Commitments and Contingencies

9 Months Ended

Sep. 30, 2024

Commitments and Contingencies

Commitments and Contingencies

8. Commitments and Contingencies

Legal Matters

From time to time, the Company is a party to various lawsuits, claims, and other legal proceedings that arise in the ordinary course of business, some of which are covered by insurance. When the Company is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company records a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the specific claim if the likelihood of a potential loss is reasonably possible, and the amount involved could be material. With respect to the majority of pending litigation matters, the Company’s ultimate legal and financial responsibility, if any, cannot be estimated with certainty and, in most cases, any potential losses related to those matters are not considered probable.

Upon resolution of any pending legal matters, the Company may incur charges in excess of presently established reserves. Management does not believe that any such charges would, individually or in the aggregate, have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

Pending Litigation Matters

Shareholder Litigation. As previously disclosed, on May 12, 2020, a securities class action complaint was filed in the U.S. District Court for the District of Delaware alleging claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, against the Company, Brian E. Mueller, and Daniel E. Bachus, for allegedly making false and materially misleading statements regarding the circumstances surrounding the Company’s 2018 sale of Grand Canyon University (the “University”) to a non-profit entity and the subsequent decision of the U.S. Department of Education to continue to treat the University as a for-profit institution for education regulatory purposes. On March 28, 2023, the Defendants’ motion to dismiss was denied. On March 25, 2024, the parties executed a Stipulation and Agreement of Settlement to resolve the action. On August 22, 2024 the Court held a final fairness hearing and entered an order granting final approval of the settlement, and no appeals were taken. The Company’s insurance carriers have funded the entire settlement amount.

On December 22, 2023, the Company was named as a nominal defendant and certain of the Company’s current and former directors and officers were named as defendants in a shareholder derivative lawsuit filed in the Delaware Court of Chancery related to, among other things, the allegations in the aforementioned securities class action. The complaint asserted claims for breach of fiduciary duty and related claims. The defendants filed a motion to dismiss the complaint on April 15, 2024. On August 22, 2024, Plaintiff filed a motion requesting that the Court voluntarily dismiss the claims without prejudice. On September 5, 2024, the Court granted Plaintiff’s motion and issued an order dismissing the claims without prejudice.

False Claims Act Matter. In May 2020, we were served with a qui tam lawsuit that had been filed against us in 2019 in the U.S. District Court for the District of Massachusetts by a former employee on behalf of the federal government. All proceedings in the lawsuit had been under seal until February 2020, when the U.S. government decided to not intervene in the lawsuit, and the complaint was then unsealed by the court. The suit, United States ex rel Mackillop v. Grand Canyon Education, Inc., alleges that we violated the False Claims Act by improperly compensating certain of our enrollment counselors in violation of the Title IV law governing compensation of such employees (the “incentive compensation rule”), and as a result, improperly received Title IV program funds. In response to a second amended complaint filed in September 2020, we filed a motion to dismiss and a motion to transfer the matter to the U.S. District Court for the District of Arizona. In December 2020, the court granted our motion to dismiss as to one of three counts and granted the motion to transfer but only upon conclusion of pretrial proceedings. In September 2021, we filed a motion for summary judgment which the Massachusetts court denied in September 2022. Subsequently, the matter was transferred to the Arizona court and trial was scheduled for late April 2024. In the interim, we filed a motion for reconsideration of the summary judgment ruling in September 2023; that motion remains pending. Prior to trial commencing, we and the relator reached an agreement to stay trial while the parties attempt to finalize the terms upon which the litigation could be concluded. For any future settlement to be affected, all parties to the litigation will need to

agree on acceptable terms, both monetary and non-monetary. In this regard, because this matter involves claims under the False Claims Act, any such terms would also need to be approved by the applicable U.S. government agencies.

We believe that the compensation practices at issue in the complaint, which were developed with the guidance of outside regulatory counsel specifically to comply with Title IV and its regulations and relevant case law interpreting the incentive compensation rule, do not violate applicable law. If a future settlement is not finalized on terms acceptable to all parties in interest, the Company intends to defend itself vigorously in this legal proceeding.  The outcome of this legal proceeding is uncertain at this point.  At present, the Company cannot reasonably estimate a range of loss for this action based on the information available to the Company.  Accordingly, the Company has not accrued any liability associated with this action.

