Hellmuth & Johnson attorney Heidi Bassett prevailed in a lawsuit against a member of the board of directors for a family-owned nonprofit corporation, securing a judgment before trial.
The client initiated this lawsuit when the defendant, a long-standing member of the nonprofit, refused to turn over corporate records to the newly elected Secretary/Treasurer. The defendant was the former Secretary/Treasurer, and when his relationship with other members deteriorated over the years, he refused to accept the change in roles. He continued to hold himself out as the Secretary/Treasurer, directing the county to send the client’s tax statements to his home address. He also filed the client’s annual renewal with the Minnesota Secretary of State and named himself the President.
The lawsuit sought relief under Minnesota’s Nonprofit Corporations Act to recover the records accumulated by the client over the last 60 years. The defendant counterclaimed, asking the Court to declare that he was the only legitimate member of the nonprofit. The defendant took this position because the corporate records in his possession did not confirm the issuance of stock certificates to other members, and meeting minutes did not satisfy him that other members were admitted by unanimous vote.
The Court granted summary judgment in favor of the client on its claims as well as the defendant’s counterclaims. In doing so, the Court recognized that for years, the client and all of its members operated amiably and did not follow strict corporate formalities. A complete history of meeting minutes was not available. The nonprofit’s bylaws provided that each member was entitled to a stock certificate, but did not require one in order to maintain ownership. Regardless, the defendant recognized the other members of the nonprofit for years, and the Court found no legal basis to evict them now that the defendant’s feelings had soured. The Court classified the defendant’s efforts as, “nonsensical and incredulous.”
The defendant was ordered to return the corporate records, surrender all funds he collected on behalf of the client, and immediately cease his efforts to hold himself out as the only legitimate member.
“This case reaffirms the courts’ reluctance to interfere in business operations,” stated Heidi Bassett. “When members of an organization relax corporate formalities in favor of a cohesive approach, established practices will be recognized unless they clearly violate the law or are contrary to public policy.”