Sydnor v. Hathaway

REPORTED
IN THE COURT OF SPECIAL APPEALS
OF MARYLAND
No. 2319
SEPTEMBER TERM, 2014
KIM L. SYDNOR, et al.
v.
ALVIN C. HATHAWAY, et al.
Eyler, Deborah, S.,
Meredith,
Wilner, Alan M.
(Retired, Specially Assigned),
JJ.
Opinion by Eyler, Deborah, S., J.
Filed: July 27, 2016
Melanie M. Shaw Geter, J., did not participate
in the Court’s decision to report this opinion
pursuant to Md. Rule 8-605.1.
This appeal is the culmination of a decade’s long dispute between the Union
Baptist Development Corporation (“the Corporation”) and the Union Baptist Church of
Baltimore, Inc. (“the Church”) over real property situated at 1201 Druid Hill Avenue, in
Baltimore City (“the Property”). The Property is part of the land on which a large Head
Start Center building (the “Head Start Center”) is located. The Head Start Center also
covers 1203, 1205, 1207, and 1209 Druid Hill Avenue and 408 Dolphin Street. The
appellants are Kim Sydnor, the most recent past President of the board of directors of the
Corporation, which had forfeited its charter, and Joseph Howard and Sandra Dobson,
members of that board (the “Corporation Parties”). The appellees are the Church, Alvin
Hathaway, its senior pastor, and Samuel Billups, a parishioner (the “Church Parties”).
In the Circuit Court for Baltimore City, the Corporation Parties sued the Church
Parties for declaratory and injunctive relief.1 After a bench trial, the court entered a
judgment declaring that the Corporation is the sole owner of the Property; the
Corporation’s charter was forfeited and its revival was ineffective; a transfer of the
Property from the Corporation to the Church by quitclaim deed was ineffective; and a
later dissolution of the Corporation also was ineffective. The court went on to order,
however, “as a matter of equity pursuant to [Md. Code (1975, 2014 Repl. Vol.), section
5-209 of the Corporations and Associations Article (‘CA’)],” that the Property be
1
Reverend Hathaway and Billups were the original defendants. Later, the court
allowed the Church to intervene as a defendant.
transferred to the Church.2 To accomplish the transfer of the Property, the Court ratified
the quitclaim deed, declaring it effective at the time of the judgment. Finally, the court
declared that the Corporation was dissolved.
More than ten days after the judgment was entered, the Corporation Parties filed a
motion to alter or amend, under Rule 2-534, which the court treated as a motion for
reconsideration, under Rule 2-535.3 The Corporation Parties also filed a Rule 1-341
motion for sanctions. The Corporation Parties filed a notice of appeal within 30 days of
the entries of orders denying those motions, but not within 30 days of the entry of the
declaratory judgment.
For the following reasons, we shall affirm the judgment of the circuit court in part
and reverse it in part. Specifically, we shall affirm the judgment transferring the Property
from the Corporation to the Church; affirm the judgment denying attorneys’ fees; and
reverse the judgment dissolving the Corporation.
FACTS AND PROCEEDINGS
The Church, founded in 1852, is located at 1219 Druid Hill Avenue, in the Upton
neighborhood of West Baltimore. In 1978, Vernon N. Dobson, the senior pastor,
announced as a vision for the Church a ministry to revitalize the immediate
2
Unless otherwise specified, all statutory references in this opinion are to the
Corporations and Associations Article.
3
The declaratory judgment was entered on the docket on Monday, September 29,
2014. Thursday, October 9, 2014, was the deadline for filing a timely ten-day post-
judgment motion. The Corporation Parties filed their motion on Tuesday, October 14,
2014, as reflected by the “Received” stamp placed on the motion that day.
2
neighborhood, which was impoverished, to help the people in it. The first project of that
ministry was a coffee house to serve the needs of the elderly in the community.
Reverend Dobson obtained a commitment from the City of Baltimore (“the City”) for a
grant to fund the project.
The Church contracted to purchase the Property, a dilapidated row house on the
northwest corner of Druid Hill Avenue and Dolphin Street, to rehabilitate it for use as a
coffee house. The grant from the City covered the purchase price and closing costs for
the Property and the cost to renovate it. Because the Church is a religious organization,
the City would not pay the grant money directly to it. Reverend Dobson formed the
Corporation to receive the grant money from the City and to take title to the Property.
The deed conveying the Property to the Corporation was recorded in the Land Records
for Baltimore City (“Land Records”) on April 3, 1981.
At the Corporation’s inception and for almost 30 years thereafter, Reverend
Dobson served as chairman of the board of directors. At a board meeting on April 9,
1981, he gave his “perspective” on the relationship between the Church and the
Corporation. Speaking in reference to the planned coffee house, he explained that “the
entire corporation is an extension of the church and that anything which is done should be
done from that standpoint.” The minutes of that meeting reflect that the board members
agreed with “this philosophy.”
The Corporation was registered with the Maryland State Department of
Assessments and Taxation (“SDAT”) as a nonstock corporation. Section THIRD of its
Articles of Incorporation lists as its purposes:
3
a. to stabilize and restore the 1200 Block of Druid Hill Avenue and the
surrounding neighborhood by purchasing and rehabilitating residential
units[;]
b. to purchase and develop the property known as 1201 Druid Hill Avenue
[the Property], and create therein a coffee house which will provide a
daylight haven for the elderly in the neighborhood[; and]
c. to engage in any and all other acts, ventures and/or businesses which are
lawful under the law of Maryland so long as the same are not engaged
in for purposes of individual profit.
Section NINTH, paragraph 3 states the Corporation “shall not carry on any other
activities not permitted to be carried on (a) by a corporation exempt from Federal income
tax under Section 501(c)(3) of the Internal Revenue Code . . . or (b) by a corporation,
contributions to which are deductible under Section 170(c)(2) of the Internal Revenue
Code[.]” Paragraph 4 of that section states that upon dissolution of the Corporation,
the Board of Directors shall, after paying or making provision for the
payment of all the liabilities of the corporation, dispose of all of the assets
of the corporation exclusively for the purposes of the corporation in such
manner, or to such organization or organizations organized and operated
exclusively for charitable, religious purposes as shall at the time qualify as
an exempt organization or organization under Section 501(c)(3) of the
Internal Revenue Code . . . as the Board of Directors shall determine. Any
of such assets not disposed of shall be disposed by the Circuit Court of
Baltimore City or such other courts sitting in equity in the political
subdivision in which the principal office of the corporation is then located,
exclusively for such purposes or to such organization or organizations, as
said court shall determine, which are organized or operated exclusively for
such purposes.[4]
4
The Articles of Incorporation were first submitted to the State Department of
Assessments and Taxation (“SDAT”) in 1980, but were rejected, because the name the
Corporation was using—Union Development Corporation—was too similar to a name
already registered to another corporation. At its April 9, 1981 meeting, the board voted
(Continued…)
4
Reverend Dobson and several parishioners who served on the Corporation’s board
worked closely with the Church. The Property was rehabilitated as planned and was
operated as a coffee house frequented by the elderly in the community. Around this time,
the Church acquired property located at 408 Dolphin Street, which was behind the
Property, and operated it as a laundromat.
