Court Opinion

ID: 1043698
Source: CourtListenerOpinion
Date Created: 2013-10-08 00:25:16.219441+00
Date Added: 2024-06-11T12:51:41.526169
License: Public Domain

2012 VT 55

Daniels v. Elks Club of Hartford
and the Human Rights Commission (2010-181)
 
2012 VT 55
 
[Filed 03-Aug-2012]
 
NOTICE:  This opinion is
subject to motions for reargument under V.R.A.P. 40 as well as formal revision
before publication in the Vermont Reports.  Readers are requested to
notify the Reporter of Decisions, Vermont Supreme Court, 109 State Street,
Montpelier, Vermont 05609-0801 of any errors in order that corrections may be
made before this opinion goes to press.
 
 

2012 VT 55

 

No. 2010-181

 

Richard S. Daniels

Supreme Court

 

 

 

On Appeal from

     v.

Superior Court, Windsor Unit,

 

Civil Division

 

 

The Elks Club of Hartford,
  Vermont and 
The Human Rights Commission, et al.

March Term, 2011

 

 

 

 

Harold
  E. Eaton, Jr., J.

 

C. Nicholas Burke of Burke & Hotchkiss, PLLC, Lebanon,
New Hampshire for 
  Plaintiff-Appellee.
 
Gary F. Karnedy and Alexandra H. Clauss of Primmer Piper
Eggleston & Cramer PC,
  Burlington, for Intervenor-Appellee Mascoma Savings
Bank.
 
Edwin L. Hobson, Burlington, Robert Appel, Executive
Director, Vermont Human Rights
  Commission, Montpelier, Norman Watts of Watts Law
Firm, Woodstock, and Ethan Shaw
  (On the Brief), Montpelier, for
Defendants-Appellants.
 
 
PRESENT:  Reiber, C.J., Dooley, Skoglund and Burgess,
JJ., and Cohen, Supr. J., 
           
        Specially Assigned
 
 
¶ 1.            
DOOLEY, J.   Plaintiff Richard Daniels is seeking
foreclosure of a mortgage on two parcels of real property owned by defendant
Elks Club of Hartford, Vermont (the Club).  Defendant creditors, who
include the Vermont Human Rights Commission (VHRC), four individual women, and
the Watts Law Firm (Watts), all have junior security interests in the property
at issue and oppose foreclosure.  Creditors appeal from a trial court
decision granting plaintiff’s motions for summary judgment, concluding that
plaintiff has standing to foreclose and is entitled to a judgment of
foreclosure against all parties, and dismissing creditors’ counterclaims. 
For the reasons stated below, we reverse and remand the decision to include
certain advances in the mortgage amount and the dismissal of the counterclaims.
¶ 2.            
Creditors’ involvement here is rooted in their participation in an
earlier civil rights action against the Club, which took place while the Club’s
corporate status was terminated and which resulted in attachments on the
property in question and judgments for the civil rights plaintiffs and
eventually for Watts.  At the time of the attachment and the judgments,
the property was already mortgaged to Mascoma Savings Bank (the Bank).  On
appeal, creditors make five main arguments: (1) the Club’s reinstatement of a
dissolved corporation nineteen years after its dissolution does not alter its
liability under a final judgment entered against it as an unincorporated
association, and plaintiff is personally liable for the judgment as a member of
the Club; (2) the Bank was on actual notice of creditors’ interest, and,
therefore money advanced thereafter is not part of the mortgage amount that has
priority over creditors’ interests[1];
(3) plaintiff does not hold the mortgage or legal title and therefore
cannot bring a foreclosure action; (4) issue preclusion does not bar creditors’
claim that plaintiff, the Bank and the Club entered into an improper collusive
relationship, designed to escape the attachment; and (5) title to the property
merged because plaintiff, as a member of the unincorporated Club, held both
legal and equitable title.  
¶ 3.            
We reject the last three of these arguments but agree with the first,
and reverse and remand the trial court’s decision on the second for
reconsideration under the correct legal standard.  We conclude that
reinstatement of the Club’s corporate status did not result in limiting
liability on the Club’s debts arising from the discrimination lawsuit. 
Because the Club was a voluntary association at the time it discriminated
against the individual women and at the time it retained Watts to defend it in
the discrimination litigation, certain members of the Club are liable for the
judgments to the extent they cannot be collected from the Club. 
Accordingly, we affirm the trial court’s decision that plaintiff is entitled to
foreclose, reverse and remand the foreclosure judgment, and reverse and remand
its dismissal of creditors’ counterclaims.  
¶ 4.            
The undisputed material facts are as follows.  Creditors’
involvement in this case began with an action for intentional gender
discrimination filed in 1998 against the Club by the first group of creditors
here, the VHRC and four individual women who were denied membership in the Club
due to their gender (collectively “discrimination creditors”).[2]  A jury found in favor of the
plaintiffs in the discrimination case, resulting in a verdict that included: an
injunction requiring the Club to admit the women, an award of $1 in
compensatory damages and $5000 in punitive damages to each woman, and an award
of $5000 in statutory penalties to the VHRC.  This Court affirmed the
verdict, monetary judgment, and permanent injunction on March 14, 2008.  Vt.
Human Rights Comm’n v. Benevolent & Protective Order of Elks of U.S.,
2008 VT 34, 183 Vt. 606, 949 A.2d 1064.  On April 6, 2009, a separate
final judgment was entered in favor of the discrimination creditors for
approximately $446,000 in attorney’s fees related to the discrimination
case.  Following these awards, the women and the VHRC modified an existing
pretrial attachment on the Club’s property, originally recorded in 2004, to
secure payment of the jury verdict and attorney’s fee award.  The
attachment was a junior lien—the Club having already mortgaged its property to
the Bank in 1989. 
¶ 5.            
Watts, the second creditor here, also holds a junior security interest
in the Club’s property.  This firm represented the Club during part of the
gender discrimination litigation and later obtained a $30,000 judgment against
the Club for nonpayment of attorney’s fees.  That judgment is also secured
by a judgment lien against the Club’s property.  The lien was filed in
April 2008 and is junior to the interests of the Bank and the discrimination
creditors.  
¶ 6.            
The Club was first incorporated in 1940, but the Vermont Secretary of
State revoked its corporate charter on June 23, 1989, for failure to file an
annual report.  The Club’s corporate status remained terminated for almost
nineteen years until its charter was reinstated on May 2, 2008.  Plaintiff
has been a member of the Club for more than forty years.  He became a Club
trustee for the first time in May 2008.  
¶ 7.            
Just before its corporate charter was revoked in 1989, the Club borrowed
$700,000 from the Bank, securing the loan with a mortgage deed on the Club’s
property.  Years later, in July 2006, during the course of the discrimination
lawsuit, the Bank advanced the Club an additional $25,000, purportedly secured
by the original mortgage.  In January and September 2007, the Bank also
amended the terms of the promissory note to reduce the amount of the monthly
payment from an amount covering repayment of both principal and interest to an
amount representing interest only.  The Bank was aware of the junior
security interest held by the discrimination creditors when it made these
deferrals and advanced the additional funds.  
¶ 8.            
By June 2008, the Club had fallen behind on making payments on its
mortgage to the Bank, and on June 19, 2008, the Bank assigned both its mortgage
and promissory note to plaintiff.  Although plaintiff is a longtime member
of the Club, he completed this transaction in his individual capacity. 
The terms of the transaction required plaintiff to execute a promissory note to
the Bank for approximately $493,000, deliver collateral assignment of the 1989
mortgage to the Bank, and post additional cash collateral.  
¶ 9.            
In November 2008, plaintiff gave notice of a nonjudicial foreclosure of
the mortgage.  Creditors brought an action to enjoin the planned
action.  In December 2008, the Washington Superior Court denied creditors
a preliminary injunction.  The decision of the court did not end the
controversy because it became clear in the course of that litigation that
plaintiff would have to bring a judicial foreclosure.  
¶ 10.        
In January 2009, plaintiff filed in Windsor Superior Court a foreclosure
complaint against the Club and all creditors with an interest in the Club’s
property subordinate to plaintiff’s security interest.  Plaintiff’s
complaint alleged that at all times since the Bank’s assignment of the
promissory note and mortgage, the Club was in default as a result of its
failure to promptly pay all installments of principal and interest and its
failure to pay real estate taxes.  
¶ 11.        
In the trial court, creditors raised a number of defenses to the
foreclosure action and counterclaims.  The court addressed creditors’
defenses and counterclaims in its September 2009 decision granting plaintiff’s
motion for default judgment and for summary judgment.
¶ 12.        
Creditors made three general classes of arguments.  First, they
argued that plaintiff could not foreclose the mortgage for three reasons: (1)
because of a collateral assignment to the Bank, he did not hold title; (2)
because he was a member of the Club and responsible for its debts, he held both
legal and equitable title to the property and those interests merged,
eliminating the mortgage; and (3) plaintiff and the Club colluded to eliminate
creditors’ interests in the property and could not go forward in equity. 
The trial court rejected each of these arguments.  It held that plaintiff
transferred only a security interest to the Bank and retained title that
allowed it to foreclose.  It held that even if plaintiff held both the
equitable title and the legal title in the property, merger would occur only if
he intended it, and there was no evidence of such an intent.  Finally, it
held that creditors’ collusion argument was barred by issue preclusion because
the Washington Superior Court had ruled against it in creditors’ injunction
action.  Alternatively, it held that creditors were not harmed by
plaintiff’s purchase of the mortgage from the Bank.
¶ 13.        
Creditors’ second type of argument sought to reduce the amount that
plaintiff could claim was secured by the mortgage or made part of that amount
senior to the interests of the creditors.  Under this category, creditors
argued that part of the unpaid mortgage amount, the $25,000 advanced in 2006,
represented an interest junior to that of the creditors because the Bank
advanced that money to the Club after discrimination creditors’ attachment
interests were perfected and after the Bank became aware of those
interests.  The court rejected this argument, holding that the creditors
had to prove that they had provided written notice of their interest in the property
to the Bank along with an objection to future advances.  The court held
there was no evidence of either written notice or an objection.
¶ 14.        
The third type of argument was reflected in the counterclaims.  In
essence, the argument was that plaintiff owed creditors an amount equal to
creditors’ judgments against the Club because plaintiff was a member of the
Club and members of a voluntary association are responsible for the
association’s debts if the association cannot pay them.  The trial court
rejected this argument on the grounds that, even if the reinstatement did not
eliminate individual liability, it would be at most the officers of the Club
who would be liable. 
¶ 15.        
Creditors raise the same issues on appeal, and we take them in the order
set forth above.  We review an award of summary judgment de novo and
conduct a plenary, nondeferential review of questions of law presented by a
summary judgment motion.  Lively v. Northfield Sav. Bank, 2007 VT
110, ¶ 5, 182 Vt. 428, 940 A.2d 700.  We will affirm a summary judgment
decision when no genuine issues of material fact exist and the prevailing party
is entitled to judgment as a matter of law.  Id.; see also V.R.C.P.
56(a).  
I.
¶ 16.        
We begin by considering the arguments raised by the creditors to defeat
the foreclosure judgment.  First, creditors claim that plaintiff cannot
bring an action to foreclose because he assigned legal title and interest in
the mortgage to the Bank in a collateral assignment.  Creditors point to language
that states, “Assignor [plaintiff Daniels] hereby sells, assigns and transfers
to Secured Party [Mascoma Savings Bank] all of Assignor’s rights, title and
interest in and to the Mortgage, together with the notes, debts and claims
thereby secured, as collateral security for the full and complete repayment and
performance of the Note.”  The creditors contend that this shows that the
Bank, and not plaintiff, is the holder of the mortgage.  The trial court
rejected this argument in part because “[t]hese provisions unambiguously
establish that the parties meant to transfer a security interest in the
mortgage rather than the mortgage itself.”  As a description of the
parties’ intent, we find this conclusion correct.  The document was
entitled “Collateral Assignment of Mortgage” and clearly specifies that the
transfer is made “as collateral security.”  It goes on to state, “So long
as there shall exist no default in performance of Note, Assignor shall have the
right to collect all payments arising under the Mortgage, use and enjoy the
same.”  
¶ 17.        
This conclusion does not, however, resolve creditors’ argument, which,
as we understand it, is somewhat more esoteric.  According to creditors,
plaintiff lacks the right to foreclose by virtue of this collateral transfer,
whatever was his intent.  They argue that because Vermont is a title
theory state, see Huntington v. McCarty, 174 Vt. 69, 71, 807 A.2d 950,
952-53 (2002), by transferring a security interest, plaintiff thereby
transferred away legal title and with it the ability to foreclose, whether this
was his intent or not.  The question, then, is: What is transferred in a
collateral transfer of a mortgage? 
¶ 18.        
According to a natural understanding, which underlies creditors’
argument, the collateral assignment of a mortgage is basically a mortgage of
the initial mortgage.  A clear articulation of this conception is offered
in the Vermont Bar Association’s Vermont Title Standards Index:
A
collateral assignment of a mortgage is, in essence, a mortgage of a mortgage. 
For example, if A has given a mortgage to B to secure A’s debt, B may assign
A’s mortgage to C to secure B’s indebtedness to C.  If B satisfies its
debt to C, then C should reassign A’s mortgage back to B, who again may
foreclose if A defaults.  If C, rather than reassigning A’s mortgage to B,
purports to discharge B’s assignment to C, this will be deemed to be a
reassignment.
 
