A young Michael Moritz had promise and aspirations, but little money to realize them.
When Ohio State University surprisingly awarded Moritz a full-ride scholarship to law school in 1958, it transformed his life.
Over the decades, Moritz became a partner in a major law firm, a corporate-law expert in demand across the nation for mergers and acquisitions. As he built clients and respect, he also built a fortune.
In retirement, and out of gratitude, he gave back — big time — to his alma mater. In 2001, he donated $30.3 million to Ohio State to endow four faculty chairs and give 30 annual scholarships to needy law students. In recognition of the largest-ever gift to one of its academic units, Ohio State renamed its law college in honor of Moritz.
Tragically, eight months later, the 68-year-old Moritz was killed by a hit-and-run driver in Naples, Florida, with his endowment surviving as what his family believed was eternal testament to his name and generosity.
However, his widow and son now have battled Ohio State for more than two years. They contend the university is diminishing the Moritz legacy by illegally draining millions of dollars in "development fees" they fear threaten the survival and terms of his perpetual donation.
They also wonder whether other donors to many of the 5,500 endowment funds totaling about $4 billion held by Ohio State are aware of the $16.3 million in cumulative annual fees their gifts are charged to pay the salaries of university fundraising employees and the cost of pursuing and entertaining would-be donors.
University officials say the withdrawal of development fees is legal. The Moritz family disagrees — strongly.
"We want the money to go to scholarships, to do great things at the university — not to be spent flying around the country talking to wealthy donors" and hosting social events to court them, said Jeff Moritz, Michael's son, who earned a master's degree in business administration at OSU.
Jeff's mother and Michael’s widow, 80-year-old Lou Ann Moritz Ransom, also has provided $322,000 to Ohio State to endow scholarships for dental hygiene students. She was studying dental hygiene when she met her husband. They were married in 1959, after his first year of law school.
"It's very disheartening. They have fought us tooth and nail. I have been a loyal, loyal alumna and that’s what makes this hurt so much," she said.
Jeff Moritz was shocked when he visited his mother’s Grandview Heights home in early 2016. An Ohio State report showed his father's original 2001 gift of $30.3 million — consisting of subsequently sold 409,478 shares in Cardinal Health, where his father was a director — had shrunk by $8.4 million over the years to $21.9 million, a decline of 28 percent.
"It was odd. The investment markets had done very well since 2001, even with the recession … the markets had more than recovered. There should be no reason to be down that much," said Moritz, a resident of the Cleveland suburb of Rocky River who retired after more than a quarter century as an investment banker.
(Unrelated to the development fee, Ohio State late last year credited the Moritz fund with a $5.5 million share of $24.3 million the university appropriated to 697 endowments that were hit particularly hard by a stock market correction in the early 2000s. The money came from Ohio State's $1.165 billion deal giving its energy systems to a French company. The Moritz family says the endowment still remains below its original amount.)
The endowment also was being tapped for only 12 to 16 full-ride scholarships each year instead of the 30 grants mandated in the gift agreement. "My dad’s legacy and what he wanted to do for the law school is evaporating. I find it sickening," Moritz said.
He and his mother then began a series of discussions with Ohio State development officials in which Moritz said they attributed the decline to the recession’s negative impact on investments. "They did not mention the deduction of fees," he said.
More back and forth and the receipt of a report on the endowment’s financial history finally led to an admission by Ohio State officials that an annual development fee, cumulatively totaling about $3 million, had been taken from the endowment since its inception, Moritz said.
The fees also led to the loss of nearly $3 million in investment earnings the endowment otherwise would have earned, he contends. (The fee stood at 1.33 percent in 2004, but it was phased down to 1 percent by 2007 and since has remained the same.)
"My father’s agreement does not call for a development fee; it’s restricted ... nowhere is there any mention of a development fee," Moritz said.
In correspondence, Ohio State officials contend that the development fee was legally enacted by university trustees in 1994 and has been reauthorized over the years. In 2000, before Moritz's gift, the trustees also approved taking it from endowment principals, said Ohio State spokesman Chris Davey. He also pointed out that Michael Moritz was a member of the OSU Foundation board of directors from 1990 until his 2002 death and was "familiar" with the development fee.
