Bill Summary – FastDemocracy

LEGISLATIVE GENERAL COUNSEL                                           H.B. 209
Approved for Filing: J. Carlton 6                            1st Sub. (Buff)
         6 02-28-24 10:49 AM 6
                        Senator Stephanie Pitcher proposes the following substitute bill:
                               CIVIL ACTION AMENDMENTS
                                      2024 GENERAL SESSION
                                            STATE OF UTAH
                               Chief Sponsor: Stephanie Gricius
                                Senate Sponsor: Stephanie Pitcher
 6
 LONG TITLE
 General Description:
       This bill addresses civil actions.
 Highlighted Provisions:
       This bill:
       < defines terms;
       < clarifies the requirements for bringing a civil action for human trafficking;
       < allows for the dissolution of a nonprofit organization in certain civil actions; and
       < makes technical and conforming changes.
 Money Appropriated in this Bill:
       None
 Other Special Clauses:
       This bill provides a special effective date.
 Utah Code Sections Affected:                                                                   1st Sub. H.B. 209
 AMENDS:
       16-6a-1414 (Superseded 07/01/24), as enacted by Laws of Utah 2000, Chapter 300
       16-6a-1414 (Effective 07/01/24), as last amended by Laws of Utah 2023, Chapter 401
       16-6a-1416 (Effective 07/01/24), as last amended by Laws of Utah 2023, Chapter 401
       16-6a-1417 (Effective 07/01/24), as last amended by Laws of Utah 2023, Chapter 401
     *HB0209S01*
       1st Sub. (Buff) H.B. 209                                                    02-28-24 10:49 AM
 RENUMBERS AND AMENDS:
          78B-3-113, (Renumbered from 77-38-15, as last amended by Laws of Utah 2022,
 Chapter 430)
29
 Be it enacted by the Legislature of the state of Utah:
          Section 1. Section 16-6a-1414 (Superseded 07/01/24) is amended to read:
          16-6a-1414 (Superseded 07/01/24). Grounds for judicial dissolution.
          (1) A nonprofit corporation may be dissolved in a proceeding by the attorney general or
 the division director if it is established that:
          (a) the nonprofit corporation obtained its articles of incorporation through fraud; or
          (b) the nonprofit corporation has continued to exceed or abuse the authority conferred
 upon it by law.
          (2) A nonprofit corporation may be dissolved in a proceeding by a member or director
 if it is established that:
          (a) (i) the directors are deadlocked in the management of the corporate affairs;
          (ii) the members, if any, are unable to break the deadlock; and
          (iii) irreparable injury to the nonprofit corporation is threatened or being suffered;
          (b) the directors or those in control of the nonprofit corporation have acted, are acting,
 or will act in a manner that is illegal, oppressive, or fraudulent;
          (c) the members are deadlocked in voting power and have failed, for a period that
 includes at least two consecutive annual meeting dates, to elect successors to directors whose
 terms have expired or would have expired upon the election of their successors; or
          (d) the corporate assets are being misapplied or wasted.
          (3) A nonprofit corporation may be dissolved in a proceeding by a creditor if it is
 established that:
          (a) (i) the creditor's claim has been reduced to judgment;
          (ii) the execution on the judgment has been returned unsatisfied; and
          (iii) the nonprofit corporation is insolvent; or
          (b) (i) the nonprofit corporation is insolvent; and
          (ii) the nonprofit corporation has admitted in writing that the creditor's claim is due and
 owing.
                                                        -2-
       02-28-24 10:49 AM                                                    1st Sub. (Buff) H.B. 209
        (4) (a) As used in this Subsection (4):
        (i) "Misconduct claim" means:
        (A) a claim for wrongful death, fraud, breach of public trust, or an intentional tort; or
        (B) a claim regarding criminal conduct by a director, member, or employee of the
 nonprofit organization that is a felony offense or an offense described in Title 76, Chapter 5,
 Part 4, Sexual Offenses, Title 76, Chapter 5b, Sexual Exploitation Act, Section 76-7-102,
 Section 76-9-702, or Section 76-9-702.1.
        (ii) "Nonprofit corporation" does not include a bona fide church or religious
 organization.
        (b) If a person brings a misconduct claim in an action against a nonprofit corporation,
 the person may also bring an action to dissolve the nonprofit corporation.
        (c) If a person brings a dissolution action under Subsection (4)(b), the court may only
 dissolve the nonprofit corporation if the court finds the nonprofit corporation is liable for the
 misconduct claim.
        (d) Upon a motion by the plaintiff in a dissolution action described in Subsection
 (4)(b), the court may:
        (i) issue an injunction preventing the nonprofit organization from selling or disposing
 of any assets held by the nonprofit organization; and
        (ii) require the nonprofit organization to deposit funds, or post a bond, with the court
 for the amount of damages pleaded in the complaint.
        (e) The court may void a transaction that is made by the nonprofit organization within
 12 months before the day on which the action was filed with the court if the court finds that the
 transaction is voidable under Section 25-6-202.
