COVID-19 Client Primer | Tuition Refund Class Actions

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ANALYSIS

Strategies to Defend Tuition Refund Class Actions

The recent spate of class actions seeking refunds for tuition and other fees paid for in spring 2020 likely heralds an even greater deluge in the coming weeks. Significant potential damages can make even slight risk of liability unbearable and the procedural nuances of class action practice can complicate an otherwise straightforward defense. The threat of multi-district litigation consolidation raises the stakes even higher, and often creates a magnet for otherwise meritless cases. Educational institutions need more than a strategy to win on the merits. They must defeat class action plaintiffs’ attempts to force unreasonable settlements by overwhelming valid merits defenses with sheer numbers.

Class Action Defense Centers on Early Exposure Reduction

Class actions differ from individual lawsuits; rather than a single plaintiff challenging the tuition and fees she paid for in spring 2020, the plaintiff will seek to represent a class of “similarly situated” students that could number in the thousands, each claiming that they paid tuition, room, board and other fees that are now wasted. This raises the stakes of defeating—or at least significantly reducing the size of—the class action early in the litigation.

Unlike in individual litigation, parties litigate class actions along two dimensions. As in individual litigation, class action defendants must defend the merits of the claims. But they also can contest whether a class may be certified at all, which depends on whether the claims rely on law or facts that apply to the entire class, or instead vary from class member to class member.

The central debate in a refund class action is the kind of educational experience promised. In the refund class action complaints filed to date, the plaintiffs have alleged that they were promised an on-campus experience that relied heavily on social contact and extracurricular activities. As a result, they allege that distance-learning techniques like online classes and social media do not adequately replace this experience. The questions of what experiences a school promised what students, however, and how well distance-learning replicates the experience, vary widely from student to student.

Continue Best Practices to Prevent or Defeat Class Actions

Educational institutions that adhere to best practices by treating refund requests on an individual basis already have a potent defense to class actions. An educational institution’s ability to demonstrate that its refund decisions resulted from claim-by-claim analysis may defeat class certification by showing that a refund and the amount of any refund necessarily depends upon individualized inquiries.

Arbitration Is a Better Method of Resolving the Dispute

Some enrollment contracts have arbitration clauses. Class action complaints, however, often ignore these alternate dispute mechanisms. The United States Supreme Court has held that Section 4 of the Federal Arbitration Act preempts class-action litigation of plaintiffs’ claims, even if a class action might be the only cost-effective way to vindicate the plaintiffs’ rights. AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 352 (2011); Am. Express Co. v. Italian Colors Restaurant, 570 U.S. 228, 233 (2013). Therefore, an educational institution may be able to cut off a class action simply by moving to compel arbitration.

With arbitration, as with other defenses, sometimes even a loss can help defeat certification. Students may contest arbitration for some fact-specific reason (e.g., the student’s individual circumstances suggest the clause was unconscionable under the facts). Even if the court agrees as to the class representative, that ground may not apply to others in the proposed class. At that point, the individualized question of who qualifies for arbitration may overwhelm any common issues.

A defendant generally has a right to appeal denial of a motion to compel arbitration; immediate review may slow class counsel’s rush to certify the class.

Motions to Dismiss May Succeed Even When Denied

The cases filed to date raise a number of substantive legal defenses that a college or university can assert in a Rule 12(b)(6) motion to dismiss. Among these are:

  • The content of the actual contract. Most enrollment or tuition contracts do not promise a specific form of educational experience. The various complaints filed to date recognize this implicitly, and include detailed sections referring to marketing materials that highlighted certain features of certain educational institutions. These marketing materials are parol evidence and may not be allowed in interpreting the contract.
  • Force majeure/frustration. Some enrollment or tuition contracts contain force majeure clauses that contemplate widespread public issues like a pandemic. Even if a specific educational institution’s contracts do not contain these clauses, they may still be able to dismiss any contractual claims using the doctrine of impossibility or frustration.

Motions to dismiss are often valuable to defending class certification even if they do not eliminate the entire complaint. Raising these defense issues with the court early in the litigation can focus the court’s attention on how trial of those issues may necessitate individual inquiries. Doing so also may force plaintiffs to commit to theories that depend on plaintiff-specific facts, which in turn undermines their arguments for summary judgment and class certification.

