Nelly De La Trinidad v. Capitol Indemnity Corporation
Annotate this Case
Download PDF
2009 WI 8 SUPREME COURT CASE NO.: COMPLETE TITLE: OF WISCONSIN 2007AP45 Nelly De La Trinidad, Individually, and as Special Administrator of the Estate of Elizabeth Callejas-De La Trinidad, Deceased, and Victor Leonardo Aguilar-Hernandez, and Luz Maria Torres-Sanches, Individually, and as Special Administrator of the Estate of Marisol AguilarTorres, Deceased, Plaintiffs-Appellants-Petitioners, v. Capitol Indemnity Corporation, a Wisconsin Insurance Corporation, Halter Wildlife, Inc., and Rachel Proko, Defendants-Respondents. REVIEW OF A DECISION OF THE COURT OF APPEALS Reported at: 308 Wis. 2d 394, 746 N.W.2d 604 (Ct App. 2008-Unpublished) OPINION FILED: SUBMITTED ON BRIEFS: ORAL ARGUMENT: SOURCE OF APPEAL: COURT: COUNTY: JUDGE: January 23, 2009 November 4, 2008 Circuit Kenosha David M. Bastianelli JUSTICES: CONCURRED: DISSENTED: NOT PARTICIPATING: ATTORNEYS: For the plaintiffs-appellants-petitioners there were briefs by Patrick O. Dunphy, Robert D. Crivello, and Cannon & Dunphy, S.C., Brookfield, and oral argument by Robert D. Crivello. For the defendants-respondents there were briefs by James S. Smith, Wendy G. Gunderson, and Smith, Gunderson & Rowen, S.C., Brookfield, and oral argument by Wendy G. Gunderson. 2009 WI 8 NOTICE This opinion is subject to further editing and modification. The final version will appear in the bound volume of the official reports. No. 2007AP45 (L.C. No. 2005CV145) STATE OF WISCONSIN : IN SUPREME COURT Nelly De La Trinidad, Individually, and as Special Administrator of the Estate of Elizabeth Callejas-De La Trinidad, Deceased, and Victor Leonardo Aguilar-Hernandez, and Luz Maria Torres-Sanches, Individually, and as Special Administrator of the Estate of Marisol Aguilar-Torres, Deceased, Plaintiffs-Appellants-Petitioners, v. FILED JAN 23, 2009 David R. Schanker Clerk of Supreme Court Capitol Indemnity Corporation, a Wisconsin Insurance Corporation, Halter Wildlife, Inc., and Rachel Proko, Defendants-Respondents. REVIEW of a decision of the Court of Appeals. ¶1 Trinidad, N. PATRICK Victor CROOKS, Leonardo J. Petitioners Aguilar-Hernandez, Affirmed. Nelly and Luz De La Maria Torres-Sanches (collectively, De La Trinidad) are the parents of two children who drowned in a pond on the grounds of Halter Wildlife, Inc. De La Trinidad seeks review of an unpublished No. 2007AP45 court of appeals opinion1 affirming a circuit court order that dismissed their lawsuit against Halter Wildlife, Inc. (Halter); its insurer, Capitol Indemnity Corporation; and lifeguard Rachel Proko, an employee recreational of Halter, on immunity statute2 applies the grounds and bars a that the suit under these circumstances. ¶2 The sole question before us is whether Halter is "an organization or association not organized or conducted for pecuniary profit" under Wis. Stat. § 895.52(1)(c) and as such entitled to immunity from liability for negligence, as well as for safe place violations, for any recreational activity on Halter's land.3 deaths occurring during De La Trinidad contends that Halter cannot be a nonprofit organization for two reasons: first, because it was incorporated in 1984 under the statute that since 1953 has governed for-profit corporations; and second, because it supplemented membership dues with revenues from other activities revenues that created a budget surplus or 1 Nelly De La Trinidad v. Capitol Indem. Corp., No. 2007AP45, unpublished slip op. (Wis. Ct. App. Jan. 23, 2008). 2 Wis. Stat. § 895.52 (2005-06). All subsequent references to the Wisconsin Statutes are to the 2005-06 version unless otherwise indicated. 3 Because the statute also grants immunity to the employees and agents of nonprofit landowners, and because Proko is being sued in her capacity as an employee of Halter, the resolution of this question affects the claims against Proko as well. "[N]o owner and no officer, employee or agent of an owner is liable for the death of, any injury to, or any death or injury caused by, a person engaging in a recreational activity on the owner's property. . . ." Wis. Stat. § 895.52(2)(b). 2 No. 2007AP45 profit which in turn meant dividends for members in the form of dues that were lower than they would otherwise have been. Halter argues that its articles of incorporation show that it was organized as a nonprofit, and its financial records and its status with the Internal Revenue Service (IRS) and the Wisconsin Department of Financial Institutions (DFI) show that it is not conducted for profit and has never paid any dividends. ¶3 The nonprofits by recreational referencing immunity the statute chapter does under not which define they were incorporated, either chapter 180 or 181, so that factor is not dispositive of the question. We see no basis in the statute for defining "profit" as broadly as De La Trinidad urges. Halter's articles of incorporation, tax returns, and financial statements make clear that it was organized and is conducted as a nonprofit organization, a fact federal government. below, Halter is recognized by both Wisconsin and the For these