GRSM Westchester Team Achieves Full Dismissal of Derivative Action Against Non-Profit Board

In this intra-corporate dispute, the plaintiff, who served as the president of the organization, initiated a lawsuit against his fellow Board members. The plaintiff asserted claims for breach of fiduciary duty, declaratory judgment, and injunctive relief, alleging that the Board had unlawfully amended the bylaws and denied him access to corporate records. He attempted to sue both in his individual capacity and derivatively on behalf of the general membership.

GRSM aggressively moved to dismiss the action, arguing that the plaintiff’s claims were legally deficient under New York’s Not-For-Profit Corporation Law (N-PCL). GRSM argued that the defendant directors, as uncompensated volunteers, were entitled to statutory immunity under N-PCL § 720-a because the complaint failed to plead specific facts showing gross negligence or intent to harm. Additionally, GRSM demonstrated that the plaintiff lacked standing to bring a derivative suit because he failed to represent the requisite 5% of the membership and did not plead with particularity that a demand upon the Board would have been futile.

The court agreed with GRSM’s arguments and granted the motion to dismiss in its entirety. In a detailed decision, the court ruled that the plaintiff’s individual claims were “embedded in the harm to the corporation” and, therefore, could not stand separately. The court further held that the plaintiff’s “conclusory allegations of wrongdoing or control” were insufficient to excuse the failure to make a demand on the Board.

This result underscores the Westchester team’s experience in Directors & Officers (D&O) liability and their ability to successfully navigate complex corporate governance disputes to protect volunteer boards from meritless litigation.