Brown v. W.P. Media, Inc.

In May 2005, Alabama MBA, Inc. (Alabama), and its promoter, Hugh Brown Jr. (plaintiffs) sued alleging W.P. Media (W.P.) (defendant) breached an operating agreement by failing to construct a wireless network. In 2001, W.P. and Alabama entered the operating agreement intending to operate a joint venture to provide wireless-internet services. Alabama was to contribute capital, and W.P. was to contribute proprietary technology. Brown had not incorporated Alabama but signed the operating agreement on Alabama’s behalf as its board chairman. In 2002, Brown incorporated Alabama by filing articles of incorporation with the state. Brown did not hold an organizational meeting, pay taxes, issue stock, or adopt bylaws until early 2007—over a year after suing W.P. Meanwhile, Brown paid Alabama’s expenses personally because Alabama lacked bank accounts or employees. W.P. moved for summary judgment, arguing the operating agreement was void at the outset because Alabama had not been incorporated and lacked capacity to contract when it was signed. W.P. claimed Brown had essentially represented that Alabama was a “viable, legal corporation” and that W.P. had “no reason to doubt” those representations. However, W.P. never challenged the operating agreement’s validity until sued for breaching it. W.P. also argued that Alabama had been improperly incorporated when initiating the lawsuit, such that it was not a real party in interest and had to be dismissed. The trial court entered summary judgment for W.P., and Brown and Alabama appealed.