Gassis v. Corkery, C.A. No. 8868-VCG (Del. Ch. May 28, 2014)
By Joanna Diakos and Mark Hammes
In Gassis v. Corkery, Civil Action No. 8868, Bishop Macram Max Gassis challenged his removal as Chairman of the Board and as a director of the Bishop Gassis Sudan Relief Fund, Inc., a Delaware charitable nonstock corporation (the “Fund”) dedicated to helping the people of southern Sudan. The Bishop also challenged the previous removal of two directors from the Fund’s board and the elections of two directors who replaced them.
Bishop Gassis’ removal at a 2013 board meeting came after years of friction with other board members, who contended that the Bishop was difficult to work with, negatively interacted with the Fund’s beneficiaries in Sudan, spent extravagantly on travels, invested in suspicious projects, and acted as though he had a personal interest in the Fund’s assets. These board members further argued that a provision of the Fund’s bylaws providing that the Bishop “shall serve [as Chairman of the Board] until his retirement or resignation” required him to be removed from the board upon his retirement as a Catholic Bishop, which was to occur on his seventy-fifth birthday on September 21, 2013.
Bishop Gassis contended that, beginning in 2010, a group of four directors (out of seven at the time) began conspiring to remove him to advance their own interests. He alleged that in 2011 and again in 2012, the board voted to remove a director aligned with Bishop Gassis. At the time, Bishop Gassis complained to the board members of procedural irregularities and maintained that these elections were improper, but did not challenge the composition of the Board in court until he filed this suit. On August 24, 2013, the Board held a meeting at which it resolved by a vote of six out of eight directors to, among other things, remove Bishop Gassis as Chairman and a director, and strike the bylaw provision regarding his service as Chairman. Shortly thereafter, Bishop Gassis brought this suit.
Bishop Gassis’ complaint asserted fourteen counts against the defendants. In the interest of quickly resolving the question of whether the Bishop should be reinstated as a director, the memorandum opinion by Vice Chancellor Glasscock addressed only whether 1) Bishop Gassis’ removal should be invalidated for failure to comply with the Fund’s bylaws, 2) his removal should be invalidated in equity as a breach of fiduciary duty, or 3) the 2011 and 2012 elections should be invalidated.
Vice Chancellor Glasscock found that the removal of Bishop Gassis did not offend the Fund’s bylaws, which stated that any director elected to the Board of Directors could be removed at any time, with our without cause, by the affirmative vote of 2/3 of the members of the Board of Directors then in office. Since the resolution removing Bishop Gassis as a director passed with six out of eight votes, it met the bylaws’ requirement that a director could be removed upon a vote of two-thirds of the directors. Furthermore, the provision of the bylaws providing that Bishop Gassis “shall serve” as Chairman did not prevent his removal as a director, and in any event was repealed by a majority vote of the board in accordance with the bylaws. The Bishop’s argument that the votes were improper because two of the directors had not been validly elected failed. Vice Chancellor Glasscock explained that, even if the contention were true, one who is in possession of and exercising the powers of a director under claim and color of an election, until removed by proper proceedings, has the status of a de facto director, and otherwise-valid actions of the board taken during the tenure of a de facto director will be upheld by courts.
Vice Chancellor Glasscock further held that the Bishop’s removal did not constitute inequity or a breach of fiduciary duty. After explaining that the directors of a nonprofit, nonstock corporation owe fiduciary duties only to the beneficiaries of the corporation and not to the members or directors in their capacities as such, Vice Chancellor Glasscock applied the business judgment rule, finding that the removal was the product of a valid business decision and did not pose a “palpable threat” to the Fund’s charitable purpose. This also disposed of the claim regarding the improper 2011 and 2012 elections, as after his removal as Chairman and as a director, Bishop Gassis was no longer a director, officer, or member of the Fund. Thus, the Court found he had no standing under Section 225 of the Delaware General Corporation Law to challenge the validity of director removals or elections.