City of Picayune, et al. v. Southern Regional Corp.


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Docket Number: 2003-CA-00219-SCT

Supreme Court: Opinion Link
Opinion Date: 12-08-2005
Opinion Author: Carlson, J.
Holding: On Direct Appeal: Affirmed. On Cross-Appeal: Reversed and Rendered.

Additional Case Information: Topic: Wills, Trusts & Estates - Charitable corporation - Standing - Section 79-11-155 - Section 79-11-127
Judge(s) Concurring: Smith, C.J., Waller, P.J., Dickinson and Randolph, JJ.
Non Participating Judge(s): Cobb, P.J., Diaz and Graves, JJ.
Dissenting Author : Easley, J.
Procedural History: Dismissal
Nature of the Case: CIVIL - WILLS, TRUSTS AND ESTATES

Trial Court: Date of Trial Judgment: 01-08-2003
Appealed from: Pearl River County Chancery Court
Judge: James H.C. Thomas, Jr.
Disposition: chancellor ruled to dismiss all claims asserted by representative citizens of the City of Picayune against the Southern Regional Corporation, the Lower Pearl River Valley Foundation and the common board of directors known to each.
Case Number: 00-0327-GN-TH

  Party Name: Attorney Name:  
Appellant: The City of Picayune, a Mississippi Municipal Corporation; Patricia Crosby, Woody Spiers, Ahmad Haidar, M.D., John R. Pigott, Maria G. Beverage, Crosby Hospital Auxiliary, an Unincorporated Association, through its President Martha J. Sheppard




G. GERALD CRUTHIRD, GLENN LOUIS WHITE, STEPHEN SHEPPARD



 

Appellee: Southern Regional Corporation f/k/a Lucius O. Crosby Memorial Hospital, a Mississippi Non-Profit Corporation and Sidney L. Whitley, Ted J. Alexander, Stanley Jack Watson, Clyde Dease, Jo Woods, Charlotte Odom, Thomas M. Casey and Lower Pearl River Valley Foundation, a Mississippi Non-Profit Corporation SCOTT W. PEDIGO, JAMES LAWRENCE JONES  

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Topic: Wills, Trusts & Estates - Charitable corporation - Standing - Section 79-11-155 - Section 79-11-127

Summary of the Facts: The City of Picayune filed suit in chancery court on behalf of the citizens of Picayune and surrounding areas naming the Southern Regional Corporation, the Lower Pearl River Valley Foundation, and the seven directors of two corporate entities as defendants. In its complaint, the City alleged, inter alia, that the assets of SRC and LPRVF were held in trust for the benefit of the citizens of Picayune by way of an implied trust; that the City was entitled to damages for restitution due to the defendants’ negligent entrustment of trust properties; and, that the City was entitled to an equitable accounting, appointment of a master and receiver, and other appropriate relief. The defendants responded by initially removing the case to the United States District Court for the Southern District of Mississippi and then, subsequently, to the United States Bankruptcy Court for the Middle District of Tennessee. When both removals resulted in remand to state court, the defendants proceeded in chancery court and filed a motion requesting dismissal. The chancellor entered an order dismissing all of the City’s claims asserted on behalf of its citizens, but authorizing the City to pursue claims asserted through its corporate capacity. Patricia Crosby, Woody Spiers, Ahmad Haidar, John R. Pigott, Maria Beverage and Martha Sheppard intervened and re-asserted the legal positions and adopted the discovery responses submitted by the City. However, the City subsequently dismissed all of its claims with prejudice, thus leaving the Intervenors to pursue their representative claims. The defendants filed motions with the chancery court to dismiss the Intervenors’ claims for lack of standing but the chancellor denied the motions. After a trial, the chancellor dismissed the Intervenors’ claims. The Intervenors appeal, and the defendants filed a cross-appeal.

Summary of Opinion Analysis: The defendants argue that the court erred in granting the Intervenors’ motion to intervene and concluding that the Intervenors had standing to bring suit. A charitable trust is a fiduciary relationship with respect to property arising as a result of a manifestation of an intention to create it, and it subjects the person by whom the property is held to equitable duties and mandates that the property be dedicated to a charitable purpose. A charitable trust is strictly guided by its charitable purpose and the specific intentions of its settlor. To this end, principles of equity act to ensure that the settlor’s intentions, whatever they may be, are accomplished or are accomplished as nearly as possible. In this way, the doctrine of cy-pres or of approximation can be applicable to gifts made in trust to charitable corporations as well as to such gifts made to an individual trustee to be dedicated to a charitable purpose. In slight contrast, a charitable corporation is any corporation or organization founded upon donations and engaged without profit in charitable activities and in no other activity of a commercial or gainful nature. Moreover, the basic requirement of a nonprofit, public benefit entity is that it be operated exclusively for a charitable purpose, that it serve the public rather than a private interest and that its income or assets not be distributed to individuals in control of the entity. Unlike a trust, a charitable corporation is spawned as an independent entity possessing free will to the extent provided by its own articles of incorporation, bylaws and the laws of the state in which it is incorporated. While these corporate entities are directed by a charitable purpose, they remain autonomous unto themselves in maintaining and perpetuating the nature and classification of this purpose. Specifically, a corporation acquires its existence and authority to act from the state and, as such, is a creature of statute. As a general rule, the courts refrain from interfering with the internal management of a corporation and do not interfere in the affairs of a private corporation in the absence of proof of bad faith or fraud on the part of those entrusted with its management. Today’s case involves a non-profit charitable corporation incorporated under the laws of Mississippi in 1951 for the charitable purpose of building a hospital. A corporation was founded by five members who were then authorized to elect a Board of Directors and who ultimately drafted the corporation’s original bylaws. Pursuant to our code, which now includes the Mississippi Non-Profit Corporation Act, SRC came into existence as an independent legal entity with the usual rights to hold property in its own name, to manage its own business, and to alter or repeal its charter provisions in order to carry out its charitable purposes. To this end, SRC has consistently acted pursuant to the laws enumerated within the corporate code and should thus be governed accordingly. For these reasons, the issue of standing in this case should be determined under the applicable non-profit corporate provisions found in the Mississippi Code. Section 79-11-155 governs the ability of a party to challenge a corporation’s power to act. Pursuant to section 79-11-155, a suit of this nature may be brought against a corporate entity in the State of Mississippi only by the Attorney General, a director or by a member or members in a derivative proceeding. A member is a stakeholder in the corporation and has the power to effectuate change in corporate management. Pursuant to section 79-11-127, a member has a defined legal interest in a corporation inasmuch as the member brings that corporate entity into being, votes for its corporate management, votes to dissolve its corporate being, or, upon such dissolution, has a right to share in the disposition of corporate assets. None of the Intervenors in this suit were qualified to bring suit as corporate members, having demonstrated only a limited tenuous public interest in the benefits provided by the hospital’s charitable ownership. The relief sought by the Intervenors, as mere putative beneficiaries of a charitable corporation’s corporate acts, falls well outside of any legal interest in SRC.


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