O'Leary v. Board of Directors, Howard Young Medical Center, Inc.

• Decision Date: 23 February 1979
• Docket Number: No. 78-048,78-048
• Parties: R. J. O'LEARY and E. J. Baumbach, Plaintiffs-Appellants, Erwin Teichmiller, Victor Ouimette, Ronald F. Edwards and Gil Dobrinski, Plaintiffs, v. BOARD OF DIRECTORS, HOWARD YOUNG MEDICAL CENTER, INC., the Howard Young Medical Center, Inc., of Woodruff, Wisconsin, a Wisconsin nonstock, nonprofit corporation, James C. Thompson, Carl C. Manderen, Palmer Hanson, A. F. Kletzien, Albert Scherer, John Zuiker and Robert Voyt, Individually and as Directors of Howard Young Medical Center, Inc., Estate of Alvin Gongaware, Individually and as a former Director of Howard Young Medical Center, Inc., and Roger Pukall, Individually and as a Director and Secretary of Howard Young Medical Center, Inc., Defendants-Respondents.
• Court: Wisconsin Court of Appeals

Page 217

278 N.W.2d 217

89 Wis.2d 156

R. J. O'LEARY and E. J. Baumbach, Plaintiffs-Appellants, Erwin Teichmiller, Victor Ouimette, Ronald F. Edwards and Gil Dobrinski, Plaintiffs, v. BOARD OF DIRECTORS, HOWARD YOUNG MEDICAL CENTER, INC., the

Howard Young Medical Center, Inc., of Woodruff, Wisconsin, a

Wisconsin nonstock, nonprofit corporation, James C.

Thompson, Carl C. Manderen, Palmer Hanson, A. F. Kletzien,

Albert Scherer, John Zuiker and Robert Voyt, Individually

and as Directors of Howard Young Medical Center, Inc.,

Estate of Alvin Gongaware, Individually and as a former

Director of Howard Young Medical Center, Inc., and Roger

Pukall, Individually and as a Director and Secretary of

Howard Young Medical Center, Inc., Defendants-Respondents.

No. 78-048.

Court of Appeals of Wisconsin.

Submitted on Briefs Dec. 13, 1978.

Opinion Released Feb. 23, 1979.

Opinion Filed Feb. 23, 1979.

[89 Wis.2d 160] John H. Ames, of John H. Ames & Associates, Ltd., Minocqua, on brief for plaintiffs-appellants.

Thomas N. Akey and Gerard W. Cook, of Lund, Harrold & Akey, S. C., Minocqua, on brief for defendants-respondents.

Before DEAN, P. J., and DONLIN and FOLEY, JJ.

FOLEY, Judge.

The judgment dismissed plaintiffs' complaint seeking declaratory and injunctive relief against the defendant, Howard Young Medical Center, Inc., and its directors. The allegations of the complaint and the attached exhibits set forth the following facts.

Howard Young Medical Center, Inc., is a ch. 181, Stats. corporation. It was originally organized in 1948 as the Lakeland Hospital Association of Woodruff, Wisconsin and later known as Lakeland Memorial Hospital, Inc. In 1972 Howard Young died and by his will conditionally bequeathed a portion of his estate to a trust fund for the benefit of the corporation. To receive the bequest the corporation was required to change its name to the Howard Young Medical Center, Inc.; to reduce its number of directors to nine; and to elect as directors, for five-year terms, nine persons designated in the will.

The members of the corporation accepted the conditions of the will, amended the articles of incorporation accordingly, and elected the named directors to five-year terms. Shortly thereafter the new board of directors adopted the initial bylaws of the Howard Young Medical Center, Inc. In respects material to this case the new bylaws resembled those under which the corporation had previously conducted its affairs.

The bylaws provided for three classes of individual members depending upon the value of their contributions and one class for contributing organizations. Life members were those contributing $5,000 or more. Contributing members were those contributing more than $100 and less than $5,000 in any one year, with membership then lasting for ten years. Associate members were those contributing $5 to $100, with membership effective for one year. Organization membership was based upon a donation of $300 or more, and was effective for ten years. The bylaws provided that every member, regardless of class, had equal membership rights including voting rights. Proxy voting was prohibited. The bylaws did not provide any procedures or requirements for nominating and choosing subsequent directors.

