James v National Arts Club

[*1] James v National Arts Club 2011 NY Slip Op 51885(U) Decided on September 28, 2011 Supreme Court, New York County Edmead, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on September 28, 2011
Supreme Court, New York County

O. Aldon James, Jr., JOHN JAMES and STEVEN U. LEITNER, Plaintiffs,

against

The National Arts Club; THE BOARD OF GOVERNORS OF THE NATIONAL ARTS CLUB; DIANNE BERNHARD, as President of the National Arts Club; JOHN MORISANO, as First Vice President of the National Arts Club; and TARA CORTES, STEPHEN HEDBERG, MILBRY POLK, ALEX ROSENBERG and ROSS ZNAVOR, as Governors of the National Arts Club and as hearing officers, Defendants



109945/2011



Attorneys for Plaintiffs

Nixon Peabody

by Adam Gilbert and Amanda Devereux

437 Madison Avenue

New York, New York 10022

(212) 940-3000

Attorneys for Defendants

Sercarz & Riopelle, LLP

by Roland G. Riopelle and Diane Ferrone

152 W. 57th Street, Suite 24C

New York, New York 10019

(212) 586-4900

Carol R. Edmead, J.

Plaintiffs O. Aldon James, Jr. ("Aldon"), John James and Steven U. Leitner ("plaintiffs") [*2]seek an order enjoining the National Arts Club (the "NAC") and its directors, Board of Governors, officers, and hearing officers, from holding a hearing to terminate their membership from the NAC and concomitant tenancies of NAC-owned apartments.[FN1]

Factual Background [FN2]

The NAC, founded in 1898, is a not-for-profit foundation dedicated to promoting and fostering the arts and education about the arts. There are four classes of membership: (1) Honorary Members, (2) Artist Life Members, (3) Patrons, and (4) Life Members. Individuals can become members of the NAC if nominated and approved for membership. NAC is managed by a Board of Directors, which is known as the Board of Governors (Constitution Section II (1)). The NAC's physical headquarters houses the NAC's administrative offices and NAC's exhibitions and events. It also contains apartments and/or rooms that have traditionally been made available to NAC members.

Plaintiffs have been members of NAC and have occupied apartments at the NAC for at least 25 years.

NAC received a subpoena, dated March 15, 2011, from the New York State Attorney General for records from January 2005 (Affirmation in Opposition, pp.1-2 ). The New York County District Attorney's Office also informed NAC that it was investigating NAC's operations. According to NAC, Aldon was president of NAC, and plaintiff Steven Leitner, was the chairperson (and at times, the only member) of NAC's House Committee, during the period in question. NAC hired counsel, which investigated potential improprieties at NAC and prepared a memorandum of its findings, a copy of which was allegedly delivered to the Board of Governors members, including Aldon, on or about June 15 and 16, 2011.

On or about July 8 and/or July 9, 2011, the members of the Board (other than Aldon) were contacted by telephone, and asked if they agreed that charges should be instituted against the plaintiffs. According to NAC, a telephone "poll" was taken, and a majority agreed that charges should be instituted (the "Telephone Meeting").

A Statement of Charges [FN3] (not including the memorandum prepared by NAC's counsel) was served upon plaintiffs on July 11, 2011, noticing a hearing to begin on August 10, 2011 at 7:00 p.m. When plaintiffs informed defendants that the Statement of Charges was invalid because no formal Board meeting had occurred and no formal Board resolution had been passed, [*3]the NAC produced a handwritten record of the poll.[FN4]

Thereafter, on August 3 or 4, 2011, Board Secretary Hillary Weldon emailed and/or telephoned members of the Board regarding a special Board meeting to be held by teleconference on the evening of August 4, 2011 at 7:30 p.m. According the NAC, notice of the special Board meeting was hand delivered to those members, including Aldon, who did not have email.

At the August 4, 2011 meeting, Board member Alex Rosenberg ("Chair Rosenberg") was appointed to chair a committee charged with investigating the allegations of the Statement of Charges. Board members on that call voted to suspend Aldon from his position as a Governor of the Board. NAC asserts that the Statement of Charges was delivered to the plaintiffs, along with NAC's counsel's memorandum, the following day.[FN5]

On August 9, 2011, defendants issued a "Notice of Hearing" to be held on August 30, 2011 from 5:30-9:30 p.m. and on August 31, 2011 from 12:00-9:30 p.m. "by a sub-committee of the NAC Board of Governors to determined [sic] the validity of the Statement of Charges previously served on you, and to recommend an appropriate disposition of the Charges to the Board of Governors."NAC contends that this Notice of Hearing was delivered to the

plaintiffs pursuant to CPLR 308(2), by delivering a copy to the Doorman at NAC and mailing a second copy to the plaintiffs in the appropriate manner.

