Brenner v. Powers

• Decision Date: 13 January 1992
• Docket Number: No. 86A03-89120CV-574,86A03-89120CV-574
• Citation: 584 N.E.2d 569
• Parties: Howard B. BRENNER, M.D., Individually and on Behalf of Similarly Situated Minority Members of the Munster Medical Research Foundation, Inc., and As Relator, and Edward M. Alt, M.D., Individually and As Relator, Appellants-Plaintiffs, v. Donald S. POWERS, George E. Watson, Munster Medical Foundation, Inc., Community Foundation, Inc., Memorial Recreation and Education Foundation, Inc., Palmer C. Singleton, Jr., William J. Fitzpatrick, and John Mybeck, Appellees-Defendants.
• Court: Indiana Appellate Court

Page 569

584 N.E.2d 569

Howard B. BRENNER, M.D., Individually and on Behalf of Similarly Situated Minority Members of the Munster Medical Research Foundation, Inc., and As Relator, and Edward M Alt, M.D., Individually and As Relator, Appellants-Plaintiffs, v. Donald S. POWERS, George E. Watson, Munster Medical Foundation, Inc., Community Foundation, Inc., Memorial Recreation and Education Foundation, Inc., Palmer C Singleton, Jr., William J. Fitzpatrick, and John Mybeck Appellees-Defendants.

No. 86A03-89120CV-574.

Court of Appeals of Indiana Third District.

Jan. 13, 1992.

Rehearing Denied April 21, 1992.

Saul I. Ruman, David W. Holub and David M. Hamacher, Hammond, for appellants-plaintiffs.

James A. Holcomb, Robert F. Peters and Karen L. Hughes, Lucas, Holcomb & Medrea, Merrillville, for appellees-defendants.

GARRARD, Judge.

I. Facts and Procedural History

The plaintiffs, Howard Brenner, suing individually and on behalf of similarly situated minority members of the Munster Medical Research Foundation, Inc., and Edward Alt, commenced this action to challenge their exclusion from the voting membership of Munster Medical Research Foundation, Inc. (MMRF) and to challenge the validity of the expenditure or gift of corporate funds for various purposes. The trial court held that plaintiffs did not have the proper standing to assert claims for declaratory relief, breach of contract, an action in quo warranto, and a derivative suit against defendants and dismissed the action. Plaintiffs appeal.

We affirm in part and reverse in part.

An overview of the basic facts shows that MMRF is a not-for-profit, tax-exempt corporation incorporated for the purpose of operating a hospital to provide charitable medical services to the community of Munster in Lake County, Indiana. MMRF was organized and incorporated in 1964 pursuant to the 1935 General Not-for-Profit Corporation Act. ¹ The articles of incorporation provide that the corporation is not organized for the pecuniary profit of its directors, officers, or members, and any money or assets remaining after full payment of corporate obligations are to be devoted solely to the charitable, educational, and benevolent purposes of the corporation.

Brenner was an original incorporator, director and member of MMRF, was its first president, and is allegedly a current member. Alt has allegedly been a corporate member from the late 1960s to the present time. Brenner and Alt contributed time, money, and effort to help establish MMRF.

The articles of incorporation could be amended by a majority of the voting members of MMRF at any annual or special meeting, except for two provisions dealing with distribution of corporate assets. The articles were amended three times during the 1960s and 1970s. Included in each of those amendments were changes in MMRF's membership provisions. For example, two classes of membership, charter and associate members, were set up in 1965. In 1970 an amendment changed the two classes to active and inactive members. Only active members were entitled to vote on corporate matters. Under this amendment active members were to consist of the charter members of the corporation plus those elected by the members to serve on the board of directors. This latter group would lose their active status when they left the board.

In 1984, defendant Powers became president and director of MMRF, and defendants Singleton, Watson, Fitzpatrick, and Mybeck began acting as directors of MMRF. On June 26, 1985, the board adopted another proposal for amending the articles of incorporation. They called a meeting that same day and adopted the amendments by a membership vote of eighteen (18) to zero (0). However, Brenner and Alt allegedly received no notice of this meeting and, therefore, were not able to exercise their alleged right to vote.

The amendments that were approved at the meeting once again changed the membership provisions. Specifically, the amendment provided for one member, the defendant Community Foundation, Inc., an Indiana not-for-profit corporation, and such other members as might be selected by it. The amendments also provided the new member(s) with extensive powers to make corporate decisions at annual or special meetings.

