Tuesday, May 19, 2015

Today's Lesson from Charleston School of Law: Law Students are Creditors

Things continue to happen at Charleston Law School, and the Post and Courier continues to earn my respect by actually reporting them fairly well (seriously, Charleston appears to have a solid smaller-market paper).

The latest plan is that a group of local lawyers are petitioning the state's supreme court to put the school into a bankruptcy-dodging receivership to formulate a debt settlement plan.  They would file this on behalf of the students still enrolled, and their standing argument I find intriguing:
The students have standing because they are “creditors” who have invested thousands in tuitions, much of it in student loans paid up front to the school.
Wait...what?  Current students are creditors?  Can anyone explain this adequately?

We just spent a multi-year period in the courts and concluded that law students are atypical consumers (atypical because they're assumed to be sophisticated beyond what they objectively can be and told that it's impossible for them to rely on things the seller regularly intends its customers to rely upon).  You don't have a right to a financial benefit of any kind at any point, and surely the school doesn't have a legally cognizable contract obligation to give you a degree if it closes in the meantime.  And surely they aren't admitting that the students have a common unliquidated claim against the school, right?  One has to wonder exactly how these students are "creditors" in the same universe where it's apparently impossible to prove a graduate school committed run-of-the-mill fraud.  Does the South Carolina Supreme Court want to set that precedent?

In any event, now we're faced with a situation where law school proponents are advocating for expanded student legal rights in order to defeat more vile law school proponents.  Of course, all this effort, all this nostalgia and savior complexing, is about a decade-old 4th-tier for-profit crap hole.

In addition to the receivership to basically settle debts to InfiLaw (which I'm sure InfiLaw won't fight at all), the plan calls for million-dollar gifts from each of the five founders to set up a non-profit foundation.

If you think such an idea is rooted in the same type of fantasy that clings to the idea of a fourth-tier law school being an essential community institution, you're about to get a cherry on top of the ridiculousness sundae:
And the success of the endeavor would be national news, thus generating more financial support funneled through the non-profit foundation.
Exactly what would be "national news" here?  "Greedy Old Dudes Give Up Pirate Treasure"?!  "Lawyers Use Trickery to Continue Pumping Out Lawyers"?!  "Fourth-Tier School Robs 2Ls of School Closure Discharge"?! 

If current 1Ls and 2Ls - particularly those in the bottom half of the class - have any notable legal interest in CSOL's fate, it's actually that CSOL goes under before they graduate, which gives them the special mulligan right of a closed school discharge.  That a group is filing on behalf of the current students to keep the place open is almost as sad as banking on a plan involving largess from the people who drove the place into the ground.

The worst possible outcome for the current students is that they find a way to keep the school open for two years so these classes can graduate and then it closes.  I would bet that's precisely what happens, and I would bet all too many of the students don't understand what a terrible deal that is for most of them.

But the students likely know better.  They're creditors in an educational-financial transaction so mysterious, it's almost like someone is just making it up.


  1. The main question is, why are these lawyers trying to allow these suckers to finish their degree if the school folds? Are they doing it purely because they believe in the value of a law degree? No of course not. The article explains why:

    "The court assigns the case to a special master (a respected lawyer or judge), who appoints a “receiver,” an experienced lawyer or banker with no school connection....."

    "The plan would keep the school open and establish a process for settling the debts. In this case, the creditors are 1) InfiLaw... 2) the students; and (--- wait for it ---) 3) **others unpaid for services rendered**"

    There you go.

  2. Yeah I saw that article also.

    Gooood luck with that.. There's a huge, huge difference between something that could happen, theoretically, vs. something that is likely to ever happen.

    I doubt law school students would be considered creditors in the conventional sense. As can be seen with some of the law school lawsuits, the judges often took things which would have allowed the cases to advance and simply whacked the legs out from under the legal theory. "Standing" would be an easy target here.

