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.”
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.”