Federal Judge Orders Brooklyn Private School to Return $3-Million Gift

A federal judge has ordered a private school in Brooklyn, N.Y., to return a gift of nearly $3-million because the building it was intended to finance was not constructed by the deadline imposed by the donor.

Despite the financial problems that returning the gift will cause the charity, the judge declared that he had to take action “to further the public interest of encouraging and honoring charitable gifts.”

The Beth Rivkah School in Brooklyn’s Crown Heights neighborhood educates more than 600 girls in grades four through eight who belong to the Lubavitcher sect of Judaism. School classes are held in one wing of a partially completed four-story building. But the school now faces the prospect of having to return much of the con struction fund to the original donor, Stewart Dickler, a real-estate developer in Long Island, N.Y., and to the estate of Lewis Kates, a Philadelphia lawyer who died in January.

Mr. Dickler agreed in 1992 to give to the school the proceeds of an insurance settlement involving his company. His conditions were that the money — some $2.85-million — be used to build a school, that the structure be named the “Dr. Abraham and Pauline Kates and Dr. Edward Wasserman Building,” and that it be in use as a school by December 31, 1995.

Lewis Kates, who represented Mr. Dickler in the legal action, also agreed to donate to the school his fee — nearly $1-million — arising from the insurance settlement. Mr. Kates was the son of Abraham and Pauline Kates; both he and Mr. Dickler were also Dr. Wasserman’s sons-in-law.

When the deadline passed with the school building still not completed, the donors sued to have their gifts returned. In a July 1996 decision, Judge Clarence C. Newcomer of the U.S. District Court in Philadelphia declined to order the money to be returned. Instead, he granted the school’s request to extend the deadline for compliance until May 15, 1997.

The school’s lawyers argued at the time that construction had been delayed by unusually frequent snowstorms, by changing the building’s design from three to four stories, and by difficulty in raising the $5.5-million needed to complete the project. Judge Newcomer observed that the hardship of forcing the school to repay the gift — and thereby potentially harming current and future students if the school building were never finished — outweighed the monetary benefits that would accrue to the donors.

The building had still not been finished by mid-May last year, however, and the donors renewed their claim to have their gifts returned.

In his recent decision, Judge Newcomer describes himself as torn by having to make a difficult choice between the interests of the schoolchildren and those of the donors.

“To require Beth Rivkah to repay the net proceeds of the gift and to pay Lewis Kates’ fee would undoubtedly work much hardship on the school, and in the worst case scenario force the school to close down,” the judge wrote in his order last month. “Previously, the Court had noted that on the other hand, the benefits to the plaintiffs were purely monetary and would inure only to them.”

“The Court is of a different mind now,” he continued. “Although the benefits in a tangible sense are purely monetary, the Court finds that the greater benefit that obtains from maintaining the consent decree is the public policy interest in maintaining the integrity of charitable donations that are made contingent upon terms that the parties have agreed to. To refuse ever to enforce a contract because it may work hardship on the donee, is quite literally to render all such contracts null and void.”

Lawyers for the school had argued that three floors of one wing of the L-shaped four-story building have been in use as a school since last November and that those classrooms together constitute the school building mentioned in the gift document. A sign outside one entrance names the building as specified by the donors.

Judge Newcomer rejected that argument. “It tests the patience of this Court,” he wrote, “that a party could argue that the ‘school building’ referred to in [a previous court stipulation] is three floors of one wing of a building.” Even now, the judge noted, the building has not been completed.

It is not clear whether the school will appeal the decision, or what its future status might be. Neither school officials nor their lawyers responded to repeated requests for comment.