Disappointed Donors can’t Count on Getting their Charitable Money Back
By Terri Lynn Helge
A wealthy family recently sued the University of Chicago for allegedly not living up to promises the school made before getting a $100 million pledge, claims the university says lack merit. Another rich donor rescinded a $14 million gift to the University of Nevada, Las Vegas that they had made contingent on retaining the school’s president when the president made it clear he was moving on.
At the same time, George Mason University president Angel Cabrera has promised to get to the bottom of questions stemming from the formerly secret agreements it made with the Charles Koch Foundation, which have stirred outrage on his campus. Cabrera says his institution will consider changing its policies to make them more “aligned with our university’s commitment to academic freedom.”
These three controversies point to the same question: What strings can donors attach to charitable gifts? As a nonprofit law scholar who advises both charitable organizations and donors, I have seen that the answer depends on several variables.
Big donations often come with strings attached. Hospitals, universities and museums commonly agree to name new wings or entire buildings after donors or to spend the donated funds in specific ways when they secure the donations.
But conflicts sometimes arise over whether nonprofits have kept their word. When these disputes reach the courtroom, judges typically rule that there’s no way for disappointed individual donors to get all their money back.
That should not come as no surprise. Once people give to charity, they typically have little power, if any, to dictate what happens with that money, according to University of Oregon law professor Susan Gary. Foundations, however, can more easily build demands into their grant agreements that are enforceable under contract law.
Typically, the state authorities where charities are domiciled may decide to enforce any strings that were attached or object to attempts to modify those restrictions. But the rules vary from one state to the next. Some states are changing their guidelines now in ways that make it harder for charities to sidestep commitments to, say, designate donated funds for a specific kind of scholarship or a particular type of land use.
Even so, partly because legal battles of this kind are often waged decades after money changed hands, these conflicts can get pricey and drag out.
For example, consider what happened after Charles and Marie Robertson gave Princeton University $35 million in 1961. The Robertsons created a foundation controlled by Princeton University that helped fund the Woodrow Wilson School of Public and International Affairs, footing part of the bill for tuition incurred by graduate students seeking careers in government service.
Over time, the Robertsons’ original $35 million gift blossomed into a $900 million endowment and the school began to use some of the money for other purposes. In 2002, their heirs sued, alleging that Princeton was breaking its promise to the couple. Princeton claimed it had generally kept its word.
After a protracted legal battle, the case settled in 2008, with Princeton retaining most of the contested funds to use for the Wilson School. However, Princeton also had to transfer $50 million to a new foundation controlled by the Robertson heirs to support education for government service and reimburse them for $40 million in legal expenses.
One rare exception to the scant recourse for disappointed individual donors who want to get all their money back, and recoup their court costs occurred in 2012, when the musician Garth Brooks won a $1 million verdict against an Oklahoma hospital in his hometown because it failed to build a women’s health center in honor of his late mother.
Brooks testified that he and the hospital president had agreed – but not in writing – about how it should use Brooks’ $500,000 donation.
The hospital asserted that Brooks initially gave anonymously and only later asked that the hospital build a women’s center to be named after his late mother. The $1 million verdict required the hospital to return his $500,000 donation and pay him an additional $500,000 in punitive damages.
I believe that Brooks’ celebrity status may help to explain why he succeeded when most donors who aren’t happy with what becomes of their big gifts end up disappointed or feeling shortchanged.
To be sure, donors may impose some restrictions on their big gifts as long as these demands align with the charity’s mission and operational structure. Some restrictions, however, just don’t work.
Donors should not presume, as seemed to be the case with the Engelstad Family Foundation’s support for the University of Nevada and the Charles Koch Foundation’s gifts to George Mason University, that they will be free to dictate who the grantee will hire or fire.
Donors also shouldn’t presume that their arrangements with nonprofits will last forever, as investor Bruce Bent may soon learn. He gave St. John’s University $500,000 in 1981. At the time, Bent says, the school promised to name a business school after the investor. True to its word, St. John’s initially named the building housing the business school “Bent Hall.”
Bent was surprised, 35 years later, to see that the building’s name changed to the Peter J. Tobin College of Business in 2016 amid a $25 million renovation project. The business school program had been renamed in 1999 to honor Tobin, a businessman who was then serving as its dean after he made a $10 million donation. But the building itself was called Bent Hall until the recent renovation project that neither Bent nor Tobin funded.
St. John’s maintains that the school is upholding its original agreement since “Bent Hall” is also written on a plaque near the side entrance of the building. Nonetheless, Bent seeks damages of nearly $10 million – what he deems to be the current value of his initial $500,000 donation.
The university has filed a motion to dismiss his lawsuit and says that an “exhaustive search” turned up no evidence of a written agreement over naming rights.
The case is still pending.
Professor Helge teaches in the areas of estates and trusts and nonprofit law at Texas A&M University School of Law. Prior to entering academia, Professor Helge was an associate with Thompson & Knight LLP in Dallas where she helped nonprofit organizations with the organization, operation, and termination of nonprofit corporations and charitable trusts, and also represented individuals seeking to plan and implement wealth transfers to family members and charitable organizations.
Disclaimer: The University of Nevada, Las Vegas and the University of Chicago Harris School of Public Policy provide funding as members of The Conversation US.