Pinkert v. Schwab Charitable Fund
| Decision Date | 14 September 2022 |
| Docket Number | 21-16299 |
| Citation | 48 F.4th 1051 |
| Parties | Philip PINKERT, individually and on behalf of a class of similarly situated individuals, and on behalf of the general public, Plaintiff-Appellant, v. SCHWAB CHARITABLE FUND; Charles Schwab & Co.; Schwab Charitable Board of Directors; Schwab Charitable Investment Oversight Committee, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Jennifer K. Lee (argued), Paul J. Lukas, Kai H. Richter, and Brock J. Specht, Nichols Kaster PLLP, Minneapolis, Minnesota; Matthew C. Helland, Nichols Kaster LLP, San Francisco, California; for Plaintiff-Appellant.
Alan E. Schoenfeld (argued), Wilmer Cutler Pickering Hale and Dorr LLP, New York, New York; David C. Marcus and Christopher T. Casamassima, Wilmer Cutler Pickering Hale and Dorr LLP, Los Angeles, California; Susan M. Pelletier, Wilmer Cutler Pickering Hale and Dorr LLP, Washington, D.C.; Andrew Scott Dulberg, Wilmer Cutler Pickering Hale and Dorr LLP, Boston, Massachusetts; David A. Kotler and Samantha Rosa, Dechert LLP, New York, New York; Joshua D. N. Hess and Brian Raphel, Dechert LLP, San Francisco, California; for Defendants-Appellees.
Before: EUGENE E. SILER,* MILAN D. SMITH, JR., and DANIEL A. BRESS, Circuit Judges.
Opinion by Judge Milan D. Smith, Jr. ;
The question presented in this case is whether Philip Pinkert has standing to sue Schwab Charitable for allegedly breaching its fiduciary duties by, among other things, deducting excessive fees from Pinkert's donor-advised fund. We hold that he does not.
A donor-advised fund (DAF) is a charitable giving vehicle that allows donors to take a present-year income tax deduction, while distributing the funds to charity at a later time. A donor may wish to do so to save money on taxes. If, for example, a donor expects to have an unusually high income in a particular year, he may wish to accelerate his planned donations for the next several years into that year so that he can take a larger charitable deduction to offset the additional income tax he would otherwise owe. See 26 U.S.C. § 170(a)(1) ().
To establish a DAF, one must donate funds to a "sponsoring organization," which, in many cases, is a nonprofit organization affiliated with a private asset manager. See 26 U.S.C. § 4966(d)(2)(A)(ii). The sponsoring organization then holds those funds in a "separately identified" "fund or account" that is "owned and controlled by [the] sponsoring organization." Id. § 4966(d)(2)(A)(i)–(ii). Although sponsoring organizations are nonprofit organizations, they generally do not perform charitable works themselves. Instead, they tend to act as "charitable savings accounts" where assets are held (and possibly invested) temporarily before they are later distributed to another charity. Consistent with general principles governing charitable deductions, a donation to a DAF is tax-deductible only if the sponsoring organization "own[s] and control[s]" the assets that are donated, 26 U.S.C. § 4966(d)(2), and the sponsoring organization provides the donor with "a contemporaneous written acknowledgment ... that such organization has exclusive legal control over the assets contributed," 26 U.S.C. § 170(f)(18). See also Pauley v. United States , 459 F.2d 624, 626 (9th Cir. 1972) (); Fakiris v. Comm'r of Internal Revenue , 113 T.C.M. (CCH) 1555, 2017 WL 2805207, at *5 (2017), supplemented , 120 T.C.M. (CCH) 344 (T.C. 2020) () (citation omitted).
At the same time, a key feature of a DAF is that the donor "has, or reasonably expects to have, advisory privileges with respect to the distribution or investment of amounts held in such fund." 26 U.S.C. § 4966(d)(2)(A)(iii). This means the donor can advise the sponsoring organization regarding how it should invest the funds and where it should donate them, but the sponsoring organization is not legally obligated to comply with the donor's advice.
