MEMORANDUM OF LAW
ORDER TO SHOW
Index No. 2004-7739
Appellate Case: 2005-3754
Bea Marinello, Tim Hanke, Stephen Shutt, Elizabeth
Shaughnessy, Randy Bauer, Bill Goichberg, Kenneth
M. Chadwell and United States Chess Federation,
The respondents United States of America Chess Federation ("USCF") et al submit this brief in opposition to petitioner-appellant Sloan's order to show cause requesting a preliminary injunction.
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's certification in Illinois is "conclusive evidence .... that the corporation has been incorporated under this Act." 805 ILSC 150 ??102.15.
USCF's principal office has been in Crossville, Tennessee since February 2005. It maintains a skeletal staff for the publication of Chess Life Magazine in New Windsor, New York. It is duly authorized as a foreign corporation to conduct business in New York and in Tennessee.
Appellant Sloan, a USCF member, claimed in the court below that USCF has violated New York State's Not-For-Profit Law by selling its real property in New Windsor in September 2004 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 has conspired with other Executive Board members to destroy the USCF. He asks the Court to prohibit the Board president, and other members and officers, from writing any checks or indeed, performing any of their duties at all, and to direct USCF to not relocate outside of New York. He also asks the Court to remove Beatriz Marinello, Elizabeth Shaughnessy, Tim Hanke, Randy Bauer, and Stephen Schutt from the USCF Executive Board and bar them from running for office again, among other things.
As set forth in the opposing affidavits, none of the respondents, including USCF and its former Executive Director Bill Goichberg, had been served with a copy of Appellant's affidavit, petition and memorandum in compliance with the Court's order with respect to personal service. Judge Horowitz had directed Mr. 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. Mr. Sloan simply mailed a copy of the Order alone to USCF on November 17, 2004 and, presumably, to the other respondents. 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." Accordingly, the lower court lacked personal jurisdiction over the respondents due to improper service. See CPLR 308 and 311.
In November 2004 none of the individual respondents other than Mr. Goichberg worked or resided in New York State. Appellant failed to allege any facts to support a claim that any of them breached any contract or committed any tortious act in New York State, and therefore long-arm jurisdiction is lacking. See CPLR 302. For that matter, Mr. Sloan failed to allege any facts stating a claim for which relief can be granted, and failed to demonstrate irreparable injury or a likelihood of ultimate success on the merits.
THE COURT LACKS JURISDICTION OVER RESPONDENTS BY REASON OF APPELLANT'S FAILURE TO SERVE PROCESS IN ACCORDANCE WITH THE LOWER COURT'S ORDER
CPLR 403(b) requires the notice of petition or equivalent, and the petition and supporting affidavits, to be served "at least eight days before the time at which the petition is noticed to be heard." Service is to be made "in the same manner as a summons in an action."
Personal service upon a corporation is to be performed generally as set forth in CPLR 311(a)(1), either by hand delivery to an officer or other authorized agent, or by service upon the New York Secretary of State under GBL ??306. Personal service upon a natural person requires hand delivery to the person, or by substituted service in the manner prescribed by CPLR 308.
In the Order to Show Cause dated November 16, 2004, the lower court directed appellant Sloan to serve a copy of the Order, the petition and affidavit upon the respondents by personal service, no later than November 22, 2004. It cannot be disputed that Mr. Sloan failed to comply with the Court's order, and with CPLR 308, 311 and 403. Mr. Sloan admits as much in his reply affidavit in the court below and at the hearing, a transcript of which he appends to his current affidavit. This Court therefore lacks jurisdiction over the respondents. Accordingly, Mr. Sloan's application for a preliminary injunction was properly denied and the petition dismissed. See, e.g., Bell v. State University of New York at Stony Brook, 185 A.D.2d 925, 587 N.Y.S.2d 388 (2d Dept. 1992); Long Island Citizens Campaign, Inc. v. County of Nassau, 165 A.D.2d 52, 565 N.Y.S.2d 852 (2d Dept. 1991); Zaretski v. Tutunjian, 133 A.D.2d 928, 521 N.Y.S.2d 116 (3d Dept. 1987 ).
THIS COURT LACKS LONG-ARM JURISDICTION
It is settled that the courts of New York may not, consistent with the United States Constitution, exercise personal jurisdiction over non-domiciliaries absent any of the grounds, specified in CPLR 302. See International Shoe Co. v. Washington, 326 U.S. 310 (1945). Section 302(a) provides:
(a) Acts which are the basis of jurisdiction. As to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any non-domiciliary, or his executor or administrator, who in person or through an agent:
1. Transacts business within the state or contracts anywhere to supply goods or services in the state; or
2. Commits a tortious act within the state, except as to a cause of action for defamation of character arising from the act; or
3. Commits a tortious act without the state causing injury to person or property within the state, except as to a cause of action for defamation of character arising from the act, if he
(i) regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in the state, or
(ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce; or
4. Owns, uses or possesses any real property situated within the state.
As of November 2004 only Mr. Goichberg, USCF?fs Executive Director, resided in Orange County, New York. All the other individual respondents resided in other states and none transacted business or supplied any goods or services in New York State. The appellant bears the burden of pleading and proving long-arm jurisdiction. Roldan v. Dexter Folder Company, 178 A.D.2d 589, 577 N.Y.S.2d 483 (2d Dept. 1991). Mr. Sloan failed to plead or prove that any of them have committed any tortious act within the state, engaged in business within the state in their personal capacity, or own any real estate in New York. Accordingly, this Court lacks long-arm jurisdiction.
