DANNY HARNESS and FAYE SAVAGE, Plaintiffs-Respondents v. JIM RICHARDSON, HAZEL THOMAS, BETTY NICHOLS, MIKE PRITCHETT, and RODNEY SANFORD ( 2014 )

DANNY HARNESS and FAYE SAVAGE, )
)
Plaintiffs-Respondents, )
)
vs. ) No. SD32585
)
JIM RICHARDSON, HAZEL THOMAS, ) Filed: January 14, 2014
BETTY NICHOLS, MIKE PRITCHETT, )
and RODNEY SANFORD, )
)
Defendants-Appellants. )
APPEAL FROM THE CIRCUIT COURT OF TANEY COUNTY
Honorable Mark E. Orr, Circuit Judge
REVERSED AND REMANDED WITH INSTRUCTIONS
This is an appeal from the trial court's decision in a declaratory judgment
case. Danny Harness ("Harness") and Faye Savage ("Savage") (collectively,
"Plaintiffs") sued Betty Nichols ("Nichols"), Mike Pritchett ("Pritchett"), Rodney
Sanford ("Sanford"), Jim Richardson ("Richardson"), and Hazel Thomas
("Thomas") (collectively, "Defendants"). Plaintiffs alleged (1) Defendants were
members of the board of directors of Treasure Lake R.V. Resort and Camping
Club, Inc. ("Treasure Lake") and (2) Defendants' actions removing Harness and
Savage from Treasure Lake's board of directors were illegal and unauthorized.
Among other things, Plaintiffs sought (1) a declaration that the removals were
null and void and (2) reinstatement to the Treasure Lake board of directors. The
defendants were all sued as individuals and not as members of the board of
directors of Treasure Lake. Even though the corporation, Treasure Lake, was
never made a party to this action, the trial court granted the request to reinstate
Plaintiffs to the board of directors of the corporation. Defendants appeal,
arguing, inter alia, that the trial court's judgment must be reversed based on the
failure to join the corporation as a party. We agree with the argument and
reverse the trial court's judgment.
Standard of Review
"When reviewing a declaratory judgment, the standard of review is the
same as other court-tried cases." Jones v. Jones, 285 S.W.3d 356, 359 (Mo.
App. S.D. 2009). "We will affirm the trial court's judgment unless there is no
substantial evidence to support it, it is against the weight of the evidence, or it
erroneously declares or applies the law." Sterling Inv. Group, LLC v. Board
of Managers of Brentwood Forest Condominium Ass'n, 402 S.W.3d 95,
97 (Mo. App. E.D. 2013).
Factual and Procedural Background
Treasure Lake is a Missouri not-for-profit corporation organized to
operate a property for camping and recreation in Taney County, Missouri. The
management of Treasure Lake is vested in the board of directors by Treasure
Lake's bylaws. The bylaws provide for seven directors who are elected by a vote
of the members to serve three year terms.
Harness was elected to be a member of the board of directors. Savage was
appointed by the board of directors to fill the vacant position of an elected
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director. The five Defendants and the two Plaintiffs comprised the board of
directors during the relevant time periods.
On October 8, 2012, Richardson called a special meeting of the board of
directors to be held on October 15, 2012. At the meeting the board voted five to
one to remove Harness for cause and voted five to zero to remove Savage for
cause.
Harness filed a petition for declaratory relief on October 17, 2012. The
petition was later amended to add Savage as an additional plaintiff. In the
amended petition, Plaintiffs alleged Defendants' actions to remove them from the
board were illegal and unauthorized. Plaintiffs sought (1) a temporary
restraining order prohibiting action by the Treasure Lake board of directors
based on the removal of Plaintiffs, (2) a declaration that the removals were null
and void, (3) reinstatement on the board of directors, (4) damages, (5) attorney's
fees, and (6) costs. The petition was brought against the Defendants solely in
their individual capacities. Treasure Lake was not included at any time as a
defendant.
On October 19, 2012, Treasure Lake filed a motion to intervene. The trial
court never granted the corporation leave to intervene. A temporary restraining
order against the Defendants, individually and acting as board members of
Treasure Lake, was entered on October 25, 2012. On October 26, 2012, the board
appointed two new members to replace Harness and Savage. Because of the
temporary restraining order, those board members attended meetings but did
not vote.
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A trial was held on January 16, 2013. Testimony was elicited that at the
time of trial Nichols, Pritchett, and Sanford were no longer serving on the board.
The only defendants who were still members of the board at the time of trial were
Richardson and Thomas. Other individuals had either been elected or appointed
to fill the vacancies caused by the departure of Nichols, Pritchett, and Sanford.
No attempt was made to amend the amended petition to include these new
members of the board of directors.
On February 14, 2013, the trial court entered judgment against
Defendants, concluding:
the vote taken by the Defendants as the [b]oard of [Treasure Lake]
on 10/15/12 to remove Danny Harness was of no effect and did not
remove him from the board. The vote taken by the Defendants as
the [b]oard of [Treasure Lake] on 10/15/12 to remove Faye Savage
was of no effect and did not remove Faye Savage from the board.
Costs were assessed against Defendants, and all other relief was denied.
Defendants appealed.
Discussion
While Defendants stated several points for reversal, the final point is
dispositive. In Defendants' fourth point, they argue "[t]he trial court erred by
ruling that the votes to remove Harness and Savage were void and of no effect,
because an indispensable party is absent, in that [Treasure Lake] has a vital
interest in the determination of who are and are not members of its [b]oard of
[d]irectors, but it was never made a party to the lawsuit." In support, they cite
Rule 52.041 and Jones, 285 S.W.3d 356. This argument has merit.
