A Donor Says a Nonprofit Misused a Restricted Gift—Who Can Enforce the Restriction? Florida, North Carolina, and Federal Litigation

Corey J. Biazzo, Esq.

Sep 2

9 min read

Sometimes the donor can enforce the restriction, but not always alone and not in every posture. Restricted-gift disputes usually turn on the written gift instrument, the nonprofit’s governing documents, state charitable-trust law, UPMIFA, Attorney General authority, and whether the person seeking relief has standing. If the nonprofit used restricted funds for a different purpose, the remedy may include an accounting, injunction, restoration of funds, court-approved modification, or regulator involvement.

The answer depends on…

Whether the gift was truly restricted or merely accompanied by the donor’s preference
Whether the restriction appears in a gift agreement, solicitation, pledge, trust document, grant letter, naming-rights agreement, or board record
Whether the donor retained enforcement rights
Whether the gift created a charitable trust, institutional fund, endowment, or restricted program fund
Whether the Attorney General, district attorney, donor, member, director, beneficiary, or other interested party has enforcement authority
Whether the nonprofit sought donor consent, court approval, or Attorney General notice before changing the use
Whether the alleged misuse already occurred or is imminent
Whether emergency injunctive relief is needed to freeze funds, stop a sale, or preserve records
Whether the case is in Florida, North Carolina, federal court, or a probate/trust forum

Why restricted-gift disputes are different from ordinary donor complaints

A donor may be disappointed with how a nonprofit is operating, but disappointment is not the same as a legally enforceable restriction. The question is whether the nonprofit accepted the gift subject to a binding limitation.

Examples of potentially enforceable restrictions include:

“This gift must be used only for scholarships.”
“The property must be used as a community health clinic.”
“The fund must support a named program.”
“Principal must be preserved as an endowment.”
“The building must carry a naming right for a stated period.”
“Funds may not be used for general operating expenses.”
“The gift must support a specific charitable purpose.”

By contrast, softer donor statements may be harder to enforce:

“I hope the funds help the arts program.”
“My preference is that this support students.”
“Please consider using this for outreach.”
“I would like this to help the community.”

The words matter. So do the circumstances of acceptance.

Practical framework: who can enforce a restricted gift?

1. The donor

A donor may have enforcement rights if the gift agreement, charitable-trust law, or state statute gives the donor standing. The donor’s strongest position usually comes from a written document showing that the nonprofit accepted the gift subject to specific restrictions.

The donor should gather:

Gift agreement
Pledge agreement
Emails confirming restrictions
Solicitation materials
Board acceptance records
Naming-rights documents
Endowment documents
Fund statements
Annual reports
Accounting records
Communications about use of funds
Any request to modify the restriction

A donor’s case is stronger when the restriction is specific, written, accepted by the nonprofit, and tied to a charitable purpose.

2. The Attorney General or public charity regulator

State Attorneys General often play a central role in charitable-asset enforcement. Restricted gifts can implicate public charitable interests, not only private donor expectations.

In Florida, charitable-trust enforcement may involve Florida trust law, nonprofit law, and UPMIFA. Florida Statutes § 736.0405 provides that the settlor of a charitable trust, among others, has standing to enforce the trust. Florida’s UPMIFA statute, § 617.2104, also addresses donor intent, gift instruments, institutional funds, and modification of restrictions.

In North Carolina, the enforcement statute is especially direct. N.C. Gen. Stat. § 36C-4-405.1 provides that the donor of a charitable gift, the Attorney General, the district attorney, or another interested party may maintain a proceeding to enforce the gift.

3. Members or directors

Members and directors may have rights if the misuse of restricted funds also involves nonprofit governance, fiduciary duties, or derivative claims.

For example, a member or director may challenge:

Board misuse of restricted funds
Failure to maintain separate restricted accounts
Conflicted transactions
Improper diversion of endowment funds
Failure to follow bylaws
Failure to seek required court or regulator approval
Misleading reporting to members or donors
Use of restricted funds to benefit insiders

Florida recognizes members’ derivative actions for nonprofit corporations under § 617.07401. North Carolina recognizes derivative proceedings by members or directors under § 55A-7-40. Those claims have procedural requirements and should be evaluated carefully before filing.

4. Beneficiaries or interested parties

Some statutes allow beneficiaries or other interested parties to enforce charitable gifts or trusts. This can matter when the donor is deceased, unavailable, or unwilling to act, or where the restricted gift benefits a defined charitable class.

But standing is fact-specific. A person who merely benefits from the nonprofit’s general mission may not have the same position as a named beneficiary, donor, member, director, Attorney General, district attorney, or trustee.

What counts as misuse of a restricted gift?

