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In December 1998, two members of Friends of KOOP (station engineer Jerry Chamkis and underwriter Michael Zakes) filed a suit against KOOP's trustees, individually and collectively. This action was taken only after all our efforts to mediate with the board and work within the system for months and monhs failed. The suit asks the court to appoint the Oversight Committee elected unanimously at the special membership meeting held this summer. The trustees are being represented collectively by attorney Ken Owens of Hilgers & Watkins. His services are not being offered pro bono, which means that the trustees are wasting station money defending themselves instead of simply stepping down, which is what the membership has demanded all along. The trustees are being represented individually by another attorney. The hearing is scheduled for Monday, Jan. 4th, 1999 at 9:00 at the County Courthouse. Here's an article about the suit from the Austin Chronicle. Below is the actual suit.
MICHAEL F. ZAKES and JEROME M. ) IN THE DISTRICT COURT
CHAMKIS, )
Plaintiffs )
)
v. )
)
TEXAS EDUCATIONAL BROADCASTING )
CO-OPERATIVE, INC., the BOARD OF ) TRAVIS COUNTY, TEXAS
TRUSTEES of TEXAS EDUCATIONAL )
BROADCASTING CO-OPERATIVE, INC., )
and TERESA TAYLOR, AIDA FRANCO, )
CAROL HAYMAN, RORY McKASKLE, and )
EDUARDO VERA, individually, )
Defendants ) 98th JUDICIAL DISTRICT
Application for Appointment of a Receiver,
and Request for Declaratory Judgement
TO THE HONORABLE JUDGE OF SAID COURT:
Plaintiffs Michael F. Zakes and Jerome M. Chamkis (hereinafter, "Plaintiff Zakes," "Plaintiff Chamkis," or, collectively, "Plaintiffs"), bring this suit for failure to comply with provisions the Texas Non-Profit Corporation Act (Art. 1396-1.01 et. seq., Tex. Rev. Civ. Stat.), breach of fiduciary duty,breach of contract, negligence, civil conspiracy, and declaratory judgment pursuant to Chapter 37, Texas Civil Practice and Remedies Code, against Defendants Texas Educational Broadcasting Co-operative, Inc. (hereinafter, "Defendant KOOP"), its Board of Trustees (hereinafter, "the Board"), and Teresa Taylor ("Defendant Taylor"), Aida Franco ("Defendant Franco"), Carol Hayman ("Defendant Hayman"), Rory "Mac" McKaskle ("Defendant McKaskle"), and Eduardo Vera ("Defendant Vera"), individually, (collectively, "the individual Defendants"), and in support thereof would hereby show the Court:
This suit is brought by Michael F. Zakes and Jerome M. Chamkis, who are both residents of Travis County, Texas. Defendant KOOP is a non-profit corporation organized under the laws of the State of Texas, with its principal office located at 304 E. 5th Street, Austin, TX 78701; its attorney, Kenneth D. Owens of Hilgers & Watkins, P.C., 98 San Jacinto Blvd., Suite 1300, Austin, TX 78701, has agreed to accept service of this petition on behalf of the corporation and the Board, but not the individual defendants. Defendants Taylor and Vera (on information and belief, husband and wife), Franco, Hayman, and McKaskle are residents of Travis County, and may be served at the KOOP office. Venue and jurisdiction are proper in this Court pursuant to Sections 15.002 and 37.003, Tex. Civ. Prac. & Rem. Code, and Art. 1396-7.05, Tex. Rev. Civ. Stat.
1. KOOP Radio
The Texas Educational Broadcasting Cooperative, Inc. is a duly-formed Texas non-profit corporation engaged in the operation of radio station KOOP, at 91.7 MHz FM in Austin. It is managed pursuant to the laws of the State of Texas and its Articles of Incorporation and Bylaws. It is subject to a unique licensing arrangement from the Federal Communications Commission: presented with two competing applications for this frequency (one from KOOP's organizers and one from the University of Texas), the FCC ordered Defendant KOOP and UT student radio station KVRX to share the frequency, each being responsible for allotted hours set forth in a Frequency-Sharing Agreement. Defendant KOOP thus broadcasts approximately fifty percent of the time.
