Recent cases are being litigated regarding the question of “donor intent” and the use to which nonprofit institutions are putting donors’ charitable donations. Heirs of the donors are raising the issues, and the charitable organizations involved are defending their use of long-standing donor funds decades and sometimes centuries after such gifts have been made. The heirs allege deviations from the donors’ gift restrictions which the defendants argue are not substantial enough to have caused the donors to retract their gifts. Regardless of how the cases come down, philanthropy generally is better served when donors can give to charitable organizations with the assurance that the conditions under which they have given such gifts will be honored. Although the recent litigation is not widespread, it serves as a reminder to nonprofits that donor intent must be followed and that all details should be ironed out at the beginning of a relationship with a donor. As the courts deal with the following three ongoing cases involving universities, American philanthropy undoubtedly will be affected.

Robertson v. Princeton University

In Robertson, et al v. Princeton University et al., Docket No. C-99-02, Superior Court of New Jersey, Chancery Division (July 2002), relatives of Marie Robertson are suing Princeton to narrow the mission and take control of the Robertson Foundation. Plaintiffs argue that Princeton has strayed from the plan agreed to in 1961, and have asked the court to transform the Foundation from a supporting organization into a private foundation. The donors and University agreed in initial negotiations that the University should have control over the Foundation, the objective of which is to improve facilities for the “training and education of men and women for government service.” The Plaintiffs disagree with Princeton with respect to how Foundation funds should be used to prepare students for careers in government and public affairs. Plaintiffs cite the Association of Fundraising Professionals’ Donor Bill of Rights, developed by the nation’s largest membership organizations for fundraising professionals, which states that “donor intent” is one of the primary “ethical standards and principles … for maintaining the public’s trust.” Meanwhile, the University has performed the Foundation’s mission in the same way for over 40 years without question from the Robinsons and has increased the value of the Foundation from $35 million to $850 million via the very investment strategy questioned by the Plaintiffs. Princeton has spent over $20 million in legal fees to defend its actions with respect to the world class program it has developed. The trial is expected to begin early in 2009 and last for four months to a year.

Howard v. Tulane University

In May 2006, two great-great-nieces of Josephine Newcomb filed suit against Tulane University, alleging that the University has violated the 1886 endowment of Josephine Newcomb, created for the express purpose of advancing “the cause of female education in Louisiana by establishing and maintaining ‘The H. Sophie Newcomb Memorial College’, for the higher education of Girls and young women.” Plaintiffs seek to restore the College, which Tulane folded into the larger university in the aftermath of Hurricane Katrina, claiming that Tulane has violated Newcomb’s specification. In Dodge, et al. v. Randolph College, 661 S.E. 2d 801 (Va. July 1, 2008), the Louisiana Supreme Court ruled that “Louisiana law grants a would-be heir or legatee standing to enforce a condition of a donation.” The case was sent back to the lower court for adjudication regarding reinstatement of the College. Although the Court did not rule on whether the will put conditions on the donation, it did rule generally that “would-be heirs” can go to court to enforce the conditions of a will, and it upheld the lower court’s ruling that the plaintiffs must prove they are heirs in order to sue.

Dodge v. Randolph College

Students, alumnae and donors of Randolph College, formerly known as Randolph-Macon Women’s College, recently sued the College to permanently prohibit it from selling off valuable pieces from its art collection, some of which were acquired with funds from a 1928 bequest of artwork along with money to buy more. The suit also sought to enjoin the College from admitting men, despite no specific donor restriction related to single-sex education. The College asked the courts to declare that it has the authority to sell items that were purchased with funds from the 1928 bequest. In Dodge, et al. v. Randolph College, 661 S.E. 2d 801 (Va. June 6, 2008), the Virginia Supreme Court ruled that the College did not break a contract with female students when it decided to enroll men and rejected the claim that promotional materials and other publications promised such females an all-female institution. The Court also unanimously rejected the claim that state law governing charitable trusts prohibits the school from raising money for single-sex education and then spending it on coeducation, finding that the school’s fundraising is governed by separate corporate law.

What Next?

For charitable organizations, these challenges imply an inherent struggle between following donor restrictions to the letter and maintaining the necessary authority over their own programs in accord with changing times. With today’s donors wanting more hands-on involvement with their donations, charitable organizations must accommodate the donors’ interests. They also must be more up front with donors at the time of the gift regarding potential changes in their structures and changes in the organization’s served populations and goals over time. If the educational institutions in the above cases prevail, their success potentially could have a chilling effect on donations from donors who wish to restrict their gifts. On the other hand, if the donors’ heirs prevail, institutions might be hesitant to put gifts to the uses their trustees have decided to put them and to put as much trust in their own discretionary authority. Both parties must be aware that if they do not communicate properly, the causes and people who benefit from the donors’ charitable donations and the institutions’ use of the funds are those that will suffer the most. The solution on a going-forward basis seems to be to make the terms of gifts clearer. Donors should consider up front and address on paper what shall be the outcome if the institution to which they are donating is unable to fulfill every last detail. Quite likely, such donors will be willing to negotiate the terms of their gifts to suit the ever-changing needs of the institutions which the donors value enough to give to in the first place.