Court Opinion

ID: 9704629
Source: CourtListenerOpinion
Date Created: 2023-08-26 00:41:34.954984+00
Date Added: 2024-06-11T18:22:03.767205
License: Public Domain

G.B. Smith, J.
(dissenting in part). I join in the dissent of Judge Robert Smith. In addition, because plaintiffs have stated a viable cause of action for breach of a fiduciary duty against the Board of Directors of Empire HealthChoice, Inc. doing business as Empire Blue Cross and Blue Shield (Empire), I dissent from the dismissal of that claim. Because not-for-profit directors that serve charitable entities and administer charitable as*363sets (e.g., Empire’s directors) are fiduciaries, and the fiduciary-duties of care, loyalty and obedience govern the conduct of such not-for-profit directors, their fiduciary obligations are far too important to be superceded by statute without an adequate justification or explanation. I would therefore permit the plaintiffs to proceed on this claim.
Facts
Background1
Empire was incorporated as a Type B corporation under the Not-For-Profit Corporation Law (N-PCL) and chartered under article 43 of the Insurance Law to provide affordable, prepaid hospital and medical services/insurance coverage to lower and middle income persons statewide. Empire endeavored to accomplish this mission through a combination of initial charitable funding, donations, subscription receipts, tax exemptions, reduced hospital rates, and private and governmental administrative contracts.
In the 1980’s and 1990’s, a number of events (i.e., the removal of Empire’s favorable hospital reimbursement differential; revocation of Empire’s tax exempt status [based on the United States General Accounting Office finding that Empire’s underwriting practices were similar to those of commercial insurers]; and the fact that hospital and medical costs rose faster than approved subscription rates), and Empire’s employment of community rating (a single premium applicable to all subscribers without regard for past medical history or projected use of medical resources) and open enrollment (guaranteed access to coverage) allowed commercial insurers, who could offer lower rates than Empire, to compete for and ultimately siphon off Empire’s larger and healthier groups.2 This increased competition from commercial insurers, coupled with the rapid growth of health management organizations *364(HMOs), caused Empire to suffer a high rate of subscriber attrition.3
Between 1993 and 1997, the Legislature eliminated major distinctions between Empire and the commercial insurers with which it competed, requiring that insurers employ community rating and open enrollment and, as previously mentioned, eliminating the hospital reimbursement differential between not-for-profit insurers, like Empire, and commercial insurers. Although Empire started to recover, Empire’s directors eventually concluded that it had to restructure as a for-profit corporation in order to remain viable.
In the late 1990’s, Empire drafted a restructuring proposal to transform Empire into a newly-organized charitable foundation, funded by the sale of 100% of the stock of a new, for-profit Empire. Under this proposed plan, Empire would transfer its insurance, HMO, and other businesses and assets to two for-profit subsidiaries of Empire Health Care, Inc., a for-profit stock corporation that would be wholly owned by Empire. Empire would then sell a portion of its Empire Health Care, Inc. shares to the public, and Empire Health Care, Inc. would issue and sell new shares of its common stock. The proceeds of these sales, and any unsold shares of Empire Health Care, Inc.’s stock, would be transferred to the new charitable foundation and Empire would dissolve within two years of the plan’s implementation.4
On December 29, 1999, after the proposed plan went through various revisions and was the subject of a number of Attorney General-sponsored public information sessions, the Superintendent of Insurance issued a final opinion and decision approving *365the plan for the conversion of Empire into a for-profit corporation. The Superintendent approved the plan in spite of Insurance Law § 4301 (j) which, at that time, barred such conversions. The Superintendent argued that section 4301 (j) was not applicable to Empire’s proposed conversion. However, the State Attorney General’s Office, which from 1997 to 2001 considered and modified Empire’s restructuring plan with a view towards preserving and protecting Empire’s value as a charitable asset, disagreed with the Superintendent regarding whether the plan as approved was legal given the existing Insurance Law and N-PCL.
