answer-to-cross-complaint.docx

1028-00001 · Client 1028 · Pleadings

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Email: dcarmichael@calderwoodharkness.com

slaroche@calderwoodharkness.com jpark@calderwoodharkness.com

Attorneys for Cross-Defendant ESTUARY FOUNDATION, a California nonprofit public benefit corporation

SUPERIOR COURT OF THE STATE OF CALIFORNIA

COUNTY OF SAN FRANCISCO

I. INTRODUCTION

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-Complaint as set forth below.

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 amount, whether calculated from April 28, 2022, or from any other date. WGFT's claim for restitution and interest lacks merit in law and in equity, for the reasons set forth in this Answer and in EF's pending Complaint for Declaratory Relief filed on April 25, 2022.

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, interest, attorneys' fees, costs of suit, or any other form of monetary or non-monetary recovery.

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-Complaint, except as expressly stated herein.

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 passed away in 2019, and the late Dorothy M. Garner, who passed away in 2016. To the extent that Paragraph 1 contains allegations beyond those expressly admitted herein, EF lacks sufficient information or belief to admit or deny those allegations and, on that basis, denies them.

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 94-3127856. To the extent that Paragraph 2 characterizes EF's purpose, operations, or organizational structure beyond the facts expressly admitted herein, EF denies those characterizations insofar as they are inaccurate, incomplete, or misleading.

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 purposes described therein. EF states that the Gift Instrument speaks for itself and that any characterization of its terms beyond their plain language is denied to the extent inconsistent with the actual text of the document.

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 $1,250,000, was disbursed in or about July 2020. EF admits that the foregoing Tranches 1 through 3, totaling $4,000,000, were disbursed to EF and received by EF. EF admits that Tranche 4, in the amount of $1,000,000, was scheduled for disbursement in or about July 2021. EF admits that Tranche 4 was never disbursed to EF. To the extent that Paragraph 5 contains characterizations, legal conclusions, or implications beyond the facts expressly admitted herein, including but not limited to any implied assertion that the undisbursed Tranche 4 constitutes "unexpended Grant Funds" subject to reversion under Section 7.2 of the Gift Instrument, EF denies those characterizations, legal conclusions, and implications.

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 this action, given the totality of the Gift Instrument—including but not limited to the remaining provisions of Article 3, the entirety of Articles 5, 6, and 7, and the recitals and exhibits incorporated therein—and given applicable California law governing restricted charitable gifts, including the cy pres doctrine and the doctrine of equitable deviation. EF further denies any characterization or legal conclusion drawn from Section 3.1 that is inconsistent with the foregoing.

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 right that operates independent of judicial oversight or equitable principles. EF denies that Section 7.2 supersedes or precludes the application of judicial modification under applicable California law, including without limitation the cy pres doctrine and the doctrine of equitable deviation as codified and recognized under California Probate Code Sections 15409 and 15403. EF denies that Section 7.2 constitutes a condition subsequent that defeats or limits the court's equitable powers to modify the terms of a charitable gift instrument when the restricted purpose has become impracticable. EF further denies that the term "unexpended Grant Funds" as used in Section 7.2 encompasses or was intended to encompass funds that were never disbursed to EF, including the undisbursed Tranche 4 of $1,000,000.

C. Response to Allegations Regarding the Bay Area Teacher Residency Initiative (Paragraphs 8–10)

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 June 2019, with 22 of the 24 residents placed in full-time teaching positions upon completion of the program.

(d) In March 2020, the COVID-19 pandemic caused widespread disruptions to public education, resulting in the suspension of in-person placements for BATRI residents.

(e) In August 2020, OUSD formally terminated its partnership with BATRI, citing budget constraints attributable in significant part to the fiscal impacts of the pandemic.

(f) In March 2021, SFUSD notified EF that it would not renew its partnership agreement with BATRI for the 2021–2022 academic year.

