Nonprofit Law Prof Blog

NY Times Reports on Nonprofit Hospital Collection Efforts

The New York Times today published the result of a long study of nonprofit hospitals, focusing on Providence Health Care's aggressive collection practices against indigent patients entitled to charity care.   Unsurprisingly, to those who follow nonprofit health care, the report is not positive:   

In 2018, senior executives at one of the country’s largest nonprofit hospital chains, Providence, were frustrated. They were spending hundreds of millions of dollars providing free health care to patients. It was eating into their bottom line.  The executives, led by Providence’s chief financial officer at the time, devised a solution: a program called Rev-Up.  Rev-Up provided Providence’s employees with a detailed playbook for wringing money out of patients — even those who were supposed to receive free care because of their low incomes, a New York Times investigation found.  In training materials obtained by The Times, members of the hospital staff were instructed how to approach patients and pressure them to pay. “Ask every patient, every time,” the materials said. Instead of using “weak” phrases — like “Would you mind paying?” — employees were told to ask how patients wanted to pay. Soliciting money “is part of your role. It’s not an option.” If patients did not pay, Providence sent debt collectors to pursue them. 

More than half the nation’s roughly 5,000 hospitals are nonprofits like Providence. They enjoy lucrative tax exemptions; Providence avoids more than $1 billion a year in taxes. In exchange, the Internal Revenue Service requires them to provide services, such as free care for the poor, that benefit the communities in which they operate.  But in recent decades, many of the hospitals have become virtually indistinguishable from for-profit companies, adopting an unrelenting focus on the bottom line and straying from their traditional charitable missions.

For another report focusing on the collection activities of nonprofit hospitals in New York, see Discharged Into Debt.  Also see this NY Times editorial published in February 2020.

 

dkj

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King Charles III: Britain's New Defender of the Faith

Today's Religious News Service presents an interesting analysis of the new British monarch's task of making the country's rapidly expanding numbers of nonbelievers feel included. The analysis begins by noting that the recently deceased Queen Elizabeth II's funeral was not entirely representative of Britain’s increasingly secular population. The funeral service was held in Westminster Abbey. According to RNS, the "medieval abbey, the sublime music and military processions were all a visual and aural feast, but the event was at its heart a Christian ceremony, with the coffin placed in front of the altar and presided over by robed clergymen."

With this in mind, RNS continues, the Queen's funeral "was not entirely representative of Britain’s increasingly secular population. Even its believers are less likely to be Christian than at the start of Elizabeth’s reign, with 2.7 million Muslims, 800,000 Hindus and a half-million Sikhs, among many other faiths. Christians, who once consisted mostly of various Protestants — chiefly members of the Church of England, the Church of Scotland and the Church in Wales — and Roman Catholics, have been joined by a growing Pentecostal movement and other evangelical churches, according to the BBC."

In Britain, though, the Church of England remains the official, established church, with the monarch as its Supreme Governor, and since Elizabeth’s death on Sept. 8, we have seen it in the ascendant. Yet, there are also signs that the late monarch, now-King Charles III and the Church of England have recognized that the time has come to adjust.

RNS continues its analysis:

In a landmark speech in 2012 at Lambeth Palace, the London home of the Archbishop of Canterbury, the queen said of the Church of England that “Its role is not to defend Anglicanism to the exclusion of other religions. Instead, the Church has a duty to protect the free practice of all faiths in this country.”

She credited the established church with having done so already. “Gently and assuredly, the Church of England has created an environment for other faith communities and indeed people of no faith to live freely,” she said.

The new king has endorsed those words as recently as Sept. 9, the night after his mother died, in his first televised address to the British nation as its king. “The role and the duties of Monarchy also remain,” he said, “as does the Sovereign’s particular relationship and responsibility towards the Church of England — the Church in which my own faith is so deeply rooted.”

But he continued, ”In the course of the last 70 years we have seen our society become one of many cultures and many faiths.”

Nearly 30 years ago, as prince of Wales, Charles articulated concern about other faiths and Christian denominations in modern Britain not feeling included, and controversially suggested that when he became king he should be called Defender of Faiths — plural— rather than the title Defender of the Faith bestowed on Henry VIII by the pope in 1521 and used by England’s monarchs since.

Anglicans reacted harshly to Charles’ gambit, fearing he would not be fully wedded to assuming his role of Supreme Governor of the Church of England when the time came. Even after he rescinded his statement in 2014, the moment haunted Charles. His statement on Sept. 9 came in part to reassure doubters, who then heard him proclaimed king and Defender of the Faith the next day before the Accession Council, who proclaimed him the new monarch.

