ÿWPCûÕ IW5¸6ŸóO Ñ;ÕR`øЬDÓšJLàÝg§)s?º~ðäLÔK’Á¼Ü<–J»Zv“û:õµ…5D©p5¹3äÇ–‹ÒºÑ¡§äc)¬U“{¤Í eqÏO#QVW1èh}=¤Ešðö¬á3ˆøãÇFÝtHѰËué:)4¾ç—± :ªˆIè1,'p9dŽñdnÿJV&ðÙëN;°!¹AÆD;x2úgKgñkx6ÚA„ÂþNNù±W] uŸö» ‚Ëö¡35x*„0tü±R1±Wå©3­*xš}e‹êbB ýQÕ3¥4Ó/gû•9î­ß¥)‡z.æD„®síY³t„1ŸmñæÆ¤Xµ2T.Mµíì4øMÞ5¨#Ð,°!¬Z®æÂúž@bP®˜¹øozÛD˜aLŸ ó|þF ÅWæRòØ)61j{d¬¾ß¯àhï5B W“L†ši3å¢:vG$ƒõP oKÆú¬YÖLS½a½O׫Ó¦ @OÑö÷þ#ú”_&Ëñº¦ÊŽÿÛúœÂà_‚Ûá‡Ð¦M­d Ù <Ü‚¥Ã¹¸ß,Š0Aã%¢©×]ˆÔÿëSñÄL´ô3O,×Ò÷Þ‚…Dbm‹ßôýÿª#ÁL % ^  0ˆ U×N§ wõ 4ù z Ò‡Yh mjÙÆZÆ ÆæƬ 0BDrN¶¶h¸E i" 0ô‹Ÿ 0ñUyN]4s 0î§ 0ë• 0è€ 0åh 0âM 0ß/! 0Ü" 0âê" 0ßÌ# 0Ü«$ 0Ù‡% 0Ö`& 0Ó6' 0Ð ( 0ÍÙ( 0ʦ)bp* 0áx* 0ÞY+ 0Û7, 0Ø- 0Õê- 0Ò¿. 0Ï‘/ 0Ì`0 0É,1 00õ1 0<%2 0¾a2 0>3 0v]3 0`Ó3 0`34 0`“4 0`ó4 0`S5 08³5 0Òë5 02½6 0üï6 0:ë7 0Y%8 0_~8 0 Ý8 0jç9 0„Q; B*Õ< D/ÿ< 0„.= D/²> 0Îá> 06¯? 0Bëå? 0Ð@ 0:ØA 0^B BpB 0<B 0¤ÉB D5mC D-¢C 0KÏCU6D ASPDÆ£D 0¤iE 0D F A«QFU>üFU*:GdG¥lGEKšVMeðN}UP»ÒSöTgƒZ[ê[E_äa`%EbEbKjf]µgi$kï'o'oæuãüuÐßv¯y°Í{Í{9}|Õ¶}/‹‚Nº„Ú‡Úâ‡˼ˆ_‡‰àæŒòÆþ¸Ž>¶”ô˜Éš5КœœK"ÃmŸà0 |¢ߌ£k¤s¨U„« Ù­ãæ²•ɵö^¸T¹Kk½ã¶¿œ™ÃÎ5Ǵɼ·Ê·Ê·Ê-sΠҠҠҠÒM®Ô˜HP LaserJet 4050 Series PCL 6ÈÈ,,,,ÈÈ0»¢:-s (`£ª$¡¡Ñ€.ÑÑ8€½­»»d»»d8ÑÑ ý ÑÓ  Ó(í€"  Z6Times New Roman Regularš‚,-ingÈ=¥ ˜C:\PROGRA~1\COREL\WORDPE~1\TEMPLATE\CUSTOM~1\REVISE~1.WPTC:\Program Files\Corel\WordPerfect Office 2000\Template\Custom WP Templates\revised standard opinion.wpt3|x-ÿU‹ÿÀÀÀ ÏÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú8Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔMr.€Madison€is€the€husband€of€Ô_ÔWillieAnnÔ_Ô€Madison.€Level 1Level 2Level 3Level 4Level 5‚Level 1Level 2Level 3Level 4Level 5„Level 1Level 2Level 3Level 4Level 5…Level 1Level 2Level 3Level 4Level 5(#Ã$òòÚ  Ú0Ú  Úóó ^Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú13Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThe€Supreme€Court€found€that€over€ninety„nine€percent€(99%)€of€Ô_ÔCCFSÔ_Ôððs€funding€came€from€governmentalÐ ° Ðsources.€€òòIdóó.€2002€Tenn.€LEXIS€379,€at€*6,€___€S.W.3d€at€___. _Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú28Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔÔ‡ôåeòòôåeÔWhen€asked€at€oral€argument€to€be€more€specific€regarding€the€objectionable€evidence,€counsel€respondedÐ ° Ðthat€it€was€included€in€the€documents€in€Boxes€3€and€4€of€the€record.Ô#†ôåeòòôåe#Ô€€Consequently,€in€order€to€give€thoroughÐ tÄ Ðconsideration€to€the€evidentiary€issues,€we€have€relied€upon€the€corporationsðð€identification€in€other€filings€of€the€disputedÐ 8ˆ Ðmaterial.2J+M ÿÿ0_level1Ó ¨ý ÓÓ X ÓÓ2( ` ¸ hÀpÈ xÐ 2ÓÔ2ÔÔ3  Ôà..àÓ  ÓÓ5+° °` ¸ hÀpÈ xÐ 5ÓÓ ¨ý Ó •Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú63Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔÔ‡ôåeòòôåeÔÔ_ÔCCFSÔ_Ô€contends€that€all€related€party,€conflict€of€interest,€or€similar€transactions€were€disclosed€to€itsÐ ° Ðindependent€auditor,€who€reported€them€in€its€audits.€Ô#†ôåeòòôåe#Ô2G+M ÿÿ0_level2Ó ¨ý ÓÓ ° ÓÓ/%` ` ¸ hÀpÈ xÐ /ÓÔ2ÔÔ3  Ôà..àÓ  ÓÓ5+° °` ¸ hÀpÈ xÐ 5ÓÓ ¨ý Ó(ÈhH  Z‹6Times New Roman Regular Ñ ° Ñ *Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú5Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThe€others€identified€as€officers€or€directors€were€Ô‡ôåeòòôåeÔWatson€Anderson,€Gwendolyn€Mizell,€and€€Samuel€Hingha.Ô#†ôåeòòôåe²#Ô2D+M ÿÿ0_level3Ó ¨ý ÓÓ  ÓÓ,"¸ ¸ hÀpÈ xÐ ,ÓÔ2ÔÔ3  Ôà..àÓ  ÓÓ5+° °` ¸ hÀpÈ xÐ 5ÓÓ ¨ý Ó2A+M 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xÐ 5ÓÓ ¨ý Ó25M ÿÿ0_levsl8Ó ¨ý ÓÓ À ÓÓppÈ xÐ ÓÔ2ÔÔ3  Ô€Ó  ÓÓ5+° °` ¸ hÀpÈ xÐ 5ÓÓ ¨ý Ó22M ÿÿ0_levsl9Ó ¨ý ÓÓ  ÓÓÈÈ xÐ ÓÔ2ÔÔ3  Ô€Ó  ÓÓ5+° °` ¸ hÀpÈ xÐ 5ÓÓ ¨ý Ó- ù-2JM ÿÿ0_levnl1Ó ¨ý ÓÓ X ÓÓ2( ` ¸ hÀpÈ xÐ 2ÓÔ2ÔÔ3  ÔÓ  ÓÓ5+° °` ¸ hÀpÈ xÐ 5ÓÓ ¨ý Ó2GM ÿÿ0_levnl2Ó ¨ý ÓÓ ° ÓÓ/%` ` ¸ hÀpÈ xÐ /ÓÔ2ÔÔ3  ÔÓ  ÓÓ5+° °` ¸ hÀpÈ xÐ 5ÓÓ ¨ý Ó2DM ÿÿ0_levnl3Ó ¨ý ÓÓ  ÓÓ,"¸ ¸ hÀpÈ xÐ ,ÓÔ2ÔÔ3  ÔÓ  ÓÓ5+° °` ¸ hÀpÈ xÐ 5ÓÓ ¨ý Ó2AM ÿÿ0_levnl4Ó ¨ý ÓÓ ` ÓÓ) hÀpÈ xÐ )ÓÔ2ÔÔ3  ÔÓ  ÓÓ5+° °` ¸ hÀpÈ xÐ 5ÓÓ ¨ý Ó2>M ÿÿ0_levnl5Ó ¨ý ÓÓ ¸ ÓÓ&hhÀpÈ xÐ &ÓÔ2ÔÔ3  ÔÓ  ÓÓ5+° °` ¸ hÀpÈ xÐ 5ÓÓ ¨ý Ó2;M ÿÿ0_levnl6Ó ¨ý ÓÓ  ÓÓ#ÀÀpÈ xÐ #ÓÔ2ÔÔ3  ÔÓ  ÓÓ5+° °` ¸ hÀpÈ xÐ 5ÓÓ ¨ý Ó28M ÿÿ0_levnl7Ó ¨ý ÓÓ h ÓÓ pÈ xÐ ÓÔ2ÔÔ3  ÔÓ  ÓÓ5+° °` ¸ hÀpÈ xÐ 5ÓÓ ¨ý Ó25M ÿÿ0_levnl8Ó ¨ý ÓÓ À ÓÓppÈ xÐ ÓÔ2ÔÔ3  ÔÓ  ÓÓ5+° °` ¸ hÀpÈ xÐ 5ÓÓ ¨ý Ó22M ÿÿ0_levnl9Ó ¨ý ÓÓ  ÓÓÈÈ xÐ ÓÔ2ÔÔ3  ÔÓ  ÓÓ5+° °` ¸ hÀpÈ xÐ 5ÓÓ ¨ý Ó0ÿÿ.Normal<ÿÿ:Definition T<AAÿÿ:Definition LÓ , ÓÓ5+Ü Ü` ¸ hÀpÈ xÐ 5ÓÓ  ÓÓ5+° °` ¸ hÀpÈ xÐ 5Ó8ÿÿ6Definitionòòóó(''ÿÿ&H1ò òÔ  ÔÔ‡°°°Ôó óÔ  ÔÔ‡XXXÔ(ÿÿ&H2ò 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`‹&Times New RomanSÔ4ÿÿ2Variableòòóó: ÿÿ8HTML MarkupÔB  ÔÔ ÿ ÔÔ  Ô d2 ÿÿ0CommentÔB  Ô(|3‡w$££Ý ƒ£ª!ÝÑ€.ÑÑ8€G-»»dd8ÑÑ ý ÑÓ  ÓÝ  ÝVVVV)ÿÿ!dxdx)!ÈÈÈÈdxdx( ±þ$’’ò òFigure€Ú  Ú1Ú  Úó ó<þ6X9`(‹Courier New^_X`YEþÿ<<CÿÿƒLevel 1Level 2Level 3Level 4Level 5(|3‡w$¢¢Ý ƒ£ª!ÝÑ€.ÑÑ8€G-»»dd8ÑÑ ý ÑÓ  ÓÝ  Ý($$””ò òÚ  Ú1Ú  Úó óX[Z&OLE 2.0 Box <=8ÿÿÿÿÿÿÿÿÿÿCÿÿ HKKKKô\  `‹&Times New Roman%ä2¼A`‹Arial  ›Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú23Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔUnder€the€Revised€Model€Nonprofit€Corporation€Act,€the€approval€by€the€disinterested,€informed€board€ofÐ ° Ðdirectors€of€a€public€benefit€corporation€must€be€made€in€advance€of€the€transaction.Ô‡ôåeòòôåeÔ€€Ô_ÔBrodyÔ_Ô,€òòsupraóó,€at€1427„28;€Moody,Ð tÄ Ðòòsupraóó,€at€268Ô#†ôåeòòôåeP#ÔÔ‡ôåeòòôåeÔ.€€However,€in€its€adoption€of€the€Revised€Act,€Tennessee€did€not€adopt€the€ð ðin€advanceðð€languageÐ 8ˆ Ðappearing€in€the€Revised€Model€Actððs€provision€on€approval€by€the€board€of€directors.€€òòSeeóó€òòRevised€Model€NonprofitÐ üL ÐActóó€ðð€8.31€(1987);€1€òòFletcher,€òòóósupraóó,€at€ðð€2.75.10.Ô#†ôåeòòôåe#Ô ;Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú6Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔÔ‡ôåeòòôåeÔThe€application€for€Recognition€of€Exemption€under€Section€501(c)(3)€of€the€Internal€Revenue€Code€definesÐ ° Ða€ð ðdisqualified€person,ðð€in€relevant€part€as€ð ðany€person€who,€if€the€applicant€organization€were€a€private€foundation,€isÐ tÄ Ð.€.€.€[a]€foundation€manager€.€.€.€[or€a]€ððmember€of€the€familyðð€of€any€[such]€person.€.€.€.ððÔ#†ôåeòòôåe~#Ô Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú65Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔBased€on€these€criteria,€it€is€arguable,€and€the€Attorney€General€has€argued,€that€the€actions€by€the€originalÐ ° Ðboards€in€approving€the€various€challenged€transactions€do€not€qualify€for€the€protection€of€the€business€judgment€rule.€Ð tÄ Ð [Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú15Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔOn€May€4,€2001,€an€agreed€order€of€sale€and€compromise€was€entered€by€the€trial€court€approving€the€saleÐ ° Ðof€certain€items,€primarily€office€furniture,€to€WillieAnn€Madison€and€John€Madison€for€$5,300. sÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú9Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔOther€testimony€and€records€indicate€that€as€of€December€1999,€the€corporations€proposed€a€budget€to€DHSÐ ° Ðapportioning€Mrs.€Madisonððs€$125,000€salary,€with€$100,000€to€be€paid€by€CCFS€and€$25,000€by€Ô_ÔCCNÔ_Ô.€€An€employeeÐ tÄ Ðof€Ô_ÔDHSÔ_Ô€testified€that€the€Department€agreed€to€divide€her€salary€between€the€two€entities€based€upon€her€estimate€thatÐ 8ˆ Ðher€time€was€roughly€divided€based€on€the€number€of€employees€each€entity€had,€approximately€12%€to€Ô_ÔCCNÔ_Ô€and€88%Ð üL Ðto€Ô_ÔCCFSÔ_Ô.€€This€discussion€of€salary€does€not€address€other€additional€compensation€such€as€bonuses. ±Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú2Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔAt€that€time,€Mrs.€Madison€was€WillieAnn€Daugherty. ìÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú12Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThe€affidavit€of€Ô_ÔDilworthÔ_Ô€Weathers,€assistant€to€Mrs.€Madison,€states:Ð ° ÐÌÔ‡ôåeòòôåeÔà8  àIn€1999,€the€State€selected€Cherokee€[Ô_ÔCCFSÔ_Ô]€to€administer€the€child€care€brokerage€program€underÐ 8ˆ Ðthe€new€cost€reimbursement€system.€.€.€.€€Ô#†ôåeòòôåeû#ÔÔ‡ôåeòòôåeÔUnder€the€new€program€put€out€for€bid,€the€selectedÐ üL Ðcontractor€would€pay€the€expenses€of€the€program€in€compliance€with€a€budget€which€had€been€pre„Ð À Ðapproved€by€the€state.€€Under€the€cost€reimbursement€contract,€the€selected€contractor€would€submitÐ „Ô Ðto€the€State,€on€monthly€vouchers,€expenses€incurred€by€the€contractor€which€the€contractor€believedÐ H ˜ Ðhad€been€incurred€in€accordance€with€the€State„approved€budget.€€Ô#†ôåeòòôåe#ÔÐ \Ð Ð  ÐÌThe€corporationsðð€brief€explains€that€at€the€end€of€1998,€when€Cherokee€was€preparing€to€apply€for€the€2000€brokerÐ ” ä  Ðcontract,€it€was€informed€that€it€would€be€a€reimbursement/grant€contract.€€In€order€to€apply€for€that€contract,€CCFS€wasÐ X ¨  Ðrequired€to€submit€a€proposed€budget€to€DHS€before€any€reimbursement€claim€could€be€made.Ð  l  ÐÌà  à ]Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú16Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔÔ‡ôåeòòôåeÔBy€1987€Tenn.€Pub.€Acts,€ch.€242,€Tennessee€adopted€the€Revised€Model€Nonprofit€Corporation€Act,€whichÐ ° Ðbecame€effective€January€1,€1988.Ô#†ôåeòòôåe#Ô QÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú53Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔAlthough€Ô_ÔCCFSÔ_Ô€and€Ô_ÔCCNÔ_Ô€do€not€dispute€the€existence€of€the€lease€for€Colony€Park€or€the€terms€thereof,€theyÐ ° Ðobject€to€the€exhibits€relied€upon€by€the€Attorney€General€in€alleging€these€facts.€While€the€first€reference€to€the€leaseÐ tÄ Ðis€to€a€document€filed€apparently€without€a€supporting€document,€the€lease€in€question€actually€appears€several€placesÐ 8ˆ Ðin€the€record,€including€as€an€attachment€to€an€affidavit€from€a€Ô_ÔDHSÔ_Ô€official€certifying€that€Ô_ÔCCFSÔ_Ô€filed€the€lease€inÐ üL Ðsupport€of€its€application€for€reimbursement.€€ Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú29Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔMr.€Davis€was€also€listed€as€an€incorporator€of€both€corporations,€but€he€denied€any€involvement€in€theirÐ ° Ðinitial€organization. ÚÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú17Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔÔ‡ôåeòòôåeÔCharitable€nonprofit€organizations€are€exempt€from€federal€income€taxation€under€provisions€of€the€InternalÐ ° ÐRevenue€Code.€€In€addition,€entities€exempt€under€section€501(c)(3)€are€entitled€to€receive€tax€deductible€contributionsÐ tÄ Ðfrom€donors.Ô#†ôåeòòôåe#Ô Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú19Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔÔ‡ôåeòòôåeÔThe€beneficial€treatment€of€nonprofit€organizations€has€been€described€as€follows:Ð ° ÐÌà8  àNonprofit€organizations€receive€their€most€conspicuously€favorable€treatment€through€the€tax€laws.€Ð 8ˆ ÐThey€have,€historically,€received€privileged€treatment€in€many€other€areas€of€the€law€as€well.€Ð üL ÐSpecifically,€Ô_ÔnonprofitsÔ_Ô€have€enjoyed€special€treatment€under€the€laws€governing€unemploymentÐ À Ðinsurance,€bankruptcy,€Social€Security,€collective€bargaining,€securities€regulation,€the€minimum€wage,Ð „Ô Ðcopyright,€antitrust,€custom€duties,€and€postal€rates.€€òòÐH ˜Ð Ð  ÐÌDevelopments€in€the€Law€„€„€Nonprofit€Corporationsóó,€òòsupraóó,€at€Ô#†ôåeòòôåe#ÔÔ‡ôåeòòôåeÔ1677„78.Ô#†ôåeòòôåeÑ#Ô AÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú14Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThe€receiver€reported€that€Ô_ÔCCFSÔ_Ô€had€19,000€shares€and€Ô_ÔCCNÔ_Ô€had€11,000,€with€a€total€purchase€price€ofÐ ° Ð$300,000. SÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú7Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThe€other€incorporators€listed€were€William€Davis€and€Ida€Porter.€€Both€Mrs.€Porter€and€Mr.€Davis€denied€anyÐ ° Ðinvolvement€in€the€creation€or€incorporation€of€Ô_ÔCCNÔ_Ô. Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú24Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔÔ‡ôåeòòôåeÔTenn.€Code€Ann.€ðð€48„58„304€provides€that€a€director€who€votes€for€or€assents€to€a€distribution€made€inÐ ° Ðviolation€of€the€nonprofit€corporation€statutes€and€does€not€comply€with€standards€of€conduct€established€in€Tenn.€CodeÐ tÄ ÐAnn.€ðð€48„58„301€is€personally€liable€to€the€corporation.Ô#†ôåeòòôåe#Ô ùÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú21Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThe€Revised€Model€Act€provisions€rejected€the€theory€that€nonprofit€corporations€hold€their€assets€in€trust€Ð ° Ðfor€the€stated€purposes€at€the€time€of€acquisition€and€that€the€directors€are€trustees€with€respect€to€those€assets.€€€EvelynÐ tÄ ÐÔ_ÔBrodyÔ_Ô,€òòThe€Limits€of€Charity€Fiduciaryóó,€57€òòMd.€L.€Revóó.€1400,€1427€(1998);€Moody,€òòsupraóó,€at€263.€€Adopting€theÐ 8ˆ Ðprovision€from€the€Revised€Model€Act,€Tenn.€Code€Ann.€ðð€48„58„302(e)€provides€that€ð ðA€director€shall€not€be€deemedÐ üL Ðto€be€a€trustee€with€respect€to€the€corporation€or€with€respect€to€any€property€held€or€administered€by€the€corporation,Ð À Ðincluding€without€limitation,€property€that€may€be€subject€to€restrictions€imposed€by€the€donor€or€transferor€of€suchÐ „Ô Ðproperty.ðð€€ åÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú25Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔIn€addition€to€the€provision€authorizing€the€action€brought€herein,€Ô‡ôåeòòôåeÔpursuant€to€Tenn.€Code€Ann.€ðð€48„58„Ð ° Ð110(a)(1),€the€Attorney€General€may€bring€an€action€to€remove€a€director€of€a€public€benefit€corporation€who€is€Ð tÄ Ðð ðengaged€in€fraudulent€or€dishonest€conduct,€or€gross€abuse€of€authority€or€discretion,€with€respect€to€the€corporation.ðð€Ð 8ˆ ÐFurther,€a€dissolving€public€benefit€corporation€must€notify€the€Attorney€General€of€its€intent€to€dissolve€and€theÐ üL Ðdistribution€of€its€assets,€and€no€assets€may€be€transferred€until€the€passage€of€twenty€(20)€days,€consent€by€the€AttorneyÐ À ÐGeneral,€or€notice€that€the€Attorney€General€will€take€no€action€regarding€the€transfer.€€Tenn.€Code€Ann.€ðð€48„64„103.€Ô#†ôåeòòôåeÃ#ÔÐ „Ô ÐUnder€this€section,€the€Attorney€General€has€ð ðauthority€to€bring€any€action€he€deemed€necessary€to€protect€the€publicÐ H ˜ Ðinterest€.€.€.€.ðð€€òòState€ex€rel.€Adventist€Health€Care€Ô_ÔSysÔ_Ô.óó,€914€S.W.2d€at€906.€€Additionally,€the€Attorney€General€isÐ  \ Ðauthorized€to€bring€an€action€to€enjoin€a€corporate€act€on€the€ground€the€corporation€lacked€power€to€act.€€Tenn.€CodeÐ Ð  ÐAnn.€ðð€48„53„104(b). ÜÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú36Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔFor€FY€1998€and€1999,€this€amount€includes€payments€under€both€the€broker€and€food€contracts. ÙÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú37Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThis€amount€includes€payments€for€broker,€food,€registration€and€transportation€contracts. ÆÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú35Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔCCFS€does€not€dispute€the€amounts€reflected€herein,€but€disagrees€with€the€ð ðcharacterizationðð€of€the€sourceÐ ° Ðof€the€funds€as€set€out€in€the€Attorney€Generalððs€statement€of€undisputed€facts.€€There€is€no€dispute€regarding€the€totalÐ tÄ Ðamount€received€from€the€State,€just€with€what€name€to€apply€to€the€revenues.€€The€dispute€over€characterization€appearsÐ 8ˆ Ðto€be€related€to€the€distinction€made€by€CCFS€in€its€Form€990€between€government€grants€and€government€fees€andÐ üL Ðcontracts€for€program€services. Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú40Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔAn€affidavit€from€the€president€of€the€accounting€firm€states€the€firm€was€approved€by€the€Comptroller€toÐ ° Ðperform€independent€audits€of€Ô_ÔCCFSÔ_Ô€and€Ô_ÔCCNÔ_Ô,€that€the€audit€reports€for€FY€96,€97,€98,€and€99€were€filed€with€theÐ tÄ ÐComptrollerððs€office,€and€that€they€were€attached€to€the€affidavit€as€exhibits. ¦Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú51Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThe€purchase€occurred€on€April€5,€1999. /Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú43Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔAt€the€October€4,€2000€Board€meeting,€the€Board€approved€and€ratified€student€loans€made€previously€toÐ ° ÐIngrid€Warren,€Kendal€Robinson,€and€John€Madison,€Jr. ËÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú38Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThe€record€includes€the€IRS€Form€990€(Return€of€Organization€Exempt€from€Income€Tax)€filed€by€Ô_ÔCCFSÔ_Ô€forÐ ° Ð1995,€1996,€1997,€1998,€and€1999.€€Each€of€these€forms€was€signed€by€Ô_ÔWillieAnnÔ_Ô€Madison€as€Executive€Director€andÐ tÄ ÐJohn€Madison€as€Preparer.€€Mr.€Madison,€as€Ô_ÔCCFSÔ_Ôððs€accountant,€prepared€the€Form€990€each€year€for€Ô_ÔCCFSÔ_Ô.€€Each€ofÐ 8ˆ Ðthe€forms€in€the€record€is€accompanied€by€a€ð ðCertificate€of€Official€Recordðð€certifying€that€each€is€a€true€copy€of€theÐ üL ÐForm€990€for€Ô_ÔCCFSÔ_Ô€and€signed€by€the€Disclosure€Officer€of€the€Department€of€the€Treasury,€Internal€Revenue€Service.€Ð À ÐThe€corporations€object€to€consideration€of€these€documents€as€unauthenticated€and€inadmissible.€€We€disagree.€€AsÐ „Ô Ðcertified€copies€of€official€public€records,€they€are€self„authenticating.€€Tenn.€R.€Ô_ÔEvidÔ_Ô.€902(4). %Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú1Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThe€trial€court€denied€Ô_ÔCCFSÔ_Ôððs€and€Ô_ÔCCNÔ_Ôððs€motion€for€stay€pending€appeal,€ruling€that€a€stay€would€ð ðinterfereÐ ° Ðwith€the€Attorney€Generalððs€right€to€carry€out€his€duties.ðð€€The€corporations€sought€a€stay€from€this€court,€which€wasÐ tÄ Ðdenied.€€Thus,€the€assets€have€remained€under€the€protection€of€the€receiver. DÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú42Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔFor€example,€Ida€Porter,€William€Davis€and€Vivian€Ô_ÔBraxtonÔ_Ô€were€listed,€respectively,€as€President,€Secretary,Ð ° Ðand€Treasurer€on€the€Form€990s€for€1995,€1996,€and€1997.€€For€1998€and€1999,€Ô_ÔR.T.Ô_Ô€Ô_ÔJoynerÔ_Ô,€William€Davis,€and€VivianÐ tÄ ÐÔ_ÔBraxtonÔ_Ô€were€listed€as€President,€Secretary,€and€Treasurer. ÐÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú45Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔÔ_ÔCCFSÔ_Ô€describes€these€entities€as€a€d/b/a€account. ÐÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú47Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThe€total€rent€under€this€lease€for€the€five€year€term€would€amount€to€$360,000.€ ÁÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú46Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThe€total€rent€over€the€five€year€period€would€amount€to€$257,982. UÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú49Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔRoosevelt€T.€Joyner,€Vivian€Braxton,€and€William€Davis€signed€the€resolution.€€Because€Mrs.€Madison€was,Ð ° Ðin€essence,€Affordable€Homes€and€received€the€money€paid€as€back€rent,€the€transaction€is€clearly€a€conflict€of€interestÐ tÄ Ðtransaction.€Because€of€his€relationship€with€Mrs.