Gluck v. Chevre Liady Nusach Hoary

97 A.D.3d 787, 949 N.Y.2d 149

This text of 97 A.D.3d 787 (Gluck v. Chevre Liady Nusach Hoary) is published on Counsel Stack Legal Research, covering Appellate Division of the Supreme Court of the State of New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Gluck v. Chevre Liady Nusach Hoary, 97 A.D.3d 787, 949 N.Y.2d 149 (N.Y. Ct. App. 2012).

Opinion

The appeal from the order dated November 23, 2010, must be [788]*788dismissed because the right of direct appeal therefrom terminated with the entry of judgment in the action (see Matter of Aho, 39 NY2d 241, 248 [1976]). The issues raised on the appeal from the order are brought up for review and have been considered on the appeal from the judgment (see CPLR 5501 [a] [1]).

The plaintiffs commenced this action, inter alia, for a declaration that the individual plaintiffs are members of the board of directors of the plaintiff Northern Services Group, Inc. (hereinafter NSG), a not-for-profit corporation which was formed in 2000 to manage seven nursing homes and assisted living facilities. This dispute involves, on one side, the defendant Chevre Liady Nusach Hoary (hereinafter Chevre Liady), an Orthodox Jewish congregation, and its Grand Rabbi, Rabbi Menashe Klein, and, on the other side, the plaintiffs Edgar Gluck, Elisha Roseman, George Margareten, Thomas Paneth, Abraham Kleinbart, Moshe Gottesman, Bernard Rosenblum, Leah Werner, Yaakov Singer, and Paul Zicherman (hereinafter collectively the director plaintiffs), who were members of NSG’s board of directors.

In 1981, Chevre Liady agreed to act as a “sponsor” for the principals of what became the first NSG home. Although Chevre Liady did not formally participate in the management of the home, the relationship between Chevre Liady and those principals remained close, both prior to and after the 2000 formation of NSG. Rabbi Klein counseled NSG’s management on matters relating to Jewish law and culture within the homes, and NSG donated much of its excess income to Chevre Liady and Rabbi Klein’s charitable endeavors.

In 2004, NSG was audited by the Internal Revenue Service (hereinafter the IRS), which raised concerns about, inter alia, the sums donated by NSG to Chevre Liady, and Chevre Liady’s apparent control over NSG. In an attempt to address these concerns, in July 2004, NSG’s three-member board of directors, consisting of Elisha Roseman, George Margareten, and Rabbi Klein’s brother Benjamin Klein (hereinafter collectively the three-member board of directors), amended NSG’s bylaws to make Chevre Liady, acting through Rabbi Klein, a member of NSG within the meaning of article 6 of the Not-For-Profit Corporation Law.

Despite these efforts, the IRS was not satisfied. However, in April 2006, NSG and the IRS entered into a “closing agreement” settling the IRS’s claims against NSG. Pursuant to that agreement, NSG was required, inter alia, to expand its board from 3 to 13 members, eight of whom were to be “indepen[789]*789dent.” “Independent” was defined as, inter alia, not being an officer of Chevre Liady or a member of Rabbi Klein’s family. The initial members of the expanded 13-member board were named in the closing agreement, which stated that the board consisted of those individuals as of the date of its execution.

In June 2006, in response to the requirements of the closing agreement, the three-member board executed a “Unanimous Written Consent” which elected the 10 additional directors named in the closing agreement and amended NSG’s bylaws in response to its requirements. Among the amendments were provisions abrogating Chevre Liady’s rights, as a member, to vote, to participate in the adoption, amendment, or repeal of bylaws, and to discharge directors, although these amendments were not specifically required by the terms of the closing agreement.