On dates in the late 1980s and early 1990s, the owners of 1203, 1205, 1207, and
1209 Druid Hill Avenue, all dilapidated properties, donated them to the Church. These
properties, comprising all the lots between the Church and the Property, and the 408
Dolphin Street property, surrounded the Property (“the Surrounding Properties”). In
1992, at a function celebrating the Church’s 140th anniversary, Reverend Dobson
announced a new Church ministry to raze the rehabilitated row house on the Property and
the structures on the Surrounding Properties and in their place erect a Head Start Center
to house a community Head Start Program, facilities for other programs that would
advance other of the Church’s ministries, and a new coffee house.
The Church obtained a $1 million grant from the State to build the Head Start
Center, conditioned on its matching the State’s funding. The Church launched the “Child
First Campaign” to secure the matching funds. It raised over $400,000 from members of
the congregation and the community and obtained a $600,000 loan from a local bank,
(…continued)
to change the name of the Corporation to Union Baptist Development Corporation.
Articles of Incorporation in that name were accepted by the SDAT on June 1, 1981.
5
guaranteed by the State. The State distributed the grant money directly to the Church.
The Corporation played no role in raising money for the Head Start Center or in its
planning or construction. The Head Start Center opened in November 1995. The Head
Start Program began operation shortly thereafter. That program always has been
operated under the auspices of the Church, and the Union Baptist Church School, Inc.,
continues to operate it today.
As these facts reveal, the Head Start Center, a large, indivisible structure, was built
on the ground of the Property, owned by the Corporation, and on the grounds of the
Surrounding Properties, all owned by the Church. The Corporation could have sought
and obtained tax-exempt status under the Internal Revenue Code and state law, but it
never did so. Consequently, it was required to pay property taxes on the Property. In
1994, before the Head Start Center was completed, the Corporation asked the City to
consolidate the Property with the Surrounding Properties, under the address 1201 Druid
Hill Avenue, for the purpose of receiving a single property tax bill. The request was
denied on several grounds, including that there was not a single owner. However, on
March 21, 1995, the consolidation request was granted and forwarded to the SDAT. The
SDAT real property record for 1201 Druid Hill Avenue was changed to show that it
covered .29 acres, which is all the ground for the 1201, 1203, 1207, and 1209 addresses,
and the 408 Dolphin Street address. The mailing address was listed as 1219 Druid Hill
Avenue, which, as noted, is the Church’s address.
It appears that, until 2004, the Church, not the Corporation, paid the property taxes
for the Property. That year, the Church fell on hard times financially and was not able to
6
pay the property taxes. The City sold the Property at tax sale. Because the Property’s
address—1201 Druid Hill Avenue—had been reassigned to it and the Surrounding
Properties, the entire Head Start Center became the subject of the tax sale, even though
most of it was on property owned by the Church, which is tax exempt.
The tax sale purchasers sued in the Circuit Court for Baltimore City to foreclose
the Corporation’s right of redemption, and the Corporation paid $12,000, plus $6,000 in
attorneys’ fees, to redeem its right in the Property. Counsel for the tax sale purchasers
drafted a re-conveyance deed for the Property to the Corporation. At that point, the
Church intervened, filing a motion to quiet title and claiming ownership of all of 1201
Druid Hill Avenue, including the Property. In a final declaratory judgment entered in late
2007, the circuit court ruled that the Corporation owned the Property, i.e., the original
1201 Druid Hill Avenue lot, and the Church owned the Surrounding Properties. 5 For
reasons not reflected in the record, the Corporation did not record the deed re-conveying
the Property from the tax sale purchasers to it until 2011.
By the time the tax sale case was decided, the days of the Corporation and the
Church working in tandem were over. Reverend Dobson, in ill health, resigned as senior
pastor of the Church in early 2007 and was replaced by Reverend Hathaway. On October
31, 2007, the board of trustees of the Church, chaired by Reverend Hathaway, voted to
establish an “alternate” board of directors for the Corporation, with Reverend Hathaway
as President and Mr. Billups as Treasurer.
5
That decision was affirmed on appeal by this Court.
7
On December 7, 2007, the Corporation brought an ejectment action in an effort to
remove the Church from the Head Start Center. The suit was dismissed, with prejudice,
and sanctions were imposed against the Corporation’s board members and attorneys.
Then, in 2009, the Church brought suit for declaratory and injunctive relief, seeking to
remove the members of the Corporation’s board of directors and replace them with
Church parishioners. The case was dismissed without prejudice and no further action
was taken on it.
The Corporation had a long history of having its charter forfeited for failure to file
personal property tax returns. In fact, in the 35 years since its formation, the
Corporation’s charter has been forfeited for more than 25 years, off and on.6 The last
forfeiture was on October 1, 2012. On March 1, 2013, the “alternate” board of directors
filed on the Corporation’s behalf a 2011 personal property tax return and articles of
6
The chronology is as follows:
06/01/1981 through 10/16/1984: Registered with SDAT; good standing
10/17/1984 through 08/06/1994: Charter forfeited
08/07/1994 through 10/03/1996: Charter revived by the appellants; good
standing
10/04/1996 through 03/15/2005: Charter forfeited
03/16/2005 through 09/30/2012: Charter revived by the appellants; good
standing
10/01/2012 through 02/28/2013: Charter forfeited
8
revival, which the SDAT accepted without inquiry. Then, on March 20, 2013, Reverend
Hathaway, purporting to act as President of the Corporation, executed a quitclaim deed,
transferring title of the Property from the Corporation to the Church. The Corporation
Parties had no knowledge of this transfer when it happened and only discovered it when
they sought to revive the Corporation’s charter.
On July 30, 2013, the Corporation Parties filed the action that underlies this
appeal. Soon thereafter, on August 22, 2013, Reverend Hathaway and Mr. Billups, on
behalf of the “alternate” board, filed articles of dissolution for the Corporation. On
January 30, 2014, they filed an answer to the complaint. Thereafter, the Church was
permitted to intervene as a defendant.
In an amended complaint, the Corporation Parties alleged that Reverend Hathaway
and Mr. Billups were not members of the board of directors of the Corporation and they
and the “alternate” board had no capacity or authority to act on the Corporation’s behalf.
Consequently, the acts they took on behalf of the Corporation were void as a matter of
law. The Corporation Parties asked the court to declare the Corporation’s revival a
nullity, to void the quitclaim deed transferring the Property from the Corporation to the
Church, and to void the dissolution of the Corporation.
A three-day bench trial commenced on September 10, 2014. In the Corporation
Parties’ case, Ms. Sydnor testified that she became a member of the Corporation’s board
of directors in 2005 and that, when the articles of revival were filed by the “alternate”
board on March 1, 2013, she was the most recent past President of the Corporation.
Although acknowledging that the court in the 2007 tax sale case had found otherwise, she
9
testified that she thought the Property and the Surrounding Properties had been
“consolidated” under the Corporation’s ownership. Ms. Dobson, also a member of the
Corporation’s board of directors, testified as well that she thought the Property and the
Surrounding Properties had been “consolidated” under the Corporation’s ownership. She
agreed that the Church should continue to operate the Head Start Program in the Head
Start Center. According to Ms. Dobson, the Corporation’s only asset is the Property; the
Corporation never has had more than $2,000 in its bank account; and it does not operate
any programs. Counsel for the Corporation Parties conceded that the Corporation did not
have any liabilities.
