Legislature Sends Bill Amending Not-For-Profit Corporation Law To Governor: Part III, Committees and Employee as Chairman

This is the third post in our series looking at the bill, passed by the New York State Assembly and Senate on June 16, 2016, to amend the Not-For-Profit Corporation Law (“NFPCL”)  [updated: the bill was signed into law by Governor Cuomo on November 29, 2016, and has an effective date of May 27, 2017].  This post looks at the provisions related to the creation of committees by the corporation’s Board of Directors (“Board”) and powers those committees may hold.

The current NFPCL provides that the certificate of incorporation, by-laws, or Board by majority vote, may create an executive committee and other committees consisting of three or more directors that, to the extent provided in the documents creating them, act with the power of the Board.  These committees are prohibited, however, from (1) submitting matters requiring member approval, (2) filling vacancies in the Board or committees, (3) fixing compensation for Board/committee members, (4) amending, repealing, or adopting new by-laws, and (5) amending or repealing any resolution of the board that does not allow for such changes.

While the recently passed bill does not change how committees are created or the Board’s power to appoint committee members, it does add significant new restrictions.  For example, executive committee members must now be appointed by majority vote of the Board.  Furthermore, boards with 30 or more members require a quorum and the vote of three-quarters of directors present to make an appointment to an executive or similar committee.  The bill also provides that the by-laws may designate directors holding certain positions (ex: chairman, treasurer, etc.) as ex-officio, nonvoting members of specific committees.

Finally, the bill adds four additional items that no committee “of any kind” shall have authority over: (6) the election or removal of officers and/or directors, (7) the approval of a merger or plan of dissolution, (8) the authorization or adoption of a resolution recommending to the members the sale, lease, exchange or other disposition of all, or substantially all, assets (or if there are no members entitled to vote, the authorization of such transaction), and (9) the approval of amendments to the certificate of incorporation.  As a result, committees are prohibited from bypassing the Board or otherwise appropriating its authority regarding matters that go to the heart of the corporation’s governance and continued existence.

One final provision of note relates to an employee of the corporation serving as chairman of the Board.  The effective date of the provision banning this practice has been subject to a series of one-year extensions in each of the last few years, and the new bill creates a permanent fix.  It allows the Board to approve an employee serving as its chairman by a two-thirds vote of the entire board, and by further providing contemporaneously written documents on the basis for the board’s approval.  However, an employee serving as chairman is disqualified from being an “independent director.”

Our next post will focus on conflict of interest and whistleblower policies.  The full text of the bill is publicly available here: http://legislation.nysenate.gov/pdf/bills/2015/S7913

Legislature Sends Bill Amending Not-For-Profit Corporation Law To Governor: Part II, Definitions, continued

This is the second post in our series looking at the bill, passed by the New York State Assembly and Senate on June 16, 2016, to amend the Not-For-Profit Corporation Law (“NFPCL”).  [updated: the bill was signed into law by Governor Cuomo on November 29, 2016, and has an effective date of May 27, 2017].  This post continues to look at new definitions in the NFPCL, specifically “independent directors.”  

“Independent directors” are members of the Board of Directors (“Board”) entitled to participate in making certain decisions due to their unbiased position.  The old definition required a director, or any relative of a director, to not have been an employee of the corporation or an affiliate of the corporation for the last 3 years.  The new bill expands this to include not having been a “key person” in the past three years.  The bill also changes the “substantial financial interest” requirement by creating a sliding scale for when an interest in the corporation is “substantial.”  In addition, the form a qualifying “interest” can take has been expanded from making payments to, or receiving payments from, the corporation to include the provision or receipt of property or services to or from the corporation

The bill also amends how the terms “compensation” and “payment” are defined in the context of independent directors. Regarding compensation, the term now excludes the payment of any reimbursements to directors for expenses that they have reasonably incurred in their capacity as directors.  The term also excludes paying directors reasonable compensation for their service on the Board or on a committee thereof.

Finally, the term “payment” is interpreted to exclude payments made by the corporation at fixed, non-negotiable rates for services received, where such services by and to the corporation are available to the public on the same terms, and where the receipt of these services is not available to the corporation from another source.

