Court Opinion

ID: 9675699
Source: CourtListenerOpinion
Date Created: 2023-08-24 05:02:51.899657+00
Date Added: 2024-06-11T18:16:37.593226
License: Public Domain

ON MOTIONS FOR REHEARING
This Court’s opinion on motions for rehearing dated August 31, 1979, is withdrawn along with the rulings on the motions for rehearing and the following rulings and opinion are substituted.
All motions for rehearing filed by appellant, The Texas Society, Daughters of the American Revolution, Inc., are overruled.
All motions for rehearing of the judgment of contempt filed in behalf of Mrs. Georgia Bingle Edman and Mrs. Kenneth Wickett are overruled.
Appellees’ motion for rehearing is granted.
The judgment of contempt is based upon the record made in this case including the testimony and evidence admitted before the District Court of Marion County pursuant to the orders of this Court directing the District Court to hold an evidentiary hearing related to the possible contempt of Mrs. Edman and Mrs. Wickett. We are of the opinion that all of the expenditures, as distinguished from transfers of funds, listed in the trial court’s findings were unauthorized because those funds were expended to defend the officers of the corporation against allegations of wrongdoing. Further, we have concluded that the findings of the District Court related to the expenditures were patently erroneous. The findings of the District Court related to the transfers of $78.00 and $74.35 respectively from The Society’s funds to a special legal defense account as being contemptuous is not altogether clear or certain. Thus, this Court has held Mrs. Edman and Mrs. Wickett in contempt of court for having made unauthorized expenditures of funds of the corporation to defend themselves against alleged wrongdoing asserted in a derivative action brought by certain member societies of The Texas Society, Daughters of the American Revolution, Inc. The following expenditures were contemptuous for which the following fines are imposed:
For expending corporate funds in the sum of $105.00 by check No. 230, dated June 23, 1977, for aircraft rental (legal defense), Mrs. Edman and Mrs. Wickett are each fined the sum of $25.00;
For expending corporate funds in the sum of $1500.00 by check No. 231, dated June 23,1977, for retainer, legal fee, Mrs. Edman and Mrs. Wickett are each fined the sum of $100.00;
For expending corporate funds in the sum of $257.40 by check No. 236, dated July 7, 1977, for transcript (court proceedings), Mrs. Edman and Mrs. Wickett are each fined the sum of $50.00; *164For expending corporate funds in the sum of $122.00 by check No. 237, dated July 10, 1977, for aircraft rental (legal defense), Mrs. Edman and Mrs. Wickett are each fined the sum of $25.00;
For expending corporate funds in the sum of $1,000.00 by check'No. 256, dated September 20, 1977, for advance of lawyer expenses, Mrs. Edman and Mrs. Wick-ett are each fined the sum of $100.00; For expending corporate funds in the sum of $1241.20 by check No. 260, dated October 5, 1977, for legal fees, Mrs. Ed-man and Mrs. Wickett are each fined the sum of $100.00;
For expending corporate funds in the sum of $1,000.00 by check No. 275, dated November 30, 1977, for advance on legal fees, Mrs. Edman and Mrs. Wickett are each fined the sum of $100.00.
This Court makes no determination of whether or not the injunction proscribes the transfer of money from one account to another since such determination would be tantamount to granting final relief which may not be afforded in a temporary injunction proceeding. Neither does this Court decide that the legal defense fund was or was not the property of The Society. These matters will be finally determined when the case is tried on its merits.
