In Re: Painted Bride Art Center, Inc., non-profit corp. ~ Appeal of: Painted Bride Art Center, Inc. ( 2020 )

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
In Re: Painted Bride Art :
Center, Inc., non-profit corporation :
: No. 1642 C.D. 2019
: Argued: September 17, 2020
Appeal of: Painted Bride Art :
Center, Inc. :
BEFORE: HONORABLE PATRICIA A. McCULLOUGH, Judge
HONORABLE J. ANDREW CROMPTON, Judge
HONORABLE BONNIE BRIGANCE LEADBETTER, Senior Judge
OPINION NOT REPORTED
MEMORANDUM OPINION
BY JUDGE CROMPTON FILED: October 20, 2020
Before this Court is the appeal of Painted Bride Art Center, Inc.
(Painted Bride), a non-profit corporation, from the September 26, 2019 Decree and
Order of the Philadelphia County Court of Common Pleas, Orphans’ Court Division
(Orphans’ Court), denying Painted Bride’s Petition (Petition) to approve an
agreement of sale of real property to Groom Investments, LLC (Buyer).
I. Background
Painted Bride is a Pennsylvania nonprofit corporation, exempt from
federal income taxation under Section 501(c)(3) of the Internal Revenue Code. 1
Painted Bride’s Br. at 10. “It was founded by a group of artists in 1969 as part of
1
26 U.S.C. §501(c)(3) (2020).
the “alternative space movement,” dedicated to maximizing cultural diversity and
visibility in the arts.” Id. The corporation was named “Painted Bride” because the
space it originally occupied was a former bridal shop on South Street in Philadelphia.
Id. Painted Bride’s Articles of Incorporation state that it is organized
exclusively for the purpose of furtherance of the arts and
promotion of cultural endeavors among its members and
more particularly in the community by promoting and
participating in painting, sculpture, drama, music, dance
and poetry not for profit[,] but conducive to physical and
mental development of its members and the community
and for the purpose of acquiring the necessary property to
be used in furthering the purposes of this corporation.
Reproduced Record (R.R.) at 71a.
In the early 1980s, Painted Bride purchased and moved into properties
in Philadelphia’s Old City area, converting the same into multiple art spaces,
including a performance space and two art galleries in which it has presented music,
dance, and theater programs, and hosted visual art exhibitions. Painted Bride’s Br.
at 11-12. In 1990, Painted Bride allowed, or otherwise entered into an agreement
with Isaiah Zagar (Zagar), an internationally known, Philadelphia-based artist, for
Zagar to create a mosaic by embedding tiles, mirrors, and artifacts directly on the
external walls of Painted Bride’s building.2 This mosaic is referred as the “Mosaic,”
or sometimes as the “Skin of the Bride.” Painted Bride’s Br. at 13; Zagar’s Br. at 4.
Over the ensuing nine years, Zagar created a 7,000-square-foot mosaic, which covers
Painted Bride’s building from its ground to its roofline. Zagar’s Br. at 4. However,
2
It is unclear from the record whether Zagar’s services were commissioned by the Painted
Bride or whether the Painted Bride merely allowed Zagar to erect the Mosaic.
2
Zagar does not claim that he retained any ownership interest in the Mosaic or that
Painted Bride agreed to maintain or preserve it. Painted Bride’s Br. at 13.
Painted Bride acknowledges that Zagar is a prolific artist and that he
has installed more than 200 mosaics in Philadelphia. Further, Painted Bride relates
that, in 2004, Zagar registered a Pennsylvania non-profit entity, i.e., Philadelphia
Magic Gardens (Magic Gardens), and created the Magic Gardens in Philadelphia,
which is a 10,000-square-foot space with interior and exterior walls “blanketed with
mosaics.” Painted Bride’s Br. at 13. Painted Bride further acknowledges that
“Magic Gardens’ mission is to preserve Zagar’s public murals, including the Magic
Gardens.” Id.In its Opinion Sur Appeal, the Orphans’ Court provides the following,
useful timeline of events:
In 2013, [Painted Bride] began the process of investigating
solutions to its declining financial situation by engaging
consultants in the areas of finance, fundraising, and
planning, as well as holding forums with community
members. Believing [its] [p]roperty required an
assortment of repairs and improvements, [Painted Bride]
made the decision to sell [it] during an August 2017 Board
[m]eeting and sale of the [p]roperty was announced in
December 2017.[3]
3
Painted Bride asserts that the building, which includes the “Skin of the Bride” mosaic,
needs major repairs and upgrades and that “the untenable related expenses contributed to Painted
Bride’s inability to achieve a sustainable business model.” Painted Bride’s Br. at 1. Thus, after
establishing sale of the property would not divert it from its mission of providing arts programming
in Philadelphia, and, in fact, would better enable it to accomplish this mission, Painted Bride
sought permission to sell the property to Buyer. Id.3
Orphans’ Court Opinion Sur Appeal at 3 (citations omitted).
