Court Opinion

ID: 4273011
Source: CourtListenerOpinion
Date Created: 2018-05-07 13:44:57.870538+00
Date Added: 2024-06-11T09:36:28.639992
License: Public Domain

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

A Pocono Country Place Property           :
Owners Association, Inc. and Phyllis      :
Haase, Margaret Cooney, Harry             :
Williams, Carollee Kidd, Lisa Butler,     :
Gail Foster, Beth Raiola and Bonnie       :
Duffy each in his/her capacity as a       :
Director,                                 : No. 904 C.D. 2017
                   Appellants             : Argued: April 10, 2018
                                          :
             v.                           :
                                          :
Zbigniew J. Kowalski a/k/a                :
Joe Kowalski                              :

BEFORE:      HONORABLE ANNE E. COVEY, Judge
             HONORABLE MICHAEL H. WOJCIK, Judge
             HONORABLE JAMES GARDNER COLINS, Senior Judge

OPINION BY
SENIOR JUDGE COLINS                                           FILED: May 7, 2018

              This matter is an appeal from an order of the Monroe County Court of
Common Pleas (trial court) denying a petition filed by appellants A Pocono Country
Place Property Owners Association, Inc. (Property Owners Association) and eight
members of its board of directors (collectively, Plaintiffs) to remove Zbigniew J.
Kowalski (Kowalski) as a director of Property Owners Association and bar him from
serving as a director in the future. The sole issue presented in this appeal is whether
a director’s boorish and insulting behavior toward other members of the board of
directors constitutes sufficient grounds for judicial removal of a director under
Section 5726(c) of the Nonprofit Corporation Law of 1988 (Nonprofit Corporation
Law), 15 Pa. C.S. § 5726(c). We conclude that such conduct, while deplorable, does
not constitute grounds for court intervention in the governance of a nonprofit
corporation, and therefore affirm.
             A Pocono Country Place is a planned community of approximately
4,500 single-family residences in Coolbaugh Township, Monroe County,
Pennsylvania. (Trial Court Decision, Finding of Fact (F.F.) ¶1; Property Owners
Association’s Bylaws (Bylaws) Art. III, § 11, Reproduced Record (R.R.) at 35;
Hearing Transcript (H.T.) at 8-9, R.R. at 106-107.) Property Owners Association is
a Pennsylvania nonprofit corporation organized for the purpose of managing A
Pocono Country Place and maintaining its common facilities. (Trial Court Decision,
F.F. ¶1; Bylaws Art. I, § 1, Art. II, R.R. at 35.) The members of Property Owners
Association are the owners of properties in A Pocono Country Place. (Bylaws Art.
IV, § 1, R.R. at 36.) Property Owners Association’s board of directors (the Board)
consists of nine directors who are elected by the membership to three-year terms.
(Trial Court Decision, F.F. ¶2; Bylaws Art. V, § 1, Art. VI, § 5, R.R. at 37, 40.) The
Board annually elects four of the directors as President, Vice President, Secretary,
and Treasurer. (Bylaws Art. VII, §§ 1-2, R.R. at 41-42.)
             Property Owners Association’s Bylaws contain the following
provisions concerning the removal of directors:

             Section 7 - Removal of Directors

             A. Directors may be removed from office individually or as an
             entire Board only in the ways permitted in the Pennsylvania
             Nonprofit Corporation Law 5726 [15 Pa. C.S. § 5726] and in
             compliance with the decisions of Pennsylvania’s Courts.

             B. Members of the Board of Directors of this Association serve
             at the pleasure of the membership and may be removed from
             office by a two-thirds (2/3) majority vote at a Special Meeting of
             the members called for that express purpose and at which a
             quorum is present either in person or by proxy. The Board shall
                                          2
             fill the newly vacant seat(s) in accordance with the terms of these
             Bylaws but may not reappoint to the vacancy any Director who
             at anytime had been removed from office by the membership.

             C. The Board of Directors shall declare vacant the office of a
             Director if he/she is declared of unsound mind by an order of the
             court, is convicted of a felony while in office, fails to accept
             office, or by failure to attend in person three (3) consecutive
             regular meetings of the Board of Directors or six (6) in a twelve
             (12) month period.

