Suing Your Donor
(Added 12/3/2012)
We have a donor who refuses to honor his multi-million dollar pledge. He pleads poverty right now, even though in my opinion he's not poor. He also signed a pledge agreement that requires him to pay $1 million per year for five years. He made the first two payments, but his attorney just called to tell us that his client is unable to make good on the remaining payments. We made a big deal of this when the donor committed himself to the gift, and we established a named professorship in his honor. We need this money. My board of trustees asked me to come in to present the facts of the case because, my boss says, they are considering legal action against the person. I am against suing the donor, but I don't know how to convince the board.
Refuses? Or is unable? It doesn't matter whether you think the donor is poor or not. And whether you need the money isn't the point. Now that I've gotten those particulars off my chest . . .
Lots of people have found themselves in a philanthropically generated financial bind by the recession. The most common tactic for charities was - and continues to be in dealing with those supporters still reeling from their lessened economic circumstances - to work out a longer payment plan, and to just generally stay in touch more frequently. I'm not aware of any organizations that jumped to the quick conclusion that they should sue. I understand that a signed pledge agreement outlining the terms of payment is legally binding, and so the path to suing donors - or their estate if they have died is open to charities. But, really, who wants to go down this road if it is at all possible to avoid it? Charities are the good guys in our communities; going to court is . . . simply beneath them, to say nothing of the deadening effect such a move might have on future pledgers. No, not a good idea if you can avoid it.
But it's also true that, on a very real level, at least on their operational side, charities must be run like businesses. They can't run or cower when the winds of a donor's whim breeze by. A deal is a deal. I'm glad that you didn't break ground or incur many, if any, hard costs on the basis of that pledge, as so many charities foolishly do. Your financial commitment, in effect, was to shift expenses out of the program that was to be endowed to other parts of the university. While that's an inconvenience, it's less devastating than having to unexpectedly produce extra hard cash from the budget. Quite frankly, if I were a trustee - or, even, if I were you (as I take it you were the one to get the gift?) - I would want to know as many details as possible, a fundamental step in ethical decision-making. Your trustees might think this is a legal question, but it's really first and foremost a matter of ethics. (A discussion with your attorney on that point might better be held on another day.)
A call to the donor's attorney to have a frank discussion is not out of the question. In fact, it is your fiduciary duty. You want to know the circumstances of the donor's retreat. Don't be belligerent and don't be too accommodating. It's not a legal discussion, but it is a business inquiry. Don't mention the legal action being contemplated, for that is not your place. While yours might be the first call, as you are the person with whom the donor has had the most contact, it probably won't be the last he receives on this matter from your university. It should go without saying that you should first discuss this with your boss. I'd also lobby to meet with your general counsel to tell him or her the facts, as you know them, so that someone will eventually be able to approach the donor or his attorney with a viable demand. Only after as much inquiry as possible has been conducted, including asking you your opinion, should the trustees make their decision whether or not to pursue legal action.
While suing a donor should be your last option - a process begun after even more investigation than might be the case in the for-profit world - it is in fact not beneath charities. And it should not be off the table.