Petitioners initiated this special proceeding by the filing of a petition in October of 2024 alleging, in sum and substance, that Petitioner Eugene Baldino (hereinafter "Baldino") was [*2]denied due process and improperly removed from the Respondent Board of Governors, asking for his reinstatement, indemnifying him for all legal expenses, and granting to the petitioners the right to inspect books and records of Respondent Oak Hill Country Club.

Petitioners now move to amend their petition and for the awarding of interim attorneys' fees (indemnification claim).^[FN1] Respondent Robert Sansone (hereinafter "Sansone") moves for partial summary judgment seeking to dismiss Petitioners' claim for indemnification. Respondents Oak Hill move to quash trial subpoenas served by petitioners' counsel and for partial summary judgment dismissing the petitioners' claim for indemnification. For the reasons that follow, the petitioner's motion to amend the petition is partially GRANTED and otherwise DENIED. The petitioner's motion for interim attorneys' fees is DENIED. Respondents' motions for partial summary judgment seeking dismissal of petitioners' claim for indemnification are GRANTED. Respondent Oak Hills' motion to quash is GRANTED.^[FN2]

The previously scheduled trial is adjourned to a date to be determined after a conference between the parties and the Court.

Petitioners, in their petition, alleged that Baldino was improperly removed, on June 18, 2024, from Respondent Oak Hill Country Club's (hereinafter "Oak Hill") Board of Governors (hereinafter "board"). Petitioners claim that Baldino's removal was without the required due process, and as a result of Baldino seeking greater financial transparency from Oak Hill on behalf of himself and other members.^[FN3]

Petitioners alleged in the petition that Baldino was elected to Oak Hill's board on a platform of fiscal transparency and accountability. In implementing his stated goals of greater fiscal responsibility, Baldino investigated: the "Holiday Fund", inquiring which staff members received compensation from this fund and how the level of compensation was determined ^[FN4] ; how Oak Hill's IRS 990 forms were prepared and whether they contained substantive errors ^[FN5] ; whether Oak Hill's employees (Christopher Roth and Kody Derhak, hereinafter "Roth" and "Derhak") were improperly using Oak Hill's resources for their private business venture ^[FN6] ; the terms of management compensation ^[FN7] ; and whether Oak Hill's General Manager (Chad Ellis) was improperly using Oak Hill's credit cards for personal expenses ^[FN8] .

Petitioners alleged further that respondent board members removed Baldino from the board without the required due process. Relevant herein, the petitioners alleged that such removal was predicated on the false grounds that Baldino had created a "hostile work [*3]environment" due to a negative interaction Baldino had with an Oak Hill staff person, Hanna Halpin (hereinafter "Halpin" or "the complainant").^[FN9] The interaction occurred on April 12, 2024, when a staff person in the dining room denied seating to an elderly club member. Baldino intervened and "spoke with staff to encourage them to seat the Club member for dinner". Petitioners alleged that Ellis and Sansone used this as an opportunity to force Baldino off the board.

On April 18, 2024, Baldino learned that Sansone had formed a special committee to investigate Baldino for the "hostile work environment" he allegedly created during the interaction with Halpin.^[FN10] Baldino was informed by Boardmember Philip Spellane (hereinafter "Spellane") that Spellane had been charged with investigating what had occurred. Spellane thereafter conducted witness interviews and prepared witness statements.

On April 25, 2024, Baldino received notice that a special meeting of the board would occur on May 1, 2024. The email notice stated the purpose of the meeting was to discuss "interactions between a current member of the Board and members of the OHCC staff, inclusive of a member of the Dining Room staff that occurred on Friday evening, April 12, 2024 in the hallway leading to the Legends Terrace". Baldino responded by email to Sansone outlining deficiencies in the meeting notice and informing Sansone that he had not been served with specific charges made against him. Baldino demanded the meeting be re-noticed and requested indemnification pursuant to the club's by-laws for the costs of defending the removal proceeding.

Sansone did not respond to Baldino's requests.

On May 1, 2024, Baldino and his attorney appeared for the scheduled meeting. Spellane objected to Baldino's attorney being present for the meeting. The board voted not to consider any vote on Baldino's removal at that meeting and excluded Baldino's counsel from the meeting. The board thereafter held a two-and-one-half hour meeting where Spellane outlined his investigatory determinations and circulated witness statements not previously provided to Baldino. The board did not hear from any witnesses and the witness statements provided were redacted of any identifying information.

