Justia Non-Profit Corporations Opinion Summaries

Kevin Clay and his associate founded a pharmaceutical sales company that marketed compounded prescriptions directly to patients, promising them a share of the insurance reimbursements for each prescription filled. The company partnered with a pharmacy willing to pay a portion of the insurance proceeds and recruited employees from a local business whose health plan covered these prescriptions. Patients were directed to a doctor who readily prescribed the creams, resulting in millions of dollars in reimbursements over two years. Clay established a public charity to reduce his tax burden but used its funds for personal expenses and failed to comply with nonprofit requirements.The United States District Court for the Northern District of Ohio oversaw Clay’s trial. A jury convicted him of conspiracy to commit healthcare fraud, healthcare fraud, and making a false statement to the IRS, but acquitted him of a separate tax charge. The court sentenced Clay to 51 months’ imprisonment and ordered restitution totaling nearly $7 million to both Fiat Chrysler and the IRS. Clay appealed his convictions, sentence, and restitution orders.The United States Court of Appeals for the Sixth Circuit reviewed the case. The court affirmed Clay’s convictions and rejected his challenges to the jury instructions and evidentiary rulings. However, it found error in the district court’s restitution orders and the application of a sentencing enhancement. Specifically, the Sixth Circuit held that restitution should not include payments for medically necessary prescriptions and that the apportionment of restitution must consider each defendant’s contribution and economic circumstances. The court also determined the restitution order to the IRS was not properly substantiated and included acquitted conduct. Finally, the case was remanded for further proceedings on restitution and for clarification or reconsideration of the leadership sentencing enhancement. View "United States v. Clay" on Justia Law

A non-profit religious organization sought to build an outdoor grotto, including a shrine, plaza, and walking path, on land adjacent to its existing church property. The new grotto was planned for a parcel subject to a lease and eventual transfer to the organization. The property was zoned for residential use, and while the church itself predated the zoning ordinance, the construction of accessory religious structures was not directly permitted under the current ordinance unless the church was located adjacent to an arterial street. The organization’s application acknowledged this restriction but requested approval for the project and setback variances.The Park Hills Board of Adjustment held a public hearing, received input both for and against the project, and ultimately approved the conditional use permit and variances, conditioned on the property transfer. Neighbors opposed to the project, specifically the Frederics, challenged the Board’s decision in the Kenton Circuit Court, arguing that the Board exceeded its authority under local ordinances and state law. The circuit court ruled in favor of the defendants, finding that the church was “grandfathered” due to its pre-zoning existence and that the Board did not act arbitrarily. The court did not address the federal Religious Land Use and Institutionalized Persons Act (RLUIPA) claim raised during summary judgment.On appeal, the Kentucky Court of Appeals reversed, holding the Board acted arbitrarily and exceeded its authority, as the expansion constituted an impermissible enlargement of a nonconforming use under both the zoning code and state law. The court also found no RLUIPA violation, reasoning that the ordinance did not impose a substantial burden on religious exercise.The Supreme Court of Kentucky granted discretionary review. The Court held that the RLUIPA defense was properly before it, as it had been tried by implied consent of the parties. On the merits, the Court concluded that denial of the permit did not impose a substantial burden under RLUIPA, applying the Sixth Circuit’s standard. The Court also found that the zoning ordinance did not violate RLUIPA’s equal-terms provision. The Court affirmed the Court of Appeals’ ruling, vacating the Board’s grant of the permit and variances. View "MISSIONARIES OF SAINT JOHN THE BAPTIST, INC. V. FREDERIC" on Justia Law