reasons, explained more fully a nonprofit organization as defined by the statute and is thus entitled to immunity. ¶4 We therefore affirm the decision of the court of appeals. I. ¶5 BACKGROUND Though it filed restated articles of incorporation in 1984 and 1988 which varied in some respects from the original articles, Halter has since its inception consistently defined itself as a nonprofit stock corporation under ch. 180 of the Wisconsin articles Statutes. of These incorporation articles were 3 and accepted successive for filing restated by the No. 2007AP45 secretary of state. The current articles of incorporation describe Halter as a hunt and sportsman club with the purpose of promoting wetlands preservation and environmental education. Its regulations allow its approximately 275 dues-paying members to invite guests4 to events held on the club's grounds, which include a clubhouse, a picnic area, a ball park, and a beach and pond used for fishing and swimming. In addition to annual membership dues, Halter collects extra fees from members who host picnics and other events to which guests are invited. ¶6 July 13, It was at one such event, a company picnic hosted on 2002, by Finishing and Plating Services (FPS) of Kenosha,5 that the tragic drownings of the two children occurred. ¶7 De La Trinidad filed this lawsuit, alleging negligence and safe place violations by Halter, and negligence by Proko. The Kenosha Bastianelli defendants. County presiding, The Circuit Court, granted circuit court the summary noted Honorable judgment that despite for David the Halter's organization under ch. 1806 as a nonprofit stock corporation, all 4 The general public does not have access to Halter's facilities; only club members and their guests may be on the property. Payment of invoices or statements is required under the organization's regulations to be made by a member's check. 5 The picnic guests were not charged admission; in keeping with Halter's regulations, FPS, which held a corporate membership with Halter, paid the invoice for the picnic. 6 The present version of ch. 180 of the Wisconsin Statutes governs "Business Corporations," which include those issuing stock. Wis. Stat. § 180.0103(5). The present version of ch. 181 governs "Nonstock Corporations," which are defined as including nonprofit corporations. Wis. Stat. § 181.0103(5). 4 No. 2007AP45 of the documentation of its existence, from its articles of incorporation to its tax returns, supported the conclusion that it was organized as a nonprofit. The circuit court also concluded that under the statute's definition, Halter's fundraising activities did not make it a for-profit corporation, noting that the record showed no distributions of profits or earnings to members. out that nonprofit the The court of appeals affirmed, pointing recreational with reference immunity to organization is incorporated. that Halter's nonprofit the statute chapter does under not define which the The court of appeals also found status turned not on generated, but rather on how they were used. how funds were It noted, "[M]ost importantly, Halter is not organized to distribute profits to anyone, and it does not do so." Nelly De La Trinidad v. Capitol Indem. Corp., No. 2007AP45, unpublished slip op., ¶15 (Wis. Ct. App. Jan. 23, 2008). court. For those reasons it affirmed the circuit De La Trinidad petitioned this court for review, and on May 13, 2008, review was granted. II. STANDARD OF REVIEW ¶8 The application reviewed de novo. of a statute to undisputed facts is DOR v. Menasha, 2008 WI 88, ¶44, ___ Wis. 2d. ___, 754 N.W.2d 95. III. DISCUSSION ¶9 The question we address is whether Halter was a nonprofit organization under the recreational immunity statute7 7 Wisconsin Stat. § 895.52(2): 5 No. 2007AP45 and is therefore entitled to immunity from liability for negligence, as well as for the claimed safe place violations. Nonprofit organizations are among the types of property owners to whom immunity is extended under the statute.8 No duty; immunity from liability. provided in subs. (3) to (6), no owner employee or agent of an owner owes to enters the owner's property to recreational activity: (a) Except as and no officer, any person who engage in a 1. A duty to keep the property safe for recreational activities. 2. A duty to inspect the provided under s. 23.115(2). property, except as 3. A duty to give warning of an unsafe condition, use or activity on the property. (b) Except as provided in subs. (3) to (6), no owner and no officer, employee or agent of an owner is liable for the death of, any injury to, or any death or injury caused by, a person engaging in a recreational activity on the owner's property . . . . Subsections (3) to (6) do not apply in this case. They deal with government property, malicious acts, and private property owners who collect fees for recreational use of the land in excess of $2,000 per year. There is no dispute here either as to the ownership of the land or as to the recreational nature of the activity. 