Lead Stories

The Executive Board of the Missouri Baptist Convention has suffered another loss in its 13-year battle to regain control of property deeded to an affiliate in 2001.  The Missouri Court of Appeals, handling the matter for the fourth time, has dismissed the Convention’s appeal for failure to follow appellate rules in setting out the facts and legal arguments. 

Foundation, Individual Donor

Lack Standing to Enforce Gift Agreement

Court refuses to apply Uniform Trust Code

when gift was not result of an express trust

In yet another case showing that donors of significant charitable gifts should specifically retain the right to enforce their agreements if they want a say in the ultimate use of the property, the Supreme Court of Wyoming has denied standing to a foundation and an individual donor who wanted to sue to prevent the sale of a ranch given to the University of Wyoming and Colorado State University.  The Court has said that only the state Attorney General has standing to sue, and has refused to apply the more liberal standing provisions of the Uniform Trust Code because the gift was not made in an express trust.  (The Courtenay C. and Lucy Patten Davis Foundation v. Colorado State University Research Foundation, Supreme Ct., WY, No. S-13-0121, 3/4/14.)

In 1997, the Courtenay C. Davis Foundation, which held a 99% membership interest in a limited liability company that owned and operated a working cattle ranch, and Amy Davis, who owned the remaining 1% interest, gave their interests in the LLC and its operating assets jointly to the foundations of the University of Wyoming and Colorado State University.  At the same time they gave a conservation easement to the Nature Conservancy to protect the open space.

The memorandum of agreement with the university foundations provided that the gift was to be used to generate scholarships and internships for students from net income generated by the ranch, and to provide a “real world” working laboratory for students of ranching and resource management. The agreement provided for a seven-year phase 1 to stabilize operations, and a follow-up seven-year phase 2 to generate revenue for the schools’ endowments.

The agreement also provided for possible disposition of the property at the end of the 14-year operational requirement.  The foundations could enter into a joint sale or pursue various methods of separate acquisition if either wanted to own the ranch outright.  After the 14-year period, the universities decided to sell the property through a sealed bid procedure.  The Foundation and Davis sued to stop the sale.

When the university foundations moved to dismiss the claim for lack of standing, the Davis plaintiffs amended their complaint to claim that the agreement created an implied charitable trust and that they had standing to enforce the terms of the trust under Wyoming’s version of the Uniform Trust Code.  The trial court dismissed their claims, and the Supreme Court has affirmed.

The Supreme Court first considered whether the agreement had established an implied trust for the property.  It said implied trusts could be classified as either a constructive trust or a resulting trust.  A constructive trust is not really a trust at all, it said, but “an equitable remedy that a court imposes against one who has obtained property by wrongdoing.”  A resulting trust is one “imposed by equity when property is transferred under circumstances suggesting that the transferor did not intend for the transferee to have the beneficial interest in the property.” 

The Court reasoned that the original gift agreement did not create an implied trust.  The intent to keep the ranch as open space, it said, was accomplished by the easement to the Nature Conservancy.  But it was also clear that the donors did not intend that the university foundations would necessarily hold the property forever.  The agreement provided a specific procedure by which they could sell the property.  Following the Court’s “longstanding approach” that “no trust is created where the transaction is as consistent with another type of transaction as with that of a trust,” the Court found that no trust resulted from the agreement.

It then followed the common law rule that only the Attorney General may enforce the terms of a charitable gift unless the donor expressly reserved a property interest in the gift.

It found that the state legislature had expanded the standing to enforce an express trust when it approved the Uniform Trust Code, but had not expanded the right to enforce an outright charitable gift.  The Davis plaintiffs argued on the appeal that they had reserved a right to be on the management committee for the property that was created under the original agreement.  The Court rejected the argument because it was not raised at the trial court level, but also said they had “not articulated how an interest arising from service on the management committee allows them to circumvent the common law rule.”

YOU NEED TO KNOW

Donors who want to retain the right to enforce the terms of a charitable gift should retain that right in the gift agreement or face the likelihood that they will have no standing to pursue their claims in court.  The Attorney General is a political animal, often elected by the public, who may have neither the resources nor the inclination to take the donor’s case to court. 

A man who filed an application to reinstate a nonprofit corporation that had been administratively dissolved for failing to file required state reports has been sentenced to 12 years imprisonment for theft of corporate assets when he had no authority to take control of the nonprofit.  An appellate court in Illinois has affirmed the conviction and rejected the man’s claim that he had the right to revive the organization.  (People v. Koen, App. Ct. IL, First Dist., South Div., No. 1-11-3082, 2/7/14.)

When the United Way merged a number of its chapters in the Chicago area in 2003, it did not include the United Way of Harvey in the program because it had significant tax liabilities on an apartment building it owned in Harvey.  The corporation ceased filing its required state filings and was administratively dissolved in 2004.

Members of a nonprofit corporation may call a special meeting to oust directors without asking the secretary of the corporation to send the notice, an appellate court in Washington state has held, when the action is specifically authorized by the organization’s bylaws that permit direct action. (Island Landmarks v. Matthews, Ct. of App., WA, Div. 1, No. 69619-o-I, 12/23/13.)

A nonprofit health insurance benefit administrator has been enjoined from spending police union funds to support or oppose candidates in a union election even though authorized by its own board and the union officials overseeing the administrator. A divided Pennsylvania Commonwealth Court has reversed a trial court and ruled that such action is not authorized by the vendor’s articles of incorporation, bylaws or law. (Zampogna v. Law Enforcement Health Benefits, Commonwealth Ct., PA, No 1322 C.D. 2012, 11/27/13.)

The Tenth Circuit Court of Appeals has reversed a District Court and has held that the Bankruptcy Code permits a bankruptcy trustee to void the entire amount of a donor’s charitable contribution if it exceeds 15% of the donor’s gross annual income. It has reversed a District Court decision holding that the trustee could recover only the amount of the gift that exceeds 15%. (In re: McGough, Wadsworth v. The Word of Life Christian Center, 10th Cir., No. 12-1142,12/16/13.)