Court Opinion

ID: 1080936
Source: CourtListenerOpinion
Date Created: 2013-10-09 20:44:44.103472+00
Date Added: 2024-06-11T12:06:47.972528
License: Public Domain

ERNEST F. BURKE, DANIEL NEWMAN,        )
JOHN H. “TOMMY” KERKELES, KARL         )
THOMPSON, STEVE BEECH,                 )
                                       )
      Plaintiffs/Appellants,           )
                                       )         Marshall County Chancery
                                       )         No. 9598
VS.                                    )
                                       )         Appeal No.
                                       )         01A01-9611-CH-00511
THE TENNESSEE WALKING HORSE            )
BREEDERS’ & EXHIBITORS’ ASSOC. and     )
PHIL SNODGRASS, C.L. BAIRD, SR., NEIKA )
WILLIAMS, JUDITH BURGESS, MARIETTA )
GAMBRELL, PAMELA REBAND, W. DAVID )
                                                      FILED
LANDRUM, JOYCE MORRIS, CHARLES         )
                                                         May 28, 1997
CLEGHORN, CARROLL BENEDICT,            )
ROBERT CHERRY,                         )
                                                      Cecil W. Crowson
                                       )
                                                     Appellate Court Clerk
      Defendants/Appellees.            )

                 IN THE COURT OF APPEALS OF TENNESSEE
                      MIDDLE SECTION AT NASHVILLE

             APPEAL FROM THE MARSHALL CHANCERY COURT
                      AT LEWISBURG, TENNESSEE

                      HONORABLE LEE RUSSELL, JUDGE

ROBERT G. WHEELER, JR., ESQ.
Lewis, King, Krieg, Waldrop & Catron, P.C.
P.O. Box 198615
Nashville, TN
ATTORNEY FOR PLAINTIFF/APPELLANT

DIANE M. SEGROVES, ESQ.
Bobo, Hunt & Bobo
P.O. 169
Shelbyville, TN
ATTORNEY FOR DEFENDANTS/APPELLEES

                       AFFIRMED AND REMANDED

                                 HENRY F. TODD
                                 PRESIDING JUDGE, MIDDLE SECTION

CONCURS:
SAMUEL L. LEWIS, JUDGE

CONCURS WITH RESULTS
WILLIAM C. KOCH, JR., JUDGE
ERNEST F. BURKE, DANIEL NEWMAN,        )
JOHN H. “TOMMY” KERKELES, KARL         )
THOMPSON, STEVE BEECH,                 )
                                       )
      Plaintiffs/Appellants,           )
                                       )                     Marshall County Chancery
                                       )                     No. 9598
VS.                                    )
                                       )                     Appeal No.
                                       )                     01A01-9611-CH-00511
THE TENNESSEE WALKING HORSE            )
BREEDERS’ & EXHIBITORS’ ASSOC. and     )
PHIL SNODGRASS, C.L. BAIRD, SR., NEIKA )
WILLIAMS, JUDITH BURGESS, MARIETTA )
GAMBRELL, PAMELA REBAND, W. DAVID )
LANDRUM, JOYCE MORRIS, CHARLES         )
CLEGHORN, CARROLL BENEDICT,            )
ROBERT CHERRY,                         )
                                       )
      Defendants/Appellees.            )

                                       OPINION

       The captioned plaintiff’s have appealed from a summary judgment dismissing their suit

to invalidate an election of a board of directors of Tennessee Walking Breeders and Exhibitor’s

Association and all actions of the Board selected in said election.

       The second amended complaint asserts the following:

       1.      The captioned plaintiffs are members of the captioned association. Burke,

Kerkeles and Thompson are directors of the association. Burke is an unsuccessful candidate in

the 1995 election of directors.

       2.      The association is a Tennessee Corporation.

       3.      Robert Cherry is the executive director of the association. All other defendants

are members of the executive committee of the board of directors.

                                              -2-
       4.      The by-laws of the association are exhibited to the complaint.

       5.      Article III of the by-laws provides for the election of directors not later than

November 1 of each year to take office at the annual December membership meeting.

       6.      Article III, Section 2 of the by-laws contains specific requirements for a valid

election, including the following:

In-house Election Procedures Plan

                  A 12-member Election Committee will be appointed by the
               Executive Committee. Each Executive Committee member will
               appoint one Election Committee member, however, no more
               than four members from any given state will serve on the
               Committee. A TWHBEA member who is a candidate in the
               election may also serve on the Election Committee; however,
               that member shall not serve as Chairman of the Committee nor be
               allowed to count votes from his or her own state. The Executive
               Committee shall appoint the Chairman of the Election Committee
               from one of the 12 Election Committee appointees. The
               Election Committee will then be responsible for supervising,
               preparing and distributing election ballot packets and will be
               solely responsible for tabulating election results in accordance
               with the following procedures.

