80 Pa. Commw. 405 | Pa. Commw. Ct. | 1984
Opinion by
Before this ¡Court are appeals by the Retired State Police Association of Pennsylvania, Inc.
The SPCA, organized in 1917 as a fraternal society and chartered in 1922, was a not-f or-profit corporation founded to fill a void in pension and general
While the amendments adopted in 1949 accomplished their purpose for the time being, by 1961 an ever increasing number of retired members once again created a situation where pension liabilities portended to exceed income. Accordingly, the By-Laws were again amended, this time to eliminate 'all recourse to the investment fund for the payment of pensions. Also, dues were doubled and a refund policy was put into effect which permitted members resigning from the State Police after three years of service to receive back all dues paid in excess of $120.00 per annum. It was hoped that these ¡steps would both solidify the SPCA’s finances and .serve as -an inducement to young State Police officers to join and remain in the SPCA. The dues refund provision was further liberalized in
Concerned with the situation confronting them, the Board appointed an outside consultant to conduct a study of the SPCA’s future prospects. The consultant, comparing an estimate of the SPCA’s liabilities with current assets, concluded that the SPCA’s retirement plan was underfunded, that pension benefits would continue to diminish and that, all in all, there was little reason for younger members of .the State Police to join the SPCA. The consultant further concluded that, to make the SPlCA a sound and attractive investment, it would be necessary.to amend the pension policy by decreasing benefits to retired members and increasing benefits for members who would be qualifying for pensions in the future. The theory behind the recommended -changes was to make the pension program reflect the actuarial value of the contributions made by members to the fund. A report which contained the consultant’s recommendations was distributed to the entire membership of the SPCA for its
On Angnst 29,1974, a special meeting of the Board was convened to discuss the high resignation rate and the membership’s refusal to adopt the consultant’s recommendations. At that time the Board imposed a moratorium on the collection of dnes
Based on the adverse interests of the different classes of SPCA members, the Board, on June 26, 1975, filed a petition with the common pleas court .sitting in equity requesting it to take judicial supervision of the SPiCA’s voluntary dissolution. The RSPAP filed an .answer in opposition on the grounds that it had filed i'tis own petition with the court seeking to have the ¡SPCA placed in involuntary dissolution, that the vote of the membership to dissolve the SPCA was invalid and that the petition of the Board for judicial
On November .24,1980, after bearings, the receiver filed with the court of common pleas a lengthy and detailed report containing findings of fact and recommendations concerning the distribution of the SPCA’s assets. Pertinent among his conclusions were:
*412 A. Members of the SPCA actually receiving or eligible to receive pensions have a vested contractual .right to the assets of the iSPCA. They are therefore creditors with a priority claim over the claims of the general membership against those assets and must be awarded the present value of their pensions based on actuarial computations.
B. The actuarial calculation of the present value of SPCA member’s pensions shall incorporate a 7% rate of return on bonds and securities held by the SPCA as investments.
C. Retired members, because they are entitled to their pensions, have no other claim against the surplus assets of the iSPCA upon distribution thereof.
D. Those assets of the SPCA remaining after payment of creditors, must be distributed to the active membership on a pro rata, rather than a per capita, basis.
E. Active members of the SPCA neither forfeited their membership nor are liable for interest based on dues not paid pursuant to the Board’s 1974 moratorium on the payment thereof. Active members will be entitled to their full .share of the distribution upon payment of delinquent dues.
The court of common pleas approved the receiver’s report by a decree nisi and the receiver was ordered to effect distribution of the SPiCA’s assets subject to the filing of exceptions. Exceptions to the receiver’s report were filed by the parties to the .instant appeal and they were denied by order of the common pleas court dated August 5, 1982. The instant appeal followed.
The issues pertinent to our resolution of this matter are:
*413 A. Do members of the iSPCA .who are receiving or eligible to receive pensions have a vested contractual right such that renders them creditors to the .SPCA thus entitled to priority treatment .over other members upon dissolution?
B. Should the assets of the SPCA which remain after the .satisfaction of creditors and other obligations be distributed to the membership on a pro rata or per capita basis ?
C. Should those members of the SPCA who ceased paying dues pursuant to the 1974 moratorium on the payment thereof, be liable for interest on their outstanding dues balance ?
These issues were raised by all the parties, .with the exception of the issue of payment of interest on dues owed to the SPCA which was raised only by the BSP AP, .and we will address them seriatim.
