US News rating was mere opinion except as to school that intentionally submitted bad information to it

Favell v. Univ. of Southern Cal., 2024 WL 751006, No. CV 23-3389-GW-MARx (C.D. Cal. Jan. 23, 2024)

Plaintiffs alleged that defendants conspired to inflate the US News ranking of USC Rossier School of Education by submitting inaccurate or incomplete data to US News and market the resulting ranking to the public. USC had a business relationship with 2U, an education technology startup, to develop an online Master of Arts in Teaching program. This was the first of USC Rossier’s online degree programs and went live in June 2009; 2U received an undisclosed percentage of the tuition revenue.

US News calculates its education school rankings using eleven criteria, including “student selectivity,” which accounts for 18% of the school’s total score and is comprised of three objective sources of admittance data: (1) the school’s doctoral acceptance rate (6%); (2) mean GRE quantitative scores (6%); and (3) mean GRE verbal scores (6%).

During the relevant period—through 2021—US News didn’t distinguish between in-person and online programs. However, USC submitted student selectivity data only for USC Rossier’s highly selective, in-person Ph.D. program, but not from its less-competitive EdD program (which was offered online after 2015). From the 2009 rankings to the 2010 rankings, USC Rossier’s reported acceptance rate dropped 40 percentage points (from 50.7% to 10.5%), and its ranking rose 16 places (from #38 to #22). US News began publishing a specialty ranking of online master’s degrees in education in 2013, when USC Rosier’s online Master of Arts in Teaching program ranked #44. USC didn’t appear on the list after that.

Defendants allegedly heavily marketed USC Rossier’s rapidly rising ranking to the public to boost enrollment in the online programs. USC allegedly orchestrated this scheme through its submission of false/incomplete data, and then advertised the resulting rankings knowing that they were misleading. 2U allegedly helped “push the rankings out on a much broader scale,” and knew or should have known that the rankings were fraudulently procured. For example, 2U engaged in online advertising to promote USC Rossier’s ranking; it spent more than half of its revenue on program sales and marketing. USC likewise regularly touted USC Rossier’s ranking (and that USC Rossier was “top-ranked”) in press releases, on social media, on the Rossier Website, and in other promotional materials.

Fortunately for 2U, the court thought it was accused only of puffing. The court considered two kinds of statements: (1) statements that USC Rossier was “top-ranked,” and (2) statements which included the specific numerical ranking assigned by US News.

The first category was “textbook puffery.” A claim that a school is “top-ranked” is both “vague [and] highly subjective” and lacks “the kind of detailed or specific factual assertions that are necessary to” test the truth of the claim.

Some ads included a specific numerical US News ranking. For example, USC published a “News Alert” on the Rossier Website celebrating the fact that it “ha[d] just been ranked 22nd in U.S. News and World Report’s 2010 edition of America’s Best Graduate Schools.” On an earlier motion to dismiss, the court had found that this was potentially actionable because the allegations

do not target US News’ selection or weighing of the objective criteria which determine the rankings.... Instead, Plaintiffs claim that Defendants knowingly reported false data to US News. Those underlying data are entirely falsifiable, and the weight that they were to be assigned by US News was predetermined. The fact that such data were considered alongside other subjective considerations to produce a final ranking does not render USC’s promotion of the allegedly fraudulently obtained ranking non-actionable. As Plaintiffs note, if the law were otherwise, “any business that submits false information to get a certification ... could not be held liable because each of those certifications would have at their core a methodology based on an opinion as to which data points should be considered.”

2U argued that, since it didn’t knowingly provide false data, this reasoning didn’t apply to it. Plaintiffs responded that they still weren’t targeting US News’ choices about how to rank, only the underlying false data, and that false advertising is strict liability. The court, I think wrongly, agreed with 2U: to proceed, plaintiffs needed to allege that 2U knew of that falsity or lacked a good faith belief in the accuracy of the rankings. And since rankings and ratings are “almost universally” treated as statements of opinion, “even if [one] could draw any fact-based inferences from [the] rating, such inferences could not be proven false because of the inherently subjective nature of [the] ratings calculation” as long as the party expressing the opinion honestly entertained it and didn’t have superior knowledge or special information.

Although US News is the one with the opinion here, a reasonable consumer could construe defendants’ affirmation of that opinion as implying that the defendants “held some good faith belief in its accuracy (i.e., that it was not fraudulently obtained).” Plaintiffs plausibly pled lack of good faith as to USC, but not as to 2U; alleged negligence was insufficient.

Although there’s no mens rea requirement in California’s consumer protection statutes, that goes to a separate issue:

Although Plaintiffs are correct that the negligent dissemination of a false statement of fact would suffice, Plaintiffs do not allege that 2U’s advertisements were literally false, nor could they. The question here, therefore, is whether 2U’s advertisements are even actionable in the first instance – i.e., are they misleading because they imply any false assertions upon which a reasonable consumer could rely? In most instances involving statements of opinion, the answer to that question will be “no.” In some cases, however, a statement of opinion may “reasonably ‘be interpreted ... as an implied statement’ that the speaker ‘knows facts sufficient to justify him in forming’ the opinion, or that he at least knows no facts ‘incompatible with [the] opinion.’ ” If and only if that implied statement is false – and the speaker does know of undisclosed fact incompatible with the opinion – is the opinion is misleading. In other words, requiring that Plaintiffs allege knowledge of the falsity underlying US News’ opinions in not contradicted by the absence of a mens rea requirement under the statutes ….

Nor did plaintiffs successfully plead joint/secondary liability. Liability under the UCL and CLRA “cannot be predicated on vicarious liability.” It “must be based on [defendant’s] personal ‘participation in the unlawful practices’ and ‘unbridled control’ over the practices that are found to violate [the UCL] or [FAL].” In making this determination, courts have focused on various factors such as whether the defendant: (1) “issued [its] own advertisements” or merely repeated the deceptive statements of another, (2) “controlled the language” or “reviewed or monitored the representations” made by another, or (3) had notice of the violating conduct.

The service agreement between the parties wasn’t enough to make 2U liable. Under the agreement, “USC was required to (1) market the online programs ‘in a manner comparable to’ the in-person programs; (2) ‘consult with [2U] in the development of additional Promotional Strategies’; and (3) provide 2U ‘with access to information pertaining to both classroom-based and online students’ admissions, performance, and post-graduation outcomes.’ ” Although plaintiffs alleged that 2U bought ads, they didn’t allege that 2U actually issued or authored any of the advertisements upon which they relied. The mere fact that under the agreement, USC was required to market the online programs “in a manner comparable to” the in-person programs and “consult with [2U] in the development of additional Promotional Strategies” didn’t show that 2U controlled the statements at issue here. “USC maintained the main Rossier website” where the allegedly misleading statements were posted, and any marketing materials 2U made were “subject to USC’s written approval prior to any use.”