When Church Members Sue the Church: Derivative Claims, Removal of Officers, and Internal Dispute Resolution in New York and New Jersey
When individual church members conclude that church leadership has misused funds, violated the church's governing documents, or acted in ways that harm the congregation, they face a threshold question that most attorneys — let alone most congregants — are not equipped to answer: does the law give them any standing to do anything about it? The answer under New York and New Jersey nonprofit law is yes, but the available legal tools are specific, the procedural requirements are exacting, and the constitutional limits imposed by the First Amendment substantially narrow the range of disputes a civil court will resolve. Understanding what legal mechanisms exist, how they work, and where they stop is essential for any church member or group of members considering formal legal action against their own congregation's leadership.
The following guide explains the principal legal mechanisms available to church members in New York and New Jersey — derivative claims, direct claims, judicial removal of officers and directors, and internal dispute resolution — and the standards courts apply when deciding whether to intervene in the internal affairs of a religious nonprofit corporation.
Standing: Who Has the Right to Sue on Behalf of the Church
The first obstacle any church member faces when contemplating legal action against church leadership is standing — the legal right to bring the claim at all. A church is a legal entity, and in most circumstances it is the church itself — acting through its board of directors — that has the right to bring or defend legal claims. An individual member who believes the church has been harmed by its own leadership cannot simply walk into court and sue the pastor or the board on the church's behalf. To do so, the member must satisfy the standing requirements applicable to derivative claims under the N-PCL and New Jersey law.
It is important to distinguish between two types of claims a member might wish to bring. A direct claim is a claim by a member asserting that the member personally has been harmed — for example, a member who was wrongfully denied the right to vote at a congregational meeting, or whose membership was improperly terminated without following the church's own procedures. A derivative claim is a claim brought by a member on behalf of the corporation — the church — asserting that the corporation has been harmed by the conduct of its own officers or directors and that the board has failed or refused to pursue the claim itself. The distinction matters because different procedural requirements apply to each type, and the relief available differs.
Under N.Y. N-PCL Section 623, a member of a nonprofit corporation may bring a derivative action in the right of the corporation to procure a judgment in its favor, provided the member was a member at the time of the transaction complained of and at the time the action is brought, and provided the member has made a demand upon the directors to bring the action or has alleged with particularity why such demand would be futile. The demand requirement is not a formality — it is a substantive prerequisite that reflects the principle that the board, not individual members, is the primary decision-maker about whether the corporation should pursue litigation. A court will not permit a derivative action to proceed if a proper demand was not made and the complaint does not adequately explain why demand would have been futile.
In New Jersey, derivative actions by members of nonprofit corporations are governed by N.J.S.A. 15A:5-9, which similarly requires that the plaintiff be a current member, that a demand have been made on the board or that demand be alleged to be futile, and that the action be brought in the name of the corporation. New Jersey courts have applied these requirements strictly and have dismissed derivative claims brought by church members who failed to satisfy them.
Derivative Claims: Financial Misconduct, Breach of Fiduciary Duty, and the Demand Requirement
The most common basis for a derivative claim by church members is financial misconduct by church leadership — misappropriation of church funds, self-dealing transactions in which an officer or director benefits personally at the church's expense, unauthorized expenditures, or failure to maintain adequate financial records and controls. These claims are cognizable under neutral principles of nonprofit corporate law and do not require the court to resolve any theological question — the fiduciary duty of a director to act in the corporation's interest and to avoid self-dealing is the same whether the corporation is a church or a secular nonprofit.
Officers and directors of a New York nonprofit corporation owe the corporation duties of care and loyalty under N.Y. N-PCL Section 717. The duty of care requires that directors act in good faith, with the care that an ordinarily prudent person in a like position would exercise under similar circumstances, and in a manner the director reasonably believes to be in the best interests of the corporation. The duty of loyalty requires that directors not engage in transactions in which they have a personal financial interest that conflicts with the corporation's interest, and not divert corporate opportunities or assets to their own benefit. A director who causes the church to pay for personal expenses, who causes the church to enter into contracts with entities the director owns or controls at above-market rates, or who transfers church assets to themselves or related parties without authorization has breached the duty of loyalty.
