Linde, S. v. Linde Enterprises, Inc.

J-S02028-15

2015 PA Super 136

SCOTT F. LINDE, SHAREHOLDER AND IN THE SUPERIOR COURT OF

DIRECTOR OF LINDE ENTERPRISES, INC. PENNSYLVANIA

AND JOHN PIEPOLI, DIRECTOR OF LINDE

ENTERPRISES, INC.

Appellants

v.

LINDE ENTERPRISES, INC., BARBARA

LINDE, ERIC LINDE, AND GARY LINDE

Appellees No. 568 EDA 2014

Appeal from the Order Entered January 10, 2014

In the Court of Common Pleas of Wayne County

Civil Division at No(s): 18-CV-2013; 109-CV-2013

BEFORE: MUNDY, OLSON and WECHT, JJ.

OPINION BY OLSON, J.: FILED JUNE 09, 2015

Appellants, Scott F. Linde, shareholder and director of Linde

Enterprises, Inc., and John Piepoli, director of Linde Enterprises, Inc., appeal

from the order entered on January 10, 2014. The subject order denied

Appellants’ motions for partial summary judgment and granted the joint

motion for summary judgment that was filed on behalf of Linde Enterprises,

Inc., Barbara Linde, Eric Linde, and Gary Linde (hereinafter, collectively, “the

Defendants”). We affirm.

On January 14, 2013, Appellants filed a “Complaint in Equity for a

Declaratory Judgment and Injunctive Relief” against the Defendants at

docket number 18-CV-2013. Within the complaint, Appellants averred that:

Linde Enterprises, Inc. (hereinafter “LEI”) is a Pennsylvania corporation, with

J-S02028-15

its principal place of business in Wayne County, Pennsylvania; Scott Linde is

“both [] a shareholder and director of [LEI];” and John Piepoli is “a member

of the board of directors of [LEI].” Appellants’ Complaint, 1/14/13, at ¶¶ 1-

3. According to the complaint, on December 3, 2012, Barbara Linde, Eric

Linde, and Scott Linde together owned 100% of the total, 735 shares that

were issued by LEI. Id. at ¶ 7. On that date, LEI’s 735 shares were owned

as follows: Scott Linde owned 320 shares of LEI common stock; Barbara

Linde owned 115 shares of LEI common stock; and, Eric Linde owned 300

shares of LEI common stock. Id.

Pursuant to LEI’s bylaws, the annual LEI shareholders’ meeting was to

occur on the second Tuesday of March; special shareholders’ meetings could

be called “by ten [days’] notice given by the President or a majority of the

outstanding shares.” Id. at ¶ 10; LEI Bylaws, dated 2/7/97, at Art. III,

¶¶ 1-2;1 see also 15 Pa.C.S.A. § 1704 (titled: “[p]lace and notice of

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1

Article III, ¶¶ 1-2 of LEI’s bylaws read in full:

(1) Stockholders will meet annually on the second Tuesday

of March and this meeting shall be the regular annual

meeting at the registered office of the Corporation or at

such other place or places as may from time to time be

selected by the President of the Corporation.

(2) Stockholders may meet specially upon being called by

ten (10) days[’] notice given by the President or a majority

of the outstanding shares at the registered office of the

Corporation or at such other place or places as may from

time to time be selected by those authorized to call a

special meeting.

(Footnote Continued Next Page)

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meetings of shareholders;” declaring: “Notice in record form of every

meeting of the shareholders shall be given by, or at the direction of, the

secretary or other authorized person to each shareholder of record entitled

to vote at the meeting at least: (1) ten days prior to the day named for a

meeting that will consider a fundamental change . . . ; or (2) five days prior

to the day named for the meeting in any other case”). Notwithstanding the

bylaws and Pennsylvania’s Business Corporation Law (hereinafter “BCL”)

notice statutes, Barbara and Eric Linde called a special meeting of LEI’s

shareholders without providing Scott Linde with any notice of the special

meeting. Appellants’ Complaint, 1/14/13, at ¶ 9.

On December 3, 2012, Barbara and Eric Linde attended the special

shareholders’ meeting; Scott Linde was absent. During this special meeting,

Barbara and Eric Linde purported to adopt the following resolutions:2

a) Scott [] Linde, an officer, director, employee and

shareholder of the Corporation is hereby removed as an

officer[,] director[,] and employee of the Corporation as a

result of his fraudulent conduct with respect to the

_______________________

(Footnote Continued)

LEI Bylaws, dated 2/7/97, at Art. III, ¶¶ 1-2.

2

We note that Barbara and Eric Linde’s attendance at the December 3, 2012

special shareholders’ meeting constituted a quorum under LEI’s bylaws. See

LEI Bylaws, dated 2/7/97, at Art. III, ¶ 4 (“[a] majority of the outstanding

voting shares shall constitute a quorum and a majority of a quorum shall

have full power to decide any question coming before the meeting, whether

or not notice of such question is specifically given”).

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Corporation and the illegal use and abuse of the

Corporation’s assets;

b) Robert Hessling, an employee of the Corporation is

hereby removed as an employee of the Corporation as a

result of his fraudulent conduct with respect to the

Corporation and the illegal use and abuse of the

Corporation’s assets; and

c) Barbara Linde is elected to serve as President and

Secretary of the Corporation.

Id. at ¶ 8; see also Shareholder Resolution, 12/3/12, at 1.

Ten days later – on December 13, 2012 – LEI conducted a

shareholders’ meeting and a directors’ meeting. Appellants admit that the

requisite (and proper) ten-day notice of the shareholders’ meeting was

provided to all these shareholders prior to the December 13, 2012 meeting.3

Appellants’ Complaint, 1/14/13, at ¶ 24. Appellants also admit that Scott

Linde attended the December 13, 2012 shareholders’ meeting. Appellants’

Answer to Joint Motion for Summary Judgment, 12/11/13, at 3. The

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3

The Defendants claim that the December 13, 2012 meeting constituted the

annual shareholders’ meeting; Appellants claim that the December 13, 2012

meeting constituted a special shareholders’ meeting. However, Appellants

have not raised any claim that the notice was deficient for the December 13,

2012 meeting or that the subject matter of the meeting was inappropriate or

inadequately disclosed. Thus, for purposes of this appeal, it matters not

whether the December 13, 2012 shareholders’ meeting was an annual or a

special shareholders’ meeting.

