Are officers and directors of a university foundation, athletic foundation, or alumni association protected by the State's Defense of State Employees Act if they're sued?

Plain-English summary

Every public university in NC has a constellation of supporting nonprofit corporations: a general foundation that fundraises for academics, an athletic foundation that supports sports, an alumni association that runs alumni programs, and often various special-purpose nonprofits. UNC Charlotte had three of the standard ones and asked the AG: if those nonprofit officers or directors get sued in their nonprofit capacity, does the State step in to defend them under the Defense of State Employees Act?

Senior Deputy AG Grayson G. Kelley, Special Deputy AG Thomas J. Ziko, and Assistant AG Donald R. Esposito, Jr. answered no.

The Act's scope. The Defense of State Employees Act (§ 143-300.2 et seq.) authorizes the State to defend employees and former employees of "the State" for acts within the scope of their employment. § 143-300.2(4) defines "the State" as departments, agencies, boards, commissions, institutions, bureaus, and authorities. § 143-300.2(3) defines "Employee" to include officers, agents, and employees (but not independent contractors). The Act is triggered only when the lawsuit names someone in that defined relationship to the State.

Why the three UNC Charlotte nonprofits don't qualify. All three are Chapter 55A nonprofit corporations recognized as tax-exempt under federal tax law. They support the University through fundraising, financial support, and constituent programming. But:
- They were not created by the NC Constitution or the General Assembly.
- Their purposes are not set out in the General Statutes.
- They are not components of UNC or any State agency or department.
- They are governed by their own boards of directors, not by State officials.
- Being incorporated under Chapter 55A doesn't make them State agencies; Chapter 55A is the general nonprofit incorporation framework available to anyone.

Guthrie v. North Carolina State Ports Authority, 307 N.C. 522, 299 S.E.2d 618 (1983), is the comparator. The Ports Authority is created by statute, with its purposes laid out in the General Statutes, and is a component of the State machinery. The UNC Charlotte foundations are not.

The "agent" wrinkle. The Act's definition of "Employee" includes "agents." The AG acknowledged that in particular fact patterns, a foundation officer or director could be acting as an agent of the University rather than as a foundation officer. In those scenarios, the Act might cover the officer. But the AG cautioned that such scenarios are hard to identify in advance and depend on specific facts. The AG also noted that the typical foundation-university relationship (foundation supports University) is structured so that the foundation officer is acting on behalf of the foundation, not the University, which reduces (compared to other individuals) the likelihood of an agency finding. Bottom line: don't count on the agent path.

Alternative protections. The opinion ended by pointing to nonprofit-director liability protections under NC's Nonprofit Corporation Act:
- § 1-539.10: limited liability for directors of nonprofits.
- § 55A-2-02(b)(4): authorizes nonprofits to include director liability limitations in their articles of incorporation.
- § 55A-8-60: general standards governing director conduct.

These provide statutory protection for nonprofit directors acting within their authority. Combined with insurance commonly carried by university-related foundations, this is the protective backstop, not the State Defense Act.

Currency note

This opinion was issued in 2000. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The Defense of State Employees Act, the Nonprofit Corporation Act, and director liability law have all evolved since 2000. The Tort Claims Act and personal-liability standards in Meyer v. Walls and successor cases continue to shape the doctrinal landscape.

Background and statutory framework

The Defense of State Employees Act. A protective statute that lets the State step in (through the AG's office) to defend State employees sued for acts within the scope of their employment. The State indemnifies covered defendants for judgments and settlements, up to statutory caps. The Act is grounded in sovereign immunity policy: when State employees act in good faith within their authority, the State carries the litigation risk.

Statutory criteria for coverage.
- The defendant must be an employee (including officer or agent) of "the State."
- The act or omission must be within the scope of employment.
- Certain conduct (e.g., willful and malicious acts outside the scope) is excluded.

The three UNC Charlotte nonprofits.
- Foundation of UNC Charlotte, Inc.: general academic-support fundraising.
- Athletic Foundation of UNC Charlotte: athletic department fundraising.
- UNC Charlotte Alumni Association: alumni programming.

