In re Indep. Fire Co. No. 1

• Decision Date: 05 February 2020
• Docket Number: No. 1489 C.D. 2018,1489 C.D. 2018
• Citation: In re Indep. Fire Co. No. 1, No. 1489 C.D. 2018 (Pa. Commw. Ct. Feb 05, 2020)
• Parties: In re: Independent Fire Co. No. 1 a non profit corporation Appeal of: Commonwealth of Pennsylvania
• Court: Pennsylvania Commonwealth Court

In re: Independent Fire Co. No. 1 a non profit corporation

Appeal of: Commonwealth of Pennsylvania

No. 1489 C.D. 2018

COMMONWEALTH COURT OF PENNSYLVANIA

Argued: September 17, 2019

February 5, 2020

BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge HONORABLE P. KEVIN BROBSON, Judge HONORABLE PATRICIA A. McCULLOUGH, Judge

OPINION NOT REPORTED

MEMORANDUM OPINION BY JUDGE McCULLOUGH

The Commonwealth of Pennsylvania, Office of Attorney General, Charitable Trusts and Organizations Section(Commonwealth), appeals from the October 4, 2018 order of the Court of Common Pleas of Lycoming County(trial court) denying its petition seeking a rule to show cause why Independent Fire CompanyNo. 1(Independent) should not be involuntarily dissolved and its assets distributed pursuant to the cy pres doctrine.We affirm on a rationale that differs from that of the trial court.

This appeal involves the interplay between two statutes—the Pennsylvania Nonprofit Corporation Law of 1988(Nonprofit Law)¹ and the UniformTrust Act (Trust Act).²The predominate legal question in this case emerges in the context where the trial court found that it has become "impracticable" for a nonprofit to pursue the charitable purpose enunciated in its articles of incorporation, but the Commonwealth did not prove that any of the nonprofit's assets have been received, placed, or otherwise held in "trust" by the nonprofit.In these circumstances, the issue presented is whether the Commonwealth, without obtaining an order of involuntary dissolution under the Nonprofit Law, may acquire and transfer all the general assets of an operating, non-defunct charitable nonprofit corporation to another nonprofit pursuant to the cy pres doctrine as codified in the Trust Act.We conclude that the Commonwealth lacks such authority.

Background

The facts of this case, as recounted by the trial court, are as follows:

Until May 1, 2016, Independent was one of three fire companies certified to fight fires in South Williamsport Borough [Borough].The South Williamsport Fire Department(SWFD) was formed through a merger of the two other fire companies constructed by the Borough.As a result of not joining the merged SWFD, Independent was decertified when the Borough instituted OrdinanceNo. 2016-01 officially recognizing only SWFD as the Fire Department of the Borough.Following this, the Borough contacted the [Commonwealth] notifying [it] Independent was decertified and could no longer perform [its] charitable purpose, which is "[f]or the suppression of fires of property and buildings in the Borough of South Williamsport, Pennsylvania."Independent still functions as a 501(c)(3)³ nonprofit, but has not responded to any fires sincedecertification, although some members have chosen to join other companies to continue their own firefighting activity.

The [Commonwealth] originally called for the involuntary dissolution of Independent . . . .This claim was not founded in support put forward by the Commonwealth and additionally was directly contradicted by testimony put forward by Independent . . . .[T]he Commonwealth [then] stated [its] intention that Independent may go on existing, but [its] monies and property should go to SWFD.Prior to decertification Independent took fire calls throughout the County of Lycoming and outside the county.Independent hosted multiple charitable events and festivals and responded to multiple emergency calls that were not fire[-]related.Since decertification, Independent has reached out to local neighboring townships in an attempt to continue [its] firefighting mission . . . .Independent still functions as an operating corporation [and] is in good standing with [its] accounting . . . .

(Trial court op.at 2-3, 6-7)(citations to the record omitted).

Following a two-day hearing, the trial court, by opinion and order dated October 4, 2018, denied the Commonwealth's petition.In doing so, the trial court initially outlined the gist of the dispute.More specifically, the trial court found that "Independent's charitable purpose has certainly become 'impractical,' since [it] may no longer fight fires in South Williamsport" and explained that, for this reason, the Commonwealth asserted that "the [d]octrine of [c]y [p]res is applicable and SWFD should receive [Independent's] assets and properties."Id. at 7.

