Nelson v. WEB Water Development Ass'n, Inc., 17966

• Court: Supreme Court of South Dakota
• Writing for the Court: WUEST; MILLER, C.J., and SABERS; MILLER; SABERS
• Citation: 507 N.W.2d 691
• Parties: Willis J. NELSON, Jr., Plaintiff and Appellant, v. WEB WATER DEVELOPMENT ASSOCIATION, INC., Edwin Fischbach, Robert Knickrehm, William D. Johnson, Oscar E. Jeschke and Howard Thomas, Defendants and Appellees.
• Docket Number: No. 17966,17966
• Decision Date: 27 October 1993

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507 N.W.2d 691 Willis J. NELSON, Jr., Plaintiff and Appellant,
v.
WEB WATER DEVELOPMENT ASSOCIATION, INC., Edwin Fischbach,
Robert Knickrehm, William D. Johnson, Oscar E.
Jeschke and Howard Thomas, Defendants
and Appellees. No. 17966. Supreme Court of South Dakota. Argued Jan. 13, 1993.
Decided Oct. 27, 1993.

Charles B. Kornmann and Susan Margolies, Richardson, Groseclose, Kornmann and Wyly, Aberdeen, for plaintiff and appellant.

Lawrence L. Piersol and Marie E. Hovland, Davenport, Evans, Hurwitz and Smith, Sioux Falls, for defendants and appellees.

WUEST, Justice.

Willis J. Nelson (Nelson) appeals from a decision granting summary judgment to WEB Water Development Association (WEB). We affirm in part, reverse in part and remand.

FACTS

Nelson was hired as manager of WEB, a non-profit corporation for water development, in March 1988. In August 1989, WEB and Nelson signed an employment contract in which WEB agreed to employ Nelson for three years. On December 9, 1989, new members of the WEB Board of Directors (Board) were elected, three of whom had campaigned that a change of management was needed at WEB. On January 17, 1990, without full Board authorization, a settlement was offered to Nelson if he would resign as WEB manager. He refused.

At a public WEB meeting on January 17, 1990, a motion was made to fire Nelson. Nelson's job performance was then discussed; the motion carried and he was fired that day.

Nelson filed suit against WEB and the directors as individuals alleging breach of contract, conversion of salary, defamation, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, negligent or intentional infliction of emotional distress, conspiracy to breach the contract, interference with business relationship or expectancy, and requesting punitive damages. WEB was granted summary judgment; Nelson appeals.

Subsequent to the oral arguments before this court, a motion was made by Nelson to take judicial notice of article X of WEB's articles of incorporation. Apparently, the trial court and lawyers were previously unaware of article X. We find that this court's judicial notice of the article is proper. Nauman v. Nauman, 336 N.W.2d 662 (S.D.1983). In Nauman, we stated:

By both statute, SDCL 19-10-2(2) and 19-10-3, and case law, even though it be a fact of which the court does not possess actual present knowledge, State v. Larson, 81 S.D. 540, 138 N.W.2d 1 (1965), judicial notice may be taken of public or official records. Walz v. City of Hudson, 327 N.W.2d 120 (S.D.1982); Elfring v. Paterson, 66 S.D. 458, 285 N.W. 443 (1939).... It would be an idle act to remand the proceedings to find what we know, and can accept, as factual.

Nauman, 336 N.W.2d at 664-65. This authority allows judicial notice of the WEB articles of incorporation filed with the Secretary of State for the State of South Dakota.

STANDARD OF REVIEW

In reviewing a grant of summary judgment under SDCL 15-6-56(c) we must determine whether the moving party has demonstrated there is no genuine issue of material fact and he is entitled to judgment as a matter of law. Wilson v. Great Northern Ry. Co., 83 S.D. 207, 212, 157 N.W.2d 19, 21 (1968); Groseth Int'l, Inc. v. Tenneco, Inc., 410 N.W.2d 159, 164 (S.D.1987); Breen

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v. Dakota Gear & Joint Co., 433 N.W.2d 221, 223 (S.D.1988). "The evidence must be viewed most favorably to the nonmoving party and reasonable doubts should be resolved against the moving party." Groseth, 410 N.W.2d at 164 (citing Wilson, 157 N.W.2d at 21; Trapp v. Madera Pac., Inc., 390 N.W.2d 558 (S.D.1986)). Affirmance is proper if any basis exists which would support the trial court's ruling. Breen, 433 N.W.2d at 223 (citing Blote v. First Fed. Sav. & Loan Ass'n, 422 N.W.2d 834, 837 (S.D.1988); Uken v. Sloat, 296 N.W.2d 540, 542 (S.D.1980)). ANALYSIS

I. VALIDITY OF EMPLOYMENT CONTRACT BETWEEN WEB AND NELSON.

The WEB bylaws provide the Board of Directors with the authority to discharge an employee at the pleasure of the Board. WEB asserts that its otherwise valid contract with Nelson was void because it was beyond the power of the Board as expressed in the bylaws of the corporation to enter a valid employment contract for a specified term. Nelson claims that because South Dakota law gives corporations the power to enter into contracts, the Board possessed the authority to enter valid employment contracts independent from its authority to terminate employment and thus, his contract is valid.

