Source: https://www.bsk.com/higher-education-law-report/print?page=6
Timestamp: 2019-09-23 07:20:44
Document Index: 327016361

Matched Legal Cases: ['§708', '§712', '§715', '§514', '§514', '§514']

2015 Amendments to New York’s Nonprofit Revitalization Act
In December of 2013, New York enacted the Nonprofit Revitalization Act (the NPRA) which impacted all New York not-for-profit corporations as it sought to not only update New York’s Not-for-Profit Corporation Law (NPCL) but it also enacted several measures intended to strengthen the internal controls of nonprofits. The enactment of the NPRA impacted all New York nonprofits, with the majority of not-for-profit corporations taking action to update their by-laws and adopt new conflict of interest and whistleblower policies to comply with the changes to the NPCL.
While the NPRA was heralded as a much needed reform to the NPCL, there have been a number of issues created by the practical application of the NPRA’s measures. These issues have resulted in multiple clarifications to the NPRA, with the most recent being amendments adopted on December 11, 2015, when Governor Andrew Cuomo signed into law three changes to the NPRA (the December Amendments, found at: A. 7641, S. 5870, S. 5868 – A) which became effective immediately.
Among the changes made to the NPCL by the December Amendments, the revisions to several key definitions and provisions related to the conflict of interest and related party transaction rules are likely to have the greatest impact on the regular operations of nonprofits (the text of these revisions can be found in Senate Bill S. 5868-A).
First, the December Amendments broadened the scope of the conflict of interest and related party transaction rules by amending the definitions of "independent director", "relative" and "related party", and at the same time slightly narrowed the scope of these rules with revisions to the definitions of "affiliate" and "key employee". The changes to the definition of "independent director" further expand the classifications of individuals that do not qualify as independent directors to include certain individuals related to the corporation’s outside auditor. In short, any individual who serves as a director of a nonprofit and is, or has a relative who is, "a current owner, whether wholly or partially, director, officer or employee of the corporation’s outside auditor or who has worked on the corporation’s audit at any time during the past three years" is not an independent director.
The definition of "relative" was amended to clarify that domestic partners of a person’s children, grandchildren and great-grandchildren are relatives for purposes of the NPCL, where, prior to the December Amendments, only the domestic partners of the individual in question were included as relatives for purposes of the NPCL. Finally, the definition of "related party" was expanded to include "any other person who exercises the powers of directors, officers or key employees over the affairs of the corporation or any affiliate of the corporation" and such person’s relatives and controlled entities, in addition to the directors, officers and key employees, their relatives and controlled entities, of a corporation and its affiliates.
The scope of the conflict of interest and related party transaction rules were narrowed slightly with the revision to the definition of "affiliate" that eliminated entities under common control of a corporation from this definition. Following the December Amendments, affiliates are limited to "any entity controlled by or in control of" a corporation. Also, the definition of "key employee" was revised to provide that a key employee means any person in a position to exercise substantial influence over the affairs of a corporation as provided under the Internal Revenue Code (IRC) rules and regulations related to excess benefit transactions under IRC Section 4958 "to the extent such provisions are applicable." Many organizations will find this clarifying language helpful because the excess benefit transaction regulations include several classifications of individuals that could be considered as key employees that often have no application to an organization. For example, the IRC regulations include substantial contributors as potential "key employees" and this often has no application to organizations in the context of the NPCL’s conflict of interest and related party transaction rules.
