Opinion
NO. 2016-CA-000145-MR
10-20-2017
WILLIAM THOMPSON AND THERESA THOMPSON APPELLANTS v. LAKE CUMBERLAND RESORT COMMUNITY ASSOCIATION, INC.; GARY SEAGRAVES, DAVE REMLEY, BOB WILDMAN, DARYL COX, GREG LUCAS, TONY RODGERS, KEITH STOCKBERGER, IN THEIR CAPACITIES AS PAST OR CURRENT OFFICERS AND DIRECTORS OF LAKE CUMBERLAND RESORT COMMUNITY ASSOCIATION, INC., AND INDIVIDUALLY; STEVE HALPIN, IN HIS CAPACITY AS AN OFFICER AND DIRECTOR ONLY OF LAKE CUMBERLAND RESORT, INC.; ANTHONY DEL SPINA, IN HIS INDIVIDUAL CAPACITY, AND IN HIS CAPACITY AS A FORMER OFFICER AND DIRECTOR OF LAKE CUMBERLAND RESORT COMMUNITY ASSOCIATION, INC., AND IN HIS CAPACITY AS AN OFFICER AND DIRECTOR OF LAKE CUMBERLAND RESORT, INC.; AND FRANCIS DEL SPINA, IN HER INDIVIDUAL CAPACITY, AND IN HER CAPACITY AS A FORMER OFFICER AND DIRECTOR OF LAKE CUMBERLAND RESORT COMMUNITY ASSOCIATION, INC., AND IN HER CAPACITY AS A OFFICER AND DIRECTOR OF LAKE CUMBERLAND RESORT, INC. APPELLEES
BRIEF FOR APPELLANTS: Winter R. Huff Somerset, Kentucky BRIEFS FOR APPELLEES: David A. Nunery Steven C. Call Campbellsville, Kentucky Mark D. Knight Somerset, Kentucky
NOT TO BE PUBLISHED APPEAL FROM PULASKI CIRCUIT COURT
HONORABLE JEFFREY T. BURDETTE, JUDGE
ACTION NO. 08-CI-00317 OPINION
AFFIRMING
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BEFORE: KRAMER, CHIEF JUDGE; ACREE AND JOHNSON, JUDGES. JOHNSON, JUDGE: Appellants, William and Theresa Thompson ("Thompsons") appeal from a January 4, 2016 judgment of the Pulaski Circuit Court denying them Summary Judgment on all issues. After reviewing the record in conjunction with the applicable legal authorities, we AFFIRM the decision of the Pulaski Circuit Court.
BACKGROUND
The original complaint was filed by the Thompsons on February 25, 2008. On October 8, 2008, Michael Westendorf, Gayle Westendorf and Reg Arthur were added as intervening Plaintiffs. These parties are not part of this appeal. All Plaintiffs filed individually and are members of the Lake Cumberland Resort Community Association ("Association"), a non-profit organization, but do not sit on its board of directors.
The original lawsuit named the Association, Anthony Del Spina, ("Mr. Del Spina") and the board members of the Association. By the Third Amended complaint, the parties added to their complaint the Association officers and directors in their individual capacities: Steve Halpin, as the Assistant Director; Lake Cumberland Resort, Inc. ("Resort"); Mr. Del Spina, individually and as an officer and director of the Resort, and as a former officer and director of the Association; and Francis Del Spina, ("Mrs. Del Spina") individually and as an officer and director of the Resort, and as a former officer and director of the Association.
The initial issue was the election and qualifications of persons elected to the board of the Association. The Thompsons alleged that once the Resort, in accordance with the Bylaws of the Association, turned over certain common areas of real property to the Association, the Bylaws required that members of the Association board resign and a new election be held by members of the Association. This was not done. The initial complaint also requested that all defendants be enjoined from any further action until such time as a new election was held in accordance with the By-Laws. In June 2008, a new election was ordered by the circuit court and subsequently held. However, the Thompsons did not agree with the manner in which the election was conducted and continued to dispute the legitimacy of the newly elected Board.
On May 1, 2008, the Thompsons, by leave of court, filed a First Amended Complaint seeking to clarify the issues for the court providing more specificity as to various memberships on the boards of the Association and the Resort. With the initial issue concerning the new election being resolved in 2008 by order of the circuit court, issues concerning the Association and Resort defendants and the financial management of the Association remained.
