This Friday the New Hampshire Superior Court will hear oral argument in the latest Dartmouth College alumni case (Brooks v. Dartmouth College). This is a case that was brought by seven individual Dartmouth alumni after the Executive Committee of the Association of Alumni voted to settle the lawsuit brought by the previous Ex Com, notwithstanding the fact the Court (as I predicted it likely would) denied Dartmouth’s motion to dismiss. The Court’s excellent opinion in that case is available here. The pleadings in the current case are here.
The current case, like the previous case, arises from the 1891 Agreement between the Dartmouth Trustees and the alumni of the College, acting through the Association of Alumni, that gave the alumni the right to elect half of the non-ex officio members of the Board of Trustees. At the time, the Board was comprised of 12 members, of which 2 served ex officio (the Governor of New Hampshire and the Dartmouth president). Upon striking the agreement, over the next two years, 5 of the appointed trustees resigned and were replaced with elected trustees. Over time, the size of the board expanded, and by the time I was elected a trustee in 2005 there were 8 elected Alumni Trustees, 8 appointed Charter Trustees, and the Governor and College president as ex officio members. As I have discussed in detail elsewhere, the 1891 Agreement was the culmination of decades of negotiations between the trustees and college administration on one hand and the alumni on the other.
In 2007 after a string of petition trustees were elected to the Board, a majority of trustees voted to impose a board-packing plan, which added 8 new appointed seats to the board, making 16 appointed and 8 elected trustees. I won’t rehash that here, except to point interested readers to my earlier discussions as well as the Court’s excellent opinion which held that the plaintiffs in that case stated valid claims both on contract and promissory estoppel theories. Importantly, the Court also held that the Association of Alumni had standing to sue and capacity to contract in that case, as well as to provide valid consideration, such as administering the Alumni Trustee elections. For purposes of analysis on the current summary judgment motion, I am going to take it as given that the underlying contract claim is valid.
In Spring 2008, however, the alumni leaders who brought the suit had to stand for reelection and were voted out of office. The winning slate of alumni loyal to the trustees and administration dismissed the suit. Their campaign position had been that the alumni should have “negotiated” more with the trustees before bringing suit. As the current plaintiffs note in their most recent brief, it thus came as quite a surprise when the suit was dismissed with prejudice, with the deliberate intent to try to foreclose a future lawsuit if negotiations broke down (it doesn’t actually work, as will be discussed below). After all I’ve seen over the past few years, I thought that I was beyond being shocked by the sort of behavior described in the plaintiffs’ brief, but I confess that this surprised even me. The College has not contested any of the claims in the briefs of the current plaintiffs with respect to the collusive behavior of the AoA leadership in settling the prior case. Read the first 10 pages of so of the plaintiffs’ brief if you want to get a flavor of what happened.
I note in passing that almost two years have now gone by since the loyalist slate was elected. Since that time, the trustees have never for a single moment ever suggested that they intend to back off from the board-packing plan, either publicly or privately. It was, to put the matter gently, an unorthodox negotiating tactic for the newly-elected members of the AoA Ex Comm to immediately surrender its only bargaining chip (the right to sue to enforce parity). This was a curious negotiating strategy, especially in light of the fact that the president of the Association of Alumni (John Mathias) is a lawyer. The trustees, for their part, simply treated the matter as closed. I’m afraid that to the extent that the current leaders of the AoA continue to state that the trustees are open to negotiation on this point, either they are exceedingly gullible or they think that the alumni are exceedingly gullible to believe them. To their credit, the trustees have never even suggested for a moment that they are open to reconsideration, so the confusion is solely on the side of the alumni association leaders.
But last year a group of 7 alumni brought a new lawsuit as individual alumni to enforce the 1891 Agreement. They claim that they were direct beneficiaries and third-party beneficiaries. As I see the case, the core claim is that they are third-party beneficiaries of the 1891 Agreement and have the right to enforce the contractual promise of parity in the 1891 Agreement. Dartmouth has filed a motion for summary judgment. Reading all of the briefs (including one that I submitted focusing on the public policy questions raised by the case), if the judge applies the law correctly to the case, the plaintiffs should prevail on the summary judgment motion (and eventually will prevail in the case). I’ve been teaching Contracts now for over a decade and this is the strongest third-party beneficiary case that I’ve ever seen. In talking to one of my colleagues who also teaches Contracts, he accurately referred to this case as having “casebook quality facts” in terms of illustrating the doctrine of third-party beneficiaries. Moreover, given the high quality of Judge Vaughan’s opinion in the first case, he is likely going to get this right.
