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Sydnor v. Hathaway

Court of Special Appeals of Maryland

July 27, 2016

KIM L. SYDNOR, et al.
v.
ALVIN C. HATHAWAY, et al.

          Eyler, Deborah, S., Meredith, Wilner, Alan M. (Retired, Specially Assigned), JJ.

          Melanie M. Shaw Geter, J., did not participate in the Court's decision to report this opinion pursuant to Md. Rule 8-605.1.

          OPINION

          Eyler, Deborah, S., J.

         This appeal is the culmination of a decade's long dispute between the Union Baptist Development Corporation ("the Corporation") and the Union Baptist Church of Baltimore, Inc. ("the Church") over real property situated at 1201 Druid Hill Avenue, in Baltimore City ("the Property"). The Property is part of the land on which a large Head Start Center building (the "Head Start Center") is located. The Head Start Center also covers 1203, 1205, 1207, and 1209 Druid Hill Avenue and 408 Dolphin Street. The appellants are Kim Sydnor, the most recent past President of the board of directors of the Corporation, which had forfeited its charter, and Joseph Howard and Sandra Dobson, members of that board (the "Corporation Parties"). The appellees are the Church, Alvin Hathaway, its senior pastor, and Samuel Billups, a parishioner (the "Church Parties").

         In the Circuit Court for Baltimore City, the Corporation Parties sued the Church Parties for declaratory and injunctive relief.[1] After a bench trial, the court entered a judgment declaring that the Corporation is the sole owner of the Property; the Corporation's charter was forfeited and its revival was ineffective; a transfer of the Property from the Corporation to the Church by quitclaim deed was ineffective; and a later dissolution of the Corporation also was ineffective. The court went on to order, however, "as a matter of equity pursuant to [Md. Code (1975, 2014 Repl. Vol.), section 5-209 of the Corporations and Associations Article ('CA')], " that the Property be transferred to the Church.[2] To accomplish the transfer of the Property, the Court ratified the quitclaim deed, declaring it effective at the time of the judgment. Finally, the court declared that the Corporation was dissolved.

         More than ten days after the judgment was entered, the Corporation Parties filed a motion to alter or amend, under Rule 2-534, which the court treated as a motion for reconsideration, under Rule 2-535.[3] The Corporation Parties also filed a Rule 1-341 motion for sanctions. The Corporation Parties filed a notice of appeal within 30 days of the entries of orders denying those motions, but not within 30 days of the entry of the declaratory judgment.

         For the following reasons, we shall affirm the judgment of the circuit court in part and reverse it in part. Specifically, we shall affirm the judgment transferring the Property from the Corporation to the Church; affirm the judgment denying attorneys' fees; and reverse the judgment dissolving the Corporation.

         FACTS AND PROCEEDINGS

         The Church, founded in 1852, is located at 1219 Druid Hill Avenue, in the Upton neighborhood of West Baltimore. In 1978, Vernon N. Dobson, the senior pastor, announced as a vision for the Church a ministry to revitalize the immediate neighborhood, which was impoverished, to help the people in it. The first project of that ministry was a coffee house to serve the needs of the elderly in the community. Reverend Dobson obtained a commitment from the City of Baltimore ("the City") for a grant to fund the project.

         The Church contracted to purchase the Property, a dilapidated row house on the northwest corner of Druid Hill Avenue and Dolphin Street, to rehabilitate it for use as a coffee house. The grant from the City covered the purchase price and closing costs for the Property and the cost to renovate it. Because the Church is a religious organization, the City would not pay the grant money directly to it. Reverend Dobson formed the Corporation to receive the grant money from the City and to take title to the Property. The deed conveying the Property to the Corporation was recorded in the Land Records for Baltimore City ("Land Records") on April 3, 1981.

         At the Corporation's inception and for almost 30 years thereafter, Reverend Dobson served as chairman of the board of directors. At a board meeting on April 9, 1981, he gave his "perspective" on the relationship between the Church and the Corporation. Speaking in reference to the planned coffee house, he explained that "the entire corporation is an extension of the church and that anything which is done should be done from that standpoint." The minutes of that meeting reflect that the board members agreed with "this philosophy."

