Probate, trust, guardianship and inheritance litigation
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DC Court Of Appeals Revives Chinese Dissidents’ Charitable Trust Complaint Against Yahoo

By:  Jeffrey H. Skatoff, Esq.

In the February 28, 2020 opinion of He Depu v. Yahoo Inc., Judge Merrick Garland authored an opinion for the DC Court of Appeals breathing new life into a trust complaint brought by Chinese dissidents against Yahoo, Inc. regarding the existence of a charitable trust.

Plaintiffs were Chinese citizens who were imprisoned for expressing dissent on the internet. Defendants were Yahoo and related entities and individuals. The Chinese plaintiffs sued Yahoo alleging that Yahoo abetted their imprisonment by turning over their Yahoo email account information to the Chinese government.  The information was then used to prosecute them for political dissent. Yahoo settled the case in 2007.

Plaintiffs allege that as part of the settlement, Yahoo established a charitable trust to provide humanitarian and legal assistance to imprisoned Chinese dissidents.  As beneficiaries of that purpose, they also alleged a “special interest” in enforcement of the trust. Plaintiffs alleged that Yahoo improperly depleted the trust’s funds and then terminated it.

The district court dismissed the plaintiff’s complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) on plaintiffs’ failure to  sufficiently allege that Yahoo (1) established a charitable trust or (2) that they had standing to bring such a claim under DC law.  The U.S. Court of Appeals for the DC Circuit reversed the district court.

What are The Elements of a Charitable Trust Under DC Law?

As the D.C. Court of Appeals has explained, the elements of a trust and charitable trust are:

1) a trustee, who holds the trust property and is subject to equitable duties to deal with it for the benefit of another; 2) a beneficiary, to whom the trustee owes such duties; [and] 3) the trust property, which is held by the trustee for the beneficiary.” Cabaniss v. Cabaniss, 464 A.2d 87, 91 (D.C. 1983) (citing, inter alia, RESTATEMENT (SECOND) OF TRUSTS §§ 2, 23, 24, 32 [hereinafter RESTATEMENT (SECOND)]). “As distinguished from a private trust, which is characterized by identified beneficiaries, . . . in a charitable trust `the obligation of the trustee is to apply the trust res for some form of public benefit.'” Hooker v. Edes Home, 579 A.2d 608, 611 (D.C. 1990) (quoting BOGERT ON TRUSTS § 411).

In addition, “there must be proof of the settlor’s intention to create a trust.” Duggan v. Keto, 554 A.2d 1126, 1133 (D.C. 1989). This intention to create a trust may be manifested “by written or spoken language or by conduct, in light of all surrounding circumstances.” Cabaniss, 464 A.2d at 91. No magic words are required. Id. The principal dispute in this case centers on whether Yahoo manifested the requisite intention to create a trust.

Guided by this standard, the DC Court of Appeals examined the settlement agreement between the Chinese Plaintiffs and Yahoo to determine whether the elements of a charitable trust had been established.

Did Yahoo Have The Intention to Create A Charitable Trust?

The Settlement Agreement provided for payments to each of the involved families, to be held in trust by a non-profit foundation.  Another $17.3 million payment was to be made in trust to the Foundation, and held separate from the other funds, to be known as the Yahoo! Human Rights Fund (the “Fund”).  The Fund was to be used:

(a) to provide humanitarian and legal assistance primarily to persons in or from the People’s Republic of China who have been imprisoned for expressing their views through Yahoo! or another medium; (b) to resolve claims primarily by such persons, or persons threatened with prosecution or imprisonment, against the Yahoo! Entities . . .; and (c) for payment of Foundation operating expenses and the Foundation’s educational work conducted in the United States in support of human rights.

Under DC law, the intent to create a trust can be revealed by articulation of the essential elements of a trust.  The Settlement Agreement identified a trustee (the Foundation), trust property ($17.3 million), and a charitable purpose (“humanitarian and legal assistance” to certain persons).

The Settlement agreement also directed that the payments to the Foundation “be made in trust.”  The language “in trust” may also be used to find an intent to make a charitable corporation a trustee.

Intention to create a trust can also be shown by articulation of the specifics necessary to implement and administer the trust.  Here, the settlement agreement establishing the Fund created trust-like restrictions, and a prohibition against commingling Fund monies with its own general funds.

What Is Special Interest Standing Required to Enforce A Charitable Trust?

To establish “special interest” standing, the plaintiff must establish: (1) that the action challenge an “extraordinary measure threatening the existence of the trust,” not just an “ordinary exercise of discretion” committed to the trustees; and (2) that the plaintiffs belong to a class of potential beneficiaries that is “sharply defined” and “limited in number.”

As summarized by the DC Court of appeals:

The defendants argue, and the district court agreed, that even if the complaint plausibly alleges that the Settlement Agreement created a charitable trust, it does not plausibly allege that the plaintiffs have standing to enforce that trust under District of Columbia law. Traditionally, “only a public officer, usually the state Attorney General” could bring an action to enforce a charitable trust. Family Fed’n for World Peace, 129 A.3d at 244 (quoting Hooker, 579 A.2d at 612). However, in light of the “exponential expansion of charitable institutions” and a “busy Attorney General,” the District of Columbia has “relax[ed]” this rule, granting standing to those with “a `special interest’ in continued performance of the trust distinguishable from that of the public at large.” Id. (quoting Hooker, 579 A.2d at 612) (internal quotation marks omitted).

In this case, there was no dispute that the first prong is met.  The defendants assert that plaintiffs cannot meet the second prong, that plaintiffs belong to a “sharply defined” and “limited in number” class of potential beneficiaries.

What Is A Sharply Defined and Limited In Number Class of Potential Beneficiaries?

For a class to meet the “sharply defined” standard, there must be “definite criteria . . . identifying its present members with . . . particularity.”  Here, the plaintiffs’ proffered class included these defining criteria: (1) Chinese persons, (2) imprisoned in China, (3) for exercising their freedom of expression, (4) online.  The appeals court found this sufficiently narrow, rejecting the argument that the class could expand to online dissidents anywhere.

Defendants also argued that the proposed beneficiary class is limitless because it has “tremendous potential” to grow over time.  But, the focus under DC law for a class of potential beneficiaries of a charitable trust to be “limited in number” is the standing of the “present members” of the class of potential beneficiaries, not the potential class.  The present class was not limitless, because a defined number of Chinese persons imprisoned in China for exercising their freedom of expression online existed.

For all of the foregoing reasons, the DC Court of Appeals concluded that the Chinese Plaintiffs plausibly alleged that Yahoo created a charitable trust and that that the plaintiffs’ “special interest” in the trust is sufficient to give them standing to enforce it.  The lawsuit was allowed to proceed – whether it will be successful is to be determined.