Court Decides Against Harvard

Harvard inappropriately transferred a $15 million stake in a Canadian window shade company to a private equity firm run by former Harvard endowment managers, a federal appeals court ruled in an opinion released Monday.

The court upheld a previous decision declaring that Harvard violated its agreement with Montreal-based Blinds to Go when it sold the stake to a non-Harvard affiliate without first giving the window shade company the chance to buy back the shares on terms “not less favorable.” Harvard had signed an agreement granting Blinds to Go right of first refusal.

The decision means Harvard will have to reclaim holdings in a company it thought it had gotten rid of four years ago—when it sold the shares to Charlesbank Equity Fund.

Harvard spokesman John D. Longbrake defended the University’s conduct in the matter.

“This case in part involves the interpretation of a technical term in a contract,” Longbrake wrote in an e-mail. The technicality centered on whether Charlesbank, which has financial ties to Harvard, is by definition a Harvard affiliate.

In 1995, Harvard Private Capital Holdings, a nonprofit corporation controlled by the University, acquired shares worth $15 million in Blinds to Go, which operates over 100 stores in North America.

According to court documents, a 1997 shareholder agreement signed by the two parties granted Blinds to Go the right to buy back Harvard’s shares if Harvard tried to sell them to a non-Harvard affiliate.

In 2001, Harvard transferred its stake to Charlesbank—a for-profit private equity firm founded by former employees of the Harvard Management Company—under the assumption that it was an affiliate of the University.

Shortly after gaining control of the stake, Charlesbank attempted to invoke a clause in the original purchase agreement to force Blinds to Go to buy back its shares at a price based on a previously agreed upon formula.

But Blinds to Go used the formula and estimated the value of the shares to be much lower than what Charlesbank had expected to receive. That prompted the firm to sue the Canadian company, accusing it of intentionally undervaluing the holdings.

Blinds to Go then accused Harvard of improperly transferring its stake to Charlesbank, saying the fund was not a Harvard affiliate.

Reaffirming a lower court’s ruling, appeals judge Bruce M. Selya ’55, also a Harvard Law School graduate, wrote that Charlesbank was, in fact, not a Harvard affiliate.

Selya invoked a famous line from Shakespeare’s Romeo and Juliet to reflect on the difficulty of defining affiliate and non-affiliate.

“What’s in a name? That which we call a rose by any other name would smell as sweet,” he quoted.

The court also ruled that Charlesbank does not have to sell the shares back at a price based on Blinds to Go’s estimate.

“The court’s overall findings have made it clear that Harvard Management Company is fundamentally able to realize on its investment the way it set out to do,” Longbrake wrote in his e-mail.

—Nicholas M. Ciarelli contributed to the reporting of this story.

—Staff Writer Cyrus M. Mossavar-Rahmani can be reached at crahmani@fas.harvard.edu.