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Levy v. Infilaw Corp.

United States District Court, W.D. North Carolina, Charlotte Division

August 17, 2017

RAISSA LEVY, JAMES VILLANEUVA, SHANNA RIVERA, ANDRÉ MCCOY individually and on behalf of all similarly situated, Plaintiffs,
v.
INFILAW CORPORATION, CHARLOTTE SCHOOL OF LAW, LLC, Defendants.

          ORDER

          Graham C. Mullen, United States District Judge

         This matter is before the Court upon Defendants Charlotte School of Law, LLC, Infilaw Holding, LLC and Infilaw Corporation's Motion to Dismiss for failure to state a claim upon which relief can be granted.[1] Plaintiffs have filed a response in opposition and Defendants have filed a Reply. Accordingly, this matter is ripe for disposition.

         I. FACTUAL BACKGROUND

         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 subsequently revoked by the Department of Education (“DOE”).

         CSL was founded in 2006 and is one of three for-profit law schools owned by Defendant InfiLaw Corporation (“InfiLaw”). (Second Amd. Compl. (“SAC”) ¶¶ 16, 22). 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. CSL was granted full ABA accreditation in 2011. Id. at ¶ 16.

         In March of 2015, the ABA conducted a Three Year Interval evaluation of CSL. Representatives of the ABA conducted an onsite inspection and met with CSL staff, owners, administrators, faculty, and students. Id. at ¶ 24. In September of 2015, CSL was provided with the ABA Inspection Report, which revealed deficiencies regarding CSL's compliance with ABA Standards. Id. at ¶ 25. CSL responded to the Inspection Report in October of 2015. Id. The ABA subsequently issued a 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), [2] 501(a), [3] 501(b), [4] and Interpretation 501-1.[5] Id. at ¶¶ 26-27.

         After CSL responded to the ABA's request for information, the ABA issued a second determination on February 3, 2016, finding that CSL was “not in compliance” with Standards 301(a), 501(a), 501(b), and Interpretation 501-1. Id. at ¶ 28. Specifically the ABA 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. The ABA held a hearing on June 23, 2016, attended by CSL employees. Id. at ¶ 29. In July, 2016, the Committee issued another 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.” Id. On November 14, 2016, the ABA issued its last 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 ¶ 30. CSL was ordered to inform its students of the remedial actions the school was required to take. Id.

         Plaintiffs allege that CSL then advised its students that the ABA accreditation committee issued a letter that was “mainly positive” but noted a few areas that “could be strengthened.” Id. at ¶ 35. Plaintiffs allege that such communication did not accurately describe CSL's accreditation status with the ABA. Id. CSL failed to inform its students and potential students that the ABA determined that CSL had “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” until November, 2016. Id. Moreover, CSL promoted and maintained on its website, in its advertising, and in numerous public statements that it was, in all respects, ABA accredited and compliant. Id. at ¶ 37. Furthermore, CSL claimed that students who were admitted to CSL appeared capable of satisfactorily completing its program and being admitted to the bar. Id. Defendants promoted that CSL continued to deliver high quality student outcomes including a 90% job placement and bar pass rate. Id.

         On December 19, 2016, CSL was notified by the DOE that it had denied CSL's application for continued participation in the Student Financial Assistance Programs authorized by Title IV of the Higher Education Act of 1965. Id. at ¶ 31. Accordingly, current students at CSL who were previously eligible for federal student loans to pay all or some of the cost of attending CSL are no longer eligible for DOE financial aid or assistance. Id.

         Plaintiffs also allege that CSL would routinely award “Full Scholarships” to incoming first year law students to entice said students to attend the school. Id. at ¶ 38. The “Full Scholarship” would require the student to maintain a certain grade point average. Id. CSL would then group all scholarship students into the same class to compete among themselves, knowing that the grading curve would cause 75% of the students to be below the minimum G.P.A. standard at the conclusion of their first semester. Id. This would allow CSL to discontinue 75% of the “Full Scholarships” for these students. Id. This practice required the students, if they desired to remain in class, to apply for Federal Student Aid. Id. CSL went from paying out on a scholarship to directly receiving tuition through Federal Student Aid. Id.

         Named Plaintiff Shanna Rivera alleges that even though she passed the July 2015 bar exam on first attempt, she was offered $5000.00 by CSL officials to defer her exam test date from July 2015 to the Winter 2016 exam date. Id. at ¶ 55. CSL included in this offer the prize of a free CSL corporate compliance course valued by CSL at $9000.00. Id. Plaintiffs' allege that CSL made this offer in order to help CSL present a high bar passage rate for both exam sessions. Id.

         Plaintiffs, former and current CSL students, filed their initial Complaint on January 19, 2017, 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 Contract, Breach of the Covenant of Good Faith and Fair Dealing, Negligent Misrepresentation, Intentional Misrepresentation, Unconscionability, Punitive Damages, and “Joint Tortfeasor.” Plaintiffs subsequently amended the Complaint twice to correct the names of certain Defendants. Defendants have moved to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.

         II. ...


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