Capital Gains Motion

What was Princeton’s “Capital Gains” or “Article 11(c)” motion? How did the court rule?

What was Princeton’s “Capital Gains” or “Article 11(c)” motion? How did the court rule?

In an effort to limit the amount of Robertson Foundation assets that can be used at the Woodrow Wilson School, Mrs. Robertson’s descendants have argued that the Foundation’s expenditures should be restricted to dividends and interest earned in its investment portfolio. [See: What are plaintiffs seeking in this litigation?; Why do the Robertson family members object to spending realized capital gains?]

In the “Article 11(c)” summary judgment motion, Princeton asked the court to rule that, contrary to assertions made by the Robertson plaintiffs, the plain language of Article 11(c) of the Foundation’s Certificate of Incorporation permits the spending of capital gains and appreciation. In addition, the Delaware Uniform Management of Institutional Funds Act (“UMIFA”), 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. [See: What does the Certificate of Incorporation say about the Robertson Foundation’s ability to spend realized capital gains?; Does the law have anything to say about the expenditure of realized gains?]

In a detailed ruling, the court rejected every argument advanced by the Robertson plaintiffs, siding with Princeton on every point. Although plaintiffs had attempted to cloud the issues by relying on complex and irrelevant tax issues, the court refused to be “lure[d]” into the “usual tax melange.” Based on a review of the amended Certificate of Incorporation and the cross-referenced tax provisions, the court determined that for purposes of Article 11(c), “income” includes realized gains and Article 11(c) does not restrict their expenditure in any respect. The court found “there to be no ‘genuine issue of material fact’ on whether Article 11(c) authorizes the spending of realized gains.” Further, the court agreed with Princeton that UMIFA, which governs spending by non-profit organizations, also authorizes the Foundation to spend realized gains.

As a result of this decision affirming the Foundation’s spending practices, the Foundation’s spending is not limited to dividends and interest. Rather, consistent with modern investing and spending principles, the Foundation may properly spend realized gains on the Foundation’s invested assets.