November 5, 1998 | Read Time: 4 minutes
United Way of America owes millions of dollars in pension benefits to its former president, William Aramony, who is now serving time for defrauding the charity, a federal judge has ruled.
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The full text of the court’s ruling
U.S. District Judge Shira A. Scheindlin in New York said that Mr. Aramony, in turn, must repay more than $2-million in salary, damages, and interest to the charity over which he presided for 22 years. He was fired in March 1992 for fraudulently spending, with two of his colleagues, more than $1.2-million on luxury travel, vacations, and other perks for himself and his friends.
But the judge ruled that Mr. Aramony was nonetheless entitled to retirement benefits of $3.2-million, plus $1.2-million in interest. The result: United Way must pay Mr. Aramony the net difference between the offsetting obligations, which amounts to $2.38-million.
The decision stunned United Way officials, who plan to appeal the decision. They hold Mr. Aramony responsible for the significant drop in donations to the campaigns that followed widespread publicity about his high salary and extravagant expenditures.
“We couldn’t be more disappointed,” said Betty Beene, United Way of America’s current president.
“Never in our wildest dreams did we think we would have to pay Mr. Aramony,” she said, “in light of the real financial consequences to United Way of America and to United Ways across the country as a result of his actions.”
Judge Scheindlin ruled in her 104-page opinion that Mr. Aramony’s pension agreement with United Way made no provision for forfeiting those benefits. “A felon, no matter how despised, does not lose his right to enforce a contract,” she said.
“On the other hand,” Judge Scheindlin added, “his recovery of any contractual benefit does not diminish the seriousness of his criminal conduct, for which he is being severely punished. It is important that the many good people who are contributors to the United Way of America understand these important principles of our system of justice.”
In its response to Mr. Aramony’s lawsuit, United Way of America had claimed damages of $16-million to $37-million, which it said reflected the magnitude of the revenue lost by it and 1,400 local United Ways around the country.
But the judge ruled that the charity had not proved that Mr. Aramony’s criminal conduct was a “substantial factor” in its depressed income stream. Its revenue started to decline even before the scandal erupted, she said. And early negative publicity focused factors that were not criminal: Mr. Aramony’s salary and hiring practices, for example, had been approved by the charity’s board.
Mr. Aramony, 71, was convicted in 1995, sentenced to 78 months in jail, and required to repay — with one of his associates — more than $600,000 to United Way.
Mr. Aramony must now also repay the $951,250 he received in salary between September 1989 and December 1991 as well as $50,000 in punitive damages, plus interest and other damages.
“Seven years [in prison], for a man in his 70s, is an extraordinarily harsh punishment,” said Michael Bailey, one of Mr. Aramony’s lawyers. “He worked for United Way for 33 years and is responsible for building it into the organization that it is today. The people at United Way who are complaining [about the judge’s decision] are living off Mr. Aramony’s accomplishments, even today.”
Mr. Bailey predicted that little of the pension money would be left for Mr. Aramony’s use after he pays his huge legal bills and repays people who lent him money. “Mr. Aramony is not going to have a windfall as a result of this,” Mr. Bailey said.
But Ms. Beene noted that Mr. Aramony’s basic pension from United Way went to his former wife as part of a divorce settlement. The two pensions at issue in the lawsuit were supplemental policies. One of them had been drafted by the executive committee and approved by the organization’s full board, she said — and did contain a clause making the payment subject to forfeiture in the event of fraud, embezzlement, or other felony. The other policy had been approved only by the charity’s senior vice-president, Stephen Paulachak, and contained no such clause, she said.
Judge Scheindlin ruled that the board’s customary practice was to set overall policy for pensions but to leave the details to officials like Mr. Paulachak. The contract between him and Mr. Aramony was therefore binding, she ruled.
“I don’t think any reasonable person would believe that the net consequence of this action is fair,” said Ms. Beene. “This is not over.”
In a separate legal action, New York’s Attorney General has also sued Mr. Aramony in behalf of United Way of America, seeking reimbursement for misappropriated funds. No trial date has been set for that case.
