Counsel for Plaintiff and Proposed Classes14 1 2 3 4 5 6 7 8 9 10 11 12 13 15 16 17 18 19 20 21 22...

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CLASS ACTION COMPLAINT 1

ANNE RICHARDSON – SBN 151541 [email protected] MAGDALENA REYES BORDEAUX – SBN 195671 [email protected] CHARLES EVANS – SBN 251780 [email protected] L. ADELAIDE ANDERSON – SBN [email protected] COUNSEL610 South Ardmore AvenueLos Angeles, CA 90005Tel.: (213) 385-2977 | Fax: (213) 385-9089

Counsel for Plaintiff and Proposed Classes [Additional Counsel List Follows Caption]

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA, EASTERN DIVISION

DEBORAH TERRELL, an individual, on behalf of herself and similarly situated persons,

Plaintiffs,

v.

UNIVERSITY ACCOUNTING SERVICE, LLC; a Wisconsin limited liability company; BALBOA STUDENT LOAN TRUST, a Delaware statutory trust; TURNSTILE CAPITAL MANAGEMENT, a Delaware limited liability company; and DOES 1 through 10, inclusive,

Defendants.

Case No.

CLASS ACTION COMPLAINT FOR:

1) Class Violations of the FairDebt Collection Practices Act;

2) Class Violations of theRosenthal Fair Debt CollectionPractices Act;

3) Class Violations of theConsumer Legal Remedies Act;

4) Class Violations of Cal. Bus. &Prof. Code § 17200, et seq.;

5) Declaratory Judgment under 28U.S.C. § 2201;

6) Individual Violations of theFair Debt Collection PracticesAct; and

7) Individual Violations of theRosenthal Fair Debt CollectionPractices Act.

JURY TRIAL DEMANDED

Case 5:16-cv-01535 Document 1 Filed 07/14/16 of 39 Page ID #:1

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CLASS ACTION COMPLAINT

2

Additional Counsel for Plaintiff and Proposed Classes

FREDRIC D. WOOCHER – SBN 96689 [email protected] JENNA L. MIARA – SBN 305703 [email protected] DALE LARSON – State Bar No. 266165 [email protected] STRUMWASSER & WOOCHER LLP 10940 Wilshire Boulevard, Suite 2000 Los Angeles, California 90024 Tel.: (310) 576-1233 | Fax: (310) 319-0156 DAN STORMER – SBN 101967 [email protected] CAITLAN MCLOON - SBN 302798 [email protected] HADSELL STORMER & RENICK LLP 128 N. Fair Oaks Avenue Pasadena, California 91103 Tel.: (626) 585-9600 | Fax: (626) 577-7079


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Plaintiff Deborah Terrell brings this proposed class action against University

Accounting Service, LLC (“UAS”), the Balboa Student Loan Trust (“Balboa”), and

Turnstile Capital Management, LLC (“Turnstile”), individually and on behalf of all

similarly situated individuals (“Class Members”) who were fraudulently induced to

take out student loans now owned and serviced by Defendants. Plaintiff alleges that

Defendants’ efforts to collect on these loans violate the Fair Debt Collections Practices

Act, California’s Rosenthal Debt Collection Practices Act, California’s Consumer

Legal Remedies Act, and California’s Unfair Competition Law. This Court has

jurisdiction over the federal statutory claims pursuant to 28 U.S.C. § 1331, and

supplemental jurisdiction over the claims under California law. Plaintiff hereby

alleges the following:

INTRODUCTION

1. This case involves the unlawful attempt to collect on private loan debt that

thousands of students were fraudulently induced to incur in order to attend Corinthian

Colleges, Inc. (“Corinthian”), a now defunct for-profit chain of schools. Corinthian

deliberately and systematically took advantage of low-income and vulnerable

Californians who had dreams of unlocking job opportunities and improving their lives

through a college education. Corinthian induced these students into enrolling in

Corinthian’s programs by making false promises to them about its job-placement rates,

the earnings of its graduates, and the kinds of career-services assistance it would

provide to graduates. Although they gained little in return, the students paid a high

price for their time at Corinthian because they were left saddled with large federal and

private student loan debts that many struggle to pay off.

2. To succeed as a business, Corinthian depended on a continuous influx of

new students, most of whom needed federal government financial aid and private

student loans to pay at least some of their tuition. In order to maximize its profits,

Corinthian intentionally recruited and enrolled vulnerable individuals who were

isolated and suffered from low self-esteem; who were in dire financial straits; who


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lacked sophistication in financial transactions such as loans; who had poor or no credit

history; and who had few people in their lives able to advise or support them. Single

parents, formerly homeless youth, children of the working poor, young adults coming

from troubled families, and even the homeless were among the groups specifically

targeted by Corinthian.

3. During recruitment, Corinthian preyed on these individuals by

misrepresenting the benefits of its programs. Among other deceptions, Corinthian

consistently made false promises of job-related training and internship opportunities,

distorted the job-placement rates of past students, and offered phony assurances of job-

placement assistance. It convinced students that their Corinthian education would

allow them to work in careers where they would earn substantially more than they

were able to earn before enrolling. It also misled students about the true cost of its

programs, the amount and nature of the loans for which Corinthian signed them up,

and the likelihood that students would get jobs after graduation that would make it

possible for them to repay those loans.

4. Corinthian repeatedly and consistently set its prices high enough to ensure

that the cost of student attendance always exceeded the maximum federal financial aid

award available. This meant that students who depended on financial aid to cover the

entire cost of attending Corinthian—as many Corinthian students did—had to also take

out private student loans to cover the gap between the cost of attendance and the

maximum financial aid award. When the 2008 recession motivated lenders to reduce

their private student lending, Corinthian created its “Genesis Loan Program” to ensure

continued receipt of both federal aid and private funds without changing its pricing

scheme. Through the Genesis Program, private lenders provided student loans to

Corinthian students according to Corinthian’s terms but without revealing to students

the lenders’ connections to Corinthian. Frequently, Corinthian ultimately bought back

the loans from the private lenders so that Corinthian became the holder of many of the

Genesis loans.


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5. Federal and state government agencies ultimately uncovered Corinthian’s

phony promises and inflated job-placement rates and opened investigations into its

practices, resulting in judgments against Corinthian for defrauding its students in

several states. Corinthian’s fraud was so widespread that the federal Department of

Education has approved the forgiveness of the federal loans made to former Corinthian

students who attended hundreds of specified programs.

6. The governmental investigations and disciplinary actions against

Corinthian expanded in number and scope throughout 2014, ultimately resulting in

Corinthian declaring bankruptcy on May 4, 2015.

7. Before Corinthian filed for bankruptcy—but long after Corinthian’s

pervasive fraud was made public—Corinthian sold its Genesis student loans to third

parties. In August 2014, Defendant Turnstile bought over 505 million dollars of

Genesis student loans from Corinthian for pennies on the dollar. Turnstile then created

Defendant Balboa to hold the student loan notes on Turnstile’s behalf.

8. At the time Turnstile bought these sham loans, 24 states’ attorneys general

and the federal Consumer Financial Protection Bureau (“CFPB”) were investigating

Corinthian for deceptive acts and practices when recruiting students, several states’

attorneys general had already sued Corinthian for defrauding students, and the

Department of Education had found that Corinthian misled its students and would no

longer be allowed to receive federal money.

9. In February 2015, Defendant Balboa entered into an agreement by which

it promised to refrain from suing or threatening to sue on the Genesis loans it holds.

10. Also in 2015, Balboa retained Defendant UAS to collect on the Genesis

student loan debts held by Balboa. Beginning in 2015 and continuing to the present,

UAS has taken aggressive steps to collect on these loans, despite knowing that the

former students only borrowed the money at all because of Corinthian’s fraud and

misrepresentations. In addition, UAS has implicitly threatened to take collection


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actions that are only possible through litigation even though such threats are barred by

Balboa’s agreement to not sue.

11. Plaintiff now seeks, for herself and on behalf of Class Members, all

available damages for UAS’s unfair debt collection practices, cancellation of the

Balboa-held Genesis student loans, and restitution of the monies paid to Defendants

Balboa and Turnstile on these loans that were fraudulently obtained by Corinthian.

Plaintiff further seeks the costs of litigation and attorneys’ fees.

JURISDICTION & VENUE

12. This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1331

because the action arises from violations of the Fair Debt Collection Practices Act, 15

U.S.C. §§ 1692, et seq., with supplemental jurisdiction over state law claims pursuant

to 28 U.S.C. § 1367.

13. Venue is proper in this district under 28 U.S.C. § 1391(b)(2) because the

events at issue substantially occurred in San Bernardino and Riverside Counties,

California.

14. This Court has personal jurisdiction over Defendants because they have

significant minimum contacts with California, or they otherwise availed themselves of

the laws and markets of California through the purchasing, holding, and attempting to

collect on debts owned by consumers in California. Defendants all transact business

affairs in California and with California consumers, and a substantial part of the events

giving rise to the claims occurred in California.

PARTIES

15. Plaintiff Deborah Terrell is a resident of Riverside County, California.

She is a former student of Everest College, a d/b/a of Corinthian.

16. Defendant UAS is a wholly owned subsidiary of NCO Group, Inc., a

holding company for a number of debt-collection companies. The primary business of

UAS is to collect student loan debts on behalf of UAS/NCO Group, Inc. customers


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using mail and telephone communications. UAS is a Wisconsin limited liability

company.

17. Defendant Turnstile is a Delaware limited liability company. Its primary

business is owning and collecting student loan debt. It purchased the promissory notes

of Plaintiff’s and Class Members’ private student loans from Corinthian. Turnstile

then created Balboa and transferred its ownership of the notes to Balboa. Turnstile is

the sole owner and controller of Balboa. Turnstile’s principal office is in California.

18. Defendant Balboa is a Delaware statutory trust. It is the current holder of

the promissory notes for the student loans at issue in this action. Balboa hired UAS to

attempt to collect the student loan debts of Plaintiff and Class Members.

19. Plaintiff and Class Members are ignorant of the true names and capacities

of Defendants sued herein as Does 1 through 10, inclusive, and therefore sues these

Defendants by such fictitious names. Does 1 through 5 are debt-collection companies

that collect student loan debts using mail and telephone communications, and who

service loans currently owned by Balboa that originated with Corinthian. Does 6

through 10 are current or previous holders of the promissory notes for the student loans

at issue in this action and the creditors who either received payment on the promissory

notes and/or on whose behalf Defendant UAS or Does 1 through 5 engaged in

collection activity against Plaintiff and Class Members.

20. Plaintiff is informed and believes, and thereon alleges, that Defendant

Balboa was at all times an agent of, servant of, fiduciary of, or wholly controlled

subsidiary in joint enterprise with Defendants Turnstile and Does 6 through 10. At all

times relevant, Defendant Balboa was acting within the course and scope of said

agency, service, or enterprise. Balboa has operated at all times relevant for the sole

benefit of, and in complete unity of interests with, Defendants Turnstile and Does 6

through 10. On information and belief, Defendant Turnstile ratified the conduct of

Defendant Balboa alleged herein.


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FACTUAL ALLEGATIONS

Corinthian’s Business Model and Loan Program

21. Corinthian was once one of the largest chains of for-profit colleges in the

United States and Canada. It operated campuses across North America and online,

through its wholly owned and directly controlled subsidiaries, under the Everest

College, Everest College Phoenix Online, Everest Institute, Everest University Online,

Heald College, and Wyotech labels. Corinthian operated over 30 campuses in

California alone.

22. Due to their limited financial means, most Corinthian students had to pay

at least some of their education expenses with financial aid. Corinthian students were

generally eligible for federal financial aid, also known as Title IV funds.

23. Federal regulations mandate that for-profit schools such as Corinthian can

only receive 90% of their revenue from Title IV funds. The remaining 10% must

come from another source, such as funds provided by the students or private student

loans. This is commonly referred to as the 90/10 rule.

24. Because of the 90/10 rule, every dollar that students borrowed from

private lenders to attend a Corinthian school unlocked nine dollars’ worth of potential

federal funding. Private loan funds therefore represented an enormous source of

revenue for Corinthian—not only because of their face value, but also because of the

Title IV funding that Corinthian could then access from the federal government.

25. In fact, Corinthian deliberately and artificially raised education prices to

levels approximately 10-15% greater than the maximum amount of federal aid that

students were eligible to receive. Corinthian’s actions forced low-income students to

borrow all they could from the government and finance a portion of their education

expenses in some other way. This led to more tuition money for Corinthian, and a

greater debt burden for its students.

26. In 2008, Corinthian created its Genesis Loan Program to provide private

student loans to enrolling students and continue satisfying the 10% private-funding


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requirement for receiving federal funds. Corinthian representatives assisted enrolling

students in applying for financial aid and automatically signed up students for Genesis

loans as part of that assistance.

27. The Genesis loans were originated by lenders who had a connection to

Corinthian and who specialized in extending credit to subprime borrowers. The

Genesis lenders lent money to students according to Corinthian’s terms, and

Corinthian handled all loan-related negotiations and person-to-person interactions with

the borrowers.

28. After the private lender originated the Genesis loans, the loans would be

sold either to Corinthian or to a third-party investor. When the loans were sold to an

investor, Corinthian was obligated to buy back the promissory notes for the loans if

borrowers became 90 or more days late in making their payments. This scheme meant

that, although Corinthian could not make Genesis loans directly to its students, it often

became the creditor on the loans.

29. In order to induce students to enroll at Corinthian and to borrow through

Corinthian’s Genesis Loan Program, Corinthian grossly misrepresented the benefits of

its programs. Among other deceptions, Corinthian systematically made false promises

of job-related training and internship opportunities, distorted the job-placement rates of

past students, and offered phony assurances of job-placement assistance. It convinced

students that Corinthian’s programs would allow students to work in careers where

they would earn substantially more than they were able to earn prior to enrolling. It

also misled students about the true cost of their programs, the amount and nature of the

loans that Corinthian signed them up for, and about the likelihood that students would

be able to get jobs after graduation that would allow them to repay those loans.

The Federal & State Investigations That Led to Corinthian’s Closure Were Made Public and Put Defendants on Notice of Corinthian’s Fraud.

30. By the time Turnstile and Balboa acquired the loans at issue in this case in

August 2014, Corinthian had been under investigation for years by multiple


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governmental agencies in regards to Corinthian’s fraudulent inducement of students to

enroll and to take on private student loans through Corinthian’s Genesis Loan

Program. The existence and substance of these investigations had been made public

through Corinthian’s publicly available filings with the Securities and Exchange

Commission (“SEC”), announcements by the investigating agencies, and various

judicial and administrative complaints filed against Corinthian.

31. Between October 2010 and March 2014, 24 states’ attorneys general

scrutinized Corinthian’s business practices related to enrollment and student loans. At

the federal level, the CFPB began investigating Corinthian in or about April 2012,

when it served Corinthian with a Civil Investigative Demand to determine whether

Corinthian was engaging in unlawful acts or practices relating to the advertising,

marketing, or origination of private student loans.

32. In October 2013, the Attorney General of California filed a complaint

against Corinthian and its various subsidiaries. The complaint alleged that Corinthian:

a. made untrue or misleading representations relating to job

placement;

b. advertised for programs and courses that Corinthian did not offer

and then induced students who came for those programs to attend

different programs;

c. engaged in unlawful debt collection practices related to the private

student loans (those practices included pulling students out of class

if they were late on loan payments); and

d. failed to disclose Corinthian’s role in the private student loan

program.

33. In January 2014, Corinthian reported in a public SEC filing that the CFPB

had provided official notification of a possible enforcement action against Corinthian

for violations of the Consumer Financial Protection Act of 2010, 12 U.S.C. § 5536.


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34. Similarly, in January 2014, the Iowa Attorney General’s office notified

Corinthian that it was leading an investigation of Corinthian on behalf of its citizenry

and residents of 12 other states related to practices including, among other things,

Corinthian’s job-placement statistics, the enrollment qualifications of its students,

licensing rates for its graduates, and the origination of student loans. Over the next

few months, three more states joined the investigation.

35. Also in January 2014, the federal Department of Education

(“Department”) informed Corinthian that any new locations or programs would have to

be approved by the Department in advance.

36. In April 2014, after three years of investigation, the Attorney General of

Massachusetts filed suit against Corinthian. That suit alleged unfair and deceptive

business practices including the misrepresentation of how many graduates found

employment in their field of study, and how much graduates earned. According to the

complaint, students “received no benefit from their loans.” Complaint,

Commonwealth of Massachusetts v. CCI Colleges, Inc., No. 14-cv-01093 at ¶ 6

(emphasis added).

