Richard Doermer v. Kathryn Callen
847 F.3d 522
7th Cir.2017Background
- The Doermer Family Foundation, a nonprofit Indiana corporation, was formed in 1990 with lifetime family directors; its articles state the corporation "shall have no members."
- After two founders died, board members were Richard Doermer (plaintiff), Kathryn Callen (sister, defendant), and Phyllis Alberts; Alberts’s three-year term expired Jan. 28, 2013.
- Bylaws and the 2010 appointment resolution provided that a director "serves ... until her or his successor is elected and qualified," mirroring Ind. Code § 23-17-12-5(d).
- Kathryn and Phyllis voted in Sept. 2013 to reelect Phyllis despite Richard’s objection; the board later approved charitable gifts to the University of Saint Francis (on whose board Kathryn also serves) and elected Kathryn’s son John as a director.
- Richard sued individually and derivatively seeking money judgments for the corporation, removal of Kathryn, injunctions barring Phyllis and John from acting, and appointment of new directors. The district court dismissed; the Seventh Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to bring derivative suit as a non-member director | Doermer: a non-member director should be permitted to sue derivatively to vindicate corporate harms (first impression in Indiana) | Defendants: Indiana law permits derivative suits only by shareholders/members; the Nonprofit Act allows memberless nonprofits and contains no director-derivative remedy | Held: No derivative standing — plaintiff is not a member; both Indiana law and Rule 23.1 require membership/share ownership |
| Federal procedural adequacy for derivative pleadings | Doermer: state substantive law should control availability of remedy | Defendants: Federal Rule 23.1 requires pleading membership/contemporaneous ownership for derivative suits in federal court | Held: Federal Rule 23.1 bars derivative pleading by a non-member in federal diversity litigation |
| Validity of corporate acts after director’s term expired | Doermer: Phyllis’s term expired and she lacked authority after Jan. 28, 2013, so subsequent acts (gifts, elections) were invalid | Defendants: Bylaws and statute provide that a director continues to serve until successor is elected/qualifies; re-election and subsequent acts were valid | Held: Phyllis continued to serve until successor qualified; reelection and subsequent acts valid under bylaws and Ind. Code § 23-17-12-5(d) |
| Alleged conflicted/self-dealing vote by Kathryn | Doermer: Kathryn’s board membership at Saint Francis made her vote in favor of gifts conflicted/self-dealing | Defendants: No statutory/contractual authority showing such a vote is unlawful; statute prevents voiding a transaction solely for director overlap if other safeguards satisfied | Held: Allegation insufficient — statute allows inter-nonprofit transactions notwithstanding overlapping directors; no plausible claim pleaded |
Key Cases Cited
- Huon v. Denton, 841 F.3d 733 (7th Cir. 2016) (accepting complaint allegations as true on motion to dismiss)
- Williamson v. Curran, 714 F.3d 432 (7th Cir. 2013) (documents integral to the complaint may be considered on 12(b)(6))
- Kirtley v. McClelland, 562 N.E.2d 27 (Ind. Ct. App. 1990) (recognized equitable derivative remedy for members under predecessor law)
- Brenner v. Powers, 584 N.E.2d 569 (Ind. Ct. App. 1992) (membership status is prerequisite to derivative standing)
- Knauf Fiber Glass, GmbH v. Stein, 622 N.E.2d 163 (Ind. 1993) (shareholder may not maintain suit in own name to redress injury to the corporation)
- Scholes v. Lehmann, 56 F.3d 750 (7th Cir. 1995) (illustrative of distinct doctrines and inapposite here regarding unjust-enrichment and fraudulent-transfer claims)