Members may be personally liable for unpaid judgment against an unincorporated association.

Daniels v. Elks Club of Hartford, 2012 VT 55 (Dooley, J.) (Cohen, S.J. concurring) (Reiber C.J.  joined by Burgess,  J. dissenting)

Plaintiff seeks to foreclose a mortgage on real property owned by  the Elks Club of Hartford, Vermont (the Club).  Defendant creditors  all have junior liens  arising from a discrimination lawsuit aginst the Club. Creditors  sappeal from a trial court decision on summary judgment, concluding that plaintiff  is entitled to a judgment of foreclosure against all parties, and dismissing creditors’ counterclaims.   On appeal, creditors argue the Club’s reinstatement of a dissolved corporation nineteen years after its dissolution does not alter its liability under a final judgment entered against it as an unincorporated association, and that plaintiff is personally liable for the judgment as a member of the Club. We agree.

The Club functioned as a voluntary association for nineteen years after its corporate status was terminated.  Creditors dealt with it as a voluntary association, not as a corporation.  Under Vermont law, the Club while acting as a voluntary association had the same liability as it had as a corporation, but the members had individual liability if the Club failed to pay a judgment against it.   

We conclude that reinstatement of the Club’s corporate status did not result in limiting liability on the Club’s debts arising from the discrimination lawsuit.  Because the Club was a voluntary association at the time it discriminated against the individual women certain members of the Club are liable for the judgments to the extent they cannot be collected from the Club.  The statute, 12 V.S.A. § 5060,   treats “partners, associates or shareholders” alike, imposing liability on them when execution against their partnership, association, or company is unfulfilled.  We have  applied the statute to unincorporated associations.  We acknowledge that the possibility of visiting liability on a mostly inactive Club member, who may have supported admission of women and opposed the Club’s decision to fight the discrimination litigation, with its very high cost, seems an inappropriate result.  Nonetheless, absent the corporate shield on liability,  the law permits the creditors to collect from individuals who were members when the various aspects of the judgment against the Club arose if collection from the Club itself is not possible. Reinstatement of the corporate status does not insulate officers, trustees, or members from liability for the judgment 

Having determined that the reinstatement of the corporate form did not insulate persons who are members, officers, or trustees from liability, we turn to the question of who could be personally liable to the creditors.  A number of courts have imposed liability on officers, directors, or shareholders only if they were aware that the corporation had been terminated.  We hold that reinstatement of the corporate status will not restore the corporate shield on personally liability for a person who knew, or should have known by virtue of the person’s position, that there was no corporate shield at the time of the act that created liability.  If the proceeds available to creditors do not satisfy their judgments, reduced by any other funds they may have received from or on behalf of the Club, they may pursue their counterclaims.

If creditors choose to pursue plaintiff for the unpaid judgment amounts, they must prove that plaintiff is a financially responsible member as defined in this decision: that is, with regard to any particular judgment, a member who knew, or should have known by virtue of his position, that the Club was not a corporation at the time that particular judgment accrued.  These same elements would apply if creditors opt to collect from another member.