Courts Consider Whether Nonpublic Schools Are Subject to Title IX Based on 501(c)(3) Status

The Fourth Circuit and an Arizona district court both have grappled with the issue of whether a school’s 501(c)(3) tax-exempt-status is a form of “federal financial assistance” under various federal nondiscrimination provisions.  For a nonpublic school to be subject to statutes such as Title VI or Title XI, the school must be a recipient of federal financial assistance.

Until recently, nonpublic schools that do not receive direct financial assistance from the federal government have not been subject to the nondiscrimination mandates of Title VI, Title XI, and Section 504. Recent federal court decisions may change this status quo, which would constitute a major legal development for educational institutions across the country. Over the past few years, a clear split is developing among federal courts considering this issue.

Fourth Circuit Considers Whether Title IX Extends to Independent and Nonpublic Schools Based on 501(c)(3) Status

On Jan. 25, the United States Court of Appeals for the Fourth Circuit heard argument in Buettner-Hartsoe v. Baltimore Lutheran High School Association. The primary issue before the Court was whether a private school can be subject to liability under Title IX.

The consolidated appeal involves five cases brought by five different women who are former students of Baltimore Lutheran High School, a religiously-affiliated private school. The women all alleged sexual assault by male students at the School dating back to 2016, and that their complaints of assault had not been addressed by the School appropriately under Title IX.

Defendant moved to dismiss the cases contending it was not subject to Title IX, since it was not a direct recipient of federal financial assistance during the relevant time periods. The lower court rejected that argument, holding that the tax-exempt status of the School under 26 U.S.C. § 501(c)(3) “constitutes federal financial assistance for the purposes of Title IX.” The School appealed.

At oral argument and in its briefing the appellees urged the court to uphold the district court’s decision that the School’s recognition by the IRS as a § 501(c)(3) tax-exempt organization amounts to a kind of credit or subsidy from the United States sufficient to trigger Title IX’s applicability. Appellees’ position relied largely on a 1984 decision of the Supreme Court, the applicability of which was specifically limited by subsequent Congressional action.[1]   

In further support of appellees, Amici argued that other Supreme Court precedent characterized 501(c)(3) status as an “economic benefit” which could be withheld from schools that practiced racial discrimination, citing Bob Jones Univ. v. United States, 461 U.S. 575 (1983).[2]

In response, the School argued that because Title IX was enacted through Congress’ spending power, it is “in the nature of a contract” between the recipient of that spending and the Federal government, and that therefore, there can be no knowing acceptance of the “contract” if the recipient is “unaware of the conditions or is unable to ascertain what is expected of it.” The School further argued, citing the Supreme Court in Pennhurst State School v. Halderman, 451 U.S. 1, 17 (1981), that “if Congress intends to impose a condition on the grant of federal moneys, it must do so unambiguously.”

Since Congress did not define “Federal financial assistance” in the statute, the School contended that deference to the Department of Education’s interpretation of the term is appropriate – and noted that the Department’s definition of federal financial assistance was limited to “transfers of federal money, property or services from the government.”

Arizona District Court Holds 501(c)(3) Status Does Not Subject Private School to Title IX and Section 504

In Doe v. Horne, plaintiffs filed an action challenging a private tax-exempt school’s compliance with an Arizona statute that prohibits interscholastic or intramural “[a]thletic teams or sports designated for ‘females’, ‘women’ or ‘girls’ [being] open to students of the male sex.” The plaintiffs sought declaratory and injunctive relief against the school alleging violations of several statutes, including Title IX and Section 504.

The district court dismissed plaintiff’s Title IX and Rehabilitation claims, holding that 501(c)(3) tax-exempt status is “not the type of grant or arrangement that qualifies as federal financial assistance.” The court reasoned that tax-exempt status is different from an affirmative grant of federal resources “because the bestowment of 501(c)(3) status does not, by and in itself, provided the 501(c)(3) organization with federal money, property, or services.”

Of note, the Horne court parted ways from another Ninth Circuit district court in a California federal court. In E.H. v. Valley Christian Acad., the court denied the school’s motion to dismiss. The court held that the plaintiff could pursue her Title IX claim against the private school, reasoning that the lack of controlling precedent and the lack of relevant legislative history, meant that the plain purpose of Title IX is controlling. And since the purpose of Title IX is to “eliminate discrimination in programs or activities benefitting from federal financial assistance[,] [d]istinctions as to the method of distribution of federal funds or their equivalent seem beside the point.”

Independent and Nonpublic Educational Institutions Should Be Aware of This Emerging Split in Authority

Independent schools and other nonpublic institutions across the country should be aware that even though they may not be receiving direct federal funding, their 501(c)(3) tax-exempt status may put them at risk of being subject to regulatory regimes such as Title IX, Title VI, and Section 504. Crowell’s Education Practice Group is ready to advise and assist independent and other nonpublic educational institutions on this ongoing development.