Matters Related to GCU Graduate Program Disclosures and Related Matters. The Company is a party to several matters alleging that, in the performance of its marketing services provided on behalf of GCU, it made false or misleading representations regarding the time to complete and the costs associated with and/or accreditation issues related to certain Grand Canyon University graduate programs, and (in the case of the FTC matter noted below) also made false or misleading representations regarding Grand Canyon University’s non-profit status and made telemarketing calls to phone numbers on do not call lists. These matters include:

● Smith and Wang v. Grand Canyon Education, Inc. This putative class action was filed in June 2024 in the United States District Court for the District of Arizona and asserts claims under the federal RICO statute as well as various claims for violations of state law consumer protection statutes. On September 20, 2024, the plaintiffs amended their complaint, and on November 4, 2024, the Company moved to dismiss the case. The motion to dismiss is pending with the court. There is currently no trial date scheduled in this matter.

● Federal Trade Commission v. Grand Canyon Education, Inc., et al. This suit was filed in late December 2023 in United States District Court for the District of Arizona and asserts claims under the FTC Act and Telemarketing Sales Rule. In February 2024, GCE filed a partial motion to dismiss, which was denied in August 2024. Discovery in this matter has commenced and is ongoing, with a fact and expert discovery scheduled to conclude in May 2025 and October 2025 respectively. There is currently no trial date scheduled in this matter.

● Ogdon v. Grand Canyon Education, Inc., et al. This putative class action was filed in May 2020 in federal district court in California and later transferred to United States District Court for the District of Arizona and asserts claims for violations of California’s False Advertising Law, Unfair Competition Law, Consumer Legal Remedies Act; Unjust Enrichment; and purported violations of the federal RICO statute, including a conspiracy claim. The defendants include the Company along with our chief executive officer, chief operating officer and chief financial officer. On May 27, 2022, after significant motions practice, the Company filed an amended motion to dismiss and a motion to strike certain allegations in Plaintiff’s amended complaint. On August 8, 2023, the court presiding over the dispute entered two orders: (1) an order granting in part the Company’s motion to dismiss as to Ogdon’s RICO claim from the case and to dismiss the individual Defendants; and (2) an order granting in part the Company’s motion to strike scandalous and impertinent allegations in Ogdon’s complaint about our business. Shortly thereafter on August 22, 2023, Plaintiff moved the court to reconsider its dismissal of the RICO claim. Though discovery had commenced, and the Company substantially completed its discovery obligations on the state-law claims, discovery was stayed on March 18, 2024, pending mediation and the disposition of Ogdon’s motion for reconsideration. On March 29, 2024, the court issued an order reinstating Plaintiff’s RICO claim. On September 26, 2024, the court lifted the stay on discovery, and discovery resumed, with class certification briefing to conclude in September 2025. There is currently no trial date scheduled in this matter.

We believe that the Company’s representations made in marketing materials or by our employees regarding Grand Canyon University’s non-profit status and doctoral program requirements were at all times accurate and not false or misleading, and thus did not violate applicable law. In addition, to the extent the representations we made or actions we took that are at issue in these proceedings were done or taken after July 1, 2018 at the direction of GCU and/or based on written instructions, or advertising or web materials, provided to us for use by GCU, then we believe we have the right to be indemnified by GCU under the terms of the Master Services Agreement for all losses and expenses arising from these matters. With regard to the FTC’s claims under the Telemarketing Sales Rule, we only make telemarketing calls to individuals who have demonstrated interest in speaking to us about educational opportunities at Grand Canyon University, which are permitted by the rule. The Company intends to defend itself vigorously in each of these legal proceedings. The outcome of these legal proceedings is uncertain at this point. At present, the Company cannot estimate a range of loss for these actions based on the information available to the Company. Accordingly, the Company has not accrued any liability associated with these actions.