In their case, the Church Parties called the lawyer for the 2004 tax sale purchasers;
an expert witness in the area of conveyances of title and real property in Maryland;
Evelyn Chatmon; and Reverend Hathaway. The tax sale attorney testified that at the time
of the tax sale, the Land Records and the SDAT records did not show that the Property
was consolidated with any other properties for any purpose. The expert witness opined
that it was unlikely that ownership of the Property and the Surrounding Properties ever
could have been consolidated because consolidation requires a common owner and, in the
instant case, the Corporation owned the Property and the Church owned the Surrounding
Properties. He also opined that the Corporation and the Church were tenant in common
owners of the Head Start Center building itself, with the Corporation holding a one-fifth
ownership interest and the Church holding a four-fifth ownership interest.
Ms. Chatmon, a member of the Corporation’s original board of directors, testified
that the Corporation was created to hold the City grant funds for the purchase and
10
renovation of the Property. When the Church later embarked upon its mission to build
the Head Start Center, all the efforts to secure funding were undertaken by the Church,
through the Child First Campaign, with no involvement by the Corporation. Finally,
Reverend Hathaway testified that he had understood that upon becoming senior pastor of
the Church, in 2007, he also became Chairman of the Corporation’s board of directors.
He acknowledged that there was no document that gave him that authority, but reasoned
that the Corporation merely was a ministry of the Church, so the Church should be able
to control it. After becoming senior pastor of the Church, he learned that the
Corporation’s charter had been forfeited several times. He decided that the board of
trustees of the Church should appoint the new, “alternate” board of directors for the
Corporation to “bring [the Corporation] into a proper alignment” with the other Church
ministries.
On September 12, 2014, the court heard closing arguments and ruled from the
bench, making the following findings. Any attempt to consolidate ownership of the
Property and the Surrounding Properties had been ineffective, and the Property continued
to be owned solely by the Corporation, just as the court in the 2007 tax sale case had
ruled.7 Reverend Hathaway, Mr. Billups, and the “alternate” board had no legal
relationship to the Corporation, and lacked capacity to act on its behalf. Therefore, the
Corporation was not lawfully revived in March of 2013, and its charter remained
The court also ruled that the 2007 judgment on ownership of the Property had res
7
judicata effect in this case.
11
forfeited. The quitclaim deed by the “alternate” board, purporting to transfer the Property
from the Corporation to the Church, was void because the “alternate” board had no
authority to convey the Property. Likewise, the purported dissolution of the Corporation
by Reverend Hathaway and Mr. Billups in March of 2013 was ineffective.
Having made those findings, the court went on to rule:
Now, that leaves the status with a [P]roperty owned by a [C]orporation that
is forfeited. On a piece of, underneath the building, most of which lies on
the [C]hurch’s property, all of the value of which was provided by the
[C]hurch through its own efforts and the activities of which are undeniably
part of the [C]hurch’s mission. I could stop there and do nothing further,
but that would leave you in almost the same position you were in [at the
conclusion of the tax sale case in 2007].
And without being disapproving, these parties have proved that they cannot
resolve their differences further without court action. I choose, therefore, to
go a step further and exercise my equitable powers under Section 5-209 of
the [CA] Article of the Maryland Code. Because this is a non-stock
[C]orporation with charitable purposes, it stands in a unique position
because there’s no group of shareholders or stockholders who hold the
interest, even the defunct [C]orporation’s interest, it would certain [sic] be
possible at this point, perhaps with some dispute that the [Corporation
Parties] could revive the [C]orporation but that would still leave us only in
the same situation, just with a revived [C]orporation rather than a defunct
corporation.
. . . Section [5-209] wisely gives the Court in cases of last resort, where it
is either [im]practicable or inexpedient to continue the [C]orporation’s
activities, the authority to dispose of forfeit property. One way I could go
about this would be to allow the [C]orporation to be revived, appoint a
receive [sic] for the [C]orporation and have the receiver lined [sic] up its
affairs. That would cost a lot of money. It doesn’t strike me as a
particularly wise course of action.
In this instance, we have the advantage that it is conceded in these
proceedings that the [C]orporation has no assets and no liabilities, so I
don’t have to worry about a group of debtors who are looking to be
satisfied from this [P]roperty or from any other asset. This [P]roperty is the
only asset.
12
In this situation, the statute gives me the option of disposing of that
[P]roperty, provided that notice to the donor of the [P]roperty is given. I
think that is satisfied in this case because the donor, if anything, is the
[C]hurch and its members who have paid for the acquisition to the
[P]roperty and for the improvements on it. And it also gives me the
authority to transfer the [P]roperty to another corporation or association.
I said earlier [during closing arguments] that I did not understand part of
the [Corporation Parties’] concern with respect to this particular [P]roperty
in terms of the achievement of the . . . Corporation’s purposes because I’ve
had no indication that the [C]hurch intends to do anything with this
[P]roperty other than continue to use the Head [S]tart Center for the
purposes it has been used for the large majority of which stands on
[Surrounding Properties] that w[ere] already owned by the [C]hurch, and
obviously the intentions may not be forever.
But I’m satisfied that virtually every factor in this case supports the
[C]hurch’s continued use of the entire Head [S]tart Center for the purposes
it’s now been used for and other purposes that may come into being, but all
of which involve benefitting the community immediately around the Union
Baptist Church. And although I found that the [Church Parties] acted
contrary to Maryland law in their attempts to resolve the status of the . . .
Corporation, I don’t have any indication in this record that the [Church
Parties] ha[ve] acted contrary to the community’s interest or any way to
profit from or exploit this [P]roperty other than the same uses that it was
created for.
So as a matter of equity, although I have nullified the transfer of the
[P]roperty to the [C]hurch, I find that under Section 5-209, it is appropriate
to transfer the [P]roperty to the [C]hurch.
Now, again, this could be done through a receiver with a new deed and the
cost of recording the deed and so on, but in this case I have not seen any
evidence or any indication that the deed that was recorded dated March
20th, [sic] 2013 and recorded, I believe it was June 17th, [sic] 2013 in the
land records, who [sic] not otherwise be effective to accomplish that end.
So what I intend to do to save the parties the expenditure of continued
expense in this case is to ratify that deed under the separate authority of
Section 5-209 which will align all of the properties under the ownership of
Union Baptist Church which I think is appropriate, both, because the
contiguous properties already are titled in the [C]hurch, and most
13
importantly because the building that sits on them was clearly built by the
efforts of the [C]hurch members and others and have been operating in that
way.
(Paragraph breaks added.)
In discussion with counsel immediately after announcing its ruling, the court asked
the Corporation Parties’ lawyer whether he anticipated that the Corporation would
continue to exist. He answered, “Yes,” explaining that Reverend Dobson’s original
vision for the community should be continued, “whether it be under the Union Baptist
Development Corporation name or some other name.” Counsel for the Church Parties
responded that she understood the court’s ruling to mean “that ultimately there won’t be a
Union Baptist Development Corporation, that they’re free to start another corporation.”
The court stated that it would consider the issue of dissolution of the Corporation and
address it in its written declaratory judgment.
