Court Opinion

ID: 3153892
Source: CourtListenerOpinion
Date Created: 2015-11-11 06:14:57.989094+00
Date Added: 2024-06-11T12:38:27.230164
License: Public Domain

Opinion issued November 10, 2015

                                   In The

                          Court of Appeals
                                   For The

                      First District of Texas
                         ————————————
                          NO. 01-14-00973-CV
                        ———————————
PETER D. TRAN, NAM VAN NGUYEN, THE KIM HOANG AND TUYEN
  NGOC BUI ON BEHALF OF THE VIETNAMESE COMMUNITY OF
   HOUSTON & VICINITY, INC., A NON-PROFIT CORPORATION,
                         Appellants
                                     V.
   ALOYSIUS DUY-HUNG HOANG, TERESA NGOC-BICH HOANG,
   CAVATINA TRUONG, SKYBIRD NGUYEN AND HOC NHU PHAN,
                        Appellees

                 On Appeal from the 334th District Court
                          Harris County, Texas
                    Trial Court Case No. 2010-75173
                                     OPINION

      In this suit against individual directors of a Texas nonprofit corporation, we

determine whether members of the organization possess derivative standing to sue

on behalf of the corporation when neither the articles of incorporation nor the by-

laws authorize it.   Members of the Vietnamese Community of Houston and

Vicinity (VNCH) sued individual members of VNCH’s board of directors, alleging

breach of their fiduciary duties to VNCH.        In the trial court, the members

purported to bring a derivative suit against the directors in the name of VNCH.

The members sought damages and declaratory relief.         The trial court granted

summary judgment. Because the members lack standing to bring their derivative

suit, we affirm.

                                BACKGROUND

      Founded in 1983, VNCH is a community organization with a mission of

supporting Houston’s Vietnamese-Americans, especially its senior citizens.

Pursuant to its articles of incorporation, VNCH is a Texas nonprofit corporation,

managed by a board of directors elected by its membership. VNCH also has a

board of supervisors (variously also called the board of overseers or board of

auditors). The member plaintiffs in this suit—Peter D. Tran, Nam Van Nguyen,

The Kim Hoang, and Tuyen Ngoc Bui—are members of the board of supervisors.

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      In 2007 and 2008, VNCH’s members elected the defendants to the board of

directors. Aloysius Duy-Hung Hoang (Al Hoang) served as president of the board

until he was elected to the Houston City Council, at which time Hoc Nhu Phan

(Joe Phan) replaced him as president. During the time that Hoang was president of

the board, VNCH acquired a new building to serve as a community center and

raised funds to finance the purchase.

      Tensions arose between the board of directors and the board of supervisors

about the property purchase and the fundraising activity and fund disbursement

associated with it.   The board of supervisors conducted an investigation and

produced a written report that alleged wrongdoing by the directors. The member

plaintiffs demanded that the board of directors produce documents related to its

property acquisition and financing activities or be sued. Dissatisfied with the

board’s response, the plaintiffs sued the defendant directors, seeking to recover on

behalf of VNCH for injuries they allege the defendants have caused VNCH.

      VNCH’s articles of incorporation declare VNCH’s initial directors as

authorized to act on its behalf, leaving the details of the organization’s structure

and governance to the by-laws.          The record contains two different English

translations of the by-laws, originally written in Vietnamese.       Although one

translation includes a statement that the supervisors may “apply proper procedures

described in the By-Law” to respond to complaints, neither version authorizes the

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board of supervisors to sue in VNCH’s name without the approval of the majority

vote of the membership. After the member plaintiffs filed this suit, VNCH’s

general assembly of the membership passed a resolution condemning the lawsuit as

against the by-laws.

        The plaintiffs’ petition alleged breach of the directors’ fiduciary duties,

abuse of control, gross mismanagement, waste of corporate assets, fraud, and

negligence. In addition to damages, the member plaintiffs sought declaratory

relief. In response, the directors brought a traditional and a no-evidence motion for

summary judgment, contending that (1) the member plaintiffs had no evidence to

support their claims and (2) the member plaintiffs lacked standing. 1 The trial court

granted the directors’ motion without stating its grounds.

                                      DISCUSSION

        Our resolution of this appeal turns on the second ground: standing to bring

suit. The directors challenge the plaintiffs’ standing to bring a derivative suit on

behalf of VNCH, observing that neither the articles of incorporation nor the by-

laws authorize a suit by these individuals as VNCH’s agents. In response, the

plaintiffs contend that a member of a nonprofit organization is authorized to sue

the nonprofit’s directors, in the name of the nonprofit, to seek redress for wrongs

1
    Teresa Hoang did not join the other defendants’ motion for summary judgment, but
         moved for summary judgment later under the same grounds. The trial court
         granted her motion, again without stating its grounds.

