When Understanding Unravels: Donor Sues over Cancelled Scholarship Program

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First-Scholars

First Scholars Reception / University of Kentucky

January 22, 2016; New York Times

When donor and donee agreements come unraveled, it often ends in acrimony and lawsuits. This situation is classic in that way.

The Suder Foundation created the First Scholars program to provide scholarship funds for first-generation college students. The foundation chose eight universities to receive $1 million to $2 million over four years.

The project’s inaugural cohort entered the University of Kentucky in 2010; at that point, everyone appeared to be on the same page, but now the Times reports that Eric Suder, president and founder of the Suder Foundation, has filed a lawsuit against the University of Alabama for cancelling the program in September 2014—two weeks after getting the final check for $250,000. The cancellation occurred despite the fact that the university stated in its application for the grant that it would create an endowed support fund to cover program costs once the Suder Foundation’s funding expired. Alabama University cancelled the program shortly after receiving their final payment. (Two other universities, the University of Kentucky and Southern Illinois University Carbondale, having made similar commitments, are fulfilling their obligations to current First Scholars on their campuses but are not accepting any new ones.)

Eric Suder’s court action is seeking the $1.3 million his foundation gave Alabama University plus interest, legal fees, and damages for the harm Alabama’s decision has done to the First Scholars brand. The university’s application, signed by Robert E. Witt, then the university president and now chancellor of the state system, highlighted Alabama’s commitment to helping first-generation students.

Linda Bonnin, a spokeswoman for Alabama, said to the New York Times that the university denied that it was in default on any agreements. “All of the people who were involved in setting up that agreement are no longer here. […] The president is gone, the provost is gone, and the development folks have turned over.”

That is about the weakest defense we can imagine.

Nonprofits work hard to maintain positive donor relationships, and NPQ has covered disputes between donors and universities where disagreements emerged over issues like naming rights. The advancement team for The University of Alabama will be challenged in the future in terms of maintaining donor confidence. As Henry Goldstein, Chief Executive of Family Foundation Management/Counsel, told the New York Times, “From the philanthropic perspective, it sends a very poor signal to donors…. If they make a commitment to the university, there is no assurance that the university will live up to its side of the bargain, and a legal agreement won’t save it.”—James Araci