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Penn State Board Approves Contentious Bylaw Change for Trustee Legal Fees

by on November 10, 2017 2:48 PM

A change to Penn State bylaws that's been debated for months was approved by the university's Board of Trustees on Friday.

The change to the bylaws and charter, which passed by a margin of 21-12 with two abstentions, made a few alterations to language related to reimbursement of travel expenses and liability for monetary damages in lawsuits related to a trustee's duties. But the issue that prolonged discussion of the changes in committee meetings for months is a provision that explicitly prevents trustees from recouping legal fees for initiating legal action against the university itself.

The issue stems from a lawsuit filed in 2015 by a group of seven alumni-elected trustees to gain access to documents used for Louis Freeh's report on his team's university-commissioned investigation into the circumstances surrounding the Jerry Sandusky scandal.

Penn State was ultimately ordered to turn over the documents to the trustees and earlier this year the school was ordered to pay trustees for related legal expenses, with a judge ruling they were entitled to reimbursement for fees in the school's charter.

Proponents of the bylaw change said the university shouldn't be spending significant sums of money on legal actions filed by its own trustees. Some trustees and other critics, however, said that would impede board members' fiduciary duties. If trustees believe information is being withheld, only the very wealthiest would have the funds for a legal battle.

Auditor General Eugene DePasquale and state Sen. John Yudichak had urged trustees to reject the change, saying it was a strike against transparency and accountability

Trustee David Han, chairman of the Committee on Governance and Long-Range Planning, said that committee members believed the charter only ever intended to indemnify trustees for expenses related to actions brought against them in carrying out their duties.

"I would like to make clear that while it has been suggested that this proposal is about trustee access to information, it, in fact, is not," Han said. "Pennsylvania law provides for trustees to have their legal fees paid if the university engages in 'dilatory, obdurate or vexatious conduct.' In the case brought against the university by the plaintiff trustees, the court specifically found that the university did not act in such a manner.

"Good governance does not incentivize litigation against our University and thus divert resources away from fulfilling our land grant mission.... The charter and bylaws do not require the University to pay for actions brought against it."

Trustee Robert Tribeck brought a motion to table the proposed change, and trustee Anthony Lubrano said he was certain both sides could come to a resolution if the issue was tabled. That motion was voted down.

Trustee Alice Pope, who voted against the bylaw change, said that Pennsylvania's nonprofit law guarantees trustees' rights to bring a suit against an institution that withholds information needed for decision-making.

"It is unfair and unreasonable to expect volunteer trustees to pay their own legal costs in such an action," Pope said. "Worse, there would be an inevitable chilling effect on the free flow of information if trustees were forced to shoulder the financial burden of litigation against a university with deep pockets. I believe this is contrary to good governance."

Trustee Rick Dandrea, who voted for the bylaw change, said common practice for businesses and other nonprofits is to protect trustees who are sued in their official capacities, not to give trustees the right to recover legal fees for suing the institutions they serve.

The language was broad because no one who drafted the charter conceived of the trustees suing the school, he said.

"It's antithetical to why we are sitting around the table. So changing the bylaws to make us consistent with common practice makes good sense. It's good governance," he said.

Pope said it would be good governance to ensure that trustees can get answers to critical questions, even if that involves having to bring a lawsuit to get them.

"The interests of the university are safeguarded by ensuring that all trustees, even those who are in the minority, can have their questions fully answered and their concerns effectively addressed," Pope said. "I believe that Penn State deserves governance that reflects our university's deepest values: integrity, the quest for knowledge and community."

After the measure passed, the university issued a statement that echoed comments by Han, D'Andrea and others that the change was reflective of good governance practices.

"These amendments make clear that the bylaws do not require the university to use public dollars to pay trustees to sue the University," the statement said. "The amendments are a matter of good corporate governance and are in line with best practices nationwide. These changes are also consistent with the American rule, which generally provides that, in the United States, each party in a lawsuit is responsible for paying its own attorney's fees.

"To be clear, this is not about access to information. Trustees have received all of the information they have requested. The Board of Trustees should be spending its time together working on the educational mission that matters most to Pennsylvanians. The Board works well together when it remains focused on education, research and service."



Geoff Rushton is managing editor for StateCollege.com. Contact him at geoff.rushton@statecollege.com or find him on Twitter at @geoffrushton.
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