Defendants have served plaintiffs with Notices to Quit the apartments in which they are tenants by September 2, 2011, even though the revocation of membership hearing is scheduled for August 30-31, 2011.

Plaintiffs allege that defendants have violated their procedural and substantive due process rights in various ways.

The initial Statement of Charges served on July 11, 2011 was invalid, because it had been issued without holding a Board meeting as required under NAC Bylaws and without notifying all members of the Board that the Statement of Charges was under consideration or had been served upon plaintiffs. The alleged telephone "poll" was not a valid Board meeting, as Board meetings must be held either in person or by telephone with all members on the line and able to hear at the same time, pursuant to NAC Bylaws and NY Not-for-Profit Law ("NPL"). The record of the telephone poll reflects that at least one-third of the Board members (including Aldon) were not in fact contacted, in violation of the requirement under NAC Bylaws and NPL. Also, while calls were made to certain Board members on July 8-9, 2011, the members' signatures on the allegations in the Statement of Charges are dated July 11, 2011, showing that the allegations were crafted after the fact, in violation of NAC Bylaws. Further, defendants were not provided with Exhibit "B" to the Statement of Charges - a collection of memoranda by defendants' counsel, when first provided with the Statement of Charges. [*4]

The following Notice of the special meeting to be held on August 4, 2011 was not provided by mail as required by NAC Bylaws, and Aldon, and upon information and belief, the absent Board members, did not waive notice thereby rendering the notice and the meeting invalid.

Further, as reflected in the minutes, a full 1/3 of Board members were not present during the August 4, 2011 meeting. Also, Board members who voted were interested and/or demonstrably biased and, therefore, disqualified from voting, were permitted to vote on the issuance of the Statement of Charges. The minutes show that Cherry Provost (one of the signatories of the Statement of Charges) and Daniel Schiffman, whom the Statement of Charges alleges to be victims of harassment, were among the 13 Board members who purportedly voted to issue the Statement of Charges. Other disqualified voters included Hillary Weldon, who demonstrated extreme bias by signing and circulating minutes reflecting issuance of the Statement of Charges before the meeting had taken place.[FN6]

Aldon was not provided with any notice that his suspension from the Board would be considered and voted on during the August 4, 2011 meeting. Neither the NAC Bylaws nor the NPL provides for the suspension of a Board member without notice and a hearing. The NAC Bylaws required that the Statement of Charges set forth "with reasonable specificity" any charges on which members are tried. In addition, any charges must constitute "material violations" of NAC rules or policies or conduct "seriously prejudicial to the NAC." The purported purpose of the suspension of Aldon from the Board, is vague, unsupported by any findings of fact, and does not meet the requirement of a "material violation" of NAC rules or "seriously prejudicial" conduct required by the NAC Bylaws for suspension. Nor was the Statement of Charges based on member affidavits, or served in the manner of a summons as required by NAC Bylaws.

Further Chair Rosenberg was not qualified to judge the allegations against plaintiffs due his bias and interest in the outcome of the proceeding, arising from the fact that Aldon previously denied him an apartment at the NAC.

Thus, the meeting and actions taken thereat were invalid.

The August 9, 2011 Notice of Hearing to be held on August 30 and 31 (and the decisions reflected therein) were not discussed or acted upon by the Board. The minutes of the August 4, 2011 meeting do not reflect the setting of a date for a hearing, or reflect the various time limitations that were presented to plaintiffs for the first time in the August 9, 2011 Notice of Hearing. Also, counsel for defendants were advised that plaintiffs' counsel would be unavailable on the hearing dates, and requested that the hearing be held after Labor Day so that witnesses would be available after the NAC reopened from summer recess. However, defendants arbitrarily scheduled the hearing for August 30 and 31. Holding the hearing on August 30-31, 2011 is eminently unreasonable because it only provides plaintiffs with 21 days to investigate the allegations against them and prepare a defense. Therefore, the Notice of Hearing is invalid.

The Board's proceedings have also been potentially infected by Board members who, upon information and belief, were not properly nominated and elected pursuant to the NAC's [*5]Constitution and Bylaws. Thus, new elections pursuant to NPL § 618 as to those Board members should be ordered.

