United States District Court, W.D. North Carolina, Charlotte Division
ROBERT C. BARCHIESI and LEJLA HADZIC, Individually and in a representative capacity on behalf of a class of all persons similarly situated, Plaintiffs,
CHARLOTTE SCHOOL OF LAW, LLC and INFILAW CORPORATION, Defendants.
C. Mullen United States District Judge
matter is before the Court upon Defendants' Motion to
Dismiss, and Plaintiffs' Motion to Strike Portions of
Defendants' Memorandum of Law in Support of Motion to
Dismiss and Exhibits. This action is one of several filed
against Charlotte School of Law, LLC (“CSL”), its
parent corporation, and others after CSL was placed on
probation by the American Bar Association (“ABA”)
in November of 2016 and CSL's access to federal student
loan programs was revoked by the Department of Education
(“DOE”) in December of 2016.
founded in 2006 and is one of three for-profit law schools
owned by Defendant InfiLaw Corporation
(“InfiLaw”). (Am. Compl. ¶12). The ABA is the
accrediting agency for programs awarding a Juris Doctorate.
(Id. at ¶14). The ABA promulgates Standards and
Rules of Procedure for Approval of Law Schools
(“Standards”) with which law schools must comply
in order to obtain accreditation and remain in good standing.
(Id. at ¶15). CSL was granted full ABA
accreditation in 2011, at a time when its total enrollment
was 481 students. (Id. at ¶¶21-22). Just
three years later, in 2014, CSL's enrollment had
ballooned to 1392 students. (Id.). In February of
2009, under the guidance and control of InfiLaw, CSL executed
a Program Participation Agreement (“PPA”),
allowing CSL to participate in student financial aid programs
and making CSL students eligible for federal student loans.
(Id. at ¶16). CSL's tuition and fees for
the 2016-2017 academic year exceeded $44, 000 for full-time
students. (Id. at ¶20).
March of 2014, an ABA “site team” visited CSL to
conduct an evaluation of the school and met with InfiLaw
president Rick Inatome and CSL's administration.
(Id. at ¶25). CSL was provided with the ABA
Inspection Report on September 15, 2014, and CSL responded to
the Inspection Report in October of 2014. (Id. at
¶26). Following a January 2015 meeting, the ABA
Accreditation Committee (“Committee”) issued a
decision (“First Decision”) stating there was
“reason to believe” that CSL had “not
demonstrated compliance” with multiple ABA standards,
and requested additional information to assess CSL's
possible non-compliance with several other ABA Standards,
including Standards 301(a),  501(a),  501(b),  and
Interpretation 501-1. (Id. at ¶27).
provided additional information to the Committee in December
of 2015. (Id. at ¶29). On February 3, 2016, the
Committee issued a decision (“Second Decision”)
determining CSL was “not in compliance” with
Standards 301(a), 501(a), 501(b), and Interpretation 501-1,
and specifically found:
[CSL] has not demonstrated that it is maintaining a rigorous
program of legal education that prepares its students, upon
graduation, for admission to the bar and for effective,
ethical, and responsible participation as members of the
legal profession; maintaining sound admissions policies and
practices consistent with the Standards, its mission, and the
objectives of its program of legal education; or is admitting
applicants who do not appear capable of satisfactorily
completing its program of legal education and being admitted
to the bar.
(Id. at ¶30). The Committee also notified CSL
that a hearing would be held in June of 2016 “to
determine whether to impose sanctions in connection with
[CSL's] noncompliance with the Standards.”
(Id. at ¶¶31-32). The Committee held a
hearing on June 23, 2016, attended by CSL Dean Jay Conison
and other CSL employees. (Id. at ¶36). In July,
2016, the Committee issued its last decision (“Third
Decision”), again finding CSL was out of compliance
with Standards 301(a), 501(a), 501(b), and Interpretation
501-1, describing CSL's noncompliance as
“substantial and persistent, ” and held that
CSL's plans for bringing CSL into compliance with the
Standards “have not proven effective or
reliable.” (Id. at ¶37). The Third
Decision instructed CSL to make remedial actions, supply
additional information to the Committee, disclose the Third
Decision to CSL's students and the public, and appoint a
fact finder to review multiple issues, including CSL's
admissions policies, academic rigor, bar examination results,
student loan default rates, and graduate employment outcomes.
(Id. at ¶38).
did not disclose the Third Decision to CSL's students or
the public as ordered by the Committee. (Id. at
¶39). In August of 2016, CSL appealed portions of the
Third Decision, but did not appeal the Committee's
finding of noncompliance with Standards 301 and 501, and
instead requested the requirement that CSL publicly disclose
the findings of noncompliance be eliminated. (Id. at
¶¶40-41). In support of their request, Jay Conison
contended that if CSL publicly disclosed the Committee's
findings of noncompliance, it would materially affect the
decision of current and prospective students to attend CSL,
in that many students and prospective students would decide
not to attend CSL based upon the noncompliance. (Id.