With respect to the issue of whether retired members of the SPCA possess a vested contractual right to their pensions, it is axiomatic that the relationship between a beneficial .association such as the SPCA, and its members is a contractual one. Marshall v. Pilots Association, 206 Pa. 182, 55 A. 916 (1903). And where the application for membership in the association incorporates by .reference the constitution and bylaws of the association, said constitution and by-laws become terms of the contract between the prospective member and the association upon approval of the membership application by the association. Constructors’ Association of Western Pennsylvania v. Furman, 165 Pa. Superior Ct. 248, 67 A.2d 590 (1949). As a general rule, whenever specific rights of ,a member pursuant to the contract between himself and the association become fixed, such as with the vesting of a pension, subsequent amendments to the -by-laws or ■constitution may not affect those rights. Marshall.
The key section of the SBCA’s By-Laws insofar as this Court’s analysis of contractual rights is concerned is Article IX, ¡Section 4(c). It reads:
Notwithstanding any other provisions of the by-laws to the contrary and subject to the limitations as hereinafter provided in this Section, all pensions, funeral expenses, death benefits, provision for artificial limbs and eyes and ordinary expenses of operation of the State Police Civic Association shall be paid from current income of the Association in the following manner :
At the end of each calendar year hereafter, beginning with the calendar year ending December 31, 1960, the Directors shall fix and determine the percentage of pensions which shall be due and payable during the ensuing year. Such determination shall be predicated upon the ac*415 tual experience of the year past, together -with, the anticipated experience which, in the judgment of the Directors, can reasonably be expected for the ensuing year. In ,so doing, the Directors ©hall set aside five percent (5%) of current income, as herein defined, for payment of ordinary operating expenses of the Association during the ensuing calendar year, funeral expenses, death benefits, provision for artificial limbs and eyes, and for the payment of ,such pensions during that ensuing calendar year to those persons pensioned after the first of such ensuing calendar year, provided that should the 5% of current income be insufficient during any calendar year, to pay all obligations chargeable to it the Board of Directors shall use sufficient investment funds to pay the balance of any such obligations and further provided that any investment funds so used shall be reimbursed from current income of such calendar year before computing available funds to pay pensions for the next calendar year. Pension payments under this provision shall be at the same percentage of pension as is paid to other pensioners during the same year. The remaining ninety-five percentum (95%) of current income, as herein defined, shall be allocated for the payment of pensions during the ensuing calendar year and shall constitute during the ensuing calendar year the sole source for payment of said pensions. (Emphasis added.)
The FOP asserts that Section 4(c) of the By-Laws, as formulated in the edition thereof in the record before this Court (dated July 3, 1969), should be construed to make the payment of a pension in a given year a qualified right contingent on a declaration by the Board. The Board therefore would possess the
As a not-for-profit corporation, the ,SPCA is governed by the provisions of the Corporation Not-for-profit Code (Code), 15 Pa. C. ,S. §§7101-8145. Section 7967(c) of the Code, 15 Pa. C. S. §7967 (c),
Except as otherwise provided in a bylaw adopted by the members or in this article o.r by any other provision of law, any surplus remaining after paying or providing for all liabilities*420 of the corporation shall be distributed by the board of directors or other body to the shareholders, if any, pro rata, or if there be no shareholders, among the members per capita. (Emphasis added.)
