Court Opinion

ID: 4951933
Source: CourtListenerOpinion
Date Created: 2021-09-24 13:13:03.884763+00
Date Added: 2024-06-11T08:15:24.937632
License: Public Domain

SMITH, Judge,
dissenting.
I respectfully dissent from the Majority decision to reverse the trial court’s denial of Appellants’ request for a preliminary injunc*484tion to forestall the prosecution of claims filed by Neumann Medical Center against Appellants until their defense costs are advanced by Neumann. The Majority declined to follow a decision by the United States District Court for the Eastern District of Pennsylvania, relied upon by the trial court, in favor of decisions from courts of other jurisdictions that do not interpret nor apply Pennsylvania law.
In an appeal from the denial of a preliminary injunction, this Court’s scope of review is limited to determining whether there were any apparently reasonable grounds in the record to justify the trial court’s decision. James T. O’Hara, Inc. v. Borough of Moosic, 148 Pa.Cmwlth. 535, 611 A.2d 1332 (1992). This Court will not interfere with the trial court’s decision unless no grounds exist to support the decree, a rule of law relied upon by the trial court was palpably misapplied, or the trial court plainly abused its discretion. Save Our School v. Colonial School Dist., 156 Pa.Cmwlth. 671, 628 A.2d 1210 (1993).
Pennsylvania nonprofit corporations are permitted to contract through their bylaws to indemnify their corporate officers and directors. Specifically, Section 5742 of the Nonprofit Law, 15 Pa.C.S. § 5742, permits a nonprofit corporation, unless otherwise restricted in the bylaws, to indemnify any representative of the corporation who was or is a party to a threatened, pending or completed lawsuit by or in the right of the corporation against expenses including attorneys’ fees incurred by the representative in connection with the defense or settlement of the action if the representative acted in good faith and in the best interests of the corporation.
The record sub judiee and current state of the law provided the trial court with sufficient grounds to deny the Officers’ request for a preliminary injunction. Neumann’s bylaws define an officer’s right to advance litigation expenses including attorneys’ fees as an indemnification benefit; Section 5746(b) of the Nonprofit Law, 15 Pa.C.S. § 5746(b), prohibits payment of indemnification benefits to those nonprofit corporation officers who engage in willful misconduct; and the complaint includes allegations that the Officers’ misconduct was intentional. Thus the trial court could have reasonably determined that the bylaws provision requiring advanced indemnification benefits in the form of litigation expenses to Officers accused of intentional or willful misconduct was in conflict with Section 5746(b) of the Nonprofit Law.
The trial court relied upon Fidelity Federal Savings & Loan Ass’n v. Felicetti, 830 F.Supp. 262 (E.D.Pa.1993), to support its denial of injunctive relief. The District Court recognized that the standard of care set forth in Section 512(a) of the Associations Code, 15 Pa.C.S. § 512(a), identical to the standard set forth in Section 5712(a) of the Nonprofit Law, cannot be abrogated by an individual corporation’s bylaws. The court in Felicetti held that where a conflict exists between corporate directors’ duties to act only in the best interest of the corporation and bylaw provisions requiring the advancement of litigation expenses, the corporate directors must adhere to their fiduciary duties as required by Section 512(a), and the courts must consider the corporation’s bylaw provisions unenforceable. Moreover, Section 5745 of the Nonprofit Law, 15 Pa.C.S. § 5745, was not patterned solely after the Delaware Business Corporation Law relied upon by the Officers but was, instead, a hybrid between Delaware provisions and the Model Business Corp. Act (1980).
It should be noted that denial of the Officers’ request for a preliminary injunction does not preclude the Officers’ recovery of indemnification benefits, including defense expenses, in the action Neumann initiated against the Officers in the court of common pleas. If at the conclusion of this litigation it is determined that the Officers did not engage in willful misconduct or recklessness but instead acted in good faith and in the best interests of Neumann, the Officers will be entitled to full indemnity under Article VII, Section 1 of Neumann’s bylaws, including the expenses incurred in defending themselves. Accordingly, as reasonable grounds exist to support the trial court’s order and the trial court neither palpably misapplied the law or plainly abused its discretion, its order should be affirmed.