A Battle Over Ethics

A court fight pits a university against two former employees

On his first day of work, Sinclair E. Hugh grew uneasy about his new job. It was July 1999, and Mr. Hugh, then 59, was changing careers. He had spent the past decade as a human-resources consultant, working with for-profit companies, but he was ready for another challenge. So, when his sole nonprofit client, Western University of Health Sciences, in Pomona, Calif., asked him to run its human-resources department, he jumped at the chance. “It was going to be my last hurrah before I retired,” he said in an interview.

But on that very first day, Mr. Hugh said, he got a hint that his new job would prove to be a bigger challenge than he had anticipated.

As he set up his desk, two of the university’s senior executives dropped by to introduce themselves. In the course of the conversation, Mr. Hugh recalled, both said something curious to him: “I hope you don’t change the loan program.”

They said that the university lent money to senior administrators against unspent vacation time, using the vacation days to secure the loans. In fact, they told Mr. Hugh, he would be eligible for the loan program too.

As Mr. Hugh later said in a sworn deposition, he thought it sounded suspicious at the time. He later discovered documents that suggested that such loans were common; one senior member of the administration had taken out a salary advance of $25,000, with a payback term of $5 per pay period, according to university records Mr. Hugh submitted as an exhibit in a lawsuit against Western.

Three university officials had given themselves more than $200,000 in salary advances from 1987 to 1998, according to the same records.

In response to inquiries from The Chronicle, the California attorney general’s office advised that it is illegal for a nonprofit organization to lend money to its officers or trustees — except under certain circumstances, such as offering a mortgage loan to a newly recruited employee or giving an advance on work-related expenses — without permission from the attorney general’s office. Mr. Hugh said in an interview he did not believe the university had received such permission.

In a written response to The Chronicle’s question about whether the university had sought permission, Keith A. Johnson, the university’s general counsel, said that the “loans” in question were not loans at all, but salary advances given against workers’ accrued vacation time.

“In California, accrued vacation has been earned by the employee, and cannot be forfeited,” Mr. Johnson wrote. “For example, if an employee quits, the University is legally obligated to immediately pay all accrued vacation. The University does not view advances it made against benefits that were already earned by its employees as ‘loans.’” The university did not ask the state attorney general’s office for permission, he said in his written response, because “there is no requirement that the University obtain approval from the Attorney General in order to advance payments to employees for accrued vacation.”

Lawsuits Filed

The loan program was only one of many troubling practices at Western University, Mr. Hugh said in court papers, and he eventually reported his concerns to the Internal Revenue Service and the California attorney general.

His actions led Western University to fire him last year and sue him for defamation — the legal term for a malicious attack on a person or organization’s reputation. In response, Mr. Hugh sued the university, saying that he should not have been fired for his actions.

Subsequently, another Western administrator — Christopher N. Oberg, Mr. Hugh’s boss — was also sued by the university for defamation, and he in turn sued for wrongful termination.

Western University denies any wrongdoing, and believes that it is the victim of a conspiracy of disgruntled former employees, said Mr. Johnson in an interview.

In a written statement prepared for The Chronicle, the university said that “the offenses that Mr. Hugh claims triggered his whistleblowing activities had been brought to the university’s attention two years before Mr. Hugh took any action and were by his own admissions corrected.”

In addition, the university said in its statement that Mr. Hugh made allegations about those practices to the state attorney general and the IRS so he could engineer a better contract for a friend who was a Western administrator.

What’s more, the university says in its lawsuit, Mr. Hugh made his complaints known as a way to disrupt a planned merger between Western and another California university and that is why he lost his job. Mr. Hugh denies the charges made by Western.

Later this year, a state Superior Court judge in Los Angeles County will decide who is right. Meanwhile, the California attorney general’s office says it is investigating Western’s actions.

Questionable Practices

Back in 1999, as Mr. Hugh mulled over what to do about Western University’s loan practices, he was in a quandary.

In minutes from an April 10, 2003, meeting with the university board’s executive-compensation committee, Mr. Hugh recalled that he didn’t feel he could complain to his bosses about his concerns because some of the university’s senior administrators were participating in the practices that worried him.