Thereafter the parties discussed potential settlement, but the parties were unable to agree on mutually acceptable terms.

On June 18, 2024, Sansone forwarded a board meeting agenda for the scheduled meeting to occur on that date. The agenda did not state that a vote on removing Baldino would occur. However, at the board meeting Sansone and Spellane initiated a vote to remove Baldino. The vote was 8-7 in favor of removing Baldino. At the August meeting the board elected James Magee (hereinafter "Magee") to fill Baldino's purported vacancy.

Petitioners seek annulment of the respondents' decision to remove Baldino from the board and subsequent election of Magee, and indemnification of all legal fees and expenses of this action.

Additionally, pursuant to "common law and pursuant to section 621 of the Not-for-Profit Corporation Law" the Petitioners seek to inspect the books and records of Oak Hill. Petitioners seek the following corporation records: (a.) the general ledger, together with associated balance sheet (and supporting reconciliations), income statement, and statements of cash flows; (b.) copies of all: (1) customer invoices; (2) vendor invoices; (3) customer contracts; (4) vendor contracts; (5) purchase orders; (6) expense reports and supporting detail; (7) payroll registers; (8) pay authorization documents; (9) employment contracts; (10) employee bonus payments; and (11) sales tax schedules; (c.) any and all financial analysis documents prepared, including, but not limited to: (1) dues schedules (by type and by year); (2) initiation fee schedules; (3) department budgets, together with and spending analysis; (4) profitability analysis; and (5) capital projects that are completed, planned, and in process; and (d.) any and all tax documents and filings.^[FN11]

In addition to the facts alleged in the petition, petitioners allege in the proposed amended petition that in March of 2025 a review of the holiday fund was conducted by three members of Oak Hill. The review:

. . .revealed that substantial portions of member contributions to the Club's holiday fund over the years were not distributed to staff in connection with the holidays, that unpaid portions of member contributions for holiday gifts to staff were used to fund merit bonuses for a relative handful of mid-management employees, and that Governors were unaware of these aspects of handling of member contributions. The report noted that "the supervisor to staff differential [was] approximately 7-8 times on average" and that "the criteria for payment to salaried employees may not match the expectations of the membership... based upon the messaging in the annual solicitations letters." The report from such volunteers was circulated to Club members, and contained multiple recommendations for correcting and improving administration of member contributions.

Petitioners further allege that Roth and Derhak "made extensive use of Club time and resources to establish [their] private venture . . .including drafting a Club Food and Beverage Manager (Ms. Halpin) to prepare Standard Operating Procedures for the private venture."

Petitioners also assert additional facts relevant to the proceeding to remove Baldino from the board. Petitioners allege that after Baldino was elected as Governor he received complaints [*4]about another board member, Vice-President Billitier (hereinafter "Billitier") about Billitier's conduct at a club event known as "The Sizzler". At this event Billitier allowed underage attendance and drinking at the club. Following the conclusion of the event, Billitier and other attendees left the club to go to another establishment where Billitier "manhandled" the son of another member, resulting in Billitier's ejection from the establishment. On his way out of the establishment, Billitier broke the front door window of the establishment.^[FN12]

Thereafter, Baldino approached the club President, James Merkley, Respondent Phillip Spellane, then Secretary of the Board, Assistant Secretary Kaija Wadsworth, and former President David Fries, to raise his concerns. None of the board members he approached believed there was anything the club could do, or they believed conduct that occurred outside the club was "not the Club's concern". At subsequent board meetings no action was taken against Billitier.^[FN13]

The next year (on September 16, 2023), John Costello (hereinafter "Costello"), a board member, engaged in a loud, profanity-laced argument in front of other members and employees wherein he accused other members of playing ahead of him in violation of club rules. An investigation by the club's head professional resulted in a report documenting Costello's behavior.

As a result, the matter was placed on the board's agenda. Petitioners allege that unlike how Baldino was treated, the board did not establish a special committee to investigate Costello, appoint another board member to act as a "prosecutor", nor did the board require Costello to provide a written apology. The board took no adverse action against Costello.

In early 2024 Baldino moved the board to terminate GM Ellis based upon his concerns regarding Ellis' lack of transparency and accountability to the board. The motion was defeated by a vote of 8-7. Petitioners allege that this is further evidence that Sansone, Ellis, and other boardmembers who supported Ellis, had a motive to remove Baldino unrelated to their stated reason- the interaction with Halpin.

