§ 10A-3A-8.31 — Standards of Liability for Directors

Alabama § 10A-3A-8.31

• Jurisdiction: Alabama
• Title 10A: Alabama Business and Nonprofit Entities Code
• Ch. 3A: Alabama Nonprofit Corporation Law
• Art. 8: Directors and Officers
• Div. C: Directors

Text

Division C of Article 3 of Chapter 1 shall not apply to this chapter. Instead:
(a) A director shall not be liable to the nonprofit corporation or its members for any decision to take or not to take action, or any failure to take any action, as a director, unless the party asserting liability in a proceeding establishes that:
(1) no defense interposed by the director based on: (i) any provision in the certificate of incorporation authorized by Section 10A-3A-2.02(b)(4) or by Section 10A-3A-2.02(b)(6), or (ii) the protection afforded by Section 10A-3A-8.60, precludes liability; and
(2) the challenged conduct consisted or was the result of:
(i) action not in good faith; or
(ii) a decision:
(A) which the director did not reasonably believe to be in the best interests of the nonprofit corporation, or
(B) as to which the director was not informed to an extent the director reasonably believed appropriate in the circumstances; or
(iii) a lack of objectivity due to the director’s familial, financial or business relationship with, or a lack of independence due to the director’s domination or control by, another person having a material interest in the challenged conduct:
(A) which relationship or which domination or control could reasonably be expected to have affected the director’s judgment respecting the challenged conduct in a manner adverse to the nonprofit corporation, and
(B) after a reasonable expectation to that effect has been established, the director shall not have established that the challenged conduct was reasonably believed by the director to be in the best interests of the nonprofit corporation; or
(iv) a sustained failure of the director to devote attention to ongoing oversight of the activities and affairs of the nonprofit corporation, or a failure to devote timely attention, by making (or causing to be made) appropriate inquiry, when particular facts and circumstances of significant concern materialize that would alert a reasonably attentive director to the need for that inquiry; or
(v) receipt of a financial benefit to which the director was not entitled or any other breach of the director’s duties to deal fairly with the nonprofit corporation and its members that is actionable under applicable law.
(b) The party seeking to hold the director liable:
(1) for money damages, shall also have the burden of establishing that:
(i) harm to the nonprofit corporation or its members has been suffered, and
(ii) the harm suffered was proximately caused by the director’s challenged conduct; or
(2) for other money payment under a legal remedy, such as compensation for the unauthorized use of corporate assets, shall also have whatever persuasion burden may be called for to establish that the payment sought is appropriate in the circumstances; or
(3) for other money payment under an equitable remedy, such as profit recovery by or disgorgement to the nonprofit corporation, shall also have whatever persuasion burden may be called for to establish that the equitable remedy sought is appropriate in the circumstances.
(c) Nothing contained in this section shall:
(1) in any instance where fairness is at issue alter the burden of proving the fact or lack of fairness otherwise applicable;
(2) alter the fact or lack of liability of a director under another section of this chapter, such as the provisions governing the consequences of an unlawful distribution under Section 10A-3A-8.32 or a transactional interest under Section 10A-3A-8.60;
(3) affect any rights to which a director may be entitled under another statute of this state or the United States; or
(4) affect any rights to which the nonprofit corporation or a member may be entitled under another statute of this state or the United States.

Legislative History

(Act 2023-503, §1.)