DATELINE: May 4, 2009, Chicago
We try not to side with conservatives or liberals in this blog. We just call them as we see them. We, however, have been annoyed by the conservative movement’s attempt to turn donor intent into a left-right issue. We suspect that the conservatives have adopted that position because they believe most colleges and universities have a decidedly liberal bent. The result has been repeated assertions that colleges and universities knowingly violate donor intent, with the implication being that they do so to pursue their liberal agendas. At least that is the subtext of much of what we have read.
In our view, the issue has always been about the straightjacket that donors put nonprofits in when they try to tell them how to run the institution and then die. As time passes, the institution is faced with legal restrictions that by any objective measure no longer make sense because circumstances have changed in ways that donors never foresaw. We don’t have a solution to the problem, but we recognize it as an inevitable problem that cuts across the political and philosophical spectrum. That is why we find the lawsuit filed by Richard Sills in the New York State lower court on November 25, 2008 both...
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Jack Siegel's book, A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good, has quickly become the go-to guide for nonprofit executives and advisors. So what are people saying about the Guide? In the October 2007 edition of the The Federal Lawyer, New York lawyer George W. Gowen and nonprofit authority, wrote:
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amusing and instructive.
Mr. Sills made a $100,000 donation to the Ronald Reagan Presidential Foundation in September 2000. He made an additional $500,000 in donations following subsequent solicitations. These donations included a $100,000 donation in August 2004 and another $100,000 donation in July of 2005. Mr. Sills alleges that he directed that these two contributions:
be used for the sole purpose of establishing various educational programs within the Presidential Learning Center.
Mr. Sills alleges that the Ronald Reagan Presidential Foundation failed to honor his intent, instead using the funds “for other general purposes.” Mr. Sills’ complaint is poorly drafted in terms of its prayer for relief. He seeks compensatory damages, which we interpret to mean the return of his $200,000 donation that he alleges was not used in accordance with his specifications.
He also claims that the foundation also owes him a:
full and accurate detailed accounting regarding Plaintiff's final donation of $200,000, as required by the Rules and promulgated by the Financial Accounting Standards Board.
Unfortunately the complaint does not include an exhibit that contains the deed of gift so we have no way of knowing how Mr. Sills expressed his intent. We offer the following observations regarding Mr. Sills lawsuit:
Donors Should Get It in Writing. We suspect that there was not a written gift instrument. If there wasn’t, Mr. Sills has a very weak case. If Mr. Stills wanted to restrict his gift, he should have done so in writing. That is true for all donors, whether liberal or conservative.
Donors Generally Don’t Get Their Money Back. As a general rule, donors don’t get their money back when the charity violates the donor’s intent. The courts generally permit the return of money only when there is an explicit statement in a written deed of gift providing for reversion. If there is a violation of the donor’s intent, the courts generally will require a correction by the charity. Once again, unless Mr. Sills specifically provided for a reversion in a written gift instrument—which is unlikely because it would call into question his income tax deduction—we suspect that he will not prevail in terms of getting his money back.
Donors Don’t Have an Automatic Right to Financial Statements. Mr. Sills claims that under GAAP he is entitled to a full and accurate accounting. WRONG. Mr. Sills could have required documentation to demonstrate how his gift was applied. He also could have conditioned his gift on the receipt of audited financial statements over some period of time. GAAP, however, creates no right to financial information. It just prescribes what principles must be used when preparing audited financial statements.
We suspect that Mr. Sills will be disappointed in the final outcome of this case unless he has written evidence to support his claimed intent. He may have good reason to be upset. An article in the Ventura County Star describes the solicitation process by which the Ronald Reagan Presidential Foundation obtained Mr. Sills commitment. Anna Bakalis, NY Man Claims Reagan Foundation Misused Donations, June 2, 2009. It sounds as if there were discussions over how the foundation would use Mr. Sills' funds, but Mr. Sills faces a heavy burden if he doesn't have something in writing.
The case has since been removed to the Federal District Court for the Southern District of New York. We will be monitoring the proceedings.
| 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.
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