(g) The third cohort of BATRI residents, which had been reduced in size due to the foregoing disruptions, graduated in June 2021, with 12 of 15 residents completing the program.

(h) On December 31, 2021, EF's Board of Directors formally voted to wind down BATRI, having exhausted all reasonable efforts to identify alternative partner districts and having concluded that continuation of the program in its existing form was no longer feasible.

To the extent that Paragraph 8 of the Cross-Complaint characterizes the foregoing events as the result of EF's mismanagement, lack of diligence, or voluntary choice to abandon BATRI, EF denies those characterizations in their entirety. EF affirmatively alleges that it undertook extensive efforts to identify replacement partner districts following the withdrawal of OUSD and SFUSD, including outreach to the West Contra Costa Unified School District, the San Mateo-Foster City School District, and the Alameda Unified School District, none of which were able to commit to a partnership of the scope and nature required by BATRI.

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 administrative overhead as permitted by the Gift Instrument. EF admits that approximately $700,000 of the disbursed Grant Funds remained unexpended as of the wind-down of BATRI in December 2021. EF denies any characterization of the foregoing expenditures as wasteful, unauthorized, or inconsistent with the terms of the Gift Instrument or with EF's fiduciary obligations. EF further states that its expenditures were made in good faith, in furtherance of the restricted charitable purpose, and in reliance upon the continuing grant relationship with WGFT.

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, negligence, or breach of any duty owed to WGFT. EF affirmatively alleges that BATRI became impracticable due to circumstances entirely beyond EF's control, specifically: (i) the withdrawal of OUSD from the BATRI partnership in August 2020, citing budget constraints caused by the COVID-19 pandemic; (ii) the non-renewal of the SFUSD partnership agreement in March 2021; and (iii) the broader, sustained disruptions to public education caused by the COVID-19 pandemic, including but not limited to the cessation of in-person instruction, the inability to conduct classroom-based residency placements, and the fiscal crises that prevented potential replacement districts from entering into new partnership agreements. EF further affirmatively alleges that it acted diligently and in good faith throughout the life of BATRI, achieving substantial programmatic outcomes, including the successful placement of at least 34 teacher residents in full-time positions in underserved school communities.

D. Response to Allegations Regarding the Demand and Alleged Breach (Paragraphs 11–14)

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 letter as comprising two components: (i) $700,000 in unexpended disbursed Grant Funds; and (ii) $1,000,000 representing the undisbursed Tranche 4. EF denies that the demand was legally valid insofar as it seeks the return of the undisbursed Tranche 4, which was never transferred to EF and which does not constitute "unexpended Grant Funds" within the meaning of Section 7.2 of the Gift Instrument. EF denies any characterization of the demand as having triggered an unconditional, judicially unmodifiable obligation to return funds.

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 recognized and codified under California Probate Code Sections 15409 and 15403, and that EF intended to seek judicial guidance regarding the proper application of those doctrines to the Gift Instrument. EF admits that the March 3, 2022 response communicated EF's position that the funds should be retained and redirected to educational purposes consistent with the general charitable intent of the original settlors. EF denies that its response to the demand letter constitutes a breach of any obligation owed to WGFT, whether under the Gift Instrument, at common law, or under any statute. EF further denies that its refusal to return the demanded funds without judicial authorization constitutes bad faith, unreasonable delay, or willful disregard of WGFT's purported rights.

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 Instrument under the circumstances of this case, and that EF timely sought judicial guidance by filing its Complaint for Declaratory Relief in this Court on April 25, 2022—three days prior to the expiration of the 90-day period. EF further states that the filing of the Complaint for Declaratory Relief was a reasonable, good-faith measure taken to preserve EF's rights and to obtain authoritative judicial resolution of the dispute. EF denies that it was obligated to return the funds during the pendency of its good-faith legal challenge to the enforceability of the reversion clause.

