A Laurel School parent has filed a lawsuit in San Mateo County alleging that the school's parent teacher organization (PTO) used illegal means — through quid pro quo payments — to boost its fundraising. The PTO members and principal then retaliated against her and her daughters, she claims.

The suit, which names Laurel Principal Linda Creighton and several current PTO board members as defendants, was filed on Monday, March 8, by Jaclyn Foroughi. Foroughi is the mother of five children, three of whom have attended Laurel School, and is a lecturer at Stanford's Graduate School of Business.

Her complaint alleges that while serving for four months as financial secretary for the nonprofit, volunteer-led Laurel PTO starting in August 2019, she discovered parents paid field trip fees as "donations" to the school so that their employers could match the funds.

These fees should have been ineligible for corporate matching funds since they were not actually donations -- paying for a field trip does not meet the IRS definition because the donor receives a tangible benefit — like a field trip to Outdoor Ed camp, according to the suit.

A quid pro quo contribution is a payment made to a charity partly as a donation and partly for goods or services, according to the IRS. For example, if a donor gives a charity $100 and receives a concert ticket worth $40, the $40 value of the ticket is not tax-deductible.

The lawsuit claims that Creighton knowingly continued to advocate soliciting funds from parents and corporations in an illegal manner and even kept "secret books" on these donations, breaching her fiduciary duties to PTO members by using the misleading term "donations" and failing to affirmatively disclose that there was no tax deduction available to parents.

"We dispute the allegations in the complaint and are disheartened to see this action," said Laurel PTO executive board members via email on Thursday, March 11. "We have tremendous gratitude for our past, present and future parent volunteers and as we move through an unprecedented school year, our focus will remain on continuing to nurture a respectful, supportive and beloved environment for all."

The lawsuit details a 2019 meeting between Foroughi and former PTO co-president Kelly Parisi, in which Creighton allegedly said that "all the schools in the (Menlo Park City School) district used the term 'donation,' so using the term is okay." Parisi told Creighton that accepting funds for overnight field trips and having them matched by corporations was illegal, according to court documents.

"Don't worry about it because the amount is so small and detailed, Jackie is the first person to call attention to it, and we'll let the donors worry about it if they get audited," Creighton told them, the lawsuit claims.

The district, which is not a party in the lawsuit, issued a statement March 11 saying that it regrets that a disagreement on a volunteer board devolved into an unnecessary lawsuit and has no further comment.

"We continue to support our hardworking and well-meaning volunteers and school leadership, who are all second-to-none," the district said.

Creighton said in a March 11 email to The Almanac that she has no comment on the specifics of the case, but supports the comments from the district and the Laurel PTO executive board.

How PTO funding works

Foroughi's lawsuit claims that, desperate to meet increasing budget shortfalls caused by the district's pension liability, district officials colluded with the Menlo Park-Atherton Education Foundation (MPAEF) to fundamentally reorganize school fundraising to the detriment of the district's independent PTOs.

Specifically, the district sought to turn the Laurel School PTO into a fundraising entity for the benefit of the district — not the PTO, according to the suit. To accomplish this change, the foundation and the district created the "One Community Campaign" (OCC), a fundraising effort designed specifically to generate funds for the foundation, which then funnels money directly to the district in the form of unrestricted grants.

The lawsuit also claims that the district did not divulge that a portion of the funds raised would go toward paying increased pension costs. The district's employer contribution to the state's teacher pension fund was raised from 8.25% of certificated staff's salaries to 19.1% over the course of seven years. In 2014, the state legislated State Teachers’ Retirement System (STRS) pension reform, which increased employer contributions for the first time in over 40 years. In the district’s 2020-21 interim budget, officials called the increase in pension contributions “one of the driving forces of the district’s budget.”

"The PTO is supposed to be a grassroots mom-and-pop interested volunteer parent organization that is supposed to, according to the corporate charter of the PTO, engage in activities for the benefits of the PTO; it doesn't say for the benefit of the community or the district," said Foroughi's attorney Peter McMahon, founding partner of ‎McMahon Serepca. He added that engaging in mismanagement of the field trip fees is potentially very serious for the PTO.

