Washington Post 2011 Annual Report Download - page 98

16. CONTINGENCIES
Litigation and Legal Matters. The Company and its subsidiaries are
subject to the items listed below, other complaints and administrative
proceedings and are defendants in various other civil lawsuits that
have arisen in the ordinary course of their businesses, including
contract disputes; actions alleging negligence, libel, invasion of
privacy, trademark, copyright and patent infringement; U.S. Federal
False Claims Act (False Claim Act) violations; violations of applicable
wage and hour laws; and statutory or common law claims involving
current and former students and employees. Although the outcome of
the legal claims and proceedings against the Company cannot be
predicted with certainty, based on currently available information,
management believes that there are no existing claims or proceedings
that are likely to have a material effect on the Company’s business,
financial condition, results of operations or cash flows. Also, based on
currently available information, management is of the opinion that the
exposure to future material losses from existing legal proceedings is
not reasonably possible, or that future material losses in excess of the
amounts accrued are not reasonably possible.
A purported class action complaint was filed against the Company,
Donald E. Graham and Hal S. Jones on October 28, 2010, in the
U.S. District Court for the District of Columbia, by the Plumbers Local
#200 Pension Fund. The complaint alleged that the Company and
certain of its officers made materially false and misleading
statements, or failed to disclose material facts relating to KHE, in
violation of the federal securities laws. The complaint sought
damages, attorneys’ fees, costs and equitable/injunctive relief. The
Company moved to dismiss the complaint, and on December 23,
2011, the court granted the Company’s motion and dismissed the
case with prejudice. On January 25, 2012, the Plaintiff filed a
motion seeking to leave to amend or alter that final judgment; the
Company has opposed the motion.
On February 6, 2008, a purported class action lawsuit was filed in
the U.S. District Court for the Central District of California by
purchasers of BAR/BRI bar review courses from July 2006 onwards
alleging antitrust claims against Kaplan and West Publishing
Corporation, BAR/BRI’s former owner. On April 10, 2008, the
court granted defendants’ motion to dismiss. On May 7, 2008, the
plaintiffs filed an appeal to the U.S. Court of Appeals for the Ninth
Circuit. On October 18, 2010, the parties entered into a
stipulation and settlement agreement. The District Court granted
preliminary approval of this proposed settlement on March 21,
2011, but denied final approval thereof on July 1, 2011. On
November 7, 2011, the Ninth Circuit reversed the District Court’s
order of dismissal, but stayed the mandate and referred the matter
to the Ninth Circuit mediator for renewed settlement discussions.
On or about January 17, 2008, an Assistant U.S. Attorney in the Civil
Division of the U.S. Attorney’s Office for the Eastern District of
Pennsylvania contacted KHE’s CHI-Broomall campus and made
inquiries about the Surgical Technology program, including the
program’s eligibility for Title IV U.S. Federal financial aid, the
program’s student loan defaults, licensing and accreditation. Kaplan
responded to the information requests and fully cooperated with the
inquiry. The U.S. Department of Education (DOE) also conducted a
program review at the CHI-Broomall campus, and Kaplan likewise
cooperated with the program review. On July 22, 2011, the U.S.
Attorney’s Office for the Eastern District of Pennsylvania announced that
it had entered into a comprehensive settlement agreement with Kaplan
that resolved the U.S. Attorney’s inquiry, provided for the conclusion of
theDOE’sprogramreview,andalsosettledapreviouslysealedFalse
Claims Act complaint (31 U.S.C. § 3729, et seq.) that had been filed
by a former employee of the CHI-Broomall campus. The total amount
of all required payments by CHI-Broomall under the agreements was
$1.6 million. Pursuant to the comprehensive settlement agreement, the
U.S. Attorney inquiry has been closed, the DOE will issue a final
program review determination, and the False Claims Act complaint
(United States of America ex rel. David Goodstein v. Kaplan, Inc., et
al. (unsealed July 22, 2011)) was unsealed and will be dismissed with
prejudice. At this time, Kaplan cannot predict the contents of the
pending final program review determination or the ultimate impact the
proceedings may have on the CHI-Broomall campus or the KHE
business generally.
Several Kaplan subsidiaries were or are subject to four other
unsealed cases filed by former employees that included, among
other allegations, claims under the False Claims Act relating to
eligibility for Title IV funding. The U.S. Government declined to
intervene in all cases, and, as previously reported, court decisions
in 2011 either dismissed the cases in their entirety or narrowed the
scope of their allegations. The four cases 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).
On August 17, 2011, the U.S. District Court for the Southern
District of Florida issued a series of rulings in the Diaz case, which
included three separate complaints: Diaz, Wilcox and Gillespie.
The court dismissed the Wilcox complaint in its entirety; dismissed
all False Claims Act allegations in the Diaz case, leaving only an
individual employment claim; and dismissed in part the Gillespie
case, thereby limiting the scope and time frame of its False Claims
Act allegations regarding compliance with the U.S. Federal
Rehabilitation Act. The case (now consisting of the individual
employment claim in Diaz and the remaining False Claim Act
allegations in Gillespie) is expected to proceed to the discovery and
dispositive motion phases.
On August 23, 2011, the U.S. District Court for the Southern
District of Florida dismissed the Torres case in its entirety and
entered a final judgment in favor of Kaplan. That case has been
appealed in the U.S. Court of Appeals for the 11th Judicial Circuit.
On August 9, 2011, the U.S. District Court for the Southern District
of Florida granted in part Kaplan’s motion to dismiss the
Gatsiopoulos case, which limited the allegations in that case to
alleged violations of federal incentive compensation regulations and
so-called “70 percent rules” and an individual employment claim,
and limited the time frame applicable to these claims. Thereafter,
the court recommended that the case be transferred back to its
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