Court Opinion

ID: 4682746
Source: CourtListenerOpinion
Date Created: 2021-04-30 14:06:36.292984+00
Date Added: 2024-06-11T08:04:10.727784
License: Public Domain

RENDERED: APRIL 23, 2021; 10:00 A.M.
                       NOT TO BE PUBLISHED

                Commonwealth of Kentucky
                         Court of Appeals
                            NO. 2018-CA-1074-MR

ROBERT M. BRANT, DEBRA C. BARCLAY,
ANNA DUNN DENNIS, LOUDA C. BERRY,
LINDA C. MIZE, AND JESSIE M. MASTERS                           APPELLANTS

                APPEAL FROM MADISON CIRCUIT COURT
v.               HONORABLE WILLIAM CLOUSE, JUDGE
                       ACTION NO. 16-CI-00219

BRENDA TURPIN, BRENT CONGLETON,
FRED BRANDENBURG, CHARLES METCALF,
WANDA RICHARDSON, MARY KAYLOR,
REBECCA ALLEN, PAULA ISAACS, SAMMY JONES,
AND FLATWOODS CEMETERY ASSOCIATION, INC.                         APPELLEES

                                   OPINION
                                  AFFIRMING

                                 ** ** ** ** **

BEFORE: ACREE, JONES, AND K. THOMPSON, JUDGES.

ACREE, JUDGE: Appellants appeal from the Madison Circuit Court’s May 4,

2017 and June 15, 2018 orders granting summary judgment in favor of Appellees.

Upon careful consideration, we affirm.
                  BACKGROUND AND PROCEDURAL POSTURE

                Flatwoods Cemetery Association, Inc. (“FCA”) owns and operates a

cemetery in Waco, Kentucky. In January 1999, FCA reorganized as a non-profit

corporation under the Kentucky Nonprofit Corporation Act, KRS1 273.161, et seq.

Its Articles of Incorporation specified its members would be the “legal

representatives of those holding title to burial lots in the cemetery.” Appellants are

members of FCA; Appellees are FCA members who also comprise its Board of

Directors (“Board”).2 This litigation stems from the Board’s amendment of FCA’s

bylaws.

                On April 19, 2015, the Board held a special meeting to discuss the

need to amend FCA’s bylaws. As explained more specifically below, the minutes

of that meeting reflect the Board’s concern about public perception. They feared

the Cemetery was attaining a reputation that it “was not operating legally”; the

Board concluded: “by-laws need[ed] to be updated to agree with the Articles of

Incorporation as well as the need for additional rules in order to stop the

‘aggravation’ from members of the community.” (Record (“R.”) at 663). Copies

1
    Kentucky Revised Statutes.
2
 Since commencement of litigation, some of the appellees no longer serve on FCA’s Board of
Directors.
                                            -2-
of the proposed amendments were distributed to the directors and they agreed to

hold a second special meeting to vote on the proposed amendments.

             The second special meeting convened on April 23, 2015, and the

Board adopted the proposed amended bylaws. Although the bulk of the bylaws

remained unchanged, Appellants found specific reason to object to the

amendments, particularly those regarding election of directors.

             The original bylaws provided for members to elect directors at their

annual FCA membership meeting. The amended bylaws effectively divested the

members of their authority to elect directors. Under the amended bylaws, current

Board members elect successor directors from a slate of candidates submitted by a

Nominating Committee comprised of FCA members selected by the Board.

             In addition, the bylaws’ amendments eliminated an apparent direct

conflict between the Articles of Incorporation and the original bylaws. The

Articles limited the number of directors to a maximum of seven (7), but the

original bylaws provided for nine (9) directors, no more and no less; each

director’s term was set at one (1) year in both governing documents.

             Under the amended bylaws, there initially would be seven (7)

directors (conforming with the Articles) who would serve for not longer than one

year. The amended bylaws provided that, thereafter, there would be nine (9)

directors. During the 1-year term of the seven (7) initial directors, the Nominating

                                         -3-
Committee’s first task would be to nominate FCA members to fill a total of nine

(9) director positions. Directors’ terms were increased such that three of the nine

directors had 3-year terms, three had 5-year terms, and three had 7-year terms.

             In response, some FCA members, unhappy with these actions, held a

meeting to entertain a motion for a vote of no confidence in the Board. They then

scheduled another members’ meeting for September 27, 2015, to elect a new board

of directors (“New Board”). Notice of that meeting was published in the local

newspaper. At the meeting, the members elected the Appellants as the New Board.

However, the original Board refused to step down, turn over corporate documents,

or relinquish control of the Corporation to the New Board, asserting they were not

properly removed and that the election of the New Board was not valid under the

FCA’s governing documents.

