author: BERNSTEIN, J.,

text:
    Panea v. Isdaner

      Slade H. McLaughin, for plaintiffs.

      George L. Young Jr., for defendant Isdaner.

      Kenwyn M. Dougherty, for defendant Jeans Hospital.
    January 6, 1999
   BERNSTEIN, J.,

Plaintiffs Doina and John Panea filed this medical malpractice action against defendants Neil Isdaner M.D. and Neil Isdaner M.D. PC. in November 1995. On December 11, 1997, the parties agreed to settle this case for $75,000. Plaintiffs’ counsel sent an executed release and an order to settle, discontinue and end, to defense counsel on December 31, 1997. At the time of settlement, both defendants were insured by Physicians Insurance Company (PIC). On January 21, 1998, the Commonwealth Court ordered PIC into liquidation.

Plaintiffs’ counsel sent a letter to the Pennsylvania Insurance Guaranty Association (PIGA) requesting payment of $75,000. PIGA tendered the sum of $50,000 to plaintiffs, claiming that it is entitled to a $25,000 credit pursuant to the Pennsylvania Property and Casualty Insurance Act. Plaintiffs assert that they are entitled to recover an additional $25,000 from either PIGA or defendants personally. Defendants assert that neither PIGA nor the named defendants are liable for the full $75,000.

On September 24, 1998, plaintiffs filed a petition to enforce settlement against defendants, seeking an order of judgment against defendants in the amount of $25,000 plus accrued interest. This court denied plaintiffs’ petition on November 3, 1998. From this order, plaintiffs timely appealed.

The sole issue on appeal is whether plaintiffs’ health insurance payment of $25,000 bars them from further recovery against either PIGA or defendants personally. For the following reasons, this court’s denial of plaintiffs’ petition was proper and should be affirmed.

PIGA exists under the Pennsylvania Property and Casualty Insurance Guaranty Act (the PIGA statute). The legislature’s enactment of the PIGA statute on December 12, 1994 repealed former 40 P.S. §1701.101 et seq. The purpose of the PIGA statute is “[t]o provide a means for the payment of covered claims under certain ... casualty insurance policies ... and to avoid financial loss to claimants or policyholders as a result of the insolvency of an insurer.” The legislature created PIGA to protect the claimants of insolvent insurers who have no other source of insurance from which to recover their losses.

When it enacted the new PIGA statute, the legislature made significant changes in the former statute’s non-duplication of recovery provision. Both statutes require a claimant to first exhaust his rights under any other insurance policy before requesting payment from PIGA. Under both statutes, PIGA is entitled to a credit equal to the amount that the claimant recovers under any other insurance. The specific change in the PIGA statute which is at issue in this case is the type of other recovery that entitles PIGA to an offset. The former statute provided:

“Any person having a claim against an insurer under any provision in an insurance policy other than a policy of an insolvent insurer which is also a covered claim, shall first be required to exhaust his right under such a policy. Any amount payable on a covered claim under this Act shall be reduced by the amount of any recovery under such insurance policy.”

The Superior Court limited the application of this provision to the recovery of insurance benefits from a “covered claim.” In Sands v. Pennsylvania Insurance Guaranty Association, the Superior Court held that payments by an insurance carrier which did not result from the insolvency of an insurer were not subject to an offset. The Superior Court stated:

“A ‘claim against an insurer’ would ‘also be a covered claim’ only if that claim was for an ‘unpaid claim’ arising under an insurance policy of an ‘insolvent insurer.’ Any claim Sands might have had against Hawk-eye under a liability policy could not have also been a covered claim because it would not be a claim for an unpaid claim resulting from the insolvency of an insurer but from the negligence of Davis.”

In 1983, the Superior Court in. Bullock v Pariser explained its prior interpretation of section 1701.503(a) by stating that “the second sentence of section 503(a) . . . refers back to any recovery on a claim of the sort referred to in the first sentence of section 503(a), i.e., any ‘covered claim.’ ” In both Sands and Bullock, PIGA was not entitled to an offset because the claimant’s other insurance recovery was not a “covered claim.”

In response, the legislature abandoned this interpretation of the PIGA statute by repealing 40 P.S. §1701.-503(a) and replacing it with 40 P.S. §991.1817(a). The legislature remedied the ambiguity in the former statute by clearly defining the types of other insurance that would entitle PIGA to a credit. The new PIGA statute provides:

“Any person having a claim under an insurance policy shall be required to exhaust first his right under such policy. For purposes of this section, a claim under an insurance policy shall include a claim under any kind of insurance, whether it is a first-party or third-party claim, and shall include, without limitation, accident and health insurance, workers’ compensation, Blue Cross and Blue Shield and all other coverages except for policies of an insolvent insurer. Any amount payable on a covered claim under this Act shall be reduced by the amount of any recovery under other insurance.”

The new PIGA statute specifically includes health insurance in its definition of “a claim under an insurance policy.” Thus, the unambiguous language of the new PIGA statute precludes plaintiffs from recovering against PIGA the sum paid by their health insurance.

Plaintiffs argue, however, that the new PIGA statute cannot be applied to a cause of action that accrued prior to its effective date because the statute relates to substantive rights. The new PIGA statute clearly applies to an unpaid claim against an insurer that is declared insolvent “after the effective date of this article by a court of competent jurisdiction.” PIC was declared insolvent by the Commonwealth Court on January 21,1998, nearly three years after the new PIGA statute’s effective date of February 10, 1995. Since defendants’ insurance carrier was declared insolvent after that effective date, the new PIGA statute is applicable.

In Blackwell v. Pennsylvania Insurance Guaranty Association, a remarkably similar case, the Superior Court held that all sums paid to the claimant by her own underinsured motorist carrier must be deducted from any sums paid by PIGA. Interpreting the nonduplication of recovery provision in light of the policies and intent of the statute, the court stated:

“[T]he legislature did not intend, in enacting the Insurance Guaranty Act, that in all cases a claimant would be placed in the same position he would have been in had the insurance company remained solvent. Even with the existence of PIGA, it was anticipated by the legislature that some claimants would suffer some amount of financial loss due to the insolvency of an insurer . . .

As the Superior Court recognized in Blackwell, the PIGA statute does not guarantee that plaintiffs in this case will be placed in the same position they would have been in had PIC remained solvent Since the new PIGA statute applies and plaintiffs have received the sum of $25,000 from their health insurance carrier, they may not also recover that sum from PIGA.

Alternatively, plaintiffs claim that if PIGA is not liable for the full amount of the settlement, then defendants are personally liable in the amount of $25,000. In Burke v. Valley Lines Inc., the Superior Court recognized that to impose such financial loss directly on the insured tort-feasor “would violate the very purpose of PIGA ....” In Burke, the plaintiff brought a personal injury action against the tort-feasor and his employer after he had settled his uninsured motorist claim for less than the policy limits. Following trial, the plaintiff sought to recover the difference between the jury award and the payment from his uninsured motorist carrier from the defendants personally. In holding that the plaintiff was barred from recovering against either PIGA or the defendants, the Superior Court stated:

“Given PIGA’s release from all financial responsibility as a direct result of appellant’s failure to exhaust his uninsured policy rights, we hold that appellant is likewise barred from recovering from appellees. Any other holding would render the ‘exhaustion’ provision of the Insurance Guaranty Act meaningless. . . .
“If appellees were now personally responsible for appellant’s damages award they would be without any source of insurance protection to bridge the gap between appellant’s uninsured motorist settlement of $85,000 and the $200,000 award.”

Therefore, since plaintiffs herein are barred from recovering against PIGA, they are likewise barred from recovering against the insured tort-feasors.

Accordingly, based on the PIGA statute’s unambiguous language and controlling precedent, neither PIGA nor the named defendants are liable to plaintiffs for the sum paid by plaintiffs’ heath insurance. For the foregoing reasons, this court properly denied plaintiffs’ petition to enforce settlement against defendants, and its ruling should be affirmed.

      . 40 P.S. §991.1801 et seq.

      . 40 P.S. §991.1803.

      . The new PIGA statute became effective on February 10, 1995, 60 days after its enactment. See 40 P.S. §991.1801(1).

      . 40 P.S. §991.1801(1).

      . Burke v. Valley Lines Inc., 421 Pa. Super. 362, 368, 617 A.2d 1335, 1338 (1992).

      . 40 P.S. §1701.503(a) (repealed December 12, 1994).

      . In the former statute, a “covered claim” was defined as “an unpaid claim, including a claim for unearned premiums, which arises under a property and casualty insurance policy of an insolvent insurer . . . .” 40 P.S. §1701.103(5)(a) (repealed December 12, 1994).

      . 283 Pa. Super. 217, 224, 423 A.2d 1224, 1227 (1980).

      . Id.

      . 311 Pa. Super. 487, 494, 457 A.2d 1287, 1290 (1983).

      . 40 P.S. §991.1817(a). (emphasis added)

      . Plaintiffs admit that “[t]he present version of the statute clearly applies to health insurance benefits received by the plaintiff even if the receipt of such benefits did not result from the insolvency of any insurer.” Memorandum of law in support of plaintiffs’ petition to enforce settlement against defendants Neil Isdaner M.D. and Neil Isdaner P.C., p. 6.

      . Memorandum of law in support of plaintiffs’ petition to enforce settlement against defendants Neil Isdaner M.D. and Neil Isdaner P.C., pp. 6-7.

      . 40 P.S. §991.1802.

      . 390 Pa. Super. 31, 38, 567 A.2d 1103, 1107 (1989).

      . Id. at 37, 567 A.2d at 1106. (emphasis in original) Although Blackwell was decided when the former statute was in effect, its holding still applies in this case. Despite the substantive differences between the two PIGA statutes, the stated purpose of each statute is the same — “to avoid financial loss to claimants or policyholders as a result of the insolvency of an insurer.” See 40 P.S. §991.1801(1); 40 P.S. §1701.102(1) (repealed December 12, 1994).

