A Federal court has confirmed a Bankruptcy Court ruling that an accrediting organization misled the U.S. Department of Education in a proceeding that resulted in the bankruptcy of a large Kentucky trade school. In response to an appeal filed by the Council on Occupational Education (COE), District Court Judge John G. Heyburn II found that the COE, an accrediting agency recognized by the U.S. Secretary of Education and the former accreditor of Decker College, was correctly shown at trial to be “dishonest when it told the Department [of Education] it did not approve” certain programs in the construction trades that were offered using a hybrid format that consisted of online and residential delivery. In his written decision, Judge Heyburn concluded that “This Court finds no error in Bankruptcy Judge Fulton’s reasoning and finds his factual Findings to be fully supported by the record evidence.”
Decker College closed in the fall of 2005 after the U.S. Department of Education, on the basis of COE’s representation that its accreditation did not include the College’s hybrid programs, terminated Decker’s eligibility to participate in the Federal student loan and grant programs and sought recovery of previously awarded financial aid funds. Decker bankruptcy trustee Robert W. Keats filed suit in Federal Bankruptcy Court in Louisville, Kentucky to recover damages from COE caused by its false statements to the Department about the scope of COE’s accreditation. Keats argued that while COE had actual knowledge that the programs were properly offered online and were explicitly within the scope of Decker’s COE accreditation, when the Department questioned COE about its approval, COE falsely informed the Department that it had not approved these online programs.
In his decision, Judge Heyburn affirmed the determination of Federal Bankruptcy Judge Thomas H. Fulton that “COE’s statements were false when it informed the Department that it never approved the Hybrid Program to be offered via distance education when in fact [COE had] given such approval,” and that its statements to the U.S. Department of Education regarding the scope of Decker’s accreditation were “factually erroneous.” Judge Heyburn remanded the case to Judge Fulton for further proceedings.
In a statement, Bankruptcy Trustee Robert J. Keats said that he is gratified that Judge Fulton’s findings have been affirmed.
This decision takes us one step further along the path of providing compensation to the many former students, teachers and staff of Decker College, as well as the vendors and suppliers of the College, who suffered serious financial harm when the school was forced into bankruptcy as a result of the Department of Education’s summary termination of the ability of the College to provide financial assistance to its students. Importantly, the Department’s action also resulted in the withholding of many millions of dollars in properly earned student aid funds. It is my intention to ensure that those funds become available for their original purpose.
Peter Coffman of the law firm Dow Lohnes, PLLC, principal counsel to Trustee Keats, said that the importance of this decision lies in the fact that not only does it ratify Judge Fulton’s factual finding but, by finding the case to be a “core” bankruptcy proceeding, puts it squarely within the jurisdiction of the Bankruptcy Court. Mr. Coffman said that he now expects the case to proceed and Trustee Keats to initiate discussions with the Department to secure the release of the funds it is still holding.
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