HADASSAH ACADEMIC COLLEGE v. HADASSAH THE WOMEN ZIONIST ORGANIZATION OF AMERICA INC (2019)

SUMMARY ORDER

Plaintiff-Appellant Hadassah Academic College (“HAC”) appeals from a judgment of the District Court (Torres, J.) in favor of Defendant-Appellee Hadassah, The Women's Zionist Organization of America, Inc. (“Hadassah”).¹ The District Court dismissed HAC's diversity suit for lack of standing, holding that HAC had not met the “special interest” exception to the general rule in New York that potential beneficiaries of charities do not have standing to contest how those charities are administered. HAC appeals.

We take the following statement of facts from HAC's complaint, as we must when reviewing a motion to dismiss. HAC, an Israeli college founded in 1996, brought this suit against Hadassah, a New York nonprofit corporation founded in 1912, on state law claims of breach of fiduciary duty, conversion, and unjust enrichment, and sought an accounting and imposition of a constructive trust. HAC has for many years been a beneficiary of charitable funds transmitted to it by Hadassah, and funds donated to Hadassah are often earmarked by donors for later distribution to HAC. HAC alleges that, due to a dispute between the organizations regarding Israeli real estate, in recent years Hadassah has failed to transmit to HAC funds so earmarked. We assume the parties’ familiarity with the underlying facts, procedural history, and arguments on appeal, to which we refer only as necessary to explain our decision to affirm the District Court's judgment and order. On appeal from a dismissal for lack of standing, “[w]e review legal questions relating to standing de novo and factual findings for clear error.” Anderson Grp., LLC v. City of Saratoga Springs, 805 F.3d 34, 45 (2d Cir. 2015) (internal quotation marks omitted).

Under New York law, the general rule is that “one who is merely a possible beneficiary of a charitable trust, or a member of a class of possible beneficiaries, is not entitled to sue for enforcement of the trust.” Alco Gravure, Inc. v. Knapp Found., 64 N.Y.2d 458, 465, 490 N.Y.S.2d 116, 479 N.E.2d 752 (1985). New York law authorizes and obligates the New York Attorney General to sue on behalf of beneficiaries. Id.; N.Y. Est. Powers & Trusts Law § 8-1.1(f) (“The attorney general shall represent the beneficiaries of such dispositions for religious, charitable, educational or benevolent purposes and it shall be his duty to enforce the rights of such beneficiaries by appropriate proceedings in the courts.”). This rule serves to “prevent vexatious litigation and suits by irresponsible parties who do not have a tangible stake in the matter.” Alco Gravure, 64 N.Y.2d at 466, 490 N.Y.S.2d 116, 479 N.E.2d 752.

HAC argues that it falls within a narrow exception to this general rule, which allows suits by beneficiaries with a “special interest” in the charitable funds. In Alco Gravure, the New York Court of Appeals explained that, to qualify for this exception, a beneficiary must be “entitled to a preference in the distribution of such funds [by the charitable entity] and the class of potential beneficiaries [must be] sharply defined and limited in number.” 64 N.Y.2d at 465, 490 N.Y.S.2d 116, 479 N.E.2d 752. HAC argues on appeal that the earmarked funds donated to Hadassah give it a qualifying preference in the distribution of those funds, and that it otherwise satisfies the exception's terms.

To establish a qualifying preference, however, HAC points only to gift agreements and wills in which donors or testators expressed a desire that the funds directed to Hadassah eventually flow to HAC, while leaving Hadassah with discretion as to the funds’ ultimate distribution. The gift agreements that it presents contain terms acknowledging that Hadassah retains complete discretion in the disposition of the funds notwithstanding the expressed wishes of the donor. The wills submitted also are devoid of language binding Hadassah or restricting its ultimate exercise of discretion. This is not enough to satisfy New York law's “special interest” exception.

In these circumstances, we conclude that HAC has failed to show it is “entitled to a preference in the distribution of such funds.” Alco Gravure, 64 N.Y.2d at 465, 490 N.Y.S.2d 116, 479 N.E.2d 752. We therefore affirm the District Court's dismissal of HAC's suit for lack of standing.

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We have considered all of HAC's remaining arguments and conclude that they are without merit. The District Court's judgment is AFFIRMED.

FOOTNOTES

1.   The record on appeal includes gift agreements by which individuals donated money to Hadassah Medical Relief Association, Inc. (“HMRA”), rather than to the named defendant, Hadassah, and the two organizations appear to be related. HAC's Proposed First Amended Complaint attempted to add HMRA as a defendant. We refer to HMRA and Hadassah together as “Hadassah” for purposes of this summary order, as the inclusion of HMRA as a defendant does not affect our standing analysis.