Aug. 11, 2016: Clifford Curry, FAIA, has been dismissed from the lawsuit, says spokeswoman Diana Bianchini, Di Moda Public Relations.
July 20, 2016: This article was updated to cite the Open Architecture Collaborative's July 20, 2016, response to the lawsuit.
Architecture for Humanity (AFH) was started from “a very simple idea: to provide professional design services to communities in need,” writes co-founder Cameron Sinclair in Design Like You Give a Damn , the 2012 follow-up to his 2006 compendium of humanitarian projects written with AFH co-founder and journalist Kate Stohr. The couple, who are married, launched the nonprofit in 1999 by organizing a design competition for refugee housing in Kosovo. “Rather than assume we were experts,” Sinclair writes, they “deliberately” started slow, taking “nearly six years to complete a dozen structures.” Then growth accelerated sharply. By 2013, AFH had completed 300 projects in 47 countries worldwide. Along with the growth came the accolades: the TED Prize to Sinclair in 2006, the Design Patron Award from the Cooper-Hewitt, National Design Museum in 2009, and the Curry Stone Foundation’s inaugural Vision Award in 2013.
But somewhere along that steep rise to prominence and influence, something went wrong.
On Jan. 16, 2015, news broke that the AFH was filing for Chapter 7 bankruptcy protection, surprising the greater architecture community, the 57 AFH local chapter networks, the 20,000 volunteers and designers who were mobilized and actively engaged in projects worldwide, and even Sinclair, who said he learned of the news from a reporter. Sinclair, who was AFH’s executive director and its self-proclaimed “chief eternal optimist,” had left the organization in October 2013, though he initially said he would stay on as executive director until April 6, 2014, and help launch the organization’s Founders Fund, which aimed to raise $1.5 million by 2014. What became of that effort is not clear. Stohr had left AFH earlier in 2013 to return to her journalism career.
Now the two founders along with 10 AFH board members are being sued. A lawsuit filed on June 10, 2016, in the San Francisco division of the U.S. Bankruptcy Court, Northern District of California, contends that the organization’s closure followed years of “gross mismanagement” of funds by its directors. The lawsuit alleges that, between July 12, 2012, and Dec. 31, 2014, Sinclair, Stohr, and the board members knowingly breached their “fiduciary duties of care and loyalty” to the organization by using funds their donors had designated as “restricted”—that is, to be used only for actual project expenses—for administrative and overhead expenses. These latter, “unrestricted,” uses received a significantly smaller portion of donations.
The lawsuit asserts that AFH was “obligated to maintain these donations” in separate accounts and “obligated to return most of the ‘restricted’ funds to the donors in questions if the funds were not used for the particular project expenses directed by the donors.” The lawsuit is seeking $3 million plus interest in damages to be distributed to creditors involved in the bankruptcy class. According to court documents, these creditors include nearly 150 individuals and corporate organizations that made charitable donations to AFH, and include the American Institute of Architects (ARCHITECT is the official journal of the AIA, but independently owned by Hanley Wood), the AIA Foundation, the U.S. Green Building Council, Carnegie Mellon University, Nike USA, the Alcoa Foundation, and the Prudential Foundation.
The plaintiff in the case is Janina Hoskins, who was appointed by the courts as the Chapter 7 bankruptcy trustee of the AFH estate after the organization filed for relief under Chapter 7 bankruptcy protection on April 27, 2015. Hoskins is represented by MacConaghy & Barnier, a law firm based in Sonoma, Calif. Attorney John MacConaghy did not respond to a July 12 phone call and email request for comment.
The defendants are Sinclair and Stohr, who are referred in the lawsuit as the “compensated directors,” and the following 10 architects, tech professionals, and business entrepreneurs who served on the AFH board for varying tenures on a voluntary basis and are referred in the lawsuit as “volunteer directors”:
- Matthew Charney, AFH board chairman at the time of the organization’s closure. He is currently deputy director of new construction at the New York City Housing Authority
- Cliff Curry, FAIA, the co-founder of the Curry Stone Foundation, in Bend, Ore., and founder of the Curry Stone Design Prize, given to projects that use design to address social justice issues [Aug. 11, 2016 update: Curry has been dismissed from the lawsuit. Per spokeswoman Diana Bianchini, founder and creative director of Di Moda Public Relations: "Clifford was not on the board when the bankruptcy trustee for Architecture for Humanity claims that the board should have taken greater action on alleged failure to segregate funds."]
- Paul Gabie, the co-founder and commercial director of Proof & Company, in Singapore, and managing director of Saena Partners
- Niama Jacobs, a psychiatrist who currently works in Cambridge, Mass.
