J-S54033-15


NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37


KITTY WARD TRAVEL, INC., AND                :     IN THE SUPERIOR COURT OF
MARIANNE VICKERS                            :          PENNSYLVANIA
                                            :
                    v.                      :
                                            :
THOMAS F. AND THERESA WARD,                 :
MAUREEN RENNIE, AILEEN REINER               :
                                            :
APPEAL OF: MARIANNE VICKERS                 :     No. 591 EDA 2015

              Appeal from the Judgment Entered February 9, 2015
               In the Court of Common Pleas of Delaware County
                        Civil Division No(s).: 10-00556

BEFORE: BOWES, PANELLA, and FITZGERALD,* JJ.

MEMORANDUM BY FITZGERALD, J.:                          FILED APRIL 22, 2016

        Appellant, Marianne Vickers, appeals from the order1 entered in the

Delaware County Court of Common Pleas entering summary judgment in

favor of Appellees, Thomas F. and Theresa Ward, Maureen Rennie, and

Aileen Reiner.     Marianne contends the court should have construed her

claims as direct claims and not derivative claims brought on behalf of Kitty

Ward Travel, Inc. (“Kitty”), a Pennsylvania corporation. We affirm.


*
    Former Justice specially assigned to the Superior Court.
1
  “[I]n an action involving multiple defendants, . . . an order granting
summary judgment as to one party is treated as appealable as of right only
after the disposition of the claims involving the remaining parties.” K.H. v.
J.R., 826 A.2d 863, 869 (Pa. 2003). “Thus, . . . in the context of a single
action, a notice of appeal filed from the entry of judgment will be viewed as
drawing into question any prior non-final orders that produced the
judgment.” Id. at 871.
J-S54033-15


      We glean the facts from the record.            Kitty is a Pennsylvania

corporation with the following five shareholders and shares of stock:

          Marianne Vickers:   16.67
          Bridget Ward:       20.83
          Thomas Ward:        20.83
          Maureen Rennie:     20.83
          Aileen Reiner:      20.83

Ex. B to Compl., 1/19/10. Thomas and Maureen were directors and officers

and Theresa was an employee of Kitty.

      In February 2009, Bridget, Marianne, and Aileen reorganized Kitty by

appointing Aileen chairman, and Bridget vice-chairman and president. They

also removed Thomas and Maureen as officers and fired Thomas, Theresa,

and Maureen. The hostile corporate takeover resulted in multiple lawsuits,

including the instant suit.

      On January 19, 2010, Kitty, Bridget, and Marianne (collectively

“Plaintiffs”),   sued    Thomas,   Maureen,    and     Theresa   (collectively

“Defendants”), raising the following ten claims against one or more of the

individual defendants.

      For count I, Bridget and Marianne, on behalf of Kitty, claimed Thomas

and Maureen breached their fiduciary duty by, inter alia, misappropriating

corporate funds and wasting corporate assets.        See generally Compl.,

1/19/10, at ¶ 76(a)-(h) (alleging multiple violations of various bylaws and




                                      -2-
J-S54033-15


Pennsylvania statutes).2 “As a direct and proximate result of [their] actions,

[Kitty] has suffered substantial harm and damages.” Id. at ¶ 78. Bridget

and Marianne contended Thomas and Rennie owed at least $50,000 in

compensatory damages to Kitty. Id. at 16-17 (“Plaintiffs demand judgment

in favor of [Kitty] and against” Thomas and Maureen “to be paid to [Kitty’s

treasury] and distributed to the current shareholders.”).

      As for count II, Plaintiffs sued Defendants for improperly retaining,

selling, or giving away corporate assets. Plaintiffs moved for, at a minimum,

$50,000 in damages, Defendants to return Kitty’s corporate assets, and an

accounting of any assets Defendants sold or gave away. Id. at 17-18.

      With respect to count III, Plaintiffs sued Defendants for breaching a

fiduciary duty to Plaintiffs by, inter alia, engaging in self-dealing, transferring

corporate assets improperly, and not acting in Kitty’s best interests. Id. at

18-20. Specifically, Plaintiffs claimed “Defendants owed a fiduciary duty of

good faith, fair dealing, due care, loyalty and full, candid and adequate

disclosure to Plaintiffs.”   Id. at 18.   Defendants allegedly breached those

duties as follows:

         a. Repeatedly engaging in instances of self-dealing without
         the knowledge and consent of other Plaintiffs, fellow board
         member and shareholders in violation of Article V, Section




