Contract analysis

1. Cross-Defendant Estuary Foundation ("EF" or "Cross-Defendant"), a California nonprofit public benefit corporation, by and through its attorneys of record, Calderwood & Harkness LLP, hereby answers the Cross-Complaint of Cross-Complainant The Whitfield-Garner Family Trust ("WGFT" or "Cross-Complainant"), filed on June 10, 2022, in the above-captioned action. EF responds to each allegation contained in the Cross-Com

2. EF denies that WGFT is entitled to restitution of $1,700,000, or any sum whatsoever, arising out of or related to the Gift Instrument and Grant Agreement Between the Whitfield-Garner Family Trust and Estuary Foundation for the Bay Area Teacher Residency Initiative (the "Gift Instrument"). EF further denies that WGFT is entitled to interest at the rate of 7% per annum, or at any rate, on any claimed principal amoun

3. EF further asserts the affirmative defenses set forth in Section IV below, each of which independently bars, in whole or in part, the relief sought by Cross-Complainant in its Cross-Complaint.

II. GENERAL DENIAL AND RESERVATION OF RIGHTS

4. Except as specifically and expressly admitted herein, EF denies each and every allegation of the Cross-Complaint, whether express, implied, or reasonably inferable from the language thereof. EF denies that Cross-Complainant has been damaged in any amount or manner. EF denies that Cross-Complainant is entitled to any relief whatsoever, whether legal or equitable, including but not limited to restitution, damages, i

5. EF reserves the right to amend this Answer to add, modify, or withdraw admissions, denials, or affirmative defenses as further facts become known through discovery, investigation, or otherwise, to the fullest extent permitted by the California Code of Civil Procedure and the California Rules of Court. Nothing contained in this Answer shall be construed as an admission of the truth of any allegation in the Cross-Co

III. RESPONSE TO SPECIFIC ALLEGATIONS OF THE CROSS-COMPLAINT EF responds to each numbered paragraph of the Cross-Complaint as follows: A. Response to Allegations Regarding the Parties (Paragraphs 1–3)

6. Paragraph 1 (Identity of Cross-Complainant). EF admits that The Whitfield-Garner Family Trust is a California irrevocable trust. EF admits that the trust was established on March 14, 2003. EF admits that Roland Whitfield-Garner currently serves as Trustee and that Adrienne Garner-Bosch currently serves as Co-Trustee. EF admits that the original settlors of the trust were the late Herbert R. Whitfield-Garner, who p

7. Paragraph 2 (Identity of Cross-Defendant). EF admits that Estuary Foundation is a California nonprofit public benefit corporation. EF admits that it was incorporated on April 11, 2009, under the laws of the State of California. EF admits that its principal place of business is located at 1440 Embarcadero Way, Suite 300, San Francisco, California 94107. EF admits that its Employer Identification Number is 94-312785

8. Paragraph 3 (Jurisdiction and Venue). EF admits that the Superior Court of the State of California, County of San Francisco, has subject matter jurisdiction over this matter and personal jurisdiction over the parties. EF further admits that venue is proper in the County of San Francisco. B. Response to Allegations Regarding the Gift Instrument and Grant Agreement (Paragraphs 4–7)

9. Paragraph 4 (Execution of Gift Instrument). EF admits that on or about June 15, 2018, WGFT and EF executed a written agreement titled "Gift Instrument and Grant Agreement Between the Whitfield-Garner Family Trust and Estuary Foundation for the Bay Area Teacher Residency Initiative" (the "Gift Instrument"). EF admits that the Gift Instrument provided for a total grant amount of $5,000,000 from WGFT to EF for the pu

10. Paragraph 5 (Disbursement Schedule). EF admits that the Gift Instrument set forth a phased disbursement schedule consisting of four tranches. EF admits that Tranche 1, in the amount of $1,500,000, was disbursed upon execution of the Gift Instrument in or about June 2018. EF admits that Tranche 2, in the amount of $1,250,000, was disbursed in or about July 2019. EF admits that Tranche 3, in the amount of $1,250,00

