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Krebs v. Charlotte School of Law, LLC

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

September 5, 2017

SPENCER KREBS MORGAN SWITZER DAVE WYATT KRYSTAL HORSLEY JACENTA MARIE PRICE MARKISHA DOBSON, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, Plaintiffs,
v.
CHARLOTTE SCHOOL OF LAW, LLC INFILAW CORPORATION INFILAW HOLDING, LLC JAY CONISON CHIDI OGENE DON LIVELY BETSY DEVOS, Defendants.

          ORDER

          Graham C. Mullen, United States District Judge.

         This matter is before the Court upon Defendants Charlotte School of Law., LLC, Infilaw Corporation, Infilaw Holding, LLC, [1] Jay Conison, Chidi Ogene, and Don Lively's (the “CSL Defendants”) Motion to Dismiss for failure to state a claim upon which relief can be granted (Doc. No. 65), as well as Defendant United States Department of Education's (“DOE”)[2] Motion to Dismiss for lack of subject matter jurisdiction. (Doc. No. 67) 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probation by the American Bar Association (“ABA”) in November of 2016 and CSL's access to federal student loan programs was revoked by the DOE in December of 2016.

         CSL is one of three for-profit law schools owned by InfiLaw Corporation and/or InfiLaw Holding, LLC (collectively InfiLaw) (“InfiLaw”). CSL was founded in 2006 and granted full ABA accreditation in 2011. (Second Amended Complaint (“SAC”) ¶¶ 2, 4, 56). Since becoming accredited, CSL has advertised and represented itself on its website as having “been awarded full accreditation” by the ABA in 2011, which required the school “ha[ve] full compliance with each of the ABA's standards, including standards relating to bar passage, job placement and diversity.” (Id. at ¶ 63, Exhibit A). Moreover, the website stated 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. Students are taught not only the traditions and theory of law, but also how to apply this learning through critical thinking and analytical skill sets. We address what using a law degree in ‘real life' can mean to an individual both personally and professionally.

Id.

         Between March 16 and 19, 2014, an ABA “site team” conducted an on-site Three-Year Interval evaluation of CSL. During the course of this site visit, the team met with Rick Inatome (CEO of InfiLaw), Jay Conison (Dean of CSL), Don Lively (then-President of CSL), numerous CSL administrators, members of the institution's accreditation self-study committee, CSL faculty, CSL staff, and CSL students. (Id. at ¶ 64, Exhibit B, at 3).

         Subsequent to the site visit, and following a January 2015 meeting, the ABA informed CSL that it “had not demonstrated compliance with certain ABA standards.” (Id. at ¶¶ 7, 66). The ABA also “request[ed] additional information to make a determination” as to CSL's compliance with additional standards and interpretations, including Standards 301(a), [3] 501(a), [4] and 501(b), [5] and Interpretation 501-1, [6] which are foundational to the educational enterprise and the nature of the educational program offered by CSL. (Id. at ¶ 66, Exhibit B, at 3). Despite being aware of this, CSL failed to inform students or prospective students that the ABA had found the school to be out of compliance with ABA Standards. (Id. at ¶ 7, Exhibit B, at 10). In fact, Jay Conison, the Dean of CSL at this time, instead emailed all current students at CSL stating the following:

the report of the site visit team was very positive. The letter is also very positive and contains only a few items on which we need to report back with updated information. Requests to report back are normal. I previously served in the role of Chair of the ABA Accreditation Committee and in my experience decision letters typically contain more requests to report back than does ours.

(Id. at ¶ 67, Exhibit F).

         On February 3, 2016, the ABA informed CSL that CSL “was not in compliance” with other ABA standards, specifically with:

Standards 301(a), 501(a), 501(b), and Interpretation 501-1, in that the Law School 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 ¶¶ 8, 69, Exhibit B, at 4). However, despite being fully aware of the ABA's second announcement on February 3, 2016, CSL failed to inform students and prospective students about the status of its ABA accreditation. (Id. at ¶¶ 9, 70, Exhibit B, at 11).

