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Doermer v. Callen

United States Court of Appeals, Seventh Circuit

February 1, 2017

Richard Doermer, both individually and derivatively on behalf of the Doermer Family Foundation, Inc., Plaintiff-Appellant,
Kathryn Callen, et al., Defendants-Appellees.

          Argued December 9, 2016

         Appeal from the United States District Court for the Northern District of Indiana, Hammond Division. No. 2:15-cv-00154-JVB-JEM - Joseph S. Van Bokkelen, Judge.

          Before Williams and Hamilton, Circuit Judges, and Chang, District Judge. [*]

          Hamilton, Circuit Judge.

         This case poses several questions under the Indiana Nonprofit Corporation Act of 1991 about the governance of nonprofit corporations in Indiana. The case pits brother against sister in a long-running dispute over control of a small family foundation established by their parents. Plaintiff Richard Doermer is a member of the board of directors of the Doermer Family Foundation, Inc. ("the Corporation"). He asserts claims in his individual capacity and derivatively on behalf of the Corporation. The defendants include his fellow board members Kathryn Callen (his sister), John Callen (his nephew), and Phyllis Alberts. Richard also named as a defendant the University of Saint Francis of Fort Wayne, Indiana, Inc. Richard seeks injunctive relief against all other board members and a money judgment for the Corporation against Kathryn and Saint Francis.

         The district court granted defendants' motions to dismiss, and we affirm. Under Indiana law, only a shareholder or member of a corporation may bring a derivative action on the corporation's behalf. Richard lacks standing to bring a derivative claim because he is neither a shareholder nor a member. In fact, the Corporation's articles of incorporation provide that it "shall have no members." Richard's individual claims for money judgment likewise fail. They are properly understood as belonging to the Corporation (and so derivative in nature). Finally, all of Richard's individual claims fail as a matter of law on their merits.

         I. Factual and Procedural Background

         We recount the key factual allegations in the complaint, which we accept as true and construe in the light most favorable to plaintiff Richard Doermer. See Huon v. Denton, 841 F.3d 733, 738 (7th Cir. 2016). We have also considered the Corporation's articles of incorporation and bylaws and the resolution first appointing defendant Phyllis Alberts to the board. The Corporation appended these documents to its motion to dismiss: the documents are "central to the complaint and are referred to in it/' Williamson v. Curran, 714 F.3d 432, 436 (7th Cir. 2013), and Richard has not challenged their authenticity.

         Richard's father formed the Corporation in 1990 along with Richard; Richard's mother; and Richard's sister, defendant Kathryn Callen. Pursuant to the Corporation's articles of incorporation and bylaws, each family member served as a lifetime director. Richard's mother died in 2000. A decade later, the remaining family members elected defendant Phyllis Alberts to a three-year term on the board. Richard's father died in October 2010, leaving three directors: Richard, Kathryn, and Phyllis. Phyllis's term expired on January 28, 2013.

         Under Indiana law, a nonprofit corporation must be governed at all times by at least three directors. See Ind. Code § 23-17-12-3. In Richard's view, when Phyllis's term expired, the Corporation was no longer lawfully constituted and the two remaining board members (he and his sister Kathryn) could not act on the Corporation's behalf or exercise its corporate powers. However, Indiana law provides a safety valve when a nonprofit director's term expires without further action by the board. Despite the expiration, "the director continues to serve until ... a successor is elected, designated, or appointed and qualifies." § 23-17-12-5(d). That language is reflected in the Corporation's bylaws and in the 2010 resolution first appointing Phyllis to the board. The bylaws stipulate that any director other than one of the surviving founders "shall serve for three (3) years ... and until her or his successor is elected and qualified" (emphasis added). The resolution confirmed that Phyllis would serve "for a term of three (3) years, or until such time as her successor shall be elected and qualified" (emphasis added).

         Acting pursuant to the resolution and bylaws, Kathryn and Phyllis voted in September 2013 to elect Phyllis to a second term. Richard opposed Phyllis's reelection. The board then took a series of actions over Richard's objections, including authorizing gifts to Saint Francis (on whose board Kathryn also serves) and electing Kathryn's son, defendant John Callen, as a fourth board member.

