Tag: US higher education

Oh, What A Beautiful Morning

The sun rises on a new week and there’s a fresh batch of news from INTO University Partnerships including overdue accounts being filed, a direct recruitment partner announced and what looks like a departure at Executive Team level.

Territory folks should stick together2

The INTO University of East Anglia LLP Annual Report for the year ended July 2022 arrived with Companies House about a month overdue.  At first glance there seems little reason for the delay and the average student numbers were only slightly down on the year before.  A little deeper digging shows a breaching of “certain covenants” on the CLBILS loan and a number of restatements of prior year financials.

The restatements have taken the prior year (to July 2021) Operating Loss down from £4.6m to £1.8m with the bulk of the difference being a reduction in Administration Expenses of £2.6m.  The notes indicate that this reflected a decision “..that amounts payable to members for contractual services such as marketing should be included within Members’ remuneration charged as an expense..”.  A similar change was made in restatements of 2021 at INTO Newcastle and INTO Stirling but not, as far as I can see, at INTO City, INTO Queen’s or INTO Exeter. 

The COVID-related CLBILS loan is for £7m with HSBC and requires payment of £1m in November 2023 and the final balance to be paid by December 2023.  The Annual Report notes that this is “within the cash flow projections”, with both partners signing a letter of support to enable the LLP to continue to fund its liabilities as they fall due.   The University of East Anglia, which has had its own financial troubles in recent years, has not posted any Council minutes thus far in the 2022/23 academic year so it’s difficult to know if there are any further insights to be gained from its governing body.

This all means that INTO UEA ended up right in the middle of the pack for 2021/22 recruitment at INTO’s UK Centers but still at around half of its pre-pandemic enrollments.  There’s quite a lot riding on the Autumn 2023 intake with another mouth to feed at the newly formed INTO Lancaster Limited.  Just as a small rider on that point it seems as if this entity has been incorporated as a wholly owned INTO entity so it remains to be seen if it another co-owned joint venture.    

Where the wind comes sweepin’ down the plain3

Back in the USA, INTO has just announced a new partnership for direct recruitment with the University of Oklahoma.  This is the second agreement in the US in 2023 following the partnership with Montclair State University announced in July.  Before that, the most recent partnership was with University of Massachusetts Amherst to recruit to 17 master’s degrees, back in September 2022.

Perhaps the May 2023 publication of claims that there was 52% growth in applications for INTO Center-supported programs and 201% growth in direct entry applications has stimulated interest.  Whether this has translated into equal or similar growth in enrollment should become clearer as partner universities publish their data for Fall 2023. In competition terms, the three additional partners are a limited response to Shorelight’s growing higher education smorgasbord of 65 universities offering undergraduate courses and 39 offering masters courses (excluding American Collegiate and non-US campuses).

The court case between INTO and the University of South Florida continues to move along.  Factors include a Hearing on 10 October 2023, to consider “University of South Florida’s Motion to Dismiss INTO University Partnerships Limited’s Supplemental Pleading”4, INTO’s voluntary dismissal of “..Counts XI and XIV of the Supplemental Pleading to the Second Amended Complaint”5, and an appeal by INTO to the Second District Court of Appeal.6

INTO appears to have refreshed its legal team for the Appeal with three lawyers from Susman Godfrey joining INTO’s roster as “foreign”7 attorneys.  Perhaps it is indicative of the stakes, as Susman Godfrey has been named Vault’s #1 litigation boutique in America every year since the award’s inception in 2011.  All of those developments come ahead of a mediation event led by Joseph H. Varner, III, scheduled for 29 September8.

Many a new day9

All this is happening as the INTO Executive Team continues to slim down.  Chief Product Officer Namrata Sarmah who joined in January 2022 is the latest face to disappear from the company’s website leaving a team of seven heading up the organization.  Other developments at INTO have been reported in recent blogs and it does look as if the company is tightening belts and battening down hatches while continuing to invest in University Access Centres and await developments, including Manchester Metropolitan University’s tender for an embedded international student centre.

NOTES

Impossible to resist an Oklahoma theme to the sub-headings.  The “Sooner State” boasts the American Bison as its state animal and the Oklahoma Rose as its flower but the words all belong to songs from the first Rodgers and Hammerstein musical Oklahoma! which premiered in 1943.

  1. Oh, What A Beautiful Mornin’ is the first song after the overture
  2. “Territory folks should stick together” is a line from Farmer and the Cowman
  3. “When the wind comes sweeping down the plain” is taken from the title song, Oklahoma.  For reasons I cannot explain the musical has an exclamation mark and the title song does not!  In 1953 the state legislature chose it as the state song.
  4. Filing # 181397864 E-Filed 09/08/2023 12:06:23 PM
  5. Filing # 180352287 E-Filed 08/23/2023 02:46:41 PM
  6. Filing # 179426524 E-Filed 08/11/2023 08:31:57 AM
  7. Florida Supreme Court RULE 2.510.FOREIGN ATTORNEYS (a) Eligibility. Upon filing a verified motion with the court, an attorney who is an active member in good standing of the bar of another state and currently eligible to practice law in a state other than Florida may be permitted to appear in particular cases in a Florida court upon such conditions as the court may deem appropriate, provided that a member of The Florida Bar in good standing is associated as an attorney of record.
  8. Filing # 179194479 E-Filed 08/08/2023 03:23:11 PM
  9. Many A New Day is a song title from the musical.  Some describe it as an anthem of female indepence.

Image by Tom from Pixabay

Rulings, Filings and Finances

There have probably been better fortnights for INTO University Partnerships (INTO) than the last two of July 2023.  Losing a decision in the court case against the University of South Florida (USF) and missing financial filing deadlines for both INTO University of East Anglia and the parent company are not calculated to bolster confidence or impress existing and potential partners.  Rumours of another round of redundancies and outsourcing also reflect the challenges facing the business.

Truth and Wisdom

Following a hearing on 27 June, Circuit Judge Darren D. Farfante has dismissed Count V of the Second Amended Complaint filed by INTO against Defendants Jennifer Condon, Karen Holbrook, Nic Trivunovich, and Ralph Wilcox.2  In simple terms, the judgement noted that “…sovereign immunity bars Count V of the Second Amended Complaint against the FC Directors as pled.”  The Plaintiffs, INTO USF, Inc., INTO USF LP, and INTO University Partnership Limited, “…subsequently advised the Court that they will not amend and dismissal of Count V of the Second Amended Complaint should be entered for purposes of appeal.”

While the plaintiffs could choose to re-engage on this point if the case ever goes to appeal the position is that after months of assertions that the USF Joint Venture Directors had “breached their fiduciary duties”,3 that particular strand of the matter is closed.  It is difficult to believe that the legal pursuit of individuals hasn’t left some scars on both sides and it may have put the issue of personal liability into the minds of university joint venture board directors elsewhere.  Rulings in one state may not be directly applicable to another but they may offer a sense of how closing a similar joint venture could play out elsewhere. 

Hard on the heels of the judgement USF moved to “..dismiss IUP’s Supplemental Pleading4 with prejudice.”5  This appeared to be substantially on the grounds that Sovereign Immunity also “..Bars Counts X, XI, XII, XIII and XIV”.  The filing also states that that “…opposing counsel (i.e. INTO’s counsel) has not requested that the undersigned stipulate to the filing of a second amended complaint” which seems to suggest the judge will now determine the outcome on these Counts.    