A nonprofit organization that publishes content critical of United States immigration policy was issued a subpoena by the New York Attorney General’s office seeking documents related to its governance, finances, and relationships with vendors and contractors. The organization alleged that the subpoena was motivated by a desire to suppress its viewpoints and thus violated its rights under the First Amendment and the New York State Constitution. The Attorney General, however, maintained that the investigation was prompted by concerns about possible self-dealing and regulatory noncompliance.After the subpoena was issued, the nonprofit partially responded but maintained objections. It then filed a federal lawsuit seeking damages and an injunction against enforcement of the subpoena, claiming the subpoena was retaliatory and unconstitutional. Shortly thereafter, the Attorney General initiated a special proceeding in New York State Supreme Court to compel compliance. The organization moved to dismiss or stay the state proceeding, raising constitutional arguments. The state court ruled against the nonprofit, ordering compliance with the subpoena (with some redactions allowed), and the New York Appellate Division, First Department affirmed. The New York Court of Appeals dismissed a further appeal.The United States District Court for the Northern District of New York denied the nonprofit’s request for a preliminary injunction and dismissed the federal claims, holding that they were precluded by the earlier state court judgment under the doctrine of res judicata. The United States Court of Appeals for the Second Circuit affirmed the district court’s judgment, holding that the state court’s decision was final and on the merits, involved the same parties and subject matter, and therefore barred the federal claims. The court also dismissed as moot the appeal of the denial of preliminary injunctive relief. View "VDARE Foundation, Inc. v. James" on Justia Law

A nonprofit research foundation affiliated with a state university entered into a memorandum of understanding (MOU) with the university in 2007, becoming a statutorily regulated direct-support organization (DSO). The MOU provided that the foundation’s board would include two appointees from the university but was otherwise silent on board approval and on budget approval processes. In 2018, the Florida Legislature enacted a law requiring all DSO board appointments to be approved by the university’s board of trustees. Around the same time, a regulation by the Board of Governors (BOG) required university boards of trustees to approve DSO budgets. The foundation challenged these requirements, arguing that they impaired its contractual rights under the MOU.The Circuit Court conducted a trial and found that the MOU limited the university’s involvement to only the two appointees and that the statutory board approval requirement impaired the MOU. It concluded that the university failed to show a significant and legitimate public purpose for the statute. However, regarding the budget approval dispute, the court held that the MOU did not address budget approval, so there was no contractual impairment. The Fourth District Court of Appeal affirmed both findings, concluding that the statutory board approval requirement rewrote the parties’ contract, while the regulation on budget approval did not impair the MOU.The Supreme Court of Florida reviewed the case. It held that the MOU only addressed the university’s power to appoint two board members and was silent on approval of other appointments or on budget approval. Therefore, the statutory and regulatory changes did not impair any specific contractual obligations. The court reversed the Fourth District’s ruling on the board appointment issue and otherwise affirmed, holding that neither the statute nor the regulation unconstitutionally impaired the MOU. View "Florida Atlantic University Board of Trustees v. Harbor Branch Oceanographic Institute Foundation, Inc." on Justia Law

The plaintiff was an employee who brought claims for wrongful termination, Labor Code violations, and breach of contract against two defendants: the Los Angeles County Metropolitan Transportation Authority (MTA) and the Public Transportation Services Corporation (PTSC). MTA had created PTSC, a nonprofit public benefit corporation, to provide retirement and employment benefits to certain workers and to manage employees who support MTA’s transportation functions. The plaintiff did not file a prelitigation claim under the Government Claims Act (GCA) before suing these entities.The Superior Court of Los Angeles County first granted a motion for judgment on the pleadings in favor of both defendants, finding that the plaintiff had not alleged compliance with the GCA’s claim presentation requirements. The plaintiff was given leave to amend but continued to argue that PTSC was not a public entity subject to the GCA, and that even if it was, the claims presentation requirement should not apply because PTSC had not registered as required by statute. The trial court sustained a demurrer without leave to amend, finding both defendants to be public entities and that PTSC was not required to register separately from MTA. The court entered judgment for both defendants.On appeal to the California Court of Appeal, Second Appellate District, Division One, the plaintiff did not challenge the judgment in favor of MTA but contested the ruling as to PTSC. The appellate court held that PTSC qualifies as a public entity for purposes of the GCA’s claims presentation requirement, given its creation and control by MTA. However, the court found that if PTSC failed to register properly on the Registry of Public Agencies—including with county clerks where it maintains offices—this would excuse the plaintiff’s noncompliance with the GCA. The judgment for MTA was affirmed, but the judgment for PTSC was reversed and remanded to allow the plaintiff to amend his complaint. View "Black v. L.A. County Metropolitan Transp. Authority" on Justia Law

