Newell v. Johns Hopkins University, 215 Md. 217, 79 A.3d 1009 (Md. App. November 21, 2013)
Tim Newell, the nephew of the late Elizabeth Banks, sued Johns Hopkins University in 2011, charging that Banks conveyed her family’s 138-acre dairy farm to Hopkins in 1989 for $5 million — far below its market value — with the understanding that the university would protect it from the encroaching commercial development she disdained.
Banks died in 2005. According to Bank’s family, she envisioned a small campus with extensive green and open space. Which may have been the university’s original plan as well. But a lot’s changed in the 20+ years since the farm was sold/gifted to Hopkins (Ronald Reagan was still president in 1989!). Whose vision should control the Banks-family donation 20+ years after the fact is at the heart of this case, which is headed to Maryland’s highest court (the Court of Appeals).
The Banks family has lost twice so far, first at the trial court level and then in the linked-to opinion above at the Court of Special Appeals (Maryland’s intermediate appellate court), both of which ruled in favor of Hopkins and its plans for the farm land, as reported in Johns Hopkins vs. MoCo farm: Whose wishes should prevail?, a cover story on the case that recently ran in the Washington Post Magazine:
Johns Hopkins University and Montgomery County plan a $10 billion “science city” that could surround the farm with nearly 5 million square feet of commercial space. Banks’s heirs say this plan bears no resemblance to the small, bucolic research campus Banks thought she had been promised when she sold the land in 1989 at a cut rate to Hopkins. She had no intention of selling for any other reason to the university. Family members say Hopkins is acting more like the commercial developers Banks had rebuffed repeatedly. The family is mounting a legal challenge, so far without success.
[A trial court and Maryland’s intermediate appellate court] have said Hopkins can move ahead with its plans. Now Banks’s heirs are making a last attempt to stop the project, to prove their claim that Hopkins is reneging on a deal.
The impact of the Belward Farm case could extend well beyond Hopkins and Montgomery. It is being closely watched by institutions that receive millions each year in charitable donations. Many receive donations with instructions attached, but would prefer to use the gifts for other purposes.
Banks’s heirs say her intentions were always clear: She did not want massive development, and she thought she had been promised a place of learning and research, not commerce. Hopkins says the university is keeping to the terms of the written deal, and any other representations that might have been made by university officials, or that the family thought were made, were never written into the sales contract and therefore don’t matter.
Now judges on Maryland’s Court of Appeals, 50 miles away in Annapolis, will have to decide: Is Hopkins playing by the rules? Was Elizabeth Banks betrayed?
A fundamental failure to manage expectations:
At its core, the Hopkins case and other donor-intent cases like it (including the Florida Bower Foundation case I wrote about here and the Princeton University case I wrote about here), represent a fundamental failure to manage expectations. Donors making large gifts are often wooed for years (as Banks was in this case). They expect to be treated like valued members of a community, not adverse parties in a contract negotiation. Here’s an excerpt from the Maryland appellate court opinion reflecting this point:
Mr. Newell’s answer to one interrogatory suggests that the Family views the spirit of the Contract differently than Hopkins does:
[Hopkins] represented that the campus would be occupied and developed by [Hopkins] for [Hopkins] as a university campus, including all the things that would go along with that. This was done in an atmosphere of trust and confidence where it wasn’t thought necessary to spell out “do’s” and “don’t’s” in extensive detail.
Hopkins, on the other hand, had very different expectations: Banks made a deal, now she has to live with it. This position may seem harsh, but it’s clearly the right answer as a matter of law. Here again from the Maryland appellate court opinion:
[B]ecause we agree with the circuit court that the operative provisions of this Contract are not ambiguous, the inquiry ends there—not because we find that Hopkins’s vision for the Farm necessarily is true to the Family’s (we make no such finding), but because the unambiguous words the parties used to memorialize their agreement limits Hopkins’s future development of the Farm only in terms of how it uses the Farm, not in terms of scale or density or ownership structure.
