Two Donation Cancelation Lawsuits You Need to Know About

Two Donation Cancelation Lawsuits You Need to Know About


Amidst landmark amounts of philanthropic giving, donors are making the recipients of their giving more accountable for how they use the money. Recently, two donors revoked a major gift that they had made to an academic institution in what has become cautionary tale for both donors and recipients of charitable donations. This case has raised a lot of questions about what expectations donors should have when making grants and the accountability that recipients need to demonstrate in terms of adhering to those expectations. Because the case also involves an academic institution, and these are becoming increasingly reliant on donor support, it may also point to increasing tensions in the future between universities and donors.


The Current University of Chicago Donor Lawsuit

universityofchicagoThree years ago, Timothy and Thomas Pearson, better known as the Pearson brothers, collectively pledged $100 million to the University of Chicago for the creation of a research institute that would focus on establishing world peace, Recently, the Pearson Family Members Foundation issued a lawsuit to recoup the nearly $23 million already disbursed to the university on the grounds that university leaders have failed to demonstrate how the money is being used in pursuit of its intended goal. The Pearson brothers have an extensive list of grievances against the school. Most of these grievances relate to a blatant failure to follow the stipulations attached to the gift.

According to the lawsuit, the University of Chicago did not schedule an annual forum that was part of the gift agreement, nor did the institution hire a full-time director and faculty for new initiatives. Furthermore, the university failed to develop any curriculum relevant to conflict resolution using the considerable amount of funds already disbursed. The Pearson brothers also noted that the institution excluded them from any gatherings that occurred on campus during the past school year. In addition, the brothers alleged that the university was planning to use millions of dollars of the donation to cover expenses at the Harris School of Public Policy.

However, the University of Chicago has pushed back against the Pearson brothers’ allegations. Leadership at the university said that the school has a long history of responsible stewardship and that grant agreements receive top priority. According to the school’s reply, it has complete purview over academic and hiring decisions related to faculty, implying perhaps that the donors were unhappy with the choices being made, even if they technically align with the signed agreement. The legal battle ahead may prove to be rather heated.


Another Revoked Donation to a California Research Institute

SBPlogoAround the same time that the Pearson brothers launched their lawsuit, an anonymous donor canceled part of a $275 million gift made in 2015 to the Sanford Burnham Prebys (SBP) Medical Discovery Institute, located in La Jolla, California. Due to the anonymous nature of the donation, there is little information about the argument that happened behind the scenes. Unlike the Pearson brothers, who had a long list of grievances, the anonymous donor provided no reasons for the cancellation. The canceled $75 million was dog-eared for drug development.

While the University of Chicago case was very public, the medical research institute in question never made any announcement about the $75 million cut to funding. The public only became aware of the revocation after Deloitte released a financial review of the institute. The president of the institute made it seem as if the lines of communication between it and the anonymous donor remain open, which makes sense considering that the organization still has $200 million of the grant. The institute seems confident that the remaining $75 million will be reinstated.


Reflections on the Past and Future of Donor-Recipient Feuds

Both of these cases are reminiscent of the 2002 Princeton University lawsuit involving the Robertson family. The donors accused the school of mismanaging a $35 million endowment to support students seeking careers in the government sector. The family made a convincing argument that Princeton had used the money in a way that their parents would not have supported. Ultimately, the university paid $100 million to the family because of the transgression.

The Robertson lawsuit was complicated because the parents of the family who had made the original gift were deceased, and their children were the ones pursuing legal action. For this reason, the case largely defined what it means to follow donor intent. The University of Chicago case is fundamentally different in that the two donors are still alive and able to speak in person about their grievances.

The outcome of the University of Chicago case could have a strong bearing on how people donate in the future, especially to academic centers. Because people who make large donations, like the Pearson brothers, come from a business background, they often have strong opinions about how to manage a donation. Furthermore, larger donations lead individuals to want more control over how the money is used. At the same time, it is easy to sympathize with the University of Chicago, which is trying to use the funding in the most effective way possible while working within strict boundaries.


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