Once understood, the plaintiffs’ case is simple and compelling. The key to understanding why the 7 individual alumni plaintiffs are valid third-party beneficiaries is that they are organized for these purposes through the Association of Alumni, which is an unincorporated association. In the first case, this legal status as an unincorporated association meant that the plaintiffs (which were the elected leaders of the AoA in that case) had to show that they had capacity to contract and to enforce the contract. The Court held, correctly, that they did. And the AoA itself provided consideration when it agreed, for example, to administer the elections of Alumni Trustees.
From this standpoint, the current case is actually much easier on this point. It is precisely because the AoA is an unincorporated association that the 7 current plaintiffs can enforce the contract. Because it is not a corporate entity, the AoA is fundamentally a collection of its individual members. It exists on behalf of and to further the interests of its individual members not itself in a corporate capacity. Thus, the entire purpose of the 1891 Agreement was to benefit the individual members of the AoA, not to benefit the AoA itself. It is each individual alumnus who is the beneficiary of the contract by given the right to vote for Alumni Trustees to comprise half of the Board. The AoA doesn’t benefit–each alumnus benefits by having the right to vote. The AoA is simply an instrumentality that is chosen for the alumni to administer their substantive rights under the agreement. The AoA itself has no obvious rights as a corporate entity independent of the aggregate individual rights that comprise the Association.
Once the nature of the AoA as an unincorporated entity is understood, the case is an easy one to show that there is are viable third-party beneficiary claims that easily survive summary judgment.
There are two types of third-party beneficiaries: intended beneficiaries and beneficiaries by estoppel. Dartmouth’s Motion for Summary Judgment fails on both counts in the current case.
Intended beneficiary: As noted above, the purpose of the 1891 Agreement was to provide a benefit to individual Dartmouth alumni by giving them the right to vote for half of the non-ex officio Trustees. It turns out that this had a lot of other benefits (as I discuss in my brief), but that’s the essence of the deal. As noted, this flows directly from the fact that the AoA is an unincorporated association–the whole contract makes sense when understood as being designed to benefit all of the individual alumni as intended beneficiaries (either directly or as third-party beneficiaries) rather than the AoA. This is what my colleague had in mind in referring to this as casebook quality facts–if one wanted to design a contract with an intended third-party beneficiary, this is what it would look like. (I note that for similar reasons the plaintiffs might also be direct beneficiaries, but I don’t think it is necessary to discuss that given how compelling the intended beneficiary claim is).
Beneficiary by Estoppel: The plaintiffs also argue that they are beneficiaries by estoppel. This is just promissory estoppel where the reasonable reliance is by a third party. The plaintiffs submitted an Affidavit by Dr. John Steel, a former petition trustee, who states that he relied on the 1891 Agreement in a number of ways over the years. At the Summary Judgment stage the Court takes Steel’s claims as true for purposes of establishing whether there a contested issue of material fact. Steel’s Affidavit certainly states reliance and any claim that he did not in fact rely would have to be an issue of credibility for trial that can’t be decided on the pleadings. Moreover, given that the underlying Agreement was a valid contract and Dartmouth through its actions repeatedly ratified and reaffirmed the promise of parity in the 1891 Agreement, I don’t see how it could be argued that Steel’s as a matter of law Steel’s reliance was not reasonable.
So on the core third-party beneficiary claims in the case, the plaintiffs should win. Indeed, this is pretty much hornbook law in this case. The purpose of the contract was to benefit alumni as a class of third-party beneficiaries. Moreover, at least one plaintiff has stated a claim as being a beneficiary by estoppel based on reasonable reliance on the contract, a question that cannot be resolved by summary judgment.
There are two other issues in the case that are quite straightforward and that I think require little discussion.
Res judicata: The first is the claim that this case is barred by res judicata from the first case being dismissed with prejudice. The plaintiffs’ brief dispatches of this pretty easily. First, the facts provided by the plaintiffs show that the first settled through extreme collusion between the plaintiffs and defendants (again, you have to read the brief to be able to believe this). After the loyalist slate was elected, they entered into secret negotiations to settle the case. The defendants even paid for the plaintiffs new lawyers to settle the case. David Spalding, a Vice-President of Dartmouth, was also a participant on the plaintiffs’ side as the Secretary of the AoA. Again, it is well-established law that where the plaintiff and defendant collude in a settlement, then they are not adverse parties for purposes of a judgment on the merits, which is what is necessary for res judicata to apply. Thus, even if res judicata would be the basic rule, there is an exception here.