Other changes enacted by the December Amendments that impact the application of the new conflict of interest and related party transaction rules relate to quorum requirements and the ability of an interested director to provide information related to a potential conflict of interest transaction. First, the December Amendments revise the quorum requirements found at NPCL §708(d) to clarify that if a quorum is present for a meeting the quorum will not be broken if a director is required to leave the meeting due to a conflict of interest or related party transaction. Second, the December Amendments revise provisions related to the operations of a corporation’s audit committee (NPCL §712-a(e)) and a corporation’s conflict of interest policy (NPCL §715-a(b)(3)) to provide that, although interested directors cannot participate in deliberations or voting on an interested matter, the Board or audit committee may request "that a person with an interest in the matter present information as background or answer questions at a committee or board meeting prior to the commencement of deliberations or voting related thereto." Finally, the December Amendments revised the annual conflict of interest disclosure statement requirements to provide that these disclosures may be submitted to a designated compliance officer, instead of the corporation’s Secretary.
Similar to the changes impacting the conflict of interest and related party transaction rules, the December Amendments made clarifications to NPCL provisions related to the compensation of directors. The NPRA amended NPCL §514(b) regarding compensation of members, directors or officers, to provide that reasonable compensation may be paid to these individuals but that no person who may benefit from such compensation may be present at or otherwise participate in any board or committee deliberation or vote concerning such person’s compensation. This provision created problems in its practical application with respect to the compensation of directors because if the board of a not-for-profit intended to set a uniform rate for director compensation, under the terms of NPCL §514(b) no director would be able to participate in the decision making process because each person would benefit from the compensation. The December Amendments, amend NPCL §514(b) to clarify that although an individual who may benefit from a compensation decision cannot be present or participate in a deliberation or vote on a compensation award, nothing in NPCL Sections 514(b) or 715(h) [related party transactions] shall be construed to prohibit "a director from deliberating or voting concerning compensation for service on the board that is to be made available or provided to all directors of the corporation on the same or substantially similar terms."
In addition to making numerous changes impacting the conflict of interest, related party transaction and director compensation rules, the December Amendments made several other important changes.
First, the NPRA had changed the traditional committee structure under the NPCL from "standing" and "special" committees, to new classifications of "committees of the board" and "committees of the corporation." The NPRA clearly provided that committees of the corporation did not have any authority to bind the corporation’s board but left ambiguity as to whether non-directors could be elected or appointed to such committees. The December Amendments clarify that non-directors may be elected to committees of the corporation in accordance with a corporation’s by-laws or, if the by-laws are silent, in the same manner as officers of a corporation are elected.
Second, the NPRA created a new requirement that certain corporations must adopt a whistleblower policy and that the whistleblower policy must be distributed to all of the corporation’s directors, officers, employees and volunteers who provide substantial services. Numerous clients have inquired as to whether posting the corporation’s whistleblower policy on their website or in their offices would satisfy this requirement. Fortunately the December Amendments included clarifying language directly addressing these concerns providing that, for purposes of satisfying the distribution requirement, a whistleblower policy may be posted on a corporation’s website or at the corporation’s offices in a conspicuous location that is accessible to employees and volunteers.
Third, the December Amendments extend the effective date of the provision added to the NPCL by the NPRA prohibiting the chair of a not-for-profit from also being an employee of the not-for-profit from January 1, 2016 to January 1, 2017, giving all not-for-profits an additional year to make any necessary changes related to this new prohibition.
In sum, the December Amendments provide a number of helpful clarifications to the changes to the NPCL enacted by the NPRA in addition to several substantive amendments impacting the conflict of interest and related party transaction rules affecting all New York not-for-profit corporations. While most corporations that updated their governing documents to comply with the changes enacted by the NPRA will not require significant, if any, further revisions to these documents; these documents should be reviewed to understand the impact of the December Amendments and whether any updates are required. The December Amendments also serve as a reminder for corporations that have not taken steps to comply with the NPRA that action should be taken as soon as possible to comply with the NPRA’s requirements as more provisions will continue to become effective in the near future.