€Madison,€Mr.€Davis€had€an€indirect€interest€in€the€transaction€awardingÐ 8ˆ Ðhis€daughterððs€company€back€rent.€€Thus,€it€appears€doubtful€that€the€resolution€approving€the€$437,000€payment€metÐ üL Ðthe€approval€requirement€of€Tenn.€Code€Ann.€ðð€48„58„302(d)€that€a€majority€of€disinterested€board€members€approveÐ À Ðsuch€a€transaction€after€full€disclosure. ÖÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú50Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThe€name€actually€appears€on€the€lease€as€Source€One€Management€Corporation,€a€mistake. èÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú48Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThe€9,700€square€feet€included€a€swimming€pool€and€a€theater,€and€only€7,680€square€feet€of€office€space. ôÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú26Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThat€rule€provides:Ð ° ÐÌà8  àÔ‡ôåeòòôåeÔIn€order€to€assist€the€Court€in€ascertaining€whether€there€are€any€material€facts€in€dispute,€any€motionÐ 8ˆ Ðfor€summary€judgment€made€pursuant€to€Rule€56€of€the€Tennessee€Rules€of€Civil€Procedure€shall€beÐ üL Ðaccompanied€by€a€separate€concise€statement€of€the€material€facts€as€to€which€the€moving€partyÐ À Ðcontends€there€is€no€genuine€issue€for€trial.€€Each€fact€shall€be€set€forth€in€a€separate,€numberedÐ „Ô Ðparagraph.€€Each€fact€shall€be€supported€by€a€specific€citation€to€the€record.€€ÐH ˜Ð Ð  ÐÌà8  àAny€party€opposing€the€motion€for€summary€judgment€must€.€.€.€file€a€response€to€each€fact€set€forthÐ Ð  Ðby€the€movant€either€(Ô_ÔiÔ_Ô)€agreeing€that€the€fact€is€undisputed,€(ii)€agreeing€that€the€fact€is€undisputedÐ ” ä  Ðfor€purposes€of€ruling€on€the€motion€for€summary€judgment€only,€or€(iii)€demonstrating€that€the€factÐ X ¨  Ðis€disputed.€€Each€disputed€fact€must€be€supported€by€specific€citation€to€the€record.€€Such€responseÐ  l  Ðshall€be€filed€with€the€papers€in€opposition€to€the€motion€for€summary€judgment.Ðà 0 Ð Ð  ÐÌTenn.€R.€Civ.€P.€56.03.Ð h¸  ÐÔ#†ôåeòòôåe´#Ô 4Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú27Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔÔ_ÔCCFSÔ_Ô€and€Ô_ÔCCNÔ_Ô€also€filed€a€motion€to€strike€many€of€the€exhibits€that€the€Attorney€General€referenced€inÐ ° Ðsupport€of€his€motion€for€summary€judgment€and€accompanying€statement€of€undisputed€facts.€€The€trial€court€did€notÐ tÄ Ðrule€on€the€motion€to€strike€prior€to€the€grant€of€the€Attorney€Generalððs€motion€for€summary€judgment€and€denial€ofÐ 8ˆ ÐÔ_ÔCCFSÔ_Ôððs€and€Ô_ÔCCNÔ_Ôððs€motion€for€summary€judgment.€The€Attorney€General€points€out€that€the€motion€to€strike€was€neverÐ üL Ðset€for€hearing.€€Because€this€court€is€required€to€review€the€evidence€in€support€of€summary€judgment€and€determineÐ À Ðanew€whether€judgment€was€proper,€disposition€of€the€motions€to€strike€is€not€significant€to€our€scope€or€standard€ofÐ „Ô Ðreview. Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú30Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔRev.€Joynerððs€church€operated€a€day€care€center€that€received€a€grant€of€$5,000€from€CCFS€for€playgroundÐ ° Ðequipment. ¿Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú32Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔRev.€Joyner€described€this€arrangement€as€a€ð ðsubcontract.ðð +Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú44Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔIt€is€not€clear€that€these€ð ðbonusesðð€were€included€in€the€corporationsðð€report€of€compensation€to€Mrs.€MadisonÐ ° Ðand€other€officers€or€directors. Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú52Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔOn€July€2,€1999,€the€Madisons€also€conveyed€2759€Colony€Park€Drive€to€Phyliss€Herring,€the€sister€of€Mrs.Ð ° ÐMadison,€for€$300,000. AÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú20Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThe€official€comments€to€the€Revised€Act€state€that€the€general€duty€of€loyalty€is€found€in€the€requirementÐ ° Ðthat€directors€act€in€good€faith€and€in€a€manner€they€reasonably€believe€is€in€the€best€interest€of€the€corporation€and€thatÐ tÄ Ðthe€duty€of€care€is€stated€in€the€prudent€person€in€a€like€position€requirement.€€òòRevised€Model€Nonprofit€CorporationÐ 8ˆ ÐActóó€ðð€8.3€cmt.€2€and€4€(1987). ¹Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú54Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThis€statement€of€fact€was€undisputed€by€the€corporations. ÖÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú39Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔLoans€to€officers€are€specifically€prohibited€by€Tenn.€Code€Ann.€ðð€48„58„303.€€For€our€purposes,€however,Ð ° Ðit€is€not€necessary€to€determine€whether€this€transaction€was€originally€a€loan€or€was€always€a€bonus.€€Our€focus€is€onÐ tÄ Ðwhether€the€corporations€were€operated€for€public€benefit€or€private€gain. rÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú55Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔDarrell€Thomas€was€also€a€member€of€the€boards€of€both€the€bank€and€the€holding€company.€€He€became€aÐ ° Ðmember€of€the€Board€of€Ô_ÔCCFSÔ_Ô€in€1999,€apparently€after€the€decision€to€invest€in€the€bank. ÕÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú56Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔMrs.€Madison€signed€the€resolution€as€a€witness€in€her€capacity€as€executive€director. þÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú33Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔClarence€Ô_ÔMosleyÔ_Ô,€the€current€Chairman€of€the€Board€of€Ô_ÔCCFSÔ_Ô€is€the€owner€of€Clarence€Ô_ÔMosleyÔ_Ô€InsuranceÐ ° ÐAgency.€€He€is€also€the€authorized€agent€of€Nationwide€Insurance,€the€insurer€of€Ô_ÔCCFSÔ_Ô.€€Ô_ÔCCFSÔ_Ô€has€done€business€withÐ tÄ ÐClarence€Ô_ÔMosleyÔ_Ô€Insurance€Agency€since€1990.€€Ô_ÔCCFSÔ_Ô€currently€pays€premiums€on€at€least€three€policies€sold€by€Mr.Ð 8ˆ ÐÔ_ÔMosleyÔ_Ô,€including:€(1)€a€commercial€umbrella€policy;€(2)€a€business€auto€policy;€and€(3)€a€business€package€policy.€€Mr.Ð üL ÐÔ_ÔMoselyÔ_Ô€was€not€on€the€Board€when€the€initial€insurance€purchases€were€made. Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú34Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔDarrell€K.€Thomas,€the€current€Secretary€of€the€Board€of€Ô_ÔCCFSÔ_Ô,€is€the€Chairman€and€Chief€Executive€OfficerÐ ° Ðof€Thomas€Consultants,€Inc.,€an€equipment€rental€business€that€has€done€a€significant€amount€of€business€with€Ô_ÔCCFSÔ_Ô.€Ð tÄ ÐMr.€Thomas€also€serves€on€the€Board€of€Directors€of€a€bank€and€bank€holding€company€in€which€the€corporationsÐ 8ˆ Ðinvested.€€Again,€it€does€not€appear€that€the€business€relationship€with€his€company€originated€while€Mr.€Thomas€wasÐ üL Ðon€the€Board€of€Ô_ÔCCFSÔ_Ô. KÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú59Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔVivian€Ô_ÔBraxtonÔ_Ô€and€Donna€Graves€resigned€from€the€Board€on€November€30,€1999,€and€Darrell€Thomas€wasÐ ° Ðelected€secretary.€€Rev.€Ô_ÔJoynerÔ_Ô€resigned€on€March€23,€2000,€and€Mrs.€Porter€agreed€to€act€as€chairman€of€the€board.€€OnÐ tÄ ÐMay€30,€2000,€the€Board€voted€to€accept€Clarence€Ô_ÔMosleyÔ_Ô€as€a€member,€and€he€was€later€elected€chairman. Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú60Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThat€provision€allows€indemnification€of€an€officer,€to€the€same€extent€of€a€director,€for€expenses,€includingÐ ° Ðcounsel€fees,€incurred€with€respect€to€ð ðany€threatened,€pending,€or€completed€action,€suit€or€proceeding€whether€civil,Ð tÄ Ðcriminal,€administrative,€or€investigative€and€whether€formal€or€informal.ðð€€Tenn.€Code€Ann.€ðð€48„28„501(7).€€AÐ 8ˆ Ðcorporation€may€indemnify€a€director€made€a€party€to€such€a€proceeding€because€of€his€status€as€director,€if:€(1)€theÐ üL Ðindividual€acted€in€good€faith;€(2)€if€the€conduct€was€in€the€capacity€of€corporate€director,€the€individual€reasonablyÐ À Ðbelieved€that€his€or€her€conduct€was€in€the€corporationððs€best€interest€and,€if€the€conduct€was€not€made€in€the€capacityÐ „Ô Ðof€a€corporate€director,€that€the€conduct€at€least€was€not€opposed€to€the€corporationððs€best€interests;€and€(3)€in€the€caseÐ H ˜ Ðof€any€criminal€proceeding,€the€individual€had€no€reasonable€cause€to€believe€the€individualððs€conduct€was€unlawful.€Ð  \ ÐTenn.€Code€Ann.€ðð€45„58„502(a). ÙÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú31Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔEventually,€Rev.€Joyner€resigned€from€the€CCFS€Board€of€Directors€because€he€felt€it€was€a€conflict€ofÐ ° Ðinterest€to€own€a€day€care€center€and€simultaneously€serve€on€the€Board€of€Directors.€€He€testified€that€new€requirementsÐ tÄ Ðfrom€DHS€indicated€such€a€conflict.€€He€also€based€his€resignation€on€his€formation€of€Memphis€and€Shelby€CountyÐ 8ˆ ÐChild€Care€Providers€Association,€an€association€that€operates€more€or€less€like€a€union.€€He€felt€that€regulations€wouldÐ üL Ðpreclude€him€from€also€serving€on€the€CCFS€Board€of€Directors. ‹Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú62Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThe€new€bylaws€provide€that€any€indemnification€shall€be€made€by€the€corporation€only€upon€a€determination€Ð ° Ðin€a€specific€case€that€indemnification€is€proper€because€the€officer€or€director€has€met€the€applicable€standard€of€conduct.€Ð tÄ ÐSuch€determination€is€required€to€be€made€by€a€majority€vote€of€a€quorum€consisting€of€members€who€were€not€partiesÐ 8ˆ Ðto€such€action€or€proceeding€or,€if€no€such€quorum€is€obtainable,€by€independent€legal€counsel€or€by€the€members. ìÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú61Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔAttending€the€meeting€were€Mr.€Ô_ÔMosleyÔ_Ô,€Mr.€Thomas,€Rev.€Ware€and€Mrs.€Porter. Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú3Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThe€purposes€set€forth€in€the€original€charter€were:Ð ° ÐÌÔ‡ôåeòòôåeÔà0  à(a)€To€provide€comprehensive€social€service€for€young€people€from€infancy€through€nineteen€(19)€years€of€ageÐ 8ˆ Ðwho€are€teenage€mothers,€handicap€children,€under„achievers€in€school€and€special„problem€children.ÐüL(#(# ÐÌà8  à(b)€To€mobilize€and€utilize€resources,€both€public€and€private;€to€offer€continuous€and€progressivelyÐ „Ô Ðcomprehensive€social€services€appropriate€to€our€target€group€or€clientele.ÐH ˜Ð Ð  ÐÌà8  à(c)€To€do€anything€necessary€and€proper€for€the€accomplishment€of€the€foregoing€purpose€and€goals,Ð Ð  Ðprovided€same€is€not€inconsistent€with€the€laws€of€the€State€of€Tennessee€and€the€United€States€ofÐ ” ä  ÐAmerica.Ô#†ôåeòòôåeÈ#Ô AÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú64Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔIf€we€accept€the€corporationsðð€statement€that€Mrs.€Madison€continuously€received€salary€increases€reachingÐ ° Ða€salary€of€$125,000€by€the€year€2000,€the€corporationsðð€statement€that€her€compensation€in€FY€98„99€was€$125,000,Ð tÄ Ðand€the€corporate€records€that€she€was€awarded€a€$50,000€bonus€in€December€of€1998,€we€must€conclude€that€her€salaryÐ 8ˆ Ðwas€less€than€$100,000€prior€to€FY€1999„2000. ÙÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú41Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThe€corporations€have€objected€to€consideration€of€ð ðmanyðð€of€the€board€minutes€as€without€properÐ ° Ðauthentication€and€containing€inadmissible€hearsay.€€The€minutes€of€October€4,€2000,€however,€were€exhibits€to€anÐ tÄ Ðauthenticating€affidavit€of€the€corporate€secretary.€€We€also€note€that€Ô_ÔCCFSÔ_Ô€takes€the€position€that€the€loan€identified€byÐ 8ˆ Ðthe€auditors€in€1996€was€improperly€recorded€and€was€really€a€bonus.€€We€found€no€evidence€in€the€record€to€supportÐ üL Ðthat€statement€other€than€these€minutes€and€the€auditorððs€engagement€memo€of€June€30,€1997.€€In€addition,€all€the€BoardÐ À Ðminutes€in€the€record€were€attached€to€and€authenticated€by€the€deposition€and€affidavit€of€the€former€and€currentÐ „Ô Ðsecretary.€ ’Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú22Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_Ô€This€court€has€stated:€Ð ° ÐÌà8  àThe€duty€of€loyalty€[in€a€for€profit€corporation]€in€essence€involves€conflicting€economic€or€otherÐ 8ˆ Ðsimilar€interest€[and]€is€transgressed€when€a€corporate€fiduciary,€whether€director€or€officer,€uses€hisÐ üL Ðor€her€corporate€office€to€promote,€advance€or€effectuate€a€transaction€between€the€corporation€andÐ À Ðsuch€person,€and€that€transaction€is€not€substantively€fair€to€the€corporation.ЄÔÐ Ð  ÐÌòòHall€v.€Tennessee€Dressed€Beef€Co.óó,€No.€01„A„01„9510„CH„00430,€1996€Tenn.€App.€LEXIS€384,€at€*16€(Tenn.€Ct.€App.Ð  \ ÐJune€28,€1996)€(no€Tenn.€R.€App.€P.€11€application€filed)€(quoting€3€òòFLETCHERóó,€òòsupraóó,€at€ðð€837.60). ÄÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú57Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔAccording€to€the€corporationsðð€brief,€Ô_ÔCCFSÔ_Ô€made€the€entire€purchase,€and€19,000€shares€were€titled€in€theÐ ° Ðname€of€Ô_ÔCCFSÔ_Ô,€while€11,000€shares€were€titled€in€the€name€of€Ô_ÔCCNÔ_Ô€ð ðand€donated€to€that€entity.ðð ªÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú4Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔAccording€to€CCFS,€many€of€the€organizers€of€CCFS€were€early€childhood€educators€or€child€care€providersÐ ° Ðand,€consequently,€there€had€always€been€an€emphasis€on€helping€parents€to€obtain€child€care€services,€and€the€charterÐ tÄ Ðwas€amended€to€reflect€this€purpose. ²Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú10Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThe€Tennessee€Supreme€Court€recently€stated€that:Ð ° ÐÌà8  àThe€first€contract,€executed€in€1990,€was€a€grant€contract€under€which€Cherokee€performed€servicesÐ 8ˆ Ðon€a€cost„reimbursement€basis.€€Prior€to€the€commencement€of€any€work€by€Cherokee,€the€State€wouldÐ üL Ðapprove€ð ðallowable€costsðð€in€advance,€then€Cherokee€would€spend€funds€to€perform€the€work€andÐ À Ðinvoice€the€State€for€reimbursement€of€the€approved€costs.ЄÔÐ Ð  ÐÌòòMemphis€Ô_ÔPublððgÔ_Ô€Co.€v.€Cherokee€Children€&€Family€Ô_ÔServsÔ_Ôóó.òò,€Inc.óó,€No.€M2000„2382„SC„R11„CV€&€No.€M2000„01705„Ð  \ ÐSC„R11„CV,€2002€Tenn.€LEXIS€379,€at€*6,€___€S.W.3d€___,€___€(Tenn.€Sept.€5,€2002). #Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú11Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThe€Supreme€Court€found€that:Ð ° ÐÌà8  àThe€second€contract,€in€effect€from€1992€to€1999,€changed€the€method€of€payment€to€a€fee„for„servicesÐ 8ˆ Ðarrangement,€under€which€Cherokee€was€paid€a€ð ðcommissionðð€calculated€as€a€percentage€of€the€fundsÐ üL Ðdisbursed€by€Ô_ÔTDHSÔ_Ô€to€day€care€centers€as€a€result€of€Cherokeeððs€administrative€services.€€The€moneyÐ À Ðreceived€by€Cherokee€under€the€1992€contract€was€dependent€only€on€satisfactory€performance€of€theÐ „Ô Ðwork€and€on€the€total€funds€disbursed€by€the€State€to€day€care€services;€the€State€disclaimed€anyÐ H ˜ Ðresponsibility€for€losses€or€taxes€incurred€by€Cherokee€in€the€performance€of€the€contract.€Ð \Ð Ð  ÐÌòòMemphis€Ô_ÔPublððgÔ_Ô€Co.óó,€2002€Tenn.€LEXIS€379,€at€*6,€__€S.W.3d€at€___. Ý ƒR2Š$ÝÓ  Óà  àòòÚ  Ú58Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔThe€investment€decision€was€clearly€a€conflict€of€interest€transaction€because€of€Mrs.€Madisonððs€and€Rev.Ð ° ÐJoynerððs€involvement€with€the€bank.€€Approval€by€the€board€for€such€a€transaction€requires€approval€by€a€majority€ofÐ tÄ Ðthe€members€of€the€board€who€have€no€direct€or€indirect€interest€in€the€transaction.€€Tenn.€Code€Ann.€ðð€48„58„303(d). CÝ ƒR2Š$ÝÓ  Óà  àòòÚ  Ú18Ú  ÚóóÔ€ôåeò»»ÔÝ  ÝÔ_ÔMs.€Moody€was€chair€of€the€Nonprofit€Corporations€Committee,€Section€of€Business€Law€of€the€American€Ð ° ÐBar€Association€which€drafted€the€Revised€Model€Nonprofit€Corporation€Act.Ý ƒ£ª!ÝÑ€.ÑÑ8€G-»»ddÈ8ÑÑ ý ÑÓ  ÓÝ  ÝÔ_ÔÑ  ÑÔ€¼G-»»»ÔÑ8€±XXdì»»d8ÑÑ  ÑÑ€OYÑ€Ô_ÔÔ_Ôà@ü ü ìàÔ‡îG|G-ÔIN€THE€COURT€OF€APPEALS€OF€TENNESSEEˆÐ ° Ðà@kk$ìàAT€NASHVILLEÔ#†¼G-»îîG|>#ԈРÖ& ÐÓ  ÓOctober€9,€2001€SessionÐ üL ÐÔ‡X±X»¼G-ÔÌò òÔ#†¼G-»XX±&#ÔPAUL€G.€SUMMERS,€òòet€al.óó€v.€CHEROKEE€CHILDREN€&Ð úJ ÐFAMILY€SERVICES,€Ô_ÔINC.,€òòet€al.óóÔ‡X±X»¼G-Ôó óÔ_ÔÐ  ^ ÐÌà@@½½ìàò òAppeal€from€the€Chancery€Court€for€Davidson€CountyÐ  ^ Ðà@@øøìàNo.€00„2988„I€€€€€€Irvin€Ô_ÔKilcreaseÔ_Ô,€Jr.,€ChancellorÐ ú J ÐÌà@@ìì*ìàßA€V) °°` d€÷E<Ñ` AßÐ Ò"  ÐÌà@@TTìàNo.€2001„00880„Ô_ÔCOAÔ_ÔÔ_Ô„R3„Ô_ÔCV€Ô_Ô„€Filed€September€26,€Ô_Ô2002Ô_ÔÔ_ÔÐ Í  ÐÌßA€V) °°` dE<¤` AßÐ ¥õ  Ðó óÌÓ  ÓIn€this€appeal,€the€Attorney€General€filed€suit€to€dissolve€two€nonprofit€public€benefit€corporations.€Ð  ð  ÐBoth€the€Attorney€General€and€the€nonprofit€corporations€filed€motions€for€summary€judgment.€€TheÐ ŒÜ Ðtrial€court€granted€summary€judgment€for€the€Attorney€General€finding€that€the€nonprofitÐ xÈ Ðcorporations€had€abandoned€their€charitable€purposes€and€devoted€themselves€to€private€purposes.€Ð d´ ÐThe€trial€court€ordered€the€appointment€of€a€receiver€to€marshal€and€preserve€the€remaining€assets.€Ð P  ÐFor€the€following€reasons,€we€affirm€the€decision€of€the€trial€court.€€€€Ô#†¼G-»XX±è#ÔÔ‡X±X»¼G-ÔÐ <Œ ÐÓ¥ÓÌò òTenn.€R.€App.€P.€3€Appeal€as€of€Right;€Judgment€of€the€Chancery€CourtÐ d ÐAffirmed€and€RemandedÐ P Ðó óÌòòÓ  ÓÔ#†¼G-»àX±k#ÔÔ‡X±X.¼G-ÔPatricia€J.€Cottrell,€J.óó,€delivered€the€opinion€of€the€court,€in€which€òòBen€H.€Cantrell,€Ô_ÔP.J.Ô_Ô,€M.S.,€óóÐ Ø( Ðand€òòWilliam€B.€Cain,€J.óó,€joined.Ð Ä ÐÌAllan€J.€Wade,€Thomas€Lang€Ô_ÔWisemanÔ_Ô,€and€Lori€Ô_ÔHacklemanÔ_Ô€Patterson,€Memphis,€Tennessee,€forÐ œì Ðthe€appellants,€Cherokee€Children€and€Family€Services,€Inc.,€and€Cherokee€Children€Nutrition,€Inc.Ð ˆØ ÐÌPaul€G.€Summers,€Attorney€General€and€Reporter;€Albert€L.€Ô_ÔParteeÔ_Ô,€Senior€Counsel;€George€S.€Bell,Ð `!°  ÐIII,€Assistant€Attorney€General;€Michael€A.€Meyer,€Assistant€Attorney€General,€for€the€appellee,€theÐ L"œ! ÐAttorney€General€of€Tennessee.€Ð 8#ˆ" ÐÓ> ÓÌò òOPINIONó óÔ#†¼G-»XX±m #ÔÔ‡X±X»¼G-ÔÐ %` $ ÐÌòòóóÔ#†¼G-»XX± #ÔÓ  ÓÔ€X±X»¼G-Ôà  àThis€is€a€case€of€first€impression€in€this€State€wherein€the€Attorney€General€sought€toÐ è&8"& Ðinvoluntarily€dissolve€Cherokee€Children€and€Family€Services,€Inc.€(ð ðÔ_ÔCCFSÔ_Ôðð)€and€CherokeeÐ Ô'$#' ÐChildren€Nutrition,€Inc.€(ð ðÔ_ÔCCNÔ_Ôðð)€via€the€authority€granted€in€Tenn.€Code€Ann.€ðð€48„64„301(a)(1).€Ð À($( ÐÔ_ÔCCFSÔ_Ô€and€Ô_ÔCCNÔ_Ô€are€two€related€nonprofit€€public€benefit€corporations€that€are€tax„exempt€under€stateÐ ¬)ü$) Ðand€federal€law.€€The€Attorney€General€sought€appointment€of€a€receiver€to€marshal€the€remainingÐ ˜*è%* Ðnonprofit€assets,€dissolve€the€corporations,€and€distribute€the€assets€to€other€ð ðlegitimateðð€nonprofitÐ „+Ô&+ Ðorganizations.