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Chapter 5: specific issues for the not-for-profit entity.

Not-for-profit corporations are legally distinct from for-profit corporations. Unlike for-profit corporations, a not-for-profit corporation is an organization that has the goal of serving the public interest as opposed to creating a profit for its owners. Its mission may be charitable, educational, scientific, religious, literary, or to test for public safety. No part of a not-for-profit entity's income or profit is distributed to its members, directors, or officers. (1) The types of not-for-profits are generally delineated by Section 503(c) of the Internal Revenue Code, and the variety of such entities ranges from the widely known 501(c)(3) charities to rural cooperatives, dog clubs, cemeteries, and fraternities and sororities.

Historically, not-for-profit organizations generally benefited from laws affording charitable immunity from tort actions. As not-for-profit organizations were established for educational or charitable purposes, the rationale for such laws was based on a belief that a charity's resources should not be used to pay for a tortfeasor's injuries. Most states subsequently repealed such laws or greatly limited their applicability. Currently, with some exceptions, not-for-profit organizations are generally responsible for their actions and the actions of their agents.

While lawsuits against directors and officers of not-for-profit corporations are brought less often than those against their for-profit counterparts, the cost of defending a D&O claim can be substantial and disruptive to the day-to-day operations of any business. In some respects, directors and officers may be at a greater risk of liability in a not-for-profit company than they would be in a for-profit corporation, as many not-for-profits have smaller budgets, fewer personnel performing more functions, and often, less formal policies and procedures in place to protect them against claims. Consequently, many not-for-profit entities may have a significant need for D&O insurance, just as for-profit entities do. This chapter discusses legal issues pertinent to the D&O claim exposure of not-for-profit corporations.

Fiduciary Duties of Not-for-Profit Directors and Officers

A major source of for-profit corporate liability originates from the duties owed by directors and officers to the corporation and its shareholders. Directors and officers of not-for-profit corporations generally owe the same duties to their members (if the organization has members) that their for-profit counterparts owe to shareholders. However, given the limited financial nature of not-for-profit corporations, obligations owed to members by directors and officers tend to flow from the duties of loyalty and care owed to the corporation itself. As with for-profit organizations, the states generally permit indemnification of not-for-profit directors and officers through statutes that identify the standard of conduct the directors or officer must meet in order to be eligible for indemnification.

Historically, directors and officers of not-for-profit organizations were subject to the higher fiduciary standard of care applied to trustees. Trustees are expected to exercise reasonable care and skill and they are held liable for ordinary negligence. Over the last two decades the law has evolved so that today, the standard of care for not-for-profit directors and officers is comparable to that which applies to directors and officers of for-profit corporations. Generally, directors and officers of not-for-profit organizations have three fiduciary duties: the duty of care, the duty of loyalty, and the duty of obedience. These duties are owed to the organization itself, fellow directors and officers, and, in some circumstances, to third parties and donors. While there is a broader discussion of fiduciary duties owed by directors and officers in Chapter Two, the fiduciary duties of directors and officers of not-for-profit corporations are briefly discussed below.

In 1987, the American Bar Association promulgated The Revised Model Nonprofit Corporation Act (2) (RMNCA), which has been adopted by several states. Many state statutes and the RMNCA define the duty of care as requiring a director to discharge his or her duties as a director, including his or her duties as a member of a committee (1) in good faith; (2) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and (3) in a manner the director reasonably believes to be in the best interests of the corporation. (3) The law governing the duties of directors of corporate institutions is well settled: "[D]irectors are required to exercise ordinary care, prudence, skill, and judgment, and reasonable diligence; the same degree of care and prudence that men, prompted by self-interest, generally exercise in their own affairs." (4) In practical terms, this means that directors must actively participate in decision making and act carefully in fulfilling their responsibilities.

If directors act in good faith, with ordinary prudence, and in the best interests of the corporation, they can rely on the protection of the business judgment rule when faced with a D&O claim. Although the specific application of the business judgment rule can vary by state, it is generally presumed that in making a business decision, the directors of a corporation acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interest of the company. Although the business judgment rule has historically applied in the for-profit context, it has been used as a defense to claims against not-for-profit in recent years.