37. On June 12, 2014, the Department restricted Corinthian’s ability to

receive and spend Title IV funds. When it became clear that Corinthian could not

continue operations without immediate access to federal funds, it entered into an

agreement with the Department whereby Corinthian was allowed to obtain limited

Title IV funds in exchange for agreeing to sell or close a majority of its campuses

under oversight of an independent monitor.

38. On August 22, 2014, the Department informed Corinthian that one of its

schools, Everest Institute, would no longer be eligible to receive federal Title IV

funding because Everest Institute communicated false job-placement data to its

accreditors and to its current and prospective students. A true and correct copy of the

Department’s enforcement letter is attached hereto as Exhibit A.


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39. According to the Department’s enforcement letter, to inflate its post-

graduation job-placement rates, Corinthian paid employers $2,000 for each Everest

Institute graduate that they promised to employ for at least 30 days, and “knowingly

counted” placements that were for less than 30 days as “sustainable” employment.

Corinthian also counted as “employed” Everest Institute students who were merely

interviewed, employed for less than a day, or briefly employed but unpaid for their

work. Exhibit A, p. 8-10.

40. In late August 2014, Corinthian received a Civil Investigative Demand

from the United States Department of Justice for potential False Claims Act violations

related to Corinthian’s misrepresentations regarding, among other things, graduate job-

placement rates and Corinthian’s private student loan program.

41. On September 3, 2014, Corinthian received a grand jury subpoena from

the United States Attorney’s Office in the Middle District of Florida.

42. On September 10, 2014, Corinthian received a grand jury subpoena from

the United States Attorney’s Office in the Northern District of Georgia.

43. On September 16, 2014, the CFPB filed suit against Corinthian in the

Northern District of Illinois. Complaint for Permanent Injunction and Other Relief,

Consumer Financial Protection Bureau v. CCI Colleges, Inc., No. 14-7194 (N.D. Ill.

Sept. 16, 2014). The CFPB’s complaint quoted Corinthian employees and officials

who described their students as:

a. “individuals who have ‘low self-esteem’ and ‘[f]ew people in their

lives who care about them’; who are ‘isolated,’ ‘stuck, unable to see

and plan well for future;’” and

b. “having ‘[m]inimal to non-existent understanding of basic financial

concepts,’ as well as poor or no credit history.”

Balboa’s Acquisition of the Corinthian Loans

44. By mid-2014, as a result of the mounting investigations and in particular

because of the Department’s restrictions limiting Corinthian’s ability to open new


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campuses or receive federal financial aid dollars, Corinthian was on the brink of

financial collapse.

45. On August 19, 2014, Corinthian’s creditors gave it permission to sell off

assets to obtain 20 million dollars to cover Corinthian’s operational expenses and use

the proceeds to keep school doors open.

46. On or about August 20, 2014, Corinthian sold student loan promissory

notes (the “Loan Pool”) with a face value of 505 million dollars to Turnstile in

exchange for 19 million dollars (or less than $.04 per dollar of debt). According to the

complaint in the CFPB case, the Loan Pool represented “virtually all” of the private

student loans Corinthian owned.

47. The sale of the Loan Pool to Turnstile took place after Corinthian had

agreed to wind down operations in most of its campuses, and after 24 states’ attorneys

general and the CFPB had launched investigations in Corinthian’s fraudulent conduct.

The existence of all of the state and federal investigations and allegations described

herein were public knowledge at the time of the sale. Nearly all of that information

was contained in Corinthian’s 2014 SEC filings. The remainder could be found in

press releases and public court filings.

48. Balboa came into existence and was registered with the state of Delaware

on October 10, 2014. Turnstile subsequently transferred ownership of the Loan Pool

to Balboa.

ECMC’s Payment to Balboa

49. On February 2, 2015, ECMC Group, Inc. and Zenith Education Group

(collectively “ECMC”) entered into an agreement with Corinthian by which ECMC

acquired most of Corinthian’s remaining assets and operations as part of Corinthian’s

winding down of operations.

50. On the date that ECMC acquired Corinthian’s assets, it entered into an

agreement with the CFPB. The agreement limited ECMC’s liability in the CFPB case


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against Corinthian. A true and correct copy of the letter confirming the agreement is

attached hereto as Exhibit B. That agreement states that ECMC would:

a. Reduce the loan principal of affected students by 40%, equaling

total debt relief of 480 million dollars;

b. Remove all previous negative credit reporting about these loans;

c. Refrain from suing or threatening legal action against borrowers

when seeking payment on any remaining balances; and

d. Make arrangements with third-party holders of those loans

previously sold by Corinthian to follow these same guidelines.

51. As Balboa was a third-party holder of Corinthian student loans, ECMC

was required to ensure that Balboa followed the requirements of the agreement with

the CFPB.

52. In exchange for Balboa’s cooperation, ECMC paid Balboa 7.5 million

dollars. Plaintiff is informed and believes, and thereon alleges, that this payment was

compensation for Balboa performing the required debt reduction and in exchange for

Balboa’s agreement to abide by the terms of the contract between ECMC and CFPB,

including the prohibition against taking legal action to enforce the remaining private

student loan balances. The 7.5 million dollar payment equals just under 40% of what

Turnstile paid Corinthian for the loan pool (19 million dollars). See Exhibit B, section

(1).

Findings of Fraud, Unlawful Debt Collection, and Unfair Business Practices against Corinthian after sale of the Loan Pool The Department of Education’s Findings re: Corinthian’s Heald Colleges

53. On April 14, 2015, after a year-long investigation, the Department of

Education informed Corinthian that it intended to fine Corinthian 30 million dollars for

the actions of Corinthian at its Heald Colleges. According to the Department,

Corinthian had “misrepresent[ed] its [job] placement rates to current and prospective


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students.” A true and correct copy of the Department’s enforcement letter is attached

hereto as Exhibit C.

54. For example, Corinthian had deemed that up to 58% of graduates from

one of its Heald Colleges programs had “deferred employment,” such that they were

not currently “employable.” Excluding all of these unemployed (voluntarily or

otherwise) students from its job-placement calculations created misleading job-

placement rates of up to 100%. Exhibit C, p. 5-6.

55. In addition, the Department found that “Heald [Colleges] failed to

disclose that it counted as placed graduates those former students who had obtained

their jobs prior to graduation from the school, and in some cases, graduates who had

obtained their jobs prior to the date they commenced their studies at Heald.” Exhibit C,

p. 7. This practice accounted for up to a third of Corinthian’s alleged “placements” of

Heald Colleges graduates. Id.

56. Corinthian also paid employers to hire Heald Colleges graduates for as

little as two days of work, then counted those students as having found employment in

their fields. Exhibit C, p. 7-8.

57. Corinthian reported that Heald Colleges students had found employment

in their fields of study, when they had not. For example, Corinthian counted a student

as “placed in-field” when she worked in food service at Taco Bell after obtaining an

accounting degree. Exhibit C, p. 8-9.

58. With respect to its medical assistant program at one Heald Colleges

campus, Corinthian misrepresented its job-placement rate as 78% instead of the actual

33% placement rate. Exhibit C, p. 9-10.

The CFPB Case

59. On October 27, 2015, the District Court for the Northern District of

Illinois entered default judgment in the CFPB case against Corinthian. A copy of that

judgment is attached hereto as Exhibit D (“Default Judg.”). The court found that


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Corinthian fraudulently induced students to take out the Genesis loans, and then

engaged in unlawful and unfair collection of those loans.

60. Specifically, “[f]rom at least July 2011 to July 2014, Corinthian induced

students to take out [private] loans through a series of misrepresentations about the

likely employment outcomes for Corinthian students.” Default Judg. ¶ 18. “Corinthian

made these misrepresentations to borrowers and prospective borrowers of [private]

loans in order to induce them to take out the loans.” Default Judg. ¶ 21.

61. Corinthian misrepresented outcomes by, inter alia: (1) calculating job-

placement rates by including employment that had lasted for only one day; (2)

“fudging” or “simply misreporting” job-placement statistics; (3) undercounting how

many of its graduates were “employable,” thereby increasing the overall percentage of

employed graduates in the pool of “employable” graduates; and (4) paying employers

to hire its graduates temporarily. Default Judg. ¶ 19.

62. With respect to unlawful and unfair debt collection, Corinthian harassed

students who fell behind on loan payments. Default Judg. ¶ 29. This harassment

included: (1) “prevent[ing] enrolled students from attending class;” (2) “pull[ing]

students out of class in front of their classmates;” and (3) “den[ying] students access to

computers and other educational materials.” Id.

The Department of Education’s Most Recent Findings

63. In conjunction with the Attorneys General of California, Massachusetts,

and other states, the Department broadened its investigation into Corinthian’s practice

of using falsified job-placement rates to recruit students. In November 2015, the

Department issued explicit findings that various programs at Corinthian campuses in

California had falsified the job-placement rates it showed to prospective students in

specific years. Subsequently, the Department announced new findings that falsified

job-placement rates were shown to prospective students at other Corinthian schools

around the country, bringing the total number of Corinthian campuses covered by the

findings to 91.


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Corinthian Closes its Doors

64. On April 26, 2015, Corinthian announced that it was closing its last

remaining campuses effective April 27, 2015. At the time of the closing, Corinthian

still operated approximately 28 campuses hosting over 10,000 students.

65. On May 4, 2015, Corinthian filed for bankruptcy.

FACTS REGARDING NAMED PLAINTIFF

66. Plaintiff Deborah Terrell is a 55-year-old mother of two. Up until late

2013, Plaintiff worked for a home restoration company called “Start to Finish.” She

had to undergo knee surgery in September 2013, and stopped working during her

recovery.

67. On June 10, 2014, while still unemployed, Plaintiff drove her 19-year-old

daughter to an Everest campus so that her daughter could enroll in a program there.

While she was there, a recruiter spoke to Plaintiff and tried to convince her to enroll

herself as well. The recruiter asked Plaintiff a few questions about her situation and

recommended that she enroll at a Corinthian school. Prior to the visit, Plaintiff had no

desire or intention to enroll at Everest.

68. Corinthian’s recruiter told Plaintiff that a Medical Administrative

Assistant diploma from one of Corinthian’s Everest College campuses would enable

Plaintiff to get a better job with a higher salary than she would be able to get

otherwise. The Corinthian recruiter also claimed that the school’s career services

office would help her get a job after graduation, and would provide job-search support

such as interview preparation and job listings forwarded from local employers with

whom Corinthian supposedly had relationships. The recruiter told Plaintiff that the

school had a 90% success rate in placing graduates in jobs within their fields of study.

69. The Corinthian recruiter also told Plaintiff that Plaintiff would earn good

money as a medical administrative assistant in her first year after graduating, and that

she would earn even more after obtaining a further certification.


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70. Corinthian’s recruiter then told Plaintiff that she would need to enroll

immediately in order to secure a slot in the program and pressured her to sign up the

same day. Based on the recruiter’s representations about the post-graduation job

opportunities and earnings and the need to act quickly, Plaintiff enrolled that day, June

10, 2014, in the medical administrative assistant program at Everest College.

71. At the time she enrolled, Plaintiff did not have a clear understanding of

how much debt she would ultimately owe, or of the differences between her federal

student loans and her private ones. She believed, based on the representations made to

her by the Corinthian recruiter that she would soon become a medical administrative

assistant and her income would increase sufficiently to allow her to pay off all her

loans.

72. The total cost of tuition for Plaintiff’s nine month program was over

$19,000. Corinthian arranged for Plaintiff to obtain a state grant of around $5,000,

around $9,000 in federal student loans, and a private loan with an original principal

balance of $4,947.09. The original interest rate for the private loan was 8.9%.

73. Plaintiff took her program extremely seriously and strove to succeed in

every way she could. She got straight A’s in all her classes. She received various

awards for achievements including perfect attendance and honor roll recognition. She

also took advantage of multiple opportunities to complete additional trainings and

certifications, including training in medical billing practices and compliance with

health industry regulations. She was even chosen to serve as her school’s

“Ambassador” in a program that involved peer mentoring, tutoring, and hosting school

events and fundraisers, including for Ronald McDonald House.

74. At Corinthian’s direction, Plaintiff paid an estimated $2,600 for

supposedly required schoolbooks when she began her program. She ultimately did not

use many of these books, and never even opened some of them.

75. When Plaintiff was recruited to enroll, Corinthian promised it would place

her in an externship that would provide skills relevant to her desired medical


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administrative assistant career, as well as contacts with potential employers. Plaintiff

was also assured that most students were able to secure permanent employment

positions with their externship host. However, the externship that Corinthian placed

her with involved only mass billing work that was entirely unrelated to her area of

study, and did not require her to utilize any of the skills that she was supposed to learn

as part of her medical administrative assistant program. When Plaintiff complained

that her externship was not what Corinthian had promised and requested a transfer to a

more career-relevant position, Corinthian refused.

76. Plaintiff completed the final requirements of her program in March of

2015. In April of 2015, Corinthian shut down all its remaining California campuses,

including the Everest campus that Plaintiff attended. Students did not receive any

notice whatsoever of the impending closure. Plaintiff’s scheduled graduation

ceremony was canceled. At first, she was unable to obtain copies of her transcript or

diploma. When she initially requested her diploma, a Corinthian representative told

her that the diploma was “worthless” because the school had “lost its accreditation.”

Although she subsequently was able to obtain her diploma, she still has been unable to

obtain a copy of her transcript.

77. Contrary to the recruiter’s promises, Plaintiff received no career services

or job-search assistance from Corinthian. Without any help from Corinthian and

despite searching diligently for work and applying for every position she could find,

Plaintiff has been unable to obtain a job as a medical administrative assistant. Plaintiff

makes less now than she was making before she attended Corinthian and substantially

less than what Corinthian told her she would make, and there are no opportunities for

advancement in her current position.

78. Plaintiff’s private student loan was among those covered by the CFPB’s

agreement with ECMC. Pursuant to the CFPB’s requirements and as a result of

ECMC’s payment of 7.5 million dollars to Turnstile/Balboa, Plaintiff’s balance due


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was reduced by 40%. In addition, Balboa was prohibited from taking or threatening

legal action against Plaintiff to collect the balance owed on the loans.

79. Defendant UAS began servicing Plaintiff’s student loan on behalf of

Defendant Balboa on June 1, 2015, and sent Plaintiff a number of collection letters

over the next several months. UAS’s collection letters to Plaintiff include the

following statements:

a. On July 30, 2015: “Your agreement with BALBOA STUDENT

LOAN TRUST requires prompt payment. Please pay the total

amount due or tell us why payment should not be due at this time.”

b. On September 18, 2015: “WARNING … You have defaulted on

your obligation to pay this loan … Payment of the total amount due

on this debt is required immediately.”

c. On October 3, 2015: “WARNING OF DEFAULT …Your seriously

delinquent account requires immediate attention. If you do not

respond to this notice, you will have defaulted on your obligation to

repay this debt. Send payment of the total amount now due or

contact us immediately.”

d. On November 17, 2015: “NOTICE … Your severely past due

account requires immediate attention … Failure to resolve this

delinquency may require us to place your account with a collection

agency. You may be required to pay the full balance of your loan

plus the costs of collection.”

80. Almost immediately after being hired by Balboa, UAS began a pattern of

persistent telephone harassment of Plaintiff. By August 2015, Plaintiff was receiving

up to five calls a day from UAS. She often received two to four calls from UAS each

day, several days every week. At times the calls were be back-to-back. Other times,

the calls would be every thirty minutes. Some days the calls began in the morning then

lapsed for the afternoon, only to begin again in the early evening.


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81. In October 2015, a UAS representative told Plaintiff during one of these

phone calls that UAS could “come after [her] house” because of her student loan debt.

The same UAS representative also threatened to “come after” Plaintiff’s bank account

and wages to collect on the debt.

82. A few weeks later, in approximately early November 2015, another UAS

representative told Plaintiff by phone that UAS could and would “go after” her house.

CLASS ACTION ALLEGATIONS

83. Plaintiff brings this action on her own behalf and on behalf of all other

persons similarly situated pursuant to Rule 23(b)(2) and (b)(3) of the Federal Rules of

Civil Procedure.

