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Volunteer Legal Handbook
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F. Damages and Related Issues
A jury or court (or, for that matter, an arbitrator) when faced with a claim that a nonprofit corporation or a volunteer has committed a tort, breached a contract or broken the law, first determines whether the claim is true and, if the jury or court concludes the allegations are true, then it sets out to make the victim whole. Usually, that will involve the award of damages, although other kinds of remedies are available. This part of the Handbook talks about what damages are, how they are calculated, who gets to pay them, what the hidden costs of litigation can be, and what remedies a victim can get when damages are not enough. You will find additional discussion of specific damages issues as they relate to specific topics throughout the Handbook.
1. Kinds of damagesThe law recognizes a wide range of kinds of damages. Only a few of them are addressed here. Except for punitive or exemplary damages, the basic concept is to make the victim whole, to restore him or her to the financial condition he or she would have been in but for the wrongdoing.
a) DirectDirect damages are the losses suffered as the immediate result of wrongful conduct. If the claim is for an auto accident without personal injury, it's the cost of repairing the victim's automobile. If the victim's auto can't be repaired for less than its value, then it's the value of the auto at the time of the accident. If the claim is for a purchaser's breach of a contract to purchase widgets, then the victim's damages are the profits he or she would have made on the sale. Direct damages are those losses which a reasonable person could foresee as resulting from that wrongful conduct.
b) Special or consequential
Special or consequential damages are those losses which result from wrongful conduct but which the reasonable person could not have been expected to foresee. If a vendor breached its contract to supply widgets, forcing you to purchase the widgets elsewhere, your direct damages would be the difference between the contract price and the price you had to pay to the alternate vendor. If the delay in delivering widgets also caused your organization to lose money because the organization couldn't deliver services, that additional loss would be consequential damages.
c) Punitive or exemplary
Punitive or exemplary damages are an exception to the general rule that damages are intended to make the victim whole. Punitive damages are intended to punish the wrongdoer. In Alaska, punitive damages may be a multiple of the amount of direct damages. Punitive damages are generally available only for conduct that was intentional, reckless or constituted gross negligence. Also under Alaska law, half of punitive damages are paid to the State of Alaska.
d) Statutory
Sometimes statutes prescribe the amount of damages that may be awarded. For example, IRC §6672 imposes damages in the form of a penalty equal to the amount of unpaid withholding taxes on a person who was supposed to pay over withholding taxes and failed to do so. The wage and hour statutes impose statutory damages of twice the amount of unpaid wages on an employer who in bad faith fails to pay wages. AS 23.10.110(a). Certain kinds of trespass damages allow the court to treble the actual damages.
Where more than one person is liable for damages, the liability may be several or joint and several. Where the liability is several, each person that is liable is liable for a pro rata share of the damages. If the victim was awarded damages of $10,000, and there are five persons severally liable, each is liable for $2,000. The victim can only recover $2,000 from any individual defendant.
Joint and several liability means each person is individually liable for the entire award of damages. The victim can only recover the total amount of his or her damages, but he or she can recover it from one defendant, and leave it to the defendants to sort out who among them will pay what. Since the ability to pay may not be equal among all of the defendants, this has the effect of shifting the risk of uncollectibility from the victim to the wealthiest defendants.
There are costs beyond damages &endash; hidden costs, if you will &endash; that can dramatically affect a nonprofit corporation. Economically, they are the equivalent of additional damages. Some of those costs are described here.
a) Costs of defenseIf you are involved in litigation, you have to hire a lawyer. That can be expensive. You can expect to incur both attorneys' fees, the charges for the lawyer's time, and costs, the out-of-pocket expenses other than attorneys' fees. Costs can include the charges of expert witnesses. Even simple lawsuits can be expensive. While a portion of those defense costs may be recoverable, as described in the next section, not all of the defenses costs will be. Make certain any insurance policies you buy include in their coverage payment of the costs of defense.
b) Civil Rule 82
Alaska is pretty much unique in that in most kinds of civil cases the prevailing party in a lawsuit gets to recover a portion of his or her defense costs from the losing party. The amount recovered depends upon a number of variables, but ranges from 10% to 20% of the amount in issue if the case goes to trial. Remember this particular rule can cut both ways.
c) Reserves for deductibles
Insurance policies usually have a deductible portion, the part you have to pay before the insurance company has to pay. The amount of the deductible varies. Generally, the higher the deductible the lower the premium you pay for the same policy. So there can be significant economic pressure to set a high deductible. That's all right, provided that you create a reserve in the nonprofit corporation for the amount of the deductible. Otherwise, the practical effect may be to not have insurance at all.
While monetary damages are by far the most common kind of remedy a court can give, they are by no means the only remedy. In situations where a monetary remedy will not adequately protect a victim, other remedies may be available. These are called "equitable" remedies, and they were created by English chancery courts. The rules relating to when and where equitable remedies will be made available are complex and in some cases arcane.
a) Injunctive reliefAn injunction is a court order directing a person to do something (a "mandatory" injunction) or to stop doing something (a "prohibitory" injunction.
b) Constructive trust
A constructive trust is a court judgment directing that a person hold money or property, not for themselves, but instead in a court-imposed trust for the benefit of another person.
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