Kansas City Univ. of Med. & Biosciences v. Pletz

• Decision Date: 01 November 2011
• Docket Number: No. WD 73991.,WD 73991.
• Citation: 351 S.W.3d 254,273 Ed. Law Rep. 891
• Parties: KANSAS CITY UNIVERSITY OF MEDICINE AND BIOSCIENCES, Respondent, v. Karen L. PLETZ, Appellant.
• Court: Missouri Court of Appeals

273 Ed. Law Rep. 891

351 S.W.3d 254

KANSAS CITY UNIVERSITY OF MEDICINE AND BIOSCIENCES, Respondent,

v.Karen L. PLETZ, Appellant.

No. WD 73991.

Missouri Court of Appeals, Western District.

Nov. 1, 2011.

Charles W. German, Brandon J. Boulware and Joletta M. Friesen, Kansas City, MO, for appellant.

David F. Oliver, Jeffrey D. Morris, Timothy S. Millman, Timothy R. West, Jonathan Scott Kemp, Kansas City, MO; and Jeremy S. Weis, Prairie Village, KS, for respondent.

Before: VICTOR C. HOWARD, P.J., and ALOK AHUJA and KAREN KING MITCHELL, JJ.

ALOK AHUJA, Judge.

While she was President and Chief Executive Officer of Kansas City University of Medicine & Biosciences (“KCUMB”), Appellant Karen Pletz came under investigation concerning allegations of excessive compensation and improper reimbursement of personal expenses. Although KCUMB initially advanced Pletz's legal expenses, it later terminated her employment and ceased the advance payment of her legal costs. Pletz filed suit against KCUMB, alleging, inter alia, that it was under a duty to advance her legal expenses under KCUMB's Articles of Incorporation and Bylaws. The circuit court dismissed the counts of Pletz's amended petition claiming a right to advancement, and certified its judgment on those claims for immediate appeal under Supreme Court Rule 74.01(b). We affirm.

Factual Background

KCUMB hired Pletz to serve as its President and Chief Executive Officer in 1995. On October 20, 2009, after hearing allegations from anonymous informants concerning excessive compensation and improperly-charged personal expenses, KCUMB initiated an investigation of Pletz. KCUMB initially paid Pletz's legal fees as they were incurred. As a result of its investigation, KCUMB terminated Pletz's employment on December 18, 2009. At the same time, KCUMB stopped advancing her legal expenses. On March 22, 2010, KCUMB filed suit against Pletz to recover money she had allegedly misappropriated. Pletz filed her own petition on the same day, claiming that she had been terminated in violation of her employment contract, and that KCUMB had failed to pay her compensation through her termination date in violation of § 290.110.¹ In addition, Pletz sought both monetary damages and a declaratory judgment based on her claim that KCUMB's Bylaws in effect at the time of her termination gave her a right to advancement of her legal costs by KCUMB. The circuit court denied Pletz's motion for summary judgment on the advancement issue.

On March 16, 2011, Pletz filed a second amended petition. The second amended petition reasserted Pletz's advancement claim; however, the petition now based that claim in the alternative on Articles of Incorporation and Bylaws adopted by KCUMB on April 20, 2010, after this suit was filed, and well after the termination of Pletz's employment. On June 1, 2011, the circuit court granted KCUMB's motion to dismiss the new advancement claims, and denied Pletz's summary judgment motion on the issue as moot. The circuit court's Order and Judgment reasoned that Pletz was not entitled to advancement under the 2010 Bylaws because the Bylaws required that KCUMB's Board of Trustees have authorized advancement to a particular individual, and Pletz had pled no such authorization. The court's Order and Judgment did not separately address Pletz's claim of a right to advancement under KCUMB's 2010 Articles of Incorporation. The circuit court found no just reason to delay entry of final judgment on Pletz's advancement claims under Rule 74.01(b), thereby authorizing this interlocutory appeal.² We subsequently granted Pletz's motion for expedited consideration, and now affirm.

Standard of Review

A motion to dismiss for failure to state a cause of action is solely a test of the adequacy of the plaintiff's petition. A court reviews the petition in an almost academic manner, to determine if the facts alleged meet the elements of a recognized cause of action, or of a cause that might be adopted in that case. In so doing, a court takes a plaintiff's averments as true and liberally grants plaintiff all reasonable inferences. It will not weigh the credibility or persuasiveness of facts alleged.

An appellate court reviews a trial court's grant of a motion to dismiss de novo. It will consider only the grounds raised in the motion to dismiss in reviewing the propriety of the trial court's dismissal of a petition, and, in so doing, it will not consider matters outside the pleadings.

