IT DIDN’T HAVE TO BE THIS WAY: THE TWISTED LOGIC OF THE RECENT COURT DECISION OVER FISK UNIVERSITY’S RIGHT TO SELL AN INTEREST IN THE O’KEEFFE COLLECTION
DATELINE: February 13, 2008, Chicago
Judge Ellen Hobbs Lyle ruled last week that the trial on Fisk University's cy pres petition would not go forward. Instead, she granted summary judgment to the Georgia O'Keeffe Foundation. At the end of the day, this means that Fisk University cannot sell the two paintings from the O'Keeffe-Stieglitz Collection. Nor can it enter into the proposed agreement to share the collection with Crystal Bridges. Under that agreement, Crystal Bridges would have made a $30 million payment to Fisk University for a half interest in the collection.
The Desktop Guide is Quickly Becoming the Must Have Guide for Nonprofit Executives
Some of our readers have followed the link to the Amazon.com Web site, but apparently have not bought the Guide. If they were turned off by the price, they should reconsider. One prominent attorney in the exempt organization field grabbed a review copy of the Guide and couldn't put it down. She has instructed a number of her clients to buy it, pointing out to them that for less than 1/2 hour of her billable time, they receive a lesson (and resource) that tells it like she would like it told. If you are starting a new charity, the Guide could save you thousands of dollars in legal fees by teaching you how to better utilize your legal counsel and framing the issues so you don't spin your wheels at $400 an hour. |
If things are as bad at Fisk University as Judge Lyle suggests, the fine citizens of Nashville had better start... raising money and lots of it, or the O'Keeffe collection likely will be on its way to New Mexico. Those citizens don't have much time. A trial to ascertain whether Fisk University has breached the conditions of the gift is scheduled to commence February 19.
Judge Lyle's opinion aptly demonstrates the current inability of the legal system to address donor restrictions once they become outdated. We have no doubt that Judge Lyle believes every word she wrote, particularly because the result she reaches is the antithesis of the parochialism often exhibited by judges. Here we have a trial court judge that could have easily constructed a line of legal arguments to support keeping the collection in her community, but who chose a line of reasoning that is totally contrary to her community's interest. They must not elect judges in Tennessee.
The problem with Judge Lyle's opinion is evident in the first sentence, when she uses the term "condition" to describe Georgia O'Keeffe's limitations on the gift. On page three of the opinion, Judge Lyle switches terminology, referring to restrictions. To the layperson, there might not be much difference between a condition and a restriction, but in the legal world of gifts there arguably is and there should be, as Professor Evelyn Brody points out in her fine article, From the Dead Hand to the Living Dead: The Conundrum of Charitable-Donor Standing, Georgia Law Review (Summer 2007).
Brody draws a distinction between conditional and restricted gifts in the case of gifts (not made in trust) to corporate charities, one that is arguably drawn by the Restatement (Third) Trusts. Under Brody's analysis, when a donor clearly imposes a condition on a gift, if the condition is not satisfied, the gift comes back to the donor. On the other hand, when the donor imposes a restriction on the gift, the donor has no further rights following the gift. Most notably, the donor does not even have right to bring a lawsuit to enforce the restriction unless individual state law expressly permits. The committee drafting the recent revision to the Uniform Management of Institutional Funds Act (now the Uniform Prudent Management of Institutional Funds Act) rejected giving the donor standing to enforce the restrictions (in contrast to the Uniform Trust Act, which does give standing to settlers of charitable trusts).
The state attorney general or the courts may have to deal with a failure by a charity to adhere to the restrictions, including situations where it is impossible to follow the restrictions (cy pres), but such failures do not give the donor or her successors the right to the return of the property. Given the dichotomy between conditional and restricted gifts, Judge Lyle's failure to be precise in her use of language is problematic. She refers to O'Keeffe's restrictions on sale of the collection, but views the remedy for failure to adhere to the restrictions as being return of the gift to O'Keeffe's successor in interest.
Much of Judge Lyle's opinion focuses on ascertaining O'Keeffe's intent, which is nothing but folly when that effort is undertaken some 60 years after the fact. For example, O'Keeffe told the New York Times at the time of the gift that she was making the gift to Fisk "because I think it is a good thing to do at this time and it would please Stieglitz." Judge Lyle then goes on to say that "undisputed historical facts" indicate that this meant to help the plight of African-Americans. We don't dispute that the civil rights movement was moving beyond its infancy at the time, but so were television, the automobile, and nuclear weapons. Unless that article says more than the quoted portion, we don't see the strong linkage that Judge Lyle does between the gift and the civil rights movement. But let's assume Judge Lyle is correct. Why does it follow that by permitting Fisk University to sell assets that could generate the funds to continue the university's core mission is inconsistent with O'Keeffe's intent? We would think just the opposite: If given the choice between seeing Fisk University fail and keeping the collection together and on display at Fisk University, we suspect O'Keeffe would choose the former, particularly if Judge Lyle is correct about O'Keeffe's intentions.
