Opinion
No. 516/12.
2012-09-26
Rainer MELUCCI, individually as a director and Member of the Society of Professional Investigators, Inc. and all other Directors and Members of the Society of Professional Investigators, Inc. similarly situated and in the right of the Society of Professional Investigators, Inc., a not-for-profit corporation, Plaintiffs, v. Bruce SACKMAN, David Roberts, Marvin Schecter, Donna Karp, Steven Levine, Charles Eric Gordon, Irving Botwinick, Ruth J. Boody, Ernest Lungaro, Steven Ramban, Efrat Cohen and Bruce H. Hulme, individually and as directors and members of the Society of Professional Investigators, Inc., on behalf of themselves and other directors and Members of the Society of Professional Investigators, Inc. similarly situated and in the right of the Society of Professional Investigators, Inc., Defendants.
Daniel Melucci, Melucci Firm PC, Garden City, NY, for Plaintiff. Daniel S. Moretti, Landman Corsi Ballaine & Ford PC, New York, for Defendant.
Daniel Melucci, Melucci Firm PC, Garden City, NY, for Plaintiff. Daniel S. Moretti, Landman Corsi Ballaine & Ford PC, New York, for Defendant.
CAROLYN E. DEMAREST, J.
The following papers numbered 1 to 9 read herein:
+--------------------------------------------+ ¦Papers Numbered ¦ ¦ +------------------------------------+-------¦ ¦Notice of Motion/Order to Show Cause¦/ ¦ +------------------------------------+-------¦ ¦Petition/Cross Motion and ¦ ¦ +------------------------------------+-------¦ ¦Affidavits (Affirmations) Annexed ¦1–3 ¦ +------------------------------------+-------¦ ¦Opposing Affidavits (Affirmations) ¦4 ¦ +------------------------------------+-------¦ ¦Reply Affidavits (Affirmations) ¦5–6 ¦ +------------------------------------+-------¦ ¦Affidavit (Affirmation) ¦ ¦ +------------------------------------+-------¦ ¦Other Papers Memoranda of Law ¦7–9 ¦ +--------------------------------------------+
This is an action brought by plaintiff Rainer Melucci (plaintiff), individually as a director and member of the Society of Professional Investigators, Inc. (SPI), a not-for-profit corporation, and derivatively on behalf of all other directors and members of SPI similarly situated and in the right of SPI, against defendants Bruce Sackman (Sackman), David Roberts (Roberts), Marvin Schechter (sued herein as Marvin Schecter) (Schechter), Donna Karp (Karp), Steven Levine (Levine), Charles Eric Gordon (Gordon), Irving Botwinick (Botwinick), Ernest Lungaro (Lungaro), Steven Rambam (sued herein as Steven Ramban) (Rambam), Efrat Cohen (Cohen), and Bruce H. Hulme (Hulme), as directors and members of SPI (collectively, defendants).
Defendants move for an order dismissing plaintiff's complaint, pursuant to CPLR 3211(a)(1), (3), and (7), and 3016(b), based on the asserted grounds of documentary evidence, lack of standing, failure to state a cause of action, qualified immunity, and failure to plead with requisite specificity.
By a Stipulation of Discontinuance dated February 17, 2012 and filed on March 7, 2012, plaintiff discontinued his claims as against defendant Ruth J. Boody (Boody).
BACKGROUND
SPI is a not-for-profit organization dedicated to advancing the science and technique of investigation and to promoting the interests of licensed professional investigators. Plaintiff was a member of SPI, which is governed by written bylaws. According to Article IV, Section 9, of SPI's bylaws, the membership list is confidential and retained by the president. SPI is managed by an all-volunteer board of directors (the Board). During the relevant time period, the Board had a maximum of 14 voting positions, consisting of six elected officers, six appointed at-large directors, the immediate past president, who served as chairperson of the Board, and all other past presidents, who collectively shared a single vote. At various times throughout the relevant period, David Zeldin (Zeldin) (a non-party herein) and defendant Sackman served as president; Gordon served as vice-president; Boody served as second vice-president; Karp and, later, Roberts, served as treasurer; Lungaro served as secretary; Levine served as sergeant at arms; Botwinick served as chairperson; and Hulme, Rambam, and Cohen served as at-large directors. Plaintiff and non-party Anthony Carter (Carter) served on the Board as past presidents. Schechter was SPI's general counsel and, since he was not a director of SPI, he had no voting power.
