Custom Midget Club, Inc. v. Bradley S. Perrin et al. (2012)

MEMORANDUM OF DECISION

This is an action where the plaintiff seeks temporary and permanent injunctions and a declaratory judgment against the named defendants.   The plaintiff did not proceed on its claim for a declaratory judgment.

Procedural History

An injunction was brought by the plaintiff, Custom Midget Club, Inc., on March 28, 2011.   An answer was filed on May 3, 2011 by the defendants.   A scheduled hearing for a temporary injunction on May 17, 2011 was marked off by the court to allow the parties to present their respective cases to include a trial on the merits of a permanent injunction and declaratory judgment.

The verified complaint alleges that the plaintiff is a Connecticut non-stock corporation owning approximately One Hundred Thousand & 00/100 Dollars ($100,000) in personal property located at Thompson Speedway in the town of Thompson and approximately Twenty-six Thousand & 00/100ths Dollars ($26,000) in a bank account.   The complaint alleges breach of fiduciary duty by Bradley S. Perrin and James Martin in violation of General Statutes § 33–756 and breach of the duty of loyalty and good faith as to Perrin, Martin, Cynthia Forte, Laurie A. Prucker, John Jukubujtys, Curtis Lotter, Jeff Warcholik, William Mitchell, Misty Froehlich, John Mahoney, and Joseph Woodman, all members of the corporation.   On May 3, 2011, the defendants denied the allegations in their answer to the complaint.

The court heard the case on June 3, 2011 and July 28, 2011.   At the hearings, witnesses testified for the plaintiff and the defendants and numerous exhibits were offered by both sides.   The court requested that the parties file briefs regarding the issues presented by the parties.   The defendants requested a continuance until October 21, 2011 to complete their brief.   The court granted the continuance, as requested, and the record closed on that date.

FINDINGS OF FACTS

The plaintiff is a Connecticut non-stock, not for profit corporation, incorporated in 1958.   The purpose of the club is to provide a safe environment to train children to race motor vehicles.   Since 1960, the club has run under the auspices of Quarter Midgets of America, hereinafter QMA. QMA is a not for profit sanctioning body.

The plaintiff operates pursuant to its bylaws and state statutes.   The plaintiff's bylaws at issue in this case were written for the calendar year 2010.   Ex. 2, K. The plaintiff was governed by a BOD which included 11 persons.   There were 49 voting members of the corporation as of January 2011.   Witnesses corroborated the number of voting members.   Each family with a voting membership had one vote.

In October 2010, Dale Gross, a member since 2008, was re-elected president for a second term beginning January 1, 2011.   The defendants, Perrin and Martin, were elected as officers.   The Board of Directors, hereinafter “BOD,” which includes all of the officers, began their terms on January 1, 2011.   Sometime after the election in October 2010, Martin raised allegations against the conduct of Gross that was the subject of a BOD meeting on December 2, 2010.

The minutes of that meeting reflect under “Agenda Items”;  the purpose of the meeting was to discuss financial questions/allegations against Gross brought forth by Martin.   Allegations were raised as to unauthorized spending, non-communication with the BOD and that he was misusing his authority.   To the defendants, one of the more serious allegations was that Gross was going to affiliate the plaintiff with the United States Auto Club (USAC) instead of the QMA.

Gross agreed that he would attempt to hold another board meeting (December 10, 2010) before these issues were raised before the membership on December 17, 2010, and a membership meeting was scheduled for that date at a hall on the grounds owned by Thompson Speedway to address the membership concerns noted in the minutes of December 2, 2010.

Perrin, in his emails, informed the members that at that upcoming meeting, board members would be removed.   The owner of Thompson Speedway refused to allow the issue to be placed on the agenda of the meeting.   Finally, the meeting was cancelled by the owner.   The owner of Thompson Speedway was not a member of the plaintiff corporation.

The owner of Thompson Speedway sent out an e-mail on the 13th of January 2011 informing the plaintiff that it changed sanctioning bodies.   In his e-mail, the track owner indicated that he wanted the plaintiff to be affiliated with USAC instead of the QMA if the plaintiff were to continue to race at Thompson Speedway.

