Elaine Fogel

What Happens When a Donor Can’t Honor a Charitable Pledge?

BrokeMany people and companies make long-term pledges to charitable organizations. It’s a common way for them to pay off a large charitable gift over several years. But, what if the donor’s financial circumstances change? What if business is bad? What if a company goes bankrupt?

Well, that’s exactly what happened to Arizona-based grocery chain, Bashas‘. In 2005, the company, which has an excellent philanthropic history and reputation, pledged $25,000 a year for 10 years to St. Joseph’s Hospital Foundation. Then, in 2009, it declared bankruptcy as a result of the bad economy, expansion, and competition. (Source: Arizona Republic, 1-27) But, the hospital foundation continued its efforts to collect.

After two attempts through the court system failed, St. Joseph’s and Bashas’ negotiated a settlement for the reduced amount of $50,000, in lieu of the $145,000 remaining pledge. But, the bankruptcy court rejected it as frivolous and unfair to Bashas’ creditors.

So, last year the foundation filed an appeal with U.S. District Court, and again, the judge sided with the bankruptcy court saying, “the hospital foundation or its attorneys were using abysmal judgement and questioned whether other donors would be willing to pledge money if one thought St. Joseph’s would chase you to the end of the world even after a change in circumstance makes fulfillment of the pledge unjust.”

There’s still an ongoing 9th Circuit Court Appeal that may not be considered until next year. The foundation claimed that, “the grocer benefited from positive exposure through published brochures, donor recognition boards and special events.”

What do you think of this situation? Should St. Joseph’s Hospital Foundation have backed off? Is its litigious behavior killing its brand reputation? Is it justified in going after the original pledge?

6 Responses to What Happens When a Donor Can’t Honor a Charitable Pledge?

  • The ST. Joseph’s Foundation leadership has decided to drop the appeal and the pursuit of the unfulfilled portion of the pledge.

    The appeal, at the advice of legal counsel, was aimed the bankruptcy court’s interpretation/decision that charitable committment liabilities in corporation reorganization plans should be excluded (Bashas originally included its pledge to ST. Joseph’s and several others in the reorg plan). The appeal was not intended to “chase [a donor] to the end of the world…” However, hindsight has taught a lesson for all of us involved in corporate philanthropy…sometimes the long view of donor (and public) relations should trump legal counsel/rights.

    • Thanks for showing us the “other” side, Keith. What your leadership experienced is very common in the for-profit sector.

      When an issue gains public attention, the marketers want to get ahead of it and speak directly to stakeholders and the public to regain trust quickly. The lawyers, on the other hand, are more concerned about legal ramifications.

      Unfortunately, as in many case studies before this, when lawyers are in control of the message, the organization typically pays a much bigger price in brand reputation and public opinion.

  • I agree that there has to be some “baggage” not being reported. The negative press will cost the Hospital a lot more than $145.

  • After reading this story, I get the impression that there must be something more to this. Does a charitable donation have the same status as a full fledged creditor? Has the value of this donation been deducted from taxes even though the gift was not fully given? If I were a creditor, I would be quite unhappy with the charity, buyt, as I say, there must be more to the story than this

    • You’re right that there are always two sides to a story, David, and sometimes, journalists may miss some information. However, in this case, the grocery chain had made news for months prior to, and during, its bankruptcy. And, since the company had always been wonderful corporate citizens, supporting hundreds of charities across the state, consumers felt badly for it.

      Although there may be tax implications, I would be more concerned about the hospital foundation’s brand reputation. No matter what conversations took place between the two parties, the negative press makes the charity look bad and may, in fact, deter future long-term pledges.

      Thanks for weighing in, David!

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