Mueller v. Zimmer

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Questions Presented

1. Whether the Wyoming Supreme Court had jurisdiction when the district court's summary judgment motions were not ruled on within the 90-day deemed-denied period.
2. Whether the summary judgment order resolving claims against Cox was final and appealable absent an express Wyoming Rule of Civil Procedure 54(b) certification.
3. Whether plaintiffs produced sufficient evidence to support fraud and negligent-misrepresentation claims against Zimmer and Cox.
4. Whether the Board's settlements concerning Zimmer and Crittenden and its decisions not to pursue recovery were protected by the business judgment rule.
5. Whether the absence of personal-services contracts rendered Zimmer's and Crittenden's employment ultra vires and permitted restitution after their service was completed.
6. Whether reimbursement of Cox's director-related expenses constituted a statutory or bylaw conflict-of-interest transaction requiring specific approval.
7. Whether the bylaw amendment increasing the number of directors was properly approved by the votes present in person or by proxy.
8. Whether an affidavit concerning the vote count was inadmissible hearsay and whether the Association's failure to maintain a formal vote record invalidated the amendment.
9. Whether defendants were entitled to attorney fees and costs for defending a derivative claim brought frivolously or in bad faith.

Holdings

1. The 90-day deemed-denied rule for summary judgment motions did not deprive the district court or the Wyoming Supreme Court of jurisdiction because a denial of summary judgment ordinarily is not a final appealable order.
2. The order granting Cox and his law firm summary judgment was final and appealable because the motion sought dismissal of the complaint against them with prejudice and the district court resolved all claims asserted against Cox.
3. Summary judgment was proper on the derivative fraud claim against Zimmer because plaintiffs failed to plead fraud with particularity or produce clear, unequivocal, and convincing evidence of a false representation, fraudulent intent, reliance, and damages.
4. The business judgment rule protected the Board's decisions to settle or decline to pursue recovery of alleged salary overpayments because plaintiffs did not allege or prove facts rebutting the presumption that the directors acted independently, in good faith, with due care, and in the corporation's best interests.
5. Plaintiffs' ultra vires claims based on the absence of personal-services contracts were barred by Wyo. Stat. Ann. § 17-19-304, and completed employment transactions could not be reopened to recover compensation.
6. Summary judgment was proper on the fraud and negligent-misrepresentation claims against Cox because plaintiffs offered no evidence supporting fraudulent intent or failure to exercise reasonable care in communicating information about Zimmer's overtime claim.
7. Reimbursement of Cox's expenses incurred while performing director duties was not a statutory conflict-of-interest transaction because it was not a transaction or bilateral deal between the Association and Cox within the meaning of Wyo. Stat. Ann. § 17-19-831.
8. The amendment increasing the Board from five to seven directors was valid because the bylaws required approval by two-thirds of the voting power present in person or by proxy at a meeting where a quorum was present, not approval by a majority of all eligible lot owners.
9. The district court properly rejected the Kittleson affidavit and attached note as hearsay because they reported a writing by another person offered to prove the truth of the vote count, and plaintiffs did not establish an applicable exception or present a cogent argument.
10. The Association's failure to maintain an official record of the bylaw vote did not automatically invalidate the amendment, and plaintiffs failed to provide authority or a cogent argument establishing otherwise.
11. Defendants were entitled to reasonable expenses, including attorney fees, incurred in defending the ultra vires claim because it was pursued frivolously and in bad faith.

Key quotations

Factual background

Star Valley Ranch Association is a Wyoming nonprofit mutual-benefit corporation governed by a Board of Directors. Former general managers Vince Zimmer and Steve Crittenden received compensation that the Association later alleged was overpaid, but the Board resolved the disputes through settlements or decisions not to pursue collection. Director Roger Cox and his law firm received reimbursement for expenses incurred while Cox performed director duties. The Association's members also voted at a 1995 meeting to amend the bylaws and increase the Board from five to seven directors.

Procedural history

Mueller and Daley sued derivatively on behalf of Star Valley Ranch Association, alleging fraud, misrepresentation, conflict-of-interest transactions, and breach of fiduciary duty arising from compensation, settlements, reimbursements, and Board decisions. They separately sought a declaration invalidating a bylaw amendment increasing the number of directors from five to seven. The district court granted defendants' summary judgment motions and effectively denied plaintiffs' cross-motion. The Wyoming Supreme Court affirmed the judgments and remanded for determination of defendants' recoverable fees and costs incurred in defending the frivolous ultra vires claim.

Remand instructions

The cases are remanded to the district court to determine the reasonable costs and attorney fees owed to defendants for defending plaintiffs' frivolous and bad-faith ultra vires derivative claim. Fees and costs incurred in defending the declaratory judgment action are not recoverable under the derivative-action statute.