Charitable Contributions for a Specific Purpose

Court rules that donors may sue organization.

Church Law and Tax 1991-03-01 Recent Developments

Charitable Contributions

Can a charity that raises funds for a specified purpose be sued by donors if the funds are not spent for that purpose? Yes, concluded a New York court in an important decision. A group of donors to the Jewish National Fund (JNF) alleged that for 20 years the JNF had misrepresented in its advertisements that it allocated donated funds to projects in both Israel and the territories acquired during the Six Day War (including the West Bank and Gaza Strip), when in fact no contributions were ever allocated to the territories. The donors sued the JNF for fraud, misrepresentation, and false advertising, and also sought a court order permanently barring JNF from any further misrepresentations. A trial court awarded the donors part of the relief they requested, and the JNF appealed. A state appeals court ruled that the JNF could be sued by the donors. It began its opinion by noting that no law “insulates the fund raising activities of nonprofit organizations from the same prohibitions against committing dishonest or fraudulent acts that are applicable [to other groups].” On the contrary, as the United States Supreme Court recently observed, the “[states] need not sit idly by and allow their citizens to be defrauded.” The court concluded that “certainly, a donor to a charity should be fully informed with respect to the use to which the contribution is being put and should not be misled into believing that the funds will be applied for one purpose when, in reality, they are being utilized somewhere else.” Consequently, the donors, “having adequately established that JNF’s advertisements and brochures may be deceptive in some material respect, and as persons who have been misled by these practices, are authorized to maintain this lawsuit.” A dissenting judge argued that a charity “has no obligation to use its funds other than in accordance with its charter. There is no contention that the funds are not used for a purpose for which the [JNF] is organized.” This eccentric view was rejected by all of the other judges on the appeals court. Marcus v. Jewish National Fund, 557 N.Y.S.2d 886 (A.D. 1990).

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