Documentary Heritage & Preservation Services | Free Planning & Assessment Services

Planning & Assessment Services Applications Due March 1

There are just a few days left to apply for the current round of DHPSNY's free Planning & Assessment Services! Applications must be postmarked or received via email by Wednesday, March 1, 2017. DHPSNY awards services to a limited number of institutions in three areas: Archival Needs Assesments, Preservation & Conservation Surveys, and Strategic Planning assistance. Visit our Planning & Assessment page to learn more about each and determine which is right for your organization.

Archival Needs Assessments provide assistance in archival program development tailored to specific organizational needs.Click here to learn more and download the application.

Preservation & Conservation Surveys assess an institution's preservation needs, focusing on preventive care and mitigating deterioration and damage.Click here to learn more and download the application.

Our Strategic Planning curriculum was developed in partnership with the New York Council of Nonprofits (NYCON) and is designed to assist small- to medium-sized institutions.Click here to learn more and download the application.

DHPSNY staff is available to answer questions about eligibility and assist you in completing your application. Please contact Program Coordinator Anastasia Matijkiw for assistance or additional information at (215) 545-0613 or amatijkiw@dhpsny.org. Applications are open on a biannual basis, and the next application round will be in fall 2017.

http://dhpsny.org/

Long Island hires and promotions: David Rottkamp, NY Council of Nonprofits

David M. Rottkamp of West Islip has been appointed board chair of the New York Council of Nonprofits in Albany. 

Photo Credit: Grassi & Co.

BOARDS

David M. Rottkamp of West Islip, a CPA and partner at Grassi & Co. in Jericho, has been appointed board chair of the New York Council of Nonprofits in Albany.

Jennifer Ackroyd of Southold, assisted-living administrator and skilled nursing assistant administrator at Peconic Landing in Greenport, has joined the board of directors for the Alzheimer’s Association Long Island Chapter in Melville.

Mark S. Mulholland of Bayport, partner at Ruskin Moscou Faltischek in Uniondale, has been named chairman of the board of directors at Brookhaven Memorial Hospital Medical Center in Patchogue.

Brandon Kurz of Port Washington, program director at Port Washington Youth Activities, has been promoted to executive director.

The YMCA of Long Island Inc. Association has expanded its leadership team with two new hires.

Shannon Cussen of Manhattan has been hired as executive director of youth development and education at the association in Glen Cove. She was assistant director of the Prospect Park YMCA Early Childhood Center in Brooklyn.

Frank McDonald of Oak Beach has been hired as executive director of the Huntington YMCA. He was vice president of program development and camping for the Old Colony YMCA in Brockton, Massachusetts.

February 21, 2017 5:14 PM 
By Diane Daniels  peopleonthemove@newsday.com
http://www.newsday.com/

Risk Management: Directors of Nonprofits

Court of Appeals to Directors of Nonprofits: “Nonprofit” Does Not Mean “No Risk for You”

WRITTEN BY BRUCE A. ERICSON, JERALD A. JACOBS, AND MARLEY DEGNER
CREATED ON WEDNESDAY, 22 APRIL 2015 12:29

The U.S. Court of Appeals for the Third Circuit recently upheld a $2.25 million jury verdict against the directors of a nonprofit nursing home, holding them personally liable for breach of their duty of care. Their sin? Failing to remove the nursing home’s administrator and CFO “once the results of their mismanagement became apparent.” While the court overturned a punitive damages verdict against five directors (the jury had found nine other directors liable for compensatory damages but not punitive damages), it upheld punitive damage awards of $1 million against the CFO and $750,000 against the Administrator. The decision, while unusual, illustrates that serving on a nonprofit board is not risk-free even if as in this case, the directors do not breach their duty of loyalty or engage in any self-dealing. [In re Lemington Home for the Aged, 777 F.3d 620 (3d Cir. 2015).]


