Thursday, January 19, 2012

The National Arts Club Counter Sues it's former President

by Rafael Martínez Alequín
NAC "Board Room" as it looked in 2009 when initially reported to the FDNY

Your free press has received documentation of the counter suit filed by the National Arts Club against O. Aldon James, it's former President, his twin brother John T. James and their cohort Steven Lietner. Below you will find details of how decades of their influence on the National Arts Club has led the charitable organization to seeks damages. Over a year ago yourfreepress received photographs from former Arts Club employees and was the first media outlet to publish photos and details of the hoarding and alleged abuses of power by Aldon James, his twin and Mr. Lietner. The National Arts Club is a 501c3 tax exempt organization whose mission is to "stimulate, foster and promote public interest in the arts and educate the American people in the fine arts." It would seem that that mission has been on hold for some time. Over the summer a massive renovation took place at the Arts Club under the leadership of the current President Dianne Berhard and in the last few days a new National Arts Club website has gone up. A digital page is turning on the National Arts Club and yourfreepress will continue to keep a vigilant eye out for it's progress. This storied New York institution may have it's best days ahead of it.

On Monday January 23rd the board will meet after many legal postponements brought by the James Group's, to decide whether or not to revoke the trios membership rights including the right to occupy an apartment there. The trio have had 14 of the 20 apartments taken out of their control and could loose the remaining six depending on the outcome of the Board's hearing. Regardless of how that turns out the Board in response to the James Group's law suit against them for their alleged attack on them, has brought counter claims detailed below.

COUNTERCLAIMS
A. ALLEGATIONS COMMON TO ALL COUNTERCLAIMS
179. From 1986 to March 2011, plaintiff and counterclaim defendant O. Aldon James,Jr. (“Aldon James”) served as the president of the National Arts Club (the “Club”), and as a
member of the Club’s Board of Governors (the “Board”).
180. As the president of the Club, and as a member of the Board, Aldon James was a fiduciary of the Club, and owed it a fiduciary duty to preserve the Club’s property, assets and funds; to avoid self-dealing at the Club’s expense; and to avoid diverting for his own use and benefit any of the Club’s property and corporate opportunities.

COUNTERCLAIMS
A. ALLEGATIONS COMMON TO ALL COUNTERCLAIMS
179. From 1986 to March 2011, plaintiff and counterclaim defendant O. Aldon James, Jr. (“Aldon James”) served as the president of the National Arts Club (the “Club”), and as a member of the Club’s Board of Governors (the “Board”).
180. As the president of the Club, and as a member of the Board, Aldon James was a fiduciary of the Club, and owed it a fiduciary duty to preserve the Club’s property, assets and funds; to avoid self-dealing at the Club’s expense; and to avoid diverting for his own use and benefit any of the Club’s property and corporate opportunities.
23181. As a member of the Club, a member of the Board, and an officer of the Club, Aldon James was also subject to and bound by the Club’s Constitution, By-Laws, Rules and Policies duly adopted by the Club’s Board or its membership.
182. Because of his position and his relationship with Steven U. Leitner, Aldon James was at all relevant times both a “disqualified” person and a “related individual” within the
meaning of, and subject to, the Club’s Conflict of Interest Policy.
183. From 1980 to the present, plaintiff and counterclaim defendant John James has been a member of the Club.
184. As a member of the Club, John James had a duty to the Club not to take actions that would harm the Club or waste or damage the Club’s property, and he had a duty not to use the Club’s property for his personal benefit without the knowledge and approval of the Board.
185. As the brother of Aldon James, John James was at all relevant times a “related individual” within the meaning of, and subject to, the Club’s Conflict of Interest Policy.
186. From 1986 to March 2011, plaintiff and counterclaim defendant John James was authorized and allowed by Aldon James to assume and exercise executive authority at the
Club and attended and participated in meetings of the Board, although not an elected member thereof. As the result of such participation and exercise of authority, John James owed the Club a fiduciary duty to preserve the Club’s property, assets and funds; to avoid self-dealing at the Club’s expense; and to avoid diverting for his own use and benefit any of the Club’s property
and corporate opportunities.
187. From 1964 to the present, plaintiff and counterclaim defendant Steven U. Leitner (“Leitner”) has been a member of the Club.
24188. From some time in the 1980’s to early 2011, Leitner was an officer and/or governor at the Club. For example, beginning in 1986, Mr. Leitner was in charge of “Rentals” and the “Dining Room” at the Club. In 1989, Mr. Leitner was elected Assistant Treasurer of the Club, and he also began serving on the “Development Committee” during 1989. Thereafter, Mr. Leitner was elected to the Board of the Club in 1992, and he served as a member of the Board for approximately nine years, while continuing to be in charge of the rental of the apartments in the
Club’s Studio Building and the Club’s Development Committee. Beginning in at least 2000, Mr. Leitner was a member of and at various times was chairperson of the House Committee at the
Club, and continued in that capacity until early 2011. As an officer of the Club, as a member of the Board, and as a member of and chairman of the House Committee, Leitner was a fiduciary of the Club, and owed it a fiduciary duty to preserve the Club’s real estate assets; to avoid selfdealing at the Club’s expense, and to prevent self-dealing by other officers, governors and members of the Club; to avoid diverting for his own use and benefit any of the Club’s real property and corporate opportunities relating to Club’s real property, and to prevent other officers, governors and members of the Club from diverting for their own use and benefit any of the Club’s real property and corporate opportunities relating to the Club’s real property.
189. Because of his position at the Club and his relationship with Aldon James during the relevant period, Leitner was at all relevant times both a “disqualified” person and a “related individual” within the meaning of, and subject to, the Club’s Conflict of Interest Policy.
B. ALLEGATIONS CONCERNING THE CLUB’S REAL
ESTATE ASSETS
190. For many years, and during the period from January 2005 until June 2011, plaintiffs and counterclaim defendants (hereinafter, “plaintiffs”) were tenants of the Club.
25During this period, each of the plaintiffs had a lease to occupy one apartment in the Club’s Studio Building, (the “Plaintiffs’ Apartments” and the “Plaintiffs’ Leases”).
191. The Plaintiffs’ Leases charged, and each of the plaintiffs paid, rents that were below the prevailing market rates during the many years they leased the Plaintiffs’ Apartments in the Club’s Studio Building.
192. For many years, and from at least January 2005 to June 2011, the plaintiffs occupied approximately 15 additional spaces at the Club (the “Additional Spaces”), located in both the Club’s Studio Building and the Tilden Mansion at 15 Gramercy Park South, which is also owned by the Club.
193. The Additional Spaces occupied by the plaintiffs at the Club consisted of apartments in the Studio Building, as well as transient rooms, office spaces and meeting rooms in
the Tilden Mansion.
194. During the year 2006, the Board made an inquiry to determine the status of the apartments located in the Studio Building. During this inquiry, the Board never received
accurate information from the plaintiffs concerning the multiple spaces they were occupying in the Studio Building.
195. In fact, the plaintiffs never disclosed to the Board how many apartments they were occupying in the Studio Building in 2006. Nor did the plaintiffs inform the Board that they were occupying Additional Spaces in the Tilden Mansion.
196. Upon information and belief, as of the time of the filing of these counterclaims, the plaintiffs occupy at least two apartments in the Studio Building without any leases, and
occupy an additional four apartments in the Studio Building (the “Additional Apartments”). Upon information and belief, the plaintiffs began occupying the Additional Apartments as 26 elderly tenants in the Studio Building passed away, and the plaintiffs moved in to their apartments.
197. At a Board Meeting held in November 2006, the Board was informed that Aldon James and John James were occupying one apartment each in the Studio Building at a below market rent. The Board approved that occupancy, and approved the payment of single, below market rents for each of Aldon James and John James.
198. However, at that meeting, and thereafter, the plaintiffs concealed from the Board the fact that that they were occupying the Additional Spaces and Additional Apartments.
199. The plaintiffs never obtained the Board’s approval to occupy the Additional Spaces. Nor did the plaintiffs ever obtain the Board’s approval to occupy the Additional Apartments.
200. At the November 2006 Board meeting, the Board also resolved that going forward all leases and all rentals of apartments by the Club must be approved by the Board.
201. The plaintiffs paid no rent to the Club in connection with their occupancy of the Additional Spaces during the many years they occupied the Additional Spaces.
202. The plaintiffs never paid more than one below market rent each for the multiple apartments they occupied in the Studio Building, until plaintiff John James began paying rent on
Apartment 4C in January 2011, as described below.
203. For many years, and from at least January 2005 until June 2011, plaintiffs used the Additional Spaces and Additional Apartments they occupied at the Club to collect items of
personal property.
27204. The plaintiffs co-mingled their personal property, detritus, trash and other items in the Additional Spaces and the Additional Apartments with many and various items of Club
property, including fine art and antiques.
205. The manner in which the plaintiffs occupied multiple spaces at the Club created health and safety hazards for the Club’s other tenants, by attracting vermin, and creating
potential fire hazards.
206. The plaintiffs failed to maintain the spaces they occupied at the Club, and allowed them to decay and fall into disrepair, and the spaces occupied by the plaintiffs became uninhabitable. When many of the Additional Spaces occupied by the plaintiffs and counterclaim defendants were reclaimed by the Club in 2011, dozens of dead rodents and hundreds of dead cockroaches were found in those spaces.
207. By occupying the Additional Spaces and Additional Apartments at the Club without the knowledge or approval of the Board and while paying a minimal, single rent each,
the plaintiffs have denied the Club the ability to use or rent the Additional Spaces and Additional Apartments occupied by the plaintiffs for years.
208. In December 2010, plaintiff Aldon James granted a lease or license to a member of the club, which purports to permit the member to use an apartment in the Studio Building as a
“museum” for ten years, without paying any rent to the Club.
209. This lease or license was never disclosed to or approved by the Board, despite the November 2006 Board resolution that required such disclosure and approval.
210. In January 2011, plaintiff Aldon James granted a lease to plaintiff John James for Apartment 4C in the Studio Building, in the name “Decorative Arts – Planned Giving,” even 28 though John James already occupied at least two other apartments in the Studio Building while paying a single below market rent.
