Present: All the Justices 

LASZLO N. TAUBER, ET AL. 

OPINION BY JUSTICE A. CHRISTIAN COMPTON 

v. Record No. 971155 April 17, 1998 

COMMONWEALTH OF VIRGINIA, 

ETC., ET AL. 

FROM THE CIRCUIT COURT OF THE CITY OF ALEXANDRIA 

Alfred D. Swersky, Judge 

 In this chancery suit, the Attorney General of Virginia and 

a commonwealth’s attorney jointly assert jurisdiction in the 

name of the Commonwealth over assets located in Virginia held by 

trustees in dissolution of a foreign charitable corporation. 

The trustees had been directors of the corporation, which 

operated a hospital in this State. 

 A brief summary of the relevant business activities of the 

hospital directors will set the stage for this discussion. 

Jefferson Memorial Hospital, Inc. (JMHI), was chartered 

originally as a for-profit, stock corporation in Maryland in 

1963. In 1964, the corporation amended its charter to become a 

nonprofit, nonstock charitable entity; it began operations as an 

acute-care hospital in Alexandria on March 15, 1965. 

 In April 1969, the federal Internal Revenue Service began 

an investigation leading to revocation of JMHI’s tax-exempt 

status, retroactive to November 1, 1965. In 1971, the 

corporation’s directors attempted to “merge” JMHI into a for-
profit Delaware corporation, Jefferson Memorial Hospital 

Corporation (JMHC). There was an effort to dissolve JMHI and to 

transfer its assets and liabilities to JMHC, of which JMHI’s 

directors would serve as directors. 

 In April 1973, Maryland ordered JMHI’s corporate charter 

forfeited “for failure to file the necessary corporate personal 

property report or failure to pay any late filing penalties 

due.” 

 In 1974, the directors retained counsel “to represent the 

Hospital in looking after and insuring that the Hospital 

Corporate structure for the past, present, and for the immediate 

future, be handled so as to insure that everything is legally 

correct and in keeping with the best interest of the investors 

of the Hospital,” according to JMHC’s minutes. Counsel 

testified that he was “asked to rectify the problem that had 

arisen because a supposed merger in ’71 had not been done.” 

 Unaware that Maryland had revoked JMHI’s charter, counsel 

had the directors declare JMHI insolvent and approve transfer of 

JMHI’s assets to JMHC. In January 1975, JMHC’s directors 

authorized purchase of the assets and assumption of the 

liabilities. The directors of JMHC, believing they had 

assembled all the assets of the former charity into the forprofit corporation, agreed to transfer all JMHC’s “assets” to 

appellant Laszlo N. Tauber as trustee for appellant Jefferson 

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Memorial Hospital Joint Venture (JMHJV), a partnership in which 

those assets apparently still reside. The directors also agreed 

to lease back from the partnership the transferred assets. 

 In July 1996, the present suit was instituted by the 

Commonwealth of Virginia, ex rel. the Attorney General of 

Virginia and the Commonwealth’s Attorney for the City of 

Alexandria. The defendants are Tauber and nine other named 

physicians, “each individually and as a former director of 

[JMHI] . . . and/or as partners in Jefferson Memorial Hospital 

Associates, or [JMHJV], and/or directors or shareholders of 

[JMHC] (a Delaware Corporation now known as ‘Jefferson 

Corporation of Alexandria’)”; Jefferson Memorial Hospital 

Associates; JMHJV; and Jefferson Corporation of Alexandria. A 

prior suit had been commenced by the Attorney General against 

the same defendants in April 1995, but was nonsuited during 

trial. 

 In the present suit, the plaintiffs filed a 112-paragraph, 

40-page, three-count bill of complaint. They alleged that funds 

and assets received by the defendants as directors and trustees 

of a charitable corporation “were misappropriated and diverted” 

contrary to law that requires such funds to be used only for 

charitable purposes, “and not for private inurement.” The 

plaintiffs then recited in detail the defendants’ alleged 

business activities in connection with the hospital. 