Our next post will focus on committees created by the Board of Directors.  The full text of the bill is publicly available here: http://legislation.nysenate.gov/pdf/bills/2015/S7913

Legislature Sends Bill Amending Not-For-Profit Corporation Law To Governor: Part 1, Introduction and Definitions

On June 16, 2016, the New York State Assembly and Senate passed a bill to amend the Not-For-Profit Corporation Law (“NFPCL”) [updated: the bill was signed into law by Governor Cuomo on November 29, 2016, and has an effective date of May 27, 2017].  This bill removes inconsistences resulting from the Nonprofit Revitalization Act of 2013, while making focused changes to the law itself.  These changes include: (1) amending definitions, (2) clarifying the powers of committees created by the Board of Directors (“Board”), (3) shifting responsibility for overseeing conflict of interest and whistleblower policies to the Board, and the content of the policies themselves, (4) clarifying how not-for-profits handle related party transactions, and (5) miscellaneous changes to several minor provisions.  These subjects will each be the topic of a post in this series, beginning with definitional changes in the first two posts.

One of the most important changes in the bill is replacing the term “key employee” with “key person.”  A key person is defined as any person, not a director or officer, whether employed by the corporation or not, who:

(i) has responsibilities, or exercises powers or influence over the corporation as a whole similar to the responsibilities, powers, or influence of directors and officers;

(ii)  manages the corporation, or a segment of the corporation that represents a substantial portion of the activities, assets, income or expenses of the corporation; or

(iii) alone or with others controls or determines a substantial portion of the corporation’s capital expenditures or operating budget.

This encompasses any non-employee who plays a significant role in the corporation’s activities, such as informal advisors, family members of directors, employees who have retired, etc.  The impact of this definition is significant, as the “key person” term is used repeatedly throughout the NFPCL in a variety of contexts. It is also referenced in several other important definitions, most notably “independent director,” “related party,” and “related party transaction,” each of which impact how corporations handle conflicts of interest.

The main source of potential conflicts of interest are related party transactions.  A “related party” is defined as (i) a director, officer, or key person of the corporation or an affiliate thereof, (ii) a relative of such a person, or (iii) an entity in which any of the above people has a 35% of greater ownership or interest.  Due to this relationship, when a related party engages in a transaction or agreement with the corporation, there is an inherent risk of a conflict of interest.  These “related party transactions” will be discussed in more detail in our fifth post, however the definition itself lists three new exceptions: (i) transactions that are de minimis, or the related party’s financial interest is de minimis (ii) transactions that would not customarily be reviewed in the ordinary course of business and are available to others on similar terms, or (iii) transactions that benefit a related party solely as class member meant to be the beneficiary of the corporation’s charitable mission, and that the benefit is available to other similarly situated class members on same terms.  Under these circumstances, the transaction is not a “related party transaction.”

Our next post will focus on the definition for independent directors.  The full text of the bill is publicly available here: http://legislation.nysenate.gov/pdf/bills/2015/S7913

Ithaca Adopts A More Natural Approach To Cemetery Maintenance

Keeping with the theme of trying new and creative approaches to cut costs while simultaneously increasing interest in your cemetery, today’s post looks at how the City of Ithaca recently adopted a surprising new plan for mowing the lawns in the city cemetery.  In partnership with a local start-up, the environmentally-friendly Ewe Care Rent-a-Flock, the City will be having a group of six Olde English Southdown babydoll sheep take responsibility for mowing the lawns in the cemetery.

Surprising as it is, this group of six sheep is actually more efficient at maintaining the laws than the usual four-man team, being both faster and cheaper. This reflects a variety of factors, such as that the sheep are better equipped to handle hilly terrain. Another advantage is that the sheep can eat around stones and other monument features that may impede the use of a lawn mower or other machinery without causing damage, a notable benefit for older cemeteries. This frees up human workers for other, more important tasks.

Finally, using the sheep has the potential to provide a significant boost to public relations, in ways that can appeal to multiple groups.  For one, the sheep provide a natural and environmentally friendly way to maintain the lawns, a boon at a time when people are increasingly conscious of the environment.  In addition, the sheep are entertaining to watch, serving as both an attraction for visitors and adding to the aesthetic of the cemetery while they work.  Given that the sheep are also cheaper and more efficient, it seems like the City of Ithaca has stumbled upon quite the idea.

As with our last post, this approach probably would not be viable for most cemeteries, but the point is to again highlight the importance of looking for new and creative ways to cut costs and improve your cemetery’s appeal. 

For more on Ithaca’s plan, and a video of the sheep hard at work, read more here.

