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Analysis: Will the University of Phoenix Sale Survive the Idaho AG’s Lawsuit?

The University of Phoenix’s acquisition by the State of Idaho may be a step farther away following a surprising legal action by Idaho’s attorney general.

The Idaho State Board of Education—the board of regents for the University of Idaho—met in three closed executive sessions to discuss the Phoenix deal before the Board’s May 18 vote to acquire the for-profit school. These executive sessions on March 22, April 25 and May 15 were not announced to the public, nobody from the public was permitted to attend either in person or over Zoom, and only two professors from Idaho’s faculty senate knew about the sessions in advance.

Furthermore, Phoenix’s owners at the hedge fund Apollo Global Management had required that all the participants sign strict nondisclosure agreements before the meetings. Those NDAs meant that the officials were not at liberty to discuss these meetings with anyone not present, including the media.

It turns out that the State of Idaho has an Open Meetings Law (OML) that generally forbids such secret proceedings. As a result, Idaho Attorney General Raúl Labrador filed a lawsuit against the Board on June 20, claiming that the Board had violated the state’s open meetings legislation by discussing the Phoenix deal behind closed doors. Idaho Code § 74-201 declares that it is State of Idaho policy that “the formation of public policy is public business and shall not be conducted in secret,” and that “all meetings of a governing body of a public agency shall be open to the public.”

Labrador’s complaint asks a state court to void the Board’s vote that authorized the purchase. Section 11 of his document argues:

Because the State Board of Education failed to follow Idaho’s Open Meeting Law in deliberations before the final vote to approve the deal, its vote entering into the purchase agreement is void. If the University of Idaho wants to approve the deal, it will need to do so after a public meeting. The people of Idaho deserve to know about a transaction of this magnitude before it happens, not to have it presented to them as a fait accompli.

The Preliminary Negotiations Exemption

Apparently, the Board had attempted to exploit an exemption within the statute that set forth narrow circumstances in which public agencies can conduct executive sessions. Known as the preliminary negotiations exemption, it permits executive sessions to “consider preliminary negotiations involving matters of trade or commerce in which the governing body is in competition with governing bodies in other states or nations.”

However, that exception doesn’t appear to fit the facts of this case because, as we pointed out in a recent report, the Regents of the University of Arkansas had previously voted against a potential acquisition of Phoenix on April 24.

Moreover, Labrador’s complaint argues that “the State Board of Education unquestioningly relied on the seller’s representation that other state universities were considering purchasing Phoenix,” without independently verifying or conducting its own investigation of that claim by the seller. In other words, no active competition with other governing bodies appears to have actually taken place at that time.

Furthermore, the crucial May 15th executive session—only three days before the vote—doesn’t appear even to meet the “preliminary” test. That meeting was devoted to presentations by law and accounting firms who had analyzed the legal and financial dimensions of the $685 million proposal. “At this point, all preliminary negotiations had been completed, and the terms of the acquisition were substantially in place,” asserts Labrador’s complaint.

Idaho’s Board Won’t Back Down

Reaction to the filing came in a harshly worded letter from the board’s executive director, Matt Freeman, on June 30. He pointed out that a deputy attorney general from Labrador’s office had sat in on one of the executive sessions, but raised no legal objections. Freeman then threatened to hire outside specialist defense counsel and send their invoices to the attorney general’s office.

In a brief statement released hours later, Labrador fired back that Idaho Governor Brad Little shouldn’t make a political issue out of the Board’s failure to comply with the Open Meetings statute. “The statute entrusts the attorney general to vindicate the people’s interest in transparent government,” Labrador said.

Next, on July 7th, the Board unanimously voted in a two-minute public meeting to stand behind its decisions to hold all three executive sessions behind closed doors. Board President Linda Clark then read a statement that claimed, “The attorneys engaged in this transaction determined that the exemption applied. Even now, with the benefit of hindsight analysis, we believe the exemption applies; therefore, no violation occurred, and no cure is necessary.”

Later that afternoon, the attorney general’s office issued another statement that pointed out that Labrador must enforce the Open Meetings Law, arguing that such enforcement shouldn’t be controversial among officials. That statement continued:

Today, [the board] had an opportunity to simply cure a mistake and make a clear commitment to transparent governance. Instead, the board neglected their duties and continued down a path of wasting taxpayer funds and resources to justify its failure to follow Idaho Open Public Meeting laws all to keep a half-billion dollar transaction from public discourse. The people of Idaho should be given an opportunity to evaluate such a significant financial decision.