Corporate directors and officers are fiduciaries of the organization and owe "undivided and unselfish loyalty to the corporation." (5) A director must not use his position of power for his own interest or that of another person or entity. Similarly, a director may not take advantage of an opportunity without first giving the not-for-profit corporation the opportunity to decline it. According to the doctrine of corporate opportunity, "corporate fiduciaries and employees cannot, without consent, divert and exploit for their own benefit any opportunity that should be deemed an asset of the corporation." (6) An officer or director may not seize for himself, to the detriment of his company, business opportunities in which his company has an interest and prior claim to obtain. In the event that he does seize such opportunities in violation of his fiduciary duty, the corporation may claim for itself all benefits so obtained." (7) The duty of loyalty does not end there. A director must not disclose the organization's confidential information, such as the corporation's transactions or other activities that have not been disclosed publicly. Examples of breach of the duty of loyalty include competing with the corporation, usurping corporate opportunities, and breaching confidentiality.

Under the RMNCA, a conflict of interest arises when a director of the corporation has a direct or indirect interest in a corporate transaction. (8) In such situations, state laws generally require that the director disclose the existence of the conflict before any action is taken by the corporation. It is often suggested that the conflicted director should recuse himself or herself from the transaction at issue. However, not all transactions or activities that involve conflicts of interest are prohibited. (9) For example, a director may have a personal interest in a transaction with the not-for-profit organization, such as when a director is willing to sell a piece of property to the organization. Even though this situation presents a clear conflict of interest, the director may be willing to sell the property for below the market value given his or her commitment to the organization. Consequently, the not-for-profit organization would benefit from the transaction even though there is a conflict of interest.

The duty of obedience refers to the prohibition placed on the directors of not-for-profit organizations from engaging in activities or transactions that are outside the scope of the organizations' stated purposes and goals. While the RMNCA does not specifically address the duty of obedience, the concept has been addressed by some courts. For example, a New York Superior Court explained that the duty of obedience requires the director of a not-for-profit corporation to "be faithful to the purposes and goals of the organization." (10) One reason for requiring the duty of obedience stems from the need to protect the wishes of donors to the not-for-profit organization. When donors contribute to a not-for-profit organization, they rely on the not-for-profit organization's dedication to its purposes and goals. The duty of obedience also requires that the directors comply with all federal and state regulatory and filing requirements.

The Impact of Sarbanes-Oxley Act on Not-For-Profit Organizations

The American Competitiveness and Corporate Accountability Act of 2002, commonly known as the Sarbanes-Oxley Act (Act), was signed into law on July 30, 2002. Its passage was in response to the corporate and accounting scandals involving Enron, Tyco, WorldCom and other publicly traded companies. The purpose of the Act was to protect investors by improving the accuracy and reliability of corporate disclosures. Although all but two (11) of the Act's provisions do not apply to not-for-profit organizations, it is expected to have a significant impact on the non-profit community in the long term and some not-for-profit organizations have voluntarily adopted its provisions. In addition, several states have either adopted or proposed state laws similar to the Act that apply to not-for-profit organizations. California was the first state to extend Sarbanes-Oxley type provisions to not-for-profit organizations through state legislation by enacting the Nonprofit Integrity Act of 2004. (12) Other states quickly followed by proposing state laws similar to the Act, but applying solely to not-for-profit organizations. (13) The penalties for violating the California law range from late fees and civil penalties to the potential of being banned from fundraising in California.

