Grace v. Grace Institute

226 N.E.2d 531, 19 N.Y.2d 307, 279 N.Y.S.2d 721, 1967 N.Y. LEXIS 1628
New York Court of Appeals·Decided April 6, 1967·Published·Cited by 12 cases

Opinion

Keating, J.

The Grace Institute was incorporated by an act of the Legislature (L. 1897, ch. 285) for the purpose of furnishing women and girls instruction in trades and occupations and in branches of domestic arts and science.

Three named members of the Grace family and their successors were constituted the body corporate. The corporation was granted “ all the powers and privileges and [was] subject to the liabilities of a corporation conferred by chapter thirty-five of the general laws known as the general corporation law.”

By virtue of section 3 of the incorporating statute all the powers and privileges of the corporation were to be exercised by the three life members “together with such other persons as they may select and such members and the persons selected by them shall be known as trustees.”

The petitioner in this action, Michael P. Grace, II, was a successor to one of the original life members and, by virtue of that position, a member of the board of trustees of the Institute. During his tenure in those positions Michael, among other things, commenced several actions against the Institute — actions in which he was uniformly unsuccessful. Largely, as a result of the commencement of these actions, charges were drawn up against him and a hearing was held. Thereafter Michael was removed as a trustee and life member of the [312]*312Institute. This removal was accomplished, despite the fact that there was no provision in the incorporating statute or the by-laws of the corporation relating to the removal of a life member.1

Following his removal, Michael commenced an article 78 proceeding seeking judicial review and annulment of the determination made by the life members and trustees of the Institute whereby he was removed as a life member and trustee.

The Special Term Justice declined to rule summarily on the petition and held instead that issues were presented which required a trial. Two questions were formulated: (1) “ Whether or not the Members and Trustees of Grace Institute found in good faith that valid cause existed in August and November, 1963 for the removal of Michael P. Grace, II, as a life member and trustee of Grace Institute”, and (2) “Whether the proceedings before the Members and Trustees * * * afforded the petitioner * * * a reasonable opportunity to be heard”.

The Institute appealed from this determination, claiming that it was entitled to a summary dismissal of the petition.

Up to this point all parties to the litigation were operating under the assumption that this was a membership corporation. The contention of the Institute was that, as such, it possessed an inherent right to expel members for undertaking activities which tended to impair and obstruct the activities of thé corporation (Bockman v. American Inst. of Decorators, 7 A D 2d 495, affd. 7 N Y 2d 850; 37 N. Y. Jur., Membership Corporations, § 34).

The Appellate Division held that the Institute was something more than a “ mere membership corporation ” and that it was more akin to a charitable trust and that the same principles applicable to the removal of a trustee of a charitable trust were applicable to the removal of petitioner as a life member and trustee. The Appellate Division modified the first question for trial as follows: “ 1. Whether or not petitioner (a) in taking the various actions and doing the- several acts set forth in the charges acted in good faith and was loyal to the corporation and (b) if taken and done in good faith whether or not the [313]*313acts and actions were so reckless and inimical to the interests of the Institute that its corporate activities were substantially obstructed or impaired.”

The Institute appeals by permission of the Appellate Division upon a certified question as to the correctness of its order.

The basis of the Appellate Division’s determination that this corporation be treated as a trust for the purpose of resolving the legal questions presented was its finding that at the time the Institute was created it was doubtful whether property could be dedicated to charitable purposes through the medium of a trust and that, therefore, the Legislature was asked to create this corporation which was 11 sui generis” and “more nearly resembled a charitable trust than a membership corporation ” (25 A D 2d 277, 280).

While the Institute disputes the Appellate Division’s interpretation of the law of trusts as it existed at the time the Institute was created, it is clear that a corporation and not a trust was created and, regardless of what the law as to trusts was at the time, corporate law and not trust law should govern.

