What you can learn from Princeton’s most expensive lawsuit

When George Hartford started working as a clerk for a small New York tea wholesaler in 1861 he could not have known that 100 years later his grand-daughter would give $35m to Princeton, and that this endowment would go on to create the most expensive legal case in Princeton’s history.

George Hartford joined Gilman & Co as a 28 year old clerk. He had a hugely successful career and when he was 45 he took over the running of what was then The Great Atlantic & Pacific Tea Company, known as A&P. The company had expanded and now had revenues of over $1m (the equivalent to about $50m in today’s money).

George retired when he reached the age of 75 in 1908 and handed over running of the company to his sons who oversaw the growth of the company until by 1950 it was the world’s largest retailer with a turnover of $3.2 billion (equivalent to $85 billion today).

The amazing growth of the business had made the family incredibly wealthy. One of George’s grandchildren, Marie Reed, was one of those who benefited. She had married Charles Robertson in 1934 and the couple had become wealthy from the success of A&P. In 1961 Charles and Marie agreed to give $35m worth of shares in A&P to set up the Robertson Foundation to expand and support the graduate programme at the Woodrow Wilson School of Public and International Affairs.

Although this was the largest ever donation to Princeton at the time, and remained so until 1995, the Robertson’s did not give the money for any personal gain. They insisted on anonymity and it was only after pressure on the university to reveal the source of the money that the family finally agreed to go public in 1973, following Marie’s death in 1972.

Charles passed away in 1981 and the Foundation continued without any problems until 2002 when Charles and Marie’s children sued Princeton over the way the funds were being used. They felt that the original mission of the Foundation was not being kept to.

In 2004 it was reported that the Robertson’s had already spent over $5m on the case and that Princeton had spent over $2m. The case continued to run on for another four years until it was settled in 2008, if costs had continued at the same pace then the combined cost for both parties would have been about $20m.

It is clearly not good for anyone, except for the lawyers, that $20m was spent before the case was settled. But why do cases not get settled earlier, when everyone involved knows that the lawyers are going to be the only winners?

The issue is known as adverse selection. If the Robertson’s had offered to settle early on then they would have given an impression of weakness to Princeton, who would then have assumed that the Robertson’s case was indeed weak and therefore that they should not settle.

Similarly, if Princeton had offered to settle the the Robertson’s would have assumed that the Princeton case was weak and it would not have made sense for them to settle.

It is only after both sides have spent a considerable amount of money to send a signal to the other side that they have a strong case that negotiating a settlement becomes possible.

Signalling strength is just as important as actually being strong.

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