The entire history of this litigation has revolved around a dispute between the member societies and the officers of The Texas Society, Daughters of the American Revolution, Inc. The officers of the corporation have from the beginning been charged with wrongdoing and thus, all money expended in the defense of such officers has been unauthorized. Aircraft rental, legal retainer fees, transcripts of court proceedings, advance of lawyer expenses, legal fees and monies expended from corporate funds for. the defense of the corporate officers violate the long standing law in this State that a corporate fiduciary may not derive a personal benefit in dealing with the corporation’s funds or its property. A corporate officer who diverts funds of the corporation to his own benefit in violation of his fiduciary relationship is personally liable to the corporation for such unauthorized use of corporate funds. International Bankers Life Ins. Co. v. Holloway, 368 S.W.2d 567, 577 (Tex.1963). In Texas, pursuant to Articles 1396-2.02A(16) and 1396-2.22, Tex.Rev.Civ.Stat.Ann., the Texas Non-Profit Corporation Act, a corporation may indemnify any director or officer or former director or officer of the corporation for expenses and costs actually and necessarily incurred by him in connection with any claim asserted against him or in connection with the defense of any claim, suit or proceeding in which he is made a party by reason of being or having been such director or officer, “ . . . except in relation to matters as to which he shall be adjudged in such action, suit or proceeding to be liable for negligence or misconduct in performance of duty, . . . ”. These provisions are permissive and not mandatory. There is no common law right of indemnification of corporate officers and directors in Texas. Their right to indemnification is purely statutory. Thus, corporate officers, directors, former directors and former officers are not entitled to indemnification pendente lite because there is no statutory provision authorizing the advancement of expenses in connection with litigation against such officers and directors. It is only at the conclusion of the litigation and after which the officers and directors have been absolved from negligence or misconduct in performance of duty that the corporation is authorized to indemnify them. All corporate officers in this case, past, present and future, are charged with notice of the provisions of the statutes relating to indemnification. The statutes are clear that the officers and directors who are charged with wrongdoing are not entitled to indemnification until an adjudication of their actions has been made relative to their negligence or misconduct in performance of duty. Since the officers of the corporation were charged with notice of the indemnity statutes, it follows that they knew the advancement of corporate funds for legal fees and expenses to defend themselves would not be in the ordinary course of business because such actions had no statutory authorization *165and would be contrary to the clear implications of those statutes which do authorize indemnification. Gross v. Texas Plastics, Inc., 344 F.Supp. 564 (D.N.J.1972); Model Business Corporation Act § 5 (1971); 20 R. Hamilton, Texas Business Organizations §§ 731 and 845 (1973). The record in this case substantiates a finding that the listed expenditures were not in the ordinary course of business of the corporation and that Mrs. Edman and Mrs. Wickett. were aware of such. Mrs. Edman testified that she knew that these lawsuits “were not in the ordinary course of business.”
Had the DeWares, as purchasers of the Freeman Plantation, sued The Society for specific performance of the agreement to sell the Freeman Plantation to them, then The Society could have employed attorneys to represent The Society in its defense as being in the ordinary course of business pursuant to Article 1396-2.02 A(2), Tex. Rev.Civ.Stat.Ann., the Texas Non-Profit Corporation Act, which provides that each corporation shall have power to sue and be sued, complain and defend, in its corporate name. However, in a derivative action, such as this case, where the corporation is sued as a nominal party defendant to preserve the status quo and to preserve the assets of the corporation in which the officers of the corporation have been charged with wrongdoing, then, as we have previously pointed out, no funds can be expended by the corporation for the defense of its officers or former officers until those officers have been finally absolved from negligence and misconduct. It was a violation of the temporary injunction for such officers to have expended corporate funds for their defense prior to being cleared of negligence or misconduct.
The Judgment of Contempt entered by this Court on May 10, 1979, is amended to read as follows:
AMENDED JUDGMENT OF CONTEMPT
The Judgment of Contempt signed and entered by this Court on the 10th day of May, 1979, is hereby rescinded and the following Amended Judgment of Contempt is entered in place of the original Judgment of Contempt:
BE IT REMEMBERED that on the 10th day of May, 1979, came on to be considered the above entitled and numbered matter in which Mrs. Georgia Bin-gle Edman and Mrs. Kenneth Wickett stand charged, by motion and complaint, with contempt of court in failing and refusing to comply with the terms of the decree granting a temporary injunction entered by the 115th Judicial District Court of Marion County, Texas, on or about the 14th day of June, 1977, in Cause No. 147-76, styled Fort Bend Chapter of the National Society, Daughters of the American Revolution, Et Al, plaintiffs, v. Mrs. Hastings Pannill, Et Al, defendants, wherein The Texas Society, Daughters of the American Revolution, Inc., its agents, representatives, officers, attorneys and those in active concert or participation with them, were temporarily enjoined from:
1. Selling, transferring, assigning, hy-pothecating, encumbering or in any manner disposing of the stocks, and bonds, or proceeds from the sale thereof presently on hand or other assets of The Society.
