Terms of Endowment

When a New Jersey court judge issued preliminary rulings last month in a closely watched legal feud between

Princeton University and the heirs of one of its generous donors, both sides were quick to claim victories.

But for Princeton, the worst-case-scenario — what lawyers for the opposition like to call the “death penalty” — remains on the table: Princeton could lose all of an $880-million endowment that supports its graduate programs at the Woodrow Wilson School of Public and International Affairs, and then some.

The case has riveted public attention on the question of how closely nonprofit institutions must adhere to a donor’s demands, a topic that has become a fierce matter of debate as philanthropists increasingly attach strict conditions to their big charitable contributions.

The heirs of the A&P supermarket fortune are suing Princeton, saying that the university has not adhered to the terms of the gift their parents made in 1961. The gift established the Robertson Foundation, which supports graduate programs at the Wilson school, and was intended to attract more graduate students to government work, particularly in international affairs.

The heirs want to take control of the money so that they can give scholarships to students at other institutions.

Even before a verdict in the case, the family has started to call other major universities. Princeton officials, on the other hand, remain confident they will win the case and retain control of the money, saying the family is trying to rewrite the terms of the gift long after the fact.

Princeton has maintained that the document that established the foundation, the certificate of incorporation, clearly states that only Princeton can benefit from the money.

But last month Judge Neil H. Shuster, of the Superior Court of New Jersey, said that while the certificate is “clear and unambiguous” that the foundation money should go to Princeton, he would not rule out any possible penalties for the university before the case goes to trial.

“While the court finds that severing the relationship between the foundation and the university may only be appropriate to remedy the most egregious and nefarious of circumstances, the court would be remiss if it were to foreclose its ability to grant such remedies at this stage of the litigation,” Mr. Shuster wrote.

‘We Will Prove It’

Removing Princeton as the beneficiary would be an extraordinary step, but lawyers who have followed the case say Mr. Shuster clearly wants to keep his options open. Judge Shuster denied the Robertsons’ request for a jury trial, which means that he is likely to decide the case.

“The judge is basically saying that he has inherent common-law powers to correct things if something smells wrong,” says William Schwartz, a New York lawyer specializing in trusts and estates, and a former dean of Boston University School of Law.

Ronald H. Malone, lead lawyer for the Robertson family, says the Robertsons can meet the high bar that Judge Shuster has set.

“Not only does our suit allege nefarious and egregious conduct,” Mr. Malone says, “but we will prove it.”

But Douglas S. Eakeley, the lead lawyer for Princeton, says that when the facts do come out, Princeton will hold on to its assets.

“There is no legal or factual basis for severing the foundation from the university that it was implemented to support and has supported so well, and we will prove that at trial,” Mr. Eakeley says.

Since the lawsuit was filed in 2002, each side has spent more than $20-million on legal and related expenses — a combined total that exceeds the amount of the original gift. The suit has produced more than 400,000 pages of documents and more than 120 days of depositions. Princeton has also suggested that the Internal Revenue Service investigate whether the donors’ heirs are illegally using assets from a charity to cover their legal expenses. (See article on facing page.)

1961 Gift

The donation that prompted the lawsuit dates back 46 years, when Charles and Marie Robertson made an anonymous gift — worth $35-million at the time — to Princeton to expand the graduate programs at the Woodrow Wilson School of Public and International Affairs.

Their son, William S. Robertson, a Robertson Foundation trustee, and other heirs sued Princeton more than five years ago. In addition to seeking control of the $880-million in foundation assets (about 6 percent of Princeton’s total endowment), Mr. Robertson wants Princeton to provide an extra $500-million to compensate the foundation for what he views as inappropriate spending by Princeton over several decades.

Mr. Robertson believes Princeton has never been serious about fulfilling his parents’ primary goal — preparing graduates of the Wilson school for service in the federal government, particularly in foreign relations. Princeton maintains that its spending has been appropriate, and that it has used the Robertson money to build one of the most highly regarded schools in the country for preparing students for government and public-policy work.

