Linde v. Linde

• Decision Date: 11 October 2019
• Docket Number: No. 754 MDA 2018,754 MDA 2018
• Citation: 220 A.3d 1119
• Parties: Barbara LINDE, in Her Own Right and Barbara Linde On Behalf of Linde Corporation v. Scott LINDE, Robert L. Hessling, Robert M. McGraw, Paul Fedor, Christopher Langel, Alfred Ostroski, Michael Bochnovich, Linde Corporation And Scott Linde Family's Corporation Trust Appellants
• Court: Pennsylvania Superior Court

220 A.3d 1119

Barbara LINDE, in Her Own Right and Barbara Linde On Behalf of Linde Corporation

v.Scott LINDE, Robert L. Hessling, Robert M. McGraw, Paul Fedor, Christopher Langel, Alfred Ostroski, Michael Bochnovich, Linde Corporation And Scott Linde Family's Corporation Trust Appellants

No. 754 MDA 2018

Superior Court of Pennsylvania.

Argued May 7, 2019

Filed October 11, 2019

Reargument Denied December 17, 2019

W. Boyd Hughes, Dunmore, for Linde, S., appellant.

Shari Maynard, Philadelphia, and John H. Williams, Jr., Pittsburgh, for Linde, B., appellee.

BEFORE: BOWES, J., OLSON, J., and STABILE, J.

OPINION BY OLSON, J.:

Appellants, Scott Linde, Robert L. Hessling, Robert M. McGraw, Paul Fedor, Christopher Langel, Alfred Ostroski, Michael Bochnovich, Linde Corporation, and Scott Linde Family's Corporation Trust, appeal from the judgment entered on May 21, 2018.¹ The judgment was in favor of Barbara Linde (hereinafter "Barbara") and against Appellants in the amount of $5,392,000.00. We affirm.

On September 18, 2013, Barbara, individually and on behalf of Linde Corporation (hereinafter "LindeCo"), filed a complaint against a number of defendants, including: her brother, Scott Linde (hereinafter "Scott"); the Scott Linde Family S Corporation Trust; and, six individual employees and directors of LindeCo. We refer to the six individual employees and directors as, collectively, the "Six Key Employees." They are: Robert L. Hessling, Robert M. McGraw, Paul Fedor, Christopher Langel, Alfred Ostroski, and Michael Bochnovich. See Barbara's Complaint, 9/18/13, at ¶¶ 1-10.

Within the complaint, Barbara averred that LindeCo is a Subchapter S corporation² and that, at the time LindeCo was formed, she and Scott were its only shareholders. See id. at ¶¶ 11-12. Throughout the life of LindeCo, Barbara has been a minority shareholder and Scott has been the majority shareholder of the company. Further, Barbara "was secretary ... , served as a director[,] and was employed by" LindeCo; Scott is the president and a director of the corporation. Id. at ¶ 11 (some capitalization omitted).

Barbara averred that, in March 2012, Scott "demanded that Barbara [ ] either liquidate her shares[ ] or immediately sell her shares [of LindeCo] at a price determined by him. If she refused, he stated that he would ‘economically destroy her.’ " Id. at ¶ 22. Barbara refused Scott's demand. Id. at ¶ 23. Thereafter, on March 9, 2012, Scott called a special shareholders' meeting, where he: "amended the articles of incorporation to eliminate cumulative voting,³ amended the by-laws of the corporation, removed the entire board of directors, including [Barbara], and elected new directors[, which excluded Barbara]." Id. at ¶ 24 (some capitalization omitted). The new directors included the Six Key Employees and "[t]he new directors subsequently terminated [Barbara's] employment with the corporation, cancelled her medical insurance, the medical insurance of her daughters[,] and eliminated other benefits historically enjoyed by her." Id. at ¶¶ 24-25 (some capitalization omitted).

Barbara alleged that the elimination of cumulative voting "was fundamentally unfair and oppressive to [her] as the minority shareholder of the corporation and was undertaken for the sole purpose of eliminating [Barbara] as a member of the board of directors, thereby limiting her access to [corporate] books and records." Id. at ¶ 26 (some capitalization omitted). Moreover, Barbara alleged that Scott and the Six Key Employees committed other acts that were oppressive to her as a minority shareholder, such as: "systematically excluding her from a meaningful role in the corporation" by eliminating her as a board member, an officer, and an employee; authorizing deals with closely related companies that had the sole purpose of economically harming her; and, "caus[ing LindeCo] to report a taxable gain which flow[ed] through to [Barbara], but contrary to past practice, [the board] refused to allow the company to make a cash distribution to shareholders which would [have] allow[ed Barbara] to pay her tax obligation." Id. at ¶¶ 29-35 and 38-44.

