Court Opinion

ID: 4226762
Source: CourtListenerOpinion
Date Created: 2017-12-07 18:14:06.112175+00
Date Added: 2024-06-11T07:47:55.038344
License: Public Domain

J-A10023-17

                            2017 PA Super 380

RETINA ASSOCIATES OF GREATER                 IN THE SUPERIOR COURT OF
PHILADELPHIA, LTD., JONATHAN B.                    PENNSYLVANIA
BELMONT, M.D., ROBERT C.
KLEINER, M.D.

                       Appellant

                  v.

RETINOVITREOUS ASSOCIATES,
LTD. D/B/A MID ATLANTIC RETINA,
WILLIAM BENSON, M.D., JAY L.
FEDERMAN, M.D., GARY C. BROWN,
M.D., MITCHELL S. FINEMAN, M.D.,
DAVID H. FISCHER, M.D., SUNIR J.
GARG, M.D., ALLEN C. HO, M.D.,
RICHARD KAISER, M.D., ALFRED C.
LUCIER, M.D., JOSEPH I. MAGUIRE,
M.D., J. ARCH MCNAMARA, M.D., CARL
H. PARK, M.D., CARL D. REGILLO, M.D.,
ARUNAN SIVALINGAM, M.D., WILLIAM
TASMAN, M.D., JAMES F. VANDER, M.D.,
AND JASON HSU, M.D.

                                                  No. 3265 EDA 2016

                 Appeal from the Order Dated July 2, 2010
           In the Court of Common Pleas of Montgomery County
                     Civil Division at No(s): 09-32182

BEFORE: DUBOW, J., SOLANO, J., and FORD ELLIOTT, P.J.E.

OPINION BY SOLANO, J.:                       FILED DECEMBER 07, 2017

     Appellants Retina Associates of Greater Philadelphia, Ltd. (“Retina”),

and two of its physicians — its President, Jonathan B. Belmont, M.D. and

Vice President, Robert C. Kleiner, M.D. (together, “Retina Physicians”) —

appeal from the order sustaining preliminary objections in the nature of a

demurrer filed by Appellees William Benson, M.D., Jay L. Federman, M.D.,
J-A10023-17

Gary C. Brown, M.D., Mitchell S. Fineman, M.D., David H. Fischer, M.D.,

Sunir J. Garg, M.D., Allen C. Ho, M.D., Richard Kaiser, M.D., Alfred C. Lucier,

M.D., Joseph I. Maguire, M.D., J. Arch McNamara, M.D., Carl H. Park, M.D.,

Arunan Sivalingam, M.D., William Tasman, M.D., James F. Vander, M.D., and

Jason Hsu, M.D. (collectively, “Mid Atlantic Physicians”), all of whom are

alleged to be “members and/or employees” of Appellee Retinoviteous

Associates, Ltd., doing business as Mid Atlantic Retina (“Mid Atlantic”). We

reverse.

        Because the trial court disposed of this case on preliminary objections,

we adopt the facts as alleged in Appellants’ amended complaint and its

exhibits.   Khawaja v. RE/MAX Central, 151 A.3d 626, 630 (Pa. Super.

2016).

        Retina and Mid Atlantic are competing practices of retina specialists

who have staff privileges at Wills Eye Hospital in Philadelphia.      In 2000,

several retina specialists formed Retina Diagnostic & Treatment Associates,

LLC (“RDTA”), a limited liability company that entered into contracts with

Wills Eye to provide its members — who ultimately included both the Retina

Physicians and the Mid Atlantic Physicians — with special privileges at Wills

Eye’s facilities. 1    Pursuant to RDTA’s operating agreement, each RDTA

____________________________________________
1   Paragraph 25 of the amended complaint alleged:

        The professional and financial benefits of RDTA membership to
        [Appellants] included, but were not limited to:
(Footnote Continued Next Page)
                                           -2-
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member owned an equal 5.263% interest in the company.             The operating

agreement provided that RDTA would be run by up to six managers, 2 each of

whom had to be a member of RDTA and one of whom had to be “the

(Footnote Continued) _______________________
             a.     A contract with Wills Eye to be the exclusive provider
             of retinal care at its facility.
             b.    An academic       supervision and teaching agreement,
             which provided the       members of RDTA with an exclusive
             contract to provide     academic supervision and teaching to
             both ophthalmology      residents and retinal fellows.
             c.    An exclusive provider agreement with Wills Eye to
             provide on-call retinal coverage and services to the Wills
             Eye emergency room.
             d.    A private patient teaching agreement for teaching
             residents and fellows treating private patients.
             e.    A contract between Wills Eye and RDTA, establishing
             RDTA as the sole provider of retinal photography and
             retinal angiography at Wills Eye.
             f.   A  contract     between      RDTA     and     Wills   Eye
             Ophthalmology Clinic . . . for outpatient clinical services.
2The operating agreement is an exhibit to the amended complaint. Section
5.01(a) of the agreement provided:

      Exclusive Responsibility. Except as otherwise expressly provided
      herein, (i) the management of the business and affairs of the
      Company shall be the sole and complete responsibility of the
      Managers, (ii) a Member, as such, shall not take part in, or
      interfere in any manner with, the management, conduct or
      control of the business and affairs of the Company, and shall not
      have any right or authority to act for or bind the Company, and
      (iii) the Company may act only by actions taken by or under the
      direction of the Managers in accordance with this Agreement.
      Individual Managers shall have only such authority and perform
      such duties as the Managers may, from time to time, delegate to
      such individual Managers.

Third Am. and Restated Limited Liability Co. Operating Ag. of RDTA,
1/1/2006, at 10.

                                          -3-
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physician who is the then Director of the Retina Service of Wills Eye

Hospital.”   Third Am. and Restated Limited Liability Co. Operating Ag. of

RDTA, 1/1/2006, at 10.      Appellants alleged that at the time the amended

complaint was filed, Appellee Brown held the position of Director and

Appellees Fischer and Sivalingam were Co-Directors of the Wills Eye Retina

Service. Am. Compl. ¶¶ 14-15.

      Although the operating agreement provided that RDTA would be run

exclusively by its managers, it contained provisions for some extraordinary

decisions to be made by RDTA’s members. Section 6.06 of the agreement

stated:

      Certain Company Matters Requiring Member Approval.

      (a) Specific Matters. Notwithstanding anything in this
      Agreement to the contrary, the approval of the following matters
      shall require the affirmative vote of the Members by a Majority
      Vote:

             ...

             (v)     The sale, exchange or transfer of all; or substantially
             all, of the assets of the Company.

             ...

             (viii) The dissolution of the Company pursuant to Section
             10.01(i). . . .

Third Am. and Restated Limited Liability Co. Operating Ag. of RDTA, at 15.

      On March 31, 2009, fifteen of the Mid Atlantic Physicians (all but

Appellees Benson and Park), acting as members of RDTA, adopted a

resolution titled “Written Consent of the Members Holding a Majority of the

                                       -4-
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Percentage Interests.”     Am. Compl. ¶ 27 & Ex. D.        The fifteen signers

“collectively held a majority of the percentage interests in RDTA.” Id. ¶ 27.

By their resolution, the signers provided for RDTA to sell substantially all of

its assets to Mid Atlantic and then to liquidate and dissolve. The two Retina

Physicians did not vote on the resolution (which did not contain signature

lines for either of them), and Appellant Belmont was not given notice of it.

Id. ¶¶ 27-28 & Ex. D.

        Pursuant to the resolution, Mid Atlantic then acquired RDTA’s assets,

including its rights under contracts, leases, and other agreements with Wills

Eye, for $353,494, a price that allegedly is below the assets’ fair market

value. Am. Compl. ¶¶ 31-35.         RDTA also entered into agreements to

purchase services from Mid Atlantic in connection with winding up RDTA’s

affairs, the cost of which, $107,829, would be offset against the purchase

price owed to RDTA by Mid Atlantic. Id. ¶¶ 37-39.

