NAACP ASS'N v. Golding

679 A.2d 554 (1996) 342 Md. 663 NATIONAL ASSOCIATION FOR the ADVANCEMENT OF COLORED PEOPLE et al. v. Steven GOLDING et al. No. 51, Sept. Term 1995. Court of Appeals of Maryland. July 26, 1996. ⁵⁵⁵ Donald M. Falk (Gary A. Winters, Mayer, Brown & Platt, on brief), Washington, DC (Dennis Courtland Hayes, Gen. Counsel, Baltimore, of counsel), for appellants.

Lisa R. Hodges, P.A., Baltimore (Warren A. Brown, P.A., Baltimore, of counsel), for appellees. Argued before MURPHY, C.J., and ELDRIDGE, RODOWSKY, CHASANOW, KARWACKI, BELL and RAKER, JJ. RAKER, Judge. The issue we must decide in this case is what role the courts should play in resolving a disagreement between a voluntary membership organization and its members.

Specifically, we must determine whether the courts should intervene to interpret provisions of a voluntary organization's membership agreement governing members' eligibility to participate in the election of officers. We shall hold that under the circumstances of this case, the trial court should not have intervened in the organization's internal dispute. I. This case involves a dispute between Appellants, the National Association for the Advancement of Colored People ("NAACP") and the Baltimore City Branch of the NAACP ("Baltimore Branch"), and Appellees, members of the Baltimore Branch, regarding the requirements for youth members to be eligible to vote in the Branch election. [1] ⁵⁵⁶ The NAACP interpreted its rules to preclude youth members from voting in Branch elections unless they paid the full $10 adult membership fee, rather than the $3 youth membership rate. The Circuit Court for Baltimore City granted Appellees' request for an injunction ordering the NAACP to permit $3 youth members to vote in the elections for Branch officers.

The NAACP is a non-profit, voluntary membership corporation, incorporated in New York. [2] The national NAACP organization includes three types of subdivisions: senior branches, college chapters, and youth councils. [3] The Baltimore Branch is an unincorporated voluntary membership association subordinate to the national NAACP. Appellees Steven Golding, Joy Masseaux, and Dawit Habte are youth members of the Baltimore Branch of the NAACP. All have paid the $3 youth membership fee. [4] Appellee Kobi Little is an adult member and a candidate for president of the Baltimore Branch, and has paid the lifetime adult membership fee. The Constitution of the NAACP establishes the Board of Directors as the governing body of the national organization.

NAACP Constitution art. V. The Board has broad supervisory authority over all subunits, including the Baltimore Branch. Id. The Constitution explicitly empowers the Board of Directors to define the purposes of the NAACP and to "establish all major administrative and other policies" governing the affairs of the association.

Id. Furthermore, the Constitution authorizes the Board to "create such additional categories of membership and establish such fees as it may deem desirable." Id. art. III, § 2. The Constitution and Bylaws for Branches also deems the Board the final authority in resolving membership disputes and administering discipline.

See NAACP Constitution and Bylaws for Branches art. X [hereinafter Branch Constitution]. The Baltimore Branch was scheduled to elect new officers on November 28, 1994. This case arose from a dispute regarding provisions of the Branch Constitution governing youth members' eligibility to vote in the Branch election.

The Branch Constitution provides that: Members in good standing shall be eligible to run for office or vote in a Branch election.... For the purpose of voting in Branch elections ... a member in good standing is one who has been a bona fide member of the Branch at least thirty (30) days prior to the date the election is held.... For all other purposes, a member in good standing is one who has paid the requisite minimum membership fee to the Branch. Branch Constitution art.

V, § 11. In addition, Article V, § 12 of the Branch Constitution states that: The minimum voting age for any member in good standing in Branch elections shall be 17 years. Where there is an active Youth Council (25 members or more) members 17-20 years of age can vote in the Youth Council or the Branch. (emphasis added).

The past practice of the organization, however, was that youth members who had only paid the $3 membership fee, rather than the $10 adult membership ⁵⁵⁷ fee, were not eligible to vote in Branch elections. [5] The possibility of youth membership participation in Branch elections arose only after the second sentence was added to Article V, § 12 by amendment in 1994. Following the Amendment, the NAACP received several inquiries about the significance of the new language. As a result, the organization requested an opinion from counsel, who interpreted the amendment to mean that youth members were eligible to vote, but only if they paid the $10 adult membership fee. The Board of Directors adopted this opinion as its official interpretation of Article V, § 12 at a meeting held on October 13, 1994.

