In Re: Application by Nonprofit Corporation Trustees to Compel Inspection of Corporate Information ~ Appeal of: E.B. Brown, III
2017 Pa. Commw. LEXIS 77
| Pa. Commw. Ct. | 2017Background
- Seven alumni-elected trustees sought access to the investigative materials (the "Freeh Source Materials") prepared for and during the Freeh Report concerning Jerry Sandusky, which the Penn State Board had accepted and declined to reopen.
- The University refused, claiming the materials were not reasonably related to the trustees' duties, that trustees might misuse them, and that interviewees had been promised confidentiality.
- Trustees filed a petition under 15 Pa. C.S. § 5512 to compel inspection; the trial court granted the petition on November 19, 2015, ordering access with confidentiality safeguards but denied trustees' request for attorneys' fees.
- Trustees moved for reconsideration arguing entitlement to fees under the Nonprofit Corporation Law cross-reference to 42 Pa.C.S. § 2503(7), and under the University's charter and bylaws; the trial court again denied fees, finding the University's defense was not dilatory, obdurate or vexatious.
- On appeal, the trustees argued (1) the charter/bylaws require indemnification for legal expenses, (2) § 5512(c) and the Judicial Code authorize fee awards, and (3) the University’s litigation conduct warranted sanctions; the appellate court reversed and remanded for fee calculation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Corporate Charter authorizes reimbursement of litigation expenses | Charter permits reimbursement for "transportation and other direct expenses" incurred "while engaged in the discharge of [official] duties," so legal fees qualify | Charter’s reference to the travel reimbursement policy limits reimbursement to travel-related expenses | Court: Charter’s travel-policy reference does not eliminate "other direct expenses"; charter does not bar reimbursement and cannot be construed to render language surplusage |
| Whether the University Bylaws require indemnification for counsel fees incurred by trustees who sue the University | Bylaws define "Action" broadly and entitle trustees "as of right to be indemnified...against expenses" including counsel fees | University: bylaws don't require paying for lawsuits against the University; indemnification applies only when trustee is a defendant | Court: Bylaws plainly include "expenses" and counsel fees; indemnification covers trustees who bring actions to enforce rights; trustees entitled to indemnification |
| Whether trustees may recover attorneys’ fees under § 5512(c) / cross-reference to Judicial Code § 2503(7) | The cross-reference and committee comment indicate courts may award counsel fees when denial of inspection requires court enforcement | University: its defense was not dilatory, obdurate or vexatious; trial court found no sanctionable conduct | Court: Did not need to decide fee entitlement under § 5512/§ 2503(7) because recovery affirmed under bylaws; remanded to calculate fees and costs |
| Whether the University’s litigation conduct warranted sanctions under § 2503(7) | Trustees argued University unnecessarily prolonged a summary proceeding and resisted in bad faith, warranting fees as sanction | University pointed to offers to provide redacted materials and confidentiality terms; trial court found legitimate concern about use and no bad faith | Court: Majority avoids deciding sanctions standard here; concurrence notes no finding of dilatory/obdurate/vexatious conduct was made |
Key Cases Cited
- Machen v. Machen & Mayer Electrical Manufacturing Company, 85 A. 100 (Pa. 1912) (majority may not deny minority directors access to corporate information)
- Strassburger v. Philadelphia Record Company, 6 A.2d 922 (Pa. 1939) (director’s judgment governs whether information is reasonably related to duties)
- Purcell v. Milton Hershey School Alumni Association, 884 A.2d 372 (Pa. Cmwlth. 2005) (bylaws construed by plain-language rules as with statutes/contracts)