The situation has become all too familiar: an incident of prurient interest -- whether actual or falsely alleged -- goes viral on social media before university officials can even ascertain the names of the parties involved. Before anyone can take a breath, news vans have encircled the campus, hauling reporters who possess a keen eye for rash judgments and scapegoating, irrespective of that increasingly elusive concept known as truth. One of the most well-known of such incidents was, of course, “Duke lacrosse.” What may be less known is the eloquence with which Duke’s President, Richard H. Brodhead, gave a most instructive post-mortem about the lessons learned:
I’ll end with the deepest lesson this case taught me. When I think back through the whole complex history of this episode, the scariest thing to me, is that actual human lives were at the mercy of so much instant moral certainty, before the facts had been established. If there’s one lesson the world should take from the Duke lacrosse case, it’s the danger of prejudgment and our need to defend against it at every turn. Given the power of this impulse and the forces that play to it in our culture, achieving this goal will not be easy. But it’s a fight where we all need do our part.[1]
The siege on Duke could have easily happened to any higher education institution and has, in fact, happened many times since. Universities earnest in their desire to avoid “instant moral certainty” when faced with the hot lights of the media whirlwind have developed processes and procedures -- “media kits” if you will -- to proactively prepare for such incidents. This preparedness often, and quite wisely, includes a public relations firm that can be on-call when needed. For those institutions with public relations firms on retainer, unintended privilege issues may arise in subsequent litigation. These situations typically play out as follows. The story hits the media. Institutional officials, legal counsel and the public relations firm enter a virtual bunker to plan a cogent strategy. The institution wants the outside world to know of its diligence, legal counsel wants to ensure compliance with investigative legal requirements, and the public relations firm wants to quell the storm while portraying the institution in its best possible light. Intertwined in the bunker discussions are both legal considerations and the compelling public relations considerations. We are, after all, part of the same team, and strict legal compliance makes for good public relations. The problem though is that once legal brings public relations into the fray, communications between the two may lose the cloak of attorney-client privilege. This recently played out in the case of Waters v. Drake, 2015 U.S. Dist. LEXIS 164179 (S.D.N.Y. 2015). In Waters, Ohio State University terminated the Director of its marching band after it had conducted an investigation resulting in a report outlining a “sexualized” culture with the marching band. Litigation ensued, and the plaintiff sought discovery of communications between university counsel and the public relations firm hired by the university to advise it. The university argued that such documents fell within the attorney-client privilege and were therefore immune from discovery. The court flatly rejected this argument, holding:
If … legal counsel[] involved the public relations firms not as part of his effort to provide legal advice to the University, but as part of an effort to craft announcements which would be more palatable to the media or the public, he was not using the consultants in order to help him as a lawyer, but to help the University as a public institution anticipating a public relations campaign. Under that scenario, sharing otherwise privileged documents with the consultant is a waiver of the attorney-client privilege, and communications directly with the consultant are not privileged at all.
Waters, 2015 U.S. Dist. LEXIS 164179 at **6-7. Although the court eventually denied discovery based on relevance, it reiterated a quote from other cases: “case law makes clear that a media campaign is not a litigation strategy.” Waters, 2015 U.S. Dist. LEXIS 164179 at *6 (internal citations and quotations omitted). Waters is not binding on other jurisdictions, and may be distinguishable on its facts such that the privilege may still apply. What constitutes a “media campaign” may not fit easily into a one size fits all definition. Nonetheless, the holding in Waters is of sufficient concern that it ought to be considered on the front end of a crisis. Moreover, Waters and the cases it cites do not eviscerate the value and importance of public relations firms. Indeed, such firms have a critical role to play in making sure an institution exercises due caution in undertaking a thoughtful investigation in the face of the media and the public at large demanding instantaneous conclusions and punishment. Legal counsel, however, ought to be careful not to discuss legal strategies with their outside public relations advisors that may be relevant to a subsequent lawsuit. Such discussions may well lose the cloak of privilege and thereby find themselves in front of the eager eyes of a plaintiff’s attorney envisioning a hefty payday. [1] See Duke President Shares Lessons Learned, Regrets About Lacrosse Case, Duke Today, September 29, 2007, available at hhtps://today.duke.edu/2007/09/rhb_lawconf.html
