Do You Have Less Immunity than the President?

The presidents of the United States have better liability protection than charter school board members.  This year, the United States Supreme Court found that a former president is entitled to absolute immunity from criminal prosecution for actions within his “conclusive and preclusive” constitutional authority.  Moreover, the Court ruled that a former president is entitled to presumptive immunity from prosecution for all “official acts.”  This immunity does not apply to “unofficial acts.” 

By contrast, charter school boards may receive some liability protection, but only if they follow all the applicable requirements under state law.   

Board members of charter schools and private schools that operate as nonprofit public benefit corporations are afforded some protections from liability under the Corporations Code. Corporations Code section 5231 establishes codifies the business judgement rule for nonprofit public benefit corporations and protects directors from mistakes in business judgement which are made in good faith in what the director believes to be the best interest of the corporation where no conflict of interest exists.  Section 5231 allows directors may rely on information, opinions, reports, statements, or financial data, so long as they believe that source of that information and the person/counsel/expert/committee presenting it to them is reliable and competent in that subject.  However, if they have reason to question the reliability of this information or its source, or perhaps believe they need to investigate further or ask additional questions, then it is their obligation do so.  So long as they fulfill these duties, they have no personal liability for failure to discharge the obligations of a director.    

In response to the California Supreme Court finding that the liability protection provided by section 5231 does not protect a director from personal liability due to participation in tortious conduct, the California Legislature enacted code sections in an attempt to provide additional liability protection to directors of nonprofit public benefit corporations who serve on a volunteer basis.  For example, under Corporations Code section 5047.5, which applies to nonprofit public benefit corporations, volunteer directors and officers are protected from causes of action for monetary damages for negligence so long as they were acting within the scope of their duties as a director or officer, in good faith, in a manner that they believed was in the best interest of the corporation, and was in the exercise of their policymaking judgment.  It should be noted that this protection does not extend to actions for self-dealing, conflicts of interest, proceedings brought by the Attorney General, intentional, wanton, or reckless acts, gross negligence, fraud, oppression, or malice, and illegal distributions, loans, or guarantees.   

Importantly, this law only applies if the nonprofit corporation maintains a liability insurance policy with an amount of coverage of at least the following amounts: 

1. If the corporation’s annual budget is less than fifty thousand dollars ($50,000), the minimum required amount is five hundred thousand dollars ($500,000). 
2. If the corporation’s annual budget equals or exceeds fifty thousand dollars ($50,000), the minimum required amount is one million dollars ($1,000,000). 

Also, this law specifically notes that it does not apply if a director is compensated in any capacity by the corporation, such as a director who is employed by the corporation.  Finally, this law applies only if the claim against the director or officer can also be made directly against the corporation and a liability insurance policy is applicable to the claim.  Accordingly, failing to maintain liability insurance eliminates this liability protection. 

However, there is a similar protection afforded only to nonprofit public benefit corporations found in Corporations Code section 5239 that can potentially still apply even if the corporation fails to maintain general liability insurance.  Similar to section 5047.5 outlined above, this law provides that there shall be no personal liability to a third party for monetary damages on the part of a volunteer director or executive officer caused by their negligent act or omission in the performance of their duties if all of the following conditions are met: 

1. The act or omission was within the scope of the director’s or executive officer’s duties. 
2. The act or omission was performed in good faith. 
3. The act or omission was not reckless, wanton, intentional, or grossly negligent. 
4. Damages caused by the act or omission are covered under a liability insurance policy issued to the corporation, either in the form of a general liability policy or a director’s and officer’s liability policy, or personally to the director or executive officer.  

“Compensation” means remuneration whether by way of salary, fee, or other consideration for services rendered. However, the payment of per diem, mileage, or other reimbursement expenses to a director or executive officer does not affect that person’s status as a volunteer within the meaning of this section. 

Under this law, “executive officer” means president, vice president, secretary, or treasurer of a corporation, or such other individual who serves in like capacity, who assists in establishing the policy of the corporation.  Similar to section 5047.5, this protection does not extend to actions regarding distributions, loans, or guarantees, self-dealing transactions, as well as actions brought by the Attorney General. 

Unlike 5047.5, however, in the event that the damages are not covered by a liability insurance policy, this protection can still apply if the board and the director/executive officer had made “all reasonable efforts in good faith” to obtain available liability insurance.  The law defines what satisfies this “good faith” requirement, providing that nonprofit public benefit corporations that have an annual budget of less than $25,000 and that are exempt from federal income taxation under Section 501(c)(3) of the Internal Revenue Code, must make at least one inquiry per year to purchase a general liability insurance policy and that insurance was not available at a cost of less than 5% of the previous year’s annual budget of the corporation.  The inquiry shall obtain premium costs for a general liability policy with an amount of coverage of at least $500,000.  So, while not legally required, maintaining general liability insurance or at least making all reasonable efforts in good faith to obtain it is in the best interest of the corporation in order to maximize the protections these laws afford to its volunteer directors and officers. 

It is conceivable that a court might also provide some governmental immunity to charter schools, particularly if they are operated directly by the school district or county office of education that authorized them. However, courts have examined the question of whether charter schools are private entities or governmental entities on a case-by-case basis depending on the facts and statutes involved and have previously declined to provide protection of the Government Claims Act (formerly Tort Claims Act) to those charter schools that operate as nonprofit public benefit corporations.  However, the decision holding that charter schools operated by nonprofit public benefit corporations are not protected by the Government Claims Act (Knapp v. Palisades Charter High School 146 Cal. App. 4^th 708) pre-dates the Legislature’s decision to apply the Brown Act, Political Reform Act and Government Code 1090 to charter schools.  It is unclear whether the application of these laws might change the view of the courts on this matter. 

If the Government Claims Act were applied to charter schools, it would help dispense with at least some claims.  Government Code 820.9, for example, provides that: 

“Members of city councils, mayors, members of boards of supervisors, members of school boards, members of governing boards of other local public entities, members of locally appointed boards and commissions, and members of locally appointed or elected advisory bodies are not vicariously liable for injuries caused by the act or omission of the public entity or advisory body. Nothing in this section exonerates an official from liability for injury caused by that individual’s own wrongful conduct. Nothing in this section affects the immunity of any other public official.” 

Unless and until the courts find that the Government Claims Act applies to charter schools, charter school board members are left with only the protections under the Corporations Code and the provisions of any insurance policies maintained by the charter school. 

Although the liability protections afforded by the Corporations Code are valuable for charter school board members, none are as sweeping as those the U.S. Supreme Court has outlined for Presidents of the United States.