It may be that forthcoming discussions will lead towards a settlement of some sort with notification that a Mediation Conference has been scheduled for 29 September, 20236.  One might think that both organizations would be glad to see an end to such a public dispute.  As always, the author of this blog does not claim any legal expertise and advises readers to seek detailed information to form their own opinions9. 

History Man to Remains of the Day

The decline of INTO’s first joint venture at the University of East Anglia (UEA) is a saddening tale for anybody involved in the successful early days of the initiative.  The rhetoric was largely about the game-changing nature of long-term public-private partnerships but for those involved in the reality of international recruitment the immediate opportunity for increasing enrolments was clear.  INTO has removed the UEA case study from its corporate pages but the early days were genuinely transformational.

While the crisis at the University and the departure of its Vice-Chancellor has broader causes the situation has been exacerbated by a significant decline in the enrolment and financial fortunes of the joint venture.  The late filing, for the second year in a row, of the joint venture’s financial statement due on 31 July, 2023, means it is not possible to know whether enrolments fell even further in 2021/22 but the direction of travel has been downwards since 2015.  It is also likely that this has contributed to UEA’s declining revenue from international students.

It seems reasonable to believe that the late filing may be due to broader discussions about the future of the joint venture relationship.  New vice-chancellor, Prof David Maguire, is on record as saying that the immediate future is about “survival of the fittest” and it is difficult to see a compelling case for preserving the joint venture while cutting back on schools of study that have formed the institution’s history and sense of self.  At a time when reports say 400 positions – equivalent to 10 per cent of the workforce – have already been lost at UEA through redundancies, severance and resignations, the extent to which the university should continue to help prop up a loss-making commercial venture must be in question.

There may be an alternative argument that the joint venture brings opportunities for direct recruitment to help UEA out of its current problems.  Whether to stick or twist and whether it is wiser to be the history man6 or look with confidence towards the remains of the day7 is a very real choice.  Given the length of the joint venture contract originally signed and what appears to be a lack of performance it will be interesting to see if UEA would consider the USF route to resolution.

Patet omnibus veritas8

INTO’s financial accounts to July 2022 noted that its cash position during the year had declined from £20.5m to £9.4m year on year and that it had “revised EBITDA covenants agreed with its bankers to February 2024”.  It’s difficult to know what is going on under the surface but rumours of further cutbacks are circulating and it seems plausible that there is a squeeze to cut costs early in the financial year that began on 1 August 2023.  The urgency may be sharpened by developing views on enrolment numbers because, as with many education businesses, a significant portion of revenue will be baked in quite early in the year.

A previous blog suggested some of the issues that the incoming CEO, in February 2023, might want to consider.  The Executive Team has already been slimmed down a reduction in higher salaries is to be expected when the 2022/23 results are published.  On the other hand, expenditure on opening University Access Centres seems to be continuing, there is a new partnership to launch at Lancaster University, the recovery of pathway operations in the US looks patchy and there is the spectre of more stringent visa controls in the UK ahead of 2024 recruitment.

In the US, the recent addition of a recruitment only deal with Montclair State University makes little headway in the struggle to recover and compete after several years of joint-venture closures and the acceleration of direct recruitment partnerships by main competitor Shorelight.  In the UK, the partnership with Lancaster University brings a high tariff institution to the party but Study Group didn’t seem able to keep Lancaster happy so the pressure to perform is certain to be on. There does not seem to be any news of further progress in Australia. 

INTO must also be waiting with bated breath on the outcome of the Manchester Metropolitan University International Study Centre tender.  There is rarely a dull moment, which may be why they have been a bit too busy to file their Confirmation Statement to Companies House.  Or it could be that there is even bigger news to come.

NOTES

  1. Truth and Wisdom is the motto of the University of South Florida
  2. Final Order: 07/24/2023 02:59:36 PM Electronically Filed
  3. Filing # 167652717 E-Filed 02/27/2023 07:53:06 PM (point 137 and others)
  4. Filing # 175778804 E-Filed 06/21/2023 09:45:06 AM
  5. Filing # 178214351 E-Filed 07/25/2023 05:09:59 PM
  6. Filing # 179194479 E-Filed 08/08/2023 03:23:11 PM
  7. A small homage to Malcolm Bradbury, author of The History Man (1975), one of the most evocative novels about university campus life of the era, who became Professor of American Studies at the University of East Anglia in 1970 and launched the MA in Creative Writing course.  The course has been attended by several eminent authors including Kazuo Ishiguro who won the Booker Prize in 1989 for his book Remains of the Day and went on to be awarded the 2017 Nobel Prize for Literature.  My best wishes to all colleagues and friends still working hard to make UEA a success again.
  8. “Patet omnibus veritas” is the Latin version of Lancaster University’s motto.  It translates to Truth Lies Open to All.
  9. The background to the court case between INTO University Partnerships and the University of South Florida has been outline 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.

FROM FUTILITY TO UTILITY

Collins Dictionary tells us that, “If you say that something is futile, you mean there is no point in doing it, usually because it has no chance of succeeding.”  It is difficult to think of a better description of a student scanning the Times Higher Education or QS World Rankings or any of the multiplicity of other rankings that have proliferated from those organizations.  They don’t really tell students anything useful about whether the institution is right for them as an individual or whether it will allow them to fulfil their life and career ambitions.

All the evidence suggests that the primary motivator for going to higher education is to enhance job prospects. Chegg’s survey across 21 countries, INTO’s research with agents and Gallup surveys are among indicators that for both home and international students a degree is largely a means to an end. That is not to say that people don’t want to study something they enjoy – just that the degree is the aim.

Most existing rankings are, however, just an attempt to monetize industry data for commercial ends and the sector collaborates, possibly because it’s the way things have always been done.  The rankings, as someone said, “Xerox privilege” by reaffirming existing hierarchies and usually allow institutions to manipulate their data, sometimes beyond the point of criminality.  For the institutions they are vanity projects which lead to dubious internal resource allocation, avoid hard questions about graduate employability and distort the decision making of Governments, funders and students.

Utility, on the other hand, is “the quality or property of being useful” and we may be beginning to see the glimmer of some media developing data to be genuinely useful to students.  It is a timely and smart move because we are nearly at the point where AI will give students the opportunity to have near total, instant and absolutely personalized university search capability at their fingertips.  That should send a shudder through ranking organizations that are wedded to a business model and presentation based on early 2000s thinking.

Money magazine’s Best Colleges 2023 may point the way.  It still has a vapid “star” system to allow colleges to be ranked but the database begins to say some useful, student oriented, things about Acceptance Rate, tuition fee (both headline price but more importantly average actual price) and graduation rate.  Imagine if that database approach married itself, in the US, to the work of a company like College Viability, LLC which gives an insight into reasons which a college “…may not be financially viable for the time required to earn a degree from that college.”  Then, add to the mix comprehensive information on the graduate outcomes and career payback from specific degrees – the Princeton Review Best Value Colleges gives a flavour but still ends up as a ranking with limited coverage.

