Transcript The Relationship Question

The Honor Society NationalChapter 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
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!
• In dealing with college honor society legal issues, lawyers
therefore often have to rely on “what’s 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 there’s 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.
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)
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 jurisdiction’s version of
the Uniform Unincorporated Nonprofit Association Act (UUNAA),
promulgated in 1996 by the Nat’l 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.
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
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 decisionmaking & accounting practices (most “membership society”
lawsuits involve membership criteria or decisions; next most likely is money).
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 organization’s National Office’s
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. N’s 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.
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
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 decertification” 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 isn’t 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.
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. Nat’l. 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 organization’s 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).
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 I’m 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?”)
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 Plaintiff’s 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!
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 plaintiff’s 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).
Civil Liability: A Note on N’s 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.
• It’s 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.
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 complainant’s request.
– If no Counsel, then Council (or Board, Exec. Director, etc.)!!!
– If communication is from complainant’s attorney and you have one too– inform the
complainant’s 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.
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: [email protected]
(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
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