On October 21, 1994 all branch offices of the NAACP, including the Baltimore Branch, were notified of the Board's interpretation in a memorandum. Appellee Little had previously informed Appellees Habte, Masseaux, and Golding, among others, that they would be eligible to vote in the Branch election as $3 youth members. On learning of the Board's contrary interpretation, on November 10, 1994, Little wrote a letter to the NAACP Interim Administrator in Baltimore, Maryland and to the National Office of the NAACP requesting that the Board's decision on youth votes be rescinded. In response, Mr. Little received a phone call from a representative of the national organization indicating that the decision would not be reversed.

Colonel William Penn, Director of Branches and Field Services for the NAACP, subsequently contacted Little to attempt to set up a meeting to resolve the dispute. Without exhausting the available internal remedies, [6] on November 25, 1994, the Appellees filed a complaint for breach of contract in the Circuit Court for Baltimore City, seeking an ex parte and permanent injunction to delay the election. The Circuit Court granted an injunction, suspending the Branch election for ten days. The Circuit Court held a hearing on the merits on December 5, 1994.

At the hearing, Appellants argued that injunctive relief was an inappropriate remedy because there was no potential for irreparable harm to Appellees. The trial court rejected this argument, concluding that there was "a real chance of irreparable harm" because there was no adequate remedy afforded by the NAACP Constitution for preelection complaints. Furthermore, delaying complaints until after the election would not preserve any temporal political advantage. [7] The court also noted that the post-election grievance process could not be initiated unless a minimum number of petitions were filed. See Branch Constitution art. 5, § 15.

Therefore, a single member, such as Mr. Little, would be barred from filing an individual post-election complaint. Finally, the court concluded that the NAACP Constitution did not designate a person to consider post-election complaints, and that ⁵⁵⁸ "due process [cannot] depend upon who happens to be in a particular office at a given time." Thus, the Circuit Court enjoined Appellants to hold an election for officers of the Branch no later than February, 1995, and to permit the $3 youth members to vote in the February election. Appellants noted a timely appeal to the Court of Special Appeals. The Circuit Court granted a stay of the injunction pending disposition of the appeal.

Prior to review by the intermediate appellate court, this Court granted certiorari on our own motion to determine: 1. Whether members of the NAACP and its Baltimore Branch—voluntary private organizations—may invoke the equitable powers of the Maryland courts to regulate the election of Branch officers, without first pursuing the exclusive administrative remedies set forth in the Constitution and Bylaws for Branches of the NAACP? 2. Whether Maryland courts are entitled to review the judgment of the national Board of Directors of the NAACP that, under the Branch Constitution and consistent past practice, persons aged 17 to 20 who purchase only a $3 youth membership in the NAACP (rather than a $10 basic adult membership) are not eligible to vote in Branch elections?

II

Appellants argue that the Circuit Court should not have intervened in the internal affairs of the NAACP or the Baltimore Branch. First, Appellants contend that the Circuit Court abused its discretion by choosing not to defer to the Board's interpretation of its Constitution. Appellants argue that courts should not intervene in the affairs of a non-profit voluntary association unless civil or property rights are at stake. Appellants contend that since there are no such rights at issue, the trial court erred when it exercised jurisdiction over the case.

Appellants also contend that even if the Circuit Court possessed discretion to intervene in such a dispute, the court abused its discretion by intervening on behalf of Appellees who failed to first exhaust their internal remedies. Appellees argue that the Circuit Court properly intervened in the dispute. While Appellees do not assert that civil or property rights are at stake, they argue that this case should be governed by Maryland corporations law. Specifically, Appellees argue that the members of a non-profit corporation should be treated similarly to shareholders in a stock corporation.

Appellees contend that the Board's interpretation of Article V, § 12 of the Constitution was a de facto constitutional amendment, and therefore under Maryland corporations law, branch members were entitled to notice and an opportunity to be heard prior to amendment. Appellees argue that since local members were not given notice, "the action by the NAACP National branch was arbitrary and capricious," and therefore subject to judicial review. (Appellees' Brief at 7). Appellees also contend that the denial of their voting rights constituted a breach of the membership contract and an ultra vires act by the corporation.

Finally, Appellees maintain that they exhausted their administrative remedies when Little obtained a negative response to his letter requesting preelection intervention.

