Pinkert v. Schwab Charitable Fund

Background

Schwab Charitable Fund sponsors a donor-advised fund. Donors may receive tax deductions for contributions, recommend how the fund invests the money among available options, and recommend charitable distributions. The fund’s policies state that contributions are irrevocable and subject to the fund’s exclusive legal authority and control. The fund retains final authority over distributions.

Philip Pinkert was a donor to the fund and sued individually and on behalf of a proposed class of fund accountholders. He alleged that Schwab Charitable selected more expensive investment options when cheaper alternatives were available and used retail share classes when it allegedly could have obtained institutional pricing. He also alleged that Schwab Charitable could have negotiated lower custodial and brokerage fees with Charles Schwab & Co. The complaint asserted breach of fiduciary duty against the charitable defendants, aiding and abetting that breach against Charles Schwab, and violations of California’s Unfair Competition Law against all defendants.

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), arguing that Pinkert lacked standing to sue in federal court and under California law because he had relinquished control of the donated assets.

Article III standing

Standing is a requirement for a federal court to exercise jurisdiction. At the pleading stage, a plaintiff must allege a concrete and personal injury that was caused by the defendants’ conduct and could be remedied by a court decision.

The court held that Pinkert lacked this required injury. Under the statutory framework for donor-advised funds, Pinkert gave up title to and control of his donation in exchange for an immediate tax deduction. Schwab Charitable, not Pinkert, had exclusive legal control over the assets.

The court rejected Pinkert’s argument that his ability to recommend investments and distributions gave him a contractual or property interest in the assets. The court also rejected his argument that excessive fees reduced the value of his donation or required him to contribute more to meet his charitable goals. Because he no longer had a property interest in the donated assets, the court concluded that these alleged losses did not establish standing. The court further found that Pinkert was not a beneficiary of the fund and could not assert injuries to other persons’ legal rights.

The court also rejected Pinkert’s claim that reduced funds harmed his reputational and expressive interests. It found that the authorities he cited involving environmental, recreational, economic, and data-privacy injuries did not establish a comparable injury here. The court noted that the result might be different if the fund had broken specific promises about handling a donation, but it found no allegation that the fund had broken promises or otherwise harmed Pinkert’s advisory privileges.

Standing under California law

The court separately held that Pinkert lacked standing under California law. It treated his fiduciary-duty claims as claims that the charitable corporation’s assets had been mismanaged. California law limits who may sue to remedy a breach of a charitable trust involving a public-benefit corporation. The listed parties include the corporation, certain members, directors or officers, and persons with a reversionary, contractual, or property interest in the trust assets.

The court concluded that Pinkert did not fall within those categories because he had no reversionary, contractual, or property interest in the donated assets. It also rejected his argument that he had a special interest under California common law. The court distinguished cases involving broken promises about donated property or restricted gifts, explaining that Pinkert alleged general mismanagement rather than enforcement of a specific promise or donation restriction.

Effect on the claims and order

The court concluded that Pinkert lacked standing to sue Schwab Charitable for breach of fiduciary duty and, as a result, lacked standing to sue Charles Schwab for aiding and abetting that breach. The court said the California Unfair Competition Law claim was also disposed of because it depended on the other claims.

The court granted the defendants’ motions to dismiss with leave to amend within 21 days. It directed that any amended complaint include a blackline comparison with the current complaint. If Pinkert did not amend, the court stated that it would enter judgment in favor of the defendants to allow an appeal. The order disposed of ECF Nos. 54 and 55.