Andrew Schlafly v. Eagle Forum ( 2020 )

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 19-2174
___________________________
Andrew Layton Schlafly, in his official capacity as both a Director and Member of
the Eagle Forum
lllllllllllllllllllllPlaintiff - Appellant
v.
Eagle Forum, a Foreign Nonprofit Corporation; Eunie Smith, in her official
capacity as First Vice President of Eagle Forum; Cathie Adams, in her official
capacity as Second Vice President of Eagle Forum; Rosina Kovar, in her official
capacity as At-Large Director of Eagle Forum; Carolyn McLarty, in her official
capacity as Director of Eagle Forum
lllllllllllllllllllllDefendants - Appellees
____________
Appeal from United States District Court
for the Eastern District of Missouri - St. Louis
____________
Submitted: February 11, 2020
Filed: July 29, 2020
____________
Before SMITH, Chief Judge, COLLOTON and STRAS, Circuit Judges.
____________
SMITH, Chief Judge.
Andrew L. Schlafly (“Andrew”), a member of the Board of Directors of Eagle
Forum (“Board”), a nonprofit corporation, sued Eagle Forum and several of its
individual officers and directors for alleged violations of the organization’s bylaws
and alleged breach of fiduciary duties in connection with Eagle Forum’s attempt to
remove Andrew and other directors from the Board. After the district court1 denied
as moot Andrew’s first motion for a temporary restraining order (TRO), Andrew filed
a second motion for TRO. The district court denied the motion and sanctioned
Andrew by requiring him to pay Eagle Forum’s cost to defend against the motion.
Shortly after the court’s award of attorneys’ fees, Eagle Forum moved to dismiss
Andrew’s complaint. The court dismissed Andrew’s complaint without prejudice and
granted him leave to file an amended complaint. Thereafter, the district court
dismissed Andrew’s amended complaint. Andrew appeals the district court’s
imposition of sanctions and dismissal of his claims in his original complaint. We
affirm.
I. Background
Eagle Forum is a nonprofit, nonsectarian, and nonpartisan membership
organization that regularly conducts business in St. Louis County, Missouri,
including co-sponsoring an annual meeting of its members in September. It is a
corporation formed under the Illinois General Not for Profit Corporation Act, 805 Ill.
Comp. Stat. § 105, et seq., and governed by the Bylaws of Eagle Forum (“Bylaws”).
It was founded in 1975 by Phyllis Schlafly (“Phyllis”).
Eagle Forum’s “Bylaws may be amended by unanimous vote of the Board of
Directors, or by the affirmative vote of two-thirds of all the Directors then serving,
provided notice of the proposed changes is mailed to each Director at least ten days
in advance of the meeting.” Ex. B at 8, Schlafly v. Eagle Forum, No. 4:17-cv-
1
The Honorable John A. Ross, United States District Judge for the Eastern
District of Missouri.
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00283-JAR (E.D. Mo. Apr. 27, 2018), ECF No. 72-2. “All matters not covered by
these Bylaws shall be governed by Robert’s Rules of Order Newly Revised
[(“Robert’s Rules”)].” Id.
At the time of the events at issue, the Eagle Forum Board consisted of ten
directors: Anne Schlafly Cori, Eunie Smith, Cathie Adams, Carolyn McLarty, Rosina
Kovar, Shirley Curry, John Schlafly (“John”), Andrew, Kathleen Sullivan, and LaNeil
Wright Spivy. Andrew, John, and Cori are the children of Phyllis. The “Majority
Directors” were Cori, Smith, Adams, Kovar, McLarty, and Curry. The “Minority
Directors” were Andrew, John, Sullivan, and Spivy. Ed Martin was the president of
Eagle Forum.
In the months leading up to Phyllis’s death, John and Cori disagreed as to the
positions they believed Phyllis and Eagle Forum should take on certain political
issues.
On April 10, 2016, Phyllis sent a letter to Smith, Adams, Kovar, McLarty, and
Cori asking them to resign. In the letter, Phyllis expressed her concern that the
directors were questioning how Eagle Forum operates and her “judgment on
personnel.” Ex. A at 2, Schlafly v. Eagle Forum, No. 4:17-cv-00283-JAR (E.D. Mo.
Apr. 27, 2018), ECF No. 72-1. Phyllis believed that the directors were attacking her
and her work. She asked the directors to resign so she could “continue with Eagle
Forum’s important work.” Id. They did not resign.
On April 11, 2016, the Board held a meeting at which the Majority Directors
voted to remove Martin as president of Eagle Forum. The Minority Directors refused
to acknowledge the motions and resolutions passed at the meeting.
On April 22, 2016, the Majority Directors filed an action against Martin and
John in Madison County Circuit Court. The complaint asserted breach-of-fiduciary-
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duty claims against Martin and John regarding, among other things, their failure to
acknowledge the actions taken at the April 11 meeting and their attempts to block the
Majority Directors from accessing Eagle Forum property, assets, and resources.
In September 2016, Phyllis died.
