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The Honor Society National- Chapter Relationship: Structural & Risk Management Issues prepared for presentation at the 2009 National Meeting of the Association.

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Presentation on theme: "The Honor Society National- Chapter Relationship: Structural & Risk Management Issues prepared for presentation at the 2009 National Meeting of the Association."— Presentation transcript:

1 The Honor Society National- Chapter Relationship: Structural & Risk Management Issues prepared for presentation at the 2009 National Meeting of the Association of College Honor Societies, Phoenix, AZ Prepared and presented by John C. Kuzenski, General Counsel Pi Sigma Alpha, The National Political Science Honor Society Washington, DC

2 Why Structural & Risk Management? Sixty-four member organizations in ACHS that have aggregate reported membership of 10-11 million + individuals In a considerable number of cases, organizations handle (in & out) or control tens or even hundreds of thousands of dollars annually Collegiate honor societies are present in every state of the Union, and at the overwhelming majority of institutions of higher education Honor societies bestow highly-sought honors upon college students, virtually all of whom consider membership in one or more an important and tangible resume asset when preparing for the job or graduate/professional school market. Despite the prominence, size and prestige of modern American honor societies, there is a dearth of legal authority from statutes & case law about honor societies generally. They do not attract a great deal of legal scholarship or commentary, and it is hard to find lawyers who make honor society-oriented practice a cornerstone of their practice!

3 In dealing with college honor society legal issues, lawyers therefore often have to rely on whats most like them. This means the law of nonprofit organizations, higher education law generally, fraternities & sororities, high school societies, etc. Most common threads in the federal and 50-state caselaw from the above organizations: –Structure: when theres a national organization that establishes chapters, field offices, local branches, etc., how are these entities governed? (often used to assess liability) –Membership: when an applicant is denied or an initiated member is ejected, are there actionable grounds to sue the organization? –Civil Liability: because nonprofit organizations are essentially business organizations, the common law, statutory and case law rules regarding businesses will generally apply to them.

4 The Structure Question Possible Models Between National Office (N) & Local Chapter(s) (C): One Entity– Cs work completely through N; N registers as foreign corp. in each state; centralized accounting/ record-keeping. Advantage= command/control. Disadvantage= legal mess– if one of the chapters is sued, the national organization is the defendant and the assets of all of the chapters are at risk. Separate Entities– N creates 50 nonprofit corps., 1 for each state; N controls activities of Cs through separate contracts with each. Advantage= some degree of legal shelter. Disadvantage= 50 corporations, 50 agents, 50 Boards, etc. Voluntary Incorporations– N issues basic rules, standards, some oversight/coordination, almost like a franchise/franchisee relationship. Each C, however, is mostly autonomous, has its own officers and/or Board, operates independently to fulfill mission. Advantage= better legal shielding for N. Disadvantage= lack of command/control. (Source: Brian Fons, Blocking & Tackling National Not For Profits, CBA Record 41: Feb-Mar 2004)

5 Exploring the Voluntary Incorporation Model Many nonprofit orgs, including a number of ACHS member societies, follow this model. National organization is incorporated under state or DC law, registered, may conduct business as an ordinary nonprofit business in accordance with Articles of Incorporation, Charter, Constitution and/or relevant law (e.g. ΠΣΑ- D.C. Code Title 29, §3, Nonprofit Corporations Act). Chapters are either voluntarily incorporated by the chapter itself within their home jurisdiction or have the status of an unincorporated nonprofit association (UNA) or partnership. In 12 states (& growing), Cs will be considered a UNA automatically by operation of jurisdictions version of the Uniform Unincorporated Nonprofit Association Act (UUNAA), promulgated in 1996 by the Natl Conference of Commissioners on Uniform State Laws. In July, 2008, Commissioners finished the Revised UUNAA (RUUNAA), designed to expand the original Act beyond simple tort liability and basic contract and property issues.

