NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______________
No. 23-1495
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PHILIP T. SIEGEL, DDS,
Appellant
v.
MARK GOLDSTEIN, DDS; BRIAN SMITH, DMD;
JOSEPH P. MULLIGAN, DMD; SAMER ABDELSAMIE, DMD;
DELAWARE VALLEY MAXILLOFACIAL AND ORAL SURGERY, P.C.
________________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil No. 2:19-cv-02890)
District Judge: Honorable Wendy Beetlestone
________________
Submitted Under Third Circuit L.A.R. 34.1(a)
on February 1, 2024
Before: CHAGARES, Chief Judge, RESTREPO and FREEMAN, Circuit Judges
(Opinion filed: April 12, 2024)
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OPINION*
__________
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
FREEMAN, Circuit Judge.
Philip Siegel, a retired dentist, was a shareholder in his former dental practice.
When the other shareholders discovered a breach of the practice’s operating agreement,
they canceled Siegel’s shares as void but permitted him to keep the distributions he had
already received under the agreement. Siegel sued the other shareholders and the
practice, and the District Court granted summary judgment for Defendants. We will
affirm.
I
Siegel co-founded Delaware Valley Maxillofacial and Oral Surgery (DVMOS) as
an LLC in 2003. Although he was licensed to practice dentistry, he never treated
DVMOS’s patients; instead, he performed business and teaching functions for the
practice. In 2014, he retired to Florida and placed his dental license in inactive status.
Although he did not actively conceal the status of his license, he did not tell the other
members of the LLC that his license was inactive. He continued to collect distributions
pursuant to the LLC’s operating agreement.
In 2016, William Burns—DVMOS’s accountant and Siegel’s personal
accountant—recommended that the LLC convert to a professional corporation (PC) for
tax advantages. Burns and DVMOS’s attorney, Stuart Lundy, told the members that the
conversion would not affect the members’ rights to their share of the distributions.
Lundy then prepared documents for the conversion, including a Shareholders’ Agreement
(SA).
2
The SA’s “Qualified Shareholders” provision states that “no [s]hares shall be
issued by the Corporation . . . except . . . to a person licensed to render the Services in the
State.” App. 71. It also states that “[a]ny attempted issuance . . . in violation of this
provision shall be void and ineffective.” Id.
The SA’s arbitration provision states that “expedited arbitration shall be the
exclusive remedy to resolve any dispute or alleged breach relating to this agreement,
whether statutory or sounding in contract or in tort, excepting (i) the enforcement of the
restrictive covenants, (ii) other actions in equity, and (iii) actions with an amount in
dispute of less than $12,000.00.” App. 81 (emphasis added).
Siegel reviewed the SA with his attorney, but neither his attorney nor Lundy
inquired about the status of Siegel’s license. He and three other shareholders signed the
SA on April 1, 2016, and the PC was formed. On that date, Siegel’s shares were worth
$502,000. From the PC’s formation date through May 2019, Siegel collected $825,830
in distributions.
In early 2019, the other shareholders learned that Siegel’s license was inactive and
had been since 2014. DVMOS tried to negotiate a buyout of Siegel’s shares, but the
parties could not reach an agreement. DVMOS then notified Siegel that his shares had
been cancelled as void.
On July 2, 2019, Siegel sued DVMOS and its shareholders. The District Court
granted Defendants’ motion to compel arbitration. The arbitrator then concluded that
Siegel was not a Qualified Shareholder under the SA, so the shares issued to him at the
time of conversion were void. The arbitrator therefore concluded that Defendants were
3
entitled to cancel Siegel’s shares—but “not without proper compensation.” App. 140.
The arbitrator also determined that the distributions Siegel received while his license was
inactive compensated him for the cancellation of his shares.
After the arbitration, Siegel returned to the District Court and amended his
complaint, seeking only equitable relief. The District Court confirmed the arbitration
award and granted Defendants’ motion to dismiss the complaint. It concluded that the
claims sounded in law (rather than equity) and thus were barred by the SA’s arbitration
provision.
On appeal, this Court affirmed the order confirming the arbitration award but
vacated the order granting the motion to dismiss. Siegel v. Goldstein, No. 20-3547, 2022
WL 2234952 (3d Cir. June 22, 2022) (Siegel I). We held that the arbitration provision
permitted some of Siegel’s claims to proceed in court, id. at *4–*5, so we remanded for
further proceedings. We left open whether Siegel’s surviving claims were precluded
under the doctrine of collateral estoppel. Id. at *4 n.2.
