Penn State’s Board of Trustees voted today to change its bylaws to eliminate the indemnification, or reimbursement, of legal fees for trustees who sue the university. This action comes after a court ruled earlier this year the university must reimburse a group of trustees who sued the university for their right to access documents related to Penn State’s internal investigation of the Sandusky scandal.
A group of Penn State’s alumni trustees — Ted Brown, Barbara Doran, Bob Jubelirer, Anthony Lubrano, Ryan McCombie, Bill Oldsey, and Alice Pope — brought a lawsuit against Penn State in April 2015, saying the university must give them access to documents used to develop the Freeh report, which explained the findings of Penn State’s investigation of the Sandusky scandal.
They argued the information was necessary for them to complete their required duties on the Board of Trustees to “assess the propriety of instituting legal action on behalf of the university relating to matters addressed in the Freeh report or circumstances surrounding issuance of the Freeh report,” and to “objectively determine whether the conclusions in the Freeh report mischaracterized and misrepresented an alleged institutional failure by the university and its administration and, if so, whether the [Special Investigations Task Force], the chairman or any other trustee knew or should have known that the Freeh report was inaccurate” according to The Legal Intelligencer.
Penn State argued the documents were unrelated to the duties of the trustees and did not want to reveal the documents because those interviewed for the Freeh report had been promised anonymity.
A court ruled in March of this year that the university must reimburse the trustees for their legal fees incurred through the lawsuit because of the indemnification provisions in the bylaws.
“The Penn State Board of Trustees adopted amendments clarifying charter and bylaw provisions intended to protect trustees from having to assume the cost of litigation brought against them as a result of their service to the University. These amendments make clear that the bylaws do not require the University to use public dollars to pay trustees to sue the University,” Penn State said in a statement following the Board’s vote. “The amendments are a matter of good corporate governance and are in line with best practices nationwide.”
Penn State also clarified the bylaw change is “not about access to information” but rather about what the Board should focus on in its service and endeavors:
“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.”
The bylaw changes also alters language that previously said Action would be defined as “any action, suit or proceeding, administrative, investigative or other, (i) toA) in which such person is a party (other than in an action, suit or proceeding by the University)” to say “any action, suit or proceeding, administrative, investigative or other, (i) toA) in which such person is named as a defendant (other than in an action, suit or proceeding by the University).”
In layman’s terms, this maintains reimbursement for trustees who are sued as part of their duties, but eliminates reimbursement for trustees who themselves sue the university.
Here’s what the main bylaw affected said before today’s vote:
Except as prohibited by law, each Trustee and officer of the University shall be entitled as of right to be indemnified by the University against expenses and any liability paid or incurred by such person (i) in defense of any Action to which such person is a party or (ii) in connection with any other Action.
Here’s what that same section of the bylaws says now:
Except as prohibited by law, each Trustee and officer of the University shall be entitled as of right to be indemnified by the University against expenses and any liability paid or incurred by such person in connection with any Action.
And here’s the excerpt that was added to the section:
Except as provided in Section 4.02(c) below, the University shall not indemnify any Trustee or officer, or pay, advance or reimburse any Trustee or officer, for any legal fees and expenses incurred in connection with any action, suit or proceeding, administrative, investigative or other, which such Trustee or officer brings, directly or indirectly, against the University, the Board of Trustees or any officer, Trustee, employee, agent or representative of the University or the Board of Trustees.
You can see the full approved bylaws changes as Appendix I of the Board of Trustees meeting agenda.
Before ultimately voting to approve the change, trustees engaged in debate over whether to table the vote to a later date. Trustee Alice Pope, who was part of the group involved in the original litigation, encouraged the Board to table the vote in search of a reasonable compromise. The motion to table was ultimately defeated.
“This is a disturbing departure from the university’s recent actions to increase integrity throughout the university’s operations. Since the Sandusky scandal, the university’s leadership has invested heavily in compliance procedures to ensure that even a single whistleblower can bring concerns to light,” Pope said. “I ask why would the Board of Trustees be the one place within the university where its concerned voice is silenced. The minority voice must not be stifled. Our university should be characterized by a spirit of openness and inclusiveness among students, faculty, administration and staff, and yes, the Board of Trustees.”
Other trustees who were part of the Freeh report litigation against the university also addressed the Board, including Ted Brown and Bob Jubelirer. All seven of those alumni-elected trustees involved in the lawsuit continue to sit on the Board; they’re currently joined by Jay Paterno and Robert Tribeck to round out the Board’s alumni contingent.
“No one at the time of drafting would have foreseen or conceived of the idea of Trustees suing the institution that they serve. It’s antithetical to why we are sitting around the table,” Trustee Richard Dandrea said. “So changing the Bylaws to make us consistent with common practice makes good sense, it’s good governance, and I would urge my colleagues to vote in favor of the resolution.”
The rest of the meeting was basically run-of-the-mill, as no other motions passed garnered quite so much controversy. The Board of Trustees will reconvene February 22-23, 2018, once again at the Penn Stater.