"An artificial hierarchy has been created that somehow the foundation is sort of the boss of the PTOs and that's not the way it's supposed to be," McMahon said.

He also noted that the principal and teachers are supposed to play more of an advisory role. But if PTO members don't want to follow a certain financing route, "you're bullied by the district and principal to do things the way the district wants."

The district moved from each PTO holding its own fundraiser to holding a joint appeal for the PTOs and the foundation, which earmarks the minimum annual donation to the PTO of $250. In the past, people might give more than the minimum to the PTO, but holding the joint fundraiser, the foundation gets the benefit of any additional donated funds that otherwise would have gone to the PTO, the suit states.

To overcome the reluctance of the PTOs, the district promised each school an additional $50,000 in funding for field trips and other events, according to the suit. McMahon said it's unclear why the PTO would need to solicit donations for field trips that have already been funded through donations to the One Community Campaign.

Investigations

Foroughi said the PTO executive board's subcommittees, convened in January 2020 to investigate the alleged quid pro quo issue and look into her claims of bullying and intimidation, were "biased."

Her lawsuit states that the quid pro quo investigation report falsely stated that the inbound payments to the PTO from the parents and corporate matching programs were neither recorded in the budget of the PTO nor reported to the PTO board. It also falsely asserted that these errors were the result of a lack of familiarity with rules and regulations for nonprofit organizations across the executive board, she said.

She called for the district to initiate independent investigations into the two issues in March 2020.

Her lawsuit asks that independent investigations be conducted.

Retaliation claims

In February 2020, Foroughi said that she obtained approval for her daughter to leave school 10 minutes early. Creighton sent Foroughi an email claiming that her daughter had told the teacher that she planned to walk out of school without Foroughi signing her out, according to the suit. Creighton had to walk back her allegations and admit that she had made up her accusation, the suit claims. Attempting to falsely brand Foroughi's daughter a truant amounted to retaliation, Foroughi claimed.

A month later, Foroughi claimed that Creighton further retaliated by meddling in her older daughter's application to attend Menlo School for middle school. The highly competitive application requires a strong recommendation from the student’s principal, according to the suit.

"Creighton had scored her daughter highly in some areas — the comments section of the recommendation was left completely blank," the suit states. "This was a clever way for Creighton to effectively damn plaintiff's daughter with 'faint-praise.'"

Parent won't simply 'go away'

Foroughi said she has considered dropping the matter on several occasions -- on a personal level, she could care less about the “trivial cliquish fiefdom” created by members of the current PTO board, according to the suit. However, she said she feels conflicted because she was part of the PTO and remains an honorary member, and can't "unobserve" the alleged wrongdoing.

"As a financial professional and chartered financial analyst (CFA) charter-holder, Foroughi has a duty of loyalty to her clients, which in the context of the PTO refers to the beneficiaries of the organization — the students, community, and teachers — and not the conflicting interests of the PTO board," the suit states.

She feels committed to school district parents to correct these wrongs, make the community and future PTO board members aware of the transgressions to prevent future missteps, and to encourage the adoption of more robust policies to strengthen the integrity of nonprofit governance, she said.

"As a result, she is not simply going to 'go away,' as she is sure the PTO leadership wants her to do," according to the lawsuit. "Indeed, instead of sanctimoniously paying lip service to the fact that the PTO is a 'volunteer organization that is trying to navigate unprecedented times in society and education,' the current PTO board should strive to conduct the affairs of the PTO legally and appropriately, and to provide accurate information and transparency to its beneficiaries."

In her claim, Foroughi is asking that Creighton and the PTO members named in the lawsuit cover the legal fees the PTO incurred from the misconduct, as well as her own and for the Laurel School PTO to reform its governance, policies and culture to obey the law.

A case management conference is scheduled for July 7 at 9 a.m.