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J. A26026/00
2000 PA Super 289
EDWARD ANCHEL, Individually,
:
IN THE SUPERIOR COURT OF
and EDWARD ANCHEL,
:
PENNSYLVANIA
Derivatively, on behalf of ALTEC LANSING :
TECHNOLOGIES, INC. and its SHARE-
:
HOLDERS,
:
Appellant
:
:
v.
:
:
JOHN SHEA, TOMMYCA FREADMAN,
:
No. 364 EDA 2000
CHRISTOPHER SMITH, JOHN McCARTNEY, :
ALTEC LANSING TECHNOLOGIES, INC., :
WAFRA INVESTMENT ADVISORY GROUP, :
INC., SOUNDCO CAPITAL, INC.,
:
Appellees
:
ALTEC LANSING TECHNOLOGIES, INC., :
JOHN SHEA, TOMMYCA FREADMAN,
:
CHRISTOPHER SMITH, JOHN McCARTNEY, :
Appellees
:
:
v.
:
:
EDWARD ANCHEL,
:
No. 365 EDA 2000
Appellant
:
ALTEC LANSING TECHNOLOGIES, INC., :
JOHN SHEA, TOMMYCA FREADMAN,
:
CHRISTOPHER SMITH, JOHN McCARTNEY, :
Appellants
:
:
v.
:
:
EDWARD ANCHEL,
:
No. 366 EDA 2000
Appellee
:

J. A26026/00
EDWARD ANCHEL, Individually,
:
and EDWARD ANCHEL, Derivatively
:
on behalf of ALTEC LANSING
:
TECHNOLOGIES, INC. and its SHARE-
:
HOLDERS,
:
Appellees
:
:
v.

:
:
JOHN SHEA, TOMMYCA FREADMAN,
:
No. 3510 EDA 1999
CHRISTOPHER SMITH, JOHN McCARTNEY, :
ALTEC LANSING TECHNOLOGIES, INC., :
WAFRA INVESTMENT ADVISORY GROUP, :
INC., and SOUNDCO CAPITAL, INC.,
:
Appellants
:
Appeal from the Order entered December 13, 1999,
Court of Common Pleas, Pike County,
Civil Division at Nos. 1005 & 1078 of 1999.
BEFORE: JOHNSON, STEVENS, and BECK, JJ.
***Petition for Reargument Filed 10/10/2000
OPINION BY JOHNSON, J.:
Filed: October 4, 2000
***Petition for Reargument Denied 12/05/2000***
¶ 1
This case involves the consolidated appeals and cross appeals of two
feuding factions on the board of directors of Altec Lansing Technologies, Inc.
Each party appeals an order for preliminary injunction entered on December
13, 1999, which purportedly returned the status quo of the corporation as it
existed prior to the allegedly wrongful conduct of each party. Among the
issues presented for our review is whether the duties imposed upon a
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J. A26026/00
corporate shareholder by a voting trust agreement restrict or obviate his
duty to the corporation when acting as a director under section 1712 of the
Business Corporations Law. See 15 Pa.C.S. § 1712(a). For the following
reasons, we affirm in part and reverse in part.
¶ 2
Altec Lansing Technologies, Inc. ("Altec") is a Pennsylvania corporation
that produces a wide variety of high-tech audio and multimedia products.
Altec, formerly Sparkomatic Corporation, was incorporated in 1956. Edward
Anchel founded Altec with his father and has been involved in the company
since its inception. On May 16, 1994, due to financial difficulties afflicting
Altec, the Anchel family sold a 49% interest in Altec for $7 million to
Soundco Capital, Inc. ("Soundco"), an outside investor. Soundco's 49%
interest in Altec consisted of stock with voting rights equal to 49% of the
outstanding stock of Altec. Anchel retained 51% of the voting rights in
Altec's stock.
¶ 3
Pursuant to this transaction with Soundco, Altec revised or created
several corporate governance documents: (1) an amendment to and
restatement of the articles of incorporation ("articles") that were filed with
Pennsylvania's Department of State on May 18, 1994; (2) a restatement of
the corporation's by-laws executed in May of 1994; and (3) a Stockholders'
Agreement executed May 16, 1994. These documents effectuated, among
other things, changes in the composition of the board of directors. The
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J. A26026/00
Stockholders' Agreement provided that the corporation would have a board
of directors composed of not less than five members. Soundco had the right
to appoint two of the directors, and Anchel would appoint three directors.
The Stockholders' Agreement also provided that if the number of directors
was increased, the appointing power would remain proportional. Soundco
appointed John Shea and Christopher Smith to the board. Anchel appointed
himself, Ronald Dion, and Tommyca Freadman to the board. In 1996, two
independent directors were added John McCartney and Charles Parente
bringing the total number of directors on the board to seven.
¶ 4
The corporate governance documents prescribe, inter alia, notice and
voting requirements to be followed when the Board of Directors engages in a
"Significant Transaction." A "Significant Transaction" is, inter alia, a
transaction with a value equal to or exceeding $500,000. When a board
member proposes a "Significant Transaction," heightened notice and voting
requirements are put into effect.
¶ 5
Freadman, one of Anchel's designees on the board and an employee of
Altec, entered into a Voting Trust Agreement on May 17, 1994. In pertinent
part, the Voting Trust Agreement and Freadman's employment agreement
required Freadman to deposit his stock in Altec (which Freadman received
pursuant to his employment at Altec) into a trust under which Anchel would
have the sole right to vote such stock so long as Anchel remained as CEO.
