In April 2012, Fred Rettich executed a will that contained a residuary clause in favor of Our Lady of Mercy School (OLM) or its successors, for general uses and purposes. A residuary clause designates the remaining items in an estate after the estate pays off any debts, expenses, taxes, and gifts. OLM is part of the Archdiocese of Hartford, Connecticut.
Rettich had expressed that it was important to him that residents of Madison, Connecticut be able to send their children to a Catholic school in Madison. Prior to the execution of his will, Rettich had donated $500,000 to OLM. OLM sent a letter to Rettich that marked the anniversary of that donation and informed him that $200,000 of the donated funds had been used by OLM to establish an endowment to “ensure OLM’s future.” Rettich’s will made no reference to his earlier donation or to any endowed funds or existing trust benefiting OLM. Rettich died on September 27, 2013, and his residual estate amounted to $4,745,110.86. The estate sent that amount by check to OLM.
In January 2018, it was announced that OLM and another parish school in Branford, Connecticut called Saint Mary School would be closing. The Archdiocese indicated that it would create a new school, East Shoreline Catholic Academy (ESCA), which would be located on Saint Mary’s campus. ESCA would be operated by the same three parishes that operated OLM and Saint Mary’s.
In February 2018, a group of parents of students attending OLM formed a corporation, Our Lady of Mercy School of Madison, Inc., with the intent to form a new Catholic school in Madison that would keep the current mission and vision of OLM intact. Since its founding, this corporation claimed that it raised over $1 million in additional pledges to augment the endowment by Rettich, filed for 501(c)(3) status, developed a financial plan, identified a sponsor of independent Catholic schools, and developed a curriculum. The corporation is in the process of hiring a principal and teachers for the school.
In April 2018, the corporation and former students filed suit, alleging that the Archdiocese has a duty to convey Rettich’s endowment back to the corporation, or back to Rettich’s estate for distribution.
The Archdiocese filed a motion to dismiss, arguing that the plaintiffs did not have standing to bring the action because, under Connecticut law, only the attorney general has such standing. The corporation argued that it did have standing because the “special interest exception” to that rule applied. The trial court concluded that the special interest exception did not apply to outright charitable gifts, and that, even if it did, plaintiffs failed to establish that the exception applied to their claim. On appeal, the Court of Appeal concluded that Rettich’s bequest was an outright gift to OLM and the special interest exception did not apply in cases where a charitable gift is unencumbered by specific restrictions on the way to use the gift. The Court of Appeal upheld the trial court’s ruling.
On appeal to the Supreme Court of Connecticut, the corporation again argued that the gift was not unrestricted and that the special interest exception should apply.
The Supreme Court of Connecticut ruled that Rettich’s “general use and purposes” language was in fact an unrestricted gift, and the only limitation on the gift is that the gift should be used in furtherance of the duties imposed by an organization’s charter or articles of incorporation.
The Supreme Court of Connecticut stated that, under the law, a donor who made a completed charitable contribution has no standing to bring a claim to enforce the terms of his or her gift or trust unless he or she expressly reserved the right to do so. The attorney general is only able to enforce the terms of a gift or trust and has the duty to represent the public interest in protecting any gifts, legacies, or devices intended for public or charitable purposes. The special interest exception to this rule typically applies when a person can show he or she is a member of a small identifiable class that the charity is designed to benefit. For example, if the purpose of a charitable trust is to pay the salary of a pastor of a church, the pastor and the church both have a special interest standing to enforce the trust.
When a gift is unrestricted, the organization is the sole beneficiary. Here, there were no terms or restrictions on the gift that show it was for the benefit of a particular person. Courts have previously held that students enrolled in an educational institution constitute a constantly fluctuating group. A certain student or group of students would not have to stand to bring an action to enforce the terms of a trust that was created to benefit the institution because this would undermine the purpose of the rule (i.e., that only the attorney general has standing to bring such an action in order to limit the number of potential litigants).
As a result, the Supreme Court of Connecticut upheld the Court of Appeals ruling and determined that the plaintiff corporation did not have standing under the special interest exception to bring an action to enforce the bequest.
Derblom v. Archdiocese of Hartford (2023) 247 A.3d 600.
Note: This case presents interesting issues for schools to consider when they have large donations or endowments from a trust or estate and later the school closes or merges with another school.