Morality Clauses, Conditioned Gifts, Donors, and The Board
By Andrea Canzano.
Recently, donors and governing boards have been under scrutiny for their personal affairs and affiliations. The Metropolitan Museum of Art and the Sacklers, The Museum of Modern Art, Leon Black and Larry Fink, The Whitney Museum of American Art, Nancy Crown, Pamela DeVos, and Warren Kanders, and The Los Angeles County Museum of Art and Tom Gores all have been a part of the debate surrounding the entanglement of donors’ and board members’ personal choices with the institution’s reputation and public perception. The United States public-giving structure for charitable institutions, includes “three main categories of revenue: contributions, program services, and earned income. The contribution category includes membership dues, fundraising, non-cash contributions, and grants.” Across the museum industry, contributions constitute more than half of all income, making typical incentives to donate, like a board seat or naming rights, a priority. As institutions balance public criticism and the need for contributions they may need to ask themselves: can a giving contract adequately address a donor’s and board member’s personal affairs, and how may such contract provisions be challenged when the gift is conditioned by usual incentives to donate?
Some of the ways in which institutions may be sheltered from board and donor personal actions include the legal duties a board has to the institution, the American Alliance of Museums (“AAM”) governance guidelines, and morality clauses in their board member and donor gifting agreements. AAM’s Code of Ethics states that “museums must take steps to maintain their integrity so as to warrant public confidence,” while emphasizing that their governance, staff, and volunteers must encourage this goal while strengthening the museum’s “contributions to society.” However, in matters questioning a board member’s personal affairs and donor gift negotiations, the AAM’s code and the prescribed legal duties may be difficult to enforce, despite the elevated public call for those financially supporting and making decisions at cultural institutions to observe a certain moral standard.
In order to combat the potential contradictions between the requirements of private contributions funding museums and AAM’s imposition to consider the public confidence and perception within the donor’s and board’s personal dealings, morality clauses in gifting and board member agreements may help resolve these issues. But what actually constitutes a breach of a morality clause and is it sufficient to reconcile the recent concerns via the removal of a board member or naming right without jeopardizing an institution’s funding?
Legal Duties and Responsibilities
Despite certain state codes that hold the board liable for any act or omission that may involve intentional misconduct or violation of law, little specification is statutorily provided for instances where conflicting ideologies of the public and personal affairs of the board arise. Therefore, there is large room for interpreting what personal aspects of a board member’s life may constitute a breach of the board members’ legally prescribed duties, if they do not directly conflict with the legal duties of care, loyalty, and obedience, often addressed together under the umbrella term “Fiduciary.” The Brigham City Museum describes these duties as follows: (1) the duty of care requires a board member “to exercise reasonable care when he or she makes a decision as a steward of the organization,” (2) the duty of loyalty requires that the board member “must give undivided allegiance when making decisions that impact the organization,” and not be motivated by personal gain or the benefit of another institution, and (3) the duty of obedience requires the board member “to be faithful to the organization’s mission,” including the management of funds. The Boston Museum of Science also includes a Conflict of Interest clause that states:
“A Museum of Science Trustee should conduct all of his or her activities, including those relating to persons or businesses with whom the Trustee is closely associated, in such a way that no conflict will arise between the other interests and the policies, operations or interests of the Museum. The appearance of such conflict should also be avoided.
Museum Trustees should file with the Board a statement disclosing their personal, business, or organizational interests and affiliations and those of persons close to them that could be construed as being Museum-related. Disclosure statements should be updated whenever significant changes occur.”
Though not required to abide by the fiduciary standard and other common clauses such as conflict of interest clauses, many institutions still require donors to abide by their gift agreements. Some of the general policies are readily available online and allude to the institution’s expectations regarding morality provisions that may be present in the formal gift or donor agreements. For example, The Met’s most recent Gift-Acceptance Policy requires that any gift of art, real estate, or that affords naming rights are to be reviewed by General Counsel, Head of Development, Chief Financial Officer, and various committees before their acceptance. Similarly, MoMA contains the following language: “The Museum reserves the right to refuse or return gifts…that otherwise may be deemed inappropriate by the Gift Acceptance Committee,” which consists of the offices of the General Counsel, External Affairs, and Chief Operating Officer. More specific, the Schiele Museum of Natural History & Planetarium’s Donor Recognition and Naming Policy Draft states that any naming right is subject to ongoing ethical review and termination if a “significant concern by any member of The Schiele community or general public,” arises and the donor’s “ethical integrity is called into question,” or their behavior “cease[s] to align with The Schiele’s,” ethics.