             Appellants filed a complaint on May 16, 2016. The complaint was

brought by Appellants “on behalf of Flatwood Cemetery Association, Inc. by and

through the [New Board] (the ‘Corporation’) and individually as the duly elected

president, directors, and members of the Corporation . . . .” (R. at 3-15). It

included five counts:

                                         -4-
                 COUNT I: TURPIN’S[3] BREACH OF FIDUCIARY
                                   DUTY

                 ....

                 Turpin, as the former president and putative agent of the
                 Former Board,[4] owed fiduciary duties to the Corporation,
                 its members, and Plaintiffs as the duly elected president
                 and/or directors, including without limitation discharging
                 her duties as an officer in good faith.

                 Turpin breached her duties, which included but were not
                 necessarily limited to (a) failing to give notice of the
                 special meeting [to the members] conducted on or about
                 April 23, 2015; (b) failing to seasonably notify the other
                 members that during the meeting, the Former Board had
                 attempted to adopt the Purported Amendment and re-elect
                 themselves pursuant to said amendment notwithstanding
                 prior complaints of mismanagement by members; (c)
                 failing to seasonably produce records, materials, and other
                 items upon request by a member as required by statute;
                 and (d) causing there to be published false notices
                 informing the members and the public that, inter alia, the
                 meeting scheduled for September 27, 2015 was not an
                 authorized election, which constituted a material and false
                 representation, was known to be false or made recklessly,
                 and was made with inducement to be acted upon; and/or
                 (e) continuing to conduct business on behalf of the
                 Corporation after being replaced.

                 ....

3
    Brenda Turpin was a director and President of FCA when the bylaws were amended.
4
    The complaint refers to the Board as the “Former Board.”
                                                -5-
 COUNT II: FORMER DIRECTORS’ BREACHES
            OF FIDUCIARY DUTY
....

[Appellees] owe fiduciary duties to the Corporation and its
members including without limitation discharging their
duties as directors in good faith.

Said individuals breached their fiduciary duties by (a)
conducting a special meeting on or about April 23, 2015,
during which they acted ultra vires by failing to give
notice of the meeting, despite prior complaints of
mismanagement by numerous members, and improperly
attempting to amend the bylaws to disenfranchise
members and establish [a] self-perpetuating board; failing
to notify the members of the purported Amendment and
improperly attempting to re-elect themselves pursuant to
the purported Amendment; (b) failing to seasonably notify
the members of the attempted election; (c) failing to hold
an annual meeting of the members on the Sunday before
Memorial Day or May 24, 2015 as required by the
[original] Bylaws; (d) failing to seasonably produce
records, materials, and other items upon request by a
member as required by statute; and/or (e) otherwise
continuing to conduct business on behalf of the
Corporation after being replaced. Said individuals are
further liable vicariously for the breaches of fiduciary
committed by Turpin as their agent.

....

       COUNT III: DECLARATION OF RIGHTS

....

An actual controversy exists regarding whether (a) the
Former Board had authority on or about April 23, 2015 to
adopt the purported Amendment and re-elect themselves
pursuant to said Amendment; and (b) whether the new
Board was duly elected on September 27, 2015.
                            -6-
The Court should declare that (a) the former Board acted
ultra vires in attempting to adopt the purported
Amendment, with said Amendment being null, void, and
in violation Kentucky law [sic] and the Corporation’s
governing documents; (b) Plaintiffs were duly elected on
September 27, 2015; and (c) that the Former board
continues to act ultra vires in conducting business on
behalf of the Corporation and refusing to surrender
corporate property.

              COUNT IV: INJUNCTION
....

This Court should exercise its inherent power, sitting in
equity, to permanently enjoin the Defendants from holding
themselves out as directors, officer, or otherwise agents of
the corporation and from conducting any business on
behalf of the Corporation.

The Court should further enter a permanent injunction
ordering Defendants and agents to return all corporate
assets, records, materials, and other items of nay kind
pertaining or belonging to the Corporation.

              COUNT V: CONVERSION
....

Plaintiffs, as majority of directors of the duly elected
Board, have a legal right to all records, materials, and other
items of any kind owned by or pertaining to the
Corporation.

Defendants are exercising dominion and control over said
records, materials, and other items in a manner that has
deprived Plaintiffs of their right to use and enjoy said
property belonging to the Corporation, and have failed to
return said property on demand.

                             -7-
                Plaintiffs are informed and believe that Defendants, acting
                without authority, have contracted for services to be paid
                with corporate assets, including without limitation
                payment of an attorney to represent them in the dispute
                with the duly elected Board.

                Such breaches have actually and proximately caused
                damage to Plaintiffs and the Corporation in an amount
                which exceeds this Court’s jurisdictional minimum, which
                should be awarded to them or, in the alternative, the Court
                should order Defendants to return all such property to
                Brant as the duly-elected president of the Corporation and
                reimburse the Corporation for any funds expended ultra
                vires.