Petitioners allege that several witnesses to the event that was the ostensible reason the board removed Baldino (the interaction with Halpin) were not interviewed, including James Goff who was present in the dining room. They further allege that at the initial board meeting where the board heard from Spellane about his investigation Baldino requested that Halpin be called as [*5]a witness but was informed by Sansone that she was "too traumatized to participate". Petitioners allege that Halpin has stated under oath that at the time of the board meeting she was working at club and would have freely answered questions in front of the board. Sansone also denied Baldino's request for another witness to appear.

Petitioners allege that subsequent to the filing of their initial petition, Halpin has refuted the respondents' version of the events that lead to Baldino's removal. Halpin, under oath, has referred to portions of the witness summaries prepared by Spellane as "fabricated" and that Halpin "became convinced that certain people in positions of authority at the Oak Hill CC were using her to get rid of Baldino and that they were trying to create a paper trail of 'evidence' they could use against him". Halpin further described the investigation as a "sham" that attributed false statement to her in an attempt to remove Baldino from the board. Respondents were aware of Halpin's position but choose instead to submit a narrative in opposition to petitioners' petition that Halpin had rejected.

Petitioners allege that (in addition to the original relief in the petition) that Baldino's removal was null and void under CPLR § 7803 (3) and (4).^[FN14]

The Court, determining that there were issues of fact, ordered a trial on the petition. (CPLR § 7804[h].)

Petitioners have now served eleven (11) "trial subpoenas" on various persons, including the respondents and other individuals who are employed by respondent Oak Hill.^[FN15] The subpoenas seek the production of documents at trial, including- in sum and substance:

(1) All communications received or sent by the recipient to Christopher Roth, Chad Ellis, Karin Ellender, the "complainant",^[FN16]and/or any other Oak Hill board member between October 1, 2023 and "the present" concerning: (a) interactions between Baldino and the complainant; (b) the resultant investigation; (c) any alleged or contemplated resignation by Baldino; (d) any alleged or contemplated settlement with Baldino; (e) the alleged [*6]"cooling off" period; and (f) actions contemplated or taken against Baldino.^[FN17]

(2) Records concerning Oak Hill's "Holiday Fund" including: (a) transaction ledger for all accounts in which "Holiday Fund" contributions were made; (b) policies and procedures governing the "Holiday Fund"; (c) any communications concerning the "Holiday Fund"; (d) any records reviewed by recipient to offer opinions or recommendations to the board of governors regarding the "Holiday Fund"; (e) records of payments to supervisors and mid-level managers and employment start dates for each person paid; (f) "Records reflecting the basis of the statement to members in the August 30, 2024 solicitation of contributions to the 2024 Holiday Fund suggesting that only "If every member contributes, we will be able to provide a one-time payment covering six weeks of average compensation for employees facing temporary unemployment[]"; (g) records reflecting the dates on which Oak Hill paid laid-off employees ""a one-time payment covering six weeks of average compensation[]"; (h) records reflecting or otherwise indicating board of governor deliberations concerning severance payments made in September of 2024 to Oak Hill employees to be laid-off; (i) records reflecting the establishment of any budget pursuant to which Oak Hill would pay employees to be laid-off.

(3) Form 990s and any documents reviewed in order for the recipient to offer opinions to the Oak Hill Board of Governors regarding the 990 forms and all communication with outside accounting professionals regarding such forms.

(4) Records reflecting the club's definition of "for cause" removal of a Governor, and documents related to the September 16, 2023 incident involving Governor Costello.

(5) Records related to Ardor Park Artisanal Pizza and documents (including security footage) or communications showing use of the club's property, equipment, and/or wholesale account for Ardo Park Artisanal Pizza venture.^[FN18]

"" 'In the absence of prejudice or surprise resulting directly from the delay in seeking leave, applications to amend or supplement a pleading are to be freely granted unless the [*7]proposed amendment is palpably insufficient or patently devoid of merit' " (Toiny, LLC v. Rahim, 214 AD3d 1023, 1024, 184 N.Y.S.3d 609 [internal quotation marks omitted], quoting Myung Hwa Jang v. Mang, 164 AD3d 803, 804, 83 N.Y.S.3d 293; see CPLR 3025[b]). "The burden of demonstrating prejudice or surprise, or that a proposed amendment is palpably insufficient or patently devoid of merit, falls upon the party opposing the motion" (Ditech Fin., LLC v. Khan, 189 AD3d 1360, 1362, 139 N.Y.S.3d 293). "'A determination whether to grant such leave is within the Supreme Court's broad discretion, and the exercise of that discretion will not be lightly disturbed'" (1934 Bedford, LLC v. Gutman Weiss, P.C., 219 AD3d 1271, 1272, 195 N.Y.S.3d 761, quoting Gitlin v. Chirinkin, 60 AD3d 901, 902, 875 N.Y.S.2d 585)." (C Castle Grp. Corp. v. Herzfeld & Rubin, P.C., 237 AD3d 888, 888—89, [2nd Dept. 2025].)

