{UAH} Who Can Sue UNAA? Part 3

With the ongoing feud in UNAA between the Moses Wilson/Brian Kwesiga camp and Francis Senoga's camp(the Board of Trustees is paralyzed and its decisions are ignored by the Executive, the Council has split into TWO parts and we've TWO Speakers, there's no quorum in the Council so all decisions are made haphazardly via email without any discussions, etc), several people have considered suing UNAA leaders and asked me IF they can sue.
I'm not commenting on the merits of any possible suits because I don't know all the facts.
 
In part 1 (below), I explained the duties UNAA leaders owe to us as members.  In part 2, I explained who can sue UNAA leaders to enforce those duties.
In part 3, I explain that the law does NOT allow UNAA leaders to have liability protection if they violate their fiduciary duties. I also show that Federal and State law do NOT allow UNAA to indemnify leaders if they are sued for ignoring their fiduciary duties. The laws also do not allow UNAA to spend all its money for defending its leaders.
 

Limits on Liability

Non-profit corporations in Massachusetts are allowed to limit directors' and officers' potential personal liability to the corporation itself.

However, such limits must be included in a corporation's articles of incorporation (fyi, Articles of Incorporation and Article 12 of UNAA's constitution provides for such indemnification) but personal liability CANNOT be limited for breaches of a leader's duty of loyalty to the corporation, acts or omissions which are intentional or not in good faith, or transactions from which a leader derived an improper personal benefit.

In addition, liability cannot be limited for acts or omissions dating from before the effective date of the relevant provision in an organization's articles of organization, so amending the articles will not provide retroactive protection to an organization's leaders.

 

Indemnification:

Another rule of Massachusetts law permits a non-profit corporation to indemnify its officers and directors for costs incurred by them in defending claims against them in their role as officers and directors. This protection typically is established through a provision in the organization's articles of incorporation or by-laws, or even by a vote of its directors or members (if any). 
Many non-profit corporations include such rights to indemnification in their organizing documents but make it ultimately subject to the directors' or members' discretion, requiring a vote to trigger the indemnification rights. This approach preserves an organization's control over the circumstances in which the indemnification is provided, but it does not provide much assurance to potential or even current directors and officers. Other complications may arise when an organization seeks to indemnify its officers and directors. For example, restricted funds (e.g our $20 or $50 membership fees) would ordinarily not be available for indemnification coverage, and large expenditures from general funds for indemnification purposes potentially may be considered an improper use of those funds because UNAA would not have any money left on the account.

Unless Massachusetts law or UNAA's constitution provide otherwise, indemnification may also be limited to reimbursement of expenses at the conclusion of the lawsuit rather than advancement of legal expenses as the lawsuit is ongoing (I've to look at UNAA constitution and MA law to see if this is prohibited).

Most importantly, Massachusetts law prohibits indemnification where the leader engaged in intentional or illegal misconduct.

thanks

 

For a faster response please contact me at 415.789.6427

From: Joseph Musoke <joseph.musoke@ymail.com>
Sent: Tuesday, October 22, 2013 4:15 PM
Subject: 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

From: Joseph Musoke <joseph.musoke@ymail.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