Legislation Limiting the Liability of Directors and Officers

Concerned that individuals may be deterred from becoming involved in charitable and not-for-profit organizations due to the perception that they would be putting their personal assets at risk in the event of tort actions arising from volunteer activities, many states have enacted immunity statutes for directors, officers, and other persons serving with not-for-profit corporations. Such statutes limit the potential liability of those involved in such organizations. Generally, however, these statutes only protect unpaid directors, officers, and volunteers if their actions are done in good faith as part of their official duty. Under such statutes, tort immunity is generally not afforded to directors, officers, and volunteers for acts of gross negligence or willful and wanton tortious acts. (14)

In addition, Congress responded to similar nationwide concerns by enacting the Volunteer Protection Act in 1997. (15) This Act protects volunteers from personal financial liability for carrying out the official duties and functions of a not-for-profit organization or governmental agency in good faith. Under the Volunteer Protection Act a volunteer is still liable for violent crimes, terrorism, hate crimes, sexual offenses, or for tortious acts commuted while under the influence of drugs or alcohol. (16) Even where directors, officers, or volunteers are entitled to immunity, they still may be sued and may incur substantial defense fees and costs in establishing that they are entitled to immunity.

Claims Against Not-for-Profit Organizations

As with for-profit entities, not-for-profit companies that have employees are subject to federal and state employment laws. In fact, depending on the size of the company and the adequacy of some employment practices and procedures put into place by management, employment claims can be one of the not-for-profit company's largest sources of exposure. Employment laws and the claims arising under such laws are discussed in Chapter Two. Other types of claims brought against not-for-profit organizations are discussed in the following paragraphs.

Derivative Lawsuits

In the for-profit context, a derivative action is a lawsuit brought by a shareholder on behalf of the corporation against the directors, management and/or other shareholders of the corporation. While not-for-profit entities do not have shareholders, a derivative action may be brought against their directors and officers by certain classes of individuals or entities (members, for example) having the standing to bring such a lawsuit. Many states expressly authorize derivative actions against not-for-profit entities. (17) Claims of this type are not made to compensate an individual but rather to make the corporation whole after a loss is sustained by the organization as a result of a breach by a director or officer. However, given the restrictive nature of the standing rules, claims of this type are not prevalent. Those with standing to bring suit against the directors and officers include the following:

* The not-for-profit entity itself, which may bring an action against its own directors and officers'

* Directors and officers of the not-for-profit entity, who may sue another board member alleging a violation of a duty owed to the not-for-profit;

* Directors and officers of member associations, who may sue board members alleging harm to the interests of the member association; and

* State attorneys general who, in most states, represent the interests of the general public, typically have standing to maintain derivative actions on behalf on the not-for-profit entity itself in order to assure the proper management of the public benefit corporation.

Examples of derivative lawsuits brought against not-for-profit organizations include the following:

* In Illinois, directors of a foundation brought an action against fellow directors seeking to prevent the transfer of the foundation's art collection. (18)

* In Ohio, a court held that members of a property owners' association could bring a claim, on behalf of the association, against the general manager of the association for breach of fiduciary duties and fraud. (19)

* In New York, the New York Attorney General brought an action against the New York Stock Exchange alleging that compensation paid to its former chairman and CEO was not reasonable and commensurate with services provided. (20)

Claims by Government Agencies

In addition to derivative suits brought by the state attorneys general, not-for-profits may face exposure for claims brought by other governmental agencies, including the Internal Revenue Service, as a result of problems occurring in connection with their special tax-exempt status. In this regard, U.S. Tax Code, section 501(c), exempts certain organizations from federal corporate income tax, qualifies the organization for discounts on postal rates and gives it access to government and private grants. (21) Section 501(c) provides for many classes of not-for-profit/tax-exempt businesses including: charitable organizations, (22) trade and professional associations, (23) labor organizations/unions, (24) social service agencies/social welfare organizations, (25) social clubs, (26) fraternal benefit societies, (27) veterans associations, (28) burial and cemetery associations, (29) non-profit cooperatives, (30) and non-profit financial institutions. (31) The Tax Code lists specific requirements for these classes of not-for-profits, the breach of which exposes the not-for-profit entity to fines and penalties. For example, charitable organizations must comply with the following in order to retain their tax-exempt status:

None of the earnings may inure to any private shareholder or individual:

* The organization may not attempt to influence legislation as a "substantial part" of its activities;

* The organization may not participate at all in campaign activity for or against political candidates; and

* The organization must not engage in activities, other than as an insubstantial part of such activities, not in furtherance of an exempt purpose.

