Philanthropists | Philanthropy

Unsettling Settlement Over “Donor Intent”

INSIDE HIGHER ED   |  December 11, 2008 by Doug Lederman

Given the level of vitriol that marked the six-year legal battle between Princeton University and the relatives of a former donor, it’s hardly surprising that Wednesday’s settlement to bring the lawsuit to a close was not, as some such accords are, of the “Can’t we all just get along?” group hug variety.

The two parties obviously found enough common ground to stop fighting their battle in court—most likely, commentators agreed, because both had tired of pouring tens of millions of dollars that might have been used for actual charitable purposes into the coffers of law firms, and were loathe to spend many millions more on a trial that was to begin next month. But just about every public utterance they made about the settlement throughout the day Wednesday suggested that they agreed on little else.

They clashed about motives; Princeton officials expressed confidence that the university would have won had the case gone to trial and that it was “tragic” that both parties had to spend so much on legal fees; the Robertson family, meanwhile, said in a news release that Princeton officials had settled “only when [they] realized they had underestimated us and had miscalculated our resolve, and would soon face a terribly embarrassing trial.”

They disagreed about money; when the Robertson family’s mid-day statement asserted that Princeton would pay the families’ charities “more than $100 million—or nearly 20 percent of the current value of the Robertson Foundation endowment—to settle the case,” Princeton’s public affairs office responded with a note that shot down the estimated endowment value as inaccurate. (“While we typically don’t as a policy calculate endowment performance incrementally for the purpose of release,” a spokeswoman wrote in an e-mail message, “it has been confirmed that I can say that the value of the Robertson endowment today is being UNDERSTATED by the Robertsons by well over $100 million.”)

And on Wednesday, as has been true throughout much of this decade, they continued to disagree about the issues at the core of the family’s lawsuit: whether Princeton had appropriately managed the endowment that supports graduate programs at Princeton’s Woodrow Wilson School of Public and International Affairs and fully followed the intent of the original donor, Marie Robertson.

“For many decades, university officials refused to honor their commitment to my parents, thereby dooming a powerful and patriotic program,” said William Robertson, who is the lead plaintiff in the lawsuit and has not been shy in his criticism of the university, in a prepared statement Wednesday. Princeton, said its president, Shirley M. Tilghman, had “looked forward to the opportunity to refute the claims that were made and demonstrate Princeton’s diligent stewardship of this gift over almost five decades.”

The parties in the lawsuit may have been unable to agree on much of anything Wednesday, but many observers familiar with the case held fairly similar views about the significance—and the wisdom—of the legal settlement. They generally agreed that the settlement ultimately served the interests of both parties—“one view is that a good settlement is one that both parties think is bad, and this fits that bill,” said Harvey P. Dale, director of New York University’s National Center on Philanthropy and the Law—and that the university and the Robertsons both emerged with good things to cling to.

For the university, it’s the bulk of the money in the Robertson Foundation’s endowment—estimated at $900 million as of June 30, and something less than that now, given the beating most investments have taken—and “the ability to use that money for the right purposes, and not to be hampered by concerns over control of the foundation,” said Ada Meloy, general counsel of the American Council on Education.

The Robertson family’s Banbury Fund, meanwhile, will receive $40 million from 2009 to 2011 in reimbursed legal fees and $50 million (plus interest) from 2012 to 2014 to create a new foundation to prepare students for careers in government service—essentially the same goal, of course, that the disputed endowment had. While the Robertsons walked away with a far smaller share of the funds they sought in the lawsuit than did the university, the family can take solace, said Sheldon E. Steinbach, a lawyer with the Washington firm Dow Lohnes, with “having been able to fire that shot across the bow … to college and university administrators and trustees and other charities about how to appropriately conduct donor relations.”

The shared view of most of the legal observers interviewed was that while the lawsuit had focused significant attention on the issue of “donor intent” and the need for charities and potential donors alike to pay closer attention to how gifts are structured and the terms that guide the use of their funds in the future, that impact had occurred as soon as the lawsuit was filed, and the settlement of the case neither inflates nor minimizes that impact. So unlike a legal precedent that might have had broad effects for higher education had the lawsuit gone to trial and been litigated through the courts of New Jersey, where it was filed, the settlement has little relevance beyond the parties themselves.

“In a lot of ways, a case that generated such significant national interest and prognostication about consequences just slipped quietly into the night, with minute implications for the charitable community,” Steinbach said.

A High-Profile Case

Such an outcome would have been hard to envision given the heavy coverage the case has received in national newspapers like The Wall Street Journal, where the case has been treated as evidence of universities and other major philanthropies ignoring the wishes of unwitting donors. The case is one of several that have raised similar issues, but has drawn special attention because of the big dollars and its high profile combatants—one of the nation’s wealthiest universities and a family that once owned the A&P supermarket chain.

The suit against Princeton was filed in 2002, but the story dates 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 said the gift was meant to train graduate students for careers in the federal government, particularly in international affairs, but argued that the funds have been used for other purposes. It sought to have the foundation separated from Princeton. On top of the endowment money, the family sought up to $600 million in damages.

The lawsuit was teed up for trial by a series of mostly procedural rulings last fall by the New Jersey judge in charge of the case. As is common in such cases, the parties weigh their options as trial nears, asking, “What are you likely to win, and what do you risk losing?” said Steinbach. “It’s often at the 11th hour and 59th minute where a meeting of the minds occurs.”

The university and the Robertsons have each spent tens of millions of dollars on the case, and Princeton said in its news release that its lawyers had estimated that both sides would have incurred another $20 million in legal expenses on the trial and any subsequent appeals.”This stops a very costly and disputatious lawsuit,” said Meloy of the American Council on Education.

Dale, the NYU law professor and philanthropy expert, was to be an expert witness on Princeton’s behalf, and he clearly believes Princeton was in the right on the merits of the lawsuit. But “I have said for a long time that I did not think Princeton could win this case, because even if it won in court, it would lose in the court of public opinion,” he said—as it had in much of the news coverage and in provoking the ire of groups like the American Council of Trustees and Alumni.

The lawsuit could have had “extremely significant” implications for colleges other than Princeton had it gone to trial, “no matter which way it went,” said Celia Roady, a tax lawyer in Washington for the firm Morgan Lewis.

As it is, with the settlement, the case’s primary impact—and its many millions of dollars in legal fees—should be to make it clear to donors and recipients of money alike that they have a mutual interest in having as much clarity as possible about the intent of gifts and how they should be spent, said Roady.

“The prominence of the case gave it a lot of national exposure, and led a lot more people in the higher education community and in other kinds of charitable giving to focus on issues that were often otherwise swept under the rug in the enthusiasm of the giving of a big gift,” agreed Meloy of ACE.

But NYU’s Dale said there is far from being a consensus about the lessons that institutions or donors should learn from the Princeton-Robertson case. “The amount of publicity about this has heightened awareness of the issues” related to donor intent, he said. Tempting as it is to try to resolve such questions by writing agreements that lock in what should happen to a donor’s money in perpetuity, that would be a mistake, Dale argued, given that times—and needs—eventually change.

“This is not a tension to be eliminated,” he said, “but a tension to be understood.”


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