Paula Kent Meehan rescinded her 5 million gift to the St John39s Foundation after a change in the regime of the hospital39s administration and rumors of a pending sale

Paula Kent Meehan rescinded her $5 million gift to the St. John's Foundation after a change in the regime of the hospital's administration and rumors of a pending sale.

Foundation Brings Rare Suit Over Rescinded Pledge

Biting the hand that feeds?

There’s a fairly unusual philanthropy (contracts really, but that's less fun) case currently brewing in California. The L.A. Times reports that the St. John’s Foundation, which runs the St. John’s Health Center in Santa Monica, is suing the estate of Paula Kent Meehan, a wealthy donor who founded the Redken hair-care products company and died in 2014, to enforce a $5 million pledge initially made in 2007 but subsequently revoked in 2013.

If it continues forward, this case could potentially offer a rare opportunity for courts to weigh in on whether charities can legally enforce donation pledges. While it’s not terribly uncommon for a charity to sue an estate to enforce a gift, it usually involves an heir who is simply choosing not to deliver on a still-valid pledge. Cases over rescinded pledges, on the other hand, don’t come up often, and the reasons have much more to do with public perception than any legal standard. For charitable organizations, which often rely heavily on donations to ensure their continued day-to-day operation, legal action of this nature is akin to biting the hand that feeds you. Fighting to enforce rescinded donations is usually considered simply not worth the risk of angering other potential donors. Revoked pledges are generally treated as simply the cost of doing business.

So why is the foundation breaking this unwritten rule? According to the Times, they may simply need the money. As frequently discussed by Robert F. Sharpe, Jr. in his columns for Trusts & Estates, the “Great Recession” saw a drastic dip in charitable giving by the high-net-worth community. Since the vast majority of philanthropy in this country emanates from that group, that reluctance to give has led to some lean years for many charitable organizations. The foundation’s donations have apparently plummeted from $30 million in 2010 down to $6.6 million in 2013. Though they bounced back a bit last year ($14.4 million), it’s possible that Meehan’s $5 million pledge was simply too valuable to let slide.

According to the suit, Meehan promised in writing in 2007 that the pledge would be “legally binding on me and my heirs, executors, administrators, personal representatives and assigns.” After a change in administrative regime at the hospital and amid rumors of a pending sale, she rescinded the pledge in 2013.

In recognition of the gift, the hospital planted a tree on the grounds in her honor, added her name to the list of donors on the “Friends for the Future Wall” in the lobby and published a story about the donation in their newsletter. The foundation maintains in its complaint that: “The recognition and positive publicity received by Ms. Meehan during her lifetime, and prior to March 19, 2013, as a result of the Estate Note was material and was bargained for in exchange.” These allegations are central to both of the foundation’s claims.

Though it’s hard to imagine this case actually making it to trial, the possibility of an interesting and important decision coming down still exists, so it's one to watch nonetheless.

The full complaint can be read here.

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