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 the pendency of a bona fide dispute that has been submitted to the court for declaratory relief, particularly where the underlying obligation to return funds is itself the subject of the dispute. EF further states that even if the Court were to determine that some portion of the funds is subject to reversion, the good-faith nature of EF's dispute and the timely filing of its Complaint for Declaratory Relief preclude the imposition of prejudgment interest. EF further denies that the statutory rate of 7% per annum under California Civil Code Section 3289(b) applies to the circumstances of this case, as the claimed obligation does not arise from a contract for the payment of money and the amount, if any, owed is in dispute.

E. Response to Allegations Regarding Damages (Paragraphs 15–16)

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 undisbursed Tranche 4, in the amount of $1,000,000, constitutes "unexpended Grant Funds" within the meaning of Section 7.2 of the Gift Instrument, as those funds were never disbursed to or received by EF. The undisbursed Tranche 4 remained at all relevant times in the possession and control of WGFT. Section 7.2 provides for the return of "unexpended Grant Funds" in the event of program discontinuation; funds that were never granted to EF cannot be "returned" within the plain meaning of that provision. As to the $700,000 in unexpended disbursed funds, EF contends that those funds should be redirected to a purpose consistent with the general charitable intent of the original settlors, and that reversion is not the appropriate remedy under the circumstances.

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 Cross-Complaint and specifically denies that Cross-Complainant has stated facts sufficient to constitute a cause of action for restitution or for any other form of relief recognized under California law.

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 which the grant was restricted—the Bay Area Teacher Residency Initiative—has become impracticable due to the withdrawal of both partner school districts (OUSD in August 2020 and SFUSD in March 2021) and the widespread disruptions to public education caused by the COVID-19 pandemic. These circumstances rendered the specific restricted purpose impossible to fulfill, notwithstanding EF's good-faith and diligent efforts to sustain the program.

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 demonstrated by the recitals of the Gift Instrument, the broader pattern of charitable giving by the Whitfield-Garner family, and the fact that the Gift Instrument was structured as a grant to a nonprofit public benefit corporation with a broad educational mission. Specifically, EF's broader educational mission encompasses advancing equitable access to quality education through teacher development, school partnerships, and community-based learning initiatives in Northern California, all of which are consistent with and closely approximate the original purpose of BATRI. Accordingly, the cy pres doctrine bars WGFT's claim for restitution and supports judicial modification of the restriction rather than reversion of the funds.

SECOND AFFIRMATIVE DEFENSE

Equitable Deviation Under California Probate Code §§ 15409 and 15403

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 authorizes the court to depart from the specific restrictions of a trust or gift instrument when adherence to those restrictions would defeat the general charitable purpose of the instrument.

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 pandemic's sustained disruption of the educational environment, rendered the operation of BATRI impossible in its existing form. These changed circumstances warrant judicial modification of the Gift Instrument's restrictions under Probate Code Sections 15409 and 15403, rather than the mechanical enforcement of the reversion clause demanded by WGFT.

THIRD AFFIRMATIVE DEFENSE

Impracticability.

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 the voluntary cooperation and contractual participation of partner school districts. Both OUSD and SFUSD voluntarily withdrew from the BATRI partnership, and no replacement districts of comparable scope and capacity were available to assume the role of partner districts.

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 was the only responsible course of action. The impracticability of the restricted purpose precludes WGFT from enforcing the reversion clause as if the discontinuation were the result of EF's voluntary decision.

FOURTH AFFIRMATIVE DEFENSE

Waiver.

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 should have been aware, of OUSD's termination of the partnership in August 2020 and of the significant reduction in the size of the third cohort.

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 waived its right to demand strict enforcement of the restriction and the reversion clause set forth in Section 7.2 of the Gift Instrument. A party that knowingly proceeds to perform under a contract despite awareness of facts that might support a claim of breach cannot later assert those same facts as the basis for strict enforcement.

FIFTH AFFIRMATIVE DEFENSE

Estoppel.

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 or the reversion clause—led EF to reasonably rely on the continuation of the grant relationship and to commit resources to winding down BATRI in an orderly and responsible manner, rather than taking immediate steps to return funds.

