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Thursday, Sept. 18, 2014

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University seeks summary judgment on three key Robertson litigation issues

Attorneys representing Princeton University and four University-designated trustees of the Robertson Foundation today asked New Jersey Superior Court Judge Neil H. Shuster to grant summary judgment on three key issues in the lawsuit regarding the Foundation that was filed by members of the Robertson family in July 2002.

The Robertson Foundation is organized as a “supporting organization” of the University for the purpose of supporting the graduate program of the Woodrow Wilson School of Public and International Affairs.

The University believes the three issues qualify for summary judgment because there are no material facts in dispute regarding these issues that need to be resolved at trial. In its motions, the University requests summary judgment declaring that:

  • Princeton University is and will continue to be the sole beneficiary of the Robertson Foundation and is and will remain entitled to designate four of the Foundation’s seven trustees;
  • the Foundation’s Certificate of Incorporation authorizes the Foundation to spend realized capital gains as well as other income; and
  • the Robertson Foundation’s decision to retain the Princeton University Investment Company (Princo) to manage the Foundation’s investments represented a good faith exercise of its independent business judgment.

“After more than three years of reviewing documents, taking depositions and submitting expert testimony, it seems clear that these three issues can and should be resolved as a matter of law on the basis of the undisputed facts,” said Douglas S. Eakeley, an attorney with Lowenstein Sandler and the University’s lead outside counsel in the case. “If granted, summary judgment would narrow the issues presented by this litigation, allow the University to plan appropriately for the future of the graduate program of the Woodrow Wilson School, and perhaps move both parties closer to final resolution of the case.

“We also hope that resolution of these issues would have a beneficial effect on the operations of the Robertson Foundation,” Eakeley added. “Ever since her first meeting as president of the Foundation and prior to the initiation of the lawsuit, University President Shirley M. Tilghman has been responsive to the concerns of the Robertson family and has significantly improved the Foundation’s governance procedures. As dean, Anne-Marie Slaughter has brought dynamic leadership to the Woodrow Wilson School and has strengthened its programs in a number of areas. The Foundation’s investment program has been exceedingly successful under Princo’s management and, following many months of careful review, the Foundation recently adopted a new formula to govern future spending in support of its mission.

“Despite all of these positive developments," Eakeley said, "Robertson family members continue to oppose essentially every matter brought before the board, seemingly because they hope their lawsuit will redirect the assets of the Foundation away from the University. It is our hope that resolution of the issues brought forward in today’s motions will expedite the restoration of a stronger sense of common mission on the part of all members of the board.”

In their lawsuit, members of the Robertson family have asked the court to sever the relationship between the Foundation and its sole beneficiary, Princeton University; the family members have claimed that the Foundation’s Certificate of Incorporation limits spending to dividends and interest; and they have asked the court to reverse the Foundation’s decision to retain Princo.

Sole beneficiary

The University’s motion (see excerpts) points out that the Robertson family’s effort to sever the relationship between the University and the Foundation is contrary to the unambiguous terms of the Foundation’s governing documents and contrary to applicable law. The Foundation’s Certificate of Incorporation explicitly dedicates the assets and income of the Foundation “to or for the use of Princeton University.” The Certificate also provides that, if the Foundation should ever be dissolved, the Foundation “shall distribute or transfer the property and funds of the corporation … to Princeton University.”

The University’s motion also points out that when Marie Robertson donated $35 million in A&P stock to the University in 1961, she and her lawyers chose to organize the Robertson Foundation as a Delaware non-profit, tax-exempt corporation. In seeking to secure the significant tax advantages that would flow from her donation, she sought a ruling from the Internal Revenue Service confirming the Foundation’s 501(c) (3) status and the deductibility of her gift. In her filing with the IRS she emphasized that the gift was “to or for the use of Princeton University” and that the Foundation would be under the University’s control because, as provided in the Foundation’s bylaws, the University appoints four of the seven members of the Foundation board.

The motion cites a 1961 letter from University President Robert Goheen supporting Mrs. Robertson’s request in which he notes that “from the very inception, the prospective donor has fully understood and agreed that the University must have the responsibility for the direction, maintenance and operation of the School in all its aspects. … [N]o 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. … 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.”

In 1970, following Congressional action amending the Internal Revenue Code, the Foundation was required to confirm its exempt status with the IRS. As president of the Foundation, Charles Robertson informed the IRS that the Foundation should be classified as a “supporting organization” of Princeton University because it “operated exclusively for the benefit of Princeton;” it was “controlled by Princeton;” and these arrangements had been “agreed to by the donors.”

Under Delaware law, courts do not have the authority to amend the plain language of the Certificate of Incorporation and Bylaws to remove Princeton as the Foundation’s sole beneficiary or to remove Princeton’s ability to appoint a majority of members to the Foundation’s board. Any such changes could only be made by unanimous vote of the Foundation’s board.

Capital gains

The University’s motion similarly points out that, contrary to assertions made by the Robertsons, the plain language of Article 11 (c) of the Foundation’s Certificate of Incorporation “permits the spending of capital gains and appreciation,” and that the Delaware Uniform Management of Institutional Funds Act, which governs the Foundation, “also makes clear that gains on the sale of Robertson Foundation assets may be expended in support of the Foundation’s mission.” It concludes that “since Article 11 (c) clearly and unambiguously authorizes the Robertson Foundation to expend realized capital gains as part of its ‘income,’ the Princeton defendants are entitled to summary judgment.”

Princo

The University’s motion notes that the court has previously held that the Foundation’s “Certificate of Incorporation clearly authorizes the Foundation to retain Princo” and points out that the decision by the University-designated trustees to retain Princo as an additional layer of Foundation investment management under the supervision of the Foundation’s investment committee “was a valid exercise of their business judgment.” It concludes that “the undisputed facts show that the University-designated Trustees’ decision was a valid exercise of their independent business judgment and plaintiffs cannot rebut the presumption that the Trustees acted in accordance with their duties of care, loyalty, and good faith. Thus, as a matter of law, the decision to retain Princo was appropriate and is entitled to the protection of Delaware’s business judgment rule.”

The Board made its decision after extensive review lasting more than a year and for the “rational business purpose” of “improving the return on the Foundation’s assets at a reasonable level of risk and making the Foundation’s investment management appropriate (in their informed judgment) to its size and the contemporary institutional investing environment.” The University brief points out that in the first 18 months of management by Princo, through June 2005, “the Robertson Foundation’s assets grew in value from $561 million to $653 million, a gain of more than 16 percent.”

“In requesting summary judgment, we hope to resolve issues that we believe can be resolved as a matter of law, and thus to allow Dean Slaughter and others to devote even more of their formidable energies to the kinds of initiatives that the Woodrow Wilson School has undertaken in recent years in implementing the mission of the Robertson Foundation (see attached examples),” Eakeley said.

“The Wilson School is one of this country’s leading schools of public policy, and it does an excellent job of preparing students dedicated to public service for careers in government and related fields,” Eakeley added. “To cite just one example: Of the 57 members of the school’s master of public administration (MPA) class of 2005 who took jobs upon graduation, 87 percent are working in the public and non-profit sectors, with 54 percent working for governments or international organizations. Of the 18 students who took jobs with the U.S. federal government, 14 are in positions focused on international affairs. Of the 12 who did not take jobs immediately, eight went on to further graduate study.”

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