Ruling in Kerr, Carto, vs. LSF (December 31, 1993)

We present the text of Judge Robert J. Polis’ decision of December 31, 1993, along with our commentary and explanatory notes.

Orange County Superior Court
Department 61: Robert J. Polis
720973
Tentative Ruling: Proposed Minute Order

The hearing was held on December 30 and 31, 1993, the latter day being a special session of the court. It was convened on what is normally a court holiday because all parties, including the Judge, wished to conclude this matter as quickly as possible. As is normal in such cases, the Judge issued this tentative ruling within hours of the conclusion of the two-day hearing. Unless one of the parties to the suit specifically requests a full statement of decision, the tentative ruling stands as the final word in the case. Carto’s attorney did ask for such a statement, which when issued (on April 1, 1994) merely amplified the points contained in the tentative ruling, and did not change or negate them.

Case: Kerr, Carto v Legion, Allen, Berg, Curry and Marcellus

Following the mid-September resignation of Lewis and LaVonne Furr, Tom Kerr was the lone remaining member of the Legion board of directors. Carto is Willis’ wife, Elisabeth. Typically, Willis Carto himself was not directly involved in this action, preferring instead to attempt to manipulate situations from the safety of anonymity, letting others bear the legal responsibility for his actions. The Legion [for the Survival of Freedom (LSF)] is the Texas non-profit corporation under which the IHR does business. Allen, Berg, and Curry were elected to the Legion board of directors by Kerr. Marcellus is the director of the IHR and president of the Legion.

Hearing: Trial calendar
Date: December 31, 1993
To: All parties

Judgment in favor of the defendants that plaintiffs do not prevail upon their complaint. Specifically, this court (1)(i) does not find invalid the September 24, 1993 appointment of Allen, Berg, and Curry and (1)(ii) does not nullify any action taken by Kerr at that meeting. Further, the court does not find that Kerr, Dickson, Taylor, Riner, Carto, Scott and L. and L. Furr are the present members of the board of directors,

In preparing for this suit, Carto manufactured documents indicating that Kerr, Dickson, Taylor, Riner, Carto, Scott, and Lewis and LaVonne Furr were the true board of the Legion. However, by the time this case came to trial Carto, acting through Lewis Furr, had angrily dismissed Taylor from this imaginary board, and had issued other documents claiming that the documents establishing this board were false.

In other words, we won.

The court finds to be true paragraphs 1, and 3-7 of the complaint and none other.

These paragraphs contain simple statements of fact.

Plaintiff Carto does not have standing under either 709(a) or 5617 Corp. Code.

Not having standing means the court does not recognize Elisabeth Carto’s right to be a plaintiff in this matter. In essence, the Judge declared that Elisabeth Carto has no business involving herself in this action. The only reason for her involvement is that Willis used her as a front for his own ambitions, as he has on other occasions.

Plaintiff Kerr has failed to prove by a preponderance of the evidence that the Furr’s resignation was extorted.

The main point of the plaintiff’s case was that the IHR staff extorted the Furrs into resigning. In fact, the IHR staff never asked the Furrs to resign; to the contrary, we urged them to stay on and fulfill their duties as directors, and help put the IHR on a solid legal foundation, to guard against potentially ruinous actions such as this one. Rather than confront Carto, the Furrs resigned.

Furrs’ resignation was voluntary and became effective upon mailing; in fact, Willis Carto was exercising substantial control over the Legion without any apparent legal authority.

This, in a nutshell, is the reason why the IHR staff took the actions it did. Even the Judge, who had no way of knowing the full extent of Carto’s meddling in IHR affairs, easily recognized this key point. The extent of this meddling can be seen in the fact that Tom Kerr did not even realize himself to be a member of the Legion board until he was informed of this by the IHR staff. Later, Kerr continued to allow himself to be used by Carto: although Kerr’s name appears on this suit as a plaintiff, Kerr has repeatedly stated to the IHR staff (and others) that he never really sued the Legion.

Any attempted revocation of the resignation is ineffective, and no acceptance was necessary. See §305(d).

The court finds that only Kerr and Lewis and LaVonne Furr were shown to have been directors at the time of the Furr resignation. There is no credible evidence of the existence of any other director at that time.

