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When a New Meeting of Members is the Only Way to Resolve Intractable Governance Issues

Latin American Senior Citizens Cultural Assn. of Edmonton v. Govea (August 2013) involved a deeply divided not-for-profit corporation in which rival groups purported to have authority to represent the society.  The Alberta Court of Queen's Bench found that the fair way to resolve the governance issues was to hold a meeting of members at which directors are elected and that the only members entitled to vote would be those members as at the last time the by-laws were complied with (thereby eliminating purported members added by the dueling boards).

1. Facts

Latin American Senior Citizens Cultural Association ("LASCCA") was incorporated under the Alberta Societies Act in 1990.

In 2012, an eight-person board of directors was elected by the members and the individual defendant, Govea, was elected president.  Govea orally resigned as president about three months later.  Nevertheless, he continued to hold himself out to third parties (in particular, the Alberta Gaming and Liquor Commission which had issued a casino license to LASCCA) as having authority to represent the society.

In response, the remaining board later purported to revoke 13 memberships in LASCCA.    

2. Ruling

Justice Veit dealt first with the effectiveness of Govea's oral resignation as president, holding that it was. He commented that there was legislative recognition that it was inappropriate to burden societies with excessive formalities.  Societies are left to devise for themselves the formalities they wish to follow and can choose to be as formal, or as informal, as the membership decides.

The resignation of Govea meant that the remaining members of the board were entitled under the by-laws to appoint a successor to act as president, which they did.

However, Justice Veit also ruled that the remaining members of the board were not entitled to ignore the by-law in relation to disqualifying members of the board and the expulsion of members.  The failure of LASCCA to follow its own governance rules precluded it from obtaining an equitable remedy in the circumstances.

Instead, he ordered that LASCCA hold a meeting of members as soon as possible at which there will fresh elections.  The fairest approach to the problems that have beset the corporation is to replicate the situation the last time the by-laws were complied with, which was judicially fixed at a point in time.  Therefore, even if new members were properly admitted after that date, those members should not be allowed to have a say in the election that should have been called and held before they were admitted.

3. Key Observations

In resolving the governance imbroglio in this case, the court returned to first principles:  the best way to resolve an internal governance dispute is to let the members decide as soon as possible, and the membership for this purpose should be set so that neither side gets an upper hand by questionable conduct.  In this case, the questionable conduct was the expulsion of 13 members from the society.  However, in many other cases, it consists of stacking the membership with supporters of the incumbent group.  There is, therefore, much to be said for fixing the membership at a date before there are any one-sided changes to the membership - either by addition of members or, as in LASCCA v. Govea, expulsion of targeted members.

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