Motions to Strike May Knock Out Class Allegations

In addition to motions to dismiss the entire complaint, some jurisdictions allow motions to strike (or dismiss) the class allegations. These motions are most successful when they challenge a fatal flaw that is clear from the face of the complaint. For example, the Sixth Circuit has affirmed motions to strike nationwide classes where it was clear that variations among states’ laws would overwhelm any common questions. Pilgrim v. Universal Health Card, LLC, 660 F.3d 943, 946 (6th Cir. 2011). Here, depending on the theories espoused in a particular complaint, a defendant might move to strike because the named plaintiff does not represent the class adequately, or because it is clear from the complaint that individualized issues will necessarily predominate over common issues.

Even if the motion to strike is unsuccessful, it often educates the judge about the difficulties the named plaintiff will face in certifying a class. It can also help focus (and so limit) the discovery to which the defendant must respond. See, e.g., Mantolete v. Bolger, 767 F.2d 1416, 1424 (9th Cir., 1985) (affirming denial of class discovery where plaintiff could not make prima facie case for certification); Heerwagen v. Clear Channel Commc’ns, 435 F.3d 219, 234 (2d Cir., 2006) (same). That said, the decision of whether to bring such motions should be based on your judicial assignment, given that not all judges will be receptive to them.

Summary Judgment Motions Also May Expose Individual Issues Fatal to Class Certification

Early summary judgment motions, aimed at specific defenses to the named plaintiffs’ claims, also can either terminate the case on the merits, or highlight the individualized issues that make class treatment improper. See Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 178–79 & n.20 (3d Cir., 2001) (noting summary judgment findings justified denying certification).

Among the factual issues that might support summary judgment are a student’s receipt of scholarships or other financial aid (meaning that they were not injured because they did not pay anything), and a student’s specific educational needs (which may demonstrate they have not been harmed by a transition to distance learning).

The Main Event: Defeating Class Certification

Class certification is the “main event” in a class action: when the court decides whether the named plaintiff’s claim is sufficiently similar to those of the rest of the class to justify allowing it to represent absent class members.

Declaratory/Injunctive relief. Many of the complaints filed so far have requested a more lenient certification standard under Rule 23(b)(2) because they seek “declaratory relief.” That relief, however, really asks the court to rule that the plaintiff is entitled to a refund of tuition or other payments. Courts generally are skeptical of requests for monetary relief disguised as requests for declaratory or injunctive relief. Additionally, the fact that students have a choice about whether to enroll in future semesters likely raises additional defenses with respect to the complaints’ injunctive relief claims because a student who re-enrolls will do so with full knowledge of the circumstances.

Commonality/Predominance. The commonality and predominance requirements of Rule 23 mandate that common issues in the litigation predominate over individualized issues at trial. In these refund cases, there are myriad variations among the proposed class members to emphasize the predominance of individual issues:

  • Variations in living circumstances. Some students will live off-campus. Others may have served as student residential staff, and thus received discounted or free room and board. These students would not be entitled to the same refunds as those who paid for room and board. Determining living circumstances, however, would require individualized inquiries.
  • Variations in educational needs. Some students will be enrolled in majors (like engineering) that involve large lecture classes with occasional exams; these students may not be affected much by distance-learning techniques. Other students, however, may be studying architecture or creative writing, where individualized attention and feedback are vital to their educational experience, or science, where on-campus labs are important. Determining which students are which will require individualized inquiries.
  • Variations in financing. Some students may receive scholarships for various reasons (athletics, military service, academic merit). Many will receive financial aid. These offsets can be either partial, or full. Therefore, determining which students have been injured at all, let alone by how much, will require the type of individualized inquiries that could rapidly overwhelm any common issues.
  • Variations in reliance. Many of the complaints filed to date rely on college marketing materials to define the educational experience allegedly promised. Of course, not all students will have seen all materials, and not all students seek the same experience, even from the same college. A local night-school student looking to shore up credentials may in fact find distance-learning techniques preferable to a student from across the country who only decided on the school after being persuaded by the pictures in the brochure. Determining whether a student was misled by a particular marketing document will require individualized inquiries.

Typicality. Typicality requires that the claims of the class representatives be typical of those of the class, and it is satisfied when each class member’s claim arises from the same course of events and each class member makes similar legal arguments to prove the defendant’s liability. An atypical plaintiff cannot represent the class.

  • A proposed class representative is atypical if her claim differs meaningfully from the other students she seeks to represent. As a result, an architecture student who needs individualized feedback on drawing assignments may differ from an engineering student who typically only attends large lectures and takes a final exam.
  • A plaintiff facing unique defenses also may not represent the class. For example, misrepresentations in an admissions application could disqualify a proposed representative.

Given the high stakes and specialized procedural strategy involved, class actions require experienced, creative counsel well-versed in class action defense. In the right hands, the tuition refund class actions filed in the wake of COVID-19 present a number of opportunities for either early termination or denial of class certification.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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