A unanimous Appellate Division, First Department, panel yesterday ruled that the former president of the non-profit National Arts Club, O. Aldon James Jr., cannot bring a derivative lawsuit on behalf of the club accusing its current and former directors of wasting corporate assets, because James himself was removed from the club for misusing funds, creating a conflict of interest. A group of directors who were elected after James’ removal will take his place as plaintiffs, the panel ruled, in reversing a decision by Manhattan Supreme Court Justice Carol Edmead (See Profile).
"Plaintiff was expelled from the Club on whose behalf he is suing and the entire complaint in this derivative action alleges waste of corporate assets and breach of fiduciary duties…based entirely on [the defendants'] decision to investigate and expel him," the panel said. It also noted that the New York attorney general is suing James over his alleged mismanagement. While this "is not proof of any misconduct, it reinforces the existence of a conflict," the panel said.