             D. If the recall process does not result in the Director’s removal,
             no further recall petition may be filed against the same Director
             for that same incident.
(Bylaws Art. VI, § 7, R.R. at 41.) Property Owners Association has adopted a board
member code of conduct (Board Code of Conduct), which provides, inter alia, that
“Board Members shall exhibit honesty, civility and professionalism at all times and
shall refrain from abusive conduct, personal charges and/or verbal attacks on the
character or motives of [Property Owners Association] members, management,
administration, staff, Directors, chairs and the public.” (Board Code of Conduct §
4, R.R. at 49.)
             Kowalski owns two properties in A Pocono Country Place that he rents
out. (H.T. at 8, 200, R.R. at 106, 298.) Kowalski was elected as a director of
Property Owners Association on June 25, 2016, in an election in which the number
of candidates did not exceed the number of vacancies on the Board. (Trial Court
Decision, F.F. ¶3; Application to Remove Director ¶20, R.R. at 12; Answer to
Application ¶20, R.R. at 69.) Kowalski also signed the Board Code of Conduct on
that date. (Trial Court Decision, F.F. ¶7; Board Code of Conduct, R.R. at 51.)
             Seven of the other eight directors of Property Owners Association in
2016 were women. (Trial Court Decision, F.F. ¶2.) Between July 17, 2016 and
September 29, 2016, Kowalski directed multiple insulting remarks at these Board

                                          3
members.     (Id., F.F. ¶¶11, 16-17, 19-22, 24.) These included: emails that
characterized specific female directors as “the most dangerous person of the 9
Directors,” “cunning and conniving,” “vindictive and spiteful,” and “incoherent”;
emails referring to a female director as having “a nervous breakdown” or “a
meltdown”; telling a female director at a Board meeting that “maybe I’d let you cook
for me”; and suggesting in emails that a female director’s dinner order for a Board
meeting be changed because it was too fattening. (Id., F.F. ¶¶11, 16, 19, 21-22, 24.)
In this time period, Kowalski also made statements in emails to the other directors
that there were too many women on the Board and characterized other directors’
actions as based on the fact that they were female. (Id., F.F. ¶¶12, 15, 19, 23.) In
addition, Kowalski, in an email in October 2016, characterized the non-director
members who serve on Property Owners Association’s committees as alcoholics
who were motivated to volunteer by the providing of free alcohol at Property Owners
Association’s volunteers’ dinner. (Id., F.F. ¶29.) In September and October 2016,
the Board censured Kowalski three times for sending these insulting emails to the
other directors and for copying the Community Manager, a Property Owners
Association employee, on some of the insulting emails. (Id., F.F. ¶¶18, 27, 30;
9/14/16 Censure Resolution, R.R. at 52-57; 10/15/16 Censure Resolution, R.R. at
60-63; 10/27/16 Censure Resolution, R.R. at 64-65.)
             On October 5, 2016, counsel for Property Owners Association advised
the Board that Kowalski’s emails “could arguably be viewed as creating a
discriminatorily hostile environment based on gender, such that it could expose the
Association to legal liability under the Pennsylvania Human Relations Act.” (Trial
Court Decision, F.F. ¶25; 10/5/16 Grimaldi Letter, R.R. at 58-59.) Following this
advice, the Board in its second, October 15, 2016, censure resolution required

                                         4
Kowalski to attend a sensitivity training program provided by the Board at the
Board’s expense within 30 days. (Trial Court Decision, F.F. ¶27; 10/15/16 Censure
Resolution, R.R. at 63.) Kowalski complied and attended a sensitivity training on
November 14, 2016. (Trial Court Decision, F.F. ¶28; H.T. at 69, R.R. at 167.)
            After the sensitivity training, Kowalski sent insulting emails to the
other directors in November and December 2016. (Trial Court Decision, F.F. ¶¶32-
40.) These emails compared the other directors to Nazis; called the other male
director “arrogant and abusive”; accused one of the female directors and the other
male director of “[p]athological [l]ying”; called two female directors “control
freaks” and “poster children for … dysfunctional behavior”; referred to the other
directors as “sociopathic in nature”; and called a female director “uneducated” and
a “hypocrite” and stated “[y]ou never even showed us a copy of your GED.” (Id.,
F.F. ¶¶33-35, 37-38, 40.) In addition, Kowalski sent emails calling the female Board
president “domineering” and “the type of personality that is typical of someone who
lacks formal training and someone who has never learned proper protocol,” and
stating that she “desperately need[s] to sign up for a[n] ethics course at the local
community college,” that she has “poor communication skills” and that she should
use “grammar checks” on her emails. (Id., F.F. ¶¶36, 39.) Kowalski copied the
Community Manager on many of the insulting emails both before and after the
sensitivity training. (H.T. at 37, 75-77, 79-83, 87-90, R.R. at 135, 173-175, 177-
181, 185-188.)
            Kowalski attended only 60% of the Board’s meetings, generally did not
make motions in the meetings that he attended, and missed Board workshops. (Trial
Court Decision, F.F. ¶41.) He did not, however, miss three consecutive Board