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J. A26026/00
(The briefs are unclear regarding the type of voting stock Freadman received
as an employee and the extent to which his holding impacted the voting
rights of Anchel and Soundco). Freadman's employment agreement also
provided that Freadman would remain on the board of directors, so long as
Altec employed him.
¶ 6
Pursuant to an employment agreement executed on May 16, 1994,
Anchel served as CEO and President of Altec. Anchel's employment
agreement was due to expire in May of 1999. McCartney, one of the
independent directors, testified that, under Anchel, the company's financial
performance was deteriorating, and the relationship between Anchel and the
Soundco representatives (i.e. Shea and Smith) went from strained to
extremely contentious. The record indicates that the Soundco
representatives had concerns about Anchel's performance as CEO from at
least 1997. Anchel was also losing the support of one of his own appointed
directors, Freadman.
¶ 7
Nevertheless, at an April 27, 1999 meeting, the board unanimously
voted to renew Anchel's employment contract as CEO and President for
three years with a base salary of $525,000. Although disputed by the
parties, the trial court found that, at this meeting, the board adopted the
additional provision that Anchel may be removed from his position as CEO
by a simple majority vote of the board.
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J. A26026/00
¶ 8
Shea, one of the Soundco representatives on the board, called a
special meeting of the board of directors to be held on October 26, 1999,
and he sent notice of this meeting two business days prior to its scheduled
date. At the October 26th board meeting, the board removed Anchel as CEO
and President by a simple majority vote. Shea, Smith, McCartney, and
Freadman voted in favor of Anchel's removal. Anchel, Parente, and Dion
voted against Anchel's removal. Anchel was appointed as Chairman and was
still to receive his $525,000 annual salary. Freadman was appointed interim
CEO. The same majority of the board voted to revoke the Voting Trust
Agreement.
¶ 9
Anchel attempted to call a special shareholders' meeting on November
12, 1999, but postponed it until November 15, 1999, because a quorum did
not appear on November 12. At the November 15th shareholders' meeting,
Anchel, as the majority shareholder, voted to remove Freadman from the
board of directors and replace him with David Anchel Anchel's son and an
Altec employee. Later that same day, at a board meeting, Anchel, David
Anchel, Parente, and Dion voted to rescind the actions taken at the October
26, 1999 board meeting. They voted, inter alia, to re-appoint Anchel as
CEO, renew Anchel's employment agreement, terminate Freadman as
interim CEO, remove Freadman as a director, and reinstate the Voting Trust
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J. A26026/00
Agreement. The Soundco representatives and Freadman were not present
at this November 15th board meeting.
¶ 10 On October 26, 1999, Anchel filed a complaint in the Pike County
Court of Common Pleas, on behalf of himself and derivatively on behalf of
Altec, against directors Shea, Freadman, Smith, and McCartney ("Soundco
group"). He named Altec as a nominal defendant. Anchel sought a
temporary restraining order and preliminary injunction to enjoin the Soundco
group from, among other things, acting upon Anchel's removal as CEO and
President. On November 16, 1999, the Soundco group and Altec filed a
complaint against Anchel seeking to enjoin Anchel from acting upon the
resolutions purportedly taken at the November 15, 1999 meeting, including
Anchel's reinstatement as CEO. They sought a declaration that those actions
were taken unlawfully and improperly.
¶ 11 On December 13, 1999, the Court of Common Pleas of Pike County,
the Honorable Harold A. Thomson, Jr., President Judge, entered an order
granting, in part, each party's request for preliminary injunction. Judge
Thomson sought to reinstate the status quo prior to the controversy by
nullifying the actions taken at the October 26th meeting and the November
15th meeting. In pertinent part, Judge Thomson's order reinstated Anchel as
President and CEO of Altec Lansing, reinstated Freadman as a director,
imposed a supermajority voting requirement on all actions of the board, and
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J. A26026/00
required that all meetings of shareholders and directors be noticed in a
verifiable format. Both parties appealed and cross-appealed. We will review
the issues brought by the Soundco group first. We will then review the
issues Anchel brings on appeal.
¶ 12 The Soundco group and Altec raise three issues for our review:
1. Where a stockholders' agreement imposes special notice and
voting requirements for actions of the board of directors that
are "[S]ignificant [T]ransactions" and defines a "Significant
Transaction" to be a "transaction . . . with a value of
$500,000 or more," did the trial court err in holding that an
action of the board that removed the president and chief
executive officer and made him chairman with no reduction
of his $525,000 annual salary was a "Significant
Transaction"?
2. Did the trial court err in entering an overbroad preliminary
injunction that imposed a supermajority voting requirement
on all actions of a corporate board of directors despite its
own factual finding that there had been no violation by any
party of a voting requirement imposed upon that board and
despite the fact that no party requested such a remedy?
3. Did the trial court err when it held that a corporate director is
precluded from voting in what he understands to be the best
interests of the corporation because, in his separate role as a
corporate shareholder, he is party to a voting trust related
only to his shares of stock?
Brief for Appellant at 3.
[O]ur review of the grant . . . of a preliminary injunction is
limited to determining whether there were any apparently
reasonable grounds for the action of the trial court. We will
interfere with the trial court's decisions regarding a preliminary
injunction only if there exist no grounds in the record to support
the decree, or the rule of law relied upon was palpably erroneous
-8-

J. A26026/00
or misapplied. It must be stressed that our review of a decision
regarding a preliminary injunction does not reach the merits of
the controversy.
