• Delaware Court of Chancery
  • D66320
  • May 28 2014 (Date Decided)

DELAWARE COURT OF CHANCERY

Gassis v. Corkery, DeFAX Case No. D66320 (Del. Ch. May 28, 2014) Glasscock, V.C. (47 pages).

In a struggle over a charitable corporation founded to help oppressed people in war-torn regions of Sudan, the Delaware Court of Chancery found that director was validly removed from the board and that he lacked standing to challenge the prior removals of two other board members or the elections of three new members.

Bishop Gassis was involved with the formation of the the Sudan Relief Fund, Inc. (f/k/a Bishop Gassis Sudan Relief Fund Inc.). He was the face of the charity, directing the charitable works on the ground in Sudan and he was the designated chairman of the board. Gassis alleged that starting in 2010, five members of the board began scheming to force him out of the fund. The defendants assesrted that, motivated by their fiduciary duties to the fund's beneficiaries, they were planing a smooth transition when Gassis left the charity, in accordance with the fund's bylaws, contemporaneous with his mandatory retirement as a bishop with the Catholic church, in accordance with applicable canon law.

Prior to May 2011, the fund had not conducted annual meetings to re-elect directors, despite requirements for such in the bylaws. At a May 2011 meeting, the board voted to re-elect each director except one, who had, at a 2010 board meeting, opposed the defendant directors by stating that when Gassis retired or became inactive, the fund should "sunset" and the remaining assets should be distributed to him personally. Despite Gassis' procedural challenge to the vote, the board announced that the director had been effectively removed from the board 4-3.

After that director's removal, the board elected two new board members who received votes from all directors except Gassis and one other board member. Gassis and the other director objected to the vote, contending that the director's removal was invalid. Despite the procedural objections, the new members joined the board. At the next annual meeting, all the directors were re-elected except the director who had, along with Gassis, objected to the previous votes.

The board held a special meeting in 2013 for the purpose of voting on five resolutions purporting to remove Bishop Gassis as a director of the fund and he was removed. He then brought the present litigation in which he sought a determination that he and two other board members were not validly removed from the board and alleging that the board breached its fiduciary duties and committed other actionable wrongs. The defendants moved to dismiss and, in a memorandum opinion, the court addressed the counts related to Bishop Gassis' claim under 8 Del. C. §225, which provides that "[u]pon application of any stockholder or director, or any officer whose title to office is contested, the court of chancery may hear and determine the validity of any election, appointment, removal or resignation of any director or officer of any corporation . . . ."

The court first held that the resolutions voted on at the 2013 meeting, by their express language, purported to remove Gassis from the board. Next, the court found that Gassis' removal did not violate bylaw sections 3.06 and 3.04, because he was an elected director, and thus section 3.06 permitted his removal with or without cause. Although section 3.04 stated that Gassis was the chairman of the board, it did not constrain his removal as a director and, nonetheless, was repealable under section 7.08.

Next, the court held that, contrary to Gassis' argument that the majority who favored his removal included directors invalidly seated on the board, the board members were at least de facto directors. Furthermore, even setting aside the votes of those directors, the remaining directors who voted to remove Gassis still made up a super-majority and would constitute three-quarters of the entire board.

The court also found that Gassis' removal was motivated by policy and personality conflicts and not in retaliation for his exercise of his rights under section 220 to see books and records. Additionally, the removal did not constitute a breach of the board's fiduciary duties; the board did not owe any fiduciary duty to Gassis as a member and, regarding fiduciary duties to beneficiaries, Gassis did not put forth evidence sufficient to rebut the presumption that his removal was a product of the board's valid business judgment and did not pose a "palpable threat" to the fund's charitable purpose.

Finally, the court held that, in light of its finding that Gassis no longer held a director seat on the board and, as the result of a valid vote, ceased to be an officer, pursuant to the bylaws he also ceased to be a member of the corporation and thus had no standing under the bylaws to contest the validity of the two directors' removal or the three directors' election.

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