{UAH} Who Can Sue UNAA? Part 2

in the first part below, I explained the duties UNAA leaders owe to us as members.  Today, I explain who can sue UNAA leaders to enforce those duties.

Standing: Who may Sue for Breach of Fiduciary Duties

Because fiduciary duties are owed to UNAA as an organization, there are restrictions on who may bring suit against UNAA leaders who allegedly have breached their fiduciary duties.  In a for-profit corporation, the company's shareholders may bring suit against the directors and management of the corporation.  Such a suit is referred to as a "derivative action", and the shareholders, as owners of the company, sue on behalf of the company on the theory that the company's directors and management have failed to take actions to rectify abuses or errors my management.  While non-profits like UNAA do not have shareholders, but our leaders in may still be sued to enforce compliance with their fiduciary duties by certain plaintiffs possessing legal eligibility, or "standing," to bring a law suit. 

The first kind of potential plaintiff that may sue UNAA leaders for possible breaches of their fiduciary duties are fellow leaders of UNAA.

The second kind of potential plaintiffs are ordinary members of UNAA. Because UNAA members are analogous to shareholders in a for-profit corporation, a suit brought by ordinary members is also referred to as a derivative action/suit.

A third kind of potential plaintiff can be the State Attorney General, who is authorized by statute to enforce the leaders' fiduciary responsibilities to the organisation. 

Finally, as a result of the tax-exempt status of UNAA, the fiduciary duties of UNAA leaders may also be enforced by the Internal Revenue Service (IRS).  The IRS code provides that no part of the net earnings of a tax exempt organisation is to inure to the benefit of any private individual.  Courts have interpreted the non-inurement requirement as a restriction on self-dealing by leaders of tax-exempt organisations. As a penalty for the leaders' breach of their fiduciary duties, the IRS may revoke the organisation's tax-exempt status, and, in some cases, may include an excise tax on the self-dealing party.  State tax law may impose similar constraints on UNAA leaders too. 

thanks

 

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From: Joseph Musoke <joseph.musoke@ymail.com>
To: "unaalist@unaa.memberclicks.net" <unaalist@unaa.memberclicks.net>
Cc: "ugandans-at-heart@googlegroups.com" <ugandans-at-heart@googlegroups.com>; "UNAANET@yahoogroups.com" <UNAANET@yahoogroups.com>
Sent: Monday, October 21, 2013 10:27 PM
Subject: Who Can Sue UNAA? Part 1

In the past few weeks, I have been asked this question so many times.  Below is my brief answer with a warning:  since I am no longer practicing law in a law firm (I left DLA Piper several months ago), I don't have easy access to resources that would help me write a very detailed answer. Ms Liz Rukundo, who is still in Law School, has access to case law and can help us with relevant authorities, if she gets the time!

 

Grounds for suing UNAA leaders: each leader owes UNAA "fiduciary duties". Fiduciary duties are specific legal duties which may be generally characterized as ensuring that the interests of UNAA are paramount. Specifically, UNAA leaders owe us 3 fiduciary duties:

1. the duty of care, which requires that the leaders act reasonably with respect the way they manage UNAA's affairs;

2. the duty of loyalty, which bars UNAA leaders from using their positions in UNAA to promote their own personal interests; and

3. the duty of obedience, which requires UNAA leaders to ensure that UNAA is run in accordance with its charter and bylaws, and that UNAA complies with applicable laws.

Fiduciary duties are governed by State law.  In this case, the State law of Massachusetts would apply because UNAA is registered in Massachusetts (I'll examine the relevant state law in the upcoming parts).

Question for Ms Rukundo:  since most UNAA leaders reside in Dallas, the most recent elections were in Dallas and most of the actions of the leaders that would be complained of are committed largely in TX, should potential plaintiffs first register UNAA  as "foreign corporation" in TX?

 

In the next part, I'll address the question of "who can sue" UNAA leaders for breach of the fiduciary duties.

thanks