Saturday, December 06, 2014

Providing for the defense and indemnification of school officials pursuant to Public Officers Law §18(3)(a) or Education Law §381


Providing for the defense and indemnification of school officials pursuant to Public Officers Law §18(3)(a) or Education Law §3811
Appeal of Betty Carmand and Steven White, Decisions of the Commissioner of Education, Decision #16,689

In this appeal to the Commissioner of Education, Betty Carmand and Steven White challenged the Board of Education of the East Ramapo Central School District's decision under color of §18 of the Public Officers Law to expend district funds to appoint counsel to defend or otherwise represent current and former board members and district employees in connection with several actions, proceedings and other matters. 

Carmand and White contended that the individual respondents named in their appeal are not entitled to defense and indemnification of legal costs with respect to the relevant Administrative and Federal civil actions in which they were involved because [1] they had engaged in a pattern of willful and intentional misconduct which includes the breach of fiduciary duties, defrauding the district and its residents, and committing “Constitutional torts”; [2] they were not acting within the scope of their employment or duties when the acts or omissions giving rise to the causes of action occurred; and [3] their acts or omissions were made in bad faith and thus such “respondents/defendants are not entitled to legal representation, defense, and indemnification, pursuant to Public Officers Law §18(3)(a) or Education Law §3811.”*

After considering a number of procedural issues, the Commissioner addressed the merits of the appeal, which he sustained in part.

Addressing the Board's contention Public Officers Law §18 controls and that Education Law §3811 is irrelevant to this appeal, the Commissioner explained:

1. Education Law §3811 provides for the defense and indemnification of school board members, officers and employees if they comply with certain procedural steps where the matter arises out of the exercise of their powers or the performance of their duties; and a court or the Commissioner, as the case may be, certifies that the individual appeared to act in good faith with respect to the exercise of his powers or the performance of his duties while

2. Public Officers Law §18(3) provides for defense and indemnification in any civil action or proceeding arising out of any alleged act or omission which occurred or allegedly occurred while acting within the scope of the individual’s employment or duties.

However, Public Officers Law §18[4][b] provides that the duty to indemnify under this statute does not arise where the injury or damage resulted from intentional wrongdoing or recklessness on the part of the employee.

Further Public Officers Law §18(12 provides that, the rights accorded to employees regarding defense and indemnification under the Public Officers Law shall take the place of defense and indemnification provisions provided by another enactment unlessthe public entity provides that the benefits shall supplement and be in addition to protections conferred by another law.

Once adopted by a public entity or board, Public Officers Law §18 normally becomes the exclusive source of an employee’s or board member’s defense and indemnification rights, but not if the governing body elects to retain existing protections under another enactment by providing that the benefits of Public Officers Law §18 would supplement, or be in addition to, the protections conferred by an existing enactment.

In this instance, said the Commissioner, the Board approved a resolution adopting the protections afforded under Public Officers §18 in which it expressly stated that such protections shall be in addition to the indemnification provisions available under Education Law §3811. The Commissioner concluded that Education Law §3811 is the primary source of defense and indemnification in this case and protections under Public Officers Law §18 are secondary

Addressing the challenge to the appointment of counsel in the Federal Action and the Attorney General Investigation, the Commissioner found that the complaint specifically alleges that the Remaining Individual Respondents, as defendants in that action, “were at all times herein acting under color of state law in the course and scope of their duties and functions as officers and agents of the [district] ... although in a manner ultra vires.

Noting that the district’s insurance carrier disclaimed coverage because the Federal Action alleged certain intentional wrongful conduct, the Commissioner said that he was not bound by the determination of a school district’s insurance carrier that was interpreting the terms of an insurance policy. The Commissioner then held that the complaint in the Federal Action alleges conduct arising out of the performance of the Remaining Individual Respondents’ duties as board members and the initial appointment of counsel for their defense in the Federal Action was appropriate. 

However, said the Commissioner, the ultimate determination whether the conduct charged arises out of the remaining Individual Respondents’ performance of their duties thus entitling them to indemnification of their legal costs must be made within the context of the underlying proceedings.

Similarly, a determination of whether a board member is eligible for indemnification based on lack of good faith cannot be made until a final decision is rendered in the underlying action or proceeding. 