The “Skin of the Bride” mosaic has been exposed to the elements for
25 years and “large pieces have fallen off.” Painted Bride’s Br. at 13. When that
has happened, Painted Bride’s Executive Director has contacted Zagar, who makes
the repairs. Painted Bride’s Br. at 14; Zagar’s Br. at 5. Painted Bride asserts that,
despite these efforts, the Mosaic is in poor shape, and it is unsafe. Painted Bride’s
Br. at 14. Painted Bride notes that the Executive Director of Magic Gardens, herself,
agreed, through her testimony before the Orphans’ Court, that the Mosaic cannot be
moved. Id.; Reproduced Record (R.R.) at 440a. Further, Painted Bride contends
that the Mosaic needs immediate work and will require perpetual maintenance.
Painted Bride’s Br. at 14. Painted Bride and Zagar agree that Magic Gardens has
committed to making all repairs to the Mosaic, in perpetuity, and gratis to Painted
Bride or any future owner of the property, although Painted Bride contends this offer
was vague, and Magic Gardens did not provide detailed information in this regard.
Painted Bride’s Br. at 14; Zagar’s Br. at 5.
On May 10, 2019, Painted Bride commenced a civil action in the
Orphans’ Court by filing a Petition to Approve Agreement of Sale Between it and
Buyer for the subject property for the sum of $4,850,000.4 Orphans’ Court
4
“Specifically[,] the Agreement was for the sale of the real estate and all structures
contained therein and thereon, located at 230-236 Vine Street, 238 Vine Street, 255 N. Bodine
Street, 229-235 New Street, [and] 237 New Street in the City of Philadelphia, for the sum of
$4,850,000.” Orphans’ Court Memorandum at 1. “The Petition was filed with Orphans’ Court
because of its jurisdiction under 20 Pa.C.S. §§711 and 712 over nonprofit corporations, together
with the special situations presented herein involving not only the almost total liquidation of
(Footnote continued on next page…)
4
Memorandum at 1. The Petition named Buyer, Zagar, and the Pennsylvania Office
of Attorney General (A.G.) as parties of interest. R.R. at 17a-18a. In its June 10,
2019 Answer, the A.G. stated it would “await completion of the record before
forming a belief as to the truth of the matter.” R.R. at 242a. Zagar filed an Answer
and New Matter on June 12, 2019, asking the Orphans’ Court to deny the Petition.
R.R. at 203a.
Zagar opposed the sale on the ground that it was “against the public
interest, because it will result in the destruction of the Mosaic [he had installed on
the building’s exterior], and in the loss of a venerated arts venue critical to the
cultural life of the region, together with its 250-seat theater, a sprung dance floor,
rehearsal space, art galleries, offices and other cultural facilities.” R.R. at 267a-
268a. Zagar also contended “the sale is especially against the public interest in the
context of an existing alternative offer from Lantern Theater Company [Lantern] to
purchase the [b]uilding.” R.R. at 268a.
The Orphans’ Court held a bench trial on September 10, 2019. R.R. at
270a.; Orphans’ Court Memorandum at 2. At the close of the evidentiary hearing,
the Orphans’ Court directed all parties to submit written comments by September
16, 2019. R.R. at 459a. The A.G.’s submission stated that, based on the record and
exhibits, as well as its own investigation, including a review of the Petition and
supporting materials, it had no objection to the relief requested in Painted Bride’s
Petition. R.R. at 617a. On September 26, 2019, the Orphans’ Court issued an Order
corporate assets but also the almost certain destruction of [a] unique façade covering the structure.”
Orphans’ Court Memorandum at 1-2.
5
and Decree denying Painted Bride’s Petition. Orphans’ Court Memorandum at 1-4.
Painted Bride’s Br. at 9; App. A and B.
In its Memorandum, the Orphans’ Court stated it did not disagree that
maintenance of the property at issue has placed a severe burden on Painted Bride
and that the “Skin of the Bride” Mosaic is in need of restoration. However, the
Orphans’ Court determined the façade “is considered by many to be an irreplaceable
work of art,” and “there has been no concerted effort to enlist the services of [Zagar]
to maintain and/or restore the façade.” Orphans’ Court Memorandum at 2-3. Further
the Orphans’ Court determined that Painted Bride had “failed to present evidence of
the value of the ‘Skin of the Bride,’ compared to Zagar’s testimony that the work “is
‘priceless.’” Orphans’ Court Memorandum at 3. The Orphans’ Court determined
that Painted Bride failed in sustaining its burden of proving the sale, “which would
all but ensure the destruction of the facade, is under any analysis for the best interest
of the [Painted Bride], or the public to which [it] is dedicated to serve.” Id. The
Orphans’ Court determined that, “considering the dearth of attempts at alternatives,”
the sale was against the stated purposes of the non-profit corporation, and, therefore,
6
entered a Decree denying the Petition. Orphans’ Court Memorandum at 3-4. Painted
Bride now appeals to this Court for review.5,6
II. Painted Bride’s Arguments
Painted Bride argues that the Orphans’ Court’s ruling erroneously
assumes Painted Bride’s charitable purposes include preserving the Mosaic. Painted
5
In reviewing an Orphans’ Court decision or decree, the appellate court must determine
whether the record is free from legal error and whether the findings below are supported by
competent and credible evidence. In re Estate of Damario, 412 A.2d 842 (Pa. 1980). Findings of
the Orphans’ Court will not be reversed unless it appears that it clearly committed an abuse of
discretion or an error of law. In re Estate of Girard, 132 A.3d 623, 631 (Pa. Cmwlth. 2016).
