Okelberry v. West Daniels Land Ass'n

• Decision Date: 21 July 2005
• Docket Number: No. 20030389-CA.,20030389-CA.
• Citation: 2005 UT App 327,120 P.3d 34
• Parties: Ray OKELBERRY, Plaintiff, Appellee, and Cross-appellant v. WEST DANIELS LAND ASSOCIATION, Defendant, Appellant, Cross-appellee.
• Court: Utah Supreme Court

120 P.3d 34

2005 UT App 327

Ray OKELBERRY, Plaintiff, Appellee, and Cross-appellant v. WEST DANIELS LAND ASSOCIATION, Defendant, Appellant, Cross-appellee.

No. 20030389-CA.

Court of Appeals of Utah.

July 21, 2005.

Wade R. Budge, Bradley R. Cahoon, and Peter H. Donaldson, Snell & Wilmer, Salt Lake City, for Appellant.

Don R. Petersen and Ryan D. Tenney, Howard Lewis & Petersen, Provo, for Appellee.

Before Judges DAVIS, GREENWOOD, and ORME.

OPINION

GREENWOOD, Judge:

¶ 1 This case involves a dispute between Defendant West Daniels Land Association (the Association), a nonprofit corporation, and one of its shareholders, Plaintiff Ray Okelberry, over the Association's decision to lease Association-owned land to a nonshareholder. The Association appeals the trial court's ruling, following a bench trial, awarding Plaintiff damages for breach of fiduciary duty by the Association. Plaintiff cross-appeals the trial court's dismissal of his claim for declaratory judgment that ownership of livestock and a grazing permit are preconditions to ownership of Association stock. We affirm the trial court's ruling against the Association, albeit on other grounds, and hold that the Association is liable to Plaintiff for breach of contract. We also affirm the trial court's dismissal of Plaintiff's declaratory judgment claim.

BACKGROUND

¶ 2 The Association was incorporated in Utah in 1952 as a nonprofit corporation under the Utah Revised Nonprofit Corporation Act (the Act), see Utah Code Ann. §§ 16-6a-101 to -1705 (2001).¹ According to the Affidavit of Incorporation (the Articles), the Association was to "exist for ninety-nine years from the date of incorporation for the purpose to hold and own and manage grazing land for the purpose of grazing animals as shall be determined by the board of directors." The Articles also provided that "two shares were to be issued for each head of livestock." There are 1390 Association shares outstanding.²

¶ 3 Pursuant to their corporate charter, the Association acquired 5200 acres of land on which members could graze their livestock. For many years, the Association-owned land was used for grazing in conjunction with adjoining United States Forest Service (Forest Service) lands. Permits to use the Forest Service lands were either owned outright by shareholders of the corporation or were held by the Association in a pooling arrangement.³

¶ 4 In August 1997, the Forest Service cancelled a 160-head grazing permit owned by the Association. As a result, the Association members voted in February 1998 to create two herds, one herd to go onto the Forest Service land and one herd to remain on Association land. Plaintiff, then president of the Association, voted against the creation of two herds, but the motion passed by the vote of a majority of shareholders. This vote prompted Plaintiff's filing of the instant lawsuit in April 1999, wherein Plaintiff requested declaratory judgment and monetary damages for disputes over corporate voting rights and property decisions.

¶ 5 After commencement of this litigation, the Association's board of directors (the Board) decided to prohibit shareholders, including Plaintiff, from grazing on the Association's land during 2000 and 2001. Further, in February 2002, the Association voted at its annual meeting to lease its land to a nonshareholder "for the purposes of generating money to pay expenses." The Association advertised the property in several periodicals and awarded the lease to the highest bidder.⁴

¶ 6 Plaintiff filed an amended complaint in January 2001, pleading two causes of action: (1) declaratory relief, and (2) breach of contract. In his claim for declaratory relief, Plaintiff alleged that the ability to own shares in the Association was conditioned upon ownership of both cattle and Forest Service permits. Accordingly, Plaintiff sought a judgment determining qualifications for membership in the Association, the amount of shares held, and an order transferring shares held by nonpermit owning members to members who still held permits.

¶ 7 In his action for breach of contract, Plaintiff alleged that Association membership gave him a contractual right to "run his cattle on the Association's private land," and that "[t]he Association has prohibited this action by illegal and/or improper vote." Plaintiff filed suit directly, not derivatively.