In the UK, the growth of private universities and the significant difference in tuition fees at graduate level between public universities makes the approach equally appropriate.  Such a database would begin to answer the most pressing of student needs – will I get in and with what grades, am I likely to graduate, and what are my career and earning prospects thereafter?  There could be plenty of further nuance added, including grades required, accommodation, measures of student experience and so on.

All of this could be done without the need for a grading system.  The problem with rankings is that the company doing the ranking sets an arbitrary test which institutions do their best to pass with a high grade.  This entirely excludes the student from having any input into the criteria but the results are then presented as an aspirational or emotional nirvana for them to consider.

A smart organization would be ensuring that their data collection is driven by the real world needs and concerns of students. It’s time to remove the worthies who make up the Advisory Groups and Panels for the major ranking organizations and find ways of engaging directly with potential students. The outcome would be relevant, dynamic and have utility for millions around the globe.

It would also be a driver for universities to engage more effectively with the issue of graduate employment both through on-campus services and establishing strong data on careers and jobs. Colleagues including Louise Nicol of Asia Careers Group and Shane Dillon of CTurtle have been demonstrating for years that smart use of technology even makes it possible to leave antiquated, email driven surveys of graduates behind in collecting the data. The answers might even begin to convince Governments around the world that universities are engaging effectively and adding value to economic growth and sustainability.

McKinsey and many others have written about personalization of the customer experience in retail with much of the impetus being given by technology.  The insurance world has seen the rise and rise of aggregators and there is talk of the “personalized insurance engine” that gives a fully automated customer journey.  Potential students are hungry for better decision making option and education needs to catch up fast with the opportunities that exist.

Image by Steve Buissinne from Pixabay

INTO The Interim

Back in June 2021, INTO University Partnerships (INTO) appointed Olivia Streatfeild as its first woman CEO, and in June 2022 she became the first woman Director.  There were plenty of strategic decisions to make as the world struggled out of a debilitating pandemic and INTO reflected on a five-year period when it had lost six joint ventures and struggled to maintain enrollment volumes.  Just two years later agents have been briefed that long-term Andrew Colin lieutenant, John Sykes, is stepping in as Interim CEO.

As well as being a main board director and a “co-founder”, Sykes has been part of the operational, decision-making Executive Team throughout the last decade.  While the presumption might be that this will mean continuity it will be interesting to see how many of the Streatfield decisions stick.  Here are some other issues that might need attention.     

Beware the Fog On the Tyne

INTO’s engagement with Newcastle University has had its shares of ups and downs.  Since 2016 the average number of students enrolled in the INTO Newcastle center has varied from 1142 in the best year down to 627 in 2021/22.  The fluctuation in Operating Profit reflects the sensitivity to student enrollment.

NB: The Operating Profit excludes significant exceptional items in 2016, 2017 and 2018.  The 2019 and 2021 figures are as adjusted in the INTO Newcastle University LLP Annual Report.

In 2021 the LLP’s Annual Report noted that the joint venture based in Newcastle has moved to majority ownership of 51% by INTO.  The joint venture launched in London in 2015 as INTO Newcastle London and long term readers will know the shifting sands of the INTO operation in Middlesex Street, including the links with Josef Mifsud whose whereabouts remain unknown.  INTO Newcastle London came under the sole control of Newcastle University in late 2020 and while the changes in controlling party mean any intercompany transactions are no longer reported by INTO, we do know that in 2020 the JV was a indebted to INTO to the tune of £5.4m.

A small sideshow is that Newcastle University awarded a year-long contract starting in January 2023 for ‘The Provision of International Market Research and Business Development – USA’ including ‘in-country liaison, advice and marketing activity to support the University’s strategies.’  Perhaps surprisingly this was not entrusted to INTO’s US team but to Foothold America Inc.  To be fair Newcastle had already been awarded two contracts to INTO worth around £1m, starting August 2022 and November 2022, for similar work over three years in South/South-East Asia and China respectively.

Magic Kingdom or Repo Man

The US was once seen as the land of opportunity for pathway operators but it’s become increasingly harder work and INTO’s exposure is second only to Shorelight. The legal battle between INTO and USF is likely to be disruptive, time consuming and expensive and it continues with the next hearing scheduled for 10 May and a new round of discussions with a mediator to come.  All the while, legal arguments are being made about the extent to which the USF Directors may or may not have been in breach of their fiduciary duty to the joint venture.

If that’s not enough of a headache, 2023 has seen the end of the joint venture with Illinois State University added to the closures at Colorado State University (2021), Marshall University (2020) and Washington State University (2022).  The operation at St Louis University became wholly owned by INTO in 2021 and despite added firepower on the business development side in the US there does not appear to have been much progress in adding many new partners – either joint venture or direct recruitment.  Meanwhile, the enrollment decline in continuing operations at flagship joint ventures like Oregon State University are evident.

Source: Oregon State University Office of Institutional Research

The company’s own research suggests that only 34% of China, HK and Macau agents surveyed think they will send more students to the US in the coming year which, by implication, means 66% will send the same or fewer.  The struggles of the last few years have also seen US joint ventures stacking up increasing levels of debt to INTO with every single US joint venture showing higher debt than the year before in the 2022 Annual Report.  It is difficult to see the way forward.             

Happy Mondays or The Fall as Manchester Decides

In July 2019 the University of Manchester awarded a five-year contract to INTO’s wholly owned Manchester operation for “Managed Service Provision of Pre-Degree Programmes for International Students”.  It has probably been a significant driver of the INTO Manchester performance over the years and 2021/22 saw the operation roar back to achieve record recruitment and profit.  The contract was for 300k and the contract period ends in July 2024.

Alongside that is the tender for an embedded study center with recruitment opportunity with Manchester Metropolitan University (MMU) which is currently a partner of INTO Manchester.  It’s arguable that over the years MMU has done less well in terms of international enrollment than the popularity of the city suggests it should.  Both Kaplan (at Liverpool) and Navitas (at Swansea) have shown their willingness to become involved in capital projects as joint ventures so competition for the business could be hot.

If another provider wins either the University of Manchester business when it becomes due or the Manchester Metropolitan tender the consequences could be serious.  If it all goes wrong for INTO, the office by the Brighton seaside might echo to Morrissey lyrics like ‘Hide on the promenade, etch a postcard/’How I dearly wish I was not here.’

UK OK OR KO?

It looks like recruitment numbers are perking up in the UK but recovery is patchy with INTO UEA looking to be on life support as the university and the joint venture struggle with competitive realities.  While INTO University of Exeter enrollments withstood the pandemic reasonably well there has been little evidence of recovery in the recently released 2021/22 Annual Reports of joint ventures with Stirling, Queen’s or City .  While the HE sector in the UK has seen record international student recruitment over the past two years it does not seem to be feeding into pathway numbers.

Source: Joint/Venture Wholly Owned Annual Reports and INTO University Partnerships Annual Reports (NB: INTO UEA does not report for 2021/22 until July 2023.  For that reason the 2022 Total enrollment shown excludes the JV and is not wholly comparable with previous years.)