Plaintiffs face both the revocation of their memberships, and the loss of their ability to remain in their homes of the past 30 years. Holding the hearing while the NAC is closed during the summer months, and while many witnesses will not be available would substantially deprive plaintiffs of their ability to present an adequate defense and receive a fair hearing. The hours for which the hearing is currently noticed are unreasonable. The first day's hearing is scheduled for 5:30 - 9:30 p.m., and the second day's hearing is scheduled for 12:00-9:30 p.m. The schedules were neither discussed with nor agreed to by plaintiffs. Nor are they provided for by the NAC Bylaws. The Notice of Hearing also imposes a 3-hour limit for each party's direct case; a 20-minute limit for the questioning of each direct witness; a 15-minute limit for cross-examination; and a 15-minute limit for opening and closing statements. Neither plaintiffs nor the signatories of the Statement of Charges could be adequately questioned or cross-examined about the allegations in 15-20 minutes. Allegations concerning multiple transactions or events are made with regard to the plaintiffs by each of the signatories, and many of the allegations concern events that allegedly occurred years ago. The time limits were arbitrarily, unilaterally and unreasonably imposed, without any resolution by the Board, and have no basis in the NAC Constitution or Bylaws. The significant liberty and property interests at stake cannot be compensated by monetary damages should a hearing be wrongfully held. Further, the subject matter of the Statement of Charges is largely the subject matter of an ongoing investigation by the New York Attorney General's Office and the New York District Attorney's Office. Plaintiffs should not be forced to proceed with a hearing that could be used against them in any future criminal proceedings without even an opportunity for adequate preparation and notice of the specific charges to be tried against them.

Further, defendants' counsel initially refused to provide plaintiffs with a list of NAC members unless plaintiffs provided an affidavit stating that the requested books and records would not be used for an improper purpose and a waiting period of five business days, in violation of plaintiffs' right as NAC Board members, to inspect and copy the list of NAC members and the Board and member meeting minutes, pursuant to NPL § 621. Defendants' counsel has only proposed to allow plaintiffs to view the requested books and records one day before the hearing.

CPLR 6301 authorizes the Court to enjoin defendants from acting on or proceeding with any purported suspension of Aldon as a member of the NAC Board of Governors, due to the Board's failure to observe its own Bylaws and the requirements of due process. Plaintiffs have a strong likelihood of success on the merits of their claims. Plaintiffs will suffer immediate and

irreparable injury in the absence of an injunction, in the form of eviction from their homes of the past 25 plus years. Plaintiffs also face irreparable injury due to a common practice among New York landlords of using a tenant "blacklist." Plaintiffs also face irreparable injury in the form of deprivation of their ability to associate with their many NAC friends and participate in the events of the NAC, an institution to which they have devoted most of their adult lives. Plaintiffs, Aldon in particular, also faces irreparable injury in the form of professional and reputation harm, and in the form of severely prejudicing their chances for a fair trial in any future criminal case. If plaintiffs were found "guilty" during the disciplinary proceeding, that information would [*6]assuredly be disseminated to the press and plaintiffs' chances for a fair hearing in any criminal case would be severely impaired. The hearing will be memorialized in a transcript by a court reporter, and likely provided to law enforcement agencies and the media. The premature hearing itself is irreparable harm. And, as defendants are aware, Aldon and John James are known to struggle with a disorder causing compulsive hoarding. Forcing the brothers to move on short notice would cause extreme distress and defendants' unseemly threats and premature efforts to evict plaintiffs have already caused a great deal of distress. If expelled, plaintiffs would be prohibited even from entering the NAC premises to attend an arts event at which members of the general public are permitted, as guests of NAC members, or as guests at private events held by other associations of which plaintiffs are members at the NAC clubhouse. Considering that plaintiffs have spent the 30-40 years working and residing at the NAC,[FN7] wrongfully revoking plaintiffs' memberships would cruelly exile them from much of their social world and deprive them of their ability to freely associate with their lifelong friends. If plaintiffs' memberships were wrongfully revoked, and then a notice was sent to all 2,100 members of the NAC that plaintiffs were "expelled" from membership and forced out of their apartments during the NAC summer recess, plaintiffs would never be able to undo the damage. And, the balance of the equities strongly favor issuance of the requested injunction, as defendants would suffer no discernible harm if the status quo is maintained. The vast majority of the allegations, and all of the allegations relating to plaintiffs Aldon and Steven Leitner, related to actions allegedly taken by Aldon in his former capacity as President of the NAC. As Aldon is no longer President of the NAC, he no longer has or purports to have an ability or power to take the actions or cause the types of harms alleged in the Statement of Charges.[FN8]

In opposition, NAC argues that the procedures described fully satisfied the procedures to institute disciplinary proceedings against a member of NAC, which were adopted when Aldon

was President of NAC. NAC's Bylaws establish that as to member discipline: (1) the member must receive notice; (2) the member must get at least 20 days notice as to when the hearing will occur; and (3) the member has the opportunity to present a defense, either in person or in writing. The Bylaws do not provide for or require: (a) service on the Statement of Charges and Notice of Hearing in the manner of a summons; (b) an opportunity for discovery by NAC or the member prior to the disciplinary hearing; or (c) an opportunity for the member to present witnesses at the hearing, or cross-examine any witnesses. The NPL and caselaw permit any member of a private corporation like NAC to be expelled for any behavior that undermines the organization's purposes. And here, plaintiffs can be expelled from membership for abusing NAC financially, which undermines its ability to fulfill its charitable purpose by limiting the funds available to devote to its mission, as well as for their self-dealing and harassing behavior, which violate the [*7]explicit NAC rules quoted in the Statement of Charges. Moreover, the caselaw does not dictate the precise manner in which notice must be given, or how the hearing must be conducted.

