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Law students' dream turns to nightmare
Officials of Paducah for-profit school sued; accreditation woes, money issues cited

By Andrew Wolfson
The Courier-Journal

Lured by scholarship money and the promise of a new career, 40-year-old paralegal Patty Clark moved more than 1,000 miles from Connecticut to attend a new law school in Paducah in 2006.

"They told us about all the great things the school had to offer," said Clark, who came with her husband and four children in tow.

But a few weeks into her first semester, she sensed all was not well at the grandly named American Justice School of Law.

Administrators told her the school was having some financial troubles, she said, and they could give her only $1,000 of the $7,000 she had borrowed from a private loan company for living expenses. The loan was being disbursed through the school.

That turned out to be only the first fissure in an earthquake that now threatens to destroy the school, the first for-profit law school in Kentucky or Indiana, and one of about a dozen nationally.

In a rebellion against their dean -- who is also the school's majority stockholder -- more than 30 students, including Clark, have joined in a federal lawsuit charging that he and other administrators conspired "to enrich themselves at the expense of students."

Among many allegations, the students claim that Dean Paul Hendrick and others withheld student loan money; applied for loans in students' names without their knowledge; lowered grades to punish disloyal students and keep them from transferring; and delayed telling students last fall that the school had been denied American Bar Association accreditation until it was too late for them to leave.

The suit seeks $120 million in damages and a full accounting of the school's finances, as well as Hendrick's ouster.

The failure to win bar association approval means graduates of the school's charter class this spring won't be able to take the bar exam in any state except California. That, in turn, will keep them from practicing law in almost the entire country.

Some have borrowed as much as $40,000 a year for tuition and expenses and would have to transfer and repeat much of their studies to be eligible to take the bar.

"What makes this so awful is that these students, many of them older adults, have made tremendous sacrifices to come to Paducah, investing in one last opportunity to change their lives and build new ones, only to have it shattered because the administration failed," said former professor Bob Collins.

He is one of five faculty members, out of a total of about 20, who resigned effective Friday and said they wouldn't return unless Hendrick, 67, and Assistant Dean Jarrod Turner are ousted. Another two professors were fired in November without explanation.

Hendrick, a law professor and attorney who practiced law in Miami, has denied the suit's allegations. He and his lawyers in Paducah and Louisville declined to comment on it, although in a brief news release issued last week, the school said it is working to settle the litigation "at the earliest possible time."

The release also said the school will reopen tomorrow as scheduled for its spring semester, with about 100 students, half the number enrolled a year ago.

A hearing in the lawsuit is set for Feb. 13 before U.S. District Judge Thomas Russell, who has ordered Hendrick to take no retaliatory measures against students and to file weekly accountings of the school's expenses with the court.

And no matter the suit's outcome, students may get at least part of what they want: Hendrick and Paducah community leaders are looking for a buyer for the school, and the plaintiffs' lawyer, Dennis Null, said several investor groups are interested. He also said both sides are working "day and night" to settle the lawsuit.

For-profits' track record

Law schools can only be accredited by the bar association after they have operated for two years. Students who risk starting at a school before it has won accreditation often do so because they don't have the grades or law board scores to get into established schools, or because they are offered scholarships not available elsewhere.

For-profit law schools offer generally the same curricula as conventional law schools, and students at American Justice said they have no issues with the quality of instruction or faculty in the three-year program.

The bar association has accredited five for-profit law schools, including Florida Coastal School of Law in Jacksonville, Fla., where Hendrick previously was dean of students and briefly acting dean.

Graduates of the Jacksonville school, which was accredited in 1999 and now has an enrollment of about 1,400, initially struggled to pass the bar, but their pass rate in recent years has exceeded the state average.

Jeanne M. Picht, recruiting director for Louisville's Stites & Harbison law firm, said she believes students should go to a school already accredited, if possible. "But if you are really passionate about being a lawyer" and an as-yet unapproved school is the only option, "I wouldn't advise somebody not to pursue their passion," she said.

Clark and other students said they knew they were taking a risk in attending a new school that hadn't yet been accredited. The school even warns on its Web site that it can't guarantee "any applicant that it will be approved by the ABA prior to the graduation of any matriculating student."

But it also says it will "devote all necessary resources and take all necessary steps to present a program of legal education that will qualify for approval."

Phil Cahan -- a third-year student at the Paducah school who has transferred to Chase Law School in Covington, even though it meant losing 1 years of credits -- said he believes American Justice was badly managed and underfunded.

Cahan, a 52-year-old from Seattle whose son Richard remains at the Paducah school, said it took him six weeks last fall to pry his living-expenses loan from the administration after a loan company said it had disbursed the money to the school -- though he already was paying interest on the loan.

