The University of Oklahoma accused the attorney for the trustee of bonds used to fund a $250 million student housing complex of false and defamatory statements in the
The university, through its attorney Molly Stephens of the firm Quinn Emmanuel,
Dubrow’s letter accused OU of violating a moral obligation to renew $6.4 million in annual leases for parking and commercial space in the luxury complex known as Cross Village. The non-profit Provident Oklahoma Educational Resources Inc. developed the project with $250 million of tax-exempt and taxable bonds issued through the conduit Oklahoma Development Finance Authority in 2017. RBC Capital Markets was senior manager on the deal.
OU provided $6.8 million of lease payments for the first year but canceled its lease for the current year on July 26 after mediation with Provident and parties other than UMB. UMB declined to join the negotiations, as they were already underway, both sides agree. Cross Village opened in August 2018 with 28% occupancy and some facilities incomplete.
“As the University explained when not renewing the leases, it diligently conducted a cost-benefit analysis of the leases, considering the actual results from the 2018-2019 academic year and the expected needs and budget for the 2019-2020 academic year,” Stephens’ letter says. “The analysis showed little benefit to the University.”
Dubrow’s letter warned that OU’s repudiation of the leases would damage the credit of the university and possibly the state’s.
But Stephens said Dubrow’s letter “was replete with patently false, misleading, and disparaging statements, including an assertion in all caps that no one can trust or should do business with or buy the bonds of the University and the State of Oklahoma.”
Stephens wrote that Dubrow’s letter on behalf of bondholder trustee UMB Bank “makes clear that the strategy of the bond trustee and the debtor is to disseminate falsehoods in an effort to damage the reputation of the University and bully the University into bailing out sophisticated private institutions. Such a strategy will not work.”
Stephens’ letter and a press release from OU cite the official bond statement’s disclaimer that neither OU nor any other state-supported entity was obligated to pay the debt. Furthermore, the university was within its rights to terminate the lease, they say.
“The University broke no promise, but simply exercised its explicit contractual rights of which all parties and investors were aware,” the Stephens letter said.
Dubrow and his client cite statements from OU officials of support for the project, which he says implies an intention to renew the leases for parking, dining facilities and other services.
In response to Stephens' letter, Dubrow stood by his assertions and noted that three OU officials took part in the investor presentation on the bond sale for Cross Village.
“Everything I say in my letter is true, factual or a legitimate viewpoint,” he said. “The university conceived of this project, the university put out a request for proposals, the university worked with RBC the underwriter to structure the bonds and worked with RBC to sell the bonds.”
Dubrow acknowledged that OU did not have a legal obligation to renew its leases but that it did have a moral obligation based on the official statement that the university intended to do so. In the OS section on risks, there is no mention of the university canceling its leases, he said.
The official statement was also vetted by OU’s general counsel, he noted.
Provident provided OU a $20 million up-front payment for the project in return for a 50-year ground lease. Annual lease payments for parking and commercial space provided about one-third of annual debt service, Dubrow said.
Dubrow's letter accused OU of acting like a "vulture hedge fund" trying to ruin the project financially after which it would gain control for "pennies on the dollar."
Stephens responded that “nothing could be further from the truth.”
“No University official has ever expressed a desire to take over Cross,” she wrote. “To the contrary, the university has been consistent that it supports Cross and wants to see it succeed. It is telling that you cannot name any of your sources for this disparaging statement. At bottom, your letter, intentionally circulated widely to media outlets and containing demonstrably false statements made for the obvious and express purpose of injuring the University and the State of Oklahoma, rises to the level of defamation and tortious interference with contract.”
