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Hillsdale will receive almost $4.7 million after set­tling a lawsuit with the Uni­versity of Mis­souri. | Flickr

Hillsdale College will receive almost $4.7 million after set­tling a lawsuit with the Uni­versity of Mis­souri.

The set­tlement comes after Hillsdale filed a lawsuit against Mizzou in 2017, claiming that the insti­tution mis­handled a $5 million donation left by Sherlock Hibbs, a Mizzou alumnus who died in 2002. The gift was to be used for hiring six edu­cators, each of whom was to be “a ded­i­cated and artic­ulate dis­ciple of the Ludwig von Mises Aus­trian School of Eco­nomics,” according to the lawsuit. As of December, the endowment was valued at $9.2 million, according to a statement from Mizzou.

Hibbs gave Hillsdale the task of over­seeing his gift. Mizzou said in a statement that it spent $4.4 million of the original gift “to fund pro­fes­sor­ships con­sistent with Hibbs’ intent to promote the teaching of free and open market eco­nomics to MU stu­dents.” Hillsdale, however, argued that Mizzou never hired pro­fessors in accor­dance with Hibbs’ wishes.

Hillsdale General Counsel Robert Norton, Peter Herzog — a St. Louis-based attorney — and Jay Nixon, former Demo­c­ratic gov­ernor of Mis­souri, led Hillsdale’s legal team in the dispute. Hillsdale College Pres­ident Larry Arnn said the college had a good legal team and that Norton was very capable in the way he handled the case from the start.

Arnn said he knew Hibbs for about five years before he died.

“He was a big believer in Aus­trian eco­nomics,” Arnn said. “He wanted to give money to the Uni­versity of Mis­souri, to get them to improve their eco­nomics department. So he thought up this novel idea that they would report to us, and they had to agree to do that to get the money.”

Arnn, however, said he was reluctant when Hibbs approached him with the idea to put Hillsdale up as a guardian over the funds.

“I tried to talk him out of it. I said, ‘You’ll never be able to get them to do that,’” Arnn said. “We had two to three dif­ferent com­merce ses­sions over three years. He said, ‘You’re going to do this aren’t you?’ I said, ‘I will,’ reluc­tantly.”

Hillsdale College reached a set­tlement with the Uni­versity of Mis­souri over a lawsuit Hillsdale filed in 2017. Hillsdale claimed that the uni­versity did not honor the wishes of Sherlock Hibbs (second from left) per­taining to a gift he left before he died in 2002. | External Affairs

Norton said in an email that in his reluc­tance, Arnn hoped “Mizzou would mend its ways.”

Mizzou was required to report to Hillsdale every four years regarding how the funds were being spent, according to Arnn. He said that the uni­versity didn’t con­sis­tently report, which led Hillsdale to inves­tigate. After deter­mining that Mizzou was not com­plying with Hibbs’ last wishes, Hillsdale even­tually decided to sue.

“They basi­cally just flouted the agreement. It was super clear. We didn’t have any choice but to sue them,” Arnn said. “We had to sue them in Mis­souri. It is the Uni­versity of Mis­souri. This fact was not lost on us.”

Herzog said Mizzou never put forth a sub­stantive defense.

“The Uni­versity of Mis­souri never defended its conduct,” he said. “It invoked purely pro­ce­dural defenses to try to avoid being liable for its conduct.”

On the other hand, Hillsdale’s main argument throughout the legal process was sub­stantive, not pro­ce­dural, Herzog said.

When Hillsdale first filed the case in St. Louis, Herzog said Mizzou argued the case couldn’t be filed there, that it had to be filed in Boone County, where the university’s main campus is located. Herzog said the Mis­souri Supreme Court agreed, and when the case was trans­ferred, Mizzou con­tinued to make pro­ce­dural defenses.

Norton said it seemed as if Mizzou thought Hillsdale would back down if they had to lit­igate the case in Mizzou’s hometown.

“However, we remained deter­mined to proceed. We adjusted to the probate court pro­ceeding and pre­pared an entirely new strategy that involved naming forty one new defen­dants in the suit,” Norton said. “Many of those defen­dants were the trustees of the uni­versity and the­o­ret­i­cally also the trustees of Mr. Hibb’s donated money. Mizzou then claimed that those same trustees were immune from suit under Mis­souri state law and couldn’t be sued for not using the donor’s money as he directed, that is, to teach Aus­trian eco­nomics.” 