On October 20, 2016, the Madison County Circuit Court entered an amended
TRO, suspending Martin and John from their positions. It also enjoined them from
accessing Eagle Forum property and granted the Majority Directors temporary sole
control and possession over all Eagle Forum property. The court additionally ordered
Smith to serve as the Acting President of Eagle Forum.
In January 2017, Smith, as the Acting President of Eagle Forum, learned that
Spivy intended to resign her position due to declining health. On January 4, 2017,
Smith called Spivy, who advised Smith “that she already considered herself resigned
from the Eagle Forum Board of Directors.” Ex. E at 1, Schlafly v. Eagle Forum, No.
4:17-cv-000283-JAR (E.D. Mo. Sept. 13, 2017), ECF No. 38-5. Smith suggested that
Spivy confirm her resignation in writing. On January 11, 2017, Smith received a letter
from Spivy, stating, “Please consider this my resignation from Eagle Forum
Organization C4.” Id. at 2.
In the meantime, on January 6, 2017, Smith, Adams, and Cori called a special
meeting of the Board for January 28, 2017, via a “Notice of Special Meeting of the
Board of Directors of Eagle Forum.” The notice explained that the special meeting’s
purpose was to remove John, Andrew, and Sullivan as directors. As reflected in the
notice, the meeting was scheduled for January 28, 2017. The notice advised that the
corporation’s directors were prohibited from voting by proxy.
On January 19, 2017, Andrew filed a petition for TRO, preliminary injunction,
permanent injunction, and declaratory judgment against Eagle Forum, Smith, Adams,
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Kovar, and McLarty (collectively, “defendants”) in St. Louis County Circuit Court.
Andrew asked that the court enjoin the individual defendants from taking any action
not authorized by the Bylaws and enjoin them from holding or participating in the
January 28, 2017 meeting. Andrew sought a declaratory judgment that the January 28,
2017 meeting was in violation of the Bylaws and was ultra vires and that the
individual defendants were acting in bad faith.
On January 25, 2017, the defendants removed the case to federal court. That
same day, Andrew filed a motion for TRO and motion for preliminary injunction to
prevent the January 28, 2017 meeting from occurring. On January 26, 2017, the
defendants moved to quash service of the summons and complaint; moved to dismiss
or, in the alternative, to transfer; and moved to strike. The district court conducted a
conference call with the parties concerning the motions. During that call, Andrew
informed the district court that John and Martin were seeking the same relief in
Madison County Circuit Court.
On January 27, 2017, the Madison County Circuit Court held a hearing on John
and Martin’s emergency motion to restrain and bar the special meeting on January 28,
2017. At the hearing’s conclusion, the state court denied their motion.
The Board held the special meeting as planned on January 28, 2017. Andrew,
John, and Sullivan did not attend. The Board voted six to zero to remove Andrew,
John, and Sullivan. The Board also amended the Bylaws. Specifically, the Bylaws
were amended to remove the incorporation of Robert’s Rules into the Bylaws and to
add a provision to permit the Board to remove the at-large director (the only director
elected by Eagle Forum’s membership) without notice to the membership.
On September 7, 2017, the district court granted the motion to quash; denied
the motion to dismiss, or in the alternative, to transfer; denied as moot the motion for
TRO; denied without prejudice the motion for preliminary injunction; and denied as
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moot the motion to strike. The district court granted the motion to quash the summons
and complaint because the individual defendants were not properly served. Eagle
Forum was the sole remaining defendant.
On September 11, 2017, Andrew filed another motion for TRO and preliminary
injunction. He requested that the district court enjoin a meeting of the Board
scheduled for the morning of September 15, 2017. He alleged that “[s]everal directors
of the Board of Defendant Eagle Forum held a meeting on January 28, 2017 . . . and
purportedly took action as the Board of Eagle Forum in violation of the applicable
Bylaws.” Emergency Mot. by Pl. for TRO & Prelim. Inj. at 1, Schlafly v. Eagle
Forum, 4:17-cv-00283-JAR (E.D. Mo. Sept. 11, 2017), ECF No. Doc. 32. In addition,
he alleged that “the group of directors purportedly removed and replaced three
members of the Board, and changed the Eagle Forum Bylaws, without adequate
notice.” Id. Andrew claimed that at the upcoming September 15, 2017 meeting
“[t]hree directors who were improperly elected to the Board at the January Meeting
are expected to participate and vote . . . , while three directors who were improperly
removed at the January meeting are excluded from the upcoming meeting and
received no formal notice of it.” Id. at 2.
On September 14, 2017, the district court denied Andrew’s emergency motion
for TRO and denied without prejudice his motion for a preliminary injunction. The
court also ordered Eagle Forum to submit a statement of its costs in defending the
motion for TRO. On February 5, 2018, the district court granted in part Eagle
Forum’s motions for attorney’s fees and assessed attorney’s fees totaling $9,851.25
against Andrew. The court assessed the fees against Andrew as a sanction for his
misconduct, “the most recent of which was filing a second motion for [TRO] in what
appeared to the Court to be a blatant effort to tie up the resources of Defendant Eagle
Forum.” Schlafly v. Eagle Forum, No. 4:17-cv-00283-JAR, 2018 WL 705061, at *2
(E.D. Mo. Feb. 5, 2018).
