Court Opinion

ID: 9895482
Source: CourtListenerOpinion
Date Created: 2023-11-07 15:10:31.72979+00
Date Added: 2024-06-11T09:12:52.563229
License: Public Domain

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Matthew Serota, derivatively on        :
behalf of London Towne                 :
Homeowners Association                 :
                                       :
      v.                               : No. 820 C.D. 2021
                                       :
Matthew J. Mager a/k/a Matt            :
Mager                                  :
                                       :
Appeal of: Matthew Serota              : Argued: October 10, 2023

BEFORE:      HONORABLE MICHAEL H. WOJCIK, Judge
             HONORABLE ELLEN CEISLER, Judge
             HONORABLE BONNIE BRIGANCE LEADBETTER, Senior Judge

OPINION
BY JUDGE CEISLER                                     FILED: November 7, 2023

      Matthew Serota, derivatively on behalf of London Towne Homeowners
Association (Association), appeals from the July 9, 2021 Order of the Court of
Common Pleas of Allegheny County (Trial Court) dismissing his Complaint with
prejudice. At issue in this appeal is the scope of a temporary receiver’s powers with
regard to derivative actions under the Nonprofit Corporation Law of 1988 (Nonprofit
Law), 15 Pa. C.S. §§ 5101-6162. This issue appears to be one of first impression in
Pennsylvania, as we have found no Pennsylvania precedent involving a derivative
action by a member of a nonprofit corporation that is under receivership. For the
reasons that follow, we affirm the Trial Court’s Order.

                                  I. Background
      The Association is a nonprofit corporation with registered offices at London
Towne Drive in Pittsburgh, Pennsylvania. The Association is a planned community
comprised of 70 townhome units. The Association’s Declaration of Covenants,
Conditions and Restrictions, filed on June 14, 1979, provides: “Every [o]wner of a
[l]ot which is subject to assessments shall be a member of the Association.
Membership shall be appurtenant to and may not be separated from ownership of
any [l]ot subject to assessment.” Reproduced Record (R.R.) at 24a.
      Mr. Serota owns 24 units in the Association and resides in the State of New
York. Compl. ¶¶ 1, 7; R.R. at 144a. Matthew J. Mager co-owns one unit in the
Association. Compl. ¶ 13.
      On March 27, 2019, a group of unit owners calling themselves “Concerned
Owners of Homes in London Towne Homeowners Association” (Concerned
Owners) filed a Petition to Appoint a Receiver (Petition) in the Trial Court. In their
Petition, Concerned Owners asserted a breach of fiduciary duty claim against the
Association’s then-President, Bennett Carlise, alleging, among other things, that he
“failed to fulfill any of the duties set forth in the By[-L]aws to ensure the business
of the Association was completed,” was “unable and unauthorized to effectively
manage the business of the Association,” and “failed to properly account for the
income and expenses of the Association.” R.R. at 13a. Concerned Owners also
alleged:

             73. Due to the concerns of mismanagement of the Association
      and lack of progress of the desired objectives and dissolution of the
      Association, [C]oncerned [O]wners bring the within action against
      [Mr.] Carlise to protect the majority interests of the Association, and
      not just the interests of [Mr.] Carlise.

             74. [C]oncerned [O]wners believe that the amicable winding up
      and dissolution of the Association is necessary, as the current structure
      is not sustainable for the future of the Association.

            75. [C]oncerned [O]wners believe that due to the conflicts, the
      purpose of the Association will never be met and a mechanism is

                                          2
       necessary for the orderly dissolution of the Association and removal of
       [Mr.] Carlise.

Id. at 12a.
       Concerned Owners also requested the appointment of a receiver to execute
the involuntary dissolution of the Association, averring:

             89. In light of the repeated failure to effectuate the business of
       the Association, the Executive Board’s failure to dissolve the
       Association, the resignation of James DeMauro, and Sal Sirabella, and
       [Mr.] Carlise’s disregard of the September 5, 2018 vote [of a majority
       of the unit owners to remove the Executive Board], [Concerned
       Owners] request that a receiver be appointed and the Association be
       dissolved.

              90. There is dissension and an impasse among and between
       [Mr.] Carlise and many community unit owners as to the winding up of
       the affairs of the Association.

            91. [C]oncerned [O]wners are unaware what, if any, assets and
       income of the Association are being disbursed and why.

