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Harbor Branch sues FAU in bid to block a ‘hostile takeover’


The Harbor Branch Oceanographic Institute Foundation has gone to court to prevent what it describes as a “hostile takeover” of its $68 million endowment fund by Florida Atlantic University, which it accuses of attempting to breach a contract signed nearly a decade ago.

In a lawsuit filed March 30 in St. Lucie County Circuit Court, the foundation alleges that FAU’s Board of Trustees intends to seize control of the foundation’s grant-making function, “thus eliminating any oversight, transparency and accountability for the funds” the independent foundation provides to the Boca Raton-based university.

“We don’t know what FAU would do if they got control of the endowment fund,” said Joe Galardi, a West Palm Beach attorney representing the foundation, “so we’re asking a court to look at the contract, examine the facts and tell the parties what they’re allowed – and not allowed –  to do.”

Galardi said the foundation is concerned that, under FAU’s control, endowment funds could be redirected away from Harbor Branch’s charter mission of marine research to pay other university expenses.  It also is concerned that the university might use state money from four specialty “Save Our Seas” license plates created to fund marine research for purposes other than those mandated by the Florida Legislature.

The foundation decided to take the matter to court last month, he said, after the FAU board and Dr. Daniel Flynn, the university’s vice president for research, continued to move forward with plans to take control of the fund despite the foundation’s objections.

In their March 30 resolution to authorize taking legal action, the foundation’s directors wrote that they requested a meeting with FAU to discuss the university’s demands, only to be told the demands “are not negotiable.”

As of Monday, FAU had not yet formally responded to the foundation’s lawsuit, and Galardi said he didn’t know if the two sides could settle their differences before the case gets to a judge.

However, the university released an emailed statement that read:

“FAU is surprised and disappointed that the HBOI Foundation has misinterpreted our commitment to our partnership and to our shared responsibility for efficient and proper stewardship of our resources.

“This lawsuit is an unfortunate distraction that we hope to move past quickly, so we can return to achieving our shared goals to fill our respective missions.”

According to the complaint, FAU launched its efforts to take control of the endowment fund in 2015, when it began to “regularly push back” against the foundation’s protocols, procedures and funding decisions.

The complaint states that, on several occasions, FAU attempted to change the terms of grants awarded to Harbor Branch scientists by  the foundation after they were issued “so funds could be used for alternative or different purposes not approved” by the foundation.

Those actions surprised the foundation, which seems to have enjoyed an amicable and successful partnership with FAU up until then – a marriage that dated back to December 2007, when the two parties entered into an agreement that made Harbor Branch part of the university.

The foundation turned over its lagoon-front campus in northern St. Lucie County and intellectual property to FAU, which hoped to enhance the reputation of its marine-sciences program.

In exchange, the university agreed to operate, renovate and expand Harbor Branch, which was founded in 1971 by Johnson & Johnson Co. heir J. Seward Johnson and inventor Edwin Link and had grown into a world-renowned research facility.

Under the agreement, the private, nonprofit Harbor Branch Foundation – which came into existence as the governing body of Harbor Branch when Johnson and Link founded the independent research institute – would make grants from its endowment fund solely to and for the benefit of the renamed Harbor Branch Oceanographic Institute at FAU.

Besides administering the proceeds from its sizable endowment, the foundation is the entity designated by the Florida State Legislature to receive and disburse funds from the four “Save Our Seas” specialty license plates. According to state statute, the bulk of the license plate income, which Foundation President and CEO Katha Kissman says amounted to $2.7 million last year, must be used for “scientific research and education on marine plants and animals and coastal oceanography in state marine waters,” along with other types of marine and coastal science. 

After the merger agreement was signed, the foundation “continued to operate independently” through a volunteer board composed of “accomplished professionals, including senior executives from Fortune 500 companies, financial experts, attorneys and former elected officials,” the complaint states.

The foundation also continued to employ its own support staff, accountants, auditors and legal counsel to oversee and advise on investments and grants from the endowment fund.

Over the past nine-plus years, the complaint states, the foundation retained sole control of the endowment and distributed more than $28 million in grants and license-plate funds to the facility, while never receiving any money from FAU.

After the initial dispute in 2015, FAU “began a more direct attempt” to seize control of the endowment fund in late 2016, when Flynn raised the possibility of the university taking over the foundation’s legal services and other administrative functions and services, the complaint states.

Then, in January, Flynn announced that, as a cost-cutting measure, the foundation’s administrative, legal, accounting, audit and clerical functions would be “transferred to FAU” on July 1, according to the complaint.

The complaint states that the foundation objected to the proposed takeover but offered to work with FAU “in a good-faith attempt” to determine whether there was a legitimate need to reduce costs in the operational budget.

In response, the complaint states, Flynn said he wasn’t “making a request” and that he was “ordering the changes by FAU mandate.”

In February, according to the complaint, Flynn sent a letter to foundation chairman Michael O’Reilly, and included a copy of FAU’s Harbor Branch budget, which eliminated all administrative – and fundraising – functions, which were transferred to the university.

The budget also eliminated Kissman, a recognized leader in non-profit administration, as the foundation’s president and CEO. She would be replaced by Flynn.

The complaint states that, if FAU’s proposed changes are permitted, the foundation “would lose control over the grant-making process and it would no longer be able to guarantee that its funds would be used to support marine research and education programs” at Harbor Branch.