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Seacoast Hangar Condo. II Ass'n v. Martel
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MAINE SUPREME JUDICIAL COURT					Reporter of Decisions
Decision:	2001 ME 112
Docket:	Yor-00-641
Argued:	May 15, 2001
Decided:	July 18, 2001

Panel:WATHEN, C.J.,{1} and CLIFFORD, RUDMAN, DANA, SAUFLEY, ALEXANDER, and
CALKINS, JJ.




SEACOAST HANGAR CONDOMINIUM II ASSOCIATION et al. v. DONALD E. MARTEL et al.


DANA, J.

	[¶1]  Donald E. Martel, Norwood Nelson, and Sanford Air, Inc.
(collectively, Martel et al.), appeal from the judgments of the Superior Court
(York County, Fritzsche, J.) rendering partial summary judgments on the
first two counts of a complaint filed by the Seacoast Hangar Condominium II
Association (the Association), dismissing the third-party complaint filed by
Nelson and Chester Sawtelle, denying Martel and Nelson's motion for
attorney fees, and granting the Association's verified bill of costs.  Martel et
al. contend that the court erred in declaring that Donald Percy, George
Chaudoin, and Charles Smith are the directors of the Association and Percy,
Chaudoin, and Mark Brunelle are its officers; in declaring that the
Association, not Sanford Air, has all tenant rights pursuant to a lease with
the Town of Sanford; in dismissing the third-party complaint alleging
breaches of fiduciary duties by Percy, Brunelle, Chaudoin, and Smith; in
denying Martel and Nelson's request for attorney fees without conducting an
evidentiary hearing; and in granting the Association's verified bill of costs
without an evidentiary hearing.  We agree that the court should hold a
hearing on Martel and Nelson's request for attorney fees and costs, but
otherwise affirm.
BACKGROUND
	[¶2]  On September 31, 1986, Sanford Air leased premises located at
the Sanford Municipal Airport from the Town of Sanford pursuant to a Land
Lease and Rights Agreement (the lease) that will expire on September 31,
2006.  In the fall of 1986, Sanford Air constructed a ten-unit hangar on the
leased property.  Sanford Air formed the Seacoast Hangar Condominium II
(the Condominium) by declaration on November 28, 1986, pursuant to the
Maine Condominium Act, 33 M.R.S.A. §§ 1601-101 to 1604-118 (1999).
	[¶3]  The declaration of the Condominium provided for Sanford Air to
appoint an executive board for the control period, which would expire sixty
days after the conveyance of seventy-five percent of the units or within two
years after the conveyance of the first unit, whichever happened first.  At the
expiration of the control period, the declaration provides for the unit
owners to participate in a transition meeting to elect three new directors, at
least two of whom must be unit owners or the spouses of unit owners.
	[¶4]  Sanford Air sold all the units to individual purchasers by the end
of December, 1986.  On December 30, Sanford Air appointed Martel
president of the Condominium Association and Loren Harmon the treasurer
and secretary.  The parties dispute whether the Condominium held a
transition meeting on or about December 31, 1986, electing Martel
president and Harmon vice president.
	[¶5]  Seacoast Hangar Condominium II Association (the Association)
was incorporated as a nonprofit non-stock corporation by filing articles of
incorporation on May 16, 1988.  The articles of incorporation named
Martel, Harmon, and attorney Peter Edmands directors, Martel president,
and Harmon treasurer and secretary.  The by-laws of the Association provide
for the first annual meeting of the unit owners to be held "[w]ithin thirty
(30) days after the turnover date as hereinafter defined, or at any time at the
option of [Sanford Air] set forth in the aforesaid Declaration, whichever first
shall occur . . . ."  According to the by-laws, the turnover date is "that
certain date immediately after the earlier to occur of sixty (60) days after
the closing of the conveyance of seventy-five percent (75%) of the units or
two (2) years following the conveyance of the first Unit to a purchaser."  The
by-laws also provide that the removal of any member or members from the
board of directors requires a two-thirds vote of the Association.
	[¶6]  In November 1998, six of the ten Association members
requested that the secretary call a transition meeting to elect successor
members of the board of directors.  After notice, the Association held a
meeting on December 8, 1998, which all members attended in person or by
proxy.  The vote was six to four in favor of a new board (Smith, Chaudoin,
and Percy), which unanimously elected Percy president, Chaudoin secretary,
and Brunelle treasurer.  Percy formally notified all unit owners of the
election.
	[¶7]  Edmands, as clerk, filed the Association's 1999 annual report
with the Secretary of State, listing the newly elected individuals as the
directors and officers, Edmands remaining as clerk.  After the 1998
meeting, however, Martel continued to act as president, and Sanford Air
billed the unit owners for special assessments and regular condominium
fees.  The newly elected individuals requested in writing that Martel cease
acting as an officer and director.
	[¶8]  The Association filed a complaint in the Superior Court seeking a
declaratory judgment that the new directors and officers were elected at the
1998 meeting (count one); a declaratory judgment that the Association is
the lawful tenant under the lease (count two); an accounting pursuant to 33
M.R.S.A. § 1603-118 and 13-B M.R.S.A. § 715 (1981) (count three);
damages for breach of fiduciary duty by Martel (count four); damages for
breach of the Maine Condominium Act, the declaration, and the by-laws
(count five); damages for conversion and an order that Martel turn over all of
the books, records, and funds related to the Condominium and the
Association (count six); and costs.  Thereafter the Town refused to accept
money from the Association or to renegotiate the lease of the premises until
the court determined who was the legal tenant.  Following the Association's
motion, the court granted summary judgments on counts one and two, but
denied the Association's motion on count five.  Martel et al. filed a motion to
reconsider the summary judgment granted on count two, which the court
denied.
	[¶9]  Defendants Nelson and Sawtelle also filed a third-party complaint
against Percy, Brunelle, Chaudoin, and Smith (hereinafter sometimes Percy
et al.), alleging that they breached their fiduciary duties to the Association by
incurring legal fees for meritless litigation.  The third-party complaint
sought damages, costs, and attorney fees.  Percy et al. moved to dismiss the
third-party complaint on the ground that they were authorized to bring a law
suit on behalf of the Association to resolve a legitimate dispute with Martel
et al.  The court granted the motion to dismiss the third-party complaint.
	[¶10]  The Association moved to withdraw the remaining counts of its
complaint.  The court granted the motion and entered a final judgment
incorporating the earlier summary judgments on counts one and two, as well
as the dismissal of the third-party complaint.  Martel and Nelson filed a
motion for attorney fees based on the indemnification provisions of the
declaration and the by-laws.  Without an evidentiary hearing, the court
denied Martel and Nelson's motion for attorney fees and awarded costs in
the Association's favor in the amount of $1703.64.  This appeal followed.
DISCUSSION
A.  Summary Judgment on Count One

