Jessie v. Boynton

• Decision Date: 04 April 1977
• Citation: 361 N.E.2d 1267,372 Mass. 293
• Parties: Paula JESSIE et al. 1 v. Freeman BOYNTON et al. 2
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 1267

361 N.E.2d 1267

372 Mass. 293

Paula JESSIE et al. ¹ v. Freeman BOYNTON et al. ²

Supreme Judicial Court of Massachusetts, Plymouth.

Argued Nov. 5, 1976.

Decided April 4, 1977.

Lee Berger, Onset (John Gresham, Legal Services for Cape Cod & Islands, Inc., Hyannis, with him), for plaintiffs.

Philip M. Cronin, Boston, for defendants.

HENNESSEY, C.J., and QUIRICO, BRAUCHER, WILKINS and LIACOS, JJ.

WILKINS, Justice.

On September 9, 1974, the members of the defendant Jordan Hospital Corporation (hospital) purported to adopt new corporate by-laws which provided, for the first time, that employees of the hospital, their spouses, and children constitute a separate class of members ineligible to vote. The plaintiffs brought this proceeding to challenge the propriety of the purported by-law change. We conclude that the members lawfully could vote on the proposed by-laws at the September 9 meeting but that the plaintiffs have alleged sufficient facts to state a claim that the practices followed by the defendants in obtaining that vote may have been contrary to the requirements of law.

In order to assess the issues, the procedural developments in the Superior Court must be set forth first. The defendants filed a motion to dismiss the action pursuant to Mass.R.Civ.P. 12(b)(6), 365 Mass. 754 (1974). A judge of the Superior Court allowed the defendants' motion to dismiss, concluding that the complaint failed to state a claim on which relief could be granted and that the circumstances constituting fraud were not alleged with particularity as required by Mass.R.Civ.P. 9(b), 365 Mass. 751 (1974). The judge gave the plaintiffs twenty days to move to amend the complaint. A motion to amend the complaint was filed seasonably, but that motion was denied by another judge of the Superior Court. A judgment of dismissal then was entered from which the plaintiffs have claimed an appeal. We transferred the appeal here on our own motion.

The allowance or denial of the motion to amend was within the discretion of the judge in the circumstances. See CASTELLUCCI V. UNITED STATES FIDELITY & GUAR. CO., --- MASS. ---, 361 N.E.2D 1264^A decided today. Under Mass.R.Civ.P. 15(a), 365 Mass. 761 (1974), after the entry of an order of dismissal, a plaintiff is not entitled to amend his complaint as a matter of course. However, rule 15(a) provides that leave to amend 'shall be freely given when justice so requires.' We said in CASTELLUCCI V. UNITED STATES FIDELITY & GUAR. CO., AT ---, 361 N.E.2D AT 1264,^B that the record must show some reason for the denial of a motion to amend a pleading. In this case no apparent or declared reason for the denial of the motion to amend appears except the contention that the complaint, as proposed to be amended, fails to state a valid claim. The defendants make no assertion that the second judge acted in his discretion in denying the motion to amend, and they argue the case solely on the theory that the complaint, as proposed to be amended, fails to state a proper claim.

We accept the premise of the defendants' argument that a judge properly may deny a motion to amend because the complaint as amended would fail to state a claim on which relief could be granted. ³ Consequently, we analyze the issues argued on behalf of the plaintiffs on the basis of the allegations of the complaint, as proposed to be amended, to determine whether the plaintiffs have alleged a claim which may entitle them to relief.

The complaint, as proposed to be amended, alleges the following facts. The hospital was established under Pub.Stat. c. 115, the predecessor of G.L. c. 180. On or before July 11, 1974, the plaintiffs Schilling and Sommi paid one dollar and became members of the hospital as provided in the hospital's by-laws. On or about July 11, 1974, the secretary of the corporation sent a notice of a special meeting of members to be held on September 9, 1974, which stated that the meeting was called 'for the purpose of reviewing and voting upon proposed changes to the Hospital Corporation Bylaws.' The notice of the meeting advised each corporate member that by an enclosed card, he could 'request a copy of the Proposed Bylaws, if . . . (he) desire(d) a copy prior to the September 9th meeting.' Any one who had any questions was advised to call the hospital's administration office. Schilling and Sommi requested and received a copy 'of what they assumed were the proposed bylaws.' Certain other persons, including the other named plaintiffs, became members of the corporation late in July, 1974, and did not receive notice of the meeting. The by-laws permitted a member to vote at a meeting after he had been a member for sixty days. These new members were not advised that their right to vote might be taken away by action at the September 9 meeting, and they did not attend the meeting. Other members who received the notice and subsequently received a copy of the proposed by-laws 'believed the express or implied promise (contained in . . . (the call of the meeting)) that the bylaws they received in the mail were the bylaws to be voted on at the September 9th meeting . . .,' and they did not attend the meeting. Schilling and Sommi, however, did attend the September 9 meeting with the intention of objecting to a provision in the by-laws, as distributed, which limited nominations to those candidates nominated by a nominating committee.

