Federal Court Rules Tax-Exempt Independent Schools must comply with Title IX

A recent Federal Court Title IX ruling could affect private and independent schools nationwide. In Buttner-Hartsoe v. balt. Lutheran High Sch. Ass’n, #RDB-20-3229 (D.Md. July 21, 2022), five women filed a Title IX lawsuit against their independent high school, alleging that the school failed to address their sexual assault and harassment complaints treated appropriately by male students. In response, the school argued that it was not subject to the requirements of Title IX because it was not a recipient of federal grants and petitioned the court to dismiss the claims. On July 21, 2022, the Maryland federal court ruled that the school’s tax-exempt status was equivalent to federal financial assistance under 26 USC §501(c)(3) and thus Title IX applied. Crucially, as a result of this acquis, every Maryland independent school with 501(c)(3) status must comply with Title IX and the mandates it imposes.

The decision builds on previous opinions by the US Supreme Court and the Federal Court on similar issues, but appears to be the first court to establish this clear rule. For example, the decision is based on Regan v. Taxation with Representation, a 1983 US Supreme Court case that equated a tax exemption with a “form of subsidy” in the amount of a cash grant. The Maryland court also finds support in cases in the Eleventh Circuit and the Southern District of New York considering whether a tax exemption constitutes federal financial assistance under Title IX. Buttner-Hartsoe takes these earlier cases a step further by noting that a school’s tax-exempt status obliges it to comply with Title IX.

Although the tax-exempt status was enough to convince the Maryland Court of Federal Financial Assistance, the court also found that the school received a Paycheck Protection Program (PPP) loan under the Coronavirus Aid, Relief, and Economic Security (CARES) Act separately imposed compliance with Title IX for the duration of the loan. In accordance with our recent legal update on the North Carolina Federal Court’s decision in Karanik et al. v. Cape Fear Academy, Inc., No. 7:21-CV-169D (EDNC June 17, 2022), more courts are considering PPP loans as accepting federal grants.

While Buttner-Hartsoe currently only applies to Maryland schools, this may indicate a growing trend in the mid-Atlantic and Northeast to extend the application of Title IX to private and independent schools. Currently, private and independent schools not covered by Title IX often have anti-discrimination policies, but to a less prescriptive extent. Title IX provides another avenue for students and/or individuals to bring gender discrimination claims.

Copyright © 2022 Robinson & Cole LLP. All rights reserved.National Law Review, Volume XII, Number 223

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