With Australia re-asserting its competitiveness, the US open for recruitment, Canada thriving and some evidence that increasing numbers of Chinese students are looking elsewhere for higher education it’s unlikely to get any easier.  INTO’s recent win at Lancaster University was good news for them but the QAA reports indicate that in 2018 it only had around 280 students and sector feedback is that Study Group found it hard going.  Whatever happens, the UK situation carries plenty of risks.

Sticking to the Knitting and Counting the Beans

The Interim CEO may want to look at some ratios and data from the INTO University Partnerships Limited Annual Reports available at Companies House.  The first confirms that the US contribution to turnover reflects the decline of the business.  Whether it can or will come back is an open question but I doubt it’s something to bet the house on.

A second issue worth thinking about is that data on staff attributed to the Group makes interesting reading.  Group staff costs in 2021/22 were more than 50% of turnover while in 2018/19 they were only around 38%.   It is possible that the categories have some underlying nuances and there have been job cuts in recent months but it seems a good starting point for operational efficiencies. 

Finally, in 2020/21 the number of employees earning over £100k a year was 40 while in 2021/22 it had grown to 48 – that’s 20%.  The number earning over £275k was four compared to one the year before.  For a business with revenue that was lower than 2019/20 that needs some unpacking.

The Big One

Perhaps the biggest strategic question is about the future ownership of the business and how quickly Leeds Equity would welcome some return on the £66m investment they made a decade ago.  The appointment of two relatively high-profile non-executives to the Board might suggest some intention to seek new external investment.  It’s also possible that Andrew Colin could take the business back into 100% sole control.

The final intriguing possibility, given the volatility and possible consolidation in the sector, is that this could be the moment where the business is sold.  Back in 2018 there were widespread reports that the business was up for sale with a price tag of £300m and in a sector full of rumours there have been unconfirmed suggestions that Navitas was showing interest shortly before the pandemic.  Taking on Lancaster, getting Manchester right and sorting out Newcastle would certainly strengthen the hand in any negotiation.

NOTES

Links are provided to publicly available information where possible.  Speculation and rumour are noted as such.  As always, the author would be happy to receive authoritative clarification on any specific points and will note any amendments.

Just some small notes on a few of the sub-headings:

1. Fog on the Tyne is a 1971 album and a single by Lindisfarne.  Footballer Paul Gascoigne provided vocals on a reworked single version that got to number two in the charts in 1990.

2. Magic Kingdom is a theme park at Walt Disney World where “fantasy reigns” while Repo Man is a 1984 film with a strong underlying commentary about the “last defense of capitalism” and “no sense of purpose”

3. The Happy Mondays and The Fall are Manchester bands.  The Happy Mondays were part of the Madchester sound of the 1980s and were named for the day their unemployment benefits arrived – “the day for getting off your face” as bassist Paul Ryder explained.  With 31 studio albums in 40 years (1979 to 2017) The Fall gloried in DJ John Peel’s description “they are always different; they are always the same.”   

Image by Gerd Altmann from Pixabay 

More JAWS for INTO and USF

Sequels are rarely as good as the original but after a new hope with previous reports of dispute resolution between University of South Florida (USF)1 and INTO University Partnerships (INTO)1 we may have reached a point where the empire strikes back.  For new readers, USF gave notice to voluntarily dismiss its case against defendants INTO on 3 January 2023, on the basis that the defendants were “taking the actions that the Financing Corporation’s declaratory judgment lawsuit sought.”2  This followed a hearing on 16 December 2022 where USF’s motion for the appointment of a Receiver for INTO USF, INC had been heard.  Eventually, on 13 February 2023, Circuit Judge Darren D. Farfante declined “USF Plaintiffs’ Motion for Appointment of a Receiver.”3 but the case has been reopened.

The following commentary attempts to outline progress and indicate key issues with reference to the publicly available filings.  These are complex issues and readers looking for a more complete understanding should access the Court records.  I make no attempt to comment on the merits of either case and welcome authoritative comments and amendment.   

Just When You Thought It Was Safe to Go Back in the Water

Even before the motion was declined USF had sought “..an order finding that the Financing Corporation is the prevailing party in its request for declaratory relief…..and is therefore entitled to attorney’s fees and costs, to be paid by Defendants…”4

The same day, INTO USF, Inc. and INTO USF LP filed to “…respectfully request that the Court (i) declare the INTO Parties as the prevailing parties in the declaratory judgment action, and (ii) hold in abeyance determination of the amount of fees and costs owed until the remaining claims between the parties are resolved.”5

There have been further filings on the matter on both the side of USF6,8 and that of the INTO parties7,9.   There is a good amount of legal argument but for the lay person the choice phrases include assertions like, “a pyrrhic victory”6, “completely ignores both Florida case law and the facts of this case”7, “..hoisted by their own petard”8, and “..premised entirely on a sleight-of-hand”9.  It’s all good knockabout stuff but one wonders how much lawyerly time and client money is going into this.  

The case then became an SRS Reopen Event on 16 February 2023.14  It appears that the “prevailing” party “..in the Declaratory Judgment Action (Doc #97) and Plaintiff’s Motion to Determine Entitlement to Prevailing Party Attorneys’ Fees and Costs (Doc #98)” will now be the subject of a Zoom hearing on May 10, 2023 at 2.30pm13

While this has been going on there have been developments in INTO’s claims of breach of fiduciary duty against the Jennifer Condon, Karen Holbrook, Nick Trivunovich, and Ralph Wilcox (collectively known in the case filings as the “FC Directors”).  In summary, INTO argue that they “…served as directors of INTO USF, Inc and owed it fiduciary duties, simultaneously served in positions for USF and prioritized the interests of USF over the interests of the Company in seeking its wind-down and termination.”16

This had originally been included as Count V of INTO’s complaint but had been challenged on several grounds including that the individuals had sovereign immunity by dint of carrying out their duties as a result of being employees of USF.  In a motion to dismiss this aspect of INTO’s case the filing noted “Section 768.28(9) protects state employees for torts committed within the scope of their employment.” and that “All the actions the FC Directors took that allegedly breached their fiduciary duty occurred while USF employed them.”11 The judge found in favor of this argument but while, “As pled, sovereign immunity bars Count V against the FC Directors” the Plaintiffs (INTO) were “..given leave to amend Count V of the Amended Complaint against the FC Directors.9

The opportunity to make such an amendment was taken in the Second Amended Complaint10.  Where Count V alleging “Breach of Fiduciary Duty Against the Former USFFC-Designated Joint Venture Directors” has been re-drafted.  There are several amendments but an example that indicates the tone says, “The Former USFFC-Designated Joint Venture Directors were appointed to the Board, and took on these fiduciary responsibilities to the Joint Venture, independent of the duties and responsibilities they owed to USF by the nature of their employment.”

The deadline for the defendants to respond to the Second Amended Complaint was originally 9 March 2023 but an extension to 20 March 2023 was granted without any opposition.12 There seems little doubt that this falls into thecategory of….to be continued.

Land of Lincoln Loss

All this comes as market reports suggest that the joint venture between INTO and Illinois State University (ISU) has come to an end with a direct recruitment arrangement remaining.17  The joint venture was formed in March 2018 and as of “June 30, 2022 and 2021, the Company had an accumulated deficit of $12,155,144 and $11,806,337, respectively.” according to the financial statements and reports.  It becomes the sixth of INTO’s eleven US joint ventures to close since 2020 (including INTO St Louis which is now 100% owned by INTO).