Shortly after the board was expanded and the amended bylaws were adopted, two of the independent directors named in the closing agreement and elected by the three-member board declined to serve on NSG’s board. In response, NSG’s nominating committee (which had been established in response to a requirement in the closing agreement) began evaluating candidates and called a special meeting of the board of directors for November 16, 2006. Rabbi Klein objected to the November 16, 2006, special meeting. He contacted several members of the board and voiced his objections, even going so far as forbidding them from attending the meeting, and Benjamin Klein sent a notice to the nominating committee stating that the proposed meeting was contrary to Jewish law and directing them, in Rabbi Klein’s name, not to convene the meeting.

Despite Rabbi Klein’s objections, the board nevertheless convened the November 16, 2006, special meeting and, at that meeting, elected two replacement independent directors. In response, Chevre Liady, as NSG’s sole member, held a member’s meeting on November 20, 2006, at which it purportedly discharged NSG’s entire board of directors and, in a letter of that date, informed the directors of its decision. The board responded by holding a special meeting on November 30, 2006, at which it purportedly adopted amended bylaws removing Chevre Liady as NSG’s sole member and replaced certain directors perceived to be loyal to Rabbi Klein. On December 24, 2006, in response to concerns about whether notice to the directors was required prior to the November 20, 2006, discharge of NSG’s board of directors (which was the subject of a related action), Chevre Liady held a second member’s meeting at which it reaffirmed its discharge of NSG’s board of directors. On December 27, 2006, Chevre Liady issued a written decision to that effect.

[790]*790Due to the foregoing, there was uncertainty regarding who controlled the board of NSG. Accordingly, the director plaintiffs, on behalf of NSG (hereinafter collectively the plaintiffs), commenced this action seeking declaratory and injunctive relief establishing their right to control NSG. Chevre Liady and Morris Klein counterclaimed for a judgment declaring that the director plaintiffs had been properly discharged, and for related injunctive relief. The plaintiffs moved, and the defendants cross moved, inter alia, for a preliminary injunction. The Supreme Court, in an order dated April 30, 2007, granted the defendants’ cross motion, the plaintiffs appealed, and this Court affirmed (see 55 AD3d 668 [2008]). The plaintiffs then moved, and the defendants’ cross-moved, for summary judgment with respect to the causes of action for declaratory and permanent injunctive relief. The Supreme Court denied the plaintiffs’ motion and granted the defendants’ cross motion for summary judgement on their counterclaim. A judgment was entered in favor of the defendants, the plaintiffs appeal, and we affirm.

The closing agreement purports to expand NSG’s board of directors without action by the existing three-member board. However, pursuant to N-PCL 703 (b), a corporation’s “[directors shall be elected or appointed in the manner and for the term of office provided in the certificate of incorporation or the by-laws.” The parties agree that, as of April 2006, the 2004 bylaws governed, and those bylaws provide that “[n]ewly created directorships resulting from an increase in the number of Directors and vacancies occurring in the Board of Directors for any reason shall be filled by a vote of the majority of Directors then in office.” Accordingly, pursuant to N-PCL 703 (b) and the bylaws, the closing agreement could require NSG’s board to expand itself as directed therein but could not, by fiat, make that change. Consequently, the three-member board remained the NSG board and, until their execution of the unanimous consent electing the additional directors, they, and only they, could act on its behalf. Therefore, they had the authority to amend NSG’s bylaws via that consent.

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Related

In re Aho
347 N.E.2d 647 (New York Court of Appeals, 1976)
Gluck v. Chevre Liady Nusach Hoary
55 A.D.3d 668 (Appellate Division of the Supreme Court of New York, 2008)
Procopio v. Fisher
83 A.D.2d 757 (Appellate Division of the Supreme Court of New York, 1981)
Herbert H. Lehman College Foundation, Inc. v. Fernandez
292 A.D.2d 227 (Appellate Division of the Supreme Court of New York, 2002)

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Bluebook (online)
97 A.D.3d 787, 949 N.Y.2d 149, Counsel Stack Legal Research, https://law.counselstack.com/opinion/gluck-v-chevre-liady-nusach-hoary-nyappdiv-2012.