        [(4)] (5) (a) If a nonprofit corporation has been dissolved by voluntary or
 [administrative] another action taken under this part:
        (i) the nonprofit corporation may bring a proceeding to wind up and liquidate its
 business and affairs under judicial supervision in accordance with Section 16-6a-1405; and
        (ii) the attorney general, a director, a member, [or] a creditor, or a plaintiff under
 Subsection (4) may bring a proceeding to wind up and liquidate the affairs of the nonprofit
 corporation under judicial supervision in accordance with Section 16-6a-1405, upon
 establishing the grounds set forth in Subsections (1) through [(3)] (4).
                                                      -3-
        1st Sub. (Buff) H.B. 209                                                   02-28-24 10:49 AM
         (b) As used in Sections 16-6a-1415 through 16-6a-1417:
         (i) a "judicial proceeding to dissolve the nonprofit corporation" includes a proceeding
 brought under this Subsection [(4)] (5); and
         (ii) a "decree of dissolution" includes an order of a court entered in a proceeding under
 this Subsection [(4)] (5) that directs that the affairs of a nonprofit corporation shall be wound
 up and liquidated under judicial supervision.
         Section 2. Section 16-6a-1414 (Effective 07/01/24) is amended to read:
         16-6a-1414 (Effective 07/01/24). Grounds and procedure for judicial dissolution.
         (1) The attorney general or the division director may bring an action in a court with
 jurisdiction under Title 78A, Judiciary and Judicial Administration, to dissolve a nonprofit
 corporation if it is established that:
         (a) the nonprofit corporation obtained the nonprofit corporation's articles of
 incorporation through fraud; or
         (b) the nonprofit corporation has continued to exceed or abuse the authority conferred
 upon the nonprofit corporation by law.
         (2) A member or director of a nonprofit corporation may bring an action in a court with
 jurisdiction under Title 78A, Judiciary and Judicial Administration, to dissolve the nonprofit
 corporation if it is established that:
         (a) (i) the directors are deadlocked in the management of the corporate affairs;
         (ii) the members, if any, are unable to break the deadlock; and
         (iii) irreparable injury to the nonprofit corporation is threatened or being suffered;
         (b) the directors or those in control of the nonprofit corporation have acted, are acting,
 or will act in a manner that is illegal, oppressive, or fraudulent;
         (c) the members are deadlocked in voting power and have failed, for a period that
 includes at least two consecutive annual meeting dates, to elect successors to directors whose
 terms have expired or would have expired upon the election of their successors; or
         (d) the corporate assets are being misapplied or wasted.
         (3) A creditor may bring an action in a court with jurisdiction under Title 78A,
 Judiciary and Judicial Administration, to dissolve a nonprofit corporation if it is established
 that:
         (a) (i) the creditor's claim has been reduced to judgment;
                                                       -4-
        02-28-24 10:49 AM                                                     1st Sub. (Buff) H.B. 209
          (ii) the execution on the judgment has been returned unsatisfied; and
          (iii) the nonprofit corporation is insolvent; or
          (b) (i) the nonprofit corporation is insolvent; and
          (ii) the nonprofit corporation has admitted in writing that the creditor's claim is due and
 owing.
          (4) (a) As used in this Subsection (4):
          (i) "Misconduct claim" means:
          (A) a claim for wrongful death, fraud, breach of public trust, or an intentional tort; or
          (B) a claim regarding criminal conduct by a director, member, or employee of the
 nonprofit organization that is a felony offense or an offense described in Title 76, Chapter 5,
 Part 4, Sexual Offenses, Title 76, Chapter 5b, Sexual Exploitation Act, Section 76-7-102,
 Section 76-9-702, or Section 76-9-702.1.
          (ii) "Nonprofit corporation" does not include a bona fide church or religious
 organization.
          (b) If a person brings a misconduct claim in an action against a nonprofit corporation,
 the person may also bring an action to dissolve the nonprofit corporation.
          (c) If a person brings a dissolution action under Subsection (4)(b), the court may only
 dissolve the nonprofit corporation if the court finds the nonprofit corporation is liable for the
 misconduct claim.
          (d) Upon a motion by the plaintiff in a dissolution action described in Subsection
 (4)(b), the court may:
          (i) issue an injunction preventing the nonprofit organization from selling or disposing
 of any assets held by the nonprofit organization; and
          (ii) require the nonprofit organization to deposit funds, or post a bond, with the court
 for the amount of damages pleaded in the complaint.
          (e) The court may void a transaction that is made by the nonprofit organization within
 12 months before the day on which the action was filed with the court if the court finds that the
 transaction is voidable under Section 25-6-202.
          [(4)] (5) If an action is brought under this section, it is not necessary to make directors
 or members parties to the action to dissolve the nonprofit corporation unless relief is sought
 against the members individually.
                                                         -5-
        1st Sub. (Buff) H.B. 209                                                   02-28-24 10:49 AM
         [(5)] (6) In an action under this section, the court may:
         (a) issue injunctions;
         (b) appoint a receiver or a custodian pendente lite with all powers and duties the court
 directs; or
         (c) take other action required to preserve the nonprofit corporation's assets wherever
 located and carry on the business of the nonprofit corporation until a full hearing can be held.
