Judge Balks at Departure Deal for Windrush Head of School

Windrush School's prolonged battle to remain open won a victory and suffered a potential setback Wednesday in U.S. Bankruptcy Court.

Bankruptcy Judge William Lafferty quickly approved between the debt-ridden El Cerrito private school and its creditors that will allow the school to remain open at least the rest of this year, if the school continues to meet certain enrollment and revenue minimums. The creditors would gain title to the property and the school could continue to operate rent-free the rest of this school year, with the 2012-13 school year left up in the air.

But Lafferty delayed acting on the school's motion to approve a between Windrush and Head of School Ilana Kaufman. The judge said he is "not comfortable" with the proposed pact that lays out financial terms for from Windrush on March 15.

Lafferty focused on the approximately $80,000 that Kaufman received as in-lieu vacation and advance compensation shortly before the school filed for bankruptcy protection on September 30. Lafferty noted that she received the funds after the school failed to make its June debt payment, which was $357,500. That default – on the interest payment for $13 million in bonds issued in 2007 – precipitated that put the school on the verge of closure in late September. The bondholders had moved to seize the school, which was collateral, and foreclosure was temporarily forestalled by the bankruptcy case.

Wells Fargo Bank, the trustee for the bondholders, objected to the payments to Kaufman and has sought to have the funds returned. The school's proposed settlement with her would require her to repay $30,000, with the remaining $50,000 to come from other sources outside tuition.

Lafferty noted the failure to make the bond interest payment and said the school began planning to slash budgets and reduce pay, considered lay-offs and endured a reduction in its ability to provide services to students.

"What didn't appear by accident was the timing of this," the judge said. "...Ms. Kaufman sprang into action and paid herself $80,000. That is of concern to me."

Kaufman did not attend the court hearing. At the hearing were Windrush board president Sarah Flowers and several other board members.

Lafferty delayed consideration of the Kaufman agreement until a hearing on Jan. 25, giving Wells Fargo time to conduct "discovery" and giving both sides the chance to file further court papers and arrange for witness testimony at the Jan. 25 hearing.

Merle Meyers, the attorney representing Windrush, told Patch that the discovery process could include depositions from representatives of the school and Wells Fargo.

Meyers said in court papers before Wednesday's hearing that the settlement with Kaufman is a "lynchpin" in the school's ability to meet the financial requirements of its settlement with the bondholding creditors. Under the agreement with Kaufman, she would relinquish the severance pay equal to six months' salary – $110,000 – that otherwise would be due to her, Meyers said. The school budget mandated by the settlement agreement with the creditors could not afford such a payment, he said.

At the same time, the pact with Kaufman will free the school from potentially expensive legal costs over Kaufman's contention that Windrush failed "to provide to her a safe and secure work environment, in light of verbal attacks made against her on campus and elsewhere in the last several months," Meyers said. Kaufman has been sharply criticized by several members of the school community.

Meyers' court filings acknowledged that a small fraction of the $80,000 paid to Kaufman may have been in error but that the bulk of funds, though paid outside of the normal course, were due to her or would have been due to her. He indicated that Windrush could well face a prolonged legal battle to retrieve any of the money against Kaufman's consent.

He defended the agreement in court, saying, "The fact that she's paying it back early without out a fight, at least a portion of it, we think is a huge benefit."

Attorney Mike Buckley, representing Wells Fargo, said in court papers that the payments to Kaufman appeared fraudulent and that Windrush failed to show that Kaufman has a "potentially viable claim" against the school.

"The person who seems to be benefitting the most out of this is the head of school, Ms. Kaufman," Buckley said. She benefitted financially from "what we view as wrongful conduct not to pay the bonds when money was available," he said.

Judge Lafferty also indicated he disagreed with the accusations in Windrush's court papers that Wells Fargo was acting in "bad faith" and was attacking the Kaufman pact as a way to scuttle the bondholders' settlement with the school. Lafferty said he thought Buckley's court papers were restrained and judicious. "I found what he filed exactly what I expected to be filed," the judge said.

The latest legal dispute comes at a time when the school, energized by the addition of 10 new board members, appeared to have stopped an exodus of students and to be reaping the benefits of two successful emergency fundraising efforts. It exceeded the Dec. 31 targets for enrollment and revenue set in the agreement with Wells Fargo.

"The school is largely rejuvenated and doing well," Meyers told the judge at the beginning of Wednesday's hearing.

A statement from the school's board after the hearing said, "We are pleased with the Court's approval of the bondholder settlement and look forward to the final dismissal of our bankruptcy case.  To achieve that end, please continue the fight with your tuition payments, pledge payments and strong support of the school."

For more background on the Windrush crisis, you can see our past stories by clicking "Windrush School" next to Related Topics below this article. For alerts on future Windrush stories, click the "Keep me posted!" button below the article. We've also posted a list of all Patch stories on the Windrush crisis at the top of our original article, "Crisis at Windrush School: Threat of Imminent Closure."