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A state appellate court, ruling in favor of a Newark man who slipped at a nonprofit drug rehabilitation facility where he was living, said the facility's level of private contributions ”seems too nominal” for it to be entitled to charitable immunity.

Monday's published decision was the second time in the case, F.K. v. Integrity House, that the Appellate Division reversed a lower court's order granting summary judgment for the defendant, Integrity House Inc. of Newark.

“On appeal, plaintiff contends that the amount of private contributions received by defendant, roughly … 1.26 percent of annual revenue, is too insignificant to entitle defendant to charitable immunity,” Judge Stephanie Mitterhoff wrote for the panel.

She wrote, “although a determination of the specific percentage of funding Integrity House receives from private contributions is not necessary for our analysis, we note for completeness that no published case has granted charitable immunity to a non-religious, non-educational entity with such a small portion of funding from private contributions.

“Using either plaintiff's or defendant's figures, the percentage of private contributions received by Integrity House seems too nominal to advance the underlying purpose of the doctrine to protect and encourage private charitable contributions,” said Mitterhoff, joined by Appellate Division Judges Thomas W. Sumners and Ronald Susswein.

“Having reviewed the record in light of the applicable legal principles, we conclude that defendant did not present sufficient evidence to support its entitlement to the affirmative defense of charitable immunity. Accordingly, we reverse,” the panel ruled, adding, “Ultimately, Integrity House bears the burden of persuasion on its affirmative defense of charitable immunity … and we must view the evidence in the light most favorable to plaintiff.”

The Essex County Law Division initially denied Integrity House's motion for summary judgment, finding the sources of its funding in dispute. After the close of discovery, Integrity House refiled its motion for summary judgment, citing short certifications from Integrity House's CEO and CFO about the use of $252,000 in fundraising proceeds for its charitable purpose in the 2015 tax year. F.K.'s forensic accounting expert concluded that he could not determine if the funds came from a government or private source. The trial court granted summary judgment on Oct. 27, 2017.

The Appellate Division previously vacated, remanding for the trial court to put on the record “oral or written reasoning for its conclusion that Integrity House was entitled to charitable immunity.”

On remand, on Dec. 11, 2018, the lower court again granted summary judgment to Integrity House and dismissed F.K.'s complaint with prejudice. The trial court determined that Integrity House was entitled to immunity under New Jersey's Charitable Immunity Act. In its written decision, the trial court determined that Integrity House established the three elements necessary for charitable immunity: that the organization “(1) was formed for nonprofit 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 F.K. who was then a beneficiary of the charitable works.”

The trial court found that Integrity House satisfied the first prong based on its incorporating documents and status as a nonprofit organization as defined in §501(c)(3) of the IRS Code, and rejected the plaintiff's contention that Integrity House received too small a portion of its funding from private contributions to qualify for charitable immunity. ”[R]eceipt of government funds, even if that encompasses the majority of an entity's funding, does not eliminate an entity's protection under the Charitable Immunity Act,” the court said.

The trial court found that Integrity House satisfied the second and third prongs as well. The facility, it noted, presented extensive evidence that it does not merely distribute government funds, but provides actual services to individuals, including housing and counseling, and that F.K. was a resident at Integrity House's drug treatment facility at the time of the accident.

F.K.'s attorney, Marc Winograd of Leonia, reached by phone, said, “We appealed against the granting of summary judgment, and this time the plaintiff was successful on the merits of the issue related to charitable immunity and that the defendant is not entitled to charitable immunity.”

He added, “The plaintiff is certainly gratified that the defendant is not shielded from liability for its negligence resulting in plaintiff's personal injuries.”

Winograd said F.K. sustained a left ankle fracture injury and underwent open reduction internal fixation surgery to correct it.

Daniel McCarey, who has law offices in Warren Township and New York and represented Integrity House, said Monday's ruling was disappointing, and that the panel misinterpreted the Charitable Immunity Act and created an “arbitrary and capricious” threshold in private contributions for nonprofits to receive in order to be covered by the act.

McCarey said his client was considering a petition to the state Supreme Court for review.

He added, “Since inception of the Charitable Immunity Act, neither the Legislature nor the courts have established a minimum percentage of a nonprofit's overall income which must be derived from private contributions in order for a nonprofit to qualify for immunity.

“This decision is an unfortunate example of the court abrogating its role as a judicial body inasmuch as it chose, in issuing this decision, to legislate as opposed to interpret the law,” McCarey said, adding that a tax return, which his client presented, is the best evidence of private contributions. “This decision is disheartening to all nonprofits who toil and struggle to obtain private donations.”

According to Monday's decision, F.K. was a resident at the Integrity House residential drug-treatment facility in Newark, where on Nov. 3, 2015, he allegedly slipped and fell due to a wet condition on an interior staircase within the facility.

The suit claimed Integrity House was negligent in the maintenance of the premises.

According to the court, Integrity House's stated purpose in its certificate of incorporation is “[t]o keep former drug addicts drug free.”

Integrity House answered the complaint, asserting, among other defenses, the affirmative defense of charitable immunity. In support of its motion for summary judgment, Integrity House submitted its 2015 tax return, known as a Form 990. Integrity House reported about $20.1 million in total revenue for the 2015 tax year, and received $15.36 million from government grants, $157,310 from fundraising events, and $296,409 from “[a]ll other contributions, gifts, grants, and similar amounts not included above.”

Integrity House also reported $4.26 million in “program service revenue,” the court said. It was documented that Integrity House received $252,855 in “gross receipts” from two fundraising events, and $157,310 in “contributions” from those events.

“Initially, we note that the parties dispute the percentage of total revenue that Integrity House receives from private charitable contributions,” wrote the panel. “In his appellate brief, plaintiff relies on $252,855 designated as 'gross receipts' as the figure for Integrity House's total private contributions for the 2015 year. In contrast, Integrity House relies on both the $252,855 designated as 'gross receipts' and the $157,310 designated as 'private contributions' for a total of $410,165 in total contributions.”

The court said, using F.K.'s figure, the $252,855 in “gross receipts” represents 1.26% of Integrity House's total revenue, and using Integrity House's figure, the $410,165 in total private contributions represents 2.04% of Integrity House's total revenue.

The panel reasoned, “Because Integrity House did not submit sufficient evidence to substantiate the source and use of its funding, we find that Integrity House did not present sufficient evidence to support its burden of persuasion on the affirmative defense.”

In addition to failing to provide evidence to assist in analyzing its tax return and determining the percentage of funds received from charitable contributions, the panel said 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 F.K.'s forensic accounting expert's report; or (4) substantiate that its public service efforts relieved the government of a burden.

“The Charitable Immunity Act's 'original purpose was to avoid the diversion of charitable trust funds “to non-charitable purposes in order to live up to the reasonable expectations of the benefactors,”'” wrote the panel, quoting from case law. “'Over time, however, our case law has recognized that the purposes underlying charitable immunity are broader than simply preserving charitable trust funds and include the encouragement of altruistic activity by limiting the economic impact of litigation on charities.”

“Having carefully reviewed the summary judgment record in light of the above legal principles, we conclude that Integrity House failed to sustain its burden to prove entitlement to charitable immunity,” said the panel. “Accordingly, the trial court improvidently granted summary judgment.”