100 Cal.App.5th 485
Cal. Ct. App.2024Background
- Zovio, through subsidiary Ashford University, operated a large online university marketed to vulnerable, nontraditional students and relied heavily on admissions counselors to enroll students.
- The California Attorney General brought UCL (§ 17200) and FAL (§ 17500) claims; after a bench trial the court found defendants liable for widespread misrepresentations on topics including career licensure, financial aid, costs, credit transfer, and time-to-degree.
- The trial court relied on expert testimony (Dr. Jerome Lucido) and statistical extrapolation (Dr. Bernard Siskin) from a sample of calls to conclude there were 1,243,099 misleading calls and imposed $22,375,782 in civil penalties (counting each misleading call as a separate UCL and FAL violation).
- Parties had a tolling agreement effective February 6, 2013; the FAL has a 3-year statute of limitations, making February 6, 2010 the earliest actionable FAL date under the tolling agreement.
- On appeal defendants did not challenge liability but raised multiple challenges to the penalty calculation, sampling approach, extraterritorial application, proportionality/excessive fines, and ability to pay; the court reduced the penalty by $933,453 to remove FAL violations outside the limitations period and otherwise affirmed.
Issues
| Issue | People’s Argument | Defendants’ Argument | Held |
|---|---|---|---|
| Inclusion of calls outside FAL limitations | Penalties may be imposed for all calls found misleading; total count included calls back to March 2009 | Court erroneously included FAL violations pre-dating the earliest actionable FAL date (Feb 6, 2010) and penalty must be reduced | Court agreed an error occurred and reduced judgment by $933,453 to eliminate calls before Feb 6, 2010 |
| Use of statistical sampling to count violations | Sampling and expert review reliably estimated total misleading calls and was proper | Use of sampling was an impermissible “trial by formula” that denied individualized adjudication | Court held sampling was permissible where experts designed methodology, defendants had opportunity to challenge it, and Duran’s prohibition did not apply |
| Counting each misleading call as a separate violation | Each individualized call is like an individual targeted communication and may be counted per-communication | Violations should be counted on a per-victim basis (multiple calls to same person should count once) | Court held per-call counting was within discretion given the targeted, individualized nature of calls and legal precedent (court affirmed per-call approach) |
| Extraterritoriality / out-of-state victims | UCL/FAL apply to deceptive statements that emanate from California; penalties may include out-of-state recipients when conduct originated in CA | Penalties impermissibly punished conduct/harm outside California and violated due process | Court upheld application where misconduct "emanated from California," relying on statutes and precedent (Wershba/Clothesrigger); due process challenge rejected |
| Excessive fines / relationship to harm & ability to pay | Penalty is reasonable given number, duration, seriousness of violations and defendant finances | Penalty disproportionate to proven monetary harm and to Zovio’s financial condition; violates excessive-fines principles | Court applied Reynolds/Bajakajian factors, found penalty ($9 per violation) reasonably related to harm and within defendants’ ability to pay; excessiveness challenge rejected |
Key Cases Cited
- Duran v. U.S. Bank Nat’l Ass’n, 59 Cal.4th 1 (Cal. 2014) (trial court must use valid sampling with expert input and allow parties to challenge model)
- People v. Morse, 21 Cal.App.4th 259 (Cal. Ct. App. 1993) (per-communication counting of mailed solicitations as separate FAL violations upheld)
- People v. Johnson & Johnson, 77 Cal.App.5th 295 (Cal. Ct. App. 2022) (sampling, per-communication methodology, and review of penalty proportionality under Reynolds/Bajakajian)
- Wershba v. Apple Computer, Inc., 91 Cal.App.4th 224 (Cal. Ct. App. 2001) (UCL/FAL may reach out-of-state class members when misrepresentations emanated from California)
- Clothesrigger, Inc. v. GTE Corp., 191 Cal.App.3d 605 (Cal. Ct. App. 1987) (sufficient California contacts permit UCL application to nonresidents where literature prepared/disseminated from CA)
- People ex rel. Lockyer v. R.J. Reynolds Tobacco Co., 37 Cal.4th 707 (Cal. 2005) (framework for analyzing civil penalties; Reynolds references Bajakajian factors)
- United States v. Bajakajian, 524 U.S. 321 (U.S. 1998) (constitutional guideposts for disproportionality review of fines)
- Diamond Multimedia Sys., Inc. v. Superior Court, 19 Cal.4th 1036 (Cal. 1999) (presumption against extraterritoriality inapplicable where wrongful act was committed in California)