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Christian Browne Represents Client in Action to Protect the Assets of the Sons of Italy Lodge
Christian Browne, a Partner with the Firm, recently successfully represented a client in New York State Supreme Court, Nassau County in an action involving the corporate structures of the Marco Polo Lodge of the Order of the Sons of Italy in America, a not-for-profit corporation.
The Firm's client, Leo Diliberti, was a leading member of the Lodge, having joined in 1970. On November 11, 1991, the Marco Polo Lodge entered into a contract to purchase a new building, located at 34-83 Hempstead Turnpike in Levittown, to be used as its meeting hall. The contract was signed by Mr. Diliberti, as chairman of the Lodge. On January 16, 1992, Mr. Diliberti, and two other Lodge members, now deceased, formed a corporation named the Marco Polo Building Corp. for the purpose of taking title to the property. Title closed on March 3, 1992. However, the certificate of incorporation states that Marco Polo Building Corp. was formed pursuant to Business Corporation Law Section 402, a for-profit entity. However, it was undisputed that the intention of the incorporators was for it to be a charitable, not-for-profit corporation, and for it to assist in the charitable work of the Lodge. Further, since that time, no corporate formalities were followed. However, Mr. Diliberti argued that the Marco Polo Building Corp. maintains a bank account which is controlled by the President of the Lodge.
Since it was formed as a for-profit entity, the members of the Lodge could sell the property and retain the profits for themselves. In contrast, it is a basic tenet of non-profits that assets must be sheltered and that no individual can benefit directly.
On February 20, 2015, Mr. Diliberti commenced a special proceeding pursuant to Not-For-Profit Corporation Law Section 621 to compel the Lodge to allow him to inspect the minutes of the proceedings of the Lodge for 2014 and that he be provided access to the Lodge’s financial statements for 2014 and 2015. This action was dismissed on the grounds that Mr. Diliberti lacked standing, as he was no longer a member of the Lodge.
On July 30, 2015, the Firm brought this action on behalf of Mr. Diliberti seeking a declaratory judgment that, as the "last living original incorporator," Mr. Diliberti be allowed to convene an organizational meeting pursuant to the Business Corporation Law so that he may convert the for-profit corporation into a not-for-profit entity.
On August 22, 2016, the Court ordered that the present officers of the Marco Polo Lodge hold an organizational meeting, adopt by-laws and elect directors for the Marco Polo Building Corp. This meeting occurred on September 20, 2016. Following the decision, Mr. Diliberti filed a motion arguing that the decision should be amended to direct the incoming officers to transfer the assets of the building corporation to a duly formed not-for-profit corporation or to re-charter the Marco Polo Building Corporation as a not-for-profit entity. The Court agreed, citing the doctrine of de facto corporation, which can be invoked where a purported not-for-profit is incorrectly formed as a business corporation. The Court went on to explain that, had the Marco Polo Building Corporation been properly formed as a not-for-profit, its assets could not be distributed to its members. It ordered the directors of the Marco Polo Building Corporation file an amended certificate of incorporation, reorganizing the building corporation as a not-for-profit or, alternatively, that the directors may transfer the assets of the Marco Polo Building Corp. to a duly formed and organized not-for-profit.
"We are grateful that the Court agreed with our client's position and has taken action to ensure that the assets of the Marco Polo Building Corp. will continue to be used for charitable purposes. It's very rare that a client, at his own expense, will take legal action, when the client has little to gain personally. However, Mr. Diliberti spent many years working to build the Lodge and its strong financial foundation, and wanted to ensure that this good work would continue to benefit the community for years to come," Mr. Browne said.
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