Charities Deal With a Stream of Lawsuits From Disenchanted Donors

Scott Ginsburg, a Texas businessman, last month sued Georgetown University to get back $7.5-million in donations because he says the institution reneged on its promise to put his name on the law school’s sports and fitness center.

Now Georgetown is fighting back with a lawsuit of its own. It wants $9-million more that it says he promised and never provided.

Behind the dispute: When the Securities and Exchange Commission found that Mr. Ginsburg had engaged in insider trading, Georgetown says it thought twice about putting his name on a building at the institution that awarded him a law degree. It says it also offered to give back the money.

Mr. Ginsburg doesn’t remember things that way and says the parties never agreed to a deal changing the terms of his gift.

The dispute at Georgetown joins a steady stream of legal battles that may offer not only a window into the high- stakes, sometimes emotionally charged world of big gifts, but also cautionary tales to help avoid future tussles.

In recent weeks, a nonprofit memorial park and a small New York family foundation have been squaring off in court over how a donation is being recognized, and a college professor working with a national donor-advocacy group has signaled plans to sue Trinity College in Hartford, Conn., over how money is being spent from an endowment.

Other colleges, including Columbia and Johns Hopkins universities, are now involved in long-running battles about how closely they are following the wishes of donors who have died.

Checking Policies

The cases pitting nonprofits against their benefactors raise thorny questions about donor demands and a charity’s responsibility to adhere to them. And, as with similar cases in the past—including, for example, the Robertson family’s dispute with Princeton University and the fight over relocating Philadelphia’s Barnes Foundation—donors, philanthropy advisers, and fundraisers are watching closely.

“When I hear about these things,” says John Taylor, an associate vice chancellor at North Carolina State University, “I go back over our own policies, reread our own documents, think about the way we talk to our donors to make sure we feel we are covered in a way that might prevent a similar problem from happening here.”

An Oral Agreement

An Oklahoma nonprofit did just that last year at the conclusion of its own highly publicized court battle with the country music singer Garth Brooks.

Mr. Brooks had sued Integris Health, a statewide hospital network, saying that it failed to honor an oral agreement he had made with a hospital chief to name a women’s center after his mother, who died of cancer.

A jury agreed with the star, ordering Integris to return his $500,000 gift, plus pay him another $500,000 in damages.

Since then, the Integris Foundation, which raises money for the system’s four hospitals and nine medical centers, has completely overhauled fundraising, drafting the system’s first-ever gift-acceptance policies and gift-agreement documents and working with officials throughout the system to improve communication and recordkeeping.

Brad Walker, the foundation’s executive director, says the new policies and procedures are intended to guard against another Garth Brooks situation, requiring, for example, that all major-gift solicitations be coordinated and cleared by the foundation.

“With Garth Brooks, it looks like nothing was ever written down,” Mr. Walker says. “It was just him talking with a hospital president and the president maybe not talking to everyone else.”

The new policies, which were approved by the system’s board in February, are already working, Mr. Walker says.

An Integris official who recently spoke informally with a prospective donor about supporting a major building project under consideration immediately shared the information with the foundation.

“He called me and recounted details so I could write up a report, put it in the database, and be prepared for the right follow-up,” Mr. Walker says. “We had to know: Did they discuss a number? Naming rights? What was the donor thinking at this point? Should we come to the next meeting with renderings or were we not that far along?”

The lessons Integris learned, while critical, are fairly broad and well-established: Keep good records, follow consistent gift-acceptance policies, craft solid gift agreements, and provide for good communication inside the organization and with the donor.

Ethics Clauses

Some of those issues may be relevant to the Georgetown case, too, but the conflict there, philanthropy and legal experts say, mostly points to a need to focus on one key issue: Include an ethics clause in all agreements.

Ethics clauses, sometimes known as reciprocal or morals clauses, consist of language in a gift agreement—or a related policy document—that states what action might be taken to protect the reputation of the nonprofit or the donor, should the reputation of either party come into question. A charity might, for example, reserve the right to take a donor’s name off of a building if the donor is convicted of a crime.

Mr. Ginsburg, a radio executive who founded Boardwalk Auto Group, which sells luxury cars, says he never came to any agreement with Georgetown after it got cold feet.

William Zabel, a lawyer in New York who advises donors, says that it appears from the documents Georgetown submitted to a federal court that Mr. Ginsburg’s gift agreement did not include an ethics clause.

“If so, the case certainly proves the need for one, especially when talking about naming rights,” says Mr. Zabel, who is not involved in the case. “You need a clear statement of when the institution has the right to take someone’s name down and when a donor has the right to make changes.”

Better Communications

A judge in New York took it upon himself to offer some wisdom in the case pitting Franklin D. Roosevelt Four Freedoms Park, a new memorial to the president in New York City, against the Reed Foundation, one of the park’s top donors.

In an order issued in October, the state supreme court directed the park to inscribe the foundation’s name in the exact spot agreed to in a gift contract, despite the park’s concerns about marring the site, adding in a footnote that a lawsuit could have been avoided if Four Freedoms and its consultants “had voiced their artistic objections in a timely manner.” Four Freedoms has appealed the order.

Harvey Dale, a professor of philanthropy at New York University, says he doesn’t know details of the case, but, like so many other instances of donor-charity tensions, a real fight might have been avoided if the two sides had communicated better from the start.

“So many of these cases involve complicated legal questions, but are really in the first place about how well institutions and donors have communicated and made a record of their understanding in written agreements up front,” he says.

Mr. Dale and other philanthropy experts say the best gift agreements make clear the donor’s objectives and the nonprofit’s ability to meet them, plus take into account the possibility of changing circumstances.

Different Eras

In the lawsuits against Columbia and Johns Hopkins, changing times and circumstances appear to play a key role.

At issue at Columbia are gifts made by several families in the 1920s—a building to serve as a hub for Italian scholarship and cultural programs and some money to support the efforts. Along with some of the donors’ descendants, the Italic Institute, an advocacy group, sued Columbia last summer, saying the university no longer uses the building for the purposes donors wanted.. A Columbia spokesman declined to comment, citing the pending lawsuit.

In October, a state court judge in Maryland ruled against a family who claimed in a lawsuit that Johns Hopkins’ plans for building a new campus defied the intent of the former landowner who sold the property to the university at well below market price, hoping the deal would protect it from commercial development and preserve some of its character. The family has appealed the decision.

In an e-mail, a Johns Hopkins spokesman wrote that the university “takes the interests of its donors very seriously,” and that it “has honored the covenant, as the trial court has found.”

In the Trinity College case, officials say they have no comment on a possible challenge over donor intent.

As these and other charity-donor disputes continue to parade through the courts, some observers wonder when the lessons the cases offer about the best—or worst—ways to plan, record, document, and communicate around giving and receiving donations will be learned.

Says Jack Siegel, a Chicago lawyer who follows philanthropy: “I promise you in one year, three years, we’ll be back talking about the same situations, the same kinds of lawsuits, just with different names.”

Averting Donor Lawsuits: Tips From Experts

• Keep good records
• Apply consistent gift-acceptance policies and procedures
• Craft gift agreements that contemplate changed circumstances in the future
• Include morals clauses in case the donor gets in trouble in a way that could embarrass the institution
• Communicate with all key parties at the organization about what a donor has been promised
• Update the donor and key family members about how the gift is being used