September 11, 2005 in Idaho

Tangled loyalties contributed to debacle

By The Spokesman-Review
 

Everybody knew everybody.

One of the most persistent factors in the planning and decision-making surrounding University Place is the network of connections – some say conflicts – that surrounded the relationships among top University of Idaho officials, the foundation, its law firms, the project developer – even the governor.

The same law firm represented the university, the foundation, the project developer and the city of Boise’s development agency at some point during the project. A partner in the firm, Roy Eiguren, was a major force behind the project from the start. He sat on the foundation board, headed the committee overseeing the project and got paid as a lobbyist for the university – all while his firm was being paid hundreds of thousands of dollars in legal fees from various clients.

His close relationship to university President Bob Hoover went back years and included leading an effort to raise money to supplement Hoover’s salary.

The university’s vice president for finance, Jerry Wallace, was also the foundation’s treasurer. In one capacity or the other, Wallace signed off on all the deals that placed the foundation in deep debt – board members say without proper authorization.

“You had employees that were wearing two hats – both on behalf of the university and the foundation,” said Bradley S. Keller, a Seattle attorney representing the Boise law firm Givens Pursley and two attorneys.

Steve Semingson, the former project developer whose firm is embroiled in a dispute over its charges, said he just assumed that was the way business was done in sparsely populated Idaho.

“I would say that based on our involvement over the years in Boise,” said Semingson, a Californian, “there’s a lot going on in Boise and there aren’t a lot of large law firms.”

Stan Hawkins, a former state senator, told the Idaho Statesman in 2003 that the planning surrounding the project was “an incestuous mess.”

Now, it seems as if everybody’s suing everybody. A series of lawsuits is being combined into one big legal action, in which the university and the foundation are suing their attorneys, their insurance company, and the initial project developer.

‘Two hats’

The dual role Wallace served was not, in itself, unusual. The rules governing the foundation had required it, in fact, as a way of making sure the foundation was operating in the best interests of the university.

Foundations serve as nonprofit arms that raise donations, oversee trust accounts and generally handle gifts to universities. Universities and their foundations operate together in many ways, and it’s not that unusual for top officials to have authority in both, said Brian Pitcher, former provost and interim president at UI, immediately following the revelations of problems in the financing of University Place.

“It’s clearly not best practices,” he said, “but it is not unusual.”

It was sometimes unclear in which capacity Wallace was serving. Pitcher, who is now chancellor at Washington State University-Spokane, said he and the members of the UI’s Executive Committee tried without success to get details about project financing from Wallace.

“He strongly resisted, saying this is foundation business, not university business,” Pitcher said. “And Jerry was wearing both hats.”

Wallace, reached at his Moscow home, declined to comment.The Idaho Board of Education is on the verge of adopting new rules that seem directly tailored to prevent a repeat of University Place. The rules require board approval for all loans between the foundation and university, and for any real estate projects undertaken by foundations. They would also shift oversight of many foundation functions from university presidents to the state board, and expressly forbid the kind of dual role Wallace had.

“You won’t have a key person at the university who is a decision maker at the foundation anymore,” said Gary Stivers, executive director of the state Board of Education.

The close relationship among prominent Idaho alums played out in other ways.

Gov. Dirk Kempthorne, a former UI student body president, was closely involved in developing support for the project. His administration oversaw a bidding process that was designed to favor the state Department of Water Resources as a tenant, according to an extensive report in the Idaho Statesman.

Kempthorne’s chief of staff at the time, Phil Reberger, also held key positions with the foundation and the state bonding authority.

The attorneys

Four attorneys and two law firms have been sued for malpractice over their representation of more than one client. The attorneys also face professional misconduct complaints from the state bar association.

The various claims include assertions that attorneys failed to properly notify their clients of the risks of representing multiple clients, and that they failed to advise the foundation of the improper use of its assets to finance the project. The foundation’s suit terms it an “improper scheme” to put restricted foundation assets into a speculative real estate deal.

One attorney, Ryan Armbruster of Elam and Burke, has settled his bar complaint, acknowledging that he violated the rules of professional conduct. The others – Eiguren, Edward Miller and Franklin Lee of Givens Pursley – are fighting the charges, saying the university and foundation had independent counsel in every circumstance.

The foundation is “trying to make a case against the deep pockets who might have insurance, rather than trying to make a case based on whether people did the right or wrong thing,” Keller said.

The suit alleges that Eiguren and Miller saw the project as a way to benefit themselves and their firm, Givens Pursley. The firm was paid $1.5 million for work on the project – about $900,000 by Civic Partners and $600,000 by the foundation, two clients who became hostile to each other by the end of their relationship.

Keller said that every time Givens Pursley was involved in a negotiation with multiple clients, the firm and its attorneys insisted that the parties have independent counsel.

“It really is not all that unusual for a law firm to continue on behalf of more than one party in a business transaction when the law firm also takes steps to ensure that each of the clients have their own independent and separate attorneys advising the clients,” he said.


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