Role of Attorney General

Summary:

The Attorney General is generally thought to serve two main functions - representing the government interest in legal proceedings and representing the public interest in legal proceedings. The Attorney General's role as the chief litigator for the government has long been recognized. See, e.g., The Attorney General's Role as Chief Litigator for the United States, 6 Op. Off. Legal Couns. 47, 48 (1982) ("We conclude that ... the Attorney General has full plenary authority over all litigation ... to which the United States, its agencies, or departments, are parties."); Neal Devins & Michael Herz, The Uneasy Case for Department of Justice Control of Federal Litigation, 5 U. Pa. J. Const. L. 558, 578 (2003) (identifying role of Attorney General as chief litigator for United States); Mark B. Stern & Alisa B. Klein, The Government's Litigator: Taking Clients Seriously, 52 Admin. L. Rev. 1409, 1415 (2000) (same). As a corollary to this role, he is also expected to represent the public interest. See, e.g., Cascade Natural Gas Corp. v. El Paso Natural Gas Co., 386 U.S. 129, 149 (1967) (Stewart, J., dissenting) (noting that Attorney General represents public interest in federal antitrust proceedings); Charities Bureau, N.Y. State Attorney Gen., The Regulatory Role of the Attorney General's Charities Bureau 1 (2003), available at http://www.oag.state.ny.us/charities/role.pdf (on file with the Columbia Law Review) ("The Attorney General has broad authority ... to commence law enforcement investigations and legal actions to protect the public interest."); Philip Weinberg, Office of N.Y. Attorney General Sets Pace for Others Nationwide, 76 N.Y. St. B.J. 10, 10 (2004) (noting that role of Attorney General has evolved to be "not just the government's chief legal officer but a 'guardian of the public interest'" and arguing that this conception is a "nationwide reality" (footnote omitted)). Several state supreme courts have specifically noted that a key role of the Attorney General is to protect the public interest. See, e.g., People ex rel. Salazar v. Davidson, 79 P.3d 1221, 1231 (Colo. 2003) (affirming power of Colorado Attorney General to challenge laws he considers against public interest); Feeney v. Commonwealth, 366 N.E.2d 1262, 1266 (Mass. 1977) (holding that Attorney General "'has a common law duty to represent the public interest'" (citations omitted)).

 

Citation:

Broderick, Christina O. "Qui Tam Provisions and the Public Interest: An Empirical Analysis." 107 Colum. L. Rev. 949, Columbia Law Review, May 2007

Summary:

The attorney general's office is responsible for enforcing these fiduciary duties in most states. In California, the Attorney General investigates and audits charities for a wide range of illegal activity, including self-dealing by directors, improper loans, excessive compensation, and illegal or improper use of charitable funds. If the attorney general's office uncovers fraud, it may sue the directors to recover funds and return those funds to the abused charity. Attorneys general are also empowered to dissolve nonprofits in extreme cases. Attorneys general, however, are limited in their ability to pursue nonprofit fraud. The realm of a state attorney general is vast and varied, and nonprofit corporations are unlikely to be a top priority. Even if nonprofits are a priority, the attorney general's office has limited resources. For example, in California there are over 150,000 nonprofits and as of 2003 the Attorney General's Office had ten attorneys assigned to the nonprofit sector scattered in three offices around the state. Given the limited resources and vast responsibilities, attorneys general are only able to pursue the worst offenders. … Despite its limitations, the attorney general's office is the sole means of enforcing fiduciary duties in the nonprofit sector. Almost all states deny standing to donors, beneficiaries, and the general public in cases against directors for mismanagement or breach of fiduciary duties. In contrast, in the for-profit sector, shareholders may sue the directors on behalf of the corporation for a breach of fiduciary duty. Shareholder standing creates incentives for shareholders to monitor corporate managers and provides a method of enforcement where the state is unwilling or unable to act because of limited resources. Shareholder standing, however, is not a panacea for mismanagement and fraud. Some question whether shareholders, especially in large public corporations, truly have an effect on corporate managers. Further, shareholder standing in the corporate world is criticized by many as a nuisance benefiting no one but plaintiffs' attorneys, though the law has evolved to limit this problem by creating barriers to litigation. Despite these issues, shareholder standing creates an additional method of enforcement and, because the nonprofit sector relies solely on attorneys general, nonprofit fiduciary duties are under-enforced. Thus, while for-profit and nonprofit directors are bound by substantially the same fiduciary duties, nonprofit directors are less likely to face adverse consequences for breaches of those duties.

