Patricia Crosby v. Southern Regional Corporation

• Court: Mississippi Supreme Court
• Decided: January 8, 2003
• Docket: 2003-CA-00219-SCT
• Status: Published

Opinion

IN THE SUPREME COURT OF MISSISSIPPI

NO. 2003-CA-00219-SCT

THE CITY OF PICAYUNE, A MISSISSIPPI MUNICIPAL CORPORATION; PATRICIA CROSBY, WOODY SPIERS, AHMAD HAIDAR, M.D., JOHN R. PIGOTT, MARIA G. BEVERAGE, CROSBY HOSPITAL AUXILIARY, AN UNINCORPORATED ASSOCIATION, THROUGH ITS PRESIDENT MARTHA J. SHEPPARD

v.

SOUTHERN REGIONAL CORPORATION f/k/a LUCIUS O. CROSBY MEMORIAL HOSPITAL, A MISSISSIPPI NON-PROFIT CORPORATION, AND SIDNEY L. WHITLEY, TED J. ALEXANDER, STANLEY JACK WATSON, CLYDE DEASE, JO WOODS, CHARLOTTE ODOM, THOMAS M. CASEY AND LOWER PEARL RIVER VALLEY FOUNDATION, A MISSISSIPPI NON-PROFIT CORPORATION

DATE OF JUDGMENT: 01/08/2003 TRIAL JUDGE: HON. JAMES H. C. THOMAS, JR. COURT FROM WHICH APPEALED: PEARL RIVER COUNTY CHANCERY COURT

ATTORNEYS FOR APPELLANTS: G. GERALD CRUTHIRD GLENN LOUIS WHITE STEPHEN SHEPPARD ATTORNEYS FOR APPELLEES: SCOTT W. PEDIGO JAMES LAWRENCE JONES NATURE OF THE CASE: CIVIL - WILLS, TRUSTS, AND ESTATES DISPOSITION: ON DIRECT APPEAL: AFFIRMED. ON CROSS- APPEAL: REVERSED AND RENDERED - 12/08/2005 MOTION FOR REHEARING FILED: MANDATE ISSUED:

BEFORE WALLER, P.J., CARLSON, AND RANDOLPH, JJ. CARLSON, JUSTICE, FOR THE COURT:

¶1. This case is before us on appeal from a judgment handed down by the Pearl River

County Chancery Court wherein the chancellor ruled to dismiss all claims asserted by

representative citizens of the City of Picayune against the Southern Regional Corporation, the

Lower Pearl River Valley Foundation and the common board of directors known to each.

Additionally, this case is before us on cross-appeal, as the named defendants challenge a

collateral determination made by the chancellor wherein he recognized that the representative

citizens of Picayune had standing to bring this action. Focusing on the threshold issue

presented on cross-appeal, we affirm the chancery court’s judgment on direct appeal, but for

reasons different than those stated by the chancellor. Finding that the representative citizens

lacked the requisite standing to bring this suit, we reverse the chancellor’s judgment finding

that the representative citizens of the City of Picayune had standing to bring this action, and

render judgment here in favor of the appellees/cross-appellants.

FACTS AND THE PROCEEDINGS IN THE CHANCERY COURT

A. The history and incorporation of the Crosby Memorial Hospital Corporation:

¶2. In 1949, the City of Picayune (“the City”) began to consider building a hospital for the

benefit of its residents. The December 12, 1949, minutes of the Mayor and Board of

Alderman evidence this intention and reflect that the Ethel Crosby Foundation donated money

to the City for the stated purpose of purchasing land on which to build a new hospital. While

it is unclear who was originally responsible for the hospital initiative, it is clear that in 1950

the City issued hospital bonds in the amount of $90,000 and approved a contract for an

2 architect to draw up the plans for its proposed municipal hospital, only to release the architect

the very next year when it was unable to secure a grant of federal funds.

¶3. In 1951, the Crosby family, who had a sincere interest in providing their community

with a functional medical center, incorporated the Lucius O. Crosby Memorial Hospital

(heretofore referred to as the “Crosby Memorial Hospital Corporation” or “CMHC”).1 Clearly

a corporate expression of the Crosby family’s desire to give back to their community, the

Crosby Memorial Hospital Corporation was incorporated as a Mississippi nonprofit with a

strictly charitable purpose. The incorporators are listed on the charter as: R.H. Crosby; R.H.

Crosby, Jr.; L.O. Crosby, Jr.; Richard C. Crosby; and T.L. Crosby and for corporate purposes

are considered the original “members.”2

¶4. The charitable purpose of the Crosby family’s corporation was “to acquire real estate

for and to construct, purchase and otherwise acquire, equip, operate and maintain one or more

hospitals...” Pursuant to the corporation’s newly specified bylaws, the already-named

corporate “members” were empowered to and did elect the Crosby Memorial Hospital

Corporation’s Board of Trustees.3 Accordingly, they appointed five officers to this board for

one year terms and charged each of them with the duty of managing the day-to-day business of

1 The Lucius O. Crosby Memorial Hospital is the original corporate entity initiated by the Crosby family to aid in providing the Picayune community with a hospital. This corporation would eventually become known as the Southern Regional Corporation.

2 Member, as defined by Miss. Code Ann. § 79-11-127(v) means any person who on one or more occasion pursuant to a provision of a corporation’s articles or bylaws has the right to vote for the election of a director or directors.

3 For the purpose of this case and as determined by Chancellor Thomas, the term “Trustees” is of no real legal significance other than its use as a term of reference for a governing body within the Crosby Memorial Hospital Corporation.

3 the corporation. At different times, and up until 1977, Crosby family members held a majority

of the management positions within CMHC and, in this way, served the corporation as

“Members”, Trustees and managing corporate officers.

¶5. On October 2, 1951, after the City withdrew its application for a license to operate a

hospital and sold the donated land where the hospital was to have been built, CMCH proceeded

in the City’s stead and oversaw the construction of what became the Crosby Memorial

Hospital(“CMH”). Raising funds from grants-in-aid which came from the State of Mississippi

in the amount of $184,590, from the Ethel Crosby Foundation in the amount of $92,395, and

from Crosby Chemical, Inc. in the amount of $675,298, the Crosbys utilized CMHC as their

vehicle to erect CMH for a total cost of $952,284. Upon completion, CMH was then leased

to the City for token consideration.

