Developments In Association Law 2021 ' 2022

• Jurisdiction: New York,United States,Federal,Colorado,Utah,Washington
• Law Firm: Pillsbury Winthrop Shaw Pittman
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Charities & Non-Profits , Trials & Appeals & Compensation
• Author: Mr Jerald Jacobs, Julia Judish, Alvin Dunn, Dawn Crowell Murphy and Lori Panosyan
• Published date: 20 January 2023

Governance

Striltschuk v. Hryckowian, 202 A.D.3d 497, 160 N.Y.S.3d 56 (2022)
Petitioners brought an action seeking to set aside the election results of directors, officers, and committee members of the not-for-profit Organization for the Defense of Four Freedoms for Ukraine, Inc.; petitioners also filed a motion for injunctive and declaratory relief. The court denied the petition, denied the motion, and dismissed the proceeding; the petitioners appealed. On appeal, the Supreme Court of New York, Appellate Division held that the petitioners fell short of meeting their burden under the New York Not-For-Profit Corporation Law of making "a clear showing" that judicial "interfere[nce] in the internal affairs of [the] corporation ... is ... warrant[ed]."

The trial court held that the petitioners failed to "show fraud or wrongdoing in the election they seek to invalidate." While the petitioners argued that the election violated their organization's bylaws, the court dismissed this argument because the petitioners failed to submit the bylaws in a "properly authenticated form." The burden of proving the existence, terms, and validity of a contract solely rests on the party seeking to enforce it, and the petitioners' purported bylaws document was "unsigned, undated, and unpaginated, contain[ed] typos and other irregularities, and b[ore] no indication of being a formal corporate document or any other indicia of reliability." Although the petitioners submitted affidavits attesting to the bylaws' validity, the court held that these affidavits were conclusory. Additionally, the respondents submitted a competing version of the bylaws. The court found this was enough to not accept the conclusory affidavits submitted by the petitioners.

Gould v. Jewish Nat'l Fund (Keren Kayemeth Leisrael), Inc., 197 A.D.3d 1067, 154 N.Y.S.3d 58 (2021)
The petitioner was elected the president-elect of the respondent nonprofit Jewish National Fund. However, due to a scandal surrounding the surfacing of the petitioner's personal internet postings, the petitioner resigned as President-Elect and failed to attend the annual meeting where the nonprofit declined to seat the petitioner as president of the nonprofit at the end of the term of the then-president, and instead reelected the incumbent president to a second term. The petitioner alleged that he resigned due to fear that personal information about him would become more public if he did not resign and brought an action against the nonprofit, alleging that the organization illegally declined to seat the petitioner as president. The Supreme Court of New York County granted the nonprofit's motion to dismiss, and the petitioner appealed.

The Supreme Court of New York, Appellate Division, upheld the lower court's decision and held that the nonprofit's decision not to seat the petitioner did not violate the nonprofit's bylaws, the New York Not-for-Profit Corporation Law, petitioner's due process rights, or principles of equity, and did not amount to negligent or fraudulent misrepresentation or discrimination under state civil rights law.

Fiduciary Duty

Walker v. Women's Prof'l Rodeo Ass'n, 498 P.3d 648 (Colo. 2021)
Members of the Women's Professional Rodeo Association brought action against the Association and its CEO for breach of fiduciary duty, breach of contract, declaratory judgment, injunctive relief, and judicial dissolution of the association. The plaintiffs were aggrieved based on the Association's calculation of prize money for their first and second place finishes in a barrel racing contest conducting at a rodeo, following temporary closure of the rodeo arena due to heavy rains. The Association had adopted rules governing the amount of payout to contestants when races at an event were cancelled. The plaintiffs disagreed with the Association's interpretation of those rules and filed an appeal with the Association Board, which denied their appeal. The plaintiffs alleged that, because the Board did not allow them to call witnesses, record the proceedings, or bring a court reporter, they were denied a meaningful appeal.

The District Court, El Paso County, granted the association's motions to dismiss for failure to state a claim and awarded attorney fees. The plaintiffs appealed the court's decision.

The Colorado Court of Appeals addressed the question of whether, under Colorado law, members of a nonprofit corporation may obtain a legal remedy against the association's board of directors when the board allegedly violated the association's rules to the members' detriment. The appeals court applied the business judgment rule and held that it would not interfere with the board's decisions, as the members failed to allege "fraud, arbitrariness, or bad faith." Further, the court held that the members' claim based on the board's failure to maintain records of the appeal was not a plausible claim for judicial dissolution of the Association. The court found that "even if the board of directors ... owed fiduciary duties to [members], and even if the board's failure to maintain adequate records could constitute a breach of fiduciary duty, a simple allegation of breach of fiduciary duty is not enough to dissolve a corporation that is not closely held." The members did not "cite any legal authority in support of their argument that the board of a membership association owes its members the same heightened duties as the majority shareholders of a closely held corporation owe to the minority shareholders." The judgment of the lower court was therefore affirmed.

Am. Stud. Ass'n v. Bronner, 259 A.3d 728 (D.C. 2021)
After a nonprofit research organization, the American Studies Association (ASA), adopted a resolution endorsing the boycott of Israeli academic institutions, current and former members of the association filed a lawsuit against the association and several of its officers, directors, and other members. The lawsuit asserted claims for breach of fiduciary duty, breach of contract, tortious interference with contract, corporate waste, and violations of the District of Columbia's Nonprofit Corporation Act. Defendants filed a motion to dismiss for failure to state a claim, as well as a special motion to dismiss under the District's Anti-Strategic Lawsuits Against Public Participation (Anti-SLAPP) Act. The Superior Court of the District of Columbia granted the motion to dismiss in part and denied the special motion to dismiss. Defendants filed interlocutory appeal.

The District of Columbia Court of Appeals vacated and remanded the Superior Court's judgment on the following grounds. First, a claim is not "likely to succeed on the merits" within the meaning of the Anti-SLAPP Act if the claim is subject to dismissal for failure to state a claim upon which relief can be granted. Second, the Superior Court is required to determine the likelihood of success on a claim-by-claim basis. Lastly, for a claim to "arise" from an act in furtherance of public advocacy within the meaning of the Anti-SLAPP Act, the claim must have a substantial connection or nexus to a protected act. In sum, the court employs a two-step analysis with respect to a special motion to dismiss under the Anti-SLAPP Act. "At the first step, the movant must make a prima facie showing that each claim at issue "arises from" an act in furtherance of the right of advocacy on an issue of public interest." To determine whether the movant has made that showing, the court must examine whether each claim is based on such protected activity. If the court concludes the movant has made the necessary showing, it must grant the special motion unless the responding party demonstrates the claim is "likely to succeed on the merits," in which case the motion must be denied. If the court determines, pursuant to Rule 12(b)(6), that the responding party has failed to state a claim on which relief can be granted, this is sufficient to establish that the claim is not "likely to...