Officium….Conflictus

A 2020 Harvard Law School Forum on Corporate Governance claimed that “…the overall state of JV governance is still not good.”   The same Forum offered a piece in 2019 which explicitly discussed the “JV Directors Duty of Loyalty” and begins “Many joint venture board directors find themselves in a perceived state of conflicted interest.”  It’s relevant reading when the court case1 between INTO2 and University of South Florida financing Company (USFFC) shows the Secondary Case3 naming four employees of the University of South Florida (USF) as defendants. 

These individuals were appointed by USSFC as directors on the Joint Venture between USF and INTO University Partners (IUP), with one of them serving for just a single day on the joint-venture Board.  The defendants, Jennifer Condon, Karen Holbrook, Nick Trivunovich, and Ralph Wilcox are collectively referred to in the submissions as the “Former USFFC-Designated Joint Venture Directors.”4. INTO’s claim is that, “As a result of the USF Parties’ threats and failure to perform their contractual obligations, as well as the Former USFFC-Designated Joint Venture Directors’ breaches of their fiduciary duties to the Joint Venture and INTO USF LPLP, Plaintiffs have suffered and continue to suffer financial harm in the tens of millions of dollars.”5.

INTO Claims Against the Individuals as Count V

The INTO claim for Breach of Fiduciary Duty Against the Former USFFC-Designated Joint Venture Directors.” is Count V of their complaint6.  The assertion is that they, “..breached these duties by continuing to serve on the Joint Venture’s board of directors with knowledge that USFFC and USF intended to and did purport to terminate the USA despite the Former USFFC-Designated Joint Venture Directors’ serious conflicts of interest.”

In the same Count, two of the four are further accused that they “..breached their fiduciary duties by actively advocating for the baseless termination of the USA [University Services Agreement]..” and that “Their advocacy for termination of the USA was motivated by their concern for the advancement of USF, not the Joint Venture or INTO USF LP, and their loyalty to USFFC and USF, whose interests they put before those of the Joint Venture and INTO USF LP.”

There is the further suggestion that, “The Former USFFC-Designated Joint Venture Directors breached their fiduciary duties by resigning as directors and leaving the interests of the Joint Venture and INTO USF LP without proper care.”

This was not the first time the question of conflict of interest had come up but it was an interesting reversal from an earlier accusation by Fell. L. Stubbs, Treasurer of USF and Executive Director of USSFC.  On 13 May 2 he sent a memo alleging that “While INTO has continuously accused the USF FC appointed directors of conflicts that they have taken care to appropriately manage, INTO has not done the same. For instance, Anmar Kawash, an INTO appointed director to INTO USF, continues to represent the stockholder and IUP in the parties’ dispute.”7

Defendant’s Response and Motion to Dismiss Count V

The defendant’s response on 3 November8 was a Motion to Dismiss Count V claiming, “The ultimate issue…is whether the University of South Florida (“USF”) correctly terminated its University Services Agreement (“USA”) with the Company [INTO USF Inc,.  It continued,“But that simple breach of contract case has exploded into an eight-count diatribe against any person or company that provided information to USF or agreed with the termination decision….”  In addition to claiming that the individuals acted in ways that were “contractually agreed” and which they were “entitled to” do the response asserts that “…this lawsuit is the INTO Entities’ way of exacting revenge and forcing anyone who reported to USF about the Company’s financial distress to pay the penalty.”

In seeking the Motion to Dismiss there are claims the action is barred by sovereign immunity, absolute immunity and corporate “primacy of contract” doctrine, as well as failing to show a cause of action.  There is a specific argument that the individual who was a director for one day “did not take part in any of the conduct about which the INTO Entities complain” because the appointment was made after “the SHA was terminated.” 

Request for Production and a Further INTO Response on Count V

On 9 November INTO issued “Requests for Production”9 to each of the four individuals covering the period from January 1, 2019.  The main elements requested are “all documents relating to the lawsuit”, “All documents and communications relating to the February 2022 board meeting”, “All documents and communications relating to Your resignation as a director of the Joint Venture”, and “All Your notes or minutes from any meetings, whether in person or remote, involving You relating to the Joint Venture and/or Plaintiffs”.