Id. at 14a. Finally, Concerned Owners alleged that “[u]nless a receiver is appointed,
. . . [Concerned Owners] may suffer further and irreparable harm.” Id. at 15a.
       On July 18, 2019, following a hearing, the Trial Court entered an Order
appointing Robert G. Xides, Jr., Esquire, as Temporary Receiver (Receiver) for the
Association. See 15 Pa. C.S. § 5984 (stating that in matters involving involuntary
dissolution of a nonprofit corporation, a court may, upon application, “appoint a
receiver pendente lite with such powers and duties as the court from time to time
may direct”). In its Order, the Trial Court directed Receiver to file a report and
recommendation with the Trial Court within 45 days and to convene at least one
Association meeting “to adequately address [Concerned Owners’] concerns and
make recommendations in that regard.” R.R. at 94a. The Trial Court further stated

                                          3
that Receiver had the authority “to collect assessments and make disbursements
within the regular course of business.” Id.
      On December 12, 2019, the Trial Court entered an Order further empowering
Receiver “to conduct the business of the [Association] on a continuing basis from
July 18, 2019[,] . . . forward until issuance of a new Order of [the Trial] Court . . . .”
Id. at 98a. The Order clarified that Receiver’s authority “include[d] . . . levying and
collecting assessments, making contracts for necessary services, and paying
obligations of the Association as . . . Receiver may in his discretion determine.” Id.
The Order also provided that the Association’s Executive Board members were
“prohibited from individually or collectively exercising any powers of the
Association, including but not limited to all those powers granted to . . . Receiver by
this Order of [the Trial] Court.” Id. at 99a.
      On August 31, 2020, Mr. Serota emailed a letter to Receiver, “demand[ing
that] the Association[] . . . bring civil suit against unit owner, [Mr.] Mager[,] for his
action of intentionally Interfering With A Business Relationship involving the . .
. Association[] . . . .” R.R. at 144a (capitalization and bold in original). Mr. Serota
asserted that “[u]pon information and belief, Mr. Mager had communications in
September 2018 with the underwriter of [the Association’s] Directors & Officer[]s
insurance policy with the Ironshore Insurance Company[ (Ironshore)]. These
communications were of such a threatening and negative nature that it caused
Ironshore to withdraw the offered renewal policy contract.” Id. Thus, Mr. Serota
“formally demand[ed] that the Association[] . . . bring civil suit to enforce its rights
and remedies at law for the benefit of itself and all shareholders/lot owners in
interest.” Id.

                                            4
       On September 4, 2020, Receiver emailed his response to Mr. Serota’s demand
letter, stating:

       I believe that the Pennsylvania statute of limitations makes acting upon
       the information impossible. Under [Section 5524 of the Judicial Code,]
       42 Pa.[ ]C.S. § 5524, the requested civil suit would be subject to a two[-
       ]year statute of limitations, which means that the action will be time
       barred at some undefined time this month. (Your letter only gives the
       general date of September 2018 for the alleged communications.)

              If there were time to do so, an investigation of Mr. Mager’s
       alleged actions based on specific, first[-]hand evidence might be in
       order. If the investigation suggested that legal action might be
       appropriate, I might then refer the matter to an attorney with experience
       in actions for business torts. (Our own firm has very little experience
       in this area, and I would not feel comfortable in filing such an action
       against an Association homeowner.) There is currently not nearly
       enough time to take such actions. In fact, the statute of limitations may
       already have expired. . . .

              Although legal action is impossible, I would like to know the
       details, evidence and sources for your allegations, so that I can better
       understand the history and status of the Association. I would also like
       to know when and how you first received evidence of the allegations,
       and what that evidence was. Finally, I would like to know why you
       sent me such vague information on the allegations, and at such a late
       date.

Id. at 146a.
       On the same day Receiver responded to the demand, Mr. Serota filed a
Complaint, derivatively on behalf of the Association, in the Trial Court against Mr.
Mager for intentional interference with business relations. In his Complaint, Mr.
Serota alleged that Mr. Mager tortiously interfered with the Association’s business
relationship with its prior insurance carrier, Ironshore. Specifically, Mr. Serota
averred that in September 2018, Mr. Mager informed the underwriter of the

                                           5
Association’s Directors and Officers policy that the Association was being
dissolved, as well as “other statements framing the Association and its Executive
Board negatively [so] as to cause an adverse impact on the Association’s insurance
policy renewal.” Compl. ¶¶ 27, 28. Mr. Serota also averred:

             29. On September 19, 2018, the [Association’s] Executive Board
      first discovered the contact and communication(s) [Mr.] Mager had
      with the Ironshore underwriter of the Association’s [p]olicy renewal
      when it was informed by the Association’s insurance broker of the
      ramifications that occurred as a direct and proximate result of [Mr.]
      Mager’s said communication(s).

             30. The Executive Board was informed that the renewal policy
      offering that had been previously prepared by Ironshore for
      consideration by the Executive Board had been withdrawn.

            31. The Association’s existing policy with Ironshore expired in
      late October 2018.

             32. Despite the comprehensive efforts of the Association’s
      longtime insurance broker in late October and into November 2018, to
      obtain another insurance policy offering, he ultimately advised the
      Executive Board that he could not find any insurance carrier throughout
      his extensive network of carriers willing to insure the Association.

            33. In May 2019, the Executive Board reached out to a different
      insurance broker on the possibility that a new broker could use their
      resources to potentially obtain a directors & officers policy offering for
      the Association’s Executive Board to consider.

             34. After being turned down by every carrier inquired upon, the
      new insurance broker eventually found just one carrier willing to offer
      a policy for consideration.

