Appeal by plaintiffs from order entered 4 November 2002 by
Judge Catherine C. Eagles in Guilford County Superior Court. Heard
in the Court of Appeals 17 November 2003.
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., by Mack
Sperling, Charles E. Coble and Hubert Humphrey, for plaintiff-
appellants.
Teague, Campbell, Dennis & Gorham, L.L.P., by George W.
Dennis, III and Jacob H. Wellman, for defendant-appellees John
S. Thomas, Katharine Thomas, K. Barry Morgan, and Dorothy S.
Shaw.
Robinson, Bradshaw & Hinson, P.A., by Robert W. Fuller and
Thomas P. Holderness, for defendant-appellee The E.A. Morris
Charitable Foundation.
LEVINSON, Judge.
Plaintiffs appeal from the entry of summary judgment in favor
of defendants. For the reasons that follow, we affirm. The
relevant facts are summarized as follows: In 1980 the E.A. Morris
Charitable Foundation (“the Foundation”) was created by Mr. E.A.
Morris, for the purpose of supporting “charitable, religious,
educational and scientific” enterprises. Plaintiffs (Mary Morris
and Joseph Morris) are E.A. Morris's wife and son. The Foundation
was established with no members and with a five-member board ofdirectors.
The initial board of directors consisted of E.A. Morris, his
wife Mary Morris, his son Joseph Morris, his daughter Mary Lou
Morris, and defendant John Thomas (Thomas), who is not a member of
the Morris family. When Mary Lou Morris died in 1994, she was
replaced on the board by defendant Barry Morgan, an accountant who
had worked for the Foundation and who is not related to the Morris
family. In 1998, E.A. Morris died and defendant Dorothy Shaw was
elected to the board of directors. In 1999, Thomas's wife,
Katharine Thomas, was added to the board of directors with the
unanimous consent of all board members, including the plaintiffs.
The board of directors then consisted of Mary and Joseph Morris,
John and Katharine Thomas, Shaw, and Morgan. At the annual meeting
of the Foundation board of directors on 2 November 2001, the board
of directors removed Mary Morris by a four to one vote, and
replaced her with E. J. Walker, Jr. At the same meeting, the board
of directors removed Joseph Morris from the board by a vote of five
to one.
On 10 May 2002 plaintiffs filed a complaint against John and
Katharine Thomas, Shaw, and Morgan. Plaintiffs asserted that their
suit was filed “on their own behalf, and derivatively on behalf of
the Foundation[.]” Plaintiffs alleged that their removal from the
Foundation's board of directors had been “unlawful” and also
alleged wrongdoing by defendants in regards to various other
actions taken by the Foundation's board of directors.
Plaintiffs
asserted that defendants had engaged in a “conspiracy”; that Thomas
had used the Foundation for his “personal enhancement and benefit”;and that defendants had breached their fiduciary duty to the
Foundation. They sought reinstatement as members of the board of
directors, removal of defendants from the board, and other relief.
On 26 June 2002 plaintiffs filed an amended complaint adding the
Foundation as a “nominal party whose interests are aligned with the
Plaintiffs' side of this action” and reiterating that their action
was brought “in part on behalf of the E.A. Morris Charitable
Foundation.”
On 12 July 2002 defendants filed an answer and motion to
dismiss, asserting that, pursuant to N.C.G.S. § Chapter 55A,
plaintiffs lacked standing to bring either a derivative action on
behalf of the Foundation or individual claims on their own behalf.
On 16 July 2002 the Foundation filed an answer stating that it was
investigating the allegations of the complaint, and requesting a
stay of proceedings until their investigation was complete. The
Foundation also sought dismissal of plaintiffs' complaint for lack
of standing to bring a derivative action and for failure to state
a claim for relief. The Foundation submitted affidavits, the
Foundation's articles of incorporation and bylaws, the amended
bylaws, the minutes of board meetings, and other documents
pertinent to plaintiffs' allegations. On 22 July 2002 the
Foundation filed an alternate motion to intervene, alleging that
the Foundation was a necessary party and that plaintiffs had not
properly added the Foundation to the action. The Foundation also
filed an amended answer on 22 July 2002, seeking dismissal on the
grounds that plaintiffs (1) lacked standing to bring a derivative
action, and (2) had not stated “any individual claims cognizableunder North Carolina law.” Plaintiffs filed a motion on 23 July
2002 opposing the Foundation's “active, non-neutral participation”
in the case, and seeking a protective order barring the Foundation
from active participation in the action. On 27 August 2002 the
trial court entered an order directing, inter alia, that:
1. The Foundation's motion to intervene was
granted.
