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Thursday, Oct. 30, 2014

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University seeks resolution of key issues in Robertson lawsuit

Attorneys for Princeton University today filed papers in New Jersey Superior Court seeking a judicial declaration that the University, and through it the Woodrow Wilson School of Public and International Affairs, is and will remain the sole beneficiary of the Robertson Foundation. The foundation was established in 1961 to expand and support the graduate program in the Woodrow Wilson School.

In addition to seeking a declaration that the foundation's funds cannot be transferred to another entity, the filing seeks declaratory judgments affirming that:

  • the decision of the Robertson Foundation Board of Trustees to retain the Princeton University Investment Company (PRINCO) as the foundation's investment manager is permitted by the foundation's certificate of incorporation and bylaws and was a valid exercise of business judgment; and
  • the certificate of incorporation permits the spending of capital gains and appreciation as income of the foundation.

"Since the filing of their original complaint in July 2002, the family trustees have used their positions as trustees of the Robertson Foundation to oppose and obstruct proposed financial support of the Robertson Foundation for the graduate program of the Woodrow Wilson School," the filing states.

"The family trustees are in effect attempting to hold the foundation and the Woodrow Wilson School hostage to their position in the litigation -- namely, that the relationship between the school and the foundation should be severed, and that the definition of 'income' that can be used to support the foundation's mission be limited to dividends and interest." In addition, "the family trustees' attack on the foundation's investment structure has cast a cloud over the foundation's investment program, and made it difficult to engage in succession planning for the foundation's investment committee."

Douglas Eakeley, an attorney with Lowenstein Sandler PC, which is representing the University, said, "These are issues on which the foundation's certificate of incorporation and bylaws are clear, and we would like to end the dispute over these issues as quickly as possible as we continue to work toward resolving other differences among the trustees of the Robertson Foundation." Lowenstein Sandler is representing the University, President Shirley M. Tilghman and three other University-appointed trustees of the Robertson Foundation.

In their lawsuit, members of the Robertson family have asked the court to amend the foundation's certificate of incorporation and bylaws to remove the University from any control or involvement with the foundation and to remove the University from its position of being the sole charitable organization that can be supported by the foundation.

Today's filing notes that when the Robertson Foundation was created in 1961 with a gift from Marie Robertson, she and her husband, Charles, sought approval from the Internal Revenue Service for their gift to be deductible for income and gift tax purposes. In doing so, they "emphasized that the gift should qualify for both income and gift tax deductions since the gift to the foundation was ultimately to or for the use of Princeton University, and the foundation would be under Princeton's control." Princeton's then-president Robert Goheen supported this request in a letter to the IRS in which he noted that "the prospective donor has fully understood and agreed that the University must have the responsibility for the direction, maintenance and operation of the [Woodrow Wilson] School in all its aspects."

Goheen also emphasized that the stipulation that the majority of the trustees of the foundation be University representatives "is essential, since no university could plan so many permanent appointments to its faculty and develop an expanded program of this magnitude unless both policy control and continuous financial support for the program were assured to it…. [T]here is no question but that the donor intends this gift to be for the sole use of Princeton University. Indeed, the trustees of Princeton University would not have agreed to accept this gift, and authorized this most important and greatly expanded program of post-graduate instruction for the public service, if they had not been advised and believed that the University controlled the foundation through its majority representation."

Nearly a decade later, in another submission to the IRS, Charles Robertson affirmed that the foundation is to be "operated exclusively for the benefit of Princeton," and that the University's requirement of "effective control of the foundation" in order to "undertake the long term commitment involved in the project" was "agreed to by the donors."

The new filing states that the request by the Robertsons' son, William, and the other plaintiffs to remove Princeton from any control or involvement would be a violation of the agreement between the University and the founders of the Robertson Foundation, the structure and provisions of the certificate of incorporation that place the University in the position of being the sole charitable organization to be supported by the foundation and give it majority control on the foundation's board, and the University's "reasonable reliance on the continued flow of Robertson Foundation funds to support the Woodrow Wilson School graduate program."

The filing also notes that in addition to naming no supported organization other than Princeton University, the foundation's certificate further provides that if the foundation should be dissolved, upon that dissolution, "the board of trustees shall distribute or transfer the property and funds of the corporation … to Princeton University." Only if Princeton loses its charitable tax exemption are the foundation's assets to be given to another beneficiary, the filing states.

Regarding the retention of PRINCO, which also manages the University's endowment, as the foundation's investment manager, the plaintiffs have alleged a conflict of interest and have asked the court to return proceeds from investments made by PRINCO to the foundation.

The filing notes that the decision to retain PRINCO to make recommendations as to asset allocation and select and supervise the managers of the assets of the foundation "represented a valid exercise of independent business judgment…. The objective of PRINCO is to maximize the total return on the investment of both the University's and foundation's assets at reasonable risk. The retention of PRINCO has enabled the foundation to avail itself of a diversity of investment opportunities, level of managerial expertise and quality of service that would not be available from any other manager at a comparable cost."

The filing also states that there is no conflict of interest because the fiduciary duties of the University-appointed trustees to both the foundation and the University are aligned, "because the sole purpose of the foundation is to support the graduate program of the Woodrow Wilson School within Princeton University. Indeed, the very structure of which the family trustees complain was created by the incorporators of the foundation and approved by the original foundation board of trustees."

"The family trustees' attack upon the integrity of the authorization for the foundation's investment management structure has cast a cloud over the entire investment program of the foundation," the filing notes. "The family trustees' position has also made it difficult for the foundation board to engage in succession planning with respect to the foundation's investment committee."

Also addressed in the filing is a dispute as to whether the foundation is authorized to spend capital appreciation of its assets or is limited to spending dividends and interest earned in its investment portfolio. The plaintiffs have sought the return of any funds spent in excess of "legal income," which they define as dividend and interest income, and an injunction against any further spending of capital appreciation. The filing states that the "plain language" of the foundation's certificate of incorporation "clearly authorizes the spending of capital appreciation as well as dividends and interest."

The filing continues, "Indeed, the trustees of the Robertson Foundation ... have a fiduciary obligation to assure that a reasonable proportion of the foundation's available income be applied to further the purposes and objectives of the foundation, rather than simply allowing that income to accumulate."

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