fraudulent business practices at their subsidiary Kaplan University over the past several years.By its own admission, The Washington Post Company (WaPo) has been the subject of 16 whistleblower lawsuits claiming
Over the past 12 months, WaPo has settled at least three of these lawsuits, as well as a claim that they misled students in North Carolina at a dental school. In each case, WaPo has admitted to no wrongdoing, but has provided a financial settlement agreement containing a “nondisclosure” agreement muzzling claimants into silence.
In July 2011, WaPo settled a claim with the Department of Justice (DOJ) brought by whistleblower David Goodstein for $1.6 million regarding alleged serious misconduct at the CHI surgical technology program in Broomall, Pennsylvania.
In March 2012, WaPo settled false claim suits brought by Victoria G. Gatsiopoulos and Dolores A. Howland. The legal suits alleged fraudulent business practices at Kaplan’s ICM Campus in Pittsburgh, Pennsylvania. Kaplan unsuccessfully attempted to get the suit dismissed in September 2011. These two claims were settled for an undisclosed amount and included a nondisclosure clause.
In November 2011, Kaplan College was exposed by a local TV station for misleading students about the accreditation status of a dental assisting program in Charlotte, North Carolina. Even though Kaplan denied any wrongdoing, students were provided with a settlement estimated at $5 million in exchange for signing a nondisclosure agreement.
Because there is no publicly available information about ten of the sixteen whistleblower suits admitted to by Kaplan, it is reasonable to speculate that some of these suits were also settled with nondisclosure agreements – which would explain why nothing is known about them. And herein lays the problem – corporate secrecy through the use of nondisclosure agreements.
What Is a Nondisclosure Agreement?
In cases like those brought against Kaplan Inc. and its umbrella corporation, The Washington Post, legal settlements by defendants usually require a nondisclosure agreement.
A nondisclosure agreement (NDA) can be entered into by parties to a lawsuit with respect to the disclosure of certain proprietary and confidential information (“Confidential Information”). It requires a legal document be drafted with the terms and conditions for each particular case spelled out in specificity and entirety.
When it comes to legal claims against corporations, NDAs are drafted by corporate lawyers so that the plaintiff typically agrees to forgo any future litigation (forfeiture agreement) against the defendant; the defendant agrees to pay the plaintiff some specified monetary amount. In these cases, there is usually a “non-disparagement agreement” included, prohibiting any of the parties to the settlement from denigrating each other either privately or in public. NDA settlements can also go much further and spell out and require the defendant to change a company policy or perhaps stop some form of nefarious or negligent behavior. They can also include clauses that prohibit any discussion of the settlement agreement itself!
Often, the exact terms of settlement agreements (NDAs) are purposely not publicly disclosed. This is particularly true in high-profile cases where the defendant (a corporation in the case of The Washington Post) is seeking to protect its public reputation. In fact, it is the norm for large companies to settle with plaintiffs for an undisclosed amount and then immediately issue a statement denying any culpability, stating the company did nothing wrong.
Settlement agreements that contain nondisclosure agreements often involve confidentiality agreements that assure the public will never know many, if any, of the facts of a given case. They do this, of course, to avoid the perceived humiliation, embarrassment and often adverse economic and political consequences of a public trial.
In the matter of corporate Kaplan University and The Washington Post, details of any NDA would of necessity include the grubby details of Kaplan University’s allegedly fraudulent practices. The NDAs that Kaplan demands not only allow the corporation to wiggle out of disclosing any squalid business practices, but also allow Kaplan/Post attorneys to negotiate their own presumably high fees under the cover of nondisclosure.
It appears the Post’s legal strategy in matters like these is to drag lawsuits through the court system and attempt to get them dismissed by judges prior to trial. If the lawsuits survive motions to dismiss or summary judgment motions, WaPo then throws up its hands, states it has done nothing wrong and hurriedly settles these suits with a mandatory nondisclosure agreement in an effort to avoid potentially embarrassing or incriminating disclosures related to questionable business practices at Kaplan University.
