January, 2024
Washington — Because it is one of the largest, most-consequential higher education lawsuits in recent memory, federal Judge Matthew F. Kennelly should not approve an unbalanced, unfair, and secretive settlement proposed by the plaintiffs and several defendants in Henry et al. v. Brown. The much-disputed class-action case deals with price-fixing to raise the net price of attendance for the financially-needy at seventeen prominent institutions.*
The settlement as proposed shortchanges student victims, represents a victory for the "enrollment management" industry at the expense of transparency in higher education finance, and thoughtlessly ignores the interests of taxpayers.
Consider, for starters, this proposed provision:
By [DATE], Settlement Class Counsel will move for an award of attorneys’ fees not to exceed 1/3 of the Settlement Fund, plus any accrued interest, reimbursement of litigation costs and expenses not to exceed $12,000,000 and service awards of up to $20,000 for each of the eight Settlement Class Representatives to be paid out of the Settlement Fund. If the Court grants Settlement Class Counsel’s requests, these amounts would be deducted from the Settlement Fund.
Because the proposed settlement fund is now $118 million and growing, attorneys fees will amount to over $39 million, in addition to up to $12 million in costs and expenses, or $51 million. The victims of price-fixing in the affected class are expected to be awarded only $750 each. And the eight named settlement class representatives will each get up to $20,000, or about .0004 (less than one-half of one percent) of the amount awarded to counsel. Although counsel's work is commendable in routing out collusive institutional behavior, the case was notably assisted by a statement of the U.S. Department of Justice and an investigation by the New York Attorney General.
Those who have followed this case will notice that the named representatives have changed somewhat since its original filing. This may be the result of standing issues or because the representatives and their families were targeted for investigations themselves by the defendants. If the latter, the awards do not adequately compensate the representatives. One can only imagine what plaintiffs' families may have been subjected to, although Judge Kennelly seems to have mitigated the worst of it.
Consider next the matter of transparency, which is being intentionally abandoned in this proposed settlement. The defendants will not have to disclose any of their price-fixing methods (behind which there is a large consulting industry) and will be able to claim that they have committed no wrongdoing. But was there wrongdoing? What exactly defines price-fixing? Is the public (let alone the regulators) supposed to guess? Judge Kennelly, in denying an early motion for summary judgement against the plaintiffs, wrote this about the "enrollment management" methods at the heart of the case:
The plaintiffs allege that ... the defendants ... purposefully "maintain a shroud of secrecy over" their enrollment management practices to avoid legal scrutiny. Id. ¶¶ 157–58. The evidence the plaintiffs cite is more than sufficient.... [Emphasis added]
Discovery in this case was extensive, the result of two years of "hard-fought litigation," according to the settlement proposal. So what was discovered that is worth $118 million to cover up? The schools must find something hugely threatening to be willing to pay such amounts to prevent the public from seeing what they (and their consultants) have been doing to drive up net price for those who can least afford it. The amounts speak for themselves. "Varsity Blues" pales in comparison.
But also consider that several of the defendants have not yet agreed to settle and may be willing to go to trial to exonerate themselves.** This is also plausible. I have spoken with many financial aid administrators at other colleges who have told me of internal struggles over the methods at issue. (These methods are not limited to seventeen elite institutions but are in play at hundreds if not thousands of other schools.) Not always have the price-fixers won out. Among other reasons, the use of these methods often has a disproportionately adverse effect on minority populations, which when employed would give lie to institutional pronouncements supporting racial diversity and equity. All of which may explain why some schools will go to extremes not to let the public see what is behind their decision-making.
Consider next the interests of taxpayers in this case and its proposed settlement. All of the schools involved are non-profit 501(c)3 institutions that encourage and receive tax-deductible contributions. Such amounts are often referred to as "tax expenditures" in public finance. If and when these funds are used in a settlement to deprive the public from understanding what goes on in financial aid offices behind closed doors, it is a misuse of the funds. As a donor, I do not want my contributions paying for cover-ups.
Additional concern: does the proposed settlement also involve a supplemental agreement beyond the "merits" settlement, by which the class representatives are prohibited from disclosing any of the discovered materials? Such non-disclosure agreements should be fully disclosed and the representatives made fully aware of the burdens being put on them.
I hope Judge Kennelly raises all of the above issues and considers what good might come of the case if the public interest is placed front and center. Among those who need to know what is legal and what is not are financially-needy families and well-meaning counselors and advisors who try to inform them. Imagine future "college nights" at high schools where families are told honestly what to watch out for in college financial aid packages, and how not to become victims of enrollment management price-fixing at any school they choose to attend, public or private.
This case will have a good outcome only if it ultimately results in less reliance by the financially-needy on student and parent loans. It will have a bad outcome if it merely shuffles hundreds of millions of dollars among the educational and professional gilt-edged. Judge Kennelly can make a good outcome happen by requiring a better settlement.
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* Plaintiffs alleged that seventeen universities "violated the antitrust laws by agreeing on a common formula and common principles regarding financial aid, and by exchanging competitively sensitive information concerning financial aid principles, formulas, and pricing."
** Settling defendants: Univ. of Chicago, Vanderbilt, Yale, Columbia, Emory, Duke, Brown, Rice. Other defendants: Cal Tech, Cornell, M.I.T., Penn, Dartmouth, Georgetown, Notre Dame, Johns Hopkins, Northwestern.
