Wednesday, February 5, 2014

A Breach of Fiduciary Duty Case Study - Maxwell Manor

Illinois AG SealAn Illinois Appellate Court recently affirmed the grant of summary judgment in favor of the Attorney General against Maxwell Manor, a charitable nonprofit corporation that operated a nursing home, and several of its directors and officers.  The decision, People v. Manor, 2013 IL App. (1st) 113132-U, provides a case study of failure to comply with state law duties, including not only fiduciary duties but also registration and annual report requirements.  The heart of the case was the decision by Executive Director JoeAnn McClandon to cause Maxwell Manor and the family partnership that owned the nursing home's building and land to jointly sell the nursing home to a third party for $13,500,000, followed by not only a failure to report the sale to the Attorney General but also a decision by Ms. McClandon to write a check to herself for $2 million, allegedly in repayment of previous personal loans she had made to Maxwell Manor.  The court's opinion details the repeated failures under state law, including not reporting the alleged personal loans to Ms. McClandon on the required annual reports, the failure to report the sale or to file the required annual reports for the years after the sale occurred, and the failure to properly account for the $2 million transferred to Ms. McClandon.  Not surprisingly, the court affirmed a $2 million judgment against Ms. McClandon, and also the removal of Ms. McClandon and two directors and officers, the dissolution of Maxwell Manor, and the distribution of the organization's remaining assets pursuant to cy pres.

While such situations are fortunately relatively rare, what is rarer still is having such a detailed account of the relevant facts and circumstances and a definitive court ruling laying out both the legal violations and the sanctions imposed.  I think I may have found one of my fact patterns for the next time I teach Not-for-Profit Organizations.

Lloyd Mayer

http://lawprofessors.typepad.com/nonprofit/2014/02/a-breach-of-fiduciary-duty-case-study-maxwell-manor.html

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