2. Management of KOOP
Defendant KOOP is unique in at least one other respect: it may be the only radio station in the country run by and as a cooperative. Defendant KOOP's bylaws establish that it shall be managed by a Board of Trustees consisting of six persons elected in staggered three-year terms. The Board of Trustees is to be elected by a Community Board, consisting of twenty persons elected by the membership. Community Organization members elect half of the Community Board, with the remaining seats being elected by paid supporters and volunteer members. The Board of Trustees determines the eligibility of Community Organizations for membership.
3. 1997 Elections
It is sadly common among cooperatives (and democracies in general) for participation to dwindle when the business of the cooperative is running smoothly. This had happened at KOOP preceding the 1997 elections. The Community Board and Board of Trustees had been depleted by dropouts, both formal and informal. Rather than two seats on the Board coming up for election, three seats were vacant. Defendant Vera recruited a number of Community Organization members, which dominated the voting for the Community Board. Not surprisingly, Defendant Vera was selected as Community Board chairman. The newly-seated Community Board then appointed two of its own members to the Board of Trustees: Defendant Taylor (who is Defendant Vera's spouse) and Donna Hoffman. The Community Board, under the direction of Defendant Vera, then purported to change the Bylaws (the process was contrary to the express provisions of the corporate rules) to allow themselves to fill any and all vacancies on the Board of Trustees at any time. (Previously, the Community Board was limited to electing not more than two Trustees per year.) Through the next month, the individual defendants continued a campaign of hostility and harassment against the three carry-over Trustees, eventually forcing all three to quit in disgust. And in the wake of having "springboarded" two of its members to the Board of Trustees, the Community Board then appointed three additional members to the Board of Trustees, including Defendants McKaskle, Hayman, and Franco. Finally, the Board of Trustees extended the deadline for applications for the Board of Trustees, despite having two qualified applications in hand as of the original deadline, to allow Defendant Vera's chosen applicant to apply. That applicant, Gavino Fernandez, was subsequently selected to fill the other vacant Trustee seat.
4. Mismanagement Leads to a Special Meeting of the Membership
This questionably-seated Board of Trustees proceeded to mismanage the corporation's affairs to the point that in the summer of 1998, the membership called a Special Meeting pursuant to Art. 1396-2.10 et seq., Tex. Rev. Civ. Stat. At that meeting on August 30, 1998, the membership overwhelmingly adopted the following resolution:
The vote in favor of this resolution was 442 for, 151 against, and 29 abstaining. This vote included duly-assigned proxies. Among the members actually present, the vote was 70 for, 49 against, and 14 abstaining. At the continuation of the Special Membership Meeting on September 20, 1998, the oversight committee was elected by acclamation. It consists of members John Duncan, David Gonzalez, Ricardo Guerrero, Tina Hardin, Kara Sheldon, Carol Teixeira, Neal Tuttrup, and Elaine Wolff.
5. Promises of New Elections Forestalled Legal Action
The resolution of the membership provided for seating the oversight committee only if judicial approval to implement the results of the Special Meeting was sought and obtained. In a compromise to avoid the expense and divisiveness of litigation, the oversight committee chose to postpone application to the Court, given an agreement by the current Board of Trustees to schedule the overdue Community Board elections promptly and hold a regular annual general membership meeting on November 7th.
6. Defendants Postponed, then Invalidated the Promised Elections
The promised general membersip meeting was never held. The Board of Trustees did schedule Community Board elections and began the elections process. When the Board became concerned that their supporters had not managed to vote by the original deadline, they extended that deadline. Once ballots had begun to be counted, the Board invalidated the election. On information and belief, the ballots have been sorted and at least partially tabulated and candidates who do not support the current board appear to have prevailed.
