Document Sample
----------------------------------------------------------------------X      Index No.: 101251/2012
ELIZABETH STOUMEN, individually and as Member
Of the Board of Directors of the INTERNATIONAL
HAHN, as Founder and as Member of the Board of

MURRAY, as an Officer and Director of the Board of
Directors of The International Women’s Writing Guild,


                                                              BABCHIK & YOUNG, LLP
                                                              Attorneys for Defendants
                                                              200 East Post Road
                                                              White Plains, New York 10601
                                                              (914) 470-0001
                                 PRELIMINARY STATEMENT

       Defendants submit this Reply Memorandum of Law in Support of their motion to dismiss

Plaintiffs Elizabeth Stoumen and Hannelore Hahn’s Complaint pursuant to CPLR §§ 3211(a)(1),

(a)(7), and (a)(11) and in opposition to plaintiff’s cross-motion.

       In response to Defendants’ well-founded motion to dismiss, Plaintiffs simultaneously

seek to amend their Verified Complaint – thus implicitly acknowledging the infirmity of their

original complaint – and defend their pleading with a mass of affidavits and a frivolous sanctions

motion in an effort to create the illusion that their claim presents issues of fact when it does not.

None of Plaintiffs’ factual submissions change the key, undisputed facts:

       (1)         Plaintiffs received notice of the amendment to the bylaws, including the exact

                   text of the amendment, which made clear its effect, prior to the October 28,

                   2011 board meeting (admitted Complaint ¶54);

       (2)         The board unanimously voted to amend the bylaws (admitted Complaint ¶61);

       (3)         Plaintiffs misappropriated funds of the International Women’s Writing Guild

                   (hereinafter the “Guild”) for their own personal use (admitted Complaint ¶¶

                   74-86); and

       (4)         A majority of the board voted to remove Plaintiff Stoumen as President and

                   Director of Operations (admitted Complaint ¶102).

                                             POINT I

                          The Amendment to the Bylaws was proper.

       Plaintiffs argue the unanimous vote to amend the bylaws was procured by fraud, but

these allegations are belied by the incontrovertible facts. Plaintiffs admit the Board received

advance written notice that the by-laws amendment, voted for on October 28, 2011, would

“delete in whole the provision contained in Article V (Board of Directors), Section 1

denominated ‘Founder’s Position’” (Stoumen Aff. Exh. B). As such, Plaintiffs’ claim that they

were defrauded into voting for that amendment necessarily fails.

       Plaintiffs’ argument that the notice “did not include a copy of the provision that was

being deleted” (Stoumen ¶ 24) is manifestly insufficient to support a fraud claim, as it clearly

identified the provision being deleted. If Plaintiffs had any question as to the contents of that

provision, they could have asked for a copy – and, indeed, as fiduciaries, they had an obligation

to inform themselves as to implications of their vote on an amendment to the by-laws.

       Likewise, Plaintiffs’ opposition gains no force from affidavits of other Board members

who, apparently, also did not read what they were sent. None of these Board members denies

that she received advance notice of the October 28, 2011 meeting that provided the actual text of

the amendment to be voted upon, which again expressly stated that the amendment would

“delete in whole the provision contained in Article V (Board of Directors), Section 1

denominated ‘Founder’s Position’” (Stillwell Aff. Exh. B).

       Rather, their claim seems to be based on the assertion that Defendant Murray told them

the amendment was “only to allow for the hiring of an executive director” (Baugh Aff. ¶ 13;

Peck Aff. ¶ 12; De Baere Aff. ¶ 14). Of course, even if Murray really said that, and even if it

were false (which it was not, since the purpose of the amendment was to hire an executive

director, as the text of the amendment provided to the Board showed), it could not constitute

fraud as a matter of law because “an oral representation that a written instrument contains terms

different from those that it actually contains is not actionable as fraud because the person to

whom the representation is made is presumed to have read the instrument, and therefore, it

cannot be said that he or she relied on the oral representation.” 60A N.Y. Jur. 2d Fraud and

Deceit § 160.

       In an effort to create a question of fact when there is none, Plaintiffs repeatedly and

hyperbolically accuse Defendants of “outright lies” (e.g., Opp. Br. at 1). In reality, Defendants’

submissions are true (as discussed further below), and the basis of Plaintiffs’ false accusation is a

willful misreading of the relevant documents that cannot withstand scrutiny.

       The fact remains, the board unanimously voted to amend the bylaws. The bylaws were

amended to remove Section Section 1 denominated ‘Founder’s Position’ contained in Article V.

The amendment allowed the Guild to hire an independent Executive Director. An Executive

Director was hired, Defendant Cynthia Stilwell, and consequently she discovered the theft.

                                             POINT II

                Vice President Murray has immunity and did not commit fraud.

