Lawmakers Reject U of L’s Request For $1.25M In Legal Funds

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Kate Howard / KyCIR

Attorneys representing the University of Louisville — Paula Hensel, Craig Dilger and Amy Shoemaker — appear before a legislative committee on Aug. 14, 2017.

Just five months ago, contracts for the University of Louisville’s forensic investigation, leadership searches and outside attorneys were valued at $2.1 million.

On Monday, U of L returned to a state legislative committee with new requests, raising the total of these contracts nearly threefold. Legislators decided it was time to make a point.

In an unusual move, five of eight members of the government contract review committee rejected U of L’s request to increase outside legal spending by $1.25 million in the coming year. The committee also deferred a request to up an executive search firm contract by another $400,000.

“The whole situation, from a contracting standpoint and from a taxpayer standpoint, has grown out of control,” said Rep. Stan Lee, committee co-chair. “We just felt it was going too far, and at some point we just needed to make a statement, and this was it.”

In taking the rare step of denying U of L a stamp of approval, legislators cited the millions of dollars they have already approved in the wake of a scathing forensic investigation of the nonprofit U of L Foundation. At least half of the school’s Monday ask was earmarked for potential litigation against former leaders and board members accused of misspending the endowment.

(Read KyCIR’s ongoing coverage of the University of Louisville)

The costs of the scandal started to mount last summer, when U of L gave former president James Ramsey a $690,000 buyout, and continued through two special audits and numerous reconfigurations of the school’s governing board. Donations to the U of L Foundation have plummeted as investigators pored over its finances, highlighted overspending and prepped for possible lawsuits to recover lost money.

Amy Shoemaker, U of L’s associate general counsel, said the school is reviewing its options following Monday’s unexpected move.

J. Tyler Franklin / KyCIR

University of Louisville’s Grawemeyer Hall

The school’s legal tab continued to grow through the hearing, with Stoll Keenon Ogden attorney Craig Dilger also representing the university.

Dilger, who is handling the forensic investigation and its fallout for U of L, said he will continue to represent the school in the interim.

Numerous legislators asked why U of L wasn’t using the $2 million donation pledged from two private foundations last week to cover the legal costs. The James Graham Brown Foundation and C. E. & S. Foundation each gave $1 million in support of the forensic audit, which they pushed for last fall.

The university announced the funding following a Kentucky Center for Investigative Reporting article that revealed the university has been sidestepping a state law requiring vendors to disclose how public money was spent. A university spokesman said the timing was unrelated to the article.

Though the private donations were described by U of L as covering the bulk of the costs of the forensic audit, Dilger acknowledged the university has already paid the audit bills, and the donations will fill budgetary gaps.

Rep. Diane St. Onge suggested the university specifically allocate some of the donation to legal fees associated with the audit.

“The taxpayers are being hit twice for the same mistakes,” said St. Onge, who voted against U of L’s request.

Several members of the committee have supported U of L’s efforts to recover some misspent money for taxpayers, and Dilger has warned them in past appearances that litigation is expensive. He said the university has legal standing to try to recover what he’s estimated as $40 million to $100 million in misspending by former employees, officers or board members at the foundation.

But whether the university’s leaders decide to proceed is up to them, Dilger said.

Either way, Dilger noted his firm considers U of L to be an important client with an important mission. That’s why they accept the state-mandated rate of $125 an hour, which Dilger said is less than a third of his typical hourly rate.

“If it was about the money — at the state rate — we wouldn’t do the work,” Dilger said.

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. The C. E. & S. Foundation is a major donor. University board member Sandra Frazier and former member Stephen Campbell have donated.