	[¶11]  Martel et al. contend that the court erred in rendering a
summary judgment declaring that Smith, Chaudoin, Percy, and Brunelle
were properly elected as directors and officers of the Association. 
According to Martel et al., a transition meeting took place, pursuant to
article VII, section 7.2.1 of the declaration, on or about December 31, 1986. 
Martel et al. also contend that article V, section 10 of the by-laws requires a
two-thirds vote to remove board members, which was not satisfied at the
1998 meeting when six of the ten unit owners voted for a new board.
	[¶12]  The Association contends that a valid election took place at the
1998 meeting and that, even if a transition election occurred in 1986, the
directors' terms had long since expired, so a simple majority was sufficient
to elect their successors.
	[¶13]  "[W]hen we review the grant of summary judgment, we
consider the evidence in the light most favorable to the party against whom
the judgment is issued, and we will only affirm the judgment if a review of
the record demonstrates that there is no genuine issue of material fact and
the grant of the judgment was correct as a matter of law."  Stitham v.
Henderson, 2001 ME 52, ¶ 10, 768 A.2d 598, 601.
	[¶14]  A majority vote of the unit owners was adequate to elect new
directors because each director was to serve for a one-year, two-year, or
three-year term pursuant to the by-laws, and Martel et al. admit that the
board held no annual meetings or elections between December 1986 and
December 1998.  Because the directors' terms had expired, a simple
majority was adequate to elect their replacements.  See 13-B M.R.S.A.
§ 702(3) (1981) ("Each director shall hold office for the term to which he
is elected or appointed and until his successor shall have been elected or
appointed and qualified.").  We therefore affirm the court's summary
judgment declaring that Smith, Chaudoin, Percy, and Brunelle were elected
directors and officers at the 1998 meeting.

