Baylor University’s legal expenditures almost quadrupled in one year as a sexual assault scandal broke at the school, annual IRS tax forms show.
The scandal led to high-profile leadership changes, lengthy investigations and a flurry of lawsuits and settlements. Sexual assault victims who spoke publicly about how their cases were mishandled drove attention on issues at Baylor, as did revelations in a criminal case.
The university’s spending on legal fees hovered at less than $1 million from 2000 to 2009, generally increasing but never exceeding $2 million until the 2014-2015 year, when the university spent $2.8 million, according to tax forms Baylor submits each year to the IRS.
The next year — when Pepper Hamilton LLP conducted its investigation into how the school handled sexual violence reports — Baylor spent more than $11 million. And in the 2016-17 year, the most recent available, it spent almost $9 million.
But exactly how much of the hike came because of the scandal? It is difficult to draw an exact conclusion.
At least $4.2 million went directly to Pepper Hamilton, according to a recently revealed email from a Baylor lawyer.
Baylor’s financial costs from the scandal have recently jumped to the forefront in a Title IX lawsuit filed by 10 anonymous plaintiffs, all alumnae who allege the school denied them educational rights after they were assaulted and that Baylor policies heightened the likelihood of assaults. Since it was filed more than two years ago, the lawsuit has prompted contentious discovery disputes and several depositions from top Baylor officials, some of which have been included in public filings.
Last month, the plaintiffs’ lawyers turned over, as an exhibit, an Oct. 27, 2016 email in which Baylor General Counsel Chris Holmes tells Regent Phil Stewart that Baylor has paid $4.2 million in fees and expenses to Pepper Hamilton to date.
Baylor announced the investigation in September 2015 and in May 2016 released a 13-page summary of the findings and a list of 105 recommendations to improve the Title IX office, the counseling center and several policies. Those recommendations have since been implemented, Baylor announced in May of last year.
When they released the summary and recommendations, regents also fired Ken Starr as president and Art Briles as head football coach.
The $4.2 million does not appear to include payment for a 755-page verification report the investigators completed in November 2017, more than a year after the email was sent, or for any additional advisory work they have done at Baylor. Gina Maisto Smith and Leslie Gomez conducted the initial investigation with the Pepper Hamilton law firm and continued to work with Baylor after they moved to the Cozen O’Connor firm in early 2017.
In a June deposition, former Athletics Director Ian McCaw said Stewart conducted his own investigation of how Pepper Hamilton conducted its work. Stewart has also since been deposed, but details have not been made public.
Baylor spokesman Jason Cook said Holmes listed the $4.2 million figure to Stewart in response to the question and declined to comment further on the exchange.
Jim Dunnam, a Waco attorney representing the former students, had a different take.
“Baylor claims it wants to support sexual assault survivors but instead spends millions fighting and victimizing them,” Dunnam said. “Four dollars, much less $4 million, is too much to spend to conduct a sham investigation.”
In another court filing last month, Baylor told the court it has spent almost $3 million on document production in this lawsuit alone. That figure does not include fees for their lawyers working on the case, and the university has had 35 to 50 contract attorneys review potential discovery documents in the production phase, according to the filing.
Adding up legal fees
As a private university, Baylor is not required to hold public meetings on its budget. Its IRS documents do not detail the purpose of specific legal spending, meaning there is no breakdown between legal fees related to sexual violence and legal fees related to other matters.
“With an annual operating budget in excess of $650 million and with a growing research enterprise, expenditures related to legal matters are part of normal operations,” Cook said.
An audit of Baylor’s most recent financial statements states at least “some of” the investigations and legal proceedings tied to the school’s Title IX fallout are covered by insurance. The report states the administration is not aware of claims that would not be reflected in its financials or go uncovered by insurance.
And in late 2016, the chairman at the time of the regents’ financial committee told faculty members Baylor has a reserve for financial settlements and lawsuits.
The school has had no shortage of legal issues in the last few years.
Baylor has reached settlements with four women who have sued the university under Title IX. It has also reached settlements with at least three others who did not file lawsuits.
Baylor still faces active investigations from the U.S. Department of Education — one looking into Baylor’s Title IX practices, the other exploring Baylor’s crime reporting compliance — the Texas Rangers, the NCAA and the Big 12 Conference.
Baylor also fought a legal battle with the Baylor Alumni Association, which changed its name to the Baylor Line Foundation as part of a settlement agreement reached in March 2016.
“Baylor has various contingencies in place like all major universities and corporations to manage legal-related matters,” Cook said. “But due to active litigation, we are unable to divulge additional details.”
‘Sign of the times’
Colleges and universities are facing more legal expenditures in an era of regulation for which many schools were unprepared, said Peter Lake, a law professor and director of the Center for Excellence in Higher Education Law and Policy at Stetson University.
“This is a sign of the times,” Lake said. “We’re seeing much more legalization of higher education activity, and it’s turning into the need for expensive legal services. Some of the numbers that you’re throwing out remind me of commercial litigation budgets from other industries.”
McLennan Community College last week hosted Peter Lake, a national expert in higher educatio…
President Barack Obama’s administration added to regulation related to higher education, and court rulings since have also added strain to colleges dealing with them and the many issues college officials monitor, he said.
“Once something gets past a motion to dismiss and heads off to summary judgment or trial, the legal fees generally go up exponentially,” Lake said. “What you’re seeing industrywide, we’re seeing pressure. The question on the horizon is, are these kinds of costs sustainable for the industry, broadly?”
Texas Christian University paid about $1.7 million in legal fees in the 2015-16 fiscal year, though TCU brings in less revenue and spends less than Baylor. That same year, when Baylor spent more than $11 million on legal fees, Southern Methodist University spent $1.9 million on legal fees.
Investigations like Pepper Hamilton’s at Baylor give institutions insight into liabilities and defenses in potential forthcoming litigation, said Karen Bitar, a partner in the New York office of Seyfarth Shaw LLP. She is a former sex crime prosecutor and has represented religious and higher education institutions in Title IX-related cases.
“Internal investigations are extremely expensive,” Bitar said. “It depends on what the objective of the investigation is, but it really means you are really undertaking a very thorough review of what is out there to either justify or defend against the allegations that give rise to the investigation.”
And in her experience, institutions and their accountants ultimately decide which expenditures are defined as “legal fees,” she said. There is even a fear among some plaintiffs’ attorneys that unearthed evidence damaging to institutions would force those institutions’ insurance companies to not cover certain claims, thus cutting down potential settlements, Bitar said.
Lake said insurance companies “walk an interesting line” when dealing with institutions facing legal pressure.
“The question is, how does this impact some of these insurers?” he said. “There’s a potential insurance crisis looming around the corner. You can see if these numbers continue to grow and broaden, it could either put a school out of business or cause premiums to rise in a way that would be very impactful for institutions.”