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1 PETER C. MCMAHON (State Bar No. 161841)
MCMAHON SEREPCA LLP
2 2225 E. Bayshore Road, Suite 200
3 Palo Alto, California 94303
Tel: 650-637-0600 3/8/2021
4 Fax: 650-637-0700
peter@msllp.com
5
6 Attorneys for Plaintiff
JACLYN FOROUGHI
7 derivatively on behalf of the
Laurel School Parent Teacher Organization
8
9 SUPERIOR COURT OF THE STATE OF CALIFORNIA
10 COUNTY OF SAN MATEO
11 UNLIMITED JURISDICTION
12
JACLYN FOROUGHI, derivatively on behalf
13 of Laurel School Parent Teacher CASE NO. 21-CIV-01197
Organization, a nonprofit public benefit
14 corporation;
15 VERIFIED COMPLAINT
Plaintiff,
16 DERIVATIVE CLAIMS FOR:
v.
17 (1) BREACH OF FIDUCIARY DUTY;
LINDA CREIGHTON, an individual; JAMES
18 LOFTUS, an individual; CASSANDRA (2) ABUSE OF CONTROL; AND (3)
CORPORATE WASTE
LOPEZ LOFTUS, an individual; STEFANIE
19 CONNORS, an individual; ANJALI PATEL,
20 an individual; KRISTA ROSA, an individual;
PATTY LOPEZ-JARAMILLO, an individual;
21 JULIANA JOHNSON, an individual;
ASHLEE REA, an individual; and DOES 1 – JURY TRIAL DEMANDED
22
25, inclusive,
23
Defendants,
24
and
25
LAUREL SCHOOL PARENT TEACHER
26 ORGANIZATION;
27
Nominal Defendant.
28
COMPLAINT
1
1 Plaintiff Jaclyn Foroughi (“Plaintiff” or “Ms. Foroughi”), derivatively on behalf
2 of Laurel School Parent Teacher Organization (“Laurel School PTO”) brings this action against
3 defendants Linda Creighton (“Individual Defendant Creighton”), James Loftus (“Individual
4 Defendant Loftus”), Cassandra Lopez Loftus (“Individual Defendant Lopez Loftus”), Stefanie
5 Connors (“Individual Defendant Connors”), Anjali Patel (“Individual Defendant Patel”), Krista
6
Rosa (“Individual Defendant Rosa”), Patty Lopez-Jaramillo (“Individual Defendant Lopez-
7
Jaramillo”), Juliana Johnson (“Individual Defendant Johnson”), and Ashlee Rea (“Individual
8
Defendant Rea”) (hereinafter referred to collectively as “Defendants” or “Individual
9
Defendants”) for violations of California statutory and common law and alleges the following
10
based upon the investigation of the Plaintiff and her counsel, including publicly available
11
documents and witness interviews.
12
INTRODUCTION
13
“Live so that when your children think of fairness, caring, and integrity,
14 they think of you.”— H. Jackson Brown, Jr.
15
1. This case is about a school principal and a group of volunteer parents who
16
lost sight of what is right and wrong and who put their own interests ahead of the teachers,
17
parents and children whom they had (have) a duty to serve. Plaintiff files this case after a year-
18
long effort to get Defendants to change their ways; to investigate, correct, and cease their
19
wrongdoing; and to provide full transparency to the parents of the Menlo Park-Atherton
20
community and teachers of the Laurel School. Regrettably, Defendants have refused to do so.
21
As a result, and as a last-resort, Plaintiff has been compelled to file this action to get done what
22
23 Defendants had (have) a fiduciary duty to do themselves.
24 NATURE OF ACTION
25 2. Plaintiff brings this derivative action against members of the Executive
26 Board and officers of the Laurel School PTO for breaches of fiduciary duty arising from the fact
27 alleged below.
28
COMPLAINT
2
1 3. It is well established California law that directors have a fiduciary
2 relationship and a duty to act in the best interests of all shareholders in the corporation not just a
3 select few. Shepard v. Wilcox (1962) 210 Cal. App. 2d. 53, 59 (“stockholders in California…
4 have the right to demand that directors and officers of the corporation do not use their positions
5 for their own personal advantage, or to discriminate between stockholders”). As described by
6 the Court of Appeal in Remillard Brick Co. v. Remillard-Danhini (1952) 109 Cal. App. 405:
7 A director is a fiduciary…. He cannot manipulate the affairs of his
corporation to their detriment and in disregard of the standards of
8 common decency and honesty. He cannot use his power for his
9 personal advantage and to the detriment of the stockholders and
creditors no matter how absolute in terms that power may be and
10 no matter how meticulous he is to satisfy technical requirements.
For that power is at all times subject to the equitable limitation that
11 it may not be exercised for the aggrandizement, preference, or
12 advantage of the fiduciary to the exclusion or detriment of the
cestuis. Where there is a violation of those principles, equity will
13 undo the wrong or intervene to prevent its consummation.
14 Remillard Brick, 109 Cal. App. at pp. 420-421 (internal citations omitted). Indeed, with
15 regard to nonprofit public benefit corporations such as the Laurel School PTO – it is
16 black letter law, to wit:
17 A director shall perform the duties of a director, including duties as
18 a member of any committee of the board upon which the director
may serve, in good faith, in a manner that director believes to be in
19 the best interests of the corporation and with such care, including
reasonable inquiry, as an ordinarily prudent person in a like
20 position would use under similar circumstances.
21
See California Corporations Code (“Cal. Corp. Code”) § 5231(a).
22
4. Similarly, officers of a corporation owe the same fiduciary duties to the
23
corporation. Jones v. H.F. Ahmanson & Co. (1969) 1 Cal.3d 93, 110; Burt v. Irvine (1965) 237
24
Cal.App.2d 828, 852 (“[Officers] are not merely bound to be honest; they must also be diligent
25
and careful in performing the duties they have undertaken. They cannot excuse imprudence on
26
the ground of their ignorance or inexperience, or the honesty of their intentions; and, if they
27
commit an error of judgment through mere recklessness, or want of ordinary prudence and skill,
28
COMPLAINT
3
1 the corporation may hold them responsible for the consequences.”). The same strict duties apply
2 to officers of nonprofit public benefit corporations such as the Laurel School PTO, to wit:
3 Officers stand in a fiduciary relationship with the corporation.
Hence, they must scrupulously protect the interests of the
4 corporation, exercise their powers in good faith and with best
5 efforts, and refrain from doing anything that harms the corporation.
6 See Attorney General’s Guide for Charities: Best practices for nonprofits that operate or
fundraise in California. California Department of Justice Charitable Trusts Section, p. 56
7 (April 2020).
8
5. Defendants owed (owe) the Laurel School PTO a duty of care, which
9
requires Defendants to act in a prudent manner and in the best interests of the PTO with all the
10
information available to them. Defendants breached that duty of care by their sustained and
11
systematic failure to exercise oversight in that they affirmatively failed to assure that a
12
reasonable information and reporting system existed, which negated Defendants’ ability to make
13
informed decisions in the best interests of the Laurel School PTO, but also deprived the other
14
members of the Laurel School PTO to make informed decisions about the Laurel School PTO
15
leadership.
16
6. Similarly the duty of loyalty is two-pronged, to wit: (i) requiring
17
Defendants to put the interests of the Laurel School PTO above their own personal interests; and
18
(ii) requiring Defendants to act in good faith. In the present case, Defendants breached that
19
fiduciary duty by failing to act in the face of a known duty to act, and intentionally violating
20
applicable positive law, thereby demonstrating a conscious disregard for their responsibilities by
21
failing to discharge that fiduciary obligation in good faith. See e.g., Stone v. Ritter, 911 A.2d 362
22
(Del. Ch. 2006).
23
7. Defendants also owe the Laurel School PTO, i.e., the General
24
Membership, a duty of full and fair disclosure. They had an affirmative duty to make the fullest
25
disclosure of any facts which would be likely to affect the judgment of the General Membership.
26
Defendants’ deliberate breach of this duty is a constructive fraud. Ball v. Posey (1986) 176
27
Cal.App.3d 1209, 1214 (“the duty of a fiduciary embraces the obligation to render a full and fair
28
disclosure to the beneficiary of all facts which materially affect his rights and interests. Even the
COMPLAINT
4
1 lack of full disclosure will amount to fraud, because the fiduciary's obligation is affirmative.”).
