When BearingPoint Inc. was still one of the world’s largest and most successful business consulting firms, the company pledged $30 million to Yale’s School of Management to endow a professorship, sponsor an employee education program and reserve naming rights for three SOM facilities. Now that BearingPoint has filed for bankruptcy, it is suing Yale to recover the $8.1 million it paid the University before filing for Chapter 11 in February 2009 — a move that caught Yale off guard, administrators said.
BearingPoint gave the University $2.1 million between December 2008 and February 2009 for Yale to develop executive training programs for BearingPoint employees. The company also gave Yale $6 million from 2007 to 2008 — the first installment toward putting BearingPoint’s naming on the SOM building at 46 Hillhouse Ave., as well as an auditorium and a wing of the planned new SOM campus — all of which the company needs back as it attempts to climb out of bankruptcy, according to documents filed in bankruptcy court March 12 by BearingPoint’s government-appointed bankruptcy trustee, John DeGroote Services.
Yale believes the lawsuit is unfounded and will defend against it, University General Counsel Dorothy Robinson said.
“The lawsuit was a surprise to us,” Robinson said in an e-mail. “We received no word, nor was there any discussion of this beforehand, which would have been the normal way to proceed.”
University President Richard Levin added that BearingPoint’s management was enthusiastic about the educational collaboration with SOM prior to filing for bankruptcy. SOM Dean Sharon Oster declined to comment.
BearingPoint is simply countering Yale’s claim, made after last year’s bankruptcy filing, for the $21.9 million that is still owed to the University under the company’s original pledge, said Sabin Willett of the law firm Bingham McCutchen, which is representing BearingPoint’s trustee in the lawsuit.
Under U.S. bankruptcy law, creditors can seek to regain some of what companies pay out in the two years before they file for bankruptcy. Since BearingPoint began giving its millions to Yale in 2007, the firm’s bankruptcy trustee can try to get back some of the donated funds to help pay off the company’s $2.2 billion debt.
The University has hired G. Eric Brunstad, a partner at the Hartford-based law firm Dechert and a visiting lecturer at Yale Law School since 1990, to represent Yale against BearingPoint.
The lawsuit, if it goes to court, will likely center around the trustee’s contention that BearingPoint made the gifts when the company was insolvent — meaning that the donations were invalid and should be returned, Willett said. Not only did the company have little money to give, but the naming opportunities it paid for did not generate any business for BearingPoint, he added.
“Having a building named after you at Yale is just not of any commercial value to a firm that does information technology consulting for the government,” Willett said in an interview.
In a statement provided by SOM spokeswoman Tabitha Wilde, the University said it has honored both of the two agreements with BearingPoint — endowing a professorship within SOM and starting the educational collaboration arrangement between BearingPoint and SOM — and has relied on BearingPoint upholding its end of the contract.
Though BearingPoint’s trustee does not dispute that the company benefited from its educational collaboration with Yale, Willett said, the trustee is rejecting the University’s assertion that the remaining $21.9 million BearingPoint owes Yale takes priority over the money it owes to other creditors.
All of BearingPoint’s creditors are jockeying to receive what is due to them, but some, like Yale, were paid in part before BearingPoint filed for Chapter 11, while others received nothing, Willett said. Yale received a portion of BearingPoint’s $30 million pledge, and the trustee is trying to ensure that other creditors receive some payment as well.
“We’ve said, ‘No, you’re like every other creditor to be paid your share of what’s available,’ ” Willett said.
After Levin and then-BearingPoint CEO Harry You GRD ’83 agreed to the donation in November 2006, Yale used the first $2 million BearingPoint gave to endow SOM’s BearingPoint Professorship of Management — a chair now held by psychologist Victor Vroom — with another $4 million put toward naming rights. The latest $2.1 million chunk paid for leadership workshops and other business training sessions held at Yale last year.
The SOM executive education programs began in fall 2001 and differed from programs at other business schools by targeting courses toward top business executives, SOM officials said in 2007 — a few months after BearingPoint had pledged $30 million to the University.
Jeffrey Sonnenfeld, senior associate dean of executive programs, said at the time that executive-education programs benefited SOM by increasing recognition of the school and bringing in funds.
Nora Caplan-Bricker and Taylor Lasley contributed reporting.