                  Step One: The ballot packet will include a letter explaining the
               election procedure with voter instructions included, a list of all
               5-year members eligible for election, a ballot card and a postage-
               paid return envelope which will bear a label with the voter’s
               membership number only. (Membership numbers, not names,
               shall be used to verify voters’ eligibility.) Voting members shall
               be instructed to seal their completed ballot, unsigned, in the enve-
               lopes.

                 Different colored return envelopes shall be provided for larger
               voting states.

                  Step Two: The return envelope will be addressed to a post
               office box reserved by TWHBEA solely for election returns.
               Ballotts shall be required to be in the Election Committee post
               office box by October 15. All returned ballots will be picked up
               from the post office box on the day of results’ tabulation (and
               not before that day), by two designated Election Committee
               members. The unopened ballots will be taken directly to the
               Election Committee meeting for tabulation. Any ballots found
               already open at the Election Committee meeting will be

                                              -3-
               considered ineligible for counting.

                 Step Three: All returned envelopes will be put in numerical
               order by membership number, and voters’ numbers will be cross-
               checked against the list of eligible voting members. Only one
               ballot per member will be allowed.

                  Step Four: All envelopes will be opened face-down, ballots
               removed and envelopes put aside, in order that no one could later
               match specific ballots to specific voters. After all envelopes are
               opened and ballots removed, both envelopes and ballots will be
               counted as a final cross-check. (All return envelopes shall be
               kept to recount the total vote after ballots are counted.)
               Members of the Election Committee will then tabulate election
               results. The general membership will be allowed to observe
               tabulations of results as long as there is no interference or
               attempted participation in the tabulation process.

                 Step Five: After all results have been tabulated, and prior to
               meeting adjournment, both returned envelopes and ballots will
               be securely sealed in separate boxes, to be retained for safe
               keeping by the election Committee Chairman. In case of a dis-
               puted election, the boxes could be opened only upon the
               approval of the Executive Committee and opened only in the
               presence of eight or more Election Committee members.

                 In case of a tie between two candidates, a run-off election
               shall be held between those two candidates alone.

                 In case of death, resignation, or residence change from state
               or region from which elected, term will be terminated and the
               position shall be filled by the person who was runner-up in the
               previous election.

                 In case of the elected Board Member or his runner-up being
               unable or unwilling to serve, then the vacancy will be filled at
               the next regular election.

                  Note: Any deviation from this detailed plan will be
               considered in violation of the election process, and the
               election will be considered null and void.

       7.                                    ----

       8.      Ballots placed in the post office box on October 16, 1995, were picked up on

October 17, 1996, and mixed with ballots placed in the box on and before October 15, 1995, and

all were counted.

       9.                                    ----

                                              -4-
       10.      The by-laws were violated by the unauthorized procedure.

       11.      The executive committee wrongfully ratified the report of the election committee.

       12.     The actions of the executive committee and executive director were in willful

disregard of the by-laws and a breach of fiduciary duty.

       14.      Burke, Kerkeles and Thompson, as directors, are entitled to sue under TCA § 48-

56-401. On October 20, 1995, Kerkeles complained to the executive director of the irregularity.

       15.      On October 30 and November 29, 1995, the defendants ratified the irregular

procedure.

       The prayers of the amended complaint were:

                1.      For process

                2.      For a declaration of the rights of the parties pursuant to TCA 29-14-101

et seq. and a declaration that the election is void.

                3.      For a declaration that all actions of the board of directors and executive

committee since taking office are void.

                4.      For a new election.

                5.      For judgment against the directors and executive director for all expenses

due to this suit and a new election.

                6.      For costs and attorney fees.

                                                -5-
               7.      For general relief.

       The defendants’ answered, admitting the identity of the parties, and the by-laws but

denying the mishandling of the ballots as alleged in the complaint. The answer alleged that the

association was a not-for-profit corporation, that the complaint filed to state a claim for which

relief can be granted, and that plaintiffs lacked standing to present the claim. The answer also

asserted that the individual defendants are immunized from liability by TCA 48-58-601(c) and

that plaintiffs, Burke, Kerkeles and Thompson are estopped from maintaining the suit.

       Defendants responded to an interrogatory that ballots were removed from the post office

box on October 16 and 17.

       Defendants moved for summary judgment supported by the following evidence.

       The deposition of the defendant Cherry states:

               Q.     Okay. Now, do you know whether or not the Post Office
               sends any sort of billing with each day’s receipt of your Business
               Reply Mail?

               A.     It’s my understanding from Mrs. Brandon that that is the
               procedure for when we have postage due mail, yes, sir.