The bylaws of the WEB Corporation provide in part:

ARTICLE XIII

Section 1. The Board of Directors subject to the restrictions of the law, the Articles of Incorporation, and By-Laws, shall exercise all of the powers of the Corporation. Without prejudice to, or limitation upon, their general powers, it is hereby expressly provided that the Board shall have, and are given, full power and authority to perform the duties and functions hereinafter set forth, to wit: [Emphasis added.]

* * * * * *

b. To select and appoint all officers, agents, or employees of the Corporation or remove all such agents or employees of the Corporation, at the pleasure of the Board, and to prescribe such duties and designate such powers as may be consistent with these By-Laws, and fix their compensation and pay for faithful services. [Emphasis added.]

ARTICLE XVI

T]hese By-Laws may be altered, amended or repealed by a majority of the members at any regular or special meeting, provided the notice of such meeting shall have contained a copy of the proposed alternation, amendment or repeal.... Changes in the By-Laws may be proposed by the Board of Directors subject to review and approval of the membership at any annual or special meeting. Proposed changes by the Board of Directors must be included in the notice of the meeting.

The circuit court held there was no enforceable contract between Nelson and WEB because entering into a contract for a specified term was an amendment of the bylaws by the Board.

SDCL 47-22-33 provides, in part:

The power to alter, amend or repeal the bylaws or adopt new bylaws shall be vested in the board of directors unless otherwise provided in the articles of incorporation or the bylaws. The bylaws may contain any provisions for the regulation and management of the affairs of a corporation not inconsistent with law or the articles of incorporation.

Unfortunately, the trial court and parties were laboring without the benefit of article X of the articles of incorporation. As shall be seen, there is an apparent conflict between article XVI of the WEB bylaws and article X of the articles of incorporation. The bylaw provision of article XVI to the effect that the members may alter or amend the bylaws is clearly in disaccord with article X of the articles of incorporation which provides that the Board of Directors "shall be empowered to amend or repeal the By-Laws, from time to time, by means of a 66% favorable vote, after proper notice to Directors." SDCL 47-

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22-34 provides, in part: "In all other cases, whenever a provision of the articles of incorporation is inconsistent with a bylaw, the provision of the articles of incorporation shall be controlling."

In WEB's brief, it was conceded that authorities relied upon by Nelson stand for the proposition that a bylaw empowering the board of directors to remove a director or officer of the corporation does not authorize the board to terminate a contract with one whom they had employed for a definite term. See Short v. Columbus Rubber & Gasket Co., 535 So.2d 61, 65-66 (Miss.1988); Cuppy v. Stollwerck Bros., 216 N.Y. 591, 111 N.E. 249, 251 (1916); United Producers and Consumers Coop. v. Held, 225 F.2d 615, 618 (9th Cir.1955); In re Paramount Publix Corp., 90 F.2d 441, 443 (2d Cir.1937). This is especially true in a situation like the present case, where a board of directors has the power to amend the bylaws of the corporation. WEB's brief provides authority holding that where a corporation's board of directors have the express authority to amend the bylaws, a contract for a term of employment is valid and enforceable. See, e.g., Hernandez v. Banco de las Americas, 116 Ariz. 552, 570 P.2d 494, 498 (1977); Dixie Glass Co. v. Pollak, 341 S.W.2d 530, 535 (Tex.Civ.App.1960); Realty Acceptance Corp. v. Montgomery, 51 F.2d 636, 637-38 (3d Cir.1930); Magnus v. Magnus Organ Corp., 71 N.J.Super. 363, 177 A.2d 55, 58 (Ch.Div.1962). As stated in WEB's brief, "[t]hese cases clearly show that, regardless of whether an employment contract is written or oral, a contract of employment for a specified period could operate as an amendment or rescission of a by-law authorizing the removal of an officer or employee at the pleasure of the board if such contract was made by a board of directors having power to amend or rescind the by-laws of the corporation[.]" This power to amend the bylaws is granted to the WEB Board in article X of the WEB articles of incorporation. Thus, the WEB Board of Directors had the authority to enter into a valid employment contract for a specified term.

Under SDCL 47-22-2, all of chapters 47-22 through 47-28 apply to nonprofit corporations organized in South Dakota. WEB is a nonprofit corporation chartered under South Dakota law. SDCL 47-22-59 provides:

Each corporation shall have power to make contracts and incur liabilities, borrow money at such rates of interest as the corporation may determine, issue its notes, bonds, and other obligations, and secure any of its obligations by mortgage or pledge of all or any of its property, franchises and income. [Emphasis added.

SDCL 47-22-59 clearly provides that WEB had the authority to enter into valid contracts. The authority to enter into valid contracts includes the power to enter employment contracts.

Since a corporation can act only through individuals acting as agents for the corporation, it follows that the corporation may employ officers and agents to act for it.......