Independent Schools, Tax-Exempt Status, and Title IX: Implications of Recent Federal Court Decisions

Brian Garrett headshot
Brian B. Garrett
Director, Litigation Department and Chair, Education Law Practice Group
Published: McLane Middleton
July 27, 2022

A federal district court in Maryland recently held that a Maryland independent school’s 501(c)(3) tax-exempt status constitutes federal financial assistance, thereby requiring the school to comply with Title IX. Just as independent schools are moving beyond Title IX obligations that resulted from the receipt of PPP loans in 2020 and 2021, this ruling potentially (and permanently) impacts the interrelation between independent schools throughout the country and various federal laws, such as Title IX, Title VI, and others.

Title IX and Buettner-Hartsoe, et al. v. Baltimore Lutheran High School Association

In Buettner-Hartsoe v. Baltimore Lutheran High School Association, Case. No. 1:20-cv-03132-RDB (July 21, 2022), five women sued their former independent high school, Concordia Preparatory School (“CPS”)—previously known as Baltimore Lutheran High School—for various claims, including Title IX of the Education Amendments Act of 1972 (“Title IX”).  The former female students’ claims arose out of the school’s failure to address their complaints of sexual assault and verbal sexual harassment by male students.

Title IX states that no person shall, on the basis of sex, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any education program or activity receiving federal financial assistance.  The statute defines “federal financial assistance” to include federal grants or loans and any other contract, agreement, or arrangement that has as one of its purposes the provision of assistance to any education program or activity.  Aside from independent schools’ receipt of PPP funds during the onset of COVID, such schools traditionally have not been subject to Title IX if they had not otherwise received federal financial assistance.

The U.S. District Court for the District of Maryland rejected CPS’s request that the Title IX claim be dismissed.  In doing so, the court rejected the primary support for CPS’s argument, a 2001 case, Johnny’s Icehouse, Inc. v. Amateur Hockey Ass’n, 134 F. Supp. 2d 965 (N.D. Ill. 2001).  In Johnny’s Icehouse, a women’s hockey team contended that Amateur Hockey Association was subject to Title IX because its 26 U.S.C. § 501(c)(3) tax-exempt status qualified as a form of federal assistance.  The U.S. District Court for the Northern District of Illinois denied this argument, finding that income tax exemptions are conspicuously absent from the list of what is defined as “federal financial assistance” under Title IX.  The court in Johnny’s Icehouse concluded that “‘federal financial assistance’ encompasses only direct transfers of federal money, property or services from the government to a program” and that “[e]xemption from taxation just does not equate to such direct transfers.”

The court in Buettner-Hartsoe was not swayed by the outcome in Johnny’s Icehouse, and instead relied on various U.S. Supreme Court cases to support its decision.  Those Supreme Court cases collectively found that institutions qualify as recipients of federal assistance under Title IX even if they did not apply for the aid or the aid was indirectly provided.  Further, the Supreme Court cases held that 501(c)(3) status is a form of Congressional subsidy and the equivalent of a cash grant.  Further, and importantly, the Buettner-Hartsoe court held, “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.’”

Impact of Ruling on Independent Schools

Though the Buettner-Hartsoe ruling focuses solely on Title IX’s impact on one independent school in Maryland, it potentially affects every non-profit independent school throughout the country, regardless of whether such schools ever accepted a PPP loan.  Should prospective plaintiffs in other jurisdictions—from Florida to New Hampshire to California—initiate lawsuits against 501(c)(3) independent schools under Title IX, federal courts may look to Buettner-Hartsoe as persuasive precedent.  Separately, should CPS appeal the district court’s ruling, courts with much broader jurisdiction—either the U.S. Circuit Court for the Fourth Circuit or the U.S. Supreme Court—could issue a ruling with a much more definitive impact on schools across the country.

Furthermore, the logic behind the court’s ruling goes beyond just the impact of Title IX, but to any federal law that tethers obligations to the receipt of federal financial assistance.  Indeed, the court in Buettner-Hartsoe repeatedly notes that Title VI of the Civil Rights Act of 1964 (“Title VI”)—which prohibits recipients of federal financial assistance from discriminating on the basis of race, color, or national origin—served as the model for Title IX.  The court further references several court decisions finding that tax exempt organizations are subject to Title VI.  Therefore, this ruling exposes tax-exempt independent schools to coverage under such federal laws, ranging from Title VI to Section 504 of the Rehabilitation Act of 1973 to the Age Discrimination Act of 1975 (with which independent schools likely already comply).

Practical Steps Independent Schools Should Take In Response

Regardless of whether your school is located in Maryland (or in other states within the 4th Circuit, such as Virginia, West Virginia, North Carolina, and South Carolina), independent schools should proceed cautiously in how they handle any claims of discrimination, but particularly those arising out of sexual harassment or assault on campus.  We recommend the following practical steps:

  • To the extent your school developed Title IX policies in response to the receipt of a PPP loan, you should consider revisiting them and determining whether any of the protocols and processes embedded in those policies could easily be reinstated.
  • Further, given the Buettner-Hartsoe decision, the standard of care of how schools respond to complaints of sexual harassment or other forms of gender discrimination may be evolving. Therefore, independent schools should consider other ways in which they can incorporate the fundamental aims of Title IX.  For example, independent schools should consider the following:  ensuring that there is a certain person(s) on campus who can handle complaints of gender discrimination, and that that person(s) contact information is readily available (easily accessible on the school’s website); providing written notice of complaints to parties to a complaint, as well as written conclusions of investigations to relevant parties; and understanding how to implement supportive measures, including the limited circumstances under which it is appropriate to separate a student from campus pending an investigation.   Instating (or reinstating) such processes may be a prudent measure given the uncertainty of Title IX’s impact on independent schools nationwide.
  • The Biden Administration has recently announced proposed changes to Title IX regulations. While it is anticipated that any changes will not be implemented for another year or so, independent schools should follow the progress of these proposed regulations, particularly as they may impact your school’s already-drafted Title IX policies.

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Though it is far too early to understand the full ramifications of Buettner-Hartsoe on the independent school landscape, the ruling is a bright red flag that schools may be subject to stricter federal requirements in the coming years.  We therefore recommend that independent schools monitor this issue carefully.

To that end, McLane’s Education Practice Group is offering a webinar on this ruling and Title IX’s obligations on independent schools next Thursday, August 4, 2022 from 2:00 pm to 3:00 pm ET. We encourage you and your team to register here to learn more about this evolving topic.  Should you have any questions or need assistance, please reach out to our team of trusted education attorneys.