Court Opinion

ID: 1047057
Source: CourtListenerOpinion
Date Created: 2013-10-08 02:42:06.215365+00
Date Added: 2024-06-11T12:53:25.407285
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                             AT JACKSON
                                October 25, 2011 Session

  PEE WEE WISDOM CHILD DEVELOPMENT CENTER and VIVIAN
BRAXTON v. ROBERT E. COOPER, JR. In his official capacity as Attorney
           General & Reporter for the State of Tennessee

         Extraordinary Appeal from the Chancery Court for Shelby County
                  No. CH-02-1540-3     Walter Evans, Chancellor

              No. W2010-00484-COA-R10-CV - Filed February 14, 2012

This extraordinary appeal involves proceedings to dissolve a nonprofit corporation. After
the case had been pending in the trial court for seven years, with a court-appointed receiver
in control of the nonprofit corporation’s assets, the trial court dismissed the case in its
entirety based upon a motion to dismiss that was filed early in the proceedings but never
heard. We conclude that the trial court erred in doing so, and therefore, we reverse and
remand for further proceedings, to include an orderly winding up of the nonprofit
corporation’s affairs and a proper termination of the receivership when appropriate.

     Tenn. R. App. 10; Extraordinary Appeal; Judgment of the Chancery Court
                             Reversed and Remanded

A LAN E. H IGHERS, P.J., W.S., delivered the opinion of the Court, in which D AVID R. F ARMER,
J., joined and H OLLY M. K IRBY, J., dissented.

Vivan J. Braxton, Germantown, Tennessee, pro se

Robert E. Cooper, Jr., Attorney General and Reporter, Joseph F. Whalen, Associate Solicitor
General, Michael A. Meyer, Deputy Attorney General, Nashville, Tennessee, for the
appellee, Robert E. Cooper, Jr., Attorney General and Reporter

Robert A. Cox, Memphis, Tennessee, for the appellees, Robert Dinkelspiel, Indiv. and the
Law Firm of Apperson Crump Maxwell, PLC
                                                OPINION

                               I.   F ACTS & P ROCEDURAL H ISTORY

       Pee Wee Wisdom Child Development Center (“Pee Wee”) was formed as a nonprofit
public benefit corporation pursuant to the Tennessee Nonprofit Corporation Act, Tenn. Code
Ann. § 48-51-101, et seq. Pee Wee operated a child care center in Memphis and was very
heavily subsidized by the State of Tennessee. Pee Wee received payments directly from the
State for tuition and food for the children.

        Vivian Braxton was the incorporator and executive director of Pee Wee. Around May
of 2002, the Tennessee Attorney General opened an investigation of Pee Wee in order to
determine whether Pee Wee or Ms. Braxton had violated the Nonprofit Corporation Act and
whether grounds existed for dissolution of the nonprofit charter.1 The Attorney General
indicated that he was considering bringing an action for judicial dissolution of Pee Wee, but
before the Attorney General took such action, Ms. Braxton and Pee Wee (collectively,
“Plaintiffs”) instituted this case in the Chancery Court of Shelby County. They styled their
complaint as a “Verified Complaint for Declaratory Judgment, Equitable Relief and
Alternative Relief,” and they named the Attorney General as a defendant. Among other
things, Plaintiffs asked the court to approve certain “conflict of interest transactions” between
Ms. Braxton and Pee Wee and to declare that the Attorney General lacked sufficient evidence
to force an involuntary dissolution of Pee Wee. The complaint also included a section
entitled, “Application to Proceed with Voluntary Dissolution,” in which Plaintiffs asked the
court to supervise a voluntary dissolution of Pee Wee pursuant to Tennessee Code Annotated

        1
          A court of record with proper venue may dissolve a nonprofit corporation in a proceeding instituted
by the Attorney General if it is established that the nonprofit corporation:

        (A) Obtained its charter through fraud;
        (B) Has exceeded or abused the authority conferred upon it by law;
        (C) Has violated any provision of law resulting in the forfeiture of its charter;
        (D) Has carried on, conducted, or transacted its business or affairs in a persistently
        fraudulent or illegal manner;
        (E) Is a public benefit corporation and the corporate assets are being misapplied or wasted;
        or
        (F) Is a public benefit corporation and is no longer able to carry out its purposes; provided,
        that the enumeration of these grounds for dissolution shall not exclude actions or special
        proceedings by the attorney general and reporter or other state officials for the dissolution
        of a corporation for other causes as provided in this chapter or in any other statute of this
        state[.]

