Archive for July 28th, 2015

July 28, 2015

Lawsuit Seeks to Win $5 Million on Donor’s Pledge

The St. John’s Health Center Foundation, which supports the hospital of the same name in Santa Monica, CA, has filed a lawsuit to collect $5 million that Paula Kent Meehan had pledged.

The legal action raises questions about whether charities can and should sue to collect on unfilled pledges.

Giant Gavel by Sam Howzit via FlickrMeehan made her fortune after founding the Redken hair-care products company in the 1960s. In 2007, she made the pledge to St. John’s, according to a report in the Los Angeles Times. Rather than simply including St. John’s in her will (a revocable gift commitment), Meehan also signed an “estate pledge commitment” that said her pledge would be “legally binding on me and my heirs, executors, administrators, personal representatives and assigns.”

In recognition of the irrevocable gift commitment, the Foundation planted a tree in Meehan’s honor and placed her name on a donor wall in the lobby of the hospital.

Unfortunately, “in 2013, Meehan revoked her pledge to the St. John’s Foundation after the ouster of the hospital’s top executives and the proposed sale of the nonprofit Catholic hospital,” says the Times report. When Meehan died last year, the Foundation contacted Meehan’s representatives to seek fulfillment of the pledge. When they refused to pay, “the Foundation sued the executors of her estate for breach of contract for $5 million.”

Let’s look at three of the obvious questions this case raises:

1. Can a nonprofit organization sue a donor?

The answer to this question is simple: Yes. The St. John’s Foundation has already done just that. Pledges, whether verbal or written, are contracts that can be enforced under the rules of contract law.

2. Can the Foundation win its lawsuit?

To answer this question, we would need more information. For example, we do not know the complete and precise language of the estate pledge commitment. The commitment might have been conditional allowing Meehan to change her mind if certain conditions were not met. Or, the commitment might have been ironclad without any provision for altering its terms. Undoubtedly, this will be one of the key issues decided by the Los Angeles County Superior Court.

3. Should a charity sue one of its donors?

This is the most challenging question. Clearly, the St. John’s Foundation believes it should. However, just because a charity can sue a donor does not necessarily mean it should.

Filing a lawsuit against a donor could dissuade others from making a pledge commitment or giving at all.

“‘From a practical or public relations perspective, I couldn’t imagine a worse strategy,’ said Doug White, director of the master’s in fundraising management program at Columbia University. ‘This is not the way an organization should behave with a donor. It sends a very bad message,’” reports the Times.

On the other hand, Howie Pearson, a Stanford University attorney and professor of estate planning at its law school, told the Times, “The charity is caught: On the one hand, you want to be donor friendly; on the other hand, the charity does have a fiduciary obligation to protect its assets.”

The St. John’s Foundation lawsuit isn’t just a messy situation for that particular organization. The public relations fallout from it could affect other charities working with philanthropists who might get cold feet as a result.

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