(R. at 11-14).

                Among other defenses, Appellees asserted Appellants lacked standing

to bring any of the claims. After denying the substance of the allegations,

Appellees counterclaimed. The counterclaim alleged Appellants falsely claimed

status as FCA officers and directors, effectively usurping the authority of the duly

elected Board and intentionally and improperly interfering with FCA’s operation

and its existing and prospective business relationships.5

                On September 29, 2016, Appellants filed a motion for partial

declaratory judgment, temporary injunction, and appointment of a receiver. They

sought a declaratory judgment from the circuit court that the Board’s bylaws’

amendments and elections of new directors were void ultra vires acts. They also

5
    Eventually, Appellees would abandon the counterclaim.
                                               -8-
sought a temporary injunction prohibiting appellees from holding themselves out

as directors, officers, and agents of FCA. (R. at 143-62). Appellees responded and

moved to dismiss the Appellants’ complaint. (R. at 204-08).

               The circuit court held a hearing on October 25, 2016 and issued a

ruling from the bench finding the bylaws were properly amended. The circuit

court entered an order on May 4, 2017,6 consistent with its October 25 findings.

The order denied Appellants’ motion for a temporary injunction and appointment

of receiver. Additionally, it held as follows:

               The Court finds and declares that the Flatwoods Cemetery
               Association, Inc. properly amended its bylaws on April 23,
               2015 and that the amendment and bylaws themselves
               comply with, and do not contravene, Kentucky Law, the
               Association’s original bylaws, and the Association’s
               Articles of Incorporation.

(R. at 349).

               Appellees then filed a motion for summary judgment on the remaining

breach of fiduciary claims. They argued the Board members owed no duties to the

individual members of FCA and, regardless, no duty was breached. Appellants

responded and, for the first time, specifically alleged that their complaint was a

6
 This delay occurred because Appellants filed a Petition for a Writ of Prohibition with this
Court. The petition was denied. Robert M. Brant, et al v Hon William G. Clouse, Jr. Judge,
Madison Circuit Court, et al, No. 2017-CA-0207-OA (Ky. App. June 8, 2017).
                                              -9-
derivative action they filed as members bringing the claim on behalf of FCA. (R.

at 627-48).

              The circuit court granted Appellees’ motion on June 15, 2018. It

concluded that directors of a non-profit corporation only owe fiduciary duties to

the corporation itself, and not to individual members. Accordingly, all individually

named Appellees were dismissed. The court further concluded Kentucky law does

not authorize derivative actions against non-profit corporations and, therefore, the

Appellees were entitled to summary judgment on all counts in the Appellants’

complaint. (R. at 827).

              Nevertheless, the circuit court undertook an alternative analysis,

holding as follows:

              Even if derivative actions against a non-profit corporation
              were permissible, the Court still finds summary judgment
              is appropriate. First, the [Appellants] have had ample time
              to conduct discovery in this matter and have not produced
              any evidence giving rise to any of their claims or placing
              in dispute a material fact. As such, there are no facts in
              the record supporting [Appellants’] claims. Second, the
              Court finds that the Board of Directors of [] Flatwoods
              Cemetery Association, Inc. substantially complied with all
              common law duties incumbent upon them and
              substantially complied with the requirements of KRS
              Chapter 273, the Chapter governing non-profit
              corporations. Third, the Court finds that, even if the matter
              were a permissible derivative suit, the [Appellants] do not
              adequately represent the interests of the members of the
              Corporation. Finally, the Court has previously determined
              that the amendment of the Corporation’s bylaws–the root
              cause of this litigation–was proper, and reiterates that the
                                          -10-
             Board of Directors had the authority to amend same. See
             KRS 273.191 and Hollins v. Edmonds, 616 S.W.2d 801
             (Ky. App. 1981).

(R. at 827-28).

             Appellants then appealed from the May 4, 2017 and June 15, 2018

Orders. We set forth additional facts where necessary in the analysis.

                            STANDARD OF REVIEW

             “The proper standard of review on appeal when a trial judge has

granted a motion for summary judgment is whether the record, when examined in

its entirety, shows there is ‘no genuine issue as to any material fact and the moving

party is entitled to a judgment as a matter of law.’” Hammons v. Hammons, 327

S.W.3d 444, 448 (Ky. 2010) (quoting Kentucky Rules of Civil Procedure (CR)

56.03). “Because summary judgment does not require findings of fact but only an

examination of the record to determine whether material issues of fact exist, we

generally review the grant of summary judgment without deference to either the

trial court’s assessment of the record or its legal conclusions.” Id. (citing Malone

v. Ky. Farm Bur. Mut. Ins. Co., 287 S.W.3d 656, 658 (Ky. 2009)).

