Departmental Gorrespondence

RKANSAS

KitWilliams
City Attorney

TO: Mayor |ordan A s

Jason B. Kelley
sistant C ìty A ttorne y
City Council

FROM: Kit \ilitüams, City Attorney

DATE: I)ecember lr20l0

RE: Duties of the Walton Arts Center Council, Inc. and the
Walton Arts Center Foundation, Inc.

NOTIFICATION OF THE WALTON ARTS CENTER IN 2OO8

TIIAT IT IS LEGALLY PROHIBITED FROM MOVING THE MAIN
PERFORMING ARTS CENTER OUT OF FAYETTEVILLE

In October of 2007, Professor Curt Rom as a Board Member of the Walton

Arts Center Council, Inc. asked me about the duties and responsibilities of the
Board of Directors of the Walton Arts Center Council, Inc. I researched the
history of the creation of Walton Arts Center Council, Inc. by the City of
Fayetteville and the University of Arkansas which began with the Interlocal
Cooperation Agreement in 1986. On October 11 ,2007,I sent Dr. Rom my letter
showing that the Walton Arts Center Council, Inc. was expressly the "agent" for
the University and the City to construct, manage, operate and maintain a Center
for the Arts." First Article of Interlocal Cooperation Agreement (emphasis added)

This letter speaks for itself and is attached. My basic opinion was that as an
agent for the University and City, the Walton Arts Center Council, Inc. "owes a
continuing fiduciary duty both to the City and the University to operate, manage
'Walton
and maintain the Arts Center in the best interests of the University of
Arkansas and the City of Fayetteville." (page 2, emphasis in original). Such duty
would prohibit the Walton Arts Center from building its primary arts center outside
of Fayetteville.
 This letter and my opinion about the Walton Arts Center owing a fiduciary
duty to protect the best interests of Fayetteville must have been discussed by other
board members of the Walton Arts Center Council, Inc. since both the Associate
General Counsel for the University of Arkansas and the V/alton Arts Center
attorney asked for copies of that letter in 2008. I faxed Associate General Counsel
for the University of Arkansas Scott Varady a copy of my November 11, 2007
letter to Dr. Curt Rom on January 8, 2008. (ropy attached) When the Walton Arts
Center attomey, Tameron C. Bishop, requested a copy of that letter in May of
2008, I promptly sent her a copy with my transmittal letter of May 13, 2008.
(attached) These letters certainly informed both the University of Arkansas and
the goveming board of the Walton Arts Center of my opinion that the founding
documents and black letter law "prohibits those corporations from attempting to
remove the Arts Center from Fayetteville or to use any of the endowment in an
outside the city location without the express and explicit approval by both the
University of Arkansas and the City of Fayetteville ...." (page 2, emphasis in
original)
 KIT WILLIAMS
FAYETTEVILLE CITY ATTORNEY
DAVID J. WHITAKER
Assistant City Attorney
]udy Housley
C)ffice Manager
ÏHE CITY OF FAYETTEVILLE, ARKANSAS
Phone (479)575-8313 113 W Mountain, Suite 302
FAX (479) 57s-831s
Fayetteville, AR 72701-6088

October 1l ,2007

Professor Curt Rom

University of Arkansas By FAX: 575=8619
Fayetteville, AR

RE: IValton Arts Center

Dear Dr. Rom:

Thank you for your question about the duties and responsibilities of
members of the Board of Directors of the Walton Arts Center Council, Inc. This
board with its many volunteer community leaders has served with great distinction
over the last fìfteen years and helped make the Walton Arts Center a great success
and an integral part of downtown Fayetteville. To understand the obligations of
your office, it is necessary to consider the founding documents and agreements
which created your board and the Walton Arts Center itself.