Then, bit by bit, we saw more evidence of how the king and his advisers, as well as the late queen, through her funeral plans, tried to embrace other traditions.

The Sept. 12 service of thanksgiving for the queen’s life was held at Edinburgh’s St Giles Cathedral, the main church of the Church of Scotland. Representatives of other faiths were in attendance, and the Gospel was read by Mark Strange, primus of the Scottish Episcopal Church, the other main Protestant church in Scotland besides the Church of Scotland.

More surprising, a passage from Paul’s Letter to the Romans was read by Leo Cushley, the Catholic archbishop of St. Andrews and Edinburgh, and included lines often interpreted as encouraging ecumenical dialogue: “We know that all things work together for good for those who love God, who are called according to his purpose.”

When Charles then paid a visit to Northern Ireland, more efforts were made to include the Catholic population, for whom the monarchy has long been a sensitive issue. At St. Anne’s Cathedral in Belfast — where the president of Ireland, Michael Higgins, and Taoiseach (as Ireland calls its prime minister) Micheál Martin were in attendance — Eamon Martin, the Catholic archbishop of Armagh and Primate of All Ireland, offered a prayer; others were said by Methodist and Presbyterian church leaders. At a service during Charles’ stop in Wales, prayers were said by Muslim and Jewish representatives as well as representatives of several Christian denominations.

But a reception at Buckingham Palace for 30 faith leaders on Friday (Sept. 16) — before the new king met any world leaders in London for the funeral, and even before he took part in a vigil with his siblings at the lying-in-state of his mother — spoke volumes about the importance Charles assigns religion in Britain.

Charles welcomed not only the Catholic archbishop of Westminster but Bishop Kenneth Nowakowski of the Ukrainian Catholic Eparchy and Imam Asim Yusuf, telling them that Britain’s sovereign has an “additional” duty — presumably in addition to being Supreme Governor of the Church of England — to protect “the space for faith itself” in Britain. This duty, he said, is “less formally recognized but to be no less diligently discharged.”

He added: “It is the duty to protect the diversity of our country, including by protecting the space for faith itself and its practice through the religions, cultures, traditions and beliefs to which our hearts and minds direct us as individuals. This diversity is not just enshrined in the laws of our country, it is enjoined by my own faith.”

That Charles’ words were backed up by his mother was evident in the state funeral Monday. The specialness of the Church of England and of multifaith, diverse Britain was acknowledged as a procession of religious representatives entered Westminster Abbey in advance of the main funeral party: Jews, Baha’is, Jains, Zoroastrians, Buddhists, Sikhs and Hindus, as well as Chief Rabbi Ephraim Mirvis; Pope Francis was represented by Archbishop Paul Gallagher, the Vatican’s secretary for relations with states.

Reading prayers during the service were the Rev. Iain Greenshields, moderator of the General Assembly of the Church of Scotland; Shermara Fletcher, principal officer for Pentecostal and charismatic relations for Churches Together in England; the Rev. Helen Cameron, moderator of the Free Churches; and Roman Catholic Cardinal Vincent Nichols.

The questions that remain are: "What happens now?" "What shall we see at Charles's coronation?" "Will it be all-inclusive affair, or will it be limited to clergy of the Church of England?" Of great importance also, is whether King Charles III, whose titles include "Defender of the Faith," be a defender of both believers and nonbelievers. After all, in the last British census (2011), a quarter of the population said they had no religion.

Prof. Vaughn E. James, Texas Tech University School of Law 

 

Mass Corruption at Church: New York AG Investigation Reveals Harlem Clergy Took Secret Cash as They Sold Churches to Developer

According to New York State prosecutors, senior religious leaders conspired with a developer to sell seven churches in Harlem and Brooklyn in exchange for secret payments — only for the developer to waver from his promise to build new homes for the churches, in some cases demolishing them and letting the sites sit empty for years.

As reported by Nick Garber of Patch, prosecutors maintain that the deals, which netted the three church leaders nearly $2 million combined, were uncovered through an investigation launched by New York Attorney General Letitia James’s office into the developer, Moujan Vahdat. Vahdat and two of the church leaders reached settlements with the state last year, though the accusations against them have not previously been reported. A third pastor also under investigation is still battling the state in court.

According to prosecutors, the churches, all part of predominantly African-American denominations, were often struggling financially and saw the sales as potential lifelines. In a 2015 resolution, one church board supporting the sale to Vahdat wrote:

Not without a struggle, over the past several years we have worked hard to maintain the upkeep of the house of God. We understand that there has been a need for a greater vision from God to move this church forward in its fiscal responsibility and ministry.