               Q.      And it’s sort of like a receipt, is it not?

               A.      That’s my understanding.

               Q.   You have already paid the postage and they show you
               how much each day you have used up.

               A.      I don’t know.
                                           ----
               Q.      Okay. Where are those receipts?

               A.      With regard to the ballots?

               Q.      Yes.

               A.      I don’t know.

                                                ----

                                                -6-
Q.     Have you been told by anybody that those ballots picked
up on the 17th did arrive on or before the 15th.

A.     I was told.

Q.     By whom?

A.     By a clerk at the Post Office whose name is Robert.

Q.     Do you know his last name?

A.     No, sir, I don’t.

                             ----

A.     Mr. Brewer picked up ballots on Monday morning, that
he was told by Tim, another Post Office employee, I believe he
said his name was Tim. Tim told Mr. Brewer, according to
Robert, that those ballots that he was picking up on Monday
morning did not include any ballots that had come in on Saturday
or Sunday, because of the book work, the postage due book work
that they had to do, and that Tim asked Mr. Brewer to come back
on Tuesday morning and he would have those ballots worked up.

Q.     That was on Monday that he was told that?

A.     Yes, sir, that’s my understanding from Robert.

                             ----

A.     He told me that the ballots that Mr.Brewer and whomever
picked up on Monday, that Tim had informed Mr. Brewer that
there were no Saturday or Sunday ballots in that group of ballots
that he picked up on Monday morning, that he should come back
on Tuesday morning and give him a chance to do his book work
and he would have those ballots ready for him.

Q.     Okay. Did you speak with him with regard to what was
picked up on Tuesday morning?

A.     With Robert?

Q.     Yes.

A.     Yes, sir. I believe, Mr. Wheeler, in that conversation
Robert volunteered that the ballots that were picked up on
Tuesday morning included the ballots that came in on Friday --
I’m sorry, on Saturday, Sunday and Monday.

                             ----

Q.     Where in the bylaws does it provide for an exception to
the 15th falling on a Sunday?

A.     It does not.

                             -7-
                                     ----

       Q.      Okay. Let me ask you this. In the minutes, let me
       jump back a little bit, in the minutes of the October 30, 1995
       meeting, are there full and complete minutes with regard to
       the discussion on the election process?

       A.       I’m not sure what you mean by full and complete.
       It’s not a verbatim transcript.

       Q.      But whatever discussion was had would be written
       down in the minutes, whatever discussion was had with regard
       to the objection to the election procedures?

       A.     The objection to the election procedure?

       Q.     Well, the issue came up by October 30th, did it not, that
       there was some disagreement over picking up ballots on the 17th?

       A.      At that October 30th meeting, I read Mr. Brewer’s report
       to the Executive Committee. I told the Executive Committee about
       Mr. Kerkeles’ phone call and our discussion just as I have told you.
       And I also told the Executive Committee at that time that I felt
       responsible for whatever problem was out there because I had
       made the suggestion to Mr. Brewer to give an extra day on the
       ballots and he had done that.

The deposition of Robert Brewer states:

       Q.     Did you pick up ballots in 1994 on Monday?

       A.     Yes. I was there I know on the afternoon pickup.

       Q.    All right. Did you go yourself to the Post Office on Monday,
       October 16, 1995 to pick up ballots?

       A.     Yes.

       Q.     Who went with you?

       A.     I believe that it was Nolan Benton and Bob Tanner.

       Q.     Okay. And what time did you go?

       A.    Right around 8:30, 8:40 when somebody else got here to go
       with me.

                                     ----

       Q.      Okay. Let me ask you this. Like 1994, then did you go back
       in the afternoon of Monday of ‘95?

       A.     No.

                                     -8-
                               ----

Q.     Why?

A.    I was told that I’d have to make a pickup on Tuesday
morning.

Q.     And who told you that?

A.     Mr. Cherry.

Q.     What did he say?

A.     He just said since it was a holiday I need to make another
pickup on Tuesday morning.

Q.     Since what was a holiday?

A.     Since Sunday was the 15th.

Q.      And did you understand that to be a directive from him to go
pick them up on Tuesday?

A.     That’s what he told me to do.

                               ----

Q.      So it doesn’t make any difference if ballots were received in
the Post Office on the 16th, you think they were properly included in
all the ballots?

A.     Yes.

Q.     Because the 15th fell on a Sunday?

A.     Correct.

Q.     All right.

A.     Now, there were other ballots that came in later than that.

Q.     Were they counted?

A.     No.

Q.     All right. Did you pick up ballots -- did you on Wednesday
go over and pick up ballots?

A.     No. They were delivered here later.

Q.      By what authority do you rely to say that ballots received
in the Post Office on Monday the 16th should be counted?

A.     Nothing other than the fact that it’s just like your income
tax or your electric bill or water bill or anything else that is due on
that day, or the practice here that if Stallion reports or anything are

                               -9-
               received a day late because of a holiday, that they’re allowed and
               counted.