Several nonprofit, faith-based organizations that provide pregnancy-related services and oppose abortion initiated an action against the New York State Attorney General. These organizations had made statements regarding abortion pill reversal (“APR”), a protocol intended to counteract the effects of medication-induced abortion. After the Attorney General commenced a civil enforcement action in New York state court against other entities (not parties to this case) for making similar APR-related statements, the plaintiffs alleged they faced a credible threat of sanctions if they continued such speech. As a result, they stopped making APR-related statements and sought declaratory and injunctive relief in federal court, arguing that the regulation of their APR-related speech violated their First and Fourteenth Amendment rights.The United States District Court for the Western District of New York addressed the Attorney General’s argument that the federal court should abstain under the Younger v. Harris doctrine due to the parallel state enforcement action. The district court found abstention unwarranted, noting the federal claims were not inextricably intertwined with the state action and would not interfere with it. On the merits, the district court determined that the plaintiffs were likely to succeed on their First Amendment claim because the APR-related speech was noncommercial, religiously and morally motivated, involved no financial benefit or remuneration, and did not directly offer APR but instead provided information and referrals. Since the Attorney General did not show the state’s restrictions would survive strict scrutiny, the district court granted a preliminary injunction.On appeal, the United States Court of Appeals for the Second Circuit affirmed the district court’s order. The Second Circuit held abstention under Younger was not required, as the plaintiffs’ claims were independent of the state enforcement action. The court found no abuse of discretion in the grant of the preliminary injunction, agreeing that the plaintiffs’ APR-related speech was noncommercial and protected, and the Attorney General failed to meet the strict scrutiny standard. View "Nat'l Inst. of Fam. & Life Advocs. v. James" on Justia Law

A nonprofit corporation purchased a 192-unit apartment complex from a government agency in 1994 at a significant discount. In exchange, the purchaser agreed by contract to rent all units at below-market rates to low-income families for 40 years and to comply with annual reporting and administrative fee requirements. Around 2016, the purchaser stopped fulfilling these obligations, including the reporting and fee provisions. The government’s successor agency, through its monitoring agent, notified the purchaser of the breach and initiated legal action seeking remedies under the contract.The purchaser counterclaimed in state court, seeking a declaration that the agreement was no longer enforceable and an injunction against further enforcement. The Federal Deposit Insurance Corporation (FDIC), as successor to the original government agency, intervened, removed the case to the United States District Court for the Middle District of Florida, and moved to dismiss the counterclaim. The purchaser argued that the contract’s obligations ended when Congress repealed the statute that created the original agency and authorized such agreements. The district court rejected this argument, holding that the contract remained enforceable, dismissed the counterclaim with prejudice, and remanded the case to state court.The United States Court of Appeals for the Eleventh Circuit reviewed the case. It held that the contract’s plain language required the purchaser to comply with its obligations for the full 40-year term, regardless of the repeal of the underlying statute. The court found that the FDIC, as successor, retained both contractual and statutory authority to enforce the agreement. The Eleventh Circuit affirmed the district court’s dismissal of the counterclaim, concluding that the agreement remains enforceable and the purchaser is still bound by its terms. View "Affordable Housing Group, Inc. v. Florida Housing Affordability, Inc." on Justia Law