Available holdings, surrounding breaches of a morality clause, primarily arise from the entertainment industry. However, their language is similar to what is suggested to be included in gift or donor agreements for charitable institutions at large and will help to lead the analysis of what may constitute a breach of a morality clause in the museum context. Similarly, holdings addressing the issue of a donor’s morality being called into question when their gift is subject to conditions arise primarily from the collegiate giving setting and will be utilized when analyzing this concern within museum donor relations.
When litigation arises pursuant to an alleged breach of a morality clause, the courts have considered whether the behavior constitutes a breach based on the express language of the contract, the timing of when the behavior becomes known to the employer, the public’s reaction in connection to the employer’s business reputation, and what is the reasonable time the employer has to determine their acceptance of the behavior before losing their ability to activate the morality clause. In contrast, when resolving disputes surrounding gifts subject to conditions, courts have limited themselves from defining “larger cultural and social conflicts,” generally not giving weight to the public persuasions that may have influenced the decision to amend or breach the condition. Instead, the court applies the “neutral principles of law,” such as analyzing the donative intent and substantial performance of the condition set forth in the agreement.
Morality Clauses and Termination
When a claimant challenges the termination of a contract due to a breach of the morality clause, the court analyzes if the alleged behavior upsets public morals significantly enough to negatively reflect upon the responding party, therefore frustrating the purpose of the agreement and the time between the behavior and actual exercise of the provision. During the height of the Cold War, in Loew’s Inc. v. Cole 185 F.2d 641 (9th Cir. 1950), the actor Lester Cole had been interviewed in front of the House Committee on Un-American Activities, in which he refused to answer their questions, leading to the inference that Cole was a communist. Subsequent to the interview, Loew’s executives had conveyed to Cole their “regret that this had occurred” because they had intended to promote him to “writer in the studio.” Within 33 days of the hearing, Cole’s contract was suspended and the Court held that Cole was on proper notice of Loew’s responsible and reasonable investigation into the effect of Cole’s conduct on their business’ reputation. Therefore the lapse in time was irrelevant when considering the legitimacy of his suspension. Cases such as Twentieth Century-Fox Film Corp. v. Lardner, 216 F.2d 844 (9th Cir. 1954) and Scott v. RKO Radio Pictures, Inc.,240 F.2d 87 (9th Cir. 1957), also rely on the public perception of communism at the time as being sufficient to show a breach of the morality clause and uphold the termination of the actor’s contracts. Each of the morality clauses followed similar language including the right to terminate if the exhibited behavior that “shock[s], insult[s] and offend[s] the community and public morals and decency,” and “reflect[ed] unfavorably upon”, the employer or the industry in general.
Comparatively, the Court in Mendenhall v. Hanesbrands, Inc., 856 F.Supp.2d 717 (M.D.N.C. 2012) limited the application of the morality clause, holding that “termination rights [are] subject to the implied covenant of good faith and fair dealing.” The applicable morality clause required “Mendenhall [to become] involved in an act that tended to ‘bring [him] into public disrepute, contempt, scandal or ridicule,’ or tended ‘to shock, insult or offend the majority of the consuming public,” in order for the contract to be terminated The behavior in question surrounded Mendenhall’s tweets regarding Osama bin Laden’s assassination. In the pleadings, Mendenhall provided evidence that he received supportive tweets from members of the public. This led the Court to conclude that Mendenhall’s statements constituted a “mere disagreement” with Hanesbrands and were insufficient to automatically terminate the contract.
The Whitney Museum & Warren Kanders
As applied to the Whitney Museum’s prior board member Warren Kanders, the public protests led by Decolonize this Place and the push-back by artists exemplified by Forensic Architecture’s withdrawal from, then rescission upon Kander’s resignation, the latter’s affiliation with questionable companies undeniably brought forth negative public perception of the museum. Kander’s part ownership in the Sierra Bullet company, the bullets being connected to the Israel-Palestinian conflict and his ownership of Safariland Group, the manufacturer of tear gas used at the Mexican-American border and later in the Black Lives Matter Movement, was suffient to inhibit the exhibition of living artists. It could be argued that this was in direct conflict with the institution’s mission, i.e., its dedication to the “collecting, preserving, interpreting, and exhibiting American art, and its collection,” primarily focused on living artists. However, as stated by Martin Magulies, collector and philanthropist, in an interview with artnet news: how products, developed by companies owned by Kanders, are used is of his control. Further, Magulies counter-argued that the protests detract “from the mission of the great Whitney Museum.” During his tenure, Kanders donated over $10 million to the Whitney Museum.
The Los Angeles County Museum of Art and Tom Gores
Across the country, LACMA dealt with its own controversy. Tom Gores, billionaire owner of the Detroit Pistons and former LACMA trustee stepped down due to a petition signed by over 100 artists. The letter was in response to Gore’s investment firm’s acquisition of a prison phone company accused of exploiting prisoners by grossly overcharging for phone calls. In response to the allegations, Gores sent a letter resigning from his position with LACMA, who in turn thanked him for ensuring LACMA was not further implicated in the controversy.