211. Upon information and belief, plaintiff John James had occupied Apartment 4C rent free for approximately six months prior to the January 2011 Lease.
212. The lease to Apartment 4C was granted by Aldon James to John James at a below market rent, and without the knowledge or authorization of the Board, despite the November 2006 Board resolution that required the disclosure of the lease to the Board and the Board’s approval of the lease.
FIRST COUNTERCLAIM:
CONCERNING THE CLUB’S REAL ESTATE ASSETS
(FOR BREACH OF FIDUCIARY DUTY AND ACCOUNTING
AGAINST ALL PLAINTIFFS AND COUNTERCLAIM DEFENDANTS)
213. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179 through 212 as if fully set forth herein.
214. As fiduciaries of the Club, the plaintiffs each had a duty to preserve and protect the Club’s assets; to prevent the Club from engaging in transactions of the sort described in paragraphs 208 and 210 above, which effectively denied the Club appropriate rents on two of the apartments in the Studio Building; and to take steps to prevent the conduct described in paragraphs 190 through 212 above.
215. Plaintiffs Aldon James, John James and Steven Leitner willfully disregarded and violated their fiduciary duties to the Club, and they intentionally and willfully damaged the Club
in violation of the Club’s Conflict of Interest Policy, by failing to pay appropriate rent for the multiple spaces they occupied at the Club.
29216. Section 720 of New York Not-For-Profit Corporation Law compels directors and officers of not for profit corporations to account for their official conduct when they have: 1) neglected or failed to perform their duties in the management and disposition of corporate assets committed to their care; and 2) acquired for themselves, transferred to others, or wasted
corporate assets due to their neglect, failure to perform, or other violation of their duties.
217. The precise amount of damage done to the Club by the plaintiffs by their failure to pay appropriate rent for the multiple spaces they occupied at the Club is will be established at trial, but is believed to exceed $1,500,000.
SECOND COUNTERCLAIM:
CONCERNING THE CLUB’S REAL ESTATE ASSETS
(FOR WASTE OF THE CLUB’S REAL ESTATE ASSETS
AGAINST ALL PLAINTIFFS AND COUNTERCLAIM DEFENDANTS))
218. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179 through 212 as if fully set forth herein.
219. None of the plaintiffs properly maintained the spaces they occupied at the Club. To the contrary, the plaintiffs damaged the spaces they occupied, failed to clean them and rendered them unfit to occupy and unfit to rent.
220. Plaintiffs Aldon James and Steven Leitner, as president and Chairperson of the Housing Committee respectively, willfully neglected the Club’s real estate assets, and intentionally failed to authorize necessary repairs to be made to the Tilden Mansion and Studio Building, including but not limited to repairs necessary to maintain and fix the elevators, the boilers, the roofs, plumbing, electrical systems and the carpets in the Studio Building and Tilden Mansion.
30221. Plaintiffs Aldon James and Steven Leitner even failed to do repairs to remove and/or ameliorate potential fire hazards as directed by the New York City Fire Department.
222. The conduct of the plaintiffs in willfully failing to authorize necessary repairs to the Club’s real estate, and their failure to maintain the Club’s assets violated their respective fiduciary duties to the Club, and caused financial damage to the Club.
223. Section 720 of the New York State Not-For-Profit Corporation Law authorizes the Club to bring an action against its officers and governors when their actions have wasted the
Club’s assets.
224. The precise amount of damage done by the plaintiffs to the Club’s real estate assets by their willful neglect and waste will be proven at trial, but is believed to exceed $500,000.
THIRD COUNTERCLAIM:
CONCERNING THE CLUB’S REAL ESTATE ASSETS
(FOR SELF-DEALING IN THE CLUB’S REAL ESTATE ASSETS
AGAINST ALL PLAINTIFFS AND COUNTERCLAIM DEFENDANTS)
225. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179 through 212 as if fully set forth herein.
226. As fiduciaries of the Club, the plaintiffs each had a duty not to engage in transactions concerning the Club’s real estate assets for their personal benefit and to the detriment of the Club.
227. As fiduciaries, the plaintiffs each had a duty to prevent self-dealing by others.
228. As fiduciaries, the plaintiffs each had a duty not to deal in the Club’s property for his benefit, and to the detriment of the Club.
31229. As “related individuals” subject to the Club’s Conflict of Interest Policy, the plaintiffs could not acquire the Club’s assets for themselves on terms that were more favorable than those available to other members.
230. The transactions by which the plaintiffs gave themselves the right to occupy and use multiple spaces at the Club for their personal benefit effectively denied the Club the ability rent the spaces or to employ them for the Club’s benefit.
231. All of the transactions by which the plaintiffs occupied more than a single apartment each without the knowledge and approval of the Board, and without paying market rent were self-dealing transactions.
232. When Aldon James granted a lease to plaintiff John James for Apartment 4C at a rent below market, as described above, that transaction also amounted to self-dealing, and violated the Club’s Conflict of Interest Policy, because it gave the plaintiffs the right to occupy an additional space at a rent below that which could be obtained from another Club member.
233. Section 720 of New York Not-For-Profit Corporation Law authorizes a not-forprofit corporation to bring an action to set aside any unlawful conveyance, or assignment or transfer of corporate assets, where the transferee knew of its unlawfulness.
234. The Court should declare null and void and set aside the self-dealing transactions engaged in by the plaintiffs with respect to the Club’s real estate assets. In addition, the Court
should award the Club damages to compensate it for the damage done to it by the plaintiffs’ selfdealing transactions with respect to the Club’s real estate assets. The amount of monetary
damages done to the Club by the plaintiffs’ self-dealing in connection with the Club’s real estate assets will be established at the time of trial, but is reasonably believed to exceed $1,500,000.
32FOURTH COUNTERCLAIM:
CONCERNING THE CLUB’S REAL ESTATE ASSETS
(FOR DIVERSION OF CORPORATE OPPORTUNITY,
AGAINST ALL PLAINTIFFS AND COUNTERCLAIM DEFENDANTS)
235. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179 through 212 as if fully set forth herein.
236. By taking for themselves numerous apartments and other spaces at the Club rather than renting them to Club members or third parties, the plaintiffs and counterclaim defendants
denied the Club multiple and significant opportunities to profit from its real estate assets.
237. By denying the Club multiple and significant opportunities to benefit financially from its real estate assets, and diverting those opportunities to themselves, plaintiffs and counterclaim defendants Aldon James, John James and Steven Leitner violated their fiduciary duties to the Club, violated their duties as members of the Club not to engage in actions that would harm the Club, and violated the Club’s Conflict of Interest Policy.
238. The amount of damage done to the Club by the plaintiffs and counterclaim defendants by their diversion of the Club’s corporate opportunities to themselves will be proven at trial. However, the Club believes that the damage done to it by the plaintiffs’ and counterclaim defendants’ diversion of corporate opportunities to themselves exceeds $1,500,000.
C. ALLEGATIONS CONCERNING THE CLUB’S PERSONALTY
239. The Club owns many valuable pieces of fine and decorative art, which it has acquired through bequests made to the Club, and, in some cases, by purchasing the pieces of fine
and decorative art.
240. During his tenure as president of the Club, Aldon James failed to properly maintain the Club’s collection of fine art and decorative art, and many pieces of the Club’s fine 33and decorative art collection were stored in improper conditions, despite the protests of the Club’s curator of fine art, and the requests of the curator and others that the Club’s art collection
be stored in appropriate conditions.
241. In addition, certain pieces of fine art bequeathed to the Club were lost during Aldon James’ tenure as president of the Club, and many of them have never been found. The value of the fine art bequeathed to the Club that is now missing is believed to exceed $150,000.
242. Some of the “missing” pieces of fine and decorative art that were lost during Aldon James’ tenure as president of the Club have very recently been found in the multiple spaces at the Club occupied by the plaintiffs.
243. The pieces of fine and decorative art that were found in spaces occupied by the plaintiffs were not stored in an appropriate manner, and do not appear to have been properly
maintained. They were simply kept together with the clutter, trash and detritus collected by the plaintiffs, and those pieces of fine and decorative art possessed by the plaintiffs are in serious
danger of being damaged or even destroyed if they continue to be stored in the unsanitary and unsafe spaces occupied by the plaintiffs. The diminution in value of the Club’s assets because
items of fine and decorative art are missing, or were possessed by the plaintiffs and stored in unsanitary and unsafe conditions is unknown, but is believed to exceed $400,000.
FIFTH COUNTERCLAIM:
CONCERNING THE CLUB’S PERSONALTY
(FOR REPLEVIN OF UNIQUE ASSETS
AGAINST ALL PLAINTIFFS AND COUNTERCLAIM DEFENDANTS)
244. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179 through 189, and 239 through 243, as if fully set forth herein.
34245. From at least 2005 to 2011, plaintiffs spent the Club’s funds to purchase thousands of items of decorative art at flea markets, antique stores, second-hand stores and other
venues.
246. In August 2011, plaintiffs claimed ownership of more than 2000 items of decorative art located in the common spaces of the Club.
247. Despite the Club’s repeated demands, the plaintiffs have not produced any evidence to the Club to establish their ownership of the items they claimed to own in August 2011.
248. The Club believes in good faith that the items claimed by the plaintiffs in August 2011 belong to the Club, because thousands of dollars in Club funds were used to purchase items
of decorative art from 2005 to 2011.
249. Plaintiffs have removed specific items of Club property from the Club’s common spaces, and have kept that property amongst the detritus, trash and other property in the apartments at the Club that the plaintiffs occupy and control.
250. Among the unique items of Club property taken by the plaintiffs from the Club are: a watercolor by Louis Comfort Tiffany; a watercolor by August Rodin; and a watercolor by
Robert Seyffert.
251. Each of the items of fine art and decorative art in plaintiffs’ possession which belong to the Club, including which are described in paragraphs 245 through 250 above, is
unique.
252. As of the date hereof, Plaintiffs have not returned many of the items of fine and decorative art described in paragraphs 245 through 250, despite the Club’s demand that these
items be returned to it.
35253. Accordingly, defendants and counterclaim plaintiffs request that the Court enter an order compelling the plaintiffs to return to the Club all property in their possession which is
identified at trial as the property of the Club.
