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American National University of Kentucky, Inc. v. Commonwealth ex rel. Beshear

Court of Appeals of Kentucky

June 14, 2019



          BRIEFS FOR APPELLANT: Albert F. Grasch, Jr. James L. Thomerson Lexington, Kentucky

          ORAL ARGUMENT FOR APPELLANTS: Albert F. Grasch, Jr. Lexington, Kentucky

          BRIEF FOR APPELLEE: Andy Beshear Attorney General of Kentucky Leah Cooper Boggs Todd E. Leatherman Frankfort, Kentucky

          ORAL ARGUMENT FOR APPELLEES: Todd E. Leatherman Frankfort, Kentucky



          MAZE, JUDGE.

         American National University of Kentucky, Inc. ("National") appeals the Fayette Circuit Court's final judgment that it "willfully" violated the Kentucky Consumer Protection Act ("KCPA") by publishing false, deceptive, and misleading statements on its website about its students' post-graduate employment rates. National contends the trial court erred by finding that it was liable for the actions of the company that created its website. National also argues the trial court erroneously defined "willful" under the KCPA, employed the wrong standard of proof, and abused its discretion by imposing a $20.00 civil penalty for every day the misleading employment figures remained on its website. For reasons stated below, we affirm most of the trial court's findings of fact and conclusions of law. However, we hold the trial court's "per day" method of calculating KCPA violations was an abuse of discretion. Hence, we affirm in part, reverse in part, and remand for a new penalty consistent with this opinion.

         I. Background and Procedural History

         National is a privately owned "career college" with six campuses in Kentucky offering programs designed to train students for specific jobs in an array of fields. National's target candidates are non-traditional students who are already employed but are seeking to improve their career prospects by completing a program offered by National.

         National's accreditor requires it to collect and report data regarding its graduates' employment status. The accreditor specifically required National to calculate its "placement rate" by reporting if each graduate was either employed in their field of study; employed in a related field; employed out of their field of study; unemployed; or not available for employment. National also calculated what it deemed an "employment rate" based on the percentage of its graduates who were employed. The "employment rate" did not distinguish between graduates who were employed in their field of study, a related field, or were employed out of their field of study. As a result, the employment rate was usually considerably higher than the placement rate reported to the accreditor. From January 2, 2008, to February 23, 2011, National posted the employment rate on the "Success Rates" page of its website. During this time period, National's website did not explain how this employment rate was calculated or disclose that it was higher than the placement rate reported to its accreditor. The "Success Rates" was "updated" on February 23, 2011, to include an explanation of how it was calculated. The employment rate was permanently removed from National's website on September 28, 2011.

         The Attorney General, acting on behalf of the Commonwealth, sued National under the KCPA. The Complaint alleged that National "willfully" violated the KCPA by advertising false, misleading, and deceptive employment rates and was therefore subject to civil penalties under KRS[1] 367.990(2). The Attorney General sought the maximum civil penalty under the KCPA ($2,000 per violation) for every day the employment rate was posted on National's website. The Attorney General brought other claims under the KCPA, but they are not pertinent to this appeal.

         Discovery commenced and National alleged that its website was created and controlled by employees for a company called National College Services, Inc. ("NCSI"). Although NCSI is a separate corporate entity ostensibly created to provide administrative, technological, and marketing services to National, it is wholly owned by Frank Longaker, who is the sole owner of National and serves as the president of both companies. Multiple employees for National and NCSI were deposed who alleged that NCSI employees were responsible for all decisions relating to the content and design of National's website, including the decision to publish graduate employment rates. However, NCSI's Executive Vice-President conceded that there was not a written contract between the two companies. Instead, they had "verbal agreement" based on "a definition of roles."

         Both parties subsequently moved for summary judgment relating to National's liability for the actions taken by NCSI. National contended that the evidence showed NCSI was an independent contractor; therefore, it was entitled to summary judgment because all of the alleged KCPA violations were premised on actions taken by NCSI. The Attorney General moved for summary judgment on the grounds that the undisputed evidence showed NCSI was National's agent. The trial court found NCSI was National's agent because "the same individuals possess the same level of control over both entities" and there existed "such a close business operation that the two entities do not even have a contract delineating the roles and obligations of each respective entity."

         The trial court made three other pretrial rulings relevant to this appeal. First, it noted that the term "willful" was not defined under the KCPA. As a result, it employed the following definition provided by Black's Law Dictionary (10th ed. 2014):

Voluntary and intentional, but not necessarily malicious. A voluntary act becomes willful, in law, only when it involves conscious wrong or evil purpose on the part of the actor, or at least inexcusable carelessness, whether the act is right or wrong. The term willful is stronger than voluntary or intentional; it is traditionally the equivalent of malicious, evil, or corrupt.

(Emphasis original). Second, it rejected National's argument that the Attorney General had to prove a KCPA violation by clear and convincing evidence. The trial court concluded the ordinary standard of proof in civil cases, preponderance of evidence, applied to consumer protection actions. Third, it determined KCPA violations based on misleading or deceptive information published on the internet could be sanctioned on a "per day" basis, meaning National could be penalized $2,000 for everyday its employment rate remained online.

         Following a ten-day bench trial, the trial court found the posting of the employment rate on National's website from January 2, 2008 to February 22, 2011, was a willful violation of the KCPA. The trial court concluded the updated page existing from February 23, 2011 to September 28, 2011, also violated the KCPA, but the violation was not willful. The trial court imposed a civil penalty of $22,960.00, $20.00 for every day the misleading placement rate was posted online from January 2, 2008 to February 22, 2011. On appeal, National challenges the trial court's decision regarding its agency relationship with NCSI, the definition of "willful," the standard of proof in KCPA cases, and its per day method of calculating violations.

         II. Agency Issue

         The evidence regarding National's relationship with NCSI is not contradictory or conflicting; therefore, NCIS's status as either an independent contractor or National's agent is a question of law subject to de ...

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