Marie and Charles Robertson - the donors at the heart of the largest lawsuit in philanthropy history.
Donors give money to charities to achieve good things. Some donors have specific ideas about the good they want their money to accomplish. These donors make special gifts, “restricted”, for specific projects. This can be money for a new building, scholarships for students, or any project or program the charity and donor mutually agree on. It doesn’t matter the amount of money, the donation is solicited and given for a purpose. One expects the charity to honour the donor’s intentions.
But what happens when the charity does not spend the money on these projects, instead it goes into general operating funds and is spent on other things?
Most donors remain blissfully unaware about money misspent. Some donors don’t tell, shying from publicity and sticking to the upper-class code of silence about all things unpleasant. Only a few donors fight back.
Bill Robertson was a fighter for donor rights. He took Princeton University to court in 2002, spent $40 million in the 4-year legal fight and, bled dry, had to settle.
Doug White’s Abusing Donor Intent: The Robertson Family’s Epic Lawsuit Against Princeton University, tells this legal story about the largest court case in philanthropy, It is a gripping book every donor considering a restricted gift should read. It is a rare glimpse of the behind the scenes details of philanthropy among the ultra-wealthy. Like sausages and legislation, how philanthropy actually worked in this case is most unpleasant.
“A detailed account of a case that attracted national attention and highlighted the frustrations that donors feel when they see their money being used for purposes they never intended.”
- Wall Street Journal
Donors are falsely confident that carefully-drafted, legally-signed, gift agreements protect their donation from ‘misappropriation’. In legal discovery, Princeton released internal memos and spending. It turns out Princeton had never intended to honour its agreement with the Robertson’s, not even in 1961 when receiving the record-breaking gift[1]. PriceWaterhouseCoopers’ audit showed Princeton had ‘misappropriated’ $217 million of annual income from the Robertson’s gift which Princeton spent on general operations.
Princeton alumni and supporters were appalled reading the facts in the New York Times and Wall Street Journal. Donors voted with their cheque books. While Princeton settled and “got off easy”, it lost an estimated $1 billion in fundraising donations.
Case law in the charity sector moves at a “glacial pace”[i]. Donors don’t want to take a charity to court. Legal costs can be exorbitant, especially challenging restricted donations to goliath institutions like hospitals and universities. Donors resort to the courts out of moral necessity[ii]. It is not about the money (although there were multi-millions at stake in the Robertson case). It is a battle of principles. It is about honouring an agreement.
Recent legal decisions have clarified donors’ rights, at least in the US.
In August 2013, the Adler’s won back a full refund of their $50,000 donation when SAVE, an animal shelter rescue charity did not build a new larger kennel for dogs, as advertised in its fundraising campaign. The ruling called its fundraising brochures “sophisticated weapons of persuasion” to entice donors to give generously to its campaign. Judge Sumners, Jr. said “Returning the donation is the most lenient sanction the defendant may receive from a menu that includes breach of fiduciary duty and civil fraud”[iii].
A jury went further in January 2012, awarding a full refund and $500,000 for a breach of contract to country singer star, Garth Brooks. In 2005, Brooks donated $500,000 to his hometown hospital to name a women’s centre for his late mother. Nothing was done and Brook’s donation was put into general funds. In 2009, Brooks asked for his money back. When refused, Brooks sued the hospital. Only then did the hospital offer to return his donation, but Brooks refused on principle. The jury awarded damages saying, “we wanted to show it [Integris Canadian Valley Regional Hospital] not to do that anymore to anyone else.”
Another area donors need to be aware of is when a new donation simply re-brands an existing program. White details one case he advised on: A donor gave a private school a $1 million endowment with a clear gift agreement to establish a student scholarship. In reviewing the school’s accounts, it spent $3 million on scholarships before the gift - and $3 million in the years after the gift. The school did not create a new scholarship but rather “slapped” the donor’s name on an existing scholarship. The headmaster retorted “Donors don’t dictate our budget”. Despite the gift agreement, he claimed complete discretion, not only over the running of the charity, but also in interpreting the donor’s intentions.
Donors are attracted to funding new programs. Charities play this game putting new names on current programs. Often new gifts do not “establish” anything new.
“Donors need to be far more diligent in tracking how their money is used. They need to hold the charity to account.”
- Doug White
Here in Canada, lacking court decisions, Canadian donor rights are not clear. As in America, public opinion strongly believes charities should stand by their promises. This leaves a gap between case law and public expectations. Canadian donors considering making restricted gifts, especially to large charities, should go forewarned: caveat emptor. White’s book is an excellent map of pitfalls donors need to look out for in making restricted gifts.
Learn more about donor legal rights:
- To be seen but not heard: 2018 Ontario court rules against a donor's right to know how money was spent
- Lessons learnt the hard way: Doug White’s recommendations for donors in making restricted gift
- Uncharted waters: Donor rights in Canada
Doug White is a philanthropic advisor to individuals and family foundations. He is a leader in America's philanthropic community. White has written 4 books: The Art of Planned Giving, Charity on Trial: What you need to know before you give, The Nonprofit Challenge: Integrating Ethics into the Purpose and Promise of Our Nation's Charities. He is currently writing a book on the Wounded Warrior Project.
Sources:
Doug White, Abusing Donor Intent: The Robertson Family’s Epic Lawsuit Against Princeton University, April 2014
1. Michael Blatchford, Partner, Norton Rose Fulbright: “high costs of litigation and reluctance to go to trial means that the common law of charity advances at a glacial pace, because there isn’t a regular flow of cases calling for adaption.” May 2018
2. Fredric J. Fransen quoted in Doug White’s Abusing Donor Intent, “Robertson v. Princeton – A Post-Mortem” Pittsburgh Tribune Review, January 4, 2009 – original article not found.
3. New Jersey Appellant Court Decision, Bernard and Jeanne Adler v. SAVE, A Friend to Homeless Animals, August 8, 2013
John Hechinger and Daniel Golden, “Poisoned Ivy: Fight at Princeton Escalates Over Use of a Family’s Gift. University concedes errors but said it upheld intent of donors to Wilson School”, Wall Street Journal, February 7, 2006
John Hechinger, “Princeton Settles Suit Over Big Donation, Agrees to Pay Family About $100 Million”, Wall Street Journal, December 11, 2008
Jane S. Shaw, “An Unsettling Conclusion,” The James G. Martin Centre for Academic Renewal, December 15, 2008
[1] The Robertson Family initially gave a historic $35 million to the Robertson Trust in 1961. The Robertson Trust was a separate trust within Princeton University so independent trustees could oversee the program. With capital appreciation, the trust grew to an estimated $800 million by 2008. In the legal settlement, Princeton paid $40 million in reimbursing the Robertson's legal fees, gave another Robertson foundation $60 million, and took over the Robertson Trust.
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