Palladinetti v. Penn Distribs., Inc., 695 A.2d 855, 863 n.11 (Pa. Super.
1997) (citations and quotation marks omitted). "The court which is to
exercise discretion in the matter of issuance of an injunction is the trial court
and not the appellate court and the action of the trial court may be reviewed
on appeal only in the case of a clear abuse of discretion but not otherwise."
Maritrans GP, Inc. v. Pepper, Hamilton & Scheetz, 602 A.2d 1277,
1286 (Pa. 1992).
¶ 13 "The purpose of a preliminary injunction is to preserve the status quo
as it exists or previously existed before the acts complained of, thereby
preventing irreparable injury or gross injustice." Id. (internal citations
omitted). To establish the right to preliminary injunctive relief, the moving
party carries the burden of showing:
(1) that relief is necessary to prevent immediate and irreparable
harm which cannot be compensated by damages; (2) that
greater injury will occur from refusing the injunction than from
granting it; (3) that the injunction will restore the parties to the
status quo as it existed immediately before the alleged wrongful
conduct; (4) that the alleged wrong is manifest, and the
injunction is reasonably suited to abate it; and (5) that the
plaintiff's right to relief is clear.
Cappiello v. Duca, 672 A.2d 1373, 1376 (Pa. Super. 1996) (quoting Lewis
v. City of Harrisburg, 631 A.2d 807, 810 (Pa. Cmwlth. 1993)). "`An injury
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J. A26026/00
is regarded as `irreparable' if it will cause damage which can be estimated
only by conjecture and not by an accurate pecuniary standard.'" West
Penn Specialty MSO, Inc. v. Nolan, 737 A.2d 295, 299 (Pa. Super. 1999)
(quoting Sovereign Bank v. Harper, 674 A.2d 1085, 1091 (Pa. Super.
1996)) (stating that impending loss of business opportunity or disruption of
established business relations that would result in incalculable damage may
qualify as "irreparable injury").
¶ 14 A preliminary injunction is an extraordinary, interim remedy that
should not be issued unless the moving party's right to relief is clear and the
wrong to be remedied is manifest. See Cappiello, 672 A.2d at 1376. See
also Vulcanized Rubber & Plastics Co. v. Scheckter, 162 A.2d 400, 411
(Pa. 1960) (stating that, particularly in cases where parties are struggling
for control of a corporation, "complainant must establish that it is his clear
legal right, not doubtful or uncertain, to the specific relief sought; otherwise
the preliminary injunction will be dissolved"). Moreover, the "preliminary
injunction, if issued, should be no broader than is necessary for the
petitioner's interim protection." Three County Servs. Co. v. Philadelphia
Inquirer, 486 A.2d 997, 1000 (Pa. Super. 1985). "`Furthermore, when a
preliminary injunction contains mandatory provisions which will require a
change in the position of the parties, it should be granted even more
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J. A26026/00
sparingly than one which is merely prohibitory.'" Id. (quoting Zebra v.
School Dist. of City of Pittsburgh, 296 A.2d 748, 750 (Pa. 1972)).
¶ 15 Soundco's first allegation of error concerns that part of the preliminary
injunction that reinstated Anchel as CEO of Altec. As a basis for its decision,
the trial court concluded that Anchel's removal from his position as CEO at
the October 26th board meeting was a "Significant Transaction" and was,
therefore, subject to heightened notice requirements. Preliminary Findings
and Conclusions, 12/13/99, at 8-9. The trial court then concluded that the
October 26th meeting was not properly noticed and, based on the defective
notice, the action taken at that meeting to remove Anchel was without
effect. Id. Accordingly, the trial court entered a preliminary injunction
reinstating Anchel as CEO and President "retroactively to October 26th,
immediately prior to the purported removal." Id. at 9.
¶ 16 Our review of the trial court's order reinstating Anchel focuses on
whether the board action removing Anchel on October 26th was indeed a
"Significant Transaction." The definition of "Significant Transaction" can be
found in three corporate governance documents, including the articles,
Restated By-Laws of Sparkomatic Corporation ("by-laws"), and Stockholders'
Agreement. The Stockholders' Agreement is a contract entered into
between Soundco and Anchel, and its language, therefore, must be
construed according to the rules of contract interpretation. See e.g. Banks
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J. A26026/00
Eng'g Co., Inc. v. Polons, 752 A.2d 883, 886 (Pa. 2000) ("[C]ourts should
follow the rules of contract interpretation generally applicable when parties
to a contract disagree as to the meaning of its terms.").
¶ 17 In contract interpretation, "[d]etermining the intention of the parties is
a paramount consideration." Hutchison v. Sunbeam Coal Corp., 519 A.2d
385, 389 (Pa. 1986). To discern the parties' intent, the court must give
effect to clear and unambiguous terms "without reference to matters outside
the contract." Purdy v. Purdy, 715 A.2d 473, 475 (Pa. Super. 1998). A
contract term or provision is ambiguous only when it is "reasonably
susceptible to more than one meaning." West Conshohocken Restaurant
Assocs. v. Flanigan, 737 A.2d 1245, 1248 (Pa. Super. 1999). When the
words of a contract are clear, "[t]his court will not rewrite the terms of a
contract, nor give them a meaning that conflicts with that of the language
used." Glen-Gery Corp. v. Warfel Constr. Co., 734 A.2d 926, 929 (Pa.
