What summary judgment motions did the parties file?

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

51. What was Princeton’s PRINCO motion? How did the court rule?

The Robertson Foundation’s Certificate of Incorporation enables the Foundation to invest in securities and property and, in furtherance of such powers, to retain investment managers. In their complaint, Mrs. Robertson’s descendants have argued that the Foundation board breached its fiduciary duties to the Foundation by selecting PRINCO as an investment manager. [See: Question 13 and Question 36] In its PRINCO motion for summary judgment, the University asked the court to find as matter of law that the decision by the Foundation board to retain PRINCO as an additional layer of investment management under the supervision of the Foundation’s investment committee was a valid exercise of the Foundation’s business judgment. [See: Question 35 and Question 37]
In the court’s PRINCO decision, Judge Shuster rejected as having “no basis” plaintiffs’ assertion that defendants had a disqualifying conflict of interest that prevented application of the “business judgment rule” which provides for judicial deference to trustee decision making. Instead, he concluded that the court should and would defer to the business judgment of the University-designated trustees “unless Plaintiffs can show that Defendants violated their duties of care, loyalty, and good faith.” In this connection, Judge Shuster concluded his opinion by noting: “While it may well be that Defendants [Princeton] will ultimately succeed on the merits of the issue, the factual setting presented precludes summary judgment.”
At trial, Princeton will present testimony proving that the decision to retain PRINCO was a result of sound financial judgment. Moreover, the trial will demonstrate that the Robertson Foundation has flourished under PRINCO. As Princeton noted in its motion papers, PRINCO offered the Foundation access to more diverse investment opportunities and a professional level of managerial expertise that would not otherwise have been available at a comparable cost. The Foundation’s corpus, valued at $561 million when the Foundation retained PRINCO in 2004, is now worth over $900 million—even after providing $20 to $32 million annually to support the Woodrow Wilson School graduate program during the same period.

52. What was Princeton’s “laches” motion? How did the court rule?

Princeton asked the court to rule that some claims raised by Mrs. Robertson’s descendants are simply too stale to be heard by the court. Princeton argued that certain categories of expenditures that were made before 1996 were plainly known, or with the exercise of reasonable diligence should have been known, to the plaintiffs and yet went unquestioned by them for decades prior to the filing of this lawsuit. [See: Question 14] Accordingly, Princeton asked the court to preclude review of all expenditures that fall beyond New Jersey’s six-year statute of limitations and laches period (doctrines that preclude judicial review of older claims).
Many of plaintiffs’ claims challenged expenditures that were made by the Foundation decades ago, some as early as 1965. While it has not admitted to any misspending, Princeton argued that the plaintiffs’ claims related to five categories of these expenditures should be dismissed because plaintiffs’ “unreasonable” delay is unjustified and has substantially prejudiced the University’s ability to litigate the claims, as key witnesses are deceased and key records are no longer available. Moreover, plaintiffs William Robertson and Robert Halligan have served on the Foundation board since 1974 and 1982, respectively, yet did not object to the Foundation’s spending until filing their lawsuit in 2002.
The court rejected plaintiffs’ legal argument that the doctrine of laches should not be applied to charities, such as Princeton and the Foundation, or to confidential or fiduciary relationships. The court then examined the record before it to determine whether the doctrine should be applied at this stage of the litigation to the five categories of expenditures at issue. Judge Shuster granted Princeton’s motion with regard to equipment depreciation. The court also granted Princeton’s motion with respect to plaintiffs’ efforts to recover for building depreciation charged prior to fiscal year 1996 because, the court found, “building depreciation—whatever it may have constituted—was disclosed in every year.” Finally, the court ruled that there were disputes of material fact that precluded it from determining at this stage of the litigation whether the doctrine applied to the other categories of expenditures at issue.
At trial, Princeton will present evidence demonstrating that the plaintiffs unreasonably delayed in raising their objections to the remaining categories of the Foundation’s spending, as Judge Shuster decided with respect to plaintiffs’ equipment depreciation and building depreciation claims. Princeton will argue at trial that because of this unreasonable delay the court should not revisit, item by item, spending decisions made over four decades by board members who used the gift to develop one of the world’s preeminent graduate schools of public and international affairs.

53. What was the Robertsons’ “fiduciary duties” motion? How did the court rule?

In their “fiduciary duties” motion, plaintiffs asked the court to find that, under Delaware law governing the fiduciary duties of board members, the University-designated trustees of the Robertson Foundation have an inherent and disabling conflict of interest solely because they are trustees and officers of the University. In essence, Mrs. Robertson’s children asked the court to overturn the governance structure of the Foundation (and, by extension, the governance structures of other supporting organizations around the country), which was put in place by their parents and which explicitly requires that some of the University-designated trustees of the Foundation be officers and trustees of the University. In addition, the motion sought a declaration that because of this so-called disabling conflict of interest, the “entire fairness” standard should be applied by the court in its review of their historical (and, potentially, prospective) conduct instead of the “business judgment rule.” [See: Question 21]
Courts traditionally defer to the business judgments made by trustees and corporate directors, and make exceptions only when they might have been motivated by considerations other than the best interests of the corporation. In opposing plaintiffs’ motion, the Princeton defendants pointed to the absence of such conflicts in this case. In addition, Princeton demonstrated that the governance structure had been agreed to by Charles and Marie Robertson and later confirmed by Charles Robertson in correspondence with the Internal Revenue Service. [See: Question 16, Question 17 and Question 19] Moreover, these arrangements had been critical both to preserve the charitable nature of the Robertson gift and to ensure that decisions about the academic program of the Woodrow Wilson School would remain under the control of the University. [See: Question 16, Question 19 and Question 32]
The court agreed with Princeton that decisions made by the trustees of the Robertson Foundation will be reviewed under this deferential business judgment standard unless plaintiffs can show that a particular transaction was tainted by conflict of interest. Absent such a conflict of interest, Judge Shuster ruled, plaintiffs will have to prove that the expenditures they challenge are completely beyond the scope of activities authorized by the Foundation’s Certificate of Incorporation. As he put it: “If Plaintiffs’ true motive in the present matter is to have the burden shifted to Defendants…it would seem that such an attempt is misplaced.”
In rejecting plaintiffs’ claims, the court placed great significance on the fact that the Foundation is not a private, family-controlled foundation but instead is what federal tax law calls a Type 1 “supporting organization” of Princeton. “Plaintiffs attempt to discount the significance of the [supporting organization] model, but any such attempt ignores the main purpose of supporting organizations—to be responsible to the public charities they support.” The court further emphasized the critical fact that the governance structure was adopted at the inception of the Foundation, finding that “it was decided at the creation of the Foundation that the University would control the Foundation Board.” Under these circumstances, the court concluded, the delegation of functions like bookkeeping and calculation of the Foundation’s annual expenditures was not negligent but “consistent with expectations and requirements of the Type 1 supporting organization model.”
The court found the spending decisions plaintiffs challenged “fundamentally distinguishable from the line of cases” they asked the court to follow. “[S]o long as the course of action taken by the fiduciaries is consistent with the Foundation’s mission, the Foundation benefits to an equal degree. In such instances, it can hardly be said that the University receives a benefit to the exclusion and detriment of the Foundation.”

