The Healing Chair, Inc. v. Logan, Logan & Watson
| Decision Date | 13 January 2023 |
| Docket Number | 4:22-CV-327 SRW |
| Court | U.S. District Court — Eastern District of Missouri |
| Parties | THE HEALING CHAIR, INC., Plaintiffs, v. LOGAN LOGAN & WATSON, et al., Defendants. |
This matter comes before the Court on Defendants' Motion to Dismiss Plaintiff's First Amended Complaint. ECF No. 18. The motion is fully briefed and ready for disposition. The parties have consented to the jurisdiction of the undersigned United States Magistrate Judge pursuant to Title 28 U.S.C § 636(c). For the following reasons, the Court will dismiss Count I of Plaintiff's First Amended Complaint and grant in part, and deny, in part, the motion to dismiss as to Counts II & III.
Plaintiff The Healing Chair, Inc. filed a lawsuit against Defendants Logan Logan & Watson and Andrew V. Logan in the Circuit Court of St. Louis County, alleging Defendants committed legal malpractice when they negligently drafted new bylaws, which allowed an outside group to take significant control of The Healing Chair, Inc. and damage its mission. Defendants removed the matter to this Court. The Court granted Defendants' previous Motion to Dismiss but also granted Plaintiff twenty-one days to submit an amended petition, which was filed on May 27, 2022. Defendants have now filed another motion to dismiss. For purposes of considering this motion, the Court accepts the following facts as alleged in the First Amended Petition as true:
Plaintiff The Healing Chair, Inc. (“THC”) is a Missouri nonprofit corporation, and Carol Mullenix is the founder, sole member, and president. In 2010, Mullenix was diagnosed with breast cancer and underwent a bilateral mastectomy. To assist in her painful recovery, two friends bought her an electric lift chair, which made it easier for her to rest and raise herself into a standing position. Mullenix credits the lift chair as a key to her recovery. After providing lift chairs to other breast cancer survivors, Mullenix decided to create THC. The mission of THC is to support women fighting breast cancer by raising funds to purchase healing chairs which are then distributed to breast cancer survivors for at-home healing. In 2013, Mullenix filed Articles of Incorporation with the Missouri Secretary of State, adopted initial bylaws for THC, and established the initial THC Board, appointing herself, her husband, Gregory Mullenix, and her friends Molly and Charlie Vitale as initial Directors. The initial Directors then designated Mullenix as THC's President and her husband as secretary. The Vitales left the THC Board in 2015 and were replaced by Director-appointed Thomas Niemann. The other vacancy was never filled. During this time, THC was granted Section 501(c)(3) status as a tax-exempt charitable organization and began establishing its presence in other states, including Texas, Arkansas, and Maryland.
Around 2015, Amy Taitt contacted Mullenix. Taitt and an interested group wanted to help THC establish a presence in the Kansas City, Missouri and Wichita, Kansas areas. The interested group consisted of Taitt, Janette Slusher, and Marcia Maroney (“the KC Group”). Mullenix allowed the KC Group to volunteer their time to create a presence for THC in these areas by promoting THC, collecting donations on behalf of THC, acquiring lift chairs for THC, and lending chairs to breast cancer survivors in those areas.
As THC's presence in Kansas City grew, the KC Group sought greater involvement and control of THC. Mullenix and other members of the board, including THC's legal counsel, Director Niemann, considered this. THC was open to expanding the role of the KC Group but wanted to ensure they could not take overall control of THC if invited into management at any level. Prior to deciding to invite the KC Group or other THC volunteers into management roles, Mullenix sought to protect THC's name and filed a trademark application for the name “The Healing Chair” with the U.S. Patent and Trademark Office, which was approved and registered in 2017. Mullenix also asked Niemann to review THC corporate documents and ensure management and control would remain with her. In March 2017, the Board of Directors approved THC's First Amended and Restated Articles of Incorporation and the First Amended and Restated Bylaws, which designated Mullenix as THC's sole member. THC has no other nonprofit members.