Super. 1999); Martin v. Donahue, 698 A.2d 614, 616 (Pa. Super. 1997).
Moreover, "we will not imply a contract different than that which the parties
have expressly adopted." Cambria-Stoltz Enters. v. TNT Invs., 747 A.2d
947, 950 (Pa. Super. 2000) (quotation marks and citations omitted). "This
rule is particularly apt when reviewing a contract involving two parties of
relatively equal bargaining power. . . ." Id. (citations omitted).
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¶ 18 With these rules in mind, we now turn to the definition of "Significant
Transaction" as found in the Stockholders' Agreement and other corporate
governance documents. A "Significant Transaction" is defined in pertinent
part as:
(E) any transaction (other than transactions involving, the
day to day sale of merchandise not involving a long-term
contract) with a value of $500,000 or more that relates to the
operations of the Company or any Affiliates, including . . . new
contract obligations, contract renewal arrangements,
employment contracts . . . ;
* * * *
(I)
(i) an extension of any Employment Agreement on its
then current terms for a period of time greater than three years
beyond its scheduled termination date or (ii) any amendment or
modification of, or increase in Base Salary (as defined in such
Employment Agreement) under, any such Employment
Agreement; . . . .
Stockholders' Agreement, 5/16/94, at 4-5, Reproduced Record (R.R.) 47a-
48a. See also Restated By-Laws of Sparkomatic Corporation ("By-Laws"),
5/94, at 4, R.R. 33a (citing substantially same definition of "Significant
Transaction"); Articles of Amendment ("Articles"), 5/18/94, at 19-20, R.R. at
23a-24a (citing substantially same definition of "Significant Transaction").
¶ 19 "Significant Transactions" necessitate heightened notice and voting
requirements. All directors must have five days' advance notice of the
meeting at which a "Significant Transaction" is to be proposed.
Stockholders' Agreement, 5/16/94, at 8, R.R. at 51a. See also By-Laws at
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J. A26026/00
6, R.R. at 35a; Articles at 20, R.R. at 24a. In contrast, special meetings of
the board that do not involve "Significant Transactions" require only two
days' prior notice. By-Laws at 4, R.R. at 33a.
¶ 20 Approval of a "Significant Transaction" also requires a super-majority
vote of 66 2/3% of the board (i.e. five members of the seven-member
board). Stockholders' Agreement at 8, R.R. at 51a. See also By-Laws at 6,
R.R. at 35a; Articles at 20, R.R. at 24a. In contrast, other board actions
that are not "Significant Transactions" require "the affirmative vote of the
majority of directors present at a duly convened meeting of the Board at
which a quorum is present or, in lieu of a meeting, by the unanimous written
consent of the [board] members." See e.g. Articles at 20, R.R. at 24a.
¶ 21 We conclude that the record contains no apparently reasonable
grounds to support the trial court's determination that Anchel's removal on
October 26th constituted a "Significant Transaction." The record supports
the trial court's initial finding that the April 27th board meeting effectuated
the renewal of Anchel's employment contract for "three years, with an
increase in base salary, and with a provision that Anchel may be removed as
CEO by a majority vote of the board of directors." Preliminary Findings and
Conclusions, 12/13/99, at 8 (emphasis added). However, we disagree with
the trial court's analysis of the action taken at the October 26th board
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meeting that effectuated Anchel's removal by a simple majority vote. The
trial court stated:
As evidenced by the current factual dispute as to a change in
voting requirements, the removal of Anchel as CEO shall be
considered a "Significant Transaction."
Id. Initially, we conclude that the existence of a "current factual dispute" is
not included in any of the corporate governance documents as a basis for
defining a "Significant Transaction."
¶ 22 The trial court expounded on its initial findings and conclusions in its
subsequent Rule 1925 Opinion, see Pa.R.A.P. 1925(a), in which it concluded
that the changes to Anchel's employment contract at the April 27th meeting
were "Significant Transactions" a finding not specifically made in the trial
court's Preliminary Findings and Conclusions on December 13th. The trial
court opined that the changes to Anchel's employment contract comported
with the definition of "Significant Transaction" as "any amendment or
modification of, or increase in Base Salary (as defined in such Employment
Agreement) under, any such Employment Agreement." Trial Court Opinion,
2/18/00, at 3 (citing Stockholders' Agreement, 5/16/94, at 4-5; R.R. at 47a-
48a).
¶ 23 Despite the trial court's additional reasoning in its Rule 1925 Opinion,
the issue of whether the action taken at the April 27th meeting constituted a
"Significant Transaction" is not before our Court. "Our scope of review is
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limited to determining whether the record reflects any apparently reasonable
grounds for the trial court's action." Norristown Mun. Waste Auth. v.
West Norriton Twp. Mun. Auth., 705 A.2d 509, 511 (Pa. Cmwlth. 1998)
(emphasis added). See Boyle by Boyle v. Pennsylvania Interscholastic
Ath. Ass'n, 676 A.2d 695, 699 (Pa. Cmwlth. 1996). The December 13th
order reflects no finding or conclusion regarding whether the April 27th
meeting constituted a "Significant Transaction." The order states only that
the action taken on October 26th, i.e. to effectuate Anchel's removal as CEO
and President by a simple majority vote of the board, was the "Significant
Transaction."