ALLEGATIONS CONCERNING THE CLUB’S BANK ACCOUNTS
254. From 1986 until January 2011, as president of the Club, plaintiff Aldon James controlled the Club’s bank accounts and had signatory authority for the Club’s checking account.
In addition, from at least 2005 to 2011, plaintiff Aldon James had possession of and the authority to use the ATM/debit card associated with the Club’s checking account to make purchases for the Club.
255. From at least 2005 to early 2011, plaintiff Aldon James wrote handwritten checks to pay for personal expenses for himself, John James and Steven Leitner, and to pay for
unauthorized expenditures of the Club’s funds. These expenditures were not known to the Board and were not authorized by the Board.
256. In addition, from at least 2005 to early 2011, plaintiff Aldon James used the Club’s ATM/debit card to pay for personal expenses for himself, John James and Steven Leitner,
and to pay for unauthorized expenditures of the Club’s funds. These expenditures were not known to the Board and were not authorized by the Board.
257. The plaintiffs were unjustly enriched by the expenditures described in paragraphs 255 and 256.
258. Section 720 of New York Not-For-Profit Corporation Law authorizes the Club to against directors and officers account for their official conduct when they have: 1) neglected or failed to perform their duties in the management and disposition of corporate assets committed to 36their care; and 2) acquired for themselves, transferred to others, or wasted corporate assets due to their neglect, failure to perform, or other violation of their duties.
259. Upon information and belief, a conservative estimate of the amount of Club funds improperly spent by Aldon James in the manner described in paragraphs 255 and 256 exceeds $600,000.
SIXTH COUNTERCLAIM:
CONCERNING THE CLUB’S BANK ACCOUNTS
(FOR ACCOUNTING WITH RESPECT TO THE CLUB’S FUNDS
AGAINST PLAINTIFF AND COUNTERCLAIM DEFENDANT
ALDON JAMES)
260. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179 through 189, and 254 through 259, as if fully set forth herein.
261. As is indicated by the foregoing, pursuant to New York Not-For-Profit Corporation Law Section 720, the plaintiff Aldon James is liable to account to the Club for his mismanagement of the Club’s bank accounts, because he acquired for himself and wasted corporate funds through his violation of his fiduciary duty to preserve the Club’s funds, by his misuse of handwritten checks and the Club’s ATM/debit card.
262. The amount due and owing to the Club by plaintiff Aldon James as a result of his mismanagement and waste of the Club’s funds will be established at trial, but is believed in good faith to exceed $600,000 for the period from January 2005 to June 2011.
SEVENTH COUNTERCLAIM:
CONCERNING THE CLUB’S BANK ACCOUNTS
(FOR WASTE AND MISAPPROPRIATION OF CLUB FUNDS
AGAINST ALL PLAINTIFFS AND COUNTERCLAIM DEFENDANTS))
263. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179 through 189, and 254 through 259, as if fully set forth herein.
37264. From at least early 2005 to 2011, plaintiff Aldon James frequently made expenditures of Club funds that were outside the ordinary course of the Club’s business and which constituted a waste of the Club’s funds.
265. Examples of expenditures that constituted a waste of the Club’s funds include donations of more than $40,000 to the Cherry Lane Theater; payments of approximately $35,000
to an organization known as “The Radio Reading Project, Incorporated;” payments of more than $15,000 to pay for lodging for one or more of the plaintiffs at the Inn at Irving Place, when Aldon James and the other plaintiffs possessed and controlled at least 6 different apartments in the Studio Building.
266. The Club’s Board of Governors did not know about these payments and did not authorize them.
267. To the extent the plaintiff Aldon James made extraordinary expenditures of the Club’s funds without the knowledge and authorization of the Board, he violated his duty of loyalty to the Club, wasted the Club’s funds, and unjustly enriched himself and the other plaintiffs.
268. To the extent that the extraordinary expenditures of the Club’s funds without the knowledge and authorization of the Board benefitted Aldon James, John James or Steven Leitner, such expenditures were made in violation of the Club’s Conflict of Interest Policy.
269. The plaintiffs should be required to pay damages to the Club in connection with their waste of its funds. Those damages will be established at the time of trial, but are believed to exceed $100,000.
38EIGHTH COUNTERCLAIM:
CONCERNING THE CLUB’S BANK ACCOUNTS
(FOR SELF-DEALING AGAINST ALL PLAINTIFFS
AND COUNTERCLAIM DEFENDANTS)
270. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179 through 189, and 254 through 259, as if fully set forth herein.
271. The payments authorized by plaintiff Aldon James without the knowledge and authorization of the Board that directly benefitted the plaintiffs constituted self dealing at the expense of the Club, unjustly enriched the plaintiffs, and violated the Club’s Conflict of Interest Policy.
279. Sections 715, 717 and 720 of New York Not-For-Profit Corporation Law prohibit payments of corporate funds for the personal benefit of officers, governors or members of a NotFor-Profit corporation of the type made by Aldon James to and for the benefit of himself, Steven Leitner and John James, as described above.
280. By making the unauthorized and self-dealing payments described above, the plaintiffs and counterclaim defendants have unjustly enriched themselves and damaged the Club
in an amount to be determined at trial, but which is believed to exceed $600,000 for the period from 2005 to 2011.
RESERVATION OF RIGHTS
281. Defendants reserve their rights to move to amend their Answer to assert additional defenses and counterclaims. The Club’s investigation of this matter is ongoing, and to the extent
evidence is discovered that supports additional defenses or counterclaims, the Defendants reserve their rights to assert such defenses or counterclaims.
39PRAYER FOR RELIEF
WHEREFORE, Defendants The National Arts Club, The Board of Governors of the National Arts Club, Dianne Bernhard, as President of the National Arts Club, John Morisano, as First Vice President of the National Arts Club, and Tara Cortes, Stephen Hedberg, Milbry Polk, Alex Rosenberg and Ross Znavor, as Governors of the National Arts Club, respectfully request that the Court grant the following relief with respect to Plaintiffs’ causes of action:
A. That each of Plaintiffs’ eleven causes of action be dismissed in its entirety and with prejudice; and
B. That Defendants be reimbursed for the costs and disbursements associated with this action, including reasonable attorney’s fees, and be granted such other and further relief as the Court may deem just and proper.
In addition, with respect to the counterclaims asserted by the Defendants herein, the Defendants respectfully request that the Court grant the following relief:
A. On the First Counterclaim, an order compelling the plaintiffs and counterclaim defendants to account for their actions with respect to the Club’s real estate assets, and, after such accounting is completed, to pay money damages to the Club in an amount to be determined at trial, but which is believed to exceed $1,500,000;
B. On the Second Counterclaim, a money judgment in favor of the Club and against the plaintiffs in an amount to be proven at trial, but which is believed to be at least $300,000;
C. On the Third Counterclaim, a judgment setting aside the self-dealing transactions described in the Counterclaims with respect to the Club’s real estate assets, and awarding the Club damages in connection with such self-dealing transactions in
40 an amount which will be proven at trial, but which is believed to be at least $1,500,000;
D. On the Fourth Counterclaim, a judgment in an amount which will be proven at trial, but which is believed to exceed $1,500,000;
E. On the Fifth Counterclaim, a judgment compelling the plaintiffs to return to the Club all items proven at trial to be unique Club property in the possession of the plaintiffs, including the items described in the Fifth Counterclaim;
F. On the Sixth Counterclaim, a judgment compelling Plaintiff Aldon James to account for his unauthorized expenditures of the Club’s funds, and after such accounting is completed, to pay money damages to the Club in an amount to be determined at trial, but which is believed to exceed $600,000;
G. On the Seventh Counterclaim, a judgment compelling plaintiffs to pay money damages to the Club in connection with their waste and misappropriation of the Club’s funds, an amount to be determined at trial, but which is believed to exceed $100,000;
H. On the Eighth Counterclaim, a judgment compelling the plaintiffs to pay money damages to the Club in connection with their self-dealing payments, in an amount to be determined at trial, but which is believed to exceed $600,000;
I. In connection with all Counterclaims, an award of the COUNTERCLAIMS
A. ALLEGATIONS COMMON TO ALL COUNTERCLAIMS
179. From 1986 to March 2011, plaintiff and counterclaim defendant O. Aldon James, Jr. (“Aldon James”) served as the president of the National Arts Club (the “Club”), and as a
member of the Club’s Board of Governors (the “Board”).
180. As the president of the Club, and as a member of the Board, Aldon James was a fiduciary of the Club, and owed it a fiduciary duty to preserve the Club’s property, assets and funds; to avoid self-dealing at the Club’s expense; and to avoid diverting for his own use and benefit any of the Club’s property and corporate opportunities.
23181. As a member of the Club, a member of the Board, and an officer of the Club, Aldon James was also subject to and bound by the Club’s Constitution, By-Laws, Rules and Policies duly adopted by the Club’s Board or its membership.
182. Because of his position and his relationship with Steven U. Leitner, Aldon James was at all relevant times both a “disqualified” person and a “related individual” within the
meaning of, and subject to, the Club’s Conflict of Interest Policy.
183. From 1980 to the present, plaintiff and counterclaim defendant John James has been a member of the Club.
184. As a member of the Club, John James had a duty to the Club not to take actions that would harm the Club or waste or damage the Club’s property, and he had a duty not to use
the Club’s property for his personal benefit without the knowledge and approval of the Board.
185. As the brother of Aldon James, John James was at all relevant times a “related individual” within the meaning of, and subject to, the Club’s Conflict of Interest Policy.
186. From 1986 to March 2011, plaintiff and counterclaim defendant John James was authorized and allowed by Aldon James to assume and exercise executive authority at the
Club and attended and participated in meetings of the Board, although not an elected member thereof. As the result of such participation and exercise of authority, John James owed the Club a fiduciary duty to preserve the Club’s property, assets and funds; to avoid self-dealing at the Club’s expense; and to avoid diverting for his own use and benefit any of the Club’s property
and corporate opportunities.
187. From 1964 to the present, plaintiff and counterclaim defendant Steven U. Leitner (“Leitner”) has been a member of the Club.
