Tag: jointventures

You Must Remember This

One prediction for 2024 is that the ongoing legal dispute between INTO University Partnerships (INTO) and the University of South Florida (USF)1 is likely to provide hours of insight and legal argument.  It appears that the mediation of November 2023 was unsuccessful2 and there is plenty of continuing legal activity in the early part of 2024.  As ever, the summary below is taken from published documents and makes no observation on the arguments made by either side.

The Fundamental Things Apply

Things get moving early in the year with a JAWS hearing on a USF Motion for Summary Judgement on Thursday 4 January3.  INTO had been granted a continuance on a hearing of the Motion back in September 20234 but their next motion to delay the hearing further was denied on 4 December 20235.  The motion seeks a summary judgement against “(…the “INTO Entities”) on Count I, Breach of Contract, and Count VI, Breach of Duty of Good Faith and Fair Dealing, of the Second Amended Complaint (“SAC”)”.6

A range of legal arguments have been made on both sides and the tone is set early in the most recent submissions.  INTO’s filing suggests that the summary judgement should be denied because USF’s “..allegedly “unambiguous” interpretation of the contracts at issue is still unsupported by the contract language and violates the core tenets of contract law”.7  On the other hand USF’s response to that filing starts with the line, “The INTO Entities’ response ignores basic contract law.”8

In this context, it is interesting for a lay-person to read an article written for the Bar Association of San Francisco which starts, “If you wish to be taken seriously by the court, whether in oral or written argument, never malign or belittle your opponents or their position.”  As previous blogs have noted the various flourishes, acid comments and hyperbole in the written submissions for this case seem to ignore that advice with monotonous regularity.  

That No One Can Deny

Already up and running, with a lot more to come, is the taking of depositions under oath and on the record.  There must be a lot of management time, effort and probably stress (as well as lawyers fees) going into briefing and preparation for these.    

INTO’s lawyers are taking depositions from 14 USF related individuals9 with a start on December 12, 2023 and continuing from January 5 to January 25, 2024.  These include Glenn Besterfield, who was center director for INTO USF when it opened in 2009.  He later became dean for the Office of Admissions and associate vice president for student success at USF before moving on to become Dean of Enrolment Management at the University of North Florida in spring 2023.      

For USF the count runs to 12 INTO related individuals10 with ex-global COO Anmar Kawash and ex-CFO Jon Holmes among them.  The depositions start on January 4 and end with INTO founder Andrew Colin on Wednesday, March 13.

As Time Goes By

It is no surprise that this depth and breadth of activity led to a third extension of case management deadlines on 14 December11.  The Order indicates that discovery closes on March 29, 2024, with expert discovery closing on June 14, 2023 and the “Deadline to have dispositive and Daubert motions12 heard of [Friday], August 23, 2024.”  This seems set for the long haul.

In its Annual Report to July 2022, INTO noted as “contingent liabilities” that it had “provided for legal fees up to 31 July 2022 in relation to this ongoing litigation.  Further legal fees are expected to be incurred in FY23 in respect of this dispute and have been included in forecasts for this period.” It looks like FY24 will have more of the same.

For the University of South Florida their financial audit for the year to July 2022 said, “The University is involved in several pending and threatened legal actions. The range of potential loss from all such claims and actions, as estimated by the University’s legal counsel and management, should not materially affect the University’s financial position.”  To give this some context USF’s operating revenue for the year was $894m.

NOTES

The title and sub-headings of the blog are from “As Time Goes By” made famous by Dooley Wilson in the film Casablanca which was released in 1942. Dooley was a singer and drummer but not a pianist so the tinkling of the ivories was dubbed in. The song was written by Herman Hupfeld who was born nearly 130 years ago on 1 February 1894. Even as time goes by, class is permanent.