    IMO, they don't have standing because they are not creditors in the conventional sense. They have paid for their education, a semester at a time, which has been delivered. This year (semester) is finished out. They haven't paid for the entire degree in advance. The students aren't owed anything more at this point. Charleston can arrange a Teach Out program for the remaining 1L's and 2L's to finish.

    As far as the Closed School Discharge, I will bet money that 99.999% of all law school students aren't even aware something like that exists. Why would they be? It hasn't happened except with Hamline at this point - one very specific scenario. Even then, you'd have to be savvy enough - and care enough - to go poking through the CFR to verify it after a thorough Google search. You'd have to be willing to believe that finishing would do more harm to you than good, etc. In short, you'd have to be 3-5 years removed from law school - or essentially a Mystic - to have the advanced wisdom and insight to accept that.

    1. Not only have the students paid for their education, a semester at a time, but they have also received credits which may be transferred to another law school. They have received value for what they have paid.

      The students probably don't understand that 5 years ago, their law school credits probably had the value of a warm pile of dog shit, but now there are lots and lots of law schools who would roll out the red carpet for a 145 LSAT/bottom half of the class at a fourth tier law school. As long as that little student loan qualification blinks green in the financial aid office, you're probably now welcome at half the law schools in the US.

    2. Actually, 145 is quite a desirable score at many a law skule. At Thomas Jefferson, for example, the median for the latest entering full-time entering class was 144.

      Just a few years ago, someone with a 145 would have been lucky to get into one of the very nastiest law schools—an Appalachian or a Whittier (Shittier). Today, by contrast, 145 could attract "scholarships"—and possibly an offer of admission from a so-called first-tier school. And there may be law schools that would admit a dead gerbil.

  3. Scamsters and their lackeys will stop at nothing.

    The silly argument about "creditors" seems to be based on the notion that the mere fact of enrollment creates in a student so strong an expectation of being able to finish the degree that the school must remain open long enough to afford a reasonable opportunity to finish. Sign up for Charleston, and you bind the entire institution to continue operating, at whatsoever expense, for at least three years, and maybe four or five.

    By that reasoning, if I reserve a hotel room two years hence, the hotel cannot close down in the meantime, as my reservation makes me a "creditor" for lodgings.

    Once again, students are being used to promote the private interests of law-school scamsters.

  4. The receivership plan has a lot of holes. First off, how are the students creditors? They paid their money at the start of each semester and in exchange for that money, Charleston gave them one semester of legal education. Second, why would the five founders voluntarily fork over $1 million each when they have no legal obligation to do so? Third, going forward, how would Charleston generate funds to pay off its creditors and the receiver's fees? Charleston was losing money before all of this negative publicity came out due to decreased enrollment. Given all that has gone down, even the dumbest lemming is going to avoid this place like the plague.

    Assuming Infilaw can’t be coaxed into saving this dump, the only realistic plan is to close down Charleston School of Law ASAP.

    Finally, the picture in the newspaper article of those graduates wearing those ridiculous purple hats with their "proud" family members sitting in the bleachers looking on was truly pathetic.

    1. I totally agree that the picture of those graduates at their commencement was utterly pathetic. I wish I could approach each purple-hatted lemming in the photo and ask "What the hell were you thinking???" I'd love to see that photo reprinted, with the amount of debt owed by each graduate superimposed over his or her face.

    2. That Tudor bonnet will come in handy as a receptacle for coins when begging in the streets. And at least the purple is a better color than that godawful orange-yellow of Indiana Tech.

  5. That plan is a pipe dream and no, it does not cause me to be impressed by the Post & Courier. They are asking the founders to pony up $5 mil in exchange for nothing but a "tax deduction" (which they only get because they spend the money). They aren't motivated by reputational damage, and they have no other incentive in this situation to follow this "plan."

  6. Well said, LSTC. From "sophisticated consumers (with no rights)" to "creditors," in one fell swoop. Amazing.

    "Please, won't someone think of our paychecks...oops, I mean, the children...!?!"