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The court found “unpersuasive” Andrew’s argument “that he was not a named
party to the Madison County lawsuit and, as a result, could not be responsible for the
identical motion filed in that case.” Id. The court cited “the fact that [Andrew’s]
brother, who attended the hearing, is a key defendant in that litigation.” Id. The court
also concluded that Andrew “was merely trying to relitigate issues set forth in his first
motion for [TRO]” in filing the second motion for TRO. Id. As support, the court
cited Andrew’s “repeated references to events that took place at the January meeting
and his grievances related to his removal at that meeting and the change in bylaws.”
Id. “[B]ased on [Andrew’s] conduct when he first sought a [TRO], as well as his
attempt to relitigate the same issues in a subsequent motion for [TRO], the [c]ourt
. . . award[ed] Defendant Eagle Forum the reasonable attorney’s fees it incurred in
defending the second motion for [TRO].” Id. at *3. The court concluded that Andrew
acted in bad faith “by filing a second motion for [TRO], which the [c]ourt believe[d]
was designed to harass Defendant Eagle Forum and contribute to an effort to tie up
its present directors in various lawsuits.” Id. at *4.
Andrew appealed the district court’s denial of his second TRO motion and
award of attorney’s fees to Eagle Forum. We dismissed the appeal for lack of
jurisdiction. Schlafly v. Eagle Forum, 771 F. App’x 723, 724 (8th Cir. 2019) (per
curiam).
Shortly after the district court’s award of attorney’s fees, Eagle Forum moved
to dismiss Andrew’s complaint. In his complaint, Andrew alleged that the January 28,
2017 meeting removing him as a director was invalid because it prohibited proxy
voting. He alleged that the notice was inadequate for its failure to disclose that one
of the purposes of the meeting was to change the Bylaws.
In its motion to dismiss, Eagle Forum argued that Andrew failed to state a
claim because Eagle Forum’s actions were lawful under the Illinois General Not for
Profit Corporation Act (“the Act”), 805 Ill. Comp. Stat. § 105, et seq. The district
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court noted that the Bylaws were “silent regarding proxy voting by a director” but
that “the Act expressly prohibits directors of a non-profit corporation from voting by
proxy.” Mem. & Order at 3, Schlafly v. Eagle Forum, No. 4:17-cv-00283-JAR (E.D.
Mo. Apr. 13, 2018), ECF No. 71 (citing 805 Ill. Comp. Stat. § 105/108.05(d)).
Nonetheless, Andrew relied on the Act’s language that “[i]n the case of a corporation
with members entitled to vote for directors, no director may be removed, except
. . . by the affirmative vote of two-thirds of the votes present and voted, either in
person or by proxy.” 805 Ill. Comp. Stat. § 105/108.35(c)(1).
The court, however, concluded that § 105/108.35(c)(1) “applies only to
corporations with members entitled to vote for directors.” Mem. & Order at 4. By
contrast, “Eagle Forum’s by-laws expressly provide that sitting directors, not the
membership, vote on incoming directors, while members vote on the at-large
director.” Id. As a result, the court held that “the Act’s prohibition on directors voting
by proxy controls” and that “the notice prohibiting proxy voting was lawful.” Id.
Eagle Forum next argued that the district court should dismiss Andrew’s
complaint because Andrew could not prove that the Board’s vote amending the
Bylaws caused his removal, i.e., he could not “prove that had the by-laws not been
amended, [Andrew] would still be a director.” Id. The court observed that while “the
notice of the special meeting failed to include an agenda item about amending the
by-laws,” “the Complaint [was] devoid of any allegation that the by-laws were
amended at the special meeting or how such amendment caused [Andrew’s] injury.”
Id. At the time Andrew filed his complaint, the meeting had not yet taken place. The
court concluded that it could not “infer allegations of an act and subsequent injury
that are not expressly pled in the Complaint. Therefore, the Court . . . grant[ed] in part
Eagle Forum’s motion to dismiss and grant[ed] [Andrew’s] request for leave to amend
the Complaint.” Id.
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Andrew subsequently filed his first amended complaint in his capacity as a
member of Eagle Forum, as opposed to his capacity as a director of Eagle Forum. He
asserted two breach-of-fiduciary-duty claims. In Count I, Andrew alleged that the
individual defendants breached the fiduciary duty owed to Eagle Forum members
when they failed to comply with the Bylaws and made changes to them without notice
to the membership, resulting in the violation of certain membership rights, some of
which were contained in Robert’s Rules. Andrew sought (1) injunctive relief against
all the individual defendants in the form of rescinding the changes to the Bylaws
made on January 28, 2017; and (2) the return to Eagle Forum of any assets dissipated
since the changes to the Bylaws.
