January 25, 2016
RECENT DEVELOPMENTS RELATED TO LITIGATION INVOLVING
THE EDUCATION SECTOR (JANUARY 2016)
To Our Clients and Friends:
This is the latest update of significant developments relating to qui tam, securities, and other lawsuits
and investigations involving schools, especially private-sector schools. Below, we take an in-depth
look at Education Management Corporation's ("EDMC") historic settlement with the Department of
Justice and 39 states (and the District of Columbia), as well as the Supreme Court's decision to grant
certiorari to decide whether the implied certification theory of liability under the False Claims Act
("FCA")--which so often has been leveled against schools--is viable. We also examine developments
in cases and agency actions involving schools, including notable successes for Aveda Inc. and Career
Education Corporation.
A.
The First "Coordinated" Settlement of Its Kind--EDMC Reaches "Historic" Agreement
with DOJ and State Attorneys General
On November 16, 2015, EDMC announced that it had settled a series of federal FCA cases with the
Department of Justice ("DOJ") and investigations by attorneys general from 39 states and the District
of Columbia into alleged consumer protection violations in a universal settlement, the first of its kind
in the for-profit education sector. The settlement--which actually consists of a variety of coordinated
agreements--contains much to discuss. Indeed, the settlement could provide the subject of an article of
its own, but we set forth the critical points below.
First, the FCA component of the settlement resolves four FCA matters alleging that the school violated
the compensation regulation, prior to the amendment effective in 2011, and calls upon EDMC to pay
the sum of $95 million. This is now the largest ever settlement of an FCA case by a for-profit
educational institution, and yet United States Attorney General Loretta Lynch indicated the DOJ would
have demanded more if not for EDMC's "ability to pay." As readers of this alert well know, the FCA
case against EDMC was one of the few compensation cases in which the government opted to
intervene--showing the very real effect that the government's intervention decision has.
Second, to settle the 40 attorneys general investigations into alleged consumer protection violations,
EDMC agreed to more than $102 million in private debt relief for students who attended EDMC
between 2006 and 2014 and withdrew within 45 days of the first day of their first term. EDMC also
agreed to have consent judgments entered against it in each of the jurisdictions from which the 40
attorneys general hail. These consent judgments read more like legislation or regulation, than
settlement terms. Each contains 40 to 50 pages of detailed conduct terms, covering everything from
the content of new, required educational disclosures; to a newly required financial aid disclosure tool
to be developed with the U.S. Consumer Financial Protection Bureau; to new rules about how
placements are to be calculated and reported; to mandating free orientation sessions for students; to
setting dates by which students may drop without any financial obligation; to requiring that EDMC
monitor and punish the activities of lead generators. The consent judgments also appoint an
administrator (commonly called a "monitor") to monitor and enforce EDMC's compliance with the
consent judgments for three (up to five) years. (The administrator, as well as some other elements of
the consent judgment, will be paid for with $8.75 million of the $95 million paid to settle the FCA
cases). We expect (as discussed further below) that the state attorneys general will now view these
terms as the new "floor" for compliance.
Third, the DOJ and the state attorneys general have indicated they are just getting started. In fact, even
as to EDMC, a number of state attorneys general refused to sign onto the agreement, claiming it was
too lenient, and Senator Dick Durbin has called for the federal government to hold individual
employees accountable. Moreover, unlike similarly coordinated investigations and settlements in other
industries (such as banking and tobacco), this settlement is with only one industry member. These
same attorneys general continue to actively and publicly investigate other schools, including ITT
Technical Institute and Career Education Corporation, according to filings with the Securities and
Exchange Commission. This is important to keep in mind, as we anticipate many schools will soon be
approached by the attorneys general to determine if the school will agree to the same terms as
EDMC. (Indeed, the EDMC agreement itself requires EDMC to assist in developing an industry-wide
"Code of Conduct" for lead generators.)
