Opinion
21-P-288
02-23-2022
LORI AUSTIN SPILHAUS & another[1] v. AUSTIN FOUNDATION, INC., & others.[2]
Summary decisions issued by the Appeals Court pursuant to M.A.C. Rule 23.0, as appearing in 97 Mass.App.Ct. 1017 (2020) (formerly known as rule 1:28, as amended by 73 Mass.App.Ct. 1001 [2009]), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 23.0 or rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass.App.Ct. 258, 260 n.4 (2008).
MEMORANDUM AND ORDER PURSUANT TO RULE 23.0
Austin Foundation, Inc. (Foundation), is a public charity incorporated under the provisions of G. L. c. 180. The plaintiffs, who are members of the Foundation, brought suit under the Declaratory Judgment Act claiming that they and the other members were "deadlocked" with respect to the election of the Foundation's directors. Among other equitable remedies, the plaintiffs sought the appointment of one or more neutral parties to break the purported deadlock or "to serve as additional directors on a permanent or provisional basis." On the defendants' motion under Mass. R. Civ. P. 12 (b) (6), 365 Mass. 754 (1974), 1 a Superior Court judge dismissed the claim concerning the deadlock, and the plaintiffs appeal. We affirm.
The plaintiffs also alleged that the defendants took certain actions that interfered with their voting rights. This part of the complaint was dismissed without prejudice by agreement of the parties.
Background.
We accept the following allegations of the complaint as true. See Curtis v. Herb Chambers 1-95, Inc., 458 Mass. 674, 676 (2011).
John F. Austin, Jr., created the Foundation in 1972. Since his death in 2012, the Foundation has had four members: his children, Lori Austin Spilhaus (Lori), William B. Austin (Bowdie), and John F. Austin, Third (Jay); and Jay's son, Harris Austin (Harris).
Because several of the parties share a surname, we will refer to them individually by the names used in the briefs.
Lori, Jay, and Harris are the Foundation's directors and have served in that capacity since at least 2012. Lori and Bowdie are opposed to reelecting Jay and Harris as directors; Jay and Harris are opposed to reelecting Lori and electing Bowdie as directors. Jay and Harris also oppose expanding the number of directors to include any directors not chosen by them. Because each member has equal voting power, this has resulted in a "deadlock" as to the election of new directors. As a result, in lieu of holding annual meetings in 2018 and 2019, the members signed stipulations each year "to the effect that if the meeting 2 were held there would be no majority vote fixing the number of directors and no majority vote for the election of any director."
Jay is the president and treasurer of the Foundation and, as such, maintains "virtually sole control" over its management and finances. Recently, Jay, with Harris's cooperation, has sought to minimize Lori's and Bowdie's involvement in the Foundation by refusing to approve charitable donations proposed by them. It is undisputed, however, that the Foundation continues to operate and make charitable donations consistent with its intended purpose.
Discussion.
We review the allowance of a rule 12 (b) (6) motion to dismiss de novo. See Curtis, 458 Mass. at 676. To survive dismissal, the complaint must plausibly allege an entitlement to relief above the speculative level. See id.
The complaint was correctly dismissed because it does not state a claim that the alleged deadlock among the Foundation's members violated any individual right possessed by the plaintiffs. As a general rule, only the Attorney General can bring an action "to correct abuses in the administration of a public charity." Lopez v. Medford Community Ctr., Inc., 384 Mass. 163, 167 (1981), quoting Ames v. Attorney Gen., 332 Mass. 246, 250 (1955). 3 The Supreme Judicial Court has "on occasion recognized a private plaintiff's standing to make claims against a public charity, but only where the plaintiff asserts 'interests in such organizations which are distinct from those of the general public.'" Weaver v. Wood, 425 Mass. 270, 276 (1997), quoting Lopez, supra. Where a plaintiff sues in his or her capacity as a member of a public charity, the claim, to be viable, must "arise[] from a personal right that directly affects the individual member." Weaver, supra. See Lopez, supra at 167-168.
The plaintiffs named the Attorney General as a defendant in accordance with G. L. c. 12, § 8G. At the hearing on the motion to dismiss, the Attorney General stated that she took no position on the motion, and she did not file a brief on appeal.