After the Attorney General raised questions as to the validity of the proposed restructuring plan under the existing law, Empire did not restructure under this plan. Instead, Empire sought the legislative changes necessary to effect the plan. This proposed legislation, however, met with strong opposition from two powerful organizations, the Greater New York Hospital Association (GNYHA) and the health and human service union (Local 1199), and initially was not passed.5 Faced with what they termed “political stasis,” Empire’s Board of Directors, in August 2001, sent a letter to Governor Pataki, Senate Majority Leader Bruno and Speaker of the Assembly Silver (1) to seek the Legislature’s assistance in getting the legislation passed; and (2) to ask the Legislature to. substitute its judgment for that of Empire’s Board of Directors in determining the disposition of Empire’s assets.6 Plaintiffs suggest that Empire received the assistance it wanted through some political maneuvering, *366i.e., they allege, upon information and belief, that representatives from Local 1199 and Governor Pataki, in or about November 2001, engaged in secret negotiations/discussions regarding how to use the majority of Empire’s assets to fund a labor contract between the union and members of the GNYHA. Shortly thereafter, on or about January 24, 2002, the Governor proposed Chapter 1 of the Laws of 2002. Within a day of the Governor’s proposal, the Legislature enacted Chapter 1 of the Laws of 2002.
Chapter 1 added five new paragraphs to Insurance Law § 4301 (j),7 and created Insurance Law § 7317.8 While Chapter 1 does not generally amend the law with respect to conversion of not-for-profit insurers, according to the bill sponsor’s Memorandum *367in Support, one of the purposes of the bill was to “authorize the conversion of Empire Blue Cross to for-profit status.”9 (2002 McKinney’s Cons Laws of NY, at 1635.)
Contrary to Empire’s original restructuring plan, which called for the distribution of 100% of the value of Empire’s assets towards charitable purposes, Chapter 1 would require that 95% of the value of Empire’s stock be deemed a “public asset” and 5% a “charitable asset” (see Insurance Law § 4301 [j] [3], [5]).10 Chapter 1 directs that the public asset be turned over to a public asset fund (see Insurance Law § 4301 [j] [4]; § 7317 [e]) managed by a five-person board appointed by the Governor, Temporary President of the Senate and the Speaker of the Assembly. The net proceeds of the public asset fund are transferred to the Director of the Budget for deposit into the Tobacco Control and Insurance Initiatives Pool.11 On the other hand, Chapter 1 directs that the charitable asset (5% of Empire’s total anticipated value) be turned over to a charitable organization/ foundation (sec Insurance Law § 4301 [j] [5]; § 7317 [k] [1]) governed by various political appointees.
On or about June 18, 2002, pursuant to Chapter 1, Empire filed an Amended Plan of Conversion with the New York Department of Insurance. Empire filed this Amended Plan knowing that the requirements pertaining to the allocation of its value *368under the Amended Plan (95% for public uses determined by the State and 5% for a charitable foundation) were drastically different than the allocation provided for in its original restructuring plan (100% for charitable uses).
Procedural History and Parties
On August 20, 2002, plaintiffs commenced the instant action in Supreme Court, New York County, against Empire and various New York State defendants (State defendants).12 Plaintiffs asserted nine claims, including one for breach of fiduciary duty.13 Regarding the cause of action for breach of fiduciary duty, plaintiffs alleged that, “Empire’s Directors abdicated and breached their fiduciary duties of care, loyalty and obedience by[]: (i) abandoning the [original 1997] Restructuring Plan . . . ; (ii) asking the Legislature to substitute its judgment in determining the disposition of Empire’s assets; and (iii) ignoring requests to exercise its fiduciary duty and instead simply acquiescing in the Legislature’s taking of Empire’s value for purposes other than carrying out Empire’s mission.”