2 Defendants breached their fiduciary duty by failing to investigate known misconduct, covering
3 up the wrongdoing of certain Laurel School Board Members as alleged herein, and thereby
4 thwarting the General Membership from making informed decisions about the PTO leadership.
5 8. For the past two years, Defendants have overseen and promoted an
6 atmosphere and culture in which intimidation, bullying, retaliation, secrecy, and personal
7 agendas, including, but not limited to covering up other Defendants’ wrongdoing, which were
8 put ahead of the proper management of the Laurel School PTO. By this action, Plaintiff seeks
9 to: (i) enjoin the wrongdoing of the Defendants; (ii) to ensure transparency and effect proper
10 policies, which enable the Parents of Laurel School’s children to make fully informed decisions
11 for the benefit of their children and the Laurel School; (iii) to rectify the wrongs of the
12 Defendants, and (iv) to recover damages for the Laurel School against its selfish, reckless, and
13 imprudent fiduciaries.
14 JURISDICTION AND VENUE
15 9. This Court has jurisdiction over this action by virtue of the fact that this is
16 a civil action wherein Plaintiff is seeking injunctive relief and the matter in controversy,
17 exclusive of interest, exceeds the jurisdictional minimum of this court.
18 10. Venue is properly laid in this county pursuant to California Code of Civil
19 Procedure Section 395 in that some or all of the Defendants reside in San Mateo County.
20 THE PARTIES
21 A. The Plaintiff.
22 11. Ms. Foroughi is an individual, who currently resides in California, and is
23 the mother of five children, three of whom have attended Laurel School. At all times relevant to
24 this Complaint, Plaintiff has been Regular, Voting, and/or Honorary Member of the Laurel
25 School PTO, which, according to the Bylaws of the Laurel School PTO, entitles her to the same
26 rights as Regular Members and Voting Members. In addition, she was an officer and director of
27 the Laurel School PTO – serving as Financial Secretary from April 11, 2019 to July 31, 2019,
28 and then the Co-Treasurer from August 1, 2019 to December 12, 2019. As discussed herein,
COMPLAINT
5
1 many of the wrongs perpetrated by the Individual Defendants were discovered by Plaintiff
2 during her tenure as a Director of the Laurel School PTO. Ms. Foroughi has over twenty years
3 of financial and accounting experience, ten years of nonprofit management experience, and eight
4 years in academia. Her positions in asset management, corporate governance, and teaching have
5 demanded the highest legal duties as fiduciary, including the duty of loyalty and duty of care.
6 She is the founder and CEO of Brazen FINLIT, a nonprofit devoted to empowering
7 entrepreneurial youth through financial literacy and professional mentorship. Through Brazen
8 Impact, an impact investment fund which she co-founded, she leads the investment decisions
9 behind dozens of early-stage investments, with proceeds used to further impact investing
10 initiatives. Ms. Foroughi also makes regular philanthropic grants to education and other causes to
11 promote human welfare.
12 B. The Nominal Defendant.
13 12. Nominal Defendant Laurel School Parent Teacher Organization is a
14 California nonprofit public benefit corporation with its corporate headquarters at 95 Edge Road,
15 Atherton, California 94027. The Laurel School PTO is named in this Complaint as a nominal
16 defendant in its derivative capacity, and the Member’s derivative action is brought on its behalf.
17 The specific purpose of the Laurel School PTO is to promote and support the education and
18 welfare of the students at Laurel School and to facilitate communication and encourage
19 cooperation among parents, teachers, administrators, the Board of Education and the community.
20 Plaintiff strongly supports the objectives of the Laurel School PTO.
21 C. The Individual Defendants.
22 13. Plaintiff is informed and believes, and on that basis alleges, that defendant
23 Linda Creighton is a resident of San Mateo County. At all relevant times of this Complaint, Ms.
24 Creighton was (and is) the Principal of the Laurel School, and pursuant to the Bylaws of the
25 Laurel School PTO, she was (and is) an Executive Board Member of the Laurel School PTO.
26 14. Plaintiff is informed and believes, and on that basis alleges, that defendant
27 James Loftus is a resident of San Mateo County. At all relevant times of this Complaint,
28 Individual Defendant Loftus was (and is) an Officer of the Laurel School PTO, serving as the
COMPLAINT
6
1 PTO’s Parliamentarian and Co-Vice President. In addition, he was (and is) an Executive Board
2 Member of the Laurel School PTO. Individual Defendant Loftus is married to co-defendant
3 Cassandra Lopez-Loftus.
4 15. Plaintiff is informed and believes, and on that basis alleges, that defendant
5 Cassandra Lopez Loftus is a resident of San Mateo County. At all relevant times of this
6 Complaint, Individual Defendant Lopez Loftus was (and is) an Officer of the Laurel School
7 PTO, serving as the PTO’s Co-Vice President and Co-President. In addition, she was (and is) an
8 Executive Board Member of the Laurel School PTO. Individual Defendant Loftus is married to
9 co-defendant James Loftus.
10 16. Plaintiff is informed and believes, and on that basis alleges, that defendant
11 Stefanie Connors is a resident of San Mateo County. At all relevant times of this Complaint,
12 Individual Defendant Connors was an Officer and Executive Board Member of the Laurel
13 School PTO, serving as the PTO’s Co-Treasurer.
14 17. Plaintiff is informed and believes, and on that basis alleges, that defendant
15 Anjali Patel is a resident of San Mateo County. At all relevant times of this Complaint,
16 Individual Defendant Patel was (and is) an Officer and Executive Board member of the Laurel
17 School PTO, serving as the PTO’s Co- President and Committee/Council Liaison.
18 18. Plaintiff is informed and believes, and on that basis alleges, that defendant
19 Krista Rosa is a resident of San Mateo County. At all relevant times of this Complaint,
20 Individual Defendant Rosa was (and is) an Officer and Executive Board member of the Laurel
21 School PTO, serving as the PTO’s Co-Vice President and Co-President. In addition, Individual
22 Defendant Rosa also served simultaneously on the Full Board of the Menlo Park Atherton
23 Education Foundation (“MPAEF”).
24 19. Plaintiff is informed and believes, and on that basis alleges, that defendant
25 Patty Lopez-Jaramillo is a resident of San Mateo County. At all relevant times of this
26 Complaint, Individual Defendant Lopez-Jaramillo was an Officer and Executive Board member
27 of the Laurel School PTO, serving as the PTO’s Auditor. In addition, Ms. Lopez-Jaramillo also
28 served simultaneously on the Full Board of the MPAEF and as the Auditor of the Menlo Park
COMPLAINT
7
1 City School District Council (the “District Council”). The District Council is also a public
2 benefit nonprofit corporation, whose stated purpose is to “foster cooperative relationships among
3 the Laurel School Parent Teacher Organization, the Encinal Parent Teach Organization, the
4 Oak Knoll Parent Teach Organization, and Hillview Parent Teacher Organization, to promote
5 and support the education and welfare of students at all four schools, and to facilitate
6 communication and encourage cooperation in the Menlo Park City School District.” See District
7 Council’s Articles of Incorporation.
8 20. Plaintiff is informed and believes, and on that basis alleges, that
9 defendant Juliana Johnson is a resident of San Mateo County. At certain relevant times of this
10 Complaint, and as alleged herein, Ms. Johnson was (and is) an Officer and Executive Board
11 member of the Laurel School PTO, serving as the PTO’s Co-Treasurer.
12 21. Plaintiff is informed and believes, and on that basis alleges, that defendant
13 Ashlee Rea is a resident of San Mateo County. At certain relevant times of this Complaint, Ms.
14 Rea was an Officer and Executive Board member of the Laurel School PTO, serving as the
15 PTO’s Secretary (Corresponding), and is currently its Co-Vice President.
16 D. Doe Defendants.
17 22. Plaintiff is ignorant of the true names of defendants sued as Does 1 -25,
18 inclusive, and, therefore, Plaintiff sues these defendants by fictitious names. Following
19 discovery and further investigation, Plaintiff will seek leave to amend her Complaint to allege
20 their true names and capacities when discovered. These fictitiously named defendants are the
21 Laurel School PTO’s officers and/or directors, and Menlo Park City School District (the
22 “District”) members and MPAEF officers and directors, who were involved in the wrongdoing
23 alleged herein but about whom Plaintiff has yet to discover their specific involvement in the
24 matter alleged herein.
