Court Opinion

ID: 3191198
Source: CourtListenerOpinion
Date Created: 2016-04-04 19:10:06.02938+00
Date Added: 2024-06-11T14:36:05.546593
License: Public Domain

IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON

MARY MATTHEWS, an individual
and her marital community, J. HAPPY              No. 73426-1-
NELSON, an individual and his marital
community, OWEN RYAN, an individual
KEN DEFRANG, an individual and
ELLEN DEFRANG, an individual,
                     Appellants,
                                                  DIVISION ONE
      v.

ISLAND LANDMARKS, a Washington                    UNPUBLISHED OPINION
nonprofit corporation,

                     Respondent.                  FILED: April 4, 2016

       Spearman, C.J. — Two groups, one led by Mary Matthews and the other

by Ellen Kritzman, claim to be the rightful board of directors of a nonprofit

corporation. The Kritzman group brought suit in the name Island Landmarks

seeking a declaration that itwas the rightful board. The trial court granted

summary judgment to the Matthews group. On appeal, this court concluded that

portions of the bylaws were unclear and extrinsic evidence was necessary to

interpret them. We reversed and remanded. On remand, the trial court granted

summary judgment for the Kritzman group. The Matthews group appeals,

arguing that the trial court erred in considering inadmissible evidence and in its

interpretation of the bylaws.
No. 73426-1-1/2

       Because the declaration that the Matthews group objects to contains

hearsay, we reverse in part the trial court's admission of the evidence. But

reviewing the record without reference to the inadmissible evidence, we conclude

that the trial court correctly interpreted Island Landmarks' bylaws. We affirm.

                                  BACKGROUND

       Island Landmarks was incorporated in 1995 with the purpose of

"promoting] historic preservation of architecture, landscape, and heritage of

Vashon and Maury Islands." Clerk's Papers (CP) at 19. Its membership is "open

and unlimited" to all persons who have the same specified interest and who

"qualify for membership" by paying annual dues of $25.00. CP at 26. Members

elect directors of the nonprofit each year. Members may remove directors with or

without cause.

       Matthews and Kritzman were both involved in the formation of Island

Landmarks. Kritzman was an incorporating director and Matthews was the officer

who managed day-to-day operations. In its early years, Island Landmarks had

approximately 200 members and enjoyed widespread community support.

       The nonprofit was particularly interested in restoring and preserving the

Mukai Farm and Garden, a King County historic landmark. Island Landmarks

obtained donations and public grants that enabled it to purchase the Mukai

property in 2000. After the purchase, Island Landmarks struggled to manage

grant money and to maintain the Farm and Garden. The corporation experienced

a high turnover of directors.
No. 73426-1-1/3

      Matthews and her husband, J. Nelson Happy, became board members in

2001. Happy lived out of state and Matthews moved out of state near the end of

2001. Matthews and Happy retained their positions as president and vice

president of the board. By 2002, the nonprofit had only about ten members.

      In the late 2000s, Kritzman became frustrated by the nonprofit's lack of

activity on Vashon Island and its alleged neglect of the Mukai property. Kritzman

began meeting with community members to generate interest in regaining control

of Island Landmarks and "rescuing" the Mukai property. CP at 437.

      The Matthews group held a board meeting on September 16, 2010. At that

time, there were five board members: Matthews, Happy, Ken and Ellen DeFrang,

and Owen Ryan. The minutes of the board meeting list three members in

addition to the board: Priscilla Beard, Ellen Granger, and David Hall. DeFrang

deposited dues payments from the members into the Island Landmarks account.

No dues were deposited in 2011 or the first five months of 2012.