B.  Summary Judgment on Count Two

	[¶15]  Sanford Air contends that the court erred in depriving it of its
right to act as a Fixed Base Operator (FBO) of the Sanford Municipal Airport. 
At oral argument, counsel agreed that the Association did not have a right,
pursuant to the lease or the court's judgment, to act as FBO.  With the
understanding that the court's judgment only relates to the real estate
condominium, we affirm the summary judgment on count two, which
declares that the Association, not Sanford Air, is the legal tenant pursuant to
the lease.

C.  Dismissal of the Third-party Complaint

	[¶16]  "A motion to dismiss pursuant to M.R. Civ. P. 12(b)(6) tests the
legal sufficiency of the complaint."  New Orleans Tanker Corp. v. Dep't of
Transp., 1999 ME 67, ¶ 3, 728 A.2d 673, 674.  In reviewing a dismissal, we
regard the material allegations of the complaint as admitted and view the
complaint "in the light most favorable to the plaintiff to determine whether
it sets forth elements of a cause of action or alleges facts that would entitle
the plaintiff to relief pursuant to some legal theory."  Id. ¶ 3, 728 A.2d at
674-75 (internal quotation marks omitted).  "[W]e are not bound to accept
the complaint's legal conclusions."  Bowen v. Eastman, 645 A.2d 5, 6
(Me. 1994) (citing Robinson v. Washington County, 529 A.2d 1357, 1359
(Me. 1987)).  We will affirm a dismissal "only when it appears beyond doubt
that a plaintiff is entitled to no relief under any set of facts that he might
prove in support of his claim."  New Orleans Tanker, ¶ 3, 728 A.2d at 675
(internal quotation marks omitted).
	[¶17]  Nelson and Sawtelle contend that the court erred in dismissing
the third-party complaint because, had they been allowed to provide
evidence, they could have established that Percy et al. breached their
fiduciary duties and acted with malice and in bad faith.  According to Nelson
and Sawtelle, it did not "appear[] beyond doubt that [they were] entitled to
no relief . . . ."  Larrabee v. Penobscot Frozen Foods, Inc., 486 A.2d 97, 99
(Me. 1984).
	[¶18]  According to Percy et al., the court properly dismissed the
third-party complaint because the underlying suit raised a bona fide dispute. 
They contend that bringing a lawsuit to resolve a dispute cannot constitute a
breach of fiduciary duty and it might be a breach of fiduciary duty not to seek
a resolution of the dispute.  We agree.
	[¶19]  The Legislature has imposed certain fiduciary duties on
directors and officers of nonprofit corporations:
	The directors and officers of the corporation shall exercise
their powers and discharge their duties in good faith with a view
to the interests of the corporation and with that degree of
diligence, care and skill which ordinarily prudent men would
exercise under similar circumstances in like positions.  In
discharging their duties, directors and officers may in all cases
rely upon the books and records of account . . . .
13-B M.R.S.A. § 716 (1981).
	[¶20]  The third-party complaint alleges that Percy et al. breached
their fiduciary duties to the unit owners.  It alleges that they acted ultra
vires in commencing this lawsuit, that they acted with malice toward all
defendants, and that the complaint lacks merit and the fees incurred were
excessive.  Nelson and Sawtelle contend that they have alleged bad faith,
thereby sufficiently alleging breach of a fiduciary duty.{1}
	[¶21]  Bad faith "imports a dishonest purpose and implies wrongdoing
or some motive of self-interest."  Research-Planning, Inc. v. Bank of Utah,
690 P.2d 1130, 1132 (Utah 1984).  Bad faith means "[d]ishonesty of belief
or purpose . . . ."  Black's Law Dictionary 134 (7th ed. 1999).
	[¶22]  The institution of a successful lawsuit cannot constitute a
breach of a fiduciary duty.  Because the court rendered summary judgments
prior to its dismissal of the third-party complaint declaring that the
Association validly elected new officers in 1998, the court correctly
concluded that the allegations of malice were inadequate to state a claim for
a breach of a fiduciary duty based on the institution of this lawsuit.  We
therefore affirm the dismissal of the third-party complaint.