8 Wisconsin Stat. § 895.52(1),(c) and (d): (c) "Nonprofit organization" means an organization or association not organized or conducted for pecuniary profit. (d) "Owner" means either of the following: 1. A person, including a governmental body or nonprofit organization, that owns, leases or occupies property. . . . 6 No. 2007AP45 ¶10 We begin of course with the statute's definition of a nonprofit organization as "an organization or association not organized or § 895.52(1)(c). conducted for pecuniary profit." Wis. We address each prong in turn: Stat. how Halter is organized and how it is conducted.9 A. "Not organized . . . for pecuniary profit" ¶11 for De La Trinidad's contention that Halter is organized pecuniary profit centers on the fact that, as Halter's restated articles of incorporation provide, it is organized as a stock-issuing corporation "pursuant to the authority provisions of Chapter 180 of the Wisconsin Statutes." and De La Trinidad contends that this means it is by definition a for- 9 Wisconsin Stat. § 895.52(1)(c) uses the wording "not organized or conducted for pecuniary profit," which can be read as intending to mean both prongs would have to be met (as in, "neither organized nor conducted for pecuniary profit") or as intending to mean that at least one prong would have to be met (as in, "not organized or not conducted for pecuniary profit"). Yet, in Szarzynski, this court has called the language "clear on its face and capable of one simple construction that the organizations that are organized and/or conducted for purposes other than profit-making are eligible for recreational immunity under the statute." Szarzynski v. YMCA, 184 Wis. 2d 875, 890, 517 N.W.2d 135 (1994). Neither party argues that Wis. Stat. § 895.52(1)(c) may be interpreted in the conjunctive or disjunctive, and it is not necessary for us to consider the question here. Halter does not argue that because it was either organized or conducted as a nonprofit, it was entitled to immunity. Rather, it argues that it met both requirements. We recognize that the "and/or" construction often can be problematic. See, e.g., Wisconsin Bill Drafting Manual § 2.01(9)(a) (2009-10) ("Never use the compound 'and/or.' 'And' is conjunctive and 'or' is disjunctive; decide whether you mean 'and' or 'or' and use the proper word."). 7 No. 2007AP45 profit or at best a corporation masquerading as a nonprofit while reserving whenever it the legal right chooses regardless to convert of what to its for-profit articles of incorporation currently say. ¶12 Halter argues that the question of whether it is organized for pecuniary profit is answered by the statement of purpose in its articles of incorporation: be a non-profit private profit corporation but which exclusively is for "The corporation will to be formed educational, not for benevolent, fraternal, social and athletic purposes within the meaning of Section 501(c)(7) of the Internal Revenue Code of 1954 . . . ." The articles of incorporation, Halter argues, are consistent with its status with the federal and state governments: the Department of the Treasury granted it tax exempt status under § 501(c)(7) of the Internal Revenue Code, and the state Department of Financial Institutions has confirmed that it has operated since its inception as a nonprofit. Halter points to our decision in Szarzynski v. YMCA, 184 Wis. 2d 875, 890, 517 N.W.2d 135 (1994), in which we cited the definition provided in Black's Law Dictionary for the term "nonprofit corporation." That definition made explicit reference to the federal tax code10 and included corporations "no part of the income of which is 10 In fact, part of the dictionary's definition of "nonprofit corporation" not quoted in Szarzynski refers readers to I.R.C. § 501(c) "for a list of exempt organizations." Black's Law Dictionary 1056 (6th ed. 1990). The clear inference from that definition is that it intends to define all § 501(c) organizations as nonprofit corporations. 8 No. 2007AP45 distributable to its members, directors or officers." 890 (quoting Because it Black's Law distributes Dictionary no income to 1056 (6th members, ed. Id. at 1990)). directors or officers and because it is a nonprofit for purposes of federal taxation, Halter argues that it is organized as a nonprofit. ¶13 A brief summary of the history of chapters 180 and 181 will help make sense of the parties' arguments. it was not incorporated unusual as for nonprofit Wisconsin stock Prior to 1953, organizations corporations under to ch. be 180. There was a change in the statute, however, that took effect that year and incorporation, remained and it is in effect not at entirely the time clear of whether Halter's by that change, the legislature intended to continue to permit nonprofit stock organizations under ch. 180. De La Trinidad relies on a 1958 opinion of the attorney general that examined the statute and concluded otherwise: "[A] nonprofit stock corporation cannot be lawfully 1953 . . . ." ¶14 organized under ch. 180 subsequent to July 1, 47 Wis. Op. Att'y Gen. 78, 81 (1958). As even that attorney general's opinion acknowledged, however, it is difficult to reconcile several provisions of the statute.11 One provision, for example, defines "corporation" as including "a corporation with capital stock but not organized for profit." Wis. Stat. § 180.02(1) (1957). 