While Delaware State University’s takeover of Wesley College occurred months ago, headaches caused by unresolved promises created prior to the acquisition linger.
This time, they’re in the form of a lawsuit claiming the merger was a way for Wesley College to avoid its debt, including paying more than $2.5 million owed to the food services management company Aramark.
The lawsuit, filed last week in Chancery Court, claims that both are on the hook for the debt “as a result of the fraudulent transfer of Wesley’s assets to DSU, orchestrated by both schools and their representatives to try to evade Wesley’s creditors and escape liability for Wesley’s debts.”
The lawsuit goes on to call DSU’s acquisition of Wesley a “sham transaction.”
A Delaware State University spokesman did not answer questions about the lawsuit.
“DSU has no comment on this lawsuit,” DSU Spokesman Carlos Holmes said in a statement. “The university does not comment on pending litigation.”
This is at least the second lawsuit filed against the schools as a result of the merger.
Two months before the Dover-based schools’ merger was finalized last year, 14 Wesley College faculty members filed a lawsuit in an attempt to stop the transfer of the liberal arts college to DSU. The faculty members claimed the acquisition would breach tenured faculty contracts and leave no way for faculty members to seek damages for loss of income.
While a Chancery Court judge denied the staff’s preliminary injunction and request to expedite the proceedings, that case is ongoing.
Background:Faculty members sue Wesley College as completion of DSU acquisition draws near
Years prior to the schools merging, Wesley College entered into an agreement with Aramark making the Philadelphia-based company its provider of food services. This included à la carte items and non-alcoholic beverages the college could sell to its students, faculty, staff and guests.
As a way to persuade Wesley College to enter this agreement, the lawsuit claims Aramark over the years provided “substantial additional financial benefits to
Wesley and its students.”
This included a 2017 “financial commitment” from Aramark to invest more than $3.5 million in residential and retail renovations, enhancements and other costs associated with the food services program on the campus over several years.
A caveat in the agreement stated that if the contract between Wesley College and Aramark were to end, the lawsuit said, the school would have to reimburse Aramark for the balance of the financial commitment the food supplier had made as of the date of the contract’s expiration or termination.
As this contract moved forward, merger discussions between DSU and Wesley College began in March 2020 – after years of financial uncertainty by Wesley. In July of that same year, DSU and Wesley College officials announced they had signed an acquisition agreement.
Per the agreement, Wesley College – and its assets – would be absorbed by DSU come July 1, 2021. The acquisition would cost DSU $15 million over three years and would have DSU assume all of Wesley’s buildings, liabilities, intellectual property, academic programs and more.
Background:Delaware State University signs agreement to acquire Wesley College
While the lawsuit does not provide a date, it says Wesley College had stopped paying Aramark at some point prior to July 1, 2021.
As Aramark continued attempts to collect about $4 million it was owed by Wesley, the lawsuit said DSU in September paid about $1.5 million “on behalf of Wesley – establishing its legal responsibility for the Wesley Outstanding Balance with Aramark.”
But the payment also came with a letter from William Strickland, Wesley College’s board of trustees chair, stating the $1.5 million constituted “full satisfaction of the buyout amount for Wesley’s food service contract termination,” according to the lawsuit.
Aramark said it filed its lawsuit to recover money owed to it, as well as attorney fees, damages and other relief the court may deem appropriate.
“DSU functions as a façade for Wesley to continue educating students at the same Dover campus without paying the debts Wesley incurred prior to the Acquisition,” the lawsuit said. “As a result of Wesley’s and DSU’s fraudulent conduct surrounding the evasion of Wesley’s debts as a result of entering into the transfers of assets under the Acquisition Agreement, Aramark is entitled to recover the Wesley Outstanding Balance from DSU.”
Contact Esteban Parra at (302) 324-2299, eparra@delawareonline.com or Twitter @eparra3.
