RIGHTS OF THE MEMBERS OF HSAUWC UNDER CALIFORNIA AND NEW YORK LAW
CALIFORNIA:
HSAUWC is either a public benefit corporation or a
religious corporation under California law.
(a)
Public Benefit Corporation
Each public benefit corporation is required to keep
(1) adequate and correct books and records of account; (2) minutes of the
proceedings of its members, board and committees of the board; and (3) a record
of its members giving their names and addresses and the class of membership
held by each. Members of public benefic
corporations shall have access to all books and records of the
corporation. That Section provides:
“The accounting books and
records and minutes of proceedings
of the members and the board and committees of the board shall be open to
inspection upon the written demand on the corporation of any member at any
reasonable time, for a purpose reasonably related to such person's interests as
a member.”
The rights of members in
this respect are more limited than the rights of directors or officers of a
public benefit corporation. Unlike
members, directors “have the absolute right” to inspect and copy all documents
of every kind. Members, on the other
hand, must have a purpose reasonably related to their interests as a
member. The Code protects this right to
inspection for members, specifically stating that the rights of members to
inspect books, records and documents “may not be limited by contract or the
articles or bylaws.” No such similar provision
exists with respect to officers or directors of public benefit
corporations.
Members should write to the
HSAUWC board members and demand an explanation backed by accounting books,
records and minutes.
Any such inspection of the
records or reports may be made in person or by an agent or attorney and the
right of inspection includes the right to copy and make extracts. In addition, the right of inspection extends
to the records of each subsidiary of the corporation. A California public benefit corporation is
required to keep at its principal office in California an original or copy of
its articles and bylaws. If any record
subject to inspection is not maintained in written form, a request for
inspection is not complied with unless and until the corporation (at its
expense) makes such record available in written form. Cal.
Corp. Code § 6310.
The California Nonprofit Corporation Law also
provides that if the public benefit corporation refuses to comply with the foregoing
request of a member, the superior court may enforce the demand or right of
inspection with just and proper conditions.
Alternatively such court may, for good cause shown, appoint one or more
competent inspectors or independent accountants to audit the financial
statements kept in California and investigate the property, funds and affairs
of any corporation and its subsidiaries.
Id. Any officers or agents who refuse to produce
all books and documents in their custody are subject to punishment for contempt
of court. Cal. Corp.
Code § 6336(b). The member(s) making such application to the court must
bear the expenses related to such investigation unless the court orders them to
be paid or shared by the corporation. Cal. Corp. Code § 6336(c). Further, if the court finds that
the failure of the corporation to comply with a proper demand was without
justification, the court may award the member reasonable costs and expenses,
including reasonable attorney’s fees.
Cal. Corp. Code § 6337; see Moran
v. Oso Valley Greenbelt Assn., 92 Cal. App. 4th
156, 160-61 (2001).
(b)
Religious Corporations
Members of corporations
formed as nonprofit religious corporations under Part 4 of the California
Nonprofit Corporation Law have very similar rights regarding access to
information as their counterparts at public benefit corporations. Specifically, “the accounting books and
records and minutes of the proceedings…shall be open to inspection upon written
demand on the corporation of any member at any reasonable time, for
a purpose reasonably related to such person’s interests as a member.” Cal. Corp. Code § 9512. The provision regarding reasonable relation
to the member’s interests is the same as in the public benefit Section of the
Code.
The remedies for members of
religious corporations are comparable to those provided to members of public
benefit corporations[1],
except that there is no provision awarding a member reasonable costs and
expenses if the corporation’s failure to comply was without justification. Cal. Corp. Code § 9514. Specifically, if the corporation refuses to
comply with a member’s lawful demand for inspection, the superior court may enforce the demand or
right of inspection with just and proper conditions or may, for good cause
shown, appoint one or more competent inspectors or independent accountants to
audit the financial statements kept in California and investigate the property
and funds of the corporation and any subsidiary. Cal. Corp. Code § 9514(a). All officers and agents of the corporation who refuse
to produce the books and documents in their custody or power are subject to
punishment for contempt of court. Cal. Corp. Code § 9514(b).
And, all expenses of the
investigation or audit shall be paid by the member unless the court orders them
to be paid or shared by the corporation. Cal. Corp. Code § 9514(c).
Similar to public benefit
corporations, every religious corporation is required to keep at its principal
office in California the original or a copy of its articles and bylaws as
amended to date; these documents must be open to inspection by the members at all reasonable times during office hours. Cal. Corp. Code § 9160. A religious corporation is also required to keep
(1) adequate and correct books and records of account; (2) minutes of the
proceedings of its members, board and committees of the board; and (3) a record
of its members giving their names and addresses and the class of membership
held by each. Cal. Corp.
Code § 9510.
