Knowing the exact legal structure of your emergency services organization isn't just important; it can be critical in determining what legal protection your organization may have and what legal protection you may enjoy in turn. A recent Texas case, Los Fresnos Volunteer Fire Department Inc. v. Davalos, et al., No. 13-05-491-CV, Court of Appeals of Texas, 13th District, Corpus Christi (2006), makes this point particularly forcefully.
The Los Fresnos (Texas) Volunteer Fire Department Inc. received its articles of incorporation on July 3, 1974. At that time, it stated that the purpose of the corporation was “to operate a non-profit volunteer fire department to serve the residents and property owners of the City of Los Fresnos and the surrounding area, and for such purpose to acquire, by purchase or otherwise, maintain and operate fire trucks and other fire fighting equipment.”
In September 1999, the fire department received a determination letter from the Internal Revenue Service notifying it that the IRS considered it to be a tax-exempt organization under 501(c)(3) of the Internal Revenue Code. The determination letter and other IRS materials warned, however, that “a ruling or determination letter recognizing exemption may not be relied upon if there is a material change, inconsistent with exemption, in the character, the purpose, or the method of operation of the organization.”
In October 2002, the City of Los Fresnos decided to divest itself of the Los Fresnos Emergency Medical Services, which it had previously operated. At that time, the city entered into a contract with the fire department providing for the fire department to take over the operation of Los Fresnos EMS. The fire department then began paying taxes and wages for Los Fresnos EMS employees. This was something new for the fire department, which until then hadn't been involved in paying employee wages and taxes. This continued until August 2003, when Los Fresnos EMS filed its own articles of incorporation and became a separate entity, Los Fresnos Ambulance Service Inc.
Unfortunately, between the time when the fire department contracted with the city to take over the operation of Los Fresnos EMS and the time when Los Fresnos EMS incorporated as a separate entity, an incident occurred which gave rise to a claim. On May 10, 2003, Los Fresnos EMS employees responded to a medical call in San Benito, Texas. On arrival, they found Luis Gonzalez injured and in need of medical assistance. In the suit later filed by his widow, it was alleged that the Los Fresnos EMS employees failed to properly intubate Gonzalez while he was being transported, depriving him of oxygen while en route to the hospital. Gonzalez ultimately went into cardiac arrest, fell into a coma from which he never awoke, and died a few days later.
Gonzalez's widow commenced her negligence suit against Los Fresnos EMS, among others, by service of a notice of suit on the Los Fresnos EMS medical director. Los Fresnos EMS subsequently filed an answer denying all allegations and referring to itself as “Los Fresnos EMS.” It then objected to the jurisdiction of the court, asserting that it enjoyed sovereign immunity from suit and therefore wasn't properly within the subject-matter jurisdiction of the court. This time the organization referred to itself as “Los Fresnos Volunteer Fire Department Inc.” In this document, the fire department claimed that it had been improperly named in the suit as “Los Fresnos EMS.” It further claimed that it was an emergency services organization and as such was a “governmental unit” as defined by the Texas Tort Claims Act. If the fire department could prove this status, it would be immune from this suit and entitled to be dismissed from it.
This argument, then, brought into question the exact legal status of the fire department. In deciding this issue, the court began by noting that in Texas, a “governmental unit” is immune from tort (in this case, negligence) liability for its own acts or the acts of its agents unless the act waves that immunity. The act defines a “governmental unit” as including an “emergency services organization.” The act in turn defines an “emergency services organization” as a “volunteer fire department, rescue squad, or an emergency medical services provider that is: (A) operated by its members, and (B) exempt from state taxes by being listed as an exempt organization under Section 151.310 or 171.083, Tax Code.”
Section 151.310 of the Texas Tax Code further defines an “exempt organization” as an organization qualifying for an exemption from federal income taxes under Section 501(c)(3) (or other sections) of the Internal Revenue Code. Section 171.083 of the Texas Tax Code exempts “a nonprofit corporation that is organized for the sole purpose of and engages exclusively in providing emergency medical services, including rescue and ambulance services.” (Emphasis added.)
The court then moved on to review whether the fire department fulfilled the statutory definition of being an “emergency service organization” so that it could qualify as a “governmental unit.” The court observed that Texas case law regarding immunity draws a distinction between volunteer organizations and those staffed by paid employees, and noted that they are treated differently under relevant legislative codes as well.
Of great significance, the court said that when the fire department took on the responsibilities of running Los Fresnos EMS from October 2002 to August 2003, its legal status as a potentially exempt organization changed. It could not claim to be exempt under section 171.083 of the Texas Tax Code because it was not exclusively involved in the provision of emergency medical services but, rather, continued to retain its firefighting and rescue duties. It also could no longer rely on its determination letter from the IRS establishing its 501(c)(3) exempt status, given that it had substantially changed its character and purpose.
It was no longer a volunteer organization with the sole purpose of fighting fires, but instead had the dual purposes of firefighting and providing emergency medical services, and also had wage-making employees. Thus, without being able to rely on its 501(c)(3) status, the fire department also could no longer claim to be exempt under Section 151.310 of the Texas Tax Code. Keep in mind that the fire department's 1974 articles of incorporation made no mention whatsoever of emergency medical services, or any other services other than firefighting, which was the sole purpose of the corporation.
The court obviously was troubled by the predicament in which the fire department found itself. It noted that it was not saying that the fire department could not operate as a dual-purpose organization without losing its tax-exempt status. However, on the record presented, the court was compelled to conclude that the original IRS letter establishing a 501(c)(3) tax-exempt status for the fire department was no longer necessarily valid following the changes made to the fire department when it combined its volunteer fire service activities with those of Los Fresnos EMS, which employed paid personnel. Consequently, the court ruled that at the time that the Gonzalez claim arose, the fire department was unable to claim immunity as an “emergency service organization” under the act. It was therefore subject to suit for the allegedly negligent acts of its employees or itself.
This is a case that on first impression one might think would have turned out differently. However, a closer reading of the facts makes it clear how these circumstances allowed the fire department's governmental immunity to fall through the cracks. This decision should cause us to think about the following:
- The mission of most fire departments is rapidly evolving. Review yours to see if your written mission fits what you are actually doing.
- If your organizational documents don't properly describe your actual activities, there may be more at risk than just the organization's tax-exempt status.
- Performing this kind of review may seem like hair-splitting, but don't underestimate its importance. It can mean the difference between having to defend against a claim and being dismissed from the suit.
Philip C. Stittleburg, MIFireE, is a Wisconsin attorney who has been chief of the La Farge (Wis.) Fire Department since 1977. He is legal counsel for the Wisconsin State Firefighters Association and the National Volunteer Fire Council. He is also currently the chairman of the NVFC, the secretary of the National Fire Protection Association and a director of the National Fallen Firefighters Foundation.