       In May 2012, Kritzman drafted an Island Landmarks membership form

declaring interest in historic preservation on Vashon Island. About 60 people

completed the form and wrote checks for $25.00 to Island Landmarks. Kritzman

deposited these checks as dues payments into the Island Landmarks bank

account without informing Matthews. Eleven of the new members called a special

meeting. They sent notice to each of the new members. They also sent notice to

the last known board members: Matthews, Happy, Ken and Ellen DeFrang, and

Owen Ryan. At the special meeting, the new members voted out the old board

and elected a new slate of directors.
No. 73426-1-1/4

      The Kritzman group brought this suit in the name Island Landmarks,

seeking a declaration that it was the rightful board. The Matthews group moved

for summary judgment arguing that the special meeting was invalid under the

corporation's bylaws because members could only call a special meeting through

the corporation's secretary. The Matthews group also argued that the bylaws

contained treasury and recordation requirements for membership that the

Kritzman group had failed to satisfy. Matthews asserted that an applicant only

obtained membership after delivering dues to the treasurer, delivering a

completed application to the secretary, and having her name entered in the

membership records of the corporation. The trial court agreed with Matthews and

dismissed Kritzman's suit on summary judgment.

       On appeal, we reversed and remanded. Island Landmarks v. Matthews,

178 Wn. App. 1030 (2013). In Island Landmarks I. we held that under the plain

language of the bylaws ten percent of the "members entitled to vote" may call

and notice a special meeting, jd. at 4. We concluded, however, that the record

was insufficient to resolve the parties' conflicting arguments regarding

membership and that extrinsic evidence was necessary to ascertain the

corporation's intent regarding its membership requirements and procedures. Id.

at 6-8. We also ruled that a genuine question of fact existed as to whether the

Kritzman group provided notice to each member of the corporation, jd. at 8.

       On remand, the Matthews group submitted evidence including the

declaration of Priscilla Beard, in which she stated that she was an Island

Landmarks member and that she did not receive notice of the special meeting.
No. 73426-1-1/5

The Matthews group also produced a declaration in which Matthews testified to

the corporation's practice concerning accepting new members. Despite repeated

requests for production, the Matthews group failed to produce corporate receipt

books or membership records for recent years.

      The Kritzman group submitted, among other items, their membership

forms and records of their dues payments. The Kritzman group submitted

statements from the Island Landmarks bank account showing that no dues were

deposited into the account after September 2010 until the Kritzman group

deposited their dues in May 2012. The Kritzman group also submitted the

declaration of the drafter of the bylaws, Frederic Kutscher, and a checklist that

Kutscher had used to help the incorporating directors determine the structure of

the corporation. The Matthews group moved to strike the declaration as hearsay.

       The trial court granted summary judgment for the Kritzman group. The

court found that the membership forms and the deposits into Island Landmarks'

account established that the Kritzman group were members of the corporation

authorized by the bylaws to replace the existing board. The trial court further

found that the Kritzman group had met the notice requirement. The court listed

the Kutscher declaration among items considered and thus implicitly denied the

Matthews group motion to strike the declaration.

       The Matthews group appeals, asserting that the trial court erred in

considering the Kutscher declaration and in adopting an erroneous interpretation

of the corporation's bylaws. The Matthews group also argues that the trial court
No. 73426-1-1/6

erred in denying its motion for reconsideration and in failing to apply the doctrine

of unclean hands to bar the Kritzman group's claim.

                                   DISCUSSION

       The Matthews group first argues that the trial court erred in considering

the Kutscher declaration because it was irrelevant and contained hearsay.

       This court reviews a trial court's order granting summary judgment de

novo, viewing all evidence in the light most favorable to the nonmoving party. Bel

Air & Brinev v. City of Kent, 190 Wn. App. 166, 172, 358 P.3d 1249 (2015) review

denied, No. 92373-6, 2016 WL             (Mar. 02, 2016) (citing Columbia Cmtv.

Bank v. Newman Park, LLC, 177 Wn.2d 566, 573, 304 P.3d 472 (2013)). The de

novo standard applies to evidentiary rulings on admissibility. Keck v. Collins, 184

Wn.2d 358, 368, 357 P.3d 1080 (2015) (citing Folsom v. Burger King, 135 Wn.2d

658, 663, 958 P.2d 301(1998)). Affidavits in support of a summary judgment

motion must contain facts that would be admissible in evidence. CR 56(e).

