What does case law say about nonprofit Members' rights to campaign/free speech?

Question

A Nonprofit organization (corporation) is formed on a Membership basis. That means Members elect a Board of Directors.

The Members, naturally, need to be able to freely discuss the affairs of the organization (corporation) so they can discuss amongst themselves which directors to elect.

The seated Board of Directors might have feelings about this, and might want to interfere.

In support of this, the State (MI) has statute obliging the organization to give Members the tools to campaign. They "shall provide a reasonable way for Members to communicate regarding the affairs of the corporation". The organization has provided the member list.

Instead the Board of Directors place absurd limitations on speech: "You can't talk about money, can't name individuals, can't disparage anyone or make implications, can't say X, Y, Z". These effectively gag the Members from having any meaningful communication. This defeats the purpose of the State law which guarantees right to communicate.

The statute seems silent on whether Member speech is free.

I need to find case law (any state will do) where the Board of Directors or managers tried to block free speech or access to the Member list, it went to verdict, and the judge made some sort of ruling on the question of either list access or speech limitations. I have seen several, but can no longer find them. Out-of-state cases are fine, since my state gives credence to out-of-state cases when local case law is thin.

Would anyone have some leads?

Answer 1

Section 450.2304 paragraph (7) of the Michigan code provides that:

A corporation may adopt rules of qualification and government of its members, including rules of admission to, retention of, and expulsion from membership, under its articles of incorporation or bylaws, if those rules are reasonable, germane to the purposes of the corporation, and equally enforced as to all members.

That means that a membership organization may adopt reasonable rules and expel members for violating those rules. No definition of "reasonable" is given.

Section 450.2487 provides that:

Any shareholder or member of record of a corporation that is organized on a stock or membership basis, in person or by attorney or other agent, may during regular business hours inspect for any proper purpose the corporation's stock ledger, a list of its shareholders or members, and its other books and records, if the shareholder or member gives the corporation written demand describing with reasonable particularity the purpose of the inspection and the records the shareholder or member desires to inspect, and the records sought are directly connected with the purpose. As used in this subsection, "proper purpose" means a purpose that is reasonably related to a person's interest as a shareholder or member. A shareholder or member must deliver a demand under this subsection to the corporation at its registered office in this state or at its principal place of business. If an attorney or other agent is the person seeking to inspect the records, the demand must include a power of attorney or other writing that authorizes the attorney or other agent to act on behalf of the shareholder or member.

If this demand is refused, it may be enforced by court action as described in later paragraphs of the section. If a member obtains contact information for the other members, then that member may communicate to them under the freedom of speech provided by the First amendment of the US Constitution, although in some cases an membership organization might make violations of its internal rules on such communication grounds for expulsion from membership. However, paragraph (2) is limited by paragraphs (7) and (8) which provide that:

(7) Notwithstanding any other provisions of this act, the articles of incorporation, the bylaws, or a resolution of the board of directors may provide that the shareholders or members and attorneys or agents for shareholders or members do not have the right to inspect the corporation's stock ledger, lists of shareholder or members, lists of donors or donations, or its other books and records, if the incorporators, shareholders, members, or directors that approve a limitation under this subsection make a good faith determination that 1 or more of the following apply:
(7) (a) Opening the stock ledger, lists of shareholder or members, lists of donors or donations, or its other books and records for inspection would impair the rights of privacy or free association of the shareholders or members.
(7) (b) Opening the stock ledger, lists of shareholder or members, lists of donors or donations, or its other books and records for inspection would impair the lawful purposes of the corporation.
(7) (c) Opening lists of donors or donations for inspection is not in the best interests of the corporation or its donors.

(8) A corporation that limits inspection of lists of its shareholders or members under subsection (7) shall provide a reasonable way for shareholders or members to communicate with all other shareholders or members concerning the election of directors and other affairs of the corporation. A corporation described in this subsection may require a shareholder or member that wishes to communicate with other shareholders or members under this subsection to pay the reasonable costs to cover the cost of labor and materials and third-party charges incurred by the corporation in doing so.

