A recent federal bankruptcy court decision addresses
important principles of fiduciary conduct (and the benefits of a
state exculpatory statute) in the context of a financially
distressed not-for-profit hospital.
The case involved claims of negligence and breach of fiduciary
duty by members of the board and management team of a
not-for-profit hospital, filed by the hospital's liquidating
trust. The claims were based on allegations that, essentially,
management and the board were inattentive and unresponsive to
multiple signs of financial problems (e.g., significant
physician practice losses).
The court granted a motion to dismiss with respect to the claims
against essentially all of the voluntary directors, but denied the
motion with respect to certain other directors who were perceived
to be compensated, and to one voluntary director who was alleged to
have a conflict of interest (the director was the CEO of a local
bank with which the hospital had entered into
