Thursday, August 18, 2022

Two Federal District Courts Hold That Tax Exemption = Federal Financial Assistance Under Title IX

DownloadIn two separate decisions last month, U.S. District Courts in California and Maryland separately held that private high schools were subject to Title IX (of the Education Amendment Act of 1972) because their federal tax exemption under IRC section 501(c)(3) constituted "federal financial assistance" for purposes of Title IX.

In E.H. v. Valley Christian Academy, the minor plaintiff brought suit under Title IX (among other claims) based on the defendant school's alleged refusal to play football against the school she attended if she played on her school's team, for which she had successfully tried out. The defendant school moved to dismiss the Title IX claim on various grounds, including that it did not receive "federal financial assistance" as required to be covered by Title IX. The U.S. District Court for the Central District of California denied the motion to dismiss in this respect, concluding that the defendant school did in fact receive federal financial assistance both through receiving a federal paycheck protection program (PPP) loan and through its tax-exempt status. Here is the relevant section of the decision on the latter point:

In addition, E.H. alleges that Valley Christian's tax-exempt status is a form of federal financial assistance that would subject the institution to Title IX. FAC ¶ 32. Defendants respond that it is not “enough for [E.H.] to add that, as tax-exempt entities, First Baptist and Valley Christian derive financial assistance ... from ... the United States government.” Mot. at 8 (internal quotations omitted). The Ninth Circuit has not yet addressed whether tax-exempt status confers “federal financial assistance” under Title IX. The parties provide conflicting case law from other circuits in support of their contentions. See Johnny's Icehouse, Inc. v. Amateur Hockey Ass'n,134 F.Supp.2d 965, 972 (N.D. Ill. 2001) (holding that “tax exempt status, without more, is . . . insufficient to subject it to the antidiscrimination requirements of Title IX”); compare with McGlotten v. Connally, 338 F.Supp. 448, 461 (D.D.C. 1972) (finding tax exemption constitutes federal financial assistance in the context of Title VI litigation); Fulani v. League of Women Voters Educ. Fund, 684 F.Supp. 1185, 1192 (S.D.N.Y. 1988) (concluding that defendant received “Federal financial assistance” within the meaning of both Title VI and Title IX because it received both direct grants and tax-exempt status). Absent any controlling precedent nor “strong legislative history to the contrary,” the Court finds that “the plain purpose of the statute is controlling. Here that purpose is clearly to eliminate discrimination in programs or activities benefitting from federal financial assistance. Distinctions as to the method of distribution of federal funds or their equivalent seem beside the point, as the regulations issued by the various agencies make apparent.” McGlotten, 338 F.Supp. at 461. Accordingly, the Court holds that Valley Christian's tax-exempt status confers a federal financial benefit that obligates compliance with Title IX.

E.H. v. Valley Christian Acad., 2:21-cv-07574-MEMF (GJSx), 9-10 (C.D. Cal. Jul. 25, 2022)

In Buettner-Hartsoe v. Baltimore Lutheran High School Association, five former students of the defendant school brought suit under Title IX (among other claims) based on the alleged failure of school officials to adequately address allegations of sexual assault and verbal sexual harassment of the plaintiffs by male students. The defendant school moved to dismiss the Title IX claim, or in the alternative for summary judgment in its favor on that claim, on the grounds that it did not receive federal financial assistance. The U.S. District Court for the District of Maryland denied the motion, concluding that the defendant school received federal financial assistance by virtue of its tax-exempt status, stating: "In light of the Supreme Court's holdings in Regan, Grove City College, Smith, and Cannon, as discussed supra, this Court holds that § 501(c)(3) tax exemption constitutes federal financial assistance for the purposes of Title IX. Enforcing the mandates of Title IX in schools with 501(c)(3) status aligns with and protects the principal objectives of Title IX: 'to avoid the use of federal resources to support discriminatory practices' and 'to provide individual citizens effective protection against those practices.' Cannon, 441 U.S. at 704." Buettner-Hartsoe v. Balt. Lutheran High Sch. Ass'n, No. RDB-20-3229, 11 (D. Md. Jul. 21, 2022). The court also noted that the defendant school had received a PPP loan, but not until 2020, while most if not all of the allegations related to behavior occurring before 2020.

Lloyd Mayer

Federal – Judicial | Permalink


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