 

Citation:

Gilkeson, Nicole.  "For-Profit Scandal in the Nonprofit World: Should States Force Sarbanes-Oxley Provisions Onto Nonprofit Corporations?" 95 Geo. L.J. 831, Georgetown Law Journal, March 2007

 

Summary:

The recent experience of the Hershey Trust in its attempts to diversify investment holdings furnishes the most recent example of this phenomenon. When the Trust's proposal to sell Hershey company stock raised the possibility of a sale of the company, the Trust drew the ire of the local community and prompted state involvement. The Pennsylvania attorney general (a candidate for governor at the time) asserted extraordinarily broad powers as well as a capacious interpretation of the interests and beneficiaries a charitable trust must consider: "In the attorney general's view, the Trust's duty involved full consideration of community impact in addition to the vested interests of the [local] beneficiary." Furthermore, the local court bolstered the Attorney General's actions by directly intervening on the issue of the composition of the Trust's board. … The powers of state attorneys general in matters of private foundations are circumscribed by statute, precedent, and tradition. The same cases that established attorney general primacy in charitable enforcement also confirmed that charitable trusts and corporations "would be protected from state meddling in internal governance and contractual affairs." To that end, the attorney general must guard against charity fiduciaries' wrongdoing, and ... enforce charitable obligations without interfering in discretionary decision making carried out in good faith. An attorney general is vested with the authority to seek to correct breaches of charity responsibilities and of fiduciary duty that have not otherwise been remedied by the board, but the attorney general is not a 'super' member of the board.

 

Citation:

Schramm, Carl J. "Law Outside The Market: The Social Utility of the Private Foundation." 30 Harv. J.L. & Pub. Pol'y 355, Harvard Journal of Law and Public Policy, Fall 2006

Summary:

To reach trust assets in Arkansas, a creditor must garnish or execute on the trustee after obtaining a judgment. ... Historically, the Arkansas Attorney General has not been active in the enforcement of charitable trusts. The Arkansas Attorney General does not have a statutory duty imposed by state law to enforce charitable trusts, although the Uniform Institutional Management of Funds Act, which applies to charitable institutions, requires institutions to notify the Attorney General if the institution seeks to modify the terms of a charitable disposition and the donor is unavailable to give consent. The Attorney General has a right to be heard. ARK. CODE ANN. § 28-69-608. With regard to a common law duty, it appears that there is only one appellate decision in which the Attorney General sued to enforce a charitable trust. State ex rel. Attorney Gen. v. Van Buren Sch. Dist. No. 42, 191 Ark. 1096, 1102, 89 S.W.2d 605, 607 (1936)(affirming that the Attorney General may file suits to enforce public trusts or charities).Unlike the old disclaimer statute, the new one contains several sections relating to trust law: disclaimer of interest in property (which includes disclaimers of future interests); disclaimer of interest by trustee; disclaimer of power of appointment or other power not held in fiduciary capacity; disclaimer by appointee, object, or taker in default of exercise of power of appointment; and disclaimer of power held in fiduciary capacity. ...