                                    ANALYSIS

             We agree with the circuit court that “the amendment of the

Corporation’s bylaws [is] the root cause of this litigation[.]” However, in addition

to being the root cause, this statement identifies the ultimate fact question – was

                                         -11-
amendment of the bylaws lawful or ultra vires? If we accepted Appellants’ first

allegation that they are pursuing their claims as the only lawful Board of Directors,

we would necessarily be prejudging their claim that Appellees were not lawful

Directors, effectively agreeing with Appellees’ second allegation that Appellants

committed ultra vires acts – and that takes us back to the ultimate fact question.

Therefore, this cannot be our starting point for review.

             The nature of these claims and defenses compel this Court to first

address questions that arose only as the Appellants’ cause proceeded below – in

what context did Appellants initiate this action, and did they have standing to do

so? We consider this question in light of the fact that Kentucky is a notice

pleading jurisdiction where the central purpose of pleadings remains notice of

claims and defenses. Pete v. Anderson, 413 S.W.3d 291, 301 (Ky. 2013).

             We begin by noting that “the question of who has standing to enforce

the directors’ fiduciary duties - a relatively simple issue in the business context -

becomes rather complex in the nonprofit context.” The Fiduciary Duties of

Directors, 105 HARV. L. REV. 1590, 1594 (1992). Appellants take two approaches.

We address both.

Nonprofit directors owe fiduciary duty to corporation, not individual members

             First, citing Ballard v. 1400 Willow Council of Co-Owners, Inc., 430

S.W.3d 229 (Ky. 2013), Appellants suggest individuals injured by the conduct of a

                                         -12-
non-profit corporation may bring direct actions against it. However, the

Appellants did not sue the corporation; they sued individuals they claimed owed

them a duty directly. The circuit court correctly cited Ballard for the rule of law

that officers and directors of nonprofit corporations owe a fiduciary duty to the

corporation but not to the individual members. Id. at 241. Their claims that the

officers and directors injured them as members cannot prevail. Furthermore,

because we conclude Appellees engaged in no ultra vires acts, as discussed below,

there is no basis for concluding there was a breach of those fiduciary duties in any

event.

Derivative actions against non-profit corporations

              Second, after effectively abandoning the first argument in their brief,

the Appellants claim they brought the action against the Appellees, officers, and

directors, derivatively, on behalf and in the name of the corporation. A strong

argument can be made that the Kentucky legislature purposefully withheld from

members of nonprofit corporations the authority to pursue actions derivatively.

              Prior to 2012, among the separate chapters of Kentucky Revised

Statutes governing various forms of business organization,7 only one authorized its

7
 KRS Ch. 271B (Business Corporations); KRS Ch. 272 (Cooperative Corporations and
Associations); KRS Ch. 272A (Kentucky Uniform Limited Cooperative Association Act); KRS
CH. 273 (Religious, Charitable, and Educational Societies; Nonstock, Nonprofit Corporations);
KRS Ch. 274 (Professional Service Corporations); KRS Ch. 275 (Limited Liability Companies).

                                            -13-
member/shareholders to bring derivative actions – KRS Chapter 271B. KRS

271B.337. That year, the legislature enacted the Kentucky Uniform Limited

Cooperative Association Act, 2012 Kentucky Laws Chapter 160 (HB 441) (2012).

It included a provision creating a new statute expressly stating that “[a] member

may maintain a derivative action to enforce a right of a limited cooperative

association . . . .” KRS 272A.13-010. The Act did not add a similar new section to

Chapter 273 authorizing derivative claims to be brought against nonprofit

corporations.

              Then, in 2015, the legislature enacted revisions to many of the

chapters of Kentucky law governing the various authorized forms of business.

2015 Kentucky Laws Ch. 34 (HB 440) (2015). In that Act, the legislature

expressly added to the chapter governing limited liability companies, KRS Chapter

275, the right of members to bring derivative actions. KRS 275.337. The Act did

not add the same authority to Chapter 273 governing nonprofit corporations.8

8
  Furthermore, a comparison of HB 440 as posted on February 12, 2015 with the House Judiciary
Committee Substitute (February 26, 2015) reveals that Sections 76 through 84 of the Act were
deleted before passage. Thomas E. Rutledge, The 2015 Amendments to the Kentucky Business
Entity Statutes, 43 N. KY. L. REV. 129, 156 (2016). Although the words “derivative action” do
not appear in those deleted sections, reference is made more than once to “a proceeding by or in
the right of the corporation in which the director is adjudged liable to the corporation[,]”
suggesting the right to pursue a derivative action. These Sections 76 through 84 “were deleted at
the request of the Kentucky Nonprofit Network.” Id.

                                              -14-
              On the other hand, one noted Kentucky authority on derivative actions

concluded that statutory authority is unnecessary. See, generally, Thomas E.

