Save Cu v. Columbia Community Credit Union

• Decision Date: 25 July 2006
• Docket Number: No. 32858-5-II.,32858-5-II.
• Court: Washington Court of Appeals
• Parties: SAVE COLUMBIA CU COMMITTEE, John Bucholtz, Steve Straub and Robert Tice, Appellants, v. COLUMBIA COMMUNITY CREDIT UNION, Karen Martel, Edwin C. Bell, Dale Magers, William F. Byrd III, Robert M. Byrd, Dennis McLachlan, Mark L. Ail, Connie Jones, and Bruce Davidson, Respondents.

139 P.3d 386

134 Wn. App. 175

SAVE COLUMBIA CU COMMITTEE, John Bucholtz, Steve Straub and Robert Tice, Appellants, v. COLUMBIA COMMUNITY CREDIT UNION, Karen Martel, Edwin C. Bell, Dale Magers, William F. Byrd III, Robert M. Byrd, Dennis McLachlan, Mark L. Ail, Connie Jones, and Bruce Davidson, Respondents.

No. 32858-5-II.

Court of Appeals of Washington, Division 2.

July 25, 2006.

COPYRIGHT MATERIAL OMITTED

Douglas Allen Schafer, Schafer Law Firm, Tacoma, WA, for Appellants.

Heather K. Cavanaugh, Miller Nash LLP, John F. Neupert, Portland, OR, for Respondents.

PART PUBLISHED OPINION

ARMSTRONG, J.

¶ 1 Save Columbia Credit Union (Save CU) appeals a summary judgment and CR 12(b)(6) order dismissing its claims against Columbia Credit Union (Columbia) and individual Columbia board members. Save CU is a nonprofit corporation composed of Columbia Community Credit Union members who opposed the credit union's proposed conversion into a mutual savings bank. Save CU claimed that (1) some of Columbia's directors were illegally serving on the Board of Directors, (2) the directors breached their fiduciary duties to the credit union members, (3) Columbia wrongfully denied credit union members access to credit union records, (4) no law permits a credit union to convert into a mutual savings bank, and (5) any conversion to any other corporate form would require a two-thirds majority vote from the voting members. Because the question of whether board members were serving illegally turns on the meaning of a Columbia bylaw that is not clear on its face, the trial court erred in dismissing this claim; accordingly, we reverse and remand for further proceedings on this issue. The remaining issues bear on Columbia's proposed conversion. We decline to address these issues because Columbia is no longer seeking to convert. We also deny Save CU's request for attorney fees.

FACTS

¶ 2 Columbia is a state-chartered credit union under chapter 31.12 RCW. Respondents Karen Martel, Edwin C. Bell, Dale Magers, William F. Byrd III, Robert M. Byrd, Dennis McLachlan, Mark L. Ail, Connie Jones, and Bruce Davidson were members of Columbia's Board of Directors in early 2004.¹

¶ 3 The Board adopted a plan to convert Columbia into a Washington mutual savings bank. Columbia provided a disclosure statement to its nearly 60,000 members that (1) described the proposed conversion, (2) provided reasons for the proposed conversion, (3) acknowledged that the conversion approval required a majority vote, and (4) recommended that Columbia's members vote "for" the proposed conversion. Clerk's Papers (CP) at 179. At a special meeting held to vote on the proposed conversion, 4,821 members voted for the conversion and 4,407 opposed the conversion, a 52 percent approval.

¶ 4 Columbia's federal regulator, the National Credit Union Administration, denied the conversion because it disapproved of the voting method. As a result, the administration advised Columbia that its members would have to re-vote on the proposed conversion.

¶ 5 Dissatisfied with Columbia's conversion plan, Save CU collected 3,593 signatures from Columbia members and petitioned Columbia to hold a special meeting for its members to vote on the removal of its directors. Columbia deemed the petition unacceptable and failed to act on Save CU's request. Save CU then applied for a writ of mandamus, which the trial court granted in part. In compliance with the order, Columbia prepared and mailed ballots to its nearly 60,000 members, to vote on whether to retain the current Board of Directors.

¶ 6 Columbia and the Board spent "tens of thousands of dollars in expenses associated with conducting the Special Meeting." CP at 126. They also spent undisclosed amounts of money on an extensive advertising campaign, encouraging Columbia members to retain the current directors. Ultimately, the directors all retained office by receiving between 51 and 53 percent of the votes cast.

¶ 7 Save CU filed this action several days before Columbia and its directors held the special meeting. Save CU alleged that (1) certain directors were serving in violation of Columbia's term limits bylaw, (2) the directors violated their fiduciary duty to Columbia's members by spending Columbia's funds to defend their positions, (3) Columbia wrongfully denied Save CU members access to Columbia records, and (4) Columbia's proposed conversion was illegal.

¶ 8 The trial court granted Columbia's motion for summary judgment on the term limits claim, ruling that the bylaw in question, which Save CU argued mandated removal of certain directors, applied prospectively and allowed incumbent directors to retain their positions on the Board. The court ultimately also granted Columbia's 12(b)(6) motion on the remaining claims.

