Kansas City Art Institute Sues Calif. Couple for $5 Million Unfulfilled Pledge

Nov. 28, 2012 — -- An Orange County, Calif., couple is fighting to appeal a lawsuit filed by the Kansas City Art Institute seeking $4 million they pledged to donate before the collapse of their business.

"They were so rude and obnoxious, it doesn't seem right to me," said Kristina Dodge, 51.

Dodge and her husband Lawrence Dodge, 73, of Dana Point, Calif., the founder of bank and insurance firm American Sterling Corp., had agreed to donate the money to the private art college before the financial collapse took away their businesses and left them unable to afford a lawyer to fight the case, they say.

The Dodges' donation was to support the Kansas City Art Institute's new $7 million 34,000-square-foot building, a total pledge of $5 million to be distributed from 2005 until 2013. The Dodges fulfilled the pledge for the first three years, giving $1 million.

But the Federal Deposit Insurance Corp. seized the bank and sold its assets in April 2009. The California Insurance Commissioner later said the bank was "undercapitalized and has almost no liquid assets," the Kansas City Star reported.

Anne Canfield, Kansas City Art Institute's vice president for communications, told ABC News the college's board of trustees authorized the lawsuit by unanimous vote last year, "after nearly four years of discussion with the Dodges."

The college says the Dodges were informed of this action in a letter dated Aug. 11, 2011, "giving them every opportunity to respond."

Kristina Dodge told ABC News the school cut off communication "in a nasty manner."

"In fact, I would like to get my million dollars back from them," she said.

After the bank was seized, Dodge was banned from banking, for breaching his fiduciary duty by signing off on "false" reports describing the bank's risk, said the Treasury Department's Office of Thrift Supervision, later replaced by the Office of the Comptroller of the Currency. The office levied a $2.5 million civil penalty, which he later appealed and was reduced to $1 million. Dodge is also appealing that.

During the Dodges' professional struggles, the Kansas City Art Institute came knocking for the remaining $4 million. The college filed a lawsuit on July 28, 2011 to get the remainder of the money, alleging among other things breach of written contract and unjust enrichment from favorable publicity and having a building named after them.

The couple counters that they never asked for the building, the Lawrence and Kristina Dodge Painting Building, to be named after them.

Dodge says his only source of income now is from Social Security benefits. His wife, Kristina, 51, provides care for their children. The couple has a 13-year old daughter and triplets, who are two years old.

They say their lifestyle has "completely changed" since the company shut down. They borrowed money from friends and family and are selling belongings on eBay. They don't own any cars though they do still have real estate assets, which can't immediately provide them with cash.

They said they can't afford childcare, or a lawyer.

Though they say they did their best in filing a response to the lawsuit, paying filing fees and showing up for depositions, they still missed a court filing deadline to respond to the college's amended complaint. Missing that deadline led to a default $3.3 million judgment against them in May by the California Superior Court of Orange County, which the Dodges are now appealing.

The Dodges have been subpoenaed to appear for a debtors' exam on Dec. 13 during which they will be asked about their finances.

The Dodges say the nonprofit would not return their calls about trying to work out an agreement before the lawsuit. Meanwhile, they said a few other nonprofits to whom they had pledged money sympathized with their financial plight.

"The others have been absolutely amazing. Their care and concern has been the complete opposite of the Kansas City Art Institute," Dodge said. "It really restores our faith in humanity. Rather than having the vultures circle, they have asked what they can do to help."

Dodge said he wants to avoid bankruptcy though it is a possibility if his appeal is unsuccessful.

"We're still in our home," Kristina Dodge said. "Knock on wood."

Initially, she said she might have been willing to sell the home to help pay the obligation to the art institute. But she said the art institute's actions have made her less willing.

"So I decided I'm not giving up my home anymore," she said.

The Kansas City Art Institute maintains that they had a financial responsibility to recoup the $5 million, which was committed to cover the majority of the building's cost.

"The decision to proceed with a court action was not undertaken lightly, but our board concluded that it was necessary for KCAI to uphold its fiduciary responsibilities as a college and as a nonprofit organization," Canfield said in a statement.

She points out that nonprofit organizations are required by the Financial Accounting and Standards Board to report pledges on their accounting statements as a way to show all assets and resources, and failing to act to collect on could show a deficit in accounting and affect future pledges.

"Fiscal accountability is of utmost importance to KCAI," she said. "In this particular case, seeking to enforce this pledge is necessary in order for us to be accountable to all our donors who so generously support us, as well as to the students we serve in fulfilling our educational mission."

Holly Hall, features editor at the Chronicle of Philanthropy, said other nonprofits have gotten into legal tangles with donors over pledged money, but it is rare.

In January, a jury ordered a nonprofit hospital to return a $500,000 gift to the country music singer, Garth Brooks. The singer had sued Integris Canadian Valley Regional Hospital in Yukon, Okla., his hometown, over a disagreement over what to do with his $500,000 gift.

The donation was initially anonymous in 2005, but Brooks later requested that the hospital name a women's center after his mother, who died of cancer in 1999.

The hospital had to give back the $500,000 but also pay another $500,000 in damages, creating unwanted publicity and the need for clearer agreements between donors and charities, Hall said.

Most disputes over pledged money take place after donors have died and charities fear the heirs will fight over an estate. Either way, Hall says legal tangles with donors are risky endeavors on the part of the charities.

"The issue is they would be perceived as someone going after them when, through little or no fault of their own, they fell on hard times," Hall said. "That could make other donors hesitant to get into large gift agreements."

Kenneth Fitzgerald, a pro-bono attorney for the Dodges, said pursuing a default judgment on a couple who say they cannot afford an attorney is "mean-spirited and short sighted."

"I don't think they have a fiduciary duty to put one of their most generous donors into bankruptcy and unleash their lawyers and terrorize these people when they are destitute," Fitzgerald said. "It makes sense that they would want to collect a pledge if it's collectible. In this case, they know it's not."