Phi Delta Theta attorney affidavit 10/24/05

STATE OF NEW YORK
SUPREME COURT COUNTY OF MADISON
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CHARLES H. SANFORD, III, JOHN R. WILLARD,
NORMAN J. PLATT, PETER O. HANSON, et al.,
representing at least five percent of the members of
New York Zeta of Phi Delta Theta Corporation,
A New York Not-For-Profit Corporation, on behalf of
All Other Members Similarly Situated, AFFIDAVIT
Index No. 05-1514
Plaintiffs, Hon. William F. O’Brien III

-vs-

COLGATE UNIVERSITY,
a New York Not-For-Profit Corporation,

Defendant.
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STATE OF NEW YORK )
COUNTY OF ONONDAGA ) ss:

KEVIN E. HULSLANDER, ESQ., being duly sworn deposes and says:
1. I am an attorney licensed to practice law in the State of New York and a member of the law firm Smith, Sovik, Kendrick & Sugnet, P.C., attorneys for plaintiffs in this action. I make this affidavit in opposition to defendants’ motion to dismiss.
2. There is no doubt that Colgate University coerced Phi Delta Theta and other fraternities to sell their Chapter Houses. There is no doubt pursuant to Colgate’s New Vision Residential Plan, that Phi Delta Theta would have ceased to exist if it did not sell its house to Colgate. Colgate unequivocally stated that if a particular fraternity failed to sell its Chapter House to Colgate, then Colgate would de-recognize the fraternity and expel students who lived there.
3. Colgate specifically represented that it would suspend or expel students who participated in or associated with a de-recognized fraternity. Because Colgate would not permit any Colgate student to live in a house not owned by Colgate beginning in the Fall of 2005, PDT Corp. would be forced out of existence because it would have no revenue from its residents.
4. Under those oppressive circumstances, the Board recommended the sale.
5. Furthermore, there is no doubt that plaintiffs in this case are loyal members of Phi Delta Theta and have been hesitant to cast any blame upon the Board for the coerced sale of their real property. In an unsworn letter to the members of Phi Delta Theta, I stated that this lawsuit is not a typical derivative action. In my letter, I stated that plaintiffs’ quarrel was with Colgate. To the extent that I stated that I did not expect this lawsuit to involve the Board, I meant that the Board and its members would not become parties to the lawsuit. Here, the Board, just like the non-Board members, were coerced and threatened into the sale.
6. PDT Corp. is not a large corporation with public stock. There is no allegation here that the Board would obtain personal monetary gain from the sale of the Chapter House to Colgate. Indeed, there is no allegation here that the Board was derelict by giving itself and/or its officers’ lucrative compensation packages as is also the case in many derivative actions. The Board did not act with “evil” or “sinister” intent - typical of allegations one sees in a typical derivative action. The claim is that Colgate usurped control over the Board of Directors of PDT Corp. by economic duress and coercion. As a result of this wrongful and undue influence, Colgate essentially took PDT Corp.’s property and Chapter House allowing it almost no discretion to say no.
7. These facts make the instant case strikingly different than most derivative actions. The statements made in my July letter to the members may have been misinterpreted by defendant’s counsel. In the first instance, I was reassuring members that the Board was not a defendant.
8. In the instant case, the Board was charged with the obligation to fairly and honestly represent the interests of the fraternity in its dealings with Colgate on the sale of the property. The Board was obligated to evaluate all the information at its disposal for the purpose of making the right decision. Indeed, the plaintiffs in this case want to believe that their Board represented them fairly and it was my belief that it did when I wrote to the membership in July.
9. Giving the Board every benefit of the doubt, the gravamen of plaintiffs claim is that the Board exercised no business judgment in recommending the sale because Colgate, through threats, coercion, duress and totally unequal bargaining power, placed the Board in a position that no other choice could be made other than to sell. Indeed, Colgate threatened to suspend or expel students if the property was not sold and the brothers attempted to continue to function as a group. This threat was, by all accounts, what prompted the sale of the property on Colgate’s terms. Initially, we did not claim any breach of loyalty by the Board because the Board had no discretion or free will to make any decision other than to sell the house to Colgate. Because of this fact, the business judgment rule does not apply.
10. Through its correspondence with the Brothers, the Board confirmed on many occasions that it had no choice but to sell. It is well documented that Board members Steven Zatta and Bruce Clayton repeatedly stated to the membership prior to the sale that Colgate “has a gun to our heads” with respect to the sale and that there was only take one course of action to follow -- sell or lose the fraternity.
11. Indeed, having no choice, under these unique facts, does not make the decision to sell a “business judgment.” Exercising business judgment contemplates exercising some amount of discretion and free will to make a choice between two or more alternatives. Here, the Board was never given an alternative.
12. Nonetheless, since my letter in July, facts have come to my attention revealing evidence that the Board did not adequately evaluate alternatives to sale, did not inform the membership of certain critical information prior to the vote and refused to sue for rescission of the sale agreement due to the continued undue influence of Colgate and its unequal bargaining power.
13. As evidenced in Norman Platt’s affidavit submitted herewith, there is strong evidence that the Board was subjected to improper control or was otherwise not in a position to exercise fair, honest and independent judgment. When confronted with Colgate’s material misrepresentations regarding the purpose for the sale of the fraternity houses, (i.e., that incidents at the fraternities presented specific safety concerns calling for more control by Colgate, when the incidents at the dormitories outnumbered fraternity incidents 1778 to 10), the Board refused to consider permitting a vote based upon these true facts.
14. Although plaintiffs, loyal Phi Delta Theta Brothers, have blamed Colgate’s coercion, oppression and unequal bargaining power for the inequity caused by the New Vision plan, there is evidence that some of the Board members did have conflicting interests, resulting in an inadequate evaluation of the decision to sell. Indeed, the Brothers relied on Mr. Clayton’s judgment and zeal in representing their interests. Based on correspondence from Colgate, Mr. Clayton apparently agreed with the sale in November 2003 and never told the members. The Board’s numerous representations that it “negotiated” with Colgate for two years, appears to be no more than pretext.
15. Furthermore, the mere fact that Mr. Zatta affirmatively supports Colgate’s motion to dismiss buttresses our claim of coercion and economic duress. Zatta clearly acquiesced to pressure by Colgate in making this affidavit; he has repeatedly admitted that the fraternity had no choice but to surrender to Colgate’s “gun to the head” approach. The fact that he failed to inform the Court of his previous admissions which essentially support plaintiffs’ claim is a clear example of the power that Colgate has over him and the Board.
16. The coercion, duress, unequal bargaining power, material misrepresentations, and the Board’s acquiescence to it, forms the primary basis for this derivative action. We believe that the complaint states a cause of action and that we’re entitled to discovery in this important matter. At the very least, there’s a question of fact on the business judgment of the Board. To the extent the Court finds that the complaint does not plead a cause of action, we respectfully request an opportunity to amend the complaint to specifically allege that the Board breached its duty of loyalty to the membership as a result of the coercion, duress and wrongful conduct of Colgate.
WHEREFORE, Plaintiffs respectfully request that this Court deny Colgate University’s motion to dismiss; permit Plaintiffs to amend their complaint; order discovery on these issues;

and for such other and further relief as the Court deems just and proper.
___________________________
Kevin E. Hulslander

Sworn to & subscribed before me
this 24th day of October, 2005.

___________________________
Notary Public

Students & Alumni for Colgate, Inc.
2707 E. Willamette Lane, Greenwood Village, CO 80121
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