A complaint recently filed in state court by the Florida attorney general (AG) provides a useful example of the enforcement powers available to the AG to address allegations concerning the governance and financial accounting of not-for-profit corporations.
The controversy involves a corporation formed to preserve a landmark theater in Winter Park, Florida, and the actions taken by its board and management to pursue such preservation. The AG’s specific concern relates to allegations regarding mismanagement, violations of bylaws, inadequate financial recordkeeping, inaccurate board-level minutes, unsupported financial arrangements with the CEO, and the board’s unwillingness to consider alternatives that would enhance the theater’s financial stability.
This litigation’s most direct relevance to nonprofit health systems is twofold. First is the broad assertion of jurisdictional authority over nonprofit corporations in the state. It is an assertion (e.g., powers under both common law and under statute) that is likely to be adopted by most other state AGs in similar enforcement actions against a not-for-profit corporation. This includes an assertion of the public as having an equitable beneficial interest in the theater.
Second is the scope of the equitable relief sought by the AG, i.e.:
- Immediate appointment of a receiver over all of the property, business and affairs of the not-for-profit corporation (which indeed occurred)
- Pursuant of equitable accounting bookkeeping and other financial records
- Injunctive relief to prevent the corporation from specified financial actions
Implicit in this requested relief is the state’s focus on what appear to be breaches of fiduciary duty by the corporation’s board and management.