The president and founder of the institution, Philip Pumerantz, took out $109,550 in 12 loans from the university from 1987 to 1998, according to university records submitted as part of Mr. Hugh’s lawsuit. The president paid back all advances by December 1999, according to documents filed as part of Mr. Oberg’s lawsuit against the university.

According to the university records submitted with Mr. Hugh’s lawsuit, two other senior Western officials took salary advances from 1989 to 1997.

Mr. Pumerantz, through Western University’s spokesman, Mark L. Wallace, referred requests for an interview to Mr. Johnson.

Also, Mr. Hugh said in court documents, as he familiarized himself with Western’s personnel files, he learned that Mr. Pumerantz and other senior administrators were using university money and staff members to provide domestic help, perform home maintenance, and run personal errands. Family members of senior staff members and the son of a trustee were hired at salaries well above market rates, he says in his complaint to the attorney general and the IRS, which was submitted as an exhibit in his lawsuit. (Mr. Johnson did not address each of the concerns raised by Mr. Hugh but said no wrongdoing had occurred.)

“Within two or three weeks, I knew I would have to do something,” Mr. Hugh said in an interview, “but I had no clue about what it was.” Leaving the university, he said, was not in his plans because he felt an obligation to the employees.

“That was the part that I was really enjoying — trying to create an environment where they liked to come to work,” he said. “I was trying to make things better for them.”

A Possible Solution

In August 1999, a solution presented itself to Mr. Hugh. The university, which was growing rapidly, hired Mr. Oberg, a veteran of more than a quarter century in higher education, as executive vice president of administration. Mr. Hugh now had a new supervisor, and he immediately asked for a meeting to discuss the irregularities he had found.

Mr. Oberg said in an interview that he felt that the questionable practices could be resolved, thinking they were merely the growing pains of a young institution. “In the beginning,” he says, “I thought it was very much an ignorance of the law.”

In 1977, Philip Pumerantz founded the college that would grow into Western University of Health Sciences in a former J.C. Penney store in a downtown Pomona strip mall. The institution, which is accredited by the Western Association of Schools and Colleges, began with 36 students, but eventually expanded to include five colleges. Today, its campus spreads out over 22 acres, employs 350 people, and has an enrollment of more than 1,500 students.

Mr. Oberg said in an interview that he believed that the university’s leaders wanted to clean up the organization’s books. In minutes from an April 6, 2001, meeting of the university board’s executive-compensation committee, he said that when he suggested to Mr. Pumerantz that Western end its loan program and forbid using university funds to pay for officials’ personal expenses, changes were made. The university’s board even created a committee to review the pay of senior staff members and their relatives who were employed by the university.

In May 2001, according to the university’s lawsuit, the board adopted a conflict-of-interest policy to enable review of transactions involving Western’s senior officials. Several practices, including the loan program, in which more than 20 Western employees participated, were ended, Mr. Oberg said in the committee-meeting minutes.

“There was a lot of receptivity to what Sinclair and I wanted to do,” Mr. Oberg said in an interview. “It took us a full year to get things into a semblance of shape. By the end of the year 2000, I was reasonably comfortable with where things were.”

Meeting Resistance

But then, after nearly two years of steady progress, Mr. Oberg said in his lawsuit, his attempts to curb irregularities were met with increasing resistance from the president. By March 2001, he says in his lawsuit, he “believed that he could no longer perform his job as the fiduciary for the University, because the President continued to act on his own, often to the detriment of the university and to the benefit of his own immediate family.”

According to his lawsuit, Mr. Oberg made a formal complaint to the university’s board on March 25, via a confidential memorandum that singled out Mr. Pumerantz for criticism, and Mr. Oberg was called before the board’s executive-compensation committee on April 6, 2001. In the memo, he said that among the incidents that prompted his action was a proposal to establish a university archives to be headed by the president’s daughter, a project that had never been discussed in administrative budget meetings.

“This was the final straw on the proverbial camel’s back — that Pumerantz would unilaterally propose a new office to be headed by his daughter, who, it should be noted, has already been informed that her salary will be decreased to bring it in line with other professionals of similar experience and training,” Mr. Oberg wrote in his 26-point memo, which was submitted as part of his lawsuit. (The university would not comment on matters pertaining to individual employees.)

