Fairbairn v. Fidelity Investments Charitable Gift Fund

Background

Emily and Malcolm Fairbairn brought contract and tort claims against Fidelity Investments Charitable Gift Fund concerning their 2017 donation of Energous shares through a donor-advised fund. The claims at issue included breach of contract, misrepresentation, estoppel, and a claim under California’s Unfair Competition Law; a negligence claim was not part of Fidelity’s summary-judgment motion.

The Fairbairns alleged that Fidelity made four legally enforceable promises: that it would use sophisticated, state-of-the-art methods to liquidate large blocks of stock; that it would not trade more than 10 percent of Energous’s daily trading volume; that it would not liquidate shares until the new year; and that it would let the Fairbairns advise on a price limit below which Fidelity would not sell.

Fidelity’s Motion for Summary Judgment

Fidelity argued that the Fairbairns were barred from pursuing claims based on the first three promises because their 2017 federal tax return represented that the stock donation was tax deductible. Fidelity contended that the alleged promises were inconsistent with Fidelity’s having exclusive legal control over the donated assets, a condition associated with claiming a deduction for a donor-advised-fund contribution.

The court rejected this tax-estoppel argument. It held that Fidelity had not shown, as a matter of law, that the Fairbairns’ tax-deduction position clearly contradicted their contention that Fidelity made the alleged promises. The court distinguished authorities involving donors’ retention of control after making donations or conditions imposed after a donation. Here, the alleged conditions were made before or at the time of the donation. The court also found that the Fairbairns’ response to a request for admission did not establish the relevant legal conclusion because the term “legal control” had not been defined in the request or response.

The court also rejected Fidelity’s argument that two alleged promises were too indefinite to support the claims. Drawing reasonable inferences in the Fairbairns’ favor, the court concluded that a reasonable factfinder could find that Fidelity promised to use state-of-the-art liquidation methods and could find that the promise sufficiently definite. The court further concluded that the promise to let the Fairbairns advise on a price limit was objectively measurable: the question was whether Fidelity asked for their opinion about the sale price before making the trades. The court also found a genuine dispute about whether Fidelity would have followed the Fairbairns’ advice if it had asked for it.

The court therefore denied Fidelity’s motion for summary judgment.

The Fairbairns’ Motion on Affirmative Defenses

The Fairbairns sought summary judgment on Fidelity’s waiver, estoppel, and unclean-hands affirmative defenses. An affirmative defense is a reason a defendant argues that a plaintiff should not prevail even if the plaintiff proves the basic claim.

The court granted the Fairbairns’ motion on the waiver and estoppel defenses for the same reasons it rejected Fidelity’s tax-estoppel argument. The court clarified that it was not ruling that Fidelity could not present a tax-consequences argument to the jury; it was ruling only that waiver and estoppel could not be used to bar the Fairbairns’ claims from reaching the jury.

The court also granted summary judgment for the Fairbairns on the unclean-hands defense. Fidelity argued that Emily Fairbairn acted inequitably by donating the shares while possessing material nonpublic information about Energous’s founder and chief technology officer planning to leave his leadership role after Federal Communications Commission approval. Fidelity further argued that she recalled the shares when she knew a sharp decline was imminent, shifting the risk to Fidelity.

The court found that Fidelity had not provided evidence supporting an inference that Emily Fairbairn knew the actual departure date or manipulated the stock price by recalling the shares. It also held that, even assuming her conduct could be viewed as illegal, Fidelity had not shown the prejudice required for an unclean-hands defense under the California authorities discussed in the opinion. The court found the other cases Fidelity cited distinguishable.

Disposition

Judge Jacquelyn Corley’s order denied Fidelity’s motion for summary judgment and granted the Fairbairns’ motion for summary judgment. The order disposed of Docket Nos. 134 and 136.