Board May Not Have Final Say In San Diego Opera Shutdown
San Diego Opera directors might not have the power to close the 49-year-old company at the end of the month as planned. They may need the buy-in of more than 800 members of the opera association, people who donate at least $100 to be part of the company.
Three experts in nonprofit management told KPBS that California law and the association’s bylaws say the board of directors alone cannot shut down operations.
“They (members) have effectively a veto power,” said Paul Dostart, a San Diego lawyer specializing in nonprofits. “From what I understand, the board is considering selling off real estate, selling props. That’s the sort of event that would trigger the rights of members.”
The board voted 33-1 on March 19 to shutter the institution because of diminishing ticket sales and donor support. They plan to begin selling off the company’s assets, which include costumes and its scenic shop, after April 29 to pay its debts, according to a letter from the opera’s attorney.
Association members were not notified immediately of the decision to close. Many of them learned about it in the media, including Tamara Thibodeau, who has been a member for nearly 10 years.
“We were all shocked,” Thibodeau said. Five days later, the members received a letter from Ian Campbell, the opera’s general director, thanking them for their support over the years.
KPBS consulted three lawyers, including one who headed the IRS' nonprofit division for 10 years, for opinions on the process required by the opera’s bylaws and state law for dissolving the company. None have connections to the opera.
According to the California Corporations Code, which regulates corporations, including nonprofits, the board can sell off the company’s assets without an approval vote of the association members if “the transaction is in the usual and regular course of its activities.”
Dostart said selling the assets to close the opera is not in the regular course of business.
If the directors proceed regardless, he said, members have three options. They could remind the board they have a duty to comply with the code. They could complain to the attorney general that the rights of members are not being respected. Or they could sue the board on behalf of the association.
“This is litigation in Superior Court asking a judge to require the board to stop with the disposition of assets until there’s a member vote as required by the statute (59:11 (a) (2),” Dostart said.
Thibodeau has yet to be notified of any vote the members have in the dissolution process.
“We have been presented with this as a fait accompli, the board is closing, this is how it is, period,” she said.
Marcus Owens, a Washington, D.C.-based attorney who worked for the IRS, said if an organization is run well, “there is a flow of information to the board and membership. If an organization begins to run into financial difficulty and heroic measures are needed to keep it afloat or it needs to terminate, that rarely is a surprise.”
Dostart said he’s seen many charitable boards fail to deal with financial problems until there’s no possible choice left.
“The opera board here is to be praised for being affirmative and taking action,” he said. “One of the worst things a charity can do if it’s not going to be economically sustainable and has some assets, is to run it down to the last dollar.”
Through the opera’s spokeswoman, board president Karen Cohn declined to be interviewed about the bylaws and selling off opera assets. KPBS was instead referred to an article on dissolving nonprofits.
The board is meeting Thursday. Last week, it formed a special six-member committee to explore options for the future.
In a letter to employees after that meeting, Cohn explained that the grim financial outlook could not justify keeping the company going. But, she said, the board was seeking advice from consultants on dissolving the current company and starting another.
“There was discussion about how a new opera company would have the best chance of succeeding if it was not burdened going forward by the obligation of SDO,” she wrote.
Board member Carol Lazier, who earlier this month donated $1 million to explore alternative ways to present opera, is on the special committee. She says selling off the assets will make reinventing the company difficult.
“If you start from scratch it sometimes takes years to get something started,” Lazier said. “If you have assets already in place and no debt, you can always retool to make the opera more more financially feasible.”
Cohn recently told The New York Times “the choice was to close ‘with dignity’ now or proceed with a 2015 season — and face the embarrassment of an inevitable bankruptcy.”
The San Diego Opera Association was set up in 1955. While the directors generally donate $25,000 annually to be on the board, association members pay annual dues beginning at $100. The group meets once a year between April 1 and June 30. The next member meeting is scheduled for June 23.
According to a report dated January 2014 to the city’s Arts and Culture Commission, numbers of members, like numbers of subscribers, have declined. The opera reported having 2,544 in fiscal year 2012 and 2,433 in the following fiscal year.
Many of those “members” pay small amounts to the opera, and only those who commit at least $100 are eligible to vote on association matters. There are 850 members eligible to vote.
There was a time when hundreds of people attended the annual meetings of the association, but recently attendance has fallen. According to opera records, attendance was 123 in 2011, 43 in 2012 and 56 in 2013.
The opera board reduced the number of members needed for a quorum to 10 in 2011.
Thibodeau said she recalls that decision and contends it undermined the desires of more than 100 members who voted unanimously on June 28, 2011 to reduce required attendance from 75 to 25, not 10.
She voiced her concerns to Campbell about how the actions were taken, particularly how membership attendance was accounted at that June 2011 meeting. In her email she wrote, “public organizations dependent on public goodwill (and donations) must be more pure than Caesar’s wife, and this situation fails to meet that standard.”
Cohn responded to Thibodeau’s email, explaining the processes.
“I would also like to assure you that the issues you raise have been thoroughly reviewed and the actions taken were appropriate under the San Diego Opera bylaws,” she wrote.
A vote to sell the assets, or liquidate, would need to meet that quorum of 10. If all 850 members show up to a special meeting, liquidation would require a majority of votes to pass.
The compensation packages of Campbell and his ex-wife Ann have been at the core of discussion of the opera’s finances. In 2010, the opera paid the couple — who are now divorced — more than $1 million.
KPBS quoted Owens, the former IRS official, last week calling the packages “generous” with “extraordinary provisions.”
The opera released an analysis of the packages by its own expert Tuesday.
Mike Weaver, a recently retired senior partner with Latham & Watkins and a contracts expert, wrote "both (Ian) Campbell and (Ann) Spira Campbell would receive significantly greater benefits if the SDOA were to continue in operation and will receive significantly less if the organization closes its operations on May 1, 2014.”
In a related development, the American Guild of Musical Artists has asked the federal court to take action to protect what’s owed the artists who had contracts with the San Diego Opera. They say 34 contracts, amounting to $1 million, are outstanding.
The union asked the court to order the opera to agree to arbitration and says it will be asking to preserve enough opera assets to satisfy the claim.
In a letter to the union, an attorney for the opera said a request for arbitration was “premature” because no contract had been breached.
Ian Campbell was more pointed in an earlier response to the artists’ question about whether contracts would be paid.
“Thank you for your totally inappropriate threat which is unnecessary. Is [sic] is actually insulting,” he wrote in an email. “San Diego opera will do what is necessary."
“After all the service we have given your members over the years, and the careers we have helped sustain such a letter is terrible [sic] disappointing,” he wrote.
This story was edited by Lorie Hearn, executive director and editor of inewsource, a KPBS media partner.