84. Plaintiff requests certification of two distinct classes. The Classes are

defined as follows:

CLASS NO. 1 [The Debt Collection Class]: All persons who attended a Corinthian Colleges, Inc. college in California within the last four (4) years, who took out private loans to fund his or her Corinthian education, whose private loans were subsequently assigned to Defendant Balboa, whose loans are currently serviced by Defendant UAS, and to whom UAS has sent one or more debt collection notices.

CLASS NO. 2 [The Balboa Debt Discharge Class]: All persons

who attended a Corinthian Colleges, Inc. college in California within the last four (4) years, who took out private loans to fund his or her Corinthian education, and whose private loans were subsequently assigned to Defendant Turnstile and then to Defendant Balboa.

85. The members of the Classes are so numerous that joinder of all members

is impracticable. Although the exact number of members of each Class is known only

to Defendants at this time, the number and identity of Class Members can be easily

determined from Defendants’ records. Plaintiff is informed and believes, and thereon

alleges, that well over 1,000 Corinthian students who attended school in California in

the last four years have taken out loans that are currently held by Balboa. The Balboa


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Debt Discharge Class is thus believed to include more than 1,000 members. Plaintiff

is also informed and believes, and thereon alleges, that UAS is servicing a large subset

of the Balboa loans. The Debt Collect Class is thus believed to include at least several

hundred members.

86. There are questions of law and fact common to each Class.

87. For the Debt Collection Class, the common questions include but are not

limited to:

a. Whether UAS sought collection of student loan debts that it was on

notice were obtained by Corinthian through fraud;

b. Whether UAS continued to report the student loans as delinquent

on class members’ credit reports, despite knowing that the debt was

obtained by Corinthian’s fraud;

c. Whether UAS’s actions were willful, knowing, and with notice of

Corinthian’s wrongdoing;

d. Whether UAS’s actions violated the Fair Debt Collection Practices

Act;

e. Whether UAS’s actions violated the Rosenthal Fair Debt Collection

Practices Act; and

f. Whether Defendants’ actions violated the California Business and

Professions Code section 17200, et seq.

88. For the Balboa Debt Discharge Class, the common questions include but

are not limited to:

a. Whether Corinthian fraudulently induced Class Members into

borrowing the loans currently held by Balboa and Turnstile;

b. Whether Corinthian misrepresented to Class Members the nature of

the education and job-placement services it would provide in

violation of the Consumer Legal Remedies Act;


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c. Whether Turnstile and Balboa are liable for Corinthian’s violations

of the law because of the contract term subjecting holders of the

debts to claims assertable against Corinthian;

d. Whether Turnstile and Balboa were on notice of Corinthian’s

wrongdoing when they acquired Class Members’ loans, barring

them from claiming “holder in due course” immunity to Plaintiff’s

and Class Members’ claims;

e. Whether Class Members’ loans held by Balboa are voidable as the

result of Corinthian’s fraud;

f. Whether Class Members are entitled to forgiveness or discharge of

their loans held by Balboa due to Corinthian’s violations of the

Consumer Legal Remedies Act;

g. Whether Class Members are entitled to restitution of amounts

already paid on their Balboa-held student loans as the result of

Corinthian’s illegal practices; and

h. Whether Defendants’ actions violated the California Business and

Professions Code section 17200, et seq.

89. These common questions of fact and law predominate over questions that

affect only individual class members. Proof of a common set of facts will establish the

right of each Class Member to recover, and there are ascertainable classes of

individuals entitled to relief.

90. Prosecution of separate actions by individual members of the Classes

would create a risk that inconsistent or varying adjudications with respect to individual

members of the Classes would establish incompatible standards of conduct for the

parties opposing the Classes.

91. Plaintiff’s claims are typical of those of absent Class Members of each

Class.


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92. Plaintiff can and will fairly and adequately represent and protect the

interests of the proposed Classes. Plaintiff has no interest that conflicts with, or is

antagonistic to, the interests of the proposed Classes.

93. Plaintiff has employed attorneys who are experienced and competent in

consumer and civil rights litigation and class actions, and are able to adequately and

vigorously pursue this class action on behalf of all Class Members and to provide

notice to Class Members.

94. Plaintiff is informed and believes, and thereon alleges, that Defendants

have acted on grounds generally applicable to the Classes, thereby making appropriate

final injunctive relief or declaratory relief with respect to the Classes as a whole.

95. A class action under Rule 23(b)(3) is superior to other available methods

for the fair and efficient adjudication of the claims asserted herein given that:

a. The common issues of law and fact, as well as the relatively small

size of the individual Class Members’ claims, substantially

diminish the interest of members of the Classes in individually

controlling the prosecution of separate actions;

b. Many Class Members are unaware of their rights to prosecute these

claims and lack the means or resources to secure legal assistance;

c. No unusual difficulties are likely to be encountered in the

management of these Classes in that questions of law or fact to be

litigated at the liability stage are common to the Classes, as are

injunctive, declaratory, and restitutionary relief issues;

d. A class action will avoid the heavy burden of multiple, duplicative

lawsuits and will allow the Court to adjudicate the claims of all

class members at once and enter an appropriate order regarding

monetary relief with respect to the Class as a whole; and


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e. There has been no litigation already commenced against

Defendants by the members of the Classes to determine the

questions presented.

96. Pursuant to Rule 23(c)(2)(B), Plaintiff requests that notice be sent to the

Debt Collection Class of all claims in the First, Second and Fourth Causes of Action,

and to the Balboa Debt Discharge Class of all claims in the Third, Fourth, and Fifth

Causes of Action in a form to be determined by the parties and the Court upon class

certification.

FIRST CAUSE OF ACTION CLASS VIOLATIONS OF THE FAIR DEBT COLLECTION PRACTICES

ACT, 15 U.S.C. §§ 1692, et seq. (Brought on behalf of members of the Debt Collection Class against Defendants UAS

and Does 1 through 5, inclusive)

97. Plaintiff incorporates by reference the preceding paragraphs as if fully

alleged herein.

98. The Fair Debt Collection Practices Act (“FDCPA”) was enacted in 1968

to counter abusive debt collection practices, prevent abusive debt collectors from

having an unfair advantage over responsible debt collectors, and to make consumer

protections with regard to debt collection more consistent. 16 U.S.C. § 1692(e). These

protections apply regardless of whether the consumer actually owes the underlying

debt.

99. Class Members are natural persons who Defendants allege are obligated

to pay student loan debt arising out of their enrollment in a Corinthian program in

California.

100. Class Members’ student loans were used to pay for their personal

education, which they sought for the personal and household purpose of improving

their ability to obtain better paying and more fulfilling jobs.

101. Defendants are “debt collectors” within the meaning of 15 U.S.C.

§ 1692a(6) as a consequence of the facts alleged above.


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102. Defendants, through their behavior described herein, violated the

restrictions of 15 U.S.C. § 1692e, which prohibits false, deceptive, or misleading

representations. False, deceptive, or misleading representations include any threats to

take any action that cannot legally be taken or are not intended to be taken.

Defendants violated this restriction through their behavior described herein, including

but not limited to sending collection notices that imply that UAS will take legal action

to collect on the debts if they remain unpaid. Such legal action is prohibited by the

terms of the ECMC agreement.

103. Defendants, through their behavior described herein, also violated the

restrictions of 15 U.S.C. § 1692f, which prohibits unfair or unconscionable means to

collect on a debt. Unfair or unconscionable means include the collection of any

amount not authorized by the contract and by law. Defendants violated this restriction

through their behavior described herein, including but not limited to:

a. attempting to collect debts that are uncollectable as the result of

Corinthian’s fraud and failure to deliver the promised job training

and job-placement services, of which Defendants were on notice;

and

b. continuing to report the student loans as delinquent on Class

Members’ credit reports, despite knowing that the debt was

obtained by Corinthian’s fraud.

104. Defendants’ behavior described herein has damaged Plaintiff and Class

Members by negatively affecting their credit without cause, causing them anxiety

resulting from the threats of legal action, and requiring them to take time away from

work to address the collection attempts. The amount of the damages will be proven at

trial.

105. Defendants’ actions described herein were willful, knowing, and with

notice of Corinthian’s wrongdoing.


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106. Plaintiff and Class Members are entitled to statutory damages, costs, and

attorney’s fees, in addition to actual damages.

Whereas Plaintiff and Class Members pray for relief as follows:

1. For an award of actual damages to Plaintiff and Class Members to be

proven at trial;

2. For an award of statutory damages to Plaintiff and Class Members;

3. For an award of costs of suit and attorney’s fees as allowed by 15 U.S.C.

§ 1692k(a)(3); and

4. For such other relief as this Court deems proper.

SECOND CAUSE OF ACTION CLASS VIOLATIONS OF THE ROSENTHAL FAIR DEBT COLLECTION

PRACTICES ACT, California Civil Code § 1788, et seq. (Brought on behalf of members of the Debt Collection Class against Defendants UAS

and Does 1 through 5, inclusive)


alleged herein.

108. The Rosenthal Fair Debt Collection Practices Act, California Civil Code §

1788 et seq. (“Rosenthal Act”) was enacted in 1976 to protect consumers from the

oppressive and over-reaching debt collection practices of creditors and professional

debt collectors. Civil Code § 1788.1(b).1 The Legislature found that “unfair or

deceptive debt collection practices undermine the public confidence which is essential

to the continued functioning of the banking and credit system and sound extensions of

credit to consumers.” Civil Code § 1788.1(a)(2). The Rosenthal Act as originally

passed set forth a list of proscribed collection practices. Then, in 1999, the California

Legislature expanded creditor liability even further, by incorporating violations of the

FDCPA as violations of the Rosenthal Act. Civil Code § 1788.17.

1 All references to the “Civil Code” herein are to the California Civil Code unless otherwise stated.


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109. The student loans at issue herein are each a “consumer debt” as defined

by Civil Code § 1788.2(f) because Plaintiff and Class Members are natural persons and

they obtained the student loans to pay for services obtained for personal and household

purposes, as described above.

110. Defendants at all times relevant herein were “debt collectors” within the

meaning of Civil Code § 1788.2(c), as a consequence of the facts alleged above.

111. Defendants’ actions described herein that were in violation of the

FDCPA are also violations of Civil Code § 1788.17.

112. Defendants’ behavior described herein has damaged Plaintiff and Class

Members by negatively affecting their credit without cause, causing them anxiety over

the threats of legal action, and requiring them to take time away from work to address

the collection attempts. The amount of the damages will be proven at trial.

113. Defendants’ violations of the Rosenthal Act were willful and knowing,

thereby entitling plaintiff to statutory damages pursuant to Civil Code § 1788.30(b).

114. Plaintiff and Class Members are entitled to statutory damages, costs, and

attorney’s fees, in addition to actual damages.


1. For an award of actual damages to Plaintiff and Class Members to be

proven at trial;

2. For an award of statutory damages to Plaintiff and Class Members;

3. For an award of costs of suit and attorney’s fees as allowed by Civil Code

§ 1788.30(c) and 15 U.S.C. § 1692k(a)(3); and



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THIRD CAUSE OF ACTION CLASS VIOLATIONS OF THE CONSUMERS LEGAL REMEDIES ACT,

California Civil Code § 1750, et seq. (Brought on behalf of members of the Balboa Debt Discharge Class against

Defendants Turnstile, Balboa, and Does 6 through 10, inclusive)


alleged herein.

116. Plaintiff is informed and believes, and thereon alleges, that Plaintiff’s and

Class Members’ student loan contracts include a term substantially equivalent to the

following:

ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.

117. Pursuant to such contract language, Defendants are subject to liability for

all claims that Plaintiff and Class Members could assert against Corinthian.

118. Even if the above-mentioned contract terms were not included in the

contracts, Defendants Turnstile and Balboa were on notice of Corinthian’s wrongdoing

when they each acquired Plaintiff’s and Class Members’ loans, barring them from

claiming “holder in due course” immunity to Plaintiff’s and Class Members’ claims.

119. The Consumer Legal Remedies Act is a California consumer protection

statute that prohibits unfair or deceptive acts or practices in the advertising, marketing,

and representation of goods or services offered. Specifically, the Act prohibits a

vendor from representing that the services it offers are of a particular quality or grade

when they are not, from advertising services it does not intend to provide, and from

representing that the services it offers have characteristics, uses, or benefits that they

do not have.


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120. Plaintiff and Class Members are each a “consumer” as defined by Civil

Code § 1761(d) because the student loans at issue were used by them to pay for their

personal educations, which they sought for the personal and household purpose of

improving their ability to obtain a better paying and more fulfilling jobs.

121. Corinthian, a limited liability company, was a “person” as defined by

Civil Code § 1761(c), as that definition includes both individuals, limited liability

companies, and “other group[s], however organized.”

122. The student loans at issue herein were each a “transaction” as defined by

Civil Code § 1761(e) because they were agreements between a consumer and a person

for the performance of education and job-placement services.

123. Corinthian violated Civil Code § 1770 through the behavior described

above, including but not limited to:

a. representing to Plaintiff and Class Members that Corinthian had

higher rates of historical success placing its graduates in careers in

their field than it actually had;

b. representing to Plaintiff and Class Members that Corinthian would

provide meaningful assistance in placing them with jobs, when in

fact it did not;

c. representing to Plaintiff and Class Members that students could

expect salaries and wages after graduating that they did not have

realistic chances of earning;

d. representing to Plaintiff and Class Members that their educations

with Corinthian would have characteristics, such as relevant

externship placement, that their educations did not have, as

described above; and

e. representing to Plaintiff and Class Members that obtaining their

educations with Corinthian had benefits, such as employer contacts


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and prospective employers’ respect for a Corinthian education, that

their educations did not have, as described above.

124. As described above, government investigations have repeatedly found that

Corinthian’s misrepresentations, which were made in violation of Civil Code § 1770,

were intended to induce students like Plaintiff and Class Members to enroll with

Corinthian and enter into the related student loan contracts.

125. As the result of Corinthian’s actions, Plaintiff and Class Members have

been damaged by the negative effects on their credit without cause, the anxiety

resulting from not being able to obtain the types of jobs and employment incomes they

were promised, and the anxiety resulting from struggling to repay their loans without

the employment opportunities and incomes they were promised by Corinthian.


1. For an order declaring that the promissory notes evidencing the student

loan obligations at issue are void and of no legal effect;

2. For an order instructing Defendants to restore to Plaintiff and Class

Members all sums paid on the disputed student loans;

3. For an order instructing Defendants to remove all negative credit

information regarding Plaintiff and Class Members that was furnished to consumer

reporting agencies and is related to the voided student loans;

4. For an injunction barring all future attempts to collect on or otherwise

enforce the student loan obligations at issue; and


FOURTH CAUSE OF ACTION CLASS VIOLATIONS OF CALIFORNIA BUS. & PROF.

CODE § 17200, et. seq. (Brought on behalf of members of both Classes against All Defendants)


alleged herein.


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127. California Business and Professions Code § 17200 et seq. is known as the

Unfair Competition Law. It prohibits businesses from using any unlawful, unfair, or

fraudulent act or practice in the conduct of its business.

128. Defendants’ business acts and practices within the last four years, as

described above, violated multiple federal and state laws, including but not limited to

the Fair Debt Collection Practices Act and the Rosenthal Fair Debt Collection

Practices Act.

129. Corinthian’s business acts and practices within the last four years, as

described above, violated multiple federal and state laws, including but not limited to

the Consumer Legal Remedies Act, California contract law, and Department of

Education requirements for receiving federal financial aid. Defendants, who seek to

reap the benefits of Corinthian’s unlawful actions, are also liable for Corinthian’s

unlawful business practices to the degree allowed by the contract and equitable

principles, as described above.

130. Defendants’ business acts and practices within the last four years, as

described above, offend public policy and are substantially injurious to consumers, in

that Defendants seek to collect a debt known to have been procured by fraud and have

relied upon unfair means to collect that debt.


described above, offend public policy and are substantially injurious to consumers, in

that Corinthian procured the loans at issue herein through fraud and used unfair means

to collect those debts. Defendants, who seek to reap the benefits of Corinthian’s

actions, are liable for Corinthian’s unfair business practices to the degree allowed by

the contract and equitable principles, as described above.

132. Defendants’ unfair and unlawful conduct, as described above, is typical of

how Defendants regularly interact with consumers like Plaintiff and Class Members.

As a result, Defendants’ business acts and practices injure or threaten to injure in the


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future other consumers who—like Plaintiff and Class Members—Corinthian

defrauded.


described above, included deliberate misrepresentations intended to mislead consumers

into enrolling at Corinthian colleges, as described above. Defendants, who seek to

reap the benefits of Corinthian’s actions, are liable for Corinthian’s fraudulent business

practices to the degree allowed by the contract and equitable principles, as described

above

134. Defendants’ business acts and practices, as described above, are likely to

deceive affected consumers as to their legal rights and obligations, and by use of such

deception, may preclude affected consumers from exercising legal rights to which they

are entitled.

