PLAINTIFFS’ OPPOSITION TO DEFENDANT SUSAN POLGAR’S MOTION FOR SUMMARY
JUDGMENT OR, IN THE ALTERNATIVE, SUMMARY ADJUDICATION OF DEFENDANT
POLGAR’S AFFIRMATIVE DEFENSE OF ULTRA VIRES ACT AGAINST PLAINTIFF UNITED
STATES OF AMERICA CHESS FEDERATION, INC.


TABLE OF CONTENTS
I. Introduction 1
II. Background 1
III. Authorization for the "John Doe" Litigation in California 5
IV. Authorization for amending the "John Doe" complaint to add Polgar
and Alexander as defendants 6
V. Argument 7
A. The USCF Properly Authorized all Pertinent Acts 7
B. Polgar Has Failed to Plead a Viable Ultra Vires Defense 8
1. The USCF's Actions Do Not Qualify as Ultra Vires Acts under Illinois
Law 8
2. Polgar Misinterprets the Illinois Statute Regarding Ultra Vires Acts
of Corporation 10
C. Polgar's Argument that a Plaintiff Should be Able to Sue All the
Directors of a Corporation in Order to Resolve all Disputes at the
Shareholder Level is Untenable. 11
VI. Conclusion 12

Plaintiffs UNITED STATES OF AMERICA CHESS FEDERATION, INC. (“USCF”) and
RANDALL HOUGH (“Hough”) hereby oppose Defendant Susan Polgar’s Motion
for Summary Judgment or, in the Alternative, Summary Adjudication of
Defendant Polgar’s Affirmative Defense of Ultra Vires Act Against
Plaintiff United States of America Chess Federation, Inc. (hereinafter,
“Motion”).

Introduction

All acts of the USCF were approved and later ratified by a majority of
the USCF Executive Board in accordance with USCF Bylaws and with USCF
practices and governance. Additionally, the full Executive Board of the
USCF, in a vote noticed to all Executive Board members including Polgar
and her husband Truong, ratified all prior actions related to this
litigation.1 Polgar can point to no authority that prohibits such
ratification.

Regarding the authority on which Polgar relies, the purported
unauthorized acts of the USCF, even if assumed to be unauthorized, do
not qualify as ultra vires acts under the Illinois statute. Polgar
simply misinterprets the pertinent Illinois statute, and her resulting
arguments are unpersuasive.

Polgar argues that she should be able to sue all of the USCF Executive
Board members and then claim that such Executive Board members cannot
engage in decision-making regarding Polgar’s own alleged misconduct.
This argument is untenable and, if allowed, would lead to judicial
gridlock where defendants would simply sue all of the decision-makers in
a corporation in order to force the resolution of disputes at the
shareholder level.

Background

Pursuant to USCF Bylaws Article V, the USCF is governed by the Board of
Delegates, which is composed of the Executive Board members, the
Delegates at

Footnote
1 On April 13, 2009, the Court ordered the USCF “to produce evidence re
votes/authorizations/minutes/bylaws by 4/27/2009”. Despite Polgar’s
contentions, the USCF complied with this order of the Court by supplying
a comprehensive declaration of Bill Hall, with eight exhibits of
documents. [D.E. 97.]

Large, and 125 Delegates, apportioned among the states in proportion to
their resident USCF membership. The Board of Delegates meets annually
for the purposes of hearing annual reports, installing officers, and
considering other USCF business. While special Delegates meetings can be
called by the President or by more than half the members of the
Executive Board, the Board of Delegates has never called a special
Delegates meeting in USCF’s 70 year history. The delegates are dispersed
geographically across the country; further, it would highly doubtful
that the USCF could achieve a quorum in a Special Delegates meeting.
(Declaration of Bill Hall in Response to Civil Minute Order Dated April
13, 2009 (hereinafter, “Hall Decl.”) ¶4.)