At the meeting Sommi was handed copies of a document entitled 'BYLAWS (of March 4, 1968, as amended to and including September 9, 1974) . . ..' Many of the provisions in the copy distributed at the meeting were substantially different from the provisions of the by-laws distributed in response to requests invited in the call of the meeting. ⁴ Schilling assumed that the copy of the by-laws being distributed was the same as the copy she received by mail and did not obtain a copy of the by-laws distributed at the meeting. The president of the hospital presided at the meeting and allowed 'less than ten (10) minutes to read and study the new proposed 'BYLAWS. " A question was asked 'as to what the substantial changes were,' and either the president or the chairman of the by-law committee 'stated that they were too numerous and would take too much time to explain, but that two changes were: (1) increasing the Board of Directors to thirty-three to include one employee member and, (2) allowing nominations from the floor.' No mention was made of the change which would establish employees of the hospital, their spouses, and children who were corporate members as a 'separate class designated as hospital members . . . (who would) have the same rights as regular members, except that hospital members shall be ineligible to vote' (emphasis in complaint). Schilling and Sommi heard that nominations from the floor would be allowed 'and relying on the defendants' silence about any other substantial changes . . . believed that their sole objection to the proposed bylaw changes had been obviated.' Relying on the defendants' statements, including their silence, concerning substantial changes, Sommi and Schilling voted in favor of the by-law amendment, which was passed unanimously. No separate vote was held by the so called hospital members who, for greater clarity, we shall describe in this opinion as the employee members.

The plaintiffs subsequently learned that the by-law changes created a special membership class of employee members, and objected to the corporate action, demanding that the by-laws adopted at the September 9 meeting be declared null and void. No relief was extended to the plaintiffs, who then commenced this action, alleging that the defendants acted fraudulently, in violation of their fiduciary obligations to the plaintiffs, and illegally. They sought a declaration that the by-laws purportedly adopted on September 9, 1974, were null and void with respect to the disenfranchisement of the employee members. They additionally sought injunctive relief to protect their voting rights. Thereafter the procedural events described earlier in this opinion occurred, and the plaintiffs' appeal has been transferred here.

The plaintiffs raise two objections to the action of the September 9 meeting based on claims that the members had no lawful right to consider the challenged by-law amendment. They object further than an affirmative vote of employee members as a class was necessary to adopt corporate by-laws disenfranchising employee members. They argue finally that, even if the challenged amendment properly could have been considered by a collective membership vote at the September meeting, the conduct of the defendants was such that the vote of disenfranchisement must be invalidated. The plaintiffs do not argue that under no circumstances may they be disenfranchised by a by-law amendment. A voting member of a charitable corporation, having no ownership interest in that corporation, 'is not deprived of any vested interest when he is deprived of his right to vote.' Langrock v. Porter Hosp. Inc., 126 Vt. 233, 236, 227 A.2d 291, 293 (1967). The plaintiffs do not challenge this principle but rest their case on the particular circumstances under which their purported disenfranchisement took place. We shall consider each of the plaintiffs' contentions in order.

1. The plaintiffs argue first that the notice of the meeting was fatally defective because it failed to warn the plaintiffs explicitly that their right to vote might be lost by an amendment to the by-laws at the September 9 meeting.

A c. 180 corporation may provide in its by-laws for the manner of calling its meetings, provided that its chosen method is consistent with law. G.L. c. 180, § 6A. Members of a c. 180 corporation have the power to amend the corporate by-laws. See G.L. c. 180, § 6A, incorporating by reference G.L. c. 156B, § 17. The hospital by-law provision applicable to any amendments to be made at the September 9 meeting stated that the...