In Count II, Andrew alleged that the individual defendants breached their
duties of candor and loyalty “by changing the Bylaws and having an undisclosed side
agreement among themselves” that “improperly influences how the Individual
Defendants vote as Directors.” Am. Compl. at 7, Schlafly v. Eagle Forum,
No. 4:17-cv-00283-JAR (E.D. Mo. Apr. 27, 2018), ECF No. 72. Andrew claimed that
this side agreement disenfranchises members by distorting the votes. He also claimed
that the individual defendants have failed to announce the results of the at-large
membership election and have improperly allowed at-large Director Kovar to remain
on the Board. Andrew sought disclosure and rescission of the side agreement and
replacement of Defendant Kovar by the successor elected by the membership.
Eagle Forum moved to dismiss the first amended complaint, arguing that
(1) Andrew lacked standing to bring a direct action for breach of fiduciary duty
because those claims belong solely to Eagle Forum; and (2) Andrew, in his capacity
as a member, failed to allege sufficient facts to establish any violation of the notice
requirements contained in the Bylaws. Alternatively, Eagle Forum sought a stay in
the matter pending the disposition of the lawsuit in Madison County Circuit Court,
which Eagle Forum argued included many of the same parties and identical claims
and theories.
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The court assumed, without deciding, that Andrew had standing to bring suit
against the individual defendants. The court noted that Andrew alleged on the face
of the amended complaint that the failure to provide proper notice affected his voting
rights. But, as to Count I, the court held that Andrew failed to state a claim because
Andrew brought suit in his capacity as a member of Eagle Forum, and the Bylaws did
not provide that a member is entitled to notice.
As to Count II, Andrew brought a direct action against the individual
defendants for violating their fiduciary duties to Andrew and other members of Eagle
Forum. Because the injury was not separate and distinct from that suffered by other
shareholders, the court concluded that Andrew had to plead a wrong involving a
contractual right of a member, i.e., the right to vote or to assert majority control.
Andrew asserted that a secret side agreement disenfranchises Eagle Forum members
by distorting the vote of the at-large director, who, in turn, was elected by the
membership. He also claimed that the individual defendants failed to disclose the
results of the election of the at-large director in violation of the Bylaws. The court
concluded that such violations involved a contractual right of a member of Eagle
Forum, which may be asserted by an individual member in a direct action. Thus, the
court denied the motion to dismiss as to Count II. However, the court questioned
whether it had subject matter jurisdiction. Andrew sought only equitable relief in
Count II. The court found it “unclear from the face of the complaint whether the
[c]ourt has subject matter jurisdiction over this action” and “direct[ed] [Andrew] to
show cause why this matter should not be dismissed for lack of subject matter
jurisdiction.” Schlafly v. Eagle Forum, No. 4:17-cv-00283-JAR, 2019 WL 77362, at
*4 (E.D. Mo. Jan. 2, 2019).
Thereafter, the district court reviewed the record and determined that Andrew
asserted only claims against Eagle Forum in Count I; thus, based upon the court’s
prior order dismissing Count I of Andrew’s amended complaint, the court dismissed
Eagle Forum without prejudice for failure to state a claim against it. In addition, the
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court found it “clear that none of the [i]ndividual [d]efendants have been served,
despite [Andrew] amending his lawsuit to specifically plead that the [i]ndividual
[d]efendants themselves have committed a tort or similar wrongdoing.” Order
Dismissing Def. Eagle Forum and Order to Show Cause at 3, Schlafly v. Eagle
Forum, No. 4:17-cv-00283-JAR (E.D. Mo. Apr. 17, 2019), ECF No. 85. The court
directed Andrew to show cause why the case should not be dismissed for lack of
timely service.
In response to the order to show cause, Andrew argued that “no party [had]
objected to a lack of service of the amended complaint, which was served to the
[individual defendants’] attorney who had entered a limited appearance for the
purpose of filing the motion to quash.” Mem. & Order of Dismissal at 2–3, Schlafly
v. Eagle Forum, No. 4:17-cv-00283-JAR (E.D. Mo. May 3, 2019), ECF No. 88. He
also argued that “good cause exist[ed] for his failure to timely serve the individual
[d]efendants because it was reasonable for him to anticipate that the [i]ndividual
[d]efendants waived formal service in light of Eagle Forum’s defense of the case.” Id.
at 3. Finally, he “argue[d] . . . in the absence of good cause, the [c]ourt should extend
the time to serve the [i]ndividual [d]efendants because there would be no prejudice
to the [i]ndividual [d]efendants.” Id.
The court concluded that Andrew “had ample notice that the [i]ndividual
[d]efendants were not participating in this litigation” based on the order granting their
motion to quash. Id. at 5. While attorneys did enter appearances on behalf of the
individual defendants, those appearances were for the purpose of litigating the motion
to quash. Additionally, Eagle Forum never stated “that it represented the [i]ndividual
[d]efendants.” Id. The court also found no evidence suggesting that Andrew “made
any efforts to effect service after the [c]ourt granted the [i]ndividual [d]efendants’
motion to quash.” Id. As a result, the court concluded that Andrew “failed to establish
good cause for [his] failure to timely serve the [i]ndividual [d]efendants.” Id.