11. Paragraph 6 (Section 3.1 Restriction Language). EF admits that Section 3.1 of the Gift Instrument contains the following language: "The Grant Funds shall be used solely and exclusively for the establishment, operation, and support of the Bay Area Teacher Residency Initiative as described in Exhibit A, and for no other purpose." EF denies that this language, standing alone, determines the rights of the parties in

12. Paragraph 7 (Section 7.2 Reversion Clause). EF admits that Section 7.2 of the Gift Instrument provides as follows: "In the event the Program is discontinued prior to the expiration of the Grant Period, any unexpended Grant Funds shall, at the election of Grantor, be returned to Grantor within ninety (90) days of written demand." EF denies, however, that Section 7.2 creates an automatic, self-executing reversion r

13. Paragraph 8 (BATRI Program History). EF admits the following facts regarding the history of the Bay Area Teacher Residency Initiative ("BATRI"): (a) BATRI launched in September 2018 with an inaugural cohort of 24 teacher residents placed across 6 partner schools in the San Francisco Unified School District ("SFUSD") and the Oakland Unified School District ("OUSD"). (b) The first cohort completed its residency in

14. Paragraph 9 (Program Expenditures). EF admits that it expended approximately $3,300,000 of the disbursed Grant Funds on BATRI program costs during the period from September 2018 through December 2021. EF admits that these expenditures included, among other categories, teacher resident stipends, partner school coordination fees, curriculum development costs, instructional materials, program evaluation, and adminis

15. Paragraph 10 (Discontinuation). EF admits that BATRI was effectively suspended in or about March 2021, following SFUSD's notification that it would not renew the partnership agreement, and that BATRI was formally wound down by EF's Board of Directors on December 31, 2021. EF denies, however, that the discontinuation of BATRI was voluntary in any meaningful sense or that it resulted from EF's mismanagement, neglig

16. Paragraph 11 (January 28, 2022 Demand Letter). EF admits that on or about January 28, 2022, the law firm of Pratchett, Huang & Solano LLP, acting on behalf of WGFT, transmitted a written demand letter to EF. EF admits that the demand letter requested the return of $1,700,000 within 90 days, purportedly pursuant to Section 7.2 of the Gift Instrument. EF admits that the demanded amount was characterized in the lett

17. Paragraph 12 (EF's Response). EF admits that on or about March 3, 2022, Calderwood & Harkness LLP, acting on behalf of EF, transmitted a written response to the January 28, 2022 demand letter. EF admits that the response asserted, among other things, that the restriction set forth in Section 3.1 of the Gift Instrument should be modified under the cy pres doctrine and the doctrine of equitable deviation, as recogn

18. Paragraph 13 (Expiration of 90-Day Period). EF admits that 90 days following the January 28, 2022 demand letter expired on or about April 28, 2022. EF denies that its failure to return the funds within the 90-day period constitutes a breach of any enforceable obligation. EF affirmatively states that it disputes the applicability and enforceability of the reversion clause set forth in Section 7.2 of the Gift Instr

19. Paragraph 14 (Alleged Entitlement to Interest). EF denies that WGFT is entitled to interest at the rate of 7% per annum on $1,700,000, or on any other amount, from April 28, 2022, or from any other date. EF denies that any interest is owing to WGFT. EF denies that Cross-Complainant's calculation of $119,000 per year in interest is correct or legally supportable. EF denies that prejudgment interest accrues during

20. Paragraph 15 (Restitution Claim). EF denies that WGFT is entitled to restitution of $1,700,000, or any amount whatsoever. EF denies that Section 7.2 of the Gift Instrument creates an enforceable right of reversion that supersedes or preempts the court's equitable powers under California law, including without limitation the cy pres doctrine and the doctrine of equitable deviation. EF further denies that the undis

21. Paragraph 16 (Prayer for Relief). EF denies that Cross-Complainant is entitled to any of the relief requested in the Cross-Complaint, including but not limited to: (a) restitution of $1,700,000 or any amount; (b) interest at 7% per annum or any rate; (c) attorneys' fees; (d) costs of suit; or (e) any other relief, whether legal or equitable. EF denies each and every allegation in the Prayer for Relief of the Cros

