As rank-and-file alumni give at lower levels, and big gifts become more integral to university fundraising plans, we’re seeing an uptick in disputes between aggrieved donors and recipient schools.
Donors have withheld funds to protest administrators’ unwillingness to confront perceptions of political correctness run amok. The Pearson Family Members Foundation, the philanthropic vehicle of Timothy and Thomas Pearson, sued the University of Chicago to recoup a portion of its $100 million gift, saying the university’s leaders failed to demonstrate they were using the landmark gift for its intended purpose. And last year, former Humana executive Bruce Perkins notified his alma mater, the University of Louisville, that he was pulling his multi-million-dollar pledges because of “extreme dissatisfaction” with the school’s leadership.
Two recent news items underscore the fluidity of this issue. Sometimes, an agreement made with great fanfare ends in acrimony and legal action. In other instances, however, the donor and university not only reconcile, but forge a deeper philanthropic relationship once the dust settles.
Roger Lindmark, an alumnus of Minnesota’s St. John’s University, lost his bid to claw back a $300,000 endowment he says was being distributed to undeserving students. Meanwhile, Scott Ginsburg, who sued Georgetown University in 2013 over a disputed donation, buried the hatchet with his alma mater and pledged $10.5 million to back Georgetown University’s campus expansion and create four professorships.
“There are Consequences”
Let’s begin by taking a closer look at developments out of the Twin Cities.
California-based lawyer Roger Lindmark established an endowment at St. John’s University with funds he was awarded as a plaintiff in an interest-calculation case against American Express and as an attorney in an antitrust case. In 2010, he and St. John’s agreed that the funds would be given to rising seniors who completed a summer research project on business ethics.
In 2017, he demanded St. John’s return the gift after discovering that most scholarship recipients either failed to complete their projects or conducted research that fell outside the endowment’s purview. “Universities need to learn there are consequences when they don’t do their job in fulfilling the parameters of an endowment set up for a specific purpose,” he wrote in a 2017 letter to the school’s president. Lindmark sued St. John’s in U.S. District Court, demanding the endowment, whose value rose to $400,000 be dissolved and funds returned.
In December of 2018, the court refused Lindmark’s argument. In March, a judge in a parallel federal court case brought by Lindmark also ruled in the university’s favor. Lindmark said he’s appealing both rulings.
The issue of donor intent, of course, isn’t a new one. Most famously, the children of Charles and Marie Robertson, who built their fortune in a popular New Jersey grocery store chain, sued Princeton University in 2002 for mismanaging a $35 million endowment started in the 1960s. (In 2008, Princeton paid $100 million to settle the Robertson lawsuit.)
The Lindmark lawsuit shares a lot in common with the more recent Pearson Family Members Foundation case. In both cases, donors argued the university failed to demonstrate it was using the gift for its intended purpose. This is an understandable position; philanthropists want to see their donations fund the kind of impact they envisioned. But both cases also underscored a point made by Dawn Rhodes in the Chicago Tribune with regard to the Pearson case: “Donors and universities can agree to terms of a gift, but once the money is out the door, a benefactor relinquishes almost all control over how every dollar is spent.”
Litigation to enforce the terms of a gift agreement is always an option, in theory. In practice, these cases can take years to wind their way through the courts, and as the Lindmark suit reminds us, plaintiffs can have a tough time prevailing.
It’s always better if unhappy donors and universities can find a way to get past their differences.
Rebuilding a Partnership
Which brings me to news out of Washington, D.C. The donor in question here is Dallas-based Scott Ginsburg, who co-founded Chancellor Media Corporation, a radio broadcasting company, and owns Boardwalk Auto Group, a collection of luxury-auto dealerships in Texas and California. In 2000, he made a $5 million donation to Georgetown toward the construction of a fitness center.
Two years later, he was found liable for insider trading and was ordered to pay a $1 million civil penalty. Following the ruling, the Georgetown Law Center pressured the Dallas businessman to relinquish the naming rights to the fitness center.
Fast-forward to 2013. Ginsburg sued the school for $7.5 million for breach of contract, alleging the school broke its pledge to reward his gifts by naming a building after him. He also claimed the law center knew of the SEC investigation at the time of the agreement and did not express any concerns. Georgetown countersued, arguing that Ginsburg failed to fulfill his donation commitment and that he had agreed to relinquish naming rights as a result of the SEC investigation, an allegation that Ginsburg disputed.
Both parties dropped their suits following an undisclosed settlement in 2014. More encouragingly, the parties mutually professed hope for “future partnerships.” Sure enough, in 2015, Georgetown dedicated the new Scott K. Ginsburg Sport & Fitness Center.
Meanwhile, Ginsburg’s $10.5 million gift is earmarked for the $70 million expansion of the law center campus in downtown D.C. Part of the donation will fund the creation of four Scott K. Ginsburg Professorships at the law center to support justice-focused research and legal education.
“Irrevocable and Unconditional”
We often like to say that a donor “cuts a check” to a university—as if the transaction is as simple as paying a utility bill. Of course, many big gifts are surrounded by extended and often fraught negotiations over exact terms. And judging by the stories we cover, such wrangling is growing as a new crop of wealthy donors look to leave their mark across a cash-flush higher ed landscape.
Take the case of Roger Lindmark. In many ways, he’s the quintessential regional donor. After graduating from St. John’s University, he gravitated west toward California, where he made his fortune as a lawyer. At the expense of painting this new crop of donors with a broad brush, at the bare minimum, these are hands-on professionals accustomed to exerting control. It’s no surprise they want to ensure gifts are allocated for their intended purposes.
Lindmark had no direct oversight role in the endowment. In retrospect, St. John’s could have given Lindmark greater input, but in doing so, it would have exposed itself not only to the possibility of a micro-managing donor, but to the kinds of questions surrounding undue donor influence that have followed recent gifts to schools like St. Louis University, the University of Nevada Las Vegas and the University of California, Irvine.
In the end, St. John’s University sent Lindmark documentation of the fellowship’s progress as a courtesy. When he discovered that his business ethics fellowship gift, according to court records, paid for students to study topics like “soil conservation,” “solar power for low-income people,” and “romance in the workplace,” legal recourse seemed like his only option.
Looking ahead, the Lindmark case may give some would-be donors pause. St. John’s University didn’t aggressively dispute the idea that the money went to causes unrelated to business ethics. Rather, it argued that the money was “irrevocable and unconditional,” meaning it was entitled to spend the endowment as it saw fit. This position hardly incentivizes donors to reach for the checkbook. It also opens the door to potentially lengthy and costly lawsuits if and when donors decide to make a substantial gift.
The Georgetown case, meanwhile, primarily centers on the increasingly urgent issue of toxic donations and naming rights. The university didn’t want Ginsburg’s name affixed to a building after Ginsburg, according to the SEC, paid the largest penalty ordered by a federal district court against a non-trading tipper. Georgetown’s concerns presaged current controversy surrounding toxic donations by the Sackler family and universities’ difficulties in unwinding naming gifts and honorary degrees by almost two decades.
But the Georgetown/Ginsberg saga has a happy ending. “The time I spent at Georgetown Law changed my life forever,” Ginsburg said in a statement upon making his recent gift. “Now, I’m able to return the favor and transform the law campus. To be a part of these professorships and the transformative legacy they leave behind long after I am gone is the pinnacle of my career.”
Will Lindmark and St. John’s University reach a similar detente in the future? Strangers things have happened in the world of higher ed philanthropy.