        The Matthews group argues that Kutscher's declaration was not relevant

because he was not an incorporating director. Evidence is relevant if it has "any

tendency" to make any material fact more or less probable. ER 401. In

interpreting bylaws, courts look to extrinsic evidence including evidence of the

"circumstances leading to" adoption of the bylaws. Roats v. Blakelv Island

Maintenance Comm'n, Inc., 169 Wn. App. 263, 274, 279 P.3d 943 (2012).

Kutscher was the incorporator and drafter of the bylaws. His statements are

evidence of the circumstances leading to the adoption of the bylaws. We reject

the Matthews group's assertion that the declaration is irrelevant.
No. 73426-1-1/7

      The Matthews group also argues that the Kutscher declaration contains

hearsay. Hearsay is a statement of a declarant offered to prove the truth of the

matter asserted. ER 801(c). Kutscher's declaration includes statements

describing the bylaws and his understanding of the bylaws. These are not

hearsay. Butthe declaration also includes statements expressing Kutscher's

belief as to the intention of the incorporating directors. These statements purport

to speak for the incorporating directors, and are thus hearsay.

The hearsay statements were not admissible and we do not consider them here.

       The Matthews group next raises several challenges to the trial court's

interpretation ofthe bylaws. A corporation's bylaws are interpreted according to
the rules of contract interpretation. Roats, 169 Wn. App. at 273-74. The purpose

of contract interpretation is to determine the intent ofthe contracting parties. Id.
at 274. Washington courts apply the "context rule" ofcontract interpretation. Jd
Under the "context rule," meaning is ascertained from the contract as a whole as

well as extrinsic evidence. Id. The circumstances leading to the execution of the

contract and the later conduct of the parties may provide evidence of the parties'

intent. Id. Summary judgment as to contract interpretation is appropriate only

when the interpretation does not depend on the use of extrinsic evidence or

when extrinsic evidence indicates that only one interpretation can reasonably be

inferred. Go2Net. Inc., v. C I Host. Inc., 115 Wn. App. 73, 85, 60 P.3d 1245

(2003).

       The disputed issue is Island Landmarks' membership provision. Bylaw

section 2.2 states:
No. 73426-1-1/8

      Qualification of Members. Membership shall be open and unlimited
      to all persons who have an interest in promoting historic
      preservation of architecture, landscape, and heritage of Vashon
      and Maury Islands situated in King County, Washington. In order to
      qualify for membership, a member shall pay annual membership
      dues which shall initially be $25.00. Annual dues may be
      established and changed from time to time by a majority vote of the
      membership of the Board. Members may have such other
      qualifications as the Board may prescribe by amendment to these
      Bylaws.

CP at 26.

      The Matthews group argues that the rules of a voluntary membership

organization may only be interpreted by that organization. It asserts that

interpretation of Island Landmarks' bylaws was nonjusticiable or, if justiciable, the

court was required to defer to the interpretation of the incumbent directors. The

Matthews group is mistaken.

       The Matthews group relies primarily on Anderson v. Enterprise Lodge No.

2, 80 Wn. App. 41, 906 P.2d 962 (1995). Anderson concerned a dispute among

members, former members, and branches of the Order of Odd Fellows, an

international fraternal organization. Id. at 42. In determining whether the

association had violated its bylaws, the Anderson court looked to cases involving

disputes between local chapters of national or international associations and the

parent organization. Id. at 46-47. Anderson held that courts generally "refrain

from interfering in the internal affairs" of such associations and defer to the

association's own interpretation of its rules unless that interpretation is arbitrary

or unreasonable. Id. at 46. But because Island Landmarks is a discrete

corporation, not a local chapter of a national association, Anderson is inapposite.

                                           8
No. 73426-1-1/9

      Next, the Matthews group asserts that the trial court erred in finding that

the Kritzman group became members of Island Landmarks under bylaw § 2.2.

The Matthews group argues that, since the relationship between a corporation

and its members is contractual, it requires mutual assent. Matthews argues that

because Island Landmarks did not accept the Kritzman group as members, they

did not become members of the corporation.