However, authorities maintain, behind congregants' backs, church leaders were accepting cash payments and expensive gifts then turning a blind eye as Vahdat revised the sale contracts in his favor, squeezed churches for more money, and in one case, shut off a church’s heat in the middle of winter and allowed its ceiling to collapse onto a parishioner.

According to Patch, Vahdat’s attorney defended his client's conduct, telling the news organization that he remains focused on “bringing vibrant new church facilities to the community.” Indeed, said the attorney, even after the state’s intervention, many of the houses of worship are still doing business with Vahdat to this day.

In a court filing laying out their investigation, prosecutors wrote that Vahdat, a billionaire real estate and telecommunications magnate, began eyeing churches for possible development deals in 2013. However, prosecutors noted that despite his history in the real estate industry, Vahdat had no experience with church developments. But, prosecutors continued, Vahdat soon met Bishop Kevin Griffin, the senior pastor of Childs Memorial Temple Church of God in Christ (COGIC), and by 2014, Griffin agreed to sell his dilapidated Amsterdam Avenue Church building for $2 million to Vahdat, who promised to replace it with an apartment building with space reserved for Childs Memorial. According to prosecutors, Griffin did not reveal to either his parishioners or New York State authorities that he personally received $450,000 once the church sale closed in early 2016 and an additional $440,000 in “finder’s fees” for introducing Vahdat to other church leaders. 

There followed a series of events whereby Vahdat was introduced to three other ministers and he purchased other churches in Harlem and one in Brooklyn using the same modus operandi. While claiming to be serving the Lord, the pastors were enriching themselves and really serving Vahdat. But by early 2018, the state attorney general’s office had begun investigating the church deals after hearing “allegations” that the churches’ sale terms had been changed. According to prosecutors, as the probe loomed, Vahdat asked two of the pastors to produce letters describing the personal payments he gave each of them as "having been made for charitable purposes for use on the churches’ behalf" — adding that he had given them the payments personally only for “expediency” and “convenience.”

According to Patch, clergy members pressed Vahdat in the ensuing months for answers about missing payments he owed to the churches and a lack of progress on the new developments. 

By 2021, state prosecutors intervened in the New York church dealings, reaching settlements with Vahdat in October and with two other pastors -- Rev. Melvin Wilson and Bishop G.M. Ingram -- in November. Vahdat agreed to "neither admit nor deny" the state's accusations, while Ingram and Wilson both promised not to make any public statements denying the investigation's findings.

"The clergy placed their self-interest ahead of the interests of the churches," the attorney general’s office wrote in a virtual presentation delivered to the AME churches in November 2021.

Let us take a close look at the punishment meted out to the offenders:

• Wilson and Ingram’s settlements both required them to pay back the money they received in a series of installments — plus, in Ingram’s case, the proceeds from his Rolex watch, which he sold for $33,000;
• Both men are barred from holding a role in any New York-based nonprofit or charity that involves dealing with money, though both can continue holding purely “spiritual” positions;
• Yet, both Wilson and Ingram appear to maintain active roles in the AME Church. Ingram and his wife were thrown a retirement party in 2021 and were pictured attending an AME board meeting earlier this summer, while Wilson’s LinkedIn profile lists him as the pastor of an AME church in Orange, N.J.;
• According to the Religious News Service (RNS), on August 31, the AME Church released a statement that condemned "the inappropriate practices of our colleague and the former presiding elder in the New York Conference, who currently pastors in the New Jersey Conference;"
• Ingram will not take part in any denominational events until 2024, while discipline against Wilson will be determined by the bishop now in Ingram's former role;
• Vahdat’s settlement, meanwhile, requires him to keep up to date on any payments owed to the churches and cover their legal fees.

I wonder as I conclude, what ever happened to this principle learned at Seminary: "He has shown you, O man (and woman), what is good; And what does the Lord require of you, But to do justly, To love mercy, and to walk humbly with your God? (Micah 6:8, NKJV).

Prof. Vaughn E. James, Texas Tech University School of Law 

 

 

 

Patagonia Billionaire Commits Company Stock to Trust/Nonprofit

Sept. 15, 2022

The NYTimes published an article yesterday describing how Yvon Chouinard and his family have transferred all ownership of Patagonia, the company they own to a Trust and to a nonprofit organization that is organized and operated as a social welfare organization exempt from tax under section 501(c)(4) of the Internal Revenue Code. The intent is described as "to combat climate change and protect undeveloped land around the globe."