The Commissioner explained that “Until a final decision is rendered, there is no factual record on which to base a finding that the board member is disqualified from receiving indemnification”

Turning to that part of the Board’s resolution that purported to “unconditionally” indemnify the Remaining Individual Respondents in the Administrative Action and the Federal Action, the Commissioner said that neither Public Officers Law §18 nor Education Law §3811 authorizes unconditional indemnification.

Further, the Commissioner said that a Board resolution dated October 2, 2012 broadly provides that “current and former members, officers and employees shall be fully and unconditionally indemnified ...” in the future, without regard to any particular individual, whether the individual’s actions  arose out of the exercise of his or her powers or the performance of his or her duties, were within the scope of his or her public employment or duties, or whether the action was undertaken in good faith or constitutes intentional wrongdoing or recklessness – criteria set forth under Education Law §3811 and Public Officers Law §18. The Commissioner said that “such broad, unconditional action disregards such criteria, is void as against public policy and cannot be permitted.”

The Commissioner also noted that the several defendants/respondents will require “Certificates of Good Faith” to be eligible receive indemnification for their defense and other costs. As that question is still pending in the court actions, the Commissioner aid that “it cannot be decided separately in this appeal.”

As to the Board's appointed counsel prospectively, pursuant to Public Officers Law §18, for the defense and indemnification of any current and former board members and district employees who may be subpoenaed or compelled to testify in the Attorney General Investigation, Carmand and White contend that this was improper because the Attorney General Investigation is not a “civil action or proceeding, state or federal” as contemplated by Public Officers Law §18 (3)(a), the Commissioner agreed. Further, said the Commissioner, “Education Law §3811 also applies wherever a board member, officer or employee defends 'any action or proceeding' (Education Law §3811[1]), a prerequisite not met here.”

With respect to any concerning the reasonableness of the attorneys’ fees incurred by the district the Commissioner said that he did not have jurisdiction to rule on such an issue either under either Education Law §3811 or Public Officers Law §18. Rather, said the Commissioner, such a challenge should be brought in a taxpayer’s action in court. Similarly, noted the Commissioner, Public Officers Law §18(3)(c) expressly provides that any dispute regarding “the amount of litigation expenses or the reasonableness of attorneys’ fees shall be resolved by the court upon motion or by way of a special proceeding.”

As to the issue related to the Open Meetings Law raised by Carmand and White, the Commissioner pointed out that Public Officers Law §107 vests exclusive jurisdiction over complaints alleging violations of the Open Meetings Law" in the Supreme Court of the State of New York, and alleged violations thereof may not be adjudicated in an appeal to the Commissioner."

The Commissioner then sustained the appeal filed by Carmand and White to the extent indicated in his ruling and promulgated the following orders:

IT IS ORDERED that that September 13, 2012 resolution of the Board of Education of the East Ramapo Central School District relating to defense and indemnification of Daniel Schwartz in the Federal Action is annulled insofar as it provides for unconditional indemnification; and

IT IS FURTHER ORDERED that that September 13, 2012 resolution of the Board of Education of the East Ramapo Central School District relating to defense and indemnification of Moses Friedman in the Federal Action is annulled insofar as it provides for unconditional indemnification; and

IT IS FURTHER ORDERED that that September 13, 2012 resolution of the Board of Education of the East Ramapo Central School District relating to defense and indemnification of Yehuda Weissmandl in the Federal Action is annulled insofar as it provides for unconditional indemnification; and

IT IS FURTHER ORDERED that that September 13, 2012 resolution of the Board of Education of the East Ramapo Central School District relating to defense and indemnification of Richard Stone in the Federal Action is annulled insofar as it provides for unconditional indemnification; and

IT IS FURTHER ORDERED that the October 2, 2012 resolution of the Board of Education of the East Ramapo Central School District relating to defense and indemnification of unnamed individuals in an Attorney General Investigation is hereby annulled insofar as it applies to the Remaining Individual Respondents.

* Carmand and White also alleged that one of the respondents, Daniel Schwartz was improperly provided with separate counsel in the Administrative Action.  Other issues raised by Carmand and White in this appeal: [a] appointed counsels’ fees were unreasonable; [b] the board's lack of authority to appoint counsel to “defend” school officials an Attorney General Investigation or to proactively initiate litigation against the Attorney Genera; [c] the propriety of the votes taken at each board meeting appointing counsel and [d] the board's allege violations of the Open Meetings Law. 
                              
The decision is posted on the Internet at:
http://www.counsel.nysed.gov/Decisions/volume54/d16689






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