In addition, since 1996 the IRS has been empowered to fine and otherwise penalize executives of not-for-profit entities who receive excessive compensation for services and benefits, as well as officers, directors, or trustees who approve such arrangements. Prior to 1996, the IRS could only revoke a not-for-profit's tax-exempt status. A few years ago, the IRS launched its Tax Exempt Compensation Enforcement Project through which it contacted hundreds of public charities and private foundations regarding their compensation practices. The IRS warned not-for-profit entities to expect audits, particularly those not-for-profits who filed a required annual tax form (no. 990) without proper compensation information and the nearly two hundred organizations that pay an executive or board member more than one million dollars a year. Under those laws, the IRS may investigate not-for-profits in order to ensure that the compensation and prerequisites are reasonable, authorized by impartial boards, and that it is comparable to those provided by other entities. These investigations have prompted greater awareness among directors and officers of not-for-profits to ensure that compensation is not unreasonable, and that there is sufficient disclosure of the terms of his compensation to the board members who approved it.

Congress has also expressed concern over improper transactions that benefit not-for-profit insiders. An excess benefit transaction is a transaction in which an economic benefit is provided by a tax-exempt organization, directly or indirectly to or for the use of a disqualified person, (32) and the value of the economic benefit provided by the organization exceeds the value of the consideration received by the organization. (33)

An excess benefit can occur in an exchange of compensation or other compensatory benefits in return for the services of a disqualified person, or in an exchange of property between a disqualified person and the tax-exempt organization. Prior to 1996, the only action the IRS could take against a not-for-profit engaging in such transactions was to revoke the organization's tax-exempt status. While Congress was concerned with the impropriety of such insider transactions, this punishment was deemed too harsh. As a result, Congress empowered the IRS to assess a stiff monetary penalty--an excess benefit transaction excise tax--on both those who authorized the transaction and the insiders who benefited from it. Through this tax, Congress intended to ensure that charity leaders do not receive exorbitant pay and perquisites and that trustees and top officials do not approve any overly generous financial arrangements for friends and family members. The law is known as "intermediate sanctions" because it allows the IRS to fine the wrongdoers rather than imposing the ultimate sanction of taking away a charity's tax exemption. However, under certain circumstances, the IRS may impose intermediate sanctions in addition to taking away the not-for-profit's tax-exempt status.

Claims by Members

As discussed throughout this chapter, not-for-profit entities are distinct from for-profit corporations, which have shareholders that derive profit from their holdings in the entity as well as have a voice in determining the corporation's governance by electing the board of directors. However, some not-for-profits have members whose role is roughly analogous to that of a voting shareholder in a for-profit enterprise, as the members elect the board of directors of the organization. In not-for-profit entities that do not have members, the board of directors often elects its own successors.

The number of lawsuits filed against directors and officers of not-for-profit corporations by members has traditionally been dramatically fewer than those brought against for-profit corporations by shareholders. One reason for this situation may be that not-for-profit members, as a result of their commitment to the organization, make the conscious choice to avoid litigation so as not to impede the mission and goals of the organization by embroiling the entity (and its frequently limited resources) in a lawsuit. In addition, the types of lawsuits that members can bring against not-for-profits are somewhat limited. For example, while class action lawsuits alleging decreased stock value as a result of mismanagement or fraud are frequently brought by shareholders in the for-profit arena, the more limited nature of the duties owed by not-for-profits to their members, as well as the absence of a financial interest in the organization, effectively limits the number of class action lawsuits filed against not-for-profit entities.

