Closing a University

Today's Chronicle of Higher Education has the sobering story of Finlandia University, calling it "The College that Mortgaged Everything." It was actually worse than just mortgaging all of its real estate and buildings. It turned out that successive administrations had encumbered all of its assets multiple times, making the debts impossible to refinance or even untangle. Finlandia therefore shut down on short notice, informing faculty -- most of whom had elected to spread their nine-month salaries over twelve months -- that they were unlikely to receive payments for June, July, or August.

Of interest to lawyers is the notice that accompanied the bad news:

“While the University’s delayed payment may constitute a valid wage claim, if employees hire attorneys to pursue these claims it will only make the dissolution more expensive, leaving even fewer funds available to make employees whole,” he wrote. “Civil actions by employees could delay the payouts and reduce the total amount that the University can pay to employees. Please remember that even if various employees are able to obtain judgments ordering the University to pay further compensation, the cost of the litigation will have reduced the total amount of funds available to employees, and a judgment against an organization with no funds can’t be enforced.”

Is this a real-life prisoners' dilemma? Everyone is potentially better off without litigation (assuming the administration is being relatively straightforward), but the first actors, or their lawyers, might be better off immediately filing suit and pursuing a quick settlement while there is any money still in the bank. There are probably some bankruptcy and secured transactions complications that neither I nor the CHE reporter have considered.

The paywalled story is here.