Church of Tonga v. Division of Corporations ( 2022 )

2022 UT App 102THE UTAH COURT OF APPEALS
SALT LAKE CITY LAUMALIE MA’ONI’ONI FREE WESLEYAN CHURCH
OF TONGA AND VILIAMI HOSEA,
Appellants,
v.
DEPARTMENT OF COMMERCE, DIVISION OF CORPORATIONS,
Appellee.
Opinion
No. 20200778-CA
Filed August 18, 2022
Third District Court, Salt Lake Department
The Honorable Patrick Corum
No. 180907281
Robert C. Avery, Nathan E. Burdsal, and Hutch U.
Fale, Attorneys for Appellants
Sean D. Reyes, Sarah E. Goldberg, and Erin T.
Middleton, Attorneys for Appellee
JUDGE DAVID N. MORTENSEN authored this Opinion, in which
JUDGES RYAN M. HARRIS and RYAN D. TENNEY concurred.
MORTENSEN, Judge:
¶1 From “the metaphysical principle that nothing can confer
what it does not possess,” it follows that an administrative agency
cannot confer validity on a document if it lacks the power to do
so. See City of Chicago v. Morales, 527 U.S. 41, 91 n.9 (1999) (Scalia,
J., dissenting). 1
1. Because Justice Scalia saw fit to apply an interpretation of the
legal maxim, nemo dat qui non habet (“No one gives who does not
possess.”), which is generally invoked in commercial transactions,
(continued…)
Church of Tonga v. Division of Corporations
¶2 Salt Lake City Laumalie Ma’oni’oni Free Wesleyan Church
of Tonga and Viliami Hosea (collectively, FWC) argue that the
Division of Corporations (the Division) is endowed with the
authority to determine the validity of corporate filings. From this
position, FWC asserts that the district court erred in dismissing a
petition that asked for a determination that the Division lacked
the authority to revoke and rescind amended articles of
incorporation (the Amended Articles) that FWC had previously
filed with the Division. Seeing no error in the district court’s
decision, we affirm.
BACKGROUND
¶3 In 1978, the Rocky Mountain Conference (RMC) of the
United Methodist Church chartered a congregation, the Tongan
United Methodist Church (TUMC), in Utah. TUMC was
incorporated as a Utah nonprofit corporation. In 2012, several
members of TUMC sought to disaffiliate with TUMC and sever
ties with the United Methodist Church. Five of the nine trustees
for TUMC called for a mail-in vote seeking to amend its articles of
incorporation. After the mail-in vote approved the Amended
Articles, the members who had initiated the vote submitted a
series of registration changes to the Division, including changing
the name of TUMC to the Salt Lake City Laumalie Ma’oni’oni Free
Wesleyan Church of Tonga and changing the principals
(including the registered agent). Thereafter, FWC submitted the
Amended Articles to the Division.
¶4 The same day FWC submitted the Amended Articles, it
filed a lawsuit seeking (1) an injunction to prevent a former
director and principal of TUMC from controlling or accessing any
of the entity’s property and (2) declaratory relief that Hosea was
to a broader context (namely, a case involving a loitering
ordinance), we do the same. See Legal maxims, Black’s Law
Dictionary (11th ed. 2019).
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the only individual authorized to represent the entity or control
its property. TUMC’s board of trustees and the RMC, in turn, filed
a lawsuit against FWC and the members of FWC’s board of
directors (the Private Litigation) seeking, among other things, a
declaration that the mail-in vote was improper and that any
corporate actions FWC attempted to take were null and void.
¶5 After being notified of the Private Litigation, the Division
informed the parties that it would place the Amended Articles on
administrative hold until the dispute was settled through
agreement or by the court. FWC then informed the Division that
it intended to challenge the decision to place the changes on hold,
and the Division subsequently removed the hold and accepted the
Amended Articles. See Laumalie Ma’oni’oni Free Wesleyan Church of
Tonga v. Ma’afu, 2019 UT App 41, ¶¶ 22–23, 440 P.3d 804.
Nevertheless, the Division’s record noted a dispute pending
among the principals. Id. ¶ 23.
¶6 In the Private Litigation, the district court eventually
entered an order determining that the mail-in vote was improper
because the vote did not comply with TUMC’s original articles of
incorporation, and therefore none of FWC’s subsequent corporate
actions were authoritatively taken or valid. Id. ¶¶ 30–31. The court
further determined that TUMC and the RMC were not required
to exhaust administrative remedies because “the Division made
no determination regarding the parties’ rights, the validity of the
vote by mail, or the Amended Articles.” Id. ¶ 28 (cleaned up). The
RMC notified the Division of the court’s decision, and the
Division rescinded the Amended Articles and reinstated TUMC’s
original articles of incorporation. Id. ¶ 32.