Although derivative actions are commonly brought against for-profit companies, this remedy was traditionally denied to members of not-for-profit organizations by the common law since they did not have a financial interest in the organization and therefore had no standing to bring suit. The responsibility of bringing a claim against directors and officers of not-for-profit entities typically rested with the Attorney General of each state. However, as discussed earlier on in this chapter, many states now permit members to bring derivative actions based on the rationale that even though they may not have a financial interest in the organization, they do have an interest in the proper and efficient operation of the organization. A not-for-profit organization's members may also bring other types of claims against it, such as those based on discrimination or fraud. One example of a not-for-profit organization with members is a trade association. Claims against trade associations are discussed in the following paragraphs.

Trade Associations

In cases where the not-for-profit has members, such as a trade association comprised of businesses in the same industry, the members usually have standing to bring a derivative action against the organization's directors and officers. In addition, not-for-profit organizations may face exposure for claims brought under federal and state antitrust laws.

Since not-for-profit trade associations are, by definition, groups of competitors gathered to share common interests and seek solutions to common problems, antitrust laws have special relevance to trade associations and may be implicated in a variety of association activities. It is well-settled that membership in an association or attendance at association meetings may not be considered evidence of a conspiracy to restrain trade or competition. However, as trade associations often provide benefits that allow members to more effectively compete in the industry, membership criteria that effectively create a barrier to membership may give rise to antitrust liability. Not-for-profits that have the authority to establish trade standards that influence an industry, or control membership admittance into the industry, may be subject to antitrust claims by individuals or entities who allege that the not-for-profit's actions have an anticompetitive impact on their businesses. The risk of antitrust claims is greater where the not-for-profit exercises powers of accreditation or certification over individuals or institutions. Some examples of antitrust lawsuits filed against associations include the following:

* In United States v. Realty Multi-List, Inc., (34) the court found that a real estate membership organization's "favorable credit report and business reputation" membership criteria were facially unreasonable and created unjustified restraints on commerce. In so doing, the court held that "[s]ubjective membership criteria are generally not narrowly tailored to accomplish any legitimate goal of an association."

* In Weight-Rite Golf Corp. v. U.S. Golf Association, (35) a golf shoe manufacturer asserted antitrust claims against the USGA when many retailers ceased carrying their shoe after the USGA determined that the use of their shoe, which assisted golfers in distributing their weight, violated the USGA's Rules of Golf restricting the kind of equipment that can be used in an event.

Claims by Donors

Donors can sue not-for-profit entities and charitable trusts under certain limited circumstances. In Smithers v. St. Luke's-Roosevelt Hospital Center, (36) the widow of a deceased donor brought suit to enforce the terms of a charitable gift to a hospital. The donor made the gift with the understanding that certain terms related to the operation of the eponymous alcoholic treatment center funded by the gift would be met in perpetuity. Those terms provided, in part, that the center be off-site from the hospital and that money contributed for or generated by the center be folded back into the center's endowment. However, the hospital attempted to sell the building housing the center, which was purchased as part of the endowment, and commingled its funds with those gifted to the center.

The donor's widow obtained appointment through the probate court as the special administratix of the estate as it related to the donated gift. She then sued to enforce the terms of the gift. The hospital and New York Attorney General opposed her suit on the ground that she did not have standing to sue. (37) The court held that a donor may always enforce the terms of a gift. This power extended to the donor's estate, and thereby to the specially appointed administratix. As the widow had been appointed a representative of the estate, the court held that she had standing to enforce the gift on its behalf. The court did not consider whether the widow would have had standing had she not been appointed administratix.

Claims by Beneficiaries

Beneficiaries of a charitable trust or not-for-profit entity may not generally bring suit against the trust or not-for-profit entity. Nonetheless, a suit may be maintained by a person who has a special interest in the enforcement of a charitable trust, but not by persons who have no such special interest. (38) The court in Milton Hershey School set forth a multifactor test for determining whether a person has such a special interest, which includes the following criteria: (1) the extraordinary nature of the acts complained of and the remedy sought; (2) the presence of fraud or misconduct on the part of the charity or its directors; (3) the attorney general's availability or effectiveness; (4) the nature of the benefited class and its relationship to the charity; and (5) subjective, case-specific circumstances. (39)