The Lemington Home Case

Founded in 1883, the Lemington Home for the Aged was the oldest nonprofit unaffiliated nursing home in the United States dedicated to the care of African Americans. For decades, the Home had been “beset with financial troubles” and by the early 2000s it was being cited by the Pennsylvania Department of Health for deficiencies at a rate almost three times greater than the average.

In 2004, the Home’s Administrator [Mel Lee] Causey started working part-time while continuing to draw a full salary. That same year, two patients died under suspicious circumstances; an investigation by the Department of Health found that Causey lacked the qualifications, knowledge and ability to perform her job. An earlier independent review also recommended that Causey be replaced. Although the Board obtained a grant of over $175,000 to hire a new Administrator, the funds were used for other purposes and Causey stayed on.

The Home’s patient recordkeeping and billing were in a state of disarray. The Home was cited repeatedly for failing to keep proper clinical records. CFO Shealey stopped keeping a general ledger, instead simply recording cash transactions on an Excel spreadsheet. When a consultant conducting an assessment of the Home for a major creditor requested records, Shealey responded by locking himself in his office, forcing the consultant to “camp outside.” Shealey also failed to collect at least $500,000 from Medicare because he stopped sending invoices.

In January 2005, the Board voted to close the Home, but concealed that fact for three months before filing for bankruptcy. In those three months, the Home stopped accepting new patients, making it less attractive to potential buyers. While in bankruptcy, the Board failed to disclose in its monthly operating reports that the Home had received a $1.4 million payment, which could also have increased its chances of finding a buyer. The court held that these facts supported the jury’s verdict that the defendants had “deepened” the corporation’s insolvency, which the court said was actionable under Pennsylvania law. [777 F.3d at 630.]

The court of appeals upheld the jury’s compensatory damages verdict against the directors despite the Home’s bylaw provision protecting the directors from claims for simple negligence and requiring proof of selfdealing, willful misconduct or recklessness. [Lemington, No. 10-800, 2013 WL 2158543, at *6 (W.D. Penn. May 17, 2013).] Both the court of appeals and the district court held that the evidence supported a finding that the directors breached their duty of care by recklessly (1) continuing to employ the Administrator despite actual knowledge of mismanagement and despite knowing that she was working only part-time in violation of state law; and (2) continuing to employ the CFO despite actual knowledge of mismanagement, including his failure to maintain financial records. [777 F.3d at 628-30; 2013 WL 2158543, at *7; In re Lemington Home for the Aged, 659 F. 3d 282, 286-87 (3d Cir. 2011).] Despite these holdings, the court of appeals reversed the award of punitive damages against the five directors, holding that there was insufficient evidence that they possessed the requisite state of mind and no evidence of self-dealing. [777 F.3d at 634-35.]

The Result in Lemington Home: Unusual But Not Unique

Lemington Home is not the only case in which a court has held that directors of a nonprofit breached their fiduciary duties. Other cases—some new and some old—show how directors of nonprofits sometimes find themselves in the crosshairs, especially after an institution fails.

Perhaps the best-known case is Stern v. Lucy Webb Hayes Nat’l Training School for Deaconesses & Missionaries, 381 F. Supp. 1003 (D.D.C. 1974), where the district court held that the directors breached their fiduciary duties of care and loyalty by failing to supervise the nonprofit’s finances and by approving transactions that involved self-dealing. The court found that the board’s finance and investment committees had not met for over a decade, and the directors had left management of the nonprofit to two officers who worked largely without supervision. Nevertheless, the court declined to award money damages against the directors, opting instead to impose certain reforms on the board.

Starting in 2007, seven years of litigation (and millions of dollars in legal fees) ensued between two nonprofits interested in the creation of a memorial to Armenians who died during the First World War and two of their directors; the nonprofits lost their claims against the directors and ended up having to indemnify them. The district court denied summary judgment on the issue of whether the directors had breached their fiduciary duties but then concluded after a bench trial that the directors’ decisions and the process by which they made them were reasonable and, even if the directors had breached their duty, the corporation could not show that it suffered injury as a result. Armenian Genocide Museum and Memorial, Inc. v. The Cafesjian Family Foundation, Inc., 691 F. Supp. 2d 132 (D.D.C. 2010); Armenian Assembly of America, Inc., et al., v. Cafesjian, 772 F. Supp. 2d 20 (D.D.C. 2011), aff’d, 758 F.3d 265, 275 (D.C. Cir. 2014).