As a preliminary matter, to the extent that the petitioners are alleging in the amended petition that the decision of the board to remove Baldino was not supported by substantial evidence (CPLR § 7803[4]), the motion to amend is denied. A substantial evidence issue is properly raised only in cases in which a hearing was conducted, and such hearing is "required by law". Here, the board's proceeding- if it were to be construed a "hearing"- was not a hearing mandated by law, so any relief sought under the "substantial evidence" standard of review is not applicable. (Thompson v. Burns, 118 AD3d 1276 [4th Dept. 2014].)

Upon review of the amended petition, the Court determines that the petitioners alleged sufficient facts in support of a claim under CPLR § 7803(3).^[FN19] Under the petitioners' theory as alleged in the amended complaint, the respondents' reliance upon fabricated or exaggerated facts and/or the excessive punishment of removal from the board (when similar instances of misconduct by other board members were unpunished) would support a finding that the board's actions towards Baldino were arbitrary and capricious and/ or an abuse of discretion.

"Pursuant to CPLR 7803(3), the standard of review in this CPLR article 78 proceeding is whether the determination under review was made in violation of lawful procedure, was affected by an error of law, or was arbitrary and capricious or an abuse of discretion (see Matter of Kasckarow v. Board of Examiners of Sex Offenders of State of NY, 106 AD3d 915, 964 N.Y.S.2d 650, aff'd 25 NY3d 1039, 10 N.Y.S.3d 492, 32 N.E.3d 927; Matter of Rosenberg v. New York State Off. of Parks, Recreation, & Historic Preserv., 94 AD3d 1006, 1007, 943 N.Y.S.2d 123). "'An action is arbitrary and capricious when it is taken without sound basis in reason or regard to the facts'" (citations omitted)." (Resto v. State, Dep't of Motor Vehicles, 135 AD3d 772, 773 [2nd Dept. 2016].)^[FN20]

The Court rejects the respondents' argument that as Article 78 review is limited to the record before the agency the additional allegations made by the petitioners in their amended complaint are irrelevant, and thus the proposed amendments to the petition are meritless.

The petitioners allege facts in the proposed amended petition (presumed true for the purposes of the instant motion) that the respondents conducted a sham investigation and "fabricated" evidence (i.e., the allegations surrounding Halpin) in an effort to remove Baldino because he was seeking greater fiscal transparency on behalf of the members. These facts — if established by the petitioners at the trial- would support a determination that Baldino's removal was "capricious or corrupt" or that Oak Hill "failed to administer its own rules fairly". (Purpura v. Richmond Cnty. Country Club, 114 AD2d 460, 461, [2nd Dept. 1985]; see also Kelly v. Newport Yacht Club, Inc., 44 AD3d 858 [2nd Dept. 2007].) Furthermore, the petitioners set forth sufficient facts that would support a determination that several board members who voted to remove him were personally biased against him (see e.g., Caposella v. Pinto, 265 AD2d 362 [2nd Dept. 1999]; Bloch v. Veteran Corps of Artillery, 61 AD2d 772 [1st Dept. 1978]) or that the board acted due to improper motives. (See e.g., Anonymous v. Comm'r of Health, 21 AD3d 841, 844 [1st Dept. 2005].)

At trial petitioners are not limited to the evidence that was provided to the board during the removal proceeding. Petitioners are free to present any ""competent and relevant proof * * * showing that any of the underlying material on which the [Board] based its determination has no basis in fact," or challenging the expertise of the members of the Board, or in support of his contention that the Board's determination was irrational or arbitrary (Matter of Mandle v. Brown, 5 NY2d 51, 65, 177 N.Y.S.2d 482, 152 N.E.2d 511; Matter of Newbrand v. City of Yonkers, 285 NY 164, 178, 33 N.E.2d 75; Matter of Hodgins, 196 NY 123, 126—127, 89 N.E. 423; Matter of Holy Spirit Assn. for Unification of World Christianity v. Tax Comm. of City of NY, 62 AD2d 188, 404 N.Y.S.2d 93; cf. Simpson v. Wolansky, 38 NY2d 391, 395—396, 380 N.Y.S.2d 630, 343 N.E.2d 274)." (Poster v. Strough, 299 AD2d 127, 142—43 [2nd Dept. 2002].)^[FN21]

Thus, the petitioners are entitled to amend their petition and to seek to establish at trial [*8]that the board's determination had no basis in fact or was otherwise irrational or arbitrary. (See Campaign for Buffalo Hist., Architecture & Culture, Inc. v. City of Buffalo, 204 AD3d 1531, 1533 [4th Dept. 2022].)

