OTLA Trial Lawyer Fall 2021

38 Trial Lawyer • Fall 2021 By David Sugerman OTLA Guardian S ome years ago, fueled mostly by out- rage, we filed a consumer class action against a high-flying for-profit trade school. The case, Gozzi v. Western Culi- nary Institute , 1 became an epic war that lasted close to a dozen years. The outrage came from the scam. And yes, “scam” is the right word. In selling their over-hyped culinary school program, Career Education Corp. advertised all over television and the internet as a chef-training program. And their slick sales materials included a prominent disclosure of employment placement rates: more than 90 percent of their graduates obtained jobs. What they did not say, except in a disclaimer buried deep in their catalog, was they were providing entry level train- ing. Nor did they say entry level training is not required to obtain an entry level job in the culinary trades. And the placement statistics? They were the worst kind of fraud. They claimed they placed over 90 percent of their graduates. But the vast majority landed in poverty-level jobs that anyone could get off the street. The ads said they were training “chefs,” and the placement statistics said they placed over 90 percent of their graduates. But they included in the 90 percent graduates who worked as servers and hosts, people who made sandwiches at Subway and barista drink artists. They did not disclose their placement statistics were inflated and misleading. On top of that, there was a complex student loan deal underneath that proved defendants’ knowledge and provided proof of damages. Sallie Mae provided guaranteed funding to Career Education Corp. culinary students. But poverty level wages do not support student loan repayment, and Sallie Mae was getting burned by losses. To keep Sallie Mae financing coming, Career Education Corp. and Sallie Mae entered into a “risk-sharing” agreement. Under that agreement, Sallie Mae kept a percentage of the loan monies for loans in the high-risk pool. Here is how it worked. A student would borrow $40,000 to finance this program, but Sallie Mae would keep as David Sugerman much as $17,600 of the amount loaned, without distributing it to Career Educa- tion Corp. The student would owe $40,000 plus interest, even though the discounted cost of the education was $22,400. The backroom deal was not disclosed to prospective students. The scam bit different people in similar ways. One of our clients left a secure, high-paying job because he knew he would be able to make comparable wages as a chef once he finished the cu- linary program. Another client left a job working as line cook, making just above minimum wage. She went into debt — some $40,000— and came out qualified for the same job at the same pay. A third client had taken the culinary track at her high school and had worked as a line cook. She was shocked to learn this was “entry-level training” because the ads and promotional materials made clear it was a chef training program. The defense relied on fine-print disclosures this was only entry-level train- ing. But interestingly, they could never Mass Arbitrations & Asymmetric Tactics Cooking with Force Advertising, portraying graduates as chefs, was part of the defendant’s fraud.