From time to time we will publish local opinons of interest:
Background:
Plaintiff, director of a charitable organization (Wintercross) and the entities controlled by the organization (Jensen), engaged in self-dealing in the course of making investments on behalf of the organization. Plaintiff failed to pay the mandatory charitable contributions, which resulted in tax penalties. During this time, however, Plaintiff maintained possession of items of personal property that could have been distributed to another qualifying entity, thus reducing or eliminating tax penalties. Plaintiff also structured the sale of an apartment complex that both she and Jensen had an ownership interest in such that she received cash and Jensen carried the balance of the deferred purchase price. Then, when the purchaser was unable to pay, Jenson faced 100% of the loss. Finally, acting against the advice of an accountant, Plaintiff invested the proceeds of that sale in a second apartment complex. The value of the complex decreased substantially and resulted in a loss of millions in assets. And, upon Jensen’s management and/or acquisition of each apartment complex, Plaintiff purchased a home that adjoined such complex. Plaintiff then allowed maintenance personnel to occupy the home. Although Plaintiff arranged for the complex to pay for both the mortgage and utilities associated with the home, title to the home remained with Plaintiff. Finally, Plaintiff used Jensen’s assets to pay for her attorney fees associated with this proceeding.
Holding:
Plaintiff abused her authority as a director and officer of Wintercross and was removed, with millions awarded for damages. Although Plaintiff did not directly divert Wintercross assets to herself, she used her control to benefit personally when such benefits should have been allocated to Wintercross. Plaintiff did not act prudently when she: (1) refused to follow the advice of the accountant; (2) failed to make sensible investments, resulting in substantial loss; (3) failed ensure that the mandatory minimum charitable distributions were made; and (4) used the organization’s assets to fund a personal proceeding. The court determined that Plaintiff’s claim of ignorance was ill-founded and did not create a defense to her liability because she took on the responsibility of handling the affairs of Wintercross, and in doing so, engaged in self-dealing.
