Wednesday, March 17, 2010

CHARITIES - PERSONAL LIABILITY OF DIRECTORS

My first legal job was as a summer intern with the Attorney General's Charities Bureau, which is responsible for supervising charitable organizations to protect donors and beneficiaries of those charities from unscrupulous practices in the solicitation and management of charitable assets. My work involved, in part, investigating the improper activities of executors, administrators, trustees and personal representatives responsible for honoring gifts or bequests to a charity, even though those executors, etc. served without pay. So volunteers beware. Even an individual can attempt to take action against the charity, and the volunteer executors, etc., as illustrated in the recent case of JOHNSON v. BLACK EQUITY ALLIANCE, 106797/09 2010 NY Slip Op 50178(U) (Supreme Court of the State of New York, New York County, Decided January 21, 2010) but here the attempt to get personal liability failed:

"Unpaid directors are immune from suit under the New York Not-For-Profit Corporation Law (N-PCL) § 720-a and CPLR (a) (11), absent allegations of their gross negligence or intention to cause harm. Thus, as to plaintiff's causes of action alleged against the individual directors, they are properly dismissed (see Pontarelli v Shapero, , [1st Dept 1996]). "On a CPLR (a) (11) motion, Supreme Court is obligated to determine whether the defendant is entitled to the benefits conferred by N-PCL and, if it so finds, then it must ascertain whether there is a reasonable probability that the specific conduct of the defendant fell outside the protective shield afforded by N-PCL [citation1 omitted]" (see Martin v Columbia Greene Humane Society, Inc., , [3d Dept 2005]). The Individual Defendants all serve as directors of Black Equity without compensation for their directorial services, and it is undisputed that Black Equity is a charitable organization that is tax exempt pursuant to section (c) (3) of the Internal Revenue Code. In her opposition, plaintiff asserts that defendant Cheryle A. Wills (Wills) receives compensation from Black Equity; however, Wills' compensation is not based on her service as a director, but is paid pursuant to a separate consulting contract with Black Equity, by which she is engaged to develop a business plan for potential funding sources. Plaintiff does not allege that any of the other directors receive compensation, but contends that since they receive certain perquisites, such as Black Equity paying for their attendance at various events, they should not be considered to fall within the protective umbrella of N-PCL § . The legislative intent of section of the N-PCL is "to curtail litigation against persons engaged in nonpaid charitable activities . . ." (see Rabushka v Marks, , [3d Dept 1996]). Here, the complaint alleges wrongdoing against Wills perpetrated in her capacity as a nonpaid director of Black Equity, not in her role as a compensated consultant. Moreover, plaintiff did not cite any case or statutory reference that the perquisites stated by plaintiff constitute the type of compensation that would take the Individual Defendants out of section of the N-PCL. Therefore, with respect to the Individual Defendants, the court finds that they are entitled to N-PCL § protection, provided that the actions complained of do not constitute gross negligence or intentional harm. In order to prevail against an assertion of immunity, the plaintiff must demonstrate a "reasonable probability" that the Individual Defendants' conduct constitutes either gross negligence or was intended to cause harm. Thome v The Alexander & Louisa Calder Foundation, ___ AD3d ___, 890 NYS2d 16 (1st Dept 2009). The conclusory averments of plaintiff appearing in her complaint and opposition papers fall far short of satisfying this burden (see Pontarelli v Shapero, 231 AD2d 407, supra )."

So in order for personal liability to be found against the unpaid volunteer directors, the court must find that the actions complained of constitute gross negligence or intentional harm.

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