s April 16, 2013 ownership limitation is void, but vacate
the trial court’s injunctive order that “Plaintiffs shall be permitted to proceed with
the contract for purchase of unit 1015.”6

                                           ____________________________________
                                           JAMES GARDNER COLINS, Senior Judge

6
  This Court’s and the trial court’s orders address only the sale and purchase of Unit 1015, not
the separate issue of the Robbinses’ combining it with the two other units that they own. We
note that the record shows that the wall between adjoining Units 1013 and 1015 is a firewall and
that there are disputes of fact as to whether Units 1013 and 1015 can be combined given the
firewall between the units. (Depositions of PCH general manager and Plaintiffs, R.R. at 2432a-
2434a, 2934a, 3037a-3039a.) To the extent that the Board has policies prohibiting the breaching
of firewalls or concerning removal of walls between units, nothing in this opinion or order
invalidates such policies or requires PCH to approve the Robbinses’ alterations to connect Unit
1015 with the two other combined units that they own. Unlike ownership restrictions, policies
concerning the tearing down of walls between units are matters concerning what a member does
with and to the units that he or she owns, and would therefore be within the Board’s power under
PCH’s bylaws to “promulgate such rules and regulations pertaining to use and occupancy of the
premises as may be deemed proper and which are consistent with these Bylaws and the Articles
of Incorporation.” (PCH Bylaws Art. V § 2(c), R.R. at 37a).

                                         17
        IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Brian Robbins and Jennifer Merves          :
Robbins, and Larry Scott Auerbach,         :
Executor of the Estate of Shirley          :
Braverman, Deceased                        :
                                           : No. 979 C.D. 2015
            v.                             :
                                           :
Penn Center House, Inc.,                   :
                                           :
                  Appellant                :

                                   ORDER

            AND NOW, this 23rd day of May 2016, the order of September 3,
2014 of the Philadelphia County Court of Common Pleas in the above-captioned
matter is AFFIRMED insofar as it granted a declaratory judgment that the policy
passed by the board of directors of Penn Center House, Inc. limiting the number of
units that a member is permitted to own is void. The order of September 3, 2014 is
VACATED insofar as it ordered that “Plaintiffs shall be permitted to proceed with
the contract for purchase of unit 1015.”       This matter is REMANDED to the
Philadelphia County Court of Common Pleas for proceedings consistent with this
opinion.
            Jurisdiction relinquished.

                                         ____________________________________
                                         JAMES GARDNER COLINS, Senior Judge