Thursday, December 22, 2011

Membership Dispute

The Nonprofit Quarterly reports on a dispute among members of a Hmong community center in Wisconsin.  Individuals paid an initial $1,000 to become members of the organization.  Included in membership privileges was the right to hold funerals at the facility.  When the organization later fell into financial difficulty, it went back to the members and said they would have to contribute further to retain their memberships and the attendant rights.  Some of the members sued, claiming breach of an enforceable contract.

What I find interesting about this case is the likely blending of law and equity.  I tell my nonprofit law students that in the U.S. the strong trend has been toward resolving nonprofit difficulties and disputes through the application of corporate law, but that equity pops up at unpredictable times and in unpredictable ways.  This is certainly true when it comes to disputes among members or between memberships and boards.  The corporate law answer would be to look in the organization's governing documents to see what they say about members' rights and perhaps to assess whether any enforceable contract exists.  Equity, however, would demand that the organization treat its members fairly.

In this case, the judge made the wise decision to send the parties to mediation.  If all goes well, s/he will not have to decide whether to apply law or equity or, as often is the case, some jumbled combination of the two.


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I always thought that corporate law was primarily equity. That is why capital invested in a corporation is called "equity" and Delaware corporate law is developed primarily in the Delaware Chancery Court. Corporate law, to the extent it is statutory, is based largely on statutes developed in response to court decisions derived from the equity branch of the common law derived from the Chancellor's jurisdiction, rather than from the common law as developed in the common law courts.

Posted by: Michael Malamut | Dec 23, 2011 3:33:50 AM

Interesting. My first nonprofit experience resulted in the board of directors being disbanded and a new board elected. The bylaws called for the board to be elected by the membership, but the board had been self-electing for many years. I look forward to following you on a regular basis. Thanks!


Posted by: Jeff Aulgur | Dec 23, 2011 6:49:35 AM

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