April 20, 2022

Colorado Court Reaffirms UPMIFA’s Standing Requirements

On March 31, 2022, the Colorado Court of Appeals, in a 3–0 decision, held that only the Colorado attorney general or a person with a special interest may sue an institution for mismanagement of fund investments under the Uniform Prudent Management of Institutional Funds Act (UPMIFA). Herbst et al. v. University of Colorado Foundation et al., No. 20CA2067, 2022 WL 964101, at *2 (Colo. App. Mar. 31, 2022).12

In Herbst, the University of Colorado Foundation was sued by multiple plaintiffs alleging breach of fiduciary duty and violation of Colorado’s UPMIFA statute (C.R.S. §§ 15-1-1101–1110). The plaintiffs argued that the foundation’s board imprudently invested the foundation’s funds by using “actively managed accounts” rather than “passive index funds,” overpaid its investment advisors and failed to renegotiate or terminate the investment advisors’ contracts, thus costing the foundation more than $1 billion in unrealized revenue. Id. at *1.

Affirming the trial court’s dismissal, the Colorado Court of Appeals held that the plaintiffs (a foundation donor and former trustee, university alumni and a university student) did not have a special interest in the foundation’s management of its investments simply by virtue of their respective relationships to the university and foundation and therefore did not have standing to sue in this case.

Of particular note, the court found that one’s status as a donor is insufficient to provide standing. A donor must either (1) be seeking to enforce some condition attendant to their donation (with an express reservation of right to do so), or (2) claiming to have been misled into making the donation. Id. at *4.

Further, one’s status as a potential beneficiary (i.e., a student, alumnus or faculty member) is also insufficient to provide standing. An intended beneficiary must have some individualized or distinct interest in the investment and management decisions that is individual to them. Id. at *5 and n.9.

This decision should provide some assurance to universities, colleges, foundations and other nonprofit organizations that plaintiffs who lack a “special interest” in such organizations will not be granted standing to sue due to concerns regarding the management of investments.

  1. This opinion has not been released for publication in the permanent law reports as a petition for rehearing in the Colorado Court of Appeals, or a petition for certiorari in the Colorado Supreme Court may be pending.
  2. The court also impliedly critiqued the plaintiffs’ primary requested remedy, which was the disbursement of $1 billion to themselves and the class members, rather than injunctive relief directing the foundation to invest the funds in a particular way. Id. at *1 n.2.
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