A Charitable Catch-22: Standing for Private Attorney General Actions in California

• Publication year: 2006
• Author: By Geraldine A. Wyle and Stacie Polashuk Nelson

A CHARITABLE CATCH-22: STANDING FOR PRIVATE ATTORNEY GENERAL ACTIONS IN CALIFORNIA

By Geraldine A. Wyle^* and Stacie Polashuk Nelson^**

I. INTRODUCTION

In California, the law has long been established that donors who do not reserve specific rights of reversion or control over a charitable gift have no standing to enforce the terms of the gift to a charity or charitable foundation; leaving, with limited exception, only the Attorney General with standing to pursue an action. Nevertheless, given the many responsibilities of the Attorney General's office and the ever increasing limit on resources, enforcement of charitable gifts is not and in reality cannot be a priority for the Attorney General. The State's decision to provide limited resources to the Attorney General creates a tension in policies—ensuring that charities use donations for the intended purpose versus protecting charities from vexatious or harassing litigation from any minor donor.

The recent case of L.B. Research and Education Foundation v. UCLA Foundation¹ appears to be the beginning of a change in California law and a move toward providing donors with standing to enforce charitable gifts, regardless of whether the gifts are made as a charitable trust or are gifts subject to a condition subsequent.

II. THE CURRENT STATE OF CALIFORNIA LAW

As in most states, in California the Attorney General is charged with enforcing the terms of charitable trusts based on a donor's intentions. Typically, charitable gifts in trust are supervised and enforced by the Attorney General pursuant to the Uniform Supervision of Trustees for Charitable Purposes Act (the "Act").² Generally, the Act requires reports by trustees and authorizes the investigation and enforcement of charitable trusts by the Attorney General. The Act is effective in the face of contrary provisions in a given trust instrument.

California Corporations Code § 5142(a) (enacted in 1979) identifies who has standing to "enjoin, correct, obtain damages for or to otherwise remedy a breach of a charitable trust." It identifies: 1) the corporation or member in the name of the corporation, 2) an officer, 3) a director, 4) a person with a reversionary, contractual or property interest in the assets subject to such charitable trust, and 5) the Attorney General or any person granted relator status by the Attorney General. This statute provides no ability for anyone with a special interest (including a donor) to pursue an action. California Government Code § 12580 (enacted in 1987) confers broad powers to the Attorney General to carry out the enforcement of charitable trusts, including insuring compliance with trusts and articles of incorporation, and for protection of assets held by charitable trusts and public benefit corporations.

III. THE UNIFORM TRUST CODE

The Uniform Trust Code (the "UTC"), in its § 405(c), "Charitable Purposes; Enforcement," states that the "settlor of a charitable trust, among others, may maintain a proceeding to enforce a charitable trust."³ The Comment to UTC § 405(c) makes it clear that the "grant of standing to a settlor does not negate the right of the state attorney general or persons with special interests to enforce either the trust or their interests."⁴ The UTC has not been adopted by the California legislature. Other jurisdictions are in accordance with the UTC. In New York, for instance, the appellate court held in 2001 that a donor of a charitable trust—and that donor's personal representative—have standing to enforce a charitable gift. In Smithers v. St. Luke's-Roosevelt Hospital Center, the court found that the personal representative of a deceased donor of a charitable gift had the right to enforce the terms of the gift, despite the New York Attorney General's argument that its power to enforce the terms of a charitable gift precludes the donor's standing.⁵ The court noted that the "donor of a charitable gift is in a better position than the Attorney General to be vigilant and, if he or she is so inclined, to enforce his or her own intent."⁶ The court held:

In any event, the Attorney General's interest in enforcing gift terms is not necessarily congruent with that of the donor. The donor seeks to have his or her intent faithfully executed, which by definition will benefit the beneficiaries, and perhaps also to erect a tangible memorial to himself or herself. . . . Perpetuating the donor's good name is certainly also a profound concern of his or her estate. We conclude that the distinct but related interests of the donor and the Attorney General are best served by continuing to accord standing to donors to enforce the terms of their own gifts concurrent with the Attorney General's standing to enforce such gifts on behalf of the beneficiaries thereof.⁷

