Disappointed donors can't count on getting their charitable money back
Posted by admin on 1st June 2018

A wealthy family recently sued the University of Chicago for allegedly not living up to promises the school made before getting a US$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 Another rich donor rescinded a $14 million gift to the University of Nevada, Las Vegas that they had made contingent on retaining the school’s president when the president made it clear he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.

No backsies

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.

Portraits of donors Charles S. Robertson, and his wife, Marie Robertson, on display at Princeton University’s Woodrow Wilson School, in 2004.
AP Photo/Daniel Hulshizer

An outlier

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.