Judge greenlights racketeering lawsuit against Grand Canyon Education

Dive Brief:

• A federal judge in Arizona ruled last week that a class-action racketeering lawsuit against Grand Canyon Education can proceed. Plaintiffs are seeking a jury trial. 
• Last June, two plaintiffs sued the company — which provides marketing and educational services to Grand Canyon University — over allegations it recruited students like them into the university’s Ph.D. programs by lying about the costs of degrees. 
• Grand Canyon Education unsuccessfully sought to dismiss the case, arguing in a November motion that students were informed of possible additional courses and costs, and “could not have been caught by surprise, let alone duped by a so-called fraud.”

Dive Insight:

The plaintiffs — which included one current and one former GCU doctoral student — alleged in their original complaint that Grand Canyon Education “propagated false information about the true cost” of GCU’s doctoral programs, including through enrollment applications, sales representatives and marketing materials. Two other plaintiffs were later added to the lawsuit.

They argued that the company promoted program costs typically based on a number of credit hours — 60 — that few doctoral students were able to complete their degrees within. They also alleged that Grand Canyon Education created “artificial bottlenecks” in programs, extending the time to complete degrees. That added costs in the form of tuition for continuation courses, which were often necessary to finish dissertation reviews. 

In their lawsuit, plaintiffs cited analysis from the U.S. Department of Education showing that between 2011 and 2017 about 43% of GCU Ph.D. students paid $10,530 in additional costs for continuation courses, while another roughly 35% paid $12,636 or more. Only a small fraction — fewer than 2% — paid no extra costs for continuation courses.

GCU, a private Christian university, split from Grand Canyon Education in 2018. Brian Mueller is both CEO of Grand Canyon Education and president of GCU. In their lawsuit, plaintiffs allege that the company has “exploited its control over Grand Canyon University” to “orchestrate and profit from this fraud scheme.”

The misrepresentations about doctoral program costs, plaintiffs argue, amounts to a racketeering scheme in violation of the Racketeering Influenced and Corrupt Organizations, or RICO, laws. 

In moving to dismiss the case, Grand Canyon Education asserted that documents providing cost estimates also noted that 60 credits were the minimum required and that the plaintiffs signed acknowledgment forms that disclosed “many learners will need additional time and continuation courses.”

“Not only is Plaintiffs’ theory of fraud disproven, but also Plaintiffs’ attempt to convert a garden-variety fraud claim into RICO is unavailing,” Grand Canyon Education said in its November motion. “To support their RICO claim, Plaintiffs assert half-truths, generalizations, and a careful omission of inconvenient facts to weave a fictional tale of fraud peppered with racketeering buzzwords.”

In ruling that the case can go forward, U.S. District Judge Steven Logan dismissed one of the claims against Grand Canyon Education and let the others stand. 

Logan gave plaintiffs until May 20 to resubmit their complaint with revisions to the dismissed claim that they were harmed by Grand Canyon Education’s investment of proceeds from its alleged racketeering enterprise. The judge noted that “additional facts could remedy Plaintiffs’ claim” on that point. 

“This is the first step in holding Grand Canyon accountable for misleading graduate students about the cost of their education,” Chris Bryant, an attorney with the National Student Defense Network, which filed the complaint together with law firm DiCello Levitt, said in a statement Thursday. 

A spokesperson for Grand Canyon Education declined to comment on the litigation Monday.