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 between the parties. The elements of equitable estoppel are satisfied, and WGFT should be estopped from claiming automatic reversion.

SIXTH AFFIRMATIVE DEFENSE

Unclean Hands.

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 consistent with the general charitable intent of the original settlors. EF's Executive Director, Dr. Marcus Okonkwo, communicated with Trustee Roland Whitfield-Garner on multiple occasions to propose such a reallocation, including during meetings in October and November 2021 and in written correspondence in January 2022.

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 reflects inequitable conduct, WGFT's claim for restitution should be barred or limited by the doctrine of unclean hands.

SEVENTH AFFIRMATIVE DEFENSE

No Right to Interest

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 resolution of the dispute.

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-established legal doctrines, including cy pres and equitable deviation, and is not frivolous, dilatory, or made in bad faith. Accordingly, no interest is owing.

EIGHTH AFFIRMATIVE DEFENSE

Failure to Mitigate

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 reallocation would have served the general charitable intent of the original settlors and would have preserved the charitable character of the grant.

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 a cause of action, or any other defense that may be supported by facts or law hereafter discovered.

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 doctrine and/or the doctrine of equitable deviation, and that EF may direct the unexpended Grant Funds to educational purposes consistent with the general charitable intent of the original settlors.

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 of Douglas Carmichael (SBN 198742).

VERIFICATION

I, Priya Chattopadhyay, declare as follows:

I am the General Counsel of Estuary Foundation, the Cross-Defendant in this action. I have read the foregoing Answer of Cross-Defendant Estuary Foundation to Cross-Complaint of The Whitfield-Garner Family Trust. I am informed of the matters stated therein and believe the contents to be true. I make this verification on behalf of Estuary Foundation because the facts are within the knowledge of Estuary Foundation's officers and employees, and I am authorized to make this verification on the organization's behalf.

I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct.

Executed on July 22, 2022, at San Francisco, California.

________________________________________

Priya Chattopadhyay General Counsel, Estuary Foundation

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-DEFENDANT ESTUARY FOUNDATION TO CROSS-COMPLAINT OF THE WHITFIELD-GARNER FAMILY TRUST

on the interested parties in this action by the following means:

BY ELECTRONIC FILING AND SERVICE: I caused the foregoing document to be electronically filed with the Clerk of the Superior Court of the State of California, County of San Francisco, via the court's electronic filing system. Service was effectuated through the court's electronic filing and service system on all registered parties.

BY EMAIL (COURTESY COPY): I caused a true and correct copy of the foregoing document to be transmitted via electronic mail to the following persons at the email addresses indicated below:

Victoria Huang, Esq. Pratchett, Huang & Solano LLP 555 California Street, 28th Floor San Francisco, California 94104

Email: vhuang@phslaw.com

Derek Solano Jr., Esq. Pratchett, Huang & Solano LLP 555 California Street, 28th Floor San Francisco, California 94104

Email: dsolano@phslaw.com

Counsel for Cross-Complainant The Whitfield-Garner Family Trust

I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct.

Executed on July 22, 2022, at San Francisco, California.

________________________________________

Name: Amanda R. Desmond

Legal Secretary Calderwood & Harkness LLP

ESTUARY FOUNDATION, a California nonprofit public benefit corporation,	Case No. CGC-22-599481
Plaintiff and Cross-Defendant,	Department 302
v.	Assigned for All Purposes to:

Hon. Patricia R. Wainwright

THE WHITFIELD-GARNER FAMILY TRUST, a California irrevocable trust,

ANSWER OF CROSS-DEFENDANT

Defendant and Cross-Complainant.

