The Florida Supreme Court on Thursday ruled that a university can control a research nonprofit's budget and approve its board members, saying a state law doesn't impair a memorandum of understanding between the two parties.

Writing the Florida high court's opinion, Justice John D. Couriel said certain parts of the state's Excellence in Higher Education Act of 2018 don't unconstitutionally interfere with an MOU between Harbor Branch Oceanographic Institute Foundation Inc. and Florida Atlantic University. Under Article I, Section 10, the Florida constitution states that "no law impairing the obligation shall be passed."

Harbor Branch argued the law impaired its rights under the MOU, specifically provisions of the agreement that the nonprofit's board of directors would include two FAU appointees and that board members would have the "sole discretion" to control distributions.

"Specifically, the foundation says that the act's requirement that all foundation board members be approved by the FAU trustees unconstitutionally impairs a memorandum of understanding it negotiated with the university," Justice Couriel said. "The foundation makes the same argument about a rule adopted by the Board of Governors of the State University System of Florida, which, the foundation says, contravenes the same memorandum by reducing its control over its budget. After careful consideration, we conclude that neither of the contested provisions unconstitutionally interferes with the parties' agreement."

In 2007, Harbor Branch entered into the agreement with FAU after financial trouble. Under the MOU, Harbor Branch became a direct-support organization affiliated with the university, and in exchange, the nonprofit is allowed to use FAU's property, facilities and personnel.

In Florida, such organizations are organized "exclusively to receive, hold, invest, and administer property and to make expenditures to or for the benefit of a state university in Florida or for the benefit of a research and development park or research and development authority affiliated with a state university," the opinion said.

FAU amended the agreement in 2009 to require its trustees to approve Harbor Branch's budget, and in 2017, the university proposed control of various nonprofit functions, such as accounting, auditing and legal operations. FAU also defunded Harbor Branch's CEO position and installed the university's vice president for research as the nonprofit's president, according to the opinion.

Harbor Branch sued FAU in Florida's 19th Judicial Circuit Court in March 2017, seeking a declaratory judgment that the university couldn't impose its own budget proposal. While that case was pending, the Florida Legislature passed the Excellence in Higher Education Act. The act amended a part of the Florida statutes regulating direct-support organizations.

Following passage of the act, FAU told Harbor Branch in May 2019 to submit board appointees for consideration, but the nonprofit refused, according to the opinion.

One month later, FAU brought its own claim in Florida state court and sought a declaratory judgment that it was required to approve Harbor Branch board members under the act.

After a four-day trial, the lower court found that the law impaired the MOU, and FAU appealed the case to Florida's Fourth District Court of Appeal in 2022. The appellate court affirmed the lower court ruling, and the case was appealed to the Florida Supreme Court, which held oral arguments in November 2024.

Andy Bardos of GrayRobinson PA, representing FAU, told the Florida high court panel that there were no rights or obligations under the MOU to be impaired.

"DSOs are trustees of vast resources administered on behalf of the state university system," Bardos said.

Arguing on behalf of Harbor Branch, Stuart H. Singer of Boies Schiller Flexner LLP said: "The parties did not agree to be importing the law that changes in the future."

In his opinion, Justice Couriel said direct-support organizations are highly regulated under Florida law. Regarding the approval of Harbor Branch's board members, Justice Couriel said because the MOU doesn't "speak to the approval of directors," Florida law didn't impair the obligations of the agreement.

"Approval and appointment powers are distinct," Justice Couriel said. "Here, the MOU only speaks to FAU's appointment power; it says nothing about approval powers. The plain language of the MOU allows FAU to appoint two members to the board. It creates no other contractual rights regarding board appointments, composition, or membership."

Additionally, Justice Couriel said the MOU doesn't "speak to budgets, only distributions."

"The power to approve budgets is distinct from the discretion to distribute funds. And while a budget may have a downstream effect on distributions, that does not make them the same," Justice Couriel said. "Nor does FAU's approval authority over the foundation's budget take away the foundation's ability to apportion or give out endowment funds within the contours of that budget."

Counsel for the parties did not immediately respond to emailed requests for comment on Thursday.

FAU is represented by Andy Bardos, Ashley Lukis and Jack R. Reiter of GrayRobinson PA.

Harbor Branch is represented by Stuart H. Singer, Sashi C. Bach and Jesse M. Panuccio of Boies Schiller Flexner LLP.

The case is Florida Atlantic University Board of Trustees v. Harbor Branch Oceanographic Institute Foundation Inc., case number SC2023-1470, in the Supreme Court of Florida.