A Court Case Reminds Us About the Importance of Donor Restrictions

All nonprofits should learn from this recent court case.  Donors can restrict gifts, and they can take the money back if we aren't accountable.

The NonProfit Times - August 12, 2013
Read full article here.       
It’s a simple concept: If a donor gives an organization a restricted gift, the organization must use that gift for the purpose determined. Some see it differently and that’s how it ends up in court.
The New Jersey Superior Court, Appellate Division, ruled that charities that do not follow donor intent must return the gifts. A three-judge panel ruled that a Mercer County animal shelter must disgorge a $50,000 gift originally slated for specialized construction.
Judge Jose Fuentes wrote in the opinion, “we hold that a charity that accepts a gift from a donor, knowing that the donor’s expressed purpose for making the gift was the fund a particular aspect of the charity’s eleemosynary mission, is bound to return the gift when the charity unilaterally decides not to honor the donor’s originally expressed purpose.”
The case turned on a gift given by a Princeton couple, Bernard and Jeanne Adler, to animal shelter SAVE (now SAVE, A Friend to Homeless Animals). The gift was to finance the building of an area for larger dogs and older cats, whose adoption prospects are limited, as part of a new facility in Princeton.
Before construction could begin, SAVE merged with another animal welfare nonprofit, Friends of Homeless Animals. The new plan was to build a new shelter in nearby Montgomery Township roughly half the size of what the new Princeton facility would have been; construction is expected to begin in the fall of 2013. Though SAVE trustee John Sayer testified that the new shelter would “absolutely” have rooms for large dogs and older cats, according to court documents, the court said that evidence suggested otherwise.
“Based on Mr. Sayer’s testimony and the letter announcing the merger between SAVE and Friends of Homeless Animals, we are satisfied that the 15,000 square foot shelter to be constructed in Montgomery Township does not include two rooms specifically designated for the long-term care of large dogs and older cats,” wrote Fuentes.
The Adlers filed suit in Mercer County in 2007, and a judge ruled in their favor in 2010. SAVE appealed, saying the first judge erred when he determined the Adlers’ gift was restricted. SAVE also argued that even if it was restricted, its purpose would have been fulfilled and, barring that, the lower court should have reworked the gift so SAVE could spend it on a project as near as possible to the original intent.
The appellate court disagreed, saying SAVE had courted the Adlers, who had been long-time supporters but who had never made a significant gift prior, with a campaign that specifically included the two rooms and a naming opportunity. “To be clear, the record shows that SAVE: (1) decided to construct a substantially smaller facility; (2) outside the Princeton area; (3) without any specifically designated rooms for large dogs and older cats; and (4) without any mention of plaintiffs’ names,” Fuentes wrote.
The appellate court affirmed the lower court’s decision on August 5. “By opting to disregard plaintiffs’ conditions, SAVE breached its fiduciary duty to plaintiff,” wrote Fuentes. “Under these circumstances, requiring SAVE to return the gift appears not only eminently suitable, but a mild sanction.”
Read more here.