Defendants also argue that since the August 4th Board meeting was not required to issue the Statement of Charges, the alleged bias of three of the Board members who voted in favor of the charges is irrelevant. Moreover, that two of the Board members were victims of some of the harassment alleged in the Statement of Charges does not disqualify them from voting on the charges. The Bylaws prevents a governor who signs the Statement of Charges from voting on the discipline ultimately decided by the Board. However, nothing in the Bylaws prevent a governor who either signs the Statement of Charges or is a witness to the charges therein, from voting to commence a disciplinary action in the first instance. And, plaintiffs' bald assertion that Chair Rosenberg was denied an apartment while Aldon was President should be ignored.

Plaintiffs are not entitled to full blown discovery or a trial. Unlike cases where courts have found procedural fairness lacking, plaintiffs herein were given notice of the charges against them on two occasions, the Statement of Charges was delivered to plaintiffs pursuant to the Bylaws, the August 9, 2011 Notice of Hearing was delivered to plaintiffs in the manner provided for in CPLR 308(2), plaintiffs were informed that the potential outcome could be their expulsion from the NAC, and plaintiffs were given one day more than required by the Bylaws to prepare for the hearing. NAC followed its Bylaws in commencing the proceeding, and a hearing is being afforded the plaintiffs. The Statement of Charges invites plaintiffs to attend the hearing or make a written submission in their defense or call witnesses in their defense, and the Notice of the Hearing sets forth procedures for the hearing, even though there are no caselaw dictating specifically how disciplinary procedures are to be conducted. Plaintiffs are being afforded an opportunity to defend against the charges by presenting their own evidence and witnesses, and making a written submission, which is ample due process. Moreover, plaintiffs failed to cite a single case in New York where injunctive relief was granted prior to the hearing being contested, and there is no legal precedent that supports the issuance of an injunction now.

Discussion

A "preliminary injunction will only be granted when the party seeking such relief demonstrates a likelihood of ultimate success on the merits, irreparable injury if the preliminary injunction is withheld, and a balance of equities tipping in favor of the moving party" (1234 Broadway LLC v West Side SRO Law Project, 86 AD3d 18, 924 NYS2d 35 [1st Dept 2011]). Therefore, plaintiffs must establish that there is a likelihood of success on the merits of their claim that the NAC violated the procedural due process requirements provided in NAC's Bylaws and NPL caselaw in instituting the hearing to terminate their membership from the NAC (and resulting tenancies of NAC-owned apartments).

NAC's Bylaws Article 1, Section 5 of the NAC's Bylaws provides in relevant part:Member DisciplineA.Cause for Expulsion, Suspension, or Censure. A member of The National Arts Club may be expelled, suspended, or censured for cause. Cause shall mean conduct that is determined to constitute a material violation of the Constitution, By-Laws, rules and/or policies for The National Arts Club, or other conduct that in the opinion of the Board of Governors is seriously prejudicial to The National Arts Club.[*8]

* * * * *

C.The Board of Governors may expel, suspend or censure any member at any time for material violation of the Constitution, By-Laws, rules and/or policies of The National Arts Club, or for other conduct that in the opinion of the Board of Governors is seriously prejudicial to The National Arts Club, provided that the Board shall afford the member a reasonable opportunity to be heard in person or in writing, or through a representative, by the Board or by a committee appointed by the Board, prior to taking any action. Upon instituting any such proceeding, the Board or Committee shall: 1) furnish the accused member with a copy of the statement of charges to be taken up by the Board. 2) a minimum of twenty days prior to the date, give notice to such members of the date, time and place scheduled for hearing the complaint, and 3) invite the member to present at such time a defense either in person, in writing, or by an authorized representative. The Board or Committee, or its (their) authorized representative, shall present the case against the accused member at the hearing.

Based on a plain reading of the Bylaws, the NAC Board of Governors has the power to remove the petitioners for cause, as defined therein (see also Davidson v O. Aldon James, 172 AD2d 323, 568 NYS2d 397 [1st Dept 1991]; Matter of Grace v Grace Inst., 19 NY2d 307, 313 [1967] (removal of lifetime member of a charitable corporation upheld, despite the absence of any statute or bylaw relating to the removal of a life member, where corporation's committee found, after hearing, that member's commencement of several unsuccessful lawsuits against the corporation, were undertaken to harass the corporation)).

