Education Corporation of America Tries to Slam Door to Keep Out Plaintiffs

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Update: The Judge hearing the ECA case, dismissed it after the guest post below was submitted. I guess it’s game on again.

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 a landlord to a Brightwood College campus in Arlington, Texas. Brightwood is another college owned by ECA.

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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 using 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 eventually do), while ECA’s students face enormous obstacles to discharging their student loans in bankruptcy?

Is this a great country or what?

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Richard Fossey
Richard Fossey is a professor at the University of Louisiana in Lafayette, Louisiana. He received his law degree from the University of Texas and his doctorate from Harvard Graduate School of Education. He is editor of Catholic Southwest, A Journal of History and Culture.
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16 thoughts on “Education Corporation of America Tries to Slam Door to Keep Out Plaintiffs”

  1. I was a Brightwood College student and already filed my paperwork with Omni before the deadline. I haven’t heard anything and it’s going on 4 years. I never graduated. I don’t have any certification and Department of Education hasn’t dismissed my student loans. Any help would be appreciated.

    Reply

  6. The ECA situation is interesting, frightening, and stressful for many on many levels. I really appreciate the comments and feedback from all who are stuck in this mess. And while I always hope for a positive outcome, historically these situations don’t end well.

    The odds are that ECA will collapse or dramatically shrink. Students and faculty should begin to plan for a Plan B.

    I’m not trying to celebrate in the disaster, just provide an experienced outside perspective.

    Reply

  8. ECA is owned by Willis Stein and Partners out of Chicago. Run by Stu Reed former CEO of the failed SEARS group. Please help me and the students of ECA by sending all inquires to Stu Reed at st******@*********es.com or calling Willis Stien and Partners at (847) 272-5442

    Reply

  9. The only information that we as students and faculty have seen has been what you have written. Please continue to dig and post. As we all seem to be holding on by a thread. We are people trying to better ourselves. Trying to earn a degree and furthur our education. Now on top of worrying if we will be able to finish. We are also concerned the refund they promised in the event of closure will be void by bankruptcy.

    Reply

    • You have a few choices.

      1. The underlying financial stability of your school is beyond your control. They will either close or not close. Given their public statements in the court filing about their financial condition, closure seems statistically more likely at this point. But I don’t have a crystal ball.

      2. They may develop teach-out solutions that would allow you to finish your degree with them but at a different location or school.

      3. You may want to talk to them and another school regarding the possibility of transferring credits to complete your degree at a school that is on a more substantial financial footing.

      Reply

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