        Appellants instituted this action by filing a complaint on October 7,

2009. In an amended complaint, Appellants purported to state a claim for,

among other things, breach of fiduciary duties by the Mid Atlantic Physicians,

who “in the aggregate controlled the majority interest in RDTA.” Am. Compl.

¶ 43.     They alleged that, “[a]s controlling majority members, the [Mid

Atlantic Physicians] owe [Appellants] a duty of utmost good faith and fair

dealing” and “a quasi-fiduciary duty . . . not to use their power for selfish or

personal interests or in such a way as to exclude [Appellants] from their due

                                     -5-
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share of the benefits accruing from the existence and operation of RDTA.”

Am. Compl. ¶¶ 43-45. The pleading continued:

     46. Despite these duties and obligations of utmost good faith
     and fair dealing imposed upon them by law, some or all of the
     [Mid Atlantic Physicians] breached these duties and acted
     exclusively in their self-interests by:

        a. Excluding [Appellants] from meaningful participation in the
        decisions related to the [asset purchase agreement with Mid
        Atlantic], sale of RDTA’s assets to [Mid Atlantic], and
        termination of [Retina’s agreements with Wills Eye];

        b. Self-dealing and directly or indirectly making a profit at
        [Appellants’]   financial  and   professional   expense    by
        transferring and selling RDTA’s assets to [Mid Atlantic] of
        which all [Mid Atlantic Physicians] are members and/or
        employees, thereby excluding [Appellants] from the benefits
        they enjoyed through their ownership or relationship to
        RDTA;

        c. Failing to act in good faith and for the benefit of
        [Appellants], Belmont and Kleiner, and RDTA in all matters
        involving the sale of RDTA’s assets to [Mid Atlantic];

        d. Excluding [Appellants] from their rightful participation in
        and enjoyment of the benefits of their ownership in RDTA,
        including, but not limited to, the agreements with Wills Eye
        and the profits derived therefrom;

        e. Causing [Appellants]      to suffer and to continue to suffer
        substantial    financial     harm    by    terminating    [Retina’s
        agreements] with Wills        Eye and depriving [Appellants] of
        sufficient access to Wills   Eye to treat patients at the Wills Eye
        facility; and

        f. Failing to act solely in the best interests of all owners and
        RDTA, which has caused [Appellants] to suffer and continue
        to suffer financial harm.

     47. The actions of the [Mid Atlantic Physicians] . . . constitute a
     breach of their duty of utmost good faith and fair dealing owed
     to [Appellants], as well as a breach of their quasi-fiduciary duty

                                       -6-
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     owed to [Appellants], as minority, or de facto minority owners of
     RDTA.

     48. Further, the actions of the [Mid Atlantic Physicians] . . .
     constitute a breach of their fiduciary duties to RDTA by entering
     into a sales transaction for, upon information and belief,
     substantially less than fair market value.

     49. Some or all of [Mid Atlantic Physicians] harmed [Appellants],
     Belmont and Kleiner, by acting in derogation of [Appellants’]
     rights in RDTA, including [Appellants’], Belmont and Kleiner,
     rights to their respective share of the benefits accruing from the
     existence and operation of RDTA.

     50. Moreover, Defendants’ substantial undervaluation of RDTA
     has deprived [Appellants of] their fair market share of the
     assets, contracts, agreements, equipment, inventory, supplies,
     and goodwill.

     51. Some or all of [Mid Atlantic Physicians’] intentional and self-
     serving conduct is outrageous in that it represents a wanton and
     willful disregard of [Appellants’] interests and rights as well as
     blatant self-dealing of the most egregious kind.

     52. Some or all of [Mid Atlantic Physicians] purposefully
     transferred all assets to [Mid Atlantic] with a reckless
     indifference and wanton and willful disregard of [Appellants’]
     financial and beneficial interests in RDTA without justification or
     privilege.

Am. Compl. at ¶¶ 46-52.

     The trial court described the subsequent procedural history as follows:

       [Mid Atlantic Physicians] filed preliminary objections to the
     amended complaint. Their arguments included that they did not
     owe a fiduciary duty to [Appellants]. They cited 15 Pa.C.S.A. §
     8943(b)(2) for the proposition that members of limited liability
     companies do not owe fiduciary duties to each other.

        After briefing and oral argument, this court issued an Order
     dated July 2, 2010, sustaining the preliminary objections in part
     and overruling them in part. Specifically, this court dismissed
     the breach of fiduciary duty claim against the [Mid Atlantic

                                    -7-
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      Physicians] and     permitted   the   remaining claims    to   move
      forward.

         [Appellants] filed a motion for partial reconsideration, which
      this court denied in an Order dated August 9, 2010.
      Approximately six years later the case was ordered on the
      standby trial list for the month of October 2016. [Appellants]
      voluntarily dismissed their remaining claims on September 29,
      2016.

Trial Ct. Op., 12/6/16, at 2-3. Appellants then filed this timely appeal from

the order sustaining the Mid Atlantic Physicians’ preliminary objection to the

breach of fiduciary duty claim. See Pa.R.A.P. 341 (appeal may be filed after

entry of order disposing of all claims against all parties).

      In response to a court order, Appellants filed a Pa.R.A.P. 1925(b)

Statement that listed, among other errors that they planned to appeal —

      2. The Trial Court erred in determining, as a matter of law
      and/or based on the averments of the Amended Complaint and
      Exhibits attached thereto, that managers of a manager-
      managed Pennsylvania LLC do not owe a fiduciary duty to the
      minority members of said LLC and dismissing Count I (Breach of
      Fiduciary Duty) of the Amended Complaint as to the Physician
      Defendants/ Appellees.

            ...

      4. The Trial Court erred in determining, as a matter of law
      and/or based on the averments of the Amended Complaint and
      Exhibits attached thereto, that it is not a breach of fiduciary duty
      for the managers of a manager-managed Pennsylvania LLC to
      intentionally and willfully sell substantially all of the assets and
      contractual rights of said LLC to a separate entity owned or
      controlled by the majority members of the LLC that excludes the
      minority members of the LLC and dismissing Count I (Breach of
      Fiduciary Duty) of the Amended Complaint as to the Physician
      Defendants/ Appellees.

                                      -8-
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Pa.R.A.P. 1925(b) Statement, at 1-2 (emphasis added).         The Mid Atlantic

Physicians objected to Appellants’ inclusion in their Rule 1925(b) statement

of questions regarding breach of their fiduciary duties as managers (as

opposed to majority members) of RDTA, arguing that the amended

complaint never stated a claim against any of them based on a status as

RDTA managers.       Mid Atlantic Physicians’ Joint Objs. to Retina’s Rule

1925(b) Statement, 11/2/16, at 1-2.         They observed that the amended

complaint “literally does not contain the word ‘manager.’” Id. at 2. The trial

court did not rule on the Mid Atlantic Physicians’ objection to Appellants’ Rule

1925(b) Statement.

      On December 6, 2016, the trial court issued a Rule 1925(a) opinion

that explained its decision as follows:

            The issues raised by [Appellants], when read together,
      challenge this court’s conclusion that the individual members of
      the limited liability company did not owe fiduciary duties to each
      other. The challenge lacks statutory and decisional support.

            ...

             Pursuant to [the Limited Liability Company Law,] 15 Pa.
      C.S.A. § 8943(b)(2), “[a] member [of a limited liability
      company] who is not a manager shall have no duties to the
      company or to the other members solely by reason of acting in
      his capacity as a member.” [Appellants] argued the individual
      defendants owed a fiduciary duty because they collectively held
      a majority of the interests in RDTA. . . . The plain language of
      Section 8943, however, does not provide support for
      [Appellants’] claim that the individual defendants owed them a
      fiduciary duty. Thus, this court properly sustained the individual
      defendants’ preliminary objections to the breach of fiduciary duty
      claim.

