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AB-1342 Nonprofit corporations: private postsecondary educational institutions: sale of assets: Attorney General approval. (2019-2020)



Current Version: 02/22/19 - Introduced        


AB1342:v99#DOCUMENT

Revised  April 10, 2019

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Assembly Bill No. 1342


Introduced by Assembly Members Low, Bauer-Kahan, Berman, Chiu, Eggman, and McCarty
(Coauthor: Assembly Member Gloria)

February 22, 2019


An act to add Article 3 (commencing with Section 5940) to Chapter 9 of Part 2 of Division 2 of Title 1 of the Corporations Code, relating to nonprofit corporations, and making an appropriation therefor.


LEGISLATIVE COUNSEL'S DIGEST


AB 1342, as introduced, Low. Nonprofit corporations: private postsecondary educational institutions: sale of assets: Attorney General approval.
Existing law, the Nonprofit Public Benefit Corporation Law, establishes the requirements for the formation and operation of a nonprofit public benefit corporation and provides that a corporation is subject at all times to examination by the Attorney General. Existing law generally requires a corporation to give written notice to the Attorney General before it sells, leases, conveys, exchanges, transfers, or disposes of its assets, except as specified. Existing law provides specific procedures for health facilities and additionally requires these facilities to obtain the consent of the Attorney General prior to entering into a specified agreement or transaction.
This bill would require a nonprofit corporation that operates or controls a private postsecondary educational institution to obtain the Attorney General’s consent before entering into certain agreements or transactions, including an agreement or transaction to sell or convey its assets to, or to transfer control, responsibility, or governance of a material amount of its assets to, a for-profit corporation or mutual benefit corporation. The bill would require the Attorney General to consider specified factors in consenting to, giving conditional consent to, or not consenting to, the agreement or transaction, and would authorize the Attorney General to contract with experts, consultants, and state agencies, including the Bureau for Postsecondary Education, to receive advice in reviewing the agreement or transactions that are subject to the above-specified provisions. The bill would authorize the Attorney General, as a condition of approving the agreement or transaction, to transfer assets from the proceeds of the sale or transaction to the Student Tuition Recovery Fund, a continuously appropriated fund. By authorizing the deposit of additional moneys into a continuously appropriated fund, the bill would make an appropriation.
Vote: MAJORITY   Appropriation: YES   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Article 3 (commencing with Section 5940) is added to Chapter 9 of Part 2 of Division 2 of Title 1 of the Corporations Code, to read:
Article  3. Private Postsecondary Educational Institutions

5940.
 (a) (1) Any nonprofit corporation that is defined in Section 5046 and operates or controls a private postsecondary educational institution, as defined in Section 94858 of the Education Code, shall be required to provide written notice to, and to obtain the written consent of, the Attorney General before entering into any agreement or transaction to do either of the following:
(A) Sell, transfer, lease, exchange, option, convey, or otherwise dispose of its assets to a for-profit corporation or entity or to a mutual benefit corporation or entity when a material amount of the assets of the nonprofit corporation are involved in the agreement or transaction.
(B) Transfer control, responsibility, or governance of a material amount of the assets or operations of the nonprofit corporation to any for-profit corporation or entity or to any mutual benefit corporation or entity.
(2) The substitution of a new corporate member or members that transfers the control of, responsibility for, or governance of the nonprofit corporation shall be deemed a transfer for purposes of this article. The substitution of one or more members of the governing body, or any arrangement, written or oral, that would transfer voting control of the members of the governing body, shall also be deemed a transfer for purposes of this article.
(b) The notice to the Attorney General provided for in this section shall include and contain the information the Attorney General determines is required. The notice, including any other information provided to the Attorney General under this article and that is in the public file, shall be made available by the Attorney General to the public in written form as soon as is practicable after it is received by the Attorney General.
(c) The notice to the Attorney General provided for in this section shall also be provided to the Bureau for Private Postsecondary Education.
(d) This section shall not apply to a nonprofit corporation if the agreement or transaction is in the usual and regular course of its activities or if the Attorney General has given the corporation a written waiver of this section as to the proposed agreement or transaction.
(e) This section shall apply to any foreign nonprofit corporation that operates or controls a private postsecondary educational institution or an institution that provides similar educational services, regardless of whether it is currently operating or providing educational services.

5941.
 Within 90 days of the receipt of the written notice required by Section 5940, the Attorney General shall notify the public benefit corporation in writing of the decision to consent to, give conditional consent to, or not consent to the agreement or transaction. The Attorney General may extend this period for one additional 45-day period if any of the following conditions are satisfied:
(a) The extension is necessary to obtain information pursuant to subdivision (a) of Section 5944.
(b) The proposed agreement or transaction is substantially modified after the first public meeting conducted by the Attorney General in accordance with Section 5942.
(c) The proposed agreement or transaction involves a private postsecondary educational institution with a multifacility system of campuses serving multiple communities, rather than a single campus.