In the case of one whistleblower, former Kaplan legal studies Dean Ben Wilcox, WaPo was able to get the DOJ to prosecute Wilcox for allegedly making threats; less than two weeks after Wilcox was sentenced to prison, WaPo attempted to get his false claims lawsuit dismissed. They were unsuccessful and the case, US v. Wilcox, 08cr256, US District Court, Northern Division of Illinois, is now on appeal.
Why Do Persons or Corporations Demand Nondisclosure Agreements for Settlement of Legal Claims?
Legal suits are settled on a daily basis in which such things as sexual molestation by priests, or malpractice by doctors, or the existence of dangerous and defective products are concealed from the public. The plaintiff or claimant in such legal proceedings is often given a choice between accepting compensation and keeping the matter secret or proceeding to trial. Sometimes victims, such as those who have suffered sexual harassment or assault, prefer to have the incidents charged remain private. They are more than happy to keep the charges and settlement details confidential. This is logical. Many other claimants cannot afford the cost of trial and, thus, agree to these agreements under the threat of economic duress.
Questions arise when a defendant is guilty of a charge or charges levied by a claimant, and as a defendant, they demand a nondisclosure clause for any settlement agreement. In this situation, we can ask if sound social and public policy should require that other present or future victims be entitled to know what transpired in the case. In a situation like this, would prohibiting disclosure be metaphorically tantamount to cover-up of a crime scene?
There are many reasons that large corporations or defendants such as The Washington Post/Kaplan, Inc. wish to settle cases with strong “confidentiality agreements” folded into “nondisclosure agreements” equipped with “non-disparagement agreements” that serve to muzzle and silence plaintiffs. Acknowledging malfeasance is one; it’s simply bad for business and the company’s reputation to admit to criminal, negligent or tortuous behavior. Companies and powerful defendants also want to avoid lengthy public court hearings.
There is an additional reason that many corporations like The Washington Post favor nondisclosure agreements. The amount of money they settle for often serves as a barometer for the level of malfeasance in which they’ve engaged. The companies know this and they want to ensure that these cases do not inspire other would-be plaintiffs to file similar lawsuits.
The Use of NDAs in Major Litigation Involving the Public Interest
As Mother Jones reported in their coverage of Herman Cain and his allegedly inappropriate sexual behavior, the National Restaurant Association (NRA) reportedly paid off at least two women, who complained about the former presidential contestant’s alleged sexual harassment. In exchange for the cash settlement, the women signed confidentiality agreements promising not to talk about their allegations publicly. Details of many of the women’s charges, as well as the amounts they were paid to settle, have not been made public as a result of the nondisclosure agreements.
Then, there is the lesser-known case of Massey Energy, which was purchased by Alpha Natural Resources (ANR) Inc. for $7.1 billion last June. Before the sale of the company, a 2010 explosion at Massey’s Upper Big Branch mine in West Virginia killed 29 miners. The tragedy was the worst US mining accident in four decades and had many commentators pointing the finger at horrific workplace conditions at Massey. ANR settled 19 remaining Massey wrongful-death lawsuits with the families of coal miners killed in a 2010 explosion. The suits were settled by the company within days of mediation. Terms of the negotiated settlement: no disclosure of the amount paid; no disclosure of the terms of the contract; no disclosure of any matters pertaining to the litigation in question.
Not well known is the fact that nondisclosure agreements are often used by large corporations in an attempt to muscle and intimidate plaintiffs from speaking to law enforcement or government investigators. Corporations frequently have to settle legal cases alleging fraudulent business practices and they like to leave the impression with claimants that nondisclosure agreements also apply to law enforcement or government conducting investigations.
Recently, all of this became clear in Arizona where the Bank of America Corporation is alleged to be holding up an investigation of its loan modification practices by negotiating settlements with borrowers, who must agree to a nondisclosure clause keeping the terms of the settlements secret.
When Bank of America borrowers signed settlement agreements containing nondisclosure clauses, many believed they could not speak with anyone concerning the loan modifications and settlement. As part of the nondisclosure agreement, plaintiffs also promised not to criticize the bank in exchange for receiving cash payments and loan relief (the pesky non-disparagement agreement).