The law is settled that a corporation possesses the inherent power to remove a member, officer or director for cause, regardless of the presence of a provision in the charter or by-laws providing for such removal. (People ex rel. Manice v. Powell, 201 N. Y. 194; Fells v. Katz, 256 N. Y. 67; Matter of Koch, 257 N. Y. 318; Bockman v. American Inst. of Decorators, 7 A D 2d 495, affd. 7 N Y 2d 850, supra; Abberger v. Kulp, 156 Misc. 210.)

The question with which we are presented in this case is whether there exists any triable issues relating to the manner in which this petitioner was removed from his position as a life member and trustee.

It has been the consistent policy of the courts of this State to avoid interference with the internal management and operation 'of corporations. (Chelrob, Inc. v. Barrett, 293 N. Y. 442.) Although we are dealing here with a charitable corporation over which the Supreme Court is vested with supervisory powers, the Legislature in creating it set up a governing board of trustees and vested in them the power and authority necessary for the management and operation of the Institute. That body, [314]*314after hearings and deliberation, has decided that the petitioner’s conduct was so inimical to the corporate interests as to require his removal. In reaching that conclusion, the trustees had before them evidence of a series of lawsuits commenced by the petitioner against the corporation in each of which he was unsuccessful and in none of which did any of the 13 jurists who took part find even so much as a single triable issue.

After reviewing each of these actions and after studying the entire record in this case, we have reached the conclusion that the evidence clearly supported the finding of the trustees that Michael had embarked on a course of conduct designed to involve the Institute in endless and costly litigation and that the suits were undertaken for the purpose of harassing the Institute and its members. Under these circumstances, courts should not substitute their judgment for the judgment of those charged by the Legislature with the responsibility of running the corporation and seeing to it that it fulfills the purposes for which it was created.

In addition, we have examined the procedure by which the petitioner was removed and we have concluded there is no question but that he was given a reasonable opportunity to be heard and to answer the charges leveled against him. At the hearing during which the charges were aired, he was represented by three attorneys and a law assistant. His attorneys were permitted to cross-examine one of the parties who had been instrumental in preparing the charges against Michael and they could have exercised their right to examine others.

Free access — add to your briefcase to read the full text and ask questions with AI

Grace v. Grace Institute, 226 N.E.2d 531, 19 N.Y.2d 307, 279 N.Y.S.2d 721, 1967 N.Y. LEXIS 1628 (N.Y. 1967).

226 N.E.2d 531 (Grace v. Grace Institute) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

Related

Eager v. American Mensa, Ltd.
2025 NY Slip Op 33011(U) (New York Supreme Court, Kings County, 2025)
Hyman v. Cummings
2024 NY Slip Op 30945(U) (New York Supreme Court, New York County, 2024)
Colucci v. Canastra
130 A.D.3d 1268 (Appellate Division of the Supreme Court of New York, 2015)
Drake v. Moulton Memorial Baptist Church
93 A.D.3d 685 (Appellate Division of the Supreme Court of New York, 2012)
Medina v. Federation of Puerto Rican Organizations of Brownsville, Inc.
209 A.D.2d 234 (Appellate Division of the Supreme Court of New York, 1994)
Solomon v. Hall-Brooke Foundation, No. Icz-Cv-83 213998 (Feb. 11, 1992)
1992 Conn. Super. Ct. 1520 (Connecticut Superior Court, 1992)
Davidson v. James
172 A.D.2d 323 (Appellate Division of the Supreme Court of New York, 1991)
Bernbach v. Bonnie Briar Country Club
144 A.D.2d 610 (Appellate Division of the Supreme Court of New York, 1988)
Baker v. Henry Glass & Co.
140 Misc. 2d 836 (New York Supreme Court, 1988)
In re Breezy Point Cooperative, Inc.
123 A.D.2d 354 (Appellate Division of the Supreme Court of New York, 1986)
Eckhaus v. Ma
635 F. Supp. 873 (S.D. New York, 1986)
Clark v. Eastern Tennis Umpires Ass'n
118 A.D.2d 853 (Appellate Division of the Supreme Court of New York, 1986)