¶7 Shortly thereafter, in the wake of the court ruling, FWC
sought agency review of the Division’s decision to rescind the
Amended Articles. The Department of Commerce affirmed the
Division’s decision. FWC then filed the petition that initiated the
present case, seeking judicial review in the district court of the
20200778-CA 3 2022 UT App 102Church of Tonga v. Division of Corporations
Department of Commerce’s order affirming the Division’s
decision. In the petition, FWC asserted that it was “entitled” to a
court order providing that the “Amended Articles must be
accepted and approved by the Division, and that the Division
lacked the authority to revoke and erred in revoking such
Amended Articles.”
¶8 After filing the petition for the present case, FWC appealed
the decision rendered in the Private Litigation, and this court
affirmed. Id. ¶ 90. While that appeal was pending, the district
court granted a stay in the present case. After this court issued its
opinion affirming the district court in the Private Litigation, the
district court granted the Division’s motion to dismiss FWC’s
petition in this case because (1) issue preclusion prevented
relitigation of FWC’s claims, (2) FWC failed to state a claim on
which relief could be granted because the Amended Articles had
been determined to be invalid in the Private Litigation, and (3) the
case was moot. FWC now appeals the district court’s dismissal of
its petition.
ISSUE AND STANDARD OF REVIEW
¶9 The issue on appeal is whether the district court properly
dismissed FWC’s petition when the court determined that the
results of the Private Litigation foreclosed the relief FWC sought.
“A ruling on a motion to dismiss presents a legal question that we
review for correctness, affording no deference to the district
court’s decision.” AL-IN Partners, LLC v. LifeVantage Corp., 2021
UT 42, ¶ 17, 496 P.3d 76 (cleaned up). 2
2. FWC also argues that the district court improperly dismissed
its petition as moot. Because we resolve this appeal on the
threshold question of the validity of the Amended Articles, it is
unnecessary for us to reach that issue here.
20200778-CA 4 2022 UT App 102Church of Tonga v. Division of Corporations
ANALYSIS
¶10 FWC argues that our legislature “has explicitly delegated
the ability to make a conclusive determination regarding the
validity of amended articles of incorporation for a nonprofit
corporation in Utah to the Division.” FWC’s position appears to
be primarily based on its assertion that nothing in the Utah
Revised Nonprofit Corporations Act (the Act), see generally Utah
Code Ann. §§ 16-6a-101 to -1705 (LexisNexis 2013 & Supp. 2021),
“allows the Division to defer to any other entity, even a district
court,” to determine the validity of corporate filings. In essence,
FWC’s entire case rests on the assertion that the Division’s
eventual acceptance of the Amended Articles endowed that
document with permanent validity.
¶11 But FWC’s premise about the extent of the Division’s
authority to determine the validity of filings is simply wrong. As
was resolved in the Private Litigation, and as we further explain
below, the Division does not have the authority to determine the
validity of corporate filings. Because of this, the Division’s act of
accepting the Amended Articles had no impact on their validity,
and the relief FWC now seeks is unavailable.
¶12 Far from “explicitly” granting the Division “the ability to
make a conclusive determination” about the validity of corporate
filings, the plain language of the Act and our case law—as we will
explain—say just the opposite is true. Moreover, nothing in the
Act prohibits the Division from recognizing the legal force of the
orders of a court of competent jurisdiction regarding the validity
of corporate filings. Because the Division never had the authority
to make a determination about the validity of documents filed
with it, it was not improper for the Division to defer to the
authority of the district court’s determination that the Amended
Articles were invalid. In other words, the Division’s deferral to
the district court’s determination was not improper because the
Division had no choice but to give effect to the court’s decision.
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¶13 The Act itself explicitly states that the Division’s
acceptance of a document is purely ministerial and does not touch
on the underlying validity or invalidity of the document: “The
division’s duty to file a document under this section is
ministerial.” Id. § 16-6a-110(4)(a) (LexisNexis 2013). And unless
otherwise noted in the Act, the Division’s “filing or refusal to file
a document does not . . . (i) affect the validity or invalidity of the
document in whole or in part; (ii) relate to the correctness or
incorrectness of information contained in the document; or
(iii) create a presumption that . . . (A) the document is valid or
invalid; or (B) information contained in the document is correct or
incorrect.” Id. § 16-6a-110(4)(b). Thus, it is clear from the Act itself
that, apart from a statutory provision to the contrary, the
Division’s acceptance of the articles of incorporation is a
ministerial act that does not vouchsafe their underlying validity.
