Chambrella v. Rutledge
| Decision Date | 21 July 1987 |
| Docket Number | No. 11031,11031 |
| Citation | 740 P.2d 1008,69 Haw. 271 |
| Parties | Michael G. CHAMBRELLA, Samuel Palama, Katherine L. Roque, Richard A.T. Tam, Lucille T. Toyama, and Hajime Tsuda, Petitioners-Appellants, v. Arthur A. RUTLEDGE and Unity House, Incorporated, a Hawaii corporation, Respondents-Appellees, and John Does 1-30, et al., Defendants, and Hawaii Teamsters and Allied Workers Union, Local 996, Respondent-Appellee. |
| Court | Hawaii Supreme Court |
Syllabus by the Court
1. When the shareholder brings a derivative action, he is only a nominal plaintiff. The substantive claim belongs to the corporation, and it is the real party in interest. The corporation thus occupies a dual position in the litigation. It is the real party plaintiff and a nominal party defendant. And any relief that is awarded takes the form of a judgment that runs in favor of the corporation.
2. Where the basis of the action is a wrong to the corporation, redress must be sought in a derivative action. If the injury is one to the plaintiff as a shareholder and to him individually, and not to the corporation, as where the action is based on a contract to which he is a party, or on a right belonging severally to him, or on a fraud affecting him directly, it is an individual action. A shareholder, however, may bring individual and derivative actions simultaneously.
3. A personal action alleging injury to shareholders as shareholders, and not to the corporation, may be brought by representative shareholders on behalf of all of them as a class action under Hawaii Rules of Civil Procedure (HRCP) 23.
4. HRCP 23.1, which follows the federal paradigm and deviates from Rule 23.1 of the Federal Rules of Civil Procedure (Fed.R.Civ.P.) in only one respect, establishes the procedures governing derivative actions.
5. The distinction between a personal and a derivative action is not merely procedural. Rather, the distinction goes to the very substance of the claim and can only be determined by a close reading of the complaint.
6. The right to vote as a member of a non-profit corporation or to participate in its affairs in no sense belongs to the corporation, for these rights are personal to the member.
7. That the claims allegedly derived from the corporation cannot be maintained does not divest the court of jurisdiction to provide relief on individual claims alleged in the same complaint.
8. At common law the plaintiff could not recover anything other than the relief specifically requested in the ad damnum clause of his complaint. But in equity the general practice was for plaintiff to demand whatever special relief he desired and then to add a prayer for general relief. And if the court decided that the evidence did not justify the award of the specific remedy requested, it could rely on the general prayer for relief for the purpose of granting the relief to which plaintiff actually was entitled.
9. Fed.R.Civ.P. 54(c) and its Hawaii counterpart, HRCP 54(c), have adopted the approach of the equity courts for all civil actions, as long as the defendant has not been defaulted.
10. If the defendant has begun defending the action, adherence to the particular legal theories suggested by the pleadings is subordinated to the court's duty to grant the relief to which the prevailing party is entitled, whether it has been demanded or not.
Sean Kim (Arthur Y. Park and Arlette S. Harada with him, on the writ and brief; Gill, Park, Park & Kim, of counsel), Honolulu, for petitioners-appellants.
John A. Hoskins (Dean T. Nagamine with him, on opposing memorandum and brief; Reinwald, O'Connor & Marrack, of counsel), Honolulu, for respondents-appellees.
Colleen H. Sakurai, on the brief (Koshiba & Young, of counsel), Honolulu, for respondent-appellee Hawaii Teamsters & Allied Workers Union, Local 996.
Before LUM, C.J., NAKAMURA, PADGETT and HAYASHI, JJ., and CHANG, Circuit Judge, in place of Wakatsuki, J., disqualified. *
After hearing the plaintiffs' evidence, the Circuit Court of the First Circuit dismissed the suit brought by two members of the Hawaii Teamsters and Allied Workers Union, Local 996 (Local 996), and four members of the Hotel, Restaurant Employees and Bartenders Union, Local 5, AFL-CIO (Local 5), against Unity House, Incorporated, a Hawaii non-profit corporation (Unity House), and Arthur A. Rutledge, its president, wherein the plaintiffs charged Rutledge and other unnamed defendants with repeated breaches of their fiduciary duties to the corporation and sought the appointment of a receiver and other relief. The circuit court concluded, inter alia, that the plaintiffs "failed to show ... they fairly and adequately represent[ed] the interests of the membership of Unity House, Inc. [,]" the "equitable remedies requested ... [were] not practicable[,]" and "[p]laintiffs [did] not request[ ] any remedies at law." The Intermediate Court of Appeals affirmed the trial court's decision on grounds that the plaintiffs could not establish membership in the corporation and lacked standing to maintain a derivative suit. Upon a review of the record, however, we conclude the suit, though styled as a derivative action, was not one cognizable as such and equitable relief for the plaintiffs was not precluded. Thus, we vacate the dismissal and the affirmance and remand the case to the circuit court for further proceedings.