Princeton has tried to settle the lawsuit, but early negotiations immediately after the lawsuit was filed went nowhere. More recent negotiations prior to last month’s rulings focused on an amount of money that could be transferred to Mr. Robertson’s control, but Princeton insisted that any settlement be “reasonable,” according to Mr. Eakeley.

Mr. Robertson says he would consider a settlement only in which his family gained control of “considerably more than half” of the foundation’s assets. He says he would not accept any settlement proposal in which Princeton retained control of the assets but agreed to spend them in a different manner.

“It’s too late for that,” Mr. Robertson says. “We want a divorce.”

“Now you know why we don’t have much to talk about,” Mr. Eakeley said, when asked about Mr. Robertson’s latest demands.

Courting New Beneficiaries

If the Robertsons ultimately win at trial, they intend to take the $1.4-billion, or whatever lesser amount they are awarded, and use the money to provide scholarships to students at other graduate schools that focus on government, public affairs, and international relations. William Robertson has already established a new foundation to hold the funds, the Robertson Foundation for Government, and he has approached more than 10 universities to discuss how they could put the money to work.

He says the institutions have welcomed his interest, and he is evaluating which programs are best so that he can prepare a plan for Judge Shuster about how he would use the Robertson money.

Princeton officials say that they are stunned to hear that Mr. Robertson is already meeting with other university officials to learn how they might use the Robertson Foundation’s money.

“If these approaches have been made, they reflect a shocking disregard by Bill Robertson for his fiduciary duties as a trustee of the Robertson Foundation, as well as a profound miscalculation of his likelihood of success in the litigation,” says Cass Cliatt, a Princeton spokeswoman.

Princeton officials have called Mr. Robertson unfit to serve as a trustee of the Robertson Foundation, though they have made no attempts to oust him.

“It’s pretty bloody, isn’t it?” says Martin Morse Wooster, a historian who includes a section on the Robertson dispute in the latest edition of his book The Great Philanthropists and the Problem of “Donor Intent.”

Marie Robertson, an heiress to the A&P grocery fortune, and her husband, Charles, a 1926 Princeton graduate, made their gift to Princeton in A&P stock in 1961. At the time, it was one of the largest gifts ever to higher education. The names of the donors were not made public until 1973, during the Vietnam War, when rumors were circulating that the Central Intelligence Agency had made the gift.

Charles Robertson said that in making the gift he had been moved by the famous line in President John F. Kennedy’s inaugural address, “Ask what you can do for your country.”

Mr. Malone, the Robertsons’ lawyer, says a victory for the heirs would reinforce to universities and other nonprofit groups that they cannot tamper with a donor’s wishes.

“Donors have to have confidence that money given to a charitable institution will not only be spent wisely, but will be spent for the purpose for which it was given, and none other,” he says.

Mr. Eakeley, the lawyer for Princeton, says a victory for the university would validate the important role that charities play in setting the terms of gifts before they accept them.

“The question is not what the donors intended, but what the certificate of incorporation authorized,” Mr. Eakeley says. “The contract was negotiated. The interests of the university at the time are as important as the interests of the other contracting party.”

‘Scorched Earth’

The legal costs for both sides are high in part because the Robertson heirs have challenged the foundation’s spending over four decades, a strategy Princeton refers to as a “scorched earth” campaign. In January 2006, a former Harvard finance official hired by the Robertsons as an expert witness wrote in a report that $207-million in spending — which would have risen to more than $500-million if it had remained invested in the endowment — was not tied to the Robertson Foundation mission.

Mr. Wooster, the historian, whose work has been supported by conservative think tanks, says the report could spell trouble for Princeton.

“I think the Robertsons have abundantly shown that Princeton, as far as it could, loved to divert the Robertson Foundation’s money to causes that it wasn’t intended for,” he says.

Princeton acknowledges that it has made a few minor bookkeeping errors over the four decades, but it maintains that on the whole it has charged the Robertson Foundation $235-million less than what it was authorized to charge the foundation under the certificate of incorporation. Princeton returned $782,375 to the Robertson Foundation in March this year, after concluding that it had provided “inadequate disclosure” about the spending, which supported graduate students in economics, politics, and sociology.

