Appellate Division Determines that Chapter of Not-for-Profit Corporation, Seeking to be Declared a Separate Entity, has Standing and Capacity to Sue the Not-for-Profit Corporation

By Lewis Tesser and Timothy Nolen

A recent decision from the Appellate Division, Third Department, demonstrates a fundamental issue in any litigation: the plaintiff’s capacity to sue. The case involved issues of business law, corporate law, property and civil practice.

The case, Craine v. NYSARC, Inc., 2011 N.Y. App. Div. LEXIS 7228 (3d Dept October 20, 2011), concerned a chapter of a New York not-for-profit corporation which objected to the corporation’s restructuring plan and chose to incorporate separately. The chapter filed suit seeking that the Court declare the chapter a separate entity and allow it to incorporate on its own. Although the Court ultimately determined that the defendant-corporation’s bylaws controlled whether the chapter could incorporate separately, the Court initially found that the chapter had standing and capacity to sue given the chapter’s various “markers of autonomy” such as election of the chapter’s own officers and maintenance of the chapter’s own bank accounts.

At Tesser, Ryan & Rochman, LLP, our attorneys have decades of experience handling various business and corporate litigation matters, including capacity and standing. We can work with clients to advise them whether they are the proper party to commence a lawsuit.