Pursuant to USCF Bylaws Article VI, Section 2, the Executive Board
manages USCF’s affairs between meetings of the Board of Delegates, and
performs other duties as specified in USCF’s Bylaws. (Hall Decl. ¶5.)
Pursuant to USCF Bylaws Article VI, Section 1, the Executive Board
consists of seven elected members. However, due to the resignation of
Executive Board member Joel Channing in April 2008, the Executive Board
currently only has six members, who are as follows:

A. Bill Goichberg – President, who resides in Salisbury Mills, New York;
B. Jim Berry – Vice President, who resides in Stillwater, Oklahoma;
C. Randy Bauer – Vice President of Finance, who resides in Urbandale, Iowa;
D. Randy Hough – Secretary, who resides in Alhambra, California;
E. Susan Polgar – Member-at-Large, who resides in Lubbock, Texas;
F. Paul Truong – Member-at-Large, who resides in Lubbock, Texas; and
G. Bill Hall – (non-voting member) Executive Director, who resides in
Crossville, Tennessee;
(Hall Decl. ¶6.)

Under the USCF Bylaws Article VI, Section 3, the Executive Board is
required to meet at least twice per year, the day and place to be fixed
by vote of the Executive Board. The longstanding policy has been for the
Executive Board to meet on a quarterly basis, with occasional meetings
by conference call for time sensitive matters. Special meetings,
including conference calls or Internet conferences, may be called by
thePresident or upon the written request of any three members of the
Executive Board. Notification to the Executive Board members can be made
via mail, fax, telephone, email, or other means approved by the
Executive Board. Pursuant to USCF Bylaws Article VI, Section 3,
Executive Board votes may be taken by email, with members having five
days to discuss and vote. Because the members of the Executive Board
reside throughout the country, any decisions that need to be made in
between meetings are decided by voting via email. As soon as all
Executive Board members vote, or the five days have passed, the
Executive Board vote becomes official. (Hall Decl. ¶8.)

In September of 2007, allegations of misconduct were made against
Truong, who is married to Polgar. Truong was alleged to have
impersonated a former USCF Executive Board member and other USCF members
in over 2500 Internet message board postings (aka, the “Fake Sam Sloan”
postings). As a result of the 2500 Internet postings, one of the
Executive Board members who had been impersonated, Sam Sloan (who, at
the time was no longer on the Executive Board), filed an action in the
District Court for the Southern District of New York, against, among
others, Polgar, Truong, and USCF (the “New York Litigation”) (Hall Decl.
¶9.)

Because of the Sam Sloan litigation, the conflict of interest arising
from Polgar’s and Truong’s marital relationship, and the potential
conflict of interest created by Polgar’s own threats of litigation
against the USCF, the USCF needed legal counsel: a) to investigate the
claims alleged against Truong, b) to advise the USCF regarding matters
related to the Sloan litigation, d) to advise the USCF on matters
related to various threats to sue by Polgar, and e) to provide
confidential legal counsel on all such issues and related issues. (Hall
Decl. ¶11.)

The Executive Board held a meeting on November 4, 2007 where it sought
to designate a Board Subcommittee of impartial directors to evaluate the
Sloan lawsuit and the threats of legal action by Polgar, and Polgar and
Truong’s complicity in the misconduct alleged by Sloan as raised in a
report prepared by Brian Mottershead (the “Mottershead Report”).
Pursuant to Article VII, Section 3B of the USCF Bylaws, whichauthorizes
the Executive Board “to appoint such subcommittees of the Board or
committees as it deems appropriate,” Mr. Goichberg moved the Executive
Board to appoint a Board Subcommittee, consisting of Mr. Bauer (chair),
Mr. Berry, Mr. Channing, Mr. Goichberg, and Mr. Hough. The Board
Subcommittee specifically excluded Polgar and Truong in order to permit
confidential communications about the investigation and about USCF’s
legal options. The motion passed with a 5-0 vote (RB 08-022). Polgar and
Truong were notified at the meeting that the motion would be made, but
because Polgar and Truong left the meeting early, they did not vote on
the motion. However, Polgar and Truong indicated that they did not
object to the motion. The minute entry from that meeting states:

Issues related to charges made by Brian Mottershead were discussed. Bill
Goichberg made the following motion:
RB08-022 – Goichberg – Moved, that the EB appoints a Board Subcommittee
to consider issues related to charges made by B. Mottershead. The
subcommittee is to consist of Randy Bauer (chair), Jim Berry, Joel
Channing, Bill Goichberg, and Randy Hough. PASSED 5-0. Please note that
Susan Polgar and Paul Truong had to leave early but were aware that this
would be considered and consented to it.
(Hall Decl. ¶12; a full version of the minutes is attached as Exhibit A).

