Vanderbilt University Pays $1.2 Million to Donor In Order to Rename "Confederate Memorial Hall"

Vanderbilt University Pays $1.2 Million to Donor In Order to Rename "Confederate Memorial Hall"

Article posted in General on 12 December 2016| comments
audience: National Publication, Richard L. Fox, Esq. | last updated: 15 December 2016
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Summary

Richard Fox explores some of the complex issues of naming rights, including cautions when things go bad.

By: Richard L. Fox, Esq.

Summary

Charities providing naming rights to donors has become an increasingly popular method to attract significant donations.  The issue of naming rights often becomes a topic of concern in situations, for example, where a major donor is accused or convicted of committing a crime, declares bankruptcy, or engages in other activities such that the charity no longer wishes to be associated with the donor.  The granting of naming rights, therefore, should be carefully scrutinized by the charity, including determining those circumstances under which the charity should retain “un-naming” rights under the gift agreement.  Absent the preservation of “un-naming” rights by the donee charity, such as the right to remove the donor's name where the donor is convicted of a crime or engages in other conduct detrimental to the reputation of the charity, the removal of a donor's name may not be as simple as prying off letters from a building's facade.  This issue is amply demonstrated by Vanderbilt University having recently paid back an 83-year-old donation, to the tune of $1.2 million, in order to remove the word “Confederate” from the name of a building the donor required to be known as “Confederate Memorial Hall.”

Background on Naming Rights

In the United States, the tradition of putting a donor's name on a donee's charity dates back to 1639, when Massachusetts Bay Colony officials named their new college for its first benefactor, Minister John Harvard. Providing a donor with naming rights is an increasingly popular method for charities to attract donations.[i] Where a donor makes a contribution to charity, subject to a condition that a building, facility, professorship, scholarship, or other program of the donee organization carry his or her name, or the name of his or her family, the public recognition associated with the naming right is considered an incidental and tenuous benefit and does not, therefore, impact the charitable deduction.[ii] The issue of naming rights often becomes a topic of concern in situations, for example, where a major donor is accused or convicted of committing a crime, declares bankruptcy, or engages in other activities such that the charity no longer wishes to be associated with the donor.[iii]

The granting of naming rights, therefore, should be carefully scrutinized by the charity, including determining those circumstances under which the charity should retain “un-naming” rights under the gift agreement. Absent the preservation of “un-naming” rights by the donee charity, such as the right to remove the donor's name where the donor is convicted of a crime or engages in other conduct detrimental to the reputation of the charity, the removal of a donor's name may not be as simple as prying off letters from a building's facade. Rather, on the basis of the gift agreement granting the naming rights, the donor may be in a position to assert that the name cannot be changed and, if it is, that the charity must return the contribution with respect to which the naming rights were granted.[iv] Of course, the charity must consider the effect of the donee's desire to preserve un-naming rights, and the related triggering events, on the donor's willingness to make the contribution in the first place.

Background on “Confederate Memorial Hall” at Vanderbilt University

In a 2005 decision, Tennessee Division of the United Daughters of the Confederacy v. Vanderbilt University,[v] a Tennessee appeals court held that Vanderbilt University could only change the name of a building known as “Confederate Memorial Hall” if it returned to the donor the value (as adjusted by the consumer price index) of the original contribution under which the naming rights were provided. The United Daughters of the Confederacy (UDC) contributed $50,000 to the George Peabody College for Teachers in 1933 for the construction of a building pursuant to three separate contracts, in 1913, 1927, and 1933.

Among other things, the contracts required that the building be named the “Confederate Memorial Hall.”  Because of financial difficulties, George Peabody College for Teachers ultimately merged into Vanderbilt University in 1979, whereby Vanderbilt succeeded to all of Peabody's legal obligations.  In 1987 and 1988, Vanderbilt spent approximately $2.5 million to renovate and upgrade Confederate Memorial Hall.  Controversy over the negative connotations of the name Confederate Memorial Hall arose over the years following the merger and in 2002, Vanderbilt, though not yet removing the name “Confederate Memorial Hall” from the front of the building, indicated its unequivocal intention to do so.  On October 17, 2002, UDC filed suit against Vanderbilt, alleging that it had fully performed in obligations under the 1913, 1927, and 1933 contracts and that “Vanderbilt's renaming of Confederate Memorial Hall constituted a breach of those contracts.”

The court held that the obligation to name the building “Confederate Memorial Hall” applied “as long as the building stands” and that such obligation can be enforced against Vanderbilt. The court stated that “[t]he original obligation to place the inscription on Confederate Memorial Hall is contained in a private gift agreement voluntarily entered into between Peabody College and the Tennessee U.D.C. Vanderbilt's legal obligation to comply with the conditions of that gift agreement arises…from Vanderbilt's own decision to enter into a merger agreement with Peabody College in 1979 in which it agreed to Peabody College's legal obligations.” The court stated that it would be inequitable to allow Vanderbilt to “return” the gift at issue simply by paying the UDC the same $50,000 sum of money originally contributed “because the value of a dollar today is very different from a dollar in 1933... To reflect the change in the buying power of the dollar, the amount Vanderbilt must pay to the Tennessee U.D.C. in order to return the gift should be based on the consumer price index published by the Bureau of Labor Statistics of the United States Department of Labor.”