€€He€alleged€that€Ô_ÔCCFSÔ_Ô€and€Ô_ÔCCNÔ_Ô€had€repeatedly€violated€the€Tennessee€NonprofitÐ p,À', ÐCorporation€Act€and€specifically€questioned€numerous€transactions,€including:€(1)€rental€of€propertyÐ \-¬(-ý Ðowned€by€the€executive€director€to€the€corporations;€(2)€hiring€of€the€executive€directorððs€husbandÐ ° ÐÔ_ÔasÔ_Ô€accountant€for€the€corporation;€(3)€investment€of€Ô_ÔCCFSÔ_Ô€monies€in€a€local€start€up€bank;€and€(4)Ð œì Ðseveral€transactions€and€purchases€by€the€corporation€for€the€benefit€of€the€executive€director,€herÐ ˆØ Ðfamily,€and€Ô_Ôfriends.Ô_ÔÔ_ÔÔ_ÔÔ_ÔÔ_ÔÔ_ÔÔ_ÔÐ tÄ ÐÌà  àA€hearing€was€held€in€Davidson€County€Chancery€Court€regarding€a€motion€for€temporaryÐ L œ Ðinjunction€and€appointment€of€a€custodian€òòÔ_ÔpendenteÔ_Ô€liteóó€filed€by€the€Attorney€General.€€The€trialÐ 8 ˆ Ðcourt€entered€a€temporary€injunction€requiring€Ô_ÔCCFSÔ_Ô€and€Ô_ÔCCNÔ_Ô€to€grant€access€to€their€records€byÐ $ t Ðthe€Attorney€General,€to€protect€and€preserve€all€books€and€records,€and€to€adhere€to€a€$50,000€aÐ  ` Ðmonth€budget€for€six€months.€€The€trial€court€declined€to€appoint€a€custodian€òòÔ_ÔpendenteÔ_Ô€liteóó€at€thatÐ ü L  Ðtime.€€Both€parties€then€filed€motions€for€summary€judgment.€€Ð è 8  ÐÌà  àSix€months€later,€the€trial€court€heard€oral€argument€on€both€motions€for€summary€judgment.€Ð À  ÐThe€Chancellor€granted€the€Attorney€Generalððs€motion€for€summary€judgment€and€made€theÐ ¬ü  Ðfollowing€findings:Ð ˜è  ÐÌà8  à1.à0` Ð Ð àthat€the€Attorney€General€is€entitled€to€a€receiver€for€defendants€and€isÐ pÀ Ðentitled€to€proceed€with€dissolution;Ð\¬` Ð ` Ð  Ðà8  à2.à0` Ð Ð àthat€the€Defendants€have€abandoned€their€public€purposes€and€have€devotedÐ H˜ Ðthemselves€to€private€purposes;Ð4„` Ð ` Ð  Ðà8  à3.à0` Ð Ð àthat€this€is€not€in€keeping€with€the€Tennessee€Nonprofit€Act;Ð p` Ð ` Ð  Ðà8  à4.à0` Ð Ð àthat€the€Attorney€General€has€the€authority€to€take€action€under€his€statutoryÐ  \ Ðsupervisory€power€over€Ô_ÔnonprofitsÔ_Ô€and€as€a€representative€of€the€publicÐ øH Ðinterest;€andÐä4` Ð ` Ð  Ðà8  à5.à0` Ð Ð àthat€there€is€an€immediate€need€for€the€Attorney€General€to€take€over€theÐ Ð  Ðassets€of€the€defendants;€.€.€.€.м ` Ð ` Ð  ÐÌà  àThe€trial€court€appointed€a€receiver€and€enumerated€his€duties€and€responsibilities€as€well€asÐ ”ä Ðthe€scope€of€his€authority€under€Tenn.€Code€Ann.€ðð€48„64„303.Ô_Ô׃€×Ý ƒ#ÃÝòòÚ  Ú1Ú  ÚóóÝ  Ý×  ×Ô_ԀР€Ð ÐÌà  àÔ_ÔCCFSÔ_Ô€and€Ô_ÔCCNÔ_Ô€appeal€arguing€that€the€trial€court€improperly€granted€summary€judgmentÐ X ¨ Ðin€favor€of€the€Attorney€General€and€improperly€denied€their€own€motion€for€summary€judgment.€Ð D!” ÐÔ_ÔÌÔ_ÔÔ_ÔÌÔ_ÔÔ_ÔÐ  $X" ÐÔ_ÔÔ_ÔÔ_ÔÓ  ÓÔ_ÔÔ_ÔÔ_ÔÔ_ÔÔ_ÔÔ_ÔÔ_ÔÔ_ÔÔ_ÔÔ_ÔÔ_ÔI.€Ô_ÔBackgroundÔ_ÔÔ_ÔÐ ° ÐÓ°ÓÔ_ÔÔ‡X±XXX±ÔÔ_ÔÌà  àÔ_ÔWillieAnnÔ_Ô€Madison׃j×Ý ƒ#ÃÝòòÚ  Ú2Ú  ÚóóÝ  Ý×  ×€incorporated€Ô_ÔCCFSÔ_Ô€as€a€nonprofit€public€benefit€corporation€inÐ ˆØ ÐDecember€of€1989€under€the€auspices€of€the€Tennessee€Nonprofit€Corporation€Act,€Tenn.€Code€Ann.Ð tÄ Ððððð€48Ô_Ô„51„Ô_Ô101€òòet€seq.óó€According€to€a€charter€amendment€made€April€19,€1990,€the€purposes€of€theÐ `° Ðcorporation€were:׃›T×Ý ƒ#ÃÝòòÚ  Ú3Ú  ÚóóÝ  Ý×  ×Ð L œ Ðà8  àà ` àÐ Ð Ð  Ðà8  à.€.€.€to€provide€transitional€child€care€services€for€children€of€low„income€familiesÐ $ t Ðreferred€by€the€Department€of€Human€Services.€€Funds€for€this€project€are€providedÐ  ` Ðby€Federal€and€State€block€grants€which€are€used€for€tuition€payments€andÐ ü L  Ðadministrative€expenses.Ðè 8 Ð Ð  ÐÔ#†X±XXX±Þ #ÔÔ‡X±XXX±ÔÌà8  àThe€services€provided€by€Ô_ÔCCFSÔ_Ô€include€listing€and€classification€of€child€careÐ À  Ðproviders,€referrals€of€qualified€families€to€appropriate€child€care€centers,€and€theÐ ¬ü  Ðmonitoring€and€supervision€of€each€placement€under€guidelines€provided€by€Ô_ÔDHSÔ_Ô.€Ð ˜è  ÐUpon€the€dissolution€of€Ô_ÔCCFSÔ_Ô,€all€remaining€assets€will€be€returned€to€the€FederalÐ „Ô  Ðand€State€offices€which€supplied€the€original€grants.׃ ˆ ×Ý ƒ#ÃÝòòÚ  Ú4Ú  ÚóóÝ  Ý×  ×€€ÐpÀÐ Ð  ÐÌà  àÔ_ÔCCFSÔ_Ô€had€no€members.€€According€to€the€charter,€as€amended,€Ô_ÔCCFSÔ_Ô€was€intended€toÐ H˜ Ðoperate€as€a€charitable€organization€within€the€meaning€of€section€501(c)(3)€of€the€Internal€RevenueÐ 4„ ÐCode€of€1986.Ô#†X±XXX±b%#ÔÔ‡X±XXX±Ô€€In€fact,€the€amended€charter€included€the€following€in€its€statement€of€purposes:€Ð  p ÐÌà8  à.€.€.€exclusively€religious,€charitable,€scientific,€literary,€and€educational€within€theÐ øH Ðmeaning€of€section€501(c)(3)€of€the€Internal€Revenue€Code€of€1986€or€theÐ ä4 Ðcorresponding€provision€of€any€future€United€States€Internal€Revenue€law.€€ÐÐ Ð Ð  ÐÌà8  àNotwithstanding€any€other€provision€of€these€articles,€this€organization€shall€not€carryÐ ¨ø Ðon€any€activities€not€permitted€to€be€carried€on€by€an€organization€exempt€fromÐ ”ä ÐFederal€income€tax€under€section€501(c)(3)€of€the€Internal€Revenue€Ô_ÔCodeÔ_Ô€of€1986€orÐ ° Ðthe€corresponding€provision€of€any€future€United€States€Internal€Revenue€law.€€ÐœìÐ Ð  ÐÔ#†X±XXX±Š)#ÔÔ‡X±XXX±ÔÌà  àOn€or€about€June€18,€1990,€Ô_ÔCCFSÔ_Ô€filed€an€application€for€exemption€under€501(c)(3)€of€theÐ tÄ ÐInternal€Revenue€Code.€€The€IRS€approved€the€application€for€tax€exempt€status.€€In€the€application,Ð `° ÐÔ_ÔCCFSÔ_Ô€represented€that€neither€Mrs.€Madison,€William€Davis€(Mrs.€Madisonððs€father)€nor€any€otherÐ L œ Ðindividual€listed€as€an€officer€or€director׃×Ý ƒ#ÃÝòòÚ  Ú5Ú  ÚóóÝ  Ý×  ×€€were€disqualified€persons׃fT×Ý ƒ#ÃÝòòÚ  Ú6Ú  ÚóóÝ  Ý×  ×€with€respect€to€the€organization.€Ð 8 ˆ ÐÔ_ÔCCFSÔ_Ô€represented€that€its€facilities€or€operations€would€not€be€managed€by€another€organization€orÐ $ t Ðindividual€under€a€contractual€agreement€and€that€the€organization€was€not€a€party€to€leases.€€Ô_ÔCCFSÔ_ÔÐ  ` Ðasserts€that€these€statements€were€true€at€the€time€they€were€made,€but€could€have€changed€thereafter.Ð ü L  ÐÌà  àÔ_ÔÔ_ÔCCFSÔ_Ô€entered€into€a€contract€with€the€Tennessee€Department€of€Human€Services€(ð ðÔ_ÔDHSÔ_Ôðð)Ð Ô$  Ðto€provide€childcare€brokerage€services€to€low€income€families€in€Shelby€County€in€1990.€€€Ô_ÔCCFSÔ_ÔÐ À  Ðalso€contracted€with€Ô_ÔDHSÔ_Ô€to€provide€meal€and€related€administrative€services€under€the€Child€andÐ ¬ü  ÐAdult€Care€Food€Program€(ð ðÔ_ÔCACFPÔ_Ôðð)€and€certain€other€services€for€underprivileged€children.€€Ô_ÔCCFSÔ_ԀР˜è  Ðbegan€providing€registration€and€transportation€services€under€contracts€with€Ô_ÔDHSÔ_Ô€in€1998.€Ô#†X±XXX±J-#ÔÔ‡X±XXX±Ô€Ô_ÔCCFSÔ_ÔÐ „Ô  Ðcontinued€to€work€pursuant€to€contracts€with€Ô_ÔDHSÔ_Ô€until€the€contracts€were€terminated€in€2000.€€€Ô#†X±XXX±15#ÔÐ pÀ Ðà  àÌà  àOn€November€2,€1998,€Ô_ÔCCNÔ_Ô€was€incorporated€as€a€public€benefit€corporation.€€Ô_ÔCCNÔ_Ô€wasÐ H˜ Ðorganized€to€handle€certain€portions€of€the€food€program€for€which€Ô_ÔCCFSÔ_Ô€was€responsible€inÐ 4„ Ðaccordance€with€contracts€between€Ô_ÔCCFSÔ_Ô€and€Ô_ÔDHSÔ_Ô.€€On€the€initial€corporate€paperwork€filed€withÐ  p Ðthe€Secretary€of€State,€Ô_ÔWillieAnnÔ_Ô€Madison€was€listed€as€the€incorporator.׃sh×Ý ƒ#ÃÝòòÚ  Ú7Ú  ÚóóÝ  Ý×  ×€€Ô‡X±XXX±ÔThe€Charter€filed€withÐ  \ Ðthe€Secretary€of€State€was€a€fill„in„the„blank€form€and€did€not€indicate€the€purpose.€€However,€in€itsÐ øH Ðapplication€for€tax€exempt€status,€Ô_ÔCCNÔ_Ô€attached€the€following,€entitled,€Charter,€Part€III€ActivitiesÐ ä4 Ðand€Operational€Information:Ð Ð  ÐÌà8  àThe€Cherokee€Children€Nutrition€(Ô_ÔCCNÔ_Ô)€will€be€chartered€by€the€State€of€Tennessee.Ð ¨ø ÐIts€mission€is€to€serve€minority€children,€infants€to€age€seventeen,€in€ways€that€areÐ ”ä Ðeducational,€nutritional,€healthful,€and€with€social€[sic]€social€services.€€The€targetÐ €Ð Ðarea€is€the€City€of€Memphis,€Tennessee€within€the€County€of€Shelby.Ðl¼Ð Ð  ÐÌà8  àA.€€CCN€will€provide€brokering€services€to€all€know€[sic]€area€child€care€providers.€Ð D!” ÐCCN€will€work€with€clients€to€enable€them€to€identify€accessible,€safe€and€sanitaryÐ 0"€  Ðchild€care€placements.Ð#l!Ð Ð  ÐÐ $X" Ðà8  àB.€€CCN€will€provide€and€set€up€before€and€after€school€programs€for€the€school„agedÐ ° Ðchild€up€to€nine€(9)€years€old.€€ÐœìÐ Ð  ÐÌà8  àC.€€CCN€will€oversee€basic€and€specialty€health€and€nutritional€services.€€ÐtÄÐ Ð  ÐÌà8  àD.€€CCN€will€serve€as€a€resource€to€child€care€providers€in€training,€physicalÐ L œ Ðimprovements,€and€other€components.€Ð8 ˆÐ Ð  ÐÌà8  àE.€€CCN€proposes€to€provide€personal€and€social€counseling€to€AFDC€families€at€theÐ  ` Ðearliest€possible€date.€Ðü L Ð Ð  ÐÌà8  àF.€€Funding€Sources:€Federal€grants,€federal/state€funds€and€grants,€USDA€FoodÐ Ô$  ÐProgram,€fund„raisers,€and€donations.€€ÐÀ Ð Ð  ÐÌà8  àSUMMARY:€The€plight€of€minority€children€deserves€urgent€attention€and€action€forÐ ˜è  Ðcare,€enrichment,€education€and€general€services.€€Cherokee€Children€NutritionÐ „Ô  Ð(CCN)€is€formed€to€respond€positively€and€culturally€to€these€needs€of€a€growingÐ pÀ Ðpopulation€who€will€become€our€leaders,€parents,€and€professionals.€€Ð\¬Ð Ð  ÐÌà  àThe€Charter€of€CCN€was€amended€in€1999€to€reflect€a€new€address.€€Ô#†X±XXX±9#ÔCCN€also€had€noÐ 4„ Ðmembers.€€CCN€also€filed€an€application€with€the€IRS€for€exemption€under€501(c)(3)€of€the€InternalÐ  p ÐRevenue€Code.€€In€CCNððs€IRS€exemption€application,€Mrs.€Madison,€Mr.€Davis,€John€Madison€Sr.,׃ ×Ý ƒ#ÃÝòòÚ  Ú8Ú  ÚóóÝ  Ý×  ×Ð  \ Ðand€Ida€Porter€were€listed€as€the€Executive€Director,€Secretary,€Treasurer,€and€Chairperson€of€theÐ øH ÐBoard€of€Directors,€respectively.€€The€application€stated€that€Mrs.€Madison€was€the€only€person€thatÐ ä4 Ðreceived€compensation€from€the€corporation€and€that€the€amount€of€that€compensation€was€$50,000.׃iT×Ý ƒ#ÃÝòòÚ  Ú9Ú  ÚóóÝ  Ý×  ׀РР ÐCCN€represented€that€none€of€the€officers€were€disqualified€persons€with€respect€to€the€organizationÐ ¼  Ðand€that€the€corporation€was€not€controlled€by€any€other€organization.€€CCN€failed€to€answer€theÐ ¨ø Ðquestion€of€whether€it€was€the€outgrowth€of€(or€successor€to)€another€organization€or€whether€it€hadÐ ”ä Ða€special€relationship€with€another€organization€by€reason€of€interlocking€directorates€or€otherÐ €Ð Ðfactors.€€CCN€also€stated€that€its€facilities€and€operations€would€not€be€managed€by€anotherÐ l¼ Ðorganization€or€individual€under€a€contractual€agreement€and€that€it€was€not€a€party€to€leases.€€TheÐ X ¨ ÐIRS€approved€the€application€for€tax€exempt€status.Ð D!” Ðâ â€Ð 0"€  Ðà  àUnder€the€1990€contract€with€DHS,€the€State€compensated€CCFS€and€CCN€by€reimbursingÐ ° Ðthe€company€for€expenses€incurred.׃¡×Ý ƒ#ÃÝòòÚ  Ú10Ú  ÚóóÝ  Ý×  ×€€The€contracts€in€effect€from€1992€to€1999€significantlyÐ œì Ðâ âchanged€the€payment€program€by€providing€that€CCFS€and€CCN€would€be€paid€a€percentageÐ ˆØ Ð(between€3%€and€3.5%)€of€the€funds€DHS€paid€to€daycare€centers€for€Cherokee„placed€children.€Ð tÄ ÐCCFS€was€not€required€to€report€its€costs€to€DHS€under€this€type€of€contract.׃¤t×Ý ƒ#ÃÝòòÚ  Ú11Ú  ÚóóÝ  Ý×  ×€€€From€January€1,Ð `° Ð2000,€to€August€21,€2000,€the€parties€operated€under€a€third€contract€that€reverted€to€the€costÐ L œ Ðreimbursement€plan.׃kä×Ý ƒ#ÃÝòòÚ  Ú12Ú  ÚóóÝ  Ý×  ×Ð 8 ˆ ÐÌà  àOur€Supreme€Court€has€recently€described€the€relationship€between€CCFS€and€the€State:Ð  ` ÐÌà8  àBetween€1990€and€2000,€Cherokee€contracted€with€TDHS€to€perform€certainÐ è 8  Ðfunctions€related€to€government„subsidized€child€care€services€in€Shelby€County.€€ItÐ Ô$  Ðis€important€to€note€here€that€Cherokee€did€not€ððcare€forðð€or€ððkeepðð€children€in€theÐ À  Ðstrictest€sense.€€Rather,€it€served€as€a€ððbrokering€agencyðð€that€screened€applicants€andÐ ° Ðassisted€eligible€applicants€in€locating€approved€child€care€providers.€€TDHS€paid€theÐ œì Ðchild€care€subsidies€directly€to€the€care€centers;€Cherokee,€therefore,€was€notÐ ˆØ Ðinvolved€in€the€payment€of€subsidies€for€the€child€care€services.€€Virtually€all€ofÐ tÄ ÐCherokeeððs€operating€revenue,€however,€came€from€government€sources.Ð`°Ð Ð  ÐÌòòMemphis€Publððg€Co.€v.€Cherokee€Children€&€Family€Servicesóó,€No.€M2000„2382„SC„R11„CV€&€No.Ð 8 ˆ ÐM2000„01705„SC„R11„CV,€2002€Tenn.€LEXIS€379,€at€*5,€___€S.W.3d€___,€___€(Tenn.€Sept.€5,Ð $ t Ð2002).Ð  ` ÐÌòòóóà  àAs€the€Supreme€Court€found,€the€vast€majority€of€the€income€of€both€CCFS€and€CCN€hasÐ è 8  Ðcome€from€contracts€with€DHS€or€other€government€programs.òòóóÔ_Ô׃×Ý ƒ#ÃÝòòÚ  Ú13Ú  ÚóóÝ  Ý×  ×Ô_Ô€€The€total€revenue€received€fromÐ Ô$  ÐÔ_ÔDHSÔ_Ô€by€Ô_ÔCCFSÔ_Ô€and€Ô_ÔCCNÔ_Ô,€including€earned€commissions,€was€$3,055,004€in€1998,€$6,869,465€inÐ À  Ð1999,€and€$4,910,477.08€in€2000.€€All€of€Ô_ÔCCFSÔ_Ôððs€employees€performed€services€under€the€contractsÐ ¬ü  Ðwith€the€state.€€òòId.óóÐ ˜è  ÐÌà  àMrs.€Madison€has€been€the€Executive€Director€of€Ô_ÔCCFSÔ_Ô€and€Ô_ÔCCNÔ_Ô€since€their€inception.€€Her€Ð pÀ Ðcompensation€included€a€salary€and,€from€time€to€time,€she€has€received€additional€compensationÐ \¬ Ðor€bonuses.€€According€to€Ô_ÔCCFSÔ_Ô,€this€additional€compensation€was€based€on€the€success€of€theÐ H˜ Ðprogram.Ð 4„ ÐÌà  àThe€State€canceled€its€contract€with€Ô_ÔCCFSÔ_Ô€by€letter€dated€August€21,€2000,€whichÐ  \ Ðtermination€was€to€be€effective€September€22,€2000.€€Ô_ÔCCNÔ_Ô€received€a€letter€on€August€21,€2000,Ð øH Ðterminating€its€contract€with€Ô_ÔDHSÔ_Ô€effective€that€day.Ð ä4 ÐÌà  àAfter€the€Attorney€General€began€the€investigation€that€led€to€the€institution€of€this€action,Ð ¼  Ðthe€current€Board€of€Directors,€which€consists€of€two€longtime€members€and€two€new€members,Ð ¨ø Ðundertook€to€review€past€corporate€action€or€transactions,€including€related€party€transactions,€as€wellÐ ”ä Ðas€the€allegations€of€the€complaint€regarding€misapplication€or€wasting€of€assets.€€€The€Board€ratifiedÐ €Ð Ðmany€of€the€prior€transactions,€instituted€new€controls,€reduced€its€operating€expenses€significantlyÐ l¼ Ðbecause€of€the€loss€of€the€State€contracts,€and€settled€an€issue€of€rent€overpayments,€as€more€fullyÐ X ¨ Ðdiscussed€below.€Ð D!” ÐÌà  àThe€corporate€assets€of€Ô_ÔCCFSÔ_Ô€remaining€were€reported€by€the€appointed€receiver€to€includeÐ #l! Ðâ âapproximately€$288,000€in€cash€in€various€accounts;€three€(3)€vehicles;€30,000€shares€of€stock€inÐ $X" ÐÑOYÑâ âѰ°Ñâ âÑ  ÑMemphis€First€Community€Bank;׃r×Ý ƒ#ÃÝòòÚ  Ú14Ú  ÚóóÝ  Ý×  ×€real€property;€and€office€equipment.׃h×Ý ƒ#ÃÝòòÚ  Ú15Ú  ÚóóÝ  Ý×  ×€€CNNððs€assets€includedÐ ° Ðâ âapproximately€$2,900€in€cash€in€accounts.€€The€remaining€assets€of€these€nonprofit€corporations€areÐ œì Ðwhat€is€at€stake€in€this€litigation.€€The€Attorney€General€sought€to€have€a€receiver€appointed€toÐ ˆØ Ðidentify€and€protect€those€assets€and€to€distribute€them€to€other€nonprofit€entities€after€dissolutionÐ tÄ Ðof€the€corporations.€€The€corporations€sought€to€maintain€control€of€the€assets.Ð `° ÐÌÓ  ÓII.€€The€IssuesÐ 8 ˆ ÐÌÓ€_ÓÔ‡X±XXX±Ôà  àThe€Attorney€Generalððs€action€is€based€on€Tenn.€Code€Ann.€ðð€48„64„301(a)(1)€which€Ð  ` Ðauthorizes€a€court€to€dissolve€a€nonprofit€corporation€in€an€action€brought€by€the€Attorney€GeneralÐ ü L  Ðif€it€is€established€that€the€corporation:Ô#†X±XXX±Á_#ÔÐ è 8  Ðà  àà8 ` àÐ ` x` x Ðà8  à(A)€Obtained€its€charter€through€fraud;ÐÀ Ð Ð  Ðà  à(B)€Has€exceeded€or€abused€the€authority€conferred€upon€it€by€law;Ð ¬ü  Ðà8  à(C)€Has€violated€any€provision€of€law€resulting€in€the€forfeiture€of€its€charter;Иè Ð Ð  Ðà8  à(D)€Has€carried€on,€conducted,€or€transacted€its€business€or€affairs€in€a€persistentlyÐ „Ô  Ðfraudulent€or€illegal€manner;€ÐpÀÐ Ð  Ðà8  à(E)€Is€a€public€benefit€corporation€and€the€corporate€assets€are€being€misapplied€orÐ \¬ Ðwasted;€orÐH˜Ð Ð  Ðà8  à(F)€Is€a€public€benefit€corporation€and€is€no€longer€able€to€carry€out€its€purposes;Ð 4„ Ðprovided,€that€the€enumeration€of€these€grounds€for€dissolution€shall€not€excludeÐ  p Ðactions€or€special€proceedings€by€the€attorney€general€and€reporter€or€other€stateÐ  \ Ðofficials€for€the€dissolution€of€a€corporation€for€other€causes€as€provided€in€thisÐ øH Ðchapter€or€in€any€other€statute€of€this€state;€.€.€.€.Ðä4Ð Ð  ÐÌà  àIn€such€a€proceeding,€the€court€also€has€authority€to€ð ðissue€injunctions,€appoint€a€receiver€orÐ ¼  Ðcustodian€òòpendente€liteóó€with€all€powers€and€duties€the€court€directs,€take€other€action€required€toÐ ¨ø Ðpreserve€the€corporate€assets€wherever€located,€and€carry€on€the€business€of€the€corporation€until€aÐ ”ä Ðfull€hearing€can€be€held.ðð€€Tenn.€Code€Ann.€ðð€48„64„302(c).Ô‡X±XXX±ÔÐ €Ð ÐÌà  àOn€appeal,€the€Attorney€General€argues€that€several€of€the€statutory€grounds€were€established:€Ð X ¨ Ð(1)€the€corporations€abandoned€their€public€purpose€and€have€been€devoted€to€private€gain€and,Ð D!” Ðconsequently,€the€corporate€assets€were€misapplied€or€wasted;€(2)€the€corporations€have€operated€inÐ 0"€  Ða€persistently€fraudulent€and€illegal€manner;€and€(3)€the€corporations€are€unable€to€carry€out€theirÐ #l! Ðnonprofit€purposes.€€Ð $X" ÐÌà  àIn€response,€the€corporations€argue€that:€(1)€the€Attorney€General€failed€to€allege€or€show€thatÐ à%0!$ Ðthe€corporations€conducted€their€business€in€a€persistently€fraudulent€or€illegal€manner;€(2)€theÐ Ì&"% ÐAttorney€General€failed€to€prove€that€Cherokeeððs€corporate€assets€were€misapplied€or€wasted;€(3)€theÐ ° ÐAttorney€General€cannot€show€that€the€corporations€are€no€longer€able€to€carry€out€their€purposes;Ð œì Ðand€(4)€the€business€judgment€rule,€plead€as€an€affirmative€defense,€insulates€certain€corporateÐ ˆØ Ðactions€by€creating€a€presumption€of€the€regularity€of€business€decisions,€and€the€Attorney€GeneralÐ tÄ Ðfailed€to€overcome€that€presumption.€€In€addition,€the€corporations€assert€that€summary€judgmentÐ `° Ðwas€improper€because€there€are€disputed€material€facts,€the€Attorney€General€failed€to€meet€hisÐ L œ Ðburden€of€proving€that€dissolution€was€warranted,€no€expert€proof€was€presented€on€issues€requiringÐ 8 ˆ Ðsuch€proof,€and€the€corporations€presented€their€own€expert€proof€to€rebut€several€claims.€€Finally,Ð $ t Ðthe€corporations€assert€that€some€of€the€documents€and€records€filed€by€the€Attorney€General€inÐ  ` Ðsupport€of€the€motion€for€summary€judgment€were€unauthenticated€and€contained€some€inadmissibleÐ ü L  Ðevidence,€should€not€have€been€considered€by€the€trial€court,€but€could€have€been€so€considered.€Ð è 8  ÐÌÓ  ÓIII.€€Nonprofit€CorporationsÐ À  ÐÓôoÓÌà  àThe€two€corporations€were€both€formed€pursuant€to€the€Tennessee€Nonprofit€CorporationÐ ˜è  ÐAct,€Tenn.€Code€Ann.€ðððð€48„51„101€òòet.€seqóó.òòóó׃l×Ý ƒ#ÃÝòòÚ  Ú16Ú  ÚóóÝ  Ý×  ×€€Nonprofit€corporations€in€Tennessee€can€be€religiousÐ „Ô  Ðcorporations,€€public€benefit€corporations,€or€mutual€benefit€corporations.€€Tenn.€Code€Ann.€ðð€48„52„Ð pÀ Ð102(a)(2).€€Both€corporations€herein€are€public€benefit€corporations.€Ð \¬ ÐÌà8  àNonprofit€corporations€can€be€divided€into€two€classes.€€One€called€donativeÐ 4„ Ðnonprofits€or€public€benefit€corporations;€the€other€called€commercial€nonprofits€orÐ  p Ðmutual€benefit€corporations.€€The€donative€type€is€generally€a€charitable€organizationÐ  \ Ðproviding€service€to€the€general€public.€ÐøHÐ Ð  ÐÌòò19€William€Meade€Fletcher€et€al.,€Fletcher€Cyclopedia€of€the€Law€of€PrivateÐ Ð  ÐCorporationsóó€ðð€2:15€(Perm.€ed.€1994)€(citations€omitted).òòóó€€Under€the€Revised€Model€NonprofitÐ ¼  ÐCorporation€Act,€public€benefit€corporations€are€treated€differently€from€the€other€two€classificationsÐ ¨ø Ðin€several€areas,€including:€(1)€the€ability€to€make€distributions€to€members€or€controlling€personsÐ ”ä Ðand€(2)€the€supervisory€powers€vested€in€the€attorney€general€of€the€state€of€incorporation.