The Intermediate Court of Appeals of Hawai‘i has reversed a probate court and ordered it to approve a complicated settlement of a charitable contribution under the doctrine of cy pres.  As a result, the state will have a new watershed and forest reserve, the Hawaiian Humane Society will have a $1 million educational fund, and the heirs of the donor will have unrestricted interests in residential properties.  (In Re: Elizabeth J.K.L. Lucas Charitable Trust, No. 30306, 6/30/11.)

The donor had originally given a deed to the Humane Society for a 50.6183968% undivided interest in several parcels of land in the Niu Valley in 1976, and granted another 1.4% undivided interest in 1982.   Each of the deeds included a restriction that the property was given “so long as” it would be used for the benefit of the public as an educational preserve for flora and fauna under the control of the Humane Society, and “if not so used, then to State of Hawaii …  for and as a public park.”

When the donor died in 1986, her daughter, children and great grandchildren, all of whom had lived on the land for many years, inherited her remaining 47.981603% undivided interest in the land.  The heirs subsequently transferred their individual interests to a single partnership known as Tiana Partners.

The Humane Society sought to develop plans to use the land for a publicly accessible educational preserve, but ultimately concluded that it would be extremely expensive and impractical.  The State’s Department of Land and Natural Resources likewise determined that the land was not suitable for a public park, but that a portion was best-suited for a watershed and forest reserve.

The parties worked out a compromise settlement in which the partnership and the Humane Society would convey their interests in the forest reserve to the State in exchange for its release in the executory interest in the remaining area.  The Humane Society agreed to sell its interest in the remaining land to the partnership for $1,082,850, with a commitment to use the funds for an educational fund to provide educational programs on the interdependent relationship between animals, humans and the environment.

The agreement was conditioned upon approval by the state, its legislature, and the probate court. The state and the legislature agreed. The Attorney General stated he had no objection. The donor’s daughter said her mother would have fully supported the exchange. The probate court denied the request.

The probate court ruled that the doctrine of cy pres, which allows a court to change conditions of a charitable gift when it is impossible, impractical or illegal to follow them, could not be applied because the donor had provided an alternative use, giving the interest to the state. The Intermediate Court has reversed.

The Intermediate Court said that the so-called “gift over” rule could be applied to preclude application of the cy pres doctrine in either of two ways.  It could apply when it negates the inference of a general charitable intent of the donor, which is required for application of cy pres. Or it could apply by providing an alternative distribution in the event the donor’s original purpose fails.  But it does not apply, the Court said, when the alternative disposition would also fail.

Since the parties all agreed that neither of the designated purposes could be fulfilled, the appellate court concluded that the probate court had erred in refusing to apply the cy pres doctrine. Further since the parties all agreed that the proposed compromise land exchange “effectuates Mrs. Lucas’s charitable intent as nearly as possible,” and since “there is no evidence, either extrinsic or in the deeds themselves, to support a contrary conclusion,” the Court vacated the probate court’s judgment and remanded the case to the probate court “to apply cy pres consistent with this Opinion.”

YOU NEED TO KNOW

A gift like this seems doomed to failure from the outset when the charity and individual residents own undivided interests in all of the land together.  It would be hard enough if the residents owned their residential lots outright and the charity owned the educational preserve around them.  But when the individuals and the charity all own undivided interests in all of the land, it is hard to imagine how they could readily work out public use and private use at the same time.

The compromise seems to provide something for everybody and to be generally in support of the donor’s intent. When the parties, the state, the legislature and the Attorney General all agree, there seems to be no reason for a court to stand in the way of a practical settlement of an intractable problem.