In 2010, the National Credit Union Administration sued the unpaid volunteer directors of Western Corporate Federal Credit Union seeking $6.8 billion in damages on account of the directors’ alleged failure to supervise the credit union’s investment decisions. The credit union had invested heavily in diversified portfolios of securitized mortgage-backed securities; when the credit crisis hit, the NCUA took over the credit union (much the way the FDIC takes over failed banks) and sued the former directors and officers. The district court granted the directors’ motion to dismiss, holding that the directors were protected by the business judgment rule. Nat’l Credit Union Admin, v. Siravo, et al., No. 10-1597, 2011 WL 8332969, *3 (C.D. Cal. July 7, 2011). (Two of the authors of this feature represented all directors and one officer in this litigation.) The officers did not fare as well; the court held that the business judgment rule did not protect them, and at least some officers ended up paying some money to the NCUA and suffering other sanctions.

These cases are unusual, which goes a long ways toward explaining the unusual rulings. Generally, absent fraud, bad faith, a conflict of interest, a wholesale abdication of responsibility, or decisions that are clearly unreasonable based on facts known at the time, the business judgment rule will protect directors of nonprofits from personal liability for a breach of the duty of care. But vindication can take years of litigation and lots of money.


What Are the Lessons of Lemington Home?

You can be sued. To be sure, directors of for-profit corporations are sued far more often than directors of nonprofits, but directors of nonprofits can be sued, nonetheless. 

If you are sued, the litigation can go on for years and be very expensive—even if ultimately you are vindicated. 

Because litigation—even unmeritorious litigation—can be expensive, directors should not serve without the protection of adequate directors’ and officers’ insurance (D&O insurance).

Directors of nonprofits, despite usually being volunteers, can face personal liability for breach of their fiduciary duties and will be held to much the same standard of care as directors of for-profit corporations.

Some states have enacted statutes dealing specifically with nonprofit directors’ duty of care. Pennsylvania has such a statute: 15 Pa. Cons. Stat. Ann. § 5712 (2011). [See Lemington, 659 F.3d at 290. Likewise, California has such a statute: Cal. Corp. Code § 7231.] But it is far from clear that these statutes offer directors of nonprofits any more protection than they offer directors of for-profit corporations; the differences are subtle, at best.

The business judgment rule offers directors some protection, but it is not an all-purpose shield against claims based on dereliction of duty, let alone disloyalty or self-dealing. To gain the protection of the business judgment rule, a director must be assiduous and informed before making decisions. Specifically: 

The board must supervise: it must ensure that the organization’s management are qualified to perform their duties and are actually performing those duties. The failure of the directors in Lemington Home to do this led to their being jointly and severally liable for $2.25 million in damages [777 F.3d at 626, 628.] 

The board must seek and follow independent expert advice where appropriate: the directors in Lemington Home failed to follow the recommendations of independent advisors to replace the Administrator, even after being awarded funds to do so. They also ignored the advice of their bankruptcy counsel. [Lemington, 2013 WL 2158543, at *7.]

Special care must be taken if the nonprofit veers toward insolvency:

Before filing for bankruptcy, consider conducting a viability study. In vacating the award of summary judgment for defendants, the Third Circuit in Lemington Home noted that the Board declined to pursue a viability study before filing for bankruptcy and suggested that this called into question the adequacy of their pre-bankruptcy investigation. Lemington, 659 F.3d at 286, 292. Beware the “deepening insolvency” theory. Although not recognized in every jurisdiction, the theory holds directors and officers accountable to creditors if their post-insolvency management increases the losses that creditors suffer.