6 The RUUNAA (2008) Specifics From the preamble: RUUNAA deals with the following basic issues: (1) definition of the types of organizations covered; (2) the relation of the act to other existing laws; (3) the recognition that a UNA is a legal entity and the legal implications flowing from this status, including the ability of a UNA to own and dispose of property and to sue and be sued in its own name; (4) the contract and tort liability of a UNA and its members and managers; (5) internal governance, fiduciary duties, and agency authority; and (6) dissolution and merger. Idea behind this work: The problem… has been that the common law… has found unincorporated associations to be simply a collection of members, with each member liable for the debts of the association itself, rather than considering the association to be an entity apart from the members.... [I]t has, in most states, been considered to be more like a partnership than a corporation. Lisa A. Rundquist, ABA Evaluator, The Uniform Unincorporated Nonprofit Association Act– A Vast Improvement and A First Attempt at International Collaboration, American Bar Assn. 2008

7 Training Chapters to Appreciate Their Legal Status What are the most helpful things N can relate to C about their status as organizations? –their chapter actions are on behalf of a corporate person with a life of its own– interests, goals, purposes. Best business judgment rule, dealing in good faith, disclosure of potential conflicts –the relationship between N & C in this organization –the critical importance of good & transparent decision- making & accounting practices (most membership society lawsuits involve membership criteria or decisions; next most likely is money).

8 The Degree of Control Rule The degree of control N has over its Cs is generally going to be a dispositive factor with respect to the legal exposure of the former for the acts or omissions of the latter. –Borrows from the law on agency; agency exists when a fiduciary relationship exists between a principal and an agent, and the latter assumes legal authority to act on behalf of the former in the conduct of business and/or execution of legally binding actions. Am. Jur. Agency § 1. The theory of respondeat superior is recognized generally across subfields of the civil law; it is the liability of a master for acts of a servant, or of an employer for the acts of an employee. Also important: the concept of ultra vires acts– was the accused acting within the scope of responsibility or organizational duties when the harm occurred to the complainant? EXAMPLE: Substantive factors in a nonprofit organizations National Offices connection to a chapter/branch employee were determined by one court to be degree of financial control of N over C and degree of political/policy control of N over C. Ns training of C officers & establishing minimum requirements for active certification, however, was not enough to hold N liable for alleged employment wrong committed by C. Choe-Rively v. Vietnam Veterans of America, 135 F.Supp. 2d 462, 473 (Del., 2001). In a situation where the responsibility of the National Office for the misdeeds of a chapter is at issue, this is a critical decision rule. Note that it has the potential, depending on your organizational structure, to make National Office and Chapter legal interests adverse.

9 At A Minimum, What N Control Is Always Useful? Clarity in constitution/by-laws about the relationship between and obligations/responsibilities of N & C. The constitution and bylaws of the central governing body of a fraternal benefit society, together with the charter of the subordinate body, constitutes a contract between the subordinate and parent organizations 36 Am.Jur.2d Fraternal Orders § 30, at 682 (2001). Provision for the use of trademarks, service marks & other intellectual property– licenses & limitations Supremacy Clause in N constitution- power of review given to N governing board or Council Limiting Clause- members/officers have no rights/privileges other than those expressly granted in constitution/by-laws Periodic reporting responsibility by C to N, particularly with respect to finances and major activities

10 The Membership Issue Criteria & Qualifications General principle- honor societies are private organizations, and as such enjoy a reasonable amount of freedom to set their own membership criteria & enforce their own rules. Most important: common law rule that where no property right exists as to organizational membership, there is no requirement the organization provide protections for due process. Most routine applicants to most types of honor societies will have no such right. Virtually every general principle has important exceptions! Most critical in this context: –University (private or public) non-discrimination rules; failure to abide can subject group to expulsion from campus, or at a minimum official de- certification from Student Activities/Affairs Office. –Academic Departments: your advisors (usually) have departments in which they have to live their professional lives (and possibly gain tenure!). National minimums should never be compromised, but what if an additional proposal for membership at a C isnt covered by your constitution/by-laws? –Remember that due process is a constitutional argument; under some circumstances, courts may entertain alternative theories of relief such as illusory promises, unjust enrichment, fraud, etc. Dismissal of one cause of action does not automatically mean dismissal of an entire multi-cause action.