            35. The Wesco Insurance Company in conjunction with certain
      underwriters of Lloyd[]s of London, offered a policy with a $25,000.00
      annual premium, which was an increase of $21,059.00 from the
      $3,901.00 that was the premium for the renewal proposed policy to the

                                          6
      Association by Ironshore prior to [Mr.] Mager’s aforementioned
      communication(s) with the Ironshore underwriter that caused that
      offering to be withdrawn.

Id. ¶¶ 29-35. Mr. Serota alleged that Mr. Mager “purposefully . . . interfered with
these business relations, intending to harm the Association’s existing relationship
with Ironshore.” Id. ¶ 42.
      Mr. Serota further alleged that, before filing his Complaint, he had made
written demands of both Receiver and the Association’s Executive Board to file suit
to enforce the Association’s rights. Id. ¶¶ 8, 9. In his prayer for relief, Mr. Serota
requested the entry of judgment in his favor, as well as damages in the amount of
$210,990, “together with punitive damages, costs, fees, [and] interest.” Compl. at
7.
      On December 8, 2020, Mr. Mager filed Preliminary Objections to the
Complaint, after which Mr. Serota filed an Answer. In his Preliminary Objections,
Mr. Mager asserted, inter alia, that Mr. Serota lacked standing to file a derivative
action pursuant to Section 5781 of Nonprofit Law, 15 Pa. C.S. § 5781,1 because “his
demand lacked the necessary specificity” and because “Receiver determined that an
action may not be brought based on the claims asserted by [Mr.] Serota. As a result,
[Mr.] Serota was not given the power and authority to pursue these claims on the
Association’s behalf.” R.R. at 126a. In response to the Preliminary Objections, Mr.
Serota asserted, inter alia, that “[t]here is nothing in [the Nonprofit Law] . . . stating
that . . . Receiver is permitted to unilaterally decide on behalf of the Association that
a derivative action is not warranted.” R.R. at 157a.

      1
         The Association’s By-Laws provide that the Association “shall be governed by the
provisions of the [Nonprofit Law], as it may be amended from time to time.” R.R. at 44a.

                                            7
       On February 18, 2021, following oral argument on the Preliminary
Objections, the Trial Court entered an Order staying the litigation “pending a report
and recommendation from . . . Receiver . . . regarding whether the claims [Mr.]
Serota asserted in his demand letter . . . are in the best interest of the . . . Association.”
R.R. at 171a.
       On June 15, 2021, Receiver issued his Report and Recommendation, wherein
he determined that the present action was not in the Association’s best interest and
recommended that the action be dismissed. Receiver explained the results of his
investigation and his reasoning as follows:

              In investigating the claims asserted by Mr. Serota, . . . Receiver
       solicited input from Mr. Serota, Mr. Mager[,] and Thomas Trimbur, the
       former insurance broker for the Association. Mr. Mager and Mr.
       Trimbur talked directly with me. I also requested input from [Mr.]
       Serota. Mr. Serota’s attorney stated to me that Mr. Serota would be
       furnishing relevant information to me, but he did not do so.

             The claims asserted by Mr. Serota in his demand letter and his
       derivative lawsuit against Mr. Mager must be evaluated in the light of
       the long history of litigation among Mr. Serota, the Association, and
       the members of the Association. In 2016, Mr. Serota filed two lawsuits
       against the Association because of actions by the Association's
       Executive Board. One of these resulted in a judgment against the
       Association, and the other resulted in a settlement agreement which
       required the Association to pay substantial attorney[s’] fees to [Mr.]
       Serota.

             According to Mr. Trimbur, these lawsuits were the primary
       factor in the Association’s difficulty in obtaining renewals of its
       Directors and Officers insurance. Since the filing of the two original
       lawsuits, many additional lawsuits have been filed against the
       Association or individual members of it, mostly by [Mr.] Serota. In
       2019, [Concerned Owners] filed a Complaint against the Association
       and one of its former members, which resulted in . . . Receiver being
       appointed. In 2020, Mr. Serota responded by filing several lawsuits

                                              8
       against individual Association homeowners, including the [lawsuit]
       which . . . Receiver has been asked to evaluate. In 2021, [Mr.] Serota .
       . . filed numerous defamation actions against individual homeowners.
       All of these lawsuits have drained the Association’s funds, impeded the
       functioning of the Association and created severe enmity among
       members of the Association. A decrease, not an increase, in the number
       of lawsuits involving the Association would be in its best interest.
       Furthermore, any benefit to the Association from the lawsuit under
       review may be negligible, as both liability and damages are doubtful. .
       ..

Id. at 175a-76a (emphasis added).
       Receiver also stated that his investigation revealed that “the Association’s
insurance coverage lapsed because the Association decided not to renew it, . . . not
because of a call from Mr. Mager.” Id. at 176a. Finally, Receiver opined that Mr.
Serota’s derivative action was likely barred by the two-year statute of limitations for
tort claims in Section 5524(7) of the Judicial Code, 42 Pa. C.S. § 5524(7).2 Id.
       On July 9, 2021, the Trial Court dismissed Mr. Serota’s Complaint with
prejudice, accepting Receiver’s recommendation and concluding that dismissal of
the action was “in the best interest of the [Association].” R.R. at 181a.3

       2
           Section 5524(7) of the Judicial Code provides a two-year statute of limitations for “[a]ny
. . . action or proceeding to recover damages for injury to person or property which is founded on
negligent, intentional, or otherwise tortious conduct . . . .”