The Museum of Modern Art, Larry Fink and Leon Black
Similarly, MoMA’s board members, Larry Fink of Blackrock and Leon Black, former Apollo Global Management chief executive, have been called to step down due to their investments and personal associations. Blackrock is the second-largest investor in GEO Group and CoreCivic, which operate private prisons. Apollo acquired Constellis, the rebranded private security firm Blackwater, notorious for its role in the 2007 Nisour Square Massacre, during Black’s time with the company. Black’s association with Jeffery Epstein only exacerbated matters. At the conclusion of the ten-week protest at MoMA in 2021, led again by Decolonize this Place, the tension and perspectives at MoMA are mixed as a “staff member estimated that nearly half the museum supported the protesters’ goals while the other half objected to them,” culminating with a growing mistrust of the board. The Cold War cases (Loew’s, Lardner, and Scott) and Mendenhall differ in part due to the position being perpetuated by the parties. The Cold War Cases’ claimants are alleged to be in contention with the United States Government and investigated by a House Committee. Additionally, there was no evidence of mixed public perception regarding the behavior in question, making the controversies at the Whitney, LACMA, and MoMA more analogous to Mendenhall and likely to be determined as a matter of opinion.
When determining breach of a conditioned gift, courts have analyzed the expressed statements within the gift agreement as it pertains to the donative intent and if substantial performance of the condition has occurred. In Stock v. Augsburg College, 2002 WL 555944 (Minn.App., 2002), the College solicited Stock for donations to their 21st Century Fund, in which Stock agreed to donate $500,000 on the condition that, upon completion, a part of the new building would be named the Elory Stock Communications Wing. The contract had been settled prior to the Board learning about Stock’s anonymous letters sent to mixed race and mixed religion families perpetuating racial purity ideologies. Upon learning this, the College decided to not proceed with Stock’s naming rights but voted to keep the donation. The breach of contract claim, brought by Stock, was ultimately barred by the Statute of Limitations. However, the Court stated that if the suit had been brought within the right time frame, the College would have had to comply with the naming condition or return the gift due to Stock’s clear intent, even if they would have to use other funds to repay him.
Similarly, in Tennessee Div. of United Daughters of the Confederacy v. Vanderbilt University, 174 S.W.3d 98 (Tenn. Ct. App. 2005), the University was required by the Court to keep the name “Confederate Memorial Hall” in order to avoid paying back the original donation adjusted for inflation. In dicta, the Court stated the reasoning behind the damages is that it would be too cumbersome to analyze the value of the approximately seventy years in which the naming rights were honored, stating any attempt would be “impermissibly speculative.” The University argued they had substantially performed their obligations under the agreement, during the seventy year period in which the building was named per the gift agreement. However, the Court found no merit in the argument stating that “no reasonable fact-finder could conclude that replacing a name written in stone in large letters on the pediment of a building with a plaque by the entrance constitutes substantial performance of a requirement to do the former.” The University ultimately paid $1.2 million to remove a single word from the building.
The Metropolitan Museum of Art and the Sackler Family
The Metropolitan Museum of Art and countless other institutions connected to the Sackler controversy have already begun to question their ability to remove the Sackler name from their buildings upon the scandal regarding the family’s connection to the Opioid crisis, despite the original gift being given by a family member who died prior to their involvement with Purdue Pharma. In March, 2021, attorneys general from 23 different states called for the institutions to be able to amend the conditions associated with the Sacklers financial gifts “without the prospect of repercussions, such as losing the money previously donated.” However, the $4.5 billion settlement, as it now stands, does not include an option for institutions that have naming-rights as the condition associated with the Sackler’s gift to amend the contract or remove the name. “Instead, the family will be prohibited from requesting or permitting any new naming rights in connection with charitable donations for the next nine years.” The Met has already committed to not accepting any new gifts from the Sacklers.
In the case of MoMA, which named its film center for Black and his wife Debra subsequent to receiving a $40 million donation in 2018, there is no indication that the museum intends to call for its removal despite artists’ contention and unrest at the Dartmouth Visual Arts Center, also named after Leon Black. It also seems, their commitment to retaining the Black name may be of reassurance to other donors, as a longtime trustee alluded to when interviewed by Town and Country Magazine: “We all are in perpetuity, [i]f I found any different, I’d be pissed off.”
Compared to the cases above, there is little debate that without an ability to amend the condition of the contract, if the institutions wanted to respond to the social pressure by removing these names, there would be real financial consequences to consider, particularly if the original donation must be returned after it is adjusted for inflation. There have been some donor initiatives to move towards the more historic “humble-philanthropy” days, when memorializing one’s name was frowned upon. But, the reality of the US museum funding structure makes it hard to imagine that incentives such as naming rights will ever be fully eliminated.