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done to the organization; thus, they contend, the trial court erred in granting

judgment to the directors based on the plaintiffs’ lack of standing. In addition,

they contend that any question of their authority to sue is one of capacity, not

standing, and the defendant board members have waived any challenge to the

plaintiffs’ capacity to bring suit. We consider these contentions in turn.

A.    Standard of Review

      Standing is a prerequisite to maintaining a suit in state court. Williams v.

Lara, 52 S.W.3d 171, 178 (Tex. 2001) (citing Tex. Ass’n of Bus. v. Tex. Air

Control Bd., 852 S.W.2d 440, 444 (Tex. 1993)). Generally, unless standing is

conferred by statute, “a plaintiff must demonstrate that he or she possesses an

interest in a conflict distinct from that of the general public, such that the

defendant’s actions have caused the plaintiff some particular injury.” Id. at 178–79

(citing Hunt v. Bass, 664 S.W.2d 323, 324 (Tex. 1984)). Standing focuses on

whether a party has a “justiciable interest” in the outcome of the suit. Austin

Nursing Ctr., Inc. v. Lovato, 171 S.W.3d 845, 848 (Tex. 2005). Standing is a

component of subject matter jurisdiction, and we review a trial court’s

determination of standing de novo. Tex. Dep’t of Transp. v. City of Sunset Valley,

146 S.W.3d 637, 646 (Tex. 2004). Standing can be raised in a traditional motion

for summary judgment. Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 554 (Tex.

2000).

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B.    Analysis

      To determine whether the plaintiffs have standing in this case, we examine

whether a member of a nonprofit organization has a justiciable interest in seeking

redress on behalf of the organization, when the organization has not otherwise

conferred on the member a right to act on its behalf.

      1.     Derivative Standing

      The plaintiff members contend that, as members of a nonprofit, they have

derivative standing akin to shareholder standing in a for-profit corporation. An

individual shareholder ordinarily has no individual cause of action for a wrong

done to the corporation. Webre v. Sneed, 358 S.W.3d 322, 329 (Tex. App.—

Houston [1st Dist.] 2011), aff’d, 465 S.W.3d 169 (Tex. 2015). But a derivative suit

allows a shareholder to step into the shoes of a corporation and sue on its behalf.

Id. at 329–30. Texas law permits shareholders of for-profit corporations to bring

derivative suits, within its strict parameters, pursuant to the Business Organizations

Code. See TEX. BUS. ORGS. CODE ANN. §§ 21.551 – 21.563 (West 2012); see also

Sneed v. Webre, 465 S.W.3d 169, 181 (Tex. 2015) (noting that predecessor statute

conveys standing to sue on corporation’s behalf if statutory preconditions are met).

      No parallel provision confers this status upon the members of a nonprofit

who are not otherwise authorized to sue by the organization itself. First, members

of a nonprofit organization are not shareholders, and thus lack derivative standing.

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Sections 21.551 through 21.563 of the Business Organizations Code do not confer

standing to sue upon non-shareholders or otherwise recognize merely associative

standing. See TEX. BUS. ORGS. CODE ANN. § 21.552 (referring to shareholders as

the parties entitled to bring derivative suits).

      An examination of these statutory provisions bears this out. Title 2 of the

Business Organization Code contains two separate chapters, one governing for-

profit corporations and the other governing nonprofit corporations. See generally

TEX. BUS. ORGS. CODE ANN. tit. 2 (concerning corporations).               Chapter 21,

addressing for-profit corporations, authorizes derivative suits, but it limits the class

of people who may bring them to shareholders, commonly referred to as

“shareholder standing.” TEX. BUS. ORGS. CODE ANN. §§ 21.551–21.563 (providing

for derivative suits); see, e.g., Franchise Tax Bd. v. Alcan Aluminium Ltd., 493
U.S. 331, 336, 110 S. Ct. 661, 665 (1990) (defining and discussing the shareholder

standing rule, which limits the standing of shareholders to sue on behalf of a

corporation). The statute describes “shareholders” as the parties who may bring

suit on behalf of corporations. See, e.g., TEX. BUS. ORGS. CODE ANN. § 21.552

(establishing limitations on when shareholders may bring suit); see also Sneed, 465
S.W.3d at 180–81 (discussing shareholder derivative suits under predecessor

statute). Section 1.002(81) defines “shareholder” as “the person in whose name

shares issued by a for-profit corporation, professional corporation, or real estate

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investment trust are registered . . . .” TEX. BUS. ORGS. CODE ANN. § 1.002(81)

(West Supp. 2014). Sections 21.551 through 21.563 exclude the membership of

nonprofit corporations; their members, without more, do not meet the statutory

definition of “shareholder.”

      Second, Texas statutes that authorize and govern Texas nonprofit

organizations do not confer membership standing to sue on behalf of the nonprofit.

