Widener is an ABA-accredited law school with a very high
admittance rate. Each year it enrolls
approximately 1600 students, though in 2008 23% of first-year students failed
to matriculate in the second year.
Plaintiffs alleged that Widener is a “lower tier” law school. Annual cost was about $55,000/year, and the
average Widener student graduates with $111,909 in debt.
Plaintiffs were eight graduates from between 2008-2011. Each alleged that their law degree didn’t
result in satisfactory legal employment; a graduate allegedly needs to make at
least $138,000 annually to repay $100,000 without enduring financial hardship,
or $92,000 annually to repay the debt with financial difficulty. They sued for common law fraud and related
claims on behalf of a class.
The basic challenge was to Widener’s marketing materials and
reporting practices between 2005 and 2011. At some point, Widener’s website
stated “[a]s a graduate of Widener Law, you’ll join a network of more than
12,000 alumni in 50 states, the District of Columbia, and 15 countries and
territories who are using their Widener Law degrees to pursue successful,
rewarding careers.” On its “Employment Statistics and Trends” page, it claimed
90% and over employment statistics for various classes, referring to the
“employment rate” and then to the “employment/advanced degree rate” for the
class of 2010.
Plaintiffs alleged that the employment statistics were
misleading because they didn’t disclose that the numbers included full and part
time legal, law-related and non-legal positions; that when a graduate responded
to Widener’s surveys that the graduate wasn’t seeking work, Widener simply
didn’t count the graduate; that Widener counted graduates as employed even if
they’d only gotten employment shortly before the survey; that it counted
graduates as employed if they’d “out of desperation” started a solo practice
without confirming whether they were licensed in their jurisdictions; and that
it didn’t disclose a high nonresponse rate to the survey.
In 2011, Widener added more specific employment data: “Graduates
of the Class of 2010 had a 93% employment / advanced degree program
participation rate. This rate includes full and part time legal, law-related
and non-legal positions as well as advanced degree program participation within
nine months of graduation. For more information, please download a
comprehensive summary of employment statistics (PDF).”
Plaintiffs further alleged that Widener misled students by
reporting its misleading placement and salary statistics to US News and the
ABA, which reported high employment rates for Widener, artificially boosting
Widener’s ranking and misleading law students who relied on US News.
They alleged violations of New Jersey and Delaware’s
consumer fraud acts with respect to placement rates/employment data and also
for “[m]aking deceptive and misleading statements, representations and
omissions concerning [Widener’s] reputation with potential employers,” the
value of a Widener degree, and the “pace” at which graduates can obtain gainful
legal employment. This allegedly got
students to pay inflated tuition. They
sought injunctive relief, disgorgement and restitution of $75 million (the
difference between the inflated tuition and the true value of a Widener
degree), punitive damages, and other relief, including civil penalties of
$10,000 for violations that affected elderly or disabled persons under the
statutes.
The court began by noting that the NJCFA was intended to be
one of the strongest in the country and should be construed liberally. Pleading a violation requires (1) unlawful
conduct; (2) an ascertainable loss; and (3) a causal relationship between the
unlawful conduct and the ascertainable loss. To be unlawful, affirmative acts must be “
‘misleading’ and stand outside the norm of reasonable business practice in that
it will victimize the average consumer.” This is usually a jury question but
can sometimes be decided on a motion to dismiss.
Though the allegations of false placement rates were
unsupported by specific facts, allegations of deception and misinterpretation
were still plausible—literally true statements can be misleading to an average
consumer. Other courts have concluded
that no reasonable person could believe that a statement about an employment
rate, with no further qualification, refers only to legal employment, but the
court here disagreed. “Perception is
often affected by location of the object. Here, we have data displayed above
the category of ‘Full Time Legal Employers.’ Why should a reasonable student
looking to go to law school consider that data to include non law-related and
part-time employment? Should that student think that going to Widener Law
School would open employment as a public school teacher, full or part-time, or
an administrative assistant, or a sales clerk, or a medical assistant?” The
court continued: Widener’s website, which promoted a professional school,
functioned to persuade prospective students to attend Widener. “Within this context, it is not implausible
that a prospective law student making the choice of whether or which law school
to attend, would believe that the employment rate referred to law related
employment.”
It was true that there was a wealth of information outside
the Widener website that would have indicated that Widener was reporting an
aggregate employment statistic. But New Jersey doesn’t require reliance, only a
causal nexus between the concealment of material facts and loss. The NJCFA is intended to “promote the
disclosure of relevant information to enable the consumer to make intelligent
decisions,” so “[a] practice can be unlawful even if no person was in fact
misled or deceived thereby.” There was at least a thread of plausibility to the
allegations at the motion to dismiss stage.
Turning to the allegations of deceptive omissions, a
plaintiff must show knowing concealment of a material fact with the intent that
the plaintiff rely on the concealment.
Knowledge can be alleged generally under Rule 9(b). The court found that the alleged omissions
“concerning [Widener]’s reputation with potential employers ... concerning the
value of a [Widener] degree ... concerning the rate at which recent graduates
can obtain gainful employment in their chosen field and [c]ausing students to
pay inflated tuition based on ... omissions, including, specifically that
approximately 90–95 percent of [Widener] graduates secure gainful employment” were
plausibly material. What made the posted
employment rate misleading was the failure to disclose that the rate referred
to all types of employment, and that it was allegedly inflated by selectively
disregarding data. This was enough to plead a knowing omission under the NJCFA.
As for ascertainable loss, all that is required is an
estimate calculated with a reasonable degree of certainty. Plaintiffs alleged loss representing the
difference between the inflated tuition they paid and the true value of a
Widener degree, since they alleged that they wouldn’t have paid the same amount
if they’d been aware of the true job placement rate and salary statistics. This was enough.
The required causal nexus means proximate cause, though
plaintiffs don’t need to prove that the defendant’s conduct was the sole cause
of damages. Widener argued that job
searches are subjective, meaning that there was no causal nexus to the
damage. But the claimed nexus was
between the allegedly misleading statements and the purchase of legal education
from Widener. The plaintiffs argued that they wouldn’t have paid over
$30,000/year in tuition if they’d known that only 56% of graduates had jobs
that require or use a law degree, and that was enough to plead a claim given
the broad remedial purposes of the NJCFA.
The Delaware CFA claims were essentially identical, so they
survived too.
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