Toth v. Toth

1

2023 PA Super 145

MICHAEL D. TOTH AND LINAWATI TOTH v. BRYAN E. TOTH, EUGENE W. TOTH, MARIE TOTH, AND LEARNING SCIENCES INTERNATIONAL, LLC

APPEAL OF: BRYAN E. TOTH, EUGENE W. TOTH, AND MARIE TOTH

MICHAEL D. TOTH AND LINAWATI TOTH v. BRYAN E. TOTH, EUGENE W. TOTH, MARIE TOTH, AND LEARNING SCIENCES INTERNATIONAL, LLC

APPEAL OF: BRYAN E. TOTH, EUGENE W. TOTH, AND MARIE TOTH

MICHAEL D. TOTH AND LINAWATI TOTH v. BRYAN E. TOTH, EUGENE W. TOTH, MARIE TOTH, AND LEARNING SCIENCES INTERNATIONAL, LLC

APPEAL OF: BRYAN E. TOTH, EUGENE W. TOTH, AND MARIE TOTH

MICHAEL D. TOTH AND LINAWATI TOTH v. BRYAN E. TOTH, EUGENE W. TOTH MARIE TOTH, AND LEARNING SCIENCES INTERNATIONAL, LLC

APPEAL OF: BRYN E. TOTH, EUGENE W. TOTH, AND MARIE TOTH

Nos. 266 WDA 2022, 267 WDA 2022, 403 WDA 2022, 846 WDA 2022

Nos. J-A06019-23 J-A06020-23

Superior Court of Pennsylvania

August 1, 2023

Appeal from the Order Entered February 15, 2022 In the Court of Common Pleas of Allegheny County Civil Division at No(s) GD-21-000372

BEFORE: OLSON, J., NICHOLS, J., and PELLEGRINI, J. ^[*]

OPINION

NICHOLS, J.

Appellants Bryan E. Toth, Eugene W. Toth, and Marie Toth appeal from four separate orders: the February 15, 2022 order granting partial summary judgment in favor of Appellees Michael D Toth and Linawati Toth (266 WDA 2022); the February 15, 2022 order denying Appellants' motion for summary judgment against Appellees (267 WDA 2022); the April 5, 2022 order granting Appellees' petition to dissolve Learning Sciences International, LLC, (LSI) (403 WDA 2022); and the July 21, 2022 order appointing a custodian for LSI (846 WDA 2022).^[1] Appellants contend that the trial court erred in granting summary judgment in favor of Appellees, ordering the dissolution of LSI, and in appointing a custodian. After review, we affirm the order on appeal at 266 WDA 2022, affirm the order on appeal at 267 WDA 2022, vacate the order on appeal at 403 WDA 2022 and remand for further proceedings consistent with this opinion, and vacate the order on appeal at 846 WDA 2022.

The trial court summarized the relevant facts and procedural history of this matter as follows:

I. THE PARTIES & BACKGROUND.

Plaintiff Michael Toth ("Michael") is the founder, President, Chief Executive Officer, and owner of 50% voting interest and 25% equity interest of [LSI,] a Pennsylvania educational training LLC operating in and servicing multiple states. Linawati Toth ("Lina"), Michael's wife, is an LSI manager and employee. Bryan Toth ("Bryan"), Michael's brother, owns 50% voting interest and 25% equity interest of LSI. Eugene Toth ("Eugene"), Michael's father, and Marie Toth ("Marie"), Michael's mother, are each 25% owners in equity interest of LSI.

After founding LSI in 2002, Michael gifted Marie, Eugene, and Bryan their respective interests. Around the Thanksgiving holiday in 2020, relations between the parties began to deteriorate. On January 8, 2021, Bryan, Eugene, and Marie met with Florida legal counsel and executed three legal agreements: a "Written Consent to Actions Taken Without a Meeting by the Members of Learning Sciences International, LLC" ("First Written Consent") an "Amended and Restated Operating Agreement of Learning Sciences International, LLC" ("2021 [Operating] Agreement"), and an additional "Written Consent to Actions Taken Without a Meeting by the Members of Learning Sciences, International, LLC" ("Second Written Consent").

The First Written Consent, signed only by [Appellants], acknowledged that LSI was a Pennsylvania LLC governed by a 2012 Operating Agreement ("2012 [Operating] Agreement") and allegedly allowed [Appellants] "ratify, approve, and adopt" the 2021 [Operating] Agreement in Michael's absence pursuant to Section 13.5 of the 2012 [Operating] Agreement, which provides that the 2012 [Operating] Agreement "may not be amended except by the written agreement of Members holding Two-Thirds Interest of the Company." By "adopting" the 2021 [Operating] Agreement in light of the First Written Consent, [Appellants] aimed to "approve LSI's change of its headquarters and subject laws to Florida."

The Second Written Consent, signed only by [Appellants], acknowledged Michael and Lina's then-current status as LSI "officers and/or management personnel," yet allegedly allowed [Appellants] to terminate Michael and Lina, having determined that "it was in the best interests of LSI to change some of its current officers and management personnel."

