Number 10 October 10, 1972

Number 10 October 10, 1972 Professor Howard M. Emmons Chairman, Massachusetts Science and Technology Foundation Door 10, Lakeside Office Park Wakefield, Massachusetts 01880 Dear Professor Emmons: You have requested my opinion whether individual members of the Board of Governors of the Massachusetts Science and Technology Foundation (the Foundation) are personally liable to reimburse the Commonwealth for monies accepted by Board members for Foundation purposes pursuant to appropriation acts containing so-called "pay back" provisions. Appropriations have been made by the Legislature to the Foundation on the condition that the Foundation reimburse the Com- monwealth for the amounts appropriated. For example. Chapter 514, section 2, item 3690-0010, the appropriation act funding the Foundation for fiscal year 1973, provides as follows: "For the expenses of the Massachusetts Science and Technology Foundation, as authorized by chapter eight hundred and forty-three of the acts of nineteen hundred and sixty-nine; provided, that the foundation shall reimburse the commonwealth for appropriation made under this item . . . $100,000." (Emphasis supplied.) P.D. 12 59 Similar "pay back" provisions are contained in acts funding the Foundation in past years. Chapter 370, section 2. item 1590-0010 of the Acts of 1970: Chapter 1003, section 2. item 1590-0010 of the Acts of 1971. For the reasons hereinafter stated, 1 am of the opinion that the pay back" provisions at issue impose no personal liability upon the in- dividual members of the Foundation's Board of Governors to reimburse the Commonwealth for the amounts appropriated. The Foundation was created and placed in the Department of Com- merce and Development pursuant to Chapter 843 of the Acts of 1969. That act manifests an intent on the part of the Legislature to establish the Foundation as an independent corporate body capable of both incur- ring and meeting monetary obligations. Section 7 of Chapter 843 of the Acts of 1969 provides: "All moneys received by the Foundation under the author- ity of this act shall be deemed trust funds, to be held and ap- plied solely as provided in this act. The Foundation shall, in any trust agreement, provide for the payment of all revenues to be received to any officer who, or to any agency, bank or trust company which, shall act as trustee of such funds and shall hold and apply the same to the purposes hereof, subject to such regulations as this act and such trust agreement may provide. "All expenses incurred in carrying out the provisions of this act shall be payable solely from funds provided under the . authority of this act, and the Foundation shall have no power to make its obligations payable out of any property or moneys except those of the Foundation. No obligation of the Founda- tion shall be a debt of the commonwealth and no liability or obligation shall be incurred by the Foundation beyond the ex- tent to which moneys shall have been provided by appropria- tion or otherwise under the provisions of this act and are available therefor." In addition. Section 6(c) empowers the Foundation "to sue and be sued in its own name and to prosecute and defend all actions relating to its property and affairs. The Foundation shall be liable for its debts and obligations, but the property of the Foundation shall not be subject to at- tachment nor levied upon by execution or otherwise. Process may be served upon the treasurer of the Foundation or, in the absence of the treasurer, upon any member of the governing board of the Foundation." Thus, the act provides that the Foundation, as a distinct corporate en- tity, may incur debts, obligations, and expenses pursuant to its delegated authority. No language in the act, either expressly or by implication, imposes a personal liability on the part of individual Board members to honor any such debts, obligations, and expenses. On the contrary, the monetary obligations of the Foundation are to be met from monies ap- 60 P.D. 12 propriated to it, or from monies otherwise obtained under the provisions of the act. Similarly, the express language of the "pay back" provisions of the appropriation acts at issue imposes an obligation upon the Foundation as a distinct corporate entity. It is the Foundation that is charged with reimbursing the Commonwealth for amounts appropriated to it, and no such duty is placed upon individual members of its Board of Governors. A contrary interpretation of the ''pay back" provisions of the appro- priation acts at issue would conflict with well-established principles of corporation law. In many respects the Foundation is similar to a corpo- ration. The Foundation is designated as a "corporate body" (c. 843, § 1 of the Acts of 1969), and like business corporations established pursuant to G. L. c. 156B, it may enact by-laws (§ 3). hold property (§§ 5b, c, and 6a), adopt a seal (§ 3), and submit by-laws and amendments to the Secre- tary of State (§ 3). Compare G. L. c. 156B, §§ 9, 17, 6, 74.* Ahhough they are denominated the Foundation's "governing board" by c. 843, § 3 of the Acts of 1969, the members thereof, for all practical purposes, constitute a board of directors of a "corporation." Chapter 843, § 3 pro- vides that the Foundation "shall be governed and its corporate powers exercised by a board of nine members." The Board of Governors is re- sponsible for managing the business of the Foundation in much the same way that a board of directors is required by statute to manage the busi- ness of a business corporation. G. L. c. 156B, § 47. Personal liability may attach to individual corporate directors who vio- late specific statutory proscriptions. E.g., G. L. c. 156B, §§ 60-63. In addition to liability expressly imposed by statute, a corporate director may be liable for breaches of his fiduciary duty of loyalty to a business corporation, and for failure to reasonably protect and preserve the in- terests of the corporation. See generally, Fletcher, Cyclopedia Corpora- tions, Vol. 3, § 990 et seg.; Yerrall, Common Law Duties of Directors of Corporations and Remedies for Breaches Thereof in Massachusetts, 21 Mass. L. Q. 50 (1936). An interpretation of the "pay back" provi- sions of the appropriation acts at issue requiring individual members of the Foundation's Board of Governors to reimburse the Commonwealth for amounts appropriated would constitute a departure from these tradi- tional limitations placed upon the individual liability of corporate direc- tors. My opinion is, of course, limited to appropriation acts containing "pay back" provisions identical to the provision, quoted supra, in c. 514, § 2, item 3690-0010, the act funding the Foundation for the current fiscal year. I might add that the Legislature has continued to fund the Foundation despite the fact that the Commonwealth has never been reimbursed for the amounts appropriated. Such continued funding sug- * Entities possessing corporate powers have heen considered hy courts to be in tact corporations, although not specifi- cally denominated as such, hdiirih School DiMiici in Riinifonl. v. WooJ. 1.^ Mass. I.'5X. 162-6.''; tJaiuink v. Loiii.willc R.R. Co.. M.S U.S. 40.^. 409; OLcaiy v. Board of Fire ami Water Commis\ioiu-rs. 79 Mich. 281 . 44 N.W. 608; G/vm.v v. Krntiirky Hoaril of \houiKcrs. 105 Ky. 840. 49 S.E. 458. P.O. 12 61 gests that the Legislature is mindful that the Foundation requires state support until such time as it is able to be self-supporting. Very truly yours, ROBERT H. QUINN Attorney General