CEDU's Parent, Brown -- Negotiating in Bad Faith?

Parents who are suing the school, and parents who have prepaid tuition, are "unsecured creditors" -- meaning that they are likely to get nothing.

 George McCown:   In a March 21 letter to parents at a Brown school in Idaho, George McCown praised Talbott as "the ideal individual to lead the company."

"This is a relationship-based program, and they closed this like it was a factory," a counselor at one of the schools told the Spokesman-Review newspaper in Spokane, Wash.

Brown Schools operate 11 boarding schools and educational facilities in Idaho, Texas, Vermont, Florida and California, according to its Web site. Facilities in Austin and San Marcos were sold to Psychiatric Solutions Inc. in 2003.

Brown Schools' bankruptcy filing puts lawsuit settlements in jeopardy: Plaintiff says company pressed for settlements, raises question of bad-faith negotiating.

Friday, April 01, 2005

In recent months, three Austin lawyers say, Brown Schools Inc. offered to settle claims by their clients for everything from sexual abuse by its employees to deceptive business practices.

But there was a catch, according to the lawyers: Brown Schools said the plaintiffs had to accept less money and delayed payments so that the Austin-based company, which operates facilities for troubled children, could avoid bankruptcy, a filing that would likely have left the families with nothing.

On March 25, Brown Schools filed for Chapter 7 liquidation in Bankruptcy Court, jeopardizing all of the payments. Most of the company's facilities have closed, putting 700 employees out of work.

The mother of one plaintiff, Donna Bowen, said company officials, including comptroller Brian Havel, told her just weeks before the filing that the company could start paying her settlement in September. A lawyer representing two other plaintiffs said his clients were promised money in April. Another lawyer said his client was told payment would start next January.

"My feelings are they certainly negotiated in bad faith," said Bowen, an Austin lawyer who agreed to a $30,000 settlement in February with the Rocky Mountain Academy, a Brown Schools facility in Idaho, on behalf of her son.

Bowen's case is among at least six in which Brown Schools agreed to pay a total of more than $500,000, according to interviews with lawyers and court records.

Bowen said Wednesday that her case had been set for trial in February in District Court in Travis County on her claim that Brown Schools improperly expelled her son in late 1999.

After she agreed to mediate instead, Bowen said Brown Schools officials told her in February the company would start payments in September. "They said there wasn't enough money right now, but in the fourth quarter, they'd have the resources," she said.

Based on the quick bankruptcy filing, Bowen said it now appears to her that "they knew at that time that they never intended to make payment."

Havel declined to comment on Bowen's comments or any aspect of the bankruptcy or litigation.

Steve Mierl, an Austin lawyer who has represented Brown Schools in several cases including Bowen's suit, said he has "no personal knowledge" of the company using the threat of bankruptcy to extract lower settlements.

"I won't say it didn't happen, but I don't personally know of any situation where it did," Mierl said. "Any dealings I had with them as far as talking to plaintiffs . . . were done in good faith."

The chairman of Brown Schools, Fenton "Pete" Talbott, did not return calls seeking comment. Talbott was named CEO as well as chairman on March 21 — just four days before the bankruptcy filing — by McCown, DeLeeuw & Co., a Menlo Park, Calif., investment firm that was the majority owner of Brown Schools.

In a March 21 letter to parents at a Brown school in Idaho, George McCown, a member of the schools' board of directors, praised Talbott as "the ideal individual to lead the company."

The settlements are among millions of dollars in unsecured claims Brown Schools listed in its filing. The company reported assets of less than $10 million and debts of $10 million to $50 million.

Unsecured claims are paid after secured claims, which typically are bank loans and other financing guaranteed by the company's assets. That makes recovery of other claims a long shot.

Two other lawyers said Brown Schools agreed to settlements but required postponed payment schedules, contending that was the only way the money would be assured.

"If you went to trial and hit them for a big judgment," company officials and their lawyers "made it clear to me they would file for bankruptcy," said Chris Elliott, a partner at Ivy, Crews & Elliott who represents a woman who alleges a Brown Schools counselor assaulted her in 2002, when she was 16.

"We were cognizant" of the company's financial problems, Elliott said. "At that point, you have to do what you can for your client."

Elliott said that Brown Schools had agreed to start paying his client in January, although the amount had not been finalized.  Brown Schools hired numerous law firms to defend itself against claims. Its general counsel, Dallas-based Winstead Sechrest & Minick, said last month it withdrew because the company hadn't paid the firm.

Joey Mooring, a spokesman for Winstead Sechrest, said the firm would not comment on its work for Brown Schools.

John Thomas, who represents two families that settled sexual assault claims against Brown Schools, said his clients "gave up their day in court based on a promise they would be paid something to help get their lives back together."

"At this point, we have serious doubts about whether the Brown Schools ever intended honor that promise."

Thomas, a partner at George & Brothers LLP, said the company early this year promised to start monthly payments in April to both clients. Both cases involve alleged sexual assaults by Edward Jared Johnson, a former staff member at the Brown Schools' Austin facility.

