AGENCY ASKS attorney general to file suit to reclaim funds from Ecclesia College.
College says kickback-case money fulfilled grant’s purpose
The Department of Finance and Administration has asked state Attorney General Leslie Rutledge’s office to sue Ecclesia College to reclaim at least $600,000 of kickback-tainted grants the college received from the General Improvement Fund.
“It appears that a significant portion, if not all, of these funds were procured in coordination with criminal activity that has been and is being prosecuted by the United
States attorney’s office,”
Larry Walther, director of the state’s department of finance and administration, wrote to Deputy Attorney General Monty Baugh in a letter dated Sept. 7.
The Northwest Arkansas Democrat-Gazette acquired a copy of the letter Thursday.
Sentencing of all four defendants in the Ecclesia kickback case ended Thursday.
“With the sentencing of Micah Neal, we now have a better understanding of what is owed in restitution from the criminal defendants in this investigation,” the attorney general’s office said in a statement. “Attorney General Rutledge is reviewing all of the information available and plans to take appropriate action to recover any money owed to Arkansas taxpayers.”
Neal was a state representative serving with thenstate Sen. Jon Woods when they steered state General Improvement Fund grants to the school in 2013 and 2014. Oren Paris III, school president at the time, then passed kickbacks to Woods and Neal through Randell G. Shelton Jr., a consultant hired as a fundraiser by the college.
Woods of Springdale received an 18-year, fourmonth sentence to federal prison last week for his role in the kickback scheme. Neal, who is also from Springdale and who cooperated with investigators, received three years probation in his sentencing in U.S. district court on Thursday.
Paris received a sentence of three years in prison from the same court on Wednesday. Shelton received a sixyear prison sentence last week.
“I don’t know what the theory of a case against the college could be,” said Travis Story of Fayetteville, Ecclesia’s attorney.
Testimony at the trial showed neither the college’s governing board nor its administration outside of Paris knew of the kickbacks, he said. Further, the grant money was spent for exactly the purposes the grants were given for, he added.
“The last grant was received in early 2015, and generally there is a three-year statute of limitations on any suit you can file,” Story said. “We’re past that.”
The governor and the Finance Department tracked the federal criminal case as it progressed, said J.R. Davis, spokesman for Gov. Asa Hutchinson. As sentencing approached, the governor and Walther decided all the facts about the Ecclesia case had come to light and a civil suit could begin without overlapping and possibly interfering with the criminal proceedings, Davis said Thursday afternoon.
Federal court-ordered restitution collected from Woods, Paris, Neal and Shelton should compensate the state for its loss, said spokesman Charles Robbins of the U.S. attorney’s office in Fayetteville. If the state files a suit and gains compensation from the college instead, those defendants can petition to have their restitution payments reduced, he said.
U.S. Attorney Duane “Dak” Kees had said earlier in the criminal case that the federal government cannot claim restitution from the college.
Woods and Neal not only steered $550,000 in grants to Ecclesia directly, but the two also encouraged other lawmakers to send General Improvement Fund money to the school. Woods also received a direct kickback for a $100,000 grant he helped obtain from another lawmaker, according to court documents.
In all, Ecclesia College got $715,500 in General Improvement Fund grants from 2013 to early 2015, according to federal court documents and court testimony. Woods and Neal are the only two of the 10 lawmakers who steered grants to Ecclesia who were implicated in the kickback scheme.
The improvement fund contains mainly tax money left unspent at the end of the state’s two-year budget cycle. The fund also includes interest earned on state accounts. After the state Supreme Court in 2006 declared the Legislature could not direct appropriations to local-level projects, lawmakers adopted the process of dispersing such funds through regional improvement districts.
On Oct. 5, the Supreme Court also declared the district distribution process unconstitutional. Walther’s letter says the grant money should be returned to the state treasury and not the development districts that administered the grants because of the ruling.
Howard Brill, a University of Arkansas law professor and former state chief justice, has said he believes there is a legal basis for a lawsuit to reclaim the grant money and that the state attorney general would be the most appropriate person to file such a suit.
“There is a legal principle called ‘unjust enrichment’ that has a history in Arkansas law dating back to 1940,” Brill said. The principle was never enacted by statute, but is a well-established concept in cases brought before Arkansas courts, he said.
Proving an unjust-enrichment case has three straightforward components, said Brill, who served by appointment as Arkansas chief justice from September 2015 to December 2016.
“First, there has to be some benefit, someone enriched by it. Second, there has to be something unjust about the way the one who benefits — the college in this case — received the money. There has to be fraud or some mistake such as a double payment,” paying again for something already paid for. “Third, returning the money has to be equitable. You have to prove it would be more unfair to let the one who benefited keep the money than return it.”
There is no dispute the college received the money, satisfying the first requirement, Brill said. The second requirement is also clearly met since four people — Neal, Paris, Shelton and Woods — have been convicted of fraud.
“This money went to this college because of a kickback,” Brill said. “It was the kickback that was the key operative element.” Where the money for the kickback came from is not a factor, he said.
“The only question is in the third factor. All in all, is it better and more appropriate for the defendant to keep it?”
Ecclesia’s governing board didn’t know of Paris’ agreement with and payments to Paradigm until October 2015, while the investigation that later indicted Paris was underway, according to court records.
None of the grant money went to Paradigm, Story, who is also Paris’ attorney, has said. All payments for the consulting on fundraising and planning came from another college account, he said in an earlier interview.
“With respect, everything the college put on the grant applications is accurate,” Story has said. “The grants were spent for exactly the things the grants were issued for.”
“The last grant was received in early 2015, and generally there is a threeyear statute of limitations on any suit you can file. We’re past that.” — Travis Story of Fayetteville, Ecclesia’s attorney