Ð €Ð ÐÌà  àBoth€corporations€herein€also€applied€for€and€received€tax€exempt€status€under€ðð€501(c)(3)Ð X ¨ Ðof€the€Internal€Revenue€Code,€and€both€adopted€corporate€statements€indicating€their€intent€was€toÐ D!” Ðoperate€as€a€ðð€501(c)(3)Ô#†X±XXX± g#ÔÔ‡X±XXX±Ô€organization.׃o×Ý ƒ#ÃÝòòÚ  Ú17Ú  ÚóóÝ  Ý×  ×€€That€section€exempts€from€taxation€ð ðcorporations,€and€anyÐ 0"€  Ðcommunity€chest,€fund,€or€foundation,€organized€and€operated€exclusively€for€religious,€charitable,Ð #l! Ðscientific,€testing€for€public€safety,€literary,€or€educational€purposes.ðð€€It€also€requires€that€Ô#†X±XXX±pw#ÔÔ‡X±XXX±Ô€ð ðno€partÐ $X" Ðâ âof€the€net€earnings€of€[the€exempt€organization]€inures€to€the€benefit€of€any€private€shareholder€orÐ ô$D # Ðindividual.ðð€€This€prohibition€on€the€distribution€of€net€earnings€is€reinforced€by€federal€regulationsÐ ° Ðinterpreting€ðð€501(c)(3)Ô#†X±XXX±Dy#ÔÔ‡X±XXX±Ô:Ô#†X±XXX±Äz#ÔÔ‡X±XXX±ÔÐ œì Ðâ âÌà8  à[A]n€organization€is€not€organized€or€operated€exclusively€for€one€or€moreÐ tÄ Ð[charitable€purposes]€.€.€.€€unless€it€serves€a€public€rather€than€a€private€interest.€.€.€.Ð `° Ð[I]t€is€necessary€for€an€organization€to€establish€that€it€is€not€organized€or€operatedÐ L œ Ðfor€the€benefit€of€private€interests€such€as€designated€individuals,€the€creator€or€hisÐ 8 ˆ Ðfamily,€shareholders€of€the€organization,€or€persons€controlled,€directly€or€indirectly,Ð $ t Ðby€such€private€interests.€€Ð `Ð Ð  ÐÌTreas.€Reg.€ðð€1.501(c)(3)€„€1(d)(1)(ii)€(as€amended€in€1991).Ð è 8  ÐÔ#†X±XXX±{#ÔÔ‡X±XXX±ÔÌà  àThese€definitions€describe€the€most€commonly€used€and€understood€meaning€ascribed€toÐ À  Ðð ðnonprofitðð€entities.€€ð ðNonprofit€corporations€generally€are€recognized€to€be€public€or€charitable€inÐ ¬ü  Ðnature.ðð€€òòState€ex€relóó€òòBoone€v.€Sundquistóó,€884€S.W.2d€438,€444€(Tenn.€1994).€Ô#†X±XXX±~#ÔÔ‡X±XXX±Ô€A€basic€distinctionÐ ˜è  Ðbetween€for€profit€and€nonprofit€entities€is€the€possibility€of€private€enrichment.€€Thus,€ð ð[i]n€generalÐ „Ô  Ðterms,€a€nonprofit€enterprise€is€an€organization€in€which€no€part€of€the€income€is€distributable€to€itsÐ pÀ Ðmembers,€directors€or€officers€.€.€.€.ððÔ#†X±XXX±²#ÔÔ‡X±XXX±Ô€€òòRonald€Lee€Gilmanóó,€òòTennessee€Corporationsóó€ðð€11B„1Ð \¬ Ð(2001).€€To€be€more€precise,€Ô#†X±XXX±C#ÔÔ‡X±XXX±ÔÐ H˜ ÐÌà8  à.€.€.€one€crucial€feature€distinguishes€nonprofit€corporate€governance€from€that€of€for„Ð  p Ðprofit€corporations:€nonprofit€corporations€are€subject€to€the€non„distributionÐ  \ Ðconstraint.€€The€non„distribution€constraint€prevents€the€organization€fromÐ øH Ðdistributing€its€net€earnings€to€those€in€control€of€the€corporation;€.€.€.€.€Ô#†X±XXX±ù#ÔÔ‡X±XXX±ÔÐä4Ð Ð  ÐÌòòDevelopments€in€the€Law€„€„€Nonprofit€Corporationsóó,€105€òòHarv.€L.€Rev.óó€1578,€1582€(May€1992)Ð ¼  Ð(footnotes€omitted).€€Ð ¨ø ÐÌà  àIn€fact,€it€has€been€stated€that,€Ô#†X±XXX±Üƒ#ÔÔ‡X±XXX±Ôð ð[t]he€basic€question€to€be€asked€in€determining€whether€aÐ €Ð Ðcorporation€is€ððnonprofitðð€is€whether€the€corporation€is€being€exploited€for€direct€monetary€gain.ððÐ l¼ ÐòòFletcheróó,€òòsupraóó,€at€ðð€68.05.€€There€is€no€prohibition€on€a€nonprofit€corporation€conductingÐ X ¨ Ðenterprises€for€income€or€from€accumulating€earnings.€€However,€such€revenues€must€be€used€forÐ D!” Ðthe€purposes€set€forth€in€the€charter€and€there€must€be€no€pecuniary€gain€to€the€incorporators€orÐ 0"€  Ðmembers,€and€no€distribution€of€income€or€profits€to€them.€€òòIdóó.€Ð #l! ÐÌà  àUnder€the€Model€Nonprofit€Corporation€Act€(1964)€a€ð ðnot€for€profitðð€corporation€wasÐ ô$D # Ðdefined€as€a€corporation€no€part€of€the€income€of€which€is€distributable€to€its€members,€directors€orÐ à%0!$ Ðofficers.€€òòModel€Nonprofit€Corporation€Actóó€ðð€2€(1964);€òòFletcheróó,€òòsupraóó,€at€ðð€68.05.€€AlthoughÐ Ì&"% Ðthe€Revised€Model€Act€did€not€retain€this€definition,€that€decision€has€been€explained€as€follows:Ð ¸'#& ÐÌà8  àThe€Drafting€Committee,€on€the€other€hand,€took€the€position€that€provisions€of€theÐ )à$( ÐRevised€Act€such€as€the€election€between€public€benefit€and€mutual€benefit€status,Ð |*Ì%) Ðthe€limitations€on€distributions€to€members€or€controlling€persons€in€a€public€benefitÐ h+¸&* Ðcorporation,€restrictions€on€unreasonable€compensation,€and€the€regulatory€powersÐ ° Ðof€the€attorney€general€provided€ample€regulation€to€insure€nonprofit€operation.€€InÐ œì Ðaddition,€the€Drafting€Committee€had€concluded€that€the€ability€of€any€corporationÐ ˆØ Ðto€limit€the€corporate€purposes€in€its€articles€of€incorporation€provided€ampleÐ tÄ Ðprotection€and€allowed€the€corporation€to€obtain€tax€exempt€status€and€attract€specificÐ `° Ðcontributions.ÐL œÐ Ð  ÐÌÔ#†X±XXX±…#ÔÔ‡X±XXX±ÔLizabeth€A.€Moody,׃©×Ý ƒ#ÃÝòòÚ  Ú18Ú  ÚóóÝ  Ý×  ×€òòThe€Who,€What,€and€How€of€the€Revised€Model€Nonprofit€Corporation€Actóó,Ð $ t Ð16€òòN.€Ky.€L€Rev.óó€251,€281€(1988).Ô#†X±XXX±]#ÔÔ‡X±XXX±ÔÐ  ` ÐÔ#†X±XXX±ŽŽ#ÔÔ‡X±XXX±ÔÌà  àThis€prohibition€on€distribution€of€corporate€assets€or€earnings€to€those€operating€a€nonprofitÐ è 8  Ðcorporation€has€been€reinforced€by€specific€statutory€provisions.òòÔ#†X±XXX±åŽ#Ô€€óóUnder€Tenn.€Code€Ann.€ððÔ‡X±XXX±Ô€48„63„Ð Ô$  Ð101€a€nonprofit€corporation€may€make€no€distributions€that€are€not€authorized€by€Ô#†X±XXX± #ÔTenn.€Code€Ann.Ð À  ÐððÔ‡X±XXX±Ô€48„63„102.€€That€section€provides€that€Ô#†X±XXX±â#ÔÔ‡X±XXX±Ôa€public€benefit€corporation€may€make€distributions€to€itsÐ ¬ü  Ðmembers:€(1)€who€are€public€benefit€corporations;€and€(2)€if€in€conformity€with€its€charitableÐ ˜è  Ðpurposes.€€Ô#†X±XXX±L‘#ÔTenn.€Code€Ann.€ððÔ‡X±XXX±Ô€48„64„102Ô#†X±XXX±o’#ÔÔ‡X±XXX±Ô(b).€€ð ðDistributionðð€is€defined€as€ð ðthe€direct€or€indirectÐ „Ô  Ðtransfer€of€assets€or€any€part€of€the€income€or€profit€of€a€corporation,€to€its€members,€directors,€orÐ pÀ Ðofficers.ðð€€€Tenn.€Code€Ann.€ðð€48„51„201(11).€€Thus,€in€combination,€these€statutes€clearly€prohibit€Ð \¬ Ðthe€transfer€of€assets,€income,€or€accumulated€revenue€to€any€individual€who€is€a€member,€director,Ð H˜ Ðor€officer€of€the€corporation.€€The€statutory€exception€to€that€prohibition€is€found€in€the€definitionÐ 4„ Ðð ðdistribution.ððÔ#†X±XXX±»’#ÔÔ‡X±XXX±Ô€Ð  p ÐÌà  àð ðDistributionðð€does€not€include:Ð øH ÐÌà8  à(A)€The€payment€of€compensation€in€a€reasonable€amount€to€its€members,€directors,Ð Ð  Ðor€officers€for€services€rendered;м Ð Ð  Ðà8  à(B)€Conferring€benefits€on€its€members€in€conformity€with€its€purposes;ШøÐ Ð  Ðà8  à(C)€Repayment€of€debt€obligations€in€the€normal€and€ordinary€course€of€conductingÐ ”ä Ðbusiness€activities;€orЀÐÐ Ð  Ðà8  à(D)€The€incurrence€of€indebtedness,€whether€directly€or€indirectly€(including€throughÐ l¼ Ða€guaranty),€for€or€on€behalf€of€a€member,€director€or€officer.ÐX ¨Ð Ð  ÐÌòòIdóó.Ô#†X±XXX±X•#ÔÔ‡X±XXX±ÔÐ 0"€  ÐÌà  àIn€addition€to€these€limitations€on€distributions,€nonprofit€corporations€are€specificallyÐ $X" Ðprohibited€from€lending€money€to,€or€guaranteeing€the€obligation€of,€a€director€or€officer€of€theÐ ô$D # Ðcorporation.€€Tenn.€Code€Ann.€ðð€48„58„303.Ô#†X±XXX±¤˜#ÔÔ‡X±XXX±ÔÐ à%0!$ Ðâ âÐ Ì&"% Ðà  àNonprofit€corporations€are€eligible€for€beneficial€treatment€in€a€number€of€areas,Ô_Ô׃p×Ý ƒ#ÃÝòòÚ  Ú19Ú  ÚóóÝ  Ý×  ×Ô_ÔÐ ° Ðâ âparticularly€taxation.€€Such€treatment€is€in€recognition€of€the€benefit€to€the€public€good€resultingÐ œì Ðfrom€the€work€of€most€nonprofit€organizations.€€Exemption€from€federal€taxation€and€tax„Ð ˆØ Ðdeductibility€of€donations€are€benefits€of€classification€as€a€ðð€501(c)(3)€entity,€but€that€classificationÐ tÄ Ðis€based€upon€essentially€charitable€purposes€where€the€public€good€is€served,€not€the€private€interestÐ `° Ðof€any€corporate€insider.€Ð L œ ÐÌà  àThe€federal€tax€exemption,€which€has€appeared€in€federal€tax€statutes€since€1894,€seeks€ð ðtoÐ $ t Ðencourage€the€development€of€private€institutions€that€serve€a€useful€public€purpose€or€supplementÐ  ` Ðor€take€the€place€of€public€institutions€of€the€same€kind.ðð€€òòÔ#†X±XXX±š#ÔBob€Jones€Univ.€v.€United€Statesóó,€461€U.S.Ð ü L  Ð574,€588,€103€S.€Ct.€2017,€2026€(1983).€€It€is€the€unmistakable€legislative€intent€that€entitlement€toÐ è 8  Ð501(c)(3)€tax€exemption€ð ðdepends€on€meeting€certain€common„law€standards€of€charity€„€„€namelyÐ Ô$  Ðthat€an€institution€seeking€tax„exempt€status€must€serve€a€public€purpose€and€not€be€contrary€toÐ À  Ðestablished€public€policy.ðð€òò€Idóó.€461€U.S.€at€586,€103€S.€Ct.€at€2026.€€The€objective€of€the€exemptionÐ ¬ü  Ðwas€to€promote€certain€charitable€purposes,€a€term€that€has€been€used€in€the€law€of€charitable€trustsÐ ˜è  Ðfor€hundreds€of€years.€€òòIdóó.€461€U.S.€at€588,€103€S.€Ct.€at€2026.€ò òÔ‡X±XXX±ÔÐ „Ô  Ðó óÌà  àSimilarly,€the€Tennessee€Constitution€authorizes€the€legislature€to€exempt€from€taxationÐ \¬ Ðproperty€held€and€used€for€purposes€purely€religious,€charitable,€scientific,€literary,€or€educational.€Ð H˜ ÐTenn.€Const.€art.€II,€ðð€28.€€The€legislature€has€enacted€statutes€providing€for€such€exemption,€but€hasÐ 4„ Ðspecifically€stated€the€property€of€institutions€shall€not€be€exempt€if:Ð  p ÐÌà8  àThe€organization€thereof€for€any€such€avowed€purpose€be€a€guise€or€pretense€forÐ øH Ðdirectly€or€indirectly€making€any€other€pecuniary€profit€for€such€institution,€or€for€anyÐ ä4 Ðof€its€members€or€employees,€or€if€it€not€be€in€good€faith€organized€or€conductedÐ Ð  Ðexclusively€for€one€(1)€or€more€of€these€[religious,€charitable,€scientific,€orÐ ¼  Ðeducational]€purposes.€€Ð¨øÐ Ð  ÐÌTenn.€Code€Ann.€ðð€67„5„€212(a)(3)(B).€Ð €Ð ÐÌà  àThis€exemption€and€the€liberal€interpretation€applied€to€tax€exempt€statutes€are€based€uponÐ X ¨ Ðthe€ð ðbenefit€conferred€on€the€public€by€such€institutions,€and€a€consequent€relief,€to€some€extent,€ofÐ D!” Ðthe€burden€upon€the€state€to€care€for€and€advance€the€interests€of€its€own€citizens.ðð€€òòÔ_ÔLaMannaÔ_Ô€v.€Elec.Ð 0"€  ÐWorkers€Local€Union€No.€474óó,€518€S.W.2d€348,€352€(Tenn.€1974)€(quoting€òòBook€Agents€ofÐ #l! ÐMethodist€Episcopal€Church,€South€v.€State€Bd.€of€Equalization,óó€513€S.W.2d€514,€521€(Tenn.Ð ° Ð1974)).Ð œì ÐÔ#†X±XXX±½¡#ÔÌÔ‡X±XXX±Ôà  àThus,€it€is€clear€that€the€bargain€made€with€the€government,€the€taxpayers,€and€the€public€inÐ tÄ Ðreturn€for€benefits€such€as€tax€exemption€is€that€the€organization€will€be€operated€for€the€public€goodÐ `° Ðand€not€to€enrich€those€involved€in€running€it.Ô#†X±XXX±¥¨#ÔÔ‡X±XXX±ÔÐ L œ ÐÌà  àEven€before€the€adoption€of€the€Revised€Model€Nonprofit€Corporation€Act,€it€has€long€beenÐ $ t Ðthe€law€in€Tennessee€that€nonprofit€corporations€are€required€to€operate€for€public€purposes€and€notÐ  ` Ðfor€individual€private€gain.€€òòSee,€e.g.,€Highlander€Folk€Sch.€v.€State€ex€rel.€Sloanóó,€208€Tenn.€234,Ð ü L  Ð240,€345€S.W.2d€667,€669€(1961)€(holding€that€the€operation€of€a€school€for€the€personal€gain€of€theÐ è 8  Ðindividual€who€controlled€the€finances€and€to€whom€the€schoolððs€real€property€was€given€was€ð ðaÐ Ô$  Ðmisuse€and€abuse€of€its€powers,€and€perversive€of€the€objects€for€which€it€was€created€and€injuriousÐ À  Ðto€the€publicðð).Ð ¬ü  ÐÔ#†X±XXX±ª#ÔÔ‡X±XXX±ÔÌà  àAdherence€to€the€fundamental€character€of€a€nonprofit€corporation€is€intended€to€be€insured,Ð „Ô  Ðin€part,€by€the€fiduciary€duties€imposed€on€officers€and€directors€of€such€corporations.€€It€is€wellÐ pÀ Ðestablished€that€officers€and€directors€of€a€for€profit€corporation€owe€a€fiduciary€duty€to€theÐ \¬ Ðcorporation€and€its€members€or€shareholders.òò€óó€€òòFounders€Life€Corp.€v.€Hamptonóó,€597€S.W.2d€897,Ð H˜ Ð899€(Tenn.€1980);€òòJohns€v.€Caldwellóó,€601€S.W.2d€37,€41€(Tenn.€Ct.€App.€1980).€€Directors€andÐ 4„ Ðofficers€of€corporations€are€bound€to€the€exercise€of€the€utmost€good€faith,€loyalty,€and€honestyÐ  p Ðtoward€the€corporation.€€òòKnox„Tenn€Rental€Co.€v.€Jenkins€Ins.,€Inc.óó,€755€S.W.2d€33,€36€(Tenn.€1988);Ð  \ ÐòòHayes€v.€Schweikartððs€Upholstering€Co.óó,€55€Tenn.€App.€442,€466,€402€S.W.2d€472,€483€(1965).€Ð øH Ðð ð[T]he€directors€of€a€corporation€have€to€see€to€it€that€the€corporation€had€the€benefit€of€their€bestÐ ä4 Ðjudgment€and€act€solely€and€always€with€reasonable€care€in€good€faith€to€promote€its€welfare.ðð€Ð Ð  ÐòòNeese€v.€Brownóó,€218€Tenn.€686,€700,€405€S.W.2d€577,€584€(1964).Ô#†X±XXX±m­#ÔÔ‡X±XXX±ÔÐ ¼  ÐÌà  àDirectors€and€officers€of€nonprofit€corporations€also€owe€a€fiduciary€duty€to€the€corporation.€Ð ”ä ÐòòState€ex€rel€Oliver€v.€Socððy€for€Pres.€of€Common€Prayeróó,€693€S.W.2d€340,€343€(Tenn.€1985)Ô#†X±XXX±¹²#ÔÔ‡X±XXX±Ô.€€ThereÐ €Ð Ðare€two€basic€fiduciary€duties:€the€duty€of€care€and€the€duty€of€loyalty.€€They€are€embodied€in€theÐ l¼ ÐRevised€Model€Nonprofit€Corporation€Act׃×Ý ƒ#ÃÝòòÚ  Ú20Ú  ÚóóÝ  Ý×  ×€and€have€been€enacted€in€Tennessee:Ð X ¨ ÐÌà8  à(a)€A€director€shall€discharge€all€duties€as€a€director,€including€duties€as€a€memberÐ 0"€  Ðof€a€committee:Ð#l!Ð Ð  ÐÌà8  à(1)€In€good€faith;Ðô$D #Ð Ð  Ðà8  à(2)€With€the€care€an€ordinarily€prudent€person€in€a€like€position€would€exercise€underÐ à%0!$ Ðsimilar€circumstances;€andÐÌ&"%Ð Ð  Ðà8  à(3)€In€a€manner€the€director€reasonably€believes€to€be€in€the€best€interests€of€theÐ ° Ðcorporation.€€ÐœìÐ Ð  ÐÌTenn.€Code€Ann.€ðð€48„58„301.€€A€corporate€officer€with€discretionary€authority€is€subject€to€the€sameÐ tÄ Ðstandards.€€Tenn.€Code€Ann.€ðð€48„58„403.€€Ð `° ÐÌà  àThese€statutory€standards€of€conduct€for€directors€and€officers€of€nonprofit€corporations€areÐ 8 ˆ Ðsimilar€to€those€for€their€counterparts€in€for€profit€corporations.׃u×Ý ƒ#ÃÝòòÚ  Ú21Ú  ÚóóÝ  Ý×  ×€€However,€because€the€missionsÐ $ t Ðof€the€two€types€of€corporations€are€different,€the€duty€of€loyalty€is€defined€somewhat€differently.€Ð  ` ÐThe€officers€and€directors€of€a€for€profit€corporation€are€to€be€guided€by€their€duty€to€maximize€longÐ ü L  Ðterm€profit€for€the€benefit€of€the€corporation€and€the€shareholders.׃žì×Ý ƒ#ÃÝòòÚ  Ú22Ú  ÚóóÝ  Ý×  ×€€A€nonprofit€public€benefitÐ è 8  Ðcorporationððs€reason€for€existence,€however,€is€not€to€generate€a€profit.€Thus,€a€directorððs€duty€ofÐ Ô$  Ðloyalty€lies€in€pursuing€or€ensuring€pursuit€of€the€charitable€purpose€or€public€benefit€which€is€theÐ À  Ðmission€of€the€corporation.€Ð ¬ü  ÐÌà  àð ðThe€central€purpose€of€fiduciary€duties€of€officers€and€directors€of€nonprofit€corporationsÐ „Ô  Ðis€to€ensure€that€a€corporationððs€resources€are€used€to€achieve€the€corporationððs€purposes€and€not€toÐ pÀ Ðenrich€the€directors.ðð€€òòDevelopments€in€the€Law€„€„€Nonprofit€Corporationsóó,€òòsupraóó,€Ô#†X±XXX±ó³#ÔÔ‡X±XXX±Ôat€1601.€€InÐ \¬ Ðparticular,€the€duty€of€loyalty€requires€that€a€director€or€officer€faithfully€pursue€the€interest€of€theÐ H˜ Ðorganization,€and€its€nonprofit€purpose,€rather€than€his€or€her€own€financial€or€other€interests,€orÐ 4„ Ðthose€of€another€person€or€organization.€€Harvey€J.€Goldschmid,€òòThe€Fiduciary€Duties€of€NonprofitÐ  p ÐDirectors€and€Officers:€Paradoxes,€Problems,€and€Proposed€Reformsóó,€23€òòIowa€J.€Corp.€L.óó€631,€641Ð  \ Ð(1998).Ô#†X±XXX±¾#ÔÔ‡X±XXX±Ô€€Thus,€nonprofit€directors€and€officers€must€be€ð ðprincipally€concerned€about€the€effectiveÐ øH Ðperformance€of€the€nonprofitððs€mission.ðð€òòIdóó.€€Ô#†X±XXX±^À#ÔÔ‡X±XXX±ÔAlthough€principles€of€law€governing€for€profitÐ ä4 Ðcorporations€generally€govern€the€activities€of€a€nonprofit€corporation,€those€who€control€a€nonprofitÐ Ð  Ðcorporation€ð ðhave€a€special€duty€to€advance€its€charitable€goals€and€protect€its€assets.ðð€òòOberly€v.Ð ¼  ÐKirbyóó,€592€A.2d€445,€472„73€(Del.€1991).Ð ¨ø ÐÐ ”ä ÐÔ#†X±XXX±MÁ#ÔÔ‡X±XXX±Ôà  àIn€addition€to€the€duties€of€care€and€loyalty,€or€as€part€of€them,€certain€transactions,€calledÐ ° Ðconflict€of€interest€transactions,€between€the€corporation€and€a€director€or€officer€are€subject€to€closeÐ œì Ðscrutiny.€€ð ð[C]lose€investigation€is€accorded€a€corporationððs€transactions€with€an€officer€or€director,Ð ˆØ Ðand€the€burden€of€proof€is€placed€upon€the€officer€or€director€because€of€his€fiduciary€capacity.ðð€Ð tÄ ÐòòJohns,óó€601€S.W.2d€at€41(citing€òòIntertherm,€Inc.€v.€Olympic€Homes€Sys.óó,€569€S.W.2d€467,€471€(Tenn.Ð `° ÐCt.€App.€1978)).€€At€common€law,€an€absolute€prohibition€existed€against€contracts€betweenÐ L œ Ðcorporations€with€common€directors,€but€that€prohibition€has€been€modified€by€statute.€€òòTenn.Ð 8 ˆ ÐDressed€Beef€Co.€v.€Hallóó,€519€S.W.2d€805,€807€(Tenn.€Ct.€App.€1974).€€€Ð $ t ÐÌà  àA€conflict€of€interest€transaction€is€statutorily€defined€as€ð ða€transaction€with€the€corporationÐ ü L  Ðin€which€a€director€or€officer€of€the€corporation€has€a€direct€or€indirect€interest.ðð€€Tenn.€Code€Ann.Ð è 8  Ððð€48„58„302Ô#†X±XXX±$Ã#ÔÔ‡X±XXX±Ô(a).€€A€director€or€officer€has€such€an€interest€if,€but€not€only€if,€ð ðanother€entity€in€whichÐ Ô$  Ðthe€director€or€officer€has€a€material€interest€.€.€.€is€a€party€to€the€transactionðð€or€ð ðanother€entity€ofÐ À  Ðwhich€the€director€or€officer€is€a€director,€officer,€or€trustee€is€a€party€to€the€transaction.ðð€€Tenn.€CodeÐ ¬ü  ÐAnn.€ðð€48„58„302(c).Ð ˜è  ÐÌà  àUnder€the€Revised€Model€Nonprofit€Corporation€Act,€any€conflict€of€interest€transaction€isÐ pÀ Ðvoidable€by€the€corporation,€and€may€be€the€basis€for€liability€of€a€director€or€officer,€unless€theÐ \¬ Ðtransaction€was€fair€at€the€time€it€was€entered€into€or€is€approved€in€accordance€with€statutoryÐ H˜ Ðprovisions.€€Tenn.€Code€Ann.€ðð€48„58„302(a).€€A€conflict€of€interest€transaction€may€be€approvedÐ 4„ Ðif:Ð  p ÐÌà8  à(1)€The€material€facts€of€the€transaction€and€the€directorððs€or€officerððs€interest€wereÐ øH Ðdisclosed€or€known€to€the€board€of€directors€or€a€committee€consisting€entirely€ofÐ ä4 Ðmembers€of€the€board€of€directors€and€the€board€of€directors€or€such€committeeÐ Ð  Ðauthorized,€approved,€or€ratified€the€transaction;м Ð Ð  Ðà8  à(2)€The€material€facts€of€the€transaction€and€the€directorððs€or€officerððs€interest€wereÐ ¨ø Ðdisclosed€or€known€to€the€members€and€they€authorized,€approved,€or€ratified€theÐ ”ä Ðtransaction;€orЀÐÐ Ð  Ðà8  à(3)€Approval€is€obtained€from:Ðl¼Ð Ð  Ðà8  à(A)€The€attorney€general€and€reporter;€orÐX ¨Ð Ð  Ðà8  à(B)€A€court€of€record€having€equity€jurisdiction€in€an€action€in€which€the€attorneyÐ D!” Ðgeneral€and€reporter€is€joined€as€a€party.Ð0"€ Ð Ð  ÐÌTenn.€Code€Ann.€ðð€48„58„302(b).׃e×Ý ƒ#ÃÝòòÚ  Ú23Ú  ÚóóÝ  Ý×  ×€€Any€approval€by€the€board€requires€the€affirmative€vote€of€aÐ $X" Ðmajority€of€the€directors€who€have€no€direct€or€indirect€interest€in€the€transaction,€but€no€suchÐ ô$D # Ðtransaction€may€be€approved€by€a€single€member€of€the€board.€€Tenn.€Code€Ann.€ðð€48„58„303(d).€Ð à%0!$ ÐÐ Ì&"% Ðà  àApproval€meeting€the€statutory€requirements,€however,€simply€removes€the€voidability€of€theÐ ° Ðtransaction€by€the€corporation,€or€personal€liability€for€directors€and€officers.€€In€addition,€directorsÐ œì Ðconsidering€such€approval€must€comply€with€their€fiduciary€duties€in€deciding€whether€to€approve.׃t×Ý ƒ#ÃÝòòÚ  Ú24Ú  ÚóóÝ  Ý×  ׀РˆØ ÐSuch€approval€does€not€obviate€the€Ô_ÔrequirementsÔ_Ô€of€nondistribution€to€corporate€insiders€and€use€ofÐ tÄ Ðassets€for€public€benefit€purposes.