First Circuit Holds That College Does Not Owe Fiduciary Duties to Students, Rejects Data Privacy Class Action Claims
On March 25, 2020, the First Circuit Court of Appeals in Squeri v. Mount Ida College upheld the lower court’s dismissal of prospective and former Mount Ida College students’ claims against the college and its Board of Trustees arising from the college’s abrupt closure and sale of its campus to UMass Amherst in May 2018. No. 19-1624, 2020 WL 1445400 (1st Cir. Mar. 25, 2020). On appeal, the student plaintiffs urged the First Circuit to dramatically expand students’ ability to sue colleges under Massachusetts law, opening the door to new litigation risks for academic institutions. The First Circuit declined this invitation, noting that Massachusetts law does not allow for the broader theories of liability they sought to assert.
The students’ allegations against Mount Ida and the lower court’s dismissal of their claims
The students’ class action claims arose out of the college’s abrupt and permanent closure after six weeks’ notice to students that they would need to continue their studies at other institutions. Students reported obstacles in transferring to other institutions, completing their degrees, maintaining their educational privacy, and securing financial aid. The students alleged that the defendants knew that Mt. Ida was on the brink of insolvency, but nonetheless assured students that the college was financially stable. In addition, the students claimed that Mount Ida violated their privacy rights by disclosing their private financial and academic information to UMass Amherst and UMass Dartmouth without their consent. They also alleged that the college’s conduct constituted a breach of fiduciary duty, a violation of privacy, fraud, negligent misrepresentation, fraud in the inducement, breach of contract, and a violation of Massachusetts’ consumer protection statute (Massachusetts General Laws, Chapter 93A).
As we previously reported, on May 24, 2019 the District of Massachusetts dismissed the class action complaint, concluding that the plaintiffs failed to state a claim. No. CV 18-12438-RGS, 2019 WL 2249722 (D. Mass. May 24, 2019).
The First Circuit’s analysis upholding dismissal of all the students’ claims
On appeal, the students argued that the lower court erred in finding that the relationship between students and colleges does not give rise to fiduciary duties as a matter of law, and urged the First Circuit to hold that such duties do in fact exist. The First Circuit declined to do so, explaining: “Massachusetts law firmly establishes that there is no such fiduciary duty between Mount Ida’s officers or trustees and Mount Ida students on the claims here.” 2020 WL 1445400, at *6 (citing Morris v. Brandeis Univ., 804 N.E.2d 961, 961 (Mass. App. Ct. 2004) (unpublished). Instead, Mount Ida’s trustees and officers owed a duty only to the institution, an obligation created by statute that common law courts are not free to expand. As a result, their “duty is not owed to students,” whose interests, in that case, were “in direct conflict with those of the institution.” Id. The First Circuit rejected the students’ request to “’expand the law’ and establish a fiduciary duty between a college and its students,” which is instead a request that should be directed to the Massachusetts legislature. Id.
The First Circuit likewise rejected the plaintiff students’ efforts to expand the scope of privacy protections under Massachusetts law. The students argued on appeal that the lower court erred in finding Mount Ida had a legitimate purpose for its disclosures to UMass Amherst and UMass Dartmouth. Citing longstanding precedent, the First Circuit explained that Massachusetts law recognizes an actionable invasion of privacy only if the invasion is “both unreasonable and substantial or serious,” and that no cause of action will lie if the act “had a legitimate business purpose.” 2020 WL 1445400, at *8 (citing Ortiz v. Examworks, Inc., 26 N.E.3d 165, 173-74 (Mass. 2015). Here, the First Circuit observed that “plaintiffs’ own allegations establish there was a legitimate business purpose”: the transfer of financial and academic information that was specifically authorized under Massachusetts law permitting a closing institution to preserve student records and facilitate enrollment at other institutions. The First Circuit also rejected the argument that only one campus in the University of Massachusetts system could legitimately receive the student records, noting that the campuses are part of the same state system.
With regard to the plaintiff students’ other claims, the First Circuit echoed the reasoning of the lower court that their pleading identified no demonstrably false statement by defendants (2020 WL 1445400, at *9) and that the alleged contract had “insufficient specificity” to bind defendants (id., at *10). The court also held that the district court correctly dismissed the Chapter 93A claim because “what the plaintiffs allege to be actionable were all activities taken in furtherance of Mount Ida’s charitable mission of education,” and therefore did not involve “trade or commerce” (id., at *12). Importantly, and in closing, the First Circuit observed that there is “reason to conclude that Massachusetts has not authorized a private right of action under ch. 93A for these types of actions by a nonprofit school” because they are separately regulated by the Massachusetts Board of Higher Education. 2020 WL 1445400, at *12.
The decision provides guidance about college’s obligations to students, limits on data privacy claims, and college closures amid financial instability
In its broadest application, Squeri v. Mount Ida College points out critical limitations on plaintiffs’ ability to bring data privacy class actions based on Massachusetts’ invasion of privacy and consumer protection statutes. Within higher education, the decision is critical reading for the leaders of institutions in Massachusetts. The First Circuit’s analysis provides important clarity on whether academic institutions owe students fiduciary duties, what kind of contractual obligations are created by acceptance and enrollment, and whether a disclosure among institutions of sensitive personal, financial and academic information without student consent can give rise to liability. In all respects, the First Circuit refused to expand the kinds of claims that students can bring against academic institutions, noting that Massachusetts law does not establish a fiduciary duty between colleges or their trustees and students, that enrollment creates only limited obligations, and that the failure to obtain student consent for a disclosure is not enough to establish an actionable privacy violation if there is a legitimate purpose sanctioned by law. The First Circuit’s decision gives direction at a critical time when academic institutions may be experiencing unprecedented financial distress and structural change. The decision highlights the importance of seeking experienced advice about litigation risks, reporting and notification obligations, and obligations to stakeholders when making decisions about an institution’s future.