On March 26, 2009, a meeting was held at which the Board voted to conduct an internal audit of SPI's finances. Plaintiff and Carter were appointed to a specially constituted Audit Committee. On February 9, 2010, plaintiff and Carter issued an initial audit report regarding SPI's financial records for the years 2008 and 2009, which was amended and expanded in a report dated April 30, 2010. As a result of this audit, plaintiff determined that there were missing financial records and $4,018.55 in unaccounted funds for calendar years 2008 and 2009. Plaintiff alleges these missing funds had possibly been unlawfully conveyed, transferred, or converted. Karp, who was then the treasurer of SPI, claimed that the records had been misplaced and the computer files had been destroyed when her computer crashed. Zeldin, who served as president from 2003 to 2008, had maintained a backup file but the file had been lost when he moved his office. Since defendants allegedly refused and/or were unable to produce records necessary to complete the audit or account for the funds in response to plaintiff's demands, plaintiff and Carter demanded that an official audit by an outside auditor be instituted, and plaintiff allegedly offered to personally finance the audit. The Audit Committee also recommended the implementation of remedial procedures. The Audit Report was discussed at a March 16, 2010 Board meeting and plaintiff and Carter were advised by the president, Sackman, that all of their recommendations has been implemented and procedures had been instituted to create reliable records of funds received.
At a Board meeting held on May 12, 2010, the Board voted against plaintiff and Carter's recommendation that an independent auditor be retained to further investigate the missing funds. On May 29, 2010, Sackman, as president, sent a letter to the SPI general membership disclosing the results of plaintiff and Carter's audit and announcing the institution of several new bookkeeping and accounting guidelines. On February 16, 2011, the Board unanimously approved the audit reports issued by plaintiff and Carter, but took no further action with respect to the missing funds.
However, in response to a grievance filed against Karp by Boody, the Board's Grievance Committee, at that time composed of Rambam and Cohen, held a hearing on March 22, 2010, regarding Karp's culpability for the missing records and funds, at which plaintiff and Carter testified. The Grievance Committee subsequently rendered its findings and recommended that Karp be immediately and permanently removed as SPI's treasurer as she had not properly performed her duties, but that a suspension or expulsion of Karp from SPI was not warranted as the Committee did not believe she was guilty of any criminal or malicious conduct. At the Board meeting held on May 12, 2010, the Board adopted the Grievance Committee's findings regarding Karp and Karp voluntarily resigned as treasurer. However, the Board decided that Karp should remain on the Board as an at-large director to assist with the transition to the new treasurer, Roberts.
At the May 12, 2010 meeting, the Board also addressed a grievance filed by Karp against plaintiff. On December 16, 2009, apparently during his audit investigation, plaintiff had sent an e-mail regarding Karp to Karp's supervisor, Levine, also an SPI member, at his government-issued work e-mail address. Levine was not on the Board and, therefore, was not privy to the events surrounding the audit that had occurred up to that point. Attaching a letter from Karp to the Board members regarding the audit, plaintiff stated: “How can you trust this woman after this!!” and expressed indignation that Karp should “do this” in light of a pending lawsuit. Karp filed a grievance against plaintiff with the Board based upon this e-mail which effectively communicated an internal Board matter outside of the Board of Directors. Plaintiff claims that he was not notified of this grievance and that the Executive Committee Grievance Procedure Guidelines were not followed. An e-mail from plaintiff to Rambam dated March 19, 2010 states that plaintiff was only told verbally that he might have a grievance filed against him by Karp, but that he would “be there anyway, if needed or not, but only by invitation,” and that he was told by Cohen to come. A hearing was held, at which plaintiff attended and addressed Karp's grievance. The Grievance Committee found in favor of Karp and recommended that plaintiff be suspended from the Board.
At the May 12, 2010 Board meeting, the Board adopted the Grievance Committee's findings regarding Karp's complaint against plaintiff and voted to suspend plaintiff from the Board for three months. However, since plaintiff had been unable to attend this meeting, the Board gave him a one week window to respond to this suspension in writing with any mitigating circumstances. Plaintiff provided a written response by e-mail dated May 13, 2010, which was reviewed and rejected by Sackman, and the suspension commenced on May 24, 2010, as decided by the Board.
