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Non-Profit Residential Drug Treatment Facility Found Not to Be Entitled to Charity Immunity for Injuries Suffered from Fall

By on July 26, 2019 in Liability with 0 Comments

The plaintiff, F.K. was a resident at the defendant Integrity House residential drug treatment facility in Newark.  He claimed to have suffered personal injuries when he slipped and fell due to a wet condition on an interior staircase within the facility.  Plaintiff sued defendant Integrity House, alleging that it was negligent in the maintenance of its premises.  In F.K. v. Integrity House, Inc., 2019 N.J. Super LEXIS 108 (App. Div. July 8, 2019), the issue was whether the defendant would be entitled to assert the charitable immunity defense to avoid liability for this accident.

At the trial court level, Integrity House filed for summary judgment on the ground of charitable immunity.  It submitted its 2015 tax return in support of this motion.  The tax return showed approximately $20 million in total revenue for the year.  Their revenue broke down at about $15 million from government grants, approximately $157,000 from fundraising events and approximately $296,000 from all other contributions, gifts, grants, and similar amounts. It also received about $4 million from program revenue. With regard to fundraising events, the tax return reported that Integrity House received approximately $252,000 in gross receipts from two fundraising events and approximately $157,000 in contributions from those events.

When Integrity House initially filed its motion for summary judgment, the trial court determined that the record did not conclusively reveal the source of approximately $250,000 in contributions but, because there was still one month before the conclusion of discovery, the trial court determined that Integrity House’s source of funds remained a disputed factual issue.  After the close of discovery, Integrity House refiled its motion and now provided short certifications from its CEO and CFO, stating that all of the roughly $252,000 in gross receipts raised from fundraising for the 2015 tax year were used in furtherance of Integrity House’s charitable purposes.

The plaintiff retained a forensic accounting expert who analyzed the 2015 tax return.  The expert was critical of the lack of information contained in the financial documents provided, in that they provided no explanation as to the source of the funds or the gross receipts reported from the fundraising events and the reported contributions.  The expert indicated that he was unable to determine whether these funds were obtained from a government or private source. 

Ultimately, the trial court found that Integrity House was entitled to assert the charitable immunity defense as set forth in the Charitable Immunity Act, N.J.S.A. 2A:53A-7.  The court found that Integrity House had established the three elements necessary for charitable immunity “that the organization (1) was formed for non-profit purposes; (2) is organized exclusively for religious, charitable or educational purposes; and (3) was promoting such objectives and purposes at the time of the injury to plaintiff who was then a beneficiary of the charitable works.”  Thus, the trial court issued an Order granting summary judgment and dismissed the plaintiff’s Complaint. 

The plaintiff appealed this finding, focusing on the second prong of the charitable immunity defense. The plaintiff argued that the approximately $252,000 in private contributions, comprised only 1.26% of Integrity House’s total revenue in the 2016 fiscal year which was too insignificant to establish that Integrity House was organized exclusively for charitable purposes.  The defendant countered that there was no statute or accord in the state which “provided precise guidelines regarding to the extent percentage of revenue derived from charitable sources required to confirm charitable status.”  It contended that its approximately $252,000 in gross receipts and approximately $157,000 in contributions, comprising 2.04% of its annual revenue, was sufficient to establish that it was entitled to charitable immunity protection.  It contended that Integrity House has actively pursued these funding sources and the funds directly supported its charitable endeavors.

For an entity to prove that it is organized for charitable purposes, the court must conduct a “source of funds assessment” to discern whether a charitable purpose is being fulfilled.   This funding analysis “looks beyond the organization’s non-profit structure and social services activities and must take into account the organization’s source of funds as a critical element of charitable status.”  According to the case law, an organization claiming charitable immunity must demonstrate some level of support from charitable donations and/or trust funds “as it is those sources of income, the ‘Act’ seeks to protect.” 

The Appellate Division concluded that Integrity House failed to sustain its burden to prove entitlement to charitable immunity.  Regardless of whether the gross fundraising receipts figure was utilized and/or it was combined with private contribution total, the Court noted that it would total approximately $410,000, which would still only represent 2.04% of Integrity’s House’s total revenue.  The Court found that Integrity failed to submit sufficient evidence to substantiate the source and use of its funding.  Further, it failed to provide evidence to assist in analyzing its tax return which would permit a determination of the percentage of funds received from charitable contributions.  Additionally, the Court found that Integrity House did not submit any evidence to (1) “specify the fee structure for its services; (2) detail its fundraising efforts beyond the indication on its tax return that it held a golf event and a gala event; (3) rebut plaintiff’s forensic accounting expert’s report; or (4) substantiate that its public service efforts relieved the government of a burden.” 

Finally, the Appellate Division noted that regardless of the lack of a determination of the specific percentage of funding Integrity House received from private contributions, the Court found it was not necessary for its analysis, because there was no published case that had granted charitable immunity to an non-religious, non-educational entity with such a small portion of funding from private contributions.  Thus, using either plaintiff’s or defendant’s figures, the percentage of private contributions received by Integrity House seemed “too nominal to advance the underlying purpose of the doctrine to protect and encourage private charitable contributions.”               

The Appellate Division further noted that Integrity House bears the burden of persuasion on its affirmative defense of charitable immunity.  Hence, the Court concluded the trial court erred in determining that Integrity House was entitled to charitable immunity.  The Appellate Division reversed the trial court’s decision and remanded the matter back to the trial court for further proceedings.



About the Author

About the Author:

Ms. Ramos is an Executive Committee Member and Co-Chair of the Litigation Department at Capehart Scatchard, P.A. located in Mount Laurel, New Jersey. She is an experienced litigator with over 30 years experience handling diverse matters. Practice areas include tort defense, business litigation, estate litigation, tort claims and civil rights defense, construction litigation, insurance coverage, employment litigation, shareholder disputes, and general litigation.

For the years 2020-2023, Ms. Ramos was selected for inclusion in The Best Lawyers in America© in the practice area of Litigation - Insurance. The attorneys on this list are selected based upon the consensus opinion of leading lawyers about the professional abilities of their colleagues within the same geographical area and legal practice area. A complete description of The Best Lawyers in America© methodology can be viewed via their website at: https://www.bestlawyers.com/methodology.

In 2021, Capehart Scatchard and Ms. Ramos received the “Best Law Firm” ranking in the area of Litigation – Insurance (Metro, Tier 3) published by U.S. News & World Report and Best Lawyers®. Law firms included on the list are recognized for professional excellence with consistently impressive ratings from clients and peers. To be eligible for a ranking, a firm must have at least one attorney who has been included in the current edition of Best Lawyers in America, which recognizes the top five percent of practicing lawyers in the United States. Betsy Ramos (Litigation – Insurance) was recognized for this prestigious award in the 2021 edition. For a description of the “Best Law Firm” selection methodology please visit: https://bestlawfirms.usnews.com/methodology.aspx.

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