In a follow-up story about what was an intended signature event gone economically wrong, The Gazzette (Iowa) reported on the many vendors, including the police, who have had their checks bounced or just haven't been paid from an event conducted by GO Cedar Rapids that whose costs wildly exceeded planned income. Toward the end of the piece, the writer noted that should any of the vendors be seeking compensation for their losses from the organization's "owners" the board, they would likely be unsuccessful. But, there are possibilities as the board will not be able to completely "go away" without resolving these challenges, at least, formally. As noted:
Paul Thelen, director of the Larned A. Waterman Iowa Nonprofit Resource Center, said Iowa like many states has strong legal protections for board members.
Board members are protected from legal claims if a director acted in good faith; believed his or her conduct was in support of the organization or at least not opposed to it; did not believe the conduct was illegal; and the conduct was permissible under the organization bylaws.
“You have that veil of protection for people willing to serve in this role,” he said. “If it weren’t for these protections, you’d have a very tough time to get people to volunteer on these boards. ... That bar is pretty high, that veil of protection, but people can still file suits and you have to respond to it.”
Thelen said many organizations have director and officer insurance as added protection in the event of litigation.
GO Cedar Rapids has not said whether it has such insurance. While GO Cedar Rapids has folded, the board remains active.
Thelen said nonprofit boards have a “winding up” before dissolving and cannot complete the process if claims are known to exist.
Yes, different state laws may apply with similar situations and vendors could still, in my opinion, rally a class action approach BUT, it would be on the plaintiffs to prove that board members were intentional about and/or knowing they were taking on debt they couldn't pay-off. A bad board just the same.