Directors are charged with attending meetings, setting corporate policy, and selecting and evaluating officers. As reflected by their title, directors generally have no authority outside of directors' meetings. Officers implement corporate policy which generally occurs outside of directors' meetings.

Because officers are responsible for efficient corporate operation, their selection is crucial for a corporation's success, regardless if the corporation is a not-for-profit association or a for-profit business. Too often officer selection is based on something other than competency and ability. Though directors must rely on officers to implement directors' policies, frequently directors do not take the time to ensure that the officers selected have the ability to fulfill their duties.

Sometimes associations take a lackadaisical approach to the officer selection process. Officers may be selected on the basis of popularity. You would never expect the directors of a for-profit business, a charity, or a trust to appoint leaders who were not capable!

The dangers of not selecting proper officers, and the resulting potential for director liability was illustrated in the recent appellate court decision in Priester v. Grand Aerie of the Fraternal Order of Eagles, Inc., 22 Fla. L. Weekly D309 (Fla. 3rd DCA, January 29, 1997). The Priesters claimed that when Order ousted a local lodge's officers and appointed a new slate of officers, they negligently appointed Mr. Barna as president. When Mr. Priester attempted to enter a lodge meeting to publicly accuse Mr, Barna of raping a lodge member Barna allegedly assaulted and injured Mr. Priester.

The Priesters asserted that the Fraternal Order appointed Barna to a leadership position without conducting a proper background investigation. Barna was allegedly a "known alcoholic, trouble maker, and womanizer," combative and abusive, and regularly disturbed members with his outbursts and behavior. Thus, the Priesters alleged that the Order's failure to perform a reasonable background investigation created a foreseeable dangerous condition in a setting where alcoholic beverages were sold and consumed.

The Third District Court of Appeals agreed with the Priesters, and directed that the trial court proceed with the litigation. The Court explained that once the Fraternal Order ousted the lodge's duly elected local officers and voluntarily replaced the officers with leaders of their choosing, then the Fraternal Order assumed a duty to perform this task in a reasonable and prudent manner. The Fraternal Order could not unreasonably expose its local lodge members to a foreseeable risk of harm.

The court noted the importance of an inquiry into Barna's background and dangerous propensities. If a reasonable inquiry would have placed the Fraternal Order on notice that Barna was ill-suited for his appointed position, then the Order and its directors could be liable for Barna's conduct. The question of whether the directors acted reasonably by selecting Barna as president is a question of fact for the jury.

Directors are generally not liable for corporate acts simply by reason of their official relationship to a corporation. Some actual wrongdoing in the form of fraud, self-dealing, unjust enrichment, or betrayal of trust usually must be established to trigger individual liability. See Taylor v. Wennington Station Condominium Association, Inc., 633 So.2d 43, 19 Fla. L. Weekly D249 (Fla. 4th DCA 1994). Thus, a director's wrongdoing in the form of bad business judgment ordinarily will not serve as the basis to "pierce the corporate veil" and make the director individually liable for the breach of duty. Actions against Association directors are usually based upon a claim of a breach of trust.

The Florida Not-For-Profit Corporation Act specifies general standards for directors of not-for-profit corporations. Generally, §617.0830 Fla. Stat. (1995), provides that a director must discharge his or her duties as a director: (1) in good faith; (2) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and, (3) in a manner he or she reasonably believes to be in the best interests of the corporation. Thus, one could reasonably expect that a directors' duty would be increased when appointing officers.

The seeds for the problem were planted when Ms. Knadel's will was drafted. She provided that when she died her homestead was to be sold and the profits be paid to her estate. By directing that the homestead proceeds be subject to the estate, the proceeds lost their homestead character. Thus, creditors were entitled to obtain the value of their claims from the homestead, and Ms. Knadel's children were deprived of some or all of the proceeds.