Friday, April 12, 2024

Cal. appeals court affirms use of statistical sampling to calculate # of FAL/UCL violations in AG action

People v. Ashford University, LLC, 100 Cal.App.5th 485, 319 Cal.Rptr.3d 132, D080671 (Feb. 20, 2024)

Defendants Zovio and Ashfort are the former owners and operators of an online university. The trial court found that for more than a decade, defendants violated the UCL and FAL by making false and misleading statements to prospective students for a total of 1,243,099 UCL and FAL violations. It imposed $22,375,782 in civil penalties.

The court of appeals reduced the penalty for violations outside the FAL’s statute of limitations (a decrease of under $1 million), but approved of the trial court’s general approach to calculating damages, including its use of sampling and its consideration of solicitations from California to out-of-state prospective students.

The court explains:

Ashford University was founded in 2005, when Zovio, which had never offered any degree programs, purchased a small campus-based religious university located in Iowa. Zovio needed this university’s accreditation because only students attending accredited institutions are eligible for federal financial aid. Zovio renamed the school Ashford University (Ashford) and transformed it into an enormous online institution that was marketed as a traditional university. [It has now been rebranded as the University of Arizona Global Campus.]

A typical bachelor’s degree from Ashford cost between $40,000 and $60,000. At its peak, Ashford had more than 80,000 students and generated hundreds of millions of dollars annually, the vast majority from taxpayer-funded sources such as Title IV loans, income-based grants, and G.I. Bill funds.

As Ashford knew, its students led “complex” and “difficult lives” whose vulnerability “heighten[ed]” the need for accurate college advising. They were typically older than traditional college students with an average age of 35 to 37; of low income (between 55 and 76 percent received Pell Grants); around half identified as minorities. Of note, only a quarter of Ashford students graduated, and many defaulted on their student loans.

Despite Ashford’s knowledge of these facts, defendants “created a high-pressure admissions department whose ‘north star’ was enrollment numbers rather than truthful advising. Ashford called its salespeople “admissions counselors” and trained them to build trust and rapport with prospective students. Managers would threaten to fire those who failed to enroll enough students. It was clear to defendants that the boiler-room atmosphere put pressure on salespeople. “[A]dmissions counselors succumbed to the pressure and made deceptive statements to prospective students in order to boost their enrollment numbers and keep their jobs.”

The AG filed an enforcement action alleging that defendants had violated the UCL and FAL by making “myriad misrepresentations to prospective Ashford students regarding the costs of attending Ashford, the availability of financial aid, the ability of Ashford programs to prepare students for careers in certain professions, and the likelihood that academic credits would transfer into and out of Ashford.”

The trial court found in favor of the AG, relying on (1) the testimony of nine student victims who experienced the misrepresentations and relied on them in deciding to enroll at Ashford; (2) the testimony of former Ashford employees who explained how the pressure to meet enrollment numbers, instructions from managers, and other guidance led them to deceive students in order to promote enrollment; (3) the testimony of an expert in college admissions with over 40 years of experience setting industry standards for college advising and leading the admissions, financial aid, and registrar departments of four major universities; and (4) internal company documents and testimony of witnesses affiliated with defendants.

I’m omitting infuriating and tragic details of the misrepresentations, but to get the flavor, one woman testified that she withdrew from a degree program at a different school that would have led to teacher licensure because she was told Ashford’s program was equivalent to the one she was attending. “Only after graduating did she discover this was not the case and her Ashford education did not qualify her to take the state teaching exam.” There were also financial misrepresentations about debt, costs of attendance, and so on.

Defendants’ compliance department used scorecards to assess calls between employees and prospective students; the AG’s expert found relevant deceptive statements in over 20% of scorecards. A compliance director responsible for admissions call monitoring observed that there were “areas where the level of negligence is astonishing.” Defendants received “mystery shopper reports” documenting specific misrepresentations about financial aid and transfer credits. Their response was to discontinue the mystery shopper program. They also didn’t respond meaningfully to student complaints. Instead, they promoted a substantial number of repeat offenders who made relevant statements in at least half of their monitored calls, which encouraged further noncompliance.