Assembly Passes Bill Allowing Cemeteries To Inter Cremated Pet Remains With Owners

According to recent statistics, 62% of all U.S. households own a pet, leading to an increasing demand for cremated pet remains to be interred alongside their owners.  In response, the New York State Assembly and Senate have passed a bill that allows cemeteries to provide such services, and details the requirements for such internments to take place.  Should the bill be signed into law, it will give the option of interring pet cremated remains to all cemeteries that wish to provide the service.

The new bill adds two provisions to the Not-For-Profit Corporation Law.  § 1502(q) defines “pet cremated remains” as “ashes and/or other residue recovered after the completion of cremation of any domestic animal that has been adapted or tamed to live in intimate association with people where such cremation has occurred at a pet crematorium…”  While this encompasses traditional pets like cats, dogs, or even horses, it seemingly excludes more exotic animals like large snakes.

The other new provision is § 1510(n).  This provides that the internment of pet cremated remains may only performed where it is incidental to the burial of human remains, and is limited to internment in a grave, crypt, or niche.  The bill also provides that the internment of pet cremated remains requires written authorization from the cemetery corporation.  Such authorization is discretionary, as the bill does not require cemeteries provide for interring pet cremated remains, and those cemeteries that do are not obligated to allow such approval “absent prior approval at the time of sale or in advance of need.”  However, cemeteries offering this service must provide a list of approved charges for such internments, and all payments must be deposited in the cemetery’s permanent maintenance fund.  Finally, the bill states that these provisions do not apply to cemeteries “operated, supervised or controlled by a religious corporation or a lot, plot or part thereof whose record owner is an incorporated or unincorporated religious association or society.”

The Governor now has until December 31, 2016 to sign the bill. Presumably, industry groups and the Division of Cemeteries will be weighing in during this time.

The full text of the bill reads as follows: 

 AN ACT to amend the not-for-profit corporation law, in relation to regulation of interments in certain cemetery corporations

The People of the State of New York, represented in Senate and  Assembly, do enact as follows:

     1    Section  1.  Section  1502  of  the  not-for-profit corporation law is

     2  amended by adding a new paragraph (q) to read as follows:

     3    (q) The term "pet cremated remains" means ashes and/or  other  residue

     4  recovered  after the completion of cremation of any domestic animal that

     5  has been adapted or tamed to live in intimate  association  with  people

     6  where  such  cremation  has  occurred at a pet crematorium as defined in

     7  section seven hundred fifty-a of the general business law.

     8    § 2. Section 1510 of the not-for-profit corporation law is amended  by

     9  adding a new paragraph (n) to read as follows:

    10    (n)  Interment  of pet cremated remains. The interment of pet cremated

    11  remains in a cemetery corporation shall be available to a lot owner only

    12  in those circumstances where the interment is incidental to  the  burial

    13  of  human remains and where authorization has been provided in a written

    14  statement from the cemetery corporation.  The cemetery corporation shall

    15  provide a list of approved charges for the interment  of  such  remains.

    16  All  payments  received for interment of such remains shall be deposited

    17  in the cemetery corporation's permanent maintenance fund.  Pet  cremated

    18  remains must be disposed of by placing them in a grave, crypt, or niche.

    19  Nothing  in  this section shall obligate a cemetery corporation to allow

    20  interment of such cremated pet remains where prior approval at the  time

    21  of  sale  or in advance of need has not been received. The provisions of

    22  this section shall not apply to an incorporated or unincorporated  ceme-

    23  tery  operated, supervised or controlled by a religious corporation or a

    24  lot, plot or part thereof whose record owner is an incorporated or unin-

    25  corporated religious association or society.

    26    § 3. This act shall take effect immediately.

California Cemetery Experiments With Vineyards To Cut Costs and Bring Visitors

For many cemeteries, the past decade has been a trying time, as a growing shift towards cremation over traditional burial has put cemeteries under increasing pressure financially. However, the Roman Catholic Diocese of Oakland recently came up with an interesting solution to its struggles: planting vinyards.

Wine-making has a long history in California, and the Catholic Church itself played an important role, as Spanish missionaries are credited with bringing grapes and wine-making over from Europe in the 1700s. Yet it has only been in the past decade that the Church has begun adopting wine-making as a solution to its problems, both financial and aesthetic.