It is the practice of the Executive Board to circulate minutes for
Executive Board member review, providing the opportunity to Executive
Board members to change minutes before they become final. After the
above-referenced minutes were circulated, neither Truong nor Polgar ever
contacted anyone on the Executive Board to notify the Executive Board
that the meeting minutes were in any way inaccurate, nor did they object
during the confidential review period prior to the release of these
minutes. Further, neither Polgar nor Truong ever objected to the
formation of the Board Committee, or to the required confidentiality
between and among members of the Board Committee, as was required to
address issues related to the investigation of the Fake Sam Sloan matter
and other facts that were the subject of Polgar’s threats to sue the
USCF. (Hall Decl. ¶13.)

Under Article VII, Section 4 of the USCF Bylaws, which authorizes the
ExecutiveBoard to hire legal counsel, the Board Subcommittee, approved
the hiring of the law firms of Kronenberger Burgoyne, LLP, Hirsch &
Westheimer, P.C., Giffin, Winning, Cohen & Bodewes P.C., and Jones,
Flygare, Brown & Wharton, P.C. (Hall Decl. ¶14.)

Authorization for the “John Doe” Litigation in California

On multiple occasions between December 2007 through June 22, 2008,
members of the Board Subcommittee discovered that their confidential
–and attorney client privileged-- emails were viewed, copied, and
distributed by an unknown individual. Polgar obtained copies of these
stolen emails. However, Polgar refused to inform the Executive Board
from where she obtained the emails. Later, Polgar gave conflicting
stories about how she obtained the stolen emails. Importantly, Polgar
refused to provide a copy of the full stolen emails in her possession or
otherwise cooperate in investigating the source of the breach of
security. (Hall Decl. ¶15.)

To discover who had hacked into the Board members’ email accounts and
stolen their confidential emails, Executive Director Bill Hall directed
the filing by USCF counsel of a “John Doe” lawsuit in California. (Hall
Decl. ¶16.) At the time of the filing of the Doe lawsuit, the USCF did
not know about Polgar’s involvement in the theft of confidential emails.
The USCF has a history of allowing its Executive Director to authorize,
initiate, and defend litigation on behalf of the USCF, and the USCF
Executive Director has invoked this power—with no objections—multiple
times over the USCF’s history. (Supplemental Declaration of Bill Hall in
Support of the Plaintiffs’ Opposition to Defendant Susan Polgar’s Motion
for Summary Judgment, ¶2.)

Based on the foregoing authority, the USCF filed a complaint against Doe
defendants 1-10 in the San Francisco County Superior Court on June 25,
2008. Each Board Subcommittee member thereafter provided his/her consent
to the authorization of the Doe lawsuit, as reflected in written consent
forms provided to ISPs pursuant to the Doe lawsuit. (Hall Decl. ¶18.)

On August 9, 2008, the full Board of Delegates held its annual meeting
in Dallas, Texas, during which the Board of Delegates discussed and
ratified all the prior actions ofthe Executive Board, which included the
creation of the Board Subcommittee. (Hall Decl., Exhibit B (at p. 4,
DM08-07 - ADM 08-06).)

Out of an abundance of caution, on December 16, 2008, Mr. Goichberg
moved, via email, the Board Subcommittee to officially ratify the legal
action taken by USCF in California against the “John Doe” defendants.
The members of the Board Subcommittee, consisting of a majority of the
Executive Board members, voted for the motion via email and ratified the
“John Doe” action in California. The motion passed with all four members
of the Board Subcommittee voting in favor of the motion, which also
constituted a majority of the full Executive Board. (Hall Decl. ¶20; a
copy of this motion and the voting record is attached as Exhibit C.)