                                      -9-
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Trial Ct. Op., 12/6/16, at 5-6 (citation and footnotes omitted).3

       In their appellate brief, Appellants now raise the following issues:

       1. Whether the lower court erred in determining, as a matter of
       law, that managers of a manager-managed Pennsylvania LLC
       do not owe a fiduciary duty to the minority members of said LLC
       and dismissing Count I (Breach of Fiduciary Duty) of the
       Amended Complaint as to [Mid Atlantic Physicians]?

       2. Whether the lower court erred in determining, based on the
       averments of the Amended Complaint and Exhibits attached
       thereto, that it is not a breach of fiduciary duty for managers of
       a manager-managed Pennsylvania LLC to intentionally and
       willfully adopt a resolution to sell substantially all of the assets
       and contractual rights of said LLC to a separate entity owned or
       controlled by the majority members of the LLC that excludes the
       minority members of the LLC and dismissing Count I (Breach of
       Fiduciary Duty) of the Amended Complaint as to [Mid Atlantic
       Physicians] without leave to amend?

       3. Whether the lower court erred in determining, as a matter of
       law, that the majority members of a manager-managed
       Pennsylvania LLC do not owe a fiduciary duty to the minority
       members of said LLC and dismissing Count I (Breach of Fiduciary
       Duty) of the Amended Complaint as to [Mid Atlantic Physicians]?

       4. Whether the lower court erred in determining, based on the
       averments of the Amended Complaint and Exhibits attached
       thereto, that it is not a breach of fiduciary duty for the majority
       members of a manager-managed Pennsylvania LLC to
       intentionally and willfully adopt a resolution to sell substantially
       all of the assets and contractual rights of said LLC to a separate
       entity owned or controlled by the majority members of the LLC
       that excludes the minority members of the LLC and dismissing

____________________________________________
3 The trial court added: “The amended complaint lacks any allegation of a
relationship between the individual defendants and plaintiff Retina Associates
of Greater Philadelphia Ltd. As such, [Appellants] should not be heard to
argue on appeal that they have stated a claim for breach of fiduciary duty on
behalf of Retina Associates of Greater Philadelphia Ltd.” Tr. Ct. Op. at 5 n.7.
The claims in this appeal have been asserted only on behalf of the Retina
Physicians, and not Retina itself. See Appellants’ Br. at 7 n.1.

                                          - 10 -
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      Count I (Breach of Fiduciary Duty) of the Amended Complaint as
      to [Mid Atlantic Physicians] without leave to amend?

Appellants’ Brief at 5 (emphases added). Though listed as four issues, the

questions presented by Appellants all challenge the trial court’s holding that,

as a matter of law, the Mid Atlantic Physicians owed no duty to the Retina

Physicians under the Limited Liability Company Law, either as managers of

RDTA or as the majority of its members.

      We address Appellants’ issues under our standard of review applicable

to an order sustaining preliminary objections:

      Our standard of review of an order of the trial court overruling or
      granting preliminary objections is to determine whether the trial
      court committed an error of law. When considering the
      appropriateness of a ruling on preliminary objections, the
      appellate court must apply the same standard as the trial court.

      Preliminary objections in the nature of a demurrer test the legal
      sufficiency of the complaint. When considering preliminary
      objections, all material facts set forth in the challenged pleadings
      are admitted as true, as well as all inferences reasonably
      deducible therefrom. Preliminary objections which seek the
      dismissal of a cause of action should be sustained only in cases
      in which it is clear and free from doubt that the pleader will be
      unable to prove facts legally sufficient to establish the right to
      relief. If any doubt exists as to whether a demurrer should be
      sustained, it should be resolved in favor of overruling the
      preliminary objections.

Khawaja, 151 A.3d at 630 (citation omitted); Lerner v. Lerner, 954 A.2d

1229, 1235 (Pa. Super. 2008) (“In ruling on a demurrer, the court may

consider only such matters as arise out of the complaint itself; it cannot

supply a fact missing in the complaint”).        As our Supreme Court has

observed, “[t]he question presented by the demurrer is whether, on the

                                     - 11 -
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facts averred, the law says with certainty that no recovery is possible.”

Price v. Brown, 680 A.2d 1149, 1151 (Pa. 1996) (citation omitted);

Lerner, 954 A.2d at 1234.

     The trial court sustained the demurrer because it concluded that the

Limited Liability Company Law did not impose any fiduciary or other duties

on the Mid Atlantic Physicians with respect to the Retina Physicians.        In

determining whether the trial court erred as a matter of law in reaching this

conclusion, we must engage in an analysis and interpretation of the statute.

As the Supreme Court recently summarized:

     The Statutory Construction Act, 1 Pa.C.S. §§ 1901-1991, sets
     forth principles of statutory construction to guide a court’s efforts
     with respect to statutory interpretation. In so doing, however,
     the Act expressly limits the use of its construction principles. The
     purpose of statutory interpretation is to ascertain the General
     Assembly’s intent and to give it effect. 1 Pa.C.S. § 1921(a). In
     discerning that intent, courts first look to the language of the
     statute itself. If the language of the statute clearly and
     unambiguously sets forth the legislative intent, it is the duty of
     the court to apply that intent and not look beyond the statutory
     language to ascertain its meaning. See 1 Pa.C.S. § 1921(b)
     (“When the words of a statute are clear and free from all
     ambiguity, the letter of it is not to be disregarded under the
     pretext of pursuing its spirit.”). Courts may apply the rules of
     statutory construction only when the statutory language is not
     explicit or is ambiguous. 1 Pa.C.S. § 1921(c).

     . . . We must read all sections of a statute “together and in
     conjunction with each other,” construing them “with reference to
     the entire statute.” 1 Pa.C.S. § 1922(2). When construing one
     section of a statute, courts must read that section not by itself,
     but with reference to, and in light of, the other sections.
     Statutory language must be read in context, “together and in
     conjunction” with the remaining statutory language.

                                    - 12 -
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In re Trust of Taylor, 164 A.3d 1147, 1155 (Pa. 2017) (citations omitted).

In addition, as we recently stated in Commonwealth v. Anderson, 169

A.3d 1092 (Pa. Super. 2017) (en banc):

      Every statute shall be construed, if possible, to give effect to all
      its provisions. We presume the legislature did not intend a result
      that is absurd, impossible, or unreasonable, and that it intends
      the entire statute to be effective and certain. When evaluating
      the interplay of several statutory provisions, we recognize that
      statutes that relate to the same class of persons are in pari
      materia and should be construed together, if possible, as one
      statute.

Id. at 1096 (citation omitted).   Also, “when interpreting a statute we must

listen attentively to what the statute says, but also to what it does not say.”

Hanaway v. Parkesburg Grp., LP, 168 A.3d 146, 154 (Pa. 2017) (quoted

citation omitted).

       The Mid Atlantic Physicians’ Duties as Members of RDTA

      We shall begin by addressing the duties of the Mid Atlantic Physicians

as RDTA’s members.

      The amended complaint alleged that the Mid Atlantic Physicians signed

a resolution providing for RDTA’s dissolution and the sale of all of RDTA’s

assets to their own ophthalmology practice, Mid Atlantic, at a price below

market value, thereby depriving the Retina Physicians of important contract

rights and causing them financial harm.        Appellants contend that they

alleged “a classic case of oppression by the majority owners of a business

through the freeze out of the minority owners,” Appellants’ Br. at 30, and

that the Mid Atlantic Physicians’ conduct therefore is actionable as a breach

                                     - 13 -
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of their duties to the minority members of RDTA under the Commonwealth’s

laws governing limited liability companies. Appellants acknowledge that no

Pennsylvania appellate decisions have addressed this issue, but they

contend that the result they advocate flows naturally from analogies to other

areas of Pennsylvania corporate and business law. They state:

     Here, the majority voted to sell all of the assets of the business
     to another entity which they controlled, to the exclusion of the
     two minority members. Had the same thing happened in a
     closely held corporation, a partnership or a joint venture, there
     would be no question that the conduct is actionable and
     unlawful. No different result should obtain merely because the
     entity in question was a limited liability company. . . .

