Legal Question in Business Law in North Carolina

My wife is a member of a board of directors for a non profit day care that went out of business and wasn't able to pay the teachers for the last two weeks of work. Now those workers are suing my wife and other board members in small claims court. The day care also owes the IRS $154,000 in taxes that it didn't take out of the worker's weekly earnings.

Up until two months before the day care closed, my wife and board members were in the dark about the dire financial situation of the day care. The director, who was recently let go by the board, had hidden or misrepresented the financial situation up until the last few months. This is a volunteer position and my has no experience in business, has only served on the board for a year and never signed checks

My question is can the workers actually sue my wife and other board members personally instead of the day care, which doesn't have any money? Also, how concerned should they be about the IRS coming after them for the unpaid taxes?


Asked on 9/01/09, 10:26 am

1 Answer from Attorneys
John Kirby Law Offices of John M. Kirby

This can be a very tricky situation, and your wife may want to consult with an attorney and provide him or her with more information. As a general matter, the employees' claim would be against only the day care, and not the employees, officers, or directors of the corporation. Your wife's lack of involvement in these matters and lack of knowledge of the wrongdoing tend to protect her. As for the IRS issue (i.e. withholdings), your wife is probably safe from such a claim, but this may raise a complex issue under the federal laws pertaining to withholdings, as well as potentially rules for non-profits. Many companies have a type of insurance (Directors and Officers, or D&O), that might provide coverage (and a defense) for your wife. As your wife has been sued, she probably wants to retain an attorney (even though the amount recoverable in small claims court is limited).

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Answered on 9/06/09, 12:19 pm


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