Court Opinion

ID: 5832712
Source: CourtListenerOpinion
Date Created: 2022-01-12 22:29:31.645136+00
Date Added: 2024-06-11T08:43:29.925431
License: Public Domain

Silverman, J. (dissenting in part).
I would affirm the order appealed from.
The original Tilden Act (L 1893, ch 701) was precipitated by the decision of the Court of Appeals in Tilden v Green (130 NY 29) applying the then New York rule as enunciated Holmes v Mead (52 NY 332), invalidating certain charitable trusts, in part for want of a definite beneficiary, because of the rule against perpetuities, and because of the restrictions on the kinds of trusts permitted in New York under the Revised Statutes. The act was designed to restore the law of charitable trusts as it had existed in New York before Holmes v Mead. (Allen v Stevens, 161 NY 122, 141.) The act represented primarily a change in the substantive law; its grant of additional powers to the Attorney-General was merely incidental to the change in substantive law. Thus, section 1 of the act made the change in the substantive law; and section 2 gave *499powers to the Supreme Court and the Attorney-General in relation to the charitable dispositions provided for in section 1. (Allen v Stevens, supra.)
But the substantive law of New York governing the creation and existence of charitable trusts and institutions did not begin with the Tilden Act, and was not exhausted by it. And neither were the functions of the courts and the Attorney-General in relation to them. The act and its successors, now EPTL article 8, and the functions of the Attorney-General in relation to charities, have long since outgrown the circumstances of the particular case which precipitated the original Tilden Act. The need for the State to supervise charities has grown particularly with the proliferation of private charities and foundations. EPTL article 8 is an important part of the statutory scheme for the regulation by the State of such charities. It should be and has been given broad interpretation far beyond the original circumstances of the Tilden case, and the State, in large part under this statute, supervises the entire field of the administration of charities. That supervision is entrusted by the statute to the courts, e.g., EPTL 8-1.1 (subds [c], [g]), and particularly in proceedings in which the Attorney-General participates (EPTL 8-1.1, subd [f]).
The functions of the Attorney-General in this connection have not been limited to claims to enforce charitable dispositions, but have included the proper administration of the properties of charitable trusts and corporations. And the statutes themselves indicate that the Attorney-General’s powers are not limited to enforcement of the charitable dispositions or to claims against the directors or trustees. The following provisions of EPTL 8-1.4 indicate this broad jurisdiction:
"Supervision of trusteees for charitable purposes.
"(a) For the purposes of this section, 'trustee’ means (1) any individual, group of individuals, corporation or other legal entity holding and administering property for charitable purposes, whether pursuant to any will, other instrument or agreement, court appointment, or otherwise pursuant to law, over which the attorney general has enforcement or supervisory powers, (2) any non-profit corporation organized under the laws of this state for charitable purposes, and (3) any nonprofit foreign corporation organized for charitable purposes, doing business or holding property in this state. * * *
"(e) (1) Whenever any trustee or other person, holding *500property or any income therefrom which may be required at any time to be devoted to charitable purposes, shall file in any court in this state (A) any petition for instructions relating to the administration or use of such property or income * * * (C) any petition respecting the disposition or distribution of such property or income * * * due notice of the action or proceeding shall be served by the petitioner upon the attorney general together with a copy of any petition, accounting, will or trust instrument * * *
"(i) The attorney general may investigate transactions and relationships of trustees for the purpose of determining whether or not property held for charitable purposes has been and is being properly administered. * * *
"(m) The attorney general may institute appropriate proceedings to secure compliance with this section and to secure the proper administration of any trust, corporation or other relationship to which this section applies. * * *
"(n) This section shall apply regardless of any contrary provisions of any instrument and shall be liberally construed so as to effectuate its general purpose of protecting the public interest in charitable uses, purposes and dispositions.”
Again, section 720 of the Not-For-Profit Corporation Law provides:
"Action against directors and officers for misconduct.
"(a) An action may be brought against one or more directors or officers of a corporation to procure a judgment for the following relief: * * *
"(2) To set aside an unlawful conveyance, assignment or transfer of corporate assets, where the transferee knew of its unlawfulness. * * *
"(b) An action may be brought for the relief provided in this section and in paragraph (a) of section 719 (Liabilities of directors in certain cases) by the attorney general, by the corporation, or, in the right of the corporation, by any of the following”.
The Appellate Divisions in both the Second and Fourth Departments have indicated that the Attorney-General has a function in suing to protect property dedicated to charitable uses even where the direct charitable beneficiary or foundation may be opposed. (Cf. Matter of Gebbie, 33 AD2d 1093; Matter of Notkin, 45 AD2d 849, 850, "it is the Attorney-General’s duty to enforce the rights of charitable beneficiaries, *501even if it results in his being at cross purposes with such beneficiaries.”) The Second and Fourth Departments have differed only as to whether the Attorney-General has to first make a demand on the charitable beneficiary. Defendants distinguish these cases on the ground that they involved express charitable trusts. But I think the power of the Attorney-General is quite the same, whether we deal with an express trust or a nonprofit charitable corporation. (Cf. EPTL 8-1.4, subd [a].)
In the recent case of Matter of Rothko (43 NY2d 305), the Attorney-General was permitted to sue third persons who were themselves not charitable donors or donees to set aside transactions between a charitable trust, or foundation on the one hand and these third persons. While the status of the Attorney-General appears not to have been expressly discussed in the appeals in that case, the Surrogate did expressly consider the matter in an earlier opinion of his in that case. (NYLJ, Dec. 22, 1972, p 15, col 4.) He relied, among other things, on EPTL 8-1.4 (subd [m]). In that case the position of the Attorney-General was in a certain sense further removed than in this case. The Attorney-General, on behalf of the ultimate beneficiaries of a foundation which was the residuary legatee under a will, was permitted to attack certain transactions between the executors and third persons, the result of which was claimed to be injurious to the interests of the ultimate beneficiaries of the foundation. It is true that, as the Surrogate pointed out, striking the Attorney-General’s objection would not eliminate any issue existing in the proceeding because the testator’s children were making substantially the same objections. But the Surrogate pointed out that if the Attorney-General were not in the case, the ultimate charitable beneficiaries would be without a spokesman, in part because the allegedly wrongdoing executors constituted one half the board of directors of the foundation.
In the circumstances, I am reluctant to say that the Attorney-General may not in a proper case bring an action to enforce a claim by a charitable corporation against a third person.
On the other hand, it hardly seems appropriate to authorize the Attorney-General without restriction to substitute his judgment for that of the directors of the charitable corporation with respect to the administration of the charity.
What Special Term did seems to me to be a reasonable and *502sensible reconciliation of these considerations, i.e., to give the Attorney-General the same rights as a stockholder in a corporation would have—to enforce the corporation’s rights in a derivative action in any case in which it can be shown that the directors, after due demand, have improperly refused to enforce those rights.
It is true that normally in a derivative action a corporation on whose behalf the action is brought should be joined as a party defendant. But actions need not be dismissed on that ground; the court may simply direct that the missing person be joined. (CPLR 1003.)
In this case, Special Term dismissed the actions where it appeared that the Attorney-General had failed to make a demand and it did not appear that such demand would be futile, and denied the motion to dismiss where it appeared that the demand would be futile. I agree.
Markewich and Ross, JJ., concur with Sullivan, J. P.; Silverman, J., dissents in an opinion.
Order, Supreme Court, New York County, entered on September 8, 1978, modified, on the law, without costs and without disbursements, so as to dismiss the complaint as to the Lebensfeld Foundation, and except as thus modified, affirmed.