December 22, 2011
The Nonprofit Quarterly reports on a dispute among members of a Hmong community center in Wisconsin. Individuals paid an initial $1,000 to become members of the organization. Included in membership privileges was the right to hold funerals at the facility. When the organization later fell into financial difficulty, it went back to the members and said they would have to contribute further to retain their memberships and the attendant rights. Some of the members sued, claiming breach of an enforceable contract.
What I find interesting about this case is the likely blending of law and equity. I tell my nonprofit law students that in the U.S. the strong trend has been toward resolving nonprofit difficulties and disputes through the application of corporate law, but that equity pops up at unpredictable times and in unpredictable ways. This is certainly true when it comes to disputes among members or between memberships and boards. The corporate law answer would be to look in the organization's governing documents to see what they say about members' rights and perhaps to assess whether any enforceable contract exists. Equity, however, would demand that the organization treat its members fairly.
In this case, the judge made the wise decision to send the parties to mediation. If all goes well, s/he will not have to decide whether to apply law or equity or, as often is the case, some jumbled combination of the two.
December 21, 2011
National Service CEO Driven Out By Politics
In my law teaching, I find that students who have had some work experience between their undergraduate studies and law school tend to be more focused and mature. Among that cohort, I particularly enjoy working with former Americorps volunteers. Often, they have worked in or been exposed to under-resourced communities, and they understand that 1) law (including nonprofit and community development law) has a role to play in improving conditions those communities, and 2) there are precious few lawyers willing and able to help. The former Americorps students tend to arrive at law school hungry to learn so that they can lend a hand, whether they are headed for careers at Legal Aid or in big-city corporate law firms.
Now comes word that the CEO of the Corporation on National and Community Service, the agency that oversees Americorps and similar programs, resigned because he and his agency were under political attack. According to the Chronicle of Philanthropy, Patrick Covington left because "the corporation was under assault by House Republicans who have been trying to slash the agency's budget and kill Americorps. . . ."
December 20, 2011
Nonprofit Theaters Turn to the Market
A recent article in the New York Times reports that nonprofit theater companies in NYC are acting ever more like for-profit companies in that they choose their productions with popularity and box office receipts in mind and spin them off to larger, more commercial sites if they are successful. On one hand, such practices appear to risk the invocation of the dread Commerciality Doctrine. In the Goldsboro Art League case, for example, the court (which ruled against the IRS) found it significant that the arts organization in question chose artwork for its exhibitions without regard to commercial appeal. On the other hand, it's hard to imagine that the IRS would risk inflaming the passions of New York's theater community as it struggles to survive these lean economic times.
Dispatches From the World of Nonprofit Law Clinics
As I have mentioned before on this blog, I supervise my law school's Community Development Law Clinic, which really should be called a Nonprofit Law Clinic. As the semester ends, I have been engaging in my usual practice of reviewing our progress, and it occurs to me that, in this season of religious celebration, we have taken on several projects for religious organizations.
One project is for a well established religious organization in North Carolina that is concerned about liabilty and wishes to explore incorporating under state law. The interesting challenge for the clinic students is that the congregation is strictly committed to non-hierarchical decision making on all aspects of its governance. The legal question, then, is how to devise a board comprised of any congregant who feels moved to show up to the business meeting and express his/her opinion in any given month, and where corporate actions will only be taken when the congregation arrives at "consensus," which is defined vaguely. As nonprofit law folks can imagine, this led to a close analysis of the North Carolina General Statutes on nonprofit governance and to some interesting and precise custom language in the organization's bylaws. Rather than describe the solution we devised, I will leave it up to you imagination.
(The tax folks in the crowd may be interested to hear that the same congregation was renting parking spaces for weekend football games and was completely unaware that UBIT might apply. A clinic student, upon discovering this, correctly pointed out that these exact facts are one of the examples in the IRS UBIT regs.)
Another project involves a group of nuns who wish to establish a 501(c)(3) nunnery. At first blush, the legal issues looked straight-forward, but as we dug in, we realized that we had a potential private inurement/benefit issue. The problem is that the nunnery would be formed by, and would initially house, a small group of nuns. To avoid the inurement issue, we advised that they populate the board with people who will not participate in or benefit from the nunnery's programs. This proved difficult, however, because their religious principles require that organizational decisions be made only by ordained (not sure that's the correct term) nuns, and they are the only ones in the region. Resolving that problem required significant creative, collaborative work between the students and the nuns. The private benefit issue was easier, since the client had no problem making its benefits available to an indefinite class.