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Newsletter > January 2014 > "Who Owns the Sorority House?"
Who Owns the Sorority House?
Alpha Omicron Pi (AOΠ) is an international women’s fraternity founded in 1897. AOΠ’s Tau chapter has existed at the University of Minnesota since 1912. As early as 1921, the local alumnae organized a Minnesota corporation to provide housing for the undergraduate members of the Tau chapter. The current name of that corporation is Tau, Inc. In 1931, real property in Minneapolis was donated to the corporation for use as the Tau chapter’s house. It has been used for that purpose ever since. Title to the house is held in the name of Tau, Inc. Many fraternities and sororities provide undergraduate housing throughout North America using this house corporation model.
AOΠ’s Plan to Control All Housing
In 2001, AOΠ created a subsidiary called “Alpha Omicron Pi Properties, Inc.” The purpose was to centralize management of its affiliated sorority houses through two programs run by the subsidiary: Corporation Services, which offers property management services, and Billhighway, an Internet-based financial management system. AOΠ sought to require all chapters and affiliated house corporations to begin using these two programs.
AOΠ then went a step further and requested that all of its affiliated house corporations amend their articles of incorporation to include two new clauses:
The corporation is a wholly owned subsidiary of Alpha Omicron Pi Fraternity, Inc., a Tennessee not-for-profit Corporation. Alpha Omicron
Pi Fraternity, Inc. is the only member with voting authority.
In the event that ___________ Chapter is closed, after all financial obligations of the chapter and corporation have been satisfied, all remaining assets, real and personal, tangible and intangible, shall be transferred to Alpha Omicron Pi Fraternity, Inc. a Tennessee not-for-profit corporation; and unless there is a ruling to the contrary by Alpha Omicron Pi Fraternity, Inc. the corporation shall be dissolved.
Tau, Inc. Resists
The alumnae members of Tau, Inc. resisted these initiatives from AOΠ. In 2009, AOΠ demanded that Tau, Inc. transfer its corporate funds to Billhighway under threat of placing the Tau chapter on probation. Next, AOΠ demanded that Tau, Inc. start using Corporation Services, and also that it transfer title to the house to either AOΠ Properties or to AOΠ itself. Tau, Inc. refused. AOΠ threatened to remove Tau, Inc.’s board of directors if it did not agree to use Corporation Services. In 2010, Tau, Inc. acquiesced to that demand. However, Tau, Inc. continued to refuse to transfer title to the house itself, and refused to add the requested language to its articles of incorporation.
During 2010 and 2011, Tau, Inc. paid Corporation Services and Billhighway thousands of dollars in fees while expressing dissatisfaction with the services provided and the lack of local control. To those objections, AOΠ replied that Tau, Inc. was now a “managed” corporation controlled by AOΠ Properties, not local alumnae.
AOΠ Ups the Ante on Property Control
In February 2012, AOΠ enacted a number of Standing Rules. Among them was the requirement that all chapters and house corporations must comply with the regulations of the Fraternity. Additionally, the Standing Rules purported to give AOΠ direct control over the various house corporations. Furthermore, the Standing Rules purported to give AOII direct ownership of all houses, whether or not titled in local house corporations:
“Although chapter real estate interests may from time to time be titled in the name of a specific chapter corporation and/or Alpha Omicron Pi Properties, Inc., all such real estate interests and other assets are assets of the Fraternity and are subject to its control, oversight and management.” (Emphasis added.)
Perhaps more ominously from the perspective of a local house corporation like Tau, Inc., AOII Properties established a collectivist International Housing Approach (IHA). Pursuant to this program, AOII announced an intention to pool its real estate assets and leverage those assets to build or refurbish chapter houses, or even require one house corporation to make a loan to another, all without local approval.
AOΠ’s Takeover of Tau, Inc.
In 2011, AOΠ attempted to change Tau, Inc.’s registered agent to its own selection. Tau, Inc. changed it back. In early 2012, AOΠ notified Tau, Inc. that it was scheduling a board meeting for March. At this point, Tau retained counsel, and sent a letter to AOΠ objecting to the “unlawful assertion of control over Tau Corporation’s affairs.” The meeting was cancelled.
