Urge to merge: Difficult times for law schools have prompted several to attempt to be acquired by other schools
Law school enrollment has decreased significantly since the Great Recession, as have many law schools’ reputations. Fewer graduates are passing the bar, and for the past two years, less than 70% of new lawyers were hired for full-time, long-term jobs that require bar passage after graduation—jobs that, at one point, had been the minimum expectation for newly minted JDs.
In the past three years, seven law schools announced plans to partner, gift or sell themselves to universities—all but begging the question: Why would anyone want them?
The answer comes down to net tuition revenue, which matters more than academic reputation, says Ken Redd, the senior director of research and policy analysis at the National Association of College and University Business Officers.
According to him, a private institution with net tuition that grows 3% or more annually is generally seen as desirable.
“It’s about trying to make as much money as possible for healthy institutions. If there was some scandal that made the news, you might see some hesitation. But if it’s just something garden variety, like ABA probation, [universities] do not care about that,” Redd says.
Also, while there are approximately 235 law schools, there are only 203 accredited by the ABA.
“It remains a quality brand,” says Barry Currier, the ABA’s managing director of accreditation and legal education. “Law schools used to be a so-called cash cow for universities. I’m not sure that was really true, but at least they broke even or slightly better. Now law schools are having to be subsidized by their universities, and that makes them less attractive than they might have been.”
In some cases, these proposed mergers were actually bailouts designed to rescue failing schools. Not all, however, are failing schools.
Approximately two years ago, Florida Coastal School of Law, one of three for-profit law schools operated by the InfiLaw System, announced that it was looking for a nonprofit partner. Around the same time, the law school was given a “zone” rating by the U.S. Department of Education, which means that it was close to not meeting gainful employment standards, and must pass the gainful employment standard in one of the next four years to stay in good standing.
In February 2019, the law school filed an application to switch to nonprofit status with the ABA’s Section of Legal Education and Admissions to the Bar. Scott DeVito, the law school’s dean, says that if the plan is executed, the next step would be to become affiliated with a nonprofit university.
Only two proposed mergers have been approved so far. A deal between Michigan State University College of Law (an independent entity) and Michigan State University remains pending, while the University of Illinois at Chicago’s acquisition of John Marshall Law School, a stand-alone school, is nearing completion.
A fellow InfiLaw school, Arizona Summit Law School, had tried in 2017 to affiliate itself with Bethune-Cookman University, only to announce it would shut its doors the following year. Meanwhile, Valparaiso University Law School and Whittier Law School both decided to close after mergers were either rejected or failed to materialize; and Western State College of Law at Argosy University, currently in receivership, filed a teach-out plan (which closing schools take to ensure students complete study programs) that was approved by the ABA in May. The ABA also approved an alternative option for Western whereby it would be acquired by an unnamed university.
20 Years Later
It’s not the first attempted pairing between UIC and John Marshall. The two schools announced a merger plan in 1998, and one of the main sticking points was the law school did not want to lose control of its real estate, says UIC political science professor Dick Simpson.
Nearly two decades later, the two schools revisited the matter. This time, John Marshall decided to gift itself and its downtown real estate to UIC, and in July 2018, the schools announced the deal, with John Marshall being rebranded as the UIC John Marshall Law School. The transaction, which has been approved by both schools and was greenlighted by the Section of Legal Education and Admissions to the Bar in November, is expected to be completed in August, with the first students arriving at the newly branded school in the fall.
Adding a law school is good for UIC’s ambition to be seen as a major university, and get it out of the shadow of University of Illinois at Urbana-Champaign, which also has a law school, says Kent Redfield, an emeritus political science professor at the University of Illinois at Springfield. It also plays well politically.
Chicago has six law schools, but UIC John Marshall will be the only public one. It’s estimated that full-time tuition for the 2019-2020 school year will decrease from approximately $47,000 to $36,000 for in-state residents.
“You’re talking about diversity, access and public education. That resonates in Chicago and Cook County,” says Redfield, whose work focuses on Illinois campaign finance and political ethics.
