Elite universities gather hundreds of millions of dollars every year from rich alumni. But what happens when a donor wants a refund?

A judge ruled last Thursday that Princeton University could potentially lose $880 million in a lawsuit filed by the children of two of its deceased donors. The dispute, which Yale officials have been watching closely, could have significant implications for universities nationwide, potentially leading to more careful solicitation and use of restricted funds in order to prevent conflict with donors.

In 1995, Yale re-evaluated its handling of restricted gifts after a public dispute with a donor led the University to return $20 million.

Descendants of Charles and Marie Robertson first filed suit against Princeton in 2002, claiming that the money their parents donated was not invested as their parents had originally intended. The Robertsons donated $35 million worth of stock to Princeton in 1961 to create a foundation supporting Princeton’s graduate program in the Woodrow Wilson School of Public and International Affairs.

The foundation’s board includes three members from the Robertson family and four from the university. Until 2004, the foundation’s assets were managed separately from the Princeton endowment by an investment committee. Bill Robertson, who has spearheaded his family’s lawsuit against his alma mater, has served on the foundation since 1974, during which he has spent 30 years on its investment committee.

In 2004, Princeton representatives on the foundation’s board prepared to shift the management of the foundation’s assets — then valued at $561 million — to the Princeton University Investment Company, which also manages the rest of Princeton’s $15.8 billion endowment. The Princeton board members claimed it was irresponsible to entrust such a large sum to a volunteer investment committee, Princeton lead trial counsel Douglas Eakeley ’68 LAW ’72 told the News in an interview.

The Robertsons claimed that the original agreement Princeton made with their parents stipulated that the foundation’s assets be managed separately.

“This was what set off Bill Robertson,” Eakeley said.

The Robertson family has also claimed that Princeton did not spend the foundation’s money on programs for which it was originally intended. They said the Woodrow Wilson school had failed to prepare graduates for careers in government service.

Eakeley said this complaint reflects an attempt on the part of the plaintiffs “to compartmentalize education” and to treat it like a commodity.

Because they believe Princeton has not used the foundation’s funds in accordance with their parents’ wishes, members of the Robertson family are asking for over $200 million to be returned to reimburse “all improper expenditures.”

According to documents provided to the News by Princeton, this case is a situation in which “the children are attempting to seize control of the … funds that their parents explicitly chose to give to Princeton, not to them.”

While the trial remains unscheduled, lawyers for both sides said the case could have wide-ranging implications for higher education. The outcome could affect how universities like Yale treat restricted gifts, the Robertson family’s attorneys said.

Ronald Malone, lead trial counsel for the Robertson family, said this case will make it clear to universities that restricted gifts must be used solely for their designated purposes.

“The obligation of recipients of charitable gifts to keep their word to their donors is not just a matter of honor, but it is also a legal obligation,” Malone said in an e-mail.

A document about the case provided by Robertson-family representatives describes the case as a fight on behalf of all donors.

“If one of America’s premier universities disregards a major donor’s wishes and instructions, why should we expect other charitable/nonprofit organizations to handle donations with greater care?” the document reads.

Yale Vice President for Development Inge Reichenbach said the dispute provides an important lesson for all universities accepting restricted gifts.

“The Princeton situation highlights the need for all institutions accepting gifts from donors to carefully determine the expectations of the donor and the institution’s ability to fulfill them, not just in the short term, but also longer term,” she said in an e-mail.

It is important for universities to inform the donor how his donation is spent, Reichenbach said. Such a step, she said, can help prevent misunderstandings from growing into significant disputes.

When accepting a restricted gift, Yale always considers whether or not it can sustain the gift’s original purpose over time, Reichenbach said. While creating an agreement for a restricted gift, she said Yale’s donors are asked how they would like their funds to be used if the needs for the money evolve over time.

Yale has taken special precautions to prevent disagreements with donors, Reichenbach said. After a dispute during the 1990s with billionaire donor Lee Bass ’79, University President Richard Levin established the “Gift Stewardship Committee,” which regularly compares the stipulations of a restricted gift with the way it is actually being used.

The Bass dispute is mentioned in some of the Robertsons’ documents about their suit against Princeton. In 1991, Bass donated $20 million to Yale to fund a program for the study of Western civilization, but he disagreed with how the University developed the curriculum and chose the professors. Although the disagreement never reached the courts, the Yale Corporation voted to return the gift four years later amid public furor.

Levin said the affair demonstrated the importance of adhering to a donor’s instructions when using a restricted gift.

“The main lesson learned from Yale’s return of Lee Bass’ gift in 1995 is that we must be diligent in complying, expeditiously, with the specified terms of a donor’s gift,” Levin said. “It was a painful and embarrassing episode for me and for the University, and we have since made major improvements to the processes we use to ensure good stewardship of any restricted gifts that we do accept.”

Malone said it was “honorable” of Yale to return the gift when the University found that it could not fulfill Bass’ vision. The case is different with Princeton, he said.

“I suppose Princeton would say, ‘It is easier to be honorable when you are talking about $20 million,’˛” Malone said.

Princeton spokeswoman Cass Cliatt said the university has always taken great care when dealing with restricted gifts and considers a variety of factors, such as long-term flexibility and the gift’s alignment with the university’s priorities. She said donors remain extremely close to Princeton — alumni gifts have increased since the Robertson lawsuit was filed.

The Robertson family’s dispute with Princeton — for which no trial date has yet been decided — is complicated because it centers on a foundation, said Pamela Havens, director of donor relations at Hamilton College and vice president of the Association of Donor Relations Professionals. The foundation’s endowment is equivalent to about one-eighteenth of Princeton’s total endowment, which grew 25 percent in the last fiscal year.

Princeton and the Robertsons have different ideas about what Charles and Marie intended when they made the donation. Havens said that within a foundation, decisions become tougher when the original donor passes away.

Such a foundation allows the family to have an ongoing, close relationship with the university, she said. But it also has certain drawbacks.

“The downside is simple — the only person who can accurately represent the donor’s intent is the original donor,” she said in an e-mail. “After that, it is about interpretation.”