In Robert Schalkenbach Foundation v. Lincoln Foundation, Inc., (40) the court used the same multifactor test set forth in Milton Hershey School. However, the court refused to apply the first two factors as it found that considering the nature of the allegations in any complaint would frustrate the intent of limited standing to pursue charitable trusts. (41) The court also cited to the Restatement (Second) of Trusts Section 391 (1951) for the proposition that the mere fact that a person is a potential beneficiary of a charitable trust is not enough to confer standing to sue. However, where a charitable trust is created for the members of a small class of persons, a member of the class can maintain a suit. (42)

Claims Arising from Fundraising Activities

Most states require charities that solicit contributions from the public and through paid fundraising organizations to register with the state. In recent years, some states have increased regulations for the solicitation and use of these charitable funds. Several Supreme Court decisions have held that some regulations barring fees in excess of a certain level effectively impose prior restraints on fundraising, and are incompatible with the First Amendment. (43)--However, in the interest of preventing fraud, states continue to statutorily regulate the fundraising and allocation practices of charitable organizations in a variety of ways including requiring explanations of the non-profits' missions, how their funds will be used, and disclosures of financial statements. (44)

Furthermore, in recent years, the IRS has placed increased scrutiny on charitable organizations in response to wrongful funding practices. Over the last few years, the IRS stepped up its enforcement of the not-for-profit sector by increasing their staff, investigating salaries and benefits at thousands of charities and private foundations, and examining dozens of individuals who promoted abusive charitable arrangements. (45) In fact, in the last few years, as the IRS began an investigation of nearly all down payment assistance charities that use seller funds, this may be the beginning of an era of heightened IRS scrutiny for the charity sector. (46)

End Notes

(1.) Revised Model Nonprofit Corporation Act [section] 2(c) (1964).

(2.) Revised Model Nonprofit Corporation Act (1987) [hereinafter RMNCA].

(3.) [section]8.30.

(4.) Broderick v. Horvatt, 266 N.Y.S. 341, 344, 148 Misc. 731, 733 (N.Y. Sup. Ct.1933).

(5.) IOS Capital, Inc. v. Phoenix Printing, Inc., 348 Ill.App.3d 366, 373, 808 N.E.2d 606, 612 (2004).

(6.) Alexander & Alexander of New York, Inc. v. Fritzen, 542 N.Y.S.2d 530, 533, 147 A.D.2d 241, 246 (N.Y.App. Div.1989) (citing Brudney and Clark, A New Look at Corporate Opportunities, 94 Harv.L.Rev. 997, 998 (1981)).

(7.) Xum Speegle, Inc. v. Fields, 216 Cal.App.2d 546, 554, 31 Cal.Rptr. 104, 107 (1963).

(8.) RMNCA [section] 8.31(a).

(9.) See Id.

(10.) Manhattan Eye, Ear & Throat Hosp. v. Spitzer, 715 N.Y.S.2d 575, 593 (N.Y. Sup. Ct. 1999).

(11.) It is a federal crime for anyone to "knowingly, with the intent to retaliate, take any action harmful to any person ... for providing to a law enforcement officer any truthful information relating to the commission of a federal offence." 18 U.S.C.A. [section] 1513. It is a federal crime to alter, cover up, falsify or destroy any document or make a false entry in accounting records with the intent of obstructing a federal investigation. 18 U.S.C.A. [section] 1519.

(12.) Nonprofit Integrity Act of 2004, 2004 Cal. Stat. 919.

(13.) See H.B. 4234, 183d Gen. Ct., 2d Ann. Sess. (Mass. 2004); H.B. 1408, 158th Leg., Reg. Sess. (N.H. 2004); L.D. 1691, 121st Leg. Reg. Sess. (Me. 2004).

(14.) See gen,. Ariz. Rev. Stat [section] 12-982 (2006); Colo. Rev. Stat. Ann. [section] 13-21-115.5 (2006); Del. Code 10, [section] 8133 (2006); N. J. Stat. Ann. [section] 2A:53A-7.1 (2006).

