Marinello Case: Affirmation of Michael J. Matsler

SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF ORANGE
_____________________________________________X

SAM SLOAN,
AFFIRMATION IN
OPPOSITION AND IN
SUPPORT OF CROSS-
MOTION TO DISMISS
Petitioner
Index No. 2004-7739
-against-

BEATRIZ MARINELLO, TIM HANKE, STEPHEN
SHUTT, ELIZABETH SHAUGHNESSY, RANDY BAUER,
BILL GOICHBERG, KENNETH M. CHADWELL, AND
UNITED STATES CHESS FEDERATION,
Assigned Judge:
Lawrence I. Horowitz, JSC
Respondents.
_____________________________________________X

Michael J. Matsler, an attorney duly admitted to practice in the courts of the State of New York, affirms under penalty of perjury:

l. I am a member of Rider, Weiner & Frankel, P.C., attorneys for the United States of America Chess Federation ("USCF") and the other respondents. I am fully familiar with the facts to which I attest in this affirmation, submitted in opposition to petitioner Sloan's order to show cause requesting a preliminary injunction; and in support of respondents' cross-motion to dismiss the petition.

2. The Court's Order is dated November 16, 2004. The Court directed petitioner Sloan to make personal service of "this Order to Show Cause, together with a copy of the papers upon which it is granted ...on or before November 22, 2004" upon each of the respondents.

3. Mr. Sloan failed to comply with the Court's order with respect to service. None of the respondents, including USCF and its Executive Director Bill Goichberg, have been served with a copy of petitioner's affidavit, petition and memorandum of law. Mr. Sloan simply mailed a copy of the Order alone to USCF on November 17, 2004 and, presumably, to the other respondents. (A copy of the only document delivered to USCF in annexed as Ex."A"). The only attempt at personal service was performed at 4:45 p.m. on November 23, 2004 by delivering to Mr. Goichberg a day late. one copy of the Order without including "a copy of the papers upon which it is granted" (See annexed affidavit of William Goichberg). Accordingly, this Court lacks personal jurisdiction over the respondents due to improper service. See CPLR 308, 311, and 403.

4. None of the individual respondents other than Mr. Goichberg, upon information and belief, work or reside in New York State. This Court therefore lacks personal jurisdiction over them. Petitioner has failed to allege any facts to support a claim that any of them as breached any contract, committed any tortious act, or conducts personal business in New York State sufficient to impose long-arm jurisdiction under CPLR 302. For that matter, Mr. Sloan has failed to allege any facts stating a claim for which relief can be granted.

5. As set forth below, and in the annexed affidavits of William Goichberg, Dr. Leroy Dubeck and Michael Reis, Mr. Sloan has failed to demonstrate any entitlement to the dramatic remedy he seeks and has failed to sustain his heavy burden of proof.

6. The United States of America Chess Federation is a not-for-profit corporation duly organized and licensed under the laws of the State of Illinois. USCF was chartered in Illinois on December 27, 1939 and has been in good standing since that time. (See the annexed copy of USCF's certificate of incorporation, Ex. "B"; and Report dated November 18, 2004 for the Illinois Secretary of State corporations webpage, Ex. "C"). USCF's certification in Illinois is "conclusive evidence .... that the corporation has been incorporated under this Act." 805 ILSC 150 102.15. The Court is respectfully requested to take judicial notice of Illinios state law.

7. USCFfs mission is set forth in its by-laws. (A copy of the current by-laws, also available online at uschess.org, is annexed as Ed. "D"). USCF is dedicated to promoting chess throughout the United States and the rest of the world community. USCF provides educational and promotional services to its members and affiliates, assists in local, regional, national and international chess tournaments, and provides player ratings services. There are currently over 80,000 USCF members. Under the by-laws, the Executive Board formulates policy, manages the affairs of the corporation, and is generally responsible for administrative, personnel and finance. The Executive Board is elected by vote of the Board of Delegates, who in turn represent the members. Day to day operations are performed by the Executive Director and other staff employees, and the Life Member Assets Committee oversees USCF's real property and LMA funds. (See Affidavit of Dr. Dubeck.).