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 In count one, the plaintiffs alleged the “purported merger 

between JMHI and JMHC in 1971 never took place,” and the 

“subsequent purported transfers of the property of JMHI were 

likewise null and void.” Asserting “JMHI was and is a non-stock 

foreign corporation whose assets are located in the 

Commonwealth” and are subject to the trial court’s jurisdiction, 

the plaintiffs asked the court: to declare “that the purposes 

for which JMHI was created have been frustrated and are no 

longer capable of being accomplished by virtue of” the 

defendants’ conduct; to declare that legal title to JMHI’s 

assets remain in JMHI; to order that an appropriate custodian 

gather the assets of the former JMHI and administer them under 

the court’s supervision; to require that defendants account for 

the money or other value received in the transactions and that 

defendants be surcharged for the charitable assets they usurped 

in the amount of at least $40 million; and to enter judgment 

against defendants as a result of “their conversion, 

misappropriation, or appropriation of the charitable assets” 

described. 

 In count two, the plaintiffs sought similar relief and also 

asked the court “to impose a constructive trust upon the 

Hospital, its land, equipment and any other assets,” as well as 

upon settlement proceeds being paid by an entity which, in 1985, 

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negotiated with JMHJV to buy the right to operate the hospital 

and its assets as a going concern. 

 In count three, the plaintiffs asked the court to declare 

that “the corporate opportunities of JMHI have been usurped” by 

the defendants; that the defendants be required “to account for 

and disgorge all sums usurped;” that the court impress upon any 

future sums defendants may receive “an appropriate judgement or 

trust to secure the interests of the beneficiaries of JMHI, and, 

if necessary, to refer the matter to a Commissioner in Chancery 

for an appropriate accounting and charging order against JMHJV.” 

 After the chancellor overruled their demurrer and plea in 

bar, defendants answered the bill of complaint. They generally 

denied the allegations, asserting the plaintiffs are not 

entitled to the relief prayed for, or to any other relief. 

 The cause was heard ore tenus in January 1997. The parties 

had stipulated that the trial in the present suit was to 

commence where the prior trial terminated, and that the record 

of all proceedings in the prior suit is to be a part of the 

present record. 

 Following the trial, the chancellor filed a memorandum 

opinion ruling that the plaintiffs are entitled to relief sought 

in the bill of complaint. In a March 1997 decree, from which we 

awarded defendants this appeal, the court declared that the 

assets and liabilities of JMHI “be, reside and remain with 

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[defendants] as trustees and further that a constructive trust 

be . . . imposed on such assets and liabilities.” 

 The court also ordered that a custodian “be appointed with 

exclusive jurisdiction to hold and administer the said assets 

and liabilities.” Additionally, the court ordered defendants to 

submit “a full and complete accounting of all assets and 

liabilities that are the subject of this Decree.” Finally, the 

court denied the plaintiffs’ “claim for monetary damages.” 

 On appeal, defendants contend the trial court erred “when 

it concluded that the Attorney General has authority to bring 

this suit.” The chancellor ruled “that the Attorney General has 

standing and authority to bring this action both at common law 

and pursuant to” Code § 13.1-909(B). The trial court is 

correct. 

 We need address only the common law. This Court long ago 

recognized the common law authority of the Attorney General to 

act on behalf of the public in matters involving charitable 

assets. Clark v. Oliver, 91 Va. 421, 427-28, 22 S.E. 175, 177 

(1895). Indeed, this authority has received legislative 

recognition as recently as last year. During its 1997 session, 

the General Assembly granted the Attorney General additional 

specific powers with respect to the disposition of assets by 

nonprofit health care entities. Acts 1997, ch. 615. These 

powers were granted “in order that the Attorney General may 

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exercise his common law and statutory authority over the 

activities of these organizations.” Code § 55-532. 

 Next, defendants argue the chancellor erred in ruling that 

Code § 55-29 provides authority for the Commonwealth’s Attorney 

of the City of Alexandria to be a proper party to the claims 

asserted. We disagree. 