If and when a school is approached by the attorneys general to determine if the school will agree to
terms similar to those in the consent judgments, there are obviously many considerations the school
must analyze, but we believe chief among them are the following:
•
"The Devil Is In The Details" – With more than 40 pages of detailed conduct terms, the
commonly used expression of "the devil is in the details" could not be more apt. EDMC did an
admirable job in seeking to ensure that as many of the terms in the consent judgments were as
defined as possible, but all it takes is one attorney general (or one monitor) who has a different
view of a vague or ambiguous term to make the life of a school who has entered into a similar
consent judgment very difficult. It is therefore of the utmost importance to make sure all terms
in any agreement, but especially in a consent judgment, are as defined as possible. This is also
important in evaluating the true burden that will be imposed upon a school from agreeing to the
terms (as discussed further below), because many schools believe--but unless terms are very
clearly defined, cannot be sure--that they are already in compliance with many of the proposed
terms.
•
"Death By A Thousand Cuts" – It is not hyperbole to say that virtually every term insisted upon
by the state attorneys general is intended in some fashion to decrease the number of students
who enroll in for-profit schools. For example, the consent judgments contain a term requiring
EDMC to give what amounts to "Miranda" rights to prospective students, discontinuing
conversation with them once they indicate they are not interested in EDMC. This and other
terms, collectively, will almost certainly have the effect of decreasing enrollments, and in turn
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access to higher education for those students with the greatest need and least access. The terms
on the whole will also increase costs, as personnel and dollars will be devoted to helping to
ensure compliance with the 40 to 50 pages of new conduct terms. This double-edged sword-decreased revenues and increased costs--has the potential to be devastating for a school, killing
it by a thousand cuts. It is therefore critically important that in evaluating any potential
agreement with the attorneys general a school determine the real costs--in terms of both
decreased revenues and increased costs--that the agreement will have.
•
Loan Forgiveness? – A question left open by the EDMC consent judgments is whether any
enforcement of those consent judgments in the future might provide the basis for loan
forgiveness for EDMC students--and for the Department of Education to then seek
reimbursement for that forgiveness from EDMC. Indeed, following announcement of the
agreement, the Department stated that it is "open for business" to hear students' requests and
reasons why their loans should be forgiven, a process which currently revolves around whether
a student can prove the school used illegal or deceptive tactics in violation of state law to
persuade the student to take out loans for that school. Any school considering an agreement
with the attorneys general must carefully and fully analyze the potential ramifications of loan
forgiveness, which is a hot topic that we expect to be discussed much more over the coming
year.
In short, the EDMC settlement truly was "historic" in that it is the first large, coordinated settlement by
a school with both federal agencies and numerous states. But as indicated above, it leaves many
questions open, and only time will tell the effect it actually has on the sector.
B.
Alta Agrees to Settlement with the State of Illinois
In November 2015, Alta Colleges / Westwood Colleges announced that it settled a long-running
consumer protection suit filed against it by the State of Illinois. This settlement provides an interesting
point of comparison with EDMC. While there are obvious differences between the two matters
(including the number of states at issue and the size of the schools), Alta agreed to settle its matter with
the State of Illinois on arguably much better terms--no out of pocket payments (instead agreeing to
institutional financing forgiveness in an amount of approximately $15 million); conduct terms less
onerous than those imposed upon EDMC; no administrator; and in the form of an assurance of
voluntary compliance, not a consent judgment. A potential contributor to the difference? Alta battled
the Illinois Attorney General through pleadings and discovery and up until the eve of trial, at which
point the Illinois Attorney General apparently became much more reasonable in its settlement
demands. This reinforces our views that allegations are easy to make but difficult to prove and that the
more the attorneys general are forced to be put to their proof, the much less aggressive (and more
reasonable) they may become. But there is a sobering reality here as well. Following the settlement,
Alta and Westwood announced in November 2015 that they will be closing Westwood's doors and
teaching out its programs.
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C.
A Return to Reasonableness?
