END ACT I
As the sordid lines of Ladner Act I (it’s going to be a long drama) conclude with his panicked reimbursement to AU of twenty thousand dollars, it’s time to remind ourselves of certain latent elements of plot and theme that will, in Act II, become manifest. For instance, to quote the student paper at AU:
The IRS could levy tax penalties against Ladner and members of the board if it finds evidence of "excess benefits" for executives in 501(c)3 nonprofit organizations like AU, according to a report from the Association of Governing Boards of Universities and Colleges.
Benefits are excessive when "pay and benefits appear too high for the market, in the judgment of the IRS, or [they] raise questions about the nonprofit organization's purposes," according to the report.
The trustees, not merely Benjamin Ladner, are in trouble. In a variety of ways. Like him, most are currently wagon-circling, ass-saving, and scandal-spinning to beat the band (UD, scourge of mixed metaphor and cliché users everywhere, savors an occasional indulgence herself). Those among the trustees who really don’t feel prepared to be sued by Ladner, the IRS, the Justice Department, or any number of other outraged agencies and people, desperately cling to life and lies. This faction is locked in battle with those among the trustees who recognize that after years of inaction and no doubt some degree of collusion they‘re going to have to face the music.
In the trustee skirmish below, for instance, Jacobs, representing fear and denial, takes off after Wolff, representing stoicism and contrition:
One trustee involved with trying to reinstate Mr. Ladner, asking that his name not be used because of the sensitivity of the negotiations, said: "There is nothing ambiguous at all about the contract. There's not one thing he was not entitled to."
He added, "He would have a slam dunk case against the university, and we'd be very lucky if he didn't sue."
But Mr. Wolff predicted that Mr. Ladner's contract would be ruled invalid under a legal challenge because, he said, Mr. Jacobs negotiated it without the board's authorization. Mr. Wolff also said that board members did not learn of the contract or its contents until early this year, when questions arose about Mr. Ladner's compensation package.
"There is no doubt in my mind that the 1997 contract has no validity whatsoever," Mr. Wolff said. "No one gave Bill Jacobs any authority to negotiate with Ben Ladner."
Mr. Jacobs, a former senior vice president at MasterCard International, disagreed, saying that Mr. Ladner's original contract, signed in 1994, was a three-year deal, which meant negotiations for a new contract were legal and proper, and that the board's compensation committee had been fully apprised.
"For anybody on the board to say Ben Ladner didn't need a new contract," Mr. Jacobs said, "they just never paid attention."
If you crave more precision about what may await the trustees, take a look at this page, which summarizes the pertinent precedent for this mess, the very similar reign of Peter Diamandopoulos at Adelphi College, which in turn had its precedent in the reign of John Silber at Boston University. Note how many elements this wretched history (recounted below in an excerpt from Lionel S. Lewis, When Power Corrupts: Academic Governing Boards in the Shadow of the Adelphi Case ) has in common with the elements now gathering themselves at American University:
The Board provided Diamandopoulos with an outsized compensation package, guaranteed him cash payment for sabbatical leaves not taken, gave him a second residence, and, most importantly, acquiesced in all of his suggestions and decisions, no matter how unwise. The Board of Trustees of Boston University had earlier acted similarly with respect to its President, Adelphi Trustee John Silber, often referred to as Diamandopoulos's mentor.
There are other parallels between the Diamandopoulos and Silber presidencies. Each constantly quarreled and, indeed, seemed to relish confrontation, with a sizable number of faculty creating continuous turmoil on campus. Each formed close relationships with powerful Trustees who championed an array of administrative proposals and decisions. Each made exaggerated claims of having saved their institution from bankruptcy and certain demise. At each school, former Trustees complained that they were forced off the Board for questioning or not fully supporting major or minor presidential initiatives and decisions, while, at the same time, other Trustees were involved in business transactions from which they derived substantial income. And there were widely publicized accusations and criminal investigations into illegal activities on the part of the President and some of the Trustees at both Boston University and Adelphi University.
… The fact of lay governing boards pretty much assures that faculty will be overmatched when a governing board and administration working in tandem hatch some scheme. Boards need only take care not to overreach so as to catch the eye of civil authorities. The Adelphi faculty and the Committee to Save Adelphi did not force the Board of Trustees and Diamandopoulos out; they merely exposed them. It was Diamandopoulos's and the Board's own actions that were responsible for their removal.
Here, from the same page, are some legal details from that case:
Not-for-Profit Corporation Law. Indemnification of university trustees. Liability of former president.
The Attorney General [of New York] sued to hold former trustees liable for mismanagement. The complaint asserted that the trustees had indemnified themselves in violation of the N-PCL [i.e., the New York Not-for-Profit Corporation Law]. The court held that indemnification was authorized if the trustees had acted in good faith and that the complaint and the findings of the Regents contained the necessary allegations of bad faith so as to preclude dismissal. The court refused to authorize advance indemnification for this case (Sect. 724(c)). The court upheld a cause of action for unjust enrichment with regard to a retainer fee paid by the university to counsel for the former trustees but denied with leave to renew defendants’ request to dismiss a conversion claim because of uncertainty whether the retainer constituted a specifically identifiable fund. The court held that the complaint pleaded sufficient facts to support a claim that the defendant former president caused or permitted himself to receive compensation in violation of a duty to act in good faith.
Vacco v. Diamandopoulos, Index No. 401253/97, 4/6/98 (Ramos, J.)
The Board, on which both Silber and Diamandopoulos sat, settled the case for $4.3 million.
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