2
  For ease of disposition, we cite to either the specific paragraph or page of
the complaint.




                                       -3-
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           5.01 and Article IV of [Kitty’s] Bylaws, 15 Pa. Con. Stat.
           §§512,[3] 523,[4] 1712,[5] and 1932.[6]

           b. Impairing Plaintiffs’ ability to compete in the travel
           services industry in violation of Article IV and Article V,
           Section 5.01 of [Kitty’s] Bylaws; and 15 Pa. Con. Stat.
           §§512, 523, 1712, and 1932;

           c. Diverting corporate opportunities from [Kitty] in
           violation of Article V, Section 5.01 and article IV of [Kitty’s]
           Bylaws; 15 Pa. Con. Stat. §§512, 523, 1712, and 1932.

           d. Wasting assets of [Kitty] and Plaintiffs in violation of
           Article V, Section 5.01 and Article IV of [Kitty’s] Bylaws;
           and 15 Pa. Con. Stat. §§512, 523, 1712, and 1932.

           e. Undermining and sabotaging the interests of Plaintiffs in
           violation of Article V, Section 5.01 and Article IV of
           [Kitty’s] Bylaws; and 15 Pa. Con. Stat. §§512, 523, 1712,
           and 1932; and

           f. Diverting opportunities to generate greater revenue from
           [Kitty] in violation of Article V, Section 5.01 and Article IV
           of [Kitty’s] Bylaws; and 15 Pa. Con. Stat. §§ 512, 523,
           1712, and 1932.

Compl. at 18-19.7      Two of the paragraphs within this count also reference

the duties of the individual shareholders. Id. at ¶ 95 (“Defendants failed to



3
  Section 512 governs the standard of care a director or officer owes a
domestic corporation. 15 Pa.C.S. § 512.
4
  Section 523 addresses derivative actions by shareholders. 15 Pa.C.S. §
523 (entitled, “Actions by shareholders or members to enforce a secondary
right.”).
5
 Section 1712 similarly discusses the standard of care a director or officer
owes a business corporation. 15 Pa.C.S. § 1712.
6
    “Voluntary transfer of corporate assets” is the title of 15 Pa.C.S. § 1932.




                                        -4-
J-S54033-15


act independently to protect Plaintiff shareholders”); ¶ 96 (“Defendants

failed to assure that no conflicts of interest exist, or else to assure that all

conflicts would be resolved in the best interests of the shareholders.”).

Plaintiffs requested $50,000 or more in damages.

      Count IV is a breach of contract claim brought by Plaintiffs against

Defendants.     Plaintiffs alleged Defendants breached the shareholders’

agreement by, essentially, not acting in Kitty’s best interests.       Plaintiffs

asserted Defendants owe an amount equal to three times the actual

damages incurred by Plaintiffs. Id. at 21-22.

      Count V is also a breach of contract claim raised by Bridget and

Marianne against Thomas and Maureen. Bridget and Marianne claimed that

Thomas and Maureen violated the shareholders’ agreement by failing to sell

their shares of Kitty to Bridget and Marianne.          As relief, Bridget and

Marianne asked that the court compel Thomas and Maureen to place their

Kitty shares into escrow to facilitate the sale. Id. at 24.

      For count VI, Bridget and Marianne sued Defendants for fraudulent

misrepresentation. They alleged that Defendants distorted Kitty’s sales and

did not inform Bridget and Marianne that Kitty was operating at a loss. Id.

at 23-24; see also Marianne’s Brief at 25. Bridget and Marianne averred


7
  As noted infra, Marianne acknowledges that the complaint used the term
“Plaintiffs” in the collective without always identifying each individual
plaintiff. See Marianne’s Brief at 23.




                                      -5-
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they relied on Defendants’ misrepresentations to their detriment and thus

are owed damages of at least $50,000. Compl. at 26. The paragraphs for

this count do not explain how Bridget and Marianne were damaged

personally and directly. See id.

     Bridget and Marianne raised a claim of fraudulent misrepresentation on

behalf of Kitty and against Thomas for count VII. They alleged Kitty owns a

subsidiary corporation named Irish American International Tours (“Irish

Tours”). Id. Bridget and Marianne averred that after Thomas was fired, he

nonetheless continued to represent himself as affiliated with Irish Tours and

changed Irish Tours’ address to his personal home address.       Bridget and

Marianne asserted that customers of Kitty and Irish Tours relied on Thomas’s

misrepresentations and that Plaintiffs incurred costs in correcting those

misrepresentations. Id. at 28. Accordingly, Plaintiffs moved for a minimum

of $50,000 in damages.

     Count VIII is also a claim raised by Bridget and Marianne on behalf of

Kitty and against Thomas and Maureen. Plaintiffs claimed that Thomas and

Maureen tortiously interfered with contractual relations by engaging in

various activities to steal existing and prospective customers of Kitty and

Irish Tours.   Id. at 29-30.       Plaintiffs therefore requested $50,000 in

damages, at a minimum.

