The following is excerpted from the Comments and Black Letter of Restatement of the Law, Charitable Nonprofit Organizations, Tentative Draft No. 2.
The central role of the attorney general in the regulation of charities developed as part of the early English common law. Implementing the King’s prerogative as parens patriae, his law officers defended subjects that could not defend themselves, including charities. The contemporary role of the state attorney general to protect charitable assets and interests, as well as the justifications for this authority, stemmed from the application of the Crown’s powers over charitable trusts by its senior lawyer, the attorney general.
Under traditional law, as today, a trust generally was valid only if beneficiaries existed and were able to ensure that the trustees fulfilled their duties. However, charitable trusts were created to serve broad charitable purposes and, with the exception of beneficiaries that were other charities, they were without ascertainable beneficiaries. Thus, unlike in the case of private trusts, there generally were no beneficiaries of charitable trusts available to monitor the trustees’ actions and seek court relief to correct abuses. The common law courts addressed this lack of oversight by giving the attorney general the authority to represent the public as the ultimate beneficiary of all charitable trusts. Accordingly, the attorney general became the proper party to assure the protection of charitable assets and to enforce the duties of charitable fiduciaries. The attorney general’s authority over charities applies to all charities, regardless of legal form.
State attorneys general are not fiduciaries of the charities they are charged with regulating. Nor does the power to regulate mean that they can substitute their judgment for that of the fiduciary in matters that are part of the fiduciary’s discretion, such as appointing new fiduciaries or making certain operational decisions.
Moreover, the authority of the attorney general must be distinguished from the authority of the courts. See § 6.02. Although the attorney general often regulates charities and, increasingly, shapes the governance of charities through informal measures, as explained in Comment b(1), the attorney general’s formal authority and powers are to bring actions to the court for interpretation and application of the law.
The purpose of these actions is to protect the public’s interest in the use of assets to the charitable ends to which they are devoted. The fact that responsibility to protect the public’s interest in charities rests with the attorney general does not mean that charities are public or quasi-public agencies, nor does it mean that the assets held by charities are government assets ultimately owned by the public.
Finally, in some jurisdictions, a local district or county attorney or other public official is authorized to oversee some aspect of the public’s interest in charities. In particular, officials other than the attorney general, such as the secretary of state, are often authorized to regulate charitable solicitations to prevent fraudulent or deceptive appeals. However, even when other state officers regulate solicitations, the attorney general will litigate cases against the charity.
Black Letter from Tentative Draft No. 2:
§ 5.01. Role of the State Attorneys General
The state attorney general:
(a) has the authority to protect charitable assets and interests within the jurisdiction of the state and to seek judicial relief to protect the public interest in those assets and interests;
(b) must be notified of all judicial proceedings that implicate the protection of charitable assets and interests described in subsection (a) and has the right to intervene in such actions; and
(c) has all the powers necessary to carry out the authority and rights described in subsections (a) and (b), including the powers to investigate claims, obtain documents, call witnesses, and issue subpoenas as provided under state law.
For more information on this project or to request additional content from Section 5.01, please contact us.