Articles ZEK Wins Decision on behalf of the American Foundation for Basic Research in Israel, Inc. January 27, 2025 Second Circuit Court of Appeals reaffirms New York's limits on the ability to challenge actions of charitable corporations New York, NY – ZEK, a full-service New York-based law firm, recently secured a major win on behalf of the American Foundation for Basic Research in Israel, Inc. (AFBRI). The attorneys for ZEK who handled this matter included Stuart Krause, Daniel Rubel, and Kerry Duffy. A New York not for profit 501 (c) (3) charitable entity, AFBRI, was a defendant in an action filed by the Israel Academy of Sciences and Humanities (the “Academy”) which, in effect, looked to circumvent New York’s long-standing “special interest beneficiary standing rule” which generally limits the ability to challenge, in court, actions of charitable corporations. The action, which was filed in federal court in the Southern District of New York (the “SDNY”) and captioned Israel Academy of Sciences and Humanities v. American Foundation for Basic Research in Israel, Inc., was commenced by the Academy’s filing of an initial complaint in June of 2022, and later that year, the Academy filed an amended complaint alleging, among other things, that the Academy should be granted a declaratory judgement that it is entitled to money and assets held by AFBRI, and a constructive trust which would provide the Academy with control over AFBRI’s funds. On September 30th, 2022, AFBRI filed a motion to dismiss the action, and the motion was granted, finding that the Academy lacked standing to bring this action against AFBRI. According to ZEK Executive Partner Stuart Krause, Chair of the firm’s High Stakes Litigation Practice, and co-head of ZEK’s Israel practice, “Generally, with very few exceptions, only the New York State Attorney General has the legal capacity to sue a 501 (c) (3), not for profit, New York entity, such as AFBRI. The Academy, in order to prove to the Court that it had standing to sue AFBRI, needed to plead facts in its complaint which demonstrated that it fell into one of the few narrow exceptions.” The Court specifically found that the Academy lacked standing to sue AFBRI for the following reasons: The Academy failed to plead facts which demonstrated that it had a “special interest” in AFBRI, and to properly allege “special interest” standing, the Academy would need to be named in AFBR’s chartering documents, including the certificate of incorporation. The Academy was clearly not named in the chartering documents;The Academy failed to allege facts that it was a donor of AFBRI; and The Academy failed to allege facts that it was a trustee of AFBRI In September, 2023, the Academy filed a notice of appeal with the Second Circuit Court of Appeals. In July, 2024, after full briefing and argument, the Second Circuit issued a Summary Order affirming the SDNY’s decision dismissing the action. Later that month, the Academy filed a petition for a rehearing with the Second Circuit. In August, the Second Circuit denied the Academy’s petition for a rehearing. Daniel Rubel, Partner in ZEK’s litigation group and co-head of ZEK’s Israel practice, explains that the Second Circuit’s decision is significant for a number of extremely important reasons, including: It clarifies that under New York law, a narrow standard needs to be meet for a party to assert any direct claim against a 501 (c) (3) entity;It reinforces a set of rules that prevent outside third parties and potential bad actors from improperly trying to exert control over charitable entities; andIt allows charitable entities to maintain their neutrality and properly exercise independent discretion, a central tenet of 501(c) (3), in accordance with 60 years of established New York law, and rules and practices promulgated by the IRS.
ZEK Wins Decision on behalf of the American Foundation for Basic Research in Israel, Inc. January 27, 2025 Second Circuit Court of Appeals reaffirms New York's limits on the ability to challenge actions of charitable corporations New York, NY – ZEK, a full-service New York-based law firm, recently secured a major win on behalf of the American Foundation for Basic Research in Israel, Inc. (AFBRI). The attorneys for ZEK who handled this matter included Stuart Krause, Daniel Rubel, and Kerry Duffy. A New York not for profit 501 (c) (3) charitable entity, AFBRI, was a defendant in an action filed by the Israel Academy of Sciences and Humanities (the “Academy”) which, in effect, looked to circumvent New York’s long-standing “special interest beneficiary standing rule” which generally limits the ability to challenge, in court, actions of charitable corporations. The action, which was filed in federal court in the Southern District of New York (the “SDNY”) and captioned Israel Academy of Sciences and Humanities v. American Foundation for Basic Research in Israel, Inc., was commenced by the Academy’s filing of an initial complaint in June of 2022, and later that year, the Academy filed an amended complaint alleging, among other things, that the Academy should be granted a declaratory judgement that it is entitled to money and assets held by AFBRI, and a constructive trust which would provide the Academy with control over AFBRI’s funds. On September 30th, 2022, AFBRI filed a motion to dismiss the action, and the motion was granted, finding that the Academy lacked standing to bring this action against AFBRI. According to ZEK Executive Partner Stuart Krause, Chair of the firm’s High Stakes Litigation Practice, and co-head of ZEK’s Israel practice, “Generally, with very few exceptions, only the New York State Attorney General has the legal capacity to sue a 501 (c) (3), not for profit, New York entity, such as AFBRI. The Academy, in order to prove to the Court that it had standing to sue AFBRI, needed to plead facts in its complaint which demonstrated that it fell into one of the few narrow exceptions.” The Court specifically found that the Academy lacked standing to sue AFBRI for the following reasons: The Academy failed to plead facts which demonstrated that it had a “special interest” in AFBRI, and to properly allege “special interest” standing, the Academy would need to be named in AFBR’s chartering documents, including the certificate of incorporation. The Academy was clearly not named in the chartering documents;The Academy failed to allege facts that it was a donor of AFBRI; and The Academy failed to allege facts that it was a trustee of AFBRI In September, 2023, the Academy filed a notice of appeal with the Second Circuit Court of Appeals. In July, 2024, after full briefing and argument, the Second Circuit issued a Summary Order affirming the SDNY’s decision dismissing the action. Later that month, the Academy filed a petition for a rehearing with the Second Circuit. In August, the Second Circuit denied the Academy’s petition for a rehearing. Daniel Rubel, Partner in ZEK’s litigation group and co-head of ZEK’s Israel practice, explains that the Second Circuit’s decision is significant for a number of extremely important reasons, including: It clarifies that under New York law, a narrow standard needs to be meet for a party to assert any direct claim against a 501 (c) (3) entity;It reinforces a set of rules that prevent outside third parties and potential bad actors from improperly trying to exert control over charitable entities; andIt allows charitable entities to maintain their neutrality and properly exercise independent discretion, a central tenet of 501(c) (3), in accordance with 60 years of established New York law, and rules and practices promulgated by the IRS.