The court concluded that “if Vanderbilt continues to elect not to comply with the terms of the gift, it must pay the Tennessee U.D.C. in today's dollars the value of the original gift in 1933.” Following the decision by the court in this case, Vanderbilt decided not to appeal the court order that the school either keep the inscription on the building or pay damages. Thus, the words “Confederate Memorial Hall” remained inscribed in stone on a Vanderbilt University building following the court decision.

Vanderbilt Announces Return of Donation and Renaming of Building

More than ten years following the court decision, Vanderbilt has now announced that it will repay the 83-year-old donation to UDC to the UDC and will remove the word “Confederate” from the name of the building. Anonymous donors gave the university the $1.2 million needed for that purpose and the Vanderbilt Board of Trust authorized the move this past summer.  See The Tennessean, “Vanderbilt to Remove 'Confederate' From Building Name” (August 15, 2016); Inside Higher Ed, “Lost Cause No Longer” (August 16, 2016); The Tennessean, “Daughters of the Confederacy Reluctantly Accepts Vanderbilt Deal” (August 16, 2016).

Vanderbilt Chancellor Nicholas S. Zeppos made the announcement this past August, capping a 14-year effort to rename the building. The building, which has had that name etched into the stone above its entrance since it opened back in the year 1935, stands in the heart of the university's freshman commons, and has frequently spurred debate about the university's attitude toward an increasingly diverse student body.  In an interview with The Tennessean, Zeppos, who came to the university as a law professor in 1987, said he had long been in favor of changing the building's name.  "It's a symbol that is, for many people, deeply offensive and painful," Zeppos said in the interview. "And to walk past it or to have to live in that space is really something that I just don't think is acceptable."

Tennessee's chapter of the United Daughters of the Confederacy said that it "had no legal option or alternative but to accept" $1.2 million from Vanderbilt University that will allow the school to rename a building the group helped finance. Despite the payout, the organization said it was "disappointed that an institution such as Vanderbilt University would attempt to whitewash, sanitize and rewrite American history."  Doug Jones, the Nashville attorney who represented the Daughters of the Confederacy against Vanderbilt, called the move "a real slam on the history of our country." “All it was was just a simple monument for the boys in Tennessee that died” in the Civil War, Jones said, adding that the name was not connected with slavery. “We think rewriting history’s just terrible. And I think it’s a very sad day for a school with that kind of reputation to be condoning that." Zeppos rejected the criticism that changing the name of a residence hall would compromise the university's approach to its long and complicated history. "We are not saying this is not part of Vanderbilt's history," he said. "I think we teach history by how we talk about these events.  "I don't think that that [name] was really teaching anyone history."

A number of southern universities have been working to remove Confederate references on their campuses. Middle Tennessee State University is currently in the process of renaming Forrest Hall, which was meant to honor Confederate General Nathan Bedford Forrest, a founder of the Ku Klux Klan.

Conclusion

As amply demonstrated by the Vanderbilt case involving Confederate Memorial Hall, the granting of naming rights should be carefully scrutinized by the charity, including determining those circumstances under which the charity should retain “un-naming” rights under the gift agreement. Absent the preservation of “un-naming” rights by the donee charity, the removal of a donor's name may not be as simple as prying off letters from a building's facade.  Rather, on the basis of the gift agreement granting the naming rights, the donor may be in a position to assert that the name cannot be changed and, if it is, that the charity must return the contribution with respect to which the naming rights were granted.  Of course, a charity must consider the effect of its desire to preserve un-naming rights on the donor's willingness to make the contribution in the first place.



[i] In 1991, Glassboro State College, a New Jersey college, changed its name to Rowan College, in return for a $100 million contribution from Henry Rowan, a Burlington County industrialist who had amassed a fortune by manufacturing industrial furnaces. An article in Barron's, by J.R. Brandstrader, entitled “Vanity, Inc. Your Name Goes Here” (Dec. 8, 2003), states: “It has never been easier to buy a piece of immortality. With state and local governments and nonprofit groups facing the tightest budgets in years, they're rushing to put your name in lights if you put up some dough. Across the country, everything from shrubbery and park benches to the annual reports of once-exclusive charities suddenly are sporting the names of people who gave as little as $75.” For a detailed article discussing charitable naming rights, see Drennan, "Where Generosity and Pride Abide: Charitable Naming Rights," University of Cincinnati Law Review, Vol. 80, Issue 1, Art. 2 (2012).