§
18.2 cmt. 5 (2010),
https://www.vtbar.org/UserFiles/files/For%20Attorneys/titlestandards.pdf. 
On this understanding, the collateral assignment involves a transfer of the
legal title to the real property.  This view has the advantage of
explaining how the collateral assignee is in a position to foreclose on the
real property, which is essential to the collateral providing meaningful
security.  See Torrey v. Deavitt, 53 Vt. 331, 335-36 (1881) (“[I]t
has been repeatedly held, and is well settled, that in equity an assignment of
the mortgage debt carries with it as an incident the mortgage
security. . . .  It was long since decided that such an
assignment of a mortgage is necessary to enable the assignee to maintain an
action at law upon the mortgage. Such an assignment must therefore convey to
the assignee a legal interest in the mortgage premises.”); cf. Bank of Tokyo
Trust Co. v. Urban Food Malls Ltd., 650 N.Y.S.2d 654, 661 (App. Div. 1996)
(“New York law . . . permits a pledgee, in the case of a mortgage pledged as
collateral to secure a debt, to institute an action to foreclose on the
mortgaged property provided that the pledgor is joined as a party, either as a
plaintiff or defendant.”).  
¶ 19.        
Creditors contend that if this conception is correct, then the Bank
rather than plaintiff holds legal title to the property.  As further
evidence of this, they point to that fact that the collateral assignment
specifically allowed for recording—and, in fact, was recorded—in the Hartford
Land Records.  As the holder of legal title, the creditors contend, the
Bank held the right to foreclose and plaintiff did not.  
¶ 20.        
We agree with much of the legal framework behind creditors’ argument,
but not with its conclusion.  We agree that the collateral assignment must
be treated akin to other mortgages.  Thus, by assigning the mortgage to
the Bank as collateral, plaintiff transferred legal title to the Bank and
retained the equitable ownership, in particular the right to receive
payments.  As under a traditional mortgage, if plaintiff fulfilled his
obligations on the debt, then the legal title would return to him, but until
that time it remains with the mortgagee.  In so concluding, we reject the
idea that a mortgage can be properly transferred as collateral security without
the transfer of legal title to the real property.  
¶ 21.        
Creditors are incorrect, however, to infer from the fact that the Bank
holds legal title that the Bank is the only party who may initiate a
foreclosure action.[3] 
According to plaintiff, he “retained the beneficial ownership and control of
the mortgage, including the right to foreclose.”  The view that a
collateral pledgor is entitled to foreclose was established in Wells &
Dewing v. Wells & Scribner:
[T]he
fact that the note and mortgage were held by the defendants as collateral, did
not stand in the way of the orators proceeding, either by suit at law on the
note, or by foreclosure on the mortgage, if they deemed it for their interest
to have the note on the mortgage, or both, enforced earlier than the defendants
saw fit to proceed in that behalf.  The court would see to it that the
rights and interests of the pledgee were protected in reference to the
collateral, at the same time that the pledgor was acting in regard to his own
existing reversionary interest in the pledge, by the proceeding to enforce it, as
against the debtor in the pledge.
 
53
Vt. 1, 5-6 (1880) (citation omitted); see also 5 H. Tiffany & B. Jones,
Tiffany Real Property § 1531 & n.84 (2011) (collecting cases); cf. George
v. Woodward, 40 Vt. 672, 678-79 (1867) (holding that collateral assignor of
mortgage note was entitled to transfer the note).  To hold otherwise would
raise the difficulty of whether the pledgee would owe a duty to the pledgor to
foreclose, as the pledgor would be without independent recourse to protect the
collateral.  See Duty of Pledgee to Foreclose on Request of Pledgor,
32 Harv. L. Rev. 578 (1919).
¶ 22.        
There is, however, a constraint: a party who has pledged a mortgage as
collateral security cannot foreclose without allowing the pledgee to enter the
suit.  Cf. S. Burlington Mech. & Elec. Contractors, Inc. v. Graybar
Elec. Co., 138 Vt. 580, 581, 421 A.2d 1275, 1276 (1980).  The
Connecticut Supreme Court explains the principle clearly: 
When
the owner of a mortgage has pledged it as collateral security for a debt of
less amount than the mortgage, he still has such an interest in it as entitles
him to bring an action for the foreclosure of it. . . .  But in such an
action the pledgee is a necessary party and may be made a co-plaintiff or a
defendant. . . .  It is proper for the mortgagee and the pledgee to join
as co-plaintiffs, as they are, together, the owners of the entire bond and
mortgage.  Neither the mortgagor nor other parties to the action can
object to such joinder of plaintiffs, as all the parties interested in the
mortgage debt are thereby brought before the court so that its decree will be
binding and conclusive upon them.
 
Gordon
v. Donovan, 149 A. 397, 398 (Conn. 1930) (quoting 1 C. Wiltsie, A Treatise
on the Law and Practice of Mortgage Foreclosure on Real Property §§ 304,
305 (1927)).  
¶ 23.        
In this case, the trial court correctly pointed out that this concern is
not implicated because “Mascoma Savings Bank has already intervened in the
action, and it is actively supporting Mr. Daniels’ attempts to foreclose on the
property.”  Accordingly, plaintiff is legally entitled to bring an action
to foreclose, and we affirm the trial court’s denial of the creditors’ motion
for summary judgment.
¶ 24.        
Second, creditors contend that plaintiff cannot foreclose because
plaintiff’s acquisition of the Club’s mortgage resulted in a merger of legal
and equitable title.  They point out that when the interest of a mortgagee
is assigned to the mortgagor, the interests normally merge.  See 4 P.
Powell, Powell on Real Property § 37.32 (M. Wolf ed., 2012).  On this
basis, they argue that the assignment of the Club’s mortgage to plaintiff
constituted a merger and that the mortgage was thus extinguished, leaving
nothing upon which to foreclose.  The trial court rejected this argument,
noting that plaintiff acted in his personal capacity and that there was no
intent to create a merger.  Creditors respond that intent is not required
for merger, relying on a statement from Fletcher v. Ferry:  “We
have not previously held that intent to merge is required, however, and we
decline to do so now.”  2007 VT 8, ¶ 7, 181 Vt. 294, 917 A.2d 937.
¶ 25.        
There was no merger here, and the creditor’s arguments to the contrary
are entirely without merit.  To begin with, merger requires identity
between the holder of the equitable interest and the holder of legal title.
 See Albright v. Fish, 136 Vt. 387, 395, 394 A.2d 1117, 1121 (1978)
(“The doctrine of merger
operates when the same person becomes owner of both the benefited and the
burdened land.”).  In this case, the Club is the holder of equitable
title.  When plaintiff acquired the mortgage from the Bank—leaving aside
the collateral assignment—he acquired the legal title.  Even if plaintiff
shares interests and liabilities with the Club, he is only one member. 
Thus, there is not the requisite identity between holders to produce a
merger.  Moreover, there was no intent to effectuate a merger.  
¶ 26.        
Creditor’s invocation of Fletcher is misguided.  That
decision held that intent was not required to create a merger in the equitable
servitude context, explicitly contrasting that situation with the mortgage
context where intent serves an important purpose.  We explained that
unintended operation of the doctrine of merger in the mortgage context could
result in “unfairly elevat[ing] a junior [mortgagee] to senior status,” which
consideration of intent could avoid.  Fletcher, 2007 VT 8, ¶ 7; see
also 4 Powell on Real Property § 37.32[1] (“If there is any advantage to be
gained by continuing the independent existence of the rights, such independent
existence will be maintained.”).  In this case, merger would create
exactly the result we warned against in Fletcher.  In short, this
case presents neither the factual nor the legal context for a merger. 
¶ 27.        
Finally, creditors argue that even if plaintiff has the legal right to
foreclose, equitable considerations demand prevention of such foreclosure
because the Bank’s assignment of the mortgage to him constituted collusion to
undermine creditors’ interests.  In making this argument, creditors
contend that the trial court erred in its conclusion that the 2008 Washington
Superior Court decision precludes them from arguing collusion between plaintiff
and the Bank.  We do not reach the question of whether the gender
discrimination creditors are precluded, because it is clear that Watts is not
so precluded.  Watts was not a party in the Washington County litigation,
and issue preclusion cannot be asserted against a party that was not involved
in the earlier action.  See Alpine Haven Prop. Owners Ass’n v. Deptula,
2003 VT 51, ¶ 14, 175 Vt. 559, 830 A.2d 78 (“[T]he privity requirement relates
to the party against whom issue preclusion is being asserted, not the party
that is asserting issue preclusion.”); Trepanier v. Getting Organized, Inc.,
155 Vt. 259, 265, 583 A.2d 583, 587 (1990) (“[P]reclusion should be found only
when . . . asserted against one who was a party or in privity with a party in
the earlier action . . . .”).
¶ 28.        
This lack of preclusion is immaterial, however, because we affirm the
trial court’s alternative basis for rejecting the requested injunctive
relief.  The trial court held that creditors were not entitled to relief
because they were not harmed by the transactions.  As the court put it:
“The gender discrimination creditors have always been second in line to a
senior 1989 mortgage.  The gender discrimination creditors are still second
in line to the same mortgage after the assignment.  Nothing has changed
but the identity of the mortgagee.”  This conclusion mirrors the earlier
decision of the Washington Superior Court in 2008:  “Plaintiffs [i.e.
creditors] have not been harmed by [Daniels’] actions. . . .  If the bank
had initiated . . . foreclosure, Plaintiffs would be in exactly the same
position they are now.  Nothing has changed but the name on the
action.”  We agree.  Whatever plaintiff’s motive may have been in
purchasing the mortgage from the Bank, creditors—who were then, and are now,
the junior interest holders—have not been injured by plaintiff’s actions. 
Creditors are not entitled to injunctive relief without articulating some harm
to their interest.  See Vt. Div. of State Bldgs. v. Town of Castleton
Bd. of Adjustment, 138 Vt. 250, 256-57, 415 A.2d 188, 193 (1980) (“An
injunction is an extraordinary remedy and will not be granted routinely unless
the right to relief is clear.  It may issue only in cases presenting some
acknowledged and well defined ground of equity jurisdiction, as when it is
necessary to prevent irreparable injury or a multiplicity of suits.” (citation
omitted)). 
II.
¶ 29.        
We turn next to the argument seeking to reduce the amount that plaintiff
could claim was secured by the mortgage.  In this regard, the
discrimination plaintiffs challenge the priority of the future advance made on
the mortgage by the Bank.  They argue that the advance by the Bank on the
mortgage should not receive priority because the Bank was on actual notice of
their attachment of the Club’s property and would have known that they objected
to increasing the mortgage to provide the Club with additional funds.[4]  
¶ 30.        
Vermont has long had some version of what is known as the
“optional/obligatory advance doctrine.”  Under this doctrine, future
advances generally have priority over intervening attachments, unless the
future advance is optional on the part of the mortgagee and the mortgagee has
received notice of the intervening security interest.  See McDaniels v.
Colvin, 16 Vt. 300, 305 (1844).  This priority of future advances is
taken as reasonable “inasmuch as all such have notice by the record of the
incumbrance, and of what it is intended to secure; and, furthermore, it is in
the power of such creditors, &c., by giving the requisite notice, to limit
the amount of such further advances, so far as they are interested so to
do.”  Id.  The optional/obligatory advance doctrine has since
been adopted by the Legislature in 27 V.S.A. § 410(b)(3)(B), which states
in relevant part, “a future advance made under a recorded mortgage takes
priority as of the date of the recording . . . if not made pursuant to a
commitment, to the extent of future advances that are outstanding before the
mortgagee receives written notice of the intervening interest.”  
¶ 31.        
The trial court held that, under this rule, the Bank’s future advance
did not lose its priority because, regardless of what the Bank may have known
or inferred, it had not received written notice and objection from the
creditors.[5] 
It reached this conclusion despite creditors’ request to conduct discovery
before the court ruled because creditors relied exclusively on the knowledge
attributable to the Bank[6]
and did not allege that they had notified the Bank of their interest or
objected to future advances.  In reaching this conclusion, the trial court
relied on language from early opinions.  In McDaniels, this Court
stated, “creditors, purchasers, or mortgagees, may prevent further advances,
when they become interested, by giving notice to the first mortgagee of
their interest, and an intimation, at least, that no further advances are to be
made on the security of the mortgage as against them.” 16 Vt. at
306.   And we later explained that the notice “must contain enough to
show that the junior interest objects to the making of the senior interest any
larger.” Patch & Co. v. First Nat. Bank, 90 Vt. 4, 8, 96 A. 423,
424 (1916).  
¶ 32.        
This old description of the rule differs, however, from that in 27
V.S.A. § 410(b)(3)(B)—enacted by the Legislature in 2000—in two related
ways.  First, on its face, § 410(b)(3)(B) does not require that the
intervening interest holder actually object to future advances.  It is
enough that the mortgagee “receives written notice of the intervening
interest.”  Second, § 410(b)(3)(B) does not require that it be the
intervening creditor that provides the notice; the statute is written in the
passive voice, requiring that “the mortgagee receives written notice” without
specifying by whom.  Along these lines, creditors contend that the Bank
had received actual notice of their intervening interest, and that therefore
the advances are not entitled to priority.  The question, then, is whether
§ 410(b)(3)(B) ought to be read to include the prior Vermont case law, or
whether it ought to be read simply as it is written.
¶ 33.        
We conclude that § 410(b)(3)(B) is satisfied by any written notice
and requires neither that the notice come from the junior creditor nor that the
junior creditor specifically object to future advances.  This is the
natural meaning of the section as written, and we will generally give a statute
its plain meaning.  See In re Jones, 2009 VT 113, ¶ 7, 187 Vt. 1,
989 A.2d 482 (“Our first step . . . is to ascertain the plain meaning of the
statute, as we presume that that is the most basic expression of legislative
intent.”).  In this case, § 410(b)(3)(B) is written in passive voice
and does not specify from whom the notice must come.  Had the Legislature
intended otherwise, it could easily have conveyed that.  Cf. In re Soon
Kwon, 2011 VT 26, ¶ 16, 189 Vt. 598, 19 A.3d 139 (mem.) (emphasizing
that “the landlord shall” language in 9 V.S.A. § 4461(d) meant that “[t]he
method of delivery is explicit in the statute”).  
¶ 34.        
Moreover, when the Legislature enacted § 410(b)(3)(B), it repealed
a provision that gave priority “unless the second mortgagee in writing notifies
the first mortgagee of the incidence of his mortgage.”  8 V.S.A.
§ 1207 (repealed effective 2001).  Although this history is not
determinative, we do consider this change significant.  Compare Diamond
v. Vickrey, 134 Vt. 585, 589, 367 A.2d 668, 671 (1976) (“It is well settled
that, in interpreting amendatory language in a statute, we are guided by the
rule that the Legislature intended to change the law.”), with Town of
Cambridge v. Town of Underhill, 124 Vt. 237, 240, 204 A.2d 155, 157 (1964)
(“When changes in statutes come about only as a result of a revision, caution
is required in determining whether or not any substantive change in the law was
intended.”).
¶ 35.        
There is a further question of whether actual notice is sufficient or
whether the statutory notice—here, written notice—is required even in the face
of actual notice.  In Soon Kwon, we recognized a general principle
that the technical requirements of statutory notice will not be strictly enforced
when the party seeking enforcement has received actual notice.  2011 VT
26, ¶ 14.  The rationale for this principle is that, in general, having
actual notice renders empty any complaint about failing to receive the
statutorily prescribed notice.  See First Nat. Bank v. Okla. Sav. &
Loan Bd., 569 P.2d 993, 997 (Okla. 1977) (“[A]s a general rule, one
having actual notice is not prejudiced by, and may not complain of failure to
receive statutory notice.”).  We also recognized, however, that the
application of this principle is “dependent on the statutory scheme and the
content of the legislation.”  2011 VT 26, ¶ 14.  In the
landlord-tenant context of Soon Kwon, we determined that there were good
reasons to insist upon the statutory notice.  
¶ 36.        
We do not find such reasons here.  The numerous and specific
statutory requirements in Soon Kwon protected tenants against potential
injuries.  Here, the comparatively minimal statutory requirement—that the
notice be written—appears to have the primary purpose of ensuring that
mortgagees not be burdened with constantly monitoring for attachments before
issuing advances, as they would be if record notice were sufficient to
undermine priority.[7]
 Accepting actual notice in the place of written notice does not undermine
this purpose because it does not impose any additional burden upon the
mortgagee.  A mortgagee need not seek out information about attachments to
ensure that its priority is preserved, but where, as here, it has received such
information, it cannot expect to retain its priority.  
¶ 37.        
In thus interpreting § 410(b)(3)(B) to be satisfied by actual
notice, we agree with the Federal Bankruptcy Court’s construction of the
section, see In re Blackmore, No. 05-12045, 2006 WL 1666194, at *2
(Bankr. D. Vt. Jan. 25, 2006) (“[F]uture advances made by a mortgagee will be
subordinate if made after the mortgagee has actual notice of the intervening
lien.”), and we align ourselves with the way that most states have construed
the notice contained in the optional/obligatory advance doctrine, see, e.g., Mobley
v. Brundidge Banking Co., 347 So. 2d 1347, 1349 (Ala. 1977) (holding that
advances do not get priority if there is “credible evidence from disinterested
witnesses to the effect that an officer of defendant bank had actual knowledge
of the existence of a junior mortgage”); W. Allen, Annotation, Optional
Advance Under Mortgage as Subject to Lien Intervening Between Giving of the
Mortgage and Making the Advance, 138 A.L.R. 566 (1942) (collecting
cases).  If creditors can document that the Bank received notice of their
intervening interest, we do not think that it is unfair to deny the Bank
priority for the subsequent advance.[8]
¶ 38.        
For the above reason, the trial court used the wrong standard to
determine whether the future advance was entitled to priority over creditors’
interests.  The sparse summary judgment record is inadequate to determine
whether the Bank received actual notice of creditors’ interests before it
extended the advance.  Accordingly, we must reverse and remand for such a
determination.  This holding reopens the decree of foreclosure because,
depending upon the court’s determination under the correct standard, it may
reduce the amount that discrimination creditors would have to pay to redeem and
the extent of the proceeds plaintiff will receive on sale of the property
before discrimination creditors receive any proceeds.
III.
¶ 39.        
We reach the third category of claims, which contains the largest issue
in the case—whether plaintiff as a member of the Club is liable to creditors
for the amount of their judgments.  Creditors argue that because the
judgments are against the Club as an unincorporated association they can
collect the judgments from all or any members of the Club, including
plaintiff.  They base this argument on several claims: the Club held
itself out as an unincorporated association throughout the discrimination
litigation; the first judgment in the discrimination case was entered against
the Club before reinstatement of its corporate charter; and all judgments were
entered based on liability the Club incurred as an unincorporated
association.  
¶ 40.        
Plaintiff maintains that, under 11B V.S.A. § 14.22(c), reinstatement of
the Club’s corporate charter on May 2, 2008, relates back to the date of
termination in 1989 as if termination had never occurred.  Under § 14.22,
plaintiff argues, the Club became liable for the judgments as a corporation and
creditors cannot collect from members of the Club even if they were directly
involved in the acts for which the Club is liable.  He particularly argues
that creditors cannot collect from him because he had no position of authority
in the Club when the discrimination occurred or when Watts was hired. 
¶ 41.        
The question of whether plaintiff can be held liable for the judgment
against the Club, therefore, involves two separate questions.  First, if
there were no corporate status, could creditors seek to collect on the judgment
against the Club from plaintiff as a member without a further showing that
plaintiff actively participated in the conduct of the Club that led to the
judgment?  Second, does reinstatement of the corporate status retroactively
restore the shield on personal liability?  We address these issues in
turn.
A.
¶ 42.        
Before we turn to the effect of the reinstatement of the corporate
status, we consider the nature of the Club and the liability of its members, trustees,
and officers during the period before the corporate reinstatement.  During
that period, the Club was an unincorporated voluntary association. 
Black’s Law Dictionary explains that a voluntary association is “[a]n
unincorporated organization that is not a legal entity separate from the
persons who compose it.”  Black’s Law Dictionary 132 (8th ed. 2004); see
also Coolidge v. Taylor, 85 Vt. 39, 53, 80 A. 1038, 1045 (1911)
(contrasting a corporation and a voluntary association); Corey v. Morrill,
61 Vt. 598, 603, 17 A. 840, 841 (1889) (referring to “a corporation by
voluntary association”).  In short, a voluntary association is an
organization that lacks legal status as a corporation—precisely what the Club
became when it was stripped of its corporate status.  
¶ 43.        
Two statutes govern suits against an unincorporated association. 
The first, 12 V.S.A. § 814, establishes the procedure for a suit against an
association:
 
