The  United States Court of Appeals for the First Circuit’s  recent decision in Tristan Squeri et al. v. Mount Ida College et al.  upholds the dismissal of  claims brought by former students of Mount Ida College against both the College and certain officers and directors of the College.   The students instituted the action as a result of the sudden closure of the institution in the Spring of 2018.   The students sought relief on the following claims:

      • violation of privacy
      • fraud
      • negligent misrepresentation
      • fraud in the inducement
      • breach of fiduciary duty
      • breach of contract
      • unfair and deceptive practices

The First Circuit held that none of the claims could withstand the defendants’ motion to dismiss and affirmed the lower court decision from May 2019.

The primary argument on appeal concerned the fiduciary duty claim.   Specifically, the students argued that the individual defendants (as well as Mount Ida itself)  owed the institution’s students a fiduciary duty.   The  First Circuit was not persuaded:    “Massachusetts law firmly establishes that there is no such fiduciary duty between Mount Ida’s officers or trustees and Mount Ida students on the claims here.”  Rather, the Court held that the fiduciary duty imposed on the individual defendants by Massachusetts law (Mass. Gen. Laws ch. 180, § 6C)  was owed to the College directly and not to the students and  that imposition of the duties sought by the students would create conflicts with existing duties.   Further, the Court declined the students’ invitation to “expand the law” and impose a fiduciary duty directly on the College to its students.

Because the First Circuit was able to affirm on the grounds discussed, it noted that it need not take up various defenses raised by the defendants including the argument that the Volunteer Protection Act, 42 U.S.C. § 14503(a) provides immunity from suit (and not merely immunity from liability) as held recently by the Massachusetts Supreme Judicial Court in  Lynch v.  Crawford, 135 N.E.3d 1037, 1041 (Mass. 2019).   Lynch was discussed in a recent blog post here.

As the litigation in Mount Ida and Lynch demonstrates,it is not unusual for officers and directors of a financially troubled entity to be the subject of various claims.  Any individual contemplating service as a director or officer of any entity (for profit or not for profit) should ensure  a suitable directors and officers liability insurance policy is in place.  For a brief discussion of some of the considerations  for such policies, see my article “Five Things to Know About D & O” published by the American Bar Association Business Law Section (copy available here).