Last month, Judge Shuster granted the Robertsons $62,000 in “admitted overcharges” by the university, but he denied, for now, the rest of the remaining $18-million in admitted overcharges that the Robertsons had sought in a pretrial motion. Those overcharges, along with the other $180-million of alleged misspending, will be weighed at trial against the financial benefits that Princeton says it has provided the foundation.

Spending Decisions

The most-significant win for Princeton in the pre-trial rulings may have been the court’s decision to put the onus on the Robertson family to prove that Princeton-appointed trustees spent foundation funds improperly.

Judge Shuster denied the Robertson family’s motion to make the Princeton-designated trustees prove the “entire fairness” of their actions in exercising their fiduciary duties to the foundation. Courts typically defer to to the business judgment of corporate or charity directors, unless there is reason to believe the directors are not focused on the best interests of the organization. Judge Shuster said he 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.”

“If plaintiffs’ true motive in the present matter is to have the burden shifted to defendantsit would seem that such an attempt is misplaced,” Judge Shuster wrote.

When William Robertson, his sisters, Katherine R. Ernst and Anne E. Meier, and Robert Halligan (a Robertson Foundation board member whose wife’s mother was a relative of Charles Robertson) sued Princeton in 2002, they were protesting a decision by the foundation’s investment committee to turn over management of the endowment to the Princeton University Investment Company, known as Princo.

The certificate of incorporation says that the foundation “shall be considered and administered as a separate and distinct endowment fund.” William Robertson says his father wanted the Robertson money to remain separate from Princeton’s endowment so that it would be clear how the money was being spent.

Princeton maintains that nothing in the founding documents prohibits Princo from managing the Robertson Foundation’s investments, as long as the money is held in a separate account. Princeton agreed to consider other investment advisers after Mr. Robertson voiced concern about the move, but after more than a year of weighing alternatives, the board voted to go with Princo due to its low costs and access to alternative investments like hedge funds.

Investment performance has been strong; the foundation’s assets have risen by more than $300-million in nearly four years of Princo management, even after making payments to support the school.

Mr. Robertson is unmoved. He says the foundation’s investment committee, made up of volunteers, hired managers who outperformed Princeton’s endowment for more than 20 years before the move to Princo, and he notes that they might have done so in the past four years as well.

Mr. Malone says that regardless of investment performance, Princeton’s response to Mr. Robertson was shortsighted.

“This is a great lesson in cutting off your nose to spite your face,” Mr. Malone says. “They got themselves into a $1-billion lawsuit because they didn’t have any respect for the donors’ children.”

Another point of contention, according to Mr. Robertson, is that he and other family members were not informed before the university withdrew $13-million in 2001 to pay for the construction of Wallace Hall. The building is mostly used by the Wilson school but also houses some social-science programs that he believes are not closely related to the Robertson Foundation mission.

“They never had the courtesy to disclose this to the board, for pete’s sake,” Mr. Robertson says.

Mr. Eakeley, the lawyer for Princeton, says several Princeton officials kept Mr. Robertson apprised of the Wallace Hall project, including providing estimates of what the Robertson Foundation would need to contribute, over a period of five years. He says the Robertson Foundation didn’t vote on the large withdrawal to pay for the construction costs because Charles Robertson had long ago established an informal governance procedure for the Robertson Foundation that largely dispensed with formal votes.

Princeton officials also note that despite serving on the board since 1974, William Robertson never objected to the financial statements presented at the foundation’s annual meetings before his lawsuit was filed in 2002. Mr. Robertson says he didn’t realize the extent of the misspending by Princeton until his lawyers dug into the foundation’s financials.

Many of the Wilson school’s competitors stand to reap millions if William Robertson can persuade the court to give him control over some or all of the Robertson Foundation’s money.

Dick Chilcoat, dean of the George Bush School of Government and Public Service at Texas A&M University at College Station, says Mr. Robertson has visited his campus to look at the school’s programs.

Mr. Chilcoat says he hasn’t followed the court battle closely, but he knows there is a lot of money at stake, and if some of it becomes available, he is hoping the Bush school gets a share.

“It could be a huge source of funds for a whole number of institutions,” Mr. Chilcoat says.