Court Opinion

ID: 9596404
Source: CourtListenerOpinion
Date Created: 2023-08-22 00:49:10.8105+00
Date Added: 2024-06-11T09:19:33.471767
License: Public Domain

FLETCHER, Chief Justice,
dissenting.
The majority opinion holds that Shorter College’s Board of Trustees complied with its governing documents, the Georgia Nonprofit Corporation Code,1 and its fiduciary duties in dissolving the College and transferring its assets to the Shorter College Foundation. Nevertheless, the majority opinion holds that because the dissolution failed to pass a fourth test — compliance with dissolution requirements applicable to for-profit corporations — it was invalid. Because this fourth test is inapposite to nonprofits and unnecessary to prevent sham dissolutions, I dissent.
The majority errs by using a definition supplied by the American Jurisprudence treatise, rather than focusing on the requirements established by the Georgia legislature. The treatise itself cautions against relying on its definition to the exclusion of state statutes: “[wjhen evaluating corporate administrative dissolution statutes that vary widely from state to state, it cannot safely be assumed that the term ‘dissolution’ has any strict meaning independent of the jurisdiction and precise context in which that term is applied.”2 The majority opinion falls into this trap of ignoring context.
Because the procedure differs depending on which type of entity is being dissolved, the majority opinion is incorrect that “dissolution” means the same thing in Georgia’s for-profit and nonprofit corporation codes. When a for-profit corporation is dissolved, its business ceases to exist and its remaining assets are distributed to its shareholders under OCGA § 14-2-1405 (4).3 When a nonprofit is dissolved, however, there is a different procedure: instead of distributing the nonprofit’s assets to its members, they are transferred to a similar business under OCGA§ 14-3-1403 (b) (3).4 Therefore, the nonprofit’s business does not necessarily cease to exist, but may be carried on by a new corporation. Accordingly, the legislature made a nonprofit dissolution more closely resemble a transfer of assets or a reorganization than a for-profit dissolution.
*474The majority opinion compares the dissolution procedures in OCGA§ 14-2-1405 and OCGA § 14-3-1406 and states that “the wording of the two statutes is essentially identical.” But one of the ways in which it is not identical is that OCGA § 14-3-1406, applicable to nonprofits, mandates dissolving in accordance with a “plan of dissolution.” This plan of dissolution must comply with OCGA § 14-3-1403, and it is that statute that contains the pertinent difference regarding the disposition of assets in nonprofit and for-profit dissolutions. Because the legislature set forth different procedures for dissolving nonprofit and for-profit corporations, it is wrong for this Court to mandate that they be the same.
I agree with the majority opinion that the Board complied with the letter of the law by dissolving the College and transferring its assets to the Foundation. It is undisputed that the College’s governing documents gave only the Board, and not the Baptist Convention of the State of Georgia (GBC), the right to vote on the College’s dissolution. Further, under OCGA § 14-3-1402 (b), the Board alone had the right to dissolve the College. Therefore, the dissolution complied with the strict letter of the law.
I also agree with the majority opinion that compliance with the letter of the law is not enough in this case. We must also ask whether the dissolution complied with the spirit of the law. The test for this is whether the dissolution violated the Board’s fiduciary duties.5 A “sham” dissolution would violate these duties; a valid dissolution would not.
Because the College was a nonprofit, the Board owed its fiduciary duties to the College’s mission, not to GBC as a member. GBC’s contrary contention mistakenly equates “members” of a nonprofit corporation with “shareholders” of a for-profit corporation. In for-profit corporations, the predominant view is that the board of directors owes its fiduciary duties to the corporation’s shareholders.6 In nonprofit corporations, however, these duties are owed not to the members, but to the nonprofit’s mission.
It is axiomatic that the board of directors [of a nonprofit] is charged with the duty to ensure that the mission of the charitable corporation is carried out. This duty has been *475referred to as the “duty of obedience.” It requires the director of a not-for-profit corporation to ‘Tie faithful to the purposes and goals of the organization,” since “fufnlike business corporations, whose ultimate objective is to make money, nonprofit corporations are defined by their specific objectives____”7
Therefore, the question is whether the Board’s actions furthered or hindered the College’s mission.
The College’s mission was “to provide quality higher education . . . integrating] Christian values within a nurturing community. ..The record shows that the College had real reason to believe that it would lose accreditation if it did not address the accreditor’s concerns over GBC’s influence. The loss of accreditation would have a devastating effect on any college or university, including an inability to attract the best students and faculty and a loss of essential financial aid for students. By taking the actions it did, the Board addressed the accreditor’s concerns over GBC’s influence, removed the barrier to reaccreditation, and thereby furthered the College’s mission of “providing quality higher education.”
The Foundation will also carry out the College’s religious mission by continuing to promote a nurturing, Christian environment in which students will learn. Accordingly, the dissolution furthered both the College’s educational and religious missions, whereas ceding to GBC’s wishes would have likely cost it accreditation and severely damaged its educational mission. The Board thus fully complied with its fiduciary duties, as the majority opinion concedes.
In sum, despite the dissolution having complied with both the letter and the spirit of nonprofit law, the majority opinion also requires compliance with the procedures for dissolving a for-profit corporation. These procedures are inapposite to nonprofit dissolutions. They are also unnecessary to prevent sham dissolutions; adherence to fiduciary duties accomplishes this purpose. Because the Board complied with the College’s governing documents, applicable *476nonprofit dissolution law, and its fiduciary duties, the College’s dissolution was proper and must stand.
Decided May 23, 2005
Reconsideration denied June 30, 2005.
McKenna, Long & Aldridge, Bruce P. Brown, Thomas B. Bosch, Smith, Shaw & Maddox, David F Guldenschuh, for appellants.
Arnall, Golden & Gregory, Walter H. Bush, Jr., Thomas O. Duvall, Jr., Jason E. Bring, Andrew B. Flake, Sutherland, Asbill & Brennan, Richard L. Robbins, Valerie S. Sanders, for appellees.
Brinson, Askew, Berry, Seigler, Richardson & Davis, J. Anderson Davis, Roy E. Barnes, Scott Colley, amici curiae.
I am authorized to state that Presiding Justice Sears and Justice Hunstein join in this dissent.

