Some SC lawmakers trying to stop sale of Charleston School of Law

abeam@thestate.comFebruary 1, 2014 

— Some powerful S.C. lawmakers are trying to stop the sale of the Charleston School of Law to a Florida-based company to clear the way for it to merge with a state-supported school, a move that would give South Carolina two publicly funded law schools.

But other lawmakers say South Carolina already struggles to sustain the state’s 33 publicly funded colleges, universities and technical schools, adding the state should not interfere with private business transactions.

InfiLaw, which owns for-profit law schools in Phoenix, Jacksonville and Charlotte, has a contract to buy the Charleston School of Law from an attorney and two retired federal judges. But the state Commission on Higher Education – whose members are appointed by the governor upon the advice of state lawmakers – must grant InfiLaw a license to operate in South Carolina before the sale can go through.

“This is a private transaction between two entities, both of whom own and operate for-profit law schools,” said Kevin Hall, a Columbia attorney with strong ties to Republican political circles that InfiLaw has hired to help with the sale. “To me, it involves all the public interest of a Burger King transaction. But the politics and the desire for a second publicly funded law school has kicked in.”

State Reps. Leon Stavrinakis, Peter McCoy and Bobby Harrell – all from Charleston – have sent a letter to the Commission on Higher Education raising questions about the proposed deal, including InfiLaw’s debt. Harrell is the speaker of the House, and his son, Trey, is a 2011 graduate of the Charleston School of Law and a member of its alumni board.

In addition, state Rep. Stephen Goldfinch, R-Georgetown, publicly is pushing for the College of Charleston to acquire the Charleston School of Law. Goldfinch’s wife, Rene, is a College of Charleston trustee.

Charleston Mayor Joe Riley has become involved, sending a letter to a Higher Education commissioner urging that body to deny InfiLaw’s license so it can merge with the College of Charleston or some other public institution.

Stavrinakis and the other Charleston lawmakers point to public federal Securities and Exchange Commission documents to question InfiLaw’s finances. Those documents show Ares Capital, one of InfiLaw’s primary investors, relies on “junk bonds” – risky, high-interest bonds – to finance its operations. The lawmakers cite those same documents to say InfiLaw’s total debt is more than $300 million, carrying high interest rates – between 9.5 percent and 10.75 percent.

“That cannot possibly be a safe bet for South Carolina’s students,” Stavrinakis wrote in a letter to the Commission on Higher Education. “The law students at CSOL place their entire financial security at stake in many cases incurring over $100,000 in debt. An unstable school could cost them everything.”

But Hall says the lawmakers “fundamentally misunderstand higher education financing.” He says Ares’ investment in InfiLaw is a $131 million loan with a balance of $14.9 million “and a small line of credit that has never been used.” Hall says InfiLaw has assets of more than $141 million and a cash balance of $57.8 million, noting InfiLaw has other financial backers, including Chicago-based Sterling Partners.

Also, Hall says InfiLaw already has made arrangements to provide a surety bond that “guarantees that student tuition is never at risk.” He called questions about InfiLaw’s finances “complete utter nonsense.”

“He (Stavrinakis) thinks that InfiLaw owns and operates three (American Bar Association) accredited law schools and has less capital than ... Charleston?” Hall asked, rhetorically. “(Charleston) doesn’t have critical programs. They are low on technology. They don’t own any buildings. Why? Because they don’t have any capital.”

Harrell says his concerns extend beyond InfiLaw’s finances, however.

“They are a for-profit entity, which is fine – I am a Republican – but they are owned by a hedge fund, and it’s less about the lawyers that graduate and more about the bottom line,” Harrell said. “I’ve indicated to them and other people that will listen that I would rather the conversation be had with the College of Charleston or the USC Law School to have them, to make sure that we are keeping the educational focus where it needs to be at that school.”

Hall said InfiLaw would not increase the Charleston School of Law’s enrollment, keeping it around 250 students. And, he said, students at InfiLaw’s Charlotte law school graduate with average debt of $117,000 – $25,000 less than Charleston School of Law students, according to U.S. News and World Report.

“The trend in legal education is to prepare people to practice law ... where you have to go serve an apprenticeship, you actually get out, you serve a client,” Hall said. “InfiLaw is a national leader in clinical programs, having students work in the community ... that prepares students to serve clients in the real world. The Charleston School of Law currently has none.”

In an interview, Stavrinakis said he is not advocating for the Charleston School of Law to merge with a state-funded school, but he would not be opposed to that. But others, including Harrell, Riley and Goldfinch, say they do want the law school to merge with a public college. The “public purpose of the school, rather than the profit purpose of the school, would be better for South Carolina in the long run,” Harrell said.

Not everyone agrees.

“In my opinion, our state is best served by funding only one public law school and not by acquiring a second law school,” Rob Wilcox – dean of the USC law school, the only other S.C. law school – said in a statement last year.

USC’s opinion could weigh heavily in the debate. Now, USC has the only publicly supported law school in the state, and most of the attorneys in the Legislature graduated from USC law.

Outside of Charleston, state lawmakers are not keen on the idea of having two publicly funded law schools.

Senate Majority Leader Harvey Peeler, R-Charleston, chairman of the committee that screens candidates for college and university trustee boards, said the state has “nothing to do” with a private business transaction.

“I think that’s a nonstarter, especially after we spent all that money upgrading the law school at USC,” Peeler said, referring to the $10 million lawmakers that gave USC in the 2012-13 budget year.

State Sen. William O’Dell, R-Abbeville, said South Carolina is “doing all we can do with public education now.”

“If we are going to fund another law school, I don’t think I would want to support that,” he said.

John Finan, chairman of the Commission on Higher Education, said InfiLaw’s application has received more attention than usual. But, he added, he does not feel pressured to make a decision one way or the other.

“We’ve gotten letters with opinions and comments. But I don’t feel pressured,” he said. “No one has called me and told me, ‘You better do this or better do that.’ ”

The commission could decide on InfiLaw’s application by June.

Reach Beam at (803) 386-7038.

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