. . .
The Family no doubt believes it has been genuinely aggrieved by the way that Hopkins seeks to implement the Contract, and we do not mean for an instant to diminish its anger or disappointment if Hopkins’s current vision for the Farm deviates from what Ms. Banks or other Family members thought would happen. But again, our task is to examine the agreement the parties did sign, not the agreement that one or the other now wishes they had negotiated instead. And although it may seem cold to hang our decision on rules of construction, certainty in contracts is important too, especially when the language of the contract is unambiguous.
By the way, the result is the same whether Banks received fair consideration for her farm, or the deal was a part gift, part sales transaction. Here again from the Maryland appellate court:
[I]t makes no difference whether this transaction is characterized as a sale, a gift, or both. The existence (or not) of charitable intent may bear on questions related closely to that intent, such as formation of a charitable trust . . . or whether and how to save a charitable bequest no longer capable of execution in the construction of a will . . . but not to the pure contract interpretation question presented here.
The last thing any university or charitable foundation needs is to end up on the receiving end of a donor’s lawsuit. Even if you win, you still lose in terms of bad PR and squandered resources: a lesson the folks at Princeton University learned the hard way just a few years ago in their litigation with heirs to the A.&P. grocery fortune (see here). The lengthy litigation was an embarrassment to Princeton, and a worst-case scenario for university development officers. Even without going to trial, each side spent more than $40 million in legal fees. This is no way to run a charity.
So what’s the solution? Do a better job of managing expectations. How do you do that? Start with a clearly drafted gift agreement, then adopt institutional policies ensuring your donors and the development officers working with them understand exactly what to expect going forward. In The Unraveling of Donor Intent: Lawsuits and Lessons, by Kathryn Miree and Winton Smith, the authors provide this model form of gift agreement and, just as importantly, solid policy recommendations for charities seeking to better manage donor expectations and long-term gifts:
Charities also have much to learn about the management of long-term gifts. Change in the effectiveness of a long-term gift is inevitable, although it is always less clear how that need for change will manifest. The best approach for charities is to plan for change and manage those changes wisely. Consider these five recommendations:
1) Develop standard gift agreements for use in planning long-term gifts that provide flexibility over time and encourage donors and their advisors to use these agreements. The standard gift agreement should include either term-limits on donor gift restrictions or make provision for change in the document subject to certain triggers.
2) Review current gift agreements with living donors to identify documents that may need changes. It is far easier to craft solutions or alternatives during the donor’s lifetime than to struggle with the options for change after the donor’s death.
3) Once the gift agreement (and amendments to the agreement) are complete, keep the documents in a safe place. This seems obvious, but too many charities are unable to put their hands on key donor documents even 20 years after the gift – and have little chance of finding those documents after 50 or 100 years. Gift purposes become more a matter of folk lore than legal reality. (Institutional policies are the smartest way to ensure consistency.) Also keep records of planning sessions and donor conversations. These contemporary recorded observations may be valuable to later generations in interpreting donor intent. Some charities include these records as a part of board minutes (when the gift is reported and accepted) because these records are retained as a matter of law.
4) Adopt policies and procedures governing long-term gift management that includes donor stewardship, reporting, and the process for initiating gift changes. Stewardship involves engaging in regular communication with donors and their families about the use and outcomes of the gift. Engaging with lower generations helps build relationships that may later avoid conflict. The donor’s descendants may not have the same goals, objectives, or perspectives as the donor. In fact, they rarely do. Sharing the donor’s conversations, goals, and regular reports on how those objectives are met are powerful tools in managing expectations. The policies should also create an internal committee to that provides oversight of long-term gift management, and identifies problems early.
5) Avoid crisis management. When things begin to go bad – either because of disagreements with family members or an unanticipated turn in the road – address the issues early. In most cases, it will be beneficial to involve family or original advisors to provide input about options. Problems generally grow worse – and relationships deteriorate – when no action is taken. Just deal with it.