An Administrator's Guide to California Private School Law

Chapter 2 - Governance

a. California Law The California Corporations Code provides general protection for all directors (whether serving on a volunteer basis or paid for their service) from personal liability provided that certain conditions are met. Specifically, a director of a non-profit public benefit corporation will not have liability based on any alleged failure to exercise the obligations of a director if the following conditions are met: (1) the individual must perform his/her duties as a director, including the duties of a member of a board committee, if applicable, in good faith, in the best interests of the corporation; and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances; and (2) the transaction at issue must not involve self-dealing or an interested director. 57 A similar protection exists for directors of religious corporations. 58 In addition, the Corporations Code provides that no claim for monetary damages may arise against a volunteer director and/or officer of non-profit corporations exempt from taxation under section 501(c)(3) of the Internal Revenue Code based on a negligent act or omission that occurred: (1) within the scope of the individual's duties as a volunteer director or as an officer of the corporation acting in an official capacity; (2) in good faith; (3) in a manner that the person believes to be in the best interest of the corporation; and (4) is in the exercise of his or her policymaking judgment. 59 Volunteer director’s and officer’s immunity to liability for damages does not apply to lawsuits, proceedings or actions relating to the following:  Self-dealing transactions; 60  Improper distribution of the school’s assets or the making of loans or guarantees; 61  Actions or proceedings brought by the Attorney General;  Intentional, wanton, or reckless acts, acts of gross negligence, or an action based on fraud, oppression, or malice; or  Certain anti-trust actions. 62 Importantly, directors’ and officers’ immunity to lawsuits for damages applies only if the claim against the director or officer can be made directly against the school, the school maintains a liability insurance policy with an amount of coverage of at least $500,000 (for schools with a budget of less than $50,000) or $1,000,000 (for schools with an annual budget of $50,000 or more) and there is an insurance policy that is applicable to the claim. If that policy is found to cover the damages caused by the director or officer, no cause of action can be maintained against the director or officer. 63 For this reason, we recommend that the Bylaws include a provision that the Board will, at the very least, endeavor to secure and maintain appropriate levels of liability insurance coverage to maximize the protection of its volunteer directors and officers. Note that the immunity from liability does not apply to volunteer directors or officers who receive compensation from the school in any other capacity, such as employees who also serve as directors or officers. 64

An Administrator’s Guide to California Private School Law ©2019 Liebert Cassidy Whitmore 42