reliance on general employment statistics unreasonable as a matter of law

Macdonald v. Thomas M. Cooley Law School, Nos. 12-2066/2130 (6^th Cir. July 30, 2013)

The court of appeals affirmed the district court’s grant of Cooley’s motion to dismiss consumer protection claims by twelve graduates alleging that the school disseminated false employment statistics which misled them into deciding to attend Cooley.

Facts to set the stage: Cooley enrolls more law students than any other law school in the country, about 4000 in 2010-2011, 82% of them part-time.  It costs an estimated $52,000 per year in total.  Its dean is one of the highest-paid law school deans in the country, and it also continued to pay its former dean and founder roughly $370,000 per year.  US News says it has the lowest admissions standards of any accredited/provisionally accredited law school in the country: 83% of all applicants, 15% more than the second least selective school.  Mean LSATs and undergraduate GPAs for incoming students were also the lowest in that set.  And it has low retention rates: in 2008, about 32% of the students who enrolled failed to enter their second year; 10% of second-year students failed to enter their third year; 3% of third-year students failed or dropped out.  Graduates have an average of over $100,000 in student loan debt.

Plaintiffs alleged that they enrolled at and continued at Cooley to better themselves through the attainment of full-time legal employment, relying on the employment and salary report Cooley provided on its website.  The reports purported to show, for a given class year, the percentage of graduates employed, the average starting salary of graduates, the percentages of graduates employed in various sectors—private practice, government, public interest, academic, judicial clerkship, and business—and the average starting salary in each sector.  Cooley produced these reports by sending surveys to graduates; for example, 83% of 2010 graduates provided the basis for the 2010 report.  Cooley didn’t audit or verify the responses.

Plaintiffs identified two misrepresentations on which they relied: (1) The percentage of graduates employed within 9 months of graduation, in 2010 listed as 50% private practice, 15% government, 2% public interest, 3% academic, 3% judicial clerkship, and 18% business.  (2) The average starting salary, listed for all graduates in 2010 as $54,796.  However, plaintiffs alleged that their actual employment prospects were quite different; most had difficulty finding full-time paying jobs as lawyers.  They weren’t alone; twice as many people passed the bar as there were job openings.  Plaintiffs alleged that Cooley violated Michigan’s Consumer Protection Act and engaged in common-law fraud/negligent misrepresentation.

The court of appeals first agreed that the CPA didn’t apply to the purchase of legal education to obtain employment.  The CPA doesn’t cover purchases for business or commercial purposes.  The Michigan Supreme Court has held that obtaining medical records for litigation purposes isn’t “primarily for personal, family, or household use,” as required by the CPA. Slobin v. Henry Ford Health Care, 666 N.W.2d 632 (Mich. 2003) (per curiam). So too here, as the complaint alleged that the graduates attended law school in order to obtain full-time legal employment.

The court of appeals turned to the fraudulent misrepresentation claim, starting with the percentage of graduates employed statistic (76% in 2010). Plaintiffs alleged that a reasonable consumer would interpret this as full-time, permanent JD-required or –preferred jobs.  But in fact the statistics included any type of employment, including working as a barista at Starbucks (“business”).  The court of appeals agreed with the district court that the percentage employed statistic was literally true, and that reliance on the statistic to include only full-time, permanent legal jobs was unreasonable.  A subjective misunderstanding of information that isn’t objectively false or misleading doesn’t establish fraudulent misrepresentation.  Plaintiffs argued that this was a factual issue unsuited for a motion to dismiss, but reliance can be unreasonable as a matter of law based on a complaint’s allegations.  Here, the reliance on the statistic to mean “employed in full-time legal positions” wasn’t reasonable because, as the district court wrote, “basic deductive reasoning informs a reasonable person that the employment statistic includes all employed graduates, not just those who obtained or started full-time legal positions.”

Separately, there could be no claim based on the average starting salary statistic because plaintiffs’ reliance on it was unreasonable.  On its face, the phrase “average starting salary for all graduates” (reported as $54,796 in 2010) means just that—all graduates, not just those who responded to the survey.  The title of the document, “Employment Report and Salary Survey,” though, shows that the statistic wasn’t based on the total number of graduates but rather the graduates with known employment status who chose to include salary information.  Thus, this statement was objectively untrue. 

But reliance on it was still unreasonable because another of Cooley’s statements directly contradicted it, just as it’s unreasonable to rely on an oral statement contradicting a contract term when the contract has an integration clause.  (This is why consumer protection statutes needed to change the common law in this respect: it’s ordinary human behavior to believe the human being in front of you, telling you to ignore what the contract says.)  Here, the “all graduates” statement was expressly contradicted by other statements in the same report showing that it was based on data from those who completed the surveys—“[n]umber of graduates with employment status known” was less than the total number of graduates, and the very title of the report showed that it was a survey.

The fraudulent concealment claim also failed.  Plaintiffs alleged that Cooley failed to disclose material facts related to its statistics: e.g., what percentage of graduates were employed in either part-time or temporary positions, or whether the jobs required law degrees. But fraudulent concealment requires more than nondisclosure; it requires a legal duty to disclose. This is most common when the plaintiff asks questions and the defendant’s responses are truthful in themselves but incomplete and omit material information.  But the plaintiffs didn’t allege that they ever asked Cooley about these claims or requested additional information.

As for negligent misrepresentation, plaintiffs failed to allege justifiable or reasonable reliance.

Cooley’s cross-appeal, which raised various procedural/preemption issues, was also rejected.