         In July 2016, the ABA issued its third decision, again finding CSL to be out of compliance with Standards 301(a), 501(a), and 501(b) and Interpretation 501-1. In this decision, the ABA also informed CSL in its conclusion that “the issues of non-compliance with Standards 301(a), 501(a), and 501(b), and Interpretation 501-1 are substantial and have been persistent.” (Id. at ¶¶ 11, 71, Exhibit B, at 5). The Committee also found that CSL's “plans for bringing itself into compliance with the Standards have not proven effective or reliable.” Id. The decision was expressly based on forty-four factual findings, on topics such as admissions, programming for admitted students, mentoring and related opportunities, the writing program, academic support, faculty, summer and intersession changes, attrition, bar preparation during law school, post-graduation bar preparation, and bar examinations. Id. Following the ABA's third decision, CSL again failed to disclose and intentionally concealed its failure to comply with ABA requirements to current and prospective students and did not amend, update, or otherwise correct its website and other publicly available literature and statements related to its compliance with ABA requirements. (Id. at ¶ 12).

         CSL had actually requested the ABA to keep confidential its findings related to ABA compliance because “if students and prospective students were aware of the ABA's findings of noncompliance, that would have a ‘profound impact on admissions' because: (1) knowledge of the ABA's findings would make applicants ‘much less likely to enroll;' and (2) such a disclosure would ‘effectively tell applicants to beware of attending the Charlotte School of Law.'” (Id. at ¶ 13, Exhibit B, at 11-12). In addition, CSL argued to the ABA that public disclosure of its noncompliance would “have an adverse impact on [CSL's] ability to retain high-performing students, ” because it would “inevitably create anxiety on the part of high-performing students and make their transfer more likely.” (Id., Exhibit B, at 12).

         In August 2016, CSL appealed aspects of the ABA's third decision, and on October 21, 2016, the ABA held a hearing at which Jay Conison testified on CSL's behalf. (Id. at ¶ 72, Exhibit B, at 7). At that hearing, Jay Conison testified that CSL is “not appealing that conclusion of noncompliance with Standards 301 and 501, ” despite the school's “disappointment” with the conclusion. Id. Again, this material information was not communicated to students and prospective students.

         On November 14, 2016, the ABA found for the fourth time in almost two years that CSL was not in compliance with its Standards. On this date, the ABA found CSL “not in compliance” with Standards 301(a), 501(a), and 501(b), that the issues of noncompliance with these standards “are substantial and have been persistent, ” and that CSL's “plans for bringing itself into compliance with the Standards have not proven effective or reliable.” (Id. at ¶¶ 14, 73, Exhibit B, at 7-8). Because CSL had failed to disclose to its current and prospective students its non- compliance with ABA Standards prior to November 14, 2016, the ABA ordered remedial actions, including public disclosure, and placed CSL on probation, effective November 14, 2016. Id. Therefore, CSL did not make any type of public disclosure regarding its non-compliance with ABA requirements for rigorous curriculum, admissions process, bar passage rates, and attrition rates until it was forced to do so by the ABA. This was the first time current and prospective students were informed of CSL's noncompliance. Id.

         On December 19, 2016, after reviewing the ABA's findings, the DOE denied CSL's Recertification Application to Participate in the Federal Student Financial Assistance Program, after finding that CSL's “substantial” omissions regarding “the nature of its educational program” to the DOE and current and prospective students were made in order to gain prospective students' admission and prevent current students from transferring. (Id. at ¶ 15, Exhibit B). Specifically, the DOE found that CSL failed to inform students and prospective students of the “nature and extent” of CSL's accreditation and the “appropriateness of its courses and programs to the employment objectives that it states its programs are designed to meet.” (Id. at ¶ 76, Exhibit B, at 10). Moreover, the DOE found that prior to the ABA's November 2016 announcement, the DOE was unaware of any public statements that would have informed a student or prospective student that the ABA had found the school to be out of compliance with the Standards, or that the ABA had 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.” Id. Nor was the DOE aware of any statement or disclosure during that period by CSL that the ABA had determined that the school was “admitting applicants who do not appear capable of satisfactorily completing its program of legal education and being admitted to the bar.” Id.