Rutledge, Who Will Watch the Watchers?: Derivative Actions in Nonprofit

Corporations, 103 KY. L.J. ONLINE 4 (Apr. 22, 2015).9 He points out that,

historically speaking, “the derivative action is a question of equitable standing that

was later, in certain contexts, reduced to statute.” Id. at 4. He posits that “equity

will provide the rules applicable when the organizational statute does not specify

the rules governing derivative actions.” Id. Whether this erstwhile basis for

claiming standing to bring a derivative action will be embraced remains a question,

given recent Kentucky Supreme Court opinions addressing an analogous question

of attorney fee awards.

              Just as derivative action standing was once based in equity, so was the

award of attorney fees. “The courts of the Commonwealth were previously

empowered to award attorneys’ fees as an equitable measure, when, within the

discretion of the court, it was deemed appropriate.” Seeger v. Lanham, 542

S.W.3d 286, 294 (Ky. 2018). In Bell v. Commonwealth, an attorney argued he was

entitled to the circuit court’s attorney fee award based on that equity principle, but

9
  https://www.kentuckylawjournal.org/online-originals/index.php/2015/04/22/who-will-watch-
the-watchers (Last visited February 2, 2021).
                                           -15-
the Supreme Court reversed the award, making it clear that “law trumps equity.”

423 S.W.3d 742, 747 (Ky. 2014).

             “Modern jurisprudence is first a creature of the governing

constitutions, then of code (statutes), and of case law precedent [and] attorney’s

fees in Kentucky are not awarded as costs to the prevailing party unless there is a

statute permitting it or as a term of a contract[] . . . .” Id. at 747, 748. Whether this

same reasoning will apply to prohibit derivative actions unless there is a statute

permitting them, this Court cannot say.

             Fortunately, because of the circuit court’s comprehensive analysis, we

need not decide this standing question. We can presume for purposes of review,

without holding, that Appellants had standing to bring this action. We can even

presume, without holding, that Appellants’ fiduciary duties were owed to

Appellants. We can affirm the judgment on the practical grounds found by circuit

court that Appellees complied with the law and FCA’s organizational documents

and, therefore, breached no duties to anyone.

Appellees did not engage in ultra vires acts by amending the bylaws

             Appellants argue adoption of the amended bylaws was an ultra vires

act. Specifically, they contend Appellees exceeded their authority by: (1) electing

directors in violation of KRS 273.201; (2) amending the Articles in violation of

                                          -16-
KRS 273.263; and (3) making bylaws inconsistent with the law or Articles in

violation of KRS 273.191. We are not persuaded by these arguments.

             Appellants believe their voting rights are secured by statute. We look

to those statutes, especially those noted by Appellants.

             The statute governing members voting on any measure, including

election contests, is set out in KRS 273.201. In pertinent part, that statute says

“[t]he right of the members . . . to vote may be limited, enlarged or denied to the

extent specified in the articles of incorporation or the bylaws.” KRS 273.201(1).

Article VII, 1 of the Articles of Incorporation say, “The affairs and business of the

corporation shall be conducted by a board of directors . . . chosen as provided in

the bylaws of the corporation.” (R. at 652). The original bylaws Article III(B)

said, “The Board of Directors shall be elected at the annual meeting of

members[,]” and we must presume the vote was not limited to members who were

also directors in attendance. However, a provision more relevant to these

circumstances is found in the Articles of Incorporation, stating in pertinent part,

“The board of directors . . . shall have the power and authority to adopt bylaws . . .

and to adopt any subsequent amendments thereto.” (R. at 653). The original

bylaws Article VII says:

             These by-laws may be amended, altered, changed, added
             to, or repealed by the affirmative vote of a majority of the
             Board of Directors if notice of the proposed amendment,

                                         -17-
             alteration, change, addition, or repeal be contained in the
             notice of the meeting to the Board of Directors.

             Exercising the authority vested in the Board of Directors by these

governing documents, after being given notice on April 19, 2015, the Board acted

by majority vote to amend the bylaws to change the method by which directors

were elected. Notwithstanding Appellants’ dislike of the decision, there was

nothing about the vote that violated any statute, or either the Articles or original

bylaws.

             Appellants point to KRS 273.263 and argue Appellees illegally

circumvented FCA’s Articles of Incorporation by creating a self-perpetuating

Board. However, that statute addresses the procedure for amending a corporation’s

articles and provides no support for their argument. Furthermore, as quoted above,

the Articles do not entitle members to elect directors, nor do they authorize

members to be involved in the bylaws’ amendment process.