Based on a criminal complaint by one of the girls, Johnson pleaded guilty in 2003 to indecency with a child and sexual contact. He received a 54-month state prison sentence.

The bankruptcy filing could be the final chapter for Brown Schools, which was founded in 1940 in San Marcos. Over the decades, Brown Schools facilities served as a training ground for generations of social service workers in Texas.

"This is a relationship-based program, and they closed this like it was a factory," a counselor at one of the schools told the Spokesman-Review newspaper in Spokane, Wash.

Brown Schools operates 11 boarding schools and educational facilities in Idaho, Texas, Vermont, Florida and California, according to its Web site. Facilities in Austin and San Marcos were sold to Psychiatric Solutions Inc. in 2003.

Cedu Posts
 

• Former CEDU Schools Reborn January 5 2007
• Update on CEDU Schools October 28 2005
• CEDU Properties Sold August 18 2005
• The Business of Troubled Teens August 18 2005
•  CEDU Closing: Buildings and Contents to be Sold May 8 2005
• CEDU Closing: On Edison Schools April 30 2005
• CEDU Closing: Pete Talbott's Resume April 27 2005
• CEDU Closing: McCown DeLeeuw Sued ByEmployees April 14 2005
• CEDU Closing: George Locker's Criticism of the CEDU Enterprise April 14 2005
• CEDU Closing: 1990 Snapshot of McCown DeLeeuw April 12 2005
• CEDU Closing: A Timeline of the CEDU Enterprise April 2005
• CEDU Closing: Letter from a Former Faculty Member April 2005
• CEDU Closing: Parents of CEDU Students Helping Economically Distressed Faculty April 7 2001
• CEDU Closing: Economic Impact on CEDU Employees Devastating April 7 2005
• CEDU Closing: 310 Employees Stiffed on Wages April  6 2005
• CEDU Closing: Who is To Blame? April 6 2005
• CEDU Closing: Running Springs Area Also Suffers Financial Impact April 6 2005
• CEDU Closing: An Alumnus Pleads, "Save CEDU!" April 4 2005
• CEDU Closing:  A Parent's Response to CEDU's Closing April 3 2005
• CEDU Closing: Bankruptcy Trustee Slams Door Shut, Then Open April 3 2005
• CEDU Closing: Parents Out Prepaid Tuition, Employees Lose Retirement. McCown Deleeuw Still Solvent April 3 2005
• CEDU Closing: King George Stays Open as Head Thinks on Feet April 3 2005
• CEDU Closing Shocks Industry Reporter April 3 2005
• CEDU Closing: Parent Company, Brown, Negotiating in Bad Faith?  April 1 2005
• CEDU Closing: More Details March 29 2005
• CEDU Closing: Brown Schools, CEDU's Parent, Files for Bankruptcy March 29 2005
• CEDU Closing: Margurite Sallee, The Brown Schools, and McCown DeLeeuw March 27 2005
• CEDU Closing: All CEDU Schools Closing Immediately March 25 2005
• CEDU Closing: Rocky Mountain Academy Folds Abruptly February 12 2005

Related Posts:

• Debunking "Tough Love" Programs April 11 2006
• Advice for Parents Seeking a Therapeutic Program for Their Children January 21, 2006
• Why The "Troubled Teen" Industry is Booming January 2, 2006
• The Road To Whatever August 25 2005
• Nonpublic School Governance April 23 2005
• Why Parents Seek and Pay for Therapeutic Boarding Schools April 14 2005
• NYT Article on the Therapeutic School Industry April 13 2005
• Therapeutic Schools: What Happens to Poor Kids April 10 2005
• Thinking of Sending Your Kid to A "Tough Love" Program?  March 30 2005

Questions Parents Should Consider Before Placing A Child

• NonPublic Schools: Part I--Overview
• NonPublic Schools--Part II Evaluating Mission, Values, & Goodness of Fit for Your Child
• NonPublic Schools--Part III Faculty and Staff Qualifications
• NonPublic Schools--Part IV: Evaluating Academic Program
• NonPublic Schools:Part V--On Accreditation
• NonPublic Schools:Part VI--More Detail on Financial Issues: IRS Status

Comments

[Jonathan Lifschutz]

It is a sad day when one of the finest Wilderness programs, CEDU's Ascent Wilderness Program, a program that saved my daughter's adolescence, and helped her to "get her life back" as she expresses it, and the other related emotional growth schools in the CEDU program have been so poorly managed by a "for profit" structure and "bottom-line" mentality that seems to run the holding company.

It is tragic that the holding company unilaterally closed down the CEDU program nationwide, with no substantive prior notice to those who care, to the staff. to the alumni parents, or to the families, and without any apparent efforts to try to effect a sale or conversion to a non profit status so that the work that was being done could continue.

I urge any who have an interest in salvaging the CEDU program to contact and include me in the process. Anyone interested in being part of such a process is asked to get in contact with me so that we can network with others to consider what, if anything,can be done to assist families and staff whose lives have been turned upside down by this process. I can be reached at my email address at [email protected].