¶14 Moreover, in the appeal of the Private Litigation, this court
explained that the Division’s duty is ministerial, meaning that it
is a duty that “requires neither the exercise of official discretion
nor judgment.” Laumalie Ma’oni’oni Free Wesleyan Church of Tonga
v. Ma’afu, 2019 UT App 41, ¶ 41, 440 P.3d 804 (cleaned up); see also
Ministerial, Black’s Law Dictionary (11th ed. 2019) (defining
“ministerial” as “relating to . . . an act that involves obedience to
instructions or laws instead of discretion, judgment, or skill”). On
this basis, this court concluded that “a determination regarding
the validity of the mail-in vote, the Amended Articles, or any of
the resulting changes” were “legal questions that [fell] outside the
Division’s authority.” Laumalie, 2019 UT App 41, ¶ 49.
¶15 FWC resists this conclusion by arguing that Utah Code
section 16-6a-203 grants “the Division the authority to make
‘conclusive’ determinations regarding the validity of articles of
incorporation and amended articles of incorporation.” See Utah
Code Ann. § 16-6a-203(2) (LexisNexis Supp. 2021)
(“Notwithstanding Subsection 16-6a-110(4), the filing of the
articles of incorporation by the division is conclusive proof that
20200778-CA 6 2022 UT App 102Church of Tonga v. Division of Corporations
all conditions precedent to incorporation have been
satisfied . . . .”). But our case law indicates otherwise. Indeed, this
court explicitly rejected reading section 203 as granting any
authority to the Division to determine the ultimate legal validity
of articles of incorporation. See Laumalie, 2019 UT App 41, ¶ 42.
Rather, this court has interpreted this section to mean that the
Division’s acceptance of articles of incorporation signals that “the
relevant entity is conclusively recognized in Utah as a nonprofit
corporation that is in existence.” Id. ¶ 42 (cleaned up). And this
court rejected FWC’s interpretation of section 203 that
“attempt[ed] to inflate” the “adjudicative authority” of the
Division to determine whether corporate changes are “made with
proper authority.” See id. Put simply, filing the articles is
conclusive proof that conditions precedent to the corporation’s
existence have been satisfied. But section 203 does not speak to
the underlying validity of the articles; rather, it merely says that
filing the articles brings the corporation into existence—even if
those articles are later determined to be incorrect or invalid.
¶16 Thus—as was explained in the appeal of the Private
Litigation—because TUMC never challenged the existence of the
corporation, it was not required to first exhaust administrative
remedies with the Division. See id. ¶ 47; see also Utah Code Ann.
§ 16-6a-111 (LexisNexis 2013) (providing that a nonprofit
corporation may appeal the Division’s refusal “to file a document
delivered to it for filing” and “may appeal the refusal to the
executive director” of the Department of Commerce). Here,
TUMC challenged the underlying validity of a document
properly filed with the Division—a document the validity of
which the Division lacked the statutory authority to determine. In
other words, TUMC could not pursue an administrative remedy
with the Division because the Division lacked the authority to
offer one in this context. Rather, as this court determined, “the
district court had subject matter jurisdiction over the dispute”
concerning the validity of the Amended Articles. See Laumalie,
2019 UT App 41, ¶ 49.
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¶17 Additionally, the Division was required to give effect to the
orders of the court in the Private Litigation. As this court stated,
“District courts have original jurisdiction in all matters except as
limited by statute. Thus, district courts have subject matter
jurisdiction over a legal claim unless adjudicative authority for
that claim is specifically delegated to an administrative agency.”
See id. ¶ 38 (cleaned up); see also Utah Const. art. VIII, § 5 (“The
district court shall have original jurisdiction in all matters except
as limited by this constitution or by statute . . . .”); accord Zions
Mgmt. Services v. Record, 2013 UT 36, ¶ 24, 305 P.3d 1062; Osmond
Senior Living LLC v. Utah Dep’t of Public Safety, 2018 UT App 218,
¶ 11, 437 P.3d 621. The Division had no authority to adjudicate the
validity of the Amended Articles; thus, it properly belonged to the
district court to make a validity determination in the Private
Litigation. See Utah Const. art. V, § 1 (“The powers of the
government of the State of Utah shall be divided into three
distinct departments, the Legislative, the Executive, and the
Judicial; and no person charged with the exercise of powers
properly belonging to one of these departments, shall exercise any
functions appertaining to either of the others, except in the cases
herein expressly directed or permitted.”).