             In fact, when pressed on this issue by the circuit court, the Appellants

could never say where any bylaw bestowed upon them this right. At the hearing,

the circuit court noted that “[t]hese Articles are very barebones . . . ,” and asked,

“[W]here in the Articles do these bylaws in any way, shape, fashion, or form

circumvent the Articles? If they did, I think you’ve got an argument, but I couldn’t

find it. Show me where the Articles of Incorporation and bylaws conflict.” (Video

Record (VR) 10/25/2016; 10:59:00). Counsel for Appellants could not answer.
                                          -18-
             Instead, counsel deflected the question by talking about non-profits

and for-profit corporations. (VR 10/25/2016; 10:59:57). The circuit court asked

again, “Show where the bylaws conflict with the Articles?” (VR 10/25/2016;

11:01:54). This time, counsel pointed to Article VII that pertains to “Membership

Meetings.” It says only that “[t]he members of the corporation shall be the legal

representative of those holding title to burial lots in the cemetery.” (R. at 652).

The circuit court then pushed counsel on this issue, asking how Article VII

conflicts with the bylaws because the bylaws do not redefine who comprises the

members. Counsel never presented an adequate answer.

             Additionally, Appellants argue amending the Articles was a violation

of KRS 273.191 which says, “The bylaws may contain any provisions for the

regulation and management of the affairs of a corporation not inconsistent with law

or the articles of incorporation.” Id. (emphasis added). They contend the

Appellees’ bylaws’ amendments illegally took away their rights to elect directors

by adopting the disputed bylaws and that said adoption violated the law and the

Articles of Incorporation. Again, we disagree.

             The statutes governing FCA support the action taken by Appellees.

According to KRS 273.247(4):

             Unless the articles of incorporation provide that a change
             in the number of directors shall be made only by
             amendment to the articles of incorporation, a change in the
             number of directors made by amendment to the bylaws
                                         -19-
             shall be controlling. In all other cases, when a provision
             of the articles of incorporation is inconsistent with a
             bylaw, the provision of the articles of incorporation shall
             be controlling.

Id. The first half of the first sentence does not apply because these Articles do not

provide that the number of directors may be changed only by amending the

Articles. The second half of the sentence does apply – “a change in the number of

directors made by amendment to the bylaws shall be controlling.” Because that

part of the statute controls here, the second sentence which applies “[i]n all other

cases,” is inapplicable.

             The bylaws’ amendment changing how directors are elected and the

number of directors on the board is lawful. The Appellees acted well within the

confines of the law. The amended bylaws do not conflict with the Articles, nor do

the bylaws or the Articles conflict with the statutory requirements governing non-

profit corporations.

Appellees did not attempt to conceal their conduct from FCA members

             Appellants also assert that Appellees breached their duty of good faith

by failing to notice them of the April 19, 2015 and April 23, 2015 special meetings

in which the Board discussed and adopted the new bylaws and appointed

themselves directors. First and foremost, we fail to see how this claim implicates

any duty owed to the corporation. Nonetheless, for the sake of thorough analysis,

we address it.
                                         -20-
               Appellants consistently refer to these meetings as “secret.” However,

the minutes of both meetings clearly state that these are special meetings of the

Board. (R. at 663-64). The original bylaws, which governed the procedure for

calling a special meeting at that time, states:

               The special meeting of the Board of Directors may be
               called by or at the request of the president or by a majority
               of the directors in office. Persons authorized to call special
               meetings of the Board of Directors may fix any place,
               either within or without [sic] the Commonwealth of
               Kentucky, as the place for holding any special meeting of
               the Board of Directors called by them.

(R. at 656).

               Special meetings, unlike annual members meetings, call for the

participation solely of the Board of Directors. There is no requirement, in either

the Articles of Incorporation or the bylaws, that members be given notice of such

meetings. Additionally, Appellants’ assertion that Appellees attempted to conceal

their meeting by declaring that copies given to the directors of the then proposed

new bylaws “are not a community document [sic] and are not to be discussed with

anyone since the Board has not discussed or voted on them” does not prove bad

faith. To the contrary, preventing the dissemination of the work product of

proposed corporate action, if anything, demonstrates appropriate business practice.

                                           -21-
Appellees did not obstruct a lawful effort to remove them as directors

                 Appellants learned of the adoption of new bylaws at the June 20, 2015

annual meeting. FCA members responded by subsequently holding a vote of no

confidence. A document in this record, entitled “Flatwoods Cemetery

Members/Shareholders Movement to Elect a New Board of Directors,” states:

                 As a result of the member/shareholder meeting with the
                 Board of Directors of the Flatwoods Cemetery on June 20,
                 2015, the following motion was made and seconded: As
                 a vote of “no-confidence” in the areas of finance,
                 management, and member/shareholder cooperation, an
                 election should be held by the members/shareholders for
                 the purpose of electing a new Board of Directors.