D.  Denial of Attorney Fees and Costs Sought Pursuant to the Declaration and
the By-laws

	[¶23]  Martel and Nelson contend that they were entitled to recover
attorney fees and costs pursuant to the indemnification provisions of article
XVI, sections 16.1, 16.1.2, and 16.2 of the declaration and article V, section
16 of the by-laws.  According to Martel and Nelson, they are entitled to
indemnification unless their expenses resulted from willful misconduct or
bad faith, neither of which Percy et al. established.  Percy et al. contend,
inter alia, that Martel and Nelson are not entitled to attorney fees and costs
because they improperly raised the claim for attorney fees as part of the
relief sought in connection with the third-party complaint against four
individuals, rather than through an action against the Association for 
indemnification pursuant to the declaration or by-laws.
	[¶24]  The defendants sought attorney fees by motion and in their
answer to Seacoast's complaint.  Parties may seek attorney fees by motion
pursuant to M.R. Civ. P. 7(b)(1).  See, e.g., Thurber v. Bill Martin Chevrolet,
Inc., 487 A.2d 631, 634-35 (Me. 1985).
	[¶25]  Attorney fees "may be awarded only when provided for by
statute or agreement by the parties."  Elliott v. Maine Unemployment Ins.
Comm'n, 486 A.2d 106, 111 (Me. 1984).  When the declaration and by-laws
use mandatory language, we review the decision to deny the motion for
attorney fees as a question of law.  See Thurber, 487 A.2d at 635 ("where a
mandatory reading would result in no . . . internal inconsistency, and where
the attorney's fees are clearly and unambiguously provided for . . . 'shall'
requires that the court award them") (emphasis in original).  We review the
court's interpretation of the corporate by-laws de novo.  See United States v.
Wheeler, 1999 ME 54, ¶ 9, 726 A.2d 1264, 1266 ("interpretation of an
unambiguous contract is a question of law" reviewed de novo); VonFeldt v.
Stifel Financial Corp., 714 A.2d 79, 83 n.14 (Del. 1998) (interpretation of
corporate by-laws is also a question of law subject to de novo review).
	[¶26]  The parties agreed to abide by the declaration and the by-laws. 
The declaration provides, in pertinent part:
	16.1. 	Limited Liability of the Executive Board.  The
Executive Board, and its members in their capacity as members,
officers and employees:

	. . . . 

		16.1.2.  Shall not be liable to the Unit Owners as a
result of the performance of the Executive Board members'
duties for any mistake of judgment, negligence or otherwise,
except for the Executive Board members' own willful
misconduct or gross negligence . . . .

	. . . .

	16.2	Indemnification.  Each member of the Executive
Board, in his capacity as an Executive Board member, officer or
both, shall be indemnified by the Association against all expenses
and liabilities, including attorney's fees, reasonably incurred by
or imposed upon him in connection with any proceeding in
which he may become involved by reason of his being or having
been a member and/or officer of the Executive Board, or any
settlement of any such proceeding, whether or not he is an
Executive Board member, officer or both at the time such
expenses are incurred, except in such cases wherein such
Executive Board member and/or officer is adjudged guilty of
willful misconduct or gross negligence in the performance of his
duties . . . . 
The by-laws also limit the liability of the directors in article V:  "Section 16. 
Liability of the Board of Directors.  The members of the Board of Directors
shall not be liable to the Unit Owners for any mistake of judgment,
negligence, or otherwise except for their own individual willful misconduct
or bad faith. . . ."
	[¶27]  The declaration allows the directors to recover attorney fees for
litigation in which they were joined because of their roles as directors,
unless they were adjudged guilty of bad faith, willful misconduct, or gross
negligence.  The court made no factual finding of such misconduct or ill
motive on the part of Martel or Nelson.  It is immaterial whether the
Association prevailed in the suit below; the declaration and the by-laws do
not restrict the recovery of attorney fees to the successful parties.  Cf. Bates
Fabrics, Inc. v. LeVeen, 590 A.2d 528, 531 (Me. 1991) (stating director of
corporation met standard for attachment because the director had an
indemnification agreement that did not prohibit his recovery of attorney
fees when sued by the corporation, unless there was a showing of bad faith).
	[¶28]  The court erred in determining, without conducting an
evidentiary hearing to resolve the factual issues in dispute, that the
defendants were not entitled to attorney fees and expenses.  We remand for
such a hearing.

