Stern v. Lucy Webb Hayes National Training School for Deaconesses and Missionaries
United States District Court for the District of Columbia
381 F.Supp. 1003 (1974)
The Lucy Webb Hayes National Training School (the School) (defendant) founded Sibley Memorial Hospital (Sibley) (defendant) to serve the poor. Under Sibley's bylaws, an Executive Committee ran daily operations, and a Finance Committee was supposed to oversee investments and budgets, but for nearly 20 years the Finance and Investment Committees never actually met — instead, two trustee officers, Dr. Orem and Mr. Ernst, ran everything alone while the rest of the trustees simply rubber-stamped their decisions. After Orem and Ernst died, the dormant committees finally became active, and patients including Stern (plaintiff) sued Sibley, its trustees, and several affiliated financial institutions, alleging the trustees had conspired to deposit hospital funds only with institutions they had personal ties to, which paid little or no interest, amounting to mismanagement, self-dealing, and conspiracy. The trial court dismissed the claims against the financial institutions at the close of Stern's case, and Stern appealed.
Whether trustees of a charitable hospital should be judged under the stricter, traditional trust standard of care or the more lenient corporate standard, and whether that standard still requires supervising investments and avoiding unsafeguarded conflicts of interest.