      The Matthews group relies on Schroeder v. Meridian Improvement Club,

36 Wn.2d 925, 932, 221 P.2d 544 (1950). Matthews asserts that Schroeder

stands for the proposition that an applicant may not become a member of a

corporation unless the corporation accepts the applicant as a member. The

Matthews group's reliance is misplaced.

       In Schroeder, the court considered whether any of the plaintiffs were

members who could bring an action against a corporation for violating its bylaws.

]d at 929. To answer this question, the Schroeder court looked to the articles
and bylaws of the corporation. ]d at 929-931. The corporation's membership
provision stated that "[a]ny property owner or resident within the confines ofthe
district" was "[ejligible for membership on payment of yearly dues . ..." Id at
929. The Schroeder court held that "'eligible' means suitable, qualified, fit,

worthy, capable of being chosen." Id at 932 (quoting State ex rel. Reynolds v.
Howell, 70 Wash. 467, 126 P.954 (1912)). The court held that merely being

eligible did not guarantee membership. Id. The Schroeder court noted that
membership in a "voluntary association is a privilege which may be accorded or

                                          9
No. 73426-1-1/10

withheld, and not a right which can be gained independently." ]d (quoting 4

Am.Jur. 462, Associations and Clubs, § 11).

      Schroeder does not stand for the proposition that a requirement of

corporate acceptance must be read into a corporation's governing documents.

Membership in a voluntary association is a privilege. But the requirements and

procedures for obtaining that privilege are established in the corporation's articles

and bylaws. Id at 930. To determine if the Kritzman group were members of

Island Landmarks, the trial court properly looked to the membership provisions in

the corporation's bylaws.

       The Matthews group next argues that Island Landmarks' membership

provisions are analogous to those in Schroeder. The Matthews group asserts

that the Kritzman group merely met eligibility requirements and, as in Schroeder,

the corporation had no obligation to accept them as members. The Matthews

group is mistaken. The bylaws in Schroeder established a prerequisite for

eligibility. The bylaws in the present case establish a prerequisite for

membership.

       In Schroeder, the membership provision stated that "any property owner

or resident within the confines of the district shall be eligible for membership." jd.

at 929 (emphasis added). Residence in the district was the prerequisite. Meeting

that prerequisite made an applicant "eligible" or, as the Schroeder court phrased

it, "capable of being chosen." Id at 932. If chosen by the corporation, an

applicant was required to pay yearly dues to complete the membership

requirements. Id at 929.

                                          10
No. 73426-1-1/11

      The membership provision in this case, bylaw § 2.2, states that

"membership shall be open and unlimited to all persons who have an interest in

promoting historic preservation of architecture, landscape, and heritage of

Vashon and Maury Islands." CP at 26. (Emphasis added). An interest in historic

preservation on Vashon Island is the prerequisite. But meeting the prerequisite

does not merely make an applicant eligible. The "open and unlimited" clause

guarantees "membership" to "all persons" who have the specified interest. The

only further requirement is stated in the next sentence: "In order to qualify for

membership, a member shall pay annual membership dues which shall initially

be $25.00." CP at 26. The membership provision in this case is not analogous to

that in Schroeder. The plain language of § 2.2 indicates that the corporation

"shall" extend membership to "all persons" interested in historic preservation on

Vashon Island who pay annual dues.

       Extrinsic evidence supports this reading. Matthews stated that to her

knowledge the corporation had never refused membership to anyone who
expressed an interest in the organization and paid dues. She stated that in

general, a person seeking to become a member would fill out a membership form
expressing interest in historic preservation and send it to the corporation with the
$25 dues payment. But Matthews also stated that the corporation often admitted
members who had not completed a membership form and sometimes waived the

requirement to pay annual dues. This testimony supports the conclusion that
membership was "open and unlimited to all persons" interested in historic

preservation on Vashon Island.