       Despite Receiver’s belief that the “statute of limitations may already have expired” based
on the alleged tortious conduct occurring in September 2018, R.R. at 146a, Mr. Serota’s August
31, 2020 demand tolled the statute of limitations. See 15 Pa. C.S. § 5781(e).

       3
          In its July 9, 2021 Order, the Trial Court did not specifically rule on Mr. Mager’s
Preliminary Objections. However, even though the Trial Court did not state in its Order that it
was sustaining the Preliminary Objections, it concluded that Mr. Serota lacked standing to file a
derivative suit and granted the precise relief Mr. Mager requested – dismissal of the Complaint –
and subsequently clarified its ruling in its Pa.R.A.P. 1925(a) Opinion. See R.R. at 224a (“[The
Trial] Court did not err in sustaining the [P]reliminary [O]bjections to Mr. Serota’s derivative
claim and dismissing this case.”) (emphasis added).

                                                 9
      In its subsequent Pa.R.A.P. 1925(a) Opinion, the Trial Court began its
analysis by summarizing the history of litigation, spanning six years, between Mr.
Serota and the Association. Id. at 215a. With regard to the allegations in Mr.
Serota’s Complaint, the Trial Court found: “Mr. Serota asserts that it was Mr.
Mager’s alleged contact with Ironshore that caused the policy not to be renewed.
However, Mr. Serota’s ability to demonstrate whether Mr. Mager actually contacted
Ironshore or the insurance broker, what was said between them, and whether this
had any effect on renewal of the insurance policy is dubious.” Id. (emphasis added).
      The Trial Court then explained its reasons for accepting Receiver’s
recommendation to dismiss Mr. Serota’s derivative suit as follows:

      Arguably, Mr. Serota’s demand fell short of the “reasonable
      specificity” required of the demand, as his allegations and the facts
      upon which he relied to make them were vague. Assuming, for the sake
      of argument, that his demand was sufficient, the Association ultimately
      refused to initiate its own lawsuit. Mr. Serota argues that the
      Association’s refusal to sue confers upon him the right to maintain this
      derivative action because the requirements of Section 5781(a) of [the
      Nonprofit Law, 15 Pa. C.S. § 5781(a),] have been satisfied. However,
      the inquiry does not end there.

      Notwithstanding the Association’s refusal to sue after Mr. Serota made
      his demand, Mr. Serota’s derivative action may be dismissed for two
      related reasons. First[], Mr. Serota cannot maintain a derivative suit if
      the Association’s refusal is protected by the business judgment rule.
      Second[], it was not the Association’s Executive Board that refused to
      initiate a suit against Mr. Mager, but . . . Receiver, . . . whom this Court
      appointed to oversee the Association’s affairs. Although Pennsylvania
      law is sparse on this issue, persuasive authority provides that a
      receivership affects the rights of an association member to maintain a
      derivative action on the association’s behalf.

Id. at 218a-19a (internal citations omitted) (emphasis added).

                                          10
      The Trial Court also rejected Mr. Serota’s claim that Receiver was required
to appoint a special litigation committee to investigate his demand before refusing
to file suit, concluding that, under the circumstances of this case, Receiver, as a
neutral third party, was capable of performing that function. The Trial Court
explained:

      [T]his Court, by its Order of February 18, 2021, directed [Receiver] to
      determine whether bringing the instant suit against Mr. Mager would
      be in the best interest of the Association. However, appointing a
      special litigation committee to make such a determination would have
      been an empty pro forma exercise and a waste of the Association’s time
      and resources. Although [the Nonprofit Law] provides a safe harbor
      for corporations that appoint a special litigation committee, 15 Pa. C.S.[
      §§] 5781, 5783, a committee is not strictly necessary if the decision of
      the board (or its receiver) is nevertheless disinterested and grounded
      in reason. If that was not the case, a nonprofit corporation would be
      bullied into spending resources in appointing a special litigation
      committee upon every demand to sue for an insignificant offense
      conjured by a particularly litigious member. The point of a special
      litigation committee is primarily to investigate claims against members
      of the board itself for fraud, where the board members would obviously
      be partial in conducting their own investigation. Here, Mr. Serota did
      not bring a derivative action against the Association’s Board, but
      against Mr. Mager[,] who is “a person other than a director, senior
      executive, or person in control of the corporation.”