¶6. From 1954 to October 27, 1964, CMHC entered into three successive lease

agreements with the City. After the final lease term terminated, the City assigned all of its

rights relating to CMH back to CMHC, which planned to manage CMH as a nonprofit facility

for the next ten years. Coordinate to this assignment, CMCH amended its bylaws.

Accordingly, the Crosby family amended the corporate charter to allow for the expansion of

membership “at any time by consent of a majority of members present at any meeting,” to

expand the Board of Trustees from five (5) to seven (7) trustees and to create an additional

Board of Governors, which was charged with overseeing the operations of the hospital and

related facilities. Specifically, the bylaws required that the new Board of Governors be elected

by CMHC’s Board of Trustees.

4 ¶7. After the 1964 assignment, no significant changes occurred until 1977. Up until this

time, the management positions of CMHC had been predominantly held by members of the

Crosby family; however, in August 1977, the Crosby family members effectuated a major

change in their closely held corporation by officially resigning their positions with CMHC’s

management. To this end, the participant “members” of the Crosby family turned in their

resignations after unanimously electing seven new “members” pursuant to the enumerated

corporate structure. The newly elected, non-Crosby family “members” were: S.G. Thigpen,

Jr., Dr. D.L. Bolton, Dr. C.G. Blackburn, Ms. Trinity Williams, Ms. R.B. Vaughn, R.T.

McRaney and C.J. Chatman. In turning over the reins of their non-profit corporation to the new

members, the Crosbys imposed no restrictions on the corporation’s assets.4

¶8. The front office and organizational changes made within CMHC were accompanied by

improvements to CMH’s facilities. City records show that the City council worked with CMH

to improve the facility, either by providing additional city services, or waiving fees for building

permits or other municipal costs incurred by CMH.

¶9. In 1987, CMHC, with the secretary of state’s approval, again amended and restated its

charter and corporate mission.5 The revised charter expanded the corporate purpose, and the

corporation officially became “a nonprofit, non-share corporation for charitable, medical,

scientific and educational purposes.” The broad purposes included in the charter focused on

4 By virtue of their positions with Crosby Memorial Hospital prior to their resignation, the Crosbys could have added specific provisions within the corporate charter imposing a trust, or otherwise restricting corporate assets; however, in the process of removing themselves from corporate management, they included no such provisions.

5 A restated charter allows a corporation to bring all of its amendments forward into one new document and to simply add only the newest amendments. In today’s case, without restatement there would be a charter in 1951 with thirty six years of amendments.

5 “participating, so far as circumstances may warrant, in any activity designed and carried on to

promote the general health of the community.” Additionally, the 1987 amendments allowed

for Communicare Systems, Inc. to be included in the CMHC membership and streamlined

corporate management down to a singular Board of Governors elected directly by the

corporate members. The 1987 amendments included important language concerning the

dissolution of the corporation. Paragraph 10 of the amendments provided:

Upon the dissolution of the corporation, the Board of Governors shall, after paying or making provision for the payment of all the liabilities of the corporation, dispose of all assets of the corporation exclusively for the purposes of the corporation in such manner, or to such organization or organizations organized and operated exclusively for charitable, educational, religious, or scientific purposes as shall at the time qualified as an exempt organization or organizations under section 501(c)(3) of the Internal Revenue Code of 1954 (or the corresponding provision of any further United States Internal Revenue Law), as the Board of Governors shall determine. Any such assets not disposed of shall be disposed of by the Chancery Court of the county in which the principal office of the corporation is then located, exclusively for such purposes or to such organization or organizations, as said Court shall determine, which are organized and operated exclusively for such purposes.

¶10. After the adoption of the 1987 amended charter, four years passed until more changes

were implemented, and, in 1992, CMHC was again streamlined. According to the newly revised

Articles of Incorporation, there was to be one governing body, the Board of Governors,

comprised of nine individuals serving both roles of “member” and “governor.” Importantly,

this new corporate structure, with a single governing board, has remained in place ever since.

Another major change resulting from the 1992 amendments was the merger of Crosby Health

Foundation, CMH, and Communicare Systems. Moreover, Articles of Merger were filed with

the Secretary of State and the bylaws of CMHC became the bylaws of the new unified

corporation.

6 B. The Crosby Memorial Hospital Corporation’s decision to sell and lease CMH, and to incorporate a new charitable foundation with the proceeds:

¶11. In 1995, the Crosby Memorial Hospital Corporation began to assess alternatives to

confront the many challenges it faced as a small nonprofit community hospital. Faced with a

dilemma typical to the age and the nature of its facility, the Board of Governors was forced to

evaluate glaring and evolving problems associated with both its physical plant and the new

dynamics of a competitive health care market. Thus, the Board of Governors began discussing

the practicability of renovating its facility and the long term financial viability of undertaking

such a project.

¶12. In pursuit of a comprehensive financial review, the Board of Governors initiated several

surveys, studies, and assessments, including a facility survey and evaluation, a debt capacity

study, and a community needs survey. After three years of review, the Board of Governors

determined that it would be imprudent and impractical to finance the significant needed

renovations to the hospital, or in the alternative, to build a new facility. Accordingly, CMHC

began actively pursuing buyers for CMH and, in August 1998, it issued a letter of intent

confirming a proposed sale of the facility to New American Healthcare Corporation

(“NAHC”). The letter of intent contained material terms of the parties’ agreement.6 In

addition to standard buyout terms, NAHC agreed to become contractually obligated to spend

6 Specifically, the terms provided that NAHC, or its affiliate NAHC of Mississippi, would lease and purchase all of the CMHC assets; CMH (the physical plant and its surrounding real estate) would be leased for a $15 million advance lease payment; and, the other non-cash assets would be purchased, except that the Southern Regional Corporation (SRC) would retain its community fitness center (the Cornerstone). Additionally, NAHC agreed to contribute $500,000 to a private foundation (LPRVF) to be established by SRC.

7 at least $18 million in constructing a new hospital facility within 30 months and in the interim

to: (a) spend an average of at least $600,000 per annum for up to three years on repair and

maintenance of the existing facility; and, (b) operate a 24-hour emergency room and provide

obstetrical services for at least five years.