For now, understanding morality clauses and the protections they may afford due to the precedent of strict adherence to conditions set forth in gift agreements is crucial. For, these provisions may become more standard for institutions, notwithstanding the awkwardness of asking a donor for substantial funding with the caveat that should an issue arise the institution may “unilaterally decide to take off [their] name.”
 The American Alliance of Museums is an organization whose mission is to “champion museums and nurture excellence in partnership with our members and allies.”; The American Alliance of Museum, AAM Code of Ethics for Museums, (2000).
 MASS. GEN. LAWS ch. 180 §3 (2017).
 Loew’s Inc. v. Cole 185 F.2d 641 (9th Cir. 1950).
 Tennessee Div. of United Daughters of the Confederacy v. Vanderbilt University, 174 S.W.3d 98, at 114, 120 (Tenn.Ct.App.,2005); Loew’s,185 F.2d 641, 656.
Daughters of the Confederacy, 174 S.W.3d 98, at 114, 120.
 Loew’s,185 F.2d 641, 655.
 Ibid., at 656.
 Scott v. RKO Radio Pictures, Inc., 240 F.2d 87, 90-91 (9th Cir. 1957); Twentieth Century-Fox Film Corp. v. Lardner, 216 F.2d 844, 851 (9th Cir. 1954).
 Mendenhall v. Hanesbrands, Inc., 856 F.Supp.2d at 726, 728 (M.D.N.C. 2012).
 Ibid., at 727.
 Ibid., at 728.
 Eileen Kinsella & Rachel Corbett, ‘What Is Considered Evil?’: How US Museum Leaders Are Grappling With the Fallout of Warren Kanders’s Controversial Resignation From the Whitney, artnet, (Aug. 13, 2019).
 Zachary Small, Warren Kanders Resigns From Whitney Museum Board After Months of Controversy and Protest, HYPERALLERGIC (Jul. 25, 2019).
 Sarah Cascone, LACMA Trustee Tom Gores Has Resigned From the Museum’s Board After Activists Decried the Billionaire’s Prison Investments, artnet, (Oct. 9, 2020).
 Eileen Kinsella, Three Dozen Artists Showing at MoMA PS1 Sign a Letter Urging the Museum to Sever Its Ties With Controversial Trustees, artnet, (Jan. 14, 2020).
 Ibid.; Artnet News, Art Industry News: Leon Black Will Resign as MoMA’s Board Chair Amid Scrutiny of His $158 Million Payout to Jeffrey Epstein + Other Stories, (Mar. 29, 2021).
 Zachary Small, MoMA Survived Ten Weeks of Protest. But Inside the Museum, Some Employees Are Feeling the Strain, artnet, (Jul. 19, 2021).
 Stock v. Augsburg College, 2002 WL 555944 (Minn.App.,2002).
 Ibid., at 1.
 Ibid., at 2.
 Ibid., at 6.
 Daughters of the Confederacy, 174 S.W.3d 98 at 98.
 Ibid., at 119.
 Ibid., at 118.
 William A. Drennan, 2016 Mich. St. L. Rev 1267, at 1295.
 Taylor DaFoe, Dozens of State Attorneys General Want to Allow Museums to Remove the Sackler Name From Their Walls Regardless of Gift Contracts, artnet, (Mar. 18, 2021); Caroline Goldstein, How a Devious Handshake Deal Let Arthur Sackler Store His Artworks in a Secret Gallery at the Metropolitan Museum of Art for Years, artnet, (Apr. 30, 2021).
 Sarah Cascone & Eileen Kinsella As Part of a $4.5 Billion Oxycontin Settlement, the Sackler Family Has Promised Not to Lend Its Name to Museums for Nine Years, artnet,(Jul. 9, 2021).
Jared S. Hopkins, The Met Stops Taking Gifts From Purdue Pharma’s Sacklers, The Wall Street Journal, (May 15, 2019).
 Katya Kazakina, How Naming Rights Became the Art World’s Most Controversial Issue, Town and Country Magazine, (Jun. 16, 2021); Robin Pogrebin & Matthew Goldstein, A Donor’s Ties to Epstein Are Criticized at MoMA and Dartmouth, The New York Times, (Feb. 22, 2021).
 Kazakina, supra note 39.
 Ibid., quoting Diana Wierbicki, partner and global head of art law at Withers Bergman LLP.
About the Author:
Andrea Canzano is a legal intern at the Center for Art Law and a second year student at Brooklyn Law School, where she is the Vice President of the Art Law Association. Prior to law school, Andrea worked in the industry and received her Master’s in Museums Studies from the City College of New York.