Keene v. Brookhaven Academy, Inc.
| Docket Number: | 2008-CA-01381-SCT | |
| Supreme Court: | Opinion Link Opinion Date: 03-04-2010 Opinion Author: Chandler, J. Holding: Affirmed |
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| Additional Case Information: |
Topic: Corporations - Ratification by shareholders - General-purpose corporation - Voidable acts - Notice - Section 79-4-7.05(c) Judge(s) Concurring: Waller, C.J., Carlson and Graves, P.JJ., Dickinson, Randolph, Lamar, Kitchens and Pierce, JJ. Procedural History: Bench Trial; Summary Judgment Nature of the Case: CIVIL - CONTRACT |
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| Trial Court: |
Date of Trial Judgment: 07-10-2008 Appealed from: LINCOLN COUNTY CHANCERY COURT Judge: Ed Patten Disposition: The circuit-court complaint was derivative in nature and asserted essentially the same claims as the chancery-court matter. The defendants in the circuit-court case filed a motion to dismiss, or in the alternative, to transfer to chancery court. After the circuit-court case was transferred to the chancery court, the trial court granted all the defendants’ motions for summary judgment and dismissed the action. The chancellor found that: (1) the Academy was not a special-purpose corporation; (2) the acts by the Academy were voidable, not void; (3) the shareholders had received adequate notice of the purpose of the December 15, 2005, shareholders’ meeting; and (4) the shareholders properly had ratified the actions of the Academy at the meeting. Case Number: 2004-0454 |
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| Party Name: | Attorney Name: | Brief(s) Available: | ||
| Appellant: | Dudley Keene, Individually and on Behalf of Brookhaven Academy and Shareholders of Brookhaven Academy |
DURWOOD EARNEST McGUFFEE, JR. |
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| Appellee: | Brookhaven Academy, Inc., Brookhaven Academy Educational Foundation, Inc., Jeff Gatlin, Ken Powell, Phil McGee, and Dean Snider | FRANK CHANDLER BREESE, III, DUDLEY F. LAMPTON, CECIL MAISON HEIDELBERG | ||
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| Topic: | Corporations - Ratification by shareholders - General-purpose corporation - Voidable acts - Notice - Section 79-4-7.05(c) |
| Summary of the Facts: | Dudley Keene, a shareholder in Brookhaven Academy, Inc., filed suit in chancery court against the Academy and Brookhaven Academy Educational Foundation, Inc., claiming that the Academy failed to follow corporate bylaws and its articles of incorporation when the Academy set up and transferred the use of assets to the Foundation, a nonprofit corporation. Keene requested a declaratory judgment and sought injunctive relief. The Academy and the Foundation filed a motion to dismiss. The trial court granted the motion in part and denied the motion in part. Later, the Academy and the Foundation filed a motion for partial summary judgment. While the chancery-court case progressed, Keene filed a complaint in circuit court. The circuit-court complaint was derivative in nature and asserted essentially the same claims as the chancery-court matter. The defendants in the circuit-court case filed a motion to dismiss, or in the alternative, to transfer to chancery court. The Academy and the Foundation filed a motion for continuance, or in the alternative, a request that the circuit-court case be transferred to the chancery court. The circuit court denied the defendants’ motion to dismiss; however, it granted a transfer of the circuit court case to the chancery court. After the circuit-court case was transferred to the chancery court, the trial court granted all the defendants’ motions for summary judgment and dismissed the action. Keene appeals. |
| Summary of Opinion Analysis: | Issue 1: Ratification Keene argues that the trial court erred by finding that the shareholders properly ratified the actions of the Academy Board. He argues that the Foundation’s vote of 805 of its shares in the Academy legally could not be made because the Foundation is a subsidiary of the Academy, and the shareholders were coerced into transferring their shares in the Academy to the Foundation. Individual shareholders chose to transfer their stock in the Academy to the Foundation. The Foundation did not have “shares” of its own; rather it provided memberships in the Foundation. The Academy is not a member of the Foundation, and there is no allegation that the directors of the Academy and the directors of the Foundation were the same. The shareholders ratified the Foundation as a solely owned corporation, not a subsidiary of the Academy. With regard to coercion, Keene’s argument is without merit. The school enrollment and Foundation membership requirements provided Academy shareholders the option either to retain their Academy stock or pay $750 for membership in the nonprofit Foundation. No shareholder was forced to surrender his or her Academy stock. Issue 2: Type of corporation Keene argues that the trial court erred by finding that the Academy is a general-purpose corporation. He argues that the Academy is a specific-purpose corporation set up for the purpose of conducting a school business. The trial court did not err by finding that the Academy is a general-purpose corporation. While one of the enumerated corporate purposes for the Academy is for the organization and operation of schools, it has many others, including “(5) To have and to exercise all powers conferred by the laws of the State of Mississippi upon corporations,” and section six, concerning the sale, lease, acquisition and disposal of real and personal property, among other powers. Issue 3: Voidable acts Keene argues that the trial court erred by finding that the acts of the Academy Board were voidable and not void. The term ‘ultra vires’ has been used to refer to acts which the corporation’s charter does not authorize. Ultra vires also signifies an act that exceeds the powers of the corporation as defined by law. An act of a corporation relating to the subjects within its powers though it should exceed those powers is not void. Keene’s contention that Academy Board’s actions were ultra vires in nature in forming the Foundation, being a “holding company,” and in transferring assets via a lease, are without merit, because the actions were within the confines of the power conferred on the Academy. Additionally, the shareholders ratified the actions of the Academy Board in forming the nonprofit Foundation, transferring the educational activities, and entering into a lease with the Foundation. Issue 4: Notice Keene argues that the trial court erred by finding that the shareholders had adequate notice for the December 2005 special shareholders meeting. The Academy gave the shareholders notice of a December 2005 special meeting in lieu of an annual stockholders meeting. The notice provided the location, time, date, and purpose of the shareholders meeting. The trial court did not err by finding that the Academy provided adequate notice to the shareholders. The notice, as previously discussed, provided each shareholder more than a mere description of the purpose, pursuant to section 79-4-7.05(c). Also, the wording of the issues provided additional clarification for the shareholders. |
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