Upon the foregoing papers, petitioners Mamdouh Mobarak and Mark Liu seek a judgment annulling, vacating and setting aside (1) the decision rendered by the Security Committee of respondent XYZ Two Way Radio Service Inc. (XYZ) and ratified by the membership of XYZ, expelling Mobarak from the corporation, and (2) the decision of the Security Committee imposing a fine upon Liu of $25,000 and suspending him from his rights [*2]as a member of XYZ pending his payment of said fine, on the ground that such decisions were arbitrary and capricious and not supported by substantial evidence.^[FN1] XYZ opposes the instant petition and cross-moves ^[FN2] to dismiss same on the ground that it followed its own by-laws and rules and regulations in rendering the subject complained-of disciplinary decisions and, therefore, such decisions are not subject to judicial scrutiny.^[FN3]

The instant proceeding arises out of the petitioners' membership in XYZ and disciplinary proceedings instituted against the petitioners in their capacities as members of the corporation. XYZ is a corporation which provides radio-dispatched luxury "black car" ground transportation for large financial institutions, law firms and corporations. It consists of shareholders who purchase shares in order to obtain "radio rights" from XYZ. Such rights entitle the shareholder to receive jobs transporting customers of XYZ and to utilize the corporation's dispatching and billing services. The petitioners are both shareholders in XYZ and, therefore, obtained said "radio rights" upon their purchase of shares in XYZ.

Pursuant to XYZ's by-laws, the corporation's Security Committee is composed of a security chairman and a security panel. The chairman's responsibilities are investigating letters of complaint and disciplinary slips, known as 10-5's, to establish the validity of same and determine whether a hearing should be held with regard to any alleged violations of XYZ's rules and regulations by a member. With regard to such hearings, the by-laws state, in relevant part, that:

The sitting security panel and the chairman shall conduct a fair and impartial hearing. The rules, regulations and by-laws of the organization shall be the determining "factors" for rendering decisions at these hearings. The chairman shall inform all guilty members of their right to an appeal, at the conclusion of the hearing.

The by-laws also afford members who are the subject of such disciplinary hearings the right "to be represented or accompanied by another member from the organization, to argue the process involving him before the seated security panel," although such [*3]representation is not mandatory.

At the hearing, the member is also "obligated to give to the seating security panel . . . an accurate account of events, occurrences, causes and vis-a-vis respective 10/5(s). He shall further be obligated to answer truthfully to questions submitted to him by the security panel and the chairman." A member may choose to be tried in absentia, but decisions rendered in the absence of a member are final and binding and cannot be appealed.

The rules and regulations of XYZ also regulate the hearings conducted by the Security Committee. Such rules and regulations reiterate that the Security Committee shall conduct a fair hearing. They also establish that the Security Committee is required to notify any member accused of a violation of the charge against him or her and the date of his or her hearing at least forty eight hours prior to said date. With respect to a member's obligations at the hearing, a member must present all evidence and secure all witnesses he or she wishes to utilize at the hearing. The rules also, once again, make clear that "an accused may be represented by his own counsel from within the group."

On or about September 26, 2005, Mobarak received a written notice that he was to attend a hearing before the Security Committee based upon the charges "Detrimental to the Organization" and "Undermining the Organization." These charges were reiterated in another notice of hearing which he received on November 2, 2005. On or about September 28, 2005, he received an additional notice of hearing based upon the charge "Action of the Driver." On or about September 23, 2005, Liu also received a notice of hearing based upon the charges "Detrimental to the Organization" and "Action of Driver."

After receiving the notices of hearing, Mobarak allegedly requested that he be authorized to bring an attorney with him to the disciplinary hearing which was scheduled for November 7, 2005 and was informed by the vice-president of XYZ, Sandy Check, that he could not. Both Mobarak and Liu appeared for their hearings on that date accompanied by counsel. The Security Committee refused to allow petitioners to be represented by counsel at their hearings and allegedly ordered counsel to leave the hearing. As a result, the petitioners refused to participate in their hearings and did not remain on the premises while the hearings were conducted. The Security Committee, nonetheless, conducted petitioners' hearings "in absentia" and recommended expulsion. Petitioners' radio rights were immediately suspended.

