Wednesday, January 15, 2014

Kimberly Pinsky v. Pikesville Recreation Council (Ct. of Special Appeals)

Filed: October 30, 2013
Opinion by Judge Robert A. Zarnoch


Directors and officers of an unincorporated nonprofit association may be held liable for contracts entered into by the association if they authorized, assented to or ratified the contract in question.


Defendant, an unincorporated nonprofit association, hired plaintiffs to work in a pre-school. Before the end of their respective contract terms, defendant terminated plaintiffs pursuant to letters of termination. Plaintiffs sued defendant and its individual officers and directors to recover payments still owed to them, plus treble damages, attorney's fees, and costs. After a three-day bench trial, the circuit court entered judgment for plaintiffs, but rejected the claims against the individual directors and officers. The court also declined to grant appellants' motions for sanctions and for attorney's fees and costs. Plaintiffs appealed  the adverse judgment with respect to the individual directors and officers and the court's rulings on sanctions, attorney's fees, and costs.


The Court of Special Appeals noted that as an unincorporated association, defendant had at least some formal organization, as it operated under a constitution, bylaws and policy manual. Citing Littleton v. Wells & McComas Council, 98 Md. 453, 455 (1904) and Restatement (Second) of Judgements Sec. 61 cmt. a (1982) the Court found that unincorporated associations had the right to sue and be sued and that a judgement against the association alone does not reach the assets of its members.  Further, although no law explicitly permits unincorporated associations to enter into contracts, the Court indicated that this is a long-recognized and uncontroversial power (see Miller v. Loyal Order of Moose Lodge No. 358, 179 Md. 350, 356).

At common law, officers of an unincorporated association were personally liable for the debts of the association. Since the Court of Appeals= decision in Littleton, 98 Md. at 456, and the Legislature's subsequent enactment of the legislative predecessors to CJP  Sec. 11-105, a judgment rendered solely against an association does not, on its own, expose the association's officers to liability. Yet CJP Sec. 11-105 does not address whether the officers, if named personally, can be held liable in actions also brought against the association. The Court quoted Littleton, which observed that "[t]he statute does not take away the right existing at common law to sue the members of an unincorporated association, but the creditor has the option to sue either the association or the members; and, when the suit is against the former, a judgment obtained can only affect its joint property." The Court noted that it does not read Littleton as positing an either/or system of recovery.

Officers and other agents of associations, such as the defendant, are statutorily protected from personal liability for damages in any suit if the association maintains insurance coverage. CJP Sec. 5-406(b). The Court noted that, absent such insurance coverage, personal liability could attach.  The Court then turned to the case law of other states for a better understanding of when officers are personally liable, and since the majority of states have not enacted comprehensive statutes on unincorporated associations, the common law still generally covers the principles of liability.  The Court found a distinction in the case law between for-profit and nonprofit associations.  Individual liability of a for-profit organization is analyzed under partnership principles; individual liability of a nonprofit association is analyzed under agency principles. Therefore, in nonprofit associations, "a member is personally responsible for a contract entered into by the nonprofit association only - if viewing him as though he were a principal and the association were his agent - that member authorized, assented to, or ratified the contract in question." (See Karl Rove & Co. v. Thornburgh, 39 F. 3d 1273, 1284).  The Court went on to discuss ratification, authorization and assent to a contract.

The full opinion is available in PDF.

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