In Re Lemington Home for Aged , 659 F.3d 282 ( 2011 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 10-4456
____________
In re: LEMINGTON HOME FOR THE AGED
OFFICIAL COMMITTEE OF UNSECURED CREDITORS,
ON BEHALF OF THE ESTATE OF LEMINGTON HOME
FOR THE AGED,
Appellant
v.
ARTHUR BALDWIN; LINDA COBB; JEROME
BULLOCK; ANGELA FORD; JOANNE ANDIORIO; J.W.
WALLACE; TWYLA JOHNSON; NICOLE GAINES;
WILLIAM THOMPKINS; ROY PENNER; MELODY
CAUSEY; JAMES SHEALEY; LEONARD R. DUNCAN;
RENEE FRAZIER; CLAUDIA ALLEN; EUGENE
DOWNING; GEORGE CALLOWAY; B. J. LEBER;
REVEREND RONALD PETERS
___________
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil Action No. 2-10-cv-00800)
District Judge: Honorable Arthur J. Schwab
___________
Argued July 11, 2011
Before: SLOVITER, FUENTES and VANASKIE,
Circuit Judges.
(Opinion Filed September 21, 2011)
Robert S. Bernstein, Esq.
Kirk B. Burkley, Esq.
Nicholas D. Krawec, Esq. Argued
Krawec Bernstein Law Firm, PC
707 Grant Street
Suite 2200, Gulf Tower
Pittsburgh, PA 15219-0000
Counsel for Appellants
Mark R. Hamilton, Esq. Argued
Philip J. Sbrolla, Esq.
Cipriani & Werner
650 Washington Road
Suite 700
Pittsburgh, PA 15228
Todd M. Raskin, Esq.
Mazanec, Raskin & Ryder
100 Franklin’s Row
34305 Solon Road
Cleveland, OH 44139
Counsel for Appellee Arthur Baldwin
Suzanne B. Merrick
2
Thomas, Thomas & Hafer
301 Grant Street
One Oxford Centre, Suite 1150
Pittsburgh, PA 15219-0000
Counsel for Appellee James Shealey
___________
ORDER AMENDING OPINION
___________
VANASKIE, Circuit Judge.
IT IS NOW ORDERED the above captioned case be
amended as follows:
Footnote 5 shall now read:
The District Court erroneously held that the
presumption of the business judgment rule is
overcome only by evidence of gross negligence.
The District Court cited a Delaware Supreme
Court case which held that “under the business
judgment rule director liability is predicated
upon concepts of gross negligence.” Aronson v.
Lewis, 473 A.2d 805, 812 (Del. 1984)
(overruled on other grounds). Pennsylvania,
however, recognizes directors’ and officers’
liability for negligent breach of fiduciary duty.
See, e.g., Wolf v. Fried, 373 A.2d 734, 735 (Pa.
1977) (“[E]ven in the absence of fraud, self-
dealing, or proof of personal profit or wanton
acts of omission or commission, the directors of
3
a corporation may be held personally liable
where they have been imprudent, wasteful,
careless and negligent and such actions have
resulted in corporate losses.”). Of course, a
non-profit corporation may restrict the
circumstances under which a director may have
personal liability for negligent acts by adoption
of an appropriate by-law, see 15 Pa. C.S. §
5713(a), in which event a director may be liable
for a breach of fiduciary duties or a failure to
perform the duties of the office only if “the
breach or failure to perform constitutes self-
dealing, willful misconduct or recklessness.”
15 Pa. C.S. § 5713(a)(2). While the Home
adopted an appropriate by-law, there is a
genuine dispute of fact as to whether alleged
breaches of fiduciary duties constituted self-
dealing. Moreover, there is no comparable
statutory limitation of liability for the officers of
a non-profit corporation. Thus, a trial is
required on the claims against Causey and
Shealey on the question of whether they failed
to exercise “such care, including reasonable
inquiry, skill and diligence, as a person of
ordinary prudence would use under similar
circumstances.” 15 Pa. C.S. § 5712(c).
s/ Thomas I. Vanaskie
Circuit Judge
DATED: October 20, 2011
PDB/cc: All Counsel of Record
4