¶13. In preparation of the sale to NAHC, and in order to accommodate the impending liquid

nature of corporate assets, the CMHC Board of Governors restated its articles of

incorporation and renamed its company the Southern Regional Corporation (“SRC”).7 The

corporate nature of SRC was reflected by its stated purpose, which was “to participate, so far

as circumstances may warrant, in any activity designed and carried on to promote the general

health of the community” and “to make grants to other 501(c)(3) entities organized exclusively

for charitable, religious, educational, and scientific purposes, including but not limited to the

Lower Pearl River Valley Foundation.” Of note, the statement of purpose to operate a hospital

was removed due to the inclusion of contractual language that forbade SRC from operating a

hospital in NAHC of Mississippi’s market area, and the name change was accomplished to

avoid confusion between CMHC and CMH, which was now being operated by NAHC of

Mississippi. These corporate amendments were filed with the Mississippi Secretary of State’s

office in February of 1999.

¶14. The primary, post-sale corporation was to become the Lower Pearl River Valley

Foundation (LPRVF), which was officially incorporated in 1998. The registered agent at the

time of incorporation was Ted Alexander, who was concurrently serving on the Board of

Governors of SRC. Specifically, Ted Alexander, Sidney Whitley, Stanley Watson, Clyde

7 See supra, footnote 5.

8 Dease, Thomas Casey and Calvin Green all served on the LPRVF Board. Notably, all board

members except Calvin Green, who was the acting administrator of CMH, served on the SRC

Board. The Board of Governors of SRC incorporated LPRVF in order to serve the community

with charitable grants and, like SRC, also incorporated LPRVF as a Mississippi non-profit

corporation, exempt from federal and state taxes. Unlike SRC, however, LPRVF was classified

as a private foundation under the Internal Revenue Code. Consistent with their corporate, non-

profit charter and their tax-exempt status, SRC and LPRVF were prohibited from providing

financial support to for-profit entities as all monies associated with either corporation were

designated for charitable use. While both corporations existed concurrently, SRC’s continued

existence was primarily to finalize the sale of CMH to NAHC, close out pension plans, and

deal with pending lawsuits.

¶15. Proceeds from the sale and lease of the CMH facility were transferred to LPRVF and

SRC. Specifically, per the NAHC-SRC transaction, NAHC of Mississippi paid $500,000

directly to LPRVF, $1,500,000 to SRC for operational expenses, and ultimately paid out the

balance of the purchase price, approximately $15,520,000, to LPRVF via SRC to be passed on

after the transaction was completed.8 Both SRC and LPRVF presidents signed the assumption

and waiver agreement with NAHC of Mississippi and its parent company NAHC, and the

transfer was unanimously approved by SRC’s Board members.

¶16. Pursuant to its status as a Code 501(c)(3) entity, LPRVF through its written investment,

grant making, conflict of interest, and financial disclosure policies, ensured that its assets

8 According to the minutes of the LPRVF meeting held on February 5, 1999, the funds given to LPRVF by SRC from the sale of CMH (a.k.a. the Crosby Memorial Hospital facility) were to be transferred to LPRVF from the CMH account after the completion of the sale.

9 would be administered for the benefit of the community and not enure for the benefit of private

individuals.9

¶17. After the purchase of CMH from SRC, NAHC filed for Chapter 11 bankruptcy. In

August of 2000, Picayune Clinic leased the CMH facility from NAHC through negotiations

which were approved by SRC, which still retained legal ownership of the hospital facility. At

the time of the chancery court ruling in this case, Picayune Clinic was operating CMH as a for-

profit hospital. As part of its contract with NAHC and SRC, the Picayune Clinic was required

to make annual capital improvements to the hospital facility in the amount of $600,000 and to

provide acute care services at the same level as previously provided by CMH, including

obstetrical and emergency services. Additionally, Picayune Clinic agreed not to pursue any of

the proceeds from the NAHC transaction, so as not to imperil the tax exempt status of LPRVF.

C. Proceedings in Chancery Court:

¶18. Soon after the NAHC bankruptcy, the City filed suit in the Chancery Court of Pearl

River County on behalf of the citizens of Picayune and surrounding areas naming SRC, LPRVF,

and the seven directors of two corporate entities as defendants.10 In its complaint, the City

alleged, inter alia, that the assets of SRC and LPRVF were held in trust for the benefit of the

citizens of Picayune by way of an implied trust; that the City was entitled to damages for

restitution due to the defendants’ negligent entrustment of trust properties; and, that the City

9 LPRVF’s financial disclosure policy provides for annual reporting to the Attorney General, disclosure of information to the public in response to requests and on a yearly basis, and the public announcement of all grants. Moreover, LPRVF is required by federal law to award grants of at least five percent of its funds each year, which may be paid from investment income on the funds.

10 The named directors were Sidney L. Whitely, Ted J. Alexander, Stanley Jack Watson, Clyde Dease, Jo Woods, Charlotte Odom, and Thomas M. Casey (collectively, the “defendants”).

10 was entitled to an equitable accounting, appointment of a master and receiver, and other

appropriate relief.

¶19. The defendants responded by initially removing the case to the United States District

Court for the Southern District of Mississippi and then, subsequently, to the United States

Bankruptcy Court for the Middle District of Tennessee. When both removals resulted in

remand to state court, the defendants proceeded in chancery court and filed a motion

requesting dismissal, asserting that the City lacked the requisite standing to pursue its claims

and had failed to state a claim upon which relief could be granted. Specifically, the defendants

argued that the City was unable to assert a claim on behalf of its citizens and the residents of

the surrounding area. In response to this motion, Chancellor James H.C. Thomas, Jr., entered

an order dismissing all of the City’s claims asserted on behalf of its citizens, but authorizing

the City to pursue claims asserted through its corporate capacity.

¶20. In response to the dismissal order, Patricia Crosby, Woody Spiers, Ahmad Haidar, John

R. Pigott, Maria Beverage and Martha Sheppard (collectively “the Intervenors”) intervened and

re-asserted the legal positions and adopted the discovery responses submitted by the City.

However, the City subsequently dismissed all of its claims with prejudice, thus leaving the

Intervenors to pursue their representative claims. In addition to the City’s original claims, the

Intervenors added allegations that they, “as individual citizens could show that they were

victims of fraud, duress or other unconscionable conduct on the part of the Defendants

resulting in the defendants’ obtaining and holding title to the proceeds and other assets derived

from the lease and sale [of CMH] so that a constructive trust has arisen for their benefit.” By

way of direct response to the Intervenors’ presence in the suit and their allegations, the

11 defendants filed motions with the chancery court to dismiss the Intervenors’ claims for lack

of standing. In an order handed down on December 26, 2001, Chancellor Thomas denied the

defendants’ motion pending consideration of evidence at trial.