On November 22, 2005, an appeal hearing was held before the Board of Directors. At the hearing, petitioners were once again denied representation by their counsel, although petitioners did apparently appear at the hearing and remain present for its duration. The Board of Directors upheld the Security Committee's decision to expel Mobarak and levied a fine against Liu in the amount of $25,000. Subsequent to the appeal, a special meeting was called on December 11, 2005 for the purpose of holding a vote of the XYZ membership with regard to the ratification of Mobarak's expulsion. A majority of the XYZ membership ratified the expulsion.

Petitioners argue that the disciplinary action taken against them was done in retaliation [*4]for their opposition to the Board of Directors with respect to the Board's oversight and management of XYZ. In addition, petitioners assert that the subject disciplinary action was also a response by XYZ to a pending lawsuit brought by Mobarak, based upon both individual and derivative claims, against XYZ and the Board of Directors. In the instant proceeding, they seek an annulment and vacatur of the subject disciplinary decisions on the grounds that they did not receive adequate notice of the charges against them or a fair trial and the resulting decisions rendered against them were, therefore, arbitrary and capricious. In its opposition to the petition and in support of its cross motion to dismiss, respondent argues that it complied with all relevant by-laws and rules and regulations in rendering its disciplinary decisions and, accordingly, the court is precluded from substituting its own judgment for that exercised by the Security Committee.

The reach of Article 78 is broad and includes within its scope "every court, tribunal, board, corporation, officer, or other person, or aggregation of persons, whose action may be affected by a proceeding under [the] article" (CPLR 7802[a]). Accordingly, "a corporation can be compelled in an Article 78 proceeding to fulfill not only obligations imposed upon them by State or municipal statutes but also imposed by their own internal rules" (see Goldman v White Plains Center for Nursing Care, LLC, 9 Misc 3d 977, 980 [2005], quoting Gray v Canisius College of Buffalo, 76 AD2d 30, 33 [1980]). Article 78 review is limited, however, to "whether a determination was made in violation of lawful procedure, was affected by an error of law or was arbitrary and capricious or an abuse of discretion . . . ." (CPLR 7803[3]). As a result, "[i]t is well settled that on a proceeding to review expulsion [of a member] by a corporation, the court will not substitute its judgment for that of a governing body of an organization. The court will only look into the record to ascertain whether the procedure was in accordance with the by-laws" (Nametra v American Society of Travel Agents, Inc., 28 Misc 2d 291, 292 [1961]; see also Lane v Sierra Club, 183 Misc 2d 944, 948-949 [2000][recognizing that Article 78 is an appropriate vehicle for relief where membership rights in a private organization are abrogated in violation of lawful procedure and noting that "New York courts have long provided such relief to members ousted in violation of a voluntary association's internal rules"]).

Moreover, "when the remedy imposed by disciplinary hearings may include forfeiture of vested rights and privileges, rigid adherence to the procedures is required" (Anderson v Board of Directors of the Powelton Club, 183 Misc 2d 200, 202 [1999]). Indeed, procedural fairness in such determinations has been held to require that a corporation or voluntary association afford a member the right to be advised of the charges, receive notice of the hearing and be given an opportunity to appear at the hearing and be heard, even where the by-laws are silent as to the procedure to be utilized in a disciplinary context (see generally id. at 202; Lane, 183 Misc 2d at 949; Briggs v Technocracy, Inc., 85 NYS2d 735 [1948]). This rule comports with the notion that "whether it be called due process or not, an individual is to be free from arbitrary and capricious rules and hearing procedures" (Lindemann v American Horse Shows Assn., 164 Misc 2d 937, 949 [1994]). Accordingly, the lack of [*5]fundamental fairness in a disciplinary proceeding, particularly where such proceeding runs afoul of the organization's own internal procedures, rules and regulations, may result in a finding by the reviewing court that the resulting decision was arbitrary and capricious (see generally id.; Rapacki v Board of Fire Commissioners, 75 AD2d 817, 817 [decision dismissing petitioner from membership rolls of fire department annulled and vacated pursuant to Article 78 where hearing and right to appear at same arose solely from the constitution and by-laws of the association and the fire council arbitrarily denied petitioner a hearing on the basis that he insisted that he be represented by counsel at the hearing]).

