The Nigerian Found. v. Umezulike

• Decision Date: 26 July 2022
• Docket Number: 01-20-00262-CV
• Parties: THE NIGERIAN FOUNDATION, Appellant v. BEDFORD UMEZULIKE, KENNY EFUNPO, EMAIDO HAILEY, OLA JOSEPH, AND TOBIAS OGU, Appellees
• Court: Texas Court of Appeals

THE NIGERIAN FOUNDATION, Appellant v. BEDFORD UMEZULIKE, KENNY EFUNPO, EMAIDO HAILEY, OLA JOSEPH, AND TOBIAS OGU, Appellees

No. 01-20-00262-CV

Court of Appeals of Texas, First District

July 26, 2022

On Appeal from the 295th District Court Harris County, Texas Trial Court Case No. 2016-58037

Panel consists of Justices Goodman, Rivas-Molloy, and Farris.

MEMORANDUM OPINION

Gordon Goodman, Justice

The board of directors of the Nigerian Foundation sued the executive officers of the Foundation, seeking a declaratory judgment that the board of directors was the governing body of the Foundation according to the Texas Business Organizations Code and the Foundation's governing documents. The trial court found, however, that the Foundation had enacted two conflicting governing documents, and both the board of directors and the executive officers had authority to govern the Foundation under one governing document but not the other. Instead of granting the Foundation's request for declaratory judgment, the trial court terminated all directors and executive officers and ordered the Foundation to conduct a special election to elect a new board of directors. The Foundation appealed from the trial court's final judgment ordering the special election. We affirm.

BACKGROUND

The Nigerian Foundation is a charitable organization in the greater Houston area that promotes the welfare of people of Nigerian descent. The Foundation began in 1982 and was formally incorporated in 1989. Although the exact date is disputed,^[1]at some point in the 1980s the Foundation adopted a set of bylaws for the organization, which was called a charter (the "1989 Charter"). The 1989 Charter:

• allowed all people of Nigerian descent to become members, provided they pay annual dues;

• called for a general meeting every two months but allowed for a special meeting to be called through a petition signed by one-tenth of all members • provided for nine elected directors and four appointed directors, and authorized the removal of a director by a vote of two-thirds of the Foundation members present at a meeting;

• provided for eight elected executive officers including a president, vice-president, general secretary financial secretary, and treasurer, but did not specify a removal procedure for the executive officers; and

• required a motion to alter, amend, or repeal the charter to be made by the board of directors or the president in a petition signed by at least ten members, and required a vote of two-thirds of the members present in a general meeting to pass.

Over the years, the Foundation suffered from mismanagement by executive officers-several Foundation presidents embezzled from the organization. In 2013, a committee was appointed to draft a new set of bylaws, which the committee called a constitution, in response to this mismanagement. According to the meeting minutes, this constitution was adopted by unanimous vote in 2013; no action was taken at that meeting to repeal any previous bylaws. The 2013 Constitution:

• still allowed all people of Nigerian descent to become members, subject to approval by the board of directors and payment of annual membership dues;

• provided for a 15-member board of directors who were to be nominated and approved by the board and could be removed by a two-thirds majority vote of the eligible members of the board; and

• initially, did not provide for any executive officers.

The 2013 Constitution was later amended to add executive officers, including a president, vice-president, general secretary, and finance officer, who were to be elected by a simple majority of eligible members and who could be removed from office by the same process as a director.

Disagreements between the board of directors and executive officers ensued. Each side accused the other of financial irregularities involving the Foundation's funds. Bedford Umezulike, who was elected president of the Foundation in 2015, claimed that the directors were mismanaging funds-he had discovered an overdue $3,868 phone bill in the Foundation's name, a director's personal debit card allowing that director to withdraw money from Foundation's bank account, the Foundation's name on a director's personal office lease, and a separate bank account using the Foundation's tax ID number. Umezulike claimed that the board of directors denied the executive officers access to the Foundation's operating account, and that, as a result, the finance secretary could not provide a full financial report for the organization. The board of directors, in turn, claimed that the executive officers opened a separate bank account without the board's authorization and deposited proceeds from the Foundation's Nigerian Independence Day event into that separate account instead of into the Foundation's operating account.

