Heald v. Rappahannock Elec. Coop.

897 S.E.2d 242

80 Va.App. 53

Seth G. HEALD, et al.

v.RAPPAHANNOCK ELECTRIC COOPERATIVE

Record No. 1485-22-2

Court of Appeals of Virginia, Richmond.

February 13, 2024

FROM THE CIRCUIT. COURT OF SPOTSYLVANIA COUNTY, Joseph J. Ellis, Judge Designate

Evan Dimond Johns (Isak Howell; Appalachian Mountain Advocates, on briefs), for appellants.

Andrew P. Sherrod, Richmond (John R. Walk; Randolph Critzer, Jr., Richmond; Charles W. Payne, Jr., Fredericksburg; Hirschler Fleischer, A Professional Corporation, on brief), for appellee.

Present: Judges O’Brien, Malveaux and Fulton

OPINION BY JUDGE MARY BENNETT MALVEAUX

₅₉This appeal arises from a dispute over changes three members of Rappahannock Electric Cooperative ("REC") sought to make to REC’s bylaws. On appeal, Seth G. Heald, Michael F. Murphy, and John C. Levasseur (collectively, "the member group") argue that the Spotsylvania County Circuit Court ("the circuit court") erred by entering summary judgment in favor of REC, because their proposed bylaws comport with the law and they have a statutory right to propose such bylaws. REC contends that the circuit court erred in various rulings when it granted its motion for summary, judgment. For the following reasons, we affirm in part, and reverse in part.

₆₀I. BACKGROUND

A REC and the Relevant Statutory Framework

REC is a public service energy company and nonstock cooperative governed primarily by the Virginia Utility Consumer Services Cooperatives Act ("the Utility Cooperatives Act"). See Code §§ 56-231.15 to -231.37. The articles of incorporation for a cooperative established under the Utility Cooperatives Act may be amended through the processes set out in the Virginia Nonstock Corporation Act¹ ("the Nonstock Act") and the Virginia Stock Corporation Act² ("the Stock Act"). Code § 56-231.22. In addition, the Utility Cooperatives Act provides that "[a]ll of the provisions" of the Stock Act and the Nonstock Act are applicable to cooperatives formed under the Utility Cooperatives Act "insofar as [they are] not inconsistent with [the Utility Cooperatives Act]." Code § 56-231.19.

The Utility Cooperatives Act requires a cooperative to have a member-elected board of directors comprised of five or more members. Code § 56-231.28. The board makes up the governing body of the cooperative and has the power to appoint officers and fix the compensation of board members. Id. Additionally, the board

shall have power to do all things necessary or incidental in conducting the business of the cooperative, including, but not limited to the power:

1. … [T]o. adopt and amend bylaws for the management and regulation of the affairs of the cooperative, subject, however, to the right of the members to alter or repeal such bylaws….

2. To appoint agents and employees and to fix their compensation and the compensation of the officers of the cooperative.

3. To execute all instruments.

4. To make its own rules and regulations as to its procedure.

₆₁Code § 56-231.29. The Utility Cooperatives Act further provides, in pertinent part, that

[t]he bylaws of a cooperative may make provisions, not inconsistent with law or its articles of incorporation, regulating the … number, times and manner of choosing, qualifications, terms of office, official designations, powers, duties and compensation of its officers and directors; … the date of the annual meeting and the giving of notice thereof and the holding of special meetings and the giving of notice thereof; … and regular and special meetings of the board and the giving of notice thereof.

Code § 56-231.29(1).

The Utility Cooperatives Act’s provisions are to be "liberally construed," and its "enumeration of any object, purpose, power, manner, method or thing shall not be deemed to exclude like or similar objects, purposes, powers, manners, methods or things." Code § 56-231.36. Additionally, "any provisions of other laws in conflict with the provisions of [the Utility Cooperatives Act] shall not apply to cooperatives operating" under the Utility Cooperatives Act. Id. The, Utility Cooperatives Act also provides that "[a]ny object, purpose, power, manner, method or thing which is not specifically prohibited is permitted." Id.

