People v. Ashford Univ.

319 Cal.Rptr.3d 132

The PEOPLE of the State of California, Plaintiff and Respondent,

v.ASHFORD UNIVERSITY, LLC, et al., Defendants and Appellants.

D080671

Court of Appeal, Fourth District, Division 1.

Filed February 20, 2024

APPEAL from a judgment of the Superior Court of San Diego County, Eddie C. Sturgeon, Judge. Affirmed as modified. (Super. Ct. No. 37-2018-00046134-CU-MC-CTL)

Gibson, Dunn & Crutcher, Theane D. Evangelis, Los Angeles, Jeremy S. Smith, Daniel M. Rubin, Palo Alto, and Ryan Azad, San Francisco, for Defendants and Appellants.

Rob Bonta, Attorney General, Nicklas A. Akers, Assistant Attorney General, Michael E. Elisofon, Emily C. Kalanithi, Rachel A. Foodman, Joseph M. Lake and Bree B. Baccaglini, Deputy Attorneys General, for Plaintiff and Respondent.

DO, J.

INTRODUCTION

Zovio, Inc. (Zovio) and Ashford University, LLC, a California limited liability company (together with Zovio, defendants) are the former owners and operators of an online university. Following a bench trial, the trial court found that for more than a decade, defendants violated the unfair competition law (UCL) (Bus. & Prof. Code,¹ § 17200 et seq.) and false advertising law (FAL) (§ 17500 et seq.) by making false and misleading statements to prospective students. The court determined defendants committed 1,243,099 UCL and FAL violations and imposed $22,375,782 in civil penalties.

Defendants do not challenge the trial court’s liability determination. Instead, their appeal is focused on obtaining a reduction in the $22,375,782 penalty award. They make the following contentions: (1) the penalty should be reduced because the court included in the penalty count violations occurring outside the FAL’s statute of limitations; (2) the court erred in the manner in which it calculated the number of violations; (3) the penalty should be reduced to avoid violating extraterritoriality principles; (4) the penalty should be reduced because it does not bear a reasonable relationship to the harm proven at trial; and (5) the penalty should be reduced because it is excessive given defendants’ financial condition.

We agree with defendants’ first contention and conclude the tidal court inadvertently penalized defendants for expired FAL violations. Although defendants ask us to reduce the penalty by $939,279, we conclude this overstates the extent of the error. We shall reduce the judgment by $933,453. We are unpersuaded by defendants’ remaining claims of error. Accordingly, we affirm the judgment as modified.

FACTUAL AND PROCEDURAL BACKGROUND

I. Ashford University²

Zovio is an education technology services company that provides student enrollment services to higher education institutions. Until December 2020, Zovio, through its wholly-owned subsidiary, Ashford University, LLC, also owned and operated Ashford University.

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. In December 2020, a California entity affiliated with the University of Arizona acquired Ashford and rebranded it as the University of Arizona Global Campus (UAGC).

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.

The students who enrolled at Ashford were described by Ashford’s former presidents as leading "complex" and "difficult lives." Based on Zovio’s own assessments from 2009 through 2020, Ashford students were typically older than traditional college students with an average age of 35 to 37, and of low income (between 55 and 76 percent received Pell Grants³). Around half of Ashford students identified as minorities. Only a quarter of Ashford students graduated, and many defaulted on their student loans.

Former presidents of Ashford recognized that the vulnerability of its student population "heighten[ed]" the need for accurate college advising, Even so, defendants created a high-pressure admissions department whose "north star" was enroll- ment numbers rather than truthful advising. Defendants enrolled students in Ashford primarily through the use of sales people—whom Ashford referred to as "admissions counselors"—trained to build trust and rapport with prospective students.

Admissions counselors were expected to call hundreds of leads every day. Managers would threaten to fire those who failed to enroll enough students in Ashford, warning that "‘[s]omeone can fill your chair’" if counselors did not meet their numbers. Defendants’ admissions counselors described the work environment as permeated by fear and as a place where "closing the sale" was prioritized above providing prospective students with accurate information. One of Ashford’s former presidents received emails warning that fear was "abundant" in the admissions department and enrollment numbers were seen as the "end-all-be-all." Defendants’ own employee exit surveys further confirmed that employees experienced the admissions department as a "boiler room" driven by fear of not enrolling enough students. In this environment, admissions counselors succumbed to the pressure and made deceptive statements to prospective students in order to boost their enrollment numbers and keep their jobs.

II. The Enforcement Action

In November 2017, the Attorney General filed an enforcement action against defendants on behalf of the People of the State of California. In the operative complaint, the People alleged 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. They also alleged that defendants had employed unfair, unlawful, and fraudulent billing and collections practices in violation of the FAL and UCL. They sought injunctive relief, restitution, and civil penalties of $2,500 for each UCL violation and $2,500 for each FAL violation.

Effective February 6, 2013, the parties executed an agreement tolling all time-related defenses, including defenses based on the statute of limitations. The UCL has a four-year statute of limitations (Bus. & Prof. Code, § 17208), and the FAL has a three-year statute of limitations (Code Civ. Proc., § 338, subd. (h)). Thus, the earliest that defendants could be held liable for UCL violations was February 6, 2009, and the earliest they could be held liable for FAL violations was February 6, 2010.

III. Trial and Statement of Decision

From November 2021 until December 2021, the trial court held a bench trial during which it heard in-court testimony of 23 witnesses, considered designated deposition testimony of another 17 witnesses, and admitted 1,514 exhibits in evidence. On March 3, 2022, after receiving proposed statements of decision from both sides, the trial court issued an extremely detailed, 49-page statement of decision finding defendants liable for making over one million misleading calls in violation of the UCL and FAL.

The trial court found defendants created a high-pressure, fear-based culture in the Ashford admissions department—a fact known to defendants’ executives—which prioritized enrollment numbers over providing accurate information. As a result, admissions counselors made misrepresentations to students on matters critical to students’ decision-making. The court explained that each category of misrepresentation was supported by four types of evidence: (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 Dr. Jerome Lucido, 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.

A. The Misrepresentations

The trial court described the topics on which admissions counselors made misrepresentations as well as the associated supporting evidence in great detail. There were nine such topics.

1. Falsely promising prospective students that Ashford degrees qualified students for teaching careers.

First, the trial court found defendants falsely promised prospective students they could use an Ashford degree to become a teacher. In fact, Ashford degrees did not qualify graduates for teaching positions that require licensure. Students deceived into enrolling at Ashford had to invest significant additional time and money in a state-approved teaching program.

For example, Alison T. testified she enrolled at Ashford because her admissions counselor assured her Ashford was part of an "interstate agreement" pursuant to which her degree would "carry over" to Pennsylvania so long as she completed her student teaching and passed state teaching exams. Only after graduating did she discover this was not the case, and she would need to complete a substantial number of additional credits before she could begin student teaching. Crystal E. testified she was misled into enrolling at Ashford, and withdrawing from a degree program...