Doermer ex rel. Doermer Family Found., Inc. v. Kathryn D. Callen, Phyllis J. Alberts, John Michael Callen, Doermer Family Found., Inc.
| Decision Date | 09 November 2015 |
| Docket Number | Case No.: 2:15-CV-154 JVB |
| Court | U.S. District Court — Northern District of Indiana |
| Parties | RICHARD D. DOERMER, individually and derivatively on behalf of the DOERMER FAMILY FOUNDATION, INC., Plaintiff, v. KATHRYN D. CALLEN, PHYLLIS J. ALBERTS, JOHN MICHAEL CALLEN, DOERMER FAMILY FOUNDATION, INC., and UNIVERSITY OF ST. FRANCIS OF FORT WAYNE, INDIANA, INC., Defendants. |
Plaintiff Richard Doermer is one of the directors of the Doermer Family Foundation, Inc., an Indiana nonprofit corporation located in Fort Wayne. The Foundation was established in 1990 by Plaintiff's parents, Richard T. Doermer and Mary Louise Dormer. Plaintiff, his parents, and Plaintiff's sister, Defendant Kathryn Callen, were designated as directors for life. In 2000, Plaintiff's mother died. In early 2010, the remaining three directors elected Defendant Phyllis Alberts as a fourth director, appointing her to a three-year term running through January 28, 2013. Plaintiff's father died nine months later, leaving the Foundation with three directors: Plaintiff, Kathryn, and Phyllis. Later, over the objection of Plaintiff, another director, John Callen, was added to the Board.
Plaintiff sued the Foundation, Kathryn, Phyllis, and John claiming that the addition of John and that Phyllis continuing to represent herself as a board member violates the Foundation's bylaws and Indiana statutes. In particular, Plaintiff believes that because the Board took no action before January 28, 2013, the day Phyllis's three-year term ended, her appointment ended and any subsequent vote by Phyllis on behalf of the Foundation was unauthorized. According to Plaintiff, since January 28, 2013, the Foundation has had only two directors: himself and Kathryn. And since the bylaws require that the Board have at least three directors, the Board was no longer legally constituted. Consequently, charitable distributions of the Foundation's money to various groups, including Defendant University of St. Francis, were unlawful.
In addition, Plaintiff alleges that Kathryn has a conflict of interest in voting for the grants to be awarded to University of St. Francis because she sits on the board of the University. He submits that all distributions to the University constitute unjust enrichment. Plaintiff seeks an injunction against Kathryn, Phyllis, and John, prohibiting them from acting as directors on behalf of the Foundation. He also asks that the Court appoint a third director so the Board is properly constituted and compliant with the Foundation's articles and Indiana law.
All defendants have moved for this case to be dismissed; those motions will be granted.
In its motion to dismiss, the Foundation argues that Plaintiff does not have standing to bring a derivative suit on the Foundation's behalf because he is not a member of the Foundation; in fact, the Foundation has no members at all. In addition, the Foundation argues that his lawsuitis premature because Plaintiff hasn't made a demand on the Foundation's Board before filing suit and has not plead with particularity facts showing that a demand would have been futile.
Likewise, according to the Foundation, Plaintiff's suit in his personal capacity fails as well. First, he cannot recover for harm the Foundation allegedly suffered: any such recovery is for the Foundation to decide. Nor can he prevail against the other Board members under his theory that Phyllis's authority to serve on the Board expired with the passing of the three-year term.
Although they add some arguments of their own, University of St. Francis and Kathryn, Phyllis, and John essentially second the Foundation's arguments.
Federal Rule of Civil Procedure 12(b)(1) allows a defendant to move for dismissal of a case when the court lacks subject-matter jurisdiction, such as when Plaintiff lacks standing to sue. "'In essence the question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or particular issues.'" Perry v. Vill. of Arlington Heights, 186 F.3d 826, 829 (7th Cir.1999) (quoting Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975)). As a jurisdictional requirement, the plaintiff bears the burden of establishing standing. Apex Digital, Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 443 (7th Cir. 2009).
"[P]laintiffs' standing to prosecute their claimed derivative action for the benefit of the corporation depends upon the resolution of their claims to membership status." Brenner v. Powers, 584 N.E.2d 569, 576 (Ind. Ct. App. 1992); see also Fed. R. Civ. P 23.1 (); and Ind. R. Trial P. 23.1 ()
According to the Complaint, Plaintiff is bringing a derivative action as a one of the Foundation's directors. But directors have no such right under Indiana law. Dotlich v. Dotlich, 475 N.E.2d 331, 339 (Ind. Ct. App. 1985) () abrogated on other grounds by State Bd. of Tax Comm'rs v. Town of St. John, 751 N.E.2d 657 (Ind. 2001). As noted above, only members and shareholders enjoy such rights. Yet, Plaintiff is neither; in fact, the Foundation has no members at all.
Plaintiff insists, however, that equity requires that he be allowed to bring a derivative suit to protect the corporation because there's no one else to do that. However, none of the cases he cites support him. For example, Kirtley v. McClelland, 562 N.E.2d 27, 29 (Ind. Ct. App. 1990), takes for granted that only members or shareholders can bring a derivative suit, id. at 30 (). The only real question there was whether a derivative suit can be brought against a non-profit corporation. Id. at 29. Similarly, Dotlich does not say that a director may bring a derivative suit; rather, it says that a shareholder who is also a director should not be "barred from suing on behalf of the corporation just because he is a director." Without being amember or a shareholder Plaintiff may not sue on behalf of the Foundation under these circumstances.
Moreover, even if such suit were allowed, Plaintiff would have had to make "a formal demand upon corporation's board of directors" or show "that such a demand would be futile." Massey v. Merrill Lynch & Co., 464 F.3d 642, 647 (7th Cir. 2006). "The underlying rationale for these requirements is that corporate directors are presumed to have the best interests of a corporation in mind and therefore should have an initial opportunity to investigate the merits of a potential lawsuit and respond accordingly." Id. Plaintiff concedes that he made no demand upon the board but argues that any demand would have been futile because the Foundation's Board has only two lawful directors, him and Kathryn, whereas at least three directors are required under Indiana law. Moreover, Kathryn is not expected to approve of any action seeking a substantial judgment against her and to remove her as a Director.
Plaintiff's argument fails because his assumption that there are only two directors on the board is wrong. In fact, there are four. Although Phyllis's term was scheduled to expire on January 28, 2013, it continued past that date because a successor had not been elected and qualified. This is provided in both the bylaws and Indiana law. Consider the bylaws:
Other directors1 shall serve for three (3) years (or such period as prescribed by the Board at the time of election) and until her or his successor is elected and qualified. A the regular meeting of the Board of Directors immediately preceding the expiration of the term of any director, or at a special meeting, the Board shall elect a successor director to replace the director whose term will expire, or has expired, and each such successor director shall serve for one year (or such other period as prescribed by the Board at the time of election) and until her or his successor is elected and qualified.
(DE 32-2, Amended and Restated Bylaws at 1.)
Plaintiff insists that the Board was required by this provision to elect a successor before Phyllis's term expired. Such interpretation is flawed: if he were correct, the provision that one serve until his or her successor is elected and qualified would be superfluous. In short, the term is at least three years (or such period as prescribed by the Board at the time of election) or longer if a successor is not elected and...
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