                 If you, as a member/shareholder of the Flatwoods
                 Cemetery agree with this motion to elect a new Board of
                 Directors, please sign below:

(R. at 763-73). From what this Court can discern, approximately 153 signatures

appear on this document.10

                 FCA members then scheduled a member’s meeting for September 27,

2015, to elect the New Board. Notice of this meeting was advertised in the local

newspaper. In response, Appellees published the following newspaper article:

                 The ad running in the Richmond Register concerning a
                 meeting and election to be held on Sunday, September 27
                 at Waco Elementary is NOT an official/authorized
                 election of the Board of Directors of the Flatwoods
                 Cemetery. This election is being held by individuals who

10
     It is unclear when or where any of these signatures were obtained.

                                                -22-
               are NOT on the Board of Directors and, therefore, are not
               legally authorized to hold elections. All elections for
               Flatwoods Cemetery are held over Memorial Day
               Weekend as stated in the Bylaws in order for ALL
               shareholders to have an opportunity to vote.[11]

(R. at 775).

               Nonetheless, a gathering of members occurred, at which time a vote

was taken, purportedly electing the Appellants as the New Board. Appellees

refused to step down from their position. Appellants contend Appellees’ refusal to

step down breached their duty of good faith and intentionally obstructed the

Appellants’ lawful effort to remove them. We disagree.

               Nothing in the record indicates the meeting was called in accordance

with the corporate documents. Article VII, 1 of the Articles of Incorporation

states, “Special meetings of the members may be called by the president.” There is

no evidence the president called such a special meeting. The effort to remove the

Appellees from their positions by electing their successors was not pursued by

lawful means. The meeting at which a vote took place to elect the New Board was

not a lawful meeting because it was not in accord with the Articles of

Incorporation.

11
 We note the new bylaws grants the FCA Board with the authority to elect directors, not
members.
                                            -23-
             Nor was the purported removal of existing directors to make room for

the New Board conducted in accordance with the bylaws. Directors may be

removed from office pursuant to any removal procedure provided in the articles of

incorporation or bylaws. KRS 273.211(4). FCA’s Articles of Incorporation do not

provide such a procedure, but its bylaws do. They state:

             Any directors may be removed by . . . a vote by the burial
             right owners (“members”) of the Flatwoods Cemetery
             Association, Inc. [] consisting of at least one-tenth (1/10)
             of the Members in favor of removal, having a maximum
             of one vote per burial right space. In any Member vote,
             opposing Co-ownership Member votes act to cancel that
             vote.

(R. at 734). There is no evidence this procedure was followed, nor would it matter

because, without the proper notice, a meeting for any purpose was contrary to

FCA’s governing documents.

             Additionally, Appellees did not “obstruct the lawful effort to remove

them” by publishing the aforementioned advertisement in the newspaper. Nothing

stated in the advertisement is incorrect. In particular, the statement in the

advertisement that the September 27, 2015 meeting was unauthorized is true.

There is no genuine issue of material fact regarding this claim and it was properly

decided in favor of Appellees.

                                         -24-
Appellees did not refuse to provide corporate records to members

            KRS 273.233 states that “[a]ll books and records of a corporation may

be inspected and copied by any member, or the member’s agent or attorney, for

any proper purpose at any reasonable time.” No Appellant claimed that right.

Instead, one or more members demanded copies of documents be provided and,

subsequently, demanded the records be turned over to the New Board. Nothing in

the corporate documents or the statutes requires the Board to have acceded to

either demand. There is no evidence that Appellants were denied the right to

inspect corporate records.

Appellees did not fail to maintain corporate records

            KRS 273.233 requires that all corporate records must be maintained.

Appellants contend “[s]ince Appellees acknowledge that they have failed to

maintain [corporate] records, there is uncontroverted evidence that they have

breached their duties.” Appellants do not cite where Appellees acknowledged not

keeping corporate records or what corporate records were not maintained. We find

no merit in this argument.

Appellants had sufficient time to conduct discovery prior to summary judgment

            “[F]or summary judgment to be properly granted, the party opposing

the motion must have been given adequate opportunity to discover the relevant

facts.” Suter v. Mazyck, 226 S.W.3d 837, 842 (Ky. App. 2007). “As a practical

                                       -25-
matter, complex factual cases necessarily require more discovery than those where

the facts are straightforward and readily accessible to all parties.” Id.

             In its summary judgment, the circuit court concluded that “the

[Appellants] have had ample time to conduct discovery in this matter and have not

produced any evidence giving rise to any of their claims or placing in dispute a

material fact.” We agree.

             This is not a factually complex case. Over two years elapsed between

the filing of Appellants’ complaint and the circuit court’s entry of summary

judgment. Appellants had ample opportunity to personally inspect and copy all

corporate documents and to uncover any facts supporting their claims. They failed

to do so. In the interest of finality of judgments, we see no justification in

reversing the circuit court’s conclusion that Appellants had sufficient time to

discover all that was needed to prove their allegations and failed to do so.