A partnership or an unincorporated association or joint stock company may sue
or be sued in its firm, associate or company name and service of process
against such partnership, association or company made upon any officer, a
managing or general agent, a superintendent, any member thereof or any agent
authorized by appointment or by law to receive service of process, shall have
the same force and effect as regards the joint rights, property and effects of
the partnership, association or company as if served upon all the partners,
associates or shareholders.
 
More
importantly for the present purposes, the liability of members for a resulting
judgment against an unincorporated association is governed by 12 V.S.A. § 5060,
which provides:
 
When execution on a judgment obtained against a partnership, association or
company in its firm, associate or company name is returned unsatisfied in whole
or in part, an action of contract for the amount unpaid may be brought against
any or all of the partners, associates or shareholders upon their original
liability, provided that only one such action shall be brought and maintained
at the same time.  If the execution issued in the last named action is
returned unsatisfied in whole or in part, subsequent actions may in like manner
be maintained for the amount unpaid.
 
In other words, where a judgment
against an association is unsatisfied, the creditor may pursue an action
against any or all of the associates for the unfulfilled amount.  Both
statutes have been part of Vermont law, without change, for over a hundred
years.
¶ 44.        
During that time, we have, on three separate occasions, applied these
laws to members of unincorporated associations.  We first addressed the
extent of liability of persons associated with an unincorporated voluntary
association in F.R. Patch Manufacturing Co. v. Capeless, 79 Vt. 1, 63 A.
938 (1906).  Capeless explains that “an unincorporated association,
as regards its rights and liabilities, is fundamentally a large
partnership.”  Id. at 6, 63 A. at 939.  In equity, and under
Vermont statute,[9]
partnership debts must be paid first out of partnership property and then
against the estates of partners:
[P]artners,
associates, and shareholders are made individually liable to execution
creditors for the amount of a judgment unpaid after an execution against the
joint property has been returned unsatisfied in whole or in part, with the
further limitation that only one suit against members shall be brought and
maintained at the same time, and if the execution in the last suit is not
returned fully satisfied, subsequent actions can be had in like manner for so
much as remains unpaid.  Here the liability of the individual members in
its modified form is contractual in nature by operation of the statute. 
In legal effect each member when he becomes such thereby obligates himself to
the other members and to all persons who may hold liabilities against the firm,
association, or company of which he becomes a member, for the payment of the
amount unpaid on judgments against it after the joint property has been taken
in execution and applied thereon, and this obligation is in law as much a part
of every contract and liability against the partnership, association, or
company as it would be if it had been directly entered into by the members in
connection therewith.
 
Id. 
We applied this same understanding to unincorporated associations on two
subsequent occasions.  See Johnson v. Paine, 84 Vt. 84, 86, 78 A.
732, 733 (1911) (“The judgment against the society is conclusive, as to all
matters involved in the suit, upon all persons who were members of the
association when the liability merged in the judgment was created.  Hence
liability of the defendant in the action before us depends upon whether he was
such a member.”); Tarbell & Whitham v. Gifford, 82 Vt. 222, 227, 72
A. 921, 923 (1909) (Gifford II) (same).  All three of these cases
involved nonprofit societies or unions.  See Johnson, 84 Vt. at 86,
78 A. at 733 (Union Agricultural Society); Gifford II, 82 Vt. at 223, 72
A. at 921 (also Union Agricultural Society); Capeless, 79 Vt. at 9, 63
A. at 940 (Protection Lodge, No. 215, International Association of
Machinists).  
¶ 45.        
The liability created by § 5060 is not individual liability for
those acts that were the basis for the initial judgment but rather a secondary
contractual liability for the voluntary association’s debt arising out of the
judgment.[10]  The
theory of the statute is that by becoming members of an unincorporated
association, individuals agree to be liable in a collection action on a
judgment if that judgment cannot be fully met by the association’s assets.
 The judgment against the association is conclusive “in respect to all
matters involved in the suit upon all persons who were members” when the
liability arose.  Capeless, 79 Vt. at 9, 63 A. at 940.  That
is, insofar as a judgment has entered, the issue of liability is not to be
relitigated; the question is simply of collection.  What the statutory
scheme accomplishes is positing an implied contractual agreement among members
to be accountable for any deficiency of the association.  As Capeless
makes clear, this liability on judgments depends on a statutorily created
action in contract that is “supplementary” to the underlying judgment.  Id.
at 6-9, 63 A. at 938-40.  Suits against associations, as established by 12
V.S.A. § 814, are capable of binding the members to a judgment against the
association, in compliance with due process, because “they impliedly contracted
with reference to those provisions of the statute and are bound by them.” 
Id.  The members are then jointly and severally liable and may be
sued individually or together.  Tarbell & Whitham v. Gifford,
79 Vt. 369, 371, 65 A. 80, 80-81 (1906) (Gifford I) (“And, in
analogy to the right at common law to attach the separate property of each
member, we think the term ‘any,’ as there used in the phrase ‘any or all,’
should not be given its limited sense, but its enlarged and
plural sense—meaning some; however few or many; an indefinite number. 
Under this construction, such a supplemental suit may be brought against one,
or more, or all, of the partners, associates, or shareholders.”).  This is
true regardless of the type of judgment involved—whether an ordinary
contractual liability or a liability for an intentional wrongful act.[11] 
On the basis of this well-established Vermont law, we hold that, assuming there
is no restoration of the corporate liability shield, creditors may seek to
collect from individuals who were members when the various liabilities arose if
they are unable to collect from the Club itself.
¶ 46.        
The dissent would prefer to hold individuals liable only “if they
personally participated in the decision to deny membership to the plaintiffs
because of their gender, or otherwise ratified that decision.”  Post,
¶ 109.
¶ 47.        
The dissent would reach this result by drawing a distinction between
nonprofit and for-profit associations, citing various cases from other
jurisdictions that have drawn this distinction as a matter of common law. 
The idea is that, with regard to nonprofit groups, “mere membership” without
some sort of “active participation” in the wrongful act should not result in liability.  

