Delaware Supreme Court Rejects Effort to Extend Malicious Prosecution
In a recent decision, the
Delaware Supreme Court considered and rejected a suggestion that the tort of
malicious prosecution should be extended to those who, while they had a valid
basis for bringing the action, continue its litigation beyond the point at
which, at least from the plaintiff's perspective, they had probable cause to
continue. Blue Hen Mechanical, Inc. v.
Christian Brothers Risk Pooling Trust a/s/o Little Sisters of the Poor, No.
589, 2014 (June 15, 2015).
This decision not only refused
to extend the tort of malicious prosecution beyond circumstances where the
plaintiff, at the inception of the suit, did not have a valid basis for
bringing it, but as well criticized Blue Hen for not pursuing recovery for the
additional expenses it alleged to have incurred in the action before that trial
court. Rather than moving on that basis,
Blue Hen had filed a separate action some nine months after it prevailed on a
motion for summary judgment in the original action.
Same-sex Marriage and the Anticipated Supreme
It is anticipated that, either today
or next Monday,
States Supreme Court will hand down its decision as to the constitutionality (or not) of state laws and constitutional provisions defining marriage
as between one man and one woman. Inter alia,
the Court will decide whether forbidding
same-sex marriage violates the Equal Protection clause of the federal
Constitution. It is well beyond me to
predict what the
Court will do and, equally important, the analytic paradigm they will employ. To quote Samuel Meyer, “I never make predictions, especially about the future.”
That said, if the Supreme Court does find there to be a constitutional right
to same-sex marriage, in so doing striking down laws such as that in Kentucky which by constitutional
amendment define marriage
is between one man and one woman, many persons, particularly
grounds, are going to object. I submit it is important are those with religious
Court is the
issues and principles
at play. These differing paradigms
by the late Judge Heyburn in his decision striking down
marriage ban, namely Bourke v. Beshear, 996 F.Supp.2d 542
(W.D. Ky. 2014):
For many, a case involving these issues prompts some sincere
questions and concerns. After all, recognizing same-sex marriage clashes with
many accepted norms in Kentucky—both in society and faith. To the extent courts
clash with what likely remains that majority opinion here, they risk some of
the public’s acceptance. For these reasons, the Court feels a special
obligation to answer some of those concerns.
Many Kentuckians believe in “traditional marriage.” Many
believe what their ministers and scriptures tell them: that a marriage is a
sacrament instituted between God and a man and a woman for society’s benefit.
They may be confused—even angry—when a decision such as this one seems to call
into question that view. These concerns are understandable and deserve an
Our religious beliefs and societal traditions are vital to
the fabric of society. Though each faith, minister, and individual can define
marriage for themselves, at issue here are laws that act outside that protected
sphere. Once the government defines marriage and attaches benefits to that
definition, it must do so constitutionally. It cannot impose a traditional or
faith-based limitation upon a public right without a sufficient justification
for it. Assigning a religious or traditional rationale for a law, does not make
it constitutional when that law discriminates against a class of people without
The beauty of our Constitution is that it accommodates our
individual faith’s definition of marriage while preventing the government from
unlawfully treating us differently. This is hardly surprising since it was
written by people who came to America to find both freedom of religion and
freedom from it.
Many others may wonder about the future of marriages
generally and the right of a religion or an individual church to set its own
rules governing it. For instance, must Kentucky now allow same-sex couples to
marry in this state? Must churches now marry same-sex couples? How will this
decision change or affect my marriage?
First, the Court was not presented with the particular
question whether Kentucky’s ban on same-sex marriage is constitutional.
However, there is no doubt that Windsor and this Court’s analysis suggest a
possible result to that question.
Second, allowing same-sex couples the state recognition,
benefits, and obligations of marriage does not in any way diminish those
enjoyed by opposite-sex married couples. No one has offered any evidence that
recognizing same-sex marriages will harm opposite-sex marriages, individually
or collectively. One’s belief to the contrary, however sincerely held, cannot
alone justify denying a selected group their constitutional rights.
Third, no court can require churches or other religious
institutions to marry same-sex couples or any other couple, for that matter.
This is part of our constitutional guarantee of freedom of religion. That
decision will always be based on religious doctrine.
What this opinion does, however, is make real the promise of
equal protection under the law. It will profoundly affect validly married
same-sex couples’ experience of living in the Commonwealth and elevate their
marriage to an equal status in the eyes of state law.
