## Facts

- The David B. Lichtenstein Foundation was created in December 1947 by an indenture of trust to carry out charitable purposes.
- The trust barred self-dealing and limited director compensation to 5% of the trust’s income; historically, directors served without compensation and the foundation had no paid staff.
- After the settlor’s death in 1986, his sons managed the foundation, including Daniel Lichtenstein.
- In 1987, Daniel and his daughter sued Boatmen’s Bank concerning estate administration (the “Boatmen’s litigation”). The foundation joined as a plaintiff and paid the legal fees and expenses for Daniel and his daughter.
- In 1989, the probate court dismissed the foundation from that lawsuit for lack of interest, but the foundation continued paying litigation costs for Daniel and his daughter.
- In 1990, Daniel’s wife, Allene Lichtenstein, joined the board. After her appointment, directors began paying themselves annual salaries (including $12,000 per director), expanded the board from five to nine members, and substantial sums were charged to the foundation for items characterized as personal property.
- In December 1991, consistent with the trust indenture, the trust-form foundation was dissolved and its assets were transferred to a newly formed nonprofit corporation (the Lichtenstein Foundation, the “corporation”).
- The corporation’s articles of incorporation carried forward the trust terms, including the prohibition on self-dealing and the compensation cap tied to income.
- In 1993, Allene Lichtenstein was appointed first vice president/director and received a salary of $120,000.
- Evidence showed Allene Lichtenstein used corporate funds for personal benefits, including installing a telephone line in every room of her house and paying for personal travel.
- The Missouri Attorney General sued Allene Lichtenstein and Arlene Frazier, seeking their removal as directors and repayment to the corporation for misused charitable funds.
- After a bench trial, the trial court applied trust-law standards, removed the directors, and ordered reimbursement to the corporation of approximately $300,000.

## Issues

1. Whether the trial court properly applied trust-law fiduciary standards (rather than corporate director deference under the business-judgment rule) where the charitable trust was converted into a nonprofit corporation whose articles incorporated the trust’s restrictions.
2. Whether substantial evidence supported the trial court’s findings of breach of fiduciary duty and the remedies of removal of the directors and reimbursement of approximately $300,000 to the charitable corporation.

## Decision

- The Missouri Court of Appeals affirmed the judgment.
- The court upheld the trial court’s use of trust-law principles given the charitable origin of the assets and the corporation’s articles carrying forward the trust’s limits on self-dealing and compensation.
- The court rejected the directors’ effort to avoid liability through corporate-law deference where the challenged transactions involved personal benefit and conflicted with the governing restrictions and charitable purpose.
- Applying the bench-trial standard of review (Murphy v. Carron/Rule 73.01(c)), the court held the record contained substantial evidence to support findings that charitable assets were diverted for noncharitable, private purposes.
- The court upheld both equitable remedies: removal of the directors to protect the charitable entity and repayment to restore misapplied funds.

## Legal Principles

- When charitable assets originate in a trust and are transferred into a nonprofit corporation whose articles incorporate the trust’s terms, those incorporated restrictions remain enforceable against directors and officers managing the assets.
- Directors of a charitable nonprofit act as fiduciaries with duties of loyalty, care, and faithfulness to the organization’s charitable purposes; they may not divert charitable property to private use.
- The business-judgment rule does not shield directors from liability for self-dealing, unjust enrichment, or expenditures that conflict with the organization’s governing documents and charitable mission.
- The Missouri Attorney General has authority to sue to protect charitable assets, including seeking removal of directors and restoration of funds wrongfully paid out.
- On appeal from a court-tried case, the judgment is affirmed unless it lacks substantial evidence, is against the weight of the evidence, or misstates or misapplies the law.

## Conclusion

The court affirmed removal and repayment orders against charitable nonprofit directors where the organization’s governing documents retained trust-based limits on compensation and self-dealing, and substantial evidence showed charitable funds were used for private benefits and other noncharitable expenditures, making both restitution and director removal proper remedies in an Attorney General enforcement action.


Nixon v. Lichtenstein, 959 S.W.2d 854 (1997)