Sunday, June 13, 2010

BP Oil Spill Washes Into the Nonprofit Sector

The devastating Gulf of Mexico oil spill continues to have collateral effects, including in the nonprofit sector.  Here are a couple of highlights:

  • When There is Disaster, There Will be New Charities (and Paperwork):  The St. Petersburg Times reports what experienced EO attorneys know but most people do not - forming a new charity involves a lot of paperwork.  Citing the newly created Friends of Florida, an organization specifically created to help combat the effects of the spill on Florida's shores and wildlife, the article notes the need not only for incorporation and an IRS exemption application, but also in Florida to register with the state Department of Agriculture and Consumer Services to solicit charitable contributions.  The article also raises some yellow flags regarding the credentials of the group's founder.  Regardless of the merit of this particular group, disasters are also breeding grounds for fraud, including through fraudulent charities, as the article notes.

UPDATE:  Additional coverage of this issue is available in The Economist (Business and NGOs: Reaaching for a Longer Spoon").


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Professor Dunn's piece suggests that a charity should consider returning funds received (apparently in good faith) from a donor that later becomes tainted. That is, at best, a questionable view. When may charitable fiduciaries, having a duty to their beneficiaries, abandon an asset to a now-tainted third party? The issue is discussed in Budig, et al., Pledges to Nonprofit Organizations: Are They Enforceable and Must They be Enforced?, 27 U.S.F. L. Rev. 47 (1992). Note particularly the portion of the title of the article following the conjunction.

Posted by: Harvey Dale | Jun 14, 2010 5:35:21 AM

The managers of non-profits must always adhere to the terms of their contractual agreements and exercise their fiduciary duties with prudence. After these fundamental duties are discharged, then they must then attend to their social and ethical responsibilities. One of the social responsibilities is to ensure that the non-profit is not aligned with donors who are antithetic to the goals and objectives of the organization. This is why the cancer society does not accept donations from tobacco companies, and why a business school should return any donations it receives from a fraudster.

Posted by: Paul Dunn | Jun 17, 2010 7:14:55 AM

I suggest that alignment depends on the facts at the time of the donation, and disagree that business schools (or any charity)should automatically return to a fraudster funds which it has received in good faith and without knowledge of any fraud. Prudence and good judgment will be important, but an automatic rule -- return the funds to the fraudster -- is not, and in my view should not be, the law. Perhaps it would be useful for those interested in this topic to read the article that my earlier comment cited.

Posted by: Harvey Dale | Jun 17, 2010 8:27:00 AM

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