Is a promise a contract?
One high-profile nonprofit claims it is—to the tune of $11 million
Thu, May 21, 2009 (midnight)
In Business Las Vegas
Developer Jim Rhodes and his wife, Glynda, probably count the past couple of months as one of the worst periods in their lives. At the start of April, Rhodes Homes and several affiliate companies Rhodes owns filed for Chapter 11 bankruptcy. Then in early May the Nevada Cancer Institute sued Rhodes and his wife for failing to make good on a $10 million donation promise, as well as for the $400,000 remaining from a previous $1 million pledge to the NVCI.
According to UNLV law professor Keith Rowley, a contract law expert, the lawsuit over a failure to make a pledged donation to a charity is extraordinarily unusual in Nevada: “The number of reported decisions was even smaller than I would have guessed. There is a long-standing rule of contract law that gratuitous promises aren’t enforceable as contracts unless there is something else besides the promise to give money. There has to be more than a dinner honoring donors. And if that is the position they are taking, then there is not a lot of case law that supports that. ”
The NVCI argues, however, that a dinner, in this case “Rock the Cure” in 2007 honoring the couple’s promised donation, was part of a public-relations campaign designed to improve Rhodes’ image. The Nevada Cancer Institute claims a willingness to employ its good name to cleanse Jim Rhodes’ reputation in exchange for $10 million. In fact, the lawsuit argues, “the Binding Commitments [pledge of $10 million] were made in an effort to improve the Rhodes public image after Jim Rhodes was accused of having improper dealings with Commissioners and other public officials in Nevada and Arizona.” The Nevada Cancer Institute claims to have delivered everything promised—“positive publicity, including press releases, numerous news articles.” How the nonprofit was able to deliver news articles, which are generally the decisions of editors, is unclear. Also unclear is how the NVCI suffered more than $10,000 in damages, as the lawsuit claims, from the Rhodeses not making the promised donation, unless you count that not getting more than $10 million means you lost more than $10,000.
Of course, whatever good press the couple’s donation pledge to the NVCI may have garnered has certainly been eliminated by this high-profile lawsuit, which has probably also erased from the public’s mind the years of Rhodes’ charitable giving in the community.
- From the Archives
- Life’s a beach as Jim and Glynda hit Cabo (4/10/09)
- Beyond the Weekly
- Cancer Institute: Rhodes pledged $11 million, gave only $600,000 (Las Vegas Sun, 5/4/09)
- No more $20,000 guitars? Rhodes’ bankruptcy to be felt in uncharitable ways (Las Vegas Sun, 4/3/09)
- Rhodes homebuilding companies file for Chapter 11 (Las Vegas Sun, 4/1/09)
But Corey Eschweiler, the attorney for the Nevada Cancer Institute, has no doubts over the validity of the lawsuit or that a promised donation is an enforceable contract. “There is legal precedent for this. We have obligations to our patients and supporters to pursue this gift. The failure of Jim to give this gift impacted us as a whole. The law is pretty clear that a charitable donation is an enforceable contract. This was an enforceable contract. There was valuable consideration for the gift, as they were able to garner publicity for the gift in front of the community. In this case there was also a written agreement signed by the Rhodeses that was provided to Nevada Cancer prior to the Rock the Cure event where the announcement was made.” Eschweiler concedes there was no time schedule on the agreement for when the donation was to arrive. And he also agrees that suing a donor (and, at worst, Rhodes gave $600,000) is an extraordinary step. “It is an unfortunate situation. When it became clear that he had no intention to pay it, we had to sue to continue our mission to fight cancer.”
Of course, between 2007 and 2009, the construction and real estate companies Rhodes owns have been on a downward spiral and have now gone bankrupt, which is likely to impact his ability to donate $10 million. (Rhodes’ lawyer did not reply to questions sent by e-mail or to a request for an interview.) But Rhodes’ financial situation, according to Eschweiler, should not release him from his obligation to make the donation: “We work with our donors to allow them to structure a gift to meet our needs and their needs. But Jim did not reply to any of our communications. That is why this is unfortunate and why we had to take this step. We are always open to resolution, but if we need to we are going to pursue this litigation through the courts to achieve our goal on the commitment.”
Professor Rowley remains skeptical: “It sounds like the argument that the charity is making essentially is that, ‘We let the Rhodeses attach our good name to theirs, and that is enough to oblige them and bind them to pay us $11 million.’ I don’t think the court is going to find that to be enough to require them to make an $11 million payment.” Rowley points to another reason these suits are so unusual: “A charity that sues a donor for not fulfilling a pledge is really running a substantial risk of frightening off future donors. Should the Nevada Cancer Institute be using money given for their medical and scientific undertakings to bring and prosecute this lawsuit?”