     Regarding count IX, Bridget and Marianne sued Defendants for

negligent misrepresentation.   The basis for the claim was that Defendants



                                     -6-
J-S54033-15


falsely advised Plaintiffs about Kitty’s finances. See also Marianne’s Brief at

26.     Specifically, Bridget and Marianne alleged that Defendants falsely

reported lower sales and thus filed a false tax return claiming Kitty operated

at a loss:

           166. At all material times hereto, Defendants represented
           to Plaintiffs that [Kitty] was solvent and that business was
           good.      They also represented that all income was
           accounted for and declared.

           167. Defendants knew and/or should have known that said
           representations were not accurate.

           168. Plaintiffs[8] reasonably relied upon these fraudulent
           misrepresentations.     As Board Members and directors,
           Plaintiffs were entitled to rely in good faith on the
           representations of Defendants as Plaintiffs reasonably
           believed that Defendants were reliable and competent in
           the matters presented. 15 Pa. Con. Stat. §§512, 1712
           (2009).

           169. Defendants knew and/or should have known that
           Plaintiffs  would reasonably   rely   upon   these
           representations.

           170. Plaintiffs, at the time such representations were
           made, did not know the truth with regard to certain
           transactions, but believed the representations to be true
           and relied upon them. They were thereby induced to
           continue efforts to generate business, forego further
           inquiry and other business opportunities, as well as to call
           an emergency meeting of the Board and/or shareholders,
           to address these issues.




8
    As noted above, the complaint used defined terms inconsistently.




                                      -7-
J-S54033-15


        171. The representations were false,[9] and in fact sales
        were much higher than Defendants reported to Plaintiffs.

                                *    *    *

        173. Defendants had knowledge of the actual financial
        condition of [Kitty] superior to that of Plaintiffs and had
        exclusive access to that knowledge, such that Defendants
        had a duty to advise Plaintiffs of the actual financial
        condition.

        174. Plaintiffs justifiably relied upon Defendants’
        representations, as Defendants are directors and officers of
        [Kitty] whom Plaintiffs reasonably believed to be reliable
        and competent in the matters presented.

        175. Such representations were made by Defendants as of
        Defendants’ own knowledge and were known to be false
        when made, or were made by Defendants recklessly and
        without any knowledge that the same were true and
        careless of whether they were true or false and without
        any reasonable grounds to believe that they were true.

        176. At the time such representations were made,
        Defendants to suspect the falsity of such representations,
        which facts and circumstances were unknown to Plaintiffs
        and were fraudulently suppressed and concealed from
        Plaintiffs by Defendants.

Compl. at 31.     As a result, Bridget and Marianne claim the false

representations damaged them and they are entitled to at least $50,000.

Id.

      Lastly, count X is a claim for an accounting brought by Plaintiffs

against Defendants.

9
  We note that Marianne’s brief used the phrase “materially false.”
Marianne’s Brief at 26 (purportedly quoting complaint).           The word
“materially” does not exist in the complaint. See Compl. at ¶ 171.




                                    -8-
J-S54033-15


      On February 22, 2010, Maureen filed preliminary objections claiming,

inter alia, that Bridget and Marianne lacked standing to assert the derivative

claims at counts II, III, IV, VI, IX, and X.10 Maureen’s Prelim. Objections to

Plaintiffs’ Compl., 2/22/10, at ¶ 48.        The court overruled Maureen’s

preliminary objections on April 23, 2010.

      On June 14, 2010, Thomas and Theresa filed their answer and

counterclaims against Plaintiffs. That same day, they also filed a complaint

raising cross-claims against Aileen. Plaintiffs countered by filing cross-claims

against Aileen on July 11, 2010.

      Initially, one firm represented Kitty, Bridget, and Marianne. Eventually

Marianne retained different counsel, and the original firm withdrew.

Subsequently, the original firm filed petitions for leave to withdraw

representing Kitty and Bridget claiming, inter alia, conflicts of interest and a

breakdown in the attorney-client relationship.     The trial court granted the

firm’s petitions and stayed discovery for thirty days to permit Kitty and

Bridget to obtain new counsel. Order, 2/1/13. Kitty and Bridget, however,

never obtained new counsel.




10
  At that time, the parties differed on whether certain claims were direct or
derivative.




                                     -9-
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        On February 28, 2014, Defendants filed a motion for summary

judgment11 against Bridget and Marianne claiming they lacked standing to

raise all ten claims.    Defendants reasoned that Bridget’s and Marianne’s

claims asserted an injury to or breach of duty by Kitty. They also alleged

that there was no evidence that they breached any duty owed to Bridget or

Marianne.       Thus,   Defendants   concluded,   the   claims   are   derivative.