Barbara's complaint contained five counts. The first count, entitled "Breach of Fiduciary Duty," was filed against Scott. Within this count, Barbara alleged that Scott was liable to her for "engag[ing] in a course of conduct that was contrary to law, was oppressive, was a gross abuse of his authority and discretion[,] and was designed to squeeze [Barbara] out of the corporation, and to ‘economically destroy her.’ " See id. at ¶ 14. She requested that the trial court:

A. Appoint a custodian for [LindeCo];

B. Enter an order directing [Appellants] to grant [Barbara] all of the rights, benefits[,] and privileges she enjoyed prior to the illegal actions of March 9, 201[2]; [ ]

C. Award [Barbara] compensatory damages for her loss of income and benefits ... ;

...

E. Direct [Appellants] to provide [Barbara] immediate access to the books and records of [LindeCo] ... and all other partnerships or corporations owned or controlled by [Scott] doing business with [LindeCo]; and

F. Grant such other and further additional relief as the court may deem to be appropriate and just under the circumstances.

Id. at "Wherefore" Clause for Count I (some capitalization omitted).

In other counts, Barbara alleged that the Six Key Employees "aided and abetted [Scott] in the breach of the fiduciary duties owed to Barbara [ ] as a minority shareholder" and that Scott and the Six Key Employees engaged in a civil conspiracy to harm her. As to these claims, Barbara requested that the trial court "enter[ ] judgment in [Barbara's] favor and against [Scott] and the [Six Key Employees] for the full amount of her damages ... and grant such other and further relief as the court may deem just and equitable." See id. at "Wherefore" Clauses for Counts IV and V. Finally, Barbara requested that the trial court remove Scott from his positions as officer and director of LindeCo and that the court appoint a custodian for LindeCo. See id. at "Wherefore" Clauses for Counts II and III; see also 15 Pa.C.S.A. §§ 1726(c) (authorizing the judicial removal of a director); 1767(a)(2) (authorizing a court to appoint a custodian for a corporation). As with her other claims, Barbara included general prayers for relief at Counts II and III. Barbara's Complaint, 9/18/13, at "Wherefore" Clauses for Counts II and III.

On the same date that Barbara filed her complaint, Barbara also filed a separate "Motion for Appointment of Custodian." Within this motion, Barbara repeated the allegations contained in her complaint and requested that the trial court appoint a custodian for the corporation. Barbara's Motion for Appointment of Custodian, 9/18/13, at ¶ 3. The trial court then scheduled a hearing on Barbara's Motion for Appointment of Custodian. Trial Court Order, 9/18/13, at 1.

The six-day hearing on Barbara's Motion for Appointment of Custodian took place on April 29 and April 30, 2014, July 22 and July 23, 2014, and August 27 and August 28, 2014. On December 31, 2014, the trial court denied Barbara's Motion for Appointment of Custodian. Trial Court Order, 12/31/14, at 1.

After the trial court's December 31, 2014 order, the parties agreed to submit the record, as developed during the hearing on Barbara's Motion for Appointment of Custodian, to the trial court for adjudication of the entire complaint.⁴ Trial Court Opinion, 11/13/15, at 2; Appellants' Brief at 11. On November 13, 2015, the trial court entered its findings of fact, conclusions of law, and decision regarding liability.⁵ As the trial court explained in detail, the evidence presented for its consideration consisted of the following:

The Linde family has been involved in construction and industry in northeast Pennsylvania for approximately 50 years, when brothers Scott and Eric Linde began Linde Enterprises with their father. Scott and Eric's sister, Barbara Linde, was offered a share in Linde Enterprises by her father a few years after she completed school. In 1988, the Linde siblings' father passed away, and his shares in Linde Enterprises were distributed to his children such that Scott and Eric each owned 3/7 of the company and Barbara owned the remaining 1/7; Barbara testified that this structure was essentially her father's way of ensuring that any two of the siblings could overrule the third. Eventually, legal issues involving the Linde siblings arose, beginning a series of lawsuits in Wayne County, Pennsylvania.

In 2006, Scott and Barbara formed their own entity, [LindeCo]. Scott and Barbara set up LindeCo as an S-Corporation, with 1000 shares authorized; only 500 of these shares were issued, with 375 (75%) going to Scott and 125 (25%) going to Barbara. There was no shareholders' agreement. The corporate bylaws called for cumulative voting. Scott was the President of LindeCo, and Barbara was the Secretary. In its first year of operation, LindeCo brought in approximately six million dollars of gross revenues[.].5 [The organization grew steadily and,] by 2012, LindeCo's revenue was approximately [72] million dollars.^.6 As of 2014, LindeCo had approximately 300 employees. From its inception until 2012, Barbara received an annual distribution from LindeCo sufficient to pay her state and federal taxes; otherwise, LindeCo has not made any payments of dividends to its shareholders.

[fn.5] LindeCo's initial profits stemmed largely from taking over the clients and accounts of Linde Enterprises.

[fn.6] Although LindeCo's revenue was consistently in the tens of millions of dollars, the company's recorded profit was generally in the $250,000[.00] to $500,000[.00] range; Scott testified that this was due to the high cost of subcontracting and completing each particular job in comparison to the value of the contract for the job.

In addition to Linde Enterprises and LindeCo, Scott was involved in a number of entities affiliated with those two companies. Among these entities were NEV (which is

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