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.
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