Parents at a small rural school filed suit against San Benito County’s biggest philanthropic non-profit, whose net assets total more than $8.5 million.
They are fighting over money left to students by a former pupil who died at age 96, still in possession of his 2nd grade report card from Southside School outside of Hollister.
At stake is who controls nearly $200,000 bequeathed by Hollister businessman Fulton J. “Bumpy” Picetti Jr. to the Southside School Parent Club for students at the nine-classroom school, founded in 1888.
The suit alleges the Community Foundation for San Benito County and unnamed defendants colluded with former parent club officials to improperly seize and remove the $194,000 Picetti gift from a pass-through account at the foundation.
That account allowed for any amount of the money to be used at any time, but the principal did not earn interest.
From the pass-through account, however, everyone agrees and the suit alleges, the parent club transferred Picetti’s gift into an endowment fund, one of dozens such funds owned and managed by CFFSBC.
As an endowment, the principal and gifts made to it are the sole property of the foundation and earn interest that can be used for school projects.
The principal can be invested but can never be spent on the students, under the endowment model.
Also, use of interest earned on the principal for school projects is forever controlled by the foundation.
An advisory committee made up in part by non-club members can make recommendations on how the fund’s earnings are spent, but the foundation has the final say, under the endowment agreement.
And CFFSBC collects a fee in perpetuity for managing the fund.
Since it was bequeathed, the Picetti gift has grown to more than $212,000.
The suit filed by Southside School Parent Club President Julie Corrigan and Treasurer Caroline Hodges alleges that the foundation’s actions in creating the endowment amount to a deceitful “scam.”
It demands the return of all money, a shutdown of the endowment fund, and “exemplary damages to punish” the foundation.
The foundation’s refusal to return the funds was “motivated by malice, ill will and oppression in an attempt to bully and coerce the Parent Club into giving up its rightful funds” and control of the money to help students, the suit alleges.
Foundation President and Chief Executive Officer Gary Byrne, who is mentioned in the suit but not a named defendant, rejected the allegations.
Everything was done on the up and up and with Parent Club approval, he told BenitoLink.
He does not understand why the dispute escalated into a lawsuit, Byrne said.
“We really begged not for a lawsuit,” he told BenitoLink. “We don’t think this is advantageous to anybody and we were hoping to come to an agreement” before the matter goes to trial, he said.
On the advice of counsel, he declined detailed comment on specifics of the suit or the history of the endowment fund created with the Picetti bequest.
However, everything possible was done to reach an amicable resolution to the disagreement in the hopes of avoiding a lawsuit, including expanding the advisory committee that recommends projects to be funded, Byrne said.
Former Parent Club president Tami Cook-Erickson agreed. She led the effort to create the endowment. She confirmed the decision was unanimously approved by club members and a board majority during a regular, agendized meeting—but acknowledged very few people participated.
“There was nothing nefarious or secret,” she said. “I will stand by every decision that was made; these are honest, really nice people (at the foundation), I am sorry (they have) been dragged into this.”
Two parent members and four board members attended the meeting in 2016 and voted 6-0 to create the endowment, she said.
The club allows all members who attend meetings to vote.
“Sporadic” and “low” attendance is common at the meetings and some are cancelled for lack of a quorum, said Cook-Erickson.
“There have been numerous meetings over the years when it was only the board attending,” she said in an email to BenitoLink
The former club official is mentioned in the suit but is not a named defendant. She has hired a private attorney.
Corrigan told BenitoLink that former club members are not targets of the suit because its priority is return of the money and its control to the club, and both are in the foundation’s hands.
The sides differ in their explanations of whether anyone knew the vote would happen.
Cook-Erickson said all parents were notified of the proposal before the vote. She declined to elaborate.
Also, 250 letters were sent inviting parents to suggest how to spend what’s known as the “Bumpy Fund,” she said.
No one, including Corrigan and Hodges, objected to the endowment and the plaintiffs did not attend the meeting, she said.
Opposition to the endowment did not surface until new board leadership was elected, Cook-Erickson said.
She called the lawsuit “a complete waste” of money meant for students and called the current board’s action “a failure of their fiduciary duty” and “beyond irresponsible.”
Corrigan acknowledged she did not attend the early morning meeting, saying she had another commitment.
She was not notified the vote would take place and the letters seeking ways to use the bequest were sent when the money still was in the easily accessed pass-through account, according to Corrigan.
“To my knowledge, the vote to move the parent club’s funds to an endowment account occurred at a normally scheduled parent club meeting 2/10/16 at 8 a.m.,” she said in an email to BenitoLink.
“Parent club records indicate the agenda item discussion was a “Picetti update,” according to Corrigan.
“Neither I, nor anyone not on the Board in 2016, knew that a vote was going to be taken on moving parent club funds to an endowment with the foundation,” she said.
“The members were unaware of the proposal…had they been fully informed, there would have been opposition,” Corrigan said.
In response to Byrne’s contention that endowment funds cannot by law be dismantled, Corrigan said she believes the vote can be reversed and the fund eliminated if it was not done properly.
“When I became President, there were no records at the parent club to show whether any information was provided to the members concerning the vote and nothing to show any explanation was ever given to the membership about the consequences of an endowment fund with the foundation,” she added.
Endowment funds come in different types, according to BenitoLink research. Some limit the use of the principle to investments designed to earn income; others allow some use of the principal and earned interest.
Corrigan also said that, while Picetti amended his trust fund directive on Sept. 14, 2012, the day before he died, the parent club had been named as a beneficiary since 2010.
What changed, she said, was the description of the amount; lump sum dollar amounts were changed to percentages of the remaining trust, and 5.2 percent was to go to the club. Corrigan did not want to discuss the original lump sum amount.
However, the dollar amount that went to the club suggests that by the time all outstanding will and trust matters had been resolved, Picetti bequeathed about $3.7 million to various entities, according to a BenitoLink calculation.
Picetti left no written directive on how the money should be spent, according to Corrigan.
A key point of contention between the factions appears to be whether the money should be used a little at a time over the span of years or all at once and the account depleted for a major campus improvement.
Corrigan’s group had proposed using all of the money to build moveable shade structures on the campus.
Corrigan and Hodges filed suit on behalf of the club membership, which includes parents of approximately 240 students in the K-8 school, which is located about 11 miles southeast of downtown Hollister.
They were forced to file the 17-page suit and exhibits on Oct. 19 in San Benito County Superior Court after the foundation stood fast it its refusal to return the money, they told BenitoLink.
“Properly agendized or not, six people do not have the authority to give away Parent Club money, then assume control of those funds, effectively taking the Parent Club out of the equation entirely,” the plaintiffs said in a joint statement to BenitoLink.
“Southside Parent Club has lost faith in Community Foundation to properly manage” its money, they said, adding, “it is unfortunate that it has gotten to the point of legal action, but we feel that it’s our only option to make the situation right, and honor the intent of Mr. Picetti’s generous gift,” they said.
In the meantime, Corrigan added, “Mr. Picetti’s wishes are definitely being undermined.”
A copy of the lawsuit was delivered anonymously two weeks ago to BenitoLink’s news office.
Full disclosure: BenitoLink was founded in 2013 as a project of the CFFSBC. In Dec. 2015, it became an independent non-profit organization. BenitoLink rents an office in the foundation’s Hollister building, has accepted grant funding from the foundation and a relative of BentioLink’s executive director sits on foundation’s board of directors.
You can see the Southside School Parent Club website here:
http://www.ssesd.org/District/1121-Untitled.html
You can see the CFFSBC website here: