When the UCLA Foundation received a $1 million gift to establish a chaired position at its medical center, the school had a tall order on its hands.

The donor not only wanted a cardiothoracic surgeon but one who would support basic science research activities that may have the potential for clinical applications. It also only wanted a full professor appointed to the chair.

“One of the attorneys in our office expressed concern about how specific the requirements were because it was so detailed,” recalled Eric Behrens, university counsel and head of commercial litigation of the University of California system. “But we accepted the gift, believing we had a candidate in the department who met those requirements.”

It didn’t quite turn out that way.

Several years later, with UCLA unable to fill the position, the donor, a Woodland Hills group called L.B. Research & Education Foundation, filed suit to take back the gift. The two sides are now hammering out their differences in court.

While it’s rare for such cases to end up in litigation, disputes between donors and charitable organizations frequently arise soon after the check gets written, especially as donors have become more particular about how their money is used.

A new generation of donors is not only demanding an accounting of every dollar but often want to oversee construction, hiring and dispersion of their funds themselves. “In the past, there was much less horse trading,” said Douglas Freeman, chairman of IFF Advisors LLC, a local consulting firm for nonprofit organizations. “Now, they realize they can actually bargain with institutions.”

Longtime tensions


Disagreements between donors and charitable organizations are not new. They have existed as long as wealthy people have had money to give.

In 1980, art collector and millionaire Max Palevsky withdrew a $1 million pledge he made toward construction of L.A.’s Museum of Contemporary Art because he did not like the architecture. He claimed that the museum had promised him control over the design and that he should get back the $500,000 he had paid. Palevsky sued and the museum later settled the case.

More recently, billionaire Eli Broad, who donated $60 million toward construction of a contemporary art building at the Los Angeles County Museum of Art, where he is a board member, became locked in a power struggle with director Andrea Rich over management of the building, which is to be in his name. Rich resigned earlier this year.

But not all the disputes involve the rich and famous. Many are lower profile and either never make it to court or quietly get settled.

“When the charity isn’t using the money the way the donor agreement requires, then the lawyers will call them up and say, ‘You’ve got this donor agreement and here’s how we’re going to do it,'” said Andrew Katzenstein, a partner at Katten Muchin Rosenman LLP. “And then you argue about it and work it out. Rarely does the case go to court.”

For example, the Fulfillment Fund, a charitable organization in South Central Los Angeles, was in line to receive a contribution for scholarships from a trust after the death of a donor. But by the time that happened, the trustee had already died, leaving Bank of America, which had possession of the money, to decide the fate of the donation. The bank opted to give the funds to the California Community Foundation, but the daughter of the trustee objected. What followed next amounted to mediation.

“Somebody from Bank of America was there and we worked out an agreement such that, with the Attorney General’s approval, a portion of the funds would be used by the California Community Foundation and a portion devoted to my client, the Fulfillment Fund,” said John Rogers, a partner at Holland & Knight LLP.

Under common law, the attorney general’s charitable trust division oversees disputes between donors and organizations in order to prevent excessive interference by gift-givers. In general, donors cannot enforce the terms of their gift without approval of the attorney general.

In the past, common law limited the donors’ ability to enforce the terms of their gifts in court, or even in a conference room. Thus, many would write a check and walk away simply to take a tax deduction (which requires that they no longer maintain control over the money in order to be considered a gift.)

A new generation


But charitable organizations began noticing a change with newly rich entrepreneurs from the past decade, many of whom made their money building or investing in high-tech companies.

Unlike their parents, their gift contracts include provisions that allow the donor to approve the plans and upkeep of a building financed with their gift. They demand access to the leaders of an organization, the faculty or the artists. They bargain for $1 million in matching funds for every $2 million they give.

“People are more specific about the use of their gifts in general, and how their gift will be used,” said Renata Rafferty, an Indian Well consultant who advises wealthy donors. “They don’t just write a check.”

But that doesn’t mean donors get whatever they want, and that’s when disputes occur. Not all contracts are ironclad, or organizations may suffer budgetary shortfalls that make it impossible to meet donor demands. Sometimes disputes get resolved when the sides come up with an alternative use for the gift. But not always.

In the UCLA case, the two sides negotiated for more than a year before the money was even turned over. And the contract included a provision that the money would be diverted to the University of California, San Francisco, if UCLA could not fill the position, said Raul Montes, a partner at Greenwald Hoffman Meyer & Montes LLP who represents L.B. Research.

At this point L.B. Research wants the money sent to UC San Francisco, contending that UCLA has had several years to fill the chair and has been unable to do so, Montes said.

Behrens said UCLA is not prepared to do that yet, and believes it will be able to find the right cardiothoracic surgeon to sit in the chair. “We really believe in this case we’ve tried to follow the donor’s wishes,” he said. “The problem is the donor disagrees.”