Pennsylvania Commonwealth Court
828 A.2d 5
June 5, 2002
Summary of Opinion
Hart and two other plaintiffs sued defendant Manning and a horse riding club over the sale by the club of certain real estate. The trial court ruled in favor of Manning on the ground that none of the plaintiffs was a member of the club because they had failed to pay dues. In this opinion, the appellate court reverses that decision as to two of the three plaintiffs on the ground that the club under Pennsylvania law was required to give notice of dues non-payment to the members before they can be expelled by the club.
This case is text book on how not to operate a non-profit organization.
Text of Opinion
This appeal concerns the consolidation of four separate actions in the Susquehanna County Court of Common Pleas. The cases arise from complaints filed by three purported members of a not‑for‑profit, incorporated horse riding club, challenging the decision made by the club's board of directors to sell some of the club's real estate. Appellees, as captioned above, filed preliminary objections alleging that Appellants, as captioned above, were not members of the club and, therefore, lacked standing to bring suit. The trial court agreed with Appellees and sustained the preliminary objections, thereby dismissing Appellants' complaints. For the reasons set forth below, we affirm in part, reverse in part and remand to the trial court for additional proceedings.
The Bridgewater Riding Club (Bridgewater) is a Pennsylvania not‑for‑profit corporation, organized on a non‑stock basis. It owns realty in Susquehanna County and exists to promote equestrian activities within the community. In 1992, a separate not‑for‑profit riding club, the Endless Mountains Riding Club (Endless) merged with Bridgewater and the merged entity retained the Bridgewater name. The instant case arises from a decision made several years after the merger, by Bridgewater's Board of Directors (Board), to sell some of the corporation's realty. Appellants have initiated four separate actions, each of which seeks to preclude this sale of property. Bridgewater and its directors preliminarily objected to the complaints and petitions, asserting that Appellants were not members of Bridgewater and, therefore, lacked standing to challenge the action.
The trial court conducted an evidentiary hearing on December 10, 2001, for the purpose of addressing these preliminary objections. At the hearing, each Appellant testified as to his or her claim of membership.
David Hart (Hart) claims to have been a member of Bridgewater for several decades. He testified that he paid dues on a non‑regular basis, but that he often performed volunteer work on Bridgewater's property, assisting in making repairs to the property when needed, and that this labor was performed in lieu of paying dues. He further testified that he was awarded an honorary lifetime membership in Endless following his donation of land to the corporation. In support of his membership claim, Hart presented two documents. The first document was a copy of the minutes of Endless' November 1983 membership meeting. The minutes reflected that the club authorized lifetime dues‑free memberships to each of the members of Bridgewater because of property that Bridgewater and its members had donated to Endless. [FN2] The second is a copy of a letter dated December 28, 1983, from Kathleen Taylor (Taylor) [FN3] of Endless to the purported members of Bridgewater, in which each is offered a lifetime membership in Endless. [FN4]
FN2. The first item in the minutes reads:
Thank you letter to the Bridgewater Riding Club was discussed, for the railroad tracks transaction, which is now completed and recorded. Offer a lifetime membership, due [sic] free to each member of that club. Kathy and Jan to take care of it.
(Minutes of Endless' November 1983 meeting.)
FN3. As noted below, at the time the letter was issued, Taylor was an officer with Endless.
FN4. The letter had a return address of Endless Mountains Riding Club and a recipient address of Bridgewater Riding Club. The text of the membership letter reads:
This letter is to thank you for your generosity in donating the tracks and your clubs [sic] funds to our club. We will be sure that the tracks are kept for the purpose that they were intended to be used for, recreational use.
We hope that you accept from our club an honorary life time membership in Endless Mountains Riding Club. Again thank you very much.
(Letter from Taylor of Endless to Bridgewater, dated December 28, 1983.) The bottom of the letter indicated the recipients of the letter. Hart was among the fifteen identified recipients.
Taylor testified that she had been a regular, dues paying member of Endless, and that she had been an officer with the club. She also testified that she stopped paying dues in 1994, but that she had not received any notice that her membership was terminated. Cynthia Lewis (Lewis) claims to have a hereditary membership derived from her parents having been members of Endless. She testified that she had never paid dues. [FN5]
FN5. Additionally, there was testimony from each Appellant indicating that the enforcement of dues provisions had been very lax. The testimony indicated that both corporations were operated in a very informal manner. Testimony was presented that, in lieu of dues, people provided services to the corporation itself, or donated extensive tracts of land to the corporations.