7. The Current Board Sits without Authority
The current Board of Trustees thus sits without authority, contrary to the wishes of the membership as expressed at a Special Membership Meeting and in the invalidated Community Board elections. They have been voted out of office twice, yet refuse to hand over control of the corporation.
8. Mismanagement Continues and Threatens the Immediate Survival of the Corporation
While purporting to be the legitimate Board of Trustees, the Defendant Board has committed acts that severely threaten the immediate survival of the station. They have failed to pay a lease held by Plaintiff Chamkis for certain crucial pieces of broadcasting equipment. They have allowed debts to other creditors (including the Internal Revenue Service for payroll taxes, the Washington, D.C. law firm of Haley, Bader, & Potts for work in obtaining the broadcasting license from the FCC, and the University of Texas for the rental of the broadcasting tower) to go into default. Additionally, a Promissory Note to former General Manager Jenny Wong for salary the station was unable to pay her in the past is in default; infusions of operating capital through the years from various members of the Ellinger family have likewise gone unrepaid. The remedies of these creditors include repossession of the leased equipment, seizure of assets, and cessation of broadcasting from the tower owned by the University of Texas. Further, under the Frequency-Sharing Agreement, cessation of broadcasting for more than thirty days results in the automatic assignment of the corporation's FCC license, which is the corporation's most valuable asset, to the University of Texas and KVRX.
They have further mismanaged the corporation's finances, including the expenditure of at least twenty-eight hundred dollars ($2800) in printing, copying, mailing, and labor in an attempt to persuade members not to unseat them. They have cleaned out a bank account dedicated to equipment purchases (and funded by pledges from members specifically earmarked for equipment purchases) to pay for the day-to-day operational expenses that went unsatisfied after they spent the operational funds on their propaganda effort. And they have simply given away a five thousand dollar ($5,000.00) grant from the Elton John Foundation, apparently out of pure spite as the tide of member opinion turned against them.
1. Failure to Comply with the Texas Non-Profit Corporation Act
The Defendants collectively have failed to comply with the Texas Non-Profit Corporation Act (Art. 1396-1.01 et. seq., Tex. Rev. Civ. Stat.) in the following respects:
a. Removal of Corporate Records from the Corporate Office and Secretion of Those RecordsThe following records, on information and belief, have been unlawfully removed from the corporate office and are being held at an undisclosed location. These records are required by the Texas Non-Profit Corporation Act to be maintained at the corporation's office (see, e.g., Art. 1396- 2.23(A) and 1396-2.23A(C), Tex. Rev. Civ. Stat.).
- 1. Records of the fall 1998 Community Board elections, including:
- a. the actual ballots received;
b. tabulations of those ballots;
c. minutes or other records of the Community Board Election Committee; and
d. minutes or other records of actions by the Board of Trustees regarding this election.2. Minutes or other records of meetings or other business of the Community Board and the Board of Trustees since August, 1997.
3. Records relating to the fall 1998 Pledge Drive, including:
- a. records of the pledges made;
b. records of the pledges actually received; and
c. records of pledges deposited in any bank account.4. The corporation's membership list (which was removed from the corporation's office immediately after the mailing of the petitions to call for a the Special Membership Meeting).
5. The financial records of the corporation, including:
- a. the checkbook;
b. statements or notices from any banks at which the corporation holds accounts;
c. other correspondence between the corporation and any banks at which the corporation holds or has held accounts.6. A series of correspondence with the Internal Revenue Service.
b. Refusal to Produce Corporate Records in Response to a Proper Request
In addition, the Defendants have refused to produce the records listed as numbers 1 through 5, above, in the face of a request under Art. 1396-2.23(B), Tex. Rev. Civ. Stat. On Monday, November 23, 1998, the undersigned attorney, on behalf of and at the express direction of KOOP members Elaine Wolff and Ricardo Guerrero, sent a written request citing the statute and the records listed above to Defendants' counsel, Ken Owens of Hilgers & Watkins. Mr. Owens responded in writing that the Board would flatly refuse to produce the ballots, and would not produce the other documents in a timely manner. Subsequent correspondence from Mr. Owens offered to produce these required records only in exchange for concessions on other issues.