Perhaps rivaling these settlements in terms of newsworthiness was the Supreme Court's decision to
grant certiorari in Universal Health Services v. U.S. ex rel. Escobar.* The Supreme Court grants
certiorari in less than one percent of petitions presented, and the issues presented by Escobar squarely
address what is front and center in many FCA cases against schools: is the so-called implied
certification theory of liability (whereby a school or contractor is deemed to "impliedly certify"
compliance with laws by accepting federal funds) viable, and if so, what is the scope of the doctrine?
A favorable decision in Escobar could be a game changer for the sector. Indeed, although Escobar is a
Medicaid case, the split in the lower courts on the viability of this theory was cemented earlier this
year in the Seventh Circuit's seminal decision in a case brought against Sanford-Brown College, U.S.
ex rel. Nelson v. Sanford-Brown Ltd., 788 F.3d 696 (7th Cir. 2015). As discussed in July, the premise
of that case--like the majority of other FCA cases involving schools--was that the school had falsely
and "impliedly" certified compliance with the statutes and regulations in the Program Participation
Agreement ("PPA") that all schools must enter into with the Department of Education to participate in
Title IV programs when it requested federal financial aid. Id. at 710. The Seventh Circuit
wholeheartedly rejected this theory of liability, explaining that it is "unreasonable" to "hold that an
institution's continued compliance with the thousands of pages of federal statutes and regulations
incorporated by reference into the PPA are [all] conditions of payment for purposes of liability under
the FCA." Id. at 711.
The First Circuit in Escobar (like several other courts in cases against schools), however, accepted
precisely the same theory of liability with a tweak to fit the Medicaid context: i.e., instead of
submitting requests for Title IV funds, the defendant was seeking reimbursement from
Medicaid. According to the First Circuit, "each time [defendant] submitted a claim, [it] implicitly
communicated that it had conformed to the relevant program requirements, such that it was entitled to
payment." 780 F.3d 504, 514 n.14 (1st Cir. 2015) (emphasis added).
If the Supreme Court agrees with the Seventh Circuit that the implied certification theory is not viable,
it has the potential for returning some semblance of reason to this area of the law that has expanded so
greatly over the last ten to fifteen years. As the Seventh Circuit persuasively explained, the implied
certification theory of liability can lead to "boundless FCA jurisdiction on any recipient of government
subsidies" and has "the potential to impose strict liability" for regulatory noncompliance. Nelson, 788
F.3d at 711 & n.6. It simply cannot be that a violation of any provision in the "thousands of pages of
federal statutes and regulations incorporated by reference into the PPA" has the potential to turn a mere
regulatory violation into an FCA case alleging fraud on the United States. Id.
And even if the Supreme Court accepts the implied certification theory, the Court may significantly
narrow its scope in Escobar. The courts that accept the implied certification theory are divided over
whether the regulation must expressly state it is a condition of payment (e.g., "no payment may be
made under the statute . . . ."), or whether that, too, can be implicit to support FCA liability. This is a
critically important issue for schools because many of the regulations identified in the PPA are not
express conditions of payment. Indeed, ITT successfully argued to the Fifth Circuit back in 2004 that
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the incentive compensation provision in the PPA was not a condition of payment, and thus could not
support FCA liability. U.S. ex rel. Graves v. ITT Educ. Servs., Inc., 111 F. App'x 296 (5th Cir.
2004).* Had the Ninth Circuit and Seventh Circuit agreed with that decision, the numerous lawsuits
that followed U.S. ex rel. Main v. Oakland City University, 426 F.3d 914 (7th Cir. 2005) and U.S. ex
rel. Hendow v. University of Phoenix, 461 F.3d 1166 (9th Cir. 2006)* may never have materialized.
In sum, the Escobar case has the potential to transform the FCA landscape, and thus the liability risks
faced by schools. We will follow this one closely and keep you posted.
D.
