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Tau, Inc. v. Alpha Omicron Pi Fraternity, Inc.

United States District Court, Eighth Circuit

September 23, 2013

TAU, INC., Plaintiff,
v.
ALPHA OMICRON PI FRATERNITY, INC. and ALPHA OMICRON PI PROPERTIES, INC., Defendants.

Ryan M. Sugden and Anh Le Kremer, LEONARD STREET AND DEINARD, PA, for plaintiff.

John I. Harris, III, SCHULMAN LEROY & BENNETT PC, James S. Reece, and Michael G. Patiuk, THOMPSON, COE, COUSINS & IRONS, LLP, [1] for defendants.

MEMORANDUM OPINION AND ORDER ON MOTION FOR PRELIMINARY INJUNCTION

JOHN R. TUNHEM, District Judge.

Plaintiff Tau, Inc. ("Tau") is a Minnesota corporation affiliated with the chapter of the Alpha Omicron Pi Fraternity located at the University of Minnesota. Tau owns property and a residential building which has provided housing to collegiate members of the University of Minnesota's Alpha Omicron Pi Fraternity for over eighty years. Tau brings this action against Defendants Alpha Omicron Pi Fraternity, Inc. ("AOII") and Alpha Omicron Pi Properties, Inc. ("AOII Properties") alleging that Defendants have unlawfully taken over Tau's corporate governance and finances and are threatening to mortgage or sell Tau's real property.

The case is now before the Court on Tau's motion for a preliminary injunction.[2] For the reasons explained below, the Court will grant in part and deny in part Tau's motion for a preliminary injunction.

BACKGROUND

I. HISTORY AND ORGANIZATION OF AOII

Defendant AOII is a nonprofit fraternity for women that was established in 1897. (Decl. of Troylyn LeForge ¶ 2, Jan. 4, 2013, Docket No. 19.) AOII is headquartered in Tennessee and has 120 active collegiate chapters in the United States and Canada. ( Id. ¶¶ 1-2.) AOII's constitution states that the organization's object is "to establish, operate, and maintain a non-profit international fraternity, with undergraduate chapters at various colleges and universities in the United States and Canada, and with alumnae chapters in specified geographical areas." ( Id., Ex. A at 2.)

AOII is governed by a constitution, bylaws, standing rules, and a book of policies. ( Id., Ex. A.) AOII's constitution and bylaws were amended in June 2011, and the standing rules and book of policies became effective in February 2012. ( Id., Ex. A at 1.) AOII is run by an executive board, consisting of an elected president, vice president of finance, and six vice presidents. ( Id., Ex. A at 3.) The executive board also functions as AOII's corporate board of directors. ( Id., Ex. A at 4.) Additionally, AOII has a legislative body which is comprised primarily of past AOII presidents, the executive board, and presidents of the collegiate and alumnae chapters. ( Id. )

Pursuant to its constitution, AOII has two types of chapters: collegiate and alumnae. ( Id., Ex. A at 3.) Collegiate chapters are associated with a single college or university, and each chapter has the authority to initiate new members. ( Id. ) Each collegiate chapter also has its own governance structure, comprised of a president, treasurer, secretary, and other officers as prescribed by AOII's standing rules. ( Id. ) Alumnae chapters are organized for specific geographical areas, and are similar to collegiate chapters, although they lack the right to initiate new members into AOII. ( Id. )

AOII's governing documents explicitly grant AOII the right to control certain aspects and functions of the chapters. ( Id. ¶ 7.) For example, AOII has the sole authority to form collegiate chapters by issuing a charter, defines the requirements for initiating new members, sets dues, and specifies the meetings, officers, and committees that each chapter must have. ( See id., Ex. A at 20-24, 26.) AOII also has the authority to place chapters on probation, and can withdraw a chapter's charter. ( Id., Ex. A at 32-35.)

