Community Enterprise Clinic
By Frances Presma/Photos: Don Hamerman
Community Enterprise Clinic Involves Students in Cutting-Edge Transactions
Merrill Hoopengardner ’04 practices community development law with Nixon Peabody in Washington, D.C., working in a practice group that specializes in tax credit syndication. Many of her clients are investors in federal tax credit programs intended to spark development of low-income housing, rehabilitate historic areas and structures, or raise capital to make investments in low-income communities. She also assists clients in applying for allocations of tax credit authority from those programs, with a particular focus on the New Markets Tax Credits (NMTC) program.
The legal services we provide are a reflection of what our clients are doing. Non-profits are becoming more entrepreneurial. As they start to do business differently, new legal challenges arise.
- Andrew Foster
Hoopengardner credits the experience she got as a student in Duke’s Community Enterprise Clinic with allowing her to hit the ground running in practice. Having first studied community development law as a 2L in Clinical Professor Andrew Foster’s class on the subject, she spent her entire third year in the Clinic working with clients, under Foster’s supervision, many of whom were non-profits involved as end users of the tax credit programs in which she now specializes.
“It gave me the opportunity to develop extremely relevant skills and a leg up that I couldn’t have gotten anywhere else,” Hoopengardner says, noting that at her firm she has been given significant amounts of responsibility and client contact, and has had the opportunity to speak on NMTC issues at several national conferences.
Her specialty has also given her a sense of the true value of students’ work to clients. A non-profit seeking an allocation of funds through the NMTC program, she explains, must assemble a detailed application–often in excess of 100 pages–that includes development of a business plan for the use of the funds, an analysis of the community impact of the allocation, and a lengthy discussion of the management capacity of the organization, and the capacity of the organization to raise private capital.
“It’s an intricate application process, involving a lot of time on the part of a lot of people, not to mention a highly competitive one,” notes Hoopengardner, adding that
consultants and law firms typically charge between $50,000 and $100,000 for related work, a price many organizations simply can’t afford.
That’s why Hoopengardner was delighted to partner with the Community Enterprise Clinic in helping one of its clients, the North Carolina Community Development Initiative Capital, Inc.
(“Initiative Capital”), a non-profit lender, apply for a $40 million allocation from the NMTC program with a view to investing in poor communities throughout the South. Dividing the
work between the Clinic and the firm was a win-win situation for everyone concerned, she says.
“The client got the benefit of big firm representation, and the student involved, Lauren DeSantis [’06], got exposure to the bigger policy issues and things we were coming across working on 20 or 30 applications at the same time. She did the ground level work, got a lot of client contact, and helped them gather the information they needed to put in the application. We were able to address broader questions of strategy and offer advice on how the information should be presented in the application.”
DeSantis was thrilled with the experience, which included drafting numerous spreadsheets relating to Initiative Capital’s performance and prospects, resolutions, operating agreements, and tables, as well as analysis of census tract data. “It was extremely challenging,” she says, noting that her Clinic experience helped her secure a position at Polsinelli, Shalton, Welte & Suelthaus in Washington, D.C., where she will be working on commercial and real estate transactions for non-profit corporations. “I had a chance to experience what lawyers active in community development finance do on a daily basis.”
Entrepreneurial Clients, Evolving Practice
Having a clinical focus on transactional community development work is itself quite unique among elite law schools, says Hoopengardner. She commends Foster for attracting a particularly complex range of work to the Clinic; many clients are undertaking ambitious initiatives that allow students to build skills that they can take into any corporate practice, well beyond the standard fare that other transactional law school clinics offer, such as tax filings and drafting of articles of incorporation.
“The legal services we provide are a reflection of what our clients are doing, and many non-profits have diversified,” says Foster. “Non-profits are becoming more entrepreneurial, in part because sources of funding are drying up, and in other respects in an attempt to make their work more effective. As they start to do business differently, new legal challenges arise.” Students are being called on to analyze whether new social enterprises are outside the specific and defined charitable purposes that might threaten an organization’s 501c3 tax exemption, set up subsidiary companies, or spot potential conflicts of interest within the organizational structure. On an ongoing basis, notes Foster, the clinic takes on the role of outside general counsel to its clients’ complex and evolving projects.