       The memorandum supporting the motion for summary judgment asserted the following

grounds:

       1.      Failure to state a claim.

       2.      Lack of standing because none of the plaintiffs was eligible for election in the

subject election ( an eligible candidate was later added as a plaintiff).

       3.      Plaintiffs were estopped by failure to pursue remedies within the association.

       4.      Immunity of officials of a not-for-profit corporation. Although asserted in the

answer, no evidence of this fact is cited or found. However, the parties have stipulated to this

Court that the Association is a not-for-profit corporation.

       5.      The “breach of fiduciary duty” count is not brought on behalf of the association.

       6.      No “justiciable controversy” for a declaratory judgment.

       The Trial Judge filed a memorandum opinion stating:

                  There is a policy against substituting the judgment of a court
               for the judgment of a corporate board or employee. This policy
               is reflected both in the business judgment rule and also in the
               immunity granted to directors and officers of non-profit corpora-
               tions for decisions made which are not willful, wanton, or gross
               negligence. To some extent this hands-off policy is that upon
               which the Defendants rely in their argument that the Plaintiffs are
               estopped from challenging an election which they did not challenge
               in the corporate decision making process. It is similar to the argu-
               ment for dismissing court actions where a challenging party has
               not exhausted his or her administrative remedies. The policy is the
               same in both situations: courts should not be making nonlegal
               decisions when there exist bodies better suited to make those
               decisions.

                                               -10-
   In the case sub judice, the Bylaws cannot be applied as written
in a year in which the deadline date falls on a Sunday with absolute
certainty that all and only ballots received at the Post office on or
before the deadline date are counted. The ballots were to be
counted if they were received at the Post Office by October 15.
Unfortunately it was impossible to determine which ballots were
received on Sunday. It is undisputed that the Post Office received
mail on Sundays, but that they did not process mail there on Sun-
days. If the corporation had only counted ballots placed in their
box on or before October 14, a Saturday, then they theoretically
would have been omitting ballots which were in fact received at
the Post Office on October 15, the deadline date.

   The Executive Committee therefore faced a situation in which
the Bylaws could not be applied strictly as written because they
could not ascertain what ballots were in the Post Office on
October 15. The Executive Committee opted for a course of
action reasonably calculated to comply substantially with the
Bylaws. There is absolutely no proof in this record that anyone
on the Executive Committee had any motivation to affect the
outcome of the election, to favor any candidate or to scuttle any
candidate, or to do anything other than get the most accurate
possible count of ballots received at the Post Office by October
15. There is no proof that anyone knew, or knows today, how
the outcome of the election was or would be altered by including
ballots picked up on Monday or Tuesday. Even if the approach
was not the most prudent and was not expressly approved by the
Bylaws, it was not forbidden by the Bylaws and in fact was
consistent with the corporation’s prior procedure as to deadlines,
including ballot deadlines. It should be remembered that a post-
mark is placed on an envelope when it is mailed by a Post Office
and not when it is received in a Post Office.

   This trial court exercises its discretion not to render a
declaratory judgment on the validity of an election to the board
of a nonprofit corporation where the duly responsible sub-
division of the corporation determines how best to conduct an
election which is impossible to conduct with absolute precision
under the terms of the Bylaws and under the circumstances of a
Sunday deadline date. It is particularly inappropriate to entertain
a declaratory judgment action when the complaining parties did
not raise the issue before the Executive Committee, the full
Board or the membership at their meetings and when all three
bodies approved the election results.

   This is likewise an inappropriate case for a derivative action
under Tennessee Code Annotated § 45-56-401 or Rule 23.06 of
the Tennessee Rules of Civil Procedure. There are no facts
alleged which constitute a breach of fiduciary duty. The interest
of the corporation were not compromised, and the Bylaws were
not violated. There is no willful, wanton, or gross negligence,
so the immunity provided by the Tennessee Code Annotated
§ 48-58-601(c) applies here as well, at least as to the individual
defendants. This is not a situation in which the assets of the
corporation are allegedly being wasted or the Executive
Committee is intentionally attempting to affect the outcome of

                              -11-
       corporate elections. When the Board and membership of the
       corporation ratified the Executive Committee’s solution to the
       counting dilemma, they acted on behalf of the entire corporation
       or someone on its behalf cannot be heard now to complain about
       a counting process which the entire corporate membership has
       previously approved. At the very least, the Plaintiff’s should be
       estopped from challenging a counting process which they could
       have but did not challenge before the Board and the membership.
       It is undisputed that the corporation relied on the validity of the
       election and that the elected Board has acted on behalf of the
       corporation since their election. To void the election would put

       at risk every single action taken by the Board since the election.
       It would also establish a precedent of having a court review
       every internal decision made by the corporation.

