Skip to main content

Senate report warns of breach of duty in "done deal" Polytechnic-NYU consolidation

Two-and-a-half months after the board of Polytechnic University (Poly) in Brooklyn voted to approve a controversial consolidation into much larger New York University (NYU), the chairman of the State Senate Committee on Higher Education has raised some serious questions about the deal, though it's unclear whether those questions--outnumbered by allegations dismissed--are enough for the state Department of Education or the Board of Regents to withhold their approval.

State Senator Kenneth LaValle, a Republican who represents eastern Long Island, did not issue a statement accompanying the release of the report (PDF and embedded below), titled Proposed Affiliation: Polytechnic University and New York University, which appeared yesterday afternoon on his web site. Nor does the report offer final recommendations.

That may indicate he considers the results inconclusive: while the report rejects most charges made by Poly alumni that the consolidation into NYU is a sweetheart deal, it does conclude that the Poly board, in its eagerness to approve the merger, in three instances 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 Downtown Brooklyn property.

There's little precedent regarding such findings; thus, it's hard to predict what the Department of Education and Board of Regents might do. Still, the report throws some cold water on the exuberant press release issued by Poly on March 6 and partially validates a statement made by a faculty member, who told LaValle's office that the plan was presented by the board as a "done deal."

[Updated Wednesday 1:45 pm: Poly board chair Craig Matthews commented, "I would just affirm that after an intensive four month review, the Senator found no basis to object to the merger, no evidence of fraud or impropriety and affirmed the propriety of the process. We are pleased that we can now proceed with the next step which is approval by the Board of Regents."]

NYU's Brooklyn opportunity

Poly, a small engineering school at Brooklyn’s MetroTech that draws mainly on local students, offers NYU, a Greenwich Village-based university with international reach, two things it needs: an engineering school and, crucially, land, including air rights subject to a letter of intent Poly has signed with Forest City Ratner, its neighbor and lead partner on MetroTech.

Poly would gain the umbrella and cross-pollination of a larger university, and significant potential increase in revenue: improved opportunities for grant funds and a larger and better-qualified student body, compounded by NYU’s higher tuition. Poly has been struggling, and the "merger"--the two universities' term of choice--would help it with enrollment, collaborative research, library resources, and overall financial reach.

However, NYU would gain control of Poly with no money down, offered to loan Poly $50 million over five years, according to LaValle's report (confirming previous reports), based on the engineering school’s unused air rights.

While a February 7 "Sense of the Board" vote indicated more than a supermajority (75%) supported the merger, the vote was postponed a month so LaValle could investigate charges raised by three dissident trustees, including conflict of interest, failure to do due diligence, secret negotiations, and failure to consult faculty. After the board voted its approval in March, LaValle expressed dismay that the board acted before his report was issued.

Issues dismissed; "done deal" claimed

LaValle's report first dismisses alumni claims that 1972 legislation that required NYU, then experiencing fiscal crisis, to let its school of engineering and science merge with Poly, subsequently barred NYU's re-entry into the field of engineering.

The report then goes through several allegations of conflict of interest. A few are summarized below.

While one Poly trustee is a partner with the law firm represeting the university in negotiating with NYU, the board had gotten a legal opinion that there was no conflict of interest and thus acted in good faith.

While the Poly board did not explain why it concluded that the use of an accounting firm that had previously done work for NYU to evaluate NYU's financial condition was not a conflict of interest, the choice was "conceivable." Though it would have been more sensible to avoid the appearance of impropriety, "there is insufficient evidence" to conclude the decision was a breach of fiduciary duty, the report concludes.

While Poly denies that President Jerry Hultin was promised a position with NYU, one Advisory Trustee recalls two NYU officials saying Hultin would head the "new Poly." Still, there's no evidence of a concrete promise, and Hultin would be a natural candidate, the report says; hence, no conclusion of misconduct.

While Poly did not conduct a faculty vote, it offered numerous meetings and noted that ten of eleven department heads supported the affiliation. One faculty member who wished to remain anonymous contacted LaValle's office and claimed that board members "consistently characterized the affiliation as something of a 'done deal'" and that faculty members could view the merger agreement only in the presence of a Poly administrator and were not permitted to take notes. Still, given the "overwhelming support" of the faculty, it does not appear that Poly trustees breached their fiduciary duty, the report concludes.

Money issues

The Polytechnic Alumni Association points out that the board long claimed that Poly was not financially viable without the merger, due to debts dragging the school into the red, but, in a May 2007 court filing, had claimed that the university had $154.6 million in assets.

While the Alumni Association has complained about the terms of the deal, given the promise of loans rather than cash, "it takes more than unfavorable terms and questionable decisions by the Board to conclude there was a breach of the fiduciary duty," the report concludes.

What's acting in good faith?

The Business Judgment Rule “bars judicial inquiry into actions of corporate directors taken in good faith and in the exercise of honest judgment," the report states.

The report cites three areas of concern that are not protected by the Business Judgment Rule. "While some of the remaining allegations suggest a significant lack of diligence or good faith on the part of Polytech, they are not substantiated by evidence which definitively says that the Board did not uphold the duty of loyalty and care owed to the institution," the report states.

