Further developments in the long running University of Louisville Foundation controversy demonstrate why it remains one of the most notorious—and thus most relevant—of recent scandals in the nonprofit sector.
The most recent development was the November decision by the Jefferson (Kentucky) Circuit Court denying a motion by the former President of University of Louisville and of the Foundation that the Foundation indemnify him for his legal fees incurred in defending a breach of fiduciary duty-grounded action instituted by the University and the Foundation.
The Court’s ruling noted that the record failed to demonstrate that the former CEO was entitled to advancement of legal fees under the corporation’s bylaws and under the business judgment rule, and that the nature of his claimed injury was not subject to injunctive relief. The ruling did leave open the possibility of reimbursement should the former president prevail in the litigation win the suit.
This entire saga has continued for several years without any public indication of state or federal investigation (beyond Internal Revenue Service scrutiny). However, the report of the forensic audit, the civil litigation between the parties and the extensive media coverage are a reminder to corporate leaders inclined to discount the legal risks of aggressive business practices: “You may avoid the result, but you won’t avoid the ride.”
This latest decision is also a reminder of the importance in establishing clarity in the corporate articles, bylaws and organizational policies on which parties are, or may be, entitled to indemnification, and reimbursement for (and advancement of) legal fees and expenses, and under what circumstances.