Monday, July 23, 2012

Caveat student: lawsuit against Cooley law school dismissed

MacDonald v. Quist, No. 1:11-cv-00831-GJQ (W.D. Mich. July 20, 2012)
Plaintiffs, 12 graduates of Thomas M. Cooley Law School, brought a putative class action alleging that Cooley deceived them about graduates’ employment prospects, causing them to pay more than they would have if they’d known the truth.  They sued under Michigan’s Consumer Protection Act (MCPA) and also brought claims for fraud and negligent misrepresentation. The court dismissed the complaint.
“Cooley, a for-profit law school, enrolls more law students than any other law school in the country–approximately 4,000. It is ranked in the bottom tier by every major law school ranking. Cooley has the lowest admission standards of any accredited or provisionally-accredited law school in the country.”  In 2010, incoming students’ mean LSAT was 146, which apparently is in the 30th percentile.  Roughly 1500 new students matriculate each year, about 1/3 of whom fail to graduate.  Dean Don LeDuc was paid more than $500,000 in 2008 and 2009.
LeDuc and former Dean Brennan publish Cooley’s own law-school rankings, which have been met with “great skepticism, if not outright ridicule, and no reputable academic or legal commentator takes it serious[ly],” according to the complaint. “Incredulous[ly]” [sic], these rankings place Cooley as the second best law school in the country, apparently based on the overall size of the student body, library total square footage, and library seating capacity. 
The plaintiffs, however, based their challenge on Cooley’s Employment Report and Salary Survey.  Its report on 2010 graduates listed their number as 934, the number with known employment status as 780, the percentage employed as 76%, and the average starting salary for “all graduates” as $54,796.
However, the reported placement rates and salary information remained steady 2004-2009, even though the total number of annual graduates increased from 404 to 958 and the legal market didn’t add jobs.  Indeed, Cooley’s reported placement rates and salary information have “barely dipped since the onslaught of the ‘Great Recession.’”  Cooley’s statistics are at odds with the employment statistics reported by the National Association for Law Placement (NALP); despite its lower standards and bottom ranking, its statistics suggest that it outplaced 40% of other law schools.  The court noted that these attacks all relied on “the assumption that Cooley graduates’ employment statistics move in correlation with overall market statistics,” though presumably that can be pled as a fact for these purposes.
Anyway, the data in the Employment Reports comes from a survey Cooley sends to all recent graduates.  For the 2010 report, about 83% responded; the responses are unaudited, unverified, and self-reported.  Cooley disseminates this information widely on its website and to US News, the ABA, and NALP.  US News and the ABA don’t require distinctions between part-time and full-time employment and temporary or permanent employment.  NALP makes those distinctions but doesn’t provide public information about individual law schools; Cooley’s compliance with NALP showed that Cooley could provide more detailed data to prospective and current students.
The plaintiffs alleged that they didn’t enroll in order to use a JD for an ongoing business or to start a non-legal business, but rather intended to use the degree to better themselves through getting full-time legal employment.  They relied on the salary/employment data posted on Cooley’s website, used in marketing material, and/or disseminated to third-party data clearinghouses and publications, such as the ABA and U.S. News.  They alleged that if they’d been aware that the placement rates included temporary and part-time employment and/or employment for which a JD was not required or preferred, they wouldn’t have paid as much to go to Cooley or might not even have attended.  The plaintiffs’ circumstances varied; some opened their own law firms or found other meaningful legal work, while others worked in nonlegal jobs and one was unemployed.  They alleged that Cooley marketed primarily to “naive, relatively unsophisticated consumers – many of whom are barely removed from college – who are often making their first ‘big-ticket’ purchase,”  and that they took on tens of thousands of dollars in debt to attend Cooley, whose current tuition is more than $36,000 per year ($52,000 with living expenses etc.).  U.S. News reports that Cooley graduates carry an average of $105,798 in student loans when they graduate.  Like all other law grads, Cooley grads face serious headwinds in the job market, which has caused salaries to decline.
The court first dismissed the MCPA claim because that law covers only the “conduct of trade or commerce,” which is defined as “providing goods, property, or service primarily for personal, family, or household purposes.” “[I]f an item is purchased primarily for business or commercial rather than personal purposes, the MCPA does not supply protection.”  Plaintiffs couldn’t plausibly plead that their purposes were personal.  “Plaintiffs did not purchase a Cooley legal education so that they could leisurely read and understand Supreme Court Reports, or to provide legal services for themselves or family members. Rather, Plaintiffs purchased a legal education in order to make money as lawyers so that they could live a lifestyle that they believed (perhaps naively) would be more pleasing to them.”  That was a business purpose.  Even if a legal education gives personal satisfaction, that’s no different from many other business expenses that might incidentally provide satisfaction to the business owner.
The court then turned to the far more restrictive cause of action for common-law fraud, and found that plaintiffs failed to allege the kind of explicit falsity required.  Plaintiffs focused on the 76% employment and $54,796 “average starting salary for all graduates” claims.
