In Landmark Decision, Federal Appeals Court Rules That Receiver Cannot Bar Claims by Former Students of the Art Institutes
FOR IMMEDIATE RELEASE:
February 8, 2023
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In Landmark Decision, Federal Appeals Court Rules That Receiver Cannot Bar Claims by Former Students of the Art Institutes
Students will now proceed with case against school executives and owners, including the Dream Center Foundation
Yesterday, the United States Court of Appeals for the Sixth Circuit reversed and remanded a lower court ruling that barred students from suing owners and executives of the Illinois Institute of Art for hiding the school’s loss of accreditation. Federal appellate Judge Eric E. Murphy, a Trump Administration appointee, authored the unanimous ruling on behalf of the court’s three-judge panel—a landmark decision and major win for consumer and borrower rights in higher education.
In January 2019, Art Institute owners and executives entered a settlement agreement with court-appointed receiver Mark Dottore, which was approved by a federal district court in Ohio. The agreement prohibited students – who did not participate in or benefit from the settlement – from litigating their independent claims against the owners and executives, including a class-action lawsuit filed against the school and executives for lying about the school’s accreditation status. The Sixth Circuit recognized that this scheme was “unprecedented,” and that “the law forbids” it.
“The Sixth Circuit’s ruling restores the rights of students who were defrauded by Dream Center schools,” said Student Defense Litigation Director Eric Rothschild. “These school executives tried to skirt responsibility for the harm they inflicted on students who paid thousands of dollars for worthless degrees based on lies. This ruling affirms our clients’ rights to recover for their losses and is a major win for accountability in higher education.”
The former students will now proceed with their class action lawsuit against the Dream Center Foundation and executives Brent Richardson, Chris Richardson, and Shelley Murphy, which is currently pending in the U.S. District Court for the Northern District of Illinois. The lawsuit has survived numerous motions to dismiss, and the parties were in the middle of discovery when the case was stayed in response to the now-reversed bar order.
This ruling is the third U.S. Courts of Appeals case filed and won by Student Defense since the organization was founded in 2018, with each case securing a unanimous reversal of a District Court opinion. Student Defense was joined as counsel Matt Wessler and Jessie Garland from Gupta Wessler PLLC in this appeal.
A copy of the ruling can be found on the Student Defense website.
Background:
In December 2018, Student Defense filed a lawsuit on behalf of defrauded students against the Illinois Institute of Art, Dream Center Education Holdings (DCEH), and the Dream Center Foundation for concealing the Art Institute’s loss of accreditation from students — an action that severely devalued students’ degrees and impeded their ability to transfer credits. Individual executives Brent Richardson, Chris Richardson, and Shelly Murphy were later added as defendants in the case.
On January 18, 2019, DCEH, the Art Institute and other schools operated by DCEH consented to being placed in receivership in order to protect themselves against claims by creditors and continue participation in Title IV. In February 2019, Student Defense filed a motion to intervene in the receivership proceedings to protect the rights of defrauded students. In that capacity, Student Defense led the objections to the Receiver’s settlement and bar order for trampling the due process rights of victims of Dream Center and Art Institute fraud. Those objections have been vindicated by the Sixth Circuit’s decision.