SUSAN W. SULLIVAN, individually and as a Member of the Board of Directors of the Pike and Susan Sullivan Foundation, Appellant (Plaintiff),
v.
THE PIKE AND SUSAN SULLIVAN FOUNDATION, A Wyoming nonprofit corporation, Appellee (Defendant).
Appeal
from the District Court of Teton County The Honorable Marvin
L. Tyler, Judge
Representing Appellant: Erika M. Nash and Aaron J. Lyttle of
Long Reimer Winegar Beppler LLP, Jackson, Wyoming. Argument
by Ms. Nash.
Representing Appellee: Kim D. Cannon and Holly L. Tysse of
Davis & Cannon, LLP, Sheridan, Wyoming. Argument by Mr.
Cannon.
Before
BURKE, C.J., and HILL, DAVIS, FOX, and KAUTZ, JJ.
KAUTZ,
Justice.
[¶1]
Appellant Susan W. Sullivan and her late-husband Pike
Sullivan established and funded the Pike and Susan Sullivan
Foundation, a Wyoming nonprofit corporation (the Foundation).
The Sullivans and their friend and attorney, George Harris,
served as directors of the Foundation until Mr. Sullivan
passed away in 2013, at which time his position on the board
was filled by Mr. Harris's wife. Conflicts over
management of the Foundation developed between Mrs. Sullivan
and the Harrises, and Mrs. Sullivan filed suit. She requested
that the district court enter a declaratory judgment to,
among other things, void Mrs. Harris's election to the
board because Mr. Harris had a conflict of interest when he
voted to elect her. Mrs. Sullivan also sought judicial
dissolution of the Foundation on the grounds that after Mrs.
Harris's election to the board was invalidated,
management of the Foundation would be deadlocked.
[¶2]
The district court granted summary judgment in favor of the
Foundation on Mrs. Sullivan's declaratory judgment claim.
It determined that Mrs. Sullivan's claim seeking to
remove Mrs. Harris from the board was derivative in nature,
and Mrs. Sullivan did not comply with the statutory and
procedural requirements for derivative claims. It also
granted summary judgment in the Foundation's favor on her
judicial dissolution claim because, with three directors,
there was no deadlock in management of the Foundation.
[¶3]
We affirm.
ISSUES
[¶4]
The parties present several issues on appeal, but the
following issues are dispositive:
1. Did the district court err by concluding that Mrs.
Sullivan cannot sustain a claim for judicial dissolution of
the Foundation based upon board deadlock?
2. Did the district court abuse its discretion when it denied
Mrs. Sullivan's request for a continuance of the summary
judgment proceeding until discovery was complete?
FACTS
[¶5]
In 2012, at Mr. and Mrs. Sullivan's request, Mr. Harris
incorporated the Foundation as a Wyoming public benefit
non-profit corporation. The Foundation applied for and
received tax exempt status under 26 U.S.C. § 501(c)(3),
and the Sullivans contributed significant assets to it. The
Foundation explained its non-profit purpose in its tax
filings as follows: "The Foundation's primary
purpose is to improve education in America in K through 12
education for children, as well as Quality of Life education
for elderly citizens who no longer have full time
employment." It committed to giving funds to
organizations that aligned with its stated purpose. The
Foundation also adopted a conflict of interest policy.
[¶6]
The Foundation has no members and is governed by a board of
directors. Mr. and Mrs. Sullivan and Mr. Harris were the
initial directors. Mr. Sullivan passed away in May 2013,
leaving a vacancy on the board of directors. On September 30,
2013, acting through a written consent in lieu of the annual
meeting, Mr. Harris and Mrs. Sullivan elected Mrs. Harris as
the third director. In the same written consent, the
directors resolved that Mr. Harris would act as
"Chairman and CEO" of the Foundation, earning an
annual salary of $150, 000. Mr. Harris did not disclose a
conflict of interest with regard to either the appointment of
his wife to the board or his compensation.
[¶7]
The directors continued to act through written consent in
September of 2014 and September of 2015. Each time, they
agreed that Mr. Harris would act as Chairman and CEO of the
Foundation and receive a salary for doing so. Neither Mr.
Harris nor Mrs. Harris abstained from the actions approving
Mr. Harris's salary or disclosed a conflict of interest.