         [(6)] (7) If a nonprofit corporation has been dissolved by voluntary or [administrative]
 another action taken under this part:
         (a) the nonprofit corporation may bring a proceeding to wind up and liquidate its
 business and affairs under judicial supervision in accordance with Section 16-6a-1405; and
         (b) the attorney general, a director, a member, [or] a creditor, or a plaintiff under
 Subsection (4) may bring a proceeding to wind up and liquidate the affairs of the nonprofit
 corporation under judicial supervision in accordance with Section 16-6a-1405, upon
 establishing the grounds set forth in Subsections (1) through [(3)] (4).
         Section 3. Section 16-6a-1416 (Effective 07/01/24) is amended to read:
         16-6a-1416 (Effective 07/01/24). Receivership or custodianship.
         (1) As used in this section:
         (a) "Decree of dissolution" includes an order of a court entered in a proceeding under
 [Subsection 16-6a-1414(4)] Section 16-6a-1414 that directs that the affairs of a nonprofit
 corporation be wound up and liquidated under judicial supervision.
         (b) "Judicial proceeding to dissolve the nonprofit corporation" includes a proceeding
 brought under [Subsection 16-6a-1414(4)] Section 16-6a-1414.
         (2) (a) A court in a judicial proceeding brought to dissolve a nonprofit corporation may
 appoint:
         (i) one or more receivers to wind up and liquidate the affairs of the nonprofit
 corporation; or
         (ii) one or more custodians to manage the affairs of the nonprofit corporation.
         (b) Before appointing a receiver or custodian, the court shall hold a hearing, after
 giving notice to:
         (i) all parties to the proceeding; and
         (ii) any interested persons designated by the court.
                                                       -6-
        02-28-24 10:49 AM                                                    1st Sub. (Buff) H.B. 209
          (c) The court appointing a receiver or custodian has exclusive jurisdiction over the
 nonprofit corporation and all of its property, wherever located.
          (d) The court may appoint as a receiver or custodian:
          (i) an individual;
          (ii) a domestic or foreign corporation authorized to conduct affairs in this state; or
          (iii) a domestic or foreign nonprofit corporation authorized to conduct affairs in this
 state.
          (e) The court may require the receiver or custodian to post bond, with or without
 sureties, in an amount specified by the court.
          (3) The court shall describe the powers and duties of the receiver or custodian in its
 appointing order that may be amended from time to time. Among other powers the receiver
 shall have the power to:
          (a) dispose of all or any part of the property of the nonprofit corporation, wherever
 located:
          (i) at a public or private sale; and
          (ii) if authorized by the court; and
          (b) sue and defend in the receiver's own name as receiver of the nonprofit corporation
 in all courts.
          (4) The custodian may exercise all of the powers of the nonprofit corporation, through
 or in place of its board of directors or officers, to the extent necessary to manage the affairs of
 the nonprofit corporation in the best interests of its members and creditors.
          (5) If doing so is in the best interests of the nonprofit corporation and its members and
 creditors, the court may:
          (a) during a receivership, redesignate the receiver as a custodian; and
          (b) during a custodianship, redesignate the custodian as a receiver.
          (6) The court from time to time during the receivership or custodianship may order
 compensation paid and expense disbursements or reimbursements made from the assets of the
 nonprofit corporation or proceeds from the sale of the assets to:
          (a) the receiver;
          (b) the custodian; or
          (c) the receiver's or custodian's attorney.
                                                        -7-
        1st Sub. (Buff) H.B. 209                                                     02-28-24 10:49 AM
        Section 4. Section 16-6a-1417 (Effective 07/01/24) is amended to read:
        16-6a-1417 (Effective 07/01/24). Decree of dissolution.
        (1) As used in this section:
        (a) "Decree of dissolution" includes an order of a court entered in a proceeding under
 [Subsection 16-6a-1414(4)] Section 16-6a-1414 that directs that the affairs of a nonprofit
 corporation be wound up and liquidated under judicial supervision.
        (b) "Judicial proceeding to dissolve the nonprofit corporation" includes a proceeding
 brought under [Subsection 16-6a-1414(4)] Section 16-6a-1414.
        (2) If after a hearing the court determines that one or more grounds for judicial
 dissolution described in Section 16-6a-1414 exist:
        (a) the court may enter a decree:
        (i) dissolving the nonprofit corporation; and
        (ii) specifying the effective date of the dissolution; and
        (b) the clerk of the court shall deliver a certified copy of the decree to the division
 which shall file it accordingly.
        (3) After entering the decree of dissolution, the court shall direct:
        (a) the winding up and liquidation of the nonprofit corporation's affairs in accordance
 with Section 16-6a-1405; and
        (b) the giving of notice to:
        (i) (A) the nonprofit corporation's registered agent; or
        (B) the division if it has no registered agent; and
        (ii) to claimants in accordance with Sections 16-6a-1406 and 16-6a-1407.
        (4) The court's order or decision ma