CROSS-COMPLAINT OF THE

WHITFIELD-GARNER FAMILY TRUST

Cross-Complaint Filed: June 10, 2022

Douglas Carmichael (SBN 198742) Simone Laroche (SBN 312056) Jeffrey Park (SBN 325891) CALDERWOOD & HARKNESS LLP One Market Plaza, Suite 3600 San Francisco, California 94105 Telephone: (415) 772-3000 Facsimile: (415) 772-3001
Email: dcarmichael@calderwoodharkness.com
slaroche@calderwoodharkness.com jpark@calderwoodharkness.com
Attorneys for Cross-Defendant ESTUARY FOUNDATION, a California nonprofit public benefit corporation
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SAN FRANCISCO
I. INTRODUCTION
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-Complaint as set forth below.
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 amount, whether calculated from April 28, 2022, or from any other date. WGFT's claim for restitution and interest lacks merit in law and in equity, for the reasons set forth in this Answer and in EF's pending Complaint for Declaratory Relief filed on April 25, 2022.
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, interest, attorneys' fees, costs of suit, or any other form of monetary or non-monetary recovery.
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-Complaint, except as expressly stated herein.
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 passed away in 2019, and the late Dorothy M. Garner, who passed away in 2016. To the extent that Paragraph 1 contains allegations beyond those expressly admitted herein, EF lacks sufficient information or belief to admit or deny those allegations and, on that basis, denies them.
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 94-3127856. To the extent that Paragraph 2 characterizes EF's purpose, operations, or organizational structure beyond the facts expressly admitted herein, EF denies those characterizations insofar as they are inaccurate, incomplete, or misleading.
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 purposes described therein. EF states that the Gift Instrument speaks for itself and that any characterization of its terms beyond their plain language is denied to the extent inconsistent with the actual text of the document.
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 $1,250,000, was disbursed in or about July 2020. EF admits that the foregoing Tranches 1 through 3, totaling $4,000,000, were disbursed to EF and received by EF. EF admits that Tranche 4, in the amount of $1,000,000, was scheduled for disbursement in or about July 2021. EF admits that Tranche 4 was never disbursed to EF. To the extent that Paragraph 5 contains characterizations, legal conclusions, or implications beyond the facts expressly admitted herein, including but not limited to any implied assertion that the undisbursed Tranche 4 constitutes "unexpended Grant Funds" subject to reversion under Section 7.2 of the Gift Instrument, EF denies those characterizations, legal conclusions, and implications.
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 this action, given the totality of the Gift Instrument—including but not limited to the remaining provisions of Article 3, the entirety of Articles 5, 6, and 7, and the recitals and exhibits incorporated therein—and given applicable California law governing restricted charitable gifts, including the cy pres doctrine and the doctrine of equitable deviation. EF further denies any characterization or legal conclusion drawn from Section 3.1 that is inconsistent with the foregoing.
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 right that operates independent of judicial oversight or equitable principles. EF denies that Section 7.2 supersedes or precludes the application of judicial modification under applicable California law, including without limitation the cy pres doctrine and the doctrine of equitable deviation as codified and recognized under California Probate Code Sections 15409 and 15403. EF denies that Section 7.2 constitutes a condition subsequent that defeats or limits the court's equitable powers to modify the terms of a charitable gift instrument when the restricted purpose has become impracticable. EF further denies that the term "unexpended Grant Funds" as used in Section 7.2 encompasses or was intended to encompass funds that were never disbursed to EF, including the undisbursed Tranche 4 of $1,000,000.
C. Response to Allegations Regarding the Bay Area Teacher Residency Initiative (Paragraphs 8–10)
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 June 2019, with 22 of the 24 residents placed in full-time teaching positions upon completion of the program.
(c) A second cohort of 30 residents commenced the BATRI program in September 2019.
(d) In March 2020, the COVID-19 pandemic caused widespread disruptions to public education, resulting in the suspension of in-person placements for BATRI residents.
(e) In August 2020, OUSD formally terminated its partnership with BATRI, citing budget constraints attributable in significant part to the fiscal impacts of the pandemic.