Defendants anticipated that Bridget and Marianne would argue that even if

the claims were derivative, they nonetheless had standing because Kitty is a

closely held corporation. Marianne filed a response in opposition, which did

not argue that the trial court should not apply Hill retroactively. On June

17, 2014,12 the court granted Defendants’ motion and dismissed with

prejudice all claims raised by Bridget and Marianne.

        Trial was scheduled for January 12, 2015.        That day, no counsel

appeared for Kitty and Bridget. Thomas, Theresa, and Maureen moved for

judgment of non pros against Kitty and Bridget. Marianne had no objection,

and the court granted the motion.      N.T., 1/12/15, at 15. On January 28,

11
    We note Defendants’ memorandum of law in support of their summary
judgment motion directly quotes this Court’s then-recent decision in Hill v.
Ofalt, 85 A.3d 540 (Pa. Super. 2014), without any attribution, use of
quotation marks, or “block quote” formatting. See Defs.’ Mem. of Law in
Support of Defs.’ Mot. for Summ. J., 2/28/14, at 2-4, 6 (quoting, without
citing, Hill, 85 A.3d at 548-49, 556). We do not endorse presenting—
particularly without any attribution whatsoever—this Court’s reasoning as
one’s own argument.
12
     The order was docketed on this date.




                                     - 10 -
J-S54033-15


2015, the court dismissed as moot all remaining counterclaims and

crossclaims.

      On February 9, 2015, the court entered judgment.        As noted above,

with respect to Marianne’s and Bridget’s claims, judgment was entered in

favor of Thomas, Theresa, and Maureen. For Kitty’s claims, judgment was

entered in favor of Thomas, Theresa, and Marianne. On February 20, 2015,

Marianne timely appealed. The court did not order Marianne to comply with

Pa.R.A.P. 1925(b), but it filed a Rule 1925(a) decision.

      Marianne raises the following issues:

         Did [Marianne] assert direct claims against Appellees at
         Counts III [breach of fiduciary duty], VI [fraudulent
         representation,] and IX [negligent misrepresentation]?

         Did [Marianne] have standing to assert the derivative
         claims [at counts I (breach of fiduciary duty, waste of
         corporate assets, and misappropriation of funds), II
         (conversion), count IV (breach of contract), count V
         (breach     of    contract),   count     VII    (fraudulent
         misrepresentation), count VIII (tortious interference with
         contractual relations), and count X (action for accounting
         at law)] in the Complaint either directly or on behalf of
         [Kitty]?

Marianne’s Brief at 6.

      In support of her first issue, Marianne raises three arguments, one for

each claim. Initially, she argues Plaintiffs’ claim for breach of fiduciary duty

against Defendants is a direct claim. Marianne focuses on the count’s use of

the plural word “duties,” and posits that Defendants owed different fiduciary

duties to Marianne, as a minority shareholder, and Kitty, as a corporation.



                                     - 11 -
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Id. at 22.     She notes that paragraphs ninety-five and ninety-six of the

complaint reference the shareholders’ interests, which further bolsters her

argument that she raised a direct claim.         Marianne alternatively contends

she developed a direct claim for breach of fiduciary duty during discovery.

Id. at 24. Specifically, Marianne claims that the majority shareholders owed

her—a minority shareholder—a fiduciary duty.         The majority shareholders,

Marianne argues, violated that duty by transferring corporate assets

improperly. Id. at 25.

        Next, Marianne contends her fraudulent misrepresentation claim

against Defendants was a direct claim.         Marianne notes that Kitty is not

identified as a plaintiff for this claim. Id. She alleges that Defendants’ false

representations created an injury distinct from any harm to Kitty. Marianne

alleges that Defendants falsely claimed Kitty was losing money, which meant

no actual harm to Kitty.

        Lastly, Marianne relies on her fraudulent-misrepresentation-claim

arguments in support of her contention that her negligent misrepresentation

claim    is   also   a   direct   claim.       Notwithstanding   the   “negligent

misrepresentation” label, Marianne argues her claim lies in fraud. We hold

Marianne is due no relief.

        The standard of review for an order resolving a motion for summary

judgment follows:

          We view the record in the light most favorable to the non-
          moving party, and all doubts as to the existence of a


                                      - 12 -
J-S54033-15


         genuine issue of material fact must be resolved against the
         moving party. Only where there is no genuine issue as to
         any material fact and it is clear that the moving party is
         entitled to a judgment as a matter of law will summary
         judgment be entered. 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.

Daley v. A.W. Chesterton, Inc., 37 A.3d 1175, 1179 (Pa. 2012) (citation

omitted); accord NASDAQ OMX PHLX, Inc. v. PennMont Secs., 52 A.3d

296, 303 (Pa. Super. 2012).

