This is not a lawyer joke. I don’t tell lawyer jokes, and not just because they’re too easy. It’s more because bad lawyers have given me a lot of good columns over the years, but I’ve almost always learned of the bad lawyers from good lawyers.
This is a story about a highly regarded law professor at St. Mary’s University (full disclosure: my alma mater) who is suing the university for breach of fiduciary duty and fraud.
The suit, filed Sept. 20, raises the issue of whether university President Thomas Mengler misled the law school dean regarding an endowment. It also has one of San Antonio’s leading experts on nonprofit law wondering why a university would ever allow such a dispute to devolve into a public lawsuit.
Laura Burney is a longtime oil and gas professor at the St. Mary’s law school and is widely seen as one of the city’s top experts in the field. She has been head of the State Bar’s Oil, Gas and Energy Resources Law Council and has argued numerous cases before the Texas Supreme Court.
After being repeatedly recommended over a period of years for an endowed chair at the law school, she was named to the James N. Castleberry Jr. Professorship in Oil and Gas Law last year. What should have been an honor has turned out to be a lawsuit.
Burney is alleging that the university has been illicitly withholding for other purposes more than half the income generated for endowed chairs, rather than to fully enhance professors’ salaries as intended by the donors.
The Castleberry chair was endowed by the late Frank Scanio Jr. with gifts totaling $200,000 in the mid-1980s. It grew through investments, and Scanio added another $73,000 in 2003, apparently to bring the fund up to the $1 million mark, a benchmark for fully funding an endowed chair at the law school. The endowment is now reportedly more than $1.5 million.
Scanio’s son, Frank Scanio III, told me his father had no connection to the St. Mary’s law school, but had become close friends with Castleberry, who was the law school dean from 1978 to 1989, and wanted to honor him. He said his father was a lawyer, but that his wealth came from oil and gas and a number of banks and other businesses he owned.
In letters to the university accompanying both the original gift and the 2003 addition, Scanio stressed how he intended the income from the endowment to be used. He said the recipient of the chair must be either a full-time full professor of law at the law school or a visiting professor “of national reputation.”
He said the fund’s annual income “shall be devoted solely and exclusively to the purpose of paying to a senior professor teaching oil and gas law at the School of Law of St. Mary’s University, a supplemental salary over and above, and, in addition to the salary normally budgeted to be paid to such professor in the School of Law for the particular fiscal year involved.” He added that the “principal of the endowment shall never be invaded for any purpose.”
But according to Burney’s lawsuit, the university has initiated a policy regarding endowed chairs that provides that the university will apply “at least 50 percent from endowed funding for existing salary and benefits.” That would violate Scanio’s directive that the proceeds from his endowment would supplement the professors’ salaries, not reduce their regular pay. In addition, the lawsuit says “up to” 25 percent from endowed funding may supplement the professor’s salary and “up to” another 25 percent could be allocated for travel and research. That would explain why Burney received a boost of only $16,000 when she was awarded the chair, about a quarter of what the endowment could be expected to fund.
Burney’s lawsuit is buttressed by a report to the law school dean last March from David Hague, a professor and associate dean for administration. Hague was asked by then interim law school Dean Vincent Johnson, at the request of university President Thomas Mengler, to prepare a report on how the law school would spend restricted funds.
In his report last March, Hague said his review found that the university was giving less than half the funds directed by donors to professors in several endowed chairs, including the Castleberry chair. He said such a violation was illegal, adding, “This is clear both from case law and Texas statutory law.”
In May, Burney received an email from the new law school dean, Patricia Roberts, who had been on the job only three days. It conveyed “good news” that Burney would be receiving a generous sum to make up for the underpayment of her stipend for the chair.
According to Burney’s lawsuit, however, the email went on to say that “President Mengler had received an ‘oral agreement’ from the ‘benefactor’s son’ [Frank Scanio III] to allow the University to apply its three-bullet diversion policy ‘going forward’ and that this policy would be applied for the second year of her term as the Castleberry Chair.”
In other words, she would be back to the one-quarter $16,000 stipend.
In a telephone interview, Scanio said he fully backs Burney’s lawsuit. He also said he wants an independent audit going all the way back to the beginning to determine how much of the time his father’s directives had been violated.
Scanio told me he had been contacted since 2013 by several law school officials and sent documents to sign, but after consulting with his lawyer had signed none. He said he had a lunch at La Fogata restaurant last February with the university president and had a pleasant conversation.
“At the end he pulled out a folder with stuff he wanted me to sign,” Scanio said. “I told him I would give it to my lawyer to look at.”
He said Mengler followed up with calls and texts.
“I was sort of placating him, but I wasn’t going to sign,” he said. “The documents did not reflect the conversation.”
In his report, Hague, like Scanio, also recommended an independent audit and an outside law firm review of the university’s practices regarding restricted funds. Hague is under instructions from Mengler not to give an interview, and efforts to reach Mengler by telephone and email were not successful.
I checked with Richard Goldsmith, who is now retired but who long was the San Antonio dean of nonprofit law. He said the idea of the university taking 50 percent of the proceeds of a restricted fund was “unconscionable.” He also said the donor’s son has no authority to change the terms. Scanio, who has practiced law himself, expressed the same opinion, as did Hague’s report. Mengler is also a lawyer, so you would think he would inform himself on that issue.
Goldsmith also expressed astonishment that the university would face a public lawsuit rather than settle the matter quietly.
“Would you give money if you knew they made a practice of not following your directives?” he said. “Of course not.”
The university’s lawyers have filed a lengthy response to the lawsuit, much of it rhetoric that comes across as a personal attack on Burney.
It does say, “The University is not required to use any particular amount or percentage of income generated by the Castleberry Endowment for a supplemental salary for the Castleberry Chair.” But the directive says any proceeds must be used to supplement the professor salary, not to replace part of it as the university’s policy appears to do.
One more thing. Burney said she tried hard to resolve the matter quietly and had proposed to return a portion of her stipend to the law school for scholarships.