Donors can’t sue CU Foundation over its investments, appeals court rules

Judge rules CU Foundation donors lack standing in lawsuit

Clarence Herbst poses in his home on July 1, 2021 in Aspen. Herbst, 93, is a longtime CU donor and former CU Foundation chairman. He sued the foundation for poor money management, saying they’ve lost nearly $1 billion in earnings because of poor investments. (Helen H. Richardson/The Denver Post)

Donors to the University of Colorado Foundation who claimed it has made poor investment decisions cannot sue that nonprofit foundation, the Colorado Court of Appeals ruled Thursday.

“We conclude that none of the plaintiffs has standing,” Judge Robert McGahey wrote in a 3-0 opinion. Under Colorado law, “only the attorney general or a person with a special interest in a charitable trust has standing to sue for mismanagement,” McGahey and two other judges ruled.

The ruling is a loss for four plaintiffs, led by CU graduate and donor Clarence Herbst, who has donated an estimated $5 million to the university, and has buildings named after him on the Boulder and Colorado Springs campuses. The plaintiffs claimed in a 2020 lawsuit that the foundation’s investment strategy produced low returns and high fees, and that putting the money in index funds would be preferable.

The foundation disputed that, saying its returns have been higher than an average university endowment and that investing in things outside of index funds is part of having a diversified portfolio.

CU Foundation Boulder campus

The University of Colorado-Boulder, where Herbst has buildings named after him. (BusinessDen file)

But those arguments do not matter, because Herbst and his co-plaintiffs can’t sue. The Colorado Attorney General’s Office sided with the foundation in the dispute, warning of a flood of frivolous lawsuits if donors were allowed to sue charities over their investment decisions.

“On behalf of Mr. Herbst, he is appreciative of the extensive effort undertaken by the Colorado Court of Appeals, although he disagrees with the ultimate outcome,” said Matt Johnson, the attorney for Herbst and other plaintiffs. “Plaintiffs intend to evaluate their legal options in the coming days.”

The lawsuit was filed in Denver District Court, where a judge ruled in March 2021 that Herbst and other plaintiffs lacked standing. Herbst appealed to the Court of Appeals, which affirmed the lower court ruling Thursday.

“The court’s opinion largely tracks the arguments we made throughout,” said University of Colorado Foundation President Jack Finlaw. “The foundation is thankful for the legal support it received in this matter from the University of Colorado and the Colorado Attorney General’s Office.”

The CU Foundation was represented by John Walsh and Michael J.P. Hazel of WilmerHale.

Judge rules CU Foundation donors lack standing in lawsuit

Clarence Herbst poses in his home on July 1, 2021 in Aspen. Herbst, 93, is a longtime CU donor and former CU Foundation chairman. He sued the foundation for poor money management, saying they’ve lost nearly $1 billion in earnings because of poor investments. (Helen H. Richardson/The Denver Post)

Donors to the University of Colorado Foundation who claimed it has made poor investment decisions cannot sue that nonprofit foundation, the Colorado Court of Appeals ruled Thursday.

“We conclude that none of the plaintiffs has standing,” Judge Robert McGahey wrote in a 3-0 opinion. Under Colorado law, “only the attorney general or a person with a special interest in a charitable trust has standing to sue for mismanagement,” McGahey and two other judges ruled.

The ruling is a loss for four plaintiffs, led by CU graduate and donor Clarence Herbst, who has donated an estimated $5 million to the university, and has buildings named after him on the Boulder and Colorado Springs campuses. The plaintiffs claimed in a 2020 lawsuit that the foundation’s investment strategy produced low returns and high fees, and that putting the money in index funds would be preferable.

The foundation disputed that, saying its returns have been higher than an average university endowment and that investing in things outside of index funds is part of having a diversified portfolio.

CU Foundation Boulder campus

The University of Colorado-Boulder, where Herbst has buildings named after him. (BusinessDen file)

But those arguments do not matter, because Herbst and his co-plaintiffs can’t sue. The Colorado Attorney General’s Office sided with the foundation in the dispute, warning of a flood of frivolous lawsuits if donors were allowed to sue charities over their investment decisions.

“On behalf of Mr. Herbst, he is appreciative of the extensive effort undertaken by the Colorado Court of Appeals, although he disagrees with the ultimate outcome,” said Matt Johnson, the attorney for Herbst and other plaintiffs. “Plaintiffs intend to evaluate their legal options in the coming days.”

The lawsuit was filed in Denver District Court, where a judge ruled in March 2021 that Herbst and other plaintiffs lacked standing. Herbst appealed to the Court of Appeals, which affirmed the lower court ruling Thursday.

“The court’s opinion largely tracks the arguments we made throughout,” said University of Colorado Foundation President Jack Finlaw. “The foundation is thankful for the legal support it received in this matter from the University of Colorado and the Colorado Attorney General’s Office.”

The CU Foundation was represented by John Walsh and Michael J.P. Hazel of WilmerHale.

Your subscription has expired. Renew now by choosing a subscription below!

For more informaiton, head over to your profile.

Profile


SUBSCRIBE NOW

 — 

 — 

 — 

TERMS OF SERVICE:

ALL MEMBERSHIPS RENEW AUTOMATICALLY. YOU WILL BE CHARGED FOR A 1 YEAR MEMBERSHIP RENEWAL AT THE RATE IN EFFECT AT THAT TIME UNLESS YOU CANCEL YOUR MEMBERSHIP BY LOGGING IN OR BY CONTACTING [email protected].

ALL CHARGES FOR MONTHLY OR ANNUAL MEMBERSHIPS ARE NONREFUNDABLE.

EACH MEMBERSHIP WILL ONLY FUNCTION ON UP TO 3 MACHINES. ACCOUNTS ABUSING THAT LIMIT WILL BE DISCONTINUED.

FOR ASSISTANCE WITH YOUR MEMBERSHIP PLEASE EMAIL [email protected]




Return to Homepage

POSTED IN Law,

Editor's Picks

Comments are closed.