€€Ð `° Ѐ€Ô#†X±XXX±7È#ÔÔ‡X±XXX±ÔÐ L œ Ðà  àWhere€corporate€officers€and€directors€do€not,€contrary€to€their€fiduciary€duties,€€advance€theÐ 8 ˆ Ðcorporationððs€charitable€goals,€protect€its€assets,€and€Ô#†X±XXX±‡Ô#ÔÔ‡X±XXX±Ôensure€that€its€resources€are€used€to€achieve€theÐ $ t Ðcorporationððs€purposes€and€not€to€enrich€those€who€control€the€corporation,€other€remedies€exist.€Ð  ` ÐTenn.€Code€Ann.€ðð€48„64„301(a)(2)€authorizes€dissolution€of€a€nonprofit€corporation€in€a€proceedingÐ ü L  Ðbrought€by€a€specified€number€or€percentage€of€voting€members€upon€proof€of€one€of€severalÐ è 8  Ðgrounds,€including€where€ð ðthe€corporate€assets€are€being€misapplied€or€wastedðð€or€where€ð ðtheÐ Ô$  Ðdirectors€or€those€in€control€of€the€corporation€have€acted,€are€acting,€or€will€act€in€a€manner€that€isÐ À  Ðillegal,€oppressive,€or€fraudulent.ðð€€Tenn.€Code€Ann.€ðððð€48„64„302(a)Ô#†X±XXX±™Õ#ÔÔ‡X±XXX±Ô(2)(B)€&€(D).€€Ð ¬ü  ÐÌà  àEven€before€the€adoption€of€the€Revised€Model€Nonprofit€Corporation€Act,€Ô#†X±XXX±ÊØ#ÔÔ‡X±XXX±ÔTennesseeÐ „Ô  Ðrecognized€the€right€of€members€of€a€nonprofit€corporation€to€bring€the€equivalent€of€a€shareholderÐ pÀ Ðderivative€action€against€the€directors€and€officers€for€wasting€corporate€assets€and€using€corporateÐ \¬ Ðassets€for€personal€gain.òò€€Bourne€v.€Williamsóó,€633€S.W.2d€469€(Tenn.€Ct.€App.€1981).€€The€òòBourneóóÐ H˜ Ðcourt€found€that€Tennessee€had€long€recognized€the€right€of€aggrieved€shareholders€to€sue€for€theÐ 4„ Ðbenefit€of€the€corporation€to€rectify€a€wrong€to€the€corporation€and€ð ðthat€members€of€nonprofitÐ  p Ðcorporations€have€the€same€rights€in€this€regard€as€stockholders€of€corporations€for€profit,ðð€citingÐ  \ ÐòòKnapp€v.€Supreme€Commandery,€U.O.G.C.€of€the€Worldóó,€121€Tenn.€212,€118€S.€W.€390€(1908)€andÐ øH ÐòòRange€v.€Tennessee€Burley€Tobacco€Growers€Assððnóó,€41€Tenn.€App.€667,€298€S.W.2d€545€(1955),Ð ä4 Ðas€cases€where€such€actions€were€brought€but€the€right€to€sue€as€members€of€a€nonprofit€corporationÐ Ð  Ðwas€not€disputed.òò€€Bourneóó,€633€S.W.2d€at€471„472.Ô#†X±XXX±†Ù#ÔÔ‡X±XXX±Ô€€òòSee€also€Hannewald€v.€Fairfield€Cmtys.,€Incóó.,Ð ¼  Ð651€S.W.2d€222,€225„26€(relying€on€òòBourneóó,€€the€Tennessee€Corporation€Act,€and€Tenn.€R.€Civ.€P.Ð ¨ø Ð23.06€to€find€that€a€member€of€a€nonprofit€corporation€could€bring€a€ð ðderivativeðð€action€for€theÐ ”ä Ðbenefit€of€the€corporation).€€Ð €Ð ÐÌà  àThis€right,€however,€is€not€effective€where,€as€here,€a€nonprofit€corporation€has€no€members.Ð X ¨ ÐConsequently,€statutory€authority€has€been€given€to€the€Attorney€General€to€act€in€the€public€goodÐ D!” Ðin€enforcing€the€requirements€applicable€to€nonprofit€corporations,€particularly€public€benefitÐ 0"€  Ðcorporations.€€òòState€ex€Ô#†X±XXX±_Þ#Ôrel.€Adventist€Health€Care€Sys.€v.€Nashville€Memððl€Hosp.,€Incóó.€914€S.W.2dÐ #l! Ð903,€907€(Tenn.€Ct.€App.€1995).€€The€Tennessee€statutes€mirror€the€provisions€of€the€Revised€ModelÐ $X" ÐNonprofit€Corporation€Act,€and€the€authority€given€therein€to€the€Attorney€General€was€designed€toÐ ô$D # Ðprotect€the€public€interest€in€the€operation€of€nonprofit€public€benefit€corporations.€Ô‡X±XXX±ÔÐ à%0!$ Ðâ âÐ Ì&"% Ðà8  àSince€the€enactment€of€the€Statute€of€Charitable€Uses€in€the€sixteenth€century,€aÐ ° Ðâ âmajor€device€for€regulating€charities€has€been€the€power€of€the€attorney€general€toÐ œì Ðregulate€or€investigate€charitable€trusts.€€Over€time,€this€power€has€been€recognizedÐ ˆØ Ðand€applied€to€nonprofit€corporations€organized€for€charitable€purposes.€€The€RevisedÐ tÄ Ð[Model€Nonprofit€Corporation]€Act€has€extended€this€concept€to€reach€all€nonprofitÐ `° Ðcorporations€in€varying€degrees.€€The€state€under€the€Revised€Act€has€limited€powerÐ L œ Ðto€regulate€mutual€benefit€and€religious€corporations,€but€it€has€broad€power€ofÐ 8 ˆ Ðsupervision€over€the€public€benefit€corporation.€€This€is€one€of€the€features€of€theÐ $ t ÐRevised€Act€that€is€both€most€criticized€and€most€complimented.€€The€DraftingÐ  ` ÐCommittee,€however,€accepted€such€provisions€on€the€rationale€that€public€benefitÐ ü L  Ðcorporations,€which€usually€have€no€participants€with€a€sufficient€economic€interestÐ è 8  Ðto€assure€oversight,€can€only€be€made€accountable€for€their€use€of€assets€if€there€areÐ Ô$  Ðbroad€powers€of€regulation€in€a€state€officer.€€To€that€end,€the€Revised€Act€providesÐ À  Ðstanding€to€the€attorney€general€to€protect€the€public€interest.Ьü Ð Ð  ÐÌMoody,€òòsupraóó,€at€262„63.׃v×Ý ƒ#ÃÝòòÚ  Ú25Ú  ÚóóÝ  Ý×  ×€€The€drafters€of€the€Revised€Model€Act€intended€that€the€AttorneyÐ „Ô  ÐGeneral€of€the€incorporating€state€have€wide€discretion€and€broad€powers€in€regulating€public€benefitÐ pÀ Ðcorporations€to€ensure€that€they€operate€as€nonprofits.€òò€óóMoody,€òòsupraóó,€at€262,€265,€266,€and€269.Ð \¬ ÐÌà  àAn€official€comment€to€the€Revised€Act€provides:Ð 4„ ÐÌà8  àThe€failure€to€set€forth€an€explicit€limitation€on€a€nonprofit€organizationððs€activitiesÐ  \ Ð[in€terms€of€limiting€corporate€purposes]€does€not€mean€that€an€enterprisingÐ øH Ðentrepreneur€can€improperly€and€with€impunity€operate€in€the€nonprofit€form.€€InÐ ä4 Ðgeneral,€public€benefit€and€religious€corporations€cannot€make€distributions€toÐ Ð  Ðmembers€or€controlling€persons.€€Unreasonable€compensation€cannot€be€paid€toÐ ¼  Ðmembers€or€controlling€persons.€€In€addition,€the€attorney€general€has€broad€powersÐ ¨ø Ðto€ensure€that€a€public€benefit€corporation€is€not€operating€for€the€private€benefit€ofÐ ”ä Ðany€individual.ЀÐÐ Ð  ÐÌòòRevised€Model€Nonprofit€Corporation€Act€óóðð€3.01€cmt.€(1987)€(citations€omitted).Ð X ¨ Ðâ âÐ D!” Ðà  àThe€statute€itself,€Tenn.€Code€Ann.€ðð€48„64„301,€establishes€grounds€for€dissolution€ofÐ ° Ðâ ânonprofit€corporations€in€general.€€Subsection€(a)(1)€applies€to€dissolution€actions€brought€by€theÐ œì ÐAttorney€General,€and€subsections€(a)(1)(E)€and€(F)€apply€only€to€public€benefit€corporations.€€ThereÐ ˆØ Ðcan€be€no€question€that€the€legislature€intended€to€provide€oversight€of€public€benefit€corporationÐ tÄ Ðassets€to€ensure€their€proper€use€and€prevent€their€misapplication.Ð `° ÐÌà  àThus,€the€Attorney€General,€acting€in€the€public€interest,€€has€authority€to€seek€dissolutionÐ 8 ˆ Ðof€a€nonprofit€public€benefit€corporation€which€fails€to€devote€its€assets€to€a€public,€rather€than€aÐ $ t Ðprivate,€interest.€€Where€such€a€corporation€is€operated€for€the€private€benefit€of€an€individual€inÐ  ` Ðcontravention€of€the€principles€governing€nonprofit€status€and€its€accompanying€benefits,€or€where,Ð ü L  Ðas€the€trial€court€phrased€it,€the€corporation€has€abandoned€its€public€benefit,€charitable€purpose,Ð è 8  Ðaction€by€the€Attorney€General€and€the€courts€is€warranted.Ð Ô$  ÐÌÓ  ÓIV.€€Summary€JudgmentÐ ¬ü  ÐÓøóÓÌÔ#†X±XXX±Aã#Ôà  àThe€standards€for€reviewing€summary€judgments€on€appeal€are€well€settled.€SummaryÐ „Ô  Ðjudgments€are€proper€in€virtually€any€civil€case€that€can€be€resolved€on€the€basis€of€legal€issues€alone.€Ð pÀ ÐòòFruge€v.€Doeóó,€952€S.W.2d€408,€410€(Tenn.€1997);€òòByrd€v.€Hallóó,€847€S.W.2d€208,€210€(Tenn.€1993);òòÐ \¬ ÐChurch€v.€Peralesóó,€39€S.W.3d€149,€156€(Tenn.€Ct.€App.€2000)òò.€óó€They€are€not,€however,€appropriateÐ H˜ Ðwhen€genuine€disputes€regarding€material€facts€exist.€Tenn.€R.€Civ.€P.€56.04.€€Thus,€a€summaryÐ 4„ Ðjudgment€should€be€granted€only€when€the€undisputed€facts,€and€the€inferences€reasonably€drawnÐ  p Ðfrom€the€undisputed€facts,€support€one€conclusion€„€that€the€party€seeking€the€summary€judgment€isÐ  \ Ðentitled€to€a€judgment€as€a€matter€of€law.òò€€Webber€v.€State€Farm€Mut.€Auto.€Ins.€Co.óó,€49€S.W.3d€265Ð øH Ð(Tenn.€2001);€òòBrown€v.€Birman€Managed€Care,€Inc.óó,€42€S.W.3d€62,€66€(Tenn.€2001);òò€Goodloe€v.Ð ä4 ÐState,€óó36€S.W.3d€62,€65€(Tenn.€2001).òòÐ Ð  ÐóóÌà  àSummary€judgments€enjoy€no€presumption€of€correctness€on€appeal.€òòScott€v.€AshlandÐ ¨ø ÐHealthcare€Ctr.,€Inc.óó,€49€S.W.3d€281€(Tenn.€2001);€òòPenley€v.€Honda€Motor€Co.óó,€31€S.W.3d€181,€183Ð ”ä Ð(Tenn.€2000).€€Accordingly,€appellate€courts€must€make€a€fresh€determination€that€the€requirementsÐ €Ð Ðof€Tenn.€R.€Civ.€P.€56€have€been€satisfied.€€òòHunter€v.€Brownóó,€955€S.W.2d€49,€50„51€(Tenn.€1997);€Ð l¼ ÐòòMason€v.€Seatonóó,€942€S.W.2d€470,€472€(Tenn.€1997).€€We€must€consider€the€evidence€in€the€lightÐ X ¨ Ðmost€favorable€to€the€non„moving€party,€and€we€must€resolve€all€inferences€in€the€non„movingÐ D!” Ðparty's€favor.€€òòDoe€v.€HCA€Health€Servs.,€Inc.óó,€46€S.W.3d€191,€196€(Tenn.€2001);€òòMemphis€Hous.Ð 0"€  ÐAuth.€v.€Thompsonóó,€38€S.W.3d€504,€507€(Tenn.€2001).€€When€reviewing€the€evidence,€we€mustÐ #l! Ðdetermine€first€whether€factual€disputes€exist.€€If€a€factual€dispute€exists,€we€must€then€determineÐ $X" Ðwhether€the€fact€is€material€to€the€claim€or€defense€upon€which€the€summary€judgment€is€predicatedÐ ô$D # Ðand€whether€the€disputed€fact€creates€a€genuine€issue€for€trial.€€òòByrd€v.€Hallóó,€847€S.W.2d€at€214;€Ð à%0!$ ÐòòRutherford€v.€Polar€Tank€Trailer,€Inc.óó,€978€S.W.2d€102,€104€(Tenn.€Ct.€App.€1998).Ð Ì&"% ÐÌà  àÔ‡X±XXX±ÔA€party€seeking€summary€judgment€has€the€burden€of€demonstrating€that€its€motion€satisfiesÐ ¤(ô#' Ðthe€requirements€of€Rule€56,€including€its€entitlement€to€judgment€as€a€matter€of€law.€€òòCarvell€v.Ð )à$( ÐBottomsóó,€900€S.W.2d€23,€25€(Tenn.€1995);€€òòJones€v.€City€of€Johnson€Cityóó,€917€S.W.2d€687,€689Ð |*Ì%) Ð(Tenn.€Ct.€App.€1995).Ô#†X±XXX±‘þ#Ô€When€a€party€seeking€summary€judgment€makes€a€properly€supportedÐ h+¸&* Ðmotion,€the€burden€shifts€to€the€nonmoving€party€to€set€forth€specific€facts€which€must€be€resolvedÐ ° Ðby€the€trier€of€fact.€€òòByrdóó,€847€S.W2d€at€215.€€Ð œì ÐÌÔ‡X±XXX±Ôà  àThis€courtððs€role€in€review€of€the€grant€of€summary€judgment€is€to€review€the€record€andÐ tÄ Ðdetermine€whether€the€requirements€of€Tenn.€R.€Civ.€P.€56€have€been€met.€€òòStaples€v.€CBL€&€Assoc.óó,Ð `° Ð15€S.W.3d€83,€88€(Tenn.€2000).€€Our€perspective€is€the€same€as€that€of€the€trial€court.€òò€Gonzales€v.Ð L œ ÐAlman€Const.€Co.óó,€857€S.W.2d€42,€44„45€(Tenn.€Ct.€App.€1993)Ô#†X±XXX±f#ÔÔ‡X±XXX±Ôòòóó.€€Therefore,€we€must€decide€anewÐ 8 ˆ Ðif€the€movant€is€entitled€to€summary€judgment;€that€is,€whether€the€material€facts€are€not€in€disputeÐ $ t Ðand€conclusively€show€that€the€Attorney€General€is€entitled€to€judgment.Ô#†X±XXX±\#ÔÔ‡X±XXX±Ô€Ô#†X±XXX±œ#ÔÔ‡X±XXX±ÔBecause€summary€judgmentÐ  ` Ðð ðis€clearly€not€designed€to€serve€as€a€substitute€for€the€trial€of€genuine€and€material€factual€matters,ððÐ ü L  ÐòòByrdóó,€847€S.W.2d€atÔ#†X±XXX±ß#ÔÔ‡X±XXX±Ôòòóó€210,€we€must€first€determine€what€facts€are€undisputed€and€whether€anyÐ è 8  Ðdisputed€facts€are€material€to€determination€of€the€legal€issues€involved.Ô#†X±XXX±ë#ÔÐ Ô$  ÐÌà  àThis€determination€is€complicated€in€the€case€before€us€because€of€the€volume€of€documentsÐ ¬ü  Ðinvolved€and€because€of€general€objections€by€the€corporations€to€consideration€of€a€number€ofÐ ˜è  Ðdocuments€on€the€basis€they€are€not€properly€in€the€record.Ô‡X±XXX±Ô€€The€nature€of€these€objections€was€setÐ „Ô  Ðout€in€response€to€the€Attorney€Generalððs€statement€of€undisputed€facts€filed€pursuant€to€Tenn.€R.Ð pÀ ÐCiv.€P.€€56.03.׃ˆ×Ý ƒ#ÃÝòòÚ  Ú26Ú  ÚóóÝ  Ý×  ×€€€Ô#†X±XXX±#ÔÔ‡X±XXX±ÔCCFS€and€CCN€began€their€Response€and€Objections€to€the€Attorney€GeneralððsÐ \¬ ÐStatement€of€Undisputed€Facts€by€making€a€general€evidentiary€objection.€€This€objection€stated,€inÐ H˜ Ðpertinent€part:Ð 4„ ÐÌà8  àThis€objection€addresses€what€has€become€a€practice€of€the€Plaintiff€[AttorneyÐ  \ ÐGeneral]€which€is€at€odds€with€the€Tennessee€Rules€of€Evidence€and€TennesseeÐ øH Ðprecedent.€€On€or€about€February€23,€2001,€Plaintiff€submitted€its€Third€Notice€ofÐ ä4 ÐFiling€referencing€the€filing€of€nineteen€(19)€exhibits€identified€by€volume€andÐ Ð  Ðexhibit€number.€€These€exhibits€were€merely€attached€to€the€Third€Notice€with€noÐ ¼  Ðattempt€to€authenticate€or€otherwise€lay€a€foundation€for€their€admissibility€and€use.€Ð ¨ø ÐThereafter,€upon€application€for€summary€judgment€and€in€its€Statement€ofÐ ”ä ÐUndisputed€Facts,€however,€Plaintiff€cites€to€its€Third€Notice€of€Filing€over€120€timesÐ ° Ðas€if€the€documents€contained€therein€were€properly€before€this€Court.€€CherokeeÐ œì Ðobjects€to€this€naked€filing€and€use,€as€many€of€these€documents€are€inadmissible€onÐ ˆØ Ðthe€grounds€that€the€Plaintiff€has€failed€to€properly€authenticate€the€documents€andÐ tÄ Ðas€they€also€contain€inadmissible€hearsay.Ð`°Ð Ð  ÐÌà  àCCFS€and€CCN€argued€that€because€the€objectionable€exhibits€were€unauthenticated,€theÐ 8 ˆ Ðexhibits€were€not€properly€a€part€of€the€record€before€the€court€and€could€not€be€considered€on€aÐ $ t Ðmotion€for€summary€judgment.׃‰×Ý ƒ#ÃÝòòÚ  Ú27Ú  ÚóóÝ  Ý×  ×€€The€response€also€included€a€list€of€some€specific€exhibitsÐ  ` Ðsubmitted€with€the€first€Notice€of€Filing€which€the€corporations€asserted€should€be€inadmissible€forÐ ü L  Ðuse€in€deciding€summary€judgment.€€In€addition,€in€some€of€the€numbered€responses,€theÐ è 8  Ðcorporations€pointed€out€the€specific€document€being€challenged€and€the€basis€for€the€challenge.Ð Ô$  ÐÌà  àThe€Attorney€General€filed€a€reply€to€CCFSððs€and€CCNððs€response€and€asserted,€withÐ ¬ü  Ðreference€to€various€specific€responses,€that€the€corporations€had€not€complied€with€Tenn.€R.€Civ.Ð ˜è  ÐP.€56.03€by€not€making€specific€citations€to€the€record;€that€the€defendants€had€previously€admittedÐ „Ô  Ðsome€facts€in€their€verified€answers;€and€that€ð ðextraneous€statements€made€by€Defendants€areÐ pÀ Ðimmaterial.ðð€€In€addition,€the€Attorney€General€addressed€some€of€the€evidentiary€deficienciesÐ \¬ Ðalleged€by€the€corporations.€Ô#†X±XXX±w #ÔÔ‡X±XXX±ÔÐ H˜ ÐÌà  àOn€appeal,€CCFS€and€CCN€have€again€raised€their€objection€to€ð ðòònumerousóó€volumes€ofÐ  p Ðunauthenticated€documents€and€records,ðð€alleging€that€ð ðòò[s]ome€ofóó€these€documents€and€filings€failed€Ð  \ Ðto€meet€even€the€most€basic€evidentiary€rulesðð€and€to€ð ðòònumerousóóðð€affidavits€they€allege€were€notÐ øH Ðbased€on€personal€knowledge€and€contained€hearsay€and€other€inadmissible€evidence.׃ì×Ý ƒ#ÃÝòòÚ  Ú28Ú  ÚóóÝ  Ý×  ×€€They€alsoÐ ä4 Ðargue€that€because€the€trial€court€never€ruled€on€their€motions€to€strike€these€filings€and€because€theÐ Ð  Ðcourt€did€not€detail€its€findings,€CCFS€is€unsure€whether€the€trial€court€relied€on€this€inadmissible€Ð ¼  Ðevidence.€€If€it€did€so€rely,€they€assert,€such€reliance€was€error.Ô#†X±XXX±è#ÔÔ‡X±XXX±ÔÐ ¨ø ÐÌà  àIn€connection€with€his€motion€for€summary€judgment,€the€Attorney€General€filed€a€Tenn.€R.Ð €Ð ÐCiv.€P.€56.03€statement€containing€some€eighty„three€(83)€undisputed€facts.€€Approximately€half€ofÐ l¼ Ðthose€were€undisputed€by€the€corporations.€€CCFS€and€CNN€also€submitted€a€statement€ofÐ X ¨ Ðundisputed€facts€in€support€of€their€motion€for€summary€judgment.€€We€have€painstakingly€€reviewedÐ D!” Ðthese€statements,€the€objections€and€responses,€the€depositions,€affidavits€and€documents€or€recordsÐ ° Ðfiled€herein,€as€well€as€the€pleadings,€briefs€and€other€filings.€€In€our€review,€we€have€resolved€theÐ œì Ðquestions€of€admissibility,€where€necessary,€where€raised,€and€where€identifiable,€according€to€theÐ ˆØ Ðfollowing€general€principles.€€€òòSee€generallyóó€10A€òòWright,€Miller€&€Kaneóó,€òòFederal€PracticeÐ tÄ Ðand€Procedure:€Civil€ðð€2722€(3óód€ed.€1998).€Ô#†X±XXX±Ä#ÔÔ‡X±XXX±ÔÐ `° ÐÌà  àAs€part€of€the€moving€partyððs€burden,€it€must€present€facts€which,€if€undisputed,€demonstrateÐ 8 ˆ Ðits€entitlement€to€judgment€as€a€matter€of€law.€€Ô#†X±XXX± #ÔÔ‡X±XXX±ÔTypically,€the€moving€party€presents€facts€to€the€courtÐ $ t Ðin€the€form€of€affidavits,€authenticated€documents,€depositions,€and€other€properly-verified€factualÐ  ` Ðmatters€developed€through€the€discovery€process.€€Pleadings,€depositions,€answers€to€interrogatories,Ð ü L  Ðadmissions€on€file,€and€affidavits€are€specifically€allowed€to€be€considered€in€the€determination€ofÐ è 8  Ðwhether€a€genuine€issue€of€material€fact€exists€and€whether€the€moving€party€is€entitled€to€judgment.€Ð Ô$  ÐTenn.€R.€Civ.€P.€56.04.€€The€proffered€sworn-to€testimony€and/or€properly-authenticated€documentsÐ À  Ðmust€be€admissible€at€trial€before€they€can€be€considered€by€the€trial€court€on€summary€judgment.€Ð ¬ü  ÐòòByrdóó,€847€S.W.2d€at€215Ô#†X±XXX±#ÔÔ‡X±XXX±Ô.Ð ˜è  Ðà8  àÐ Ð Ð  Ðà  àThe€mere€submission€of€a€statement€of€undisputed€material€facts€by€the€moving€party€doesÐ pÀ Ðnot,€in€of€itself,€constitute€proof€of€the€facts€therein.€€However,€when€the€opposing€party€agrees€thatÐ \¬ Ða€fact€is€not€disputed€pursuant€to€Tenn.€R.€Civ.€P.€56.03,€the€court€may€rely€upon€that€admission€inÐ H˜ Ðdetermining€whether€a€genuine€issue€of€material€fact€exists.€€A€partyððs€sworn€pleading€based€uponÐ 4„ Ðpersonal€knowledge€can€constitute€an€admission.€€Similarly,€admissions€in€the€brief€of€the€partyÐ  p Ðopposing€the€motion€may€be€used€in€determining€that€there€is€no€genuine€issue€as€to€any€materialÐ  \ Ðfact.Ô#†X±XXX±’!#ÔÔ‡X±XXX±ÔÐ øH ÐÌà  àDocuments€must€generally€be€authenticated€by€and€attached€to€an€affidavit€or€deposition€thatÐ Ð  Ðmeets€the€requirements€of€Rule€56.€€Judicial,€legislative,€or€administrative€records€must€either€beÐ ¼  Ðcertified€or€properly€subject€to€the€judicial„notice€doctrine.Ô#†X±XXX±ã$#ÔÔ‡X±XXX±Ô€Business€records€are€admissible€ifÐ ¨ø Ðaccompanied€by€affidavit€or€certificate€from€the€records€custodian.€Some€records€are€self„Ð ”ä Ðauthenticating€pursuant€to€the€Tennessee€Rules€of€Evidence.€Ô#†X±XXX±n&#ÔÔ‡X±XXX±Ô€Uncertified€or€otherwise€inadmissibleÐ €Ð Ðmaterial€may€be€considered€if€not€challenged,€and€the€objection€must€be€timely€or€it€will€be€deemedÐ l¼ Ðto€have€been€waived.€Ô#†X±XXX±“'#ÔÔ‡X±XXX±ÔÐ X ¨ ÐÌÔ#†X±XXX±(#ÔÓ °X°œXÓÓ  ÓV.€€The€Evidence€Supporting€Summary€JudgmentÔ‡X±XXX±ÔÐ 0"€  ÐÓ)ÓÌà  àBased€upon€our€independent€review€of€the€record,€we€have€determined€that€the€followingÐ $X" Ðfacts€are€supported€by€admissible€evidence€and,€unless€specifically€noted€otherwise,€are€undisputed.Ô#†X±XXX±K)#ÔÔ‡X±XXX±ÔÐ ô$D # ÐA€dispute€as€to€the€existence€of€a€fact€or€an€inference€to€be€drawn€from€a€fact€does€not€precludeÐ à%0!$ Ðjudgment€if€resolution€of€that€dispute€is€not€necessary€to€a€determination€that€the€movant€is€entitledÐ Ì&"% Ðto€judgment€as€a€matter€of€law€on€the€undisputed€facts.€€We€have€earlier€set€out€the€legal€principlesÐ ¸'#& Ðapplicable€to€the€issues€before€us€regarding€the€operation€of€nonprofit€public€benefit€corporations.€Ð ¤(ô#' ÐThese€facts€must€be€considered€from€the€perspective€of€those€principles.€€€€Ô#†X±XXX±Ž*#ÔÔ‡X±XXX±Ô€€Ð )à$( ÐÌÐ h+¸&* Ðà@›› ìàA.€€The€CorporationsˆÐ ° ÐÌà  àA€full€understanding€of€the€significance€of€some€of€the€specific€facts€demonstrated€by€theÐ ˆØ Ðrecord€requires€some€discussion€of€the€larger€context.€€Mrs.€Madison€was€the€incorporator€of€bothÐ tÄ Ðcorporations.€€She€served€as€the€executive€director€throughout€the€corporate€existence.€€Her€husband,Ð `° ÐJohn€Madison,€Sr.€was€the€corporationsðð€accountant.€€Her€father,€William€Davis,€was€on€the€BoardÐ L œ Ðof€Directors€of€CCFS€for€a€number€of€years.׃n×Ý ƒ#ÃÝòòÚ  Ú29Ú  ÚóóÝ  Ý×  ×€€The€Board€also€included€Rev.€C.E.€Ware,€Mrs.Ð 8 ˆ ÐMadisonððs€pastor,€who€testified€that€Mr.€Madison,€as€presiding€elder€over€the€church€district,€wasÐ $ t ÐRev.