The demand requirement under N-PCL Section 623 serves as a significant procedural gatekeeping function. Before filing a derivative action, the plaintiff-member must make a written demand on the board of directors to take appropriate action — to pursue the claim against the wrongdoing officer or director, to recover misappropriated funds, or to take whatever remedial action the facts warrant. The board then has a reasonable time to respond, and if the board refuses to act or fails to respond, the member may proceed with the derivative action. Demand is excused — and the member may proceed without first making it — only when the complaint alleges with particularity facts from which a court can conclude that demand would be futile: for example, because a majority of the board is personally implicated in the alleged misconduct and cannot be expected to act against their own interests.
The practical consequence of the demand requirement in a church context is that members who suspect financial misconduct should begin by putting their concerns in writing to the board — not as a litigation tactic, but as a genuine request for the board to investigate and act. If the board responds by investigating and taking corrective action, the derivative action may be unnecessary. If the board stonewalls, dismisses the concern without investigation, or is itself implicated in the misconduct, the member has established the evidentiary foundation for a futility argument and may proceed to litigation. Documentation of the demand and the board's response — or non-response — is critical.
Judicial Removal of Officers and Directors: The N-PCL Section 706 Remedy
When the board of a church nonprofit has itself become the source of the problem — when a majority of directors are engaged in self-dealing, are acting in violation of the church's governing documents, or have effectively captured the governance of the corporation in ways that harm the membership — the derivative action mechanism is inadequate, because there is no disinterested board to whom a proper demand can be made. In these circumstances, New York law provides a more direct remedy: judicial removal of a director for cause under N.Y. N-PCL Section 706.
Under N-PCL Section 706(d), the Supreme Court may, in an action brought by ten percent or more of the voting members, remove a director for cause if the court finds that the director has engaged in fraudulent or dishonest acts, gross abuse of authority or discretion with respect to the corporation, or persistent unfair dealing with the members, and that removal is in the best interest of the corporation. The ten-percent threshold is a meaningful limitation — it is designed to prevent individual disgruntled members from weaponizing the removal statute — but it is achievable in a congregation of meaningful size when a significant minority of the membership is genuinely aggrieved.
The grounds for judicial removal are specific and demanding. The conduct must rise to the level of fraud, dishonesty, gross abuse, or persistent unfair dealing — not merely poor judgment, unpopular decisions, or conduct that the petitioning members disagree with as a matter of church policy or theology. A court applying the neutral-principles framework will not remove a director because the petitioning members believe the director's vision for the church is wrong, or because the director's management style is unpleasant, or because the director supported a pastoral candidate the members opposed. The court will remove a director who embezzled church funds, who systematically excluded eligible members from voting in church elections, or who caused the corporation to enter into undisclosed self-dealing transactions.
New Jersey's nonprofit corporation statute provides comparable judicial removal authority under N.J.S.A. 15A:6-12, which permits the Superior Court to remove a director for fraudulent or dishonest acts, gross abuse of authority or discretion, or persistent unfair dealing. New Jersey courts have similarly applied this remedy sparingly and require a showing of serious misconduct rather than mere disagreement with the director's decisions.
In both New York and New Jersey, courts have the authority to appoint a provisional director — sometimes called a custodian or receiver — to oversee the church's operations when the existing board has been incapacitated by internal conflict, has abandoned its responsibilities, or has demonstrated a pattern of misconduct that makes continued self-governance harmful to the corporation. The appointment of a provisional director is a drastic remedy that courts use sparingly, but it is available when the governance situation has deteriorated to the point where neither faction can effectively manage the corporation's affairs.
Direct Claims by Members: Voting Rights, Membership Termination, and Access to Records
Separate from derivative claims brought on behalf of the corporation, individual church members may have direct claims based on violations of their personal rights as members of the nonprofit corporation. The most common direct claims in the church context involve denial of voting rights, improper termination of membership, and denial of access to corporate records.
If the church's bylaws give members the right to vote on specified matters — election of directors, approval of major transactions, amendment of the bylaws — and a member is improperly excluded from a meeting or denied the right to vote, that member has a direct claim for violation of membership rights. Under N.Y. N-PCL Section 619, a court may determine the validity of any election, appointment, removal, or resignation of a director or officer, and may determine the right of a person to hold such office. This provision is frequently used in church governance disputes to resolve contested elections and to determine which faction is the legitimate governing body of the corporation.
