Gone to Texas

Pretty much the only thing I remember about bankruptcy law is that 19th century financial documents would sometimes include the marginal notation GTT, which stood for Gone To Texas, land of generous homestead exemptions and difficult process serving.  This useful piece of information came to mind when I read (h/t Taxprof) about Texas A&M's decision to buy Texas Wesleyan's law school, which shall henceforth be known as the Texas A&M School of Law at Texas Wesleyan University.

Financial details: TAMU is paying TWU $20 million, and in return is getting the school as an ongoing concern.  TWU, however, will retain ownership of the building in which the school is housed, along with the four blocks of land in Fort Worth on which it's situated, which TAMU will lease.

Needless to say this transaction was announced with the help of a Texas-sized hailstorm of business jargon, celebrating the various proactive dynamic synergies this union is intended to produce.

Why is TAMU buying a law school, and why is TWU selling theirs? Obviously because both parties think that the price is right -- and that price is quite low.  $20 million is less than TAMUOLATWU is charging its JD students per year, at least in nominal tuition.  In short TWU -- a quite small (just 1,483 undergraduates) institution -- is dumping what it now considers a fiscally unsound and/or too risky operation, while retaining the operation's most valuable assets (real estate and fixtures).

Meanwhile TAMU, a huge university, thinks it can leverage its institutional capital (these cliches are habit-forming) in a way that will allow it to buy on the cheap what has become a financially dubious enterprise  and turn it into a money maker.

Clearly, Texas Wesleyan is selling at this price because its law school must be having significant financial problems.  TWU's tuition is among the cheapest of any private law school ($30K for this coming academic year), but even at this "bargain" price it's apparently having trouble filling its class.  Here we may be seeing the beneficial effects of improved transparency.  A prospective student who visits the school's web site will find no employment statistics of any kind, but thanks to the work of Law School Transparency and others it's now possible to examine the school's placement data beyond the phony "employed at nine months" number advertised in the USNWR rankings.

What that data show are the following facts for the 223 members of the class of 2011:

(1) Five graduates got jobs with law firms of more than ten attorneys.

(2) Nearly 10% of the class listed themselves as solo practitioners.

(3) The school produced zero federal or state judicial clerks.

(4)  No graduate got a public interest job (including public defender positions).

(5) Nearly 30% of the class was either unemployed or had an unknown employment status.

Basically, almost nobody got a job, if a job is defined as "an acceptable employment outcome given the cost of attendance."  (That cost is north of $160K if debt financed).

From a public-regarding standpoint, there is no conceivable reason why this law school shouldn't be shut down at once -- a judgment which apparently enough prospective law students now share that they've put the enterprise's future in serious jeopardy.

TAMU has chosen to swoop down on this mess for who knows what reason exactly, although I suspect the decision is a product of equal parts willful ignorance about the current employment market for lawyers and unwarranted optimism about its future.  After all the federal student loan gravy train is still running, tomorrow is another day, and the Aggies are in the SEC now, so anything is possible. 

It will be interesting to see if TAMU's administration decides to sink significant resources into trying to patch the Titanic's hull, or whether instead it expends minimal capital on its bargain basement acquisition and simply closes up shop in a few years if and when it discovers that its new cash cow should have been turned into all-beef patties.

In any case I expect we'll see more of these sorts of deals in the near future, as desperate law schools look for various white knights -- even if most of the latter end up looking a lot more like T. Boone Pickens than Sir Lancelot.