All three are Chapter 55A nonprofits. All three are recognized as tax-exempt (typically under IRC § 501(c)(3) for the foundations, § 501(c)(7) or (c)(3) for the alumni association).

Why Chapter 55A registration doesn't bring them under the State umbrella. Chapter 55A is NC's general nonprofit corporation act, available to any group wanting to form a nonprofit. Hospitals, churches, neighborhood associations, advocacy groups, foundations, and many other entities form under Chapter 55A. Being incorporated under that chapter creates a private corporation, not a State agency.

Guthrie comparison. The State Ports Authority, the comparator the AG cited, is a state body corporate created by statute with statutorily-defined purposes. § 143B-451 et seq. specifies its composition, powers, and duties. That kind of explicit statutory pedigree is what brings an entity within the State Defense Act.

Nonprofit director protections under Chapter 55A.
- § 55A-8-60: general standards (good faith, ordinary care, reasonable belief).
- § 55A-2-02(b)(4): articles of incorporation can limit personal liability for monetary damages.
- § 1-539.10: limited statutory immunity for nonprofit directors under certain circumstances.

These protections, combined with D&O insurance typically carried by foundation boards, are how foundation directors and officers manage liability risk in practice.

The agent loophole. A foundation officer who, in a particular transaction, is acting as the University's authorized agent (e.g., negotiating a contract on the University's behalf) might be covered. But it's a fact-specific, transaction-by-transaction analysis. The AG's opinion does not provide a generalizable shortcut.

Common questions

Q: If I'm an alumni association volunteer board member and get sued, will the State defend me?

A: The AG concluded no. The State Defense Act doesn't cover you in that role. You should rely on the nonprofit's director liability protections under Chapter 55A, the corporation's articles, and (typically) the corporation's D&O insurance.

Q: What if the university foundation's lawsuit involves money raised for university programs?

A: The funds may be earmarked for university programs, but the lawsuit's defendant is the foundation officer in their foundation capacity. Unless the officer was specifically acting as a university agent in the conduct giving rise to the suit, the State Defense Act doesn't apply.

Q: How do most public university foundations actually handle this risk?

A: D&O insurance. Most foundations carry directors and officers liability coverage that pays for legal defense and indemnification within policy limits. Foundations also typically include director-liability-limiting language in their articles under § 55A-2-02(b)(4).

Q: Could a court ever rule a foundation IS part of the State for these purposes?

A: It would be a tough showing. Guthrie and similar cases look at statutory pedigree, board control, and operational integration. The standard supporting nonprofit (with its own board, separate legal identity, and no statutory creation) is unlikely to be treated as a State agency. Special-purpose nonprofits with closer integration (e.g., a state-controlled financing authority chartered by statute) may sit differently.

Q: What's the practical takeaway for foundation board members?

A: Don't rely on State protection. Make sure your nonprofit has director-liability-limiting articles, current D&O coverage, and clear scope-of-authority documentation. The State Defense Act is not a fallback for nonprofit board service.

Q: Does the answer differ for state-employee staff who also serve foundation roles?

A: Possibly, but it depends on which hat they're wearing in the conduct that gave rise to the suit. A university employee acting within their university job duties is covered by the State Defense Act for that conduct. The same person acting in their separate foundation board role is not covered. Careful documentation of which hat is being worn during which actions can matter.

Citations from the opinion

• N.C. Gen. Stat. §§ 143-300.2 et seq., 143-300.2(3), 143-300.2(4), 143-300.3
• N.C. Gen. Stat. §§ 55A-1-01 et seq., 55A-2-02(b)(4), 55A-8-60
• N.C. Gen. Stat. § 1-539.10
• Guthrie v. North Carolina State Ports Authority, 307 N.C. 522, 299 S.E.2d 618 (1983)

Source

• Landing page: https://ncdoj.gov/opinions/defense-of-officers-and-directors-of-university-related-nonprofit-organizations/

Original opinion text

Reproduced from the NCDOJ landing page. The linked landing page is authoritative.

Re: Advisory Opinion; Defense of Officers and Directors of University-related Nonprofit Organizations; N.C. Gen. Stat. § 143-300.2 et seq.