On September 20, 2002, both Empire and the State defendants moved to dismiss plaintiffs’ complaint in its entirety. By decision and order dated February 28, 2003 (and filed March 7, 2003), Supreme Court found that a number of the plaintiffs lacked standing. As to the remaining plaintiffs, Supreme Court granted defendants’ motions and found that each cause of ac*369tion in the complaint failed to state a cause of action upon which relief could be granted.
Although it dismissed all claims asserted by plaintiffs against both Empire and State defendants, Supreme Court, on its own initiative, expressed the view that the “factual allegations in the complaint clearly suffice to support a cause of action for violation of Article III, § 17 (unnumbered subsection 12) of the State Constitution [i.e., the Exclusive Privileges Clause].” With leave of the court, plaintiffs filed an amended complaint, dated March 31, 2003, that alleged one violation of the Exclusive Privileges Clause. Empire and State defendants again moved to dismiss. By decision and order dated October 1, 2003 (and filed October 2, 2003), Supreme Court denied these motions.
On May 20, 2004, the Appellate Division, First Department affirmed: (1) the dismissal of plaintiffs’ August 20, 2002 complaint; and (2) Supreme Court’s decision to sustain plaintiffs’ claim alleging a violation of the Exclusive Privileges Clause. The Appellate Division granted the plaintiffs and defendants leave to appeal.
Discussion
Given the fact that not-for-profit organizations generate and spend billions of dollars, many not-for-profit boards and individual directors rival their for-profit counterparts in terms of influence exerted and power wielded. However, the checks on the power of not-for-profit and for-profit directors are quite different.14 In New York, the State Attorney General’s Office normally oversees the conduct of not-for-profit directors (see New York State Attorney General Charities Bureau, The Regulatory Role of the Attorney General’s Charities Bureau, chttp:// www.oag.state.ny.us/charities/role.pdf>, cached at <http:// www.courts.state.ny.us/reporter/webdocs/role.pdf>). However, in this case, regarding the instant transaction, the Attorney General’s Office, which is also charged with defending the Legislature’s enactments, has a conflict that prevents it from performing its oversight role.15 Because of this unique situation, it is of paramount importance not only that standing be given to the plaintiffs (a conclusion reached by the majority), but also *370that not-for-profit directors adhere to their fiduciary duties and that fiduciary requirements, in general, be strictly enforced.
The fiduciary duties of care, loyalty and obedience are the legal standards that govern the conduct of not-for-profit boards and individual directors in their day-to-day relationship to the organizations they serve.16 Specifically, N-PCL 717 (a) states in part, “Directors and officers shall discharge the duties of their *371respective positions in good faith and with that degree of diligence, care and skill which ordinarily prudent men would exercise under similar circumstances in like positions.” Proper discharge of these duties ensures that a not-for-profit board’s financial decisions are made soundly and legally, that an individual director, when faced with an opportunity that could benefit both the organization and him/herself, acts in the organization’s interest first, and that the board prudently manages its assets in furtherance of its organization’s stated charitable purpose, among other things. Put another way, these fiduciary duties are the high standards by which not-for-profit hoards and individual directors are held accountable for the decisions they make and transactions they engage in. Being held to such a high standard of accountability would seem especially important when not-for-profit directors initiate and follow through with a plan that drastically changes the fundamental character of the corporation, like the instant Amended Plan of Conversion.