 Code § 55-29 (1995 Repl. Vol.) provides, as pertinent: 

 “When any such gift, grant or will is recorded and 

no trustee has been appointed, or the trustee dies or 

refuses to act, the circuit court . . . of the city in 

which the trust subject or any part thereof is, in the 

case of a gift or grant, or in which the will is 

recorded, may, on motion of the attorney for the 

Commonwealth in such court (whose duty it shall be to 

make such motion), appoint one or more trustees to 

carry the same into execution. . . . In enforcing the 

execution of any such trust a suit may be maintained 

against the trustees in the name of the Commonwealth 

when there is no other party capable of prosecuting 

such suit. The term ‘trustees’ as herein used shall 

be construed to mean the persons, or governing body, 

charged with the execution of the trust, whether 

designated as ‘trustees,’ ‘directors’ or 

otherwise. . . .” 

 The phrase “any such gift, grant or will” refers to Code 

§ 55-26.1, which provides, “Every gift . . . made hereafter for 

charitable purposes, whether made in any case to a body 

corporate or unincorporated . . . shall be as valid as if made 

to or for the benefit of a certain natural person. . . .” 

 The foregoing provisions are not limited to express trusts 

arising by virtue of written instruments, as defendants argue, 

but apply, as here, when the assets of JMHI passed automatically 

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to its directors as formal trustees of the charitable 

organization in liquidation. Thus, the Commonwealth’s Attorney 

is a proper party to this litigation. 

 Parenthetically, because the defendants seem to raise this 

issue on brief, we note that use of the word “recorded” in the 

first clause of the first sentence of § 55-29 refers to recorded 

wills, and not to any requirement that gifts or grants also be 

recorded. This is made clear later in the same sentence where 

there is specific reference to “in which the will is recorded.” 

 Next, we shall turn to the merits. A detailed recitation 

of the evidence gleaned from this record would serve no useful 

purpose. On appeal, the defendants primarily seek to have us 

annul factual findings of the chancellor. The evidence, except 

for opinions of experts, was not in dispute; defendants urge us 

to invalidate the legitimate inferences drawn by the trial court 

from those proven facts. This tactic will not succeed upon 

appellate review. 

 The findings of a chancellor, hearing evidence ore tenus, 

carry the weight of a jury verdict. Giannotti v. Hamway, 239 

Va. 14, 23, 387 S.E.2d 725, 730 (1990). A judgment based upon 

such findings will not be annulled on appeal “unless it appears 

from the evidence that such judgment is plainly wrong or without 

evidence to support it.” Code § 8.01-680. And, the plaintiffs’ 

burden is to prove these allegations by a preponderance of the 

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evidence. Baylor v. Beverly Book Co., 216 Va. 22, 24, 216 

S.E.2d 18, 19 (1975). 

 Upon review we shall recite the facts, including the 

legitimate inferences flowing from those facts, in the light 

most favorable to the plaintiffs, who prevailed below. In the 

early 1960s, following acquisition of real estate by deed and 

lease by King Street Joint Venture, held by defendant Tauber as 

trustee, JMHI was formed to transact the business of operating a 

hospital. This Maryland corporation was authorized to do 

business in Virginia in 1963. Following the March 1965 opening, 

the hospital experienced “problem[s] all the time,” although an 

expansion allowing addition of 24 beds occurred in 1968. 

 In 1970, during the Internal Revenue Service investigation, 

an attorney was retained to review “the current corporate status 

of the hospital.” Counsel recommended “a complete 

reorganization of the hospital and its affiliates,” 

establishment of “a new profit corporation with the same name,” 

and “that the old non-profit corporation be merged into it.” 

 The Delaware for-profit corporation, JMHC, was formed in 

1971 and a supposed merger was arranged. This merger was 

reported on tax returns filed in 1972, but the record is devoid 

of documents to support such a transaction. However, Dr. 

Tauber, who mainly orchestrated the myriad transactions involved 

in this case, testified, “In my own mind, [the merger] was 

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completed.” The chancellor said no evidence had been presented 

to show due diligence was used at that time to protect the 

interests of the beneficiaries of the charitable hospital. 

