In 1960, shortly after ground was broken for the new building, the Sibley Board of Trustees revised the corporate by-laws in preparation for an expected increase in the volume and complexity of Hospital business following the move. Under the new by-laws, the Board was to consist of from 25 to 35 trustees, who were to meet at least twice each year. Between such meetings, an Executive Committee was to represent the Board, and was authorized, inter alia, to open checking and savings accounts, approve the Hospital budget, renew mortgages, and enter into contracts. A Finance Committee was created to review the budget and to report regularly on the amount of cash available for investment. Management of those investments was to be supervised by an Investment Committee, which was to work closely with the Finance Committee in such matters.
In fact, management of the Hospital from the early 1950's until 1968 was handled almost exclusively by two trustee officers: Dr. Orem, the Hospital Administrator, and Mr. Ernst, the Treasurer. Unlike most of their fellow trustees, to whom membership on the Sibley Board was a charitable service incidental to their principal vocations, Orem and Ernst were continuously involved on almost a daily basis in the affairs of Sibley. They dominated the Board and its Executive Committee, which routinely accepted their recommendations and ratified their actions. Even more significantly, neither the Finance Committee nor the Investment Committee ever met or conducted business from the date of their creation until 1971, three years after the death of Dr. Orem. As a result, budgetary and investment decisions during this period, like most other management decisions affecting the Hospital's finances, were handled by Orem and Ernst, receiving only cursory supervision from the Executive Committee and the full Board.
Dr. Orem's death on April 5, 1968, obliged some of the other trustees to play a more active role in running the Hospital. The Executive Committee, and particularly defendant Stacy Reed (as Chairman of the Board, President of the Hospital, and ex officio member of the Executive Committee), became more deeply involved in the day-to-day management of the Hospital while efforts were made to find a new Administrator. The man who was eventually selected for that office, Dr. Jarvis, had little managerial experience and his performance was not entirely satisfactory. Mr. Ernst still made most of the financial and investment decisions for Sibley, but his actions and failures to act came slowly under increasing scrutiny by several of the other trustees, particularly after a series of disagreements between Ernst and the Hospital Comptroller which led to the discharge of the latter early in 1971.
Prompted by these difficulties, Mr. Reed decided to activate the Finance and Investment Committees in the Fall of 1971.
However, as Chairman of the Finance Committee and member of the Investment Committee as well as Treasurer, Mr. Ernst continued to exercise dominant control over investment decisions and, on several occasions, discouraged and flatly refused to respond to inquiries by other trustees into such matters. It has only been since the death of Mr. Ernst on October 30, 1972, that the other trustees appear to have assumed an identifiable supervisory role over investment policy and Hospital fiscal management in general.
Against this background, the basic claims will be examined.
Plaintiffs first contend that the five defendant trustees and the five defendant financial institutions were involved in a conspiracy to enrich themselves at the expense of the Hospital. They point to the fact that each named trustee held positions of responsibility with one or more of the defendant institutions as evidence that the trustees had both motive and opportunity to carry out such a conspiracy. The extent of these interlocking duties and interests is revealed by the following table:
Hospital Defendant Trustees Financial Institution
SIBLEY STACY M. SECURITY NATIONAL BANK
Trustee (1956-) REED Director (1930-)
Executive Com. (1961-) Executive Com. (1937-)
Finance Com. (1961-) Minor stockholder
Investment Com. (1961-)
Board Chairman (1960-)
SIBLEY LANIER P. McLACHLEN NATIONAL BANK
Trustee (1956-) McLACHLEN Director (1974-)
Investment Com. (1960-73) Board Chairman (1953-73)
Principal stockholder (8.1%)
SIBLEY GEORGE M. FERRIS & CO.
Trustee (1956-) FERRIS Senior Partner (-1971)
Finance Com. (1973-) Board Chairman (1971-)
Investment Com. (1962-70) Principal stockholder (42%)
Acting Treas. (1972-73)
SIBLEY EDWARD K. INTERSTATE BUILDING ASSOC.
Trustee (1959-) JONES Director (1932-)
Executive Com. (1959-) Executive Com. (1932-)
Finance Com.(1960-73) Board Chairman (1969-)
Investment Com. (1971-73) President (1954-69)
RIGGS NATIONAL BANK
Executive Com. (1967-74)
SIBLEY FRED W. RIGGS NATIONAL BANK
Trustee (1964-) SMITH Advisory Director (1964-)
Executive Com. (1964-) Minor stockholder
Investment Com. (1967-73)
JEFFERSON FEDERAL S. & L.
Executive Com. (1957-)
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