         The Corporation was registered with the Maryland State Department of Assessments and Taxation ("SDAT") as a nonstock corporation. Section THIRD of its Articles of Incorporation lists as its purposes:

a. to stabilize and restore the 1200 Block of Druid Hill Avenue and the surrounding neighborhood by purchasing and rehabilitating residential units[;]
b. to purchase and develop the property known as 1201 Druid Hill Avenue [the Property], and create therein a coffee house which will provide a daylight haven for the elderly in the neighborhood[; and]
c. to engage in any and all other acts, ventures and/or businesses which are lawful under the law of Maryland so long as the same are not engaged in for purposes of individual profit.

         Section NINTH, paragraph 3 states the Corporation "shall not carry on any other activities not permitted to be carried on (a) by a corporation exempt from Federal income tax under Section 501(c)(3) of the Internal Revenue Code . . . or (b) by a corporation, contributions to which are deductible under Section 170(c)(2) of the Internal Revenue Code[.]" Paragraph 4 of that section states that upon dissolution of the Corporation,

the Board of Directors shall, after paying or making provision for the payment of all the liabilities of the corporation, dispose of all of the assets of the corporation exclusively for the purposes of the corporation in such manner, or to such organization or organizations organized and operated exclusively for charitable, religious purposes as shall at the time qualify as an exempt organization or organization under Section 501(c)(3) of the Internal Revenue Code . . . as the Board of Directors shall determine. Any of such assets not disposed of shall be disposed by the Circuit Court of Baltimore City or such other courts sitting in equity in the political subdivision in which the principal office of the corporation is then located, exclusively for such purposes or to such organization or organizations, as said court shall determine, which are organized or operated exclusively for such purposes.[4]

         Reverend Dobson and several parishioners who served on the Corporation's board worked closely with the Church. The Property was rehabilitated as planned and was operated as a coffee house frequented by the elderly in the community. Around this time, the Church acquired property located at 408 Dolphin Street, which was behind the Property, and operated it as a laundromat.

         On dates in the late 1980s and early 1990s, the owners of 1203, 1205, 1207, and 1209 Druid Hill Avenue, all dilapidated properties, donated them to the Church. These properties, comprising all the lots between the Church and the Property, and the 408 Dolphin Street property, surrounded the Property ("the Surrounding Properties"). In 1992, at a function celebrating the Church's 140th anniversary, Reverend Dobson announced a new Church ministry to raze the rehabilitated row house on the Property and the structures on the Surrounding Properties and in their place erect a Head Start Center to house a community Head Start Program, facilities for other programs that would advance other of the Church's ministries, and a new coffee house.

         The Church obtained a $1 million grant from the State to build the Head Start Center, conditioned on its matching the State's funding. The Church launched the "Child First Campaign" to secure the matching funds. It raised over $400, 000 from members of the congregation and the community and obtained a $600, 000 loan from a local bank, guaranteed by the State. The State distributed the grant money directly to the Church. The Corporation played no role in raising money for the Head Start Center or in its planning or construction. The Head Start Center opened in November 1995. The Head Start Program began operation shortly thereafter. That program always has been operated under the auspices of the Church, and the Union Baptist Church School, Inc., continues to operate it today.

         As these facts reveal, the Head Start Center, a large, indivisible structure, was built on the ground of the Property, owned by the Corporation, and on the grounds of the Surrounding Properties, all owned by the Church. The Corporation could have sought and obtained tax-exempt status under the Internal Revenue Code and state law, but it never did so. Consequently, it was required to pay property taxes on the Property. In 1994, before the Head Start Center was completed, the Corporation asked the City to consolidate the Property with the Surrounding Properties, under the address 1201 Druid Hill Avenue, for the purpose of receiving a single property tax bill. The request was denied on several grounds, including that there was not a single owner. However, on March 21, 1995, the consolidation request was granted and forwarded to the SDAT. The SDAT real property record for 1201 Druid Hill Avenue was changed to show that it covered .29 acres, which is all the ground for the 1201, 1203, 1207, and 1209 addresses, and the 408 Dolphin Street address. The mailing address was listed as 1219 Druid Hill Avenue, which, as noted, is the Church's address.