“Although an appeals court cannot sit as a trier of issues of fact and must accept the findings of
fact of the lower court as the basis of its review . . . an appellate court is not bound to accept . . .
findings . . . which are without support in the record or have merely been derived from other facts.”
In re Barnes Found., 684 A.2d 123, 130 (Pa. Super. 1996). “An abuse of discretion is more than
just an error in judgment and, on appeal, the trial court will not be found to have abused its
discretion unless the record discloses that the judgment exercised was manifestly unreasonable, or
the result of partiality, prejudice, bias or ill-will.” Belleville v. David Cutler Grp., 118 A.3d 1184,
1195 (Pa. Cmwlth. 2015) (quoting Commonwealth v. Smith, 673 A.2d 893, 895 (Pa. 1996)).
6
By order of this Court, the parties were required to address whether Painted Bride’s appeal
in this matter was untimely, as the Orphans’ Court Decree was issued on September 26, 2019, and
although Painted Bride submitted a timely Notice of Appeal, via the Orphans’ Court electronic
docketing system on October 24, 2019, computer system errors led to a situation where the Notice
of Appeal was rejected for failure to pay one of two filing fees, i.e., the Commonwealth Court
filing fee, and Painted Bride was not notified, and remained unaware of same until October 29,
2019. On October 29, 2019, Painted Bride resubmitted its Notice of Appeal and paid the additional
filing fee. Painted Bride subsequently filed a Petition to Deem Notice of Appeal Filed as of
October 24, 2019. By stipulation of Painted Bride and Zagar, and without objection by the A.G.,
the parties agreed that the Notice of Appeal would be deemed filed on October 24, 2019. Painted
Bride’s Br. at 3-5. On November 5, 2019, the Petition to Deem Notice of Appeal Filed as of
October 24, 2019, was granted via an Order of the Orphans’ Court. R.R. at 653a. Thus, the Notice
of Appeal was deemed filed as of its submission date of October 24, 2019. Given the technical
nature of the error, the stipulation of the parties, and the aforementioned November 5, 2019 Order
of the Orphans’ Court, along with the fact that neither Zagar, nor the A.G. address the issue of
timeliness in their briefs on appeal to this Court, Painted Bride’s appeal is considered timely, and
there is no need for us to address this issue any further herein.
7
Bride’s Br. at 25. Painted Bride asserts that its purposes are “promoting and
presenting art performances and exhibitions,” as enunciated in its Articles of
Incorporation. Id. The Articles allow Painted Bride to acquire property that furthers
these purposes but do not require it “to maintain a performance space.” Id. Painted
Bride contends that:
[u]nder 15 Pa.C.S. §5547(b), a charitable entity’s purposes
may be altered only by a court order applying the cy-pres[7]
doctrine codified in 20 Pa.C.S. §7740.3. No such order
was entered here, and the record would not support one:
Painted Bride’s purposes are not impracticable or
impossible, and there is no evidence that its founders
intended to devote charitable assets to maintain physical
artwork, much less a single piece of artwork. Thus, the
Orphans’ Court’s ruling improperly requires Painted Bride
to divert its assets to a purpose for which they were not
intended, in violation of 15 Pa.C.S. §§5547(b) and 5930.
Painted Bride’s Br. at 25-26.
Relying on Commonwealth by Kane v. New Foundations, Inc., 182
A.3d 1059 (Pa. Cmwlth. 2018), Painted Bride acknowledges “[a] nonprofit entity’s
assets must be used to advance the purposes for which it was created, and only those
purposes.” Painted Bride’s Br. at 28. However, Painted Bride notes that this Court
“has not specifically addressed a nonprofit entity’s petition to approve a sale of all
or substantially all of its assets,” but argues that “the principles guiding the analysis”
were discussed in In re Roxborough Memorial Hospital, (C.C.P. Phila., O.C. No.
7
The definition of “cy-pres” is: “As near as [possible.] The rule of cy-pres is a rule for the
construction of instruments in equity, by which the intention of the party is carried out as near as
may be, when it would be impossible or illegal to give it literal effect.”
https://thelawdictionary.org/cy-pres/ (last visited on October 19, 2020).
