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Pennsylvania Attorney General Mike Fisher’s fight to prevent the sale of Hershey Foods Corp. has created worries for charitable trusts and their lawyers. Fisher successfully championed a controversial interpretation of trust law that, according to some experts, would radically change existing law, discourage the creation of charitable trusts and push trustees into impossible conflicts. Counsel for trusts nationwide are wondering how widely this new standard will be applied. The Hershey fight is over for now. The trust that owns a controlling interest in Hershey Foods voted last week to take the company off the market. It was expected to receive offers as high as $15 billion from the likes of Kraft Foods Inc. Hershey — maker of the famous chocolate bars — was put up for sale in July. Many residents of Hershey, Pa., objected, as did Fisher. They feared a sale would result in layoffs that would devastate the Hershey area, where about 6,200 people work for the company. As attorney general, Fisher is statutorily responsible for the oversight of all the state’s charitable trusts. In this case he argued that his oversight responsibility is extremely broad. Fisher asserted in court papers that “the ultimate beneficiary of all charitable trusts is the general public to whom the social and economic advantages of the trusts accrue.” Therefore, Fisher said, he has a duty to protect the general public “against any social and economic disadvantages” caused by the activities of such trusts. If the sale of Hershey stock would be harmful to the residents of Hershey, Fisher could prevent the sale — even though the sale would be advantageous for the trust’s beneficiaries. This argument turns trust law on its head, according to lead counsel for the Hershey Trust, Jack Stover, a partner in the Harrisburg, Pa., office of Pittsburgh’s Buchanan Ingersoll. It requires trustees to put the interests of others before the interests of named beneficiaries. “It is an extremely unusual interpretation of trust law,” says George Nofer, senior counsel at Philadelphia’s Schnader Harrison Segal & Lewis and past president of the American College of Trusts and Estates Counsel. Saying he’s speaking on his own behalf, and not for his firm, Nofer says that Fisher’s argument, if adopted by the courts, would be a “basic change in what has been the law.” One court, however, has indeed adopted this argument. On Sept. 4, Judge Warren G. Morgan of the Dauphin County Orphan’s Court accepted Fisher’s position and issued a temporary restraining order forbidding the Hershey Trust Co. to consummate any sale of the company. “We conclude therefore that the Attorney General has the authority to inquire whether an exercise of a trustee’s power, even if authorized under the trust instrument, is inimical to the public interest,” Morgan wrote. The trust quickly appealed Morgan’s ruling. But in a surprise move on Sept. 17, the trust caved in. By a vote of 10-7, the trustees decided to pull the company off the market, saying it appeared they wouldn’t get what it’s worth. On Sept. 18, Fisher got more good news: The appellate court had upheld the injunction against the sale. Without reaching the merits of Fisher’s argument, a five-judge panel of the Commonwealth Court found that there were “reasonable grounds” to support the trial judge’s decision to issue the injunction. Fisher’s office called the ruling a “big win” for the people of Hershey. “It may have been a victory for the people of Hershey, but I’m not sure it is good for the charitable world,” says Dennis Belcher, a trusts and estates partner at Richmond, Va.’s McGuireWoods. He says that the actions taken by Fisher and Pennsylvania’s courts raise troubling issues about what actions charitable trusts can take. “It will be harder for trustees to make prudent business decisions,” under such rulings, he says. For instance, many states have adopted “prudent-investor” acts, which require trustees to diversify the assets of charitable trusts unless they face special circumstances. Is this legal requirement for diversification now superseded by outside community interests? “This places the trustees on the horns of a dilemma,” Nofer says. “Which interest is dominant? How can they satisfy both?” “It almost comes down to: Can you serve two masters?” says Jim Kutz, a partner in the Harrisburg, Pa., office of Philadelphia’s Duane Morris. Like other attorneys, he wondered how trustees could reconcile their duty to serve a trust’s named beneficiaries with a more amorphous duty to serve the community. “And when do you have to consider the impact on the community?” Belcher asks. “When the trust is as big as Hershey? What if it is smaller but has a significant presence in a community? Will some aggressive attorney general take this precedent and move it into other areas where a charity has a significant presence in the community and wants to do something that will benefit the trust but not the community?” TOUGH FOR PRUDENT ADVICE All of this uncertainty complicates the work of lawyers who represent charitable trusts. “It will make it more difficult for lawyers to give prudent advice,” Belcher says. The legal uncertainty and the consequent risk of lawsuits will also make it harder to get knowledgeable people to serve as trustees for charitable organizations. “Fear of litigation will rob trust boards of good, qualified people,” says Belcher. Finally, there may one last adverse effect. “People might become less interested in establishing charitable trusts,” says Nofer.

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