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California Culinary Academy Settles Lawsuit With Students for Millions 

Wednesday, May 4 2011
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The lawyers wanted to prove Matt Foist was dumb. He recalls attorneys questioning him for hours about his decision to enroll in the California Culinary Academy, a for-profit school in Potrero Hill.

"At the end of the day I just had to shake my head and say, 'You're right. I'm a fool. You're absolutely right,'" Foist says. "They put the class catalog in front of me and said, 'It says right here you're not necessarily going to become an executive chef when you get out of the school.' I said, 'It does say that. But you guys sold it so well that I didn't think it was significant at the time.'"

The occasion was Allison Amador et al. v. California Culinary Academy, a class-action lawsuit filed on behalf of former CCA students. San Rafael attorney Ray Gallo filed the suit after being inspired by the 2007 SF Weekly feature "Burnt Chefs" [Eliza Strickland, 6/6/2007], which showed how the school urged students to take on tens of thousands of dollars in government loans to pay for what many graduates considered substandard training. Students claimed in court they'd been defrauded. Next came depositions, and lawyers' questioning.

But those lawyers learned that Foist, an engineer at a Mountain View accounting software company, may not have been so stupid after all.

As we reported online last week, former CCA students recently received notice that the school's parent company, Career Education Corporation, had agreed to pay out more than $40 million to settle the suit without admitting wrongdoing.

The lawyers "gathered around me and made me feel insignificant, uneducated, and foolish," Foist says. "So when they decided to settle and give money to the class, that really surprised me."

Foist and the other former students are fortunate: They'll likely get some of their money back. But this landmark settlement doesn't portend real reform in the scandal-plagued for-profit college industry.

Recent headlines have suggested these types of companies are under assault from regulators, politicians, and plaintiffs' attorneys. But the reality is that regulatory tweaks and lawsuit nips won't do much to alter an industry that receives $20 billion in annual revenue, most of it in the form of federal grants and loans, and then spends much of it on deceptive marketing, as well as on campaign donations and lobbying to ensure minimal regulation and a continued flow of government funds.

For example: While Strickland, Gallo, and Foist were addressing CCA's practice of allegedly duping students, school industry lobbyists were successfully gutting California's system of regulating for-profit schools while enacting new laws that ensured the Amador settlement may be the last of its kind. Perhaps tellingly, Career Education Corporation's stock has risen 23 percent since the settlement was announced last fall.

In 2005, Foist saw a television commercial in which chefs at work described how grand it was to have high-level jobs in the food industry. He dialed the number he saw on the screen, 1-800-BAY-CHEF, and was referred to a woman calling herself an admissions counselor, who scheduled an in-person interview. She showed him a catalog claiming CCA was a selective school so committed to its students' careers that its graduates enjoyed a job placement rate of 97 percent.

The pitch persuaded Foist, who dreamed of maybe even hosting a TV cooking show.

The illusion didn't last. "What I learned in the real world was that people aren't interested in hiring students from the Culinary Academy," he says.

The 97 percent placement rate was fabricated. In reality, many CCA students went on to menial labor jobs paying $12 per hour or less; career placement consisted of referring students to job websites; and the school wasn't selective at all. As Strickland reported, by 2005 it had a horrible reputation among Bay Area restaurateurs for churning out unskilled job applicants who were more trouble than they were worth. They considered a CCA certificate equivalent to a "Do Not Hire" name tag.

Rather than cling to the idea of working in the culinary industry by sweeping floors at McDonald's, Foist returned to programming so he could keep up with his new $40,000 debt. Some graduates without alternate careers took whatever jobs they could. Others sank into poverty, and many defaulted on their federally backed loans. In 2010, the Department of Education reported that CCA's repayment rate was 51 percent.

"Juries are going to start to realize that this is their tax money going to these schools," Gallo says. "I think there will be more of these cases in the future."

Gallo isn't the only one predicting change. Last year, Congress and the Obama administration investigated for-profit schools. The U.S. Department of Education produced rules, scheduled to take effect next summer, which shut off funding for schools where fewer than 35 percent of former students repay federal loans. "This would eliminate federal funding for the worst of the worst programs," says Pauline Abernathy, vice president of the Institute for College Access and Success, an Oakland education think tank that backed the new rule. In March, Gov. Jerry Brown signed a bill that eliminates Cal Grants for any school where more than 24.6 percent default on those loans within three years of leaving.

For-profit colleges long ago seemed to have adopted a business model whereby they weather allegations of fraud and promises of reform. Public reform movements in the 1950s, 1980s, and 1990s were followed by new regulations and then by quiet industry-led deregulation.

To combat the proposed Obama reforms, the industry spent $8 million last year in a lobbying blitz that continues this spring. The effort appears to be bearing fruit, as more than 100 Democratic and Republican lawmakers announced last week they would seek to dilute the proposed regulations.

In California, meanwhile, new rule tweaks and lawsuits are a trifle when viewed in light of recent deregulation. During the late 2000s, just as Foist and his fellow students seemed to be making ground in their class-action lawsuit, Gov. Arnold Schwarzenegger oversaw the elimination of laws that had once punished schools that failed to graduate at least 60 percent of their students and place 70 percent of students in jobs they were trained for. Just as important: Schwarzenegger-era changes weakened students' right to sue schools that had defrauded them.

"There are no more thresholds," says Betsy Imholtz, director of special projects at the Consumers Union. "Now, if only 10 percent of the students graduate, and only five percent of them get jobs, [the schools] can still be operating in the state of California." Additionally, under the Schwarzenegger-era laws, "students will have an extremely hard time getting attorneys to take a case for them."

Mark Spencer, spokesman for the California Culinary Academy, confirms that the new regulatory regime benefits his employer. In an e-mail, he writes that CCA settled with Foist and other students not because the company was guilty of deception, but because the lawsuit was "extraordinarily expensive to litigate and involved claims asserted under a set of laws that have since been repealed by the state legislature because they were confusing, inconsistent, not followed by regulations, and unduly punitive." Spencer added that the academy's decision comes from a desire "to put this chapter behind us and operate under a new set of state laws which we hope will provide more clarity and balance."

Clarity and balance? When a corporation appreciates regulations with the terminology of an oenophile, buyer beware.

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Matt Smith

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