¶ 48.        
In response to the dissent, we emphasize first that while the Court in Capeless
may have analogized to common law liability of partners or stockholders, its
decision is based squarely on the plain meaning of the statute, now 12 V.S.A. § 5060. 
The decision summarizes that the remedy “is statutory, [and] consequently
. . . the actions must be based upon the statute.”  79 Vt. at 9,
63 A. at 940.  The statute treats “partners, associates or shareholders”
alike, imposing liability on them when execution against their partnership,
association, or company is unfulfilled.  12 V.S.A. § 5060.  By
decision, we have applied the statute to unincorporated associations. 
Even if the common law evolved in other jurisdictions, as the dissent argues,
we do not understand how that change could modify the language of the statute.[12]  We are bound by stare decisis to
follow our precedents.  Estate of Girard v. Laird, 159 Vt. 508,
515, 621 A.2d 1265, 1269 (1993) (“We do not lightly overrule settled law
especially where it involves construction of a statute which the legislature
could change at any time.”).  If our construction was erroneous, it is up
to the Legislature to modify the statute to produce a different result. 
See Cyr v. McDermott’s, Inc., 2010 VT 19, ¶ 34, 187 Vt. 392, 996
A.2d 709 (Reiber, C.J., dissenting) (“[I]t is up to the Legislature to enact a
statute that properly balances the relevant policy considerations.”); State
v. Racine, 133 Vt. 111, 114, 329 A.2d 651, 653 (1974) (“If the provisions
of a statute are unfair or unjust, the remedy is by a change of the law itself,
to be effected by the legislature, and not by judicial action in the guise of
interpretation.”).
¶ 49.        
Even if we were starting anew in interpreting § 5060, we are at a loss
to see how we could import notions of personal culpability into its
language.  As this Court pointed out in Gifford I, the statute
specifically authorizes suit to be brought against “any or all” of the
associates.  79 Vt. at 371, 65 A. at 80-81.  The language is wholly
inconsistent with an interpretation that would allow the trial court to impose
liability on some of the members but not others.
¶ 50.        
Furthermore, even if it were within our powers to rewrite the laws of
this state out of concern for unfairness to uninvolved members, there are
several reasons why the unfairness in this case is less than it might initially
appear.  First, the dissent’s position would create an arguably greater
unfairness in the opposite direction.  To require creditors to prove
active participation—for example, having voted against the admission of the
women—is almost certain to erect a hurdle that could never be cleared.[13]  The membership votes were
conducted by secret ballot; exposing the individual votes would have been
virtually impossible at the time and would be even more difficult now, over a
decade later.
¶ 51.        
Second, the overwhelming majority of the damages in this case arise not
from the discrimination itself, but from the expense of fighting this case
vigorously for years.  Each member had the right to discontinue
membership, not only before the discriminatory votes occurred, but afterwards,
before many of the litigation costs accumulated.  Insofar as the choice is
between leaving creditors—including the Club’s own attorney—empty-handed after
all these years and forcing those members who retained their membership
throughout the protracted litigation to bear the burden, we see less unfairness
in the latter approach.[14]
 
¶ 52.        
Third, even if participation theoretically could be proved, it would
force creditors, who have already litigated their case and achieved a judgment,
to prove the elements of discrimination a second time, as though the first suit
were an entirely empty exercise.  See Martin v. Curran, 101 N.E.2d
683, 686 (N.Y. 1951) (lamenting injustice in statutory scheme whereby, after
obtaining a judgment, plaintiff “would have to plead and prove, all over again,
the members’ own liability”).  In this case, a judgment against the Club
already exists and its validity is not before us.  The original case was
the appropriate forum for the questions of original liability to be
addressed.  In the underlying case, for example, the Club might have
argued that it, as an unincorporated group of individuals, could not be held in
violation of the law without proof of each member’s involvement.  Cf.,
e.g., id. at 685-86 (noting that, under New York law, in order to
achieve a judgment against an unincorporated association, one must assert a
claim that is valid against each member).  
¶ 53.        
Fourth, although it may seem unfair to hold accountable a member who did
not participate in wrongdoing, it is crucial to recognize that the liability
imposed by § 5060 is not liability for the original wrongdoing, but
liability for the debt.  The statutory scheme charges individuals who join
unincorporated associations with knowledge that they are agreeing to a certain
form of contractual liability for collective debts.  If a member of the
association was simply ignorant of this law, such ignorance is not an
excuse.  If, on the other hand, a member was ignorant of the fact that the
Club was such an organization, then our decision below concerning reinstatement
affords that individual relief.  
¶ 54.        
Finally, the collection from individual members is only authorized when
collection from association assets is impossible.  The Club’s members
could avoid any joint-and-several liability if the Club were to raise funds to
cover its own debts.  
¶ 55.        
In stressing that we must apply the law as we find it, and the reality
that fairness must in this case be viewed from the perspective of each of the
parties, we acknowledge that the possibility of visiting liability on a mostly
inactive Club member, who may have supported admission of women and opposed the
Club’s decision to fight the discrimination litigation, with its very high
cost, seems an inappropriate result.  Nonetheless, the Legislature is in
the position to modify the law to better accommodate the interests
involved.  See Martin, 101 N.E.2d at 686 (“Whatever reasons be
pressed on us for such changes, the power to change is not ours.  It is
for the Legislature to decide whether or not to overhaul these settled rules,
after hearing both sides, and after considering the interests of the general
public as well as those of the innumerable members of these
associations.”).  We urge it to look again at the governing
statutes.  In this case, whether the statutory policy judgments are fair
or not, we conclude that, absent the corporate shield on liability, § 5060
permits the creditors to collect from individuals who were members when the various
aspects of the judgment against the Club arose if collection from the Club
itself is not possible.
B.
¶ 56.        
Insofar as creditors could seek to collect from individual members of
the Club while it was an unincorporated association, the second question is
whether reinstatement of the Club’s corporate status operates to shield the
members retroactively.  We disagree with plaintiff’s contention that
reinstatement of the Club’s corporate status categorically reinstates the
corporate liability shield with regard to creditors’ judgments, which resulted
from liability incurred after termination of its corporate status and before
reinstatement.  As more fully explained below, we believe that whether
there is a liability shield should depend on the expectations of the
parties.  In this case, if creditors cannot collect from the Club, they
can collect from individuals who were members at the time the debts arose and
who were aware, or should have been aware, of the Club’s status as an
unincorporated association.
¶ 57.        
In Vermont, as in many jurisdictions, the State may dissolve a
corporation involuntarily without judicial proceedings for failure to file a
timely biennial report.  11B V.S.A. § 14.20(a)(2)[15]; see also 16A W. Fletcher, Cyclopedia of
the Law of Corporations § 8112.10, at 193 (rev. vol. 2003).  The statute
in effect in 1989, former  § 2607 of Title 11, provided the
following:  
 
A corporation which fails to file a status report required by section 2701 of
this title within 3 months of the date therein required, and after notice by
the secretary of state to the registered office of the corporation shall cease
to exist and the secretary of state shall notify such corporation of such
termination.  If, however, such terminated corporation shall file such
status report within three months of its termination date together with a fee
of $25.00, its charter shall be reinstated by the secretary of state. 
Such charter may be reinstated by the county court of the county where such
corporation has its registered office, upon petition filed within one year of
the date required by section 2701 of this title and upon condition that it file
the status report required together with the fee of $50.
 
11 V.S.A. § 2607(a) (repealed
1996)[16];
see also F.W. Webb Co. v. Martell, 149 Vt. 254, 255, 542 A.2d 286, 287
(1988) (holding that business corporation that failed to properly file annual
report was terminated under section 2063 of Title 11 effective upon sending of
notice of termination by office of Secretary of State).
¶ 58.        
A corporation may, however, reverse this involuntary termination by
filing the requisite report together with any required fees, and the Secretary
of State will reinstate its charter.  11B V.S.A. § 14.22(a).  The
current statute, effective on January 1, 1997, states that such reinstatement
“relates back to and takes effect as of the effective date of the
administrative dissolution and the corporation shall resume carrying on its
activities as if the administrative dissolution had never occurred.”  Id.
§ 14.22(c).  In a transition provision effective June 21, 1994, the
Legislature applied this language to corporations terminated prior to March 27,
1990 for failure to file a report.  1993, No. 235 (Adj. Sess.),
§ 10d.[17] 
By its terms, the transition provision is applicable to the Club.
¶ 59.        
Whether § 14.22(c) should be interpreted to allow members of a
reinstated corporation to escape personal liability for actions taken during
the period when the corporation was terminated presents an issue of first
impression.[18] 
Contrary to the argument of plaintiff and the dissent, we cannot conclude that
the statute explicitly answers this question.  The transition provision
states that the corporation “shall resume carrying on its activities” as it had
prior to the dissolution.  In other words, the transition provision
restores the powers of the corporation to conduct business as if the
termination never occurred.  It does not address the liability limitation
of the persons who govern or are members of the Club.  See Marshall v.
Baggett, 616 F.3d 849, 854 (8th Cir. 2010) (considering Nebraska statute).[19]
¶ 60.        
Jurisdictions are divided on the effect of reinstatement pursuant to
statutes similar to 11B V.S.A. § 14.22(c) on the personal liability of persons
involved in the governance of, or members or stockholders in, terminated
corporations.  In many jurisdictions, the reinstatement statute explicitly
resolves the issue.  See, e.g., Moore v. Occupational Safety &
Health Rev. Comm’n, 591 F.2d 991, 994-96 (4th Cir. 1979) (under Virginia
law, directors are liable for OSHA penalty for conduct during period when
corporation was dissolved for failure to file annual report and pay franchise
tax; liability remains despite reinstatement of corporation because statute
states that reinstatement “shall have no effect on any question of personal
liability of the directors”); Frederic G. Krapf & Son, Inc. v. Gorson,
243 A.2d 713, 715 (Del. 1968) (under Delaware law, president of corporation is
not liable for conduct during charter forfeiture because corporation was reinstated
and statute provides that debts become “the exclusive liability of the
corporation”).  Where the reinstatement statute does not explicitly
address personal liability, the majority rule appears to be that those who act
for the corporation after its termination, but before reinstatement, are
personally liable for actions occurring during that period.  See Moore,
591 A.2d at 994-95; but see 16A W. Fletcher, supra, § 8117, at 228 (“In
most jurisdictions, the reinstatement of a corporation following dissolution by
administrative action of the state relates back to the effective date of
dissolution, and directors or officers are not personally liable for actions
undertaken during the period of dissolution or suspension.”[20]).  
¶ 61.        
After reviewing the precedents from other jurisdictions, we conclude
that it is unwise to adopt one hard-and-fast personal liability rule for
reinstated corporations.  We think that whether reinstatement operates to
shield personal liability must depend on the reasonable expectations of the
parties at the time the liability arises.  These expectations will be
shaped by the context in which the liability arises, especially the nature of
the obligation, the parties’ knowledge, and the timing of the corporate
termination and the liability.  
¶ 62.        
This apparently sounds complex to the dissent, but the idea is quite
simple.  Where a creditor has dealt with a corporation as a
corporation—ignorant or indifferent to the administrative dissolution—then the
liability shield should apply.  As the dissent points out, “there is
nothing inherently ‘inequitable [in] requir[ing] corporate creditors that have
dealt with individuals as agents of the corporation to seek relief solely from
the corporation.’ ” Post, ¶ 102 (quoting Note, Dissolution
and Suspension as Remedies for Corporate Franchise Tax Deliquency: A
Comparative Analysis, 41 N.Y.U. L. Rev. 602, 607 (1966)).  Where on
the other hand, a creditor has knowingly dealt with a dissolved corporation as
an unincorporated association, then retroactive restoration of the liability
shield will circumvent the legitimate expectations of the creditors.  It
is inequitable to permit an entity to hold itself out as an unincorporated
association and then retroactively chameleon into a corporation.  Thus, we
believe that reinstatement of the liability shield should depend on the
expectations of the parties.  See Barker-Chadsey Co. v. W.C. Fuller Co.,
448 N.E.2d 1283, 1287 (Mass. App. Ct. 1983) (holding that reinstatement of
corporate shield should depend on “the mutual understanding of the parties”).
¶ 63.        
This point is demonstrated by the conflicting decisions from New
York.  An oft-cited early decision from a New York lower court is Poritzky
v. Wachtel, 27 N.Y.S.2d 316 (Sup. Ct. 1941).  In Poritzky, the
defendant, president of a corporation, opened an account with a butcher on
behalf of the corporation.  The corporation was later dissolved by
proclamation of the secretary of state for failure to pay its franchise taxes,
but the defendant continued to order products from the butcher.  The
defendant subsequently paid the overdue franchise taxes and reinstated the
corporation, but not before the butcher brought an action against him
individually for payment.  New York’s law at the time stated that
reinstatement shall “have the effect of annulling all of the proceedings
theretofore taken for the dissolution of such corporation . . . and it shall
thereupon have such corporate powers, rights, duties and obligations as it had
on the date of the publication of the [dissolution] proclamation, with the same
force and effect as if such proclamation had not been made or published.” 
Id. at 317.  Similar to plaintiff’s argument here, the defendant
argued that this statute provided that the reinstatement operated retroactively
to restore the corporation during the entire time that the obligation to the
butcher arose, thereby validating the acts of the defendant as president and
absolving him from personal liability.  Id.  The court
disagreed.  It held that to interpret the statute in accord with the
defendant’s argument “would encourage fraud and abuse” because “a former
officer of a dissolved corporation could obtain credit and then upon subsequent
discovery of the non-existence of the corporation, by merely paying arrears in
franchise taxes, could shift the personal liability which the law would
otherwise impose upon him back to the corporation.”  Id. at 318.
¶ 64.        
The lower courts in New York followed Poritzky, until another
Supreme Court justice rejected it in Department 56, Inc. v. Bloom, 720
N.Y.S.2d 920 (Sup. Ct. 2001).  The Bloom court held:
Seductive
though it may be, the Poritzky rationale is fallacious, and I
respectfully choose not to follow it.  Neither Poritzky nor the
cases adopting its holding explain why such fraud and abuse would be
encouraged.  In general terms, the Poritzky
rationale may be stated as follows: the existence of adverse consequences
discourages wrongful conduct; therefore, the absence of adverse consequences
encourages wrongful conduct.  People, however, are motivated by the
expectation of benefits, not by the absence of adverse consequences.  In
the field of logic, the Poritzky rationale commits the formal fallacy of
denying the antecedent.  I
can conjure up no scenario that would entice a corporate officer to
purposefully allow his corporation to be dissolved and I fail to see how, even
if he did, there would be any fraud perpetrated on a creditor or any benefit
inuring to such corporate officer.  Put another way, absent any
dissolution a creditor would be dealing with a corporation and relying on the
soundness of the corporation’s credit and ability to pay.  With a period
of dissolution later annulled, a creditor would believe it was dealing with a
corporation and relying on the soundness of the corporation’s credit and
ability to pay.  In both cases the consequences to the debtor, the
corporation and the creditor are identical.
 
Id. at 922-23.  
¶ 65.        
After Bloom, another New York Supreme Court opinion analyzed the
New York precedents, including Poritzky and Bloom, and concluded
that a more conditional rule applied.  See Lodato v. Greyhawk N. Am.,
807 N.Y.S.2d 818 (Sup. Ct. 2005).  The court held:
Based
upon all of the foregoing, the court finds that individual officers or
directors of corporations should be shielded from personal liability absent a
showing of fraud or misrepresentation and that an officer or director of a
corporation that has forfeited its corporate charter for non-payment of taxes
and been dissolved by proclamation of the Secretary of State pursuant to the
Tax Law is not personally liable for service obligations of the corporation
contractually undertaken while the corporation was dissolved, where the officer
acted without knowledge of the corporation’s dissolution, the dissolution was
truly inadvertent and not due to neglect, the corporation quickly rectified the
default by seeking reinstatement and there is a subsequent annulment of the
dissolution and reinstatement of the corporation.
 
