Doermer v. Callen

Richard, Father, Mother, and sister (Kathryn) formed the family Corporation in 1990. Under its articles of incorporation and bylaws, each family member served as a lifetime director. Mother died in 2000. In 2010, the remaining family members elected Phyllis to a three-year term on the board. Father died in 2010. Phyllis’s term expired in 2013. Under Indiana Code 23-17-12-3, a nonprofit corporation must be governed at all times by at least three directors. Richard claimed that when Phyllis’s term expired, the Corporation was no longer lawfully constituted and the two remaining board members could not act on the Corporation’s behalf or exercise corporate powers. Indiana law provides that when a nonprofit director’s term expires without further action by the board: “the director continues to serve until … a successor is elected, designated, or appointed and qualifies.” That language is reflected in the Corporation’s bylaws and the 2010 resolution appointing Phyllis to the board. Kathryn and Phyllis voted in 2013 to elect Phyllis to a second term. The board then took several actions over Richard’s objections, including authorizing gifts to Saint Francis (on whose board Kathryn also serves) and electing Kathryn’s son as a fourth board member. Richard filed suit, as an individual and derivatively. The Seventh Circuit affirmed dismissal. Under Indiana law, only a shareholder or member of a corporation may bring a derivative action on the corporation’s behalf. Richard is neither a shareholder nor a member. The Corporation’s articles of incorporation provide that it “shall have no members.” Richard’s purported individual claims for money judgment belong to the Corporation and his other individual claims failed on their merits. View "Doermer v. Callen" on Justia Law