¶ 8 The trial court dismissed the majority of Plaintiff's claims for declaratory relief before trial.⁵ A bench trial was held on Plaintiff's claims for breach of contract and mismanagement of corporate assets (paragraph 33 of the declaratory relief claim). The trial court ruled against Plaintiff for the 1998-2001 period because, in 1998, Plaintiff was allowed to graze his cattle on Association land; in 1999, Plaintiff chose not to graze; and in 2000 and 2001, the Board forbade anyone from grazing on the land in order to rest it, which, under the Bylaws, was within its management powers. However, the trial court ruled that

[t]he solicitation of bids for the year 2002 by the Board. . . was a breach of its fiduciary duty. The directors had a duty to look after the best interests of the shareholders[,]. . . a fiduciary duty to use the private property in the best interest of the shareholders[,] and to promote the purpose of the corporation which is to provide grazing land for livestock owned by shareholders.

Additionally, the trial court concluded that "[t]here was a breach of the obligation of the management of [the Association] with respect to [Plaintiff]. The Court concludes that [P]laintiff is entitled to damages for the breach of the duty owed to him." Accordingly, the trial court awarded Plaintiff $13,716 in damages and prohibited any similar future leases of the land or sale of the land absent either two-thirds shareholder approval or amendment of the Bylaws.

¶ 9 Following this decision, the Association moved for a new trial under rule 59 of the Utah Rules of Civil Procedure. See Utah R. Civ. P. 59. That motion was denied. This appeal followed with both parties appealing adverse rulings.

ISSUES AND STANDARD OF REVIEW

¶ 10 The Association argues that the trial court erred in ruling that the Association breached its fiduciary duty to Plaintiff by leasing Association-owned land to a nonshareholder because (1) this action was protected by the business judgment rule; (2) claims for breach of fiduciary duty must be brought derivatively, while Plaintiff brought suit directly; and (3) the trial court failed to make sufficient factual findings to support its conclusion that the Association breached its fiduciary duty.⁶ We need not consider the sufficiency of the trial court's determination that Plaintiff was entitled to recovery for breach of fiduciary duty, however, because we conclude that Plaintiff was entitled to relief for breach of contract.⁷

¶ 11 It is well established that we may affirm the judgment appealed from

"if it is sustainable on any legal ground or theory apparent on the record, even though such ground or theory differs from that stated by the trial court to be the basis of its ruling or action, and this is true even though such ground or theory is not urged or argued on appeal by appellee, was not raised in the lower court, and was not considered or passed on by the lower court."

Bailey v. Bayles, 2002 UT 58,¶ 10, 52 P.3d 1158 (quoting Dipoma v. McPhie, 2001 UT 61,¶ 18, 29 P.3d 1225). The goal of the "affirm on any ground" rule is judicial economy. See Bailey, 2002 UT 58 at ¶ 13 n. 3, 52 P.3d 1158.

¶ 12 This case is appropriate for affirmance on alternative grounds. As will be discussed in detail in the next section, our breach of contract determination is based on the Association acting outside of the Articles by leasing the Association-owned land to a nonshareholder, which prevented Plaintiff from using this land to graze his cattle — the same action the trial court concluded was a breach of fiduciary duty. Although Plaintiff did not complain that this action amounted to a breach of the Association's fiduciary duty, he did assert that it was a wrong for which he was entitled to relief.⁸ More importantly, regardless of the legal theory pursued, the question of whether the Association contravened the Articles by leasing its land to a nonshareholder and the damages this action caused to Plaintiff clearly were issues at trial. This is amply represented in the record, with both sides addressing the issues during opening statements, through witness testimony, and during closing arguments. Therefore, because we may affirm on any ground "apparent on the record" even though "not raised in the lower court," see id. at ¶ 10 (quotations and citation omitted), Plaintiff's failure to clearly plead his theory of relief is not fatal, as we conclude that the record indicates Plaintiff is entitled to relief for breach of contract.⁹

¶ 13 Plaintiff, on cross-appeal, argues that the trial court erred in dismissing his claim for declaratory judgment by ruling that the provisions in the Bylaws requiring members of the Association to own valid grazing permits conflicted with the Articles and were, therefore, invalid. "The propriety of a trial court's decision to grant or deny a motion to dismiss under rule 12(b)(6) is a question of law that we review for correctness." Mackey v. Cannon, 2000 UT App 36,¶ 9, 996 P.2d 1081 (quotations and citation omitted).

ANALYSIS

I. Breach of Contract

¶ 14 "`It is well established precedent that the bylaws of a corporation, together with the articles of incorporation, the statute under which it was incorporated, and the member's application, constitute a contract between the member and the corporation.'" Reedeker v. Salisbury, 952 P.2d 577, 582 (Utah Ct.App.1998) (quoting Turner v. Hi-Country Homeowners Ass'n., 910 P.2d 1223, 1225 (Utah 1996)) (additional quotations and citation omitted); see also 12A William Meade Fletcher, Cyclopedia of the Law of Private Corporations § 5690 ...