Court Opinion

ID: 4101250
Source: CourtListenerOpinion
Date Created: 2016-11-22 20:35:35.846783+00
Date Added: 2024-06-11T14:19:56.282470
License: Public Domain

[J-132-2016] [MO: Baer, J.]
                    IN THE SUPREME COURT OF PENNSYLVANIA
                                EASTERN DISTRICT

FRANK ZAMPOGNA,                              :   No. 40 EAP 2014
                                             :
                     Appellee                :   Appeal from the Order of
                                             :   Commonwealth Court entered on
                                             :   November 27, 2013 at No. 1322 CD
               v.                            :   2012, vacating and remanding the
                                             :   Order of the Court of Common Pleas of
                                             :   Philadelphia County, Civil Division,
LAW ENFORCEMENT HEALTH                       :   entered on January 24, 2012 at No.
BENEFITS, INC.,                              :   03927 September Term, 2010
                                             :
                     Appellant               :   ARGUED: March 10, 2015
                                             :   REARGUED: March 8, 2016
                                             :   RESUBMITTED: October 20, 2016

                                 CONCURRING OPINION

JUSTICE TODD                                           DECIDED: November 22, 2016
         I agree with the majority’s decision to reverse the order of the Commonwealth

Court.    However, for reasons similar to those articulated by Justice Wecht in his

Concurring Opinion, I cannot endorse the highly permissive test advanced by the

majority for determining whether a nonprofit corporation’s action is consistent with its

stated corporate purpose. Rather, I would utilize the test that has existed for nearly a

century: whether a nonprofit corporation’s action is incidental to its stated purpose —

that is, whether the action is “directly and immediately appropriate to the execution of

the specific power granted, and not one that has merely some slight or remote relation

to it.” Citizens’ Elec. Illuminating Co. v. Lackawanna & W. V. R. Co., 99 A. 465, 467

(Pa. 1916). My reasoning follows.
       Finding that “the interplay between a nonprofit corporation’s corporate purpose

and that corporation’s authority to take corporate action must be construed in the least

restrictive way possible,” the majority holds that a nonprofit corporation’s action is

authorized if: “1) the action is not prohibited by the [Nonprofit Corporation Law (“NCL”)]

or the corporation’s articles; and 2) the action is not clearly unrelated to the

corporation’s stated purpose.” Majority Opinion at 19. While I agree with the first prong

of this test, regarding the second, in my view, the majority’s approach — permitting all

but “clearly unrelated” action — is not grounded in statute, regulation, or case law.

Rather, the highly permissive standard the majority employs is based on the majority’s

assumption that, because the NCL is largely modeled after the Business Corporation

Law (“BCL”), and because the BCL gives modern day business corporations a nearly

unlimited scope of power, we should treat nonprofit corporations and for-profit

corporations as essentially one and the same, and find nearly all actions taken by a

nonprofit corporation to be authorized. I respectfully disagree with this view.

       While it is true that the NCL and BCL are similar in many respects, including

providing both types of corporations with the legal capacity to act as natural persons,

compare 15 Pa.C.S. § 5501, with id. § 1501, and authorizing both to engage in other

enumerated general powers, compare id. § 5502, with id. § 1502, these statutes differ

fundamentally with regard to the significance of a stated corporate purpose in a

corporation’s articles. Indeed, as the majority aptly notes, unlike the BCL, which permits

a for-profit corporation to be incorporated for “any lawful purpose,” id. § 1301, the NCL

requires a nonprofit corporation to be incorporated for a specified purpose, including or

similar to those enumerated by statute, which include “athletic,” “charitable,” and

“educational.” Id. §§ 5301(a), 5306(a)(3); 19 Pa. Code § 41.4(b). This emphasis on

corporate purpose, which was essentially eliminated for for-profit corporations under the

                             [J-132-2016] [MO: Baer, J.] - 2
BCL, is consistent with the differing goals of business and nonprofit corporations: while

business corporations ultimately seek to make money for their owners, nonprofit

corporations are organized to provide some focused benefit to society, and, as a result,

each must include a statement of purpose apprising the public of its aims. Howard L.

Oleck & Martha E. Stewart, Nonprofit Corporations, Organizations, & Associations, 496

(6th ed. 1994) (expressing support for requirement of specific statement of corporate

purpose with regard to nonprofit corporations because “the public and the organization’s

own personnel ought to have clearly stated just what their organization is and does,

particularly if it is to receive such legal privileges as tax exemption”); see also Johnny

Rex Buckles, How Deep Are the Springs of Obedience Norms that Bind the Overseers

of Charities?, 62 Cath. U. L. Rev. 913, 936 n. 116 (2013) (“[U]nlike business

corporations, whose ultimate objective is to make money, nonprofit corporations are

defined by their specific objectives: perpetuation of particular activities are central to the

raison d’être of the organization.” (internal quotation marks omitted)).

       The majority reasons, and I agree, that the legislature’s deliberate inclusion of a

specified corporate purpose requirement in the NCL — particularly where the BCL

contains no such mandate — necessarily signifies that “a nonprofit corporation’s actions

must be related to its corporate purpose,” otherwise, the requirement would be rendered

“meaningless.” Majority Opinion at 18. Yet, by holding that a nonprofit corporation’s

actions are authorized so long as they are not “clearly unrelated” to the purpose set

forth in the corporation’s charter, the majority has essentially authorized a nonprofit

corporation to take almost any action desired by its board of directors. As Justice

Wecht so astutely observes, the majority’s test is “tantamount to writing nonprofit

corporations a blank check that all but entirely confounds the General Assembly’s

determination that nonprofit corporations must identify a specific corporate purpose.”