As to the percentage of graduates employed, the court first found that this statistic had to refer only to the 780 graduates who responded, because Cooley couldn’t know the employment status of the 154 nonresponders.  The plaintiffs alleged that reasonable consumers would think this number represented full-time, permanent legal employment (defined as positions for which a law degree is required or preferred), but that in fact Cooley was counting anything, and the truth was that the number who had JD-required/preferred jobs could be below 25%.  This wasn’t sufficient to plead fraud because there was no explicitly false representation, and a plaintiff’s misunderstanding isn’t enough.  On its face, the statistic descriptor didn’t differentiate among types of jobs.  Separately, any reliance on the percentage statistic was unreasonable, since the statistic didn’t distinguish between legal and non-legal, or permanent and temporary, jobs.  Moreover, the Employment Reports expressly said that many graduates were “self employed” solo practitioners; “it is unreasonable to think that all self-employed graduates from arguably the lowest-ranked law school in the country have bustling full-time legal practices immediately upon graduation.”  Plus, basic deductive reasoning would tell reasonable people that the statistic on its face includes all employed graduates, not just those in full-time legal positions.
The court turned to the average salary statement.  Of course, an obvious reading of this is that it is the average starting salary for all 943 graduates.  But Cooley wouldn’t have any way to know the starting salaries of nonrespondents.  Instead, it had to rely on the answers of those who provided salary information (a subset of total respondents); the number of those respondents can’t be determined from the Employment Report.  So the number doesn’t represent the average salary for “all” graduates.  “Standing alone, the representation is objectively untrue.”  Plaintiffs alleged more: that Cooley disregarded responses that claimed a salary of zero, meaning that the statistic would be false even if properly labeled as the average salary of respondents who provided salary information.  But reliance on this was unreasonable.  For purposes of common-law fraud, unreasonable reliance includes relying on an alleged misrepresentation that is expressly contradicted in a written contract that the plaintiff reviewed and signed.  (This is, not for nothing, one of the reasons modern consumer protection statutes abandoned the fraud rules: the formalism of this idea doesn’t correspond to how consumers actually understand promises made by salespeople versus the legalistic word-barrage of a standard contract.)  At common law, there can be no fraud if the plaintiff has the ability to figure out that she’s not being told the truth and the defendant doesn’t take steps to prevent her from doing so.  In another case, for example, the plaintiff received several sets of financial documents containing widely divergent and internally inconsistent numbers, but the plaintiff didn’t question any of them.  The Sixth Circuit held that no reasonable buyer could have relied on the documents: because the statements were inconsistent and confusing, the documents were inherently untrustworthy. 
“‘There can be no fraud where it is apparent that all the representations cannot simultaneously be true.’ The same principle applies in the instant case.”  On the face of the Employment Report, Cooley didn’t know the salary of “all” graduates, and plaintiffs had no way to determine the number of graduates’ salaries used to determine the average.  Not the way a defendant wants to win: “Without question, the Employment Reports are inconsistent, confusing, and inherently untrustworthy.”  Among other things, the question arises whether Cooley counted those whose salaries were zero, but plaintiffs should have asked such questions beforehand.  “Plaintiffs and prospective students should have approached their decision to enter into law school with extreme caution given the size of the investment.… With red flags waiving and cautionary bells ringing, an ordinary prudent person would not have relied on the statistics to decide to spend $100,000 or more.”  Plaintiffs’ reliance was arguably more unreasonable than in other cases, since the competing representations were made on the same page.  “It is quite apparent from a reading of an Employment Report, without blinders as to a particular statistic, that all of the representations in the Employment Report cannot simultaneously be true.”
Finally, the court held that plaintiffs unreasonably relied on these two statistics when enrolling/deciding to stay at Cooley, citing the reasons given in Gomez-Jimenez v. New York Law Sch.  While college graduates might not be particularly sophisticated, and “[s]ometimes hope and dreams triumph over experience and common sense,” it would still be unreasonable to rely on “two bare-bones statistics in deciding to attend a bottom-tier law school with the lowest admission standards in the country.”  Plaintiffs even pled that it was widely accepted that American law schools, Cooley among them, “employ all sorts of legerdemain to boost employment rates in a contracting legal market,” providing other reasons to think that the market for law schools is a market for lemons. In addition, it would be unreasonable to continue to rely on the Employment Reports given the massive economic crunch.
For the same reasons, plaintiffs didn’t state a claim for “silent fraud,” which requires an allegation that the defendant suppressed a material fact that the defendant had a duty to disclose. Mere nondisclosure is insufficient.  Plaintiffs argued that Cooley had a duty to disclose because the omitted information was so important, and that it had duties as an educator and as a recipient of federal student financial aid funds.  A duty to disclose most commonly arises when the plaintiff asks questions and the defendant’s replies are incomplete and omit material information.  Here, the plaintiffs didn’t allege that they asked for additional information, and no other duty gave rise to a duty of disclosure to the plaintiffs.
Negligent misrepresentation also failed, because it required misrepresentation and reasonable reliance.  “The bottom line is that the statistics provided by Cooley and other law schools in a format required by the ABA were so vague and incomplete as to be meaningless and could not reasonably be relied upon. But, as put in the phrase we lawyers learn early in law school–caveat emptor.”

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