Argosy in limbo because parent company under federal court receivership
Pago Pago, AMERICAN SAMOA — Argosy University being placed under federal court receivership, was prompted by a complaint filed against the institution’s parent-company, for failure to pay outstanding debts totaling more than $200,000 according to the lawsuit before the federal court in Cleveland, Ohio.
Court documents show that the parent company, Dream Center Education Holdings (DCEH) LLC — which is also the parent company for South University of Ohio (SUO), is facing “financials woes” that have resulted in it defaulting on its financial commitments across the country, including sums due a number of landlords.
Digital Media Solutions (DMC) LLC filed the complaint Jan. 18th and defendants named in the lawsuit are DECH, SOU, and Argosy.
DMC, in its filing, says it specializes in helping its clients accelerate their growth by deploying diversified and data-driven digital media customer acquisition solutions. DMS provided those services generally — and student led generation, specifically — to DCEH and some of its subsidiary entities, including SUO and Argosy.
DMC invoiced DCEH and its subsidiaries, including SUO and Argosy, a total of $252,737, which remains unpaid.
It asks the court to appoint a Receiver over DCEH and its subsidiaries to ensure an orderly wind down of those entities for the benefit of their creditors, including DMS, and all other interested parties including students who are getting federal government education loans.
Court filing states that DCEH is the holding company for SUO and two university systems: Argosy Universities, and a group of Art Institutes — which are referred to in the filing as "Universities".
DMS is against the defendants being placed under federal bankruptcy, arguing that this would end the eligibility of the defendants in receiving US Department of Education Title IV monies to be used to pay operating expenses, pay creditors, and provide the educational services to the students.
The defendants on the same date, Jan. 18th, filed their response, admitting that the outstanding debt of $252,737 remains unpaid. They also filed a separate motion agreeing to appoint Mark Dottorre of Dottorre Companies LLC to serve as Receiver.
The defendants summarized its financial woes, which they claim began when DCEH purchased Argosy, Art Institutes, and SOU from Education Management Corp. (EDMC) in an acquisition that closed initially in October 2017, with a secondary closing in January 2018.
Defendants claim that within 60 days of the final closing and after completing the opening balance sheet audits, DCEH discovered that the actual revenues fell far short of the projections provided by EDMC, “in an amount in the tens of millions of dollars, while overhead fixed costs were significantly in excess of the EDMC’s representations.”
DCEH’s efforts to instill best practices organization-wide and reduce enormous corporate inefficiencies clearly would not be enough to balance what was now projected to be a substantial operating deficit, according to the defendants.
DCEH determined that the decline in enrollment and revenue was the result of minimal new program development, vastly reduced marketing efforts prior to sale by EDMC, a gap between curricula and employable skills for a number of programs, and the lack of capital investment in facilities and technology.
“Those issues exacerbated a disengagement from the local communities,” the defendants claim. They said “DCEH’s financial woes have resulted in it defaulting on its financial commitments across the country, including sums due a number of landlords, who have started eviction proceedings.”
In a separate motion, DCEH board chairman and chief development officer, Randall Barton informed the court that in the Spring of last year, DCEH determined that the Universities’ projected an estimated operating loss of $38 million in FY 2018 (compared to a surplus of $30 million represented by EDMC); $64 million in FY 2019 and nearly $69 million in 2020.
The single largest forecasted expense was employee compensation, which makes up half of total operating revenues each year. The next largest expense is rent — which is projected to grow to $51 million in FY 2020.
“The Universities’ hope for moderate new student growth of 3% per year, would not make the Universities self-sustaining through FY 2020,” Barton explained.
He also noted that more than 30 individual campuses — known as the “Teach-out Schools” — were identified to be closed. These campuses represented enormous operating losses, underutilized real estate, and weak markets for the programs being offered. He identified a few of the campuses and explained that the last of the Teach-out Schools will be closed by Dec. 31, 2020.
According to the defendants motion, “DCEH has been in active negotiations to sell Argosy” to Eastern Gateway Community College, a state run institution in Ohio, in which Argosy’s facilities can provide career training services to the thousands of workers displaced by GM’s closing of its Lordstown, Ohio plant.
However, court documents are silent on other Argosy campuses across the country. Attorneys representing the defendants didn’t immediately respond to Samoa News' emailed questions on plans for other Argosy campuses, including Argosy Hawaii, which oversees the local branch.
“DCEH, SUO, and Argosy agree that the imposition of a receivership serves to protect all stakeholders: the students, creditors, and taxpayers,” the defendants said in their filing.
The motion for receiver was also granted on Jan. 18th which was also the same date that the Cleveland federal court complaint and decision were filed with the federal court in Honolulu, as well as other states where Argosy has a campus.