¶ 24 Moreover, in his complaint filed on October 26, 1999, and in
subsequent amended complaints, Anchel did not raise the issue of whether
the board action taken on April 27th was a "Significant Transaction." Anchel
contested only the board action taken on October 26th as a "Significant
Transaction" based on the definition of "Significant Transaction" as a
"transaction . . . with a value of $500,000 or more that relates to the
operations of the Company."
¶ 25 With the focus of our review on the specific conclusion contained in the
December 13th order (i.e. that the "Significant Transaction" occurred on
October 26th), we cannot agree that Anchel's removal was a "Significant
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Transaction." The simple majority vote to remove Anchel is not a board
action included in any of the definitions of "Significant Transaction."
¶ 26 Anchel argues that the record contains alternate bases that would
permit our Court to affirm the trial court's finding that Anchel's removal on
October 26th was a "Significant Transaction." Brief for Edward Anchel, et al.,
Appellees and Cross Appellants ("Brief for Anchel") at 24 (citing In re
Estate of Dilbon, 690 A.2d 1216, 1219 n.4 (Pa. Super. 1997) (stating that
appellate court may affirm correct decision of trial court on any legal basis)).
Anchel relies on the following definition of "Significant Transaction:" "any
transaction . . . with a value of $500,000 or more that relates to the
operations of the Company or any Affiliates, including without limitation . . .
employment contracts. . . ." See e.g. Stockholders' Agreement, 5/16/94, at
4-5, R.R. 47a-48a. Anchel argues that his removal as CEO would result in a
massive adverse effect on Altec that would easily exceed $500,000. Brief
for Anchel at 25-27. Anchel states, for example, that if any uncertainty is
introduced into Altec's customer relationships, Altec could be at risk to lose
millions of dollars worth of business. He further argues that his removal as
CEO would impact the value of his own equity in the corporation, which
approximates $25 million. Id. at 27-28. These are tangential and
speculative arguments that would, if accepted, infinitely broaden the
meaning of "Significant Transaction" as that term is defined in the corporate
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governance documents thereby defeating the effect of those provisions.
Moreover, Anchel's removal was also not a "Significant Transaction"
pursuant to the definition of "any transaction . . . with a value of $500,000
or more. . . ." because, although his salary as CEO upon removal was
$525,000, he retained this salary in his capacity as Chairman. R.R. at 307a.
As we have stated, a preliminary injunction is an extraordinary, interim
remedy that should not be issued unless the moving party's right to relief is
clear and the wrong to be remedied is manifest. See Cappiello, 672 A.2d
at 1376; Vulcanized Rubber & Plastics Co. v. Scheckter, 162 A.2d at
411. Anchel failed to demonstrate a clear right to relief in his complaint to
the trial court requesting a preliminary injunction.
¶ 27 In conclusion on this issue, there is no support in the record that
supports the trial court's conclusion that Anchel's removal by simple majority
vote on October 26th was a "Significant Transaction." Accordingly, we
reverse that portion of the preliminary injunction that ordered Anchel
"reinstated as President and CEO effective retroactively to October 26, 1999
immediately prior to the purported removal." Preliminary Findings and
Conclusions, 12/13/99, at 9.
¶ 28 In their second issue on appeal, the Soundco group argues that the
trial court entered an overbroad preliminary injunction by precluding the
board from considering Anchel's removal as president and CEO and imposing
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a supermajority voting requirement (i.e. 5/7) on all actions of the board.
Brief for Appellant at 18, 21; Preliminary Findings and Conclusions,
12/13/99, at 12. They further assert that neither party requested such
relief. Id. at 22. The Soundco group concludes that the trial court's
overbroad preliminary injunction does not return the "status quo" as it
existed prior to the allegedly wrongful conduct on October 26th, but rather
creates a reality that never existed among Altec's directors and
shareholders, thereby immobilizing the board and giving Anchel protections
far beyond those enumerated in any of the corporate governance
documents. Reply Brief for Appellant at 11-12. We agree.
¶ 29 An equity court has broad discretion in "shaping its decree and
granting relief tailored to the particular circumstances of the case" pursuant
to a party's prayer for general relief. Lower Frederick Twp. v. Clemmer,
543 A.2d 502, 512 (Pa. 1988); Sack v. Feinman, 413 A.2d 1059, 1063 (Pa.
1980). Nevertheless, it is also well-settled that "[t]he purpose of a
preliminary injunction is to preserve the status quo as it exists or existed
before the acts complained of, and the injunction should not go beyond
preserving the status quo." Three Rivers Servs. v. Philadelphia
Inquirer, 486 A.2d 997, 999 (Pa. Super. 1985). See also Karpieniak v.
Lowe, 747 A.2d 928, 931 (Pa. Super. 2000) (recognizing that equity court
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may grant broader relief than that requested, but such relief must be
"consistent with and agreeable to the case pleaded and proven").
¶ 30 The trial court explained that it sought to prevent a continuing
"injustice" and sought to return control to Anchel the majority shareholder
who lost the control and support of a majority of the board, including his
own appointed designee, Freadman. T.C.O., 1/10/00, at 3. The trial court
further explained that, where Anchel was precluded by preliminary injunction
from reconstituting the board (i.e. the trial court nullified Anchel's action on
November 15, 1999, in which he sought to remove Freadman as a director
and appoint his son), it was appropriate for the court to "temper the
disproportionate voting control apparently held by the minority." Id.