Dear Mr. Steimer:

The University of North Carolina at Charlotte (the "University") has inquired whether the officers and directors of the Foundation of The University of North Carolina at Charlotte, Inc.; the Athletic Foundation of The University of North Carolina at Charlotte; and the University of North Carolina at Charlotte Alumni Association enjoy the benefits of the Defense of State Employees Act (the "Act"), N.C. Gen. Stat. § 143-300.2 et seq. (1999). As set forth below, it is the opinion of this office that the officers, directors and employees of these organizations are not covered by the Act in that such officers, directors and employees are not "employees" of the State of North Carolina as defined under the Act.

The Act provides that, under certain circumstances, the State of North Carolina may provide for the defense of actions brought against an employee or former employee of the State on account of an act done or omission made in the scope and course of his employment as a State employee. See N.C. Gen. Stat. § 143-300.3 (1999). Thus, coverage under the Act is triggered only in instances in which an action has been brought against an employee or former employee of the "State." See generally id. The Act defines "The State" to include all departments, agencies, boards, commissions, institutions, bureaus, and authorities of the State. N.C. Gen. Stat. § 143-300.2(4) (1999). The Act defines "Employee" to include an officer, agent, or employee, but does not include an independent contractor. N.C. Gen. Stat. § 143-300.2(3) (1999).

It is our understanding that each of the aforementioned organizations is a North Carolina nonprofit corporation organized under Chapter 55A of the North Carolina General Statutes and that each of these organizations has been recognized as tax-exempt under the United States Internal Revenue Code. Moreover, it is our understanding that each of these organizations supports the University in various ways, such as through fundraising, financial support, or providing social and other activities for various constituencies of the University. Nonetheless, it is our opinion that, despite the support that these organizations provide to the University — a constituent institution of The University of North Carolina and, therefore, an institution of the State of North Carolina — these organizations themselves are not departments, agencies, boards, commissions, institutions, bureaus or authorities of the State of North Carolina.

These organizations are not created by the North Carolina Constitution or the North Carolina General Assembly, nor are their purposes set out in the North Carolina General Statutes. Compare, e.g., Guthrie v. North Carolina State Ports Authority, 307 N.C. 522, 299 S.E.2d 618 (1983). These organizations are not a component of the University of North Carolina or any State agency or department. Id. Instead, however beneficial their activities may be to the University, they are distinct legal entities — nonprofit corporations — governed generally by their own boards of directors. See generally N.C. Gen. Stat. § 55A-1-01 et seq. (1999). Moreover, the mere creation of these nonprofit corporations pursuant to a statutory framework, Chapter 55A of the North Carolina General Statutes, does not render them State agencies. Consequently, the officers, directors and employees of these organizations are not employees of the State and are not covered by the Act by virtue of their positions within these organizations.

We do note, however, that the Act's definition of "employee" includes agents. In certain circumstances, it is possible that an officer, director or employee of a University-related organization — just like any other individual — could be construed to be acting as an agent of the University (and, thus, the State), independent of his status as an officer, director or employee of the University-related organization. In such circumstances, these officers, directors or employees may be covered by the Act. The scenarios in which those officers, directors or employees could be construed to be agents of the University are necessarily fact-dependent and, therefore, difficult to identify beforehand. We believe, however, that the nexus between the activities of the University and a University-related organization (which are typically supportive of the University) would decrease the likelihood — compared to other individuals — that an officer, director or employee of a University-related organization would be construed to be acting as an agent of the University rather than of the University-related organization of which he is an officer, director or employee.

Finally, we note that officers and directors of these organizations may be entitled to certain protections set forth in N.C. Gen. Stat. §§ 1-539.10, 55A-2-02(b)(4) & 55A-8-60 (1999).

We hope that this advisory opinion is of assistance to the University, and please let us know if you have any questions concerning the above.

Signed by:

Grayson G. Kelley, Senior Deputy Attorney General
Thomas J. Ziko, Special Deputy Attorney General
Donald R. Esposito, Jr., Assistant Attorney General

cc: Richard H. Robinson, Jr.