Id. at 824.
¶ 66.        
Finally, we note the later decision in Nigro v. Dwyer, 438 F.
Supp. 2d 229 (S.D.N.Y. 2006), which attempted to reconcile the various New York
decisions, including federal decisions not considered in Lodato. 
The controversy in Nigro dealt with unpaid pension contributions under a
union contract assented to on behalf of a terminated corporation by the
defendant, the corporation’s president.  The defendant appears to have
been the only employee of the corporation and sought to avoid personal
liability because of the reinstatement of the corporation, approximately seven
years after it had been terminated and six days before the complaint was
filed.  The court rejected the reasoning of Bloom, “especially
considering the record before me, which strongly suggests a deliberate effort
to evade the payment of contributions by a person who was afforded the
protections and benefits of the Union contract during [the corporation’s]
period of dissolution.”  Id. at 235.  It was bound, however,
by federal decisions that appeared to accept the reasoning of Bloom
except in cases of fraud or bad faith.  Id. at 237.  Drawing
partly on Lodato, the court itemized factors that would bear on fraud or
bad faith and ordered an evidentiary hearing on the factors.  The court
decided that “[a] variety of factual issues need to be tried concerning the
circumstances of the dissolution and reinstatement and [defendant’s] behavior
during the interim period—including, specifically, his conduct at or about the
time the contract was signed and his knowledge of the corporation’s status at
that time.”  Id.
¶ 67.        
Looking at the factual circumstances and expectations of the parties in
this case, we do not believe that the restoration of the corporate status
should reinstate the limitation on personal liability.  A number of
factors are relevant to our decision.  The lack of corporate status was
hardly fleeting: the corporation was terminated in 1989 and obtained reinstatement
nineteen years later, in May 2008.  The events giving rise to the
liability occurred entirely within this time period.  The underlying
litigation was commenced in 1998 and involved conduct that occurred during 1996
and 1997, well after the termination of the corporation.  See Vt. Human
Rights Comm’n v. Benevolent & Protective Order of Elks, Lodge 1541,
2003 VT 104, ¶¶ 7-8, 176 Vt. 125, 839 A.2d 576.  There is no indication in
the record that creditors ever knew that the Club was once a corporation. 
Plaintiffs sued the Club as a voluntary association, and the Club represented
itself as a voluntary association throughout the course of the
litigation.  At one point, the attorney for the Club at the time
explicitly stated, “this is not a corporate entity, and any damages that might
be suffered are going to be shouldered by each one of these individuals.”[21]  The reinstatement occurred only
after the litigation had run its course—once it became time to collect—about a
month and a half after this Court affirmed the trial court judgment against the
Club.  See Vt. Human Rights Comm’n, 2008 VT 34.  
¶ 68.        
The judgments in this case contain various elements, and the nature of
those elements is very relevant to the resolution of the issue before us. 
The bulk of the amount is for attorney’s fees.  Of this, $30,131.50 is for
attorney’s fees for Watts.  According to the judgment in its favor, the
fees were for work from December 6, 2006, after the trial and while the case
was pending in this Court, through May 2, 2008, the day that the Club obtained
reinstatement of its corporate form.  Watts obtained its judgment in
January of 2009.  The largest part of the fees, $446,852, was awarded to
the attorneys for the plaintiffs in the discrimination litigation.  These
fees were awarded pursuant to 9 V.S.A. § 4506(b) to plaintiffs as prevailing
parties.  The remaining judgment amounts are $7401 each for compensatory
and punitive damages for the individual plaintiffs, under 9 V.S.A. § 4506(a); a
civil statutory penalty of $7200 to the Vermont Human Rights Commission, under
9 V.S.A. § 4553(a)(6)(A)(ii); and $10,000 for contempt of the October 6, 2006,
injunction order to the Human Rights Commission.
¶ 69.        
The vast majority of the cases on reinstated corporations involve
contractual liabilities with respect to business corporations.  As the
court reasoned in Bloom, the creditor typically entered into a contract
believing it was dealing with an active corporation.  Following
reinstatement of the corporation, the creditor had the corporate liability it
expected.  Adding personal liability of persons who act for the
corporation is a windfall, justified necessarily as deterrence of the conduct
or omission that caused the termination of the corporation.  These are
cases covered by the dissent’s rationale: “there is nothing inherently
‘inequitable [in] requir[ing] corporate creditors that have dealt with
individuals as agents of the corporation to seek relief solely from the
corporation.’ ”  Post, ¶ 102 (quoting 41 N.Y.U. L. Rev.
at 607).  
¶ 70.        
The circumstances here are totally different.  The Club functioned
as a voluntary association for nineteen years after its corporate status was
terminated, far longer than in the vast majority of reported decisions we have
found.  Creditors dealt with it as a voluntary association, not as a
corporation.  This action does not arise out of a commercial transaction,
and there is no evidence that that creditors had an expectation of responsibility
being exclusively corporate.  Under Vermont law, the Club while acting as
a voluntary association had the same liability as it had as a corporation, but
the members had individual liability if the Club failed to pay a judgment
against it.  If anything, creditors relied upon that liability.
¶ 71.        
The circumstances behind each of the components of the judgments are
also very different.  We start with the largest component of the
judgments, the amount for attorney’s fees for discrimination plaintiffs’ counsel. 
The purpose of an award of attorney’s fees is to encourage suits “to vindicate
civil rights, and penalize[] those who violate the law.”  State v.
Whitingham Sch. Bd., 140 Vt. 405, 409, 438 A.2d 394, 396 (1981). 
Thus, entitlement to statutory attorney’s fees “was fashioned in order to
promote and encourage prosecution of . . . claims.”  Gramatan Home
Investors Corp. v. Starling, 143 Vt. 527, 536, 470 A.2d 1157, 1162 (1983)
(describing attorney’s fees under the Consumer Fraud Act).  As we said
with respect to consumer fraud claims, “[t]he interests of both the business
community and the public at large are best served by shifting the burden of the
expense of consumer fraud litigation onto the shoulders of those whose unfair
or fraudulent acts are responsible for the litigation in the first
place.”  Id.  
¶ 72.        
This case is a good example of the need for burden shifting.  In
order to vindicate plaintiffs’ rights to be admitted to the Club and to recover
a small judgment, their attorneys expended time and accrued expenses valued at
almost $450,000.  It is unlikely that a civil-rights plaintiff can bring
this kind of case without a statutory attorney’s fee provision to attract
counsel.  Counsel is necessarily depending upon the capacity of the defendant
to pay an attorney’s fee judgment in taking the case. 
¶ 73.        
As we note above, this is not a case where creditors relied upon the
presence of an active corporation prepared to pay a judgment and were unaware
of the corporate termination.  At least since early in the underlying
litigation, plaintiffs were aware that the Club was actually an unincorporated
voluntary association.[22] 
If anything, plaintiffs’ counsel relied upon the wealth of the membership to pay
a judgment.
¶ 74.        
The attorney’s fees are a litigation expense, and the amount was made
necessary by the scope of the litigation and the defense that the Club and its
members mustered.  The litigation continued over twelve years, including
two appeals to this Court by the Club.  The Club had a right to mount a
strong and persistent defense, as it did, but the defense greatly increased the
litigation expenses for plaintiffs.  Moreover, the Club incurred more debt
to finance the litigation, reducing the value of the joint assets available to
pay a judgment.
¶ 75.        
We conclude that under these circumstances it would be a clear abuse of
the Club’s status to deny liability of the members upon the reinstatement of
the corporation.  After operating for nineteen years as a voluntary
association because of the termination of its corporate status, the Club
reinstated its corporate status less than two months after the final judgment
on the merits of the discrimination litigation.  By that time, it knew
that it faced a judgment of at least $25,000 and the future imposition of a
large attorney’s fee award against it.  It then reinstated its corporate
status, potentially eliminating the responsibility of members to pay the
judgment if the Club could not do so.  In essence, it was a bait and
switch.  Allowing this escape from liability would undercut the policy of
eliminating financial barriers to enforcement of civil rights acts and
encouraging counsel to take these cases.
¶ 76.        
Our conclusion and reasoning are similar with respect to the civil
penalty awarded to the Vermont Human Rights Commission pursuant to 9 V.S.A. §
4553(a)(6)(A)(ii).  As we held in Vermont Agency of Natural Resources
v. Riendeau, 157 Vt. 615, 622, 603 A.2d 360, 364 (1991), the dual purposes
of civil penalties are to make “noncompliance at least as costly as compliance”
and to “reimburse the government for enforcement expenses and other costs
generated by the violation.”  Only the second purpose is involved in this
case.  The length and complexity of the discrimination case drew extensive
resources from the Commission, and the penalty amount reimbursed it for only a
small percentage of the resources it expended.  Our reasoning with respect
to the attorney’s fees for the individual discrimination plaintiffs applies
equally to the civil penalties assessed for the Commission.
¶ 77.        
We similarly conclude that the reinstatement of the corporate status
does not insulate officers, trustees, or members from liability for the judgment
obtained by Watts.  The Club stopped paying Watts for his services as of
December 2006, essentially when the case was appealed to this Court for the
second time.  Thus, Watts handled the second appeal without compensation,
continuing to provide services until he withdrew in mid-2008.  Watts dealt
with his client as an unincorporated association.  Thus, Watts was
providing legal services to the officers, trustees, and members to advance
their interests as persons who could become personally liable for a judgment
for the discrimination creditors.  The Club regained its corporate form on
the very day that Watts withdrew from its representation.  To allow the
members to accept the personal benefit of the Watts representation and then
seek a shield from personal liability for Watts’ fees would be a clear abuse of
the procedure for corporate reinstatement.
¶ 78.        
We turn then to the other components of the judgments.  The easiest
to resolve is the fine imposed against the Club for contempt.  We held in Horton
v. Chamberlain, 152 Vt. 351, 353-54, 566 A.2d 953, 954 (1989), that a
corporate officer could be held in contempt and incarcerated for a failure of
the corporation to appear as ordered, even though the officer was not a party
to the litigation that resulted in the order and was never served with the
order.  We do not believe that restoration of the Club’s corporate status
can insulate appropriate persons from liability for a contempt fine.
¶ 79.        
We have a similar reaction to the punitive damages award.[23]  Punitive damages are “designed to
deter the wrongdoer from repeating the same or similar acts, and to punish
intentional, deliberate, and malicious conduct.”  City of Burlington v.
Arthur J. Gallagher & Co., 173 Vt. 484, 488, 788 A.2d 18, 22 (2001)
(mem.).  The wrongdoer here is the Club, an association of individuals,
which prevented the individual discrimination plaintiffs from becoming members
of the Club because of their gender.  To allow the members of that
association to escape liability for punitive damages by reinstatement of the
corporation would be unjust.
¶ 80.        
Having determined that the reinstatement of the corporate form did not
insulate persons who are members, officers, or trustees from liability, we turn
to the question of who could be personally liable to the creditors.  As we
discussed above, the Club was a voluntary association and under our law the
members are financially responsible if a creditor is unable to collect from the
association.  The trial court ruled that the creditors could not collect
against the members of the Club.  It noted that the Club had more than one
thousand members at one point and that the precedents on which creditors relied
allowed collection against “officers and directors rather than . . . ordinary
members of an unincorporated association.”  
¶ 81.        
The trial court relied particularly on the decision in Karp v.
American Legion Department of Connecticut, Inc., No. CV 930462879S, 1996 WL
457012 (Conn. Super. Ct. 1996).  There, the court held that a tort
judgment creditor could not proceed against members of an unincorporated
voluntary association, which was a terminated corporation until its later
reinstatement, under the controlling Connecticut statute.  The court was
moved by the fact that members in question were not officers.  Id.
at *2.  That the precedents from other jurisdictions involve attempts to
make officers or directors personally liable is to be expected, since all but a
handful of the cases involve business corporations.  In any event, the
liability of persons who are affiliated with or manage terminated corporations
must be decided under the law of the state involved.  Karp held
that, under a Connecticut statute, a reinstated corporation restored the
limited liability of members of a corporation.  Id.  We have
held to the contrary in this decision, interpreting our Vermont statute. 
Thus, we do not follow Karp.[24]

¶ 82.        
As we stated above in analyzing the liability of members of a voluntary
association for judgment debts uncollectible from the association, supra,
¶ 54, we share the concern of the trial court that imposition of liability on
all of the members of the Club may cause an injustice in the reverse
direction.  Due to the revocation of corporate status, individual members
may have been unaware that they were members in a voluntary association in
which they were ultimately liable for debts of the association.  If they
had joined the Club when it was incorporated and were unaware that the
corporate status had subsequently been terminated, then they would have had no
reasonable expectation of personal liability.  
¶ 83.        
A number of courts have imposed liability on officers, directors, or
shareholders only if they were aware that the corporation had been
terminated.  See Steve’s Equip. Serv., Inc. v. Riebrandt, 459
N.E.2d 21, 24 (Ill. App. Ct. 1984); Charles A. Terrance Co. v. Clary,
464 S.E.2d 502, 504 (N.C. Ct. App. 1995); Equipto Div. Aurora Equip. Co. v.
Yarmouth, 950 P.2d 451, 458 (Wash. 1998).  We agree with the Illinois
Court of Appeals that this is the better rule—that reinstatement of the
corporate status will not restore the corporate shield on personally liability
for a person who knew, or should have known by virtue of the person’s position,
that there was no corporate shield at the time of the act that created
liability.  See Steve’s Equip. Serv., Inc., 459 N.E.2d at 24. 
This rule conforms to the principle that the reinstatement provision should be
interpreted in a manner that preserves the expectations of the parties at the
time when the liability arose.  
¶ 84.        
Finally, we must resolve whether our determination of the liability for
the judgments provides creditors the relief they seek in this action.  We
recognize in this analysis that creditors have raised other issues that we
resolved above.  Here, we are addressing the counterclaim creditors filed
alleging, among other things, that plaintiff is liable for the full extent of
the judgments against the Club because he is a member of the Club.  The
counterclaim specified that in January 2009, the sheriff of Windsor County
served a writ of execution for an unspecified amount on the Club, and in a
separate paragraph that a writ of execution against the Club issued by the
Washington Superior Court in the amount of $35,657.55 was returned
unsatisfied.  The paragraphs do not say that these writs are the same or
that they came from the discrimination case.  The amount specified in the
counterclaim does not appear to match the amount of the judgments in the
discrimination case.[25]
 There are no similar allegations in the Watts counterclaim.
¶ 85.        
The discrimination creditors did try to amend the counterclaim to allege
the issuance of an unsatisfied writ of execution for the amount in the full
discrimination case judgment, which included the attorney’s fees.  The
amendment was denied as futile because it came after the court had granted
summary judgment for plaintiff.[26]
 
¶ 86.        
Irrespective of what actually occurred here, we believe it is premature
to determine whether creditors have the ability to collect any or all of its judgment
from the Club.  The record supports creditors’ assertion that the primary
asset of the Club is the property on which plaintiff is seeking to foreclose.[27]  In the preliminary judgment
proceeding, the Washington Superior Court noted:
The
current mortgage debt, which would have to be paid by any buyer at the sale, is
around $527,000.  The property was appraised in 1989 at $1,600,000, and
the Elks had a contract to sell the building for $1,200,000 in 2006 that fell through. 
The bank believed in June that there was substantial value in excess of their
mortgage.
 