24188. From some time in the 1980’s to early 2011, Leitner was an officer and/or governor at the Club. For example, beginning in 1986, Mr. Leitner was in charge of “Rentals” and the “Dining Room” at the Club. In 1989, Mr. Leitner was elected Assistant Treasurer of the Club, and he also began serving on the “Development Committee” during 1989. Thereafter, Mr. Leitner was elected to the Board of the Club in 1992, and he served as a member of the Board for approximately nine years, while continuing to be in charge of the rental of the apartments in the
Club’s Studio Building and the Club’s Development Committee. Beginning in at least 2000, Mr. Leitner was a member of and at various times was chairperson of the House Committee at the
Club, and continued in that capacity until early 2011. As an officer of the Club, as a member of the Board, and as a member of and chairman of the House Committee, Leitner was a fiduciary of the Club, and owed it a fiduciary duty to preserve the Club’s real estate assets; to avoid selfdealing at the Club’s expense, and to prevent self-dealing by other officers, governors and members of the Club; to avoid diverting for his own use and benefit any of the Club’s real property and corporate opportunities relating to Club’s real property, and to prevent other officers, governors and members of the Club from diverting for their own use and benefit any of the Club’s real property and corporate opportunities relating to the Club’s real property.
189. Because of his position at the Club and his relationship with Aldon James during the relevant period, Leitner was at all relevant times both a “disqualified” person and a “related
individual” within the meaning of, and subject to, the Club’s Conflict of Interest Policy.
B. ALLEGATIONS CONCERNING THE CLUB’S REAL
ESTATE ASSETS
190. For many years, and during the period from January 2005 until June 2011, plaintiffs and counterclaim defendants (hereinafter, “plaintiffs”) were tenants of the Club.
25During this period, each of the plaintiffs had a lease to occupy one apartment in the Club’s Studio Building, (the “Plaintiffs’ Apartments” and the “Plaintiffs’ Leases”).
191. The Plaintiffs’ Leases charged, and each of the plaintiffs paid, rents that were below the prevailing market rates during the many years they leased the Plaintiffs’ Apartments in
the Club’s Studio Building.
192. For many years, and from at least January 2005 to June 2011, the plaintiffs occupied approximately 15 additional spaces at the Club (the “Additional Spaces”), located in both the Club’s Studio Building and the Tilden Mansion at 15 Gramercy Park South, which is also owned by the Club.
193. The Additional Spaces occupied by the plaintiffs at the Club consisted of apartments in the Studio Building, as well as transient rooms, office spaces and meeting rooms in
the Tilden Mansion.
194. During the year 2006, the Board made an inquiry to determine the status of the apartments located in the Studio Building. During this inquiry, the Board never received
accurate information from the plaintiffs concerning the multiple spaces they were occupying in the Studio Building.
195. In fact, the plaintiffs never disclosed to the Board how many apartments they
were occupying in the Studio Building in 2006. Nor did the plaintiffs inform the Board that they
were occupying Additional Spaces in the Tilden Mansion.
196. Upon information and belief, as of the time of the filing of these counterclaims,
the plaintiffs occupy at least two apartments in the Studio Building without any leases, and
occupy an additional four apartments in the Studio Building (the “Additional Apartments”).
Upon information and belief, the plaintiffs began occupying the Additional Apartments as
26elderly tenants in the Studio Building passed away, and the plaintiffs moved in to their
apartments.
197. At a Board Meeting held in November 2006, the Board was informed that Aldon James and John James were occupying one apartment each in the Studio Building at a below market rent. The Board approved that occupancy, and approved the payment of single, below market rents for each of Aldon James and John James.
198. However, at that meeting, and thereafter, the plaintiffs concealed from the Board the fact that that they were occupying the Additional Spaces and Additional Apartments.
199. The plaintiffs never obtained the Board’s approval to occupy the Additional Spaces. Nor did the plaintiffs ever obtain the Board’s approval to occupy the Additional Apartments.
200. At the November 2006 Board meeting, the Board also resolved that going forward all leases and all rentals of apartments by the Club must be approved by the Board.
201. The plaintiffs paid no rent to the Club in connection with their occupancy of the Additional Spaces during the many years they occupied the Additional Spaces.
202. The plaintiffs never paid more than one below market rent each for the multiple apartments they occupied in the Studio Building, until plaintiff John James began paying rent on
Apartment 4C in January 2011, as described below.
203. For many years, and from at least January 2005 until June 2011, plaintiffs used the Additional Spaces and Additional Apartments they occupied at the Club to collect items of
personal property.
27204. The plaintiffs co-mingled their personal property, detritus, trash and other items in the Additional Spaces and the Additional Apartments with many and various items of Club
property, including fine art and antiques.
205. The manner in which the plaintiffs occupied multiple spaces at the Club created health and safety hazards for the Club’s other tenants, by attracting vermin, and creating
potential fire hazards.
206. The plaintiffs failed to maintain the spaces they occupied at the Club, and allowed them to decay and fall into disrepair, and the spaces occupied by the plaintiffs became uninhabitable. When many of the Additional Spaces occupied by the plaintiffs and counterclaim defendants were reclaimed by the Club in 2011, dozens of dead rodents and hundreds of dead cockroaches were found in those spaces.
207. By occupying the Additional Spaces and Additional Apartments at the Club without the knowledge or approval of the Board and while paying a minimal, single rent each,
the plaintiffs have denied the Club the ability to use or rent the Additional Spaces and Additional Apartments occupied by the plaintiffs for years.
208. In December 2010, plaintiff Aldon James granted a lease or license to a member of the club, which purports to permit the member to use an apartment in the Studio Building as a
“museum” for ten years, without paying any rent to the Club.
209. This lease or license was never disclosed to or approved by the Board, despite the November 2006 Board resolution that required such disclosure and approval.
210. In January 2011, plaintiff Aldon James granted a lease to plaintiff John James for Apartment 4C in the Studio Building, in the name “Decorative Arts – Planned Giving,” even 28though John James already occupied at least two other apartments in the Studio Building while paying a single below market rent.
211. Upon information and belief, plaintiff John James had occupied Apartment 4C rent free for approximately six months prior to the January 2011 Lease.
212. The lease to Apartment 4C was granted by Aldon James to John James at a below market rent, and without the knowledge or authorization of the Board, despite the November 2006 Board resolution that required the disclosure of the lease to the Board and the Board’s approval of the lease.
FIRST COUNTERCLAIM:
CONCERNING THE CLUB’S REAL ESTATE ASSETS
(FOR BREACH OF FIDUCIARY DUTY AND ACCOUNTING
AGAINST ALL PLAINTIFFS AND COUNTERCLAIM DEFENDANTS)
213. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179 through 212 as if fully set forth herein.
214. As fiduciaries of the Club, the plaintiffs each had a duty to preserve and protect the Club’s assets; to prevent the Club from engaging in transactions of the sort described in paragraphs 208 and 210 above, which effectively denied the Club appropriate rents on two of the apartments in the Studio Building; and to take steps to prevent the conduct described in paragraphs 190 through 212 above.
215. Plaintiffs Aldon James, John James and Steven Leitner willfully disregarded and violated their fiduciary duties to the Club, and they intentionally and willfully damaged the Club
in violation of the Club’s Conflict of Interest Policy, by failing to pay appropriate rent for the multiple spaces they occupied at the Club.
29216. Section 720 of New York Not-For-Profit Corporation Law compels directors and officers of not for profit corporations to account for their official conduct when they have: 1) neglected or failed to perform their duties in the management and disposition of corporate assets committed to their care; and 2) acquired for themselves, transferred to others, or wasted
corporate assets due to their neglect, failure to perform, or other violation of their duties.
217. The precise amount of damage done to the Club by the plaintiffs by their failure to pay appropriate rent for the multiple spaces they occupied at the Club is will be established at
trial, but is believed to exceed $1,500,000.
SECOND COUNTERCLAIM:
CONCERNING THE CLUB’S REAL ESTATE ASSETS
(FOR WASTE OF THE CLUB’S REAL ESTATE ASSETS
AGAINST ALL PLAINTIFFS AND COUNTERCLAIM DEFENDANTS))
218. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179 through 212 as if fully set forth herein.
219. None of the plaintiffs properly maintained the spaces they occupied at the Club. To the contrary, the plaintiffs damaged the spaces they occupied, failed to clean them and rendered them unfit to occupy and unfit to rent.
220. Plaintiffs Aldon James and Steven Leitner, as president and Chairperson of the Housing Committee respectively, willfully neglected the Club’s real estate assets, and intentionally failed to authorize necessary repairs to be made to the Tilden Mansion and Studio Building, including but not limited to repairs necessary to maintain and fix the elevators, the boilers, the roofs, plumbing, electrical systems and the carpets in the Studio Building and Tilden Mansion.
30221. Plaintiffs Aldon James and Steven Leitner even failed to do repairs to remove and/or ameliorate potential fire hazards as directed by the New York City Fire Department.
222. The conduct of the plaintiffs in willfully failing to authorize necessary repairs to the Club’s real estate, and their failure to maintain the Club’s assets violated their respective fiduciary duties to the Club, and caused financial damage to the Club.
223. Section 720 of the New York State Not-For-Profit Corporation Law authorizes the Club to bring an action against its officers and governors when their actions have wasted the
Club’s assets.
224. The precise amount of damage done by the plaintiffs to the Club’s real estate assets by their willful neglect and waste will be proven at trial, but is believed to exceed $500,000.
THIRD COUNTERCLAIM:
CONCERNING THE CLUB’S REAL ESTATE ASSETS
(FOR SELF-DEALING IN THE CLUB’S REAL ESTATE ASSETS
AGAINST ALL PLAINTIFFS AND COUNTERCLAIM DEFENDANTS)
225. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179 through 212 as if fully set forth herein.
226. As fiduciaries of the Club, the plaintiffs each had a duty not to engage in transactions concerning the Club’s real estate assets for their personal benefit and to the detriment of the Club.
227. As fiduciaries, the plaintiffs each had a duty to prevent self-dealing by others.
228. As fiduciaries, the plaintiffs each had a duty not to deal in the Club’s property for his benefit, and to the detriment of the Club.
31229. As “related individuals” subject to the Club’s Conflict of Interest Policy, the plaintiffs could not acquire the Club’s assets for themselves on terms that were more favorable
than those available to other members.