Many people might assume that the citizens of a state by
their own state constitution can establish the basic principles of governing
their civil life. How can a single judge interfere with that right?
It is true that the citizens have wide latitude to codify
their traditional and moral values into law. In fact, until after the Civil
War, states had almost complete power to do so, unless they encroached on a
specific federal power. See Barron v.
City of Baltimore, 32 U.S. 243, 250–51, 7 Pet. 243, 8 L.Ed. 672 (1833).
However, in 1868 our country adopted the Fourteenth Amendment, which prohibited
state governments from infringing upon our individual rights. Over the years,
the Supreme Court has said time and time again that this Amendment makes the
vast majority of the original Bill of Rights and other fundamental rights
applicable to state governments.
In fact, the first justice to articulate this view was one
of Kentucky’s most famous sons, Justice John Marshall Harlan. See Hurtado v. California, 110 U.S. 516,
558, 4 S.Ct. 111, 28 L.Ed. 232 (1884) (Harlan, J., dissenting). He wrote that
the Fourteenth Amendment “added greatly to the dignity and glory of American
citizenship, and to the security of personal liberty, by declaring that ... ‘no
state shall make or enforce any law which shall abridge the privileges or
immunities of citizens of the United States; nor shall any state deprive any
person of life, liberty or property without due process of law, nor deny to any
person within its jurisdiction the equal protection of the laws.’ ” Plessy v. Ferguson, 163 U.S. 537, 555,
16 S.Ct. 1138, 41 L.Ed. 256 (1896) (Harlan, J., dissenting) (quoting U.S.
CONST. amend. XIV).
 So now, the Constitution, including its equal protection
and due process clauses, protects all of us from government action at any
level, whether in the form of an act by a high official, a state employee, a
legislature, or a vote of the people adopting a constitutional amendment. As
Chief *556 Justice John Marshall said, “[i]t is emphatically the province and
duty of the judicial department to say what the law is.” Marbury v. Madison, 1 Cranch 137, 5 U.S. 137, 177, 2 L.Ed. 60
(1803). Initially that decision typically rests with one judge; ultimately,
other judges, including the justices of the Supreme Court, have the final say.
That is the way of our Constitution.
For many others, this decision could raise basic questions
about our Constitution. For instance, are courts creating new rights? Are
judges changing the meaning of the Fourteenth Amendment or our Constitution?
Why is all this happening so suddenly?
The answer is that the right to equal protection of the laws
is not new. History has already shown us that, while the Constitution itself
does not change, our understanding of the meaning of its protections and
structure evolves. If this were not so, many practices that we now abhor would
Contrary to how it may seem, there is nothing sudden about
this result. The body of constitutional jurisprudence that serves as its
foundation has evolved gradually over the past forty-seven years. The Supreme
Court took its first step on this journey in 1967 when it decided the landmark
case Loving v. Virginia, which
declared that Virginia’s refusal to marry mixed-race couples violated equal
protection. The Court affirmed that even areas such as marriage, traditionally
reserved to the states, are subject to constitutional scrutiny and “must
respect the constitutional rights of persons.” Windsor, 133 S.Ct. at 2691 (citing Loving ).
Years later, in 1996, Justice Kennedy first emerged as the
Court’s swing vote and leading explicator of these issues in Romer v. Evans. Romer, 517 U.S. at 635,
116 S.Ct. 1620 (holding that Colorado’s constitutional amendment prohibiting
all legislative, executive, or judicial action designed to protect homosexual
persons violated the Equal Protection Clause). He explained that if the “
‘constitutional conception of ‘equal protection of the laws’ means anything, it
must at the very least mean that a bare ... desire to harm a politically
unpopular group cannot constitute a legitimate governmental interest.’ ” Id. at 634–35, 116 S.Ct. 1620 (emphasis
in original) (quoting Dep’t of Agric. v.
Moreno, 413 U.S. 528, 534, 93 S.Ct. 2821, 37 L.Ed.2d 782 (1973)). These two
cases were the virtual roadmaps for the cases to come next.
