By Ben Gose

In his ruling on Thursday, Judge Neil H. Shuster left open the possibility that Princeton University could lose all or part of the $880-million endowment that supports its graduate programs at the Woodrow Wilson School of Public and International Affairs.

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.

Princeton had maintained that the document that established the foundation, the Certificate of Incorporation, clearly states that only Princeton can benefit from the money. William S. Robertson and other heirs are suing to take control of the foundation, so that they can use the money to provide scholarships to students at other graduate schools that focus on government, public affairs, and international relations.

Judge Shuster, of the Superior Court of New Jersey, said the certificate is “clear and unambiguous” that the foundation money should go to Princeton, but he said the court should not “foreclose an equitable remedy prior to having the full facts.”

“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.

‘Quite Pleased’

Ronald H. Malone, lead lawyer for the Robertson family, said Princeton had been hoping through its motion to have the possibility of the “death penalty” — losing control of the Robertson Foundation’s assets — taken off the table.

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

Douglas Eakeley, the lead lawyer for Princeton, said Thursday’s rulings “move the case forward in a positive way.” He acknowledged that the worst-case scenario for Princeton remains possible, but he said the Robertsons would not be able to clear the high bar the judge set.

“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 said.

William Robertson, one of the donors’ children, said he was “quite pleased” with the rulings, and he indicated he would be open to further settlement discussions with Princeton.

But he said he would only be satisfied with a settlement in which his family gained control of “considerably more than half” of the foundation’s assets so that it could give scholarships to students at other institutions. Mr. Robertson said he would not consider any settlement 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 said. “We want a divorce.”

Princeton has tried at least twice before to settle the lawsuit, but it has insisted that any settlement be “reasonable.” Mr. Eakeley did not seem optimistic about a settlement after hearing Mr. Robertson’s latest demands. “Now you know why we don’t have much to talk about,” Mr. Eakeley said.

355 Pages

Judge Shuster’s seven rulings totaled 355 pages, and followed two days of hearings in November 2006. He ruled only on motions for partial summary judgment, meaning he issued judgment only on aspects of the case that involved undisputed facts. The case is now expected to proceed to a trial. Judge Shuster denied the Robertsons’ request for a jury trial, which means that he is likely to decide the case.

The judge also left open the possibility of a cy-pres claim, in which the Robertson family has argued that Princeton has a surplus of funds for operating the graduate programs at the Wilson school, and that the excess should be used to support other programs that conform to the Robertson Foundation mission. This could allow the Robertson family to gain control of some of the foundation’s money if the judge finds that Princeton has more money than it needs to operate the graduate programs at the Wilson school.

The judge ruled for Princeton on some motions as well. He denied the Robertson family’s motion that Princeton-designated trustees must prove the “entire fairness” of their actions in exercising their fiduciary duties to the foundation. That’s a higher standard than the deference to decision making typically granted under the business-judgment rule, and it might have made it more difficult for Princeton to defend some of its decisions.

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 defendant … it would seem that such an attempt is misplaced,” Judge Shuster wrote.

He also agreed that the Robertson Foundation’s Certificate of Incorporation permits the foundation to spend realized gains, as most other charities do. The Robertson family had sought to limit spending to only dividends and interest.

“We expect there will be relief throughout the philanthropic community that this ruling confirms the legality and propriety of the way charitable organizations manage and spend their investment earnings,” Mr. Eakeley said.

Closely Watched

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.

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 should investigate whether the donors’ heirs are illegally using assets from a charity to cover their legal expenses.

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.”

The Robertson heirs argue that Princeton has never been serious about fulfilling their 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.

In addition to seeking control of the $880-million in Robertson Foundation assets (about 6 percent of Princeton’s total endowment), the Robertsons wants Princeton to cough up an extra $500-million to compensate the foundation for what they view as inappropriate spending by Princeton over several decades.

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. 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.

The university 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 believes that the financial benefits it has provided to the foundation should be taken into account, and should offset any overcharges that the university has made.

On Thursday, 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. Those overcharges, along other allegations of misspending, will now be weighed at trial against the financial benefits that Princeton says it has provided the foundation.

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 Robertsons later broadened their lawsuit to include spending issues.