11 Membership & the Character Question Chipman v. Grant County School Dist., 30 F.Supp. 2d 975 (E.D.Ky. 1998)– Female HS students who got pregnant, subsequently declined membership in National Honor Society on character grounds, sue for relief on Title IX (pregnancy discrimination) grounds, 20 U.S.C.A. §1681(a). Court found school controlled NHS chapter for practical purposes, issued injunction enjoining the Defendant to admit Plaintiffs to NHS at their high school. See also Pfeiffer v. Marion Ctr. Area School Dist., 917 F.2d 779 (C.A.3, Pa. 1990); By action of the Faculty Council, you have been dismissed from the National Honor Society for the following reason: Failure to uphold the high standards of leadership and character required for admission and maintenance of membership. Plaintiff had premarital sex and got pregnant; Council refused to disclose any more specific reason for dismissal, & court took notice of this wiggle room in an unfavorable light to Defendant. See also Wort v. Vierling, 778 F.2d 1233 (C.A. 7, Ill. 1985) (pregnancy used as evidence of character deficiency at trial, plaintiff wins). Warren v. Natl. Assn. of Secondary School Principals, 375 F.Supp. 1043 (D.C. Tex. 1974)– member dismissed from NHS on deficient character grounds (spotted drinking a beer at a nearby Pizza Hut one night) did not receive due process as required by organizations national constitution before being ejected; property interest in membership and good will value of good name were judiciable by the courts (organization governing documents are important and chapters must abide by them- Defendant was governing organization for honor society).

12 Character: the Subjectivity Dilemma The Character Counts Coalition (from Josephson Institute) lists six pillars of character. The problem with most pillars is that, for all protestations of fairness, bipartisanship, etc., there are important legal & ethical questions that remain unanswered. –Example: RESPONSIBILITY- be accountable for your choices. (teen pregnancy? Otherwise high-functioning alcoholic?) –Example: TRUSTWORTHINESS– have the courage to do the right thing; stand by your family, friends and country. (is sponsoring an anti-Hispanic illegal immigration rally at my school discriminatory or supportive of American citizens and legal immigrants? Should I stand by my family if my parents are child abusers? Should I stand by my country if it declares war on Canada for the express purpose of taking its fresh water and turning Quebec into an amusement park?) –Example: CITIZENSHIP– obey laws and rules. (What if the law tells me I must do something unethical? Am I a really a bad person if I do a rolling stop at that four-way stop sign at 3 in the morning when Im sure NO ONE ELSE is around for miles? More importantly, if a passerby witnesses it and reports me, am I subject to dismissal from a group for flawed character?)

13 Honor Societies and Character The standard for public action with respect to character clauses is relatively settled– they must be content-neutral, i.e. they cannot be worded or used in a way that discriminates by race, gender, religion or other status protected by law. See, inter alia, Second City Music, Inc. v. City of Chicago, 333 F.3d 846 (C.A. 7, Ill. 2003), for example. The more specific the clause with respect to outlining or defining deficient character, the better. See, inter alia, U.S. v. Dang, 488 F.3d 1135 (C.A. 9, Ca. 2007). What about private organizations and character clauses? We can learn something from Revels v. Miss America Organization (E.D.N.C., 2002; unreported in F.2d) about four factors a court may consider if such a clause is vague (in this case, signatory affirmed to be free of moral turpitude or activity reasonably characterized as dishonest, immoral or indecent): balancing of hardships– what is the hardship to both Plaintiff & Defendant if action dismissed? balancing of harms– who will suffer more if action dismissed? likelihood of success on the merits– does Plaintiffs case have some teeth to it? the public interest– embarrassment to MAO in this case weighted heavily. Probably not to a garden-variety academic honor society though!