Gross reacted to the email by calling a meeting of the board of directors.   Every board member received Gross's e-mail notice to call into a conference call.   However, the bylaws of the plaintiff required a 48–hour advance notice for such a meeting.   The conference call was held on January 13, 2011 where every board member participated, but they did not unanimously agree to postpone the annual meeting scheduled for the following day.   The stated reasons of the majority of the board members was that they needed to discuss the issue of sanctioning bodies further and answer questions of the membership that would arise.   However, the decision to change the sanctioning body for the plaintiff had already been made by the owner of the Thompson Speedway.

Gross acknowledged receipt of the notice for the annual meeting on January 10, 2011 to be held on January 14, 2011 and the “concerns about Gross” was listed on the agenda for the meeting.   Gross agreed that he was sure a notice was sent out on January 3, 2011 regarding the annual meeting of January 14, 2011.   He indicated notice was also posted on the club web site.   In fact, all of the members except those who did not read their emails were aware of the annual meeting date.

The plaintiff alleges that six directors were unlawfully removed from office at the annual meeting that was held on January 14, 2011 because only 25 voting members of 49 were present.   The total number of voting families is a key fact in this case, because Bylaw Article VI § 8 states:  “The entire Board of Directors, or any individual Directors, may be removed by two thirds vote of all the voting membership for cause.”   Ex. 2.

The vote taken by the members at the annual meeting on January 14, 2011 indicated on the minutes from that meeting was that at least 18 voting families voted to remove the six directors from the board.

The court interprets the two-thirds requirement to require only two-thirds of the voting members who were present at the meeting.   This interpretation comports with the plaintiff's bylaws that requires a “two thirds vote of all the voting membership.”   Therefore, the eighteen votes cast at the annual meeting of the 25 voting members present were sufficient to remove the six board directors.   To interpret the plaintiff's bylaws differently would allow members to excuse themselves at important meetings to avoid action on important issues before the membership.

The evidence establishes that all the members, which included all of the directors, were notified of the annual meeting.   All of the individuals on the board of directors were sufficiently apprised that action may be taken regarding their removal at the annual meeting.

The plaintiff alleges that the directors and members who attended the annual meeting on January 14, 2011 held the meeting in violation of the board vote to cancel it.   The court does not agree.   Article III of the plaintiff's bylaws provides that:  “The annual meeting of the members shall be held on the 2nd Friday of January of each year (which in 2011 fell on January 14) or other day, as designated by the membership, to consider reports of the Association and to transact other business as may properly be brought before the meeting.”

The bylaws of the plaintiff clearly give the membership and not the board of directors the power to determine the date of the annual meeting.   The action by the board of directors to postpone the annual meeting was of no effect, and the annual meeting was properly held by the membership and those directors who attended it.

Most of the directors and some voting members chose not to attend the annual meeting.   After the January 14, 2011 meeting, the group that attended the meeting proceeded to form what the plaintiff considers to be a rogue board.   Funds were removed from the corporate bank account.   They also changed the records kept at the Secretary of the State's office.   They then proceeded to make demands for the corporate assets and continued to use the corporate name.   The group that met on January 14, 2011 formed a group of 16 members and began to race at Silver City near Hartford maintaining their affiliation with QMA.

On January 21, 2011, Gross held an informational meeting with members who opted to stay at Thompson Speedway.   It was not the annual meeting contemplated in the plaintiff's bylaws and no minutes were taken by this group.

The plaintiff alleges that the actions taken at the annual meeting make it very difficult for the other families to drive their children to Hartford to race.   The plaintiff alleges that the January 14, 2011 group's actions have irreparably harmed the plaintiff because certain families cannot because of inconvenience or cost drive their children to Hartford to race.

The plaintiff alleges that the legal issues raised by these facts are as follows:  (1) the January 14, 2011 meeting violated a board vote to postpone the meeting;  (2) the January 14, 2011 meeting was held without notice to the membership that the group would be attempting to vote out directors and/or members;  (3) the January 14, 2011 meeting was held even though the group knew that a majority of the board of directors planned not to attend, but to instead gather information for a week first;  (4) the January 14, 2011 meeting was held so that those whose director positions and member positions were being voted on for removal had no opportunity to address this attempted removal;  (5) there were not enough voting members present to remove any directors from the board.