         The DOE stated that CSL's statements on its website that it was in full compliance with the ABA could lead a current or prospective student to “conclude that the 2011 finding of ‘full compliance' by the ABA was the final word as to the institution's compliance with the ABA's accreditation standards.” (Id. at ¶ 77, Exhibit B, at 11). The failure of CSL to disclose the current status of its ABA accreditation was misleading insofar as it had the likelihood or tendency to deceive reasonable students and prospective students about the current status, nature, and extent of CSL's accreditation. Id. Moreover, the DOE found that CSL's representation that it created a “rigorous curriculum . . . to ensure that [CSL] students are equipped with practical skills that will allow them to thrive in a professional setting, ” was also misleading, as it failed to inform students that:

(1) the ABA has specifically and repeatedly concluded that CSL has not maintained a “rigorous” program of legal education, that its failures in this regard are “substantial” and “persistent, ” and that CSL's plans to come into compliance with that standard have not proven effective or reliable; and (2) the positioning of CSL's description of its curriculum as “rigorous” directly beneath the discussion of compliance with the ABA standards (which use the word “rigorous” to describe what is expected of a compliant program) has the likelihood or tendency to leave students and prospective students with the false impression that CSL was compliant with that very requirement by the ABA.

(Id. at ¶ 78, Exhibit B, at 11). Finally, the DOE found that CSL substantially misrepresented the bar passage rates of CSL graduates in an interview with the Charlotte Business Journal published on November 30, 2016. (Id. at ¶ 81, Exhibit B, at 12). In that interview, Defendant Chidi Ogene stated that “[i]f you look at bar pass rates between 2009 and 2013, we were consistently at or above the state bar average pass rate. That is an incredible feat for a new school.” Id. However, out of the nine sittings of the North Carolina bar exam (between July 2009 and July 2013), CSL's first-time bar passage rate was actually below the state average five times (with a maximum differential of -13.33%) and above the state average only four times (with a maximum differential of 7.4%). Id.

         Plaintiffs allege that as a result of CSL and the other Defendants' actions, Plaintiffs have spent millions of dollars in tuition and taken on significant debt which will be difficult to repay. Many were forced to drop out and find a different profession, as it was too late for them to transfer to other law schools to finish their JD degree, and they lacked the financial ability to do so. Of those that were able to successfully transfer to another school, many were forced to take extra credits, incurring additional student loans, as many of the CSL credits were not accepted for transfer. The Plaintiffs also fear that repayment of their student loans will prove difficult, as employment in the legal profession may be elusive due to the reputation of CSL in the legal community.

         Plaintiffs filed this action on behalf of themselves and all individuals enrolled as students at CSL any time after January 1, 2015, alleging Breach of Contract; Breach of the Covenant of Good Faith and Fair Dealing; Fraud and Constructive Fraud; Negligent Misrepresentation; Unjust Enrichment; Unconscionability; Breach of Fiduciary Duties; North Carolina Unfair and Deceptive Trade Practices Act; Declaratory Judgment; and Punitive Damages. The Defendants have moved to dismiss all claims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim.

         II. DISCUSSION

         A. Standard for 12(b)(6) Motions to Dismiss

         To survive a Rule 12(b)(6) motion, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting from Bell Atl. Corp. v. Twombly, 550 U.S. 554, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). However, “[a] court is not required to accept [t]hreadbare recitals of the elements of a cause of action supported by mere conclusory statements.” Id.

         B. Breach of Contract

         For breach of contract claims, the allegations regarding the terms of a contract must be “‘definite and certain or capable of being made so' such that the parties ‘assent to the same thing, in the same sense.'” McFadyen v. Duke Univ., 786 F.Supp.2d 887, 981 (M.D. N.C. 2011), aff'd in part, rev'd in part, dismissed in part sub nom. Evans v. Chalmers, 703 F.3d 636 (4th Cir. 2012) (internal citation omitted). “Thus, a contract exists only if there is mutual intent to contract and an agreement on sufficiently definite terms to be enforceable.” Id. Failure to allege the “specific contract terms which were breached by Defendants . . . obviously fall[s] far short of the line of ‘plausibility of entitle[ment] to relief.'” Page v. Select Portfolio Servicing, Inc., No. 1:12CV900, 2013 WL 4679428, at *3 (M.D. N.C. Aug. 30, 2013), report and recommendation adopted, No. 1:12CV900, 2013 WL 5462282 (M.D. N.C. Sept. 30, 2013) (quoting Twombly, 550 U.S. at 557); see also Houck v. Lifestore Bank, No. 5:13-CV-66-DSC, 2014 WL 197902, at *3 (W.D. N.C. Jan. 15, 2014) (ruling that “[b]ald assertions” about “improper” conduct were “insufficient” to allege breach of contract). In ...


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