In opposition to Appellants' membership claims, Appellees presented the testimony of Bridgewater's Vice President and Treasurer, along with a number of corporate documents. Bridgewater Vice President Mary Columbo (Columbo), testified as to the relationship between Bridgewater and Endless and as to her understanding of each Appellant's membership status. Columbo testified that Endless merged with Bridgewater in 1992, combining members and realty. [FN6] In 1993, Bridgewater's bylaws were revised, but contained no provisions for notifying members of suspension of their memberships for failure to pay dues. Additionally, these bylaws defined only one class of membership, made contingent solely upon the payment of dues. The bylaws defined no hereditary or lifetime membership classes, and no alternative to the annual payment of dues.
FN6. The merged club retained the Endless name.
As to the membership status of each Appellant, Columbo testified that she found nothing in corporate records to indicate that Hart had ever been a Bridgewater member. Regarding the membership status of Lewis and Taylor, Columbo testified that Lewis and Taylor had both been members following the merger; however, under the current bylaws, each lost her membership status in 1994 by failing to pay dues. Columbo testified that no member of Bridgewater, including Lewis and Taylor, had ever been sent notice that membership would be suspended for failure to pay dues. Bridgewater's Treasurer, Barbara Galvin (Galvin), indicated that she had only been an officer for seven months, so she did not have any knowledge as to whether notices had been sent. Galvin was also unable to testify as to whether any of the Appellants had been members of Bridgewater.
In addition to the testimony of Columbo and Galvin, Appellees submitted several documents at the hearing: the current Bridgewater Bylaws; the current Bridgewater membership list; the Bridgewater membership list for 1964 through 1973; a Bridgewater newsletter from February 12, 1987; a Bridgewater newsletter from January 6, 1990; and a letter dated December 28, 1990. The corporation did not present any of the earlier Bridgewater bylaws or any of the Endless bylaws. [FN7]
FN7. Bridgewater did not present any documentation surrounding the merger of the clubs, particularly the membership list of Endless at the time of merger or any specific provisions for incorporating Endless members and property into the merged corporation. Columbo testified that she had numerous additional corporate documents in her car that she could bring to the hearing, although she did not identify these documents.
Upon conclusion of the hearing, the trial court noted its agreement with Bridgewater's preliminary objections based on standing, and sustained those objections. In reaching this decision, the trial court relied on Section 5764.1 of the Nonprofit Corporation Law (the Law), 15 Pa.C.S. § 5764.1, which provides that only a member or director of a not‑for‑profit corporation has standing to bring an action against the corporation. The trial court also relied on Section 5103 of the Law, 15 Pa.C.S. § 5103, which defines "member" as "one having membership rights in a corporation in accordance with the provisions of its bylaws." The trial court then turned to Article III, Section 1 of Bridgewater's bylaws, which provides that membership is determined by payment of the annual dues assessment and that, if dues are not paid by July of the same year, membership is terminated. Noting that none of these members had paid dues for some time, the trial court concluded that, under the terms of the bylaws, Appellants were not members. [FN9] The court also addressed Appellants' arguments that under Section 5544(c) of the Law, 15 Pa.C.S. § 5544(c), Bridgewater, as a not‑for‑profit corporation, was required to provide notice prior to terminating membership for failure to pay dues. The trial court dismissed the applicability of this provision, acknowledging that Appellants were correct in asserting that membership could not be terminated without reasonable notice, but noting that the statutory provision "presumes that one is originally a dues‑paying member. The only [Appellant] who ever paid dues to either of these two clubs was Taylor, and she stopped paying in 1994." (Trial Court Opinion (Opinion) at 3.) The trial court then, essentially, made a finding of constructive notice as to Taylor, noting that she was the author of various club newsletters from 1987 and 1990, and that both newsletters indicated a "loss of membership privileges for non‑payment of dues to that club." (Opinion at 3, n. 1.)
