The Supreme Court of Virginia delivered victory on a key issue Tuesday for supporters of Sweet Briar College who hope to prevent a planned closing of the school.
The court stated that the law of trusts can apply to a corporation, even a charitable, non-stock corporation. Under that interpretation, a judge could decide whether the college board is carrying out its responsibilities under the 1901 will that created the school.
The court minced no words in correcting the holding by Circuit Judge James Updike that Sweet Briar Institute is merely a corporation and that, therefore, trust law does not apply.
“This legal conclusion was erroneous. The law of trusts can apply to a corporation,” the court wrote in an order.
“The charitable, non-profit, or non-stock status of a corporation does not alter this legal principle,” the justices said.
The court sent the case back to Updike with some guidance.
The court expressly noted it was not ruling on the statutory authority claimed by Amherst county attorney Ellen Bowyer, who purports to act on behalf of the state in challenging the closing decision.
“It is important to emphasize … that our holding today does not rule upon the legal status of any particular party to this litigation,” the court said.
“It is important to observe that a temporary injunction requires consideration of the requesting party’s allegations and the veracity and magnitude of the asserted harm,” the court added.
No single test is dispositive and the trial court must consider the totality of the circumstances to “decide whether equity counsels for the temporary preservation of the status quo,” the justices said.
The court’s observations were like “valuable little nuggets,” according to University of Richmond law Prof. Carl Tobias, who has followed the legal proceedings that followed the announcement of the planned closing of Sweet Briar.
The court extended the effect of Updike’s earlier order until June 24. That order prevents college officials from taking certain actions to formally close the school.
The reasoning in the court’s 5-page order follows closely the argument advanced by three wills-and-trusts law professors who authored a friend-of-the court brief in the case.
“At least on that one issue, the directive from the Supreme Court is quite clear: You can be both a corporation and a trustee,” said Washington & Lee University law Prof. Robert T. Danforth, one of the authors of the amicus brief.
The court’s ruling was hailed as a “major legal victory” by the leader of Saving Sweet Briar Inc., the non-profit group formed to oppose the closing plan announced in March by school officials.
“With the trust issue now resolved by the Virginia Supreme Court, we will move to seek the appointment of a special fiduciary to assess the college’s true finances and determine what is needed to close the current funding gap to ensure the College can remain open,” said Sarah Clement, chair of Saving Sweet Briar.
Bowyer said she was “delighted” with the ruling. She said she was seeking a hearing with Updike June 22 through 24.
“Time remains of the essence, and we will seek to move quickly to reach resolution in the circuit court,” Bowyer said.
The lead attorney for the school and its leaders questioned whether the court’s action ultimately will have much effect on the pending litigation.
The Supreme Court order made no ruling on the merits of the case, did not grant any new injunctive relief and ordered a new hearing that would have been scheduled anyway, said Calvin W. “Woody” Fowler Jr.
Fowler said the school has never argued that it could not be a trustee, but he questioned how a corporation can both protect shareholders’ interests while also protecting the interest of trust beneficiaries regarding the same assets.
He said beneficiaries of the Sweet Briar trust have been variously identified as students, future students and the public at large, all of whom have different views of what to do with the trust assets.
Danforth – speaking for the wills-and-trusts professors – said the court’s decision may not have gone “quite as far as we hoped it would.”
“The ruling was a very cautious one and limited,” he said.
Nevertheless, Danforth expected the ruling will mean that Sweet Briar trustees will have to seek court approval for their plans for the school.
“I don’t envy the position of the judge in this case,” he said.
“It may be that the end result will be no different, unfortunately. Our concern, as professors, was the process. As a trust, the trustees can’t just shut it down,” he said.
Tobias was uncertain about the ultimate effect of the court’s ruling.
“It keeps the case alive, but does it move toward keeping the school open?” he queried.
“I think this really puts the pressure on the mediation,” he added.
Representatives of the school and various other stakeholders have been involved in efforts to develop a survival plan for the school outside of the litigation process, with mediator Mark Rubin as a neutral.
Fowler said no more face-to-face mediation sessions are currently scheduled, “but Mark Rubin continues to be very active in dealing with the parties.”
Updated June 9 to add comment from Fowler, Bowyer and Danforth.