 The basis of the 1972 Internal Revenue Service ruling 

revoking JMHI’s tax-exempt status was: “The hospital sold 8% 

bonds to various doctors and individuals in exchange for their 

6% demand notes and did not enforce collection of such demand 

notes. Other hospital bonds were sold to the general public at 

8% for cash. Some of the doctors receiving the 8% bonds in 

exchange for their 6% demand notes were officers, directors, and 

staff members of the hospital. Issuance of 8% bonds to these 

doctors and failure to enforce collection of the demand notes 

received in exchange resulted in inurement of income to private 

individuals.” This was a violation of the applicable provision 

of the Internal Revenue Code allowing exemption of charities 

from federal income taxation. 

 In 1974, after another attorney had been retained “to 

rectify the problem that had arisen” because of the putative 

merger, documents indicate that JMHC assumed the charity’s 

liabilities in return for receipt of JMHI’s assets. The charity 

was to receive 5,000 shares of JMHC stock, but no such transfer 

was made. 

 The record amply supports the following findings of the 

chancellor. “There are numerous transactions shown, some of10
record and some not, dealing with the real estate, the 

equipment, the leases, and the use of tax benefits. The 

transactions show an entire course of self-dealing by the 

directors of the charity. They were able to acquire interests 

in the real estate, the equipment and lease, and were able to 

use tax benefits belonging to the former charity to enhance the 

gain of the for-profit corporation. The record is replete with 

discussions among [defendants] as to their personal profits and 

gains with no reference to the best interests of the 

beneficiaries nor of the charitable corporation. The result was 

the total obliteration of the non-profit corporation.” 

 A transaction illustrative of the foregoing conclusions 

involves a subdivision of the hospital’s real estate in 1970. 

The charity’s 65% undivided interest was lost and, in its place, 

the charity obtained a 20% interest consisting of an allocated 

parcel. Also, after the nonprofit corporation was dissolved by 

Maryland authorities in 1973, defendants caused the filing of an 

annual report with the State Corporation Commission of Virginia 

that JMHI remained in good standing. 

 As the chancellor found, deals were “convoluted and complex 

with off-record real estate transactions conflicting with the 

state of the title as shown on-record. Net operating losses 

were used as tax deductions by JMHC that had become deductions 

[as] a result of the revocation of JMHI’s tax exempt status. 

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When [defendants] had exhausted these deductions, they began 

seeking ways to benefit their own tax status through a 

complicated series of notes and bonds, and while some personal 

risk was taken, the [defendants] and others were participating 

in the venture in basically a risk-free manner.” 

 Defendants claimed in the trial court that JMHI had no 

value in 1971 and, thus, the transactions by which they assumed 

control of its corporate assets by the assumption of its 

liabilities were “fair.” Responding, the chancellor determined 

that JMHI “had value as a ‘going concern’” when the effort was 

made to change to a for-profit corporation. But the court 

concluded that defendants’ expert testimony was more persuasive 

than plaintiffs’ and that “the value of the corporation did not 

exceed its liabilities.” “However,” the chancellor ruled, “this 

does not constitute a defense to the claims made here.” 

 The defendants’ contentions regarding the merits of the 

suit, including the arguments advanced by amici curiae 

supporting defendants, are premised upon several erroneous 

conclusions. For example, defendants believe the trial court 

recognized that a legally valid “transaction” of some sort 

occurred in 1971. 

 Defendants’ description of the nature of this binding 

“transaction” has evolved from “merger,” to “reorganization,” 

and finally, during oral argument of the appeal, to 

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“acquisition.” Also, defendants and their supporters think this 

case involves the improper meddling by the Commonwealth into the 

internal affairs of a Maryland corporation, contrary to settled 

law and violative of the Full Faith and Credit, Due Process, and 

Commerce Clauses of the United States Constitution. This case 

involves none of the above. 

 The trial court determined that no transaction in the 

nature of a merger or reorganization took place in 1971. The 

chancellor ruled that “no merger of JMHI and JMHC has occurred 

and that the transactions by directors of JMHI are void, the 

assets remained in JMHI until its dissolution. At the time of 

dissolution, these assets passed into and remain in the hands of 

[defendants] as trustees.” This ruling is fully supported by 

the applicable law and the uncontradicted evidence, most of 

which was created by defendants. 