Still Just Lipstick
In further FCA news, Magistrate Judge John H. England, III of the United States District Court for the
Northern District of Alabama determined in December that the plaintiff-relator had failed to cure the
defects in her FCA lawsuit brought against an independently operated and owned Aveda beauty school
in Birmingham, Alabama, and Aveda Inc. (along with its parent company and an affiliated company)
that licenses the curriculum and products. U.S. ex rel. Rutledge v. Aveda, No. 2:14-cv-00145-JHE, ECF
No. 56 (N.D. Ala. Mar. 25, 2015).* Back in April, Judge England had recommended, and the district
court agreed, that the former beauty school teacher turned relator had failed to adequately plead every
element of an FCA claim: (1) falsity, (2) materiality, (3) scienter, and (4) presentment. Rutledge, 2015
WL 2238786. In response, the relator filed a motion to amend her complaint, and submitted a
verbatim copy of the original complaint with additions highlighted in bold.
Judge England found the additional allegations to be inadequate, explaining that "for the most part, the
additions are merely irrelevant or conclusory allegations that cannot save her claims." ECF No. 56 at
3-4. The court concluded that the "proposed amended complaint does not allege facts to support all of
the elements of any of her claims" and therefore recommended the case be put to rest. Id. at 13. On
January 15, 2016, the district court adopted the recommendation in full.
E.
Not a Catch-22: Career Education Did Not Violate the Covenant of Good Faith and Fair
Dealing by Complying with a Law Before Its Effective Date
Following up on a case discussed in our October 2013 update, Career Education Corp. has now fully
prevailed in a lawsuit filed against the institution regarding its decision to stop paying bonuses to
admission representatives on February 29, 2011, in advance of the new compensation regulation that
would go into effect in July 2011. Wilson v. Career Education Corporation, No. 11 C 5453, 2015 WL
9259453 (N.D. Ill. Dec. 18, 2015). One admission representative, Riley Wilson, sued, claiming that he
and other admission representatives were entitled to the bonuses for students enrolled before the cutoff
date, but who had not yet completed a year of education, a necessary trigger for the representative's
bonus under the previous compensation plan. At the pleading stage, the district court and the Seventh
Circuit agreed that Wilson could not bring contract and unjust enrichment claims because the
employment contract specifically permitted the school to terminate the bonus program at any
time. Wilson v. Career Education Corp., 729 F.3d 665, 672, 677 (7th Cir. 2013). The Seventh Circuit,
however, in a deeply divided opinion held, contrary to the district court, that Wilson had a plausible
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claim that Career Education Corp. violated the implied covenant of good faith and fair dealing by
abusing its discretion to terminate the bonus program early. Id. at 671.
On December 18, 2015, that theory failed on the evidence. Wilson, 2015 WL 9259453. In a thorough
opinion, the United States District Court for the Northern District of Illinois held that a reasonable jury
could not find that Career Education Corp. "exercised its discretion to terminate the Plan in violation of
its obligation of good faith and fair dealing." Id. at *8. The evidence did not support the plaintiff's
allegation that Career Education Corp. "chose February 28 as the date to end the Plan bonuses for the
purpose of keeping the admissions representatives' bonuses for itself." Id. at *10.
F.
Is the CFPB Encroaching on the Department of Education and Congress?
In October, the Consumer Financial Protection Bureau ("CFPB") filed a petition in the United States
District Court for the District of Columbia to enforce a civil investigative demand against the nation's
largest accreditor, the Accrediting Council for Independent Colleges and Schools ("ACICS"). The
CFPB issued the demand in August after ACICS's president and CEO, Dr. Albert C. Gray, was
subjected to questioning in July by Senators Al Franken, Elizabeth Warren, and Chris Murphy in a
hearing on the reauthorization of the Higher Education Act. The CFPB's demand seeks information to
"determine 'whether any entity or person has engaged or is engaging in unlawful acts and practices in
connection with accrediting for-profit colleges.'" ACICS's Opp'n to CFPB's Pet. to Enforce at 8, ECF
No. 4, CFPB v. Accrediting Council for Independent Colleges and Schools, No. 15-cv-1838-RJL
(D.D.C. Dec. 2, 2015).
