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Absent a Private Right of Action Expressly Granted by Statute, An Association Created by Statute Does Not Have the Capacity to Sue

The Second Department determined a nonprofit association created by statute (Insurance Law 2130), the Excess Line Association of New York (ELANY), did not have the capacity to sue based upon the defendants’ alleged failure to comply with the Insurance Law. Only the Superintendent of Insurance can enforce the Insurance Law.  Because the legislature did not provide ELANY with a statutory private right of action, the association did not have the capacity to bring the suit:

… ELANY both lacked capacity to commence this action and failed to state a cause of action. Capacity to sue “concerns a litigant’s power to appear and bring its grievance before the court” … . Entities created by statute “have neither an inherent nor a common-law right to sue. Rather, their right to sue, if it exists at all, must be derived from the relevant enabling legislation or some other concrete statutory predicate” … Such an entity ” has no power other than that given it by the Legislature, either explicitly or by necessary implication'” … .

ELANY was created by Insurance Law § 2130. The statute gives ELANY certain duties, mostly relating to receipt of records and preparation of reports, and provides that the services ELANY performs are to be funded by a stamping fee assessed for premium bearing documents submitted to it in accordance with Insurance Law § 2118 (see Insurance Law § 2130[a], [f]). Brokers’ records are to be open to examination by ELANY and the Superintendent of Insurance (now the Deputy for Insurance; hereinafter the Superintendent) (see Insurance Law § 2118[c]; Financial Services Law § 203). ELANY must perform its functions under the plan of operation established and approved by the Superintendent and “shall be supervised by the superintendent” (Insurance Law § 2130[a]; see Insurance Law § 2130[c]). The Superintendent may impose fines and may suspend or revoke an excess line broker’s license for noncompliance with the Insurance Law (see Insurance Law §§ 109, 2105[a]). Contrary to ELANY’s contention, none of the provisions of the statute confers upon it by necessary implication the capacity to sue to enforce the provisions of the Insurance Law. Rather, the broad enforcement powers of the Superintendent, the lack of enforcement powers granted to ELANY, and the requirement that ELANY function under the supervision of the Superintendent “negate[ ] any inference of a legislative intent to confer that power” … . Excess Line Assn. of N.Y. (ELANY) v Waldorf & Assoc., 2015 NY Slip Op 05637, 2nd Dept 7-1-15

 

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Townhouse Residents, Members of a Community Homeowners’ Association, Entered an Implied Contract to Pay a Proportionate Share of the Fees for Authorized and Necessary Services in Connection with the Maintenance of the Townhouse Facilities

The Third Department affirmed Supreme Court’s ruling that defendants (townhouse residents) had entered an implied contract to pay a proportionate share of the full cost of maintaining the facilities. The defendants had refused to pay membership fees after a dispute with other residents arose.  The Third Department, applying the “business judgment rule,” determined the fees assessed by the plaintiffs were for authorized and necessary services provided by the plaintiff:

… [T]he Court of Appeals has made clear that an implied contract for a community homeowners’ association “includes the obligation to pay a proportionate share of the full cost of maintaining . . . facilities and services, not merely the reasonable value of those actually used by any particular resident” … . We review plaintiff’s action in undertaking such expenditures under the business judgment rule, which, in the absence of “claims of fraud, self-dealing, unconscionability, or other misconduct,” is limited to an inquiry of “whether the action was authorized and whether it was taken in good faith and in furtherance of the legitimate interests of the corporation” … . Bluff Point Townhouse Owners Assn., Inc. v Kapsokefalos, 2015 NY Slip Op 04905, 3rd Dept 6-11-15

 

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A Union Is Not an Entity Separate from Its Members—A Union, Therefore, Can Not Be Sued By a Member Unless Every Member Participated In the Action Which Gave Rise to the Suit

The Court of Appeals, in a full-fledged opinion by Judge Abdus-Salaam, over a dissent, upheld the so-called “Martin” rule (Martin v Curran, 303 NY 276 [1951]) which prohibits a suit against an unincorporated association, here a union, unless the suit can be maintained against every member of the association.  The executive board of the union decided against taking plaintiff’s grievance to arbitration. Because only the executive board participated in the decision, plaintiff’s suit against the union was prohibited by statute:

In a 4-3 decision authored by Judge Desmond, this Court held in Martin that a voluntary unincorporated association “is neither a partnership nor a corporation. It is not an artificial person, and has no existence independent of its members” (303 NY at 280). The Court determined that “for better or worse, wisely or otherwise, the Legislature has limited . . . suits against association officers, whether for breaches of agreements or for tortious wrongs, to cases where the individual liability of every single member can be alleged and proven” (id. at 282). Although there were policy considerations that might suggest a different result, the Martin Court was “under the command of a plainly stated, plainly applicable statute, uniformly held by this court, for many years, to require pleading and proof of authorization or ratification by all the members of the group” (id. at 280). That statute, General Associations Law § 13, is entitled “Action or proceeding against unincorporated association” and provides:”An action or special proceeding may be maintained, against the president or treasurer of such an association, to recover any property, or upon any cause of action, for or upon which the plaintiff may maintain such an action or special proceeding, against all the associates, by reason of their interest or ownership, or claim of ownership therein, either jointly or in common, or their liability therefor, either jointly or severally. Any partnership, or other company of persons, which has a president or treasurer, is deemed an association within the meaning of this section.”The Martin Court also noted that McCabe v Longfellow (133 NY 89 [1892]), the leading case on the right to maintain an action against an unincorporated association, held that a plaintiff could not maintain an action against the officer of an unincorporated association “unless the debt which he seeks to recover is one upon which he could maintain an action against all the associates by reason of their liability therefor” (303 NY at 281…), and that there had been a “line of consistent decisions to that effect” since McCabe. Ultimately, the Martin Court concluded that, because a labor union is a voluntary unincorporated association, the plaintiff was required to plead and prove that each member of the union authorized or ratified the alleged wrongful conduct.  Palladino v CNY Centro Inc, 2014 NY Slip Po 02378, CtApp 4-8-14

 

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