Present: All the Justices
VICKI WATSON BAILEY, ADMINISTRATOR, ETC.
OPINION BY JUSTICE A. CHRISTIAN COMPTON
v. Record No. 972112 September 18, 1998
LANCASTER RURITAN RECREATION
CENTER, INC.
FROM THE CIRCUIT COURT OF LANCASTER COUNTY
Joseph E. Spruill, Jr., Judge
The dispositive question in this negligence action is
whether the defendant is protected from liability under the
doctrine of charitable immunity.
In June 1996, appellant Vicki Watson Bailey, Administrator
of the Estate of April C. Watson, an Infant, Deceased, filed
this action for damages under the death by wrongful act statutes
against appellee Lancaster Ruritan Recreation Center, Inc. The
defendant, a nonstock corporation with its office and principal
place of business in Lancaster County, owns, operates, and
supervises a swimming pool on its premises.
The plaintiff alleges that, on June 27, 1994, the decedent,
her daughter, was a guest and invitee at defendant's facility
for the purpose of swimming in the pool. The plaintiff further
alleges the decedent drowned that day as the result of the
negligence of defendant's agents, servants, and employees.
Defendant filed a grounds of defense denying it is indebted
to the plaintiff. It also filed a plea alleging plaintiff's
claim is barred because defendant is a charitable corporation
and plaintiff's decedent "was a beneficiary of the bounty of the
charitable corporation."
In May 1997, the trial court considered testimonial and
documentary evidence during a hearing on the plea.
Subsequently, in a letter opinion, the court sustained the plea,
holding that defendant is a charitable corporation and that
plaintiff's decedent was a beneficiary of its bounty. We
awarded plaintiff this appeal from a July 1997 order dismissing
the action with prejudice.
On appeal, the plaintiff assigns error to both rulings
below. Because of the view we take of the case, only the first
issue requires discussion, that is, did the trial court err in
sustaining defendant's plea in bar on the ground that defendant
is a charitable institution?
Under the doctrine of limited immunity applicable to
charities in Virginia, a charitable institution is immune from
liability to its beneficiaries for negligence arising from acts
of its servants and agents, if due care has been exercised in
their selection and retention. Straley v. Urbanna Chamber of
Commerce, 243 Va. 32, 35, 413 S.E.2d 47, 49 (1992). Accord
Moore v. Warren, 250 Va. 421, 422-23, 463 S.E.2d 459, 459
(1995).
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In order to determine if a corporation is a charitable
organization, a court must examine the powers and purposes set
forth in its charter to learn whether or not the corporation is
maintained for gain or profit. Danville Community Hosp. v.
Thompson, 186 Va. 746, 753, 43 S.E.2d 882, 884 (1947). The
character of the organization may be ascertained not only from
such powers and purposes but also from the manner in which it is
conducted. Id. If an organization's charter sets forth a
charitable purpose, there is a rebuttable presumption it is
operating a charitable institution in accordance with such
purpose. Memorial Hosp. v. Oakes, 200 Va. 878, 883, 108 S.E.2d
388, 392 (1959).
In the present case, the defendant, which has no "official
affiliation with Ruritan International," was established in 1964
as a nonstock corporation. According to the charter, its
purpose is to operate "a civic center, club, social or
recreation center" and to "provide funds for the carrying on of
religious, charitable, scientific, literary, historical or
education programs." The charter further provides that no part
of the funds shall "inure to the benefit of any trustee,
director, or member of said corporation."
From its inception, defendant operated a recreation center
consisting of the swimming pool, a baseball diamond, a tennis
court, and a concession stand. Testimony showed the center was
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organized so that "kids in the upper end of the county would
have someplace to go and swim and play ball and whatever." Due
to lack of funds over the years to maintain all the facilities,
only the pool remained in operation at the time of the accident
in question.
According to the bylaws, membership in the recreation
center, which includes the privilege to use the pool, is
restricted to "those members accepted for membership by action
of the Board of Directors." Initially, membership applications
were to be accompanied by a $150 initiation fee plus annual dues
of $30. An application was accepted only upon a majority vote
of the board of directors. Membership entitled the family of
the holder of a membership card to use the facilities.
Nonmembers are allowed to use the pool as guests of a
member by payment of a guest fee. Nonmembers have been
permitted to take swimming lessons given by the American Red
Cross at the pool upon payment of a fee. While not pertinent to
the issue at hand because the facts relate to the period after
the accident in question, the evidence showed that during 1995
and 1996 children sponsored by the Young Men's Christian
Association were permitted to use the pool. The YMCA paid a fee
of $1 per child.