In contrast to the derivative standing conferred upon shareholders in Chapter 21,

Chapter 22 for nonprofit corporations contains no authorization for a derivative

suit brought on behalf of the nonprofit corporation. Accordingly, we hold that the

Legislature has not conferred derivative standing upon the general membership of

a nonprofit corporation to sue the board on behalf of the corporation.

      The plaintiffs’ reliance on Mitchell v. LaFlamme for the proposition that

members of a nonprofit corporation may bring a derivative suit is misplaced. In

Mitchell, the owners of townhouses sued their homeowners’ association, a

nonprofit corporation, for failing to maintain the common areas of their townhouse

complex. Mitchell v. LaFlamme, 60 S.W.3d 123, 126–27 (Tex. App.—Houston

[14th Dist.] 2000, no pet.). The owners argued that they had individual contract or

property rights in the common areas, and thus they had standing to sue to enforce

those rights. Id. at 128–29. The court of appeals rejected this argument. Id. As

the Amarillo Court of Appeals later observed, the Mitchell court was not asked to

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decide whether a derivative suit was available to the owners. See Flores v. Star

Cab Coop. Ass’n, Inc., No. 07-06-0306-CV, 2008 WL 3980762, at *7 (Tex.

App.—Amarillo Aug. 28, 2008, pet. denied) (mem. op.) (rejecting plaintiffs’

assertion that Mitchell allows nonprofit members to bring derivative suits).

      Third, although the member plaintiffs suggest in passing that VNCH’s

articles of incorporation or by-laws generally authorize their suit against the board

as the organization’s agents, we find no provision that does so; at most, the by-

laws indicate that the supervisory board may act through internal disciplinary

procedures described in the by-laws. The by-laws vest all authority to conduct

business on behalf of VNCH in the directors. Nowhere in either translation do the

by-laws authorize individual members of the board of supervisors to sue on behalf

of VNCH absent the authorization of the general membership by a vote. We hold

that, absent statutory authorization, the plaintiffs have not otherwise demonstrated

standing to sue.

      2.     Standing v. Capacity

      The member plaintiffs further contend that the directors have waived their

standing challenge because the directors did not file a verified answer denying the

plaintiffs’ capacity to sue. See TEX. R. CIV. P. 93(1); Austin Nursing Ctr., Inc. v.

Lovato, 171 S.W.3d 845, 849 (Tex. 2005).            The directors, however, have

challenged the plaintiffs’ authority to sue on behalf of VNCH, which is a standing

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issue—the member plaintiffs do not assert an individual injury. See Sneed, 465
S.W.3d at 179–81 (analyzing question of whether shareholder of close corporation

could bring derivative suit in terms of standing); Harris Cty. Emergency Servs.

Dist. No. 2 v. Harris Cty. Appraisal Dist., 132 S.W.3d 456, 460–61 (Tex. App.—

Houston [14th Dist.] 2001, no pet.) (premising standing analysis on whether the

plaintiff has “alleged concrete injuries”) (quoting Wilson v. Andrews, 10 S.W.3d
663, 669 (Tex. 1999)). Because the question presented is one of standing, we

reject the plaintiffs’ argument that the directors were required to object by verified

pleading to preserve their standing challenge for review.

      3.     Declaratory Relief

       Lastly, the members contend that they may seek declaratory relief

regardless of whether they have derivative standing to sue. They correctly observe

that the Texas Uniform Declaratory Judgments Act empowers a trial court to

declare an interested person’s “rights, status, or other legal relations,” and they ask

that we hold that the trial court must do so in this case. See TEX. CIV. PRAC. &

REM. CODE ANN. § 37.004 (West 2015).              The Declaratory Judgments Act,

however, is “a procedural device for deciding cases already within a court’s

jurisdiction.” Tex. Parks & Wildlife Dep’t v. Sawyer Trust, 354 S.W.3d 384, 388

(Tex. 2011) (quoting Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440,

444 (Tex. 1993)). It does not confer jurisdiction where none exists. See Tex. Ass’n

                                          10
of Bus., 852 S.W.2d at 444 (observing that without standing, a declaratory

judgment is an advisory opinion). Because the Declaratory Judgments Act does

not independently extend jurisdiction to the plaintiff members, the trial court

properly granted summary judgment on this claim.

                                CONCLUSION

      The members of a nonprofit corporation are not shareholders and thus lack

statutory shareholder standing to bring a derivative suit. The plaintiff members

provide no other basis – as a matter of the corporation’s governance documents or

a contractual relationship – which otherwise might confer on an organizational

member standing to sue as an authorized agent of the nonprofit corporation.

Accordingly, we affirm the summary judgment of the trial court.

                                            Jane Bland
                                            Justice

Panel consists of Chief Justice Radack and Justices Bland and Huddle.

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