On January 26, U.S. District Judge John Lee of the United States District Court for the Northern District of Illinois granted preliminary approval of a new settlement of consolidated class action litigation involving the NCAA and former NCAA student athletes, in which the NCAA agreed to provide $70 million towards concussion research, testing and diagnosis. This settlement is largely a restatement of an earlier proposed settlement that had been rejected by the Court. As part of the original settlement, the NCAA agreed to invest in concussion research and education, and to fund physical examinations, neurological measurements, and neurocognitive assessments of individuals who in the past 50 years competed in contact sports for NCAA member institutions. All of these things were restated in the new settlement, with the addition of a greater emphasis on strengthening game time concussion protocols (“return-to-play” rules) and instruction to begin to notify those former student athletes eligible for neurological testing and assessment. Notably, neither the prior proposed settlement nor the approved settlement shields NCAA member institutions or the NCAA itself from current or future concussion lawsuits. Unlike the NFL concussion settlements in which the NFL directly compensated injured plaintiffs, the money paid by the NCAA goes straight to funding the research, education, prevention and testing discussed above. As a result, student athletes retain the ability to sue the NCAA or their institutions on grounds relating to concussion diagnosis and/or treatment, or lack thereof. In fact, the awareness initiatives funded by the settlement may increase the likelihood of claims, at least in the short run. Relatedly, about one week prior to the announcement of the approved settlement, the “Power Five” NCAA conferences proactively voted to give team trainers and physicians the “unchallengeable” authority to decide whether and when a student athlete should return to competition. This action, while not literally required by the settlement, certainly was a move toward alignment with developing best practices, and offers the potential for prospective liability protection.
Emergency Action Taken to Extend STEM OPT Program Rule Through May 10, 2016 - Higher Education Law Report
As reported in our November 2, 2015 blog post, the present STEM OPT rule which allows F-1 students with U.S. degrees in science, technology, engineering or mathematics (STEM) to extend their optional practical training (OPT) by 17 months was to expire on February 12, 2016 unless the U.S. Department of Homeland Security (DHS) could publish and promulgate a new rule. The present STEM OPT extension rule had been vacated by the U.S. District Court for the District of Columbia in August 2015 for procedural deficiencies in its promulgation, but the court’s ruling was stayed until February 12, 2016 so DHS could publish a new rule for public comment and prevent hardship to the thousands of F-1 students employed in the U.S. on STEM OPT and the companies that employ those individuals. Our November 2, 2015 blog post detailed some of the highlights of DHS’ proposed STEM OPT extension rule which was published for comment in the Federal Register on October 19, 2015. The DHS received an overwhelming 50,000 plus comments to the proposed rule and, a few days before the Christmas holiday, asked the court for a 90-day extension of the existing STEM OPT rule so it could address the comments and begin to train DHS officers on the intended changes to the STEM OPT program. Following additional pleadings by DHS and Washington Alliance of Technology Workers (WashTech) -- the plaintiff in the case that was before the U.S. District Court for the District of Columbia -- the court, last Saturday, delayed its order terminating the STEM OPT rule as of February 12, 2016 and granted the DHS an additional 90 days to revise its proposed STEM OPT rule. The court extended the sunset date of the STEM OPT extension rule to May 10, 2016 and warned DHS that no further extensions would be granted. As a result of this determination, those F-1 student employees with STEM OPT remain authorized to work in the U.S., at least through May 10, 2016. However, WashTech’s counsel has indicated that an appeal of the decision to extend the sunset date by 90 days would be filed with the D.C. Circuit immediately. We will continue to keep you informed of further developments in this matter so you and your employees can plan accordingly.