II. THE TAU CORPORATION

AOII established a collegiate chapter at the University of Minnesota ("the Minnesota Chapter")[3] on October 29, 1912. ( Id. ¶ 4.) As of December 2012, there were 119 collegiate members of the Minnesota Chapter. ( Id. ¶ 5.) Each collegiate chapter may also be associated with an affiliated chapter corporation. Plaintiff Tau is the affiliated chapter corporation of the Minnesota Chapter. Such corporations are an essential piece of the fraternity structure because collegiate chapters themselves are prohibited from taking certain actions. For example, AOII prohibits chapters from purchasing or leasing housing. ( Id., Ex. A at 46.)[4]

Tau was originally incorporated as "Alpha Omicron Pi Society of Minnesota" on May 25, 1921. (First Decl. of Heather Essig-Reinhardt, Ex. B at 6, Dec. 19, 2012, Docket No. 4.)[5] The original articles of incorporation state that the purpose of the corporation "shall be the educational, literary and social culture of its members, and to provide a Society House or rooms within which its members may live and hold meetings and furnish and operate the same." ( Id., Ex. B at 4.)

In 1942, Alpha Omicron Pi Society of Minnesota changed its name to Tau of Alpha Omicron Pi, Inc. ( Id., Ex. A.) And in October 2012, the name was changed to Tau, Inc.[6] ( Id., Ex. C.) As of December 3, 2012, there were forty-four paid members of Tau. (Decl. of Lynne Hardey ¶ 3, Dec. 19, 2012, Docket No. 6.) As of December 17, 2012, there were eighty paid members of Tau. ( Id. ¶ 4.)

A. Tau's Governing Documents

1. The Tau Bylaws

Tau contends that prior to October 29, 2012, it was governed by a set of bylaws ("the Tau Bylaws").[7] The Tau Bylaws provide that members of the Minnesota Chapter and any other alumnae members of AOII over the age of eighteen are eligible for membership in Tau. (Tau Bylaws at 1.) To become a member, an eligible individual must submit an application and pay a $45 fee. ( Id. ) The applicant's name is then placed in Tau's membership book, which is maintained by Tau's treasurer. ( Id.; Hardey Decl ¶ 2.)

The Tau Bylaws indicate in a handwritten change to the typewritten form that Tau's annual corporate meeting is to be held in October. (Tau Bylaws at 3.) Pursuant to the Tau Bylaws, notice of the annual meeting is to be mailed to all members at least ten days prior to the meeting. ( Id. ) A special meeting may be held at any time if called by the president, a majority of Tau's Board, or any ten members in good standing of Tau. ( Id. ) The Tau Bylaws provide for their amendment only by an affirmative vote of the majority of the members present at a regular annual meeting, or at a special meeting called for the purpose of amending the bylaws if the proposed amendment is included in the notice of the special meeting. ( Id. at 6.) The Tau Bylaws provide that the articles of incorporation can be amended in the same manner as the bylaws. ( Id. at 7.)

The Tau Bylaws do not contain any provision mentioning AOII or otherwise indicating that Tau is governed by AOII. ( See generally Tau Bylaws.)

2. The Amended Tau Bylaws

At an October 29, 2012 meeting, Tau allegedly amended its bylaws ("the Amended Tau Bylaws").[8] The Amended Tau Bylaws extend eligibility for membership in Tau to any AOII member, whether or not they are a member of the Minnesota Chapter, who submits an application and is approved by a majority vote of Tau's members. (Amended Tau Bylaws at 1.)

The Amended Tau Bylaws provide that the annual meeting shall be held upon the call of the Board of Directors. ( Id. at 2.) Notice of the meeting must be provided at least five days prior to the meeting to each member of Tau. ( Id. ) The Amended Tau Bylaws provide that they "may be amended or altered by the Board at any meeting." ( Id. at 10.)

The Amended Tau Bylaws do not contain any provisions indicating that Tau is governed by AOII. ( See generally Tau Amended Bylaws.)

3. AOII's Version of Tau's Bylaws

AOII submitted a document that it claims contains the bylaws that govern Tau both before and after October 29, 2012. (LeForge Decl., Ex. B.) The AOII version of the bylaws indicates that Tau's annual meeting is to be held in November and that notice of such a meeting must be mailed to all members at least ten days prior to the meeting. ( Id. ) AOII's version of the bylaws is similar in most other respects to the Tau Bylaws, but contains a provision stating that "Operations of the Corporation shall be in conformance with the regulations of Alpha Omicron Pi Fraternity, Inc." ( Id. at 5.) The purported copresident of Tau submitted a declaration stating that the bylaws submitted by AOII are not Tau's controlling bylaws, and, moreover, that she has never seen this version of the bylaws. (Second Decl. of Heather Essig-Reinhardt ¶¶ 2-3, Jan. 8. 2013, Docket No. 22.)

