Friday, June 20, 2008

St. Olaf College Case Highlights Troubles with Restricted Gifts

Litigation over whether charities can change the use of restricted gifts is becoming more common and the legal issues involved more complex. The most visible of these cases over the past few years has been the litigation involving Princeton and the Robertson Foundation over the Woodrow Wilson School of Public and International Affairs. In this case, the Robertson family has argued that Princeton violated the terms of the gift that funded the Wilson School (originally $35 million, now almost $800 million, and more than 5% of Princeton's total endowment). The Robertson family has a whole website devoted to the litigation here; and of course Princeton has published rebuttals on its own web site here. See also the prior blog post regarding Professor Iris Goodwin's article about the Princeton litigation here.

Now a trial judge in Minnesota has taken both the Minnesota Attorney General and St. Olaf's College to the woodshed regarding St. Olaf's sale of WCAL, its public radio station (which St. Olaf sold to Minnesota Public Radio). St. Olaf's had sought to remove the restrictions on certain gifts to the college that were for the benefit of supporting WCAL, and the judge in this case refused St. Olaf's request with respect to several of the gifts in question (the judge did permit certain gifts to be used to support St. Olaf's production of certain radio shows that would continue to be broadcast over the MPR network).

In the opening part of his opinion, Judge Gerald Wolf stated,

The Minnesota Attorney General is the watchdog of all trusts throughout the state of Minnesota. Deplorably, when St. Olaf made the decision to sell WCAL, no one from the Attorney General's Office intervened to safeguard the trust. The Attorney General's Office was notified by SaveWCAL of the pending sale yet they failed to do anything. The undersigned is absolutely mystified as to why the State Attorney General did not become involved in a sale of trust assets valued at $12 million when it is its statutory obligation to do so.
The undersigned does recognize that there is a newly elected Attorney General who was not in office at the time of the sale. However, the office is painted with the same brush. Her office is tainted with this lapse of duty even though she did not hold her present position at the time. Regardless of who was serving as Minnesota Attorney General at the time of the sale, the office as an institution has a duty to the people of Minnesota to serve as guardian of all trusts created and operated in this state. The Minnesota Attorney General's Office failed in its duty in this case.

Ouch!

The opinion in the case is available here (fairly large PDF file with a fairly slow link, so give it time to load).

JDC

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As the President of SaveWCAL, I would like to add some points of clarification. There is no indication that any of the "programming" that St. Olaf College will produce as a part of the "core WCAL activities) will be carried over the Minnesota Public Radio (MPR) network. And, in fact, the purchase agreement with MPR released to the public at the time of the sale did not contain any language indicating that MPR agreed to carry any programming from or produced by St. Olaf College.

In fact, much of the programming that the College claims it will now produce is programming that MPR would likely never carry such as chapel services, the long-running "Sing for Joy" program of religious choral music, faculty recitals and student organization concerts. (St. Olaf has one of the best recognized music programs in the country and a world-recognized choir -- all of which were benefits to and benefitted from the excellent programming that WCAL carried.)

There have been vague references in the press regarding arrangements for MPR's broadcasts of the well-known St. Olaf Christmas Festival, but not in the purchase agreement itself. SaveWCAL believes that St. Olaf may have sold the rights to the Christmas Festival to MPR. And MPR has, since the sale, broadcast that concert during the holiday season. (MPR was not a party to the case.)

The Court granted St. Olaf's request to use the restricted endowment funds (Exhibit A). The value of the gifts in that category is approximately $460,000 (when the Eckberg donation is included). The ruling also allows St. Olaf to use the Munck bequest of $150,000 and the distribution from the Turbis trust of $100,000. The total of these donations is approximately $710,000. The use of these funds is limited to supporting the "core WCAL activities".

Core WCAL Activities” is a euphemistic phrase made up by St. Olaf College in an attempt to assemble activities for which the college thinks it should be allowed to use WCAL charitable trust funds and is trying demonstrate to the court that it is still “honoring” the WCAL trust. In other words, the College had to find a way to convert those endowment funds to “related” purposes now that WCAL no longer exists (which brings up other issues related to charitable trust law). BTW, the original concept of “core WCAL activities” was put together by a senior St. Olaf administrator who admitted under oath that he was not a regular WCAL listener!

Of course, the whole purpose, the true “core activities” of the original WCAL charitable trust was running a radio station — and that is clearly the purpose for which St. Olaf had solicited gifts/contributions and the intent with which the donors gave their money. Period. Which is why the judge did not lift all of the restrictions.

The Court denied the Petition with respect to two of the major gift categories -- the restricted non-endowment gifts (Exhibit B) and the undocumented gifts (Exhibit C). The value of the gifts in Exhibit B is approximately $657,000. The value of the gifts in Exhibit C is approximately $370,000. This is a total of $1,027,000. So the value of the gifts in the denied categories is substantially greater than the value of the gifts in the allowed categories.

In addition, the Court restricted the use of the $1 million donation by Senior [Emeritus] Regent Leonard Hoeft solely to "core WCAL activities." St. Olaf did not include the Hoeft donation in its Petition or Amended Petition. The College had represented to the Court that it had Hoeft's consent to withdraw his donation from the WCAL endowment and claimed there were therefore no restrictions on the use of the donation. When the Special Master determined that Hoeft had never given his consent, the Court decided -- on its own -- to include the restriction in its ruling.

Irony of ironies. The court has basically required St. Olaf to continue the WCAL trust — even though the college no longer has WCAL. St. Olaf must now use the majority of the funds in the WCAL trust to produce the same kind of services WCAL was providing to St. Olaf at no direct financial cost to the college, due to the generosity of WCAL donors — but without the station, staff, etc. and the donor stream that supported WCAL. The rest it must keep in trust for an entity that no longer exists.

WCAL was the first listener-supported radio station in North America, first accepted listener donations in 1922. It was a founding member of National Public Radio. At the time of its sale, it was operating "in the black" and at no direct financial cost to St. Olaf College, the trustee of the station, which has ceased all donations to the station in May 2004.

WCAL was built and survived due to the generosity of literally tens of thousands of WCAL donors who gave millions of dollars over the course of more than eight decades to sustain the station as the "voice of St. Olaf College."

Posted by: Ruth Sylte | Jun 20, 2008 1:38:36 PM

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