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minutes from December 13, 2012 shareholders’ meeting declare the

following:4

Meeting was called to order at 1:00 PM on December 13,

2012 by Barbara Linde. In attendance were Barbara Linde,

Eric Linde and Scott Linde.

...

1. Motion was made by Barbara Linde and seconded by Eric

Linde to affirm the resolution for the special shareholders

meeting on December 3, 2012. Voting for the motion was

Barbara Linde and Eric Linde and voting against the motion

was Scott Linde. Motion Passed.

2. Motion was made to elect the Board of Directors for the

remaining calendar year 2012 and for 2013 or until the next

annual meeting to be held. . . .

Individual Ballots were distributed. The following four

individuals were nominated to fill three positions on the

Board of Directors: Eric Linde, Barbara Linde, Gary Linde

and Scott Linde.

Voting was as follows: 415 votes for Eric Linde; 415 votes

for Barbara Linde and 415 votes for Gary Linde. Scott Linde

received one vote for each director position.

It was resolved that based upon the voting, the Board of

Directors for the remaining calendar year 2012 and for 2013

or until the next annual meeting to be held shall consist of

Eric Linde, Barbara Linde and Gary Linde. Motion passed.

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4

The December 13, 2012 shareholders’ meeting minutes were amended on

March 6, 2013.

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December 13, 2012 LEI Shareholders’ Meeting Minutes at 1 (internal italics

omitted).

As Appellants’ complaint claimed, all of the above actions were invalid,

as Scott Linde was not given notice of the initial, December 3, 2012 special

shareholders’ meeting. Therefore, according to Appellants, the December 3,

2012 special shareholders’ meeting was illegal and the resolutions passed

during the December 3, 2012 shareholders’ meeting were “null and void.”

Appellants’ Complaint, 1/14/13, at ¶¶ 18 and 25-26. Further, Appellants

claimed, since the resolutions were void, the resolutions could not have been

ratified at the December 13, 2012 shareholders’ meeting. Id. Appellants

also claimed that “Scott [Linde] never gave his written consent to the

[December 3, 2012 r]esolution . . . as required by [15 Pa.C.S.A. § 1766]

and therefore the [r]esolution is void ab initio, for lack of written consent to

the [r]esolution by all shareholders without a meeting.” Id. at ¶ 16

(emphasis in original). Finally, Appellants claimed that the December 13,

2012 election of Eric and Gary Linde to the board of directors was invalid

because “Scott Linde and John Piepoli were not removed from their

position[s]” as directors of LEI and “there were no vacancies on the Board to

which Eric Linde and Gary Linde could be elected.” Id. at ¶¶ 25-26.

Appellants did not request monetary relief in their complaint. Rather,

Appellants requested “a judicial determination that the actions of [LEI] and

[d]efendants Barbara Linde and Eric Linde taken on December 3, 2012, be

declared null and void . . . and that all actions taken by Barbara Linde, Eric

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Linde and Gary Linde as the Board of Directors of [LEI] . . . be declared null

and void.” Id. at “Wherefore” Clause.

On January 31, 2013 – which was approximately two weeks after

Appellants filed the above complaint – LEI’s shareholders convened another

special shareholders’ meeting. The minutes from that special meeting

reflect that Barbara and Eric Linde appeared at the meeting in person and

that Scott Linde was represented at the meeting via proxy. January 31,

2013 LEI Shareholders’ Meeting Minutes at 1.5 In relevant part, the minutes

from the January 31, 2013 meeting declare:

The first order of business was the discharge of all currently

serving directors, except for Barbara J. Linde and the

election of new directors. The following individuals were

nominated to serve with Barbara J. Linde as directors of the

Corporation:

Eric R. Linde

Gary Linde

Upon motion duly made, seconded and by a vote of 415 in

favor and 320 against, it was,

RESOLVED, all currently serving directors, except for

Barbara J. Linde, are immediately discharged and the

above-named individuals are elected as the directors of the

Corporation to serve with Barbara J. Linde in accordance

with the Bylaws until the next annual election of directors

____________________________________________

5

The minutes from the January 31, 2013 special shareholders’ meeting were

amended on March 4, 2013 “to clarify the resolution removing directors.”

January 31, 2013 LEI Shareholders’ Meeting Minutes at 1.

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and until successors are duly-elected and have qualified or

until earlier death, resignation or removal.

The next order of business was ratification of prior

transactions taken since December 13, 2012.

Upon motion duly made, seconded and by a vote of 415 in

favor and 320 against, it was,

RESOLVED, that all resolutions, acts and proceedings of

Barbara J. Linde, Gary Linde, and Eric R. Linde, acting as

Officers and Directors of the Corporation, taken since

December 13, 2012 to present be and hereby are approved,

ratified, adopted and made the acts and deeds of the

Corporation and any technical defects in any actions or

meetings taken by these specific Directors and Officers of

the Corporation since December 13, 2012 be and hereby

are cured.

Id. at 2-3 (internal italics omitted).

On March 5, 2013, Scott Linde, Robert Hessling, and John Piepoli

(hereinafter, collectively, “the Petitioners”) filed a petition, entitled “Petition

for Review of Contested Corporate Action Pursuant to 15 Pa.C.S.A. § 1793,”

at docket number 109-CV-2013.6 The petition named LEI as the

respondent. The petition requested that the trial court “determine that the

following actions purportedly taken on behalf of [LEI] are legally invalid:”

(a) The December 3, 2012 special shareholders meeting;

(b) The December 3, 2012 Resolution arising from the

December 3, 2012 special shareholders meeting and any

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6

15 Pa.C.S.A. § 1793(a) declares: “[u]pon application of any person

aggrieved by any corporate action, the court may hear and determine the

validity of the corporate action.” 15 Pa.C.S.A. § 1793(a).