 OCGA § 14-3-101 et seq.

 19 AmJur2d, Corporations, § 2348, at 454 (2004).

 OCGA § 14-2-1405 (4) provides that, after making provision for or discharging its liabilities, a for-profit corporation distributes its “remaining property among its shareholders in accordance to their interests.”

 OCGA § 14-3-1403 (b) (3) provides that, after making provision for or discharging its liabilities, a nonprofit corporation’s assets “shall be transferred or conveyed to one or more domestic or foreign corporations, trusts, societies, or organizations engaged in activities substantially similar to those of the dissolving corporation.”

 See OCGA § 14-3-830; Developments in the Law - Nonprofit Corporations, 105 HARV. L. REV. 1578, 1591 (1992) (“fiduciary duties are especially important in the nonprofit sector because . . . [they ensure] the use of corporate assets for corporate purposes”).

 See, e.g., Lawrence E. Mitchell, A Theoretical and Practical Framework for Enforcing Corporate Constituency Statutes, 70 TEX. L. REV. 579, 586 (1992) (stating that “[t]here is probably no more frequently articulated principle of corporate law than that directors are fiduciaries of the corporation and its stockholders,” hut revealing good reasons why these duties should sometimes extend to other constituents as well).

 Manhattan Eye, Ear & Throat Hosp. v. Spitzer, 715 N.Y.S.2d 575, 593 (N.Y. Sup. Ct. 1999) (citations omitted; emphasis supplied). See also Summers v. Cherokee Children & Family Sues., 112 S.W.3d 486 (Tenn. Ct. App. 2002) (duty of loyalty requires that a director of a nonprofit faithfully pursue the interest of the organization, and its nonprofit purpose, rather than his or her own financial or other interests, or those of another person or organization); Nina J. Crimm, A Case Study of a Private Foundation’s Governance and Self-Interested Fiduciaries Calls for Further Regulation, 50 EMORY L. J. 1093, 1140 (2001) (“fiduciary responsibilities require of each director [of a nonprofit] a duty of obedience to fulfill the particular charitable purposes of the corporation ...”); Harvey J. Goldschmid, The Fiduciary Duties of Nonprofit Directors and Officers: Paradoxes, Problems, and Proposed Reforms, 23 IOWA J. CORP. L. 631, 641 (1998) (nonprofit directors “are principally concerned with the effective performance of the nonprofit’s mission”).