          If in fact the individual members of the Executive Committee
       are immune from suit, then the derivative action would become
       an action of the corporation against the corporation to challenge
       an action approved by the entire corporation acting through its
       assembled membership at its membership meeting. Ordinarily a
       derivative suit would be brought on behalf of the many to pre-
       vent the few from acting for their own benefit and against the
       interest of the many. In the case sub judice, a few are attempting
       on behalf of the many to have a judge substitute his judgment for
       the judgment of the many, here the entire membership. This is
       not the purpose of Tennessee Code Annotated § 45-56-401 or
       of Rule 23.06. The membership of the corporation is entitled to
       decide for themselves whether to allow a subdivision to conduct
       an election vote count in a certain manner when circumstances
       render an exact count impossible. The Plaintiffs should focus
       their energies on amending the Bylaws to anticipate such a
       situation.

          The undisputed facts in this case require that this trial exercise
       its discretion not to entertain this declaratory judgment action.
       On the undisputed facts, it is held as a matter of law that a
       derivative suit on behalf of the corporation will not lie on these
       facts, and that even if it would, it should be barred by the
       doctrine of estoppel.

On appeal, plaintiffs present the following issues:

                                        I.

       Whether or not the by-laws of the Tennessee Walking Horse
       Breeders’ and Exhibitors’ Association constitute a contract
       between it and its membership sufficient to justify an action
       for declaratory judgment for the purpose of determining the
       rights of the parties.

                                      -12-
                                              II.

              Whether this is an appropriate derivative action by the members
              of a non-profit association and whether the actions of the execu-
              tive committee in ratifying an illegal election constitutes an ultra-
              vires act for which they can be held personally liable.

                                             III.

              Whether there are material issues of fact in dispute in this case
              sufficient to require a trial on the merits thereby rendering
              inappropriate the trial court’s dismissal on a motion for
              summary judgment.

                                             IV.

              Whether the trial court erred in refusing to release, pursuant to
              a request to produce, a tape recording of the November 29,
              1995 conference call of members of the executive committee
              on grounds that the recording constitutes privileged communi-
              cations and work product, and that no part of it, even a
              redacted version eliminating all comments by and questions to
              the association’s lawyers could be reviewed by the plaintiffs.

                                              I.

                             DECLARATORY JUDGMENT

       TCA § 29-14-103 provides in pertinent part as follows:

              Any person interested under a deed, will, written contract, or
              other writings, constituting a contract, or whose rights, status,
              or other legal relations are affected by a statute, municipal
              ordinance, contract or franchise, may have determined any
              question of construction or validity arising under the instru-
              ment, statute, ordinance, contract, or franchise and obtain a
              declaration of rights, status or other legal relations thereunder.

       Prerequisites to the right to a declaratory judgment are substantial present interest and

standing to present it. In Knapp v. Golden Cross, 121 Tenn. 212, 118 S.W.390 (1908), the

corporation “members” of a fraternal benefit each of whom held a “Benefit Certificate” sued to

enjoin a merger with another similar corporation in violation of the corporate charter. Citing

                                             -13-
authorities upholding the rights of dissenting stockholders, the Supreme Court upheld the right

of the dissenting certificate holders to sue for violation of the charter. The cited authority is

distinguishable from the present case in which the plaintiffs allege no property interest, such as

a stock certificate or benefit certificate. According to the complaint only one plaintiff has any

real interest in the controversy, and that is an opportunity to be elected to an honorary office in

a corporation in which the complaint does not allege that he holds financial interest. There is no

allegation in the complaint that any plaintiff suffered any property loss as a result of the facts

alleged.

        Plaintiffs insist, without citation of authority, that, as members and directors, they have

an “interest” in the proper conduct of the affairs of the association. This is naturally true, but

such an interest is not the substantial property interest required to sustain an action for

declaratory judgment.

        It is true, as insisted by plaintiffs, that the difficulties of the postal authorities in

processing the ballots were not shown by competent evidence; but this infirmity is immaterial

to the failure of the complaint to allege facts to sustain the right of the plaintiffs to maintain a suit

for declaratory judgment.

        Moreover, the decision of the Trial Judge not to entertain the suit for declaratory

judgment is supported by the undisputed evidence that the questioned procedure was approved

by the executive committee without protest by any plaintiff at the meeting. An informal

discussion with the executive director is not an adequate substitute for a formal written protest

to the executive committee, or oral presentation at the meeting which approved the election.

