PHOENIX (CN) — A federal judge in Arizona is considering whether to dismiss the Federal Trade Commission’s claims against a Christian university accusing it of using false or deceptive advertising to market itself as a nonprofit.
Grand Canyon University has been embroiled in controversy over its nonprofit status since its conversion in 2018, which the state department of education still doesn’t formally recognize. The university operated as a nonprofit from its 1949 inception to 2004, when it was sold to a corporation called Grand Canyon Education amid financial troubles. After taking a decade to stabilize, the board created a new entity, known as “New GCU,” to buy back the university and return to a nonprofit status.
New GCU pays Grand Canyon Education 60% of its total revenue in return for marketing, accounting and other support services, and GCU President Brian Mueller also serves as the CEO of Grand Canyon Education.
The FTC points to this arrangement as evidence that GCU is still a for-profit entity, just operating for the profit of another entity rather than its own.
“The university is not organized strictly for education purposes,” FTC attorney Michael Tankersley said Tuesday afternoon during oral arguments on GCU’s motion to dismiss a lawsuit the FTC filed against it last year.
Tankersley argued that for an entity to truly be a nonprofit, it must put 100% of its revenue toward the charitable intent for which it was created. Because 60% of its revenue goes to Grand Canyon Education, he reasoned that GCU can’t be considered a true nonprofit and therefore is deceiving the public by advertising as such.
Steven Gombos, attorney for GCU, countered that the university’s nonprofit status has already been recognized by both the Internal Revenue Service and the Arizona Corporation Commission. Both entities have the right to investigate and refute the university’s status, he said, so the fact that they haven’t means GCU calling itself a nonprofit is reasonable.
U.S. District Judge Dominic Lanza wrote in a tentative order last week that he agrees with GCU, and said again today he is leaning toward dismissing the complaint as to that claim.
That argument is linked to the larger question of whether GCU is a nonprofit as it supposes, or a corporation, as defined by the FTC. If it’s a nonprofit, then the FTC can’t bring its claims against it under the Telemarketing Sales Rule, in which it accuses GCU of calling hundreds of people on the National Do Not Call Registry and others who requested they not be contacted by the university.
Again, Lanza, a Donald Trump appointee, said he is leaning toward siding with GCU.
“GCU earns revenue by conducting a business,” Tankersley said. “Forty percent of that revenue, it can use for its own benefit.”
Gombos said the agreement between GCU and Grand Canyon Education is “like hundreds of other universities,” and that there’s no evidence that GCU is overpaying the corporate entity for its services. He said both the 40% it retains and the 60% it pays out go directly back to the educational mission of the university.
While Lanza may dismiss claims regarding GCU’s nonprofit status, he still believes the FTC’s claims that the university misrepresents its doctoral program holds water.
The FTC accuses GCU of intentionally deceiving prospective Ph.D. students about the number of courses and credits they would have to complete to receive a doctoral degree. The university website and telemarketers tell students that they can complete their doctorate with just 20 courses, which equates to 60 credits. But the FTC points out that nearly all students end up requiring additional coursework, and 50% take at least 31 courses rather than 20.
The FTC acknowledges in its response to GCU’s motion to dismiss that GCU informs students that 20 courses is only the minimum, but it argues that a representation that’s technically true may still be misleading. Lanza wrote in his tentative order that he agrees with the FTC, and is considering denying the motion to dismiss as to that issue.
GCU also argues that amendments made to the FTC Act in the 1970s that allow for it to bring civil suits for injunctions were unconstitutional at the time. But the Ninth Circuit has already rejected that exact argument, Lanza wrote, so no claims in the dispute will be dismissed on those grounds.
Lanza said he expects to issue a formal order on the motion to dismiss in the coming days.