[WSBAPT] Harmful nonprofit governance opinion

Mon May 23 16:29:34 PDT 2016

This discussion reminded me of this situation in Ballard:

http://www.seattletimes.com/business/local-business/theres-a-shady-side-to-sudden-interest-in-ballard-eagles-club/

From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Ted Clabaugh
Sent: Monday, May 23, 2016 4:12 PM
To: WSBA Probate & Trust Listserv
Cc: Solo & Small Firm WSBA Listserv
Subject: Re: [WSBAPT] Harmful nonprofit governance opinion

Are you tilting at windmills?  When have you seen such a situation where members of a non-profit tried to take it over absent major dereliction by the existing board?  Here the board was whittled down by Happy Nelson and Mary Matthews to just the 2 of them. They either forced off the other members or they resigned in disgust at the governance of the non-profit by Matthews and Nelson.  Thankfully equity provides for solutions that lead to just outcomes.

I am not involved in this case professionally. But as a resident of Vashon I have followed this sad saga by Nelson and Matthews for years.

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From: "Doug Schafer" <schafer at pobox.com<mailto:schafer at pobox.com>>
To: "WSBA Probate & Trust Listserv" <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Cc: "Solo & Small Firm WSBA Listserv" <solo-and-small-practice-section at list.wsba.org<mailto:solo-and-small-practice-section at list.wsba.org>>
Sent: Monday, May 23, 2016 12:46:15 PM
Subject: Re: [WSBAPT] Harmful nonprofit governance opinion

"Bad facts make bad law?"  I'm indifferent about the facts/allegations in the particular case, but I am quite concerned that the opinion will be a template for hostile takeovers of small nonprofit groups by dissidents.  Unfortunately, while the leading WA supreme court case (Anderson v. Enterprise Lodge No. 2, 80 Wn.App. 41, 906 P.2d 962 (1995)) on judicial deference to nonprofit boards on governance disputes has been cited and applied muliple times by the COA (and likely by trial courts) to nonprofits that were not local chapters of national organizations, those all were unpublished opinions.

Concerning the proposed rule change re citation of unpublished opinions, see:
http://www.courts.wa.gov/court_rules/?fa=court_rules.proposedRuleDisplay&ruleId=496<http://www.courts.wa.gov/court_rules/?fa=court_rules.proposedRuleDisplay&ruleId=496>

Doug Schafer, sitting at Seatac airport

On 5/23/2016 8:33 AM, Edward Clabaugh wrote:
I strongly disagree.

If you read the facts the non-profit was a sham that did not operate Mukai Gardens on Vashon Island as it was supposed. It was a vehicle to enrich the Nelsons. Other non-profits that contributed to the worthwhile cause of restoring the lovely Japanese garden and home found their funds diverted. The Nelsons would not account for them. They did not open the garden and home to the public. This situation has been on-going for years. So people who wanted to see the non-profit fulfill its mission finally had to take action. It has been a long battle but finally after many years the Nelsons are out and the non-profit is fulfilling its mission of restoring the property and opening it to the public.

Sent from my iPhone

On May 23, 2016, at 8:11 AM, Doug Schafer <schafer at pobox.com<mailto:schafer at pobox.com>> wrote:
Please carefully read the attached WA Court of Appeals, Div. I, opinion. Though "unpublished," it provides a template for hostile dissidents to takeover a membership-based nonprofit corporation by secretly collecting member applications and dues, then, on the day that the dissidents deposit the dues (without authority) in the corporate bank account, sending a 10-day notice for a membership meeting . At that meeting, the "new members" remove the incumbent directors.  The corporate directors and officers were unaware of the "new members" until the meeting occurred. Our state supreme court appears close to adopting a rule that will permit citation to "unpublished" opinions such as this one.

My fear is that this case will be used disrupt the governance of too many nonprofit corporations.

The Court of Appeals declined to apply the well-established doctrine that courts refrain from interfering in the internal affairs of such associations and defer to the association's own interpretation of its rules unless that interpretation is arbitrary or unreasonable, by asserting that such doctrine applied only to local chapters of national organizations.  Case law is otherwise, however.

When I read this opinion, I emailed one of the lawyers for the losing parties and urged them to petition for state supreme court review.  I hear nothing back until last Thurday, when Ms. Matthews phoned me.  I spoke Friday with her and her NYC lawyer husband, Mr. Nelson, who reported that the COA denied their motion for reconsideration on May 2, so the deadline for a petition for review is June 2.  They are, however, "tapped out" and I sense some despair.

I'm within minutes of departing on a family trip this week, so I'm not available to assist.

I write in the hope that other lawyers interested in maintaining strong nonprofit corporations will consider helping Ms. Matthews and Mr. Happy to petition for review.  That will allow time for them to negotiate with the prevailing group, and possible reach a settlement whereby they might ask Division I to withdraw its opinion.  I've seen that is another case.

Nelson Happy:  jnelsonhappy at gmail.com<mailto:jnelsonhappy at gmail.com>
Mary Matthews:  matthewshistpres at gmail.com<mailto:matthewshistpres at gmail.com>

Doug Schafer, lawyer in Tacoma.

<2016_IslandLandmarks_2.pdf>
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