Id. After careful consideration, we agree.

     Because limited liability companies are creatures of statute, their

members are subject to only those duties that are authorized by statute.

See Hanaway, 168 A.3d at 154-58 (general partner in limited partnership

not subject to duty of good faith and fair dealing where limited partnership

statute did not provide for such a duty). Here, the applicable statute is the

Limited Liability Company Law of 1994, 15 Pa. C.S. §§ 8901-8993 (repealed

2016) (“the 1994 Law”). Last year, the Legislature replaced the 1994 Law

with the Pennsylvania Uniform Limited Liability Company Act of 2016, 15 Pa.

C.S. §§ 8811-8898, but the conduct at issue here occurred prior to

enactment of the 2016 legislation and all parties agree that the 1994 Law

applies to this case.   See 15 Pa. C.S. § 8811(b), (c) (rules regarding

                                   - 14 -
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applicability of 2016 statute). Throughout this opinion, we shall cite to the

1994 Law without reference to its repeal.4

        The 1994 Law was Pennsylvania’s first statute to deal with limited

liability companies, a form of business organization that gained popularity in

the early 1990s. 5 Like other portions of Pennsylvania’s Associations Code

(Title 15 of Pennsylvania Consolidated Statutes), it was drafted largely by

what is now known as the Business Associations Committee of the Section

on Business Law of the Pennsylvania Bar Association (sometimes referred to

as the “Title 15 Task Force”). As that Committee’s history of the 1994 Law

points out, the statute was derived in substantial part from a Prototype

Limited Liability Company Act (the “Prototype Act”) that had been proposed

by a working group at the American Bar Association in 1992. See Comm.

Cmt. – 1994 to 15 Pa. C.S. § 8901.6

____________________________________________
4 If this case had arisen under the 2016 statute, the questions presented
might be more easily resolved. The 2016 Act provides that a member of a
limited liability company is subject to a contractual duty of good faith and
fair dealing when discharging duties and obligations or exercising rights
under the Act or the company’s operating agreement.             15 Pa. C.S.
§ 8849.1(d), (i). This provision is not made retroactive, however, and thus
is inapplicable to this case. Cf. Hanaway, 168 A.3d at 157-58.
5 The popularity of this business form may be explained by the fact that a

limited liability company is “a conceptual hybrid, sharing some of the
characteristics of partnerships and some of corporations. In particular, an
LLC combines the two most critical features of all of the other business
organizations in a single business organization — a corporate-styled liability
shield and the pass-through tax benefits of a partnership.”           In re
Allentown Ambassadors, Inc., 361 B.R. 422, 442 (Bankr. E.D. Pa. 2007)
(citations and internal quotation marks omitted); see Comm. Cmt. – 1994
to 15 Pa. C.S. § 8925.
6   Section 1939 of the Statutory Construction Act provides:
(Footnote Continued Next Page)
                                          - 15 -
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      The 1994 Law provides that where, as is the case for RDTA, a limited

liability company’s governing documents so provide, the company shall be

managed by designated managers;                otherwise, the company shall be

managed by its members. 15 Pa. C.S. § 8941. The 1994 Law also provides

that the company’s Operating Agreement may set forth rules for the

company’s organization — including rules specifying requirements for voting

by members on certain types of decisions — that vary from those in the Law,

see id. § 8915, 8916(b), 8942; and, as noted, RDTA’s Operating Agreement

(Footnote Continued) _______________________

      The comments or report of the commission, committee,
      association or other entity which drafted a statute may be
      consulted in the construction or application of the original
      provisions of the statute if such comments or report were
      published or otherwise generally available prior to the
      consideration of the statute by the General Assembly, but the
      text of the statute shall control in the event of conflict between
      its text and such comments or report.

1 Pa. C.S. § 1939. The Business Associations Committee drafted comments
to sections of the 1994 Law “to form part of the legislative history of [the
Law] and to be citable as such” under Section 1939. Comm. Cmt. – 1994 to
15 Pa. C.S. § 8901; see generally W.H. Clark, Jr., Forward to Title 15, 15
Pa. Cons. Stat. Ann. xxi, xxiv-xxv (2013). The Committee’s comments
adopt portions of the commentary to the ABA’s Prototype Act, but “are not
intended to supersede the comments to the Prototype Limited Liability
Company Act which contain detailed discussion of the laws of other states
and the federal income tax aspects of organizing limited liability companies
which have been omitted from the Pennsylvania comments.” Comm. Cmt. –
1994 to 15 Pa. C.S. § 8901. In light of these authorities, we rely on some of
this commentary later in our opinion. The ABA’s Prototype Act appears not
to be available online, and we refer to the text of that draft legislation as it
appears in Volume 3, Appendix C to the very helpful treatise by Robert R.
Keatinge and Larry E. Ribstein, Ribstein and Keatinge on Limited Liability
Companies (Thomson Reuters 2017).

                                         - 16 -
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thus contains special requirements for votes by RDTA’s members on the

company’s dissolution and sale of assets.

     The duties applicable to a limited liability company’s members and

managers are set forth in Section 8943, which provides:

     Duties of managers and members

     (a) Companies without managers.—If the certificate of
     organization does not provide that the limited liability company
     shall be managed by managers, every member must account to
     the company for any benefit and hold as trustee for it any profits
     derived by him without the consent of the other members from
     any transaction connected with the organization, conduct or
     winding up of the company or any use by him of its property.
     This subsection may not be varied by any provision of the
     certificate of organization or operating agreement.

     (b) Companies with managers.—If the certificate of
     organization provides that the company shall be managed by
     one or more managers:

        (1) Sections 1711 (relating to alternative provisions) through
        1717 (relating to limitation on standing) shall be applicable to
        representatives of the company. A written provision of the
        operating agreement may increase, but not relax, the duties
        of representatives of the company to its members under
        those sections. For purposes of applying the provisions of
        those sections, references to the “articles of incorporation,”
        “bylaws,” “directors” and “shareholders” shall mean the
        certificate of organization, operating agreement, managers
        and members, respectively.

        (2) A member who is not a manager shall have no
        duties to the company or to the other members solely
        by reason of acting in his capacity as a member.

15 Pa.C.S. § 8943 (emphasis added).         The trial court relied on Section

8943(b)(2) in holding that the Mid Atlantic Physicians had no duties to the

Retina Physicians and therefore could not be held liable to them. Trial Ct.

                                   - 17 -
J-A10023-17

Op. at 6. Not surprisingly, the Mid Atlantic Physicians echo the trial court’s

reasoning, contending that Section 8943(b)(2) is clear and unambiguous in

foreclosing any basis for actions against them as RDTA members for breach

of any duties to other members. Appellees’ Br. at 17-19.7

       In response, the Retina Physicians rely on a Committee Comment to

Section 8943(b)(2), which states:

       Subsection (b)(2) makes clear that members who do not act as
       managers, like corporate shareholders and limited partners, do
       not have the fiduciary duties of managers. Even if a member is
       not involved in management, however, the member has no right
       to appropriate for personal use property belonging to the
       company. It is intended that the courts will fashion rules in
       appropriate circumstances by analogy to principles of corporate
       or partnership law to deal with situations such as oppression of
       minority members, actions taken in bad faith, etc. See 15
       Pa.C.S. § 110.

Comm. Cmt. – 2001 to 15 Pa.C.S. § 8943. Section 110 of the Associations

Code, which is referenced in the comment, reads:

       Unless displaced by the particular provisions of this title, the
       principles of law and equity, including, but not limited to, the law
____________________________________________
7 The Mid Atlantic Physicians contend that this interpretation of the statute is
bolstered by Section 8922(a) of the 1994 Law, entitled “Liability of members
and managers,” which provides that members “shall not be liable, solely by
reason of being a member, under an order of a court or in any other manner
for a debt, obligation or liability of the company of any kind or for the acts of
any member, manager, agent or employee of the company.” 15 Pa.C.S. §
8922. Section 8922 deals with members’ liability to third parties, such as
company creditors — not liability to other members. See Comm. Cmt. –
2001 to 15 Pa. C.S. § 8922 (subsection does “not deal with the internal
affairs” of the company and may be varied only by “expand[ing members’]
liability to third parties”).      We therefore find the section inapposite.
Similarly, other provisions of the 1994 Law discussing members’ liability to
the company itself (as in a derivative action) deal with duties distinct from
those owed to other members and also are not instructive here.