                                         5
meetings or six Board meetings in a 12-month period. (H.T. at 124-25, R.R. at 222-
23.)
             On January 17, 2017, the Board suspended Kowalski and Plaintiffs
filed a petition to remove him as a director and bar him from serving as a director
under Section 5726(c) of the Nonprofit Corporation Law. The trial court held a
hearing on the petition on May 19, 2017, at which Kowalski, several of plaintiff
Board members, and other witnesses testified. The Bylaws and Board Code of
Conduct, emails sent by Kowalski, and other documents were also introduced in
evidence at the hearing. None of the Kowalski comments introduced in evidence at
the hearing, either before or after the November 14, 2016 sensitivity training, were
sexual in nature (as opposed to offensive and sexist), and none of the comments
contained threatening language. No claim was made or evidence introduced that
Kowalski committed any physical assault, violent conduct, illegal or dishonest acts,
or financial misconduct.
             On June 9, 2017, the trial court issued an opinion and order denying
Plaintiffs’ petition. The trial court found that Kowalski sent emails and made
comments to other directors that were “insulting, demeaning, and unprofessional”
and that his behavior was “boorish” and not in keeping with the Board Code of
Conduct. (Trial Court Decision, F.F. ¶32 and Discussion at 14.) The trial court
found, however, that his behavior after the sensitivity training did not create a hostile
environment that constituted gender discrimination. (Id., Discussion at 14.) The
trial court held that removal of a director under Section 5726(c) of the Nonprofit
Corporation Law required proof of fraud, dishonesty, other financial misconduct or
gross abuse of authority. (Id., Discussion at 11-14.) The trial court concluded that
Kowalski’s behavior was insufficient to satisfy this standard and that court removal

                                           6
of a director for incivility would penalize expression of opinion and interfere with
the rights of Property Owners Association’s members to elect directors.                       (Id.,
Discussion at 14-15.)        Plaintiffs timely appealed the trial court’s decision to this
Court.1
               Section 5726 of the Nonprofit Corporation Law provides three methods
by which directors of a nonprofit corporation may be removed. Under Section
5726(a), unless restricted by a bylaw, a director may be removed by a vote of the
members for any reason or no reason at all. 15 Pa. C.S. § 5726(a). Under Section
5726(b), the board of directors may remove a director based on a judicial declaration
of mental incompetence or a criminal conviction punishable by imprisonment for
more than one year and may also remove a director “for any other proper cause,”
even if the bylaws do not expressly provide for such removal. 15 Pa. C.S. § 5726(b);
Northern Chester County Sportsmen’s Club v. Muller, 174 A.3d 701, 709 (Pa.
Cmwlth. 2017); Lutz v. Tanglewood Lakes Community Association, Inc., 866 A.2d
471, 474-75 (Pa. Cmwlth. 2005), appeal discontinued, (Pa., No. 73 MAP 2005, filed
December 2, 2005). In addition, Section 5726(c) provides that “[u]pon application
of any member or director, the court may remove from office any director in case of
fraudulent or dishonest acts, or gross abuse of authority or discretion with reference
to the corporation, or for any other proper cause, and may bar from office any

1
 This Court’s review of the trial court’s decision is limited to determining whether the trial court
committed an error of law or abused its discretion and whether its findings of fact are supported
by the evidence. Northern Chester County Sportsmen’s Club v. Muller, 174 A.3d 701, 707 n.2
(Pa. Cmwlth. 2017). The interpretation of Section 5726 of the Nonprofit Corporation Law is a
question of law, subject to de novo, plenary review. Zampogna v. Law Enforcement Health
Benefits, Inc., 151 A.3d 1003, 1011 (Pa. 2016).

                                                 7
director so removed for a period prescribed by the court.” 15 Pa. C.S. § 5726(c)
(emphasis added).2
                The Board here did not vote to remove Kowalski pursuant to its power
to remove a director under Section 5726(b), but instead sought a court order
removing him and barring him from serving as a director in the future. Plaintiffs
argue that his repeated insulting and demeaning behavior toward other directors in
his interactions with them on Board business and his refusal to cease that behavior

