Monday, January 07, 2013

law school graduates lose another round

Austin v. Albany Law School of Union University, --- N.Y.S.2d ----, 2013 WL 45884 (N.Y. Sup.)

Four graduates of the Albany Law School sued for violations of General Business Law §§ 349 and 350, common law fraud and negligent misrepresentation.  The court dismissed the complaint.

The plaintiffs alleged that they paid tens of thousands of dollars in tuition and fees to the school while incurring tens of thousands of dollars more in debt, in reliance on salary and employment information posted on ALS’s website and material disseminated to third parties such as the ABA and US News.  They alleged that they specifically relied on ALS’s representations that approximately 95 percent of its graduates were employed within nine months of graduation.  They weren’t aware that the school's reported placement rates included temporary and part-time employment and/or employment for which a JD was not required or preferred.  Had they been aware of this, they alleged, they would either have paid less for ALS or not attended the school at all. 
ALS currently stated on its website that 91 percent of the Class of 2010 was employed nine months after graduation, with 71 percent working in positions for which a JD is required, 19 percent in positions for which a JD is preferred and ten percent in positions that neither require nor prefer a JD, but these figures were allegedly based upon “unaudited, unverified and self-reported” data. Before September 2011, plaintiffs alleged, ALS disclosed “even less accurate and more deceptive information regarding [its] graduates' job prospects, by failing to disclose the percentage of graduates who were in jobs that do not require or prefer a JD degree.”

Further, plaintiffs alleged that ALS disseminated false or misleading information to third parties such as the ABA and US News, since those “simply require law schools to report an overall employment number, and do not require schools to distinguish between part-time and full-time jobs”  ALS would allegedly “satisfy th[e ABA's] virtually meaningless and non-existent criterion by reporting jobs that are temporary or part-time or have absolutely nothing to do with obtaining a JD degree as employment.”  By contrast, the National Association of Law Placement requires a specific breakdown of part-time and full-time jobs and JD-required jobs.  But it doesn’t make these data public.  Plaintiffs argued that, despite the fact that it had this disaggregated data on hand, ALS presented misleading aggregated data to prospective and current students. 

Plaintiffs also argued that the employment data were misleading because they included research assistants and fellows funded by the law school, graduates who were employed within nine months of graduation, but who were not employed on the reporting date of the survey, and graduates who have been forced to start solo practices due to their inability to find other employment.  In addition, they alleged that ALS “calculates and tallies the raw data inputted in the job surveys filled out by recent graduates in a shoddy, slipshod manner, cynically choosing to omit or ignore critical statistical data that would substantially lower placement rates.”  Moreover, they alleged that the school’s reported employment rates remained “eerily steady” despite the overall downturn in the legal market following the “Great Recession” of 2008, “leaving the misimpression that the value of an ALS degree is recession proof,” that the published data were “at odds” with the data reported to NALP, and that the “true” percentage of law school graduates that obtain full-time, permanent legal employment was only 40%.

A section 349 claim requires (1) consumer-oriented conduct that is (2) materially misleading and that (3) injures the plaintiff as a result.  To be misleading, the challenged representation or omission must be likely to mislead a reasonable consumer acting reasonably under the circumstances.

Here, the allegedly deceptive acts were directed principally at college graduates deciding on a career and a law school: “a reasonably well-educated (though not necessarily sophisticated) group of consumers who are called upon to make major life decisions.”  Moreover, the plaintiffs didn’t seriously contend that the published employment rates were literally false.  The employment figures didn’t state or imply that they were anything more than the number of people who were doing work for pay.  “There simply is nothing in the challenged representations that would lead reasonable consumers acting reasonably to believe that ALS's published ‘employment’ rate carved out compensated positions for which a JD is not required or preferred, part-time employment, temporary employment, contract employment, post-graduate fellowships, research assistantships and/or certain types of solo legal practices.” 

Indeed, the court continued, “given the elaborate and somewhat subjective nature of plaintiffs' definition of ‘employment,’ it is difficult to envision how they could reasonably have expected any single published statistic to comport with all of their assumptions and expectations regarding legal employment.”  Excluding law school grads who started solo practices with little result because they couldn’t find other employment, for example, would require “a multi-factor test requiring individualized consideration of the extent to which starting a solo practice was the graduate's preference, the other employment options available to the graduate, and the financial success of the graduate's new venture.”  The court characterized what plaintiffs were asking for as a demand that ALS “ascertain these types of individualized needs and guarantee that its published employment statistics suit each prospective or current student.”  Rather, “it was incumbent upon plaintiffs to ascertain whether ALS's published data fit their particular assumptions and met their specific needs.”

The plaintiffs alleged that they reviewed the ALS data disseminated to third parties, but couldn’t find “real” numbers.  “While it is true that disaggregated employment data for ALS generally was not available for much of the period at issue in this action, examination of the highly disaggregated categories of employment data compiled by NALP and the considerable variance between NALP's national percentage of law school graduates employed in positions for which a JD is required or preferred and the employment data published by ALS (which include a comparison to national averages) would have made it apparent that ALS was publishing an aggregated rate.” 

This wasn’t about reliance (not required under the GBL), but rather about the objective standard of whether a reasonable consumer acting reasonably would have been deceived.  “Reasonable college graduates grappling with major life decisions concerning a career and the pursuit of a professional degree would not read a host of assumptions about legal employment into the unembellished ‘employment rate’ published by ALS without confirming that this summary statistic fit their specific needs.”  (But would they have even known to ask the questions necessary to distinguish among types of employment?)

Thus, failure to disclose disaggregated data wasn’t deceptive or misleading.  ALS had no duty to ascertain consumers’ individual needs and guarantee that they had all relevant information specific to their situations, especially when reasonable diligence would have aided the consumers. ALS was relying on the commonly understood meaning of “employment,” not some made-up definition it cooked up itself, “and it is the plaintiffs who seek to add a layer of gloss to the term reflective of their particular hopes, aspirations and expectations regarding legal employment.”

In a footnote, the court also cast doubt on plaintiffs’ theory of damages.  Though they mentioned a price inflation theory, they were actually seeking damages based on alleged diminution in the “true value” of their degrees. “Even assuming that the ‘true value’ of an ALS degree could be ascertained with reasonable certainty, a point that seems doubtful, weighing the tuition charged by ALS against the value of the resulting degree is an apples to oranges comparison that impermissibly seeks to inject a ‘benefit of the bargain’ theory of damages into the case.” This wasn’t an ordinary commercial transaction, but an educational opportunity, and the court didn’t see any allegation that the legal education they received was “diminished or devalued in any way by the alleged deceptive practices” (even if its market value declined).

Naturally, the § 350 and common law fraud claims failed for the same reasons.  ALS didn’t have any fiduciary duty to disclose to its students and prospective students, only contractual relations.  A duty to disclose would then only exist if one party’s superior knowledge of essential facts rendered a transaction without disclosure inherently unfair, and if the facts were peculiarly within ALS’s knowledge and couldn’t have been discovered through the exercise of ordinary intelligence.  Here, plaintiffs “could have ascertained the true nature of the employment statistics published by ALS and the limitations associated therewith through the exercise of reasonable diligence.”  In addition, information “concerning the changing nature of the practice of law in this day and age, the economic realities facing the legal profession and the impact of downward economic cycles upon the short-term employment market for new attorneys” was also available to them.  Plaintiffs couldn’t have reasonably relied on the general “employment” statistics to fit their particular definitions of employment.  The negligent misrepresentation claim also failed.

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