ANALYSIS

I. THE TERM LIMITS CLAIM

1. Standard of Review

¶ 9 We review a summary judgment de novo. Troxell v. Rainier Pub. Sch. Dist. No. 307, 154 Wash.2d 345, 350, 111 P.3d 1173 (2005) (citing Castro v. Stanwood Sch. Dist. No. 401, 151 Wash.2d 221, 224, 86 P.3d 1166 (2004)). Summary judgment is appropriate only if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." CR 56(c). Contract interpretation is a question of law only if "(1) the interpretation does not depend on the use of extrinsic evidence, or (2) only one reasonable inference can be drawn from the extrinsic evidence." Tanner Elec. Coop. v. Puget Sound Power & Light, 128 Wash.2d 656, 674, 911 P.2d 1301 (1996) (citing Scott Galvanizing, Inc. v. NW Enviroservices, Inc., 120 Wash.2d 573, 582, 844 P.2d 428 (1993)).

2. Analysis

¶ 10 Save CU argues that the trial court erroneously gave significant weight to a former director's understanding of the Board's intention in amending the "term limits" bylaw to the exclusion of the thousands of Columbia members' understanding. Br. of Appellant at 9. Save CU claims that the "term limits" bylaw rendered incumbent directors ineligible for reelection in the special election resulting from the mandamus order. Br. of Appellant at 12. Columbia argues that the Board of Directors intended the bylaw to apply prospectively. Columbia also asserts that the evidence it provided, and the bylaw's plain language, demonstrate that the bylaw was not intended to disqualify the challenged directors.

A. Admissibility of Extrinsic Evidence

¶ 11 In interpreting an organization's bylaws, we apply contract law. Davenport v. Elliott Bay Plywood Machs. Co., 30 Wash.App. 152, 154, 632 P.2d 76 (1981) (citations omitted). Our purpose in interpreting a contract is to ascertain the parties' intent. Berg v. Hudesman, 115 Wash.2d 657, 663, 801 P.2d 222 (1990). In doing so, we give the bylaws' language a fair, reasonable, and sensible construction. Davenport, 30 Wash.App. at 154, 632 P.2d 76.

¶ 12 We seek the parties' intent by focusing on the objective manifestations of the agreement, rather than on the parties' unexpressed subjective intent. Hearst Commc'ns, Inc. v. Seattle Times Co., 154 Wash.2d 493, 503, 115 P.3d 262 (2005) (citing Max L. Wells Trust v. Grand Cent. Sauna & Hot Tub Co. of Seattle, 62 Wash.App. 593, 602, 815 P.2d 284 (1991)). Under certain circumstances, we may look to the context surrounding an instrument's execution to interpret the parties' intent. Hearst, 154 Wash.2d at 502, 115 P.3d 262 (citing Berg, 115 Wash.2d at 667, 801 P.2d 222). Thus, we may consider extrinsic evidence of the circumstances surrounding contract formation, the subsequent acts and conduct of the parties, and the reasonableness of the parties' respective interpretations. Hearst, 154 Wash.2d at 502, 115 P.3d 262 (citing Berg, 115 Wash.2d at 667, 801 P.2d 222).²

¶ 13 But we use extrinsic evidence only "`to determine the meaning of specific words and terms used'" and not "`to show an intention independent of the instrument'" or to "`vary, contradict or modify the written word.'" Hearst, 154 Wash.2d at 503, 115 P.3d 262 (quoting Hollis v. Garwall, Inc., 137 Wash.2d 683, 695-96, 974 P.2d 836 (1999)) (emphasis omitted); see also, Go2Net, Inc. v. CI Host, Inc., 115 Wash.App. 73, 84, 60 P.3d 1245 (2003) (evidence of a party's unilateral or subjective intent as to contract's meaning is inadmissible extrinsic evidence). Generally, the parties' subjective intent is irrelevant if we can determine intent from the actual words used. Hearst, 154 Wash.2d at 503-04, 115 P.3d 262. In 1999, Columbia amended article V, section 2 of its bylaws, which described a director's term of service on the Board. That section previously mandated that each director serve a three-year term with the terms staggered and an equal number of directors elected each year. Current article V, section 2, of Columbia's bylaws, adopted in November 1999, limits the number of consecutive terms a director may serve:

Section 2. Term of Office. Each Director, upon election, may serve a maximum of three (3) consecutive, three (3) year terms, unless the Director resigns, dies or is removed under this Article. A mandatory absence from the Board of two (2) years is required before a Director can be re-elected to serve another term of office.

CP at 473. RCW 31.12.235(3) provides that "[a] director must meet any qualification requirements set forth in the credit union's bylaws. If a director fails to meet these requirements, the director shall no longer serve as a director."

¶ 14 Columbia asserts that the bylaw's language implies that a director must first be elected, after the bylaw's effective date, for his or her tenure to be subjected to the term limit. Save CU agrees that the bylaw is properly applied to an incumbent director at the end of his or her current term. But Save CU argues that when the bylaw applies, it applies based on the actual antecedent facts, including a director's already-served terms....