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actions directed or authorized thereby (including but not

limited to the removal of Scott F. Linde as a director, officer

and employee of [LEI] . . . and the election of Barbara J.

Linde as President/Secretary of [LEI]);

...

(d) The December 13, 2012 [shareholders’ meeting] and

any actions taken at, or authorized by a vote taken at, said

meeting (including the purported election of a new

director);

(e) The December 13, 2012 board of directors meeting and

any actions taken at, or authorized by a vote taken at, said

meeting (including the election of Barbara J. Linde as

President, Gary Linde as Vice President, and Eric R. Linde as

Secretary/Treasurer of [LEI]);

...

(h) The January 31, 2013 removal of “all currently serving

directors”;

(i) The January 31, 2013 special board of directors meeting

and any actions taken at, or authorized by a vote taken at,

said meeting (including the ratification of actions by Barbara

J. Linde, Eric R. Linde and Gary Linde between December

13, 2012 – January 31, 2013, . . . and the election of

Barbara J. Linde as President, Gary Linde as Vice President,

and Eric R. Linde as Secretary/Treasurer of [LEI]).

Petition for Review of Contested Corporate Action, 3/5/13, at 18-20.

By order entered August 20, 2013, the trial court consolidated the

actions at docket numbers 18-CV-2013 and 109-CV-2013. Trial Court

Order, 8/20/13, at 1-2.

On November 4, 2013, the Defendants filed a joint motion for

summary judgment, wherein they requested that the trial court dismiss all

claims that were contained in Appellants’ complaint and in the Petitioners’

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petition. According to the Defendants, it was uncontradicted that “[a]ll

shareholders, including Scott Linde, were in attendance at the December 13,

2012 [shareholders’] meeting.” The Defendants’ Joint Motion for Summary

Judgment, 11/4/13, at 4. The Defendants also claimed that it was

uncontradicted that, during the December 13, 2012 shareholders’ meeting,

the shareholders passed a motion “affirming/ratifying the resolution adopted

at the [December 3, 2012] shareholders[’] meeting” and a motion “electing

Eric Linde, Barbara Linde and Gary Linde to the Board of Directors.” Id.

The Defendants thus claimed that – even if notice of the December 3, 2012

special shareholders’ meeting were defective – “the actions taken at the

December 3, 2012 meeting were properly ratified/cured at the December 13,

2012 meeting and/or subsequent meetings.” Id. at 6.

Appellants answered the Defendants’ joint motion for summary

judgment and admitted that: Scott Linde attended the December 13, 2012

shareholders’ meeting; the minutes from the December 13, 2012

shareholders’ meeting were true and correct; and, the above-described

motions were “passed” during the December 13, 2012 shareholders’

meeting. Appellants’ Answer to Joint Motion for Summary Judgment,

12/11/13, at 3. However, Appellants denied that the December 13, 2012

resolutions had any legal effect or that the resolutions could have ratified or

cured the illegal actions that were taken at the December 3, 2012 meeting.

Id. at 4-5.

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On November 14, 2013, Appellants filed a cross-motion for partial

summary judgment on the claims contained in the complaint and, on

November 25, 2013, the Petitioners filed a separate cross-motion for partial

summary judgment on the claims contained in the petition. Attached to

these motions for partial summary judgment was deposition testimony from

both Barbara Linde and Eric Linde, wherein they admitted that Scott Linde

was not provided with proper notice of the December 3, 2012 special

shareholders’ meeting. See Appellants’ Motion for Partial Summary

Judgment, 11/14/13, at 4, “Exhibit C,” and “Exhibit D.” Based upon these

admissions, Appellants and the Petitioners claimed that the December 3,

2012 special shareholders’ meeting was illegal, that the resolutions passed

during the December 3, 2012 meeting were “null and void,” and that, since

the resolutions were void, the resolutions could not have been ratified at the

December 13, 2012 shareholders’ meeting. Id. at 6-8. The movants thus

claimed that they were entitled to the relief that they requested in their

complaint and petition.

The trial court heard oral argument on the cross-motions for summary

judgment and, on January 10, 2014, the trial court entered an order

granting the Defendants’ joint motion for summary judgment and denying

the motions for partial summary judgment that were filed on behalf of

Appellants and the Petitioners. The trial court’s order declares:

1. It is the declaration of the court that, although done

without notice to Scott Linde and therefore improper, the

action taken by Barbara Linde and Eric Linde at the

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December 3, 2012 special shareholders meeting in

removing Scott Linde as a director of [LEI] was ratified at

the subsequent annual shareholders meeting on December

13, 2013 and/or at the subsequent January 31, 2013

special shareholders meeting.[fn.1]

[fn.1] “As to special meetings of the board of directors

of a corporation, the general rule in Pennsylvania is that

such a meeting held without notice to some or any of

the directors and in their absence is illegal, and action

taken at such a meeting, although by a majority of the

directors, is invalid absent ratification or estoppel.”

Stone v. Am. Lacquer Solvents Co., [345 A.2d 174

(Pa. 1975)].

2. It is the declaration of the court that Scott Linde was

removed as a director of [LEI] as of December 3, 2012.[fn.2]

[fn.2] “[R]atification of an invalid Board decision has

retroactive effect, making the ratified action valid as of

the original decision date.” Koprowski v. Wistar Inst.

of Anatomy & Biology, 1993 WL 106466 (E.D.Pa.

1993).

3. It is the declaration of the court that John Piepoli was

removed as a director from [LEI] on December 13, 2012.

4. It is the declaration of the court that, at the December 3,

2012 meeting, the action taken by Barbara Linde and Eric

Linde in removing Scott Linde as an officer of [LEI] could

not be ratified at the subsequent December 13, 2012 annual

shareholders meeting because shareholders do not have the

power to remove officers. However, Scott Linde was

properly removed as an officer on December 13, 2012 at

the board of directors meeting.[fn.3]

[fn.3] The January 31, 2013 board of directors meeting

ratified/cured the actions taken at the December 13,

2012 . . . board of directors meeting.