         Following John's election, Richard brought this suit. He seeks to assert claims on his own behalf and derivatively on behalf of the Corporation. Richard requested a judgment against Kathryn for the amount of charitable contributions made by the Corporation following the expiration of Phyllis's original term (Count I); he sought to recover the gifts received by Saint Francis (Count III); and he sought Kathryn's removal from the board (Count II), an injunction barring Phyllis and John from acting as directors (Count IV), and appointment of new directors (Count V). The Corporation and Saint Francis each moved to dismiss, citing Federal Rules of Civil Procedure 12(b)(6) and 23.1. The individual defendants answered the complaint and then moved for judgment on the pleadings and to join the Corporation's motion.[1]

          The district court granted the defendants' motions and dismissed the action. Doermer v. Callen, No. 2:15-CV-154 JVB, 2015 WL 6870580 (N.D. Ind. Nov. 9, 2015). The court found that Richard lacked standing to bring a derivative claim, id. at *2, and that his individual claims failed because he lacked standing to bring them and, even if he did have standing, because the claims were meritless, id. at ""4-5. Richard has appealed.

         II. Analysis

         We review de novo the district court's dismissal of Richard's claims for lack of standing to proceed in a derivative capacity, see Westmoreland County Employee Retirement System v. Parkinson, 727 F.3d 719, 724 (7th Cir. 2013), and for failure to state a claim, see Rocha v. Rudd, 826 F.3d 905, 909 (7th Cir. 2016). Our duty in this diversity suit is to decide issues of Indiana state law as we predict the Indiana Supreme Court would decide them today. E.g., Frye v. Auto-Owners Ins. Co., No. 16-1677, __ F.3d __, __, 2017 WL 25481, at *3 (7th Cir. Jan. 3, 2017). The case presents questions about the meaning of Indiana's Nonprofit Corporation Act, so we apply the "basic tools of statutory interpretation" that the Indiana Supreme Court has long recognized: statutes are "read as a whole, and words are given their plain and ordinary meaning." Id.; see also ESPN, Inc. v. University of Notre Dame Police Dep't, 62 N.E.3d 1192, 1195 (Ind. 2016) ("Our first task when interpreting a statute is to give its words their plain meaning and consider the structure of the statute as a whole."); Ind. Code § 1-1-4-1 (codifying the canon that words "shall be taken in their plain, or ordinary and usual, sense"). Conversely, "when a statute is susceptible to more than one interpretation, it is deemed ambiguous and is thus open to judicial construction." In re Howell, 27 N.E.3d 723, 726 (Ind. 2015).

         In construing a statute, "our primary goal is to effectuate legislative intent." Walczak v. Labor Works-Fort Wayne LLC, 983 N.E.2d 1146, 1154 (Ind. 2013). We aim for an interpretation that harmonizes all provisions so as to give a consistent meaning to the whole without treating any language as surplusage. See Klotz v. Hoyt, 900 N.E.2d 1, 5 (Ind. 2009); Corr v. American Family Ins., 767 N.E.2d 535, 540 (Ind. 2002). We avoid interpretations that depend on selective readings of individual words, and we "do not presume that the Legislature intended language used in a statute to be applied illogically or to bring about an unjust or absurd result." ESPN, Inc., 62 N.E.3d at 1196, quoting Anderson v. Gaudin, 42 N.E.3d 82, 85 (Ind. 2015).

         Before turning to the substantive issues on appeal, though, we address a procedural point. In the final paragraph of his brief in the district court, Richard asked for leave to amend his complaint. He offered, however, no explanation as to any revisions that might correct the deficiencies the defendants had identified, nor did he ever submit a proposed amended complaint or file a motion for leave to amend. On appeal, he has not identified any proposed amendments to his complaint, choosing instead to defend the complaint as pled. We ordinarily hesitate before affirming a final judgment of dismissal when the plaintiff seeks leave to amend, at least where there has been no prior effort to amend. See, e.g., Runnion v. Girl Scouts of Greater Chicago & Northwest Indiana,786 F.3d 510, 519-20 (7th Cir. 2015) (reversing dismissal). In this case, however, it is clear that amendment would be futile. Richard has identified no proposed amendments that might save his case, and the law is clearly on the defendants' side. See id. at 520 (where amendment would be futile, ...

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