25 23. Plaintiff is informed and believes and thereon alleges that at all times
26 relevant herein, each of the Defendants, including Does 1 - 25, inclusive, aided and abetted, and
27 acted in concert with and/or conspired with each and every other defendant to commit the acts
28
COMPLAINT
8
1 complained of herein and to engage in a course of conduct and the wrongful practices
2 complained of herein.
3 24. Defendants, including Does 1 - 25, inclusive, at all times mentioned in this
4 Complaint approved of, condoned and/or otherwise ratified each and every one of the acts and/or
5 omissions alleged in this Complaint.
6 25. Defendants and DOES 1 - 25 inclusive, and each of them, are jointly and
7 severally liable for the actions of each other.
8 STATEMENT OF FACTS
9 A. General Background On The Evolution Of The Laurel School PTO And
External Developments Affecting Its Fundraising Mission.
10
11 (i) “What The Right Hand Giveth, The Left Hand Taketh Away.”
(English Idiom)
12
26. Years of fiscal irresponsibility, a complete failure of leadership, and poor
13
decision-making led to a crisis in California following the economic challenges of the economic
14
downturn of 2008. Severe cuts to programs, teacher layoffs, and other draconian steps were
15
necessary to meet the crisis for which California’s Governors, Legislators, and School
16
Administrators were ill-prepared. But that was only the beginning. By 2012, California schools
17
were facing an additional $6 billion dollars in cuts to the education budget. The effects would
18
have been devasting. However, on November 6, 2012, California voters passed Proposition 30,
19
officially titled “Temporary Taxes to Fund Education,” which was a ballot measure to
20
“temporarily” increase personal income taxes for those individuals making more than $250,000
21
per year for the tax years 2012 through 20181, and a temporary increase in sales taxes.
22
27. About one year later, Governor Brown signed into law the Local Control
23
Funding Formula (LCFF) – ushering in a complete overhaul to California’s K-12 education
24
funding and how schools are measured for results, and the services and other support schools
25
received. The “Funding Formula” implements a weighted formula that establishes an equal
26
level of base funding for all students in the state, targets greater amounts of funding to districts
27
1
28 The higher income tax rates were extended for 12 years through the end of 2030 with the passage of Proposition
55 in 2016.
COMPLAINT
9
1 with students that qualify for free or reduced price meals, English learners, and foster youth, and
2 provides districts with billions of dollars in supplemental and concentration grant funding to
3 serve low-income students, foster youth, and English learners. As LCFF has been phased in,
4 districts have received additional funding for these students and more local control over
5 spending. Indeed, LCFF grants school districts almost full discretion over the vast majority of
6 state funding. The stated goal of this new school finance system was to significantly simplify
7 how state funding is provided to school districts.
8 28. As the billions of dollars starting flowing in and local districts gained
9 control of funding issues, District Administrators and Superintendents across California breathed
10 a collective sigh of relief and then looked forward to utilizing the substantial amount of new
11 funds. But their relief and eagerness was short-lived. Indeed, Sacramento was busy playing
12 “catch-up” on another ballooning crisis – one also affecting Schools - the California State
13 Teachers’ Retirement System (CalSTRS) Pension crisis (which was also the product of decades
14 of neglect and poor leadership). But the CalSTRS Pension crisis dwarfed the measly $6.0 billion
15 in education cuts which California Legislators faced before they were rescued by Props 30 and
16 55. Indeed, according to the California Legislative Analyst’s Office, the CalSTRS Pension, one
17 of the largest in the nation, was underfunded by a whopping $75 billion dollars, and was
18 projected to completely run out of resources to pay the pensions owed to hundreds of thousands
19 of current and future California retirees (the “Pension Crisis”). See California Legislative
20 Analyst’s Office, “CalSTRS Funding: An Update,” (Sacramento, C.A, May 5, 2017)
21 https://lao.ca.gov/publications/report/3662. Milliman, “Defined Benefit Program – 2014
22 Actuarial Valuation,” (Seattle, W.A., March 8, 2018) https://www.calstrs.com/sites/main/files
23 /file-attachments/2014_db_valuation_report.pdf. To address this burgeoning crisis, Governor
24 Brown quietly signed Assembly Bill (AB) 1469, which mandated that districts pay into the
25 CalSTRS pension at an increased rate every year, from 8.25 percent to 19.1 percent of teachers
26 salaries. A similar piece of legislation also passed, which dramatically increased mandatory
27 district contributions to the California Public Employees’ Retirement System (CalPERS), which
28 is the pension fund that covers un-certified employees such as administrative staff and
COMPLAINT
10
1 custodians. Under that legislation, district contributions soared to approximately 11% of district
2 budgets.
3 29. The result of these two pieces of legislation was dramatic. While districts
4 paid approximately $500 per pupil toward these pensions in 2013-14, the districts are now
5 paying an estimated $1,600 per pupil in 2020-21. These exponential increases have placed
6 enormous pressure on the districts, including the District, to find ways to plug school funding
7 shortfalls caused by the Pension Crisis.
8 30. As noted below, in Menlo Park/Atherton, the District chose to turn to the
9 parents of school children to solve the Pension Crisis for the District.
10 (ii) The Laurel School Parent Teacher Organization.
11 31. Historically, grassroots Parent Teacher Organizations (“PTO”) and Parent
12 Teach Associations (“PTA”) have supplemented the gaps in budget-shortfalls to help teachers
13 get extra supplies and for other school-centric purposes. Book fairs, read-a-thons, and other
14 creative fundraising ideas have helped schools, created a sense of community, and encouraged
15 children to take an interest and participate in their own schools for decades. These quaint entities
16 were designed to raise hundreds of dollars for their schools – not hundreds of thousands for the
17 entire District.
18 32. However, as the shortfall of monies to ensure a free comprehensive
19 education seemed harder and harder to achieve in California, PTOs began pursuing more
20 sophisticated means of fundraising, and organized volunteer Parents came up with additional
21 creative ways to further fill the gaps in budget-shortfalls. Eventually, this led to PTOs to
22 incorporate under state laws as public benefit nonprofit entities to take advantage of the tax-
23 deductible allowances of 501(c)(3) of the Internal Revenue Code, thereby allowing the PTOs to
24 keep more of the money raised and theoretically direct it back into that school’s children and
25 teachers. Indeed, the Laurel School PTO incorporated in 2004 for this purpose. This specific
26 school-centric purpose can be gleaned, for example, from the Laurel School PTO’s Articles of
27 Incorporation, which states as follows:
28 The specific purpose of the corporation is to promote and support
the education and welfare of the students at Laurel School and to
COMPLAINT
11
1 facilitate communication and encourage cooperation among
parents, teachers, administrators, the Board of Education and the
2 community.
3
See Article II, B. of the Laurel School’s Articles of Incorporation (emphasis added).2 Thus,
4
consistent with the organic-grassroots nature of the Laurel School PTO – it is only lawfully
5
permitted to support the education and welfare of the students at the Laurel School. For it to
6
engage in conduct outside of its charter is to engage in ultra vires activity. See Wagg v. Toler
7
(1926), 80 Cal. App. 501, 510. Indeed, the IRS requires exempt nonprofits to be operated strictly
8
in accordance with their exempt purposes placing limits on the extent to which the nonprofit can
9
pursue operations beyond its express organizational purposes at the risk of losing its federal tax
10
exempt status.
11
33. Thus, as originally envisioned with regard to donations and fundraising,
12
the Laurel School PTO organized fundraisers such as Caring & Sharing, Giving Tree, Pop! Pop!
13
Read-a-thon!, and the Book Fair. The proceeds were then placed in the PTO’s bank account,
14
accounted for, and then utilized internally for the Laurel School and/or the intended Laurel
15
School pupil and teacher beneficiaries.