¶21. After a four day trial in July, 2002, the chancellor, despite recognizing standing,

dismissed the Intervenors’ claims. In so ruling, Chancellor Thomas made note of SRC’s

prominent charitable role in the City of Picayune and the mutually beneficial relationship

which the two entities had maintained over the previous five decades. Aggrieved by the ruling

of the chancery court, the Intervenors timely filed their notice of appeal from the chancellor’s

final judgment. In turn, the defendants filed a cross-appeal with this Court challenging both the

chancellor’s order granting the Intervenors’ motion to intervene and the chancellor’s opinion

concluding that the Intervenors had standing to bring suit. Both appeals are now properly

before this Court for disposition.

STANDARD OF REVIEW

¶22. The standard of review for findings of fact by the chancellor is that such findings will

not be disturbed on appeal unless they are manifestly wrong, clearly erroneous, or not

supported by substantial credible evidence. Brown v. Mississippi Dept. of Human Services,

806 So.2d 1004, 1005 (Miss. 2000) (citing Sandlin v. Sandlin, 699 So.2d 1198, 1202 (Miss.

1997). Where there is substantial evidence to support the chancellor’s findings, this Court is

without the authority to disturb the chancellor’s conclusions, although we might have found

otherwise as an original matter. In re Guardianship of Savell, 876 So.2d 308, 312 (Miss.

2004) (citing In re Estate of Harris, 539 So.2d 1040, 1043 (Miss. 1989)). Additionally,

where the chancellor has made no specific findings, we will proceed on the assumption that

12 the chancellor resolved all such fact issues in favor of the appellee. Newsom v. Newsom, 557

So.2d 511, 514 (Miss. 1990).

¶23. While we give deference to a chancellor’s determination of fact, we review the

chancellor’s determinations of law de novo. Importantly, questions regarding the applicability

of a constructive trust, or whether a party has legal standing to sue require us to examine both

case law and any appropriate statutory law in order to determine whether the relevant law was

properly applied in the trial court. In Davidson v. Davidson, 667 So.2d 616 (Miss. 1995), we

specified that this Court retains a de novo review of all questions of law, including those

regarding the applicability of a constructive trust. Id. at 620 (citing Seymour v. Brunswick,

655 So.2d 892 (Miss. 1995) and Harrison County v. City of Gulfport, 557 So.2d 780, 784

(Miss. 1990)). Additionally, in Brown v. Mississippi Dep’t of Human Servs., 806 So.2d 1004

(Miss. 2000), we considered the standard of review regarding standing. At issue in Brown was

whether Brown had legal standing to bring an action against the Department of Human Services

under the applicable statute after having assigned her rights in order to receive delinquent child

support payments from the Aid to Families with Dependent Children program. Id. at 1005. In

reconciling this issue and interpreting statute, we recognized that “[t]hese are questions of law

reviewed under the de novo standard.” Id. at 1006 (citing Dep’t of Human Servs. v. Gaddis,

730 So.2d 1116, 1117 (Miss. 1998); Miss. State Dep't of Human Servs. v. Barnett, 633

So.2d 430, 434 (Miss. 1993)).

DISCUSSION

13 ¶24. The Intervenors present several issues on appeal. Specifically, the Intervenors argue

that the proceeds realized from SRC’s sale and lease of CMH should be reserved by way of

either a constructive trust or an implied resulting trust. Furthermore, they argue that one of

these equitable trust remedies should have been imposed on the proceeds of the CMH

sale/lease and that the chancellor failed to declare that the assets held by SRC, as a charitable

corporation, should be dedicated to the corporation’s original purpose per application of the

cy-pres doctrine.11 Alternatively, under more common equitable principles, the Intervenors

ask this Court to find unjust enrichment, detrimental reliance, and breach of fiduciary duties

on the part of the defendant corporations and their board of governors.

¶25. Before addressing the Intervenors’ arguments, however, this Court must first consider

the threshold issue of standing, as raised on cross-appeal by the defendants. Accordingly, we

must determine whether the Intervenors had the right to participate in this cause of action and

to ultimately bring the defendants before the chancery court. Fundamental to this review is

whether SRC is a non-profit corporation whose purpose was to make charitable grants to the

City of Picayune and its surrounding community, or to hold its assets as a charitable trust

created for the benefit of the indefinite class of individuals who reside in the City of Picayune

and it surrounding areas. Once the appropriate characterization of SRC is established and the

body of law by which SRC is governed is determined, we must ultimately decide whether a

citizen, as a representative of the public’s interest, can legally challenge the authority, statutory

or otherwise, of a Mississippi non-profit corporation to manage its corporate assets. Finding

11 The cy-pres doctrine, whic h means as near as possible, is a rule of construction of instruments in equity by which the intention of the party is carried out as near as may be, when it would be impossible or illegal to afford the instrument its literal effect. Black’s Law Dictionary 387 (6th ed. 1990).

14 the standing issue presented on cross-appeal dispositive of this case, we find that the

chancellor erred in allowing the Intervenors to intervene in this action, since the Intervenors

failed to establish a substantive legal right on which to base their claims for relief. Similarly,

on direct appeal, we affirm the chancery court’s dismissal of the Intervenors’ claims, but for

reasons different than those stated by the chancellor.

I. WHETHER SRC, f/k/a LUCIOUS O. CROSBY MEMORIAL HOSPITAL, IS GOVERNED BY THE MISSISSIPPI NON-PROFIT CORPORATION ACT.

¶26. A determination of whether the defendants’ actions are governed by trust law or

corporate law is important to our review of the issue of the Intervenors’ standing. While

distinguishing the bodies of law is quite simple when made in the context of distinguishing

between a for-profit corporation and a private trust, it becomes more difficult when these legal

vehicles were created to accomplish a purely charitable purpose. Moreover, both mechanisms

are favored by our tax laws, can be tailored by its creator to achieve specific charitable

purposes and can be monitored by the state which, in the interest of the public, can ensure

accomplishment of such charitable purposes. Both are distinguishable and the equitable, as

well as statutory, jurisprudence applying to each is unique.