8
555, Sept. 30, 1997) (cited in New Foundations, 182 A.3d at 1072-74). Painted
Bride’s Br. at 28-29. Painted Bride explains:
The issue in Roxborough was whether a nonprofit
hospital’s sale of all of its assets would result in a
‘diversion of property committed to charitable purposes
from its intended objects.’ [Roxborough], [slip op.] at
*26-27. The court approved the sale, finding that the
hospital’s board of directors had weighed the decision to
sell carefully, including by hiring consultants. [Slip op.]
at *27-32. The court also found that the charitable assets
would not be improperly diverted from their intended
objects because the assets would be sold to another
nonprofit corporation with objectives consistent with the
hospital’s articles of incorporation and used to further
those objectives. [Slip op.] at *32-33. In support of its
approval of the sale, the Roxborough court also
determined that the sale price was reasonable, no board
member or manager would receive any benefit from the
sale, and the Attorney General did not object to the
transaction.[8] [Slip op.] at *35-36.
Painted Bride’s Br. at 29-30.
8
Although not addressed in detail herein, in the present matter, the A.G. submitted a brief
rejecting Painted Bride’s contention that its “decision to remain in the background at the Orphans’
Court stage” somehow could be interpreted to mean that the A.G. necessarily had no objection to
the transaction, noting that Painted Bride’s position reflects both “a fundamental misunderstanding
of the [A.G.’s] role and an incomplete grasp of the public interest principle that guides the [A.G.]
in the litigation context.” A.G.’s Br. at 15. Quoting New Foundations, the A.G. states:
“‘[b]ecause charities serve an indefinite number of people, the Commonwealth, through the [A.G.],
is responsible for the public supervision of charities through its parens patriae powers.’” New
Foundations, 182 A.3d at 1070 (emphasis in original); A.G.’s Br. at 15. Citing New Foundations
and In re Milton Hershey School Trust, 807 A.2d 324, 330 (Pa. Cmwlth. 2002), the A.G. states
that “the role of the [A.G.] is to ensure that charitable nonprofits, as well as charitable trusts, are
administered in a manner that is consonant with the public interest.” A.G.’s Br. at 16. Noting that
Painted Bride was not relieved “of its obligation to prove to the Orphans’ Court’s satisfaction that
Skin of the Bride was in the public interest,” the A.G. determined that the Orphans’ Court decree
was a “reasonable exercise of the court’s discretion,” and that there is “no rationale for reversal at
this stage.” A.G.’s Br. at 18, 25 (emphasis in original).
9
In the present matter, Painted Bride argues it established the elements
required by Roxborough and 15 Pa.C.S. §§5547(b) and 5930, and
[i]t offered competent and credible evidence that [Painted
Bride’s] board was deliberate and well informed in
planning the sale, including in determining that Painted
Bride must sell the [p]roperty to continue its mission,
marketing the [p]roperty, evaluating and selecting offers,
planning a long-term investment strategy, and planning to
fulfill Painted Bride’s mission without a dedicated
physical venue by bringing arts and cultural events to
underserved areas of Philadelphia . . . . Notably, the
Orphans’ Court did not find that Painted Bride had failed
to adopt a plan for the sale.
Painted Bride’s Br. at 30.
Painted Bride adds that “[t]he Orphans’ Court did not find that the sale
price was not reasonable, that any manager or member of [Painted Bride’s] [b]oard
would receive a benefit from the sale, or that the [A.G.] had objected to the
transaction.” Painted Bride’s Br. at 31. Nor did the Orphans’ Court determine that
“Painted Bride could not carry out its mission without its current physical location.”
Id.
Painted Bride further argues that the Orphans’ Court erred in denying
its Petition on the basis that it did not establish Buyer’s destruction of the Mosaic
would not result in a “net loss to the public.” Painted Bride’s Br. at 32. Painted
Bride asserts that the Orphans’ Court based its ruling on the assumption that its
charitable purposes include preserving the Mosaic because its mission involves
promoting art. Painted Bride’s Br. at 32-33. “Because Painted Bride has no
10
obligation to preserve the [M]osaic, the Orphans’ Court erred in denying the Petition
on the basis that Painted Bride did not submit evidence of the [M]osaic’s artistic and
monetary value.” Painted Bride’s Br. at 40. Painted Bride asserts that “[n]othing in
Pennsylvania law suggests the public has an interest in particular assets of a
nonprofit entity beyond its interest in ensuring those assets are used to advance its
charitable purposes.” Painted Bride’s Br. at 42. Painted Bride acknowledges that
the A.G. represents the public’s interest in a nonprofit entity and that its focus is on
ensuring the entity’s assets are used only to carry out the charitable purposes for
which it was founded. Thus, Painted Bride contends, the A.G.’s representation that
it did not object to the proposed sale of the Painted Bride property – based on its
own, i.e., the A.G.’s, evaluation of Painted Bride’s mission and strategic plan, and
the proposed sale to Buyer – “negates the notion that the public interest will be
harmed by the sale.” Painted Bride’s Br. at 42.
In addition, Painted Bride argues the Orphans’ Court erred in holding
it did not present sufficient evidence of the Mosaic’s value when, in fact, it offered
competent and credible evidence that the Mosaic is in poor and unsafe condition,
requires approximately $1 million in repairs, and a search for buyers for the property
established the Mosaic has negligible, perhaps negative, economic value. Painted
Brides’ Br. at 26-27. To further buttress its position in this regard, Painted Bride
notes that an offer, which ostensibly involved preserving the Mosaic, was more than
$2 million less9 than the offer that would have likely involved destroying it. Id.
