Given their managerial and organizational expertise, business executives often seek out or are asked to take uncompensated positions as officers or directors of 501(c) tax exempt organizations. This raises a common and recurring question — does an individual officer or director of such an organization face potential legal liability for taking actions, or failing to take certain actions, in their official capacity?
The good news for executives is that the Connecticut Appellate Court rang in the new year by concluding that the immunity provisions of Connecticut General Statutes § 52-557m provide broad protection to such individuals.
Section 52-557m provides that an officer or director of a tax-exempt 501(c) who is “not compensated” for their services “shall be immune from civil liability for damage or injury … resulting from any act, error or omission made in the exercise of such person's policy or decision-making responsibilities if such person was acting in good faith and within the scope of such person's official functions and duties, unless such damage or injury was caused by the reckless, wilful or wanton misconduct of such person.”
On an issue of first impression, in Sweeney v. Friends of Hammonasset, the Appellate Court considered the breadth of a 501(c) officer or director's “policy or decision-making responsibilities” under Section 52-557m and whether that statute provided greater immunity for officers and directors than its federal law counterpart — 42 U.S.C. § 14501 et seq. In Sweeney, the plaintiff slipped and fell on ice and thereafter sued the Friends of Hammonasset, as well as its president in an individual capacity concerning her alleged failure to supervise and train employees, and oversee the activities of the organization in connection with a winter nature walk at Hammonasset Beach State Park, which was organized in conjunction with the Department of Energy and Environmental Protection.
In upholding the lower court's entry of summary judgment (i.e., a judgment rendered on motion without the need for a trial) in favor of the organization's president, the Appellate Court broadly interpreted an officer or director's “policy or decision-making responsibilities” to include concepts such as supervision, oversight, and training with respect to an organization's activities. Moreover, the Appellate Court concluded that Section 52-557m provided greater immunity for officers and directors of tax-exempt organizations than the federal law statutory scheme, implicitly suggesting, among other points, that unlike the federal scheme, Section 52-557m would not permit a plaintiff to obtain punitive damages. As a result, the organization's president was afforded total immunity from the plaintiff's alleged economic damages (i.e., out of pocket expenses), as well as non-economic damages (i.e., pain and suffering).
Although the scope of an officer or director's “policy or decision-making responsibilities” will vary based on the unique facts of each tax-exempt organization's mission and activities, the court's decision gives comfort to such volunteer officers and directors, and reinforces the concept that unless such an individual acts with “reckless, willful or wanton misconduct” in the exercise of their duties, they may similarly qualify for total immunity from legal liability and damages.
In the event such officers or directors of Connecticut-based tax-exempt organizations are forced to litigate these issues, they may further qualify for indemnification and the advancement of legal expenses under Connecticut's Revised Nonstock Corporation Act, Conn. Gen. Stat. §§ 33-1000 et seq. Moreover, depending on the risk profile of each organization, a director and officer insurance policy, commonly referred to as a “D&O” policy, can provide additional peace of mind for individuals.
Dylan Kletter is an attorney in the Hartford office at the international law firm of Brown Rudnick LLP, where he practices complex commercial litigation, as well as pro bono representation of Connecticut nonprofit organizations. Reach him at firstname.lastname@example.org.