¶27. Our decision in Children’s Home Society v. City of Jackson, 230 Miss. 546, 93 So.2d

483 (1957) lends to confusion in resolving the issues of this case. Children’s Home Society

remains one of the rare cases where we previously discussed the two comparable bodies of law

invoked by the parties today. In analyzing Children’s Home Society, the law of the case can

15 be interpreted as stating that some principles of charitable trust law are interchangeable with

those of charitable corporate law. In Children’s Home Society, we stated:

Most of the principles applicable to charitable trusts are applicable to charitable corporations. The restrictions in the deed are valid and enforceable, as they would be if the property were given to individual trustees for charitable purposes. In each case the question is whether the rule which is applicable to trustees is applicable to the particular charitable corporation with respect to the restricted use of the property. The Gale deed warrants their application to the appellant. This is in accord with the stated purposes of the grantor and the general rule. 4 Scott, Trusts (2d ed. 1956) Sec. 348.1; Annotation 1941, 130 A.L.R. 1101, 1121; Old Ladies' Home Ass'n v. Grubbs' Estate, 1939, 191 Miss. 250, 199 So. 287, 2 So.2d 593.

230 Miss. at 554, 93 So.2d at 486.

¶28. In his opinion dismissing the claims of the Intervenors and re-asserting his finding of

standing, Chancellor Thomas cited to and interpreted the above language correctly, and noted

that a corporation can be held as a holder of trust property. Applying this language to the case

at bar, the chancellor reconciled that there was no evidence of restrictions and no evidence of

trust language contained in the corporate documents of SRC or the documents relating to the

purchase of the land by CMH. In his opinion, the chancellor invited this Court to review this

area of the law and noted that “the Supreme Court has given little guidance over which rules

applicable to trustees [are] applicable to charitable corporations.”

¶29. Children’s Home Society dealt with a charitable trust in which the donor expressly

delineated how trust property was to be passed in the event that the charitable use for which he

intended his trust property terminated. Id. at 484. Since the gift was originally given in trust

to a non-profit, charitable corporation, the question before this Court was whether the non-

profit corporation should (1) be permitted to sell or lease the donated property and dedicate

16 the proceeds to its charitable purpose, or (2) be required to follow the express terms of the

instrument which created the charitable trust. In ruling that the gift must follow the express

terms of the trust, this Court noted that the equitable doctrine of approximation was inoperable

where a settlor had made an express provision for an alternative disposition of his property. 12

Id. at 488. Stressing the importance of the donor’s intent, this Court paid homage to the

settlor’s manifest intent and ruled that permitting the non-profit corporation to sell the trust

property in this case would emasculate the purpose of his gift. Id.

¶30. Children’s Home Society is easily distinguishable from the case at bar. The language

found in Children’s Home Society and the very resolution of the case were solely dependent

on principles of trust law. Moreover, in that case there was a gift, albeit made to a non-profit

corporation, in which disposition, as properly determined by this Court, was strictly subject

to the express terms set forth by the trust instrument. It follows that in such cases, non-profit

corporations are placed in the exact same position as a trustee would be for purposes of

executing a trust instrument and, thus, are similarly subject to the restrictions placed on the

use of the property as a trustee would be. In this unique way, charitable trusts and charitable

corporations are bound by the same restriction – donor intent. Accordingly, the express intent

of the donor and the charitable purpose for which that donor created the trust maintain their

sanctity no matter in whose care the trust is placed or what kind of entity is benefitted by or

controls the trust res.

12 The Doctrine of Approximation allows a court to substitute another charitable object which it believes approaches the original purpose of a trust when compliance with the original purpose becomes impracticable.

17 ¶31. As noted, Children’s Home Society is the rare case wherein we discern the common

ground shared by trust and corporate law with respect to charities. With that in mind and for

purposes of comparison, we look to another jurisdiction in order to examine its similar

approach to this issue in a case involving a parallel factual scenario. In so doing, we make

initial note of Kansas State District Court Judge Stephen D. Hill’s unique appraisal of the

arguments presented before him at trial and we agree with his assessment of the case in which

he likened the two contrasting arguments, and the different bodies of law presented, to “ships,

on two completely separate courses, passing in the night.” Kansas East Conference of United

Methodist Church, Inc. v. Bethany Medical Center, Inc., 266 Kan. 366, 370, 969 P.2d 859,

862, (Kan. 1998).13 In United Methodist Church, the Kansas Supreme Court, applying

reasoning similar to that which we use today, had to decide whether trust or corporate law

governed the resolution of its case. Moreover, the Kansas Supreme Court had to determine

whether the $40 million dollar sale of assets by the Bethany Medical Center, a not-for-profit

charitable corporation pursuant to the Charitable Organizations and Solicitations Act [COSA],

was governed by trust law or corporate law. Id. at 860-61. Bethany’s Board was originally

controlled by another interested party but, based on amendments to Bethany’s articles of

incorporation instituted by that interested party, it became wholly independent. Id. In arguing

that it was entitled to Bethany’s assets, the interested party sought to resolve the case under

principles of trust law and to restrict Bethany’s assets by having them declared as held in trust

for the corporate purpose originally designated at the time of incorporation. Id. at 863. The

13 The quoted language from Judge Hill is found in this cited opinion of the Supreme Court of Kansas.

18 interested party predicated its theory on the Restatement (Second) of Trusts 348, comment

f (1957), and cited to language coordinate to the language used in Children’s Home Society,

which could be construed as recommending the application of the rules governing charitable

trusts to the rules governing charitable corporations. Id. In deciphering the language contained

in the Restatement, the Kansas Supreme Court stated:

[T]he Comment has little or no relation to the circumstances of the present case because the Comment (and the Restatement section) contemplates a settlor or donor manifesting an intention to create a charitable trust and devoting property to accomplish the charitable purpose. Bethany’s history is replete with charitable giving, but it does not include the particular elements of a charitable trust, as defined in 348.

Id. (Emphasis added). The Kansas Court appropriately distinguished its case from a trust case,

stating that:

This is not a case in which a donor put money in a trust to be used for the creation and financial support of a hospital. Instead, it is a case where five Methodists incorporated in 1892 for the purpose of providing medical care in Wyandotte County, solicited charitable contributions, formed a foundation to solicit contributions, and accepted contributions from the Methodist church. Over the years, the Conference has been closely associated with Bethany and has been a significant benefactor, but there is no evidence of its acting as a trust settlor. Because Bethany is a corporate entity and held the title, Galen purchased the hospital from and paid Bethany for it. The theory which the Conference has formulated for its entitlement to the sale proceeds, therefore, involves disqualifying the Bethany corporation. The Conference seeks to do so on the ground that Bethany can no longer fulfill its purpose, which in the Conference's construct is synonymous with the donor's intent.