16
(iii) The Rise And Evolution Of The Menlo Park Atherton Education
17 Foundation (“MPAEF”).
18 34. According to its website, the MPAEF was established in 1982 and seeks to
19 enable the District to provide an exceptional education to students at the Laurel, Encinal, Oak
20 Knoll, and Hillview schools. Working with parents, local businesses, community members, and
21 the District, it raises money to help pay for high-quality teachers, a comprehensive educational
22 program, and teaching innovation beyond what is possible with public dollars alone.
23 35. The MPAEF has a broader focus than that of the independent PTOs,
24 seeking its funding from businesses and individuals who may not have direct ties to specific
25 schools. In years past, the MPAEF has focused on holding several fundraisers throughout the
26 year, including, the “Parent Campaign,” “School Auction,” and “Schoolhouse Rocks 5k.”
27
2
28 It should be noted that all of the other schools of the District, i.e., The Oak Knoll School PTO, the Encinal School
PTO, and the Hillview Middle School PTO all have the exact same limitation in each of their Articles of
Incorporation – and all were incorporated in 2004.
COMPLAINT
12
1 Following its fundraising efforts, the proceeds were then placed in the MPAEF’s bank account,
2 accounted for, and then the MPAEF provided an unrestricted grant to the District.
3 (iv) The 2018/2019 School Year Brought A Fulminant And Illegal Change
To School Fundraising.
4
5 36. Desperate to meet the ever-increasing budget shortfalls caused by the
6 Pension Crisis, the District colluded with the MPAEF to fundamentally reorganize school
fundraising to the detriment of the District’s independent PTOs. Specifically, the District sought
7
8 to turn the Laurel School PTO into a fundraising entity for the benefit of the District – not the
independent PTO. To accomplish this change, the MPAEF and the District created the “One
9
10 Community Campaign” – a fundraising effort designed specifically to generate funds for the
11 MPAEF, which, in turn, funnels directly to the District in the form of the unrestricted grant.
12 37. The One Community Campaign (“OCC”) is a single fundraiser to
13 facilitate a single donation ask for PTOs and the MPAEF. As initially proposed, each District
PTO was to receive the first $250 per child, with the MPAEF receiving the remainder. In
14
15 addition, to overcome the reluctance of the PTOs, the District promised to add a line item to each
16 school budget of $50,000 to fund school field trips or on-site special productions. The stated
17 goal was to simplify the fundraising process, clarify District messaging, and make volunteering
18 more manageable and enjoyable. The District also promised the PTOs that if there was more
money generated by the OCC, then the PTOs would share in the windfall. The District also
19
20 promised that the OCC was not necessarily permanent. The District also did not divulge that a
portion of the funds raised would go to paying for the Pension Crisis.
21
22 38. To consummate the “deal,” the District drafted and circulated a
23 Memorandum of Understanding (MOU) to the four school PTOs, the MPAEF, and the MPCSD
24 for signature. However, the District failed to put in the language regarding the sharing of any
25 extra monies generated with the Laurel School PTO as verbally discussed, and the Individual
Defendants failed to insist upon this key provision when the MOU was circulated. Indeed, they
26
27 approved and signed it without the key language.
28 39. It is well known and accepted that the prime time to engage in school
fundraising is during the beginning of each school year. Parents and students are excited to
COMPLAINT
13
1 return to school after the Summer hiatus and historically the Laurel School PTO took advantage
2 of the “back to school” enthusiasm for supporting the school. Despite this being the best time for
3 the Laurel School PTO to fundraise, commencing in the 2018/2019 school year, the MPAEF
4 with the backing of the District, scheduled the One Community Campaign to be held from early
5 August through early October 4. Indeed, notwithstanding that in reality the PTOs working
6 together as a “collective” can actually control the District Council and the MPAEF, the District
7 Council using the influence of the Superintendent of the District as alleged herein, and working
8 together as alleged herein with the MPAEF have intimidated and cowed the supposedly
9 independent PTO into doing District’s bidding – thereby allowing the MPAEF to usurp the best
10 fundraising opportunity from the Laurel School PTO and the other PTOs.
11 40. As a result, the Laurel School PTO is now engaging in fundraising which
12 exceeds the corporate charter of the PTO. Notwithstanding that the Individual Defendants have
13 fiduciary obligations to the Laurel School PTO to prevent such ultra vires activity, they have not
14 only let this happen they have actively participated such activity to the detriment of the Laurel
15 School. Indeed, among several recommendations that Plaintiff made to the Individual
16 Defendants to change the Policies and Procedures to comply with the law, Plaintiff alerted the
17 Individual Defendants to the ultra vires nature of the OCC fundraising and recommended that
18 the Individual Defendants take the simple step of amending the PTO’s Charter. However, the
19 Individual Defendants have flatly refused to do so, thereby jeopardizing the tax-exempt status of
20 the Laurel School PTO. Accordingly, this is one example of the Individual Defendants failing to
21 act in the face of a known duty to act and intentionally violating applicable positive law, which
22 demonstrates a conscious disregard for their responsibilities and failure to discharge their
23 fiduciary obligations in good faith.
24 B. Plaintiff’s Tenure With The Laurel School PTO.
25 (i) Plaintiff’s Tenure As Financial Secretary And The Early Days For
Her As The New Treasurer.
26
27 41. On January 18, 2019, Plaintiff received a newsletter from the Laurel
28 School, which included an “Immediate Need” for a Financial Secretary with the PTO Board.
Plaintiff responded and subsequently met with then Laurel School PTO Co-President Ben Wang
COMPLAINT
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1 and then-Treasurer Juliana Johnson. Given Plaintiff’s impeccable credentials and the fact that
2 she had two children at the school, she was approved shortly thereafter as interim Financial
3 Secretary, and then she was voted in at the General Meeting in April 2019. During her time as
4 Financial Secretary, Plaintiff immediately identified some weak areas, and went about
5 strengthening policies around risk management, including risk mitigation, privacy, and
6 escheatment procedures. In addition, she transitioned the PTO from Wells Fargo Bank to First
7 Republic Bank to save the PTO money and streamline efficiency.
8 42. On August 1, 2019, Plaintiff took over as Treasurer of the PTO. The first
9 thing that Plaintiff noticed was that there was no real transition, very little documentation around
10 duties or processes, and a disorganized Google Drive with difficult navigation. Accordingly,
11 Plaintiff set to work documenting each and every process, event, or responsibility in a new
12 Treasurer Handbook to help reduce errors and provide proper onboarding procedures. In
13 addition, Plaintiff continued recommending changes to processes to strengthen the integrity of
14 the Treasurer role, digitizing the PTO reimbursement forms to create an electronic record of
15 reimbursements.
16 43. Plaintiff also noticed that adherence to protocols dictated by PTO bylaws
17 and/or standing rules was lax, and that it seemed to her that knowledge of the bylaws/standing
18 rules was insufficient by other Board members. She began challenging the leadership team to
19 ask “how” and “why” the PTO did certain processes in an effort to reduce errors, confusion, and
20 to make sure the leadership team was fulfilling its duties. Plaintiff also proposed making the
21 Financial Secretary role a “Co-Treasurer” role, in order to increase visibility, decrease the
22 probability of error, and ensure a seamless transition for future incoming Treasurers. This
23 measure was adopted in October 2019.
