Herbst v. Univ. of Colo. Found.

• Decision Date: 31 March 2022
• Docket Number: Court of Appeals No. 20CA2067
• Parties: Clarence HERBST, Gerald Miller, Jerome Young, and Emmanuel Alfaro, Plaintiffs-Appellants, v. UNIVERSITY OF COLORADO FOUNDATION and Board of Directors of the University of Colorado Foundation, Defendants-Appellees, and Board of Regents of the University of Colorado, Intervenor-Defendant-Appellee.
• Court: Colorado Court of Appeals

513 P.3d 388

2022 COA 38

Clarence HERBST, Gerald Miller, Jerome Young, and Emmanuel Alfaro, Plaintiffs-Appellants,

v.UNIVERSITY OF COLORADO FOUNDATION and Board of Directors of the University of Colorado Foundation, Defendants-Appellees,andBoard of Regents of the University of Colorado, Intervenor-Defendant-Appellee.

Court of Appeals No. 20CA2067

Colorado Court of Appeals, Division III.

Announced March 31, 2022

Dowd Bennett LLP, Matthew E. Johnson, Kimberly Berve, Denver, Colorado, for Plaintiffs-Appellants

Wilmer Cutler Pickering Hale and Dorr LLP, John Walsh, Michael J.P. Hazel, Denver, Colorado, for Defendants-Appellees

Philip J. Weiser, Attorney General, Jennifer H. Hunt, Senior Assistant Attorney General, Natalie L. Powell, Senior Assistant Attorney General, Erica Weston, Special Assistant Attorney General, Denver, Colorado, for Intervenor-Defendant-Appellee

Philip J. Weiser, Attorney General, Joseph A. Peters, Assistant Attorney General, Denver, Colorado, for Amicus Curiae Colorado State University, Metropolitan State University, and Colorado School of Mines

Opinion by JUDGE J. JONES

¶ 1 The University of Colorado Foundation (Foundation) is a nonprofit charitable corporation. Its stated purposes are to receive, manage, and prudently invest private donations for the benefit of the University of Colorado (CU) and to support CU's philanthropic endeavors through donor stewardship. Plaintiffs aren't happy with the Foundation's return on its investments since at least 2009. Plaintiffs are Clarence Herbst, a CU graduate, donor to the Foundation and to CU, and Trustee Emeritus of the Foundation; Gerald Miller, a CU graduate; Jerome Young, a CU graduate; and Emmanuel Alfaro, a student at CU's Colorado Springs campus. They sued the Foundation and its governing board of directors (the Board), on behalf of themselves and a class of similarly situated persons, asserting claims for violation of the Uniform Prudent Management of Institutional Funds Act (the Act), sections 15-1-1101 to - 1110, C.R.S. 2021, and breach of fiduciary duty.

¶ 2 The gist of plaintiffs’ amended complaint is that the Board has (1) imprudently (indeed, "unlawfully") invested the Foundation's funds by using "actively managed accounts" rather than "passive index funds";¹ (2) overpaid its investment advisors (because the advisors should have put most or all the Foundation's investments in passive index funds); and (3) failed to renegotiate or terminate its contracts with its investment advisors since 2008 or 2009. All this, plaintiffs allege, has cost the Foundation over $1 billion in unrealized revenue — money which, they argue, could have been used to reduce tuition, "increase faculty salaries," "provide more educational resources to CU students and faculty," and "build more world-class educational facilities to improve the academic experience at CU for its students and its faculty."²

¶ 3 On defendants’ motion, the district court dismissed the amended complaint in a two-sentence order devoid of any explanation of the reasons for dismissal. It appears, however, that the court accepted defendants’ arguments that none of the plaintiffs has standing and that the amended complaint fails, for various reasons, to state a claim on which relief can be granted.

¶ 4 We conclude that none of the plaintiffs has standing. This is so because under the Act, as at common law, only the Attorney General or a person with a special interest in a charitable trust has standing to sue for mismanagement, and none of the plaintiffs has the requisite special interest.

¶ 5 We therefore affirm the judgment.

I. Standing

¶ 6 If a plaintiff doesn't have standing to sue, the court lacks jurisdiction to decide the case. Ainscough v. Owens , 90 P.3d 851, 855 (Colo. 2004) ; see Hickenlooper v. Freedom from Religion Found., Inc. , 2014 CO 77, ¶ 7, 338 P.3d 1002. To establish standing under Colorado law, a plaintiff must show that (1) he suffered an injury in fact and (2) the injury was to a legally protected interest. Reeves-Toney v. Sch. Dist. No. 1 , 2019 CO 40, ¶ 22, 442 P.3d 81 ; Barber v. Ritter , 196 P.3d 238, 245 (Colo. 2008). "[T]he standing requirement distinguishes ‘those particularly injured by ... government action,’ who may present their controversy for resolution by the courts, from members of the general public, whose interests are more remote and who ‘must address their grievances against the government through the political process.’ " Reeves-Toney , ¶ 22 (quoting Barber , 196 P.3d at 255 (Eid, J., concurring in the judgment)).

¶ 7 We review de novo whether a particular plaintiff has standing to sue. Barber , 196 P.3d at 245.