      Pennsylvania   Rule   of   Civil   Procedure   1506(a)   sets   forth   the

requirements for bringing a derivative action:

            (a) In an action to enforce a [derivative] right brought
         by one or more stockholders or members of a corporation
         or similar entity because the corporation or entity refuses
         or fails to enforce rights which could be asserted by it, the
         complaint shall set forth:

               (1) that each plaintiff is a stockholder or owner of an
            interest in the corporation or other entity.

               (2) the efforts made to secure enforcement by the
            corporation or similar entity or the reason for not
            making any such efforts, and

               (3) either

                  (i) that each plaintiff was a stockholder or owner
               of an interest in the corporation or other entity at the
               time of the transaction of which the plaintiff
               complains or that the plaintiff’s stock or interest
               devolved upon the plaintiff by operation of law from
               a person who was a stockholder or owner at that
               time, or



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                 (ii) that there is a strong prima facie case in favor
              of the claim asserted on behalf of the corporation
              and that without the action serious injustice will
              result.

Pa.R.C.P. 1506(a).

     Section 1717 of the Corporations and Unincorporated Associations

Code governs standing:

        The duty of the board of directors, committees of the
        board and individual directors under section 1712 (relating
        to standard of care and justifiable reliance) is solely to the
        business corporation and may be enforced directly by the
        corporation or may be enforced by a shareholder, as such,
        by an action in the right of the corporation, and may not
        be enforced directly by a shareholder or by any other
        person or group. . . .

15 Pa.C.S. § 1717. Conversely,

        under established Pennsylvania law, a shareholder does
        not have standing to institute a direct suit for a harm that
        is peculiar to the corporation and [would normally] only
        [be] indirectly injurious to [a] shareholder. Rather, such a
        claim belongs to, and is an asset of, the corporation.

Hill, 85 A.3d at 548 (internal quotation marks, brackets, and citation

omitted).

     The Hill Court further explained as follows:

           To have standing to sue individually, the shareholder
        must allege a direct, personal injury—that is independent
        of any injury to the corporation—and the shareholder must
        be entitled to receive the benefit of any recovery. See
        [Reifsnyder v. Pittsburgh Outdoor Adver. Co., 173
        A.2d 319, 321 (Pa. 1961)]; Burdon v. Erskine, 264
        Pa.Super. 584, 401 A.2d 369, 370 (1979) (en banc) (“[a]n
        injury to a corporation may . . . result in injury to the
        corporation’s stockholders.     Such injury, however, is
        regarded as ‘indirect’, and insufficient to give rise to a


                                    - 14 -
J-S54033-15


       direct cause of action by the stockholder”); Fishkin v. Hi–
       Acres, Inc., 462 Pa. 309, 341 A.2d 95, 98 n. 4 (1975)
       (“[i]f the injury is one to the plaintiff as a stockholder and
       to him individually, and not to the corporation, it is an
       individual action”) (internal quotations and citations
       omitted); White v. First Nat’l Bank, 252 Pa. 205, 97 A.
       403, 405 (1916) (“a stockholder can maintain a [direct]
       action where the act of which complaint is made is not only
       a wrong against the corporation, but is also in violation of
       duties arising from contract or otherwise, and owing to him
       directly. . . . But the difficulty with the plaintiff’s case is
       that he has failed to show any injury to himself apart from
       the injury to the corporation, in which he is a
       stockholder”); Tooley v. Donaldson, Lufkin, & Jenrette,
       Inc., 845 A.2d 1031, 1039 (Del. 2004) (holding that, to
       determine whether a shareholder’s claim is direct or
       derivative, “a court should look to the nature of the wrong
       and to whom the relief should go. The stockholder’s
       claimed direct injury must be independent of any alleged
       injury to the corporation.           The stockholder must
       demonstrate that the duty breached was owed to the
       stockholder and that he or she can prevail without showing
       an injury to the corporation”). As is hornbook law:

              If the injury is one to the plaintiff as a
              shareholder as an individual, and not to the
              corporation, for example, where the action is
              based on a contract to which the shareholder is
              a party, or on a right belonging severally to the
              shareholder, or on a fraud affecting the
              shareholder directly, or where there is a duty
              owed to the individual independent of the
              person’s status as a shareholder, it is an
              individual action.     If the wrong is primarily
              against the corporation, the redress for it must
              be sought by the corporation, except where a
              derivative action by a shareholder is allowable,
              and a shareholder cannot sue as an individual. .
              . . Whether a cause of action is individual or
              derivative must be determined from the nature
              of the wrong alleged and the relief, if any, that
              could result if the plaintiff were to prevail.




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              In determining the nature of the wrong alleged,
              the court must look to the body of the
              complaint, not to the plaintiff’s designation or
              stated intention. The action is derivative if the
              gravamen of the complaint is injury to the
              corporation, or to the whole body of its stock or
              property without any severance or distribution
              among individual holders, or if it seeks to
              recover assets for the corporation or to prevent
              dissipation of its assets. . . . If damages to a
              shareholder result indirectly, as the result of an
              injury to the corporation, and not directly, the
              shareholder cannot sue as an individual.

