Gallagher & Kennedy proudly congratulates its client, Grand Canyon University (GCU), on its recent win before the Ninth Circuit in its quest to affirm its nonprofit status. G&K litigation attorneys Kevin O’Malley and Hannah Porter served as local co-counsel alongside Steve Gombos and David Obuchowicz of Virginia-based Gombos Leyton, a leading D.C.-area higher-ed law firm.
On November 8, 2024, the three-judge panel found unanimously that the U.S. Department of Education used the wrong legal standard in 2019 when it challenged GCU’s nonprofit status, which also prohibited GCU from marketing itself as a nonprofit.
GCU was founded in 1949 as a nonprofit institution and converted to a for-profit in 2004 to resolve financial difficulties. GCU thrived for over a decade, but, for a variety of reasons, sought to return to its roots and reorganized as a nonprofit corporation in 2018. The State of Arizona, the IRS, and the Higher Learning Commission approved the change, but the Department of Education refused to recognize GCU’s status as a nonprofit, arguing that the university’s earnings would still benefit its former for-profit owner.
G&K corporate transactional attorneys Tim Brown and Terry Thompson participated in negotiations to find an amicable resolution with the Department of Education that would have avoided the necessity of the litigation. The parties could not agree, and in 2021, GCU filed suit under the Administrative Procedure Act to challenge the Department of Education’s 2019 decision.
In its November 8 decision, the Court of Appeals found that the Department of Education failed to apply the correct legal standard—the Higher Education Act’s requirements for qualifying nonprofit institutions—and instead applied restrictive IRS regulations that focus on whether GCU’s primary activities and revenue streams primarily benefited private interests. The Court of Appeals remanded the case back to District Court to apply the correct standard under the Higher Education Act—the traditional private inurement test—which the IRS has already approved, and the Department of Education has not argued was an issue in its decision against GCU.
GCU and G&K celebrate the ruling and hope that GCU’s nonprofit status will soon be recognized officially.
Recent Media Mentions
- Ninth Circuit rules 3-0 in Grand Canyon University's favor over nonprofit decision – GCU News
- GCU gets favorable court ruling in long battle with DOE over nonprofit status – KTARNEWS 92.3FM
- Grand Canyon University one step closer to nonprofit recognition – ABC15 Phoenix
- Federal appeals court rules Education Department wrongly denied Christian school's nonprofit status – Washington Times
- Ninth Circuit approval of nonprofit status and imminent change in administration brighten legal prospects for GCU – State Affairs
- Christian University Wins Appeal in Fight for Nonprofit Status – The Epoch Times
- Federal court rules in favor of GCU's nonprofit status – Arizona Republic
- 9th US Circuit Court of Appeals rules in favor of GCU's nonprofit status – Arizona Republic
- Grand Canyon University one step closer to nonprofit recognition – Phoenix Business Journal
- 9th Circ. Says Univ. Wrongly Deprived Of Tax-Exempt Status – Law360
- Court rules in favor of Grand Canyon University in fight over nonprofit status – KJZZ 91.5 Phoenix
- Appeals court rules in favor of GCU in Phoenix in dispute over nonprofit status – Azfamily.com / 3TV
- U.S. Erred in Denying Grand Canyon Nonprofit Status, Appeals Court Rules – Inside Higher Ed
- University Wins Appeal of Government Denying Nonprofit Status – Bloomberg News
- Education Department wrongly denied Grand Canyon University's nonprofit status, appeals court rules – PoliticoPro
- Ninth Circuit vacates nonprofit denial for Christian university in Arizona – Courthouse News Service
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