Interesting piece from the saints at New American Foundation’s Ed Watch blog on recent statements by Career Education Corp.’s CEO, Gary McCullough. Backstory: Mr. McCullough’s Career Education Corp (CEC) owns a number of for-profit trade schools, including Western Culinary Institute here in Portland. By way of full disclosure, I am one of the lawyers representing students pursuing a series of claims against Western Culinary and CEC over the school’s sales and enrollment practices.

Mr. McCullough provided insight into the company’s operations and financial statements in an investor briefing. It’s a let-a-smile-be-your-umbrella kind of thing. According to Mr. McCullough, CEC will emerge from its current problems in fine shape. Here’s the audio of the webcast with the CEO’s rosy predictions of better times ahead.

It gets interesting, as he explains that culinary school enrollments are down this year. But fear not: CEC is limiting admissions to “credit worthy” students, so things should turnaround.

“Credit worthy students” is a great turn of phrase. I guess what that means is that they are now agreeing that the high tuition costs of culinary schools like Western Culinary Institute are not a good lending risk. How could they be? Who would lend money–say $30,000–to students who will earn $10-12 per hour once they get out? What they fail to report is that they routinely sold students on their bright and lucrative futures, getting them to borrow tremendous sums for the “opportunity” to work in a kitchen for the kind of pay that can’t justify this level of debt.

All of this raises as many questions as it answers.  For example, I wonder how recently Mr. McCullough learned that there was a problem with credit worthiness? The smart folks at New America Foundation hypothesize that CEC has seen the light because it will now be supplying a chunk of the student loan cash to finance its students.

The other question is how a school like WCI can function in this environment. They charge eye-popping tuition that  does not provide significant net benefit to students.  How could there ever be a credit worthy student who will be upside down in the deal from the get-go?

Fun stuff, this.

David Sugerman

There is nothing surprising about Friday’s ruling by the U.S. Court of Appeals ruling that Myspace is immune from a lawsuit brought by a parent of a sexually abused child. In Doe v. Myspace, Inc., the Fifth Circuit ruled that the Communications Deceny Act, 47 USC Sec 230 (”CDA”) bars claims against providers like Myspace for damages that arise out of publication by providers of content supplied to the provider. For law geeks keeping score at home, the Court relied on CDA Sec 230(e)(3).

This is the whole preemption thing again. At least this is true preemption that was clearly intended by Congress, rather than a political agenda being pushed by an out-of-control administration.

But that’s not as interesting to me as how this ruling shines a light on censorship by web 2.0 providers like Facebook and Myspace. The CDA protects publishers of content. So why would Facebook remove posts that were critical of Career Education Corp? Facebook couldn’t be required to answer to claims under the CDA. So what gives?

I can’t see any other explanation other than web 2.0 providers play a kind of 3-card Monte with censorship rules. When faced with a liability lawsuit, they rightfully raise the CDA as a complete defense. Fine. That’s how Congress wrote the law. While I have trouble with the result in Doe, it’s about personal beliefs and nothing relating to the correct interpretation of the CDA. But when other interests demand the removal of content–like unflattering posts–the provider should stick to the same position.

To be sure, I’m not a big fan of the CDA’s grant of wide immunity. In pre-web days, publishers like newspapers could be held to answer for harm caused by defamation if they recklessly published untrue information. Personally, I would prefer that model so that web providers take some responsibility for content. But maybe I’m misguided on this particular issue.

Interestingly, there may come a time down the road where web 2.0 providers’ inconsistent actions create a different set of problems. I can foresee that lawyers representing future Doe families will have new and interesting arguments to get around the CDA if Facebook censors for its friends but doesn’t take similar steps for trolling sexual predators. I realize this last thought might be a little obtuse. Apologies. Untangling it would only lead to a long and dense post that would surely bore you to tears. You can thank me for being a self-censoring law geek….

David Sugerman

Happened sooner than I expected, but today Sallie Mae’s CEO predicted an impending train wreck. Sallie Mae lost $104 million in the first quarter, reportedly due to drying up funds. My guess is that this is going to wreak major havoc on the trade-school-for-profit industry. And while I’m no industry analyst or smart guy, I can’t help but wonder if there’s going to be a double whammy. Maybe Sallie Mae sold all the paper after it wrote a bunch of high interest student loans, but some entity is holding the bag. Students graduating $50,000-100,000 in high-interest debt are coming into a dismal economy. And worse, many have attended notorious culinary programs that qualify them for low-paying kitchen jobs. So what happens when student borrowers start to defer or even default on their loans? So the private trade-school-for-profit industry seems to have made out pretty well in this deal. They got their money. Maybe I’m missing something, but it seems like the students and lenders are left in a tough position. David Sugerman

Great piece on the recent closing of a trade school for profit that left students holding the bag. New America Foundation’s Higher Ed Watch chronicles the closing of the Silver State Helicopters school in California. Higher Ed Watch makes it clear that this is simply one example of a much bigger problem. Looks like the California Culinary Academy case and our own Western Culinary/CEC case fit into the same framework.

Good to know that Higher Ed Watch is taking a broader view of the problems.

David Sugerman

For those following the consumer case on behalf of students and graduates against Western Culinary Institute and Career Education Corp., a copy of the amended is available for download.  Link should be below. (I’m crossing my fingers that I’ve done this correctly!)

David Sugerman

Gozzi et al v. Western Cul Inst Ltd, Amended-complaint

My co-counsel on the Western Culinary Institute case, Brian Campf, pointed this one out to me. Reading the San Francisco Weekly’s story on San Francisco’s California Culinary Academy leaves me with the odd feeling that I’ve heard this one before. If you’re following the Western Culinary Institute case, you owe it yourself to read this story.  Seems very similar to the WCI story.  I suppose that could be coincidence. Of course, both schools are owned by Career Education Corp. So maybe it’s no coincidence at all.

