Top Five Legal Risks Facing Lodge Officers

Moose International, Inc.

2014 International ConventionJune 23, 2014, 10amLas Vegas, Nevada

Top Five Legal Risks Facing Lodge Officers

PRIVILEGED AND CONFIDENTIAL


PRIVILEGED AND CONFIDENTIAL2

Introduction

This presentation addresses some issues related to Lodge Officer liability. It is not designed to be a comprehensive recitation of all applicable laws and principals. Instead, it is meant to highlight the important and current issues in this area.



Board officers of non profits often worry about being sued

It’s one thing to give of your time and attention…and even to give of your money…it’s quite another issue to risk unlimited personal liability if something goes wrong

Directors and Officers are properly concerned about two kinds of risk:1. Potential liability to the organization for failing to fulfill their “fiduciary” duties

2. Potential liability to unrelated third parties for injury or property damage arising from their acts or omissions on behalf of the organization, ie the same type of liability you face in your daily activities, where you can be sued for causing an accident

Partial list of typical claimants:- Members- Employees- Creditors- Customers/Clients- Competitors- Government Regulatory Agencies



Agenda

Objectives

Board Of Officers Responsibilities

Sources Of Personal Liability

Protections From Liability

Pick A State…Massachusetts


PRIVILEGED AND CONFIDENTIAL

Training Objectives

Understand that Boards of Officers have fiduciary duties

Learn that it may be unlawful to breach these duties

Know who can sue an Officer

Understand the potential protections from personal liability

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Board of Officers Responsibilities: Fiduciary Duties

Fiduciary Duty: - a fiduciary relationship exists between two persons when one of them is under a

duty to act for or to give advice for the benefit of another upon matters with the scope of the relationship

- Lodge officers owe fiduciary duties to the Lodge corporation as well as to the members of the corporation

The Revised Model Nonprofit Corporation Act (1987) provides that corporate officers are subject to principal fiduciary duties in carrying out their governance responsibilities:

1) duty of care and 2) duty of loyalty

Governing Documents



Fiduciary Duties: 1) Duty of Care

The Duty of Care is generally spelled out in the state nonprofit corporation law. In Illinois, it is spelled out in IL 805 ILCS 105/ Art 8- that which an ordinarily prudent person is a like position would exercise under

similar circumstances A prudent person is a generalist with the ability to oversee and evaluate corporate

performance, review and approve major corporate plans and actions, and perform functions normally performed by for profit directors

Like position takes into account size, type and complexity of the corporation

- Reliance. Most statutes provide that a board member may rely in good faith on information presented by officers or employees of the corporation, by counsel, by public accountants or other professionals and by committees of the board, so long as the board member reasonably believes them to be reliable and competent

- Defense- “Business Judgment Rule”



Fiduciary Duties: 2) Duty of Loyalty

The Duty of Loyalty is also generally spelled out in the state nonprofit corporation law. In Illinois, it is spelled out in IL 805 ILCS 105/ Art 8

- Requires the board member to act in good faith and in the best interest of the corporation. The key is to place the interests of the corporation before the officer’s own interests or the interests of

another person or entity

- Conflict of Interest. Exists when an officer has a personal material interest in a proposed transaction to which the corporation may be a party. Conflicts of interest are neither unusual nor generally prohibited under state law Even perceived conflicts of interest may cause transactions to be rendered void Examples:

- Employment or independent contractor agreement between the corporation and an officer or member of the officer’s family- Provision of a good or service to an officer, his family or an entity affiliated with the officer

Some boards take the position that they will have no financial dealings with ANY member of the board. Most boards are not so absolute.

- Confidentiality. Officers should exercise reasonable diligence to keep the corporations private information confidential



Fiduciary Duties: 3) Governing Documents

Duties also arise for officers based on the specific governing documents of the Lodge. These documents define the roles, responsibilities and duties of the different Lodge officers.- Lodge Governing Documents:

1. Articles of Incorporation2. Bylaws3. Lodge Charter4. the General Laws5. Etc.

- Example: General Laws, Chapter 38



An Officer may be personally liable for breach of fiduciary duties

A Moosehaven board member would not ordinarily be personably liable if a nurse’s aide dropped a resident while trying to transfer the resident from a bed to a wheelchair

- Although Moosehaven may be liable for the negligence of the aide, the board members would not be personally liable for the aide’s conduct.

- If however, the board had specifically decided not to train the nurse’s aides in how to make such transfers, knowing that the failure to train created a substantial risk of harm for the residents, a board member who had agreed with that decision might be personally liable for the residents injury

- A dissenting board member should be sure that the minutes reflect his dissenting vote

Lets discuss a Hall Rental example.



The second area of potential personal liability is for injury or damage arising from an officers acts or omissions

This “tort” type liability is substantially the same as you face in your daily activities, where you can be sued for negligent driving that causes an auto accident…every individual is responsible for his own actions

- Employment Claims

- Defamation, Libel and Slander Claims

- Criminal Activity (Assault and Battery, Theft, etc.)



