Pittsburgh-based Education Management squares off against Justice Department in court

For-profit firm accused of paying recruiters to boost enrollment

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Downtown-based Education Management Corp. today met Department of Justice attorneys in a courtroom for the first time since they became opponents in a multi-billion-dollar lawsuit and the for-profit education firm pressed for a cut-to-the-chase approach to its complex legal battle.

The federal government and five states have joined two former EDMC employees in claiming that the company's recruiters were given raises based on the number of students they enrolled, in violation of federal law. EDMC offered to show 14,000 changes in salary that it claims would prove that enrollments were not the only factor in salary decisions.

"This is about whether enrollments were the sole factor," attorney Laura Ellsworth, representing EDMC, told U.S. District Judge Terrence F. McVerry. "And this shows that they were not."

Ms. Ellsworth argued that the data should be provided to a neutral evaluator, who could render an opinion on whether the government has a good case. That would then go a long way toward determining whether there should be extensive discovery.

"We could do it today if you like," Ms. Ellsworth offered the judge.

Justice Department attorney Christy Wiegand countered that mere numbers, which the government suspects were designed to "camouflage" a recruitment-based compensation system, wouldn't disprove its contention.

"EDMC's formal compensation plan was a sham, and it camouflaged a system that was driven solely by enrollment numbers," she said. "We believe we need to discover information -- communications, emails," between recruiters and their supervisors, she said. The government also wants to know what recruiters were told in training sessions.

Ms. Wiegand proposed that each side be allowed to ask the other 175 interrogatory questions, and conduct 400 hours of depositions. Toward the end of that year-long process, they could try to resolve the case through mediation.

Ms. Ellsworth called that utterly unnecessary. She said the government is using discovery to pursue a political agenda.

It comes at a time of "very strenuous regulatory activity by this administration designed to change the rules regarding the proprietary education sector," Ms. Ellsworth said. Discovery, she said, was being misused as a "sword" against the biggest for-profit education firm.

The case was launched in 2007 by the former employees. The government joined last year claiming that since 2003, some $11 billion in federal student aid went to EDMC while it violated the ban on compensating recruiters at for-profit college based solely on enrollments. The ban is designed to prevent such schools from drawing government-subsidized students into fields of study for which they are not suited.

Judge McVerry said he would consider their proposed plans and rule soon on how the case should proceed.

EDMC has about 150,000 students in 109 schools nationwide, including the Art Institutes.

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