On remand, the parties cross-moved for summary judgment. The District Court
granted Defendants’ motion and denied Siegel’s. Siegel timely appealed.
II
The District Court had jurisdiction over Siegel’s equitable claims under 28 U.S.C.
§ 1332. We have appellate jurisdiction under 28 U.S.C. § 1291.
We exercise plenary review of a district court’s order granting summary judgment,
Huber v. Simon’s Agency, Inc., 84 F.4th 132, 144 (3d Cir. 2023), and its application of
collateral estoppel, In re Bestwall LLC, 47 F.4th 233, 242 (3d Cir. 2022). “Summary
4
judgment is appropriate when ‘there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.’” Huber, 84 F.4th at 144 (quoting Fed.
R. Civ. P. 56(a)).
III
Siegel appeals the grant of summary judgment for Defendants on his equitable
breach of contract, breach of fiduciary duty, minority shareholder oppression, and
declaratory judgment claims. We address each in turn.
A. Equitable Breach of Contract
We agree with the District Court that collateral estoppel precludes Siegel’s
equitable breach of contract claim. Collateral estoppel precludes relitigation of certain
issues that have been determined by a “court[] of competent jurisdiction.” Adelphia
Gateway, LLC v. Pa. Env’t Hearing Bd., 62 F.4th 819, 826 (3d Cir. 2023). “Under
Pennsylvania law, arbitration proceedings and their findings are considered final
judgments for the purposes of collateral estoppel.” Witkowski v. Welch, 173 F.3d 192,
199 (3d Cir. 1999).
To invoke the doctrine of collateral estoppel, a party must establish four factors,
including that “an issue decided in a prior action is identical to the one presented in a
later action.” Adelphia Gateway, 62 F.4th at 826 (quoting Rue v. K-Mart Corp., 713
A.2d 82, 84 (Pa. 1998)).1 The party must also show that the issue was “necessary to the
1
The remaining three factors are:
(2) the prior action resulted in a final judgment on the merits; (3) the party
against whom collateral estoppel is asserted was a party to the prior action,
5
original judgment.” Id. at 827 (quoting Hebden v. Workmen’s Comp. Appeal Bd., 632
A.2d 1302, 1304 (Pa. 1993)).
Here, breach was a necessary factor in the legal breach of contract claim before
the arbitrator, and Siegel presented the identical factor to the District Court in his
equitable claim. Doe v. Univ. of Scis., 961 F.3d 203, 211 (3d Cir. 2020) (“Under
Pennsylvania law, three elements are necessary to plead a cause of action for breach of
contract: (1) the existence of a contract, including its essential terms; (2) a breach of the
contract; and (3) resultant damages.” (cleaned up)); Siegel I, 2022 WL 2234952, at *4
(observing that the remedy sought is the only difference between equitable and legal
breach of contract claims under Pennsylvania law).
The arbitrator concluded that Defendants “were legally entitled to cancel the
shares” because they were “void by the terms of the SA.” App. 140. She then concluded
that the distributions Siegel received while his shares were void properly compensated
him according to “the formula in both the [original agreement] and the SA.” App. 141.
In making these conclusions, she made a final, necessary determination that Defendants
did not breach the SA when they cancelled Siegel’s shares after compensating him. That
determination precludes Siegel’s equitable claim for breach of contract.
or is in privity with a party to the prior action; and (4) the party against
whom collateral estoppel is asserted had a full and fair opportunity to
litigate the issue in the prior action.
Adelphia Gateway, 62 F.4th at 826 (quoting Rue, 713 A.2d at 84).
6
Siegel asserts that an equitable exception from collateral estoppel is warranted.
The Restatement (Second) of Judgments states that collateral estoppel does not preclude
relitigation of an issue if “[a] new determination of the issue is warranted by differences
in the quality or extensiveness of the procedures followed in the two courts or by factors
relating to the allocation of jurisdiction between them.” Restatement (Second) of
Judgments § 28(3) (1982).2 But Siegel makes no compelling argument that the
arbitration procedures lacked quality or extensiveness. We also are unpersuaded that the
arbitrator’s ability to adjudicate only claims at law renders collateral estoppel inequitable.