      . 421 Pa. Super. 362, 370, 617 A.2d 1335, 1339 (1992) (citing 40 P.S. §1701.102(1)).

      . Id. at 369, 617 A.2d at 1338-39. See also, White v. Accardo, 15 D.&C.3d 609, 617 (C.P. Phila. County 1980) (holding plaintiff barred from recovering against named defendants where PIGA was released from all financial responsibility due to plaintiff’s failure to exhaust policy rights).

      . Clearly, the understanding of the parties in reaching the settlement agreed upon before PIC’s insolvency no longer exists. At that time, the parties contemplated payment in the amount of $75,000 without reduction for collateral source benefits. Defendants agreed to this settlement with the understanding that all sums would be paid by their insurance carrier. These understandings have been obliterated by the insolvency. Obviously, the settlement can be ruled null and void and the underlying matter restored to the trial list. No such request is before the court. In ruling on the instant petition, the court notes that plaintiffs have not requested any declaration that the settlement is null and void nor that the case be ordered for trial.


source: Caselaw Access Project

author: SMITH, P.J.,

license: Public Domain

text:
    Wein v. Williamsport Hospital

      C.P. of Lycoming County,
    no. 96-01,744.

      Clifford A. Reiders, for plaintiffs.

      David R. Bahl, for Williamsport Hospital and Medical Center.
    C. Edward S. Mitchell, for Michael J. Dixon M.D.

      Robert A. Seiferth, for Charles M. Burzynski D.D.S.
    BEFORE: SMITH, RJ., BROWN AND KIESER, JJ.

    November 18, 1998
   SMITH, P.J.,

This case involves the relationship between the Peer Review Protection Act and the newly promulgated Pa.R.C.P. 4009.12(b)(2). Defendant Williamsport Hospital contends that there is a conflict between the Act, which shields peer review materials from the discovery process, and the rule, which requires a discovery objection to identify with reasonable particularity any documents being withheld. The hospital has urged this court to resolve this alleged conflict by ignoring the rule.

Because of the importance of this issue to the civil litigation system, this court agreed to hear the case en banc. After argument and careful consideration of the issues, the court finds that there is no conflict between the rule and the Act. On the contrary, we believe that the rule promotes the purposes of the Act and is a valuable addition to Pennsylvania’s discovery procedure. Far from clashing with the Act, the rule helps identify materials that fall within the privilege and thus protects their confidentiality. We also find that the question is not worthy of interlocutory review under 42 Pa.C.S. §702(b).

PROCEDURAL HISTORY

On November 5, 1997, the plaintiffs served a request for production of documents on defendant Williamsport Hospital and Medical Center. The request stated:

“Please provide you [sic] entire [personnel] file on Dr. Michael J. Dixon to include but not limited to, all records relating to his employment with the hospital, work history records and job performance and evaluation records.”

The hospital responded to this request on October 22, 1997 with the following statement:

“Objection. This material is protected under the privileges contained in the Peer Review Protection Act, Act of 1994, July 20, P.L. 564, no. 193, §1, 63 PS. §425 et seq. Also, the request asks for information which is both irrelevant and unlikely to lead to the discovery of relevant evidence.”

Upon receiving this response the plaintiffs filed a motion to compel, which was granted in part by the Honorable William S. Kieser on June 30, 1998. Judge Kieser held that Rule 4009.12(b)(2) applies to this request for production. He therefore ordered the hospital to file a response stating with reasonable particularity the items that were not being produced because of a peer review objection, and added that this response “may include an appropriate objection to the request for production.” The hospital filed a motion for reconsideration and a request for stay of proceedings with respect to that order. The motion also requested that Judge Kieser certify the issue for interlocutory appeal. Judge Kieser denied the motion on July 27, 1998. The hospital then filed a second motion for reconsideration, which included a request for an en banc hearing. This request was granted and an en banc hearing was held on November, 2 1998.

DISCUSSION

The hospital contends that Rule 4009.12(b)(2) violates the language and the spirit of the Peer Review Act because it requires disclosure of information expressly protected by the Act. The hospital suggests that the correct resolution to this supposed conflict is to ignore the rule and deny the plaintiffs’ motion to compel.

If there is a conflict between the Act and the rule, the Act would surely prevail because it bestows substantive rights that the judicial branch cannot destroy. The Pennsylvania Constitution gives the Supreme Court power to prescribe rules governing court practice and procedure. Such rules, however, may not abridge, enlarge, or modify substantive rights. Pennsylvania Constitution Article Y, Section 10(c); Commonwealth v. Moore, 526 Pa. 152, 584 A.2d 936 (1991). Fortunately, this court need not choose between the Act and the rule because we see no conflict between them.

I. The Alleged Conflict

A. Language of the Act

The hospital contends that the rule directly contradicts the express language of the Act. This court, however, finds that they are perfectly compatible. The Peer Review Act, 63 PS. §425.4, states in pertinent part:

“The proceedings and records of a review committee shall be held in confidence and shall not be subject to discovery or introduction into evidence in any civil action against the professional health care provider arising out of the matters which are the subject of evaluation and review by such committee . . .

Pa.R.C.P. 4009.12(b)(2) states that an answer to a request for the production of documents must “identify all documents or things not produced or made available because of the objection that they are not within the scope of permissible discovery .... Documents or things not produced shall be identified with reasonable particularity together with the basis for non-production.”

The hospital asserts that requiring it to even identify peer review material with reasonable particularity runs contrary to the privilege created by the Act. It argues: “Section 425.4 specifically prohibits any such disclosures when it states that peer review material ‘shall not be subject to discovery.’ It is simply not consistent to require material that is not subject to discovery to be numbered and identified with reasonable particularity.” Hospital’s brief in support of its request for reconsideration, p. 6.

A plain reading of the Act, however, belies this assertion. The Act does not, as the hospital suggests, specifically prohibit any disclosures pertaining to the peer review process. The Act merely prohibits the disclosure of the procedures and records of a review committee. The rule does not require those procedures and records to be disclosed. It merely requires a party withholding documents to identify them with reasonable particularity and to explain why they are not discoverable.

Therefore, there is no clash between the text of the Act and the rule. The rule does not require a litigant to disclose peer review materials. On the contrary, it sets forth a method for invoking the protections of the Peer Review Act.

B. Spirit of the Act

Similarly, Rule 4009.12(b)(2) does not violate the spirit of the Peer Review Act. The purpose of the Act is to protect patients and the general public by maintaining high professional standards in the practice of medicine. McClellan v. Health Maintenance Organization, 442 Pa. Super. 504, 510, 660 A.2d 97, 100 (1995). Because many doctors are not employees of the hospitals where they practice, the medical profession largely regulates itself, through peer review evaluation. In order to guarantee the effectiveness of the peer review system it is necessary to ensure the confidentiality of the proceedings and the anonymity of the participants. This encourages free and frank discussion and candid evaluation of the performance of physicians by their peers. Because the peer review system identifies physicians who are providing less than competent care, it is ultimately the patients and the general public who benefit from the Peer Review Act.

Far from conflicting with the purpose of the Act, Rule 4009.12(b)(2) has precisely the same goal: protection of the patients and the general public. The rule protects patients by providing the unfortunate victims of malpractice with a means of ensuring that they receive all the discoverable information they are entitled to so that they may recover against physicians who have not met the standards of performance demanded by their profession. This in turn protects the general public by deterring malpractice and motivating physicians to live up to the professional standards, thus increasing the quality of health care for everyone.

The hospital nonetheless contends that Rule 4009.12(b)(2) essentially destroys the peer review privilege that the legislature created. Surely our Supreme Court did not intend to diminish this privilege. On the contrary, the Supreme Court has repeatedly recognized and protected this privilege. In Cooper v. Delaware Valley Medical Center, 539 Pa. 620, 628, 654 A.2d 547, 551 (1995), the court stated that “it is beyond question that peer review committees play a critical role in the effort to maintain high professional standards in the medical practice.” See also, Sanderson v. Frank S. Bryan M.D. Ltd., 361 Pa. Super. 491, 522 A.2d 1138 (1987).

In short, we fail to understand how requiring the hospital to follow the rule will violate the laudable purpose of the Peer Review Act. The rule does not mandate the disclosure of privileged information. It merely requires the hospital to identify with reasonable particularity the documents it is withholding, and to state why they are not discoverable.

II. Rule 4009: A Solution — Not a Problem

We do not view the new rule as a problem. Instead, we welcome it as a wise solution to a dilemma that many trial court judges have struggled with all too often: how to determine whether a document falls within a privilege when a party makes a blanket objection asserting that a privilege applies. The new rule puts an end to these vague, general objections by requiring the withholding party to produce a meaningful response that will allow the discovering party and the court to evaluate whether or not the documents are discoverable.

In many cases, a party’s Rule 4009.12(b)(2) response will immediately resolve the question. For instance, if a party lists documents that clearly fall under the protection of the Act, no court should order such disclosure and no party should request a court to do so. The rule thus streamlines the discovery process and promotes efficiency by eliminating debates over documents that clearly are or are not discoverable. This procedure also is in keeping with the general principle that discovery should be conducted by the parties, with as little judicial involvement as possible.

However, there will undoubtedly be instances where a Rule 4009.12(b)(2) response will not resolve the issue. That is because many of the statutory privileges are, by their own terms, limited. The attorney-client privilege, for instance, does not protect all communications between a lawyer and a client. Yi v. PennDOT, 166 Pa. Commw. 214, 646 A.2d 603 (1994). Nor does the physician-patient privilege shield all statements made to a physician. 42 Pa.C.S. §5929. But although a Rule 4009.12(b)(2) response may not always resolve the question of whether a privilege applies, it will at least identify legitimate disputes.