        Tennessee courts should construe the declaratory judgments statutes broadly. Tenn. Code

Ann. § 29-14-113; Cummings v. Beeler, 223 S.W.2d 913, 917 (1949). However, ultimately

decisions concerning whether to grant or deny a declaratory judgment are left to the trial court’s

                                                  -14-
discretion. East Sevier County Utility District v. Wachovia Bank & Trust Co., 570 S.W.2d 850,

852 (Tenn. 1978); Wunderlich v. Fortas, 776 S.W.2d 953, 956 (Tenn. Ct. App. 1989). The

exercise of this discretion depends on the unique facts of each case. Tennessee Farmers Mutual

Insurance Co. v. Hammond, 290 S.W.2d 860, 862 (1956).

          Judge Russell chose not to entertain an action for declaratory judgment. In Southern Fire

& Cas. Co. v. Cooper, the Court stated that the trial court’s discretion to render a declaratory

judgment is “very wide” and “the action of the trial court in refusing a declaration should not be

disturbed by this, an Appellate Court, unless the refusal be arbitrary.” 292 S.W.2d 177 (Tenn.

1956) Citing Nicholson v. Cummings, 217 S.W.2d 942 (Tenn. 1949).

          In Southern Railway Company v. Atlantic Coast Line Railroad Company, the Court

stated:

                 This Court has repeatedly held in numerous cases since the enactment
                 of the Act (The Declaratory Judgments Act) that where the Court does
                 not arbitrarily act in refusing to entertain such a suit but exercises a
                 sound discretion, neither entertaining nor denying the suit, that then the
                 appellate court will not disturb such a finding.

                                                ----

                 [O]n appeal where the chancellor has exercised the proper discretion
                 this discretion will not be disturbed. What is meant by saying that the
                 trial court has exercised a proper discretion? We think that it means
                 a sound discretion, exercised, not arbitrarily or wilfully, but with regard
                 to what is right and equitable under the circumstances of the law, and
                 directed by the Chancellor’s reason and conscience to a just result.

                 352 S.W.2d 217, 219 (Tenn. 1961).

          The primary purpose of the Uniform Declaratory Judgment Act is the construction of

definitely stated rights, status, and other legal relations commonly expressed in written

instruments. Standard Ace, Ins. Co. v. Carvin, 400 S.W.2d 235, 236 (Tenn. 1966). Tennessee

courts will only grant declaratory relief to parties who have a real interest in the litigation,

Memphis Publishing Co. v. City of Memphis, 513 S.W.2d 511, 512 (Tenn. 1974), and when the

                                                -15-
case involves present rights that have occurred under presently existing facts. West v. Carr, 370
S.W.2d 469 (Tenn. 1963).

       In the present case the action of the executive committee has the benefit of presumed

good faith and reasonable grounds which are not negatived by any evidence.

                                                II.

                                   DERIVATIVE ACTION

       Plaintiffs insist that their derivative action on behalf of the corporation should not have

been dismissed.

       In respect to for-profit corporations, Tennessee authorities recognize and follow the

“business judgment rule.” Chism v. Mid-South Milling Co., Tenn. 1988, 762 S.W.2d 552;

Wallace v. Lincoln Savings Bank, 89 Tenn. 630, 15 S.W. 448 (1891); Lewis v. Boyd, Tenn. App.

1992, 838 S.W.2d 215; French v. Appalachian Electric Cooperative, Tenn. App. 1978, 580 S.W.
565; Range v. Tenn. Burley Tobacco Growers Association, 41 Tenn. App. 667, 298 S.W.2d 545

(1955). Cert.. Den. 355 U.S. 813, 78 S. Ct. 11, 22 Ed.2d 30 (1958).

        Tennessee statutes, rules and authorities also recognize the necessity of a written demand

to the directors to take corrective action before instituting a stockholder’s derivative suit. TCA

48-17-401(b), TRCP 23.06. Akin v. Mackie, 203 Tenn. 113, 310 S.W.2d 164 (1958), Boyd v.

Sims, 87 Tenn. 771, 11 S.W. 948 (1889).

        The foregoing rules for ordinary corporations apply with even greater effect in regard to

not-for-profit corporations in which there are no stockholders holding a property interest to suffer

loss as a result of corporate action.

                                               -16-
           In Hadden v. City of Gatlinburg, Tenn. 1988, 746 S.W.2d 687, the plaintiffs were

stockholders in a corporation which operated a restaurant which lost business because of

construction operations of the defendant. Plaintiff/stockholders obtained a judgment for

damages. The Supreme Court reversed and dismissed, holding that the stockholders could not

maintain an action for damages sustained by their corporation. The same rule applies with even

greater force where the plaintiffs allege no property right in the association.

           Plaintiffs assert that members of a non-for-profit corporation have a right to bring a

derivative action, citing TCA 48-56-401. However, that statute contains the following provision:

                  (c) A complaint in a proceeding brought in the right of a
                  corporation must be verified and allege with particularity
                  the demand made, if any, to obtain action by the directors
                  and either why the plaintiffs could not obtain the action or
                  why they did not made the demand. If a demand for action
                  was made and the corporation’s investigation of the demand
                  is in progress when the proceeding is filed, the court may
                  stay the suit until the investigation is completed.