135. Defendants’ acts and practices described herein have damaged Plaintiff

and Class Members by negatively affecting their credit without cause, causing them

anxiety over unauthorized legal action, and requiring them to take time away from

work to address the collection attempts.

136. Pursuant to Business & Professions Code § 17203, Plaintiff and Class

Members seek an order enjoining Defendants from engaging in the acts and practices

as hereinabove alleged, and ordering that Defendants disgorge all ill-gotten gains and

provide appropriate restitution to all affected consumers.

137. Plaintiff and Class Members seek recovery of attorneys’ fees incurred in

the filing and prosecution of this action pursuant to Code of Civil Procedure § 1021.5

and any other applicable law.


1. For an order instructing Defendants to restore to Plaintiff and Class

Members all sums paid on the student loans at issue;


enforce the student loan obligations at issue;


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3. For an injunction barring Defendants from collecting on Plaintiff’s and

Class Members’ student loans and any similar loans known to have been procured

through the fraud of Corinthian;


information furnished to consumer reporting agencies related to Plaintiff’s and Class

Members’ student loans known to have been procured through the fraud of Corinthian;

5. For an award of attorney’s fees as allowed by Code of Civil Procedure

§ 1021.5; and


FIFTH CAUSE OF ACTION CLASS REQUEST FOR DECLARATORY JUDGMENT

UNDER 28 U.S.C. § 2201 (Brought by members of the Balboa Debt Discharge Class against all Defendants)


alleged herein.

139. As described above, government investigations have repeatedly found that

Corinthian made knowingly false representations that were intended to induce students

such as Plaintiff and Class Members to rely on those false statements, to enroll with

Corinthian, and to enter into the related student loan contracts.

140. Plaintiff and Class Members justifiably relied upon the representations of

Corinthian’s representatives because Corinthian was in a position of control over

information about its educational programs and services, and because it marketed itself

as an institution that provided students with services including job-training and job-

placement services useful in improving one’s work-related earnings.

141. As the result of Corinthian’s actions, Plaintiff and Class Members have

been damaged by the negative effects on their credit without cause, the anxiety

resulting from not being able to obtain the types of jobs and level of employment

income for which they enrolled in Corinthian’s programs, and the anxiety resulting

from not being able to repay their loans.


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142. The actions of Corinthian as described above constitute fraud in inducing

Plaintiff and Class Members to enroll with Corinthian and borrow the student loans at

issue.

143. For the reasons stated above, Defendants are subject to the same claims to

which Corinthian could be subject.

144. A live and active controversy exists now between Plaintiff and Class

Members on the one hand and Defendants on the other. Corinthian’s fraud, the legal

violations pled in the preceding causes of action, and the injuries sustained by Plaintiff

and Class Members as a result of the fraud and legal violations, justify a cancellation

of the student loan contracts between the parties. Defendants continue to collect on the

student loan contracts even though the obligations of Plaintiff and Class Members

under the student loan contracts should be terminated.

145. Plaintiff and Class Members seek a declaration that the student loan

contracts held by Balboa for student loans borrowed by Plaintiff and Class Members

for their attendance or costs at a Corinthian school are voidable and hereby cancelled.

Because the “benefit” received by Plaintiff and Class Members was negligible,

Plaintiff and Class Members do not need to restore anything to Defendants as part of

cancelling these contracts.


1. For an order declaring that the promissory notes evidencing the student

loan obligations at issue are cancelled as of the date of judgment and no longer of any

legal effect;


information furnished to consumer reporting agencies related to the cancelled student

loans;


enforce the student loan obligations at issue; and



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SIXTH CAUSE OF ACTION INDIVIDUAL VIOLATIONS OF THE FAIR DEBT COLLECTION

PRACTICES ACT, 15 U.S.C. §§ 1692, et seq. (Brought by Plaintiff Deborah Terrell against Defendants UAS and

Does 1 through 5, inclusive)


alleged herein.

147. Defendants violated the restrictions of 15 U.S.C. § 1692e through their

behavior described herein, including but not limited to by threatening to seize

Plaintiff’s home and bank account contents if her student loan debt remains unpaid.

148. Defendants violated the restrictions of 15 U.S.C. § 1692d through their

behavior as described herein, including but not limited to by calling Plaintiff

repeatedly and frequently within the short time periods described.

149. Defendants’ behavior described herein has damaged Plaintiff by

negatively affecting her credit without cause, causing her anxiety resulting from the

threats of losing her home and her limited income, and requiring her to take time away

from work to address the collection. The amount of the damages will be proven at

trial.

150. Defendants’ actions described herein were willful and knowing.

151. Plaintiff is entitled to statutory damages, costs, and attorney’s fees, in

addition to actual damages.

Whereas Plaintiff prays for relief as follows:

1. For an award of actual damages to Plaintiff to be proven at trial;

2. For an award of statutory damages to Plaintiff;

3. For an award of costs of suit and attorney’s fees as allowed by 15 U.S.C.

§ 1692k(a)(3); and



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SEVENTH CAUSE OF ACTION INDIVIDUAL VIOLATIONS OF THE ROSENTHAL FAIR DEBT

COLLECTION PRACTICES ACT, California Civil Code § 1788, et seq. (Brought by Plaintiff Deborah Terrell against Defendants UAS and

Does 1 through 5, inclusive)


alleged herein.

153. Defendants violated the restrictions of Civil Code § 1788.11 through their

behavior as described herein, including but not limited to by calling Plaintiff

repeatedly and frequently within the short time periods described, and threatening to

seize Plaintiff’s home and bank account contents if the debt remains unpaid.

154. Defendants’ behavior described herein has damaged Plaintiff by

negatively affecting her credit without cause, causing her anxiety over the threats of

losing her home and her limited income, and requiring her to take time away from

work to address the collection. The amount of the damages will be proven at trial.

155. Defendants’ violations of the Rosenthal Act were willful and knowing,

thereby entitling plaintiff to statutory damages pursuant to Civil Code § 1788.30(b).

156. Plaintiff is entitled to statutory damages, costs, and attorney’s fees, in

addition to actual damages.

Whereas Plaintiff prays for relief as follows:

1. For an award of actual damages to Plaintiff to be proven at trial;

2. For an award of statutory damages to Plaintiff;

3. For an award of costs of suit and attorney’s fees as allowed by Civil Code

§ 1788.30(c); and



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Dated: July 14, 2016 Respectfully Submitted, PUBLIC COUNSEL Anne Richardson Magdalena Reyes Bordeaux Charles Evans L. Adelaide Anderson STRUMWASSER & WOOCHER LLP Fredric D. Woocher Jenna L. Miara Dale Larson HADSELL STORMER & RENICK LLP Dan Stormer Caitlan McLoon

By /s/ Jenna L. Miara a Jenna L. Miara


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JURY TRIAL DEMANDED

Plaintiff, individually and on behalf of the Proposed Classes, demands a jury on

all issues so triable.

Dated: July 14, 2016 Respectfully Submitted, PUBLIC COUNSEL Anne Richardson Magdalena Reyes Bordeaux Charles Evans L. Adelaide Anderson STRUMWASSER & WOOCHER LLP Fredric D. Woocher Jenna L. Miara Dale Larson HADSELL STORMER & RENICK LLP Dan Stormer Caitlan McLoon

By /s/ Jenna L. Miara a Jenna L. Miara


Exhibit A p.0040

Case 5:16-cv-01535 Document 1-1 Filed 07/14/16 Page 1 of 17 Page ID #:40

Exhibit A p.0041


Exhibit A p.0042


Exhibit A p.0043


Exhibit A p.0044


Exhibit A p.0045


Exhibit A p.0046


Exhibit A p.0047


Exhibit A p.0048


Exhibit A p.0049


Exhibit A p.0050


Exhibit A p.0051


Exhibit A p.0052


Exhibit A p.0053


Exhibit A p.0054


Exhibit A p.0055


Exhibit A p.0056


February 2, 2015 Hon. Richard Cordray Director Consumer Financial Protection Bureau 1700 G St. NW Washington, DC 20552 RE: ECMC Group, Inc.’s purchase of certain Corinthian Colleges, Inc. assets Dear Director Cordray: This letter confirms the terms of the agreement between ECMC Group, Inc. and Zenith Education Group (collectively, “ECMC”) and the Consumer Financial Protection Bureau (“Bureau”) concerning ECMC’s purchase of certain assets of Corinthian Colleges, Inc. (“Corinthian”). These assets include certain schools of Everest College, Everest Institute, Everest University, Everest College Phoenix, and WyoTech (collectively, the “Everest Plus Schools”). The Everest Plus Schools are among those at which the Bureau has alleged, in its civil action against Corinthian, that Corinthian committed violations of the Consumer Financial Protection Act, 12 U.S.C. §§ 5531(a), 5536(a), 5564, and 5565, and the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692a, et seq. In recognition of ECMC’s providing debt relief for Corinthian students and commitment to abide by certain provisions in its operation of the Everest Plus Schools, described below, the Bureau has agreed to release ECMC from any potential liability to the Bureau for any law violations based on the acts or practices of Corinthian that are alleged in the Bureau’s civil action against Corinthian titled Consumer Financial Protection Bureau v. Corinthian Colleges, Inc., 1:14-cv-07194 (N.D. Ill.). We understand that this release only addresses ECMC’s liability for conduct that occurred prior to ECMC’s purchase of the Everest Plus Schools. The Bureau is providing this release because ECMC has performed the following or has committed to the Bureau to do so: (1) ECMC has obtained substantial private student loan debt

relief for current and former Corinthian students.

ECMC has worked cooperatively with the Bureau and the U.S. Department of Education (“Department”) to obtain at least $480 million in debt relief on certain loans for current and former Corinthian students. These loans will see an immediate 40% reduction in the principal balance. ECMC has also taken steps to ensure the third-party holder of these loans follows certain guidelines in collecting on the loans. This includes, for example, a ban on suing or threatening to sue any borrower. ECMC has also taken steps to direct the deletion of any negative reporting information that currently exists on credit reports related to these loans. ECMC will also work to ensure that Corinthian will forgive all principal, interest and other indebtedness under outstanding student loan notes currently held by Corinthian or any of its affiliates.

Exhibit B p.0057


(Page 2 of 3) (2) ECMC has agreed to certain conduct provisions when

operating the Everest Plus Schools.

To help protect future students at the Everest Plus Schools, ECMC has agreed with the Bureau to the following provisions:

Institutional Lending - ECMC commits to the Bureau that it will not offer an institutional loan program to current or future students for a period of seven years and will provide the Bureau with at least 180 days’ advance notice prior to instituting any such program after that date. Additional Conduct Provisions Memorialized with Department- In connection with its purchase and operation of the Everest Plus Schools, ECMC has committed to additional conduct provisions with the Department memorialized in a Title IV HEA Program Participation Agreement effective as of February 2, 2015 (the “PPA”). A copy of the conduct provisions are attached to this letter as Exhibit A. ECMC has committed to the Bureau that it will comply with the PPA’s conduct provisions to the same extent it is obligated to do so by the Department. ECMC commits to the Bureau to comply with each of the PPA’s conduct provisions for as long as it is required by the Department, but in any event for no less than three years.

ECMC also agrees with the Bureau that it will comply with any additional conduct provisions to which it has agreed, or will agree, with the Department in connection with the purchase of any Everest Plus Schools. Respectfully submitted, ____________________________ Dave Hawn Chief Executive Officer

Exhibit B p.0058


RELEASE OF CLAIMS

The Consumer Financial Protection Bureau hereby releases ECMC Group, Inc. and Zenith Education Group (collectively “ECMC”) from all its potential liability to the Bureau for any law violations based on the acts or practices of Corinthian Colleges, Inc. (or any of its affiliates or subsidiaries, collectively “Corinthian”) relating to Corinthian’s ownership and operation of those schools purchased from Corinthian by ECMC (the “Everest Plus Schools”). This Release only releases liability for conduct that occurred prior to ECMC’s purchase of the Everest Plus Schools.

This Release is neither a determination of ECMC’s liability nor a concession by the Bureau that it does not have well-founded claims against ECMC or Corinthian.

Nothing in this Release shall relieve ECMC of its obligation to comply with applicable state and federal law. This Release does not preclude or affect any right of the Bureau to determine and ensure compliance with all laws under its jurisdiction except as expressly set forth above. This Release does not release or otherwise impact the Bureau’s claims against Corinthian in any way.

Date: 2/2/2015 Richard Cordray Director Consumer Financial Protection Bureau

Exhibit B p.0059


Exhibit A

ATTACHMENT A

Additional Terms and Conditions: Zenith Conduct Provisions

I. Independent Monitor

Zenith shall engage, for a period of one year, an independent monitor (Monitor),

acceptable to the United States Department of Education (“Department”). The

engagement may be extended at the Department’s discretion for up to two additional one-

year periods.

The Monitor shall have full and complete access to Zenith’s marketing materials, training

manuals, disclosures to students, placement rate data, and disclosures to accreditors and

state authorizing agencies. This includes, but is not limited to:

o All manuals, presentations, scripts, and other documents used in training and

supervising employees responsible for recruiting and admissions.

o All documents related to the supervision, performance, and compensation of

employees responsible for recruiting, enrolling or admitting students.

o All documents related to complaints made by students and former students to, or

about, any school operated by Zenith.

o All documents and contracts related to the use of lead generators.

The Monitor will create monthly reports of its findings. The Monitor will submit those

reports to Zenith executive management and to the Department for review.

The Monitor will be responsible for, inter alia:

o Ensuring that Zenith’s advertising materials are fair and accurate.

o Ensuring that Zenith’s admission and recruitment activities are in compliance

with state and federal law, and that prospective students are provided all required

disclosures in a timely and accurate manner, including information pertaining to

costs of attendance, the availability of student aid, and program outcomes such as

placement and completion rates.

o Ensuring that Zenith is accurately calculating placement rates and completion

rates, as further defined below; and

o Ensuring that Zenith is complying with the Higher Education Act’s prohibition on

incentive compensation, as regulated by the Department.

The Monitor shall ensure adequate records retention policies are in place as they relate to

representations made by Zenith to current and prospective students. This shall include,

but not be limited to, retention of recordings or electronic files related to enrollment

solicitations and financial aid. The Monitor shall review such records for compliance

with state and federal law and make them available upon request by applicable oversight

entities.

II. Cooling-Off Period and Withdrawals

Exhibit B p.0060


Exhibit A

A cooling-off period is defined as at least five business days from the date a student signs

an enrollment agreement, makes an initial payment, or first visits a school, whichever is

later.

During the cooling-off period, any enrollment agreement signed by a student can be

withdrawn, with all payments made by the student or on the student’s behalf refunded.

Withdrawal can be effectuated by personally appearing at a school to withdraw,

depositing a withdrawal letter in the mail to an address provided by the school (in which

case, the withdrawal will be considered effective as of the postmark date), sending an

electronic withdrawal message to a mailbox maintained by the school for such purpose,

or providing an oral withdrawal notice via a phone number maintained by the school for

such purpose. If the student’s withdrawal is communicated orally, the school will confirm

the withdrawal in writing via an electronic message or letter sent within three days of the

oral communication.

If Zenith is not able to document that a student attended any class during the enrollment

payment period or period of instruction, that student will be deemed withdrawn and

Zenith will not be entitled to retain more than $200 registration or application fees or an

alternative amount that Zenith can demonstrate to have been expended in undertaking

that particular student’s instruction.

Regardless of when a student withdraws, Zenith will not attempt to collect from the

student any funds in excess of the Title IV federal financial aid funds that are required to

be returned to Title IV sources pursuant to 34 C.F.R. § 668.22.

The existence of the cooling-off period, as well as the addresses and phone numbers for

withdrawal notices, must be disclosed on any document regarding enrollment that is

signed by the student as well as on the receipt for any initial deposit or payment toward

tuition and fees. The student must receive a copy of the document that contains the

cooling-off disclosure and withdrawal contact information.

Nothing in this section shall be read to preempt any provision of state or federal law or

regulation that provides greater protection to a student than the provisions in this section.

The provisions in the Section II are subject to implementation as soon as feasible and are

subject to any requirements under state law, accrediting body standards or other

applicable educational regulatory requirements.