The Court also rejects the respondents' argument that the proposed amendment must be denied as it violates the four-month statute of limitations period. The cause of action alleged in the amended petition relates back to the original petition as the allegations in the original petition provided the respondents sufficient notice of the petitioners' amended claims.^[FN22] The original petition, and its exhibits, are replete with allegations that the motivation for the board's decision to remove Baldino was pretextual and thus arbitrary and capricious, or that the sanction imposed was so disproportionate to the offense as to be an abuse of discretion. Furthermore, the respondents have not established the requisite level of prejudice to deny the application to amend. ""Prejudice does not occur simply because a defendant is exposed to greater liability or because a defendant has to expend additional time preparing its case" (Jacobson, 68 AD3d at 654 [citation omitted])." (O'Halloran v. Metro. Transp. Auth., 154 AD3d 83, 89 [1st Dept. 2017].) As the previously scheduled trial is adjourned, respondents will have sufficient time to conduct necessary discovery and prepare for trial.

The motion to amend the petition to allow additional claims under CPLR § 7803(3) is granted.

As this is a special proceeding, discovery cannot be conducted without leave of the Court. (CPLR § 408.) The "trial subpoenas" served by the petitioners pursuant to CPLR § 2301 are impermissible discovery devices.

"A subpoena duces tecum requires production of books, papers and other things" (CPLR § 2301) and may not be used to ascertain the existence of evidence or for the purposes of discovery. "Generally, a subpoena duces tecum may not be used for the purpose of discovery or to ascertain the existence of evidence (People v. Gissendanner, 48 NY2d 543, 551, 423 N.Y.S.2d 893, 399 N.E.2d 924). "Rather, its purpose is 'to compel the production of specific documents that are relevant and material to facts at issue in a pending judicial proceeding'" (Matter of Constantine v. Leto, 157 AD2d 376, 378, 557 N.Y.S.2d 611, affd. for reasons stated 77 NY2d 975, 571 N.Y.S.2d 906, 575 N.E.2d 392)." (Matter of Terry D., 81 NY2d 1042, 1044 [1993], emphasis supplied.)^[FN23] An attempt to circumvent the prohibition on discovery by use of a subpoena duces tecum is improper. (Fabbricatore by Fabbricatore v. Lindenhurst Union Free Sch. Dist., 259 AD2d 656, 658 [2nd Dept. 1999].)

The subpoenas are overbroad. Each subpoena seeks documents that are not specifically [*9]identified; instead, the petitioners seek to ascertain the existence of evidence for use at the trial. For example, one section of the subpoenas requests "all communications (including without limitation emails and text messages)" received from or sent to [Oak Hill employees, Halpin, and any member of the board] between October 1, 2023 and June 20, 2024 concerning Baldino's interaction with Halpin, the investigation, and the subsequent board action. This request is clearly designed to ascertain the existence of evidence favorable to the petitioners for use at the trial and is an attempt to obtain discovery. Notably, the petitioners' use of "proposed search terms" — presumably to discover previously unidentified evidence- is also indicative of a discovery device, not a subpoena duces tecum.

Additionally, the subpoenas seek documents that are not relevant and material to facts at issue in this proceeding. For example, petitioners seek a copy of the "Diehl Nondisclosure Agreement", which is collateral to this action and, at best, would constitute impeachment material only. (See e.g., Valdez v. Sharaby, 258 AD2d 458, [2nd Dept. 1999]: "The purpose of a subpoena duces tecum is to compel the production of specific documents that are relevant and material to facts at issue in a pending judicial proceeding (see, Matter of Terry D., 81 NY2d 1042; Pernice v Devora, 238 AD2d 558). Here, since the subpoenas duces tecum at issue sought records simply for the purpose of gaining information to impeach the general credibility of the appellants' examining physicians, the subpoenas should have been quashed (see, Pernice v Devora, supra).")

