Judge orders Averett dispute to arbitration

A federal judge on Wednesday ordered Averett University to hash out its differences with its former investment firm and former chief financial officer through arbitration.

The financial plight of the Danville private university first came to light in summer 2024 when the university announced staff furloughs and other cost-cutting measures over alleged mismanagement of the school’s finances. The picture became clearer in March when Averett filed a lawsuit in U.S. District Court for the Western District of Virginia, alleging that the university’s former CFO, Donald Aungst, who was hired in 2020, and Arizona-based Global Strategic Investment Solutions (GSIS) “surreptitiously drained Averett’s endowment of almost $20 million.”

In June, GSIS filed a motion to compel arbitration, pointing out that university leaders had signed a contract with an arbitration provision.

In an opposition to GSIS’s motion, Averett unsuccessfully argued that “the costs associated with arbitration would impose upon Averett such financial hardship as to render arbitration both unjust and prohibitively expensive.” Averett went on to note that GSIS is “grossly underinsured,” with only $2 million in coverage, including defense costs. “Every dollar GSIS spends to pay for arbitration is one less dollar available to satisfy a judgment,” the filing from Averett stated.

In addition to compelling arbitration between the parties, U.S. District Judge Thomas Cullen also ordered the parties to notify the court within 14 days following the completion of arbitration, and “the court will evaluate any remaining disputes.”

An Averett spokesperson said Thursday that the university would not comment on the pending legislation. However, in a July 25 interview with Virginia Business, Averett President Thomas H. Powell, who joined the university in May, indicated then that the dispute going to arbitration wouldn’t be the end of the world. 

“Arbitration might be good because from what I understand … arbitration may be more private than public. Going to court is very public,” Powell said. “I know the board is concerned about what’s our ability to have what was mismanaged set right by the investment firm and by the former CFO.”

In a statement, GSIS co-founder and Managing Partner Curt Thompson said his firm is pleased with the “court’s prompt and well-reasoned decision to compel Averett University to honor the express terms of an arbitration clause found within the parties’ governing investment advisory contract.”

GSIS, he added, “continues to vehemently deny the allegations brought by Averett and now looks forward to vindicating itself before an independent arbitration panel.”

Francisco E. Mundaca, the Maryland-based attorney representing Aungst, said in a statement Thursday that “we are pleased the court has rejected Averett University’s attempts to avoid the arbitration agreement it voluntarily entered into, which demonstrates that institutions cannot simply ignore their legal obligations when it becomes inconvenient.”

Since Averett announced its financial difficulties, university leaders have cut programs, implemented a hiring freeze and sold properties. In July, Powell confirmed the president’s home had been sold to an out-of-state buyer for $650,000. An auction with furnishings from the house and other items raised an additional $70,000, according to the president.

The university estimates that about 1,356 students will enroll for Averett’s fall semester,  about 100 fewer than last year.

“Certainly all of the problems have not helped,” Powell said in July of the enrollment challenges. “The other thing that I think was a blunder … the No. 1 thing that got cut out was [$1 million] worth of marketing that has been long-standing, and if you don’t tell people you’re here in a very competitive market, you lose that market share. So we’ve got to go back and rebuild that out.”

Powell became Averett’s 16th president. He replaced David Joyce, who stepped down in April after serving just three months, citing his wife’s health. Tiffany Franks, Averett’s president of 17 years, retired in January.

This summer, Averett is trying to locate enough bondholders to make a request for a covenant default waiver for about $15 million worth of bonds owed by the university. Although Averett has never missed a payment on the bonds, the university is technically in default due to failing to comply with the debt service coverage ratio and the liquidity covenant, according to a June 27 filing by U.S. Bank Trust, trustee of the bonds.

A July 7 call managed to attract only about 40% of the bondholders instead of the 50% required, according to Powell. “There are over 240 bondholders,” he said in July, “and there’s no directory of where these people are.”