New York Law Review

Tag: Charitable Organizations

  • Stuyvesant Square Thrift Shop, Inc. v. Tax Commission, 54 N.Y.2d 735 (1981): Limits on Real Property Tax Exemptions for Entities Generating Charitable Funds

    Stuyvesant Square Thrift Shop, Inc. v. Tax Commission, 54 N.Y.2d 735 (1981)

    An organization whose primary objective is to generate profits, even if those profits are ultimately distributed to charitable institutions, is not necessarily entitled to a real property tax exemption under New York law.

    Summary

    Stuyvesant Square Thrift Shop sought a real property tax exemption, arguing its purpose was charitable because it donated its profits to charitable organizations. The New York Court of Appeals denied the exemption, distinguishing the case from one where property was used directly and exclusively for hospital purposes. The court emphasized that the Thrift Shop’s primary goal was profit generation, not direct charitable activity, and that occasional charitable acts did not change this primary function. The dissent argued that the Thrift Shop’s function was reasonably incident to the purpose of the parent charities, warranting an exemption.

    Facts

    Stuyvesant Square Thrift Shop, Inc. operated a thrift shop that sold donated merchandise. The net cash profits from the thrift shop were distributed to various institutions organized for charitable purposes. The Thrift Shop occasionally sold merchandise at reduced prices to needy persons and some goods were refurbished by clients of a constituent agency.

    Procedural History

    The case reached the New York Court of Appeals after an unfavorable ruling by the lower court. The Appellate Division’s decision was affirmed by the Court of Appeals.

    Issue(s)

    Whether the use of real property by a thrift shop, whose primary objective is to generate profits for distribution to charitable organizations, is considered exclusively for charitable purposes, thereby qualifying it for a real property tax exemption under New York law.

    Holding

    No, because the thrift shop’s primary objective is to generate profits, not to directly engage in charitable activities, its function is not exclusively charitable within the meaning of the narrowly construed exemption. The distribution of profits to charitable organizations does not, in and of itself, directly involve the Thrift Shop in the charitable activities of the distributee organizations.

    Court’s Reasoning

    The court distinguished the case from Matter of St. Joseph’s Health Center Props. v Srogi, where an exemption was granted to property used for hospital personnel housing because that use was sufficiently incidental to the hospital’s operation. Here, the court found that the Thrift Shop’s primary objective was generating profits, not directly engaging in charitable activities. The court stated, “The fact that the net cash profits are ultimately distributed to various institutions organized for charitable purposes does not in and of itself directly involve the Thrift Shop in the charitable activities of the distributee organization or render its function exclusively charitable within the meaning of this narrowly construed exemption.” The court also noted that occasional sales at reduced prices and refurbishment of goods by clients of a constituent agency were not the primary activity of the petitioner. The dissent argued that the Thrift Shop’s function was “reasonably incident to the major purpose” of the parent charities, similar to the situation in St. Joseph’s, and should therefore qualify for an exemption. Chief Judge Cooke stated, “Having once departed sharply from prior law, the court should not again reverse direction so soon after its first shift.”

  • Lefkowitz v. United Industrial Syndicate, Inc., 49 N.Y.2d 431 (1980): Attorney General’s Standing to Sue on Behalf of Charity Beneficiaries

    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.

  • St. Lawrence University v. Trustees of the Theological School, 20 N.Y.2d 317 (1967): Determining Corporate Status for Asset Distribution

    St. Lawrence University v. Trustees of the Theological School, 20 N.Y.2d 317 (1967)

    A body is considered a corporation if it possesses essential corporate attributes such as the power to sue and be sued in a corporate name, to receive and hold property, enact bylaws, administer its affairs, and maintain perpetual succession, regardless of whether the statute creating it refers to it as a “department” rather than a “corporation.”

    Summary

    St. Lawrence University sued the board of trustees of its former Theological School, seeking a declaratory judgment that the board was merely a department of the university and that its assets should revert to the university upon the school’s closure. The board argued it was a separate corporation since 1910. The Court of Appeals determined that the 1910 legislation granted the board sufficient corporate attributes to be considered a separate corporation, entitling it to control its assets. Additionally, a parcel of land deeded to the Theological School rightly reverted to the University upon the school’s ceasing operations.

    Facts

    St. Lawrence University operated a Theological School until 1965. In 1910, the university sought to circumvent sectarian restrictions on charitable donations by establishing a separate board of trustees for the Theological School. The New York legislature amended the university’s charter to create this separate board. The university transferred assets to the board. The board managed the Theological School independently. In 1954, the university conveyed a parcel of land to the Theological School, stipulating the land would revert to the university if it ceased to be used for theological education.

    Procedural History

    St. Lawrence University sued the board of trustees, seeking a declaration that the board was not a corporation and that its assets should revert to the university. The Supreme Court ruled in favor of the university. The Appellate Division reversed, dismissing the complaint. The Court of Appeals reversed the Appellate Division, finding the board to be a corporation and affirming the reversion of the real property to the university.

    Issue(s)

    1. Whether the board of trustees of the Theological School possesses sufficient corporate attributes under the 1910 legislation to be considered a separate corporation from St. Lawrence University.

    2. Whether the parcel of land conveyed by the university to the Theological School reverted to the university when the school ceased operations in 1965.

    Holding

    1. Yes, because the 1910 legislation endowed the board with essential corporate attributes, including the power to sue and be sued in a corporate name, to receive and hold property, enact bylaws, administer its affairs, and maintain perpetual succession.

    2. Yes, because the deed conveying the property specified that it would revert to the university if it ceased to be used for a Theological School.

    Court’s Reasoning

    The court reasoned that the 1910 statute vested the board with significant powers traditionally associated with corporations, notwithstanding its designation as a “department.” The court cited Blackstone’s list of corporate attributes, noting that the board possessed nearly all of them. The power to sue and be sued in a corporate name was considered a critical attribute. The court also stated, “While it does not have all the powers normally held by a business corporation, it does have the essential attributes, and just about all the usual powers of a charitable corporation.” The court further emphasized that the label used in the 1910 legislation (“department”) was not controlling when the entity was granted core corporate powers.

    Regarding the real property, the court found that the board conceded the property had reverted to the university under the terms of the original conveyance, making further legal action unnecessary. The court concluded that a separate action was unnecessary, affirming the automatic reversion to the university.

    The court addressed the procedural aspects, noting that even though the board only sought dismissal of the complaint, the court should declare the rights of the parties, including declaring the board’s corporate status.