A group of dentists, who are both members of a nonprofit mutual benefit corporation and parties to provider agreements with that corporation, challenged the corporation’s decision to unilaterally amend its fee schedules and related rules. The provider agreements allowed the corporation to set the fees paid to dentists for services rendered to plan enrollees, and the agreements, as amended by a 2018 settlement, expressly permitted the corporation to make unilateral changes to the fee structure with 120 days’ notice, during which dentists could terminate their agreements if they did not accept the new terms. In 2022, the corporation announced further amendments that, according to the dentists, reduced fees and altered the fee determination process. The dentists alleged that these changes breached the implied covenant of good faith and fair dealing in their provider agreements and that certain directors breached fiduciary duties owed to them as members.The Superior Court of San Francisco City and County sustained demurrers by all defendants without leave to amend. The court found that the corporation could not breach the implied covenant by exercising rights expressly granted in the agreements, and that the directors owed no fiduciary duty to the dentists in connection with the corporation’s exercise of its contractual rights to amend fee schedules.The California Court of Appeal, First Appellate District, Division One, affirmed the trial court’s judgment. The court held that the implied covenant of good faith and fair dealing cannot be used to override or limit a party’s express contractual right to unilaterally amend fee schedules, provided the contract is supported by consideration and the changes are prospective, with adequate notice and an opportunity to terminate. The court also held that directors of a nonprofit mutual benefit corporation owe fiduciary duties to the corporation itself, not to individual members in their capacity as contracting parties. View "California Dental Assn. v. Delta Dental of California" on Justia Law

Three non-profit corporations, each formed by littoral homeowners in the Portlock neighborhood of East Honolulu, purchased narrow beachfront reserve lots that separated their homes from the ocean. In 2003, Hawai‘i enacted Act 73, which declared certain accreted lands—land gradually added to the shoreline by natural forces—to be public property, preventing private parties from registering or quieting title to such land. Shortly after purchasing the lots, the non-profits (the Ohanas) filed an inverse condemnation action, alleging that Act 73 resulted in an uncompensated taking of accreted land seaward of their lots, in violation of the Hawai‘i Constitution. The parties stipulated that, if a taking occurred, just compensation would be based on the fair market rental value of the accreted land.The Circuit Court of the First Circuit initially granted partial summary judgment to the Ohanas, and the Intermediate Court of Appeals (ICA) affirmed in part, holding that Act 73 effected a taking of existing accreted lands. On remand, after a bench trial with expert testimony, the circuit court found that the fair market rental value of the accreted land was zero dollars, based on credible evidence that the land’s use was highly restricted and had no market value. The court declined to award nominal damages or attorneys’ fees. The ICA affirmed, finding the circuit court’s factual determinations were supported by substantial evidence and that sovereign immunity barred attorneys’ fees.The Supreme Court of Hawai‘i affirmed the ICA’s judgment. It held that the circuit court did not err in awarding zero dollars as just compensation, nor in declining to award nominal damages, because the Ohanas suffered no compensable loss. The court further held that the just compensation clause of the Hawai‘i Constitution does not waive sovereign immunity for attorneys’ fees in inverse condemnation cases. View "Maunalua Bay Beach Ohana 28 v. State" on Justia Law

After the Washington Medical Commission adopted a policy to discipline physicians for spreading COVID-19 “misinformation,” several plaintiffs—including physicians who had been charged with unprofessional conduct, physicians who had not been charged, and advocacy organizations—filed suit. The Commission’s actions included investigating and charging doctors for public statements and writings about COVID-19 treatments and vaccines. Some plaintiffs, such as Dr. Eggleston and Dr. Siler, were actively facing disciplinary proceedings, while others, like Dr. Moynihan, had not been charged but claimed their speech was chilled. Additional plaintiffs included a non-profit organization and a public figure who alleged their right to receive information was affected.The United States District Court for the Eastern District of Washington dismissed the plaintiffs’ First Amended Complaint. The court found that the claims were constitutionally and prudentially unripe, and that the doctrine of Younger abstention required federal courts to refrain from interfering with ongoing state disciplinary proceedings. The district court also addressed the merits, concluding that the plaintiffs failed to state a plausible First Amendment or due process claim, but the primary basis for dismissal was abstention and ripeness.On appeal, the United States Court of Appeals for the Ninth Circuit affirmed the district court’s dismissal. The Ninth Circuit held that Younger abstention barred claims challenging ongoing state disciplinary proceedings (including as-applied and facial constitutional challenges, and due process claims) for all plaintiffs subject to such proceedings. The court also held that Younger abstention did not apply to claims for prospective relief by plaintiffs not currently subject to proceedings, but those claims were constitutionally and prudentially unripe because no concrete injury had occurred and further factual development was needed. The Ninth Circuit thus affirmed the dismissal of all claims. View "STOCKTON V. BROWN" on Justia Law