Company Seeks to Prevent Eastern Gateway from Liquidating Assets

STEUBENVILLE, Ohio – A company that’s suing Eastern Gateway Community College for breach of contract wants the court to seize and protect the college’s assets before the case is resolved.

Last week, the Student Resource Center, a company with which Eastern Gateway contracted for its free college benefit program, filed a motion for prejudgment attachment in its case against the college. The suit is in the U.S. District Court for the Southern District of Ohio.

The motion says that SRC’s counsel expressed concern via email to Eastern Gateway’s counsel that “EGCC is attempting to liquidate and dissipate its assets in an attempt to become judgment proof from SRC’s pending claims prior to the court’s ruling.”

SRC contends it’s suffered more than $50 million in damages in unreimbursed operating expenses, withheld profits and other damages.

According to the motion, Eastern Gateway’s counsel responded via email that “any proceeds EGCC realizes from the sale will be used to pay ongoing operating expenses and/or outstanding debts. If SRC would like to secure a place in line with EGCC’s creditors, it should make a reasonable settlement demand.”

SRC’s counsel requested a timeline for the sale of EGCC property “as well as assurance that EGCC would keep any proceeds in escrow,” but the college’s counsel hadn’t responded as of the filing of the motion.

Eastern Gateway trustees announced last month that the college planned to sell one of its buildings at the Steubenville campus, the Pugliese Center, to Steubenville City Schools. A price wasn’t disclosed, but the total market value of the property is $2 million.

The main Steubenville classroom building was deeded to Eastern Gateway’s predecessor, Jefferson County Community College, in the 1960s, with a clause that it be used for educational purposes. It reverts to Jefferson County if it ceases to be used for education. Its total market value is nearly $13 million.

Eastern Gateway is winding down its operations, with plans to dissolve Oct. 31. In its wake, Youngstown State University has launched many certificate and associate degree programs to serve students who attended or planned to attend Eastern Gateway at either its Youngstown or Steubenville campuses.

YSU plans a campus in Steubenville, although a location hasn’t been determined. The building where Eastern Gateway offered classes is one possibility. It’s unclear how the motion or a decision to attach the property would affect those plans.

SRC’s motion contends the sale of the Pugliese Center to Steubenville schools and Eastern Gateway’s plans to use the money for operating expenses would place the property “beyond the reach of SRC, should SRC obtain a judgment against EGCC in this action for the recovery of money …”

Regarding the other campus building, the motion refers to the reverter clause “that may dispose of the property in a way long intended to shield it from creditors.”

According to SRC’s motion, Eastern Gateway’s decision to “wind down its educational operations means many of its most valuable assets – particularly the Pugliese Center property and the Steubenville campus property – could be placed beyond the reach of SRC as a judgment creditor should SRC prevail in this action.”

Eastern Gateway filed a motion opposing SRC’s motion for prejudgment attachment, saying SRC lacks the statutory basis for it.

It says attachment is intended for when a defendant is “about to convert property to money ‘for purposes of placing it beyond the reach of creditors.’” 

But “EGCC is $29 million in debt and needs to raise cash to pay its debts …,” the college’s motion said. “There is no intent to place the Pugliese Center property or any sale proceeds beyond reach of creditors. To the contrary, the purpose and intent is to pay creditors and cover payroll and other operating expenses.”

Jefferson County is also getting involved.

“To my understanding, … once EGCC ceases, it [the classroom building] reverts to the county,” Jefferson County Commissioner Eric Timmons said. “That’s what we‘re trying to figure out. We’re trying to protect the taxpayers as much as we can.”

Through counsel, Jefferson County commissioners Wednesday filed a motion to intervene regarding SRC’s motion for prejudgment attachment. It says the college doesn’t hold “fee simple” title to the property, referring to the reverter clause.

A hearing was set for Thursday, and post-hearing briefs must be filed by July 5.

Eastern Gateway contracted with SRC for its free college benefit program. That program enabled union members to take classes, mostly online, and earn degrees from the college at no cost to students. Eastern Gateway enrollment grew to more than 40,000 students through the program.

The U.S. Department of Education, though, ordered the college to stop the program and alleged that students who received Pell grants were paying more than those who didn’t. Eastern Gateway ended its free college program last fall.

Copyright 2024 The Business Journal, Youngstown, Ohio.