Furthermore, as the subpoenas seek some of the financial records sought as the ultimate relief requested in the petition, they are improper. Petitioners are not entitled to obtain copies of the financial records through an impermissible discovery device as they have not established at trial the right to the relief requested. (See e.g., Wolther v. Samuel, 110 AD2d 506, 507 [1st Dept. 1985]: "Under established principles, discovery as to fiscal matters in an action for an accounting may not be obtained in the usual situation unless and until plaintiff establishes a right to an accounting (see, Kahn v. Rodman, 91 AD2d 910; Goldman v. Salzberg, 45 AD2d 680; Barnett Robinson, Inc. v. F. Staal, Inc., 43 AD2d 826; cf. Mari v. Strater, 91 AD2d 579, 580).")

As the subpoenas are palpably overbroad the Court will not ""cull the good from the bad" (People v Doe, 39 AD2d 869, 870)" (Grotallio v. Soft Drink Leasing Corp., 97 AD2d 383, 383 [1st Dept. 1983].) While some of the items demanded in the subpoenas are specifically identified, discrete documents that are relevant to the issues herein, it is not this Court's role to examine each subpoena and excise the prohibited requests. "While many of the items sought are undoubtedly relevant, it is neither plaintiff's nor this court's role to "cull the good from the bad" (Grotallio v. Soft Drink Leasing Corp., supra [citation omitted])." (Soho Generation of New York, Inc. v. Tri-City Ins. Brokers, Inc., 236 AD2d 276, 277 [1st Dept. 1997].)

The subpoenas are quashed. (Oak Beach Inn Corp. v. Town of Babylon, 239 AD2d 568 [2nd Dept. 1997].)

Petitioners have moved for interim indemnification pursuant to NPCL § 724(c).^[FN24] [*10]Petitioners seek interim indemnification of Baldino's legal fees and costs related to the board's proceeding to remove him and in the instant action. Respondents have moved for summary judgment seeking dismissal of the petitioners' indemnification claim.

Oak Hill's Constitution and By-Laws contains the following provision relevant to indemnification:

The Club shall indemnify (a) any person made or threatened to be made a party to any action or proceeding by reason of the face that he, his testator or intestate, is or was Governor or officer of the Club and (b) any Governor or officer of the Club who serves any other company in any capacity at the request of the Club, in the manner and to the maximum extent permitted by the Not-For-Profit Corporation Law of New York, as amended from time to time, and the Club may, in the discretion of the Board of Governors, indemnify all other corporate personnel to the extent permitted by law.

Not for Profit Corporation Law § 722 states:

(a) A corporation may indemnify any person made, or threatened to be made, a party to an action or proceeding (other than one by or in the right of the corporation to procure a judgment in its favor), whether civil or criminal, . . . by reason of the fact that he, his testator or intestate, was a director or officer of the corporation, . . . against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees actually and necessarily incurred as a result of such action or proceeding, or any appeal therein, if such director or officer acted, in good faith, for a purpose which he reasonably believed to be in, . . ., the best interests of the corporation and, in criminal actions or proceedings, in addition, had no reasonable cause to believe that his conduct was unlawful.^[FN25]

Petitioners argue that this language compels the conclusion that Baldino is entitled to indemnification of his expenses. Given the statutory language of the relevant N-PCL provisions, and the legislative history of N-PCL § 722 (and its analogous provision in the Business Corporation Law) the Court disagrees.

The statutory language in N-PCL §§ 722, 723, and 724 — when read as a whole- authorizes indemnification to corporate directors or officers who are defending an action or proceeding initiated under the CPLR (or other relevant authority) or CPL. N-PCL § 722 states that a corporation may indemnify any person "made, or threatened to be made, a party to an action or proceeding". By its terms, to invoke the protections afforded under the statute, the person claiming indemnification must establish that they were "made a party" to an action or proceeding. Baldino was not "made" a party, as he initiated suit in the present proceeding.

Similarly, N-PCL § 723(a) states (emphasis supplied): "[a] person who has been successful, on the merits or otherwise, in the defense of a civil or criminal action or proceeding of the character described in section 722 shall be entitled to indemnification as [*11]authorized in such section." This language clearly states that indemnification authorized under § 722 is limited to the defense of a civil or criminal action or proceeding.^[FN26]

N-PCL § 724(c), the provision cited by the petitioners in support of their interim indemnification claim, states: "[w]here indemnification is sought by judicial action, the court may allow a person such reasonable expenses, including attorneys' fees, during the pendency of the litigation as are necessary in connection with his defense therein, if the court shall find that the defendant has by his pleadings or during the course of the litigation raised genuine issues of fact or law." (Emphasis supplied.)

