Colorado appeals court overturns USAC decision

A three-judge Colorado appeals court panel has unanimously overturned a lower court decision and ruled in favor of a lawsuit filed by former U.S. Cycling Federation trustee Les Earnest challenging a series of changes to the by-laws of USA Cycling, passed under emergency provisions in February of 1999. In an opinion drafted by Colorado appeals court Judge Leonard P. Plank, the court ruled that the procedures used in enacting a 24-page set of changes to the organization's bylaws and articles of incorporation were in violation of USA Cycling's own rules. Furthermore, the court ruled

A three-judge Colorado appeals court panel has unanimously overturned a lower court decision and ruled in favor of a lawsuit filed by former U.S. Cycling Federation trustee Les Earnest challenging a series of changes to the by-laws of USA Cycling, passed under emergency provisions in February of 1999.

In an opinion drafted by Colorado appeals court Judge Leonard P. Plank, the court ruled that the procedures used in enacting a 24-page set of changes to the organization’s bylaws and articles of incorporation were in violation of USA Cycling’s own rules. Furthermore, the court ruled that the board failed to meet its own standards as to what constitutes an “emergency,” a requirement when legislation is “fast-tracked” as the case in 1999.

The appeals court decision effectively negates a series of structural changes passed by the USA Cycling board. If the ruling is eventually upheld, the decision would require that USA Cycling operate under by-laws that were in effect in early 1999 and would put into question major actions taken by the board since the adoption of new by-laws, including a decision to add the USA Cycling Development Foundation as an affiliate organization of USA Cycling.

Soon after the 24-page legislative proposal was adopted by the USA Cycling Board in February of 1999, Earnest and co-plaintiffs Mark Estes and Tim Quigley filed suit challenging the means by which the by-law changes were proposed, published and subsequently adopted. Earnest argued that the proposal, described by USA Cycling as “simple house cleaning,” involved fundamental changes to the structure of USA Cycling and to the level of member participation in the organization and its affiliates. The changes effectively eliminated any means by which members could have a direct effect on the actions of the governing board.

While those arguments were rejected by a lower court in late 1999, the appeals court decision clearly supported the positions outlined by the plaintiffs in the case.

Under USAC guidelines in effect at the time, legislation adopted by the board would go into effect on January 1 of the following year. That would allow for members to vote on alternative proposals during the next election. But by adopting the restructuring proposal under “emergency” rules, the board allowed it to go into effect within 30 days, negating the option of changing it during an interceding election cycle. Plaintiffs in the lawsuit sought at minimum to defer the implementation of the rules until a court-ordered election could allow members of USA Cycling — namely licensees in the USCF, NORBA, USPRO and the NBL — to accept or reject an alternative “democratic reform initiative” drafted by Earnest.

Testimony in the case suggested that board president Mike Plant had urged USA Cycling staff, and then-technical director John Tarbert in particular, to keep word of the legislative package under wraps until it could be discussed during the February 1999 meeting in Scottsdale, Arizona. No mention of the legislative proposal was made in the minutes of the September 1998 meeting during which Plant told Tarbert to develop a proposal to be readied by February. Tarbert also testified that once the document was finished, Plant told him not to circulate the document until the meeting, suggesting that its contents should be viewed as “highly confidential” and “sensitive.”

Earnest argued that the board had no right to accelerate the legislative process under emergency provisions and to do so was merely an attempt to stifle discussion and keep the affected organizations’ membership out of the process.

But in late 1999, presiding El Paso, Colorado, County judge Donald Campbell ruled that the suit had no basis and that the passage of “emergency” legislation was well within the board’s prerogative. Represented by Boulder attorney Andrew Rosen, the three filed an appeal in early 2000. The appeals court heard the case in January and issued a decision in March.

The appeals court agreed with Earnest that “the trial court erred when it ruled that the amendments to the bylaws adopted in February 1999 were valid and did not conflict with the [USA Cycling] articles of incorporation existing at that time.”

The three-judge panel went on to say that USA Cycling’s use of emergency provisions in this case was inappropriate. “The [USA Cycling] board did not expressly determine that the amendments were an emergency measure, nor was there any evidence that the board considered or voted upon the emergency nature of the bylaw changes,” the three-judge panel concluded. “The only evidence (that this was an emergency measure) is that the board approved an effective date 30 days after their passage. This alone is not sufficient to make the amendments and emergency measure.”

When contacted by VeloNews, Rosen said he was “obviously pleased” with the outcome of the case and said the decision underscores the very basic argument that “only the members and not the board have a right to amend the articles of incorporation of the organization.”

Rosen said if the case is not appealed or if subsequent appeals continue in the plaintiffs’ favor, the USA Cycling board will, at minimum, present the 1999 legislation and proposed alternatives — one of which has already been drafted by Earnest — to it’s members in an annual meeting. Under the old bylaws, that meeting would usually take place in October, “however, there are some unusual circumstances at this point and a lot of that is still up in the air.”

USA Cycling attorney Barton Enoch said Wednesday that he had prepared a report for his clients “outlining their options at this point” and wanted to “allow them time to digest that before commenting on the court’s decision.”

Those options, said Enoch, now include asking that same three-judge appellate court to review its decision or ask that the Colorado Supreme Court review the case.

Asked whether dropping the case was also an option he included in his report, Enoch said, “Of course, that’s always an option, but this case isn’t necessarily over yet.”