Over the years, Willis Carto had created a number of fraudulent documents, some self-contradictory, and some contradicting other equally false documents, claiming membership in the Legion board for nearly a dozen people. However, the Judge agreed with the IHR staff that corporate filings with the state of Texas represented the only legal listing of directors. Only the Furrs and Tom Kerr were listing on these filings; when the Furrs resigned, only Kerr could legally be considered a member of the Legion board.

The corporate minutes and declarations re any other alleged director(s) are untrustworthy as evidence and disbelieved by the court.

This refers to Carto’s numerous fraudulent documents, which were such obvious fakes that the IHR submitted them into evidence to bolster our case. In effect, the Judge declares that Carto is a liar.

Therefore, no notice was needed even to J. Riner.

Soon after the first meeting of the reformed board, the possibility arose that Jack Riner might legitimately be considered a member of the previous board of directors. Because of the shambles of Carto’s record-keeping, it was unclear whether Riner was a director or not. Out of caution, the board met again the next day and acted on the basis that Riner was a valid director. Here, the Judge is stating that it was not necessary to have given notice to Riner of the first meeting of the reformed board because he was not legally a director.

The second meeting in September was unnecessary but was also authorized. Kerr both times had the authority and duty to appoint new directors and is now estopped to deny his own actions

This was one of the main points of our defense: that, having appointed directors, Kerr could not now claim that the very individuals he had appointed were not legitimate directors.

- and further Kerr has failed to prove any legal disability to the exercise of his appointment power with the exception of the appointment of the fourth director. Clearly, the charter calls for no more than three directors.

The Legion was established by a 1952 charter that calls for three directors. The bylaws, amended in 1966 by none other than Willis Carto, provide for up to nine directors, but the original charter was never amended. Carto’s attorney attempted to explain the conflict by claiming that Carto had made a mistake.

The board may remedy that discrepancy without court involvement. Kerr had the power to appoint three new directors but not the authority.

The Judge’s basis for this statement was the decision by Carto’s attorney to argue this case under California law, rather than under Texas law. Under California law, the charter must be amended if the bylaws come into conflict. Under Texas law, which governs this aspect of the Legion’s activities, the charter need not be amended. After receiving this tentative ruling, Carto’s attorney filed documents with the court reversing the earlier claim that California law controls. It was too late at this point to submit further arguments, but even if this change in tactics (one of many) by Carto’s attorney had been timely (Carto now began to claim he had made a mistake in earlier claiming he had made a mistake), it would not have made any difference: the Judge ruled that there had been only three legitimate board members, and once the Furrs resigned, Kerr was the sole remaining director.

[T]he act is not void but may be corrected by the board.

Lastly, the court finds that this case should have been brought under §5617 rather than 709 by reason of the status of this corporation as a public benefit non profit corporation.

This was a technical point successfully raised by our attorney, William Hulsy.

Accordingly, this court shall give prompt notice to the Attorney General and permit the Atty General to intervene.

Another mess Willis Carto has gotten us into. However, this emphasizes the propriety of the actions of the IHR staff, which realized that the illegal operation of the Legion might easily have been discovered in any one of the various lawsuits in which Carto had involved us, or planned for us (not him) to embark upon. Had Carto not caused this suit to take place, the IHR staff could have corrected the previously illegal operation of the Legion making it rock-solid to withstand any legal challenge, or investigation by the Attorney General. Now, we face the possibility of a state investigation.

Parties have until January 4, 4:30 to fax request for statement of decision

The statement of decision is the full explanation of the case, referred to above, containing all the Judge’s considerations in detail, and all references to the appropriate codes and laws.

which session shall be heard in open court on January 7, at 2:30 PM.

Due to the crowding of the court calendar, the Statement of Decision (requested by Carto’s attorney) was not rendered until April 1, 1994. The final version was signed by Judge Polis on April 13, as affirmed in the Judgment After Trial by Court on page . As expected, the Judge rejected all of Carto’s objections to the December 31 tentative ruling, affirming the actions taken by the IHR staff. As of August 1995, Carto’s appeal of this decision is on the verge of being dismissed.

(The appeals court handed down the final ruling on the appeal on this case on August 28, 1996. They completely upheld the original decision.)