Turning to Chapter 1, Insurance Law § 7317 (f) (ii)17 provides that it supercedes all inconsistent common-law and statutory duties, including fiduciary requirements. Chapter 1 does not set forth an adequate justification or explanation as to why it is appropriate to: (1) eliminate a not-for-profit director’s fiduciary responsibilities; and (2) immunize that director from breach of fiduciary duty claims. As discussed above, fiduciary duties govern how a director performs his or her daily functions. Accordingly, the importance of these duties necessitates a rule that *372would prevent legislation of this kind in the absence of an adequate justification or explanation. Assessing the facts here, are the duties of care, loyalty and obedience, duties that a not-for-profit director must generally adhere to, so repugnant to Chapter 1 that their survival would deprive it of its efficacy and render its provisions nugatory (see Woollcott v Shubert, 217 NY 212, 220 [1916])? If the answer to this question is yes, that might be a proper justification or explanation for eliminating a not-for-profit director’s fiduciary responsibility for a particular transaction. However, such a conclusion is not within the realm of contemplation.18
As noted above, plaintiffs argue that Empire’s Board breached its fiduciary duty to preserve Empire’s assets and pursue the corporation’s charitable mission when it asked the Legislature to substitute its judgment in determining the disposition of Empire’s assets (August 2001 letter) and acquiesced in the Legislature’s taking substantially all of Empire’s value for purposes other than carrying out Empire’s mission (June 2002 Amended Plan of Conversion). According to the majority, “the heart of plaintiffs’ grievance [ ] is that assets from the restructuring are not going to be used to further Empire’s historic charitable purposes” (majority op at 347-348).
The majority counters plaintiffs’ contention by making two arguments. First, the majority argues that Chapter 1 “supersedes all inconsistent common-law and statutory duties” (id. at 360; see Insurance Law § 7317 [f| [ii]).19 Second, the majority argues that, “Even were the Court to somehow overcome this obstacle, the business judgment rule . . . bars plaintiffs’ claims” (majority op at 360).20
*373As to the majority’s first argument, Chapter 1 not only improperly eliminates the fiduciary responsibility of directors but also seeks to prevent any judicial review of their actions. Chapter 1 is improper not only in eliminating the long-standing fiduciary responsibility imposed upon directors of not-for-profit corporations by N-PCL 717, but also by effecting a taking in violation of both the federal and state constitutions {see dissenting in part op of R.S. Smith, J.).
In addition, there are two reasons why the majority’s second argument fails. First, the business judgment rule generally applies in commercial contexts; as such, the rule does not apply to Empire or other entities organized under the N-PCL. In Matter of Levandusky v One Fifth Ave. Apt. Corp. (75 NY2d 530 [1990]), this Court considered whether the business judgment rule should be applied to a building policy decision made by directors of a residential cooperative corporation governing board. This Court held that a standard of review analogous to the business judgment rule should be applied (see Levandusky, 75 NY2d at 537). In so concluding, this Court recognized that cooperative housing corporations function like for-profit entities and that they are formed under the Business Corporation Law.21 Also, this Court limited this standard of review to the decisions of cooperative and condominium boards (see Levandusky, 75 NY2d at 537). The Court did not make a statement as to whether a similar rule would be applied to review the decisions of other types of not-for-profit corporations or organizations.
Second, even if the business judgment rule, or an analogous rule were applicable here, a significant tension between the rule and the not-for-profit directors’ fiduciary duties is evident. Under the business judgment rule, courts cannot inquire into actions of corporate directors taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes. However, it is well settled that the business judgment rule does not apply to boards or individual directors who fail to act in good faith or within the scope of their authority (see Levandusky at 538; Board of Mgrs. of 229 Condominium v J.P.S. Realty Co., 308 AD2d 314 [1st Dept 2003]). Thus, in order for a not-for-profit director to act in good faith, etc., he or she must necessarily exercise his/her fiduciary responsibilities (e.g., the duties of care, loyalty and obedience).
*374Relying on the business judgment rule, the majority argues that,