Between 2013 and 2020, there were 1,573,400 phone calls between defendants and California students. The AG’s expert drew a random sample of 2,234 calls, of which 561 discussed at least one relevant topic within this sample. Twenty-two percent contained at least one misrepresentation. Defendants retained and produced only California calls, but, based on the testimony in the case, the court concluded that the total number of misleading calls placed by defendants from March 2009 through April 2020 was 1,243,099.

Public prosecutor, including the AG, can seek civil penalties of up to $2500 for each violation of the UCL and FAL; the statute doesn’t specify how violations to be counted, but  “[c]ivil penalties ‘are mandatory once a violation of [the UCL/FAL] is established, and a penalty must be imposed for each violation.’ ” UCL and FAL penalties are cumulative. The statute specifies: “In assessing the amount of the civil penalty, the court shall consider any one or more of the relevant circumstances presented by any of the parties to the case, including, but not limited to, the following: the nature and seriousness of the misconduct, the number of violations, the persistence of the misconduct, the length of time over which the misconduct occurred, the willfulness of the defendant’s misconduct, and the defendant’s assets, liabilities, and net worth.”

Some of the penalties imposed were for calls beyond the statute of limitations, so the court reduced the penalty ($9/call) by the relevant amount.

However, it was generally appropriate to use statistical methods to estimate the number of violations. Defendants argued that the trial court found 1,243,099 violations by extrapolating from a “set of just 126 calls,” but “[w]hether any particular statement was misleading is a highly individualized inquiry that should have been evaluated in the context of the specific coursework and degree programs, financial aid and debt issues, and professional aspirations under discussion (not to mention the follow-up calls made and written materials provided to the same prospective students that were never considered).” However, “[r]epresentative testimony, surveys, and statistical analysis all are available as tools to render manageable determinations of the extent of liability.” The court relied on the People’s experts, a subject matter expert in college admissions and a statistician.  It followed appellate guidance: “If sampling is used to estimate the extent of a party’s liability, care must be taken to ensure that the methodology produces reliable results. With input from the parties’ experts, the court must determine that a chosen sample size is statistically appropriate and capable of producing valid results within a reasonable margin of error.” Defendants could have tried to develop evidence that this extrapolation was invalid at trial; they didn’t.

Each misleading call could be appropriately counted as a separate statutory violation, even if, as defendants asserted, admissions counselors spoke to each victim on average “a ‘half-dozen’ times.” Counting each call was not arbitrary and capricious.  “Each phone call in the violation count was found to contain at least one deceptive statement,” and it wasn’t even clear that the sample included repeat encounters. Even if it did, the individualized solicitations justified counting each call as a violation.

Nor did the trial court wrongly apply California law “extraterritorially” when it counted statements that caused harm outside of California. The misconduct “emanated from California,” and it’s well-established that the UCL/FAL extend to conduct that emanates from California even if victims reside out of state. The AG is not (just) a representative of injured California citizens; the AG acts “under his constitutional authority as the chief law enforcement officer of the state.”

Finally, the penalty wasn’t constitutionally excessive. Nine dollars per violation isn’t excessive even if they committed a lot of violations. Defendants argued that the total was excessive in comparison to the People’s request for $222,119 in restitution on behalf of the nine testifying student victims, and there should only be a single-digit multiplier. This wasn’t a punitive damages case, but a civil penalty, which is fundamentally different: it’s sought by public law enforcement, not private officials; there’s no jury trial and thus no risk of jury passion or prejudice; and the underlying action doesn’t require proof of actual damages. More generally, the harm wasn’t disproportionate to the penalty, considering both monetary and nonmonetary harm.

“The court credited the testimony of the nine student victims, each of whom described how their admission counselors’ misrepresentations led them to make decisions that frustrated their goals, deprived them of years of lost time, cost them financially, and had other detrimental consequences.” It further found significant similarities between the deceptions identified in the sample and the stories of the testifying victims.

Defendants also didn’t show that Zovio was unable to pay. Among other things, “[i]n exchange for paying $54 million to ‘sell’ Ashford to UAGC, Zovio will now receive 15.5-19.5% of UAGC’s tuition revenue for the next 7-15 years.” Even if 10% of net worth is a maximum for punitive damages (which wasn’t clear), that didn’t apply to civil penalties. And, in this case, Ashford earned Zovio “hundreds of millions of dollars ... annually.” Its voluntary depletion of its assets—in order to get a future income stream—couldn’t count in its favor.


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