2
 Section 5726(a)-(c) of the Nonprofit Corporation Law provide:
       (a) Removal by the members.--
       (1) Unless otherwise provided in a bylaw adopted by the members, the entire board
       of directors, or a class of the board where the board is classified with respect to the
       power to select directors, or any individual director of a nonprofit corporation may
       be removed from office without assigning any cause by the vote of members, or a
       class of members, entitled to elect directors, or the class of directors. In case the
       board or a class of the board or any one or more directors are so removed, new
       directors may be elected at the same meeting.
       (2) An individual director shall not be removed, unless the entire board or class of
       the board is removed, from the board of a corporation in which members are entitled
       to vote cumulatively for the board or a class of the board if sufficient votes are cast
       against the resolution for removal of the director which, if cumulatively voted at an
       annual or other regular election of directors, would be sufficient to elect one or
       more directors to the board or to the class.
       (b) Removal by the board.-- Unless otherwise provided in a bylaw adopted by the
       members, the board of directors may declare vacant the office of a director who has
       been judicially declared of unsound mind or who has been convicted of an offense
       punishable by imprisonment for a term of more than one year, or for any other
       proper cause which the bylaws may specify, or if, within 60 days, or other time as
       the bylaws may specify, after notice of selection, a director does not accept the
       office either in writing or by attending a meeting of the board of directors and fulfill
       the other requirements of qualification as the bylaws may specify.
       (c) Removal by the court.-- Upon application of any member or director, the court
       may remove from office any director in case of fraudulent or dishonest acts, or
       gross abuse of authority or discretion with reference to the corporation, or for any
       other proper cause, and may bar from office any director so removed for a period
       prescribed by the court. The corporation shall be made a party to the action and, as
       a prerequisite to the maintenance of an action under this subsection, a member shall
       comply with Subchapter G [15 Pa. C.S. §§ 5791-5793] (relating to judicial
       supervision of corporate action).
15 Pa. C.S. § 5726(a)-(c).
                                                  8
constitutes “proper cause” under Section 5726(c) for court removal of a director.
We do not agree.
             The trial court findings and the evidence at the hearing establish that
Kowalski repeatedly acted boorishly and uncivilly toward the other members of the
Board and violated the Board Code of Conduct.         Kowalski’s descent into name-
calling and insulting his fellow directors is unprofessional and deserving of criticism.
Judicial intervention in the governance of a nonprofit corporation by ordering
removal of a director, however, is a drastic remedy that cannot be granted for merely
undesirable or offensive behavior of a director.         Loveless v. Pocono Forest
Sportsman Club, Inc., 972 A.2d 572, 576 (Pa. Cmwlth. 2009) (“drastic remedy” of
court removal of board of directors was properly denied despite “evidence that the
bylaws were not strictly followed”); In re Lord’s New Church, 817 A.2d 559, 561-
63 (Pa. Cmwlth. 2003) (en banc) (affirming denial of petition to remove directors
who “had employed some heavy-handed tactics” as insufficient “to justify ...
imposing the drastic remedy of judicial supervision of the corporation’s affairs”)
(quoting trial court opinion), aff’d in relevant part and reversed on other issue, 826
A.2d 863 (Pa. 2003).
             Rather, “proper cause” for court removal of a director under Section
5726(c) has not been found without a showing that the director committed fraud,
dishonesty, gross mismanagement, violation of the Nonprofit Corporation Law or
other illegal or ultra vires conduct. Loveless, 972 A.2d at 576 (grounds for court
removal of directors not shown where “the evidence fails to demonstrate … that any
conduct of the individual board members can be characterized as fraudulent or illegal
activity”); In re Lord’s New Church, 817 A.2d at 561-63 (court removal of directors
properly denied where trial court found that directors’ “actions had not ‘run afoul of

                                           9
the Non-Profit Law’”) (quoting trial court opinion); see also Oakbrook Fire Co. No.
14 Relief Association v. Oakbrook Fire Co. No. 14, (Pa. Cmwlth., No. 1121 C.D.
2013, filed January 8, 2014), slip op. at 17, 2014 WL 61319 at *5 (affirming
dismissal of Section 5726(c) petition for removal where no breach of fiduciary duty
under the Nonprofit Corporation Law or the corporation’s bylaws or fraud, gross
mismanagement or ultra vires conduct was shown).3                    Contrary to Plaintiffs’
assertions, limiting court removal to such extreme cases does not render the phrase
“for any other proper cause” mere surplusage, as it encompasses misconduct beyond
the grounds for removal enumerated in Section 5726(c) of “fraudulent or dishonest
acts, or gross abuse of authority or discretion.”
              Petitioners argue that Kowalski’s behavior constitutes proper cause for
removal of a director under Section 5726(c) because use of abusive or harassing
language to colleagues can constitute “just cause” for discharge of civil service
employees. See, e.g., Mufson v. Department of Public Welfare, 456 A.2d 736, 737-
38 (Pa. Cmwlth. 1983). Sufficient cause for court removal of a director, however,
is not analogous to cause for an employer’s discharge of an employee. Kowalski is
a director of Property Owners Association, answerable to its members, not an
employee of Property Owners Association or the Board. An employer’s right to
discharge an employee does not involve the issues of interference with corporate
governance and member rights that court removal of a director raises. Moreover,
the civil service cases hold only that the employer has the right to discharge the
employee, not that a court has cause to act against the employee.
              Plaintiffs also argue that court removal of Kowalski was necessary
because his conduct constituted gender discrimination for which Property Owners