         It appears that, until 2004, the Church, not the Corporation, paid the property taxes for the Property. That year, the Church fell on hard times financially and was not able to pay the property taxes. The City sold the Property at tax sale. Because the Property's address-1201 Druid Hill Avenue-had been reassigned to it and the Surrounding Properties, the entire Head Start Center became the subject of the tax sale, even though most of it was on property owned by the Church, which is tax exempt.

         The tax sale purchasers sued in the Circuit Court for Baltimore City to foreclose the Corporation's right of redemption, and the Corporation paid $12, 000, plus $6, 000 in attorneys' fees, to redeem its right in the Property. Counsel for the tax sale purchasers drafted a re-conveyance deed for the Property to the Corporation. At that point, the Church intervened, filing a motion to quiet title and claiming ownership of all of 1201 Druid Hill Avenue, including the Property. In a final declaratory judgment entered in late 2007, the circuit court ruled that the Corporation owned the Property, i.e., the original 1201 Druid Hill Avenue lot, and the Church owned the Surrounding Properties.[5] For reasons not reflected in the record, the Corporation did not record the deed re-conveying the Property from the tax sale purchasers to it until 2011.

         By the time the tax sale case was decided, the days of the Corporation and the Church working in tandem were over. Reverend Dobson, in ill health, resigned as senior pastor of the Church in early 2007 and was replaced by Reverend Hathaway. On October 31, 2007, the board of trustees of the Church, chaired by Reverend Hathaway, voted to establish an "alternate" board of directors for the Corporation, with Reverend Hathaway as President and Mr. Billups as Treasurer.

         On December 7, 2007, the Corporation brought an ejectment action in an effort to remove the Church from the Head Start Center. The suit was dismissed, with prejudice, and sanctions were imposed against the Corporation's board members and attorneys. Then, in 2009, the Church brought suit for declaratory and injunctive relief, seeking to remove the members of the Corporation's board of directors and replace them with Church parishioners. The case was dismissed without prejudice and no further action was taken on it.

         The Corporation had a long history of having its charter forfeited for failure to file personal property tax returns. In fact, in the 35 years since its formation, the Corporation's charter has been forfeited for more than 25 years, off and on.[6] The last forfeiture was on October 1, 2012. On March 1, 2013, the "alternate" board of directors filed on the Corporation's behalf a 2011 personal property tax return and articles of revival, which the SDAT accepted without inquiry. Then, on March 20, 2013, Reverend Hathaway, purporting to act as President of the Corporation, executed a quitclaim deed, transferring title of the Property from the Corporation to the Church. The Corporation Parties had no knowledge of this transfer when it happened and only discovered it when they sought to revive the Corporation's charter.

         On July 30, 2013, the Corporation Parties filed the action that underlies this appeal. Soon thereafter, on August 22, 2013, Reverend Hathaway and Mr. Billups, on behalf of the "alternate" board, filed articles of dissolution for the Corporation. On January 30, 2014, they filed an answer to the complaint. Thereafter, the Church was permitted to intervene as a defendant.

         In an amended complaint, the Corporation Parties alleged that Reverend Hathaway and Mr. Billups were not members of the board of directors of the Corporation and they and the "alternate" board had no capacity or authority to act on the Corporation's behalf. Consequently, the acts they took on behalf of the Corporation were void as a matter of law. The Corporation Parties asked the court to declare the Corporation's revival a nullity, to void the quitclaim deed transferring the Property from the Corporation to the Church, and to void the dissolution of the Corporation.