By e-mail dated June 11, 2011, Board members were notified of a SPI Board meeting on June 22, 2011 and the proposed agenda for that meeting, which included a proposed Conflict of Interest Policy and Statement Form. On June 22, 2011, the meeting was attended by 13 directors (three of which attended by telephone) and general counsel Schechter, and the Board voted to amend the bylaws to require all directors to sign a Conflict of Interest Statement affirming that they had no conflicts of interest with SPI. Plaintiff did not attend the June 22, 2011 meeting. Board members were given 30 days from the date of that meeting to submit their executed Conflict of Interest Statements to SPI's general counsel. Plaintiff has never executed the Statement.
At a Special SPI Board Meeting held on October 18, 2011, noticed to all Board members by e-mail sent September 27, 2011 which expressly recited that the subject of the special meeting was plaintiff's e-mail to the NYCFE Board and his failure to sign the conflict of interest form, at which 10 Board members (constituting 10 votes) attended (three by telephone), upon entering into executive session, the Board members (with the exception of Karp, who recused herself from voting) unanimously voted to remove plaintiff from the Board based upon his “willful and continuous failure to sign and submit the SPI Conflict of Interest Statement to the General Counsel of SPI.” According to the minutes of this meeting, plaintiff “had been repeatedly informed of this requirement by e-mail,” and “his personal attorney had conversations with the SPI General Counsel about this matter as well .” The minutes stated that “[t]his failure to sign and submit a conflict of interest form violate[d] the laws governing non-profit organizations [ seeNot–For–Profit Corporation Law § 715] and a requirement from SPI's insurance carrier.” This requirement also appeared on the SPI website under the heading Code of Conduct, and was incorporated into SPI's bylaws (as a newly enacted amendment thereto) as “Article X Code of Ethics.”
In addition, at that meeting, the Board voted to expel plaintiff as a member of SPI for authoring an e-mail, dated September 16, 2011, which he had sent to the members of the board of directors of the New York Certified Fraud Examiners (N.Y.CFE), stating that it had come to plaintiff's attention that there was an effort to bring Karp back to the N.Y. Chapter Board, and that if this occurred, he would resign from any activity concerning the Chapter. Plaintiff then disclosed the details of the controversy concerning Karp and the audit of SPI's books for the years 2008 and 2009. Specifically, plaintiff stated that he and Carter had found some $3,500 missing, and that an official audit by an outside auditor was denied by the Board. Plaintiff further stated, in that e-mail, that there was still no record of the monies “either missing or stolen,” that the matter was supposedly closed. Plaintiff acknowledged to the NYCFE board that if he divulged anything regarding this incident (as he was then doing), he would be removed from the Board of SPI. Plaintiff, in that e-mail, also disclosed the details of the grievance Karp had filed against him, Karp's association with Zeldin, by whom she was employed independent of SPI, and how Levine had reported the e-mail that he had sent to him about Karp to the Board.
The Board found that this e-mail “demean[ed] and denigrate[d] members of the board of directors of SPI as well as the organization itself,” and “disclose[d] confidential SPI Board matters to another organization and its board members” in violation of the SPI Code of Conduct and Article VI, Section 3, of the SPI bylaws. This Section of the SPI bylaws provides:
“All matters discussed by the board, orally or in writing, to include e-mails, are confidential and can only be released to outside organizations ... with the written permission of the President. Any violation of this section may result in administrative action up to and including expulsion from the organization.”
The SPI Code of Conduct provides that:
“Except with disclosure to and consent from SPI, or in furtherance of SPI's activities in which he or she is authorized to act, a board member shall not reveal to any third person or use for his or her own purposes any of SPI's proprietary business or financial information, records, results, work product or other information acquired in connection with the board member's SPI activities that is not generally available.”