As heretofore discussed, the complaint in the present case does not comply with the quoted

statute.

           In Bourne v. Williams, Tenn. App. 1981, 633 S.W.2d 469, two members of a not-for-

profit corporation were permitted to maintain a suit against the directors and executive

committee for wasting corporate assets and using corporate assets for personal gain. No such

misconduct is alleged in the present case.

           In Hannenwald v. Fairfield Communities, Inc., Tenn. App. 1983, 651 S.W.2d 222,

members of a community club brought an action to enforce an agreement by a real estate

developer with a not-for-profit corporation of which plaintiffs were members to pay the dues of

plaintiffs to the not-for-profit corporation. Inasmuch as the plaintiffs benefitted financially from

the performance of the agreement, this Court held that plaintiffs had a right to bring a derivative

                                                -17-
action on behalf of their not-for-profit corporation to force the developer to pay sums due the

not-for-profit corporation which would inure to the benefit of plaintiffs.

        In the present case, the complaint contains no averment that the relief sought will result

in a financial benefit to the corporation or to them.

        Plaintiffs concede that the individual defendants are immunized by TCA § 48-58-601

against all conduct except that which is wilful, wanton or gross negligence. The complaint fails

to allege any action by any of the individuals which would amount to wilful, wanton, or gross

negligence.

                                                III.

                           DISCOVERY OF TAPE RECORDING

        On March 25, 1996, plaintiffs filed a request for production for inspection and copying

of a tape recording of a telephone conference of the executive committee on November 29, 1995,

pertaining to the ratification of the subject election.

        On April 9, 1996, plaintiffs filed a motion to compel said discovery.

        Defendants responded that the contents of the tape were irrelevant and would not lead

to the discovery of admissible evidence. Defendants also pled the privilege of confidential

communications of clients to attorney and work product, and requested a protective order.

        The Trial Court (acting through a judge sitting by interchange) entered a protective order

reading as follows:

                   This Court is called upon to sit by interchange for the
                limited purpose of reviewing certain materials which plaintiff’s
                have requested to discover and determine if the materials are
                beyond the scope of discovery. Specifically, the Court has

                                                -18-
reviewed a tape and transcript of a meeting. Since no
evidentiary hearing was conducted in this matter, in making its
decision the Court has assumed that the participants in the
above mentioned meeting were parties or attorney’s for
parties in the above captioned lawsuit. If this be the case, the
Court finds that the majority of the conversation of the partici-
pants are beyond the scope of discovery.

   As noted above, no evidentiary hearing has been conducted
on this motion. However, the Court can glean from the trans-
script submitted as well as the court file that certain individuals
filed suit on November 29, 1995 against the Tennessee Walk-
ing Horse Breeder’s and Exhibitor’s Association and others. A
conference call was arranged involving several individuals (the

pleadings refer to these persons as the Executive Committee of
the TWHBEA and their attorneys). It is noted that two of the
participants are the present attorney’s of record for the defen-
dants.

  The contents of the conversations had in this conference
call may be generally categorized in one of the below listed
groups:

I.     A discussion of the contents of the lawsuit.

II.    A discussion of the parties involved in the lawsuit.

III.   A discussion of the merits and ramifications of the
       lawsuit.

IV.    A discussion of procedural strategies and legal theories.

V.     A discussion of the impact of the lawsuit as it relates to
       current practices and procedures of the Association.

  Each of the discussions listed above were predicated upon
questions posed to the attorneys’ seeking the attorney’s mental
impressions, conclusions and advice.

   Defendant’s contend the conversations between the
individuals participating in the conference call and the
attorneys are protected by the so-called attorney-client
privilege. TCA § 23-3-105 provides:

          Privileged communications. - No attorney,
       solicitor or counselor shall be permitted, in
       giving testimony against a client, or person who
       consulted him professionally, to disclose any
       communication made to him as such by such
       person, during the pendency of the suit, before
       or afterwards, to his injury . . . .