The Fable Children’s fables are often an overlooked source of wisdom. Take for example Aesop’s 17th century fable “The Monkey and the Cat.” As the story goes, a cat and monkey lived in the same house as pets. The monkey, desiring to eat the chestnuts roasting on the family hearth, dupes the cat into retrieving them by flattering the cat’s greater skill in such matters. The problem for the cat, however, was that as soon as she retrieved the nuts, the monkey would gobble them up, leaving an unfortunate ending:
Centuries later this fable has morphed into a theory of liability being deployed with increasing fervor by faculty members challenging disciplinary and tenure decisions in the context of employment discrimination cases. The theory is known as “cat’s paw.” What it means in essence is that the faculty member asserts that the discriminatory animus of one colleague (the monkey) should impute liability to an otherwise innocent decision-maker or the university itself (the cat). So, how does a university protect its “paw”? The Fire The cat’s paw theory in discrimination cases slinked its way through the courts for several years with mixed results as to its applicability and scope. In 2011, however, in Staub v. Proctor Hosp., 562 U.S. 411 (2011), the United States Supreme Court, upheld cat’s paw liability in the context of a USSERA claim. As with most things plaintiff, once that mine was opened a crack, legions of gold prospectors (plaintiff-side attorneys) jumped down the shaft digging for otherwise elusive gold. And, some have found it. Relying on Staub, federal courts around the County have applied cat’s paw liability in discrimination cases. The underlying rationale for such liability is that an employer should not be able to “shield itself from liability … by using a purportedly independent person or committee as the decision-maker where th[at] decision-maker merely serves as a conduit, vehicle, or rubber stamp by which another achieves his or her unlawful design.” Siani v. State University of N.Y. at Farmingdale, 7 Supp. 3d 304, 327 (E.D.N.Y. 2014) (internal quotation omitted). Although the law in this area continues to evolve, it has become clear that cat’s paw liability is a theory to be reckoned with in the world of higher education. By way of a basic example, take a garden variety situation where a stipend for additional duties is at stake for a faculty member. The ultimate decision whether or not to grant the stipend is made by a Dean. The Dean bases her decision solely on the recommendation of the Department Chair. However, unbeknownst to the Dean and the University at-large, the Department Chair’s negative recommendation arises out of her unstated belief that the faculty member is simply “too old” for any additional responsibility. Under this scenario, the Department Chair has devolved into the fabled monkey while the Dean and University would be suffering not only from a burnt paw but also the indignity of having to part with its chestnuts in favor of the faculty member. Cat’s paw liability can also be found in disciplinary matters and tenure decision-making. While tenure cases are complex and fact driven, often the key to avoiding liability is whether the University can break a causal connection between the recommendation made by the tainted evaluator and the ultimate decision. For example, in Taleyarkhan v. Trs. of Purdue University, 607 Fed. Appx. 548 (7th Cir. 2015), the federal Seventh Circuit Court of Appeals rejected a faculty member’s attempt at stating a discrimination claim using the cat’s paw theory as a way to challenge research misconduct sanctions imposed by the institution, where an independent committee confirmed the suspicions of misconduct that were raised by the alleged tainted supervisor. Similarly, in Veeramathu v. Bd. of Trustees for Conn. State Univ. Sys., 862 F. Supp. 2d 127, 161 (D. Conn 2012), a federal district court in Connecticut held that the cat’s paw theory was not available in a tenue denial case where the university president engaged in an independent review of the tenure candidate’s portfolio and considered multiple unbiased sources of information in making his determination. In other words, the court held that there was no evidence that the colleague who gave negative evaluations of the plaintiff was the “proverbial monkey” successful in inducing a denial of tenure. Rather, the denial was based on an untainted independent evaluation by the President. Protecting the Paw and Keeping the Chestnuts At