In 2003, Justice Kennedy, again writing for the majority,
addressed another facet of the same issue in Lawrence v. Texas, explaining that sexual relations are “but one
element in a personal bond that is more enduring” and holding that a Texas
statute criminalizing certain sexual conduct between persons of the same sex
violated the Constitution. 539 U.S. at 567, 123 S.Ct. 2472. Ten years later
came Windsor. And, sometime in the
next few years at least one other Supreme Court opinion will likely complete
this judicial journey.
So, as one can readily see, judicial thinking on this issue
has evolved ever so slowly. That is because courts usually answer only the
questions that come before it. Judge Oliver Wendell Holmes aptly described this
process: “[J]udges do and must legislate, but they can do so only
interstitially; they are confined from molar to molecular motions.” S. Pac. Co. v. Jensen, 244 U.S. 205,
221, 37 S.Ct. 524, 61 L.Ed. 1086 (1917) (Holmes, J., dissenting). In Romer, Lawrence, and finally, Windsor,
the Supreme Court has moved interstitially, as Holmes said it should,
establishing the framework of cases from which district judges now draw wisdom
and inspiration. Each of these small steps has led to this place and this time,
where the right of same-sex spouses to the state-conferred benefits of marriage
is virtually compelled.
Court of Appeals
Reverses Summary Judgment in Favor of Employee Seeking to Avoid Noncompetition
In a March, 2015 decision, the
Court of Appeals reversed the summary judgment granted an employee who sought
to avoid the noncompetition obligations set forth in her employment agreement. Mountain Comprehensive Health Corporation v.
Gibson, No. 2013-CA-000373-MR (Ky. App. March 13, 2015). This opinion is
designated as “not to be published.”
Crystal Gibson was a nurse
practitioner working at Mountain Comprehensive Health. In the course thereof,
her work was supervised by Dr. Baker. She performed her services pursuant to a
series of written employment agreements. As part thereof, it was agreed that:
Physician Assistant further expressly covenants and agrees (unless waived in
writing by the Corporation) that, for a period of one (1) year following the
termination of his/her employment with the Corporation, he/she will not,
directly or indirectly, for himself/herself or as an agent, on behalf of, or in
conjunction with, and [sic- any]
person, firm, association or corporation engage [sic- engaged] in the practice of medicine within a fifty (50) air
miles radius from any clinic now operated by the Corporation or that may be
operated by the Corporation in the future.
After leaving her employment
with Mountain Comprehensive, Gibson joined the Whitesburg Women’s Clinic, the
facility where to which Dr. Baker had moved his practice. Whitesburg Women’s Clinic
and Mount Comprehensive are approximately 1 mile from one another. Coincident
with joining Whitesburg Women’s Clinic, Gibson sought a declaration of rights
to the effect that the noncompetition provision of her employment agreement was
unenforceable on the basis of force majeure as well as an unreasonable
geographic restriction. The trial court
agreed, holding in part:
the trial court found the Agreement was unenforceable pursuant to a force majeure clause. Finding Dr. Bakers’
decision to leave Mountain Comprehensive a factor outside Gibson’s control, the
trial court determined that Gibson would not have been able to perform as an OB/GYN
position’s assistant because Mountain Comprehensive would no longer have an
OB/GYN at the Whitesburg Clinic. The trial court further determined the
restrictive covenant was void for a variety of public policy reasons, in that
it contained an unreasonable geographic restriction, served no legitimate
business purpose, and would create issues of continuity of care for numerous
patients. The trial court also found Mountain Comprehensive waived its rights
to enforce the restrictive covenant based on a previous pattern of non-enforcement
of covenants with other employees. Slip op. at 4.
As alluded to above, the Court
of Appeals would reverse the trial court.
With respect to the trial
court’s determination that the employment agreement ended by its terms on April
2, 2012, thereby precluding the enforcement of the noncompetition agreement,
the Court of Appeals would agree that this reading failed to construe the
contract as a whole and give effect to all of its parts. Rather, while the
agreement to render services may have by its term ended, the restriction
against competition provided for rights and obligations applicable after the
agreement’s otherwise termination.
