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'False' Statements About a For-Profit

July 13, 2012

The 2005 bankruptcy of Decker College drew more than its share of national headlines, not least because one of its investors (and, for a time, its president) was William Weld, the former governor of Massachusetts and, at the time, a candidate for governor of New York.

The closure of the for-profit college in Kentucky was precipitated by the U.S. Education Department's September 2005 decision to terminate Decker's eligibility for federal student financial aid. The federal agency made its decision in large part based on statements by the college's accreditor, the Council on Occupational Education, that Decker had delivered three of its programs online without the agency's approval.

On Tuesday, a federal bankruptcy judge in Kentucky ruled that the accrediting agency's representations to the Education Department were false -- saying that Decker officials had made clear to the council on numerous occasions that the college was using distance education to offer the programs, and that the agency had approved the programs nonetheless.

While the judge's ruling comes far too late to resuscitate Decker, it could have major implications for two court proceedings over the college's assets. It could also prove costly for the Council on Occupational Education, as lawyers for the college's estate could sue the agency over actions that they say led to the institution's demise.

"This misrepresentation is absolutely what destroyed Decker," said Peter Coffman, a lawyer with Dow Lohnes who is representing Decker's bankruptcy trustee.

Decker was not entirely trouble-free in 2005, its lawyers admit; the Education Department was auditing the for-profit college, and state and federal officials were examining various sorts of possible wrongdoing, too. But those things "would have been handled," Coffman said, were it not for a series of interactions that summer between the occupational accreditor and the Education Department.

As laid out by Judge Thomas H. Fulton, of the U.S. Bankruptcy Court for the Western District of Kentucky, a U.S. Education Department official, Ralph LoBosco, asked leaders of the Council on Occupational Education in June 2005 if they knew that Decker was operating associate degree programs in carpentry, electrical and heating/refrigeration work entirely online. In a series of telephone and written communications between the agencies over the next few months, the accreditor stated that its officials "understood that these degrees would be taught primarily using the traditional delivery mode with limited distance education," and that "the programs in question had not been approved to be offered primarily through distance education."

It was based on those and other statements -- which Decker officials tried to challenge at the time -- that, on Sept. 30, 2005, the Education Department made Decker ineligible to participate in federal aid programs, taking away its primary source of revenue. The college entered bankruptcy less than a month later.

But in Judge Fulton's analysis, Decker officials had given the accreditor ample evidence that they planned to use online education to deliver the programs, before the agency approved them. Fulton identifies numerous places in the college's May 2004 applications for approval of the programs where it stated that they would be offered via distance education. Similarly, the judge notes that the college's accreditation self-study in 2004 mentioned the programs' online delivery, and that the agency sent members of its site visit team to tour the college's distance education facilities.

He also recounts a meeting at which Weld, then the institution's president, " 'glowingly' described the nature, structure, and majority online component" of the programs to Representative John Boehner, then the senior Republican on the House education committee, at a May 2005 meeting, with the accrediting agency's president, Gary Puckett, looking on.

"Dr. Puckett sat next to Mr. Boehner at a 'small table' with Mr. Weld but testified that he does not recall such discussion," the judge wrote. "The Court finds Mr. Puckett's lack of recollection somewhat incredible given the detail of Mr. Weld's testimony."

That tone of incredulity marks much of the judge's ruling, which concludes: "For all of these reasons the court just find that defendant in fact approved delivery of the programs through distance education and that, therefore, the statements were false insofar as they asserted that plaintiff had not been approved to offer the programs through distance education."

The judge offered no explanations for why the agency would have misrepresented Decker's situation, saying that was not within the court's charge. But Decker officials have asserted that Education Department officials were suspicious of the college's growth and that some may have had past differences with Weld.

What Happens Next

Fulton's ruling is likely to have implications for two separate legal proceedings, one before an administrative judge in Washington and the other in bankruptcy court in Kentucky, that have limped along in the years since Decker's bankruptcy. The proceeding in Washington involves the Education Department's attempt to recoup $32 million in funds that Decker disbursed through its online programs; the bankruptcy court is sorting among the creditors' claims (including the federal government's) for the college's remaining assets.

Michael B. Goldstein, another lawyer at Dow Lohnes involved in the case, said that with this week's ruling, the department's claim that Decker should be forced to repay those funds "just went out the window."

Officials at the accrediting agency and at the Education Department did not respond to several messages seeking comment.

 

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