On September 29, 2014, the court entered its declaratory judgment. The judgment
tracks the rulings set forth above and further declares that the Corporation is dissolved.
In most relevant part, it states:
[A]lthough the Court has found the revival of [the Corporation by the
Church Parties] and its subsequent purported transfer of the [P]roperty to be
ineffective, the Court also concludes, as a matter of equity and pursuant to
[CA section 5-209], that [the Corporation] should be dissolved and that its
sole asset, [the Property], should be transferred to the [Church]; and . . . that
it would be wasteful to require that the [Corporation] be revived and then to
appoint a receiver to accomplish the property transfer when the end result is
the same result accomplished by the otherwise invalid transfer of the
property by Quitclaim Deed dated March 20, 2013, and, accordingly, the
Court will achieve the appropriate result under [CA section 5-209] by
ratifying that Quitclaim Deed; and . . . the Quitclaim Deed dated March 20,
2013, although ineffective at the time to transfer the [P]roperty, is now
14
DECLARED to be effective to transfer ownership of [the Property] to [the
Church]; and . . . [the Corporation] is DECLARED to be DISSOLVED[.]
(Emphasis in original.)
On October 14, 2014, the Corporation Parties filed an untimely motion to alter or
amend pursuant to Rule 2-534, which did not toll the 30-day deadline in which to file a
notice of appeal, see Furda v. State, 193 Md. App. 371, 377 (2010), and a motion for
sanctions under Rule 1-341. The Corporation Parties did not file a notice of appeal in the
30-day period after entry of the declaratory judgment. As noted, the court treated the
motion to alter or amend as a motion for reconsideration under Rule 2-535(a). On
December 17, 2014, it entered an order denying that motion and an order denying the
Rule 1-341 motion. The Corporation Parties noted an appeal within 30 days of the entry
of those orders.
The Corporation Parties present a host of questions for review. As we shall
explain, the only issues properly before us are:
I. Did the trial court abuse its discretion by denying the motion to
reconsider its decision to transfer ownership of the Property to the
Church and its decision to dissolve the Corporation?
II. Did the trial court err by denying the Corporation Parties’ Rule 1-
341 motion for sanctions?
We shall include additional facts as necessary to our discussion of the issues.
DISCUSSION
I.
Denial of Motion for Reconsideration
(A)
15
“When a revisory motion is filed beyond the ten-day period, but within thirty
days, an appeal noted within thirty days after the court resolves the revisory motion
addresses only the issues generated by the revisory motion.” Furda, 193 Md. App. at 377
n.1; see also In re Adoption/Guardianship No. 93321055, 344 Md. 458, 475–76 (1997).
A trial court’s decision to deny a motion for reconsideration is reviewed for abuse of
discretion. U.S. Life Ins. Co. in City of N.Y. v. Wilson, 198 Md. App. 452, 464 (2011).
“Except to the extent that they are subsumed in [the question whether the trial court
abused its discretion in denying the motion for reconsideration], the merits of the
judgment itself are not open to direct attack.” Stuples v. Balt. City Police Dep’t, 119 Md.
App. 221, 241 (1998) (citations omitted).
“A circuit court abuses its discretion when no reasonable person would take the
view adopted by the court, ‘or when the court acts without reference to any guiding rules
or principles.’” Kona Props., LLC v. W.D.B. Corp., Inc., 224 Md. App. 517, 547 (2015)
(quoting In re Adoption/Guardianship No. 3598, 347 Md. 295, 312 (1997)).
“Nevertheless, a ‘court’s discretion is always tempered by the requirement that the court
correctly apply the law applicable to the case.’” Schlotzhauer v. Morton, 224 Md. App.
72, 84 (2015) (quoting Arrington v. State, 411 Md. 524, 552 (2009)), cert. granted, 445
Md. 487 (2015). “Consequently, in appeals from the denial of a post-judgment motion,
reversal is warranted in cases where there is both an error and a compelling reason to
reconsider the underlying ruling.” Id. at 85 (citations omitted).
16
In their opening and reply briefs, the Corporation Parties make some arguments
that challenge the declaratory judgment; some arguments that challenge the court’s denial
of the motion for reconsideration, on grounds they did not raise in that motion; and some
arguments that challenge the court’s denial of their motion for reconsideration, on
grounds they did raise in that motion. We shall address the third category of arguments
only. The declaratory judgment itself is not subject to attack, for the reasons we have
explained, and the trial court could not have abused its discretion by denying the motion
for reconsideration based on arguments that were not made to it.
(B)
As noted, the Corporation was formed under Maryland law as a nonstock
corporation. The nonstock corporation is one of the “Special Types of Corporations”
governed by Title 5 of the CA Article. It is covered by Subtitle 2 of that title.8 Under
section 5-201, “[t]he provisions of Maryland General Corporation Law apply to nonstock
corporations unless: (1) The context of the provisions clearly requires otherwise; or (2)
Specific provisions of this subtitle or other subtitles governing specific classes of
corporations provide otherwise.” If the nonstock corporation has no members, or neither
the charter nor the bylaws provide for members, its directors are its members. CA § 5-
204.
8
The other special types of corporations are professional service corporations
(subtitle 1); religious corporations (subtitle 3); private foundations (subtitle 4);
agricultural cooperatives (subtitle 5); consumer cooperatives (subtitle 5A); electric
cooperatives (subtitle 6); transportation cooperatives (subtitle 6A); housing cooperatives
(subtitle 6B); and benefit corporations (subtitle 6C).
17
Section 5-209, entitled “Disposition of property of charitable or religious
corporations by the court,” provides:
(a) In general. – If a charitable or religious corporation is or is about to be
dissolved, or for any reason it is impracticable or inexpedient to
continue the corporation’s activities, a circuit court may order the
disposition of corporate property that:
(1) Is not needed to pay the corporation’s debts; and
(2) (i) Is not subject to valid requirements for its return to the donor or
the donor’s successor in interest by reason of the cessation of
corporate activities; or
(ii) Is not claimed by the donor or the donor’s successor in interest
after receiving the notice provided for in subsection (b) of this
section.
(b) Notice. – Notice of the substance and purpose of the complaint or
petition shall be given to the donor of the property or the donor’s
successor in interest by personal service or by publication in the manner
the court directs.
(c) Transfer of property to another corporation or association. – To the
extent possible, the court shall direct or provide for the transfer of the
corporation’s property to another corporation or association having a
similar or analogous character or purpose, or associated or connected
with the corporation.
(d) Intent of section. – The intent of this section is that the circuit court may
exercise the judicial power of cy-pres to fulfill, despite a change in
circumstances, the general intention of the donor of the property for the
use of the gift.
(C)
In their memorandum in support of their motion for reconsideration, the
Corporation Parties argued, with respect to the decision that the Property be transferred to
the Church: 1) the Corporation is not a charitable organization, so section 5-209 does not
18
apply and the court could not invoke it to dispose of the Property; 2) if the Corporation is
a charitable organization, it was not “dissolved or about to be dissolved,” and there was
no finding or evidence to support a finding that it would be “impracticable or
inexpedient” to continue its activities; and 3) the money Ms. Sydnor paid to redeem the
Corporation’s right in the Property in the tax sale case is a debt of the Corporation that it
cannot pay if the Property is transferred to the Church without compensation. They
allowed that transferring title of the Property to the Church “would quiet the controversy
over the [P]roperty,” and they would be willing to accept that, but only if they were
“fairly compensated.” (Emphasis in original.) Likewise, they would be “willing to
commit to a voluntary dissolution of the Corporation” upon the court’s ordering that the
Church pay the Corporation “fair market value” for the Property.