B. Breach of Fiduciary Duty & Minority Shareholder Oppression3
Siegel’s minority shareholder oppression claim fails because he could not have
reasonably expected to retain his shares after the conversion. A party establishes a claim
for minority shareholder oppression by showing that majority shareholders engaged in
“conduct that substantially defeat[ed] the reasonable expectations held by minority
shareholders in committing their capital to the particular enterprise.” Ford v. Ford, 878
A.2d 894, 900 (Pa. Super. Ct. 2005) (cleaned up); see also id. at 905 (“Freezing out the
minority in order to benefit the majority is a breach of fiduciary duty.”). A minority
shareholder’s expectations must be “reasonable under the circumstances” when
2
Pennsylvania has not expressly adopted Section 28 but cites it favorably. See Rue, 713
A.2d at 86. Here, we assume (without deciding) that the Pennsylvania Supreme Court
would adopt this exception,
3
As the District Court noted, Siegel’s fiduciary duty claim rests only on his theory of
minority shareholder oppression. App. 16. Therefore, we address these claims together.
7
“objectively viewed.” In re Kemp & Beatley, Inc., 473 N.E.2d 1173, 1179 (N.Y. 1984).4
Majority shareholders engage in oppressive conduct when they “use their power . . . to
exclude minority shareholders from their proper share of benefits accruing from the
enterprise.” Ford, 878 A.2d at 905 (quoting Kessler v. Broder, 851 A.2d 944, 948 (Pa.
Super. Ct. 2004)).
No reasonable jury could conclude that Siegel reasonably expected to be able to
retain his shares after the conversion.5 A contract is intended to reflect “[t]he intent of
the parties.” Delaware County v. Delaware Cnty. Prison Emps. Indep. Union, 713 A.2d
1135, 1137 (Pa. 1998). When a contract’s “words are clear and unambiguous the intent is
to be gleaned exclusively from the express language of the agreement,” id., not from
“what the parties may have silently intended,” id. at 1138; cf. Consol. Rail Corp. v. ACE
Prop. & Cas. Ins. Co., 182 A.3d 1011, 1026 (Pa. Super. Ct. 2018) (“[A]n insured may not
complain that its reasonable expectations were frustrated by policy limitations which are
clear and unambiguous.” (cleaned up)).
The plain text of the SA sets out the parties’ intent regarding prospective
shareholders with inactive licenses. In short, such persons cannot be Qualified
4
Pennsylvania has adopted New York’s definition of oppressive action, which sets forth
the reasonable expectation requirement. Gee v. Blue Stone Heights Hunting Club, Inc.,
604 A.2d 1141, 1145 (Pa. Commw. Ct. 1992).
5
The arbitrator found that none of the persons involved in the conversion from an LLC to
a PC (that is, Siegel, his attorney, Burns, Lundy, the LLC’s members, or DVMOS’s
shareholders) expected that the conversion would prevent Siegel from owning shares in
DVMOS. App. 136-37, 140. She did not address whether their subjective expectations
were reasonable, and her factual finding has no preclusive effect on the objective
reasonableness question.
8
Shareholders. App. 71. Therefore, a reasonable prospective shareholder in Siegel’s
position would have expected that the conversion would void his existing shares due to
his inactive license.
Siegel argues that he reasonably relied on the representation from Lundy
(DVMOS’s attorney) that “nothing was going to change” as a result of the conversion.6
App. 140. But the arbitrator found that Siegel alone knew that his license was inactive.
In these circumstances, it was unreasonable for Siegel to rely on Lundy’s statement over
the plain contractual language.
C. Equitable Estoppel & Declaratory Judgment
Siegel’s equitable estoppel claim is foreclosed by his unreasonable reliance on
Lundy’s statement. Equitable estoppel “recognizes that an informal promise implied by
one’s words, deeds or representations which leads another to rely justifiably thereon to
his own injury or detriment, may be enforced in equity.” Novelty Knitting Mills, Inc. v.
Siskind, 457 A.2d 502, 503 (Pa. 1983). Justified reliance is one of “two essential
elements of equitable estoppel.” Id. A party is not justified in relying on a representation
if it would be unreasonable for him to do so. See Jacob v. Shultz-Jacob, 923 A.2d 473,
480 (Pa. Super. Ct. 2007) (defining the doctrine of equitable estoppel to require the
deprivation “of a reasonable expectation”).
6
Defendants argue that Lundy’s statements are parol evidence that we may not consider.
We assume without deciding that we may consider those statements, as we would affirm
the District Court’s order with or without them.
9
Siegel unreasonably relied on Lundy’s statement, so there is no basis for a
declaratory judgment that equitable estoppel bars Defendants from asserting that they had
contractual grounds to cancel Siegel’s shares.
* * *
For the foregoing reasons, we will affirm.
10
Philip Siegel v. Mark Goldstein
Combined Opinion