In a footnote, the court noted
that plaintiff estimated the value of the property at $700,000 to
$750,000.  The foreclosure judgment order the Windsor Superior Court
issued in this case provides that the amount owed is $709,015.06, plus $173.11
per day from the April 9, 2010 date of the judgment.  It is at least
possible that the foreclosure proceeds will exceed the amount owed to plaintiff
and will allow some amount to be distributed to creditors.  That amount
will be increased if the trial court holds on remand that plaintiff does not
have priority for the amount of the optional advances.
¶ 87.        
The Club’s equity of redemption on the property can be reached by an
execution.  12 V.S.A. §§ 2781, 2795; see Noyes v. Noyes, 110 Vt.
511, 519, 9 A.2d 123, 127 (1939).  The levying of the execution results in
a public auction sale of the property, 12 V.S.A. § 2786, essentially the same
result as the mortgage foreclosure produces.  Whether done under the
mortgage foreclosure decree or as a levy of execution, the public sale will
determine whether creditors can collect from the assets of the Club.  At
that point, creditors can bring an action in contract against any or all of the
members under 12 V.S.A. § 5060, provided that only one such action can be
brought at a time.  
¶ 88.        
Under these circumstances, we agree that the court should have issued a
decree of foreclosure, containing a redemption provision, and in the absence of
redemption, a provision specifying the responsibility of plaintiff to sell and
the procedure and terms of the sale.  The court acted properly in issuing
the foreclosure decree it did, subject to possible amendment once the priority
of the advances is determined.  
¶ 89.        
We do not believe, however, that it was appropriate for the court to
dismiss the counterclaims of discrimination creditors and Watts against
plaintiff.  Like plaintiff’s request for a deficiency, any amount judgment
creditors can obtain against plaintiff has to await the sale of the property
and the financial reconciliation.  If the proceeds available to creditors
do not satisfy their judgments, reduced by any other funds they may have
received from or on behalf of the Club, they may pursue their
counterclaims.  If creditors choose to pursue plaintiff for the unpaid
judgment amounts, they must prove that plaintiff is a financially responsible
member as defined in this decision: that is, with regard to any particular
judgment, a member who knew, or should have known by virtue of his position,
that the Club was not a corporation at the time that particular judgment
accrued.  These same elements would apply if creditors opt to collect from
another member.
Reversed and remanded for
further proceedings consistent with the views expressed herein.
 

 

 

FOR THE COURT:

 

 

 

 

 

 

 

 

 

 

 

Associate
  Justice

 
 
¶ 90.        
COHEN, Supr. J., Specially Assigned, concurring.  I concur
fully in the Court’s conclusion that reinstatement of the Club’s corporate
charter nineteen years after it was revoked and eleven years after the Club
discriminated on the basis of gender should not operate retroactively to
immunize individual members from liability for the discrimination.  Having
chosen for whatever reason to abandon their protection from individual
liability until only a few short months after the discrimination judgment
became final, the members’ belated invocation of the corporate shield rings
distinctly hollow.  I cannot therefore, join in the dissent, which in my
view effectively rewards such dilatory conduct by reinstating the corporate
shield with no consideration of the surrounding circumstances. 
¶ 91.        
It is the individual Club members who in this case should bear the cost
of the discrimination, not the women wrongfully deprived of membership.
Accordingly, I also concur in the Court’s holding that the Club’s creditors are
statutorily authorized under 12 V.S.A. § 5060 to collect from the individual
members, who remain “jointly and severally liable and may be sued individually
or together” on the debt.  Ante, ¶ 45.    
¶ 92.        
I write separately, however, because in my view it is essential to take
the decision one step farther.  The result of today’s ruling is that
creditors may collect the entire judgment from any one or all of the
members.  See State v. Therrien, 2003 VT 44, ¶ 24, 175 Vt. 342, 830
A.2d 28 (joint and several liability means that each tortfeasor may be “held liable
for the entire result” and that the plaintiff may “determine which tortfeasor
to pursue for recovery” (quotation omitted)).  Under the common law rule
prohibiting contribution among joint tortfeasors, this also means that
relatively wealthier Club members—even if only casually involved in Club
activities—may be required to pay a significantly disproportionate share of the
judgment regardless of fault.  See Swett v. Haig’s, Inc., 164 Vt.
1, 5, 663 A.2d 930, 932 (1995) (observing that the Court has consistently
rejected the right of contribution among joint tortfeasors). Although the Court
readily acknowledges the potential inequity, it concludes that its hands are
tied.  As the Court explains, “the possibility of visiting liability on a
mostly inactive Club member . . . seems an inappropriate result,” but
any remedy, the Court concludes, must be afforded by legislative action.  Ante,
¶ 54 (emphasis added).  
¶ 93.        
With respect, I do not agree that the Court is powerless to address this
inequity.  The inherent injustice in requiring one of several joint
tortfeasors to pay more than his or her fair share of a judgment has been
widely recognized.  See generally J. Dillbary, Apportioning Liability
Behind a Veil of Uncertainty, 62 Hastings L. J. 1729, 1731-32 (2011)
(noting that “[t]he rule of joint and several liability . . . with no
contribution has been lamented by scholars and policy makers as unjust,
immoral, inefficient, and inequitable”).  As a result, most states have
adopted some form of contribution among joint tortfeasors, generally either by
equal shares or shares proportionate to fault.  Id. at 1732 
(“Due to the fairness-between-tortfeasors concern, the majority of states
allows some form of contribution based on pro-rata or
fault.”).     
¶ 94.        
Many states, to be sure, have modified the rule against contribution by
means of legislative action.  See S. Randall, Only in Alabama: A Modest
Tort Agenda, 60 Ala L. Rev. 977, 979 (2009) (listing the states that have
enacted legislation, often modeled on the Uniform Contribution Among
Tortfeasors Act, providing for contribution).  The rule against
contribution is a common law construct, however, and as such is also subject to
judicial revision.  See Swett, 164 Vt. at 5, 663 A.2d at 932
(noting that “contribution is unavailable under the common law rule”); Hiltz
v. John Deere Ind. Equip. Co., 146 Vt. 12, 15, 497 A.2d 748, 751-52 (1985)
(declining to reexamine “the common law rule barring contribution among joint
tortfeasors” because it was unnecessary to address the issue on the facts
presented).  As the Supreme Court of Alaska has observed, in many states
contribution is statutory “[b]ut in a substantial number of states contribution
has been developed as a matter of common law.”  McLaughlin v. Lougee,
137 P.3d 267, 277 (Alaska 2006).  Indeed, many of the first states to
modify the rule did so through court action, impelled by the “obvious lack of
sense and justice in a rule which permits the entire burden of a loss . . . to
be shouldered onto one [tortfeasor] alone, according to the accident of a
successful levy of execution, the plaintiff’s whim or malevolence, or his
collusion with the other wrongdoer.”  Davis v. Broad St. Garage,
232 S.W.2d 355, 357 (Tenn. 1950) (quotation omitted); see generally Bielski
v. Schulze, 114 N.W.2d 105, 108 n.2 (Wis. 1962) (listing states that led
the way in recognizing the doctrine of contribution by court
decision).   
¶ 95.        
I recognize that the Court declined to abrogate the rule against
contribution among joint tortfeasors in Howard v. Spafford, which relied
on a similar preference for legislative over judicial action.  134 Vt.
434, 437-38 (1974) (holding that the availability of various  contribution
schemes and the “complexities” surrounding the rule made reform “more
appropriate for legislative than judicial consideration”); see also Levine
v. Wyeth, 2006 VT 107, ¶ 39, 183 Vt. 76, 944 A.2d 179 (citing Howard
in declining to require apportionment of negligence between drug manufacturer
and hospital).  It is hardly surprising, therefore, that none of the
parties here have raised or briefed this issue.  
¶ 96.        
Nevertheless, in my view Howard was wrong to opt for inaction on
the basis merely of the issue’s complexity, and in any event the issue is clearly
ripe—after nearly forty years—for reconsideration.  See Hay v. Med.
Ctr. Hosp. of Vt., 145 Vt. 533, 543, 496 A.2d 939, 945 (1985) (recognizing
Court’s duty to modify “outmoded common law concepts” even where a subject
presents “difficult and complex” social or economic issues).  Whether the
Court decides for pro rata or proportionate contribution among joint
tortfeasors is less important than that it decides for contribution, and the
Legislature may always step in if it disagrees with the Court’s choice.  
¶ 97.        
Accordingly, while I concur in today’s decision, I would extend it to
recognize a right of contribution among the individual Club members held liable
on the judgment.

 

 

 

 

 

Superior Judge, Specially
  Assigned

 
 