Applying these statues "harmoniously and consistently as [the Court is] required to do (McKinney's Cons Laws of NY, Book 1, Statutes § 221)" (Biondi v. Beekman Hill House Apartment Corp., 94 NY2d 659, 666 [2000]) the Court concludes that the statues only allow for indemnification when a director is defending a third-party action or proceeding (or a derivative action).

The Court declines to extend the boundaries of "proceeding" as used in the N-PCL and BCL provisions to include the board's actions in removing Baldino.^[FN27] The relevant provisions contemplate "indemnif[ication] . . . [of] any person made, or threatened to be made, a party to an action or proceeding . . ., whether civil or criminal, . . . against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees actually and necessarily incurred as a result of such action or proceeding, or any appeal therein . . ." (Emphasis supplied.) Adopting the petitioners' argument would result in a statutory interpretation that would expand the right to indemnification beyond that contemplated by the statutes and legislative history. The statutory scheme clearly contemplates indemnification being subject to the successful defense of either a third-party action or proceeding as defined by the CPLR, BCL, N-PCL or CPL and not internal corporate actions that involve potential adverse consequences to a corporate officer or director.^[FN28]

Furthermore, the relevant section relating to derivative actions (N-PCL § 722[c]) clearly limits relief only to directors who are the subject of an "action" that has been filed. The statute excludes from relief costs incurred prior to an action being filed, or which is settled: "except that no indemnification under this paragraph shall be made in respect of (1) a threatened action, or a pending action which is settled or otherwise disposed of". (N-PCL § 722[c].) The board's removal of Baldino was not an "action" contemplated by the relevant statute.

The terms "action" and "proceeding", and "litigation" should be given their meaning under the relevant CPLR and CPL provisions (absent a contrary definitional provision in the N-PCL or BCL). Those terms are specifically defined to include third-party plenary actions, special proceedings, or criminal actions initiated under the relevant Criminal Procedure Law provisions. The board's actions in removing Baldino would not constitute an action or proceeding under any of the relevant statutes. "Business Corporation Law § 722 (a) and (c) allow corporations to indemnify directors against third-party actions and derivative suits, respectively. Section 722 (a) permits indemnification against judgments, fines, settlement payments and reasonable litigation expenses, while section 722 (c) limits indemnification to settlement payments and litigation expenses." (Biondi v. Beekman Hill House Apartment Corp., supra at 64.)

Additionally, the legislative history of the relevant provisions supports the respondents' argument that only a successful defense of a formal action or proceeding (i.e., litigation) is subject to potential indemnification (either third-party actions [N-PCL § 722[a] or derivative actions [N-PCL § 722[c]). Expenses incurred for prosecuting an action against the corporation are not recoverable. (See e.g., Warnecke v. Forty Wall St. Bldg., Inc., 16 Misc 2d 467, 468 [Sup. Ct. 1959], aff'd sub nom. Marine Midland Tr. Co. of NY v. Forty Wall St. Corp., 13 AD2d 630 [1st Dept. 1961]: "It thus appears that the moving defendants performed no services whatever 'in connection with the defense of such action' (General Corporation Law, § 64), but, on the contrary, joined in the prosecution of the action. It follows that they are not entitled to avail themselves of the right to reimbursement of their expenses conferred by section 64, supra.")^[FN29]

The Court of Appeals decision in Baker v. Health Mgmt. Sys., Inc. (98 NY2d 80 [2002]) is instructive. In Baker, the Court analyzed the legislative history of BCL § 723(a) (the analogous provision to N-PCL § 722), noting that the first legislative treatment on corporate indemnification "authorized indemnification of expenses incurred "in connection with the defense of" an action commenced against individuals in their capacity as directors, officers or employees (see L. 1945, ch. 869, § 4, adding General Corporation Law § 64 [emphasis added])." [*12](Id. at 85 [emphasis in original].)^[FN30]

The Baker Court continued:

In 1961, the Legislature enacted a general revision of the Business Corporation Law, including former section 723(a), the predecessor of current section 722(a). Former section 723(a) was the first specific provision directed at the indemnification of officers and directors sued in those capacities in actions and proceedings other than derivative suits. It set forth the same operative language at issue here: directors and officers could be indemnified "against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees actually and necessarily incurred as a result of such action or proceeding" (L. 1961, ch. 855 [emphasis added]). Focusing on suits complaining of the acts of officials taken on behalf of their corporate principals, the new provision was intended expressly "to codify the common law principle that directors or officers are indemnifiable by the corporation for expenses incurred and amounts paid in actions or proceedings, other than derivative actions" (Joint Legis. Comm. to Study Revision of Corporation Laws, Revised Supp. to Fifth Interim Report to 1961 Session of NY State Legislature, 1961 NY Legis. Doc. No. 12, at 54).