The Court of
Appeals would likewise reverse the force
majeure reasoning. Under the employment agreement at issue, a party to the
agreement could be excused from performance of an obligation thereunder “where
they are prevented from so performing by any cause not within the control of
the party whose performance is interfered with, and which by the exercise of
reasonable diligence, the party is unable to prevent.
trial court had found that Dr. Baker’s departure from Mountain Comprehensive
would leave Gibson without a supervising OB/GYN physician, thereby giving rise
to a force majeure outside of Gibson’s
control. On appeal, Mountain Comprehensive would argue that there was a
question as whether the force majeure
agreement applied in that Gibson was licensed as a physician’s assistant for
general primary care, and not only the OB/GYN subspecialty. Therefore, even if
Baker was not there rendering OB/GYN services, Gibson could have assisted other
physicians. In addition, it would have been possible for Gibson to render
services to another OB/GYN physician, Hadley, who would appear to join the
practice after Gibson’s departure.
Turning to the public policy
bases relied upon by the trial court, and noting that covenants against
restriction can be “a valuable business tool in protecting a business from
competition from former employees,” the Court of Appeals held there to exist a
material fact question as to whether this agreement had a legitimate business
basis, and for that reason summary judgment had been prematurely granted.
As to the basis of the 50 mile
scope of the restriction against competition, the trial court was criticized
for not utilizing it “blue pencil” powers to amend the restrictive range so as
to avoid it being overly broad.
As to Gibson’s assertion that
the enforcement of the noncompetition provision would create issues of
continuity of care for numerous patients, the Court of Appeals noted that these
concerns could have been perhaps addressed by Gibson remaining with Mountain Comprehensive.
Regardless, summary judgment was improper in that the assertion raised
questions of public policy that involve questions of fact not appropriate for
The Court of Appeals also
determined that the evidence put forth in support of the summary judgment did
not demonstrate that Mountain Comprehensive had previously waived the right to
enforce a noncompetition agreement.
Some Guidance from Connecticut on Condominium
Associations and Fiduciary Duties
A recent different decision
from the Superior Court of Connecticut offers some useful guidance with respect
to claims brought in condominium associations generally as well as the pleading
standards required in order to bring a claim for breach of fiduciary duty. Sires v. Linden Shores Association, 2015
WL 3798173 (Sup. Ct. Conn. May 27, 2015).
This decision was rendered in
the context of a motion to strike numerous counts raised in the complaint. The
factual background of the dispute is not recited in the opinion.
Apparently, counts 1 through 12
and 22 alleged, at least in part, claims against individual members of the association
for “acts or omissions in connection with their membership on the Board of
Directors of Linden Shores Association Inc.” On the basis of Connecticut General
Statutes § 47-253(b), these counts were dismissed. Presumably, the language
that is relied upon in this ruling is that “An action alleging a wrong done by
the association, including an action arising out of the condition or use of the
common elements, may be maintained against the association and not against any
unit owner.” What is curious about this strike is whether the claims in this
nature are derivative or direct is not addressed, i.e., is the claim against the individuals in their capacity as
unit holders or against them in their capacity as directors.
With respect to a claim that,
apparently, a fiduciary duty individually owed to unit holders had been
violated, the court found that no such duty existed. Rather:
association upholds a duty of care and loyalty [to] all unit holders
collectively but owes no fiduciary duty directly to any individual unit holder,
such as the plaintiff.
determination is consistent with that of the Kentucky Supreme Court in 1400 Willow Council of Co-Owners v. Ballard.
With respect to a claim of
breach of fiduciary duty against the property manager, the court determined
that the requirements for pleading a cause of action for breach of fiduciary
duty had not been satisfied. Specifically, there had been no demonstration that
there existed a fiduciary relationship between that property manager and the
Kentucky Enacts the Unincorporated Nonprofit
The 2015 Kentucky General Assembly
approved the adoption of the Kentucky Uniform Unincorporated Nonprofit
Association Act. This new law is important in that, with this new statute,
there is for the first time in Kentucky an analytic paradigm and body of
default law by which such organizations may be assessed. Prior to this
enactment, Kentucky has lacked such a body of law even as unincorporated
nonprofit associations have been organized and operated. Further, for the first
time it will be possible for the participants in an unincorporated nonprofit
association organized in Kentucky to enjoy the benefits of limited liability.
The Kentucky Uniform
Unincorporated Nonprofit Association Act is largely a default statute, setting
forth rules as to particular matters that are applicable absent contrary
agreement with respect to the topic. In
light of their expected informality there are minimal requirements that the
agreement be reduced to a writing.