Planting grape vines has proven to be a boon at the three cemeteries that have adopted the practice.  The financial cost savings were significant: planting an acre of grape vines cost nearly a third of what it would have costed to plant grass.  It also served to cut the cemeteries water requirements, an important consideration in drought-plagued California. Finally, burial near the vines costs roughly 20% more than similar plots a short walk away, adding another source of revenue. The vines even changed the aesthetic of the cemetery, making it more visitor friendly and drawing local interest.

The grapes offered one more beneficial use: as the cemetery was owned by the Catholic Church, the grapes could be used to make alter wine for Mass and other religious ceremonies.  However, the grapes’ surprisingly high quality has led to the creation of several batches of award-winning wine.  While the wine-making itself is still a money-losing endeavor, the Church is expected to break even this coming year, and continues to donate thousands of bottles of alter wine each year to local churches.

It’s clear that what works for a religious cemetery in California may not translate to a cemetery in New York, but the real takeaway from this story is the importance of creativity.  With a little imagination, there are a wide range of things cemeteries could try.  For example, cemeteries could plant apple trees to provide shade, or use blueberry bushes as a type of screening.  This is not to suggest that such changes would be a panacea for a cemetery’s financial struggles, but it can help brighten a cemetery’s appearance, draw greater interest from visitors, and possibly provide an incidental source of revenue.

The full article about this California cemetery can be found here.

PowerPoint From Mark Cuthbertson's MCA Presentation

On June 2, 2016, Mark Cuthbertson was the guest speaker at the Metropolitan Cemetery Association's Annual Meeting and Exposition. At the event, Mr. Cuthbertson gave a presentation on Selected Legal Topics for Cemeteries. The PowerPoint used in that presentation may be found here.

Court Holds Zoning Amendment Excluding Crematories From Definition of “Cemetery” Was Not Preempted By Not-For-Profit Corporation Law

Oakwood Cemetery (“Oakwood”) is a not-for-profit cemetery that has operated a cemetery in the Village of Mount Kisco (“Village”) since 1883.  In 2008, Oakwood applied for a building permit to build a crematory on the cemetery land.  The application was denied, and Oakwood declined to appeal to the Zoning Board of Appeals.  It filed a new application in February 2011, however the building inspector advised Oakwood that he could not consider its application because the Village's Board of Trustees (“Board”) was considering a proposed amendment to the Village Code that would affect the application. In June 2011, the Board amended the Village zoning code by adding to its “definitions” section that “cemetery” meant “Property used for the interring of the dead. This use shall not include facilities for cremation.”  Oakwood then commenced a hybrid CPLR Article 78/declaratory judgment action claiming the amendment was preempted by Not–For–Profit Corporation Law (“NPCL”) §1502(d), which provides “[a] public mausoleum, crematory or columbarium shall be included within the term ‘cemetery.’” The Supreme Court granted the Village’s pre-answer motion to dismiss, and Oakwood appealed.

On appeal, the Appellate Division, Second Department found that the “although Not–for–Profit Corporation Law Article 15 governs the operation of corporations which own and manage cemeteries, it does not expressly preempt zoning ordinances relating to land use by cemeteries.” The Court also found there was no policy declaration or regulatory scheme evincing any such legislative intent. Accordingly, the NPCL did not preempt any attempt at local regulation of cemeteries under the “doctrine of field preemption.”  The Court further found that the Village’s more restrictive definition of “cemetery” was not invalidated under the “doctrine of conflict preemption.”  The NPCL definition of cemetery was addressed to the management of cemetery corporations and the scope of that law, while the Village Code’s definition addressed land use.  As these different definitions were directed at differing purposes, there was not direct conflict.

The Court concluded its decision by affirming the lower court’s judgment, while amending it to the extent that absent any factual issues, it should have declared that the Village Code amendment was valid and not preempted by NPCL Article 15.

The case was Oakwood Cemetery v. Village/Town of Mount Kisco, 115 A.D.3d 749 (2d Dep’t 2014).

Federal Court Denies Village Summary Judgment on Catholic Diocese’s RLUIPA and First Amendment Claims Over Proposed Cemetery

While the ultimate outcome of the case summarized below remains to be seen, it emphasizes that litigation under the Religious Land Use & Institutionalized Persons Act, 42 U.S.C. § 2000cc, et seq. ("RLUIPA") can be a powerful weapon for a religious cemetery faced with an obstructionist municipality.  While a municipality maintains the right to adopt reasonable zoning regulations under most circumstances, overstepping its bounds may lead to significant damages and an award of attorney's fees for violating the cemetery's rights under RLUIPA. 