- Clark Manus, FAIA, a principal at Heller Manus Architects, in San Francisco, and 2011 AIA president
- Scott Mattoon, the San Francisco–based digital transformation director at Salesforce.com
- Taylor Milsal, the founder and CEO of San Francisco-based startup Everyday Pharma, and the managing director of Cotor, in Cambridge, Mass.
- Toshiko Mori, FAIA, principal of New York–based Toshiko Mori Architect, and the Robert P. Hubbard Professor in the practice of architecture at the Harvard Graduate School of Design
- Narry Singh, the London-based managing director and global head of growth and strategy for Accenture Digital
- Margaret Gould Stewart, a vice president of product design at Facebook who is based in San Francisco
The lawsuit does not state why these 10 volunteer directors were selected among all past board members beyond the fact that they they “are each individuals who did business in the Northern District of California during the periods referenced in this complaint,” and that “[a]t relevant times, the Volunteer Directors were the remaining members of the Board of the Directors of [AFH].” A May 2, 2012, screen capture of the now-defunct AFH Board Members web page lists Jacobs as a past chair, while a Jan. 15, 2013, screen capture lists Jacobs, Curry, Milsal, and Singh as past board members.
The lawsuit submits several documents, available through public record, that show how donations and grants promised to AFH specify the percentages of funds to be allocated for restricted or unrestricted use; unrestricted funds are typically just a fraction of the total donation, if allowed at all.
The lawsuit also acknowledges AFH’s rapid increase in gross revenues, which rose from 2009 ($1,747,262) to 2013 ($12,365,805), attributing it to a corresponding increase in overhead and administrative expenses that include “fundraising services, executive compensation, the purchase of a building, and staff expenses.”
However, the amount of unrestricted funds raised to cover the burgeoning organization’s administrative and overhead costs was not growing proportionally with the amount of restricted funds raised—a testament to the increasing number of projects and initiatives that the organization was undertaking.
To cover the shortfall in unrestricted funds, the lawsuit alleges that the organization would use money designated by donors and internally as “restricted funds” to pay for the overhead and administrative expenses. It also alleges that the organization’s management notified the defendants on July 21, 2012, of a deficit in the “unrestricted funds” account of $185,000, signaling that the organization may have begun misusing donated “restricted” funds to offset the difference.
The practice of temporarily borrowing from restricted accounts to cover deficits in unrestricted funds is “permissible,” according to a Nonprofit Quarterly article, but “dangerous.” Fundraising is cyclical in nature—people tend to give more during holidays, for example—but relying on one pool of money to cover operation costs is not a long-term solution.
The lawsuit contends that despite documented warnings of funding mismanagement from the organization’s finance committee and independent auditors, this deficit increased rapidly, reaching $1,144,775 by Sept. 30, 2013; and that the defendants were notified that the organization was spending $165,000 per month in unrestricted expenditures, but raising only $6,000 per month in unrestricted funding.
On March 28, 2014, and April 8, 2014, the lawsuit states that AFH’s attorney, the law firm Jenner & Block, advised the organization against “their ongoing misuse of ‘restricted funds.’ ” The April 8, 2014, document, available through court records, states: “To the extent that an inappropriate use of restricted funds occurred during a given director’s term, resignation is unlikely to insulate the director from liability (if any). Rather, working to cure any misapplication of restricted funds is likely to be a more effective path towards minimizing any potential director liability.”
Charney told The New York Times that AFH tried to make up the deficit in 2014 by “reducing its payroll, selling its main building and moving to smaller offices, but those steps had proved inadequate.” In the same NYT article, Stohr acknowledged “that the organization ‘had some debt’ but said ‘we were figuring out how to correct that.’ ” By Jan. 1, 2015, a couple weeks before news broke of the organization’s bankruptcy, the remaining employees at AFH’s headquarters operations—approximately 30—were laid off.
The Deficits on Record
The steps taken by AFH in 2014 to curtail the deficits came too late, particularly since the organization’s fiscal troubles had begun to emerge as early as its 2011–2012 IRS Form 990 tax filings (available through Charity Navigator, the Foundation Center, or Sinclair’s website for Small Works, the nonprofit public-interest architecture organization he founded after leaving AFH).
At the end of 2009, the organization had approximately $1.4 million in restricted net assets and $300,000 in unrestricted net assets (about 21 percent of the restricted net assets). By the end of 2011, the AFH’s restricted net assets had increased to $3.4 million while its unrestricted net assets dropped to $130,000 (about 4 percent). By June 2012, the respective numbers had changed to $5.9 million and negative $88,000—a deficit. By June 2013, AFH’s restricted net assets stood at nearly $11 million, while its unrestricted net assets was negative $1.1 million. By June 2015, the organization’s final filing, the respective numbers were $11 million and negative $11.5 million.