  The above statute does not exclude all communications
between an attorney and his client. Humphreys, Hutcherson

                               -19-
& Mosley v. Donovan, M.D., Tenn. 1983, 568 F. Supp. 161,
aff’d. 6th Cir. 1985, 755 F.2d 1211. The privilege applies
only to the extent that the attorney’s communications to a
client were specifically based upon a client’s confidential
communication or would otherwise, if disclosed, directly or
indirectly reveal the substance or tenor of a confidential
communication. See in re Sealed Case, 737 F.2d 94,
101-02 (D.C. Cir. 1984). The privilege does not extend to
communications from an attorney to a client when they
contain advice solely based upon public information rather
than confidential information. See Congoleum Indust., Inc.
v. G.A.F. Corp., 49 F.R.D. 82, 85-86 (E.D. Pa. 1969),
aff’d, 478 F.2d 1398 (3d Cir. 1973). Further, if the advice
rendered by the attorney was clearly not intended to relate
to client confidentiality, such as advice regarding the
setting of a court date, it is not privileged. See United
States v. Gray, 876 F.2d 1411 (9th Cir. 1989); United
States v. Innella, 821 F.2d 1566 (11th Cir. 1987).
Advice given on general questions of law, when no facts
are or need be disclosed or inferred which would implicate
the client, would not ordinarily be covered by the privilege.
Jackson v. State, 293 S.W. 539, 540 (1927).

   Some of the conversations of the parties may fall into the
above recognized exceptions and are not excluded from dis-
covery by T.C.A. § 23-3-105. However, the Court need
not analyze each conversation in the context of the above
and other recognized exceptions to the privilege. The Court
is of the opinion that all conversations with the exception
of the vote taken after the discussion of the lawsuit are
subject to the work product rule.

   The Tennessee work product rule is found in Rule
26.02(3), Tenn. R. Civ. Proc., the relevant portion of which
provides:

          TRIAL PREPARATION: MATERIALS.
       Subject to the provisions of subdivision (4) of
       this rule, a party may otherwise discoverable
       under subdivision (1) of this rule and prepared
       in anticipation of litigation or for trial by or for
       another party or by or for that other party’s
       representative (including his attorney, consul-
       tant, surety, indemnifier, insurer, or agent) only
       upon a showing that the party seeking discovery
       has substantial need of the materials in the pre-
       paration of his case and that he is unable without
       undue hardship to obtain the substantial equiva-
       lent of the materials by other means. In ordering
       ordering discovery of such materials when the
       required showing has been made, the court shall
       protect against disclosure of the mental
       impressions, conclusions, opinions, or legal
       theories of an attorney or other representative
       of a party concerning the litigation.

                              -20-
                  The work product doctrine is designed to prevent one party
               from discovering materials prepared in anticipation of litigation
               by the other party’s attorney; the rule thereby prohibits the party
               from learning of the adversary’s mental impressions, conclusions,
               and legal theories of the case. Memphis Publishing Co. v. The
               The Commercial Appeal, 871 S.W.2d 681 (S.Ct. 1994); Hickman
               v. Taylor, 329 U.S. 495, 67 S. Ct. 385, 51 L. Ed. 2d 451 (1947).
               While not a privilege itself, it was intended to augment the
               traditionally narrow attorney-client privilege. F. James, Civil
               Procedure § 6.9, at 204 (1965). See also D. Paine, Tennessee
               Law of Evidence § 96. As such it does not provide an absolute
               shield from discovery; rather it is qualified and can be overcome
               upon a proper showing. Southeastern Fleet Leasing, Inc. v.
               Gentry, 416 S.W.2d 773, 778 (1967). A party seeking to dis-

               cover the work product of the adversary party or his Attorney
               must show good cause for the discovery supported by proper
               affidavit. Medic Ambulance Service, Inc. v. McAdams, 216
Tenn. 304, 392 S.W.2d 103 (1965).

                  Those portions of the conversations of the participants in the
               transcript reviewed by this Court not protected by the attorney-
               client privilege pertained to the mental impressions, conclusions,
               and legal theories of the case by the participating attorneys.
               Plaintiff’s have failed to show good cause for the discovery
               supported by proper affidavit. Accordingly, a Protective Order
               baring their discovery is hereby Ordered.

                 The Clerk shall keep the tape and transcript under seal for
               appropriate appellant review.

       Plaintiffs fail to sustain their allegation of error in the foregoing order with which this

Court fully concurs. There is no showing of which parts of the record of the conference should

be unsealed and considered on appeal.

                                               IV.

                                 DISCRETIONARY COSTS

       Plaintiffs only argument on this subject is that the matter of discretionary costs should

have been reserved until the conclusion of the trial upon the merits. No reversible error is shown

in the actions of the Trial Judge.

                                              -21-
       The judgment of the Trial Court is affirmed. Costs of this appeal are taxed against the

appellants, jointly and severally and their surety. The cause is remanded to the Trial Court for

any necessary further proceedings.

                           AFFIRMED AND REMANDED

                                                     _________________________________
                                                     HENRY F. TODD
                                                     PRESIDING JUDGE, MIDDLE SECTION

CONCURS:

_________________________________
SAMUEL L. LEWIS, JUDGE

CONCURS WITH RESULTS:

__________________________________
WILLIAM C. KOCH, JR., JUDGE

                                             -22-