Appeal heard in Windermere case
KANSAS CITY – An appeals judge questioned whether the Windermere corporate breakaway “passes the smell test,” during oral arguments on Nov. 25, in an appeal hearing involving the Missouri Baptist Convention’s (MBC) bid to recover the property it purchased 50 years ago.
Judge Joe Dandurand made the comment during the argument by Windermere’s attorney, Jim Shoemake. Shoemake was arguing that Windermere had not been “hijacked” but had been transferred freely by the MBC after the convention had approved corporate articles printed in the “daily bulletin.”
“How many people at a convention like that would even read a printed legal document, let alone understand it?” Judge Dandurand asked. “This doesn’t even pass the smell test, does it?”
Shoemake did not directly respond to the “smell test” comment, but he continued to argue that the MBC messengers had the chance to read the articles, which plainly did not contain a clause requiring MBC approval of future amendments.
But Judge James Welsh asked: “Do you think it would be fair to say that most Missouri Baptists were surprised by the way things turned out with this new corporation?” “Yes, “ Shoemake answered, “that would probably be a fair characterization.”
Judge Welsh also asked whether the dispute could have been avoided if only the MBC had put in the original articles a clause which gave the MBC the right to approve charter amendments. Shoemake said the judge was correct that such a clause would have avoided the litigation, but the MBC had left out that clause.
MBC lead counsel Michael Whitehead opened his argument by telling the court that Windermere had been “hijacked” by “corporate insiders,” among them a former executive director who intentionally left out of the original articles of incorporation the clause that would have expressly required MBC approval of future amendments. “The insiders’ scheme worked like a charm,” Whitehead said – except they overlooked the fact that the Non-Profit Code recognizes that the right to elect directors is a fundamental right, which cannot be eliminated by amendment without MBC consent.
“The right to vote for directors is the way a parent organization keeps control of a subsidiary ministry corporation,” Whitehead said. “MBC set up this subsidiary with the right to elect trustees clearly stated in the articles. No other clause was required to protect this fundamental right from unauthorized amendment.”
“The trial court essentially re-wrote two statutes to impose non-existent limitations on MBC’s rights. After 50 years, MBC loses its $50 million dollar camp in only three months after transferring it to this subsidiary, and the trial court says we have no legal recourse. And that’s why we are here.”
MBC transferred the 1300-acre Baptist camp to the new subsidiary in April 2001. Three months later, on July 30, 2001, the subsidiary trustees amended the articles to cut out MBC voting rights.
Whitehead showed three large charts on easels to the court during his argument, containing the text of the two statutes at issue, and the text of two articles in the original charter. The articles chart had color highlighting of words stating that Windermere trustees would be elected by the MBC on more than one occasion. The chart of section 355.066 highlighted the definition of the word “member” as a person who has the right to elect directors on more than one occasion, and included a non-profit association, like the MBC, within the meaning of the term “person.”
“Didn’t the articles also have a clause that said the corporation shall have no members?” Judge Welsh asked. Yes, Whitehead replied, the articles had such a clause, but it was not controlling, because the statutory definition included the phrase “without regard to what a person may be called in the articles …” In other words, the definition makes election rights the operative fact in determining whether a corporation has “members,” even if there is a “no members” clause.
“If you put the label ‘pickles’ on a jar of peanut butter, that doesn’t make it pickles,” Whitehead quipped. “The law looks at function over form, and the function of electing trustees is made controlling over a mistaken label.”
Judge Dandurand asked Whitehead about the fact that the MBC’s former executive director was the person who drafted the original articles, who put in the “no members” clause and left out the amendment approval clause. Whitehead answered that the executive was the MBC’s employee when he acted as incorporator, but he had cooperated with other “corporate insiders” both before and after the incorporation to shepherd the breakaway. “Today the executive heads a competing state Baptist convention and has family ties to a developer who has purchased 1,000 acres of the former Windermere land. His misconduct helps explain what was left out, but the key fact for this court is what was left in. The articles still say MBC has the right to elect trustees and that right cannot be removed by amendment without the member’s approval.”
MBC co-counsel G. Stanton Masters presented a three-minute rebuttal after Shoemake spoke. Shoemake said that the member definition had an exception for persons who were “delegates,” and he said MBC messengers fit the definition of delegates. Masters said this argument confused the governance of the MBC with the governance of Windermere. “The original charter says MBC as an entity has the right to elect trustees, not individual messengers to the MBC meeting. The definition of delegates is persons who vote at a representative assembly. The trial court admitted there is no Windermere assembly, so there can be no Windermere delegates.”
The relief requested by the MBC was that the appeals court would reverse the trial court, and find instead that the MBC election rights were protected from amendment either by the membership statute or by section 355.586, which protects non-member rights. Either way, any amendment without MBC approval would be void. MBC would be entitled to get back its subsidiary corporation, or get back its camp property. The trial court would then be responsible to oversee the return of control to MBC, and the cancelation of liens, mortgages and conveyances which have occurred since July 30, 2001.
Whitehead said a decision by the three-judge panel may be handed down within a couple of months.