Potential misuse may include:

Spending restricted funds on general operations
Using scholarship funds for unrelated expenses
Selling restricted property without honoring the restriction
Diverting endowment principal contrary to the gift instrument
Using funds for a different program than promised
Commingling restricted and unrestricted funds
Ignoring naming-rights terms
Paying insiders from restricted funds
Using restricted funds as collateral
Closing the restricted program without addressing the gift restriction
Failing to account for restricted funds

Not every change is misuse. Some restrictions may be modified with donor consent, court approval, or statutory procedures when the original purpose becomes impracticable, impossible, unlawful, or wasteful.

Can the nonprofit modify the restriction?

Sometimes. UPMIFA and charitable-trust principles may allow modification of restrictions in limited circumstances.

The nonprofit may need to consider:

Donor consent in writing
Whether the donor is deceased, unavailable, or cannot be identified
Whether the purpose became unlawful, impracticable, impossible, or wasteful
Whether court approval is required
Whether Attorney General notice is required
Whether the modified use remains consistent with the charitable purpose
Whether the board documented the need for modification

A nonprofit should not assume that financial pressure alone allows restricted funds to be used for unrestricted purposes.

Deadlines and timing risks

Restricted-gift disputes can move quickly when funds are about to be spent, transferred, commingled, or used to support a major transaction.

Important timing issues may include:

Deadlines to object before funds are spent
Deadlines to seek an accounting
Injunction hearing dates
Statutes of limitation
Derivative-demand waiting periods
Board meeting or member meeting dates
Deadlines connected to asset sales or closings
Attorney General notice or review periods
Appeal deadlines after injunction or dismissal orders

If restricted funds may be gone soon, waiting can weaken the remedy. The strongest emergency motion usually identifies the fund, restriction, threatened use, and irreparable harm with precision.

Emergency relief: can a donor or stakeholder stop the misuse?

Possibly. A court may consider temporary or preliminary injunctive relief if the moving party can show standing, a likely violation of an enforceable restriction, irreparable harm, and a narrowly tailored remedy.

Emergency relief may include:

Freezing restricted funds
Requiring segregation of funds
Preventing transfer or sale of restricted property
Requiring an accounting
Preserving records
Preventing use of restricted assets for general operations
Maintaining the status quo until the court or regulator reviews the issue
Preventing closing of a transaction involving restricted charitable property

The proposed order should be specific. Courts are more likely to consider targeted relief than a broad order taking over nonprofit operations.

Evidence that matters

Key evidence may include:

Gift instrument
Pledge agreement
Donation correspondence
Solicitation materials
Donor restrictions
Board minutes accepting the gift
Restricted-fund ledger
Accounting records
Bank records
Audit reports
IRS Form 990 filings
Annual reports
Endowment policies
Investment records
Spending approvals
Grant terms
Naming-rights agreements
Communications with donors
Attorney General correspondence
Program closure or asset-sale documents
Evidence of commingling or diversion

A restricted-gift claim usually depends on documents, not assumptions about donor intent.

Risks for donors and challengers

A donor or stakeholder challenging misuse may face several risks:

The gift may be unrestricted
The donor may lack standing
The restriction may be too vague
The nonprofit may have modification authority
The Attorney General may be the better enforcement actor
The claim may require derivative procedures
The challenge may be delayed or barred
Emergency relief may require a bond
The court may defer to nonprofit governance decisions if no enforceable restriction exists

A challenger should avoid framing the case as a disagreement over management. The stronger frame is enforcement of a specific legal restriction.

Risks for nonprofits and boards

A nonprofit accused of misusing restricted funds should respond carefully.

Risks include:

Injunctions
Accounting orders
Donor litigation
Attorney General inquiry
Derivative claims
Fiduciary-duty claims
Loss of donor trust
Audit or Form 990 issues
Tax-exempt-status concerns
Transaction delays
Appeal risk after emergency orders

The nonprofit should preserve records, separate restricted funds where possible, document board decisions, and avoid further use of disputed funds until the legal position is clear.

Forum considerations

Florida

Florida restricted-gift disputes may involve Chapter 617 nonprofit law, Florida trust law, UPMIFA, fiduciary-duty principles, donor agreements, and injunction procedure. Florida Statutes § 617.2104 addresses institutional funds and donor restrictions under UPMIFA. Florida Statutes § 736.0405 addresses charitable purposes and enforcement of charitable trusts.

If the dispute involves a Florida nonprofit corporation, member derivative claims may also implicate Florida Statutes § 617.07401.

North Carolina

North Carolina provides express statutory language for charitable-gift enforcement. N.C. Gen. Stat. § 36C-4-405.1 states that the donor of a charitable gift, the Attorney General, the district attorney, or another interested party may maintain a proceeding to enforce the gift. North Carolina’s UPMIFA statute, Chapter 36E, may also apply to institutional funds and donor restrictions.

For nonprofit corporations, derivative proceedings by members or directors may be governed by N.C. Gen. Stat. § 55A-7-40.