Earlier, on or about August 12, 1998, member Michael Bluejay had sent a request to Defendant Taylor via certified mail, requesting corporate information, including a list of which board meetings had been canceled due to a lack of a quorum. As of the date of this filing, Defendants have not responded to this request.
2. Breach of Fiduciary Duty
The individual Defendants have breached their fiduciary duties to KOOP in the following respects:
a. Assigning a $5,000 Grant from the Elton John Foundation to a Non-Corporate PurposeIn the summer of 1998, KOOP had received a grant from the Elton John Foundation in the amount of five thousand dollars ($5,000.00). This sum represents approximately two months' operating expenses for KOOP. Following the Special Membership Meeting, the Board expressly approved the assignment of that money from KOOP to Informe SIDA, an AIDS-awareness organization headed by Jose Orta. Mr. Orta had been the Board's interim replacement for former General Manager Jenny Wong, whose contract was non-renewed by the Board in July. Mr. Orta spent approximately three weeks as interim GM before resigning.
b. Raiding the Equipment Fund
In a special pledge drive held in May of 1998, contributors to KOOP were asked to donate to a fund earmarked for capital equipment purchases only. These pledges were collected and set aside in a separate, dedicated bank account. The Defendants -- having expended KOOP's operational budget on public relations pieces -- cleaned out the Equipment Fund to cover unmet operational expenses. The amount misappropriated was approximately forty-nine hundred dollars ($4,900).
c. Neglect of Corporate Financial Obligations
Defendants have systematically neglected multiple financial obligations of the corporation. KOOP owes the Washington, D.C. law firm of Haley, Bader, & Potts in excess of one hundred thousand dollars ($100,000) for services rendered in connection with obtaining the FCC license. Under an agreed payment plan, the law firm would reduce the outstanding principal by more than the payments being made, as long as payments continued to be made. By failing to service this debt, the Defendants have lost KOOP the considerable benefit of this bargain. KOOP owes various members of the Ellinger family in excess of ten thousand dollars ($10,000) for loans they have made through the years as the station's finances got established. Finally, former General Manager Jenny Wong holds a Promissory Note for nearly twenty thousand dollars ($20,000) in unpaid salary accrued during the early years of the station's operation. These three creditors alone would have the ability, given a judgment, to levy on KOOP's assets and bankrupt the corporation.
Under the Defendants' leadership, KOOP's cash flow reached the point that there was not even enough money to pay KOOP's only employee (part-time Assistant General Manager Ellen Stader), nor to pay for the Community Board election mailout. The election mailing was financed by the group of members who support the installation of the oversight committee. The Assistant General Manager's salary for October 1998 was paid by Plaintiff Zakes out of his personal funds.
3. Breach of Contract
In September 1996, Plaintiff Chamkis and the KOOP Board entered into a lease for certain broadcasting equipment, specifically Marti studio-transmitter link equipment, consisting of four numbered units bearing serial numbers STL-950-4599, STL-950-4600, R-10-950-4650, and R-10-950-4651. A true and correct copy of this lease is attached as Exhibit A and incorporated herein by reference for all purposes as if set forth at length. This lease was necessitated when KOOP fell behind with Southwestern Bell on payments for two dedicated phone lines that served to convey the programming from the studio to the radio transmitter. Southwestern Bell was unwilling to reconnect the lines without a substantial deposit that was beyond the means of KOOP, so Plaintiff Chamkis bought a microwave relay system, spending more than eleven thousand dollars ($11,000.00) of his personal funds, that would link the studio to the transmitter. The Board executed a lease for the equipment, designed to be fair to both parties: KOOP would pay the same $330/month that it was paying Southwestern Bell, but got a more lenient creditor, plus the ability to unilaterally declare a limited number of 'grace months' during the lease if cash flow was insufficient to pay the lease in any month. Plaintiff Chamkis reserved standard remedies for default, including the right to repossess the equipment without notice or judicial action.
