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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