Wednesday, July 19, 2017
LACBA’s Interim CEO Misinforms Trustees, Calls for Imprudent Action
By ROGER M. GRACE
The Los Angeles County Bar Association’s bombastic interim chief executive officer put forth a proposal at last Wednesday night’s Board of Trustees’ meeting that strikes me as calling for just the opposite of what ought to be done.
As to his portrayal of the course he recommends being compulsory…well, it’s just not so.
Rick Cohen insisted that there is a need to amend the bylaws to reflect the organization’s true status as a “public benefit corporation.”
The articles of incorporation merely indicate that the association “is organized pursuant to the General Nonprofit Corporation Law”; the bylaws identify it as a “mutual benefit corporation,” which is how the Office of Secretary of State lists it.
The interim CEO told trustees:
“For tax purposes, we are, in fact, a mutual benefit corporation. For corporate law purposes, we’re actually forbidden by the statute to be a mutual benefit association. We have to be a public benefit corporation.
“So, I have to make that amendment. If you don’t believe me, look in the book.”
The reason LACBA can’t be a mutual benefit corporation, he asserted, is that “our charter says that upon dissolution, none of our assets go to our members.”
Five members of the board signed a hand-printed proposal to recommend making the bylaw change that Cohen declared to be mandatory. Under a bylaw provision, those five signatures enabled consideration of the proposed change “at any meeting thereafter.” The next board meeting was slated for Aug. 23.
But that was apparently not soon enough for Cohen.
In a separate matter, it was agreed by trustees that there would be an adjournment of their July 12 meeting to July 26 to consider, after staff assembled responses to concerns that had emerged, whether to file a proposal in response to a request for proposals by the county, in connection with a free-legal-services program. A decision could not be put off until Aug. 23 because proposals are due Aug. 2.
Cohen on Monday sent out a notice that the proposed bylaw change will be acted upon on July 26…though no similar urgency exists with respect to it.
With respect to the gathering of five signatures, it’s debatable whether the July 26 meeting is one that is “thereafter,” or whether it is the same meeting, reconvened.
What matters is that Cohen is trying to ramrod a measure through. There’s been quite enough ramrodding in LACBA in the recent past. And this particular proposed measure is one with highly meaningful consequences.
Changing the bylaw is far from mandatory; indeed, it would be a rash blunder. Rather than tinkering with the bylaws, the articles can, and should, be amended to preserve LACBA’s status as a mutual benefit corporation.
Reasons why LACBA should not become a public benefit corporation are set forth below. The salient point is that Cohen’s proclamation that “[w]e have to be a public benefit corporation” is patently false. Too, his springing the matter on them at the meeting without it having been on the agenda was irresponsible.
It’s true that Art. 9 of the articles of incorporation prescribes distribution, should LACBA go kaput, other than to the membership. Cohen did not, however, direct attention to the statute supposedly requiring that a dissolved mutual benefit corporation distribute assets to members.
In response to an inquiry I emailed to him, he pointed on Monday to Corporations Code §7111, pertaining to mutual benefit corporations. It says:
“Subject to any other provision of law of this state applying to the particular class of corporation or line of activity, a corporation may be formed under this part for any lawful purpose; provided that a corporation all of the assets of which are irrevocably dedicated to charitable, religious, or public purposes and which as a matter of law or according to its articles or bylaws must, upon dissolution, distribute its assets to a person or persons carrying on a charitable, religious, or public purpose or purposes may not be formed under this part.”
LACBA’s Art. 9, as presently worded, does direct that assets go, upon dissolution and after payment of debts, to “charitable or educational” entities.
Those entities, under the articles, must be ones that serve the enumerated purposes for which LACBA was formed, including advancement of “the science of jurisprudence,” promoting “the administration of justice” and encouraging “a thorough legal education for all candidates for admission to the bar.”
Art. 9 could simply be amended to recite that the assets would go to other mutual benefit corporations with purposes akin to LACBA’s. The statutory provision Cohen points to does not, contrary to his characterization of it, require distribution to members of a mutual benefit corporation; it merely bars distribution to groups with “charitable, religious, or public purpose or purposes.”
More simply, Art. 9 could be stricken (a dissolution plan is not one of the mandated provisions in articles, under §7130)—which would preserve LACBA’s status as a mutual corporation—but assets, then, could not be diverted to other bar groups. §8717 provides, in part: “(a) If the articles or bylaws provide the manner of disposition, the assets shall be disposed of in that manner. [¶] (b) If the articles or bylaws do not provide the manner of disposition, the assets shall be distributed among the members in accordance with their respective rights therein.”
The preferable solution would seem to be amending Art. 9.
Why should LACBA not be a public benefit corporation?
That type of corporation, §5111 provides, is created “for any public or charitable purposes.”
A professional association, on the other hand, is formed to advance interests of the profession and its members. If incorporated, it would logically be a mutual benefit corporation, not one formed to advance the interests of the public, in general.
Indeed, a major theme of the reform movement—that brought into office, through elections, Michael E. Meyer as president, Brian Kabateck as president-elect, Tamila Jensen as senior vice president, and Phil Lam as vice president, and most of those who are now trustees—was that LACBA had lost sight of its duty to serve its members.