                N.Y. Not-for-Profit Corp. Law § 720-a provides for qualified immunity for

unpaid officers and directors of not-for-profits. Defendants do not dispute that IWWG is a not-

for-profit organized pursuant to IRC § 501(c)(3) and Vice President Murray is unpaid

(Complaint and Stillwell Aff. ¶8, respectively.) Vice President Murray is entitled to the benefits

conferred by N-PCL § 720-a.

       In order to fall outside the protective shield, plaintiffs must show Vice President Murray

intended to cause harm to plaintiffs.      “Thus, the determinative issue is whether plaintiffs

established that defendants intended to cause them harm.” Rabushka v. Marks at 900. (Citations

omitted.)   Plaintiffs contend Vice President Murray concocted some sort of evil plan and

therefore her actions fall outside the protective shield. Quite the opposite, a close reading of the

documents evidences the fact that Vice President Murray was grappling with a very difficult

decision involving founding members of the Guild.

       Plaintiffs’ attempt to use misleading quotations from internal emails after the Defendants

discovered Stoumen’s defalcation to support their claim that Vice President Murray should not

be afforded immunity. For example, Plaintiffs claim that Vice President Murray called Stoumen

an “addict”, a “con type”, and the like (Opp. Br. at 8), when in fact the cited email makes clear

that Vice President Murray was engaging in a “what if” discussion concerning how people

caught misappropriating thousands of dollars tend to behave:

              It has been my unfortunate experience with the addict/con type that
       they have 10,000 ‘plausible’ explanations at the ready. What happens if
       Elizabeth [Stoumen] pulls one of these things out of her pocket? What if it is
       something like--“well, Hannelore [Hahn] told me to do it.” Or, “Gerry
       explained to me that I needed to fill out such-and-such form. Rachel agreed.
       And I never noticed there was $X in my bank account because, frankly,
       looking at my bank account makes my pretty little head hurt.”?

               I’m just being perfectly honest here saying the people I know who are
       capable of this sort of thing are also instantly capable of concocting tales that
       mix fact and reality, draw others in, and that these tales are quite convincing.
       The purpose is to confuse the situation, deflect blame, and get others to think
       the cockamamie story *could* be true. You can be sure whatever story she
       pulls out of her pocket will be emailed and facebooked etc., etc.

               What would we do in this instance? Especially if you, Cynthia,
       believe that there is some thread of truth in whatever con she’s running. For
       example, what if it DOES involve Hannelore, or Jim, or Rachel, or even
       Alex? Do we, perhaps, do further investigation? I don’t know. One option, I
       guess, is listen to her and then say we will bring whatever crazy story she tells
       to the board for their judgment. But that we still need her resignation
       immediately. (Baugh Aff. Exh. B.)

       Similarly, Plaintiffs claim that on the day before the Board confronted Stoumen at the

December 16, 2011 meeting, “Murray … purposely failed to give notice to Board members she

believed would be sympathetic to Stoumen” (Opp. Br. at 8-9, citing Baugh Aff. Exh. C). In fact,

as the cited email makes clear on its face, Vice President Murray’s concern was not sympathy to

Stoumen, but rather protection of IWWG from further defalcations (Baugh Aff. Exh. C

(“Obviously, I did not send to [De Baere, Hahn, and Stoumen] because of the current risk with

[Stoumen] still being a signatory on the account. If she knows what’s up, we are in immediate

financial risk.”)) – a concern that was manifestly a reasonable business judgment under the


       Indeed, Defendants invite the Court to read the documents submitted by Plaintiffs closely

as they demonstrate precisely what was occurring: Defendants were not engaging in some

nefarious fraudulent scheme to oust Stoumen for their own purposes, but rather were struggling

with the very difficult challenge of what to do upon learning that a trusted colleague had been

defrauding the not-for-profit they were charged with protecting and that she remained in a

position of authority over the organization’s funds (see, e.g., Baugh Aff. Exh. B (“I have a

number of things going on in my head right now about this. One is--how do we proceed?

Another is--what are my obligations as a board member? So, for example, [Stillwell] probably

needs to confront [Stoumen] with this. Is it sufficient to ask her to reimburse the guild? Do we

need to inform the whole board? If [Stoumen] said she made a mistake and was confused, do we

accept her at her word? Anyway, I would like your [Baugh’s] advice and counsel on this.”).

       Vice President Murray’s concern was the protection of IWWG; Stoumen was removed

because of her own misconduct to the detriment of IWWG. Vice President Murray’s actions

were in the best interest of IWWG and she should be afforded the benefit of qualified immunity.

                                              POINT III

               The directors owed a fiduciary duty to IWWG, not to plaintiffs.