The trustees’ response was chilly, Mr. Oberg said in an interview: “They reaffirmed their faith in the president.”

Job Loss

After the meeting, Mr. Oberg says, he expected to be fired.

He wasn’t, however. In his lawsuit, he says that he stayed on at Western, representing the university in its accreditation review with the Western Association of Schools and Colleges. He also helped Western apply for a $5-million bond to finance a new college of veterinary medicine, his lawsuit says, and represented the university in the new institution’s review by the American Veterinary Medical Association.

He says in his lawsuit that he “refused to conclude the bond issue until the President agreed to manage the ongoing finances of the university jointly with [Mr. Oberg].” Mr. Pumerantz agreed, and an October 28, 2002, memorandum documents this agreement, says the lawsuit.

But on January 6, 2003, he received the call he had long expected from Mr. Pumerantz: “He informed me that he was not going to renew my contract,” said Mr. Oberg in an interview. The university, through its lawyer, Mr. Johnson, says that it eliminated Mr. Oberg’s position of executive vice president of finance and business.

Although he had long expected to lose his job, he said in an interview, the end still came as a shock. “I sat in my office for 20 minutes by myself,” he said, thinking of the financial implications for his family, including a child in college and one in high school. His lawsuit charges that losing his job caused him “harm, including humiliation, embarrassment, and mental anguish.”

Mr. Oberg eventually landed at a small consulting company. But his sudden departure from Western University was discouraging to Mr. Hugh.

In the winter of 2003, Mr. Hugh was involved in the university’s contract negotiations with Richard M. Nordin, Western’s vice president of university advancement.

Mr. Nordin’s contract would end June 30, 2003, and on January 16, Mr. Nordin received a new contract that he found unacceptable, Mr. Hugh said in a statement he read into the meeting minutes of the university board’s executive-compensation committee on April 10, 2003. “[M]r. Nordin was given an ultimatum of signing the new contract by March 31, 2003, or he would be terminated,” Mr. Hugh told the committee.

Mr. Hugh said in an interview that he refused to approve a negotiation process that he perceived as unfair to the employee; in his statement to the executive-compensation committee, Mr. Hugh said that he refused to endorse the process because he feared the public-relations and legal fallout for the university if Mr. Nordin were to be fired.

The university has a different view: In a written statement, it says that Mr. Hugh made his allegations to the state attorney general and the IRS in an attempt to force Western to cut a better deal “to improve his friend’s employment agreement.”

Mr. Hugh denies that Mr. Nordin was a personal friend; Mr. Nordin, who left the university last year, declined to comment.

For Mr. Hugh, the Nordin contract negotiations were a breaking point, according to the committee-meeting minutes. “I wanted to complain, but I could not to the individuals above me because they were engineering the actions,” he told the committee. “Using the metaphor of killing the messenger, I could not complain to the Board of Trustees because the first messenger had been killed. There will not be another.”

If he couldn’t complain within the system, he said in an interview, then he thought he could alert the authorities. But he knew the consequences if he tipped off the state attorney general and the Internal Revenue Service.

“I knew I would get fired,” he said in an interview, “so I had to consider my personal life.”

His wife and four adult children were supportive, and he began thinking about how he would earn a living. “It’s easier to do it when you’re 63 than when you’re 53,” he says. “I don’t have a career to lose, I’m at the end of it anyway. I can shuffle through somehow the next couple of years or so.”

He mailed his packet of information to the state attorney general and the IRS on March 21, 2003. He sent the university president and the board copies of the letters, and a copy of the California state code that prohibits retaliation against whistle-blowers. (Under state law, the employer must be notified that a person has reported alleged wrongdoing before the whistle-blower can seek legal protection.)

On April 10, 2003, he was called before the Western board’s executive-compensation committee to explain his actions. “As the events unfolded,” he said in the committee-meeting minutes about Mr. Nordin’s contract negotiations, “I realized that for the rest of my employment I would be faced with ethical dilemmas. This is untenable for me.”

The university suspended Mr. Hugh the next day, and then fired him on May 2, 2003. It sued him for defamation on the same day, in a state court. Ten days later, Mr. Hugh sued the university for wrongful termination. That July, the university added Mr. Oberg as an additional defendant in its defamation case against Mr. Hugh, and Mr. Oberg is also suing the university, adding that he too was fired unfairly.

