Lloyd Dunaway, Vernon Wright, Sue Wright, and Kenneth Orrell v. Garland County Fair and Livestock Show Association, Inc.
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DIVISION III
CA06-724
December 20, 2006
LLOYD DUNAWAY, VERNON
WRIGHT, SUE WRIGHT, and
KENNETH ORRELL
APPELLANTS
v.
GARLAND COUNTY FAIR AND
LIVESTOCK SHOW ASSOCIATION,
INC.
APPELLEE
AN APPEAL FROM GARLAND COUNTY
CIRCUIT COURT
[No. CV-2006-263-IV]
HONORABLE LYNN WILLIAMS,
CIRCUIT JUDGE
AFFIRMED ON DIRECT APPEAL;
AFFIRMED ON CROSS-APPEAL
S AM B IRD, Judge
This appeal concerns efforts by appellants Lloyd Dunaway, Vernon Wright, Sue
Wright, and Kenneth Orrell to challenge the validity of actions taken by appellee Garland
County Fair and Livestock Show Association, Inc., in relocating its fairgrounds. Dunaway
and the Wrights are members of the association and members of its board. Orrell attempted
to become a member of the association but was denied membership. The trial court
dismissed some of appellants’ claims on motion, refused to appoint a receiver, declined to
enjoin the sale of appellee’s fairground property, and ordered appellee to amend its bylaws.
Appellants assert that the trial court erred in three instances, specifically the denial of their
motion for a continuance, the dismissal of their claims to invalidate the board’s actions, and
the failure to award attorney’s fees. Appellee cross-appeals from the trial court’s order
directing it to amend its bylaws and from the denial of its request for attorney’s fees.
Appellee is a non-profit corporation governed by “Amended and Substituted Articles
of Incorporation” filed with the Arkansas Secretary of State on August 24, 1989, that
replaced the original articles adopted in 1940. The articles provide that “[m]embership in
this association is open to any resident of Garland County, . . . approving of the goals of the
corporation and willing to contribute their time and energy to accomplish the purposes of
this corporation.” The association is governed by a twenty-eight-member board of directors
elected by the membership by secret ballot.1 The articles do not limit the number of
members. The 1997 amendments specify that vacancies on the board shall be filled by the
president’s nominating a person at a regularly scheduled meeting and the board’s approving
the nomination at the next regularly scheduled meeting. The articles also provide that the
corporation shall have all of the general powers listed in Ark. Code Ann. § 4-28-209.
Dunaway was president of the board when the “Constitution and Bylaws of the
Garland County Fair And Livestock Show Association” (the “bylaws”) were adopted by the
officers of the association on April 30, 1996. The bylaws establish a three-tier membership
regime. The first tier, labeled “regular members,” consists of “elected individuals who wish
to contribute their time and energy to help accomplish thereof” and is limited to twenty-eight
persons, consisting of twenty-seven regular elected members and the current president of the
Garland County Extension Homemakers. The second membership tier, labeled “honorary
members,” consists of “individuals selected and approved by a majority of the regular
1
One member is not elected by the membership: the current president of the Garland
County Extension Homemakers.
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membership.” The third tier of membership, labeled “advisors,” consists of “individuals
selected and approved by a majority of the regular membership” and have no voting rights.
The bylaws limit voting rights to the “regular” members.
The bylaws provide a method for filling board vacancies similar to that contained in
the 1997 amendment to the articles. The bylaws state that the officers of the association
“shall not enter into any contracts or agreements with an individual or an organization
without a majority vote by the membership at a regular or special called meeting.”
(Emphasis in original.) The bylaws, as do the articles, provide that directors are to be elected
to serve a three-year term, with one-third of the board elected each year. Both the articles
and the bylaws provide that, in case of conflict between the articles and the bylaws, the
articles will control.
On October 21, 2005, appellee, after being authorized by its board, entered into a
contract to sell certain real property to SDI Realty Management, Inc., for the sum of $9.12
million. Thereafter, appellee, again acting through its board, entered into a contract to
purchase certain other property for the sum of $1.2 million and to relocate its fairgrounds
to the new location. Both transactions were scheduled for simultaneous closings on or before
April 17, 2006.