The three areas:
(1) The affiliation negotiations between Polytech and NYU were being conducted by President Hultin some six months before they were announced to the rest of the Board. "There is no legitimate excuse for not holding these meetings sooner particularly when, by Polytech’s own admission, preliminary discussions began some three years prior," the report states.

2) Board members not supportive of the affiliation were excluded or marginalized from the working committees set up address the affiliation. "Additionally, the statements made by Deborah L. Devedjian, a Polytech Trustee who is not an alumnus of Polytech and has no obvious bias in favor of the Polytech Alumni Association, says [sic] that she was removed from one of the working committees for 'asking too many questions' and encouraging 'due diligence,'” the report states. "These two facts coupled with the resignation of Trustee Herman Viets... lead to the conclusion that those on the Board in favor of the affiliation were attempting to marginalize the participation of those individuals who opposed the affiliation."

3) An updated appraisal of Polytech’s real property was never obtained by the Board. The Alumni Association stated that the board has in part promoted the affiliation by claiming Poly is not solvent enough to operate independently for long. "While Polytech has claims [sic] that they are in debt by approximately $33 million dollars, by their own admission, they relied upon a 2005 appraisal of their real estate," the report states. (A January 2005 appraisal valued Poly property at $213 million; surely the value of Brooklyn real estate has skyrocketed, a point not made in the report.)

"Their failure to obtain an updated appraisal, regardless of the cost involved, is inconsistent with the duty of care that the Board owed to Polytech," the report states. "Given the fact that the Polytech Board is comprised of individuals who are, inter alia, attorneys and leaders of large corporations, it is inconceivable that they would not have thought it prudent to obtain an updated appraisal of Polytech’s real property."

What next?

The section of the report labeled Conclusion does not make any recommendation regarding the fate of the consolidation but instead raises general questions about affiliations and consolidations, including:
  • Whether procedures should be put in place requiring institutions to inform students, faculty, administration and alumni about their plans and allow a "reasonable period of time" for input.
  • When and to what extent an institution’s Board of Trustees and other members of the institution should be involved in negotiations.
  • Whether procedures should be put in place to ensure that faculty, administration, students and alumni are aware of potential conflicts of interest regarding such mergers and the steps taken to resolve those conflicts.
  • Whether procedures should be put in place, before a final vote is held to approve an affiliation/consolidation, to inform interested parties of the terms of the transaction and to obtain their input.
The Department of Education and Board of Regents are expected to examine the issues by the end of June.

LaValle report on Polytechnic University and NYU


  1. This acquisition of Polytechnic by NYU is a terrible deal for Polytechnic. Poly os not in dire financial straits and is giving up $400 M worth of facilities for nothing in exchange. The deal was approved by one vote of Poly's Board only after the Chairman of the Board, C. Matthews, asked two dissident Board members to resign before the vote. They did resign.

  2. As stated in my previous reportage, Polytechnic alumni leaders do consider this a bad deal.

    I'm not certain that two board members resigned, but if they had participated, that still would not have changed the outcome of the vote.


Post a Comment

Popular posts from this blog

Barclays Center/Levy Restaurants hit with suit charging discrimination on disability, race; supervisors said to use vicious slurs, pursue retaliation

The Daily News has an article today, Barclays Center hit with $5M suit claiming discrimination against disabled, while the New York Post headlined its article Barclays Center sued over taunting disabled employees.

While that's part of the lawsuit, more prominent are claims of racial discrimination and retaliation, with black employees claiming repeated abuse by white supervisors, preferential treatment toward Hispanic colleagues, and retaliation in response to complaints.

Two individual supervisors, for example, are charged with  referring to black employees as “black motherfucker,” “dumb black bitch,” “black monkey,” “piece of shit” and “nigger.”

Two have referred to an employee blind in one eye as “cyclops,” and “the one-eyed guy,” and an employee with a nose disorder as “the nose guy.”

There's been no official response yet though arena spokesman Barry Baum told the Daily News they, but take “allegations of this kind very seriously” and have "a zero tolerance policy for…

Behind the "empty railyards": 40 years of ATURA, Baruch's plan, and the city's diffidence

To supporters of Forest City Ratner's Atlantic Yards project, it's a long-awaited plan for long-overlooked land. "The Atlantic Yards area has been available for any developer in America for over 100 years,” declared Borough President Marty Markowitz at a 5/26/05 City Council hearing.

Charles Gargano, chairman of the Empire State Development Corporation, mused on 11/15/05 to WNYC's Brian Lehrer, “Isn’t it interesting that these railyards have sat for decades and decades and decades, and no one has done a thing about them.” Forest City Ratner spokesman Joe DePlasco, in a 12/19/04 New York Times article ("In a War of Words, One Has the Power to Wound") described the railyards as "an empty scar dividing the community."

But why exactly has the Metropolitan Transportation Authority’s Vanderbilt Yard never been developed? Do public officials have some responsibility?