NEW YORK:
The New York Not-for-Profit Corporations Law, made
applicable to religious corporations by the Religious Corporation Law, enables
members to bring derivate suits to enforce directors’ duties to the
corporation. A derivate suit must be
brought by 5% or more of any class of members of the non-profit
corporation. Additionally, each
plaintiff must be a member at the time suit is brought. Plaintiffs must also demonstrate that, prior
to instituting a derivative action, attempts were made
to secure the initiation of such action by the board. N-PCL § 623.
1.
Breach of
Fiduciary Duties
Directors of a religious corporation, just as
directors of a secular non-profit corporation, are subject to fiduciary duties
in administering the assets of a corporation. Under the New York Religious
Corporations Law, directors of a religious corporation are treated as trustees
entrusted with the custody and control of the “temporalities and property, real
and personal, belonging to the corporation.” NY Relig. Corp. § 5. The trustees are charged
with administering the property in accordance with the “discipline, rules and
usages of the corporation and
of the ecclesiastical governing body, if any, to which the corporation is
subject.” Id. (emphasis added). Thus,
unlike directors of secular corporations, trustees of a religious corporation
must adhere to the tenets of the religion in administering the assets of the
corporation in addition to adhering to traditional fiduciary duties. As a consequence, members of a New York
religious corporation may be precluded from bringing a suit for breach of
fiduciary duties when the resolution of the case turns on evaluating trustees’
compliance with religious principles.
2.
Self-dealing
The New York Not-for-Profit Corporations Law, made
applicable to religious corporations by the Religious Corporation Law, prevents
directors and officers from engaging in self-dealing transactions unless full
disclosure of material facts is made and the transaction is approved by the
appropriate number of directors. N-PCL § 715. The corporation’s
organizational documents may place greater restrictions on self-dealing
transactions and may prohibit them altogether. N-PCL § 715(d). Although during our
initial research we could not locate a case on point, we would be happy to
further explore whether claims of self-dealing transactions by trustees of
religious corporations can be resolved based on neutral principles of law so
that they can be adjudicated by New York courts.
3.
Diversion of
Corporate Assets
Under New York Religious Corporations Law, trustees of
church property may not divert such property from the support and maintenance
of the corporation or from religious, charitable or educational purposes as
duly authorized by members of the religious corporation. NY Relig. Corp. § 5. Based on initial
research, it appears that New York courts may entertain suits brought by church
members against church officials for diversion of church assets. In Morris v. Scribner, church members
brought a diversion claim against church officials to prevent them from
continuing to expend funds in efforts to obtain permission to develop church
property designated by the state as a landmark. 69 N.Y.2d 418
(1987). Members argued that the funds
were not invested for the support of the church but were wasted on a
speculative profit-seeking scheme. The
court noted that the resolution of the internal dispute by a civil court would
not present church-state entanglement issues because the case can be decided on
the basis of “statutory interpretation and common-law precedent without
reference to matters of religious belief or dogma.” Id. at 422-23. The court reasoned that “the primary purposes
of the Religious Corporations Law 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.” Id. at 423. Additionally, the court in Fiske v. Beaty, citing to the same
statute, noted that “a court of equity will interfere to restrain all uses of
church properties not in accordance with the usages and rules of the religious
society with which the corporation is connected.” 201 N.Y.S.
441 (1923).
4. Access to Records
Unlike California, New York Religious Corporations Law
does not separately address member access to records. Rather, the provisions of
the Not-for-Profit Corporations Law apply to a religious corporation’s
obligation to maintain records and to the members’ rights of inspection. (See Tae Hwa Yoon v. New York Hahn
Wolee Church, Inc.
870 N.Y.S.2d 42 (2008); Smith v. Calvary Baptist Church, 826 N.Y.S.2d 431 (2006)). The
statute mandates a corporation to keep at its office correct and complete books
and records and a list or record with the names and addresses of all
members. N-PCL § 621(a). A member shall have
the right to examine the corporation’s minutes and a list or record of members
upon at least 5 days’ notice, provided the member was a member of record during
at least 6 months preceding the demand for inspection. N-PCL § 621(b). A corporation may
deny a request for inspection only if the corporation requests and the member
refuses to furnish to the corporation an affidavit that the information
obtained through such inspection will not be used for another business or
object and the member has not sold within the past 5 years any list or record
of members of any domestic or foreign corporation or aided any person in
procuring such list. N-PCL
§ 621(c). A member may
petition the court to enforce the request for inspection. N-PCL
§ 621(d).
Additionally, a member can demand from the corporation
an annual balance sheet or financial statement and any interim balance sheet or
financial statement that has been distributed to members or made available to
the public, provided the member was a member of record for at least six months
prior to demand. N-PCL § 621(e).