On March 17, 2006, appellants filed suit for injunctive, declaratory, and other relief.
The complaint, as amended, alleged that the membership and voting restrictions of the
bylaws were illegal; that the board was thus illegally constituted; that the board had acted
outside its authority; that the directors had breached their fiduciary duties to the association;
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and that none of the contracts executed had been properly authorized by the association and
were thus void. Appellants sought an order (1) declaring that the restrictions on membership
and voting set forth in the bylaws were invalid; (2) declaring that appellee’s president James
Mattingly was not qualified for membership due to his residency; (3) declaring that the
board was illegally constituted; (4) declaring the real-estate contracts void ab initio; (5)
removing the board; (6) appointing a receiver to take over the business affairs of appellee
to conduct a membership campaign and to oversee an election of a new board; and (7)
enjoining the board from taking any further action with respect to the purchase or sale of any
real property until a new board was elected and had conducted appropriate due diligence.
In response, appellee filed a motion to dismiss, alleging that the complaint failed to
state facts upon which relief could be granted as to Mattingly’s residence; that appellant
Orrell lacked standing to raise the claims because he was not a member of the board; that
appellants were not entitled to relief for a variety of factors; and that any injunctive relief
would cause appellee irreparable harm. Appellee also filed an answer denying the material
allegations of the complaint and asserting that res judicata barred any claims by appellant
Dunaway and that, if injunctive relief were granted, appellants be required to post a bond
in the amount of $10.3 million, as provided by Ark. R. Civ. P. 65(d) and 65.1.
At a March 21, 2006, in-chambers conference, the trial court, based upon the tacit
agreement of all counsel, scheduled an expedited trial date of April 5, 2006. The trial court
also denied appellants’ request for a preliminary injunction due to appellants’ inability to
post the required bond. After having announced its intention at the March 21 conference,
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appellee filed a motion to dismiss on March 29, 2006. On April 3, 2006, appellants filed
their motion for continuance, asserting the need for additional time for discovery and that
the Arkansas Rules of Civil Procedure provide certain time frames to allow for responses
to discovery and to motions. On April 4, 2006, the trial court denied appellants’ motion for
continuance, citing its untimeliness and the previous agreement of counsel to be ready for
trial on April 5, 2006.
At the combined motions hearing and bench trial, appellee argued that appellants’
complaint failed to state facts upon which relief could be granted regarding the James
Mattingly’s residence and the membership and composition of the board. Appellants stated
that they could not produce any evidence to controvert those issues. Appellee also asserted
that all actions were taken with proper board approval. Appellants, again, stated that they
could not dispute that fact. The trial court asked if there were any members of the association
who were not also members of the board. Appellee’s counsel stated that there were not, and
appellants did not dispute that assertion.
Appellee’s counsel admitted that there were two vacancies on the board but stated
that they had been hard to fill since the dispute over relocation arose. Counsel also asserted
that the board had been acting with a proper quorum of at least fifteen members.
Appellants argued that there was a conflict between state law, the articles, and the
bylaws regarding the classes of membership in the association. They also argued that the
articles did not limit membership to twenty-seven members, as they contended the bylaws
did.
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The trial court ruled from the bench and dismissed all but two of appellants’ claims,
finding that James Mattingly was a resident of Garland County; that the bylaws did not set
any time limit during which the association must fill vacancies on the board; that there was
no conflict between the bylaws, the articles, and the law regarding the nomination and
election of directors; and that the board of directors was properly constituted. The case
proceeded to trial on the issues of whether appellee should revise the process for
membership in the association and whether appellee had violated any statutory provisions,
specifically Ark. Code Ann. § 4-28-412(2) (Repl. 2001).