(f) In March 2021, SFUSD notified EF that it would not renew its partnership agreement with BATRI for the 2021–2022 academic year.
(g) The third cohort of BATRI residents, which had been reduced in size due to the foregoing disruptions, graduated in June 2021, with 12 of 15 residents completing the program.
(h) On December 31, 2021, EF's Board of Directors formally voted to wind down BATRI, having exhausted all reasonable efforts to identify alternative partner districts and having concluded that continuation of the program in its existing form was no longer feasible.
To the extent that Paragraph 8 of the Cross-Complaint characterizes the foregoing events as the result of EF's mismanagement, lack of diligence, or voluntary choice to abandon BATRI, EF denies those characterizations in their entirety. EF affirmatively alleges that it undertook extensive efforts to identify replacement partner districts following the withdrawal of OUSD and SFUSD, including outreach to the West Contra Costa Unified School District, the San Mateo-Foster City School District, and the Alameda Unified School District, none of which were able to commit to a partnership of the scope and nature required by BATRI.
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 administrative overhead as permitted by the Gift Instrument. EF admits that approximately $700,000 of the disbursed Grant Funds remained unexpended as of the wind-down of BATRI in December 2021. EF denies any characterization of the foregoing expenditures as wasteful, unauthorized, or inconsistent with the terms of the Gift Instrument or with EF's fiduciary obligations. EF further states that its expenditures were made in good faith, in furtherance of the restricted charitable purpose, and in reliance upon the continuing grant relationship with WGFT.
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, negligence, or breach of any duty owed to WGFT. EF affirmatively alleges that BATRI became impracticable due to circumstances entirely beyond EF's control, specifically: (i) the withdrawal of OUSD from the BATRI partnership in August 2020, citing budget constraints caused by the COVID-19 pandemic; (ii) the non-renewal of the SFUSD partnership agreement in March 2021; and (iii) the broader, sustained disruptions to public education caused by the COVID-19 pandemic, including but not limited to the cessation of in-person instruction, the inability to conduct classroom-based residency placements, and the fiscal crises that prevented potential replacement districts from entering into new partnership agreements. EF further affirmatively alleges that it acted diligently and in good faith throughout the life of BATRI, achieving substantial programmatic outcomes, including the successful placement of at least 34 teacher residents in full-time positions in underserved school communities.
D. Response to Allegations Regarding the Demand and Alleged Breach (Paragraphs 11–14)
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 letter as comprising two components: (i) $700,000 in unexpended disbursed Grant Funds; and (ii) $1,000,000 representing the undisbursed Tranche 4. EF denies that the demand was legally valid insofar as it seeks the return of the undisbursed Tranche 4, which was never transferred to EF and which does not constitute "unexpended Grant Funds" within the meaning of Section 7.2 of the Gift Instrument. EF denies any characterization of the demand as having triggered an unconditional, judicially unmodifiable obligation to return funds.
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 recognized and codified under California Probate Code Sections 15409 and 15403, and that EF intended to seek judicial guidance regarding the proper application of those doctrines to the Gift Instrument. EF admits that the March 3, 2022 response communicated EF's position that the funds should be retained and redirected to educational purposes consistent with the general charitable intent of the original settlors. EF denies that its response to the demand letter constitutes a breach of any obligation owed to WGFT, whether under the Gift Instrument, at common law, or under any statute. EF further denies that its refusal to return the demanded funds without judicial authorization constitutes bad faith, unreasonable delay, or willful disregard of WGFT's purported rights.
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 Instrument under the circumstances of this case, and that EF timely sought judicial guidance by filing its Complaint for Declaratory Relief in this Court on April 25, 2022—three days prior to the expiration of the 90-day period. EF further states that the filing of the Complaint for Declaratory Relief was a reasonable, good-faith measure taken to preserve EF's rights and to obtain authoritative judicial resolution of the dispute. EF denies that it was obligated to return the funds during the pendency of its good-faith legal challenge to the enforceability of the reversion clause.