In opposition, the Church Parties argued: 1) the evidence supported the trial
court’s finding that the Corporation was a nonstock corporation with a charitable
purpose, to which section 5-209 applied so long as the donor, if any, had notice; 2) the
evidence showed that the Corporation obtained title to the Property to advance one of the
ministries of the Church, and that ministry was advanced solely by the Church’s financial
efforts; 3) the Corporation Parties “willingly assented” to the development of the
Property as part of the Head Start Center, and the Corporation held the Property in
constructive trust for the Church; 4) the court implicitly found that it was “impracticable
or inexpedient” for the Corporation to continue in operation; and 5) that finding was
supported by evidence that the Corporation had not functioned for decades, had no assets
(other than the Property), no liabilities, and no ongoing activities, that the Property was
19
not needed to pay any debt of the Corporation and was not subject to any donor
restrictions as to its use or disposition, and that all persons claiming interest in the
Property were on notice of its disposition.9
The Church Parties further argued that section 5-209(d) authorized the trial court,
under the doctrine of cy pres, to transfer the Property to the Church to use to continue to
operate the Head Start Program.10 They maintained that the court could use its general
equitable powers to transfer title of the Property to the Church, without compensation to
the Corporation. They pointed out that at no time during the trial did the Corporation
Parties present any evidence about the fair market value of the Property. Indeed, they
made no claim for compensation and the court made a finding, which was supported by
the evidence, that the Church had paid all the expenses associated with the Property.
(D)
As mentioned, the Corporation Parties contend the court abused its discretion by
denying their motion to reconsider the ruling transferring the Property to the Church
pursuant to section 5-209 because the Corporation is a not a charitable organization and
therefore the court lacked authority to transfer the Property under that statute. They take
9
The Church Parties pointed out that Kim Sydnor did not testify that the
Corporation owed her any debt with respect to the tax sale redemption, and there was no
evidence of such a debt; nor was there any such evidence in the tax sale case.
10
Cy pres is “[t]he equitable doctrine under which a court reforms a written
instrument with a gift to charity as closely to the donor’s intention as possible, so that the
gift does not fail.” Black’s Law Dictionary (10th ed. 2014). Cf. Md. Code (1974, 2011
Repl. Vol.), section 14-302 of the Estates & Trusts Article (adopting cy pres doctrine for
administration of charitable trusts).
20
the position that, to be a charitable organization, a corporation must have tax-exempt
status under section 501(c)(3) of the Internal Revenue Code. In support, they point to
Md. Code (1973, 2013 Repl. Vol.), section 5-407(a)(4) of the Courts and Judicial
Proceedings Article (“CJP”), “Charitable organizations and volunteers,” which defines a
charitable organization as “an organization, institution, association, society, or
corporation that is exempt from taxation under [section] 501(c)(3) of the Internal
Revenue Code.” They also maintain that Supervisor of Assessments of Montgomery
County v. Group Health Assoc., Inc., 308 Md. 151 (1986), supports their position.
The Church Parties respond that an organization need not have tax-exempt status
under the Internal Revenue Code to be a charitable organization, and there was sufficient
evidence in the record that the Corporation was formed and operated for charitable
purposes. They maintain that the Group Health case is inapposite.
The definition of “charitable organization” in CJP section 5-407(a)(4) is specific
to that statute, which addresses the circumstances in which volunteer officers, directors,
trustees, and others who provide services or perform duties for certain associations or
organizations, may be held liable in tort. The statute has no bearing on any issue in this
case, and there is no reason why it should control the question whether the Corporation is
a charitable organization for purposes of CA section 5-209.
We disagree with the Church Parties that the Group Health case is inapposite, but
we also disagree with the Corporation Parties that the case supports their position. In
Group Health, a non-profit Health Maintenance Organization (“HMO”) applied to the
Supervisor of Assessments of Montgomery County for a property tax exemption on the
21
ground that it was a charitable organization. When the application was denied, the HMO
challenged the decision within the agency, unsuccessfully, and then appealed to the
Maryland Tax Court. There it introduced evidence that it had obtained federal tax-
exempt status as a charitable organization and argued that that entitled it to the property
tax exemption. In addition, it argued that it was a charitable organization because it was
providing affordable health care to 50,000 to 60,000 Maryland residents; was giving them
a means to obtain comprehensive health care while curbing health care costs; was
providing a benefit to all Maryland residents by exerting downward pressure on health
care costs; and was educating its members about health care. The Supervisor introduced
evidence that the HMO only was providing services to its members, not to Maryland
residents at large, and was using fees collected from members, not donations, to provide
services.
The Tax Court found that the benefit the HMO was affording the public was
secondary to the benefit it was affording its own members, employees, and doctors.
Accordingly, the HMO was not providing a sufficient benefit to the community to justify
a charitable exemption from property taxes.
In an action for judicial review, the circuit court reversed. The Court of Appeals
granted the Supervisor’s petition for writ of certiorari before this Court rendered a
decision on appeal. It affirmed the Tax Court’s decision. Explaining that it probably is
impossible to formulate a general rule by which to decide when an organization is
charitable, it observed:
22
[A] determination of whether an institution is charitable must include a
careful examination of the stated purposes of the organization, the actual
work performed, the extent to which the work performed benefits the
community and the public welfare in general, and the support provided by
donations.
308 Md. at 157 (citations omitted). The Court held that, even though the underlying facts
were not in dispute, the question whether the HMO was a charitable organization was one
of fact, not of law, and there was substantial evidence before the Tax Court to support its
finding that the HMO was not a charitable organization entitled to tax-exempt status.
Group Health makes plain that an organization’s federal tax-exempt status does
not dictate whether it is a charitable organization under Maryland law. There, the HMO
held a charitable exemption from federal taxes, but was found not to have a charitable
purpose so as to justify an exemption from state property taxes. This same principle
would hold that an organization that does not have a charitable exemption from federal
taxes is not necessarily a non-charitable organization for state law purposes. That is
especially true when the organization never attempted to obtain tax exempt status under
federal law.
The holding in Group Health is consistent with the reasoning of the Supreme
Court in Bob Jones University v. United States, 461 U.S. 574 (1983), in which the Court
held that a non-profit private university that invoked religious doctrine to apply racially
discriminatory admissions standards did not qualify for tax-exempt status under section
501(c)(3) of the Internal Revenue Code. The Court explained that whether an
organization is charitable, so as to be entitled to receive the benefits of that statute,
depends on standards of charity. The origins of tax exemptions for “certain institutions
23
thought beneficial to the social order of the country as a whole, or to a particular
community . . . lie in the special privileges that long have been extended to charitable
trusts.” Id. at 588 (footnote omitted).
