Ave Maria Law School
Prof. Bainbridge reports on the self-destruction of Ave Maria Law School. A faculty letter of protest and explanation has been made public. Here are two comments from the Bainbridge site:
No one could possibly argue successfully that closing Ave Maria School of Law and transfering its assets to a new entity in Florida (given the risky unproven nature of the development there, and its isolation from the closest center of legal society) could at this point be in the best interests of the Law School given a reasonable person standard. The Board of Governors has so boldly violated the Duty of Care, it is surreal.
A number of AMSOL Board Members (including the Dean) have positions and entanglements with the Ave Maria University project, a project that is failing to meet its growth and sales targets, and that is in “crisis” according to Fr. Fessio (recently fired and rehired and exiled to Europe). The decision to wrap-up AMSoL, MI and transfer its assets to a new entity in Florida is objectively in the best interests of the Ave Maria University/Town developers. There are clear conflicts of interest and violation of the Duty of Loyalty. Again, using a reasonable person standard, the Board of Governors acted in a way that was completely disloyal to Ave Maria School of Law.
Here is my comment:
This is an interesting corporate governance case, as some of the comments said. I don’t blame Mr. Monaghan. He has the right to make any suggestion he likes, and to cut off any money he has not yet promised (and I guess he has the legal right to cut off even money he has promised, since there’s no consideration).
Rather, the problem is the board of directors (whatever its formal name may be). The directors owe a duty to the law school, and only owe gratitude and a certain deference to Monaghan’s intentions at the time of past gifts.
That is all quite apart from whether the law school is run as a respectable academic institution or as a boss-and-workers charity.
My question is this: if the board is violating its fiduciary duty, what is the procedure for punishing them, and the remedy? Does the Attorney-General of Michigan have to sue? What are his political interests here?
I wouldn’t think there would be any IRS implications unless Monaghan has retained actual authority over the law school, as opposed to having chosen directors who like to please him but whom he cannot compel to do what he wants. Or unless his director friends are using the law school move to help Monaghan out financially (and perhaps even if they are using it to help his other charities– an interesting tax question).
May 2nd, 2007 at 11:10 am
[...] Ave Maria Law SchoolNo one could possibly argue successfully that closing Ave Maria School of Law and transfering its assets to a new entity in Florida (given the risky unproven nature of the development there, and its isolation from the closest center of … [...]
May 2nd, 2007 at 9:27 pm
It is my understanding that Mr Monaghan does not “give” anything. He retains complete control of his funds. Moves them to the Ave Maria Foundation, takes his tax write-off, then moves the money from the Foundation to his projects: Ave Maria College, Ave Maria University, Ave Maria Law School etc. A quick look at any of these institutions will reveal the same name on the bank accounts, not Tom’s, but his finance man who controls all investments and bank accounts, holds deeds etc, sits on all boards and can liquidate all assets at any time. TSM does not give his opinion as part of a board of trustees – on which he sits as chair, but actually controls the outcome by giving and recinding assets at will.
May 2nd, 2007 at 9:56 pm
1. If he’s actually on the board of trustees, then I do blame him. He then has a fiduciary duty to the Law School which he is violating.
2. If he wants to quite giving to the school and has not made any promises, that’s fine. It’s his Foundation, after all, which is not bound to support any particular charitable endeavor. I see from the Falvey Report via ttp://www.avewatch.org/files/archive-5.html that he *has* made concrete promises, ones that are perhaps even legally binding (apparently a law firm was hired to verify that the most important ones were).
3. This does raise an interesting way out for the directors. They might agree that a move to Florida will have a 90% chance of wrecking the Law School, but that if they don’t move, Mr. Monaghan will stop donating, which will have a 100% probability of wrecking it. In that case, the move is in the best interests of the Law School.
The Falvey Report (by a professor unexperienced in administration who did it without cooperation from the Law School and on short notice) seems to refute that scenarior, though. It makes a strong case that the School could survive even if it only received the legally binding commitments made by Mr. Monaghan up to 2009. This was what the ABA accreditation people said, essentially– that they would accredit only because they were convinced that the Law School could be self supporting.
May 3rd, 2007 at 8:05 am
In Michigan, a derivative suit for a not-for-profit, directorship corporation such as AMSL, can only be initiated by a member of the Board of Directors.
Individual suits for breach of contract, etc., of course can be filed by any interested party.
May 3rd, 2007 at 8:23 am
Amazing! Then if the entire Board breaches its fiduciary duty– say, by paying themselves a salary equal to the entire assets of the charity, or by authorizing such a salary to a secretary — nobody can bring a civil suit. I wonder if a criminal prosecution is possible in that case?
May 3rd, 2007 at 12:17 pm
Annonymous,
In regard to your comments on the Falvey Report:
First, I don’t know how you define “unexperienced in administration,” but the author of the report has served in top level positions in the U.S. Army and was also the Dean of Students for the law school for roughly six years. Second, while he did prepare the report on short notice, it was prepared at the request of Tom Monaghan, who of course later dismissed it, though, there is no evidence that he actually read it.
May 3rd, 2007 at 12:21 pm
Correction:
Lt. Col. Falvey is a Marine and is not in the Army.
May 4th, 2007 at 1:42 pm
Col. Falvey….not Lt. Col.
May 9th, 2008 at 7:48 pm
2c7c8608920f…
2c7c8608920f9eb169fd…