¶18 And because the district court had adjudicative authority
to determine the validity of the Amended Articles and the
Division had no such power, the Division was obligated to give
effect to the outcome of the Private Litigation. After all, by statute,
the Division “is responsible for corporation . . . filings in this
state.” See Utah Code Ann. § 13-1a-1 (LexisNexis 2013). With such
responsibility, the Division has “the power and authority
reasonably necessary to enable it to efficiently administer the laws
and rules for which it is responsible and to perform the duties
imposed upon it by law.” See id. § 13-1a-6; see also id. § 16-6a-104
(“The [D]ivision has the power reasonably necessary to perform
the duties required of the [D]ivision under [the Act].”). Thus, to
adequately perform its ministerial duty—a duty devoid of the
ability to make a validity determination—the Division must be
20200778-CA 8 2022 UT App 102Church of Tonga v. Division of Corporations
able to give effect to a court order regarding the validity of articles
of incorporation. As the Division points out, any “other
interpretation of the Division’s authority would be nonsensical
and lead to the absurd result that FWC . . . advocate[s] for here—
that the Division may not revoke a filing that the courts have
deemed to be invalid.” See Encon Utah, LLC v. Fluor Ames Kraemer,
LLC, 2009 UT 7, ¶ 73, 210 P.3d 263 (“When statutory language
plausibly presents the court with two alternative readings, we
prefer the reading that avoids absurd results.” (cleaned up)).
¶19 Nye v. Bacon, 18 P.2d 289 (Utah 1933), illustrates how the
Division is bound by the decision rendered in the Private
Litigation. In Nye, two parties (Nye and Johnson) disputed the
ownership of water rights. Id. at 289. Nye claimed the rights were
private and belonged to him, while Johnson argued that they were
public and subject to his appropriation. Id. at 291. Nye brought
suit in the district court, which found and decreed that the water
rights were private and belonged to Nye. Id. at 290. Johnson then
filed an application with the state engineer to appropriate the
waters in question. Id. at 289. Nye served a copy of the findings
and decree from the district court on the state engineer. Id. at 290.
The state engineer nevertheless approved Johnson’s application.
Id. Nye then filed a motion seeking relief with the district court,
which determined the parties were precluded by the former
ruling and vacated the state engineer’s approval of the
application. Id.
¶20 On appeal, Johnson argued “that it was within the
exclusive province of the state engineer to determine whether the
waters in question were or were not public waters and that the
district court was without jurisdiction to hear or determine
whether or not the waters involved were public or private
waters.” Id. (cleaned up). For the state engineer’s authority,
Johnson relied on statutory language and case law stating “that
the right . . . to divert and use unappropriated water must be
initiated by filing an application in the state engineer’s office.” Id.
20200778-CA 9 2022 UT App 102Church of Tonga v. Division of Corporations
at 290–91 (cleaned up). Our supreme court deemed the case law
inapplicable, apparently because it concerned “the method of
acquiring . . . rights to the unappropriated public waters of the
state” rather than an underlying determination of whether the
water in question was private and appropriated or public and
unappropriated. Id. at 291. Given that it was within the district
court’s jurisdiction to determine whether the water was public or
private, the court affirmed the judgment below and stated that the
district court’s judgment was binding on the parties and the state
engineer, even though he was not a party to the proceedings. Id.
¶21 Just as the state engineer in Nye had no authority to
determine whether the waters were public or private and,
consequently, was required to defer to the decision rendered on
that issue by a court of competent jurisdiction, the Division had
no authority to determine the validity of the Amended Articles
and was required to give effect to the ruling of the district court
on the issue of their validity.3 As a result, the Division acted
properly in rescinding the Amended Articles consistent with the
judgment of the district court in the Private Litigation.
CONCLUSION
¶22 Because the Division lacked the authority to determine the
validity or invalidity of FWC’s amended articles, we affirm the
district court’s order dismissing FWC’s petition.
3. FWC attempts to factually distinguish Nye v. Bacon, 18 P.2d 289(Utah 1933), on the basis that the court’s decision there was
rendered before the agency action took place, while here the
agency action took place prior to the court’s decision. We fail to
see how this chronology has any impact on the applicability of
Nye to the underlying premise that the Division was required to
give effect to the court’s order that the Amended Articles were
invalid.
20200778-CA 10 2022 UT App 102