Now-closed Charlotte School of Law will pay former students $2.65 million under a proposed class-action settlement.
The school and student plaintiffs on Tuesday asked a federal judge in North Carolina to preliminarily approve the class and the settlement, saying it was the best deal the students could hope to achieve given the dire financial circumstances of the shuttered school and its parent company, InfiLaw Corp. Judge Graham Mullen of the U.S. District Court for the Western District of North Carolina granted preliminary approval Wednesday.
Should it move forward, the class-action settlement would end four federal suits and 90 state court suits targeting the school.
Charlotte School of Law ran a net $8 million deficit in 2017, the year it closed, according to the settlement motion. InfiLaw lost more than $7 million in 2017 and $6 million through June 2018, the motion said. The settlement consists of the $2.5 million left from the school’s insurance policy, as well as an additional $150,000 directly from InfiLaw.
“They’re giving us everything that’s left. It’s hard to do better than that,” said Anthony Majestro, an attorney with Charleston, West Virginia, firm Powell & Majestro, one of six firms representing the plaintiffs involved in the settlement. “The problem with continuing to litigate is that the way their insurance policy works, it reduces the amount available to pay claims. In another year, there would be nothing left, if not sooner. That’s why we believe this is in the best interest of the class.”
An InfiLaw spokesman did not immediately respond to requests for comment on the settlement, but according to the settlement motion the company has “minimal unencumbered assets that are barely sufficient to permit continued operations.”
The proposed class action would resolve all the suits against the law school, including the four pending in federal court and about 90 pending in North Carolina state court, Majestro said. If approved, students would not be able to bring further litigation against either the Charlotte School of Law or InfiLaw and would not be able to opt out of the settlement.
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However, the proposed settlement does not bar further litigation against Sterling Partners, the Chicago-based private equity firm that owns InfiLaw, Majestro added. The plaintiffs sought to include Sterling Partners in their suits, but a federal judge dismissed the firm last summer on the grounds that the North Carolina court had no jurisdiction over it. That decision was a major blow given that InfiLaw’s financial resources are largely depleted. The plaintiffs are considering further actions against Sterling Partners in Illinois, Majestro added.
The U.S. Department of Education booted Charlotte from its federal loan program in December 2016 after it was found out of compliance with the American Bar Association’s accreditation standard meant to ensure it enrolls only students who “appear capable” of graduating and passing the bar. A litany of fraud lawsuits followed, with students alleging that Charlotte hid its accreditation problems from students to prevent them from transferring, and that it should have disclosed its accreditation shortcomings much earlier. The school attempted to regain access to federal loans but shuttered in August 2017.
The proposed class consists of Charlotte students who attended between September 2013 and August 2017—an estimated 2,500. On average, they paid $42,000 in annual tuition. Payment amounts would be determined by a number of factors, including how long claimants attended, whether they transferred, and whether they qualified to have their federal loans discharged through the Education Department’s closed-school discharge program. Thus, it’s impossible to say what amount the average claimant will receive, Majestro said. However, the motion makes clear that the settlement is far below the $105 million needed to refund just one year of tuition for the entire class.
The final settlement amount could increase if the Charlotte School of Law recovers monetary damages from its pending lawsuit against the ABA—one of three suits InfiLaw’s for-profit law schools have filed arguing that they were treated unfairly by the accrediting body. A portion of any payout from that suit will be added to the settlement pot, Majestro said.
Not only are Charlotte and InfiLaw’s coffers largely empty, but the school’s creditors would also get paid before students should the litigation drag on, he added. Charlotte has been sued by its former landlord for $43 million, among other creditors.
The parties held a “hard-fought” two-day settlement conference in April, resulting in the proposed settlement.
If the court approves the class and the settlement, students likely would not receive checks for at least nine months, Majestro said.
“We have got everything that is possible to get as a defendant,” he said. “As sad as it is, when you get almost all of the resources and continued litigation will deplete the resources, we really don’t believe we have a choice.”