Federal court

Federal court may become relevant if diversity jurisdiction exists, federal tax-exempt issues are part of the dispute, federal grant funds are involved, bankruptcy affects the nonprofit, or the case includes federal statutory claims. Federal Rule of Civil Procedure 65 governs temporary restraining orders and preliminary injunctions in federal court.

Federal forum strategy may affect pleading standards, discovery, confidentiality, injunction practice, and appeal rights.

Appeal consequences

Restricted-gift disputes can create immediate appellate issues, especially when a court grants or denies an injunction.

Appeal issues may include:

Whether the challenger had standing
Whether the gift restriction was enforceable
Whether the nonprofit had authority to modify the restriction
Whether donor consent, Attorney General notice, or court approval was required
Whether the trial court applied the correct injunction standard
Whether the order preserved the status quo or granted ultimate relief
Whether the remedy was too broad or too narrow
Whether the dispute became moot after funds were spent or property was sold

If restricted funds are at risk of being spent or transferred, appellate counsel should evaluate stay options quickly.

Authority block

Key authorities include:

Florida Statutes § 617.2104, Florida’s Uniform Prudent Management of Institutional Funds Act.
Florida Statutes § 736.0405, governing charitable purposes and enforcement of charitable trusts.
Florida Statutes § 617.07401, governing members’ derivative actions for Florida nonprofit corporations.
N.C. Gen. Stat. § 36C-4-405.1, governing enforcement of charitable gifts and trusts in North Carolina.
North Carolina Chapter 36E, North Carolina’s Uniform Prudent Management of Institutional Funds Act.
N.C. Gen. Stat. § 55A-7-40, governing derivative proceedings by nonprofit members and directors.
Federal Rule of Civil Procedure 65, Florida Rule of Civil Procedure 1.610, and North Carolina Rule of Civil Procedure 65, governing injunctions where emergency relief is sought.
IRS exempt-organization guidance, including Publication 557, where restricted funds, private benefit, or charitable-purpose compliance affects tax-exempt status.

How Biazzo Law approaches restricted-gift disputes

Biazzo Law evaluates restricted-gift disputes through both litigation and appellate strategy. The key question is not only whether the nonprofit made a questionable spending decision. The stronger question is whether an enforceable restriction exists, who has standing to enforce it, what remedy is available, and whether emergency action is needed before the funds or property are gone.

The firm handles selected civil litigation and appeals in Florida, North Carolina, federal courts, and U.S. Supreme Court and amicus-related matters. Biazzo Law’s appellate-aware litigation approach, federal/state coverage, injunction readiness, and Supreme Court/amicus lens are especially useful when restricted charitable assets, donor intent, nonprofit governance, public-interest issues, or major institutional funds are at stake.

For related guidance, see Biazzo Law’s Civil Litigation service page, its article on whether members, directors, or donors can challenge a nonprofit asset sale, and its discussion of emergency appellate representation when property, assets, or business control are at risk.

To discuss a restricted gift, nonprofit governance dispute, donor enforcement issue, injunction, or appeal, visit Biazzo Law’s contact page.

FAQ

Can a donor enforce a restricted gift?

Sometimes. A donor has a stronger position when the restriction is written, specific, accepted by the nonprofit, and enforceable under the gift agreement, charitable-trust law, or state statute.

Who else can enforce a restricted charitable gift?

Depending on the state and facts, enforcement may be available to the Attorney General, district attorney, donor, settlor, beneficiary, member, director, or another interested party.

Is every donor preference legally enforceable?

No. A donor preference, hope, or informal expectation may not create a binding restriction. The language of the gift instrument and the nonprofit’s acceptance matter.

Can a nonprofit change the purpose of a restricted gift?

Sometimes, but the nonprofit may need donor consent, court approval, Attorney General notice, or statutory authority. The new use usually must remain consistent with the charitable purpose.

Can a donor stop a nonprofit from spending restricted funds?

Possibly. If the donor has standing and can show imminent misuse of restricted funds, emergency injunctive relief may be available.

What evidence proves a restricted gift?

Gift agreements, pledge letters, solicitation materials, board minutes, donor correspondence, restricted-fund ledgers, accounting records, and annual reports may all matter.

What if the restricted funds were already spent?

The remedy may be harder, but not necessarily impossible. A court may consider accounting, restoration, damages, fiduciary-duty relief, or other equitable remedies depending on the facts.

Can a restricted-gift dispute be appealed?

Yes. Appeals may arise from injunction orders, dismissal for lack of standing, rulings on donor restrictions, accounting orders, or final judgments after trial or summary judgment.

Schedule a litigation strategy review

If a nonprofit is accused of misusing a restricted gift, or if a donor, director, member, or stakeholder needs to enforce a charitable restriction, the issue should be evaluated before funds are spent or transferred. Schedule a litigation strategy review with Biazzo Law to assess standing, gift restrictions, nonprofit governance, emergency injunction options, and appeal consequences.