11 Another appears to The opinion noted, "It would have been much more explicit if the legislature had stated plainly that no stock nonprofit corporations are to be organized under ch. 180 after July 1, 1953." 47 Wis. Op. Att'y Gen. 78, 81 (1958). 9 No. 2007AP45 contemplate nonprofits organized under ch. 180 even after 1953: "After June 30, 1953 ch. 180 shall apply to all domestic corporations with capital stock, regardless of when they were organized and whether for profit or not . . . ." § 180.97(1) (1957) (emphasis added). Wis. Stat. However, that same section contains a provision that refers only to nonprofits formed prior to 1953, and is silent as to nonprofits formed thereafter: "any domestic corporation with capital stock but not organized for profit which has before July 1, 1953, been organized under the general corporation laws . . . shall be subject to ch. 180 only to the extent that the provisions of ch. 180 are not inconsistent with the articles or form of organization of such corporation . . . ." ¶15 Id. (emphasis added). The attorney general's 1958 opinion in response to a query from the secretary of state acknowledged that the statute "does say that there can be such a thing as a corporation with capital stock but not organized for profit." 47 Wis. Op. Att'y Gen. Stat. at 80. The opinion also said Wis. § 180.97(1) "leaves the door wide open for nonprofit stock corporations" because the language in that section is "about as all-embracing as human draftsmanship can devise." Id. Nevertheless, in light of an absence of any language in Wis. Stat. § 180.97(1) (1957) about post-1953 stock nonprofits, the attorney general advised that absent explicit statutory authority, the secretary of state "would be justified in finding that the proposed articles [for a nonprofit stock] do not conform to law." 10 Id. at 81. No. 2007AP45 ¶16 De La Trinidad urges us to adopt the reasoning of that attorney general's opinion and reach the same concerning Halter's articles of incorporation. are not bound to do so. entitled to such Of course, we "'An Attorney General's opinion is only persuasive opinion warrants.'" conclusion effect as the court deems the State v. Gilbert, 115 Wis. 2d 371, 380, 340 N.W.2d 511 (1983) (quoting Hahner v. Bd. of Educ., 89 Wis. 2d 180, 192, 278 N.W.2d 474 (Ct. App. 1979)). In this case, the opinion does not warrant great persuasive effect; it candidly acknowledges broad language in the statute, for example, that leads to the opposite conclusion. general's merely opinion concluded was that correct the However, even if the attorney as to ch. secretary 180 of nonprofits, state "would it be justified" in rejecting articles of incorporation for such an organization.12 ¶17 Which brings us to a key point: notwithstanding the attorney general's opinion on the matter, there is no dispute that the articles secretary of incorporation. of state incorporation Three did accept and and restated From the times. file Halter's articles repeated filing of and acceptance it is reasonable to infer that the acceptance was 12 Even if the secretary of state erred in permitting a nonprofit to organize under ch. 180 rather than requiring it to organize under ch. 181, it does not follow that such an error alone would convert Halter into a for-profit organization. The court of appeals accordingly held that "whether Halter's form of organization is lawful or not is not the issue in this case." De La Trinidad, No. 2007AP45, unpublished slip op., ¶8. We agree. 11 No. 2007AP45 intentional and that the secretary of state saw no legal impediment to Halter's incorporation as a nonprofit under ch. 180.13 Under Wis. Stat. § 180.0203(2), filing of the articles of incorporation by the DFI "is conclusive proof that the corporation is incorporated under this chapter . . . ." ¶18 That incorporation the on State those of terms Wisconsin is accepted verified by the Halter's certified document from the secretary of state that confirmed the filing in 1988. which, It is also confirmed by a 2005 letter from the DFI, in response organization's status to a and letter from designation Halter on the about DFI the online database, stated: Regarding your written request involving the corporate status of Halter Wildlife, Inc. I have examined the records for this corporation and have determined that you are correct in that this entity has, since its inception, been a "stock, not-for-profit corporation.["] Unfortunately, when our database was created we did not set forth a specific "status code" for "stock, not-for-profit" entities. Therefore, although it is a not-for-profit entity, it was included with all other corporations formed under Chapter 180 having a status code of "01" which reflects the entity as a business corporation on our records. [Emphasis added.] ¶19 A second, related argument made by De La Trinidad is that an organization formed under ch. 180 cannot be a nonprofit because there is nothing in the law governing it that prevents 13 It is clear that a different policy was in effect in 1958 in the secretary of state's office; the attorney general's opinion from that year makes reference to the fact that the office at that time was "refus[ing] to accept such articles for filing[.]" 