In September 2018, the Board of Directors of the American Academy of Actuaries (the “Academy”) amended the Academy’s bylaws to change the composition of an appointments committee called the Selection Committee. The Academy is an Illinois not-for-profit corporation that serves as the leading actuarial organization on proliferating actuarial policy and professional standards. The Board sought to maintain the independence and objectivity of the ASB and ABCD. Preserving that independence was and is vital to the public’s confidence in the U.S. actuarial profession’s ability to regulate itself through the two bodies, which are housed within the Academy.   

This bylaws amendment was challenged in “derivative” litigation that was filed in December 2018 by several Academy members who objected to the bylaws amendment and sued “on the Academy’s behalf” to overturn it.  Discovery showed that one of the competing actuarial organizations funded some or all of the litigation.  

The Academy and its directors were represented by Novack and Macey LLP, led by partner Steve Siegel, together with counsel from Hogan Lovells US LLP.  We argued that the named Plaintiffs had conflicts of interest because they were leaders of and were being funded in the litigation by a competing actuarial organization.  As a result of these conflicts, we argued the named plaintiffs were inadequate representatives and ineligible to bring a derivative lawsuit on the Academy’s behalf. We further argued that the named plaintiffs failed to bring a viable derivative claim because they could not prove the disputed amendment caused the Academy any injury. Lastly, we argued that under Illinois law the Academy’s Board of Directors was owed “deference” in its bylaws decisions unless it was shown that the Board’s decision was arbitrary, involved fraud or deprived the plaintiffs of economic due process rights. The named plaintiffs had made no such a showing here and, in any event, the bylaws amendment complied with the requirements for Academy bylaws amendments and was validly adopted by the Academy Board. 

After extensive briefing and arguments on cross-motions for summary judgment, Judge Michael Mullen denied the Plaintiffs’ motion, granted the motion for summary judgment brought by the Academy and the Board of Directors members, and entered judgment for our clients on March 15, 2021. Judge Mullen ruled that the amendment was within the Board’s power under the Academy’s bylaws.  He relied in part on the “deference” principle to find that the Board’s decision was permissible on its merits, so he did not need to reach a conclusion on the procedural issues of whether the named plaintiffs were adequate representatives of the Academy’s interests and whether the Academy had suffered an injury. 

The outcome recognizes that in Illinois, while a non-profit board’s decision to amend its bylaws has limits, the Board will have significant leeway when interpreting and applying its own bylaws.