Judge orders U-M to tell Free Press how it pays top endowment official

By Matthew Dolan and David Jesse
Detroit Free Press

DETROIT — A state judge has ruled the University of Michigan improperly withheld financial information from the Detroit Free Press about a top university official, rejecting the argument that his compensation formula was a “trade secret.”

The judge also ordered the university to pay the newspaper’s legal fees, which have yet to be determined.

The open-records lawsuit the Free Press filed in November asked the judge to order the university to turn over how it calculates the compensation for its chief investment officer. The university previously declined the Free Press’ Freedom of Information Act request for the relevant documents.

“We are still carefully reviewing the court’s decision and considering the appropriate next steps,” U-M spokesman Rick Fitzgerald said. “And, respectfully, we stand by our arguments in this case.”

Free Press Editor Peter Bhatia said it was important to sue.

“We pursue cases like this with the intent of making sure that information that should be public is public. Our reporting has shown there are more questions to be asked about the university’s endowment practices and we are grateful Judge Talbot agrees our requests are within the law.

“This week is national Sunshine Week, during which the country’s press emphasizes the importance of Freedom of Information. The timing of this ruling couldn’t be better, both for its substance and for what it represents.”

The Free Press sought the documents as part of a broad probe published last month into the governance and oversight of the university’s endowment now valued at more than $11 billion.

Executives at some of the nation’s top investment firms donated hundreds of millions of dollars to U-M while the university invested billions of dollars in those companies’ funds, the Free Press investigation found. More than $400 million of that amount was sent into funds managed by three alumni who advise the university on its investments. Critics worry Michigan’s approach of investing with some of its top donors, who also help guide the university’s endowment, creates a conflict

The university’s chief investment officer, Erik Lundberg, has been the point man deciding where U-M invests its billions for nearly 20 years. He was one of the university’s highest-paid employees with more than $2 million in compensation in 2016 (His base salary was $690,000 in the same year). But it was unclear how exactly he earns his money.

Unlike for other top earners, including the university’s president and football coach, U-M had declined to release the terms of Lundberg’s employment, including any financial incentives. In court papers, university lawyers wrote that such a disclosure “would reveal a proprietary formula developed by the University to enable it to be competitive in the marketplace for the services of a chief investment officer.”

This week, Michael J. Talbot, the chief judge for the state’s court of claims in Lansing, rejected the university’s defense, writing in part that U-M failed to show that the compensation formula was “the subject of some other type of protectable interest, such as patent or copyright.”

The judge privately reviewed the university’s documents before ruling in favor of disclosure.

The judge also found that in order for the university to be able to keep the information secret, the compensation formula would have to be valuable enough to give the university a competitive advantage. But that wasn’t the case, Talbot concluded.

“Because the University cannot show a competitive advantage — and it has alleged that it is not even required to show the secret has value — the University has not satisfied its burden of demonstrating that the formula is a trade secret,” the judge wrote.

Talbot ordered U-M to reimburse the Free Press for its legal fees in the case because the public university failed in its duty to share the documents the public has a right to see.

“Consistent with the pro-disclosure nature of the statute, FOIA exemptions are to be narrowly construed, and a public body bears the burden of proving that an exemption applies,” Talbot wrote in a 12 -page decision dated Monday. However, the judge declined to allow the Free Press to recover damages for the university’s failure, adding that he did not “find that defendant acted arbitrarily and capriciously by refusing to disclose or provide copies of the records at issue.”

U-M has 21 days to comply with Talbot’s order. The university also could appeal.


Posted by Tribune News Services

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