High-stakes trial opens, challenging U of I-Phoenix purchase

(UPDATED, 12:15 p.m., Tuesday, to clarify the U of I’s potential financial risk.)

State Board of Education members spent Monday defending their closed-door discussions of the University of Idaho-University of Phoenix megadeal.

And at one point, State Board member Kurt Liebich worked in a defense of the deal itself. As one of the first State Board members who had access to Phoenix’s proprietary data, Liebich said he quickly could see the urgency in pursuing the huge but tarnished for-profit online giant.

“I saw how much value was there,” Liebich said during virtual testimony in a Boise courtroom. “(It’s) inconceivable to me that (this) wouldn’t be a highly competitive process.”

The Ada County district court trial represents one of the biggest obstacles to the $685 million Phoenix purchase — a deal that could provide U of I with millions of dollars in new revenue, or leave the U of I on the hook for up to $10 million a year. The trial poses a public challenge to the State Board, and one of the largest and most polarizing decisions in the volunteer policymaking body’s history. And the case is thick with intraparty political tension: Attorney General Raúl Labrador’s June lawsuit targets an eight-member board tightly aligned with Gov. Brad Little.

At its heart, however, the civil case centers on the state’s open meetings law.

The State Board discussed the Phoenix purchase in three executive sessions, on March 22, April 25 and May 15. The third and final closed-door meeting took place just three days before the State Board held its only public meeting on the purchase, and voted unanimously to give the transaction the green light. Labrador’s lawsuit contends that the State Board failed to do its homework, and simply took the U of I’s word that other competitors were in the running for Phoenix.

Testimony from three State Board members Monday didn’t stray too far from the board’s established narrative:

  • They again said they put their faith in Jenifer Marcus, a deputy attorney general who has been assigned to the State Board for several years. Marcus counseled the board on the closed meetings — held under a little-used legal exemption covering a transaction that pits a state agency against a public bidder from another state or nation. “I have the utmost trust in our deputy attorney general,” board member Shawn Keough said. “I took her professional word for it.”
  • They said they still considered the University of Arkansas a potential suitor for Phoenix, even after that state’s board of regents rejected a purchase on April 24. In a closed executive session the following day, U of I President C. Scott Green urged board members not to count out Arkansas. Said Liebich, “I still in my mind believed that Arkansas was a potential competitor.”
  • And even under repeated questioning, they still did not name any other would-be suitors. For months, the U of I and the State Board have not identified other potential buyers — and based on Monday’s testimony, board members seemed to have only cursory information about the competition. “There was never a number,” state superintendent Debbie Critchfield said, “but at every point it was explained we were a competitor in the process.”

Attorneys on both sides tried to press the boundaries of the open-meetings case.

Twice, deputy attorney general Gregory Woodard tried to bring up Phoenix’s $191 million settlement with the Federal Trade Commission, over complaints of deceptive advertising. The settlement, he argued, made Phoenix less attractive to any would-be buyer. Twice, defense attorney Trudy Hanson Fouser objected.

Fouser — the State Board’s appointed outside attorneys — said in her opening statement that she planned to point out Phoenix is turning a profit. These financials are just one reason why the board had every reason to believe the Phoenix bidding was competitive.

District Judge Jason Scott sought to rein in both attorneys. He wouldn’t allow Woodard to expand on the FTC case, but said he wouldn’t allow Fouser to bring up Phoenix’s financial health.

“We’re not litigating the wisdom of the deal,” Scott said at one point.

Despite the limited scope, Monday’s hearing got off to a laborious start. Keough, Liebich and Critchfield were each on the stand for about an hour or more — spending most of that time fielding questions from Woodard.

Then the afternoon proceedings came to a sudden end.

During Critchfield’s cross-examination, Woodard abruptly asked for a recess, saying he had become ill. After the recess, both attorneys wrapped up their questioning of Critchfield, then the trial adjourned for the day. The unexpected adjournment left at least two prominent witnesses on hold: State Board member David Hill had been called to testify Monday, but was left waiting outside the courtroom; and Green’s testimony was also on hold.

Woodard has already indicated he will call several other witnesses, including State Board executive director Matt Freeman, U of I attorney Kent Nelson, and Brady Hall, an attorney for Gov. Brad Little.

The trial is scheduled to run through Wednesday. It’s not immediately clear whether Monday’s abridged session will affect the schedule.

This is not a jury trial, and at the end of the case, Scott is expected to make his ruling.

The trial is a big hurdle to the Phoenix deal; Labrador’s team wants Scott to nullify the State Board’s vote endorsing the purchase.

But it isn’t the sole hurdle. The U of I’s accreditors still have to approve the deal, and a U of I-affiliated nonprofit still has to secure financing for the purchase.

U of I officials have said they hope to close the deal early this year. If the deal isn’t closed by May 31, either party could opt out.

Check back all week for complete trial coverage.

More reading: Check out our special, in-depth coverage of the University of Idaho-University of Phoenix proposal.


Kevin Richert

Kevin Richert

Senior reporter and blogger Kevin Richert specializes in education politics and education policy. He has more than 30 years of experience in Idaho journalism. He is a frequent guest on "Idaho Reports" on Idaho Public Television and "Idaho Matters" on Boise State Public Radio. Follow Kevin on Twitter: @KevinRichert. He can be reached at [email protected]

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