€Wareððs€immediate€supervisor.€€Two€of€Mrs.€Madisonððs€children€were€employees€of€theÐ  ` Ðcorporation(s),€as€were€her€nephew,€her€stepson,€and€her€husbandððs€nephew.€€Ð ü L  ÐÌà  à€€Most€of€the€various€members€of€the€Board€had€some€association€with€a€childcare€provider:Ð Ô$  Ðas€owner,€manager,€director,€or€employeeÔ#†X±XXX±-#ÔÔ‡X±XXX±Ô.€€Mr.€and€Mrs.€Madison€operated€a€day€care€center,Ð À  Ðreferred€to€as€Little€People.€€Mr.€Davis€served€on€the€board€of€two€day€care€providers.€€Rev.€Joyner,Ð ¬ü  Ðalso€a€member€of€the€CCFS€Board€of€Directors€for€some€years,€was€pastor€of€a€church€whichÐ ˜è  Ðoperated€a€day€care€center.׃Š×Ý ƒ#ÃÝòòÚ  Ú30Ú  ÚóóÝ  Ý×  ×€€Rev.€Ware€was€the€chairman€of€the€board€of€directors€for€his€churchððsÐ „Ô  Ðday€care€center.€€Ida€Porter,€a€longtime€Board€member,€was€the€director€of€a€daycare€program.€PhyllisÐ pÀ ÐHerring,€Mrs.€Madisonððs€sister,€owned€a€child€care€center.€€As€a€broker€for€child€care€services,€CCFSÐ \¬ Ðprovided€parents€with€lists€of€available€child€care€centers€in€their€area.€€All€the€Board€members€whoÐ H˜ Ðgave€depositions€testified€that€CCFS€did€not€directly€refer€any€parents€to€their€child€care€centers;€theÐ 4„ Ðchoice€of€centers€was€made€by€the€parents.׃˜h×Ý ƒ#ÃÝòòÚ  Ú31Ú  ÚóóÝ  Ý×  ×Ð  p ÐÌà  àCCFS€regularly€did€business€with€its€officers€and€directors,€as€more€specifically€detailedÐ øH Ðbelow.€€The€record€is€replete€with€references€by€the€auditors€to€related€party€transactions.€€TheyÐ ä4 Ðincluded€purchasing€travel€arrangements€through€a€charter€travel€company€owned€and€operated€byÐ Ð  Ðâ âthe€church€of€which€Rev.€Joyner€is€the€pastor.׃‹ ×Ý ƒ#ÃÝòòÚ  Ú32Ú  ÚóóÝ  Ý×  ×€€In€addition,€CCFS€purchased€insurance€through€oneÐ ¼  ÐBoard€member׃”×Ý ƒ#ÃÝòòÚ  Ú33Ú  ÚóóÝ  Ý×  ×€and€has€done€a€significant€amount€of€business€with€an€equipment€rental€businessÐ ° Ðowned€or€managed€by€a€recently€appointed€Board€member.׃•d×Ý ƒ#ÃÝòòÚ  Ú34Ú  ÚóóÝ  Ý×  ×€€Ô#†X±XXX±[2#ÔÔ‡X±XXX±ÔAs€one€Board€member€expressed€it:€Ð œì Ðâ âÌà8  àIf€a€person€was€giving€his€time€to€the€Board€most€„€„€I€think€it€is€unkind€if€you€didnððtÐ tÄ Ðmake€purchases€from€them.€€If€they€were€giving€their€time€serving€on€the€volunteerÐ `° ÐBoard€I€think€it€would€be€unkind€if€they€had€a€business€and€you€needed€somethingÐ L œ Ðthey€had,€I€think€it€would€be€unkind€not€to€purchase€from€them.Ô#†X±XXX±§:#ÔÔ‡X±XXX±ÔÐ8 ˆÐ Ð  ÐÌà  àPerhaps€the€most€telling€description€of€how€the€corporations€operated€came€from€longtimeÐ  ` ÐBoard€member,€Mr.€Davis,€as€he€expressed€his€view€of€CCFS€while€testifying€about€his€approval€ofÐ ü L  Ða€particular€transaction:Ð è 8  ÐÌà8  àA.€€Let€me€say€this.€€As€a€Board€member€I€did€not€know€whether€we€were€operatingÐ À  Ðdirectly€for€Cherokee€[CCFS]€or€directly€for€her€[Mrs.€Madison],€I€didnððt€understandÐ ¬ü  Ðthat.€Ð˜è Ð Ð  ÐÌà8  àQ.€€Okay.€So€during€Board€meetings€it€was€not€necessarily€clear€whether€you€wereÐ pÀ Ðoperating€on€behalf€of€the€corporation€or€operating€on€behalf€of€your€daughter?Ð\¬Ð Ð  ÐÌà8  àA.€€Thatððs€right.Ð4„Ð Ð  Ðà8  àÐ Ð Ð  Ðà8  àQ.€€Why€did€you€fail€to€understand€that€distinction?Ð \Ð Ð  ÐÌà8  àA.€€Because€I€thought€it€was€all€one.Ðä4Ð Ð  ÐÌà8  àQ.€€Okay.€€As€a€Board€member€you€thought€that€the€financial€affairs€of€theÐ ¼  Ðcorporation€and€the€financial€affairs€of€your€daughter€were€the€same?ШøÐ Ð  ÐÌà8  àA.€€Yes.ЀÐÐ Ð  ÐÌÌÌÐ 0"€  ÐÔ#†X±XXX±²<#ÔÔ‡X±XXX±ÔÓ  ÓB.€€Revenue€of€the€CorporationsÐ ° ÐÌÓaBÓà  àAccording€to€a€report€from€the€independent€auditors,€revenues€received€by€CCFS€for€the€pastÐ ˆØ Ðfew€fiscal€years׃z×Ý ƒ#ÃÝòòÚ  Ú35Ú  ÚóóÝ  Ý×  ×€were:Ð tÄ ÐÌà  àFY€1998:à0 ¸ àTotal€Revenues€à0À¸ (#¸ (#àà0À(#À(#à$3,081,827ÐL œ(#(# Ðà  àà ` àà ¸ àFrom€DHS€contracts׃xd×Ý ƒ#ÃÝòòÚ  Ú36Ú  ÚóóÝ  Ý×  ×à0  à$3,055,004Ð8 ˆ(#(# Ðà  àà ` àà ¸ àInterest€Incomeà0 À àà0À(#À(#à$€€€€€17,147Ð$ t(#(# Ðà  àà ` àà ¸ àOther€Incomeà0 h àà0Àh(#h(#àà0À(#À(#à$€€€€€€€9,676Ð `(#(# ÐÌà  àÔ#†X±XXX±BB#ÔÔ‡X±XXX±ÔFY€1999:à0 ¸ àTotal€Revenuesà0À¸ (#¸ (#àà0À(#À(#à$6,915,310Ðè 8 (#(# Ðà  àà ` àà ¸ àFrom€DHS€contractsà0 À àà0À(#À(#à$6,869,465ÐÔ$ (#(# Ðà  àà ` àà ¸ àInterest€Incomeà0 À àà0À(#À(#à$€€€€€13,310Ô#†X±XXX±+F#ÔÔ‡X±XXX±ÔÐÀ (#(# Ðà  àà ` àà ¸ àOther€Income€(CDAÐ ¬ü  Ðà  àà ` àà ¸ à€€€Workshop€and€TrainingÐ ˜è  Ðà  àà ` àà ¸ à€€€€Fees)à0 h àà0Àh(#h(#àà0À(#À(#à$€€€€€26,448Ð„Ô (#(# Ðà  àà ` àà ¸ àOther€Income€(Unidentified)à0  à$€€€€€€€6,087ÐpÀ(#(# ÐÌà  àFY€2000à0 ¸ àTotal€Revenuesà0À¸ (#¸ (#àà0À(#À(#à$4,979,916.12ÐH˜(#(# Ðà  àà ` àà ¸ àFrom€DHS€contracts׃yð×Ý ƒ#ÃÝòòÚ  Ú37Ú  ÚóóÝ  Ý×  ×à0  à$4,910,477.08Ð4„(#(# Ðà  àà ` àà ¸ àInterest€Incomeà0 À àà0À(#À(#à$€€€€€11,483.82Ð p(#(# Ðà  àà ` àà ¸ àCDA€Workshop€&Ð  \ Ðà  àà ` àà ¸ à€€€€Training€Feesà0 À àà0À(#À(#à$€€€€€€56,042.60ÐøH(#(# Ðà  àà ` àà ¸ àOther€Income€(Unidentified)à0  à$€€€€€€€€1,912.62Ðä4(#(# ÐÌà  àFilings€by€CCFS€with€the€IRS׃|×Ý ƒ#ÃÝòòÚ  Ú38Ú  ÚóóÝ  Ý×  ×€reflect€the€following:Ð ¼  ÐÌà  àà ` àà ¸ àà  àà h àà À àà  àà p àà È à(Charitable)Ð ”ä Ðà  àFiscal€Yearà0 ¸ àTotal€Revenueà0À¸ (#¸ (#àTotal€Expensesà0ÈÀ(#À(#àContributionsаÈ(#È(# ÐÌà  à1995à0 ` àà0¸ ` (#` (#à$1,143,688à0h¸ (#¸ (#àà0Àh(#h(#à$€€€966,648à0pÀ(#À(#àà0Èp(#p(#à$€€1,218ЈØÈ(#È(# Ðà  à1996à0 ` àà0¸ ` (#` (#à$1,576,381à0h¸ (#¸ (#àà0Àh(#h(#à$1,404,184à0pÀ(#À(#àà0Èp(#p(#à$€15,795ÐtÄÈ(#È(# Ðà  à1997à0 ` àà0¸ ` (#` (#à$2,231,860à0h¸ (#¸ (#àà0Àh(#h(#à$2,159,181à0pÀ(#À(#àà0Èp(#p(#à$€11,669Ð`°È(#È(# Ðà  à1998à0 ` àà0¸ ` (#` (#à$3,081,827à0h¸ (#¸ (#àà0Àh(#h(#à$2,518,843à0pÀ(#À(#àà0Èp(#p(#à$€36,926ÐL œÈ(#È(# Ðà  à1999à0 ` àà0¸ ` (#` (#à$6,915,310à0h¸ (#¸ (#àà0Àh(#h(#à$6,692,649à0pÀ(#À(#àà0Èp(#p(#à$€44,779Ð8 ˆÈ(#È(# ÐÔ#†X±XXX±¾G#ÔÔ‡X±XXX±ÔÌà  àThe€board€of€directors€has€been€proud€of€Ô_ÔCCFSÔ_Ôððs€ð ðfinancialðð€success,€rewarding€keyÐ  ` Ðemployees,€especially€Mrs.€Madison,€for€that€success.€€The€corporationsðð€brief€states€that€CCFSÐ ü L  Ðgenerated€revenue€in€excess€of€expenses€in€a€number€of€years,€specifically€in€each€of€the€last€fourÐ è 8  Ðaudited€years€as€follows:Ð Ô$  ÐÌà  àà ` à1996à0 ¸ àà0¸ (#¸ (#àà0h(#(#à$172,197Ьü h(#h(# Ðà  àà ` à1997à0 ¸ àà0¸ (#¸ (#àà0h(#(#à$€72,679Иè h(#h(# Ðà  àà ` à1998à0 ¸ àà0¸ (#¸ (#àà0h(#(#à$562,984Ð„Ô h(#h(# Ðà  àà ` à1999à0 ¸ àà0¸ (#¸ (#àà0h(#(#à$222,661ÐpÀh(#h(# ÐÌà  àThese€figures€indicate€the€ð ðprofitðð€left€after€the€corporation€made€charitable€contributions€andÐ H˜ Ðpaid€operating€expenses.€€While€the€contributions€were€small,€many€of€the€operating€expenses€were€Ð 4„ Ðsignificant€and€were€paid€to€Mrs.€Madison,€her€family,€entities€in€which€she€had€an€interest,€or€othersÐ  p Ðclosely€associated€with€the€corporation.Ð  \ ÐÌÓ  ÓC.€€Compensation€to€Mrs.€MadisonÐ ä4 ÐÓ©WÓÌà  àIn€her€position€as€executive€director,€Mrs.€Madison€was€paid€an€annual€salary€as€well€asÐ ¼  Ðoccasional€ð ðadditional€compensation.ðð€€According€to€the€corporations,€Mrs.€Madison€received€theÐ ¨ø Ðfollowing€compensation:Ð ”ä ÐÌà  àà ` àà ¸ à1994€„€95à0 h à$100,000Ðl¼h(#h(# Ðà  àà ` àà ¸ à1995€„€96à0 h à$100,000ÐX ¨h(#h(# Ðà  àà ` àà ¸ à1996€„€97à0 h à$165,508ÐD!”h(#h(# Ðà  àà ` àà ¸ à1997€„€98à0 h à$100,000Ð0"€ h(#h(# Ðà  àà ` àà ¸ à1998€„€99à0 h à$125,000Ð#l!h(#h(# Ðà  àà ` àà ¸ à1999€„€2000à0 h à$125,000Ð$X"h(#h(# ÐÌà  àThese€figures€coincide€with€the€returns€filed€with€the€IRS,€except€for€FY€1997„98,€whereinÐ à%0!$ Ðthe€corporation€reported€to€the€IRS€that€Mrs.€Madisonððs€compensation€was€$177,000.€€Ô#†X±XXX±:R#ÔAccordingÐ Ì&"% Ðto€CCFS,€Mrs.€Madison€had€ð ðcontinuouslyðð€received€salary€increases€over€the€term€of€herÐ ¸'#& Ðemployment€reaching€a€salary€of€$125,000€ð ðby€the€year€2000.ðð€€The€compensation€for€1996„97€is,Ð ¤(ô#' Ðobviously,€inconsistent€with€this€statement€unless€that€amount€includes€compensation€additional€toÐ )à$( Ðher€salary.€€That€appears€to€be€the€case.€€CCFS€has€stated€that€Mrs.€Madison€ð ðhas€received€additionalÐ |*Ì%) Ðcompensation€from€time€to€time€to€compensate€her€for€the€enormous€success€of€the€program,€bothÐ h+¸&* Ðfinancially€and€programmaticallyðð€and,€ð ðat€least€once€during€her€tenure,€the€Board€of€Directors€votedÐ ° Ðto€give€her€a€$50,000€bonus.ðð€€€As€shown€below,€corporate€records€indicate€she€was€given€a€$50,000Ð œì Ðbonus€a€number€of€times.Ð ˆØ ÐÌà  àOne€such€$50,000€bonus€may€account€for€the€1996„97€compensation€figure€reported€by€theÐ `° Ðcorporations.€€That€payment,€however,€has€a€long€explanation.€€The€Attorney€General€alleged€thatÐ L œ Ðin€November€of€1994,€CCFS€loaned€Mrs.€Madison€or€Affordable€Homes,€a€company€owned€by€theÐ 8 ˆ ÐMadisons,€$50,000.€€In€response€to€that€allegation,€CCFS€stated,€ð ðthis€$50,000€was€improperlyÐ $ t Ðrecorded€as€a€loan€and€should€have€been€recorded€as€a€bonus.ðð׃‘×Ý ƒ#ÃÝòòÚ  Ú39Ú  ÚóóÝ  Ý×  ×€€The€statement€that€this€amount€wasÐ  ` Ðrecorded€as€a€loan€is€verified€by€the€record.€€The€independent€auditorððs€report€on€audited€financialÐ ü L  Ðstatements€and€supplemental€information€on€CCFS€for€the€fiscal€year€ending€June€30,€1996,Ô_Ô׃{Ü×Ý ƒ#ÃÝòòÚ  Ú40Ú  ÚóóÝ  Ý×  ×Ô_ÔÐ è 8  Ðincludes€the€following€statement:Ð Ô$  ÐÌà8  àIn€November,€1994,€Cherokee€loaned€$50,000€to€a€company,€[of]€which€CherokeeððsÐ ¬ü  Ðexecutive€director€is€an€agent.€€No€repayment€terms€have€been€established.€€At€JuneÐ ˜è  Ð30,€1996,€the€outstanding€balance€was€$53,508€which€includes€$3,508€of€interest€atÐ „Ô  Ð8.25€percent.ÐpÀÐ Ð  ÐÌà  àThe€auditorððs€Findings€and€Recommendations€accompanying€the€audit€report€for€that€year€Ð H˜ Ðincluded€the€following:Ð 4„ ÐÌà8  àIn€November,€1994,€Cherokee€loaned€an€affiliate€company,€Affordable€Homes,Ð  \ Ð$50,000.€€At€June€30,€1996,€the€entire€loan€plus€interest€remains€outstanding€and€noÐ øH Ðrepayment€provisions€have€been€established.Ðä4Ð Ð  ÐÌà8  àRecommendationм Ð Ð  ÐÌà8  àIf€loans€are€going€to€be€made,€credit€procedures€and€a€payment€plan€need€to€beÐ ”ä Ðestablished€and€provisions€for€examining€the€Ô_ÔcollectabilityÔ_Ô€should€be€implemented.ЀÐÐ Ð  ÐÌà8  àManagement€ResponseÐX ¨Ð Ð  ÐÌà8  àò òWe€concuró ó.€€The€$50,000€plus€interest€will€be€repaid€immediately.€€We€will€refrainÐ 0"€  Ðfrom€all€future€transactions€of€this€nature.Ð #p!Ð Ð  Ðâ âÐ  $\" Ðà  àDespite€managementððs€response€acknowledging€the€loan,€it€was€later€decided€that€the€ð ðloanððÐ ° Ðâ âdesignation€was€inaccurate.€€The€auditors€corrected€the€entry€a€year€later€as€explained€in€theÐ œì ÐEngagement€Memo€of€June€30,€1997:Ð ˆØ ÐÌà8  àWe€are€aware€that€the€following€accounting€error€has€occurred.€€A€bonus€wasÐ `° Ðapproved€for€Ms.€Madison€in€1994€for€$50,000.€€This€bonus€was€never€paid€asÐ L œ Ðpayroll€but€instead€wired€to€Affordable€Homes,€owned€by€Ms.€Madison.€€ThisÐ 8 ˆ Ðtreatment€of€the€bonus€is€inappropriate€and€as€of€the€1996€audit€the€$50,000€plusÐ $ t Ðinterest€was€recorded€as€a€receivable€from€Affordable€Homes.Ð `Ð Ð  ÐÌà8  àWe€approved€the€following€transactions€to€correct€the€error.€€Affordable€HomesÐ è 8  Ðreimbursed€Cherokee€for€$50,000€plus€interest.€€Cherokee€in€turn€paid€Ms.€MadisonÐ Ô$  Ðher€bonus€of€the€same€amount.€€The€result€of€this€transaction€will€eliminate€theÐ À  Ðreceivable€and€pay€the€bonus€through€payroll€as€it€should€have€occurred€in€1994.Ьü Ð Ð  ÐÌà  àBecause€Mrs.€Madisonððs€reported€compensation€for€FY€96„97€was€$165,508,€it€would€appearÐ „Ô  Ðthat€her€bonus€included€the€interest€previously€calculated€as€due€from€the€ð ðloanðð€of€1994.€€TheÐ pÀ Ðresolution€of€the€issue€as€explained€by€the€auditor€indicates€that€Mrs.€Madison€received€a€$50,000Ð \¬ Ðbonus€in€FY€96„97€that€had€actually€been€awarded€her€in€1994.€€Ð H˜ ÐÌà  àIn€addition€to€that€bonus,€CCFS€appears€to€have€awarded€her€other€bonuses€of€$50,000.€€TheÐ  p Ðminutes€of€a€special€meeting€of€the€Board€of€Directors€of€CCFS€held€October€4,€2000,׃×Ý ƒ#ÃÝòòÚ  Ú41Ú  ÚóóÝ  Ý×  ×€indicate€theÐ  \ ÐBoard€was€briefed€on€the€complaint€filed€by€the€Attorney€General€starting€this€litigation.€€In€aÐ øH Ðdiscussion€of€the€Boardððs€review€of€some€prior€corporate€actions,€the€minutes€include€the€following:Ð ä4 ÐÌà8  àThe€Board€also€reviewed€certain€bonuses€paid€by€prior€Boards.€€Cherokee€paidÐ ¼  ÐWillieAnn€a€$50,000€bonus€in€Fiscal€Year€96.€€This€was€after€the€CorporationÐ ¨ø Ðexperienced€its€two€best€years€financially,€$286,767€in€1995€and€$222,197€in€1996.€Ð ”ä ÐBased€on€the€financial€performance€of€the€Corporation,€the€Board€determined€aÐ €Ð Ð$50,000€bonus€was€not€unreasonable.Ðl¼Ð Ð  ÐÌà  àAn€addendum€to€the€minutes€of€the€December€18,€1996€Board€Minutes€indicate€that€theÐ D!” ÐBoard€recommended€that€Mrs.€Madison€be€given€(at€the€Christmas€party,€thus€in€FY€96„97)€ð ðtheÐ 0"€  Ðsame€bonus€amount€she€had€received€the€previous€year€in€the€amount€of€$50,000.ðð€€An€attachedÐ #l! Ðschedule€of€agency€personnel€salaries€indicated€Mrs.€Madisonððs€salary€for€1995„1996€was€$100,000.€Ð $X" ÐThese€documents,€therefore€indicate€Mrs.€Madison€received€a€salary€of€$100,000€and€a€$50,000Ð ô$D # Ðbonus€in€FY€1995„96€and€in€FY€1996„97.€€Since€she€also€received€the€delayed€1994€bonus€plusÐ ° Ðinterest€in€FY€1996„97,€it€is€difficult€to€reconcile€these€numbers€with€the€amounts€provided€by€CCFSÐ œì Ðas€her€annual€compensation.€€Other€documents€indicate€Board€approval€of€a€bonus€for€Mrs.€MadisonÐ ˆØ Ðof€$50,000€on€December€17,€1998.€€Thus,€the€records€reflect€Mrs.€Madison€was€given€a€$50,000Ð tÄ Ðbonus€several€times.€€Those€records€also€indicate€that€CCFS€regularly€gave€bonuses€to€employeesÐ `° Ðat€Christmas.€Ð L œ ÐÌà  àRev.€Ware€testified€that€CCFS€only€paid€bonuses€once€and€he€did€not€know€who€receivedÐ $ t Ðthem.€€He€stated€the€Board€entrusted€such€matters€to€Mrs.€Madison€and€would€not€have€questionedÐ  ` Ða€recommendation€by€her€to€pay€bonuses€to€employees.€€Ida€Porter€testified€she€never€had€occasionÐ ü L  Ðas€a€member€of€the€Board€to€vote€on€bonuses€for€employees,€including€Mrs.€Madison.€€She€wasÐ è 8  Ðunaware€that€any€employees€had€received€bonuses.Ð Ô$  ÐÌÓ  ÓD.€Compensation€or€Distributions€to€Corporate€InsidersÐ ¬ü  ÐÓ{ÓÌà  àIn€addition€to€Mrs.€Madison,€the€corporations€also€compensated€her€husband,€John€Madison,Ð „Ô  ÐSr.,€a€certified€public€accountant,€who€performed€accounting€services€for€CCFS€since€1990€and,€afterÐ pÀ Ðits€creation,€CCN.€€The€independent€auditor€testified€by€affidavit€that€Mr.€Madisonððs€accounting€firmÐ \¬ Ðperformed€bookkeeping€functions€for€the€corporations€year€round€and€had€at€least€one€staff€personÐ H˜ Ðwho€devoted€a€substantial€amount€of€time€to€these€functions.€€Mr.€Madison€was€paid€$6,000€perÐ 4„ Ðmonth€by€the€corporations.Ð  p ÐÔ‡X±XXX±ÔÌà  àAccording€to€CCFSððs€990€filings,€CCFS€paid€as€compensation€to€officers€and€directors€theÐ øH Ðfollowing:€€In€FY€95,€$100,000€(all€to€Mrs.€Madison);€in€FY€96,€$150,000€(of€which€$100,000€wasÐ ä4 Ðpaid€to€Mrs.€Madison);€in€FY€97,€$165,508€(all€to€Mrs.€Madison);€in€FY€98,€$239,402€(of€whichÐ Ð  Ð$177,000€was€paid€to€Mrs.€Madison);€in€FY€99,€$200,000€(of€which€Ô#†X±XXX±~#ÔÔ‡X±XXX±Ô$125,000€was€paid€to€Mrs.Ð ¼  ÐMadison).€Each€of€these€forms€listed€by€name€other€corporate€officers€and€stated€that€those€officersÐ ¨ø Ðreceived€no€compensation.׃×Ý ƒ#ÃÝòòÚ  Ú42Ú  ÚóóÝ  Ý×  ×€€The€implication€is€that€the€difference€was€paid€to€directors,€but€theÐ ”ä Ðdifference€is€unexplained€in€the€record€before€us.Ð €Ð ÐÔ#†X±XXX±é#ÔÌà  àCCFS€made€interest„free€loans€to€several€employees.׃~Ü×Ý ƒ#ÃÝòòÚ  Ú43Ú  ÚóóÝ  Ý×  ×€€Most€significant€among€those€wasÐ X ¨ Ða€loan€of€$10,396.15€to€John€Madison,€Jr.,€the€son€of€John€Madison,€Sr.€and€the€stepson€of€Mrs.Ð D!” ÐMadison.€€He€was€an€employee€of€CCFS€at€the€time€of€the€loan.€€According€to€the€independentÐ 0"€  Ðauditor,€CCFSððs€books€reflected€this€as€a€ð ðno€interestðð€loan€made€May€18,€1999.€€The€auditors€listedÐ #l! Ðthis€loan,€describing€it€as€a€related€party€loan,€on€its€FY€99€report€as€a€ð ðreportable€conditionðð€Ð $X" Ðbecause€IRS€regulations€require€that€interest€be€charged€on€a€loan€exceeding€$10,000.€€The€MadisonsÐ ô$D # Ðtestified€that€the€loan€was€made€to€John€Madison,€Jr.€to€pay€off€a€student€loan€and€to€forecloseÐ à%0!$ Ðgarnishment€proceedings.€€CCFS€does€not€dispute€the€facts€surrounding€this€loan,€but€states€thatÐ ° Ðinterest€including€retroactive€interest€ð ðwas€eventually€chargedðð€to€John€Madison,€Jr.€and€that€heÐ œì Ðrepaid€the€loan€in€full€including€all€interest.Ð ˆØ ÐÌà  àThe€Attorney€General€has€pointed€out€a€number€of€expenditures€made€by€the€corporationsÐ `° Ðwhich€he€alleges€involve€substantial€benefit€to€the€Madisons,€their€family,€and€other€personsÐ L œ Ðemployed€by€or€controlling€the€corporations,€including€primarily€personal€expenses.€€These€includeÐ 8 ˆ Ðtravel€expenses,€particularly€trips€to€London€and€Hawaii.€€In€specific,€the€Attorney€GeneralððsÐ $ t Ðstatement€was,€ð ðMadison€paid€her€personal€credit€card€with€corporate€money.€€These€bills€amountedÐ  ` Ðto€and€included€foreign€trips.ðð€€The€corporations€disputed€this€statement€of€facts€and€challenged€theÐ ü L  Ðdocuments€relied€upon€as€unauthenticated€and€inadmissible.€€In€their€brief,€the€corporations€state:€Ð è 8  ÐÌà8  àThe€Attorney€General€also€complained€of€trips€taken€by€the€executive€director€andÐ À  Ðher€family€and€purchases€made€on€these€trips.€€The€independent€auditors€had€alreadyÐ ¬ü  Ðquestioned€these€amounts,€however,€and€required€inclusion€of€these€amounts€asÐ ˜è  Ðpayroll€and€compensation€expenses,€thus€requiring€the€individuals€to€pay€income€taxÐ „Ô  Ðon€the€expenditures.ÐpÀÐ Ð  ÐÌà  àAlthough€not€at€the€citation€to€the€record€provided€by€the€corporations,€we€have€foundÐ H˜ Ðdocumentation€for€this€statement.€€In€an€Engagement€Memo€dated€June€30,€1999,€the€independentÐ 4„ Ðauditor€noted€that€there€had€been€several€instances€where€CCFS€paid€for€personal€expenses€or€tripsÐ  p Ðthat€had€no€business€purpose.€The€auditor€fixed€this€problem€by€adding€the€value€of€the€personalÐ  \ Ðexpenses€to€the€salary€or€compensation€of€the€employee€who€received€the€benefit.€€The€workingÐ øH Ðpapers€and€other€records€indicate€that€CCFS€paid€for€travel€to€Hawaii€in€August€of€1997€by€Mrs.Ð ä4 ÐMadison;€her€assistant,€Ô_ÔDilworthÔ_Ô€Weathers;€Cedric€Herring,€an€employee€and€Mrs.€MadisonððsÐ Ð  Ðnephew;€Cris€Daugherty€and€Chaun€Daugherty,€Mrs.€Madisonððs€children€and€employees€of€CCFS.€Ð ¼  ÐCCFS€also€paid€for€personal€travel€in€January,€1998,€for€Mrs.€Madison;€her€assistant€Ô_ÔDilworthÔ_ÔÐ ¨ø ÐWeathers;€Cedric€Herring;€Cris€Daugherty;€Ô_ÔChaunÔ_Ô€Daugherty;€and€William€Davis,€Mrs.€MadisonððsÐ ”ä Ðfather.€€Again,€in€May€of€1998,€Mrs.€Madison,€Dilworth€Weathers,€Cedric€Herring,€Cris€Daugherty,Ð €Ð ÐYolanda€Herring,€and€William€Davis€traveled€to€London,€and€CCFS€paid€those€expenses,€evenÐ l¼ Ðthough€it€was€not€a€business€trip,€for€a€total€cost€of€$24,109.€€The€worksheets€indicate€that€the€sevenÐ X ¨ Ðemployees€received€a€bonus€in€the€amount€of€$3,971.10,€which€was€to€be€added€to€their€W„2s,€andÐ D!” ÐMr.€Davis,€not€an€employee€but€a€board€member,€would€receive€a€W„2€in€the€same€amount.Ð 0"€  ÐÌà  àEven€though€the€individuals€may€have€been€required€to€report€this€corporate€benefit€asÐ $X" Ðincome€and€pay€taxes€on€it,€it€is€clear€that€these€personal€expenditures,€unrelated€to€any€business€orÐ ô$D # Ðcharitable€purpose,€were€originally€and€finally€paid€for€by€the€corporation.