Thursday, March 4, 2010

Is there a private inurement, excess benefit or private benefit issue when a for-profit buys a non-profit college's assets, including its accreditation?

I ran across an interesting issue today when I learned that ITT Educational Services, Inc. recently purchased Daniel Webster College for 20.8 million.  According to this report:

In return, the company obtained an academic credential [accredittion] that may generate a taxpayer-funded bonanza worth as much as $1 billion.  ITT Educational, the third-biggest higher education company in the United States, with a market value of $3.8 billion, may increase it by 26 percent, or $1 billion, within five years because of the purchase of 1,200-student Daniel Webster in Nashua, N.H., according to Michael Clifford, an investor in Del Mar, Calif., who has participated in the acquisitions of four nonprofit colleges.

If the investor is correct -- that the corporation paid $20.8 million for an asset worth $1 billion -- what then should be said about the charity's obligation to get fair market value for its assets?  Probably not private inurement or excess benefit because of the "first bite" rule.  Is this an actionable case of private benefit?

dkj

 

http://lawprofessors.typepad.com/nonprofit/2010/03/is-there-a-private-inurement-excess-benefit-or-private-benefit-issue-when-a-forprofit-buys-a-nonprof.html

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Comments

Wait a minute here. There's a logic leap here that left me behind. As I read it, ITT bought an asset that, because they bought it (and only because they bought it), MAY be worth more in the future. I wouldn't think fair market value could be based on the potential value of an asset to the buyer, unless there were other offers.

Also, I don't see how the report jumps to "taxpayer funded" either. Didn't the taxpayers get the $20.8 million (I'm asking here)? I don't understand where the private inurement happens.

Posted by: Rob Bryan | Mar 6, 2010 8:35:16 AM

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