Perhaps interestingly,  ISU’s international student population (non-US citizen in student enrollment reports) appears to have climbed quickly over the past five years going from 511 to 736 from Fall 2018 to Fall 2022.  However, the significant change is year on year from 2021 (557 enrolled) to 2022 (736 enrolled) with the growth entirely made up of graduate students.  Meanwhile, non-degree seeking international students (the usual location of pathway numbers in US university enrollment data) fell from 44 in Fall 2018 to 14 in Fall 2022.

It seems possible that ISU has been able to benefit from the more widespread growth in graduate students from south-east Asia but that this has not flowed through in any meaningful way to the pathway operation.  That would reflect the situation seen at some other pathway Centers in INTO’s US portfolio.  It remains to be seen how other joint venture partners reflect on the situation as Fall 2023 comes into sharp focus.  

NOTES

  1. 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 (defendants).  The terms USF and INTO are used in this blog for brevity.  The Consolidated Lead Case is 22-CA-006001, Div. L. and  filings referenced below relate to this case. (Joint Case Management Report – Filing # 162471158 E-Filed 12/06/2022 12:51:36 PM16)
  2. Filing # 163938884 E-Filed 01/03/2023 09:29:50 AM
  3. 02/13/2023 11:22:52 AM Electronically Filed: Hillsborough County/13th Judicial Circuit.
  4. Filing # 166039948 E-Filed 02/02/2023 05:03:54 PM
  5. Filing # 166035151 E-Filed 02/02/2023 04:30:42 PM
  6. Filing # 166713446 E-Filed 02/13/2023 05:30:56 PM
  7. Filing # 166710887 E-Filed 02/13/2023 05:03:58 PM
  8. Filing # 167161634 E-Filed 02/20/2023 04:55:28 PM
  9. Filing # 167148563 E-Filed 02/20/2023 03:16:05 PM
  10. 02/14/2023 01:11:28 PM Electronically Filed: Hillsborough County/13th Judicial Circuit.
  11. Filing # 167652717 E-Filed 02/27/2023 07:53:06 PM
  12. Filing # 162259450 E-Filed 12/02/2022 11:01:26 AM
  13. 03/08/2023 06:38:01 AM Electronically Filed: Hillsborough County/13th Judicial Circuit.
  14. Filing # 168483841 E-Filed 03/10/2023 01:09:08 PM
  15. Reopen event: A reopen event occurs when a motion, pleading or other recordable action occurs on a case that requires additional court activity after a disposition event has closed the case for court activity. Note that a reopen event involves at least one action and that additional post-judgment actions may occur before the case is reclosed.
  16. Filing # 162471158 E-Filed 12/06/2022 12:51:36 PM
  17. It is reasonable to note that both INTO and ISU appear to show INTO pathway courses on their websites.  Any update from either party is welcome.

Image by Mote Oo Education from Pixabay 

Fade Away or Speculate

With businesses being sold, some chances of consolidation and some new information being available it seems a good moment to have a look at the fortunes of the major pathway businesses.  There is also the chance to speculate on how the future might look for some of them.  It’s all by way of a contribution to the thinking in the higher education sector and the author, as always, is happy to have authoritative responses that bring clarity, correction or corroboration. 

Shorelight

As reported in July 2022, Shorelight seems to be all in on developing an aggregator-style approach to direct recruitment partnerships.  It looks as if another flagship Pathway partnership has been lost with the University of Mississippi no longer featuring on the website at all.  The partnership was launched in September 2018 with Shorelight CEO, Tom Dretler, saying “Our programs would not be thriving as they are today without our partnerships with top-tier universities like Ole Miss that provide international students with access to high-demand degree programs.”  Maybe they’ll miss Ole Miss…

It’s difficult to say with certainty how well the direct recruitment business is doing or how financially rewarding it is.  An investment-oriented perspective comes from Huron Consulting Group who took a $27.9m stake in Shorelight during 2014 and 2015, which rose to $40.9m in 2020.  The original maturity date for the early investment was 2020 which was pushed out to 2024 when the additional investment was made. 

The Huron Consulting Group Inc. annual report for the year ending December 2022 shows that the maturity date has been pushed out to 2027 which suggest they are not expecting it to be repaid any time soon.  Other news from the filing was that the “fair value” of the holding was reduced year on year from $65.9m to $57.6m.  Tracking the percentage difference between the investment holding and the “fair value” suggests that after a peak in 2018 it’s been pretty much downhill ever since.

INTO University Partnerships

It’s difficult to know where to start with INTO but there is a sense of something in the air.  The public spat with the University of South Florida1 appears to have seen the legal arguments reopened2 with a continuing pursuit of individuals from the University for Breach of Fiduciary Duty3.  More recently the company’s first ever partner, the University of East Anglia in the UK, has seen its vice-chancellor resign and a suggestion that the joint venture won’t be returning profits for distribution until 2029/30.

A single outpost in Australia seems bound to come under pressure from the super-dominance of Navitas after their purchase of Study Group’s interests in Australia and New Zealand.  Study Group’s retrenchment and the potential for a strong competitor emerging if Oxford International Education Group succeeds in a bid for Cambridge Education Group could bring increased pressure on the pathway business in the UK.  There seems to have been no progress in new business development in the US and the partners there show little sign of a post-pandemic boom.

All this comes after an upweighting of the INTO Group Board with two senior directors in Annalisa Gigante and Tamsin Todd and the addition of Nick Adlam whose LinkedIn profile indicates he also works for Andrew Colin’s Espalier Ventures Limited4.  It is not uncommon for companies to strengthen their board before looking for new investment or possibly to secure a public listing of some sort.  Perhaps the Alternative Investment Market, once described as a ‘casino’ by Roel Campos of the US Securities and Exchange Commission is a route.  

It’s pure speculation (no pun intended) but an IPO for a part share of the business could offer Leeds Equity an exit while bringing some new cash for INTO to revitalise its business.  It’s the sort of audacious move that might appeal to the company’s lead shareholder.  AIM also seems to offer the flexibility on governance and regulation as well as the access to capital that might be appealing.5         

Study Group

Amid all the talk of it being “consistent with the strategies of both companies” it was difficult not to believe that Study Group’s sale of its Australia and New Zealand operations to Navitas was that of a company in needs of cash.  We know from Study Group’s 2021 annual report that covenants on its term loan debt were set aside until 2024 and that Ardian provided a capital injection of £40m in February 2022 on top of an investment of £17m in February 2021.  Adjusted EBITDA of £14.4m was down from £25m year on year.

All that is on top of the loss of Lancaster University which comes just a few years after Leicester University jumped ship to Navitas back in 2019 and suggestions that CEG has been more successful when competing for high ranked university partners in recent years.  The signing of Teesside University in the UK in 2021 was a bright spot but the logic of picking up a direct recruitment partnership with Florida Atlantic University, which split with Navitas in 2019, seems strange given recent history in the US. The business in the Netherlands has also been closed as a result of “changes in international student recruitment regulations”.