  1. The background to the court case between INTO University Partnerships and the University of South Florida has been outlined in several previous blogs. As before, the terms INTO and University of South Florida are used as short forms for the range of corporate plaintiffs and defendants. Full details and all public documents reference in this blog can be found through https://hover.hillsclerk.com/html/case/caseSearch.html the Hillsborough County Clerk of Courts search facility. Insert 22 for the year, CA-Circuit Civil for the Court type and 006001 for the case number.
  2. Filing # 188238925 E-Filed 12/18/2023 01:13:33 PM (point 4. of Exhibit 25 – Affidavit of Shawn J. Rabin)
  3. Filing # 187809851 E-Filed 12/11/2023 08:28:02 PM
  4. 09/14/2023 11:07:38 AM Electronically Filed: Hillsborough County/13th Judicial Circuit
  5. 12/04/2023 12:13:13 PM Electronically Filed: Hillsborough County/13th Judicial Circuit
  6. Filing # 179813559 E-Filed 08/16/2023 03:28:09 PM)
  7. Filing # 188161134 E-Filed 12/15/2023 06:08:23 PM
  8. Filing # 188693985 E-Filed 12/27/2023 11:55:52 AM  
  9. Filing # 186997655 E-Filed 11/29/2023 02:20:27 PM
  10. Filing # 186594368 E-Filed 11/21/2023 12:05:10 PM
  11. 12/14/2023 10:05:23 AM Electronically Filed: Hillsborough County/13th Judicial Circuit
  12. A Daubert motion is a specific type of motion in limine13.  It is raised before or during trial, to exclude the presentation of unqualified evidence to the jury.  Daubert motion is used to exclude the testimony of an expert witness does not possess the requisite level of expertise or used questionable methods to obtain data.  It is the outcome of 1993 Supreme Court case, Daubert v. Merrell Dow Pharms., 509 U.S. 579 (U.S. 1993).
  13. Always interesting when a footnote needs a footnote but the term was new to me.  In limine is a Latin term meaning “on/at the threshold”.  In this context it relates to a pretrial motion requesting that certain evidence be found inadmissible.

Image by Mohamed Hassan from Pixabay

A Civil Action

In the film A Civil Action, Jan Schlichtmann says, “The whole idea of lawsuits is to settle…”.1  There is no settlement yet but the court case between2 the University of South Florida (USF) and INTO University Partnerships (INTO) has been closed and further dispute resolution is planned.  USF has dropped the case with the claim it has achieved the outcome it was seeking from its initial action.   

Its Notice of Voluntary Dismissal3 on 3 January 2023 says that at the receivership hearing on 16 December 2022, the “evidence submitted by the parties proved Defendants, INTO USF LP and INTO USF, Inc., are taking the actions that the Financing Corporation’s declaratory judgment lawsuit sought (i.e., acknowledging the termination of the Stockholder agreement, gathering and protecting the Joint Venture assets, budgeting to fund the teach-out, and winding-up the joint venture).”  In the transcript of the hearing the judge, The Honorable Darren D. Farfante, made broadly the same points while declining USF’s motion to appoint a receiver4.

It seems likely that further discussions between the parties will be conducted in private but after two previous failures there remains the possibility that these will be unproductive.  Most importantly for some observers is that students, including a group arriving in Spring 2023, are being taught out.  The transcript also tells us that the joint venture board has hired Berger Singerman, “to provide the joint venture with advice regarding the operation of the business during a wind-down, to provide advice regarding corporate governance matters and fiduciary duties.”

Presuming that wind-down results in the eventual closure of the joint venture it will leave INTO with six pathway joint ventures in the US from the eleven that have been started since 2008.5   

Joint Venture PartnerOpened/AnnouncedJoint Venture Closed6
Oregon State University2008 
University of South Florida20092022
Colorado State University20122021
Marshall University20122020
Drew University2015 
George Mason University2014 
St Louis University20152021 (became 100% INTO owned
University of Alabama – Birmingham2015 
Washington State University20172022
Suffolk University2017 
Illinois State University2018 

Last Orders7

While the case regarding the teach out and wind down of the joint venture has closed the flurry of claims and counter-claims suggests there is still plenty to be resolved.  In this respect there are some helpful insights based on how the case might have developed according to a Joint Case Management Report filed on 6 December 20228.  The document summarizes the dispute and then goes on to outline key areas of activity ahead of being ready for a trial in February 2024 if the case had gone ahead.

The process includes witnesses to be deposed (up to 30 fact witnesses and four expert witnesses) and “an alternative dispute resolution” by the end of second quarter 2023.  Other key dates in 2023 include selecting a mediator by 1 April, deadline to identify experts by 7 July, and expert discovery closure by 6 October.  The expert testimony focused on the financial status of the joint venture, including its solvency, on 21 April 2022, and “alleged damages to the INTO parties.”

A recent article in Business Law Today made the point that the “median duration of a joint venture is ten years” and suggested that “all joint ventures end—so plan for it.”  The trajectory of traditional pathways in the US is uncertain and this may not be the last closure, so universities considering joint ventures as a way forward may want to pay close attention.  Another data point could be the reported settlement resolution with a total value of “around $6.4m” passed by Washington State University Board of Regents in July 2022 after the university’s relationship with INTO changed. 

