Dateline: November 11, 2009, Chicago
The facts are straightforward: The Hardts were executors of an estate. The decedent’s will authorized them to distribute the residual portion of the estate's assets to charities selected in the
Hardts’ discretion. The
Hardts’ authorized two gifts totaling $7,242,000
to the Vitae Foundation to be used to fund pro-life television campaigns in ten
media markets throughout the United States. The gifts were structured as matching ones, with each
dollar granted by the Hardts being matched by another dollar from donations by
other donors.
The first gift was in the amount of $4,242,000. It was made pursuant to a written
letter of intent that spelled out the conditions. There was a written acceptance of the terms. The opinion does not indicated whether
the second gift was subject to a similar writing, but presumably it was.
In August of 2003, a Vitae representative contacted the
Hardts’ counsel and informed him that some portions of the Hardts’ grant to
Vitae were not being used in accordance with the conditions placed on the gifts
but, instead, were being expended for administrative expenses, including the
hiring of significant new staff members, and were being spent without the
receipt of matching funds. She also told the Hardts’ counsel that Vitae’s
promised expansion of media campaigns in new markets was not occurring. The Hardts’ then requested an
accounting. They subsequently
learned that due to a new development strategy, little of the money donated by
the Hardts was being used for its intended purpose.
Based on the last accounting to them, the Hardts asserted
that nearly half of the funds expended from the initial $4,242,000 gift had been spent “on administrative expenses, in fact, in multiple markets no media expenditures
have been made whatsoever, (b) the gift has been spent in the absence of the
receipt of matching funds, and (c) funds have been spent in markets not part of
the terms of the 2001 gift.”
On August 6, 2008, the Hardts filed a petition in the Cole
County Circuit Court seeking: (a) a detailed accounting of both the 2001 and
2002 gifts, (b) the restoration of any part of either gift spent in
contravention of conditions placed on the gifts, (c) an injunction preventing
any future expenditure of funds from either gift in any manner inconsistent
with the applicable conditions, or (d) in the alternative, the transfer of the
2001 gift to another charitable organization of the Hardts’ choosing. In November of 2008, the court
dismissed the lawsuit, concluding that the Hardts lacked standing.
As noted at the outset, the appeals court affirmed that
ruling. It did so after first
noting that at common law, the Missouri Attorney General had standing to
enforce the terms of a charitable gift.
According to the court, an exception to this rule existed when
the donor specifically made the charitable gift subject to a condition
subsequent to the donation. In
these cases, if the charitable trust or charitable corporation failed to
perform the specified act, the gift would revert back to the donor or to a
designated third party.
Interestingly, the court cites to a 1962 Missouri case for the attorney
general’s common law authority and a 2005 California case for the
exception. Its hard to see how a
1962 case could contain an exception based on a case that would not be decided
for another 43 years and then by a court in another jurisdiction. The court offers no explanation why it
was so quick to graft the California decision onto Missouri law. But that hardly matters, because the
court then indicates that the parties agreed that the exception did not apply
in this case.
The court begins the meaningful part of its analysis by noting that
Missouri adopted the Uniform Trust Code (UTC) in 2005. The UTC specifically granted settlors
of charitable trusts the ability to “maintain a proceeding to enforce the
trust.” § 456.4-405.3 RSMo. The law was made retroactive to apply to trusts
created before its enactment.
Vitae argued that the UTC didn’t apply to the Hardts’ donation because
it was made to a corporate charity rather than to a trust. The Hardts contended that because
common law charitable trust principles have often been applied to charitable
corporations, newly enacted statutes addressing only charitable trusts must
also apply to charitable corporations.
The court rejected this argument, pointing out that the language in the
UTC was clear and unambiguous. The
court pointed to language in the statute referencing “trusts created” and
“settlors” and concluded that this was an unambiguous reference to formal
trusts that did not encompass corporations.
Then the court turned to UPMIFA, which Missouri enacted in
2009. It noted the prefatory note
to UPMIFA which indicated that the attorney general still retains the status of
protector. If further quoted a
2007 article by the grand dame of the charitable law, Marion R. Fremont-Smith,
but failed to quote a fine article by Evelyn Brody, the phenom of charitable
law. See Brody, From the Dead Hand to the Living Dead: The Conundrum of Charitable-Donor Standing, 41 Ga. L. Rev. 1184. Based on the
prefatory note and Fremont-Smith’s article, the court ruled that UPMIFA did not
grant standing to the Hardts.
Importantly, the court applied UPMIFA retroactively. Some have incorrectly argued that the
donor intent portions of UPMIFA can’t be applied retroactively for
constitutional reasons. While this
is not the situation those parties had in mind, we now have at least one court
that has ruled on a retroactivity issue under UPMIFA.
Finally, the court turns to the argument apparently made by
the Hardts that the court should apply the more liberal rule enunciated in Smithers
v. St. Luke’s-Roosevelt Hospital Center, 723 N.Y.S.2d 426, 427 (N.Y. App. Div.
2001), a case that will forever be cited to support grants of standing. With this, the Hardts played the
“public policy” card. The appeals
court refused to extend Smithers to the Hardts' case. In that case, the New York Attorney General had been
involved, but apparently did not do an adequate job. The Missouri appeals court, in somewhat twisted logic, noted that the Hardts had never contacted the Missouri Attorney General had. We would argue that unless the
circumstances are very unusual, once the attorney general has touched the
matter, special interest standing is precluded. Interestingly, the court never touches on the doctrine of
special interest standing, which some jurisdictions recognize.
The court then pushed aside a misguided argument that it should apply the doctrine of cy pres. The facts in this case had nothing to do with impossibility of purpose.
At the end of the day, the Hardts must be understandably disappointed,
but they can take some solace in the decision: The court used the strict constructionist approach that pro
lifers so fervently demand be applied to reverse Roe v. Wade.
