KCAI In Legal Wrangling Over Unpaid Pledge | KCUR

KCAI In Legal Wrangling Over Unpaid Pledge

Nov 29, 2012

The Kansas City Art Institute is taking a southern California couple to court. The issue is stirring up a lot of controversy and national -- and international -- attention.

Sunday, November 25: The Kansas City Star reported the Art Institute's suit against Larry and Kristina Dodge, a California-based couple who pledged $5 million to the school. A $7 million dollar building at 4446 Oak Street dedicated in 2008 includes their names displayed on the side facing the Nelson-Atkins Museum of Art.

But the Dodges still owe $4 million of their pledge. As The Star reports:

Larry and Kristina Dodge, a southern California couple living (for now) in a mansion on the Pacific Ocean, are facing hard times and can no longer honor the $5 million pledge they made to the Kansas City Art Institute.

Or, in the art institute’s view, they’re a couple of deadbeats.

(Note: Kansas City Art Institute officials point out that the school did not refer to the Dodges as "deadbeats." According to spokesperson Anne Canfield, this is "something we absolutely did not say and would not say - not to the reporter, not to anyone.")

At the time of the pledge, Dodge was the founder and CEO of American Sterling Bank. But the bank, and Dodge, began to suffer losses starting mid-decade: "the bank had a net loss of $2 million by the end of 2006...In April 2009 the bank was seized and sold to Metcalf Bank...In 2010 regulators barred Dodge from banking forever and assessed a civil penalty against him of $2.5 million...this year a court reduced his penalty to $1 million, but it upheld the ban from banking."

The school filed a lawsuit in 2011 when the Dodges did not fulfill the obligations of their pledge: $5 million over 8 years. In May 2012, a court entered a default judgment of $3.3 million against the Dodges, which they are appealing.

The Dodges are due back in court for a debtor examination hearing on December 13.

But to publicly air a dispute about an unfulfilled pledge, like this, is uncommon, according to The Star:

“It doesn’t happen much, and when it does happen the institutions tend to do their utmost to keep it under wraps because this can only be bad for them, both showing that they had a pledge that was not fulfilled and that they were willing to take a donor to court,” said Andrew Mytelka, an editor at The Chronicle of Higher Education. “I think it’s a deterrent to future donors.”

Monday, November 26, Tuesday, November 27, and Wednesday, November 28: National, and then international, outlets picked up on the story, including The Huffington Post, ABC News, and Daily Mail.

According to the ABC report, the college filed the lawsuit "alleging among other things breach of written contract and unjust enrichment from favorable publicity and having a building named after them.":

Anne Canfield, Kansas City Art Institute's vice president for communications, told ABC News the college's board of trustees authorized the lawsuit by unanimous vote last year, "after nearly four years of discussion with the Dodges."

The college says the Dodges were informed of this action in a letter dated Aug. 11, 2011, "giving them every opportunity to respond."

Kristina Dodge told ABC News the school cut off communication "in a nasty manner."

"In fact, I would like to get my million dollars back from them," she said.

"The decision to proceed with a court action was not undertaken lightly, but our board concluded that all other avenues had been exhausted." - excerpt from the Kansas City Art Institute's letter to donors

The Kansas City Art Institute tells KCUR they're sending letters to inform donors about the lawsuit. The letter includes the following language:

The decision to take legal action came more than a year ago, after nearly four years of discussion with the Dodges. The decision to move forward was authorized last year by a unanimous vote of the college’s board of trustees. The Dodges were informed of this action in a letter dated Aug. 11, 2011, giving them every opportunity to respond. On May 30, 2012, a judgment for $3.3 million was entered by the California Superior Court of Orange County upon the default by the Dodges in answering the lawsuit.

The decision to proceed with a court action was not undertaken lightly, but our board concluded that all other avenues had been exhausted, and it was necessary for KCAI to uphold its fiduciary responsibilities as a college and as a nonprofit organization.

In fact, nonprofit organizations are required by the Financial Accounting and Standards Board to report pledges on their accounting statements as a way to show all assets and resources. Failing to act to collect on pledges could show a deficit in accounting that might affect future contributions. (See “Emerging issue: When is a pledge legally binding” (Feb. 27, 2001) by J. Lloyd Horton, chair of the Association of Fundraising Professionals Ethics Committee 2000. (http://www.afpnet.org/Ethics/EmergingIssuesDetail.cfm?itemnumber=4220)  

Proceeding with construction, based on a combination of gifts and pledges, is common practice in the realm of higher education, and elsewhere.