24 44. On August 23, 2019, three weeks after she took over as Laurel School
25 Treasurer, Plaintiff was forwarded an email by Individual Defendant Creighton, which was from
26 a Laurel School Parent who was inquiring about the “trick for Outdoor Ed as we did last year for
27 Coloma where we would not pay but contribute a donation instead that would be matched by
28 Apple and could sponsor 2 scholarships.” Individual Defendant Creighton suggested to Plaintiff
COMPLAINT
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1 that such funds should go through the PTO. Initially, Plaintiff, who was new to her position, was
2 concerned about such a procedure and unsure whether the practice was permissible - but she
3 second-guessed her initial instinct because Individual Defendant Creighton was touting it as
4 proper. However, after looking into the practice, Plaintiff later raised the issue to Individual
5 Defendant Creighton and to Laurel School Vice Principal, Ellen Kraska, as an illegal quid pro
6 quo, which could jeopardize the 501(c)(3) standing of the Laurel School PTO. As described
7 below, Individual Defendant Creighton strongly resisted changing the practic
Preview
1 PETER C. MCMAHON (State Bar No. 161841) MCMAHON SEREPCA LLP 2 2225 E. Bayshore Road, Suite 200 3 Palo Alto, California 94303 Tel: 650-637-0600 3/8/2021 4 Fax: 650-637-0700 peter@msllp.com 5 6 Attorneys for Plaintiff JACLYN FOROUGHI 7 derivatively on behalf of the Laurel School Parent Teacher Organization 8 9 SUPERIOR COURT OF THE STATE OF CALIFORNIA 10 COUNTY OF SAN MATEO 11 UNLIMITED JURISDICTION 12 JACLYN FOROUGHI, derivatively on behalf 13 of Laurel School Parent Teacher CASE NO. 21-CIV-01197 Organization, a nonprofit public benefit 14 corporation; 15 VERIFIED COMPLAINT Plaintiff, 16 DERIVATIVE CLAIMS FOR: v. 17 (1) BREACH OF FIDUCIARY DUTY; LINDA CREIGHTON, an individual; JAMES 18 LOFTUS, an individual; CASSANDRA (2) ABUSE OF CONTROL; AND (3) CORPORATE WASTE LOPEZ LOFTUS, an individual; STEFANIE 19 CONNORS, an individual; ANJALI PATEL, 20 an individual; KRISTA ROSA, an individual; PATTY LOPEZ-JARAMILLO, an individual; 21 JULIANA JOHNSON, an individual; ASHLEE REA, an individual; and DOES 1 – JURY TRIAL DEMANDED 22 25, inclusive, 23 Defendants, 24 and 25 LAUREL SCHOOL PARENT TEACHER 26 ORGANIZATION; 27 Nominal Defendant. 28 COMPLAINT 1 1 Plaintiff Jaclyn Foroughi (“Plaintiff” or “Ms. Foroughi”), derivatively on behalf 2 of Laurel School Parent Teacher Organization (“Laurel School PTO”) brings this action against 3 defendants Linda Creighton (“Individual Defendant Creighton”), James Loftus (“Individual 4 Defendant Loftus”), Cassandra Lopez Loftus (“Individual Defendant Lopez Loftus”), Stefanie 5 Connors (“Individual Defendant Connors”), Anjali Patel (“Individual Defendant Patel”), Krista 6 Rosa (“Individual Defendant Rosa”), Patty Lopez-Jaramillo (“Individual Defendant Lopez- 7 Jaramillo”), Juliana Johnson (“Individual Defendant Johnson”), and Ashlee Rea (“Individual 8 Defendant Rea”) (hereinafter referred to collectively as “Defendants” or “Individual 9 Defendants”) for violations of California statutory and common law and alleges the following 10 based upon the investigation of the Plaintiff and her counsel, including publicly available 11 documents and witness interviews. 12 INTRODUCTION 13 “Live so that when your children think of fairness, caring, and integrity, 14 they think of you.”— H. Jackson Brown, Jr. 15 1. This case is about a school principal and a group of volunteer parents who 16 lost sight of what is right and wrong and who put their own interests ahead of the teachers, 17 parents and children whom they had (have) a duty to serve. Plaintiff files this case after a year- 18 long effort to get Defendants to change their ways; to investigate, correct, and cease their 19 wrongdoing; and to provide full transparency to the parents of the Menlo Park-Atherton 20 community and teachers of the Laurel School. Regrettably, Defendants have refused to do so. 21 As a result, and as a last-resort, Plaintiff has been compelled to file this action to get done what 22 23 Defendants had (have) a fiduciary duty to do themselves. 24 NATURE OF ACTION 25 2. Plaintiff brings this derivative action against members of the Executive 26 Board and officers of the Laurel School PTO for breaches of fiduciary duty arising from the fact 27 alleged below. 28 COMPLAINT 2 1 3. It is well established California law that directors have a fiduciary 2 relationship and a duty to act in the best interests of all shareholders in the corporation not just a 3 select few. Shepard v. Wilcox (1962) 210 Cal. App. 2d. 53, 59 (“stockholders in California… 4 have the right to demand that directors and officers of the corporation do not use their positions 5 for their own personal advantage, or to discriminate between stockholders”). As described by 6 the Court of Appeal in Remillard Brick Co. v. Remillard-Danhini (1952) 109 Cal. App. 405: 7 A director is a fiduciary…. He cannot manipulate the affairs of his corporation to their detriment and in disregard of the standards of 8 common decency and honesty. He cannot use his power for his 9 personal advantage and to the detriment of the stockholders and creditors no matter how absolute in terms that power may be and 10 no matter how meticulous he is to satisfy technical requirements. For that power is at all times subject to the equitable limitation that 11 it may not be exercised for the aggrandizement, preference, or 12 advantage of the fiduciary to the exclusion or detriment of the cestuis. Where there is a violation of those principles, equity will 13 undo the wrong or intervene to prevent its consummation. 14 Remillard Brick, 109 Cal. App. at pp. 420-421 (internal citations omitted). Indeed, with 15 regard to nonprofit public benefit corporations such as the Laurel School PTO – it is 16 black letter law, to wit: 17 A director shall perform the duties of a director, including duties as 18 a member of any committee of the board upon which the director may serve, in good faith, in a manner that director believes to be in 19 the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like 20 position would use under similar circumstances. 21 See California Corporations Code (“Cal. Corp. Code”) § 5231(a). 22 4. Similarly, officers of a corporation owe the same fiduciary duties to the 23 corporation. Jones v. H.F. Ahmanson & Co. (1969) 1 Cal.3d 93, 110; Burt v. Irvine (1965) 237 24 Cal.App.2d 828, 852 (“[Officers] are not merely bound to be honest; they must also be diligent 25 and careful in performing the duties they have undertaken. They cannot excuse imprudence on 26 the ground of their ignorance or inexperience, or the honesty of their intentions; and, if they 27 commit an error of judgment through mere recklessness, or want of ordinary prudence and skill, 28 COMPLAINT 3 1 the corporation may hold them responsible for the consequences.”). The same strict duties apply 2 to officers of nonprofit public benefit corporations such as the Laurel School PTO, to wit: 3 Officers stand in a fiduciary relationship with the corporation. Hence, they must scrupulously protect the interests of the 4 corporation, exercise their powers in good faith and with best 5 efforts, and refrain from doing anything that harms the corporation. 6 See Attorney General’s Guide for Charities: Best practices for nonprofits that operate or fundraise in California. California Department of Justice Charitable Trusts Section, p. 56 7 (April 2020). 8 5. Defendants owed (owe) the Laurel School PTO a duty of care, which 9 requires Defendants to act in a prudent manner and in the best interests of the PTO with all the 10 information available to them. Defendants breached that duty of care by their sustained and 11 systematic failure to exercise oversight in that they affirmatively failed to assure that a 12 reasonable information and reporting system existed, which negated Defendants’ ability to make 13 informed decisions in the best interests of the Laurel School PTO, but also deprived the other 14 members of the Laurel School PTO to make informed decisions about the Laurel School PTO 15 leadership. 16 6. Similarly the duty of loyalty is two-pronged, to wit: (i) requiring 17 Defendants to put the interests of the Laurel School PTO above their own personal interests; and 18 (ii) requiring Defendants to act in good faith. In the present case, Defendants breached that 19 fiduciary duty by failing to act in the face of a known duty to act, and intentionally violating 20 applicable positive law, thereby demonstrating a conscious disregard for their responsibilities by 21 failing to discharge that fiduciary obligation in good faith. See e.g., Stone v. Ritter, 911 A.2d 362 22 (Del. Ch. 2006). 23 7. Defendants also owe the Laurel School PTO, i.e., the General 24 Membership, a duty of full and fair disclosure. They had an affirmative duty to make the fullest 25 disclosure of any facts which would be likely to affect the judgment of the General Membership. 