FN9. The trial court reasoned that:
The Bridgewater Riding Club by‑laws provide that membership is determined by payment of the annual dues assessment, and that if dues are not paid "by July of the same year your membership is terminated." See Article III, Section 1 of the by‑laws. At hearing, the Defendants produced the current Club membership list. None of the Plaintiffs appear[s] on that list. Plaintiff Taylor was once a member of the Endless Mountains Riding Club, but has not paid dues since 1994. Plaintiff Lewis concedes that she has never paid dues to either Club.
(Trial Court Opinion (Opinion) at 2.)
The trial court concluded that, "[o]nce the [Appellees] established prima facie that [Appellants] were not members of Bridgewater, it became [Appellant]s' burden to establish such membership. In this they failed. Consequently, the actions were dismissed." (Opinion at 3.) The trial court also addressed the 1983 letter sent to Hart, concluding that the letter constituted an offer of lifetime membership, which it was not clear that he accepted. The trial court noted that the current Bridgewater bylaws make no provision for "lifetime" members. Accordingly, it sustained the preliminary objections. This appeal followed.
Both parties agree that Appellants are entitled to a presumption of standing that Appellees can rebut with competent evidence. [FN12] The issue before this Court is whether the trial court erred in concluding that Appellees presented sufficient evidence to rebut this presumption.
FN12. The objecting party bears the burden of supporting its objections as to plaintiffs' standing. In doing so, it may not rely merely on the allegations contained within the preliminary objections, but must produce competent evidence in support of its position. If an objector produces sufficient evidence, the burden shifts to plaintiff to present evidence rebutting the defense testimony.
Regarding the purported status of Lewis and Taylor, Columbo acknowledged that both had been members of Bridgewater as recently as 1994, but that each had lost her membership status thereafter for failing to pay dues. Both Bridgewater corporate officers testified that the corporation had not sent notice to either Lewis or Taylor of membership suspension for failure to pay dues. Appellants had argued before the trial court that, under Section 5544(c) of the Law, a not‑for‑profit corporation could not revoke membership status without first providing reasonable notice. The trial court dismissed this argument, finding Section 5544(c) inapplicable, because it concluded that Lewis, never having paid dues, had not been a member and that Taylor had voluntarily let her membership in the corporation lapse.
Section 5544(c) allows not‑for‑profit corporations to include provisions within their bylaws for the "termination of membership, upon reasonable notice, for nonpayment of such dues or assessments...." 15 Pa.C.S. § 5544(c). This notice and termination provision is authorized so as to afford not‑for‑profit corporations a reasonable means of enforcing payment of any membership dues made payable under the bylaws. Appellants correctly cite to our decision in Quaker City Yacht Club v. Williams, 429 A.2d 1204 (Pa.Cmwlth.1981), in which we found a not‑for‑profit corporation to be in violation of Section 5544(c) for its failure to provide "reasonable notice of the intent to suspend as of a date certain if a member has not paid his delinquent dues." Id. at 1205. Accordingly, we found the not‑for‑profit's suspension of the particular member for nonpayment of dues to be improper.
In the instant case, Bridgewater's by‑laws inappropriately failed to include a provision requiring it to provide members, who are delinquent in their payment of dues, with notice prior to suspending their memberships. The trial court places much significance on Lewis never having paid dues, noting that Section 5544 presupposes the party is a dues paying member. This analysis ignores Colombo's testimony, specifically, that both Lewis and Taylor were members in 1994, and that the only reason that both had their memberships suspended was their subsequent failure to pay dues. Bridgewater was required to provide notice under Pennsylvania law. Colombo testified that no such notice was provided. Appellees, therefore, did not meet their burden of rebutting Taylor's and Lewis's presumption of membership. Delinquent as Taylor and Lewis may have been in their payment of dues, the statute prohibits their memberships from being terminated without Bridgewater issuing appropriate notice. See Quaker City. The trial court erred in its application of Section 5544. As we have previously noted, "[a]lthough the courts are reluctant to interfere in the affairs of private corporations ... the courts will not stand idly by when under the pretext of following 'club rules' the laws of Pennsylvania have been violated." Quaker City, 429 A.2d at 1206 (citations omitted).
