YLS Clinic Represents City in Creation of New Community Foundation
The Jerome N. Frank Legal Services Organization's Housing and Community Development Clinic represented New Haven Mayor John DeStefano and the City of New Haven in negotiations with the New Haven Savings Bank, producing an innovative settlement that could lead to a new community-based bank in New Haven. New Haven Savings Bank, which was chartered in 1838, is in the midst of a plan to convert from a mutual bank, essentially owned by its depositors, to a public company and to buy two other Connecticut-based banks. But as part of the process, the bank has agreed to give $25 million to an independent foundation, as well as to commit $27.5 million to targeted lending programs in greater New Haven.
The clinic's involvement started in the summer of 2003, after DeStefano first heard that New Haven Savings Bank might demutualize. He strongly opposed this move, seeing it as a threat to locally-based and community-owned assets. As a public company, New Haven Savings Bank would be concerned with shareholders' interests rather than the community's and would be vulnerable to takeover by a national bank. DeStefano invited Robert Solomon, clinical professor of law and director of clinical studies, and Peggy Delinois Hamilton, Robert M. Cover Clinical Teaching Fellow and Selma M. Levine Community Development Fellow, to a meeting on the subject. The clinic began working with the mayor, drafting a strategy memo that became central to the planning to oppose the bank's maneuvers. The clinic subsequently was formally retained by the Mayor and the Board of Aldermen to represent the city.
The clinic, with the help of Cantwell F. Muckenfuss III '71 at Gibson, Dunn & Crutcher, LLP and Harvey Koizim '54, filed objections to the bank's conversion and merger plan with the Connecticut State Banking Commissioner, the FDIC, and the Federal Reserve Bank of Boston. And, according to Solomon, "We were committed to litigation, and we were committed to testing a question that has never been resolved in Connecticut, which is not only the rights of depositors in a mutual, but equally important to us, the right of a community in a mutual." Simultaneously, New Haven citizens and depositors in the bank voiced opposition to the plan. Hundreds of people showed up at each of two public hearings on the issue.
Mayor DeStefano, with the clinic's representation, reached a compromise with the bank in January 2004. DeStefano agreed to withdraw his complaints and not to oppose the bank's plan in court. Just as importantly, he committed to, in Solomon's words, "start the healing process" between the New Haven community and the bank.
The bank will contribute $25 million over the next several years to a new foundation, along with an additional $40 million to its own foundation. The new foundation will be overseen by a board of community representatives appointed by the mayor, the bank president, a New Haven State Senator, the president of the Greater New Haven Central Labor Council, the president of the New Haven Board of Aldermen, and Solomon, as Director of Clinical Studies at Yale Law School. This is the first time a bank has given money to create a foundation it doesn't control. "The foundation is not the brass ring," says Solomon. "The foundation will hopefully capitalize a new community development bank." And the clinic will continue to support this effort.
"My hope and the mayor's hope.... is that we will be creating an entity that is geared toward investment in New Haven--toward home ownership for low- and moderate-income people, toward small business, and toward suburban development of affordable housing." This new community bank will be for-profit, but focused on socially responsible lending and business practices.
According to Solomon, "The work has just started... It turns out to be not so easy to get twenty-five million dollars in a tax-exempt fashion, when you have no entity, so we are looking at forming a new corporation, and it in itself will be a foundation. And we have very complicated tax consequences. And exactly how to govern the money, who holds the money, and how you assure control three years down the road and five years down the road are very complicated questions. Thankfully we have the assistance of Professors Michael Graetz and John Simon."
The clinic's work has already led to a national first, and Solomon hopes this precedent will raise the bar for similar deals in the future. The process has also created a unique experience for students in the clinic, who have worked on issues from bank regulation to marketing the new institution.
Solomon points out that other clinicians "think that what we do is crazy," since the project is far-reaching and unconventional. But, he adds, "we have always tended to be opportunistic, and if we see something that is interesting, exciting, and within our capacity, we believe we should try it."