“To the extent that plaintiffs complain about action occurring before Chapter 1 was enacted (i.e., ‘inviting’ the Legislature to decide how to allocate Empire’s not-for-profit assets), this claim is without merit because the plan of conversion—whether the one presented to the Superintendent in 1999 or the one presented to him after Chapter l’s enactment— was, in the Board’s judgment, necessary to safeguard Empire’s continued viability” (majority op at 360 [citation omitted]).
However, the Empire directors’ August 2001 letter “inviting” the Legislature to decide how to allocate Empire’s not-for-profit assets, as well as the June 2002 conversion plan, activities that are clearly in derogation of Empire’s mission and corporate purpose, arguably amount to abdications of responsibility22 and/or breaches of the fiduciary duties of care, loyalty and obedience. In other words, since there is a question as to whether the Empire directors breached their fiduciary duty, it cannot be presently argued that Empire’s directors engaged in the type of actions that would shield them from judicial inquiry under the business judgment, or analogous, rule. Accordingly, it is premature to assert that: (1) the business judgment rule bars plaintiffs’ claims; and (2) a court is not able to inquire into the actions of Empire’s directors.
In sum, Empire’s directors, by seeking to convert from a not-for-profit to a for-profit entity, by seeking the legislation necessary to facilitate such conversion, and by seeking the assistance of the Governor and the Legislature to pass such legislation, essentially sought to be bailed out by the State. In exchange for the bailout, the directors agreed that 95% of the value of Empire’s assets would be used for public uses to be determined by the State and 5% for charitable purposes. In addition to agreeing to the asset allocation set forth above, Empire’s directors also acceded to the elimination of their fiduciary obligations. Although not specifically stated in the record, apparently Empire’s directors wanted to be immunized from challenges *375that they breached their fiduciary duties.23 This immunity was provided for in Chapter l.24
Conclusion
By upholding the portion of Chapter 1 that provides for the elimination of the fiduciary obligations of not-for-profit directors, this Court sets a dangerous precedent. Instead of striking down a measure that weakens the accountability of corporate directors, the majority has upheld it. New York State, like most states, seeks to promote strong corporate governance (accountability) rules. In view of recent scandals involving both for-profit and not-for-profit entities, the majority’s holding is a step backwards.
The stated charitable mission and purpose of the organization are of primary importance when the not-for-profit board discharges its fiduciary obligations. The board must not act in contravention of that mission. Adherence to the legal standards that guide the conduct of not-for-profit boards, i.e., the fiduciary duties of care, loyalty and obedience, ensures that the day-today functions performed by the board are consistent with the organization’s mission and purpose. Here, Chapter 1 annuls the fiduciary obligations of not-for-profit directors for no good reason.25 Taking this into account, as well as the fact that, here, the Attorney General cannot exercise his normal oversight role over the conduct of Empire’s board,26 there is no way to hold the Empire board accountable for its actions related to the proposed conversion from a not-for-profit to a for-profit entity, a *376transaction that will change the character of Empire in a significant and fundamental way. Because they are not accountable for their actions, no Empire director has any incentive to mount a challenge to the proposed conversion under Chapter 1. Put another way, there is no one to ensure that the organization’s mission and purpose are protected. Based on the foregoing, the portion of Chapter 1 that provides for the elimination of the fiduciary obligations of Empire’s board should not stand.
In sum, the plaintiffs have asserted a valid cause of action for breach of a fiduciary duty, a cause of action that should be allowed to proceed in court. Therefore, in addition to joining Judge Robert Smith in his dissent, I dissent from the dismissal of the claim for breach of fiduciary duty.