Painted Bride stresses that “Pennsylvania law does not require an appraisal to
determine the value of any particular type of property when, as here, there is
9
This is the offer from Lantern Theater Company (Lantern), which Painted Bride asserts
did not require the Mosaic be retained. Painted Bride’s Br. at 45 n.10.
11
competent evidence of its market value.” Painted Bride’s Br. at 27. Further, Painted
Bride states that “[t]he Historic[al] Commission rejected the petition to designate the
Property as historic, and subjective considerations of ‘historic’ or ‘artistic’ value in
any event cannot override the hard market evidence that the mosaic has negligible
monetary value.” Id.
In addition, Painted Bride argues that the Orphans’ Court erred in
holding Painted Bride must establish its entitlement to sell its property by “clear and
convincing” evidence. Painted Bride contends that the normal standard of proof in
a civil case is preponderance of the evidence, and nothing in the relevant statutes
imposes a heightened burden of proof. Further, even if the “clear and convincing”
standard applies, Painted Bride argues it met this higher standard because it offered
clear and convincing evidence that the sale to Buyer would not divert Painted Bride’s
assets from their intended purposes, but rather would allow Painted Bride “to
continue carrying out those purposes by relieving it of the financial burdens of
preserving and maintaining a decaying physical plant and structurally unsound
[M]osaic, and by giving it funds needed to fulfill its mission.” Painted Bride’s Br.
at 52-54.
Furthermore, Painted Bride argues that the Orphans’ Court Decree and
Order violates Pennsylvania public policy because it imposes an unreasonable
restraint on alienation of its property. Painted Bride asserts that, by refusing to allow
the sale because Buyer may damage or destroy the Mosaic in the redevelopment of
the property, the ruling sends the unmistakable message that Painted Bride cannot
sell the property unless a prospective buyer agrees to preserve or restore the Mosaic.
12
However, because “Painted Bride can neither afford to repair the [M]osaic nor
control whether any buyer will agree to retain it,” the Orphans’ Court’s Decree and
Order places an unreasonable restraint on the alienation of Painted Bride’s property.
Painted Bride’s Br. at 55-56.
III. Zagar’s Argument
Zagar asserts that Buyer planned to demolish the Painted Bride building
and erect 16 residential units, and that the Mosaic would be destroyed because it
could not be safely removed from the walls of the building. R.R. at 299a, 440a.
Further, Zagar notes there was a competing bid from the Lantern Theater Company
(Lantern), which is, itself, a not-for-profit charitable corporation that has been
successfully presenting plays to the public since 1994. R.R. at 581a. Zagar contends
that Lantern offered to purchase the building for $2,650,000, agreed to retain the
Mosaic, and planned to use the building’s 250-seat theater for its productions. R.R.
at 300a. Zagar adds that, had the Lantern offer been accepted, the Mosaic would
have been preserved, and Painted Bride would have received net proceeds of
$2,355,472 at closing. R.R. at 300a, 579a.
Zagar addresses Painted Bride’s claims the Orphans’ Court erred in
requiring it to prove its case by “clear and convincing evidence,” by asserting there
is no case law which advises on the correct standard of proof in this instance. Zagar
contends that “even utilizing a ‘preponderance’ test does not help Painted Bride,
because it offered no evidence at all on the two key issues, i.e., the intrinsic artistic
value of the Mosaic, and whether preventing its destruction was justified as in the
public interest.” Zagar’s Br. at 8, 13-15.
13
Zagar asserts that Painted Bride wrongly argues that the A.G.’s lack of
an objection to its Petition is the equivalent of a recommendation for approval, and
regardless, the A.G.’s opinion is merely advisory, and the Orphans’ Court is required
to exercise its independent judgment in the matter. Zagar’s Br. at 15.
Zagar disputes Painted Bride’s argument that its acceptance of the
Mosaic did not alter its “mission” and that maintaining the Mosaic was not its
responsibility, asserting that he does not contend the Mosaic became part of Painted
Bride’s stated mission, but instead became “property committed to charitable
purposes.” Zagar’s Br. at 9 (emphasis in original). Thus, the Mosaic became an
asset that Painted Bride should have maintained, and which “could not be diverted
(in this case, sold and then destroyed) without approval of the Orphans’ Court,
pursuant to 15 Pa.C.S. §5547.” Id. Zagar asserts he presented knowledgeable
witnesses who opined on the significance of the Mosaic, including such attributes as
“a great work of art,” “a landmark piece,” “historically important to the city,” 10 and
“priceless,” while, on the other hand, Painted Bride focused only on the cost of repair
and maintenance of the Mosaic and disregarded Magic Gardens’ commitment to
Painted Bride or any subsequent owner to repair and maintain the Mosaic, gratis,
and in perpetuity.11 Zagar’s Br. at 10. Zagar further asserts that, with regard to
10
Zagar mentions that Magic Gardens nominated the Painted Bride building and Mosaic
for historic designation in 2018, but that Painted Bride resisted the application. He acknowledges
that the nomination was ultimately denied later that year by the Philadelphia Historical
Commission on a 5-4 vote, with no written opinion. R.R. at 103a-31a.
