Correction:

An earlier version of this article misstated the former name of Randolph College in Lynchburg, Va. This version has been updated.

Johns Hopkins lawsuit highlights questions about schools’ obligations to donors

PHOTO BY DONNA BARON - Elizabeth Beall Banks  sold her Gaithersburg area farm to Johns Hopkins University — a suitor she believed would protect it from the development she detested.

It took two years to negotiate the deal. But in the end, her family says, Elizabeth Beall Banks, well known in Montgomery County for her opposition to development, sold the 138-acre parcel where she raised Black Angus cattle to Johns Hopkins University for one simple reason: She believed that officials shared her vision for what would become of her beloved farm.

Now, seven years after Banks’s death, her heirs have taken Hopkins to court, alleging that the university has violated the terms of the deal it made with Banks 23 years ago. University officials maintain that they are abiding by Banks’s wishes as outlined in the two-page agreement.

The dispute is now in the hands of a Montgomery County Circuit Court judge, who will determine whether the case will move forward. It is the latest in a series of high-profile disputes that have focused attention on the question of an institution’s obligation to its donors.

“This is an old, old, old issue — as old as charity law,” said Harvey P. Dale, director of the National Center on Philanthropy and the Law at New York University Law School.

No one tracks the number of such cases, but experts say disagreements between donors and institutions are not unusual. It is rare, however, that they spill into public view.

“Institutions are very reluctant to get into these fights because they could cause problems with future donors,” said Leslie Lenkowsky, a professor of philanthropic studies with the Center on Philanthropy at Indiana University. But with millions of dollars at stake, institutions must walk a fine line between protecting their interests and assuring donors that their contributions are being used responsibly.

In one of the most well-known cases, the heirs of Charles and Marie Robertson, of the A&P grocery fortune, sued Princeton University in 2002, alleging that officials had misused the $35 million gift the Robertsons gave the school in 1961 to prepare graduate students for careers in the Foreign Service. (At one point, the gift was worth more than $840 million, by some estimates.) University officials maintained that the family’s interpretation of the gift’s conditions was too narrow and that Princeton had lived up to its obligations.

The case was settled in 2008. The university agreed to pay $40 million in legal fees and give the family $50 million plus interest to start a new foundation. Princeton was allowed to keep the rest of the money.

But the case raised questions in many quarters about donor expectations and institutional obligations.

More restrictions

Colleges and universities are among the institutions most skilled at raising money. According to the Council for Aid to Education, colleges and universities received $30.3 billion in charitable contributions in fiscal 2011, up 8.2 percent from the previous fiscal year. And while many donors are happy to write checks with no strings, a growing number of contributors are placing restrictions on how their money is used.

Even the most well-meaning and straightforward gifts can result in endless complications, said NYU’s Dale. A donor may pass away, and his or her heirs may have different ideas about how a gift should be used; an institution’s priorities or focus can change; or key players involved in securing the gift may leave the organization.

As a result, donors and institutions are more careful in crafting agreements, said Joel L. Fleishman, a professor of law and public policy sciences at the Sanford School of Public Policy at Duke University.

The shift has spawned a cadre of lawyers and consultants who specialize in nonprofit and foundations law — a trend that began in the mid-1980s, Fleishman said.

“Gift agreements are not new, but they are much more sophisticated documents than they used to be,” said Rae Goldsmith, vice president of advancement resources for the Council for Advancement and Support of Education, which works with development officials at colleges and universities. “They get into great detail — right down to how the gift will be invested, how the donor will be apprised of changes and what happens if institutional priorities change.”

Goldsmith likens it to a prenuptial agreement. The goal, she said, is to anticipate — and prevent — conflicts.

Much of this may have been in its infancy back in 1989, when Banks sold Belward Farm to Johns Hopkins for $5 million. It was valued at $54 million at the time. The conditions of the sale, including restrictions on how the land could be used, were outlined in a two-page, typewritten document.

The deed stated that the land’s use must be limited to “agricultural, academic, research and development, delivery of health and medical care and services or related purposes only, which uses may specifically include but not be limited to the development of a research campus in affiliation with one or more of the divisions of the Grantee.”

An ‘old school’ deal

Banks’s family members concede that their aunt could have been more explicit about her desires for the property — as attorneys for the university pointed out during a recent court hearing on the matter. But Tim Newell said his aunt was “old school” and believed that after two years of negotiations, Hopkins officials were clear about her desires.

Newell said his aunt believed that university officials were planning to build a satellite campus on the property. In the late 1990s, with Banks’s support, Hopkins sought and won approval to build 1.4 million square feet of low-slung buildings. But the university revised its plans and now hopes to build a 4.7 million-square-foot development on the property.

“They’re choosing to follow the money and not the intent,” Newell said recently.

Courts have generally sided with institutions in conflicts over a donor’s intent, Lenkowsky said.

“Once the donation’s been made, there’s a presumption that it’s the institution’s money,” he said.

When Randolph College, formerly Randolph-Macon Woman’s College, went co-ed, a group of alumni sued the school in Lynchburg, saying it had violated donor intent because they had given their money to support a women’s college. They lost.

There have, however, been instances when an institution has returned a large donation. Yale University gave back a $20 million gift after the donor, Lee M. Bass, said the university failed to create a Western civilization curriculum he had sought to fund.

Newell knows that his family’s case will be tough to win. Still, he hopes the judge will give them their day in court. At the very least, he said, the story of his aunt and her land will be a cautionary tale for others who choose to support institutions.

“You hate to lose faith in the entire system,” he said. “All donors have the right to be assured that gifts be used for the reason they were given.”

 
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