At trial, Lloyd Dunaway testified that he had been involved with the association for
thirty years, including serving as president for twelve or thirteen years. After identifying the
articles, bylaws, and the real-estate contracts at issue, he said that there was no method for
a person to become a member of the association without also being on the board. He opined
that, based on the articles, the association could not sell its real estate without a vote of the
membership. According to Dunaway, no appraisals were conducted prior to execution of the
contracts. He said that the board had not investigated the cost of relocating the fairgrounds.
Dunaway admitted that he was involved in the relocation process, having chaired the
relocation committee. He said that his committee investigated and discussed three possible
sites but never discussed having an appraisal or a feasibility study conducted. He said that,
although there were no formal estimates for contracting work or architectural plans
commissioned, such plans and estimates were available. The architectural plans were made
by Jeremy Stone, a registered engineer and a member of the board. According to Dunaway,
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these estimates showed that the cost of the excavation work would be $257,000 and the total
cost of the new fairgrounds would be $8,381,301. Although Dunaway voted with the
majority to sell the current fairgrounds in October 2005, he testified that he later changed
his mind. He stated that his objection was not to the sale of the fairgrounds property but to
whether the proceeds from that sale would be sufficient to build new fairgrounds.
After trial, the court found that appellee did not violate any statutory provisions. The
court, however, ruled that appellee must clarify its process for membership in its association.
Judgment was entered accordingly, and this appeal and cross-appeal timely followed.
Appellants raise three points for reversal, each with several subpoints. The main
points are that the trial court erred in not granting their motion for a continuance of the trial
date, that the trial court erred in dismissing their claims, and that the trial court should have
awarded appellants their attorney’s fees. Appellee asserts two points on cross-appeal: that
the trial court erred in ordering it to amend and clarify its membership process and that the
trial court erred in not awarding its attorney’s fees.
Appellants first contend that the trial court erred in denying their motion for a
continuance. In order for this court to reverse the trial court’s denial of a continuance,
appellants must show that the trial court abused its discretion. Bennett v. Lonoke
Bancshares, Inc., 356 Ark. 371, 155 S.W.3d 15 (2004).
In a “Notice of Hearing on Motions and Non-Jury Trial,” dated March 21, 2006, the
parties were notified that motions would be heard and a non-jury trial would be held on
April 5, 2006. The notice also stated that “[a]ny Motions for Continuance should be filed
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within 7 days after receipt of this Notice.” Appellants filed their motion on April 3, 2006.
The trial court denied the motion, citing the parties’ agreement as to the trial date and the
tardiness of the motion for the continuance. The trial court also noted that, at the pre-trial
conference, the only discovery appellants indicated needing were some depositions.
Appellants renewed the motion for continuance immediately prior to trial, stating that
they were not provided with all of the documents they requested. The trial court again denied
the motion, stating:
I gave the parties information that if there was any problem with discovery I should
be informed immediately and I’d take care of it. I wasn’t informed of any problems
until late Monday. . . . I’m going to deny the Continuance Motion and we will go
forward with the trial on the merits.
Appellants argue that the trial court set an unreasonable trial schedule and that they were
entitled to conduct discovery and to time to respond to appellee’s motion to dismiss. Lack
of diligence is a factor to consider in denying a continuance. Morris v. Cullipher, 306 Ark.
646, 816 S.W.2d 878 (1991). Here, appellants did not comply with the court’s directive to
file their motion for continuance in a timely fashion. Also, when the continuance is based
on a request for additional discovery, the appellant must not only show that there has been
an abuse of discretion but also that the additional discovery would have changed the
outcome of the trial. Id. Appellants do not explain how the result would have been different
had the trial court continued the case; rather, they assert that they should have been allowed
to conduct “appropriate discovery.” Therefore, appellants have not shown any prejudice, and
we will not reverse without a showing of prejudice.
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For their second point, appellants argue that the trial court erred in dismissing their
claims. This case was decided partially on summary judgment and partially by bench trial.