 

Citation:

Summary:

... There are many reasons that a nonprofit organization would want to achieve public charity status instead of the default private foundation status, not the least of which is that all public charities are exempt from the more rigid regulations that are imposed on private foundations in Chapter 42 of the Code. ... In this section, we will first briefly examine the doctrine of standing and how this judicially-created doctrine serves to sharply limit those who may bring an action for breach of fiduciary duty against a charity or a charitable director or executive. ... "Charge"-Informal allegation of misconduct on the part of a charitable organization or insider that is filed with the charitable division of the Office of the Attorney General. ... (3) Where any interested party, as defined in subsection (1) of this statute, alleges misconduct on the part of a nonprofit organization or insider of such organization, a charge of charitable misconduct must be filed with the State Attorney General within 90 (ninety) days of the incident of misconduct or within 90 (ninety) days of the discovery that misconduct has occurred.

Note: Section “E” is entirely related to AG

 

Citation:

Nix, Joshua B. "The Things People Do When No One Is Looking: An Argument for the Expansion of Standing in the Charitable Sector." 14 U. Miami Bus. L. Rev. 147, University of Miami Business Law Review, Fall/Winter 2005

Summary:

... In August 2003, for the first time in its 200-year history, the New York Stock Exchange (NYSE) announced the compensation package for its Chairman and Chief Executive Officer. ... In May 2004, Spitzer sued Grasso, Langone, and the NYSE to recover the excessive compensation paid to Grasso under New York's nonprofit corporation law. ... " Although members in commercial nonprofit organizations like the NYSE often "exercise direct control over the affairs of the organization," the members of the Exchange lack a financial incentive to sue for excessive compensation because, as noted above, nonprofit organizations are prohibited from distributing profits to members. ... This Note proposes: (1) liberalizing the current standing and demand requirements to permit members and other beneficiaries to initiate derivative suits more easily; (2) maintaining the duty of care and business judgment rule; (3) broadening the duty of loyalty and waste claims that can be brought; and (4) subjecting the Exchange to stricter disclosure requirements. ... Under current practice, the attorney general is often the only party capable of bringing a suit against a nonprofit organization. ... Courts may use three possible standards to measure a nonprofit board of directors' duty of care: (1) the corporate standard, (2) the trustee standard, or (3) an ordinary negligence standard. ...  

 

Citation:

Summary:

... The Texas Attorney General is the only elected official charged with regulating Texas charitable interests. ... In two early Texas cases dealing with charity status, the Texas Supreme Court held that assets may be dedicated in trust for charitable purposes in perpetuity, despite the constitutional prohibition against perpetuities and entailments. ... Even a simple gift of ten dollars given to a person who asserts that the gift will be used for some charitable purpose establishes or impresses a "constructive" charitable trust on that ten dollars for the intended purpose. ... " Chapter 123 defines "charitable trusts" to include all entities with a charitable purpose or which hold charitable trust funds, and defines "proceeding" to include most any judicial action which may affect a charitable interest. ... Once assets are donated to charity, or otherwise become part of the corpus of a charitable entity, those assets, until expended, are dedicated in perpetuity for the stated charitable purpose. ... A non-profit conversion takes place when a charitable entity alters its organizational status, structure, or obligations in any manner that may jeopardize the non-profit, charitable purpose of the entity or its charity-dedicated assets. …

 

Citation:

Vinson, John W. "The Charity Oversight Authority of the Texas Attorney General." 35 St. Mary's L. J. 243, St. Mary’s Law Journal, 2004

Summary:

... Among the powers state attorneys general exercise, the power to pursue matters affecting the public stands at the forefront. ... In Blumenthal v. Barnes, the Court held that the Connecticut attorney general does not have civil common-law authority to pursue an action for the misappropriation of non-charitable assets of a charitable institution. ... The Court cited several cases where the state's attorney, following the creation of the attorney general office, used its common-law authority to bring civil actions. ... " The Court cited statutory authority that gives the attorney general standing to pursue actions for the misuse of the charitable funds, to compel repayment of the state funds, to enforce the covenants of the federal grant, and to dissolve the academy or enjoin it from engaging in ultra vires acts. ... Therefore, the Court in Barnes should have accepted that all civil common-law authority, at least concerning charitable organizations affecting the public, devolved from the state's attorney to the state attorney general. ...  