Id. at 221a-22a (footnotes omitted) (emphasis added).         Thus, the Trial Court
determined that “Receiver was capable of exercising independent judgment as to the
best interests of the Association and satisfying the business judgment rule,
notwithstanding the absence of a special litigation committee.” Id. at 222a.
      The Trial Court then concluded:

      Not only is [Receiver] an independent and disinterested third party, but
      his decision that the instant action is not in the Association’s best
      interest was well-reasoned, investigated as thoroughly as could be

                                         11
       expected after more than two years [had] passed since the facts giving
       rise to the claim, and delivered to the [Trial] Court in a written report.
       [Receiver’s] determination that this lawsuit would not be in the best
       interest of the Association is supported by a variety of reasons in his
       report. For example, [Receiver] noted that, whatever role Mr. Mager
       may have played in interfering with the renewal of the Ironshore policy,
       the Association’s difficulty in securing insurance stemmed largely from
       Mr. Serota’s own litigiousness against the Association. [Receiver] also
       determined that these lawsuits had drained the Association of its funds.
       Accordingly, [Receiver] rationally believed that “[a] decrease, not an
       increase, in the number of lawsuits involving the Association would be
       in its best interest.” [Receiver] also considered the merits of the claim
       itself. After speaking with the Association’s insurance broker,
       [Receiver] determined that the Association itself had elected not to
       renew the policy, vitiating any interference Mr. Mager allegedly
       caused. These circumstances are more than sufficient to justify
       application of the business judgment rule and to dismiss Mr. Serota’s
       derivative action.

Id. at 222a-23a (emphasis added).
       Finally, the Trial Court noted that “jurisdictions with more developed case[
]law on point have suggested that where a corporation is in receivership[,] a
derivative action cannot be maintained absent consent of the receiver or the court
appointing the receiver.” Id. at 223a (citing Fields v. Fidelity Gen. Ins. Co., 454
F.2d 682, 685 (7th Cir. 1971)).4 The Trial Court concluded:

       Receiver was empowered by th[e Trial] Court to conduct the business
       of the Association, including determining whether to bring the instant
       action. As such, . . . Receiver was the only party vested with the right
       to unilaterally decide whether or not Mr. Serota could maintain his
       derivative action, so long as th[e Trial] Court has found that such a
       decision has satisfied the business judgment rule.

       4
          The Trial Court also cited Klein v. Peter, 284 F. 797 (8th Cir. 1922), Tankersley Inv. Co.
ex rel. Tankersley v. Tankersley, 189 P.2d 415 (Ok. 1948), and Waller v. Waller, 49 A.2d 449 (Md.
1946).

                                                12
Id. at 224a-25a. Mr. Serota now appeals to this Court.5
                                         II. Analysis
       On appeal, Mr. Serota asserts that, in dismissing his derivative action, the Trial
Court misapplied both the requirements for derivative actions in the Nonprofit Law
and the business judgment rule. Mr. Serota contends that, under Sections 5781 and
5783 of the Nonprofit Law, the only way the Association can prevent a derivative
action by a member is to either: (1) file its own lawsuit within a reasonable time
after receiving a demand, or (2) form a special litigation committee (comprised of
two or more disinterested individuals) to investigate the demand and determine
whether pursuing an action is in the Association’s best interest. Instead, the Trial
Court authorized Receiver, an officer of the court, to perform the function of a duly
appointed special litigation committee. Mr. Serota contends that the Trial Court
erred in granting Receiver sole and exclusive authority to determine whether a
lawsuit was in the Association’s best interest, when Section 5783 of the Nonprofit
Law requires a special litigation committee to make such a determination.
       The issue of a receiver’s powers with regard to derivative actions under the
Nonprofit Law appears to be one of first impression in Pennsylvania. Our research
has revealed no Pennsylvania precedent involving a derivative action by a member
of a nonprofit corporation that is under any form of receivership.

       5
          Our review of a trial court’s order sustaining preliminary objections and dismissing a
complaint is limited to determining whether the trial court abused its discretion or committed an
error of law. Petty v. Hosp. Serv. Ass’n of Ne. Pa., 967 A.2d 439, 443 n.7 (Pa. Cmwlth. 2009),
aff’d, 23 A.3d 1004 (Pa. 2010).

                                               13
                   A. Derivative Actions Under Nonprofit Law
      We begin our analysis by reviewing the statutory requirements for derivative
actions under the Nonprofit Law. At the time of the Trial Court proceedings in this
case, Section 5781(a)(1)(i) and (ii) of the Nonprofit Law stated in relevant part:

      [A] plaintiff may maintain a derivative action to enforce a right of a
      nonprofit corporation only if:

      (1) the plaintiff first makes a demand on the corporation or the board
      of directors, requesting that it cause the corporation to bring an action
      to enforce the right, and:

             (i) if a special litigation committee is not appointed under
             [S]ection 5783 (relating to special litigation committee), the
             corporation does not bring the action within a reasonable time;
             or

             (ii) if a special litigation committee is appointed under [S]ection
             5783, a determination is made:

                     (A) under [S]ection 5783(e)(1) that the corporation not
                     object to the action; or

                     (B) under [S]ection 5783(e)(5)(i) that the plaintiff continue
                     the action[] . . . .