In 1975 the bylaws were amended by the board of directors, but the membership categories and rights described above were left unchanged. On July 26, 1977, three months before the expiration of the five-year terms of the directors elected under the dictates of the will, the bylaws were again amended by action of the board of directors. This time there were substantial changes affecting the members and their rights. The equality of membership rights between classes was abolished. Under the new bylaws, each member was given one vote for every $100 of contribution to a maximum of 5,000 votes. Associate members holding that status prior to the adoption of the bylaw amendments retained one vote. Those becoming associate members afterward would have no vote, as they would be contributing less than the minimum $100. In addition, the ban on proxy voting was abolished. The board also provided for Procedures were also provided, where none existed in the previous bylaws, for nominating directors. One of the requirements was for the nominating person, to the extent of his or her knowledge, to provide the chairperson of the board of directors with an estimate of the total number of votes to be cast for the nominee. Other changes included a reduction in term of membership from ten years to one year for contributing and organization members, and a ban on secret ballots at membership meetings.

waivers of "certain membership rights" as a condition of acceptance where "granting membership rights in the normal fashion would jeopardize . . . the best interests of the corporation."

Three days prior to the July 26, 1977 board meeting, thirty-one members called for a special meeting of the members for July 31, 1977. The call was delivered to the secretary of the corporation, with a copy going to the executive director. The stated purpose of the meeting was the adoption by the membership of the 1975 bylaws. Adoption by the members would have then precluded amendment by the board of directors under sec. 181.13, Stats. ¹

On July 25, 1977 a proposed notice of the meeting was delivered to the secretary and executive director. The bylaws required the notice to be sent to the members at least five days prior to the meeting. However, the corporation failed to send any notice and did not tell the members requesting the meeting of the failure until it was too late for the members themselves to mail the notice. At some time between July 23 and July 26, an unnamed director refused to provide a membership list to one of the members.

The plaintiffs, purporting to represent a class of members, have brought this action seeking a declaratory judgment setting aside the directors' July 26, 1977 amendments to the bylaws.

As a first of two causes of action the plaintiffs alleged that sec. 181.13 precluded the directors from amending the bylaws as they did. While there was never a formal adoption of any set of bylaws by the members, the cause of action is based upon the theory that the existing bylaws relating to members' rights had been adopted by "custom and acquiescence." Thus, sec. 181.13 would act to prevent any further amendment by the directors without membership approval.

The second cause of action alleges a conspiracy by all defendants except the corporation "to impair plaintiffs' valuable membership rights in an attempt to entrench themselves and successors of their choosing in power, thereby negating the voting power which the members had heretofore enjoyed." The acts alleged in furtherance of the conspiracy were the passage of the July 26, 1977 amendments to the bylaws and the suppression of a special meeting called for by the members to preserve the old bylaws.

The defendants responded to the complaint with a motion to dismiss. Among other grounds not relevant to this appeal, the defendants moved to dismiss because the named plaintiffs were not representative of the class they purported to represent, and because neither purported cause of action in the complaint stated a claim for which relief could be granted. In the alternative, a motion for a more definite statement of facts was made relating to the conspiracy charge.

The trial court granted the motion to dismiss. On the first cause of action the court ruled that there was no legal support for a claim that bylaws formally adopted by a board of directors may then be adopted by the membership by means of custom and acquiescence. The trial court found this doctrine applicable only where there has On the conspiracy count the trial court found that the facts as alleged were insufficient to state a cause of action. Therefore count two was also dismissed, but with leave to replead within twenty days, setting forth certain of the facts requested in the motion for a more definite statement. These facts included:

been a variation in practice from the bylaws over a period of time, or where there has been no bylaw governing the practice. Thus, this cause of action was dismissed without leave to replead.

(b) The acts of the defendants which were illegal or unlawful.

(c) What purpose of the defendants was illegal or unlawful.

(d) When the illegal or unlawful acts were performed.

(e) Facts with regard to the formation and operation of the alleged conspiracy.

The plaintiffs were also instructed to include in their amended complaint a more specific description of the represented class or classes, including their total number.

The plaintiffs elected not to amend their complaint, and judgment of dismissal with prejudice was entered. This appeal followed.

ISSUES

1. Did the trial court err in dismissing the plaintiffs' first cause of action?

2. Did the trial court err in dismissing, with leave to replead, the plaintiffs' second cause of action?

3. Did the trial court err in requiring the plaintiffs to amend their complaint to specifically describe the class they represented, including the number of members?

On the first cause of action the plaintiffs allege that the 1972 bylaws, as amended in 1975, were adopted by the membership by custom and acquiescence, and thus, under sec. 181.13, the board of directors lacked the power to amend them in 1977. We affirm the trial court's ruling that only by formal adoption procedures, taken at a meeting of the members, could the membership have prevented the directors from exercising their power to amend. There was no formal adoption alleged and therefore no cause of action based upon a violation of the sec. 181.13 provision which prohibits directors from amending bylaws adopted by the membership.

Adoption by custom and acquiescence does find acceptance where there has been acquiescence for a number of years in a uniform custom or usage not in accord with...