Just consider what ammunition 2015-16 President Paul Kiesel and those of like mindset would have had if they had been able to defend the now widely-repudiated siphoning of funds from LACBA’s coffers and giving them to charitable causes, despite the association’s deficit, had they been able to proclaim:
“Remember—this is a public benefit corporation, not a corporation to benefit lawyers.”
They could not so proclaim, then. Yet, those who would prefer LACBA to be a charitable group, rather than one serving lawyers, could truthfully bellow those words in the future if the bylaw change Cohen seeks were to be enacted a week from today.
Did Cohen gain his one-year “gig” as interim CEO, backed by 2016-17 President Margaret Stevens, a Kiesel ally, by pledging an effort to convert LACBA into an entity which, by nature, would be devoted to charitable causes, as opposed to the interests of members of the legal profession? Or is he simply ignorant of the wide-ranging implications of the proposal he put forth, inaccurately but in good faith insisting that the trustees are legally compelled to adopt it?
Or is there some other explanation of his actions?
There’s evidence that Cohen does well comprehend that transforming LACBA into a public benefit corporation would alter its nature. He said at the trustees’ meeting that if it made a proposal to the county to provide legal services, free to recipients, and it were accepted, this would have to be through the Counsel for Justice (a public benefit corporation tethered to LACBA) because the activity would relate to charitable rather than professional endeavors.
In any event, delightful as it is to be rid of Sally Suchil as CEO, I question whether Cohen is one bit of an improvement. The one-year limit on his employment as “interim” CEO is encouraging, but termination of the employment sooner than that might well be in the association’s interests.
A few bar associations are unincorporated. However, the form which bar associations throughout the state take, commonly, is that of a mutual benefit corporation. While LACBA hardly need march lockstep with other county bars, there is no warrant for it to become a virtual maverick in this instance.
A quick look at public records shows that the status of a mutual benefit corporation is enjoyed by the county bar associations of Alameda, Butte, Contra Costa, El Dorado, Fresno, Kern, Los Angeles, Marin, Mono, Napa, Orange, Placer, Riverside, San Bernardino, San Diego, San Francisco (city-county), San Joaquin, San Luis Obispo, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Tulare, Tuolumne, and Ventura.
That’s not every county (it’s 26 out of 58), but not every county has a countywide bar association, not every bar association is incorporated, and my less-than-intensive search might well have missed some.
The Yuma-Sutter Bar Association, a bi-county bar group, is the only entity resembling a county bar I’ve come across that is a public benefit corporation.
Many local and ethnic bar associations within Los Angeles County are mutual benefit corporations. They include the Antelope Valley Bar Association, Beverly Hills Bar Association, Black Women Lawyers Association of Los Angeles, Inc., Century City Bar Association, Criminal Courts Bar Association, Glendale Bar Association, Iranian American Lawyers Association, Italian American Lawyers Association of Southern California, Japanese American Bar Association, Korean American Bar Association of Southern California, LGBT Bar Association of Los Angeles, Long Beach Bar Association, Mexican American Bar Association of Los Angeles County, Pasadena Bar Association, San Fernando Valley Bar Association, San Gabriel Valley Bar Association, Santa Monica Bar Association, Southern California Chinese Lawyers’ Association, and the Women Lawyers’ Association of Los Angeles.
The only bar groups in the county I’ve spotted that are public benefit corporations are the Armenian Bar Association and the John M. Langston Bar Association of Los Angeles, Inc.
Various charitable foundations that are linked to bar associations are, appropriately, incorporated as public benefit corporations.
Should LACBA opt to amend its articles to state how assets would be distributed if it ceased to exist, in a different manner from what is now in Art. 9, and retain its status as a mutual benefit corporation, it has guidance from bylaws of other lawyers’ groups that are corporations of that species. For example:
• San Francisco Bar Association:
“In the event of a winding up or dissolution, after paying or adequately providing for the debts and obligations of the Association, the directors shall dispose of any remaining assets for legal educational purposes in such manner as may be directed by decree of the Superior Court of the State of California in and for the City and County of San Francisco upon petition filed for that purpose by said directors.”
• Marin County Bar Association:
“On the dissolution or winding up of the Association, its assets remaining after payment of, or provision for payment of, all debts and liabilities of the Association, shall be distributed to the State Bar of California, if it is then in existence; but if it is not then in existence, to one or more organizations, corporations, or foundations, as determined by Majority Vote of the Board, that serve or promote the purposes of the Association.” (The wording of the Sonoma County Bar Association provision is nearly identical.)
• Glendale Bar Association:
“In the event of a winding up or dissolution, after paying or adequately providing for the debts and obligations of the Association, the directors shall dispose of any remaining assets for legal educational purposes in such manner as may be directed by decree of the Superior Court of the State of California in and for the City and County of Los Angeles upon petition filed for that purpose by said directors.”
There are other examples, but this should make the point.
The immediate point is that LACBA’s articles of incorporation can be amended so as to render its mutual benefit corporation status unassailable. Other points are: its status needs to be retained; Cohen’s effort to push LACBA into the category of a charitable outfit rather than a professional association is suspect as to motivation, and certain as to its inanity.
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