In a high-profile case, the New York Supreme Court had occasion to articulate the equitable doctrine of cy pres.  In In re Paul Smith’s College of Arts and Sciences,[1]  Paul Smith’s College applied for permission to change its name to accommodate a wealthy donor’s requirements.  The upstate New York school was founded in 1946 through a bequest by of Phelps Smith, son of Apollos Smith, a 19th century hotelier and travel guide. Along with the money to start a school, Phelps also left more than 20,000 acres (80 km²) of land. Phelps’s will stated:

I give, devise and bequeath all the rest, residue and remainder of my estate, of every name, nature and description wheresoever situate to the corporation hereinafter directed to be formed for the erection and maintenance of a college for the higher education of boys and girls, to be forever known as “Paul Smith’s College of Arts and Sciences.”[2]

In recent years the school struggled with decreased enrollment and revenues.  It came to rely upon a number of large donors, including financier Sanford I. Weill and his wife Joan.[3]  In early 2015 the Weills offered to contribute $20 million to the school in exchange for a change of name to the “Joan Weill-Paul Smith’s College.”  The offer was accepted by the school and approved by its Board of Regents.  The school filed a petition with the New York Supreme Court for Franklin County asking that the court approve the name change under the doctrine of cy pres.  As the court articulated the doctrine:

“Whenever a court determines that changed circumstances have rendered the administration of a charitable trust according to its literal terms either ‘impracticable or impossible, the court may exercise its cy pres power to reform the trust in a [manner] that ‘will most effectively accomplish its general purposes.’ In reforming trusts pursuant to this power, care must be taken to evaluate the precise purpose or direction of the testator, so that when the court directs the trust toward another charitable end, it will ‘give effect insofar as practicable to the full design of the testator as manifested by his will and codicil.”[4]

In support of its petition, the school argued that the naming restriction contained in Phelps Smith’s will “nearly fatally impedes the ability of Paul Smith’s to seek large gifts from a single donor in order to make the investments it needs to remain viable.”[5]  The Court disagreed.  In reaching its verdict, the Court reviewed extensive financial information concerning the school, including its tax returns, a report of the Office of the Attorney General, and the school’s sealed five-year strategic plan.[6]  Based on that review, it concluded that the school had not established that the name change restriction made its charitable purpose “impossible or impracticable”:

Petitioner conclusively suggests that the only way Paul Smith’s can adapt to the changing demographics of college bound students is through a thirty (30) million dollar revitalization plan.  However, it has not presented the Court with sufficient evidence that the plan proferred is the only effective way to stabilize the college’s finances.  Similarly, petitioner states that prior attempts to increase enrollment have not yielded the desired results, but has given the Court little information about such efforts. 

There is little doubt that the financial position of Paul Smith’s, or any institution for that matter, would improve with the injection of twenty (20) million dollars of revenue… [h]owever, the petitioner falls far short of showing that its name is holding the College back from being a shining success both in enrollment and in producing successful college graduates.  Significantly, Paul Smith’s has failed to demonstrate the College cannot operate effectively within [a] changing demographic absent the requested relief…  Much of petitioner’s arguments are speculative.[7]

In the wake of this decision, the College acknowledged that the pledge by the Weills was null and void due to the College’s inability to meet its obligations under the agreement.

The decision has created a stir among institutes of higher learning and other charitable and nonprofit entities.  The school’s initial decision to change its name was itself controversial.  But many nonprofits are understandably nervous that the decision forever closes the door on a major potential source of revenue, even in dire financial straits:

And yet it is one of the few cases of its kind to yield a judicial ruling, experts said, putting the college at the center of a nascent legal debate over how long institutions must adhere to restrictions set at their founding. Uncertainty about such rules looms ever larger over groups that have grown reliant on big gifts that often come with strings attached.

The decision sent a strong message to other organizations that perpetual naming agreements would not be lifted easily, and it left the fate of Mrs. Weill’s gift in doubt. It also brought an end to months of sometimes vitriolic debate at the college, in Paul Smiths, N.Y., as the case provoked class resentments and clashing expectations about the very purpose of philanthropy.

“This decision is a big, big deal,” said Doug White, an adviser to philanthropists and nonprofits who teaches at Columbia University. “It’ll help define what the court system thinks of the idea of changing the name of an organization like this.”

A significant amount of ire has been directed at the Weills themselves:

“I think it’s unfortunate that the Weills are not going to give the money,” Mark Schneider, a lawyer who represented alumni who opposed the name change, said. “If they really wanted to give a gift to the school, it shouldn’t be contingent on something as self-glorifying as naming the school after Mrs. Weill. They could have named something else.”

“And it’s unfortunate for the school, because they could use the money,” Mr. Schneider said. “But I find it in sort of bad taste.”

...

The reaction had been somewhat stronger among alumni, who had said in scores of online posts and public comments that the proposed change undermined the college’s integrity and called into question Mrs. Weill’s motives as a philanthropist.
In comments submitted to the state attorney general’s office, which oversees nonprofit organizations and had to approve the college’s request for a name change, graduates described themselves as a scrappy lot who tended to dirty their hands in the course of their work. They said they did not understand why Mrs. Weill felt she had to attach her name to the gift.

“The petition not only fails the truth test, the philanthropists fail the good-will test,” a 1980 alumna, Sheila Strachan, said in an Aug. 12 email to the attorney general’s office.

Lost in this acrimonious analysis is the fact that philanthropists have no “good-will” duty, and that the Weills have donated millions of dollars over the years.

One wonders, though, how much the Weills’ presumably “eternal” naming rights would really have been worth, if the Court had agreed with the school that hard times called for desperate measures?  Would another “crisis” in a decade or two force the school to reconsider its concession to the Weills in favor of more recent donors?

Hat tip: Dr. Noah Pizmony-Levy Drezner, Teacher's College, Columbia University