As to Hart's membership status, the trial court reviewed the evidence presented by both sides, weighing the credibility of the witnesses and their testimony, and reviewing the documentary evidence presented and, ultimately, concluded that Hart was not and had not been a member of either club. Unlike her testimony regarding Lewis and Taylor, Colombo did not testify that Hart had been a member of the riding club. Regarding the documentary evidence Hart produced, specifically the letter offering him a lifetime membership in Endless, the trial court concluded that Hart, although having received the offer, did nothing to accept it. [FN16] The trial court appropriately determined that Appellees' evidence, including the production of membership lists and bylaws, as well as the testimony of its officers, supported the determination that Hart was not a member. We find no error with the trial court's resolution of the factual issues.
FN16. Although the trial court does not address whether this letter and its salutation ("Dear Member") is evidence of Hart's 1983 membership in Bridgewater, as Hart has not raised this issue, we do not address it.
For these reasons, we reverse the order of the Court of Common Pleas of Susquehanna County as to the standing of Lewis and Taylor, and affirm as to the standing of Hart.
CONCURRING AND DISSENTING OPINION BY: Senior Judge KELLEY.
I concur in the result reached by the Majority with respect to Appellant David Hart. However, I respectfully dissent to the Majority's conclusion with respect to Appellants Cynthia Lewis and Kathleen Taylor.
The present action was commenced in 2001 when the Appellants filed a number of complaints, and amended complaints, in the trial court pursuant to Section 5793 of the Law. The complaints alleged that Bridgewater's Board of Directors had breached its fiduciary duties with respect to some of the land owned by Bridgewater. The Board filed preliminary objections to the complaints which alleged that the Appellants were not members of the Bridgewater and, therefore, lacked standing to initiate these proceedings. On December 10, 2001, a hearing was conducted before the trial court on the preliminary objections and all parties were given the opportunity to present evidence in support of their respective positions. That same day, the trial court issued the instant order granting Bridgewater's preliminary objections and dismissing Appellant's complaint.
As noted by the Majority, Appellants Lewis and Taylor were presumed to be members of Bridgewater, and Bridgewater was required to rebut this presumption with competent evidence. Contrary to the Majority's assertion, Bridgewater clearly met its burden of proof in this regard. Indeed, as the trial court noted:
Only a member or director of a not‑for‑profit corporation has standing to bring an action against the corporation, its officers or directors, involving the conduct of the organization's affairs. 15 Pa.C.S.A. Sec. 5762.1. A "member" is defined as "one having membership rights in a corporation in accordance with the provisions of its bylaws." 15 Pa.C.S.A. Sec. 5103.
The [Bridgewater] by‑laws provide that membership is determined by payment of the annual dues assessment, and that if dues are not paid "by July of the same year your membership is terminated." See Article III, Section 1 of the by‑laws. At hearing, [Bridgewater] produced the current Club membership list. None of the [Appellants] appear on that list. [Appellant] Taylor was once a member of the Endless Mountains Riding Club [prior to its merger with Bridgewater], but has not paid dues since 1994. [Appellant] Lewis concedes that she has never paid dues to either Club. She claims, however, that since her parents were once members, she now has some undefined hereditary right to membership ...
Trial Court Opinion at 2. Thus, Bridgewater clearly established that neither Appellant Lewis nor Appellant Taylor was a member of Bridgewater at the time that the instant complaints were filed, thereby conferring standing upon Appellants Lewis and Taylor to maintain the instant actions under the Law.
It may well be true that the memberships of Appellants Lewis and Taylor in Bridgewater were improperly suspended under the provisions of Section 5544(c) of the Law. That wrongful action could well be the subject of an equity action brought by Appellants Lewis and Taylor against Bridgewater in which they seek to reverse this wrongful action and to restore their membership privileges. See, e.g., Quaker City Yacht Club v. Williams, 429 A.2d 1204 (Pa.Cmwlth .1981).
However, the foregoing in no way alters the fact that, at the time the instant complaints were filed, Appellants Lewis and Taylor were not members of Bridgewater, and their membership privileges in Bridgewater had not been restored. As a result, the trial court correctly sustained the preliminary objections as Appellants Lewis, Taylor and Hart did not have standing to prosecute the instant actions under the relevant provisions of the Law.
Accordingly, unlike the Majority, I would affirm the order of the trial court.
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