The case currently before the court is a perfect illustration of the application of the new rule. The hospital has refused to provide any information contained in Dr. Dixon’s personnel file, claiming that the entire file is protected by the Act. While there may be some documents in the file that are clearly peer review materials, the file might also contain documents that are not. Moreover, the peer review privilege does not even apply to all documents relating to peer review committees. The Act states that “the proceedings and records of a review committee” shall not be subject to discovery. 63 PS. §424.4. (emphasis added) It also provides that “information, documents or records otherwise available from original sources are not to be construed as immune from discovery or use in any such civil action merely because they were presented during proceedings of such committee . . . 63 P.S. §424.4. In Atkins v. Pottstown Memorial Medical Center, 430 Pa. Super. 279, 634 A.2d 258 (1993), the Superior Court recognized that information, documents, and records available from other sources are not immune from discovery merely because they were presented to a peer review committee. See also, Sanderson, supra. In short, there is no way to ascertain from the hospital’s blanket objection whether that personnel file contains protected material or not.

By prohibiting blanket objections to discovery requests, Rule 4009.12(b)(2) properly places the responsibility of resolving those disputes with the court. No longer may a withholding party play the role of judge by determining — on its own — that certain documents are not discoverable and issuing a bald assertion that a privilege applies. This is tantamount to placing the fox in charge of guarding the hen house. While many medical malpractice defendants would no doubt fulfill this role with honor, a few may be tempted to steal a chicken now and then. The Pennsylvania Supreme Court, in promulgating the new rule, has decided not to place the fate of injured plaintiffs in the hands of the doctors they are suing. We think this is a wise decision.

III. Resolving Legitimate Disputes:

In Camera Review

Once a legitimate dispute over a discovery objection has been identified, it will then be up to the court to determine whether or not discovery should be compelled. This may necessitate in camera review. Such a review is entirely proper when there is a valid question as to whether a privilege applies. Our Supreme Court sanctioned this procedure in Commonwealth v. Stewart, 547 Pa. 277, 690 A.2d 195 (1997). In that case, the defendant served a subpoena duces tecum upon a Roman Catholic diocese, which claimed that it need not produce the documents because of the clergy-communicant privilege. The Supreme Court, however, pointed out that the privilege is limited to confidential communications, and does not apply to all documents the diocese held. The court therefore found that the trial court and the Superior Court had properly directed the diocese to produce these documents to the trial court for an in camera review to determine whether any of the documents were discoverable.

This court acknowledges, however, that in camera review is not permitted when the documents at issue are clearly protected by an absolute privilege. For instance, in Commonwealth v. Kennedy, 413 Pa. Super. 95, 604 A.2d 1036 (1992), the defendant sought the victim’s psychological records in order to defend himself against sexual abuse charges. The court held that in camera review was not proper because the legislature had specifically mandated that such records remain confidential. 42 Pa.C.S. §5944. The Superior Court issued a similar ruling in Commonwealth v. Kyle, 367 Pa. Super. 484, 533 A.2d 120 (1987).

Peer review materials, by contrast, enjoy no such clear-cut, absolute privilege. Documents contained in a peer review file are not absolutely protected by the Peer Review Act. The Act merely protects the proceedings and records of a peer review committee from discovery or introduction into evidence. It certainly does not shield all documents that might be found in a personnel file, or even all documents in a peer review file. Nor does the Act create a privilege that would be violated by allowing a court to review disputed peer review documents in camera. Whether an in camera review is proper or necessary in the case before this court will depend entirely upon the hospital’s Rule 4009.12(b)(2) response.

IV. The “Reasonable Particularity” Requirement: How Particular Must It Be?

The court acknowledges that the hospital has raised a legitimate concern over exactly what information it would be required to reveal in a Rule 4009.12(b)(2) response. Requiring the hospital to disclose the identity of the author of a letter to a peer review committee, for instance, would destroy the guarantee of anonymity that is so essential to the peer review system. Or requiring the hospital to summarize the contents of a peer review record would surely violate the privilege. The hospital fears that the rule would require it to disclose “the title of various documents, the name of the individual or individuals who prepared those documents, and a description of those documents.” Hospital’s brief in opposition to plaintiff’s motion to compel, p. 5. The hospital thus invites us to construe the term “reasonable particularity” extremely narrowly, which creates a conflict with the Act. Such an interpretation is counter to the standard rule of construction whereby courts must construe statutes in a manner so as to avoid conflict, if possible. Appeal of Yerger, 460 Pa. 537, 333 A.2d 902 (1975) (in the absence of a manifestly contrary intention on the part of the legislature, construction of two statutes which allows both to operate is mandatory). We think this mandate applies to court promulgated rules, as well.

Moreover, nothing in the rule requires the highly specific type of disclosure asserted by the hospital. Our Supreme Court apparently anticipated potential problems and adroitly avoided them by artfully drafting the rule. Instead of specifying exactly what a party must include in its answer, the rule requires only that a withholding party identify the documents with “reasonable particularity.” This makes the rule extremely flexible and allows a court to determine, on an individual basis, which disclosures are reasonable and which are not. That determination, of course, will depend upon what privilege is being asserted. Certainly in the instant case the hospital would not be required to disclose the identity of peer review participants or summarize the contents of peer review proceedings. The rule merely requires the hospital to identify the withheld material with sufficient particularity to enable a court to determine whether the hospital’s objection is warranted or not. This can surely be done in a manner that protects the anonymity of the peer review participants and the confidentiality of the proceedings.

In the vast majority of cases, Rule 4009.12(b)(2) will streamline the discovery process without infringing in the least upon any protected privileges. However, there may be times, as the hospital warns, where even identifying the existence of documents subject to a privilege would violate that privilege. In those cases, a party might be deemed to have identified the material with “reasonable particularity” simply by stating that it possesses documents and that disclosing their very existence would violate a privilege. Should the other side object to this response, an in camera review might then be appropriate.

V. Certification for Interlocutory Appeal

The hospital has requested this court to certify our order for immediate interlocutory appeal. We must decline to do so because the issue before us does not qualify for interlocutory appeal under section 702(b) of the Judicial Code, 42 Pa.C.S. The strict requirements imposed by this provision of the code demonstrate the legislature’s intent to severely limit the number of cases that are certified. Only in exceptional circumstances may a trial court justify disrupting a case as it makes its way through the judicial system and suspending it while awaiting an answer from the appellate courts. This is not one of those exceptional circumstances.

The provisions set forth in 42 Pa.C.S. §702(b) are clear and concise. There are essentially two requirements for a case to qualify for interlocutory appeal: (1) the issue must involve a controlling question of law as to which there is a substantial ground for difference of opinion, and (2) an immediate appeal from the order may materially advance the ultimate termination of the matter.

Although there may be substantial grounds for a difference of opinion on the issue before us, we cannot find that it is a controlling question of law in the case. Until the time that the hospital answers the request for production in accordance with the rule there is no way to determine what type of information the hospital is withholding, and thus we cannot determine whether these materials are controlling in this case. The hospital has presented no evidence whatsoever that an order compelling it to follow Rule 4009.12(b)(2) is at all controlling. It has merely balked at filing an answer in accordance with the rule.

For the same reasons, this court cannot find that an immediate appeal would materially advance the ultimate termination of the matter. On the contrary, we believe that suspending the case at this point for an interlocutory appeal would unnecessarily delay the termination of the matter and would be unfair to the plaintiffs. We also believe that the Superior Court would refuse to hear the appeal under Pa.R.A.R 311 and 1311, for the same reasons that we decline to certify it.

The cases the hospital cites do not convince us otherwise. In re June 1979 Allegheny County Investigating Grand Jury, 490 Pa. 143, 415 A.2d 73 (1980) involves an appeal of a finding of contempt for refusing to comply with a subpoena demanding disclosure of information. It came before the appellate courts by way of a petition to review the trial court’s contempt order — not an interlocutory order. The case is therefore inapplicable. Sanderson, supra; In re “B,” 482 Pa. 471, 394 A.2d 419 (1978), and Commonwealth v. Moore, 526 Pa. 152, 584 A.2d 936 (1991) involve orders compelling disclosure of specific information or denying a motion to compel disclosure of specific information. The case before this court, however, has not yet reached that procedural posture. This court is merely ordering the hospital to identify whether there are any documents in dispute. Whether the hospital must disclose those documents is a question for another day.

Moreover, Sanderson does not specifically discuss the issue of whether the trial court had properly certified the order for interlocutory appeal. It therefore sheds little light on the matter. In Moore, the Superior Court held that the Dugger rule does not apply to interlocutory appeals. The court did not, however, state exactly how important the withheld information must be to justify an interlocutory appeal. The court merely stated, “[W]e cannot find that the Superior Court abused its discretion in accepting the interlocutory appeal of this certified order,” Moore, supra at 157, 584 A.2d at 939, and moved on to discuss the merits of the issue. Thus Moore does not alter our decision. Although the hospital need not show that it would be substantially handicapped by filing a Rule 4009.12(b)(2) response, the issue must still be controlling. For the reasons discussed above, we do not believe that it is.

The hospital bases its request for interlocutory appeal primarily upon the “paramount importance” of the issue. Defendant’s brief in support of its request for reconsideration and for an immediate interlocutory appeal, p. 15. The issue before us is certainly important. That, however, is not one of the criteria specifically listed under 42 Pa.C.S. §702(b). Indeed, the Superior Court has ruled that it cannot accept an uncertified interlocutory appeal solely because the issue is important. In Gurnick v. Government Employees Insurance Co., 278 Pa. Super. 437, 439, 420 A.2d 620, 621 (1980), the Superior Court accepted an uncertified appeal of an interlocutory order because the issue was of “great importance” and would provide “guidance” to lower courts. One year later, however, the Superior Court overruled Gurnick, holding that it has no jurisdiction to hear interlocutory appeals that have not been certified as presenting controlling questions of law as to which there is a substantial ground for difference of opinion and where an immediate appeal from the order may materially advance the ultimate determination of the matter. Toll v. Toll, 293 Pa. Super. 549, 439 A.2d 712 (1981), affirmed, 498 Pa. 536, 448 A.2d 1379 (1982).