The Bylaws (and Constitution) "for a not-for-profit corporation are part of the contract between parties" and thus, a person who joins such a corporation "impliedly agrees" that the Bylaws "shall be determinative of his/her rights and status" in relation to the corporation and its members (Anderson v Board of Directors of Powelton Club, 183 Misc 2d 200, 702 NYS2d 762

[Sup. Ct., Orange County 1999] citing Kendrick v Watermill Beach Club, 8 Misc 2d 798, 165 NYS2d 1009)). Thus, joining the NAC, plaintiffs have agreed to by bound by the NAC's rules as set forth in its Bylaws concerning the commencement of a disciplinary action.

However, New York courts have reviewed the processes of corporations and not-for-profits in order to determine if boards have complied with their own bylaws and procedures (Mutual Housing of Tompkins County, Inc. v Hawes, 4 Misc 3d 247, 780 NYS2d 276 [NY City Ct., City of Ithaca 2004]; Matter of Clark v Eastern Tennis Umpires Assn., 118 AD2d 853, 500 NYS2d 341 [2d Dept 1986] (reviewing an Umpires Association Board of Directors's determination to suspend petitioner's membership as to whether the not-for-profit corporation conducted a disciplinary hearing in accord with its own constitution)). Thus, "the corporation's procedure is reviewable by the courts, and improper proceedings may be set aside (id. citing Polin v Kaplan, 257 NY 277, 177 NE 833 [1931]). More importantly, "when the remedy imposed by disciplinary hearings may include forfeiture of vested rights and privileges, rigid adherence to the procedures is required" (Mobarak v XYZ Two Way Radio Service, Inc., 12 Misc 3d 1163(A), 2006 WL 1524615, *3 [Sup. Ct., Kings Co., 2006] citing Anderson v Board of Directors of the Powelton Club, 183 Misc 2d at 202). Indeed, "[t]he right to be advised on the charges, receive notice of the hearing, and be given an opportunity to appear and be heard are fundamental" (Anderson, 183 Misc 2d at 202). [*9]

In Anderson v Board of Directors of the Powelton Club, the not-for-profit Club's bylaws provided that "the procedures for the hearing and determination of complaints against members shall be prescribed by the Board of Directors." (702 NYS2d at 763). The Club had written hearing procedures which provided for "(1) written notice of the date, time, and place of any Misconduct Hearing at least four (4) days prior to the date of the hearing; (2) the right for the complainant and the respondent to be present at the hearing; and (3) to testify, call witnesses, and examine any witness at the hearing; and (4) written notification of the determination of the Board." (Id. at 763). In vacating the determination to suspend the plaintiff, the Court held that the "informal meetings between the Club President and the petitioner did not satisfy the fundamental due process requirement of the Not-For-Profit Corporation Law and did not substantially' comply with the By-Laws and Rules of the Club." (Id. at 202).

The issue is whether NAC violated its Bylaws with respect to the issuance of the Statement of Charges, that is, whether the Notice of the Hearing and procedural format of the Hearing, violate plaintiffs' rights, so as to permit the Court to enjoin the disciplinary proceeding against plaintiffs.

As to the initial Telephone Meeting on July 8 and/or July 9, 2011 at which a Poll was taken to institute charges against the plaintiffs, section 29 of NAC's Constitution provides: The Board shall hold regular meetings on each day in each month as may be designated by resolution of the Board (excluding July and August). Special meetings may be held upon the call of the President or of at least three Governors. The Secretary shall mail each Governor notice of all meetings of the Board. A quorum of the Board shall consist of eleven or more Governors.

Instead of mailing each Governor notice of the Telephone Meeting held on July 8, 2011, the Board Secretary Hillary Weldon and Board President Dianne Bernhard telephoned Board members the evening before and/or the day of the special meeting. However, since another meeting was scheduled, apparently upon the complaint of plaintiffs' counsel that the Telephone Meeting was invalid, the Court proceeds to determine whether the subsequent meeting held by telephonic conference on August 4, 2011 was properly noticed to Board members in accordance with NAC's Constitution.[FN9]

Contrary to plaintiffs' contention, it cannot be said that emailing the August 3, 2011 notice to the Board Members constituted a violation of the Bylaws so as to render the August 4th meeting invalid (Board of Mgrs. of Academy Twins Condominium v Hernandez, 30 Misc 3d 1203(A), 2010 WL 5257249 [Sup. Ct., New York County 2010] (finding that while the bylaws did not provide that notices of Board meetings may be conveyed by e-mail, "the e-mail notice conveyed here undermines neither the objectives of the bylaws nor the Act. Rather, it constitutes an efficient alternative to the other methods of notice, and moreover, notices had previously been conveyed by e-mail")). It is uncontested that Board meetings were noticed by email and that the Board members treated email as the equivalent of mail in regards to noticing Board meetings. Plaintiffs' contention, that more than 1/3 of the total Board was not in attendance, is insufficient [*10]to establish that such notice was inadequate as a matter of law, especially in light of NAC's contention that a quorum was reached. Therefore, the August 4th meeting is not rendered invalid by virtue of the emailed notices of same.