III

A. We note at the outset that as a general rule, courts will not interfere in the internal affairs of a voluntary membership organization. See Donnelly v. Supreme Council, 106 Md. 425, 430 , 67 A. 276, 278 (1907); Anacosta Tribe v. Murbach, 13 Md. 91, 94-95 (1859); Black v. Fox Hills, 90 Md.App. 75, 81 , 599 A.2d 1228, 1231 (1992) (quoting Martin v. United Slate Etc. Ass'n, 196 Md. 428, 441 , 77 A.2d 136, 141 (1950)), cert. denied, 326 Md. 177 , 604 A.2d 444 (1992). See also NAACP of Houston Metro.

Council v. NAACP, 460 F.Supp. 583, 589-91 (S.D.Tex. 1978) (trial court should not have intervened in internal management problems of private civil rights corporation [NAACP]). Although similar principles have been applied to both incorporated and unincorporated associations, the rationale for non-intervention differs depending on whether the organization is a Maryland corporation, a foreign corporation, or an unincorporated entity. ⁵⁵⁹ If the voluntary membership organization is incorporated in Maryland, the business judgment rule applies to decisions regarding the corporation's management. See Maryland Code (1975, 1993 Repl.Vol., 1995 Cum.Supp.) Article 2, § 405.1 of the Corporations and Associations Article (codifying the standard of care required of directors of a corporation). See also Parish v. Maryland & Virginia Milk Producers Assn., 250 Md. 24, 75-76 , 242 A.2d 512, 540 (1968), cert. denied, 404 U.S. 940 , 92 S.Ct. 280 , 30 L.Ed.2d 253 (1971); Black, 90 Md.App. at 81-83 , 599 A.2d at 1231 ; J. HANKS, JR., MARYLAND CORPORATION LAW § 6.8, at 174-77 (1990 & 1996 Supp.).

The business judgment rule insulates business decisions from judicial review absent a showing that the officers acted fraudulently or in bad faith. Black, 90 Md.App. at 82 , 599 A.2d at 1231 ; see also HANKS, supra, at 175. The rationale for the business judgment rule is that: [a]lthough directors of a corporation have a fiduciary relationship to the shareholders, they are not expected to be incapable of error. All that is required is that persons in such positions act reasonably and in good faith in carrying out their duties....

Courts will not second-guess the actions of directors unless it appears that they are the result of fraud, dishonesty or incompetence. Black, 90 Md.App. at 82 , 599 A.2d at 1231 (quoting Papalexiou v. Tower West Condominium, 167 N.J.Super. 516 , 401 A.2d 280, 285-86 (1979)). With regard to foreign corporations, Maryland courts have traditionally declined to interfere in management disputes under the "internal affairs doctrine." See, e.g., Berger v. Bata Shoe Co., Inc., 197 Md. 8 , 78 A.2d 186 (1950); O'Hara v. Frenkil, 155 Md. 189 , 141 A. 528 (1928); Condon v. Mutual Reserve Fund Life Assn, 89 Md. 99 , 42 A. 944 (1899); North State Copper & Gold Min. Co. v. Field, 64 Md. 151 , 20 A. 1039 (1885); Wilkins v. Thorne, 60 Md. 253 (1883).

As described by the Supreme Court in Edgar v. MITE Corp., 457 U.S. 624 , 102 S.Ct. 2629 , 73 L.Ed.2d 269 (1982): [t]he internal affairs doctrine is a conflict of laws principle which recognizes that only one State should have the authority to regulate a corporation's internal affairs— matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders—because otherwise a corporation could be faced with conflicting demands. 457 U.S. at 645 , 102 S.Ct. at 2642 . We further explained the rationale for the doctrine in Condon v. Mutual Reserve Fund Life Assn, 89 Md. 99 , 42 A. 944 (1899), stating that: Our courts ... can enforce no forfeiture of charter for violation of law, or removal of officers for misconduct; nor can they exercise authority over the corporate functions, the by-laws, nor the relations between the corporation and its members, arising out of, and depending upon, the law of its creation. These powers belong only to the State which created the corporation. Id. at 116-17 , 42 A. at 948 .

Accord Moore v. NAACP, 425 Pa. 204 , 229 A.2d 477, 478-79 (1967) (upholding trial court's decision that it did not have jurisdiction over internal affairs of the NAACP, a New York corporation, and thus could not enjoin the NAACP from establishing additional chapters in Philadelphia). Thus, ordinarily, we shall not intervene in the internal affairs of a foreign corporation. B. Courts have similarly assumed a limited role in resolving the internal disputes of unincorporated associations. In a seminal article in the Harvard Law Review, Professor Chafee outlined the analytic approaches courts had applied to disputes involving voluntary non-profit organizations.

