Career Education Corporation (collectively with its subsidiaries, the
Company) entered into a settlement agreement as of February 2, 2018 in
Surrett, et al. v. Western Culinary Institute, Ltd. and Career Education Corporation
, a case filed in March 2008 in the Circuit Court of the State of
Oregon. Pursuant to the settlement terms, the Company will make a payment to settlement class members who complete, sign and return a claim form within 90 days of mailing of the claim form. The amount of the payment to each settlement class member
returning a form will be 44% of the total charged to that person by Western Culinary Institute, Ltd. (WCI) for tuition, books and fees, less institutional grants and scholarships received by the person, amounts charged by WCI but not
paid by the person and refunds applied as a result of withdrawal by the person. The settlement class consists of 1,169 individuals who enrolled at WCI primarily from 2006-2007. The institution is no longer in operation and closed in 2017. Unless
they opt out, settlement class members will release the Company from all claims against the Company alleged in the case. If more than 30 settlement class members opt out of the settlement, the Company will have the option of withdrawing from the
settlement. The Company makes no admission of liability pursuant to the terms of the settlement. The settlement is subject to final court approval.
The
Companys liability pursuant to the settlement will depend on how many settlement class members return valid claim forms, but is estimated to be at least $2.8 million. If all settlement class members returned valid claim forms the total
amount would be approximately $14.0 million. Because it is uncertain how many class members will return valid claim forms, the Company does not have a best estimate where in that range the liability is likely to be. Accordingly, for the quarter
ended December 31, 2017, the Company recorded a reserve of $2.8 million related to this matter.
The settlement terms also provide that the
court will determine the amount of attorneys fees and costs payable by the Company to counsel for plaintiffs, although the parties have agreed that the attorneys fees and costs awarded shall be in the range of $3.75 to $8.0 million.
Because the amount of attorneys fees and costs that the court will determine is uncertain, the Company does not have a best estimate where in that range the liability is likely to be. Accordingly, for the quarter ended December 31, 2017,
the Company recorded a reserve of $ 3.75 million related to the attorneys fees and costs.
In addition to the settlement class members, there
are approximately 1,100 individuals that have been compelled to arbitration pursuant to an earlier appellate court ruling. The number of individuals, if any, which may pursue arbitration separately on their own behalf is uncertain.
For additional information about the case, see Note 7 Contingencies to the unaudited condensed consolidated financial statements in the
Companys Quarterly Report on Form
10-Q
for the period ended September 30, 2017.
Cautionary
Statement Regarding Forward-Looking Statements
This current report on Form
8-K
contains forward-looking
statements, including statements about the expected effects of the settlement. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated,
including, but not limited to, uncertainties regarding court approval and the level of participation in the settlement by the settlement class members. Except to the extent required by law, the Company disclaims any obligations to update any
forward-looking statements.
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