The University has filed a claim for about $10 million against the estate of deceased donor and oil magnate Aubrey McClendon, Trinity ‘81.
McClendon, the former chief executive officer of Chesapeake Energy Corp., died March 2 after his car crashed into a wall at a high speed. The day before, he had been indicted by a grand jury for conspiracy to rig oil and gas prices in Oklahoma, charges that he contested.
“Aubrey McClendon was passionate about his family, his business and Duke University," President Richard Brodhead said in a statement at the time. "His generosity helped transform Duke in ways large and small, from his commitment to enhancing student life on campus, to his support for the Duke Chapel, to his love of Duke athletics.”
His death was later ruled an accident. Since that time, a district court in Oklahoma County has been handling the settlement of McClendon’s estate. The University filed a claim for $9,942,000 against the estate August 12, saying that this was the amount of charitable pledges unpaid by the time of McClendon’s death.
Some experts have suggested that Duke could face a public relations problem by filing a claim against a charitable donor. Michael Schoenfeld, vice president for public affairs and government relations, wrote in a statement that Duke’s claim was a “routine transaction” in no way impinging on the University’s respect for the family.
“Several weeks ago, the University received a notice to submit a claim for the unpaid portion of earlier pledges to Duke, which totaled about $9.9 million,” Schoenfeld wrote. “It is common for the executors of large and complex estates to solicit claims from charitable organizations with pledges that were not fulfilled at the time of the donor’s passing. This is a routine transaction that in no way diminishes Duke’s respect for the McClendon family and our gratitude for their relationship to Duke, and we regret that news reports have portrayed it in a negative light.”
McClendon’s donations play a prominent role on campus. For example, the money he gave has gone toward the pipe organ in the Duke Chapel. McClendon Tower, a building on West Campus, bears his name, and he formerly served on the Duke Forward Campaign Steering Committee. According to the Wall Street Journal, his contributions number about $20 million.
However, his work building Chesapeake Energy Corp. has come under scrutiny in recent years. McClendon was sued in 2012 for allegedly using his stake in the company’s oil and gas wells as collateral for $1.1 million in loans. Soon after, the Internal Revenue Service and the Securities and Exchange Commission began investigations.
In 2013, he stepped down, but was also cleared by the Chesapeake Board of wrongdoing. After leaving Chesapeake, he went on to found and serve as CEO for American Energy Partners. In March 2016, he was indicted for conspiring to rig oil and gas prices when he was still at Chesapeake. McClendon denied the charges, and the indictment was withdrawn after his death.
“The charge that has been filed against me today is wrong and unprecedented," McClendon said in a statement at the time. "All my life I have worked to create jobs in Oklahoma, grow its economy and to provide abundant and affordable energy to all Americans."
Thomas Blalock, chief legal officer at AEP and the administrator of McClendon’s estate, could not be reached for comment and neither could Martin Stringer, an attorney for the estate at the law firm of McAfee & Taft and a lawyer for McClendon's estate.
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Duke is not the only creditor against the estate. The Wilmington Trust filed a claim for about $465 million and Deere Credit Inc. for $610,000, among other banks and financial institutions.
Getting the money, experts said, might not be a straightforward undertaking, and the success rate depends on details that have not yet been released.
There are different levels of what constitutes a charitable pledge, said Richard Marker, a philanthropy professor at the University of Pennsylvania, which determine whether the pledge is binding or not.
The most clearly binding, he said, would be written documentation or a contract, which are more clear-cut than oral agreements or other types of informal declarations. Given the public relations problems with filing a claim, Marker explained, it is more likely than not that a written contract exists.
“If a nonprofit files a case like that, you can be pretty sure the documentation is pretty solid,” he said. “If it’s just a vague kind of discussion and there was no real type of commitment, they don’t want to risk coming across to their own funders as being heavy-handed.”
However, even a written contract does not guarantee the pledge is automatically binding when the donor dies, said Doug White, the former director of Columbia University’s master’s program in fundraising management.
A pledge would be “irrevocable” if it explicitly stated that the claim is valid at the time of death. Without such a pledge, the contract fits into a “gray area,” White explained.
“Typically the charity will include in the commitment document a statement that it is a binding obligation not only on the donor but on his or her 'heirs, successors and assigns' (or similar language),” wrote Thomas Abendroth, an attorney at Chicago law firm Schiff Hardin LLP. “That makes the pledge binding on the estate after the donor’s death."
If such a clause does not exist, Abendroth explained, the charity is in for a legal fight that will include all other relevant facts and circumstances.
Even assuming the contract issues were resolved, Marker noted, Duke might not be able to get all of the money it requests if the estate is potentially insolvent. According to the Wall Street Journal, that is currently disputed.
The court in that case will have to determine “where in the priority of things does this commitment to Duke fit,” Marker explained, noting a charitable pledge might be different than a loan or a rent obligation. Duke would likely get some money, he said, but not all.
‘A balancing act’
White, Marker and Anne McKinney, an estate attorney licensed in North Carolina, said Duke could face public relations issues by making a claim. At the same time, they said, that does not mean Duke did anything improper.
Both White and Marker added that having charities, nonprofits, hospitals and even universities file claims against estates is not unprecedented. White added that it is reasonable for a nonprofit to go after money if they know for a fact it was meant to be donated.
“This is not Duke the Satan taking advantage of some poor estate, that’s not what’s going on here at all,” White said. “I would champion charities to do that when they know this gift was meant to go to them.”
To an extent, he said, negative press is to be expected if potential donors worry their estates will be tied up in litigation just for being generous.
Duke’s decision could ultimately boil down to strategy, McKinney said. There is a limited window in which creditors can file claims, so Duke’s attorneys probably just wanted to make sure they got in before the opportunity closed, he added.
The University might have also made prior commitments based on an expectation of getting the money from McClendon, Marker noted. The legal filing does break down the total amount, listing money due for scholarships, the student plaza and the Krzyzewski Center for Academic Excellence.
“Every nonprofit in a situation like this does a balancing act to decide what takes precedence in this situation,” Marker said. “We’re willing to take the heat because we need people to understand these are binding commitments of which we have built some expectation.”