An important defined term used in
the law of unincorporated nonprofit associations (“UNPA”) is the “governing
principles.” Roughly equivalent to a
partnership’s partnership agreement or an LLC’s operating agreement, and
including the “established practices,” the governing principles are the
agreements of the members as to the purpose and operation of the
association. The governing principles
may be oral, written or arise from a course of conduct. The association, the members and the managers
are bound by the governing principles.
Formation, Purpose & Powers;
the Certificate of Association
An unincorporated nonprofit
association is a default structure; it exists if its definition is met. There
is no requirement of an intent to form an unincorporated nonprofit
association. In fact there is not even a
requirement that the participants in the venture be consciously aware of the
possibility of forming an unincorporated nonprofit association.
An unincorporated nonprofit
association is considered to be an entity distinct from its members and
managers, and enjoys perpetual duration while being vested with all powers of
an individual necessary or convenient to carrying out its purpose. While limited forprofit activities are
permitted, the proceeds thereof must be applied to the nonprofit purpose.
Name Requirements, Annual Report
The name requirements for a UNPA
are set forth in the Kentucky Business Entity Filing Act, KRS. ch. 14A, and are
dependent in part upon whether the UNPA has filed a certificate of
association. Regardless of whether a
certificate is filed, a UNPA may not include in its name any of “incorporated,”
“corporation,” “Inc.,” “Corp.,” “company,” “partnership” or “cooperative.” If a
certificate of association is filed, the name of the UNPA must include either
“Limited” or “Ltd.” Further, that real
name as set forth on the certificate of association must be distinguishable
from any name of record with the Secretary of State. Absent filing a certificate of association
the name distinguishability standard is not applicable, but the UNPA’s name
should not include “Limited” or “Ltd.” in its name as doing so would be
misleading. The assumed name statute has been revised to define the real name
of a NPUA and to allow a NPUA to file an assumed name.
The application of the rules
governing annual reports to UNPAs is dependent upon whether or not the
particular UNPA has filed a certificate of association. If no certificate of association is filed
then no annual report is required.
Conversely, if a certificate of association has been filed, an annual
report is required.
An UNPA, subject to distinctions
based upon whether or not a particular UNPA has or has not filed a certificate
of association, is subject to the Assumed Name Statute.
Liability for Association Debts
& Obligations; Limited Liability
Initially, the members and other
participants in an unincorporated nonprofit association are each liable for its
debts and obligations. While the Uniform
Act, by fiat, reversed the rule and afforded limited liability ab initio, this policy has not been
carried forward in Kentucky. Rather,
under the Kentucky Act limited liability is available if and only if the
association makes a filing with the Secretary of State. By means of this filing, the public is put on
notice that the participants in the association enjoy limited liability, and
that those extending credit to it may look only to its assets for recovery.
The filing by which limited
liability is elected is a certificate of association. The certificate of association must set
the name of the association;
its registered office and agent; and
The filing fee for a certificate of association is
In accordance to the law governing other forms of business organizations, the grant of limited liability
effected by the filing of a certificate of association will
not protect an individual from
their own negligence, wrongful acts or misconduct.
In the absence
of a certificate of
association, in any suit brought against
the association, the judgment rendered
not be binding upon a member ab initio
named as a party therein. There are, however, a series of provisions pursuant
to which, even in the absence of certificate of association, the members may, consequent to their personal
the debts and obligations
of the association,
to satisfy that judgment.
Suits By or Against an UNPA
An UNPA may sue or be sued in its
own name. Suit against an UNPA that has
filed a statement of association and thereby designated a registered agent may
be initiated by service on the registered agent. Where no registered agent is designated,
service may be completed as otherwise provided by law. The capacity to sue or be sued in its own
name is a common characteristic of business organizations. This capacity extends to suits by a member or
manager against the UNPA or a UNPA suit against a member or manager. If an UNPA has filed a statement of
association and thereby elected limited liability for its members and other
constituents, a member or manager is not a proper party to the action simply by
reason of their status as a member or manager.
This provision is not uniform and has no equivalent in the Uniform
Unincorporated Nonprofit Association Act.
Even where the UNPA has not filed
a statement of association and thereby elected limited liability, a judgment
against the association is not enforceable against a member or manager therof
unless and until certain conditions have been satisfied. A creditor may include as parties to the
action some or all of the members or managers, and conceivably be awarded a
judgment against them coincident with the receipt of a judgment against the
association. In that instance, the judgment against the member or manager may
be immediately enforced and need not wait upon a determination that the
association is unable to satisfy the judgment.
