Hess v. M. Aaron Co.

4 Pa. D. & C.3d 153, 1977 Pa. Dist. & Cnty. Dec. LEXIS 199
CourtPennsylvania Court of Common Pleas, Fayette County
DecidedNovember 7, 1977
Docketno. 2813
StatusPublished

This text of 4 Pa. D. & C.3d 153 (Hess v. M. Aaron Co.) is published on Counsel Stack Legal Research, covering Pennsylvania Court of Common Pleas, Fayette County primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Hess v. M. Aaron Co., 4 Pa. D. & C.3d 153, 1977 Pa. Dist. & Cnty. Dec. LEXIS 199 (Pa. Super. Ct. 1977).

Opinion

CICCHETTI, J.,

Before the court en banc are numerous preliminary objections on behalf of the three defendants, M. Aaron Co., Jane S. Aaron and Jack A. Sheetz, III. (M. Aaron Co. is a Pennsylvania corporation, with its principal place of business located in Con-nellsville, Fayette County, Pennsylvania.) The preliminary objections are in response to a complaint filed by Millard D. Hess, alleging three causes of action. The first names only defendant Jane S. Aaron (Mrs. Aaron), and alleges that plaintiff was damaged because of a purported scheme by which this defendant would acquire a controlling interest in M. Aaron Co., to the detriment of plaintiff, and that this action constitutes a breach of the duty owed by a majority stockholder to the minority. The activity involved in the alleged scheme was the purchase of 75 percent of the stock of the corporate defendant from a trust held and administered by a Michigan trustee.

[156]*156The second cause of action in which all three defendants are named, is in the nature of a derivative shareholder’s action, and includes an allegation that plaintiff has been wrongfully refused admittance to the place of business and access to corporate records to which he, as a stockholder and director, is entitled. The third cause of action is against only the corporate defendant, and sounds in assumpsit. It is alleged that plaintiff’s employment as general manager was wrongfully terminated by M. Aaron Co., and that he was not fully compensated according to the terms of his employment contract partly as a result of a failure to pay bonuses based on corporate profits.

Because many of the objections are advanced by all defendants, and in order to better organize our consideration of the parties’ contentions, the preliminary objections have been considered in four groups.

I. Jurisdiction over Jane S. Aaron.

Defendant Jane S. Aaron challenges the jurisdiction of this court to render against her any in personam judgment on either the first or second action in the complaint. Plaintiff argues that service may be accomplished by registered mail, pursuant to Pa. R.C.P. 2079, applicable in equity by Rule 1501. Rule 2079 authorizes such service only if a cause of action is within those enumerated in Rule 2077, which requires statutory authorization for service upon a nonresident or a resident who becomes a nonresident or who conceals his whereabouts, or a nonresident individual engaged in business within the Commonwealth. Plaintiff relies on Pennsylvania’s Long Arm Statute of November 15, 1972, P.L. 1063, sec. 8301 et seq., [157]*15742 Pa. C.S.A. §8301 et seq., for his statutory authorization.

There is no dispute that Mrs. Aaron is a nonresident, her address being Bloomfield Hills, Michigan. She argues, however, that she is not within the provisions of the statute authorizing service. Plaintiff contends she comes within either sections 8304 or 8305.

Section 8304 allows substituted service on the Department of State followed by service by registered mail on defendant when that defendant is, individually or through an agent or fictitious business name, “doing business” in Pennsylvania. Section 8309 (a) defines the term “doing business” for purposes of this statute, and requires in general, the doing of an act or a series of acts in or involving Pennsylvania, the purpose of which is the realization of pecuniary benefit. The issue in the present case is whether a nonresident director-officer of a Pennsylvania corporation is within this provision. The court is of the belief that the statute does not apply and that service under Rule 2079 is ineffective to establish jurisdiction over Mrs. Aaron.

