Funder Suing University of Alabama for Breach of Contract

The Suder Foundation in Plano, Texas, is suing the University of Alabama after the university pulled the plug on a scholarship program for first-generation college students funded by the foundation, the New York Times reports.

In 2008, the foundation, a family philanthropy established by telecommunications entrepreneur Eric Suder, decided to create a program to help young people who were the first in their families to attend college. The program, First Scholars, would award grants of between $1 million and $2 million over four years to eight universities to provide scholarships to deserving students and create a mentoring and support system, with the understanding that the participating universities would continue the program after the grants ran out. But the University of Alabama, which received $1.3 million from the foundation, canceled the program two weeks after cashing its final $250,000 check in September 2014. Last summer, Suder filed suit against the university seeking return of the $1.3 million plus interest, legal fees, and damages.

In its application, the university indicated that its "leadership has designated an endowed support fund to be used to support the Suder Scholars program once the Suder Foundation funding is complete in 2015." But less than two weeks after thanking Suder for the final check, university president Judy Bonner, who was provost when the contract was negotiated, notified him that the university would be opting out of the program now that it had to come up with the funds itself. A November 2014 letter from Leslie Abernathy, director of corporate and foundation relations at the university, stated that the demands for data collection were too great for the program coordinator and said the agreement had always been set to end in May 2015. If Suder wanted to end the relationship sooner, however, the university would return $162,500, the amount set aside to provide spring semester scholarships to sixty-five students.

To date, the university's legal response to the suit has included a two-page motion, filed last fall, denying all claims as well as motions arguing that the university cannot be sued in Texas, where the foundation is based. A university spokesperson told the Times that, given the turnover in the school's leadership and development staff, the confusion surrounding the agreement could not be explained.

Philanthropic advisers told the Times that abrupt terminations of donor agreements are rare, in part because of the unease they create among current and future donors. "From the philanthropic perspective, it sends a very poor signal to donors," said Family Foundation Management/Counsel CEO Henry Goldstein. "If they make a commitment to the university, there is no assurance that the university will live up to its side of the bargain, and a legal agreement won't save it."

Meanwhile, the University of Utah was asked to leave the program for not fulfilling its obligations, while Southern Illinois University Carbondale and the University of Kentucky, which took over their programs as agreed and initially added new cohorts of First Scholars, have stopped taking on new students. "One of the things we didn't consider is the constant changing of administrations in all of these schools," Suder told the Times. "Getting it institutionalized was constant work."

Paul Sullivan. "When College Scholarship Programs Falter." New York Times 01/25/2016.