Also, being the city’s only public law school could draw more applicants, which could lead to increasing the law school’s median LSAT score, which is 149, according to its Standard 509 Information Report for 2018, and its median undergraduate grade-point average, which is 3.18. Drawing from a deeper pool of applicants could also boost the school’s outcomes. In 2018, 236 John Marshall graduates sat for the Illinois bar, and the pass rate was 62.29%, according to ABA data. For graduates of ABA-accredited law schools, the Illinois bar pass rate that year was 76.23%. John Marshall’s ultimate bar passage rate, going back to the class of 2016, is 89.27%. In terms of employment outcomes, for the class of 2018, 55.11% had long-term, full-time jobs that require bar passage. The national average was 68.4%.
Darby Dickerson, the law school’s dean, hopes that the deal will help John Marshall break into U.S. News & World Report’s top 100 schools in the next five years.
The move could also help boost John Marshall’s bottom line. Susan Poser, a former law school dean, joined UIC in 2016 as its provost and vice chancellor for academic affairs. The proposed deal was already in discussions, and she was tasked with examining finances with a member of the law school’s board of trustees.
According to tax returns, John Marshall’s 2016 tax return showed a total of $46,866,930 in revenue and $48,850,794 in expenses. The same return shows that the law school’s 2015 total revenue was $49,259,759, and its expenses were $49,748,609.
Despite that, Poser points out that John Marshall had some important assets, most notably its four pieces of real estate, appraised at $33 million.
“I had to make sure that we had some confidence that this transaction could be done without utilizing funds at UIC. If I had to go to the deans and tell them that I would be taking money from their colleges to take in the law school, I knew the deal would be dead in the water,” she explains.
For the past three years, the school has had total enrollment of approximately 900 students, according to 509 reports. Dickerson anticipates the deal will boost total enrollment at the law school—eventually landing somewhere between 1,200 and 1,300 students, including the non-JD programs.
“We would have had a bright future remaining independent. Would there have been challenges? Sure—there always are. But we would have continued to train outstanding lawyers and leaders,” she says.
Not all deals go so smoothly. In October 2018, Middle Tennessee State University reached an agreement to acquire Indiana’s Valparaiso University Law School. Under the proposal, the law school infrastructure would have been gifted to the Tennessee school, and beginning in the fall of 2019 would operate in both states, with MTSU offering reimbursement to Valparaiso for interim expenses. The Tennessee Higher Education Commission, in an 8-5 vote, rejected the proposal the same month it was announced.
After that, the law school filed a teach-out plan with the council of the Section of Legal Education and Admissions to the Bar. It was approved in February and calls for accreditation to run until the end of 2020.
Unlike the John Marshall/UIC agreement, this deal would have been more of a rescue operation. In 2016, Valpo Law received a public censure from the ABA for being out of compliance with admissions standards. It came back into compliance in November 2017, but its first-year class only had 28 students. That same month, Valparaiso University’s board of directors announced that the law school would not be admitting an entering class for the 2018-2019 school year.
In 2018, the law school had a total of 103 students, according to its 509 report. The same year, its Indiana bar passage rate was 40%, ABA data shows. For graduates of ABA-approved law schools, the Indiana bar passage rate in 2018 was 73.25%.
Tennessee has six law schools, five of which are ABA-accredited, including two public law schools. It’s a fiscally conservative state, and many of its politically connected lawyers graduated from Knoxville’s University of Tennessee College of Law, a public school, says Michelle D. Deardorff, head of the political science department at the University of Tennessee at Chattanooga.
Junior college in Tennessee is free, and by 2020 there will be scholarships for UT undergraduates whose families earn less than $50,000 annually.
“The state wants to have a good investment for students, and quality was not in Valparaiso’s favor. It’s not like they were trying to bring in a really strong program that was known for being accessible,” Deardorff says.
George T. Lewis, a Baker Donelson litigation partner in Memphis, is a University of Tennessee law school graduate who opposed MTSU taking in Valparaiso University Law School. According to him, his alma mater and the state’s other public law school at the University of Memphis both have the capacity to take more law students who are qualified.
“The one reason I was a strong objector was that we didn’t need it. I see really fine students, in the top third of their class, who have trouble finding jobs. And if you were going to bring in another law school, why not bring in a strong law school?” says Lewis, a former Tennessee Bar Association president.