Apparently, the family transferred two percent of shares to the Patagonia Purpose Trust, controlled by the family while they transferred 98 percent to an organization called Holdfast Collective that the story states is organized as a social welfare organization. 

I sure like conservation efforts, but have concerns about the way the NYTimes seems to treat this contribution less critically than it did a recent one by Barre Seid. It even compares the two. In that process, the author makes a number of claims that are off or sometimes wrong, at least in implication.

For instance, from the article: "Because the Holdfast Collective is a 501(c)(4), which allows it to make unlimited political contributions, the family received no tax benefit for its donation." They later compare the contribution by Barre Seid to a 501(c)(4) as well and claim the same.

It is incorrect that there is no tax benefit and it is also wrong to say that a section 501(c)(4) can make unlimited political contributions.

First, a clear tax benefit is that there is no gift tax owed on the transfer to a social welfare organization. The article properly noted that there was such a gift tax paid on the transfer to the family trust. Second, just like in Barre Seid, the transfer does not trigger a gain for income tax purposes on the contribution of highly appreciated assets - the Patagonia stock in this case. We don't know that appreciation, but given this is the founder, it is likely that the realized gain that no tax is paid upon here is large. Point is both Barre Seid and Chouinard obtained tax benefits. 

Second, while it is true that a social welfare organization is not prohibited from intervening in a political campaign as tax law prohibits of a charity, such activity does not further a social welfare purpose. The article seems to suggest that Holdfast could only support political campaigns, but it could not. It must engage primarily in social welfare activity. It is possible that the reporter was using that term loosely and intending to include lobbying within the conception of "political contributions". A social welfare organization can spend 100 percent on lobbying as long as that lobbying furthers its social welfare purpose.

Also, posting the breathless comments of the person who helped Chouinard set the transfer in motion uncritically is below what I would expect from the NYTimes. See for instance: "“There was a meaningful cost to them doing it, but it was a cost they were willing to bear to ensure that this company stays true to their principles,” said Dan Mosley, a partner at BDT & Co., a merchant bank that works with ultrawealthy individuals including Warren Buffett, and who helped Patagonia design the new structure. “And they didn’t get a charitable deduction for it. There is no tax benefit here whatsoever.” 

Again, that last statement is just not true.

It appears the difference that the reporter may be referring to between Seid and Chouinard is that in Seid, (1) Seid did not give all his fortune and (2) immediately upon the transfer of stock in Seid the social welfare organization sold the stock; Chouinard no longer personally holds Patagonia stock and the social welfare organization in this case is going to continue to hold the stock of Patgonia rather than selling it off. 

The difficulty in seeing the tax benefit here may be in that essential fact. It may be that some assume that as long as you haven't sold stock in some cash transaction there is no tax due. But that is not how things work. Any transfer of stock for any value can trigger tax. In fact, had Mr. Chouinard transferred the stock to a section 527 political organization, under section 84 of the Code, it would have had to pay tax on the difference between his basis and the stock's current FMV.  Many have argued that section 84 ought to be extended to contributions of appreciated assets to social welfare organizations. 

I think the case of the Chouinards suggests that section 84 should be so extended to a social welfare organization. Though Chouinard gave up a charitable contribution deduction, he also gains lots of ability to continue to control the use of that money as the article itself acknowledges. At the same time, he faces no gift tax and any sales of the stock will go without taxation. While there are some guard rails, they simply are nowhere near what would have happened had he transferred it to a charitable private foundation and face the rules under 501(c)(3) and 4940-4946. Thus, he can use these dollars earned at the nonprofit level tax free to accomplish purposes he and his family want to accomplish without any charitable limitations, including as the article notes political purposes. Note that Patagonia still is a for profit corporation that should still be paying tax at the corporate level.

Philip Hackney

 

NYTimes looks at Hasidic Jewish Schools in New York City

The New York Times provided an interesting, though critical, look into Yeshivas in New York City. The two points that stand out are that the children of these schools, particularly the boys, are roundly not able to pass basic competency state tests assessing learning, and that the schools are taking in lots of public dollars to accomplish this result.

The story necessarily raises the issue of what role education plays within the nonprofit sector; what role nonprofits should play in primary and secondary education in a democratic order; what role primary and secondary education ought to provide in a democratic order; and what role religion should play in shaping any of that education. I have a draft paper thinking about charter schools within that order that I will be posting soon, that confronts some of those questions. But, it does not confront the role of religion in that order.

