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Check’s in the Mail: Why suing over a failed donation could hurt

Check’s in the Mail: Why suing over a failed donation could hurt

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Your weekend is ruined.

You are a hospital CEO who was loving life earlier in the week when you and a major donor broke ground on a new hospital wing to be named after the donor’s family.

But on Friday the donor called to renege on the donation.

First you were depressed, but by Sunday morning, you are firing off emails to gather a meeting first thing Monday to pursue your legal options.

Bad idea.

Any veteran fundraiser will tell you the same thing.

Sue a donor at your own peril. By turning an unfulfilled donation pledge into a legal battle, you are making certain that you will never receive a dime from that donor and you are putting up major red flags for future donors.

“Prospective donors will think twice before making a major commitment to a charity that would sue them to collect on a pledge,” wrote Brian M. Sagrestano and Robert E. Wahlers in their book, “The Philanthropic Planning Companion.”

Art I. Diamond, president of the United Way of Camden County, put it even more bluntly when speaking to the Philadelphia Inquirer about a charity there that had decided to sue donors:

It's astonishing, just from a public relations point of view. Why would anyone do something foolish like that? If I brought that idea up in a board meeting, everybody would become hysterical and fall down laughing.

Michael J. Rosen, a fundraising consultant, offered three instances when a nonprofit should consider a lawsuit as a last resort:

1. The donor dies with an outstanding pledge and an heir challenges the will. In that case, the nonprofit might need to sue the estate to establish its claim and collect.

2. The nonprofit incurs real expense based on the donor’s commitment. For example, based on a pledge agreement, the nonprofit breaks ground on a new building. The nonprofit might need to sue simply to survive.

3. The donor is about to or has entered bankruptcy. Suing the donor would be a way for the nonprofit to establish its claim.

So what do you do before the last resort of filing suit? The first thing you do is talk to the donor. Preferably face to face. Maybe they need more time to make good on the pledge. Maybe they are hoping to focus their funding in a different area that still will serve your mission. Maybe they need a break on this one but can be counted on for future gifts as their financial situation improves.

Kathryn Miree and Winton Smith urge taking action early in a post for the Planned Giving Design Center:

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.

And, instead of suing, perhaps you use the experience to generate more donations. Ella’s Memory is a British charity created by Martyn and Emmillie Selley after their daughter, Ella, was stillborn. They used the charity to try to raise money to upgrade a room called The Daisy Suite at the Royal Cornwall Hospital. Parents can use the room after losing a child.

A local businesswoman who lost a child pledged £20,000 pounds to the charity, nearly half of what the room upgrade cost. When the money never materialized, the charity didn’t go to court. It went to the newspapers. Martyn Selley told West Briton:

We always lived in hope that it was going to come through, but after a prolonged and bizarre series of events and failed promises and bank transfers we knew it was never going to happen. … It was a fantastic gesture and we are sad that it hasn't come to fruition. But it hasn't deterred us from making the Daisy Suite what it is today and we don't want it to mar everything that has been achieved thanks to all the people who have given money, from those giving pennies to those running marathons.

Hear that? That’s the sound of a smart nonprofit sending the right signal to donors. Give us your money, and we will do good work with it. We also will honor you in the process. 

Next: Understanding a donor’s motives before the check is signed.

Related posts

Check’s in the Mail: Why you shouldn’t count your donation until it’s banked

[Photo by MediaLab Prado via Flickr.]

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