Massachusetts developer Fred Fahey is suing Oberlin College and several other non-profits for allegedly violating the state’s anti-usury law. Fahey accuses the defendants of backing loans that charged illegally high interest rates and is seeking compensation for the $20 million in net profits he believes he was denied as a result.

The cause of the suit is two loans, together worth $10 million, that were taken out by Fahey’s Meadow Creek Limited Liability Company to finance a 186-home community golf course project in 2001 and 2002. The loans were provided through an agreement between Fahey and the real estate investment firm Realty Finance Partners. Oberlin and its fellow non-profit defendants are investors and limited partners in RFP.

In addition to Oberlin College, the lawsuit names the University of Notre Dame, Spelman College, Carnegie Corporation, the John D. and Catherine T. MacArthur Foundation in Chicago and Yale, Harvard and Princeton universities.

Under Massachusetts’s law lenders cannot charge more than 20 percent interest without filing bi-yearly notices with the Attorney General. A complaint filed by Fred Fahey and his attorney in Massachusetts Suffolk Superior Court states, “RFP knew it was impossible for Fahey to earn any profit on the project with interest accruing at 21% compounding monthly” and consequently “destroyed or injured” Fahey’s “right to receive the benefits of his investment in the project.”

Fahey told the Yale Daily News that the loans’ high interest rates ruined his company, forcing him to lay off all of his 22 employees.

In a telephone interview, Fahey said he had filed suit against the colleges “because they are the ones that provided the money. Before they sent their money to the entity, RFP5, they were advised of where the money was going and were provided with what the interest rate was going to be.”

Unsurprisingly, the suit’s defendants rebuffed Fahey’s accusations. In a statement to Bloomberg News, Joshua Mintz, general counsel for the MacArthur Foundation and a defendant in the suit, said there was no basis for including the foundation in the case.

“The suit, filed by Fred Fahey, the original developer of the Meadow Creek residential subdivision and golf course, is absolutely without merit and we are confident that we will prevail in court,” said Realty Financial Partners in a statement.

Realty Financial Partners maintains that the partnership filed all the appropriate paperwork with the Massachusetts Attorney General’s Office and so none of its loans could be considered usurious.

In addition to rejecting Fahey’s claims, RFP decried the press coverage surrounding the suit for sensationalizing the issue. RFP singled out Bloomberg news service, which reported on this story last week for implying that the firm and its partners were being accused of acting as a “loan-shark.”

Courts are hesitant to hold limited partners, like the non-profit defendants in this case, liable out of fear of discouraging investment, according to Georgia State University College of Law Professor Mark Budnitz, who was quoted in the Bloomberg piece.

As a result of the ongoing legal action, Oberlin College has declined to comment specifically on RFP case. “I cannot comment on pending litigation,” said Oberlin College’s Vice President of Finance Ron Watts in a statement to the Review.

“Regarding the College’s investments, we are working to be as fiscally transparent as possible. As is the case with many individual investors, however, some of our funds are invested in limited partnerships. We are not involved with their day-to-day actions and decisions. Our investments are reviewed on a regular basis to make sure they are in keeping with Oberlin’s values,” said Watts.

Oberlin College currently has an endowment of $695 million, according to a 2006 National Association of College and University Business Officers. The same study reported that Oberlin’s endowment is the 89th largest of the schools listed, having grown by nine percent over the previous year.