April 28, 2015
Court dismisses $81 Million Case Against Willkie client The Robert David Lion Gardiner Foundation.
On April 22, New York’s Appellate Division, Second Department, dismissed an $81 million case brought by the Sagtikos Manor Historical Society against The Robert David Lion Gardiner Foundation and its Trustees, who are represented by Willkie Farr & Gallagher LLP. The Court ruled that the Historical Society lacked standing to challenge the Foundation’s control of assets from the estate of the Foundation’s founder and namesake. Based on Willkie arguments, the Appellate Division reversed the lower court’s erroneous determination that the Historical Society possessed a “special interest” in the assets of the Foundation endowing it with the right to challenge the Foundation’s distributions to beneficiaries. In reversing, the Appellate Division held that the fact that a not-for-profit’s charter did not name an organization as a beneficiary was dispositive over whether that organization can claim a “special interest” in a charitable foundation’s assets to overcome the general rule that only the New York Attorney General has standing to sue not-for-profits.
The Gardiner Foundation was established in 1987 by its namesake to educate the public about New York State and the history of Long Island. For many years, the Gardiner Foundation's principal asset was Sagtikos Manor, an historical structure on land deeded by the King of England to Mr. Gardiner's ancestors in the 17th century.
The Sagtikos Manor Historical Society -- itself a New York not-for-profit -- had long cared for the Manor and its grounds. When the Manor was sold to Suffolk County in 2002, the Historical Society entered into a custodial agreement with the County to continue to assist in the maintenance of the Manor. Mr. Gardiner passed away in 2004, and when his wife passed away in 2011, tens of millions of dollars were left to the Gardiner Foundation.
In 2012, the Historical Society sued the Foundation and its Trustees, as well as the New York State Attorney General, in Suffolk County Supreme Court, claiming the Historical Society was the "sole heir" of the Gardiner Foundation, according to the wishes of Mr. Gardiner, and was therefore entitled to all of its assets, which according the Complaint exceeded $81 million. The Gardiner Foundation and its Trustees moved to dismiss the complaint on a number of grounds, including lack of standing, asserting that the Historical Society was not a named beneficiary in the Gardiner Foundation's charter but was merely a potential beneficiary, along with other potential grant recipients. The Foundation and its Trustees asserted that only the Attorney General of New York has standing to bring claims relating to the distributions from the Foundation, and that the Complaint should be dismissed.
The trial court ruled for the Historical Society, relying on language in tax filings, the historical connection between Mr. Gardiner and the Manor, as well as other statements of other materials identifying the Mr. Gardiner's support for the property that carried his name. Accordingly, the Supreme Court held that the Historical Society had a “special interest” in the Foundation and therefore had standing to sue the Gardiner Foundation and all of its Trustees for control of the Foundation's assets.
The Appellate Division unanimously reversed and dismissed the case. Adopting Willkie's reasoning, the appellate court held that a charitable organization's Charter and its valid amendments will determine whether a potential beneficiary is a member of a clearly defined and limited class of beneficiaries that has a "special interest" in the assets of that organization. Because the Gardiner Foundation's Charter did not refer to the Sagtikos Manor Historical Society, the court held that the Historical Society had no such "special interest" and therefore lacked standing to sue.
The Gardiner Foundation and its Trustees are represented by Joseph T. Baio, chair of Willkie’s Complex Litigation Practice and the appellants' oral advocate at the hearing, Roger Netzer, David McCabe, Chair of the Private Clients Group, and associate Lars Hulsebus.