The principal agreement which began the process of creating the 'Walton
Arts Center was the Interlocal Cooperation Agreement between the University
of Arkansas and the City of Fayetteville signed by the City on September 16,1986
by Mayor Paul Noland, and the University on December 9,7986 by President Ray
Thomton. 'Its First Article called for the "Creation Of Two Separate Non-Profit
Corporations To Construct And Manage The Center For The Arts." The first was
entitled "the University of Arkansas/City of Fayettevi,lle Arts Center Council, Inc.
('Arts Center Council') which shall serve as agent for the University and the City
to construcT,manage, operate and maintain a:Center for the Arts. The Center for
the Arts shall be owned by the City and the University as tenants in common.rl
(emphasis added).
 Although this non-proflrt corporation has changed its name to the "Walton
Arts Center Council, Inc.," its -duties have remained to "construct, operate, manage
and maintain the Walton Arts Center as agent for the University of Arkansas and
the City of.Fayetteville." {Fourth Amendment to the Articles of Incorporation,
Third Article, paragraph (b)) (emphasis added)

As ''agent"'for the City. and Universi y, this non-profit corporation owes a

contin.uing fiduciary duty both to the City and University to operate, manage and
maintain the Walton Arts Center in the best interests of the University of Arkansas
and the City of Fayetteville. This is especially clear since the founding Interlocal
Cooperation Agreement was expressly mâde contingent upon approval of the
Fayetteville voters to tax themselves to finance the 'Walton Arts Center.

"This agreement shall only be effective if the electors

of the City of Fayetteville approve a plan for financing
the City's share of funding for the construction of the
Center for the Ans ...." Afticle VI of the,lnterlocal
Cooperation Agreement.

The Interlocal Agreement expressly required the Arts Center would "be
located in Fayetteville, Arkansas." (Article III, Construction Of The Center For
The Arts). It was obviously the citizens of Fayetteville who voluntarily taxed
themselves to build the Walton Arts Center and its adjoining large parking lot and
to fund half the endowment fund to be managed by the other non-profit corporation
created by the Interlocal cooperation Agreement. This non-profit corporation was
narned the "University of Arkansas/City of Fayetteville Arts Foundation, Inc."'and
was instructed to "establish an endowment and pay over a portion or all of the
income to the Arts Center Council for the operation, management and maintenance
of the Center for the Arts." (Article 1)

As was earlier noted, the agreement required thé "Center for the Arts to be
located in Fayetteville, Arkansas." (Article III) The duties placed upon both non-
profit corporations to operate and maintain the Center for the Arts to be located in
Fayetteville within this initial Interlocal Cooperation Agreement prohibits those
corporations from attempting to remove the Ar,ts Center from Fayetteville'or to'use
any of the endowment in an outside the city location without the express and
explicit approval of such action by both the University of Arkansas and the City of
Fayetteville through amending the Agreement and Articles of Incorporation.
 Beçause the construction and financing of the Walton Arts Center was only
possible after an authorizing vote of the citizens of Fayetteville to tax thgmselv.es
ior this project, the City:Council might actually lack the powel t9 aglee to'the
moving of the Arts Center away f,rom Fayetteville whigh. would be clntrary_ to
citizeni'previous electoral decision.. I certainly wôutd advise the City^Coungil.to
respect the Fayetteville citizens' decision in the late"80's and ,not to frustrate the
,l"*mandateioIocateandmaintain'theArtsCenterinFayetteville.

I might also call your attention to the 25 year lease^enter.l t1rto on J3luaV
18, 1gg4 between the University of Arkansas and City ôf Fayetteville.t'for as
owners/lessors and the Walton Arts Center Council, Inc. to r1¡ejþ, property
the purpose of operatirig an arts center or related activity ....1t This: leas-e's initial
periãd runs untii March 30, 2017, and will automatically renew for anothèr 25
y.urr until terminatçd by either party. The lease period still has almost tgn- yels
left to run. This long lease certainly shows that the intent of not only the
University and the City, but also the Walton,Arts Center Council was that thç
Walfon Arts Center would be operated at its Dickson Street location in
Fayettçville for at least 25 years and probably 50 years.