230. The transactions by which the plaintiffs gave themselves the right to occupy and use multiple spaces at the Club for their personal benefit effectively denied the Club the ability rent the spaces or to employ them for the Club’s benefit.
231. All of the transactions by which the plaintiffs occupied more than a single apartment each without the knowledge and approval of the Board, and without paying market rent were self-dealing transactions.
232. When Aldon James granted a lease to plaintiff John James for Apartment 4C at a rent below market, as described above, that transaction also amounted to self-dealing, and violated the Club’s Conflict of Interest Policy, because it gave the plaintiffs the right to occupy an additional space at a rent below that which could be obtained from another Club member.
233. Section 720 of New York Not-For-Profit Corporation Law authorizes a not-forprofit corporation to bring an action to set aside any unlawful conveyance, or assignment or transfer of corporate assets, where the transferee knew of its unlawfulness.
234. The Court should declare null and void and set aside the self-dealing transactions engaged in by the plaintiffs with respect to the Club’s real estate assets. In addition, the Court
should award the Club damages to compensate it for the damage done to it by the plaintiffs’ selfdealing transactions with respect to the Club’s real estate assets. The amount of monetary
damages done to the Club by the plaintiffs’ self-dealing in connection with the Club’s real estate assets will be established at the time of trial, but is reasonably believed to exceed $1,500,000.
32FOURTH COUNTERCLAIM:
CONCERNING THE CLUB’S REAL ESTATE ASSETS
(FOR DIVERSION OF CORPORATE OPPORTUNITY,
AGAINST ALL PLAINTIFFS AND COUNTERCLAIM DEFENDANTS)
235. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179 through 212 as if fully set forth herein.
236. By taking for themselves numerous apartments and other spaces at the Club rather than renting them to Club members or third parties, the plaintiffs and counterclaim defendants
denied the Club multiple and significant opportunities to profit from its real estate assets.
237. By denying the Club multiple and significant opportunities to benefit financiallyfrom its real estate assets, and diverting those opportunities to themselves, plaintiffs and counterclaim defendants Aldon James, John James and Steven Leitner violated their fiduciary duties to the Club, violated their duties as members of the Club not to engage in actions that would harm the Club, and violated the Club’s Conflict of Interest Policy.
238. The amount of damage done to the Club by the plaintiffs and counterclaim defendants by their diversion of the Club’s corporate opportunities to themselves will be proven at trial. However, the Club believes that the damage done to it by the plaintiffs’ and counterclaim defendants’ diversion of corporate opportunities to themselves exceeds $1,500,000.
C. ALLEGATIONS CONCERNING THE CLUB’S PERSONALTY
239. The Club owns many valuable pieces of fine and decorative art, which it has acquired through bequests made to the Club, and, in some cases, by purchasing the pieces of fine and decorative art.
240. During his tenure as president of the Club, Aldon James failed to properly maintain the Club’s collection of fine art and decorative art, and many pieces of the Club’s fine 33and decorative art collection were stored in improper conditions, despite the protests of the Club’s curator of fine art, and the requests of the curator and others that the Club’s art collection
be stored in appropriate conditions.
241. In addition, certain pieces of fine art bequeathed to the Club were lost during Aldon James’ tenure as president of the Club, and many of them have never been found. The value of the fine art bequeathed to the Club that is now missing is believed to exceed $150,000.
242. Some of the “missing” pieces of fine and decorative art that were lost during Aldon James’ tenure as president of the Club have very recently been found in the multiple spaces at the Club occupied by the plaintiffs.
243. The pieces of fine and decorative art that were found in spaces occupied by the plaintiffs were not stored in an appropriate manner, and do not appear to have been properly
maintained. They were simply kept together with the clutter, trash and detritus collected by the plaintiffs, and those pieces of fine and decorative art possessed by the plaintiffs are in serious
danger of being damaged or even destroyed if they continue to be stored in the unsanitary and unsafe spaces occupied by the plaintiffs. The diminution in value of the Club’s assets because
items of fine and decorative art are missing, or were possessed by the plaintiffs and stored in unsanitary and unsafe conditions is unknown, but is believed to exceed $400,000.
FIFTH COUNTERCLAIM:
CONCERNING THE CLUB’S PERSONALTY
(FOR REPLEVIN OF UNIQUE ASSETS
AGAINST ALL PLAINTIFFS AND COUNTERCLAIM DEFENDANTS)
244. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179 through 189, and 239 through 243, as if fully set forth herein.
34245. From at least 2005 to 2011, plaintiffs spent the Club’s funds to purchase thousands of items of decorative art at flea markets, antique stores, second-hand stores and other
venues.
246. In August 2011, plaintiffs claimed ownership of more than 2000 items of decorative art located in the common spaces of the Club.
247. Despite the Club’s repeated demands, the plaintiffs have not produced any evidence to the Club to establish their ownership of the items they claimed to own in August 2011.
248. The Club believes in good faith that the items claimed by the plaintiffs in August 2011 belong to the Club, because thousands of dollars in Club funds were used to purchase items
of decorative art from 2005 to 2011.
249. Plaintiffs have removed specific items of Club property from the Club’s common spaces, and have kept that property amongst the detritus, trash and other property in the apartments at the Club that the plaintiffs occupy and control.
250. Among the unique items of Club property taken by the plaintiffs from the Club are: a watercolor by Louis Comfort Tiffany; a watercolor by August Rodin; and a watercolor by
Robert Seyffert.
251. Each of the items of fine art and decorative art in plaintiffs’ possession which belong to the Club, including which are described in paragraphs 245 through 250 above, is unique.
252. As of the date hereof, Plaintiffs have not returned many of the items of fine and decorative art described in paragraphs 245 through 250, despite the Club’s demand that these items be returned to it.
35253. Accordingly, defendants and counterclaim plaintiffs request that the Court enter an order compelling the plaintiffs to return to the Club all property in their possession which is
identified at trial as the property of the Club.
ALLEGATIONS CONCERNING THE CLUB’S BANK ACCOUNTS
254. From 1986 until January 2011, as president of the Club, plaintiff Aldon James controlled the Club’s bank accounts and had signatory authority for the Club’s checking account.
In addition, from at least 2005 to 2011, plaintiff Aldon James had possession of and the authority to use the ATM/debit card associated with the Club’s checking account to make purchases for the Club.
255. From at least 2005 to early 2011, plaintiff Aldon James wrote handwritten checks to pay for personal expenses for himself, John James and Steven Leitner, and to pay for
unauthorized expenditures of the Club’s funds. These expenditures were not known to the Board and were not authorized by the Board.
256. In addition, from at least 2005 to early 2011, plaintiff Aldon James used the Club’s ATM/debit card to pay for personal expenses for himself, John James and Steven Leitner,
and to pay for unauthorized expenditures of the Club’s funds. These expenditures were not known to the Board and were not authorized by the Board.
257. The plaintiffs were unjustly enriched by the expenditures described in paragraphs 255 and 256.
258. Section 720 of New York Not-For-Profit Corporation Law authorizes the Club to against directors and officers account for their official conduct when they have: 1) neglected or failed to perform their duties in the management and disposition of corporate assets committed to 36their care; and 2) acquired for themselves, transferred to others, or wasted corporate assets due to their neglect, failure to perform, or other violation of their duties.
259. Upon information and belief, a conservative estimate of the amount of Club funds improperly spent by Aldon James in the manner described in paragraphs 255 and 256 exceeds $600,000.
SIXTH COUNTERCLAIM:
CONCERNING THE CLUB’S BANK ACCOUNTS
(FOR ACCOUNTING WITH RESPECT TO THE CLUB’S FUNDS
AGAINST PLAINTIFF AND COUNTERCLAIM DEFENDANT
ALDON JAMES)
260. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179 through 189, and 254 through 259, as if fully set forth herein.
261. As is indicated by the foregoing, pursuant to New York Not-For-Profit
Corporation Law Section 720, the plaintiff Aldon James is liable to account to the Club for his mismanagement of the Club’s bank accounts, because he acquired for himself and wasted
corporate funds through his violation of his fiduciary duty to preserve the Club’s funds, by his misuse of handwritten checks and the Club’s ATM/debit card.
262. The amount due and owing to the Club by plaintiff Aldon James as a result of his mismanagement and waste of the Club’s funds will be established at trial, but is believed in good
faith to exceed $600,000 for the period from January 2005 to June 2011.
SEVENTH COUNTERCLAIM:
CONCERNING THE CLUB’S BANK ACCOUNTS
(FOR WASTE AND MISAPPROPRIATION OF CLUB FUNDS
AGAINST ALL PLAINTIFFS AND COUNTERCLAIM DEFENDANTS))
263. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179 through 189, and 254 through 259, as if fully set forth herein.
37264. From at least early 2005 to 2011, plaintiff Aldon James frequently made expenditures of Club funds that were outside the ordinary course of the Club’s business and which constituted a waste of the Club’s funds.
265. Examples of expenditures that constituted a waste of the Club’s funds include donations of more than $40,000 to the Cherry Lane Theater; payments of approximately $35,000
to an organization known as “The Radio Reading Project, Incorporated;” payments of more than $15,000 to pay for lodging for one or more of the plaintiffs at the Inn at Irving Place, when Aldon James and the other plaintiffs possessed and controlled at least 6 different apartments in the Studio Building.
266. The Club’s Board of Governors did not know about these payments and did not authorize them.
267. To the extent the plaintiff Aldon James made extraordinary expenditures of the Club’s funds without the knowledge and authorization of the Board, he violated his duty of loyalty to the Club, wasted the Club’s funds, and unjustly enriched himself and the other plaintiffs.
268. To the extent that the extraordinary expenditures of the Club’s funds without the knowledge and authorization of the Board benefitted Aldon James, John James or Steven Leitner, such expenditures were made in violation of the Club’s Conflict of Interest Policy.
269. The plaintiffs should be required to pay damages to the Club in connection with their waste of its funds. Those damages will be established at the time of trial, but are believed to exceed $100,000.