€€The€individuals€were€notÐ à%0!$ Ðrequired€to€reimburse€the€nonprofit€public€benefit€corporation.׃Œ×Ý ƒ#ÃÝòòÚ  Ú44Ú  ÚóóÝ  Ý×  ×€€There€was€no€control€over€theÐ Ì&"% Ðâ âoriginal€expenditure€to€prevent€the€corporation€from€paying€for€personal€expenses.€€It€would€appearÐ ¸'#& ÐCCFS€paid€for€whatever€Mrs.€Madison€directed,€and€the€accountant,€her€husband,€issued€the€checksÐ ° Ðwithout€question.Ð œì Ðâ âÌÓ  ÓE.€€Real€Estate€LeasingÐ tÄ ÐÓQ–ÓÌà  àDuring€the€life€of€these€corporations,€they€used€and€operated€out€of€properties€owned€by€Mrs.Ð L œ ÐMadison€or€the€Madisons.€€Mrs.€Madison€held€a€real€estate€license€since€1988€and€changed€affiliateÐ 8 ˆ Ðbrokers€several€times.€€She€used€entities€entitled€Affordable€Homes€and/or€Affordable€HomesÐ $ t ÐManagement,€Inc.€to€operate€her€rental€property€and/or€to€collect€rent€therefrom.׃‚×Ý ƒ#ÃÝòòÚ  Ú45Ú  ÚóóÝ  Ý×  ×€€CCFS,€andÐ  ` Ðeventually€CCN,€entered€into€lease€arrangements€with€these€and€other€entities€for€real€propertyÐ ü L  Ðowned€by€the€Madisons.€€As€Executive€Director€of€CCFS€and€CCN,€Mrs.€Madison€was€responsibleÐ è 8  Ðfor€signing€and€executing€leases€on€behalf€of€the€corporations.€€CCFS€has€used€various€properties€Ð Ô$  Ðin€Memphis€owned€by€the€Madisons,€including€the€following:€(1)€1647€Semmes;€(2)€2414€LamarÐ À  ÐAvenue;€(3)€4280€Cherry€Center€Drive€(ð ðCherry€Centerðð);€and€(4)€2771€Colony€Park€Drive€(ð ðColonyÐ ¬ü  ÐParkðð).€€The€most€significant€transactions€involve€two€of€these€properties:€Cherry€Center€and€ColonyÐ ˜è  ÐPark.Ð „Ô  ÐÌÓ  Ó(1)€Cherry€CenterÐ \¬ ÐÓ¢›ÓÌà  à€€The€principal€place€of€business€for€CCFS€has€been€Cherry€Center€since€1995.€€CCN€usedÐ 4„ Ðthe€same€location€as€its€principal€office€upon€its€inception.€€The€minutes€of€a€March€17,€1995€BoardÐ  p Ðmeeting€indicate€that€Mrs.€Madison€informed€the€Board€of€the€ð ðprospectðð€of€moving€the€main€officeÐ  \ Ðof€CCFS€to€another€location€due€to€the€need€for€additional€space.€€She€informed€the€Board€the€newÐ øH Ðlocation€would€provide€approximately€three€times€the€space€and€the€rent€would€be€approximatelyÐ ä4 Ðthree€times€the€amount€then€paid.€€The€Board€approved€the€move.Ð Ð  ÐÌà  àShortly€after€this€meeting,€in€April€of€1995,€the€Madisons€bought€Cherry€Center,€anÐ ¨ø Ðapproximately€9,700€square€foot€building,€for€$275,668.€€Less€that€two€weeks€later,€CCFS€enteredÐ ”ä Ðinto€a€five„year€lease€for€the€building€beginning€on€May€1,€1995,€and€ending€on€June€30,€2000.€€TheÐ €Ð Ðlease€provided€for€annual€rent€in€the€amount€of€$49,932.׃„T×Ý ƒ#ÃÝòòÚ  Ú46Ú  ÚóóÝ  Ý×  ×€€The€Lessor€was€listed€as€Lew€Harris€&Ð l¼ ÐAssociates,€a€real€estate€brokerage€firm€with€whom€Mrs.€Madison€was€affiliated.€€Mrs.€MadisonÐ X ¨ Ðsigned€the€lease€on€behalf€of€CCFS€as€lessee.Ð D!” ÐÌà  àBetween€July€1,€1995,€and€June€30,€1996,€the€Cherry€Center€lease€was€renegotiated.€€The€fiveÐ #l! Ðyear€term€remained,€except€it€was€set€to€run€from€July€1,€1995,€through€June€30,€2000.€€The€newÐ $X" Ðlease€provided€for€annual€rent€of€$72,000.׃ƒà×Ý ƒ#ÃÝòòÚ  Ú47Ú  ÚóóÝ  Ý×  ×€€Again,€the€lessor€was€Lew€Harris€&€Associates,€andÐ ô$D # ÐMrs.€Madison€signed€on€behalf€of€the€lessee.€€The€rent€increase€was€retroactive.Ð à%0!$ ÐÐ Ì&"% Ðà  àThe€lease€for€the€Cherry€Center€office€space€was€renegotiated€a€second€time€prior€to€itsÐ ° Ðexpiration.€€The€new€renegotiated€lease€was€between€CCFS€and€Affordable€Homes€a/k/a€AffordableÐ œì ÐProperties€Management.€€Mrs.€Madison€signed€for€the€lessee;€no€signature€appears€for€the€lessor.€Ð ˆØ ÐThe€lease€term€was€from€July€1,€1998,€to€June€30,€2000,€and€reflected€an€increase€in€the€per€squareÐ tÄ Ðfoot€rental€rate€as€well€as€the€calculated€square€footage€of€the€building.€€Although€the€building€onlyÐ `° Ðhad€approximately€9,700׃‡×Ý ƒ#ÃÝòòÚ  Ú48Ú  ÚóóÝ  Ý×  ×€square€feet,€the€lease€reflects€that€CCFS€leased€20,000€square€feet.€€€TheÐ L œ Ðchanges€resulted€in€an€annual€rent€increase€from€$72,000€to€$210,000.€Ð 8 ˆ ÐÌà  àThree€members€of€the€Board€of€Directors׃…T×Ý ƒ#ÃÝòòÚ  Ú49Ú  ÚóóÝ  Ý×  ×€approved€a€resolution€dated€March€22,€1999,Ð  ` Ðauthorizing€the€payment€of€ð ðprorated€back€rentðð€for€the€contract€period€on€the€Cherry€Center€space.€Ð ü L  ÐThe€resolution€indicates€that€$228,000€had€already€been€paid€($6,000€per€month€x€38€months).€€AÐ è 8  Ðcalculation€reflected€ð ðwhat€would€have€been€paidðð€by€multiplying€the€38€months€by€the€$17,500€perÐ Ô$  Ðmonth€rental€in€the€newly€renegotiated€lease,€for€a€total€of€$665,000.€€The€ð ðWhat€We€Oweðð€columnÐ À  Ðcalculated€the€difference€as€$437,000.€€Accordingly,€Affordable€Homes€received€a€payment€ofÐ ¬ü  Ð$437,000€for€back€rent€not€due,€based€upon€rental€rates€per€square€foot€not€in€effect€during€the€38Ð ˜è  Ðmonths€in€question,€and€based€upon€a€square€footage€estimate€which€was€not€occupied€by€CCFSÐ „Ô  Ðduring€that€38€months.€€Under€the€second€renegotiated€lease€and€the€ð ðpro€rated€back€rentðð€resolution,Ð pÀ Ðthe€Madisons€would€have€received€$1,085,000€for€the€five€year€lease€from€May,€1995€through€JuneÐ \¬ Ð30,€2000.€Ð H˜ ÐÌà  àOn€May€29,€2000,€a€Memphis€newspaper,€òòThe€Commercial€Appealóó,€publicly€disclosed€thatÐ  p Ðthe€square€footage€originally€reported€to€be€in€the€building€at€Cherry€Center€was€overstated.€€Mrs.Ð  \ ÐMadison€then€sent€a€letter€to€DHS€purporting€to€inform€DHS€of€a€rent€miscalculation€at€CherryÐ øH ÐCenter€because€the€actual€square€footage€at€Cherry€Center€was€different€from€that€stated€in€the€lease.€Ð ä4 ÐAt€this€point€in€time,€CCFS€was€operating€under€the€reimbursement€contract€and€had€been€receivingÐ Ð  Ðpayments€from€DHS€based,€in€part,€on€the€rental€paid€for€the€incorrect€square€footage.€€Mrs.€MadisonÐ ¼  Ðstated€that€she€and€the€Board€members€of€CCFS€had€already€negotiated€a€new€rental€agreement€withÐ ¨ø Ðtheir€lessor€(who€was,€of€course,€the€Madisons).€€DHS€was€already€aware€of€the€square€footage€Ð ”ä Ðmiscalculation.€€CCFS€subsequently€paid€$50,000€back€to€DHS€for€amounts€received€as€a€result€ofÐ €Ð Ðthe€miscalculation€in€square€footage.€€Ð l¼ ÐÌà  àAfter€the€true€square€footage€was€discovered,€the€lease€for€the€Cherry€Center€office€space€wasÐ D!” Ðâ ârenegotiated€a€third€time€prior€to€its€expiration.€€The€lessor€on€the€third€lease€was€One€SourceÐ 0"€  ÐCommercial,€Inc.׃†×Ý ƒ#ÃÝòòÚ  Ú50Ú  ÚóóÝ  Ý×  ×€instead€of€Affordable€Homes€a/k/a€Affordable€Properties€Management.€€Mrs.Ð ° Ðâ âMadison€had€employed€this€company,€with€which€she€was€otherwise€unrelated,€to€collect€rents€onÐ œì Ðproperties€owned€by€her€including€Cherry€Center€and€2771€Colony€Park.€€The€new€term€of€the€leaseÐ ˆØ Ðwas€from€January€1,€2000,€to€December€31,€2000.€€The€renegotiated€lease€reflected€the€actual€squareÐ tÄ Ðfootage€of€Cherry€Center,€approximately€9,700€square€feet.€€As€a€result,€the€annual€rent€on€CherryÐ `° ÐCenter€was€reduced€from€$210,000€to€$102,327.ò òó óÐ L œ Ðà  àÌà  àIn€a€series€of€meetings€in€August€through€October,€2000,€the€new€Board€of€DirectorsÐ $ t Ðreviewed€certain€prior€transactions€of€CCFS,€including€its€rental€arrangements€with€the€Madisons.€Ð  ` ÐMinutes€of€the€August€3,€2000€meeting€reflect€the€following:Ð ü L  ÐÌà8  àSpecifically€the€Board€reviewed€the€amount€of€rent€paid€by€Cherokee€since€May€ofÐ Ô$  Ð1995.€€Based€upon€calculations€prepared€by€staff€and€attorneys€for€the€Corporation,Ð À  Ðit€appears€that€Cherokee€may€have€overpaid€Affordable€Homes€$502,838.00€in€rentÐ ¬ü  Ðfor€this€period.€€In€the€prior€meeting€the€Board€discussed€various€options€forÐ ˜è  ÐAffordable€Homes€and/or€WillieAnn€Madison€repaying€this€amount€in€rentÐ „Ô  Ðoverpayment€to€Cherokee.€ÐpÀÐ Ð  ÐÌà  àThe€Board€adopted€a€resolution€stating€that€CCFS€had€overpaid€$502,838€in€rent€and€that€thisÐ H˜ Ðamount€represented€a€debt€due€from€Mr.€and€Mrs.€Madison€to€CCFS.€€The€resolution€gave€theÐ 4„ ÐMadisons€the€option€of€conveying€the€Cherry€Center€building€to€CCFS,€provided€it€appraised€at€notÐ  p Ðless€than€the€amount€due,€or€to€pay€the€amount€due.€€At€its€October€18,€2000€meeting€wherein€theÐ  \ ÐBoard€reviewed€all€prior€audits€with€its€attorney,€it€discussed€the€retroactive€rent€increases€disclosedÐ øH Ðin€the€1999€audit€report,€but€ð ðdetermined€that€it€had€already€taken€appropriate€corrective€action.ððÐ ä4 Ðà  àÌà  àOn€October€17,€2000,€WillieAnn€Madison€executed€a€deed€transferring€her€interest€in€CherryÐ ¼  ÐCenter€to€CCFS€and€paid€it€$32,838.€€Sometime€thereafter,€John€Madison€executed€the€deed.€€TheÐ ¨ø Ðdeed€was€recorded€on€October€31,€2000.€€As€reflected€in€the€Board€minutes,€the€transfer€of€CherryÐ ”ä ÐCenter€was€intended€to€repay€CCFS€for€prior€rent€overpayment€in€the€amount€of€$502,838.€Ð €Ð ÐÌà  àÔ‡X±XXX±ÔWith€regard€to€the€lease€arrangements€with€Affordable€Homes,€Rev.€Joyner€testified€that€theÐ X ¨ Ðoriginal€arrangement€was€in€effect€when€he€came€on€the€board€and,€at€that€time,€he€did€not€know€whoÐ D!” Ðthe€rent€was€being€paid€to,€and€that€he€still€did€not€know€who€were€the€principals€of€AffordableÐ 0"€  ÐHomes.€€He€knew€that€the€Madisons€owned€the€property,€but€never€asked€who€Affordable€HomesÐ #l! Ðwas.€€He€testified€that€he€initiated€the€resolution€on€the€rent€increase,€called€two€Board€members,€andÐ $X" Ðgot€them€to€sign€the€resolution€along€with€him.€€Ô#†X±XXX±Ç¼#ÔÐ ô$D # ÐÌÔ‡X±XXX±Ôà  àWith€regard€to€increasing€CCFSððs€rent€during€the€term€of€the€lease€and€making€the€increaseÐ Ì&"% Ðretroactive,€Rev.€Joyner€could€not€say€how€it€would€be€in€the€corporationððs€best€interest,€but€he€hadÐ ¸'#& Ðâ ânot€thought€it€was€contrary€to€the€corporationððs€interest€or€would€harm€it€in€any€way.€€He€just€thoughtÐ ¤(ô#' Ðit€was€fair,€that€CCFS€should€pay€its€fair€share€of€rent,€and€that€the€rental€amount€had€been€less€thanÐ ° Ðfair€market€value€before€it€was€increased.Ô#†X±XXX±˜¿#ÔÐ œì Ðâ âÌÔ‡X±XXX±Ôà  àRev.€Ware€testified€he€was€not€present€at€a€meeting€where€the€Board€voted€to€increase€theÐ tÄ Ðrent€at€Cherry€Center.€€He€did€not€recall€signing€a€resolution€authorizing€it€or€exactly€what€transpired.€Ð `° ÐHe€did€not€know€who€owned€Affordable€Homes€or€whether€Affordable€Homes€ever€owned€the€realÐ L œ Ðproperty.€€When€presented€with€the€transaction€later,€he€did€not€ask€whether€the€figures€were€correct,Ð 8 ˆ Ðð ðAll€I€did€was€when€they€presented€it€I€said€yes.ðð€€He€testified€he€was€not€required€to€make€anÐ $ t Ðindependent€determination€on€whether€the€particular€transaction€was€in€the€best€interest€of€theÐ  ` Ðcorporation.€€He€felt€it€was€in€order€for€the€Board€to€increase€the€rent€and€make€that€rent€retroactiveÐ ü L  Ðbecause€the€rate€per€square€foot€was€lower€than€other€properties€in€the€area.€€He€testified€that€the€onlyÐ è 8  Ðbenefit€to€the€corporation€from€this€transaction€was€that€the€corporation€would€be€in€a€better€cashÐ Ô$  Ðflow€position€because€DHS€reimbursed€costs€under€the€new€arrangement.€€He€stated€he€never€gaveÐ À  Ðmuch€thought€to€the€benefit€to€the€corporation€from€the€retroactive€payment.Ô#†X±XXX±$Â#Ô€€Ô‡X±XXX±ÔHe€knew€the€$437,000Ð ¬ü  Ðpaid€for€retroactive€rent€increase€went€to€Affordable€Homes,€but€did€not€know€if€the€moneyÐ ˜è  Ðultimately€went€to€the€Madisons.€ð ðI€didnððt€question€that,€I€didnððt€investigate€that.ððÔ#†X±XXX±jÇ#ÔÐ „Ô  ÐÌÔ‡X±XXX±Ôà  àIda€Porter€testified€that€she€had€heard€that€Mrs.€Madison€owned€Cherry€Center.€€She€guessedÐ \¬ Ðthat€CCFS€was€paying€rent€to€Mrs.€Madison€for€the€building.€€She€did€not€recall€the€Board€everÐ H˜ Ðvoting€to€lease€the€property€from€Mrs.€Madison.€€In€her€opinion,€that€decision€would€have€had€toÐ 4„ Ðhave€been€made€by€the€chairman€of€the€Board,€who€at€that€time€was€Rev.€Joyner.€€She€did€not€recallÐ  p Ðthe€Board€passing€a€resolution€to€increase€the€amount€of€rent€paid€to€Mrs.€Madison€for€CherryÐ  \ ÐCenter.Ô#†X±XXX±»È#Ô€€Ô‡X±XXX±ÔShe€testified€that€she€did€not€know€anything€about€a€decision€to€increase€rental€paymentsÐ øH Ðbefore€the€expiration€of€the€lease.Ô#†X±XXX±SË#ÔÐ ä4 ÐÌà  àMr.€Davis€testified€that€when€approving€the€retroactive€rent€increase,€he€thought€it€wasÐ ¼  Ðappropriate€that€he,€as€a€director,€act€in€his€daughterððs€best€interest€because,€to€him,€the€interests€ofÐ ¨ø Ðthe€corporation€and€those€of€Mrs.€Madison€were€the€same.Ð ”ä ÐÌÓ  Ó(2)€Colony€ParkÐ l¼ ÐÓ„ÍÓÌà  àA€few€weeks€before€the€March€22,€1999€resolution€to€pay€ð ðprorated€back€rent,ðð€the€BoardÐ D!” Ðmet€on€March€5,€and€the€minutes€reflect€a€discussion€of€the€need€for€additional€space€beyond€thatÐ 0"€  Ðoccupied€in€the€Cherry€Center.€€The€minutes€reflect€that€Mrs.€Madison€reported€a€need€to€acquireÐ #l! Ðmore€office€space€across€the€street,€and€explained€what€offices€or€functions€would€be€moved.€€ð ðTheÐ $X" ÐBoard€suggested€that€she€look€into€leasing€additional€space.ðð€€Across€the€street€from€the€CherryÐ ô$D # ÐCenter€were€buildings€known€as€Colony€Park.€€At€the€time€this€need€for€more€space€was€brought€toÐ à%0!$ Ðthe€Board,€Colony€Park€was€owned€by€someone€else.€€That€situation€soon€changed.Ð Ì&"% ÐÌà  àApproximately€two€weeks€after€CCFS€approved€the€resolution€giving€Affordable€HomesÐ ¤(ô#' Ð$437,000€in€ð ðprorated€back€rent,ðð€the€Madisons€purchased€2771€Colony€Park€Drive€(ð ðColony€Parkðð)Ð )à$( Ðâ âand€four€other€parcels€of€real€property€including€2755,€2759,€2763,€and€2768€Colony€Park€Drive€forÐ |*Ì%) Ðapproximately€$1,083,500.׃|×Ý ƒ#ÃÝòòÚ  Ú51Ú  ÚóóÝ  Ý×  ×€€In€May€of€1999,€the€Madisons€transferred€one€of€the€parcels€to€Rev.Ð ° Ðâ âJoyner,€one€of€the€members€of€the€Board€of€Directors€who€signed€the€$437,000€resolution.׃T×Ý ƒ#ÃÝòòÚ  Ú52Ú  ÚóóÝ  Ý×  ×Ð œì ÐÌà  àRev.€Joyner€explained€the€transaction,€stating€he€went€to€the€auction€where€all€the€parcels€inÐ tÄ ÐColony€Park€were€sold.€€He€intended€to€purchase€2755€Colony€Park,€but€was€unsuccessful€becauseÐ `° Ðhe€could€not€bid€on€all€the€parcels.€€The€Madisons,€however,€successfully€bid€on€all€the€parcels€andÐ L œ Ðacquired€them.€€They€paid€$250,000€for€the€parcel€identified€as€2755€Colony€Park,€and€sold€it€to€himÐ 8 ˆ Ðfor€$300,000.Ð $ t ÐÌà  àA€little€over€a€month€after€the€purchase,€CCFS€entered€into€a€one„year€lease,€beginning€JuneÐ ü L  Ð1,€1999,€and€ending€July€30,€2000,€with€Affordable€Homes€a/k/a€Affordable€Properties€ManagementÐ è 8  Ðfor€office€space€at€2771€Colony€Park.€€The€annual€rent€on€the€property€was€$31,530.׃m¤×Ý ƒ#ÃÝòòÚ  Ú53Ú  ÚóóÝ  Ý×  ×€€CCFSÐ Ô$  Ðrenegotiated€the€lease€for€the€Colony€Park€property€on€July€20,€2000.€€The€term€was€extended€fromÐ À  ÐJuly€30,€2000,€to€December€31,€2000.€€The€annual€rent€on€the€property€increased€from€$31,530€toÐ ¬ü  Ð$44,961.€€Ð ˜è  ÐÌà  àCCN€also€entered€into€a€lease€for€office€space€at€2771€Colony€Park€from€AffordableÐ pÀ ÐProperties€Management€for€a€one„year€term€beginning€June€1,€1999,€and€ending€July€30,€2000.€€TheÐ \¬ Ðannual€rent€on€the€property€pursuant€to€the€lease€was€$36,785.€€That€lease€is€for€3,003€square€feet€ofÐ H˜ Ðspace;€nothing€in€the€record€indicates€the€square€footage€leased€by€CCFS€or€the€total€amount€ofÐ 4„ Ðsquare€footage€in€the€building.Ð  p ÐÌà  àColony€Park€was€in€a€state€of€disrepair€when€it€was€purchased€by€the€Madisons.€€There€wereÐ øH Ðleaks€in€the€roof€and€repairs€were€needed€to€correct€problems€with€the€floor€and€the€ceiling.€€UnderÐ ä4 Ðthe€terms€of€the€leases,€CCFS€and€CCN€were€responsible€for€maintenance€and€repairs€at€CherryÐ Ð  ÐCenter€and€Colony€Park.€€The€record€is€not€clear€as€to€who€paid€for€initial€substantial€repairs€andÐ ¼  Ðimprovements.Ð ¨ø ÐÌÓ  ÓF.€€Investment€of€CCFS€and€CCN€FundsÐ €Ð ÐÓÑÜÓÌà  àMemphisFirst€Corporation€(ð ðMFCðð)€and€MemphisFirst€Community€Bank€(ð ðMFCBðð)€wereÐ X ¨ Ðchartered€in€1999€by€the€State€of€Tennessee.€€MFCB€is€a€wholly€owned€subsidiary€of€MFC,€a€bankÐ D!” Ðholding€company.€€Mrs.€Madison€is€an€incorporator€and€member€of€the€Board€of€Directors€for€MFCBÐ 0"€  Ðand€a€member€of€the€Board€of€Directors€for€MFC.€€Mrs.€Madison€is€also€an€investor€in€MFCÐ ° Ðbecause,€as€a€director,€she€is€required€to€own€at€least€1%€of€the€stock.€€She€and€her€family€membersÐ œì Ðhave€made€significant€investments€in€MFC€common€stock.׃×Ý ƒ#ÃÝòòÚ  Ú54Ú  ÚóóÝ  Ý×  ×€€Rev.€Joyner,€a€CCFS€Board€member,Ð ˆØ Ðwas€also€a€member€of€the€Board€of€both€the€bank€and€the€holding€company.€€He€was€also€aÐ tÄ Ðshareholder,€having€purchased€$100,000€of€stock€initially.€€He€described€Mrs.€Madison€and€himselfÐ `° Ðas€founders€of€the€bank.׃’T×Ý ƒ#ÃÝòòÚ  Ú55Ú  ÚóóÝ  Ý×  ×€€Ð L œ ÐÌà  àRev.€Joyner€testified€he€discussed€investment€in€the€bank€by€CCFS€by€telephone€with€Rev.Ð $ t ÐWare,€Ms.€Braxton,€Mr.€Davis,€and€Mrs.€Madison.€€On€September€10,€1998,€Rev.€Joyner,€C.E.€Ware,Ð  ` Ðand€Vivian€Braxton€signed€a€resolution€authorizing€CCFS€to€purchase€$190,000€in€stock€from€MFCÐ ü L  Ðat€$10€per€share.׃“¤×Ý ƒ#ÃÝòòÚ  Ú56Ú  ÚóóÝ  Ý×  ×€€They€also€signed€a€resolution€authorizing€CCN€to€purchase€$110,000€of€stockÐ è 8  Ðfrom€MFC€at€$10€per€share.€€During€fiscal€years€1998€and€1999,€according€to€the€auditor,€theÐ Ô$  Ðcorporations€invested€approximately€$300,000€to€purchase€30,000€shares€of€common€stock€issuedÐ À  Ðby€MFC.€€According€to€the€receiver€and€the€bank,€CCFS€owned€19,000€shares,€and€CCN€ownedÐ ¬ü  Ð11,000.׃Ÿ0×Ý ƒ#ÃÝòòÚ  Ú57Ú  ÚóóÝ  Ý×  ×€€The€stock€of€MFC€is€not€traded€on€the€stock€exchange€or€an€open€market.€€TheÐ ˜è  Ðcorporations€assert,€however,€that€there€is€a€market€for€the€stock€and€that€it€can€be€readily€sold€andÐ „Ô  Ðtraded.€€Ð pÀ ÐÌÔ‡X±XXX±Ôà  àRev.€Ware€testified€he€was€not€present€at€the€meeting€where€the€Board€approved€theÐ H˜ Ðinvestment€in€the€bank,€but€he€knew€about€it€at€the€next€meeting€and€ð ðnever€did€ask€the€questionsÐ 4„ Ðof€the€exact€amount.ðð€€He€identified€the€resolution€approving€purchase€of€stock€in€the€bank€includingÐ  p Ðhis€signature€and€that€of€Rev.€Joyner,€Ms.€Braxton,€and€Mrs.€Madison.€€He€had€said€a€quorum€wasÐ  \ Ðfour€people,€since€the€Board€had€seven€members.€€Mrs.€Madison€was€not€a€member€of€the€Board,Ð øH Ðso€the€resolution€was€approved€by€three€Board€members,€one€of€whom€had€a€financial€interest€in€theÐ ä4 Ðbank€and€served€on€its€board.׃¥€×Ý ƒ#ÃÝòòÚ  Ú58Ú  ÚóóÝ  Ý×  ×Ô#†X±XXX±fæ#ԀРР ÐÌÓ  ÓG.€€Action€Taken€by€Individual€Board€Members€of€CCFS€and€CCNÐ ¨ø ÐÌÓõéÓà  àThe€testimony€of€several€Board€members€demonstrates€that€they€were€less€than€vigilant€orÐ €Ð Ðprobing€in€examining€corporate€activities€and€in€remaining€knowledgeable€about€the€corporation.€Ð l¼ ÐThey€relied€upon€Mrs.€Madison€for€information€and€recommendations€and€generally€did€not€questionÐ X ¨ Ðher€recommendations.€€Ô‡X±XXX±ÔFor€example,€Rev.€Ware€testified€he€did€not€know€if€Mrs.€Madison€was€beingÐ ° Ðcompensated€by€both€corporations,€or€by€one€on€behalf€of€both,€and€he€did€not€inquire€into€it.€€HeÐ œì Ðalso€testified€that€he€was€not€aware€of€the€financial€condition€or€resources€of€CCFS;€he€did€not€lookÐ ˆØ Ðat€financial€statements;€he€had€not€ever€looked€into€the€financial€condition€of€the€corporation.€€TheÐ tÄ Ðtestimony€of€several€Board€members€indicates€their€lack€of€knowledge€of€the€duties€imposed€by€lawÐ `° Ðupon€corporate€directors.