Battle Over Use of Donor Gift Could Cost Princeton $1.5 Billion

Princeton University could lose $1.5 billion as the result of a critical development in a five-year legal battle that could influence how much say donors have in determining how nonprofit organizations use their gifts.

The heirs of the A&P supermarket fortune are suing the Ivy League school, arguing that Princeton did not follow the terms of a $35 million gift their family bestowed on the university in 1961. The Robertson Foundation, now worth more than $800 million, was established to increase the number of students dedicating their careers to government service at the Woodrow Wilson School of Public and International Affairs at Princeton. Instead, the university used the money to build a school of public policy and to enhance its politics and economics departments, the lead counsel for the Robertson family, Ronald Malone, said yesterday.

In a ruling that is being hailed as a victory for donors, Judge Neil Shuster of the Superior Court of New Jersey left open yesterday the possibility that a connection between the Robertson Foundation and Princeton could be severed, and that the money from the foundation could be distributed by the family to other colleges and universities. The family’s endowment could be worth $1.5 billion if the judge finds that the university diverted Robertson money to its general fund.

Judge Shuster’s denial of Princeton’s motion to be the sole recipient of the Robertson Foundation’s funding serves only to set the stage for a court trial. The decision, however, is already being hailed as a victory for donors.

“Today’s ruling is a resounding victory for all who believe that colleges must be accountable to the people on whose dollars they rely,” the president of the American Council of Trustees and Alumni, Anne Neal, said in a statement. ” It’s also a lesson to colleges: They can’t take alumni donations for granted.”

Alumni giving accounts for about 30% of all funding for institutions of higher education. Ms. Neal said “students will be the losers” if universities such as Princeton do not respect the rights of their donors and follow their spending guidelines.

Mr. Malone said yesterday that the ruling would set a precedent that “every charitable institution owes an obligation to donors to do what they said they would do” with their money.

“No matter how high and mighty a particular university or other charitable recipient might be, the law imposes on them a moral and legal obligation” to use a gift “only for the purpose for which it was given, and that if they vary that obligation they can and will be held accountable in a court,” Mr. Malone said.

Judge Shuster also denied the Robertson family’s motion to seek a jury trial, and ruled in Princeton’s favor by allowing the school to spend capital gains earned from the fund. The Robertson family had sought to limit spending to interest from the fund.

“Princeton said we’re entitled to spend the dividends, and the court agreed with Princeton,” a lawyer representing Princeton University, Kenneth Logan, said. “It’s worth well over $100 million, and that’s a complete loss for them.” Mr. Logan said the university was confident the judge would dispose of the plaintiff’s claims before the trial. No date has yet been set for the trial. Both the Robertson family and Princeton University have reportedly spent more than $20 million in legal counsel since the lawsuit was brought against the university in 2002. If the Robertson family wins in trial, the university is expected to reimburse it for legal expenses.