ACICS is opposing the petition in court, arguing that the agency's demand falls "well outside the scope
of the agency's authority" because accreditors like ACICS are not subject to any of the consumer
financial laws that the bureau enforces. Id. at 1. According to ACICS, the Department of Education,
not the CFPB, is the agency Congress by statute has tasked with supervising accreditors.
As further support, ACICS points to a recent letter from current-Senator and former Secretary of
Education Lamar Alexander and Congressman John Kline to the CFPB, requesting that the agency
"immediately rescind" the investigative demand because it constituted an "unprecedented overreach"
by the agency that exceeds its "limited enforcement authority that does not in any way include the
higher education accreditation process." According to the lawmakers, "determining the role of
accreditors for federal purposes is a congressional responsibility," not one for the agency.
The CFPB filed a reply in support of their petition on December 11, 2015. A decision is expected
soon.
G.
The Corinthian Saga Continues Despite Dissolution as Court Enters Default Judgment
and Department of Education Publishes Findings Against the Shuttered School
As we previously reported in our November 2014 update, the CFPB commenced an action against
Corinthian Colleges, Inc. on September 16, 2014, alleging violations of the Consumer Financial
Protection Act and the Fair Debt Collections Practices Act due to purported misrepresentations
regarding placement and alleged improper debt collection practices. Consumer Fin. Prot. Bureau v.
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Corinthian Colls., Inc., No. 1:14-cv-07194 (N.D. Ill. Sept. 16, 2014). The complaint included broadranging allegations regarding the high-pressure sales tactics used by admissions representatives, the
alleged cost of the school, and inflation of job placement rates.
On August 28, 2015, the United States Bankruptcy Court for the District of Delaware entered an order
confirming a liquidation plan for Corinthian that would result in Corinthian's dissolution. Corinthian
then notified the court on September 9, 2015 that due to the anticipated dissolution of the school,
Corinthian would no longer be able to continue its defense aside from the filing of an answer to the
CFPB complaint. A month later, the CFPB filed for an entry of default judgment against Corinthian
pursuant to Federal Rule of Civil Procedure 55(a). And despite the dissolution of Corinthian (and its
subsequent inability to put forth a defense), the court not only granted the CFPB's request on
October 27, 2015, but also issued a judgment with several pages of factual "findings," citing only to
the CFPB complaint. Corinthian Colls., Inc., No. 1:14-cv-07194, Dkt. 58, at 4-12. The court found
that the CFPB "has established, [through] competent evidence, that 115,111 affected consumers were
harmed by being deceived into taking out the Genesis loans," and that the "amount owed by Corinthian
to pay redress to affected consumers is $531,224,267." Id. at 12. The court further ordered that the
dissolved Corinthian is permanently enjoined from "committing any future violations of the CFPA's
prohibition on unfair, deceptive, and abusive acts and practices," as well as "future violations" of the
FDCPA. Id. at 14-15.
The $531 million default judgment, however, is nothing other than symbolic, given that Corinthian has
dissolved. Nonetheless, this decision may have far-reaching consequences for former Corinthian
students insofar as the Department of Education could rely on this ruling as a basis for providing more
comprehensive debt relief.
Indeed, on November 17, 2015, the Department of Education expanded its April 2015 findings against
Corinthian-owned Heald College, announcing that hundreds of programs at Corinthian-owned Everest
and WyoTech campuses in California, as well as Everest University online programs based in Florida,
misled students about post-graduation job placement. Although this finding would not impact the
now-dissolved Corinthian, it holds significance for approximately 85,000 former Corinthian students
who could now be eligible for loan forgiveness under the Department's debt-relief process.
H.