In 1989, plaintiffs filed suit alleging that their membership rights were wrongfully usurped without notice or chance to vote at the election. The plaintiffs also claim the defendants have illegally used profits and assets of the corporation for their own purposes, interests, and benefits. Plaintiffs also claim that the assets and income of MMRF are being illegally controlled by Community Foundation, Inc., which is in turn controlled by Powers, Singleton, Watson, Fitzpatrick, and Mybeck as its officers and directors. Plaintiffs further contend that defendant Memorial Recreation and Education Foundation, Inc. is a not-for-profit, tax-exempt corporation established and controlled by Powers, Singleton, Watson, Fitzpatrick, and Mybeck for the purpose of constructing and operating a center for performing arts in Munster which is allegedly illegally financed by MMRF assets and profits. Plaintiffs claim that defendants' actions have caused harm to the plaintiffs' interests and financial loss and harm to the interests of MMRF.

As a result, plaintiffs filed a complaint with multiple counts, seeking declaratory relief, a breach of contract action, a quo warranto action, and a derivative suit on behalf of the corporation. Defendants filed a motion to dismiss the suit, and the trial court dismissed all counts on the basis that plaintiffs lacked the requisite standing to bring their actions. ² Plaintiffs appealed the trial court order. We affirm in part and reverse in part.

II. Issues

The issue before us is whether the trial court erred in determining that the plaintiffs lacked standing to assert any of their claims.

We therefore do not reach questions concerning affirmative defenses, such as laches, raised by the defendants. Nor may we at this juncture reach questions concerning whether plaintiffs' action may fail to state a claim upon which relief may be granted as to certain of the defendants.

III. Discussion and Decision

In this case, the trial court's TR 12(B)(6) dismissal rested on the court's finding that plaintiffs lacked standing to assert any of the counts in their complaint. Because standing requires that the plaintiff be actually injured by the challenged actions of the defendants, it has been held analogous to Indiana Trial Rule 17(A), which requires that actions be prosecuted in the name of the real party in interest. Aikens v. Alexander (1979), Ind.App., 397 N.E.2d 319, 323. To acquire real party in interest status, a person must have a present and substantial interest in the relief which is sought. Cook v. City of Evansville (1978), 178 Ind.App. 20, 381 N.E.2d 493, 494. Accordingly, the plaintiff must be entitled to the fruits of the action. Id.

Our standard of review of a dismissal under TR 12(B)(6) is well established. The facts alleged in the complaint must be taken as true and only where it appears that under no set of facts could plaintiffs be granted relief is dismissal of the complaint appropriate. Thiele v. Ind. Dept. of Highways (1985), Ind.App., 472 N.E.2d 1274, 1275. However, only well-pleaded material facts must be taken as admitted. Anderson v. Anderson (1979), Ind.App., 399 N.E.2d 391, 406. Furthermore, a court should not accept as true allegations that are contradicted by other allegations or exhibits attached to or incorporated in the pleading. 5A Wright and Miller, Federal Practice and Procedure, Civil Section 1363, p. 464; cf. Royal Ins. Co. v. Stewart (1921) 190 Ind. 444, 129 N.E. 853.

In their complaint, plaintiffs allege that they are presently members of MMRF. While plaintiffs' complaint sufficiently states facts to contest the revocation of plaintiffs' membership rights, plaintiffs may not also assert they are presently members because their pleadings establish the opposite. Their pleadings clearly establish that since the June 26, 1985, amendment to the articles of incorporation, the only member of MMRF has been Community Foundation, Inc. Plaintiffs included the articles of amendment as an exhibit to their complaint and specifically incorporated the exhibit by reference, and are now bound by those facts. Their claims of present membership are premature and depend on the outcome of actions to determine the proper remedy, if any, to their allegations that their membership rights have been illegally usurped.

Cognizant of these standards and plaintiffs' membership status, we turn to the individual counts of plaintiffs' complaint that were preserved for appeal.

A. Declaratory Judgment

Plaintiffs contend they have standing to bring a declaratory judgment to determine their membership status and rights, and the rights of MMRF and the other defendants in light of the allegedly illegal amendment to the articles of incorporation. We agree in part.

For declaratory judgment actions a statutory provision exists for determining the real party in interest. The Uniform Declaratory Judgment Act provides that a person whose rights, status, or other legal relations are affected by a statute or contract may obtain a declaration of his rights status, or other legal relations thereunder. IC 34-4-10-2. To prosecute a declaratory judgment action, a party must have a substantial present interest in the relief sought and the party must show that a question has arisen affecting his rights which ought to be decided in order to safeguard such rights. Health and Hosp. Corp. v. Marion County (1984), Ind.App., 470 N.E.2d 1348, 1353.

In the case at bar, plaintiffs were the proper parties to bring an action declaring their membership status and rights. ³ A controversy over membership status is a proper subject for a declaratory judgment. See 26 C.J.S., Declaratory Judgments, Sec. 39(b), p. 119. Courts are the proper forum for...