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California District Court Rules on Tax Exempt Status and Title IX: What California Private and Independent Schools Need to Know

CATEGORY: Special Bulletins
CLIENT TYPE: Private Education
PUBLICATION: LCW Special Bulletin
DATE: Jul 29, 2022

On July 25, 2022, the United States District Court for the Central District of California ruled on an issue that stands at the intersection of tax law and Title IX.  In E.H. v. Valley Christian Academy (2022) Case No. 2:21-cv-07574-MEMF, a female student, identified only as E.H., played wide receiver for a public high school during a California Interscholastic Federation (CIF) scrimmage against Valley Christian.  At the end of the game, E.H. removed her helmet and revealed that she was female.  Valley Christian, according to E.H., later sent a letter to her school stating she could not play in future football games because she is female.  E.H. sued Valley Christian for violating state and federal laws, including Title IX.  That law prohibits discrimination on the basis of gender by educational institutions receiving federal assistance.

In her complaint, E.H. alleged that Valley Christian is subject to Title IX because it received federal financial assistance in the form of a PPP loan and because of its tax-exempt, 501(c)(3) status. Valley Christian argued that receiving a PPP loan does not constitute federal financial assistance.  The school also asserted that simply being a tax-exempt organization does not mean it receives federal financial assistance.

Neither the Ninth Circuit Court of Appeals, which has jurisdiction over California, nor other courts in California, have ruled on this issue and Title IX does not define the term “federal financial assistance.”  E.H. and Valley Christian therefore offered cases from other jurisdictions that reached conflicting conclusions.  The district court concluded that participation in the PPP loan program triggered Title IX.  It reached the same conclusion based on Valley Christian’s federal tax-exempt status.  That determination is a matter of first-impression in California and the Ninth Circuit.

This California case is similar to one decided about a week ago in Maryland.  In that case, Buettner-Harstoe v. Baltimore Lutheran High School Association, five women sued their former high school alleging they were subject to sexual assault and harassment by male students at the school in violation of Title IX. A Maryland district court likewise concluded that the school’s tax-exempt status constituted “federal financial assistance” for the purpose of Title IX.

Given that these cases emerge from unsettled and conflicting law, LCW anticipates they will be appealed.  We do not know whether the Ninth Circuit will affirm or reverse the California decision.  The Maryland case only affects Maryland schools. Even if the Fourth Circuit Court of Appeals were to uphold the Maryland decision, that would not be binding in California. These cases will likely take a significant amount of time to work their way through the appeals process.

For the time being, there is little schools need to do.  There are interesting and difficult issues related to tax law and the reach of Title IX that will undoubtedly be examined in great detail on appeal.  There are also important issues related to balancing religious freedom and anti-discrimination that will need to be explored.  If schools have questions about the specific risks these cases pose and actions, if any, they should take in light of these decisions, we encourage them to reach out to legal counsel.  Religious schools should also keep in mind that there are  specific exceptions to Title IX that may apply to them.  Those exceptions will need to be considered on a case-by-case basis.

LCW will continue to monitor these cases and provide updates with potential impacts these cases may have on schools. If you have any questions, contact a member of LCW’s private education practice group.

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