54. What was the Robertsons’ “Spending and Offsets” motion? How did the court rule?

In their “spending and offsets” motion, Mrs. Robertson’s descendants asked the court to rule that Princeton had overcharged the Foundation $17.5 million in certain specific spending categories for the period between 1965 and 2003. In response, Princeton argued that plaintiffs’ motion was based on a fundamental misrepresentation of how the Foundation’s annual contribution to support the graduate program of the Woodrow Wilson School has been calculated for forty years and a fundamental misunderstanding of the expenditures required to sustain the excellence of the graduate program of the Woodrow Wilson School. [See: Question 43]
Judge Shuster denied virtually all of plaintiffs’ motion. The Judge determined that plaintiffs had failed to sufficiently establish at this time any of the overcharges regarding four entire categories of claimed overcharges, including charges relating to the undergraduate program, faculty salaries and benefits, and equipment depreciation. For example, in rejecting plaintiffs’ claims for summary judgment pertaining to $757,426 of alleged improper charges for “non-labor undergraduate program expenditures,” Judge Shuster noted that a critical portion of “[p]laintiffs’ proofs, when viewed in a light most favorable to Defendants, amount[s] to nothing more than conjecture at this stage.” Regarding the category of income transfers, plaintiffs sought summary judgment with regard to a $62,500 transfer, which the University admitted occurred in error; thus, the court granted summary judgment as to that amount.
Judge Shuster agreed with Princeton that the court should consider the University’s long course of conferring financial benefits on the Foundation, ruling that the facts and circumstances pertaining to those financial benefits will be considered by the court in evaluating the overall equities of the case.
Princeton is confident that the evidence at trial will demonstrate its financial commitment to supporting the Woodrow Wilson School and the Foundation’s mission, and that, after considering the full range of annual charges and credits, the Foundation has benefited from that commitment.

55. What issues are left for trial? Is there a trial date?

The motions for summary judgment did not encompass all of the issues in the litigation, and there are still contested issues that will have to be resolved at trial, beyond those carried over for trial from the motions that have been denied. For example, the summary judgment motions did not address allegations made by Mrs. Robertson’s children concerning specific past and ongoing spending issues. Plaintiffs object to using Foundation assets on Woodrow Wilson School faculty summer salaries, faculty research, research centers, capital construction, administration and overhead. [See: Question 43]
Judge Shuster retired from the bench effective March 1, 2008, and Superior Court Judge Maria Sypek was appointed as his successor. Trial in the litigation had been scheduled to begin on October 1, 2008. However, on August 1, 2008, Superior Court Judge Maria M. Sypek scheduled a trial date of January 20, 2009. Judge Sypek was appointed successor to Superior Court Judge Neil H. Shuster, who retired from the bench effective March 1, 2008. On September 24, 2008, the Assignment Judge in Mercer County, Judge Linda R. Feinberg, informed the parties that Judge John Fratto would preside over the trial. The trial is scheduled to begin on January 20, 2009.

56. Will the trial be heard by a judge or a jury?

The case will be heard by a judge. Judge Shuster retired effective March 1, 2008, and Superior Court Judge Maria Sypek was appointed as his successor. On September 24, 2008, the Assignment Judge in Mercer County, Judge Linda R. Feinberg, informed the parties that Judge John Fratto would preside over the trial. The trial is scheduled to begin on January 20, 2009.
In 2006, Princeton moved to strike the plaintiffs’ late-in-the-day demand for a jury trial. New Jersey law provides that the types of claims raised by the Robertson plaintiffs—“equitable” claims and relief that concern issues of “fairness” as opposed to statutory or common law—do not entitle them to a jury trial. Moreover, plaintiffs did not file their demand for a jury trial when they initiated the litigation in July 2002, but waited until 2004 to request a jury trial, when they filed an amended complaint and asked that a subset of their claims against Princeton be tried before a jury.
Judge Shuster granted Princeton’s motion, stating “New Jersey’s judicial system gives primacy to equitable claims.” He then observed that plaintiffs’ legal claims arise out of the Foundation’s Certificate of Incorporation, which “leads to the inescapable conclusion that the legal claims are inextricably intertwined with [p]laintiffs’ equitable claims.” Consequently, the court granted defendants’ motion, deciding to retain jurisdiction over this entire matter and not to empanel a jury.

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