Corporate Governance Meets the Constitution: A Case Study of Nonprofit Membership Corporations and Their Associational Standing under Article III
Steen, Charles H., Hopkins, Michael B., The Review of Litigation
Charles H. Steen and Michael B. Hopkins*
Courts in the Fifth Circuit continue to wrestle with the rules of associational standing under Article III of the Constitution1 that apply to nonprofit corporations that bring environmental citizen suits as representatives of their "members." This Article analyzes the associational standing of nonprofit corporations under Article III by focusing on the governance structure of the two nonprofit corporations whose lawsuits have split the Fifth Circuit's district courts, and concludes that for a nonprofit corporation to have associational standing to represent its members, those members must have voting control of the corporation's board of directors. In this way, nonprofit directors are made accountable to the members and, therefore, actually represent the members. Without this accountability requirement, nonprofit corporations lack the "grass roots" quality at the heart of associational standing.
A. An Overview: Public Interest Organizations Are Often Organized as Nonprofit "Membership" Corporations
It is not surprising that public interest organizations are often organized as nonprofit corporations.2 The corporate form has familiar advantages, including separate legal existence, limited liability of equity holders, infinite lifetime, and the capacity to sue and be sued. Moreover, some jurisdictions-for example, Washington, D.C.grant nonprofit corporations special protections, such as immunity from civil liability for the tortious acts of volunteers.3 For most purposes, taking the corporate form does not present special or interesting problems. Nonprofit corporations-just like any legal person-may lobby legislatures, conduct business, sue and be sued, and so on. However, interesting problems can arise when nonprofit corporations assert Article III standing in federal court and seek to represent the interests of members.
B. The Fifth Circuit Will Likely Establish the General Federal Law of Associational Standing in Cases Involving Nonprofit Corporations as Putative Plaintiffs on Behalf of Their Members
Two cases at different stages of decision in the courts of the Fifth Circuit, Friends of the Earth, Inc. v. Chevron Chemical Co.4 and United States Public Interest Group v. Bayou Steel Corp. ,5 illustrate some of the special associational standing problems that may arise when nonprofit corporations seek to represent their members in federal court. Further, because the members of nonprofit corporations do not normally have the clear financial interest characteristic of shareholders-and, therefore, lack the strong monitoring incentives generally thought to discipline publicly held corporations-courts should exercise heightened vigilance to guard against misuse of the corporate form in the name of the public interest. Accordingly, this Article should interest not only the many public interest organizations that bring citizen suits in federal court, but also those entities who must defend themselves against such actions.
II. An Overview: Associational Standing of Nonprofit Corporations Devising a Concise Test for Associational Standing Using the legal device of "associational standing," a membership organization can invoke federal court jurisdiction in the organization's own name to press claims most easily identified with one or more of the organization's individual members.6 Associational standing, a species of general constitutional standing, ultimately derives from the "case or controversy" requirement of Article III.7 Hence, to have standing in any capacity, a plaintiff must, at a constitutional minimum, plead and ultimately prove: (1) an injury in fact-that is, an invasion of a legally protected interest that is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical; (2) a causal connection between the injury and the conduct complained of-that is, the injury has to be fairly traceable to the defendant's challenged action; and (3) that it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision. …