The hospital points to a footnote in Sanderson where the Superior Court states, “We granted appellants’ petitions for permission to appeal as authorized by 42 Pa.C.S. §702(b) (Purdon 1981) because of the importance of the issue involved herein and because of the conflicting decisions of Pennsylvania trial courts interpreting the Peer Review Protection Act.” Sanderson, supra, at 492 n.l, 522 A.2d at 1139 n.l. However, that quotation does not convince this court that we may certify an interlocutory order simply because it may be an important legal issue in other cases. Although nothing prevents a trial court from considering the significance of the issue in deciding whether to certify an order, that cannot be the sole basis. The requirements of section 702(b) must still be met. Similarly, nothing prevents the Superior Court from considering the importance of an issue when deciding whether to accept for review an order that has been certified.

Our refusal to certify the discovery order does not leave the hospital without recourse. As the Toll court correctly stated in rejecting the uncertified interlocutory appeal before it, the losing party may challenge a certification refusal by filing a petition for review with the Superior Court, pursuant to Pa.R.A.P. 1311 Note. The hospital is welcome to file such a petition.

ORDER

And now, November 18, 1998, the order issued by the Honorable William S. Kieser on July 27, 1998 denying the Williamsport Hospital and Medical Center’s motion to reconsider or stay the proceedings and denying the hospital’s motion for certification for immediate interlocutory appeal, is affirmed.

      . The Peer Review Protection Act, Act of 1994, July 20, P.L. 564, no. 193, §1, is codified at 63 P.S. §425 et seq.

      . This rale went into effect on July 1, 1997.

      . The portion of the objection pertaining to relevancy is not currently before the court.

      . This is not one of those cases. The hospital has provided no convincing reasons why revealing the mere existence of peer review materials would violate the Peer Review Act. The hospital has submitted an affidavit from the senior vice president of Susquehanna Health System stating that identifying peer review documents, listing them with reasonable particularity, or describing them in any manner would have a “chilling effect” on the willingness of physicians to provide information on fellow physicians or participate in the peer review process. However, the affidavit appears to envision a strict construction of the rule as asserted by the hospital. There is no evidence that merely disclosing the existence of peer review documents in a physician’s file would adversely affect the peer review system.

      . For instance, such a response might be appropriate in regard to reports of child abuse, pursuant to 23 Pa.C.S. §6339, and HIV-related information, 35 P.S. §7609.

      . These rules permit an appellate court, in its discretion, to grant permission to appeal from a certified interlocutory order.

      . In Commonwealth v. Dugger, 506 Pa. 537, 486 A.2d 382 (1985), the court held that the Commonwealth may appeal the granting of a suppression order as a final order when “the Commonwealth certifies in good faith that the suppression order terminates or substantially handicaps its prosecution.” Dugger, supra at 546-47, 486 A.2d at 386.


author: HOOVER, J.,

text:
    Carns v. Smith

      C.P. of Dauphin County,
    no. 3997 S 1997.

      David L. Lutz, for Dawn Carns and Donald Cams, plaintiffs.

      Dennis Bonetti, for Janet Smith, defendant.

      Richard Wix, for Donald Carns, additional defendant.
    October 8, 1998
   HOOVER, J.,

This matter is presently before the court on cross-motions for summary judgment. Argument was heard and the relevant facts and procedural history are summarized as follows:

This action arises out of an automobile accident which occurred on December 26, 1996. At the time of the accident, Mr. Carns was operating his 1995 Ford Bronco which was struck by a vehicle driven by defendant Janet Smith. Mrs. Carns was a passenger in her husband’s vehicle at the time of the accident and suffered injuries. Mr. Cams’ Bronco was insured under an automobile liability insurance policy which was issued to him by State Farm. Mr. Carns was the only named insured on this policy. Mr. Carns elected the full tort option with respect to his automobile insurance policy. Mrs. Cams was insured under a separate automobile insurance policy issued to her by Erie Insurance Group. The vehicle insured under the Erie policy was Mrs. Cams’ 1996 Chevrolet K1500. Mrs. Cams elected the limited tort option with respect to this insurance policy and she was the only named insured on this policy. The issue before the court is whether Mrs. Cams can recover any non-monetary damages she may have incurred under her husband’s policy since she elected the limited tort option under her automobile insurance policy.

The resolution of this question hinges on this court’s interpretation of 75 Pa.C.S. § 1705(b)(2) which reads as follows:

“The tort option elected by a named insured shall apply to all insureds under the private passenger motor vehicle policy who are not named insureds under another private passenger motor vehicle policy. In the case where more than one private passenger motor vehicle policy is applicable to an insured and the policies have conflicting tort options, the insured is bound by the tort option of the policy associated with the private passenger motor vehicle in which the insured is an occupant at the time of the accident if he is an insured on that policy and bound by the full tort option otherwise.”

We are guided by the Superior Court’s decision in Berger v. Rinaldi, 438 Pa. Super. 78, 651 A.2d 553 (1994). In Berger, the plaintiff was driving a car owned by his mother. This car was covered by a policy of insurance issued to his mother and this policy carried the full tort option. The plaintiff was involved in an automobile accident and sought coverage for noneconomic losses under his mother’s policy. At the time of the accident, the plaintiff was a resident in his mother’s household. At the time of the accident, the plaintiff was the registered owner of another car but this car was uninsured. His mother’s insurance company refused to pay him noneconomic losses since he failed to carry insurance on his vehicle and was deemed to have chosen the limited tort option. The trial court determined that the insurance company properly denied the plaintiff’s request for noneconomic benefits since 75 Pa.C.S. § 1705(a)(5) states that the owner of a currently registered private passenger motor vehicle who does not have financial responsibility shall be deemed to have chosen the limited tort alternative. The Superior Court reversed the trial court’s decision. The Superior Court researched the legislative history of the MVFRL and determined that section 1705(a)(5) was not intended to apply to situations where the claimant was not operating his uninsured vehicle at the time of the accident. The court then turned its attention to section 1705(b)(2) which is quoted above. The Superior Court determined that the trial court incorrectly reasoned that this section only concerned the situation when two policies of insurance were applicable and there were conflicting tort options. The Superior Court determined that section 1705(b)(2) describes two mutually exclusive scenarios. The first sentence applies when only one insurance policy is involved and the second sentence applies when two insurance policies which contain conflicting tort options are applicable. Since the plaintiff was an insured under his mother’s policy, the court concluded that he could take advantage of the tort option selected and paid for by his mother and he was entitled to recover noneconomic benefits. The court concluded that the legislative history reflected an intent to rule in favor of the full tort alternative whenever there exists a question about which coverage is applicable to a given situation.

We are mindful that our present situation is slightly different in that we have two policies of insurance involved in this case. The limited tort option was selected by Mrs. Cams and she certainly benefited from the lower insurance premiums associated with her policy. The full tort option was selected by her husband, Mr. Cams, and he, without a doubt, paid the price for this added coverage. Mrs. Cams was a passenger in her husband’s vehicle at the time of the accident. No one takes issue with the fact that she, as a spouse, was an insured under her husband’s policy. The defendant contends that she should be bound by her choice of limited tort even though her vehicle was not in any way involved in the accident. This position seems to ignore the plain language of section 1705(b)(2) which in the second sentence, addresses what happens when two policies of insurance are or could be applicable. The statute states that the insured is bound by the tort option of the policy associated with the vehicle that was involved in the accident.

Therefore, the full tort election of Mr. Cams’ policy would apply to Mrs. Cams. This conclusion makes sense for two reasons: First, Mr. Cams paid the added premium for the full tort election. Therefore, any occupant of his vehicle who is an insured under this policy should benefit from the coverage that he purchased. Second, in light of the court’s decision in Berger, it would not make sense that an uninsured motorist who is driving an insured vehicle whose owner selected and paid for the full tort option should benefit from the named insured’s selection while a motorist who has insurance with the limited tort option but is a passenger in another’s car cannot take advantage of the owner’s full tort selection when they are certainly an insured under that vehicle’s policy. Furthermore, we are impressed with the legislative history of the MVFRL as stated in Berger that in every instance where there is a question about which coverage is applicable, there should be a ruling in favor of the full tort alternative. Id. at 86-87, 651 A.2d at 557.

Accordingly, we enter the following:

ORDER

And now, October 8, 1998, the motion for summary judgment filed on behalf of Janet Smith is hereby denied. The motion for summary judgment filed on behalf of Dawn Cams is hereby granted.


author: WETTICK, J.,

text:
    Neer v. Niedermeyer

      C.P. of Allegheny County,
    no. GD93-2844.

      Edward Shenderovich, for plaintiff.

      Jeffrey A. Ramaley, for defendant.
    November 18, 1998
   WETTICK, J.,

The subject of this opinion and order of court is defendant’s request for the issuance of a rule to show cause why plaintiff’s complaint should not be dismissed for failure to prosecute.

Plaintiff initiated this action by filing a praecipe for a writ of summons in civil action on February 17,1993. Defendant was served on March 5, 1993. There was no docket activity from March 5, 1993 until plaintiff filed her complaint on March 9, 1998. The complaint alleges that plaintiff sustained injuries in a February 22, 1991 accident when her car was struck in the rear by an automobile operated by defendant.

Defendant’s motion to dismiss for failure to prosecute alleges that plaintiff took no action, whether reflected on the docket or otherwise, to prosecute this action between March 5, 1993 and March 9, 1998 and that plaintiff has no compelling reason for the delay in prosecuting this action. As to the prejudice issue, the motion alleges at paragraph eight that a party may be found to have suffered actual prejudice for purposes of a motion for non pros by virtue of the mere passage of time and at paragraph nine that defendant “has indeed suffered actual prejudice as the result of the passage of over seven years since the incident which is the subject of the plaintiff’s complaint and over five years since the filing of the praecipe for writ of summons.”

