Footing the Bill

The news (and this blog) is abuzz with the implications of nonprofits becoming for-profit entities. But what about the reverse?

In what is sure to be a sign of things to come in higher education (and indeed what I plan to write about later this week), a stand-alone, for-profit podiatry college—the New York College Podiatric Medicine (NYCPM)—did just that: it transferred its assets to a nonprofit university, Touro University. And its assets, which included real property holdings for its campus in Manhattan, were fairly substantial.

Here’s the catch. Touro agreed to assume NYCPM’s liabilities. This means that Touro is now on the hook for the bills associated with NYCPM’s operation, which may also be fairly substantial but were not described in the court’s opinion.

What makes this case interesting is that the New York Supreme Court was tasked with the oversight of this agreement under New York statute, but the statutes on point contemplate a scenario where the buyer is a for-profit entity and the seller is a nonprofit. Here, we have the opposite. It appears that these statutes were designed to require court oversight of such transactions to prevent the imprudent transfer of assets from a nonprofit to a for-profit entity. But the court was satisfied that the transfer did not raise this typical concern. It blessed the petition, allowing the merger to go forward.

In reality, running a stand-alone college—especially a niche, for-profit one—may become increasingly unsustainable, given projected enrollment declines in college-going students. It makes sense, then, that effective mergers like these will let the universities assuming smaller colleges to expand their operations while keeping the lights on a little longer at the colleges that merge with larger universities. Whether these mergers ultimately redound to the benefit of both parties, however, is something that can only be told in time.

Christopher J. Ryan, Jr.

Indiana University Maurer School of Law