The Fo-urth Amendment To The Articles Of Incorporation of the Walton

Arts Center Council, Inc. not only places the duty upon the coryoration in Article
Three- to "çonstruct, operate, manage and maintain the Walton Arts Center as agent
for the University of Arkansas and the City of Fayetteville,!' (b) but in the next
subsection it states that "the Walton Arts Center to be located in.Fayettevill'e,
Arkansas',..." (c) (emphasis added)

Thus, it is crystal clear that the continuing intent of all agreements, leases,
articles of incoþoration and citizen votes was to rnaintain the Walton Arts Center
in Fayetteiiltr tô be managed by the City's agent, the Walton Arts Center Council,
Inc.

The Articles of Incorporation give the University of Arkansas an{ the City
of Fayetteville "the right to rernove any member appointed by it, at any time, with
or withor¡t cause.il {Eighth Article, subsection (b)} The Ninth Article,states:

l,,Thi,
corporation shall have no, memb-ers. The University
ofArkansasandtheCityo'fFayettevilleac1ingthrough
their respective governing bodies, shall have and exercise
the ríghts to select, appoint and remove directors of the
corporation . . .."
 I
believe the City of Fayetteville is well satisfied at the .remarkable success
of thê Walton Arts Center. Its creation and efficient operation and management
have played a significant role in revitalizing Dickson Street and ensuring it remains
the entertainment and fine arts heart of.Northwest Arkansas. The City has been
huppy to work with the senior management of the Walton Arts Center ihroughout
its development and stands ready to assist in further long range planning to ensure
Fayetteville's Walton Arts Center continues its healthy growth and beneficiäl
impact on our community.

We thank you and all the rest of the volunteer Board of Directors for your
vital work, your farsighted vision and your determînatiqn to rnaintain and even
improve the rüalton Arts Center. Your efforts and those of the earlier,directors
have helped to establish Fayetteville's Arts and Entertainment District, anchored by
the Walton Arts Center, as a vibrant and welcoming location for all of Northwest
Arkansas

With kindest regards,

KIT WILLIAMS
Fayetteville City Attorney

KW/jh

cc Mayor Coody
 KIT WILLIAMS
FAYETTEVILLE CITY ATTORNEY
DAVID I. WHITAKER
Assistant City Attorney
Judy Housley
Office Manager
THE CITY OF FAYETTEVILLE, ARKANSAS

Phone (479) 575-831.3 113 W. Mountain, Suite 302

FAX (479) 57s-8315 Fayetteville, AR 727 01,-6083

January 8,2008

Honorable Scott Yarady

Associate General Counsel By FAX:
University of Arkansas 575-5046
Fayetteville, AR 72101

Dear Scott:

Attached is the letter I provided to Curt Rom after he inquired about

the duties and responsibilities of the members of the Board of Directors of
the Walton Arts Center Council, Inc.

With kindest regards,

KIT WILLIAMS
Fayetteville City Attorney

Kw/jh
Enclosure
 KIT WILLIAMS
FAYETTEVILLE CITY ATTORNEY
DAVID I. WHITAKER
Assistant City Attorney
Judy Housley
Office Manager
THE CITY OF FAYETTEVILLE, ABKANSAS
Phone (479) 575-8313
1.1.3 W. Mountain, Suite 302
FAX (479) s7s-8315
Fayetteville, AR 727 0l -6083

May 13,2008

Honorable Tameron C. Bishop

Davis, türight, Clark, Butt & Carithers By FAX:
P.O. Box 1688 52t-7661
Fayetteville, AR 7 27 02-l 688

RE: Walton Arts Center Council Council, Inc.

Dear Tameron:

Enclosed is a copy of the letter I sent to Professor Curt Rom pursuant

to his question about duties and responsibilities. Please let me know if you
have any different take on the duty the Walton Arts Center Council, Inc.
board members owe to the City and University.