        12B FLETCHER CYCLOPEDIA OF THE LAW OF CORPORATIONS § 5911
        (2013); see also ALI Principles of Corporate Governance §
        7.01(a) (“[a]n action in which the holder can prevail only
        by showing an injury or breach of duty to the corporation
        should be treated as a derivative action”).

Hill, 85 A.3d at 548-49;13 see also Cuker v. Mikalauskas, 692 A.2d 1042

(Pa. 1997) (adopting selected Principles of Corporate Governance by the

American Law Institute).   In sum, if the “injury is both dependent upon




13
   In the seminal case of Tooley v. Donaldson, Lufkin & Jenrette, Inc.,
845 A.2d 1031 (Del. 2004), the Delaware Supreme Court held that the
“proper analysis to distinguish between direct and derivative
actions” “must be based solely on the following questions: Who suffered the
alleged harm-the corporation or the suing stockholder individually-and who
would receive the benefit of the recovery or other remedy?” Id. at 1035.
Stated differently, “Looking at the body of the complaint and considering the
nature of the wrong alleged and the relief requested, has the plaintiff
demonstrated that he or she can prevail without showing an injury to the
corporation?” Id. at 1036. “The stockholder’s claimed direct injury must be
independent of any alleged injury to the corporation. The stockholder must
demonstrate that the duty breached was owed to the stockholder and that
he or she can prevail without showing an injury to the corporation.” Id. at
1039.




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and derivative to the corporate injury,” then “the cause of action belongs

to the corporation.” Hill, 85 A.3d at 551.

      Mismanagement of corporate assets is a common derivative claim.

Burdon v. Erskine, 401 A.2d 369, 370 (Pa. Super. 1979).               Similarly,

destruction of value of stock is an indirect injury to the shareholder and thus

the right to sue lies with the corporation.    White v. First Nat. Bank of

Pittsburgh, 97 A. 403, 405 (Pa. 1916) (per curiam) (affirming on basis of

trial court’s opinion).   A fraudulent statement by a corporate officer is

imputed to a corporation. Gordon v. Cont’l Cas. Co., 181 A. 574, 578 (Pa.

1935); cf. Official Comm. of Unsecured Creditors of Allegheny Health

Educ. & Research Found. v. PriceWaterhouseCoopers, LLP, 989 A.2d

313, 315-16 (Pa. 2010) (addressing issues involving alleged misstatements

of corporation’s finances).

      In construing these principles, we recognize Pennsylvania is a fact

pleading jurisdiction. Griffin v. Rent-A-Center, Inc., 843 A.2d 393, 395

(Pa. Super. 2004).    The plaintiff, therefore, bears the burden of alleging

material facts underlying the legal claim. Id. For example, for fraudulent

misrepresentation, the following must be alleged:

         A cause of action for fraudulent misrepresentation is
         comprised     of    the     following    elements:     (1)   a
         misrepresentation, (2) a fraudulent utterance thereof, (3)
         an intention by the maker that the recipient will thereby be
         induced to act, (4) justifiable reliance by the recipient upon
         the misrepresentation and (5) damage to the recipient as
         the proximate result.



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Martin v. Lancaster Battery Co., 606 A.2d 444, 448 (Pa. 1992) (internal

quotation marks and citation omitted).

      Pennsylvania recognizes both the common law and Restatement

(Second) of Torts § 552 formulations of a negligent misrepresentation claim.

See Bilt-Rite Contractors, Inc. v. The Architectural Studio, 866 A.2d

270, 280, 285 (Pa. 2005). The common law factors follow:

         Negligent misrepresentation requires proof of: (1) a
         misrepresentation of a material fact; (2) made under
         circumstances in which the misrepresenter ought to have
         known its falsity; (3) with an intent to induce another to
         act on it; and (4) which results in injury to a party acting
         in justifiable reliance on the misrepresentation.       The
         elements of negligent misrepresentation differ from
         intentional misrepresentation in that the misrepresentation
         must concern a material fact and the speaker need not
         know his or her words are untrue, but must have failed to
         make a reasonable investigation of the truth of these
         words. Moreover, like any action in negligence, there must
         be an existence of a duty owed by one party to another.

Id. at 277 (citations omitted).

      The Restatement (Second) of Torts § 552 delineates the elements

differently:

         (1) One who, in the course of his business, profession or
         employment, or in any other transaction in which he has a
         pecuniary interest, supplies false information for the
         guidance of others in their business transactions, is subject
         to liability for pecuniary loss caused to them by their
         justifiable reliance upon the information, if he fails to
         exercise reasonable care or competence in obtaining or
         communicating the information.