the risk of being a connoisseur of the obvious, the best way to defeat cat’s paw liability, particularly in a pre-trial motion, is to be able to prove that our evaluator (e.g., Department Chair, Dean) did not harbor discriminatory animus. In Deger v. University of Cincinnati, 2015 U.S. Dist. Lexis 132756 (S.D. Ohio 2015), for example, an applicant for an assistant professor position could not win on the cat’s paw theory where the record showed that the alleged biased evaluator’s comments were nothing more than an honest evaluation and were not discriminatory at all. But let’s say we can’t prove that our would-be monkey is innocent, how do we win any way? The case law gives us some guidance. As noted by the Fifth Circuit, “collective decision-making” is less susceptible to influence by an individual with a retaliatory motive.” Wu v. Miss. State Univ, 2015 U.S. LEXIS 17354 (5th Cir. 2015) (internal citation and quotation omitted). In Wu, the plaintiff was an assistant professor who alleged, inter alia, that her denial to full professor was the result of race, national origin and age discrimination, as well as retaliation. The primary argument advanced by the plaintiff was that her department chair had retaliatory motives sufficient to establish cat’s paw liability against the university. In rejecting the plaintiff’s argument, the Fifth Circuit noted that the promotion decision involved many levels of review by multiple individuals. At each level, multiple decision-makers for reasons independent of the department chairs’ view recommended against the promotion. Standing in contrast to Wu is Goswami v. Depaul University, 2015 U.S. Dist. LEXIS 5937 (N.D. Ill. 2015), where a faculty member was able to defeat summary judgment in a tenure denial case using the cat’s paw theory. In Goswami, the court was presented with a “leviathan” of a record reflecting a sharply disputed recommendation to deny tenure based on an 11-7 departmental vote. On the facts presented, the professor was able to present just enough evidence that multiple proverbial monkeys in the department influenced the non-biased ultimate decision-maker. In reaching its conclusion, the court noted:
The record in this case proves that academics do not exist in splendid isolation, immune to the provocations and slights to which less Olympian men and women fall prey. But the record is such – perhaps just barely – that a jury must determine what truly underlay the actions and motivations of the parties. As the discussion above and below show, some of the evidence on both sides is problematic.
In a perfect world, tenure recommendations would all be unanimous and the committees that make them would have the diversity of the United Nations. Of course, we do not live in such a world, but that does not mean that we are doomed to try to convince juries that our university presidents were not mere instruments of discriminators in the trenches. Cat’s paw liability can be avoided when the ultimate decision-maker either engages in his/her own independent review or when the committee process is structured in such a way that a biased individual(s) cannot be deemed to have unduly influenced the ultimate decision. The full parameters of cat’s paw liability will be fleshed out as the law further evolves. In the meantime, plainly, no university wants to be the named defendant in the case that stakes out the theory’s outer boundaries. For this reason, counsel should be consulted as early as possible if there is any hint of a flaw in the faculty decision-making process.
Last week, a three-judge panel for the United States Court of Appeals for the Ninth Circuit voted 2-1 to deny the O’Bannon plaintiffs’ petition for a rehearing en banc of the Ninth Circuit’s September 30, 2015 decision on the NCAA’s appeal of the District Court’s 2014 decision. On appeal, the Ninth Circuit had upheld that part of the District Court’s ruling which enjoined the NCAA from enforcing its rules precluding member institutions from providing athletic scholarships up to the full cost of attendance, but disagreed with that part of the District Court’s decision which would have required the NCAA to permit member institutions to pay deferred compensation to student-athletes in an amount up to $5,000 per year for the use of their names, images and likenesses. While the parties’ next steps in the case are presently unknown, both the O’Bannon plaintiffs and the NCAA could potentially seek U.S. Supreme Court review of the Ninth Circuit’s decision.