With kindest regards,

KIT WILLIAMS
Fayetteville City Attorney

KVi/jh

Attachment
 THE WALTON ARTS CENTER'S CORPORATE BOARDS
MUST NOT DAMAGE FAYETTEVILLE'S INTERESTS

Despite knowing for at least 2 Vz years that the Fayetteville City Attorney,s
clear legal opinion was that attempting to construct a new principal peiforming ãttt
center outside of Fayetteville would violate the V/alton Arts Center's fiduciary
duty to Fayetteville, the Walton Arts Center leadership has continued to pursue out
of Fayetteville expansion options that would damage Fayetteville's interests.

Although I do not represent the V/alton Arts Center Council, Inc. or the
Walton Arts Center Foundation, Inc., the Board Members of those corporations
need to clearly understand their fiduciary duties to the City of Fayetteville before
casting any votes that could violate those duties. They should know that the
Fayetteville Aldermen and Mayors have long publicly stated that they would do
everything possible to keep the main performing arts center located in Fayetteville.
That is why Fayetteville and the University worked long and hard to present a joint
and feasible plan to keep the main performing arts center here in Fayetteville.
Rejection of this proposal presented by the owners of the 'Walton Arts Center and
the incorporators of both the Walton Arts Center Council and Foundation by their
own agents who then agree to move the main performing arts center out of
Fayetteville could bring personal liability for any Board Mãmbers of those two
Corporations who vote for such action as a breach of their fiduciary duties to
Fayetteville and the University.

The use of any assets of the Walton Arts Center Council or Foundation to
help build or operate a performing arts center outside Fayetteville would violate
the fiduciary duty of any board member voting for such use of funds. In discussing
the relationship of the Walton Arts Center Council, Inc. with the City oÍ
Fayetteville, Arkansas Attorney General Dustin McDaniel described the Counðil as
"an entity whose sole function ... would be to serve the City's interests as reflected
in the interlocal agreement." Arkansas Attomey General Opinion No. 2009-1g3,
page 10.

"The cardinal principle of all agency is good faith. In

accepting the office of depositary, appellant became the agent
of both buyer and seller. This created a relation of confidence
the depositary could not thereafter violate nor pervert to his
own advantage or the detriment of either principal." collins v.
Heítmon, 225 Ark. 666, 284 S.W. 2d 628, 633 (1955)
(emphasis added)
 The Walton Arts Center Foundation, Inc. was initially funded by the
University and by the citizens of Fayetteville who invested $1.5 million taxpayer
dollars into the Foundation to help ensure operational solvency for the V/altotr artt
Center. The Article of Incorporation also expressly make the V/alton Arts Center
Foundation, Inc. Qike the V/alton Arts Center Council, Inc.) the express agent of
the City and University.

"It is well settled that an agent is a fiduciary and respect to the

matters within the scope of his agency. The very relation
implies that the principal has reposed some trust or confidence
in the agent. Therefore, the agent or employee is bound to the
exercise of the utmost good faith and loyalty toward his
principal or employer. He is duty bound not to act adversely
to the interest of his employer by serving or acquiring any
private interest of his own in antagonism or opposition thereto.
His duty is to act solely for the benefit of the principal in
all matters connected with his agency. This is a rule of
common sense and honesty as well as of law. (I)t is the
duty of the agent to further his principal's interests even at the
expense of his own in matters connected with the agency."
Yahraus v. continental oil company,2lg Ark. g72,239 s.w.
2d 594, 596 (1951) (quoting from 2 American Jurísprudence
5252) (emphasis added)

The City of Fayetteville and the University of Arkansas by presenting their

joint proposal have clearly expressed their interest to keep the principal performing
arts center in Fayetteville. The Walton Arts Center's two corporate boards havé
the duty as our agents to further the City's and University's "interests even at the
expense of (their) own . ..." Id.

"An agent is liable to his principal for negligence in the

handling of the principal's business entrusted to him, or for an
omission or neglect to perform a duty on his part with
reference thereto, if the principal suffers a loss by reason
thereof." United State Fire Insurance Co. v. Montgomery,256
Ark. 1047,511 S.W. 2d 659,663 (1974)