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Finally, the court concluded that Andrew failed to show excusable neglect
because he had been on notice since September 9, 2018, that the individual
defendants were not formally served. According to the court, Andrew’s only
explanation was his assumption that Eagle Forum represented the interests of all the
defendants named in the action. The court found that the individual defendants would
suffer prejudice if it permitted Andrew to serve them after the case had been pending
for over two years. Therefore, the court denied Andrew’s request to serve the
individual defendants out of time and dismissed the case without prejudice.
II. Discussion
On appeal, Andrew asks this court to reverse (1) the order dismissing his
original complaint for failure to state a claim; and (2) the order awarding attorney’s
fees to Eagle Forum as a sanction (“sanctions order”). He also requests that we
reassign his case to a different district judge on remand to ensure fair and timely
adjudication of his claims.
A. Dismissal of Original Complaint
Andrew argues that the district court erred in dismissing the claim in his
original complaint that Eagle Forum improperly removed him as a director without
allowing proxy voting, in violation of Illinois law. He also argues that the district
court erred in dismissing his claim that Eagle Forum violated its Bylaws by changing
the Bylaws without notice.
In response, Eagle Forum argues that Andrew “waived any claim that the
district court improperly dismissed his original [c]omplaint against Eagle Forum” by
filing an amended complaint in which he “abandon[ed] his declaratory judgment
claim and advance[d] an entirely new legal theory.” Appellee’s Br. at 11.
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1. Waiver
“Generally, an amended complaint supercedes an original complaint and
renders the original complaint without legal effect.” Acuity v. Rex, LLC, 929 F.3d
995, 999 (8th Cir. 2019) (internal quotation omitted). As a result, “a plaintiff who
amends his complaint and dismisses certain claims waives his right to appeal them.”
Id. “But we have refused to find waiver where the court’s involuntary dismissal of the
original counts struck a vital blow to a substantial part of plaintiff’s cause of action.”
Id. (internal quotation omitted).2
The waiver rule for amended complaints thus has an exception. See id. But in
applying the exception, we have “dr[awn] a line between claims that were dismissed
for technical deficiencies and those dismissed for legal deficiencies.” Graham v.
Hubbs Mach. & Mfg., Inc., No. 4:14-cv-419 (CEJ), 2015 WL 10986348, at *1 (E.D.
Mo. June 15, 2015) (citing Williamson v. Liverpool & London & Globe Ins. Co., 141
F. 54 (8th Cir. 1905)). “[W]aiver would exist if the dismissal was for ‘indefiniteness,
incompleteness, . . . insufficiency of statement . . . [or] technical defects.’” Id.(alterations in original) (quoting Williamson, 141 F. at 57).
Thus, “claims dismissed for technical deficiencies are waived if not re-pleaded
in the amended complaint, but claims dismissed for a legal deficiency need not be
re-pleaded to trigger preservation.” Id.; see also 6 Charles Alan Wright et al, Federal
Practice & Procedure § 1476 (3d ed. 2020) (“[A] party who amends his pleading to
conform it to a court ruling only waives objections to that order insofar as it applies
to technical defects in the pleading; the party does not waive exceptions to rulings
2
“It is not waiver—it is prudence and economy—for parties not to reassert a
position that the trial judge has rejected.” Id. (internal quotation omitted). As we have
recognized in the context of removal, “a motion to amend is involuntary where the
plaintiff ‘faced the Hobson’s choice of amending his complaint or risking dismissal.’”
Id. (quoting Karnes v. Poplar Bluff Transfer Co. (In re Atlas Van Lines, Inc.), 209
F.3d 1064, 1067 (8th Cir. 2000)).
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that strike a ‘vital blow’ to a substantial portion of his claim. This seems to be a
reasonable standard for determining when a party who amends the pleadings to avoid
dismissal should be permitted to assert the trial court’s alleged error in its original
determination on appeal.”).
We conclude that Andrew did not waive his claim that Eagle Forum violated
Illinois law by not permitting proxy voting. The district court dismissed this claim,
holding as a matter of law that Eagle Forum did not violate Illinois law because “the
Act’s prohibition on directors voting by proxy controls. As a result, the notice
prohibiting proxy voting was lawful.” Mem. & Order at 4. The district court’s
dismissal, therefore, was based on a legal deficiency in Andrew’s complaint and thus
“struck a vital blow” to this claim. Acuity, 929 F.3d at 999 (internal quotation
omitted).
But the same cannot be said for Andrew’s Bylaws claim for declaratory and
injunctive relief set forth in the original complaint. When discussing this claim, the
district court stated:
It appears that the notice of the special meeting failed to include
an agenda item about amending the by-laws. However, the Complaint
is devoid of any allegation that the by-laws were amended at the special
meeting or how such amendment caused Plaintiff’s injury. Instead,
Plaintiff pleads that “upon information and belief, the Individual
Defendants also plan to attempt to change the by-laws of Eagle Forum
. . . in order to advance their own interests . . . .” (Doc. No. 8 at ¶ 28).
The Court notes that at the time Plaintiff’s Complaint was filed, the
meeting had not yet taken place. However, even accepting as true
Plaintiff’s factual allegations, the Court cannot infer allegations of an
act and subsequent injury that are not expressly pled in the Complaint.
