Redeemer Confronted with Potential $6 million Lawsuit

During the summer of 2010, Redeemer received notice from local law firm Scarfone Hawkins LLP that they were being sued to the extent of $6 million. The lawsuit was launched by a former parent and donor who claimed to have been damaged by Redeemer’s Forgivable Loan Program (FLP), established by the former Redeemer Foundation. The plaintiff, known as William Bruce Woods, is attempting to initiate a class-action lawsuit on behalf of all the individuals who participated in the Forgivable Loan Program during the years 2001 and 2002.

Although the class action lawsuit is primarily an American phenomenon, provincial laws in Canada also allow for class actions. As Redeemer’s VP of Advancement, Bill van Staalduinen points out, “For this suit to go anywhere, evidence must be shown that a legitimate class of people were wrongfully affected by the FLP.” Van Staalduinen admits he’s not sure how the situation will play out but he says he’s not overly concerned, “The claim may not end up going that far. Whether or not allegations meet approval in court, there is a settlement option that could be looked at as a possibility.” According to the website of Scarfone Hawkins LLP, they are currently soliciting individuals who participated in the FLP to jump on board with their legal proceedings in order to legitimize their class action claim.

The whole dispute stems from a program that was initiated at Redeemer back in 1989. The Forgivable Loan Program (FLP) was a method of financial assistance which garnered tax benefits for donors to the program students. Parents or other donors would give money to the program and the Redeemer Foundation would, in turn, loan that money back to that donor’s student in order that the donor would receive more taxation rebates than would normally be possible. Essentially, the FLP allowed you to do more with the tuition money that you handed over to the university for your son or daughter.

The linchpin in the middle of this contested program is the fact that parents would, almost unanimously, be benefitting too much on their tax returns as a result of the FLP. The Canada Revenue Agency (CRA) didn’t like that. According to documents explaining the former program (it was dissolved back in 2004), the FLP was created in compliance “with Revenue Canada standards as a forgivable loan program in 1989.” Although the program may have started off on the right foot, that was about as far as it got before the CRA decided it was getting too much bang for its buck. Ever since the early 2000’s, Redeemer has been under the gun of the CRA. “In 2001-2002 the CRA changed its rules without properly notifying us,” said van Staalduinen. “The CRA has had a history of going back and forth on their requirements for us. They were unsure how to deal with this type of program [the FLP].” In 2003-2004, the CRA made official the classification of its guidelines to exclude “related” persons from donating and benefiting from the program.

This is where things started to go sour for Redeemer and the former Redeemer Foundation. An official news release put out by the university comments, “As a result of revised CRA guidelines issued in 2002, the Foundation in its ongoing efforts to be fully compliant with the law, responded by ceasing to accept donations from persons defined by the CRA as “related persons” (parents, grandparents and siblings). ” A subsequent audit by the CRA reflected this reality with a clean sheet. However, “an earlier audit conducted by the CRA with respect to the 2001 and 2002 tax years determined that…the FLP was not compliant with CRA’s requirements.”

Van Staalduinen was the executive director of the former Redeemer Foundation which was at the helm of the controversial disagreement with the CRA. He claims that adequate communication was not made between the two parties and that the CRA did not stick to a benchmark standard of dealing with FLP, making for murky waters and contentious regulations.

As the case dragged on with the CRA, the Foundation doled out considerable resources to “defend and represent its donors’ interests.” In 2008, the case went all the way to the Supreme Court of Canada but was lost 4-3. The CRA reassessed all “related” donors for that taxation year and charged them for their respective resulting amounts owed.

As van Staalduinen remarks, most donors were not angry at all that they were not able to fully benefit from the program during that taxation year. “Our donor population has been very supportive; I have not heard many concerns from them overall.” Although this may have been the case for the majority of FLP donors, there was one in particular that caused a lot of noise. William Bruce Woods, the plaintiff mentioned earlier in our feature, has gone to great lengths to recover his “general and special damages.” Woods hired a top-end local law firm to help him sue the institution and the former Redeemer Foundation (which was terminated in 2009 ).

David Thompson is the head lawyer leading the prosecution. He is a resident of Hamilton who specializes in class action law and has won numerous cases in the past including one of the largest class action settlement wins in Canadian history. Thompson won over $260 million for his plaintiffs on behalf of approximately 900,000 class members. Ironically enough, Thompson was closely involved with coaching and sponsorship of the Ancaster Soccer Club which helped to fund the construction of Redeemer’s new soccer dome.

As the plaintiff’s legal representatives claim, their lawsuit is based on the fact that “the charitable donation credits being claimed by the donors have been disallowed by the Canada Revenue Agency and some individuals are now being called upon to make payment of the loans.” Redeemer doesn’t seem to be standing for it. According to van Staalduinen, Redeemer has hired its own legal team and is ready to defend the institution and its affiliates, “We deny the allegations in the claim and we will be defending the lawsuit vigorously.” The plaintiff’s allegations have yet to be proven in a court of law. For the time being, the lawsuit will drag on, costing valuable time and money to both parties. In the end, the only party which will reap the lion’s share of the benefits will be the lawyers.

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