47 Wis. Op. Att'y Gen. at 79. 12 No. 2007AP45 Halter's members from voting to amend its articles and becoming a for-profit corporation. De La Trinidad notes that Halter's articles of incorporation allow the organization to "engage in lawful activity within the purposes for which corporations may be organized under the Wisconsin Business Corporation Law." Because it was organized under ch. 180, which allows for the distribution § 180.0640, of De profits to La Trinidad shareholders argues that under Halter Wis. left Stat. open the possibility of distributions to shareholders. ¶20 De La Trinidad cites language from two cases from other jurisdictions in support of the proposition that the mere potential for for-profit conduct should preclude defining Halter as a nonprofit. Both involve organizations that unsuccessfully sought tax exemption by claiming to be nonprofit organizations. Ukranian National Urban Renewal Corp. v. Director, Division of Taxation, 3 however, from N.J. Tax this 326 case; (1981), is easy turned on the it to fact distinguish, that "[t]he organizational focus of this tax exemption statute is on the statute pursuant to which the taxpayer was organized and whether stock was authorized." Id. at 331 (emphasis added). In other words, the statute at issue there defined a nonprofit in exactly the way the recreational immunity statute does not: pursuant to the statute under which the property owner is organized. The second case, Produce Exchange Stock Clearing Association, Inc. v. Commissioner of Internal Revenue, 27 B.T.A. 1214, 1219 (1933), is cited for the proposition that a corporation cannot use the fact that dividends have 13 never been paid to claim No. 2007AP45 nonprofit status, when it has retained a legal ability to do so. The case concerned whether the plaintiff was tax-exempt under a statute exempting "business chambers of commerce. the plaintiff did leagues," which functioned like Thus, the central determination was that not meet the statutory definition business league and was therefore not tax-exempt. cited by De La Trinidad was an afterthought. of a The language ("Although up to the present time the petitioner has not paid any dividends to its stockholder, the New York Produce Exchange, there appears to be no reason under the law why it could not amend its by-laws and pay dividends to its sole stockholder." Id. at 1219.) Further, on appeal, the Second Circuit Court of Appeals limited its ruling solely to the "business league" question and expressly declined to reach the remainder of the questions. See Produce Exch. Stock Clearing Ass'n, Inc. v. Helvering, 71 F.2d 142, 144 (2d Cir. 1934). neither of these cases In short, for the reasons noted, are as persuasive as De La Trinidad argues. ¶21 While the "potential for profit" argument may have some merit, it is essentially an argument that it is not good public policy to provide immunity under Wis. Stat. § 895.52 to a nonprofit corporation that has, by incorporating under ch. 180, left open legal corporation. avenues for a later change to a for-profit In other words, it can be argued that the better policy is for the benefits afforded to nonprofits under the statute to accrue only to those nonprofits that are, by virtue of their incorporation under ch. 181, committed to staying a 14 No. 2007AP45 nonprofit. It is significant, however, that the legislature did not choose to define nonprofits in Wis. Stat. § 895.52 with reference to the statute under which they were incorporated.14 ¶22 Having established that incorporation under ch. 180 does not preclude Halter from being organized as a nonprofit, we arrive at the question of what makes a nonprofit a nonprofit. leading treatise says the articles of incorporation are A the place to focus, and it bolsters our view that the chapter under which Halter is organized is not dispositive here (note especially the second sentence): In order to determine the purpose for which a corporation was created, courts will primarily refer to the stated purpose in the articles of incorporation. . . . A recitation in the articles of incorporation that an organization is organized under a particular statute is not dispositive of the nature of the organization; instead, a corporation's statement of purpose in its articles determines the corporation's true nature. 1A Carol A. Jones & Britta M. Larsen, Fletcher Cyclopedia of the Law of Private Corporations § 139 (citing State v. Delano Cmty. Dev. Corp., 571 N.W.2d 233 (Minn. 1997)). ¶23 We thus turn to the substantive provisions of Halter's restated articles of incorporation, and we see they: - explicitly define Halter as a nonprofit; 14 We note that in some other cases, the legislature has defined nonprofit organization in those terms. See, e.g., Wis. Stat. § 26.40(1c) (referencing "a nonprofit corporation, as defined in s. 181.0103(17)"). 