Dunn v. Ceccarelli

• Court: Georgia Court of Appeals
• Writing for the Court: BEASLEY; SMITH
• Citation: Dunn v. Ceccarelli, 489 S.E.2d 563, 227 Ga.App. 505 (Ga. App. 1997)
• Decision Date: 16 July 1997
• Docket Number: Nos. A97A0152,A97A0153,s. A97A0152
• Parties: , 97 FCDR 2845 DUNN et al. v. CECCARELLI et al. CECCARELLI et al. v. DUNN et al.

Page 563

489 S.E.2d 563

227 Ga.App. 505, 97 FCDR 2845

DUNN et al. v. CECCARELLI et al.

CECCARELLI et al. v. DUNN et al.

Nos. A97A0152, A97A0153.

Court of Appeals of Georgia.

July 16, 1997.

Reconsideration Denied July 24, 1997.

Certiorari Denied Jan. 8, 1998.

Ronald S. Stevens, Atlanta, William C. Hoitink, Marietta, for appellants.

Donald B. Kuperman, Atlanta, for appellees.

BEASLEY, Judge.

This case involves challenges to the voting procedures in an election to a seat on the board of a timeshare owners' association. Lake Tara Townhouse Association III, Inc., a Georgia nonprofit corporation, is a timeshare owners' association governed by a three-member board of directors, each having a term of three years, one of whom is elected at each successive annual meeting of the association members. In November 1995, Dunn, the president of the association, notified his fellow board members, Bigley and McClellan, that a board meeting would be held on December 7, 1995, to discuss the annual meeting of the timeshare owners on March 23, 1996, that would include the election of the board member to fill Bigley's position. Bigley was running for reelection, and Ceccarelli was opposing her. McClellan called and said he could not attend the meeting. At that meeting Dunn and Bigley, who constituted a quorum, established guidelines for the board election, which included provisions that (1) authorized Dunn, as President of the association, to cast ballots and proxies for all "weeks" (timeshare units) owned by the association itself; (2) declared that Fairfield Communities, Inc., the corporate successor to the declarant (Fairfield), which still owned unsold weeks, was not a member of the association and was accordingly not entitled to vote those weeks; and (3) that all members would be sent a ballot, including those enrolled in the "Fairshare Plus Program" and other timeshare exchange programs.

The ballots were mailed to the membership, indicating that Bigley had been nominated by the nominating committee for re-election to the board, and that ballots would be counted only if received five days before the annual meeting scheduled for March 23, 1996. Before the final ballot date, Ceccarelli and McClellan brought suit, individually and on behalf of "more than 300 proxies of Lake Tara Townhouse Association III," for injunctive relief and an accounting, along with a motion for a temporary restraining order against Dunn and Bigley, individually and as board members of the association. The complaint alleged Dunn and Bigley (1) violated election and voting requirements and procedures and (2) breached their fiduciary duty to the association and its members and committed self-dealing. The court issued a temporary restraining order, ordering Dunn and Bigley to produce an accounting of the association members pursuant to OCGA § 14-3-720, extending the deadline for the elections from March 23, 1996 to April 6, 1996, and enjoining Dunn and Bigley from announcing the election results until April 8, 1996, for the court to review the votes cast and to determine their eligibility.

Dunn and Bigley moved for summary judgment. After reviewing the election results, the court determined to treat the parties' filings together as cross-motions for summary judgment and issued an order stating that Bigley violated her fiduciary duty to timeshare owners by failing to recuse herself when the board voted the proxy units; that she should not have used her position as a board member to cast proxy votes for herself without prior written approval from the proxy owners; ¹ and that those proxy votes accordingly could not be counted in the final tally. Dunn and Bigley filed a notice of appeal from this order in the Supreme Court on the jurisdictional ground that the case involved equity, injunctive relief, and an accounting.

In a supplemental order, the court clarified its earlier ruling by stating that (1) the 154 association-owned weeks, voted by Bigley as Board member for herself as candidate, could not be counted; ² (2) the 55 votes of the declarant Fairfield for weeks it owns would be counted; and (3) the votes cast by Fairfield as proxy holder for unit/week owners in the Fairshare program who did not otherwise cast their votes would be counted. Dunn and Bigley filed another notice of appeal from this order in the Supreme Court.