IV. AFFIRMATIVE DEFENSES Without admitting the truth of any allegation in the Cross-Complaint, and without assuming any burden of proof that the law does not impose upon Cross-Defendant, EF asserts the following affirmative defenses: FIRST AFFIRMATIVE DEFENSE Cy Pres Doctrine

22. The Cross-Complaint is barred, in whole or in part, by the cy pres doctrine as recognized and applied in the State of California. The Gift Instrument, executed on June 15, 2018, reflects a general charitable intent on the part of WGFT's original settlors, the late Herbert R. Whitfield-Garner and the late Dorothy M. Garner, to support and advance public education through EF. The specific charitable purpose to whic

23. Under the cy pres doctrine, where a specific charitable purpose has become impracticable but the donor manifested a general charitable intent, the court may modify the restriction to permit the donee to direct the funds to a purpose as near as possible to the original charitable intent, rather than ordering reversion of the funds to the donor. The general charitable intent of the original settlors is amply demons

24. The Cross-Complaint is barred, in whole or in part, because this Court has the power under California Probate Code Sections 15409 and 15403 to modify the administrative terms and restrictions of the Gift Instrument where compliance with those terms has become impracticable or impossible due to circumstances not anticipated by the parties at the time the gift was made. The doctrine of equitable deviation authorize

25. At the time of the execution of the Gift Instrument in June 2018, neither WGFT nor EF anticipated the COVID-19 pandemic, the resulting cessation of in-person public education, the fiscal crises that would afflict California school districts, or the voluntary withdrawal of both partner school districts from the BATRI partnership. The withdrawal of OUSD in August 2020 and of SFUSD in March 2021, coupled with the pa

26. The Cross-Complaint is barred, in whole or in part, by the doctrine of impracticability. The specific restricted purpose of the Gift Instrument—the operation of BATRI through the expiration of the Grant Period in 2023—has become impracticable. The performance of BATRI's core function—the placement of teacher residents in partner schools for supervised, classroom-based residency experiences—is impossible without t

27. EF bears no fault for the impracticability of the restricted purpose. EF did not cause the COVID-19 pandemic, did not cause the fiscal crises that led OUSD to terminate the partnership, and did not cause SFUSD to decline renewal of the partnership agreement. EF diligently pursued alternative partner districts and explored all reasonably available options for continuing the program before concluding that wind-down

28. Cross-Complainant's claims are barred, in whole or in part, by the doctrine of waiver. WGFT, through its Trustee Roland Whitfield-Garner and Co-Trustee Adrienne Garner-Bosch, was aware of the progressive challenges facing BATRI beginning no later than March 2020, when the COVID-19 pandemic disrupted in-person education and resulted in the suspension of BATRI placements. WGFT was further aware, or reasonably shoul

29. Despite this knowledge, WGFT disbursed Tranche 3, in the amount of $1,250,000, to EF in or about July 2020, without objection, reservation of rights, or any condition requiring EF to address the sustainability concerns affecting BATRI. By continuing to fund the program after the onset of material challenges to its viability, and without exercising any right to withhold or condition the disbursement, WGFT may have

30. Cross-Complainant is estopped from asserting that Section 7.2 of the Gift Instrument mandates automatic reversion of the funds. WGFT's conduct—including its continued disbursement of Tranche 3 after the onset of program challenges, its failure to raise objections or reservations during the 2020–2021 period, and its participation in periodic programmatic updates without expressing concern regarding the restriction

31. EF relied upon WGFT's conduct in making programmatic decisions during the wind-down period, including honoring commitments to third-cohort residents, completing residency placements where feasible, and ensuring that programmatic data and outcomes were properly documented. EF would be prejudiced if WGFT were now permitted to assert an automatic reversion right that is inconsistent with the course of dealing betwee

32. To the extent applicable, WGFT's claim for restitution is barred by the equitable doctrine of unclean hands. EF affirmatively alleges that, following the wind-down of BATRI in December 2021 and prior to the transmission of the January 28, 2022 demand letter, EF made repeated, good-faith efforts to engage WGFT in discussions regarding the possible reallocation of the unexpended Grant Funds to educational programs