In response to this Court’s April 13, 2009 request for clarity on the
USCF’s authorization to defend itself against Polgar and initiate the
California litigation, on April 18, 2009, pursuant to USCF Bylaws
Article VI Section 1, Executive Director Bill Hall moved the full
Executive Board, including Polgar and Truong, via email, to ratify,
confirm, and approve in all respects all actions taken by the Board
Subcommittee, including the Executive Board’s authorization to file the
“John Doe” action. (Hall Decl. ¶21; a copy of this motion and the voting
record is attached as Exhibit D.) The full Executive Board so expressly
ratified the litigation.

Authorization for amending the “John Doe” complaint to add Polgar and
Alexander as defendants


The discovery conducted in the “John Doe” action produced evidence that
Polgar and her agent/employee, Gregory Alexander (“Alexander”) gained
unauthorized access to Executive Board member Randall Hough’s email
account, and thereafter copied and distributed confidential
communications from Randall Hough’s email account. (Hall Decl. ¶22.)

On October 7, 2008, a special meeting was called, via telephone, of the
Board Subcommittee to discuss adding Polgar and Alexander as defendants
in the “John Doe” lawsuit. While the Executive Board typically notifies
members regarding specialmeetings via email, because of concerns about
Board Subcommittee members’ email accounts being compromised, the
notification to the Board Subcommittee was given via telephone call.
(Hall Decl. ¶23.)

During this special meeting, the Board Subcommittee voted unanimously in
favor of amending the “John Doe” complaint to add Polgar and Alexander
as defendants. (Hall Decl. ¶24.) On October 24, 2008, USCF filed its
First Amended Complaint in the San Francisco County Superior Court,
adding Polgar and Alexander as defendants. (Hall Decl. ¶25.)

Out of an abundance of caution, on December 16, 2008, Mr. Goichberg
moved, via email, the Board Subcommittee to ratify the legal action
taken by USCF in California against Alexander and Polgar. The Board
Subcommittee unanimously voted via email to ratify the California action
against Alexander and Polgar. (Hall Decl. ¶26; a copy of this motion and
the voting record is attached as Exhibit C.) And on April 18, 2009,
pursuant to USCF Bylaws Article VI Section 1, Executive Director Bill
Hall moved the full Executive Board, including Polgar and Truong, via
email, to ratify, confirm, and approve in all respects all actions taken
by the Board Subcommittee, including the Executive Board’s ratification
of the legal action taken by USCF against Alexander and Polgar in the
California action. The motion passed 4-0, with Polgar and Truong
abstaining. (Hall Decl. ¶27; a copy of this motion and the voting record
is attached as Exhibit D.)

Argument

A. The USCF Properly Authorized all Pertinent Acts.

In the current action, all acts of the USCF were approved and later
ratified by a majority of the USCF Executive Board in accordance with
USCF Bylaws and with USCF practices and governance. Additionally, the
full Executive Board of the USCF, in a vote noticed to all Executive
Board members including Polgar and her husband Truong, ratified all
prior actions related to this litigation. This is perfectly acceptable.
Polgar can point to no authority which prohibits a corporation from
ratifying prior actions.

The Executive Board manages the affairs of the USCF between meetings of
theBoard of Delegates. A majority of the Executive Board ratified the
filing of this litigation and the amendment to add Polgar and Alexander
as defendants, and thereafter, in a properly noticed email vote of the
full Executive Board including Polgar and Truong, the Executive Board
ratified all prior actions relating to this litigation.

The decision of Bill Hall to initiate the Doe litigation in June 2008
was made by him alone, against the backdrop of the history of the USCF
Executive Director hiring counsel and initiating litigation without
prior formal approval of the full Executive Board. Mr. Hall’s actions
were ratified twice later, first by a vote of a majority of the
Executive Board, and second by a formerly noticed vote of the entire
Executive Board, including Polgar and Truong.