In Crooked Creek, Ill., Inc. v. City of Greenwood, 352 Ark. 465, 101 S.W.3d 829 (2003),
the supreme court set forth the standard of review for such cases as follows:
Summary judgment is to be granted by a trial court only when it is clear that
there are no genuine issues of material fact to be litigated, and the party is entitled to
judgment as a matter of law. Once the moving party has established a prima facie
entitlement to summary judgment, the opposing party must meet proof with proof and
demonstrate the existence of a material issue of fact. On appellate review, we
determine if summary judgment was appropriate based on whether the evidentiary
items presented by the moving party in support of the motion leave a material fact.
In bench trials, the standard of review on appeal is not whether there is any
substantial evidence to support the finding of the court, but whether the judge’s
findings were clearly erroneous or clearly against the preponderance of the evidence.
352 Ark. at 469-70, 101 S.W.3d at 832 (citations omitted).
Under this point, appellants first argue that the trial court erred in finding that
Mattingly was a resident of Garland County and was thus ineligible for membership in the
association. Citing Clement v. Daniels, ___ Ark. ___, ___ S.W.3d ___ (May 17, 2006), they
note that questions of intent are particularly inappropriate for summary judgment. However,
in the present case appellee presented documentary evidence in the form of Mattingly’s
affidavit, tax records, voter-registration card, driver’s license, and utility bills to show
Mattingly’s residence was in Garland County. Appellants conceded that they could not
present any evidence to controvert that fact. Instead, they assert that, given more time for
discovery, they could cross-examine Mattingly or produce school records showing that
Mattingly’s children attend school in Hot Spring County. If a party responding to a
summary-judgment motion cannot meet proof with proof on an essential element of his
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claim, the movant is entitled to judgment as a matter of law. See Caplener v. Bluebonnet
Milling Co., 322 Ark. 751, 911 S.W.2d 586 (1995).
In several subpoints, appellants argue that the membership of the association and of
the board are illegally constituted and that the real-estate transactions are void because they
were not approved by the full association membership.
Arkansas Code Annotated section 4-28-210(a) (Repl. 2001) provides that a non-profit
corporation may have one or more classes of members, or may have no members, as
provided in the articles. Here, the bylaws provide for three classes of members and limit
“regular” membership to twenty-seven. The articles are silent on classes of membership,
stating only that membership is open to all Garland County residents who support the
association’s goals. This creates an apparent conflict between the articles and the bylaws
regarding the number of members. If there is a conflict between the charter and the statutes
under which the charter issued, the charter must yield to the laws of the state. Allen v.
Malvern Country Club, 295 Ark. 65, 746 S.W.2d 546 (1988). Arkansas Code Annotated
section 4-28-212(a) (Repl. 2001) provides, in part, that “each member shall be entitled to
one (1) vote in the election of the board of directors.” Section 4-28-212(b) allows the articles
to specify the voting rights of members on other issues. This implies that a class or classes
of members may not have voting rights on certain issues.
Appellants rely on the supreme court’s decision in Giss v. Apple, 239 Ark. 1124, 396
S.W.2d 813 (1965), in arguing that the entire membership of the association should be
allowed to vote on the transactions. In Giss, a nonprofit corporation (a country club) sought
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to sell substantially all of its assets and move the country club to a new location. The articles
of incorporation and by-laws were silent as to the vote requirement for the proposal. A close
vote of the membership was taken at which a majority of the number of members present at
the meeting voted to approve the sale but not a majority of the number of members having
voting rights. The supreme court, after noting that the relevant act, the Arkansas Nonprofit
Corporation Act of 1963, was silent on the question, cited some general treatises on the law
of corporations and placed emphasis on analogous actions of the corporation in giving the
directors similar power, such as to mortgage the property of the association (which, under
the articles of incorporation, required a vote of a majority of members having voting power).
The court held that, in order to sell substantially all of the corporate property, a majority vote
of the corporation’s members having voting rights was necessary. The court thus filled the
statutory void as to the sale of all assets as best it could, looking to general corporate law and
the past actions of the corporation. If therefore, the sale of the fairground property is a sale
of all assets without a dissolution, it appears that the vote requirement, according to Giss,
in the absence of any controlling provision in the corporate articles or by-laws, is a majority
of the members having voting power. That being said, it appears that membership in the
association is consonant with membership on the board. Further, although there were two
vacancies on the board, there was no evidence presented as to the vote approving both
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transactions.2 Therefore, we cannot say that the transactions were not approved by a majority
of the membership having voting rights.
