Zovio Loses California Lawsuit on Deceptive Admissions Practices

Author

Phil Hill
March 08, 2022

Zovio, the Online Program Management (OPM) company that sold for-profit Ashford University and created the University of Arizona Global Campus (UAGC, lost the lawsuit filed by the California Attorney General. The San Diego Superior Court ruled that Zovio must pay $22.4 million in penalties, but it also denied the AG request for restitution to students and injunctive relief impacting Zovio’s work with UAGC.

The best summary article on the lawsuit and ruling can be found at Tucson.com, although that is behind a paywall.

The ruling, which California Attorney General Rob Bonta announced in a news release Monday afternoon, stems from a lawsuit the state filed against Ashford and Zovio (formerly known as Bridgepoint Education, Inc.) in 2017.

The suit alleged that the two entities violated the law by providing students false or misleading information about career outcomes, cost and financial aid, pace of degree programs and transfer credits, all in an effort to get them to spend their money at Ashford.

In mid February I argued that while UAGC (and the University of Arizona, which is planning to merge UAGC into the main university) are not legally liable in this lawsuit, they do face risk. With the court’s ruling, Zovio avoided the worst case of a combined $100 million in liability if restitution and injunctions were included, but there is still a major reputation risk and financial risk.

Zovio is a financial mess, unfortunately. The company’s market valuation is a mere $39m, and its total assets as of their last quarterly earnings release is $158m with liabilities of $115m. This is not a rich company that can jump in and easily invest tens of millions of dollars of additional marketing spending, especially if they end up with a $100m legal liability. [snip]

Somebody is going to have to ramp up expenses to at least stabilize the UAGC enrollments, and the scale of investment is large. Zovio is already in a weak financial position, making it unlikely they are able to increase these expenses on the scale needed, and if Zovio loses the California lawsuit, its problem will be even more severe. It is not credible to imply that UAGC and the University of Arizona (due to the merger) have no risk from the California lawsuit.

The trial records show that Zovio did not dispute the multiple findings of the AG’s office about specific misleading statements; rather, the argument made by Zovio was that these were from rogue employees and isolated incidents, and that management did not condone or create a systemic culture to encourage this behavior. The court rejected this argument.

Neither the UCL [Unfair Competition Law] nor FAL [Fair Advertising Law] require the People to separately prove that Defendants authorized deception by their admissions counselors. Rather, deceptive statements by employees are treated as acts by the business’s agents for which the business is liable. [snip] That is, so long as the defendant has the right to control the activities of its employees, it is liable for their misrepresentations. [snip] Nor does a Defendant immunize itself from liability by having policies prohibiting the misrepresentations; rather, it is the efficacy of these polices that matters.

Based on this finding, the court concluded the following:

The Evidence Shows Defendants Deceived Students On Topics

Critical to Student Decisionmaking.

– Defendants Misled Students About Their Ability to Become

Teachers Using Ashford Degrees.

– Defendants Misled Students About Their Ability to Become

Nurses, Social Workers, and Drug and Alcohol Counselors.

– Defendants Misled Students About How Much Financial

Aid They Would Receive and the Costs It Would Cover.

– Defendants Misled Students by Downplaying Their Debt.

– Defendants Misrepresented Federal Financial Aid Rules.

– Defendants Misrepresented the Feasibility of “Doubling

Up”.

– Defendants Understated the Costs of Attendance.

– Defendants Misled Students About the Pace and Time

Commitment of an Ashford Degree.

– Defendants Misrepresented Students’ Ability to Transfer

Credits.

The Evidence Shows that Defendants Knew of Extensive Deception

Within the Admissions Department.

Defendants Tolerated or Promoted Repeat Compliance Offenders

The rationale for rejecting the AG request for restitution and injunctions was that there was no compelling evidence presented in the trial that Zovio profited from the debt collection on student loans or that the admissions practices have continued into the UAGC relationship, despite the same organization running the same function.

In Tucson.com I see that UAGC officials are continuing their same insistence that all risk and liability are on Zovio and won’t impact UAGC.

“UAGC is not a party to the lawsuit and is not liable for the penalties awarded by the court, and the matter is subject to appeal,” Linda Robertson, UA Global Campus’ spokeswoman, told the Arizona Daily Star in response to the ruling. “There is new leadership in place at both UAGC and Zovio and doing right by our students is our number one priority.”

As the for the UA’s reaction to the ruling, university spokeswoman Pam Scott told the Star that the “UA is not liable or responsible for the actions of Ashford University or Zovio addressed by the court’s decision in the lawsuit brought by the California Attorney General,” and that “We are working with the US Department of Education, our accreditation bodies and our governing bodies to bring in UAGC into the University of Arizona.”

Beyond the financial risk (how will UAGC and Zovio fund a turnaround in enrollment) and reputational risk, I would add one other – the follow-on action risk. This lawsuit is not occurring in isolation. It comes at the same time that the Department of Education (ED) and several US Senators are pushing for increased regulation and control over OPM relationships. The California lawsuit ruling gives plentiful ammunition to these bodies to take further action against Zovio.

The lawsuit is over, but the story is not. I’m guessing that Zovio will appeal, and I’m also guessing that the ED will soon take additional actions that will impact the ability of UAGC to stabilize enrollments and become sustainable.