Wednesday, August 29, 2018

Judge rules in favor of UW Oshkosh Foundation, holds state responsible for $15 million

University of Wisconsin Oshkosh photo

The UW Oshkosh Alumni Welcome and Conference Center overlooks the the Fox River.

By Miles Maguire

A federal judge has granted a $15 million judgment to the UW Oshkosh Foundation after finding the state of Wisconsin responsible for breach of contract.

In a ruling issued Wednesday, U.S. Bankruptcy Judge Susan V. Kelley said the state is liable for certain debts incurred by the foundation in connection with two biodigesters and the Alumni Welcome and Conference Center.

UW Oshkosh and the UW System declined to comment. An appeal is expected.

The University of Wisconsin System has argued that it was not responsible for these debts because the foundation is a private entity and could not obligate taxpayers to cover these costs. But this argument is not valid, Kelley said, because the debts were incurred for public purposes.

“There is no question that the construction of facilities designed to serve the university’s students and the surrounding community serves a public purpose,” Kelley said. “The biodigester facilities signified a move towards the use of renewable resources and provided educational opportunities for students, and the welcome and conference center enhanced the campus.”

In legal papers the state has argued that the foundation’s financing agreements were not enforceable because university officials did not follow proper procedures and did not meet statutory requirements for incurring a “public debt.”

But Kelley rejected these arguments as well.

She said the memoranda of understanding that UW Oshkosh issued to cover foundation costs did meet the definition of a public debt. Furthermore, there is a "savings clause" in state law that applies even when officials fail to follow relevant contracting rules to the letter.  

This clause says that public debts are valid "notwithstanding any defects, irregularities, lack of power or failure to comply with any statute."  She said this provision make sense because it would "encourage parties to make credit available to the state by assuring them that public debt will be valid even if the state fails to comply with [statutory] procedures."

Without such a provision, Kelley has said, lenders would balk at making loans to the state for fear that some technicality would allow the state to repudiate the debt or that a change in partisan control of state government would leave creditors hanging.

In granting most of the foundation's requests for repayment, Kelley also rejected claims for $3.5 million in other liabilities and professional fees.

The ruling is a "good outcome," said Timothy C. Mulloy, a retired insurance executive who chairs the foundation's board of directors.

It comes on the heels of a surprisingly high bid earlier this week for the biodigester the foundation owns in Rosendale. The bid of $8.25 million is nearly equal to the liabilities associated with the facility and represents a major step forward for the charitable organization as it attempts to resolve the financial distress that caused it to seek bankruptcy protection last summer.

If Kelley's ruling is upheld, an outcome that could be many months away, legislative leaders may have to revisit their earlier rejection of a plan to use tax dollars to satisfy foundation creditors. 

If such an arrangement were made, the university would likely end up owning facilities that, as the judge noted, had been built for the good of the school and its students in the first place.

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