Tenn. Code Ann. § 48-64-301(a)(1).

                                                     -2-
section 48-64-301.2 The complaint stated that a majority of the directors of Pee Wee had
voted to voluntarily dissolve the nonprofit corporation, and that the directors had already
filed Articles of Dissolution and Termination with the Tennessee Secretary of State and
notified the Attorney General of their intent to dissolve Pee Wee.

        Following a hearing on August 28, 2002, the trial court entered an agreed order
appointing a receiver for Pee Wee and ordering Ms. Braxton to turn over all of Pee Wee’s
assets, books, and records to the receiver, Mr. Robert Dinkelspiel.3 The order authorized Mr.
Dinkelspiel to take control of all assets of Pee Wee and present to the court a written report
reflecting the existence and value of all receivership properties, liabilities, and any other
information necessary to assist the court in administering the receivership. The agreed order
stated, “The Attorney General preserves his objections and defenses, including particularly
those to subject matter jurisdiction, in personam jurisdiction and venue. His counsel signs
this Order only with consent to form.”

       The Attorney General filed a motion to dismiss the complaint on September 18, 2002,
asserting that the Shelby County Chancery Court lacked subject matter jurisdiction over the
causes of action and lacked in personam jurisdiction over the Attorney General. The
Attorney General contended that Plaintiffs could not bring a suit against the Attorney General
under the Nonprofit Corporation Act or any other statute due to sovereign immunity. He also
asserted that venue was only proper in Davidson County and that the complaint failed to state
a claim upon which relief could be granted.

        On February 17, 2006, the receiver submitted his report and accompanying exhibits,
which, together, comprised approximately five hundred pages, to the chancery court. The
receiver had marshaled Pee Wee’s assets, reconfigured its bank accounts, and retained a
certified public accountant to audit Pee Wee’s books and records. The receiver reported that
Ms. Braxton had essentially operated Pee Wee as a sole proprietorship rather than a nonprofit
corporation. He found that she had misused corporate credit cards for personal items, used
the nonprofit corporation’s funds to improve another for-profit day care center that she
operated, and charged rent to the nonprofit corporation in an amount that exceeded the fair

        2
          A court of record with proper venue may also dissolve a nonprofit corporation “[i]n a proceeding
by the corporation to have its voluntary dissolution continued under court supervision.” Tenn. Code Ann.
§ 48-64-301(a)(4).
        3
           “A receiver is a neutral party appointed by the court to take possession of property and preserve
its value for the benefit of the person or entity subsequently determined to be entitled to the property.” 75
C.J.S. Receivers § 1 (2011). A duly appointed receiver holds property in custodia legis, meaning, in custody
or keeping of the law. Butcher v. Howard, 715 S.W.2d 601, 604 (Tenn. Ct. App. 1986) (citing Tradesman
Publishing Co. v. Car Wheel Co., 95 Tenn. 634, 32 S.W. 1097 (1895)).

                                                    -3-
rental value of the property by $270,000.4 Although the receiver had withheld further rent
payments from Ms. Braxton during the pendency of the receivership, he concluded that she
still owed the corporation $296,190.50. The report stated that Pee Wee’s day care center had
closed in 2004, and that the receiver had cash on hand of $186,589.18. The report concluded
by stating that there were several options for distributing Pee Wee’s assets following
liquidation, and it asked the court to consider those recommendations.5

       The receiver subsequently filed a motion to approve his report. At the hearing on the
motion, counsel for the Attorney General appeared and urged the court to approve the
receiver’s report and the receiver’s request for judgment against Ms. Braxton. The chancery
court entered an order approving the receiver’s report and finding that Ms. Braxton had failed
to perform her fiduciary duties as an officer and director of Pee Wee, failed to provide an
accounting of Pee Wee’s assets and funds, and failed to ensure that Pee Wee’s resources
were used for its charitable purposes. The court entered a judgment against Ms. Braxton for
$296,190.50, which she was ordered to pay to the receiver. However, the court did not
address the issue of how to distribute Pee Wee’s assets following its liquidation.6

        4
           Two years before the report was filed, in 2004, Ms. Braxton pled guilty to one count of theft
between ten and sixty thousand dollars, a Class C felony, in connection with her misuse of funds belonging
to Pee Wee. See State v. Braxton, No. W2004-02506-CCA-R3-CD, 2005 WL 3059435 (Tenn. Crim. App.
Nov. 10, 2005). She was sentenced to three years, with six months to be served in the county workhouse and
the remainder suspended, and three years of probation to follow the confinement. Id. The criminal court
also ordered Ms. Braxton to make restitution to the State of Tennessee "in an amount to be determined by
the local Chancery Court," and the criminal court's order stated that it would serve as a lien on any monies
collected by the receiver in chancery court.
        5
           Tennessee Code Annotated section 48-64-106 provides, in relevant part, that a dissolved
corporation may carry on activities necessary to wind up and liquidate its affairs, including:

        (5) Transferring, subject to any contractual or legal requirements, its assets as provided in
        or authorized by its charter or bylaws;
        (6) If the corporation is a public benefit corporation, and no provision has been made in its
        charter or bylaws for distribution of assets on dissolution, transferring, subject to any
        contractual or legal requirement, its assets to:
        (A) One (1) or more persons recognized as exempt under Section 501(c)(3) of the Internal
        Revenue Code (26 U.S.C. § 501(c)(3)); . . . or
        (C) The state of Tennessee or any county, municipality, or political subdivision thereof[.]
        6
          After the judgment was entered against Ms. Braxton in chancery court, she filed a notice of appeal
to this Court, along with numerous motions in the trial court. This Court dismissed Ms. Braxton's appeal for
lack of a final judgment, among other things. After the chancery court denied Ms. Braxton's additional
motions, she filed a second notice of appeal to this Court, and we again dismissed her appeal for lack of a
final judgment due to the issues remaining regarding the winding up and dissolution of Pee Wee.

                                                    -4-
         The trial court proceedings were later transferred to a different division of chancery
court due to the retirement of the chancellor who originally presided over the case.
Thereafter, Ms. Braxton apparently filed a motion in the chancery court seeking to have the
judgment against her declared void. In response, on November 12, 2009, the Attorney
General filed a motion to transfer the matter to Davidson County. The Attorney General
contended that the chancery court had properly appointed the receiver and entered judgment
against Ms. Braxton based on the receiver’s report. However, the Attorney General argued
that, “to the extent that [the chancery court] concludes that additional proceedings are
warranted,” the matter should be transferred to Davidson County due to the Shelby County
court’s lack of in personam jurisdiction over the Attorney General and due to improper
venue. The Attorney General’s motion noted that it had raised these issues in its original
motion to dismiss in 2002, which had never been addressed by the chancery court. However,
the Attorney General contended that it was in the interest of justice for the matter to be
transferred rather than dismissed, as it had originally requested, due to the likelihood that Ms.
Braxton would raise various defenses if the matter was dismissed and then re-filed in
Davidson County.

        Ms. Braxton filed a motion in opposition to the proposed transfer, asserting that the
Attorney General had waived any objection to venue or personal jurisdiction by participating
in the lawsuit for over seven years. However, she contended that if the court dismissed the
matter for lack of subject matter jurisdiction, as raised in the Attorney General’s original
motion, then all of the chancery court’s prior orders regarding the receivership and the
judgment against her should be declared void, and the parties should be returned to the
position they occupied before the lawsuit by returning the assets and cash held by the
receiver.

       On January 27, 2010, the chancery court entered an order dismissing the case “in its
entirety” without prejudice “for all the reasons set forth in the Attorney General’s Motion to
Dismiss” that was filed in 2002, including lack of subject matter jurisdiction, lack of in
personam jurisdiction, improper venue, and failure to state a claim. The order stated that “the
Shelby County Chancery Court is not the proper venue in which to sue the State’s Attorney
General – as the sole Defendant – for any of the alleged causes of action contained in said
Original Complaint[.]” In sum, the court granted the Attorney General’s 2002 motion to
dismiss and denied its 2009 motion to transfer.

        Ms. Braxton again filed a notice of appeal to this Court, but she later sought to have
it dismissed, claiming that the order appealed was not a final judgment because it did not
address the discharge of the receiver, a final accounting, or the distribution of the
receivership assets. According to Ms. Braxton’s filings on appeal, it appears that Pee Wee’s
assets remain in the hands of the receiver. The Attorney General opposed dismissal of the

                                               -5-
appeal because it wished to raise issues on appeal regarding the chancery court’s decision to
dismiss the matter rather than transfer it to Davidson County. This Court entered an order
in which we recognized that the status of the receivership presents problems regarding the
finality of the order appealed. However, we also recognized that there have been extensive
and lengthy proceedings in the trial court, in addition to two previous appeals to this Court
that were dismissed for lack of a final judgment. As such, we concluded that the public
interest in addressing this matter compels us to address the issues of this appeal. Pursuant
to Rule 2 of the Tennessee Rules of Appellate Procedure, this Court waived the procedural
requirements for obtaining extraordinary appellate review and assumed jurisdiction of this
matter pursuant to Rule 10 of the Tennessee Rules of Appellate Procedure. However, our
order stated that the issues on appeal would be limited to “whether the trial court erred in
dismissing the case and in declining to transfer the matter to Davidson County[.]”

