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A New York court ruled that members of a nonprofit corporation had a "proper purpose" in asking to see various records of the corporation.

New York
State:
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Key point 6-03.1. Church members generally have no right to inspect church records unless such a right is conferred by state nonprofit corporation law, a church's charter or bylaws, state securities law (if the church has issued securities), or a subpoena. Church records enjoy no privilege against disclosure, with the exception of documents that are protected by the clergy-penitent privilege under state law.

A New York court ruled that members of a nonprofit corporation had a "proper purpose" in asking to see various records of the corporation, and therefore they had a legal right under the state nonprofit corporation law to see those records.

A nonprofit corporation amended its articles of incorporation and bylaws to prevent "inactive members"' from voting on certain matters. Several inactive members informally asked to see the new corporate bylaws along with member lists and voting lists. When these requests were denied, the inactive members made a request to inspect the "books, minutes, and records" of the charity pursuant to the state Not-For-Profit Corporation Law. While the charity provided some records, it refused to provide several others on the ground that the members did not have a "proper purpose" for seeking them. The members appealed to a court for an order compelling inspection of the records. The court began its opinion by noting that

there is both a common law and statutory right by … members in a Not-For-Profit Corporation, to inspect the books and records of a corporation. However, inspection may be denied to a member who does not have a "proper purpose." To prove that their purpose is proper the statute requires members to supply affidavits to the corporation attesting that the information obtained through the inspection "will not be used for a purpose which is in the interest of a business or object other than the business of the corporation." Even then, the court has an obligation to look beyond the face of those affidavits to determine if there is bad faith on the part of the [members]. If the court finds that the application is not made in good faith and for proper purpose then the court may deny the petition.

The nonprofit organization insisted that the members' purpose was not "proper" because it was purely personal in nature. The members claimed that the "bad faith" and acts of alleged misconduct on the part of the organization's officers and directors justified their demand for inspection. The court noted that the fact that the members' interest "has a personal aspect to it does not preclude there being a legitimate corporate interest involved." It pointed out that members of nonprofit corporations "often have something personal to gain in their effort to call corporate policies into question," but concluded that this did not make their purpose any less legitimate.

The court provided the following additional clarification: "A proper purpose is one that is germane to the members' status in the corporation. This includes members' right to communicate with fellow members regarding amended bylaws, and the right to investigate management conduct."

With regard to the number of records that the members could inspect, the court noted that "the right to inspection would be wholly illusory if the corporation was permitted to decide which of its records members were allowed to see, and unduly burdensome if members were permitted to engage in a fishing expedition." The court then made the following additional conclusions:

(1) The charity refused to turn over some committee minutes on the ground that it was "unable to locate documents responsive" to this request. The court concluded that this answer was not a denial that the minutes ever existed, and "is not a satisfactory answer in a situation where the members are entitled to minutes that have been prepared by a committee, and therefore have become part of the corporate records. Given the import of the inspection statute, and the fact that the [charity] is accountable for its corporate records, at the very least it should disclose to the [members] whether or not such minutes ever existed. If in fact they exist then the committee minutes should be disclosed. If they once existed but cannot be found, that fact should be disclosed."

(2) The members claimed that the "minutes" provided to them of board meetings were "truncated" and "inaccurate." The court ordered the charity to provide the members with correct and complete minutes for the relevant meetings. However, the court cautioned that corporations are not required to "add" details that were not in the original minutes. "As long as the minutes bear the signature of the secretary of the meeting as evidence of their accuracy and completeness, I believe this satisfies the obligation" under the statute to turn over records.

What this means for churches

The right of church members to inspect church records is an important question. This case provides the following clarifications:

1. Most state nonprofit corporation laws give members a legal right to inspect specified corporate books and records at a reasonable time and for a "proper purpose." This court also recognized that members of nonprofit corporations have a "common law right" to inspect corporate records, meaning that the right exists whether or not granted by the applicable nonprofit corporation law. This is perhaps the first time that a court has reached this conclusion.

2. The court provided a broad interpretation of a "proper purpose." The definition of this term is critical, since it will determine whether or not members have a legal right to inspect specified documents. The court concluded that a request to inspect corporate documents that is based on members' desire to investigate and correct alleged misconduct by officers and directors is a proper purpose. It also concluded that a purpose may be proper even though it serves some personal interest of the member or members requesting the documents. The court provided a useful definition of a proper purpose as one that is "germane to the members' status in the corporation" including the right to "communicate with fellow members regarding amended bylaws and the right to investigate management conduct."

3. The court was unwilling to let the charity respond to document requests by providing summaries of the requested documents. On the other hand, it noted that a charity need not "expand" or provide additional details to committee and board minutes that were not in the original minutes. "As long as the minutes bear the signature of the secretary of the meeting as evidence of their accuracy and completeness, this satisfies the obligation" under the statute to turn over records. Many church board minutes are very abbreviated. This case suggests that a request by members to see those minutes will not require the church to provide detail that was not in the original minutes.

Wells v. League of American Theatres, 706 N.Y.S.2d 599 (Sup. Ct. 2000).

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Posted:
  • March 1, 2001

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