15 Pa. Cons. Stat. § 5712

Standard of care, justifiable reliance and business judgment rule.

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§ 5712. Standard of care, justifiable reliance and business judgment rule.

(a) General rule.--A director of a nonprofit corporation shall stand in a fiduciary relation to the corporation and shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner the director reasonably believes to be in the best interests of the corporation and with such care, including the skill and diligence that a person of ordinary prudence would use under similar circumstances and reasonable inquiry into those issues required by the statutes of this Commonwealth to be considered in the circumstances and those interests and factors listed in section 5715(a) (relating to exercise of powers generally) or 5716(a) (relating to alternative standard) that the director considers appropriate. This subsection is subject to subsection (d) where applicable.

(a.1) Justifiable reliance.--In performing the duties of a director and in satisfying the requirements of subsection (d), a director is entitled to rely in good faith on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by any of the following:

(1) One or more officers or employees of the corporation or an affiliate of the corporation whom the director reasonably believes to be reliable and competent in the matters presented.

(2) Counsel, public accountants or other persons as to matters which the director reasonably believes to be within the professional or expert competence of such person.

(3) A committee of the board upon which the director does not serve, duly designated in accordance with law, as to matters within its designated authority, which committee the director reasonably believes to merit confidence.

(b) Effect of actual knowledge.--A director is not considered to be acting in good faith under subsection (a.1) if the director has actual knowledge concerning the matter that causes the director to believe reliance is unwarranted.

(c) Officers.--(Deleted by amendment).

(d) Business judgment rule.--A director who makes a business judgment in good faith fulfills the duties under this section if:

(1) the subject of the business judgment does not involve self-dealing by the director or an associate or affiliate of the director;

(2) the director is informed with respect to the subject of the business judgment to the extent the director reasonably believes to be appropriate under the circumstances; and

(3) the director rationally believes that the business judgment is in the best interests of the corporation.

(e) Burden of proof.--A person challenging the conduct of a director as violating the duty of care under this section has the burden of proving:

(1) a breach of the duty of care, including the inapplicability of the provisions as to the fulfillment of that duty under subsection (d); and

(2) in a damage action, that the breach was the legal cause of damage suffered by the corporation.

(Nov. 3, 2022, P.L.1791, No.122, eff. 60 days)

Cross References. Section 5712 is referred to in sections 5715, 5716, 5717 of this title.

Notes of Decisions

Cited in 19 cases, 1995–2020 · leading case: Lewis Ex Rel. Young v. Alexander

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Lewis Ex Rel. Young v. Alexander (2012) ca3 “§§ 5301-5311; they set forth the powers and duties of non-profit corporations, see 15 Pa. Cons.Stat. Ann. §§ 5501-5589; and they hold directors to a duty of care, see 15 Pa.”

Pittsburgh History & Landmarks Found. v. Ziegler (2019) pa “See 15 Pa.C.S. §§ 5712, 5717. Because the concerns justifying the Garner exception do not apply in this case, I would avoid making any broad proclamations adopting or rejecting Garner .”

Com. of Pa. v. New Foundations, Inc. (2018) pacommwct “15 Pa.C.S. § 5712 sets forth the director's status, obligations and duty of care to the nonprofit corporation.”

In Re Church of St. James the Less (2003) pacommwct · cites it 2× “§ 5712(a), provides in pertinent part that a director of a nonprofit corporation stands in a fiduciary relation to the corporation and must perform his or her duties in good faith and in the best interests of the corporation, and the director shall be entitled to rely in good…”

Zampogna v. Law Enforcement Health Benefits, Inc. (2013) pacommwct · cites it 2× “15 Pa.C.S. § 5712(a) (emphasis added). 10 To challenge a board of directors’ action requires “clear and convincing evidence that the disinterested directors did not assent to such [challenged] act in good faith after reasonable investigation.”

West Chester Area School District v. Collegium Charter School (2000) pacommwct “Specifically, Petitioners refer to section 5712(a) of the NCL, which provides that a member of the board of directors or other body of a non-profit corporation stands in a fiduciary relationship to the corporation and must perform his or her duties in good faith; in a manner he…”

In Re First Baptist Church of Spring Mill (2011) pacommwct “Clinger and the other board members of the Church violated a fiduciary duty imposed by Section 5712(a) of the Nonprofit Corporation Law, 15 Pa.C.S. § 5712(a), and engaged in self-dealing to inure benefits to private individuals.”

Corman v. National Collegiate Athletic Ass'n (2014) pacommwct · cites it 2× “See 15 Pa.C.S. § 5712.... See Zampogna v. Law Enforcement Health Benefits, Inc.”

David Archer v. York City School District (2017) ca3 “15 Pa. Cons. Stat. Ann. § 5712(a). After multiple amendments and renewals, in December 2011, New Hope requested that its charter be renewed for five years.”

New Hope Academy Charter School v. School District of the City of York (2014) pacommwct “” 15 Pa.C.S. § 5712(a). The Board found that New Hope’s board of trustees did not discuss or consider the terms of the management agreements, leases, and AEDY contract with Anderson’s businesses before approving them, and those findings are amply supported by the record.”

Woodstock Housing Corp. v. Johnson (In Re Johnson) (1999) paeb “, 15 Pa.C.S. § 5712(a); Brown v. Presbyterian Ministers Fund, 484 F.”

Neal v. Neumann Medical Center (1995) pacommwct “Of course, the statutory provision delineating a director’s fiduciary duties with respect to a nonprofit corporation is Section 5712(a) of the Nonprofit Law, 15 Pa.C.S. § 5712(a). That section, which is applicable here, matches Section 512(a) of the Associations Code nearly word…”

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— 15 Pa. Cons. Stat. § 5712(a) — 8 cases

In Re Church of St. James the Less (2003) pacommwct “§ 5712(a), provides in pertinent part that a director of a nonprofit corporation stands in a fiduciary relation to the corporation and must perform his or her duties in good faith and in the best interests of the corporation, and the director shall be entitled to rely in good…”

— 15 Pa. Cons. Stat. § 5712(a)(2) — 1 case

Zampogna v. Law Enforcement Health Benefits, Inc. (2013) pacommwct “15 Pa.C.S. § 5712(a) (emphasis added). 10 To challenge a board of directors’ action requires “clear and convincing evidence that the disinterested directors did not assent to such [challenged] act in good faith after reasonable investigation.”

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