Lawsuit filed against California Northstate University offers glimpse into for-profit school’s finances

A lawsuit filed in 2016 against Elk Grove-based California Northstate University alleged school of  breaching an oral contract, unjust enrichment, and fraud. The lawsuit was filed by Nam Kim, principal of Capital Investment & Mortgage of Sacramento County.   

Kim alleged that CNU and the school did not pay him a commission for arranging financing and investment in the school to help achieve accreditation of the medical school. The school was initially founded as a pharmacy school and expanded its scope in 2014.  

Public court records for the Sacramento County Superior Court suggests that Kim and the school reached an undisclosed settlement before trial. The initial lawsuit, which was filed on January 20, 2016, offers some information, according to Kim's assessment, on how this school has been financed.

The named defendants were California Northstate University LLC (CNU); California Northstate College of Pharmacy LLC (CNCP); and California Medical Education, LLC (CME). CNU's in-house counsel Paul Wagstaffe declined the opportunity to comment on the litigation. 

Kim’s complaint contains the following information.

In June 2011, Kim attended a presentation presided over by CNU president Dr. Alvin Cheung who was seeking $80,000,000 for accreditation costs. Cheung said he preferred the funds be equity investments but would also accept loans. Kim was reportedly promised a two-percent finder’s fee.

On or about May 9, 2014, Kim met with CNU officer Norman Fong and informed that a possible investor had been identified. That investor was Anadel Capital Partners who indicated a willingness to invest $10 million. 

At that same meeting, Kim told Fong that Lodi, California-based Farmers and Merchants Bank had indicated their interest in lending up to $25 million. Of that amount, $10 million at 4.625-percent for two years, and $15 million at 3.625-percent for five years.

Kim then arranged a meeting on May 14, 2014, between Cheung and representatives and Anadel Capital and Farmers and Merchant Bank. Cheung told the representatives he was seeking $50 million, which would be evenly split between loans and equity investments.

The lawsuit says during May 2014 Kim had several conversations with Fong whereby Fong expressed the desire of CNU to refinance existing loans to lower interest rates. Kim was able to arrange several meetings between representatives from Los Angeles-based Cathay Bank and Harmonic Growth Capitol and CNU.

According to Kim, CNU was able to receive a loan of $35 million at a lower interest rate from Cathay Bank in December 2014. That loan, the complaint says, resulted in a lower monthly payment from existing loans. 

As a result of that loan, Kim asserted the school was able to obtain accreditation for its medical school.

Kim complaint ends with the assertion that on October 22, 2014, he set a meeting between CNU and an authorized agent of Renaissance Capital Group, Inc., and Sovereign Capital regarding equity investments in CNU’s entities. The lawsuit that the plaintiff “allege that the negotiations are still ongoing and no such investment has yet been consummated.” 

It is not known what other entities have loaned or invested in CNU.

Case No. 34-2016-00189317 

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