IV. RECENT DEVELOPMENTS

In many jurisdictions the right of the Attorney General to enforce the proper administration of a charitable trust or gift is exclusive to the state's public officer. In California, that is not the case. Private individuals may certainly enforce a donor's presumed charitable intent where a gift is made subject to a condition subsequent. As the California Supreme Court has denied a petition for review of L.B. Research,⁸ it may well be that in California, donors now have the power to enforce charitable trusts, which power had previously been denied to them.⁹ The rationale to permit private enforcement of a charitable gift was that the gift in question amounted to a "contract."¹⁰ This rationale did not apply to enforcement of a charitable trust because the donor gives up all interest in the gift in favor of the trustee.

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V. CHARITABLE CONDITIONAL GIFT V. CHARITABLE TRUST

The distinction between a charitable trust and a conditional charitable gift has historically been important. California law has long upheld a donor's standing to enforce a conditional gift, if it is viewed as a contract which contains a right of reversion in the donor, his heirs or a third party, should the terms of the gift not be met. It is highly questionable whether she has standing to enforce the terms of a charitable trust she creates, as the donor of a charitable trust has parted with all interest therein and all rights vest in the trustee. Thus, this article specifically relates to charitable trusts.

This distinction was recently analyzed in L.B. Research:

A charitable trust is defined as: '. . .a fiduciary relationship with respect to property arising as a result of a manifestation of an intention to create it, and subjecting the person by whom the property is held to equitable duties to deal with the property for a charitable purpose.' [Citations omitted.] To create a charitable trust, there must be a proper manifestation by the settlor of an intention to create a trust, a trust res, and a charitable purpose. [Citations omitted.] . . .
But a gift may have a charitable purpose and yet not constitute a charitable trust. Thus, the owner of property may, rather than create a trust, "transfer it to another on the condition that if the latter should fail to perform a specified act[,] the transferee's interest shall be forfeited either to the transferor or to a designated third party. [Citation.] 'In such a case the interest of the transferee is subject to a condition subsequent and is not held in trust.' (Rest.2d Trusts, supra, § 11, com. a, p. 32)." [Citations omitted.]
* * *
The question in each case is whether (1) the donor intended to provide that if the property were not used for the designated charitable purposes it should revert either to the donor's estate or to a contingent donee [a conditional gift], or (2) the donor intended to impose an enforceable obligation on the donees to devote it to those purposes [a charitable trust]. . . . [¶ ] Because the only remedy for the breach of a condition is forfeiture, a condition is not a very effective method of accomplishing those goals [of charitable intent and ensuring that the benefit for the public good is conferred as intended]. For both of those reasons, courts will generally construe a conveyance as one upon trust rather upon condition.¹¹

Six years before the decision in L.B. Research, the Court of Appeal, Fourth District in City of Palm Springs v. Living Desert Reserve compared charitable trusts and gifts subject to a condition subsequent, and distinguished the two.¹² Citing § 348 of the Restatement Second of Trusts, the court noted that the charitable trust is a fiduciary relationship with respect to property, subjecting the person by whom the property is held to equitable duties to deal with the property for a charitable purpose.¹³ "But because a charitable trust has an indefinite class of beneficiaries, standing to enforce the trust is generally limited to the Attorney General as the representative of the public."¹⁴ With a gift of property in fee subject to a condition subsequent, however, the court noted that there are two distinctions from the charitable trust: first, the transferee of the conditional gift receives both legal and equitable title to the property, in all respects like an owner in fee absolute unless there is a breach; second, the transferee has no enforceable duties, for a breach may result in a termination of the transferee's interest, but will not be subject to an action for damages.

The facts of City of Palm Springs inspired the court essentially to customize its ruling. A donor had executed a grant deed conveying 30 acres of land to the city, with the express condition that if the property was not solely used as a nature preserve and equestrian center, that the interest in the land premises would pass to the Living Desert Reserve in Palm Desert, California.¹⁵ The city of Palm Springs expressly accepted the grant, but...