Zampogna v. Law Enforcement Health Benefits, Inc.
151 A.3d 1003
| Pa. | 2016Background
- LEHB is a nonprofit corporation formed to receive, hold, invest, administer, and distribute health and welfare benefits for members of Fraternal Order of Police, Lodge No. 5 (FOP), pursuant to a CBA and selection by a Joint Trust Board.
- The Joint Trust Board has five members (four appointed by the FOP president, one by the City); the Board selected LEHB as administrator and the City pays specified amounts to the Joint Trust for benefits and administration.
- In 2010 FOP presidential candidate Frank Zampogna allegedly made public statements about LEHB’s administration; LEHB’s Board unanimously decided to respond to misleading statements and mailed a postcard (and newsletter) endorsing incumbent McNesby; cost was $8,840 from LEHB general funds.
- Zampogna sued for declaratory and injunctive relief, arguing the endorsement violated LEHB’s Articles, Bylaws, and the Pennsylvania Nonprofit Corporation Law (NCL); trial court dismissed the claim.
- Commonwealth Court (en banc) reversed, holding the endorsement fell outside LEHB’s purpose and incidental powers and raising concerns about conflict of interest and use of "public funds." The Pennsylvania Supreme Court granted review.
- Pennsylvania Supreme Court reversed the Commonwealth Court, holding LEHB’s endorsement was not prohibited by the NCL or Articles and was sufficiently related to LEHB’s corporate purpose; funds were private once paid pursuant to the CBA.
Issues
| Issue | Zampogna's Argument | LEHB's Argument | Held |
|---|---|---|---|
| Whether LEHB was authorized under the NCL and its Articles to spend corporate funds endorsing a candidate in an FOP election | Endorsement is outside LEHB’s Articles (sole purpose: administer benefits) and not incidental to that purpose | NCL grants broad nonprofit powers; action related to LEHB’s purpose because FOP presidency affects LEHB’s revenue/existence and ability to administer benefits | Held: Authorized — action not prohibited and not clearly unrelated to LEHB’s stated purpose (sufficiently related/incidental) |
| Proper standard for evaluating nonprofit actions vis-à-vis corporate purpose | Implicit: action must be directly related; endorsement here not directly administering benefits | LEHB: interpret purpose broadly and defer to corporate governance; incidental authority covers this action | Held: A nonprofit action is authorized if not prohibited by law/articles and not clearly unrelated to the stated purpose; courts should construe purpose requirement broadly while avoiding second-guessing directors |
| Whether LEHB’s Board action constituted conflict of interest or self-dealing | Argued (on appeal) that conflict existed because elected FOP president appoints Joint Trust Board members who influence LEHB’s selection/funding | LEHB: no evidence of actual self-dealing; director actions presumed in best interest of corporation; challenger must introduce clear and convincing evidence | Held: Court declined to find conflict—Zampogna presented no evidence; issue unnecessary to resolve because endorsement was authorized |
| Whether funds used were "public funds" and thus subject to special limits | Zampogna: funds had a public character because they originated from the City and were designated for benefits | LEHB: once City paid amounts under CBA to the Joint Trust/LEHB, funds became private corporate assets for administration | Held: Funds lost public character when paid pursuant to the CBA and became LEHB corporate funds; no legal impediment to use for corporate purposes |
Key Cases Cited
- Malone v. Lancaster Gas Light & Fuel Co., 37 A. 932 (Pa. 1897) (early formulation allowing corporate acts "very convenient" to corporate purpose; incidental powers doctrine)
- Citizens' Electric Illuminating Co. v. Lackawanna & W.V.R. Co., 99 A. 465 (Pa. 1916) (formulation that incidental power must be "directly and immediately appropriate" to the specific power granted)
- Cuker v. Mikalauskas, 692 A.2d 1042 (Pa. 1997) (business judgment rule and judicial noninterference with corporate managers)
- Zampogna v. Law Enforcement Health Benefits, Inc., 81 A.3d 1043 (Pa. Cmwlth. 2013) (Commonwealth Court en banc decision reversing trial court on grounds endorsement exceeded corporate purpose and raising conflict/public-fund concerns)