AS AN AUTHORIZED FOREIGN CORPORATION, USCF IS NOT SUBJECT
TO SECTIONS 510 AND 511 OF THE NEW YORK NOT-FOR-PROFIT LAW
It is undisputed that USCF is a 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 ?? 103.10(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, 244111.274, 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, 91111. App. 3d 38, 44, 414 N.E.2d 67, 71 (1 S` Dist. 1980).
Appellant alleged in the court below 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?c.. [t]his matter is governed by Sections 510 and 511 of the New York Not For Profit Law?": (Petition para 1 and 2). As an Illinois not-for-profit corporation authorized to conduct business in 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 appellant 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).
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, appellant's reliance on Sections 510 and 511 is misplaced. Court approval of any sale is not required.
In any event, the sale of USCF's premises in New Windsor occurred on September 17, 2004. 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 were duly deposited into USCF's LMA accounts and have been prudently managed. To the extent Mr. Sloan asks this Court to block the sale, his request has been rendered moot.
APPELLANT HAS FAILED TO DEMONSTRATE ANY RIGHT
TO AN ORDER OF ATTACHMENT OR INJUNCTION
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 to be 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 Delegates and by the Board, therefore, to sell the building and negotiate for a more financially favorable situation in another jurisdiction.
One such location is Crossville, Tennessee. The city of Crossville donated a three-acre parcel of prime land. USCF 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.
Mr. Sloan's request for an order of attachment to "freeze" USCF's funds must be denied. His request is essentially a demand for an order of attachment, which is regulated by CPLR Article 61. CPLR 6210 provides:
An order of attachment may be granted in any action, except a matrimonial action, where the plaintiff has demanded and would be entitled, in whole or in part, or in the alternative, to a money judgment against one or more defendants, when:
1. Defendant is a non-domiciliary residing without the state, o foreign corporation not qualified to do business in the state, or
2. Defendant resides or is domiciles in the state and cannot be personally served despite diligent efforts to do so; or
3. The defendant, with intent to defraud his creditors or frustrate the enforcement of a judgment that might be rendered in plaintiffs favor; has assigned, disposed of, encumbered or secreted property, or removed it from the state or is about to do any of these acts; or
4. The action is brought by the victim or the representative of the victim of a crime, as defined in subdivision six of section six hundred twenty-one of the executive law, against the person or the legal representative or assignee of the person convicted of committing such crime and seeks to recover damages sustained as a result of such crime pursuant to section six hundred thirty-two-a of the executive law; or
5. The cause of action is based on a judgment, decree or order of a court of the United States or of any other court which is entitled to full faith and credit in this state, or on a judgment which qualifies for recognition under the provisions of article 53.
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. US CF 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.
Mr. Sloan has failed to demonstrate he is entitled to an injunction. As stated by this Court in County of Orange v. Lockey, 111 A.D.2d 896, 490 N.Y.S.2d 605 (2d Dept. 1985):
The law is well settled that to prevail on an application for preliminary injunctive relief, the moving party must demonstrate (1) a likelihood of ultimate success on the merits; (2) irreparable injury absent the granting of the preliminary injunction; and (3) that a balancing of equities favors [the movant's] position. Preliminary injunctive relief is a drastic remedy which will not be granted unless a clear right thereto is established under the law and the undisputed facts upon the moving papers, and the burden of showing an undisputed right rests upon the movant.
Id. (citations omitted) The petitioner appellant has the burden of proving clearly and convincingly, through affidavits and evidence in admissible form, that he would be irreparably damaged and that the law c1early favors his position. Buegler v. Walsh, 111 A.D.2d 206, 489 N.Y.S.2d 241 (2d Dept. 1985), appeal dismissed 65 N.Y.2d 1012, 494 N.Y.S.2d 302 (1985); Armbruster v. Gipp, 103 A.D.2d 1014, 478 N.Y.S.2d 419 (4th Dept. 1984).
Mr. Sloan has presented no evidence in support of his allegations of self-dealing, and has failed to demonstrate the existence of irreparable harm or the likelihood of success on the merits. Conclusory allegations are 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 (lst Dept. 1990).
His request that the Court prohibit USCF from making personnel decisions and consummate its relocation to Tennessee cannot be granted. 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 (1st Dept. 2003). 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 there is no justification to "remove" them and "bar them from running for the USCF Executive Board in the future". An injunction, moreover, would impair USCF's ability to finance the construction of its new offices and would therefore create a gross imbalance of the equities.
Mr. Sloan has failed to present any credible, admissible evidence that he is entitled to have this court issue him an injunction; and he has failed to plead and prove that this Court has personal jurisdiction over respondents. Accordingly, his application must be dismissed.
Dated: April 28, 2005
New Windsor NY
Rider, Weiner & Frankel, P.C.
Attorneys for Respondents
655 Little Britain Road
New Windsor, NY 12553
Michael J. Matsler
RIDER, WEINER & FRANKEL, P.C.
P O. BOX 2280 NEWBURGH, N. Y. 12550 (845) 562-9100
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