LOUISVILLE, Ky. (WDRB) --  The University of Louisville is suing its former president, James Ramsey, for draining millions of dollars from the university’s foundation.

Now that very foundation may have to pony up hundreds of thousands of dollars to pay for Ramsey’s lawyers.

In the opening salvo of what could be a years-long legal battle, the university and its foundation are at odds with Ramsey and his former chief of staff, Kathleen Smith, over whether the foundation is required to pay for Ramsey and Smith’s attorneys and other defense costs in the very lawsuit that U of L filed against them.

The lawsuit, filed jointly by the university and foundation on Wednesday, accuses Ramsey, Smith and three other former officials of depleting the university’s endowment with excessive spending and compensation during the eight years preceding Ramsey’s resignation in 2016.  

How could U of L’s foundation be obligated to pay the legal bills of the people it’s suing?

The answer is in Section 5.5 of the foundation’s bylaws during Ramsey’s tenure, which state that the foundation will “indemnify” its directors and officers against any legal actions arising from their service as board members or top officials of the organization. That promise includes “advanc(ing) expenses (including attorneys’ fees).”

It’s “fairly common” for nonprofits to protect their top officials from legal liability, said Michael Wyland, a South Dakota consultant to charitable organizations.

“If you agree to become a volunteer board member of a nonprofit, you shouldn’t be opening yourself up to lawsuits,” said Wyland, a partner at the firm Sumption & Wyland. “The expectation is, as long as you are doing the right things on behalf of the nonprofit, that, no, you should not be held individually liable should the nonprofit have done anything wrong.”

But Ramsey, Smith and the other officials being sued aren’t entitled to that protection from the foundation because of the “wanton” and “intentional” acts of which they are accused, according to Andy Campbell, the Birmingham, Alabama lawyer serving as U of L’s lead attorney on the lawsuit.

The foundation’s promise to indemnify its officials “was never intended, in our view, to protect someone from their own bad-faith and fraudulent acts in the management of the foundation,” Campbell told reporters at a news conference Wednesday.

The university’s accusations haven’t been adjudicated in court, however. And Ramsey and Smith’s attorneys say the foundation can’t shirk its obligation to pay their expenses upfront.

In fact, the foundation’s bylaws contemplate a situation in which the organization would pay an official’s attorneys’ fees and other costs even if that person is “ultimately … determined” not to be entitled to the indemnification.

In such a case, the foundation’s board could ensure it gets repaid by requiring a “security” from the official – such as posting a bond – to receive the attorneys’ fees, according to the bylaws.

Smith’s attorney, Ann Oldfather, last summer requested that the foundation advance her $50,000 for Smith’s defense, according to a letter received in a public records request.

Oldfather made the request on June 14, 2017 – less than a week after the release of a $2.2 million forensic investigation impugning the foundation’s alleged proliferate spending and compensation under Ramsey.

The foundation evidently ignored Oldfather’s demand for payment. WDRB’s request for any response to her letter turned up nothing.

“I am going to have to fight them for everything,” Oldfather said in an interview Thursday.

Steve Pence, Ramsey’s attorney, said he has asked the foundation to whom he should direct his bills.

In addition to the “pretty straightforward” bylaws, Pence said the foundation’s obligation to indemnify Ramsey is backed up by Kentucky law.

Another wrinkle is whether any attorneys’ fees for Ramsey, Smith and the other former officials would come from the foundation or from its insurance carriers.

The foundation has a total of $25 million in insurance coverage through “directors and officers” liability policies, Campbell said Wednesday. The lawsuit against Ramsey and the others is a necessary first step in the foundation’s ability to collect on those policies, he said.

“Hopefully the policies will step up and do what is required contractually,” he said.

But any insurance coverage available for the foundation could be reduced by payments to lawyers for Ramsey, Smith and the others being sued.    

Oldfather said she will seek payment of her fees directly from the foundation and from the insurance companies.

“It won’t just be me, now, will it?” Oldfather said, referring to the lawsuit’s handful of defendants. “We’re going to have a whole bunch of lawyers who are getting paid.”

Reach reporter Chris Otts at 502-585-0822, cotts@wdrb.com, on Twitter or on Facebook. Copyright 2018 WDRB News. All rights reserved.