1 All rule references are to Missouri Court Rules (2013).
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Rule 87 governs declaratory actions. Rule 87.04 provides "[w]hen
declaratory relief is sought, all persons shall be made parties who have or claim
any interest which would be affected by the declaration, and no declaration shall
prejudice the rights of persons not parties to the proceedings." Rule 87.04.
Furthermore, the joinder requirements of Rule 52.04 apply to declaratory
judgment actions. Saladin v. Jennings, 111 S.W.3d 435, 435 (Mo. App. E.D.
2003).
Analysis of joinder questions involves a two-part inquiry. See Sterling,
402 S.W.3d at 98 (noting the appellants had conflated the two inquiries). First,
the court must determine if the missing party is a necessary party. Id.; Heitz v.
Kunkel, 879 S.W.2d 770, 771 (Mo. App. S.D. 1994). If the missing party is a
necessary party, the court must then determine whether the party is
indispensable. Sterling, 402 S.W.3d at 97. If the missing party is a necessary
party but has not been joined, the remedy is to join the missing party. State ex
rel. Mayberry v. City of Rolla, 970 S.W.2d 901, 908 (Mo. App. S.D. 1998).
If the missing party is both necessary and indispensable, the action must be
dismissed. Bauer v. Board of Election Com'rs, 198 S.W.3d 161, 164 (Mo.
App. E.D. 2006). Failure to join a party that is both necessary and indispensable
is reversible error. Epstein v. Villa Dorado Condominium Ass'n, Inc., 316
S.W.3d 457, 461 (Mo. App. E.D. 2010).
Thus, the first issue that must be addressed in this case is whether a not-
for-profit corporation is a necessary party in an action seeking a declaration that
two directors be reinstated to the corporation's board of directors. "A person is a
necessary party if that person claims an interest relating to the subject of the
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action and is so situated that the disposition of the action in the person's absence
may, as a practical matter, impair or impede the person's ability to protect that
interest." Heitz, 879 S.W.2d at 771. "An 'interest' demanding joinder is not
merely consequential, remote, or conjectural, but rather a direct claim on the
subject of the action such that the joined party will win or lose by operation of the
judgment." Sterling, 402 S.W.3d at 97. Whether a party is necessary is
governed by the test laid out in Rule 52.04(a). Id. Rule 52.04(a) states:
A person shall be joined in the action if: (1) in the person's absence
complete relief cannot be accorded among those already parties, or
(2) the person claims an interest relating to the subject of the action
and is so situated that the disposition of the action in the person's
absence may: (i) as a practical matter impair or impede the
person's ability to protect that interest or (ii) leave any of the
persons already parties subject to a substantial risk of incurring
double, multiple, or otherwise inconsistent obligations by reason of
the claimed interest.
Rule 52.04(a).
Rule 52.04 was applied to a contest regarding who was the president of a
not-for-profit corporation in Jones. In Jones, one putative president of the
corporation filed a petition for declaratory judgment against the other putative
president of the corporation. 285 S.W.3d at 358. The plaintiff wanted the trial
court to declare (1) the defendant had been removed from her position and (2)
that all the acts defendant had taken in that position were void. Id. at 359. The
trial court granted the petition. Id. The defendant appealed and argued the trial
court did not have authority to enter its judgment because the corporation was
not a party to the action. Id. The appellate court found the corporation was a
necessary party because it claimed an interest in the subject of the action "in that
the judgment determines the identity of its directors and officers and the
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judgment has the possibility of affecting the [c]orporation's dealings with third
parties." Id. at 361.
Treasure Lake, like the corporation in Jones, is a Missouri not-for-profit
corporation. Also, as in Jones, the result of this litigation, if determined
favorably to Plaintiffs, could alter the composition of the group of people
authorized to act on behalf of the corporation. Treasure Lake has a vital interest
in the identity of its board of directors, so it is a necessary party to this litigation.
See id.
The next question to be determined, then, is whether a not-for-profit
corporation is an indispensable party in an action seeking a declaration that two
directors should not have been removed from the corporation's board of directors
and should be reinstated. The test for indispensability is stated in Rule 52.04(b).
Sterling, 402 S.W.3d at 98. That rule states:
If a person as described in Rule 52.04(a)(1) or Rule 52.04(a)(2)
cannot be made a party, the court shall determine whether in equity
and good conscience the action should proceed among the parties
before it or should be dismissed, the absent party being thus
regarded as indispensable. The factors to be considered by the
court include: (i) to what extent a judgment rendered in the
person's absence might be prejudicial to that person or those
already parties; (ii) the extent to which by protective provisions in
the judgment, by the shaping of relief, or other measures, the
prejudice can be lessened or avoided; (iii) whether a judgment
rendered in the person's absence will be adequate; and (iv) whether
the plaintiff will have an adequate remedy if the action is dismissed
for nonjoinder.
Rule 52.04(b). Again, the Jones case is instructive. In Jones, the appellate
court found the corporation was an indispensable party because the ruling
impacted who controlled the corporation and its interactions with third parties.
285 S.W.3d 361-62.
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Here, the board of directors is responsible for the management and affairs
of Treasure Lake. Hence, just as the identity of the officers in Jones could affect
the corporation's duties and relationships with third parties, Treasure Lake's
relationship with third parties and with its members could be affected by the
composition of its board of directors. Treasure Lake was an indispensable party.
Conclusion
The trial court erred in failing to join Treasure Lake as a party to the
litigation. The trial court's judgment is reversed in all respects, including the
assessment of costs against Defendants. The case is remanded, and the trial
court is instructed to either join Treasure Lake as a party or to dismiss the action.
MARY W. SHEFFIELD, J. - OPINION AUTHOR
JEFFREY W. BATES, P.J. - CONCURS
DON E. BURRELL, J. - CONCURS
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