11
Zagar specifically states that “Magic Gardens has committed to making all repairs to the
Mosaic, now and in perpetuity, without charge to Painted Bride or to any future owner of the
(Footnote continued on next page…)
14
Painted Bride’s efforts to show the alleged cost of repairs, it repeatedly referred in
its Brief to “evidence” that was expressly excluded at trial, and, thus, even as to the
cost of repairs, Painted Bride offered no substantive evidence in this regard.
As for Painted Bride’s argument that the Orphans’ Court Decree is an
unacceptable restraint on alienation, Zagar responds that the test is “whether any
restraint was ‘limited’ and ‘reasonable,’” arguing that the Orphans’ Court Decree
was both limited and reasonable because it only disapproved the sale to Buyer.
Zagar’s Br. at 9-10. However, Painted Bride was at liberty to sell to Lantern or to
seek another buyer or buyers. Zagar’s Br. at 10. Zagar asserts that “[u]nder the law,
the fact that an otherwise reasonable restriction might result in lowering the market
value of a property does not give rise to an unacceptable restraint on alienation.” Id.
For all of the above reasons, Zagar contends that the Orphans’ Court
Decree and Order should be affirmed.
IV. Discussion
We preface our discussion below with a review of the salient statutory
language at issue in the present matter.
15 Pa.C.S. §5547(a)-(b) states, in pertinent part, as follows:
[b]uilding.” Zagar’s Br. at 5; R.R. at 427a-28a. Zagar further contends that “Magic Gardens is
fully capable of executing this commitment, as it employs three full-time salaried preservationists
who work with Zagar in repairing all of his outside murals and would do so with regard to the
Mosaic. Additionally, 25% of its net revenue is automatically set aside for its Preservation Fund,
and that fund held $226,000 at the time of the [Orphans’ Court Trial].” Zagar’s Br. at 6; R.R. at
168a.
15
(a) General rule.--Every nonprofit corporation incorporated
for a charitable purpose or purposes may take, receive and
hold such real and personal property as may be given,
devised to, or otherwise vested in such corporation, in
trust, for the purpose or purposes set forth in its articles.
....
(b) Nondiversion of certain property.--Property committed
to charitable purposes shall not, by any proceeding under
Chapter 59 (relating to fundamental changes) or
otherwise, be diverted from the objects to which it was
donated, granted or devised, unless and until the board of
directors or other body obtains from the court an order
under 20 Pa.C.S. Ch. 77 (relating to trusts)[12] specifying
the disposition of the property.
15 Pa.C.S. §5547(a)-(b).
15 Pa.C.S. §5930(a) states, in pertinent part, as follows:
(a) General rule.--A sale, lease, exchange or other
disposition of all, or substantially all, of the property
and assets, with or without goodwill, of a nonprofit
corporation, if not made pursuant to Subchapter F of
Chapter 3 (relating to division), may be made only
pursuant to a plan of asset transfer . . . . The plan of
asset transfer shall set forth the terms and
12
20 Pa.C.S. §7740.3 states, in pertinent part, as follows:
(a) General rule.--Except as otherwise provided in subsection (b), if a
particular charitable purpose becomes unlawful, impracticable or wasteful:
(1) the trust does not fail, in whole or in part; (2) the trust property does not
revert to the settlor or the settlor’s successors in interest; and (3) the court
shall apply cy pres to fulfill as nearly as possible the settlor’s charitable
intention, whether it be general or specific.
20 Pa.C.S. §7740.3(a) (emphasis added).
16
consideration of the sale, lease, exchange or other
disposition or may authorize the board of directors or
other body to fix any or all of the terms and conditions,
including the consideration to be received by the
corporation. Any of the terms of the plan may be made
dependent upon facts ascertainable outside of the plan
if the manner in which the facts will operate upon the
terms of the plan is set forth in the plan. The plan of
asset transfer shall be proposed and adopted, and may
be amended after its adoption and terminated, by a
nonprofit corporation in the manner provided in this
subchapter for the proposal, adoption, amendment and
termination of a plan of merger. A copy or summary
of the plan shall be included in, or enclosed with, the
notice of the meeting at which members will act on the
plan . . . .
15 Pa.C.S. §5930(a).
At the outset, it is important to note that Zagar does not have an
ownership interest in the Mosaic or in Painted Bride. He also does not have a
contract with Painted Bride which would have limited the latter’s ability to use and
dispose of the Mosaic in accordance with the law, and as it saw fit in furthering its
charitable purposes. While we appreciate the effort that went into the creation of the
Mosaic, as well as the interest of some in the Philadelphia art community, and the
community generally, in the preservation of the Mosaic, we are focused primarily
on whether Painted Bride’s actions are consistent with its charitable purposes, in
light of the plain reading of the applicable statutes and its Articles of Incorporation.