Insendi is sometimes touted as the brightest star in the Study Group playbook and of 54 university partners on the company website at least 21 are with the online platform only.  There is no doubt that it has had some decent names with elements of Imperial College and Johns Hopkins on the roster.  But given the ongoing pressures on OPMs and reports of a “rocky time” in the sector the future seems less than certain.

CEG, QA Higher Education and Oxford International Education Group

The “for sale” sign has gone up around CEG and there were suggestions in 2022 that QA Higher Education might also be up for grabs.  It has been flagged that Oxford International Education Group may well be in the hunt and winning CEG would take them to 13 pathways in the UK but a further prize would be the ten online CEG partners. While CEG has been successful in securing new university partners in recent years there have been suggestions that the commercial terms require very strong recruitment to be sustainable, so any deterioration in UK visa conditions could make life difficult.6 

News around QA Higher Education has been more muted and the recent appointment of a new COO, Kit Tse, who held a similar role at Oxford International Education Group, might suggest that they are in it for the longer haul.  The real question, if so, might be whether there is scope for significant future growth in the UK when universities without commercial pathway partners are finding recruitment fairly straightforward.

Kaplan

The good ship Kaplan seems to sail steadily on its way while others roll, pitch and yaw in choppy seas.  The Annual Report and Financial Statements suggest a relatively untroubled (or at least well managed) COVID period with revenue rising from £116.5 in 2019 to £133m in 2021 and profit going from £7.2m to £12m.  It’s a solid portfolio with something for everyone but there may be a moment in a later blog to have a look at each of the underlying pathways to see who may not be doing so well.

Summary

The scope for consolidation in the sector seems to be clear but the froth and excitement created by record-breaking enrollments in the UK and a bounce-back in the US could also tempt unwary investors to enter the market.  They may want to cast their minds back to the period in the early 2010s when over a billion dollars was invested in pathway on the back of a belief that the US was the new El Dorado.  Parthenon Group’s statement that, “We anticipate that growth will be constrained only by the pace at which private providers can develop the market” did not age well.

Global competition continues to increase, source markets continue to evolve and the uncertainties of Government policy continue to be an existential threat to any expansion ambitions.  Anyone who has brought two businesses together will also tell you that for every synergy there is a clash of ego and culture while for every opportunity there is a bedevilling and unforeseen challenge.  It all makes for a moment when operators probably have to choose to step back and fade away or show the appetite for risk and speculation.     

NOTES

  1. This has been extensively covered in previous blogs (starting August 2022) with the lead case being closed in January 2023.  Court Filings indicate it was reopened on 16 February 2023.  A future blog will look at the circumstances and any continuing action.
  2. SRS Reopen Event shown at the Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough County Florida Complex Business Litigation Division. 
  3. Filing # 167652717 E-Filed 02/27/2023 07:53:06 PM in the Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough County Florida Complex Business Litigation Division
  4. Espalier Ventures is 100% owned by Andrew Colin with INTO University Partnerships Limited making up 99% of its turnover.
  5. It is only fair to say that in 2015 Marcus Stuttard, head of AIM, reflected that, “If AIM was just a casino it wouldn’t have lasted 20 years.”  The obvious riposte might have been that the oldest licensed casino in Nevada turned 90 in 2021 because there will always be gamblers!
  6. This is a summary of discussions with third-parties and there is no direct evidence that terms are more onerous than some others in the sector. The general point is that universities are more experienced in understanding pathways and are likely to be more demanding given the number of pathway options available.

New Year, New INTO?

INTO University Partnerships’ (INTO) recently released Report and accounts made up to 31 July 2022 point to the impact of the pandemic, global student mobility changes and the financial health of pathways.  There are also three new board appointments in the past three months to consider in a higher education recruitment environment where talk of consolidation is gathering pace.  The court case with the University of South Florida is noted as a contingent liability.

And The Tide’s Gonna Turn1

Starting with the Board appointments, there is reason to celebrate as INTO moves from being a board of six men in the previous year’s Report to a smorgasbord (pun intended) of seven men and three women in January 2023.  That makes the group board bigger than the INTO Executive team of nine – four men and five women.  At the date and time of writing the new Board Directors haven’t appeared on the corporate website which is a bit of a shame as two were appointed at the start of November.

It’s not clear whether the new appointees signal a reshaping of strategic direction for INTO.  Annalisa Gigante started at Bain&Co and one profile highlights that “..her key focus areas are sustainability, digital technologies including AI and IoT, new business models, and building high performing teams.”  Nicholas Adlam was at Bain&Co for five years (not overlapping with Annalisa) and held a number of management roles before joining INTO as “growth and transformation” consultant in 2020.  I am guessing that Tamsin Todd is the same individual as the CEO of Find My Past but INTO is not listed on her LinkedIn profile and I can find no supporting announcement of the appointment.

Another Year Older and Deeper In Debt2

Turnover for the year to 31 July 2022 is shown as an adjusted figure improving by £15m to £138m but its worth remembering that the adjustment removes discontinued operations.  For reference the adjusted turnover was shown as £194m in the Report to 31 July 2019.  Back in the Report for 2017 the Group turnover was shown as £276.5m which suggests that the closure of partnerships and the pandemic may have halved its size since then3.

To try and put some sense of the changes since then the 2017 Report noted the “Number of INTO partnerships” as 24.  In the most recent report there appear to be 50% holdings in 11 operational ventures plus 51% in INTO Newcastle and 100% of INTO SLU.  The relationship with Hofstra University is not noted in any form in the current Report.

What has continued to mount is the debt owed by joint ventures to INTO University Partnerships.  The year-on-year increase in debt is over £8m with the majority of the change reflecting the longer-term trend of partnerships in the US becoming increasingly indebted.  This reflects the challenges facing US pathways in recent years. 

How Long Can This Go On?4

New faces and the end of the pandemic could lead to a reset and INTO certainly seems in need of it.  The US operation saw the return of David Stremba as SVP of Partnership Development, North America and the UK leadership team was re-jigged last year with a seeming change in focus across Russell Group and non-Russell Group universities in the portfolio.  Perhaps a combination of direct recruitment contracts, in person and in country activity through initiatives like the University Access Centres, and the return of student demand from China will see a change in fortunes.   

There are, however, headwinds.  While the UK has had a boom in international recruitment over the past three years partners like Newcastle University and the University of East Anglia have underperformed the sector.  In the US it seems that Shorelight has been making much more rapid progress on direct recruitment and has retained more pathway partners than INTO.  The public and apparently acrimonious split with the University of South Florida may be unhelpful to INTO in brokering new deals.

Whether there is some merit or enough financial firepower for a merger, sale or takeover with another operator may be one question to answer.  Some form of alliance with a careers/employability focused partner or building/buying a credible online delivery operation might also add some interest to what looks a dated offering.  All things for the new board members to ponder.             

NOTES

There’s a working theme to the sub-titles.