                                          11
No. 73426-1-1/12

       The Matthews group, however, argues that other provisions in Island

Landmarks' bylaws create membership requirements not stated in § 2.2. The

Matthews group relies on three provisions. Bylaw § 4.9 concerns the office of

treasurer. It specifies that the treasurer:

       shall have charge and custody of and be responsible for all funds
       and securities of the corporation; receive and give receipts for the
       moneys due and payable to the corporation from any source
       whatsoever, and deposit all such moneys in the name of the
       corporation...; and in general perform all of the duties incident to the
       office of Treasurer. . . .

CP at 33. Bylaw § 4.8(d) concerns the office of secretary. It states that the

secretary "shall... keep records of the post office address and class, if
applicable, ofeach member           " CP at 33. Bylaw § 5.1 address administrative
provisions. It states that the corporation "shall keep...records of the name and
address and class, if applicable, of each member and Director...; and such other

records as may be necessary or advisable." CP at 34.

       The Matthews group argues that these provisions establish two further

requirements for membership: delivery of dues to the treasurer, demonstrated by
a receipt from the treasurer; and recordation by the secretary in the corporate

membership list. This interpretation is not supported by the text ofthe governing

documents or by extrinsic evidence.

        Bylaws § 4.8 and § 4.9 are located in the article titled "Officers." CP at 32-
34. The article outlines the roles and duties of each office and requires generally

that each officer perform "all duties incident" to the office. CP at 33-34. Receiving
corporation money and issuing receipts are responsibilities ofthe treasurer, while

                                              12
No. 73426-1-1/13

keeping corporation records is the secretary's responsibility. Bylaw § 5.1 is

located in article 5, which addresses "administrative provisions." CP at 34. The

provision states that the corporation has a duty to keep records, including

records of members, directors, and officers. The cited provisions, read in context,

describe duties of the corporation and its officers, not membership requirements.

       Extrinsic evidence supports this reading. Kutscher, the drafter of the

bylaws, stated that the provisions concerning the secretary and treasurer were

"standard parts of [his] forms." CP at 1155. The provisions thus do not reflect any

specific intent on the part of the incorporating directors. Kutscher stated that the

provisions were intended only to describe the responsibilities ofeach office. CP

at 1154-55.

       Evidence produced by the Matthews group does not support its assertion

that bylaws § 4.8, § 4.9, and § 5.1 create membership requirements. Matthews
declared that it was the corporation's practice for the treasurer to handle money

and issue receipts or thank you letters for dues. The Matthews group produced

some thank you letters from 1995-96, but failed to produce a corporate receipt

book or evidence that receiving a receipt was a necessary step in becoming a

member. Similarly, Matthews declared that it was corporate practice for the

secretaryto record an applicant's name and address in the corporation's records.
The Matthews group produced a "membership tracking" list from the 1990s, but

failed to produce evidence that the corporation regularly maintained a

membership record or that being entered into such a record was a requirement of

membership.

                                          13
No. 73426-1-1/14

      To the contrary, Matthews's testimony as well as documentary evidence

indicate that Island Landmarks was extremely flexible in its membership

practices. Matthews stated that the corporation accepted in-kind donations in lieu

of dues payment, but produced no evidence that the corporation kept records of

such donations. Several of the people listed as members in 2010 received their

membership as a gift. These new members, many of whom lived out of state, did

not express interest in historic preservation on Vashon Island or fill out a

membership form. The Matthews group did not produce evidence that these new

members received receipts or that their names were entered on any regularly

maintained corporate membership record.

       Based on the plain language of the bylaws' membership provision, the

context of the bylaws as a whole, and extrinsic evidence, the only reasonable

interpretation is that membership in Island Landmarks is "open and unlimited to

all persons" who share the corporation's purpose and pay annual dues. The
members of the Kritzman group accordingly became members of Island

Landmarks in May 2012 by completing a form declaring their interest in historic

preservation and paying dues into the Island Landmarks account.

       Next, the Matthews group challenges the trial court's finding that the

Kritzman group satisfied the notice requirement. The Matthews group argues that
Priscilla Beard, who last paid dues in September 2010, was a member of Island

Landmarks in May 2012. Because Beard did not receive notice of the special

meeting, the Matthews group argues that there is at least a question offact as to

whether the Kritzman group satisfied the notice requirement.