At the October 18, 2011 SPI Special Board Meeting, there were six recorded votes to expel plaintiff, two abstentions, and one recusal (by Karp). The Board agreed, however, that plaintiff would be given an opportunity to resign no later than the close of business December 30, 2011, by letter to the SPI General Counsel, and if he resigned, the expulsion would be rescinded. Plaintiff did not resign by December 30, 2011. Thereafter, the minutes of a January 4, 2012 SPI Board Meeting reflect that the Board extended plaintiff's resignation date to January 15, 2012. Plaintiff still did not resign, and, instead, on January 10, 2012, filed this action against defendants.
Plaintiff's complaint in this action alleges that in retaliation for his inquiries and demands with respect to the missing funds, retaliatory action was taken against him in the form of a suspension and, ultimately, by expulsion from the Board and from membership in SPI. Plaintiff claims that defendants' improper attempt to expel him from the Board and from membership in SPI was in violation of Not–For–Profit Corporation Law § 706, Article 6, and SPI's bylaws and that, as a result, his purported expulsion from the Board and from membership in SPI is void and without effect. Plaintiff alleges that defendants' attempt to expel him was an effort to interfere with his ability to take action on behalf of SPI as a result of the findings of the audit.
Plaintiff further alleges that defendants neglected and failed to perform their duties in the management and disposition of corporate assets committed to their charge, and that they also neglected and failed to perform their duties in wrongfully amending the bylaws of SPI so as to discourage compliance with the Not–For–Profit Corporation Law and the bylaws of SPI. Plaintiff asserts that this resulted in the loss or waste of corporate assets. Plaintiff alleges that defendants violated SPI's bylaws by failing to: safely hold, as custodian of and on behalf of SPI, all books, correspondence, and other records; keep regular accounts of all receipts and disbursements in computerized format; properly and adequately report financial matters to the Board; prepare and submit accurate and appropriate annual reports; take, receive, hold and safely keep, as custodian, the assets of SPI; make available for inspection a copy of the Treasurer's Annual Report to each member of SPI; follow appropriate procedures in acting to remove him from the Board and as a member of SPI; and follow appropriate procedures with respect to the scheduling and holding of meetings. Plaintiff claims that this alleged malfeasance constituted gross negligence intended to cause harm, and resulted in harm to him and to SPI
Plaintiff's first cause of action demands that his “attempted” expulsion from the Board and from membership in SPI should be declared a nullity. Plaintiff's second cause of action seeks a judgment compelling defendants “to account for their official conduct for the neglect of, failure to perform, and violation of their duties in the management and disposition of corporate assets committed to their charge” (Complaint ¶ 50). Plaintiff's third cause of action demands that defendants be compelled “to account for their official conduct in the acquisition, transfer to others, loss and/or waste of corporate assets due to any neglect of, failure to perform, or other violation of their duties” (Complaint ¶ 52). Plaintiff's fourth cause of action seeks to set aside “any unlawful conveyance, assignment, or transfer of corporate assets” (Complaint ¶ 54). Plaintiff's fifth cause of action demands that defendants be enjoined from removing him from the Board, or, in the event that he has been removed, reinstating him to his position on the Board. Plaintiff's sixth cause of action, brought on behalf of SPI, seeks damages for “all monies transferred to others, lost or wasted” (Complaint ¶ 58), as well as reasonable expenses, including attorney's fees, incurred in the prosecution of this action.
DISCUSSION
Defendants' Arguments for Dismissal
Defendants, in their motion, seek dismissal of plaintiff's complaint, pursuant to CPLR 3211(a)(7), for failure to state a cause of action, and, pursuant to CPLR 3211(a)(1), based upon the documentary evidence submitted by them.