After the executive officers failed to respond to the board's requests to address the issue of the unauthorized bank account and missing proceeds, the board of directors dissolved all executive officers and terminated the current officers from their positions; the board of directors notified the executive officers of this action in a letter dated December 11, 2015. The executive officers refused to resign, and instead called a special meeting of the membership in January 2016, by a petition of six members, who were one-tenth of all members at that time, in accordance with the 1989 Charter. At the meeting, Umezulike, who had been president before the board voted to dissolve the executive officers, detailed the financial irregularities by the board of directors, and the members present concluded there was no wrongdoing by the executive officers and instead voted to dissolve the board of directors and reinstate the executive officers.

This lawsuit followed. The Foundation, through the board of directors, sued the executive officers, seeking: (1) a declaratory judgment that the board of directors is the governing body of the Foundation; (2) damages for conversion of public funds, breach of fiduciary duty, breach of contract, and trademark infringement; and (3) a restraining order to enjoin the executive officers from acting on behalf of the Foundation.

After a bench trial, the trial court made the following findings of fact:

• before October 2013, the Foundation had been governed by the 1989 Charter;

• in October 2013, the general membership voted to adopt the 2013 Constitution but did not alter, amend, or repeal the 1989 Charter, which was required by the 1989 Charter;

• the 1989 Charter and 2013 Constitution were "inconsistent on a number of important matters"; • in December 2015 the board of directors purported to terminate the executive officers, and in January 2016 the membership purported to terminate the board of directors; and

• "[b]ecause of the conflict between the governing documents[,] neither of these actions can be seen as an action of [the Foundation]."

Based on these findings of fact, the trial court entered the following conclusions of law:

• neither the 1989 Charter nor the 2013 Constitution had been revoked or altered by the other, both governing documents had "been 'ratified' by the membership," and, as such, both governing documents were in place and in effect; and

• the two governing documents conflicted with each other regarding the leadership of the Foundation.

Because of this conflict in the governing documents, the trial court, under its conclusions of law, declared all executive officers and directors immediately terminated and ordered the Foundation to hold a special meeting to elect a new board of directors. The trial court gave specific instructions as to how the meeting was to be announced, who could attend, and how the election was to be conducted. The trial court appointed Emaido Hailey, a defendant who had been dismissed from the lawsuit after the trial court determined there was no evidence to support a cause of action against her, to conduct the special election. The trial court ordered the new board, after the directors had been elected, to conduct a meeting, elect a chair of the board, select a banking institution to use for the Foundation's operating account, and appoint one director to lead a committee to write a new set of bylaws for the Foundation. The trial court gave additional, specific instructions as to how the membership must go about adopting the new bylaws. The trial court copied these instructions from its findings of fact and conclusions of law into its final judgment. The trial court denied all other relief for the Foundation.

The Foundation filed an emergency motion to modify or stay enforcement of the final judgment, objecting to the trial court's appointment of Hailey to conduct the special election. The trial court granted the motion in part, and ordered Emeka Ozurumba, the founding president of the Foundation, to conduct the special election instead. The Foundation filed another emergency motion to modify or stay enforcement of the final judgment, claiming conflicts of interest among candidates in the special election. Ozurumba asked to be recused and not to conduct the special election, noting the conflict and confusion still existing among the directors and executive officers, and the trial court granted his request.

Finally the trial court appointed JoAnn Storey, a local attorney with no apparent connection to the Foundation, as a special master to conduct the special election. Storey spent several hours familiarizing herself with the case, conducted the special election among the members, and filed her bill for professional services rendered with the trial court. The trial court ordered Raymond Sowemimo and Robert Irabor, two directors, to pay one-half of Storey's fee and the executive ...