Wednesday, November 13, 2013

Stern v. Lucy Webb Hayes National Training School for Deaconesses and Missionaries case brief

Stern v. Lucy Webb Hayes National Training School for Deaconesses and Missionaries case brief summary
381 F.Supp. 1003 (1974)

Plaintiff hospital patients' class action lawsuit challenged various aspects of the fiscal management of defendants, hospital and trustees. The court set forth the basis of its determinations and resolved the remaining issues, which went to full trial. The hospital patients dismissed four trustees and one financial institution, and the court had dismissed the complaint as to the remaining financial institutions.


The hospital patients were certified as a class to represent all patients in their allegations that a non-profit charitable hospital's trustees conspired to enrich themselves and certain affiliated financial institutions by favoring those institutions in financial dealings, and that they breached their fiduciary duties of care and loyalty in the management of hospital's funds.


  • The court held that there was no evidence that the trustees reached a mutual agreement to direct or encourage favoritism, despite the frequent transactions which benefited the affiliated financial institutions. 
  • Indeed, the court noted, the trustees implemented a more realistic investment program when informed of the treasurer's policies, and no conspiratorial inference could be drawn from any of their course of dealing. 
  • However, the court found, the trustees had breached their fiduciary duty to supervise the management of the hospital's investments, as demonstrated by the evidence that all of the trustees, with only one exception, were repeatedly elected to the investment committee without ever bothering to object when no meetings were called for more than 10 years, and all approved self-dealing transactions.

The court ordered the trustees to present to the full board a written policy statement regarding investments and establish a procedure for the periodic examination of existing investments. The court declined to award damages or to reconsider the denial of recertification, and denied all other relief that the hospital patients requested.

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