III. Mandatory Disclosures

In addition to the mandatory disclosures required by the Department, its accreditors and

any other authorities, Zenith will make placement rate, completion rate, gainful

employment, and accreditation disclosures as described further below.

Calculating Placement Rate

Exhibit B p.0061


Exhibit A

o Placement rates shall be calculated beginning with the first full cohort year that

follows the initial cohort year in which a new program is offered. A program is not

“new” for purposes of placement rate calculation if a school previously offered a

program of substantially similar subject matter, content, length, and ending credential

(e.g., a certificate, an associate’s degree, etc.).

o Placement rates shall be disclosed after the first full cohort year that follows the initial

cohort year in which a new program is offered.

o Zenith shall calculate placement rates under the methodology prescribed by a

school’s accrediting agency and any state agency. In the event that neither a school’s

accrediting agency nor the state agency require the calculation of a placement rate, or

does not dictate the methodology for calculation, Zenith shall calculate placement

rates using the methodology applicable to short-term training programs set forth at 34

C.F.R. § 668.8(g), or as otherwise modified by the Department.

o The school must establish a protocol for performance checks of those employees

responsible for verifying, calculating, and/or disclosing placement rates. Such

performance checks shall be designed to provide a reliable assessment of the accuracy

of disclosed placement rates and the adequacy of a school’s employees’ verification,

calculation, and disclosure of placement rates. The performance checks shall be

carried out regularly by Zenith’s quality assurance or auditing department, or an

independent third party. If a school obtains placement data by contacting employers

and completers/graduates, the information shall be documented in writing, including

the name of the employer, name of the student, address and telephone number of

student and employer, title of position, duties of employment, length of employment,

hours worked, the name and title of the person(s) providing the information to the

institution, the name and title of the person(s) at the school who received and

recorded the information, and the date the information was provided. Zenith shall

maintain a copy of the information for a period no less than two years and take

reasonable action to ensure the accuracy of the information.

Calculating Completion Rate

o The completion rate provided to a prospective student must include data for the

program and campus in which the student will be enrolled. The completion rate shall

be calculated in accordance with the methodology applicable to gainful employment

programs as set forth at 34 C.F.R § 668.412, unless otherwise modified by the

Department.

Accreditation Status: Unless specifically exempted or modified by the Department,

Zenith shall provide the following disclosure to students in their enrollment contracts:

“Except in limited circumstances, courses and credits from [institution] will not transfer

to other schools, and a degree from [institution] will not be honored for admission to an

advanced degree program.” The required accreditation status disclosure will be in a black

box titled “Accreditation Status Disclosure.” The text of the additional disclosure must be

at least 12 point font or one point size larger than any other text on the document in

which the box is located, whichever is larger. This disclosure is subject to the approval

of all applicable governmental and educational regulatory authorities, including but not

limited to applicable accrediting bodies.

Exhibit B p.0062


Exhibit A

IV. Arbitration Clauses

Zenith will include provisions to the following effect in the arbitration provisions in

Zenith students’ standard contract:

o Zenith will institute a voluntary internal dispute mechanism and will not include a

clause in its enrollment contracts that mandates arbitration as a means of resolving

student claims, except in the state of Washington. In the state of Washington, Zenith

will require individual, non-binding arbitration that allows a student to seek judicial

review of that student’s arbitration result. In the state of Washington, Zenith will pay

the entire filing fee, arbitrator’s compensation, and facilities fee for a student who

files for arbitration. Zenith will offer any student the option of arbitrating a claim

without resorting to the internal dispute mechanism.

o In the event that arbitration is chosen by the student, the costs of the arbitration filing

fee, arbitrator’s compensation, and facilities fee will be split equally by the student

and the school and Zenith will reimburse the student’s half of these costs if s/he

prevails. The student will not be responsible for arbitration fees if the student

demonstrates hardship.

o Zenith will agree to hold any arbitration proceeding within the area covered by the

federal district court in which the student resides.

o An arbitrator may award a student compensatory damages, actual damages, or any

student-specific injunctive relief in the arbitration.

o Nothing in this Agreement prohibits the student from filing a complaint with any

accrediting agency, any state or federal regulatory or law enforcement agency,

including the U.S. Department of Education, prior to, after, or during the arbitration,

nor does anything in this Agreement preclude the student from notifying any state or

federal regulatory or enforcement agency regarding the arbitration. Nothing in the

Agreement shall prohibit the student from providing any information exchanged by

the parties during the arbitration to any federal regulatory or enforcement agency.

o Any agreement to maintain the confidentiality of the arbitration process does not

extend to the fact that an arbitration claim has been filed by the student, as well as any

decisions, filings, rulings, awards resulting from the arbitration, and/or any

information exchanged by the parties, with the exception of personally identifiable

information (except that a person may reveal his or her own personally identifiable

information).

o Zenith will provide students with a full copy of their student files upon written

request without the need for a student to initiate arbitration and at no charge.

V. Reporting & Record Retention

Exhibit B p.0063


Exhibit A

In addition to any requirements imposed by state authorizing agencies, accrediting

agencies, and the Department, Zenith shall also report the following information on its

school website within 90 days of the effective date of this Agreement:

o Completion and job placement rates based on the calculation methodologies provided

in this document.

o Cohort default rates, as calculated by the Department pursuant to 34 C.F.R.Part 668,

Subpart N.

o Median loan debt, calculated in accordance with the methodology applicable to

gainful employment programs as set forth at 34 C.F.R. § 668.413.

o The names and credentials of any full- or part- time faculty offering instruction.

If Zenith hires a third party to solicit students telephonically or via email, it will require

such third party to retain audio or electronic files of the solicitation calls and emails for a

period of two years, in accordance with and to the extent permitted under applicable law.

Zenith shall retain all documentation of attendance and refunds issued to students who

withdrew from courses in accordance with applicable Department regulations.

Exhibit B p.0064


Administrative Actions and Appeals Service Group

830 First St., N.E. Washington, D.C. 20002-8019 StudentAid.gov

April 14, 2015

Jack D. Massimino UPS Tracking #

President/Chief Executive Officer 1ZA879640192788623

Corinthian Colleges, Inc.

6 Hutton Circle Drive, Suite 400

Santa Ana, CA 92707

RE: Notice of Intent to Fine Heald College, OPE-ID: 00723400

Dear Mr. Massimino:

This is to inform you that the United States Department of Education (Department) intends to

fine Heald College, San Francisco, California, $29,665,000 based upon the violations set forth in

this letter. Heald College participates in the federal student financial assistance programs

authorized under Title IV of the Higher Education Act of 1965 (HEA), as amended, 20 U.S.C. §§

1070 et seq. and 42 U.S.C. §§ 2751 et seq. (Title IV, HEA programs). The Department is taking

this fine action pursuant to 20 U.S.C. § 1094(c)(1)(F) and 34 C.F.R. § 668.84.

This fine action is based upon the results of the Department’s analysis of documentation

submitted by Heald College’s owner, Corinthian Colleges, Inc. (CCI), to the Department

regarding Heald College’s placement rates, and upon the findings of a program review conducted

by the San Francisco-Seattle School Participation Division at Heald College’s Stockton location

and Heald College’s Salinas location. As discussed in detail below, the Department’s findings

demonstrate that Heald College failed to meet the fiduciary standard of conduct by

misrepresenting its placement rates to current and prospective students and to its accreditors, and

by failing to comply with federal regulations requiring the complete and accurate disclosure of

its placement rates. Therefore, as described below, I have determined that due to the serious

violations committed by Heald College, a fine in the amount of $29,665,000 is warranted.

HEALD COLLEGE FAILED TO ADHERE TO A FIDUCIARY STANDARD OF

CONDUCT

On January 4, 2010, CCI purchased the Heald chain of schools (Heald), which then participated

in the Title IV, HEA programs as individual entities with their own OPE–ID numbers.1 The

Heald chain comprised Heald Concord (OPE-ID 02187500); Heald Fresno (OPE-ID 00809300);

Heald Hayward (OPE-ID 00853200), with additional location Heald Modesto (OPE-ID

00853202); Heald Milpitas (San Jose) (OPE-ID 02593200); Heald Rancho Cordova (OPE-ID

1 The OPE-ID is the institution’s Office of Postsecondary Education Identification Number. This is an eight-digit

number assigned to an institution upon application to participate in Federal Student Aid programs. It is used

throughout multiple systems to identify a school entity (the first six digits) and its individual locations (the last two

digits).

Exhibit C p.0065


Jack D. Massimino


Page 2

00747700); Heald Roseville (OPE-ID 02593100); Heald Salinas (OPE-ID 03034000); Heald San

Francisco (OPE-ID 00723400), with additional locations Heald Honolulu (OPE-ID 00723401)

and Heald Portland (OPE-ID 00723402); and Heald Stockton (OPE-ID 02593300). Heald and

the Department executed temporary Program Participation Agreements (PPAs) for each of the

Heald schools, effective February 22, 2010, and upon the Department’s approval of CCI’s

application for ownership, executed provisional PPAs for each of these schools, effective May 4,

2010. On June 24, 2013, Heald and the Department executed Heald College’s current

provisional PPA, which merged the participating Heald schools into one participating entity

under OPE-ID 00723400. Hereinafter in this letter, “Heald College” and “Heald” are used

interchangeably to refer to the Heald chain of schools before and after the Department’s approval

of the merger.

By entering into a PPA with the Department, an institution and its officers accept the

responsibility to act as fiduciaries in the administration of the Title IV programs. As fiduciaries,

an institution and its officers are subject to the highest standard of care and diligence in

administering the Title IV, HEA programs. 34 C.F.R. §§ 668.82(a) and (b). In order to meet its

fiduciary responsibilities to the Department, an institution must comply with all Title IV

statutory and regulatory requirements. 34 C.F.R. § 668.16(a). As described below, Heald

College and its officers have failed to adhere to a fiduciary standard of conduct with regard to the

calculation and disclosure of its job placement rates.

HEALD COLLEGE FAILED TO COMPLY WITH THE REGULATIONS GOVERNING

DISCLOSURE OF ITS JOB PLACEMENT RATES

Effective July 1, 2010, institutions participating in the Title IV, HEA programs are required to

make available to enrolled or prospective students, through appropriate publications, mailings, or

electronic media, information concerning the placement of, and types of employment obtained

by, graduates of the institution’s degree or certificate programs. 34 C.F.R. § 668.41(d)(5). The

information can be gathered from the institution’s placement rate for any program, if it

calculated such a rate, or other relevant sources. 34 C.F.R. § 668.41(d)(5)(i). The institution is

required to identify the source of the information, as well as any timeframes and methodology

associated with it. 34 C.F.R. § 668.41(d)(5)(ii). An institution is required to disclose any

placement rate it calculates. 34 C.F.R. § 668.41(d)(5)(iii). An institution may satisfy the

requirement to disclose the information required under 34 C.F.R. § 668.41(d) to enrolled

students by posting the information on an internet website or an intranet website that is

reasonably accessible to the individuals to whom the information must be disclosed; and to

prospective students by posting the information on an internet website. 34 C.F.R. §§

668.41(b)(1) and (2). Note that this regulatory provision applies to all types of institutions, not

simply those which offer “gainful employment” programs.

All of Heald College’s programs are gainful employment programs subject to the provisions of

34 C.F.R. § 668.6(b). Beginning July 1, 2011, an institution that offers an educational program

that prepares students for gainful employment in a recognized occupation, and that is required by

its accrediting agency or State to calculate a placement rate on a program basis, must disclose the

rate and identify the accrediting agency or State agency under whose requirements the rate was

Exhibit C p.0066


Jack D. Massimino


Page 3

calculated. 34 C.F.R. § 668.6(b). The institution must include the information required under 34

C.F.R. § 668.6(b)(1) in promotional materials it makes available to prospective students, post

this information on its website, prominently provide the information in a simple and meaningful

manner on the home page of its program website, and provide a prominent and direct link on any

other Web page containing general, academic, or admissions information about the program to

the single Web page that contains all the required information. 34 C.F.R. § 668.6(b)(2).

By entering into a PPA with the Department, an institution agrees, among other things, that:

In the case of an institution that advertises job placement rates as a means of attracting

students to enroll in the institution, it will make available to prospective students, at or

before the time that those students apply for enrollment…the most recent available data

concerning employment statistics, graduation statistics, and any other information

necessary to substantiate the truthfulness of the advertisements; and…relevant State

licensing requirements of the State in which the institution is located for any job for

which an educational program offered by the institution is designed to prepare those

prospective students.

34 C.F.R. § 668.14(b)(10).

On January 23, 2014, the Department sent a letter to CCI in which the Department requested that

CCI provide a copy of school performance disclosure documents for every CCI location,

including Heald College institutions, for the calendar years 2010, 2011, 2012, and, when

available, 2013. The Department also asked that CCI provide the evidence upon which CCI

relied to derive each of the placement rates cited in the disclosures, including a list of all students

either placed or omitted from the placement calculation due to any type of waiver, and the

academic, employment, and/or waiver information specified by the Department. The

Department provided CCI 30 days to submit the required documentation and information, and

sent reminder letters to CCI on April 11, 2014, April 22, 2014, May 13, 2014, June 12, 2014,

July 23, 2014, and August 25, 2014.

Eventually, in its responses to the Department’s requests, CCI assured the Department that CCI

and its institutions “take pains to track and accurately report job placements.” Letter to Martina

Fernandez-Rosario and Gayle Palumbo, p. 2 (Apr. 15, 2014). CCI stated that, because many of

its institutions’ institutional and programmatic accreditors required annual reporting of

placement outcomes in order to measure the school’s or program’s outcomes against a

benchmark, CCI and its institutions had developed a robust process to confirm, and re-verify, the

accuracy of the reported placement results. CCI represented that it went to great lengths in an

effort to ensure that its internal and external reporting of placement statistics was accurate and

reliable. Id. See also Letter to Robin Minor, p. 2 (February 11, 2014), Letter to Charles

Engstrom (Feb. 1, 2013). Despite CCI’s representations, the Department has found that CCI and

Heald College failed to fully and accurately disclose its placement rates and the methodology

used to calculate them in its school performance disclosure documents.

Exhibit C p.0067


Jack D. Massimino


Page 4

1. Heald College’s placement rate disclosures omitted essential and material

information concerning the methodology Heald used to calculate the rates.

In response to the Department’s requests for Heald College’s school performance disclosure

documents and backup documentation, CCI provided, for each of its institutions, documents

entitled “2010 Annual Placement Disclosure,” documents entitled “Program Disclosures,”

carrying an effective date of July 1, 2011, and documents entitled “Program Disclosures,”

carrying a publication date of July 1, 2012.

In the documents entitled “2010 Annual Placement Disclosure,” which had neither a publication

date nor an effective date, each Heald institution disclosed that, because it was accredited by the

Accrediting Commission for Community and Junior Colleges of the Western Association of

Schools and Colleges (WASC-Jr), and WASC-Jr had no prescribed placement rate methodology,

it was the institution that determined the formula used to calculate its placement statistics. These

disclosures each stated that the placement rates reported therein were the placement statistics for

the most recent complete calendar year, and that Heald outcomes are calculated by calendar year,

tracking graduate cohorts from January 1-December 31. These disclosures also stated that

employment is calculated by taking the total number of graduates placed in the field and dividing

this number by the total number of graduates less the number of graduates deferred for

employment because of continuing education, military, health, incarceration, moving outside of

the U.S., non-citizenship, or death.

Heald College also provided for each institution documents entitled “Program Disclosure,”

carrying an effective date of July 1, 2011, which affirmatively stated that the program disclosures

contained therein were provided pursuant to federal regulations, effective July 1, 2011. These

Program Disclosures also stated, in a footnote entitled “Institutional Accreditor,” that, because

WASC-Jr. had no prescribed methodology for calculating placement outcomes, the methodology

used was at Heald’s discretion. In each case, the Program Disclosure stated that placement rates

were calculated as follows: “Heald College placement rate is calculated by taking the total

graduates placed in the field, divided by the total number of graduates, minus graduates deferred

for employment because of continuing education, military, health, incarceration, moving outside

of the U.S., ineligibility to work in the U.S., or death. Time Frame: the cohort used are those

graduates of a calendar year. Employment statuses are recorded up until June 30th of the

following year.” These Program Disclosures also stated that “Placement Rate NA” meant that

there was no data to disclose because the program was too new or the placement rate was not

required to be calculated.