Here, petitioners are entitled to a vacatur and annulment of the disciplinary decisions rendered against them by the Security Committee. It is undisputed that the by-laws and rules and regulations of XYZ require that a member be informed prior to a disciplinary hearing of the charges against him and be allowed an opportunity to be heard at the hearing. Moreover such by-laws, rules and regulations obligate the member to give an accurate account at the hearing of all "events, occurrences [and] causes" related to the subject disciplinary charges, as well as to present all evidence pertaining thereto and secure the attendance of any necessary witnesses. The by-laws, rules and regulations also provide that the member may be accompanied or represented by an individual from within the corporation, but do not expressly forbid the member from appearing at the hearing with an attorney from outside of the organization. Nor do the by-laws or rules or regulations state that such attorney will be barred from the proceedings if he or she appears or that a member who refuses to participate without the aid of such attorney will be tried in absentia and forced to forfeit his or her rights to an appeal.

XYZ argues that petitioners, as members of the corporation who have also previously served on the Security Committee, were aware of the terminology employed by the Security Committee in issuing notices of hearing and also were issued disciplinary slips contemporaneous to various incidents and given verbal notice. XYZ contends, therefore, that petitioners had adequate knowledge of the charges against them. However, given the obligation of the member to present all relevant evidence at the hearing and to provide an accurate account of all "events, occurrences [and] causes" related to the alleged violation, the court finds that the reliance by respondent on the petitioners' own knowledge and unspecified verbal statements allegedly made to the petitioners in connection with the alleged violations does not substantially comport with the by-laws, rules and regulations promulgated by XYZ with regard to the requirement that a member be notified prior to the hearing of all charges against him or her. The court also finds that the subject notices of hearing provided to the petitioners, which refer in general terms to "action by driver," "detrimental to the organization" and "undermining the organization" - charges which are not included or defined in the section of the rules and regulations which delineates various minor and major disciplinary infractions - are similarly noncompliant with the notice requirement established by the relevant rules and regulations of the corporation.

The court also finds that the hearings themselves did not comply with XYZ's by-laws [*6]or rules and regulations. Although XYZ refers to a purported "no counsel" rule in its opposition to the instant petition, the court has been unable to locate such rule in the by-laws or rules and regulations themselves. Rather, the by-laws and rules and regulations expressly provide for a member to be accompanied or represented by another member of the organization but do not prohibit the member from utilizing his or her own counsel for assistance or representation at the hearing. The court finds that, given the provisions made for notices and hearings, and the obligation of the member to present all evidence, witnesses and his or her own accurate testimony at said hearing, it was arbitrary and capricious and an abrogation of XYZ's "fair trial" rule to deny petitioners the right to have a counsel of their choosing represent them at their hearings in the same capacity in which a representative from the membership itself would be allowed to act if he or she appeared on behalf of the petitioners. Accordingly, the court finds that because a member of XYZ "is entitled to a hearing . . . pursuant to the . . . by-laws of the [corporation] [he or she] may not be denied that hearing solely because he [or she] opts for legal representation in the first instance" (Matter of Rapacki, 75 AD2d at 817), especially since such legal counsel is not expressly prohibited by the relevant by-laws, rules and regulations. Accordingly, given the failure of the Security Committee to comply substantially with the by-laws, rules and regulations governing its conduct, and the arbitrary and capricious notice and hearing procedures resulting therefrom, the court finds that the disciplinary decisions at issue here were thereby also rendered arbitrary and capricious.

Accordingly, the petition is granted and the decisions of the Security Committee expelling Mobarak and imposing a fine of $25,000 on Liu are hereby vacated and annulled and the matter remanded to the Security Committee without prejudice to any further disciplinary proceedings against Mobarak and Liu which substantially comply with the relevant by-laws, rules and regulations of XYZ. Such vacatur and annulment, however, shall have no effect on any disciplinary actions taken by the Security Committee which are authorized by the by-laws, rules and regulations to be instituted prior to, or pending resolution of, formal notice and hearing of charges.^[FN4] The cross motion by respondent is denied.^[FN5] [*7]

The foregoing constitutes the decision, order and judgment of the court.

E N T E R,

J. S. C.