Appellants also assert that the trial court should have removed all of the board
members for breaching their fiduciary duty to the corporation. This comes under appellants’
allegation that the board violated Ark. Code Ann. § 4-28-412(2), which prohibits a
charitable organization from “[engaging] in any financial transaction that knowingly
jeopardizes or interferes with the ability of the charitable organization to accomplish its
charitable purpose.” Among the ways the board is alleged to have breached its duty is by
failing to have proper studies done as to the feasibility of relocating and in not obtaining
estimates as to the cost of construction. However, Lloyd Dunaway testified that his
committee considered several possible sites for relocating the association. He also identified
documents showing that cost estimates were obtained and plans developed. Despite the
informality of the process, there was no showing that these estimates were not reasonable
or accurate. Therefore, we cannot say that the trial court was clearly erroneous in finding that
the board did not violate section 4-28-412(2) or in not removing the board.
Appellants also argue that the trial court erred in not appointing a receiver to manage
the association’s affairs. Rule 66 of the Arkansas Rules of Civil Procedure provides that:
“[c]ourts of equity may appoint receivers for any lawful purpose when such appointment
shall be deemed necessary and proper,” and under our standard of review, we must
2
In their complaint, appellants allege that the vote to approve the purchase and
relocation of the fairgrounds passed by a vote of thirteen to twelve. However, there was no
evidence, documentary or testimonial, to support this assertion.
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determine whether the appointment of a receiver was an abuse of discretion. The
appointment of receivers rests within the discretion of courts of equity, to be exercised with
restraint and caution, and ordinarily in conjunction with a pending proceeding, and rarely
as a means in itself, but whenever unusual circumstances warrant. Union Planters Nat’l
Bank v. East Cent. Ark. Econ. Dev. Corp., 340 Ark. 706, 13 S.W.3d 578 (2000). The power
to appoint a receiver is, of course, a harsh and dangerous one and should be exercised with
great circumspection. Chapin v. Stuckey, 286 Ark. 359, 692 S.W.2d 609 (1985) (citing Kory
v. Less, 180 Ark. 342, 22 S.W.2d 25 (1929)). The cases in which receivers ordinarily will
be appointed are confined to those in which it can be established to the satisfaction of a court
that the appointment of a receiver is necessary to save the property from injury or threatened
loss or destruction. Union Planters Nat’l Bank, supra. Here, there has been no such
showing. Instead, there is evidence that the board, through Dunaway’s committee,
considered the matter before acting.
As their last argument under this point, appellants also argue that the trial court
should have enjoined the real-estate transactions until a new board could be elected. The
granting or denying of an injunction is a matter falling within the sound discretion of the
trial court and its decision will not be reversed on appeal unless it is clearly erroneous.
Southeast Ark. Landfill, Inc. v. State, 313 Ark. 669, 858 S.W.2d 665 (1993). Because we
affirm the trial court on the previous subpoints, there is no basis for the issuance of an
injunction.
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We discuss appellants’ third point and appellee’s second point on cross-appeal
together. In those points, appellants and appellee each argue that the trial court erred in not
awarding them their attorney’s fees. However, it does not appear that either party presented
their request to the trial court or obtained a ruling. An issue cannot be raised for the first time
on appeal. Cole v. Laws, 349 Ark. 177, 76 S.W.3d 878 (2002). We therefore refuse to
address these arguments.
On cross-appeal, appellee argues that the trial court erred in ordering it to revise its
bylaws to set forth the process for membership. For the reasons stated above in appellants’
second point, there is a conflict between the articles and the bylaws regarding classes of
membership. Further, appellee cites no authority in support of its argument. Therefore, it is
appropriate for the court to require revision to address that conflict, especially where
appellants sought declaratory relief.
Affirmed on direct appeal; affirmed on cross-appeal.
H ART AND G RIFFEN, JJ., agree.
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