A member of a nonprofit corporation in Minnesota may not sue individually to complain about the suspension of her membership rights, an appellate court in Minnesota has ruled. The Court has said that the state’s Nonprofit Corporation Act requires a minimum of 50 members or 10% of the members, whichever is less, to bring a suit seeking equitable remedies.
The case arose when the Champagne D’Argent Rabbit Federation, a nonprofit membership corporation promoting the breeding of Champagne D’Argent rabbits, suspended Ruth Crosby’s membership rights. Its executive committee had concluded that Crosby and her parents had been responsible for an unusually large number of membership applications between August 2015 and April 2016. It suspended Crosby’s membership rights for one year and said that she could reapply for membership after the suspension.
Crosby did not wait to apply for readmission but sued the Federation for breach of “Minnesota law.” During discovery, it became apparent that she was claiming a violation of the Nonprofit Corporation Act that provides a nonprofit corporation may not expel suspend, or terminate a member’s membership except by “a procedure that is fair and reasonable and is carried out in good faith.” The Federation moved for summary judgment, which the trial court granted.
On appeal, in an unpublished opinion, the Court of Appeals recognized the language of the statute (§ 317A.411) but pointed to another section (§ 317A.467) that allows a court to grant equitable relief in an action brought by at least 50 members or 10% of the members, whichever is less. Citing several similar cases, the Court held that Crosby did not satisfy the requirements for seeking equitable relief and that the trial court had properly dismissed the complaint.
The Court also rejected a number of other arguments, deferring to the trial court’s decision not to consider issues not raised in the pleadings. (Crosby v. Campagne D’Argent Rabbit Federation, Ct. of Appeals, MN, No. A 19-0511, 5/26/20.)
YOU NEED TO KNOW
This decision may be correct based on prior precedent within the state, but it doesn’t make any sense.
The equitable relief provision of the statute is more in keeping with the requirements to bring a derivative case on behalf of the organization, than the right to redress an individual grievance affecting the individual member only.
If a suspended member has to get 10% of the members to join in seeking to redress the wrong, the individual member’s right is significantly undercut, and potentially meaningless. For those concerned with “rigged” systems, this seems to be an excellent example. Even though the statute requires a “fair and reasonable” procedure for suspending or terminating a member, unless the member can get 10% of the members to agree to sue, the organization can do whatever it wants, however it wants. That doesn’t make sense.