5. It is the declaration of the court that Robert Hessling was

not properly removed as an employee of [LEI] at the

December 3, 2012 special shareholders meeting because

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employees are not subject to removal by shareholders or

the board of directors.

6. Judgment is entered upon the above-stated declarations

of the court.

Trial Court Order, 1/10/14, at 1-2 (some internal capitalization, emphasis,

and footnotes omitted).

Appellants filed a timely notice of appeal and the trial court ordered

Appellants to file a concise statement of errors complained of on appeal,

pursuant to Pennsylvania Rule of Appellate Procedure 1925(b).7 Trial Court

Order, 2/7/14, at 1. Appellants complied with the trial court’s order.

However, within Appellants’ Rule 1925(b) statement, Appellants claimed

only that the trial court erred when it determined that the shareholders had

validly removed Scott Linde as a director of LEI and that the trial court

erred when it determined that the removal of Scott Linde as a director was

effective as of December 3, 2012. Appellants’ Rule 1925(b) Statement,

2/27/14, at 1-4. Appellants raised no claim that the trial court erred when it

determined that the shareholders had validly removed John Piepoli as a

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7

We note that the order granting summary judgment was entered under

both consolidated case captions and the notice of appeal was filed at both

consolidated cases. See Pa.R.A.P. 341 cmt. (requiring separate notices of

appeal when appealing final orders that terminate cases at separate

dockets).

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director or that Scott Linde was improperly removed as an officer of LEI.8

See id.

Appellants now raise the following claims to this Court:

1. Whether the trial court’s determination that the actions

taken by Barbara Linde and Eric Linde at their meeting of

December 3, 2012, could be ratified and were therefore

valid constitutes an error of law?

2. Whether the trial court’s determination that Scott Linde

was removed as director of [LEI], as of December 3, 2012

constitutes an error of law because Scott Linde had no role

in the decisions of the December 3, 2012 meeting because

it was conducted without his consent?

3. Whether the trial court erred as a matter of law in

holding that ratification of an illegally conducted meeting

can be accomplished simply by calling a subsequent

meeting with proper notice?

Appellants’ Brief at 6 (some internal capitalization omitted).

As this Court has stated:

Our scope of review of a trial court’s order granting or

denying summary judgment is plenary, and our standard of

review is clear: the trial court’s order will be reversed only

where it is established that the court committed an error of

law or abused its discretion.

Summary judgment is appropriate only when the record

clearly shows that there is no genuine issue of material fact

and that the moving party is entitled to judgment as a

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8

We note that Appellants’ brief also requests that we provide relief for

Robert Hessling. Appellants’ Brief at 25. However, Robert Hessling did not

file a notice of appeal from the underlying trial court order and it appears as

though Robert Hessling was not aggrieved by the trial court’s order.

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matter of law. The reviewing court must view the record in

the light most favorable to the nonmoving party and resolve

all doubts as to the existence of a genuine issue of material

fact against the moving party. Only when the facts are so

clear that reasonable minds could not differ can a trial court

properly enter summary judgment.

Englert v. Fazio Mech. Serv.’s, Inc., 932 A.2d 122, 124 (Pa. Super. 2007)

(internal citations omitted).

At the outset, we conclude that Appellants waived any claim that the

trial court erred in determining that the shareholders had validly removed

John Piepoli as a director of LEI, as the claim was not contained within

Appellants’ court-ordered Rule 1925(b) statement. Pa.R.A.P. 1925(b)(4)(vii)

(“[i]ssues not included in the [Rule 1925(b) s]tatement . . . are waived”);

Commonwealth v. Castillo, 888 A.2d 775 (Pa. 2005) (in order to preserve

their claims for appellate review, appellants must comply whenever the trial

court orders them to file a [Rule 1925(b) statement]. Any issues not raised

in a Pa.R.A.P. 1925(b) statement will be deemed waived”) (internal

quotations and citations omitted).

Appellants first claim that, since the December 3, 2012 special

shareholders’ meeting was conducted without notice to Scott Linde, the

meeting was illegal and any resolution passed during the meeting – including

the removal of Scott Linde as a director of LEI – was “null and void.”

Appellants’ Brief at 23-25. Further, Appellants argue that the resolution

passed on December 13, 2012 – to “affirm the resolution for the special

shareholders meeting on December 3, 2012” – had no legal effect, since a

void resolution cannot be ratified. Id.

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Appellants’ claim fails, as the failure to give Scott Linde proper notice

of the December 3, 2012 shareholders’ meeting did not render the actions

taken at the meeting “null and void.” Rather, the failure to provide Scott

Linde with notice of the December 3, 2012 meeting rendered the December

3, 2012 resolutions voidable. However, Appellants offered no evidence,

argument, or claim that, prior to the ratification vote on December 13, 2012,

Scott Linde (or another shareholder) elected to void the actions taken at the

December 3, 2012 meeting. Thus, the December 13, 2012 resolution –

which was validly passed at the properly-noticed December 13, 2012

shareholders’ meeting – ratified the resolutions that were passed at the

improper December 3, 2012 shareholders’ meeting, including the December

3, 2012 resolution removing Scott Linde as a director of LEI. As such, the

shareholders properly removed Scott Linde as a director of LEI. We explain.

As stated above, Defendants admitted that they failed to provide Scott

Linde with proper notice of the December 3, 2012 special shareholders’

meeting and that Scott Linde did not attend the December 3, 2012 meeting.

Moreover, there is no question that the Defendants were required to provide

Scott Linde with notice of the December 3, 2012 special shareholders’

meeting. Indeed, the LEI Bylaws declare that the “[s]tockholders may meet

specially upon being called by ten [days’] notice given by the President or a

majority of the outstanding shares.” LEI Bylaws, dated 2/7/97, at Art. III,

¶ 2. Further, 15 Pa.C.S.A. § 1704 provides in relevant part:

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(b) Notice.-- Notice in record form of every meeting of the

shareholders shall be given by, or at the direction of, the

secretary or other authorized person to each shareholder of

record entitled to vote at the meeting at least:

(1) ten days prior to the day named for a meeting that

will consider a fundamental change . . . ; or

(2) five days prior to the day named for the meeting in

any other case.