From the framework of the Internal Revenue Code and its purposes, the Court
ascertained that Congress intended that an organization’s entitlement to a tax exemption
“depends on meeting certain common law standards of charity—namely, that an
institution seeking tax-exempt status must serve a public purpose and not be contrary to
established public policy.” Id. at 586.
Congress’s intention . . . to provide tax benefits to organizations serving
charitable purposes [was] to encourage the development of private
institutions that serve a useful public purpose or supplement or take the
place of public institutions of the same kind.
Id. at 587–88 (footnote omitted). Indeed, the Court had long recognized this intention.
See Trinidad v. Sagrada Orden, 263 U.S. 578, 581 (1924) (observing that “[e]vidently
the exemption [for charitable organizations] is made in recognition of the benefit which
the public derives from corporate activities [of charities], and is intended to aid them
when not conducted for private gain”).
The common law standards of charity as explained by the Supreme Court in Bob
Jones University, and the considerations determining whether an institution is charitable
as discussed by the Court of Appeals in Group Home, support the trial court’s finding
that the Corporation is a charitable organization. The Corporation’s purposes, spelled out
in its Articles of Incorporation, were to stabilize and restore the 1200 Block of Druid Hill
Avenue and the surrounding neighborhood by acquiring and rehabilitating residential
24
units; to purchase and restore the Property for use as a coffee house for the elderly in the
community; and to engage in other acts, ventures and businesses so long as they are not
for profit. Clearly, these purposes were to serve the public good. The only actual work
performed by the Corporation was the rehabilitation of the Property into a coffee shop for
the elderly in the community. The purchase of the Property and the work to rehabilitate it
was funded entirely by a grant from the City to the Church, made to serve the public good
as well.
From the time the rehabilitated row house on the Property was razed until the time
of trial, which comprises most of the Corporation’s existence, the Corporation has not
engaged in any activities to speak of. The Surrounding Properties were donated to the
Church, not to the Corporation; and the Corporation did not participate in the Child First
Campaign or any other fundraising endeavor to finance the Head Start Center on the
Property and the Surrounding Properties. The Corporation merely agreed that the
rehabilitated row house on the Property would be torn down and the Head Start Center
would be built on it and the Surrounding Properties together. To the extent the
Corporation’s agreement in this regard was an activity on its part, that activity benefited
the community and served the public good.
Even though the Corporation has been inactive for decades, its purpose has
remained charitable, and the activities in which it once engaged were charitable in nature.
The trial court did not err in finding that the Corporation was a charitable organization,
notwithstanding that it did not have tax-exempt status under the Internal Revenue Code.
25
(E)
As they did below, the Corporation Parties argue that if the Corporation is a
charitable organization, the trial court erred in disposing of the Property, its sole asset,
under section 5-209, without making a finding that the Corporation was “dissolved or
about to be dissolved” or that “for any reason it is impracticable or inexpedient to
continue the corporation’s activities”; and the evidence would not support either such
finding. Therefore, the court abused its discretion by denying the motion for
reconsideration on that ground. And as they did below, the Church Parties respond that
the court made an implicit finding that it was “impracticable or inexpedient to continue
the [C]orporation’s activities,” the evidence supported that finding, and the trial court did
not abuse its discretion by denying the motion for reconsideration on that ground.
The court did not base its decision to transfer the Property to the Church under
section 5-209 on a finding that the Corporation was dissolved or about to be dissolved. It
made no such finding, as is evident from the conversation between the judge and counsel
immediately after the ruling from the bench. Rather, as a lead-in to its transfer decision,
the court explained several circumstances that made its (the Corporation’s) continuation
impracticable: it was formed to receive the City grant money that funded the Church’s
first “coffee house” neighborhood ministry project and to take title to the Property,
because the City would not allow the Church to be the recipient of the grant; the coffee
house project was replaced by the Head Start Center project, and all the money that paid
for the construction of the Head Start Center, including the $1,000,000 grant from the
State and the money to match that grant, was raised and received by the Church; and the
26
coffee house later was razed and the Property became a small portion of the ground on
which the Head Start Center was built.
The Corporation Parties are correct that the court did not make a clear express
finding that it was impracticable to continue the Corporation’s activities. It made that
finding implicitly, however. In discussing section 5-209, the court specifically referenced
the “impracticable or inexpedient to continue the corporation’s activities” standard in
subsection (a) and proceeded to make findings related to the impracticability aspect of
that standard. It would not have made those related findings if it had not found that the
standard was met. It determined that the Property was not needed to pay any debt of the
Corporation, as it had no debts, a consideration under (a)(1); and, under subsection (b),
that the Church was the donor of the Property and was on notice of the proceedings.11
Further apropos of the “impracticable” to continue the corporation’s activities standard,
the court commented that the evidence showed that the Head Start Center, most of which
is owned by the Church, has been operated by the Church for over twenty years and that
the Corporation Parties have no intention to put the Property, i.e., the small part of the
Head Start Center the Corporation owns, to any different use (which would likely be
11
The court did not address subsection (a)(2), probably because its finding that the
Church was the donor of the Property to the Corporation made that provision
inapplicable. Subsection (a)(2) is relevant only if the donor of the property in question is
not the same person or entity as the person or entity the court will be ordering the
property transferred to. If, in that circumstance, the owner of the property is required to
return it to the donor, the court may not transfer the property to a third party.
27
impossible anyway). These findings support the trial court’s ultimate conclusion that it
was impracticable to continue the Corporation’s activities.
Additional evidence in the record supports the court’s conclusion as well. The
Corporation has not engaged in any activities since early after it was formed, in 1981,
other than to hold the funds granted by the City for the original coffee house project,
which no longer exits, and to hold title to the Property for the Church, only because the
City would not allow its grant money to be used to transfer title of the Property to a
religious corporation. Ms. Dobson testified that the Corporation had been essentially
inactive for most of its existence:
 Its charter was forfeited for a total of almost 25 years, during which it did
nothing, and in its most recent period of revival, from 2005 to 2012, it also
did nothing;
 From the time of the City grant in 1981, the Corporation had no income and
no debts and engaged in no fundraising activities;
 The original coffee house (and the laundromat built soon after) ceased
operations and were demolished in the early 1990s, to be replaced by the
Head Start Center, which the Corporation did not raise money for or
operate and still operates today with no involvement of the Corporation;
and
 Any contributions to the Corporation came from members of its own board.
The sum and substance of all the evidence about the Corporation was that it was
formed to hold the Church’s City grant money and title to the Property because of rules
imposed by the City; that it had not engaged in any activities to support the neighborhood
for decades; and that the only activity it had engaged in for decades was litigation over
the Property, which did not serve any charitable or other useful purpose, did not advance
28
any of the purposes for which the Corporation was formed, and, on the contrary,
detracted from those purposes.
There also was ample support in the evidence for the court’s decision that the
Church be the recipient of the transfer. The Church was the donor of the Property to the
Corporation; the City grant money that was used to buy the Property belonged to the
Church; and the entire purpose of forming the Corporation and titling the Property in its
name was to advance the Church’s neighborhood ministry, which is still being carried out
today by the Church, through its operation of the Head Start Center, of which the
Property is a small part. Section 5-209(c) provides that “to the extent possible, the court
shall direct or provide for the transfer of the corporation’s property to another corporation
or association having a similar or analogous character or purpose, or associated or
connected with the corporation.” The selection of the Church satisfies these criteria.
