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Breach of Fiduciary Duties

A court ruled that the directors of a charitable trust could be sued for breach of fiduciary duties.

• A New York appeals court ruled that directors of a charitable trust could be sued for breaching their fiduciary duties. A child of the founder of the trust filed a lawsuit seeking to remove 8 of the trust's 11 directors. He asserted that the 8 directors breached their fiduciary duties, mismanaged the trust's investments, and negligently selected the trust's investment advisor. A trial court dismissed the lawsuit on the basis of the "business judgment rule," and the case was appealed. A state appeals court reversed the trial court's judgment, and ruled that the 8 directors could be sued. It began its opinion by noting that the New York Not-For-Profit Corporation Law requires that the officers and directors of a nonprofit corporation "discharge the duties of their respective positions in good faith and with that degree of diligence, care and skill which ordinarily prudent men would ...

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Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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Posted:
  • November 2, 1992

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