As the Orphans’ Court did not find any irregularities in the process in
which Painted Bride’s board engaged in deciding whether to accept Buyer’s offer,
we see no justification for the Orphans’ Court to substitute its judgment for that of
Painted Bride’s board in what is, at its essence, a business decision, especially one
17
with this level of potential impact on Painted Bride’s ability to continue to fulfill its
charitable purposes in the future. By burdening Painted Bride with responsibility
for the perpetual upkeep of the Mosaic, the Orphans’ Court has placed an
unreasonable restraint on its ability to alienate its property, manage its affairs, and
to serve the community as consistent with its charitable purposes. Nowhere in
Painted Bride’s Articles of Incorporation does it state that Painted Bride has a duty
to preserve a building or a particular piece of art, and we do not read in such a
responsibility. Perhaps a portable piece of art may have brought with it different
responsibilities, but, here, we cannot assume, without evidence, that there was a tacit
responsibility for Painted Bride to ensure its building, even if used as a canvas by
Zagar, would be preserved in perpetuity. It was certainly foreseeable that it would
not.
The Orphans’ Court acknowledged that maintaining the Mosaic would
be burdensome and require restoration and that due diligence required Painted Bride
to give thoughtful consideration to “the large offer made by [Buyer].” Orphans’
Court Memorandum at 2-3. The Orphans’ Court also determined “[i]f it were not
for the fact that the façade was a work of art, then relief as requested would
unquestionably be granted.” Orphans’ Court Memorandum at 3. In denying Painted
Bride’s Petition, the Orphans’ Court determined Painted Bride had the burden of
proof but produced no “evidence of the value of the ‘Skin of the Bride,’ compared
with testimony from [Zagar] that its value is priceless.” Id. The Orphans’ Court
added “[c]onsidering the dearth of attempts at alternatives, the Court finds that the
sale at present is against the stated purposes of this non-profit [c]orporation.” Id.
18
While we are not bound by the decision in Roxborough, we do
acknowledge that in the absence of more authoritative case law, the criteria
enunciated for determining the reasonableness of the sale of a nonprofit’s property
is instructive in the present matter. Here, the Orphans’ Court did not determine that
the Painted Bride’s board acted unreasonably or in any sort of a self-aggrandizing
way. In fact, the Orphans’ Court ostensibly acknowledged that the board did its due
diligence in evaluating the offer from Buyer in light of the alternatives. In fact,
Painted Bride’s Executive Director of 20 years testified at the trial before the
Orphans’ Court that “maintaining the building is no longer sustainable” and “[w]e
spent multiple years looking at different options starting with what it would take to
repair the building in its current condition, to moving to another location, to selling
the proceeds – selling the building and using the proceeds for our future vision.”
R.R. at 281a. In addition, she testified that “[l]arge pieces of the [M]osaic fall off
from time to time,” and that there is construction netting around the building “for
the safety of the people walking around the building.” R.R. at 289a. Further, the
Executive Director testified that Painted Bride had “received a code violation for the
overall condition and two structural issues in the building.” R.R. at 290a. She also
testified that “the repairs would be close to $4.5 million,” and “[i]t’s unsustainable
for the [Painted] Bride to take on this amount of debt at this time in this cultural
climate.” Id. Additionally, she testified that sale of the building would not change
Painted Bride’s mission and purpose and that a sale would allow it to have “the
resources necessary to go forward to do [its] mission.” R.R. at 291a.
Painted Bride’s Articles of Incorporation make it clear that it is
organized exclusively for the purpose of
19
furtherance of the arts and promotion of cultural
endeavors among its members and more particularly in
the community by promoting and participating in
painting, sculpture, drama, music, dance and poetry
not for profit but conducive to physical and mental
development of its members and the community and for
the purpose of acquiring the necessary property to be
used in furthering the purposes of this corporation.
R.R. at 71a (emphasis added).13
Painted Bride’s charitable purpose is focused on arts programming, not
on property acquisition, maintenance, and preservation. While striving to achieve
its purpose may involve the acquisition of property, Painted Bride requires the
flexibility and fluidity to dispose of such property, when necessary, to fulfill its
mission. In other words, property acquisition and disposal is only incidental to
Painted Bride’s overall purpose. It is not its raison d’etre. It is a means to an end.
In fact, it is the sale of its property, including the Mosaic, i.e., the monetizing of
these assets, that, at least in theory in the present matter, will enable Painted Bride
to better position itself to promote the arts and cultural endeavors in its community.
Painted Bride’s Articles of Incorporation make no representation about the specific
kind or nature of the property it might acquire, and, in fact, makes it clear the
acquisition of property is to be used for furthering the purposes of the corporation.
To restrict Painted Bride’s ability to do so, where there is no contention that the
13
In addition, Painted Bride’s “Amended and Restated Bylaws” states its purposes are: “to
collaborate with emerging and established artists to create, produce and present innovative work
that affirms the intrinsic value of all cultures and celebrates the transformative power of the arts.
Through performances and exhibitions, education and outreach, the [c]orporation creates a forum
for engagement centered on contemporary social issues.” R.R. at 77a.