Membership termination is a particularly sensitive issue in Korean-American churches, where the removal of a member or family from the church roster is often used as a tactical weapon in governance disputes — either to eliminate votes that the controlling faction expects to be cast against it, or to punish members who have spoken out against leadership. If the church's bylaws specify procedures for membership termination — notice, an opportunity to be heard, a vote of the board or the congregation — those procedures must be followed. A membership termination that does not comply with the church's own bylaws is procedurally invalid and may be challenged in court as a direct claim by the terminated member.
Access to corporate records is a right that church members frequently underestimate and that church leadership frequently resists disclosing. Under N.Y. N-PCL Section 621, members of a nonprofit corporation have a right to examine the corporation's membership list and certain corporate records, including minutes of member meetings. Under N.Y. N-PCL Section 620, members have a right to examine the corporation's books of account and minutes of proceedings of its members and directors. These inspection rights are not unlimited — the member must have a purpose related to the member's interest as a member — but they are enforceable, and a court can compel production of records that the board refuses to disclose. For a member who suspects financial misconduct, the inspection right is often the first and most important tool — it allows the member to examine financial records and board minutes that may provide the evidentiary foundation for a derivative claim or a removal petition.
The First Amendment Constraint: What Courts Will Not Resolve
Every legal mechanism described in this article operates within the constitutional constraint established by the First Amendment's religion clauses. Courts applying the neutral-principles framework will resolve disputes about corporate governance, financial accountability, record access, and procedural compliance. Courts will not resolve disputes that are fundamentally about religious doctrine, ecclesiastical authority, or the spiritual qualifications of church leadership.
The practical implication is that a derivative claim for misappropriation of church funds — a financial claim that can be resolved by examining bank records, invoices, and corporate resolutions — will be heard by a court. A claim that a pastor's theological teaching is heretical and therefore constitutes a breach of fiduciary duty will not be heard, because resolving it would require the court to evaluate religious doctrine. A claim that a director improperly excluded eligible members from a congregational vote — a procedural question governed by the bylaws — will be heard. A claim that the director was wrong to oppose a particular pastoral candidate on theological grounds will not be heard.
This constraint means that church members who want judicial relief must frame their claims in secular, corporate law terms — not in terms of spiritual harm or ecclesiastical wrongdoing. A member who frames a complaint as "the pastor is teaching false doctrine and the board is covering it up" will find the courthouse door closed. A member who frames the same underlying situation as "the board authorized payments of church funds to the pastor for personal expenses without disclosure or congregational approval, in violation of the duty of loyalty and the church's financial policies" has stated a claim that a court can and will examine. How the claim is framed matters enormously, and framing it correctly requires counsel with experience in both nonprofit law and the constitutional limits on judicial intervention in religious organization disputes.
Internal Dispute Resolution Before Litigation
Litigation is not the first or the only tool available to church members with legitimate grievances. Before resorting to the courts, members and leadership should consider whether the church's own governing documents provide internal dispute resolution mechanisms — and whether mediation or other forms of facilitated negotiation can resolve the dispute without the cost, public exposure, and relational damage that litigation inevitably produces.
Many well-drafted church bylaws include provisions for internal grievance procedures, disciplinary processes, and reconciliation or mediation requirements that must be exhausted before any member may bring an external legal action. These provisions are sometimes incorporated at the requirement of the denomination, and denominational bodies may have their own dispute resolution procedures that apply to member churches. Where such provisions exist, they are generally enforceable — a court will typically dismiss or stay a lawsuit brought by a member who has not exhausted the church's internal remedies if those remedies are adequate and the bylaws require them to be exhausted first.
Christian Legal Society mediators, denominational arbitration panels, and professional mediators with experience in religious organization disputes are available resources for churches that want to resolve internal conflicts without civil litigation. Mediation in particular — a voluntary, confidential process in which a neutral third party facilitates negotiation — is often effective in church disputes that involve genuine disagreements about governance and direction rather than clear-cut financial misconduct. When both sides are willing to engage in good faith, mediation can produce a resolution that litigation cannot: one that addresses the underlying relationship and preserves some form of community even when governance structures are restructured.
