Vanderbilt Law Review
Philanthropy has a dirty little secret -- that a gift to public charity restricted to a specific purpose is often used in ways not intended by the donor. In most states, the attorney general is the agent for enforcement of such gifts. Attorney general offices are beset with difficulties that make it impossible to monitor how each charity administers restricted gifts. Donors are increasingly aware that their restrictions are ignored and, frustrated by lax enforcement, they are pursuing standing to enforce restrictions.
In Smithers v. St. Luke's/Roosevelt Hospital, the donor's widow succeeded in obtaining standing, even after the attorney general had entered into a settlement agreement with the hospital. Donors with their restricted gifts keep the charitable sector vital and ensure its diversity. Nevertheless, such restrictions exist in perpetuity and can result in an effective privatization of the charitable mission, especially if the charity is not free to interpret a restriction in response to change. While there is no doubt that such restrictions are legally binding on the charity, the attorney general in the exercise of her prosecutorial discretion can effectively allow restrictions to lapse, preserving the autonomy of the charity. Thus, Smithers has enormous implications for the autonomy of charitable organizations and their capacity to respond independently to change.
Public charity occupies a large part of what is termed "civil society." To weigh the trade-offs inherent in Smithers, I examine the conclusions of recent studies documenting the problem of participation in all areas of American life (e.g., Robert Putnam's Bowling Alone). I argue that, given the fragile state of civil society, a liberalization of the standing rules is an important incentive to continued participation by donors- and a boon to the vitality of civil society. I also propose, however, again for the sake of civil society, certain changes in the doctrines governing fiduciary duty to allow the charity more autonomy in interpreting restrictions over time and, further, a liberalization of cy pres requirements so that courts can more readily remove such restrictions.
Goodwin, Iris J., Donor Standing to Enforce Charitable Gifts: Civil Society vs. Donor Empowerment (September 1, 2004). Vanderbilt Law Review, Vol. 58, No. 4, p. 1093, 2005, Available at SSRN: https://ssrn.com/abstract=597126