Summary of a Recent
Judicial Development in
Cooperatives

Removal of Cooperative President Wrongful

National AgLaw Center Graduate Assistant

Summary of Decision

In Hall v. Kansas, 50 P.3d 495 (Kan. 2002), the Supreme Court of Kansas held that although the president of a cooperative was wrongfully terminated, he was not entitled to recover monetary damages because he was not compensated for services as president or director of the cooperative.

Background

Gary L. Hall was elected president of Farm Bureau and Farm Bureau Services in 1995. See id. at 499. The presidency of Farm Bureau was a full time, but unpaid position. See id. at 501. Farm Bureau is organized as a cooperative with a number of affiliated companies domiciled in Kansas organized as for-profit corporations under it. See id. This included Farm Bureau Services. See id. Farm Bureau owns one hundred percent of the voting stock of Farm Bureau Services. See id. Hall was removed from the presidency in 1999 by the board of directors "by a vote of eleven in favor to one against with one member absent." Id. at 498.

Arguments

Hall argued that the method of his termination violated the Kansas Cooperative Marketing Act. See id. at 500. Section 17-1614 of the Act provides for removal of an officer or director by vote at a regular or special meeting, by a majority of the outstanding shares of voting stock. See id. It also requires notice of the charges and an opportunity to be heard in person at the meeting. See id. Hall argued that this is the only approved method of removal and that any other method of removal is inconsistent. See id.

Farm Bureau and Farm Bureau Services argued that §17-1628 of the Act sanctioned the removal process they implemented. Section 17-1628 provides the following:

The provisions of the general corporation code of this state and all powers and rights thereunder shall apply to the associations organized hereunder, except where such provisions are in conflict with or inconsistent with the express provisions of this act . . . .

Id. (citation omitted).

Farm Bureau argued that the Act's method of removal of an officer by the membership is not inconsistent with they way they removed Hall as the statute does not prohibit removal by the board of directors. See id. Farm Bureau argued that the methods were different but not incompatible and that their method of removing Hall was consistent with the corporation code. See id. at 501.

Analysis and Holding

The court held that Farm Bureau wrongfully terminated Hall as president of Farm Bureau. See id. It recognized, however, that its holding "does not entitle Hall to recover monetary damages from Farm Bureau because he was not compensated for services as president or director of Farm Bureau" and that "resolution in favor of Hall is 'largely academic.'" Id.

The case was decided on July 12, 2002; this summary was posted Mar. 21, 2005.