When internal mechanisms have been exhausted or are unavailable — and particularly when the dispute involves financial misconduct, exclusion from governance, or systematic violations of the church's own rules — civil litigation under the neutral-principles framework is the appropriate next step. The legal mechanisms described in this article give aggrieved members real tools, but those tools work best when applied with a clear understanding of the constitutional limits, the procedural requirements, and the evidentiary standards courts will apply.
Frequently Asked Questions
Can a church member sue the pastor personally for misusing church funds?
Yes, in a derivative action brought on behalf of the church corporation. A church member cannot sue the pastor in their own name for harm done to the church — the church is the party harmed, and the church is the proper plaintiff. Under N.Y. N-PCL Section 623 and N.J.S.A. 15A:5-9, a member may bring a derivative claim on the church's behalf against a pastor or director who has breached the duty of loyalty by misappropriating funds, engaging in undisclosed self-dealing, or diverting church assets for personal benefit. The member must satisfy the demand requirement or allege demand futility, and the claim must be framed in terms of the fiduciary duty the pastor owes to the corporation — not in terms of spiritual or theological harm.
Our church removed several members from the membership rolls before an important congregational vote. Is that legal?
Only if the removals complied with the church's own bylaws. If the bylaws specify procedures for membership termination — notice, an opportunity to be heard, a vote of the board or congregation — those procedures must be followed. A membership termination that does not comply with the bylaws is procedurally invalid and can be challenged as a direct claim by the affected members. If the removals were timed to affect the outcome of a contested congregational vote, that timing is relevant to whether the removal was a legitimate governance action or a bad-faith manipulation of the membership. Courts applying neutral principles will examine the procedural compliance without evaluating the theological grounds for the removal.
How many members are needed to petition for judicial removal of a director in New York?
Under N.Y. N-PCL Section 706(d), a petition for judicial removal of a director for cause must be brought by ten percent or more of the voting members of the corporation. The petition must allege specific grounds — fraudulent or dishonest acts, gross abuse of authority or discretion, or persistent unfair dealing — and must demonstrate that removal is in the best interest of the corporation. The ten-percent threshold requires that the petitioning members identify themselves and their membership status, and courts have dismissed removal petitions that did not establish the required threshold or that failed to allege specific misconduct rising to the statutory standard.
Does a church member have the right to inspect the church's financial records?
Yes, subject to limitations. Under N.Y. N-PCL Section 620, members of a nonprofit corporation have the right to examine the corporation's books of account and minutes of proceedings of its members and directors, provided the demand is made in good faith and for a purpose related to the member's interest as a member. A member who believes church funds have been misappropriated has a legitimate purpose that courts have consistently recognized as sufficient to support an inspection demand. If the board refuses to produce records in response to a proper inspection demand, the member may petition the court to compel production. In New Jersey, comparable inspection rights are provided under N.J.S.A. 15A:5-24.
The church board refused to act on our written demand about financial misconduct. What are our options?
A board's refusal to act on a written demand about financial misconduct — particularly if the board is itself implicated in the misconduct — establishes the foundation for a derivative action in which demand futility is alleged, or supports a claim that the board's refusal was itself a breach of fiduciary duty. Before proceeding to litigation, the petitioning members should ensure the demand was made in writing, was specific enough to identify the misconduct and the requested remedy, and was directed to the appropriate parties. If the board's refusal is documented and the members meet the standing requirements, they may file a derivative action in New York Supreme Court or New Jersey Superior Court seeking recovery of misappropriated funds, disgorgement of improper benefits, and appropriate equitable relief including removal of the offending directors.
Good Pine P.C. represents church members, boards, and religious organizations in internal governance disputes across New York and New Jersey — including derivative claims for financial misconduct, petitions for judicial removal of directors under N-PCL Section 706, member inspection rights, contested membership terminations, and mediation of church disputes before and in lieu of litigation. We provide bilingual English and Korean counsel to Korean-American congregations navigating these conflicts.
This article is provided by Good Pine P.C. for general informational purposes only and does not constitute legal advice. Reading this article does not create an attorney–client relationship. Laws and regulations may change, and their application depends on specific facts and circumstances. You should consult a qualified attorney before taking any legal action based on this information.