The statutory definition of doing business requires some act, by him over whom jurisdiction is sought, within the Commonwealth. It has been held that, before the Long Arm Statute applies to corporate officers and/or directors, the activities which predicate jurisdiction must have been done in the capacity of individuals, and not that of corporate officials. Activities as directors or officers are irrelevant to the exercise of in personam jurisdiction over them as individuals: Miller v. American Telephone & Telegraph Co., 394 F. Supp. 58 (E. D. Pa. 1975). The allegations of the case at bar [158]*158do not demonstrate activities within Pennsylvania of the requisite character to invoke jurisdiction under section 8304. Mrs. Aaron, as an individual, has not been shown to be doing business within the Commonwealth. Her connection with a Pennsylvania corporation, alone, is not “doing business” within the statutory definition.

Plaintiff also relies upon section 8305, which permits substituted service whenever a nonresident acts outside the Commonwealth, the result of which act is harm within the state. It is argued that acts of Mrs. Aaron have caused economic harm to both plaintiff, a Pennsylvania resident, and a Pennsylvania corporation. The first cause of action alleges that acts of Mrs. Aaron, caused a decrease in the value of plaintiff’s share of the corporation; the second alleges that these actions resulted in financial loss to the corporation. Section 8305 has been read to require that the cause of the harm, not merely its effect, occur in Pennsylvania: Stifel v. Lindhorst, 393 F. Supp. 1085 (M. D. Pa. 1975), aff’d without opinion, 529 F. 2d 512, cert. den. 425 U. S. 962, 48 L. Ed. 2d 207 (1976). Also, the in-state injury must be direct, and not merely the residual effect of an out-of-state injury: Shong Ching Lau v. Change, 415 F. Supp. 627 (E. D. Pa. 1976). However, the harm experienced may be economic in nature.

Miller v. A. T. & T., supra, states that, even if harm is caused in Pennsylvania, it is not enough that it amount to simply indirect harm to stockholders because of the act of corporate directors. This, said the District Court, violated due process unless the individual directors had sufficient contact with the forum state to permit jurisdiction to attach to them personally. Again, the contact must [159]*159have been while acting in an individual capacity; those solely as officers and directors are insufficient. The contracts of Mrs. Aaron, alleged to provide the underpinnings of jurisdiction, were all as a director of M. Aaron Co., so that this court may not exercise jurisdiction under section 8305.

Since the court is without personal jurisdiction over Jane Aaron, plaintiff’s first cause of action must be dismissed in its entirety, and his second cause of action must be dismissed as it relates to her. Further objections filed by Mrs. Aaron need not be decided.

II. Propriety of Second Cause of Action

Plaintiff’s second cause of action, now with Jack A. Sheetz, III and M. Aaron Co. properly before the court as party defendants, seeks to enforce a right of the corporation. This, then, is in the nature of a derivative shareholder’s action brought on behalf of the corporation. Such an action is authorized by section 516 of the Business Corporation Law of May 5, 1933, P.L. 364, as amended, 15 P.S. §1516, and the provisions of that statute must be met before it may be maintained. Both party defendants challenge this action as improper and, alternatively, have filed objections in the nature of a demurrer.

It is argued that plaintiff has failed to allege, as required by Pa. R. C. P. 1506(2), that he has made a demand on the corporation to seek to enforce its own right.

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Related

Miller v. American Telephone & Telegraph Company
394 F. Supp. 58 (E.D. Pennsylvania, 1975)
Stifel v. Lindhorst
393 F. Supp. 1085 (M.D. Pennsylvania, 1975)
Wortex Mills, Inc. v. Textile Workers Union of America
109 A.2d 815 (Supreme Court of Pennsylvania, 1954)
Shong Ching Lau v. Change
415 F. Supp. 627 (E.D. Pennsylvania, 1976)
DeLuca v. Buckeye Coal Company
345 A.2d 637 (Supreme Court of Pennsylvania, 1975)
Hagy v. Premier Manufacturing Corp.
172 A.2d 283 (Supreme Court of Pennsylvania, 1961)
Evans v. Diamond Alkali Co.
172 A. 678 (Supreme Court of Pennsylvania, 1934)

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Bluebook (online)
4 Pa. D. & C.3d 153, 1977 Pa. Dist. & Cnty. Dec. LEXIS 199, Counsel Stack Legal Research, https://law.counselstack.com/opinion/hess-v-m-aaron-co-pactcomplfayett-1977.