New Guidance from the Department of Education on Compensation
On November 27, 2015, the Department of Education issued new guidance in response to the lawsuit
filed by the Association of Private Sector Colleges and Universities ("APSCU") challenging the
Department's Program Integrity regulations. 80 Fed. Reg. 73991, 73992 (Nov. 27, 2015) (citing
APSCU v. Duncan, 70 F. Supp. 3d 446 (D.D.C. 2014)*; Ass'n of Private Sector Colls. & Univs.
(APSCU) v. Duncan, 681 F.3d 427 (D.C. Cir. 2012)*).
First, the Department recognized that it "lacks sufficient evidence to demonstrate that schools are
using graduation-based or completion-based compensation as a proxy for enrollment-based"
compensation. 80 Fed. Reg. at 73992. This admission closely resembles the district court's finding in
APSCU v. Duncan, 70 F. Supp. 3d 446 (D.D.C. 2014), and forced the Department to no longer
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"interpret the regulations to proscribe compensation for recruiters that is based upon students'
graduation from, or completion of, educational programs." 80 Fed. Reg. at 73992. Although this is
clearly a move in the right direction, the Department did include a caveat: "[A]lthough compensation
based on students' graduation from, or completion of, educational programs is not per se prohibited,
the Department reserves the right to take enforcement action against institutions if compensation
labeled by an institution as graduation-based or completion based compensation is merely a guise for
enrollment-based compensation, which is prohibited." Id.
Second, the Department reiterated that a school cannot financially reward recruiters for enrolling
minority students. Although it recognized that its current ban on incentive compensation "may result
in some negative impact on minority recruitment and enrollment," it concluded that an exception for
the recruitment of minority students could not be justified. 80 Fed. Reg. at 73995.
I.
Defense Department Temporarily Suspends Recruiting by University of Phoenix on
Military Bases Before Reinstating Status in Light of University's Cooperation
On October 7, 2015, the U.S. Department of Defense ("DoD") notified University of Phoenix, Inc. that
the University had been placed on probation with respect to the school's participation in the DoD's
Tuition Assistance Program for active duty military personnel, and that the DoD was weighing the
possibility of terminating the University's participation in the program. While on probationary status,
students already enrolled at the University of Phoenix continued to participate in the Tuition
Assistance Program, but newly enrolled or transfer students were no longer eligible. Further, the
University of Phoenix was prohibited from engaging in various activities at military bases, including
job training, career fairs, and other sponsored events.
In its notice of probation, the DoD cited several reasons for its actions, including compliance problems
identified in July and August 2015 regarding the use of official military seals and trademarks, as well
as the school's alleged failure to give notice to the proper officials before going on military bases. The
letter did, however, acknowledge that the University was taking the appropriate corrective action
regarding these compliance problems. The DoD notice further pointed to the civil investigative
demand issued by the U.S. Federal Trade Commission and the investigative subpoena issued by the
California Attorney General's office in August 2015 to the University of Phoenix as grounds for its
decision to place the University on probation.
Then, on January 15, 2016, the DoD lifted the temporary ban on the University's participation in the
DoD's Tuition Assistance Program, crediting the University's cooperation and response to the
Department's concerns. Following the removal of probationary status, the University of Phoenix will
be subject to a heightened compliance review by the DoD for a two-year period.
Although temporary, the initial probation decision by the DoD nonetheless illustrates a troubling trend
where misconduct is assumed when an investigation is opened against a for-profit school.
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J.
FastTrain Owner Faces Theft Conviction
In November, a federal jury convicted Alejandro Amor, the owner of the for-profit college FastTrain,
of 12 counts of theft of government money, and one count of conspiracy. A FastTrain admissions
representative was also convicted of conspiracy to steal government money. The theft charges each
carry a maximum penalty of 10 years in prison, while the conspiracy charge has a maximum of five
years. Amor awaits sentencing on February 3, 2016.