(15.) Volunteer Protection Act of 1997, Pub. L. No. 105-19, 111 Stat. 218 (1997).

(16.) 45 U.S.C. 14501 (1997).

(17.) See, e.g., N.C. Gen. Stat. [section] 55A-7-40 (2008); Revised Model Nonprofit Corp. Act [section] 6.30 (1987).

(18.) See Buntrock v. Terra 810 N.E.2d 991 (Ill. App. Ct. 2004).

(19.) See Sayyah v. O'Farrell, 2001 WL 433789 (Ohio Ct. App. Apr. 30, 2001).

(20.) See New York v. Grasso, 350 F. Supp 2d 498 (S.D.N.Y 2004).

(21.) IRC [section] 501(c) (West Supp. 2008).

(22.) [section] 501 (c)(3).

(23.) [section] 501 (c)(6).

(24.) [section] 501 (c)(5).

(25.) [section] 501(c)(4).

(26.) [section] 501(c)(7).

(27.) IRC [section] 501(c)(8), (10) (West Supp. 2008)

(28.) [section] 501(c)(23).

(29.) [section] 501(c)(13).

(30.) [section] 501(c)(12).

(31.) [section] 501(c)(14), (15).

(32.) A disqualified person with respect to a transaction is "(A) any person who was, at any time during the 5year period ending on the date of such transaction, in a position to exercise substantial influence over the affairs of the organization [including directors of the corporation], (B) a member of the family of an individual described in subparagraph (A), and (C) a 35-percent controlled entity." IRC [section] 4958(f)(1).

Persons having substantial influence include: voting members of the governing body (e.g., directors, trustees), presidents, chief executive officers, chief operating officers, and chief financial officers, and chief financial officers. Persons deemed not to have substantial influence include: employees who both: (1) receive economic benefits from the organization of less than $95,000 (in 2005), and (2) do not hold executive or voting powers.

(33.) 26 C.F.R. [section] 53.4958-1(b)

(34.) United States v. Realty Multi-List, Inc., 629 F.2d 1351 (5th Cir. 1980).

(35.) Weight-Rite Golf Corp. v. U.S. Golf Association, 766 F. Supp. 1104 (M.D. Fla. 1991).

(36.) Smithers v. St. Luke's-Roosevelt Hospital Center, 281 A.D.2d 127, 723 N.Y.S.2d 426, (N.Y. App. 2001).

(37.) The New York Attorney General, and the attorney generals of each and every state, is empowered by statute to oversee charitable gifts and trusts with no specific beneficiary and had improperly entered into agreements with the hospital allowing it to violate the terms of the gift.

(38.) In re Milton Hershey School, 867 A.2d 674, 687 (Pa. Commw. 2005).

(39.) Id. at 689.

(40.) Robert Schalkenbach Foundation v. Lincoln Foundation, Inc., 208 Ariz. 176, 91 P.3d 1019 (Ct. App. Ariz. 2004).

(41.) Id. at 182.

(42.) Robert Schalkenbach Foundation, 208 Ariz. at 182.

(43.) Schaumburg v. Citizen for a Better Environments, 444 U.S. 620 (1980); Secretary of State of Md. v. Munson Co., 467 U.S. 947 (1984); Riley v. National Federation of Blind of N.C., 487 U.S. 781 (1988)

(44.) See Illinois, ex rel. Madigan v. Telemarketing Associates, 538 U.S. 600 (2003); Famine Relief Fund v. State of W.V., 905 F.2d 747 (Ct. App. 1990).

(45.) Ashlea Ebeling, The Coming Charity Crackdown, Forbes, Aug 15, 2005,

(46.) Jacquelin Salmon and Kirstin Downey, IRS Ruling Imperils 'Gift Fund' Charities for Home Buyers, Wash. Post, June 2, 2006, article/2006/06/01/AR2006060101969.html.
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Publication:Directors & Officers Liability Coverage Guide
Date:Jan 1, 2008
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