The Baker Court continued to refer to indemnification only in the context of defending "suits": ". . . the objective was to codify and apply indemnification principles under the law of agency in the context of suits against corporate officials based on their conduct. . ." (Id. at 86); "He cited to "the often enormous expenses of litigation incurred (and judgments or fines suffered) in the defense of such suits and, in a sense, in defense and vindication of corporate policy" (id. at 574 [emphasis added])." (Id. at 86 [emphasis in original]).^[FN31]

Thus, the legislative history of the relevant statutes supports the respondents' argument [*13]that a corporate director is only eligible for indemnification when defending third-party actions or proceedings.

Although the standard for interim indemnification is not a stringent one, Baldino has failed to meet his burden that he is entitled to interim indemnification under N-PCL § 724. "Under N—PCL 724(c), a court may direct a corporation to advance legal fees to a director "during the pendency of the litigation as are necessary in connection with his defense therein, if the court shall find that the defendant has by his [or her] pleadings or during the course of the litigation raised genuine issues of fact or law." With respect to the advancement of fees, courts have consistently observed that the governing standard "is not a stringent one" (citation omitted) and is "a far less demanding standard than that necessary on a motion for summary judgment" (citations omitted)." (Kaloyeros v. Fort Schuyler Mgmt. Corp., 157 AD3d 1152, 1153 [3rd Dept. 2018], emphasis added.) The board's actions in removing Baldino cannot be considered an "action", a "proceeding", or "litigation" and he is not entitled to indemnification for the costs of defending against his initial removal. Nor is Baldino defending against a suit in the instant action — he has initiated suit against Oak Hill. Recovery of attorneys' fees and costs for a director initiating a suit against a corporation is not contemplated by the relevant statutes.

The petitioners' motion for interim indemnification pursuant to N-PCL § 724(c) is denied.

The respondents' motions for summary judgment dismissing the petitioners' claim for indemnification are granted.

A party seeking summary judgment pursuant to CPLR 3212 must make prima facie showing of entitlement to judgment as a matter of law and submit sufficient evidence to demonstrate the absence of any material issue of fact. (Iselin & Co. Inc v Landau, 71 NY2d 420 [1988].) Summary judgment may only be granted when "it has been clearly ascertained that there is no triable issue of fact outstanding; issue finding, rather than issue determination, is its function". (Suffolk County Dep't of Soc. Servs. v James M., 83 NY2d 178, 182 [1994].) Only when the proponent demonstrates entitlement to summary judgment, the opposing party must then demonstrate, generally by admissible evidence, the existence of an issue of fact requiring a trial. (Zuckerman v City of New York, 49 NY2d 851 [1985].)

There are no material factual disputes relevant to the issue of whether Baldino is entitled to indemnification under N-PCL § 722 et seq. The determination of whether Baldino is entitled to indemnification is an issue of law only, and as noted above, the Court determines that the board's actions in removing Baldino did not constitute an action or proceeding under the relevant statutes.

Based upon the foregoing, and the papers submitted herein,^[FN32]

ORDERED that the respondents' motion to quash (motion # 4) is granted; and it is further

ORDERED that the petitioners' motion for interim indemnification and to supplement their response to respondents' motion to quash (motion #5) is denied; and it is further

ORDERED that respondents' motions for summary judgment seeking dismissal of the petitioners' claims for indemnification (motions #6 and #7) are granted; and it is further

ORDERED that the petitioners' motion to amend the petition (motion #8) is granted in part, and denied in part; and it is further

ORDERED that the petitioners' proposed amended petition is accepted as filed, with the exception of the claim for relief under CPLR § 7803(4), and the respondents shall serve an answer to the petition within twenty (20) days of notice of entry of this Decision and Order; and it is further

ORDERED that respondents' motions to stay discovery pending resolution of the above motions are dismissed as moot.

This constitutes the Decision and Order of the Court.