¶ 31 We conclude that the trial court's preliminary injunction precluding the
board from considering Anchel's removal as president and CEO and imposing
a supermajority voting requirement (i.e. 5/7) on all actions of the board is
overbroad. The court's order and underlying reasoning chafe with the
principle that an equity court may not go beyond preserving the status quo.
By imposing a supermajority voting requirement on all board actions, the
court imposed a "status quo" that never existed. The relevant corporate
governance documents imposed a supermajority voting requirement and
heightened notice requirement only on "Significant Transactions," not on all
board actions. Proposals that are not "Significant Transactions" are
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governed by 15 Pa.C.S. § 1727 of our Business Corporation Law of 1988,
which provides that "acts of a majority of the directors present and voting at
a meeting at which a quorum is present shall be the acts of the board of
directors." Imposing a supermajority voting requirement on all board
actions was clearly erroneous. Prohibiting the board from considering
Anchel's removal was likewise erroneous. As such, we reverse that portion
of the preliminary injunction that precludes the board from considering
Anchel's removal as president and CEO and imposing a supermajority voting
requirement (i.e. 5/7) on all actions of the board.
¶ 32 In their third issue, the Soundco group claims that "the trial court
erred in concluding that Tommyca Freadman's voting as a director to rescind
the Voting Trust Agreement was inconsistent with his alleged agreement
with Mr. Anchel." Brief for Appellant at 23. At the October 26th meeting, the
majority of the board, including Freadman, voted to rescind the Voting Trust
Agreement.
¶ 33 The Voting Trust Agreement created a trust into which all of Altec's
common shares were placed and over which Anchel was named trustee.
Sparkomatic Corporation Voting Trust Agreement, 5/17/94, at 2-3; R.R. at
72a-73a. As trustee, Anchel had the "voting rights and powers in respect of
all shares of common stock" deposited in the trust. Id. at 10-11; R.R. at
80a-81a. The Stockholders' Agreement provides that Anchel shall have the
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right to "vote and otherwise act with respect to all Common Stock held by
the Individual Stockholders." Stockholders Agreement, 5/16/94, at 12; R.R.
at 55a. As evidenced by a letter dated May 17, 1994, Freadman agreed to
deposit his stock into the voting trust, thereby giving Anchel the sole right to
vote Freadman's stock, so long as Anchel remained as CEO. Letter from
Anchel to Freadman, 5/17/94, ¶ 2.
¶ 34 Pursuant to its order reinstating Anchel as CEO, the trial court further
concluded:
Because Edward Anchel remains CEO, Tommyca Freadman's
either voting to rescind the voting trust agreement or giving of
his proxy to another party, are in contravention of his agreement
with Edward Anchel.
Preliminary Findings and Conclusions, 12/13/99, at 11. Because of our
conclusion that the trial court erred in deeming Anchel's removal a
"Significant Transaction," we reversed that portion of the preliminary
injunction that reinstated Anchel as CEO, see supra. Accordingly, the
provisions of Freadman's employment agreement giving Anchel sole power
to vote his stock so long as Anchel was CEO are inconsequential.
¶ 35 Nonetheless, we are compelled to conclude that the trial court erred in
concluding that Freadman's actions as a director at the October 26, 1999
meeting were "in contravention of his agreement with Edward Anchel."
Preliminary Findings and Conclusions, 12/13/99, at 11. Freadman's duties
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as a director and his role as a stockholder were and are readily
distinguishable. In voting to rescind the Voting Trust Agreement, Freadman
was acting in his capacity as a director and not in his capacity as a
shareholder. The Voting Trust restricts Freadman in his role as shareholder,
not in his role as director. The Voting Trust places no obligation on
Freadman as a director to vote with or support Anchel. Furthermore, the
Voting Trust Agreement expressly provides that it may be terminated by a
majority vote of the board of directors, of which Freadman was a member.
R.R. 83a-84a, 91a.
¶ 36 Thus, notwithstanding the Voting Trust Agreement, Freadman's duty
as director is clear. Pennsylvania's Business Corporations Law defines the
relationship of a director to the corporation for which he serves as fiduciary
in nature. See 15 Pa.C.S. § 1712(a). Section 1712(a) provides, in
pertinent part:
§ 1712. Standard of care and justifiable reliance
(a) Directors.A director of a business corporation shall stand
in a fiduciary relation to the corporation and shall perform his
duties as a director, including his duties as a member of any
committee of the board upon which he may serve, in good faith,
in a manner he reasonably believes to be in the best interests of
the corporation and with such care, including reasonable inquiry,
skill and diligence, as a person of ordinary prudence would use
under similar circumstances.
15 Pa.C.S. § 1712(a).
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¶ 37 Our law prescribes that a fiduciary obligation includes both a duty of
care and a duty of loyalty. In re Main, Inc., 239 B.R. 281, 291 (Bankr.
E.D. Pa. 1999).
The duty of care obligates every corporate director to discharge
duties to the corporation with the same diligence, care, and skill
which ordinary prudent persons exercise in their personal affairs;
* * * *
The duty of loyalty, on the other hand, requires that corporate
directors devote themselves to corporate affairs with a view to
promote the common interests and not only their own, and they
cannot directly or indirectly utilize their position to obtain any
personal profit or advantage other than that enjoyed by their
fellow shareholders.
