Art Institute sues couple over donations not received

Larry and Kristina Dodge, a southern California couple living (for now) in a mansion on the Pacific Ocean, are facing hard times and can no longer honor the $5 million pledge they made to the Kansas City Art Institute.

Or, in the art institute’s view, they’re a couple of deadbeats.

A $7 million building was constructed on the Kansas City campus based on the Dodges’ pledge. Their names are prominent on the building at 4446 Oak St., facing the Nelson-Atkins Museum of Art.

But the Dodges still owe $4 million, prompting the art institute to pursue them in the California Superior Court of Orange County.

The school won a judgment — but it is not clear when or if it will ever see the rest of the money.

The Dodges, once multimillion-dollar business people and philanthropists, claim they simply don’t have the money — they lost nearly everything to the Great Recession and a harassing government. They say they have even struggled to pay for child care for their 2-year-old triplets. The zeal of the Kansas City Art Institute, they say, probably will push them into bankruptcy.

“This is an organization that is ruthless,” Kristina Dodge told The Star, sobbing. “Completely ruthless and heartless.”

The Kansas City Art Institute is unmoved.

“KCAI built a building based on a contract that the college had with the Dodges, and we still expect them to live up to the contract,” the school said in a brief response to an inquiry from The Star. “That’s why we’re leaving the name on the building.”

Things sometimes fall through in the private world of deep-pockets fundraising. But a public airing is practically unheard of.

“It doesn’t happen much, and when it does happen the institutions tend to do their utmost to keep it under wraps because this can only be bad for them, both showing that they had a pledge that was not fulfilled and that they were willing to take a donor to court,” said Andrew Mytelka, an editor at The Chronicle of Higher Education. “I think it’s a deterrent to future donors.”

In style

Lawrence (Larry) Dodge was at the center of a business empire that once included American Sterling Bank in Sugar Creek as well as American Sterling Insurance Co., a film production company and other interests.

Dodge’s biography on the website americansterling.com said he founded the company in 1977 and, at age 27, became the youngest CEO of a national insurance group. In 1971, it said, he became the youngest national bank chairman.

Dodge was raised in California and spent nearly 30 years in the Kansas City area before returning there.

Kristina Dodge was on the board of the insurance company and vice president for business development of the film production company.

The couple lives in Dana Point, Calif., just up the coast from San Clemente. The ocean is next to their back yard.

But the Dodges also were generous with their bounty, giving $20 million in 2004 to Chapman University, a private institution in Orange County that named its College of Film and Media Arts after the couple in return. Kristina Dodge remains a trustee of the university.

About the same time, the Dodges were approached by Kansas City lawyer Herb Kohn, who was on the boards of both the Kansas City Art Institute and American Sterling Bank in Sugar Creek. He suggested the art school was worthy of the Dodges’ support and they agreed in 2005 to donate $5 million.

It was the largest financial piece that enabled the art school to erect a 34,000-square-foot building to replace Epperson House, a converted 1909 residence that had outlived its usefulness. The building, dedicated in 2006, completed the second phase of a master plan for the 15-acre campus. It includes five studios, two drawing rooms, two classrooms, a gallery/lounge, a courtyard, technology room, faculty offices and student lockers.

The same year the Dodge building was dedicated here, the couple was dubbed “two fabulous folks” and given the Champion of Youth Award for their support of the Boys and Girls Club of America in California.

Other recipients, according to the company website, included Hope House and Sunshine Center School in Independence and the Rainbow Center in Blue Springs.

The Dodges’ generosity also extended to politics. The Center for Investigative Reporting ranked them No. 9 on a list of top “California rainmakers” for having given more than $6.8 million to the California Republican Party and various candidates between 2001 and 2008.

In 2010 Gov. Arnold Schwarzenegger reappointed Kristina Dodge to the Orange County Fair Board of Directors, a post she still retains, according to its website.

A video shot in May 2011 on the occasion of Chapman University’s 150th anniversary shows Larry and Kristina all smiles, talking about their passion for the film school.

Bank slide

But by then the happy days were already quickly receding.

