A New York court has ruled on the future of endowment funds from Cazenovia College, which ceased operations in 2023. The decision affects numerous donors and scholarship funds, determining how the funds will be redistributed after the college's closure.
On July 22, 2026, the New York Supreme Court in Madison County, led by Judge Patrick J. O'Sullivan, issued a ruling regarding the endowment funds of Cazenovia College, which had been a private liberal arts institution since 1824. The college's decision to close left behind approximately 121 Restricted Funds totaling nearly $7.8 million, which were originally intended to support scholarships for students. The court's ruling is significant as it sets a precedent for how similar cases may be handled in the future.
Background
Cazenovia College, located in Cazenovia, New York, announced its permanent closure on June 30, 2023, due to financial difficulties. As part of its winding down process, the college sought to transfer its endowment funds to Le Moyne College, which had entered into a teach-out agreement with Cazenovia to facilitate student transfers. The petition to transfer the funds was filed under New York Not-for-Profit Corporation Law (N-PCL) §555, which allows for modifications to charitable funds when their original purposes become impractical.
However, many donors opposed the transfer, arguing that it did not align with their original intentions for the funds. The New York Attorney General's office also expressed concerns, stating that the donors should have the opportunity to be heard regarding the future of their contributions. The case involved multiple parties, including Cazenovia College, Le Moyne College, various donors, and the Attorney General.
The Ruling
The court ruled that the endowment funds could be transferred to Le Moyne College, but only under certain conditions. The judge emphasized that the original purposes of the funds could not be fulfilled due to Cazenovia's closure, stating, "When a college ceases operations entirely, fulfilling the donor's designated purpose... becomes legally impossible to achieve." The court determined that Le Moyne was well-positioned to utilize the funds in a manner consistent with the donors' original intentions.
However, the court also recognized the objections from several donors who wanted their funds redirected to other institutions. The judge noted that individual donors have the right to be heard, stating, "The legislative history indicates that N-PCL §555 was passed, in part, to strengthen the voice of the donor in order to prevent donee institutions from contravening the intent of the donor." This ruling allows for a nuanced approach to the distribution of the funds, taking into account both the original intent of the donors and the practical realities of Cazenovia's closure.
Impact
This decision has significant implications for both the donors and the institutions involved. It establishes a framework for how endowment funds can be modified when the original purpose becomes unachievable, potentially influencing similar cases in the future. The ruling reinforces the importance of donor intent while also recognizing the need for flexibility in managing charitable funds.
Donors who objected to the transfer now have the opportunity to redirect their funds to institutions that they believe better align with their original intentions. The court's decision highlights the balance between honoring donor wishes and ensuring that the funds continue to serve a charitable purpose. The ruling may also encourage other institutions facing similar circumstances to consider how they manage their endowment funds and the expectations of their donors.
What's Next
The ruling can be appealed, and it remains to be seen whether the donors will pursue further legal action to challenge the court's decision. Additionally, related cases may arise as other institutions navigate the complexities of endowment fund management following closures or significant changes in their operational status.