Therefore, the Court will grant in part Eagle Forum’s motion to dismiss
and grant Plaintiff’s request for leave to amend the Complaint.
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Mem. & Order at 4 (alterations in original) (emphases added).
The district court found technical deficiencies—the lack of a factual allegation
of Andrew’s injury—in Andrew’s Bylaws claim. As a result, it granted him leave to
amend his complaint to add additional facts to link the amending of the Bylaws to his
removal as director. But Andrew did not do this in his amended complaint; instead,
he alleged two completely new claims based on his status as a member, not director.
Therefore, we hold that Andrew waived the Bylaws claim set forth in his original
complaint.
Accordingly, we will address only whether the district court erred in dismissing
Andrew’s claim that Eagle Forum violated Illinois law by not permitting proxy
voting.
2. Proxy Voting Claim
“We review a Rule 12(b)(6) dismissal for failure to state a claim de novo,
accepting all well-pleaded factual allegations as true and construing all reasonable
inferences in the nonmoving party’s favor.” Vigeant v. Meek, 953 F.3d 1022, 1024
(8th Cir. 2020).
All parties agree that Illinois law applies in this diversity action. Non-profit
corporations in Illinois are governed by the Act and the corporation’s articles of
incorporation and bylaws. The Act requires each non-profit corporation to have a
board of directors to manage the corporation’s affairs. 805 Ill. Comp.
Stat. § 105/108.05(a). “No director may act by proxy on any matter.” Id.
§ 105/108.05(d).
Section 105/108.35 concerns the removal of directors and provides, in relevant
part:
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(b) In the case of a corporation with no members or with no members
entitled to vote on directors, a director may be removed by the
affirmative vote of a majority of the directors then in office present and
voting at a meeting of the board of directors at which a quorum is
present.
(c) In the case of a corporation with members entitled to vote for
directors, no director may be removed, except as follows:
(1) A director may be removed by the affirmative vote of
two-thirds of the votes present and voted, either in person
or by proxy.
....
(4) If a director is elected by a class of voting members
entitled to vote, directors or other electors, that director
may be removed only by the same class of members
entitled to vote, directors or electors which elected the
director.
Id. § 105/108.35(b)–(c) (emphases added).
Here, the district court determined that § 105/108.35(c)(1)
applies only to corporations with members entitled to vote for
directors. . . . Eagle Forum’s by-laws expressly provide that sitting
directors, not the membership, vote on incoming directors, while
members vote on the at-large director. Thus, the section of the Act relied
upon by Plaintiff does not apply and the Act’s prohibition on directors
voting by proxy controls. As a result, the notice prohibiting proxy voting
was lawful.
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Mem. & Order at 4.
On appeal, Andrew argues that § 105/108.35(c)(1) was triggered because the
membership does elect the at-large director. Specifically, he asserts that because there
is at least one director who is elected by the membership, then “‘no director may be
removed’ without allowing proxy voting.” Appellant’s Br. at 21 (bold omitted).This
is a tortured reading of the statute.
All of Eagle Forum’s directors but one are chosen by “[t]he affirmative vote of
two-thirds of all the Directors,” Ex. B at 4, while the at-large director is elected by the
membership. It is undisputed that Andrew, John, and Sullivan were all directors
chosen by the directors,3 not the membership; therefore, they “may be removed by the
affirmative vote of a majority of the directors then in office present and voting at a
meeting of the board of directors at which a quorum is present.” 805 Ill. Comp.
Stat. § 105/108.35(b). Directors are prohibited from voting by proxy. Id.
§ 105/108.05(d). By contrast, Kovar, the at-large director elected by the membership,
“may be removed by the affirmative vote of two-thirds of the votes present and voted,
either in person or by proxy.” Id. § 105/108.35(c)(1).
Section 105/108.35(c)(4) further buttresses our conclusion. It explains that “[i]f
a director is elected by a class of voting members entitled to vote, directors[,] or other
electors, [then] that director may be removed only by the same class of members
entitled to vote, directors[,] or electors which elected the director.” In other words,
because Andrew was elected by the directors, he can be removed only by the
directors, who are prohibited under Illinois law from voting by proxy.
3
In the original complaint, Andrew did not challenge the directors’—as
opposed to the membership’s—power to remove him as a director. Instead, he argued
Eagle Forum violated Illinois law by not permitting the directors—as opposed to the
membership—to vote by proxy.
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Accordingly, we affirm the district court’s dismissal of Andrew’s claim that
Eagle Forum violated Illinois law by not permitting proxy voting.
B. Sanction Order
Andrew also appeals the district court’s sanctions order. He argues that the
district court “acted contrary” to the Supreme Court’s instruction that a district
“‘court ordinarily should rely on the [Federal] Rules rather than the inherent power’
before imposing sanctions.” Appellant’s Br. at 27 (alteration in original) (quoting
Chambers v. NASCO, Inc., 501 U.S. 32, 50 (1991)). In addition, he asserts that his
“motion below for injunctive relief against an upcoming Board meeting is
commonplace, even essential, in takeover contests, and attorneys’ fees are not
properly awarded to punish a plaintiff for so moving.” Id. He also maintains that the
district court erred in not requiring Eagle Forum to submit affidavits and records in
support of the fee award.