B. Tau's Board of Directors

The Tau Bylaws and the bylaws submitted by AOII provide for a seven-member board ("the Tau Board"). (Tau Bylaws at 2; LeForge Decl., Ex. B at 3.) Board members are required to be members in good standing of Tau. (Tau Bylaws at 2.) The Tau Bylaws and the bylaws submitted by AOII both specify that "[t]he Board of Trustees shall have the control and management of the business funds and property of the Corporation." (Tau Bylaws at 2; LeForge Decl., Ex. B at 4.) The Amended Tau Bylaws provide that the Tau Board will consist of five or more members, who must also be members of the corporation. (Tau Amended Bylaws at 3.) Under the Amended Tau Bylaws, the Tau Board is empowered to manage "[t]he business and affairs of the corporation." ( Id. )

At an October 29, 2012 meeting, Tau's members purportedly elected Heather Essig-Reinhardt, Catherine Denison, Bonnie Olsen Kramer, Lynne Hardey, Joan Wigginton, and Roberta Miller-Rosenow to the Tau Board. (LeForge Decl. ¶ 12.) These were the same members that served on the Tau Board prior to the October 29, 2012 meeting. (Pl.'s Reply Mem. at 14, Jan. 8, 2013, Docket No. 37.)

III. THE UNIVERSITY OF MINNESOTA PROPERTY

In 1931, Kathryn Bremer Matson, Tau's first president and founding member conveyed land and a house (collectively, "the Property") located at 1121 SE Fifth Street, Minneapolis, Minnesota, to Tau. (LeForge Decl., Ex. E.) The Minnesota Chapter then began using the home as its residence.[9] The parties agree that the Property is held legally in Tau's name. ( Id. ¶ 15.) Currently, thirty-three members of the Minnesota Chapter reside at the Property. ( Id. ¶ 5.)

Tau's 1943 articles of incorporation provided that in the event of the corporation's dissolution, the Property was to be conveyed to the University of Minnesota. (First Essig-Reinhardt Decl., Ex. T.) Tau's current articles indicate that in the event of dissolution all assets and property of the corporation shall be distributed to another nonprofit entity or entities "as may be determined by the Board of Directors to be most in accord with the purposes of the Corporation." ( Id., Ex. C at 8.)

Tau has historically maintained and operated the Property with room and board fees collected from Minnesota Chapter members who reside in the home. ( Id. ¶ 12; Decl. of Veronica Kentish, ¶ 2, Jan. 4, 2013, Docket No. 18; Decl. of Jayne Lindholm ¶ 5, Jan. 8, 2013, Docket No. 24.) Tau asserts that it entered into individual lease agreements with each member resident and collected rent directly from the residents. (First Essig-Reinhardt Decl. ¶ 12.) AOII contends, without documentation, that it "has provided substantial services and benefits to the [Property], including property management services, educational support, house director training and vendor contracts." (LeForge Decl. ¶ 16.) Additionally, AOII claims that it has historically paid the taxes on and provided insurance for the Property. ( Id. )[10] Tau, similarly without documentation, claims that Tau, not AOII, pays the taxes on the Property.

IV. AOII PROPERTIES

In 2001, AOII established a subsidiary, Alpha Omicron Pi Properties, Inc. ("AOII Properties") that was intended to standardize and centralize AOII's management of chapter houses and the financial resources of affiliated chapter corporations. (LeForge Decl. ¶¶ 19-21.) In 2005, AOII allegedly voted to amend its bylaws to transfer "the management of AOII's real property interests and management duties to [AOII] Properties." ( Id. ¶ 22.)

AOII Properties implements its management through two separate programs: Corporation Services and Billhighway. ( Id. ¶ 26.) Corporation Services provides property management services to chapter corporations, (First Essig-Reinhardt Decl., Ex. G), while Billhighway is a financial management system providing web-based budgeting and financial management tools, (LeForge Decl. ¶¶ 27-29.) Billhighway allows AOII to collect rent and other dues directly, accounts for all chapter payments and expenses, tracks chapter financial assets, tracks the flow of funds, and uses those funds to pay chapter ...


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