David Sugerman

It’s been a major torrent of calls and emails on the Western Culinary Institute case. Just a quick note if you’ve tried to reach us, and I haven’t gotten back to yet. If you attended the school, I probably don’t need to tell you that we’re getting a lot of calls. If you’re waiting for a call or email back, we’ll get to you as soon as we can finish digging out.

Meantime, if you would like to talk to one of the team members on this case, please flag us with the contact button up there in the nav bar. We’ll get with you soon. The good news is that if you think you got a horrible raw deal from Western and CEC, you’re hardly alone.

Also, we’re really interested in talking to former WCI employees about your experience at the school. Feel free to call or email, and we’ll get back with you as well.

Thanks for your patience.

David Sugerman

Friday’s Oregonian includes a letter to the editor from a dissatisfied citizen, one Robin DesCamp, about the class action lawsuit we filed against Western Culinary Institute and its parent corporation Career Education Corp. Oregonian, B-7 (Mar. 7, 2008; sorry, but it doesn’t appear to be on-line).

Ms. DesCamp apparently has issues. According to her, the quote attributed to me in The Oregonian’s Thursday story provides no “valid basis for a cause of action against an educational institution.” Her prose–with all of its legal terminology–suggests that Ms. DesCamp went to law school. A quick search confirms that she is an Oregon attorney.

Ms. DesCamp mistakenly believes that “two women are suing the trade school for not providing them with lucrative careers upon graduation.” Well that’s some nice rhetoric, but it’s completely incorrect. Two women are suing because they claim were defrauded by two corporations in the trade-school-for-profit business. They seek repayment of tuition and debt relief, and they are not alone.

The complaint is available for Ms. DesCamp’s review. It might actually enlighten her to read it. It’s in this post: http://www.pspc.com/2008/03/western-culinary-institutecec-class-action-complaint

Unless she’s talked to WCI students and witnesses or attended the school, Ms. DesCamp won’t know the facts of how the students have been defrauded. It’s not proper to discuss them here, but let’s just say that the truth usually outs.

There is a certain bitterness and meanness in her letter. For example, she tries to compare the student debt load from trade school with that of a four-year university program. Weird stuff, when you think about it. You go to trade school to learn, well, a trade. That’s to say, you are there precisely for that reason. That’s a little different than what happens when you go to a four-year university to major in English literature. (Note for the humor challenged: I really don’t have anything against English majors….) To ridicule this case by suggesting I should handle bigger ones is wrong.

Ms. DesCamp should know better. As an Oregon lawyer, she surely knows that you can’t accurately evaluate a case based upon a quote in the news reports. Her assessments of what I think, what the plaintiffs knew, what claims they are making, and what relief they seek are all wrong. That’s fine. But if she is going to offer comment, it seems only fair and right and good that she at least learn the facts.

David F. Sugerman

In an interesting blog on concurringopinion.com, Daniel Solove explores the emerging problem of Facebook censorship. http://www.concurringopinions.com/archives/2008/03/facebook_banish.html

I am taken by both the post and the responses. Mr. Solove relates the experience of David Lat, who was temporarily banished from Facebook.

In investigating a potential consumer class action against Career Education Corp. (CEC) and its subsidiary WCI, Ltd., I found an active Facebook group called IADT Truth Advocates. The group was run by one Charles Hobbs, a gentleman from Tampa who was concerned about widespread complaints by students at various CEC schools throughout North America.

In this brave new Web 2.0 world, I used the IADT page to try to find out more about Western Culinary Institute, a Portland, Or. CEC culinary school that has been the subject of some concern. As with any information source, it was helpful in locating witnesses as we investigated a case on behalf of Western Culinary students.

In the course of those postings in late Feb ‘08, I reviewed postings from Mr. Hobbs indicating that Facebook and CEC were trying to shut down the site and asking for assistance. While I was drawing inferences, it sounded like CEC was threating litigation. There were the usual impassioned responses about the First Amendment. (No go for obvious reasons, as comments on the Solove blog correctly note.)

I recently went back to post an update on the IADT Truth Advocates wall, only to learn that Mr. Hobbs has been removed, and many posts have been deleted. There was a link to a chilling post at the top of the wall from a woman connected with CEC about why Mr. Hobbs was removed and how CEC was trying to answer complaints. It looked as if my prior posts had been purged.

I understand that Facebook and other Web 2.0 sites are not subject to 1st amendment limitations on their own operations because they are private sites. Even so, one has to mourn the fact that such a powerful forum with so much potential is run with a heavy hand. But the bigger problem is whether a private third party should be able to get its way.

I don’t know the facts, but it’s easy to draw inferences–perhaps incorrectly– that CEC pressured Facebook, and Facebook pulled the plug. Assuming that CEC pressured Facebook to purge Hobbs and postings CEC disliked, it would seem that the Facebook terms and conditions might need to be expanded to include that, “Money talks,” and we will flush you if someone of greater import or economic power demands it, regardless of the truth of your speech and your compliance with all our other terms and conditions.

Chilling.

David F. Sugerman

We’ve been getting a lot of calls about the class action case filed against WCI and CEC yesterday. So here’s a scanned copy of the complaint filed yesterday in Multnomah County Circuit Court. As well, there are other blog entries on the case earlier on.

David F. Sugerman

gozzi-v-wci-ltd-and-cec-complaint.pdf