                                   CONCLUSION

             Based on the foregoing, we affirm the Madison Circuit Court’s May

4, 2017 and June 15, 2018 Orders.

             JONES, JUDGE, CONCURS.

             THOMPSON, K., JUDGE, CONCURS IN RESULT ONLY AND

FILES SEPARATE OPINION.

                                         -26-
             THOMPSON, K., JUDGE, CONCURRING: I agree summary

judgment was appropriately granted in this case because the appellant members of

the Flatwoods Cemetery Association (FCA) have not established a factual dispute

as to wrongdoing on the part of its Board of Directors. I write separately to

express my concern that special care needs to be taken in reviewing the Board’s

decision to eliminate established voting by the members, as such an action is

typically not in the best interest of a nonprofit corporation. Had the members

presented evidence, rather than mere supposition, that the Board was using the

elimination of voting rights to harm the nonprofit by facilitating wrongdoing, I

would rule that equity allows for redress through a derivative action.

             The directors have a fiduciary duty to act in good faith towards the

nonprofit corporation. Kentucky Revised Statutes (KRS) 273.173(1); Ballard v.

1400 Willow Council of Co-Owners, Inc., 430 S.W.3d 229, 241 (Ky. 2013).

             The business judgment rule provides “a presumption that in making a

business decision, not involving self-interest, the directors of a corporation acted

on an informed basis, in good faith and in the honest belief that the action taken

was in the best interests of the company.” Allied Ready Mix Co., Inc. ex rel.

Mattingly v. Allen, 994 S.W.2d 4, 8-9 (Ky.App. 1998) (quoting Spiegel v.

Buntrock, 571 A.2d 767, 774 (Del. 1990)).

                                         -27-
              While the Board may not have been acting illegally or in

contravention of the articles of incorporation or bylaws in amending the bylaws so

that members could no longer vote for directors, who would now nominate and

vote for directors themselves, my concern is whether such a change was in the best

interest of the corporation and what check there is upon the Board’s actions going

forward. The argument appears to be, because the directors were not forbidden

from changing the mechanism for voting to concentrate power in themselves, this

action comports with what is in the best interest of FCA pursuant to the business

judgment rule and must be permitted.

              I do not agree that this is necessarily so. While many of the

amendments to the bylaws clearly would be protected by the business judgment

rule, the changes to the voting system could be a self-interested change which

benefits the directors in their effort to maintain power rather than benefiting the

nonprofit itself.

              The act of amending the bylaws cannot be considered in isolation.

The amendments came at a time when appellants allege cemetery members were

legitimately concerned with mismanagement, nepotism, and vote tampering during

recent elections. The depth of their concern was understandable given the fact that

these actions could imperil their expectations regarding the final resting place for

themselves and their loved ones.

                                         -28-
             The way the Board acted in changing the election scheme contributed

to an atmosphere of distrust and suspicion. While the directors may have acted

within the confines of their power, just because something is permitted does not

always mean it is wise. Rather than announce that the Board was considering

changes to the bylaws or announcing the changes once they were adopted, the

Board acted in a secretive manner which members interpreted as suspicious when

the Board failed to call the annual meeting as scheduled in the previous bylaws or

provide an explanation as to why the meeting was not called at that time. Further,

once the Board called a meeting and admitted the bylaws had been changed, the

Board appeared to be denying the members the opportunity to review the changes

by setting a $35 fee for a copy of the new bylaws, an exorbitant cost for a short

document. The Board treated the members’ concerns as bothersome. In this

context, it is understandable why the members reacted as they did.

             If the Board of Directors had nefarious purposes, eliminating the

check of their election by the members would conveniently prevent the members

from “voting the crooks out” and replacing them. Although the bylaws retain a

mechanism to remove directors by a vote of the members, without a right to elect

replacements it is not an effective tool.

             We live in a country that values democracy and the power of the vote.

While it may be argued that electing our governmental representatives is a distinct

                                            -29-
privilege from other types of voting, and the voting involved here is of less

importance, courts should exercise extreme caution in upholding actions which

remove the right to vote from the governed.

             I believe that the retention of voting rights by members is usually in

the best interest of a nonprofit corporation, even in the relatively small bailiwick of

a cemetery association. While nefarious purposes and harm to the nonprofit

corporation could not be established here, the majority opinion should not be read

to foreclose redress through a derivative action in an appropriate case.

             Accordingly, I concur.

 BRIEFS FOR APPELLANTS:                     BRIEF FOR APPELLEES:

 G. Cliff Stidham                           Brooks Stumbo
 Lynn C. Stidham                            Mount Olivet, Kentucky
 Sandra L. Manche
 Lexington, Kentucky

                                         -30-