Is Sweet Briar College Complying with Virginia Law?

On April 15, 2015, a circuit court judge in the town of Bedford, VA refused to block the Sweet Briar College board’s plan to shut down the school at the end of August. But he did issue a 60-day injunction that orders the college not to spend any charitable contribution dollars on the closure process. Of course, financial people always say that "funds are fungible"—meaning that it is difficult, if not impossible, to determine what funds are being used for which purpose. Making that determination is not a fight that anyone but the lawyers will win. The real question is whether there are any funds at all at Sweet Briar that can be used to close the college.

The judge's ruling is according to the Virginia charitable solicitation law, which indicates that when a donor makes a donation and specifies the donation's purpose, that money cannot be used for another purpose. The Save Sweet Briar people have alleged that the college has solicited a number of donations, some even after the plan for closure was hatched, that are being used or going to be used to pay the expenses of the closing process, and are therefore not going to be used for the purposes intended by the donors. 

In some cases, the donors made specific gifts for specific purposes, while in other situations, donors responded to a college solicitation for general funds for running the school. While the administration may think of those latter funds as totally unrestricted, the reality is that all donations to a charity are restricted to the institution’s charitable mission. Since closing the college and ceasing operation as an educational institution is not Sweet Briar’s charitable mission, I would conclude that all of the donations to the college are off limits to closing expenses, regardless of the judge’s 60-day injunction.

The Sweet Briar attorney stipulated in court that the college “solicited funds right up until the decision was made to close the school.” Presumably, none of these funds may be used for closing expenses, including the professional fees of the attorney who appeared at this hearing.

The college is trying to argue that closing expenses are the same as any operating expense and that all funds available for general operations should be available for closing expenses. This would mean that any funds donated for general operations are available for closing expenses, and only those funds specified by the donor for a specific operating expensee.g. library booksare off limits.

This will be an interesting case. I believe that all funds contributed to the college are for the college’s mission, which is stated as follows on the college’s web site:

Sweet Briar College empowers and educates young women to build and reshape their world however their passions lead them.

Sweet Briar College prepares women (and at the graduate level, men as well) to be productive, responsible members of a world community. It focuses on personal and professional achievement through a customized educational program that combines the liberal arts, preparation for careers, and individual development. The faculty and staff guide students to become active learners, to reason clearly, to speak and write persuasively, and to lead with integrity. They do so by creating an educational environment that is both intense and supportive and where learning occurs in many different venues, including the classroom, the community, and the world.

- Approved by the Board of Directors, May 2004

Nothing in the mission addresses closing. Nothing indicates that the education will continue only as long as it is financially possible to continue. As I asked above, are there any funds available to pay closing expenses?

It appears to me that the Sweet Briar board is talking about closing the college when it should be merely dissolving the corporation. When a nonprofit completely runs out of money and has no assets, the question of closing the operation or dissolving the corporation is irrelevantthey are essentially almost the same. But in Sweet Briar’s case, it is very different.

Dissolving a nonprofit charitable corporation is a matter of law. The Virginia Nonstock Corporation Act governs the dissolution of nonprofit corporations in the state. In addition, the organization’s articles of incorporation and bylaws are also likely to address the contingencies of a dissolution. Although I do not know what these documents contain in the case of Sweet Briar College, one basic requirement that I am sure is present in these documents is the IRS requirement that, upon dissolution, all assets of the corporation will be given to another charitable, tax-exempt entity with a mission as closely related to the Sweet Briar mission as possible. It would have been impossible for Sweet Briar College to obtain tax-exempt status from the IRS without this provision in its organizing documents.

Therefore, I believe that a majority of Sweet Briar’s board should first approve a dissolution motion. Since the Sweet Briar attorney in court indicated that the college “solicited funds right up until the decision was made to close the school,” it appears that this vote has already taken place. 

Next, Virginia law requires that the college prepare articles of dissolution, and provides a form for such, which is available at the State Corporation Commission website. In the dissolution form, the corporation must issue a statement that it has divested itself of all assets in accordance with section 13.1-912 D of the Code of Virginia. This section of the Virginia law indicates that “all assets of the dissolving corporation must be transferred or otherwise conveyed to another entity engaged in activities substantially similar to those of the dissolving corporation.” Essentially, this is the same as the IRS requirement for charitable, tax-exempt entities like Sweet Briar College.

I would first ask what it is that the Sweet Briar Board intends to do with the college’s assets. It would appear to me that the Sweet Briar board, right after it votes to dissolve, should be looking for a tax-exempt charitable entity that engages in activities substantially similar to that of Sweet Briarsounds to me like another college. If that is the case, then there is little closing that the Sweet Briar board has to do. What happens to the Sweet Briar assets will be the responsibility of the entity to which they have been conveyed. As a matter of fact, doing anything to damage an operating entity before transferring the assets to another entity appears to me to be contrary to the public gooda responsibility of the state attorney general.

My reading of the law tells me that Virginia's attorney general does not need to review the closing of Sweet Briar College. Rather, he must review the dissolution of the Virginia nonstock charitable tax-exempt corporation under which Sweet Briar College operated. The AG’s job is to ensure that the Sweet Briar board, in its articles of dissolution, conveys the Sweet Briar assets to an appropriate entity.  Once that is done, the Sweet Briar board is out of the picture and the future of Sweet Briar College is in the hands of another board. This is exactly what the alumni and the Save Sweet Briar people want. Let’s not make more of this than necessary.