2. The plaintiffs' motion for a preliminary
injunction was denied.
3. Plaintiffs objection to the Foundation's
participation was overruled, and their request
for a protective order was denied.
4. The defendants' motions to dismiss were
denied “without prejudice to summary judgment
motions at the appropriate time.”
5. The Foundation's motion for a stay was
granted.
On 18 October 2002 the Foundation moved for summary judgment,
attaching affidavits, documents, and the Foundation's committee
report summarizing the investigation into plaintiffs' allegations.
The report concluded that plaintiffs' claims had no merit and that
the best interests of the Foundation would be served by dismissal
of the lawsuit. On 22 October 2002 plaintiffs filed an objection
to the report and moved the court to reconsider their motion to bar
the Foundation from “active non-neutral” participation in the
lawsuit. The individual defendants also filed a motion for summary
judgment.
On 28 October 2002 a hearing was conducted on the defendants'
and the Foundation's motions for summary judgment. The trial court
ruled from the bench that the issue of standing was dispositive of
the summary judgment motions, and that defendants' motions for
summary judgment should be granted. An order was entered on 4
November 2002 granting summary judgment for defendants and rulingthat the Foundation's summary judgment motion was mooted by the
granting of summary judgment in favor of defendants. The order
denied plaintiffs' motion for reconsideration of the Foundation's
participation and their objection to the Foundation's committee
report. From this order, plaintiffs appeal.
Summary judgment is properly granted “if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that any party is entitled to a
judgment as a matter of law.” N.C.G.S. § 1A-1, Rule 56(c) (2003).
Summary judgment is proper if the plaintiff lacks standing to bring
suit. See Northeast Concerned Citizens, Inc. v. City of Hickory,
143 N.C. App. 272, 545 S.E.2d 768, disc. review denied, 353 N.C.
526, 549 S.E.2d 220 (2001).
Plaintiffs' complaint asserted that their action was brought
derivatively on behalf of the Foundation, as well as individually
on their own behalf. However, plaintiffs did not assign error to
the trial court's order of summary judgment as pertains to their
purported individual claims. N.C.R. App. P. 10(a) of the Rules of
Appellate Procedure provides, in pertinent part, that “except as
otherwise provided herein, the scope of review on appeal is
confined to a consideration of those assignments of error set out
in the record on appeal in accordance with this Rule 10.” Moreover,
plaintiffs do not present any arguments on appeal regarding their
alleged individual claims against defendants. Questions not
presented and discussed in a party's brief are deemed abandoned. N.C.R. App. P. 28(a). We conclude that plaintiffs have abandoned
and failed to preserve for appellate review any issues pertaining
to their individual claims against defendants. Accordingly, we
consider plaintiffs' arguments only as regards their derivative
claims.
In the instant case, the trial court ruled that plaintiffs
lacked standing to pursue derivative claims on behalf of the
Foundation. The trial court ruled correctly in this regard.
“Standing refers to whether a party has a sufficient stake in
an otherwise justiciable controversy such that he or she may
properly seek adjudication of the matter.”
American Woodland
Indus., Inc. v. Tolson, 155 N.C. App. 624, 626, 574 S.E.2d 55, 57
(2002),
disc. review denied, 357 N.C. 61, 579 S.E.2d 283 (2003)
(citation omitted). “Standing is a necessary prerequisite to a
court's proper exercise of subject matter jurisdiction.”
Creek
Pointe Homeowner's Ass'n v. Happ, 146 N.C. App. 159, 165, 552
S.E.2d 220, 225 (2001),
disc. review denied, 356 N.C. 161, 568
S.E.2d 191 (2002) (citation omitted). “Additionally, plaintiffs
have the burden of proving that standing exists.”
Tolson, 155 N.C.
App. at 627, 574 S.E.2d at 57.
The issue herein is whether plaintiffs had standing to bring
a derivative action against defendants. “A 'derivative proceeding'
is a civil action brought . . .'in the right of' a corporation, .
. . while an individual action is . . . [brought] to enforce a
right which belongs to [plaintiff] personally.”
Norman v. Nash
Johnson & Sons' Farms, Inc., 140 N.C. App. 390, 395, 537 S.E.2d248, 253 (2000).
See Stewart v. Kopp, 118 N.C. App. 161, 454
S.E.2d 672 (1995) (derivative action against homeowners'
association not properly brought where plaintiff does not allege
injury to the association or seek to recover on its behalf).