DISCUSSION

INJUNCTION

The parties agreed to have the court consider the plaintiff's application for a temporary and permanent injunction to avoid duplicate hearings.   In connection with its request for a temporary and permanent injunction, the court must consider the following factors:  irreparable and imminent injury, lack of an adequate remedy at law, likelihood of success on the merits (temporary injunction), and that a balancing of the equities favors granting the injunction.  Waterbury Teachers Assn. v. Freedom of Information Commission, 230 Conn. 441, 446 (1994).   If granted, a temporary injunction automatically terminates upon the issuance of a permanent injunction.

The defendants answered the complaint by the plaintiff, and the pleadings are closed.  Gattoni v. Zaccaro, 52 Conn.App. 274 (1999).   All interested parties appeared and were heard.  Hennessey v. Bristol Hospital, 225 Conn. 700, 704 (1993).

The plaintiff alleges that it has met the requirements for the issuance of a temporary injunction.   In addition, the plaintiff alleges that it has satisfied the requirements for a permanent injunction in that it has alleged and proven irreparable harm and lack of an adequate remedy at law.  Advest, Inc. v. Wachtel, 235 Conn. 559, 562–63 (1995).

A threat of the loss of a director's position and/or membership in a nonstock corporation has been found by Connecticut courts to meet “the imminence of substantial and irreparable injury” standard sufficiently to grant an injunction.  Sterner v. Saugatuck Harbor Yacht Club, Inc., 188 Conn. 531 (1982).   This case involves the removal of individuals who willfully decided not to attend the annual meeting.   The absent directors and absent voting members could have attended the annual meeting where their input on the issues at hand could have resulted in a different outcome for the plaintiff.

The Connecticut Supreme Court held that nonstock corporations must operate in a way consistent with the Connecticut General Statutes and must be “reasonable.”   See id. at 535.   The reasonableness requirement of § 33–459 (the predecessor to § 33–756) adopts common law standards of “fair play.”   Sterner, supra at 536.   Specifically, “Membership is required by statute to be governed by bylaws that are reasonable ․ Bylaws reasonable on their face may not be unreasonably applied.   The statutory requirement of reasonable bylaws requires a hearing that is meaningful and a sanction that is reasonable.”  Davenport v. The Society of Cincinnati, 26 Conn. L. Rptr. 153 (1999), citing Sterner, supra at 536.   The willful absence of the directors at the annual meeting was in itself a sufficient reason to remove them as directors.   The actions of the BOD show a group subjected to the dictates of the Thompson track owner.   The membership had the right to decide on their affiliation with Thompson Speedway and which sanctioning body they wanted to work with in the future.   The membership acted appropriately and reasonably at the annual meeting.

The plaintiff argues that the defendants should have at least followed Robert's Rules when they removed the directors at the annual meeting.   The plaintiff's bylaws provided a specific procedure to remove directors.   It appears that the defendants followed the procedure.

The plaintiff alleges that the removed directors were not given sufficient notice that they would be removed at the annual hearing.   The evidence presented by the defendants establishes otherwise.   The bylaws of Custom Midget Club, Inc. required that “two thirds of all the voting membership” be required to remove a director.   This bylaw only required a two-thirds vote of those present.   The wording chosen for the Custom Midget Club, Inc. bylaws did not require a much higher number than the wording of “two thirds of those present.”

The annual meeting at issue was a legal meeting of the members present.

The plaintiff's request for a temporary or permanent injunction against the defendants is denied.

DECLARATORY JUDGMENT

The purpose of a declaratory judgment is to secure adjudication of rights where there is substantial uncertainty of legal relations between the parties or a substantial question in dispute.  Wilson v. Kelley, 224 Conn. 110, 115 (1992), Mannweiler v. LaFlamme, 232 Conn. 27, 33 (1995).   The purpose is to ascertain the rights of the parties under existing law.  Middlebury v. Steinmann, 189 Conn. 710, 715 (1983).

The evidence shows that the plaintiff split into two groups.   Each of the groups is now racing at different locations and each utilizes two different sanctioning bodies.   The personal property and bank accounts of the plaintiff was derived from the membership dues and required contributions to continue the corporation.

Neither party briefed the issues regarding whether a declaratory judgment is appropriate in this case.

THE COURT,

Angelo L. dos Santos, Senior Judge

dos Santos, Angelo L., J.