In response to outrage, the Arizona attorney general’s (AG) office intervened in the case, asking a court to block aspects of the Bank of America settlements that require nondisclosure. The AG forced the bank to enter into the court record all the nondisclosure agreements the parties signed, so the court might review them. A state judge then ordered Bank of America to notify those parties who signed confidentiality and non-disparagement clauses that they do not need to abide by them when speaking to the AG.
Nondisclosure Agreements Pose Problems for Sound Public Policy and the Public’s Right to Know
As noted, nondisclosure agreements usually serve the interests of powerful corporations or influential individual defendants. In the Cain allegations of sexual misbehavior, the nondisclosure agreements prevented the public from knowing more about a presidential candidate; in the Massey miner’s deaths, the nondisclosure clauses served to cover up any malfeasance as it might have pertained to work conditions at the mine; and in the case of Bank America, they were used to silence borrowers about loan agreements and modifications that the corporation did not wish to make public.
The frequent use of nondisclosure agreements by corporations, specifically in this case by WaPo to conceal misconduct at Kaplan University, is incompatible with freedom of the press, the first amendment, social and public policy and the public’s right to know, not to mention the Post’s journalistic ethics. Newspapers are supposed to be about transparency and disclosing information to readers so they can participate wisely in a democracy. The failure of the Post to disclose details of NDAs with whistleblowers is also incompatible with the transparency expected by shareholders in a publicly traded company.
Further compounding the ethical conflict created for the Post newspaper by Kaplan University is the paper’s dependence on revenue from Kaplan (62 percent). Despite having a large education journalism staff, the Post chooses to publish virtually nothing about Kaplan or other for-profit colleges. Nondisclosure by WaPo occurs through censorship as well as through signed court documents.
All of this is problematic: after all, we as the public will pay the millions of dollars involved in the settlement of the Kaplan/Washington Post cases, to cover the costs of the suit, pay the fees of the lawyers and cover the settlement itself. We pay by subsidizing Kaplan with Title IV monies. We subsidize Kaplan’s profits with federal dollars, and when they engage in alleged malfeasance subject to legal settlement, we, operating as financier for the company, pay for their attorneys and all costs involved in the suits; then, we are not allowed to see the terms of a legal settlement. This runs counter to sound public and social policy. The public should expect and democracy should require full disclosure and complete transparency regarding any case involving federal taxpayer monies. This is the only way an informed populace can ensure that sensible public policy is adopted that is in the best interest of the public.
Courts Have an Obligation to Protect the Public
When it comes to false claims suits like those filed by the government against Kaplan University and its parent corporation The Washington Post, the DOJ and the Department of Education (DOE) have a public duty to protect citizens from predatory violations of DOE guidelines. This obligation falls under qui tam legislation, (the False Claims Act) that harkens back to the Civil War.
The problem is when prosecutions under the False Claims Act, as with so much else involving the government, are broken. Whatever its original purpose, the False Claim Act has now become a legal process that appears to investigate and punish bad actors; in fact, it too often allows the guilty corporations to simply pay a fine and then pen a secret settlement to avoid prosecution. It would be as if bank robbers, after the court determined how much was stolen, who it belonged to and what their motive was, were simply given a minor fine, asked to sign a document, admonished by the court to conduct themselves legally in the future and then allowed to continue business as usual. This is precisely what happened with the University of Phoenix (UOP) and its parent company, the Apollo Group.
In 2009, UOP agreed to pay $78.5 million to settle a false claims suit that had dragged on for more than six years. The lawsuit, brought by two enrollment counselors at UOP, charged that the university had intentionally and knowingly violated federal law under the “Higher Education Act” by awarding incentive pay to recruiters based on students enrolling in the university or simply securing financial aid. This settlement came on the heels of a $9 million settlement payment by UOP in 2004. Both settlements utilized NDAs, and, other than the amount paid, the settlements remains secret. For large corporations like Apollo, settlement payments with ironclad NDAs are simply the cost of doing business.