 Because the 1971 “transaction” never occurred, the 1973 

revocation of JMHI’s corporate charter converted its directors 

by operation of law to trustees in dissolution under Maryland 

law. Md. Code Ann., Corporations Art. 23, § 78(a) (1957); 

Cloverfields Improvement Ass’n v. Seabreeze Properties, Inc., 

373 A.2d 935, 939-40 (Md. 1977). Virginia law was and is the 

same. See former Code § 13.1-254 (1973 Repl. Vol.); present 

Code § 13.1-915 (1993 Repl. Vol.). 

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 The charter revocation terminated JMHI’s corporate 

existence and powers, and it could no longer function as a 

corporation. Cloverfields Improvement Ass’n v. Seabreeze

Properties, Inc., 362 A.2d 675, 679 (Md. App. 1976). From that 

day forward, the defendants’ actions purportedly taken as 

corporate officers, and not done to wind up or liquidate the 

business, were without effect because there was no corporation 

for which to act. The corporate assets had automatically 

transferred to the directors as trustees. Cloverfields, 362 

A.2d at 679. 

 Under Maryland law, property of a charitable corporation is 

held in trust for the public. Inasmuch Gospel Mission, Inc. v. 

Mercantile Trust Co. of Baltimore, 40 A.2d 506, 510 (Md. 1945). 

Virginia law is the same. “The corporation was organized for 

charitable or benevolent or literary purposes. Contributions 

made to it and the assets realized therefrom were dedicated to 

those purposes and stamped with a public interest by the 

charter, the laws of this State, sound reason and public policy. 

The members acquired no property rights in, nor were they 

equitably entitled to such assets, either during the lifetime of 

the corporation or upon dissolution. To hold otherwise would 

convert the public nature and purpose of the corporation into a 

vehicle for the personal pecuniary gain of the members.” 

Hanshaw v. Day, 202 Va. 818, 824, 120 S.E.2d 460, 464 (1961). 

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Thus, the defendants’ contentions that this litigation, dealing 

with appropriation of charitable assets by directors for their 

personal gain, involves impermissible interference by Virginia 

with the internal affairs of a foreign corporation, or that a 

“fairness” doctrine should be applied to the 1971 activities, 

are without merit. 

 Accordingly, the circuit court properly exercised its 

authority to insure that these assets, now held by the 

defendants as trustees in liquidation, are distributed in accord 

with the charitable purposes to which they should have been 

devoted. This power to liquidate the assets and business of a 

nonstock corporation may be exercised over the property within 

the court’s jurisdiction “of a foreign corporation that has 

ceased to exist.” Code § 13.1-909(B). See former Code § 13.1-

257(e) (1973 Repl. Vol.). The corporate facilities were located 

solely within this State in Alexandria. 

 Thus, we hold the trial court did not err in taking charge 

of the liquidation of the assets of this dissolved foreign 

corporation, and in providing the relief outlined in the order 

from which this appeal was taken. This record clearly 

demonstrates that the directors of JMHI, now trustees in 

dissolution, have failed and refused to execute the trust. 

 Finally, we have considered, and reject, defendants’ other 

arguments. Only one of those contentions merits discussion. 

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Defendants argue the trial court erred in not sustaining its 

plea based on the doctrine of laches. 

 Laches may not be pled successfully as a defense in an 

equitable proceeding to bar the State from asserting a claim on 

behalf of the public. Board of Supervisors of Tazewell County

v. Norfolk and W. Ry. Co., 119 Va. 763, 790, 91 S.E. 124, 133 

(1916). Accord City of Manassas v. Board of Supervisors of 

Prince William County, 250 Va. 126, 132, 458 S.E.2d 568, 571 

(1995). See Dick Kelly Enter. v. City of Norfolk, 243 Va. 373, 

381, 416 S.E.2d 680, 685 (1992). As we already have said, this 

cause is brought by the Commonwealth on behalf of the public to 

hold and administer charitable assets. Hence, laches does not 

apply. 

 Consequently, we will affirm the judgment appealed from, an 

interlocutory decree adjudicating the principles of the cause, 

and we will remand the cause to the trial court for further 

proceedings. 

Affirmed and remanded. 

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