A proposed class action settlement between the owner of the now-closed Charlotte School of Law and former students is facing sharp opposition from some plaintiffs who say defendant InfiLaw Corp. hasn’t offered enough financial evidence to justify a relatively low $2.65 million settlement amount.
Judge Graham Mullen of the U.S. District Court for the Western District of North Carolina preliminarily approved the settlement in September, but the objectors claim that attorneys representing the settling plaintiffs merely took InfiLaw at its word that its coffers have largely been depleted and that very little money remains from its insurance policy with which to pay former students, who claim they were misled about Charlotte’s accreditation status with the American Bar Association.
“The point is that we don’t know anything for sure,” said Kyle Nutt, an attorney with Wilmington, North Carolina, firm Shipman & Wright who is representing 24 former Charlotte students who are objecting to the settlement. “Their CFO submitted an affidavit that said, ‘We can’t pay more than $150,000 and we have the depleted remains of this insurance policy—that’s all we can ever pay. And here are some financials to support that.’ The forensic accountant looked at those financials and said, ‘They don’t establish what you said they establish.’”
In a memorandum of opposition filed Monday, the 24 objectors represented by Nutt asked the court to deny final approval of the settlement. Monday was the deadline for opponents to file notice with the court.
Anthony Majestro, among the attorneys representing the settling plaintiffs, did not respond to requests for comment on the mounting opposition Tuesday. But he said in an interview in September that although the settlement amount is low and cannot make the estimated 2,500 class members whole, it’s the best opposition because prolonged litigation will further deplete the InfiLaw’s remaining insurance funds. David Mills, an attorney with Cooley who is representing InfiLaw, did not respond to requests for comment Tuesday.
If approved, the settlement would end four federal suits and 90 state court suits brought against the school by former Charlotte students who claim they should have been informed that the school had run afoul of the ABA’s accreditation standards back in 2014. The school’s accreditation woes weren’t disclosed publicly until the fall of 2016 when the ABA put the school on probation. Shortly thereafter, the U.S. Department of Education booted the for-profit law school from the federal student loan program, and Charlotte eventually closed in August of 2017.
InfiLaw and several firms representing the student plaintiffs met for a settlement conference in April, but Nutt’s memorandum claims his group of plaintiffs were excluded from further conversations after they raised concerns about the constitutionality of the proposal, which must meet strict requirements because the so-called “limited fund” settlement does not allow class members to opt out and bring their own actions against InfiLaw.
The objecting plaintiffs allege that not only has there been no due diligence on the amount of financial resources that remain at InfiLaw—attorneys for the settling plaintiffs have taken no depositions, they note—but that the proposed class is over inclusive. It includes students who attended Charlotte as far back as 2013. (The objectors represented by Nutt attended in the school’s final year of operations.)
“Here, there are students who attended [Charlotte] both before and after the first finding that [Charlotte] was officially out of compliance with ABA Standards,” the memorandum reads. “Many of the class members were able to graduate, pass the bar, and obtain gainful employment; others transferred with a substantial amount of their earned credits intact. The question of damages is thus not as simple or broad as merely identifying the total tuition paid during the relevant period as Defendants have suggested.”
Under the proposal, InfiLaw would contribute $150,000 to the settlement fund, with another $2.5 million from its insurance policy. That’s far less than the estimated $105 million needed to repay a single year of tuition for the 2,500 class members, according to the settlement motion. InfiLaw would also pay a portion of any proceeds from its three pending lawsuits against the ABA brought on behalf of its schools—Charlotte; Arizona Summit Law School; and Florida Coastal School of Law.
But even that provision is problematic, according to the objectors, because it would allow InfiLaw to use any lawsuit proceeds to first settle other liabilities before contributing to the settlement fund.
“The Supreme Court has made it clear that these mandatory, non-opt out settlements in a class action context are rare and have to be very closely scrutinized because they implicate the constitutional rights of class members to a right to trial by jury and due process,” Nutt said. “We don’t believe that what has been presented satisfies what the Supreme Court indicates what must be satisfied in a case like this.”