Bourne v. Williams

• Citation: 633 S.W.2d 469
• Parties: Mr. and Mrs. Richard BOURNE, et al., Plaintiffs-Appellants, v. Dwayne WILLIAMS et al., Defendants-Appellees.
• Decision Date: 17 March 1981
• Court: Tennessee Court of Appeals

Page 469

633 S.W.2d 469

Mr. and Mrs. Richard BOURNE, et al., Plaintiffs-Appellants, v. Dwayne WILLIAMS et al., Defendants-Appellees.

Court of Appeals of Tennessee, Western Section at Jackson.

March 17, 1981 Permission to Appeal Denied by Supreme Court June 1, 1981.

George R. Fusner, Jr., Jackson, for plaintiffs-appellants.

Charles C. Harrell, of the law firm of Heiskell, Donelson, Bearman, Adams, Williams & Kirsch, Memphis, for defendants-appellees.

Jerry D. Kizer, Jr., of the law firm of Menzies, Rainey & Kizer, Jackson, for appellee Ohio Cas. Ins. Co.

TOMLIN, Judge.

This suit was instituted in the Chancery Court of Hardeman County, Tennessee, by 28 owners of parcels of real estate located in the Grand Valley Lakes Subdivision, located in Hardeman County, Tennessee, which is purported to be maintained by the Grand Valley Lakes Property Owners Association, Inc., a nonprofit corporation incorporated under the laws of the State of Tennessee, hereafter referred to in this opinion as the "Corporation." The suit is against the Corporation, members of the executive committee and board of directors of the Corporation, charging the board of directors with wasting corporate assets to the detriment of the Corporation, and with using corporate assets for the personal gain of the individual board members, alleging further that corporate assets were likewise being depleted.

The plaintiffs, asserting that as lot owners in the subdivision they were thus made members of the nonprofit Corporation, also allege that the defendant Corporation had under its control and management liquid assets in excess of $200,000, and that in addition thereto had the responsibility for and the charge and control of other common area physical assets, such as club house, public roads, golf course, lake, marina and swimming pool, among others.

In great detail, which will not be gone into here, plaintiffs charge the Corporation and the individual defendants with taking actions contrary to the best interests of the Corporation, and in violation of the purposes for which the Corporation was formed. There is also an allegation setting forth the steps taken by the plaintiffs to remedy the actions complained of by the board of directors and executive committee without resorting to this litigation. The complaint also alleges a fiduciary duty on the part of the defendants to use the assets for the best interests of the Corporation. The action is brought as a shareholder's derivative action, seeking injunctive relief and money judgments for the benefit and on behalf of the Corporation.

The defendants filed a motion to dismiss under Rule 12.02, T.R.C.P., stating that the complaint failed to state a cause of action, grounding their motion to dismiss on the bedrock of T.C.A. sec. 48-718, to the effect that shareholder's derivative action may be brought only on behalf of a corporation for profit, and that inasmuch as the defendant Corporation was a corporation not for profit, that this action should fail.

After considering argument of counsel and memoranda filed on behalf of all the parties, the Chancellor found that T.C.A. sec. 48-718 controlled, and dismissed the complaint. It is from this ruling that the plaintiffs have appealed.

For the reasons hereinafter set forth, we reverse the Chancellor below and remand the case for a hearing on the merits.

The fourteen chapters of the General Corporation Act were enacted into Tennessee Code Annotated in 1968. However, the courts of this state have for many, many years been available to enforce the rights of corporations, as well as their stockholders and officers. As early as the latter part of the last century, our Supreme Court recognized the rights of stockholders of a corporation to bring what is now called a "derivative action." In the case of Deaderick v. Wilson, 67 Tenn. 108 (1874), suit was filed in the Chancery Court of Hamblen County by a group of stockholders on their own behalf and on behalf of all the other stockholders, against the corporation and certain officers and directors.

In affirming that a court of equity would provide a forum for a suit of this nature, the court stated at page 131:

It has been earnestly argued that conceding there has been an improper exercise of power by the officers and directors in making these contracts, and in the use of the money of the corporation in carrying them out, yet no suit can be brought or sustained such as this, beceause (sic) the bill does not aver that the directors have on application refused to sue in the name of the corporation, or to allow a suit to be brought in its name for such misapplication. That this is the general rule there can be no question. It is based on the principle, that the funds belong to the corporation, not the stockholder, and therefore the corporation should sue for it, or if the shareholders sue it should be with the consent of the corporation to the use of its name. See Ang. & Ames on Corp., p. 367, sec. 312, 6th Ed.; Redf. on R., vol. 2d, p. 335, secs. 9, 10, 11, 3d Ed. But we think on sound principle, as well as authority, there are well-settled exceptions to this rule. It is laid down in Ang. & Ames on Corp., 367: "But as a court of equity never permits a wrong to go unredressed, merely for the sake of form, if it appear (sic) that the directors of a corporation refuse in such cases to prosecute, by collusion with those who had made themselves answerable by their negligence or fraud-or if the corporation is still under the control of those who must be defendants in the suit, the stockholders, who are the real parties in interest, will be permitted to file a bill in their own name, making the corporation a party defendants (sic)." See, also Mussina v. Goldthwaite, 7th Am.R., 282, (34 Texas.)

We think this exception is as well based and as sound as the general proposition itself. Applying it to the case before us, taking the facts in the bill as true, it appears, that the parties defendant are the parties who have ben guilty of the alleged misuse of the funds; that they are still the officers of the road, and have a controlling interest in its management; that they have procured an endorsement and approval of their contracts by the board of directors, in spite of, and over the opposition of the minority of the stockholders; and are not only interested in their feelings, but pecuniarily, in having these contracts remain undisturbed, and in full force. Under these circumstances, we hold, that the stockholder may well bring his suit in equity for redress, making the parties complained of defendants together with the corporation, as has been done in this case. If there was no remedy in such cases given in a court of equity, the directors might put the stockholders to defiance, or so embarrass and delay them as to do great injury, and on either ground the jurisdiction, we think, maintainable.

This holding in Deaderick is of course by no means dispositive of the present issue, for in Deaderick the corporation involved was a corporation for profit. It is cited to illustrate that over a hundred years ago the courts of this state recognized the right of access to the chancery court by stockholders aggrieved, as the shareholders who are members of the Corporation in the present case claim to be aggrieved....