33. WGFT declined to engage in meaningful discussions regarding reallocation and instead proceeded directly to a formal demand for the return of funds through litigation counsel, without affording EF a reasonable opportunity to present its proposal for reallocation or to seek an amicable resolution. To the extent that WGFT's refusal to engage in good-faith discussions regarding the reallocation of charitable funds re

34. WGFT's claim for interest at the rate of 7% per annum on $1,700,000, or on any amount, is barred because EF has at all relevant times acted in good faith. Upon receiving WGFT's demand letter, EF promptly engaged counsel, communicated its legal position, and filed its Complaint for Declaratory Relief on April 25, 2022—three days before the expiration of the 90-day demand period—to obtain authoritative judicial res

35. The existence of a bona fide dispute over the enforceability and scope of the reversion clause set forth in Section 7.2 of the Gift Instrument precludes the accrual of prejudgment interest. Under California law, prejudgment interest is not recoverable where the amount of the obligation is disputed in good faith and is not ascertainable by calculation alone. EF's challenge to the reversion clause is based on well-

36. WGFT's claimed damages, if any, are barred or reduced by WGFT's failure to mitigate damages. WGFT had the opportunity, and the obligation under applicable law, to take reasonable steps to minimize any claimed loss. Specifically, WGFT refused to engage in meaningful settlement discussions with EF and refused to consent to a reallocation of the unexpended Grant Funds to EF's broader educational mission, which reall

37. By insisting on full reversion of $1,700,000—an amount that includes $1,000,000 that was never disbursed to EF—rather than participating in a reasonable reallocation process, WGFT failed to mitigate its claimed damages and should not be permitted to recover the full amount demanded, if any recovery is determined to be warranted. NINTH AFFIRMATIVE DEFENSE Reservation of Rights

38. Cross-Defendant expressly reserves the right to amend this Answer to add, modify, or withdraw affirmative defenses, and to assert additional affirmative defenses, as may become apparent through discovery, investigation, further factual development, or changes in applicable law. This reservation includes, without limitation, the right to assert defenses based on the statute of limitations, laches, failure to state

V. PRAYER FOR RELIEF WHEREFORE, Cross-Defendant Estuary Foundation prays for judgment as follows:

1. That the Cross-Complaint of The Whitfield-Garner Family Trust be dismissed in its entirety and with prejudice;

2. That Cross-Complainant The Whitfield-Garner Family Trust take nothing by way of its Cross-Complaint;

3. That Cross-Defendant Estuary Foundation be awarded its costs of suit incurred herein, as provided by law;

4. That the Court grant such other and further relief as it deems just, proper, and equitable under the circumstances; and

5. That the Court take judicial notice of EF's pending Complaint for Declaratory Relief, filed on April 25, 2022, in this same action, and that the Court's disposition of the issues raised in the Complaint for Declaratory Relief resolve the corresponding issues raised in the Cross-Complaint in favor of EF, including a declaration that the restriction set forth in the Gift Instrument may be modified under the cy pres

VI. SIGNATURE BLOCK AND VERIFICATION Dated: July 22, 2022 CALDERWOOD & HARKNESS LLP By: ________ Douglas Carmichael (SBN 198742) Attorneys for Cross-Defendant ESTUARY FOUNDATION One Market Plaza, Suite 3600 San Francisco, California 94105 Telephone: (415) 772-3000 Facsimile: (415) 772-3001 Prepared by Simone Laroche (SBN 312056), Lead Associate, and Jeffrey Park (SBN 325891), Working Associate, under the supervision

VII. PROOF OF SERVICE PROOF OF SERVICE I, the undersigned, declare as follows: I am employed in the County of San Francisco, State of California. I am over the age of eighteen (18) years and am not a party to the within action. My business address is Calderwood & Harkness LLP, One Market Plaza, Suite 3600, San Francisco, California 94105. On July 22, 2022, I served the foregoing document described as: ANSWER OF CROSS