¶ 98.        
REIBER, C.J., dissenting.   In holding that members of
the Club may be personally liable for a judgment against the Club, the majority
disregard the settled rule—embodied  in statute and endorsed by the weight
of authority—that reinstatement of a suspended corporate charter revives the
traditional corporate shield “as if the administrative dissolution had never
occurred,” 11B V.S.A. § 14.22(c), and thus relieves corporate officers and
shareholders from personal liability for acts undertaken on behalf of the
corporation during the period of suspension.  The majority compounds the
error by further finding that members of the Club, a nonprofit association, may
be held personally liable under a rule that courts and commentators have
generally applied only to for-profit business enterprises.  As explained
below, both holdings are fundamentally erroneous.  
¶ 99.        
The acts which form the basis of the underlying judgment against the
Club occurred when its corporate charter was suspended for failure to file an
annual report.  It was reinstated following the judgment.  The
operative reinstatement statute, which the majority concede is applicable to
the Club, provides that reinstatement of an involuntarily dissolved nonprofit
corporation “relates back to and takes effect as of the effective date of the
administrative dissolution and the corporation shall resume carrying on its
activities as if the administrative dissolution had never 
occurred.”  11B V.S.A. § 14.22(c).  This section, based on a
provision in the Model Business Corporations Act, has been enacted in nearly
identical form in numerous states, and its effect on the personal liability of
corporate officers and shareholders for actions during the period of
dissolution has been the subject of considerable comment.  See 3 Model
Business Corps. Act § 14.22, at 14-92-94 (3d ed. 2000).  A leading
treatise on corporate law observes that “[i]n most jurisdictions” where, as in
Vermont, the reinstatement “relates back to the effective date of dissolution .
. . directors or officers are not personally liable for actions
undertaken during the period of dissolution or suspension.  Such matters
become the exclusive liability of the corporation.” 16A W.  Fletcher,
Cyclopedia of the Law of Corporations § 8117, at 228 (2003) (emphasis added).[28]
¶ 100.    
The reason for absolving individual shareholders of any personal
liability in these circumstances is evident from the statutory purpose and
effect.  Thus, a Kentucky court, construing a nearly identical
reinstatement statute, explained that the legislative goal is to put the
corporation in the same position it would have been in had it originally
complied with its obligations under state law, so that upon reinstatement it is
“as if the administrative dissolution . . . had never occurred.”  Fairbanks
Arctic Blind Co. v. Prather & Assocs., 198 S.W.3d 143, 146 (Ky Ct. App.
2005) (quotation omitted).  Therefore, “it naturally follows that members
of such company are not individually liable for actions undertaken on behalf of
the company during its dissolution.”  Pannell v. Shannon, No.
2010-CA-001172-MR, 2011 WL 3793415, at * 4 (Ky. Ct. App. Aug. 26, 2011); accord
eServices, LLC v. Energy Purchasing, Inc., No. 11-198-JBC, 2012 WL 404957,
at *1 (E.D. Ky. Feb. 6, 2012) (holding that under Kentucky law “administrative
reinstatement also reinstates limited liability for acts taken during the
period of dissolution” so that corporate officer was not personally liable on
contracts signed while corporation was administratively dissolved).  
¶ 101.    
The logic of this conclusion is compelling.  As the federal court
in eServices explained, under the reinstatement statute the corporation
“is treated as having been in existence when the contracts were signed,
complete with the corporate shield against personal liability, and [the
corporate officer] is thereby relieved of any personal liability in the absence
of reasons to pierce the corporate veil.”  2012 WL 404957, at *2. 
Applying a similar statute providing that upon reinstatement “the rights of
such corporation shall be the same as though no forfeiture had been operative,”
the Michigan Supreme Court concluded that the legislative intent was to make
actions taken “during the period of forfeiture corporate acts in the normal
meaning of the term.”  Bergy Bros., Inc., Zeeland Feeder Pig, Inc.,
327 N.W.2d 305, 308-09 (Mich. 1982).  “Thus, corporate obligations
incurred during the period of forfeiture are binding upon the corporation, and
only the corporation—individual members are no more liable than had the
forfeiture not occurred.”  Id.  The Missouri courts have
reached a similar conclusion, reasoning that relieving corporate officers and
shareholders of any personal liability for actions taken during the dissolution
period was “more in consonance” with the legislative mandate that upon
reinstatement the corporation may carry on as though “the corporate existence
had never been interrupted” such that “the gap in corporate status is
obliterated by the recission of the forfeiture.” Amoco Oil Co. v. Hembree,
776 S.W.2d 68, 70 (Mo. Ct. App. 1989).   
¶ 102.    
As noted, numerous courts have followed this logic to hold that
reinstatement statutes placing the corporation in the same position it would
have been in absent the dissolution revive the corporate shield from personal
liability for obligations incurred during the dissolution period.  See Rocky
Mountain Sales & Serv., Inc. v. Havana RV, Inc., 635 P.2d 935, 937
(Colo. App. 1981) (holding that, where effect of corporate reinstatement was to
put corporation “in the same situation as it would have been in had it paid its
franchise taxes . . . [i]t follows that . . . an officer . . . is not liable
for what is here a purely corporate obligation”); Frederic G. Krapf &
Son, Inc. v. Gorson, 243 A.2d 713, 715  (Del. 1968) (holding that,
under Delaware statute validating corporate acts upon reinstatement, creditor’s
remedy was solely “against the corporation”); K & K Leasing, Inc. v.
Tech Logistics Corp., No. 07-1599, 2008 WL 4724746, at *2 (Iowa Ct. App.
2008) (noting that, under reinstatement statute identical to Vermont’s,
corporate officers may “not be held individually liable for actions taken on
behalf of the corporation during the period in which the corporate charter was
forfeited if the charter is effectively reinstated at a later date”); Barker-Chadsey
Co. v. W.C. Fuller Co., 448 N.E.2d 1283, 1286 (Mass. App. Ct. 1983)
(holding that revival of corporate charter “has the usual effect of confirming,
as corporate acts, the acts of corporate officers in the interim before
revival, and correspondingly, of relieving the officers of personal
liability”).
¶ 103.    
To be sure, some courts have held otherwise, generally concluding that
to disallow individual liability in these circumstances requires an affirmative
statutory mandate.  See, e.g., Pepin v. Donovan, 581 A.2d 717, 718
(R.I. 1990) (noting states that have relieved corporate officers of personal
liability “pursuant to special statutory provisions mandating such a
result”).  Others have concluded that such a rule could “encourage fraud
and abuse.”  Poritzky v. Wachtel, 27 N.Y.S.2d 316, 318 (Sup. Ct.
1941); see also In re Estate of Piepel, 450 N.E.2d 1244, 1246 (Ill. App.
Ct. 1983) (concluding that disallowing personal liability for actions taken
during dissolution period could permit corporate debts to “be easily evaded”).
The reasoning of these decisions, however, has been criticized.  As one
court has explained, where a reinstatement statute allows the corporation to
resume operating as though the dissolution had never occurred, “it does not
need to explicitly provide for limited liability because the concept . . . is
an inherent part of a corporation ‘carrying on its business.’ ”  eServices,
2012 WL 404957, at * 2.  As for the concern over fraud and abuse, another
commentator has cogently observed that there is nothing inherently “inequitable
[in] requir[ing] corporate creditors that have dealt with individuals as agents
of the corporation to seek relief solely from the corporation.”  Note, Dissolution
and Suspension as Remedies for Corporate Franchise Tax Delinquency: A
Comparative Analysis, 41 N.Y.U. L. Rev. 602, 607 (1966).  Where there
is real evidence of fraud, a court may simply apply the traditional remedy to “
‘pierce the corporate veil’ and hold the directors personally
accountable.”  Id.; see also Prentice  Corp. v. Martin,
624 F. Supp. 1114, 1116 (E.D.N.Y. 1986); (questioning fraud rationale and
applying New York reinstatement statute to limit plaintiff to his remedy
against corporation); Dep’t 56, Inc. v. Bloom, 720 N.Y.S.2d 920, 922-23
(Sup. Ct. 2001) (characterizing fraud rationale as “fallacious” and rejecting
notion that corporate officer would “purposefully allow his corporation to be
dissolved” to perpetrate fraud on creditors).  
¶ 104.    
The majority here fails to discuss the rule followed in most
jurisdictions that have enacted reinstatement statutes similar to Vermont’s,
and does not explain why the rule should not be applied here to revive the
corporate shield and relieve the officers and members of the Club from any
personal liability.  Nor indeed does the majority address the several
decisions that take the opposite approach, imposing personal liability in the
absence of a clear statutory statement to the contrary.  Concluding,
instead, that “it is unwise to adopt” any single rule, ante, ¶ 60, the
majority fashions a novel approach derived from several New York trial court
rulings notwithstanding the fact that, as one federal court has charitably
observed, “[t]here is no consistent pattern in the holdings of the New York
Courts on the matter.”  Prentice, 624 F. Supp. at 1115.  Under
this approach, the majority concludes that whether corporate reinstatement will
shield members from personal liability “must depend on the reasonable
expectations of the parties at the time the liability arises,” which in turn
“will be shaped by the context in which the liability arises,” which further
depends on a number of factors, including “especially the nature of the
obligation, the parties’ knowledge, and the timing of the corporate termination
and the liability.”  Ante, ¶ 60.  The “liability” factor
apparently refers to the nature of the monetary award, i.e., whether it
involves compensatory damages, punitive damages, civil statutory penalties, or
attorney’s fees, although the “[t][he circumstances behind each of the
components of the judgment” may also affect the decision to impose personal
liability.  Ante, ¶ 70.
¶ 105.    
While undoubtedly clear to the majority, I am compelled to confess that
I do not fully understand this multivariate, “expectations” dependent,
“contextual” approach to determining whether and under what circumstances
personal liability will attach to individuals for actions taken during the
period of dissolution and prior to corporate reinstatement.  I suspect,
moreover, that future litigants may experience equal difficulty parsing and
applying the majority holding.  What is clear, however, is that nothing in
the majority opinion explains why we should not apply the settled,
straightforward rule that a corporate reinstatement which statutorily “relates
back” to the date of dissolution and allows the corporation to carry on “as if
the administrative dissolution had never occurred,” 11B V.S.A. § 14.22(c),
revives the preexisting corporate shield and thus precludes the imposition of
personal liability on the individual members of the Club in this case.
¶ 106.    
Even assuming, however, that the corporate shield does not apply, many
of the Club members could still be immune from personal liability.  In
holding that individual members of an unincorporated association—the Club’s
status during the dissolution period—may be liable for any unpaid portion of
the judgment, the majority relies principally on 12 V.S.A. § 5060 and the
caselaw construing it.  The statute provides that any unsatisfied portion
of a judgment “against a partnership, association or company . . . may be
brought against any or all of the partners, associates or shareholders.” 12
V.S.A. § 5060.  The statute dates from the nineteenth century, and the
cases on which the majority relies are nearly as old; the principal decision, F.R.
Patch Manufacturing Co. v. Capeless, was decided more than 100 years
ago.  79 Vt. 1, 63 A. 938 (1906).  As the majority notes, that case
likened the members of the Protection Lodge, No. 215, International Association
of Machinists, an unincorporated association, to that of partners in a “large
partnership,” id. at 6, 63 A. at 939, observed that “at common law” the
rights and liabilities of a partnership “are the rights and liabilities of the
partners, and are enforceable against them individually,” id. at 10, 63
A. at 940, and concluded therefore that its members were individually liable
under the statute for the unsatisfied portion of a judgment against the
Protection Lodge.  Id.
¶ 107.    
Although the fraternal association in Capeless appears to have
been not for profit, the Court did not consider any potential distinction
between business and non-profit enterprises.  The Capeless court
did, however, place considerable reliance on common-law principles in applying
the statute, and the common law over the past 100 years has shown an increasing
concern with precisely this issue.  Indeed, for purposes of imposing
individual liability, most courts and commentators today draw a clear
distinction between profit and not-for-profit unincorporated associations. One
leading treatise, for example, explains that an unincorporated association
“formed for conducting business for the purpose of profit” is generally treated
as “a partnership, and the liability of the individual members upon the debts
incurred . . . on behalf of the association . . . is governed by the law of
partnership.”  12 R. Lord, Williston on Contracts § 35:72, at 544
(4th ed. 2000).  In contrast, “associations, societies, and clubs
organized for objects which are social, moral, patriotic, political or the
like, rather than for purposes of trade or profit, are not considered to be
partnerships even as to third persons . . . and pecuniary liability can be
fastened on the individual members only by reason of the acts of such
individuals . . . as none is implied from the mere fact of association.”  Id.
at 547-48.  In view of the beneficial or charitable purposes of such
associations, and their often informal level of organization, most courts have
been loath to impose the risks of personal liability on members based on mere
membership alone.  Id.; see, e.g., Stege v. Louisville Courier
Journal Co., 245 S.W. 504, (Ky. 1922) (explaining that “[o]rdinarily
members of a voluntary organization or association are not liable for such
bills, if such society be not engaged in a business enterprise . . but . . . is
organized for moral, social, beneficial, literary, scientific, political or
other like purposes, and the individual members of such an organization are not
partners, so that the acts of one bind all”).     
¶ 108.    
Caselaw to this effect is uniform and extensive.  Thus, a
frequently cited federal decision, broadly canvassing the common law governing
“unincorporated nonprofit associations,” has summarized that “[p]ursuant to
this law, an individual is not liable for the debts of the association merely
because of his status as a member or officer of the association.”  Karl
Rove & Co. v. Thornburgh, 39 F.3d 1273, 1284 (5th Cir. 1994). 
Rather, “principles of the law of agency” apply, so that a member is
responsible only if the member personally ratified the association’s action. 
Id.  “[I]t is important to remember at all times,” however, “that
this standard differs from the one that governs the liability of members of
unincorporated associations organized for profit or to conduct a business,
which standard determines liability of members under the principles of
partnership law.”  Id.  at 1285; accord Security-First
Nat’l Bank of Los Angeles v. Cooper, 145 P.2d 722, 729 (Cal. Ct. App. 1944)
(holding that individual liability of members of unincorporated association
depends on “whether the association is one organized for profit,” and that
members of nonprofit association “are not liable as partners”); Thomas v.
Dunne, 279 P.2d 427, 432 (Colo. 1955) (refusing to “subscribe to the
proposition that one who becomes of a member of an unincorporated association
such as a fraternal organization . . . subjects himself to liability . . . in
the absence of any allegation . . . that he took an active part in the act
resulting in the injury or . . . gave his assent”); Guyton v. Howard,
525 So. 2d 948, 956 (Fla. Dist. Ct. App. 1988) (holding that “liability of a
member of an unincorporated fraternal or social association is based upon his
direct, active negligence” and cannot be “imputed”); Victory Comm. v.
Genesis Convention Ctr., 597 N.E.2d 361, 364 (Ind. Ct. App. 1992)
(observing that “states have uniformly applied the common law” rule that
members of not-for-profit unincorporated association are liable only if they
personally ratify association’s action); Libby v. Perry, 311 A.2d 527,
533-34 (Me. 1973) (recognizing “the distinction between voluntary associations
set up for purely commercial profit-making purposes and those organized for
fraternal or social ends” and holding that individual members of the latter “do
not, merely by virtue of their membership in such association, subject
themselves to liability for injuries sustained as a result of the negligent
conduct of their associates or their agents”); Shortlidge v. Gutoski,
484 A.2d 1083, 1086 (N.H. 1984) (noting distinction between unincorporated
associations organized for profit whose members are treated as partners and are
“thereby jointly liable” and association not organized for profit in which
“[m]ere membership . . . without more, will generally not be sufficient to
attach liability” for debts of the association); Lyons v. Am. Legion Post
No. 650 Realty Co., 175 N.E.2d 733, 736-37 (Ohio 1961) (noting the
“recognized difference . . . between an unincorporated association organized
for the transaction of business and one organized for fraternal or social
purposes” and observing that members of the former are treated “as partners”
while those of the latter are not “in its nature that of partners” (quotations
omitted)); Duquesne Litho, Inc. v. Roberts & Jaworski, Inc., 661
A.2d 9, 11 (Pa. Super. Ct. 1995) (recognizing that voluntary associations
organized for political purposes “are not partnerships” and that a member “will
only be personally liable for . . . debts if he actually authorized, assented
to, or ratified the obligation” (quotation omitted)); Blair v. S. Clay Mfg.
Co., 121 S.W.2d 570, 572 (Tenn. 1938) (holding that individual liability of
association members “depends on the character of the organization,” and that if
“profit and loss is not contemplated, such as literary, social or political
organizations, its members are not treated as partners and their liability . .
. is determined upon principles of agency”).
¶ 109.    
Although this is the rule in most jurisdictions, the majority
nevertheless assails it as “unfair” because it would require the creditors to
prove participation or ratification by the individual members, a difficult
hurdle in this case where the votes were conducted by secret ballot.  The
majority also expresses concern that the rule would unfairly require the creditors
to prove discriminatory conduct “a second time.”  Ante, ¶ 51. 
This is simply an evidentiary issue, however, and the short and simple answer
in such a case is to place the burden on the individual members to show that
they did not actively participate in the decision or later ratify it.  The
unfairness cited by the majority is illusory.   
¶ 110.    
Although the Club was found to be a “public accommodation” for purposes
of liability under the Fair Housing and Public Accommodations Act, 9 V.S.A. §§ 4500-4507,
this finding was based principally upon its membership “selectivity,” Human
Rights Comm’n v. Order of Elks, 2003 VT 104, ¶ 20, 176 Vt. 125, 839 A.2d
576, and does not otherwise convert an association organized for fraternal,
nonprofit pursuits into a for-profit business enterprise for purposes of
determining individual liability.  See id. ¶ 4 (noting that the
Club is a subordinate lodge of the “largest benevolent fraternal order in
America”).  Thus, under the general principles articulated above, the only
basis for holding any individual Club members liable is if they personally
participated in the decision to deny membership to the plaintiffs because of
their gender, or otherwise ratified that decision.  Lyons, 175
N.E.2d at 737 (affirming rule that members of nonprofit unincorporated
association are individually liable only for transactions they personally
authorized or later ratified); 12 Williston, supra, § 35:72 (noting
general rule that member of nonprofit association is individually “liable only
so far as he or she has personally assented to the transaction in
question”).  That should be the only relevant liability issue for
determination on remand.       
¶ 111.    
The majority acknowledges that its decision to impose personal liability
on members of organizations such as the Club might seem unfair, but concludes
that it is the responsibility of the Legislature to address the problem. 
Such deference is commendable when the Legislature has stated its intentions in
clear and unmistakable terms.  Here, however, the nineteenth-century
statutory language referring to judgments against an “association” is
nonspecific and virtually invites interpretation in light of evolving common
law principles.  12 V.S.A. § 5060.  Indeed, the seminal decision on
which the majority relies, Capeless, explicitly analogized the
association in question to a partnership, and applied common-law partnership
principles in deciding to impose joint and several liability on its members
under the statute.  It is equally legitimate, a century later, to
reinterpret that provision in light of the overwhelming authority rejecting the
partnership analogy where, as here, the association is organized for social or
benevolent purposes.  
¶ 112.    
For all of the foregoing reasons, therefore, I respectfully dissent. I
am authorized to state that Justice Burgess joins this dissent.