Former 15 Pa. C.S. § 5781(a)(1)(i) and (ii).6 Under the plain language of former
Section 5781(a)(1)(i), if the board does not appoint a special litigation committee

      6
         Section 5781(a)(1)(i) of the Nonprofit Law was subsequently amended on November 3,
2022, P.L. 1791 (effective January 3, 2023). Section 5781(a)(1)(i) now states:

      [A] plaintiff may maintain a derivative action to enforce a right of a nonprofit
      corporation only if:

      (1) the plaintiff first makes a demand on the corporation or the board of directors,
      requesting that the corporation bring an action to enforce the right, and:
(Footnote continued on next page…)

                                              14
after receiving a demand, then the plaintiff may file a derivative action if the
corporation does not file an action within a reasonable time.
        Rather than filing its own action in response to a demand, however, the board
of directors may choose to first appoint a special litigation committee to investigate
the claims in the demand. With regard to special litigation committees, Section
5783(a) of the Nonprofit Law provides:

        If a nonprofit corporation or the board of directors receives a demand
        to bring an action to enforce a right of the corporation, . . . the board
        may appoint a special litigation committee to investigate the claims
        asserted in the demand or action and to determine on behalf of the
        corporation or recommend to the board whether pursuing any of the
        claims asserted is in the best interests of the corporation. The
        corporation must deliver a notice in record form to the person making
        the demand[] . . . promptly after the appointment of a committee under
        this section notifying the person making the demand . . . that a

                (i) if a special litigation committee is not appointed under section 5783
                (relating to special litigation committee), the board determines that:

                        (A) an action based on some or all of the claims asserted in the
                        demand not be brought by the corporation but that the corporation
                        not object to an action being brought by the party that made the
                        demand; or

                        (B) an action already commenced continue under the control of the
                        plaintiff[] . . . .

15 Pa. C.S. § 5781(a)(1)(i). Because the amendment took effect after Mr. Serota filed his appeal,
we apply the prior statutory language applicable at the time of the Trial Court proceedings. See
Section 1953 of the Statutory Construction Act of 1972, 1 Pa. C.S. § 1953 (stating that “new
[amendatory] provisions shall be construed as effective only from the date when the amendment
became effective”) (emphasis added); see also S.D. Richman Sons, Inc. v. Bd. of Fin. & Revenue,
416 A.2d 1161, 1164 (Pa. Cmwlth. 1980) (“[A]lthough an amendment to a statute is to be
construed as merging into and becoming a part of the original statute . . . , it still is to be construed
as effective only from the date when the amendment became effective.”) (emphasis added).

                                                  15
      committee has been appointed and identifying by name the members of
      the committee.

15 Pa. C.S. § 5783(a) (emphasis added). Section 5783(c) provides that, if appointed,
a special litigation committee “shall be composed of two or more individuals who:
(1) are not interested in the claims asserted in the demand or action; (2) are capable
as a group of objective judgment in the circumstances; and (3) may, but need not, be
members, directors or members of another body.” Id. § 5783(c) (emphasis added).
Further, Section 5783(e)(4) and (7) permits the board of directors to determine that
“an action not be brought based on any of the claims asserted in the demand” or that
“an action already commenced be dismissed,” but only “[a]fter appropriate
investigation by a special litigation committee.” Id. § 5783(e)(4) and (7).
                              B. Receiver’s Authority
      We now turn to the role of a receiver pendente lite who is appointed to oversee
the involuntary winding up and dissolution of a nonprofit corporation, as in this case.
Section 5984 of the Nonprofit Law provides:

      Upon the filing of an application under this subchapter, the court may
      issue injunctions, appoint a receiver pendente lite with such powers and
      duties as the court from time to time may direct and proceed as may be
      requisite to preserve the corporate assets wherever situated and carry
      on the business of the corporation until a full hearing can be had.

15 Pa. C.S. § 5984 (emphasis added).
      On appeal, Mr. Serota argues that Trial Court erred in granting Receiver the
exclusive authority to determine whether a derivative action was in the Association’s
best interest without appointing a special litigation committee as required by Section
5783 of the Nonprofit Law. We disagree.
      As both the parties and the Trial Court acknowledge, there is no Pennsylvania
law specifically addressing the powers of a receiver with regard to derivative actions

                                          16
under the Nonprofit Law. However, we are able to glean the following general
principles from our case law regarding receiverships.
      Once appointed, a receiver is “the officer, the executive hand, of a court of
equity.” Warner v. Conn, 32 A.2d 740, 741 (Pa. 1943). As an officer of the court,
“[a] receiver has only such powers and authorities as are given him by the court and
must not exceed the prescribed limits.” Cont’l Bank & Tr. Co. v. Am. Assembling
Mach. Co., 38 A.2d 220, 224 (Pa. 1944) (emphasis added); see also Rappaport v.
Stein, 520 A.2d 480, 483 (Pa. Super. 1986) (“The hallmark of any receivership[] . .
. is the removal of all possession and control from the owners of the [corporation]
and the transfer thereof to the receiver, who acts as the officer of the appointing
court.”) (emphasis added). In other words, a receiver is subject to the discretion and
control of the court and has no powers other than those conferred upon him by the
order of his appointment. As such, we must look to the orders appointing Receiver
in this case, as well as the circumstances surrounding the appointment, to determine
the precise authority conferred upon him by the Trial Court. See Witt v. Dep’t of
Banking, 425 A.2d 374, 376 (Pa. 1981); see also Duplex Printing Press Co. v.
Clipper Publ’g Co., 62 A. 841, 842 (Pa. 1906) (“The authority of a receiver and the
effect of his action depend almost entirely on the purpose of his appointment and the
extent of his powers conferred by the decree appointing him.”).
      Here, the Trial Court appointed Receiver on a temporary basis in response to
Concerned Owners’ Petition, pursuant to Section 5984 of the Nonprofit Law. See
R.R. at 219a (citing 15 Pa. C.S. § 5984); id. at 94a. At the time of the appointment,
there was no functioning Executive Board in place, because a majority of unit
owners had voted to remove the existing Board and two of the three Board members
had voluntarily resigned from their positions. The Trial Court’s July 18, 2019 Order

