ATLANTA (June 23, 2005) – The Supreme Court of Georgia has ruled that the board of a religiously sponsored college may not reorganize itself through dissolution to avoid a charter provision that grants a sponsoring religious organization the power to choose the college's trustees. Sutherland Asbill & Brennan LLP represented six college trustees that voted against dissolution in the case, and who (along with the Georgia Baptist Convention) successfully challenged the dissolution in court.
The state supreme court rejected an attempt by the board of trustees of Shorter College to dissolve the college and form a new foundation that would run the school absent a 1959 charter amendment that gave the Georgia Baptist Convention the exclusive authority to name the school's board of trustees. The case is Shorter College et. al. v. Baptist Convention of Georgia et al., SO4G1291 (Decided May 23, 2005).
The decision is significant for colleges that are affiliated with religious institutions. There have been numerous legal challenges around the country by trustees of educational institutions to split from sponsoring religious groups, and there are few reported court decisions concerning the legality of such efforts. The case is the first time Georgia's high court has addressed an attempted dissolution by a college to avoid the control of a sponsoring organization.
The board's attempt to dissolve the college and transfer all its assets to a foundation that would run the school was not a valid dissolution under the Georgia Nonprofit Corporation Code, the court concluded. "It constituted an unauthorized effort on the part of the Board to reorganize the College so as to operate the school as before, but with a new set of trustees," the Supreme Court stated.
The Georgia Baptist Convention and Shorter College have historically collaborated in the selection of trustees to the college's board. The current controversy was precipitated in 2001, when the Southern Association of Colleges and Schools (allegedly) threatened the accreditation of Shorter College because the Georgia Baptist Convention exercised too much control over the trustees. The convention and the dissenting trustees argued that the allegations of interference by the convention were unfounded.
Thereafter, the Georgia Baptist Convention objected to several candidates to the board proposed by the college, and sought to name two trustees without prior approval from the school. The old board of the school responded by voting to dissolve the college, and transfer its assets to a foundation that would run the school. The foundation's directors would not be subject to approval or removal by the Convention, effectively divesting it of its authority to name trustees.
However, the attempted dissolution was not a valid dissolution of a nonprofit corporation under state law, the high court concluded, upholding a similar ruling by the Georgia Court of Appeals. "As a matter of law, any dissolving corporation, whether or not for-profit, must wind up and liquidate 'its business and affairs,' " the court stated, citing the state nonprofit code (sic).
Under the law, a nonprofit corporation is authorized to distribute its assets to another corporation engaged in activities "substantially similar" (sic) to those of the dissolving corporation, the court noted.
But the court differentiated the "substantially similar" standard to this case, in which the board attempted to transfer the college's assets to an organization "incorporated for the express purpose of carrying precisely the same activities formerly pursued by the corporation which the Board sought to dissolve."
A valid "dissolution" under state law, which contemplates the winding up and liquidation of a corporation, "would accomplish a more definite and rapid end to the school's existence than the threatened loss of its accreditation," the court stated. The only option for the board is to accede to the Georgia Baptist Convention's authority to name trustees, the court concluded.
The six members of the Shorter College Board who voted against dissolution were represented by Sutherland's Richard L. Robbins, a partner in the firm's Atlanta office, and Valerie Strong Sanders, an associate in the same office. Sutherland's James K. Hasson, one of the nation's leading experts on non-profit organizations, advised.
Sutherland Asbill & Brennan LLP is a national law firm known for solving challenging problems and resolving unique legal issues for many of the nation's leading business and nonprofit entities. Founded in 1924, the firm has grown to more than 425 lawyers with offices in Atlanta, Austin, Houston, New York, Tallahassee and Washington. For further information about the firm, please visit sutherland.com.