¶ 8 This case involves the management of a charitable trust. Defendants argue that the law of charitable trusts bears on the standing analysis. Plaintiffs disagree. Defendants have the better of the argument. Colorado courts frequently consider the law applicable to the claims at issue when determining standing to assert those claims. E.g. , Kim v. Grover C. Coors Tr. , 179 P.3d 86, 89-90 (Colo. 2007) (shareholder claim against corporate directors); Nicholson v. Ash , 800 P.2d 1352, 1356-57 (Colo. App. 1990) (same).

¶ 9 Indeed, in Anderson v. Suthers , 2013 COA 148, ¶¶ 14, 19, 338 P.3d 384, the division considered the common law of charitable trusts in determining whether members of the public had standing to challenge the Attorney General's approval of a sale of a nonprofit's interest in a health care provider based on their "close and lengthy association with the [seller]" as "former board members and volunteers." In holding that they did not, the division recognized the long-standing common law rule that "no private citizen can sue to enforce a charitable trust merely on the ground that he believes he is within the class to be benefited by the trust and will receive charitable or other benefits from the operation of the trust." Id. at ¶ 16 (quoting Ronald Chester et al., The Law of Trusts and Trustees § 414 (3d ed. 2005) ).

¶ 10 This limitation on standing exists because, "[i]n the case of a charitable trust, the beneficiary is the unspecified, indefinite general public to whom the social and economic advantages of the trust accrue[ ]." Denver Found. v. Wells Fargo Bank, N.A. , 163 P.3d 1116, 1125 (Colo. 2007) ; see Restatement (Second) of Trusts § 364 cmt. a (Am. L. Inst. 1959); 5 Austin Wakeman Scott et al., Scott and Ascher on Trusts § 37.3.10, at 2431 (5th ed. 2008). And, "[a]s a consequence, the responsibility for public supervision of charitable trusts traditionally has fallen to the state's Attorney General ...." Denver Found. , 163 P.3d at 1125-26 ; accord Anderson , ¶ 16 ; The Law of Trusts and Trustees § 411 ; Scott and Ascher on Trusts § 37.3.10, at 2431-35; see Ireland v. Jacobs , 114 Colo. 168, 170-71, 179, 163 P.2d 203, 204-05, 208 (1945) (proposed trust to create a college scholarship fund was a public trust which the Attorney General could enforce); § 15-1-1005, C.R.S. 2021 (recognizing the authority of the Attorney General with respect to charitable trusts); § 24-31-101(2), C.R.S. 2021 (recognizing and reaffirming that the Attorney General has the powers conferred by statute and common law "regarding all trusts established for charitable, educational, religious, or benevolent purposes"); Restatement (Second) of Trusts § 364 cmt. a, § 391 cmt. c.³

¶ 11 Does this limitation apply to suits against institutions, like the Foundation, covered by the Act? Yes. As noted, section 24-31-101(2) "recognizes and reaffirms" the Attorney General's power at common law with respect to charitable trusts. And the Prefatory Note to the Act acknowledges that "the attorney general continues to be the protector both of the donor's intent and of the public's interest in charitable funds." Tit. 15, art. 1, pt. 11, Prefatory Note, C.R.S. 2021 ("Like the [Uniform Trust Code] provisions, [the Act's] modification rules preserve the historic position of attorneys general in most states as the overseers of charities."); § 15-1-1106 cmt. on subsec. (b), C.R.S. 2021 ("Consistent with the doctrine of deviation under trust law, the institution must notify the attorney general [of a proposed equitable deviation of the means of carrying out the donor's intent] who may choose to participate in the court proceeding. The attorney general protects donor intent as well as the public's interest in charitable assets.").⁴

¶ 12 We also find support for this position in the decisions of courts in other jurisdictions. The Act is, as the title says, a uniform act. Many states have adopted it. And courts in such states have held that, subject to specific exceptions (one of which we discuss below), only the attorney general has standing to protect the public interest in a trust subject thereto because the uniform act leaves room for application of the common law rule. E.g. , Carl J. Herzog Found., Inc. v. Univ. of Bridgeport , 243 Conn. 1, 699 A.2d 995, 997-1002 & nn.3, 4 (1997) ; Matter of Lindmark Endowment for Corp. Bus. Ethics Fund , No. A19-0229, 2019 WL 5546205, at **5-9 (Minn. Ct. App. Oct. 28, 2019) (unpublished opinion); Siebach v. Brigham Young Univ. , 2015 UT App 253, ¶¶ 15-21, 361 P.3d 130. We don't see any reason to go down a different path. See § 15-1-1110, C.R.S. 2021 ("In applying and construing [the Act], consideration must be given to the need to promote uniformity of the law with respect to its subject matter among states that enact it.").

¶ 13 But that doesn't end our analysis. "Parties with special interests in the benefits of a charitable trust have been accorded standing to enforce the trust, but only when they are ‘entitled to benefits different from those to which members of the public are entitled generally.’ " Anderson , ¶ 19 (quoting Scott and Ascher on Trusts § 37.3.10); see Siebach , 361 P.3d at 138. To put a finer point on it, "[t]he mere fact that a person is a possible beneficiary is not sufficient to entitle him to maintain a suit for the...