Relevant here, REC’s Articles of Restatement³ adopt the language of Code § 56-231.29(1) in providing that "[t]he board of directors shall have the power to adopt and amend bylaws for the management and regulation of the affairs of [REC], subject to the right of the members to alter or repeal such bylaws." In turn, REC’s bylaws specify the process by which the bylaws may be amended, altered, or repealed. First, as applicable, either members or the board of directors must provide a "[w]ritten submission to the Secretary of the Cooperative of clear and concise language regarding the proposed bylaws alteration, amendment or repeal." Sec- ond, if members ₆₂desire to alter or repeal bylaws they must submit "a written petition in a form approved and provided by the Cooperative" that includes signatures of not less than 500 members. Third, the bylaws require that "[a]ll proposed alterations or amendments to or repeal of the Bylaws shall be in accordance with applicable state code, the Cooperative Articles of Incorporation and these Bylaws." Fourth, the bylaws specify that once the preceding requirements have been met, "the Board of Directors will prepare and provide the form of the final submission for vote by the membership or the Board of Directors, as applicable and described [in the bylaws]."

B. Factual and Procedural Background

In April 2018, the member group submitted to the Secretary of REC a number of "proposed amendments" to REC’s bylaws that they wanted to submit to the cooperative’s members for a vote. The first proposal sought to give REC’s members greater access to the cooperative’s board meetings.⁴ The second proposal sought to add language to the section of REC’s bylaws that governs proxy votes.⁵ Specifically, the proffered ₆₃language would require changes in the proxy vote form available for member use in board elections; create a new rule treating signed, but otherwise blank, proxy forms as abstentions; and require public disclosure of how individual directors voted proxy forms designated for board use. The third proposal addressed director compensation. It sought to add language to REC’s bylaws that would require public disclosure of board member compensation and prohibit the board from voting to increase compensation without giving members 60 days’ notice of the vote.

In May 2018, the member group received a letter from REC’s counsel stating that after "carefully reviewing the proposed Bylaws amendments …, the Board has concluded that each of the proposals attempt to usurp the Board’s exclusive ‘procedure’ authority, including procedures relating to Board meetings, elections, and compensation." The letter asserted that "[i]n each case, the Bylaws already vest the Board with the authority to regulate each of these corporate governance duties." Citing Code § 56-231.29(4) as "the applicable state code in this instance," counsel for REC contended that "clearly no other statute or provision of the Bylaws or Articles of Incorporation supersedes this authority to regulate Board procedure."

In May 2019, the member group filed in the circuit court a petition for declaratory and injunctive relief regarding the proposed "alterations" they wanted to make to REC’s bylaws. In their petition, the member group rejected REC’s characterization₆₄ of the proposed bylaw changes, arguing that each com- ported with statute and fell within the scope of cooperative members’ statutory right to change bylaws. The member group also noted that "the REC Bylaws require[ ] ‘an affirmative vote of not less than two-thirds of the members present in person or by proxy at an annual or special meeting of the members to alter or repeal the Bylaws.’ " The member group contended that this supermajority vote requirement was "inconsistent with law and with REC’s Articles of Restatement and illegally infringes on the rights of the members to alter or repeal by simple majority vote any Bylaws adopted by. the Board." Accordingly, the member group sought a declaratory judgment that the supermajority vote requirement was ultra vires.

REC demurred to those counts of the member group’s petition that addressed the supermajority vote requirement. The circuit court sustained the demurrer and dismissed the relevant counts while granting the member group leave to file an amended petition. After filing their amended petition, the member group moved for summary judgment and REC moved for partial summary judgment on the amended petition’s counts concerning the supermajority vote requirement.

The circuit court held a hearing on the cross-motions for summary judgment and subsequently issued a letter opinion. In its opinion, the court first addressed the member group’s bylaw proposals respecting open board meetings, proxy votes, and director compensation. The court rejected REC’s argument that Code § 56-231.29(1)’s grant of power to its board to "adopt or amend" bylaws precluded cooperative members from offering "new bylaws," since the statute gives members the right to "alter or repeal" bylaws; the court found that the "distinction between an amendment and an alteration is without a meaningful difference in the context of the proposed changes to the bylaws" and that "[i]t is beyond argument that the proposals ‘alter’ the bylaws."

The circuit court also rejected REC’s argument that Code § 56-231.29(4), which grants a cooperative’s board of directors ₆₅the power to "make its own rule’s and regulations as to its procedure," prohibits bylaw changes which affect the board-established rules and regulations. The court found REC’s argument "unpersuas[ive]" because Code § 56-231.29(1) gives to cooperative members "the right to alter or repeal the bylaws," thereby precluding "the Board [from] prevent[ing] a vote on bylaws changes simply on the theory...