This has been very much the role the Clinic has assumed with a Winston-Salem community development corporation, Goler CDC, in its attempt to revitalize an inner city neighborhood into a diverse, multi-age, multi-ethnic community. With various real estate projects, multiple investors, and joint ventures involving various subsidiaries, Goler CDC found itself using a number of North Carolina attorneys and firms on its projects, says Executive Director Evon Smith.
“Attorneys in firms usually specialize in specific areas. Sometimes our work requires a broad range of knowledge– it’s not just a real estate deal or an issue of organizational development that we’re dealing with. We may need contracts to forge partnerships and relationships that are separate from just a straight real estate deal. We can end up paying for little pockets of legal services from attorneys who may never talk to one another or understand how everything needs to be integrated for the benefit of our organization.
The Community Enterprise Clinic understands the integration. They make sure the legal advice is not given in a vacuum without somebody there to analyze the overall impact of the information. The Clinic brings everyone to the table to talk about how this is going to benefit the organization overall. That minimizes our fees significantly.
New Opportunities in Advocacy Initiatives
The Clinic is also increasing its involvement in economic justice advocacy work, says Foster, helping non-profits do shareholder proposals for financial services companies, both to help eliminate predatory lending and promote diversity in mainstream lending. This work is supported in part by a two-year grant from the Racial Justice Collaborative, shared between the Clinic and a client, the Community Reinvestment Association of North Carolina (CRANC).
“This is a sophisticated advocacy strategy for facilitating social change that is possible in part due to the legal assistance we get from the Community Enterprise Clinic,” says CRANC Executive Director Peter Skillern.
“Nationally there are just a handful of lawyers who work with non-profits on shareholder resolutions, and their fees are prohibitive,” notes Skillern, who uses the Clinic on an ongoing basis on corporate governance matters, legislative advocacy initiatives, and some legal issues related to its novel “telenovela” initiative, production of a Spanish-language soap opera that weaves consumer education into entertainment. “One of the great strengths of the Community Enterprise Clinic is that it enables community groups to access lawyers without the barriers of economics and politics. And the students are smart, always thinking outside the box on business.”
John Wroldsen ’06 worked with Skillern during the fall semester on a shareholder initiative allowing CRANC to object to the merger of one bank with another that engaged in predatory lending. Wroldsen also did the securities work for a start-up Raleigh investment fund seeking to buy and rehabilitate undervalued properties in underserved communities for rental to mainstream retailers. He feels certain the experience will serve him well when he enters a transactional practice at Rothberger, Johnson and Lyons in Denver following graduation.
“In addition to learning how to write the documents required to facilitate transactions, I was able to learn the process by which corporate decisions are made and had a chance to take charge of a project from beginning to end–working through all the details, communicating with the client on a personal level, and dealing with varied legal issues.”
The Clinic was recently awarded a $100,000, two-year grant from the Z. Smith Reynolds Foundation to provide a variety of legal services to innovative non-profit organizations working to stimulate economic activity in low-wealth communities in North Carolina. This project may diversify its work further, specifically allowing it to identify and address the structural barriers in federal or state tax law that hinder the efforts of enterprising non-profits to address critical community issues, says Foster.
“We hope to identify a series of organizations, like CRANC, that are really at the forefront of the movement of social enterprise in community economic development, to help them understand the current rules of the game, and ensure that they are complying with those rules. At the same time, we will also work with them to identify where the rules create barriers that make it harder to effectively do the work they need to do, and from that, develop and advocate for public policy solutions,” says Foster, offering by way of example the possible need for specific guidance from the Internal Revenue Service for community development organizations that are doing economic development work, including, potentially, the creation of a new class of exempt organizations.
“At the end of this process, I hope there is a lot more clarity, and that it is much easier for community development organizations to be entrepreneurial and understand how the legal rules create opportunities to be successful, as opposed to limiting their potential.”