Dickinson
of San Antonio, Inc. d/b/a Career Point
(“Debtor”), formerly a for-profit college for
nurses, filed a voluntary petition in bankruptcy in the
United States Bankruptcy Court for the Western District of
Texas on October 31, 2016 (Bankruptcy No. 16-52492-RBK). John
Patrick Lowe (“Trustee”) was appointed to
administer the Debtor's bankruptcy estate
(“Bankruptcy Estate”). On October 27, 2018, the
Trustee brought suit in the Bankruptcy Court against Tango
Delta Financial, Inc. f/k/a American Student Financial Group
Inc. (“ASFG”), Cottingham Management Company, LLC
(“Cottingham Management”), and Cottingham Apex
Texas Fund, LLC (“Cottingham-Texas”), alleging
various causes of action against each entity in a 29-count
complaint (Adversary Proceeding No. 18-05259-RBK). Counts 1
2, and 3 of the complaint were brought solely against
Cottingham-Texas and were disposed of on summary judgment.
The
Bankruptcy Court held a trial on the remaining causes of
action on January 27, 2020. On June 23, 2020, the Bankruptcy
Court entered a Memorandum Decision denying relief on Counts
4, 5, 6, 7, 8, 9, 10, 11, 14, 15, 16, 17, 18, 22, 24, and 28.
The court granted relief on Counts 12, 13, 19, 20, 21, 23
25, 26, 27, and 29, listed below:
Count
Cause of Action
12
Equitable Subordination of Claims under 11 U.S.C. §
510(c).
13
Avoidance of Lien under 11 U.S.C. § 544.
19
Avoidance of Fraudulent Transfer under 11 U.S.C. §
548(a)(1)(A).
20
Avoidance of Fraudulent Transfer under 11 U.S.C. §
548(a)(1)(B).
21
Avoidance of Fraudulent Transfer under 11 U.S.C. § 544
and Tex. Bus. & Com. Code § 24.005(a)(1).
23
Avoidance of Fraudulent Transfer under 11 U.S.C. § 544
and Tex. Bus. & Com. Code § 24.006(a).
25
Recovery of Avoided Transfers Pursuant to 11 U.S.C. §
550.
26
Objection to Claim under 11 U.S.C. § 502.
27
Avoidance of Post-Petition Transfer under 11 U.S.C. §
549.
29
Recovery of Attorneys' Fees and Costs.
At
trial, the Trustee demanded repayment of over $8 million in
Program Subsidy Loans (“PSLs”) made by Debtor to
Cottingham-Texas, sought to disallow a claim by ASFG for over
$12 million based on Debtor's contractual obligations to
repurchase certain student loans, and claimed that $5.1
million paid to ASFG under the loan-repurchase obligation
constituted a fraudulent transfer and should be returned.
Opinion of the Bankruptcy Court (“BC Op.”) at 2.
ASFG
asserts twenty-six issues on appeal, which fall into six
general categories: (1) compliance with the Higher Education
Act's 90/10 Rule, which provides that for-profit colleges
can only obtain Title IV funding from the United States
Department of Education (“DoE”) if at least 10%
of the college's funding comes from non-governmental
sources[1] (Issues 1-8); (2) alleged fraud
on the part of ASFG (Issues 9-11, 17-18); (3) the
evidentiary support for Debtor's insolvency (Issues
12-14, 16); (4) the Bankruptcy Court's equitable
subordination of ASFG's claim (Issues 20-22);
(5) the Bankruptcy Court's judgment against ASFG and in
favor of Trustee (Issues 23-24); and (6) the
Trustee's use of ASFG's collateral to obtain a
judgment against Cottingham-Texas (Issues 25-26).
Specifically, ASFG raises the following issues:
1. Did the Bankruptcy Court err in finding that the Program
Subsidy Loans made under the Tuition Loan Program Agreement
was a scheme to violate the U.S. Department of
Education's 90/10 Rule?
2. Did the Bankruptcy Court err in finding that 20 U.S.C
§ 1094(d)(1)(F)(iv) “provides that any funds
‘required to be refunded or returned' to the lender
must be deducted from the school's ‘10' revenue
calculation”?
3. Did the Bankruptcy Court err in finding that “for
the funds advanced through the Subsidized Loan Program to be
counted as “10” revenue in compliance with the
90/10 Rule, the investment fund (in this case
Cottingham-Texas) was required to be arms-length and truly
independent from ASFG”?
4. Did the Bankruptcy Court err in finding that “[in]
order to comply with the statute, the private student loan
money could not be returned to the lender, ASFG, and also
counted as “10” revenue”?