City of Lake St. Louis v. City of O'Fallon, 324 S.W.3d 756, 759 (Mo. banc 2010) (citations and internal quotation marks omitted).

The appellate court must affirm the trial court's ruling if the motion to dismiss could have been sustained on any of the meritorious grounds raised in the motion regardless of whether the trial court ruled on that particular ground.

Kixmiller v. Bd. of Curators of Lincoln Univ., 341 S.W.3d 711, 713 (Mo.App. W.D.2011).

Analysis

Pletz offers three distinct arguments to justify reversal of the trial court's dismissal of her advancement claims: (1) the provisions of KCUMB's 2010 Articles of Incorporation, obligating it to “indemnify and defend any trustee or officer,” impose a mandatory, non-discretionary advancement duty on KCUMB; (2) the 2010 Bylaws require that KCUMB advance all expenses incurred by Pletz, because the Board approved advancement for other KCUMB executives implicated in the same underlying matter, and that authorization applies to her; and (3) the trial court ignored important public policy considerations supporting mandatory advancement of her fees and expenses. We consider each argument in turn.

A recent federal decision describes the nature of the advancement Pletz seeks:

Advancement is a distinct right complementary to the right to indemnification. Indemnification and advancement work in tandem to encourage talented individuals to serve as corporate officers. Corporate service entails the risk of civil and criminal liability, and corporations may be willing to assume the expenses of defending such suits to attract talented employees. The right to indemnity, however, is often impossible to determine until the legal proceedings are finished. Absent advances, the officer himself must front the cost of defending the legal proceeding, significantly diminishing the attractiveness of indemnity. Advancement addresses this problem by providing timely relief in the midst of litigation. If a corporation withholds advances, the right will be irretrievably lost at the conclusion of the litigation, because at that point the officer will only be entitled to indemnity.

Westar Energy, Inc. v. Lake, 552 F.3d 1215, 1225 (10th Cir.2009) (Kansas law; citations omitted); see also Homestore, Inc. v. Tafeen, 888 A.2d 204, 211 (Del.2005) (“Advancement provides corporate officials with immediate interim relief from the personal out-of-pocket financial burden of paying the significant on-going expenses inevitably involved with investigations and legal proceedings.”).

I.

We turn first to Pletz's contention that the 2010 Articles of Corporation mandate that KCUMB advance her legal fees. The 2010 Articles provide:

ARTICLE XI—INDEMNIFICATION

The Corporation shall indemnify and defend any trustee or officer of the Corporation, or any person who serves at the request of the Corporation as director, trustee, officer or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, to the fullest extent permitted by the laws of the State of Missouri.

The indemnification and other rights provided for by this Article XI shall not be deemed exclusive of any other rights to which a person may be entitled under any applicable law, the Bylaws of the Corporation, agreement, vote of disinterested trustees, or otherwise. The Board of Trustees shall have the authority to enter into agreements with the trustees and officers of the Corporation and with persons serving, at the request of the Corporation, as directors, trustees, officers and agents of an affiliated corporation or other enterprise, on terms that the Board of Trustees deems advisable, which may provide greater indemnification rights than that generally provided by the Missouri Nonprofit Corporation Act; provided, however, that no such further indemnity shall indemnify any person from or on account of such person's conduct which was finally adjudged to have been knowingly fraudulent, deliberately dishonest, or willful misconduct.

Pletz argues that the declaration that KCUMB “shall indemnify and defend ” its trustees and officers requires that it not only reimburse legal expenses after-the-fact, but that it advance those costs to trustees and officers as they are incurred. We need not decide this issue, however, because Pletz's claim fails for a separate reason: she is not an eligible “trustee or officer” under Article XI.

The 2010 Articles were adopted on April 20, 2010. As of that date, Pletz was no longer an officer of KCUMB, having been terminated on December 18, 2009. Indeed, Pletz had already filed her lawsuit seeking advancement of legal fees prior to the adoption of the 2010 Articles.

The reference to “any trustee or officer” of KCUMB in Article XI cannot be read to include individuals, like Pletz, who were former trustees or officers at the time the 2010 Articles were adopted. The language of Article XI, which refers only to “any trustee or officer,” contrasts with the wording of the indemnification provision of the 2010 Bylaws, which were adopted at the same time. Article X, § 1 of the 2010 Bylaws provides indemnnification rights to “[e]ach person who was or is made a party ... to any action ... by reason of the fact that he or she is or was a trustee, officer, or employee of the Corporation....” (Emphasis added.)

While we recognize that a non-profit corporation's Articles of Incorporation take precedence over inconsistent provisions of its Bylaws, § 355.116; Higginsville Memorial Post 6270 v....