26 Defendants’ deliberate breach of this duty is a constructive fraud. Ball v. Posey (1986) 176 27 Cal.App.3d 1209, 1214 (“the duty of a fiduciary embraces the obligation to render a full and fair 28 disclosure to the beneficiary of all facts which materially affect his rights and interests. Even the COMPLAINT 4 1 lack of full disclosure will amount to fraud, because the fiduciary's obligation is affirmative.”). 2 Defendants breached their fiduciary duty by failing to investigate known misconduct, covering 3 up the wrongdoing of certain Laurel School Board Members as alleged herein, and thereby 4 thwarting the General Membership from making informed decisions about the PTO leadership. 5 8. For the past two years, Defendants have overseen and promoted an 6 atmosphere and culture in which intimidation, bullying, retaliation, secrecy, and personal 7 agendas, including, but not limited to covering up other Defendants’ wrongdoing, which were 8 put ahead of the proper management of the Laurel School PTO. By this action, Plaintiff seeks 9 to: (i) enjoin the wrongdoing of the Defendants; (ii) to ensure transparency and effect proper 10 policies, which enable the Parents of Laurel School’s children to make fully informed decisions 11 for the benefit of their children and the Laurel School; (iii) to rectify the wrongs of the 12 Defendants, and (iv) to recover damages for the Laurel School against its selfish, reckless, and 13 imprudent fiduciaries. 14 JURISDICTION AND VENUE 15 9. This Court has jurisdiction over this action by virtue of the fact that this is 16 a civil action wherein Plaintiff is seeking injunctive relief and the matter in controversy, 17 exclusive of interest, exceeds the jurisdictional minimum of this court. 18 10. Venue is properly laid in this county pursuant to California Code of Civil 19 Procedure Section 395 in that some or all of the Defendants reside in San Mateo County. 20 THE PARTIES 21 A. The Plaintiff. 22 11. Ms. Foroughi is an individual, who currently resides in California, and is 23 the mother of five children, three of whom have attended Laurel School. At all times relevant to 24 this Complaint, Plaintiff has been Regular, Voting, and/or Honorary Member of the Laurel 25 School PTO, which, according to the Bylaws of the Laurel School PTO, entitles her to the same 26 rights as Regular Members and Voting Members. In addition, she was an officer and director of 27 the Laurel School PTO – serving as Financial Secretary from April 11, 2019 to July 31, 2019, 28 and then the Co-Treasurer from August 1, 2019 to December 12, 2019. As discussed herein, COMPLAINT 5 1 many of the wrongs perpetrated by the Individual Defendants were discovered by Plaintiff 2 during her tenure as a Director of the Laurel School PTO. Ms. Foroughi has over twenty years 3 of financial and accounting experience, ten years of nonprofit management experience, and eight 4 years in academia. Her positions in asset management, corporate governance, and teaching have 5 demanded the highest legal duties as fiduciary, including the duty of loyalty and duty of care. 6 She is the founder and CEO of Brazen FINLIT, a nonprofit devoted to empowering 7 entrepreneurial youth through financial literacy and professional mentorship. Through Brazen 8 Impact, an impact investment fund which she co-founded, she leads the investment decisions 9 behind dozens of early-stage investments, with proceeds used to further impact investing 10 initiatives. Ms. Foroughi also makes regular philanthropic grants to education and other causes to 11 promote human welfare. 12 B. The Nominal Defendant. 13 12. Nominal Defendant Laurel School Parent Teacher Organization is a 14 California nonprofit public benefit corporation with its corporate headquarters at 95 Edge Road, 15 Atherton, California 94027. The Laurel School PTO is named in this Complaint as a nominal 16 defendant in its derivative capacity, and the Member’s derivative action is brought on its behalf. 17 The specific purpose of the Laurel School PTO is to promote and support the education and 18 welfare of the students at Laurel School and to facilitate communication and encourage 19 cooperation among parents, teachers, administrators, the Board of Education and the community. 20 Plaintiff strongly supports the objectives of the Laurel School PTO. 21 C. The Individual Defendants. 22 13. Plaintiff is informed and believes, and on that basis alleges, that defendant 23 Linda Creighton is a resident of San Mateo County. At all relevant times of this Complaint, Ms. 24 Creighton was (and is) the Principal of the Laurel School, and pursuant to the Bylaws of the 25 Laurel School PTO, she was (and is) an Executive Board Member of the Laurel School PTO. 26 14. Plaintiff is informed and believes, and on that basis alleges, that defendant 27 James Loftus is a resident of San Mateo County. At all relevant times of this Complaint, 28 Individual Defendant Loftus was (and is) an Officer of the Laurel School PTO, serving as the COMPLAINT 6 1 PTO’s Parliamentarian and Co-Vice President. In addition, he was (and is) an Executive Board 2 Member of the Laurel School PTO. Individual Defendant Loftus is married to co-defendant 3 Cassandra Lopez-Loftus. 4 15. Plaintiff is informed and believes, and on that basis alleges, that defendant 5 Cassandra Lopez Loftus is a resident of San Mateo County. At all relevant times of this 6 Complaint, Individual Defendant Lopez Loftus was (and is) an Officer of the Laurel School 7 PTO, serving as the PTO’s Co-Vice President and Co-President. In addition, she was (and is) an 8 Executive Board Member of the Laurel School PTO. Individual Defendant Loftus is married to 9 co-defendant James Loftus. 10 16. Plaintiff is informed and believes, and on that basis alleges, that defendant 11 Stefanie Connors is a resident of San Mateo County. At all relevant times of this Complaint, 12 Individual Defendant Connors was an Officer and Executive Board Member of the Laurel 13 School PTO, serving as the PTO’s Co-Treasurer. 14 17. Plaintiff is informed and believes, and on that basis alleges, that defendant 15 Anjali Patel is a resident of San Mateo County. At all relevant times of this Complaint, 16 Individual Defendant Patel was (and is) an Officer and Executive Board member of the Laurel 17 School PTO, serving as the PTO’s Co- President and Committee/Council Liaison. 18 18. Plaintiff is informed and believes, and on that basis alleges, that defendant 19 Krista Rosa is a resident of San Mateo County. At all relevant times of this Complaint, 20 Individual Defendant Rosa was (and is) an Officer and Executive Board member of the Laurel 21 School PTO, serving as the PTO’s Co-Vice President and Co-President. In addition, Individual 22 Defendant Rosa also served simultaneously on the Full Board of the Menlo Park Atherton 23 Education Foundation (“MPAEF”). 24 19. Plaintiff is informed and believes, and on that basis alleges, that defendant 25 Patty Lopez-Jaramillo is a resident of San Mateo County. At all relevant times of this 26 Complaint, Individual Defendant Lopez-Jaramillo was an Officer and Executive Board member 27 of the Laurel School PTO, serving as the PTO’s Auditor. In addition, Ms. Lopez-Jaramillo also 28 served simultaneously on the Full Board of the MPAEF and as the Auditor of the Menlo Park COMPLAINT 7 1 City School District Council (the “District Council”). The District Council is also a public 2 benefit nonprofit corporation, whose stated purpose is to “foster cooperative relationships among 3 the Laurel School Parent Teacher Organization, the Encinal Parent Teach Organization, the 4 Oak Knoll Parent Teach Organization, and Hillview Parent Teacher Organization, to promote 5 and support the education and welfare of students at all four schools, and to facilitate 6 communication and encourage cooperation in the Menlo Park City School District.” See District 7 Council’s Articles of Incorporation. 8 20. Plaintiff is informed and believes, and on that basis alleges, that 9 defendant Juliana Johnson is a resident of San Mateo County. At certain relevant times of this 10 Complaint, and as alleged herein, Ms. Johnson was (and is) an Officer and Executive Board 11 member of the Laurel School PTO, serving as the PTO’s Co-Treasurer. 12 21. Plaintiff is informed and believes, and on that basis alleges, that defendant 13 Ashlee Rea is a resident of San Mateo County. At certain relevant times of this Complaint, Ms. 14 Rea was an Officer and Executive Board member of the Laurel School PTO, serving as the 15 PTO’s Secretary (Corresponding), and is currently its Co-Vice President. 16 D. Doe Defendants. 17 22. Plaintiff is ignorant of the true names of defendants sued as Does 1 -25, 18 inclusive, and, therefore, Plaintiff sues these defendants by fictitious names. Following 19 discovery and further investigation, Plaintiff will seek leave to amend her Complaint to allege 20 their true names and capacities when discovered. These fictitiously named defendants are the 21 Laurel School PTO’s officers and/or directors, and Menlo Park City School District (the 22 “District”) members and MPAEF officers and directors, who were involved in the wrongdoing 23 alleged herein but about whom Plaintiff has yet to discover their specific involvement in the 24 matter alleged herein. 