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Suit against Dowling College trustees, former officials seeks $50M in damages

Dowling College was established in 1968 and had

Dowling College was established in 1968 and had campuses in Oakdale and Shirley before filing for bankruptcy. Credit: Johnny Milano

Nearly three years after Dowling College filed for bankruptcy, a trustee for the institution’s creditors has filed suit against the school’s trustees and two former officials, alleging years of “waste, mismanagement and breach of fiduciary duty.”

The lawsuit, filed in U.S. Bankruptcy Court in Central Islip in May, seeks $50 million in damages, money that, if the case is successful, eventually would pay creditors. The private school, established in 1968, had campuses in Oakdale and Shirley.

The 92-page filing by Ronald J. Friedman, a court-appointed unsecured creditor trustee for the college, its institute and Alumni Association, follows the November 2016 bankruptcy court filing that left students and others tied to the 50-year-old institution stunned by its rapid decline and sudden closure. It lays out a chronological litany of the board's alleged missteps, “negligence” and potential conflicts by some tied to its board, while citing a failure by the institution’s outside auditor, KPMG, to flag and report those missteps.

"Although it was obvious that Dowling could not sustain two campuses," the suit charges, trustees "never streamlined Dowling’s operations, never underwent any significant self-examination to improve Dowling’s academics or support services, and never directed Dowling’s available resources toward selected programs intended to enhance Dowling’s success …" They also "accepted the cockeyed optimism of their presidential hires and continued to operate Dowling as if its problems would simply disappear," according to the suit.

Named in the suit were former interim school President Scott Rudolph, who also was a member of Dowling's board, and trustees Patricia M. Blake, Gerald J. Curtin, Denise Fischer, Myrka Gonzalez, Jack O’Connor, Dennis O’Doherty, Ronald Parr, Joseph K. Posillico, Michael P. Puorro, John Racanelli and Deborah K. Richman. Also named was Dowling’s former chief financial officer, Ralph Cerullo.

Howard Kleinberg, an attorney for the trustees at the Garden City firm Meyer Suozzi, declined to respond to the specific allegations, but said, “We will defend this very vigorously and very aggressively.” Last month, Kleinberg filed a motion to move the proceedings to U.S. District Court. Judge Joan M. Azrack has yet to rule on the request.

Kleinberg's filing calls the suit against the trustees "highly spurious and deficient," and said they "intend to move to dismiss it in its entirety," claiming, among other things, the bankrupcty court judge "is not impartial."

Puorro, the former board chairman, said rather than contributing to its downfall, Dowling's board "did its utmost in efforts in its attempt to save the college."

"This board will fight the litigation right to the very end and we have nothing to be ashamed of," Puorro said, calling the suit "nothing more than a money reach by certain individuals in the creditor trust …" 

While Dowling's enrollment numbers plunged from 6,749 in 1999 to less than 2,000 by 2014, the college amassed $57 million in debt, the suit alleges, and board members and officials “never discussed Dowling’s mission,” and the school “did not have a strategic plan” as a guiding document, as its auditor, KPMG, recommended in an industrywide publication. When it did attempt to create such a plan, Dowling’s was “wholly inadequate,” as were financial reporting mechanisms, the suit says.

The suit claims students’ academic records had “not been properly managed, thereby placing its accreditation and federal financial aid potentially at risk.” At least 500 student files were incomplete, students were admitted without proper documentation, and 150 student files were missing, the suit charges, alleging that trustees and officials “took no action” to remedy the problems.

During the board’s tenure, “Dowling was at a significant disadvantage by not having access to critical business data to manage key aspects of operations, including enrollment management, student financial assistances, budgets and cash flow,” according to the suit. Losses mounted even as a roster of presidents — four in less than four years — offered new plans for turning the institution around, all to no avail, the suit charges.

At the time of its collapse, Dowling owned its main campus, renamed after its interim president to the Rudolph campus, plus 32 residential properties around the campus. It maintained operations chiefly through student tuition payments, the suit says, despite recommendations to solicit donations.

The suit notes that a former Dowling president, Victor Meskill, who served for 23 years, was among the most highly paid college presidents in the country, with a reported $325,000 annual salary and benefits package. Under his tenure, he installed a new computer software system to manage data and finances, but the school “never used” the software to its “full functionality," the suit says.

In 1994, Dowling bought 103 acres in Shirley to establish an eastern campus as a “school of aviation and sports,” and later borrowed another $10.9 million to fund construction of a dormitory and other renovations there.

The suit says Meskill, who is not a named defendant in the suit, “attempted to shift Dowling’s focus from a small, local institution" to a "global university" with an emphasis on the aviation-focused Brookhaven campus. Its debt soon  grew to $34 million by 1999, and S&P downgraded the school to a level above junk bond status. After he fired five top-ranking officials in a cost-cutting move, Meskill himself was fired by the board, the suit says.

Reached Thursday, Meskill noted the college’s problems and bankruptcy took place well after he left, during the tenure of a succession of presidents. “I had nothing to do at all with that,” he said of high costs tied to expansion and other programs. “I’m broken-hearted at what happened.” 

The suit plots 2006 as the beginning of the end for Dowling, with another round of tax-exempt debt filed to finance expansion of the Brookhaven campus and its athletic field complex for $4 million. Former Suffolk County Executive Robert  Gaffney was hired as president in October 2006, with $57 million of debt on the books. Ratings downgrades on Wall Street continued.

The suit notes that KPMG, Dowling’s auditor from 2009 through 2016, co-authored an industry paper that’s used as a vital tool by colleges for managing institutions properly, yet KPMG “never advised Dowling’s board, in writing or otherwise, to implement any of the procedures, reporting or financial metrics …” the paper prescribed.

Robert Wade, a spokesman for KPMG, said the firm “cannot comment due to client confidentiality requirements.”

The suit notes that when Gaffney resigned in 2010, Rudolph, who  gave $4 million to the college that year, took over as Dowling’s president. The suit notes that Rudolph was “potentially the only college president in the United States who had not graduated from college.” He attended Dowling but never finished his degree. In 2002, he was awarded an honorary degree, the suit says.

Rudolph was absent for the first four months of his tenure, the suit notes, and Puorro, as board chairman, “covered for him.” Rudolph’s $4 million gift was used to cover $500,000 in payroll, with the rest used to support the school’s line of credit. The school’s enrollment that year, meanwhile, was “substantially behind” projections, and Dowling was “bleeding cash,” the suit said. Accounts receivable were overstated by $2 million, the suit alleges.

Despite recommendations to bolster its nontuition fundraising activities, Dowling’s Development and Alumni Relations department was “wholly inadequate and supported little or no activity,” the suit states.

The outlook for the college as a whole looked no better. “It is abundantly clear from Dowling’s board minutes and other documents that Dowling’s management did not have any coherent plan to manage its failing enrollment [and resultant financial decline], to bolster its failed fundraising or to pay its enormous bond debt of $57 million,” the suit says.

Since the 2016 bankruptcy and closure of the college, most Dowling properties have been sold. The 25-acre Oakdale campus — including the William K. Vanderbilt Mansion — was bought at auction last year by NCF Capital Ltd. of Hong Kong for $26.1 million. It's now owned by NCF affiliate Mercury International LLC. Last year, the bankruptcy court approved the sale of the 105-acre Brookhaven campus in Shirley to Triple Five Aviation Industries LLC for $14 million.

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