Id. at 863 - 64. The Kansas Supreme Court ultimately concluded that the sale of the hospital

to a for-profit corporation was a corporate law matter. The Court found that Bethany’s alleged

abandonment of its corporate purpose was not determinative of which body of law to apply and

stated: “In the present case, Bethany’s primary purpose was operating a hospital, but operating

19 a hospital was not its sole activity. Even if it had been...the effect of the sale on Bethany is

governed by the corporation code.” Id. at 864.

¶32. There is a key distinction to be made here. A charitable trust is a fiduciary relationship

with respect to property arising as a result of a manifestation of an intention to create it, and

it subjects the person by whom the property is held to equitable duties and mandates that the

property be dedicated to a charitable purpose. Restatement (Second) Trusts § 348 (2005). A

charitable trust is strictly guided by its charitable purpose and the specific intentions of its

settlor. To this end, principles of equity act to ensure that the settlor’s intentions, whatever

they may be, are accomplished or are accomplished as nearly as possible. In this way, the

doctrine of cy-pres or of approximation can be applicable to gifts made in trust to charitable

corporations as well as to such gifts made to an individual trustee to be dedicated to a

charitable purpose. Restatement (Second) Trusts § 348.

¶33. In slight contrast, a charitable corporation is any corporation or organization founded

upon donations and engaged without profit in charitable activities and in no other activity of

a commercial or gainful nature. 15 Am. Jur. 2d § 171 (2000). Moreover, the basic

requirement of a nonprofit, public benefit entity is that it be operated exclusively for a

charitable purpose, that it serve the public rather than a private interest and that its income or

assets not be distributed to individuals in control of the entity. 18 Am. Jur. 2d § 34 (2004).

Like a charitable trust, a charitable corporation is predicated on a charitable purpose.

However, unlike a trust, a charitable corporation is spawned as an independent entity

possessing free will to the extent provided by its own articles of incorporation, bylaws and the

laws of the state in which it is incorporated. While these corporate entities are directed by a

20 charitable purpose, they remain autonomous unto themselves in maintaining and perpetuating

the nature and classification of this purpose. Specifically, a corporation acquires its existence

and authority to act from the state and, as such, is a creature of statute. 18 Am. Jur.2d § 14

(2004). As a general rule, the courts refrain from interfering with the internal management of

a corporation and do not interfere in the affairs of a private corporation in the absence of proof

of bad faith or fraud on the part of those entrusted with its management. 18 Am. Jur.2d § 8

(2004). In United Methodist Church, the Kansas Supreme Court made note of this well-

accepted precept of corporate jurisprudence:

It is well settled that the directors of a corporation are charged with the duty of managing its affairs and only in cases of the greatest emergency are courts warranted in interfering with the internal operation of its affairs. It has been said that the fundamental principle of a corporation is that a majority of its stockholders have the right to manage its affairs so long as they keep within their charter and no principle of law is more firmly fixed in our jurisprudence than the one which declares that courts will not interfere in matters involving merely the judgment of the majority in exercising control over corporate affairs. (Feess v. Bank, 84 Kan. 828, 115 Pac. 563, LRA 1915A, 606; 866 Beard v. Achenbach Memorial Hospital Ass'n, 170 Fed.2d 859.) 171 Kan. at 62, 229 P.2d 1008.

266 Kan. at 375-76 , 969 P.2d at 865-66 (quoting from Cron v. Tanner, 171 Kan. 57, 62, 229

P.2d 1008 (1951)).

¶34. In today’s case, we have a non-profit charitable corporation incorporated under the laws

of Mississippi in 1951 for the charitable purpose of building a hospital. Just as in United

Methodist Church, this is not a case in which a donor put money in a trust to be used for the

creation and financial support of a hospital. Instead, we have a corporation which was founded

by five members who were then authorized to elect a Board of Directors and who ultimately

21 drafted the corporation’s original bylaws.14 Of note, item seven of the original corporate

charter indicates the Crosbys’ original intentions by way of corporate form as well as

charitable purpose:

(a) To acquire real estate for, and to construct, purchase, and otherwise acquire, equip, operate and maintain one or more hospitals, to be used entirely for hospital purposes, and Nurses’ Homes and Nurses’ Training Schools in connection therewith, and related facilities and to establish and maintain one or more charity wards that are for charity patients, provided that all the income from said hospitals, Nurses’ Homes and Nurses’ Training Schools, shall be used entirely and exclusively for the purposes thereof and not part of the same for profit, and provided further, that no dividends, or profits derived from the operation of said Hospitals, Nursing Homes , and/or Nurses’ Training Schools, shall be divided between the members of this corporations; and provided further, that expulsion shall be the only remedy for the nonpayment of dues, with the right, however vested in each member while a member of this corporation to cast one vote in the election of all officers; and provided further, that the loss of membership by death or otherwise shall terminate the interest of such member in the corporate assets of this corporation; and provided further, that there shall be no individual liabilities against the members of this corporation for its corporate debts but the entire corporate property shall be liable for the claims of creditors.

(b) In addition to the rights and powers herein above described and expressed, the corporation may exercise such additional powers as are conferred by Chapter 4, Title 21, Code of Mississippi of 1942, as amended by Chapter 308, General Laws of Mississippi of 1950.

(Emphasis added).

¶35. In Allgood v. Bradford, 473 So. 2d 402 (Miss. 1985), we examined charitable

corporations and characterized what defines a charitable corporation under Mississippi law.

To this end, we stated:

Palmer came into existence under the Mississippi corporation law as an independent legal entity with the usual rights to hold property in its own name, manage its own business, and alter or repeal its charter provisions in order to

14 Member, for the purposes of our case, is the equivalent of a shareholder.

22 carry out its charitable purposes. Title to all Palmer property has remained in the name of the corporation itself, and since 1950 the charters have recognized that the corporation is owned by the board of trustees.

Id. at 412.

¶36. A factual parallel to the corporate entity alluded to in Allgood, SRC was incorporated

under Chapter 4, Title 21, Miss. Code Ann. (1942), and brought into being as a Mississippi

corporation. Moreover, pursuant to our code, which now includes the Mississippi Non-Profit

Corporation Act, SRC came into existence as an independent legal entity with the usual rights

to hold property in its own name, to manage its own business, and to alter or repeal its charter

provisions in order to carry out its charitable purposes. To this end, SRC has consistently

acted pursuant to the laws enumerated within the corporate code and should thus be governed

accordingly. For these reasons, we conclude that the issue of standing in this case should be

determined under the applicable non-profit corporate provisions found in the Mississippi

Code.