  1. A lyric of hope from “9 to 5” by the wonderful Dolly Parton. The song—and film— were released in 1980 and owe their titles to 9to5, National Association of Working Women,  an organization founded in 1973 with a mission supporting women working for equal pay, power and participation.
  2. Slightly adjusted line (the lyric says “day” not “year”) from 16 Tons written by Merle Travis.  It is based on life in the mines of Muhlenberg County, Kentucky.  Several lines in the lyrics are direct quotes from his brother and father who worked in the mines.
  3. The adjustment of figures is difficult to follow.  Links are given to the source data for those who wish to investigate further and I am always happy to receive and publish an authoritative correction.
  4. From Working In the Coal Mine which was written by Allen Toussaint and a hit for Lee Dorsey in 1966.  Neither had ever been down a coal mine

Image by Arek Socha 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 

Officium….Conflictus

A 2020 Harvard Law School Forum on Corporate Governance claimed that “…the overall state of JV governance is still not good.”   The same Forum offered a piece in 2019 which explicitly discussed the “JV Directors Duty of Loyalty” and begins “Many joint venture board directors find themselves in a perceived state of conflicted interest.”  It’s relevant reading when the court case1 between INTO2 and University of South Florida financing Company (USFFC) shows the Secondary Case3 naming four employees of the University of South Florida (USF) as defendants. 

These individuals were appointed by USSFC as directors on the Joint Venture between USF and INTO University Partners (IUP), with one of them serving for just a single day on the joint-venture Board.  The defendants, Jennifer Condon, Karen Holbrook, Nick Trivunovich, and Ralph Wilcox are collectively referred to in the submissions as the “Former USFFC-Designated Joint Venture Directors.”4. INTO’s claim is that, “As a result of the USF Parties’ threats and failure to perform their contractual obligations, as well as the Former USFFC-Designated Joint Venture Directors’ breaches of their fiduciary duties to the Joint Venture and INTO USF LPLP, Plaintiffs have suffered and continue to suffer financial harm in the tens of millions of dollars.”5.

INTO Claims Against the Individuals as Count V

The INTO claim for “Breach of Fiduciary Duty Against the Former USFFC-Designated Joint Venture Directors.” is Count V of their complaint6.  The assertion is that they, “..breached these duties by continuing to serve on the Joint Venture’s board of directors with knowledge that USFFC and USF intended to and did purport to terminate the USA despite the Former USFFC-Designated Joint Venture Directors’ serious conflicts of interest.”

In the same Count, two of the four are further accused that they “..breached their fiduciary duties by actively advocating for the baseless termination of the USA [University Services Agreement]..” and that “Their advocacy for termination of the USA was motivated by their concern for the advancement of USF, not the Joint Venture or INTO USF LP, and their loyalty to USFFC and USF, whose interests they put before those of the Joint Venture and INTO USF LP.”

There is the further suggestion that, “The Former USFFC-Designated Joint Venture Directors breached their fiduciary duties by resigning as directors and leaving the interests of the Joint Venture and INTO USF LP without proper care.”

This was not the first time the question of conflict of interest had come up but it was an interesting reversal from an earlier accusation by Fell. L. Stubbs, Treasurer of USF and Executive Director of USSFC.  On 13 May 2 he sent a memo alleging that “While INTO has continuously accused the USF FC appointed directors of conflicts that they have taken care to appropriately manage, INTO has not done the same. For instance, Anmar Kawash, an INTO appointed director to INTO USF, continues to represent the stockholder and IUP in the parties’ dispute.”7

Defendant’s Response and Motion to Dismiss Count V

The defendant’s response on 3 November8 was a Motion to Dismiss Count V claiming, “The ultimate issue…is whether the University of South Florida (“USF”) correctly terminated its University Services Agreement (“USA”) with the Company [INTO USF Inc,.  It continued,“But that simple breach of contract case has exploded into an eight-count diatribe against any person or company that provided information to USF or agreed with the termination decision….”  In addition to claiming that the individuals acted in ways that were “contractually agreed” and which they were “entitled to” do the response asserts that “…this lawsuit is the INTO Entities’ way of exacting revenge and forcing anyone who reported to USF about the Company’s financial distress to pay the penalty.”

In seeking the Motion to Dismiss there are claims the action is barred by sovereign immunity, absolute immunity and corporate “primacy of contract” doctrine, as well as failing to show a cause of action.  There is a specific argument that the individual who was a director for one day “did not take part in any of the conduct about which the INTO Entities complain” because the appointment was made after “the SHA was terminated.” 

Request for Production and a Further INTO Response on Count V

On 9 November INTO issued “Requests for Production”9 to each of the four individuals covering the period from January 1, 2019.  The main elements requested are “all documents relating to the lawsuit”, “All documents and communications relating to the February 2022 board meeting”, “All documents and communications relating to Your resignation as a director of the Joint Venture”, and “All Your notes or minutes from any meetings, whether in person or remote, involving You relating to the Joint Venture and/or Plaintiffs”.

On 23 November INTO filed its response10 to the defendants’ Motion to Dismiss of 3 November, claiming “It is difficult to imagine a clearer example of divided loyalties and breach of fiduciary duty than the one laid out in the Amended Complaint.”  The Response lays out its reasons for this claim and makes legal points against the assertions of immunity and other arguments for dismissal.  The argument related to the individual who was a director for one day states that she “..breached her fiduciary duties to the Joint Venture by resigning from her position as Joint Venture director, leaving the Joint Venture without proper care..”

The Defendant’s Reply to INTO’s Response on Count V

To a casual reader, the Reply for the defendants’ on 2 December11 adopts a tone that mixes legal argument with language that a detached observer might consider scornful.  On sovereign immunity they say, in a “gotcha” moment, “Given this law, the INTO Entities pled directly into the sovereign immunity defense.” and conclude, “This end-run on USF’s sovereign immunity is futile.” 

On Primacy Doctrine they suggest, “The INTO Entities confuse substantive and procedural law, as well mutually exclusive remedies.”  On the failure to “state a cause of action” against Jennifer Condon they state, “The INTO Entities’ ineffectual response shows nothing more than their scorched earth policy.”  This looks like a level of rhetoric which one assumes a judge will calmly sift through and ignore while considering the facts of the case.

Breaking Up Is Hard To Do

When Neil Sedaka released the song in 1962 he sang “Think of all that we’ve been through and breaking up is hard to do.”  The current court saga certainly seems a long way from 2010 when IUP and USF began their partnership.  Or even May 2013, when IUP founder Andrew Colin received a Global Leadership Award from the University of South Florida in recognition of his contribution to international education. 

The intervening years may have led to a point where speculation about the “end of the long-term joint venture” model has become a reality.  It may even give other joint venture directors pause for thought about the governance model they work under, the obligations they might have and the legal cover that is offered for disputes.  In this case a moment of truth may come on 25 January 2023 when a hearing is scheduled to hear the motion to dismiss Count V on the grounds of sovereign and absolute immunity12.

NOTES 

This blog reflects on complex legal issues and makes no assertions in support of or against any of the parties involved. References are provided for readers wishing to read more detail. Any authoritative corrections on matters of fact are welcome.

All filing references relate to documentation filed with The Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough County, Florida Circuit Civil Division.  Further information about the case including the lawyers representing the parties are included in a previous blog.