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 the pendency of a bona fide dispute that has been submitted to the court for declaratory relief, particularly where the underlying obligation to return funds is itself the subject of the dispute. EF further states that even if the Court were to determine that some portion of the funds is subject to reversion, the good-faith nature of EF's dispute and the timely filing of its Complaint for Declaratory Relief preclude the imposition of prejudgment interest. EF further denies that the statutory rate of 7% per annum under California Civil Code Section 3289(b) applies to the circumstances of this case, as the claimed obligation does not arise from a contract for the payment of money and the amount, if any, owed is in dispute.
E. Response to Allegations Regarding Damages (Paragraphs 15–16)
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 undisbursed Tranche 4, in the amount of $1,000,000, constitutes "unexpended Grant Funds" within the meaning of Section 7.2 of the Gift Instrument, as those funds were never disbursed to or received by EF. The undisbursed Tranche 4 remained at all relevant times in the possession and control of WGFT. Section 7.2 provides for the return of "unexpended Grant Funds" in the event of program discontinuation; funds that were never granted to EF cannot be "returned" within the plain meaning of that provision. As to the $700,000 in unexpended disbursed funds, EF contends that those funds should be redirected to a purpose consistent with the general charitable intent of the original settlors, and that reversion is not the appropriate remedy under the circumstances.
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 Cross-Complaint and specifically denies that Cross-Complainant has stated facts sufficient to constitute a cause of action for restitution or for any other form of relief recognized under California law.
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 which the grant was restricted—the Bay Area Teacher Residency Initiative—has become impracticable due to the withdrawal of both partner school districts (OUSD in August 2020 and SFUSD in March 2021) and the widespread disruptions to public education caused by the COVID-19 pandemic. These circumstances rendered the specific restricted purpose impossible to fulfill, notwithstanding EF's good-faith and diligent efforts to sustain the program.
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 demonstrated by the recitals of the Gift Instrument, the broader pattern of charitable giving by the Whitfield-Garner family, and the fact that the Gift Instrument was structured as a grant to a nonprofit public benefit corporation with a broad educational mission. Specifically, EF's broader educational mission encompasses advancing equitable access to quality education through teacher development, school partnerships, and community-based learning initiatives in Northern California, all of which are consistent with and closely approximate the original purpose of BATRI. Accordingly, the cy pres doctrine bars WGFT's claim for restitution and supports judicial modification of the restriction rather than reversion of the funds.
SECOND AFFIRMATIVE DEFENSE
Equitable Deviation Under California Probate Code §§ 15409 and 15403
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 authorizes the court to depart from the specific restrictions of a trust or gift instrument when adherence to those restrictions would defeat the general charitable purpose of the instrument.
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 pandemic's sustained disruption of the educational environment, rendered the operation of BATRI impossible in its existing form. These changed circumstances warrant judicial modification of the Gift Instrument's restrictions under Probate Code Sections 15409 and 15403, rather than the mechanical enforcement of the reversion clause demanded by WGFT.
THIRD AFFIRMATIVE DEFENSE
Impracticability.
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 the voluntary cooperation and contractual participation of partner school districts. Both OUSD and SFUSD voluntarily withdrew from the BATRI partnership, and no replacement districts of comparable scope and capacity were available to assume the role of partner districts.
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 was the only responsible course of action. The impracticability of the restricted purpose precludes WGFT from enforcing the reversion clause as if the discontinuation were the result of EF's voluntary decision.
FOURTH AFFIRMATIVE DEFENSE
Waiver.
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 should have been aware, of OUSD's termination of the partnership in August 2020 and of the significant reduction in the size of the third cohort.