“We review a court’s imposition of sanctions under its inherent power for
abuse of discretion.” Chambers, 501 U.S. at 55.
The Supreme Court’s “prior cases have indicated that the inherent power of a
court [to impose sanctions] can be invoked even if procedural rules exist which
sanction the same conduct.” Id. at 49. Indeed, the Supreme Court has rejected the
notion “that a federal court may not, as a matter of law, resort to its inherent power
to impose attorney’s fees as a sanction for bad-faith conduct.” Id. at 50. “This is
plainly the case where the conduct at issue is not covered by one of the other
sanctioning provisions. But neither is a federal court forbidden to sanction bad-faith
conduct by means of the inherent power simply because that conduct could also be
sanctioned under . . . the [Federal] Rules.” Id. While a “court ordinarily should rely
on the [Federal] Rules rather than [its] inherent power” “when there is bad-faith
conduct in the course of litigation that could be adequately sanctioned under the
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Rules,” a “court may safely rely on its inherent power” if in its “informed discretion
. . . the Rules are [not] up to the task.” Id.“Because of their very potency, inherent powers must be exercised with
restraint and discretion. A primary aspect of that discretion is the ability to fashion
an appropriate sanction for conduct which abuses the judicial process.” Id. at 44–45
(internal citation omitted). “[U]ndoubtedly within a court’s inherent power” is “the
less severe sanction of an assessment of attorney’s fees.” Id. at 45 (internal quotation
omitted). “Indeed, there are ample grounds for recognizing that in narrowly defined
circumstances federal courts have inherent power to assess attorney’s fees against
counsel, even though the so-called American Rule prohibits fee shifting in most
cases.” Id. (cleaned up). The Supreme Court has recognized that “a court may assess
attorney’s fees when a party has acted in bad faith, vexatiously, wantonly, or for
oppressive reasons.” Id. at 45–46 (internal quotations omitted). A court “may assess
attorney’s fees against . . . a party [who] shows bad faith by delaying or disrupting the
litigation or by hampering enforcement of a court order.” Id. at 46 (internal quotation
omitted). “Federal courts sitting in diversity can use their inherent power to assess
attorney fees as a sanction for bad faith conduct even if the applicable state law does
not recognize the bad faith exception to the general rule against fee shifting.” Lamb
Eng’g & Constr. Co. v. Neb. Pub. Power Dist., 103 F.3d 1422, 1435 (8th Cir. 1997).
“A court’s inherent power to award attorney fees pursuant to the bad faith
exception ‘depends not on which party wins the lawsuit, but on how the parties
conduct themselves during the litigation.’” Id. (quoting Chambers, 501 U.S. at 53).
“[I]n determining whether to award attorney fees based on the litigant’s bad faith, the
court may consider conduct both during and prior to the litigation, although the award
may not be based solely on the conduct that led to the substantive claim.” Id. (cleaned
up). “[B]efore a district court may impose sanctions, the individual must receive
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notice that sanctions against h[im] are being considered and an opportunity to be
heard.” Pls.’ Baycol Steering Comm. v. Bayer Corp., 419 F.3d 794, 802 (8th Cir.
2005).4 A remedial award of attorney’s fees as a sanction occurs when the fee is “paid
to the opposing party as compensation for the attorney’s fees incurred as a direct
result of the unethical behavior.” Id. at 808.
Here, the district court acted within the scope of its “informed discretion” by
relying on its inherent power, because Federal Rule of Civil Procedure 11 was not “up
to the task” in this situation. Chambers, 501 U.S. at 50; see also Fed. R. Civ. P.
11(c)(1) (providing that court “may impose an appropriate sanction on any attorney”
that violated Rule 11(b) by, among other things, presenting to the court a pleading
for the purpose of “harass[ing], caus[ing] unnecessary delay, or needlessly
increas[ing] the cost of litigation”). First, the offending pleading was an “emergency
motion” for TRO to enjoin a meeting scheduled for four days hence, so a Rule 11
motion with the 21-day safe harbor period required by Rule 11(c)(2) was not
practical. See Fed. R. Civ. P. 11(c)(2) (“A motion for sanctions . . . must be served
under Rule 5, but it must not be filed or be presented to the court if the challenged
paper, claim, defense, contention, or denial is withdrawn or appropriately corrected
within 21 days after service or within another time the court sets.”). Second, the
district court does not have authority under Rule 11 to award attorney’s fees on its
own motion. See Fed. R. Civ. P. 11(c)(4) (“A sanction imposed under this rule must
4
In the present case, Andrew does not assert that he was deprived of notice and
an opportunity to be heard prior to the district court’s imposition of sanctions. Indeed,
Eagle Forum requested an award of costs and attorney’s fees in its response to
Andrew’s second TRO motion, and the matter was discussed at the hearing on the
second TRO motion. Moreover, the district court afforded Andrew an opportunity to
respond with written objections and argument before entering a final order imposing
sanctions.