(c) Contents.--In the case of a special meeting of

shareholders, the notice shall specify the general nature of

the business to be transacted, and in all cases the notice

shall comply with the express requirements of this subpart.

15 Pa.C.S.A. § 1704 (emphasis added).

Contrariwise, Appellants admitted that Scott Linde was provided with

proper notice of the December 13, 2012 shareholders’ meeting and that

Scott Linde attended the December 13, 2012 shareholders’ meeting.

Appellants’ Answer to Joint Motion for Summary Judgment, 12/11/13, at 3.

Further, Appellants admitted that, during the December 13, 2012

shareholders’ meeting, the shareholders passed a resolution

“affirming/ratifying the resolution adopted at the [December 3, 2012]

shareholders[’] meeting” – and that, amongst other things, the December 3,

2012 resolution declared that Scott Linde was removed as a director of LEI.

Id. Appellants, however, claim that the failure to provide Scott Linde with

notice of the December 3, 2012 special shareholders’ meeting rendered the

December 3, 2012 resolutions “null and void” and, thus, not subject to

ratification. We disagree with Appellants.

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The distinction between a “void” and a “voidable” action is of import to

this case, as a void resolution has no legal effect whatsoever and, thus,

cannot be ratified, whereas a voidable resolution is “valid until annulled.”

BLACK’S LAW DICTIONARY at 1604 (8th ed. 2004); see also Aspinwall-

Delafield Co. v. Borough of Aspinwall, 77 A. 1098 (Pa. 1910) (“a court of

equity cannot interpose to give a void contract, or any part of it, validity”).

Here, while Appellants contend that the failure to provide a shareholder with

notice of a special shareholders’ meeting renders the actions taken at the

meeting void, Appellants provided this Court with no legal precedent to

support their claim. See Appellants’ Brief at 19-31. Further, after

considering the distinction between void and voidable actions, Pennsylvania’s

BCL, and precedent from both this Court and our Supreme Court, we

conclude that the failure to provide Scott Linde with notice of the December

3, 2012 special shareholders’ meeting caused the resolutions passed at that

meeting to be voidable at the election of Scott Linde (or, possibly, another

shareholder) – but not void.

As the Delaware Supreme Court succinctly explained, “[t]he essential

distinction between voidable and void acts is that the former are those which

may be found to have been performed in the interest of the corporation but

beyond the authority of management, as distinguished from acts which are

ultra vires, fraudulent or gifts or waste of corporate assets.” Michelson v.

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Duncan, 407 A.2d 211, 218-219 (Del. 1979);9 see also Bedell v. Oliver

H. Bair Co., 158 A. 651, 653 (Pa. Super. 1932) (“[c]ontracts ultra vires of

the corporation making them are not merely voidable but wholly void and of

no effect”) (internal quotations omitted); Aspinwall-Delafield Co., 77 A. at

1098 (“[a] void contract is one which offends against public law or policy, or

is without the scope of proper authority”); Chambers v. Beaver-Advance

Corp., 140 A.2d 808, 811 (Pa. 1958) (“[t]he general rule is well established

that stockholders can ratify any action of the Board of Directors which they

themselves could have lawfully authorized. The general rule is subject,

however, to the limitation [that] the majority stockholder may not, as

against the corporation and minority stockholder, dissipate or waste its

funds, or fraudulently dispose of them in any way, either by ratifying the

action of the board of directors in voting themselves illegal salaries or by any

other act”) (internal quotations, citations, and corrections omitted).

In the case at bar, Appellants simply argue that the failure to provide

Scott Linde with notice of the December 3, 2012 special shareholders’

meeting (and that failure alone) caused the December 3, 2012 resolution,

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9

At issue in Michelson was whether the acts of the board of directors were

void or voidable; therefore, the above-quoted principle in Michelson

concerned whether the acts were “beyond the authority of management.”

Michelson, 407 A.2d at 218. However, the distinction between void and

voidable acts that was recognized in Michelson is useful to guide our

analysis as to whether the resolutions (or acts) of the shareholders here

were void or voidable.

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removing Scott Linde as a director of LEI, to be void. See Appellants’ Brief

at 19-25. In other words, Appellants provided this Court with no evidence,

argument, or claim that the resolutions passed during the December 3, 2012

special shareholders’ meeting were: beyond the authority of the

stockholders;10 ultra vires; fraudulent; gifts or waste of corporate assets; or,

against public law or policy. Further, Appellants made no claim that the

failure to provide Scott Linde with notice of the December 3, 2012 special

shareholders’ meeting was done with fraudulent intent or was otherwise

intentional. See id. Therefore, the traditional distinction between void and

voidable acts supports our conclusion that the failure to provide Scott Linde

with notice of the December 3, 2012 special shareholders’ meeting rendered

the resolutions voidable, not void.

Section 1705 of the BCL also militates in favor of our conclusion that

the failure to provide a shareholder with notice of a special shareholders’

meeting renders the actions taken at the meeting voidable, but not void.

____________________________________________

10

The shareholders were the proper body to remove Scott Linde as a

director of LEI. See 15 Pa.C.S.A. § 1726 (“[u]nless otherwise provided in a

bylaw adopted by the shareholders, 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 business corporation may be

removed from office without assigning any cause by the vote of

shareholders, or of the holders of a class or series of shares, entitled to elect

directors, or the class of directors”); see also LEI Bylaws, dated 2/7/97, at

Art. II, ¶¶ 1-4 (no bylaw provides that the board of LEI is classified or that

the directors may only be removed for cause).

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Section 1705 expressly provides that a shareholder is deemed to have

waived defective notice where the shareholder attends a meeting and does

not object to the inadequacy of the notice. 15 Pa.C.S.A. § 1705(b)

(“[a]ttendance of a person at any meeting shall constitute a waiver of notice

of the meeting except where a person attends a meeting for the express

purpose of objecting, at the beginning of the meeting, to the transaction of

any business because the meeting was not lawfully called or convened”).