38EIGHTH COUNTERCLAIM:
CONCERNING THE CLUB’S BANK ACCOUNTS
(FOR SELF-DEALING AGAINST ALL PLAINTIFFS
AND COUNTERCLAIM DEFENDANTS)
270. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179 through 189, and 254 through 259, as if fully set forth herein.
271. The payments authorized by plaintiff Aldon James without the knowledge and authorization of the Board that directly benefitted the plaintiffs constituted self dealing at the expense of the Club, unjustly enriched the plaintiffs, and violated the Club’s Conflict of Interest Policy.
279. Sections 715, 717 and 720 of New York Not-For-Profit Corporation Law prohibit payments of corporate funds for the personal benefit of officers, governors or members of a NotFor-Profit corporation of the type made by Aldon James to and for the benefit of himself, Steven Leitner and John James, as described above.
280. By making the unauthorized and self-dealing payments described above, the plaintiffs and counterclaim defendants have unjustly enriched themselves and damaged the Club
in an amount to be determined at trial, but which is believed to exceed $600,000 for the period from 2005 to 2011.
RESERVATION OF RIGHTS
281. Defendants reserve their rights to move to amend their Answer to assert additional defenses and counterclaims. The Club’s investigation of this matter is ongoing, and to the extent
evidence is discovered that supports additional defenses or counterclaims, the Defendants reserve their rights to assert such defenses or counterclaims.
39PRAYER FOR RELIEF
WHEREFORE, Defendants The National Arts Club, The Board of Governors of the National Arts Club, Dianne Bernhard, as President of the National Arts Club, John Morisano, as
First Vice President of the National Arts Club, and Tara Cortes, Stephen Hedberg, Milbry Polk, Alex Rosenberg and Ross Znavor, as Governors of the National Arts Club, respectfully request that the Court grant the following relief with respect to Plaintiffs’ causes of action:
A. That each of Plaintiffs’ eleven causes of action be dismissed in its entirety and with prejudice; and
B. That Defendants be reimbursed for the costs and disbursements associated with this action, including reasonable attorney’s fees, and be granted such other and further relief as the Court may deem just and proper. In addition, with respect to the counterclaims asserted by the Defendants herein, the
Defendants respectfully request that the Court grant the following relief:
A. On the First Counterclaim, an order compelling the plaintiffs and counterclaim defendants to account for their actions with respect to the Club’s real estate assets, and, after such accounting is completed, to pay money damages to the Club in an amount to be determined at trial, but which is believed to exceed $1,500,000;
B. On the Second Counterclaim, a money judgment in favor of the Club and against the plaintiffs in an amount to be proven at trial, but which is believed to be at least $300,000;
C. On the Third Counterclaim, a judgment setting aside the self-dealing transactions described in the Counterclaims with respect to the Club’s real estate assets, and awarding the Club damages in connection with such self-dealing transactions in
40an amount which will be proven at trial, but which is believed to be at least $1,500,000;
D. On the Fourth Counterclaim, a judgment in an amount which will be proven at trial, but which is believed to exceed $1,500,000;
E. On the Fifth Counterclaim, a judgment compelling the plaintiffs to return to the Club all items proven at trial to be unique Club property in the possession of the plaintiffs, including the items described in the Fifth Counterclaim;
F. On the Sixth Counterclaim, a judgment compelling Plaintiff Aldon James to account for his unauthorized expenditures of the Club’s funds, and after such accounting is completed, to pay money damages to the Club in an amount to be determined at trial, but which is believed to exceed $600,000;
G. On the Seventh Counterclaim, a judgment compelling plaintiffs to pay money damages to the Club in connection with their waste and misappropriation of the Club’s funds, an amount to be determined at trial, but which is believed to exceed $100,000;
H. On the Eighth Counterclaim, a judgment compelling the plaintiffs to pay money damages to the Club in connection with their self-dealing payments, in an amount to be determined at trial, but which is believed to exceed $600,000;
I. In connection with all Counterclaims, an award of the COUNTERCLAIMS
A. ALLEGATIONS COMMON TO ALL COUNTERCLAIMS
179. From 1986 to March 2011, plaintiff and counterclaim defendant O. Aldon James, Jr. (“Aldon James”) served as the president of the National Arts Club (the “Club”), and as a
member of the Club’s Board of Governors (the “Board”).
180. As the president of the Club, and as a member of the Board, Aldon James was a fiduciary of the Club, and owed it a fiduciary duty to preserve the Club’s property, assets and funds; to avoid self-dealing at the Club’s expense; and to avoid diverting for his own use and benefit any of the Club’s property and corporate opportunities.
23181. As a member of the Club, a member of the Board, and an officer of the Club, Aldon James was also subject to and bound by the Club’s Constitution, By-Laws, Rules and Policies duly adopted by the Club’s Board or its membership.
182. Because of his position and his relationship with Steven U. Leitner, Aldon James was at all relevant times both a “disqualified” person and a “related individual” within the
meaning of, and subject to, the Club’s Conflict of Interest Policy.
183. From 1980 to the present, plaintiff and counterclaim defendant John James has been a member of the Club.
184. As a member of the Club, John James had a duty to the Club not to take actions that would harm the Club or waste or damage the Club’s property, and he had a duty not to use
the Club’s property for his personal benefit without the knowledge and approval of the Board.
185. As the brother of Aldon James, John James was at all relevant times a “related individual” within the meaning of, and subject to, the Club’s Conflict of Interest Policy.
186. From 1986 to March 2011, plaintiff and counterclaim defendant John James was authorized and allowed by Aldon James to assume and exercise executive authority at the
Club and attended and participated in meetings of the Board, although not an elected member thereof. As the result of such participation and exercise of authority, John James owed the Club a fiduciary duty to preserve the Club’s property, assets and funds; to avoid self-dealing at the Club’s expense; and to avoid diverting for his own use and benefit any of the Club’s property
and corporate opportunities.
187. From 1964 to the present, plaintiff and counterclaim defendant Steven U. Leitner (“Leitner”) has been a member of the Club.
24188. From some time in the 1980’s to early 2011, Leitner was an officer and/or governor at the Club. For example, beginning in 1986, Mr. Leitner was in charge of “Rentals” and the “Dining Room” at the Club. In 1989, Mr. Leitner was elected Assistant Treasurer of the Club, and he also began serving on the “Development Committee” during 1989. Thereafter, Mr.
Leitner was elected to the Board of the Club in 1992, and he served as a member of the Board for approximately nine years, while continuing to be in charge of the rental of the apartments in the Club’s Studio Building and the Club’s Development Committee. Beginning in at least 2000, Mr. Leitner was a member of and at various times was chairperson of the House Committee at the Club, and continued in that capacity until early 2011. As an officer of the Club, as a member of the Board, and as a member of and chairman of the House Committee, Leitner was a fiduciary of the Club, and owed it a fiduciary duty to preserve the Club’s real estate assets; to avoid selfdealing at the Club’s expense, and to prevent self-dealing by other officers, governors and members of the Club; to avoid diverting for his own use and benefit any of the Club’s real property and corporate opportunities relating to Club’s real property, and to prevent other officers, governors and members of the Club from diverting for their own use and benefit any of the Club’s real property and corporate opportunities relating to the Club’s real property.
189. Because of his position at the Club and his relationship with Aldon James during the relevant period, Leitner was at all relevant times both a “disqualified” person and a “related
individual” within the meaning of, and subject to, the Club’s Conflict of Interest Policy.
B. ALLEGATIONS CONCERNING THE CLUB’S REAL
ESTATE ASSETS
190. For many years, and during the period from January 2005 until June 2011, plaintiffs and counterclaim defendants (hereinafter, “plaintiffs”) were tenants of the Club.
25During this period, each of the plaintiffs had a lease to occupy one apartment in the Club’s Studio Building, (the “Plaintiffs’ Apartments” and the “Plaintiffs’ Leases”).
191. The Plaintiffs’ Leases charged, and each of the plaintiffs paid, rents that were below the prevailing market rates during the many years they leased the Plaintiffs’ Apartments in
the Club’s Studio Building.
192. For many years, and from at least January 2005 to June 2011, the plaintiffs occupied approximately 15 additional spaces at the Club (the “Additional Spaces”), located in both the Club’s Studio Building and the Tilden Mansion at 15 Gramercy Park South, which is also owned by the Club.
193. The Additional Spaces occupied by the plaintiffs at the Club consisted of apartments in the Studio Building, as well as transient rooms, office spaces and meeting rooms in the Tilden Mansion.
194. During the year 2006, the Board made an inquiry to determine the status of the apartments located in the Studio Building. During this inquiry, the Board never received accurate information from the plaintiffs concerning the multiple spaces they were occupying in the Studio Building.
195. In fact, the plaintiffs never disclosed to the Board how many apartments they were occupying in the Studio Building in 2006. Nor did the plaintiffs inform the Board that they were occupying Additional Spaces in the Tilden Mansion.
196. Upon information and belief, as of the time of the filing of these counterclaims, the plaintiffs occupy at least two apartments in the Studio Building without any leases, and
occupy an additional four apartments in the Studio Building (the “Additional Apartments”). Upon information and belief, the plaintiffs began occupying the Additional Apartments as
26 elderly tenants in the Studio Building passed away, and the plaintiffs moved in to their apartments.
197. At a Board Meeting held in November 2006, the Board was informed that Aldon James and John James were occupying one apartment each in the Studio Building at a below market rent. The Board approved that occupancy, and approved the payment of single, below market rents for each of Aldon James and John James.
198. However, at that meeting, and thereafter, the plaintiffs concealed from the Board the fact that that they were occupying the Additional Spaces and Additional Apartments.
199. The plaintiffs never obtained the Board’s approval to occupy the Additional Spaces. Nor did the plaintiffs ever obtain the Board’s approval to occupy the Additional Apartments.
200. At the November 2006 Board meeting, the Board also resolved that going forward all leases and all rentals of apartments by the Club must be approved by the Board.
201. The plaintiffs paid no rent to the Club in connection with their occupancy of the Additional Spaces during the many years they occupied the Additional Spaces.
202. The plaintiffs never paid more than one below market rent each for the multiple apartments they occupied in the Studio Building, until plaintiff John James began paying rent on Apartment 4C in January 2011, as described below.
203. For many years, and from at least January 2005 until June 2011, plaintiffs used the Additional Spaces and Additional Apartments they occupied at the Club to collect items of personal property.
