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Rescue Mission or Hostile Takeover?

December 17, 2007

An attempt to purchase a small, financially strapped Cleveland business college has enough elements to fill a tabloid: a for-profit suitor with unclear motives, allegations flying in all directions, a judge on a mission to broker a sale, a violated gag order that sent the university's president to jail.

Now Richard Scaldini, who was the president of Myers University for 15 months, until Friday, when he was removed by judicial decree, is speaking about what he calls gross distortions in how the potential sale has been portrayed in the press and the misleading statements of the judge, Daniel Gaul, and those seeking to purchase the university, which otherwise would have had to close at the end of the semester. Most of the other players in the legal drama were not available for comment on Friday, when the gag order was lifted after the afternoon announcement that -- with Scaldini gone -- the sale would proceed as planned.

The legal proceedings date back to May, when a real estate holding company called UNVA Properties LLC agreed to pay $2 million to Myers, keeping the nonprofit university financially afloat, in return for 15 seats on the board of directors, a majority. The principal backers of the deal were Daniel F. Ho, the vice chancellor and CEO of the for-profit University of Northern Virginia, and David Lee, the chairman of the board, at least one of whom is also a shareholder in UNVA Properties. The University of Northern Virginia stressed on Friday that it is completely separate from the real estate entity and that attempts to tie Myers and the university together are "without basis" and "erroneous."

The university acknowledged a previous interest in a "strategic working relationship" with Myers. A press release statement attributed to the chancellor of the University of Northern Virginia, Fay R. Avery, read: "While UNVA, Inc. has no further interest in any strategic working relationship with David N. Myers University, we certainly endorse any action by any organization to save the school and preserve it’s integrity for it’s students and faculty [sic]."

Until Friday, when he was removed from the presidency, Scaldini was pitted in popular opinion against the financiers seeking to bail out the university. Gaul, the judge, has declared his interest in seeing the sale go through, appointing a "special master," Mark Dottore, to administer all court orders related to the deal. Facing increasing anger for what many viewed as his attempts to obstruct the deal from going through, Scaldini told Inside Higher Ed in an interview over the weekend that it was a "hostile takeover" sure to jeopardize the university's accreditation and fundamentally alter its business-oriented mission focusing on low-income and minority students.

Scaldini said he didn't on principle oppose a purchase of the university that would restore its finances and allow it to continue operating. "I was opposed to an illegal takeover of the school," he said. "If that buyer purchases the school under the aegis of the court, and the court sees that it’s done legally and properly, I have no problem whatsoever. The court has just solved my problem."

Myers' latest troubles began last month, when an executive committee of its board kicked off most of the UNVA-appointed members, who had ties to the for-profit university, for what Scaldini called conflicts of interest. Ho obtained a temporary restraining order from Gaul, of the Cuyahoga County Common Pleas Court, that prevented Scaldini from closing the university. In a bout of frustration, Scaldini violated a gag order by writing a letter to the editor published last week in The Cleveland Plain Dealer .

In the letter, he challenged the paper's accounts -- attributed to the UNVA officials pushing for the deal -- alleging that Myers did not account for the funds it received from UNVA Properties. "Before you stain the reputation of honest people, I urge you to do some fact-based reporting and evaluate your sources," he wrote. (So far, $1.5 million of the pledged $2 million have been received.)

The letter had one concrete result: It landed Scaldini in jail for 24 hours. Given the choice of resigning immediately or spending the night behind bars, Scaldini initially said he'd quit, then changed his mind after leaving the courtroom on Thursday. He decided not to resign, he said, when he thought of how the students would receive the news that he'd left the institution rather than continue to fight for its well-being. Resigning "would be conceding everything," he said.

Although for-profit acquisitions of not-for-profit colleges and universities are relatively rare, one of the main advantages gained is the newfound asset's regional accreditation, which many for-profit distance-learning companies lack. That's one reason Scaldini believes the university was interested in acquiring Myers, even though, ironically, he said that the purchase could easily result in a loss of accreditation from the North Central Association of Colleges and Schools because of a change in mission and other factors. Ho and Lee told local media that they planned on adding many overseas students -- effectively dwarfing Myers' existing enrollment. (Most purchases of this sort result in the nonprofit institution converting to for-profit, although the intent in this case was somehow to keep Myers' nonprofit status.)

Meanwhile, the University of Northern Virginia itself has had accreditation difficulties of its own, losing its certification from the Accrediting Council of Independent Colleges and Schools, with which it is also embroiled in a lawsuit. Scaldini said that would make Myers all the more attractive as a "lifeboat" for accreditation status.

For Scaldini, the real story behind the recent legal proceedings is the difficulty for small colleges and universities in financial peril to be acquired. He noted that "it’s just a case where the legal institutions, the accrediting institutions cannot respond to emergencies with the speed and the flexibility that emergencies require." In other words, the legal procedures designed to protect the stakeholders in such institutions often work to "kill" them, he said. Meanwhile, with time running out, institutions strapped for cash are left with limited options.

Last Friday, Judge Gaul and University of Northern Virginia officials announced that the university would seek to add some 2,400 students to its existing enrollment of about 600. A former dean, Joyce Banjac, has been appointed as interim president and board chairwoman, an unusual arrangement for a nonprofit university. Ho will also provide a $500,000 "cash infusion" -- a term the judge insisted on, rather than a gift or a purchase -- and a financial audit is also planned. UNVA representatives will hold the majority on Myers' new board.

 

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