       Plaintiffs appear to argue that, as board members, the other board members owed them a

personal fiduciary duty. Any duty owed to each other as board members stem from their

fiduciary duty to the Guild. A director owes a fiduciary duty to the organization, not to other

directors. See Morales v. Galeazzi, 72 A.D.3d 765, 766 (2d Dep’t 2010) (“[D]irectors and

officers of corporations, in the performance of their duties, stand in a fiduciary relationship to

their corporation. As such, they owe the corporation their undivided loyalty and may not assume

and engage in the promotion of personal interests which are incompatible with the superior

interests of their corporation.”), quoting Yu Han Young v. Chiu, 49 A.D.3d 535, 536 (2d Dep’t

2008). All of the purported and so-called suspicious or questionable actions by Defendants are

mischaracterized in an attempt to draw the court away from the real issue: the fact that the

pleading does not state a sufficient cause of action for breach of fiduciary duty.

       Plaintiffs misleadingly quote an email from Board member Judy Huge as saying that

“many if not most of the board members are not intimately aware of what the original Article V,

Section1 contained” (Opp. Br. at 4 (bold italics in original)), omitting both Huge’s statement that

this was a “guess” (Baugh Aff. Exh. A) and Huge’s clear understanding that the Founder’s

Provision had in fact been removed (id. (“This would help clarify specifically what is no longer

in effect so there’s no more confusion that necessary.”; emphasis added)).

       Plaintiffs claim that it is “highly suspicious” and “questionable” that an early draft of the

minutes of October 28, 2011, did not state explicitly (as a revised version of the minutes did) that

the amendment had been “circulated to the Board by email on October 27, 2011” (Opp. Br. at 4-

5, citing Stoumen Aff. Exh. B). Of course, there is nothing “suspicious” or “questionable” about

this change, as it is undisputed that that the amendment was circulated to the Board by email on

October 27, 2011. Further, the amendment was also circulated with the same, draft minutes that

Plaintiffs rely upon. (See last page of Stoumen Aff. Exh. B.)

       Plaintiffs persist in claiming they did not have a copy of the by-laws or know the contents

of the Founder’s Provision (Opp. Br. at 5), when their own Verified Complaint establishes that

they do have a copy and know its contents, as it quotes extensively from the by-laws, and

Plaintiffs now attach a copy of the by-laws to their opposition (Hahn Aff. Exh. B). Indeed, the

special lifetime positions created for (and, presumably, by) Hahn and her daughter Stoumen by

the Founder’s Provision are at the heart of Plaintiffs’ claims – leaving Plaintiffs’ claim that they

were ignorant of the provision’s contents completely implausible.

       Plaintiffs want to distract the court from the issues raised by Defendants in this instant

motion. Plaintiffs cannot sustain a cause of action for breach of fiduciary duty because the board

members owed a fiduciary duty to the Guild, and Plaintiffs’ status as board members does not

supersede said duty.

                                            POINT IV

                    IWWG was in jeopardy of losing their 501(c)(3) status.

               Plaintiffs attempt to argue that the cases cited by defendants are distinguishable

because the cases involve large amounts income inuring to a private individual. The courts’

holding were clear and specific. “Failure to satisfy any one of the requirements set forth

in section 501 (subd [c], par [3]) is fatal and will destroy tax-exempt status.” (Stevens Bros.

Foundation v Commissioner of Internal Revenue, 324 F2d 633, cert den 376 U.S. 969.) People

v. Life Science Church, 113 Misc. 2d 952, 957-958 (N.Y. Sup. Ct. 1982) (emphasis added.) “An

organization will not qualify for tax-exempt status if even a small part of its income inures to a

private individual. See Church of Scientology of California v. Commissioner, 823 F.2d 1310,

1316 (9th Cir. 1987), cert. denied, 486 U.S. 1015, 108 S. Ct. 1752, 100 L. Ed. 2d 214 (1988).”

Orange County Agric. Soc'y v. Commissioner, 893 F.2d 529, 534 (2d Cir. 1990). (emphasis

added.) The Guild’s 501(c)(3) tax-exempt status was in jeopardy – and at a minimum it was a

reasonable exercise of business judgment to take steps to avoid that risk. As such, there was no


                                             POINT V

            Plaintiffs’ motion for sanctions is frivolous and should be sanctioned.

       In an effort to distract the Court from Stoumen’s misconduct in improperly obtaining

“reimbursement” for almost $5,000 in expenses paid by IWWG, and retaining those funds for

over four months until confronted, Plaintiffs bring a frivolous sanctions motion against

Defendants. In so moving, Plaintiffs persist in their claim that this was just a single, innocent

mistake (Opp. Br. at 5-8), including submitting Stoumen’s sworn affidavit to that effect. In fact,

there is substantial evidence that both Plaintiffs have engaged in repeated financial improprieties

abusing their positions of trust at IWWG (Stillwell Reply Aff.). Those acts were not relevant on

a motion under CPLR 3211, because the single act admitted by Stoumen was sufficient to

support the Board’s business judgment to relieve Stoumen of her financial responsibilities.