The gift was made sometime in 1949. Judge Lyle points to nothing in the gift documents at that time which suggests that this was a conditional gift. It is only in a letter written in 1951 that O'Keeffe raises the possibility. There she indicates that if preserving the collection is too much of a burden, Fisk University should let her know and she will decide what she wants to do with the collection. O'Keeffe may have thought she had the power at that point to redirect the gift, but her belief in 1951 is irrelevant in terms of what she meant in 1949. Donors frequently get mad or become dissatisfied with charitable institutions and want to reverse their generosity, but that doesn't convert an otherwise restricted gift into a conditional one. Even if it did, the donor would only be entitled to return of the gift if the condition went unsatisfied. Under the law, the donor has no other rights once the gift is complete. If the gift in 1949 was a restricted gift, O'Keeffe had no right to the return of the gift under any circumstances and was mistaken if she thought she did. The fact that O'Keeffe or Fisk University subsequently misconstrued the legal consequences of the gift should not become a self-fulfilling determination of those consequences. After all of the analysis, Judge Lyle concedes that there was no reversion clause or gift-over provision. That is the most meaningful evidence that the gift was a restricted rather than a conditional gift.
The court then goes on to analyze the matter under the doctrine of cy pres. Here Judge Lyle concludes that there was no general charitable intent. We find her analysis odd given the fact that under the current state of the law, the requirement that there be general charitable intent has largely disappeared as a condition to invoking the doctrine of cy pres. Judge Lyle's deference to the old legal requirements is even more puzzling given the fact that she acknowledges that there is some evidence of a general charitable intent, but also some evidence of specific intent. In short, Judge Lyle has gone out of her way to let outdated legal doctrine carry day when she could have easily acknowledged that it is outdated or emphasized facts present in the record that would have permitted her to adhere to the talisman of the old doctrine while reaching the result that reliance on the modern doctrine would produce.
Anticipating our objections, Judge Lyle then points out that even if she could apply the doctrine of cy pres, the result would be the same because it is impossible to carry out O'Keeffe's intent with any modification, no matter how minor or inconsequential. In Judge Lyle's view, no-sale means no-sale.
Well, here is the fallacy in Judge Lyle's reasoning. She is adamant about honoring O'Keeffe's intention about the keeping the collection together as a whole. According to Judge Lyle, that means the gift fails, and the court must return the collection to O'Keeffe, which means returning it to O'Keeffe's successor in interest, the Georgia O'Keeffe Foundation. We assume that the return of the gift means that it is no longer subject to the restrictions, which means that the Georgia O'Keeffe Foundation will now be free to break up the collection and sell off pieces. In other words, Judge Lyle's decision thwarts the intent that she so badly wants to honor.
That possibility is not merely theoretical. Earlier in the history of this case, the Georgia O'Keeffe Foundation was willing to permit Fisk University to break up the collection by selling Radiator Building to the Georgia O'Keeffe Foundation for $7.5 million. Fisk University also would have been permitted to sell a second painting to a third party. It was the Tennessee Attorney General who then stepped in, objecting to the $7.5 million sale. He withdrew his provisional approval of the sale when offers of up to $25 million surfaced to purchase Radiator Building. In an April 25, 2007 letter to the parties, the attorney general described the proposed settlement as "one-sided."
We would argue that applying the doctrine of cy pres was anything but impossible in this case. We think Judge Lyle should have considered transferring the collection intact to a more financially viable Afro-American education institution with the restriction on sale still intact. Neither Fisk University nor the O'Keeffe Foundation would have been happy with that result, but if Judge Lyle was so concerned about honoring her sense of O'Keeffe's intentions, that result would have been much truer to those intentions than creating the possibility that the paintings would be returned to a foundation that might sell them.
At this point we have to apologize to Judge Lyle. Cases involving disputes over donor restrictions are impossible to resolve. The state of the law is best characterized as a mess. Add to that the problems inherent in ascertaining the intent of donors long deceased. The lesson of this case and the many similar ones that the courts are grappling with is quite simple: Donors should stop trying to tie the hands of those who are not yet born. In other words, donors should give on an unrestricted basis, or at least provide for the lapse of restrictions after a reasonable period of time. They should then go quietly to their graves, as we are all destined to do.
Internal Revenue Service - Circular 230 Disclosure: As provided for in Treasury regulations, any advice (but none is intended) relating to federal taxes that is contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.
THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NONPROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL. If you liked this post, please visit http://www.charitygovernance.com for a description of our training and consulting services. You will also want to acquire a copy of Jack Siegel's book, A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good."
Copyright 2008, Charity Governance Consulting LLC. All Rights Reserved. You may not copy any portion of this post to a computer "clipboard" for re-posting anywhere or e-mailing, or otherwise reproduce this post. If you want others to review this post, you may provide them with a link to this web blog. Any use of the material or ideas in this post by reporters or other publishers shall make reference to Jack Siegel, author of "A Guide for Non-Profit Directors, Officers and Advisors: Avoiding Trouble While Doing Good" and this web blog. For additional information call 773-325-2124
