As University of Louisville leadership contemplates potential litigation in the next month against former UofL officials implicated in the recent forensic review of the UofL Foundation, they must also factor in where they would find the funds to pay for the legal services needed in what would likely be a protracted court battle — a task made more challenging by a contract committee in Frankfort on Monday.
While the Government Contract Review Committee voted to reject UofL’s request to double the amount it spends from its general budget on a legal services contract to $2.5 million, the secretary of the Kentucky Finance and Administration Cabinet is allowed under state law to override that move and approve the university’s request.
Additionally, there remain questions over whether the $2 million pledged to UofL last week by two large foundations to cover most of the costs of the forensic investigation into the UofL Foundation could be diverted toward legal fees should litigation proceed, if it does at all.
Sen. Max Wise, the Republican co-chair of the committee, said its rejection of UofL’s request was intended to send a message that “enough is enough,” as the university had repeatedly come before the committee asking that it raise the limit on how much UofL was allowed to spend on contracts. However, he added that the committee merely had an oversight function and its rejection of the UofL request could be overruled by the secretary of the Finance Cabinet, as “they have the ultimate decision.”
Finance Cabinet spokeswoman Pamela Trautner confirmed this information to IL, stating that KRS 45A.695(7) provides that such decisions of the committee can be overridden by the secretary, but that can only happen if that action is requested by UofL — which has not yet happened.
“In order to trigger this process, however, U of L would have to submit a request to the Secretary asking him to override the Committee’s decision and explaining why he should do so,” stated Trautner in an email. “The Secretary has not received such a request from UofL.”
Asked if UofL will pursue such a request to the Finance secretary, UofL spokesman John Karman told IL Tuesday that university leadership “are taking time to discuss yesterday’s decision and study our options. No decisions have been made.”
While Wise and other committee members suggested using part of the $2 million pledged by two large foundations — the James Graham Brown Foundation and the C. E. & S. Foundation — to nearly cover the $2.2 million cost of the forensic investigation, questions also remain over whether that is possible or likely to happen. The foundations played a large part in initiating the investigation of the UofL Foundation last year, stating at the time that they would withhold future donations unless an independent forensic audit was conducted, but pledging to cover the costs of that investigation.
Asked if the entire $2 million pledged by the foundations to cover the costs of the audit must be restricted for that purpose and not diverted instead toward additional legal services, Karman said these funds were “earmarked” for the audit. On Monday, the leadership of both private foundations told IL that UofL officials had not asked them to consider paying for any of the university’s legal costs, as their interest in the matter was getting the third-party review underway and completed.
At Monday’s committee meeting, Craig Dilger — the Stoll Keenon Ogden attorney who is working for the UofL board of trustees on the matter of potential litigation — was reported to have acknowledged that the university had already paid the bills for the audit firm Alvarez & Marsal, and that the new contributions pledged toward the audit costs would serve to “fill budgetary gaps.”
Last week, Karman said that $1.5 million of the foundations’ pledges were expected to be collected by this week, and on Monday the university received the full $1 million from the C. E. & S. Foundation. Karman added that the first payment of $500,000 pledged by the James Graham Brown Foundation has not yet been received as of Tuesday afternoon, with the rest of their pledge expected to be delivered to UofL by the first of next year.
Whether additional money is available to pay for legal services is sure to have an affect of the decision of a four-member special litigation committee created by the UofL board of trustees last week. This committee will have the full power to decide what type of legal action the university takes in response the forensic audit — in terms of how many people are sued, how much restitution is sought, and whether it is even worth it to go forward with any litigation.
After the creation of the committee last week, trustees chairman J. David Grissom said that the financial costs of any potential litigation would play a factor in whether legal action is taken and what scope it would take, as well as the potential amount that could be collected from whoever would be sued.
“Does protracted litigation further damage the reputation of the university?” asked Grissom. “Does further litigation imperil the carrying out of a really successful presidential search? Those are things that this committee is going to be thinking about.”
Disclosure: IL investor David Jones Jr. is an officer of the C. E. & S. Foundation
This post has been updated.