Unity House, a non-profit corporation formerly known as the Hawaii Federation of Labor Memorial Association, was granted a charter on December 24, 1951 by the Territory of Hawaii upon petition filed by Rutledge and four other persons. A primary object of the organization, as expressed in the charter, was "[t]o bring together in a benevolent and fraternal organization all members, past members, and friends of the American Federation of Labor in ... Hawaii, including the Hotel, Restaurant Employees and Bartenders Union, the International Brotherhood of Teamsters, and the Transit Workers Union, Independent." Another purpose of the corporation was "[t]o acquire and provide suitable quarters for the meeting, assembling, recreation, and education of members and their families." The charter also recited that "[p]ersons who are members, past members, or friends of the American Federation of Labor in ... Hawaii, including members, past members, and friends of the Hotel, Restaurant Employees and Bartenders Union, [t]he International Brotherhood of Teamsters, and the Transit Workers Union, Independent, may be admitted as members of the corporation by the affirmative vote of its Board of Directors at any meeting thereof duly called and held."
The plaintiffs, Michael G. Chambrella, Samuel Palama, Katherine L. Roque, Richard A.T. Tam, Lucille T. Toyama, and Hajime Tsuda, though concededly qualified for membership in Unity House through active membership in local unions affiliated with the International Brotherhood of Teamsters and the Hotel, Restaurant Employees and Bartenders Union, had not been admitted formally to membership in the non-profit corporation. But Rutledge had "repeatedly represented to the members of Local 5 and Local 996, from the inception of Unity House, Inc. until at least October 1978, that the members of Local 5 and Local 996 were automatically members of Unity House, Inc." Finding of Fact No. 17, entered by the circuit court on November 5, 1985. 1
Claiming membership in Unity House "by virtue of their membership in Locals 5 [and] 996," the plaintiffs filed suit on December 4, 1978 against Unity House, Arthur A. Rutledge, and John Does 1 through 30. 2 The complaint charged Rutledge and the John Doe defendants with repeated breaches of "their fiduciary duties to the corporation by their failure to preserve the corporate assets from waste and the conversion of corporate assets to their personal use." The pleading further averred that no demand had been made "upon the corporation or its purported directors to bring [the] action" because "[t]here ha[d] been no duly elected or appointed board of directors since at least 1961," the "alleged current directors [were] the alter ego of Defendant Rutledge who solely control[led] the corporation," and he would not have "diligently prosecuted [the] action."
Rutledge and Unity House, the only defendants who were identified and served, denied that membership in Locals 5 and 996 entitled the plaintiffs to membership in Unity House, denied the allegations of violations of fiduciary duties, and raised a host of defenses ranging from the complaint's failure to state a claim upon which relief could be granted to the lack of standing on plaintiffs' part to bring the suit. Hence, a primary issue in the case from the outset was whether the plaintiffs were members of Unity House or not.
The defendants also filed a counterclaim, charging that the plaintiffs had maliciously brought suit without probable cause and in abuse of process to further Chambrella's campaign against Rutledge for the presidency of Local 996 and to influence the government investigation of the election for officers of Local 5 in which the plaintiff members of Local 5 had been candidates. This was only the beginning of the acrimonious legal battle punctuated by numerous skirmishes that yielded thirteen volumes of documents for the record.
The case was finally heard by the circuit court in 1985 on the amended complaint filed in 1982, wherein the plaintiffs sought to buttress their claims to equitable relief with further allegations of wrongdoing on the part of Rutledge and others purportedly controlled by him and amplified their specific prayers for relief. Though the amended pleading essentially sought the removal of Rutledge as president and the ultimate dissolution of the non-profit corporation, it also contained a general prayer requesting "such other additional relief as may seem just and equitable to the Court."
At the close of plaintiffs' case on September 4, 1985, the defendants successfully moved...
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