A change in the membership or management of an UNPA will not abate a
pending action by or against it.
If the UNPA has filed a
certificate of association, the proper venue for an action against the
association is the county in which the principal place of business is
maintained or, if the principal place of business is not in Kentucky, the
county in which the registered office is located. Where the UNPA has not filed a certificate of
association, the rules applicable to general partnerships are adopted to
determine proper venue.
Every organization must have two
or more members; there is no such thing as a single member UNPA. Absent filing a certificate of association
the members are personally liable for the association’s debts and
A member of a UNPA is not by
reason of that status an agent of the association. Except as may be otherwise provided in the
governing principles, members vote on a per-capita basis with a majority vote
controlling. Unless delegated in the
governing principles to the managers, there is expressly reserved to the
members the right to vote on certain matters.
There is left to the governing principles rules as to notice, quorum and
other procedural rules for member meetings.
While a member is not, consequent to that status, in a fiduciary
relationship with either the UNPA or any other member thereof, each member is
bound by an obligation of good faith and fair dealing.
A person becomes a member in an
UNPA in accordance with its governing principles or, in the absence of
governing principles as to admission of members, by a vote of a majority of the
incumbent members. On those same terms a
member may be suspended, dismissed or expelled from the association. None of resignation, suspension, dismissal or
termination of a member will relieve that person of unsatisfied obligations to
the association. A member may resign at
any term unless the governing principles impose limitations upon the right to
resign. Unless a contrary rule is set
forth in the governing principles, a member’s interest in the association is
Every UNPA is required to be
managed by “managers” who have the authority to make all decisions on the
association’s behalf except those reserved to the members. Managers are selected by a majority of the
members, and there is no requirement that a manager be a member. If the members do not elect or otherwise
designate managers, then every member is as well a manager. Each manager has an equal vote, and the
managers act by a majority. Each of
these rules may be altered in the governing principles.
Pursuant to a non-uniform
provision, rules as to notice, quorum and other procedural requirements for
manager meetings shall be set by the governing principles.
Managers owe to the association
fiduciary duties of care and loyalty.
The statutory formula for the duties of care and loyalty owed to the
association by the managers is unique as contrasted to the formulas employed in
others of Kentucky’s business entity statute.
For that reason it is crucial that the focus be upon the words employed;
loose analogy to the laws of other organizations is not proper.
The fiduciary duty standard, which
is not identified as being subject to modification in the governing
principles, obligates each manager to manage in good faith, in the manner
honestly believed to be in the best interest of the association, and on an
informed basis. Reliance upon the
opinions and information provided by others is conditionally appropriate. A related party transaction, which would
otherwise violate the duty of loyalty, may be approved or ratified after full
disclosure by a majority of the disinterested members. The governing principles may limit the
exposure of a manager to liability for breach of the fiduciary standards
provided the failure does not fall within certain prescribed conduct.
Inspection of Books and Records
Members in their capacity as
members, and managers as managers, have the right to inspect association books
and records. It bears noting that there is no requirement that any particular
records be maintained by the association.
Ergo, the right of inspection applies to what records have been
maintained. The right of inspection is collared by the
requirement of a proper purpose and a limitation to information “material to
the member’s or manager’s rights and duties under the governing
principles.” The Kentucky Act is not
uniform as to the right of the association to limit access to and use of
association information. Essentially,
where the uniform act would defer to the association to unilaterally impose
limitations on access to and use of information, the Kentucky Act looks to the
governing principles for such limitations, and unless set forth in written
governing principles asserted to by the member or manager seeking inspection, the
association bears the burden of showing the reasonableness thereof. While former members and managers are
afforded inspection rights, it is difficult how they satisfy the requirement
that the books and records sought are “material to the member’s or manager’s
rights and duties under the governing principles.”
Property; Statement of Authority
An UNPA may hold in
its name real, personal and intangible property. With respect to real property, the UNPA may
file a “statement of authority” by which there is made of public record the
capacity of a person to, on its behalf, affect a transfer of the real
property. Filed with the title records
of the county clerk where the transfer would be recorded, a statement of
authority is conclusive as to the authority of the person executing the
transfer on the association’s behalf as to a grantee without notice of a
limitation on the authority who gives value.