Before being raided by the FBI in 2012, FastTrain allegedly fraudulently obtained approximately $6.5
million in Pell grants and student loans for students who allegedly were enrolled without high school
diplomas. At trial, the government argued that FastTrain admissions representatives recruited students
from low income neighborhoods and enrolled students when they had not graduated from high school
or earned a GED, coaching them to lie on their applications to the Department of Education for federal
student aid. The government also argued that FastTrain admissions representatives falsely promised
students that they could earn their high school diplomas or GEDs at FastTrain and in some cases,
created fictitious high school diplomas on FastTrain computers.
K.
ITT, Bridgepoint Education, and Corinthian Seek to Settle Securities Actions
This quarter we saw four putative securities settlements involving Corinthian, Bridgepoint Education,
Inc. and ITT Educational Services, Inc.
First, Bridgepoint Education, Inc. agreed to pay $15.5 million in November to resolve a shareholder
class action accusing the company of making false and misleading statements in 2012 about the
likelihood of Ashford University being accredited by the Western Association of Schools and
Colleges. On December 14, 2015, the court issued an order preliminarily approving the settlement and
set the settlement hearing for April 25, 2016. In re Bridgepoint Educ., Inc. Secs. Litig., No. 3:12-cv01737, Dkt. 99 (S.D. Cal. Dec. 14, 2015).
Second, the $16.9625 million settlement agreed to by ITT Educational Services, Inc. was preliminarily
approved by a federal judge in the Southern District of New York on November 23, 2015, and resolved
securities fraud claims asserted under Sections 10(b) and 20(a) of the Securities and Exchange Act of
1934. Plaintiff pension funds alleged that ITT made material misrepresentations and omissions
concerning the company's liabilities under certain agreements it had entered into with third-party
lenders of ITT student loans. The court set a hearing on March 8, 2016 to determine whether the
settlement should be given final approval. In re ITT Educ. Servs., Inc. Secs. Litig., No. 13-cv-1620JPO, Dkt. 83 (S.D.N.Y. Nov. 23, 2015).*
Third, a few weeks earlier, ITT settled another securities action on November 2, 2015 that alleged
similar claims of securities fraud asserted under Sections 10(b) and 20(a) of the Securities and
Exchange Act of 1934. This $12.5375 million settlement was preliminarily approved on November 4,
2015 with a hearing set on March 10, 2016 to determine whether the settlement should be given final
approval. In re ITT Educ. Servs., Inc., No. 1:14-cv-01599-TWP, Dkt. 98 (S.D. Ind. Nov. 4, 2015).*
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Finally, this past November, Corinthian agreed to pay $3.5 million to settle a shareholder suit in
California federal court that accused the school of concealing predatory enrollment practices and
misrepresenting job placement statistics. The plaintiff requested that the court approve the settlement,
arguing in his motion for preliminary approval of settlement that the $3.5 million agreement was
appropriate given Corinthian's dissolution and its current entanglement with several lawsuits by
students and government agencies. Erickson v. Corinthian Colls., Inc., No. 2:13-cv-07466, Dkt. 92, at
6 (C.D. Cal. Nov. 20, 2015) ("[T]he chance of obtaining a higher recovery for the Class is slim to none
given that Corinthian is bankrupt and undergoing liquidation, and is subject to numerous claims from
various parties."). The court, however denied the plaintiff's motion on December 22, 2015, citing
several concerns: (1) the plaintiff failed to provide the court with "any information about the potential
value of the Class's claims"; (2) the plaintiff failed to provide "sufficient information for [the court] to
determine whether the $3,500,000 gross settlement amount . . . is fair, reasonable, and adequate," and
the explanation that Corinthian is undergoing liquidation and faces numerous claims from other parties
is insufficient; (3) the plaintiff "fail[ed] to provide an estimate of the Claims Administrator costs"; and
(4) the plaintiff failed to provide the court with the confidential Supplemental Agreement detailing
Corinthians' option to terminate the settlement. Id., Dkt. 94, at 2-3. The court then ordered that the
plaintiff may file a new motion addressing the concerns outlined in its order within 30 days.
Conclusion
We will continue to keep you informed on these and other related issues as they develop.
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