8. USCF's principal office is in New Windsor, New York. It is duly authorized as a foreign corporation to conduct business in New York. (Annexed hereto as Ex. "E" is a copy of the New York State Department of State's webpage confirming USCF's status).

9. On October 17, 2004 the Executive Board voted to relocate USCF's headquarters to Crossville, Tennessee. (A copy of the Executive Board Newsletter is annexed as Ex. "F").

10. Petitioner Sam Sloan is a USCF member. Mr. Sloan has a history of filing frivolous lawsuits. (See Mr. Sloan's website at www.samsloan.com).

11. As counsel for USCF, I have obtained a copy of Mr. Sloan's petition and his affidavit by viewing the documents he has posted on his website. Mr. Sloan in his petition claims that USCF has violated New York State's Not-For-Profit Law by selling its real property in New Windsor without the permission of the New York State courts or Attorney General, and by deciding to relocate its principal office to Crossville, Tennessee without having held any "public hearing". He also alleges that USCF Executive Board president Beatriz Marinello intends to dismiss the current USCF staff in New Windsor and appoint herself Executive Director. Mr. Sloan feels that such alleged conduct would be "illegal and a violation of Not-For-Profit Corporation Law."

12. It is undisputed that USCF is an Illinois not-for-profit corporation governed by the laws of the State of Illinois. See 805 ILSC 105 101.70. It is also settled that "questions relating to the internal affairs of corporations - for profit or not-for-profit are generally decided in accordance with the laws of the place of incorporation." United States of America v. Funds Held in the Name or For the Benefit of Wetterer, 210 F.3d 96 (2d Cir. 2000); Zion v. Kurtz, 50 N.Y.2d 92 (1980). Under the laws of Illinois, a not-for-profit corporation is empowered "to sell and convey, mortgage, pledge, lease as lessor, and otherwise dispose of all or any part of its property or assets." 805 ILCS 105 103.l0(e). The laws of Illinois, unlike New York, do not require court approval for the sale of a not-for-profit's assets. An Illinois not-for-profit corporation may own such real estate as it deems necessary, Eaton v. Women's Home Missionary Society of M.E. Church, 264 Ill. 88, 105 N.E. 746 (1914); Hossack v. Ottawa Development Association, 244 Ill. 274, 91 N.E. 439 (1914); and only the State of Illinois has the power to question whether the transaction was properly authorized. Hamsher v. Hamsher, 132 Ill. 273, 23 N.E. 1123 (1890). The Illinois statute "provides for almost unlimited powers in the transaction of business including the power to buy, sell and mortgage real and personal property...." City of Chicago v. Severini, 91 Ill. App. 3d 38, 44, 414 N.E.2d 67, 71 (1st` Dist. 1980).

13. Petitioner alleges that "[t]his is a special proceeding brought to enforce the rights of a Not-For-Profit Corporation under New York Not for Profit Law..... [t]his matter is governed by Sections 510 and 511 of the New York Not-for-Profit Law". (Petition 1 and 2). Petitioner is incorrect. As an Illinois not-for-profit corporation authorized to conduct businessin New York, the powers of our local courts over USCF are set forth in Article 13 of the New York State Not-For-Profit Corporation Law dealing with foreign corporations. Sections 510 and 511 on which petitioner relies. which require court approval of the sale of substantially all of the assets of certain not-for-profits, are found in Article 5. Foreign corporations are not subject to Article 5 other than with respect to its requirements relating to the reporting of information. See Section 1319 (Liability for non-disclosure of required information).

14. Section 1307 of the Not-For-Profit Law provides that "[a] foreign corporation may acquire and hold real property in this state in furtherance of its corporate purposes and may convey the same by deed or otherwise in the same manner as a domestic corporation." Sections 1310, 1319 and 1320 set forth those specific provisions in the Not-For-Profit Corporation Law, applicable to domestic entities, which are also applicable to foreign corporations. Nowhere in Article 13 are foreign corporations made subject to Sections 510 and 511. Accordingly, petitioner's reliance on Sections 510 and 511 is misplaced. Court approval of any sale is not required.

