Saturday, September 13, 2008

Polytechnic alumni file suit to rescind NYU consolidation deal

Some two months after the State Board of Regents in late June approved New York University's no-money-down absorption of Brooklyn's Polytechnic University, a group of seven dissident alumni have filed suit (PDF) in Albany to rescind the decision, arguing the Regents allowed the affiliation in violation of a 2005 Polytechnic board decision to remain independent.

NYU’s consolidation effort--the school is now known as Polytechnic Institute of NYU--not only adds engineering to the university’s portfolio but provides a beachhead in Brooklyn, providing perhaps one-quarter of the real estate NYU needs to expand. The lawsuit, filed against both the Poly board and the Board of Regents, charges that the university's board failed to obtain an appraisal to establish the value of its real estate, air rights and other assets, a breach of its fiduciary duty.

State report lingers

Indeed, a report issued May 20 by State Sen. Kenneth LaValle, the chairman of the State Senate Committee on Higher Education, raised some serious questions about the deal, stating that in three instances the board did not act with the duty of care and/or loyalty required by a fiduciary, notably negotiations conducted in secret, the exclusion of dissident board members from working committees, and the failure to update a three-year-old appraisal of the university's valuable property in Downtown Brooklyn's MetroTech Center. (LaValle, oddly enough, released the report without an accompanying press release or comment.)

On June 8, Polytechnic posted a two-page commentary in response to those three conclusions, noting that it was "not a detailed rebuttal of the Senator’s Report." For example, the response noted that Poly would remain the owner of its real estate after the "Affiliation," that the board "had access to detailed, expert analysis of the substantial cost of renovation of Polytechnic’s buildings and was aware that the Brooklyn real estate market was softening," and the board "was fully aware that Polytechnic’s short-term and long-term financial distress went much deeper than the value of its real estate."

No mention of LaValle's report, or the response, appeared in the summary material posted on the Board of Regents web site.

Plaintiffs' argument

The plaintiffs, including officers of the Alumni Association, are part of the Committee to Save Polytechnic University. They argue that they have been aggrieved individually because they can’t participate in Poly decisionmaking, as well as aggrieved collectively because their alma mater no longer exists as an autonomous institution.

Plaintiff Thomas Mauro, a Washington lawyer who is the immediate past president of the Polytechnic Alumni Association, said in an affidavit that, at a 2005 meeting of the university board, the trustees by a 3-1 margin passed a resolution rejecting NYU’s takeover offer and instructing Polytechnic’s administration to end any merger discussions with NYU.

However, Mauro charged, in August 2007, the presidents of Polytechnic and NYU “jointly announced their secretly negotiated agreement,” which would give “NYU de facto ownership of Polytechnic’s valuable real estate and other assets,” including an endowment over more than $125 million.

Real estate value

The agreement adopted by the Polytechnic board gives NYU “irreversible equitable ownership of Polytechnic’s valuable real property assets," Mauro stated.

How much is that worth? "We have done appraisals of our real estate and understand that the remaining value is minimal after considering all outstanding debt and the cost to lease or build new space if the property were sold,” Polytechnic officials said in an August 2007 letter to alumni—though LaValle’s report indicated that there were no current appraisals.

A January 2005 appraisal valued Poly property at $213 million, according to the senator's report. Poly has signed a letter of intent regarding its air rights with developer Forest City Ratner, its MetroTech neighbor, but has not begun new buildings.

Mauro added in a footnote that “NYU privately informed the federal government” that the real estate it would gain is worth more than $300 million. No source for that claim is provided; Mauro told me by e-mail that "the back-up for this statement will emerge at a later date."

Charges of secrecy

In the affidavit, Mauro stated that he can provide the court with a copy of post-affiliation bylaws only in draft form because the final version has not been made public, even though the administration had not restricted public disclosure of the previous bylaws.

Mauro added in response to my question, "It is not accurate to speak of the alumni as 'split' over this issue since only two alumni, myself and [Alumni Association President] George Likourezos, know the terms of the transaction. One of the purposes of the lawsuit is to bring the transaction out into the open. Only then can the alumni make any kind of informed decision. It is not possible to know what kind of transaction this is from the administration and Board's releases because the Poly administration and Board leadership vary its message to fit the audience and the purpose of the release."

Contested election

Still, the dissident alumni seem to be in the minority. The official Polytechnic alumni web site notes that the alumni association will issue no response to LaValle’s report and will take no further action to oppose the affiliation “except to request that the Definitive Agreement be made available to the Association.”

The alumni association is having its first contested election, with pro-affiliation candidates opposing the nominees of the Nominations Committee.

Changes emerge

Besides a changed name and visual identity, NYU-Poly seems to be drawing on the resources of the larger university. A press release this week announced that Nassim Nicholas Taleb, “the hottest thinker in the world,” according to the London Times, is the Polytechnic Institute of NYU’s new distinguished professor of risk engineering.

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