The Pennsylvania Superior Court has ruled that a trial judge erred when he issued a permanent injunction immediately following a preliminary injunction hearing.

In Penn Products v. McCorkel, a three-judge panel unanimously ruled to reverse Cumberland County Court of Common Pleas Judge Albert H. Masland’s order issuing a permanent injunction shifting management authority over a company to a handful of shareholders and officers.

Judge Judith Ference Olson, writing for the court, said Masland improperly treated the preliminary injunction hearing as a final hearing without a stipulation by the parties to do so.

“Although the trial court properly considered the likelihood that appellees might succeed on the merits of their claims, appellants raise a valid contention that the trial court erred in treating the May 14 hearing on the preliminary injunction as a final hearing for purposes of issuing a permanent injunction,” Olson said. “It is well established that a court may not treat a hearing for a preliminary injunction as a final hearing and as a basis for a permanent injunction, unless the parties so stipulate.”

Olson said the reason a preliminary injunction hearing cannot be a final hearing is twofold.

First, Olson said, requests for preliminary injunctions and requests for permanent injunctions are governed by different standards.

Second, according to Olson, it is “fundamentally unfair” for parties to participate in what they believe to be a preliminary injunction hearing, only to find later that it was actually a permanent injunction hearing.

Olson was joined by Judges Mary Jane Bowes and Susan Peikes Gantman.

In Penn Products, according to Olson, the shareholders, shareholder proxies and the estate of a deceased shareholder who collectively hold the majority of the voting power of the outstanding shares of Penn Products filed suit against minority shareholders of the company—Sandra L. McCorkel, Gregory R. Swope, Megan Swope and John D. Swope—seeking both a preliminary or special injunction and a permanent injunction.

According to Olson, the dispute arose from an April 25, 2012, shareholders meeting that was adjourned early after it “descended into chaos” as disputes arose over the voting process.

Following the meeting, according to Olson, the plaintiffs—David J. Horick, Douglas C. Horick, Marilyn Snyder Budzynski, Daniel A. Kuhn, Donna Lee Goff, Lewis G. Kuhn, Carolyn Wagner, Doris I. Ernst and Jean M. Horic—reconvened in the parking lot, appointed a judge of elections and elected themselves as officers and directors of Penn Products.

On May 2, 2012, Olson said, corporate counsel for Penn Products notified all shareholders that the April 25 meeting that was cut short would resume on May 10, 2012.

According to Olson, the plaintiffs filed a complaint in the Cumberland County Court of Common Pleas seeking a preliminary injunction to prohibit the defendants from resuming the meeting, acting on behalf of the company and accessing the company’s financial accounts.

It also sought an order requiring the defendants to recognize the plaintiffs as the new directors and officers of the company and to deliver to them all keys to corporate property, all corporate checkbooks and financial accounts, all corporate records and the corporate seal, Olson said.

The plaintiffs also sought a permanent injunction giving them management power over Penn Products, according to Olson.

On May 14, 2012, Olson said, Masland held a hearing in which he heard about six hours of testimony from nine witnesses, admitted 18 exhibits into evidence and heard arguments from the parties’ lawyers.

The following day, according to Olson, Masland issued a permanent injunction giving the plaintiffs management power over the company.

The defendants appealed, but the plaintiffs argued that the defendants’ claims were waived because they failed to file a post-trial motion under Pa.R.C.P. 227.1(c).

But Olson said that without a stipulation by the parties, the May 14 hearing was not a “trial without a jury” under Rule 227.1(c).

Olson added that the proceeding also failed to qualify as a trial without a jury under Pa.R.C.P. 1038, which requires the filing of a post-trial motion after a trial court issues a decision.

“Here, however, the fact that the trial court erroneously issued permanent injunctive relief that purported to finally dispose of all issues following the May 14 preliminary hearing did not convert that hearing into a trial,” Olson said. “We look to the nature and purpose of the hearing, not the result, to characterize the proceeding. As we concluded above with respect to Rule 227.1, Rule 1038 is inapplicable under the present circumstances since there was no trial. Thus, no post-trial motion was required under Rule 1038.”

Zack Needles can be contacted at 215-557-2493 or zneedles@alm.com. Follow him on Twitter @ZNeedlesTLI.

(Copies of the 20-page opinion in Penn Products v. McCorkel, PICS No. 13-3268, are available from Pennsylvania Law Weekly. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •