Robertson Foundation lawsuit Q&a updated December 18, 2008
What does the Certificate of Incorporation say about the Robertson Foundation’s ability to spend realized capital gains?
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- 39. Does the law have anything to say about the expenditure of realized gains
- 40. Why do the Robertson family members object to spending realized capital gains
- 41. How does Princeton use Robertson Foundation funds
38. What does the Certificate of Incorporation say about the Robertson Foundation’s ability to spend realized capital gains?Article 11(c) of the Foundation’s Certificate of Incorporation imposes limitations on the disbursement of capital assets “which do not constitute income or accumulated income as defined in Treasury Department Regulation § 1.504-1(c), or its then equivalent” but it does not restrict the expenditure of income. [Document: Excerpt from the Foundation Certificate of Incorporation] In 1961, Treasury Regulation § 1.504-1(c) defined “income” as “gains, profits, and income determined under the principles applicable in determining the earnings and profits of a corporation.” [Document: Excerpt from Treasury Regulation § 1.504-1(c)] In 1961 (and today), “earnings and profits” included gains realized upon the sale of an asset. Thus, for purposes of Article 11(c), “income”—as defined in the Treasury Regulation expressly referenced in Article 11(c)—includes realized gains and does not restrict their expenditure in any respect. For an overview of a number of the key issues in this dispute, see Robertson v. Princeton -- Perspective and Context, prepared by Victoria B. Bjorklund. Ms. Bjorklund is a member of the law firm Simpson Thacher & Bartlett LLP, which, together with Lowenstein Sandler PC, serves as litigation counsel to Princeton University and the individual defendants in the Robertson litigation. 39. Does the law have anything to say about the expenditure of realized gains?The Robertson Foundation is incorporated in Delaware and Delaware’s Uniform Management of Institutional Funds Act, or “UMIFA,” authorizes expenditure of the Foundation’s realized capital gains. UMIFA was enacted over thirty years ago with retroactive effect. It was enacted to reverse the adverse effects of outmoded, self-imposed spending limitations often practiced by public charities (including educational institutions), such as those that plaintiffs want to re-impose here. UMIFA expressly provides the trustees of an endowment fund with authority to spend the realized and unrealized capital appreciation of the fund. UMIFA provides for an exception to this rule if the gift instrument expressly states the donor’s intent to prohibit the expenditure of capital gains, but there is no such prohibition in the Robertson Foundation’s “gift instrument,” the Certificate of Incorporation. (While New Jersey law does not apply on this matter, New Jersey’s UMIFA includes the same provision as Delaware’s.) 40. Why do the Robertson family members object to spending realized capital gains?It is not clear why the Robertson family members objected to the expenditure of realized capital gains. Since 1992, the Foundation has regularly spent dividend and interest income and a portion of its capital gains realized from the sale of Foundation assets, consistent with the Certificate of Incorporation and UMIFA. Each year, the Foundation board members—including plaintiffs William Robertson and Robert Halligan—were given the Foundation’s financial statements that clearly reflected that the Foundation was spending dividend and interest income and a portion of its capital gains. At no point until shortly before the filing of the lawsuit did plaintiffs ever question or object to the spending of a portion of the Foundation’s capital gains. In a motion for summary judgment, 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: Question 38 and Question 39] In a detailed ruling on this issue in October of 2007, Judge Shuster rejected every argument advanced by the Robertson plaintiffs, siding with Princeton on every point. [See Question 50] Use of Funds 41. How does Princeton use Robertson Foundation funds?In large part, the process by which the Foundation provides support to Princeton has been in place for more than 40 years. [See Question 9 for a discussion of the improvements that have taken place since 2002.] First, the Woodrow Wilson School makes academic judgments about how best to develop a curriculum for its graduate program, attract and retain faculty and recruit graduate students. The School then determines the costs of the graduate program, which initially are paid for by the University, not the Foundation. Under this procedure, the Foundation does not contribute any funds toward these costs as they are actually incurred. Rather, the University directly funds all of the School’s expenses throughout the fiscal year. After the end of the fiscal year the University obtains reimbursement for the Foundation’s share of the costs through what is known as an annual “settlement” process. The Foundation’s share is calculated according to an agreed-upon formula (initially the “Bowen Formula,” now the “Slaughter Formula”). In this “settlement” process, Princeton presents the Foundation board with written reports from the Woodrow Wilson School dean detailing the School’s programmatic activities, a dean’s report on School expenditures, and a report by the Foundation treasurer. In addition, the University presents the Foundation board with financial tables that detail total annual expenditures for faculty instruction, research, student fellowships, staff, overhead or indirect costs, and other costs, as well as a breakdown of “credits” owed by the University to the Foundation (credits that cover, for example, costs attributable to the undergraduate program, which is not funded by the Robertson Foundation). Only after the settlement materials are presented are Foundation funds transferred to Princeton to reimburse the University for the Foundation’s share of the costs of the graduate program. Over the past 45 years, Princeton University has used Foundation funds to provide the most generous financial support in the country for outstanding graduate students, hire and support a distinguished faculty, create research centers and programs that serve both to recruit and retain faculty and to create intellectual communities and opportunities for more specialized study for faculty and students, administer outreach and placement programs, and construct buildings to accommodate the steadily expanding range of School activity. [See: http://www.princeton.edu/~oktour/virtualtour/english/Stop03.htm] The result of all this investment is not only a preeminent graduate program that prepares its graduates for leadership positions in the federal government in particular and the public sector in general, but also a genuine leader in public policy education, a School that is constantly innovating, experimenting and looking for ways to train the future public leaders in both government and quasi-governmental organizations. Download 180.02 Kb. Share with your friends:
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