Pinkert opened a DAF at Schwab Charitable in 2007. The assets in Pinkert's DAF are subject to at least two kinds of fees: an administrative fee and an investment fee. The administrative fee "covers the expense of operating the accounts and processing charitable donations" and "is generally charged annually as a percentage of assets in the account." The investment fee is charged as a percentage of the assets invested in particular funds. Pinkert does not allege that he did not agree to pay these fees, that the amount of the fees was not disclosed, or that the defendants charged higher fees than he agreed to.
Instead, Pinkert alleges that Schwab Charitable, its board of directors, and its Investment Oversight Committee breached their fiduciary duties under California law by partnering with Schwab & Co.—a legally separate but closely related company—for brokerage, custodial, and administrative services. This arrangement, Pinkert alleges, resulted in the defendants charging higher fees than they would have charged if Schwab Charitable had complied with its fiduciary duties. Pinkert contends that these excessive fees injured him by leaving him with less money in his DAF to direct to charities. Pinkert also raises other objections to Schwab Charitable's management of his account, including that Schwab Charitable imprudently selected suboptimal investment options.
Pinkert filed suit in the United States District Court for the Northern District of California. After the defendants moved to dismiss, the district court held that Pinkert lacked standing under Article III and statutory standing under California law. The district court allowed Pinkert to amend his complaint, but he notified the district court that he did not intend to do so, and instead wished to appeal. The district court then entered judgment for the defendants. Pinkert timely appealed.
We have jurisdiction pursuant to 28 U.S.C. § 1291.1 We commence, as we must, by analyzing whether Pinkert has Article III standing. See Ruhrgas AG v. Marathon Oil Co. , 526 U.S. 574, 583, 119 S.Ct. 1563, 143 L.Ed.2d 760 (1999). Since we conclude that he does not, we need not and do not address whether he has statutory standing under California law.
We review standing determinations de novo. Tailford v. Experian Info. Sols., Inc. , 26 F.4th 1092, 1098 (9th Cir. 2022). "[T]o establish [Article III] standing, a plaintiff must show (i) that he suffered an injury in fact that is concrete, particularized, and actual or imminent; (ii) that the injury was likely caused by the defendant; and (iii) that the injury would likely be redressed by judicial relief." TransUnion LLC v. Ramirez , ––– U.S. ––––, 141 S. Ct. 2190, 2203, 210 L.Ed.2d 568 (2021). As the party "invoking federal jurisdiction," Pinkert "bears the burden of establishing these elements." Lujan v. Defs. of Wildlife , 504 U.S. 555, 561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). At the pleading stage, Pinkert is not required to prove these elements, but he is required to allege facts that, when accepted as true, show that they are satisfied. Id.
Pinkert concedes that the allegedly excessive fees are assessed on funds that he has already donated to Schwab Charitable, and these same funds have been invested in what Pinkert claims are "more expensive and poorly performing investment options." But he argues that Schwab Charitable's conduct nevertheless injured him in four ways. First , Pinkert claims that although he donated the funds to Schwab Charitable for some purposes, he retained a property right to direct the funds to charities, and the excessive fees and Schwab Charitable's related mismanagement of the funds impair his ability to exercise that property right. Second , Pinkert argues that each donation from his DAF enhances his reputation, these reputational benefits are directly correlated with how much is donated, and because his DAF does not contain as much money as it would have absent the excessive fees and Schwab Charitable's allegedly imprudent management of his account, his reputation will not be enhanced as much as he intended. Third , Pinkert argues that each donation he directs from his DAF expresses his values, that the level of expression corresponds to the amount he directs, and that having less funds available to direct means that he cannot express his values as strongly as he would have been able to otherwise. Finally , Pinkert suggests that he may need to contribute more funds to his DAF in the future to make up for the excessive fees and other mismanagement by Schwab Charitable.
We can quickly dispense with Pinkert's arguments regarding his purported need to contribute more to the DAF and the related impact on his reputation and his expressive rights. We need not decide whether these theories of injury are cognizable in general because Pinkert did not allege that he has experienced or will experience any of these purported injuries.
Pinkert did not allege that he has attempted to direct a donation of a particular amount and was unable to do so because Schwab Charitable's alleged mismanagement left less in the account than he expected. Nor did he allege that he has contributed more to the DAF to make up for the allegedly excessive fees and poor investment decisions. Because Pinkert did not allege that he has already been injured in these ways, we understand him to be arguing that he is likely to be injured by the excessive fees in the...
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