Education Corporation of America (ECA), a for-profit college chain, brazenly filed a federal lawsuit in Alabama last month, asking Judge Abdul Kallon to put it into receivership and enjoin all litigation against it. ECA hopes to delay its creditors and other litigants while continuing to receive federal student-loan money.
What a cocky, shameless and impudent strategy!
Judge Kallon initially obliged ECA, ordering a halt to all litigation against ECA until October 29. Then, on October 29, the judge extended the injunction until November 5. Parties opposing ECA's Alabama litigation must find lawyers to represent them in Alabama, which will be costly.
For example, Gleneagles Office, LLC, a Maryland corporation, filed a lawsuit in Maryland last month, seeking to collect almost $100,000 in back rent and late fees from Virginia College, which ECA owns. Judge Kallon's injunction, issued seven days after Gleneagles filed its lawsuit for back rent, halted that litigation.
Gleneagles hired an Alabama law firm to oppose ECA's attempt to enjoin lawsuits against it. Gleneagles pointed out that ECA guaranteed the Virginia College lease and agreed that any dispute about the lease would be litigated in Maryland. Gleneagles also argued that Judge Kallon does not have jurisdiction over it.
A Texas company also joined the Alabama lawsuit to oppose ECA's request for an injunction. The Texas company is landlord to a Brightwood College campus in Arlington, Texas. Brightwood is another college owned by ECA.
Perhaps ECA's various landlords and creditors have the financial resources to fight ECA in Alabama, but ECA's former students do not. ECA's list of litigation against it (or its subsidiary affiliates) include several suits by former students. ECA managed to force many of these suits into arbitration, probably because ECA required students to sign arbitration agreements as a condition of enrollment.
So what's going on?
ECA is in financial trouble. Enrollments have dropped, and it is in danger of losing its accreditation. Meanwhile it has been sued by landlords, former students, and former employees on a variety of grounds. ECA managed--temporarily at least--to halt all the litigation against it based on the signature of one Alabama federal judge, who may not have jurisdiction over any of this litigation. Some creditors have joined the Alabama lawsuit to stop this charade, but most of ECA's former students and employees don't have the financial wherewithal to do that.
Essentially, ECA's Alabama lawsuit has given ECA all the benefits of bankruptcy without the downside of losing federal student loan money. And when it becomes advantageous to do so, ECA can stroll into bankruptcy court any time it likes.
Isn't it ironic that ECA can use the courts to its advantage while its students are barred from suing it based on arbitration agreements ECA or its subsidiaries required them to sign as a condition of enrollment?
And isn't ironic that ECA can file for bankruptcy whenever it chooses (which it will probably do eventually), while ECA's students face enormous obstacles to discharging their student loans in bankruptcy?
Is this a great country or what?
Joinder of Pioneer Industrial LLC and Pioneer Parking Lot, LLC to National Retail Properties LP's Memorandum in Opposition to Emergency Motion for The Appointment of a Receiver and Entry of a Temporary Restraining Order and Injunctive Relief, filed October 29 2018 in Education Corporation of America v. U.S. Department of Education, Case No. 2:18-CV-01698-AKK.
Non-party Gleneagles Office, LCC's Opposition to Plaintiff's Motion for Preliminary Injunction, filed October 29, 2018 in Education Corporation of America v. U.S. Department of Education, Case No. 2:18-CV-01698-AKK.
Order Extending Temporary Injunctive Relief, signed on Octobe 29, 2018 in Education Corporation of America, et al. v. United States Department of Education, 2:18-CV-01698-AKK.
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