The defendants only have 21 days under the Idaho Rules of Civil Procedure to file their answer to Labrador’s complaint, so we should see the Board’s defense arguments before the court soon, probably attached to a motion to dismiss.

However, so far this board has made little effort to counter the attorney general’s thoroughly researched legal arguments. All President Clark seems to be saying in her post-vote statement is, “Both our lawyers and Phoenix’s lawyers concluded that the exemption applies, so we board members agree with them.” But thus far, her side doesn’t appear to have made any effort to build a case that presents legal counterarguments justifying why the Board believes this exemption applies and no statutory violation occurred.

What’s This Dispute Really About?

Ostensibly, it might seem like this might be purely a dispute over open government. But some of the more curious aspects of this case don’t make much sense within that context.

For example, it remains to be seen why the attorney general might have filed this litigation so quickly. Generally, it’s unusual for administrative agencies within state governments to sue each other, as in this case.

But as we analyze the complaint, we find that the attorney general makes no secret of his concerns about the Phoenix deal. In a section within the statement of facts entitled “The University of Phoenix’s Checkered Past,” Labrador devotes 350 words and 10 citations to the school’s plummeting enrollment, shrinking market value, and settlements with the U.S. Department of Justice and Federal Trade Commission following False Claims Act and deceptive advertising charges under the FTC Act.

He also discusses the May 2023 letters by six U.S. senators to three federal agencies asking for investigations of Phoenix; the letters relate to Phoenix’s recent patterns of false advertising, which violate its $191 million consent decree with the FTC in 2019. What’s more, Labrador also criticizes the University of Idaho and its Board for their “haste to acquire a for-profit college beset with financial, moral and legal challenges.”

Kevin Richert of Idaho Education News argues that this dispute is really about how Labrador’s skepticism about the Phoenix deal has placed the attorney general not only at odds with the board, but also with Governor Little. Richert explains,

Little and Labrador have a history. In 2018, Little captured the GOP gubernatorial nomination after one of the most costly and contentious primaries in state history. Little won with 37 percent of the vote, while Labrador received 33 percent. . .

The conventional Statehouse wisdom holds that Labrador is a likely (and maybe even inevitable) gubernatorial candidate in 2026.

More Curious Developments

But this surprising litigation isn’t the only curious recent development in the University of Phoenix case.

For example, a shared governance model between faculty and the administration is mandated by the University of Idaho’s constitution, according to Dr. Kristin Haltinner, a professor of sociology and vice chair of Idaho’s faculty senate. She claims the administration’s effort to acquire the University of Phoenix flaunted those regulations.

Then on June 16, the Idaho legislature’s Joint Finance-Appropriations Committee grilled University of Idaho President Scott Green for two hours in a rare summer session. In exchanges that turned contentious at times, the committee’s leadership questioned Green on the use of all the nondisclosure agreements and why the legislature’s officials were never involved in the negotiations with Phoenix.

And we’re just now learning—thanks to an Idaho Public Records Act request by the Idaho Statesman—that dozens of emails encouraging rejection of the $550 million Phoenix deal were received by the Board after it announced its vote would take place only 24 hours later. Those emails were sent by alarmed Idaho taxpayers, U of I professors, and alumni.

“Frankly, I’m concerned. This seems like more of a business venture than something an academic institution should be involved in,” wrote U of I alumnus Carey Edwards in his email message. “The University of Idaho is not a business, and it shouldn’t be run like one.”

In fact, only one message argued in favor of purchasing Phoenix. Yet the Board nonetheless voted unanimously to acquire the embattled school anyway.

Douglas Mark

While a partner in a San Francisco marketing and design firm, for over 20 years Douglas Mark wrote online and print content for the world’s biggest brands, including United Airlines, Union Bank, Ziff Davis, Sebastiani and AT&T.

Since his first magazine article appeared in MacUser in 1995, he’s also written on finance and graduate business education in addition to mobile online devices, apps, and technology. He graduated in the top 1 percent of his class with a business administration degree from the University of Illinois and studied computer science at Stanford University.