“It is well settled that, as a general rule, on a motion to dismiss the complaint for failure to state a cause of action under CPLR 3211(a)(7), the complaint must be construed in the light most favorable to the plaintiff” (Gruen v. County of Suffolk, 187 A.D.2d 560, 562 [2d Dept 1992]; see also Rosen v. Watermill Dev. Corp., 1 AD3d 424, 425 [2d Dept 2003] ). The court must also accept the facts as alleged in the complaint as true and “accord [the] plaintiff[ ] the benefit of every possible favorable inference” (Sokoloff v. Harriman Estates Dev. Corp., 96 N.Y.2d 409, 414 [2001] ). The court, in accepting the facts alleged in the complaint to be true, must “determine only whether the facts alleged fit within any cognizable legal theory' “ (Ruffino v. New York City Tr. Auth., 55 AD3d 817, 818 [2d Dept 2008], quoting Morris v. Morris, 306 A.D.2d 449, 451 [2d Dept 2003] ). “[I]f from the four corners [of the complaint] factual allegations are discerned which taken together manifest any cause of action cognizable at law a motion for dismissal will fail” (Guggenheimer v. Ginzburg, 43 N.Y.2d 268, 275 [1977]; accord, Ruffino, 55 AD3d at 818, quoting Morris, 306 A.D.2d at 451: “the sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law a motion for dismissal will fail' ”). “[B]are legal conclusions are not entitled to the benefit of the presumption of truth and are not accorded every favorable inference” ( id.). However, dismissal of the complaint pursuant to CPLR 3211(a)(7) “will be warranted only in those situations in which it is conclusively established that there is no cause of action” (Town of N. Hempstead v. Sea Crest Constr. Corp., 119 A.D.2d 744, 746 [2d Dept 1986] ).
A dismissal pursuant to CPLR 3211(a)(1) is warranted on the basis that a defense based upon documentary evidence exists and the documentary evidence submitted “definitively contradicts the plaintiff's factual allegations and conclusively disposes of the plaintiff's claim” (Berardino v. Ochlan, 2 AD3d 556, 557 [2d Dept 2003]; see also Leon v. Martinez, 84 N.Y.2d 83, 87 [1994];Forftis Fin. Servs.v Fimat Futures USA, 290 A.D.2d 383, 383 [1st Dept 2002] ). The documentary evidence submitted must conclusively establish a defense to the asserted claim as a matter of law and utterly refute the complaint's factual allegations ( see Leon, 84 N.Y.2d at 88).
Defendants' motion further seeks dismissal of plaintiff's complaint for failure to plead with specificity pursuant to CPLR 3016(b), and, pursuant to CPLR 3211(a)(3), based upon plaintiff's alleged lack of standing. Defendants also contend that plaintiff's complaint is barred by the Federal Volunteer Protection Act (42 USC § 14501 et seq.) (FVPA), which provides statutory immunity from liability, and by the applicable statute of limitations.
The FVPA
The FVPA was enacted, upon the finding that volunteer service “is deterred by the potential for liability actions”, to “sustain the availability of programs, [and] nonprofit organizations ... by reforming the laws to provide certain protections from liability abuses related to volunteers serving nonprofit organizations and governmental entities” (42 USC § 14501[a] and [b]; see Momans v. St. John's Northwestern Military Academy, Inc., 2000 WL 33976543, *5, 2000 U.S. Dist LEXIS 5129 [ND Ill 2000] ). The FVPA preempts the laws of any State to the extent that such laws are inconsistent with it, except that it does “not preempt any State law that provides additional protection from liability relating to volunteers or to any category of volunteers in the performance of services for a nonprofit organization” (42 USC § 14502[a] ).
SPI is a “nonprofit organization” as defined by the FVPA (42 USC § 14505 [4] [b] ). Defendants assert that they meet the definition of a “volunteer” as defined by the FVPA since they are uncompensated individuals serving SPI, and the FVPA defines a “volunteer” as “an individual performing services for a nonprofit organization ... who does not receive ... compensation (other than reasonable reimbursement or allowance for expenses actually incurred) ... and such term includes a volunteer serving as a director” (42 USC § 14505[6] ). There is no doubt that defendants serve without compensation, notwithstanding plaintiff's specious suggestion that the assets he alleges were diverted would constitute compensation.
The FVPA provides, in pertinent part, that “no volunteer of a nonprofit organization ... shall be liable for harm caused by an act or omission of the volunteer on behalf of the organization ... if ... the volunteer was acting within the scope of the volunteer's responsibilities in the nonprofit organization ... at the time of the act or omission ... [and] the harm was not caused by willful or criminal misconduct, gross negligence, reckless misconduct, or a conscious, flagrant indifference to the rights or safety of the individual harmed by the volunteer” (42 USC § 14503[a]; see Entler v. Koch, 85 AD3d 1098, 1100 [2d Dept 2011], lv dismissed17 NY3d 898 [2011],lv denied18 NY3d 869 [2012] ).
