Digital Media Solutions, LLC v. South University of Ohio, LLC, No. 21-4014 (6th Cir. 2023)
Annotate this Case
Dream purchased university systems with locations across the country: South University, Argosy University, and the Art Institutes. States had recently brought consumer-protection lawsuits against the seller. Dream had to close 30 campuses. Unpaid creditors filed multiple lawsuits. Students at the Illinois Institute of Art brought a class-action fraud suit.
Dream feared that filing bankruptcy would cut off its access to federal student loans. In 2019 Digital sued Dream for $252,737. The court appointed a receiver to manage Dream’s property and stayed pending lawsuits. The Receiver decided that potential claims greatly exceeded potential assets. The federal government had discharged the student-loan debts of many of Dream's students.
Existing suits had already depleted the payout available from Dream's insurance policies covering its directors and officers. The policies did not protect Dream itself. The Receiver believed that Dream had legal claims against the directors and officers and eventually brought the proceeds from the policies into Dream’s receivership estate ($8.5 million). The settlement hinged on the entry of an order that would “bar” third parties (including the Art Students) from pursuing claims against Dream, its parent, the directors and officers, and the insurer. The district court approved the settlement and Bar Order. The Sixth Circuit reversed. The district court lacked authority to issue the bar order. Historical principles of equity do not allow a court to issue an injunction that protects the non-receivership assets of non-receivership parties; that type of non-debtor relief amounts to a remedy “previously unknown to equity jurisprudence.”
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.