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IBJ Article Vol 25, No 18:  JUly 12-JUly 18

By Andrea Muirragui Davis adavis@ibj.com

Humane Society of Indianapolis has a survival strategy. The question now is whether its leaders will be able to see it through.

Opposition from other local animal welfare groups has delayed the shelter’s attempt to cover a short-term budget shortfall, and now an apparent change of heart in the Indiana Attorney General’s Office could derail it completely.

“We need the money,” said Humane Society attorney Alan J. Irvin. “We’re coming up on a big cash crunch.”

At issue is whether the organization should be allowed to pledge the assets of a $3.4 million trust fund to secure a loan to pay some operating expenses during a three-year recovery period.

Without the loan or another significant cash infusion, the shelter could run out of money by mid-August.

Humane Society leaders set the plan in motion in January after coming to terms with the impact of years of deficit spending and investment losses: They would use the assets of two trusts as collateral for a $2.3 million line of credit to sustain operations while boosting fund-raising efforts.

Marion County Probate Judge Charles J. Dieter already approved a line of credit secured with the $1.4 million Julia Jean Stokes Trust, and shelter leaders are hopeful he will grant the pending request.

They’re not so sure about the attorney general.

Two days before a July 2 hearing on the matter, the Humane Society board gave Irvin the go-ahead to work out an agreement with Attorney General Steve Carter, who is responsible for safeguarding public charitable trusts in Indiana.

Representatives of the AG’s office had contacted Irvin June 25 with a proposal: Carter would be willing to support the request to borrow $1.7 million against the Mary Powell Crume Charitable Trust if the Humane Society met certain conditions, including adding a co-trustee and signing shelter real estate over to the trust as a guarantee.

“We didn’t want to unnecessarily risk the [trust] assets,” said Greg Zoeller, the attorney general’s chief counsel.

But the deal fell apart even as Irvin was drafting an agreed order to take to the court.

The afternoon before the hearing, the AG’s office made a flurry of legal filings—officially objecting to the request to pledge trust assets, asking the court to appoint a co-trustee, and reversing a previous approval of the agency’s annual statement of accounts for the trust.

“It became clear the loan structure was complicated enough that it required some more attention,” Zoeller said. “We want to make sure the risks are fully understood and are good risks, and that’s something a co-trustee can do.”

Protecting the trust

The move stunned Humane Society leaders, since they had been working with the AG’s office for months and already had agreed to the notion of a co-trustee to assuage concerns that HSI has a conflict of interest as trustee and beneficiary.

“I don’t think any of us were prepared for them to rescind the whole offer,” said Executive Director Martha Boden. “Up to that point, everything had been very collaborative.”

The breakdown apparently came with the revelation that the Humane Society doesn’t own the shelter property outright, but rather as trustee for the Crume fund. The organization itself holds title to fewer than 10 acres at the Michigan Road site, most of it in a floodplain.

Indeed, the real estate issue was mentioned both in the attorney general’s motion to appoint a co-trustee and the amended response to the 2003 trust accounting. If the property is indeed owned by the trust—a title search is under way—it should have been included in the trust’s annual statement of accounts.

It was included, until 1980. Irvin said it’s not clear what happened then, since institutional knowledge at the shelter doesn’t go back that far.

“That’s news to everyone I’ve spoken to with any knowledge of the organization over the last 15-20 years,” he said. “Someone just missed it.”

That is just inexcusable, said Roni Jarnagin, the attorney representing a handful of animal welfare organizations opposing the Humane Society’s plan. The groups have registered their objections with the probate court, asking Dieter to reject the request to borrow and to replace HSI as the Crume trustee.

“They have failed for 25 years to account for the assets of that trust,” Jarnagin said. “That’s $3 million worth of property.”

Her clients—Spay-Neuter Services of Indiana Inc., Alliance for Responsible Pet Ownership Inc., Home for Friendless Animals Inc., Southside Animal Shelter and Move to Act—say the Humane Society has mismanaged trust assets.

“It was one of the wealthiest non-profits of its size five years ago, and now they’re down to their last dime,” Jarnagin said. “Are they too far gone? I don’t know. But the assets of the public trust can continue to benefit the community even if HSI goes under.”

And many of her clients may bear a share of the burden if that happens, which she said gives them the right to try to protect the trust.

“Our entire goal is to ensure get put in jeopardy by a spendthrift beneficiary,” Jarnagin said. “There are other organizations who are able to carry the mantle … and would benefit from having the trust assets intact.”

Such statements give Humane Society leaders pause. There’s no doubt other organizations would be strained if the shelter can’t care for the 12,000-plus animals it sees each year—so why torpedo the plan intended to keep that from happening?

“My personal take is, it’s as much about the money as it is anything,” said HSI Board President Brent Bolick.

Differences of opinion

Humane Society attorneys have challenged the other groups’ right to be involved in the court proceedings, since more than 50 years of precedent says only the attorney general has legal standing to represent the public interest in administration of a charitable trust.

The policy keeps courts from being overwhelmed by citizen complaints, Irvin said, and trustees from spending limited resources defending numerous claims.

“Not-for-profits don’t have the money to go in and litigate whenever someone has a problem with what we do,” he said. “I don’t see the standing issue as anything other than black and white.”

Zoeller said the attorney general agrees, although Deputy Attorney General Terry Duga wavered when Dieter asked for his opinion in open court. Duga told the judge his office hadn’t yet researched the four groups who joined in the proceedings a week before the hearing.

“We’ve never seen the other parties as having standing,” Zoeller said, “but we couldn’t honestly say we’d had the time to weed through their legal theory.”

With the question of standing unanswered, Jarnagin’s clients remain involved in the process of working out a compromise. Dieter scheduled a July 20 status conference to assess their progress.

Compromise may be complicated by the number of parties involved.

The AG’s office has proposed a cotrustee be appointed immediately, for example, in hopes someone can get up to speed quickly and make a recommendation on HSI’s request to pledge the trust assets.

But Jarnagin’s group favors appointing a special administrator to oversee a shortterm fix while the parties look for an alternative to risking the Crume assets.

“It’s ridiculous to rush into a co-trustee situation,” Jarnagin said. “We’ve indicated that we object.”

As for a short-term solution, her clients have suggested the Crume Trust purchase property HSI does own. That would give the shelter a cash infusion and keep the real estate “in the family,” Jarnagin said.

Shelter leaders aren’t wild about that idea, since it would dip into the corpus of the trust, limiting future investment potential.

No panic yet

Humane Society board members held a special meeting July 7 to discuss their options and were hoping to resume discussions with the AG’s office soon.

If need be, they could ask Dieter to rule on the matter without the attorney general’s blessing. The judge approved the Stokes loan the day he received the request; because it is not a public charitable trust, the attorney general didn’t weigh in.

Shelter officials remain convinced their recovery strategy will work and the trust assets will remain intact. Six months into the plan, fund raising was running 81 percent ahead of projections and expenses were slightly under budget.

Boden’s marching orders are to maintain business as usual.

“We’re not hitting the panic button,” said Bolick, the board president. “We’re meeting our financial plan and exceeding development objectives. One way or another, this is going to work.”

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