The SPCA’s Certificate of Incorporation specifically states that it “has no capital stock” and the ByLaws do not authorize the issuance ¡of stock. Given such a structure, the distribution of the SPiCA’s surplus assets to the members should arguably be conducted on a per capita basis. Section 7067 (c) of the Code. See DeChamplain v. P & R Home Association, 171 Pa. Superior Ct. 420, 90 A.2d 603 (1052). It is manifest, however, that, ¡under the circumstances encompassing the current state of the SPCA, a per capita distribution ¡of assets would be .grossly inequitable. A member of one day’s standing would take a share equal to that of a member of nineteen or more years, despite the latter’s phenomenally greater contribution to the pool of assets being distributed, and also what is likely a greater dependence on the SPiCA for future financial security. In .short, new members would receive a windfall to the distinct and severe harm of older members. The receiver, in his equitable mode, ■ recognized this potential inequity and, in rendering a determination in favor of a pro rata distribution in his report, later affirmed by the common pleas court, he stated:
Application of the general rule contained in Section 7967 (e) of the Corporation Not-For-Profit Code would .also be inapplicable to the Association because its By-Laws, when read as a whole, do not support a per capita distribution. Although the Receiver recognizes that there is no provision in the By-Laws specifically concerning distribution on liquidation which would override the general rule ¡of the*421 Corporation Not-For-Profit Code, the Receiver believes that liquidation cannot occur in a manner contrary to the basic framework of the Association provided in the By-Laws. The Association was established to pay benefits to members from its assets and such payments are typically based upon periods of contributions. The principal benefit provision, Article IX, Section 4 on service pensions, measures a member’s entitlement on the basis of the periods during which he has paid dues. Similarly, both Articles VIII, Section 5 and Article IX, Section 4 require that a member’s pension benefit be reduced proportionately for any dues which are unpaid. In addition, Article IX, Section 10 dealing with death benefits and Article IX, Section 11 dealing with refunds use a member’s total dues contribution when determining the amount to be distributed. Thus, the Association benefit and refund provisions are based on dues contribution and it would be inconsistent with that system to make a per capita distribution to members upon liquidation. 'The Receiver concludes therefore that the Association By-Laws are consistent with and support the use of a pro rata distribution upon liquidation.
Further, the word “shareholders”, used in the Corporation Not-For-Profit Code to indicate when a pro rata distribution should occur, may not be inconsistent with the type of relationship which actually existed between the Association and its members. The Receiver believes it necessary to determine whether the use of the word ‘ ‘shareholders ’ ’ in the Corporation Not-For-Profit Code means only persons holding stock certificates issued by the Corporation or whether that term also includes a system of*422 accounts which would record a member’s right to share in ¡the assets of the Association. Because there are no cases decided under Section 7967(c) of the 'Corporation Not-For-Profit Code, the Receiver has looked to other sources for 'guidance on this issue.
The Corporation Not-For-Profit Code does not define the-term “stock” 'although it does define “member ’ ’ as follows:
One having membership rights in a corporation in accordance with the provisions of its bylaws'. . . . The term shall be construed to include “shareholder” if the corporation issues shares of stock.
Although this definition of member reinforces the distinction between members and shareholders 'on the basis of issued stock, it does not answer the question concerning what is “stock” for purposes of the Corporation Not-For-Profit Code.'
. Although the Receiver recognizes that the Association did not issue certificates of stock to, its members, this is not determinative on the issue whether members held rights to the assets in proportion to their contributions. A certificate of stock is -not stock itself but mere evidence of ownership of stock. In re Donsavage’s Estate, 420 Pa. 587, 218 A.2d 112 (1966); Mills v. Jacobs, 131 Pa. Superior Ct. 469, 200 A. 233 (1938), modified on other grounds 333 Pa. 231, 4 A.2d 152 (1939). And, .although it has been held that certificates are evidence -of title to stock, they are not necessary for stock to exist. Commonwealth v. Nixon, 94 Pa. Superior Ct. 333 (1928). Further, the statement in the Cer*423 tificate of Incorporation that the “Corporation ...has no capital stock’’ would not,, in a technical .sense, refer to the issuance of .shares- denoting-rights in Corporation assets. The term ‘ ‘capital stock” refers to that amount, stated -either in the Charter, or Articles of Incorporation, as the initial contribution to he paid into the Corporation or fixed -.as the basis for conducting the . business of the Corporation. Sec Person & Riegel Company v. Lipps, 219 Pa. 99, 647 A. 1081 (1907); 18 C.J.S. Corporations §193. Thus, the statement in the -Certificate of Incorporation concerning capital stock. only means that the Association would not need a minimum amount of capital contribution before it could engage in . activities in furtherance of-its stated purposes.
Based on the foregoing .analysis, the Receiver concludes that -the Association By-Laws support the use of a pro rata distribution upon liquidation. The Association was established for the payment of its assets to qualified members iand such payments are typically based upon periods of contributions. To distribute the assets among all members per capita at this time would he inconsistent with that logic and effect an injustice to those members who had contributed to the fund for many years. For these reasons, the receiver concludes that the rights of all members to share in the Association assets remaining after the payment of creditors .and members .entitled to pension bene- . fits should be made in proportion to their total contributions.