Hendrick told The Paducah Sun for a story last year that the school was making a profit, with $5 million in revenue in tuition and fees against $1.5 million in payroll. The school charges $13,250 tuition per semester.

But professors and students, including Cahan, say that printers and copy machines often had no paper, that there was no toilet paper in the restrooms, and the lights once were turned off in the library because the school hadn't paid its bills.

The school also had to drop plans for an "Innocence Project," a legal clinic that many students found attractive, in part because the school wouldn't pay for malpractice insurance or bar dues so that a professor from out of state could practice in Kentucky, said Fred Leatherman, the professor who was to run the clinic.

Schools once shunned

Critics of for-profit law schools, including legal education scholar Michael Ariens, a professor at St. Mary's University School of Law in San Antonio, said that "under-capitalized institutions may take advantage of the desire of a lot of people to be minted as a lawyer."

The bar association once refused to accredit for-profit law schools, effectively banning them, but it agreed in 1996 to drop its opposition in a consent decree with the Justice Department, which had accused it of violating antitrust laws by trying to limit the number of lawyers.

Now proprietor law schools have caught the attention of big business: Kaplan Educational Centers, the big standardized-test coaching company owned by the Washington Post Co., has started Concord University School of Law, an online program; and Florida Coastal was acquired in 2004 by a company that also owns Sylvan Learning Centers and is funded by Sterling Partners, a $850 million private equity group whose investors include the likes of Citigroup, Merrill Lynch and Bank of America Corp.

In interviews and affidavits filed with their lawsuit, American Justice School students said Hendrick and Turner suggested that they could win accreditation because they had gotten Florida Coastal approved.

A spokesman for that school, Brooks Terry, said he was unable to describe their role in getting that school accredited.

Hendrick and a partner, who later sold his interest, opened the Paducah law school in 2005 in a single building that houses offices and classrooms in an office park about nine miles west of downtown Paducah.

It had the backing of the Greater Paducah Economic Development Council, which promised incentives that might eventually be worth up to $2 million. The council's chairman and executive director did not return phone calls seeking comment about the school. Nor did Paducah Mayor William F. Paxton III.

In 2006, the school broke ground for a planned $7 million campus expansion, but later backed off and instead opened a school library about 10 minutes away in a building that once housed a candy company. That building also now houses classrooms and a computer lab.

"That didn't seem to constitute a school to me," said Seth Okin, then student bar president, who later transferred to a law school in Baltimore. "They seemed like they were trying to throw things together to get ABA approval."

By fall 2007, tensions were mounting after students discovered that the bar association had informed Hendrick on Aug. 22 that the school had been denied accreditation but Hendick didn't reveal that until Sept. 13. By that time, it was too late to transfer. The school cannot reapply for approval for 10 months.

The bar association doesn't release its reasons for denying accreditation; Hendrick said at the time that the school failed to meet three or four of the association's 54 standards and that the shortcomings involved the library, staffing and the ability to recruit faculty to handle the school's expected growth.

In November, Hendrick, without explanation, fired respected faculty member John Daughaday, a retired circuit judge, in the middle of the semester. Daughaday didn't respond to several phone messages seeking comment.

The administration also banned students from posting anything at the school without permission of the dean's office, after students hung signs around the campus that said, "Integrity."

Then, on Nov. 17, 31 students filed the 82-page civil racketeering suit that names as defendants Hendrick, Turner and Wayne Shelton, an accountant who is on the school's board.

Hendrick told the Sun that the suit's charges were unfounded and that two professors, whom he didn't identify, had stirred up the complaints to discredit the school and reduce its value, so others could buy it at a reduced price in a "hostile takeover."

He proposed a settlement -- rejected by the students -- in which he would have stepped aside as dean but remained on the school's board of directors.

Collins and other professors, including Malla Pollack, who also resigned, say the school never will be accredited as long as Hendrick is associated with it. It's problematic, Collins said, that Hendrick is both the school's top academic figure and its majority stockholder.

"There were no checks and balances," Collins said. "There was no higher authority, no trustees. He wasn't answerable on a corporate level. It was the poster child for what can go wrong at for-profit schools."

Pollack said she remains hopeful the school will survive. "Maybe we can save this place yet," she said.

But Collins said the situation is especially difficult for students in their final year.

"These are not students who mommy and daddy have written a check to and asked, 'Where do you want to go for graduate school,' " he said. "For many of them, this was the only chance they had.

"Now it has been snatched away from them, through no fault of their own," he said. "That is the real tragedy."