25 23. Plaintiff is informed and believes and thereon alleges that at all times 26 relevant herein, each of the Defendants, including Does 1 - 25, inclusive, aided and abetted, and 27 acted in concert with and/or conspired with each and every other defendant to commit the acts 28 COMPLAINT 8 1 complained of herein and to engage in a course of conduct and the wrongful practices 2 complained of herein. 3 24. Defendants, including Does 1 - 25, inclusive, at all times mentioned in this 4 Complaint approved of, condoned and/or otherwise ratified each and every one of the acts and/or 5 omissions alleged in this Complaint. 6 25. Defendants and DOES 1 - 25 inclusive, and each of them, are jointly and 7 severally liable for the actions of each other. 8 STATEMENT OF FACTS 9 A. General Background On The Evolution Of The Laurel School PTO And External Developments Affecting Its Fundraising Mission. 10 11 (i) “What The Right Hand Giveth, The Left Hand Taketh Away.” (English Idiom) 12 26. Years of fiscal irresponsibility, a complete failure of leadership, and poor 13 decision-making led to a crisis in California following the economic challenges of the economic 14 downturn of 2008. Severe cuts to programs, teacher layoffs, and other draconian steps were 15 necessary to meet the crisis for which California’s Governors, Legislators, and School 16 Administrators were ill-prepared. But that was only the beginning. By 2012, California schools 17 were facing an additional $6 billion dollars in cuts to the education budget. The effects would 18 have been devasting. However, on November 6, 2012, California voters passed Proposition 30, 19 officially titled “Temporary Taxes to Fund Education,” which was a ballot measure to 20 “temporarily” increase personal income taxes for those individuals making more than $250,000 21 per year for the tax years 2012 through 20181, and a temporary increase in sales taxes. 22 27. About one year later, Governor Brown signed into law the Local Control 23 Funding Formula (LCFF) – ushering in a complete overhaul to California’s K-12 education 24 funding and how schools are measured for results, and the services and other support schools 25 received. The “Funding Formula” implements a weighted formula that establishes an equal 26 level of base funding for all students in the state, targets greater amounts of funding to districts 27 1 28 The higher income tax rates were extended for 12 years through the end of 2030 with the passage of Proposition 55 in 2016. COMPLAINT 9 1 with students that qualify for free or reduced price meals, English learners, and foster youth, and 2 provides districts with billions of dollars in supplemental and concentration grant funding to 3 serve low-income students, foster youth, and English learners. As LCFF has been phased in, 4 districts have received additional funding for these students and more local control over 5 spending. Indeed, LCFF grants school districts almost full discretion over the vast majority of 6 state funding. The stated goal of this new school finance system was to significantly simplify 7 how state funding is provided to school districts. 8 28. As the billions of dollars starting flowing in and local districts gained 9 control of funding issues, District Administrators and Superintendents across California breathed 10 a collective sigh of relief and then looked forward to utilizing the substantial amount of new 11 funds. But their relief and eagerness was short-lived. Indeed, Sacramento was busy playing 12 “catch-up” on another ballooning crisis – one also affecting Schools - the California State 13 Teachers’ Retirement System (CalSTRS) Pension crisis (which was also the product of decades 14 of neglect and poor leadership). But the CalSTRS Pension crisis dwarfed the measly $6.0 billion 15 in education cuts which California Legislators faced before they were rescued by Props 30 and 16 55. Indeed, according to the California Legislative Analyst’s Office, the CalSTRS Pension, one 17 of the largest in the nation, was underfunded by a whopping $75 billion dollars, and was 18 projected to completely run out of resources to pay the pensions owed to hundreds of thousands 19 of current and future California retirees (the “Pension Crisis”). See California Legislative 20 Analyst’s Office, “CalSTRS Funding: An Update,” (Sacramento, C.A, May 5, 2017) 21 https://lao.ca.gov/publications/report/3662. Milliman, “Defined Benefit Program – 2014 22 Actuarial Valuation,” (Seattle, W.A., March 8, 2018) https://www.calstrs.com/sites/main/files 23 /file-attachments/2014_db_valuation_report.pdf. To address this burgeoning crisis, Governor 24 Brown quietly signed Assembly Bill (AB) 1469, which mandated that districts pay into the 25 CalSTRS pension at an increased rate every year, from 8.25 percent to 19.1 percent of teachers 26 salaries. A similar piece of legislation also passed, which dramatically increased mandatory 27 district contributions to the California Public Employees’ Retirement System (CalPERS), which 28 is the pension fund that covers un-certified employees such as administrative staff and COMPLAINT 10 1 custodians. Under that legislation, district contributions soared to approximately 11% of district 2 budgets. 3 29. The result of these two pieces of legislation was dramatic. While districts 4 paid approximately $500 per pupil toward these pensions in 2013-14, the districts are now 5 paying an estimated $1,600 per pupil in 2020-21. These exponential increases have placed 6 enormous pressure on the districts, including the District, to find ways to plug school funding 7 shortfalls caused by the Pension Crisis. 8 30. As noted below, in Menlo Park/Atherton, the District chose to turn to the 9 parents of school children to solve the Pension Crisis for the District. 10 (ii) The Laurel School Parent Teacher Organization. 11 31. Historically, grassroots Parent Teacher Organizations (“PTO”) and Parent 12 Teach Associations (“PTA”) have supplemented the gaps in budget-shortfalls to help teachers 13 get extra supplies and for other school-centric purposes. Book fairs, read-a-thons, and other 14 creative fundraising ideas have helped schools, created a sense of community, and encouraged 15 children to take an interest and participate in their own schools for decades. These quaint entities 16 were designed to raise hundreds of dollars for their schools – not hundreds of thousands for the 17 entire District. 18 32. However, as the shortfall of monies to ensure a free comprehensive 19 education seemed harder and harder to achieve in California, PTOs began pursuing more 20 sophisticated means of fundraising, and organized volunteer Parents came up with additional 21 creative ways to further fill the gaps in budget-shortfalls. Eventually, this led to PTOs to 22 incorporate under state laws as public benefit nonprofit entities to take advantage of the tax- 23 deductible allowances of 501(c)(3) of the Internal Revenue Code, thereby allowing the PTOs to 24 keep more of the money raised and theoretically direct it back into that school’s children and 25 teachers. Indeed, the Laurel School PTO incorporated in 2004 for this purpose. This specific 26 school-centric purpose can be gleaned, for example, from the Laurel School PTO’s Articles of 27 Incorporation, which states as follows: 28 The specific purpose of the corporation is to promote and support the education and welfare of the students at Laurel School and to COMPLAINT 11 1 facilitate communication and encourage cooperation among parents, teachers, administrators, the Board of Education and the 2 community. 3 See Article II, B. of the Laurel School’s Articles of Incorporation (emphasis added).2 Thus, 4 consistent with the organic-grassroots nature of the Laurel School PTO – it is only lawfully 5 permitted to support the education and welfare of the students at the Laurel School. For it to 6 engage in conduct outside of its charter is to engage in ultra vires activity. See Wagg v. Toler 7 (1926), 80 Cal. App. 501, 510. Indeed, the IRS requires exempt nonprofits to be operated strictly 8 in accordance with their exempt purposes placing limits on the extent to which the nonprofit can 9 pursue operations beyond its express organizational purposes at the risk of losing its federal tax 10 exempt status. 11 33. Thus, as originally envisioned with regard to donations and fundraising, 12 the Laurel School PTO organized fundraisers such as Caring & Sharing, Giving Tree, Pop! Pop! 13 Read-a-thon!, and the Book Fair. The proceeds were then placed in the PTO’s bank account, 14 accounted for, and then utilized internally for the Laurel School and/or the intended Laurel 15 School pupil and teacher beneficiaries. 16 (iii) The Rise And Evolution Of The Menlo Park Atherton Education 17 Foundation (“MPAEF”). 