27204. The plaintiffs co-mingled their personal property, detritus, trash and other items in the Additional Spaces and the Additional Apartments with many and various items of Club
property, including fine art and antiques.
205. The manner in which the plaintiffs occupied multiple spaces at the Club created health and safety hazards for the Club’s other tenants, by attracting vermin, and creating
potential fire hazards.
206. The plaintiffs failed to maintain the spaces they occupied at the Club, and allowed them to decay and fall into disrepair, and the spaces occupied by the plaintiffs became uninhabitable. When many of the Additional Spaces occupied by the plaintiffs and counterclaim defendants were reclaimed by the Club in 2011, dozens of dead rodents and hundreds of dead cockroaches were found in those spaces.
207. By occupying the Additional Spaces and Additional Apartments at the Club
without the knowledge or approval of the Board and while paying a minimal, single rent each,
the plaintiffs have denied the Club the ability to use or rent the Additional Spaces and Additional
Apartments occupied by the plaintiffs for years.
208. In December 2010, plaintiff Aldon James granted a lease or license to a member
of the club, which purports to permit the member to use an apartment in the Studio Building as a
“museum” for ten years, without paying any rent to the Club.
209. This lease or license was never disclosed to or approved by the Board, despite the
November 2006 Board resolution that required such disclosure and approval.
210. In January 2011, plaintiff Aldon James granted a lease to plaintiff John James for
Apartment 4C in the Studio Building, in the name “Decorative Arts – Planned Giving,” even
28though John James already occupied at least two other apartments in the Studio Building while
paying a single below market rent.
211. Upon information and belief, plaintiff John James had occupied Apartment 4C
rent free for approximately six months prior to the January 2011 Lease.
212. The lease to Apartment 4C was granted by Aldon James to John James at a below
market rent, and without the knowledge or authorization of the Board, despite the November
2006 Board resolution that required the disclosure of the lease to the Board and the Board’s
approval of the lease.
FIRST COUNTERCLAIM:
CONCERNING THE CLUB’S REAL ESTATE ASSETS
(FOR BREACH OF FIDUCIARY DUTY AND ACCOUNTING
AGAINST ALL PLAINTIFFS AND COUNTERCLAIM DEFENDANTS)
213. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179
through 212 as if fully set forth herein.
214. As fiduciaries of the Club, the plaintiffs each had a duty to preserve and protect
the Club’s assets; to prevent the Club from engaging in transactions of the sort described in
paragraphs 208 and 210 above, which effectively denied the Club appropriate rents on two of the
apartments in the Studio Building; and to take steps to prevent the conduct described in
paragraphs 190 through 212 above.
215. Plaintiffs Aldon James, John James and Steven Leitner willfully disregarded and
violated their fiduciary duties to the Club, and they intentionally and willfully damaged the Club
in violation of the Club’s Conflict of Interest Policy, by failing to pay appropriate rent for the
multiple spaces they occupied at the Club.
29216. Section 720 of New York Not-For-Profit Corporation Law compels directors and
officers of not for profit corporations to account for their official conduct when they have: 1)
neglected or failed to perform their duties in the management and disposition of corporate assets
committed to their care; and 2) acquired for themselves, transferred to others, or wasted
corporate assets due to their neglect, failure to perform, or other violation of their duties.
217. The precise amount of damage done to the Club by the plaintiffs by their failure
to pay appropriate rent for the multiple spaces they occupied at the Club is will be established at
trial, but is believed to exceed $1,500,000.
SECOND COUNTERCLAIM:
CONCERNING THE CLUB’S REAL ESTATE ASSETS
(FOR WASTE OF THE CLUB’S REAL ESTATE ASSETS
AGAINST ALL PLAINTIFFS AND COUNTERCLAIM DEFENDANTS))
218. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179
through 212 as if fully set forth herein.
219. None of the plaintiffs properly maintained the spaces they occupied at the Club.
To the contrary, the plaintiffs damaged the spaces they occupied, failed to clean them and
rendered them unfit to occupy and unfit to rent.
220. Plaintiffs Aldon James and Steven Leitner, as president and Chairperson of the
Housing Committee respectively, willfully neglected the Club’s real estate assets, and
intentionally failed to authorize necessary repairs to be made to the Tilden Mansion and Studio
Building, including but not limited to repairs necessary to maintain and fix the elevators, the
boilers, the roofs, plumbing, electrical systems and the carpets in the Studio Building and Tilden
Mansion.
30221. Plaintiffs Aldon James and Steven Leitner even failed to do repairs to remove
and/or ameliorate potential fire hazards as directed by the New York City Fire Department.
222. The conduct of the plaintiffs in willfully failing to authorize necessary repairs to
the Club’s real estate, and their failure to maintain the Club’s assets violated their respective
fiduciary duties to the Club, and caused financial damage to the Club.
223. Section 720 of the New York State Not-For-Profit Corporation Law authorizes
the Club to bring an action against its officers and governors when their actions have wasted the
Club’s assets.
224. The precise amount of damage done by the plaintiffs to the Club’s real estate
assets by their willful neglect and waste will be proven at trial, but is believed to exceed
$500,000.
THIRD COUNTERCLAIM:
CONCERNING THE CLUB’S REAL ESTATE ASSETS
(FOR SELF-DEALING IN THE CLUB’S REAL ESTATE ASSETS
AGAINST ALL PLAINTIFFS AND COUNTERCLAIM DEFENDANTS)
225. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179
through 212 as if fully set forth herein.
226. As fiduciaries of the Club, the plaintiffs each had a duty not to engage in
transactions concerning the Club’s real estate assets for their personal benefit and to the
detriment of the Club.
227. As fiduciaries, the plaintiffs each had a duty to prevent self-dealing by others.
228. As fiduciaries, the plaintiffs each had a duty not to deal in the Club’s property for
his benefit, and to the detriment of the Club.
31229. As “related individuals” subject to the Club’s Conflict of Interest Policy, the
plaintiffs could not acquire the Club’s assets for themselves on terms that were more favorable
than those available to other members.
230. The transactions by which the plaintiffs gave themselves the right to occupy and
use multiple spaces at the Club for their personal benefit effectively denied the Club the ability
rent the spaces or to employ them for the Club’s benefit.
231. All of the transactions by which the plaintiffs occupied more than a single
apartment each without the knowledge and approval of the Board, and without paying market
rent were self-dealing transactions.
232. When Aldon James granted a lease to plaintiff John James for Apartment 4C at a
rent below market, as described above, that transaction also amounted to self-dealing, and
violated the Club’s Conflict of Interest Policy, because it gave the plaintiffs the right to occupy
an additional space at a rent below that which could be obtained from another Club member.
233. Section 720 of New York Not-For-Profit Corporation Law authorizes a not-forprofit corporation to bring an action to set aside any unlawful conveyance, or assignment or
transfer of corporate assets, where the transferee knew of its unlawfulness.
234. The Court should declare null and void and set aside the self-dealing transactions
engaged in by the plaintiffs with respect to the Club’s real estate assets. In addition, the Court
should award the Club damages to compensate it for the damage done to it by the plaintiffs’ selfdealing transactions with respect to the Club’s real estate assets. The amount of monetary
damages done to the Club by the plaintiffs’ self-dealing in connection with the Club’s real estate
assets will be established at the time of trial, but is reasonably believed to exceed $1,500,000.
32FOURTH COUNTERCLAIM:
CONCERNING THE CLUB’S REAL ESTATE ASSETS
(FOR DIVERSION OF CORPORATE OPPORTUNITY,
AGAINST ALL PLAINTIFFS AND COUNTERCLAIM DEFENDANTS)
235. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179
through 212 as if fully set forth herein.
236. By taking for themselves numerous apartments and other spaces at the Club rather
than renting them to Club members or third parties, the plaintiffs and counterclaim defendants
denied the Club multiple and significant opportunities to profit from its real estate assets.
237. By denying the Club multiple and significant opportunities to benefit financially
from its real estate assets, and diverting those opportunities to themselves, plaintiffs and
counterclaim defendants Aldon James, John James and Steven Leitner violated their fiduciary
duties to the Club, violated their duties as members of the Club not to engage in actions that
would harm the Club, and violated the Club’s Conflict of Interest Policy.
238. The amount of damage done to the Club by the plaintiffs and counterclaim
defendants by their diversion of the Club’s corporate opportunities to themselves will be proven
at trial. However, the Club believes that the damage done to it by the plaintiffs’ and
counterclaim defendants’ diversion of corporate opportunities to themselves exceeds $1,500,000.
C. ALLEGATIONS CONCERNING THE CLUB’S PERSONALTY
239. The Club owns many valuable pieces of fine and decorative art, which it has
acquired through bequests made to the Club, and, in some cases, by purchasing the pieces of fine
and decorative art.
240. During his tenure as president of the Club, Aldon James failed to properly
maintain the Club’s collection of fine art and decorative art, and many pieces of the Club’s fine
33and decorative art collection were stored in improper conditions, despite the protests of the
Club’s curator of fine art, and the requests of the curator and others that the Club’s art collection
be stored in appropriate conditions.
241. In addition, certain pieces of fine art bequeathed to the Club were lost during
Aldon James’ tenure as president of the Club, and many of them have never been found. The
value of the fine art bequeathed to the Club that is now missing is believed to exceed $150,000.
242. Some of the “missing” pieces of fine and decorative art that were lost during
Aldon James’ tenure as president of the Club have very recently been found in the multiple
spaces at the Club occupied by the plaintiffs.
243. The pieces of fine and decorative art that were found in spaces occupied by the
plaintiffs were not stored in an appropriate manner, and do not appear to have been properly
maintained. They were simply kept together with the clutter, trash and detritus collected by the
plaintiffs, and those pieces of fine and decorative art possessed by the plaintiffs are in serious
danger of being damaged or even destroyed if they continue to be stored in the unsanitary and
unsafe spaces occupied by the plaintiffs. The diminution in value of the Club’s assets because
items of fine and decorative art are missing, or were possessed by the plaintiffs and stored in
unsanitary and unsafe conditions is unknown, but is believed to exceed $400,000.