                                          - 18 -
J-A10023-17

       relating to principal and agent, estoppel, waiver, fraud,
       misrepresentation, duress, coercion, mistake, bankruptcy or
       other validating or invalidating cause, shall supplement its
       provisions.

15 Pa.C.S. § 110. The 1994 Law specifically provides that Section 110 may

be used as a basis for determining the liability of a limited liability company’s

members. 15 Pa. C.S. § 8904(b).8

       In light of the comment to Section 8943(b)(2), the Retina Physicians

contend that the trial court misconstrued Section 8943(b)(2) as setting forth

an absolute rule that no member of a manager-managed limited liability

company ever owes a duty to another member, a result that the comment

makes clear was unintended by the statute’s drafters. See Retina’s Brief at

20.    They contend that, properly read, the provision gives courts the

flexibility to analogize to corporate and partnership law to bar a member

from engaging in the oppressive conduct that they allege occurred here.

       In resolving this issue, our first task is to determine whether, as the

Mid Atlantic Physicians suggest, the language of Section 8943(b)(2) is so

plain and unambiguous as to foreclose any interpretation that would permit

a recognition of duties owed by RDTA’s members to other members of the

company. The provision states that a member who is not a manager “shall

have no duties . . . to the other members solely by reason of acting in

____________________________________________
8 Section 8904(b) states that the liability of members shall be determined
“solely and exclusively” by the provisions of the 1994 Law “[e]xcept as
otherwise provided in section 110 (relating to supplementary general
principles of law applicable).”

                                          - 19 -
J-A10023-17

his capacity as a member.” 15 Pa. C.S. § 8943(b)(2) (emphasis added).

The provision thus suggests that the mere fact that a member acts as a

member of the company is not a sufficient basis upon which to make that

member liable to other members.           The word “solely” further suggests,

however, that a member may have duties to other members if the member

is held to account for reasons other than or in addition to his mere status as

a member of the company.        The provision does not explain what situations

would give rise to such duties, leaving it to the courts to fill in this gap in the

statute. For this reason, we hold that Section 8943(b)(2) “is not explicit or

is ambiguous.”     Taylor, 164 A.3d at 1155; see id. at 1156 (provision is

ambiguous if it does not “contain[] any explicit language addressing the

issue raised”). Therefore, we may look to the comments to Section 8943 as

well as its legislative history to discern the provision’s meaning. 1 Pa. C.S.

§ 1921(c), 1939.

      The Committee Comment to Section 8943 states that a member who

appropriates company property for his personal use is not absolved of

liability despite the language of Section 8943(b)(2).       See Comm. Cmt. —

2001 to 15 Pa. C.S. § 8943. In providing that example of a case in which

the “no duties” language of Section 8943(b)(2) is inapplicable, the Comment

implies that a member who acts for selfish personal reasons is not acting

“solely . . . in his capacity as a member” and may not claim protection under

Section 8943(b)(2).      This view of Section 8943(b)(2) is supported by

comments to Section 402(C) of the Prototype Act, on which Section

                                      - 20 -
J-A10023-17

8943(b)(2) is patterned. 9 In language closely resembling that of Section

8943(b)(2), Section 402(C) states:

       One who is a member of a limited liability company in which
       management is vested in managers under § 401 and who is not
       a manager shall have no duties to the limited liability company
       or to the other members solely by reason of acting in the
       capacity of a member.

A comment to Section 402(C) explains:

          Subsection (C) makes clear that members who do not act as
       managers, like corporate shareholders and limited partners, do
       not have the fiduciary duties of managers described in this Act.
       However, they may have fiduciary duties if they engage in
       control transactions or act in some capacity other than merely as
       a member. See Donahue v. Rodd Electrotype Company of
       New England, Inc., 328 N.E.2d 505 (Mass. 1975) (liability of
       controlling shareholder in close corporation). Moreover, even if
       a member is not involved in management, the member has no
       right to appropriate for personal use property belonging to the
       LLC. See Tri-Growth Centre City Ltd. v. Silldorf, 265 Cal.
       Rptr. 330 (Cal. App. 1989). In addition, members like other
       contracting parties, must exercise their powers in good faith.
       For example, it may be bad faith to expel a member solely or
       primarily in order to appropriate the value of the member’s
       interest. In general, while the Committee believes that some
       type of “partner-like” duties should be imposed upon non-
       managing members, it concluded that the exact nature of those
       duties and whether they should be applied to all members or
       only managing members is an area best left to the courts.

Prototype Act § 402(C), Cmt. The comment thus suggests that members

acting to oppress other members for their own benefit do so “in some

capacity other than merely as a member” and therefore, contrary to the Mid
____________________________________________
9When enacting the 1994 Law, the Legislature appended to the statute a list
of official Source Notes that identify the source from which each provision
was drafted. The legislation lists Section 402(C) of the Prototype Act as the
source of Section 8943(b)(2). See Act No. 1994-106, P.L. 703, 772 (Dec. 7,
1994) (calling section “402(c)”).

                                          - 21 -
J-A10023-17

Atlantic Physicians’ interpretation of Section 8943(b)(2), they do have duties

to the other members in those circumstances.

       The Committee Comment to Section 8943 further states that we

should look to corporate and partnership law to ascertain whether and what

duties exist in “situations such as oppression of minority members,” Comm.

Cmt. to 15 Pa. C.S. § 8943, and Sections 110 and 8904(b) explicitly

authorize us to apply “principles of law and equity, including, but not limited

to, the law relating to principal and agent, estoppel, waiver, fraud,

misrepresentation, duress, coercion, mistake, bankruptcy or other validating

or invalidating cause” in connection with this task. 15 Pa. C.S. § 110.10 Our

review of the authorities reveals that courts in Pennsylvania and other

jurisdictions routinely have provided remedies when a controlling faction of a

corporation, partnership, or other business entity engages in conduct alleged

to oppress a minority.

       The   issue    arises   most     commonly   within   corporations,   11   when

controlling shareholders seek to benefit themselves at the minority’s

expense. In Donohue, the Massachusetts decision cited in the comment to

____________________________________________
10 The 1994 Law does not make any explicit reference to oppression by a
majority of the members, but the statute’s provisions on dissolution appear
to recognize that a segment of the company’s members may act wrongfully
in dissolving the company. See 15 Pa. C.S. § 8973(a)(1) (sometimes
limiting those who may wind up the company’s affairs to “the members who
have not wrongfully dissolved the company”).
11 In Missett v. Hub Int’l Pa., LLC, 6 A.3d 530, 537 (Pa. Super. 2010), we
observed that a “‘membership interest’ is an ownership interest in a limited
liability company and is akin to an interest in stock of a corporation.”

                                          - 22 -
J-A10023-17

the Prototype Act, a closely-held corporation purchased some of its shares

from the controlling shareholders at a favorable price that it then refused to

offer to the minority.   In recognizing a cause of action in favor of the

minority shareholders, the Supreme Judicial Court analogized the closely

held corporation to a partnership, in which “the relationship among the

stockholders must be one of trust, confidence and absolute loyalty if the

enterprise is to succeed.”   Donahue, 328 N.E.2d at 512.       The court then

continued:

         Although the corporate form provides . . . advantages for the
      stockholders (limited liability, perpetuity, and so forth), it also
      supplies an opportunity for the majority stockholders to oppress
      or disadvantage minority stockholders. The minority is
      vulnerable to a variety of oppressive devices, termed
      “freezeouts,” which the majority may employ. An authoritative
      study of such “freeze-outs” enumerates some of the possibilities:
      “The squeezers (those who employ the freeze-out techniques)
      may refuse to declare dividends; they may drain off the
      corporation’s earnings in the form of exorbitant salaries and
      bonuses to the majority shareholder-officers and perhaps to
      their relatives, or in the form of high rent by the corporation for
      property leased from majority shareholders . . . ; they may
      deprive minority shareholders of corporate offices and of
      employment by the company; they may cause the corporation to
      sell its assets at an inadequate price to the majority
      shareholders . . . .” In particular, the power of the board of
      directors, controlled by the majority, to declare or withhold
      dividends and to deny the minority employment is easily
      converted to a device to disadvantage minority stockholders.