NOTES

This blog recognizes the complexity of the case and is not intended to reflect any view on the merits of either plaintiffs or defendants.  References for filings are given in order that readers can seek further insight if they wish.  Any amendments on matters of fact are welcome from authoritative sources.   

  1. The film is based on a 1995 book which tells the story of a real court case about environmental   pollution in Massachusetts in the 1980s.
  2. The case in the Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough County, Florida Circuit Civil Division is formally between USF Financing Corporation (plaintiffs) and INTO USF LP and INTO USF, INC.  The Consolidated Lead Case is 22-CA-006001, Div. L.  Filing numbers below relate to this case.
  3. Filing # 163938884 E-Filed 01/03/2023
  4. Filing # 163938229 E-Filed 01/03/2023
  5. Hofstra University is omitted – there is no listing in the INTO University Partnership report and accounts indicating it is a joint venture.  All other entries in the grid are taken from publicly available information or observation of websites at the time of launch/closure.
  6. Closures are rarely the subject of public announcements.  Any authoritative amendments to these dates are welcome.  In several cases the relationship has changed to become a direct recruitment rather than joint venture pathway arrangement.
  7. Last Orders is a 1996 Booker Prize-winning novel by British writer Graham Swift.  Its title relates to the Last Will and Testament of Jack Dodds and the instructions therein, but also to “last   orders” the common call in the UK for final orders of drink before a public house closes.
  8. Filing # 162471158 E-Filed 12/06/2022

Image by Chris Sansbury from Pixabay 

PIGS TO PETTICOATS TO PATHWAY PROBLEMS

INTO’s London-based joint venture with Newcastle University is the second of the pathway provider’s high profile university partnerships to come to grief at the Middlesex Street building near Liverpool Street station.  The location was also the home of INTO’s venture with the ill-fated London Academy of Diplomacy, led by Joseph Mifsud who became infamous for his involvement in Robert Mueller’s enquiry into President Trump.  It’s reasonable to say that the site has seen more than its fair share of false starts, big ambitions and strange bedfellows – there’s even a Princess at one point.

The timeline of occupants, the financial fortunes of the joint ventures and the variety of pre-university, undergraduate and master’s courses offered suggests that making a success of a London venture is tricky.  There are many potential downsides to higher education investment in one of the most expensive cities in the world.  When ambience fall short of a true campus experience, facilities are limited and university faculty are more committed to their home towns it can be particularly hard going.

A run through the various occupants of Middlesex shows that even well ranked partners with global reputations might find it too difficult or too expensive to make things work.  The dates of operation are taken from public documents but may reflect a difference between an entity being incorporated and its first intake. Any authoritative updates are welcome.       

INTO University of East Anglia, London (2009-2014)

INTO UEA (London Campus) LLP was established as a joint venture in 2009 to provide academic and language courses, primarily to international students, at a purpose built study centre in London.  The intention was to offer pre-university courses along with “graduate and post-graduate courses taught by UEA academics”.   But UEA’s 2011/12 Financial Statement suggested that things were not going to plan and noted, “Trading to date is slightly down on the original plan, reflecting a slower build up in student numbers than originally anticipated.”

The University’s 2012/13 Annual Report comments, “In light of the current trading performance of INTO London, and the fact that accumulated losses will not be recouped for some time, the University made a capital investment of £3,000,000 in the joint venture in August 2013.”  An operating loss of £1.2m in 2011/12 had followed one of £2.5m in 2010/11 for the joint venture.   By early 2014 UEA had decided to retire at the end of July 2014 to focus on delivering teaching and research, “at our superb Norwich campus,”.

INTO City, University of London (2010-Current)

INTO City began trading in 2010 and focuses on pre-university courses.  By 2015 the joint venture had net current liabilities of £5.8m and its annual report noted “material uncertainty which may cast significant doubt upon the LLP’s ability to continue as a going concern.” Discussions were ongoing to reduce the charges from each partner, clarify governance and recapitalize the venture.

The outcomes suggest a rebalancing of risk and reward reflected in City’s 2018/19 Financial Statements which note that, “Prior to 1 September 2017, a 50 per cent share of the net assets and liabilities was included in City’s balance sheet and 50 per cent of its net income was reported in the consolidated income and expenditure account. Since 1 September 2017, City’s share of net income has been reduced to 15 percent.”  Always worth remembering that universities are primarily interested in pathway providers because of the income they receive from students who progress to full degree courses.  This may be a reason that City gives equal prominence on its webpages to the pathway arrangement with Kaplan International College 

London Academy of Diplomacy (2010-2016)

In an impassioned blog in 2013, UEA visiting lecturer Barry Tomalin advocated, “Don’t Let Diplomacy Fail”, to students at INTO’s London Academy of Diplomacy (known affectionately as “LAD”).  Under Professor Nabil Ayad, LAD had been with the University of Westminster, but from 2010 its degrees were validated by UEA and it operated out of Middlesex Street.  Another INTO partner, the University of Stirling, took over validating the Academy’s awards in 2014 by which time Professor Joseph Mifsud was Director of LAD. 

