Lopez v. Medford Community Center, Inc.

• Decision Date: 27 July 1981
• Citation: 384 Mass. 163,424 N.E.2d 229
• Parties: Allen LOPEZ et al. 1 v. MEDFORD COMMUNITY CENTER, INC., et al. 2
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 229

424 N.E.2d 229

384 Mass. 163

Allen LOPEZ et al. ¹ v. MEDFORD COMMUNITY CENTER, INC., et al. ²

Supreme Judicial Court of Massachusetts, Middlesex.

Argued May 8, 1981.

Decided July 27, 1981.

William F. Macauley, Boston (Donald E. Hacker, Jr., Boston, with him), for defendants.

Charles F. Choate and Jacques C. Leroy, Boston, for plaintiffs.

Before HENNESSEY, C. J., and WILKINS, ABRAMS, NOLAN and LYNCH, JJ.

NOLAN, Justice.

On November 4, 1979, the plaintiffs commenced an action seeking a declaration of their rights as members and officers of Medford Community Center, Inc. (MCC), and ancillary injunctive relief designed to prevent the individual defendants, all of whom were then acting as officers or directors of the corporation, from taking any action to interfere with the membership rights asserted. On January 4, 1980, following a three day trial, the trial judge ordered that a receiver be appointed to take control of the corporate affairs of MCC, to recruit new members of the corporation, and to hold a valid election of officers at the earliest possible time.

The defendants appealed, and on January 25, 1980, the Appeals Court stayed the order in so far as it directed an election on the ground that such an election, if held, might moot the defendants' appeal. On November 4, 1980, judgment was entered incorporating verbatim the terms of the initial order, but noting the intervening stay issued by the Appeals Court. The defendants appealed from this judgment, and the plaintiffs appealed from the related ruling that they were neither members nor officers of MCC.

We granted the plaintiffs' application for direct appellate review, and consolidated the appeals. ³ We conclude that the trial judge erred in appointing a receiver, and remand for the fashioning of a more limited remedy to correct the deficiencies found to exist in MCC's governance.

MCC is a charitable corporation organized for civic and educational purposes under G.L. c. 180, in 1960. ⁴ In 1972, MCC had an annual budget of not more than $20,000 and was staffed by one full-time and two part-time employees. By 1979, its annual budget had increased to approximately $750,000 and its employees numbered more than one hundred. Between 1972 and 1979, MCC successfully launched and administered a number of community service programs, including a day care center, an after school program, a homemaker services program, and several other youth programs. In 1979, MCC received preliminary approval of its application for a 1.5 million dollar Federal grant for construction of housing for the elderly.

The plaintiffs are five members of a group of forty-four persons who attended a meeting of MCC's board of directors on the evening of September 17, 1979. Their purpose in attending was to become associate members of the organization with the objective of removing the board members then in place and electing officers of their own choosing. When the acting board members refused to permit these actions, the dissident group convened in a separate room and proceeded with a purported election of officers. In their complaint, the plaintiffs claim that they and others each contributed $2.00 to MCC at the September 17 board meeting and thereby became associate members of the corporation. They aver that on the same evening they duly elected their own slate of officers. ⁵ The complaint goes on to allege that the individual defendants hold their offices in violation of the corporate constitution and by-laws; that the president of MCC improperly borrowed money from the corporation with the board's knowledge; and that the board has mismanaged and neglected the affairs of the corporation in a variety of respects. Following allegations of irreparable damage to the corporation if the defendants are permitted to continue in office, the plaintiffs sought a declaration of their rights as members and officers of the corporation, injunctive relief to prevent MCC from enrolling associate members pending disposition of the case, and appointment by the court of "competent and reputable citizens of Medford as associate members ... in an appropriate number to be determined by the court."

The defendants responded with a motion to dismiss so much of the complaint as alleged mismanagement by the board, stating as the ground for dismissal the Attorney General's exclusive jurisdiction in this area and the plaintiffs' consequent lack of standing. In addition, the defendants moved for summary judgment as to the plaintiffs' claim that they were the validly elected officers of MCC. The latter motion was granted by a judge other than the trial judge. The plaintiffs were given leave to add the Attorney General as a party and to amend their complaint to allege their status as members, but not officers, of MCC. Prior to trial, the parties met with an assistant attorney general to discuss the case, but the Attorney General was never properly joined as a party.

In this posture, the case came on for trial. At the end of the first day of trial, the judge, on his own motion, ordered from the bench that a receiver be appointed. On January 8, 1980, a receiver was named to take full control of the corporation, and has continued in that position to the present time. The trial judge entered findings of fact and conclusions of law stating the applicable provisions of the corporate constitution and by-laws, and concluding that, at least since 1972, there has been no compliance with the provisions dealing with membership and the election of officers.

1. Plaintiffs' standing. The plaintiffs included in their complaint numerous allegations of corporate mismanagement by MCC's board of directors. After the defendants moved to dismiss these claims for lack of standing, the plaintiffs were given leave to amend their complaint to join the Attorney General as a party. This was never done, however, and the defendants' answer to the complaint again raised the question of the plaintiffs' standing in the form of an affirmative defense. At the commencement of the trial, an assistant attorney general appeared to inform the trial judge that the Attorney General had considered the allegations of corporate mismanagement and had determined that the public interest would not be served by his participation in the case. The trial judge, nevertheless, allowed the introduction of voluminous testimony and other evidence offered to prove the plaintiffs' allegations of mismanagement.

The defendants are correct in their contention that the injection of these issues into the trial was improper. It remains the general rule that "it is the exclusive function of the Attorney General to correct abuses in the administration of a public charity by the institution of proper proceedings. It is his duty to see that the public interests are protected and to proceed in the prosecution or to decline so to proceed as those interests may require." Ames v. Attorney Gen., 332 Mass. 246, 250-251, 124 N.E.2d 511 (1955), quoting from Dillaway v. Burton, 256 Mass. 568, 573, 153 N.E. 13 (1926). This was the rule at common law and it is currently codified at G.L. c. 12, § 8. Ames v. Attorney Gen., supra 332 Mass. at 250, 124 N.E.2d 511. As the Ames case makes clear, the rule is rooted in the principles of separation of powers embodied in art. 30 of our Declaration of Rights. Id. at 253, 124 N.E.2d 511.

Notwithstanding the Attorney General's exclusive and discretionary role as protector of the public interest in the efficient and lawful operation of charitable corporations, a private plaintiff possesses standing to assert interests in such organizations which are distinct from those of the general public. Ames v. Attorney Gen., supra at 252, 124 N.E.2d 511; Dillaway v. Burton, supra 256 Mass. at 573, 153 N.E. 13. Thus, in Jessie v. Boynton, 372 Mass. 293, 302-305, 361 N.E.2d 1267 (1977), we held that members of a charitable corporation who alleged that the corporation's officers, in violation of their fiduciary duties, had induced the members to vote in favor of a by-law amendment eliminating their voting rights stated a cause of action sufficient to withstand a motion to dismiss. Conceding that a member of a charitable corporation has no property interest in his right to vote, we observed that the plaintiffs nevertheless "became members of the (charitable corporation) voluntarily by the payment of dues. Each had a vote concerning the operation of the (corporation) to the extent the by-laws provided. That right to vote should not be taken away except in accordance with lawful procedures...