We are constrained to agree with this analysis. Accordingly, we affirm the decision on appeal here to distribute the .surplus assets of the iSP.CA upon dissolution to the active membership on a pro rata basis.
Order
Now, February 23, 1984, the decision land order of the Orphans ’ Court Division of the Court of Common Pleas of Dauphin County dated August 5, 1982 overruling exceptions to its Decree Nisi which approved the report of the Liquidating Receiver in the ¡above captioned matter, dated August 5, 1982, is hereby affirmed.
Individual members of the Retired. State Police Association of Pennsylvania also appearing in this matter as named appellants are Marshall G. Kinback, Oscar N. Tingley, Arthur R. Cronin, Robert Smith and Thomas P. Cahalan.
Individual members of the Fraternal Order of Police also appearing as named appellants in the ibstanit case are John T. Long, Herman Miklic and 'Philip ¡Smith.
Robert J. Zinsky was an officer of the State Police Civic Association and ostensibly represents the interests of its Board of Director® and Officers.
The moratorium was a postponement .of dues payments, not a foregiveness. Since it resulted from ¡official action by the Board, no notice was sent to members of the SPOA to the effect that dues were no longer being withheld from wages when due and, hence, under the By-Laws, there has .been no forfeiture or suspension of membership rights.
Prior to addressing the RSPAP’s motion to withdraw its opposition, the court of common plea® ruled .that there was no forfeiture of membership rights resulting from the dues moratorium. See supra note 4.
Implicit in the argument 'of the FOP is that Section 4(c), as it now effectively reads, was the result of the amendment to the ByLaws effected by a unanimous vote of the membership (active and retired) in 1949. Thus, 'all members should be bound thereby and subject bo tbe Board’s exercise of discretion vis-a-vis tbe declaration of a pension and no member could today be properly found to have a vested contractual right to the present value of his pension. See Elliott v. Lindquist, 356 Pa. 385, 52 A.2d 180 (1947). Aside from the fact that we do not .agree with this contention, the record -is unclear in this regard 'and a remand would have been necessary to establish when 'Section 4(c) as it now effectively reads came into effect and who would be bound by its terms.
Consistent with this holding, we must reject the ¡SOPCA’s assertion ithat, ¡because funds were allocated for the payment of pensions throughout 1975, hut only paid for the five months of that year preceding dissolution, pensioners are entitled to a direct .payment of the balance of those funds. The mechanical allocation of funds pursuant to Section 4(c) of the By-Laws is irrelevant to these
But see Reilly v. Walker Bros., 425 Pa. 1, 229 A.2d 457 (1967).
Article IX, Section U of the By-Laws reads:
Whenever a member of this Association is granted a pension and placed on the pension roils, he shall continue as a member of this Association without further payment of dues or assessments and shall have the same voting rights accorded other members.
Section 7967(c) of .the Code is controlling in .this matter, despite the fact that this is a judicially supervised dissolution as ■opposed .to a voluntary dissolution under the supervision of the Board. Bee Sections 7968(a) and 7985 of the Code, 15 Pa. C. S. §§7968(a) and 7985.
'Significant in its omission from .the issues .raised before this Court is the receiver’s ruling that, as a result of the unanimous approval of all members of the amendments .to the By-Laws enacted in 1949
properly enacted amendments to the Association’s ByLaws affecting the terms of the contract were valid prospectively as to all Association, members not then entitled to benefits since they had agreed to be bound by subsequent bydaw changes. Changes to the By-Laws affecting the vested rights of members entitled .to benefits are also valid because members -receiving benefits consented to the ByLaw amendment which changed the nature of the pension benefit from -a fixed amount to a variable amount based upon income received by tbe fund. Because By-Law amendments were applicable to all the members, -the Receiver needs to review only the benefit provisions contained in the By-Laws which were effective at the time the Association elected to dissolve.
As -discussed supra, once pension rights vest, they are fixed and subsequent amendments to the -by-laws, unless specifically acquiesced in by each pension vested member, are not binding, despite a blanket agreement to be bound by subsequent amendments. Thus, had the issue .been liaised, this Court would have been constrained to find the receiver in error and a remand would have been necessary to establish which by-laws, -and hence, which -rights, pertained -to each pension vested member of the SP.OA. The issue was not raised, however, and the parties are now precluded from challnging the receiver’s determination by the passage of time. Pa. R.A.P. 903.