AFH’s Form 990 was not available online for the filing period between July 1, 2013, and June 30, 2014.
The carryover of the negative “unrestricted net asset balance” since the 2011–2012 fiscal year was highlighted by Eric Cesal, in an effort to clarify the organization’s longstanding financial situation via a lengthy post on architecture writer Fred Bernstein’s Facebook page on Jan. 20, 2015, after AFH’s bankruptcy plans were made public (Contract magazine has the full text here). Cesal, who began as a volunteer at AFH and rose to direct its Disaster Reconstruction and Resiliency Studio, was named AFH’s new executive director in May 2014, after Sinclair’s departure in October 2013. Cesal, who resigned from AFH in December 2014, has said that the organization was $2.1 million in debt when he assumed the position. He is not named in the current lawsuit. Cesal declined to comment on the record for this article.
All 12 defendants are required to respond to the complaint by Aug. 15, 2016, an extension from the original date of July 14, 2016. The extension was granted in part to give all defendants time to engage legal counsel, says Robert Bunzel, an attorney and principal at the San Francisco–based law firm Bartko Zankel Bunzel & Miller. Bunzel, who is representing Manus in the lawsuit and “will likely represent most of the other volunteer directors,” spoke on Manus’ behalf in response to ARCHITECT’s request for comment.
Bunzel believes that it is “unusual it for volunteer directors to be sued in a case such as that about the alleged mismanagement of funds,” he says. “An early analysis of the facts and the timeline shows that the volunteer directors were very active and engaged in trying to solve some of the problems at AFH. We don't believe that they breached any duties or any standard of care. … We think the case will ultimately be dismissed, as do the volunteer directors. That will be our goal.”
A status conference is currently scheduled for Aug. 26, at a San Francisco courthouse, during which Bunzel says the parties will review what documents need to be collected for the case, schedule future dates related to hearings and other events related to the case, and ascertain “whether the pleading is going to be challenged as being insufficient for some legal reasons.”
What is not in question is the much-needed attention that AFH brought to humanitarian design efforts and public-interest architecture. Because of the organization’s efforts, thousands of people worldwide are enjoying better lives in improved conditions. It also inspired a legion of designers and architects to focus their efforts on the clients who need architecture the most.
Though AFH, the umbrella organization, is no more, its mission continues through its successors. In January 2016, Garrett Jacobs, acting chair of the AFH Chapter Network, the collective of individual chapters that persisted after the closure of their headquarters, was named the Chapter Network’s executive director. Jacobs, a longtime volunteer and participant at AFH, is largely responsible with rallying the scattered Chapter Network leadership to rebrand the organization as the Open Architecture Collaborative (OAC), announced in March.
Regarding the lawsuit, Jacobs writes in an email: “From my time at AFH, I know there are many lessons to be learned from small problems and how they were or were not addressed. I trust the legal process will bring them to light so we may continuously improve on delivering our mission.”
When AFH filed for bankruptcy, Jacobs adds, all U.S.-based AFH chapters lost their individually earned funds because the headquarters, as their fiscal sponsor, was “the only legal entity capable of holding funds. This is why the focus of the new organization is to build up the chapter capacity from volunteer to independent organization, an incubator of sorts, so local funds can stay local and sustain community work.”
Fundraising at the chapter level is managed by the chapter leaders. Funds for operations are “minimal due to all volunteer activity,” Jacobs adds, and the leaders “help their community partners raise funds for their projects, which go directly to those partner organizations.”
Meanwhile, Jacobs’ salary is funded through the Curry Stone Foundation as part of a six-month grant that he says OAC has been “able to stretch” out to the end of the year due to “very basic expenditures, in-kind services, and volunteer subject matter expertise.”
And the distinction between unrestricted and restricted donations is kept clear. “We have received a small amount of unrestricted donations aside from the startup grant from the Curry Stone Foundation,” Jacobs says. “All general donations are unrestricted. We have not yet solicited for restricted funds as we take time to develop our strategy and business plan to ensure we can sustain operations with integrity, and scale appropriately.”
July 20, 2016, update: Garrett Jacobs has published a letter in response to the lawsuit on the Open Architecture Network's website, stating that although the OAC "finds many of its ideological roots at Architecture for Humanity," it is "unequivocally an independent organization" and will "in no way" be affected by the lawsuit. "I am confident that those who committed wrongdoing will be held accountable, and that any malfeasance will come to light," Jacobs writes. "I am also confident that the final story will adequately celebrate all the good that AFH did."
ARCHITECT requested interviews with Sinclair and Stohr on July 12. They have not yet responded.