2. Incurring any indebtedness or expending any sum of money for any purpose other than in carrying on the ordinary business of The Society;
And, it appearing to the Court that the said Mrs. Georgia Bingle Edman and Mrs. Kenneth Wickett, officers of The Texas Society, Daughters of the American Revolution, Inc., have been duly cited and given notice herein to show cause, if any they have, why they should not be adjudged to be in contempt for violation of such temporary injunction, and whereupon said parties appeared in person and by and through their attorneys of record and participated in the contempt hearing;
, And, whereas, the Court has reviewed the proof of such contempt adduced before the District Judge of the 115th Judicial District Court of Marion County, Texas, pursuant to an order entered by this Court on April 19, 1978, and after *166reviewing all of the testimony and evidence offered at said hearing, together with the entire record in this case, and the argument of counsel before this Court, the Court is of the opinion, and so finds that the evidence is clear and convincing that the said Mrs. Georgia Bingle Edman and Mrs. Kenneth Wickett have violated the unambiguous terms of said temporary injunction and are guilty of contempt.
It is accordingly ordered, adjudged and decreed by the Court that the said Mrs. Georgia Bingle Edman and Mrs. Kenneth Wickett be and they are hereby each held guilty of contempt of court by reason of their numerous violations of the terms of the temporary injunction entered by the District Court of Marion County, Texas, on June 14, 1977, in Cause No. 147-76, styled Fort Bend Chapter, The National Society Daughters of the American. Revolution, Et Al v. Mrs. Hastings Pannill, Et Al, and their respective punishment for each contemptuous act hereinafter set out is here fixed by assessing against each the following fines which shall be paid into the registry of this Court on or before the 10th day of October, 1979: For expending corporate funds in the sum of $105.00 by check No. 230, dated June 23, 1977, for aircraft rental (legal defense), Mrs. Edman and Mrs. Wickett are each fined the sum of $25.00;
For expending corporate funds in the sum of $1500.00 by check No. 231, dated June 23,1977, for retainer, legal fee, Mrs. Edman and Mrs. Wickett are each fined the sum of $100.00;
For expending corporate funds in the sum of $257.40 by check No. 236, dated July 7, 1977, for transcript (court proceedings), Mrs. Edman and Mrs. Wickett are each fined the sum of $50.00;
For expending corporate funds in the sum $122.00 by check No. 237, dated July 10, 1977, for aircraft rental (legal defense), Mrs. Edman and Mrs. Wickett are each fined the sum of $25.00;
For expending corporate .funds in the sum of $1,000.00 by check No. 256, dated September 20, 1977, for advance of lawyer expenses, Mrs. Edman and Mrs. Wick-ett are each fined the sum of $100.00; For expending corporate funds in the sum of $1241.20 by check No. 260, dated October 5, 1977, for legal fees, Mrs. Ed-man and Mrs. Wickett are each fined the sum of $100.00;
For expending corporate funds in the sum of $1,000.00 by check No. 275, dated November 30, 1977, for advance on legal fees, Mrs. Edman and Mrs. Wickett are each fined the sum of $100.00
It is further ordered that the said Mrs. Georgia Bingle Edman and Mrs. Kenneth Wickett pay all costs of this proceeding, for which let execution issue.
It is further ordered that the said Mrs. Georgia Bingle Edman and Mrs. Kenneth Wickett may each purge herself of such contempt by each paying her fines, totaling $500.00 each, into the registry of this Court on or before the 10th day of October, 1979, together with all costs incurred in this contempt proceeding in the total sum of $3,675.95, which costs are taxed against Mrs. Georgia Bingle Edman and Mrs. Kenneth Wickett, jointly and severally.
Signed and entered on this the 25th day of September, 1979.
/s/ C. L. Rav. Jr.
C. L. Ray, Jr., Associate Justice
/s/ Bun L. Hutchinson
Bun L. Hutchinson, Associate Justice
(Chief Justice Cornelius not participating.)
All motions for rehearing filed by the contemnors are overruled.
CORNELIUS, C. J., not participating.