5. Did the Bankruptcy Court err in finding that
“For-profit schools operating under this Program could
only count the funds loaned to Cottingham-Texas as
‘10' revenue if Cottingham-Texas invested that
money at arm's length with banks, investment houses, or
any investment other than ASFG”?
6. Did the Bankruptcy Court err in finding that that
Cottingham Apex Texas Fund, LLC
(“Cottingham-Texas”) was not independent from
ASFG and that, without an intermediary who is independent
from the lender, the Debtor would be in violation of the
90/10 Rule?
7. Did the Bankruptcy Court err in admitting the opinion
testimony of Cindy Shoffstall when it was clear from her
testimony that she was not an expert with regard to the 90/10
Rule?
8. Did the Bankruptcy Court err in finding that Cindy
Shoffstall “testified she would not have included
CPC's investment in Cottingham-Texas in the 90/10
calculation had she been informed about the lending
relationship between ASFG and Cottingham; she would have
included it in the related party note in her audit of
CPC”?
9. Did the Bankruptcy Court err in finding that the Debtor
and ASFG entered into the TLPA and the APPA with the intent
to defraud the Debtor's creditors?
10. Did the Bankruptcy Court err in finding that “Both
CPC's principal, Lawrence Earle, and ASFG actively
concealed that the payments to Cottingham-Texas were merely
deposits placed with ASFG to secure its lending to CPC's
students”?
11. Did the Bankruptcy Court err in finding that “ASFG
‘concealed,' at least from federal reporting, that
Cottingham-Texas was not independent”?
12. Did the Bankruptcy Court err in admitting the opinion
testimony of Greg Murray with regard to the value of assets
on the Debtor's financial statements when Mr. Murray
testified that he has no expertise in valuation?
13. Did the Bankruptcy Court err in finding that the Debtor
was insolvent based on the opinion testimony of an accountant
who based his opinion on the Debtor's financial
statements without any evidence of the fair value of the
Debtor's assets?
14. Did the Bankruptcy Court err in finding that the Debtor
was insolvent at each time that it purchased defaulted loans
from ASFG?
15. Did the Bankruptcy Court err in finding that the U.S
Department of Education had a claim in the bankruptcy case
that existed when the TLPA was entered into in 2013?
16. Did the Bankruptcy Court err in finding that the Debtor
did not receive reasonably equivalent value for the defaulted
loans that it purchased from ASFG?
17. Did the Bankruptcy Court err in finding that ASFG did not
operate in good faith?
18. Did the Bankruptcy Court err in finding that ASFG did not
receive the payments for the purchase of defaulted loans in
good faith?
19. Did the Bankruptcy Court err in finding that “ASFG
thus has $2.4 million more than it should under the TLPA and
APPAs ($8.2 million - $5.8 million = $2.4 million)”?
20. Did the Bankruptcy Court err in construing section 15.1.7
of the TLPA to include a representation and warranty that
ASFG would not be in a lending relationship with
Cottingham-Texas when (1) the Bankruptcy Court made a factual
finding that CPC's principal knew that the funds it
loaned to Cottingham-Texas through the Program Subsidy Loans
would be loaned by Cottingham-Texas to ASFG, (2)
Cottingham-Texas was formed at the request of CPC's
attorney for the sole purpose of receiving the Program
Subsidy Loans from CPC and loaning the funds to ASFG, and (3)
in section 5.1 of the TLPA, the parties jointly acknowledged
that one of the purposes of the Program Subsidy Investment by
CPC was to subsidize “the capital costs to be incurred
by ASFG to originate, make and hold ASFG Tuition Loans and to
purchase and hold Bank Tuition Loans”?
21. Did the Bankruptcy Court err in finding that a breach of
the warranty in section 15.1.7 of the TLPA excused the
performance of the Debtor under the TLPA and the APPAs?
22. Did the Bankruptcy Court err in finding that ASFG engaged
in inequitable conduct sufficient to justify equitably
subordinating its claim?
23. Did the Bankruptcy Court err in disallowing ASFG's
claim under Bankruptcy Code 502(d)?
24. Did the Bankruptcy Court err in entering judgment in
favor of Plaintiff?
25. With regard to Appeal No. 5:19-CV-01237, did the
Bankruptcy Court err in allowing the bankruptcy trustee to
use ASFG's collateral (the master promissory notes) to
first obtain a judgment against Cottingham-Texas and then
obtain a writ of garnishment and ultimately a judgment
against ASFG when ASFG had property rights under
non-bankruptcy law to foreclose on the master promissory
notes and to offset its liability to Cottingham-Texas?
26. With regard to Appeal No. 5:19-CV-01238, did the
Bankruptcy Court err in denying ASFG's request for
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