‘Class, Please Turn to . . . Chapter 11’; Ky School Files for Bankruptcy

[WSJ Law Blog]

Many believe that, some time ago, legal education in the United States arrived at a sorry junction, where it’s been stuck ever since. Schools proliferating without regard to the job market, churning out debt-strapped students with limited ability to repay loans. Little preparation for practice. Administrators who, increasingly, govern according to the U.S. News rankings rather than pragmatic decision-making. Graduates allegedly misled about the true earning-potential of their JD. Look no further than this WSJ page-one story from last year for some of these critiques.

Others believe (and these views aren’t necessarily in conflict) that students share the blame for the system’s shortcomings — self-delusional on everything from lawyer-lifestyle, to salaries, to the nature of competition in the industry.

We were reminded of all of these takes today when reading once again about the American Justice School of Law (recently renamed the Barkley School of Law, and formed as a new entity). On Tuesday, reports the NLJ, the for-profit Paducah, Kentucky-based law school filed for bankruptcy in the U.S. Bankruptcy Court for the Western District of Kentucky, listing its assets at $1.6 million and its debts at $5.2 million.

According to a February report in the Courier-Journal, there are about a dozen for-profit law schools nationwide, but only five have been accredited. Critics say the schools admit students who aren’t capable of passing the bar exam in order to maintain revenue to keep the school running. Proponents of such schools counter that, regardless, there’s an incentive to get graduates through the bar because if they don’t then enrollment will go down.

In any event, it’s been a short, strange trip for AJSL/BSL. The timeline:

2004: The school is formed.

2007: A group of students file a wannabe class action in federal court in Kentucky against against the school, alleging that one of the deans, Paul Hendrick, who was the school’s majority stockholders, acted with others to withhold student loan money, apply for student loans in students’ names without their knowledge, lower grades to punish students they perceived as disloyal and keep them from transferring, and delay telling students last fall that the school had been denied ABA accreditation until it was too late for them to leave. (Graduates of non-accredited schools can’t take the Kentucky bar.) The students said they paid $13,250 a semester for tuition, but there was no toilet paper in the restrooms, copiers and printers often had no paper, and the lights were once turned off in the library because the school couldn’t pay its bills. In court papers, the two deans, Hendrick and Jarrod Turner, denied the allegations and noted that students were never guaranteed the school would win accreditation.

February 2008: The suit is settled. The owners of the school — two deans and an accountant — agree to transfer ownership to an investor group headed by a local physician, and to play no role in the future administration of the school. No money is exchanged in the transfer, but the new owners agree to take on the school’s roughly $2.8 million in debt. At the time, the physician, Dr. Laxmaiah Manchikanti, told the Law Blog: “The decision was made in 15 minutes . . . It’s a great opportunity if we can get accreditation, and I’m about 90 percent certain we can get it with the right people.”

July 2008: A school spokesman told the Paducah Sun that classes will be canceled if the new $5 million library and the renovation of a classroom building are not completed in the next two months. The school has only 10 full- and part-time students.

September 2008:Dean Larry Putt tells the NLJ that, while the bankruptcy filing puts a dark cloud over the Barkley School of Law, it will not have a direct impact on the school, since, technically speaking, it is a separate entity from the The American Justice School of Law. “Even as I speak, we are building the school up and moving forward,” Putt said. Though the NLJ notes Barkley could potentially face problems with its facilities and buildings, which are still owned by the American Justice School of Law and could be sold off to pay creditors.