         A three-day bench trial commenced on September 10, 2014. In the Corporation Parties' case, Ms. Sydnor testified that she became a member of the Corporation's board of directors in 2005 and that, when the articles of revival were filed by the "alternate" board on March 1, 2013, she was the most recent past President of the Corporation. Although acknowledging that the court in the 2007 tax sale case had found otherwise, she testified that she thought the Property and the Surrounding Properties had been "consolidated" under the Corporation's ownership. Ms. Dobson, also a member of the Corporation's board of directors, testified as well that she thought the Property and the Surrounding Properties had been "consolidated" under the Corporation's ownership. She agreed that the Church should continue to operate the Head Start Program in the Head Start Center. According to Ms. Dobson, the Corporation's only asset is the Property; the Corporation never has had more than $2, 000 in its bank account; and it does not operate any programs. Counsel for the Corporation Parties conceded that the Corporation did not have any liabilities.

         In their case, the Church Parties called the lawyer for the 2004 tax sale purchasers; an expert witness in the area of conveyances of title and real property in Maryland; Evelyn Chatmon; and Reverend Hathaway. The tax sale attorney testified that at the time of the tax sale, the Land Records and the SDAT records did not show that the Property was consolidated with any other properties for any purpose. The expert witness opined that it was unlikely that ownership of the Property and the Surrounding Properties ever could have been consolidated because consolidation requires a common owner and, in the instant case, the Corporation owned the Property and the Church owned the Surrounding Properties. He also opined that the Corporation and the Church were tenant in common owners of the Head Start Center building itself, with the Corporation holding a one-fifth ownership interest and the Church holding a four-fifth ownership interest.

         Ms. Chatmon, a member of the Corporation's original board of directors, testified that the Corporation was created to hold the City grant funds for the purchase and renovation of the Property. When the Church later embarked upon its mission to build the Head Start Center, all the efforts to secure funding were undertaken by the Church, through the Child First Campaign, with no involvement by the Corporation. Finally, Reverend Hathaway testified that he had understood that upon becoming senior pastor of the Church, in 2007, he also became Chairman of the Corporation's board of directors. He acknowledged that there was no document that gave him that authority, but reasoned that the Corporation merely was a ministry of the Church, so the Church should be able to control it. After becoming senior pastor of the Church, he learned that the Corporation's charter had been forfeited several times. He decided that the board of trustees of the Church should appoint the new, "alternate" board of directors for the Corporation to "bring [the Corporation] into a proper alignment" with the other Church ministries.

         On September 12, 2014, the court heard closing arguments and ruled from the bench, making the following findings. Any attempt to consolidate ownership of the Property and the Surrounding Properties had been ineffective, and the Property continued to be owned solely by the Corporation, just as the court in the 2007 tax sale case had ruled.[7] Reverend Hathaway, Mr. Billups, and the "alternate" board had no legal relationship to the Corporation, and lacked capacity to act on its behalf. Therefore, the Corporation was not lawfully revived in March of 2013, and its charter remained forfeited. The quitclaim deed by the "alternate" board, purporting to transfer the Property from the Corporation to the Church, was void because the "alternate" board had no authority to convey the Property. Likewise, the purported dissolution of the Corporation by Reverend Hathaway and Mr. Billups in March of 2013 was ineffective.

         Having made those findings, the court went on to rule:

Now, that leaves the status with a [P]roperty owned by a [C]orporation that is forfeited. On a piece of, underneath the building, most of which lies on the [C]hurch's property, all of the value of which was provided by the [C]hurch through its own efforts and the activities of which are undeniably part of the [C]hurch's mission. I could stop there and do nothing further, but that would leave you in almost the same position you were in [at the conclusion of the tax sale case in 2007].
And without being disapproving, these parties have proved that they cannot resolve their differences further without court action. I choose, therefore, to go a step further and exercise my equitable powers under Section 5-209 of the [CA] Article of the Maryland Code. Because this is a non-stock [C]orporation with charitable purposes, it stands in a unique position because there's no group of shareholders or stockholders who hold the interest, even the defunct [C]orporation's interest, it would certain [sic] be possible at this point, perhaps with some dispute that the [Corporation Parties] could revive the [C]orporation but that would still leave us only in the same situation, just with a revived [C]orporation rather than a defunct corporation.
. . . Section [5-209] wisely gives the Court in cases of last resort, where it is either [im]practicable or inexpedient to continue the [C]orporation's activities, the authority to dispose of forfeit property. One way I could go about this would be to allow the [C]orporation to be revived, appoint a receive [sic] for the [C]orporation and have the receiver lined [sic] up its affairs. That would cost a lot of money. It doesn't strike me as a particularly wise course of action.
In this instance, we have the advantage that it is conceded in these proceedings that the [C]orporation has no assets and no liabilities, so I don't have to worry about a group of debtors who are looking to be satisfied from this [P]roperty or from any other asset. This [P]roperty is the only asset.
In this situation, the statute gives me the option of disposing of that [P]roperty, provided that notice to the donor of the [P]roperty is given. I think that is satisfied in this case because the donor, if anything, is the [C]hurch and its members who have paid for the acquisition to the [P]roperty and for the improvements on it. And it also gives me the authority to transfer the [P]roperty to another corporation or association.
I said earlier [during closing arguments] that I did not understand part of the [Corporation Parties'] concern with respect to this particular [P]roperty in terms of the achievement of the . . . Corporation's purposes because I've had no indication that the [C]hurch intends to do anything with this [P]roperty other than continue to use the Head [S]tart Center for the purposes it has been used for the large majority of which stands on [Surrounding Properties] that w[ere] already owned by the [C]hurch, and obviously the intentions may not be forever.
But I'm satisfied that virtually every factor in this case supports the [C]hurch's continued use of the entire Head [S]tart Center for the purposes it's now been used for and other purposes that may come into being, but all of which involve benefitting the community immediately around the Union Baptist Church. And although I found that the [Church Parties] acted contrary to Maryland law in their attempts to resolve the status of the . . . Corporation, I don't have any indication in this record that the [Church Parties] ha[ve] acted contrary to the community's interest or any way to profit from or exploit this [P]roperty other than the same uses that it was created for.
So as a matter of equity, although I have nullified the transfer of the [P]roperty to the [C]hurch, I find that under Section 5-209, it is appropriate to transfer the [P]roperty to the [C]hurch.
Now, again, this could be done through a receiver with a new deed and the cost of recording the deed and so on, but in this case I have not seen any evidence or any indication that the deed that was recorded dated March 20th, [sic] 2013 and recorded, I believe it was June 17th, [sic] 2013 in the land records, who [sic] not otherwise be effective to accomplish that end.
So what I intend to do to save the parties the expenditure of continued expense in this case is to ratify that deed under the separate authority of Section 5-209 which will align all of the properties under the ownership of Union Baptist Church which I think is appropriate, both, because the contiguous properties already are titled in the [C]hurch, and most importantly because the building that sits on them was clearly built by the efforts of the [C]hurch members and others and have been operating in that way.

(Paragraph breaks added.)

         In discussion with counsel immediately after announcing its ruling, the court asked the Corporation Parties' lawyer whether he anticipated that the Corporation would continue to exist. He answered, "Yes, " explaining that Reverend Dobson's original vision for the community should be continued, "whether it be under the Union Baptist Development Corporation name or some other name." Counsel for the Church Parties responded that she understood the court's ruling to mean "that ultimately there won't be a Union Baptist Development Corporation, that they're free to start another corporation." The court stated that it would consider the issue of dissolution of the Corporation and address it in its written declaratory judgment.

         On September 29, 2014, the court entered its declaratory judgment. The judgment tracks the rulings set forth above and further declares that the Corporation is dissolved. In most relevant part, it states:

[A]lthough the Court has found the revival of [the Corporation by the Church Parties] and its subsequent purported transfer of the [P]roperty to be ineffective, the Court also concludes, as a matter of equity and pursuant to [CA section 5-209], that [the Corporation] should be dissolved and that its sole asset, [the Property], should be transferred to the [Church]; and . . . that it would be wasteful to require that the [Corporation] be revived and then to appoint a receiver to accomplish the property transfer when the end result is the same result accomplished by the otherwise invalid transfer of the property by Quitclaim Deed dated March 20, 2013, and, accordingly, the Court will achieve the appropriate result under [CA section 5-209] by ratifying that Quitclaim Deed; and . . . the Quitclaim Deed dated March 20, 2013, ...

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