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MCLE ARTICLE AND SELF-ASSESSMENT TESTBy reading this article and answering the accompanying test questions, you can earn one MCLE credit.To apply for credit, please follow the instructions on the test answer sheet on page 25.by Brenda K. Radmacher and Joel C. GersonTROUBLE ATSCHOOLFor-profit career colleges have faced suits andinvestigations for misleading advertising, predatorylending, and inflated job placement numbersTHE FOR-PROFIT career college industry nationally representsmore than 1,000 colleges and institutions, over 12 percent of thehigher education enrollment.1 In recent years, however, some forprofit career colleges have been under fire. In 2009, the U.S.Government Accountability Office conducted an investigation intothe enrollment practices of for-profit career colleges and found thatat least four out of 15 colleges “encouraged fraudulent practices.”2The U.S. Department of Education and state attorneys general in anumber of states—including California, Massachusetts, and Florida—have investigated and pursued claims for misleading advertising andinflating job placement numbers, among others.In addition to battling claims on the regulatory and prosecutorialfront, for-profit career colleges have faced a number of claims bycurrent and former students alleging misrepresented job placementrates and other statistics. These students have asserted causes of actionfor fraud, negligent misrepresentation, and unfair business practices.In California, many of the student claims are based on Section94800 of the California Education Code and Sections 17200 and17500 of the Business and Professions Code, which is where thePrivate Postsecondary and Vocational Education Reform Act of 2009is codified. The act provides rules for when and how most schoolscan operate, as well as a list of approved and prohibited businesspractices. Students asserting claims under section 94800 generallyallege that the school they attended either operated in an unapprovedmanner, or engaged in prohibited business practices, such as promisingor guaranteeing employment upon graduation. Section 94897(b)specifically states that institutions shall not “promise or guaranteeemployment, or otherwise overstate the availability of jobs upongraduation.”3As a representative example, in 2012, students filed a class actionlawsuit against the United Education Institute (UEI) alleging violationsof various sections of the California Education Code and Businessand Professions Code based upon misrepresentations about studentprospects of receiving “a well-paying job upon graduation.”4 Thestudents alleged that UEI represented that it “employed skilled andaggressive career services personnel that would work extensivelywith [students]” in postgraduate job searches.5 The students claimedthat they remained jobless after graduation and, as a result, wereunable to pay off federal student loans.6 The parties stipulated tobinding arbitration pursuant to the arbitration clause in the enrollmentagreement. In January the class was certified and defined as allstudents who graduated from UEI’s California campuses on or afterBrenda K. Radmacher is a partner with Wood, Smith, Henning & BermanLLP and counsel in the firm’s construction, commercial litigation, real estate,and environmental/toxic tort departments. Joel C. Gerson is an associate inthe firm’s litigation department, specializing in public entity defense, environmental law, premises liability, toxic tort, and professional liability.Los Angeles Lawyer December 2015 23

October 15, 2008, and enrolled before August22, 2013, and, within six months of graduation, did not find employment working atleast 32 hours per week in a single positionwithin their field of study.7In addition to claims under the EducationCode, students frequently allege claims underBusiness and Professions Code Sections 17200and 17500. Section 17200 prohibits unfaircompetition by prohibiting any “unlawful,unfair or fraudulent business act or practice”and any “unfair, deceptive, untrue or misleading advertising.”8 Section 17500 specifically prohibits untrue or misleading advertisingthat is known, or which reasonably shouldbe known, to be untrue or misleading.9In 2004, for example, a student filed aclass action lawsuit against Microskills SanDiego L.P. (Microskills), accusing the postsecondary vocational school of using outdatedstatistical information to induce potentialstudents into believing that the high-techindustry was booming with high-paying jobsavailable to its graduates.10 The complaintalleged that Microskills did not provide accurate information of postgraduate employmentrates, thereby misleading students.11 Microskills moved to compel arbitration, whichwas denied, and lost on appeal.12 In 2006,Microskills closed its doors, leaving over 100students with no option to complete theirdegrees. In 2007, the California attorney general and the San Diego district attorney’soffice filed a complaint against Microskillsalleging unfair business practices pursuantto Sections 17200 and 17500.13 In 2008, thecompany settled and agreed to pay 300,000in restitution to 71 students.14In conjunction with these statutory claims,students have alleged common law claims offraud and negligent misrepresentation. Fraudgenerally occurs when someone gains something of value, usually money or property,by knowingly making a false representationof a material fact to another individual. Tosucceed on a fraud claim, a student mustprove: 1) the school made a representationto the student that was materially false, 2)the school knew that the representation wasfalse when made, or that it made the representation recklessly and without regard forits truth or falsity, 3) the school intended todefraud the student or to induce the student’sreliance, 4) the student reasonably