                                             II.   D ISCUSSION

       On appeal, both parties agree that the claims that were set forth in Plaintiffs’ original
complaint regarding declaratory and injunctive relief were properly dismissed.7 Thus, we
will not consider the trial court’s dismissal of those claims. However, Plaintiff’s complaint
also asked the court to supervise a voluntary dissolution of Pee Wee, and the receivership
was still pending when the trial court entered its order dismissing the case “in its entirety.”
We find that none of the grounds stated in the trial court’s order support the trial court’s
dismissal of the dissolution proceeding and receivership.

       As previously mentioned, the Nonprofit Corporation Act provides, with regard to
dissolution proceedings, that “[a]ny court of record with proper venue in accordance with §
48-64-302(a) may dissolve a corporation . . . [i]n a proceeding by the corporation to have its
voluntary dissolution continued under court supervision.”                 Tenn. Code Ann. §
48-64-301(a)(4). The Act further provides that “[a] court of record having equity jurisdiction
in a judicial proceeding brought to dissolve a corporation may appoint one (1) or more
receivers to wind up and liquidate . . . the affairs of the corporation.” Tenn. Code Ann. § 48-
64-303(a). Pursuant to these statutes, we find that, if the trial court had proper venue in
accordance with section 48-64-302(a), then the trial court had subject matter jurisdiction to
supervise the dissolution of Pee Wee, and it was also authorized to appoint a receiver to wind

        7
           Ms. Braxton’s brief on appeal states that she “does not address or appeal the trial court’s dismissal
of the declaratory judgment issues.” She and the Attorney General both agree that the claims for declaratory
and injunctive relief were rendered moot by her subsequent theft conviction. The Attorney General’s brief
describes the present posture of this case as “an action for liquidation of a nonprofit corporation in which
a receiver has been appointed,” and “issues concerning [the] proper disposition of Pee Wee’s assets still
remain to be addressed.”

                                                      -6-
up and liquidate Pee Wee’s affairs.

       Now, we must address the issue of venue. As stated above, section 48-64-301(a)
provides that “[a]ny court of record with proper venue in accordance with § 48-64-302(a)
may dissolve a corporation . . . [i]n a proceeding by the corporation to have its voluntary
dissolution continued under court supervision.” The referenced section regarding venue, §
48-64-302(a), provides as follows:

       (a) Venue for a proceeding by the attorney general and reporter to dissolve a
       corporation lies in Davidson County. Venue for a proceeding brought by any
       other party named in § 48-64-301 lies in the county where a corporation's
       principal office (or, if none in this state, its registered office) is or was last
       located.

Pursuant to this statute, then, venue was proper in Shelby County, as it was the location of
Pee Wee’s principal office, and this proceeding was brought by the nonprofit corporation.
The Attorney General argues that because the Nonprofit Corporation Act authorizes the
Attorney General to bring suits in Davidson County, and it also authorizes the Attorney
General to intervene as of right in actions filed by other parties, then when the Attorney
General chooses to intervene in such an action, the legislature intended to give the Attorney
General the right to choose whether a case filed elsewhere should be transferred to Davidson
County. The Attorney General argues that “transfer to Davidson County should therefore be
mandatory if the Attorney General seeks such a change of venue.” We simply cannot agree
with the Attorney General’s characterization of the legislature’s intent. The Act clearly gives
the Attorney General the right to intervene in proceedings instituted by other parties:

       (a) The attorney general and reporter shall be given notice of the
       commencement of any proceeding which [the Nonprofit Corporation Act]
       authorize[s] the attorney general and reporter to bring but which has been
       commenced by another person.

       (b) Whenever any provision of [the Act] requires that notice be given to the
       attorney general and reporter or permits the attorney general and reporter to
       commence a proceeding:
       (1) If no proceeding has been commenced, the attorney general and reporter
       may take appropriate action including, but not limited to, seeking injunctive
       relief;
       (2) If a proceeding has been commenced by a person other than the attorney
       general and reporter, the attorney general and reporter, as of right, may
       intervene in such proceeding.