         (2) Except as stated in Subsection (3), the liability stated
         in Subsection (1) is limited to loss suffered



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            (a) by the person or one of a limited group of persons
            for whose benefit and guidance he intends to supply the
            information or knows that the recipient intends to
            supply it; and

            (b) through reliance upon it in a transaction that he
            intends the information to influence or knows that the
            recipient so intends or in a substantially similar
            transaction. . . .

Restatement (Second) of Torts § 552 (1977).

      Instantly, for count III, breach of fiduciary duty, we examine the

nature of the alleged wrong and the party that would receive relief.        See

Hill, 85 A.3d at 548-49. Marianne alleged that Thomas and Maureen owed a

fiduciary duty to Kitty and breached that duty by wasting and otherwise

misappropriating corporate assets. See Compl. at ¶ 76(a)-(h); see also 15

Pa.C.S. § 1717. Marianne explicitly alleged that Kitty “suffered substantial

harm and damages” of at least $50,000. Id. at ¶ 78. At the outset, courts

typically construe such a claim as derivative. See Burdon, 401 A.2d at 370.

Indeed, Marianne did not allege a direct personal injury to her; rather, her

injury is indirect and thus insufficient to establish standing.    See Hill, 85

A.3d at 548-49.       Marianne’s emphasis on the plural word “duties,”

disregards the gravamen of the claim, which seeks recovery of corporate

assets.   See Compl. at ¶ 78; Hill, 85 A.3d at 548-49 (“The action is

derivative if the gravamen of the complaint is injury to the corporation . . .

or if it seeks to recover assets for the corporation . . . .”). Because this is a




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J-S54033-15


derivative claim, Section 1717 bars Marianne from raising this cause of

action directly. See 15 Pa.C.S. § 1717.

      With respect to count VI, fraudulent misrepresentation, and count IX,

negligent misrepresentation, Kitty was not identified as a plaintiff for either

claim. Kitty’s absence from the label of the counts alone, however, does not

presumptively establish that these claims are direct, as we are obliged to

examine the substance of the claims.             See Hill, 85 A.3d at 548-49.

(holding, “the court must look to the body of the complaint, not to the

plaintiff’s designation”).   Both counts alleged Defendants misrepresented

Kitty’s financial state thus causing damage to Marianne, who relied on those

misstatements. Compl. at 23-24, 31. Marianne’s injury is thus dependent

upon establishing the misrepresentation of Kitty’s finances—an injury to

Kitty. See Hill, 85 A.3d at 548-49, 551; see also Bilt-Rite Contractors,

866 A.2d at 280, 285; Martin, 606 A.2d at 448; cf. Gordon, 181 A. at 578.

Marianne, therefore, cannot prevail without demonstrating harm to Kitty.

See Hill, 85 A.3d at 548-49; Tooley, 845 A.2d at 1036, 1039. Accordingly,

we   hold   Marianne’s   claims   for   breach   of   fiduciary   duty,   fraudulent

misrepresentation, and negligent misrepresentation are derivative and thus

she lacks standing.

      For her second issue, Marianne assumes this Court determined that all

her claims are derivative.    She opines that she nonetheless has standing.




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Marianne contends the court should have adopted Section 7.01(d) of the

Principles of Corporate Governance by the American Law Institute:

          (d) In the case of a closely held corporation [§ 1.06], the
          court in its discretion may treat an action raising derivative
          claims as a direct action, exempt it from those restrictions
          and defenses applicable only to derivative actions, and
          order an individual recovery, if it finds that to do so will
          not (i) unfairly expose the corporation or the defendants to
          a multiplicity of actions, (ii) materially prejudice the
          interests of creditors of the corporation, or (iii) interfere
          with a fair distribution of the recovery among all interested
          persons.

Hill, 85 A.3d at 553 (quoting ALI Principles of Corporate Governance §

7.01(d) (1994)). These principles, Marianne suggests, permit her to pursue

these derivative claims on behalf of a closely held corporation, such as Kitty.

She acknowledged that this Court in Hill rejected Section 7.01(d), but

insists that decision should not apply retroactively to the instant case, which

commenced several years before Hill was decided.          Marianne, we hold, is

not entitled to relief.

      In Hill, the plaintiff argued that even if his claims were derivative, he

nonetheless had standing because the corporation at issue was closely held.