Therefore, since a shareholder may waive notice by attending a meeting and

not objecting, one cannot say that the failure to provide a shareholder with

notice of a meeting causes the actions taken at the meeting to be void ab

initio.

Third, both this Court and our Supreme Court have consistently held

that the failure to provide a director with the required notice of a special

board meeting renders the actions taken at the meeting voidable – not void

– and thus subject to ratification. See Gordon v. Preston, 1 Watts 385

(Pa. 1833) (holding that a corporation may ratify a mortgage executed by

the directors at a special meeting convened without notice); Moller v.

Keystone Fibre Co., 41 A. 478, 478 (Pa. 1898) (“[t]he learned court below

found as a fact that two of the five directors of the company did not have

timely notice of the meeting at which the assignment was authorized, and

held that on this ground it was voidable; but held also that, as no officer or

stockholder of the company had made any objection to it, their acquiescence

must be accepted as a ratification of it. . . . In this conclusion we concur.”);

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McCay v. Luzerne & Carbon County Motor Transit Co., 189 A. 772, 774

(Pa. Super. 1937) (“it is well established that the proceedings of directors at

an illegal or irregular meeting may be ratified at a subsequent legal meeting,

or by the corporation’s adopting the acts of its representatives”); Stone v.

Am. Lacquer Solvents Co., 345 A.2d 174, 177 (Pa. 1975) (“[a]s to special

meetings of the board of directors of a corporation, the general rule in

Pennsylvania is that such a meeting held without notice to some or any of

the directors and in their absence is illegal, and action taken at such a

meeting, although by a majority of the directors, is invalid absent ratification

or estoppel”).

The BCL phrases the notice requirements similarly for special board

meetings and special shareholders’ meetings. See 15 Pa.C.S.A. § 1703(b)

(“[u]nless otherwise provided in the bylaws, written notice of every special

meeting of the board of directors shall be given to each director at least five

days before the day named for the meeting”) (emphasis added); 15

Pa.C.S.A. § 1704(b) (“Notice in record form of every meeting of the

shareholders shall be given by, or at the direction of, the secretary or other

authorized person to each shareholder of record entitled to vote at the

meeting at least: (1) ten days prior to the day named for a meeting that

will consider a fundamental change . . . ; or (2) five days prior to the day

named for the meeting in any other case”) (emphasis added). Thus, since

the notice statutes are similar with respect to special board meetings and

special shareholders’ meetings, it is apparent that the failure to provide

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proper notice of a special shareholders’ meeting – as with the failure to

provide proper notice of a special board meeting – causes the actions taken

at the meeting to be voidable only.

Finally, in Fishkin v. Hi-Acres, Inc., our Supreme Court interpreted a

notice statute that was similar to the one at bar. There, the Supreme Court

held that the failure to provide a shareholder notice of a meeting – during

which the majority shareholders resolved to sell the corporation’s sole asset

– caused the sale to be voidable, not void ab initio. Fishkin v. Hi-Acres,

Inc., 341 A.2d 95 (Pa. 1975).

In the Fishkin case, the plaintiff was Abraham Fishkin, a minority

shareholder and director of Hi-Acres, Inc. The majority shareholders of Hi-

Acres were R.F. and Louise L. Zahorchak; the Zahorchaks were also

directors of the corporation. Id. at 96. According to Fishkin’s complaint, the

Zahorchaks illegally agreed to alienate the corporation’s sole asset to a third

party, in violation of Section 311(b) of the BCL. At the time, Section 311(b)

of the BCL declared:

A sale, lease, or exchange of all, or substantially all, the

property and assets . . . of a corporation, if made neither

(1) in the usual and regular course of its business . . . may

be made upon such terms and conditions and for such

considerations . . . as may be authorized in the manner

hereinafter provided in this subsection. The board of

directors Shall adopt a resolution recommending such sale,

lease or exchange, and directing the submission thereof, to

a vote of the shareholders entitled to vote in respect thereof

at a meeting which may be either an annual meeting of the

shareholders or a special meeting of the shareholders

entitled to vote . . . written notice stating that the purpose,

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or one of the purposes, of such meeting is to consider the

sale, lease, or exchange of all, or substantially all, the

property and assets of the corporation, Shall be given to

each shareholder of record . . . at least ten days prior to the

date of the meeting, in the manner provided by this act.

Fishkin, 341 A.2d at 97, quoting 15 P.S. § 1311(b) (1975).11

As Fishkin claimed, the Zahorchaks agreed to sell the corporation’s

sole asset to a third party but, in doing so, the Zahorchaks failed to obtain

director approval and, further, failed to provide Fishkin with “notice of the

impending sale as required under [Section] 311.” Fishkin, 341 A.2d at 96-

97 and 96 n.3. Fishkin claimed that, since the legislature utilized the word

“shall” in Section 311(b), “the procedures prescribed by [Section] 311

[subdivision] B [were] mandatory in nature and that, therefore, a transfer

made in violation of the statutory requirements [was] illegal and void ab

initio.” Id. at 97. Our Supreme Court held otherwise.

As the Fishkin Court held, the word “shall” in the above-quoted

statute was directory, but not mandatory;12 therefore, the Supreme Court

____________________________________________

11

The statute governing the voluntary transfer of corporate assets is now

found at 15 Pa.C.S.A. § 1932.

12

In explaining the distinction between directory and mandatory language,

the Fishkin Court declared:

To hold that a statutorily prescribed procedure is directory

does not mean that it is optional; to be adhered to or not at

will. The distinction between a mandatory and a

directory statute lies in the effect of noncompliance

upon the transaction involved – not in the liability of

the person who has violated the statute. Failure to

conform to a mandatory procedure renders the regulated

(Footnote Continued Next Page)

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held, transactions accomplished in violation of the required procedure were

voidable, but not void. In arriving at its conclusion, the Fishkin Court

recognized the following principle of law:

Except when relating to the time of doing something,

statutory provisions containing the word “shall” are usually

considered to be mandatory, but it is the intention of the

legislature which governs, and this intent is to be

ascertained from a consideration of the entire act, its

nature, its object and the consequences that would result

from construing it one way or the other.