Neither MTSU nor Valparaiso Law School would comment on the matter. Before the proposal was nixed by the state’s higher education commission, the Murfreesboro Post reported that MTSU saw adding the law school as something that would greatly benefit its students, who wanted affordable, accredited legal education in central Tennessee.
“What happens to the working-class kids who don’t get into law school at Knoxville, and don’t want to go into debt at private law schools in Nashville?” Deardorff asks. “The concern about accessibility in the center of the state is a fair one.”
So is access to justice, says Kellye Testy, the executive director and president of the Law School Admission Council.
“A lot of people misunderstand legal education, and think that everyone goes to law school to become a big firm lawyer. You need to educate people about the difference that a law school can make in a community,” she says.
When a law school closes, Testy adds, residents lose a fair amount of community service work. And if there are two law schools in a region that compete for the same students, she says, a merger might make sense.
“Say there’s another law school 20 miles away that’s not doing so good. Mine is doing OK, but we could use a few more students. I can take all the administration out of that law school, and bring the students over to my law school. And it would eliminate some of the competition,” says Marjorie Kaufman, a managing director with Getzler Henrich & Associates. The consulting group does middle market corporate turnaround and restructuring.
Another proposed agreement that ultimately died involved the for-profit Arizona Summit Law School and Florida-based Bethune-Cookman University, one of the nation’s historically black colleges and universities. Announced in 2017 as an affiliation agreement, with plans for early Arizona Summit admission through a Bethune-Cookman prelaw program, both the law school and university presidents said it would be great for diversity. A press release stated that 40% of Arizona’s population were people of color but comprised only 8% of the state’s lawyers.
For 2017, the law school’s first-time bar passage rate was 26.53%, according to ABA data. The proposal was announced in March of that year, and a few weeks later, the ABA placed Arizona Summit on probation for being out of compliance with various accreditation standards.
“This was a train wreck waiting to happen,” says D’Andra Orey, a political science professor at Jackson State University, a Mississippi HBCU. “Some law schools prey on people of color. I can only speak for what I’ve seen in the black community, but with those types of law schools, I can see them preying on HBCUs in the same context.”
Arizona Summit was ultimately unsuccessful in being removed from probation by the ABA, and in November 2018 a teach-out plan was approved with a closure date for the end of spring 2020. Bethune-Cookman has had problems as well. President Edison O. Jackson stepped down and was sued by the university in January 2018, based on allegations that millions of dollars in improper payments were made with developers for a new dorm building. It was originally estimated to cost $72.1 million, but by 2018 was expected to cost $306 million over 40 years, the Daytona Beach News Journal reported. The lawsuit remains ongoing.
A spokesperson for Bethune-Cookman declined an ABA Journal interview request. C. Peter Goplerud III, Arizona Summit’s interim president, also declined comment.
Like Valparaiso University and Arizona Summit, California’s Whittier College tried and failed to find a school that would take on its law school. Whittier’s board of trustees announced in April 2017 that it would eventually close. (See “Closing Time” on ABAJournal.com.)
Rich Ruben, a retired litigation partner from Jones Day, chaired a committee the college’s board formed in 2015 to focus on improving law student outcomes. Whittier College graduates were doing well, Ruben says, but the law school’s first-time pass rate for the July 2015 California bar exam was only 38%. “Selling or merging was our sole focus, after we reached the decision that we had to take some action. We reached out to everyone we could think of and used a consultant to give us leads,” he says.
Whittier College in January 2016 sold the Costa Mesa property where the law school is located. One proposal, which ultimately could not be worked out, had the buyer taking on the property and the law school, Ruben says.
The law school had a total of 128 students in 2016, according to the 509 report for that year. Its 2017 first-time bar passage rate was 35.25%, according to ABA data. At the time, Orange County, where Whittier Law School is located, had three other ABA-accredited law schools.
When the closure was announced in 2017, Whittier Law School faculty sought a Los Angeles County Superior Court temporary restraining order to stop it. The motion was denied in April 2017, and the ABA later approved a teach-out plan.
Meanwhile, Florida Coastal School of Law is looking for a nonprofit partner for a merger or a change in ownership. It is the only InfiLaw school that remains open and is not operating under a teach-out plan, and it recently filed a major change application with the ABA to become a nonprofit law school.
