Committee to Save Polytechnic Univ. V. Board of Trustees of Polytechnic Univ., 2009 NY Slip Op 50146(U) (N.Y. Sup. Ct. 1/30/2009)
| Decision Date | 30 January 2009 |
| Docket Number | 7454-08. |
| Citation | 2009 NY Slip Op 50146 |
| Parties | THE COMMITTEE TO SAVE POLYTECHNIC UNIVERSITY, THOMAS A. MAURO, DENNIS LANDSBERG, EDWARD BARRON, BERNARD FARKAS, JOEL SNYDER, PAUL CARDENAS AND RONALD KUCHINS, Plaintiffs/Petitioners, FOR A JUDGMENT PURSUANT TO ARTICLE 78 AND SECTION 3001 OF THE CIVIL PRACTICE LAW & RULES v. THE BOARD OF TRUSTEES OF POLYTECHNIC UNIVERSITY, AND THE BOARD OF REGENTS OF THE UNIVERSITY OF THE STATE OF NEW YORK, Defendants/Respondents. |
| Court | New York Supreme Court |
John T. Casey, Jr., Esq., Attorney for Plaintiffs/Petitioners, Troy, New York.
Andrew M. Cuomo, Esq., Attorney for Defendant/Respondent Board of Regents, (Adele Taylor Scott, of counsel), The Capitol, Albany, New York.
Whiteman, Osterman & Hanna LLP, Attorneys for Defendant/Respondent Board of Trustees of Polytechnic University (Margaret J. Gillis and Christopher M. McDonald, of counsel), Albany, New York.
Plaintiffs/petitioners move pursuant to Article 78 and CPLR 3001 for a judgment, inter alia, annulling certain actions and/or determinations of defendants/respondents The Board of Trustees of Polytechnic University ("Board of Trustees") and the Board of Regents of the University of the State of New York ("Board of Regents"). Defendants/respondents move to dismiss the Verified Complaint and Petition.
Polytechnic University ("Polytechnic") is an education corporation chartered by the Board of Regents pursuant to Education Law § 216. As an education corporation, Polytechnic is governed by the Not-for-Profit Corporation Law ("N-PCL"), subject to certain statutory exceptions, limitations and modifications that reflect the role of the Board of Regents in supervising and overseeing public and private educational institutions in New York (see Education Law § 216-a [4]).
In 1972, during a period of fiscal difficulty for New York University ("NYU"), the State Legislature enacted legislation that resulted in the divestiture of NYU's School of Engineering & Science. The School was merged into Polytechnic, an independent institution specializing in engineering and related sciences that was, at the time, in a superior financial position.
In or about 2005, NYU approached Polytechnic with a proposal to merge or consolidate the two institutions. As alleged in the Verified Complaint and Petition, the Board of Trustees of Polytechnic met on February 1, 2005 and adopted a resolution rejecting NYU's proposal. The resolution stated, in pertinent part: "Polytechnic should remain independent and that all discussions with New York University relating to its proposal for merger and/or consolidation shall immediately cease and be discontinued."
However, discussions between NYU and Polytechnic later resumed. On or about August 3, 2007, the Executive Committee of the Polytechnic Board of Trustees met to authorize its president to negotiate a non-binding memorandum of understanding ("MOU") that would lead to an "affiliation" between the two institutions. Polytechnic also established various committees to explore the possibility of a merger, consolidation or affiliation with NYU.
On October 10, 2007, a non-binding MOU was approved by a super-majority vote of the Board of Trustees. This MOU became the framework of the "Polytechnic University-New York University Affiliation and Proposed Consolidation Agreement" ("Affiliation Agreement"), referred to by plaintiffs/petitioners as the "Definitive Agreement".
Under the Affiliation Agreement, Polytechnic agreed to change from a Type B non-member corporation under the Not-for-Profit Corporation Law ("N-PCL") to a Type C membership corporation, with NYU becoming the sole member of Polytechnic. However, Polytechnic would remain a separate Regents-chartered corporation and retain control over its assets, including endowment funds, real property, and intellectual property.
In connection with the Affiliation Agreement, NYU agreed to loan Polytechnic the sum of $50,000,000 over five years, the maximum affiliation period contemplated under the agreement before a merger or consolidation of the two institutions. The loan is secured by certain "air rights" assets owned by Polytechnic. No payment of principal is due until the air rights are sold or until the institutions consolidate, in which case no repayment would be required.