  7. "And the success of the endeavor would be national news, thus generating more financial support funneled through the non-profit foundation."

    Good lord, it seems that Charleston is badly infected with special snowflake syndrome.

  8. Witness the battle royale over a smelly turd. Priceless.

  9. I assume a prepackaged bankruptcy is in the offing and the students will not be listed as creditors.

    1. That's just the thing. If the school petitions for some silly receivership, I don't know why Infilaw wouldn't go straight to the bankrupcty court and file an adverse action. The receivership is a transparent attempt to defraud a creditor. (Also, wouldn't a receiver have a fiduciary obligation to pursue the withdrawn profits?). And I wonder what the DOE thinks of a school in receivership...

      I'm surprised Infilaw hasn't filed something in bankruptcy court already. People hate Infilaw so much - they might as well kill the school. It's not like their goodwill can get any worse.

  10. If Charleston School of Law does not manage to convert itself into a non-profit right away, they are dead in the water. They are subject to the Gainful Employment Rule in their current for-profit status. The GE rule will force for-profits to lower tuition or be cut off from public funds.

    Their receivership scheme involves somehow taking the school "non-profit." I am sure that is why the "talented local attorneys" are reaching for it.

    It just cannot be long for this world. When the dust settles, current students may get to look back in horror on the many ways in which they were manipulated and scammed, and at the many characters who manipulated and scammed them.

    The current students are not positioned as the faculty are positioned. Their interests are not the same. Their options are not the same.

    The current students might either get a Closed School Discharge, or accept a transfer to another school whose reputation has not been as totally trashed as Charleston's at this point. The faculty get nothing if the school closes.

    Why the caginess in this article concerning WHO ARE the "talented local attorneys," and what is their bloody interest in the matter? Cash money, they are faculty or the consorts of faculty.

    So. Sick. And. Wrong.

    1. I give it even odds that the Gainful Employment Rule will either be struck down by the federal courts or Congress will pass the Supporting Academic Freedom through Regulatory Relief Act (H.R. 2637) or something like it in order to kill the Gainful Employment Rule.

    2. The GE rule already survived one federal challenge; procedural grounds, but the authority to promulgate (is obvious) and was upheld.

      On H.R. 2637: I was not aware of this. It is totally disgusting. Congress is bought. How to you fight that?

      The Department of Education direct lending is being financed by US Treasury borrowing since we went "direct." There is no pressure on Congress to stop shoveling 150 billion per year in risk-free cash to the higher educational industry as long as someone buys bonds. (That 'someone' has been the central bank for the better part of the last decade. And they will be again, no doubt.)

      We have a closely regulated federal lending system that is structurally and viciously predatory kicking debtors down to 4th Tier Citizen status, and in which the number of protections that supposedly exist for consumers are systematically ignored.

      We have "widespread non-repayment" of existing loans, and ubiquitous fraud by schools. We have accrediting entities that are captured by design. We inflation in price at a pace that is unprecedented in any other bubble, forcing more and more people to borrow.

      43 million borrowers, and the majority are in distress on repayment. 43 million borrowers, and their significant others, and their children, their parents, their friends all of whom are not satisfied with the price and the treatment of the debt. Yet nothing happens but more back-stabbing from D.C.

      There is no representation of the ordinary person the political system. Extraordinary times call for extraordinary measures.

  11. I think part of the professors' outrage comes not just from their fears of losing their jobs but from the fact that the founders of the school are lawyers just like them. It's one thing for some random hedge fund guy on Wall Street to make millions, but when someone that you know, someone with whom you work, someone with the same professional credentials as you makes millions and you get fired, that is an especially bitter pill to swallow. Not that I have much sympathy for them.


    Dept. of Ed. was recently advertising for lawyers to evaluate the "Defense to Repayment" provision of Master Promissory Notes for Corinthian Students raising fraud defenses based on false and misleading employment statistics.

