ASAA and ASAA, Inc.

Honorable Jerry Covey January 19, 1994 Commissioner Department of Education 663-94-0078 465-3603 ASAA and ASAA, Inc. Janice Gregg Levy Assistant Attorney General Human Services Section-Juneau INTRODUCTION You have asked our opinion regarding two organizations --the Alaska School Activities Association (ASAA) created at AS 14.07.058, and the Alaska School Activities Association, Inc. (ASAA, Inc.), a nonprofit corporation. Specifically, you asked the following questions: 1. Is ASAA, Inc. statutorily the same entity as ASAA? 2. If ASAA, Inc. is a different entity than ASAA, is the state legally responsible for the actions of ASAA, Inc.? 3. Is the Commissioner of Education required to enforce AS 14.07.058 - 14.07.059 in light of the legislature's defunding of ASAA? 4. If ASAA, Inc. is not the same entity as ASAA, is it appropriate, in light of the potential legal liability and other unbudgeted financial commitment of the state, for the State Board to serve as the ASAA, Inc. Appeals Review Commission? The short answers to your questions are that ASAA and ASAA, Inc. are distinct legal entities; the state should not be liable for the acts of a nonprofit corporation, but the present arrangement may make the state vulnerable to claims; the commissioner need not on his own attempt to revive ASAA; and the State Board of Education should refrain from serving as the Appeals Review Commission for ASAA, Inc. DISCUSSION 1. Is ASAA, Inc. statutorily the same entity as ASAA? The answer to this question is no. ASAA, Inc. is a nonprofit corporation, created by individuals, not the state. It Honorable Jerry Covey January 19, 1994 Commissioner, Department of Education Page 2 663-94-0078 was certified as a nonprofit corporation on April 21, 1986, in accordance with the corporate laws of Alaska, AS 10.20. In contrast, ASAA was created by the legislature in 1976 at AS 14.07.058.1 Although they share similar names and were created to perform similar functions, ASAA and ASAA, Inc. are legally two distinct entities. ASAA is within state government, while ASAA, Inc. is a private, nongovernmental, nonprofit corporation. The relationship between the two organizations is, as you indicate, an unusual one. At the time that ASAA, Inc. filed its articles of incorporation, its executive director and Board of Control were the executive secretary and Board of Control of the statutory ASAA.2 Thus, at the time of the formation of ASAA, Inc., the two entities had the same functions, the same personnel, and a similar name. Additionally, ASAA, Inc. used the constitution and bylaws of ASAA. The corporation revised those documents to add "Inc." wherever "ASAA" was referenced, and added some administrative policies to what had been the ASAA handbook.3 Additionally, it is possible that some member schools believed that ASAA (the statutory entity) had simply incorporated, and 1 The purpose and structure of ASAA are described in statute. A board of control is to be elected from regions in the state, and, in consultation with the department, is to hire an executive secretary. AS 14.07.058(d)-(e). The department is to approve the association's constitution and bylaws to ensure equitable treatment. AS 14.07.058(g). Additionally, the legislature established a fund within the general fund to receive deposits of ASAA fees, including membership fees and activity and events fees collected by the association. AS 14.07.059. 2 Tom Wagner, then Assistant Attorney General advising the department, has pointed out that there is an inherent conflict of interest in a state employee acting as head of a nonprofit corporation whose purposes are substantially the same as the statutory program he was hired to implement. See 1988 Inf. Op. Att'y Gen. at 7 (Jan. 6; 663-86-0418). See also the January 12, 1987 memorandum from Tom Wagner to Acting Attorney General Ron Lorensen. 3 These changes were not approved by the Board of Education, and do not amend ASAA's constitution and bylaws. Thus, at the present time there exists a constitution and bylaws for ASAA, Inc. and a constitution and bylaws for ASAA. They are similar, but not identical. Honorable Jerry Covey January 19, 1994 Commissioner, Department of Education Page 3 663-94-0078 that it continued to be within the Department of Education. Despite the overlapping functions and players, however, ASAA and ASAA, Inc. are distinct legal entities. 2. If ASAA, Inc. is a different entity than ASAA, is the state legally responsible for the actions of ASAA, Inc.? The state should not be liable for the actions of a nonpublic corporation. Although ASAA, Inc. performs functions that serve a public interest (as do many nonprofit corporations), it is not a public entity. The interaction between the two organizations over the last six years, however, has blurred what would otherwise be a bright line legally separating these two organizations. The most obvious way in which the two organizations have remained intertwined is that the State Board of Education has continued to sit as the Appeals Review Commission for eligibility determinations made by ASAA, Inc.'s Board of Control. This action gives the appearance that the state remains connected to ASAA, Inc., or that ASAA, Inc. is in some way within the Department of Education. A party with a claim against the corporation may well exploit that connection in an attempt to hold the state liable for the corporation's acts. Whether the state would succeed in avoiding liability would probably depend on the nature of the claim. It is in the state's best interests to take steps to avoid exposing itself to liability for acts of a nonstate entity over which it has no control. 3. Is the Commissioner of Education required to enforce AS 14.07.058 - 14.07.059 in light of the legislature's defunding of ASAA? In our opinion, the commissioner need not attempt to administer an association which has no members and no budget. Although ASAA continues to exist in statute, its vitality depends on the participation of member schools who join by submitting an application and paying dues. There are no current members of ASAA. Those schools who once belonged to ASAA have now become members of and pay dues to ASAA, Inc. We agree with the 1988 opinion of Tom Wagner that the legislature's defunding of the ASAA budget did not operate to repeal ASAA from statute. 