 

Citation:

Katz, Jennifer.  "Blumenthal v. Barnes: Civil Common Law Powers of the State Attorney General in the Charitable Sector." 17 Quinnipiac Prob. L.J. 383. The Quinnipiac Probate Law Journal. 2004.

Summary:

In sum, the mandates, capabilities and incentives of attorneys general motivate them to focus their enforcement efforts on nonprofits' lapses of financial accountability. Unfortunately, as will be shown below, these same factors discourage AGs from prioritizing enforcement of mission and organizational accountability … AGs do indeed seem to be ramping up their enforcement efforts in the nonprofit context. They are using their authority to initiate litigation and their regulatory powers to expand monitoring of nonprofits. At the vanguard, a few AGs have advocated for new nonprofit legislation using Sarbanes-Oxley as a model. In each of these efforts, the priority of financial accountability to AGs is apparent. The New York Attorney General's Office has billed its reforms for the nonprofit sector as consumer protection, though this time for donors, and its safeguards are specifically described as protection against the dissipation of charitable assets. Massachusetts Attorney General Tom Reilly described his draft legislation as addressing the need for charities "to restore the trust and confidence of donors, the public and regulators in their financial competence and integrity;" California Attorney General Bill Lockyer likewise hopes his legislation will "shore up donor confidence." The substance of these proposed reforms demonstrates, once again, that financial accountability concerns dominate AGs' nonprofit enforcement agendas, bearing out the predictions of AG priorities made in Part II. Thus, even activist state AGs will fail to assure comprehensive nonprofit accountability. With this in mind, Part V begins the process of considering alternative mechanisms by which nonprofits' mission and organizational accountability might be enforced effectively. … V. Thoughts on Complements to AG Enforcement … Renewed vigor by AGs to regulate charitable solicitation, to litigate duty of loyalty violations, or to legislate additional disclosure or auditing mechanisms does not address mission and organizational accountability - or impacts them only as unintended, if positive, consequences. Thus, some other mechanisms must be found or created to tackle these real, though often less concrete, challenges. Various commentators have advocated the establishment of new government entities or the use of other governmental or regulatory pathways in order to deter failures of nonprofit accountability. This Part takes a different approach and instead offers initial thoughts on the extent to which self-regulatory means of addressing accountability problems may be used to improve organizational integrity and control mission creep in the nonprofit sector. Of course, a full evaluation of these techniques is a topic for another day. The purpose of this Article is to explain the financial accountability bias of state AGs and the need for additional enforcement mechanisms to complement AG efforts. The discussion that follows is intended only to begin the quest to find these complementary methods of enforcing nonprofit accountability.

 

Citation:

Summary:

... "[T]he broad interests of the Attorney General necessarily entail protecting the public against any social and economic disadvantages which may be occasioned by the activities and functioning of public charities . . . ." ... The duties of a trustee and the Attorney General are concomitant in so far as assuring that the benefits of a charitable trust are delivered in accordance with the Settlor's intent; but because the socio-economic benefits of a charitable trust extend beyond the designated beneficiaries to the public itself, although ordinarily compatible with each other, the Attorney General has an added responsibility of assuring that compatibility. ... "If that were the case, then the Attorney General could become fully involved in the decisionmaking process of every charitable trust or, for that matter, in every charity in Pennsylvania. ... Neither Missouri nor Kansas has adopted hospital conversion legislation, forcing both attorneys general in the Health Midwest matter to assert their common-law and general corporate jurisdiction over the nonprofit corporations. ...

