Feola v. Marthouse
| Decision Date | 28 March 2023 |
| Docket Number | 2021-CA-01078-COA |
| Parties | MARIO FEOLA, ET AL., DERIVATIVELY ON BEHALF OF DIAMONDHEAD COUNTRY CLUB &PROPERTY OWNERS ASSOCIATION, INC. APPELLANTS v. BOB MARTHOUSE, CRAIG HARVEY, KAREN RICE, BILL HATCHETT, PAT LAIRD, TERESA ERTEL, GARY BECKER, DONALD SILICIO, STEWART NUTTING, NICHOLE BOISDORE AND SHARON McCULLEY APPELLEES |
| Court | Mississippi Court of Appeals |
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MARIO FEOLA, ET AL., DERIVATIVELY ON BEHALF OF DIAMONDHEAD COUNTRY CLUB &PROPERTY OWNERS ASSOCIATION, INC. APPELLANTS
v.
BOB MARTHOUSE, CRAIG HARVEY, KAREN RICE, BILL HATCHETT, PAT LAIRD, TERESA ERTEL, GARY BECKER, DONALD SILICIO, STEWART NUTTING, NICHOLE BOISDORE AND SHARON McCULLEY APPELLEES
No. 2021-CA-01078-COA
Court of Appeals of Mississippi
March 28, 2023
DATE OF JUDGMENT: 09/02/2021.
HANCOCK COUNTY CHANCERY COURT TRIAL JUDGE: HON. JENNIFER T. SCHLOEGEL.
ATTORNEY FOR APPELLANTS: PAUL M. NEWTON JR.
ATTORNEY FOR APPELLEES: ALBEN NORRIS HOPKINS JR.
BEFORE WILSON, P.J., WESTBROOKS AND EMFINGER, JJ.
WILSON, P.J.
¶1. This is a putative derivative action filed against the members of the board of directors of the Diamondhead Country Club &Property Owners Association Inc. ("POA"), a nonprofit corporation established to manage and maintain the common areas and amenities of the Diamondhead community in Hancock County. The chancery court dismissed the case without prejudice after concluding that the plaintiffs-who are members of the POA-failed to comply with the statutory demand and verification requirements for derivative actions filed
on behalf of nonprofit corporations. The chancery court also ordered the plaintiffs to pay the defendants $16,349.45 for attorney's fees and expenses. The plaintiffs appealed.
¶2. We conclude that the plaintiffs satisfied the statutory demand requirement, but we agree with the chancery court that the amended complaint was not properly verified under the applicable statute. Therefore, the chancery court did not err by dismissing the case without prejudice. However, the amended complaint is not frivolous, and the plaintiffs' legal arguments are reasonable. Moreover, there is no evidence that the plaintiffs filed suit in bad faith or for the purpose of harassment. Accordingly, the chancery court abused its discretion by ordering the plaintiffs to pay the defendants' attorney's fees and expenses. For these reasons, we affirm the dismissal of the action without prejudice, but we reverse and render the chancery court's award of attorney's fees and expenses.
FACTS AND PROCEDURAL HISTORY
¶3. In 1985, the developer of the Diamondhead community in Hancock County executed two special warranty deeds conveying certain properties to the POA. The properties conveyed included the community's "Golf Course," "Country Club," "Yacht Club," "Airport," and other common areas. The deeds stated in part that the property "conveyed shall be held, conveyed, hypothecated, encumbered, leased, rented, used and occupied only as common areas and common facilities for the exclusive use by the owners of real property" in the Diamondhead development. (Emphasis added).
¶4. In August 2019, Mario Feola, a member of the POA and a former president of the POA's board of directors, sent a demand letter to the board alleging that the board had
"improperly opened use of the [development's] common facilities . . . to use by the general public." Feola stated that if the board did not take action within thirty days to prohibit use of the common facilities by the general public, Feola would pursue all available legal remedies against the "non-compliant" board members.
¶5. In November 2019, Feola filed suit against the POA's board members in the Hancock County Chancery Court. The complaint stated that Feola was proceeding "in both his individual capacity and derivatively on behalf of [the POA]." The complaint asserted (1) a derivative claim on behalf of the POA alleging that the board members had breached their fiduciary duties to the POA and its members by opening the development's common facilities to use by the general public, and (2) a claim for breach of contract on the theory that Feola was a third-party beneficiary to the exclusive-use provisions of the 1985 special warranty deeds. After the complaint was filed, more than fifty additional plaintiffs filed joinders.
¶6. In September 2020, the chancery court dismissed the case without prejudice. The court's one-page order is part of the record on appeal in this case but does not state why the first case was dismissed.[1]
¶7. On July 2, 2020, sixty-four plaintiffs (including Feola) filed a new action against the POA's board members in the Hancock County Chancery Court.[2] The complaint stated that
the plaintiffs were all members of the POA and that they filed suit "in both their individual capacities and derivatively on behalf of the [POA]." The complaint included the same two counts as the 2019 complaint that had been dismissed without prejudice.
¶8. Eleven days later, the plaintiffs filed an amended complaint. The amended complaint continued to state that the plaintiffs were proceeding "in both their individual capacities and derivatively on behalf of the [POA]." However, the amended complaint asserted only a derivative claim on behalf of the POA and omitted any claim for breach of contract. During a subsequent hearing, plaintiffs' counsel explained that the amended complaint's reference to the plaintiffs' "individual capacities" was a mistake and that the amended complaint asserted only a derivative claim on behalf of the POA. The amended complaint attached Feola's August 2019 demand letter to show that "demand" had been made on the board. See Miss. Code Ann. § 79-11-193(3) (Rev. 2013). Feola verified under oath that the amended complaint's allegations were true and correct to the best of his knowledge. See id. The amended complaint also added nine more plaintiffs.
¶9. The defendant board members filed a motion to dismiss and for sanctions. In their motion and at the subsequent hearing on the motion, they argued that the case should be dismissed because the plaintiffs failed to comply with Mississippi Code Annotated section 79-11-193 regarding derivative actions filed on behalf of nonprofit corporations. That statute provides in relevant part:
(1) A proceeding may be brought in the right of a domestic or foreign [nonprofit] corporation to procure a judgment in its favor by:
(a) Any member or members having five percent (5%) or more of
the voting power or by fifty (50) members, whichever is less; or (b) Any director. (2) In any such proceeding, each complainant shall be a member or director at the time of bringing the proceeding.
(3) A complaint in a proceeding brought in the right of a...
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