In addition, the selection of the Church as the recipient of the Property satisfies the
“intent” of section 5-209(d), which “is that the circuit court may exercise the judicial
power of cy-pres to fulfill, despite the change in circumstances, the general intention of
the donor of the property for the use of the gift.” The intention of the Church, as the
donor, was that the Property would be held by the Corporation in order to fulfill the
Church’s neighborhood ministry. That ministry will be served by the transfer of the
Property back to its donor. Moreover, although the court’s ruling was not based on
dissolution, the transfer to the Church also is consistent with the intention of the
Corporation that, upon dissolution, its assets shall be disposed of by the board of directors
to further the purposes of the Corporation or to an organization operated for charitable or
29
religious purposes; and any assets not disposed of shall be disposed of by the Circuit
Court for Baltimore City to such organizations for such purposes.
As discussed above, the Corporation Parties asserted for the first time in their
motion for reconsideration that the Corporation owes a debt to Ms. Sydnor because she
personally paid to redeem the Property in the tax sale, and that it is unfair to the
Corporation, as owner of the Property, to take it away without payment of compensation.
On the first point, at no time in her trial testimony did Ms. Sydnor so much as suggest
that the Corporation owed her the money she paid in connection with the tax sale.
Indeed, the Corporation Parties’ counsel conceded that the Corporation had no liabilities
whatsoever. As part of its pattern of non-activity, the Corporation never got around to
taking the steps to become tax exempt; if it had, it (like the Church) would not have been
obligated to pay property taxes. During the decades that the Corporation owned the
Property, the Church paid the property taxes for it, without any obligation to do so, until,
in 2004, the Church was unable to. Assuming the truth of Ms. Sydnor’s assertion that she
paid the property tax redemption sum in 2007, there was nothing to show that this was
anything other than a gift to the Corporation, as the Church’s prior payments had been
gifts.
On the second point, respecting payment of compensation to the Corporation for
the Property, the court invoked section 5-209 in part because, as we have explained, the
Corporation, in effect, was a trustee over the Property for the benefit of the Church. The
Corporation did not apply for the City grant money in 1981; did not receive it from the
City; held the grant money for the Church’s benefit; did not use the grant money other
30
than as directed by the Church; and did not participate in any activities through which the
Property later was developed into the Head Start Center. We note, moreover, that the
Corporation Parties did not raise the issue of compensation for the Property at trial,
raising it for the first time in their motion for reconsideration, and then without presenting
any evidence of value. In the circumstances, the court did not abuse its discretion in
denying the motion for reconsideration of its decision to transfer the Property to the
Church, pursuant to section 5-209.
(F)
“The power to dissolve a corporation is exclusively governed by statute. ‘Apart
from statutory power, a court of equity cannot dissolve a corporation.’” James J. Hanks,
Jr., Maryland Corporation Law § 11.1 at 346 (Wolters Kluwer, 2008 Supp.) (quoting
Mason v. Sup. Ct. of the Equitable League, 77 Md. 483, 484 (1893)). “Historically,
Maryland has been reluctant to expand the equity jurisdiction of courts to include the
ability to grant petitions for involuntary dissolution of a corporation without express
authorization by statute.” Renbaum v. Custom Holding, Inc., 386 Md. 28, 47 (2005)
(footnote omitted) (citing Mason, 77 Md. at 484).
Except as otherwise provided in section 5-208, the dissolution of a nonstock
corporation “shall be effected as provided in Title 3” of the CA Article. CA § 5-208(a).
Dissolution may be voluntary, under sections 3-402 and 3-403, which do not apply here,
or involuntary, under section 3-413. A court only may dissolve a corporation
31
involuntarily upon a petition by stockholders or creditors and upon proof of one of the
grounds specified. CA § 3-413.12 There is no statutory provision authorizing a court to
dissolve a corporation involuntarily absent a petition for involuntary dissolution filed by
stockholders or creditors.13
Section 5-208(b) does not authorize a court to dissolve a nonstock corporation.
Rather, it directs how, in particular circumstances, the liabilities, obligations, and assets
of a nonstock corporation are to be treated upon dissolution of the corporation.14
12
Any stockholder or creditor of a corporation, other than a railroad, may petition
for involuntary dissolution on the ground that the corporation is unable to meet its debt as
they mature in the ordinary course of business. CA § 3-413(c). Ordinarily, any
stockholder with voting power may petition for involuntary dissolution on the grounds
that the stockholders are so divided that they have failed, for a specified time period, to
elect successors to directors whose terms would have expired, or the acts of the directors
or those in control of the corporation are illegal, oppressive, or fraudulent. Id. at § 3-
413(b). Finally, ordinarily, stockholders with at least 25 percent voting power may
petition for dissolution of the corporation on the ground that the directors are so divided
that the votes for board action cannot be obtained or the stockholders are so divided that
directors cannot be elected. Id. at § 3-413(a).
13
A corporation whose charter is forfeited for nonpayment of taxes or failure to
file a report, under CA section 3-503, ceases to exist, and is effectively dissolved. Dual
Inc. v. Lockheed Martin Corp., 383 Md. 151, 163 (2004); see also Tri-County Unlimited
Inc. v. Kids First Swim School Inc., 191 Md. App. 612, 621 (2010). However, its
existence can be revived upon the filing of articles of revival. See CA §§ 3-507–3-512.
So, although the Corporation ceased to exist when its charter was forfeited in 2012, and
was not revived when articles of revival were filed by those without any authority to do
so, it still could be revived by articles filed in accordance with CA §§ 3-507 and 3-508.
14
Section 5-208(b) directs that when a nonstock corporation is dissolved:
(1) Every liability and obligation of the corporation shall be paid and
discharged or adequate provision for payment and discharge shall be
made;
(Continued…)
32
As they did in their motion for reconsideration, the Corporation Parties contend
that a dissolution of the Corporation is governed by the provisions in Title 3 of the CA
Article and is not within the equitable power of the court to accomplish outside those
statutory provisions. Specifically, the court only was authorized to involuntarily dissolve
the Corporation upon petition by its stockholders (of which it had none) or its creditors,
and no such petition was filed. They assert that section 5-208(b), which governs the
distribution of assets of a nonstock corporation upon dissolution, does not authorize a
court to dissolve a corporation on its own or to distribute its assets. They argue that, in
(…continued)
(2) Assets held by the corporation subject to legally valid requirements for
their return, transfer, or conveyance on dissolution or forfeiture shall be
disposed of in accordance with these requirements;
(3) Assets held by the corporation subject to limitations permitting their use
only for charitable, religious, eleemosynary, benevolent, educational, or
similar purposes [but not covered by (2)], shall be transferred or
conveyed under a plan of distribution, adopted in the manner and by the
vote required for authorization of dissolution of the corporation, to one
or more Maryland or foreign corporations or associations having a
similar or analogous character and purpose, or associated or connected
with the corporation;
(4) Other assets shall be distributed as provided in the charter or the bylaws
to the extent that the charter or bylaws determine the distributive rights
of members or any class or classes of members, or provide for
distribution to others; and
(5) Any remaining assets may be distributed to any person, society,
organization, or Maryland or foreign corporation specified in a plan of
distribution, adopted in the manner and by the vote required for
authorization of dissolution of the corporation.