The FVPA is only applicable to those causes of action alleging harm to plaintiff personally and does not preclude those derivative claims brought on behalf of SPI, which are authorized under the Not-for Profit Corporation Law (N–PCL) § 720 to redress breaches of fiduciary responsibility causing harm to the corporation ( see generally, id.; 42 USC § 14503[b] ). Plaintiff has attempted to bring his personal claims within the exception to the FVPA by arguing that defendants willfully harmed him by misconduct that “if not criminal,” “misappropriat[ed] funds of SPI and then attempting to prevent any investigation into the matter which might lead to proper restitution” (Plaintiff's Memorandum in Opposition at page 6). Insofar as plaintiff alleges he was aggrieved personally by disciplinary action taken as retribution for his efforts to obtain a further audit, his claim would be precluded by the FVPA. However, as articulated, the claim runs to the benefit of SPI and not to plaintiff personally. As such, it does not fall within the protections afforded under the FVPA to volunteer officers of a not-for-profit corporation who are acting within the scope of their duties.
In arguing that they are immune from liability in this action, defendants also cite N–PCL § 720–a, which, by its terms, applies to Internal Revenue Code § 501(c)(3) non-profit organizations. While defendants concede that SPI is not an Internal Revenue Code § 501(c)(3) organization, but is an Internal Revenue Code § 501(c)(6) organization, to which N–PCL § 720–a does not apply, they contend that the FVPA is analogous to New York's N–PCL § 720–a which shields directors and officers of not-for-profit corporations who serve without compensation from liability to any person other than such corporation based solely upon their conduct in the execution of their office “unless such conduct with respect to the person asserting liability constituted gross negligence or was intended to cause the resulting harm to the person asserting such liability.” On motion pursuant to CPLR 3211(a)(11), the court shall determine whether a defendant is entitled to the benefit of N–PCL § 720–a and, if so, whether there is a reasonable probability that the alleged conduct of such defendant constituted gross negligence or was intended to cause the resulting harm. Where the court finds that the defendant is entitled to the benefits of N–PCL § 720–a and “does not find reasonable probability of gross negligence or intentional harm,” it is required to dismiss the claim against the defendant ( see Martin v. Columbia Greene Humane Socy., Inc., 17 AD3d 839, 842 [3d Dept 2005] ).
In order to withstand a motion under CPLR 3211(a)(11), a plaintiff must demonstrate such a reasonable probability through specific allegations that the defendant's conduct was grossly negligent or was intended to cause the resulting harm ( see Krackeler Scientific, Inc. v. Ordway Research Institute, Inc., 97 AD3d 1083 [3d Dept 2012]; Thome v. Alexander & Louisa Calder Found ., 70 AD3d 88, 112 [1st Dept 2009], lv denied15 NY3d 703 [2010];Rabushka v. Marks, 229 A.D.2d 899, 900 [3d Dept 1996]; Johnson v. Black Equity Alliance, Inc., 26 Misc.3d 1219[A], 2010 N.Y. Slip Op 50178[U], *3–4 [Sup Ct, N.Y. County 2010] ). Plaintiff has not pleaded facts sufficient to meet this burden. While defendants' motion is not brought pursuant to CPLR 3211(a)(11), they argue, by analogy, based upon the similarity between N–PCL § 720–a and the FVPA, that because plaintiff cannot make this showing, dismissal pursuant to CPLR 3211(a)(7) for failure to state a claim is required based upon the immunity afforded to them under the FVPA. Limiting the application of the FVPA to the plaintiff's individual causes of action, this court agrees.
The Documentary Evidence
The documentary evidence, consisting of PSI's bylaws, the Audit and Grievance Committee Reports, the minutes of the relevant Board meetings and various written and e-mail communications,
establishes defendants' good faith performance of their duties with respect to the audit performed by plaintiff. It is clear that the discrepancies in Treasurer Karp's records were taken very seriously and she was forced to resign as a result, consistent with plaintiff's own recommendation. However, the Board found no evidence of criminal or malicious conduct and accepted the findings of the Grievance Committee that Ms. Karp's “family difficulties” mitigated her failure to perform her duties as required. The Board instituted virtually all of the plaintiff's recommendations to avoid future errors and inadequacies. The determination not to obtain an independent audit was well-within defendants' proper good faith exercise of business judgment and does not support plaintiff's claims that a duty was breached ( see People ex rel Cuomo v. Lawrence, 74 AD3d 1705, 1707 [4th Dept 2010]; N–PCL § 717).
