The heirs of a former Princeton University donor who say the institution has failed to honor their parents' intentions will have a chance to make their case in court. A New Jersey judge's preliminary rulings Thursday moved the process forward and set the ground rules for what can be considered.
At stake is the nearly $900 million endowment that supports graduate programs at Princeton's Woodrow Wilson School of Public and International Affairs. The judge left open the possibility that some or all of that money could be awarded to the family, but made clear that such a decision would not be made lightly.
Some in higher education have said the high-profile lawsuit could set a new standard for "donor intent" cases that look at how closely colleges must follow the wishes of donors and their families. But others don't see the final outcome as being precedent setting, in large part because the facts in this case are unlike those in any others.
The suit against Princeton was filed in 2002, but the story dates back to 1961, when Marie Robertson, wife of the Princeton alumnus Charles Robertson, gave the Wilson School a $35 million gift. That gift established a supporting organization called the Robertson Foundation. Princeton operates and controls the foundation's board and selects four of its seven trustees.
The Robertson family says the gift was meant to train graduate students for careers in the federal government, particularly in international affairs, but argues that the funds have been used for other purposes. It wants the foundation separated from Princeton. On top of the endowment money, the family is seeking up to $600 million in damages.
Princeton says the case isn't about whether a recipient of a charitable gift has an obligation to fulfill the commitments it makes in accepting the gift. The university says it has such an obligation and has honored the donor's original request that the money support the graduate program.
Princeton argues that the family has changed its tune, originally taking issue with the foundation's investment strategy but more recently redirecting attention to spending issues.
Neil H. Shuster, a New Jersey Superior Court judge, issued rulings on seven pending motions in the suit that did little to settle many arguments, but also did not stop both sides from declaring an early victory. In turning down many of the claims, Shuster is saying he needs to hear more evidence. That will come at a trial (date uncertain), which he ruled will not be before a jury, as the Robertson family had sought.
The family took solace in Shuster's decision that whether Princeton was intended to be considered the sole beneficiary of the gift should be decided in a trial. The university maintains that the document establishing the foundation states that to be the case.
The judge said he would separate the foundation from Princeton only under "the most egregious and nefarious of circumstances." Ronald H. Malone, the lead lawyer for the family, said he was confident a judge would make that determination.
Shuster also ruled that the trial can include a discussion about whether it was appropriate for Princeton to use its own investment operation to handle the Robertson endowment. Until a few years ago, a volunteer committee had made the investment decisions.
Malone said he was "incredibly pleased with the court’s analysis," and that it was “extraordinarily favorable” to us.
Princeton's legal team had the same assessment. Peter McDonough, the university's general counsel, said he was "extremely happy with the outcome."
Added Douglas S. Eakeley, another lawyer representing Princeton: "This is a very complex case, and Judge Shuster's careful analysis identifies specific issues that need to be resolved at a full trial.... His decisions significantly move the case forward in a positive way, and we look forward to having an opportunity to address the issues when the case comes to trial."
Shuster denied the Robertson family’s motion that Princeton-designated trustees must prove the “entire fairness” of their actions in exercising their fiduciary duties to the foundation. In essence, the claim called into question whether those trustees were acting in the best interest of the corporation and whether they had a potential conflict of interest that could affect their business judgment.
McDonough, the Princeton general counsel, said unfairly holding trustees to the higher standard would open up thousands of board members at supporting organizations to undue scrutiny and might "throw the normal way a board operates into a tizzy."
The judge also agreed that the foundation's Certificate of Incorporation allows it to spend realized gains on income from the fund's investments. The Robertson family wanted to limit spending only to dividends and interest.
The Big Picture
John Lippincott, president of the Council for Advancement and Support of Education, said in a statement that because the case hasn't yet been fully vetted in court, the long-term implications for donors and higher education remain uncertain.
"However, we know that major gifts to educational institutions typically result from long-term relationships built on trust and mutual interest, and that these gifts are often restricted by donors through gift agreements that define expectations for both the institution and the donor," he said in the statement.
How colleges are using gift money -- often set aside for certain purposes -- and the relationships institutions foster with donors and their families remain points of concern as giving happens at a record pace.
Lippincott said given the depth of the relationships, the detailed nature of gift agreements and the care institutions take in following donor intent, disputes are relatively rare. The continued growth in giving, even during the years of the Robertson case, signals that donor confidence in education remains strong, he said.
Sheldon E. Steinbach, a lawyer in the postsecondary education practice of the Washington law firm Dow Lohnes, said he doesn't expect much fallout from the final decision, whenever it comes and whichever way it goes. The terms of the Robertson gift aren't replicated elsewhere, so "legal precedential value outside Princeton and the Robertson family is nil.”
Steinbach said the case's lasting effect has already been felt. Starting several years ago, colleges began to scrutinize more regularly gifts they had received in order to ensure that donor intent was already being followed, and in some cases they sought the consent of families to modify terms to carry out the spirit of the initial gift.