II. WHETHER THE INTERVENORS HAVE LEGAL STANDING TO SUE SRC.

¶37. Having determined that SRC, as a non-profit charitable corporation, is subject to our

corporate statutes, we now address the issue of whether the Intervenors had standing to request

the chancery court for relief. Specifically, we consider Chancellor Thomas’s determination

that, due to SRC’s fifty-year history of operating for the benefit of its surrounding community,

the citizen Intervenors, as beneficiaries, had a “colorable” interest in the proceeds obtained by

SRC from its sale and lease of CMH.

23 ¶38. Before moving forward with this issue and for the purpose of clarity, we must first

examine our general law of standing. In Harrison County v. City of Gulfport, 557 So.2d 780,

782 (Miss. 1990), we addressed a standing issue and stated, “[p]arties may sue or intervene

where they assert a colorable interest in the subject matter of the litigation or experience an

adverse effect from the conduct of the defendant.” Id. at 782 (see Dye v. State ex rel. Hale,

507 So.2d 332, 338 (Miss. 1987); Frazier v. State of Mississippi, 504 So.2d 675, 691-92

(Miss.1987); Belhaven Improvement Association, Inc. v. City of Jackson, 507 So.2d 41, 45-

47 (Miss. 1987)). Parties may also sue or intervene as otherwise authorized by law. See, e.g.,

Canton Farm Equipment Co. v. Richardson, 501 So.2d 1098, 1105-09 (Miss. 1987); City

of Pascagoula v. Scheffler, 487 So.2d 196, 198 (Miss. 1986). Importantly, while we alluded

to our general standing rule and noted its incorporation into statute, our ultimate focus in

Harrison County was on the statute itself. Moreover, we recognized that a plaintiff’s standing

concerning annexation confirmation procedures depended solely on the language contained

within the Mississippi Code, and we interpreted Miss. Code Ann. § 21-1-31, which specifically

authorizes intervention by any party “interested in, affected by or aggrieved by a proposed

annexation,” in order to determine whether there was a colorable basis in fact for the

intervening counties’ claim. Id.

¶39. In State of Mississippi v. Quitman County, 807 So.2d 401 (Miss. 2001), we again

highlighted our general rule that “[i]n Mississippi parties have standing to sue ‘when they assert

a colorable interest in the subject matter of the litigation or experience an adverse effect from

the conduct of the defendant, or as otherwise provided by law.’” Id. at 405. (citing Fordice v.

24 Bryan, 651 So.2d 998, 1003 (Miss. 1995); State ex rel. Moore v. Molpus, 578 So.2d 624,

632 (Miss. 1991)). In Quitman County, however, as with a staggering majority of our cases

involving standing, we sought to interpret Mississippi standing law under the guise of state

governmental action. Thus, we had a government entity named as a defendant to a suit and had

to determine whether the plaintiff had the right to seek judicial enforcement of a legal duty

owed by this governmental entity. Quitman County brought suit in its own name and on behalf

of its taxpayers against the state of Mississippi. In determining standing and answering the

legal query presented by our general rule on standing, we interpreted “colorable interest” and

“adverse affect” pursuant to our constitutional mandate and case precedent:

It is well settled that “Mississippi’s standing requirements are quite liberal.” Dunn v. Miss. State Dep't of Health, 708 So.2d 67, 70 (Miss. 1998); see also Miss. Gaming Comm'n v. Bd. of Educ., 691 So.2d 452-460 (Miss. 1997). This Court has explained that while federal courts adhere to a stringent definition of standing, limited by Art. 3, § 2 of the United States Constitution to a review of actual cases and controversies, the Mississippi Constitution contains no such restrictive language. Van Slyke v. Bd. of Trustees of State Institutions of Higher Learning, 613 So.2d 872, 880 (Miss. 1993) (citing Sosna v. Iowa, 419 U.S. 393, 397-403, 95 S.Ct. 553, 42 L.Ed.2d 532 (1975)). Therefore, this Court has been “more permissive in granting standing to parties who seek review of governmental actions.” Van Slyke, 613 So.2d at 875. See also Dye v. State ex rel. Hale, 507 So.2d 332, 338 (Miss. 1987) (holding state senators had standing to sue Lieutenant Governor on charges that their legislative power had been impinged by his power).

807 So.2d at 405

¶40. Our general standing requirement is important to our review of standing issues because

it appropriately focuses judicial review on a plaintiff’s legal interest and a defendant’s legal

duty. However, it must be recognized that different standing requirements are accorded to

different areas of the law, and an individual’s legal interest or entitlement to assert a claim

25 against a defendant must be grounded in some legal right recognized by law, whether by statute

or by common law. Quite simply, the issue adjudicated in a standing case is whether the

particular plaintiff had a right to judicial enforcement of a legal duty of the defendant or, as

stated in American Book Co. v. Vandiver, 181 Miss. 518, 178 So. 598 (1938), whether a party

plaintiff in an action for legal relief can show in himself a present, existent actionable title or

interest, and demonstrate that this right was complete at the time of the institution of the

action. Id. at 599. “Such is the general rule.” Id.

¶41. In today’s case, we are guided by statute, and, as was the case in Harrison County, we

must focus on the “or otherwise provided by law” language of our general standing requirement

and interpret the statutory language provided for us in the Mississippi code. Accordingly, we

are expressly directed to Miss. Code Ann. § 79-11-155, which governs the ability of a party

to challenge a corporation’s power to act:

(1) Except as provided in subsection (2) of this section, the validity of corporate action may not be challenged on the ground that the corporation lacks or lacked power to act.

(2) A corporation’s power to act may be challenged in a proceeding against the corporation to enjoin an act where a third party has not acquired rights. The proceeding may be brought by the Attorney General, a director or by a member or members in a derivative proceeding.

(3) A corporation’s power to act may be challenged in a proceeding against an incumbent or former director, officer, employee or agent of the corporation. The proceeding may be brought by a director, the corporation, directly, derivatively, or through a receiver or by a trustee or other legal representative.

Miss. Code Ann. § 79-11-155 (2001).

¶42. This statutory language is straightforward and the legislative intent behind it is easily

recognized. Moreover, pursuant to Miss. Code Ann. § 79-11-155, a suit of the nature as

26 before us today may be brought against a corporate entity in the State of Mississippi only “by

the Attorney General, a director or by a member or members in a derivative proceeding.”