3
 Because Oakbrook Fire Co. No. 14 Relief Association is an unreported decision, it is not binding
precedent, but is considered by the Court for its persuasive value. 210 Pa. Code § 69.414(a).
                                               10
Association could be held liable. This argument fails for two reasons. First, the trial
court held that the Board responded to the discrimination complaint by requiring
Kowalski to attend sensitivity training and that Kowalski’s subsequent conduct,
while boorish, did not constitute gender discrimination.          That conclusion is
supported by the record. While Kowalski’s uncivil and unprofessional behavior
continued unabated, the post-sensitivity training emails that Plaintiffs introduced in
evidence do not contain the gender-based language and references that he had used
before November 2016 and he directed his abuse not only at female directors but
also at the other male director. (Trial Court Decision, F.F. ¶¶33-40.)
             Moreover, even if his gender-based or gender-directed insults had
continued, that would not show that court intervention was required. If the Board
was concerned that Kowalski’s continuation as a director created an unacceptable
liability risk, it could have acted to remove him under Section 5726(b), rather than
seeking removal by the court. Proper cause for removal by a board of directors under
Section 5726(b) is not limited to fraud, dishonesty, and criminal conduct.         See
Northern Chester County Sportsmen’s Club, 174 A.3d at 709 (director’s use of his
position to act unilaterally for the corporation in violation of instructions from the
board constituted proper cause for his suspension from the board).
             While the phrase “for any other proper cause” is identical in Sections
5726(b) and (c), proper cause for board action against a director and proper cause
for court removal of a director are not the same. Under Sections 5502 and 5721 of
the Nonprofit Corporation Law, 15 Pa. C.S. §§ 5502, 5721, the board of directors is
charged with the management of the corporation’s affairs. Northern Chester County
Sportsmen’s Club, 174 A.3d at 708-10. In contrast, court removal of a director is a
judicial intrusion in the management of the corporation’s affairs. In addition, a

                                          11
board’s removal of a director does not interfere with rights of the members to the
same degree as court action. If the members disapprove the board’s action, they may
obtain its reversal by voting out the board members and re-electing the director;
members, however, have no such redress against a court action with which they
disagree. Accordingly, absent proof of illegal conduct, fraud, dishonesty or extreme
mismanagement of the corporation, it is for the corporation’s board under Section
5726(b), not the courts, to determinate whether removal of a director is necessary
for actions detrimental to the corporation or for violation of board rules, such as the
Board Code of Conduct.4
               Because Kowalski’s boorish and unprofessional behavior does not
constitute fraud, dishonesty, gross mismanagement, or illegal or ultra vires conduct,
the trial court properly denied Plaintiffs’ petition to remove him as a director. We
therefore affirm the trial court’s order.

                                             ____________________________________
                                             JAMES GARDNER COLINS, Senior Judge

4
  Because the Board did not vote to remove Kowalski, we need not and do not decide whether and
at what point a director’s verbal incivility toward other directors so interferes with the board’s
ability to function or harms the corporation’s interests that the director can be removed by a vote
of the board under Section 5726(b). Rather, we hold only that the type of conduct that can
constitute proper cause for a board to remove a director is broader than that which can support
removal of a director by a court and that court refusal to remove a director does not require the
conclusion that the board of directors is powerless to act.
                                                12
        IN THE COMMONWEALTH COURT OF PENNSYLVANIA

A Pocono Country Place Property           :
Owners Association, Inc. and Phyllis      :
Haase, Margaret Cooney, Harry             :
Williams, Carollee Kidd, Lisa Butler,     :
Gail Foster, Beth Raiola and Bonnie       :
Duffy each in his/her capacity as a       :
Director,                                 : No. 904 C.D. 2017
                   Appellants             :
                                          :
            v.                            :
                                          :
Zbigniew J. Kowalski a/k/a                :
Joe Kowalski                              :

                                   ORDER

            AND NOW, this 7th day of May, 2018, the order of June 9, 2017 of the
Court of Common Pleas of Monroe County in the above-captioned case is
AFFIRMED.

                                        ____________________________________
                                        JAMES GARDNER COLINS, Senior Judge