Editors’ Note: Thomas Adam highlights an important recent court case in Germany that has the potential to transform the nation’s philanthropic sector.
Over the course of the nineteenth century, German civil society experienced a remarkable expansion in the absolute numbers of, and in the assets given to, foundations and endowments. Wealthy Germans created endowments that they entrusted to municipal, state, and religious institutions and foundations that had their own boards of trustees and managers. This expansion of philanthropic institutions in the nineteenth century was followed by a severe contraction of the German philanthropic sector in the twentieth century. Democracy, dictatorships (Nazism and Communism), and allied occupation and administration proved hostile to the existence of endowments and foundations. In fact, democratic, dictatorial, and military governments instigated several waves of destruction, in which endowments and foundations were confiscated and dissolved. By the 1970s both German states – the democratic West Germany and the Communist East Germany – had become largely (but not entirely) void of endowments and foundations.
These waves of destruction and expropriation of endowments and foundations harmed public institutions such as museums, high schools, universities, social housing enterprises, and hospitals that had relied on philanthropic support as well as citizens who relied on these institutions’ services. This injustice has gone unrecognized and unremedied for decades; only recently has it become a hotly disputed issue in the context of a reform of the federal law on foundations – a new law was passed in June 2021 – and of a long-running court case about the dissolution of the Zeppelin Foundation in Ludwigshafen.
The Zeppelin Foundation was created in 1909 with an endowment of about six million marks, which was collected in response to a public call for donations answered by millions of Germans. When in August 1908 Zeppelin’s experimental airship was destroyed in an accident, Count Zeppelin appealed to the masses to help raise funds to continue his work. Millions of Germans who were enthralled with the prospect of air travel gave small and large sums. The donations were used to create a foundation dedicated to the development and advancement of air travel. This foundation invested all sums into the creation of several enterprises and factories that produced the parts needed to first build airships and later airplanes. Because of the potential and actual use of some of these products for military purposes, the post-World War II French occupation government decreed in January 1947 the dissolution of the Zeppelin Foundation and the transfer of its assets to the city of Ludwigshafen. This turned the city of Ludwigshafen into the owner of several lucrative enterprises that operate to this very day and produce an annual revenue of 32 billion Euros (in 2019). The profits from these enterprises is used today for funding social and educational purposes in the city of Ludwigshafen and its environs.
For some years now the descendants of Count Zeppelin – a great grandson and his son – have been pursuing legal means to reconstitute the original Zeppelin Foundation. They argue that the dissolution of the Zeppelin Foundation in 1947 violated existing law. Existing law allows for the closing of a foundation if that foundation threatens the common good or in case it is no longer able to carry out its mission because of a lack of funds. The reason used by the French occupation government in 1947 for dissolving the Zeppelin Foundation was that it could no longer fulfill its original mission since German enterprises were banned from producing military equipment during the time of Allied occupation after World War II. However, the statutes of the Zeppelin Foundation never specified that the enterprises owned by the foundation were to participate in the production of military equipment. The original statues, which were only slightly changed after the abandonment of the production of airships in the aftermath of the disaster of the Hindenburg Airship at Lakehurst, New Jersey in 1937, stated that the foundation was to develop and further the development of means of air transportation. That general mission statement would have allowed for a refocusing of the mission of the foundation after World War II on non-military air transport and so permitted its further existence.
German law – past and present – does not give the descendants of Count Zeppelin standing to challenge the decision of any government. In fact, since the codification of laws about endowments and foundations in Germany’ s Civil Code of 1900 and in the law about foundations from 1924, lawmakers have never provided the descendants, the board of trustees (of existing foundations), or the beneficiaries of endowments and foundations with legal standing to challenge government decisions with regards to the closing of endowments and foundations.
When, last year, the German federal parliament began discussion of a new law about foundations, lawyers and representatives of the national association of foundations (Bundesverband Deutscher Stiftungen) began to lobby lawmakers to consider including a provision that would allow for legal challenges to government decisions to close endowments and foundations and that would also provide for the reconstitution and possibly provide government compensation to foundations that had been dissolved for political reasons in the twentieth century. However, when the new law, which is intended to provide a unified federal law that supersedes all state laws and which for the first time in German history also established a federal register of foundations, was passed by the federal parliament in June 2021, it did not contain any legal provisions which would have given interested individuals a right to challenge in court government action against endowments and foundations.
During deliberations over the law, in a petition to the members of the legislative committee in charge of providing a draft to the federal parliament, several academics (of whom I was one) led by Stephan Schauhoff – a lawyer and legal scholar at the University of Bonn – suggested the introduction of two essential innovations, which would have given greater security to endowments and foundations. First, the petition asked that individuals with a specific interest in the existence of a foundation – descendants of those who had created foundations or people who could potentially benefit from the existence of a foundation – should receive the legal right to challenge government action that included the closing of an endowment or a foundation. Second, those endowments and foundations that had been closed by the state in the course of the twentieth century for political reasons should be reconstituted and provided with financial compensation.
