Judge says lawsuit can proceed against for-profit educator

A federal judge has ruled that a lawsuit can proceed against a large for-profit education company accused of using improper sales tactics to lure unqualified students and the billions of dollars in financial aid they bring.

Judge Terrence McVerry said in a ruling Friday that the whole case against Education Management Corp., which operates two colleges in Indianapolis, shouldn't be dismissed.

The whistle-blower lawsuit, which the Department of Justice backed last year, alleges the company paid recruiters billions of dollars in illegal incentives to sign up students, in violation of a 1992 law.

The judge called the case "massive and complex" and said there are legal grounds to give the plaintiffs the opportunity to prove the allegations of company-wide fraud.

Education Management, based in Pittsburgh, runs more than 100 higher-education programs across the country, offering diplomas and degrees in fashion, culinary arts, business and other fields, some through online courses. Many of its 100,000 yearly students are non-traditional — working adults, single parents and low-income and minority students.

Locally, Education Management operates Brown Mackie College and the Art Institute of Indianapolis. It also has Brown Mackie College outlets in South Bend, Merrillville, Michigan City and Fort Wayne.

The government said the company inflated its career placement opportunities, preyed on applicants' psychological vulnerabilities and enrolled students regardless of their qualifications.

The 1992 law grew out of reports of overly aggressive sales procedures in the for-profit education industry that led to the enrollment of unqualified students and high student loan default rates.

The 2007 lawsuit was filed by former employees Michael Mahoney and Lynntoya Washington but was unsealed only last year after the Department of Justice and the attorneys general of California, Florida, Indiana and Illinois intervened. If they prove their case, Education Management could be forced to repay three times the damages, plus penalties, with the whistle-blowers able to collect 15 percent to 25 percent of the recovery.

The judge dismissed claims by the District of Columbia from the lawsuit and limited claims by Indiana and Minnesota.

Education Management, which had asked for the whole case to be dismissed, said in a statement it is pleased that the judge threw out part of the case but isn't surprised at the decision to allow the rest to proceed. The company said the compensation plan for its recruiters complied with the law.