Limiting the ability of the public to ask for judicial interference with a corporation’s ability

to act is logical when one considers that “no principle of law is more firmly fixed in our

jurisprudence than the one which declares that courts will not interfere in matters involving

merely the judgment of the majority in exercising control over corporate affairs.” United

Methodist Church, 266 Kan. at 375-76, 969 P.2d at 865-66 (quoting from Cron v. Tanner,

171 Kan. 57, 62, 229 P.2d 1008 (1951)).

¶43. In today’s case, Chancellor Thomas concluded that the Intervenors had proper standing

and cited to precedent in support of his conclusion. Relying on our holding in Allgood v.

Bradford, 473 So.2d 402 (Miss. 1985), the chancellor attempted to define “membership.”

Reasoning that the charitable purpose of a charitable non-profit corporation changes its

character for the purposes of membership, Chancellor Thomas cited to Allgood for the

proposition that “[c]haritable corporations... have as their goal the improvement of the welfare

of others, so that membership in this sort of corporation manifests freedom from selfishness.”

Id. at 412. The chancellor focused on the use of membership in this context and ultimately

concluded that, as beneficiaries of the Crosby Memorial Hospital Corporation, the Intervenors

were interested in, affected by, and aggrieved by, the lease and sale of the hospital asset.15

15 The chancellor used language from Harrison County v. City of Gulfport, 557 So.2d 780, 782 (Miss.1990), where we interpreted Miss. Code Ann. § 21-1-31, which specifically authorizes intervention by any party “interested in, affected by or aggrieved by a proposed annexation.”

27 ¶44. While the above cited language from Allgood was important to that case for the purpose

of defining what constitutes a charitable, non-profit corporation, this language does little by

way of contributing to a working definition of corporate membership. Moreover, in Allgood,

this Court went on to specifically examine the indicia of membership concerning our non-

profit corporation statutes and stated: “From these statutes, several indicia of membership are

evident. The members are those who bring the corporation into being, vote for corporate

officers, vote to dissolve the corporation, and on dissolution receive the assets of the

corporation.”16 Allgood, 473 So.2d at 412. While the statutes relied on in Allgood have since

been amended, the basic tenor remains the same – a member is a stakeholder in the corporation

and has the power to effectuate change in corporate management.

¶45. Additionally, and in line with our determination in Allgood, the Mississippi Nonprofit

Corporations Act, defines a “member” as follows:

“Member” means (without regard to what a person is called in the articles or bylaws) any person or persons who on more than one (1) occasion, pursuant to a provision of a corporation's articles or bylaws, have the right to vote for the election of a director or directors. A person is not a member by virtue of any of the following: (I) Any rights such person has as a delegate; (ii) Any rights such person has to designate a director or directors; or (iii) Any rights such person has as a director.

Miss. Code Ann. § 79-11-127.

¶46. Consistent with precedent and pursuant to Miss. Code Ann. §§ 79-11-127, a member

has a defined legal interest in a corporation inasmuch as the member brings that corporate

entity into being, votes for its corporate management, votes to dissolve its corporate being, or,

16 The non-profit statutory scheme set forth by our non-profit corporation act has been amended but for the purposes of this case remains substantively appropriate.

28 upon such dissolution, has a right to share in the disposition of corporate assets. In today’s

case, under these well-stated indicia of membership, it becomes clear that none of the

Intervenors were qualified to bring suit as corporate members, having demonstrated only a

limited tenuous public interest in the benefits provided by the hospital’s charitable ownership.

Furthermore, according to Miss. Code Ann. § 79-11-155, the Intervenors have failed to

establish standing as, in addition to their failure to evidence corporate membership, they do

not assert this action directly, as a current corporate director, or in the name of this state

through its Attorney General. In no uncertain terms, the relief sought by the Intervenors, as

mere putative beneficiaries of a charitable corporation’s corporate acts, falls well outside of

any legal interest in SRC. The Intervenors have no right to judicial enforcement of alleged

legal duties claimed by them vis-a-vis the defendants.

¶47. The Intervenors are attempting to assert claims grounded in equity against a corporation

and board of directors to which they have no confidential ties, from which they can expect no

fiduciary duties and in which they have no proprietary interest. To presume standing under

these facts and permit the Intervenors to challenge the business judgment of a properly elected

board of governors of a corporation would be to say that an indefinite class of plaintiffs, who

simply might receive benefit from acts of a charitable corporation, should have a legal voice

in how the corporation is to be run, and further permit individuals from the benefitted public

to improperly be deemed members of non-profit corporations, capable of instituting derivative

suits against the corporate board of directors and causing the various courts of this state to

dictate to charitable corporate officers how to manage their charitable corporations. This

result offends the fundamental tenets of corporate law and the express intent of our state

29 legislature. We thus conclude that the Intervenors never possessed the requisite legal standing

to assert claims against the defendants and that this case should have been dismissed before

trial based on this want of legal or statutory ground to proceed.

CONCLUSION

¶48. In clear terms, the Intervenors have failed to establish the legal grounds necessary to

institute this suit against the defendants. Moreover, they have shown no colorable interest in

the corporate entity from which they seek relief and have demonstrated no adverse effect or

injury caused by the defendants’ failure to perform a legal duty owed to them. Under our

statutory scheme, a proper party with a colorable interest in SRC must assert a direct action

as a corporate director, a derivative action as a member, or, on behalf of the citizens of

Mississippi, as this state’s Attorney General. To the extent that they fail to qualify in any of

these express capacities and have failed to establish a substantive legal ground on which to base

their claims for relief, the Intervenors had no standing to pursue their claims against the

defendants. Thus, the trial court erred in finding that the Intervenors had standing to pursue

their claims in this case. Because this issue presented on cross-appeal is dispositive of this

case, we need not address the Intervenors’ issues raised on their direct appeal. Accordingly,

we affirm the chancellor’s dismissal of the Intervenors’ claims on direct appeal, but for

reasons different than those stated by the chancellor. As to the cross-appeal, we reverse the

chancellor’s judgment granting the Intervenors standing to proceed in this litigation, and render

judgment here in favor of Southern Regional Corporation and the Lower Pearl River Valley

Foundation.

30 ¶49. ON DIRECT APPEAL: AFFIRMED; ON CROSS-APPEAL: REVERSED AND RENDERED.

SMITH, C.J., WALLER , P.J., DICKINSON AND RANDOLPH, JJ., CONCUR. EASLEY, J., DISSENTS WITHOUT SEPARATE WRITTEN OPINION. COBB, P.J., DIAZ AND GRAVES, JJ., NOT PARTICIPATING.