Grace v. Grace Institute, 19 N.Y.2d 303 (1967)
A corporation possesses the inherent power to remove a member, officer, or director for cause, even without an explicit provision in its charter or bylaws.
Summary
This case addresses whether a life member and trustee of the Grace Institute, a charitable corporation, could be removed from his position for cause, despite the absence of a specific removal provision in the corporation’s charter or bylaws. The Court of Appeals held that corporations possess the inherent power to remove members for cause. The court found the trustee’s actions, which included initiating multiple unsuccessful lawsuits against the Institute, were detrimental and justified his removal. The court also determined that the trustee was afforded a reasonable opportunity to be heard before his removal.
Facts
Michael P. Grace II was a life member and trustee of the Grace Institute, a corporation dedicated to providing educational opportunities to women. During his tenure, Michael initiated several unsuccessful lawsuits against the Institute. As a result, the Institute brought charges against him, held a hearing, and subsequently removed him as a trustee and life member. The incorporating statute and bylaws lacked any provision for the removal of a life member.
Procedural History
Michael initiated an Article 78 proceeding seeking judicial review of his removal. The Special Term Justice determined that a trial was necessary to resolve factual issues related to the good faith of the removal decision and the fairness of the hearing. The Institute appealed, arguing for summary dismissal. The Appellate Division modified the Special Term’s order, treating the Institute more like a charitable trust than a membership corporation, and revised the questions for trial. The Institute then appealed to the Court of Appeals by permission, challenging the correctness of the Appellate Division’s order.
Issue(s)
Whether the Grace Institute had the authority to remove Michael P. Grace II from his position as a life member and trustee for cause, despite the absence of a specific provision authorizing such removal in the Institute’s incorporating statute or bylaws.
Holding
Yes, because a corporation possesses the inherent power to remove a member, officer, or director for cause, regardless of the presence of a specific provision in the charter or bylaws.
Court’s Reasoning
The Court of Appeals reasoned that settled law establishes a corporation’s inherent power to remove a member for cause, citing previous cases such as People ex rel. Manice v. Powell, 201 N.Y. 194. The court emphasized a policy of non-interference with internal corporate management. It noted that the trustees, vested with the power to manage the Institute, had determined that Michael’s conduct was detrimental to the Institute’s interests. The court found ample evidence to support this determination, pointing to Michael’s repeated, unsuccessful lawsuits against the Institute. The Court stated, “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.” The court also found that Michael was given a reasonable opportunity to be heard and answer the charges against him, highlighting that he was represented by counsel and given the chance to cross-examine witnesses, which he declined to do. The court rejected Michael’s argument that the Legislature exclusively held the power to alter rights granted by the act of incorporation, stating that the Legislature could not have intended a life member to retain their position regardless of their actions or abuse of trust. The Court interpreted the statute’s provision for successor designation in cases of “death, resignation or otherwise” to include involuntary removal.