33
ruling on the motion for reconsideration, the court should have recognized that it was
without any legal authority to dissolve the Corporation and should have granted the
motion on that ground, as to dissolution.
The Church Parties do not argue in this Court that the trial court had the authority
to dissolve the Corporation. They emphasize:
To be clear, the trial court did not need to dissolve the [C]orporation
to trigger [the court’s] authority pursuant to section 5-209 although it
ultimately determined to do so. The trial court had the authority to transfer
the Corporation’s property on finding that it is impracticable or inexpedient
to continue the [C]orporation’s activities.
We agree with the Corporation Parties that the trial court abused its discretion in
denying the motion for reconsideration respecting dissolution. The Court of Appeals
“has recognized that trial judges do not have discretion to apply inappropriate legal
standards, even when making decisions that are regarded as discretionary in nature.”
Wilson-X v. Department of Human Resources, 403 Md. 667, 675 (2008). The Wilson
Court explained:
In Pasteur v. Skevofilax, 396 Md. 405, 433, 914 A.2d 113, 130 (2007), we
confirmed that “a failure to consider the proper legal standard in reaching a
decision constitutes an abuse of discretion.” See also Ehrlich v. Perez, 394
Md. 691, 708, 908 A.2d 1220, 1230 (2006), citing LeJeune v. Coin
Acceptors, Inc., 381 Md. 288, 301, 849 A.2d 451, 459 (2004), and Alston v.
Alston, 331 Md. 496, 504, 629 A.2d 70, 74 (1993), for the proposition that
“even with respect to a discretionary matter, a trial court must exercise its
discretion in accordance with correct legal standards.”
Id. at 675-76.
In Wilson, for example, a father who was receiving SSI benefits and was ordered
to pay child support filed a Rule 2-535(a) motion for reconsideration, which was denied,
34
and timely appealed only from that ruling. In his motion for reconsideration, the father
argued that the court had acted contrary to law by including his SSI benefits as income in
calculating his child support obligation. Despite recognizing that a ruling denying a
motion for reconsideration could be an abuse of discretion if the original ruling were
based on an error of law, the Court of Appeals was not persuaded that the original ruling
was based on an error of law, and therefore, affirmed the denial of the motion for
reconsideration.
This case stands in contrast to Wilson. The issue of dissolution of the Corporation
first came up after the court announced its ruling from the bench. It had not been argued
or briefed to the court, nor did the court consider it in reaching its declaratory judgment
decision. In that decision, the court stated that the Corporation would be dissolved “as a
matter of equity and pursuant to” section 5-209. The motion for reconsideration was the
first opportunity for any party to address the legality of the court’s decision to dissolve
the Corporation. The law is clear that a circuit court lacks the inherent equitable power to
dissolve a corporation and that neither section 5-208 nor section 5-209 grant a circuit
court the power to dissolve a nonstock corporation. In these circumstances, it was an
abuse of discretion for the trial court to decline to correct its prior decision, which was
legally incorrect. See U.S. Life Ins. Co. v. Wilson, 198 Md. App. 452, 464 (2011) (“A
decision that is legally incorrect is an abuse of discretion.”).
II.
Denial of Rule 1-341 Motion
As relevant, Rule 1-341(a) provides:
35
In any civil action, if the court finds that the conduct of any party in . . .
defending any proceeding was in bad faith or without substantial
justification, the court, on motion of the adverse party, may require the
offending party . . . to pay to the adverse party the costs of the proceeding
and the reasonable expenses, including reasonable attorneys’ fees, incurred
by the adverse party in opposing it.
A court’s finding that there was (or was not) bad faith or lack of substantial justification
on the part of a party in prosecuting or defending a proceeding is reviewed on appeal for
clear error. Inlet Assocs. v. Harrison Inn Inlet, Inc., 324 Md. 254, 267 (1991). If the
court finds bad faith or lack of substantial justification, its decision to award (or not
award) fees is reviewed for abuse of discretion. Id. at 268.
In their memorandum in support of their motion for attorneys’ fees under Rule 1-
341, the Corporation Parties alleged that the Church Parties had acted in bad faith and
without substantial justification in defending the action. In particular, they asserted that
the court’s finding that the Church Parties, through the “alternate” board of directors, had
acted on behalf of the Corporation when they had no legal authority to do so was the
equivalent of finding that the Church Parties had acted in bad faith and without
substantial justification in defending the Corporation Parties’ action. The Church Parties
filed an opposition.
On December 17, 2014, the court entered an order denying the motion for fees,
without a hearing. The court stated:
As [the Corporation Parties] acknowledge [in their motion], to
warrant an award of attorney[s’] fees and costs, [they] would have to show
that [the Church Parties’] conduct in defending this action was either “in
bad faith or without substantial justification.” Md. Rule 1-341(a). This
action presented difficult factual and legal issues, and [the Church Parties]
substantially prevailed in the ultimate relief awarded. [The Corporation
36
Parties] therefore have not made the showing required by Maryland Rule 1-
341.
In a similar argument to that advanced below, the Corporation Parties contend on
appeal that the court’s factual findings on the disputes before it amounted to a finding of
bad faith and lack of substantial justification on the Church’s part in defending the action;
that those findings were not clearly erroneous; and that, having made the necessary
findings, the court abused its discretion by declining to award fees. This contention has
no merit.
Contrary to the Corporation Parties’ argument, the trial court did not find that the
Church Parties acted in bad faith and without substantial justification in defending the
proceeding. It made the opposite finding—that they had not acted in bad faith or without
substantial justification. A court’s factual finding against a party on a dispute going to
the merits of the action is not tantamount to finding that that party pursued or defended
the action in bad faith or without substantial justification. It does not follow from the
court’s finding that the Church did not have the authority to create an “alternate” board of
directors for the Corporation that the Church Parties acted in bad faith or without
substantial justification in defending this action.
To successfully challenge the court’s ruling on their Rule 1-341 motion, it is
incumbent upon the Corporation Parties to present a meritorious argument that the court’s
findings that the Church Parties did not act in bad faith or without substantial justification
in defending the action were clearly erroneous. They have not presented any such
37
argument, let alone a meritorious one. Accordingly, we shall not disturb the court’s fee
ruling.15
JUDGMENT OF THE CIRCUIT COURT
FOR BALTIMORE CITY DISSOLVING
THE UNION BAPTIST DEVELOPMENT
CORPORATION REVERSED;
JUDGMENTS OTHERWISE AFFIRMED.
COSTS TO BE PAID ONE-HALF BY THE
APPELLANTS AND ONE-HALF BY THE
APPELLEES.
15
Soon after oral argument, the Corporation Parties filed a “Submission for
Consideration of the Court After Oral Proceedings.” The Church Parties filed a motion
to strike. We agree with the Church Parties that the Corporation Parties’ filing is in the
nature of a supplemental brief, and there is nothing in the Maryland Rules to permit such
a filing. Accordingly, we shall grant the motion to strike.
During the briefing period in this appeal, the Church Parties filed a motion to
strike the record extract. The Corporation Parties filed an opposition and the Church
Parties filed a reply. We exercise our discretion to deny that motion.
38