Despite executing the First Written Consent, the 2021 [Operating] Agreement, and the Second Written Consent under the guise of having met the Two-Thirds Interest requirement of Section 13.5 of the 2012 [Operating] Agreement, [Appellants] overlook Section 1.37 of the 2012 [Operating] Agreement which states "Two-thirds Interest shall mean one or more Voting Interests of Members which taken together exceed 66.67% of the aggregate of all Voting Interests." Section 1.39 of the 2012 [Operating] Agreement further provides that Bryan and Michael each have 50% Voting Interest.

II. PROCEDURAL HISTORY

On December 12, 2021, [Appellees] filed a Complaint seeking injunctive relief and damages against Marie, Eugene, Bryan, and LSI (collectively referred to herein as" Defendants") including the following counts: Temporary Restraining Order, Preliminary Injunction, and Permanent Injunction (Count I), Breach of Contract (2012 Operating Agreement) (Count II), Breach of Fiduciary Duty and Common Law Duty of Loyalty (Count III), Conversion, fraud and Defamation (Count IV, V, & VI), Declaratory Judgment (Count VII), and Constructive Trust and Accounting (Count VIII).

With respect to Count VII, [Appellees] sought judgment declaring that:

(a)The 2012 . . . Operating Agreement remains in full force and Effect, and that the purported Written Consents and 2021 Operating Agreement are null and void and therefore without lawful import, authority or legitimacy;

(b) Mr. Michael Toth remains the President, Chief Executive Officer and employee of LSI, with all of the right, title and privileges of those positions;

(c) Ms. Linawati Toth remains a manager and employee of LSI, with all of the right, title and privileges of these positions;

(d) Defendant LSI is Pennsylvania corporation and must remain so, and any action taken to changes that must be undone as without authorization or legal justification.

In response to [Appellees'] request for injunctive relief, on January 19, 2021, [the trial c]ourt granted [Appellees'] Emergency Motion for Temporary Restraining Order pending resolution of the preliminary injunction, which was scheduled for argument on February 5, 2021. On February 2, 2021, [the trial c]ourt entered an order staying all case activity pending the parties' engagement in alternative dispute resolution [(ADR)] -later deemed to be unsuccessful. While the case was stayed in [the trial c]ourt, [Appellants] brought an additional lawsuit against [Appellees] in Florida state court.

On May 3, 2021, [Appellants'] Preliminary Objections were overruled and [the trial c]ourt ultimately appointed Mr. John McGinley, Jr. as the Interim Custodian Pendente Lite ("[Interim] Custodian") on August 4, 2021.^[2] More specifically, [the trial c]ourt tasked the [Interim] Custodian with the purpose of providing interim findings of fact and conclusions of law as to whether the Members were deadlocked in the management of LSI's affairs and whether it would be reasonably practicable for LSI's Members to carry on the business . . ., as well as other recommendations regarding LSI's management, direction, and ownership. In accordance with the [c]ourt's August 4th order, the [Interim] Custodian filed Interim Finding of Fact and Conclusions of Law ("[Interim] Custodian's Report") on October 22, 2021. Amongst other things, the [Interim] Custodian found that, in light of [Appellants'] failed attempt to adopt the 2021 [Operating] Agreement without Michael's consent, the 2012 Operating Agreement continues to govern LSI and the rights of its Members.

After determining that the dispute as to LSI's governing document was a legal issue capable of resolution via summary judgment, [the trial c]ourt ordered the parties to file cross-motions for summary judgment. On January 12, 2022, [Appellees] filed a Motion for Partial Summary Judgment and [Appellants] filed a Cross-Motion for Summary Judgment, both which are the focus of this appeal. Following argument on the motions, [the trial c]ourt entered two orders - one denying [Appellants'] Cross-Motion for Summary Judgment [(the order at 267 WDA 2022)] and another granting [Appellees'] Motion for Partial Summary Judgment [(the order at 266 WDA 2022)].

Trial Ct. Op., 6/24/22, at 1-5 (some formatting altered and footnotes omitted).

Appellants filed timely and separate notices of appeal from the February 15, 2022 orders. See Docket No. 266 WDA 2022 (appeal from the order granting partial summary judgment relief in the form of declaratory judgment in favor of Appellees that the 2012 Operating Agreement controls); Docket No. 267 WDA 2022 (appeal from the order denying Appellants' motion for summary judgment). Both the trial court and Appellants complied with Pa.R.A.P. 1925.

On March 11, 2022 and March 16, 2022, the trial court held hearings on Appellees' motion to dissolve and wind-up LSI. The trial court subsequently entered an order stating:

AND NOW, this 5th day of April, 2022, having considered [Appellees'] Amended Petition to Dissolve and Wind-Up Learning Sciences International, LLC, [Appellants'] response thereto, and following a hearing thereupon, the court makes the following factual findings and legal conclusions:

A. Michael D. Toth ("Michael"), Bryan E. Toth ("Bryan"), Eugene W. Toth ("Eugene") and Marie Toth ("Marie") are each owners of 25% of the issued and

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