With regard to the composition of the Board of Trustees, the Affiliation Agreement contemplates that NYU, as the sole member of Polytechnic, would appoint approximately 10% of Polytechnic's trustees each year. As a result, the Agreement contemplates that appointees of NYU would become a majority of the Polytechnic Board of Trustees over the course of about five years.1
During this period of affiliation, NYU and Polytechnic agreed to work together to develop and implement a plan for a consolidation of the two institutions. Upon a determination that there shall be a consolidation, which is defined as "the merger of Polytechnic with and into NYU, with NYU being the surviving corporation," the parties shall cooperate and apply for all necessary and appropriate governmental approvals and consents, including the New York State Education Department, which is an arm of defendant/respondent Board of Regents.
Following numerous meetings involving community groups, faculty, staff, alumni, students, state officials and other stakeholders, the Board of Trustees of Polytechnic met on March 6, 2008 and, by a three-quarters vote, approved the Affiliation Agreement, as well as the amendments to Polytechnic charter and by-laws necessary to implement the terms of the Agreement.
Defendant/respondent Board of Regents met on June 23 and 24, 2008 to consider the proposed amendments to the Polytechnic charter. On June 24, 2008, the Board of Regents unanimously approved the proposed amendments, effective July 1, 2008.
Section 4 of the charter amendments, which plaintiffs/petitioners refer to as a "de facto merger provision," reads as follows:
The corporation [Polytechnic] shall have one member, which shall be New York University. Pursuant to the By-laws of the corporation, the member of the corporation shall, among other things, elect the board of trustees of the corporation, appoint the Chief Executive Officer of the corporation after consultation with the Board of Trustees, and be required to consent to any amendment, changes or repeal of the By-laws, the charter or any other governing document of the corporation that is proposed by the board of trustees.
Plaintiffs/petitioners raise numerous objections to the action of the Board of Trustees, contending that implementation of the Affiliation Agreement: (1) violates the Board's prior February 1, 2005 resolution discontinuing merger and/or consolidation negotiations with NYU; (2) terminates Polytechnic's existence as a corporation under the Education Law and, effectively, conveys all of its assets, including real estate, air rights, personal property and intellectual property, to NYU; (3) runs afoul of the provisions of the N-PCL that require judicial approval of the resulting corporate governance changes and asset conveyances; and (4) substantially reduces or eliminates the role that dissenting alumni and faculty would play in administering the school. Plaintiffs/petitioners also contend that the Board of Trustees violated its fiduciary duty to Polytechnic in approving the Affiliation Agreement and in failing to obtain an appraisal of the corporation's assets prior thereto.2
The same claims form the basis of plaintiffs/petitioners' contention that the Board of Regents acted arbitrarily, capriciously and in violation of law in approving the Polytechnic charter amendments that implement the terms of the Affiliation Agreement.
Plaintiff/petitioner Committee to Save Polytechnic University ("the Committee") is an unincorporated group of Polytechnic alumni who oppose the changes to the charter and by-laws of Polytechnic.
All but one of the individual petitioners/plaintiffs are Polytechnic alumni who have contributed their efforts and/or money to the school's Alumni Association. One of these individuals, Thomas A. Mauro, also alleges that he is a former Advisory Trustee of Polytechnic who lost authority to participate in meetings of the Board of Trustees as a result of the new Polytechnic by-laws. Finally, petitioner/plaintiff Paul Cardenas is an adjunct professor at Polytechnic.
The individual plaintiffs/petitioners claim to be aggrieved "since their status, authority and ability to participate in decision-making has been substantially reduced or amended under the amended by-laws." They also claim to have been aggrieved collectively, since their alma mater will cease to exist as an autonomous educational institution. Plaintiffs/petitioners also allege harm to the general public, since the alleged merger/consolidation will reduce the educational opportunities available to young people.
On the basis of the foregoing allegations, plaintiffs/petitioners seek the following relief: (1) a judgment that the March 6, 2008 action of the Board of Trustees was arbitrary, capricious, contrary to its own announced policy, and in violation of law; (2) a judgment that the June 24, 2008 action of the Board of Regents in approving the charter change was illegal, arbitrary and capricious; (3) an order rescinding the Board of Regents' approval of said charter amendments; (4) an order rescinding the action by the Board of Trustees and a direction that it immediately submit the Affiliation Agreement and their alleged plan of merger to the Attorney General for review; and (5) an order that the Board of Trustees seek and obtain judicial and/or Attorney General review of the charter amendments and conveyance of assets in Supreme Court, Kings County.
Defendants/respondents move to dismiss the Verified Petition and Complaint. First, defendants/respondents contend that plaintiffs/petitioners...
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