14 Best Practices on a Character Qualification If you have to have character in your membership criteria, you should (A) define it as best you can so as to provide guidelines for its interpretation by your chapters and (B) make sure chapters understand the gravity of denying or revoking membership to someone based solely on highly subjective personal differences that might be considered character grounds. Better not even to approach the point where a potential plaintiffs claims might sound like they have appreciable merit, even if he/she might ultimately lose a legal action based on them. Create some documentation (formal by-law, policy statement, etc.) of a reasonably objective set of criteria that are considered instrumental indicia of compliance & apply them uniformly– e.g. academic honesty, violation (or conviction) of criminal law, pattern of disregard for criminal or civil laws, etc. There should be a reasonable relationship between each criterion and a viable threat to the purposes/goals of the organization. Personal lifestyle choices are not good candidates for this list, and there should always be some sort of in-house review mechanism for charges against a person, particularly initiated members who face expulsion/revocation (not particularly necessary for applicants, in turn, but may be a showing of good faith if the matter ever gets litigated).

15 Civil Liability: A Note on Ns Liability for Chapter Misdeeds Does N have a duty to protect potential plaintiffs from the bad acts of its chapters? Remember the Degree of Control Rule : The existence of a duty is a question of law for the court to decide from the particular facts of the case....In deciding whether to impose a duty, the court must balance several interrelated factors. We must weigh the risk, foreseeability, and likelihood of injury against the social utility of the actor's conduct, the magnitude of the burden of guarding against the injury, and the consequences of placing the burden on the defendant. We have also emphasized other factors, including whether one party had superior knowledge of the risk or a right to control the actor who caused the harm. Golden Spread Council, Inc. No 562 of Boy Scouts of America v. Akins, 926 S.W.2d 287, 289-90 (Tex. 1996). Ideally, N will have an ongoing program of risk management for both its own personnel and chapter advisors/officers. Ideally, N will also have counsel. Its not an ideal world! N can still address risk management issues occasionally in official publications, at conferences; as for council, look at smaller firms/sole practitioners, law school pro bono clinics in your area, society members or ex-members who practice law.

16 Last But Not Least: What Do I Do If & When The Letter (or The Call) Comes? Informal inquiry or accusation is harrowing enough; formal communication can put even the heartiest of souls into panic mode. In the ideal world, where you have Counsel: turn the matter over to him/ her/ it ASAP! Counsel should also attend meetings of governing bodies regularly & be immediately informed of any potential controversy; with limited exception, this will bring communications between principles on the matter within the attorney-client privilege and protect it from the civil discovery process if the matter ever explodes and gets litigated. –If a letter, do not respond– immediately turn the letter over to Counsel. –If a call, listen as patiently/calm as you can and take written notes… Try to keep the conversation as short & objective as possible, and suggest that a written statement of the complaint from the complainant is necessary (via FAX, email or snail-mail). Do not call back, regardless of complainants request. –If no Counsel, then Council (or Board, Exec. Director, etc.)!!! –If communication is from complainants attorney and you have one too– inform the complainants attorney of this fact & then tell them they will have to contact your counsel. It is a violation of professional ethics for lawyers to communicate directly with a party regarding a legal matter when they know said party has counsel.

17 THANK YOU for your attention & interest, as well as for your kind invitation to be here! John C. Kuzenski, J.D., Ph.D., General Counsel Pi Sigma Alpha, The National Political Science Honor Society 1527 New Hampshire Ave. NW Washington DC 20036 email: (for color machine-readable copies of this presentation) DISCLAIMER: this presentation has been prepared for use by participants present at ACHS session where delivered only, and is limited to the purpose of providing general civic information on the enclosed topics of interest; it is not intended or offered to be formal legal advice, and no attorney-client relationship should be assumed to exist between the presenter and any participant. In the event you or your organization experience any of the situations used in this presentation for illustrative purposes, you should seek the advice of a competent attorney in your jurisdiction. All rights reserved; do not copy, disseminate or otherwise share the media in this presentation, in part or in whole, with any other party without the express written permission of the author.

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