DATELINE: May 20, 2009, Chicago
The Dallas Morning News understandably is looking for a good story. Wouldn’t we all like to know the financial arrangements behind the “Tutankhamun and the Golden Age of the Pharaohs” exhibit that has been traveling around the country during the last several years? To find out, the Morning News this past January asked the Dallas Museum of Art to disclose the details. The Morning News apparently asserted that it was entitled to the information under...
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Jack Siegel's book, A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good, has quickly become the go-to guide for nonprofit executives and advisors. So what are people saying about the Guide? In the October 2007 edition of the The Federal Lawyer, New York lawyer George W. Gowen and nonprofit authority, wrote:
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Section 22.353 of Texas Business Organizations Code—Nonprofit Organizations, which provides:
(a) A corporation shall keep records, books, and annual reports of the corporation's financial activity at the corporation's registered or principal office in this state for at least three years after the close of the fiscal year.
(b) The corporation shall make the records, books, and reports available to the public for inspection and copying at the corporation's registered or principal office during regular business hours. The corporation may charge a reasonable fee for preparing a copy of a record or report.
This provision carries a January 1, 2006 effective date, which may mean that it is of recent vintage. Another possibility is that the statute was recodified in 2006, but the language was preexisting.
We are all for transparency, but this provision exceeds the limits of reasonableness if the courts construe the phrase “records, books, and reports” as the Daily News apparently would like it construed. One of the provision's major flaws is its failure to define "records, books, and reports," which is otherwise an open-ended term.
The museum has refused to provide any information about the Tutankhamun contract to date, citing a non-disclosure clause in the contract with the Tut promoters. In response, the Morning News turned to the City of Dallas, asking for a copy of the Tutankhamun contract. Brooks Egerton, Dallas Museum of Art Wants to Keep Tut Exhibit’s Financial Details a Secret (May 17, 2009). The city told the Morning News that the city did not have a right to see the contract and therefore could not turn it over to the Morning News. Before denying the request, the city’s lawyers sought guidance from the Texas Attorney General. Lawyers for the AG told the city that a government only has the right to see a private entity’s records if the records are maintained on behalf of the government. The fact that the city provides extensive support to the Dallas Museum of Art did not provide the city with the right to access, according to the AG.
The open question is whether the Morning News will file a lawsuit, claiming that Section 22.353 provides it with a private right of action. The Texas Attorney General needs to immediately issue guidelines that define “books, records, and reports” until the Texas Legislature repeals what is a poorly drafted statute. Yes, this is a poorly drafted statute.
We have no trouble requiring a charity that solicits charitable contributions from the public to make its audited financial statements available. The State of California has taken that approach in the case of larger charities. But we draw the line there.
Some people may be surprised by a simple fact: Charities are private associations. The public has no more right to see their internal documents than the public has a right to see anybody’s private documents. The language in Section 22.353 is simply too broad. In our view, it infringes on the constitutional right to association. Under the Morning New's interpretation of this statute, the museum would have to make available any document that generates an entry in the museum’s accounting system. This would include virtually ever document that the museum creates. That interpretation produces an absurd result, one that the Texas Legislature could never have intended. We therefore urge the legislature to rewrite the statute to make it clear what they meant. In all likelihood, this would mean requiring the release of audited financial statements under certain circumstances.
The Morning News might want to be a little more circumspect in pursuing this matter. With the proposals to convert newspapers to nonprofit entities, the Morning News may find the Dallas Museum of Art asking to see the Morning News' “records, books, and reports.” The museum might want to know how much Brooks Egerton makes or the name of an otherwise confidential source. What goes around can come around in these troubled economic times.
By the way, if the Morning News want some additional details about how the Tutankhamun contract works, they might want to read our earlier post about the structure of the contract with Los Angeles County Museum of Art (LACMA)
| THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NONPROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL.
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