In Jacobs v. Halloran, 551 Pa. 906, 710 A.2d 1098 (1998), the Pennsylvania Supreme Court ruled that the two-year presumption of prejudice which it adopted in Penn Piping Inc. v. Insurance Company of North America, 529 Pa. 350, 603 A.2d 1006 (1992), must be abandoned. The Jacobs opinion stated that:

“The effect of our decision today is to return to the three-part test of James Brothers [Co. v. Union Banking and Trust Co. of DuBois, 432 Pa. 129, 247 A.2d 587 (1968)]. To dismiss a case for inactivity pursuant to a defendant’s motion for non pros there must first be a lack of due diligence on the part of the plaintiff in failing to proceed with reasonable promptitude. Second, the plaintiff must have no compelling reason for the delay. Finally, the delay must cause actual prejudice to the defendant. As always, this determination is to be made by the trial court, whose decision will not be disturbed absent an abuse of discretion.
“In James Brothers, we noted that prejudice could be established by the death or absence of a material witness. The Superior Court has further defined prejudice as ‘any substantial diminution of a party’s ability to properly present its case at trial.’ Metz Contracting Inc. v. Riverwood Builders Inc., 360 Pa. Super. 445, 451, 520 A.2d 891, 894 (1987), citing American Bank & Trust Company v. Ritter, Todd and Haayen, 274 Pa. Super. 285, 418 A.2d 408 (1980).” 710 A.2d at 1103. (footnote omitted) (emphasis in original)

The court offered the following rationale for its conclusion that the adoption of a presumption of prejudice in Penn Piping was erroneous:

“We recognize that defendants may be prejudiced by undue delays in litigation — memories fade, witnesses disappear and documents become lost or are destroyed. Additionally, pending lawsuits often cause undue stress and anxiety. However, the rules concerning the dismissal of cases for inactivity reflect policy concerns which implicate the interests of both plaintiffs and defendants. It is unnecessary to presume prejudice because the defendant is free to present evidence of actual prejudice. In cases where no activity has occurred for a period of two years, but the defendant has not lost his ability to adequately prepare a defense, it serves no equitable purpose to dismiss the plaintiff’s case solely due to the passage of time. There is no logical distinction between the harm caused to a defendant by the plaintiff’s delay of two years and the harm caused to a defendant by a delay of two years less one day.” Id. at 1102.

Defendant’s motion sets forth facts which would support a finding of a lack of due diligence on the part of plaintiff in failing to proceed with reasonable promptitude and a finding that plaintiff has no compelling reason for the delay. However, for reasons that I will discuss, the motion fails to set forth any allegations that would support a finding that the delay caused actual prejudice to defendant. Thus, I am denying defendant’s motion for the issuance of a rule to show cause because the motion does not state prima facie grounds for relief. See Pa.R.C.P. 206.5(c).

Since defendant’s motion does not set forth any specific occurrences that would support a finding that the delay has substantially diminished defendant’s ability to properly present its case at trial, the issue which this motion presents is whether a finding of actual prejudice may be based on the passage of time.

In the present case, the accident out of which this lawsuit arises occurred between seven and eight years prior to the filing of the motion to dismiss for failure to prosecute. Defendant contends that as a result of plaintiff’s failure to proceed it is more difficult to identify and to locate witnesses (particularly with respect to claims for wage loss, pain and suffering, medical treatment, etc.) and that witnesses’ recollections will have diminished.

The case law does not permit a judge to base a finding of actual prejudice on the reasonable likelihood that the passage of time will have diminished a defendant’s ability to properly present its case at trial. Penn Piping Inc. v. Insurance Company of North America, supra, involved claims for services performed in 1974-1976. An amended complaint was filed in 1981. There was no further activity of record until the defendant filed a motion seeking dismissal for failure to prosecute in 1987. The defendant argued that the six-year failure of the plaintiff to proceed in a lawsuit involving events occurring more than 10 years ago is presumptively prejudicial because witnesses will have dispersed and their recollections will have faded. As the trial court judge, I entered a judgment of non pros based on the passage of time. The Pennsylvania Superior Court reversed. The Pennsylvania Supreme Court reinstated my order.

The majority opinion of the Pennsylvania Supreme Court responded to the defendant’s argument that prejudice can be based on a lengthy delay by creating a presumption of prejudice whenever there is a lack of activity on the docket for two years or more. The dissenting opinion of Justice Zappala, joined in by Justices Larsen and Cappy, rejected the defendant’s claim that a finding of prejudice may be based on the passage of time. In his dissenting opinion, Justice Zappala stated:

“INA’s petition fails to specifically identify the witnesses to which reference is made or the particular evidence that no longer exists. INA, even now, has not offered such information. Furthermore, INA could have conducted discovery to have preserved the testimony of those now unnamed witnesses. Instead, INA relies on bald claims of prejudice as the result of the delay. Because actual prejudice was not shown on the record, the Superior Court did not err by finding that INA made no showing that its case was prejudiced by Penn Piping Inc.’s delay in prosecuting its case.” 529 Pa. at 359, 603 A.2d at 1010.

The dissenting opinion relied on James Brothers Lumber Co. v. Union Banking and Trust Company of DuBois, 432 Pa. 129, 132-33, 247 A.2d 587, 590 (1968). Justice Zappala’s opinion in Jacobs v. Halloran is also based on James Brothers. Consequently, I conclude that the James Brothers opinion, as construed by Justice Zappala in his dissenting opinion in Penn Piping is now the law of Pennsylvania. Thus, I may not base a finding of prejudice on a showing that this lawsuit involves factual disputes concerning events that occurred less than eight years ago.

Defendant contends that the very recent opinion of the Pennsylvania Superior Court rendered in the case of Strickler v. Bell, 714 A.2d 437 (Pa. Super. 1998), supports his position that a finding of actual prejudice may be based on the passage of time. The court, according to defendant, found actual prejudice where “nearly 20 years have elapsed since the original tort action was filed, memories have faded and, vanished like leaves in the autumn.” Id. at 439. Strickler is not controlling because the present case does not involve a delay of close to 20 years; instead, the delay in this case is less than the delay in Penn Piping. Furthermore, it is unclear from the Strickler opinion whether the court based a finding of actual prejudice on the delay alone or whether there were other bases for the finding of actual prejudice since it appears that the failure to file an expert report may have been a basis for the entry of the judgment of non pros.

For these reasons, I enter the following order of court:

ORDER

On November 18, 1998, it is hereby ordered that defendant’s request for the issuance of a rule to show cause why this lawsuit should not be dismissed for failure to prosecute is denied.

      . At oral argument, defendant declined this court’s invitation to file an amended motion which sets forth more specific allegations as to the actual prejudice that defendant sustained.

      . I am treating the “motion” to dismiss for failure to prosecute as if it were a petition which complies with the requirements of Pa.R.C.P. 206.1 and 206.3. The Common Pleas Court of Allegheny County has not by local rule adopted the procedures of Pa.R.C.P. 206.6 providing for issuance of a rule as a matter of course. See Pa.R.C.P. 206.4(a).


author: GEORGELIS, J.,

text:
    Smith v. Allstate Insurance Co.
    C.P. of Lancaster County,
    no. 98-09865.

      Craig A. Bernstein, for plaintiffs.

      D. Holbrook Duer, for defendant.
    November 17, 1998
   GEORGELIS, J.,

Before me are the preliminary objections of the defendant, Allstate Insurance Company, to the plaintiffs’ complaint. The objections raise the issue of an insured’s standing to sue her automobile insurer for non-payment of first party benefits, where peer review has determined that the treatment rendered was not reasonable and necessary. The objections will be overruled.

The plaintiff, Debra Smith, was injured in an automobile accident and was covered under an Allstate insurance policy issued to her husband. She was treated by Dr. William B. Kraft, a chiropractor, some of whose bills Allstate refused to pay, after a peer review determined that they were not reasonable and necessary. Mrs. Smith and Dr. Kraft initiated this action seeking payment of the outstanding medical bills. Allstate’s preliminary objections challenge Mrs. Smith’s capacity to sue, pursuant to Pa.R.C.P. 1028(a)(5).

Allstate relies on Kuropatwa v. State Farm Mutual Automobile Insurance Company, 29 D.&C.4th 494 (Bucks Co. 1995), aff’d, 454 Pa. Super. 714, 685 A.2d 1050 (1996), petition for allowance of appeal granted, 547 Pa. 710, 692 A.2d 1097 (1997). First, I note that our Superior Court’s decision in Kuropatwa was by way of a memorandum opinion, and the Superior Court has directed that its memorandum opinions are not to be considered as precedent and cannot be cited for any purpose. Because of this directive and in consideration of our Supreme Court’s having granted allocatur, I will not rely on Kuropatwa. Furthermore, I believe that Kuropatwa is factually distinguishable from the case before me, in that peer review reconsideration was requested by the provider of the medical services in that case.

As the plainitffs note, the Motor Vehicle Financial Responsibility Law, 75 Pa.C.S. §1701 et seq., provides:

“A provider of medical treatment or rehabilitative services or merchandise or an insured may challenge before a court an insurer’s refusal to pay for past or future medical treatment or rehabilitative services or merchandise, the reasonableness or necessity of which the insurer has not challenged before a PRO.” 75 Pa.C.S. § 1797(b)(4).

In Terminato v. Pennsylvania National Insurance Company, 538 Pa. 60, 645 A.2d 1287 (1994), our Supreme Court, in addressing the issue whether an insured must seek reconsideration of an adverse peer review decision before initiating an action in common pleas court to recover medical benefits under an automobile insurance policy, held that the failure to seek such a reconsideration does not bar a common pleas action. Id. at 71-72, 645 A.2d at 1293. In so holding, the court held that an insurance commissioner’s regulation which forecloses a party from pursuing an action in court without having sought reconsideration of a peer review decision can be disregarded. Id. The court used the word “party” and did not differentiate between an insured and his medical provider. I believe that Terminato is authority for Mrs. Smith’s standing to sue in the case before me.

I conclude that the clear language of 75 Pa.C.S. § 1797(b)(4) and the holding in Terminato require the overruling of Allstate’s preliminary objections. Accordingly, I enter the following:

ORDER

And now, November 17, 1998, for the reasons noted in the foregoing opinion, the preliminary objections of the defendant, Allstate Insurance Company, are overruled, and the defendant is directed to plead over to the complaint by December 4, 1998.