By mid-decade American Sterling Bank was experiencing problems. The federal Office of Thrift Supervision, which later was replaced by the Office of the Comptroller of the Currency, found the bank had a net loss of $2 million by the end of 2006. Regulators said Chief Executive Officer Larry Dodge, who also was chairman of the board and had controlling stock interest, caused the bank to file false financial documents in 2007 and 2008 to cover up the problems.

In April 2009 the bank was seized and sold to Metcalf Bank. The Federal Deposit Insurance Corp. said it expected to lose $42 million in the bank failure.

In 2010 regulators barred Dodge from banking forever and assessed a civil penalty against him of $2.5 million. They said he had breached his fiduciary duty in conduct that “involved personal dishonesty.” Dodge appealed and this year a court reduced his penalty to $1 million, but it upheld the ban from banking.

“That just sent our lives into a tailspin,” said Kristina Dodge of the seizure. She thinks the government’s action was unnecessary and motivated by a desire to “shut down little banks.”

Larry Dodge said he continues to believe that the bank should not have been seized.

At least some of American Sterling’s problems stemmed from a mortgage-fraud scheme by two California men who have pleaded guilty in federal court to their role in what prosecutors say cost the bank more than $8.5 million. The scheme involved submitting mortgage applications with false supporting documents about the borrowers’ assets and credit history. As a result, the bank approved loans that came back to bite them when the housing bubble burst.

The two men are scheduled to be sentenced in Kansas City in December.

In efforts to keep the bank afloat, Kristina Dodge said, she and her husband poured in $22 million of their own money. But they also borrowed from the insurance company, signing over their mansion as collateral.

In September 2011 the California Insurance Commissioner took action against American Sterling Insurance, saying the company was “undercapitalized and has almost no liquid assets.” The company was placed in conservatorship to protect policyholders, creditors and the public.

This past summer the Dodges’ own former company, now holding the deed to their oceanside home, gave them notice that it would be sold. As of July 27 the Dodges owed $9 million on the note. A sale on the Orange County courthouse steps is scheduled for next month.

Birthday party

The Dodges say they learned they were being sued by the Kansas City Art Institute when a process server showed up at their daughter’s 11th birthday party on the beach.

Until then, Larry Dodge said, he had been in talks with the art institute about restructuring the terms of his pledge.

“The most disgusting thing about it is, without an explanation, they file a lawsuit,” Larry Dodge said. “Since that time, they’ve been absolutely horse’s behinds.”

The causes of action were breach of contract and unjust enrichment — because of the publicity the Dodges received from their pledge.

“The contribution was vital to the construction of a student art facilities building,” the school said in the lawsuit, adding that it agreed to name the building after the Dodges. “Of course, accepting the publicity is one thing, but fulfilling one’s obligations is quite another.”

The school would not elaborate on its options if it never receives the money.

The pledge had been to give the school $5 million over eight years. The Dodges paid the first three installments in company stock. The art institute cashed in $1 million of that before the rest became unredeemable, according to the Dodges’ response to the lawsuit.

“It’s very unfortunate for everybody,” said Kohn, still a trustee of and a donor to the art institute. “It’s unfortunate that the school did not get the money and it’s unfortunate for the Dodges.”

The Dodges initially tried to fight the lawsuit without an attorney, which they said they could not afford. That proved to be a mistake. They made procedural errors. The court entered a default judgment of $4 million against them.

The Dodges have since found a pro bono attorney to represent them. Larry Dodge said he has assets but the issue is liquidity and that he will probably have to file for bankruptcy.

They are due back in court Dec. 13 for a debtor examination hearing.

Kristina Dodge talks about rebuilding their lives and not wanting to have to do it encumbered by a $4 million judgment. She’s 50 years old and Larry Dodge is 73. They’ve been selling things on eBay.

“Life could not be more stressful,” said Kristina Dodge, “but we are sticking together and trying to take one step at a time. We’re trying to do the best we can and look to the future.”

Through all the court hearings, depositions and legal filings, the names of Lawrence and Kristina Dodge remain on the building at the Kansas City Art Institute.

“I don’t care about that,” Kristina Dodge said. “I never did. I wish they’d take it off. We don’t want to be associated with them anymore.”