Heald College further provided for each institution Program Disclosures with a publication date

of July 1, 2012, which similarly stated that the program disclosures contained therein were being

provided pursuant to federal law. These Program Disclosures also represented, in a footnote

entitled “Institutional Accreditor,” that because WASC-Jr. had no placement rate methodology,

Heald College determined the placement rates. These Program Disclosures stated that Heald

determined its placement rates by taking the total graduates placed in the field, divided by the

total number of graduates, minus graduates deferred for employment because of continuing

education, military, health, incarceration, moving outside of the U.S., ineligibility to work in the

Exhibit C p.0068


Jack D. Massimino


Page 5

U.S., or death; that the cohort used was the graduates of a calendar year; and that the

employment statuses were recorded up until June 30th

of the following year.

The Department has determined that in late 2013, Heald College switched to a web-based

placement disclosure format. The web-based disclosures Heald College posted on its website

contained the following language: “The job placement rate for students who completed this

program in 2012-2013 is [] %.” The placement rate disclosures also contained a link that stated

“For further information about this job placement rate, click here.” The link led to the following

box:

After review of Heald’s program disclosure documents and backup documentation, the

Department has determined that Heald omitted from its school performance disclosure

documents essential and material information concerning the timeframe and methodology used

to determine its placement rates. Even more serious, Heald did not adhere to the methodology

that it did set forth in those disclosures.

a. Heald College failed to disclose in its 2013/2014 web-based disclosures that its

placement rates excluded students it classified as having deferred employment.

The Department has determined that Heald’s 2013/2014 web-based placement disclosures2 failed

to disclose that students whom the institution deemed to have deferred employment were

excluded from the placement rate calculations. This information was material, and Heald

College’s omission of it was misleading, because the supporting documentation provided by

Heald disclosed that Heald in fact classified high percentages of its graduates as having deferred

employment. The Department has determined that Heald represented with regard to many of its

programs that it placed 100% of its graduates in jobs, when in fact many of the graduates decided

to continue their education, or been determined by Heald to be unavailable for employment prior

to the end of the tracking period for one reason or another. For instance, Heald Portland’s

disclosure for the Criminal Justice AA program stated that the placement rate was 100%. And

2 Heald College updated its web-based placement disclosures in early 2014.

Exhibit C p.0069


Jack D. Massimino


Page 6

yet 58% of the graduates for that program were unavailable for employment. The Department

has concluded that Heald’s failure to disclose the exclusion of students determined to have

deferred employment in its 2013/2014 web-based disclosures was particularly egregious because

Heald disclosed this aspect of its methodology in its prior placement rate disclosure documents

and thus clearly understood how to properly describe its methodology.

b. Heald College falsely represented in its 2013/2014 web-based disclosures that its

placement rates were supported by attestations.

In its 2013/2014 web-based disclosures, Heald College stated in answer to the question, “How

were completers tracked,” that “confirmation of graduate employed is obtained from the

employer and/or graduate via attestation.” The Department’s review of Heald College’s backup

documentation, however, revealed that this was not the case. In many instances, the only

documentation Heald produced to substantiate the graduate’s employment consisted of a

standardized Heald form, HC-CSV-120, with a section entitled “Employment Validation and

Verification Contact Info,” which was signed only by Heald College Career Services personnel

and did not document any attestation by the employer or the student. In other instances, the only

documentation provided was a screen shot from Heald’s CampusVue system purportedly

representing that the student had been placed.

c. Heald College failed in all of its placement rate disclosures to identify with

specificity the cohort whose results were being reported.

In the 2013/2014 web-based placement disclosures, Heald stated that the report covered

“….students who completed the program in 2012-2013,” then indicated in its answer to the

question, “Who is included in the calculation of this rate?,” that the cohort consisted of

“Graduates through 6/30/13 placed in field.” And then, in answer to the question, “When were

the students employed,” stated, ”Schools can place graduates until June 30th

for graduates of the

preceding calendar year.” It is not possible to discern from these statements the beginning and

ending dates of the cohort of Heald graduates whose results were being tracked and reported in

the disclosure.

The same is true with regard to Heald College’s July 1, 2011 and July 1, 2012 Program

Disclosures, and its 2010 Annual Placement Disclosure. In particular, although the timeframe

specified is a calendar year, none of these disclosure indicates which calendar year’s graduates

were being covered in the disclosure. This is in contrast to the descriptions in the July 1, 2011

and July 1, 2012 Program Disclosures regarding the programmatic, as opposed to institutional,

placement rates disclosed in those documents. For example, the July 1, 2012 Program

Disclosure specified, with respect to the placement rates calculated for the Commission on

Accreditation of Allied Health Education Programs (CAAHEP)/Medical Assisting Education

Review Board (MAERB), a timeframe of July 1, 2009 through June 30, 2010, and the July 1,

2011 Program Disclosure specified, with respect to the placement rate calculated for the

Commission on Dental Accreditation (CODA), that the most recent statistics covered those

students who were scheduled to complete their programs in 2009.

Exhibit C p.0070


Jack D. Massimino


Page 7

d. Heald College failed in all of its placement disclosures to state that it counted as

placed graduates whose employment began prior to graduation, and in some cases

even prior to the graduate’s attendance at Heald.

The Department has determined that in all of its placement disclosures, Heald failed to disclose

that it counted as placed graduates who had obtained their jobs prior to graduation from the

school, and in some cases, graduates who had obtained their jobs prior to the date they

commenced their studies at Heald. With respect to the 2013/2014 web-based disclosures, Heald

referred only to “Graduates…placed in the field” and “completers hired for jobs within the

field.” Similarly, in the July 1, 2011 and July 1, 2012 Program Disclosures, Heald referred only

to the “percentage of graduates securing employment” and the “total graduates placed in the

field.”

The fact that Heald counted graduates who had obtained their employment prior to graduation as

having been “placed” by the institution in its placement rates is material, and omission of this

information is therefore misleading, because it is an indication that a Heald credential may not

have been necessary in order for the graduate to secure the employment used to categorize the

individual as having obtained employment in the field. The Department thus considers these

placement rates to be false and misleading statements. See 34 C.F.R. § 668.71(c) (definition of

“misrepresentation”).

Of additional concern, however, is that the Department’s review of Heald’s backup

documentation disclosed that while some previously-employed Heald graduates signed

documents indicating that they were waiving placement assistance because they were already

working in the field, other previously-employed graduates’ placement documents simply

reflected verification by Heald Career Service personnel of the student’s employment, with no

indication that the students had waived placement services and were content with their prior job.

Of even more concern is that follow-up interviews conducted with some of the previously-

employed graduates revealed that although Heald staff made cursory notations on the

employment validation forms to support their conclusion that the graduates were employed in the

field, the graduates’ jobs were not related to their field of study, nor had the students received

promotions or increased responsibilities or otherwise progressed in those jobs because of their

Heald education.

The number of graduates who obtained the jobs used to characterize them as placed prior to

graduation was considerable and therefore also material to the placement rates. The

Department’s analysis of Heald’s backup documentation revealed that, according to CCI’s own

data for 2012 graduates, over one-third (33.8%) of the graduates reported to have been “placed in

field” started their jobs prior to January 1, 2012, and over one-quarter (25.5%) started their jobs

prior to January 1, 2011.

e. Heald paid temporary agencies to hire its graduates to work at unsustainable

temporary jobs at its own campuses and counted these graduates as placed.

Exhibit C p.0071


Jack D. Massimino


Page 8

Follow-up interviews conducted with Heald graduates in order to determine the accuracy of

Heald’s reported placement rates and supporting documentation revealed that in some instances,

Heald paid temporary agencies to hire Heald graduates and place them at temporary jobs at

Heald locations, in order to allow Heald to falsely and misleadingly count these graduates as

placed in their field of study in its placement rate disclosures. Heald failed to disclose this

information when it published its placement rates, and the Department considers this to be a

misleading statement that has the likelihood or tendency to deceive. 34 C.F.R. § 668.71(c)

(definition of “misrepresentation”).

In particular, the Department determined that during 2011, Heald paid agencies named Aerotek

and Ultimate Staffing to place ten graduates from Heald’s IT-Network Systems Administration

(IT-NSA) programs in brief, temporary positions at its Fresno campus. Heald then counted these

graduates as “placed in field” in its placement statistics. These ten graduates represented 35% of

the total 28 graduates of the IT-NSA program at Fresno that Heald represented were placed in

field. When interviewed, one of these graduates confirmed that he was employed for just two

days moving computers, organizing cables, and replacing network cables, and another graduate

confirmed that Aerotek employed him for less than two weeks.

f. Heald College counted placements that were clearly out of the student’s field, as in-

field placements in its placement statistics.

Although Heald claimed in all of its placement rate disclosures that the students reported as

placed were employed in their field of study, the Department has determined through student

interviews that in fact, Heald routinely and misleadingly characterized out-of-field placements

jobs as in-field placements. Examples of this are as follows:

Heald Honolulu classified a 2011 graduate of an Accounting program as employed in the

field based upon a food service job at Taco Bell, where she started working in June 2006.

The graduate stated that her job was to provide food service to customers, that she had

not received a promotion or pay increase as a result of her Heald degree, and that the

position was not in her field of study. Yet Heald counted her as placed in her field of

study, based upon the employment validation form signed by Career Services personnel.

Heald provided no documents substantiating that the student had waived placement

services based upon her employment at Taco Bell.

Heald Hayward counted a 2011 Business Administration graduate as placed in the field

based upon a retail grocery position at Safeway, which the graduate stated was not in his

field of study, and Heald substantiated the in-field placement by stating that the

graduate’s program’s major skills were a component of his “primary job function or used

at least half the time” by listing, as program skills, among other things, “providing

customer service and problem-solving skills, knowledge of store’s product and be

approachable (sic).” The back-up documentation included an internal email chain, in

which Heald Career Services staff forwarded information concerning the graduate’s

employment obtained through the work number to Heald’s Corporate Director of Career

Exhibit C p.0072


Jack D. Massimino


Page 9

Services, who replied: “Not sure if this will fly. See what he does as a Courtesy Clerk –

Money Transactions, etc…”

Heald Hayward counted another 2011 Business Administration graduate as placed in the

field based upon a seasonal clerk position she obtained in Macy’s Shipping and

Receiving Department during November 2010, which the student stated ended prior to

her graduation. The student also stated that she requested job placement assistance from

Heald in order to find a job in her field of study, but was unsuccessful, and that Heald

stopped returning her calls for assistance. Heald’s backup documentation regarding the

placement consisted of an employment validation signed by Heald Career Services

personnel that justified the in-field placement by stating she “uses business software,

apply accounting concepts balancing till and ringing up purchases, collecting money,

merchandise the products and upsale (sic).”

2. Heald Stockton misrepresented the job placement rates for its medical assistant

program to its programmatic accreditor

Heald Stockton advertised in its catalogs that “The Medical Assisting program is accredited by

the Commission on Accreditation of Allied Health Education Programs (CAAHEP) upon the

recommendation of the Medical Assisting Education Review Board (MAERB).”3 MAERB

requires that approved programs report annual placement rates of its medical assisting graduates.

A program review conducted by the Department at Heald Stockton from July 29, 2013 to August

2, 2013 revealed that in its 2012 Annual Report to MAERB, which Heald Stockton submitted to

MAERB on November 21, 2012, Heald Stockton reported that, of the 359 medical assisting

students who graduated between January 1, 2007 through December 31, 2011, 281 students were

placed, resulting in a 78.27% placement rate, which exceeded the MAERB minimum placement

rate of 60%.

Upon review of documentation obtained during the program review, however, the Department

determined that as an initial matter, Heald Stockton’s backup data reflected only 209 placements

rather than 281. In addition, of those 209 placements, (1) Heald Stockton reported as placed at

least 23 students who had in fact completed Heald Stockton’s diploma program in Medical

Assisting, which is not accredited by MAERB, rather than the 98 credit-hour Associates in

Applied Science (AAS) program; (2) Heald Stockton counted 13 students twice, and counted one

student three times;4 (3) although Heald Stockton’s 2012 Annual Report was only to include

those students placed between January 1, 2007 and December 31, 2011, Heald Stockton claimed

70 placements that occurred after December 31, 2011; and, (4) according to notations made on

the backup data, Heald Stockton reported four students as placed when in fact they had waived

placement. The Department’s recalculation revealed that the correct number of placements was

only 109, rather than 281, and that the correct number of graduates was 333, rather than 359.

3 This accreditation entitles an individual to take the state medical assisting test without first obtaining two years of

medical assisting experience. 4 A number of these students were either in the unaccredited program or were placed after the end of the cohort

period (December 31, 2011). The net duplications represent over-reporting of three placements.

Exhibit C p.0073


Jack D. Massimino


Page 10

The correct placement rate was thus only 32.7%, far below MAERB threshold of 60%. Heald

Stockton therefore misrepresented the 2012 programmatic placement rate for its Medical

Assisting program to MAERB.

3. CCI and Heald’s backup documentation did not support its claimed placement rates

The failure of Heald’s backup documentation to support the placement rates that Heald disclosed

for its educational programs was not limited to the programmatic placement rate that Heald

Stockton reported to the MAERB. The Department’s review of the backup documentation

revealed numerous instances wherein, even if all of the placements were accepted as bona fide

in-field placements, the data still do not support the placement rates that Heald calculated and

disseminated. The placement data were missing key fields, most notably the level of the

student’s program of study, and contained numerous duplicates. Enclosure A contains examples

of placement rates that were not supported by Heald’s backup data, and the actual rate that

Heald’s backup data did support.

Title IV regulations define misrepresentation as, among other things, any false, erroneous or

misleading statement an eligible institution makes directly or indirectly to a student, prospective

student or any member of the public, or to an accrediting agency, to a State agency, or to the

Secretary. A misleading statement includes any statement that has the likelihood or tendency to

deceive. 34 C.F.R. § 668.71(c) (definition of “misrepresentation”). A substantial

misrepresentation is any misrepresentation on which the person to whom it was made could

reasonably be expected to rely, or has reasonably relied, to that person’s detriment. 34 C.F.R. §

668.71(c) (definition of “substantial misrepresentation.”) An eligible institution is deemed to

have engaged in substantial misrepresentation when the institution makes a substantial

misrepresentation about the nature of its educational program, its financial charges, or the

employability of its graduates. 34 C.F.R. § 668.71(b).

The Department has determined that Heald’s inaccurate or incomplete placement rate disclosures

were misleading or false; that they overstated the employment prospects of graduates of Heald’s

programs; and that current and prospective graduates of Heald could reasonably have been

expected to rely to their detriment upon the information in Heald’s placement rate disclosures.

Therefore, the Department has determined that the statements in these disclosures constituted

substantial misrepresentations by Heald.

Congress enacted the statutory consumer information requirements, and misrepresentation

provisions, in order to ensure that institutions fully disclose information needed by students to

inform their decision whether to attend an institution, and to hold institutions accountable for

false information that they provide. Heald College’s substantial misrepresentations concerning

its placement rates evidence a blatant disregard for the statutes and regulations governing the

Title IV, HEA programs.

Exhibit C p.0074


Jack D. Massimino


Page 11

As of October 2, 2012,5 the Title IV, HEA program regulations permit a fine of up to $35,000 for

each violation of any provision of Title IV, or of any regulation or agreement implementing that

Title. 34 C.F.R. § 668.84(a). In determining the amount of a fine, the Department considers

both the gravity of the offense and the size of the institution. 34 C.F.R. § 668.92. Pursuant to

the Secretary's decision in In the Matter of Bnai Arugath Habosem, Dkt. No. 92-131-ST (Aug.

24, 1993), the size of an institution is based on whether an institution is above or below the

median funding levels for the Title IV, HEA programs in which it participates. Thus, if the

institution’s funding levels for the Title IV, HEA programs in which it participates is below the

median amount for institutions participating in those programs, the institution will be considered

small.

In the case of Heald College, the latest year for which complete funding data is available is the

2013-14 award year. According to Department records, students enrolled at Heald College

received $66,944,957 in Federal Pell Grant funds, $139,462,899 in Direct Loan program funds,

and $3,713,508 in campus-based program funds during the 2013-14 award year. The latest

information available to the Department indicates that the median funding level for schools

participating in the Federal Pell Grant program for the 2013-14 award year is $1,571,915; for

institutions participating in the Direct Loan programs, it is $2,964,093, and for institutions

participating in the campus-based programs, it is $266,597. Accordingly, Heald College is not a

small institution, because its Federal Pell Grant, Direct Loan, and campus-based funding levels

exceed the median funding levels.