Further, plaintiffs failed to establish that the alleged bias of three Board members disqualified them from voting at the August 4th meeting to initiate the Statement of Charges. Section 5(B) of the Bylaws provide that the Board shall consider instituting proceedings to expel or suspend a member "upon receipt of a complaint" "signed by any member in good standing. . . . " While section 5(E) expressly excludes a Governor who signed the Statement of Charges (i.e., Cherry Provost, Marguerite Yaghjian, and Catherine Johnson) from voting on the "final action" to be taken by the Board after the hearing, no such exclusion appears in Section 5(B) regarding the Board making a "preliminary inquiry" and deciding to institute proceedings. And, the alleged bias of Chair Rosenberg based on the denial of an apartment is unsupported by any affidavit or documentary evidence. Therefore, with respect to the initiating of the Statement of charges, the alleged bias claim is insufficient to support injunctive relief.

As to the Statement of Charges resulting from the August 4th meeting, plaintiffs' first contention that the Statement of Charges was improperly served, lacks merit. Plaintiffs point to no Bylaw or caselaw requiring that the Statement of Charges be served as a summons pursuant to the CPLR. In any event, it is uncontested that the Statement of Charges was re-served by delivery on August 5, 2011 to the NAC Doorman upon a person of suitable age and discretion at the plaintiffs' dwelling place and place of business, authorized to accept important papers and deliveries for the plaintiffs and the Statement of Charges was placed in the plaintiffs' personal mail boxes there.

Contrary to plaintiffs' contention, the Statement of Charges, coupled with counsel's memorandum served on August 5, 2011, is proper as to form and sufficient to satisfy the Bylaws. First, the NAC Bylaws provides, in Article I(5)(B) that member conduct complaints must be signed, notarized affidavits. The Statement of Charges contains notarized signatures by three members of NAC. Second, the Statement of Charges cites sections of both the NAC Constitution and Bylaws; gave specific examples of alleged accounting and financial improprieties (pp. 6-8); gave specific room numbers and periods of time when plaintiffs mismanaged NAC's real estate assets to their own benefit (pp. 8-12); and identified examples of harassments by providing the names of alleged victims and dates (pp. 12-14). Moreover, counsel's memoranda provides ample details giving rise to the Statement of Charges against plaintiffs.[FN10] And, the actions alleged in the Statement of Charges would constitute material violations or conduct seriously prejudicial to the NAC (Davidson v James, 172 AD2d 323, 568 NYS2d 397 [1st Dept 1991] (upholding NAC's removal of petitioners for cause, where the petitioners' commencement of personal injury actions against NAC and searching its records for confidential information, was in breach of their fiduciary obligations to NAC as members of its Board of Governors, "and contrary to the interest of the organization")).

Parenthetically, as to the Board's decision at the August 4th meeting to suspend Aldon's position as Governor, t the degree that the Board's suspension constitutes a disciplinary action [*11]taken by the Board, the Court finds that defendants violated Bylaws' requirements of notice and opportunity to be heard. The minutes of the August 4th meeting state that notice was "duly given" and that documents, including the Statement of Charges, were circulated to the Board with the notice given (¶2). At this meeting, a quorum of the Board members voted, upon review of the Statement of Charges, to suspend him as Governor of NAC. This "discipline" is subject to Section 5 (B), which permits the Board to consider such notarized Statement of Charges, provided that Aldon was given an "opportunity to be heard" at a hearing (Section 5(C)), which was not done in connection with his suspension. Therefore, while the Order to Show Cause sought to temporarily enjoin the defendants from holding a hearing on the Statement of Charges and from selling certain items of personalty, Aldon is entitled to be restored as Governor of the Board.

As to the August 9, 2001 Notice of Hearing designating August 30 and 31, 2011 as dates for the hearing, such Notice gave plaintiffs 21 days notice of the hearing date, which is one day more than required by NAC's Bylaws, Article 1, Section 5(C) (requiring 20 days notice). And, plaintiffs' claim that the date and procedural limitations for the hearing were not voted or acted upon by the Board is insufficient. The Bylaws set forth a 20-day notice requirement, but does not speak to how the specific date is selected (e.g., by a vote by the Board). Therefore, the date of the hearing satisfies the Bylaws.