                                          14
No. 73426-1-1/15

       The trial court found, based on the text of the bylaws and the undisputed

evidence as to who had paid dues in the twelve months prior to the special

meeting, that there was no material dispute concerning who was a member of

Island Landmarks in May 2012. We agree. The bylaws allow for an expansive

membership, open to "all persons" interested in historic preservation. The only

qualification for membership is the payment of "annual membership dues." CP at

26. (Emphasis added).

       The Matthews group asserts that the bylaws do not explicitly state that

failure to pay dues results in loss of membership, and the trial court erred in
reading in such a provision. It also argues that corporate practice indicates that
members remained members as long as the corporation knew who they were.

This reading contradicts the bylaws, which state that a member "shall pay annual
dues." The interpretation is also unreasonable, as it allows the corporation to

retain or exclude previous members at will. We conclude that the failure to pay

annual dues results in loss of membership. The Matthews group has not raised a

question of fact as to whether the Kritzman group provided notice of the special
meeting to all current members in May 2012.

        The Matthews group next asserts that the trial court erred in failing to

apply the doctrine of unclean hands to barthe Kritzman group's claims. This
argument is without merit. Unclean hands is a defense to an action seeking
equitable relief.1 Portion Pack, Inc.. v. Bond, 44 Wn.2d 161, 170, 265 P.2d 1045

        1The Matthews group cites no authority for the proposition that the Kritzman group s
action seeking a declaratory judgment sounded in equity. The Kritzman group, however, does not
dispute the applicability of the unclean hands doctrine.

                                                15
No. 73426-1-1/16

(1954). A court of equity will not intervene on behalfof a party whose conduct

has been unconscionable. Id

      The parties dispute control of a nonprofit corporation. The rights and

duties of a corporation's members are established in the corporation's governing

documents. RCW 23B.02.020; 23B.02.060. Directors of a corporation have a

duty to act in good faith in the best interests of the corporation. RCW
23B.08.300(1). The Matthews group has not produced evidence that the

Kritzman group violated the corporation's bylaws. The Matthews group has

provided no argument that the Kritzman group's actions were not undertaken in
the best interests of the corporation or were harmful to the corporation.

       Finally, the Matthews group argues that the trial court erred in denying its
motion to reconsider. We review a trial court's decision on a motion to reconsider

for abuse of discretion. A trial court may grant a motion to reconsider when the

motion is based on newly discovered evidence which the party "could not with

reasonable diligence have produced" at the hearing. CR 59 (a)(4). Atrial court
abuses its discretion if its decision is "manifestly unreasonable, based on

untenable grounds, or based on untenable reasons." Moreman v. Butcher, 126
Wn.2d 36, 40, 891 P.2d 725 (1995) (quoting State ex rel Carroll v. Junker, 79

Wn.2d 12, 26, 482 P.2d 775 (1971)).

       The Matthews group argues that its deposition of Kutscher, taken afterthe

hearing on the motion for summary judgment, revealed new material evidence
that justified reconsideration. It asserts that Kutscher's deposition contradicted
his declaration and revealed his bias in favor of the Kritzman group.

                                         16
No. 73426-1-1/17

       The Matthews group makes no argument as to why the Kutscher

deposition could not have been discovered previously and thus qualifies as new

evidence. In addition, the deposition does not contradict the declaration. In his

declaration, Kutscher testified to his recollection of drafting the bylaws, his belief

as to what the bylaws meant, and his practice in drafting bylaws. In his

deposition, Kutscher testified that he did not specifically recall his meetings with

representatives of Island Landmarks while drafting the bylaws or whether those

meetings took place in person or by telephone.

       The trial court did not abuse its discretion in denying the Matthews's group

motion to reconsider.

       Affirmed.

                                                           -iti^c*        £X
WE CONCUR:

                                                                                       i

                                                                                     UD

                                           17