1988 Inf. Op. Att'y Gen. at 6 (Jan. 6; 663-86-0418). The statutory creature continues to exist, but it is in a state of hibernation. Your question, as I understand it, is whether the department is obliged to wake it up. In our opinion, it is not. Honorable Jerry Covey January 19, 1994 Commissioner, Department of Education Page 4 663-94-0078 First, the legislature's defunding of the program suggests that it understood and approved of the corporation taking over what had heretofore been a governmental function. ASAA, Inc. has governed interscholastic activities in Alaska since 1987. The Department of Education has not sought funding from the legislature for ASAA since that time. In our opinion the Department of Education is not obliged to needlessly spend time attempting to administer a program for the benefit of schools who have all joined another organization. It is unlikely that the legislature intended such a result. Second, the language of the statute describes a whole scheme that contemplates an active membership. The only real department mandate set out in AS 14.07.058 is that the department shall make applications available to schools in the state. AS 14.07.059 requires the commissioner and the department to handle the ASAA budget in a certain manner. The department cannot carry out these duties in a vacuum. No schools have requested application or membership in ASAA, and there are no program receipts and no active association seeking a budget. The statutes do not require the department to actively solicit membership in ASAA. For these reasons, we do not believe that the department fails to perform its statutory obligations by refraining from attempting to revive ASAA. If the legislature does not approve of the manner in which interscholastic activities are governed, and desires the direct governance of those activities by the Department of Education, it is free to breathe life into ASAA by funding it again. 4. If ASAA, Inc. is not the same entity as ASAA, is it appropriate, in light of the potential legal liability and other unbudgeted financial commitment of the state, for the State Board to serve as the ASAA, Inc. Appeals Review Commission? We believe the answer to this question is no. As described above, it is the intertwining of these distinct legal entities that exposes the state to liability for the acts of a nonstate corporation. In the past year, the Department of Education has expended significant legal fees defending in court decisions first made by a nonprofit corporation over which it exercises no control. This arrangement results in an inappropriate expense for the state, and unnecessary exposure for greater liability. Additionally, the Board of Education simply has no Honorable Jerry Covey January 19, 1994 Commissioner, Department of Education Page 5 663-94-0078 statutory authority for hearing appeals from a nongovernmental corporation. That it has done so over the years may be the result of a misunderstanding by the Board of Education of an earlier attorney general opinion. Ed Nash (originally Executive Secretary for ASAA and then Executive Director for ASAA, Inc.) asked the Board of Education in 1987 if it would consider being the final appeal step in an appeal that began before ASAA, Inc. incorporated. He suggested that ASAA, Inc. and the Board of Education could consider having the Board continue in its appellate capacity, depending on the advice of the parties' counsel. The Board of Education apparently asked its attorney whether it should continue to hear appeals. A 1988 memo from Tom Wagner stated in relevant part: We conclude that ASAA still exists as a legal entity within the Department of Education, that its board of control is still responsible for making eligibility decisions in accordance with its bylaws approved under 4 AAC 06.111, and that the state board still acts as an appeal body under those bylaws. 1988 Inf. Op. Att'y Gen. at 1 (Jan. 6; 663-86-0418). This view, with which we agree, states that the State Board continues to sit as the appeals body for the ASAA Board of Control. This is to be distinguished from the ASAA, Inc. Board of Control. The Board of Education may have misunderstood his advice to be that it should continue to hear any appeals that came to it. The appeals have come from the ASAA, Inc. Board of Control, not the statutorily created ASAA Board of Control. Thus, in our view the Board of Education has been improperly hearing appeals from a nonstate entity's board. The procedure should not continue. It would be appropriate to inform ASAA, Inc. and its member schools in writing that the Board of Education will no longer hear the appeals of decisions of the ASAA, Inc. Board of Control. That body may wish to set up another appeals procedure. CONCLUSION In conclusion, the concerns you raise are serious. ASAA, Inc. is not the same entity as ASAA, and the Board of Education acts beyond the scope of its statutory authority when it sits as an appeals body for the nonprofit corporation. Besides acting outside the scope of its authority, it Honorable Jerry Covey January 19, 1994 Commissioner, Department of Education Page 6 663-94-0078 unnecessarily entangles itself with the corporation, possibly exposing the department to liability for the acts of the corporation. In our opinion it would be appropriate for the Board of Education to notify the corporation and its member schools that it will no longer sit as the Appeals Review Commission for the corporation. The notice should explain that the corporation is a legal entity distinct from the statutory ASAA, and that ASAA, Inc. is not within the state apparatus. Although the statutes related to the Alaska School Activities Association will continue to exist, they will simply be in disuse. The legislature may choose at some point to repeal them, or alternatively may one day revive them by funding the program and requiring membership within the statutory association. I hope this answers the questions you raised concerning ASAA and ASAA, Inc. Please do not hesitate to contact me if I can be of further assistance. JGL/bap Attachments cc: Harry Gamble