Z. Chafee, The Internal Affairs of Associations Not for Profit, 43 HARV. L. REV. 993 (1930). [8] Courts and commentators have advocated a variety of theories to determine when the courts ⁵⁶⁰ should intervene in the affairs of an unincorporated private organization. A number of courts, for example, have espoused the principle that courts may intervene in the affairs of a private organization only where property rights or a pecuniary interest is at stake. See, e.g., Van Daele v. Vinci, 51 Ill.2d 389 , 282 N.E.2d 728, 731 (1972), cert. denied sub nom Certified Groceries of Illinois, Inc. v. Sparkle Food Ctr., 409 U.S. 1007 , 93 S.Ct. 438 , 34 L.Ed.2d 300 (1972); Hawkins v. Obremski, 33 Misc.2d 1009 , 227 N.Y.S.2d 307, 308 (Super.

Ct., Queens County 1962). Some courts have modified the pecuniary interest test, elevating the standard to require a showing of "economic necessity" to warrant judicial intervention. See, e.g., National Ass'n Sporting Goods Wholesalers v. F.T.L. Marketing Corp., 779 F.2d 1281, 1285 (7th Cir.1985); Jacobson v. New York Racing Ass'n, 33 N.Y.2d 144 , 350 N.Y.S.2d 639, 642-43 , 305 N.E.2d 765, 768 (1973); Van Daele, 51 Ill.2d 389 , 282 N.E.2d at 731 . Cf.

Grempler v. Multiple List. Bureau, 258 Md. 419, 426 , 266 A.2d 1, 6 (1970). Still others have crafted a broader exception to the general rule of non-intervention, authorizing courts to resolve disputes where either property rights or civil rights are at stake. See State ex rel.

Givens v. Superior Court, 233 Ind. 235 , 117 N.E.2d 553 , 556 (1954); United Bhd. Carpenters v. Carpenters Local Union No. 14, 178 S.W.2d 558, 559 (Tex.Ct.Civ.App. 1944); Loigman v. Trombadore, 228 N.J.Super. 437 , 550 A.2d 154, 161 (1988). [9] Although early decisions focused on whether any property interest was at stake in determining whether or not a court should intervene, a number of courts now have supplanted the pecuniary interest test with other approaches. See Developments in the Law: Judicial Control of Actions of Private Associations, 76 HARV. L. REV. 983, 1001-05 (1963) [hereinafter Developments ]; see also Berrien v. Pollitzer, 165 F.2d 21, 22-23 (D.C.Cir.1947).

For example, some jurisdictions have applied contractual principles to resolve disputes regarding interpretation of membership agreements. See Combs v. Texas State Tchrs. Ass'n, 533 S.W.2d 911, 913 (Tex.Ct.Civ.App.1976). [10] Others have extended application of the business judgment rule from corporations to unincorporated organizations. Cf.

Papalexiou v. Tower West Condominium, 167 N.J.Super. 516 , 401 A.2d 280, 285-86 (1979) (applying business judgment rule to decision of condominium association's board). Still others, borrowing principles from trust law, have suggested that the unincorporated organization owes a fiduciary duty to its members. See Falcone v. Middlesex County Medical Soc'y, 34 N.J. 582 , 170 A.2d 791, 799 (1961); see also Developments, supra, at 1002-04. Finally, other courts have adopted Professor Chafee's recommendation, implementing a balancing test derived from tort principles to weigh the seriousness of the injury to the individual against the association's interest in autonomy and freedom from judicial oversight. [11] See California ⁵⁶¹ Dental Ass'n v. American Dental Ass'n, 23 Cal.3d 346 , 152 Cal.Rptr. 546, 551-52 , 590 P.2d 401, 406 (1979) (provided the organization's action does not contravene its bylaws, court will only intervene if "the burden on the courts and on the interest of the [organization]... in its autonomy do not outweigh the [member's] interests").

In determining whether courts should intervene in the disputes of voluntary membership organizations, Maryland has traditionally applied a narrow rule. Donnelly, 106 Md. at 430 , 67 A. at 278 . As we stated in Donnelly : The proposition that the member is not precluded from suing at law, after he has exhausted his remedies within the order, unless the contract specifically provides that the decisions of the tribunals of the order shall be final, is supported by the decisions of some States ... But the Maryland rule is otherwise.

That rule ... [is] that when the tribunals of the order have power to decide a disputed question, their jurisdiction is exclusive, whether there is a bylaw stating such decision to be final, or not, and that