We don’t normally associate non-profit organizations with factional fights leading to judicial dissolution proceedings, much less with a bloody riot among members wielding swords, cricket bats and microphone stands. But that’s exactly what happened at a religious center in Queens, New York, eventually leading to the courthouse on a petition for judicial dissolution of the non-profit corporate entity that operates the center.
The unusual case, Matter of Singh (Baba Makhan Shah Lobana Sikh Center, Inc.), Short Form Order, Index No. 18204/11 (Sup Ct Queens County Mar. 7, 2012), invites a look at the judicial dissolution provisions of New York’s Not-for-Profit Corporation Law (NPCL), which in many ways parallel the judicial dissolution provisions in New York’s Business Corporation Law (BCL) but also contain some differences.
Trouble at the Gurdwara
Baba Makhan Shah Lobana Sikh Center, Inc. is a New York not-for-profit corporation formed in 1998. The Sikh Center maintains an office and temple, known as a “gurdwara,” in the Richmond Hill section of Queens County, which has a significant Sikh population.
During its first decade the Sikh Center’s governance featured a two-year rotating presidency shared by the gurdwara’s founders. Starting in 2008, the term was shortened to one year. At the end of 2010, the sitting president, Jarnail Singh, and his supporters filed a lawsuit against other members seeking to change the Sikh Center’s governance and to allow more worshipers a role in electing officers.
As reported in the New York Times, Queens County Supreme Court Justice Augustus C. Agate granted a temporary restraining order that kept Jarnail Singh and other top officers in power into 2011 while the case proceeded. In the ensuing weeks arguments and scuffles broke out at Sunday prayer services between competing factions of worshipers.
In April 2011, the court issued a decision denying Jarnail Singh’s motion for preliminary injunction but also denying the defending faction’s motion to dismiss the lawsuit. Matter of Baba Makhan Shah Lobana Sikh Center, Inc., 2011 NY Slip Op 31271(U) (Sup Ct Queens County Apr. 18, 2011).
The unresolved lawsuit stoked tensions to the boiling point at the next Sunday service. While Jarnail Singh and his allies prayed inside the gurdwara, 100 members of the opposing faction gathered outside, and then surged into the Center. A bloody melee erupted (captured on videotape here) in which some combatants used short swords, cricket bats and other makeshift weapons. The police arrested eight of the brawlers and a number of others landed in the hospital.
The Dissolution Proceeding
In an unreported decision in June 2011, Justice Agate decreed that Gurmej Singh, who was associated with the out-of-power respondent faction, was the Sikh Center’s President.
In August 2011, Jarnail Singh and several of his allies commenced a proceeding for judicial dissolution of the Sikh Center under NPCL §1102(a)(2). The statute authorizes a director or ten percent of the total number of members to present a dissolution petition on any one of five different grounds:
- The directors are so divided respecting the management of the corporation’s affairs that the votes required for action by the board cannot be obtained.
- The members are so divided that the votes required for the election of directors cannot be obtained.
- There is internal dissension and two or more factions of members are so divided that dissolution would be beneficial to the members.
- The directors or members in control of the corporation have looted or wasted the corporate assets, have perpetuated the corporation solely for their personal benefit, or have otherwise acted in an illegal, oppressive or fraudulent manner.
- The corporation is no longer able to carry out its purposes.
Practitioners who handle dissolution of for-profit closely held business entities will quickly recognize that the first three grounds resemble those found in BCL §1104 for deadlock dissolution proceedings brought by a 50% shareholder; the fourth ground resembles BCL §1104-a’s provisions for dissolution by an oppressed minority shareholder; and the fifth ground echoes LLC Law §702’s provision for judicial dissolution of a limited liability company.
Jarnail Singh and the other Sikh Center petitioners argued that dissolution was warranted based on the internal dissension within the gurdwara for many years culminating with physical attacks between members of competing factions including the April 2011 melee.
The respondent faction opposed dissolution. First, they argued that some of the statements of members supporting the petition for dissolution are “forgeries and were not prepared or signed by the individuals who are named on the statements.” Justice Agate was not swayed, stating that this “bare, conclusory assertion is insufficient to raise any factual issue as to whether the member statements annexed to the petition are forgeries.”
The respondents also argued that the manifestations and existence of dissension had significantly subsided since Gurmej Singh’s installation as President.
Justice Agate’s analysis initially notes that “[t]here is no absolute right to judicial dissolution of a corporation since that determination lies within the discretion of the trial court.” He also notes Gurmej Singh’s concession that “disputes and disagreements have arisen between the competing factions of the Gurdwara within the last two years.”
Ultimately, however, Justice Agate agrees with the respondents that the past tensions have subsided sufficiently since June 2011 so as not to warrant dissolution, writing as follows:
Even accepting petitioners’ allegations as true, they have failed to show that the drastic remedy of dissolution would be beneficial to the members of the Gurdwara as required by NPCL §1109. The incidents of violence set forth in the petition occurred before Gurmej Singh became President pursuant to this court’s June 2011 order, and there is no evidence in the petition that such incidents continued after June 2011. Based upon the evidence before it, this court cannot conclude that there is dissension to such a degree that dissolution would be beneficial to the members of the Gurdwara. [Citations omitted.]
There are only a handful or two of reported decisions involving application of NPCL §1102 and its predecessor statute under the General Corporation Law. Justice Agate cites two of them. The more recent one, Matter of Cusato (Glen at Great Kills Homeowners Association, Inc.), 23 AD3d 464 (2d Dept 2005), involved a dispute among members of a non-profit homeowners association in which the appellate court affirmed without analysis a lower court’s order dismissing a dissolution petition predicated on allegations of oppressive conduct and internal dissension.
The older and more interesting case, Matter of John Luther & Sons Co. (Geneva Builders and Trade Association, Inc.), 52 AD2d 737 (4th Dept 1976), involved a dispute among members of a non-profit trade association. The appellate court observed that the “nub of the case” was a fight between competing factions for control of the non-profit entity. In essence, the court refused to use the judicial power to interfere in the democratic governance process associated with non-profit member organizations. The same can be said for the outcome in the Sikh Center case.
Update March 26, 2014: The Appellate Division, Second Department, today handed down two decisions in the case, the first (read here) affirming Justice Agate’s June 2011 order upholding Gurmej Singh’s succession to the presidency, and the second (read here) affirming Justice Agate’s March 2012 order denying the dissolution petition.