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New Mexico Military Institute v. NMMI Alumni Association, Inc.

Court of Appeals of New Mexico

October 22, 2018

NEW MEXICO MILITARY INSTITUTE, Plaintiff-Appellee,
v.
NMMI ALUMNI ASSOCIATION, INC., a New Mexico non-profit corporation, Defendant-Appellant.

          APPEAL FROM THE DISTRICT COURT OF CHAVES COUNTY Jane Shuler Gray, District Judge

          Hinkle Shanor, LLP Richard E. Olson Parker B. Folse Roswell, NM for Appellee

          Keleher & McLeod, P.A. Jeffrey A. Dahl Michael G. Smith Albuquerque, NM for Appellant

          OPINION

          EMIL J. KIEHNE, JUDGE

         {¶1} The New Mexico Military Institute (NMMI) sued the New Mexico Military Institute Alumni Association, Inc. (the Association), claiming that the Association breached its contractual obligation to maintain a proper financial accounting system and also alleging that the Association was NMMI's agent. NMMI asked that the Association be made to turn over donations it received while acting as NMMI's agent. After a bench trial, the district court found that the Association had not breached its contractual obligations to NMMI, but it also found that the contract between the Association and NMMI was terminable at will, that the Association was NMMI's agent, and that NMMI had legally terminated the contract and revoked the Association's authority to act as its agent. Based upon its latter findings, the district court imposed a constructive trust over donations that the Association received while acting as NMMI's agent.

         {¶2} The Association appeals, claiming that: (1) NMMI lacked standing to bring its claims against the Association; (2) the district court's ruling that the contract was terminable at will should be reversed because NMMI did not raise that theory until after trial; (3) the district court's agency determination was not supported by substantial evidence; (4) imposition of a constructive trust was improper;. and (5) requiring the Association to turn over donations that it received to NMMI violated the donors' intent. We hold that NMMI had standing, we affirm the district court's agency finding and the imposition of the constructive trust, and we reject the Association's claim that the constructive trust violates the donors' intent. Because we conclude that NMMI had a right to terminate its agency relationship with the Association regardless of the existence of the contract between them, we do not reach the questions of whether the contract was terminable at will or whether NMMI appropriately terminated the contract.

         BACKGROUND

         {¶3} NMMI is a state-funded school that provides students with up to four years of high school and two years of junior college instruction. The Association is a nonprofit corporation whose purpose, as stated in its articles of incorporation, is "to promote the interest and welfare of [NMMI]. . .; to afford a permanent means of contact between [NMMI] and its alumni; to create, establish and maintain scholarships and student loan funds; and to collect and administer trust funds and endowments for the use and benefit of [NMMI]; and to do generally any and all things which may be deemed advisable, necessary or desirable in the interest of the [NMMI], its students and faculty." The Association's bylaws also describe its purposes as being, among other things, "[t]o promote the interest and welfare of the [NMMI, ]" to "foster[] lifelong connections between its Alumni and [NMMI, ]" and to "help establish and maintain scholarships, in conjunction with the New Mexico Military Institute Foundation (the NMMI Foundation), for deserving cadets to attend [NMMI.]"

         {¶4} The Association was incorporated in 1964 and was originally staffed by NMMI employees. In 1993 the Association and NMMI entered into a Memorandum of Agreement (MOA), and the staffers handling alumni communication and coordination left the employment of NMMI and became employees of the Association. The employees' duties did not change. NMMI continued to provide office space and utilities to the Association free of charge. The Association staff also used NMMI phone lines and email servers, and used "@nmmi.edu" email addresses.

         {¶5} The Association and NMMI entered into a series of agreements between 1993 and 2013. The first was the 1993 MOA referenced above. In 2001 the Association and NMMI entered into a new MOA (the 2001 MOA). They entered into a third MOA in 2012 (the 2012 MOA). The 2001 MOA contained a number of affirmative covenants requiring the Association to do a number of things unless excused in writing by NMMI. These included maintaining the Association's status as a 501(c)(3) corporation; maintaining the composition of the membership of its board of directors in accordance with its bylaws; employing an executive secretary selected by its board of directors; and retaining advisory and other professional services as deemed necessary to perform its primary function of supporting NMMI; serving as the primary repository of records relating to NMMI alumni; providing NMMI publications to alumni, cadets, and patrons; maintaining a database with continued updates of all alumni to be used by NMMI for fundraising programs; and receiving donations and disbursing those funds in conformity with any conditions imposed by the donors and in accordance with NMMI rules and regulations governing financial aid to cadets.

         {¶6} The 2012 MOA contained the same affirmative covenants. The 2012 MOA also contained language stating that NMMI had reviewed the Association's articles and bylaws and "found them acceptable" and that any proposed amendments would be provided to NMMI for consideration and comment. All three MO As contained provisions obligating the Association to manage, document and track its financial activity and provide financial information to NMMI. The 1993 and 2001 MO As contained language stating that the Association was not NMMI's agent. The 2012 MOA, however, did not contain this language and did not say anything about whether an agency relationship existed between the parties.

         {¶7} NMMI, the Association, and the NMMI Foundation, a non-profit foundation that provides primarily financial support to NMMI, provided financial support to the Association, and holds scholarship funds for students of NMMI, also entered into an "Alliance Agreement" to coordinate fundraising efforts. The Alliance Agreement outlined the duties of each party relating to fundraising. This agreement required that the Association supply an annual budget to the Alliance Committee, a group made up of representatives from the NMMI Foundation, NMMI, and the Association for approval.

         {¶8} The Association held funds given to it by donors for the purpose of providing scholarships to NMMI students. Some of these funds had donor-imposed restrictions. The scholarship committee, which consisted of representatives from NMMI, the Association, and the NMMI Foundation, met each February to award scholarships from those funds. Students seeking scholarships would contact NMMI's financial aid office, and if a scholarship was awarded to a student using the Association's funds, NMMI would bill the Association at the end of the academic year.

         {¶9} In July 2009, NMMI hired a new president and superintendent, Major General Jerry Grizzle. General Grizzle reviewed the agreements between NMMI and the Association that were then in force, including the 2001 MOA and the Third Amended Alliance Agreement. General Grizzle believed that the 2001 MOA was outdated and wanted to update it to reflect "current processes, procedures, titles." General Grizzle also became concerned about the Association's operations and believed it was "in violation of every condition" in the 2001 MOA. Beginning in 2010, General Grizzle had discussions with successive board presidents of the Association about his concerns. General Grizzle's primary concern was his belief that the Association was not complying with the MOA's provisions governing financial accounting and management of its finances. These efforts resulted in the parties signing the 2012 MOA.

         {¶10} The Association, however, still did not provide any audited financial statements to NMMI, and it appeared to General Grizzle that the Association was not likely to file a timely, audited tax return. Thus, on February 21, 2013, NMMI's Board of Regents sent a letter to the Association stating that it intended to terminate the 2012 MOA because the Association had not maintained an adequate financial accounting system and had not provided NMMI with a copy of its annual audit, and asking it to cure these problems within thirty days. The Association did not respond to this letter. In April 2013, NMMI sent a final notice to the ...


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