New Department of Homeland Security Regulation Aims to Preserve and Enhance STEM OPT Program for Nonimmigrant Students and U.S. Employers - November 2015
On October 19, 2015, the U.S. Department of Homeland Security (DHS) published a notice of proposed rulemaking in the Federal Register regarding optional practical training (OPT) extensions for F-1 students with U.S. degrees in science, technology, engineering or mathematics (STEM). The proposed rule is essentially a response to an August 2015 decision of the U.S. District Court for the District of Columbia to vacate the present STEM OPT extension regulation for procedural deficiencies in its promulgation, effective February 12, 2016. Under the proposed rule, the length of STEM OPT extension would be increased from 17 months to 24 months. In addition, the rule requires employers to develop and implement mentoring and training programs to bolster students’ learning through practical experience and provides safeguards for U.S. workers seeking employment in related fields. DHS is accepting comments on the proposed rule through November 18, 2015 and is making every effort to have the final rule take effective prior to the February 12, 2016 sunset of the present STEM OPT extension regulation. STEM OPT Extensions. Under the proposed rule, the length of STEM OPT extensions would increase from 17 months to 24 months and F-1 students would be limited to two 24-month STEM OPT extensions (for example, one after earning U.S. master’s STEM degree and another after earning U.S. doctoral STEM degree). The proposed rule extends the maximum period of unemployment for F-1 students to 150 days – 90 days during the initial 12-month period of post-completion OPT and 60 days during the 24-month STEM OPT extension. If the DHS rule is implemented as proposed, the STEM OPT extension will be a benefit to F-1 students and U.S. employers alike, as students will be able to work in the U.S. for three full years before additional work authorization (e.g., H-1B, O-1, etc.) would be necessary, and employers will have a generous amount of time in which to assess F-1 employees’ performance before undertaking sponsorship for additional work authorization. As with the present STEM OPT extension regulation, under the proposed rule, STEM OPT extensions are only available if the employer participates in the U.S. Citizenship and Immigration Services’ E-Verify employment eligibility verification program. New Employer Responsibilities. The proposed rule establishes a couple of new responsibilities for employers seeking to employ F-1 nonimmigrants on the STEM OPT extension. First, employers would be required to implement formal mentoring and training programs for STEM OPT students to enhance their practical skills. The student would be required to prepare a Mentoring and Training Plan – including the training goals and a description of how those goals will be met -- with the employer and to submit the plan to the student’s designated school official (DSO) at his/her institution before the DSO could recommend and authorize a STEM OPT extension for the student. Second, employers would be required to attest and provide assurances on a number of items including that they will not terminate, layoff or furlough a U.S. worker as a result of hiring an F-1 student on STEM OPT and that the duties, hours and compensation for the F-1 student employee are commensurate with similarly situated U.S. workers. If an employer fails to comply with the new requirements, DSOs will be prohibited from recommending students for a STEM OPT extension. We will continue to monitor this proposed rule as the February 12, 2016 deadline approaches and provide updates so F-1 student employees and their employers can plan accordingly
The United States Court of Appeals for the Ninth Circuit issued its highly anticipated decision in the O’Bannon case on September 30, 2015. This case was an appeal of the United States District Court for the Northern District of California’s decision finding that certain NCAA rules were an unlawful restraint of trade in violation of federal antitrust law. Specifically, the District Court issued a permanent injunction prohibiting the NCAA from enforcing rules regarding scholarship caps, and requiring the NCAA to allow member schools to pay deferred compensation to certain student-athletes of up to $5,000 per year of eligibility to compensate them for revenues generated from the use of their names, images and likenesses. The Court of Appeals affirmed the portion of the District Court’s decision regarding scholarship caps and vacated the portion pertaining to deferred compensation. In reaching its decision, the Court of Appeals found that while the NCAA rules in question were