A statute of authority has a maximum term of five years.
There is no
requirement of a statute of authority to transfer real property held in the
name of an UNPA. Rather, it is an
optional mechanism by which to avoid questions as to the capacity of the person
signing on behalf of the UNPA. A grantee
with those concerns, or a title insurer seeking to avoid those questions, may
insist that a statute of authority be filed prior to the property transfer.
An unincorporated nonprofit
association may not pay dividends or make other distributions to its members
except to a limited degree upon dissolution. Still, without violating the
limits against dividends/distributions, an unincorporated nonprofit association
may pay reasonable compensation, reimburse expenses, confer benefits on its
members consistent with its nonprofit purpose, or repay a capital contribution
or repurchase a membership if doing so is authorized by the governing
principle. In the event of an improper
distribution, a member may bring a derivative action.
An UNPA has the capacity, but not
the obligation, to indemnify its members and managers from debts, obligations
or liabilities incurred on behalf of the association provided that the person
seeking indemnification has, in the case of a member who is not a manager,
acted in good faith or, in the case of a manager, discharged their fiduciary
obligations. In a rare application of
the statute of fraud in the statute, the right to indemnification may be
broadened or limited in the governing principles, provided the broadening or
limitation is in record form.
An unincorporated nonprofit association
may be dissolved:
as provided in the governing principles as to either time or method;
when the governing principles are silent, with the approval of a majority
of the members;
if the activities of the association have been discontinued for at least
three years, by its current or last managers;
Consistent with the law governing
other business organizations, an unincorporated nonprofit association continues
its existence after dissolution. Upon
dissolution, the debts and obligations of the association are to be satisfied,
assets held subject to trust or requiring return to the donor are to be
conveyed in accordance therewith with the remaining assets distributed to other
persons with similar nonprofit purposes, to the members or as directed by the
It should be noted that, unlike
most other business organization statutes, the Unincorporated Nonprofit
Association Act does not afford a mechanism by which known creditors of an
association may be notified of its dissolution and afforded a limited period of
time in which to tender claims. Likewise, the Unincorporated Nonprofit
Association Act does not provide a mechanism for, by means of publication,
providing notice to unknown creditors.
Consequence of these omissions, it will often be difficult to determine,
on behalf of a nonprofit unincorporated association, that all creditor claims,
to the extent of association assets, have been satisfied. The absence of these
provisions of the uniform act is curious in that they are standard provisions
in other uniform unincorporated entity laws.
The uniform act provides for
mergers between UNPAs and as well with other organizational forms. These
provisions have not been carried forward into the Kentucky enactment. As such, until such time as Kentucky adopts a
comprehensive “junction box” act governing all organic transactions and entity
forms, unincorporated nonprofit associations lack the capacity to enter into a
Relationship to Other Law; Uniformity
Principles of law and equity
supplement the Act. It is important to recognize that an UNPA is its own freestanding
body of law. It is not directed or otherwise indicated
that the law of partnerships, corporations (whether for-profit
or not-for-profit), limited liability
companies (whether or for-profit or not-for-profit)
or any other body of organizational
law shall serve as the “gap filler” when either the agreement as to a particular venture
or the unincorporated nonprofit
are silent. Rather, when the statute and the private
ordering of a particular association ar silent there should be referenced general principles
of law and equity.
If another statute governs a
particular form of UNPA, to the extent of an inconsistency with this act, the
other act will control.
It is directed that the act be
construed to promote uniformity among the states that have adopted the act.
Similar provisions appear in other of Kentucky’s adoption of uniform acts, it needs to be appreciated that this dictate
extends only so far as the Kentucky enactment of the statute is consistent with
the uniform act. Where the statutory
language employed in Kentucky departs from the language employed in the uniform
act, uniformity is obviously not the intended result, and cases and commentary
from other states are of diminished or no value as interpretive aids.
Expressly not considered herein are
questions involving federal and state
of an UNPA. These issues are at minimum challenging
in that, ab initio, an UNPA is not a “corporation” falling within section 501 of the Internal
Revenue Code. While
the Kentucky Unincorporated Nonprofit
does set forth a default organizational
paradigm for these often informal organizations, these tax complexities
may caution against the intentional utilization
of this form by persons who are not otherwise well versed in the tax consequences of