relied onthe representation, and 5) the student washarmed.15 Students that have alleged fraudagainst a for-profit college or vocationalschool typically claim that a college counselormisrepresented future job prospects to thembefore they started at the school.Negligent misrepresentation occurs whena party asserts a fact that is not true and forwhich it has no reasonable ground for believing to be true. Students asserting negligent24 Los Angeles Lawyer December 2015misrepresentation tend to claim that theschool made misrepresentations to themthrough a school’s advertisements, website,or recruiters. To prove negligent misrepresentation students must show that 1) theschool misrepresented a fact, 2) the schoolhad no reasonable ground for believing thefact to be true, 3) the school intended toinduce the students’ reliance on the misrepresented fact, 4) the students reasonably reliedon the misrepresentation, and 5) the studentswere harmed.16 The main difference betweena fraud and negligent misrepresentation claimis that negligent misrepresentation does notrequire an element of scienter or intent.In Goehring v. Chapman University, threeChapman University law students from theschool’s inaugural class alleged both fraudand negligent misrepresentation claims againsttheir former school. The students claimedthat Chapman University Law School didnot fully disclose its ABA accreditationprocess and falsely represented that studentswould be eligible to sit for the California barexam without accreditation.17 However, thestudents failed to satisfy the damages elementsfor their causes of action because they wereunable to prove that their damages weredirectly related to their reliance on the representations made by Chapman University.18While fraud and misrepresentation claimshave been difficult to establish against forprofit career colleges, claims under otherstatutes have been successful. In Spielman v.Ex’pression Center for New Media, for example, students sued their former school underthe now-repealed Private Postsecondary andVocational Education Reform Act of 1989.19The act prohibited private postsecondary educational institutions from misrepresentingtheir business in statements made to students.20Rather than reading all the elements of common law misrepresentation into the statute,the court allowed for a remand so that thestudents’ claims could be interpreted underthe plain meaning of the statute.21 The courtnoted that its own conclusion is “buttressedby the fact that there are similar statutes which have been found not to include theelements of common law fraud unless thoseelements are made express in law.”22Corinthian Colleges Case StudyBy understanding the statutory and commonlaw claims brought by students, for-profitcareer colleges can be better equipped to takepreventative measures to avoid these claims.Educators can also learn from the travailsof other institutions, such as Corinthian Colleges. Founded in 1995, Corinthian was aprofitable educational institution with morethan 100 college campuses. However, inOctober 2013, the California Attorney General filed a complaint against Corinthian andits subsidiaries for misrepresenting job placement rates to students and investors, falseadvertising, and unlawful enrollment provisions barring student claims.23 The complaintaccused Corinthian of marketing false advertisements to potential students that were “isolated,” “impatient,” individuals with “lowself-esteem,” and to students who have “fewpeople in their lives who care about them”and who are “stuck” and “unable to see andplan well for the future.”24 These allegationswere made to show the predatory tactics. Inaddition, Corinthian allegedly used militarysymbols to attract veterans. The claims in thecase were that Corinthian specifically targetedstudents who would be less likely to completethe program or who might be more easilyswayed to enter the program based on therepresentations of the job placement rates.In 2014, following this complaint, theConsumer Financial Protection Bureau suedCorinthian for predatory lending against itsstudents and illegal debt collection.25 Twoyears before that, Corinthian had drawn theattention of the U.S. Senate’s Health, Education, Labor, and Pension Committee, whichstudied the enrollment, retention rates, andprofits of for-profit universities.26 The committee’s study concluded “Corinthian chargessome of the highest tuition prices,” yet it was“unclear whether taxpayers or students [were]obtaining value from the 1.7 billion investmentthat taxpayers made in Corinthian in 2010.”27The U.S. Department of Education thereafter began financially monitoring Corinthian. Because of the department’s intervention, Corinthian was forced to sell a dozenof its campuses and to close 85 more.28 InApril, Corinthian closed the remainder of itscampuses, leaving 16,000 students displaced.Corinthian has since filed for chapter 11bankruptcy, which has effectively stayed litigation against the school.29 As a result, theDepartment of Education instituted a federalloan forgiveness program to help relieve thefinancial burden on the students affected bythe closing of Corinthian’s campuses.30Effectively Preventing Student ClaimsThe case of Corinthian Colleges is an extremeexample of what can happen to for-profitcareer colleges that mislead students withaggressive marketing and deceptive advertising. However, there are many more careercolleges and schools in the business of providing quality trade and technical skills tostudents who need them. Those schools canlearn from the Corinthian example and somesimple strategies to avoid claims by students.First, schools should strive to be openand honest with students about their chancesof graduating and finding a full-time job. Itis imperative to establish transparency withstudents at the outset in order to establish