Hillsdale was pre­pared to chal­lenge this notion, Norton said, and even take it up on appeal if it came to that. At that point, he said the schools came to their set­tlement.

“When it offered an amount close to the initial donation in question, Dr. Arnn directed that we accept the set­tlement and find a way to put the money to good use,” Norton said.

Mizzou offi­cials declined to comment, and instead pro­vided the college’s official statement regarding the lawsuit.

“During nego­ti­a­tions, uni­versity offi­cials deter­mined the most fis­cally respon­sible course of action was to settle the lawsuit and split the endowment,” Mizzou’s statement said, adding that Hillsdale would “relin­quish over­sight of the gift.”

Hillsdale neither agreed with nor opposed Mizzou’s request for the court to approve a “mod­i­fi­cation of the terms of the will so that we won’t audit them anymore,” according to Herzog, who served as the lead trial counsel for Hillsdale. He said Mizzou will no longer be required to appoint pro­fessors who sub­scribe to the Aus­trian school, though he noted that they are still required to hire advo­cates of free market eco­nomics.

“In probate court, the Uni­versity of Mis­souri wanted the court to approve the set­tlement,” Herzog said. “Bob con­vinced Mizzou that the right result was to split the amount that remains in the trust.”

Christian Basi, Mizzou’s media rela­tions director, said in the university’s statement that the portion of the set­tlement which it kept will “allow us to con­tinue our work of edu­cating stu­dents about free and open markets.”

“We also will use some of the pro­ceeds from the gift to sponsor a biannual sym­posium on the MU campus that will focus on Aus­trian eco­nomics, which was of par­ticular interest to Mr. Hibbs,” Basi said in the statement.

Herzog said that Mizzou has com­mitted to spend at least $15,000 on the sym­posium every two years. If they don’t, that money will go to Hillsdale.

When it comes to the ideas at play in the case, Chairman and Asso­ciate Pro­fessor of Eco­nomics Charles Steele said there are various sub-schools of thought within Aus­trian eco­nomics, but this case regarded Ludwig von Mises’ the­ories.

Steele said von Mises empha­sized mar­gin­alist eco­nomics and main­stream eco­nomics with an Aus­trian twist. For von Mises, entre­pre­neurship is what will most effec­tively test things in the market, Steele said.

While Steele was not involved in the case, he said he looked into who Mizzou hired with Hibbs’ gift. He looked at the college’s website and perused the CVs, bios, and pub­li­ca­tions for the faculty.

“None of them men­tioned any con­nection to the Aus­train school,” Steele said. “You’d expect someone con­nected to be attending con­fer­ences or writing papers or even having dis­cussion related to it.”

Arnn and Herzog both noted the impor­tance this case has per­taining to the state of higher edu­cation in the country, including the gifts alumni leave to insti­tu­tions.

“It illus­trates, in my opinion, the very sig­nif­icant issues involving the use of funds that are gifted to col­leges and uni­ver­sities,” Herzog said. “Bob Norton and I wrote an opinion piece about whether or not you can trust your alma mater.”

Herzog said that, as reported in a Wall Street Journal article, donors gave $46.7 billion to col­leges and uni­ver­sities in the U.S. in 2018. He said that as the stock market has gone up and as the country has seen an increase in wealth, “dona­tions to col­leges and uni­ver­sities have gone up dra­mat­i­cally.” Herzog said Hibbs under­stood there was a pos­si­bility Mizzou would not comply with the terms of his gift and was smart to set up an external mech­anism to enforce the terms.

“Sure enough, he was right. But in most cases, this doesn’t become apparent,” Herzog said.

Arnn, mean­while, said this case points to a crisis in modern edu­cation when it comes to com­mitting to his­torical prin­ciples. The crisis of the age, he said, is that old com­mit­ments are no longer regarded as noble com­mit­ments.

“The shocking and ter­rible thing in higher ed is that all of the old and dis­tin­guished col­leges, they began with some beau­tiful prin­ciples. Very few of them pay the least attention to that anymore,” he said. “Once you’re breaking that original compact, why not break the smaller ones that come along later? Someone gives money to do ‘x,’ then 20, 50 years later, ‘x’ means ‘not x’ or ‘y.’”

The set­tlement with Mizzou, Arnn said, is a “small victory in the opposite direction.”