18 34. According to its website, the MPAEF was established in 1982 and seeks to 19 enable the District to provide an exceptional education to students at the Laurel, Encinal, Oak 20 Knoll, and Hillview schools. Working with parents, local businesses, community members, and 21 the District, it raises money to help pay for high-quality teachers, a comprehensive educational 22 program, and teaching innovation beyond what is possible with public dollars alone. 23 35. The MPAEF has a broader focus than that of the independent PTOs, 24 seeking its funding from businesses and individuals who may not have direct ties to specific 25 schools. In years past, the MPAEF has focused on holding several fundraisers throughout the 26 year, including, the “Parent Campaign,” “School Auction,” and “Schoolhouse Rocks 5k.” 27 2 28 It should be noted that all of the other schools of the District, i.e., The Oak Knoll School PTO, the Encinal School PTO, and the Hillview Middle School PTO all have the exact same limitation in each of their Articles of Incorporation – and all were incorporated in 2004. COMPLAINT 12 1 Following its fundraising efforts, the proceeds were then placed in the MPAEF’s bank account, 2 accounted for, and then the MPAEF provided an unrestricted grant to the District. 3 (iv) The 2018/2019 School Year Brought A Fulminant And Illegal Change To School Fundraising. 4 5 36. Desperate to meet the ever-increasing budget shortfalls caused by the 6 Pension Crisis, the District colluded with the MPAEF to fundamentally reorganize school fundraising to the detriment of the District’s independent PTOs. Specifically, the District sought 7 8 to turn the Laurel School PTO into a fundraising entity for the benefit of the District – not the independent PTO. To accomplish this change, the MPAEF and the District created the “One 9 10 Community Campaign” – a fundraising effort designed specifically to generate funds for the 11 MPAEF, which, in turn, funnels directly to the District in the form of the unrestricted grant. 12 37. The One Community Campaign (“OCC”) is a single fundraiser to 13 facilitate a single donation ask for PTOs and the MPAEF. As initially proposed, each District PTO was to receive the first $250 per child, with the MPAEF receiving the remainder. In 14 15 addition, to overcome the reluctance of the PTOs, the District promised to add a line item to each 16 school budget of $50,000 to fund school field trips or on-site special productions. The stated 17 goal was to simplify the fundraising process, clarify District messaging, and make volunteering 18 more manageable and enjoyable. The District also promised the PTOs that if there was more money generated by the OCC, then the PTOs would share in the windfall. The District also 19 20 promised that the OCC was not necessarily permanent. The District also did not divulge that a portion of the funds raised would go to paying for the Pension Crisis. 21 22 38. To consummate the “deal,” the District drafted and circulated a 23 Memorandum of Understanding (MOU) to the four school PTOs, the MPAEF, and the MPCSD 24 for signature. However, the District failed to put in the language regarding the sharing of any 25 extra monies generated with the Laurel School PTO as verbally discussed, and the Individual Defendants failed to insist upon this key provision when the MOU was circulated. Indeed, they 26 27 approved and signed it without the key language. 28 39. It is well known and accepted that the prime time to engage in school fundraising is during the beginning of each school year. Parents and students are excited to COMPLAINT 13 1 return to school after the Summer hiatus and historically the Laurel School PTO took advantage 2 of the “back to school” enthusiasm for supporting the school. Despite this being the best time for 3 the Laurel School PTO to fundraise, commencing in the 2018/2019 school year, the MPAEF 4 with the backing of the District, scheduled the One Community Campaign to be held from early 5 August through early October 4. Indeed, notwithstanding that in reality the PTOs working 6 together as a “collective” can actually control the District Council and the MPAEF, the District 7 Council using the influence of the Superintendent of the District as alleged herein, and working 8 together as alleged herein with the MPAEF have intimidated and cowed the supposedly 9 independent PTO into doing District’s bidding – thereby allowing the MPAEF to usurp the best 10 fundraising opportunity from the Laurel School PTO and the other PTOs. 11 40. As a result, the Laurel School PTO is now engaging in fundraising which 12 exceeds the corporate charter of the PTO. Notwithstanding that the Individual Defendants have 13 fiduciary obligations to the Laurel School PTO to prevent such ultra vires activity, they have not 14 only let this happen they have actively participated such activity to the detriment of the Laurel 15 School. Indeed, among several recommendations that Plaintiff made to the Individual 16 Defendants to change the Policies and Procedures to comply with the law, Plaintiff alerted the 17 Individual Defendants to the ultra vires nature of the OCC fundraising and recommended that 18 the Individual Defendants take the simple step of amending the PTO’s Charter. However, the 19 Individual Defendants have flatly refused to do so, thereby jeopardizing the tax-exempt status of 20 the Laurel School PTO. Accordingly, this is one example of the Individual Defendants failing to 21 act in the face of a known duty to act and intentionally violating applicable positive law, which 22 demonstrates a conscious disregard for their responsibilities and failure to discharge their 23 fiduciary obligations in good faith. 24 B. Plaintiff’s Tenure With The Laurel School PTO. 25 (i) Plaintiff’s Tenure As Financial Secretary And The Early Days For Her As The New Treasurer. 26 27 41. On January 18, 2019, Plaintiff received a newsletter from the Laurel 28 School, which included an “Immediate Need” for a Financial Secretary with the PTO Board. Plaintiff responded and subsequently met with then Laurel School PTO Co-President Ben Wang COMPLAINT 14 1 and then-Treasurer Juliana Johnson. Given Plaintiff’s impeccable credentials and the fact that 2 she had two children at the school, she was approved shortly thereafter as interim Financial 3 Secretary, and then she was voted in at the General Meeting in April 2019. During her time as 4 Financial Secretary, Plaintiff immediately identified some weak areas, and went about 5 strengthening policies around risk management, including risk mitigation, privacy, and 6 escheatment procedures. In addition, she transitioned the PTO from Wells Fargo Bank to First 7 Republic Bank to save the PTO money and streamline efficiency. 8 42. On August 1, 2019, Plaintiff took over as Treasurer of the PTO. The first 9 thing that Plaintiff noticed was that there was no real transition, very little documentation around 10 duties or processes, and a disorganized Google Drive with difficult navigation. Accordingly, 11 Plaintiff set to work documenting each and every process, event, or responsibility in a new 12 Treasurer Handbook to help reduce errors and provide proper onboarding procedures. In 13 addition, Plaintiff continued recommending changes to processes to strengthen the integrity of 14 the Treasurer role, digitizing the PTO reimbursement forms to create an electronic record of 15 reimbursements. 16 43. Plaintiff also noticed that adherence to protocols dictated by PTO bylaws 17 and/or standing rules was lax, and that it seemed to her that knowledge of the bylaws/standing 18 rules was insufficient by other Board members. She began challenging the leadership team to 19 ask “how” and “why” the PTO did certain processes in an effort to reduce errors, confusion, and 20 to make sure the leadership team was fulfilling its duties. Plaintiff also proposed making the 21 Financial Secretary role a “Co-Treasurer” role, in order to increase visibility, decrease the 22 probability of error, and ensure a seamless transition for future incoming Treasurers. This 23 measure was adopted in October 2019. 24 44. On August 23, 2019, three weeks after she took over as Laurel School 25 Treasurer, Plaintiff was forwarded an email by Individual Defendant Creighton, which was from 26 a Laurel School Parent who was inquiring about the “trick for Outdoor Ed as we did last year for 27 Coloma where we would not pay but contribute a donation instead that would be matched by 28 Apple and could sponsor 2 scholarships.” Individual Defendant Creighton suggested to Plaintiff COMPLAINT 15 1 that such funds should go through the PTO. Initially, Plaintiff, who was new to her position, was 2 concerned about such a procedure and unsure whether the practice was permissible - but she 3 second-guessed her initial instinct because Individual Defendant Creighton was touting it as 4 proper. However, after looking into the practice, Plaintiff later raised the issue to Individual 5 Defendant Creighton and to Laurel School Vice Principal, Ellen Kraska, as an illegal quid pro 6 quo, which could jeopardize the 501(c)(3) standing of the Laurel School PTO. As described 7 below, Individual Defendant Creighton strongly resisted changing the practic