Handout (Photographer: Dwight Burdette)
Placing the blame on overzealous government regulations, ITT Educational Services Inc. became the latest for-profit educator to shutter its operations after filing a Chapter 7 petition in Indianapolis on Sept. 16.
Carmel, Indiana-based ITT, which owns Indiana’s ITT Technical Institute and New Hampshire’s Daniel Webster College, plans to liquidate its assets in bankruptcy court. Faegre Baker Daniels restructuring partner Jay Jaffe and associates Kayla Britton and Dustin DeNeal are advising ITT in its Chapter 7 case. The debtor listed assets and liabilities of between $100 million to $500 million in its filing.
In August, after failing to meet accreditation standards, the U.S. Department of Education barred ITT from enrolling new students relying on federal financial aid, a main source of the company’s revenue. Then, earlier this month, ITT announced it would be closing more than 130 technical schools, affecting over 35,000 students across campuses in 38 states, with the vast majority of its 8,000 employees losing their jobs.
Andrew Graiser, CEO of A&G Realty Partners and a real estate adviser hired by ITT, said in an interview with Bloomberg that the company would begin the process of selling off assets, including real estate. As it prepared for bankruptcy, ITT retained Faegre and paid the firm an undisclosed sum prior to its Chapter 7 filing, according to the company’s 11-page petition.
“The remaining retainer in the amount of $87,001.28 at the time of the decision to pursue a Chapter 7 filing constitutes a flat fee for services rendered and expenses incurred by [Faegre] in contemplation of or in connection with this case,” Faegre said in court records. (The Am Law 100 firm, formed through a late 2011 merger, brought back current corporate partner Christine Long in January 2013 after she spent more than five years as ITT’s general counsel.)
Deborah Caruso, a partner at Rubin & Levin in Indianapolis, has been appointed trustee for ITT and will oversee the company’s liquidation of assets. On Sept. 20, Caruso filed an application with the bankruptcy court to have her firm, Rubin & Levin, advise her in ITT’s Chapter 7 case.
According to the application, Rubin & Levin co-founder and senior counsel Elliott Levin is billing $450 an hour for his services, while firm partners Caruso and John Hoard are billing $425 per hour. Other partners, of counsel and associates at the firm are billing between $285 and $375 for their services to the trustee.
ITT’s Chapter 7 filing comes after two years of heavy pressure by the federal government to rein in the for-profit education industry. In 2014, the U.S. Consumer Financial Protection Bureau sued ITT, claiming that the company exaggerated students’ job prospects and potential salaries by causing them to invest in high-cost private loans that would likely result in default.
For its defense in that case, ITT turned to Gibson, Dunn & Crutcher litigation partners Douglas Cox, Jason Mendro and Timothy Hatch, as well as Ice Miller partners Philip Whistler and Thomas Mixdorf in Indianapolis. (ITT’s current general counsel is Phillip Frank.)
In 2015, the U.S. Securities and Exchange Commission brought fraud charges against ITT, alleging that the company and two of its top executives, Kevin Moday and Daniel Fitzpatrick, concealed major losses in two student loan programs.
Once again, ITT turned to Ice Miller’s Whistler and Mixdorf, but also added Williams & Connolly partners Enu Mainigi, Steven Farina and Steven Pyser to its defense team. Moday, in addition to being advised by Ice Miller, is also being represented by Morgan, Lewis & Bockius partners Eric Sitarchuk and David Miller.
Fitzpatrick has turned for his defense to McDermott Will & Emery partners Fredric Firestone, Michael Ungar, James Commons and Alison Nadel in Chicago, as well as Frost Brown Todd partner Alan Brown in Cincinnati. Both the SEC and the Education Department cases are still pending in Indianapolis federal court.
Records on file with the U.S. Senate show that ITT has paid $60,000 so far this year to lobbyists at Thompson Coburn in Washington, D.C., to advise on Title IX issues. ITT, which has not yet filed with the bankruptcy court a list of its largest unsecured creditors, isn’t the only for-profit college operator to attract regulatory scrutiny.
The Am Law Daily reported in May 2015 that Corinthian Colleges, which at its height had more than 81,000 students and 10,000 employees in the U.S. and Canada, filed for bankruptcy after a crippling settlement with the Education Department, making it the largest collapse of a higher education provider in U.S. history.
Delaware’s Richards, Layton & Finger is representing Corinthian in its Chapter 11 case.