Donor Intent The Focus Of Suit

October 1, 2008       Don McNamara      

A six-year-old lawsuit against one of the country’s most prestigious universities by a family that made a significant donation to it is holding the attention not only of the two sides in the dispute but also of many in the nonprofit sector.

The case of Robertson v. Princeton University, in which hundreds of millions of dollars are at stake, is being watched as a donor intent case, with each side professing itself to be adhering to the wishes of the donors, Charles and Marie Robertson.

A resolution to the case is expected in January.

In 1961, the Robertsons gave the university $35 million in stock in the Great Atlantic & Pacific Tea Co. grocery store chain (A&P). Marie was an heiress to the A&P fortune and Charles was a 1926 graduate of Princeton.

The endowment established the Robertson Foundation, the mission of which is to assist the United States government by preparing graduate students at Princeton’s Woodrow Wilson School of Public and International Affairs for federal government careers, particularly in foreign and international relations.

The endowment today is worth almost $900 million. Marie Robertson died in 1972. Charles Robertson was chair of the board of trustees of the Robertson Foundation until his death in 1981.

In July 2002, William Robertson, Katherine (Robertson) Ernst, Robert Halligan, Anne (Robertson) Meier and John Robertson filed suit against the university and the university-designated trustees of the foundation, saying that the university has not used the money in the way designated by Charles and Marie Robertson. William Robertson, Katherine Ernst, Anne Meier and John Robertson are children of Charles and Marie Robertson. William Robertson and Katherine Ernst are family members on the board of trustees, as is Robert Halligan, a relative of the Robertsons. John Robertson has since died.

The board of trustees consists of seven people, four representing the university and three representing the family.

The case has dragged through the legal system, with each side blaming the other for the delays.

Jennifer Berkowitz, whose North Carolina-based firm is handling public relations for the Robertson family, said two main issues led the family members to object to the way the foundation was being run and to resort to legal action in 2002. One issue was the use of $13 million for the construction of a building, Wallace Hall, and the other was the merging of Robertson Foundation money into the Princeton University Investment Company (PRINCO), an investment firm that manages university finances.

Wallace Hall houses several social science departments and programs that the Robertson family claims have nothing to do with the mission of the foundation. The university, however, claims that they are an essential part of it.

Foundation money was given to PRINCO after members of an investment committee expressed concern about the foundation relying on a part-time volunteer committee to manage the investments. Robertson family members opposed the move, saying that the original endowment required that foundation’s funds be managed independently.

“Two individuals who were fortunate to have the resources wanted to make a really big impact on the future of this country, and they chose to gift the money to a foundation which was specifically designed to train U.S. government professionals to improve and maximize the quality of our leadership in this country,” said William Robertson, speaking of his parents’ intentions. “And the institution that was chosen to conduct that program simply accepted the opportunity in bad faith,” he said.

“They never ever intended to do their best to place students in the U.S. government. We have innumerable documents back to the early days showing that the president and dean and faculty never intended to do what my parents wanted. Yet they continued to mislead and make excuses to my father and when he became ill they simply reverted to their initial program of training scholars, not people for government service,” he said.

Robertson said that his parents’ wishes, and the thrust of the foundation endowment, should be toward producing individuals who will go right into government service. He said that, among other issues, the university is putting too much emphasis on an academic approach that only produces scholars. The family said that the university placed only 85 out of 886 graduates in first jobs in the federal government or international relations.

“Are they oriented toward scholars, or a practical application?,” Robertson asked rhethorically. Robertson, who graduated from Princeton in 1972, has worked to maintain a high level of visibility for the case, writing often about it. His most recent article, distributed by McClatchy-Tribune Information Services this past July, accuses Princeton of using delaying tactics and links the case to other donor intent disputes and an aura of mistrust regarding charitable giving.

“What is really going on is an attempt by the plaintiffs to regain control of the funds that Marie Robertson gave to Princeton more than 40 years ago and to try to overturn a decision she made,” said Robert Durkee, vice president and secretary of Princeton University. “One of the great ironies is that they go forward under a banner of donor intent and they are trying to overturn the donor intent and the university is trying to adhere to donor intent.”

The Robertson family maintains a Web site about the dispute, www.robertsonvprinceton.org. The university’s Web site contains a separate section about the case, www.princeton.edu/robertson/about

The Center for Excellence in Higher Education (CEHE) also features the Robertson case among several other donor intent disputes involving colleges on its Web site, www.cehe.org Just as the two sides disagree completely about the true adherence to donor intent, so do they diverge on their assessments of rulings on each side’s legal motions issued by New Jersey Superior Court Judge Neil Shuster in October 2007, rulings that were issued after a year’s deliberation by the judge. Shuster is scheduled to hear the case in January 2009.

The Robertsons claim victory on three main items: Shuster ruled against Princeton’s request for a summary judgment on an “offset” defense regarding offsetting payments; he ruled against Princeton’s request that a claim by the Robertsons for $70 million in overcharges be thrown out; and, he ruled against Princeton’s request to dismiss the family’s claim against the use of PRINCO.

The university maintains that it gained major victories with Shuster’s rulings because the judge rejected the family’s request for a jury trial and ruled that the foundation’s certificate of incorporation allows the university to spend the foundation’s realized capital gains. The university also said that the judge ruled against the university on its legal motions but not on final verdicts. In other words, Princeton officials contend, just because the issues will be heard does not mean they will be resolved in the Robertsons’ favor.

