Court of Appeals Hears Consumer Protection Case Involving For-Profit College Hit with $3 Million in Fines

The Colorado Court of Appeals.
The Court of Appeals on Wednesday heard oral arguments in a lawsuit alleging consumer protection and consumer lending law violations by a for-profit college. It was the first appeal to be argued in person at the Ralph L. Carr Colorado Judicial Center in more than a year. / Photo courtesy of the Colorado Supreme Court.

The Colorado Court of Appeals on Wednesday held its first in-person oral arguments since the pandemic began. The first appeal heard at the Ralph L. Carr Colorado Judicial Center was a lawsuit involving $3 million in fines against a for-profit college that allegedly deceived students.

In 2014, the Colorado Attorney General’s Office sued CollegeAmerica, a for-profit occupational school with three Colorado campuses, as well as two of its executives, Carl Barney and Eric Juhlin, for violations of the Colorado Consumer Protection Act and the Uniform Consumer Credit Code.

The state alleged CollegeAmerica made false or misleading statements and failed to disclose information about the earnings and job placement rates attained by its students, the benefits of the school’s EduPlan loans, the existence of certain training and degree programs and whether the school’s Medical Specialties Associates Degree qualified graduates to become limited scope x-ray technicians in Colorado.

The state also alleged CollegeAmerica engaged in unconscionable conduct under the UCCC by inducing students to take on EduPlan loans. According to the state, one of the reasons the institutional loans were unconscionable is because CollegeAmerica knew when it offered them that they would not be repaid in full. 

In August 2020, Denver District Court Judge Ross Buchanan concluded that CollegeAmerica engaged in deceptive trade practices under the CCPA and ordered the defendants to pay $3 million in civil penalties.

The court also found that CollegeAmerica violated the UCCC by engaging in unconscionable conduct with respect to certain EduPlan borrowers, including students who sought EMT certification, sonography degrees or limited scope x-ray licensure as well as students who were incapable of performing college work due to learning disabilities or economic circumstances. The court blocked the college from offering the loans to such students in the future and ordered the defendants to forgive the balance on EduPlan loans for a limited group of students.

On appeal, CollegeAmerica argued the trial court failed to apply the “reasonable consumer” standard, which requires evidence that a “reasonable consumer” would be deceived by advertising or other claims. “That standard is particularly important in a case like this, where the state concedes that the advertising was truthful on its face but alleges that there were some supposed implications that would mislead somebody,” said CollegeAmerica’s attorney, Sean Connelly. “But nowhere did the court find that a reasonable consumer likely would have been misled, nor that anybody in fact was misled.”

However, the state countered that while this standard applies to federal claims, Colorado has not adopted it. “That’s not the law in Colorado,” said Colorado Solicitor General Eric Olson, adding that Colorado case law requires courts to look at the “disparities in expertise and sophistication between the advertiser and the consumer” when determining whether an ad or claim is deceptive under the CCPA. Olson noted that the consumers targeted by CollegeAmerica’s marketing often didn’t have guidance counselors or college-educated parents to guide them through their enrollment decisions, so the information the school provided in ads and other materials was “particularly relevant.”

One of the things that made CollegeAmerica’s marketing misleading, according to the state, was its use of data from the Bureau of Labor Statistics in ads about the benefits of higher education and career training. “Defendants touted wages commensurate with national average wage data when they knew that their graduates were not earning anything close to the advertised wages,” states the attorney general’s opening brief.

CollegeAmerica maintains it did not violate the law by truthfully citing national wage data. However, the trial court said that if CollegeAmerica continues to use BLS or other national wage data in promotional materials, it must conspicuously note that the wage estimates are based on national data rather than “CollegeAmerica-specific data.” The lower court also ordered the defendants to make the median wage data of CollegeAmerica graduates available to prospective students.

Connelly said the trial court overstepped its role by “usurping regulatory bodies” to create new disclosure rules. Olson argued the trial court didn’t establish a new regulatory scheme for everybody but simply imposed a remedy upon a particular defendant, to which Connelly responded with concerns about selective enforcement.

The two sides also disagree about whether the state must prove the alleged deceptive practices have a significant impact on the public. In 2019, the Court of Appeals in State v. Castle Law Group concluded that in a CCPA enforcement action, the state is required to demonstrate a significant public impact. But later that year, the CCPA was amended to state that a district attorney or attorney general need not show significant public impact.

“Thus, the question becomes whether this court’s analysis is controlled by the court of appeals opinion in Castle … or by the newly amended statute, which does not require such a demonstration,” Buchanan stated in his 2020 order. The trial court concluded the amendment was a “clarification of the law, rather than a change,” and did not require the state to prove significant public impact.

CollegeAmerica argues the 2019 amendment is not retroactive, stating in its briefs that retroactivity is “generally frowned upon by both common law and statute,” and neither the statute’s text nor legislative history show clear retroactive intent. During arguments, Connelly noted that the case was tried in 2017 and involves conduct going back to 2009. Moreover, he said, the case should have been decided by 2018 and should have been before the appellate court in 2019, when the significant public impact requirement was in place.

The state argues that even if the amendment is not retroactive, the record shows CollegeAmerica’s “predatory practices” had a significant public impact on Coloradans. “Defendants’ deceptive advertisements reached thousands of Colorado consumers through mail, television, radio, and written materials,” states the attorney general’s opening brief.

In a cross-appeal, the state has asked the appellate court to reconsider the trial court’s conclusion that EduPlan loans were not unconscionable despite its finding that CollegeAmerica knew students would not repay loans. The UCCC’s “key unconscionability factor,” according to the state, is whether a creditor reasonably believed at the time of the loan that there was no reasonable probability of payment in full. “Had the court correctly applied this factor, it would, in all likelihood, have enjoined Defendants from further collecting on EduPlan loans, relieving more than 10,000 CollegeAmerica students from paying on the debt,” the state said in its brief.

CollegeAmerica is not the only for-profit college to be targeted by the Colorado Attorney General’s Office. In 2012, the state settled a lawsuit with Westwood College for $4.5 million dollars over alleged violations of the CCPA and consumer lending laws. On July 9, the U.S. Department of Education announced it will forgive the loans of more than 1,600 Westwood College students, including 115 Colorado borrowers.

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