FIFTH COUNTERCLAIM:
CONCERNING THE CLUB’S PERSONALTY
(FOR REPLEVIN OF UNIQUE ASSETS
AGAINST ALL PLAINTIFFS AND COUNTERCLAIM DEFENDANTS)
244. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179
through 189, and 239 through 243, as if fully set forth herein.
34245. From at least 2005 to 2011, plaintiffs spent the Club’s funds to purchase
thousands of items of decorative art at flea markets, antique stores, second-hand stores and other
venues.
246. In August 2011, plaintiffs claimed ownership of more than 2000 items of
decorative art located in the common spaces of the Club.
247. Despite the Club’s repeated demands, the plaintiffs have not produced any
evidence to the Club to establish their ownership of the items they claimed to own in August
2011.
248. The Club believes in good faith that the items claimed by the plaintiffs in August
2011 belong to the Club, because thousands of dollars in Club funds were used to purchase items
of decorative art from 2005 to 2011.
249. Plaintiffs have removed specific items of Club property from the Club’s common
spaces, and have kept that property amongst the detritus, trash and other property in the
apartments at the Club that the plaintiffs occupy and control.
250. Among the unique items of Club property taken by the plaintiffs from the Club
are: a watercolor by Louis Comfort Tiffany; a watercolor by August Rodin; and a watercolor by
Robert Seyffert.
251. Each of the items of fine art and decorative art in plaintiffs’ possession which
belong to the Club, including which are described in paragraphs 245 through 250 above, is
unique.
252. As of the date hereof, Plaintiffs have not returned many of the items of fine and
decorative art described in paragraphs 245 through 250, despite the Club’s demand that these
items be returned to it.
35253. Accordingly, defendants and counterclaim plaintiffs request that the Court enter
an order compelling the plaintiffs to return to the Club all property in their possession which is
identified at trial as the property of the Club.
ALLEGATIONS CONCERNING THE CLUB’S BANK ACCOUNTS
254. From 1986 until January 2011, as president of the Club, plaintiff Aldon James
controlled the Club’s bank accounts and had signatory authority for the Club’s checking account.
In addition, from at least 2005 to 2011, plaintiff Aldon James had possession of and the authority
to use the ATM/debit card associated with the Club’s checking account to make purchases for
the Club.
255. From at least 2005 to early 2011, plaintiff Aldon James wrote handwritten checks
to pay for personal expenses for himself, John James and Steven Leitner, and to pay for
unauthorized expenditures of the Club’s funds. These expenditures were not known to the Board
and were not authorized by the Board.
256. In addition, from at least 2005 to early 2011, plaintiff Aldon James used the
Club’s ATM/debit card to pay for personal expenses for himself, John James and Steven Leitner,
and to pay for unauthorized expenditures of the Club’s funds. These expenditures were not
known to the Board and were not authorized by the Board.
257. The plaintiffs were unjustly enriched by the expenditures described in paragraphs
255 and 256.
258. Section 720 of New York Not-For-Profit Corporation Law authorizes the Club to
against directors and officers account for their official conduct when they have: 1) neglected or
failed to perform their duties in the management and disposition of corporate assets committed to
36their care; and 2) acquired for themselves, transferred to others, or wasted corporate assets due to
their neglect, failure to perform, or other violation of their duties.
259. Upon information and belief, a conservative estimate of the amount of Club funds
improperly spent by Aldon James in the manner described in paragraphs 255 and 256 exceeds
$600,000.
SIXTH COUNTERCLAIM:
CONCERNING THE CLUB’S BANK ACCOUNTS
(FOR ACCOUNTING WITH RESPECT TO THE CLUB’S FUNDS
AGAINST PLAINTIFF AND COUNTERCLAIM DEFENDANT
ALDON JAMES)
260. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179
through 189, and 254 through 259, as if fully set forth herein.
261. As is indicated by the foregoing, pursuant to New York Not-For-Profit
Corporation Law Section 720, the plaintiff Aldon James is liable to account to the Club for his
mismanagement of the Club’s bank accounts, because he acquired for himself and wasted
corporate funds through his violation of his fiduciary duty to preserve the Club’s funds, by his
misuse of handwritten checks and the Club’s ATM/debit card.
262. The amount due and owing to the Club by plaintiff Aldon James as a result of his
mismanagement and waste of the Club’s funds will be established at trial, but is believed in good
faith to exceed $600,000 for the period from January 2005 to June 2011.
SEVENTH COUNTERCLAIM:
CONCERNING THE CLUB’S BANK ACCOUNTS
(FOR WASTE AND MISAPPROPRIATION OF CLUB FUNDS
AGAINST ALL PLAINTIFFS AND COUNTERCLAIM DEFENDANTS))
263. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179
through 189, and 254 through 259, as if fully set forth herein.
37264. From at least early 2005 to 2011, plaintiff Aldon James frequently made
expenditures of Club funds that were outside the ordinary course of the Club’s business and
which constituted a waste of the Club’s funds.
265. Examples of expenditures that constituted a waste of the Club’s funds include
donations of more than $40,000 to the Cherry Lane Theater; payments of approximately $35,000
to an organization known as “The Radio Reading Project, Incorporated;” payments of more than
$15,000 to pay for lodging for one or more of the plaintiffs at the Inn at Irving Place, when
Aldon James and the other plaintiffs possessed and controlled at least 6 different apartments in
the Studio Building.
266. The Club’s Board of Governors did not know about these payments and did not
authorize them.
267. To the extent the plaintiff Aldon James made extraordinary expenditures of the
Club’s funds without the knowledge and authorization of the Board, he violated his duty of
loyalty to the Club, wasted the Club’s funds, and unjustly enriched himself and the other
plaintiffs.
268. To the extent that the extraordinary expenditures of the Club’s funds without the
knowledge and authorization of the Board benefitted Aldon James, John James or Steven
Leitner, such expenditures were made in violation of the Club’s Conflict of Interest Policy.
269. The plaintiffs should be required to pay damages to the Club in connection with
their waste of its funds. Those damages will be established at the time of trial, but are believed
to exceed $100,000.
38EIGHTH COUNTERCLAIM:
CONCERNING THE CLUB’S BANK ACCOUNTS
(FOR SELF-DEALING AGAINST ALL PLAINTIFFS
AND COUNTERCLAIM DEFENDANTS)
270. Defendants and counterclaim plaintiffs repeat and re-allege paragraphs 179
through 189, and 254 through 259, as if fully set forth herein.
271. The payments authorized by plaintiff Aldon James without the knowledge and
authorization of the Board that directly benefitted the plaintiffs constituted self dealing at the
expense of the Club, unjustly enriched the plaintiffs, and violated the Club’s Conflict of Interest
Policy.
279. Sections 715, 717 and 720 of New York Not-For-Profit Corporation Law prohibit
payments of corporate funds for the personal benefit of officers, governors or members of a NotFor-Profit corporation of the type made by Aldon James to and for the benefit of himself, Steven
Leitner and John James, as described above.
280. By making the unauthorized and self-dealing payments described above, the
plaintiffs and counterclaim defendants have unjustly enriched themselves and damaged the Club
in an amount to be determined at trial, but which is believed to exceed $600,000 for the period
from 2005 to 2011.
RESERVATION OF RIGHTS
281. Defendants reserve their rights to move to amend their Answer to assert additional
defenses and counterclaims. The Club’s investigation of this matter is ongoing, and to the extent
evidence is discovered that supports additional defenses or counterclaims, the Defendants reserve
their rights to assert such defenses or counterclaims.
39PRAYER FOR RELIEF
WHEREFORE, Defendants The National Arts Club, The Board of Governors of the
National Arts Club, Dianne Bernhard, as President of the National Arts Club, John Morisano, as
First Vice President of the National Arts Club, and Tara Cortes, Stephen Hedberg, Milbry Polk,
Alex Rosenberg and Ross Znavor, as Governors of the National Arts Club, respectfully request
that the Court grant the following relief with respect to Plaintiffs’ causes of action:
A. That each of Plaintiffs’ eleven causes of action be dismissed in its entirety and
with prejudice; and
B. That Defendants be reimbursed for the costs and disbursements associated with
this action, including reasonable attorney’s fees, and be granted such other and
further relief as the Court may deem just and proper.
In addition, with respect to the counterclaims asserted by the Defendants herein, the
Defendants respectfully request that the Court grant the following relief:
A. On the First Counterclaim, an order compelling the plaintiffs and counterclaim
defendants to account for their actions with respect to the Club’s real estate assets,
and, after such accounting is completed, to pay money damages to the Club in an
amount to be determined at trial, but which is believed to exceed $1,500,000;
B. On the Second Counterclaim, a money judgment in favor of the Club and against
the plaintiffs in an amount to be proven at trial, but which is believed to be at least
$300,000;
C. On the Third Counterclaim, a judgment setting aside the self-dealing transactions
described in the Counterclaims with respect to the Club’s real estate assets, and
awarding the Club damages in connection with such self-dealing transactions in
40an amount which will be proven at trial, but which is believed to be at least
$1,500,000;
D. On the Fourth Counterclaim, a judgment in an amount which will be proven at
trial, but which is believed to exceed $1,500,000;
E. On the Fifth Counterclaim, a judgment compelling the plaintiffs to return to the
Club all items proven at trial to be unique Club property in the possession of the
plaintiffs, including the items described in the Fifth Counterclaim;
F. On the Sixth Counterclaim, a judgment compelling Plaintiff Aldon James to
account for his unauthorized expenditures of the Club’s funds, and after such
accounting is completed, to pay money damages to the Club in an amount to be
determined at trial, but which is believed to exceed $600,000;
G. On the Seventh Counterclaim, a judgment compelling plaintiffs to pay money
damages to the Club in connection with their waste and misappropriation of the
Club’s funds, an amount to be determined at trial, but which is believed to exceed
$100,000;
H. On the Eighth Counterclaim, a judgment compelling the plaintiffs to pay money
damages to the Club in connection with their self-dealing payments, in an amount
to be determined at trial, but which is believed to exceed $600,000;
I. In connection with all Counterclaims, an award of the Club’s costs and attorneys
fees incurred in prosecuting the Counterclaims; and such other relief that the Court should deem just and proper.
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