Polgar ignores the express right of the Executive Board to conduct
voting via email, in accordance with USCF Bylaws Article VI, Section 3,
which allows votes to be taken by email, with members having five days
to discuss and vote. The April 18, 2009 motion, made by Bill Hall,
stated, “NOW, THEREFORE, BE IT RESOLVED, that all actions heretofore
taken by the Executive Board subcommittee established at the November 4,
2007 Executive Board Meeting (RB 08-022) are hereby ratified, confirmed
and approved in all respects; ...” (Hall Decl. ¶30, Exhibit D.)
(emphasis added) This motion was properly noticed to all Executive Board
members via email, and the Executive Board waited five days before
closing the vote on this motion.

The Executive Board is permitted to ratify prior actions of its
Executive Director and a majority of the board. Thus, all of USCF’s
actions at issue were wholly consistent with its Bylaws and with its
practice of governance.

B. Polgar Has Failed to Plead a Viable Ultra Vires Defense.

1. The USCF’s Actions Do Not Qualify as Ultra Vires Acts under Illinois
Law.

Illinois case law distinguishes situations where a corporation does not
have power to take an action (ultra vires) from those situations where
the corporation has the power, but the power was exercised in an
irregular manner.2 In situations where the corporationdoes not have the
power, the courts have found the ultra vires action voidable. However,
in situations where the corporation had the power, but the authority was
exercised irregularly, those actions were not ultra vires.

In Keith Ryan v. Warren Township High School District No. 121, 155 Ill.
App. 3d 203, 206 (1987), the court distinguished between corporate
actions that are without power and those actions taken with appropriate
power, but with some irregularity. The Court found the School District’s
act of contracting with plaintiff Ryan was not ultra vires as it was
authorized by the implied powers to disseminate information to the
community. See also, Robinson v. City of Geneseo, 89 Ill. App. 2d 415,
418 (1967) (“There is a distinction between contracts which are Ultra
vires and contracts which are within the power of the city to make, but
which have been irregularly or illegally made, but have been performed
in good faith.”); In People ex.rel. Barrett, Auditor v. Bank of Peoria
et. al, 295 Ill. App. 543, [no page number available], 15 N.E.2d 333,
336 (2nd District, 1938) (finding the action of an Insurance Company to
invest in a Bank was not an ultra vires action, even though there may
have been some irregularities in the board’s actions); Independent Order
of Svithiod v. Ring Lodge No. 8, 261 Ill. App. 289, *6 (1931) (stating
that an ultra vires act is the exercise of, “a power wholly outside of
and beyond the purpose for which the corporation was organized”.)

There is no question that USCF had the authority to initiate this
lawsuit against Polgar. Section 103.10 of the General Not For Profit
Corporation Act (805 ILCS 105/103.10) authorizes a corporation to “sue
and be sued, complain and defend, in its corporate name, and shall have
standing to sue when one or more of its members would otherwise have
standing to sue in his or her own rights, providing the interests it
seeks to protect are germane to the corporation’s purposes, and neither
the claim asserted nor the relief requested requires the participation
of individual members in the lawsuit.”

Moreover, the USCF bylaws inherently delegate this power to initiate
litigation to the Executive Board as part of its broad management
authority. Also, the Executive Boardhas clear authority pursuant to
Article VII, Section 3 (B) of USCF bylaws “to appoint such subcommittees
as it deems appropriate.” Further, Section 108.40 (a) of the Illinois
General Not For Profit Corporation Act provides that if the articles of
incorporation or the bylaws so provide, which the bylaws do in this
case, a majority of the directors may create one or more committees and
appoint directors or such other persons as the board designates to serve
on the committee or committees.

Even Polgar cannot dispute that the USCF has the authority to initiate
lawsuits. Thus, because the USCF’s initiation, approval and ratification
of this lawsuit does not, and cannot, constitute an ultra vires act
under Illinois, Polgar’s affirmative defense must fail.

2. Polgar Misinterprets the Illinois Statute Regarding Ultra Vires Acts
of a Corporation.

The relevant portions of the statute governing the Defense of Ultra
Vires under the Illinois Compiled Statutes (805 ILCS 105/1 03.15) states:

No act of a corporation... .shall be invalid by reason of the fact that
the corporation was without capacity or power to do such act..., but
such lack of capacity or power may be asserted:
(a) In a proceeding by a member entitled to vote or by a director
against the corporation to enjoin the doing of any act or acts...;
(b) In a proceeding by the corporation... .against the officers or
directors of the corporation for exceeding their authority; or
(c) In a proceeding by the State...to dissolve the corporation...