The following is the text of the decision issued by the Colorado Court of Appeals. Judge Leonard P. Plank drafted the four-page decision with Judges Raymond D. Jones and Judge James S. Casebolt, concurring.

COLORADO COURT OF APPEALS

Court of Appeals No. 00CA0095El Paso Country District Court No. 99CV1733Honorable Donald E. Campbell, JudgeHonorable Steven T. Pelican, Judge

Les Earnest, as trustee and member of USA Cycling; Mark Estes as member of USA Cycling; and Timothy Quigley, as director of USA Cycling,

Plaintiffs-Appellants

v.

USA Cycling, a Colorado nonprofit corporation; Mike Plant as President of USA Cycling; and Nigel Blair-Johns, as Secretary of USA Cycling,

Defendants-Appellees

JUDGMENT REVERSED AN CAUSE REMANDED WITH DIRECTIONS

Division IIOpinion by Judge Leonard P. Plank Judge Raymond D. Jones and Judge James S. Casebolt., concur

NOT SELECTED FOR PUBLICATIONMarch 1, 2001

Stone, Sheehy, Rosen & Byrne, P.C. Andrew Rosen, Boulder, Colorado, for Plaintiffs-Appellants

Enoch & Enoch, P.C., Barton L. Enoch, Colorado Springs, Colorado, for Defendants-Appellees

In this action concerning amendments to the articles and bylaws of USA Cycling (USAC), plaintiffs, Les Earnest, as trustee and member of USAC, Mark Estes, as member of USAC, and Timothy Quigley as director of USAC, appeal the judgment of the trial court denying their complaint for declaratory relief and awarding costs to defendants, USAC, Mike Plant, its president, and Nigel Blair-Johns, its secretary.

I.USAC is a Colorado nonprofit corporation. It is an organization of 60,000 individuals involved in the sport of bicycle racing, USAC is a federation of four associations, each an unincorporated division involved in a different part of bicycle racing. A board of trustees is elected by and governs each association. A board of twelve directors governs USAC.

Prior to the amendments at issue here, the USAC’s articles of incorporation provided that: “The Board of Directors shall be composed of two classes of Directors: Associate and Athlete.” Each of the four association trustees selected two directors, and groups of elite athletes selected the remaining directors. The articles of incorporation also required amendments to the articles to be made only by a meeting of USAC voting members.

Bylaw F required that any change in the bylaws not go into effect until January 1 of the following calendar year. An exception to the January 1 date provided that amendments adopted as emergency measures with a three-fourths vote may take effect whenever specified, but no sooner than 30 days after their adoption.

The directors of USAC met in September 1998. At that meeting a staff member was told to work on amendments to the bylaws. That individual and two others prepared the proposed changes to the bylaws.

The notice to the directors for the February 1999 meeting did not refer specifically to changes in the bylaws. However, at that meeting, the directors, by a vote of 10 to 1, adopted the proposed bylaw changes. The amended bylaws placed the voting power in the directors, and not the voting member of USAC. Additionally, the new bylaws created three classes of directors. The directors determined the changes would be effective 30 days thereafter.

The directors subsequently amended the articles of incorporation at their May 1999 meeting. Plaintiffs then filed this action requesting a declaration that the amendments to USAC’s bylaws were void or not effective until January 1, 2000; a declaration that the amended articles of incorporation were null and void; and a permanent injunction requiring the defendant officers of USAC to comply with Bylaw F as it existed prior to the disputed board amendments.

The trial court held that the directors had determined the amended bylaws be designated as an emergency measure with a three-quarter’s majority vote supporting their adoption, thus allowing the amendments to go in effect 30 days thereafter. The court further ruled that no action was taken in violation of the articles. The court awarded defendants their costs. This appeal followed.

II.

Plaintiffs first contend that the trial court erred when it ruled that the amendments to the bylaws adopted in February 1999 were valid and did not conflict with the articles of incorporation existing at that time. We agree.

Plaintiffs rely on Paulek v. Isgar, 38 Colo. App. 29, 551 P. 2d 213 (1976), in which a division of this court held that, where bylaws conflict with the articles of incorporation, the articles of incorporation control and the bylaws in conflict are void.

We agree with the reasoning and rule of Paulik v. Isgar, supra, and conclude that, because the amended bylaws are in conflict wit the articles of incorporation, they are void. We are not persuaded otherwise by defendants’ arguments that the “outside directors” were not appointed to the board before or at the May 1999 meeting and further that the outside directors are nonvoting members of the board.

III.

Plaintiffs next contend that there was no evidence to support the trial court’s finding that the board of directors designated the amendments to the bylaws as an emergency measure. Again, we agree.

The board did not expressly determine that the amendments were an emergency measure, nor was any evidence that thee board considered or votes upon the emergency nature of the bylaw changes. The only evidence on this issue is that the board approved an effective date 30 days after their passage. This alone is not sufficient to make the amendments an emergency measure. Rather, the language of the bylaws requires that the board make a finding that the amendments were emergency measures.

As we conclude that the trial court erred in entering judgment for the defendants, we likewise conclude that the award of costs to them was in error.

Accordingly, we reverse the trial court’s judgment and order of costs and remand for further proceedings consistent with the views expressed in this opinion.

Judge Raymond D. Jones and Judge James S. Casebolt concur