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LEGAL NEWSLINE

Friday, September 20, 2024

Ohio State benefactor's family seeing red over mishandling of $30.3 million endowment

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Moritzlaw

https://moritzlaw.osu.edu/

Michael E. Moritz was devoted to The Ohio State University, but surviving family members are accusing the institution of not properly honoring the man's legacy.

Moritz graduated from Columbus High School, earned a bachelor’s degree in business administration from OSU in 1958 and graduated at the head of his law-school class in 1961. He was a director of The Ohio State University Foundation from 1990 until his death in 2002 and served on the campaign committee of the Max M. Fisher College of Business, where he established the Moritz Family Scholarship Fund.

In 2001, Moritz provided a $30.3 million endowment to OSU, the largest such gift in university history. Ohio State named its college of law in his honor.


Michael and Lou Ann Moritz | https://moritzlaw.osu.edu/

But things have become complicated between the Moritz family and the university. Since 2017, the family has been involved in a legal battle over how that endowment is being used.

Attorney David Marburger, who represents the Moritz family, said the university has deducted annual management fees that were not specified when the endowment contract was drawn up. It called for investing $10 million to fund four endowed faculty chairs at the Moritz College of Law; $9.88 million for a Merit Scholars program to provide full tuition and a stipend for 30 law school students; $10 million for a Dean's Fund for Innovation and Excellence, and $120,000 to endow leadership awards for one student in each of the three classes.

When Jeffrey Moritz examined the endowment’s balance in 2017, he saw it was at $21.9 million, Marburger said. The younger Moritz was stunned.

“He thought it would be at $50 million,” Marburger said. “He is an investment banker and he thought it had been invested well.”

Instead, OSU had charged a fee of around 1% every year, which drained about $3 million from the fund. Poor investments had caused the remaining losses.

“Their investments have been terrible,” Marburger said, noting the stock market has risen dramatically since 2001, but Ohio State still lost money while investing its endowment funds.

Marburger said the university had very quietly been taking money from its endowment funds and using it as a fund to attract future gifts, according to Cleveland.com.

“They decided they could tap it to pay for all the expenses that OSU uses to cultivate wealthy benefactors to the college, new benefactors,” he said.

Marburger said that OSU has been doing this since 1994 but did not divulge it until June 2004. In more than a quarter-century, millions of dollars intended to benefit the university have been used to fund a program to raise more money.

“It’s being basically raided to cultivate other wealthy benefactors,” Marburger said. “Banquets, social events, Rose Bowls, brochures, invites, a way to wine and dine other wealthy people.”

Once OSU did start to inform people of the fee, they did so in tiny font, in a footnote. Although, the description is "kind of obtuse," Marburger said, “You need a magnifying glass to read this.”

Ohio State University said Moritz was aware of the fee, since it was reviewed by the OSU Foundation board of directors in 1994 when he was a member of the board. All higher-education institutions with endowments of more than $500 million assess such fees, according to OSU.

What also has upset the Moritz family was that instead of providing 30 scholarships, only 12-15 were funded annually. OSU has pledged to fund 30, but Marburger said if it does so this fall, it will be the first time.

“I believe they never once went above 15 and were always hovering at 15 or below,” he said. “They never were at 30.”

A man of integrity

Michael Moritz signed the gift contract in June 2001, giving OSU 409,478 shares of common stock in Cardinal Health Inc., where he was a director. The stock was valued at $30.3 million.

He was seriously injured in a hit-and-run automobile accident Feb. 23, 2002, and died 10 days later. Jeffrey Scott Ryals, who was speeding and driving with a suspended license when he slammed into a vehicle being driven by Moritz’s wife Lou Ann, was convicted of vehicular homicide and sentenced to 20 years in prison, according to the Naples Daily News.

William E. Kirwan, then the president of Ohio State, expressed his “profound sadness” when told of Moritz’s death.

“We have lost a truly exceptional friend, an exceedingly generous and caring person who made the gift of his time and talents to serve others and his extraordinary philanthropy an important priority in his life,” Kirwan said in 2002. “He is a man who always stood for integrity, quality and excellence. I will always remember him for his great intellect, the principled manner by which he lived his life, and the warmth and humility that characterized his daily interactions with people. He truly was an inspiration to all who were privileged to be his friend. The legacy of his gift to Ohio State will touch the lives of people for as long as this university exists.”

Marburger said the fact that Moritz died shortly after making his endowment was not a factor in the debate. What is germane is that OSU has assessed fees and not lived up to the agreement.

“They’ve taken in actual fees more than $3 million,” Marburger said. “And they lost another $3 million in generated earnings.”

The family at first asked OSU to change how it was using the money, but that request was denied. It has since tried to reopen Moritz’s estate to review how this money is being used. 

However, OSU and the Ohio Attorney General’s Office have joined the legal battle, trying to prevent the estate from being reviewed. Marburger said he does not see how they have any standing in what is essentially a family matter.

A Delaware County probate court denied the request to reopen the estate. That has been appealed, with oral arguments set for Sept. 17 before the Ohio Fifth District Court of Appeals.

“The court could declare OSU has violated the agreement by siphoning off the fees and not providing the scholarships that were provided for,” Marburger said. “I just need a court judgment, a court ruling. What they want, ultimately, is for OSU to stop taking this fee and provide the scholarships that were to be provided.”

If that happens, the family will work with Ohio State to make a new arrangement. They don’t want the money back — they just want the endowment agreement followed, Marburger said.

“Let’s bargain,” he said. “You know what we want. Let’s bargain.”

Jeffrey Moritz, like his father and other family members, is an OSU graduate, earning a master’s degree in business administration. He has said the family still loves the university and wants to see it and the law school named for his father continue to succeed.

Michael Moritz was a partner in the law firm of Baker & Hostetler. Marburger is a member of the firm but worked in Cleveland while Moritz was in Columbus.

“I knew who he was,” he said.

Marburger said he only represents the Moritz family. He has no idea if they win this case if it will impact how OSU treats other gifts.

“They shouldn’t be able to take it out of any endowment,” Marburger said. “But we don’t have standing to get involved in other endowments. I think that all the endowments have been handled horribly.”

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