E.  Grant of Costs

	[¶29]  Martel et al. contend that the court should not have allowed the
Association's bill of costs because the Association was not the "prevailing
party," and because the court denied Martel et al. an opportunity to be
heard.  The Association contends that because the court found the
Association to be the prevailing party it is entitled to costs pursuant to 14
M.R.S.A. § 1501 (1980).
	[¶30]  The Legislature has provided for the prevailing party in a suit to
recover costs.
	In all actions, the party prevailing recovers costs unless
otherwise specially provided.  If, after verdict, the party in
whose favor the jury found carries the case into the law court
and the decision there is against him, he recovers no costs after
the verdict but the party prevailing in the law court recovers
costs accruing after verdict.
Id.  "The following costs shall be allowed to prevailing parties in civil actions
unless the court otherwise specifically directs: . . . Filing fees. . . . ; Fees for
service of process. . . . ; and . . . Such other costs as the Supreme Judicial
Court may direct by rule."  14 M.R.S.A. § 1502-B (Supp. 2000).  "[T]he court
may include as costs, in such amounts as it considers just and reasonable . . .
[c]osts of depositions."  Id. § 1502-C.  "Costs shall be allowed as of course to
the prevailing party, as provided by statute and by [the Maine Rules of Civil
Procedure], unless the court otherwise specifically directs."  M.R. Civ. P.
54(d).  We review the court's order granting the Association's bill of costs
for an abuse of discretion.  See Nicholson v. Nicholson, 2000 ME 12, ¶ 10,
747 A.2d 588, 591.
	[¶31]  "Who is the prevailing party is to be determined by a functional
analysis, rather than a mechanical application of . . . [the rule governing
costs]."  Dodge v. United Servs. Auto. Ass'n, 417 A.2d 969, 974-75 (Me.
1980) (alterations in original).  To perform a functional analysis, the court
"must look at the lawsuit as a whole to determine which party was the
'winner' and which the 'loser.'"  Id. at 975.
	[¶32]  Martel et al. lost on all issues that were decided by motion
before the court, after which the court dismissed the remaining three
counts by consent.  It was not an abuse of discretion for the court to
conclude that the Association prevailed.  In addition, the court was not
required to conduct an evidentiary hearing on a bill of costs; rather, "[a]n
evidentiary hearing on the reasonableness of costs or interest will be held
only when the judge determines that there exists a substantial need for the
hearing and the amount of challenged costs or interest are substantial."  14
M.R.S.A. § 1502-D (Supp. 2000).  The court did not abuse its discretion in
allowing the Association's bill of costs.
	The entry is:
Remand for a hearing on defendants'
entitlement to reimbursement for their
expenses, including attorney fees; and in all
other respects, judgment affirmed.

Attorneys for plaintiffs: David A. Soley, Esq., (orally) William M. Welch, Esq. Bernstein, Shur, Sawyer & Nelson P. O. Box 9729 Portland, ME 04104-5029 Attorneys for defendants: Robert M.A. Nadeau, Esq., (orally) Thomas P. Elias, Esq. Nadeau & Assoc., P.A. 883 Main Street, suite 5 Sanford, ME 04073 Attorneys for party in interest: William H. Dale, Esq. Natalie L. Burns, Esq. Jensen Baird Gardner & Henry P O Box 4510 Portland, ME 04112
FOOTNOTES******************************** {*} Although not available at oral argument, Chief Justice Wathen participated in this opinion. See M.R. App. P. 12(a) (stating that a "qualified justice may participate in a decision even though not present at oral argument"). {1} . Nelson and Sawtelle cite Rosenthal v. Rosenthal, 543 A.2d 348, 354 (Me. 1988), in which the Court carved out an exception to the business judgment rule. The Court held that the business judgment rule, which exempts the directors' business management decisions from judicial review, does not insulate directors from liability for breach of their fiduciary duties if they "acted primarily through bad faith or fraud . . . ." Id.