    Dept. of Ed. pulled the ad, and says it is not hiring yet. This is an opportunity to shape the process internally for a Defense to Repayment claim. No one said law grads could not raise these claims. I will keep a watch on USA Jobs, and you should too.

    What happened to the Corinthian students happened to me. I went to law school pre-2011, and the advertising done to me was false and misleading. I think most of it is still false and misleading.


    P.S. For a hoot, check out what the Dept. of Ed. has to say about applicants presently in default on their federal student loans. Why would they include that in a job ad, unless a lot of lawyers are in default?

  13. I have represented multiple bankruptcy trustees and have worked on creditor committees in Chapter 11 cases. The idea that the students are creditors is perhaps one of the most absurd arguments I have ever heard. What viable claim do the students have against the school? After all, multiple courts have already ruled that law students are sophisticated consumers (God forgive these ignorant judges classifying someone with a 145 LSAT score as "sophisticated").

    The local Charleston lawyers are bottom feeding vultures circling on a fresh carcass. I suspect the local lawyers want to place the school in receivership so that they can bilk the estate out of millions in administrative claims for services. These lawyers are trying to cash in on the misery of the dumb students who chose to enroll in this commode in the first place.

    In a just world, the founders who absconded with $25M in profits from this school should be tied up and hung in a public plaza just like Benito Mussolini.

    1. Well, let's be honest: the students regard themselves as sophisticated people suited for the legal profession. There's something inconsistent about posing one minute as a high-powered jurist and the next as a poor little lamb that has lost its way.

      Is it really unreasonable for a court to hold that a graduate of university should be sophisticated enough to think twice about assuming a quarter of a million in high-interest, non-dischargeable debt in order to attend Thomas Jefferson or Appalachian?

      If the answer be yes, then such people should not be allowed to borrow the money in the first place. Nor should they be admissible to the bar. I actually think that that's the case, but I don't believe that many students at Thomas Jefferson and Charleston and Indiana Tech would share that view.

    2. Look Old Guy, this shit is a scam top to bottom.

      We're funding "direct" federal lending by US Treasury borrowing. From 2010 until the third quarter of last year, that meant the Fed was printing it - since they were buying FTE 70-100% of the federal deficit.

      Um so, what we lent to Thomas Jefferson grads and in fact every college student since 201 was temporary funny money printed by the Fed. Of course the Boomers won't stop shoveling Boomer printed funds through a fraudulent system to Boomer Tenured faculty.

      This is all bullshit. The Boomer generation is not on the hook for that 18 trillion (which includes federal student loans), we are. So fuck them. Fuck their opinions. They should have absolutely no say going forward.

      Jubilee. Every taxpayer WHO IS YOUNG ENOUGH owes that 18 trillion already. We don't have to 'socialize' the losses, they are socialized already.

      Fuck the Boomers. They will not live long enough to see the debt resolved and they take 1.some odd trillion every year in welfare. They should not even have a vote. Their opinions are worthless.


    3. Well fuck you and fuck your opinion, you goddam thug.

    4. Old Guy, if those graduates should have been sophisticated enough not to attend Appalachian or Thomas Jefferson, then you should have been sophisticated enough not to attend your "elite" (LOL) law school.

      I know it's fun to condemn other people and say they deserve what they get. But I would say, without much enthusiasm, that your own ideas would make you deserve a lifetime of debt and prohibit you from joining the bar.

      Think before you write that shit, Old Guy. You're not only embarrassing our readers and reducing your ability to function in a legal job; you're also attracting too many haters to this board with your rants..

    5. Disgruntled CSOL proponent at 4:54 AM.

    6. Not at all, you lying piece of shit at 7:01. I've done more to stop the law school scam than you ever will.

  14. In reality, the students are actually debt-strapped fools. If anything, the taxpayers via the federal $tudent loan $y$tem are the ultimate "creditors."

  15. I like the argument. It will never happen because it could be applied to more important things, like unionized workers being creditors of their factories from all the cutbacks, etc.--but the idea that peons own something they float is good.