                              [J-132-2016] [MO: Baer, J.] - 3
Concurring Opinion (Wecht, J.) at 3. I do not believe that this is the result the legislature

intended when it required nonprofit corporations to include a specified purpose in their

charters.

         Furthermore, although I agree with Justice Wecht to the degree he would find

that a nonprofit corporation’s actions must be incidental to its corporate purpose, he

would apply a “reasonable person” standard to assess such action. I cannot subscribe

to this approach either. While Justice Wecht’s reasonable person standard might be a

better measure of whether a nonprofit corporation’s action is consistent with its

corporate purpose than the standard advanced by the majority, as with the majority’s

standard, it lacks a statutory basis. Moreover, as neither party raises a challenge to the

burden of proof applied in this case, unlike Justice Wecht, I would not address that

issue.

         In contrast to the majority (and Justice Wecht’s augmented formulation), I see no

need to create a new test given the well established test under the incidental powers

doctrine, which both parties have agreed applies in this case.1 It has been an accepted

principle from as early as the late 1800s that, in addition to the specific powers listed in

a corporation’s charter, a corporation could engage in activities which were incidental to

its main purpose. See Malone v. Lancaster Gas Light & Fuel Co., 37 A. 392, 393 (Pa.

1987) (holding that purchasing and supplying gas-consuming appliances was incidental

to gas company’s corporate purpose of manufacturing and supplying illuminating and

heating gas); Citizens’ Elec., 99 A. at 467 (holding that providing surplus electricity was

not incidental to railroad company’s corporate purpose of transporting customers and

1
  Indeed, as further support for application of the incidental powers doctrine, LEHB’s
articles of incorporation specifically provide that LEHB may engage in “other proper
purposes incidental to” its corporate purpose. Addendum to Articles of Incorporation at 1
(R.R. at 232a).

                              [J-132-2016] [MO: Baer, J.] - 4
freight). In assessing whether such activities are incidental, this Court has made clear

that, while corporations “may transact, in addition to their main undertaking, all . . .

subordinate and connected matters,” such actions must be “if not essential, at least very

convenient, to the due prosecution of” the corporation’s purpose. Malone, 37 A. at 933.

In other words, a corporation could engage in an act “that is directly and immediately

appropriate to the execution of the specific power granted, and not one that has merely

some slight or remote relation to it.” Citizens’ Elec., 99 A. at 467.2

       While the incidental powers doctrine has been rendered largely immaterial with

respect to modern-day business corporations due to the fact that such corporations are

not restricted in the scope of their operations to a specific corporate purpose and,

therefore, enjoy a nearly unlimited scope of power, in my view, Malone and Citizens’

Elec. are still viable for interpreting the charters of today’s nonprofit corporations, which

contain a corporate purpose similar to that of traditional business corporations

commonplace at the time of those decisions.          Thus, rather than evaluating LEHB’s

endorsement in terms of whether it was “clearly unrelated” to providing health benefits

to FOP members, or in terms of whether a “reasonable person” would conclude that the

endorsement was consistent with providing such benefits — tests offered by the

majority and concurrence, respectively, for which neither party has argued — I would

2
  Although Justice Wecht views the Citizens’ Elec. standard as inconsistent with the
NCL’s broad grant of authority in 15 Pa.C.S. § 5502(a)(18), See Concurring Opinion
(Wecht, J.) at 3 n.2, I respectfully disagree. In my view, Section 5502(a)(18) is
consistent with, and indeed similar to, the formulation of the incidental powers standard
articulated in Citizens’ Elec., as both standards expressly permit nonprofit corporations
to engage in activities related to the nonprofit corporation’s stated purpose. Compare
Citizens’ Elec., 99 A. at 467 (authorizing corporate activity “that is directly and
immediately appropriate to the execution of the specific power granted”), with 15
Pa.C.S. § 5502(a)(18) (authorizing nonprofit corporation to take action “appropriate to
effect the purpose or purposes for which the corporation is incorporated”).

                              [J-132-2016] [MO: Baer, J.] - 5
apply Malone and Citizens’ Elec. and evaluate whether LEHB’s endorsement was

directly or immediately appropriate to its stated corporate purpose of providing health

and welfare benefits to the FOP members and their families.

       Applying that standard to the facts of this case, I would conclude that the

endorsement was indeed incidental to LEHB’s corporate purpose of providing health

and welfare benefits to FOP members. As the majority has explained, the collective

bargaining agreement between the FOP and the City of Philadelphia, inter alia, created

the Joint Trust Board, which is directly responsible for supervising and managing the

delivery of the FOP’s health and welfare benefits, and is tasked with selecting the entity

which will provide health and welfare benefits to active and retired FOP members and

their families.   Pursuant to the collective bargaining agreement, the FOP president

appoints four out of the five individuals who sit on the Joint Trust Board, which, as the

majority notes, directly impacts “LEHB’s ability to function effectively,” and, more

specifically, its ability to provide health and welfare benefits to the FOP.        Majority

Opinion at 20. Thus, I would find that LEHB’s endorsement of a candidate for FOP

president was “directly and immediately appropriate” to enabling it to provide health and

welfare benefits to FOP members and their families. Citizens’ Elec., 99 A. at 467. On

this basis, I join in the majority’s holding that LEHB’s actions were authorized.

                              [J-132-2016] [MO: Baer, J.] - 6