The written consents also "ratified and confirmed"
Mr. Harris's actions as Chairman and CEO during the year,
including entering into agreements to contribute Foundation
funds to various endeavors.
[¶8]
On October 1, 2015, Mrs. Sullivan and Mrs. Harris signed a
written consent in lieu of meeting which addressed the
reasonableness of Mr. Harris's compensation. For the
first time, Mr. Harris disclosed he was "interested in
the transaction" and he did not deliberate or vote on
the action. The written consent stated that "the [b]oard
believes it is reasonable to pay Mr. Harris reasonable total
compensation for each calendar year in the amount of $150,
000."
[¶9]
Disagreement over management of the Foundation and how
Foundation funds were being used developed between Mrs.
Sullivan and Mr. Harris. On May 8, 2016, Mrs. Sullivan
received verbal notice that the annual meeting of the board
was scheduled for May 10, 2016. The minutes from the meeting
indicate that Mrs. Sullivan was "not available" to
attend the meeting, but a quorum, made up of Mr. and Mrs.
Harris, was present. The meeting minutes state that Mr. and
Mrs. Harris voted to amend the bylaws to increase the number
of directors to four and elected Laura Lo Bianco as the
fourth director. Mr. Harris was "authorized to continue
to make grants as he deems appropriate to serve [the] mission
of [the] Foundation."
[¶10]
On September 7, 2016, Mrs. Sullivan filed suit against: the
Foundation; Mr. Harris, individually and as a board director;
Mrs. Harris, individually and as a board director; and Ms. Lo
Bianco, individually and as a board director. In her first
cause of action, Mrs. Sullivan requested a judgment declaring
the election of Mrs. Harris as a director and approval of Mr.
Harris's salary void because the Harrises did not follow
the applicable conflict of interest procedures with regard to
either of those actions. She also sought a declaration that
the amendment to the bylaws which increased the number of
directors to four was invalid because she had not been given
timely notice of the proposed amendment in accordance with
the Foundation bylaws. According to the complaint, if the
amendment which enlarged the size of the board to four
directors was declared invalid, Ms. Lo Bianco's election
would also be invalid.
[¶11]
Mrs. Sullivan's second cause of action sought judicial
dissolution of the Foundation. She claimed the Foundation
should be dissolved pursuant to Wyo. Stat. Ann. §
17-19-1430(a)(ii)(A) (LexisNexis 2017) because the board was
deadlocked in management of the Foundation. Specifically,
Mrs. Sullivan asserted that, after Mrs. Harris's and Ms.
Lo Bianco's elections were voided, she and Mr. Harris
would be the only remaining directors. She claimed to have
"fundamental disagreements" with Mr. Harris making
them "hopelessly deadlocked in the management of the
Foundation's corporate affairs, including election of a
third director to break the current
deadlock."[1]
[¶12]
Ms. Lo Bianco resigned from the board of directors, and Mrs.
Sullivan amended her complaint to reflect the resignation.
Mr. and Mrs. Harris moved to dismiss the individual claims
against them, and the district court granted their
motions.[2]
[¶13]
The Foundation filed a motion to dismiss the complaint under
W.R.C.P. 12(b)(6). The district court notified the parties
that it was converting the Foundation's motion to dismiss
to a motion for summary judgment under W.R.C.P. 56 because it
planned to consider materials outside the pleadings,
including affidavits, in rendering its decision. Mrs.
Sullivan filed a motion pursuant to W.R.C.P. 56(f) (2016,
repealed March 1, 2017), requesting that the district court
either continue the summary judgment proceeding or deny the
Foundation's converted motion for summary judgment to
allow time for discovery.
[¶14]
On April 5, 2017, the district court entered summary judgment
in favor of the Foundation and denied Mrs. Sullivan's
Rule 56(f) motion. The district court ruled: 1) Mrs.
Sullivan's declaratory judgment claims are derivative in
nature and she failed to comply with the statutory and
procedural requirements for derivative claims; 2) Mrs.
Harris's election to the board of directors was not a
"conflict of interest transaction" under Wyoming
statute or the Foundation's policy; 3) Mrs. Sullivan
could not maintain her action for judicial dissolution
because there was no showing of board deadlock; and 4)
additional discovery was unnecessary. Mrs. Sullivan filed a
timely notice of appeal.
DISCUSSION
1.
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