Id. See also Gruenwald v. Advanced Computer Applications, Inc.,
730 A.2d 1004, 1013 (Pa. Super. 1999) (recognizing that director "owe[s] a
fiduciary duty to the corporation to perform in a manner he reasonably
believes to be in the best interests of the corporation[.]"). We conclude that
because Freadman was bound to Altec by a fiduciary obligation as a
corporate director, he was required to exercise both a duty of care and a
duty of loyalty for the benefit of Altec and its shareholders. Because a
director is bound to "devote [himself] to corporate affairs with a view to
promote the common interests and not only [his] own," the Voting Trust
Agreement cannot operate to restrict or obviate Freadman's duty as a
director. As a director, Freadman must exercise his independent judgment
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to advance the best interests of the corporation. See 15 Pa.C.S. § 1712.
Thus, Freadman's commitment as a director vested him, unquestionably,
with the right to vote against Anchel. Consequently, the trial court erred in
concluding that "Freadman's either voting to rescind the voting trust
agreement or giving of his proxy to another party, are in contravention of
his agreement with Edward Anchel." Preliminary Findings and Conclusions,
12/13/99, at 11.
¶ 38 In conclusion, on the Soundco group's issues on appeal, we reverse
the preliminary injunction of the trial court insofar as it reinstated Anchel as
CEO and President, precluded the board from considering Anchel's removal,
imposed a supermajority voting requirement on all board actions, and
precluded Freadman from voting to dissolve the Voting Trust Agreement.
¶ 39 We turn now to Anchel's arguments on appeal. Anchel contests the
trial court's factual finding that his employment agreement was amended,
and Anchel contests the trial court's nullification of the actions taken at the
board meeting Anchel called on November 15th.
¶ 40 First, Anchel argues that the trial court erred in its factual finding that
his employment agreement was amended on April 27, 1999, to require only
a majority vote for termination. Brief for Anchel at 2; Reply Brief for Edward
Anchel, et al., Appellees and Cross Appellants ("Reply Brief for Anchel") at
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13. The trial court made the following factual finding in conjunction with its
order nullifying the board's action to remove Anchel on October 26th:
At the April 27, 1999 meeting of the Board of Directors, Edward
Anchel's contract as president and CEO was renewed for a period
of three years, with an increase in base salary, and with a
provision that Anchel may be removed as CEO by a majority
vote of the Board of Directors.
Preliminary Findings and Conclusions, 12/13/99, at 8. Anchel argues that
there is no documentation to support the trial court's finding that his
contract was amended to include the provision for a simple majority vote of
the board to effectuate Anchel's removal. Brief for Anchel at 37. Anchel
further argues that, because of this lack of documentation, the court should
have concluded that his employment contract was renewed, not amended,
as per the testimony of Anchel, Dion, and Parente. Id. Anchel opines, "[i]f
all the Board did was renew the employment agreement, there was no need
to draw up a new document. With renewal, all provisions of the existing
contract stay in place, with the exception of the term, which was extended
for three years." Id. Anchel also states that it is "inconceivable that [he]
would agree to an amendment to his employment agreement that makes it
easier for the Soundco Group to remove him as CEO and President of Altec."
Id. at 38. Anchel concludes that the court's finding is unsupported by the
evidence. Reply Brief for Anchel at 13. In its essence, Anchel's argument is
that the trial court erred in its factual determination that the board carried a
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motion on April 27th that would allow for Anchel's removal by a simple
majority vote.
¶ 41 "When reviewing the decision of an equity court, the chancellor's
findings of fact will stand unless there has been an abuse of discretion, a
capricious disbelief of the evidence, or a lack of evidentiary support on the
record for the findings or there has been an error of law." Hahalyak v. A.
Frost, Inc., 664 A.2d 545, 548 (Pa. Super. 1995). It is the fact-finder's
duty to judge the credibility of the witnesses and weigh their testimony.
See Weir by Gasper v. Estate of Ciao, 556 A.2d 819, 824 (Pa. 1989).
¶ 42 In its Rule 1925 Opinion, the trial court explained that it found "the
witnesses who testified to the existence of the simple majority removal term
to be more credible." T.C.O., 2/18/00, at 4. Particularly, the trial court
determined that McCartney was a credible witness. Id. McCartney testified
that the board passed a resolution on April 27th to allow for Anchel's removal
by a simple majority vote. N.T., 11/22/99, at 161; R.R. at 315a. McCartney
further testified that he spoke with Anchel on that same day, and Anchel
purportedly supported the proposals of April 27th. Id. at 162; R.R. at 315a.
This is ample evidence to support the trial court's finding that the provision
to allow for Anchel's removal by simple majority vote was passed by board
resolution on April 27th.
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¶ 43 Next, Anchel asserts that the trial court "erred in declaring Anchel's
actions to replace Freadman after the October 26, 1999 meeting invalid."
Brief for Anchel at 43. After the October 26th ouster of Anchel, Anchel sent
letters addressed to the "President" and "Secretary" of Altec, dated October
29, 1999, requesting that notice be sent to all shareholders of a special
shareholders' meeting to be held on November 12, 1999. R.R. at 135a,
136a. The notice stated the purposes of the meeting, including the removal
of Freadman from the board to be replaced with David Anchel. Id. Anchel
testified that, due to the failure of the President or Secretary to send the
requested notice, Anchel sent the notice himself. R.R. at 300a. On
November 12, 1999, Anchel attempted to hold the special shareholders'
meeting, but adjourned it for lack of a quorum pursuant to 15 Pa.C.S.