DeVito says becoming a nonprofit law school will make Florida Coastal more attractive to potential partners.
“What I’ve tried to do is identify what we think is in the students’ best interest, and the students have said that they would like the school to be part of a larger institution,” says DeVito, whose law school in October 2017 received public notice that it was out of compliance with ABA accreditation standards involving program objectives, academic advising and admissions policy. The ABA legal education section’s council in June announced it was removing “specific remedial actions” imposed on the law school because it demonstrated compliance with the standards in question.
On its 509 report, Florida Coastal reported that it has a total of 207 students. For 2018, the law school’s Florida bar passage rate was 63.36%, according to ABA data. For graduates of ABA-accredited law schools, the overall 2018 pass rate for the Florida bar was 65.15%. Out of 186 members in Florida Coastal’s class of 2018, 50.54% had full-time, long-term jobs that require bar passage.
DeVito first announced that he was interested in making some sort of agreement with a nonprofit university in January 2017, and he says the idea has been discussed internally since 2015.
“We would like our partner to be somewhere in the Southeast, that’s our goal,” he said. “We’re hoping to have between 400 to 500 students when everything settles down.”
Another school further along in the process is Michigan State University College of Law, which despite its name is a private, stand-alone school that is working toward a merger with the state university of the same name. The two schools have been affiliated since 1995; however, the law school is a separate legal entity and on its own fiscally, says Dean Lawrence Ponoroff.
Under the proposed merger, the law school would no longer be private and would move completely under Michigan State University’s umbrella. The deal, which was approved by faculty and boards of trustees at both schools, isn’t expected to close before 2020, according to Ponoroff. “The difficult financial issues that law schools and legal education has faced certainly plays a factor into why we are doing this now, but it’s not the only reason,” says Ponoroff, citing interdisciplinary programs and research as well. Administrative costs for things such as legal counsel and auditors are also issues at a free-standing law school.
The law school had a total of 710 students in 2018, compared to 784 students in 2017. Its Michigan bar passage rate for 2018 was 84.21%, according to ABA data. For graduates of ABA-approved law schools, the Michigan bar passage rate that year was 73.91%. Out of 255 members of the class of 2018, 67.45% had full-time, long-term jobs that require bar passage.
For the 2018 entering class, Ponoroff says that the school purposely admitted fewer students because he thinks that will help the law school with job placements.
According to the law school’s 2016 tax return, its total revenue was $38,374,887, and its total expenses were $40,115,786. An endowment will come with the law school if it merges with MSU. The law school also owns a building in downtown Lansing that is currently for sale. Annual tuition at MSU Law is $44,000 for full-time students. Once it joins Michigan State University, which is public, Ponoroff expects law school tuition to go down for in-state students.
If the deal doesn’t go through, Ponoroff has concerns. “Not in the sense that we would close our doors, but it would mean abandoning a lot of our strategic planning in terms of student and faculty quality,” he says. “I think the bottom line is that unless things change dramatically, it would have been a far less interesting law school—and a far less attractive place to be—for students and faculty.”
Three years ago Robert Zemsky, a professor at the University of Pennsylvania and a member of the board of trustees at Whittier College, predicted that if law school enrollment continued to decrease, 10 to 15 schools might close. His study, “Mapping a Contracting Market,” analyzed 171 law schools and found that between 2011 and 2015, enrollment dropped by 21% at private law schools and 18% at public law schools.
Between 2017 and 2018, there was a 1.2% increase in law students overall, according to ABA data. Nevertheless, Zemsky says that for the most part, it still doesn’t make much sense to acquire a law school.
“If you’ve got a fairly good stand-alone school, where the flagship doesn’t have a law school, that could be likely. But I don’t think anybody is looking for that, because it’s a loss leader of an extraordinary nature,” says Zemsky, adding that stand-alone law schools are in the most danger: They don’t have a university to absorb costs.
Likewise, he doesn’t see law schools that are part of universities closing or being sold off.
“Even though law schools are expensive, they’re small. So at a big public university, they can cover the losses for a long time. It’s easier to cut costs where you can, hold your breath and soldier on.”