Brent Hunsberger, a business columnist at The Oregonian,  writes here about the trouble with for-profit colleges.  He devotes a fair amount of his attention to Western Culinary Institute, or as it’s now called, Le Cordon Bleu in Portland.  He runs through some numbers unearthed in the class action against Western Culinary Institute and its parent, Career Education Corp. Sobering reading.

For all prospective students at a for-profit colleges and their families, I can recommend Hunsberger’s analysis as a must read.

Something interesting about the case. Counsel for Western Culinary Institute and Career Education Corp used the column to  defend the schools practices.  It makes for interesting reading. And for those closely following this case, I imagine there is some hope that I will respond.

I won’t. That’s because I prefer to try the case in the court room. Not in the press. Fair to say that we expect to dismantle these arguments and look forward to trial when we will present our evidence and argue the case.

I will share two observations. First, we push our kids and tout the benefits of education. That’s a good thing. But this for-profit education industry changes things. Going to college should not be like buying a used car. Students should be able to trust that schools are giving them accurate and complete information about what they are buying.

The other observation is that we trust the jury and that’s really all I need to say.

David Sugerman

Here’s a nice summary of the case from a KGW8 news report. The story aired yesterday on Channel 8. The link is to their web version. Kudos to Anne Yaeger at KGW who did a heck of a job putting together a substantive story so quickly. Interestingly, the students interviewed are eager about their prospects. But it’s not clear whether they realize their repayment obligations and what their likely future wages are yet, as they haven’t yet gotten out into the field.

In the story, the school continues to claim that it sells entry level training. Their ads don’t really say that, though if you look carefully through their recent catalogues, you’ll find that disclaimer. But the entry level training argument is a problem.

The problem is that they don’t tell students that their training provides no meaningful advantage in getting an entry level job in the trade. Those are jobs that are available to people who have no culinary training. And of course, when you get an entry level job off the street, you don’t have high interest debts of $40,000 or more.

What’s missing here is that higher education is supposed to be about opportunities. When students take on massive debt to pursue a college or technical degree, shouldn’t they be able to trust that the school is giving them a straight story?

David Sugerman

P.S.-If you attended Western Culinary Institute on or after March of 2006 and you want more information about the case, feel free to contact us using the links on this web page. I can’t respond to questions about the case in our comments section.

Yesterday, Judge Baldwin issued his decision allowing the consumer fraud case against Western Culinary Institute to go forward as a class action. It’s a long opinion that focuses on the details of class action rules, but it also provides information on what the students claim in the case. I’ve uploaded a pdf scan of the court’s letter opinion here: Judge Baldwin ltr opinion class cert 3 Dec 2009

This is a big victory for former students of the school. Now the case will move forward as a class action.

A few things to understand about Judge Baldwin’s ruling. He certified only the Unlawful Trade Practice Act and common law fraud claims. He denied certification on the breach of contract and unjust enrichment claims. What that means is that the class action will be limited to students who were enrolled at the Portland campus of Western Culinary Institute on or after March 2006. Students who graduated before March 2006 are not eligible to participate in the class action.

The other thing is that Judge Baldwin’s ruling isn’t a decision on the merits of the case. All that he been decided is that the students may pursue the case as a class action. It will be up to a Multnomah County jury to decide the issues at a trial that will be scheduled sometime down the road.

The next steps include getting a signed order and then starting the process of giving notice to the class. If you have not been in touch with us and you’re a former WCI student who wants more information, please feel free to contact me using the links here.

David Sugerman

For those following the proposed class action against Western Culinary Institute and Career Education Corp., we filed our opening brief on class certification today. WCI and CEC will file an opposition, and then we’ll file a reply. Judge Baldwin is scheduled to hear oral argument on the motion at a hearing in Portland on October 29, 2009.

The filing contains materials that are currently subject to a confidentiality order. For that reason, I can’t publish it at this time.  For those keeping track, this case generated rather heated criticism. I was comfortable with the decision we made to file the case. It’s fair to say that nothing that’s happened since has done anything other than to confirm my take on the case.

Not sure what to make of this write-up in the Portland Tribune on the student loan problems. The story oversimplifies, in that it talks about how the mortgage crisis has “infected” the student loan sector. Strictly speaking, I don’t think that’s true.

The student loan industry and some parts of the private education for profit industry created there own problems. It doesn’t take much digging to find a series of nested problems, including outrageous tuition Example: As the article points out, tuition of $45,000 at Western Culinary Institute. As comments following the article note, this qualifies you for a job paying $10-$12 per hour. It doesn’t take much math skill to see that that’s a real problem. Underneath are a number of questionable transactions. For example, how is it that a private lender would ever loan a student $45,000, when the student has no collateral and will graduate and qualify for the low paying jobs? Doesn’t make sense, does it?

David Sugerman

Came across this reality-based post about culinary schools from a restaurant trade insider at Austin Cantina in Seattle. It could have been written about Career Education Corp.’s (CEC) Western Culinary Institute.  Close. Actually, the author was talking about CEC’s California Culinary Academy and he was doing so in the context of a skeptical view of CEC’s new Seattle culinary program.

By way of full disclosure, I am one of the lawyers handling the proposed class action against CEC and Western Culinary Institute here in Oregon. Apart from that, I appreciate the reality view of the restaurant kitchen biz in the Austin Cantina post. Posts like this should be required reading for everyone bitten by CEC’s hype about becoming America’s next big food star.   If you’re thinking about culinary school, look carefully.  Some of the programs are great ways to get into the trade. But there are downsides with many of the programs, including profoundly expensive tuition that leaves graduates swimming in debt and unable to pay back loans with low-paying jobs available to most graduates.

David Sugerman

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