In addition to what the final decision could mean about the disposition of the money, there are implications for the nonprofit sector, especially involving control of donated funds. The Robertsons maintain that they should have complete control of the money in the foundation because it is a family foundation. They want to remove all of it from Princeton.

“The challenge is, this is what the IRS refers to as a Type 1 supporting organization, and we believe there are about 40,000 of those around the country,” Durkee said. “And one of the key elements of a supporting organization is that it has to be controlled by the beneficiary, certainly not controlled by the donor or donor’s family,” he said.

“What they are trying to do is turn that upside down, saying that it should not be allowed for the supported organization to control the money. Well, that’s a direct challenge to the tax code and it could have implications for other organizations. We don’t think the court is going to agree with them,” he said.

Durkee said he has given panels or workshops explaining the case from a nonprofit viewpoint. He added that very often attendees will come forward saying that they have similar situations. Some have even said they would not have accepted certain money if they had foreseen the problems that would be associated with it.

“We were making very long-term commitments, and we couldn’t do that if the university and the president at the time were not confident that we would continue to have these funds so we could make these commitments,” Durkee added. “Other organizations have said the same.” Philanthropies around the country are nervously awaiting disposition of the case.

“The publicity over this case and others in the past five years or so is unfortunately undermining people’s belief in philanthropies because it (philanthropic giving) is based on trust,” said Ronald Malone, an attorney in San Francisco who represents the Robertson family. “People believe in causes. And when you see this kind of publicity about august institutions like Princeton accused of lying or cheating, it undermines their trust and (donors) don’t give or give with restrictions in such a way that is probably not good for philanthropy. I believe most charities are honest and conscientious and want to do good and want to honor a donor’s restrictions. And the prominent (cases) hurt everyone.”

The blow that could be dealt to the nonprofit sector is on many minds, not just for the money but for other repercussions as well.

“When we talk about ‘donor rights’ people get confused,” said Linda C. Crompton, president and CEO of BoardSource, a nonprofit that offers consulting and other resources to help improve nonprofit governance. “It is not a piece of legislation. If we talk about a Donor Bill of Rights, it is a set of principles, or concepts to provide guidance to boards.

“People talk about Ôdonor rights’ as if it is some kind of law, and it is not.”

Crompton also pointed out that even passage of a law would not mean that there could be no misunderstandings or disagreements.

“We provide consulting, for example, and everybody wants ‘The Rule – What is the rule I need to abide by?’ The reality is that these situations are far more complex than that,” she said. “There is not one thing you can point to and say, ‘If you do this, you will never run into problems.'”

Crompton said that the world in general, and especially the world of philanthropic giving, changed during the past half-century or so.

“At one time a donor would make a donation and that was the end of it,” she said. “It is not that way today. Families want a much heavier degree of involvement. Donations are looking more like investments,” she said.

“They want accountability, not having money spent on things they don’t agree with. They want much more accountability and involvement. There is a huge difference between the 60s and today, a huge difference,” said Crompton.

It is because of that changed atmosphere, Crompton said, that even having processes and structures in place probably would not be of much help in the Robertson case. She added that in addition to documenting as much as possible the original intent of a donation, there must be some kind of decision-making process, recognizing that things will change.

It is possible that the public will view the case as a little guy fighting a giant, so that if Princeton loses, its loss will be construed in terms of a corporate behemoth being brought to its knees.

“One of the things I see in both the for-profit and nonprofit worlds is that with all the corporate debacles and high-profile abuses and all the revelations of nonprofit scandals there is this pervading suspicion that has erupted, and the general public has this overriding doubt about anybody’s honesty,” Crompton said. “(The general sense is) ‘Someone is out to rob you,’ on Wall Street, for example. And that’s not true either. There are people trying to make money honestly for everybody.

“There have been bad things in the nonprofit sector. But these are tiny cases. I wish someone in the press would say, ‘We’re going to take on the job of telling the truth about the role these organizations play.’ They could do an interesting piece about countries where you don’t have that robust (nonprofit) sector. It has very strong implications for the political system. I wish somebody would take this on, especially with so much more demand for civic engagement,” she said.

If Princeton loses, can any good come of it? “I hope the silver lining is that when this actually shakes down other charities will bend over backwards to send a message to their donors that they deal honestly with them,” Malone said. “The silver lining may actually be that donor confidence in the long run gets enhanced.”

Crompton is not nearly so optimistic.

“It’s hard to see that happening,” Crompton said of a verdict that goes against Princeton being beneficial to nonprofits.

In addition, the Internal Revenue Service (IRS) might want to get involved if there is a suspicion of abuse on Princeton’s part. “It’s not anything we’d like to see because it adds to that general impression that nonprofits are dishonest,” she said.

Crompton added that the best-case scenario for the sector would be not only that Princeton wins the case but also that it secures a clear and unequivocal statement that it did nothing wrong. Anything else poses the danger that the Robertsons could “lose” the case but that Princeton could lose (in terms of reputation or fundraising) despite winning the case.

“Look at the number of nonprofits and the work they do and the very positive role they play in a positive way for what society needs,” she said.

What will happen to general perceptions of the nonprofit sector, regardless of the Robertson v. Princeton ruling?

“We’re always worrying,” Crompton said. NPT

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