Second, there has to be an identity of parties. Dartmouth claims that both cases were “controlled” by the Hanover Institute, a 501(c)(3) organization. This doesn’t work for a couple of reasons. First, when the loyalist slate decided to settle the case, quite obviously they were not operating under the control of the Hanover Institute. Second, the Hanover Institute was not a plaintiff in either case and simply raised money for the lawsuits. Which means that the plaintiffs could simply get a new “banker” and res judicata wouldn’t apply, which shows that the Hanover Institute isn’t the real party in interest, but in fact it is the individual plaintiffs.
So Dartmouth’s res judicata arguments are weak.
Finally, there is the question as to whether these plaintiffs have standing to sue as third-party beneficiaries. Of course they do. It is again hornbook law that if a party is a third-party beneficiary then that party has standing to sue to enforce its rights. Where there is a third-party beneficiary, the standard rule is that duty can run to either the promisee or the third-paty beneficiary and either the promisee or the third-party has standing to sue to enforce the promise (Restatement (2d) section 305). This is especially clear where the remedy being sought is specific performance, as is the case here (Restatement (2d) section 307). So even if we assume for the sake of argument that the AoA was the promisee under the 1891 Agreement (as suggested above, a case could be made that in fact the individual alumni were actually the promisees and not third-party beneficiaries), individual alumni were quite obviously the intended beneficiaries of the agreement and have standing to sue. As stated in the case (Hamill v. Maryland Casualty) that is in the casebook from which I teach, “It has been said that so long as the contract necessarily and directly benefits the third party, he may enforce it.”
But even if the individual alumni were considered for some reason to be incidental beneficiaries rather than intended beneficiaries they would probably still have standing to sue. There is a longstanding rule that permits even incidental beneficiaries to sue if there is an inability of the promisee to enforce the right (such as because of death or disability) or an “outright refusal” of the promisee to enforce the rights. This traditionally has arisen in the context of child support obligations where the right runs to the custodial parent, not to the children who are incidental beneficiaries. But where the parent is unable or unwilling to enforce the child support agreement, the children have been given standing to do so. The reason for the rule, and the exception, are both pretty obvious. The reason for the rule is that the parent is assumed to have the child’s best interest at heart and the parent has her own incentive to enforce the contract. Thus it is unnecessary to give the child the right to enforce the claim directly, which could give rise to redundant claims. But the justification for the exception is obvious as well–where the parent is essentially a disloyal agent who is not acting in the best interests of the child, then the child has the right to sue to enforce the obligation. That is essentially the case here with the unequivocal refusal of the leaders of the Association of Alumni to enforce the rights of the alumni under the 1891 Agreement.
In short, if the AoA’s leaders want to get rid of parity then they have to do it through an amendment to the AoA’s constitution. A poll taken around the time of the board-packing plan found that 90%-plus of alumni supported the continuance of parity. The AoA’s leaders can’t do it through a stealth, back-door process of engaging in a collusive bargain with a majority of the trustees to simply refuse to enforce the rights embodied in the 1891 Agreement.
In short, the Court in this case should deny Dartmouth’s summary judgment motion. In fact, I think the issues in the current case may be even easier than the issues in the last case (which required a pretty sophisticated understanding of the nature of consideration and promissory estoppel). Because of the AoA’s status as an unincorporated association, the most natural understanding of the 1891 Agreement was to make individual alumni the direct and/or third-party beneficiaries of the 1891 Agreement of giving them the right to elect half of Dartmouth’s Trustees. And, if so, they plainly have the right to sue to enforce it. Given that Judge Vaughan got the last case right, I expect he’ll probably get this case right too.
At that point President Kim and the majority of the trustees are going to have to figure out how much more of the alumni’s donated money they are going to continue to squander on their project to disenfranchise the alumni–and I would hope at some point the alumni would start asking questions about whether this is why they donate to the College.
Let me stress in closing that this is just my personal analysis of the case based on my years teaching and reading about Contracts. I haven’t consulted with the lawyers for the plaintiffs. These views are mine alone and should not be attributed to the lawyers for the plaintiffs or to anyone else. Finally, this is obviously a blog post and not a brief so I haven’t provided chapter and verse for every argument here nor have I taken care to make sure that my language might be as precise as in a brief. But I’ve been teaching Contracts for a long time and this is pretty basic stuff.