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In re Bridgepoint Education, Inc. Securities Litigation

United States District Court, S.D. California

January 15, 2015



JEFFREY T. MILLER, District Judge.

This order addresses Plaintiffs' motion for class certification. (Doc. No. 70.) The motion was fully briefed, and the court determined that the matter was suitable for resolution without oral argument pursuant to Local Civil Rule 7.1.d.1. For the reasons set forth below, the court grants Plaintiffs' motion to certify the proposed class for the period between May 3, 2011, and July 13, 2012; appoints Plaintiffs as class representatives; and appoints their counsel as class counsel.


A. Consolidation of Cases and Appointment of Lead Plaintiffs

This case is a putative securities-fraud class action against Bridgepoint Education, Inc. ("Bridgepoint"), and three of its officers, Andrew Clark, Daniel Devine, and Jane McAuliffe (collectively, "Defendants"). Donald Franke filed the initial complaint on July 13, 2012. (Doc. No. 1.) Several similar lawsuits followed. On motion by the parties, the court consolidated this case with Sacharczyk v. Bridgepoint Education, Inc., No. 12-cv-1759, and Stein v. Bridgepoint Education, Inc., No. 12-cv-1841, and appointed two pension plans, City of Atlanta General Employees Pension Fund, and Teamsters Local 677 Health Services & Insurance Plan (collectively, "Plaintiffs"), as lead plaintiffs pursuant to the Private Securities Litigation Reform Act ("PSLRA"). (Doc. No. 21.)

B. The Operative Complaint[1]

On December 21, 2012, Plaintiffs filed a consolidated complaint. (Doc. No. 26.) They asserted claims for violations of three provisions of the Securities Exchange Act of 1934: (1) securities fraud, under § 10(b) and Rule 10b-5; (2) control-person liability, under § 20(a); and (3) insider trading, under § 20A. (Id. ¶¶ 232-56.)

According to the consolidated complaint, Bridgepoint is a for-profit post-secondary education company that owns and operates Ashford University ("Ashford"). (Id. ¶ 19.) Ashford's main campus is in Clinton, Iowa, but the vast majority of its students attend classes exclusively online. (Id. ¶¶ 19, 37.) In 2011, Bridgepoint's revenue was $933 million, over 90% of which came from Title IV federal funds. (Id. ¶¶ 37, 41.) Maintaining accreditation with a Department of Education recognized accreditor is a prerequisite for receiving Title IV funds and, hence, essential to Bridgepoint's financial health. (Id. ¶¶ 32, 41.)

In 2010, the Higher Learning Commission of the North Central Association of Colleges and Schools ("HLC"), Ashford's only accreditor, announced a "substantial presence" requirement, which would become effective on July 1, 2012. (Id. ¶¶ 43, 79.) Under the new requirement, institutions accredited by HLC would be required to have a majority of their educational administration activities, business operations, and leadership located substantially in the 19-state north-central region of the country. (Id. ¶ 43.) Although Ashford is in Iowa, the majority of Bridgepoint's operations are located in San Diego, California, so Ashford would not qualify for accreditation under the new requirement. (Id.) Accordingly, Ashford sought accreditation from the Western Association of Schools and Colleges ("WASC"), whose jurisdiction includes California. (Id.)

In letters dated May and June 2011, WASC informed Ashford that it was eligible to pursue accreditation, and it identified the areas the school would need to address to demonstrate substantial compliance with WASC standards. (Id. ¶¶ 49, 83.) WASC's concerns included inadequate student retention and completion, insufficient student-progress tracking, an insufficient core of full-time faculty members, and the lack of an empowered and independent governing board. (Id. ¶ 49.)

According to Plaintiffs, beginning with a press release on May 3, 2011, Defendants made a series of false and misleading statements and omissions about the quality of education at Ashford, Bridgepoint's efforts to address the problem areas WASC had identified, the likelihood that WASC would grant accreditation, and Bridgepoint's financial forecasts. (Id. ¶¶ 83-193.)

On July 3, 2012, WASC sent Ashford an action letter denying the school's application for initial accreditation and detailing the numerous ways in which the school had failed to demonstrate substantial compliance with WASC accreditation standards, including in the problem areas noted in the May and June 2011 letters. (Id. ¶¶ 55, 57-75.)

According to Plaintiffs, the truth emerged in two disclosures Defendants made soon after receiving WASC's denial. (Id. ¶¶ 76-82.) First, on July 9, 2012, Bridgepoint filed a Form 8-K with the Securities and Exchange Commission notifying investors that WASC had denied Ashford's application for initial accreditation and that the denial was based on the school's failure to demonstrate substantial compliance with WASC standards. (Id. ¶¶ 76, 78.) Later that day, Bridgepoint issued a press release reporting that accreditation had been denied and that it planned to appeal and reapply. (Id. ¶ 77.) Following this news, Bridgepoint's stock fell $7.25 per share, to close at $14.23 per share that evening, a decline of nearly 34% on high volume of 7.8 million shares. (Id. ¶ 80.)

Second, on July 13, 2012, Bridgepoint filed a Form 8-K reporting that HLC, Ashford's only accreditor, had put the school on "special monitoring status" because of the WASC denial, and that Ashford risked losing its accreditation with HLC. (Id. ¶ 81.) The notice read as follows:

On July 12, 2012, Bridgepoint Education's subsidiary, Ashford University, received a letter from [HLC] requiring Ashford University to provide certain information and evidence of compliance with HLC accreditation standards. HLC is a regional accrediting body... and is the principal accreditor of Ashford University and its programs. The HLC letter relates to the recent visiting team report and action letter received by the University from [WASC] on July 5, 2012.
The letter requires that Ashford University submit a report to HLC no later than August 10, 2012 that will be followed by an Advisory Visit that will occur no later than October 9, 2012. The University's report must demonstrate that the University remains in compliance with the HLC's Criteria for Accreditation and include: (i) evidence that Ashford University meets the HLC Criteria for Accreditation relating to the role and autonomy of the University's governing board and its relationship with Bridgepoint Education, including the role of faculty in overseeing academic policies and the integrity and continuity of academic programs, (ii) evidence that Ashford University's resource allocations are sufficiently aligned with educational purposes and objectives in the areas of student completion and retention, the sufficiency of full-time faculty and model for faculty development, and plans for increasing enrollments, and (iii) evidence demonstrating that Ashford University has an effective system for assessing and monitoring student learning and assuring academic vigor.
The letter states that HLC's President will present the report of the Advisory Visit team and the President's recommendation to the HLC Board for action at its February 2013 meeting. At that meeting, the HLC Board may act to continue accreditation, with or without further monitoring, continue accreditation under sanction or "Show Cause" order, or withdraw accreditation. The letter further states that Ashford University would be scheduled for a HLC Board Committee Hearing prior to any Board action to withdraw accreditation. HLC policies also provide for a right to appeal any Board action to withdraw accreditation.

(Id.) Following this news, Bridgepoint stock fell $3.20 per share to close at $9.77 per share that evening, a decline of nearly 25% on high ...

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