                                         17
appointing Receiver initially limited his authority to “address[ing] [Concerned
Owners’] concerns [raised in their Petition] and mak[ing] recommendations in that
regard” and “collect[ing] assessments and mak[ing] disbursements within the
regular course of business.” Id. at 94a.
      On December 12, 2019, however, the Trial Court entered a second Order
further clarifying Receiver’s powers. In its December 12, 2019 Order, the Trial
Court granted Receiver the authority to “conduct the business of the [Association]
on a continuing basis from July 18, 2019[,] . . . forward until issuance of a new Order
of [the Trial] Court . . . .” Id. at 98a (emphasis added). That Order also expressly
prohibited the Executive Board “from individually or collectively exercising any
powers of the Association, including but not limited to all those powers granted to .
. . Receiver by this Order of [the Trial] Court.” Id. at 99a (emphasis added). By way
of these appointment orders, the Trial Court gave Receiver broad authority to
conduct all business and functions of the Association and its Executive Board until
further order of the Trial Court.
      Moreover, Section 5984 of the Nonprofit Law, under which Receiver was
appointed, authorized the Trial Court to grant Receiver “such powers and duties as
the court from time to time may direct and proceed as may be requisite to preserve
the corporate assets.” 15 Pa. C.S. § 5984 (emphasis added). Here, the Trial Court
believed that the best way to preserve the Association’s assets, in the face of Mr.
Serota’s derivative action, was to authorize Receiver, a neutral third party, to
investigate Mr. Serota’s claims and determine whether a lawsuit would benefit or
cause further harm to the Association, given the long history of litigation between
Mr. Serota and the Association. As the Trial Court cogently explained:

                                           18
      [A]ppointing a special litigation committee to make such a
      determination would have been an empty pro forma exercise and a
      waste of the Association’s time and resources. Although [the Nonprofit
      Law] provides a safe harbor for corporations that appoint a special
      litigation committee, 15 Pa. C.S.[ §§] 5781, 5783, a committee is not
      strictly necessary if the decision of the board (or its receiver) is
      nevertheless disinterested and grounded in reason. If that was not the
      case, a nonprofit corporation would be bullied into spending resources
      in appointing a special litigation committee upon every demand to sue
      for an insignificant offense conjured by a particularly litigious member.
      The point of a special litigation committee is primarily to investigate
      claims against members of the board itself for fraud, where the board
      members would obviously be partial in conducting their own
      investigation. Here, Mr. Serota did not bring a derivative action against
      the Association’s Board, but against Mr. Mager[,] who is “a person
      other than a director, senior executive, or person in control of the
      corporation.”

R.R. at 221a-22a (footnotes omitted) (emphasis added).
      This case is not a typical situation in which a shareholder or member of a
corporation asks the board of directors to pursue an action on behalf of the
corporation, because here a temporary receiver had been appointed to keep the
Association functioning while the Executive Board was in turmoil and the
Association’s assets were depleting. The Trial Court undoubtedly has wide latitude
under the Nonprofit Law to direct Receiver’s powers and duties “and [to] proceed
as may be requisite to preserve the corporate assets.” 15 Pa. C.S. § 5984 (emphasis
added). The Trial Court determined that a special litigation committee would have
served no practical purpose and was not required, given Receiver’s broad powers to
act on the Executive Board’s behalf pursuant to the appointment orders. See R.R. at
222a (“Not only is [Receiver] an independent and disinterested third party, but his
decision that the instant action is not in the Association’s best interest was well-
reasoned, investigated as thoroughly as could be expected after more than two years

                                         19
[had] passed since the facts giving rise to the claim, and delivered to the [Trial] Court
in a written report.”). Under these circumstances, we conclude that the Trial Court
did not err in authorizing Receiver, rather than a special litigation committee, to
investigate Mr. Serota’s demand and determine whether a derivative action was in
the Association’s best interest.
                            C. Business Judgment Rule
      Finally, Mr. Serota asserts that the Trial Court misapplied the business
judgment rule, first adopted by the Pennsylvania Supreme Court in Cuker v.
Mikalauskas, 692 A.2d 1042 (Pa. 1997), in accepting Receiver’s recommendation
and dismissing his derivative action. We disagree.
      Cuker involved two shareholder derivative actions, alleging similar facts, filed
against the directors and officers of PECO Energy Company (PECO). PECO moved
to dismiss both actions following the recommendation of a special litigation
committee that the actions were not in PECO’s best interest. The issue before the
Supreme Court was “whether the business judgment rule permits the board of
directors of a Pennsylvania corporation to terminate derivative lawsuits brought by
minority shareholders.” Id. at 1045. The Cuker Court explained the business
judgment rule as follows:

      The business judgment rule insulates an officer or director of a
      corporation from liability for a business decision made in good faith if
      he is not interested in the subject of the business judgment, is informed
      with respect to the subject of the business judgment to the extent he
      reasonably believes to be appropriate under the circumstances, and
      rationally believes that the business judgment is in the best interests of
      the corporation.

