Whether members of the State Teacher's Retirement Board have any protection against liability for their actions as Board members.

MEMORANDUM TO: FROM: RE: DATE: OFFICE OF THE ATTORNEY GENERAL State Teachers' Retirement Board William Griffin Chief Assistant Attorney General Liability of Board Members July 30, 2008 This is in reply to your question whether members of the State Teachers' Retirement Board have any protection against liability for their actions as Board members. The short answer is that they have the same protection as any State official or employee (for example, the Governor, the State Treasurer, Retirement Office employees). They are entitled to a legal defense if they are sued as a result of their official acts and they are protected against financial liability for ordinary negligence in the course of their duties. Title 3, section 1101 of the Vermont Statutes provides that: (a) In any civil action against a state employee for alleged damage, injury, loss or deprivation of rights arising from an act or omission to act in the performance of the employee's official duties it shall be the obligation of the state to defend the action on behalf of the employee and to provide legal representation for that purpose at state expense, except to the extent that such representation is provided by an insurance carrier, or except in an action resulting from the service of civil process. Subsection (b) of section 1101 defines "state employee" broadly to include "any elective or appointive officer or employee within the legislative, executive or judicial branches of state government." Members of the State Teachers' Retirement Board are elective or appointive officers within the executive branch of state government. Therefore they are entitled to a legal defense at state expense in the event that they are sued as a result of acts or omissions in the performance of their duties as Board members. Legal representation in such cases is ordinarily provided by the Office of Attorney General. See 3 V.S.A. 1102. Title 12, section 5602 of the Vermont Statutes provides that: (a) When the act or omission of an employee of the state acting within the scope of employment is believed to have caused damage to property, injury to persons, or death, the exclusive right of action shall lie against the state of Vermont; and no such action may be maintained against the employee or the estate of the employee. (b) This section does not apply to gross negligence or willful misconduct. (c) As used in this chapter "employee" means any person defined as a state employee by section 1101 of Title 3. This means that lawsuits can not be maintained against Board members for ordinary negligence, errors or omissions. The legal remedy available to the injured party in such cases the "exclusive right of action" is a lawsuit against the State itself. Board members are protected against liability for ordinary negligence, errors or omissions. Board members can be sued and held liable for gross negligence or willful misconduct. "Gross negligence", as defined by the Vermont Supreme Court means: 'more than an error of judgment, momentary inattention, or loss of presence of mind' "; rather, "'it amounts to a failure to exercise even a slight degree of care'" and an" 'indifference to the duty owed [to another].'" ("Gross negligence is substantially and appreciably higher in magnitude and more culpable than ordinary negligence It is a heedless and palpable violation of legal duty respecting the rights of others.") Hardin.qham v. United Counselin.q Service of Benninqton County, Inc., et al., 164 Vt. 478,481 (1995) (citations omitted). Board members can also be held liable in cases arising under federal law; for example, cases arising under the federal civil rights statute (42 U.S.C. §1983). In such cases, however, absent gross negligence or misconduct, state law provides that "the state shall indemnify" the employee or official up to $250,000 per person and $1,000,000 per occurrence. 12 V.S.A. §5606. As a practical matter, lawsuits against state officers and employees are 2 commonplace, but am not aware of any money claim ever being made against a member of any of the Retirement Boards. It is conceivable, suppose, that someone might be unhappy about the Board's investment decisions, and might want to voice that sentiment by way of a lawsuit against individual Board members. However, to the extent that the Board's investment decisions result in financial injury, the injured party would be the State. Applying the legal principles discussed above, the State could not maintain a lawsuit against Board members to recover investment losses resulting from the ordinary negligence of Board members. If a Board member was grossly negligent for example, by failing to exercise even a slight degree of care in his or her duties and if this gross negligence caused injury to the State or to a third party, the member could be held liable. Board members have consistently avoided even a suggestion of negligence by taking care to choose and retain experienced advisors and money managers to guide them in their investment decisions. Board members have avoided claims of intentional misconduct for example, claims that benefits are withheld for improper motives by taking care to assure that benefits decisions are made by competent staff in accordance with lawful procedures. will attend the June 3 Board Meeting and will be happy to answer any related questions at that time. cc: James Douglas, State Treasurer. 3