Nixon v. Lichtenstein

Allene Lichtenstein (defendant) was a director of the David B. Lichtenstein Foundation (the foundation). The foundation was created by an indenture of trust. The trust prohibited self-dealing and capped its directors’ compensation at 5 percent of the trust’s income. In 1991, in accordance with the trust indenture, the foundation was dissolved, and its assets were used to start the Lichtenstein Foundation (the corporation), a nonprofit corporation. The corporation’s articles of incorporation maintained the terms of the trust, including the prohibition on self-dealing and the cap on directors’ compensation. In 1993, Lichtenstein was appointed as first vice president/director and received a salary of $120,000. Lichtenstein also used corporation funds to install a telephone line in every room in her house. There was also evidence that Lichtenstein used corporation funds for personal travel. The attorney general (plaintiff) sued Lichtenstein for breaching her duties to the corporation. The trial court applied trust law to the case and removed Lichtenstein as a director. The trial court found under trust law that Lichtenstein violated the articles of incorporation and ordered Lichtenstein to reimburse the corporation. Lichtenstein appealed, arguing that the court should not have applied trust law but rather corporations law, and specifically the business-judgment rule. Lichtenstein argued that because the foundation was converted into a corporation, she was a corporate director and no longer a trustee.