In April 2012, the dispute escalated. AOΠ sent a letter to Tau, Inc. notifying the local alumnae that it was necessary for AOΠ to assume control of the corporation. Tau, Inc.’s board members were informed that they no longer had any authority to act, and that employees of AOΠ Properties would be taking over as interim board members. Additionally, the Tau, Inc. board members were threatened with suspension of their AOΠ memberships if they continued to resist these demands.
Tau, Inc. did not back down. It replied to AOΠ’s letter by asserting that AOΠ had no legal authority to take over the corporation. In October 2012, Tau, Inc. held its annual meeting and re-elected its six-member board.
The newly-elected board held a meeting at the Tau chapter house in December 2012. The AOΠ Executive Director and another employee arrived, and handed the board members letters informing them that their memberships in AOΠ were suspended. The board members were also informed that they could face criminal trespass charges if they entered the chapter facility. The two AOΠ employees then conducted a board meeting themselves. They first removed the existing directors and appointed their own choice as sole director. That director then appointed AOΠ’s choices as officers. Finally, the meeting purported to amend Tau, Inc.’s articles and bylaws in the manner desired by AOΠ. None of the persons who took these actions were previously voting members of the corporation.
Tau, Inc. Files Suit
Two weeks after the December 2012 board meeting, Tau, Inc. filed suit against AOΠ and AOΠ Properties in the U.S. District Court for the District of Minnesota.1 They alleged various theories of liability. Tau, Inc. sought a preliminary injunction against AOΠ, claiming that AOΠ had illegally taken over its corporate governance and was threatening to mortgage or sell its real property via the IHA.
Tau, Inc. and AOΠ filed multiple declarations and exhibits in support of their respective positions. Each party presented what it claimed were the operative bylaws for Tau, Inc., which were essentially the same – except AOΠ’s version included the language, “Operations of the Corporation shall be in conformance with the regulations of Alpha Omicron Pi Fraternity Inc.”
The Court Issues an Injunction
On September 23, 2013, District Judge John R. Tunheim issued an injunction against AOΠ in a 37-page written opinion. The court noted that the ultimate decision in the case likely depends on which version of Tau, Inc.’s bylaws controls. Assuming that the version presented by Tau, Inc. controls, then Tau, Inc. will likely prevail as AOΠ has no authority over the corporation. The court noted that AOΠ was relying on its own Standing Rules as the basis for its claim of control over Tau, Inc. and its property. The court held that a mere statement in one corporation’s bylaws that it controls the property of another entity “does not make it so… for example, if AOΠ’s bylaws said that it has the right to control the Walt Disney Company, that provision would have no legal effect and would not be binding upon the Walt Disney Company.”
The court also noted that AOΠ’s unquestioned authority over the Tau chapter does not give it control over an affiliated alumni corporation: A chapter is an unincorporated association of students who have come together voluntarily; a corporation, on the other hand, is a separate legal entity recognized by a state.
The court also noted that even if the version of the bylaws presented by AOΠ were found to control, Tau, Inc. would still likely prevail. The application of the Standing Rules, giving AOΠ unfettered discretion to control the corporation – including unilaterally removing its board – would likely be unreasonable as written and applied.
The court ordered the prior Tau, Inc. board members reinstated. AOΠ was enjoined from interfering with Tau, Inc’s ownership and control of its real property, although Corporation Services was allowed to continue managing the property per the written agreement between the parties. These orders will remain in effect pending resolution of the case.
The injunction issued by Judge Tunheim is merely a provisional remedy; the ultimate outcome of the case is uncertain. But this battle over control of a particular chapter house, and the larger issue of international vs. local control that it represents, has implication for all fraternities and sororities who wish to impose uniform standards in regard to their housing.
Mr. Harvey is an attorney in Orange County, California and a member of Phi Delta Theta.
1 Civil No. 12-3141 (JRT/JSM)