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In a tentative ruling (.pdf) Thursday, a San Francisco Superior Court judge said United Way of the Bay Area was liable for fraud and unjust enrichment when it spun off a separate business entity that later collapsed under a mountain of debt. Judge Robert Dondero, following a bench trial, concluded that spinoff PipeVine was an alter ego � as opposed to a completely separate organization � and ordered the local United Way to pay $4.78 million in compensatory damages to the Bethesda, Md.-based Network for Good. He decided against punitive damages. Defense attorney Robert Phelps, a partner at Pillsbury Winthrop Shaw Pittman, said Monday afternoon that he and United Way were “obviously very disappointed” with Dondero’s ruling, and took exception with some of the factual findings and conclusions of law. “We still feel strongly that the United Way was open and appropriate in all of its dealings with PipeVine, both before PipeVine was separated and afterwards,” Phelps said. After PipeVine closed its doors in June 2003, an investigation turned up more than $17 million in charitable donations that had not been distributed to thousands of charities. Network for Good, which had hired PipeVine to distribute funds, took out a loan to cover funds PipeVine had failed to distribute, then sued United Way. Plaintiff attorney Sharon Mayo, a partner at Arnold & Porter representing Network for Good, said Dondero’s ruling shows the courts hold nonprofits to the same standards as for-profit companies. “Nonprofit board members should not treat their service as a nice addition to their resume, or check their business judgment and common sense at the door when they go to these board meetings,” Mayo said. Both sides have about two weeks to file an objection to Dondero’s tentative order in Network for Good v. United Way of the Bay Area, 436186.

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