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 waived its right to demand strict enforcement of the restriction and the reversion clause set forth in Section 7.2 of the Gift Instrument. A party that knowingly proceeds to perform under a contract despite awareness of facts that might support a claim of breach cannot later assert those same facts as the basis for strict enforcement.
FIFTH AFFIRMATIVE DEFENSE
Estoppel.
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 or the reversion clause—led EF to reasonably rely on the continuation of the grant relationship and to commit resources to winding down BATRI in an orderly and responsible manner, rather than taking immediate steps to return funds.
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 between the parties. The elements of equitable estoppel are satisfied, and WGFT should be estopped from claiming automatic reversion.
SIXTH AFFIRMATIVE DEFENSE
Unclean Hands.
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 consistent with the general charitable intent of the original settlors. EF's Executive Director, Dr. Marcus Okonkwo, communicated with Trustee Roland Whitfield-Garner on multiple occasions to propose such a reallocation, including during meetings in October and November 2021 and in written correspondence in January 2022.
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 reflects inequitable conduct, WGFT's claim for restitution should be barred or limited by the doctrine of unclean hands.
SEVENTH AFFIRMATIVE DEFENSE
No Right to Interest
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 resolution of the dispute.
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-established legal doctrines, including cy pres and equitable deviation, and is not frivolous, dilatory, or made in bad faith. Accordingly, no interest is owing.
EIGHTH AFFIRMATIVE DEFENSE
Failure to Mitigate
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 reallocation would have served the general charitable intent of the original settlors and would have preserved the charitable character of the grant.
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 a cause of action, or any other defense that may be supported by facts or law hereafter discovered.
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 doctrine and/or the doctrine of equitable deviation, and that EF may direct the unexpended Grant Funds to educational purposes consistent with the general charitable intent of the original settlors.
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 of Douglas Carmichael (SBN 198742).
VERIFICATION
I, Priya Chattopadhyay, declare as follows:
I am the General Counsel of Estuary Foundation, the Cross-Defendant in this action. I have read the foregoing Answer of Cross-Defendant Estuary Foundation to Cross-Complaint of The Whitfield-Garner Family Trust. I am informed of the matters stated therein and believe the contents to be true. I make this verification on behalf of Estuary Foundation because the facts are within the knowledge of Estuary Foundation's officers and employees, and I am authorized to make this verification on the organization's behalf.
I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct.
Executed on July 22, 2022, at San Francisco, California.
________________________________________
Priya Chattopadhyay General Counsel, Estuary Foundation
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-DEFENDANT ESTUARY FOUNDATION TO CROSS-COMPLAINT OF THE WHITFIELD-GARNER FAMILY TRUST
on the interested parties in this action by the following means:
BY ELECTRONIC FILING AND SERVICE: I caused the foregoing document to be electronically filed with the Clerk of the Superior Court of the State of California, County of San Francisco, via the court's electronic filing system. Service was effectuated through the court's electronic filing and service system on all registered parties.
BY EMAIL (COURTESY COPY): I caused a true and correct copy of the foregoing document to be transmitted via electronic mail to the following persons at the email addresses indicated below:
Victoria Huang, Esq. Pratchett, Huang & Solano LLP 555 California Street, 28th Floor San Francisco, California 94104
Email: vhuang@phslaw.com
Derek Solano Jr., Esq. Pratchett, Huang & Solano LLP 555 California Street, 28th Floor San Francisco, California 94104
Email: dsolano@phslaw.com
Counsel for Cross-Complainant The Whitfield-Garner Family Trust
I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct.
Executed on July 22, 2022, at San Francisco, California.
________________________________________
Name: Amanda R. Desmond
Legal Secretary Calderwood & Harkness LLP
ESTUARY FOUNDATION, a California nonprofit public benefit corporation, | Case No. CGC-22-599481
Plaintiff and Cross-Defendant, | Department 302
v. | Assigned for All Purposes to:
Hon. Patricia R. Wainwright
THE WHITFIELD-GARNER FAMILY TRUST, a California irrevocable trust,
ANSWER OF CROSS-DEFENDANT
Defendant and Cross-Complainant. | ESTUARY FOUNDATION TO
CROSS-COMPLAINT OF THE
WHITFIELD-GARNER FAMILY TRUST
Cross-Complaint Filed: June 10, 2022