Opinion
14371/05
Decided June 7, 2005.
In law as in design, form follows function.
In 1977, a religious corporation was formed which operated a camp in Pennsylvania. However, since its inception and until May of this year, the parties, who are the founders and trustees of the corporation, did not hold annual meetings or elections in accordance with the provisions of the New York State Religious Corporation Law. In fact, their conduct of the business of the camp and the nature of their controversy indicates that the parties regarded each other as partners, rather than trustees of a corporation, and effectively functioned to operate this camp in that manner.
This Court holds that in a controversy of this nature, where the corporate trustees disregard procedural safeguards such as annual meetings and elections that are built into the Religious Corporation Law, they undermine the very purpose of that law which is to "provide an orderly method for the administration of the property and temporalities dedicated to the use of religious groups, and to preserve them from exploitation by those who might divert them from the true beneficiaries of the corporate trust." Morris v. Scribner, 69 NY2d 418(1987). Under these circumstances, a Court should look into the nature of the relationships within the corporation and resolve the matter in accordance with the actual functioning of that corporation.
Two actions were commenced. The earlier action was commenced by the Pressers in the name of the corporation to prevent the defendant Kunda from reopening the camp for the 2005 summer session because of losses allegedly sustained in the running of this camp in the two previous years. They seek to permanently enjoin Samuel Kunda from holding himself out as a director and officer of the camp and reopening the camp and from misappropriating corporate assets and they seek an order requiring disgorgement of same. In the second action, Kunda seeks to remove the Pressers as trustees and directors pursuant to the N-PCL §§ 717; 720 which are applicable to religious corporations. He also seeks an injunction preventing the Pressers from closing the camp and also seeks a full accounting.
According to the earlier filed complaint, Camp Naarim was incorporated under Section 192 of the New York Religious Corporation Law. One of the purposes for which the plaintiff corporation was founded was to operate a summer camp "so that children may have a summer vacation in a religious, spiritual atmosphere." This corporate purpose is not disputed in the verified complaint submitted in the second action which in fact similarly recites that the main purpose for which this corporation was founded was to operate a summer camp so that children may have a summer vacation in a religious, spiritual atmosphere. None of the parties, founding members of this corporation, have shown that this corporation has done anything other than run a summer camp, notwithstanding boilerplate language in its certificate of incorporation to the contrary. The election of trustees of the corporation was to be held in January of each year, however, all parties acknowledge that no annual meetings were conducted and no elections were held from its inception until May 6 of this year, after the instant controversy arose.
The motions seeking injunctive relief that are before this Court assume that the corporate entity is a not-for-profit religious corporation such as is defined in the relevant statutes and case law. As a threshold matter, this Court must address the question of whether this foundational assumption is in fact true. It is apparent from the controversy itself that the parties have treated this camp as a business enterprise that has been operated for their personal benefit with each side variously concerned with its profitability and its continuing viability as a source of income rather than a liability. Thus, for example, in his affirmation, Samuel Kunda recites that "any allegation that I received a higher salary cannot in any way be seen as a reasonable ground to close the Camp for 2005! Defendants and I all received a salary from Machneh. However if I did receive a higher salary it is because I worked for it and earned it. . . . David, on the other hand does not work full time at the camp . . ."
"A Not-For-Profit corporation . . . is . . . a corporation that devotes whatever proceeds it receives from its operations to charitable causes rather than disbursing the funds as dividends to shareholders and compensation to executives. Just as the goal of a for-profit corporation is to make money for its investors, the goal of a not-for-profit is to make money that can be spent on furthering its social welfare objectives . . ." American Baptist Churches of Metropolitan New York v. Galloway, 271 AD2d 92(lst Dept. 2000). As to the not-for-profit aspect of plaintiff's corporation, here, it is apparent the motivating goal of the incorporating founders was to create a vehicle that would serve as a means of support for them rather then as a means to serve charitable causes.
The second phase of this inquiry must turn to the question of whether this camp can qualify as a "religious corporation" as that term is defined in the Religious Corporation Law. This Court adopts for this part of its analysis the views espoused in an early decision holding that the YMCA would not have qualified as a religious corporation under the Religious Corporation Law and thus was not an exempt corporation under the Transfer Tax Act. In so doing, the Court analyzed the provisions of the Religious Corporation Law and observed that "a religious corporation should be one formed primarily for religious purposes; exercising some ecclesiastical control over its members, having some distinct form of worship and some method of discipline for violation thereof, and that the mere fact that it has been formed for a good and worthy object, in which incidently there will some religious exercises involved, does not make it a religious corporation." Matter of Fay, Deceased, 37 Misc. 532 (Surrogates's Court, Kings County 1902). Here as in Fay, the fact that the Camp provides the boys with a "summer vacation in a religious, spiritual atmosphere" does not transform this camp into a religious institution for the purposes of the Religious Corporation Law and this Court so holds.
In so holding, this Court shares the regret of the Fay court which said that "this corporation is conducting a great work on behalf of the young men of Brooklyn and is probably by its influence bringing up more young men to lead moral, godly lives than many of the churches combined, it being enabled, by reason of the peculiar methods employed, to reach many young men who could not be reached by the ordinary influences and scope of the authority exercised by the churches; but the question before me is not what the Legislature should provide in this manner but what has the Legislature actually done and intended . . ." Fay, supra 37 Misc at 534-535.
Accordingly, this Court views these parties as shareholders in a small, closely held corporation. As such, the fact that they have dispensed with the formalities of annual meetings and elections is not fatal to the existence of the corporation. See, Bahar v. Schwartzreich, 204 AD2d 441 (2nd Dept., 1994). The Court therefore directs that the corporation formed be changed to reflect this actuality.
The Court disposes of the motions before it as follows:
Ordered, that the Clerk of Kings County is directed to consolidate the file of index number 16160/05 into index number 147371/05; and it is further
Ordered, that the caption shall read as follows:
All temporary restraining orders are hereby lifted and vacated.
The motions and cross motions are granted to the extent that the parties are to appear before this Court on Friday, June 17, 2005 at 11:00 a.m. in Room 1117, 360 Adams Street, Brooklyn, New York, prepared to bid on the property, whereupon the shares of the new for — profit closely held corporation will be transferred to the successful bidder together with its assets and liabilities.
This constitutes the decision and order of the Court.