  1. In the Consolidated Lead Case CASE NO.: 22-CA-006001, Div. L, USF Financing Corporation (USFFC), a Florida not-for-profit corporation, is the Plaintiff while INTO USF LP, a Delaware limited partnership, and INTO USF, INC., a Florida corporation are the defendants (Filing # 156524107 E-Filed 08/31/2022).
  2. As INTO USF LP and INTO USF, INC., are the listed parties in the cases the term INTO is used to describe them in this blog.
  3. In the Secondary Case INTO USF LP, a Delaware limited liability partnership, and INTO USF, INC., a Florida corporation, are the Plaintiffs, while USF FINANCING CORPORATION, a Florida not-for-profit corporation, and THE BOARD OF TRUSTEES OF THE UNIVERSITY OF SOUTH FLORIDA, Defendants.  The amended complaint (Filing # 157809124 E-Filed 09/20/2022) added the four individuals.
  4. Filing # 157809124 E-Filed 09/20/2022  
  5. Filing # 157809124 E-Filed 09/20/2022
  6. Filing # 157809124 E-Filed 09/20/2022
  7. Filing # 153460265 E-Filed 07/15/2022 Exhibit G
  8. Motion and Incorporated Memorandum of Law to Dismiss Count V of the Amended Complaint Against the Former USF FC-Appointed Directors Filing # 160604060 E-Filed 11/03/2022
  9. Filing # 160982138 E-Filed 11/09/2022
  10. Filing # 161827652 E-Filed 11/23/2022
  11. Filing # 162259450 E-Filed 12/02/2022
  12. Filing # 162395119 E-Filed 12/05/2022

Image by Mohamed Hassan from Pixabay 

INTO THE JAWS OF UNCERTAINTY

Friday December 16 at 1pm doesn’t have the resonance of High Noon but a court filing1 suggests it may be the moment for a Special Set Evidentiary Hearing to determine whether a Receiver will be appointed for INTO USF Inc2 (INTO)3. It is termed, somewhat ominously, a JAWS4 hearing in the Docket Entries for the case but it’s not clear who is “gonna need a bigger boat”.  Churchill may have said that “meeting jaw to jaw is better than war” but in business terms this encounter may defy that maxim.

As always, this blog attempts to inform readers but notes that no opinion is offered on the merits of the case or the assertions by either side. For keen readers of detail, the paperwork in the case is filed with The Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough County, Florida Circuit Civil Division and is publicly available. The Consolidated Lead Case is CASE NO.: 22-CA-006001, Div. L, with a secondary case as CASE NO.: 22-CA-006726, Div. L.

These are complex matters and I will be happy to receive authoritative factual corrections and make any necessary amendments.

WHAT’S IT ALL ABOUT?

The Hearing follows a Motion and Incorporated Memorandum of Law from USF Financing Corporation (USFFC), on 3 October 2022, for appointment of a receiver5. The fundamental request is that this is “…to (1) take control of the assets of the Company and (2) release what should be state auxiliary funds only for the purpose of funding the teach-out, together with such other and further relief as this Court deems just and proper.” 

INTO’s response on 24 October6 urged the court to reject the request with the Argument under two main headings – that “the Joint Venture Is Not Engaging in Self-Dealing Or Waste” and that “the USF Parties’ Arguments Are Baseless.”  It also notes “Appointing a receiver is a rare and extraordinary remedy.” Plaza v. Plaza, 78 So. 3d 5, 6(Fla. Dist. Ct. App. 2011).”

USF made a reply to this on 31 October7 noting that “The USF parties seek to protect for the teach-out $7.5 million of payments made by international students and sponsoring foreign governments for academic instruction and student housing provided by USF.”  They assert that, “At no point in their Response do the INTO Entities indicate they will forward those funds to USF to be used for their intended purpose.”

THIS IS ROUND TWO

Last time the parties were in court in relation to the case was on 19 August 2022 when an Evidentiary Hearing considered an Emergency Motion from INTO for a Temporary Injunction to Maintain the Status Quo.  There was “…live testimony by both parties” and the Clerk’s notes8 indicate that John Sykes, Co-founder and Deputy CEO of INTO University Partnerships, Kiki Caruson, Vice President of USF World and Fell L. Stubbs, Treasurer of University of South Florida and Executive Director of the USF Financing Corporation were in court as witnesses.

An order denying the Motion was made on 31 August9 with none of the four key requirements for preliminary injunctive release having been met.  However, it was noted that “..this ruling is not dispositive or determinative of the merits of the main issues in the case.”

THE BIGGER PICTURE

There are over 100 pages of documentation, including original contracts, in the three documents related to appointing a receiver.  The dispute is part of a wider case centering on USFFC seeking a Declaratory Judgement on 21 April 2022 stating it “…provided its notice of termination of the University Services Agreement and the Direct Admit Marketing Services Agreement….. Once USF terminated the University Services Agreement with the Company, this termination automatically terminated the Stockholders Agreement, which now requires the parties to dissolve and wind-up the Company.”10

INTO’s response of 20 September noted that between February and April 2022 they understood that USF were “..exploring the possibility of revising by mutual consent the original terms of the partnership” but that USF then “…improperly sought to terminate their contracts with Plaintiffs and dissolve INTO USF, Inc.”  They also state that they “..have at all times vigorously disputed USFFC and USF’s assertion that the Joint Venture was insolvent. Not only is this conduct in bad faith and in clear breach of the parties’ contracts, but it represents a transparent attempt to wrongfully appropriate the business of a company that was supposed to be its partner and that it knows has substantial value.”11

Apparently, “The parties have engaged in both forms of alternative dispute resolution mechanisms, but were unsuccessful in reaching a resolution of their dispute.”12

On the legal side USSFC are represented by Buchanan Ingersoll and Rooney PC while INTO have Sivyer Barlow Watson & Haughey, P.A., Bush Ross, P.A., and Susman Godfrey L.L.P.  The latter’s website makes the claim that they are “..America’s premier litigation boutique” so the stakes seem high. 

Notes

All filing references relate to documentation filed with The Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough County, Florida Circuit Civil Division. 

  1. Filing #159856710, E-Filed 10/24/2022. Jaws Confirmation No. 12J – 349103917354.
  2. INTO USF Inc.,is described in its Marketing and Recruitment Services Agreement with INTO University Partnerships Limited as “offering a range of academic preparatory programs and English language courses to international students which, when successfully completed, enable qualified international students the ability to progress to undergraduate and graduate degree programs at the University (collectively, the “INTO USF Programs”) Filing # 153460265 E-Filed 07/15/2022 Exhibit B
  3. For simplicity the term INTO is used for submissions by defendants, INTO USF LP, a Delaware limited partnership, and INTO USF, INC., a Florida corporation, in the Consolidated Lead Case CASE NO.: 22-CA-006001, Div. L where USF Financing Corporation (USFFC), a Florida not-for-profit corporation, is the Plaintiff (Filing # 156524107 E-Filed 08/31/2022).
  4. JAWS is the acronym for the Judicial Automated Workflow System for the Thirteenth Judicial Circuit System of Florida.
  5. Filing # 158504942, E-Filed 10/03/2022
  6. Filing # 159869006 E-Filed 10/24/2022
  7. Filing # 160306990 E-Filed 10/31/2022
  8. CDOCboa89b3b594b23_1661607751
  9. CDOCbo8ffb49b6e49c_1662035965
  10. Filing # 153460265 E-Filed 07/15/2022
  11. Filing # 157809124 E-Filed 09/20/2022
  12. Filing # 153460265 E-Filed 07/15/2022

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