What ensued was protracted discovery resulting in the Thompsons challenging the previous court ordered election alleging that the Association directors were not "duly" elected and challenging their expenditures of funds. The Thompsons maintained that if the election was not proper under the By-laws of the Association, these expenditures were ultra vires. Further, the Thompsons contend that the Association, its directors, and officers violated the duties of corporate officers under KRS Chapter 273; that they should be made to make a full and complete accounting of all their actions and expenditures; and that they should be held personally liable for any improper expenditures.
During discovery, the Thompsons alleged that they were not being given the various documents as requested relating to the expenditures and income of the Association. After several attempts to obtain the requested documents, the circuit court intervened and ordered compliance with the request.
On February 16, 2010, the Thompsons, by leave of court, filed a Second Amended Complaint, adding allegations of joint and several liability against all directors and officers of both the Association and Resort boards, adding Mrs. Del Spina as a party defendant and again alleging various ultra vires acts by the defendants.
On August 2, 2010, the Thompsons by leave of court, filed a Third Amended Complaint, this time adding the request for the appointment of a receiver to operate the Association.
During the course of this litigation, the Kentucky Supreme Court issued Ballard v. 1400 Willow Council of Co-Owners, Inc., 430 S.W.3d 229 (Ky. 2013).
On October 2, 2015, the court denied the Thompsons' motion to file a Fourth Amended Complaint and instead granted Summary Judgment to the Association, and its board members. By separate opinion, on October 2, 2015, the court granted Summary Judgment to the Resort and Mr. and Mrs. Del Spina.
The Thompsons then filed a Motion to Alter, Amend or Vacate the Court's Order. On January 4, 2016, the circuit court issued an Opinion and Order Overruling in Part and Amending in Part its judgment of October 2, 2105. The court amended its prior ruling concerning the Thompsons' motion for summary judgment by adding "this is a Final and appealable Judgment, and there is no just cause for delay." In addition, the final order overruled all other pending motions. This appeal ensued.
STANDARD OF REVIEW
The standard of review on appeal when a trial court grants a motion for summary judgment is "whether the trial court correctly found that there were no genuine issues as to any material fact and that the moving party was entitled to judgment as a matter of law." Scifres v Kraft, 916 S.W.2 779, 781 (Ky. App. 1996).
Because summary judgment involves only legal questions and the existence of any disputed material issues of fact, "an appellate court need not defer to the trial court's decision and will review the issue de novo." Lewis v B & R Corp., 56 S.W.3d 432, 436 (Ky. App. 2001) (citations omitted).
ANALYSIS
The Thompsons have raised multiple issues on appeal. They begin by arguing that the trial court extended Ballard v. 1400 Willow Council of Co-Owners, Inc., 430 S.W. 3d 229 (Ky. 2013), beyond the terms of the opinion in granting Appellees' Motion for Summary Judgment. The Thompsons acknowledge that Ballard is dispositive in its finding that directors or officers of a non-profit corporation owe a fiduciary duty only to the corporation and not to the individual members.
However, the Thompsons allege that actions taken by the named officers of the Association subsequent to the court ordered election were invalid, since the Thompsons did not agree with the election process. The court, however, determined that the election was in accord with the Association Bylaws and approved the election and its results. While the Thompsons may not like the process or the campaigning by the various board members or the Del Spinas, they are nonetheless bound by the final results.
Because of their dissatisfaction with the election results, the Thompsons sought relief from the individual board members. Kentucky law may allow a suit for injunctive relief against the corporation, but it does not allow an action against individual officers of a non-profit organization, since the Association's fiduciary duty is to the Association and not to individual owners. Ballard, 430 S.W.3d at 241. Therefore, any claims the Thompsons may have asserted against the board members individually, were correctly dismissed by the circuit court.
The Thompsons assert that the Del Spinas had numerous conflicts of interest, causing the Thompsons damages that rose to the level of ultra vires acts, as stated under Kentucky Revised Statute (KRS) 273.173. However, KRS 273.173 provides for injunctive relief where a member seeks to stop an unauthorized act by the board, it does not include an action for damages. The statute then sets out the conditions under which the corporation, but not individual members, could void such an action. Because the cause of action lies with the board and not the individual members, the Thompsons do not have any claim under KRS 273.173.