15 No. 2007AP45 - forbid income to inure to the benefit of any trustee, director or officer; - forbid dividends or distributions to be made to stockholders or members; - limit Halter to activities permissible to a particular type of nonprofit, § 501(c)(7) organizations; and - provide for its assets to be turned over to a public body or another nonprofit in the event of its dissolution. ¶24 As noted above, this court has said that organizations that are organized "for purposes other than profit-making" are eligible for recreational Szarzynski, 184 Wis. 2d ¶25 immunity under the statute. at 890. The most recent restated articles of incorporation for Halter are those filed with the Office of the Secretary of State 16 No. 2007AP45 in 1988.15 They were the documents in effect at the time of the drownings in 2002. They state in part: The purpose of this corporation is to engage in lawful activity within the purposes for which corporations may be organized under the Wisconsin Business Corporations Law. The corporation will be a nonprofit corporation which is to be formed not for private profit but exclusively for educational, benevolent, fraternal, social and athletic purposes within the meaning of Section 501(c)(7) of the Internal Revenue Code of 1954 and in this connection, to promote a hunt and sportsman club, to preserve the environment in its natural setting and to promote education of citizens and youth as to the need to conserve and retain wetlands and adjacent uplands in a natural state . . . . ¶26 Additional relevant provisions reiterate the nonprofit nature of the organization: 15 We take judicial notice of the 1988 Restated Articles of Incorporation as we are authorized to do under Wis. Stat § 902.01(2)(b), which provides that "A judicially noticed fact must be . . . [a] fact capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Wis. Stat. § 902.01(3) and (6) provide "[a] judge or court may take judicial notice, whether requested or not[]" and "[j]udicial notice may be taken at any stage of the proceeding." See Gupton v. City of Wauwatosa, 9 Wis. 2d 217, 101 N.W.2d 104 (1960) (taking judicial notice of articles of incorporation recorded in the office of the secretary of state). The briefs filed with this court quoted the 1984 version and the record included only 1984 versions of the articles of incorporation. The 1988 articles of incorporation were not included despite the fact that references were made to them in documents in the record (e.g., in a letter attached to an affidavit filed by respondents and in a brief filed with the circuit court by De La Trinidad). This error was not cleared up until after oral arguments. Because the 1988 articles of incorporation are the relevant articles, there is no need to address the earlier versions. 17 No. 2007AP45 ARTICLE IV: The corporation has not been formed for pecuniary profit or financial gain, and no part of the assets, income or profit of the corporation is distributable to, or inures to the benefit of, its officers or directors, except to the extent permitted under Wisconsin law. . . . Notwithstanding any other provision of this certificate, the corporation shall not carry on any other activities not permitted to be carried on by a corporation exempt from federal income tax under Section 501(c)(7) of the Internal Revenue Code of 1954, (or the corresponding provisions of any future United States Internal Revenue law). . . . . ARTICLE VIII: No part of the income of the corporation shall inure to the benefit of any trustee, director or officer of the corporation, except that reasonable compensation may be paid for services rendered to or for the corporation affecting one or more of its purposes. In the event of liquidation of the assets of the corporation any assets available for distribution at the time of such liquidation shall be turned over to an educational, benevolent, fraternal, social, scientific, religious or athletic association within the meaning of Section 501(c)(7) of the Internal Revenue Code of 1954, or to a public body. Furthermore, no dividends or distributions shall be made to stockholders or members of the corporation during its existence and that upon its liquidation the stockholders or members may receive back no more than their original investment. (Emphasis added.) ¶27 clear. The language It of directly the articles prohibits of incorporation distributions to is members, trustees, directors and officers, and covers the liquidation of the organization's assets at dissolution. De La Trinidad asserts, rather incredibly, that the articles of incorporation are irrelevant to the organized for profit. determination We cannot agree. 