142 A.3d 658
Md. Ct. Spec. App.2016Background
- Union Baptist Development Corporation (Corporation), a Maryland nonstock entity, held title to a small lot (the Property) that became part of a larger Head Start Center built mostly on adjacent church-owned lots; the Church operated the Head Start program.
- The Corporation was formed in 1981 to receive a city grant and hold title for a neighborhood ministry (a coffee house); it never obtained federal tax-exempt status and was largely inactive for decades.
- The Corporation’s charter was repeatedly forfeited; most recently forfeited in October 2012. In March 2013 allegedly unauthorized "alternate" directors filed articles of revival, then executed a quitclaim deed transferring the Property to Union Baptist Church, and filed articles of dissolution.
- The original board (Corporation Parties) sued to void the revival, the quitclaim deed, and the dissolution; the trial court found the revival and transfers ineffective (no authority) but, invoking CA §5-209 (disposition of charitable/corporate property), ratified the 2013 quitclaim deed and ordered transfer of the Property to the Church as an equitable disposition; the court also declared the Corporation dissolved.
- The Corporation Parties filed an untimely motion to alter or amend (treated as reconsideration) and a Rule 1-341 fees motion; they appealed only from the denial of the reconsideration and fees orders. The appellate court affirmed the transfer under §5-209 and the denial of fees, but reversed the court’s dissolution of the Corporation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CA §5-209 could be used to transfer the Corporation's sole asset to the Church | §5-209 inapplicable because Corporation is not charitable; transfer without compensation unlawful | §5-209 applies: Corporation served charitable purposes; transfer to Church (donor/affiliate) fits cy‑pres and §5‑209(c)/(d) | Court affirmed: §5‑209 applicable; equitable transfer to Church proper (trial court did not abuse discretion) |
| Whether Corporation is a "charitable" organization for §5‑209 purposes | Not charitable because it lacked §501(c)(3) tax‑exempt status | Charitable status is a factual inquiry not controlled by federal tax status; articles/past activities support charitable purpose | Court upheld finding: Corporation is charitable despite lack of federal tax exemption |
| Whether trial court could dissolve the nonstock Corporation as part of its §5‑209 relief | Court lacked statutory authority to dissolve; dissolution governed by Title 3 and requires petition by stockholders/creditors | (Church) dissolution unnecessary to effect transfer; §5‑209 authorized disposition of property | Appellate court reversed dissolution: trial court abused discretion in declaring Corporation dissolved (no statutory authority) |
| Whether Rule 1‑341 fees should be awarded against Church Parties for bad faith litigation conduct | Church acted in bad faith/without substantial justification in asserting authority to act for Corporation | Defense raised difficult factual/legal issues and substantially prevailed; no bad faith | Court’s denial of fees affirmed: no clear error that Church litigated in bad faith |
Key Cases Cited
- Supervisor of Assessments v. Group Health Assoc., Inc., 308 Md. 151 (Maryland Ct. App.) (explains fact‑intensive inquiry for charitable status under state law)
- Bob Jones Univ. v. United States, 461 U.S. 574 (U.S. Sup. Ct.) (federal tax‑exempt status rests on common‑law standards of charity and public purpose)
- Furda v. State, 193 Md. App. 371 (Md. Ct. Spec. App.) (appeal from denial of post‑judgment motion limited to issues raised in the motion)
- Renbaum v. Custom Holding, Inc., 386 Md. 28 (Md. Ct. App.) (courts lack equitable power to dissolve corporations absent statutory authorization)
- Dual, Inc. v. Lockheed Martin Corp., 383 Md. 151 (Md. Ct. App.) (forfeiture of charter effect and revival possibilities)