Lefkowitz v. United Industrial Syndicate, Inc., 49 N.Y.2d 431 (1980)
The Attorney General of New York lacks standing to sue a corporation for breach of fiduciary duties and declaration of dividends on behalf of the ultimate beneficiaries of a charitable organization when the charity received shares in the corporation as an unrestricted gift, and the Attorney General’s action seeks to enforce rights arising from the ownership of charitable property rather than to enforce a charitable disposition.
Summary
The New York Attorney General brought suit against United Industrial Syndicate, Inc., and its directors, alleging underpayment of dividends and breach of fiduciary duty related to stock donated to various charities. The Attorney General claimed to represent the unascertained beneficiaries of charities that did not independently sue. The Court of Appeals held that the Attorney General lacked standing under EPTL 8-1.1(f), as that statute was intended to enforce charitable dispositions, not general rights arising from charitable property ownership. The court reasoned that granting standing in this context would unduly expand the Attorney General’s power and interfere with the internal affairs of charitable organizations.
Facts
Defendant Lebensfeld donated shares of United Industrial Syndicate’s cumulative first preferred stock to several charities in 1968 and 1969 without restrictions. United’s certificate of incorporation entitled holders of these shares to $6.00 per share per annum dividends when declared by the board, to accumulate whether earned or not, to be paid before any dividends on inferior shares. Dividends were declared, but at less than $6 per share. Some charities sued United and its directors for the deficiency and a declaration requiring full $6 payments in the future. Other charities did not join. Approximately one year later, the Attorney General commenced this action, claiming to represent the beneficiaries of the non-suing charities, also alleging that the repurchase of shares from another group of charities was below market value.
Procedural History
The defendants moved to dismiss the complaint, arguing the Attorney General lacked capacity to sue and that the complaint failed to state a cause of action. Special Term dismissed the action, deeming it derivative in nature and requiring a prior demand on the charities, except for one charity where demand was deemed futile. The Appellate Division modified, dismissing the entire action for lack of standing. The Attorney General appealed to the Court of Appeals.
Issue(s)
Whether the Attorney General has standing under EPTL 8-1.1(f) to sue a corporation for breach of fiduciary duties and declaration of dividends on behalf of the ultimate beneficiaries of a charitable organization, where the charity received shares in the corporation as an unrestricted gift?
Holding
No, because EPTL 8-1.1(f) was intended to provide a mechanism for enforcing charitable trusts and dispositions, not to grant the Attorney General broad power to enforce obligations owed to charitable organizations by virtue of their ownership of property originally received as a gift.
Court’s Reasoning
The court reasoned that EPTL 8-1.1(f) was enacted to address the problem of enforcing charitable trusts lacking ascertainable beneficiaries, a problem that historically prevented charitable trusts from being valid. While the statute extends to all charitable dispositions, including absolute gifts, it primarily aims to ensure that gifts are applied for their stated or proper charitable purpose. Here, the Attorney General wasn’t seeking to enforce a gift or trust but attempting to enforce rights arising from stock ownership, effectively stepping into the shoes of the charity without satisfying derivative action requirements. The Court stated, “[T]o confer standing upon the Attorney-General under EPTL 8-1.1 (subd [f]) would be to grant all but unlimited and uncontrolled power to act as the alter ego of the charitable organization.” The court found no authority to support such an expansive reading of the statute, emphasizing that it was not intended to authorize large-scale incursions into the everyday affairs of charitable corporations. EPTL 8-1.4(m) was also deemed inapplicable, as it grants supervisory power over charities but does not provide for actions against third parties allegedly liable to the organization. The Attorney General’s attempt to invoke the Not-For-Profit Corporation Law on appeal was rejected because the action was commenced solely under the EPTL and the record was not developed with those additional contentions.