€€Ô#†X±XXX±Üë#ÔÐ L œ ÐÌà  àThe€Board€was€reconstituted€due€to€some€resignations.׃–×Ý ƒ#ÃÝòòÚ  Ú59Ú  ÚóóÝ  Ý×  ×€€As€discussed€earlier,€this€ð ðnewððÐ $ t ÐBoard,€in€the€fall€of€2000,€reviewed€some€previous€corporate€transactions€and€retroactively€approvedÐ  ` Ðmany€of€them.€€In€addition,€the€ð ðnewðð€Board,€in€October€of€2000,€provided€indemnification€for€Mrs.Ð ü L  ÐMadisonððs€legal€defense.Ð è 8  ÐÌà  àThe€Board€had€adopted€new€bylaws€on€August€3,€2000.€€Mr.€Mosley,€Mr.€Thomas,€Rev.Ð À  ÐWare,€and€Mrs.€Porter€were€the€directors€in€attendance.€€Those€bylaws€included€a€provision€allowingÐ ¬ü  Ðthe€corporation€to€indemnify€officers€and€directors€in€accordance€with€Tenn.€Code€Ann.€ðð€48„58„Ð ˜è  Ð507.׃—Ü×Ý ƒ#ÃÝòòÚ  Ú60Ú  ÚóóÝ  Ý×  ×€€The€minutes€of€an€October€18,€2000€meeting€reflect€that€because€the€corporationððs€attorneyÐ „Ô  Ðcould€not€also€represent€Mrs.€Madison,€the€Board€voted€unanimously׃šˆ ×Ý ƒ#ÃÝòòÚ  Ú61Ú  ÚóóÝ  Ý×  ×€to€indemnify€Mrs.€MadisonÐ pÀ Ðfor€legal€fees€for€her€separate€attorney,€A.C.€Wharton.׃™ ×Ý ƒ#ÃÝòòÚ  Ú62Ú  ÚóóÝ  Ý×  ×€€€The€decision€was€based,€in€part,€on€the€factÐ \¬ Ðthat€the€corporation€had€provided€legal€expenses€to€Board€members.€Ð H˜ ÐÌà  àAt€a€later€meeting,€the€board€reaffirmed€the€indemnification€and€approved€a€writtenÐ  p Ðindemnification€agreement.€€The€minutes€reflect€that€the€Board€had€previously€examined€allÐ  \ Ðtransactions€questioned€by€the€State€in€working€with€its€attorneys€to€prepare€for€all€the€litigation€andÐ øH Ðin€preparing€for€Grand€Jury€testimony,€and€the€Board€determined€that€the€members€knew€of€no€factsÐ ä4 Ðthat€would€preclude€indemnification€of€Mrs.€Madison.€€Present€at€that€meeting€were€Mr.€Mosley,€Mr.Ð Ð  ÐThomas,€Rev.€Ware€and€Mrs.€Porter.€€The€written€indemnity€agreement€includes€a€provisionÐ ° Ðrequiring€Mrs.€Madison€to€repay€any€expenses€advanced€by€the€corporation€if€it€is€ultimatelyÐ œì Ðdetermined€that€she€is€not€entitled€to€indemnification.€€The€agreement€references€two€lawsuitsÐ ˆØ Ðbrought€by€the€State,€including€this€one,€and€a€grand€jury€investigation€into€the€day€care€industry€inÐ tÄ ÐShelby€County.Ð `° ÐÌà  àAs€part€of€his€argument€that€the€corporations€are€unable€to€carry€on€their€charitable€purposes,Ð 8 ˆ Ðthe€Attorney€General€asserts€that€this€indemnity€agreement€is€unlawful€because:€(1)€it€was€notÐ $ t Ðincluded€in€the€budget€approved€by€the€trial€court;€and€(2)€it€does€not€comply€with€the€statute.€€TheÐ  ` ÐAttorney€General€alleges€various€procedural€defects€in€the€approval€of€indemnity,€but€the€BoardÐ ü L  Ðmade€the€requisite€findings€in€its€November€17,€2000€meeting€where€it€approved€the€actualÐ è 8  Ðagreement.€€Ð Ô$  ÐÌà  àIn€the€main,€the€Attorney€General€asserts€that€Mrs.€Madison€is€not€entitled€to€indemnity.€Ð ¬ü  ÐUnder€the€relevant€statutes,€indemnity€is€not€available€ð ðin€connection€with€any€other€proceedingÐ ˜è  Ðcharging€improper€personal€benefit€to€the€director€[or€officer],€whether€or€not€involving€action€in€theÐ „Ô  Ðdirectorððs€[or€officerððs]€official€capacity,€in€which€the€director€was€adjudged€liable€on€the€basis€thatÐ pÀ Ðpersonal€benefit€was€improperly€received€by€the€director.ðð€€Tenn.€Code€Ann.€ðð€48„58„502(d)(2).€€InÐ \¬ Ðaddition,€no€indemnification€may€be€made€to€a€director€or€officer€if€a€judgment€adverse€to€thatÐ H˜ Ðindividual€establishes€his€or€her€liability€for:€(1)€breach€of€the€duty€of€loyalty;€(2)€acts€or€omissionsÐ 4„ Ðnot€in€good€faith;€or€(3)€for€unlawful€distributions€pursuant€to€Tenn.€Code€Ann.€ðð€48„58„304.€€Tenn.Ð  p ÐCode€Ann.€ðð€48„58„509(a).€€Ð  \ ÐÌà  àWhile€we€agree€that€the€complaint€seeking€dissolution€of€the€corporations€alleged€thatÐ ä4 Ðpersonal€benefit€and€unlawful€distributions€were€received€by€Mrs.€Madison€and,€at€least€impliedly,Ð Ð  Ðthat€she€breached€her€duty€of€loyalty€to€the€corporations,€this€lawsuit€does€not€directly€raise€the€issueÐ ¼  Ðof€potential€personal€liability€of€Mrs.€Madison.€€Neither€the€trial€court€nor€this€court€has€been€calledÐ ¨ø Ðupon€to€adjudge€her€personally€liable.€€ò òÐ ”ä ÐÌà  àó óBecause€CCFS€conditioned€its€advance€of€expenses€for€counsel€upon€repayment€if€it€is€laterÐ l¼ Ðdetermined€Mrs.€Madison€was€not€entitled€to€indemnification,€we€cannot€agree€with€the€AttorneyÐ X ¨ ÐGeneral€that€the€action€of€the€Board€in€indemnifying€Mrs.€Madison€upon€advice€of€corporate€counselÐ D!” Ðwho€was€faced€with€the€potential€of€representing€clients€with€conflicting€interests€is€an€illegal€actionÐ 0"€  Ðor€that€it€is€another€example€of€misapplication€of€funds.Ð #l! ЀÌà  àWe€are€concerned,€however,€that€actual€payment€of€advances€for€attorney€fees€may€violateÐ ô$D # Ðthe€trial€courtððs€order€which€was€in€place€at€the€time€of€the€indemnification€agreement.€€Further,€afterÐ à%0!$ Ðthe€trial€courtððs€appointment€of€a€receiver,€any€expenditures€by€the€corporations€would€be€subjectÐ Ì&"% Ðto€the€receiverððs€and€the€courtððs€approval.€€Consequently,€we€conclude€that€the€issue€of€whetherÐ ¸'#& Ðpayment€of€advances€can€actually€be€made€should€be€determined€by€the€trial€court.Ð ¤(ô#' ÐÌÌÐ h+¸&* ÐÓ  ÓVI.€The€Determinative€Issue€„€Private€Gain€or€Public€Good€Ð ° ÐÓ+ÓÌÔ‡X±XXX±Ôà  àOn€appeal,€the€corporations€argue€that€the€trial€court€erred€in€denying€their€motion€forÐ ˆØ Ðsummary€judgment€and€also€erred€in€granting€the€Attorney€Generalððs€motion.€€In€particular,€theyÐ tÄ Ðassert€that€the€Attorney€General€failed€to€establish€undisputed€proof€of,€and€that€the€corporationsÐ `° Ðconclusively€negated,€allegations€that€the€corporations€had€conducted€business€in€a€persistentlyÐ L œ Ðfraudulent€or€illegal€manner.Ô#†X±XXX±—#ÔÔ‡X±XXX±Ô€€CCFS€takes€the€position€that€the€Attorney€General€failed€to€prove€fraudÐ 8 ˆ Ðbecause€he€failed€to€show:€(1)€that€the€corporations€made€any€intentional€misrepresentation;€(2)Ð $ t Ðfailed€to€disclose€a€material€fact€when€under€a€duty€to€do€so;׃×Ý ƒ#ÃÝòòÚ  Ú63Ú  ÚóóÝ  Ý×  ×€or€(3)€that€anyone€reasonably€reliedÐ  ` Ðon€any€misrepresentations€and€was€injured€because€of€that€reliance.€Ð ü L  ÐÌà  àThe€corporations€take€the€same€position€with€regard€to€the€ground€alleging€corporate€assetsÐ Ô$  Ðwere€wasted€or€misapplied.€€That€is,€they€assert€that€the€Attorney€General€failed€to€prove€and€theÐ À  Ðcorporations€conclusively€negated€the€existence€of€such€statutory€grounds€and€assert€that€theÐ ¬ü  ÐAttorney€General€had€argued€that€the€crux€of€his€case€was€that€non„profit€assets€had€been€divertedÐ ˜è  Ðthrough€a€series€of€self„dealing€transactions.€€First,€the€corporations€argue€that€all€of€the€assertionsÐ „Ô  Ðof€waste€and€misapplication€involved€only€matters€and€transactions€that€had€occurred€in€the€past,€butÐ pÀ Ðthat€the€relevant€statute,€Tenn.€Code€Ann.€ðð€48„64„301(a)(1)(E),€uses€the€present€tense€and€requiresÐ \¬ Ðproof€that€assets€ð ðòòareóó€being€misapplied€or€wasted.ðð€CCFS€argues€that€ð ð[Ô_Ôt]hisÔ_Ô€language€makes€clearÐ H˜ Ðthat€the€statute€is€designed€to€prevent€the€risk€of€current€waste€or€misapplication.ðð€€According€to€theÐ 4„ Ðcorporationsðð€argument,€the€current€board€of€directors€has€made€diligent€and€prudent€efforts€toÐ  p Ðpreserve€corporate€assets€and€to€address€and€correct€past€acts€complained€of€by€the€Attorney€GeneralÐ  \ Ðand€there€was€no€proof€that€assets€are€currently€being€misapplied€or€wasted.Ð øH ÐÌà  àThe€corporations€also€assert€that€the€evidence€was€insufficient€to€establish€waste€orÐ Ð  Ðmisapplication€of€assets€as€a€matter€of€law,€even€with€regard€to€past€operation.€€In€particular,€theÐ ¼  Ðcorporations€assert€thatÔ#†X±XXX±Ó#ÔÔ‡X±XXX±Ô€none€of€the€alleged€conflict€of€interest€or€self„dealing€transactions€wereÐ ¨ø Ðshown€to€be€unfair€to€the€corporation;€that€the€Board€approved€and/or€later€ratified€all€theÐ ”ä Ðtransactions;€that€the€transactions,€including€the€compensation€paid€to€the€executive€director€and€herÐ €Ð Ðhusband,€were€reasonable,€or€that€the€reasonableness€thereof€is€a€matter€of€disputed€fact;€and€thatÐ l¼ Ðpersonal€expenditures€for€trips€and€purchases€originally€paid€for€by€CCFS€were€eventually€chargedÐ X ¨ Ðto€the€employees€as€additional€compensation.Ô#†X±XXX±Ú#ÔÔ‡X±XXX±ÔÐ D!” ÐÔ#†X±XXX±‚#ÔÔ‡X±XXX±ÔÌà  àIt€is€not€necessary€for€this€court€to€address€the€corporationsðð€arguments€regarding€theÐ #l! Ðsufficiency€of€the€proof€of€fraudulent€or€illegal€operations;€neither€must€we€address€the€argumentsÐ $X" Ðas€to€whether€specific€transactions€constituted€a€waste€or€misapplication€of€assets.€€We€are€of€theÐ ô$D # Ðopinion€that€the€trial€court€correctly€recognized€the€central€issue€in€this€case:€whether€theÐ à%0!$ Ðcorporations€complied€with€the€requirements€of€nonprofit€public€benefit€corporations€in€fulfillingÐ Ì&"% Ðtheir€charitable€or€nonprofit€purposes,€or€whether€they€were€operated€for€private€financial€gain.€€ToÐ ¸'#& Ðthe€extent€the€corporations€were€operated€for€private€gain,€their€assets€were€misapplied.€Ô#†X±XXX±Ù#ÔÔ‡X±XXX±Ô€Thus,€theÐ ¤(ô#' Ðquestion€is€whether€the€undisputed€facts€demonstrate€that€CCFS€and€CCN€were€operated€for€theÐ ° Ðprivate€benefit€of€Mrs.€Madison,€her€family,€or€other€corporate€insiders.€€Ð œì ÐÌà  àA€review€of€the€record,€specifically€the€facts€as€set€out€above,€leads€to€the€inevitableÐ tÄ Ðconclusion€that€the€corporations€were€operated€for€the€private€gain€of€Mrs.€Madison,€her€family,Ð `° Ðand/or€other€individuals€in€control€of€the€corporations.€€The€facts€demonstrate€a€consistent€patternÐ L œ Ðof€disregard€of€the€corporations€as€separate€entities€from€Mrs.€Madison.€€They€also€demonstrate€aÐ 8 ˆ Ðdisregard€of€the€fundamental€nature€of€a€nonprofit€public€benefit€corporation.Ð $ t ÐÌà  àEven€based€on€the€figures€provided€by€the€corporations,€although€they€are€not€entirelyÐ ü L  Ðreconcilable,€Mrs.€Madison€was€paid€a€substantial€salary,€but€was€regularly€awarded€bonuses€of€50%Ð è 8  Ðor€more€of€her€stated€salary.€€Corporate€records€and€corporate€memory€are€ambiguous€about€the€exactÐ Ô$  Ðamounts€so€paid,€although€several€$50,000€bonuses€were€awarded€her.€€The€corporationsðð€inexactÐ À  Ðrecords€on€this€issue€simply€demonstrate€the€inattention€paid€to€distributions€to€Mrs.€Madison€byÐ ¬ü  Ðanyone€other€than€Mrs.€Madison.€€Although€the€corporations€attempt€to€justify€the€raises€in€salaryÐ ˜è  Ðand€the€large€bonuses€as€merited€by€the€success€of€the€program,€including€the€financial€success,€thatÐ „Ô  Ðargument€misses€the€point.€€The€goal€of€a€nonprofit€public€benefit€corporation€is€not€to€generateÐ pÀ Ðprofit;€neither€is€it€to€reduce€its€ð ðprofitðð€or€excess€revenues€by€increasing€operating€expenses€whichÐ \¬ Ðenrich€corporate€insiders.€€Excess€revenues€are€intended€to€be€used€to€further€the€charitable€or€publicÐ H˜ Ðbenefit€mission€of€the€corporation.€€We€do€not€imply€that€a€public€benefit€corporation€cannot€rewardÐ 4„ Ðits€officers€with€salary€increases€or€other€compensation€if€that€compensation€is€reasonable.€€AlthoughÐ  p Ðthe€corporations€argue€vehemently€that€they€proved€that€Mrs.€Madisonððs€salary€was€reasonable,€thatÐ  \ Ðproof€was€related€to€her€2000€salary€disclosed€as€$125,000,€an€amount€the€corporations€describe€asÐ øH Ðthe€highest€salary€level€she€reached.€€We€find€no€proof€to€support€an€argument€that€regular€yearlyÐ ä4 Ðgrants€of€additional€compensation€of€50%€or€more€of€her€salary׃œ×Ý ƒ#ÃÝòòÚ  Ú64Ú  ÚóóÝ  Ý×  ×€is€reasonable.€€In€any€event,€it€isÐ Ð  Ðnot€a€question€of€whether€any€particular€amount€was€proven€to€be€reasonable€or€unreasonable.€Ð ¼  ÐRather,€the€apparently€cavalier€way€in€which€the€corporation€regularly€gave€its€creator€and€executiveÐ ¨ø Ðdirector€significant€ð ðadditional€compensationðð€plus€her€also€increasing€salary€demonstrates€to€us€thatÐ ”ä Ðthe€corporationsðð€assets€were€treated€as€a€ready€source€of€economic€benefit€to€an€individual.Ð €Ð ÐÌà  àAnother€example€of€the€manner€in€which€the€corporate€resources€were€used€involves€paymentÐ X ¨ Ðfor€personal€expenses.€€Mrs.€Madison€freely€used€corporate€funds€for€personal€expenses€for€herselfÐ D!” Ðand€her€family,€such€as€the€travel€described€earlier.€€In€those€instances,€no€one€in€the€corporationÐ 0"€  Ðapparently€questioned€the€original€payment€of€the€expenses€by€the€corporation,€and€the€corporationÐ #l! Ðwas€never€repaid,€even€though€there€is€no€dispute€that€the€trips€had€no€business€purpose.€€Ð $X" ÐÌà  àThe€use€of€corporate€revenue€for€private€gain€is€dramatically€exemplified€in€the€real€estateÐ à%0!$ Ðand€leasing€transactions.€€Twice€Mrs.€Madison€informed€the€Board€that€CCFS€needed€additionalÐ Ì&"% Ðspace,€then€purchased€real€property€meeting€that€need,€and€leased€that€real€property€to€theÐ ° Ðcorporations.€€She€made€the€second€purchase,€Colony€Park,€shortly€after€CCFS€had€paid€herÐ œì Ð$437,000€in€ð ðprorated€back€rentðð€for€use€over€the€past€38€months€of€20,000€square€feet€of€spaceÐ ˆØ Ðwhen€CCFS€could€not€have€occupied€that€amount€of€space€during€that€time,€at€a€higher€rate€perÐ tÄ Ðsquare€foot€than€CCFS€had€contracted€to€pay€for€that€38€months,€and€after€the€rate€per€square€footÐ `° Ðhad€already€been€increased€during€the€term€of€the€lease.€€Members€of€the€Board€who€approved€thisÐ L œ Ðpayment€were€unable€to€explain€how€this€payment€could€have€been€in€the€corporationððs€interest.€€TheÐ 8 ˆ Ðnew€Board€concluded€that€Mrs.€Madison€and€her€husband€had€been€overpaid€in€rent€from€May€1995Ð $ t Ðin€the€amount€of€$502,838.€€Thus,€it€is€obvious€that€the€new€Board€did€not€consider€the€prorated€backÐ  ` Ðrent€payment,€or€apparently€other€rental€amounts,€to€be€fair€to€the€corporation.€€More€significantly,Ð ü L  Ðthe€new€Board€obviously€determined€the€rent€ð ðoverpaymentðð€to€have€been€an€inappropriate€expenseÐ è 8  Ðthe€corporation€should€not€have€paid.€Ð Ô$  ÐÌà  àThe€leasing€by€the€corporations€of€space€owned€by€the€Madisons€raises€significant€questionsÐ ¬ü  Ðbecause,€among€other€things,€the€record€does€not€indicate€any€attempt€to€locate€other€space€orÐ ˜è  Ðcompare€rental€amounts.€€The€increases€in€rent€during€the€terms€of€the€leases€are€difficult€to€justifyÐ „Ô  Ðas€being€in€the€interest€of€the€corporations€and€are€unjustified€in€the€record€before€us.€€Even€theseÐ pÀ Ðdecisions,€however,€pale€in€comparison€to€the€remarkable€act€of€giving€Mrs.€Madison,€or€herÐ \¬ Ðcompany,€$437,000€on€the€basis€of€ð ðprorated€back€rentðð€which€the€corporations€were€clearly€notÐ H˜ Ðliable€for.€€There€is€no€clearer€example€of€the€total€disregard€exhibited€toward€the€interests€of€theÐ 4„ Ðcorporations€and€the€furtherance€of€its€public€benefit€mission.Ð  p ÐÌà  àThe€investment€of€substantial€sums€in€a€bank€in€which€Mrs.€Madison,€her€family,€and€a€BoardÐ øH Ðmember€had€a€substantial€financial€interest,€and€on€whose€board€Mrs.€Madison€and€the€CCFS€BoardÐ ä4 Ðmember€sat,€also€demonstrates€a€disregard€of€the€legal€requirements€for€such€transactions.€€ThoseÐ Ð  Ðrequirements€exist,€in€part,€to€protect€the€nonprofit€corporationððs€assets€and€to€avoid€insiderÐ ¼  Ðeconomic€benefit.€€Once€again,€those€in€control€of€the€corporations€abandoned€their€duty€to€see€thatÐ ¨ø Ðthese€assets€were€used€to€further€the€corporationsðð€public€benefit€mission.€ò òÐ ”ä Ðó óÌà  àThese€circumstances€as€well€as€others€demonstrate€a€failure€of€those€in€control€of€theÐ l¼ Ðcorporations€to€ensure€adherence€to€the€basic€requirement€of€a€nonprofit€public€benefit€entity:€thatÐ X ¨ Ðit€be€operated€exclusively€for€a€charitable€purpose,€that€it€serve€a€public€rather€than€a€private€interest,Ð D!” Ðand€that€its€income€or€assets€not€be€distributed€to€individuals€in€control€of€the€entity.€€TheÐ 0"€  Ðcorporations€herein€fail€the€test€of€whether€they€have€been€operating€as€true€nonprofit€corporations,€Ð #l! Ðð ðwhether€the€corporation€is€being€exploited€for€direct€monetary€gain.ðð€€òòFletcher,€òòóósupraòòóó,óó€at€ðð€68.05.€Ð $X" ÐThe€trial€court€determined€that€the€corporations€had€abandoned€any€public€or€charitable€purposes€andÐ ô$D # Ðhad€pursued€private€interests.€€Our€independent€review€of€the€record€fully€supports€that€conclusion.Ð à%0!$ ÐÔ#†X±XXX±D#ÔÔ‡X±XXX±ÔÌÓ  ÓVII.€€The€Business€Judgment€Rule€Ð ¸'#& ÐÓg8ÓÌà  àWhile€we€need€not€specifically€address€some€of€the€issues€raised€by€the€corporations€becauseÐ )à$( Ðthey€relate€to€grounds€other€than€the€one€we€find€determinative,€there€remains€one€argument€whichÐ |*Ì%) Ðwe€interpret€as€a€general€defense€to€dissolution.€Ô#†X±XXX±G8#ÔÔ‡X±XXX±ÔIn€essence,€the€corporations€argue€that€theyÐ h+¸&* Ðestablished€a€defense€to€many€of€the€Attorney€Generalððs€allegations€because€the€directorsðð€judgmentÐ ° Ðwith€respect€to€the€challenged€financial€transactions€was€insulated€from€ð ðsecond„guessingðð€by€theÐ œì Ðbusiness€judgment€rule.€€Essentially,€Ô#†X±XXX±:#ÔÔ‡X±XXX±Ôthe€corporations€argue€that€decisions€by€the€Board€regardingÐ ˆØ Ðcompensation,€payment€of€expenses,€investment,€leasing,€etc.€are€committed€to€the€sound€discretionÐ tÄ Ðof€the€Board€and€should€not€be€second„guessed€by€the€courts.€€€Ô#†X±XXX±¥;#ÔÔ‡X±XXX±ÔÐ `° ÐÌà  àTennessee€courts€recognize€and€follow€the€business€judgment€rule€in€certain€circumstances.€Ð 8 ˆ ÐThis€court€has€explained€the€underpinnings€of€the€rule€as€follows:Ð $ t ÐÌà8  àTennesseeððs€courts€have€consistently€followed€a€noninterventionist€policy€with€regardÐ ü L  Ðto€internal€corporate€matters.€€They€have€recognized€that€directors€have€broadÐ è 8  Ðmanagement€discretion.€€òòChism€v.€Mid„South€Milling€Co.óó,€762€S.W.2d€552,€556Ð Ô$  Ð(Tenn.€1988)€(discretion€in€employing€or€discharging€corporate€officers);€òòWallace€v.Ð À  ÐLincoln€Sav.€Bankóó,€89€Tenn.€630,€636,€15€S.W.€448,€449„50€(1891).€€Accordingly,Ð ¬ü  Ðthey€have€declined€to€substitute€their€judgment€for€that€of€a€corporationððs€board€ofÐ ˜è  Ðdirectors€when€the€board€has€acted€in€good€faith€and€in€the€exercise€of€honestÐ „Ô  Ðjudgment€in€the€lawful€and€legitimate€furtherance€of€corporate€purposes.€€òòFrench€v.Ð pÀ ÐAppalachian€Elec.€Coop.óó,€580€S.W.2d€565,€570€(Tenn.€Ct.€App.€1978);€òòRange€v.Ð \¬ ÐTennessee€Burley€Tobacco€Growers€Assððnóó,€41€Tenn.€App.€667,€675,€298€S.W.2d€545,Ð H˜ Ð549€(1955),€cert.€denied,€355€U.S.€813,€2€L.€Ed.€2d€30,€78€S.€Ct.€11€(1958).Ð4„Ð Ð  ÐÌòòLewis€v.€Boydóó,€838€S.W.2d€215,€220€(Tenn.€Ct.€App.€1992).Ð  \ ÐÌà  àWhere€it€applies,€the€business€judgment€rule€is€a€presumption€that€a€corporationððs€directors,Ð ä4 Ðwhen€making€a€business€decision,€acted€on€an€informed€basis,€in€good€faith,€and€with€the€honestÐ Ð  Ðbelief€that€their€decision€was€in€the€corporationððs€best€interest.€€òòIdóó.€Ô#†X±XXX±î<#ÔÔ‡X±XXX±Ô€Ô#†X±XXX±AD#ÔThe€rule€does€not€apply€whereÐ ¼  Ðthere€is€no€conscious€decision€by€board€members€to€act€or€refrain€from€acting.€€òòMcCall€v.€Scottóó,€239Ð ¨ø ÐF.3d€808,€816€(6th€Cir.€2001).€€òòóóÔ‡bX±XXX±ÔThe€rule€does€not€apply€when€the€director€or€officer€has€an€interestÐ ”ä Ðin€the€decision,€did€not€actually€make€a€decision,€or€made€an€uniformed€decision.€€òòLewisóó,€838€S.W.2dÐ €Ð Ðat€220„21Ô#†X±XXbX±[E#ÔÔ‡bX±XXX±Ô;òòóóÔ#†X±XXbX±~F#ÔÔ‡X±XXX±Ô€€òòÔ#†X±XXX±ÇF#ÔHallóó,€1996€Tenn.€App.€LEXIS€384,€at€*19„*20Ô‡bX±XXX±Ô;€3Aòò€Fletcheróó,€òòsupraóó,€at€ðð€1036.Ô#†X±XXbX±