. Because this controversy involves motions to dismiss for failure to state a cause of action (see CPLR 3211 [a] [7]), the court must assume the truth of the allegations in the pleading, “resolve all inferences which reasonably flow therefrom in favor of the pleader” (Sanders v Winship, 57 NY2d 391, 394 [1982]) and “determine . . . whether the facts alleged fit within any cognizable legal theory” (Morone v Morone, 50 NY2d 481, 484 [1980]).

. Empire retained most of the individual and small group markets, which generally contained less healthy subscribers.

. From 1986 to 1995, Empire’s net operating losses exceeded $800 million and its subscriber base dwindled from 10 million to less than 5 million.

. On April 11, 1997, Ira M. Millstein, outside counsel to Empire, testified before the New York State Assembly Standing Committees on Insurance and Health regarding Empire’s proposed restructuring plan in light of the responsibilities of Empire’s directors, given the economic circumstances of the company and the changing competitive environment in which Empire operates. Millstein discussed at length the duties owed by Empire’s directors (i.e., the duty of care, duty of loyalty and duty of obedience). However, regarding the duty of obedience, Mr. Millstein stated, “When the operating environment changes, such that continuing status quo operation is uneconomic, not for profit boards face a considerable challenge to protect assets and perpetuate the organization, while meeting the ‘duty of obedience.’ This is graphically demonstrated in the case of Empire” (Millstein Testimony at 10).
Millstein’s testimony was given with the original restructuring plan in mind (100% of Empire’s value to a charitable foundation).

. Plaintiffs alleged, upon information and belief, that GNYHA and Local 1199, in or about June 2001, agreed to drop their opposition to the plan in exchange for Empire’s agreement that half of the funds realized would go to the proposed foundation (with the goal of increasing access to health care and coverage) while the other half would go to a foundation “supporting hospitals’ purchases of ‘new computer systems or information technology . . . [to] help eliminate medical errors.’ ”

. The August 2001 letter provides, in pertinent part:
“We write to call your attention to the fact that failure to enact legislation this year, enabling the corporation to become a for-profit enterprise, will put the viability of Empire at risk—for no explicable reason beyond a political stasis. Failure to act also puts at risk the creation of a foundation worth $1 billion to be used for health care for New York residents.
“1. Empire has been engaged in the process of seeking to restructure as a for-profit company for five years. Empire’s continued viability in a competitive market is compromised without the passage of this legislation. Similar legislation has been enacted in a number of other states, most recently New *366Jersey. Many other Blue Cross Plans including Connecticut Blue Cross have declared their intention to convert. . . .
“7. There is $1 billion of current value (Empire’s worth) on the table ready to be placed in a foundation dedicated to health care, once the legislation is passed.
“8. The only significant reason we can see for a delay at this point is an inability to agree on how to divide the foundation’s income. This is not an issue Empire can resolve, only you can resolve it. . . .
“10. If you cannot agree on how to divide the $1 billion in foundation proceeds, then let the legislation pass, create one or more foundations, and let the foundation boards make the decision.
“The opportunity to unlock $1 billion in value, to be put to public health care use for the people of New York, is something that should not be wasted.” (Emphasis added.)

. For example, Insurance Law § 4301 (j) (1), which sets forth the general rule that medical expense indemnity corporations may not convert to for-profit entities, provides that:
“[n]o medical expense indemnity corporation, dental expense indemnity corporation, health service corporation, or hospital service corporation shall be converted into a corporation organized for pecuniary profit. Every such corporation shall be maintained and operated for the benefit of its members and subscribers as a co-operative corporation.”
However, an exception to the above rule is set forth in Insurance Law § 4301 (j) (2). Section 4301 (j) (2) provides that:
“[a]n article [43] corporation which was the subject of an initial opinion and decision issued by the superintendent [of insurance] on or before December [31, 1999], as the same may be amended, may be converted into a corporation or other entity organized for pecuniary profit, or into a for-profit organization, in any such case, in accordance with the provisions of section [7317] of this chapter.”

. For example, Insurance Law § 7317 (a) (1), which sets forth the requirements for the restructuring plan that must be submitted under Chapter 1, provides that:
*367“[a]n article [43] corporation, which, was the subject of an initial opinion and decision issued by the superintendent on or before December [31, 1999], as the same may be amended, which seeks to convert into a corporation or other entity organized for pecuniary profit or into a for-profit organization of any kind shall submit a proposed plan of conversion to the superintendent for approval pursuant to this section.”
Additionally, Chapter 1 supercedes statutory and common law relating to not-for-profit corporations, and fiduciary requirements applicable to the hoard of directors filing a plan pursuant to section 7317 (a) (1) (see Insurance Law § 7317 [f] [ii]).