Polgar misinterprets the statute governing the Defense of Ultra Vires in
several respects when referencing subsection (b). The obvious intent of
the legislature in enacting subsection (b) was to authorize corporations
to bring an ultra vires action against officers or directors of the
corporation to enjoin their actions taken on behalf of the corporation.
The intent was not—as Polgar seeks to use the Act—to allow a director to
nullify the act of a corporation.

Nor does Polgar’s reliance on subsection (a) fare any better. Polgar has
not filed an action against the USCF to “enjoin the doing of any act or
acts,” which is required under the express language of the statute.
Polgar’s claims against the USCF are for abuse of process and breach of
fiduciary duty and are not brought under the Illinoisstatute she cites
(805 ILCS 105/1 03.15).

In support of her ultra vires defense, Polgar misconstrues case law. In
Sawko, cited by Polgar, the court addressed a plaintiff’s affirmative
ultra vires claim (not a defense). Sawko v. Dominion Plaza One
Condominium Ass'n No. 1-A, 218 Ill.App.3d 521, 525 (1991). Similarly, in
Buntrock, also cited by Polgar, the court also addressed an affirmative
ultra vires claim (not a defense), expressly authorized by the Illinois
Not for Profit Act. Buntrock v. Terra, 348 Ill.App.3d 875, 886 (2004).
As these cases demonstrate, the Illinois statute on which Polgar relies
distinguishes a “defense of ultra vires” (which does not exist) from an
affirmative claim for injunctive relief based on an ultra vires act.
Polgar has made no affirmative claim for relief under the Illinois
statute for injunctive relieve against the USCF, and accordingly her use
of this Illinois statute is incorrect.3

C. Polgar’s Argument that a Plaintiff Should be Able to Sue All the
Directors of a Corporation in Order to Resolve all Disputes at the
Shareholder Level is Untenable.

Polgar’s position assumes that she should be permitted to sue the USCF
and all of its Executive Directors as a way to somehow conflict them out
of any decision-making regarding Polgar’s own alleged misconduct. If
this tactic were permitted by courts, plaintiffs could simply sue all
the officers and directors of a company as a way to force all disputes
to be resolved by a vote of the stockholders. Aside from the obvious
ethical issues for counsel in the use of such tactics, this would create
judicial gridlock and encourage the filing of frivolous litigation.
While Polgar was steadfastly denying involvement in the theft of USCF
email, she was on notice of the Doe litigation and the USCF’s attempts
to depose her as a non-

Footnote:
3 Even if Polgar’s ultra vires defense were viable as to the USCF, it is
not viable as to Randall Hough, who is an individual and brought this
lawsuit on behalf of himself.
Furthermore, to the extent the Court looks to California law on this
issue, it is doubtful that Polgar has standing generally to raise an
ultra vires defense under Cal. Corp. C. §208, which expressly limits the
ability to bring an action challenging the authority of a corporation to
act. See 9 WITSUM Ch. XIII, §120 (stating that, “In 1929, the [ultra
vires] doctrine was abolished insofar as it affects relations with third
parties.” Such prohibition was later codified in Cal. Corp. C. §208).

party. Simply put, she knew that her role in the email theft would soon
be exposed. As a preemptive act, Polgar sued the USCF and all of its
Executive Board in a defamation complaint filed in Texas that recited
almost no facts whatsoever. Her Texas suit was clearly a preemptive
action, based on her knowledge that the USCF would soon discover her
conspiracy with her business partner, Gregory Alexander.
Polgar’s position would also prevent a corporation from filing any civil
actions related to criminal and other wrongful acts against the
corporation, if the defendant first files a preemptive lawsuit against
the corporation and all of its directors. A corporation must have the
opportunity to defend itself when it is harmed, and the Court should
recognize Polgar’s tactics as the game playing that they are.

Conclusion

For the foregoing reasons, the Court should deny the Motion.

Dated: June 22, 2009 KRONENBERGER BURGOYNE, LLP