      . It appears that neither Mrs. Smith nor Dr. Kraft requested reconsideration of the peer review decision, although I believe that it can be reasonably assumed that they did not from the contents of their brief. They rely on Terminato v. Pennsylvania National Insurance Company, 538 Pa. 60, 645 A.2d 1287 (1994), in which our Supreme Court considered the failure to seek reconsideration of a peer review decision a key factor in its holding that an insured does not have to seek reconsideration of an adverse peer review decision before initiating an action in common pleas court. Id. at 71-72,645 A.2d at 1293. Interestingly, neither party specifically states whether or not reconsideration was sought.


text:
    Chappel v. Applied Control Systems Inc.

      C.P. of Allegheny County,
    no. GD98-9309.

      Michael J. Bruzzese, for plaintiff.

      William L. Stang, for defendants.
    December 22, 1998
   WETTICK, J.,

Plaintiff’s motion for judgment on the pleadings is the subject of this opinion and order of court. The issue raised through the motion is whether a director has an absolute right to inspect corporate records and review other information involving the affairs of the corporation that is ordinarily available to directors of a corporation.

Plaintiff’s complaint for declaratory judgment alleges that plaintiff’s husband, Robert Chappel, owns one-third of the outstanding shares of stock in Applied Control Systems Inc. (ACS). Defendants Richard Velan and Richard Starr also each own one-third of the outstanding shares. Until January 1997, Mr. Chappel was employed by ACS and served on its board of directors. Plaintiff alleges that in January 1997, her husband’s employment was terminated by Mr. Velan and Mr. Starr. Shortly after his employment was terminated, Mr. Chappel resigned from the board.

At the April 23, 1998 annual meeting of the shareholders, Mr. Chappel had sufficient votes — under a system of cumulative voting — to elect a director of his choice to the three-member board of directors. Mr. Chappel elected his wife — the plaintiff in this case. Mr. Velan and Mr. Starr elected themselves as the two other directors on the board.

Ms. Chappel alleges that defendants have refused to give her access to corporate books, records, and accounts, and have threatened to have her physically removed if she goes to the corporate office without invitation. In their answer and new matter, defendants admit that at the April 23, 1998 annual meeting of the shareholders, Ms. Chappel was elected to serve as a director. Defendants deny that they made a blanket refusal to furnish any corporate records to plaintiff. However, they admit that they have been unwilling to furnish proprietary and confidential corporate information that Ms. Chappel seeks.

They justify their refusal on the basis of allegations that plaintiff and her husband are presently shareholders, directors, officers, and/or employees in one or more business entities (including Advanced Technologies Inc.) that compete with ACS; and that plaintiff and her husband seek to obtain confidential information from ACS to aid their competing business operations to the detriment of ACS. Such information includes dealings with customers, payroll records, methods of operation, costs, profit margins, and other financial information. Defendants further allege that the information is being sought for the purpose of disrupting the business of ACS in order to force defendants to resolve other legal proceedings between the parties in an advantageous manner to plaintiff’s husband.

Plaintiff’s reply to defendants’ new matter denies these allegations.

The parties’ pleadings incorporate the pleadings of three other lawsuits that were pending at the time this declaratory judgment action was instituted. In proceedings at GD97-733, ACS sued Robert Chappel and Advanced Technologies. The complaint alleged that ACS is in the business of securing and providing comprehensive engineering services for the measurement and control of industrial processes and related support services. At all relevant times, Mr. Chappel was a shareholder, director, officer, and full-time employee of ACS. In December 1994, he formed Advanced Technologies, which provides services that are substantially similar to those that ACS provides. Mr. Chappel diverted business of ACS to Advanced Technologies by using Advanced Technologies to bid on projects or procure assignments that were appropriate for ACS. Mr. Chappel concealed from ACS his involvement with Advanced Technologies. ACS seeks recovery of compensatory damages, punitive damages, and counsel 'fees under the following causes of action: breach of fiduciary duty, usurpation of corporate opportunity, fraud and misrepresentation, and interference with prospective contractual relations.

In his answer, Mr. Chappel denies that he controls Advanced Technologies or that Advanced Technologies operates a business that is substantially similar to that of ACS. The answer includes a counterclaim in which Mr. Chappel alleges that Mr. Velan and Mr. Starr have systematically frozen him out of the management of ACS; operated the corporation to benefit only themselves; mismanaged the financial affairs of the corporation; and diverted corporate opportunities to side businesses that they own. This counterclaim raises a wrongful termination count based on allegations that Mr. Chappel was fired because he refused to participate in fraudulent activity; a breach of contract count based on ACS’s failure to repay a loan; and an action to enforce a shareholder’s agreement in which Mr. Chappel requests that ACS be ordered to purchase his stock at a fair market price.

In proceedings at GD97-4796, Mr. Chappel sued Mr. Velan, Mr. Starr, and companies which they allegedly control. This complaint is based on allegations under the following headings: background facts relating to a history of oppression, freeze-out, and exclusion of Chappel as a minority shareholder (paragraphs 19-68), background facts relating to financing of ACS (paragraphs 69-77), background facts relating to Velan’s and Starr’s wholesale waste and misappropriation of ACS assets (paragraphs 78-95), background relating to Velan’s and Starr’s side-businesses, usurpation of corporate opportunities, tortious interference with ACS customers, and other fraudulent conduct (paragraphs 96-116), and background facts relating to the wrongful termination of Chappel’s employment by Velan and Starr (paragraphs 117-26). The following counts of plaintiff’s complaint survived preliminary objections: Count I — breach of fiduciary duty owed to Chappel; Count III — oppression of minority shareholder; Count V — fraud and misrepresentation; and Count X — civil conspiracy.

In proceedings at GD97-4798, Mr. Chappel filed a complaint in equity naming Mr. Velan, Mr. Starr, ACS, and another company, Albin Development Company Inc., in which Mr. Chappel, Mr. Velan, and Mr. Starr each own one-third of the stock. The allegations in this complaint are very similar to the allegations in the complaint at GD97-4796. In this complaint, Mr. Chappel requests that defendants be required to purchase Mr. Chappel’s shares in ACS and Albin at a fair market price, that the court order the wind-up and dissolution of ACS and Albin, that the court appoint a custodian for ACS and Albin, that Mr. Velan and Mr. Starr be required to account for amounts received as a result of their wrongful and/or negligent acts, that ACS and Albin be ordered to pay Mr. Chappel dividends for his one-third interest in ACS and Albin, and that ACS be required to hold annual meetings of shareholders.

In their answers to Mr. Chappel’s counterclaim filed at GD97-733 and his complaints filed at GD97-4796 and GD97-4798, defendants deny the allegations upon which Mr. Chappel bases his various causes of action. Defendants incorporate the allegations in their complaint filed at GD97-733 that Mr. Chappel’s relationship with ACS was terminated because he had become a competitor.

The pleadings in this declaratory judgment action, including the incorporated pleadings of the previous three lawsuits, create a factual dispute as to Ms. Chappel’s motives and as to whether she and her husband are competing with ACS. Ms. Chappel contends that she needs to examine ACS’s records in order to protect the interests of the minority shareholder. She has a fiduciary obligation to protect his interests, and she has reason to believe that the management of ACS is operating the business for its own interests and in an incompetent fashion. She further alleges that she is not a competitor; consequently, any information that she receives will not be used to the detriment of the corporation.

ACS, on the other hand, contends that plaintiff is a competitor and that the information which it is unwilling to provide will assist plaintiff and her husband in competing against ACS. They also contend that plaintiff seeks to obtain information regarding the management and operations of ACS for purposes of disrupting its business operations and in order to force the corporation into purchasing Mr. Chappel’s stock.

In her memorandum of law in support of plaintiff’s motion for judgment on the pleadings, Ms. Chappel contends that there is no need for a court to consider ACS’s allegations. It does not matter whether her request to review corporate books and records is made in good faith. As a director, she has an absolute right to review corporate records. ACS, on the other hand, contends that a director’s right to examine corporate records arises from her fiduciary duty to protect the corporation and that the right to inspect will cease where the director is no longer acting in accordance with those fiduciary duties.

A shareholder’s right of inspection is governed by 15 Pa.C.S. §1508 which (1) permits a shareholder to inspect the share register or list of shareholders unless the corporation can establish that the inspection which the shareholder seeks is for an improper purpose and (2) which does not permit a shareholder to inspect other books and records unless the shareholder establishes that the inspection is for a proper purpose. The business corporation law has no provisions governing a director’s right of inspection. This is governed by case law.

Case law recognizes that a shareholder’s access to corporate records is narrower than a director’s access. The corporation is managed under the direction of the board of directors. A director of a corporation has a legal obligation to the corporation to perform her duties as a director in good faith and in a manner that she reasonably believes to be in the best interests of the corporation. The director must use such care, including reasonable inquiry, skill, and diligence, as a person of ordinary prudence would use under similar circumstances. 15 Pa.C.S. § 1712(a). Obviously, a director cannot perform these oversight and management responsibilities without access to corporate books and records that should be reviewed in order to make reasonable inquiry concerning the operation of the corporation. Consequently, legislation and case law governing the right of a shareholder to examine records is not useful in determining the “wide range of corporate documents” that a director might require in order to perform his or her fiduciary duties. Lewis v. Pennsylvania Bar Association, 549 Pa. 471, 476, 701 A.2d 551, 553 (1997).

The Pennsylvania case law that addresses a director’s right to inspect corporate records does not provide clear direction. In 1912 in the case of Machen v. Machen & Mayer Electrical Manufacturing Co., 237 Pa. 212, 85 A. 100 (1912), the Pennsylvania Supreme Court considered a director’s request to inspect corporate books and documents of a New Jersey corporation. The corporation’s chief place of business was within Pennsylvania, and its books and documents were maintained in Pennsylvania.

