Spilhaus v. Austin Found., Inc.

• Decision Date: 23 February 2022
• Docket Number: 21-P-288
• Citation: 182 N.E.3d 346 (Table),100 Mass.App.Ct. 1125
• Parties: Lori Austin SPILHAUS & another v. AUSTIN FOUNDATION, INC., & others.
• Court: Appeals Court of Massachusetts

100 Mass.App.Ct. 1125

182 N.E.3d 346 (Table)

Lori Austin SPILHAUS & another¹

v.AUSTIN FOUNDATION, INC., & others.²

21-P-288

Appeals Court of Massachusetts.

Entered: February 23, 2022.

MEMORANDUM AND ORDER PURSUANT TO RULE 23.0

Austin Foundation, Inc. (Foundation), is a public charity incorporated under the provisions of G. L. c. 180. The plaintiffs, who are members of the Foundation, brought suit under the Declaratory Judgment Act claiming that they and the other members were "deadlocked" with respect to the election of the Foundation's directors. Among other equitable remedies, the plaintiffs sought the appointment of one or more neutral parties to break the purported deadlock or "to serve as additional directors on a permanent or provisional basis." On the defendants’ motion under Mass. R. Civ. P. 12 (b) (6), 365 Mass. 754 (1974), a Superior Court judge dismissed the claim concerning the deadlock,⁴ and the plaintiffs appeal. We affirm.

Background. We accept the following allegations of the complaint as true. See Curtis v. Herb Chambers I-95, Inc., 458 Mass. 674, 676 (2011).

John F. Austin, Jr., created the Foundation in 1972. Since his death in 2012, the Foundation has had four members: his children, Lori Austin Spilhaus (Lori), William B. Austin (Bowdie), and John F. Austin, Third (Jay); and Jay's son, Harris Austin (Harris).⁵

Lori, Jay, and Harris are the Foundation's directors and have served in that capacity since at least 2012. Lori and Bowdie are opposed to reelecting Jay and Harris as directors; Jay and Harris are opposed to reelecting Lori and electing Bowdie as directors. Jay and Harris also oppose expanding the number of directors to include any directors not chosen by them. Because each member has equal voting power, this has resulted in a "deadlock" as to the election of new directors. As a result, in lieu of holding annual meetings in 2018 and 2019, the members signed stipulations each year "to the effect that if the meeting were held there would be no majority vote fixing the number of directors and no majority vote for the election of any director."

Jay is the president and treasurer of the Foundation and, as such, maintains "virtually sole control" over its management and finances. Recently, Jay, with Harris's cooperation, has sought to minimize Lori's and Bowdie's involvement in the Foundation by refusing to approve charitable donations proposed by them. It is undisputed, however, that the Foundation continues to operate and make charitable donations consistent with its intended purpose.

Discussion. We review the allowance of a rule 12 (b) (6) motion to dismiss de novo. See Curtis, 458 Mass. at 676. To survive dismissal, the complaint must plausibly allege an entitlement to relief above the speculative level. See id.

The complaint was correctly dismissed because it does not state a claim that the alleged deadlock among the Foundation's members violated any individual right possessed by the plaintiffs. As a general rule, only the Attorney General can bring an action "to correct abuses in the administration of a public charity." Lopez v. Medford Community Ctr., Inc., 384 Mass. 163, 167 (1981), quoting Ames v. Attorney Gen., 332 Mass. 246, 250 (1955).⁶ The Supreme Judicial Court has "on occasion recognized a private plaintiff's standing to make claims against a public charity, but only where the plaintiff asserts ‘interests in such organizations which are distinct from those of the general public.’ " Weaver v. Wood, 425 Mass. 270, 276 (1997), quoting Lopez, supra. Where a plaintiff sues in his or her capacity as a member of a public charity, the claim, to be viable, must "arise[ ] from a personal right that directly affects the individual member." Weaver, supra. See Lopez, supra at 167-168.

The personal right identified by the plaintiffs here is the right "to elect successors to directors whose terms expired or would have expired upon the election of their successors" or, put another way, "to effect a change in the board of directors as currently constituted." No provision in G. L. c. 180 gives a member of a charitable corporation the right to elect or remove directors. Thus, as the plaintiffs acknowledged at oral argument, any such right must derive from the Foundation's bylaws. See G. L. c. 180, § 6A ("a corporation may by its bylaws determine ... the tenure of office of the directors and officers and the manner of their selection and removal").

"The by-laws of a corporation are a contract between the corporation and its members," Jessie v. Boynton, 372 Mass. 293 303 (1977), and are therefore interpreted according to the usual principles of contract law. See General Convention of New Jerusalem in the U.S. of Am., Inc. v. MacKenzie, 449 Mass. 832, 835 (2007). "When the words of a contract are clear, they must be construed in their usual and ordinary sense ...." Id. On the subject of election of directors, the Foundation's bylaws state the following:

"Not less than three nor more than seven directors ... may be elected from time to time by the members of the corporation. The members may vote from time to time increase [sic ] or decrease within the limits above specified the number of directors at the time in office and elect additional directors to complete the number so fixed and remove incumbent directors to reduce the number of directors to the number so fixed. Any director may effectively resign at any time ..., and such resignation shall take effect upon acceptance by the directors. Except as aforesaid, each director shall hold office until his successor shall have been elected by the members at a meeting called for the purpose and until such successor shall have qualified."

The language of this provision is clear -- the members "may" elect new directors or remove existing directors, but are not mandated to do so if the number of directors is at least three and not more than seven.⁷ Unless the context "clearly demand[s]" otherwise, "we recognize the word ‘may’ as a permissive term which ‘does not impose a mandate but simply authorizes an act.’ " Barranco v. Milford Hous. Auth., 408 Mass. 507, 507 (1990), quoting School Comm. of Greenfield v. Greenfield Educ. Ass'n, 385 Mass. 70, 81 (1982). Nothing else in the bylaws clearly demands that "may" not be given its ordinary permissive meaning. The bylaws do not specify any fixed time for a director's term of office. The plaintiffs are therefore incorrect to suggest that there are directors "whose terms expired," requiring the election of successors. See Jessie, 372 Mass. at 299 (court will not "impose ... [a] limitation where the corporation's by-laws do not so require"). Nor is there any other provision in the bylaws giving the members the right to remove existing directors or to add new ones.

Instead, we agree with the defendants that the membership right guaranteed by the bylaws is the right to vote for directors, not to instate directors of the member's choosing. The deadlock has not deprived the plaintiffs of...