783 N.E.2d 582 | Ohio Ct. App. | 2002
[¶ 3] Subsequently, the Board, but not the YOHA, moved for summary judgment, claiming it was not a legal entity which could be sued and, even if it could, it was immune from suit pursuant to R.C.
[¶ 4] We affirm the trial court's decision because a non-profit corporation's board of directors is not an entity separate from the corporation which is capable of being sued. It cannot own property or sue in its own name. It is made up of individuals who can only be held liable for corporate torts in their individual capacities if they participated in the tortious conduct. It cannot be indemnified by the corporation if it is sued because of the acts of the corporation. The law does not consider the body known as a corporation's board of directors to be its own corporate entity. Therefore, the trial court's decision granting judgment for the Board is correct. If Flarey wanted to recover from the members of the Board, he should have sued each of the members of the Board in their individual capacities.
[¶ 5] Flarey's three assignments of error deal with the same issues of law and fact and will be addressed together. They argue as follows:
[¶ 9] In each of his assignments of error, Flarey argues the trial court erred in deciding to grant summary judgment to the Board. When reviewing a trial court's decision to grant summary judgment, an appellate court applies the same *95 standard used by the trial court. Parenti v. Goodyear Tire RubberCo. (1990),[¶ 6] The trial judge erred in ruling that the Board of Trustees is not a collective legal entity capable of being sued."
[¶ 7] "The trial judge errored [sic] in failing to consider R.C.
4113.52 (The Whistle Blower's Act) in determination of summary judgment."[¶ 8] "The trial judge failed to consider the Board of Trustees as and for the alter ego of Youngstown Osteopathic Hospital."
[¶ 10] The trial court granted summary judgment to the Board because it found the Board was not a separate entity from the YOHA. According to Flarey, this is wrong for a variety of reasons. He first argues the Board hired him, he was working under the direction of the Board, and his contract was breached per Board action. He then argues that R.C.
[¶ 11] Flarey's belief that the Board is a separate entity capable of being sued is a misconception of what a board of directors is and how it functions within the corporate structure. A "board of directors" is incapable of owning property and cannot sue in its own name. Instead, a board of directors is the collection of individuals with the ultimate responsibility of making decisions on behalf of the corporation. Dragev. Procter Gamble (1997),
[¶ 13] As a practical matter, it would be nonsensical to hold a board of directors liable as a collective entity. A board of directors may not own property in its own name. Thus, any judgment against it could not be recovered from the collective group. Furthermore, a judgment against the collective entity cannot apply to the individuals as the individuals are only liable if they participated in the tortious conduct. Thus, such a suit would be, for all practical purposes, pointless.
[¶ 14] Because directors may be named a party to a suit as individuals merely due to their official capacity as a director of the corporation, R.C.
[¶ 16] R.C.[¶ 15] "indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending, or completed civil, criminal, administrative, or investigative action, suit, or proceeding, * * * by reason of the fact that the person is or was a director * * * of the corporation * * * against expenses, including attorney's fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit, or proceeding, if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, if the person had no reasonable cause to believe the person's conduct was unlawful." R.C.
1702.12 (E)(1).
[¶ 17] Flarey's argument presumes the Board is some sort of corporate entity within a corporation. However, as discussed above, a board of directors cannot own property or sue in its own capacity. The members of the board are liable in *97 their individual, but not their collective capacity. Finally, the fact that the Board is not a separate entity capable of being sued is demonstrated by the fact that corporations can indemnify individual members of its board of directors, but not the board of directors as a whole. A board of directors is not a separate entity or an alter ego of the corporation. Instead, it is an integral part of the corporation.
[¶ 18] Because the Board is not an entity capable of being sued, it is irrelevant whether the Board's actions violated Ohio's whistle blower's statute. Likewise, it is of no legal significance when determining whether the Board is capable of being sued that it had purchased insurance to protect itself from suit. As events have shown, it may be possible that a potential plaintiff may name the Board as a defendant in a lawsuit, even though the Board cannot be held liable as an entity. The Board's choice to manage this particular risk by purchasing insurance does not mean that potential plaintiff now has the legal right or ability to sue the Board.
[¶ 19] When someone thinks they have been wronged by a corporation and that the board of directors may be individually liable for that tortious conduct, there will be times when that person will not have a clear idea of exactly what each member of the board knew or could have known about that tortious conduct. Accordingly, it would behoove that person to name each member of the board of directors individually in their capacity as members of the board until the course of the case shows which directors are or are not liable.
[¶ 20] In this case, Flarey did not join the individual board members as defendants in their individual capacities. Rather, he joined as defendants the YOHA and the board of trustees as a collective entity. This was a redundancy at best.
[¶ 21] For the foregoing reasons, we conclude a non-profit corporation's board of directors as an entity is not capable of being sued. Thus, Flarey's assignments of error are meritless and the decision of the trial court is affirmed.
Judgment affirmed.
Vukovich, P.J., and Donofrio, J., concur. *98