Colleges & Universities Hit With Refund Class Actions While Struggling With COVID-19 Effects

Class action lawsuits seeking tuition refunds are being filed nationwide against colleges and universities, which are already dealing with revenue loss from closing down their campuses during the coronavirus (COVID-19) pandemic. Here is an overview of the current litigation landscape, and what colleges and universities should know in terms of potential defenses and minimizing litigation risk.

College and University Refund Litigation

As colleges and universities have been forced to close their campuses due to the global COVID-19 pandemic in order to protect the health of their students, faculty, and staff, they have had to adapt rapidly to the “new normal” by shifting classes to an online format as well as offering financial and other types of support remotely to their students. As a result, many colleges and universities are facing significant losses in revenue on multiple fronts.

Nevertheless, as of May 15, 2020, over 75 class action lawsuits seeking refund of tuition, student fees, and room and board have been filed against colleges and universities nationwide, mostly in federal court. The pace of filings shows no sign of slowing down. Defendants include large research universities and small liberal arts colleges, and both public and private institutions.

While the allegations differ somewhat among the various complaints, they generally allege that students have been deprived of the benefits of in-person classes and on-campus services and activities that are no longer available, but they have not been given an appropriate refund of tuition and other fees. The complaints also allege that the solution offered by the institutions, namely online classes and a partial refund of certain fees, is inadequate and does not compensate for the loss of the in-person education and college experience for which they paid. The complaints generally include claims for breach of contract, unjust enrichment, and, in some cases, conversion, and seek refunds for some combination of tuition, room and board, meals, and fees for campus services.

The putative classes also differ by complaint, but they generally include (1) all students enrolled during the Spring quarter or semester that paid tuition and fees; (2) all persons who paid fees for or on behalf of themselves or others who enrolled in classes; or (3) various discrete classes including tuition classes, on-campus housing classes, meals classes, and fees classes.

Plaintiffs are represented by a variety of law firms nationwide, including more established plaintiff’s law firms and smaller and local firms that are relatively new to class action litigation.

College and University Policies Regarding Refunds

COVID-19 refund policies vary substantially across colleges and universities. While many institutions have offered partial refunds for room and board for the Spring term, the vast majority of schools have not offered tuition refunds, with the exception of some institutions that use the quarter system that have allowed students extra time to withdraw for Spring Quarter in exchange for a refund of tuition. In addition, some schools have announced tuition freezes for the Fall 2020 term, while others have offered discounts or other incentives for the Summer and/or Fall 2020 term.

Potential Defenses to Claims

Plaintiffs’ claims in the refund class actions are susceptible to attack on a variety of bases both at the motion to dismiss stage as well as at the class certification stage.

• As an overarching defense, the crux of many, if not all, of the lawsuits is essentially a claim for “educational malpractice,” which in many states is barred for public policy reasons. To the extent a plaintiff alleges that the quality of the education he or she is receiving has decreased – as opposed to a breach of a specific promise such as a decrease in the number of hours of instruction or an increased ratio of students to professors – such claims are susceptible to an early motion to dismiss.
• Almost all plaintiffs have failed to attach or sufficiently describe the terms of the alleged contract or agreement between the institution and the student or the student’s parents. In some jurisdictions like New York, courts will look more rigorously at whether a plaintiff has sufficiently alleged the terms of a purportedly breached contract with a college or university. While such a defect may be simple to remedy in an amended complaint, a motion to dismiss will force the plaintiffs to be specific about the contractual promises they allege the colleges and universities made. This will be of particular importance for the colleges and universities that have used specific language in contracts with students that limits or precludes refunds for tuition and/or fees. In addition, unjust enrichment and conversion claims may be subject to attack on the ground that the plaintiffs allege that a contract governs the parties’ relationship.
• Plaintiffs’ claims for refund of fees may be incorrect as a factual matter, as some colleges and universities’ refund policies make clear that students will be refunded fees that correspond to services that are no longer offered, but will not be refunded for services that are still available to students.
• Some claims for conversion may also be susceptible to attack, depending upon applicable law, because they do not allege a pre-litigation demand to the college or university for the refunds they seek. In addition, under the law of some states, a generalized claim for money is not actionable as conversion.
• Once identified, many of the contracts at issue may contain force majeure clauses, which may allow the college or university (if it chooses) to avoid or defer performing some or all of its obligations under the contract on the ground that the COVID-19 pandemic, and related government shutdown orders, make it impossible for it to fulfill its contractual obligations. To the extent a college or university seeks to invoke a force majeure clause, consideration will need to be given to the specific language of the clause and any choice of law provisions in the contract; jurisdictions may differ in how they interpret these provisions.
• Even without a force majeure clause, performance of a contract may be excused under common law principles. For example, the contractual defense of impossibility may apply where it is truly impossible for the college or university to perform its obligations due to circumstances beyond that party’s control. And, under the doctrine of frustration of purpose, a college or university’s performance may be excused where the essential purpose of the contract has been defeated by unforeseeable circumstances that arose after formation of the agreement, such as the COVID-19 pandemic and resultant government orders to shut down campuses.
• Some claims alleged against state-funded universities may be subject to attack on the basis of sovereign immunity.

Class Certification

In any class action where a motion to dismiss is not successful, the major fight is over whether a class should be certified. There should be opportunities to argue that a plaintiff’s claims are not typical of those of other class members and that individual issues predominate over common questions. For example, the question of whether or not online instruction is less valuable than in-person instruction likely depends heavily on the student and the particular course of study. Likewise, what services remain available to a particular student, whether the student incurred any harm from the absence of particular services, is the identity of the actual payor of the challenged fee, and the amount of any damages likely varies from student to student. Choice of law issues, such as what law applies to each claim, may create further manageability problems for any proposed multistate class. These individualized issues could make it difficult to certify a class action.

In addition, plaintiffs may face an uphill battle to establish that the putative class(es) are ascertainable, depending on how the class is defined and what records exist to identify class members.

Strategies for Minimizing the Risk of Litigation

Any defense of these class action lawsuits must take into consideration the fact that the institution’s reputation in the community, with alumni, and with current students is at stake. All colleges and universities understandably want to maintain positive, lifelong relationships with current students and alumni. While the class actions already filed are vulnerable to multiple defenses, in order to head off future litigation or to resolve current litigation amicably, colleges and universities may want to consider proactively offering more comprehensive refunds to students, if they have not already done so. For example, an institution may want to consider partially refunding tuition based on the difference in the traditional cost of in-person versus online education, refunds for fees for services no longer available to students due to campus closures, and prorated refunds for room and board.

There are other proactive steps that colleges and universities may consider to limit future similar litigation, particularly in the event that some instruction must go forward remotely for future terms. Options might include revisiting the contractual relationship between the student and institutions and the particular provisions of those contracts and related policies to include, for example, enhanced force majeure and alternative dispute resolution provisions.

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Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Chicago
Deborah Davidson
Scott Schutte

Houston
Scott McBride

Miami
Brian Ercole

New York
Christopher Dlutowski
Martha Stolley
Brian Herman

Philadelphia
Ezra Church
Klair Fitzpatrick
Kathleen A. Keyser
Ali Kliment

San Francisco
Molly Moriarty Lane
Sujal Shah

Washington, DC
Gregory L. Needles
Brad Nes
Robert Smyth
Celia Roady