Defendant Sackman has attested, as president of SPI since January 1, 2010, that a quorum representing ten percent of the membership of SPI was present at every Board meeting and that all documents annexed to his affidavit are true and complete.
Plaintiff's allegations against defendants contained in his first and fifth causes of action, seeking his reinstatement to membership in SPI and its Board, are properly raised, not in a plenary action, but in a special proceeding pursuant to CPLR article 78, to which the fourth-month statute of limitations of CPLR § 217 applies. Since plaintiff was suspended upon Karp's grievance on May 24, 2010, no relief is available to plaintiff with respect thereto in this action commenced in January 2012.
It is well established, however, that a court may review the processes of a not-for-profit corporation in order to determine if a board has complied with its own bylaws and procedures ( see Matter of Clark v. Eastern Tennis Umpires Assn., 118 A.D.2d 853 [2d Dept 1986]; James v. National Arts Club, 33 Misc.3d 1211[A], 2011 N.Y. Slip Op 51885[U], *8 [Sup Ct, N.Y. County 2011]; Mutual Hous. of Tompkins County v. Hawes, Inc., 4 Misc.3d 247, 254–255 [NY City Ct, City of Ithaca 2004] ). Thus, a not-for-profit corporation's procedure is reviewable by the court, and improper proceedings may be set aside ( see James, 33 Misc.3d 1211[A], *8).
The personal claims interposed in the first and fifth causes of action are based upon plaintiff's removal from the Board on October 18, 2011, and the decision to expel him from membership in SPI on that date, and are not untimely under CPLR § 217. The stated reason for his removal from the Board was his willful failure to sign a Conflict of Interest Statement which had been added to the bylaws as a prerequisite to Board service at a duly-noticed meeting of the Board on June 22, 2011. There is no merit to plaintiff's contentions that the statement was an anti-whistle-blower provision and that signing such form would conflict with his fiduciary duty as a Board member. The Conflict of Interest Statement was intended to effect a legal requirement demanded by SPI's insurer that would mandate disclosure of any conflict of interest that a Board member might have with respect to business before the Board as a result of personal, financial or business interests. Such statement would actually promote the proper exercise of fiduciary duty by a Board member and had no anti-whistle-blowing purpose. There is also no merit to the claim that the bylaw provision was enacted without proper notice as it was expressly noticed in an e-mail to all Board members on June 11, 2011, and approved by a unanimous vote of the thirteen Board members at the June 22, 2011 meeting, with one abstention. That plaintiff did not attend, does not render the vote defective. The vote of the Board on October 18, 2011 to remove plaintiff for failing to execute the Conflict of Interest Statement was unanimous.
Plaintiff also cites N–PCL § 706 in support of his claim that his removal from the Board was improper. That statute provides that directors may be removed by the board for cause where there is a quorum “of not less than a majority present at the meeting of directors at which such action is taken.” Out of a total of twelve voting Board members, ten attended the October 18, 2011 meeting. Other than Donna Karp, who recused herself from voting, the vote of the Board was unanimous. Clearly, N–PCL § 706 was complied with, as was Article VI, § 8 of SPI's bylaws which provides that a director may be removed for cause by a three-quarters vote of the Board.
The determination by the Board, in executive session, to expel plaintiff from SPI based upon his communication to NYCFE of disciplinary matters internal to SPI, in direct violation of Article VI of the bylaws prohibiting disclosure of confidential matters before SPI's Board and specifying expulsion as a possible penalty for its violation, was approved by six Board members, with two abstentions. All of the officers, and the immediate past president serving as Chairman, constituting the entire Executive Committee (see bylaws, Art. V § 1), were present. As required by the bylaws, the Executive Committee “shall solely hear any and all grievances, solely conduct any hearings, if necessary, and also shall solely determine any and all violations of these By laws by any member” (Art. V, § 11B). The Board is authorized to “approve or disapprove the suspension, expulsion or any other action of members recommended by the Executive Committee” (Art. VI, § 4D). Article VI, § 4A provides that “any act of the majority of the voting members' [ sic ] present at a Board of Directors Meeting shall be an act of the Board.” As plaintiff was not an officer or a committee member at the time of the vote, a three quarters vote was not required. Out of the ten Board members at the meeting, two abstained. Thus, the affirmative vote to expel by six members, constituted a “majority” of those voting. It appears that two votes were not recorded.