Brig Newspaper does a decent job of explaining the story of the “academic who attempted to connect the Trump campaign with Vladimir Putin” and INTO’s role with the Academy.  It highlights that LAD was closed in 2016 “citing financial difficulties” and an article in the Diplomat suggest that the Academy had 150 students in 2014.  Sufficient to say that the University of Stirling’s London-based activities arising from its joint-venture with INTO, whether with LAD or the short-lived Master’s program at a different site in the capital, no longer exist.

INTO Newcastle University London (2015-2021)

The Newcastle University London joint venture had an inaugural intake in 2015 and offered both pathway and degree courses.  Opened by HRH Princess Eugenie, a Newcastle graduate, in October 2015, it held the university’s aspirations that, ”..in collaboration with INTO, our London campus is expected to grow to 1,200 students.”  By 2018/19 the venture had grown to 504 enrollments but its operating losses had reached £2.4m.

Council minutes from the University indicate that discussions and negotiations about the future of the joint venture had been ongoing during most of 2019.  By April 2020 the University’s Council noted “that there was a compelling case to suspend undergraduate recruitment in 2020 on the grounds of insufficient applications, and judged that the consequences of the COVID-19 pandemic would make future viability even less likely.”  It seemed a short step from there to the recent announcement that the joint venture would close next year.

INTO London World Education Center (“WEC”) (2017-Current)

WEC is a wholly owned operation of INTO’s which began operations around 2012/13 and offers pre-university courses for international students.  The student outcomes are accepted for consideration for entry by over 100 UK universities.  The accounts for 2015/16 noted an expected move to Middlesex Street which would “represent a more desirable study location” than its previous home on Mile End Road but this appears to have been delayed until 2017/18.

Year one at the new location saw a rise from 123 to 157 students but 2018/19 saw a decline back to 126.  WEC’s operating loss grew from £1.9m to £2.4m year-on-year across the two periods.  WEC’s debt to other INTO group undertakings also appears to have risen to £8.9m in 2019 from £5.6m in 2015.  

London – A Golden Opportunity or a Battle for Survival?

The chequered history of the Middlesex Street pathway operation matches the shifting sands of the location.  The Street was known as Hogge Lane in the Middle Ages  because pigs were fattened up in the surrounding fields to feed Londoners. Ryther’s famous map of 1608 records a name change, with Hogge Lane becoming Peticote Lane (with the spelling later being standardised to ”Petticoat”) as the area had become known for merchants’ selling second-hand clothes.  Petticoat Lane Market became one of the most famous in London, but around 1830 prudish authorities thought it unseemly to have a thoroughfare named after an item of women’s underwear and it was renamed Middlesex Street.

Shakespeare is quoted as saying, “I hope to see London ere I die” and many universities and pathway operators have set their sights on the UK capital in the belief it is an irresistible magnet to international students.    And Benjamin Disraeli, twice British prime minister in the 1800s, said “London is a modern Babylon” which suggests its history as an appropriate location for language-oriented pathways.  It is certainly possible to see pathway successes in London, with an example being the Kaplan International Centre which continues to add to an illustrious list of partner institutions.

But with the fallout from Brexit, the potential resurgence of a more friendly US international student experience, and all the uncertainties of a post-pandemic world the future for London-based education is far from clear.  Expensive buildings and accommodation, limited commitment from faculty to travel to London and low progression rates from a London pathway course to a distant campus are all obstacles to be overcome.  It could be that legendary punk group The Ruts summed up the future for investors best when they sang, “Babylon’s burning with anxiety”. 

NOTES   

1. Information relating to joint venture finances is taken from the filings at Companies House (INTO UEA (London Campus) LLP (now INTO London Mdx Street LLP, INTO City LLP, Newcastle University INTO London LLP, and INTO London World Education Centre Limited.

2. Commentary on the ventures at Middlesex Street has been taken from official records but it is a complex history.  Any corrections, insights or updates from sources that can be validated are welcome. They will be noted and credited on this blog.

Image by TeeFarm from Pixabay