Tuesday, April 10, 2018

Language Matters (Non-LLC edition): "Fiduciary" Does Not Mean "Financial"

I often use my space here to complain about courts and lawmakers being imprecise with regard to limited liability companies (LLCs).  Today, I will focus on my home state of West Virginia, which recently passed a bill to support (and provide loans for cooperatives designed to provide) much-needed broadband development in the state. I applaud the effort, but the execution was not great.  

Here's an example from the West Virginia Code

12-6C-11. Legislative findings; loans for industrial development; availability of funds and interest rates.

. . . .

(f) The directors of the board shall bear no fiduciary responsibility with regard to any of the loans contemplated in this section.

This applies to a cooperative board that takes on loans for broadband projects.  But it doesn't make sense. I think they used "fiduciary" when they meant "financial," as I assume they meant to say that the board members of the organization would not have “financial liability.”  I am pretty sure they did not mean to remove fiduciary duties.  Then again, who knows. Maybe they are fine with the directors using loans for personal vacations.  (Just kidding. I am pretty sure they'd care.)  I know that in finance, the term fiduciary can be used to describe money (meaning some that that relies on public trust for value), but that does not make sense here, either. 

When the legislature returns for the next session, I plan to see if I can get this amended to track the LLC liability defaults. Maybe something like: 

"(f) The directors of the board are not personally liable for any of the loans contemplated in this section."

I won't hold my breath, but it's worth a try.  

http://lawprofessors.typepad.com/business_law/2018/04/language-matters-non-llc-edition-fiduciary-does-not-mean-financial.html

Corporate Finance, Joshua P. Fershee, Legislation, Nonprofits | Permalink

Comments

You might well be right, but it's possible that folks behind the co-ops might be thinking of cases like Brane v. Roth, 590 N.E.2d 587 (Ind. Ct. App. 1992), where the elected, unpaid farmers who served on the board of a local grain co-op were held liable for losses suffered on grain contracts because they did not hedge them. Myself, I wouldn't want to serve on a volunteer co-op board if I were going to be personally liable for the loans in any what whatsoever. But I'm risk averse . . . .

Posted by: Frank Snyder | Apr 11, 2018 9:04:00 AM

Agreed, Frank, in that I would not want any personal liability on the loans either. But, as I read it, the language in the statute suggests there are no fiduciary duties for the board members as to the loans. And, as I think about it, even if the directors have no fiduciary obligations, it would not clearly eliminate their financial liability, so it is an especially poor provision. I think my proposed language would make both of us more comfortable.

Posted by: Joshua Fershee | Apr 11, 2018 10:57:33 AM

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