In Re Lemington Home for Aged

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

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

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