Nancy G. Krop, the lawyer who obtained the settlement for the two former counselors, speaking to The New York Times after the settlement, stated:
“At the University of Phoenix, they got billions of dollars in federal aid. So even paying $78 million to settle a case, they end up with a lot of money.”
But there is more: The CEO of the Apollo Group at the time of the 2009 secret settlement was Todd Nelson. Mr. Nelson left Apollo and is now the CEO for the second-largest for-profit college and university chain, the Educational Management Corporation (EDMC). EDMC is currently being sued under the False Claims Act by the DOJ along with eleven states. This false claims suit is based on allegations that the firm falsely reported to government officials that it was not basing recruiter salaries on incentives. Sound familiar?
I spoke with an attorney involved in one such lawsuit against another major for-profit university regarding the questionable use of NDAs in settlements with for-profit colleges. The attorney, who prefers to remain anonymous, told me:
“The University of Phoenix case involved an agreement by the plaintiff lawyers not to file into the court record any of the deposition testimony and other evidence of fraud obtained in the lawsuit. I think the DOJ should never have allowed such an arrangement. I think those lawyers should have never entered in such an agreement. It’s Government money!! Any such agreements are absolutely unethical. I have always felt that there should be hearings in Congress over the University of Phoenix settlement. It amounts to misconduct!!” [Private email, April 11, 2012.]
The use of NDAs in high-profile litigation is unethical and flies in face of social policy and the public interest. The case of EDMC and CEO Todd Nelson is indicative of what happens when corporations are allowed to pay settlements under cover of NDAs. Nelson is now being named once again in a legal suit that alleges the same misconduct levied against the Apollo Group. This time, the government has alleged that EDMC, under Todd Nelson’s tutelage, has stolen billions of dollars in taxpayer funds. Obviously, if citizens are not given the benefit of full disclosure, then social policy and the public interest cannot be protected and preserved and serial crimes like those alleged against EDMC will continue.
WaPo’s actions in the case of Kaplan University reinforce the perception that they have something to hide, that Kaplan University is little more than a scam swaddled in secrecy. Evidently, helping the public to understand educational policy in the interest of assuring quality education is not as important to The Washington Post as covering up past alleged illegal activity with nondisclosure agreements in the interest of secrecy and maximizing profits.
All of this is troubling at a time when these for-profit colleges and universities are claiming they can do a better job educating students at a lower cost than can public institutions. Colleges and universities that work for the public interest don’t conceal misconduct with nondisclosure agreements, and newspapers dedicated to informing the public don’t suppress coverage of such transgressions.
The practice of concealing wrongdoing through the use of nondisclosure settlement agreements demands further legal deliberation. Perhaps we need to rethink and promote a change in what has become an acceptable legal tactic and custom. Secret settlements may protect the innocent at times, but as illuminated by the case of the Washington Post/Kaplan, Inc., the Apollo Group and EDMC: when used by corporate America or deep-pocketed defendants, they have the propensity to serve and protect the guilty or those who have something to hide.
This is wrong and contrary to public policy. There is nothing in the law that says that NDAs must be approved by courts. Courts may exercise their prerogative to consider multiple issues when deciding to approve or disapprove out-of-court legal settlements. Given the gravity of the social policy issues involved in settling false claim cases, a sound legal argument can be made that if a court believes that a settlement should not be the subject of nondisclosure due to the fact that there may be some compelling public interest involved, the court would do well to exercise its prerogative by balancing the competing interests of the parties and, if the court believes it is in the public interest, to refuse requests to approve NDAs.
There are some in the legal profession that would argue that if courts did not approve NDAs such as those used by Kaplan, UOP or EDMC, judicial economy would be threatened and plaintiffs would be required to engage in costly lawsuits. But the case can be made that, in the interest of sound public policy, full transparency, full disclosure and the public’s right to know when it comes to covering up alleged malfeasance by corporations such as the Post, courts would better serve the interests of democracy if they were more vigilant in balancing competing interests and exercised their prerogative in refusing to sign off on NDAs.