On Saturday, November 21, 1998, KOOP's latest payment -- a check for two months rental -- was returned NSF. This default brings the total arrearage under the lease to one thousand nine hundred and eighty dollars ($1980.00) plus interest. On Monday, November 23, 1998, the undersigned, on behalf of and at the express direction of Plaintiff Chamkis, sent a written demand that the lease be brought current to Defendants' counsel, Ken Owens of Hilgers & Watkins. Defendants, through Mr. Owens, have failed to cure their default. Plaintiff Chamkis may at any time exercise his contractual right to remove the STL equipment. Without this equipment, KOOP may be unable to broadcast, risking its most valuable asset, the FCC license.
4. Negligence
Defendants have been negligent in their duties to the members to faithfully observe the corporate bylaws in the following respects:
a. Improprieties in the 1997 ElectionAs set forth in Section II, Paragraph 3, above, Defendants disregarded the corporate bylaws regarding the 1997 Board of Trustees and Community Board elections.
b. Improprieties in the 1998 Programming Committee Election
In February 1998, the Defendants hijacked the election process for the Programming Committee, the committee that makes the decisions regarding what programs will be aired. The Programming Committee had previously been selected through a combination of election, appointment, or volunteering. The Board decided to establish an official procedure, calling for two members each to be chosen by the Board of Trustees, the Community Board, the Collectives, and the entire general membership. The result is that the Defendants would hold power over at least four of the eight seats. At the February 1998 station meeting, a show of hands produced a 37-to-8 vote against this proposal. Six of the eight 'no' votes were current or former members of the Boards. Despite this overwhelming opposition, Defendants approved the proposal. The process produced predictable results: two members of the Community Board (who continue to serve on that Board as well) and Defendant Hayman were elected to the Programming Committee. Defendant Hayman continues to serve as a Trustee, also.
c. Invalidation of the 1998 Community Board Election
In the wake of the Special Membership Meeting, as part of an agreement that forestalled legal action at the time, the Defendants agreed to hold new elections for the Community Board. Both factions agreed to put their energies into campaigning for their respective supporters rather than going to Court. When the Defendants' supporters were concerned that not all of their votes could be cast before the deadline, the Defendants extended the deadline. When the ballot-countin started and it became apparent that the Defendants were not likely to prevail, they simply and autocratically invalidated the election, usurping the will of the membership and defying state law.
d. Other Improprieties Concerning Meetings
The Defendants have failed to follow basic meeting procedures by not properly posting agendas and minutes and acting in the absence of a quorum. According to KOOP's bylaws, all actions by the Board of Trustees require a majority vote of the total number of Trustees. Since there are six Trustees, that means that at least four must be present to do any business. Business has often been conducted without such a quorum. The Community Board has wholly failed to post any minutes and rarely, if ever, have they posted an agenda. Defendant Vera has even continued meetings of the Community Board (and conducted the business thereof, including taking votes on official actions) despite the fact that a quorum was lost when members had to leave, using the excuse that they had quorum at the beginning of the meeting until people left, so it didn't matter if they didn't have quorum at the time the vote was taken.
The Boards have not only not met when they were supposed to, they have also met when they were not supposed to. In an unannounced meeting held on Thursday, Oct. 22nd, the Board of Trustees extended the community board election process, without input from the Community Board Election Committee (which was scheduled to meet later that evening). Another example was the Board of Trustees' "meeting" earlier this year at which the decision was made to cancel what was arguably the corporation's flagship program: the Pacifica Network News. It was held over the telephone on a conference call; members thus could not observe or participate. Finally, the Board of Trustees often convenes in Executive Session with no previous posting of this intent -- or the topics for discussion -- on any agenda.
e. Other Improprieties on the Air Have Gone Unaddressed
As a non-commercial broadcaster, KOOP is subject to FCC regulations prohibiting personal attacks on the air. Defendants Vera and McKaskle have repeatedly violated this regulation, putting the station's broadcasting license in jeopardy. When these incidents were called to the attention of the Board of Trustees, no action whatsoever was taken.