In October, Craig Lenz, former dean of Western University’s College of Osteopathic Medicine, who had complained to the state attorney general and the IRS about irregular financial practices at Western in April 2003 and was fired that June, also sued the university for wrongful termination. In his lawsuit, Dr. Lenz charges the university with “misrepresentation preventing [Dr. Lenz] from obtaining employment” and “negligence in the management of [the] university against [the] board of trustees.”

The university has not added Dr. Lenz to the lawsuit it filed against Mr. Hugh and Mr. Oberg. (Through his lawyer, Russell Thomas, who also represents Mr. Hugh and Mr. Oberg, Dr. Lenz declined to comment.)

The University Responds

While Western University officials refused to comment on issues pertaining to individual employees, the university’s written statement says that Mr. Hugh’s version of the events of the last five years is false.

The statement says that the issues that Mr. Hugh reported to the authorities were resolved after being brought to the attention of the Board of Trustees in 2001. The university’s lawsuit charges that because Mr. Hugh knew the practices were obsolete when he brought his complaint to the state attorney general and IRS, his allegations constitute defamation against Western.

“He did not identify any activities that were pertinent at the time he made his whistle-blowing complaint,” said Mr. Johnson, the university’s general counsel, in an interview.

In addition, Western University said in its statement that it did not ask Mr. Hugh to leave because of alleged whistle-blowing activities, but because he had violated university policies and ignored sound management practices.

“Mr. Hugh, under the color of his position as director of human resources, removed and copied documents from confidential employee files (including the personal financial records of employees) in direct violation of California law and the University’s policies and procedures. Mr. Hugh removed copies of those documents from the University, which he then made public for the purposes of ruining the reputation of Western University and its employees,” the university said in its statement.

Mr. Johnson said in an interview that Mr. Hugh made private documents available to the public through his lawsuit, by appending the documents in his complaint. He also said that Mr. Hugh could have raised his concerns to the board or through other channels within the university.

A Deal Undone

At the time of Mr. Hugh’s complaint, the university was considering a merger with Chapman University, in Orange, Calif., said Mr. Johnson in an interview.

“Mr. Hugh either directly or indirectly made false statements to employees of [Western] and to other entities with which Western University was conducting ongoing business negotiations,” according to Western University’s written statement. The university’s lawsuit says that “as a direct and foreseeable result of the…intentional wrongful acts, Western University’s existing contracts, and therefore its future business, was disrupted and was made more burdensome and expensive due to the unlawful conduct of Hugh.”

In March 2004, Western and Chapman announced that the merger deal was off. “The decision was made because the parties were unable to resolve significant issues of governance, composition of a new board of trustees, and name of a new university,” said Mr. Johnson in an interview. Mr. Hugh told The Chronicle the merger didn’t collapse because of him — he said he did not discuss the substance of his complaint to the state attorney general and IRS with anyone.

Western University does not see Mr. Hugh as a whistle-blower, said Mr. Johnson in an interview. “This is an employee who we believe is attempting to misuse a process for purposes for which it was never intended,” he said.

Mr. Thomas, the lawyer for Mr. Hugh, Mr. Oberg, and Dr. Lenz, dismissed the university’s argument in an interview as “the story du jour.” He argued that it doesn’t matter when the practices at the university stopped, only that they occurred in the first place. He said Mr. Hugh couldn’t defend himself in his lawsuit over the firing without including private university documents in his court filings, which then became a part of the public record, and there was no way for him to complain without fear of retaliation within the university.

A judge will sort through all of this next month, when Mr. Hugh’s and Mr. Oberg’s cases against the university, and the university’s case against them, go to trial.

As Mr. Hugh waits for the verdict on his “last hurrah,” he finds himself facing yet another career change. “Looking for a job when you’re 63 years old is not that easy,” he said in an interview, “but I’ve got to pay bills.”

He has taken up the consulting business he left when he accepted the position at Western University, and he has done some belt tightening as well. He and his wife have sold their home in Irvine, Calif., and moved to a smaller home in Fallbrook, a town 70 miles away.

Still, despite these adjustments, he said he has no regrets: “I would do it over again in less than half a heartbeat. I did the right thing.”