Hearing set for SWBTS, Riley Foundation lawsuit

Southwestern Baptist Theological Seminary

Hearing set for SWBTS, Riley Foundation lawsuit

A temporary injunction hearing in a lawsuit filed by Southwestern Baptist Theological Seminary and Baylor University against a charitable foundation is scheduled for Dec. 2 after a judge granted the plaintiffs’ motion for expedited discovery. Additionally, two Southwestern trustees have been suspended in connection with their involvement with the charitable foundation.

In the suit, filed Sept. 8 in a Tarrant County district court, Southwestern and Baylor allege some members of the board of the Harold E. Riley Foundation, which was set up solely to benefit the schools, led a “secret coup” in an “attempt to seize control of the Foundation and its assets” – altering the foundation’s purpose, stripping the schools of their rights and status as beneficiaries and misappropriating assets worth millions.

Defendants include the Riley Foundation and Mike Hughes, the foundation’s president. The office of the Texas attorney general, which has oversight authority of charitable organizations, has been observing the proceedings in the lawsuit, including hearings, with the option to become an official party.

Two Riley Foundation trustees – Charles Hott and Thomas Pulley – are also members of Southwestern’s board of trustees and have been suspended from the seminary board by its officers because of “trustee misconduct.”

During a regularly scheduled trustee meeting Monday (Oct. 19), Southwestern’s board of trustees affirmed the officers’ decision, calling it “consistent with the seminary’s governing documents and parliamentary authority and not inconsistent with the Southern Baptist Convention’s governing documents.” The trustees also affirmed and expressed “full support” for the seminary’s action in filing the lawsuit.

Pulley, a banker from Colleyville, Texas, did not respond to a voicemail left Tuesday. Hott, who serves as chief investment officer for the Riley Foundation, told Baptist Press in a text message: “I was denied the ability to tell the whole Board of Trustees the truth. One must ask what the 3 officers are so afraid of?”

When the lawsuit was filed, Hott denied any wrongdoing, telling Baptist Press “virtually every allegation in the complaint by Southwestern and Baylor are completely false, without merit.”

The lawsuit stems from an alleged meeting in June 2018 at which the schools claim the foundation’s governing documents were improperly restructured. The lawsuit also claims the Riley Foundation board is attempting to “seize control” of the board of directors of Citizens Inc., a publicly held insurance company whose stock forms the primary asset of the foundation.

The Riley Foundation filed suit Sept. 2 to force Citizens to seat five directors, including Riley Foundation trustees Augie Boto, Hott and Hughes. The attempt to seat directors of Citizens initially included former Southwestern President Paige Patterson; according to the Riley Foundation’s complaint, Patterson resigned from the attempt to be seated on the Citizens board Sept. 1. According to the schools’ lawsuit, positions on the Citizens board of directors are compensated annually in excess of $100,000.

Hughes is a former Southwestern vice president under Patterson. Boto is the former executive vice president of the SBC Executive Committee. He served as its interim president from 2018-2019.

Harold Riley, who died in 2017, was a major donor to both Southwestern and Baylor. He set up the charitable foundation in 2002. It is funded with shares from Citizens Inc., the Texas-based insurance company he founded in 1969. Citizens, which is publicly traded on the New York Stock Exchange, is valued at more than $300 million.

The Riley Foundation was set up with Southwestern and Baylor as sole beneficiaries. Each school was granted three members on the foundation’s board, giving the schools’ combined representation a majority of the 11-member board.

Upon Riley’s death, assets including more than 1 million shares of Citizens were transferred to the foundation. According to the foundation’s 2018 tax documents, payouts to the two schools that year totaled $298,800.

In a meeting in June 2018, the board was downsized and the schools’ right to appoint board members was eliminated. The foundation’s tax status was changed from a public charity to a private foundation. The lawsuit alleges that the meeting was conducted illegally – without a quorum and without input from either school.

When the suit was filed in September, Southwestern President Adam W. Greenway, who succeeded Patterson, described the Riley Foundation board members involved in the restructuring as “self-appointed rogue leadership,” saying Southwestern believes the foundation board members “are attempting to undermine and overturn Mr. Riley’s expressed directives and are in violation of their fiduciary duties.” Baylor President Linda Livingstone described the lawsuit as “necessary to return Mr. Riley’s gift to his original donative intent.”

Boto told Baptist Press in September the lawsuit’s claims were “absurd,” adding the “entire (foundation) board is committed to supporting the ongoing work of both (Southwestern and Baylor) for as long as possible, as well as possible. That was what Harold Riley wanted. We’ll stay true to that assignment.”

In a response opposing the plaintiffs’ motion for expedited discovery, the defendants asserted a quorum for a meeting June 11, 2018, when the restructuring occurred, and that the changes “did not alter (the foundation’s) purpose in any way, as it continues to operate exclusively for Baylor and Southwestern, who are and will continue to be the exclusive recipients of the Foundation’s charitable grants.”

The response included letters sent to Southwestern Interim President Jeffrey Bingham and Livingstone, Baylor’s president – sent in July and August 2018, respectively – in which Hughes wrote that the Foundation’s board had determined the board was “too large to act efficiently and effectively” and that the original requirement that Southwestern and Baylor appoint three Foundation board members each “is not necessarily in the best interests of Baylor and Southwestern.”

Hughes wrote that the Riley Foundation board had reduced its size from 11 to a maximum of five and removed “the burden on Baylor and Southwestern to maintain the appointment of certain members of the Foundation’s Board of Trustees.”

Hott, Pulley and Hughes remained on the foundation board when it was reduced to five, as did Hance Dilbeck, executive director of the Baptist General Convention of Oklahoma. Dilbeck, who resigned from the board in the summer of 2020, declined comment to Baptist Press.

In response to Southwestern trustees’ Oct. 19 affirmation of the seminary’s action in filing the lawsuit, Greenway said: “While we continue to pray and hope for a just resolution of this difficult matter, we are determined to honor the clearly stated intent of Mr. Riley in establishing the foundation that bears his name exclusively to support two educational institutions that were near and dear to his heart.”

Reprinted from Baptist Press (www.baptistpress.com), news service of the Southern Baptist Convention.