November 14, 2016, the ABA issued a decision entitled
“Notice of Probation and Specific Remedial Action,
” concluding that CSL was still not in compliance with
Standards 301(a), 501(a), 501(b), that the noncompliance was
“substantial” and “persistent, ” and
that CSL's plans to bring CSL into compliance “have
not proven effective or reliable.” (Id. at
¶43). CSL was placed on probation by the ABA and ordered
to disclose its noncompliance for a second time. CSL was
further ordered to publish information regarding its
probationary status “prominently on its website.”
(Id. at ¶44).
allege that Defendants continued to promote and maintain on
CSL's website, during all relevant periods, that CSL was
fully accredited by the ABA, and that CSL was found “in
full compliance with ABA Standards.” (Id. at
¶¶60-62). Defendants also represented on CSL's
website, at all relevant times, that a “rigorous
curriculum has been created to ensure that our students are
equipped with practical skills that will allow them to thrive
in a professional setting” despite the ABA's Second
and Third Decisions that CSL was noncompliant with Standard
301(a) requiring CSL to “maintain a rigorous program .
. . .” (Id. at ¶63).
former CSL students, filed their Complaint on December 22,
2016, on behalf of themselves and a class of similarly
situated students, alleging causes of action under the North
Carolina Unfair and Deceptive Trade Practices Act
(“UDTPA”), for Unjust Enrichment, Breach of
Fiduciary Duty, and Constructive Fraud. Plaintiffs
subsequently filed their First Amended Complaint, maintaining
the same causes of action on behalf of an additional proposed
class of plaintiffs. Defendants have moved to dismiss
pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure for failure to state a claim upon which relief can
Standard for 12(b)(6) Motions to Dismiss
avoid dismissal, a complaint must contain facts sufficient
“to raise a right to relief above the speculative
level” and to show that the claim is “plausible
on its face.” Bell Atl. Corp. v. Twombly, 550
U.S. 544, 555, 570 (2007). A claim is plausible only
“when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant
is liable for the misconduct alleged” - a standard that
requires more than facts “that are ‘merely
consistent with' a defendant's liability.”
Ashcroft v. Iqbal, 556 U.S. at 678 (quoting
Twombly, 550 U.S. at 557). “Threadbare
recitals of the elements of a cause of action, supported by
mere conclusory statements, do not suffice.”
Iqbal, 556 U.S. 662, 678. A court need not accept as
true a plaintiff's “unwarranted inferences,
unreasonable conclusions, or arguments.” Giarratano
v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008) (citation
and internal quotation marks omitted).
Breach of Fiduciary Duty
North Carolina law, to state a claim for breach of fiduciary
duty, a plaintiff must show that “(1) the defendant
owed the plaintiff a fiduciary duty of care; (2) the
defendant violated that duty; and (3) the breach of duty
proximately caused the plaintiff's injury.”
Marketel Media Inc. v. Mediapotamus, Inc., Nos.
13-cv-427, 13-cv-693, 2015 WL 2401001, at *7-8 (E.D. N.C. May
19, 2015); see Green v. Freeman, 749 S.E.2d 262, 268
( N.C. 2013). Defendants contend that Plaintiffs' claim
must fail as they cannot establish the first element - the
existence of a cognizable fiduciary relationship between
themselves and Defendants.
North Carolina Supreme Court has stated that a fiduciary
relationship “exists in all cases where there has been
a special confidence reposed in one who in equity and good
conscience is bound to act in good faith and with due regard
to the interests of the one reposing confidence.”
Abbitt v. Gregory, 160 S.E. 896, 906 ( N.C. 1931).
Ordinarily, the existence or nonexistence of a fiduciary duty
is dependent on the circumstances of each case and is
generally a question of fact for the jury. Stamm v.
Salomon, 551 S.E.2d 152, 158 ( N.C. Ct. App. 2001),
rev. denied, 560 S.E.2d 139 ( N.C. 2002).
Nevertheless, North Carolina courts have generally refused to
recognize a fiduciary relationship as a matter of law in
certain cases, such as cases between an employer and employee
and between businesses with equal bargaining power
negotiating at arm's length. See McCants v. National
Collegiate Athletic Ass'n, 201 F.Supp.3d 732 (M.D.
N.C. 2016). Most importantly with regard to this case, courts
applying North Carolina law have repeatedly rejected attempts
to hold schools to a fiduciary standard vis-à-vis
their students. See, e.g., Ryan v. Univ. of
N.C. Hosps., 609 S.E.2d 498, *4 ( N.C. Ct. App. 2005)
(rejecting the imposition of a fiduciary duty in the
“academic setting”); McCants, 201
F.Supp.3d at 749 (finding no fiduciary relationship exists
because “North Carolina courts have been reluctant to
extend the concept of fiduciary relationships to the academic
setting”); J.W. v. Johnston Cty. Bd. of Educ.,
No. 5:11-CV-707-D, 2012 WL 4425439, at *14 (E.D. N.C. Sept.
24, 2012) (same). Plaintiffs' attempts to distinguish
these cases are unavailing.
Ryan, the court explained that divided loyalties
that are inherent to an academic setting preclude ...