DENVER (Legal Newsline) - A group of disgruntled University of Colorado graduates didn’t have standing to sue a foundation that supports the school for mismanagement they said resulted in $1 billion in lost income, an appeals court ruled.
Citing a longstanding common-law rule barring the general public from challenging how charitable trusts manage their money, the court said only the state attorney general had standing to sue the foundation.
Clarence Herbst and three other Colorado graduates sued the University of Colorado Foundation and its board of directors on behalf of a class of similar plaintiffs, claiming the foundation had illegally used “actively managed accounts” rather than passive investments like index funds, overpaid its investment advisors and failed to renegotiate or terminate their contracts in more than a decade. The mismanagement cost the foundation more than $1 billion that could have been used to increase faculty salaries, build better facilities and provide better student services, the plaintiffs claimed.
The district court dismissed their complaint in a two-sentence order without explanation. The Colorado Court of Appeals affirmed the ruling, fleshing out its reasoning a bit in a March 31 decision.
On appeal, the university argued the Colorado’s uniform act of charitable trusts barred the plaintiffs’ case, while the plaintiffs said it didn’t apply. The appeals court agreed with the defendants, saying if anyone could sue over how charities were run, they would be subject to a constant barrage of harassing litigation.
There are exceptions for people with “special interests” in a trust, the court said. Herbst argued he was one, because he donated to the foundation and funded educational programs at the school. He might have standing if he claimed he was misled into donating, or was trying to enforce some special condition tied to his gift, the court said.
“Herbst makes no such claim; he claims a right to challenge the Foundation’s investment and management decisions,” the court said, however. “In sum, Herbst lacks special interest standing.”
The court cited decisions elsewhere rejecting lawsuits at Ivy League schools challenging endowment investments in fossil fuels. In a footnote, the court also noted that the plaintiffs in this case didn’t seek an injunction to change how the foundation managed its investments, only the distribution of $1 billion to class members.
The foundation also asked for legal fees but failed to provide the legal and factual basis for their demand so the appeals court denied it.
In a footnote, the court observed that the plaintiffs didn’t seek an injunction to change how the foundation managed its investments, but only to direct the $1 billion to themselves.