The Charleston School of Law is very close to achieving its long-term goal of becoming a nonprofit organization. But it first needs to resolve a dispute with the city of Charleston to finally get there.
The school recently filed a lawsuit against the city of Charleston for breach of contract. It says the city agreed to let it sell its building in return for 25% of the purchase price. The law school plans to use its portion of the sale proceeds to become a nonprofit entity.
The school, which is located in downtown Charleston, S.C., was founded by a group of local attorneys and judges in 2004 as a private, for-profit entity. It earned American Bar Association accreditation in 2011, but quickly fell into financial trouble when applications started to drop nationwide that same year.
The owners tried to sell to InfiLaw, a company which, at that time, owned three other for-profit law schools. But that was met with protest and concern, as InfiLaw’s practices were highly criticized at that time. InfiLaw has since closed two of the three law schools and the third is in the process of winding down.
Enter Ed Bell. The local attorney acquired the struggling law school in 2015 and quickly announced he would take it to non-profit status.
“We need non-profit status to make the school truly work,” Bell said in 2017. “The idea of taking a profit or putting money back into the school is a real conflict, and we need to take that conflict out of the equation.”
Within two years the school had made a remarkable turnaround. By making a series of tough choices, the law school improved its financial standing and attracted more students.
That same year, the school made a deal with the City of Charleston that would allow it to sell a lot north of the law school in return for 25% of the proceeds and the original sale price of $875,000.
The law school had purchased the land from the city in 2005 and received a below market rate in return for agreeing to build a new law building on the site. Bell negotiated a modification to the agreement in 2017 so the school could sell the land. But the city never removed the “reverter clause,” which reverts the property back to the city in case of a sale. One year later, the law school entered into a contract to sell the property to OmShera Hotel Group, LLC—a hotel operator—for $12.85 million. The city would receive more than $4 million of the sale proceeds.
The lawsuit states that the city has already been paid in full for the lot and has received part of the proceeds of the sale to OmShera. But some council members believe the city should have negotiated a better deal.
“Everyone wins if the sale of this lot goes forward,” Bell said. “The city will gain millions to cover its budget shortfall this coming year which will assist in funding affordable housing. Residents will benefit from the development of Meeting Street, jobs and tax revenues will be added, and the Law School will be able to move forward with its plans to convert to a nonprofit. This is a straightforward legal matter. The City agreed to this transaction years ago. Its failure to complete its portion of the deal is a textbook case of breach of contract.”
One council member, however, has said that the law school is the party that has not lived up to the agreement, and that the city plans to defend itself.