On 23 November INTO filed its response10 to the defendants’ Motion to Dismiss of 3 November, claiming “It is difficult to imagine a clearer example of divided loyalties and breach of fiduciary duty than the one laid out in the Amended Complaint.”  The Response lays out its reasons for this claim and makes legal points against the assertions of immunity and other arguments for dismissal.  The argument related to the individual who was a director for one day states that she “..breached her fiduciary duties to the Joint Venture by resigning from her position as Joint Venture director, leaving the Joint Venture without proper care..”

The Defendant’s Reply to INTO’s Response on Count V

To a casual reader, the Reply for the defendants’ on 2 December11 adopts a tone that mixes legal argument with language that a detached observer might consider scornful.  On sovereign immunity they say, in a “gotcha” moment, “Given this law, the INTO Entities pled directly into the sovereign immunity defense.” and conclude, “This end-run on USF’s sovereign immunity is futile.” 

On Primacy Doctrine they suggest, “The INTO Entities confuse substantive and procedural law, as well mutually exclusive remedies.”  On the failure to “state a cause of action” against Jennifer Condon they state, “The INTO Entities’ ineffectual response shows nothing more than their scorched earth policy.”  This looks like a level of rhetoric which one assumes a judge will calmly sift through and ignore while considering the facts of the case.

Breaking Up Is Hard To Do

When Neil Sedaka released the song in 1962 he sang “Think of all that we’ve been through and breaking up is hard to do.”  The current court saga certainly seems a long way from 2010 when IUP and USF began their partnership.  Or even May 2013, when IUP founder Andrew Colin received a Global Leadership Award from the University of South Florida in recognition of his contribution to international education. 

The intervening years may have led to a point where speculation about the “end of the long-term joint venture” model has become a reality.  It may even give other joint venture directors pause for thought about the governance model they work under, the obligations they might have and the legal cover that is offered for disputes.  In this case a moment of truth may come on 25 January 2023 when a hearing is scheduled to hear the motion to dismiss Count V on the grounds of sovereign and absolute immunity12.

NOTES 

This blog reflects on complex legal issues and makes no assertions in support of or against any of the parties involved. References are provided for readers wishing to read more detail. Any authoritative corrections on matters of fact are welcome.

All filing references relate to documentation filed with The Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough County, Florida Circuit Civil Division.  Further information about the case including the lawyers representing the parties are included in a previous blog.

  1. In the Consolidated Lead Case CASE NO.: 22-CA-006001, Div. L, USF Financing Corporation (USFFC), a Florida not-for-profit corporation, is the Plaintiff while INTO USF LP, a Delaware limited partnership, and INTO USF, INC., a Florida corporation are the defendants (Filing # 156524107 E-Filed 08/31/2022).
  2. As INTO USF LP and INTO USF, INC., are the listed parties in the cases the term INTO is used to describe them in this blog.
  3. In the Secondary Case INTO USF LP, a Delaware limited liability partnership, and INTO USF, INC., a Florida corporation, are the Plaintiffs, while USF FINANCING CORPORATION, a Florida not-for-profit corporation, and THE BOARD OF TRUSTEES OF THE UNIVERSITY OF SOUTH FLORIDA, Defendants.  The amended complaint (Filing # 157809124 E-Filed 09/20/2022) added the four individuals.
  4. Filing # 157809124 E-Filed 09/20/2022  
  5. Filing # 157809124 E-Filed 09/20/2022
  6. Filing # 157809124 E-Filed 09/20/2022
  7. Filing # 153460265 E-Filed 07/15/2022 Exhibit G
  8. Motion and Incorporated Memorandum of Law to Dismiss Count V of the Amended Complaint Against the Former USF FC-Appointed Directors Filing # 160604060 E-Filed 11/03/2022
  9. Filing # 160982138 E-Filed 11/09/2022
  10. Filing # 161827652 E-Filed 11/23/2022
  11. Filing # 162259450 E-Filed 12/02/2022
  12. Filing # 162395119 E-Filed 12/05/2022

Image by Mohamed Hassan from Pixabay 

Leave a Reply

Your email address will not be published. Required fields are marked *