procompetitive, they were not exempt from antitrust scrutiny, and were subject to antitrust law’s “Rule of Reason” test. Using this test, the Court of Appeals agreed with the District Court that the plaintiffs had demonstrated that the NCAA’s amateurism rules had an anticompetitive effect on the college education market. The analysis then turned to the procompetitive justifications for the amateurism rules posited by the NCAA. The Court of Appeals accepted two of the NCAA’s four proffered justifications as identified by the District Court: “integrating academics with athletics” and “preserving the popularity of the NCAA’s product by promoting its current understanding of amateurism.” The Court of Appeals next observed that not all of the NCAA’s compensation rules that restrict the market are necessary to preserve the “character” of collegiate athletics, and moved to consideration of whether there were “substantially less restrictive alternatives” to the NCAA’s compensation rules at issue in this case. The Court of Appeals agreed with the District Court that permitting institutions to set the grant-in-aid cap at student-athletes’ full cost of attendance was a less restrictive alternative to the NCAA’s current restrictions on compensation. In so doing, the Court of Appeals observed that the NCAA’s current rule “has no relation whatsoever to the procompetitive purposes of the NCAA: by the NCAA’s own standards, student-athletes remain amateurs as long as any money paid to them goes to cover legitimate educational expenses.” However, the Court of Appeals disagreed with the District Court regarding the payment of compensation to student-athletes for the use of their names, images and likenesses. According to the Court of Appeals, when the District Court found “that paying student-athletes would promote amateurism as effectively as not paying them,” the District Court “ignored that not paying student-athletes is precisely what makes them amateurs.” (Emphasis in original). The Court of Appeals continued:
The difference between offering student-athletes education-related compensation and offering them cash sums untethered to educational expenses is not minor; it is a quantum leap. Once that line is crossed, we see no basis for returning to a rule of amateurism and no defined stopping point…
To summarize, the Court of Appeals’ decision permits the offering of grants-in-aid up to the full cost of attendance (which, notably, had already been approved by the so-called “autonomy conferences” and was scheduled to take effect on August 1, 2015), but continues to permit the NCAA to enforce its rules prohibiting (among other things) the payment of deferred compensation to student-athletes in the form contemplated by the District Court. At this point, either party could seek review of the decision by the full Court of Appeals (as this decision was rendered by a three judge panel) or seek to appeal to the U.S. Supreme Court. The Court of Appeals’ decision is important in that it makes clear that the NCAA’s rules are not exempt from scrutiny under antitrust law, and specifically a “Rule of Reason” analysis. However, the decision regarding deferred compensation signifies a potentially important victory for the NCAA’s tradition and principles of amateurism, and may prove beneficial to the NCAA in its defense of Jenkins v. NCAA and other similar lawsuits. Elizabeth D’Agostino, a 2015 graduate of Albany Law School who is awaiting admission to the New York State bar, contributed to this blog post.
The NLRB Unanimously Shuts Down Attempt to Unionize Northwestern's Scholarship Football Players - August 2015
<p>2015 Amendments to New York’s Nonprofit Revitalization Act</p>
<p>Privilege Issues in the Media Firestorm</p>
<p>NCAA Settlement Could Promote Concussion Prevention and Treatment, but Leaves Member Institutions on the Hook for Future Lawsuits</p>
<p>Emergency Action Taken to Extend STEM OPT Program Rule Through May 10, 2016 - Higher Education Law Report</p>
<p>“Cat’s Paw” Liability in Faculty Decision-Making</p>
<p>Ninth Circuit Denies Request For Rehearing In O’Bannon</p>
<p>Education Department Reverses Course on Prohibition Against Incentive Compensation Based on Retention and Graduation; Clears Way for Graduation Rate and APR Based Bonuses in Coaching Contracts</p>
<p>New Department of Homeland Security Regulation Aims to Preserve and Enhance STEM OPT Program for Nonimmigrant Students and U.S. Employers - November 2015</p>
<p>O’Bannon v. NCAA – A Split Decision by the Ninth Circuit</p>
<p>Ninth Circuit Rules on NCAA’s Appeal in O’Bannon</p>
<p>The NLRB Unanimously Shuts Down Attempt to Unionize Northwestern's Scholarship Football Players - August 2015</p>
<p>Ninth Circuit Orders Stay in O’Bannon Case</p>