Fiscal accountability is of utmost importance to KCAI. In this particular case, seeking to enforce this pledge is necessary in order for us to be accountable to all our donors who so generously support us, as well as to the students we serve in fulfilling our educational mission.

Wednesday, November 28: On the Bottom Line Communications website, Kristina Dodge posted these comments:

My name is Kristina Dodge (I’m the woman written about in the article) and I’d like to clear the air on a few things.  Like always, I’ll be honest, forthright and truthful.

People have asked me how I feel about the articles coming out through various outlets.  The short truth is: I feel so-so.  I’m glad that the story is getting some attention.  At the same time, I feel like the article leaves out certain pieces that I wish had been covered.

Here are a few points I’d like to clarify.

1. We signed a pledge.  That is a fact.  But we also didn’t try to back out of that pledge.  We told KCAI that we needed to restructure it.  Until the lawsuit, the endless motions and the slick way KCAI lawyers have manhandled us, we had every intention of fulfilling our obligation.  This tumult has been caused by the hyper-aggressive stance that KCAI took from the get-go.  That’s just not how you treat a family who gave you a million dollars. The lack of compassion is mind-numbing.

2. We don’t care if our name is on the building.  We don’t need that sort of attention and didn’t ever ask for it.  KCAI is using the fact that they put our name on the wall as a piece of showmanship.  We invite them to take our name off the wall, melt down the scrap metal and sell it.

3. We did not back out of the donation because we got cold feet or wanted to buy a house in the Caymans.  The banking crisis was a cataclysmic event.  Hundreds of banks requested bailouts from the federal government—an unprecedented move. But we didn’t.  My husband, Larry, still believes in the strength of the loans he made as the CEO of American Sterling—he would happily take the bank back.  Still, the idea that KCAI could be so callous in the midst of a global economic meltdown is patently absurd.  It’s odd to me that an institute dedicated to the arts (which aim to offer people a more nuanced understanding of the world in which we live) seems primarily focused on limiting this discussion to being either black or white.  There are shades of grey.  The fact that KCAI wants to ignore the complexity of the situation is sad.

4.  KCAI has been aggressive in ways that don’t befit a charitable organization.  In the coming days, I will be putting video of my KCAI legal-deposition online.  The KCAI lawyers were ferocious and rude.  I was asked if I “knew what the word job meant,” and if I “understand English.” The lawyer scoffed when he heard that my triplets have diapers.  He demanded to know why some of that diaper money didn’t go to paying off KCAI.  Seriously.

5.  KCAI lawyers told us that they wouldn’t file for a default judgment.  Then they did.  Our appeal will look at the legality of this maneuver.  Either way, it certainly isn’t ethical.

There is no hidden money.  We aren’t secretly still rich.  There isn’t a nickel under our floorboards (trust me, I checked).  We have a house but the house has a lien against it that is bigger than the estimated sale price. My husband invested everything in his businesses.  All our assets are tied to American Sterling.  I hate to lay my life bare, but the fact is, we are currently on food stamps.  We don’t have health coverage (aside from my husband’s Medicaid).

6.  My husband and I don’t consider this a political issue.  It is a human issue.  KCAI is acting in a way that does not respect the human dignity of a family who, to-date, has given them a million dollars.

On a final point, I have been touched by the support many of the commenters have had for my family and I.  We are in the midst of a trying time and have drawn strength from a wide range of places.  The kindness shown by readers, their ability to share our outrage and see our point of view has buoyed my spirits.

If you agree with us on this matter, please take two minutes to email the office of the KCAI president (president@kcai.edu) and tell her that: “though KCAI is acting within legal boundaries, their behavior is mean-spirited and lacks the sort of compassion we would hope they would help foster in their students.”

Thank you for your interest in this story. Whether you side with Larry and I or with KCAI, please know this: we are regular people, doing our very best to support our family and live happy lives.  When we had resources, we were notoriously generous with them. We have made every effort to handle this in an honest, accountable, forthright manner.

All my best,

Kristina Dodge