18 of whether Halter was It is clear beyond any No. 2007AP45 doubt that Halter's relevant organizing documents establish an organization with a purpose other than profit-making. As to De La Trinidad's argument about Halter's ability under ch. 180 to amend the articles, that ability would become relevant only at the point the organization chose to do so. The immunity extended to nonprofit organizations under Wis. Stat. § 895.52, in other words, continues to extend to Halter unless it amends its articles to allow for a purpose of achieving pecuniary profit. B. "Not . . . conducted for pecuniary profit" ¶28 De La Trinidad's second argument, that Halter does not qualify for immunity under the statute because it is conducted for pecuniary profit, depends on a sort of "penny saved is a penny earned" definition of profit. the fact that Halter operated in This argument is based on the black, taking in more revenues than it required for operating expenses; the fact that not all the revenue was from membership dues; and the fact that the income of the organization was therefore distributed, albeit indirectly, to the members, just as if dividends had been paid. This is because those additional fees ultimately reduce the membership dues, De La Trinidad argues; the difference between what the dues are and what they would be without the additional revenues is, according to this argument, the individual member's dividend. ¶29 Halter argues that profits from picnics do not affect its immunity because they were returned to the organization, not distributed to members. The relevant inquiry, Halter argues, is 19 No. 2007AP45 whether it made distributions to directors, officers, or members, and its financial statements and tax returns make clear that it never has done so. Trinidad's approach, organizations Halter further points out that De La limiting operating at a nonprofit deficit, status is to those unworkable and undesirable. ¶30 De La Trinidad's arguments rest on broad definitions of the terms "profit" and "distribution." In support of its position, De La Trinidad cites language from State ex rel. Troy v. Lumbermen's Clinic, 58 P.2d 812 (Wash. 1936), a case having to do with a corporation that the state believed had falsely incorporated as a nonprofit while operating as a for-profit. finding for the state, the court there defined In profit thus: "Profit does not necessarily mean a direct return by way of dividends, interest, capital account, or salaries. . . . [I]n considering . . . the question of whether or not respondent is or is not operated for profit, money saved is money earned." Id. at 816. legal This holding is at quite a variance from a standard definition Dictionary: "The of "profit," excess of as revenues found over in Black's expenditures business transaction; GAIN (2). Cf. EARNINGS; INCOME." Law Dictionary 1246 (8th ed. 2004). 20 Law in a Black's There is nothing in the No. 2007AP45 statute that would support such an expansive definition of the word "profit."16 ¶31 De La Trinidad also relies on St. John's Military Academy v. Larson, 168 Wis. 357, 170 N.W. 269 (1919), for the proposition that when an organization operates in the black, it "materially enhance[s] the value of its capital stock, resulting in a pecuniary profit to the shareholders." Id. at 361. As the underlying facts of the case make clear, it was not the indirect enhancement of the stock that made St. John's Military Academy a for-profit organization; it was the fact that it was organized as a profit-sharing corporation and had in two prior years declared a dividend on its stock. ¶32 them De La Trinidad's arguments are unavailing. would, with the stroke of a pen, convert To adopt innumerable nonprofits in Wisconsin to for-profit enterprises by virtue of the fact that their bills are paid and they have money in the bank. Such § 501(c)(7) neither case a rule would organization compels the of operate its outcome to nonprofit that De strip status. La any solvent In Trinidad fact, seeks. First, St. John's is a case about a for-profit organization in 16 "When giving a statute its plain and ordinary meaning, courts refer to dictionaries to define those terms not defined by the legislature. Wisconsin Stat. § 990.01(1) provides that '[a]ll words and phrases shall be construed according to common and approved usage; but technical words and phrases and others that have a peculiar meaning in the law shall be construed according to such meaning.'" Rouse v. Theda Clark Med. Ctr., Inc., 2007 WI 87, ¶21, 302 Wis. 2d 358, 735 N.W.2d 30 (citation omitted). 21 No. 2007AP45 the first place. In St. John's this court noted that the school's "articles of incorporation show that it is organized to conduct a private enterprise upon the plan of a profit-sharing corporation . . . ." St. John's, 168 Wis. 2d at 361. Further, the "in a case shows that dividend on its stock." 