Notice of the October 18, 2011 meeting was duly provided to all Board members, including plaintiff, by e-mail on September 27, 2011. The notice stated that the purpose of the special meeting was “to discuss the recent e-mail sent to NYCFE Board members by SPI Board Member Rainer Melucci relative to SPI board matters. Additionally, Mr. Melucci failed to signed [ sic ] the SPI conflict of interest form and that matter will be addressed as well.” Thus, plaintiff was on notice that the “grievances” against him would be addressed by the Board on October 18.
Plaintiff complains that the Grievance Procedure, as set forth in the Executive Committee's Guidelines, was not followed. (Plaintiff's contention that the Executive Committee failed to create such guidelines as required under bylaws Art. V, § 11B is contradicted by the documentary evidence). It appears, however, that the procedures of which plaintiff complains are intended to apply to a grievance brought by one member against another and would not logically apply when the “grievant” is the Executive Committee conjoined with the Board and the “accused” is himself a Board member. However, the procedure followed was substantially in compliance with the Guidelines. Plaintiff was notified of the charges against him and given the opportunity to respond.
Plaintiff has never disputed the truth of the charges and, indeed, in his offending e-mail to the NYCFE board, acknowledged that his action would result in his removal from the Board. Plaintiff has failed to submit an affidavit in opposition to defendants' motion and has not denied receiving the notice of the October 18 meeting; even the “Verified Complaint” is only verified by counsel. The bylaws are undisputed documentary evidence of the rules plaintiff has not denied violating. When he failed to attend the October 18 meeting to defend himself, he waived any further right to the process outlined in the Guidelines. Since the Board was inclusive of the Executive Committee members, when the Board went into executive session, it was functioning as the Executive Committee under the bylaws to hear and determine the grievances against plaintiff. In voting, as a Board, to remove plaintiff for failing to comply with the bylaws relating to Board membership and to expel him from membership in SPI, it was exercising its authority under the bylaws. In the absence of plaintiff's participation in the process, there was no reason to delay. Since the actions of defendants in removing and expelling plaintiff were clearly within the scope of their responsibility, were in compliance with the bylaws and were appropriate and justified under the business judgment rule, and there is no indication whatever that such decisions were criminal, grossly negligent or improper under the circumstances, the FVPA provides immunity to defendants and requires the dismissal of the first and fifth causes of action.
The documentary evidence conclusively establishes that plaintiff was properly and effectively removed from the Board and expelled from membership in SPI on October 18, 2011. The opportunity afforded to plaintiff to resign following the meeting and before January 15, 2012, so as to avoid the ignominy of his expulsion, required him to act. Only if he resigned, would the expulsion “be rescinded.” Since he did not resign, his expulsion was effective when voted on October 18, 2011. On January 10, 2012, when this action was commenced, plaintiff was no longer a member of SPI in any capacity and lacked standing to maintain this derivative action against defendants ( see Matter of Romney v. Mazur, 52 AD3d 610 [2d Dept 2008]; N–PCL § 623(b)). Accordingly, plaintiff's derivative causes of action must also be dismissed.
In light of this determination, it is unnecessary to address defendants' other arguments. The complaint is deficient in several respects (the failure to join and plead support of five percent of the membership, the failure to plead demand or futility of demand, the failure to allege acts of the individual defendants or to provide the specific facts, other than speculation, upon which the derivative claims are based), however, amendment of the complaint could not cure the basic defect that plaintiff lacks standing to bring this derivative action and has failed to overcome the documentary evidence which refutes his contentions that his removal and expulsion were not properly accomplished. The request for leave to amend the complaint is therefore denied.
CONCLUSION
Accordingly, defendants' motion to dismiss plaintiff's complaint as against them is granted in its entirety.
This constitutes the decision and order of the court.