In their original complaint, the Thompsons' prayer for relief contained a request for injunctive relief. However, the circuit court found, and the record supports, that once the board re-election was held upon order of the court, the Thompsons only sought damages for the balance of their alleged grievances.
Next, the Thompsons object to the language in the Articles of Incorporation for the Association that seeks to limit the liability of Mr. Del Spina to the directors of the Association for civil and criminal actions. KRS 273.248 permits such a limitation of monetary damages under certain exclusions, but here again, any cause of action under KRS 273.248 belongs to the Association, not its individual members.
In each of the alleged complaints stated above, whether applying Ballard or the statute, the liability of individual board members is solely to the Association not to the Thompsons.
In December 2006, the Del Spinas merged various other associations into the Lake Cumberland Resort Community Association. The Thompsons allege that the attempted merger violated KRS 273.283 because no members were permitted to vote in accordance with the Association Articles. The circuit court determined that the Thompsons lacked standing to challenge any act of the Resort, a for-profit corporation, because they were never a shareholder or director nor did they seek injunctive relief which is all the statute permits. See KRS 271B.3-040.
The Thompsons argue that the circuit court abused its discretion in denying their request for reasonable expenses, including attorney's fees under CR 37.02(3). However, the trial court has broad discretion in addressing such matters, Turner v. Andrew, 413 S.W.3d 272, 279 (Ky. 2013), and it is within the trial court's discretion whether or not to grant reasonable expenses under CR37.02(3). "The test for abuse of discretion is whether the trial court's decision was arbitrary, unreasonable, unfair, or unsupported by sound legal principles." Commonwealth v. English, 993 S.W.2d 941, 945 (Ky. 1999). While the Thompsons believed that the Resort unduly frustrated their attempts to obtain requested documents, the circuit court did not agree, noting that the Resort only delayed while litigating the issue of the requested documents. CR 37.02(3) states that if there is substantial justification for the delay the trial court is not required to award expenses or fees. We do not find that the circuit court abused its discretion on this issue.
The Thompsons further allege that they should have been able to proceed with a derivative action against the Association, a non-profit corporation. Kentucky law does not provide, either statutorily or by case law, for a derivative action against a non-profit corporation. The Thompsons cite the dissenting opinion of Justice Noble in Ballard, suggesting that regardless of the current law, this court should permit such an action to go forward based upon rules of equity. The same argument is made by the Thompsons as it relates to the duty owed by officers and directors of non-profit corporations to their members. The Thompsons acknowledge that the majority opinion in Ballard is binding and dispositive on this issue, but urge us, based upon equitable relief, to find that officers and directors of a non-profit should owe a fiduciary duty to their owners and members. This Court is bound by precedent, and therefore, declines to go against current Kentucky law.
The final issue raised by the Thompsons is that the circuit court erred when it refused to allow them to file a Fourth Amended Complaint containing numerous new allegations and seeking to include a new party to the litigation. It is within the trial court's discretion whether to grant a motion to amend a pleading, and that ruling will not be disturbed unless it is a clear abuse of discretion. The test for abuse of discretion is whether the court's decision was arbitrary, unreasonable, unfair, or unsupported by sound legal principles. English, 933 S.W. 2d at 945.
The circuit court pointed to the fact that the Fourth Amended Complaint came almost sixteen months after Ballard was rendered; nearly seven years after the underlying action had been pending; after substantial discovery had been completed; a trial date set; and a scheduling order issued setting a deadline for all dispositive motions and motions in limine. Based upon the circuit court's reasoning, we find that it did not abuse its discretion in denying the Thompsons' request to file a Fourth Amended Complaint.
CONCLUSION
Based upon the foregoing, we find no error and therefore AFFIRM the decision of the Pulaski Circuit Court, issued January 4, 2016, Overruling in Part and Amending in Part.
ALL CONCUR. BRIEF FOR APPELLANTS: Winter R. Huff
Somerset, Kentucky BRIEFS FOR APPELLEES: David A. Nunery
Steven C. Call
Campbellsville, Kentucky Mark D. Knight
Somerset, Kentucky