. Although the statute is written as applying generally, it has been acknowledged on a number of occasions, including in Supreme Court’s February 2003 order, that this legislation was only meant to apply to Empire.

. Chapter 1 provides for this value allocation even though both the Superintendent of Insurance and the Attorney General had previously recognized that Empire’s entire value was a charitable asset.

. Under Chapter 1, over $700 million, which represents about two thirds of the total anticipated value of Empire (and nearly 75% of the public asset fund), would be used to pay hospitals, nursing homes and certain personal care agencies in order to assist in the recruiting and retention of nonmanagerial health professionals over a three year period, i.e., the monies would be used to fund salaries and raises for these workers during that time.

. This action was commenced on behalf of: (1) Consumers Union of U.S., Inc. (CU); (2) National Multiple Sclerosis Society, New York City Chapter; (3) Housing Works, Inc.; (4) Disabled in Action of Metropolitan New York; (5) New York Statewide Senior Action Council, Inc.; (6) Jeffrey Friedwald; (7) Betty Sicher and Charles Sicher; (8) Carla Meyer; and (9) Alain Filiz. Of these plaintiffs, only CU and the individual plaintiffs have standing to sue. Their interests in this action follow. CU, which according to the complaint has a group subscriber contract with Empire, alleges that “[i]ncreased premiums or reduced benefit payments” resulting from the Empire conversion would increase CU’s administrative costs. CU further alleges that this would harm both it and its employees who have elected Empire coverage. The individual plaintiffs (Friedwald, the Sichers, Meyer and Filiz) allege in the complaint that they “will be harmed when their premiums go up as a result of the conversion and Empire’s assets are diverted from promoting greater accessibility and affordability of health coverage and care.”

. The causes of action consisted of (1) impairment of contract; (2) impairment of vested interests or property rights without due process of law; (3) unreasonable taking of private property for public use; (4) taking of property without just compensation; (5) deprivation of civil rights in violation of 42 USC § 1983; (6) a demand for a declaration that conversion is invalid for failure to comply with N-PCL 510, 511 and/or 1001 et seq.; (7) breach of fiduciary duty and enforcement of trust; (8) constructive trust; and (9) a demand for a declaration that Chapter 1 does not permit the instant conversion of Empire.

. For example, not-for-profit organizations and their directors are not subject to the disclosure requirements of the Securities and Exchange Commission.

. In fact, the Attorney General has not commented one way or the other on plaintiffs’ breach of fiduciary duly claim.

. The Attorney General enforces the duties of care, loyalty and obedience (see The Regulatory Role of the Attorney General’s Charities Bureau, at 3-4). Definitions of these duties are set forth below.
“1. The duty of care: The common law duty of care requires that the trustees, directors and officers of charitable organizations be attentive to the organization’s activities and finances and actively oversee the way in which its assets are managed. This includes attending and participating in meetings, reading and understanding financial documents, ensuring that funds are properly managed, asking questions and exercising sound judgment. New York has codified the standard for the duty of care in N-PCL § 717, which provides that directors and officers of not-for-profit corporations ‘shall discharge the duties of their respective positions in good faith and with the degree of diligence, care and skill which ordinarily prudent [persons] would exercise under similar circumstances in like positions.’ See also EPTL §§ 11-1.7, 11-2.2 & 11-2.3.
“2. The duty of loyalty: The common law duty of loyalty requires trustees, directors and officers to pursue the interests and mission of the charitable organization with undivided allegiance. Private interests must not be placed above the charity’s interests. The N-PCL addresses certain aspects of this duty. For example, the N-PCL requires directors and officers to act in ‘good faith’ (N-PCL § 717), contains an absolute prohibition against loans to directors and officers (N-PCL § 716) and contains restrictions on self-dealing transactions (N-PCL § 406 & 715), as does EPTL § 8-1.8.
“3. The duty of obedience: The common law duty of obedience includes the obligation of directors and officers to act within the organization’s purposes and ensure that the corporation’s mission is pursued. There is no explicit reference to the duty of obedience in the N-PCL. However, the duty may be inferred by the limitations imposed upon corporate activities as set forth in the purposes clause of the certificate of incorporation (N-PCL §§ 201, 202 & 402 (a) (2)) and the directors’ and officers’ obligations as the corporate managers of the not-for-profit organization (N-PCL § 701 & 713). EPTL § 11-2.3 (b) (3) (B) explicitly refers to the needs of a trust’s beneficiaries” (id. at 4).
Further, the duty of loyalty “requires a director to have undivided allegiance to the organization’s mission when using the power of his position or information he possesses concerning the organization or its property” (see Bjorklund et al., New York Nonprofit Law and Practice: With Tax Analysis § ll-3[a], at 393 [1997]).