The other directors and officers of the corporation of which the plaintiff was a director refused to allow the plaintiff to inspect the books, documents, and papers of the corporation. As a justification, they alleged that the plaintiff had previously neglected his duties as president and secretary of the company, had interfered with the general management of its affairs, had canceled instructions given by the general manager, was promoting a competing concern, and had not made any charges or allegations of wrongdoing or irregularities concerning the manner in which the corporation was being operated.

The court’s opinion stated that in fulfilling their duties to manage the affairs of the corporation, corporate directors must secure all information affecting the corporation obtainable from every available source. Important and essential information must come from the books and documents of the corporation itself. Consequently, a director has an unqualified right to inspect corporate books, records, and documents.

In support of this position, the court stated that differences of opinion will arise among directors as to the management of the affairs of the corporation. While the majority will control, it cannot be permitted to deprive the minority of its right to obtain information as to the affairs of the corporation by refusing an inspection of corporate books and records. To deny the director “this right is, in effect, to exclude him from the directorate of the corporation, as well as to announce the principle that a majority of the directors may, at their pleasure, exclude the minority from all participation in the management of the corporation.” Id. at 221m 85 A. at 103.

In 1939, the Pennsylvania Supreme Court considered the same issue in Strassburger v. Philadelphia Record Co., 335 Pa. 485, 6 A.2d 922 (1939). The court’s opinion stated that a director, as a fiduciary, is entitled to all the information available to enable him to perform his duties to the stockholders who are the real owners of the corporation. A director is entitled at any time to make such inspection of corporate records as the director considers necessary to inform himself of the proper performance of the duties owed to the shareholders. However, the opinion also stated:

“In making his examination the director is entitled to expert assistance. He must of course act in good faith and therefore may not exercise his right of examination for purposes that would be in conflict with the performance of his fiduciary relationship.” Id. at 490, 6 A.2d at 924. (footnote omitted)

In Simms v. Exeter Architectural Products Inc., 868 F. Supp. 668 (M.D. Pa. 1994), the court considered the request of a former president and a present director to review corporate records where evidence had not been offered to indicate any wrongdoing or breach of duty on his part. This opinion stated that the plaintiff’s interest in the documents need not be scrutinized, “for a director enjoys an unqualified right to inspect the books of a corporation.” Id. at 675. The opinion then stated:

“In the absence of any articulated allegations as to plaintiff’s fiduciary duty and some evidence that would tend to support such allegations, and in consideration of the relevant case law, we will overrule the defendants’ belligerent withholding of information and grant plaintiff’s motion to compel production of corporate books and records.” Id.

Courts almost universally recognize that a director has something close to an absolute right to inspect those corporate books and records that a reasonably prudent director would seek to examine because otherwise the director cannot perform his or her statutory functions. The courts divide over whether this “absolute” right to inspect is enforced where the director may be abusing his or her position, and over the circumstances in which a director may be denied access to corporate records in jurisdictions that are willing to place limitations on this “absolute” right. See 5A Timothy P. Bjur & Dennis Jensen, Fletcher Cyclopedia of the Law of Private Corporations §2253 (1995 rev. vol.); 2 F. Hodge O’Neal & Robert B. Thompson, O’Neal’s Oppression of Minority Shareholders §7:36 (2d ed. 1995).

In certain jurisdictions, case law states that a director has an absolute and unqualified right to inspect corporate records. See cases cited in the O’Neal and Fletcher treatises. However, opinions which state that a director has an absolute right to examine corporate records were not necessarily considering situations in which the corporation was claiming that confidential information would be disclosed to a competing business. See e.g., Pilat v. Broach Systems Inc., 260 A.2d 13 (N.J. Super. Ct. Law Div. 1969); Chavco Investment Company Inc. v. Pybus, 613 S.W.2d 806 (Tex. Ct. App. 1981); compare Morton v. Rogers, 514 P.2d 752 (Ariz. Ct. App. 1973).

When confronted with claims that a director will be misusing information that he or she obtains to the detriment of the corporation, many jurisdictions are reluctant to adopt a rule that directs its trial courts to compel the corporation to make confidential information regarding its management and operations available to this director without considering the reasons offered by the corporation for withholding the information. The following cases illustrate the approaches taken by jurisdictions that place qualifications on the “absolute” right of a corporate director to inspect corporate records.

In Havlicek v. Coast-to-Coast Analytical Services Inc., 46 Cal.Rptr.2d 696 (Cal. Ct. App. 1995), directors, who had unsuccessfully sought to enjoin a merger involving the corporation, sought to examine the corporate books and records. The directors relied on California legislation which provides that every director has an absolute right at any time to inspect and copy all books, records, and documents of every kind. The California appellate court rejected the directors’ contention that this legislation gives a director an absolute right to inspect documents that cannot be defeated on the ground that the information will be used to harm the corporation. The court ruled that the word “absolute” cannot mean absolute. It gave as an example a disgruntled director who voices an intention to violate his or her fiduciary duties to the corporation and the shareholders by using inspection rights to learn trade secrets and to gain access to confidential customer lists in order to compete with the corporation. It stated that an absolute right to inspect records is a general rule that allows a corporate director to inspect records without giving any explanation for seeking the inspection. Consequently, a court must permit the inspection unless the corporation demonstrates “by evidentiary showing, that a protective order is necessary to prevent a tort against the corporation.” Id. at 702.

In Missouri ex rel. Moore v. State Bank of Hallsville, 561 S.W.2d 722 (Mo. Ct. App. 1978), the court ruled that a director was entitled to access to corporate books and records where the bank failed to introduce evidence that the director’s desire to inspect the books and records was motivated by any improper reason or that the inspection would result in any unreasonable interference of the bank’s business that would be harmful to the interests of the shareholders. In its opinion, the court stated:

“A director, therefore, at common law, has been held to have an absolute and unqualified to right to examine such records. Such rule has received wide acceptance in other jurisdictions. 19 C.J.S. Corporations §780; 18 Am.Jur., Corporations, section 183, pp. 712, 713; 5 Fletcher Cyc. Corp., section 2235, p. 872.
“Where, as here, this right of inspection is sought to be enforced by mandamus, a writ of discretion and not of right, the court may temper the absolute right by conditions to avoid unreasonable or oppressive interference or disruption of corporate business. The mere possibility of abuse or misuse of the right does not afford any ground for its denial or restriction, and the factors which motivate a director in the exercise of this right are not proper subjects of judicial inquiry, and a presumption exists that inspection of books and records by a director is made in good faith and with honesty of purpose. Where enforcement of inspection rights is sought through mandamus, those objecting to such inspection bear the burden of overcoming such presumption.” 561 S.W.2d at 725. (citations omitted)

In Washington ex rel. Paschall v. Scott, 247 P.2d 543 (Wash. 1952), the corporation and its wholly-owned subsidiary refused to permit a director to review books and records relating to marketing practices, sales, and customers on the ground that the director had been contacting distributors and customers of the corporations and furnishing information regarding the business to competitors. The court found the allegations to be accurate and that the director’s activity had been “very detrimental to the best interests of the corporations.” In response to the director’s contention that she had an absolute right to examine the corporate books and records, the court ruled that a director may be denied the right to examine corporate records where it is shown that the director has used information against the corporation and that the inspection will be detrimental to the best interests of the corporation. The court stated that where it is shown that the director seeks this information to damage or destroy the corporation, the director’s claim that she needs the information to fulfill her fiduciary duties to the corporation has no merit.

In Melup v. Rubber Corporation of America, 43 N.Y.S.2d 444 (N.Y. Sup. Ct., Special Term, N.Y. County 1943), the corporation had withheld certain records on the ground that the director would use this information to create friction among the corporate employees and that the director could fulfill his obligations without reviewing these records. The court ruled that the director should have access to some of these records but not names of customers, suppliers, or employees because he did not require this information to adequately discharge his functions as a director. Also see, Griffin v. Varflex Corp., 434 N.Y.S.2d 488 (N.Y. App. Div. 1980); compare Baker v. Henry Glass & Co., 531 N.Y.S.2d 746 (N.Y. Sup. Ct., N.Y. County, 1988), and cases cited therein.

In Delaware ex rel. Farber v. Seiberling Rubber Co., 168 A.2d 310 (Del. Super. Ct. 1961), a director filed a mandamus action to compel access to corporate records. The corporation filed an answer averring that the director’s motive for the inspection was improper. The issue which the court addressed was whether the answer set forth a sufficient defense. The court denied the director’s motion to strike the answer, stating:

“The right of a director to examine corporate records springs from his duty to protect and preserve the corporation. He is a representative at all of the stockholders. Because of his fiduciary relationship to the corporation, he must maintain a high standard of loyalty to the corporation, but when he acts hostile to the corporate interests, when his motives are improper, then it must be said that he no longer is performing his corporate duties. Once he ceases to perform his corporate duties, his right to inspect the books of the corporation should immediately end. It seems entirely inconsistent to say that a director has an absolute right to inspect the records of a corporation so that he may better perform his obligations to protect the corporation, and in the next breath say this right is absolute and remains inviolate even though such examination is conducted for an improper purpose hostile to the interest of the corporation.
“It is my conclusion that a director’s right to inspect corporate books, including the stock ledger, may be termed an absolute right only so long as his purpose is not in derogation to the interest- of the corporation. However, if it can be established that his motives are improper, or that they are in derogation to the interest of the corporation, then his right to inspect ceases to exist.” Id. at 312.

In Henshaw v. American Cement Corp., 252 A.2d 125 (Del. Ch. 1969), the court considered a request of a director for authorization to review corporate records in order to determine whether a suit brought by the corporation had any merit. The court said that where a plaintiff establishes that he is a director and that a demand to review records has been made, the burden shifts to the corporation to show why the director should not be permitted to exercise his right to examine corporate records or why such exercise should be limited. Under this test, as applied by this court, the director will prevail if the director shows a purpose germane to his position as a director. The purpose is not improper because of the possibility that the director may abuse his position as a director and make information available to persons hostile to the corporation or otherwise not entitled to the information.