5942.
 Before issuing any written decision referred to in Section 5941, or giving a written waiver under Section 5940, the Attorney General shall conduct one or more public meetings, one of which shall be in the county in which the private postsecondary educational institution is located, to hear comments from interested parties. At least 14 days before conducting the public meeting, the Attorney General shall provide written notice of the time and place of the meeting through publication in one or more newspapers of general circulation in the affected community and to the board of supervisors of the county in which the private postsecondary educational institution is located. If a substantive change in the proposed agreement or transaction is submitted to the Attorney General after the initial public meeting, the Attorney General may conduct an additional public meeting to hear comments from interested parties with respect to that change.

5943.
 The Attorney General shall have discretion to consent to, give conditional consent to, or not consent to any agreement or transaction described in subdivision (a) of Section 5940. In making the determination, the Attorney General shall consider any factors that the Attorney General deems relevant, including, but not limited to, whether any of the following factors apply:
(a) The terms and conditions of the agreement or transaction are fair and reasonable to the nonprofit corporation.
(b) The agreement or transaction will result in inurement to any private person or entity.
(c) Any agreement or transaction that is subject to this article is at fair market value. In this regard, “fair market value” means the most likely price that the assets being sold would bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently, knowledgeably, and in their own best interest, and a reasonable time being allowed for exposure in the open market.
(d) The market value has been manipulated by the actions of the parties in a manner that causes the value of the assets to decrease.
(e) The proposed use of the proceeds from the agreement or transaction is consistent with the charitable trust on which the assets are held by the educational institution.
(f) The agreement or transaction involves or constitutes any breach of trust.
(g) The Attorney General has been provided, pursuant to Section 5250, with sufficient information and data by the nonprofit corporation to evaluate adequately the agreement or transaction or the effects thereof on the public.
(h) The agreement or transaction may create a significant effect on the availability or accessibility of educational services to the affected community.
(i) The proposed agreement or transaction is in the public interest.

5944.
 (a) Within the time periods designated in Section 5941 and relating to those factors specified in Section 5943, the Attorney General may do the following:
(1) Contract with, consult, and receive advice from any state agency on those terms and conditions that the Attorney General deems appropriate, including the Bureau for Private Postsecondary Education.
(2) In the Attorney General’s discretion, contract with experts or consultants to assist in reviewing the proposed agreement or transaction.
(b) Contract costs shall not exceed an amount that is reasonable and necessary to conduct the review and evaluation. Any contract entered into under this section shall be on a noncompetitive bid basis and shall be exempt from Chapter 2 (commencing with Section 10290) of Part 2 of Division 2 of the Public Contract Code. The selling nonprofit corporation, upon request, shall pay the Attorney General promptly for all contract costs.
(c) The Attorney General shall be entitled to reimbursement for all actual and reasonable direct costs incurred in reviewing, evaluating, and making the determination referred to in Section 5941, including administrative costs. The selling nonprofit corporation shall promptly pay the Attorney General, upon request, for all of those costs.
(d) (1) In order to effectively monitor ongoing compliance with the terms and conditions of any sale or transfer of assets subject to Section 5940, including, but not limited to, the ongoing use of the charitable assets in a manner consistent with the trust pursuant to which they are held, the Attorney General may, in their sole discretion, contract with experts and consultants to assist in this regard.
(2) Contract costs shall not exceed an amount that is reasonable and necessary to conduct the review and evaluation. Any contract entered into under this section shall be on a noncompetitive bid basis and shall be exempt from Chapter 2 (commencing with Section 10290) of Part 2 of Division 2 of the Public Contract Code. The selling nonprofit corporation shall pay the Attorney General promptly for all contract costs.
(3) The Attorney General shall be entitled to reimbursement from either the selling or the acquiring nonprofit corporation, depending upon which one the burden of compliance falls, for all actual, reasonable, and direct costs incurred in monitoring ongoing compliance with the terms and conditions of the sale or transfer of assets, including contract and administrative costs. The Attorney General shall be entitled to this reimbursement for a period of time not to exceed two years after any time period specified in the terms or conditions of sale or transfer of assets. The Attorney General may bill either the selling or the acquiring corporation and the corporation billed by the Attorney General shall promptly pay for all of those costs.

5945.
 The Attorney General may adopt regulations to implement this article.

5946.
 The Attorney General may enforce conditions imposed on the Attorney General’s consent to an agreement or transaction pursuant to Section 5940 to the fullest extent provided by law. In addition to any legal remedies the Attorney General may have, the Attorney General shall be entitled to specific performance, injunctive relief, and other equitable remedies a court deems appropriate for breach of any of the conditions and shall be entitled to recover its attorney’s fees and costs incurred in remedying each violation.

5947.
 The conditions imposed on the Attorney General’s consent to an agreement or transaction pursuant to Section 5940 may include, but are not limited to:
(a) A transfer of assets from the proceeds of the sale or transfer to the Student Tuition Recovery Fund, established in Section 94923 of the Education Code.
(b) A requirement that the corporation file a surety bond to provide recovery to students who were enrolled at the private postsecondary educational institution upon subsequent closure of the institution.
(c) Any conditions deemed by the Attorney General to be necessary to ensure that access to certain educational courses or vocational instruction intended to be promoted by the charitable trust is not substantially and unreasonably impeded.

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REVISIONS:
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