New revelations, new wrinkles in Idaho Supreme Court hearing on Phoenix sale • Idaho Capital Sun

This story was originally posted on IdahoEdNews.org on June 13, 2024.

(UPDATED, 3:56 p.m., with comment from Trudy Fouser, the State Board’s lead attorney.)

An Idaho Supreme Court justice Thursday floated a new and confounding question about the proposed University of Phoenix acquisition: Did the State Board of Education pay $1.5 million for consulting before greenlighting the deal?

State Board officials were quick to say they never paid for due diligence work, which would have been covered through tax dollars.

The due diligence question came up during oral arguments, as the Supreme Court took up an open meetings lawsuit against the State Board. Attorney General Raúl Labrador has argued that the board broke state law when it held three closed-door meetings to discuss the University of Idaho’s $685 million plan to purchase Phoenix. The State Board gave the purchase the go-ahead in an open meeting on May 18, 2023.

Labrador’s lawsuit — rejected in an Ada County district court — has nonetheless thrown a monkey wrench into the bid for Phoenix, a giant for-profit online university serving some 85,000 students nationally. And if the Supreme Court sides with Labrador and against the State Board such a decision would further imperil the deal.

The Supreme Court took the case under advisement after a 70-minute hearing. It’s unclear when the court will rule.

Did the Idaho State Board of Education pay for due diligence?

It sounded that way, at least in Thursday’s hearing.

During a line of questions, Supreme Court Justice Gregory Moeller clearly suggested that the State Board had spent $1.5 million on due diligence. And he said the spending indicated that the Phoenix talks had progressed beyond the “preliminary negotiations” that can be held in a closed meeting.

Moeller’s questions also seemed to draw a distinction between the State Board’s due diligence and the U of I’s consulting contracts, which have been a matter of public record for months. The U of I has spent roughly $11 million on Phoenix-related consulting — and as Idaho Education News reported in February, $7.3 million of this work went to U of I President C. Scott Green’s former employer, Hogan Lovells, an international law firm.

So did the State Board spend $1.5 million?

During Thursday’s hearing, the State Board’s outside attorney did not dispute Moeller’s claim, and said the magnitude of the Phoenix deal justified due diligence.

“(It’s) not an unreasonable action,” Stephen Adams said.

When State Board spokesman Mike Keckler was reached for comment Thursday morning, he questioned Moeller’s version of the facts.

“Neither the board nor the board office spent funding on due diligence,” Keckler said in an email. “Given that we are in a board meeting today we weren’t able to listen to this morning’s oral arguments, so we can’t comment any further on Justice Moeller’s line of questions.”

The board has been meeting in Pocatello since Tuesday for a previously scheduled meeting running through today. No board member or State Board staff member attended Thursday’s Supreme Court hearing.

The lead attorney representing the State Board, which operates as the U of I’s governing board of regents, corroborated Keckler’s account. In an email Thursday afternoon, Trudy Fouser said the board never paid for consulting or due diligence.

Familiar — and less familiar — legal arguments

Thursday’s legal arguments revolved around two snippets in the open meetings law, pertaining to the negotiations process and competition.

The State Board justified its closed meetings under a little-used piece of the law, covering “preliminary negotiations … in which the governing body is in competition with governing bodies in other states or nations.”

Negotiations. Chief Justice Richard Bevan seemed to set the tone for Thursday’s hearing with the court’s first question to Joshua Turner, Labrador’s constitutional litigation and policy chief: “When do preliminary negotiations cease and final negotiations begin?”

For much of the hearing, the justices grilled Turner and Adams about this question. Not surprisingly, the two attorneys saw the issue differently.

Turner argued that the preliminary talks end — and the public debate must begin — when there is an offer on the table. And Turner suggested that this must have happened sometime during the board closed meetings, in March, April and May 2023.

Adams said preliminary negotiations don’t end with an offer; they end when the parties begin work on a contract. And he said the preliminary phase ended with the State Board’s open meeting on May 18, 2023; that’s when the board agreed to pursue a contract, setting a $685 million purchase price.

Competition. This was the centerpiece in the Ada County trial in January, when District Judge Jason Scott ruled in the State Board’s favor. Scott said board members had reason to believe the U of I was vying against other public suitors, such as the University of Arkansas. (However, Arkansas’ board of trustees voted down a Phoenix purchase in April 2023, almost a month before the State Board endorsed a U of I-Phoenix affiliation.)

But this turned out to be a secondary issue Thursday, as the court and the competing attorneys spent relatively little time discussing competition.

Adams defended State Board members, saying they worked diligently to make sure their closed meetings were legal. And he said everything the board heard in private confirmed the U of I was in the middle of a competitive bidding process.

Meanwhile, Turner took a jab at Scott. By focusing on whether board members had reason to believe the U of I faced competition — rather than proof of actual competition — Scott used a subjective measure. As a result, Turner said, Labrador’s team had no choice but to spend hours deposing individual board members for their read on the market for Phoenix.

Transparency vs. competitive advantage

The State Board’s May 2023 vote blindsided Idahoans who knew nothing about a potential Phoenix purchase, Turner said. And that preempted the process the open meetings law is designed to protect. “The public wants to be able to enter the conversation and have a seat at the table.”

In response, Adams said the board was not trying to shut out the public. Instead, he said, the board was working “to get the best deal possible for the people of the state of Idaho.”

On Thursday, the court publicly wrestled with this question of balance.

Justice Colleen Zahn said the Legislature made its objectives known, with a law designed to allow the government to negotiate behind closed doors. “It’s clearly got to be to provide the state a competitive advantage.”

Moeller acknowledged that closed-door negotiations are a great way to run a private business. “The debate I’m having internally is, is this a good way to run a state?”

The case, in broader context

The case before the Supreme Court is legally narrow: an open meetings dispute.

Its implications run deeper.

Labrador’s lawsuit, filed nearly a year ago, has prevented the U of I from financing a Phoenix purchase. The Supreme Court appeal has also kept bonding on hold.

As long as the lawsuit is active — and on Thursday, justices floated the possibility of kicking the case back to district court for another hearing — the Phoenix purchase remains in limbo.

And as EdNews first reported in May, Phoenix’s owner, Apollo Global Management, has said it now wants to talk with other prospective buyers. The U of I could receive “breakup fees” from Apollo if its Phoenix purchase falls through.

More reading: Click here for more in-depth, exclusive Phoenix coverage from Idaho Education News.