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be limited to what suffices to deter repetition of the conduct or comparable conduct
by others similarly situated. The sanction may include nonmonetary directives; an
order to pay a penalty into court; or, if imposed on motion and warranted for effective
deterrence, an order directing payment to the movant of part or all of the reasonable
attorney’s fees and other expenses directly resulting from the violation.”); Willhite v.
Collins, 459 F.3d 866, 870 (8th Cir. 2006) (“It is not permissible to award attorneys’
fees under Rule 11 when the sanctions are imposed sua sponte . . . .”). It was thus an
appropriate case for the use of inherent power to award fees. See, e.g., Methode Elec.,
Inc. v. Adam Tech., Inc., 371 F.3d 923, 927–28 (7th Cir. 2004) (“The case before us
today illustrates the wisdom of retaining the inherent power of the courts. As in many
cases involving a request for preliminary relief, blind adherence to the procedures in
Rule 11 is not possible. Events often move too fast to allow strict compliance with
the rule.”).
We conclude that the district court did not abuse its discretion in awarding
attorney’s fees to Eagle Forum under its inherent power as a sanction against Andrew
for acting in bad faith. In its order granting attorney’s fees to Eagle Forum as a
sanction against Andrew, the district court explained that it was awarding the
attorney’s fees to Eagle Forum under its inherent power because of Andrew’s
misconduct during the litigation. Specifically, Andrew acted in bad faith by “filing
a second motion for [TRO] in what appeared to the [c]ourt to be a blatant effort to tie
up the resources of Defendant Eagle Forum.” Schlafly, 2018 WL 705061, at *2. The
court rejected Andrew’s “assertion that he was not a named party to the Madison
County lawsuit and, as a result, could not be responsible for the identical motion filed
in that case” because Andrew’s “brother, who attended the hearing, is a key defendant
in that litigation.” Id. Moreover, the court concluded that Andrew’s second TRO
motion was an attempt “to relitigate issues set forth in his first motion for [TRO].” Id.As evidence, the court cited “[Andrew’s] repeated references to events that took place
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at the January meeting and his grievances related to his removal at that meeting and
the change in bylaws.” Id.We also find the amount of the monetary sanction against Andrew to be
appropriate. The record reflects that the $9,851.25 sanction “relates concretely to
costs . . . directly incurred because of [Andrew’s] actions.” Bayer, 419 F.3d at 808.
The court “determine[d] the amount of a reasonable fee” by looking at “the number
of hours reasonably expended on the litigation multiplied by a reasonable hourly
rate.” Schlafly, 2018 WL 705061, at *3 (citing Hensley v. Eckerhart, 461 U.S. 424,
433 (1983)). The court reviewed the invoice that Eagle Forum submitted “for the
work performed by two attorneys for four days of work.” Id. at *4. It found “that
spending almost 30 hours on reviewing filings and preparing a brief in opposition to
a [TRO] is excessive.” Id. For that reason, it “reduce[d] by half the hours spent in
these two categories.” Id. In addition, the court did not “include in the fee award a
portion of the time billed by the attorney who did not argue the [TRO] motion.” Id.
The district court, therefore, provided a reasoned basis for its award of
$9,851.25 in attorney’s fees to Eagle Forum by relying on and analyzing the invoice
submitted by Eagle Forum. This is not a case in which the court “act[ed] on [an]
unsworn oral estimate offered by counsel in open court” instead of relying on attorney
records “relating to the time spent on the [TRO] motion.” Anderson v. CitiMortgage,
Inc., 519 F. App’x 415, 418 (8th Cir. 2013) (per curiam).
III. Conclusion
Accordingly, we affirm the judgment of the district court.
STRAS, Circuit Judge, concurring in the judgment in part and dissenting in
part.
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Reliance on “inherent authority” to sanction parties for litigation misconduct
should always be a last resort. Chambers v. NASCO, Inc., 501 U.S. 32, 42 (1991); see
id. at 50 (“[W]hen there is bad-faith conduct in the course of litigation that could be
adequately sanctioned under the Rules, the court ordinarily should rely on the Rules
rather than the inherent power.”). It is, after all, just another name for an
“undelegated power[]”—one that should be exercised with “especial ‘restraint and
discretion.’” Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. 1178, 1186–87 n.5
(2017) (quoting Roadway Express, Inc. v. Piper, 447 U.S. 752, 764 (1980)). The
district court failed to show restraint here, much less “especial” restraint, by jumping
straight to inherent authority without first considering whether it could sanction
Schlafly under Federal Rule of Civil Procedure 11. See Fed. R. Civ. P. 11(b)(1), (c)
(authorizing sanctions for “needlessly increas[ing] the cost of litigation”). Because
Rule 11 may well have been “up to the task,” Chambers, 501 U.S. at 50, and the
district court said nothing to suggest otherwise, I would vacate the award of attorney
fees and remand for further consideration. For this reason, I respectfully dissent from
Part II.B. of the court’s opinion.5
______________________________
5
Schlafly’s remaining arguments either have no merit or were forfeited, so I
otherwise concur in the judgment.
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