                                              -7-
Tenn. Code Ann. § 48-51-701. Despite this right of intervention, however, there is no
provision or even implication in the Act that it is “mandatory” for a trial court to transfer the
action to Davidson County upon such intervention. Instead, the Act clearly states, “Venue
for a proceeding brought by any other party . . . lies in the county where a corporation's
principal office (or, if none in this state, its registered office) is or was last located.” Tenn.
Code Ann. § 48-64-302. We will not read a “mandatory” rule into the Act where none exists.
If the legislature had intended to create such a right for the Attorney General, it could have
done so explicitly. Thus, we conclude that the Shelby County Chancery Court was the proper
venue for the dissolution proceeding filed by Pee Wee, and the Court also possessed subject
matter jurisdiction over the action.

        The trial court’s order dismissing the entire case also stated that it was based upon a
lack of in personam jurisdiction over the Attorney General. The Attorney General was
named as a defendant in the original complaint, which included several claims for declaratory
and injunctive relief in addition to the “Application to Proceed with Voluntary Dissolution.”
However, the Nonprofit Corporation Act does not require that the Attorney General be
named as a party in a proceeding to dissolve a nonprofit corporation. See Tenn. Code Ann.
§ 48-64-302(d) (“A person other than the attorney general and reporter who brings an
involuntary dissolution proceeding for a public benefit corporation shall forthwith give
written notice of the proceeding to the attorney general and reporter who may intervene.”)
(emphasis added). Such a proceeding can be instituted by the corporation itself.8 Because
it was not necessary to name the Attorney General as a defendant for purposes of the
application to proceed with dissolution, and this case, in its present posture, does not seek
relief against the Attorney General, we conclude that it was not necessary for the trial court
to have in personam jurisdiction over the Attorney General in order to proceed with the
dissolution proceeding. Accordingly, the court erred in dismissing the dissolution proceeding
for lack of in personam jurisdiction over the Attorney General. Furthermore, we direct the
trial court on remand to enter an order dismissing the Attorney General from this lawsuit in
his capacity as a named defendant, although the Attorney General should be permitted to
continue participating in the case, if he elects to do so, due to the Attorney General’s right
to intervene in a dissolution proceeding. See Tenn. Code Ann. § 48-64-302(d).

        To the extent that the trial court’s order can be construed as dismissing the application

        8
           The Attorney General correctly notes that there is nothing in the Nonprofit Corporation Act that
provides for the Attorney General to be named as a party defendant in a dissolution suit. The Act simply
requires notice to the Attorney General and provides that the Attorney General may intervene. Tenn. Code
Ann. § 48-64-302(d). The Act does not expressly state that dissolution suits can proceed without a named
defendant, but it does state that “[i]t is not necessary to make directors or members parties to a proceeding
to dissolve a corporation unless relief is sought against them individually.” Tenn. Code Ann. § 48-64-302(b).

                                                    -8-
to proceed with dissolution for failure to state a claim, we find that the court erred in doing
so, as Pee Wee’s complaint properly stated a claim to have its voluntary dissolution
continued under court supervision.

         Finally, the Attorney General argues that the trial court should have transferred this
matter to Davidson County pursuant to Tennessee Code Annotated section 16-1-116, which
provides that when a court “determines that it lacks jurisdiction, the court shall, if it is in the
interest of justice, transfer the action or appeal to any other such court in which the action or
appeal could have been brought at the time it was originally filed.” Because we find that the
trial court did not lack jurisdiction over the dissolution proceeding and pending receivership,
it is not necessary for us to consider this statute.9 In sum, we find no error in the trial court’s
decision to deny the Attorney General’s motion to transfer.

                                          III.   C ONCLUSION

       For the aforementioned reasons, we reverse the chancery court’s decision to dismiss
the dissolution proceeding and receivership, and we remand for further proceedings, to
include an orderly winding up of the affairs of the nonprofit corporation and a proper
termination of the receivership. The trial court should also dismiss the Attorney General
from this lawsuit in his capacity as a named defendant. Costs of this appeal are taxed in
equal proportions to the appellant, Vivian Braxton, and to the Office of the Attorney General.

                                                          _________________________________
                                                          ALAN E. HIGHERS, P.J., W.S.

        9
           The Attorney General cited several reasons why it would not serve the interest of justice for the
case to be dismissed and then re-filed. For example, he claimed that Ms. Braxton could attempt to regain
control of Pee Wee’s assets in the interim. However, the concerns expressed in the Attorney General’s brief
are no longer present in light of our reversal of the trial court’s dismissal of the action.

                                                    -9-