The Roman Catholic Diocese of Rockville Center ("the Diocese") has been in a protracted legal battle with the Village of Old Westbury ("Village") for nearly 20 years over its proposed cemetery. The Village Code did not permit the burial of human remains, so the Diocese applied for a zoning change. The application was denied in 1996 by the Board of Trustees of the Village ("Board") on the grounds it was a commercial operation. After the Diocese successfully litigated that the propsed cemetery was a religious use, the Board enacted a series of comprehensive zoning amendments, including a Places of Worship ("POW") Law.

After repeated delays in the approval process under the POW law, the Diocese filed suit alleging violations of the Constitution and RLUIPA. Several months later, the Board approved the proposal, subject to various restrictions including a requirement that approval was subject to renewal every 5 years, at which time the terms could be altered. The Court ruled on motions for summary judgment on September 3, 2015.

The Court found the POW Law was constitutional in that it validly regulated building area, height, setbacks from property lines, screening, and traffic circulation to mitigate the "adverse impacts of large institutional facilities on the residential nature of the Village." In addition, the law did not treat the plaintiffs differently from other religious institutions.

Next the Court addressed the RLUIPA claims that the POW law (1) created a substantial burden on the property's religious use, and (2) treated the plaintiff on "less than equal terms than a nonreligious assembly or institution." On the first claim, the Diocese argued the conditions were arbitrary and unreasonable, particularly the 5-year renewal provision, which undermined permanent burial. The Court found this claim was viable, but that whether the law was narrowly tailored was a matter for trial, thus denying summary judgment. For the second claim, RLUIPA requires the government to treat religious and non-religious institutions on "equal terms." However, the Second Circuit has ruled that different land use regimes can be legal, as different is not the same as unequal. Here, the court found the Diocese had failed to identify a comparable secular institution that was treated more favorably, and granted the defendants' motion for summary judgment on the equal terms claim. 

The case is cited as The Roman Catholic Diocese of Rockville Centre, New York, v. The Incorporated Village Of Old Westbury, 2015 WL 5178126 (E.D.N.Y.).

Forming an Audit Committee For Your Cemetery

Since the passage of the Not-for-Profit Revitalization Act ("NPRA"), cemeteries have been required to designate an Audit Committee consisting entirely of "Independent Directors" or the Board of Directors (only independent board members may deliberate or vote with respect to audit committee functions) to oversee their accounting and financial reporting practices. Added responsibilities are required of cemeteries with revenues over one million dollars.

While not required by NPRA, it is advisable to have at least one audit committee member with expertise in accounting and finance.

The Audit Committee must undertake the following responsibilities:

(1) retain or renew a CPA to conduct the annual financial audit;

(2) review the completed audit with the CPA; and

(3) review communications with those charged with governance (including a management letter) that result from the audit.

In addition, for cemeteries that have over one million dollars in revenue, the Audit Committee must also:

(1) review the scope and planning of the audit prior to the audit; and

(2) once the audit has been completed:

    (a) discuss with the CPA material risks and weaknesses in internal controls identified by the auditor,  

    (b) assess any restrictions on the scope of the auditor's activity or access to requested information,

    (c) assess any significant disagreements between the auditor and management, and

    (d) assess the adequacy of accounting and financial reporting processes of the organization; and  

(3) annually review the performance and independence of the auditor.

There are multiple additional duties that an audit committee can undertake, which may include, but are not limited to the following:

(a) Review of an organization's internal and financial controls assuring the conduct of appropriate risk assessments and risk response plans;

(b) Identifying and monitoring related party transactions;

(c) Review of conflicts of interests, ethics and whistleblower policies;

(d) Monitor any legal matters that could impact the reputation and financial health of the cemetery;

(e) Institute and oversee any special investigatory work as needed; and

(f) Periodically review the organization's insurance coverage.

A cemetery can adopt an Audit Committee Charter that outlines both the required responsibilities of the Audit Committee and the additional duties the Board of Directors can assign to the Audit Committee. The charter can serve as a road map for the Audit Committee's responsibilities. In addition, the Audit Committee is designated as the body that reviews ethics and related party transactions as well as allegations made under the cemetery's whistleblower policy.

Powered by 123ContactForm | Report abuse