Since there is no precedent for such legal proceedings in German law, Schauhoff, the lead author, suggested that American law could serve as a model. German legal experts such as Birgit Weitemeyer and Andreas Richter have referenced the special-interest doctrine, which gives individuals with a vested interest in the existence and functioning of a foundation the right to sue. Richter cited the case of Hooker v. Edes Home (1990), in which four elderly women from Georgetown went to court to challenge the decision of the trustees of a home for the elderly in their neighborhood to close its institution. The members of the board of trustees argued that the institution was no longer needed. The four complainants argued that they needed this institution and that the foundation had been created with the explicit goal of providing a home for elderly people of limited financial means. More recently, this doctrine was invoked in 2013 by officers and directors of the Colorado Health Foundation who opposed the acquisition of several hospitals in Colorado that had previously been partially owned by the Colorado Health Foundation by the HCA-Healthcare. Their claim was dismissed because the courts could not find that the plaintiffs suffered any injury from this transaction and therefore had no legal standing. The case started, however, a legal discussion about who should have the right to challenge transactions that involve charitable trusts.
Introducing this special-interest doctrine into German law would put limits on government action in the realm of philanthropy and prevent the politically motivated closing of endowments and foundations in the future. It would also provide a basis for the resurrection of the endowments and foundations that were closed by government action in the past. A revival of the endowments and foundations closed in the course of the twentieth century would recreate a philanthropic sector that once shouldered much of the funding of public institutions and could entice modern-day donors to create endowments and foundations, thereby jumpstarting the growth of the nonprofit sector.
The application of this doctrine would, for instance, allow high school and college students to sue the state over the dissolution of the thousands of scholarship endowments that were up until 1945 entrusted to the care of high schools and universities across Germany. These scholarships provided funds not just for paying tuition but also for living expenses. The endowments that existed at the University of Tubingen in 1914 had accrued funds in the millions of marks. All these endowments were dissolved in the following decades.
Lawmakers of the mainstream political parties and the conservative Christian Democratic Union in particular were not receptive to such suggestions and rejected the inclusion of such far-reaching innovations into law. Many lawmakers showed little understanding of the roles of foundations in society and argued that providing restitution to dissolved foundations would only lead to the enrichment of the descendants of those who had created these foundations. Others were cautious because neither the precise numbers of foundations dissolved in the twentieth century nor the capital that was confiscated by state and municipal agencies is known. Lastly, lawmakers were critical of the fact that the law team that represented the descendants of Count Zeppelin in his pursuit to reestablish the Zeppelin Foundation were also backing the petition to lawmakers which argued in favor of giving descendants a right to sue the government in court over the unjust dissolution of foundations. For these lawmakers, this seemed to be a conflict of interest since any change in the federal law would benefit the descendants of Count Zeppelin.
Observers and participants in these developments such as Birgit Weitemeyer – who is a law professor at the private Bucerius Law School in Hamburg and who is on the legal team that pursues the reconstitution of the Zeppelin Foundation – consider this legal case as the defining moment in philanthropic law and in the definition of the German Third Sector for the twenty-first century for several reasons. First, if this team is successful it would open the door to the reconstitution of tens of thousands of endowments and foundations that had been dissolved and expropriated by a succession of democratic and dictatorial governments. Second, the introduction of a special-interest doctrine into German law would also redefine the nonprofit sector and give it, for the first time, effective protection from politically motivated government overreach. Third, it would further reestablish the private funding of public services, a widespread practice which had been extinguished in the aftermath of World War II. The result would be the resurrection of a strong philanthropic sector – as it has existed in Germany until 1914 – that for the first time would also enjoy legal protection. It would effectively end a period that lasted from 1918 to the present in which endowments and foundations existed at the whim of the state and faced the constant threat of expropriation.
All of this would of course come at a price for the German state. No statistics about how many endowments and foundations were dissolved exist. One limited statistic for East Germany reveals that of the 3,323 foundations (endowments are not included here) that existed in Communist East Germany in 1953, 2,010 were dissolved by 1971. And those 3,323 foundations controlled assets in excess of 150 million marks in 1953. It is, therefore, hard to estimate how much money the state would have to provide in compensation. In any case, there is little doubt that such a successful legal change would lead to a philanthropic revival and demands for massive government compensation that would help to reconstitute dissolved foundations and to equip them with capital once seized to restart their important work.
Thomas Adam is a professor of political science at the University of Arkansas. He currently serves as Associate Director of the International and Global Studies Program. From 2001 to 2020 he was a professor of transnational history at the University of Texas at Arlington. He is the editor of the Yearbook of Transnational History and editor of the book series in Intercultural Transfer Studies with Anthem Press. He is the author of The History of College Affordability in the United States and of Philanthropy, Civil Society, and the State in German History, 1815-1989.