Paragraph 8 appears to contemplate an organization that is organized as a membership corporation requiring a member to send communications to other members through the organization It neither authorized not forbids the organization to place limits on what may be included in such communications.

I find an unpublisahed case No. 257155 Oakland Circuit Court LC No. 2002-044667-CZ, in which BILTMORE PROPERTIES, INC. and Toll Brothers Inc were required to turn over balance sheets to condominium association members under Section 450.2487

A 2017 blog post from a law firm: "Responding To A Members Request To Review And Inspect Your Associations" says that there is no caselaw yet on how to apply the restrictions permitted under section 450.2487 and future court decisions may be need to construe the law and its interactions with the law governing condo associations. This post advises restricting access to "privileged" information such as an individual member's financial accounts, minutes of executive sessions, and advice from the association's attorneys, but makes no mention of simple membership lists.

In the unpublished and unsigned case Vidolich v. Saline Northview Condominium Association, Court of Appeals of Michigan. No. 334579. The Court of Appeals wrote:

"our courts have recognized a stockholder's common-law right to inspect corporate records for a proper purpose," noting that a proper purpose might include "raising doubts whether corporate affairs had been properly conducted by the directors or management" but would not include "requests to satisfy idle curiosity or aid a blackmailer" or "mere speculation of mismanagement." North Oakland Co Bd of Realtors v Realcomp, Inc, 226 Mich.App. 54, 58-59; 572 N.W.2d 240 (1997) (emphasis added). At its heart, the development of legal rights such as this one has always been for the purpose of providing people with tools to maintain order and decorum, not to provide people with swords with which to create chaos and harm.

The N. OAK BD. OF REALTORS case, linked above, was brought under the very similar M.C.L. § 450.1487, which deals with stock corporations, but has much language identical to Section 450.2487. In that case, the court upheld access and wrote:

Thus, a "proper purpose" is one that is reasonably related to the person's interest as a shareholder. Although no appellate court in Michigan has been called upon to interpret § 487 of the Business Corporation Act, M.C.L. § 450.1101 et seq.; M.S.A. § 21.200(101) et seq., our courts have recognized a stockholder's common-law right to inspect corporate records for a proper purpose. Woodworth v. Old Second Nat'l Bank, 154 Mich. 459, 465-466, 117 N.W. 893, 118 N.W. 581 (1908); People ex rel. Bishop v. Walker, 9 Mich. 328, 330 (1861); see also Guthrie v. Harkness, 199 U.S. 148, 26 S.Ct. 4, 50 L.Ed. 130 (1905). Under the common law, a shareholder stated a proper purpose for an inspection by raising doubts whether corporate affairs had been properly conducted by the directors or management, Woodworth, supra at 466, 117 N.W. 893, or by seeking election to the corporate board of directors, George v. Int'l Breweries, Inc., 1 Mich.App. 129, 133, 134 N.W.2d 381 (1965). On the other hand, inspection requests to satisfy idle curiosity or aid a blackmailer were held not to be proper. Slay v. Polonia Publishing Co., 249 Mich. 609, 613, 229 N.W. 434 (1930).

Consistent with the common law in this state and the holdings of courts in other jurisdictions with similar statutes, we hold that a proper purpose for inspection of corporate records under § 487 is one that is in good faith, seeks information bearing upon protection of the shareholder's interest and that of other shareholders in the corporation, and is not contrary to the corporation's interests. ...

Other citations of section 450.2487 that I have been able to find all deal with financial records, not membership lists, and add little to the above. None deal with what limits a corporation may place on member communication under paragraphs (7)and (8) of the section.

Nor have I found cases on similar limitations under the laws of other states, but not having specific laws to search for citations of, i may well have missed relevant cases. But it seems not unlikely that this issue has not been directly dealt with by any appellate court in a published case which would be precedent or of persuasive authority in Michigan.

Answer 2

This is a good question which is tricky to answer.

If this was a governmental entity, the First Amendment (as incorporated through the Fourteenth Amendment due process clause against state and local governments) prohibits this rule.