15. In any event, the sale of USCF's premises in New Windsor occurred on September 17, 2004. (See Affidavit of Michael Reis). The building, a flat roofed structure on Route 9W, was in poor condition and had only limited parking; and was far larger than necessary given USCF's restructuring in 2003 and 2004. The sales price was nonetheless favorable. The sales proceeds have been duly deposited into USCF's LMA accounts and are prudently managed. To the extent Mr. Sloan asks this Court to block the sale, his request has been rendered moot. (See annexed affidavits of Dr. Dubeck and William Goichberg).

16. USCF is solvent. It is currently meeting all expenses and liabilities without difficulty. It has no significant short term or long term debt. Prior to 2004 USCF had been, for several years, in difficult financial shape. In 2003, however, the Executive Board undertook a program to identify and reduce unnecessary costs and enhance revenues, which has proven successful USCF now outsources its retail merchandise sales operations which has allowed USCF to reduce overhead and payroll all while increasing profitability. USCF's Board determined that the building on Route 9W in New Windsor had become too large for its reduced staff; and the costs in New York State for wages, payroll taxes, workers' compensation, insurance, and utilities were far greater than in many other states. The decision was made by the Board, therefore, to sell the building and negotiate for a more financially favorable situation in another jurisdiction. (See Affidavit of Dr. Dubeck).

17. One such location is Crossville, Tennessee. The city of Crossville has donated a three-acre parcel of prime land and has agreed to provide USCF with office space rent free for one year while USCF's new building is constructed. USCF has procured a lender willing to accept the value of the donated land as a down payment or equity security. Wages, taxes, insurance and utilities are far lower in Crossville than in New York. The annual savings will be significant.

18. Mr. Sloanfs request for an order of attachment to "freeze" the USCFfs funds must be denied. None of the factors set forth in CPLR Article 61 are present. An order of attachment is available only in an action for a money judgment, a remedy Mr. Sloan has not requested. Moreover, none of the criteria set forth in CPLR 6201 apply. USCF is not an unauthorized foreign corporation, and Mr. Sloan has presented no evidence, let alone clear and convincing proof, that USCF has sought to defraud creditors or thwart the enforcement of any money judgment.

19. Mr. Sloan has failed to demonstrate he is entitled to an injunction. He has presented no evidence support of his allegations of self-dealing and has failed to demonstrate the existence or irreparable harm or the likelihood of success on the merits. Conclusory allegations and not a valid substitute for evidence of facts in admissible form. See, e.g. Khan v. State University of New York Health Science Center At Brooklyn 271 A.D.2d 656, 706 N.Y.S.2d 192 (2d Dept. 2000); O'Hara v. Corporate Audit Company, Inc., 161 A.D.2d 309, 555 N.Y.S.2d 82 (1st` Dept. 1990).

20. His request that the Court prohibit USCF from making personnel decisions and consummate its relocation to Tennessee is absurd. In New York as well as in Illinois the courts may not interfere with the business judgment of the corporation's directors. Kimeldorf v. First Union Real Estate Equity and Mortgage Instruments, 309 A.D.2d 151, 764 N.Y.S.2d 73 (lst` Dept. 2002). Mr. Sloan has failed to present any evidence in support of his demand that this Court declare that Ms. Marinello and her "allies" on the Board have engaged in malfeasance, and this Court has no power to "remove" them and "bar them from running for the USCF Executive Board in the future".

21. USCF is a "transparent" organization. USCF posts its audited financial statements on its website at www.uschess.org, as well as minutes and resolutions, for all to see. Petitioner admits that USCF is solvent and financially sound. (See Sloan Aff. 12).

22. Mr. Sloan has failed to present any credible, admissible evidence that he is entitled to have this Court issue him an injunction and an order of attachment, or grant any other relief. Accordingly, his application must be dismissed.

Dated: November 29, 2004

___________________________

Michael J. Matsler


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