Washington Post 2009 Annual Report Download - page 91

District Court to consider the attorney’s fees issue anew. That issue
continues to be litigated; however, the attorney’s fees award will be
paid from the escrowed settlement funds, so Kaplan should not be
affected by the ultimate determination of the attorney’s fees issue.
Effectiveness of the settlement is subject to court approval. On
February 6, 2008, Kaplan was served with another purported class
action lawsuit in the U.S. District Court for the Central District of
California alleging claims substantially similar to those alleged in the
previously settled lawsuit but on behalf of a putative class that
included all persons who purchased a bar review course from BAR/
BRI in the United States after the July 2006 cut-off for class
membership in the prior action. West Publishing Corporation, which
owns BAR/BRI, is a co-defendant. On April 15, 2008, the court
granted defendants’ motion to dismiss. On May 20, 2008, the
plaintiffs filed an appeal. The appeal is pending in the U.S. Court
of Appeals for the Ninth Circuit. On November 20, 2009, Kaplan
entered into a stipulation of settlement with the plaintiffs that would
resolve the case as to Kaplan on a class-wide basis. The stipulation
of settlement requires court approval to become effective. On
April 29, 2009, Kaplan was served with a purported class action
lawsuit by a purchaser of Kaplan’s LSAT preparation course,
alleging that in 1997, BAR/BRI and Kaplan entered into a market
allocation agreement in violation of U.S. antitrust laws. Kaplan has
moved to dismiss this complaint and will continue to vigorously
defend this lawsuit.
Several Kaplan subsidiaries are also subject to four complaints that
include, among other allegations, claims under the federal False
Claims Act (31U.S.C. § 3729, et seq.), relating to eligibility for
Title IV funding. The U.S. Government declined to intervene in all
four cases, which are captioned:
United States of America ex rel. Carlos Urquilla-Diaz, et al. v.
Kaplan University et al. (unsealed March 25, 2008); United States
of America ex rel. Jorge Torres v. Kaplan Higher Education Corp.
(unsealed April 7, 2008); United States of America ex rel. Victoria
Gatsiopoulos et al. v. ICM School of Business & Medical Careers
et al. (unsealed September 2, 2008); and United States of America
ex rel. Charles Jajdelski v. Kaplan Higher Education Corp. et al.
(unsealed January 6, 2009).
The Diaz,Torres and Gatsiopoulos cases have been transferred to
the U.S. District Court for the Southern District of Florida, where
motions to dismiss have been filed in each case and await decision
by the Court. The Jajdelski case is pending in the U.S. District Court
for the District of Nevada, where a motion to dismiss also has been
filed and awaits decision by the Court. The Company will continue
to vigorously defend each of these actions.
The Company and its subsidiaries are parties to various other civil
lawsuits and administrative proceedings that have arisen in the
ordinary course of their businesses, including contract disputes,
actions alleging libel, invasion of privacy, patent infringement,
violations of applicable wage and hour laws and claims involving
current and former students and employees. Management does not
believe that any litigation pending against the Company will have a
material adverse effect on its business or financial condition.
Student Financial Aid.The Company’s education division derives a
portion of its net revenues from financial aid received by its students
under Title IV programs administered by the U.S. Department of
Education (the “Department of Education”) pursuant to the Federal
Higher Education Act of 1965 (HEA), as amended. In order to
participate in Title IV programs, the Company must comply with
extensive statutory and regulatory requirements relating to its
financial aid management, educational programs, financial
strength, facilities, recruiting practices and various other matters.
Among other things, the school must be licensed or otherwise
authorized to offer its educational programs by the appropriate
governmental body in the state or states in which it is physically
located, be accredited by an accrediting agency recognized by
the Department of Education and be certified to participate in the
Title IV programs by the Department of Education. Schools are
required periodically to apply for renewal of their authorization,
accreditation or certification with the applicable state governmental
bodies, accrediting agencies and the Department of Education. In
accordance with Department of Education regulations, a number of
the schools in Kaplan’s Higher Education division are combined into
groups of two or more schools for the purpose of determining
compliance with certain Title IV requirements. Including schools that
are not combined with other schools for that purpose, the Higher
Education Division has 33 Title IV reporting units. Failure to comply
with the requirements of HEA or the Regulations could result in the
restriction or loss of the ability to participate in Title IV programs and
subject the Company to financial penalties.
Financial aid and assistance programs are subject to political and
governmental budgetary considerations. There is no assurance
that such funding will be maintained at current levels. Extensive
and complex regulations in the United States govern all of the
government financial assistance programs in which students
participate.
For the years ended January 3, 2010, December 28, 2008 and
December 30, 2007, approximately $1,283 million, $904 million
and $745 million, respectively, of the Company’s education
division revenue was derived from financial aid received by
students under Title IV programs. Management believes that the
Company’s education division schools that participate in Title IV
programs are in material compliance with standards set forth in the
HEA and the Regulations.
Department of Education Program Reviews. From 2007 through
2010, the Department of Education undertook program reviews at
four of Kaplan Higher Education’s campus locations and at Kaplan
University. The Department of Education has issued a final report
with respect to one of the campus locations with no action taken.
No final reports with respect to the other reviews have been issued.
Therefore, the results of these reviews and their impact on Kaplan’s
operations is uncertain.
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