However, as a result of Plaintiffs’ sanctions motion, Defendants are compelled to submit a Reply

Affidavit of Cynthia Stillwell documenting multiple instances of Plaintiffs’ financial misconduct.

(See Stillwell Affidavit.)

       Further, plaintiffs’ own submission belies their claim that “Stoumen was never part of a

committee involved in drafting and/or approving the language for the amendment of the by-laws

and, in fact, no such committee existed at the time.” (Opp. Br. at 2.) In fact, Plaintiffs admit that

Stoumen was a member of the “pinch hitter” committee (id.). As demonstrated by Plaintiffs’

own submissions (Stoumen Aff. Exh. B), the “pinch hitter” committee was provided with a

“proposed agenda” that included the “Bylaws amendment”, referring to the same amendment

deleting the Founder’s provision quoted above (id.). Quite simply, Stoumen’s decision not to

read what she was sent, or her disregard of items that were expressly on the agenda, does not

change the contents of the agenda. To reiterate, a committee of the Board, formed to address the

IWWG’s 2011-2012 financial challenges, recommended the hiring of a new Executive Director

and a change to the IWWG bylaws to facilitate this hiring. The committee, including Stoumen,

was provided with and approved the language for the amendment to the bylaws. (Stoumen Aff.

Exhibit A.) Plaintiff’s accusations of “outright lies” are frivolous and an attempt to create a

question of fact when one does not exist.

       Plaintiffs’ motion for sanctions should be denied as frivolous and itself sanctioned.

                                            POINT V

Plaintiffs’ argument in support of an amendment to the action for Slander is without merit.

       Although leave to amend should generally be “freely granted,” such is not the case,

where is here, the proposed amendment is devoid of merit or is palpably insufficient as a matter

of law. Gray v. City of New York, 19 Misc.3d 1117(A) (Sup. Ct., NY Cty. 2008), citing Glaser v

County of Orange, 20 AD3d 506, 506 (2d Dept. 2005). The court must pass on the validity of the

cause of action as amended, (East Asiatic Co. Inc. v Corash, 34 AD2d 432, 434 (1st Dept. 1970),

and should not permit futile amendments which may lead to needless litigation. Saferstein v

Mideast Sys. Ltd., 143 AD2d 82, 83 (2d Dept.1988). As demonstrated above in Point II, supra,

the cited email makes clear that Vice President Murray was engaging in a “what if” discussion

concerning how people caught misappropriating thousands of dollars tend to behave. Plaintiffs

use misleading quotations from internal emails after the Defendants discovered Stoumen’s theft

as erroneous support for their motion to amend the cause of action for slander.

       Further, in regard to Stillwell, it appears Plaintiffs’ proposed amended complaint merely

repeats the allegation from the original complaint that Stillwell characterized Stoumen’s

improper reimbursement as “financial misconduct”, adding only the assertion, expressly upon

information and belief, that Stillwell repeated unspecified statements from Murray’s email. As to

the former, it remains deficient for the reasons set forth in Defendants’ opening brief, namely,

that even if Stillwell described Stoumen’s actions as financial misconduct to NYFA or

Ridgewood Bank, the statement would not only have been true, but would be protected by the

common-interest privilege. As to the new allegation, it is far too qualified and unspecific to

satisfy CPLR 3016(a). See, e.g., Gardner v. Alexander Rent-A-Car, Inc., 28 A.D.2d 667, 667 (1st

Dep’t 1967) (“The complaint in an action for slander is required to state in haec verba the

particular defamatory words claimed to have been uttered by defendants. This requirement is

strictly enforced and the exact words must be set forth. Any qualification in the pleading thereof

by use of the words ‘to the effect’, ‘substantially’, or words of similar import generally renders

the complaint defective.” (emphasis added).

       The motion to amend the complaint as to the cause of action for slander should be denied.


       Stoumen and Hahn used the Guild’s funds for their personal benefit. Hahn and Stoumen

reimbursed themselves for charges even though they never paid for the goods out of pocket.

This court should not consent to such wrongdoing. The action should be dismissed. For the

reasons set forth above, it is respectfully submitted that the Complaint be dismissed in its entirety

and plaintiffs’ cross motion for sanctions and motion to amend the cause of action for slander be


Dated: White Plains, New York
       April 11, 2012
                                                    BABCHIK & YOUNG, LLP

                                             By:    _____________________________
                                                    Emily R. Gluck
                                                    Attorneys for Defendants
                                                    200 East Post Road
                                                    White Plains, New York 10601
                                                    (914) 470-0001


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