The personal right identified by the plaintiffs here is the right "to elect successors to directors whose terms expired or would have expired upon the election of their successors" or, put another way, "to effect a change in the board of directors as currently constituted." No provision in G. L. c. 180 gives a member of a charitable corporation the right to elect or remove directors. Thus, as the plaintiffs acknowledged at oral argument, any such right must derive from the Foundation's bylaws. See G. L. c. 180, § 6A ("a corporation may by its bylaws determine . . . the tenure of office of the directors and officers and the manner of their selection and removal"). 4
"The by-laws of a corporation are a contract between the corporation and its members," Jessie v. Boynton, 372 Mass. 293 303 (1977), and are therefore interpreted according to the usual principles of contract law. See General Convention of New Jerusalem in the U.S. of Am., Inc. v. MacKenzie, 449 Mass. 832, 835 (2007). "When the words of a contract are clear, they must be construed in their usual and ordinary sense . . . ." Id. On the subject of election of directors, the Foundation's bylaws state the following:
"Not less than three nor more than seven directors . . . may be elected from time to time by the members of the corporation. The members may vote from time to time increase [sic] or decrease within the limits above specified the number of directors at the time in office and elect additional directors to complete the number so fixed and remove incumbent directors to reduce the number of directors to the number so fixed. Any director may effectively resign at any time . . ., and such resignation shall take effect upon acceptance by the directors. Except as aforesaid, each director shall hold office until his successor shall have been elected by the members at a meeting called for the purpose and until such successor shall have qualified."
The language of this provision is clear -- the members "may" elect new directors or remove existing directors, but are not mandated to do so if the number of directors is at least three and not more than seven. Unless the context "clearly 5 demand[s]" otherwise, "we recognize the word 'may' as a permissive term which 'does not impose a mandate but simply authorizes an act.'" Barranco v. Milford Hous. Auth., 408 Mass. 507, 507 (1990), quoting School Comm. of Greenfield v. Greenfield Educ. Ass'n, 385 Mass. 70, 81 (1982). Nothing else in the bylaws clearly demands that "may" not be given its ordinary permissive meaning. The bylaws do not specify any fixed time for a director's term of office. The plaintiffs are therefore incorrect to suggest that there are directors "whose terms expired," requiring the election of successors. See Jessie, 372 Mass. at 299 (court will not "impose . . . [a] limitation where the corporation's by-laws do not so require"). Nor is there any other provision in the bylaws giving the members the right to remove existing directors or to add new ones.
There is no dispute that the Foundation currently has three directors, within the specified limits. We need not and do not decide how the bylaws would apply to factual scenarios not before us.
Instead, we agree with the defendants that the membership right guaranteed by the bylaws is the right to vote for directors, not to instate directors of the member's choosing. The deadlock has not deprived the plaintiffs of that right, but is a consequence of the bylaws' requirement that "a majority" of the voting members "shall, except where a larger vote is required by law or by these by-laws, decide any question brought before [a] meeting." That the plaintiffs have been unable to secure a majority vote -- a result contemplated by the bylaws -- 6 does not warrant judicial intervention. See Jessie, 372 Mass. at 299-300.
The plaintiffs devote much of their briefs to arguing that the judge misapplied Koshy v. Sachdev, 477 Mass. 759 (2017), by failing to recognize the difference between a member deadlock and a director deadlock. We do not find Koshy relevant to the issues before us. Koshy concerned a shareholder petition brought under the corporate dissolution statute, G. L. c. 156D, § 14.30. See Koshy, supra at 763. That statute identifies certain situations in which a court may dissolve a business corporation, including where "the shareholders are deadlocked in voting power and have failed, for a period that includes at least [two] consecutive annual meeting dates, to elect successors to directors whose terms have expired, or would have expired upon the election of their successors, and irreparable injury to the corporation is threatened or being suffered." G. L. c. 156D, § 14.30 (2) (ii).
We reject the plaintiffs' attempt to apply this statute by analogy to a public charity incorporated under G. L. c. 180. Chapter 180 contains no counterpart provision speaking to the judicial remedies available in the event of member (or director) deadlock. Cf. Jessie, 372 Mass. at 301 ("The absence of any incorporation by reference of [a provision of the business corporation statute] into c. 180 is entitled to weight in 7 assessing the voting rights of members of a charitable corporation"). Moreover, by statute, the terms of the directors of business corporations expire, and their successors must be elected by the shareholders at an annual meeting. See G. L. c. 156D, §§ 8.05, 8.06. In contrast, as we have explained, the terms of the Foundation's directors do not expire, and the members have no right to elect new directors of their choosing. Thus, because the plaintiffs cannot establish the violation of any individual right they have by statute or under the bylaws, the complaint fails to state a viable claim and was correctly dismissed. See Weaver, 425 Mass. at 276; Jessie, 372 Mass. at 299-301.
Judgment affirmed.
The panelists are listed in order of seniority.