5. Civil Conspiracy
The individual defendants have conspired to take control of the corporation by the unlawful means specified herein. They are jointly and severally liable for the acts of each coconspirator, and for damages they have caused.
The assets of the Texas Educational Broadcasting Co-operative, Inc., under the control of the Defendants, are at immediate risk of being lost through the Defendants' malfeasance and dereliction of their duties unless a receiver is appointed. To protect the corporation's membership and creditors from irreparable injury under the circumstances detailed above, Plaintiffs have no remedy at law or in equity other than the appointment of a receiver to rehabilitate the corporation pursuant to Art. 1396-7.05, Tex. Rev. Civ. Stat. As set forth above, the membership has designated an oversight committee; Plaintiffs nominate the committee of those eight individuals to serve as receiver. Further, owing to the voting membership's unanimous selection of these persons, Plaintiffs request that the Court set only a minimal bond for their service.
Plaintiffs, as members of KOOP, ask the Court for a judgment declaring their rights under the resolution of the Special Membership Meeting, and ordering the implementation of the terms thereof immediately. To secure performance of the Defendants' obligations under the resolution made subject of this petition, Plaintiffs have been required to obtain the services of the undersigned attorney, and seeks an award of the usual and customary attorneys' fees for reasonable and necessary services rendered in connection with this matter, as proven at trial.
WHEREFORE, PREMISES CONSIDERED, Plaintiffs pray that citation and notice issue as required by law and that the Court:
1. upon hearing, either ex parte or on notice to Defendants, appoint the Oversight Committee of John Duncan, David Gonzalez, Ricardo Guerrero, Tina Hardin, Kara Sheldon, Carol Teixeira, Neal Tuttrup, and Elaine Wolff as a receiver to rehabilitate the Texas Educational Broadcasting Co-operative, Inc., to serve with minimal bond until further Order of this Court;
2. upon trial of this cause, order Defendants, jointly and severally, to pay Plaintiff Chamkis damages of four thousand two hundred and ninety dollars ($4,290) in unpaid lease payments, attorneys' fees as proven at trial, and prejudgment and postjudgment interest on all said sums at the maximum rate allowed under the law;
3. upon trial of this cause, order the individual Defendants, jointly and severally, to pay the Texas Educational Broadcasting Co-operative, Inc. damages of five thousand dollars ($5,000) for the misappropriated grant from the Elton John Foundation, forty-nine hundred dollars ($4,900) for the misappropriated Equipment Fund account, attorneys' fees as proven at trial, and prejudgment and postjudgment interest on all said sums at the maximum rate allowed under the law;
4. upon trial of this cause, order the Defendants, jointly and severally, to pay Plaintiffs' the usual and customary attorneys' fees for reasonable and necessary services rendered in connection with this matter; and
5. grant Plaintiffs such other and further relief, special or general, at law or in equity, to which Plaintiffs may show themselves justly entitled.
Respectfully submitted,
______________________
Russ Ham, State Bar No.
08810100
Attorney for Plaintiffs Michael F. Zakes and Jerome M. Chamkis
7608 Robalo Road, Austin, TX 78757, (512) 459-6871, (fax)
459-9759
This is to verify that I am the payee of the lease contract referenced in Section III, Paragraph 3, above; that the amounts set forth therein are true and correct; and that the amount specified therein as due and owing is unpaid as of the date of this filing.
______________________________
Jerome M. Chamkis
HAVE NOTICE that a hearing on the foregoing application for appointment of a receiver has been set for Monday, December 21, 1998, at 9 o'clock a.m., in the District Court of Travis County, Texas.
______________________________
Russ Ham