Ceccarelli and McClellan moved for contempt, contending Bigley and Dunn refused to count the votes as instructed by the court. In response, Dunn and Bigley filed a motion for enforcement of the supersedeas or, in the alternative, an application for an interim order of supersedeas as pending appeal. The court ruled that the orders issued following its temporary restraining order provide declaratory rather than injunctive relief, and that the notices of appeal accordingly act as supersedeas, requiring that the status quo be preserved. Ceccarelli and McClellan moved to set aside this order, arguing that the supersedeas deprived the court of jurisdiction even to hear the motion for enforcement of the supersedeas. The court denied this motion, from which Ceccarelli and McClellan appealed to the Supreme Court.

Both appeals were transferred to this Court on the ground they involved voting procedures and shareholder rights of nonprofit corporations, as well as supersedeas, and accordingly were not within the Supreme Court's exclusive jurisdiction.

1. In Case No. A97A0152, in their first enumeration of error, Dunn and Bigley claim that the action was a derivative one, as defined in OCGA § 14-3-740(1) of the Georgia Nonprofit Corporation Code: " 'Derivative proceeding' means a civil suit in the right of a domestic corporation." They contend the court erred in failing to address this issue and in failing to grant them summary judgment since in bringing suit, Ceccarelli and McClellan did not comply with OCGA § 14-3-742(a) of the Georgia Nonprofit Corporation Code. It provides: "No derivative proceeding may be commenced until: (1) A written demand has been made upon the corporation to take suitable action; and (2) Ninety days have expired from the date the demand was made unless the complainant has earlier been notified that the demand has been rejected by the corporation or unless irreparable injury to the corporation would result by waiting for the expiration of the 90 day period."

No cases have been decided construing this provision of the Nonprofit Corporation Code as it relates to the issues before us. However, " 'unless otherwise specifically noted, the fundamental rules and principles of law of profit and business corporations are equally applicable to nonprofit corporations.' [Cit.]" Southeast Shippers Assn. v. Ga. Pub. Svc. Comm., 211 Ga. 550, 555, 87 S.E.2d 75 (1955). Accordingly, we apply authorities relating to business corporations where necessary for our analysis.

(a) Our first determination is whether the claim asserted by McClellan and Ceccarelli was derivative in nature. In a nonprofit derivative suit, a member asserts for the corporation's benefit rights or remedies belonging to the corporation, not to the member. See 12B Fletcher, Cyclopedia of the Law of Private Corporations, § 5908 (rev. ed. 1995). The wrong which the action seeks to redress is one which the corporation, not the individual, has sustained. Id. The member is a mere nominal party, having no right, title or interest in the claim itself. Id. One of the primary underlying reasons for the derivative action--especially applicable to nonprofits--is to avoid a multiplicity of lawsuits. See Thomas v. Dickson, 250 Ga. 772, 774, 301 S.E.2d 49 (1983).

The determination of whether a claim is derivative or direct "is made by looking to what the pleader alleged. It is the nature of the wrong alleged and not the pleader's designation or stated intention that controls the court's decision." Phoenix Airline Svcs. v. Metro Airlines, 260 Ga. 584, 585(1), 397 S.E.2d 699 (1990).

McClellan and Ceccarelli contend the suit is one for injunctive relief brought by individuals denied their rights to a fair election procedure. While their prayers included requests for an accounting and access to the membership list, for which a direct action generally would lie, see Smith v. Conley, 158 Ga.App. 191, 192(1), 279 S.E.2d 491 (1981), prayers for relief are disregarded in determining whether the action is direct or derivative. 12B Fletcher, supra, § 5912. Moreover, the accounting and membership issues were incidental to the gravamen of the complaint which was that Dunn and Bigley breached their fiduciary duties in the management of the corporation by wrongfully controlling the election results. The general rule is that breach of fiduciary duty actions against corporate officers for harm to the corporation are derivative and not direct. Phoenix Airline Svcs., supra at 585.

A member or director of the association could bring a direct action only if he suffered a special injury as a result of the breach of fiduciary duty. Holland v. Holland Heating, etc., 208 Ga.App. 794, 797(3), 432 S.E.2d 238 (1993). "[T]o have standing to sue individually, rather than derivatively on behalf of the corporation, the plaintiff must allege more than an injury resulting from a wrong to the corporation. [T]o set out an individual action, the plaintiff must allege either an injury which is separate and distinct from that suffered by other [members], or a wrong involving a contractual right of a [member] which exists independently of any right of the corporation. For a plaintiff to have standing to bring an individual action, he must be injured directly or independently of the corporation." (Citations and punctuation omitted.) Phoenix Airline Svcs., supra at 586, 397 S.E.2d 699; Grace Bros., Ltd. v. Farley Indus., 264 Ga. 817, 819(2), 450 S.E.2d 814 (1994).

Association members enjoy an individual right to vote their unit/weeks, and a direct action could be maintained by them against the directors...