Id. at 513 (citations omitted).        The court explained that, unlike a

shareholder in a large, publicly held corporation, the minority shareholder in

a closely held corporation “cannot easily reclaim his capital” because there is

no market for his shares. Id. at 514. In light of this “inherent danger to

                                    - 23 -
J-A10023-17

minority interests,” the court held that “stockholders in the close corporation

owe one another substantially the same fiduciary duty in the operation of

the enterprise that partners owe to one another” and “may not act out of

avarice, expediency or self-interest in derogation of their duty of loyalty to

the other stockholders and to the corporation.” Id. at 514-15 (citations and

footnotes omitted).

      In Pennsylvania, as in Massachusetts, our courts have agreed that

majority shareholders of a corporation owe a fiduciary duty to the minority.

See Ferber v. Am. Lamp Corp., 469 A.2d 1046, 1050 (Pa. 1983)

(“majority stockholders occupy a quasi-fiduciary relation toward the minority

which prevents them from using their power in such a way as to exclude the

minority”); In re Jones & Laughlin Steel Corp., 412 A.2d 1099, 1103 (Pa.

1980) (“Pennsylvania and other jurisdictions have held that ‘a freezing out of

minority holders with the purpose of continuing the business for the benefit

of the majority holders’ is a violation of the fiduciary duty owed to minority

shareholders by the majority shareholders” (footnote and citation omitted));

Weisbecker v. Hosiery Patents, 51 A.2d 811, 811-812 (Pa. 1947)

(minority shareholder who held 10 out of 30 shares raised claim for breach

of fiduciary duty against the two majority shareholders holding 19 and 1

share, respectively); Viener v. Jacobs, 834 A.2d 546, 550-51 (Pa. Super.

2003) (addressing whether two shareholders, each holding 1/3 share of

company, oppressed minority shareholder holding 1/3 share), appeal

denied, 857 A.2d 680 (Pa. 2004), cert. denied, 543 U.S. 1146 (2005). We

                                    - 24 -
J-A10023-17

also have recognized that, contingent on the terms of the partnership

agreement, general partners in a general or a limited partnership owe a

fiduciary duty to the other partners. See Boland v. Daly, 318 A.2d 329,

333 (Pa. 1974) (construing statutory predecessor 59 P.S. § 54); 12 Jarl

Investments, L.P. v. Fleck, 937 A.2d 1113, 1123 (Pa. Super. 2007). We

have held the same with respect to joint venturers.          See Clement v.

Clement, 260 A.2d 728, 729 (Pa. 1970).             Several cases have rendered

similar holdings in other jurisdictions. See 1 L.E. Ribstein & R.R. Keatinge,

Ribstein and Keatinge on Limited Liability Companies § 9.6, at 590-91 n.7

(2d ed. 2017) (citing cases).

       We therefore agree with the following summary of the duties of

members of a manager-managed limited liability company provided by a

leading treatise on the subject:

          The courts have generally held that if a member is acting
       solely as such, he or she generally does not have any of the
       fiduciary duties of managers described in this chapter. Thus, the
       duties above in this section do not apply to members who do no
       more than approve the actions of designated managers.

          Members acting solely as such may breach [a] general duty of
       good faith . . ., although the courts often characterize the
       conduct as a breach of fiduciary duty. For example, it may be a
       breach of duty for the members to squeeze out or expel a
       member or for controlling members to appropriate benefits from
____________________________________________
12 See George v. Richards, 64 A.2d 811, 813 n.1 (Pa. 1949) (quoting 59
P.S. § 54 as follows: “Every partner must account to the partnership for any
benefit, and hold as trustee for it any profits derived by him without the
consent of the other partners from any transaction connected with the
formation, conduct, or liquidation of the partnership, or from any use by him
of its property”).

                                          - 25 -
J-A10023-17

      minority members by exercising or selling control. . . .

         Non-managing members may have other duties, which may
      or may not be considered aspects of the good faith duty.
      Whether or not a member is involved in management, the
      member has no right to appropriate property belonging to the
      LLC for personal use. Also, members may have a duty to
      disclose in transactions with each other, as on sale of an interest
      in the LLC. Although these theoretical distinctions are largely
      reflected in the holdings of cases, the language of the opinions
      does not always clearly distinguish between the duties of
      members as such and those of managing members. Thus,
      courts sometimes impose what are labeled as “fiduciary” duties
      on non-managing members.

1 Ribstein & Keatinge § 9.6, at 588-92 (footnotes omitted).

      The Mid Atlantic Physicians take issue with this analysis on several

grounds. The most significant is their contention that it is error to look for

analogies in the law applicable to corporate shareholders or general partners

because members of a manager-managed limited liability company are not

comparable to such business participants. Rather, they point out, the 1994

Law says such members are comparable to limited partners, and, the Mid

Atlantic Physicians insist, limited partners owe no fiduciary-like duties to the

other partners in their partnerships.

      The Mid Atlantic Physicians’ argument is based on Section 8904 of the

1994 Law, which provides:

      Rules for cases not provided for in this chapter

      (a) General rule.—Unless otherwise provided in the certificate
      of organization, in any case not provided for in this chapter:

         (1) If the certificate of organization does not contain a
         statement to the effect that the limited liability company shall
         be managed by managers, the provisions of Chapters 81 [the

                                     - 26 -
J-A10023-17

          Partnership Code, 15 Pa. C.S. §§ 8101-8105] and 83 [the
          Uniform Partnership Act, 15 Pa. C.S. §§ 8301-8365 (repealed
          2016)] govern, and the members shall be deemed to be
          general partners for purposes of applying the provisions of
          those chapters.

          (2) If the certificate of organization provides that the
          company shall be managed by managers, the provisions
          of Chapters 81 [the Partnership Code], 83 [the Uniform
          Partnership Act] and 85 [the Pennsylvania Revised Uniform
          Limited Partnership Act, 15 Pa. C.S. §§ 8501-8594 (repealed
          2016)] govern, and:

              (i) the managers shall have the authority of general
              partners prescribed in those chapters; and

              (ii) the members shall be deemed to be limited
              partners for purposes of applying the provisions of
              those chapters.

       (b) Basis for determining liability of members, etc.—Except
       as otherwise provided in section 110 (relating to supplementary
       general principles of law applicable), the liability of members,
       managers and employees of a company shall at all times be
       determined solely and exclusively by the provisions of this
       chapter [the 1994 Law].

15 Pa.C.S. § 8904 (emphasis in subsection (a)(2) added).             Section

8904(a)(2)(ii) “deems” members of a manager-managed company to be

limited partners for purposes of applying, among other things, the provisions

of the Pennsylvania Revised Uniform Limited Partnership Act, 13 and we

assume for present purposes that limited partners have no duties to other

____________________________________________
13The 2016 statute that repealed the 1994 Limited Liability Company Law
and replaced it with a new statute also repealed the Uniform Partnership Act
and the Pennsylvania Revised Uniform Limited Partnership Act and replaced
those statutes with new legislation on the same subjects. Those statutory
changes are not relevant to our analysis here.

