In this Issue:
- Maine Law Court Affirms Privacy of Nonprofit Records
- Massachusetts Case Underscores Importance of Diversified Investments
- E-Bulletin Information
Maine Law Court Affirms Privacy of Nonprofit Records
In Turcotte v. Humane Society Waterville Area, 2014 ME 123, the Maine Supreme Court recently affirmed that most Maine nonprofit corporations are not subject to the Maine Freedom of Access Act, and consequently corporate records do not have to be disclosed and meetings are not required to be open to the public.
This case arose when Gina Turcotte lost her cat and later came to believe that it was the same cat she saw on the Humane Society Waterville Area (HSWA) website, where it was shown as being placed for adoption with another family. Turcotte filed a Maine Freedom of Access Act (FOAA) complaint against HSWA to obtain all HSWA records pertaining to the cat. As the opinion notes, the details concerning the cat and HSWA’s actions are not at issue in this case, and HSWA successfully defended a separate lawsuit in which Turcotte sought to have the cat returned to her. Turcotte addressed only whether HSWA was subject to FOAA and therefore had to turn over its records.
In several earlier cases, the Maine Law Court held that nonprofit corporations generally are not subject to FOAA because they are not “public agencies.” Only in exceptional cases where a nonprofit is organized and operates similar to a public agency will FOAA apply. The opinion in Turcotte follows these earlier cases by considering four factors: “(1) whether the entity is performing a governmental function; (2) whether the funding of the entity is governmental; (3) the extent of governmental involvement or control; and (4) whether the entity was created by private or legislative action.”
The Law Court held that HSWA did not meet any of the four factors that might justify public agency status. First, HSWA did not perform a traditional governmental function; its contracts with various municipalities to provide food, shelter, and medical services to stray animals was not enough, on its own, to qualify under this factor. Next, the Court found that HSWA was funded primarily by private donations, although it did receive some funding through its municipal contracts. Third, the Court held that being subject to certain licensing requirements and contractual obligations did not amount to significant governmental involvement in or control over HSWA. Finally, HSWA was created by private action and not by statute.
Turcotte builds on earlier Maine Law Court jurisprudence holding that a chamber of commerce was not a public agency (Dow v. Caribou Chamber of Commerce and Indus., 2005 ME 113), whereas a hospital was a public agency (Town of Burlington v. Hosp. Admin. Dist. No. 1, 2001 ME 59. In the latter case, the Court noted several factors that do not apply to the typical Maine nonprofit corporation: the hospital directly provided a governmental health care function, it had the power to tax and issue bonds, its management staff was determined by elected citizens of the town, and it was created by an act of the Maine Legislature. Meanwhile, although not a FOAA case, in Holland v. Sebunya, 2000 ME 160, the Law Court affirmed the right of a nonprofit corporation to exclude or eject members of the public from its meetings.
Taken together, Turcotte and these earlier cases stand for the notion that a typical nonprofit organization operating in Maine is not subject to FOAA. The two most obvious implications of being beyond the scope of FOAA are that nonprofits are not required to disclose their private records and are not required to open their committee or board meetings to the general public.
That said, sometimes disclosure of records and allowing guests at meetings makes good programmatic and strategic sense. As a general matter, nonprofits will benefit from a certain level of transparency, and often the best approach is to welcome and grant such records or meeting attendance requests. Moreover, certain nonprofits are set up as membership organizations, and as such minutes (as well as all of the “books and records of accounts” of the organization), must be made available for inspection to any voting member, which is often tantamount to public disclosure. Also, in certain legal contexts records disclosure will be required, such as to the IRS or the Maine Attorney General, or to an opposing party in a lawsuit. For more on these issues, click here.
Massachusetts Case Underscores Importance of Diversified Investments
A recent Massachusetts case highlighted the legal requirement that nonprofit corporations and charitable trustees adhere to a diversified investment strategy unless there is a legitimate reason not to. In Woodward School For Girls v. City of Quincy, 469 Mass. 151 (Mass. 2014), the Massachusetts high court held that a municipal trustee of a charitable trust had breached its duty of prudence by investing the trust’s assets solely in bonds and not considering the impact of inflation on the trust’s principal. The City stuck to the bonds-only investment strategy for years, even against professional advice it had received. The case turned on the state’s Prudent Investor Act, which applies to trustees of trusts, and Maine has a similar statute as part of its trust code.
A typical Maine charitable organization is not set up as a charitable trust but rather as a nonprofit corporation. Thus, the Uniform Prudent Management of Institutional Funds Act (UPMIFA) and not the Prudent Investor Act will apply, although the two statutes are similar in terms of investment standards. UPMIFA imposes certain requirements and standards on the management of funds (endowment funds, board-restricted funds, and ordinary investment account funds) held by charitable organizations. UPMIFA is very clear in promoting a diversified investment policy, stating that “An institution shall diversify the investments of an institutional fund unless the institution reasonably determines that, because of special circumstances, the purposes of the fund are better served without diversification.” 13 M.R.S. § 5103(5)(D). Although this recent Massachusetts case is not binding precedent in Maine, it is worth noting here because Maine courts often cite cases in Massachusetts and other states as persuasive authority.
I send the Maine Nonprofit Law E-Bulletin 3 or 4 times per year to provide updates and analysis on legal and policy matters respecting Maine nonprofit organizations. I do my best to keep the messages brief, timely, and useful to nonprofit staff, board members, volunteers, advisors, and donors. At the same time, no one may rely on these E-Bulletins as legal advice, and I encourage you to consult a qualified attorney for advice on any particular situation.
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