This article was originally published as a “Client Alert” on PillsburyLaw.com on March 27, 2015. It is reproduced with permission.

Nonprofit Revitalization Act Compliance Plan Available

New York State Nonprofit Revitalization Act:  Remedial Action Plan for Compliance  [Updated] $300 for Nonprofit Members of NYCON.  Purchase includes one hour of implementation assistance. In December 2014, the Governor signed the Nonprofit Revitalization Actinto law. It is the first major revision of New York State Not-for-Profit Corporation Law (NFPCL) in over 40 years and most of its provisions took effect July 1, 2014. The Act comprehensively reformed the NFPCL and had a significant impact on the governance policies and practices of the state's nonprofits. In order to comply with the new laws, the vast majority of nonprofits still need to amend their bylaws and/or revise or adopt new policies. What is Included in the Remedial Action Plan for Compliance and How Can it Help Our Nonprofit? In order to help ensure that member nonprofits are in statutory compliance in an expedient way, NYCON prepared the Remedial Action Plan for Corporate Compliance. The Plan provides a Resolution for the Board of Directors to adopt a "Statutory Compliance Article" as a bylaw amendment along with five accompanying policy documents to be attached as Appendices to the Bylaws. The Action Plan purchase also comes with one (1) free hour of implementation assistance (via phone) with a NYCON staff member. Appendices Included in the Plan: Bylaws and Corporate Policy Definitions Board of Directors Conflict of Interest Policy Code of Ethical Conduct and Annual Potential Conflicts Disclosure Statement Whistleblower Protection Policy Audit Oversight Policy This resource is available to current nonprofit members of NYCON. If you would like to renew your membership, please click here. If you are unsure of your membership status, please contact us.  Update on Bylaw Review Services: NYCON Members can now have their bylaws reviewed and revised for compliance with the new Nonprofit Revitalization Act as well as for other areas of improvement, including best practices. Learn More.   If you are interested in receiving a bylaw review, we encourage you to please inquire soon as our volume of requests is very high. We will prepare a quote at no charge. To do so, we will need to ask you a few questions about your existing policies and procedures -- as well as take a look at your current set of bylaws.To receive a quote for a Bylaw Review please click here and fill out our questionnaire. Legal Reminder and Disclaimer:   The documents provided in the Remedial Action Plan for Corporate Compliance are aimed at assisting not-for-profits to be minimally compliant to the Act in bylaw and policy statements. Please be reminded that every Board of Directors has a fiduciary obligation to ensure that bylaw and policy statements are properly and consistently carried out in practice.  We encourage all users of this material to obtain qualified legal counsel and, where appropriate, guidance from a Certified Public Accountant (CPA) to advise in any modification and to specifically identify what other provisions in the Act may mean for your organization.   Please read the NYCONEnd User License Agreement before completing your purchase.

