KyCIR: U of L may sue its own foundation if unable to reach agreement over misspent funds

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By Kate Howard
Kentucky Center for Investigative Reporting

The University of Louisville is considering suing its own foundation in the wake of a damaging audit and months of talk about recouping misspent money, according to leaders at the U of L Foundation.

Earl Reed III, chairman of a U of L Foundation subcommittee, said in an affidavit provided to the Kentucky Center for Investigative Reporting that the foundation’s threat of being sued by U of L “is substantial” but could be avoided if the two entities reach agreeable terms.

The foundation created the affidavit in response to an open meetings complaint from KyCIR about two executive session meetings held on Oct. 26. The complaint argued that state law requires a specific and substantial threat of a lawsuit to warrant a secret meeting.

Interim U of L Foundation executive director Keith Sherman told KyCIR that the closed sessions were legal and proper because board members were discussing a substantial and specific legal threat from U of L.

(Photo by J. Tyler Franklin, KyCIR)

The affidavit marks the first confirmation of a specific lawsuit possibility after months of vague discussion about recovering millions lost from the foundation’s endowment. A forensic investigation of the school’s nonprofit arm released in June found excessive and often secret spending on investments, real estate and lavish pay under former president James Ramsey.

By the time Ramsey was forced out last summer, the school’s endowment was depleted, with $42 million of the dwindling fund liquidated to cover unbudgeted spending, the audit found. The audit provoked major operational changes, months of upheaval and talks about recovering lost money that have largely taken place outside the public eye.

The discussion in the October closed sessions was about “a specific lawsuit with specific monetary claims which counsel for the University of Louisville has stated U of L is considering filing against the Foundation following the release of the (audit) report,” Reed said in the sworn statement.

The proposed agreement that followed was an effort to avoid litigation between U of L and the foundation, Reed said.

So far, no one has explained why the two entities would face off in court. Sherman referred questions about the reason for the suit to the university.

Cindy Hess, a U of L spokeswoman, said the university doesn’t comment on potential litigation. U of L board of trustees chairman J. David Grissom didn’t return a call for comment.

All the trustees who also serve dual roles on the foundation’s governing board left the room during the October closed session. When they returned to open session, foundation board members passed a proposed agreement between U of L and the foundation they refused to disclose, saying it’s a draft “subject to further possible negotiation and agency action.”

After the meeting, Sherman and foundation board chair Diane Medley said the agreement was related to operations and governance — and intended to commit the foundation to changes it implemented after the audit. It wouldn’t be public until the university agreed to it, they said.

It appears the university trustees haven’t. The U of L board of trustees litigation subcommittee met last week in closed session, but they didn’t take action on the foundation’s proposed agreement or anything else. Notice quickly followed that the trustees wouldn’t meet the next day for a planned special meeting.

“All we know is that no action was taken, and the board of trustees meeting was cancelled,” Sherman said Friday. “I think the possibility of litigation hasn’t changed.”

Kate Howard can be reached at khoward@kycir.org and (502) 814.6546.

Disclosures: In 2015, the University of Louisville, which for years has donated to Louisville Public Media, earmarked $3,000 to KyCIR as part of a larger LPM donation. University board member Sandra Frazier, former member Stephen Campbell and attorney Ann Oldfather have donated.

Kate Howard can be reached at khoward@kycir.org and (502) 814.6546.

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