However, the strictures imposed by the Notice of Hearing are unreasonable and violative of plaintiffs' Due Process rights.

Starting with Section 5(C) of the Bylaws, this section provides that the Board "shall afford the Member a reasonable opportunity to be heard . . . by the Board or by a committee appointed by the Board . . . . Upon instituting any such proceeding, the Board or Committee shall furnish the accused member with a copy of the Statement of Charges, provide at least 20-days' notice of the date, time and location "for hearing the complaint" and invite the member to present a defense, either in person, in writing, or by a representative. "The Board or Committee, or its (their) authorized representative, shall present the case against the accused member at the hearing." It is noted that plaintiffs do not claim the existence of any bias of those committee members who are to present the case against them at the hearing (Section 5(C)).

As to any alleged bias concerning the members assigned to hear the evidence, in this instance, the hearing is to be conducted by a subcommittee, and not the Board. According to the minutes of the August 4th meeting, Governors Dr. Tara Cortes, Stephen Hedberg, Milbry Polk, Dr. Alex Rosenberg and Ross Znavor "(or no fewer than three of them)," were appointed to hear evidence and recommend action to the Board. The September 20, 2011 Transcript indicates that the executive committee of the Board selected these subcommittee members to hear the charges (pp. 44, 46). None of the subcommittee members signed the Statement of Charges, or are identified in the Statement of Charges as victims of plaintiffs' harassment. And, as noted above, the alleged bias of Rosenberg is speculative and unsubstantiated.[FN11]

And, as to any alleged bias of the Governors to take "final action" on the Statement of Charges, Section E provides that if a committee "finds that the accused member's conduct [*12]constitutes cause, the Board of Governors shall review the findings and determinations by or recommendations made by the Committee. The complaint, all evidence submitted to the Committee, and the written findings and determinations of the Committee shall be made available to the Board of Governors." Under Section D of the Bylaws, the "Board shall base its decisions only on testimony and other evidence presented at the hearing." However, a Governor who signed the Statement of Charges cannot vote on the "final action" to be taken by the Board after the hearing. Provided that the three Board members who signed the Statement of Charges, Provost, Yaghian, Johnson (see also Statement of Charges, ¶37), who are not assigned to hear the evidence, are also precluded from voting on the "final outcome" of the findings and determinations or recommendations made by the subcommittee, it cannot be said that any decision by the Board would be infected by improper bias or conflicts of interest.

However, the guidelines set forth in the Notice of Hearing were never imposed for hearings in the past; this is the first time the Board ever imposed time limitations at a hearing (September 20, 2011 Transcript, pp. 43-44). The Court finds that in light of the severity of the charges, the potential loss of long vested rights, loss of residential possession, and the voluminous nature of the facts giving rise to the disciplinary hearing, the strictures placed on the manner in which the hearing shall be conducted are unreasonable. The Bylaws require that the Board of Governors "invite the member to present at such time a defense either in person, in writing, or by an authorized representative" (Article 1, Section 5(C)). By scheduling the hearing for August 30, 2011 after plaintiffs' lead counsel specifically requested that hearing not be held on that specific date due to a prior family commitment, when all of these proceedings have and will take place while the NAC is closed for its summer recess and many Board members are away, and refusing to adjourn the hearing under any circumstances, NAC rendered ineffectual plaintiffs' right to present a defense at the hearing. NAC offered no basis in reason or law that the dates set forth in the Notice of Hearing are mandatory and inflexible, and to insist that the hearing go forward on these two dates, under very limiting time constraints, appears arbitrary and unreasonable. While it makes sense to defendants to impose time limitations because "the subcommittee members are working people, volunteers," the gravity of the loss plaintiffs face if found guilty requires more than, for example, 15 minutes allotted to cross-examine witnesses on years worth of transactions, even if the same amount of time is equally imposed on defendants. In this Court's opinion, a "reasonable" opportunity to be heard would consist of the following: (1) a mutual exchange one week before the hearing of a list of documents to be used in the hearing; (2) a mutual exchange one week before the hearing of witnesses to be called; (3) one hour maximum for opening and a one hour maximum for closing statements; (4) one hour maximum of direct and one hour maximum of cross-examination of any one witness; and (5) no time limit on the presentation of a direct case or defense case; and (6) the option of a record of the proceedings by a reporting agency, the cost to be borne by the party requesting a record.

Thus, this Court finds that plaintiffs have established a strong likelihood of success on the merits of their claim that defendants violated Section 5 of the NAC Bylaws.