The E.A. Morris Charitable Foundation is a non profit
corporation, and thus is governed by the North Carolina Nonprofit
Corporation Act. N.C.G.S. § 55A-1-01 (2003). Standing to bring a
derivative suit against a non profit corporation is addressed in
N.C.G.S. § 55A-7-40(a) (2003), which provides in relevant part:
An action may be brought in a superior court
of this State, . . . in the right of any
domestic or foreign corporation by any member
or director, provided that, in the case of an
action by a member, . . . it shall appear,
that each plaintiff-member was a member at the
time of the transaction of which he complains.
Plaintiffs assert that the statutory authority granted to “any
member or director” to bring a derivative suit necessarily includes
former members of the board of directors. However, “[w]here the
language of a statute is clear and unambiguous, there is no room
for judicial construction and the courts must construe the statute
using its plain meaning.”
McKinney v. Richitelli, 357 N.C. 483,
487, 586 S.E.2d 258, 262 (2003) (citing
Utilities Comm. v.
Edmisten, Atty. General, 291 N.C. 451, 232 S.E.2d 184 (1977)). “A
term is ambiguous if it has more than one meaning, and a layman
would be unable to determine which meaning is intended.”
In re
Estate of Montgomery, 137 N.C. App. 564, 567 n3, 528 S.E.2d 618,
620 n3 (2000) (citation omitted). We discern no term or phrase in
G.S. § 55A-7-40(a) whose meaning is unclear. Though it would have
been very easy to do so, the legislature did not include languageallowing former directors to file a derivative action.
Further, if we accepted plaintiffs' argument, that the phrase
“any member or director” should be interpreted to include
former
directors, we would then need to determine whether this meant
all
former directors, even those who last served on the board of
directors ten years previously, or whether some other restrictions
were appropriate. The question of how recently one would have to
have served on a board of directors has no obvious answer. It is
readily apparent that the answer cannot be merely that the director
must have been on the board “at the time of the transaction of
which he complains” because the statute expressly applies that
restriction only to members. Nor does the statute provide any
guidance on
which former directors might be authorized to bring
suit.
We conclude that the statute plainly restricts standing to
bring a derivative action to the members and directors of a
nonprofit corporation. Thus, “by statute, 'only members,
directors, or the Attorney General have standing to challenge ultra
vires acts of a not-for-profit corporation.'”
Blue Cross & Blue
Shield of Mo. v. Nixon, 81 S.W.3d 546, 552 (Mo. App. W.D. 2002)
(quoting
Champ v. Poelker, 755 S.W.2d 383, 389 (Mo. App. E.D.
1988)).
It is conceded by the parties herein that the Foundation had
no members. Therefore, the statutory provisions governing a
member's standing to bring a suit are of no relevance. It is also
uncontroverted that plaintiffs were not on the Foundation's board
of directors when they filed their complaint; indeed, the complaintalleges that their removal was “unlawful”. We conclude that,
inasmuch as plaintiffs were not directors when their complaint was
filed, they lacked standing to bring a derivative action.
Plaintiffs argue that this result would permit a renegade
board of directors to expel board members who challenge unlawful or
unethical actions, thereby placing the corporation beyond the reach
of a derivative action by the former directors. However, we note
that the Attorney General has authority to bring an action to
restrain a nonprofit corporation from taking
ultra vires or
otherwise unlawful actions.
See N.C.G.S. §§ 55A-3-04; 55A-3-05;
55A-14-30 (2003). Moreover, even assuming,
arguendo, that the
standing requirements of G.S. § 55A-7-40(a) place plaintiffs in a
difficult position, it is not the prerogative of this Court to
change the law. “[W]hen public policy requires a change in a
constitutionally valid statute, it is the duty of the Legislature
and not the courts to make that change.”
State v. Camp, 286 N.C.
148, 153, 209 S.E.2d 754, 757 (1974) (citation omitted).
We conclude the trial court properly determined the plaintiffs
lack standing to bring a derivative action, and that the court did
not err by granting summary judgment for defendants. “Because
Defendants were entitled to summary judgment on the ground
Plaintiff lacked standing, we need not address Plaintiff's
additional assignments of error.”
Northeast Concerned Citizens,
143 N.C. App. at 278, 545 S.E.2d at 772. Accordingly, the trial
court's order is
Affirmed.
Chief Judge EAGLES and Judge McGEE concur.
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