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DENCKLA v. MAES

May 21, 1970

Katherine N.R. DENCKLA
v.
Robert MAES, Frederick H. Donner, Edgar Scott, Viola MacInnis, and Independence Foundation


Troutman, District Judge.


The opinion of the court was delivered by: TROUTMAN

TROUTMAN, District Judge.

 I.

 Introduction

 This is in form a member's derivative action against certain officers, directors and/or members of a non-stock, non-profit charitable corporation for mismanagement. There is now before the Court for disposition the defendants' motions to dismiss the complaint under F.R. Civ. P. 12(b) and for summary judgment under F.R. Civ. P. 56 on the grounds of res judicata, statute of limitations, standing to maintain the action and failure to first satisfy certain procedural requirements for the maintenance of a derivative action. *fn1" In the event the Court denies defendants' motions, the defendants request that the plaintiff be directed to post a bond as security for costs pursuant to Local Rule 38.

 The plaintiff is an adoptive daughter of William H. Donner, deceased, and a member of Independence Foundation, a named defendant. William H. Donner was the founder of the Donner Foundation, the name of which was changed to Indpendence Foundation by amendment to its certificate of incorporation. Independence is a non-stock membership, charitable corporation organized under the laws of the State of Delaware. The individual defendants direct or manage the activities of Independence and it is their conduct in that connection which is sought to be put at issue in this action.

 The first contention made by the defendants is that this action is barred by the doctrine of res judicata. In support of this contention they refer us to a suit which was instituted in Delaware and which involved this same plaintiff and this same Foundation. The complete record of those proceedings has been filed and made a part of this record. The background and history of the difficulties encountered in the administration and management of this Foundation are accurately set forth in the opinion of the Delaware Supreme Court at pages 180-182 of the Delaware Record as follows: *fn2"

 
To effect this division the William H. Donner Foundation, Inc., a charitable corporation of the District of Columbia, was formed and the name of Donner Foundation (Incorporated) changed to Independence Foundation. The directors of Independence thereupon granted approximately 55% of the assets of Independence to the William H. Donner Foundation. The dollar amount of this grant was approximately $25,000,000.
 
Prior to the actual grant to the William H. Donner Foundation the directors of Independence had received approval in principle of the plan to divide Independence from all of the members of Independence including the appellant and her sister, her co-plaintiff, and 77% of the members had expressed their approval of the grant in writing.
 
During the interval following the death of William H. Donner and while the controversy between the factions of members was going on, the Board of Directors and the members of Independence had acted to accomplish several things. By amendment to the By-Laws the adoptive daughters of William H. Donner, plaintiffs herein, and their lineal descendants upon coming of age became members of Independence; several non-family members were elected, and the By-Laws were amended to provide that the officers of the Foundation should ex officio be members. It is charged by appellant [plaintiff herein] that as a result of these steps and as a result of the division, the non-family members are left in control of Independence contrary to the desire of William H. Donner, the founder. It appears, however, that throughout this unfortunate family squabble the appellant sided with the so-called non-family faction against the family faction.
 
Upon the formation of the William H. Donner Foundation and its endowment, the Donner family members resigned as members of Independence and became members of and in control of the William H. Donner Foundation. The appellant and her sister were thereupon left as members of Independence in an alleged minority position with no effective voice in the control of Independence.
 
In the opinion of the directors of Independence the Board had authority under its Certificate of Incorporation and by-laws to make the grant to the William H. Donner Foundation without membership approval but, nevertheless, notice of a special meeting was sent to all members for the purpose of having the formal approval of the members recorded in the minutes of Independence.

 It was to enjoin the convening of the special meeting of members that plaintiff herein and her sister, Dorothy Stewart, filed the suit in Delaware. The thrust of the original complaint in that action was to question the legality of the proposed transfer of assets from the Independence Foundation to the newly-formed William H. Donner Foundation. In support of that action present plaintiff and her sister submitted affidavits in which they set forth the background and history of the dispute which ostensibly prompted the proposed transfer, questioned the propriety of the action of the Board of Directors in amending the by-laws to grant executive officers ex officio membership, and intimated that the real reason for the proposed transfer was an attempt by the Board of Directors, defendants in that action, to wrest control of the Foundation from the family descendants of its founder as evidence by the alleged secretive manner in which they consummated the transfer. At this juncture, present plaintiff's sister, co-plaintiff in the Delaware action, does not appear to have actively participated any further in those proceedings. The present plaintiff then amended the complaint by the addition of a paragraph numbered 10, hereinafter referred to as the "first amendment", to allege that the transfer of fifty-five per cent of the Foundation's assets was made as a compromise settlement to silence threats of litigation by the blood descendants of its founder. It was also alleged that the threats of litigation referred to included, but were not limited to, a threat to challenge the action of the Board of Directors in amending the by-laws to grant executive officers ex officio membership. The present plaintiff then sought to further amend the complaint, hereinafter referred to as the "proposed amendment", to allege a conspiracy among the defendants in that action to secure control of the Foundation and to exploit the Foundation for their own personal benefit.

 Procedurally, in the Delaware proceedings, after the original complaint was filed the defendants moved to dismiss it for failure to state a cause of action. Prior to any decision on this motion, plaintiff made the "first amendment" to her original complaint by adding paragraph 10. The Chancery Court granted the defendants' motion on the original complaint, treating it as a motion for summary judgment because of the affidavits filed in support of it, but deferred action on the first amendment as set forth in paragraph 10. The plaintiff then moved for leave to file the so-called proposed amended complaint. This motion was denied by the Chancery Court on the ground that it set forth causes of action and prayers for relief not included in the original complaint or the first amendment thereto, and which were based upon facts known to the plaintiff at the time the first amendment was filed. Del. Rec. pp. 173 & 174. The Chancery Court then dismissed the first amendment, paragraph 10, which is what was left of the action. In affirming the decision of the Chancery Court, the Delaware Supreme Court considered paragraph 10 as though it were incorporated into ...


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