In addressing this issue, the trial court noted that the doctrine of administrative deviation, currently codified in Section 7740.3(c) of the Trust Act, vested it with the authority "to modify an administrative provision of a charitable trust to the extent necessary to preserve the trust."20 Pa.C.S. §7740.3(c).Nonetheless, the trial court concluded that, based upon prevailing precedent, it could not alter or amend the stated charitable purpose in Independent's articles ofincorporation because the phrase "in the Borough of South Williamsport" was "dispositive" and "substantive in nature," as opposed to "administrative in nature."(Trial court op.at 6.)⁴The trial court then opined that, "[h]owever, this is not a typical situation that screams for the application of cy pres."Id. at 7.The trial court stated: "Typical examples of when the [d]octrine is applied by courts are when a charitable gift is left through will or trust to a no[-]longer existent charity or when a charitable nonprofit voluntarily dissolves and the court must determine where the charitable property should go."Id.

Next, questioning the underlying legal basis for the Commonwealth's civil action, the trial court stated that it was unable to locate case law"where the Commonwealth attempt[ed] . . . an acquisition of assets, absent board members self-dealing, tremendous financial troubles, or unauthorized selling or transferring of charitable assets."Id.Following this observation, the trial court proceeded to delve into a general discussion of its equitable powers when resolving matters in the orphans' court division and, after noting that "Independent has historically [helped] others throughout the county, not just South Williamsport residents," specifically determined that "the [d]octrine of [c]y [p]res should not be applied."Id. at 8.In so concluding, the trial court found that "giving all [of Independent's] assets to a similarly situated company would not result in an equitable remedy"; to the contrary, the trial court commented that such a transfer "would be a perversion of the [d]octrine," namely one "that would amount to an asset grab."Id. at 9.Based on this reasoning, and embodying the notion that it possessed broad, common law equitablepowers, the trial court found it necessary "to slightly modify [the] terms" of Independent's articles of incorporation in order for it to continue its charitable purpose, id., and held as follows:

[T]he most equitable way to continue to fulfill Independent's original charitable purpose is to allow [it] to act outside the narrow constriction of only engaging in services within South Williamsport.Since the Borough is only 1.89 square miles this does not amount to abandoning the community, as the charitable impact of Independent's services will still be felt close to home . . . .

In promoting strong public policy and equity the [c]ourt is required to allow Independent to seek reasonable alternatives in nearby townships and communities to most closely fulfill its charitable purpose.In other words, the [c]ourt finds that despite its location physically within the Borough of South Williamsport, Independent shall be free to affiliate with another borough or township to continue operating as a firefighting agency.

Id. at 9-10.

On these grounds, the trial court denied the Commonwealth's petition.Subsequently, the Commonwealth filed a timely notice of appeal with this Court, and both the trial court and the Commonwealth have complied with the strictures of Pa.R.A.P. 1925.

Discussion

On appeal,⁵ the Commonwealth argues that, given the undisputed facts of record, the trial court erred in failing to apply the doctrine of cy pres, stating thatcharitable nonprofit corporations, like Independent, "are treated as charitable trusts by our law, with the general public as beneficiary."(Commonwealth's Br.at 13.)Relying predominately, if not exclusively, on the Comment to Section 7740.3 of the Trust Act and Section5547(a) of the Nonprofit Law, the Commonwealth maintains that all of the assets of Independent are held in trust to further its charitable purpose, as stated in the articles of incorporation, and posits that once Independent ceased fighting fires in South Williamsport, its charitable purpose was extinguished.Emphasizing the trial court's express finding that Independent's "charitable purpose has certainly become impracticable," the Commonwealth asserts that Section 7740.3(a) of the Trust Act mandated, without exception, that the trial court apply cy pres and designate SWFD as a substituted beneficiary to receive all of the assets and property of Independent.⁶

In response, Independent stresses that it is a volunteer fire company and that the Borough is not responsible for its debts or liabilities and does not exercise any financial control over it.Independent argues that, despite its decertification, it was and is not defunct or obsolete; rather, it has over $700,000.00 in assets and continues to remain a functioning nonprofit corporation that retains members, holds meetings, maintains minutes, pays bills, files taxes, maintains its real estate and equipment, enters into contracts, engages in charitable community activities, and responds to multiple emergency calls.According to Independent, the Commonwealth cannot circumvent the process for involuntary dissolution in the Nonprofit Law andeffectively achieve the same result through application of the doctrine of cy pres under the Trust Act.Independent asserts that unless or until it ceases to exist as a nonprofit corporation, the Commonwealth lacks the statutory authorization necessary to...