A Bitter End

Princeton University will pay $50-million and almost as much in legal fees to foundations controlled by the heirs of a major donor to the institution, in a settlement that ends a closely watched lawsuit over how strictly colleges must adhere to a donor’s wishes.

The bitter dispute centered on an endowment, known as the Robertson Foundation, that helps support the university’s Woodrow Wilson School of Public and International Affairs.

The endowment, worth more than $700-million, will be dissolved, and Princeton will retain most of the money in a new fund controlled solely by the university. But in 2012 it will begin to transfer $50million, plus interest, to a new foundation the Robertsons will establish to support the preparation of students for government service.

Princeton will also reimburse the Robertson family’s foundation, the Banbury Fund, $40-million for legal fees in the case.

Invitation to Court

In 1961, Charles S. and Marie Robertson, an heiress of the A&P supermarket fortune, made an anonymous gift, worth $35-million at the time, to Princeton to expand the graduate programs at the Wilson school. Much later, in 2002, William S. Robertson, their son, and other family members sued the university, saying that it had not adhered to the terms of the gift.

Even though Princeton will hold on to most of the endowment, the settlement may embolden descendants of other major donors to take colleges and other nonprofit entities to court, legal observers say. Typically state attorneys general have played that watchdog role over donations.

“There’s now some concern for colleges and charities that somebody they didn’t think would have standing to complain — the heirs of the donor — can come out of the woodwork,” says William Schwartz, a New York lawyer specializing in trusts and estates who is a former dean of the Boston University School of Law.

In their lawsuit, the family members maintained that Princeton had never been serious about fulfilling their parents’ primary goal — preparing graduates of the Wilson school for careers in the federal government, particularly in the Foreign Service. Princeton argued that its spending had been appropriate, and that it had 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.

‘It Is Tragic’

The high legal costs involved in the case — each side spent about $40-million — hastened the compromise announced last month.

Shirley M. Tilghman, Princeton’s president, said in a letter to professors, staff members, and alumni that the settlement was “very similar” to an amount the university had offered the Robertsons years ago. She said she had expected the legal costs of a trial to have approached another $40-million, nearly as much as Princeton agreed to hand over to the Robertsons for their new foundation.

“It is tragic that this lawsuit required the expenditure of tens of millions of dollars in legal fees that could have and should have been spent on educational and charitable purposes,” she said.

The lawsuit had been scheduled to go to trial this month. Ronald H. Malone, a lawyer for the Robertson family, says the heirs feared that even if they had won, Princeton would have pursued appeals for years.

“Princeton has a 1,000-year view of the world,” he said. “The family was facing spending the rest of their lives litigating against Princeton and using up all the Banbury dollars to do that. Both sides decided that a compromise was in their best interests.”

New Jersey Superior Court Judge Maria M. Sypek approved the settlement on December 12.

The payments from Princeton to the new foundation controlled by the Robertsons will begin in 2012. The increments, plus interest, are $5-million per year from 2012 to 2016, $10-million in 2017, and $15-million in 2018.

No Regrets

While Princeton will avoid what the Robertson lawyers had called the “death penalty” — the loss of the entire endowment — the Wilson school will absorb a sizable blow. In addition to the $90-million to be paid to the heirs, the Robertson Foundation will cover any of Princeton’s $40-million in legal fees that are not covered by insurance.

It is likely, then, that most of the payout being made by the foundation will end up in the pockets of lawyers.

William Robertson, a foundation trustee and the lead plaintiff, said he had no regrets about filing the lawsuit. “In the beginning, Princeton wouldn’t give us the time of day,” he said.

The Banbury Fund may make an initial grant to get the new Robertson Foundation for Government off the ground sooner than 2012, he added.

Four institutions that were willing to meet with him to discuss his plans — others rebuffed his interest, out of apparent allegiance to Princeton — would be among the initial beneficiaries of the new foundation, Mr. Robertson said. The four institutions are Syracuse, Texas A&M, and Tufts Universities, and the University of Maryland at College Park.

“The new foundation will be a worthy challenge for my family,” Mr. Robertson said. “We’ll hopefully accomplish what my parents set out to do 47 years ago.”

Clarity Not Forthcoming

The settlement was a disappointment for those who were hoping the court would help resolve the question of how closely nonprofit institutions must follow a donor’s intent. The topic has become a matter of fierce debate as philanthropists increasingly attach strict conditions to big charitable gifts.

“When does the donor have the right to go back and say, ‘Wait a minute. You’re not doing what you said you would do,’?” said Frederic J. Fransen, a philanthropy consultant who has worked with donors who are wary about how charities may use their money. “Having some clarity on that question would have been helpful.”

Some observers said the settlement underlines the need to keep tabs on the concerns of major donors and their heirs.

When William Robertson and his sisters, Katherine R. Ernst and Anne E. Meier, along with Robert Halligan (a Robertson Foundation board member whose wife was a relative of Charles Robertson’s) sued Princeton, in 2002, they were objecting to a decision to turn over management of the endowment to the Princeton University Investment Company, known as Princo. The plaintiffs later broadened the suit to focus on the bigger issue of whether Princeton had abided by the wishes of their parents.

“That’s a very small way to start such a big case,” said Martin Morse Wooster, a historian who has written about the dispute in his book The Great Philanthropists and the Problem of “Donor Intent.”

“If Princeton had consulted the Robertson family more between 1995 and 2002,” he said, “this might not have happened.”