[ii] See Reg. § 53.4941(d)-2(f)(2) (public recognition is “incidental and tenuous”). See also Reg. § 53.4941(d)-2(f)(9), Ex. 4 (the condition by a private foundation that a donee charity name a recreation center after a donor to the private foundation “is only incidental and tenuous benefit.” The foregoing authority is in the context of the self-dealing rules for a private foundation under IRC § 4941, but the principles are equally applicable in the context of the charitable deduction for income, gift, and estate tax purposes. There is no authority indicating that the granting of naming rights in return for a contribution has any effect on the deductibility of a charitable contribution.

[iii] There are a number of examples of these scenarios. For instance, seventeen months after Robert E. Brennan was sent to federal prison for bankruptcy fraud and money laundering convictions, the Seton Hall Board of Regents removed his name from its recreation center, known as the “Robert E. Brennan Recreation Center” since its dedication in 1987. Following criminal tax evasion charges being filed against Seton Hall graduate and former Tyco chairman, Dennis Kozlowski, and the accusation that he contributed $1 million of stolen money to construct the university's business building, known as “Kozlowski Hall,” the Seton Hall Board of Regents adopted a new naming policy that sets out criteria for all naming opportunities at the university and allows for the removal of names from facilities. The new naming policy was proposed as Seton Hall had received substantial criticism for the buildings continuing to be named after Brennan and Kozlowski. One university professor, who had advocated removing Brennan's name years earlier, but was turned down, stated that “it is scandalous to hold up and, in effect, honor someone who has betrayed all the ideas of the institution in terms of moral and ethical principles.” Akron Beacon J. (Dec. 27, 2002). See also “Seton Hall of Shame — University Furor Over Buildings Named to Dirty Donors,” NY Post (Nov. 18, 2002), “Seton Hall of Shame,” Bus. Wk. (Sept. 20, 2002). Other examples of donors becoming a source of stigma for a university include the professorship at the University of Missouri-Columbia named for Kenneth Lay, the former chairman of the scandalous and now defunct Enron Corp., and the medical center and architecture college at the University of Michigan, which carry the name of Alfred Taubman, the former chairman of Sotheby's who was sentenced to a year and a day in federal prison for his role in a price-fixing scheme between his Sotheby's auction house and archrival Christie's. At Villanova University, the “John E. DuPont Pavilion” was renamed simply as the “Pavilion” after John E. Dupont (the great-great grandson of the original Eleuthere I. DuPont de Nemours) was convicted of murdering former Olympic athlete, David Schultz.

[iv] In 1987, for example, Elroy Stock contributed $500,000 to his alma mater, Augsburg College, to construct a multipurpose building, a wing of which would carry his name. Soon thereafter, the college learned that Stock had sent thousands of letters advocating “racial purity” and criticizing interracial marriage. Augsburg thereafter refused to place Stock's name on the building because it did not want to be associated with his beliefs, but decided not to return his $500,000 contribution. Stock then sued for the return of the contribution claiming that the college breached the gift agreement by not attaching his name to the building. The lawsuit dragged on for nearly a decade before a judge ruled that the college could retain the money. In response to critics who wanted it to return the contribution, the college created a $500,000 scholarship fund for minorities. Similar issues arise in the context of the for-profit world. For example, the Houston Astros Baseball Club had to pay the bankrupt Enron Corp. $2.1 million to remove its name from the marquee and from everywhere else within its stadium. Enron had agreed in 2000 to pay $100 million over thirty years for the naming rights; its next payment obligation was not due for a number of months and Enron was apparently considering selling its naming rights to another company. With Enron's tarnished reputation, the Astros wanted to immediately negotiate a new naming right agreement with another company, to the point where it filed a motion in U.S. Bankruptcy Court for the Southern District of New York to break the agreement and ultimately paid Enron the $2.1 million termination payment. Had the Astros negotiated the right to terminate the agreement if Enron filed for bankruptcy, it might have avoided having to make this payment. The Astros stadium is now known as Minute Maid Park. Other recent cases involving the removal of stadium naming rights include the Baltimore Ravens, who went to court to reclaim the naming rights to their stadium after PSINet went bankrupt, and the Tennessee Titans, which ended its fifteen-year, $30 million deal with the bankrupt Adelphia Communications.

[v] Ct. of App. No. M2003-02632-COA-RS-CV (May 3, 2005). In support of its decision, the court cited an article written by the author of this article, stating: “Donors often seek to impose conditions on gifts to charitable organizations. Richard L. Fox, Planning for Donor Control and Other Strings Attached to Charitable Contributions, 30 Est. Plan. 441, 441 (2003).” For a case discussing this opinion and citing the same article, see Roberts v. The Baylor School, in the Court of Appeals of Tennessee at Knoxville (No. E2007-00266-COA-R3-CV (Jan. 25, 2008).

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