Id., quoting Francis v. Corleto, 211 A.2d 503, 509 (Pa. 1965) (internal

quotations and some citations omitted).

In ascertaining the legislature’s intent, the Fishkin Court held that the

“object” and purpose of notice provisions such as that found in Section

311(b) “is to insure the freedom of the majority of shareholders to act in

what they consider to be the best interests of the corporation while at the

same time protecting the essential right of the minority stockholders to

express their views and to preserve their rights as dissenters.” Fishkin, 341

A.2d at 98. Given this object – and given that “no public interest of

substance [would be] jeopardized by a transfer not in compliance with the

statute” – our Supreme Court held:

_______________________

(Footnote Continued)

activity a nullity. Strict compliance with a directory

provision, on the other hand, is not essential to the validity

of the transaction or proceeding involved.

Fishkin, 341 A.2d at 98 n.5 (internal citations omitted) (emphasis added).

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in enacting [Section] 311, [subdivision] B[,] the legislature

[did not] intend[] that a transfer which is defective solely

because it is violative of the requirements of this provision

would be a nullity and of no effect. Properly construed, the

word “shall” in [Section] 311, [subdivision] B is directory

only, for it is sufficient to protect the rights of minority

shareholders that a non-conforming transfer be deemed

voidable (under proper circumstances) by an aggrieved

stockholder, rather than void ab initio.

Id. (some internal capitalization omitted) (emphasis added).

Fishkin applies with full force to the case at bar. Here, the notice

statute at issue is 15 Pa.C.S.A. § 1704, and, as was true with the statute

interpreted in Fishkin, Section 1704 also utilizes the word “shall” to define

the requirement of notice to the shareholders. 15 Pa.C.S.A. § 1704

(“[n]otice in record form of every meeting of the shareholders shall be

given by, or at the direction of, the secretary or other authorized person to

each shareholder of record entitled to vote at the meeting. . .”). Further,

the notice statute at issue here has the same “object” and purpose as the

statute interpreted in Fishkin: “to insure the freedom of the majority of

shareholders to act in what they consider to be the best interests of the

corporation while at the same time protecting the essential right of the

minority stockholders to express their views and to preserve their rights as

dissenters.” Fishkin, 341 A.2d at 98. Moreover, as in Fishkin, “no public

interest of substance [would be] jeopardized by [resolutions that were] not

[passed] in compliance with” Section 1704. Therefore, consistent with

Fishkin, we conclude that:

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in enacting [15 Pa.C.S.A. § 1704] the legislature [did not]

intend[] that a [resolution] which is defective solely because

it is violative of the requirements of this provision would be

a nullity and of no effect. Properly construed, the word

“shall” in [Section 1704] is directory only, for it is sufficient

to protect the rights of minority shareholders that a non-

conforming [resolution] be deemed voidable (under proper

circumstances) by an aggrieved stockholder, rather than

void ab initio.

See Fishkin, 341 A.2d at 98.

We thus conclude that the December 3, 2012 resolution – removing

Scott Linde as a director of LEI – was not void ab initio. Rather, we conclude

that, since the December 3, 2012 special shareholders’ meeting was

conducted without notice to Scott Linde, the subject resolution was voidable

at the election of Scott Linde (or, possibly, another shareholder). 13

____________________________________________

13

In Stone, our Supreme Court explained that:

the rationale [for the BCL’s requirement that all directors

receive notice of a special board meeting] is that each

member of a corporate body has the right of consultation

with the others, and has the right to be heard upon all

questions considered, and it is presumed that if the absent

members had been present they might have dissented, and

their arguments might have convinced the majority of the

unwisdom of their proposed action and thus have produced

a different result.

Stone, 345 A.2d at 178 (internal quotations and citations omitted).

In other words, the BCL’s notice requirements are predicated upon the right

of a director or a shareholder to consider and be heard on all questions

considered, as well as the right of a director or a shareholder to consider

and hear contrary opinions from other directors or shareholders. As such, it

appears as though any individual in the body may elect to void an action

that was taken at a meeting called with insufficient notice. This is because

(Footnote Continued Next Page)

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However, Appellants presented no claim or argument that any individual

sought to void the December 3, 2012 resolution prior to the properly-noticed

December 13, 2012 shareholders’ meeting or prior to the December 13,

2012 ratification vote. Therefore, the December 13, 2012 resolution – which

was validly passed at the properly-noticed December 13, 2012 shareholders’

meeting – ratified the resolutions that were passed at the improper

December 3, 2012 shareholders’ meeting, including the December 3, 2012

resolution removing Scott Linde as a director of LEI. In doing so, the

shareholders properly removed Scott Linde as a director of LEI. Appellants’

claim to the contrary thus fails.

Our holding today does not leave shareholders, like Scott Linde,

without recourse when they are given inadequate notice of a shareholders’

meeting. For example, after receiving notice of the December 13, 2012

shareholders’ meeting, Scott Linde could have filed a complaint to enjoin the

December 13, 2012 meeting and to declare that the December 3, 2012

resolutions were void at his election; Scott Linde could have also filed a

declaratory judgment action prior to the December 13, 2012 meeting to void

the December 3, 2012 resolutions. Further, we assume, without deciding,

that Scott Linde could have attended the December 13, 2012 meeting and,

_______________________

(Footnote Continued)

the properly-noticed shareholder or director might be deprived of the views

and arguments of the insufficiently noticed or absent shareholder or director.

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prior to the ratification vote, announced that he was exercising his right to

declare the December 3, 2012 resolutions void, as he did not receive notice

of the December 3, 2012 special shareholders’ meeting. However, Scott

Linde undertook none of the above actions. Rather, he attended the

December 13, 2012 shareholders’ meeting and voted against the merits of

the December 13, 2012 resolution. In doing so, he allowed the shareholders

(as a body) to pass a resolution which “affirm[ed]/ratif[ied] the resolution

adopted at the [December 3, 2012] shareholders[’] meeting” – including the

resolution that removed Scott Linde as a director of LEI. The Defendants’

Joint Motion for Summary Judgment, 11/4/13, at 4; Appellants’ Answer to

Joint Motion for Summary Judgment, 12/11/13, at 3.

