Charitable Asset Sales - General Information and Review Process
The Attorney General protects charitable assets in Michigan under broad common law and statutory authority. This authority extends over the merger or sale of charitable nonprofit corporations. This page gives an overview of the Attorney General's authority in this area. It also links to the Attorney General's Review Process and to information on current and past reviews. The Review Process is a good starting point for attorneys that are contemplating the sale of charitable assets.
A. Legal Authority
Michigan law - both common and statutory - authorizes the Attorney General to protect charitable assets within the state. The sale or conversion of nonprofit entities to for-profit ones creates a risk that charitable assets will be diverted for private benefit. See Michigan Nonprofit Corporation Act, MCL 450.2301 (prohibiting the use of charitable assets for non-charitable purposes). Because of the risk to charitable assets, the Charitable Trust Section currently reviews these transactions.
Some of the largest and most significant nonprofit assets sales involve hospitals. Although Michigan law does not give the Attorney General a specific role in overseeing nonprofit hospital sales, the Attorney General oversees these sales using his broad authority to protect charitable interests within the state. See, e.g., Supervision of Trustees for Charitable Purposes Act, MCL 14.251 et seq.
B. Attorney General Precedent for Review
Former Attorney General Frank Kelley first invoked the Attorney General's authority over threatened charitable hospital assets in 1996, challenging the attempted acquisition of the nonprofit Michigan Capital Medical Center by a for-profit joint venture of Columbia Health System. When the parties failed to adequately respond and continued towards a sale, the Attorney General filed a complaint in Ingham County Circuit Court to block the sale. Ultimately, the court blocked the sale, granting Summary Judgment for the Attorney General, ruling that the charitable assets could not be used to generate profits for Columbia.
Against this backdrop, in 2010, nonprofit Detroit Medical Center (DMC) and for-profit Vanguard Health Services sought Attorney General Mike Cox's review of DMC's proposed sale to Vanguard. Moreover, as part of the purchase agreement, the parties required the Attorney General's approval as a condition precedent to the sale. The Attorney General's review was extensive. The Charitable Trust Section led the months-long review and collaborated with other Department attorneys, including the Chief Deputy. The review considered many matters, including reasons for the sale, financial data, and public commentary. The Attorney General also required buyer Vanguard to fund two experts to independently review and value the transaction. Ultimately, the Attorney General issued a lengthy report detailing the review process and conditionally approving the sale.