Protections from Liability

1. Statutory Protections

2. Incorporation- Contracts Primer

3. Insurance



Statutory Protections- Federal

Volunteer Protection Act of 1997 (VPA)- Applies to volunteers of: 501(c)(3) organizations, nonprofit public benefit

organizations operated for charitable, civic, educational, religious, welfare or health purposes

- Except as otherwise provided in the VPA, a volunteer SHALL NOT be liable for harm caused by an act or omission of the volunteer on behalf of the organization if: Volunteer acting within the scope of the volunteer’s responsibilities If appropriate or required, the volunteer was properly licensed, certified or

authorized by state authorities Harm not caused by willful or criminal misconduct, gross negligence, reckless

misconduct or a conscious, flagrant indifference to the rights or safety of the individual harmed



Statutory Protections- States

During the 1980s and early 1990s, many states passed volunteer protection laws (sometimes called “shield laws”) to reduce the risk of personal liability for volunteers to charitable organizations.

Some states such as Colorado have enacted statutory immunity to protect individuals who serve a officers of non-profit or charitable organizations from personal liability. C.R.S. # 13-21-115.7:

“…any person who serves as a director, officer, or trustee of a nonprofit corporation or nonprofit organization and who is not compensated for serving as a director, officer, or trustee on a salary or prorated equivalent basis shall be immune from civil liability for any act or omission which results in damage or injury if such person was acting within the scope of such person’s official functions and duties as a director, officer, or trustee unless such damage was caused by the willful and wanton act or omission of such director, officer, or trustee.”

Generally, however, officers should not rely on these statutory protections as they often contain several exceptions, exclusions and qualifications.



Incorporation

A corporation exists independent of its owners as a separate legal entity.

One of the foremost benefits of incorporation is that it can protect the corporate officers from personal liability for the organizations actions

While not absolute, the corporate “veil” is an important safeguard for individuals- Courts typically disregard the corporate entity only when the individual

ignores corporate formalities, uses the corporation to perpetrate a fraud or personally commits a tort or crime



Incorporation (cont.)

The General Laws of the Supreme Lodge:- Sec. 26.8 Incorporating. Every Lodge having substantial assets, operating a social quarters or

if required by the General Governor, shall incorporate under the laws of the state or province in which the lodge is located.

- Sec. 51.4 Incorporating. The associations shall incorporate under the laws of the state or province in which it is located unless Moose International shall determine that incorporating is not necessary.

Why incorporate?- Moose International wants each Lodge and Association to utilize the benefits and protection that

incorporation offers, primarily protection from incurring personal liability for actions of the organization.

- Throughout their existence, the Lodges, Moose Legions and Associations may incur debts of various natures. If the organization is not incorporated or not in good corporate standing, the creditors may look to the Officers to pay off the debts using their own personal funds



Who survives a suit attempting to pierce the corporate veil?

Corporate formalities to be observed:1. Prompt filing of the annual or biannual corporate report

2. Keeping minutes of board meetings

3. Proper signatures on all corporate documents, ie contracts



Contracts Primer- Lodge Officer as Agent

Officers Role/Responsibility- As a representative of the Fraternal Unit, you should not exceed your authority or imply that you

have authority not delegated to you. Knowingly exceeding your authority could result in legal action against you by the Fraternal Unit, the other

party, or both. Such legal action may result in you being held personally liable for the contract or other legal sanctions against you.

Do not make or sign contracts for which you do not have authority.

- Become familiar with General Laws policies and procedures for entering into contracts.

- Never sign a contract in your own name. Doing so will make you personally liable for the contract. When signing a contract for the Fraternal Unit, you always should sign as a representative of the Fraternal

Unit and not in your own name.

- Never sign a contract that requires a personal guarantee from you. Signing a contract requiring a personal guarantee from you makes you liable for the contract if the Fraternal

Unit defaults on the contract.



Contracts Primer- Negotiation and Review Process

Your role as an officer:- negotiate the essential terms (price, quantity, scope of services, delivery, etc.) within the

authority guidelines delegated to you by your Fraternal Unit; evaluate the business risks.- review any contract that is submitted to you to make sure it accurately reflects the business deal

you negotiated.- Read the fine print!

Pre-printed forms almost always have terms and conditions printed on the back that are often onerous and one-sided and may contradict the terms you negotiated.

- Review the proposed deal with the full board.- Present the proposed contract or proposal to the membership for review, questions and/or

approval.

What should you look for in a contract?- Do we have a standard form that is better tailored to the deal?- What are the warranties, indemnities, limitation of liability and remedies provisions?- Does the proposed contract conflict with other contractual or legal obligations of the Fraternal

Unit?



Insurance

Commercial General Liability (Risk Pool)- Provides broad liability coverage to the insured (i.e. the nonprofit corporation) for acts by the

insured causing bodily injury, personal injury, or property damage to a third party- Example: Risk Pool Claim

Directors and Officers Liability- D&O insurance is protection against a breach of “duty” by the directors and officers. D&O pays

for actual or alleged wrong decisions, what the policy calls “wrongful acts”. Although each insurer defines coverage in its own way, D&O insurance generally includes: “any actual or alleged act or omission, error, misstatement, misleading statement, neglect or breach of duty by an Insured Person in the discharge of his/her duties.”

- Examples of claims: Employment related issues such as discrimination, harassment and wrongful termination Failure to provide services Mismanagement of assets

- Example: Failure to obtain Hall Rental



5 Things That Create Personal Liability For Officers Of Corporations In Massachusetts

1. Failure to pay timely wages

2. Minimum Wage and Overtime

3. Workers Compensation

4. Tax Liabilities

5. ERISA Liability

Nutter McClennen & Fish LLP May 11, 2012



Conclusion- Officers Responsibilities

Top Five Legal Risks Facing Lodge Officers

Documents

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