When veteran hospital executive Sam Odle joined the board of ITT Educational Services Inc. in 2006, it looked like a good gig. The for-profit education company was riding high, with a stock market value topping $2 billion.
Today, Odle, a former president of Methodist Hospital who’s now a senior policy adviser at Bose Public Affairs Group, surely wishes he’d never taken the appointment. It’s bad enough that the 8,000-employee company collapsed and went out of business last fall. But now the bankruptcy trustee charged with scraping together a recovery for creditors—who collectively have billions of dollars in claims—has Odle and his six fellow non-employee directors squarely in her sights.
Recent bankruptcy filings reveal that Trustee Deborah Caruso has sent demand letters to the directors alleging that they are liable for more than $50 million in damages, essentially for standing idly by as CEO Kevin Modany and other top brass drove the company off a cliff. Caruso says that if the directors don’t pay up, she’ll sue.
“You, as former directors of ITT, failed to take adequate actions to replace senior ITT leadership or to explore whether such action could have satisfied—or otherwise been beneficial in negotiations” with the U.S. Department of Education and ITT’s accrediting agency, Caruso said in a May letter to directors.
“Such actions could have prevented ITT’s collapse, or, at a minimum, allowed ITT to explore meaningful strategic alternatives and preserve substantially more value for all stakeholders. By failing to act, you breached your fiduciary duty and other duties to ITT, to the detriment of the bankrupt estate and all stakeholders.”
The effort appears primarily aimed at extracting hefty payments from ITT’s directors-and-officers liability insurance coverage. But it’s possible directors’ personal assets could be at risk, since Caruso’s claims exceed the $40 million in coverage provided under the policies.
Odle, the only non-employee director who lives in Indiana, had the additional title of presiding director, meaning he led board meetings that excluded company management. In an email, he declined to comment. James Moloy, a Bose McKinney & Evans partner representing the former directors, also declined to comment.