Hill, 85 A.3d at 553. The Hill plaintiff suggested this Court adopt Section

7.01(d), based on, inter alia, our Supreme Court’s adoption of certain other

ALI Principles in Cuker. The Hill Court, however, opined that our Supreme

Court would not adopt the substantive aspects of Section 7.01(d), as it

“would not simply ignore the corporate form and allow courts to ‘treat an

action raising derivative claims as a direct action . . . and order an individual


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J-S54033-15


recovery.’” Hill, 85 A.3d at 556 (quoting Section 7.01(d)). “[W]e conclude

that our high Court would not allow individuals such as [the plaintiff] to sue

directly—and individually recover—for injuries that were sustained by the

closely held corporation. As such, we conclude that [the plaintiff] does not

have standing to maintain a direct suit in this case.” 14 Id. at 553. “[T]o the

extent that Section 7.01(d) would permit a shareholder to sue directly—and

individually recover—for a breach of a director’s duty to the corporation, the

section is not ‘consistent with Pennsylvania law’ and, as such, would not be

adopted by our Supreme Court.” Id. at 556. Thus, because the Hill Court

predicted that our Supreme Court would not adopt the substantive aspects

of Section 7.01(d), it similarly refused to apply Section 7.01(d), and held the

plaintiff lacked standing. Id.

      The following is well-settled:

            The general rule in Pennsylvania is that appellate courts
         apply the law in effect at the time of appellate review.
         This means that we adhere to the principle that a party
         whose case is pending on direct appeal is entitled to the
         benefit of changes in law which occur before the judgment
         becomes final. However, this general rule is not applied
         rotely.     Whether a judicial decision should apply
         retroactively is a matter of judicial discretion to be decided
         on a case-by-case basis. To determine whether a decision
         should have retroactive effect, a court should first
         determine whether the decision announced a new rule of
         law.

14
   As noted above, the instant case was pending when the Hill Court issued
its decision on February 5, 2014. Defendants moved for summary judgment
on February 28, 2014.




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J-S54033-15



Passarello v. Grumbine, 87 A.3d 285, 307 (Pa. 2014) (quotation marks,

brackets, and citations omitted).15

             Not every opinion creates a new rule of law. Generally,
         where we have yet to rule explicitly on an unresolved legal
         issue, the first decision providing a definitive answer
         announces a new rule of law. When this Court issues a
         ruling that overrules prior law, expresses a fundamental
         break from precedent, upon which litigants may have
         relied, or decides an issue of first impression not clearly
         foreshadowed by precedent, this Court announces a new
         rule of law.

Fiore v. White, 757 A.2d 842, 847 (Pa. 2000) (citations omitted).

            If the decision announced a new rule, the court should
         then consider whether: (1) retroactive effect will further or
         hinder the purpose of the new rule; (2) the parties will be
         unfairly prejudiced because they relied on the old rule; and
         (3) giving the new rule retroactive effect will detrimentally
         affect the administration of justice.

Passarello, 87 A.3d at 307 (citation omitted).

      Applying these precepts to Hill, we acknowledge that no court, prior to

Hill, ruled on whether Pennsylvania courts should adopt Section 7.01(d).

The Hill Court was the first decision to answer that question definitively and

thus announced a new rule of law. See Fiore, 757 A.2d at 847; Hill, 85

15
   “At common law there was no authority for the proposition that judicial
decisions made law only for the future. Blackstone stated the rule that the
duty of the court was not to ‘pronounce a new law, but to maintain and
expound the old one.’ 1 Blackstone, Commentaries 69 (15th ed. 1809).”
Linkletter v. Walker, 381 U.S. 618, 622-23 (1965) (footnotes omitted).
“As Justice Holmes observed: ‘Judicial decisions have had retrospective
operation for near a thousand years.’” Gibson v. Commonwealth, 415
A.2d 80, 84 (Pa. 1980) (citation omitted).




                                      - 23 -
J-S54033-15


A.3d at 556. Applying the new rule here would further the purpose of Hill:

ensuring courts do      not adopt Section 7.01(d), as        it conflicts with

Pennsylvania law.    See Passarello, 87 A.3d at 307.       Similarly, because

there was no rule addressing Section 7.01(d) prior to Hill, no party can

claim it was unfairly prejudiced because it relied on an “old rule.” See id.

Finally, we fail to discern any detrimental impact on the administration of

justice if we applied Hill to this case. See id. Indeed, if we did not apply

Hill, then the administration of justice would be impacted as we would be

treating similarly situated parties—the parties in Hill and the instant

parties—differently. See id. Assuming Marianne’s claims are all derivative,

the trial court did not err by holding she lacked standing to raise these

claims on behalf of Kitty, a closely held corporation. See id.    Accordingly,

the trial court did not err by applying Hill to the instant case, and we affirm

the order below. See Daley, 37 A.3d at 1179.

      Order affirmed.

      Panella, J. joins the Memorandum.

      Bowes, J. files a Concurring and Dissenting Memorandum.

Judgment Entered.




Joseph D. Seletyn, Esq.
Prothonotary

Date: 4/22/2016




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