Tuesday, October 4, 2022
In Pinkert v. Schwab Charitable Fund, the U.S. Court of Appeals for the Ninth Circuit found that the contributor to a donor advised fund (DAF) lacked standing to sue the DAF sponsoring organization, Schwab Charitable Fund, for allegedly breaching its fiduciary duties, including by deducting excessive fees from the contributor's DAF. The contributor alleged that the excessive fees arose because of the Fund partnering with Schwab & Co. for brokerage, custodial, and administrative services. The contributor, who sought to pursue his claims individually, on behalf of a class of similarly situated individuals, and on behalf of the general public, asserted 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." The contributor also asserted claims based on reputational and expressive harm, as well as having to make additional contributions to the DAF to compensate for the alleged excessive fees.
With respect to his property-rights argument, the court found that the documents relating to the contribution established that he did not retain any right to direct where the funds would be invested or donated, but only retained the ability to provide non-binding advice regarding investing and donating. As for whether that ability constituted a property right, the court concluded:
Pinkert does not cite any authority establishing that his right to provide non-binding recommendations to Schwab Charitable is a property right. But whether that right is properly characterized as a property right, a contractual right, or something else does not matter for present purposes because Pinkert has not alleged that Schwab Charitable refused to listen to his advice. In fact, he acknowledges that Schwab Charitable has followed his advice in the past by donating funds from his DAF to charities he supports.
The court also noted that the written documents disclosed that the DAF would be subject to various fees.
As for the reputational, expressive, and additional contribution claims, the court disposed of them based on its conclusion that the contributor had failed to allege he had actually experienced or would experiences any of these specific injuries. A concurring judge would have concluded that the contributor also lacked standing to pursue those claims given that he had irrevocably relinquished the contributed amounts.