The violations involved in this case are severe, and the potential harm to the government and to

students is also severe. After considering the gravity of the violations and the size of Heald

College, I have set the fine amount as follows:

For Heald’s dissemination of program disclosure documents that did not meet regulatory

requirements concerning disclosure of the institution’s methodology, and which disclosed rates

that were false or misleading, as set forth in this letter, I have set the fine amount at $27,500 for

each of the 464 placement rates discussed in this letter that were disclosed in the documents

disseminated prior to October 2, 2012, and $35,000 for each of the 482 placement rates discussed

in this letter that were disseminated after October 2, 2012, totaling $29,630,000.6 The

Department requires that institutions fully disclose the method used to calculate its placement

rates, count only bona fide placements in its placement rates, and accurately calculate those rates.

For Heald Stockton’s misrepresentation of its job placement rates for its medical assistant

program to its programmatic accreditor, I have set the fine amount at $35,000. Heald’s failure to

provide MAERB with accurate placement data deprived MAERB of important information

required to evaluate the success of Heald Stockton’s program.

5 See 77 Fed. Reg. 60047 (2012), http://www.gpo.gov/fdsys/pkg/FR-2012-10-02/pdf012-24248.pdf. The amount

was previously $27,500. 6 The amounts per violation represent the maximum amounts allowed under the HEA for the time periods in

question. See n.5 and accompanying text, supra.

Exhibit C p.0075


www.gpo.gov/fdsys/pkg/FR-2012-10-02/pdf012-24248.pdf

Jack D. Massimino


Page 12

The fine of $29,665,000 will be imposed on May 5, 2015, unless by that date the Department

receives a request for a hearing or written material indicating why the fine should not be

imposed. Heald College may submit both a written request for a hearing and written material

indicating why the fine should not be imposed. If Heald College chooses to request a hearing or

to submit written material, you must write to me, via overnight mail, at:


U.S. Department of Education

Federal Student Aid/PC/SEC

830 First Street, NE

Room 84F2

Washington, DC 20002-8019

If Heald College files a timely request for a hearing, the case will be referred to the Office of

Hearings and Appeals, which is a separate entity within the Department. That office will arrange

for assignment of Heald College's case to an official who will conduct a hearing. Heald College

is entitled to be represented by counsel at the hearing and otherwise during the proceedings. If

Heald College does not request a hearing, but submits written material instead, I shall consider

that material and notify Heald College of the amount of the fine, if any, that will be imposed.

Any request for a hearing or written material that Heald College submits must be received

by May 5, 2015; otherwise, the $29,665,000 fine will be imposed on that date.

Heald College has applied for recertification to continue to participate in the student financial

assistance programs authorized pursuant to Title IV of the Higher Education Act of 1965, as

amended, 20 U.S.C. §§ 1070 et seq. (Title IV, HEA programs). Heald College’s PPA will

continue to operate on a month-to-month basis while the Department considers the application

for recertification in light of the findings addressed in this letter, along with pending program

reviews. See 34 C.F.R. § 668.13(b)(2).

If Heald has any questions or desires additional explanation of Heald College's rights with

respect to this action, please contact Kathleen Hochhalter of my staff at 303/844-4520.

Sincerely,

Robin S. Minor

Acting Director


Enclosure

cc: Dr. Mary Ellen Petrisko, President, WASC Senior College and University Commission, via

[email protected]

Exhibit C p.0076


mailto:[email protected]

Jack D. Massimino


Page 13

Bobbi Lum-Mew, Program Administrator, Hawaii Post-Secondary Education Authorization

Program, via [email protected]

Juan Báez-Arévalo, Director of Private Post-secondary Education, Office of Degree

Authorization, Oregon Office of Student Access and Completion, via

[email protected]

Department of Defense, via [email protected]

Department of Veteran Affairs, via [email protected]

Consumer Financial Protection Bureau, via [email protected]

Exhibit C p.0077


mailto:[email protected]

Enclosure APLACEMENT RATES BASED ON CCI’S DATA

Grad. Year Campus Name Program No. of

Grads

Reported Campus

Placement Rate

Adjusted Placement Rate from CCI’s Data

2010 Heald San Jose Medical Insurance Billing and Coding (AA Degree) 60 100% 64%

2010 Heald ConcordBusiness Administration - Software Technologies Emphasis (AA Degree)

3 100% 66%

2010 Heald Concord Medical Insurance Billing and Coding (AA Degree) 33 100% 66%

2010 Heald Concord Office Skills (Certificate) 8 100% 71%

2010 Heald Hayward Medical Insurance Billing and Coding (AA Degree) 43 100% 75%

2010 Heald San Francisco Office Skills (Certificate) 7 67% 50%

2010 Heald Portland Medical Assisting (AA Degree) 61 73% 57%

2010 Heald Rancho Cordova Office Skills (Certificate) 5 75% 60%

2011 Heald HaywardMedical Office Administration (AA Degree)

48 100% 38%

2011 Heald Hayward Paralegal (AA Degree) 33 100% 63%

2011 Heald Rancho Cordova

Medical Office Administration (AA Degree)

38 100% 70%

2011 Heald Concord Pharmacy Technology (AA Degree) 22 100% 73%

2011 Heald San FranciscoMedical Office Administration (AA Degree)

29 100% 75%

2011 Heald Rancho Cordova

Medical Insurance Billing and Coding (AA Degree) 27 100% 78%

2011 Heald ConcordIT Network Systems Administration (AA Degree)

11 100% 80%

2011 Heald HaywardIT Network Systems Administration (AA Degree)

34 100% 82%

2011 Heald Fresno Office Skills (Certificate) 4 67% 50%2011 Heald San Jose Paralegal (AA Degree) 26 100% 83%

Exhibit C p.0078




Grads

Reported Campus

Placement Rate

Adjusted Placement Rate from CCI’s Data

2011 Heald HonoluluBusiness Administration - Sales/Marketing Emphasis (AA Degree)

18 100% 83%

2011 Heald Rancho Cordova Paralegal (AA Degree) 20 100% 85%

2012 Heald HaywardIT Network Systems Administration (AA Degree)

30 100% 73%

2012 Heald SalinasBusiness Administration - Entrepreneurship Emphasis (AA Degree)

5 75% 50%

2012 Heald Roseville IT Network Security (AA Degree) 45 100% 85%


Grads

Reported Institutional

Placement Rate

Adjusted Rate from CCI’s Data

2010 Heald Hayward and Modesto

Medical Insurance Billing and Coding (AA Degree) 43 100% 75%

2010Heald San Francisco, Honolulu, and Portland

Criminal Justice (AA Degree) 66 80% 62%



47 93% 82%


Business Administration - Sales/Marketing Emphasis (AA Degree)

12 100% 89%



48 100% 38%

2011 Heald Hayward and Modesto Paralegal (AA Degree) 34 100% 63%



65 100% 68%


IT Network Systems Administration (AA Degree)

34 100% 82%

INSTITUTIONAL RATES

Exhibit C p.0079




Grads

Reported Institutional

Placement Rate

Adjusted Rate from CCI’s Data


Business Administration - Sales/Marketing Emphasis (AA Degree)

18 100% 83%


IT Network Systems Administration (AA Degree)

64 100% 86%

Exhibit C p.0080


UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION Consumer Financial Protection Bureau,

Plaintiff, v.

Corinthian Colleges, Inc. d/b/a Everest College, Everest Institute, Everest University, Everest University Online, Everest College Phoenix, Everest College Online, WyoTech, and Heald College,

Defendant.

Case No. 1:14-cv-07194 Hon. Gary Feinerman

DEFAULT JUDGMENT AND ORDER

Plaintiff, the Consumer Financial Protection Bureau (the “Bureau”) commenced

this civil action on September 16, 2014 under sections 1031(a), 1036(a), 1054, and 1055

of the Consumer Financial Protection Act of 2010 (“CFPA”), 12 U.S.C. §§ 5531(a),

5536(a), 5564, and 5565, for violations by Defendant Corinthian Colleges, Inc.

(“Corinthian”) of sections 1031(a) and 1036(a)(1) of the CFPA, which prohibit unfair,

deceptive, and abusive acts and practices, as well as for Corinthian’s violations of the

Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692d.

On May 4, 2015, Corinthian filed a petition under chapter 11 of the United States

Bankruptcy Code, 11 U.S.C. §§ 101 et seq., with the United States Bankruptcy Court for

the District of Delaware. On August 28, 2015, the bankruptcy court entered an order

confirming a liquidation plan for Corinthian, which would result, upon its Effective

Date, in Corinthian’s dissolution.

On September 11, 2015, Corinthian filed an Answer to the Complaint, and that

same day, Corinthian’s counsel filed a motion to withdraw. In their motion to withdraw,

Corinthian’s counsel quoted its September 9, 2015 Status Report on Bankruptcy: “As a

Case: 1:14-cv-07194 Document #: 58 Filed: 10/27/15 Page 1 of 17 PageID #:1901

Exhibit D p.0081


result of the [liquidation plan] and anticipated dissolution of each of the Debtors,

Corinthian will not be able to continue its defense of this action beyond filing an

Answer” to the Bureau’s Complaint. On September 17, 2015, this Court granted

Corinthian’s counsel’s motion to withdraw.

Due to Corinthian’s counsel’s withdrawal and its statement that it would not be

able to continue its defense of the action, the Bureau filed pursuant to Fed. R. Civ. P.

55(a) for an entry of default against Corinthian on October 6, 2015. On October 14, 2015,

due to Corinthian’s failure to appear or otherwise defend the action, the clerk entered

Corinthian’s default.

Granting a default judgment is within the court’s discretion. Domanus v.

Lewicki, 742 F.3d 290, 301 (7th Cir.2014). In granting such a default, the “well-pled

allegations of the complaint relating to liability are taken as true,” Wehrs v. Wells, 688

F.3d 886, 892 (7th Cir. 2012). “As a general rule, a ‘default judgment establishe[s], as a

matter of law, that defendants [are] liable to plaintiff as to each cause of action alleged

in the complaint.’” Dundee Cement Co. v. Howard Pipe & Concrete Products, Inc., 722

F.2d 1319, 1323 (7th Cir. 1983) (quoting Breuer Electric Mfg. Co. v. Toronado Systems

of America, Inc., 687 F.2d 182, 186 (7th Cir.1982)).

The causes of action are well-pled in the complaint, and Defendant Corinthian

has made clear that it does not intend to further appear or defend the action. Pursuant

to Fed. R. Civ. P. 55(b)(2), upon application by the Plaintiff, the Court now enters a

default judgment against Corinthian for violations of the CFPA and the FDCPA.

It is therefore ORDERED, ADJUDGED, AND DECREED as follows:

I. Findings

1. This Court has jurisdiction over the subject matter of this case and over the

Defendant Corinthian pursuant to 12 U.S.C. § 5565(a)(1) and 28 U.S.C. §§ 1331, 1345.

2


Exhibit D p.0082


https://a.next.westlaw.com/Link/Document/FullText?findType=Y&serNum=1982137044&pubNum=350&originatingDoc=I1e41f9b1941311d9bdd1cfdd544ca3a4&refType=RP&fi=co_pp_sp_350_186&originationContext=document&transitionType=DocumentItem&contextData=(sc.Search)%23co_pp_sp_350_186

https://a.next.westlaw.com/Link/Document/FullText?findType=Y&serNum=1982137044&pubNum=350&originatingDoc=I1e41f9b1941311d9bdd1cfdd544ca3a4&refType=RP&fi=co_pp_sp_350_186&originationContext=document&transitionType=DocumentItem&contextData=(sc.Search)%23co_pp_sp_350_186

2. Venue is proper in this district pursuant to 28 U.S.C. § 1391(b) and 12 U.S.C. §

5564(f).

3. Defendant Corinthian was properly served and submitted an Answer in this

action on September 11, 2015; simultaneously with the filing of that answer, however,

Defendant’s counsel submitted a motion to withdraw and represented to this court that

the Defendant did not intend to further appear in or defend this action, due to the

bankruptcy case it initiated and its impending dissolution, which took effect on

September 21, 2015 under the terms of the liquidation plan for Corinthian, which was

approved by the United States Bankruptcy Court for the District of Delaware on August

28, 2015.

4. On September 17, 2015, this Court granted Corinthian’s counsel’s motion to

withdraw, and acknowledged Corinthian’s intention to no longer appear in or defend

this action.

5. In response to a motion by the Bureau on October 6, 2015, the clerk entered a

default against Corinthian pursuant to Fed. R. Civ. P. 55(a) on October 14, 2015.

6. The Complaint states a claim upon which relief can be granted.

7. Because of Corinthian’s default, Corinthian is deemed to have admitted the well-

pled facts of the complaint; thus, the allegations are taken as true. Wehrs v. Wells, 688

F.3d 886, 892 (7th Cir. 2012).

8. Section 1055 of the CFPA, 12 U.S.C. § 5565, empowers which Court to order a

broad spectrum of relief, including injunctive relief, declaratory relief, restitution to the

affected parties, and disgorgement of ill-gotten gains.

9. Plaintiff is entitled to an Order imposing permanent injunctive relief and

declaratory relief, and requiring Corinthian to make restitution of $531,224,267 to the

borrowers of the private loans that are the subject of this action.

3


Exhibit D p.0083


10. This action and the relief awarded are in addition to, and not in lieu of, other

remedies that may be provided by law, including both civil and criminal remedies.

11. Entry of this Order is in the public interest.

Corinthian Engaged in Deceptive Practices in Violation of the CFPA (Count I)

12. The Complaint contains well-pled allegations that Corinthian violated the CFPA’s

prohibition on deceptive acts and practices by its misrepresentations and omissions

regarding prospective students’ career opportunities.

13. Section 1036(a)(1(B) of the CFPA, makes it unlawful for a covered person to

engage in any deceptive act or practice. 12 U.S.C. § 5536(a)(1)(B). To interpret the

standard for deception under the CFPA, courts have looked to the well-understood

prohibition on deception under the Federal Trade Commission Act (“FTCA”). See 12

U.S.C. § 5536(a)(1)(B); 15 U.S.C. § 45(a)(1); Illinois v. Alta Colleges, Inc., No. 14 C 3786,

2014 WL 4377579, at *4 (N.D. Ill. Sept. 4, 2014) (holding that the prohibitions against

deceptive practices in the CFPA and FTCA are “virtually identical”). An act or practice is

deceptive under the CFPA, as under the FTCA, if: (1) there is a representation or

omission is likely to mislead consumers acting reasonably under the circumstances; and

(2) the representation or omission is material.

14. Corinthian is a covered person and therefore falls under the aegis of the CFPA

because:

a. It engaged in promoting, marketing, offering and providing “consumer

financial products or services” within the meaning of the CFPA, 12 U.S.C.

5481(5) in connection with private loans offered to Corinthian students to

pay for a portion of their tuition known as “Genesis” loans. Compl. ¶ 27.

4


Exhibit D p.0084


b. It brokered the Genesis loans to its students by arranging for such loans

and serving as the single point of contact in doing so. Compl ¶ 28.

c. It provided financial advisory services to students and prospective

students regarding the use of credit in the payment of tuition for its

schools, and in particular, with respect to the Genesis loans. Compl ¶ 29.

15. From approximately March 2008 through July 2014, Corinthian created and

marketed the Genesis loan program to students so that Corinthian could charge its

students more in tuition than would be covered by Title IV funding from the United

States Department of Education (“ED”). Corinthian did this because ED required

schools like Corinthian to obtain at least 10% of their revenues from sources other than

Title IV funds. Thus in order to continue receiving those funds, which was the main

source of Corinthian’s revenue, Corinthian burdened its students with this additional

cost. Compl. ¶¶ 39-41, 106-110.

16. Corinthian’s investment in the Genesis loan program changed over time. Until

about August 2011, and from February 2014 through July 2014, Corinthian purchased

all Genesis loans from the originating lender approximately two weeks after they were

disbursed. Compl. ¶¶ 92-94. From August 2011 until January 2014, another entity

purchased the loans from the originating bank soon after disbursal, with Corinthian

agreeing to 1) pay that entity a so-called “discount fee” of 50% of the face value of each

of the loans, and 2) buy back any loans that became more than 90 days delinquent.

Compl. ¶¶ 97-99.

17. More than 60% of Genesis borrowers have defaulted within three years on these

unaffordable loans. Compl. ¶ 10.

5


Exhibit D p.0085


18. From at least July 2011 to July 2014, Corinthian induced students to take out

these Genesis loans through a series of misrepresentations about the likely employment

outcomes for Corinthian students. Compl. ¶ 42.