 

citation:

Brody, Evelyn, "Whose Public?:  Parochialism and Paternalism in State Charity Law Enforcement". Indiana Law Journal, Vol. 79, No. 4, pp. 937-1036, 2004 

 

Summary:

... IN JUNE OF 2003, nonprofit public benefit corporation PipeVine, processor of charitable donations for dozens of charities, closed its doors, admitting it did not have enough funds to distribute what it owed to its clients. ... Every state has some form of oversight of nonprofit charitable organizations, typically through the state attorney general's office. In California, for example, the attorney general's office administers nonprofit regulation through its Charitable Trusts Division. California's regulatory scheme requires, among other things, that every charitable organization register with the attorney general's office before conducting fundraising activities. ... In the event of an allegation of malfeasance or misfeasance, the California attorney general has exclusive jurisdiction over actions against nonprofit public benefit or charitable corporations. ... In California, though the attorney general's office has the authority to investigate and intervene in the affairs of most nonprofit charitable enterprises, the state legislature has never adequately funded that effort. ... The first proposed solution suggests increased liability and scrutiny of nonprofit directors, who enjoy some measure of protection from liability by virtue of the business judgment rule. ... Even if state legislatures could be persuaded to pass this kind of legislation, such a proposed solution is likely to result in the inability of nonprofit corporations to attract qualified directors. ... Professionals may need the client's encouragement to ask the tough questions and pursue the answers. ...  

 

Citation:

Heath, Jane. "Who's Minding the Nonprofit Store: Does Sarbanes-Oxley have Anything to Offer Nonprofits?" 38 U.S.F. L. Rev. 781. University of San Francisco Law Review, Summer 2004

... In 2002, the trustees of the Hershey Trust, in an effort to diversify the trust's holdings, started down the path to sell the trust's controlling interest in Hershey Foods Corporation. ... Specifically, in light of the Hershey Trust's settlement with the Pennsylvania Attorney General agreeing not to sell its controlling share in Hershey Foods Corporation, this Note argues that the power of the attorney general should be limited when (1) a trustee has discretionary power to make investments as expressed in the trust document, and (2) a trustee, in good faith and without breaching any fiduciary duties, uses this discretionary power to diversify the charitable trust's investments. ... In doing so, a trustee may consider the "asset's special relationship or special value, if any, to the purposes of the trust or to one or more of the beneficiaries" when making investment decisions. ... The attorney general's role as parens patriae over charitable trusts is to protect the public as beneficiary of the trust against wrongful actions by the trustees. ... If such investments are sanctioned by the trust instrument, the attorney general should not interfere with a trustee's investment decisions or otherwise the attorney general effectively would go beyond the scope of his parens patriae power and instead act as a co-trustee of the trust. ...

 

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Summary:

Neither directors nor attorneys general are optimal enforcers of nonprofit directors' fiduciary obligations. A director can bring an action charging a fellow director with fiduciary breach on the basis of questionable financial activities. However, the group dynamics of boards of directors make individual directors less than ideal monitors and enforcers of the duties of their colleagues or of staff members. In order to challenge the actions of a fellow director, a director will have to break ranks and accuse his colleague of a breach of fiduciary obligation, and he must be prepared to show that his own conduct is not similarly suspect. … State attorneys general also have long been known to have inadequate resources to oversee and enforce the financial accountability of nonprofit fiduciaries. In order to root out financial lapses of nonprofit directors, attorneys general need detailed financial information regarding the nonprofit's operations. They may not have access to this information. Even if they can and do obtain such information, attorneys general need the internal resources to analyze it for misconduct and the political will to prosecute potential offenders, who may be highly-connected individuals or pillars of their communities. Despite the persistence of high-profile scandals of director and officer misconduct in nonprofits, these obstacles make enforcement of financial breaches of loyalty or charitable trust law still relatively infrequent and reserved for the most egregious violations. … State attorneys general face the same informational, resource, and political problems in policing directors' compliance with the missions of their nonprofits as are raised when they are asked to police nonprofit financial accountability. They almost certainly lack resources and often will lack political resolve. Moreover, there are practical limits and political perils in tasking governmental officials with enforcing loyalty to nonprofit mission. This enforcement power might lend itself too easily to abuse for political gain, and its overzealous use might chill the activities of the sector. … Another way to encourage governance with members would be to lift or loosen regulatory requirements for those nonprofits that use members. States, particularly their attorneys general, are involved in the day-to-day regulation of nonprofits. In most jurisdictions, nonprofits must submit annual reports on their activities and finances, and the attorney general or another state official often must receive notice of or approve certain transactions. In addition, state attorneys general regulate charitable solicitation by nonprofits, again by requiring disclosures and sometimes by approving organizations for charitable appeals. Of course, the decision to ease regulation in a field where enforcement already is weak requires serious consideration. However, reduced regulation for nonprofits with members may represent merely the legal recognition of pre-existing enforcement priorities. Perhaps a lower administrative burden or a reduced level of regulation would be seen by states as an appropriate advantage to extend to nonprofits that provide civil society benefits through their chosen governance structures. Or, due to the limited extent that a voting membership may be able to monitor the actions of boards, attorneys general may be comfortable shifting to members some of the monitoring responsibilities they formally hold, but are not practically able to perform for all nonprofits under their jurisdiction. Perhaps such a delegation might be made on the theory that members would at least be capable of alerting attorneys general to the most serious potential problems.