For Appellants’ second claim on appeal, Appellants contend that the

December 3, 2012 resolutions were void because “Scott Linde did not

consent to the . . . actions taken at [the December 3, 2012] meeting.”

According to Appellants, since Scott Linde did not consent to the actions

taken at the December 3, 2012 shareholders’ meeting, 15 Pa.C.S.A.

§ 1766(a) renders the December 3, 2012 actions “void ab initio.”

Appellants’ Brief at 25-28. This claim immediately fails, as 15 Pa.C.S.A.

§ 1766 is inapplicable to the case at bar.

15 Pa.C.S.A. § 1766 is entitled “[c]onsent of shareholders in lieu of

meeting.” 15 Pa.C.S.A. § 1766 (emphasis added). Section 1766(a)

provides:

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Unless otherwise restricted in the bylaws, any action

required or permitted to be taken at a meeting of the

shareholders . . . of a business corporation may be taken

without a meeting if a consent or consents to the action in

record form are signed, before, on or after the effective

date of the action by all of the shareholders who would be

entitled to vote at a meeting for such purpose. The consent

or consents must be filed with the minutes of the

proceedings of the shareholders.

15 Pa.C.S.A. § 1766(a).

Section 1766 thus allows the shareholders to act informally, if the

shareholders unanimously consent to the action and comply with the

requisite procedure. However, Section 1766 has no application to the case

at bar, as the shareholders in this case passed a resolution during the

properly-noticed December 13, 2012 shareholders’ meeting. Therefore,

since the shareholders passed the December 13, 2012 resolution formally,

Section 1766 is inapposite and does not support Appellants’ request for

relief.

Finally, Appellants claim that “the trial court erred as a matter of law

in holding that ratification of an illegally conducted meeting can be

accomplished simply by calling a subsequent meeting with proper notice.”

Appellants’ Brief at 28. However, we see no reason why a voidable

shareholders’ resolution may not be ratified at a subsequent, valid

shareholders’ meeting, where the shareholders were fully informed of what

they are asked to ratify and where no action was taken to avoid the earlier

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resolution.14 See also Koprowski v. Wistar Inst. of Anatomy and

Biology, 1993 WL 106466 (E.D.Pa. 1993) (where the board voted to

remove the plaintiff from office, but where the vote was ineffective because

it was not done by “a majority of the whole number of board members as

required by [the institute’s] Second Deed of Trust,” the board properly

convened another meeting and properly voted to “adopt and ratify the

resolutions passed by the [b]oard” at the earlier meeting); Lofland v.

DiSabatino, 1991 WL 138505 (Del. Ch. 1991) (holding that, “although the

notice of the annual shareholders’ meeting was defective, the election [of

the directors at the meeting] was not void but voidable and [] the election

was duly confirmed and ratified at a later meeting after proper notice”).

Further, the only precedent that Appellants cite to support their

argument actually supports the affirmance of the trial court’s order. Indeed,

Appellants argue that our Supreme Court’s opinion in Stone supports their

claim that “ratification of an illegally conducted meeting [cannot] be

accomplished simply by calling a subsequent meeting with proper notice”

because, in Stone, our Supreme Court held:

the rationale [for the BCL’s requirement that all directors

receive notice of a special board meeting] is that each

member of a corporate body has the right of consultation

____________________________________________

14

Appellants have made no claim that, on December 13, 2012, the LEI

shareholders were not fully informed of the resolution they were voting to

ratify.

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with the others, and has the right to be heard upon all

questions considered, and it is presumed that if the absent

members had been present they might have dissented, and

their arguments might have convinced the majority of the

unwisdom of their proposed action and thus have produced

a different result.

Stone, 345 A.2d at 178 (internal quotations and citations omitted).

Appellants do not develop their final argument on appeal or explain

how the above quotation supports their claim. However, we again note that

Appellants admit that Scott Linde received proper notice of the December

13, 2012 shareholders’ meeting and that he attended the meeting. As such,

during the December 13, 2012 meeting, Scott Linde had the opportunity to:

consult with the other two shareholders of LEI; “be heard upon all questions

considered;” and, convince the other two shareholders that they should not

vote to ratify the December 3, 2012 resolution removing him as a director of

LEI. See Stone, 345 A.2d at 178. Scott Linde was simply unable to

convince his fellow shareholders of the alleged “unwisdom of their proposed

action.” Id.

The properly-noticed December 13, 2012 shareholders’ meeting thus

upheld and protected the considerations that were spoken of in Stone.

Appellants’ final claim on appeal – that “the trial court erred as a matter of

law in holding that ratification of an illegally conducted meeting can be

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accomplished simply by calling a subsequent meeting with proper notice” –

fails.15

Order affirmed. Jurisdiction relinquished.

Judgment Entered.

Joseph D. Seletyn, Esq.

Prothonotary

Date: 6/9/2015

____________________________________________

15

Within Appellants’ Rule 2116 “statement of questions involved,” Appellants

did not raise any claim that the trial court erred when it held that the

December 13, 2012 ratification was retroactively effective, making it so that

Scott Linde’s removal as a director was effective December 3, 2012. As

such, Appellants waived any such claim on appeal. Southcentral

Employment Corp. v. Birmingham Fire Ins. Co., 926 A.2d 977, 983 n.5

(holding that “issue[s] [] not explicitly raised in [the] statement of questions

involved [are] . . . waived”). Moreover, we note that Appellants did not

request monetary relief in their complaint and Appellants did not explain

how they were harmed by the trial court’s conclusion that Scott Linde’s

removal was effective on December 3, 2012. Therefore, even if Appellants

did not waive their claim, Appellants would not be entitled to relief on

appeal. See also 2A FLETCHER CYCLOPEDIA OF THE LAW OF CORPORATIONS § 782

(“[e]xcept as to intervening rights of strangers, ratification by a corporation

of an unauthorized act or contract by its officers or others relates back to the

time of the act or contract ratified, and is equivalent to original authority”).

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