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Ninth Circuit Rules in Favor of Grand Canyon University Over Nonprofit Status

In a landmark decision, the Ninth Circuit Court of Appeals ruled unanimously in favor of Grand Canyon University (GCU), determining that the U.S. Department of Education (ED) unlawfully denied the university’s nonprofit status. This ruling, delivered on November 8, 2024, marks a significant victory for GCU, which has been embroiled in legal battles over its classification since it transitioned back to a nonprofit model in 2018.

Key Takeaways

  • The Ninth Circuit ruled 3-0 that the Department of Education applied the wrong legal standard in denying GCU’s nonprofit status.
  • GCU has been recognized as a nonprofit by several state and federal agencies, including the IRS.
  • The ruling remands the case back to the Department of Education to apply the correct legal standards under the Higher Education Act.

Background of the Case

Grand Canyon University, founded in 1949, operated as a nonprofit institution for most of its history. However, in 2004, the university faced financial difficulties and transitioned to a for-profit model. In 2018, GCU’s Board of Trustees decided to revert to its nonprofit status, a move that was approved by the IRS but rejected by the Department of Education.

The ED’s refusal was based on concerns regarding GCU’s ties to a publicly traded company, Grand Canyon Education, which provided various services to the university. Despite the IRS granting GCU 501(c)(3) tax-exempt status, the ED maintained its stance, leading to a series of legal challenges.

Court’s Findings

The Ninth Circuit found that the Department of Education exceeded its authority by applying an incorrect standard to assess GCU’s nonprofit status. The court emphasized that the ED should have utilized the traditional private inurement test, which allows nonprofits to engage in transactions with for-profit entities at fair market value.

Key points from the court’s ruling include:

  1. Exceeding Authority: The ED’s decision was deemed unprecedented and beyond its legal authority under the Higher Education Act.
  2. Private Inurement Test: The court highlighted that GCU’s operations met the criteria for nonprofit status, as there was no evidence of private inurement.
  3. Independent Valuations: Multiple independent studies confirmed that GCU pays fair market value for services, countering the ED’s claims.

Implications of the Ruling

This ruling is expected to have significant implications for GCU and its future operations. With the Ninth Circuit’s decision, GCU is hopeful that the Department of Education will act swiftly to recognize its nonprofit status, which is crucial for the university’s ability to pursue grants, research opportunities, and maintain its NCAA membership.

GCU’s spokesperson expressed optimism, stating, "Today’s decision is a long-awaited correction to the Department’s unlawful application of a standard that improperly denied GCU of its nonprofit status."

Future Prospects

As GCU continues to grow, with over 20,000 students on its Phoenix campus and more than 90,000 enrolled online, the university remains committed to providing affordable education rooted in Christian values. The ruling not only affirms GCU’s status but also reinforces the importance of checks and balances in the relationship between educational institutions and federal agencies.

In conclusion, the Ninth Circuit’s ruling is a pivotal moment for Grand Canyon University, potentially paving the way for a swift resolution to its nonprofit status and allowing the institution to focus on its mission of providing quality education to its diverse student body.

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