The True Story of the National Heritage Foundation with Dr. J.T. "Dock" Houk

While there is a series of unfortunate events that occurred to NHF several years ago, the “news” stories and blogs found on the web are blatantly misleading to completely false. I would like to set forth some of the history of this charity.

NHF, founded in 1969, has been a charitable organization in business for over 40 years. It was one of the leading organizations in creating the concept of fiscally sponsored programs and donor advised funds – two types of programs that are now very well-established in the charitable world.When NHF was founded, these kinds of programs were a bit experimental, hence, some observers may wish to characterize NHF as “controversial”. Remember, the Impressionist artists of the early part of the 19th Century were also characterized this way. National Heritage Foundation ran an incredibly successful charity for all these years, with a large and diverse number of people, programs and donors. As with many large companies, NHF had to deal with legal issues on a regular basis. Litigiousness is a part of our society, and no one or entity is immune.

In 2006, NHF was sued by a family in Texas over an insurance policy the family donated to NHF. The Mancillas family lived in Texas and retained a lawyer known for attacking companies with “deep pockets”, meaning companies with large asset base and insurance. In retrospect, NHF regrets not communicating with the family directly over changes to their policy. Following the normal custom, NHF worked through the family’s attorney. The lawsuit contended that NHF never communicated to the family, and changed the beneficiary without their permission.

NHF had to appear in the Brownsville Texas courts to fight this case. NHF tried to get its insurance company, Philadelphia Indemnity Insurance Company, under which NHF was insured for Directors and Officers Liability, to indemnify NHF in this case which was clearly a covered claim. The insurance company declined. NHF made every effort to resolve the case amicably, including making efforts to settle with the Mancillas family, but they turned down all efforts. In the summer of 2008, the court in Texas, presided by Judge Abel Limas, tried our case. (Note that the Judge was voted into office, that the Mancillas family were personal friends with the judge, and that critical evidence in our case was suppressed.) NHF lost and a very heavy judgment was levied.

The timing of this judgment couldn’t be worse – the economy at the time of the summer of 2008 was rapidly declining. Investment portfolios were being severed with more and more bad news of companies failing or disappearing altogether (remember Lehman Brothers?? AIG??).

NHF also had financial obligations to a pool of retirees in the form of Charitable Gift Annuities. NHF was responsible for the maintenance of these annuities by investing those funds in securities, which were being lost in the stock market. Drops in value of up to 50% were seen during that time, remember?!! Most of our personal retirement portfolios are still recovering, many retirement and pension programs went bankrupt in many states around the country. NHF, like other banks and fund holders, was having a hard time making required payments to this retiree pool because of the tremendous stock market losses.

Back to the Mancillas case, NHF needed to post a bond to appeal the Texas judgment in the amount of the judgment which was $7 million dollars. Bond insurers would not allow NHF to secure a bond with stocks because of the volatility in the markets at that time – stocks were fluctuating by thousands of points daily. The insurers required cash. NHF had to liquidate millions of its stock accounts very quickly to post the bond. In a crushing blow, the Mancillas family in January of 2009, seized NHF’s bank account in order to collect the judgment.

With no support from the insurance company, the inability to raise a cash bond, the decimation of the stock market and NHF’s inability to meet its annuity obligations – with the final blow of the seizure of NHF’s main operating bank account – NHF had no choice but to file for bankruptcy protection. The bankruptcy laws locked up all donated assets under NHF. Of course, donors were devastated, as they rightly should have been. Many donors filed claims and those claims were considered one by one by NHF. But because donors cannot be creditors, the bankruptcy court dismissed them.

NHF reorganized in the fall of 2009, paid off the annuitants and other creditors, unfortunately with donated funds, because it was required to by the bankruptcy courts to do so. Since the fall of 2009, NHF has restored nearly $2M in lost funds to donor’s accounts from its own assets held in more illiquid form. There was no court mandate to do this, NHF has voluntarily done so.

In 2011, NHF sued its insurance company for failure to cover and for bad faith in denying coverage in the Mancillas case. NHF won a settlement from Philadelphia and has used those funds to restore even further its donor advised funds, to pay tremendous legal bills in the bankruptcy and ensuing insurance.

The biggest scandal in this tale is that the FBI had been watching the Texas court system in which Judge Limas presided for many years. In 2010, Limas was indicted on fraud and racketeering charges in numerous cases including the NHF case in which he admitted guilt for taking bribes from opposing counsel.

So, NHF, this “controversial” charity, working for over 40 years, pouring millions of dollars into the charitable sector, hit a perfect storm of events beginning with a wrongful judgment in a corrupt Texas court system and a fraudulent insurance company who purposely failed to help in a time of need, alongside the complete dismantling of the US and World economies not seen since the Great Depression. For NHF to be singled out as a malicious organization with the circumstances surrounding these events, ignores the truth about what really happened. As Paul Harvey used to say “now you know the rest of the story.”

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Dr. J.T. Dock Houk

Founder

National Heritage Foundation

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