1900 and 1901 Id. at 360. it declared small In contrast, Halter's articles of incorporation explicitly describe the organization as a non-profit, and there is no allegation that cash distributions have ever been made to members. ¶33 De La Trinidad's "indirect unsupported by Wisconsin case law. benefits" argument is So long as no profits are distributed to members, the fact that members may obtain other benefits from an organization is no bar to its nonprofit status. That this is the law in Wisconsin is made clear from a reading of Bethke v. Lauderdale of La Crosse, Inc., 2000 WI App 107, ¶13, 235 Wis. 2d 103, 612 N.W.2d 332. In Bethke, the plaintiff challenged status the organization and condo association's its entitlement recreational immunity statute. to as a immunity nonprofit under the The basis for the challenge was, among other things, that the statute was unconstitutional when it protected property owners who were nonprofit organizations that further no charitable purposes. the revenues raised (in that case, There the sole purpose for monthly fees from each member) was "to provide for the maintenance, preservation and control of the common area [of the condo]." Id. The court found no bar in the statute for the benefits that accrued to the 22 No. 2007AP45 members, and, consistent with the reasoning in Bethke, we see none here. ¶34 case As the court of appeals observed when it decided the before receive us, "even nonprofit nonpublic-service-oriented immunity under the nonprofits statute. . . . Bethke specifically rejected the argument that a nonprofit must [] be charitable to claim the benefit of recreational immunity. Bethke . . . the defendant was a condominium In association, and its revenues were presumably used solely for the benefit of the few people who happened to live in the condominium development." De La Trinidad, No. 2007AP45, unpublished slip op., ¶14 (citations omitted). ¶35 Contrary to De La Trinidad's assertions, there is substantial evidence of Halter's being conducted as a nonprofit. Halter is recognized by the IRS as a § 501(c)(7) nonprofit organization;17 documents from the IRS in the record confirm that Halter qualifies as a tax-exempt organization under the Internal Revenue Code. The record also contains Halter's 2002 IRS Form 990, Return of Organization Exempt from Income Tax, in which Halter identifies letter from the itself IRS as dated a § 501(c)(7) November 23, organization. 1990, states A that Halter's "organization continues to qualify for exemption from Federal income tax" under § 501(c)(7). 17 The Internal Revenue Code exempts from taxation "[c]lubs organized for pleasure, recreation, and other nonprofitable purposes, substantially all of the activities of which are for such purposes and no part of the net earnings of which inures to the benefit of any private shareholder." I.R.C. § 501(c)(7) (2006). 23 No. 2007AP45 ¶36 There is no brings in revenues could do so indication from under nonprofit status.18 outside IRS in of the its guidelines record that membership without Halter though forfeiting it its The record includes regulations from Halter that show that it requires all invoices to be paid by member checks. Deposition testimony in the record is clear that the attendees at the picnic giving rise to this action were not charged for the picnic; a Halter member, FPS of Kenosha, paid the invoice. ¶37 A law review author described the standard controlling inquiry for nonprofits: The defining characteristic of a nonprofit corporation is that it is barred from distributing profits, or net earnings, to . . . its directors, officers or members. That does not mean that it is prohibited from earning a profit. Rather, it is only the distribution of those earnings as dividends that is prohibited. Jane C. Schlicht, Piercing the Nonprofit Corporate Veil, 66 Marq. L. Rev. 134, 136 (1982) (internal quotations omitted). ¶38 Halter's absurd The record 27-year result if is replete existence we were with as a to read 18 evidence nonprofit. the It that supports would recreational be an immunity According to an official IRS publication, "A section 501(c)7 organization may receive up to 35% of its gross receipts, including investment income, from sources outside of its membership without losing its tax-exempt status. Of the 35%, up to 15% of the gross receipts may be derived from the use of the club's facilities or services by the general public or from other activities not furthering social or recreational purposes for members." IRS Publication 557 at 49 (Rev. June 2008). 24 No. 2007AP45 statute as making a for-profit organization out of an organization that throughout its existence has been governed by articles of incorporation that define it as a nonprofit, has been documented by state agencies as a nonprofit, and has been in compliance with IRS regulations as a nonprofit. circuit court Halter's and part to court meet of appeals, the we see requirements Like the no failure necessary to on be a nonprofit and thus to be entitled to immunity here. IV. CONCLUSION ¶39 The nonprofits recreational by referencing immunity the statute chapter under does not which define they were incorporated, either chapter 180 or 181, so that factor is not dispositive of the question. We see no basis in the statute for defining "profit" as broadly as De La Trinidad urges. Halter's articles of incorporation, tax returns, and financial statements make clear that it was organized and is conducted as a nonprofit organization, a fact federal government. recognized by both Wisconsin and the For these reasons, Halter is a nonprofit organization as defined by the statute and is thus entitled to immunity. ¶40 We therefore affirm the decision of the court of appeals is appeals. By the Court. The decision affirmed. 25 of the court of No. 2007AP45 1
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