                                          - 27 -
J-A10023-17

partners under that statute.         See Hanaway, 168 A.3d at 154-58. 14 But

Section 8904(b) makes clear that Section 8904(a)(2)(ii)’s “deeming” of

members to be limited partners has nothing to do with members’ liability,

which is determined not by applying the provisions of the Pennsylvania

Revised Uniform Limited Partnership Act, but by “solely and exclusively”

applying the provisions of the 1994 Limited Liability Company Law, as

supplemented by Section 110.              The Mid Atlantic Physicians’ claim that

Section 8904 requires that they be treated as analogous to limited partners

in determining their duties and liabilities to other RDTA members therefore is

incorrect.

       More generally, although members of a manager-managed company

may be analogous to limited partners in other circumstances, the analogy

does not apply to these facts. Where members of a company managed by

managers are not involved in operation of the company, it stands to reason

that their duties may be limited, as may be the case with limited partners.
____________________________________________
14 The Mid Atlantic Physicians based their argument that limited partners
have no duties to other partners on Section 8523(a) of the Revised Uniform
Limited Partnership Act, 15 Pa. C.S. § 8523(a), which states that limited
partners are not liable to third-party creditors of the partnership. See
Appellees’ Br. at 19. Section 8523(a) does not discuss limited partners’
duties to other partners, and we deem it inapposite here. The Supreme
Court’s decision in Hanaway, which was issued after the Mid Atlantic
Physicians filed their brief, provides more persuasive support for the Mid
Atlantic Physicians’ argument regarding limited partners’ lack of duties.
Though not applicable here, we note that the Pennsylvania Uniform Limited
Partnership Act of 2016 (the statute that replaced the Pennsylvania Revised
Uniform Limited Partnership Act referenced in Section 8904(a)) provides that
limited partners under the new statute have a duty of good faith and fair
dealing in exercising rights under the partnership. 15 Pa. C.S. § 8635(a).

                                          - 28 -
J-A10023-17

Here, however, Mid Atlantic Physicians are accused of breaching duties they

owed to the Retina Physicians by signing the “Written Consent of the

Members Holding a Majority of the Percentage Interests” that authorized the

sale of RDTA’s assets to Mid Atlantic and the dissolution of RDTA.      They

signed that resolution pursuant to Section 6.06 of RDTA’s Operating

Agreement, which placed the authority to sell the assets and dissolve the

company in the hands of a majority of the members, rather than in the

hands of RDTA’s managers.       Thus, with respect to these decisions, the

majority members were not mere passive bystanders to allegedly wrongful

conduct by RDTA’s management; they were the persons engaging in the

wrongful conduct.   With respect to the challenged decisions, the members

exercised powers in place of RDTA’s managers, and it therefore is

appropriate to assess their duties in light of that non-passive role.   See

Prototype Act § 402(C), Cmt. (stating members “may have fiduciary duties if

they engage in control transactions”).

     The Mid Atlantic Physicians’ other arguments challenge whether the

amended complaint sufficiently alleges a type of majority misconduct that

should be actionable by the Retina Physicians.   They assert, for example,

that “the individual [Mid Atlantic] Physician Defendants are all minority

members” of RDTA (apparently because each member’s interest in the

company is 5.263%), Appellees’ Br. at 22 (emphasis added), and repeatedly

emphasize that they comprise a majority only “in the aggregate,” see id. at

6, 8. They complain further that the sale of RDTA’s assets to Mid Atlantic

                                    - 29 -
J-A10023-17

should not be called “self-dealing” because the amended complaint alleges

only that they are “members and/or employees of” Mid Atlantic — not Mid

Atlantic’s “owners or controllers.” Id. at 23.

      We believe these arguments go to factual issues in the case and do

not render Appellants’ allegations legally insufficient.     Notably, the Mid

Atlantic Physicians cite no case law supporting any argument that these

purported pleading deficiencies entitle them to dismissal.       The amended

complaint alleges that the Mid Atlantic Physicians all are members of Mid

Atlantic and that most of them voted together — “in the aggregate” — to

transfer RDTA’s assets to Mid Atlantic and thereby to freeze the Retina

Physicians out of receiving the benefits of their RDTA membership. Through

those aggregate votes, they “controlled the majority interest in RDTA,” and

were its “controlling majority members.”         Am. Compl. at ¶ 43-44.     The

pleading also says that by transferring RDTA’s assets to Mid Atlantic, their

own company, they acted to make a profit at Appellants’ expense.          Id. ¶

46(b). Whether the evidence would support these allegations and whether

the facts that develop will amount to the type of majority oppression that is

actionable under the case law is a matter to be determined on a factual

record, not on preliminary objections.    Rather, at this stage, “all material

facts set forth in the challenged pleadings are admitted as true, as well as all

inferences reasonably deducible therefrom.” Khawaja, 151 A.3d at 630.

      The factual record also will inform a decision about just what types of

duties apply to the Mid Atlantic Physicians as RDTA members. The trial court

                                     - 30 -
J-A10023-17

dismissed Appellants’ claims because it held that the Mid Atlantic Physicians

owed the Retina Physicians no duties as members of RDTA, a holding that

we have disapproved. But although we have determined that the allegations

are sufficient to allow this case to go forward on the understanding that the

Mid Atlantic Physicians may have breached some type of duty to RDTA’s

minority members, we have avoided a definitive characterization of the type

of duty that is at issue.

      Appellants pleaded their claim as one for “breach of fiduciary duty,”

Am. Compl. Count I, but their pleading variously alleges that the defendants

breached “a fiduciary duty,” “a quasi-fiduciary duty,” or “a duty of utmost

good faith and fair dealing.”   See id. ¶¶ 44-45, 47-48.      Appellants’ brief

frames the questions presented in terms of whether a “fiduciary duty” was

owed to RDTA’s minority members, Appellants’ Br. at 5, but later references

a “fiduciary duty of good faith and fair dealing,” an apparent hybrid, see id.

at 18. These terms are not synonymous. A fiduciary duty “is the highest

duty implied by law” and exists in legal relationships requiring trust and

confidence, where it often is enforced by tort actions.        See Yenchi v.

Ameriprise Fin., Inc., 161 A.3d 811, 819-20 (Pa. 2017). The duty of good

faith and fair dealing is most commonly recognized as a contractual

obligation. See Herzog v. Herzog, 887 A.2d 313, 317 (Pa. Super. 2005).

There are times, however, when the concepts blend. See, e.g., Birth Ctr.

v. St. Paul Cos., 787 A.2d 376 (Pa. 2001). Appellants’ apparent confusion

about the correct terminology applicable to obligations within limited liability

                                     - 31 -
J-A10023-17

companies seems to mirror the state of the law in this area in other

jurisdictions. See 1 Ribstein & Keatinge §§ 9.6, 9.7; see generally Comm.

Cmt. – 2016 to 15 Pa. C.S. § 8849.1 (discussing duties applicable under

2016 Limited Liability Company Act).

      None of the parties have addressed this confusion in their briefs to this

Court and it is unnecessary for us to do so to resolve this appeal.

Appellants’ varying formulations have adequately pleaded a breach by the

Mid Atlantic Physicians of a duty and standard of care owed to them. The

precise nature of that duty may be determined as this case progresses on

remand.   For now, we hold only that, on the facts alleged, the trial court

erred in holding that Appellants could not proceed with their claim in Count I

of their amended complaint on the ground that the Mid Atlantic Physicians

owed no duty to the Retina Physicians as members of RDTA. Further issues

that stem from this holding will have to be resolved after the parties have

developed a factual record.

       The Mid Atlantic Physicians’ Duties as Managers of RDTA

      In their Rule 1925(b) Statement, Appellants asserted that the trial

court’s no-duty holding was erroneous not only because the Mid Atlantic

Physicians owed duties to them as members of RDTA, but also because they

owed duties to them as managers.        Appellees object to that contention

because the amended complaint made no specific allegations regarding any

breach of duties as managers.

                                    - 32 -
J-A10023-17

      Preliminarily, we are confounded by the fact that there is no clear

indication in the record or the parties’ briefs of the identities of the parties to

which this argument pertains.       Under RDTA’s Operating Agreement, the

company had up to six managers, but no one has told us who they were.

