"No Good Turn Goes Unpunished"

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Constangy, Brooks, Smith & Prophete, LLP

It's a cliché because it's true. Especially for volunteers.

Gentle reader, perhaps you or your friends serve the community as directors of non-profits. Most non-profits and many local government quasi-public entities rely heavily on volunteer board members. These good people give their time and talent for the good of society. They get pretty much nothing in return other than some community good will.

Then they get sued. And then they get a surprise, and it isn’t good.

Individual liability can be imposed under the Fair Labor Standards Act, ERISA, state defamation laws, and so on. Generally, to be liable under federal law, the individual must have some measure of control over the challenged decisions. Generally, under state law, there is qualified immunity for individuals serving in a volunteer capacity. So, in theory, the individuals are protected from lawsuits.

The problem is that they really aren’t.

The usual civil procedure rules say that when confronted with a motion to dismiss at the outset of a case, the judge has to take whatever the plaintiff’s lawyer says in the complaint as gospel truth. The rules usually require very little or no evidence to support whatever is alleged in the complaint at this stage. The traditional approach for the plaintiffs’ bar was to avoid naming these folks as individual defendants and usually still is. But not all plaintiffs’ lawyers use this approach.

So, let’s say a non-profit in the pandemic runs out of money. The directors, confronted with this, decide to take up the offer of some of the employees to forgo their salaries and wages until things get better. Things don’t get better, and when the time comes to pay the employees their back wages, there isn’t any money. The employees, rightfully, think they’ve been had.

Or let’s say the executive director does something bad, like sex harassment or lying to the Board. The Board appoints a committee to look into this, the committee makes its report, and the report says the executive director did something very bad and needs to be fired. In the worst case scenario, the quasi-public entity is subject to an Open Meetings Act and Open Records Law, and the report becomes public.

You see where this is going. I could go on.

The employees who weren't paid sue under the FLSA, saying the directors made the decision and are personally liable. The executive director sues, claiming the individual committee members were intentionally trying to harm her because, well, fill in the blank. The Board members are not at all amused, being as how they were doing their work and didn’t sign up to get sued individually. They need representation. Let’s assume the organization has an obligation to provide lawyers and indemnify the directors if they acted in good faith. And let’s assume the plaintiff’s lawyer alleges they didn’t act in good faith but instead were trying to pay their buddies who were vendors to the non-profit or were trying to stick it to the executive director for personal reasons. It happens. Anyone who has worked with volunteer boards has seen people struggling with hard decisions, hard decisions they didn’t sign up to have to make. These folks aren’t lawyers, and often there’s no lawyer advising the Board.

Now what? Does the organization have Directors and Officers insurance? Does that insurance provide coverage? Does the insurer issue a reservation of rights letter creating a conflict of interest? (Of course it does.) Do the organization’s bylaws assure the directors that they will be defended and indemnified? Does the organization have money to pay lawyers? What protection do the directors have from depositions, demands for documents, and time-consuming participation in the litigation?

There is one rule of management with no known exception—no good turn goes unpunished. Yes, it's a cliché, but that's only because it's true.

I write this not to discourage you from serving the community as a Board member. I write this to encourage the organization to get legal advice, put a lawyer on the board (if you can find one willing to serve, and you almost always can), and check your insurance and bylaws. Protect your Board members.

And if you’re a plaintiffs’ lawyer reading this, think about the limits of zealous representation and tactical advantage balanced against the social responsibilities that come with the power granted to you as a lawyer. Maybe you really do need to sue the individuals—but maybe you don’t.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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