§ 1702(b). Brief for Anchel at 14. Anchel sent notice to all shareholders,
dated November 12th, of the re-convening of the meeting to be held on
November 15, 1999. R.R. at 142a. Significantly, 15 Pa.C.S. § 1756(b)(1)
provides that "those shareholders entitled to vote who attend a meeting of
shareholders . . . [a]t which directors are to be elected that has been
previously adjourned for lack of a quorum, although less than a quorum as
fixed in this section or in the bylaws, shall nevertheless constitute a quorum
for the purpose of electing directors."
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¶ 44 Anchel claims that the Soundco representatives received notice of the
November 15th shareholder and board meetings, but failed to attend either
meeting. Brief for Anchel at 14. Pursuant to section 1756(b)(1), Anchel
proceeded with the November 15th shareholder meeting. At that meeting,
Anchel and his loyal compatriots voted to remove Freadman as a director
and replace him with David Anchel Anchel's son. Later that day, at the
board meeting, the four directors, Anchel, David Anchel, Parente, and Dion
voted to rescind all the actions taken by the Soundco group at the October
26th meeting.
¶ 45 The trial court concluded that the November 15th meeting was not
properly convened because Shea, a shareholder loyal to Soundco who was
present on the premises, was excluded from the shareholder's meeting.
Preliminary Findings and Conclusions, 12/13/99, at 9-10; N.T. Hearing,
11/22/99, at 220-21. The trial court also recognized the provision in
Freadman's employment agreement of May 17, 1994, which indicates, "[s]o
long as [Freadman] is employed by [Altec], he will be a director." R.R. at
91a. Accordingly, the trial court ordered "that the actions taken at the
Shareholders and the Directors Meetings of November 15, 1999, shall be
considered null and void, and the board shall be comprised as it was on
November 11, 1999." Preliminary Findings and Conclusions, 12/13/99, at
10, 12.
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¶ 46 Anchel argues that because of Freadman's disloyalty to Anchel, Anchel
should be permitted to remove Freadman as his designee to the board.
Brief for Anchel at 43. Anchel relies on those provisions of the Stockholders'
Agreement that require each party to support the other party's appointment
or removal of its designees to the board of directors. The pertinent
provisions include the following:
SECTION 2.01. Composition of the Board of Directors. (a)
General. The Board shall initially consist of five directors, of
which (i) Soundco shall have the right to designate two
individuals to serve as directors and (ii) . . . Anchel shall have
the right to designate three individuals to serve as directors. . . .
* * * *
(e) Election of Directors. Each Stockholder Party hereby
agrees to vote all shares of Voting Securities owned by such
Stockholder Party to cause the election to the Board of Directors
of the individuals designated by the Stockholder Parties in
accordance with this Section 2.01.
SECTION 2.02. Removal of Directors. Each Stockholder Party
shall vote all shares of Voting Securities owned by such
Stockholder Party for the removal (with or without cause) of any
director designated and elected pursuant to Section 2.01 hereof
if the Stockholder Party entitled to designate such director
pursuant to Section 2.01 requests such removal by written
notice to the other Stockholder Parties.
Stockholders' Agreement, 5/16/94, at 6-7; R.R. at 50a-51a. Anchel argues
that, even if any Soundco group representative was improperly excluded
from the November 15th meetings, such exclusion is "harmless error."
Anchel argues that under the foregoing provisions of the Stockholder's
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Agreement, the Soundco representatives are bound to vote for Anchel's new
designee, David Anchel, and are bound to vote with Anchel to remove
Anchel's former designee, Freadman. Nevertheless, the trial court
emphasized that Freadman's employment agreement prohibits his removal
from the board, so long as Freadman is an Altec employee. The trial court
further reasoned:
For Anchel to choose a new designee for the board, and to
remove Freadman from the board would require the participation
of Soundco's agent (Shea) at the meeting to either reassign
Freadman as either an independent director or as Soundco's
designee. By intentionally excluding others from the meeting
(while they were waiting for the meeting across the hall), Anchel
prevented compliance with the shareholder agreement which
required Freadman to be retained as a director. Using the logic
that he has the unfettered power as a shareholder to choose
designees as a reason to justify excluding others from the
meeting, does not overcome the fact that his concurrent duties
as a shareholder (i.e. maintaining Freadman as a director) may
require the participation of others at the meeting. This was not
a case where the others refused to participate.
T.C.O., 2/17/00, at 5. We agree with and adopt this reasoning of the trial
court, as the record supports it. As previously noted, we will affirm the
granting of a preliminary injunction on any apparently reasonable grounds
contained in the record. See Palladinetti, 695 A.2d at 863 n.11.
¶ 47 In conclusion, we reverse those portions of the preliminary injunction
entered on December 13, 1999, which (1) reinstated Anchel as President
and CEO; (2) precluded the board from considering the removal of Anchel as
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CEO and President; and (3) required all action of the board to be valid only if
approved by at least a 5/7ths vote of the entire board. We affirm that
portion of the preliminary injunction entered on December 13, 1999, which
nullified and voided the actions taken at the Shareholders' and the Directors'
Meetings of November 15, 1999.
¶ 48 Order AFFIRMED IN PART and REVERSED IN PART.
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