Appellants imply that the managers may have included Drs. Brown, Fischer,

and Sivalingam because they were the Director and Co-Directors of Wills

Eye’s Retina Service, Am. Compl. ¶¶ 14-15, but Appellants do not clearly say

that and make no allegation regarding the manager status of anyone else.

And although the Mid Atlantic Physicians argue that manager-related claims

cannot now be asserted against those of them who were managers, they do

not say on whose behalf they make that argument.

      In arguing that this case does not present claims against managers,

the Mid Atlantic Physicians point out that Pennsylvania is a fact-pleading

state and that “[t]he material facts on which a cause of action or defense is

based shall be stated in concise and summary form.” Appellees’ Br. at 14,

quoting Pa.R.Civ.P. 1019(a). They continue:

      Nowhere in the Amended Complaint do [Appellants] state
      concisely or summarize the material facts to support a manager-
      managed fiduciary duty. The Amended Complaint fails to aver
      (1) that RDTA was a manager-managed LLC; (2) that any
      Physician Defendant was, or acted as, a manager of RDTA; or
      (3) that such Physician Defendant’s actions as a manager
      breached a duty to Drs. Belmont and Kleiner.

Id.   They allege that these deficiencies failed to “put them on notice of

liability as managers.”    Id.   Appellants respond that the copy of RDTA’s

Operating Agreement attached to the amended complaint made clear that

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the company was run by managers selected from among its members, and

that —

      While the Amended Complaint references Physician Defendants’
      fiduciary duties as majority members of RDTA, liability is not
      premised exclusively on Physician Defendants’ status as majority
      members of RDTA. Rather, under the facts averred, Appellants
      have asserted claims for any breaches of fiduciary duty that can
      be maintained against Physician Defendants.

Appellants’ Reply Brief at 4.

      “It is not necessary that the plaintiff identify the specific legal theory

underlying the complaint.”      Krajsa v. Keypunch, Inc., 622 A.3d 355, 357

(Pa. Super. 1993).      Here, the amended complaint clearly states that

Appellants seek to hold the Mid Atlantic Physicians liable for breaching duties

owed to the Retina Physicians by their actions in selling RDTA’s assets to Mid

Atlantic and then dissolving RDTA.      Appellants were not required to plead

the legal theory on which they contended that the Mid Atlantic Physicians

had such duties. The question is whether there is some aspect of a claim

based on some of the defendants’ status as managers that required a more

specific pleading than Appellants provided.

      The Mid Atlantic Physicians say that two additional facts that were

missing from the pleading were that RDTA was a manager-managed

company and that one or more of them acted as managers. Appellees’ Br.

at 14. We disagree. Facts in documents appended to a pleading are to be

considered in assessing the pleading’s sufficiency.   Pleet v. Valley Greene

Assocs., 538 A.2d 567, 569 (Pa. Super. 1988).            Here, the Operating

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Agreement made clear that RDTA is a manager-managed limited liability

company whose managers are selected from among RDTA’s members. As

members of RDTA, the Mid Atlantic Physicians surely already knew that.

And while we have been confounded by the failure of the parties to tell us

which of them were managers to whom this issue applies, each of the Mid

Atlantic Physicians who is a defendant in this action surely knows whether or

not he was a manager of the company and whether this issue therefore

applies to him; he also knows that he has been made a defendant in this

case and that Appellants seek to hold him liable.      We therefore do not

believe that the amended complaint was legally deficient in failing to name

which of the Mid Atlantic Physicians were managers; it named all of them,

and the status of each was a fact that would be revealed through discovery

or other proceedings as the case progressed.       See generally Georges

Twp. v. Union Trust Co. of Uniontown, 143 A. 10, 18 (Pa. 1928) (“As a

general rule, a party will not be required to furnish information which is

peculiarly within the knowledge of the party demanding the particulars”). 15

Any of the Mid Atlantic Physicians who was not a manager cannot face

____________________________________________
15 The authors of Standard Pennsylvania Practice 2d state that a “court may
link the overruling of a preliminary objection” on the basis of insufficiency
specificity “with the express recognition that further specificity could be
obtained through pretrial discovery, for example, where the parties are
adequately identified, or where the defendant has as much knowledge of the
facts as the plaintiff.” 5 Standard Pa. Prac. 2d § 25.71 (2015) (footnotes
containing citations omitted).

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liability as a manager, and any manager who is not already a defendant

cannot face liability either.

      The third fact that the Mid Atlantic Physicians say is missing is “that

such Physician Defendant’s actions as a manager breached a duty to [the

Retina Physicians].”    Appellees’ Br. at 14.   On this issue, we agree that

Appellants were required to plead the material facts on which they sought to

hold liable those of the Mid Atlantic Physicians who served as managers. In

this connection, we have explained that —

      Material facts are ultimate facts, i.e. those facts essential to
      support the claim. Evidence from which such facts may be
      inferred not only need not but should not be alleged. . . .
      Allegations will withstand challenge under Rule 1019(a) if (1)
      they contain averments of all of the facts the plaintiff will
      eventually have to prove in order to recover, and (2) they are
      sufficiently specific so as to enable defendant to prepare his
      defense.

Lerner, 954 A.2d at 1236 (citation and brackets omitted).         Here, the

material facts on which Appellants base their claims against the Mid Atlantic

Physicians are the signing of the resolution authorizing the sale of RDTA’s

assets to Mid Atlantic and dissolution of the company.     See Am. Compl.

¶¶ 27-52.    Appellants make no contention that they seek to hold the Mid

Atlantic Physicians liable (as members or otherwise) for any other

misconduct, and if Appellants later seek to hold any of the Mid Atlantic

Physicians liable for other actions not alleged in the amended complaint,

they may not recover for those unpleaded other actions.       But Appellants

may recover for the misconduct they have pleaded.

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      Appellees’ position is that because the amended complaint said that

each defendant engaged in the misconduct as a member of RDTA,

Appellants may not recover for the exact same conduct by the exact same

defendant to the extent that the defendant also acted as a manager of

RDTA.    Appellees cite no authority supporting that contention.    Under the

Operating Agreement, any defendant who was a manager also was a

member. Although manager status sometimes may have given a member

greater authority to act, it is not clear that matters here.   By signing the

resolution that forms the basis for Appellants’ claim, all of the signers acted

as members because Section 6.06 of the Operating Agreement vested

members, not managers, with the authority to dissolve the company and

sell its assets.

      In addition, the only duty Appellants allege to have been breached by

the Mid Atlantic Physicians is the duty they owed to the Retina Physicians as

minority members of RDTA.       We have held that all of the Mid Atlantic

Physicians were subject to that duty as members. Appellees do not argue

that this duty does not also apply to managers. As we have explained, the

precise nature of the duty — a duty of good faith and fair dealing, or a more

demanding duty as a fiduciary — remains to be decided in the case, and it

may be that those Mid Atlantic Physicians who were managers may be

subject to a higher standard. But the amended complaint already avers that

the defendants are liable under each of these standards, see, e.g., Am.

Compl. ¶¶ 44-48, so that application of any of the standards will not be

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without notice. On these facts, we therefore conclude that Appellants were

not required to plead manager status in order to recover. Rather, we agree

with Appellants that they can recover “for any breaches of fiduciary duty

that can be maintained against Physician Defendants,” Appellants’ Reply

Brief at 4, regardless of the defendant’s status as a member or manager, so

long as the recovery is based only on the facts currently alleged in the

amended complaint.

       Because the trial court erred as a matter of law in sustaining

Appellees’ preliminary objections in the nature of a demurrer, we reverse the

order below and remand for further proceedings.

       Order reversed in part.16 Case remanded. Jurisdiction relinquished.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 12/7/2017

____________________________________________
16 We do not disturb any part of the trial court’s order other than that
dismissing the claims under Count I of the amended complaint.

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