Primary and secondary education play many roles, but the two most significant that resonate in the US conception seem to be preparing individuals to be able to be employed and support themselves and also to support a democratic order. We are not born with the ability to do either of these things and it is in all our interests to ensure the children of the country have the ability to engage in both endeavors. From the description in the article, these schools are likely failing on both counts.

And yet, the notion of freedom of religion for parents to train children to uphold the values they uphold remains strong in our nation. This comes into stark contrast though with maintaining a just political order. I think there is a lot for the nonprofit world to reflect upon in this article. Worth some thought.

From the story: "The leaders of New York’s Hasidic community have built scores of private schools to educate children in Jewish law, prayer and tradition — and to wall them off from the secular world. Offering little English and math, and virtually no science or history, they drill students relentlessly, sometimes brutally, during hours of religious lessons conducted in Yiddish.

The result, a New York Times investigation has found, is that generations of children have been systematically denied a basic education, trapping many of them in a cycle of joblessness and dependency.

Segregated by gender, the Hasidic system fails most starkly in its more than 100 schools for boys. Spread across Brooklyn and the lower Hudson Valley, the schools turn out thousands of students each year who are unprepared to navigate the outside world, helping to push poverty rates in Hasidic neighborhoods to some of the highest in New York.

The schools appear to be operating in violation of state laws that guarantee children an adequate education. Even so, The Times found, the Hasidic boys’ schools have found ways of tapping into enormous sums of government money, collecting more than $1 billion in the past four years alone."

There are many highly critical responses of this article from the Orthodox community. Here is one.

Philip Hackney

Ryan: An Historical and Empirical Analysis of the Cy-Près Doctrine

Professor CJ Ryan (University of Louisville - Louis D. Brandeis School of Law) has posted An Historical and Empirical Analysis of the Cy-Près Doctrine, 48 ACTEC Law Journal (Forthcoming 2023). Here is the abstract: 

Cy près is a pivotal doctrine in estate law and indeed American jurisprudence. It places courts in the shoes of settlors of charitable trusts to discern not only their original intent but also affords the possibility of continuing the material purpose for which settlors created enduring legacies of philanthropy benefitting society. For this reason, it may well be that no other legal doctrine is as closely tied to the interests of the individual and the collective as cy près. And my first-of-its kind study puts the cy-près doctrine front and center, while providing three major contributions to the field.

First, through deliberative historical analysis, I offer an in-depth look at the types of cases American courts have heard involving the use of cy près. This historical categorization and explication is itself unique and provides significant insight into the controversies that allowed the doctrine to evolve. Second, the application of empirical methods to examine the doctrine is groundbreaking. By holistically examining the data I collected, I have been able to discern three major themes. The passage of time yields a gradual but greater adoption of the use of the cy-près doctrine. The presence of reversionary, gift-over, or private interests renders the use of the cy-près doctrine less practicable. And finally, courts are overwhelmingly more likely to apply cy près in cases involving public charitable trusts, educational purpose trusts, and medical purpose trusts, even when controlling for other independent variables and typologies of charitable trusts. Last, fifty-state surveys are commonplace; yet, none exists for the doctrine of cy près. I was able to assemble such a survey that not only assisted me in conducting this research but will undoubtedly aid other researchers for years to come, which I have addended to this Article in the Appendix.

TLH

Jazzfest!

As a shift from a week of talking about the Newman's Own Foundation: this weekend is the Chicago Jazz Festival. The festival is put on by Chicago's Department of Cultural Affairs and Special Events, and is sponsored, at least in part, by a number of nonprofits, including public radio station WDCB and the Jazz Institute of Chicago.

I think there's an interesting discussion to be had about what it means for jazz (as opposed to pop and rock and hip-hop) to be supported and sponsored by nonprofit organizations. But today I'm not going to engage in the discussion. Instead, I'm heading to Millennium Park to listen to some jazz.

Samuel D. Brunson

Newman's Own and Dead Hand Control

The nice thing about having practiced transaction law rather than litigation is that I'm not limited to asking question that I already know the answer to. So, for today's post, I'm going to ask a question I don't know the answer to: must the board of Newman's Own make specific distributions in accordance with Paul Newman's wishes from before he died?

See, that seems to be the central claim in his daughters' lawsuit against Newman's Own Foundation. Nell and Susan assert that their father directed Newman's Own Foundation to distribute at least $400,000 to each of his daughters' charitable foundations, allowing them to distribute that (small) portion of the revenue from Newman's Own according to their wishes. In fact, they claim, that was one of the conditions he imposed in licensing his name, image, likeness, etc., to Newman's Own Foundation:

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