Id. (emphasis added). The Supreme Court went on to state:

                                           20
      Decisions regarding litigation by or on behalf of corporation, including
      shareholders’ derivative actions, are business decisions as much as any
      other financial decisions, are within the province of the board of
      directors and are, unless taken in violation of common law or a
      statutory duty, within the scope of business judgment rule.

Id. at 1048 (emphasis added).
      The Cuker Court then outlined the factors to be considered when evaluating a
board’s decision to terminate a shareholder derivative action as follows:

      Factors bearing on the board’s decision will include whether the board
      or its special litigation committee was disinterested, whether it was
      assisted by counsel, whether it prepared a written report, whether it
      was independent, whether it conducted an adequate investigation, and
      whether it rationally believed its decision was in the best interests of
      the corporation (i.e., acted in good faith). If all of these criteria are
      satisfied, the business judgment rule applies and the court should
      dismiss the action.

Id. (emphasis added). If application of these factors shows that the corporation’s
decision not to sue was reasoned and impartial, then “the court should dismiss the
action.” Id. In so holding, the Supreme Court expressly adopted Sections 7.02-7.10
and 7.13 of the American Law Institute’s Principles of Corporate Governance (1994)
(ALI Principles), setting forth the requirements for shareholder derivative actions,
which the Court appended to its opinion. Id. at 1049.
      Although this case is factually distinct from Cuker, because there the PECO
board moved to dismiss the actions after a special litigation committee had
investigated the claims, we agree with the Trial Court that application of the business
judgment rule is not limited to that precise fact pattern. The rule also applies to a
decision made by the board (or in this case, a receiver acting on the board’s behalf),
absent investigation by a special litigation committee.        See ALI Principles §
7.07(a)(1) (“The court . . . should dismiss the [derivative] action as against one or

                                          21
more of the defendants based on a motion by the board or a properly delegated
committee requesting dismissal of the action as in the best interests of the
corporation if[] . . . the determinations of the board or committee . . . satisfy the
requirements of the business judgment rule . . . .”) (emphasis added).
      Here, Receiver, acting on behalf of the Association’s Executive Board, was
expressly authorized by the Trial Court, consistent with Section 5984 of the
Nonprofit Law, to evaluate Mr. Serota’s demand and determine whether a derivative
action was in the Association’s best interest. See R.R. at 225a (“Receiver was
capable of exercising independent judgment as to the best interests of the
Association and satisfying the business judgment rule, notwithstanding the absence
of a special litigation committee.”). As in Cuker, the Trial Court examined the
circumstances surrounding Receiver’s decision and determined that application of
the business judgment rule was warranted, because Receiver was disinterested,
prepared a written report, was independent, conducted an adequate investigation,
and rationally believed his decision was in the Association’s best interest. See
Cuker, 692 A.2d at 1048 (“If all of these criteria are satisfied, the business judgment
rule applies and the court should dismiss the action.”) (emphasis added). Therefore,
we conclude that the Trial Court did not err in deferring to Receiver’s
recommendation under the business judgment rule.
                                  III. Conclusion
      In sum, we conclude that the Trial Court properly authorized Receiver, rather
than a special litigation committee, to investigate Mr. Serota’s demand and
determine whether a derivative action was in the Association’s best interest under
the circumstances of this case. In doing so, the Trial Court acted well within its
authority under Section 5984 of the Nonprofit Law to direct Receiver’s powers and

                                          22
duties “and [to] proceed as may be requisite to preserve the corporate assets.” 15
Pa. C.S. § 5984. We further conclude that the Trial Court properly deferred to
Receiver’s recommendation to dismiss Mr. Serota’s derivative action under the
business judgment rule. Accordingly, we affirm the Trial Court’s Order.

                                     __________________________________
                                     ELLEN CEISLER, Judge

                                       23
           IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Matthew Serota, derivatively on    :
behalf of London Towne             :
Homeowners Association             :
                                   :
      v.                           : No. 820 C.D. 2021
                                   :
Matthew J. Mager a/k/a Matt        :
Mager                              :
                                   :
Appeal of: Matthew Serota          :

                                  ORDER

      AND NOW, this 7th day of November, 2023, the July 9, 2021 Order of the
Court of Common Pleas of Allegheny County is hereby AFFIRMED.

                                   __________________________________
                                   ELLEN CEISLER, Judge