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Donor Alert: $16 Million Award Against WonderWork May Force It to Cease Operations

   Feb 02, 2017

Two charities, HelpMeSee and WonderWork, remain embattled in a lengthy legal dispute over a services agreement that has resulted in a $16 million arbitration award against WonderWork that includes compensatory damages, attorneys’ fees, and arbitration costs. CharityWatch became aware of the dispute late last year and contacted both charities with questions in letters dated January 4, 2017. Although HelpMeSee’s attorneys did provide CharityWatch with copies of publicly available court documents, neither charity provided responses to our specific questions, citing the ongoing nature of the dispute.

According to court documents filed by HelpMeSee’s attorneys on January 18, 2017, “On August 31, 2011, HelpMeSee entered into an Agreement with [WonderWork] pursuant to which [WonderWork] agreed that it would create, manage, and monitor various fundraising and marketing programs for HelpMeSee in exchange for a $2 million per year fee.” The court filing states that “HelpMeSee terminated the Agreement for cause effective August 17, 2012,” claiming, among other complaints, that throughout the term of the agreement WonderWork “secretly competed against HelpMeSee and used HelpMeSee’s work and accomplishments to convince [WonderWork’s CEO, Brian] Mullaney’s contacts . . . to write large checks to [WonderWork].” It states further that Mullaney also “covertly courted HelpMeSee’s few major donors in an effort to convince them to give to [WonderWork] instead of HelpMeSee; and, as a result, misled the donors into giving the money to [WonderWork] rather than donating to the organization actually providing [the advertised] charitable services.”

Also according to the January 18, 2017 court filing, on March 21, 2013 WonderWork “filed a Demand for Arbitration” in response to the services agreement contract termination in which it sought over $1.3 million in damages plus costs and attorneys fees, claiming that the agreement was severed by HelpMeSee “without cause.” On May 9, 2013, according to the filing, HelpMeSee counterclaimed for breach of contract, breach of fiduciary duty, fraudulent inducement, [and] copyright infringement” and sought related damages and fees from WonderWork. In a letter dated January 23, 2017, attorneys for HelpMeSee informed CharityWatch that an arbitrator “found WonderWork to have, among other things, breached both the Agreement, as well as its fiduciary duty to HelpMeSee…” This resulted in the Arbitrator’s decision to issue a Final Award with the compensatory damages against WonderWork on December 21, 2016, according to the court filing.

While the dispute may be ongoing, what may not be ongoing for much longer is WonderWork, which filed for Chapter 11 bankruptcy protection on December 29, 2016. This protects the charity, at least temporarily, from paying creditors, including HelpMeSee. “Enforcement of the Arbitration Award would, for all intents and purposes, put [WonderWork] out of business,” WonderWork’s CEO, Brian Mullaney, stated in court filings. Prior to filing for bankruptcy, WonderWork first argued in a cross motion in New York State Court that the Arbitrator’s Partial Final Award issued on October 13, 2016, which ordered WonderWork to “immediately” pay HelpMeSee over $8.3 million “in damages equal to all amounts raised by [WonderWork] during the Agreement term plus interest,” should be vacated on policy grounds primarily because some of WonderWork’s funds were “restricted” by donors for specific use. The motion was denied on the basis that sworn statements from donors reflected that donations were not restricted, all according to court documents.

In response to WonderWork’s bankruptcy filing, HelpMeSee’s attorneys filed a motion on January 18, 2017 requesting that the court appoint a Chapter 11 trustee in place of Brian Mullaney, stating that WonderWork’s present management is “unfit” to run the organization. Among reasons cited by HelpMeSee for the request is its assertion that the arbitration process “exposed Mullaney’s repeated pattern of defrauding the charities he purported to serve, including Operation Smile, Smile Train, and HelpMeSee, as well as his repeated violations of the intellectual property rights of Mercy Ships, a HelpMeSee partner.”  According to the filing, “Mullaney’s conduct,  which the Arbitrator described as ‘unconscionable,’ constitutes a pattern of behavior in which Mullaney (enabled by [WonderWork’s] senior management […]) systematically exploited various charities to benefit himself at the charities’ detriment. […] Consequently, it would not be in the best interest of the creditors to leave Mullaney in control of [WonderWork].” A hearing is set for February 23, 2017 in the United States Bankruptcy Court of the Southern District of New York to decide on HelpMeSee’s motion requesting the appointment of a Chapter 11 trustee to replace Mullaney as WonderWork continues through its bankruptcy proceedings.

CharityWatch Warns Against Donating to WonderWork

When a charity files for bankruptcy, future donations to the organization presumably would be used to pay off the charity’s creditors rather than for the programmatic activities most donors are intending to support. In addition, whether a charity files for bankruptcy with the intent to permanently cease operations or to shed debt and reorganize, it often incurs significant legal and accounting costs in the process that may also be paid for with future donations. WonderWork has demonstrated a reluctance to be forthcoming with donors about its bankruptcy proceedings, according to HelpMeSee’s January 18, 2017 court filing. It states that WonderWork “has not added any disclosure on its websites to provide donors and the public with notice that it filed for Chapter 11 bankruptcy despite the Court remarking that ‘if you’re soliciting donations, the public ought to know that this is an entity in bankruptcy. And they may be donating to an entity that may not be here.’”

CharityWatch has been warning donors about WonderWork for several years, assigning the charity an “F” rating since its 2013 financial year for low program spending and high fundraising costs. CharityWatch has determined based on a thorough analysis of WonderWork’s audited financial statements and tax filing for its fiscal year-ended June 30, 2015, that WonderWork spent about $59 to raise each $100 in cash donations, and spent only about 35% of its total cash expenses on its programs, with the remainder being spent on fundraising and management activities.

Due to WonderWork’s “F” rating, its continuing bankruptcy proceedings, and other concerns outlined in this article, CharityWatch recommends that donors forgo making donations to WonderWork.

See December 6, 2017 Update: WonderWork CEO Resigns; Independent Bankruptcy Trustee to Take Over Management of the Charity

See also: WonderWork Co-Founder is No Mr. Wonderful (published March 8, 2018)

See earlier article: Have You Been Wondering About WonderWork? (published December 1, 2013)

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