. Insurance Law § 7317 (f) (ii) provides:
“This section shall be deemed to supercede all otherwise applicable laws and legal requirements and compliance with this section and subsection (j) of section four thousand three hundred one of this chapter and the use of such funds as provided in such section, and in subsection (k) of this section, shall be deemed to constitute compliance with and shall supercede all such other legal requirements, including, but not limited to, statutory, common law and any other requirements relating to not-for-profit corporations and fiduciary requirements applicable to the board of directors of any company filing a plan pursuant to this section. In addition, and not in limitation of the foregoing, a transaction approved by the superintendent shall be deemed for all purposes to be a transaction that is fair and reasonable to an applicant and to promote the purposes of that applicant, and the use of proceeds as described herein shall be deemed for all purposes to be a use for a purpose that is consistent with and as near as may be to the purposes for which the applicant was originally organized and subsequently operated.”

. In fact, there appears to be no adequate justification or explanation for elimination of the fiduciary obligations of not-for-profit directors.

. As noted above, I believe this provision should be struck down.

. See Auerbach v Bennett (47 NY2d 619, 629 [1979] [“(The business judgment) doctrine bars judicial inquiry into actions of corporate directors taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes. ‘Questions of policy of management, expediency of contracts or action, adequacy of consideration, lawful appropriation of corporate funds to advance corporate interests, are left solely to their honest and unselfish decision, for their powers therein are without limitation and free from restraint, and the exercise of them for the common and general interests of the corporation may not be questioned, although the results show that what they did was unwise or inexpedient’ ” (citation omitted)]). Note, Auerbach involved a for-profit corporation formed under the Business Corporation Law.

. While cooperative housing corporations are formed under the Business Corporation Law, Empire was formed pursuant to the N-PCL.

. Under N-PCL 701 (a), the “corporation shall be managed by its board of directors,” not the Legislature or other government body. Clearly, the board of directors’ management responsibility extends to the management of the corporation’s assets.

. But recall, Empire’s outside counsel alluded to challenges regarding adhering to the duty of obedience (see n 4 at 364).

. While this dissent addresses only the fiduciary responsibilities of the directors of Empire, plaintiffs may also have a valid argument with respect to New York Constitution, article III, § 17, which forbids the Legislature from “[g]ranting to any private corporation, association or individual any exclusive privilege, immunity or franchise whatever.” While the majority concludes that the section applies only to monopolies and no monopoly exists here, the logical result of that conclusion is that the Legislature may, in any case involving a not-for-profit corporation, take over the assets of that corporation for public purposes and eliminate any fiduciary responsibility.

. While Empire’s outside counsel did allude to the challenges Empire faced in adhering to the duty of obedience (see n 4 at 364), this is not an adequate justification or explanation for the elimination of a not-for-profit director’s fiduciary obligations.

. Under N-PCL 112 (a) (7), the Attorney General normally can institute an action or proceeding “[t]o enforce any right given under this chapter to members, a director or an officer of a Type B or Type C corporation.” For purposes of the action or proceeding, the Attorney General has the same *376status as such member, director or officer. Actions can also be brought on behalf of the corporation pursuant to N-PCL 720.