The censorship isn't imposed directly by a government, so the First Amendment freedom of speech doesn't apply for that reason, and courts have generally held that court enforcement of a private contractual limitation on speech does not constitute the kind of state action necessary to trigger the First Amendment.

So, the analysis isn't constitutional.

There are several issues to consider given that conclusion:

1. What are the consequences of violating the rule?

If the rule is stated but has not sanction attached to it that the board claims that it can enforce, it is really just a suggestion and not a rule and members can discuss forbidden matters with impunity anyway.

If there is a consequence, what is it?

• Being fined (and if so, is the fine a valid liquidated damages clause or a void as against public policy penalty)?

• Being expelled from membership?

• Being suspended from membership for a period of time or the election in question?

• Not being allowed to vote in this election?

• Not being allowed to use the Board provided forum of communication? A civil breach of contract lawsuit by someone alleging to be hurt by the conduct?

• Invalidation of the election result with a "do over" of the election?

• Denial of access to membership lists?

There are probably provision of the statute or governing documents that discuss how these particular penalties may be imposed in general, and violations of this rule may or may not qualify.

Some of these penalties would be contrary to express statutory and governing document rights of members, and so the rule might be invalidated on the grounds that the penalty is contrary to a member's legal rights in the entity.

The nature of the remedy, if any, impacts the legal approach to overcoming it.

2. Does the board have the authority to adopt this rule?

A judge could determine that neither the statutes nor the articles of incorporation authorize bylaws of this type, and that they are void as being ultra vires (i.e. beyond the authority and power of the person or body adopting them).

To this end, many non-profits expressly adopt Robert's Rules of Order in their governing documents, which comprehensively regulates speech during membership meetings, and sometimes board meetings as well.

For example, interpretative authority of the promulgators of Robert's Rule Of Order states that:

On page 255, lines 22-28, of RONR, Tenth Edition, it is said that “… while generally applicable limits on debate and the making of motions may be imposed by motions such as the Previous Question, the rules may not be suspended so as to deny any particular member the right to attend meetings, make motions, speak in debate, and vote, which are basic rights that may be curtailed only through disciplinary proceedings.”

On page 244, it is noted that, if any action is taken in violation of a rule protecting a basic right of an individual member, it is never too late to raise a point of order concerning such a violation since the action so taken is null and void.

So, if the bylaws (which may require member approval) adopt Robert's Rules of Order, and the board passes additional limitations on speech, the conflict between Robert's Rules as adopted in the Bylaws, and the Board member election speech rule, could be resolved in favor of the member if it denies them rights like the ones set forth in the quoted material.

3. If the Board has some authority to adopt this rule, is its exercise of authority in this manner an abuse of the discretion granted by the rule, or invalid on public policy grounds in general? Do other provisions of the Act imply a right to use the rights to communicate in a reasonable way which this rule abridges?

A judge might very well be informed by First Amendment jurisprudence while not directly applying it to find that discussion of relevant matter restricted in substance and not just "time, place, and manner" by a regulation might be void as contrary to the authority granted by the Act or the implied rights under the Act, or the obligation of the Board to carry out its discretionary duties in a manner consistent with the covenant of good faith and fair dealing and subject to their other statutory and/or fiduciary duties.

The bottom line is that restrictions beyond time, place and manner are likely to be invalidated when the discussion is over legitimate, relevant issues regarding the exercise of the election rights in the entity. But, there isn't a single clear and obvious legal path to get there and the issue isn't frequently litigated to a point where it produces precedent making legal decisions of appellate courts.

Answer 3

If I read your question correctly, I take it to mean you are trying to say or do things the group disagrees with and still be a member.

There isn't anything in the laws you linked to (https://www.legislature.mi.gov/(S(3xzcazcelzxxcmud4pv1tpgk))/mileg.aspx?page=GetObject&objectname=mcl-act-162-of-1982) saying they have to let you in or that they have to keep your membership active.

If you wish to change how the group acts, run for the board of directors.