Nonsense, says his son. "He was the head of corporate law for Baker & Hostetler nationwide … he was a detail-oriented person," Moritz said. David Marburger, the Moritz’s lawyer, added sarcastically: "Blame the dead guy … no competent lawyer would know the money was coming out, be OK with that and not address it in the agreement."
More negotiations with OSU officials, including a sit-down with President Michael V. Drake, did not stop the collection of the fee or gain the refund of $3 million taken from the endowment, Moritz said.
"I see my mom tearing up every time this comes up, and I see the emotional toll on her," Moritz said. "All we are asking them to do is to live up the agreement they signed and protect my dad’s wishes."
He and his lawyers then struck on a novel approach. Moritz filed an action in probate court in Delaware County, where his parents lived when his father died, on Aug. 31, 2017, seeking to reopen his father’s estate, be named a fiduciary and gain legal standing to challenge OSU.
Lawyers for Ohio State and the office of Attorney General Mike DeWine's opposed the move, arguing that only DeWine's office has authority to enforce the terms of charitable trusts. Marburger pointed out what he contends is a conflict of interest in DeWine's office also serving as legal counsel to Ohio State. DeWine's office argues that its charitable law section does not represent Ohio State and has no conflict.
DeWine spokesman Dan Tierney said the Moritz family has not filed a complaint but has been encouraged to do so. Marburger responded that DeWine's office has been on notice about the dispute for nearly a year. "The attorney general claims the exclusive authority to investigate this matter. So exercise that authority — investigate," he said.
A magistrate ruled on Aug. 14 that Moritz’s request was "arbitrary and unconscionable," finding he had no standing to intervene and enforce the terms of a gift provided by Michael Moritz prior to his death. The ruling is being appealed to the probate court judge. Moritz says that if he succeeds, a lawsuit is not inevitable, but instead would give him "bargaining power" to negotiate with OSU.
"Nothing is going to come back to the Moritz family whatsoever," Marburger said. "They are spending lots of time and money and emotional energy to get them to just live up to the agreement they signed."
Ohio State spokesman Davey said the university "thoroughly disagrees" with Jeff Moritz and has worked in good faith to answer his concerns.
"It’s true that the gift agreement does not refer to a development fee. It’s also of no consequence … Development fees are a respected and widespread practice among universities and charitable institutions" as a means to raise more endowment money. "Development fees are entirely lawful and recognized by Ohio law as a ‘prudent’ cost associated with managing an endowment."
Ohio State points to Ohio's adoption of the Uniform Prudent Management of Institutional Funds Act as authorizing the collection of money from endowments to pay for other fundraising. Marburger said that Ohio did not adopt the law until 2009 — eight years after Moritz made his gift —and is misapplying it.
The university has been transparent about the development fee, Davey said. Ohio State appreciates Moritz's donation, and "we are confident he would be very proud of the college's accomplishments that are associated with his gift," Davey said.
The Dispatch requested public records documenting the spending of development fees, but the university responded that the fees are intermingled with other funds in a development account and cannot be segregated.
OSU records surrounding the implementation of the fee, uncovered by Marburger, show that in 1994, it was to be applied only to the earnings of endowed funds — not the principal as it was in the Moritz fund, and presumably others. The university replied that principals could be tapped for the fee under action taken by the trustees in 2000, before the Moritz gift.
Jeff Moritz, who serves on the investment committees of three foundations, including at Kenyon College, where he received his bachelor's degree in economics, also is upset with Ohio State's return on its endowments over the past 15 years, shortly after his father's gift. Kenyon, he says, charges no development fee to endowments.
Ohio State has earned a 3.2-percent average annual return on endowment investments, as compared to 5.9-percent average for all universities nationwide, due to lackluster investments and high management fees, he said.
An average return over the past 15 years would have generated an additional $750 million for endowed funds, Moritz contends. Dow Jones stocks have generated an average annual 5.2 percent return over the past 15 years, while the Standard & Poor's 500 stock index has earned an annual average of 4.5 percent.
Ohio State's Davey neither confirmed nor disputed Moritz' 3.2-percent annual return over 15 years on the university's investment of endowed funds. The investment pool of such money has grown since 2010, when OSU created an investment office, by an annual average of nearly 8.9 percent a year, he said.