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Nonprofit Knowledge Matters

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Wanted: Courageous Board Members For too long, a myth has hung over the nonprofit community like a scary fog:  that nonprofit advocacy is somehow spooky. Nothing could be further from the truth, because advocating for missions is a core part of our sector’s proud legacy. If you eat in smoke-free restaurants, drive safely on divided highways, have a Social Security card, use your civil rights, or are a voting female, then you are benefiting from the past advocacy work of nonprofits – and board members. That’s why we are excited to let you know about a new campaign,Stand For Your Mission, launched to raise awareness - specifically among nonprofit board members - that being an advocate for the nonprofit’s mission is an important role for every board member to play. Advertisement Don’t just sit on a board: Stand for your nonprofit’s mission. The Stand for Your Mission campaign calls on all nonprofit board members to stand up as powerful champions for the missions they serve. The campaign is designed to unleash the full potential of nonprofit organizations to advance their missions in their local communities by engaging board members more directly as advocates on behalf of their organizations. The goals of the Stand for Your Mission campaign are to: Bring about a sustainable shift in the understanding and expectations around board engagement in advocacy; Move advocacy from an ancillary to a key board leadership role; and Strengthen the nonprofit sector’s ability to advance the public good. Importantly, this new campaign is not being advanced by ghosts, ghouls, or goblins, but by trusted, mainstream organizations in the nonprofit and grantmaking communities that recognize the need to change the culture around nonprofit advocacy so it is embraced as an effective, everyday tool for advancing nonprofit missions. The National Council of Nonprofits collaborated withBoardSource, the Alliance for Justice (with its Bolder Advocacyinitiative), the Forum of Regional Associations of Grantmakers, the Campion Foundation and John S. and James L. Knight Foundation, to curate a set of core resources for board members, CEOs, and grantmakers. Please share the Stand for Your Mission discussion guide as a useful resource with your board. Read on for more resources for courageous boards Talking about That Which Shall Not Be Named [what it really costs to be a charitable nonprofit] While we wish we could just wave a wand, magical thinking won’t stop those who rate and rank nonprofits by focusing on the cost of a nonprofit’s operations, rather than its impact in solving community challenges. So what can nonprofits do to shake off this aversion to costs? Remember Harry’s invisibility cloak? Throw it off! Be bold and brave enough to have candid conversations with donors about what it really costs to deliver programs and services.   Bring financial sustainability closer in 3 easy steps First, let’s toss out the shape-shifting term “overhead” that means something different to everybody and instead just call all these costs what they are, whether “fundraising,” or rent, or “general administrative.” Second, let’s ignore any apparent incentives to be fuzzy about the full expenses needed to deliver a nonprofit’s services or programs. Instead, by fully embracing our own costs, nonprofits will help manage expectations about what is really needed to solve problems in communities. Third, let’s find the courage to talk about the costs, especially with donors and grantmakers – and document them, demonstrating accountability and candor consistent with a culture of transparency. We think this is the right approach – and we’re inviting you to join us by:“owning your own costs.” Read on for more on owning your own costs. Join us for a Special Webinar to Raise Awareness About Costs At the National Council of Nonprofits, we and our State Association network are tackling misconceptions about costs one step at a time. Transparency about costs first requires knowing how much it actually costs to provide services and deliver programs. This means that someone at every nonprofit should be able to properly account for program related costs as well as those costs that cut across all the activities of the nonprofit. We know this can a challenge, so our network is hosting a special program designed to help your nonprofit #OwnYourOwnCosts. Please join the National Council of Nonprofits and our State Association network for a free webinar about proper cost allocation, so we can all own our own costs and spread the message that all costs, whether for fundraising or administration, or anything else related to advancing our nonprofit’s mission are essential. Guest speaker: Jeff Russell, founder and CEO of Jitasa October 23 | 3:30 - 4:30 pm Eastern Resources for Board Members Good governance (National Council of Nonprofits) Checklist for IRS Form 990 board governance policies(National Council of Nonprofits) Board members’ voices count! Video: Your advocacy can make a difference More resources about scary stuff Creating Order From Chaos – Roles for philanthropy in disaster planning and response(Jessie Ball duPont Fund) Risk, risk, and more risk – and resources for managing it (National Council of Nonprofits) Losing tax-exempt status(National Council of Nonprofits) 501h election: A simple way to protect your nonprofit from lobbying missteps (National Council of Nonprofits) What information must a nonprofit make available to the public? (National Council of Nonprofit) Worth Reading Is your nonprofit scared of social media? Aespire explains the three myths of social media. New! The Sustainability Mindset, by Jeanne Bell and Steve Zimmerman This month’s poll: Does your board monitor the impact of public policies on your nonprofit's mission delivery and resources? Tell us in this quick, one-question poll and look for the results in next month's Nonprofit Knowledge Matters. Share this newsletter with your staff, board, and nonprofit colleagues Did you receive this email from a friend? Sign up now to receive this free e-newsletter each month.

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