 

Citation:

Summary:

This Article outlines the existing state of the law in the field of charitable trust oversight. Currently, state attorneys general have the greatest responsibility to ensure proper administration of charitable trusts, but the author argues that the attorney general's role is not sufficiently clear. The author further contends that the attorney general's role should be narrowed and that under certain circumstances additional parties should be granted standing to help facilitate a proper administration of the trust.

 

Citation:

Kaufman, Craig. "Sympathy for the Devil's Advocate: Assisting the Attorney General When Charitable Matters Reach the Courtroom." 40 Real Prop. Prob. & Tr. J. 705 (2006), 40 Real Prop. Prob. & Tr. J. 705 (2006)

Summary:

This publication seeks to help enhance the accountability and effectiveness of foundations and their oversight by state regulators by highlighting the value of ongoing, productive relationships between regulators and the philanthropic sector, and demonstrating how such relationships can be successfully achieved. In all sectors across all industries, a frank dialogue between the regulators and the regulated is a prerequisite to effective government oversight. The publication is intended for people working in both charity regulators’ offices and the charitable sector.

 

Part One summarizes the key lessons learned from the publication’s case studies and provides tips and tools to the charitable sector and state regulators for creating and building relationships. Part Two provides an overview of the government regulation of charities and offers an in-depth discussion of state oversight, with data and examples gathered from a review of 16 key states. Part Three presents case studies of four states where state charity regulators and the charitable sector have developed effective relationships to help improve the education, regulation and accountability of foundations and public charities.

 

Citation:

Biemesderfer, David and Kosaras, Andras.  "The Value of Relationships Between State Charity Regulators and Philanthropy." Council on Foundations, 2006.

 

Appellate Division Decision Limits New York Attorney General's Right to Notice of Some Types of Nonprofit Hospital Transactions  …  The authority of the New York Attorney General over nonprofit hospital mergers and affiliations was questioned by the Third Department's decision in Nathan Littauer Hospital Ass'n v. Spitzer. … N.Y.2d 247 N. X., Appellant, v. Cabrini Medical Center, Respondent, et al., Defendant. ...This case represents a significant limitation on the oversight powers of the Attorney General over nonprofit corporations. Specifically, the court called into doubt the ability of the Attorney General to object to nonprofit hospital common parent affiliation/mergers, because it limits the Attorney General's right to notice of these sorts of transactions. An important check on closed-door hospital arrangements that affect the public's access to health care was thereby removed. The decision could also lead to a further erosion of the Attorney General's charitable oversight powers, because other nonprofits could be emboldened to challenge the Attorney General's jurisdiction. One commentator noted that the case has national implications "because it represents one of the very few instances in recent years where a court has rejected the efforts of an "activist' attorney general to require judicial review of a nonprofit health care affiliation transaction." The Court of Appeals denied the Attorney General's motion to appeal.

 

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