20
proceeds will not be used to effectuate its purpose of furthering the arts and
promoting cultural endeavors, may, in fact, lead to the ironic outcome of limiting
Painted Bride’s ability to promote the arts, broadly, in the quest to save one particular
work.
While we appreciate that Zagar offered evidence that the Mosaic is
“priceless,” we also note the value of art is often in the eye of the beholder. Painted
Bride had a firm offer from Buyer, which established the value of the property in
question to that particular purchaser. As Painted Bride noted, this was
approximately $2 million more than the next best offer, which may or may not have
ultimately preserved the Mosaic. Thus, in this regard, Painted Bride did provide
competent evidence of the value of the property, including the Mosaic – no matter
what the intent of the Buyer in terms of preserving (or not preserving) the Mosaic.
We reiterate here that Zagar did not have a contractual agreement in place with
Painted Bride that committed Painted Bride to the perpetual existence of the Mosaic,
nor did Zagar produce evidence of any agreement that provided him with an
ownership interest in the property or in any way limited Painted Bride’s ability to
dispose of the Mosaic and/or the property on which it was installed.14
14
Further, we believe it is important to reiterate here that an attempt was made to designate
the building as an historic property in 2018. This could have preserved the Mosaic for the
community. However, such attempt was expressly rejected by the Philadelphia Historical
Commission.
In regard to the A.G.’s position in this matter, we acknowledge its position that it sees no
reason the Orphans’ Court determination should be disturbed. However, it is also noteworthy that
it did not take a position during the litigation itself, and thus, it would not be unfair to infer tacit
approval of the sale of the Painted Bride property. If the A.G. believed that sale of the property
and the potential destruction of the Mosaic would have resulted in an inconsistency with Painted
Bride’s mission as a charitable non-profit, it could have, and should have, said so. Instead, in its
(Footnote continued on next page…)
21
Given Zagar’s lack of ownership in the Mosaic and lack of any
contractual agreement with Painted Bride that the Mosaic would be preserved
indefinitely, along with the lack of any indicia that Painted Bride otherwise had an
obligation in its Articles of Incorporation, or in law, to maintain the Mosaic, the
Orphans’ Court inappropriately affixed an impermissible restriction on Painted
Bride’s ability to effectuate the sale of its property to Buyer.
As noted above, 15 Pa.C.S. §5547(a) states, in pertinent part, that “a
nonprofit corporation incorporated for a charitable purpose or purposes may take,
receive and hold such real and personal property as may be given, devised to, or
otherwise vested in such corporation . . . for the purpose or purposes set forth in its
articles.” 15 Pa.C.S. §5547(b) states, in pertinent part, that “[p]roperty committed
to charitable purposes shall not . . . be diverted from the objects to which it was
donated, granted or devised, unless and until the board of directors . . . obtains from
the court an order under 20 Pa.C.S. Ch. 77.” Zagar argues that the Mosaic became
“property committed to charitable purposes.” Zagar’s Br. at 16. However, given
the lack of clarity about who approached whom to initiate the installation of the
Mosaic, and/or the reasons for it, it is at least arguable that Zagar undertook the
Mosaic project simply as a means to promote his art. In light of this latter suggestion,
we note that Zagar further asserts that all property donated (presumably regardless
of the motivation for it) to a charitable, non-profit constitutes property “committed
September 16, 2019 letter to the Orphans’ Court it specifically stated: “[the A.G. has] no objection
to the relief requested in the Petition.” R.R. at 617a.
22
to charitable purposes.” Zagar’s Br. at 16-17. But, Zagar’s position does not
overcome the directive of 15 Pa.C.S. §5547(a) that the property the nonprofit
receives is “for the purpose or purposes set forth in its articles.” 15 Pa.C.S. §5547(a).
In this case, Painted Bride’s Articles state that its purpose is “furtherance of the
arts and promotion of cultural endeavors among its members and more
particularly in the community by promoting and participating in painting,
sculpture, drama, music, dance and poetry not for profit but conducive to physical
and mental development of its members and the community . . . . (emphasis added).”
R.R. at 71a. Here, it is the sale of its property, including the Mosaic, that will result
in the liquidity necessary for Painted Bride to continue to fulfill its charitable
purpose. When it denied Painted Bride’s Petition, the Orphans’ Court read into
Painted Bride’s Articles of Incorporation a duty to the Mosaic itself – a duty that
does not exist. In doing so, the Orphans’ Court committed an error of law that must
be reversed.
V. Conclusion
For the foregoing reasons, we reverse the Decree and Order of the
Orphans’ Court.
______________________________
J. ANDREW CROMPTON, Judge
23
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
In Re: Painted Bride Art :
Center, Inc., non-profit corporation :
: No. 1642 C.D. 2019
:
Appeal of: Painted Bride Art :
Center, Inc. :
ORDER
AND NOW, this 20th day of October 2020, the decree of the
Philadelphia County Court of Common Pleas, Orphans’ Court Division, is
REVERSED.
______________________________
J. ANDREW CROMPTON, Judge