 

 

 

 

 

 

 

 

Chief Justice

 

[1] 
This argument is not applicable to the Watts interest.
 

[2] 
We include in the term “discrimination creditors” the four individual
plaintiffs in the discrimination suit and the lawyers who represented
them.  Although the plaintiffs in the discrimination suit were awarded
attorney’s fees after they prevailed, the judgment for these fees was in the
names of the lawyers.  It itemized the amount due each lawyer.
 

[3] 
In holding that plaintiff is permitted to bring an action to foreclose, we do
not decide the question of whether the Bank would also be entitled to bring an
action to foreclose on the property directly or whether the Bank would first
have to foreclose upon plaintiff’s interest.  

[4] 
This argument applies only to the gender discrimination plaintiffs and not to
Watts, as the latter acquired a lien only after the advance had been made. 
 

[5] 
There is some suggestion in the trial court’s decision that the opposite
conclusion would mean that the Bank “was engaging in an improper practice of
advancing funds” or not “entitled . . . to make the advances.” 
On the contrary, the opposite conclusion would show only that the Bank’s
advances did not have priority over the intervening interests.  
 

[6] 
In addition to requesting time for discovery, creditors relied upon a
deposition of the treasurer of the Club stating that he did not inform the Bank
of creditors’ attachment because an employee of the Bank told him that it
already knew of the attachment.  The treasurer could not, however,
remember the time of this conversation.  We infer that the court concluded
that creditors had enough evidence of knowledge to survive summary judgment but
that knowledge alone was insufficient to defeat the priority of the advance.
 

[7] 
To the extent that the creditors may have argued that it is enough that the
Bank should have known of the attachment, we reject their argument. 
Although some states have held that constructive notice is sufficient, see,
e.g., People’s Sav. Bank in Providence v. Champlin Lumber Co., 258 A.2d
82, 84 n.3 (R.I. 1969) (“[R]ecord notice of an intervening encumbrance is
sufficient to interrupt the priority of a subsequent optional advance.”), we do
not join that view in light of the language of the statute.  
 

[8] 
This result does not apply to the amount secured as a result of the
deferrals.  As the trial court correctly noted, deferrals in general do
not materially prejudice junior creditors because they are preferable to the
alternative, namely foreclosure.  See Restatement (Third) of Prop.:
Mortgages § 7.3 cmt. c (1997) (“Not all modifications will materially prejudice
junior interests.  For example, mortgagees commonly consent to an
extension of the mortgage maturity date or to a rescheduling or ‘stretching
out’ of installment payments.  Absent an increase in the principal amount
or the interest rate of the mortgage, such modifications normally do not
jeopardize the mortgagee’s priority as against intervening interests. 
Extensions of maturity generally reduce the likelihood of foreclosure of the
senior mortgage and thus are beneficial, rather than prejudicial, to the
interests of junior lienors.”).  Unless creditors can show some reason why
they were materially prejudiced by the deferrals—which seems unlikely given
that creditors’ aim in this suit is to enjoin foreclosure—the deferrals do not
alter the priority of the Bank’s mortgage.
 

[9] 
Under partnership law, individual partners may be liable for judgments against
the partnership, and our judgment with regard to the unincorporated Club
largely parallels partnership law.  According to 11 V.S.A. § 3226,
“[e]xcept as otherwise provided in subsections (b) and (c) of this section, all
partners are liable jointly and severally for all obligations of the
partnership unless otherwise agreed by the claimant or provided by law.” 
The exceptions refer to partners who had not yet joined at the time the
obligation was incurred and to partners in limited liability partnerships.
 

[10] 
Discrimination creditors sued only the Club, and not any of its officers,
trustees, or other members.  Section 4502(a) of Title 9 prohibits “[a]n
owner or operator of a place of public accommodation or an agent or employee of
such owner or operator” from denying the privileges of the place of public accommodation
to any person because of sex.  The section that authorizes private suits
for “injunctive relief and compensatory and punitive damages” does not specify
who the aggrieved person can sue.  Id. § 4506(a).  Because
discrimination creditors sued only the Club and assert derivative liability
against the members, we do not consider whether they could additionally have
sued officers, trustees, or others.
 

[11] 
Of the three cases that have applied § 5060, Capeless is the most
relevant to this question.  In that case, a judgment had entered against
Protection Lodge, No. 215, and the plaintiffs sought to collect from individual
members of the Lodge.  As the court reporter’s description in the Vermont
Reporter indicates, the defendant appealed precisely for the purposes of
arguing that “the cause of action is not founded on a contract express or
implied, but on a tort.” 79 Vt. at 2.  The nature of underlying liability
was described in F. R. Patch Manufacturing Co. v. Protection Lodge, No. 215,
International Ass’n of Machinists, 77 Vt. 294, 60 A. 74, 75 (1903). 
As that decision describes, the Lodge’s liability arose from conspiring with
various other labor unions to harass and intimidate workers.  The Capeless
decision held that collection on this judgment was available from individual
Lodge members.  
 
In the other two cases, Johnson v. Paine and Gifford
II, the underlying judgment was based on a contract with an attorney to
defend the association against a tort action.  The facts of these cases
are similar to those underlying the claims of the Watts Law Firm in this case.
 

[12] 
Vermont appears to be somewhat unique in resolving this issue by statute and
not by common law.  See Annotation, Personal Liability of Member of
Voluntary Association Not Organized for Personal Profit on Contract with Third
Person, 7 A.L.R. 222 (1920) (listing Vermont as the only state that, by
statute, treats members of a nonprofit association as partners).
 

[13] 
In fact, it is possible that there might be no individual member who voted
against each woman.  The discrimination occurred through a majority of
members always voting to exclude, and there is no reason that it had to be the
same majority.  What this theoretical point highlights is that
discrimination is often a collective action and necessarily involves holding a
group, not individuals, accountable.
 

[14] 
Were we in the business of fashioning legal rules entirely out of thin air on
the basis of our sense of fairness, some sort of burden-shifting might seem
most fair: if a member could prove his lack of involvement, then he could avoid
sharing in the judgment.  This sort of rule crafting, however, is squarely
for the Legislature.
 

[15] 
The decision of the trial court applied 11A V.S.A. § 14.20(a) and its
predecessors, although this statute applies to business corporations, whereas the
appropriate statute is that governing nonprofit corporations.  See 11B
V.S.A. §§ 14.21, 14.22.  The record indicates that the Secretary of State
considers the Club as a “service club,” which we would infer is a form of
nonprofit corporation.  Further, the record contains a number of IRS Form
990s, which are filed annually by nonprofit corporations under § 501(c) of the
Internal Revenue Code.  Although the statutes applicable to business
corporations and those applicable to nonprofit corporations have some language
differences, the substance of the current statutes is essentially the
same.  Further, as discussed in note 17, the transitional provision
applies generally to corporations.  Thus, it is not relevant to our
decision whether the Club is considered to be a business or nonprofit
corporation.
 

[16] 
The statute was amended in 1990 to allow the corporation at any time to file
the status report with $25 for each year that it was delinquent.  The
amendment added as a third sentence to § 2607(a), replacing the third and
fourth sentences above, “Reinstatement shall revive and validate all actions
taken by a corporation during its termination period, if such actions would
otherwise have been legally binding on the corporation if it had never been
terminated.”  1989, No. 129 (Adj. Sess.), § 2, eff. March 27, 1990.
 

[17] 
This transitional statute applies to both business and nonprofit corporations.
 

[18] 
We assume for purposes of this discussion that, if the Club had never had its
corporate status terminated, the members, officers, and directors would be
immune from liability.  We note, however, that 12 V.S.A. § 5060 states if
execution on a judgment is returned unsatisfied against an association or
company, it may be collected against “any or all of the partners, associates or
shareholders.”  There is no indication in this language that the corporate
form gives immunity to shareholders or to associates.  We leave the
question of the meaning of the statute in the corporation context to another
day.
 

[19] 
We are also not moved by § 14.21(c), which states, “A corporation
involuntarily dissolved continues its corporate existence but may not carry on
any activities except those necessary to wind up and liquidate its affairs
. . . .”  11B V.S.A. § 14.21(c).  This section
accords with the common-law understanding that corporate existence is not
utterly extinguished upon involuntary dissolution.  But the continued
existence is limited to discrete activities related to winding down and
liquidating assets.  See, e.g., Weatherly v. Capital City Water Co.,
22 So. 140, 143-44 (Ala. 1897) (“Upon dissolution, the corporation is
essentially dead, except for the general purpose of collecting its assets,
paying its debts, and dividing its property and money remaining after the satisfaction of its
liabilities among its stockholders.  For the purposes of the enterprises
or business which it was chartered to carry on, it is as essentially dead as if
we had no statute continuing its
life for the other specified purposes,—as if, indeed, it had never existed at
all . . . .”).  As this suggests, for all other
purposes, the corporate charter is dissolved, and with it the shield on
liability.  See, e.g., Express Recovery Servs., Inc. v. Rice, 2005
UT App 495, ¶ 5, 125 P.3d 108 (construing statutory language stating that
dissolved corporation “continues its corporate existence” to mean that a
limited existence continues, which is compatible with the fact that “the
corporation’s officers may not be shielded from liability for some business
conducted after an administrative dissolution”); Murphy v. Crosland, 886
P.2d 74, 78 (Utah Ct. App. 1994) (“[T]he majority rule, which accords with the
rule at common law, is that by continuation
of the business without contemplation of liquidation, the directors and
officers are held personally responsible for contract and tort liability
incurred during the period following dissolution. 
Additionally, the shareholders may also ‘become liable as partners where they
agree to continue the business after dissolution,
or participate in such continued business.’ ” (citations
omitted)).
 

[20] 
This statement, relied upon by the dissent, is somewhat perplexing in that the
treatise’s compilation of cases actually places a greater number of
jurisdictions on the opposite side.  What is clear is that courts have
ruled both ways on this issue.  
 

[21] 
Early in the underlying litigation, on November 18, 1999, counsel for the Human
Rights Commission attempted to exclude certain members of the Club, who were not
being deposed, from a deposition.  Counsel for the Club responded that
because the Club was a voluntary association all members of the Club could be
liable for any judgment and, thus, all members were parties who were entitled
to attend the deposition.
 

[22] 
See supra, note 21.

[23] 
The judgments for the individual discrimination plaintiffs include one dollar in
compensatory damages for each.  These amounts are de minimus, and we do
not require a separate justification for these amounts.
 

[24] 
Ironically, the Connecticut statute upon which Karp relies allows
creditors to collect from members of a corporation for “fines and penalties
duly imposed.”  Karp, 1996 WL 457012, at *2 n.2.  It would
allow collection from members of at least part of the judgments involved in
this case.

[25] 
It seems closest in amount to that in the Watts judgment, but that judgment was
issued by the Windsor Superior Court.  Similarly, there was a writ
of attachment by Bingo Supplies, Inc., but there is no indication that there
was a judgment on which a writ of execution could issue, and the writ of
attachment came from the Windsor Superior Court.  
 

[26] 
We interpret the trial court’s decision as granting summary judgment to
plaintiff on discrimination creditors’ counterclaim.  The decision
addressed the issues raised in the counterclaim, and the court said about the
nearly identical Watts amended counterclaim that it “does not entitle the law
firm to relief even if the factual assertions therein are taken as true.” 

 

[27] 
The record in the discrimination case indicates that the discrimination
creditors reached some liquid assets of the Club through trustee process but
not nearly enough to satisfy the judgment.

[28] 
Although the majority cites Moore v. Occupational Safety & Health Review
Commission, 591 F.2d 991, 996 (4th Cir. 1979) for its statement that a
“majority” of states retain personal liability in these circumstances, the
assertion is in clear conflict with Fletcher and appears to be
questionable.  Moreover, the court in Moore was applying a Virginia
statute which  explicitly provided that reinstatement of the corporate
charter “shall have no effect on any question of personal liability . . . in
respect of the period between dissolution and reinstatement.”  Id.
at 994; see generally Nationwide Airlines, Ltd. v. African Global, Ltd.,
No. 3:04 CV 00768, 2007 WL 521155, at * 14 (D. Conn. Feb. 14, 2007) (observing
that “[n]umerous courts” have held that corporate officers are not personally
liable for the corporation’s actions during the dissolution
period).