Plaintiffs have also established that they will suffer immediate and irreparable injury in the absence of an injunction. Plaintiffs stand to lose their homes, ability to take part in what has become the most meaningful aspect of their lives, and damage to their professional reputations. Moreover, the proceeding and finding by defendants potentially have a significant impact on the [*13]criminal investigations pending against plaintiffs. And, there is no indication that maintaining the status quo in order to afford plaintiffs a fair opportunity to defend against the Statement of Charges would result in any discernible harm to the defendants. As such, the balance of the equities tip in favor of the plaintiffs. Therefore, preliminary injunction relief is warranted.

As to the remaining issues regarding the production of documentary evidence, At oral argument, at oral argument, the parties agreed to allow the Court to set the parameters of the hearing with input from the parties and counsel.

Conclusion

Based on the foregoing, it is hereby

ORDERED that the application by plaintiffs for an order for a preliminary injunction enjoining the National Arts Club; the Board of Governors of the National Arts Club; Dianne Bernhard, as President of the National Arts Club; John Morisano, as First Vice President of the National Arts Club; and Tara Cortes, Stephen Hedberg, Milbry Polk, Alex Rosenberg and Ross Znavor, as Governors of the National Arts Club and as Hearing Officers, from holding a hearing to terminate their membership from the NAC and tenancies of NAC-owned apartments, is granted, and said defendants are enjoined from holding such hearing until further order of the Court; and it is further

ORDERED that defendants shall serve an Answer pursuant to the CPLR; and it is further

ORDERED that the parties and counsel appear for an in-court conference on October 26, 2011, 10:00 a.m. for the Court to consider their input on the parameters of the hearing.

This constitutes the decision and order of the Court.

Dated: September 28, 2011_________________________________________

Hon. Carol Robinson Edmead, J.S.C.

Footnotes

Footnote 1: Plaintiffs also seek to stop a bulk sale of personalty, namely, objects of decorative arts, which allegedly include items owned by plaintiffs. However, this issue has been resolved to the extent that the parties agreed to allow plaintiffs to inspect the inventory scheduled to be sold, and such items from the sale until further order of the Court.

Footnote 2: Unless otherwise noted, the Factual Background is taken in large part from the moving papers and Complaint.

Footnote 3: The Statement of Charges alleges that plaintiffs mismanaged NAC's real estate assets for their personal financial enrichment, by, for example, leasing to themselves and their friends, or taking possession of various rooms for amounts far below market rate or for no rent at all. NAC also alleged that Aldon and plaintiff John James

footnote 3 contd.

threatened or harassed members of the Board of Governors and Aldon refused to enforce the NAC's anti-harassment policy.

Footnote 4: Plaintiffs' counsel informed NAC that he would not waive any alleged "defect" in the commencement of the charges.

Footnote 5: According to NAC, a complete copy of the Statement of Charges was delivered to the NAC Doorman upon a person of suitable age and discretion at the plaintiffs' dwelling place and place of business, authorized to accept important papers and deliveries for the plaintiffs) and the Statement of Charges was again placed in the plaintiffs' personal mail boxes there; and a second complete copy of the Statement of Charges was mailed to the plaintiffs in the manner specified in CPLR 308(2).

Footnote 6: Defendants explain that as the official minutes of the August 4th meeting show, Ms. Weldon's signature on draft minutes circulated to the Board prior the meeting was placed on the draft minutes inadvertently, and cured by the discussion at the Board Meeting on August 4th to strike her signature "as error."

Footnote 7: It is alleged that Aldon has devoted the past 25 years to working full-time as a volunteer for the NAC, and that he worked an average of 60 hours per week at the NAC, without pay or a pension.

Footnote 8: Plaintiffs' separate motion pursuant to Not-for-Profit Corporation Law ("NPL") § 618 and CPLR 403, for an order (i) voiding the purported election of seven (7) Governors at the May 3, 2011 Annual Meeting of Defendant National Arts Club (the "NAC"), (ii) voiding the election of officers by the Governors purportedly elected on May 3, 2011, and (iii) directing the NAC to hold a new election which complies in all respects with the NAC's obligations

under the NPL, its Constitution and its Bylaws, is proceeding separately.

Footnote 9: Parenthetically, the July 8, 2011 telephonic meeting was invalid, since there is no indication that this meeting was properly noticed or satisfied the quorum requirement.

Footnote 10: It is noted that the Statement of Charges does not merely claim that Leitner is a friend of the other two plaintiffs, as plaintiffs claim. Leitner allegedly mismanaged NAC's assets causing financial damage to the NAC.

Footnote 11: However, in order to avoid even the appearance of impropriety, the hearing subcommittee would be wise to consider whether Rosenberg should recuse himself from participation.