The difficulty with a rule that a director has an absolute right to review corporate records is that it allows a director who is either a direct competitor or who is assisting third parties with interests adverse to the corporation’s interests to obtain confidential information that will be used against the corporation. Courts offer the following responses to this argument against an absolute rule: Henshaw v. American Cement Corp., supra, 252 A.2d at 129 (a corporation has its remedy in the courts if the director violates his fiduciary duties by making information available to persons hostile to the corporation or otherwise not entitled to it); Baker v. Henry Glass & Co., supra, 531 N.Y.S.2d at 749 (misuse of confidential information is actionable by the corporation); Dusel v. Castellani, 350 N.Y.S.2d 258, 259 (N.Y. App. Div. 1973) (if the director, attempts to use the information to the detriment of the corporation, the corporation may sue the director for breach of his fiduciary responsibility as a director and compel the director to account for his misconduct).

I do not find these responses to be satisfactory because a civil action that cannot be brought until the corporation has been harmed does not provide a corporation with adequate protection. Courts may act on the threatened failure of a fiduciary to perform properly his or her fiduciary duties. Maritrans GP Inc. v. Pepper, Hamilton & Scheetz, 529 Pa. 241, 253, 602 A.2d 1277, 1283 (1992). Consider the case law which permits a former employer to obtain injunctive relief for violations of covenants not to compete and misuse of confidential information because of the inadequacy of an action at law. See Christopher M’s Hand Poured Fudge Inc. v. Hennon, 699 A.2d 1272 (Pa. Super. 1997); Masure v. Massa, 692 A.2d 1119 (Pa. Super. 1997).

I also considered whether a corporation has an adequate remedy under the provisions of the law permitting removal of a director if that director attempts to misuse confidential information. Under 15 Pa.C.S. § 1726(c) upon application of any shareholder or director, a court may remove from office any director in case of fraudulent or dishonest acts, for gross abuse of authority or discretion with reference to the corporation or for any . other proper cause. Removal is not an adequate remedy because this remedy escalates the dispute from the right to inspect records to removal from office. Furthermore, where the issue is the right to inspect records, the court is not faced with an all or nothing resolution. A court can tailor an order so that a director with conflicting interests may obtain certain information and be denied access to other information.

Obviously, we do not want a rale of law that permits directors to obtain confidential information in order to assist competitors or other third parties. At the same time, we want a rale of law that gives directors who will use any confidential information that they obtain only in connection with matters involving the operations of the corporation immediate access to this information. If a director cannot promptly obtain information, he or she is not actually a director because, without information, he or she cannot perform oversight functions or otherwise participate in the management of the company.

In a closely held corporation, there is always the potential of a falling out. Frequently, shareholders seek protection through bylaws which guarantee that each shareholder can elect at least one person to the board of directors. The shareholder envisions that this director’s participation in the corporate affairs will prevent the majority shareholders from operating the company to the detriment of a minority shareholder. The protection is somewhat illusory if the law does not give a director something close to an absolute right to immediate access to the records.

The strongest justification for a rale that a director has an absolute right to immediate access to the corporate books and records is similar to the justification for the exclusionary rule for Fourth Amendment violations. If the court recognizes any exception, corporations will deny access by claiming that the director’s request falls within an exception. If the director can lose the right to immediate access to corporate records through allegations raised by directors on the other side of a corporate split, the exception can become the rule.

There is substantial merit to this argument. It does not work to simply say that a director’s access is governed (1) by a rule that the director has the right to immediate access to corporate information and (2) by an exception to the rule where the corporation claims that the information will be used to the detriment of the corporation. If allegations that the information will be used to the detriment of the corporation can prevent a director’s access to substantial information for substantial periods of time, the exception takes away the protections that the general rule was intended to furnish.

However, the solution is not an absolute rule under which a director who is operating a competing business across the street is entitled to confidential corporate information because this solution gives no weight to the interests of the corporation. Instead, the corporation should have a limited opportunity to present clear and convincing evidence showing that the information that it seeks to withhold would, if disclosed to the director, create a significant likelihood of substantial harm.

Because the denial of access to corporate records operates to deny a director the ability to participate in the management and operation of the corporation, any exception to the rule that a director has a right to examine corporate records must be narrow in scope and time. The burden must be on the corporation to present clear and convincing evidence that disclosure will create a substantial likelihood of significant harm; the corporation should be permitted to withhold only specific information for which it has made such a showing; and the corporation should be given only a short time in which to assemble its evidence.

Under this approach, a director need not show a proper motive. Allegations that the director is not concerned with the best interests of the corporation, that the director seeks this information to promote the director’s own interests, or that the director has a hostile relationship with corporate management and/or with the other directors of the corporation are not sufficient.

I am not following the cases which state that a director loses his or her right to examine corporate books and records upon a showing of an improper motive. See e.g., Delaware ex rel. Farber v. Seiberling Rubber Co., supra, which states that if the corporation can show that the director has engaged in conduct or made statements showing that the director is hostile to the corporation, corporate records may be withheld because the director cannot be assumed to be seeking the review of the records pursuant to his or her duty to protect and preserve the corporation. Also, I am not following the cases which state that a director is entitled to review books and records once any proper purpose for the inspection is established and that it is irrelevant whether the director may make the information available to persons hostile to the corporation or otherwise not entitled to this information. See e.g., Henshaw v. American Cement Corp., supra. I do not find either approach to be satisfactory. Motives are elusive. Furthermore, if evidence does not show that a director with “bad” motives is likely to harm the corporation, the director’s “bad” motives are not a sufficient reason to deny the director the opportunity to participate in the management of the corporation. On the other hand, if a director with a proper purpose for the information will be misusing this information, the corporation should be protected.

In the present case, ACS’s allegations that plaintiff and her husband are competitors, if established, support ACS’s decision to deny plaintiff access to certain corporate books, records, and other information that a reasonably prudent director might wish to examine. Consequently, I am denying plaintiff’s motion for judgment on the pleadings in which plaintiff seeks a court order barring the corporation from denying plaintiff access to any corporate records.

However, for the reasons that I discussed, allegations, rather than evidence, cannot serve as a basis for denying plaintiff’s access to corporate information for a significant time. Consequently, the proceedings in this case shall be governed through the procedure described below.

Plaintiff’s motion for judgment on the pleadings is converted into a motion for summary judgment. Within 10 days, ACS shall file a supplemental answer to plaintiff’s motion in which it sets forth the categories of information which it is not permitting plaintiff to examine. It shall also identify the categories of information that plaintiff may examine at this time.

Within 40 days, ACS shall submit deposition testimony supporting its decision to deny plaintiff access to those categories of documents that it will not voluntarily make available to plaintiff. At the next argument, the sole issue will be whether ACS has presented clear and convincing evidence which supports a finding of a significant likelihood of substantial harm unless plaintiff is denied access to specified corporate records. In other words, I will not be deciding factual disputes but, rather, will be deciding whether there is clear and convincing evidence supporting ACS’s position.

If ACS has not offered clear and convincing evidence supporting its position, I will enter a court order permitting inspection of those corporate documents that plaintiff seeks to inspect. On the other hand, if ACS has offered clear and convincing evidence to support its position, plaintiff will not be entitled to the relief that she seeks unless she subsequently prevails at a final court hearing.

Under this procedure, a director will not be denied the opportunity to inspect corporate records on the basis of allegations in the pleadings until the court can hold a final hearing. A director’s right to inspect corporate records will be enforced unless evidence provided by the corporation — rather than allegations within the pleadings — establishes a prima facie ground for denying a director access to corporate records.

For these reasons, I enter the following order of court:

ORDER

On December 22, 1998, it is hereby ordered that:

(1) plaintiff’s motion for judgment on the pleadings seeking a court order compelling ACS to furnish corporate records and other information that a reasonably prudent director might wish to examine is denied;
(2) plaintiff’s motion for judgment on the pleadings is converted to a motion for summary judgment;
(3) ACS shall file an amended response, as described in the opinion accompanying this order of court, within 10 days of this date;
(4) within 40 days of this date, ACS shall file deposition testimony for the purpose of establishing facts essential to a showing that it is entitled to deny plaintiff access to those categories of information that it is withholding;
(5) argument on the issue of whether ACS has made a prima facie showing based on clear and convincing evidence shall be held on February 23, 1999 at 12 noon; defendants’ brief shall be filed no later than seven days prior to the argument; plaintiff’s brief shall be filed no later than three days prior to the argument; and
(6) in the event that ACS has made a prima facie showing that it is entitled to deny access, upon request of plaintiff, this court will schedule a final hearing on plaintiff’s complaint.

      .1 have ruled in the prior litigation that the shareholder agreement does not contain provisions requiring the corporation to purchase the stock of any shareholder. The agreement requires only that the corporation be given the option to purchase the stock of a shareholder who wishes to sell his stock at its fair market value as determined by a disinterested appraiser. The corporation has not expressed any interest in exercising this option to purchase.

      . The court stated that there was no statute or law of New Jersey regulating the inspection of corporate records by directors. While technically the court would have been deciding the right to inspect under New Jersey law, the court’s opinion did not focus on either Pennsylvania or New Jersey case law. Instead, the opinion involves a generic discussion of a director’s right to inspect corporate records.

      . The court’s discussion concerning the right of the director to inspect corporate books and records is dicta because in its opinion, the court stated that “appellees confine their argument to the second proposition, and thereby concede that, if the court had jurisdiction, the undisputed facts were sufficient to justify it in awarding a peremptory mandamus.” Id. at 217, 85A. at 102.

      . The court’s discussion of the director’s right to examine corporate records appears to be dicta because the court stated that plaintiff had not been re-elected to the board and that the fact that he is not now a director “makes it unnecessary to discuss the scope of a director’s right of examination.” Id.

      . Shareholders of Pennsylvania business corporations are entitled to cumulate their votes for the election of directors unless otherwise provided in the articles of incorporation. 15 Pa.C.S. § 1758(c).