19. Corinthian’s job placement rates were misleading to consumers:

a. Corinthian represented to prospective and current students that its

education would offer a “career,” not “just another job,” but in calculating

and presenting job placement rates for graduates, it included temporary

jobs that lasted for just one day. Compl. ¶¶ 49-57.

b. Corinthian presented falsified and overstated job placement rates. It did so

by, among other things:

i. “Fudging the numbers,” or simply misreporting the correct

numbers; Compl. ¶¶ 58-71.

ii. Undercounting the pool of “employable” graduates, thereby

increasing the percentage of employed graduates out of all the

“employable” graduates; Compl. ¶¶ 72-75.

iii. Engaging in a practice of paying employers to hire its graduates

temporarily in order to inflate its favorable job placement statistics.

Compl. ¶¶76-83.

20. Corinthian misrepresented the availability and the utility of its career services,

which it told prospective and current students would provide career assistance for life,

helping them find a job, or improving their resume and interviewing skills. The actual

services provided were limited, such as providing postings already publicly available

from services like Craigslist, and after graduates obtained initial placements, Corinthian

refused to provide any further assistance to them. Compl. ¶¶ 84-89.

6


Exhibit D p.0086


21. Corinthian made these misrepresentations to borrowers and prospective

borrowers of Genesis loans in order to induce them to take out the loans, and those

misrepresentations misled, or were likely to mislead, consumers. Compl. ¶¶ 57, 155-156.

22. Corinthian’s representations about the likelihood of a career for its graduates

were material to borrowers and prospective borrowers of Genesis loans. Compl. ¶ 57.

Corinthian Engaged in Unfair Practices in Violation of the CFPA (Count II)

23. The Complaint contains well-pled allegations that Corinthian violated the CFPA’s

prohibition on unfair acts and practices.

24. Section 1036(a)(1)(B) of the CFPA makes it unlawful for a covered person to

engage in any unfair practice. An act or practice is unfair where “(A) the act or practice

causes or is likely to cause substantial injury to consumers which is not reasonably

avoidable by consumers; and (B) such substantial injury is not outweighed by

countervailing benefits to consumers or competition.” 12 U.S.C. § 5531(c)(1).

25. Corinthian did not only help to extend the Genesis loans to students, but it also

served as a debt collector for those loans. Compl. ¶ 123.

26. Corinthian was particularly incentivized to collect payment in order to prevent

loans from becoming delinquent because it was obligated to purchase such loans after

they were 90 days past due; Corinthian tracked the Genesis loan payments of its

students for this purpose. Compl. ¶ 120-122.

27. Nearly all Genesis loans were made under a payment plan that required monthly

payments from the borrower while in school; Compl. ¶ 116.

28. Borrowers were not aware that Corinthian maintained an interest in the Genesis

loans nor that Corinthian would serve as a debt collector for the Genesis loans. Compl.

¶¶115, 118.

7


Exhibit D p.0087


29. In order to extract payment from its students on the Genesis loans, Corinthian

engaged in acts or practices that were likely to cause or did cause substantial injury to

Genesis borrowers, from at least July 2011 to September 2014, by denying them access

to educational resources for which they had paid, including the following:

a. Corinthian prevented enrolled students from attending class;

b. Corinthian pulled students out of class in front of their classmates;

c. Corinthian denied students access to computers and other educational

materials; and

d. Corinthian otherwise prevented enrolled students from completing their

course of study. Compl. ¶¶ 119-145.

30. By such acts and practices, Corinthian further caused or was likely to cause

substantial injury to Genesis borrowers by publicly disclosing their debts to their fellow

students or to their instructors, thereby causing the Genesis borrowers to suffer

emotional distress and reputational harm. Compl. ¶ 163.

31. Genesis borrowers could not reasonably avoid this injury because they could not

anticipate it; they were unaware that Corinthian maintained an interest in the Genesis

loans or that Corinthian would serve as a debt collector for these loans, and therefore

could not use this information to avoid the loans. Compl. ¶¶ 115, 118,164.

32. The injury suffered by the Genesis borrowers was not outweighed by

countervailing benefits to consumers or competition. Compl. ¶ 165.

Corinthian Violated the FDCPA (Counts III-V)

33. The Complaint contains well-pled allegations that Corinthian violated the

FDCPA.

8


Exhibit D p.0088


34. The FDCPA regulates the conduct of debt collectors. A “debt collector,” under the

FDCPA, can be any person “who regularly collects or attempts to collect, directly or

indirectly, debts owed or due or asserted to be owed or due another.” 15 U.S.C. § 1692d.

35. From approximately August 2011 through at least September 2014, Corinthian

took actions to collect the amounts due on the Genesis loans from its students who were

borrowers in that program. Compl. ¶¶ 119-145.

36. The borrowers whose loans were not yet 90 past due had loans owned by an

entity other than Corinthian; it was only after such loans became delinquent more than

90 days that Corinthian was obligated to purchase them. Compl. ¶¶ 98-100.

37. Therefore, Corinthian was a debt collector within the meaning of the FDCPA for

those borrowers who had loans originated from August 2011 until January 2014 and

whose accounts were less than 90 days delinquent.

38. Section 806 of the FDCPA prohibits debt collectors from “engag[ing] in any

conduct the natural consequence of which is to harass, oppress, or abuse any person in

connection with the collection of a debt.” 15 U.S.C. § 1692d.

39. As described above, Corinthian engaged in harassing, oppressive, or abusive

conduct in connection with the collection of debts flowing from the Genesis loans, from

at least August 2011 through September 2014, in several ways, including the following:

a. Corinthian prevented enrolled students from attending class;

b. Corinthian pulled students out of class in front of their classmates;

c. Corinthian denied students access to computers; and

d. Corinthian otherwise prevented enrolled students from completing their

course of study. Compl. ¶¶ 119-145.

40. Section 805(a) of the FDCPA governs the context of collection by a debt collector.

The FDCPA prohibits a debt collector, without prior consent of the consumer or express

9


Exhibit D p.0089


permission from a court of competent jurisdiction, from communicating with a

consumer in connection with the collection of any debt at a place or time known to be

inconvenient to the consumer. 15 U.S.C. § 1692c(a)(1).

41. Without prior consent or the express permission of court of competent

jurisdiction, from at least August 2011 through September 2014, Corinthian

communicated with Genesis borrowers about collection of their Genesis loans during

class time, which Corinthian knew would be inconvenient to those borrowers because it

jeopardized their academic performance and disrupted the learning environment.

Compl. ¶¶ 119-145, 178.

42. Section 805(b) of the FDCPA restricts communication by a debt collector about a

consumer’s debt with most third parties in most circumstances. The FDCPA prohibits,

without the prior consent of the consumer or the express permission of a court of

competent jurisdiction, debt collectors from communicating, in connection with the

collection of any debt, with any person other than the consumer, his attorney, a

consumer reporting agency if otherwise permitted by law, the creditor, the attorney of

the creditor, or the attorney of the debt collector. 15 U.S.C. § 1692c(b).

43. Without prior consent of the Genesis borrowers or the express permission of a

court of competent jurisdiction, from at least August 2011 to approximately the date of

the closing of its schools, Corinthian’s collection efforts were public and disclosed the

existence of those debts to instructors, classmates and other third parties. Compl. ¶¶

119-145, 181.

44. Therefore, Corinthian violated Sections 805(a), 805(b), and 806 of the FDCPA.

Damages

45. The Bureau seeks both legal and equitable relief against Corinthian from the

Court for the above-referenced violations of law.

10


Exhibit D p.0090


46. In particular, the Bureau seeks restitution for affected consumers harmed by

Corinthian’s illegal conduct.

47. Restitution should provide “the full amount lost by consumers.” F.T.C. v. Febre,

128 F.3d 530, 536 (7th Cir. 1997) (holding that restitution should be comprised of

“consumer redress in the amount of the purchase price of the relevant product or

business”). Any such calculation of restitution, however, should take into account “any

amounts previously returned to the victims.” FTC v. Think Achievement Corp., 144 F.

Supp. 2d 1013, 1019 (N.D. Ind. 2000) aff'd, 312 F.3d 259 (7th Cir. 2002).

48. Moreover, the Bureau seeks disgorgement of all of Corinthian’s ill-gotten gains.

“As an equitable remedy, disgorgement is meant to place the deceived consumer in the

same position he would have occupied had the seller not induced him to enter into the

transaction. Disgorgement also prevents the defendant from being unjustly enriched by

his fraud.” Febre, 128 F.3d at 537.

49. “To ensure that defendants are not unjustly enriched by retaining some of their

unlawful proceeds by virtue of the fact that they cannot identify all the consumers

entitled to restitution and cannot distribute all the equitable relief ordered to be paid,”

courts in such situations grant “orders directing equitable disgorgement of the excess

money to the United States Treasury.” Id. at 537.

50. In this case, Corinthian is liable for the entire amount of debt incurred and/or by

consumers in connection with the Genesis loans, including origination fees and interest,

excluding any amounts previously forgiven.

51. The Bureau bears the burden of proving damages and may do so through

affidavits and other documentary evidence showing the amount and calculation of

damages. See, e.g., United States v. Di Mucci, 879 F.2d 1488, 1497 (7th Cir. 1989)

(“[a]lthough upon default, the well-pleaded allegations of a complaint relating to

11


Exhibit D p.0091


liability are taken as true, allegations in a complaint relating to the amount of damages

suffered ordinarily are not”).

52. The Bureau has established, though competent evidence, that 115,111 affected

consumers were harmed by being deceived into taking out the Genesis loans.

53. The Bureau has established, through competent evidence, that the entire

principal balance of such wrongfully originated loans, minus amounts forgiven, is

$425,408,640.

54. The Bureau has established, through competent evidence, that the entire amount

of fees charged for such wrongfully originated loans, is $40,438,346.

55. The Bureau has established, through competent evidence, that affected

consumers paid or owed $65,377,281 in interest toward those loans, as of June 2015.

56. Therefore, in total, the amount owed by Corinthian to pay redress to affected

consumers is $531,224,267.

57. As explained in the Declaration of Ryan Thomas, attached to the Bureau’s

Motion, this figure is derived from information provided by the servicer of the Genesis

loan program, as well as the current holders of those loans.

II. Definitions

58. The following definitions apply to this Order.

a. “Affected Consumer” means any consumer who took out a Genesis loan to

pay tuition and/or fees to Corinthian from July 2011 through July 2014.

b. “Bankruptcy Trustee” means any person named or appointed by the judge

in connection with the action filed in the United States Bankruptcy Court

for the District of Delaware (Case No. 15-10952-KJC) to represent the

interests of Corinthian, or its estate.

12


Exhibit D p.0092


c. “Genesis Loan” means any private loan, including any loan referred to as

an “EducationPlus loan” made to a borrower who was a Corinthian

student pursuant to a loan program arranged by Corinthian with third

parties from July 21, 2011 through July 2014, where Corinthian agreed to

pay a “discount fee” to some of those third parties for purchasing such

loans from the originating bank and where Corinthian agreed, at times, to

purchase all or some of the outstanding loans.

ORDER

III. Declaratory and Injunctive Relief

IT IS HEREBY ORDERED that:

59. Based on the well-pled allegations of the Complaint, which are taken as true,

Defendant Corinthian has violated the CFPA’s prohibition on deceptive practices, 12

U.S.C. § 5536(a)(1)(B), by misrepresenting career prospects and career services

available to Corinthian students and prospective students in order to induce them to

enter into Genesis Loans.


Defendant Corinthian has violated the CFPA’s prohibition on unfair practices, 12 U.S.C.

§ 5536(a)(1)(B), 12 U.S.C. § 5531(c)(1), by causing substantial injury to Genesis Loan

borrowers by barring or pulling them from class, withholding educational resources,

and otherwise preventing them from gaining access to educational courses or materials

for which they had already paid, in order to pressure them to pay their Genesis Loans.


Defendant Corinthian has violated the FDCPA, 15 U.S.C. § 1692d, by engaging in

harassing, oppressive, or abusive conduct against Genesis Loan borrowers in connection

with the collection of debts from the Genesis Loans.

13


Exhibit D p.0093



Defendant Corinthian has violated the FDCPA, 15 U.S.C. § 1692c(a)(1), because without

prior consent of the consumer or express permission from a court of competent

jurisdiction, Corinthian communicated with Genesis Loan borrowers in connection with

the collection of Genesis Loans at a place or time known to be inconvenient to the

consumer, to wit, while those borrowers were attending classes at Corinthian.


Defendant Corinthian has violated the FDCPA, 15 U.S.C. § 1692c(b), because without

the prior consent of the consumer or the express permission of a court of competent

jurisdiction, Corinthian communicated with prohibited third parties regarding the

collection of Genesis Loans by making collection efforts while the borrowers were

attending classes at Corinthian, which disclosed the existence of those debts to

instructors, classmates, and other third parties.

64. Fencing-in provisions are appropriate to prevent future illegal acts. FTC v.

Colgate–Palmolive Co., 380 U.S. 374, 395 (1965). This is case even where the corporate

defendant may be defunct. Think Achievement Corp., 144 F. Supp. 2d at 1018.

65. Defendant Corinthian is hereby permanently enjoined from committing any

future violations of the CFPA’s prohibition on unfair, deceptive, and abusive acts and

practices.


future violations of the FDCPA’s prohibition against debt collectors engaging in

harassing, oppressive, or abusive conduct in connection with the collection of debts.


future violations of the FDCPA’s prohibition against communications with certain third

14


Exhibit D p.0094


https://a.next.westlaw.com/Link/Document/FullText?findType=Y&serNum=1965125047&pubNum=708&originatingDoc=Id196d39353e111d9a99c85a9e6023ffa&refType=RP&originationContext=document&transitionType=DocumentItem&contextData=(sc.History*oc.Search)

https://a.next.westlaw.com/Link/Document/FullText?findType=Y&serNum=1965125047&pubNum=708&originatingDoc=Id196d39353e111d9a99c85a9e6023ffa&refType=RP&originationContext=document&transitionType=DocumentItem&contextData=(sc.History*oc.Search)

parties in connection with the collection of debts, without the prior consent of the

consumer or the express permission of a court of competent jurisdiction.


future violations of the FDCPA’s prohibition against communicating with a consumer in

connection with the collection of any debt at a place or time known to be inconvenient to

the consumer, without prior consent of the consumer or express permission from a

court of competent jurisdiction.

IV. Order for Redress

IT IS FURTHER ORDERED that:

69. A judgment for equitable monetary relief is entered in favor of the Plaintiff

Bureau and against Defendant Corinthian in the amount of $531,224,267, which

represents the amount of damages owed to Affected Consumers proven through

competent evidence.

70. Any funds received by the Bureau in satisfaction of this judgment will be

deposited into a fund or funds administered by the Bureau or the Bureau’s agent

according to the applicable statutes and regulations to be used for redress for injured

consumers, including but not limited to, refund of moneys, restitution, damages or

other monetary relief for Affected Consumers and for any attendant expenses for the

administration of such redress.

71. If the Bureau determines, in its sole discretion, that providing redress to Affected

Consumers is wholly or partially impracticable, or if funds remain after the

administration of redress is completed, such funds will be deposited in the U.S. Treasury

as disgorgement. Defendant Corinthian will have no right to challenge the choice of

remedies under this section and will have no right to contest the manner of distribution

chosen.

15


Exhibit D p.0095


72. Payment of redress to any Affected Consumer under this Order may not be

conditioned on that Affected Consumer waiving any right.

V. Additional Monetary Provisions


73. In the event of any default on Corinthian’s obligations to make payment under

this Order, interest, computed under 28 U.S.C. § 1961, as amended, will accrue on any

outstanding amounts not paid from the date of default to the date of payment, and will

immediately become due and payable.

74. Corinthian must relinquish all dominion, control, and title to the funds paid to

the fullest extent permitted by law and no part of the funds may be returned to

Corinthian.

VI. Retention of Jurisdiction


75. This Court will retain jurisdiction of this matter for the purposes of construction,

modification, and enforcement of this Order.

VII. Service


76. This Order may be served upon Corinthian through the Bankruptcy Trustee by

certified mail or United Parcel Service, either by the United States Marshal, the Clerk of

the Court, or by any representative or agent of the Bureau.

IT IS SO ORDERED, on 10/27/2015

________________________________ The Honorable Gary Feinerman United States District Judge

16


Exhibit D p.0096


17


Exhibit D p.0097


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