New York law grants immunity from lawsuits to unpaid directors of a not-for-profit corporation. NY Civil Practice Law & Rules (CPLR) §3211(a)(11) and Not for Profit Corporation Law §720-a. That grant of immunity may be overcome if it can be established that the directors acted with gross negligence or with an intention to cause harm. Additionally, if the directors are paid, rather than unpaid, they can also lose their immunity. The application of that law was recently analyzed in the unreported decision, Johnson v. Black Equity Alliance, Inc., No. 09-106797, 2010 WL 424040 (N.Y. Sup. January 21, 2010).
Joyce Johnson was an at-will employee of the Black Equity Alliance, Inc. (the “Alliance”), a charitable organization that was tax-exempt pursuant to section 501(c)(3) of the IRS Code. In order to maintain that status, the Alliance had a policy of not endorsing any political candidates.
This became an issue when Johnson endorsed Mayor Michael Bloomberg in his bid for a third mayoral term. She took pains to do so solely in her individual capacity. However, when she attended a press conference in favor of Bloomberg, press accounts identified her endorsement of Bloomberg and her affiliation with the Alliance.
This triggered an emergency meeting of the board of directors in which they requested that Johnson tender her resignation. She refused and was ultimately terminated. She then brought suit alleging, among other things, unlawful termination. She sued Alliance and each of its nine (9) individual directors.
The directors sought to be dismissed from the lawsuit on two grounds. First, they argued that they were justified in terminating her. Johnson’s political endorsement could have negative consequences for the Alliance’s tax-exempt status. They were referring to 501(c)(3) of the Internal Revenue Code which states that a not-for-profit corporation can lose its tax-exempt status if it participates or intervenes in any political campaign on behalf of, or in opposition to, any candidate for public office. Second, they argued that regardless of whether or not they were justified in terminating her, they were nevertheless, immune from suit under New York law. NY Civil Practice Law & Rules (CPLR) §3211(a)(11) and Not for Profit Corporation Law §720-a.
The Court agreed. In dismissing the individual defendants, it held that the benefits received by those directors (e.g., that Alliance paid for their attendance at various events) did not rise to the level of “compensation” such that they forfeited their immunity under New York law. The Court also held that Johnson failed to establish evidence of a “reasonable probability” that the conduct of the individual defendants was sufficiently wrongful that it reached the level of “gross” negligence (which would eliminate their immunity from suit).
The Court denied the portion of the motion seeking dismissal of Alliance on the grounds that, at such an early point in the lawsuit, it would be premature to determine whether Alliance had discriminated against the plaintiff.
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