Protecting Yourself Against a Donor Lawsuit
Doug White teaches at the Master of Science in Fundraising Program at Columbia University. His most recent book, published in May 2014, is Abusing Donor Intent: The Robertson Family’s Epic Lawsuit Against Princeton University. The focus: ensuring charities are not mis(using) charitable contributions since it can happen unintentionally. It starts with the agreement, specifically the language in the agreement—make sure all parties, present and future, have the same understanding.
Your donor is taking you to court. Why? She says it’s because you haven’t been listening to her or holding up your part of the deal that both of you signed when she made the gift. Yes, that endowed gift—the one whose income was to be used to make sure the organ in the chapel was to be maintained.
Donors and charities and courts don’t make for a good mix.
To be clear, not every gift poses a potential legal problem. Those who make annual fund or small, undesignated gifts are hardly going to complain about how the money is used, not as long as they are happy that the charity generally spends its money wisely. But many donors make restricted gifts—whether outright or endowed—and they often care deeply that the money is being used as agreed. More important, charities have an obligation to follow the donor’s intentions, if for no other reason than that they need to undertake a moral responsibility to the agreement. But these days the legal world is active in the process and, more and more, we’re seeing donors or their heirs formally complaining about how their gifts are being used.
Case in Point: Robertson vs. Princeton
Johns Hopkins and Tulane Universities, SAVE, an animal shelter in New Jersey and Canadian Valley Regional Hospital in Oklahoma have all come under judicial scrutiny in the last few years. There have been others—and there will be more.
The most famous of the growing number of cases is the Robertson family’s lawsuit against Princeton University. In 2002, 41 years after a $35 million gift was made to endow the graduate program at the Woodrow Wilson School of Public and International Affairs, the children of the donors sued Princeton because, they claimed, the university had misspent much of the money. Furthermore—and this was the original crux of the issue that had festered for decades—not nearly as many graduates entered the federal government as the donors wanted.
The gift was made to a new foundation, the Robertson Foundation, which had its own board of trustees. Princeton-appointed members filled four of the seven seats, and family appointees filled the other three seats. Essentially, the foundation was a supporting organization, even though that term did not come into existence until after the Tax Reform Act of 1969.
The original agreement used the phrase “with particular emphasis” when describing the effort Princeton should make to place graduates in the foreign relations areas of the federal government. But what does that phrase mean when calculating success? It can’t mean 100 percent of the graduates—that would be too strict—but it certainly shouldn’t mean zero percent either. Somewhere in between, but where is the dividing line between “particular emphasis” and “we don’t care?”
This question is important because many gift agreements written today have similarly imprecise language and it’s quite possible that an heir in the future will call out a charity for not fulfilling the agreement it signed.
For reference, over the decades an average of about 15 percent of the Wilson School graduates entered a department of the federal government that had something to do with foreign relations. But a number, any number—while it’s clear that Princeton came nowhere close to most people’s idea of “emphasis”—can’t be the only measurement of success or failure.
In fact, the Princeton case hinged more on poor relationships and a lack of trust than it did on quantifying “emphasis.”
Crafting Your Agreement—Don’t Be Vague
One obvious improvement charities can make to ensure that they don’t end up in court fighting off supporters is to make sure that everyone understands the meaning of the terms of the agreement. For example, many agreements imprudently employ the phrase “in perpetuity.” “Perpetuity” has a meaning, and it’s a meaning that no charity can ever honor. It is especially amusing—or would be if the implications weren’t so severe—to see the word used in connection with the naming of a building. Not even the Roman Coliseum has withstood perpetuity. How can we expect a dormitory, a library, or a hospital wing to fare any better? (And if anyone ever does undertake to renovate the Coliseum, I would not be surprised that the effort would be charitably driven and involve getting a donor or a sponsor who would want naming rights.)
But while it’s true that “perpetuity” is an easy word to avoid, most legal concepts are not precise. They can’t be. “Particular emphasis” was a good phrase because most people understand the general idea behind it. The problem at Princeton arose when it became clear that the family and the university saw the effort in support of the idea differently.
University officials could have taken more steps to get everyone on the same page. But they didn’t and, as a result, relations with the family grew weaker. They weren’t great when Charles Robertson—whose wife Marie was an heiress of the A&P fortune, which was the source of their wealth—was alive, and they continued to deteriorate when their son Bill played an active role on the foundation’s board.
While the agreement’s language may have caused Princeton to think its defense was legitimate, it was not so imprecise as to legitimately claim that the donor’s wishes were being fulfilled. But even more important was the lack of ongoing and respectful communication from the university. The complaints over the years were met more with disdain than deference.
Bottom line? While the concept of donor intent continues to take shape and gain traction, the most important thing both donors and charities can do is be as certain as possible that everyone understands and accepts the terms of the agreement, and everyone thinking hard about current as well as future implications.
Charities have an additional obligation: to understand the concept of stewardship. It’s a word fundraisers use a lot, and refers to actively listening to and acting upon concerns donors and their families have.
It doesn’t take much imagination to see how all restricted gifts, no matter their size—even one that pays for organ repairs—need a special level of care.