Unbeknownst to Mullenix and the other THC Directors, the KC Group sought legal advice from Defendants Andrew Logan and his firm, Logan Logan & Watson, regarding any decision-making authority and control they may have as volunteers with THC. Without disclosing their attorney-client relationship to THC or Mullenix, the KC Group invited her to meet with them and Logan in late 2017 to discuss engaging Logan to review THC's organizational structure, governing documents, and state filings, and allow Logan to propose changes that would ensure THC was operating in full compliance with applicable laws. Mullenix agreed that THC would retain Defendants to perform the review and fully explain any changes they might propose to make certain THC followed all applicable laws while also ensuring Mullenix would remain in control of THC. During this process, Defendants did not ask Mullenix or Niemann for a copy of THC's then-existing bylaws.
On November 27, 2017, Logan invited Mullenix and the KC Group to meet for what he described as a meeting of the directors of THC for the purpose of approving a document titled “Bylaws of The Healing Chair, Inc.” Prior to executing the new bylaws, Mullenix conferred privately with Logan to confirm there was nothing in the new bylaws which would allow the KC Group to take control over THC or force Mullenix out of THC. Logan assured Mullenix the KC Group could not take control pursuant to the new bylaws. Logan did not disclose his or the law firm's representation of the KC Group to Mullenix or THC. In reliance on Logan's representations, Mullenix and the KC Group executed the new bylaws, purportedly as THC's directors, despite Logan never confirming the KC Group was authorized as directors under the existing Amended and Restated Articles of Incorporation or Amended and Restated Bylaws. Three months before, THC filed its 2017 Annual Registration Report identifying THC Directors as Mullenix, Gregory Mullenix, and Thomas Niemann.
Over the following eighteen months, conflicts developed between the KC Group and Mullenix over the future of THC. While Mullenix wanted to continue operating THC as an allvolunteer organization, the KC Group wanted to grow the nonprofit corporation so that the increased donations could be used to pay themselves six-figure salaries. When the matter came to a head in June 2019, the KC Group threatened to remove Mullenix from management pursuant to the new bylaws constructed by Defendants. Distraught, Mullenix contacted Niemann to advise him of the developments, who then contacted Logan to request copies of all the documents in his possession concerning THC, including those drafted by Defendants. Logan refused, citing attorney-client privilege, even though Mullenix had approved of the release of the documents to Niemann. Logan also refused to answer how he concluded members of the KC Group were lawful directors of THC. Instead, he responded by email, stating, “Our firm was engaged by all these individuals and acted in good faith to address organizational governance matters in October 2017.” ECF No. 15 at 10. THC's “duly and lawfully elected Board” then learned for the first time that Defendants had prepared new bylaws for THC purporting to name the KC Group as officers and directors of THC without any consultation or effort to inquire into THC's “actual Board.” Id.
THC filed suit against the KC Group to obtain a declaratory judgment on the grounds that the new bylaws were improperly and unlawfully adopted and, as a result, none of the members of the KC Group were officers or directors of THC. The KC Group pursued a “scorched earth” defense and used the new bylaws to interfere with THC's operations, including involving the Missouri Attorney General in an action against THC after it purchased a computer for Mullenix's use in its operations; refusing to relinquish control over the THC website and social media accounts; misdirecting emails and other inquiries from prospective donors and breast cancer survivors; and claiming ownership of THC funds on deposit in a Kansas City bank account they opened in THC's name without THC's knowledge. The KC Group also filed a discovery motion misrepresenting facts, namely that THC refused to permit payment of company debts, even though THC asked the KC Group to provide copies of invoices which they refused to provide. As a result, the court appointed a receiver, sua sponte. At the urging of the KC Group's counsel, the receiver declared his intention to sell all of THC's assets and “shut the company down.” He later revised this plan and decided to split THC's assets between Mullenix and the KC Group.
In the interim, the KC Group started their own nonprofit corporation, “Peace Out Cancer,” which has a mission nearly identical to THC's. Despite forming the new nonprofit, the KC Group refused to relinquish rights to control THC, continued to pressure the receiver to award their new nonprofit half of THC's assets, and damaged THC's business and mission by refusing to relinquish control of THC's website and other social media accounts. The KC Group claimed they were able to do this pursuant to the new bylaws. THC was unable to operate while the receiver was in place, and the KC Group refused to resign despite freely operating Peace Out Cancer.
Faced with certain demise and unable to operate, THC...
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