The membership procedure changed, however, in the "last
couple of years" before the hearing on the plea in bar.
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According to defendant's treasurer, "if anybody applied, we
accepted them . . . [a]s soon as we got the money." At the time
of the hearing, the initiation fee was $400 and the annual dues
were $200. The treasurer testified that the "regular use of the
facilities" remains "exclusively for the members and guests
only," although no person has been denied membership.
The funds generated by use of the pool have been employed
to pay nominal salaries of the treasurer and the corporate
secretary, to buy chemicals for the pool, to finance repairs,
and to pay utility bills. The treasurer, who has served in that
position since 1990 and has been a member since 1966, testified
the financial goal of the corporation "was to break even" and to
"have enough to keep the pool up." No compensation has been
received by the other corporate officers. According to the
treasurer, no funds have been "devoted or donated" by the
corporation to any religious, scientific, literary, or
historical endeavor since 1990 because defendant "never had the
money."
The corporation is not exempt from local real estate taxes
nor is it exempt from federal income taxes. Federal tax returns
dating from 1980 showed a small amount of taxable income was
generated in 1991 and 1993 but the tax paid was recouped because
of losses reported later. During the other years, the defendant
reported either no taxable income or a loss.
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On appeal, the defendant contends the trial court correctly
concluded that it is a charitable organization. Arguing the
charter sets forth a charitable purpose, that is, providing
recreational facilities for the young people and residents of
Lancaster County, defendant notes it is presumed to be operating
a charitable organization in accordance with this purpose.
Continuing, defendant refers to several evidentiary factors
mentioned in case law on the subject, which, it says, confirm it
was operating in accord with its charitable purpose at the time
of the accident. First, defendant says that to advance "its
charitable purpose of providing educational programs" it allowed
anyone, whether a member or not, to enroll in swimming lessons
conducted by the American Red Cross upon payment of a fee.
Defendant argues that use of the pool by the YMCA, as well as
evidence the Boy Scouts of America has utilized the facilities
for camping and meetings, are other examples of defendant
advancing its educational and charitable programs.
Second, defendant points to evidence that no corporate
officer receives compensation, except the nominal amounts paid
the secretary and treasurer. Third, defendant says none of the
meager "profits" has ever been paid to any person or entity,
except as compensation for work performed. "In short, all
profits or surplus funds were devoted to the benevolent and
charitable purpose of establishing and maintaining a
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recreational facility for the citizens of Lancaster County,"
according to defendant. Fourth, defendant points to evidence
that it did not aggressively pursue debt collection against
members who failed to pay dues, as another example of its
charitable activity.
Finally, defendant, responding to one of plaintiff's
arguments, contends an organization is not required under
Virginia law to "donate" funds in order to qualify as a charity.
It says many charities, like defendant, provide services or
construct facilities to advance their charitable purpose. "In
fact, typically, charities are the recipients of charitable
donations, not the givers," defendant points out.
We do not agree with defendant's contentions. Even
affording it benefit of the presumption, we hold defendant
failed to carry the burden to prove it is a charitable
institution.
Given the structure of the corporation as set forth in the
charter and bylaws, as well as its manner of operation, the
record shows that defendant's overriding purpose is to own and
operate a private recreation center for the exclusive use of its
members and guests. In other words, the defendant does not
extend its benefits to an indefinite number of persons. See
Allaun v. First and Merchants Nat'l Bank, 190 Va. 104, 108, 56
S.E.2d 83, 85 (1949). Furthermore, the charter fails to state
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any "not for profit" objective or any limitation requiring the
corporation to be operated only in a nonprofit manner. Indeed,
the corporation has been conducted as a for-profit organization
as demonstrated by its lack of exemption from income taxes or
from local real estate taxes.
Merely because the facilities have been made available
"from time to time" to the Red Cross and the Boy Scouts, and
because the corporation recently has been operated unprofitably,
does not convert a for-profit operation to a charitable one.
The only financial evidence offered in support of the plea in
bar was the treasurer's recollections beginning in 1990 and the
income tax returns from 1980 through 1994. No financial data
from the corporation's 1964 organization to 1980 was presented.
The relevant financial history of a corporation, and not just
recent unprofitable years, must be examined to properly
determine charitable status. The defendant had the burden to
present such history and failed, or was unable, to do so.
Consequently, we conclude that the trial court erred in
sustaining the plea of charitable immunity. We will reverse the
judgment below and remand the case for further proceedings.
Reversed and remanded.
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