At a hearing yesterday of the Brooklyn Borough Board Atlantic Yards Committee, Kate Suisma…

No, security guards can't ban photos. Questions remain about visibility of ID/sticker system.

The bi-monthly Atlantic Yards/Pacific Park Community Update meeting June 14, held at 55 Hanson Place, addressed multiple issues, including delays in the project, a new detente with project neighbors,concerns about traffic congestion, upcoming sewer work and demolitions, and an explanation of how high winds caused debris to fly off the under-construction 38 Sixth Avenue building. I'll have more coverage.
Security issues came up several times at the meeting.
Wayne Bailey, a resident who regularly takes photos and videos (that I often use) of construction/operations issues that impact residents, asked representatives of Tishman Construction if the security guard at the sites they're building works for them.
After Tishman Senior VP Eric Reid said yes, Bailey asked why a guard told him not to shoot video of the site, even though he was on a public street.

"I will address it with principals for that security firm," Reid said.
Forest City Ratner executive Ashley Cotton, the …

Atlantic Yards/Pacific Park graphic: what's built/what might be coming + FAQ (post-dated pinned post)

This graphic, posted in February 2018, is post-dated to stay at the top of the blog. It will be updated as announced configurations change and buildings launch. Note the unbuilt B1 and the proposed--but not yet approved--shift in bulk to the unbuilt Site 5.

The August 2014 tentative configurations proposed by developer Greenland Forest City Partners will change. The project is already well behind that tentative timetable.

How many people are expected?

Atlantic Yards/Pacific Park has a projected 6,430 apartments housing 2.1 persons per unit (as per Chapter 4 of the 2006 Final Environmental Impact Statement), which would mean 13,503 new residents, with 1,890 among them in low-income affordable rentals, and 2,835 in moderate- and middle-income affordable rentals.

That leaves 8,778 people in market-rate rentals and condos, though let's call it 8,358 after subtracting 420 who may live in 200 promised below-market condos. So that's 5,145 in below-market units, though many of them won…

The passing of David Sheets, Dean Street renter, former Freddy's bartender, eminent domain plaintiff, and singular personality

David Sheets, longtime Dean Street renter, Freddy's bartender, eminent domain plaintiff, and singular personality, died 1/17/18 in HCA Greenview Hospital in Bowling Green, KY. He was 56.

There are obituary notices in the Bowling Green Daily News and the Wichita Eagle, which state:
He was born in Wichita, KS where he attended public Schools and Wichita State University. He lived for many years in Brooklyn, NY, and was employed as a legal assistant. David's hobby was cartography and had an avid interest in Mass Transit Systems of the world. David was predeceased by his father, Kenneth E. Sheets. He is survived by his mother, Wilma Smith, step-brother, Billy Ray Smith and his wife, Jane all of Bowling Green; step-sister, Ellen Smith Alexander and her husband, Jerry of Bella Vista, AR; several cousins and step-nieces and step-nephews also survive. Memorial Services will be on Monday, January 22, 2018 at 1:00 pm with visitation from 10:00 am to 1:00 pm Monday at Johnson-Vaughn-Phe…

Some skepticism on Belmont hockey deal: lease value seems far below Aqueduct racino; unclear (but large?) cost for LIRR service

As I wrote for The Bridge 12/20/1, The Islanders Say Bye to Brooklyn, But Where Next?, the press conference announcing a new arena at Belmont Park for the New York Islanders was "long on pomp... but short on specifics."

Notably, a lease valued at $40 million "upfront to lease up to 43 acres over 49 years... seems like a good deal on rent for the state-controlled property." Also, the Long Island Rail Road will expand service to Belmont.

That indicates public support for an arena widely described as "privately financed," but how much? We don't know yet, but some more details--or at least questions--have emerged.

An Aqueduct comparable?

Well, we don't know what the other bid was, and there aren't exactly parcels that large offering direct comparables.

But consider: Genting New York LLC in September 2010 was granted a franchise to operate a video lottery terminal under a 30 year lease on 67 acres at Aqueduct Park (as noted by Gov. Andrew Cuomo).


Barclays Center event June 11 to protest plans to expand Israeli draft; questions about logistics

At right is a photo of a poster spotted in Hasidic Williamsburg right. Clearly there's an event scheduled at the Barclays Center aimed at the Haredi Jewish community (strict Orthodox Jews who reject secular culture), but the lack of English text makes it cryptic.

The website explains, Protest Against Israeli Draft of Bnei Yeshiva Rescheduled for Barclays Center:
A large asifa to protest the drafting of bnei yeshiva in Eretz Yisroel into the Israeli army that had been set to take place this month will instead be held on Sunday, 17 Sivan/June 11, at the Barclays Center in Downtown Brooklyn, NY. So attendees at a big gathering will protest an apparent change of policy that will make it much more difficult for traditional Orthodox Jewish students--both Hasidic (who follow a rebbe) and non-Hasidic (who don't)--to get deferments from the draft. Comments on the Yeshiva World website explain some of the debate.

The logistical questions

What's unclear is how large the ev…