District Court Judge Sherwood Bauer Jr. unexpectedly recused himself from a high stakes fight between Florida Atlantic University and the leaders of the Harbor Branch Oceanographic Institute Foundation moments before opening arguments were scheduled to begin over control of a $72 million endowment.
“I spent Wednesday afternoon studying the case and at about 4:37 p.m. discovered that there is a strong appearance of a conflict of interest,” Bauer explained to attorneys and representatives from both sides who appeared in court on Thursday.
“I am good friends with one of the witnesses, (former FAU President) Frank Brogan, who has spoken at a family member’s funeral and at my daughter’s wedding,” Bauer said. “On occasion, we have had dinner together.
“I want to apologize to everyone here this morning. I feel bad. I’ve wasted a lot of money and time.”
Bauer said the two-year-old case will be turned over to Judge Lawrence Mirman, who will set a new date for opening arguments.
The trial was scheduled after both sides agreed in August that they had reached an impasse after eight months of negotiations over who should have control of the $72 million endowment, which the Foundation has long used to make grants for scientific research related to the Indian River Lagoon and the world’s oceans.
The Foundation came to be in 2007, when Harbor Branch’s laboratories and research realm were acquired by FAU.
John Seward Johnson Sr., the son of Robert Wood Johnson, one of the three founders of the Johnson & Johnson Corporation, founded Harbor Beach in 1971, with the help of inventor Edwin Link.
Johnson and Link envisioned an independent institute which would use oceanographic research, innovative engineering and deep-sea exploration to preserve the environment and promote greater scientific understanding of the ocean.
The Fort Pierce laboratory soon became a leader in its field, entering the elite company of Woods Hole, Scripps and other top oceanographic research institutes and attracting scientists from around the world.
After Johnson Sr.’s death, however, finances at the nonprofit began to falter. Expenses outran income in part because the institute had acquired costly research ships and submarines and suffered extensive damage in the 2004 and 2005 hurricanes.
Johnson Sr.’s heirs were less supportive than he had been, and there was no longer an open checkbook to fund Harbor Branch’s many research programs, including extensive studies of bottlenose dolphins in the Indian River Lagoon, according to Michael O’Reilly, chair of the Harbor Branch Oceanographic Institute Board of Directors.
To save Harbor Branch, its board of directors agreed to let the storied institution be acquired by FAU, turning over land, buildings, laboratories and other assets valued at more than $90 million to the university, which incorporated the research institute into its academic structure.
At the same time, the old board became the new Harbor Branch Oceanographic Institute Foundation board and refocused its energies on investment and grant-making, determined to protect John Seward Johnson Sr.’s endowment and use it for the purpose he intended. The new foundation board also maintained control over an annual $2 million stream of revenue from the sale of ocean-themed Florida license plates created to support marine research.
The arrangement that divided Harbor Branch’s assets and functions into two parts appeared to work well for a time. FAU acquired new prestige as a research university and increased opportunities for its students, and the foundation’s work thrived.
Focusing exclusively on maximizing investment returns and making impactful scientific grants, the Foundation during the past 10 years grew its endowment from $40 million to $70 million and channeled more than $28 million to marine scientists, according to figures in an annual report released in November 2017.
But the dispute began when during budget negotiations in 2017, Daniel Flynn, vice president of Research at FAU, proposed the Foundation merge its staff, accounting, legal representation and other administrative functions with the university to save a projected $416,00 annually.
The move alarmed the Foundation’s Board of Directors, which feared that without independent oversight, funds placed in trust by Johnson Sr. and license-plate revenue could be diverted to other uses than marine research. According to University Press, FAU in 2012 had “requested a $50,000 donation from [the Foundation] … to help build its football stadium.”
The nonprofit filed a lawsuit in March 2017 to block the university’s takeover attempt, which the suit called “a blatant power grab,” relying on a 2007 Memorandum of Understanding between the two parties that stipulated the Foundation’s distributions would be made at the “sole discretion” of the board for purposes of defraying expenses, retiring debt and benefiting the institute.